Pay inequality in Britain's finance has widened as earnings in the sector increased sharply in recent months, a new study found.
Analysis from the Institute for Fiscal Studies (IFS) indicates finance workers' mean monthly pay was 31% higher in February than in December 2019 in cash terms, compared to 14% across all sectors. This implies a real increase of 23% and 7% respectively.
Finance accounts for nearly 30% of staff in the top 1% of earnings in the country. As such, the pay inflation has deepened overall earnings inequality, with the wage of the top 1% of all employees rising faster than the rest.
The IFS argued that this is in stark contrast to the trend seen between 2016 and 2020, when low-earners saw the biggest increases in pay.
The study highlighted bumper profits at some large banks, partly down to a surge in mergers and acquisitions over the pandemic, contributed to the sector's growth since 2019.
IFS economists found the increase in the median pay was much lower, suggesting that pay growth was concentrated among the highest earners in the sector.
"The latest data may partly capture a rise in bonuses, and therefore overstate the longer-term increase in pay, though the data suggests that there has also been an increase in regular salaries," the think tank said.
Bonuses in the finance industry are generally paid in January and February, so the latest data could partly capture a rise in bonuses. If so, the IFS anticipates average pay to drop in the coming months, meaning that the latest data would overstate the longer-term increase in pay.
Despite this, the gap between finance and other sectors started opening up in autumn last year, before bonus season, and the recent surge in pay far exceeds any seasonal trends that can be seen in previous years, it said.
Xiaowei Xu, a 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."
The Office for National Statistics' monthly wages and salaries survey also indicated a rapid pay growth in finance, showing an increase in mean pay of 15% over the same period in the finance and business services sector. This is a wider industry grouping that includes real estate and professional and administrative services, compared to 11% across all sectors.