x Abu Dhabi, UAETuesday 25 July 2017

French cash seeks UK pied-à-terre

François Hollande's plan to "bash the rich" in France by taxing income above €1m a year at 75 per cent represents a huge gamble. But it has his British counterpart, David Cameron, rubbing his hands as an inflow of Gallic money builds up.

People enjoy the warm sunshine in Paris. The French government plans to cap public sector bosses' pay at €450,000 a year, or no more than 20 times the lowest salary in the business. Fred Dufour / AFP
People enjoy the warm sunshine in Paris. The French government plans to cap public sector bosses' pay at €450,000 a year, or no more than 20 times the lowest salary in the business. Fred Dufour / AFP

The latest European Union summit on saving the euro got under way in Brussels yesterday

As it did so, the German chancellor Angela Merkel may well have reflected on how simpler life was before the election of François Hollande, France's socialist president.

With his predecessor, Nicolas Sarkozy, there had been shades of opinion on the best way forward. But Mr Sarkozy and Mrs Merkel were centre-right politicians committed to a united Franco-German stewardship of the single currency that essentially called for prudence and financial rigour.

Two hours of talks recently in Paris seemed to have left Mrs Merkel and Mr Hollande as divided as ever on key issues - Germany steadfastly opposed to pooling the euro-zone's debts as championed by France.

When Mrs Merkel warned there was no "magic formula", she was talking about the beleaguered euro zone. But she might as easily have been referring to the tax-and-spend programme on which Mr Hollande, emboldened by a clear parliamentary majority, has embarked.

EU summits have a way of finding common ground and some observers feel Brussels may be no exception, even if progress is too slight to appease anxious markets or raise prospects of a lasting solution.

But Germany is not the only neighbour with whom France has been squabbling since Mr Hollande's election. Anglo-French tensions are familiar enough but have been revived in knockabout fashion after David Cameron, the British prime minister, promised to roll out a red carpet for refugees from a French regime intent, as the right sees it, on "bashing the rich".

Mr Cameron, like Mrs Merkel, supported Mr Sarkozy's doomed attempt for a second presidential term. Despite the outcome, the British prime minister still needs to work with his closest continental neighbours. But he is also more than happy for his country to benefit should the socialists' programme cause business and capital to take flight.

Mr Cameron, in trouble enough domestically as his coalition with the Lib Dems falters and the fallout from the Leveson press standards inquiry damages his leadership, talked breezily on the margins of the Group of 20 leading and emerging economies world summit in Mexico this month about providing a haven for wealthy French investors driven away by Mr Hollande's taxes. Ordinary French people already drift in large numbers to the United Kingdom in search of work or better pay. With some 400,000 of them in London alone, the British capital is, only half-jokingly, known as France's sixth-biggest city.

The question now is whether measures such as a 75 per cent tax on all income above €1 million (Dh4.5m) a year, popular among the low-paid or jobless voters but seen by conservatives as a disincentive to wealth creation, add investment funds to the cross-channel flow.

And what of the plan to cap public sector bosses' pay at €450,000 a year, or no more than 20 times the lowest salary in the business? Will the utilities and other public operations, where some chief executives are accustomed to being paid twice as much or more, have to settle for less effective leadership?

"Day after day, week after week, another project", said the French television newscaster introducing the latest tax plan, a 3 per cent levy on dividends expected to raise €800m a year, €170m of it from shareholders in the oil giant Total alone.

The same newscaster was reporting 24 hours later that France had been pushed into second place by Germany in terms of attractiveness to those planning investment in Europe, with those irritating Britons still top. Time will tell but there is also anecdotal evidence that French money is indeed looking for a home from home.

In New York, estate agents say there has been a noticeable surge in interest from French people wishing to buy property in what they see as a safer investment environment.

Xavier Guery, a financier based in the United States, was interviewed by the France 2 TV station, while being showing round a plush Manhattan apartment, and freely acknowledged that although he had considered the south of France, the socialist victory made his own country less appealing.

At US$1.5 million (Dh5.5m), the one-bedroom flat was not cheap, although it included access to a gym and swimming pool and had outstanding views over Central Park.

Mr Guery wanted to buy it for immediate letting in the knowledge that if he wished to sell, he could do so easily; in France, even without Mr Hollande's plans to increase taxes on the better-off and their assets, property can take a year or more to attract buyers.

Mr Hollande's admirers say it is unfair to judge a head of state who has just taken office.

In Mexico, he kept his cool, making a routine call for European unity on the debt crisis and offering a dry comment on Mr Cameron's intervention: "We're always happy to put our fiscal policies up for comparison."

Other French delegates mocked the British intervention and nicknamed the prime minister Monsieur Tapis Rouge. Mr Cameron's aides said the "red carpet" remark was partly light-hearted but confirmed his message that French businesses would be welcome in the UK, their taxes helping - as he had put it - to "pay for our health services and schools and everything else".

And when the prime minister casts doubt on Mr Hollande's gamble on being able to tax the better-off and use the proceeds, and whatever other resources he can muster, to spend his way out of crisis, he is hardly alone.

It may not be too long before Mr Hollande finds himself repeating a famous piece of Sarkozy wisdom, that the UK prime minister - whose country is not even in the euro zone - is missing a great opportunity to "shut up". More than one of the French president's colleagues pointed out gleefully that the British economy was also doing "somewhat less well".

But the Hollande programme is also raising eyebrows domestically. His absolute majority means he does not rely for parliamentary support on the pro-communist Left Front. But the capping of pay for public sector bosses and swingeing taxes for the highest earners are not so far removed from the far left's idea of preventing anyone, from footballers to tycoons, earning more than €360,000 a year.

For socialists, the amount of revenue raised may be secondary to the notion of creating a fairer society.

Pierre Moscovici, the economy minister, said a salary of €450,000 did not appear to him "dissuasive". It represents about 26 times the French minimum wage even after the modest "helping hand", a 2 per cent rise, announced last week.

From the business sector, however, comes another viewpoint.

"I doubt whether making fewer people rich will make fewer people poor," Alain Afflelou, a successful entrepreneur and the president of the Bayonne rugby club in south-western France, told Le Figaro magazine.

The financial newspaper Les Echos highlighted the cases of a number of top public sector employers who would be affected by the salary ceiling. Henri Proglio, the chairman and managing director of the power suppliers EDF, earned €1.6m last year, making him the biggest potential loser. The director general of the CNP insurance arm of the Caisse des Dépôts public investment group was also paid more than €1m.

Other heads of public-owned businesses - 20 or more in all, according to estimates - will suffer although less so.

The extent to which France loses investment money and brains will become clear. Some Hollande supporters suggest that even when capital flows out, it eventually returns. And perhaps the people, too. Claude Bartolone, newly elected as the president of the national assembly, said those drawn to the UK by jobs and lower taxes invariably ended up returning to France for medical care and their children's schooling because, in Mr Cameron's Britain, public services "no longer exist".

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