British Prime Minister David Cameron once gleefully offered to “roll out the red carpet” for French executives wanting to escape staggering wealth taxes.
Now, with London’s red carpet fraying after the Brexit vote to leave the European Union, Paris is stepping in to welcome bankers and investors who may want to flee the uncertainty hanging over the City’s role as a global finance hub.
“In this new environment which is taking shape, we want France to be attractive,” Prime Minister Manuel Valls said Wednesday (6 July) as he unveiled measures to boost the allure of Paris.
Not to be outdone, Luxembourg confirmed that it will dispatch two ministers to Britain to drum up business for the tiny Grand Duchy.
Economy Minister Etienne Schneider and Finance Minister Pierre Gramegna will visit London and Bristol between 25-27 July to promote Luxembourg as a “good alternative” to the UK, post-Brexit.
Schneider stressed the “political stability of Luxembourg, its pro-European character, its accessible administration and the international outlook of its economy”.
France confirmed plans Wednesday to cut its corporate tax rate to 28% from 33%, a move previously announced by President François Hollande.
Earlier this week, the UK’s Chancellor of the Exchequer, George Osborne, announced that Britain will cut its corporate tax rate below 15% in the wake of Brexit, a move which triggered warnings by Germany of an EU-wide tax war.
Britain’s vote to leave the European Union “created shockwaves for all European citizens but also… many businesses settled in the United Kingdom,” Valls said.
The prime minister announced a tweak to a system allowing foreign employees to benefit from tax reductions, making it applicable for eight years instead of five.
Paris also plans to put in place a system to help companies and their foreign workers settle in France – where red tape can traditionally be a nightmare to navigate.
This service will help companies with questions about real estate, residency permits and schools.
Valls said France would open “as many international sections as needed in schools” to allow children of foreign employees to be taught in their mother tongue.
However Paris and Luxembourg are not the only European capitals clamouring to take London’s spot as a major finance centre and gateway to the EU market.
Stephane Garelli, an expert in world competitiveness at Switzerland’s IMD business school, said that among the contenders, Dublin appeared best-placed to take over from London, and has been “flooded by requests from UK companies”.
“It is also a financial centre, it speaks English, it is just next door,” he said.
Another attractive country was the Netherlands, although calls there for a similar referendum may put businesses off.
According to ratings agency Standard and Poor’s, a fifth of all global banking activity takes place in London.
The city – which voted to stay in the EU while the rest of the country chose to leave – is the gateway for US and Asian businesses into Europe’s vast single market.
Garelli said that while Britain was likely to negotiate some kind of access to the EU market, this could be a long process and “business will not wait”.
French ‘supertax’ dropped
According to the World Bank’s 2016 Ease of Doing Business report, France ranks 27th out of 189 countries, while Britain comes in sixth.
The Socialist government came into power in 2012 promising a 75% “supertax” on top earners – which sent the rich fleeing – and became another symbol of France’s opposition to big business.
However the measure was increasingly watered down and quietly dropped in 2015, as it did little to boost a stagnant economy.
Hollande has since backed a series of economic and labour reforms that have enraged the left flank of his party, which now accuses him of being too pro-business.
Valls had to force both sets of reforms through parliament without a vote using a special constitutional measure, and they have triggered months of sometimes violent protests and lengthy strikes.
Garelli said that businesses could also be put off by this “political volatility”, ahead of April 2017 elections.