Freelance IT contractors working in the City have reached the psychologically significant £50 per hour pay barrier for the first time since the September 11 2001 terrorist attacks, reveals research by iProfileStats/Association of Technology Staffing Companies (ATSCo).

The research is evidence of the strong recovery in City IT departments over the last few years as M&A-related spending, which slumped after the dot com boom, has been replaced by a massive increase in IT expenditure on security and compliance work.

According to the research, City IT contractors were last paid £50 per hour in June 2001, just three months before the stock market plunge precipitated by the September 11 2001 terrorist attacks in New York.

Ann Swain, Chief Executive, ATSCo, said: "Pay for City IT contractors has reached a psychologically significant milestone. 2006 could be the year when the ghosts of the dot com era are finally laid to rest and IT pay in the City tops the £54 per hour record set during the height of the boom."

"Several years after the stock market and M&A boom of the late 90s ground to a halt, the financial services industry is increasing its spending on IT in areas such as security and compliance."

She adds: "Once again, IT is playing an increasingly central role in providing solutions to some of the key challenges faced by the UK's financial services industry."

At the peak of the dot com boom in December 2000 IT contractors working in the financial services sector earned a record £54 per hour on average. During 2002, as the market bottomed out, IT contractors in the City took home less than £35 per hour.

According to ATSCo, the prospect of continued pay rises in 2006 for IT professionals working in financial services is robust, with demand for IT staff continuing to rise after a year of bumper profits in the City.

Financial services firms spending more on IT security

ATSCo says that financial institutions spent heavily on IT security in 2005 and will continue to do so this year. Spending on security accounted for 13% of IT budgets last year, up from 11% in 2004.

Research by ATSCo also reveals that pay for IT security experts rose by 22% last year.

"As financial services companies step up spending on security to meet rising threat levels IT security skills are now attracting the kind of premiums reminiscent of Java programmers during the dot com boom," says Ann Swain.

A major security initiative currently being developed by banks is a new card reader that will authenticate online and telephone-based transactions. The system will require new chip-and-pin cards to be issued to customers in addition to changes to back-end systems.

Compliance still driving pay rises in City IT departments

ATSCo says that the impact of new regulatory regimes like Sarbanes-Oxley and Basel 2 on IT audit and controls has boosted demand for IT staff in UK financial services institutions.

Ann Swain says: "The financial reporting processes of most organisations are totally driven by IT systems and Sarbanes-Oxley has generated huge amounts of work as IT staff have worked to re-align systems. The Chief Information Officer's (CIO) role in signoff of financial data has changed almost beyond recognition in the last few years."

Likewise the Basel II capital risk-management accords impose stringent data management requirements on UK banks and financial institutions, the successful implementation of which will be hugely dependent on effective IT systems.

"The Basel II regime requires sophisticated risk models to be developed using data extending back many years, and the task for IT departments is huge. 2006 will be a year of frenetic activity as the 2007 deadline looms nearer," says Ann Swain.