Pay for finance workers has rocketed during the pandemic and is likely to drive a larger wedge between rich and poor as the cost of living crisis deepens. That’s according to analysis by the Institute for Fiscal Studies (IFS) that reveals bumper earnings growth in the sector compared to other industries.
The rapid rise is the most significant since the 2008 financial crisis, says the group – and is reversing the pre-pandemic trend of falling income inequality. Average (mean) monthly pay for UK employees working in finance and insurance increased by 31% from £5,813 in December 2019 to £7,626 in February this year, according to payroll data published by the Office for National Statistics.
That was more than double the 14% rise over the period across all industries, from £2,514 to £2,864. The IFS said growth in average pay among finance sector workers had been broadly similar to that seen across the wider economy in the previous five years.
The research found the rise could be partly explained by a boost to bonuses for finance workers, which are typically paid in January and February. However, the data suggests that the gap had already begun widening before that, in autumn 2021.
The accelerating growth in pay among high-earning finance workers has contributed to worsening pay inequality, according to the IFS. Between December 2019 and February this year, pay among the top 1% of earners across all industries rose by 14%, faster than other groups. This reversed the trend seen over the same period to February 2020, when lower-earners saw the biggest growth.
Xiaowei Xu, senior research economist at the IFS, said: "Earnings inequality had been falling for some years before the pandemic hit, with low-paid workers seeing the strongest pay growth. The recent surge in pay among financial sector employees – particularly among top earners in the sector – has led to a reversal of this trend.
“This appears to be the first time since the financial crisis that finance sector earnings have taken off like this and it remains to be seen whether this is a one-off spike or a new trend."
A comparison of average (mean) and median pay in finance shows that recent earnings growth is likely to be driven by those on higher pay packets within the sector. The median is the middle of a range of values and is less likely to be skewed by a small number of people on exceptionally high salaries than the mean.
The growth in mean pay between December 2019 and February 2022 was higher than the median across most industries, suggesting high-earners saw faster pay growth. But the gap was wider than most in the finance and insurance sector, with the increase in mean earnings (31%) two-thirds higher than the rise in median pay (19%).
The IFS said that government support during the pandemic – including the £20-a-week uplift to Universal Credit and the furlough scheme – had led to a reduction in household income inequality. But it added that since April 2021, a combination of lower pay growth for low-earners, below-inflation benefit rises and the withdrawal of the £20 uplift means that the prospects for low-income households are now much “bleaker”.
