Inflation-busting pay rises for assistants at magic circle firm Allen & Overy (A&O) could set off a salary war among City firms.

Lawyers with between one and seven or more years of post qualification experience (PQE) will enjoy increases in their basic pay of between 5-8% from the beginning of next month.


This means that lawyers at the City giant with two years' PQE, who currently earn £59,000, will see their basic pay increased to £62,000.


However, this will then rise to £71,000 in May 2006. Assuming an average payment of 12% under A&O's bonus scheme next July, a lawyer with two years' PQE could receive a total package of close to £80,000.


A spokesman for the City firm said: 'We have got to be competitive, although it is unlikely that we will ever pay as much as the investment banks. Experience shows that people do not make a judgement on salary alone - it is not a case of throwing money at them. Quality of work is also something that lawyers want to be involved in.'