City giant to slash pay and bonuses

A chill spread through the City today as Goldman Sachs warned of huge cuts in pay and bonuses.

The world's most successful investment bank, famed for employing the best-paid staff in London and New York, said its bonus pot will be more than a third smaller than last year.

Its admission sends a stark message that the era of ever increasing year-end pay-outs for City workers is over. Last year the average Goldman employee got just over £300,000. This could be cut to around £200,000 if global market conditions do not improve. Many banks, including the stricken Bear Stearns, UBS and Citibank, could be forced into massive cutbacks in pay that would have huge implications for the London economy and property markets.

City commentators said that if Goldman Sachs - which today revealed that profits halved in the first half of the year - is feeling the pain, then other weaker rivals would be forced into severe cutbacks in pay and jobs just to survive.

At least 10,000 City jobs are expected to be cut this year although this number could start to look like a huge underestimate as the credit crisis spirals out of control.

The news on City bonuses comes as the Cabinet was briefed on both the economic crisis and a dramatic plunge in Labour's ratings at a special meeting today.

Amid voter dismay at the market turmoil, the Government's lead on economic competence was wiped out and Labour slumped 13 points behind the Conservatives overall.

Following a day of panic yesterday, which saw the FTSE 100 crash more than 200 points, Chancellor Alistair Darling told the Cabinet he was confident that the British economy would ride out the financial storms.

Downing Street said Mr Darling told colleagues that the Treasury, the Bank of England and the Financial Services Authority were "doing all we can to maintain stability and growth in the face of continued global turbulence" and that the country was well-placed to bounce back. Government sources indicated there would be no attempt by the Cabinet to intervene in decisions being taken by the regulatory authorities in an attempt to settle the City.

Ministers believe the deepening economic crisis, which has been exacerbated by the collapse and lastminute rescue of American investment bank Bear Stearns, is behind their plummeting ratings.

The Cabinet's 20-minute discussion on the economy was followed by a lengthy political session, focused on three recent polls that show a slump in the Government's popularity.

An ICM survey for the Guardian today showed Labour down five points to 29 per cent, the Conservatives up five to 42, and the Liberal Democrats unchanged on 21.

That is the worst showing for Labour since Margaret Thatcher won the 1987 election. It has caused consternation among ministers who fear the plunging economy will snuff out any hope of an early fightback in the polls by Gordon Brown.

In January, ICM found Labour had a seven-point lead as the best party to run the economy but that has turned into a Conservative lead.

Asked who they most trusted to run the economy, four out of 10 voters chose David Cameron and shadow chancellor George Osborne in the latest survey. Only 32 per cent opted for Mr Brown and Mr Darling.

The Prime Minister today continued to urge calm in what he described as "global financial turbulence" caused by the fall-out from American sub-prime lending.

But analysts have warned that Bear Stearns may not be the last bank to collapse.

Claire Collingwood, of CMC Markets, said: "We are still looking at the other investment banks in the wake of Bear Stearns and there are worries that something similar could happen to one of them. The market is very cautious."

If the ICM poll results are repeated at a general election, Mr Cameron could win power with an overall majority of more than 100.

The Tory leader yesterday argued the country had been left more vulnerable to the economic crisis than others because Labour had overspent.