On the one hand, record personal debt. On the other, record City bonuses...
What a contradictory country we live in!
Last week we learned that the UK's personal debt pile has now overtaken annual output, and that record numbers of Britons are increasingly troubled by rising loan repayments. Bankruptcies are at all-time highs and house repossessions are soaring.
Yet now we hear that bonuses paid this year in the City of London have leaped 30%, twice as fast as in 2006, to a highest ever £14bn.
And demand for top end property, luxury cars and even yachts has rocketed.
So what is going on?
Britain has become a country sharply divided between a few who have and a great many who don't.
With last year's ongoing mergers and acquisitions bonanza, including a private equity buyout boom, most of that £14bn will have been earned in spring bonuses by a relatively few City hotshots. Some hedge fund operators are rumoured to have received individual amounts in excess of £100m.
Prime London property prices have risen 30% in the past year while prices in almost all other regions stagnated, according to agents Savills. Farmland prices were lifted 20% last year as the big earners bought up swathes of the countryside. The Guardian reports that Rolls-Royce waiting lists are now up to five years and that ‘super-yacht' building has been flourishing.
Things may be about to change
Despite stringent efforts by a posse of financial glitterati to talk interest rates down, the recent market crisis has already inflicted a lot of damage on a number of big-hitting market players and to ongoing bonus prospects.
Slashing bonuses, which account for a huge percentage of total costs, is the first step that banks and investment firms take when times get tougher. Recent comments from Swiss bank UBS, a major City employer, that it would report a very weak third-quarter trading result if market volatility persisted and that its second-half profits would fall, have set the scene.
City workers now face bonus cuts of about 10 to 20% even if financial markets level off, accordingly to latest forecasts from headhunters. Workers in badly hit City sectors such as credit derivatives, debt issuance, prime brokerage and mergers and acquisitions could face much bigger cuts. The longer the credit crunch carries on, bigger will be the reductions.
Extreme examples of the fallout have already been noted. It was recently reported that following large losses, New York hedge fund manager John Devaney had been forced to put his £5.5m Sikorsky helicopter, 142ft yacht and Aspen home up for sale.
But don't assume that none of this will have any effect on you.
Slowdown signs are finally appearing in the upper reaches of London's housing market and the knock- on effect is likely to prove more widespread. The financial services industry and allied services employ about 340,000 people and drive economic growth particularly in the South East of England, as well as contributing chunky tax revenues.
If the City seriously tightens its bonus belt, inevitably there will be less work for gardeners in Guildford, lower retail spend in Sevenoaks and fewer Porsche sales in Petersfield.
A great many people who think that the City operates in a parallel universe would find out how much more closely interconnected they actually are.
And that disparity between ‘haves' and ‘have nots' may, at least temporarily, get slightly smaller.
More: Tears For Fears | Hedge Fund Sell Outs Threaten Markets
