There may be little of the City's infamous bonus culture left to criticise after this year's financial debacle, a leading economics research firm said.

Bonuses, which are under extraordinary scrutiny from politicians looking for a credit-crunch scapegoat, will more than halve this year and are unlikely to return to their previous heights, according to the Centre for Economics and Business Research (CEBR).

The total bonus payout this year will slump by more than 60 per cent from its peak to £3.6 billion and will drop again next year, the CEBR predicted. It reckoned that financial services firms would pay £2.8 billion to their best-performing staff next year, a fall of 70 per cent from 2006, a record year in which £8.8billion was paid. The drop is likely to exacerbate falling house prices in the capital and hit spending on luxury items.

As well as sliding profits and turbulent markets, the CEBR attributed pressure from shareholders and regulators, including the Financial Services Authority, to the drop.

Expected job losses in the City - predicted to top 70,000 this year - will also relieve the pressure on investment banks to offer big rewards to keep their best earners.

Last month, Lord Turner of Ecchinswell, the FSA's new chairman, embarked on a review of bonus culture as part of a push to align the long-term interests of bankers with their employers.

Richard Snook, a senior economist at the CEBR, said: “There is a new culture of bonuses around. The million pound-plus bonuses are going to be few and far between. And it is not just for this year - even in three years' time, we see the City bonus pool in London running at about half the size of the peak levels paid a year ago.”

City bonuses reached their record in 2006 as investment bankers in London rode a wave of mergers and acquisitions and a glut of private equity buyers helped to generate record fees for company advisers. The strength of the City of London as a world financial services centre meant that financial services companies paid out £59 billion in bonuses in the ten years from 1997 to last year, according to CEBR calculations.

However, deal activity has dried up and campaigners have taken up the cudgel against what they see as a culture of greed and excess. Gordon Brown has already signalled his willingness to act against excessive bonuses. His £500billion rescue package was also tied in part to limits on boardroom pay for the companies concerned.

The CEBR estimated that half of bankers' annual awards are ploughed into property and thus weaker bonuses will add to weakness in the housing market. There will also be a disproportionate effect on luxury goods. It noted that new registrations for Porsche and Aston Martin cars are down by 27 per cent and 25 per cent, respectively, year on year.

“This is not the end of the bonus system,” Mr Snook said, “but ... it is unlikely that we will see bonuses paid on the scale of the past four years in the foreseeable future.”

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