Why are the French flocking to London?
While treating myself to a massage in Paris over the Christmas break, I listened to an hour-long rant from the masseuse about how Francois Hollande’s proposed 75% income tax on those earning more than 1m euros would ruin France, and his business. Let’s just say I felt his frustration – quite literally.
In Paris and abroad, the tax has certainly dominated the front pages and long been the topic of dinner conversations. Many rich French are looking for an exit. Just last week, we heard actor Gerard Depardieu prefers moving to Russia to live under President Vladimir Putin’s ever-tightening grip, rather than coughing up money in France.
But London seems to be particularly attractive to French high-flyers. London is already France’s sixth biggest city, housing more French people than Bordeaux, Nantes or Strasbourg. French bigwigs like musician Jean Michel Jarre and glasses chain owner Alain Afflelou are now rumoured to be considering a move to London as a result of the 75% tax, although they deny this.
So why is French talent so attracted to London? It’s not like our two countries are known for their mutual appreciation. Is it all down to the 75% tax?
The London exodus: what’s the impact of the 75% tax?
In spite of the fiery headlines, few seriously believe that the tax is much more than symbolic. “The ideology around the 75% is clear: that the rich must pay more,” says Miles Dean, founder of Milestone International Tax Partners. “But with the rate likely to affect only 1,500 people – and in its current form unconstitutional- its effect will be nominal in terms of raising taxes.”
As well as only impacting a small pool of high-networths, the tax would be implemented just for a period of two years. That is if it is adopted at all – just before the New Year, the French Constitutional Court rejected the tax on technical grounds, although President Hollande has vowed to fight on with it.
Yet Prime Minister David Cameron’s “gesture of rolling out the red carpet” for tax exiles seems to be having its desired effect already. “The socialist administration in France is trying to raise taxes on the wealthy at just the moment Britain’s centre-right coalition is reducing the top rate of income tax, which is bound to make London an even more attractive destination for French wealth,” says Chris Belcher, a Partner and Head of Private Tax at Mills & Reeve LLP, who has written various reports on the French tax issue.
“London is increasingly looking like a ‘tax haven’ for the European wealthy, which will bring investment and jobs into the London economy, and provide an additional boost to the already strong London property market.
“Moscow may be more attractive for Monsieur Depardieu, but for the majority of France’s wealthy individuals, the benefits of London as a financial and legal centre will probably outweigh the even lower tax rates on offer in Russia,” he adds.
Dean has witnessed a wave of recent London-bound migration from entrepreneurs, private equity professionals and bankers. He says: “Cameron’s offer is being taken up by growing numbers of high-net-worth individuals who find the 75% rate abhorrent.”
Most of these are looking to Kensington and Richmond as their new base, adding to the large pre-existing London-based French population, he explains.
But the latest taxation moves are likely to be the last straw, rather than the sole defining factor of the move. “The tax announcement has had a partial impact, but the reality is that a large number of French people have been coming to London regardless, for many, many years,” says Olivier Morel, partner at law firm Cripps Harris Hall LLP, which works with a wide client-base of French businesses operating in the UK.
“When you make the decision to move, you do it because of a mix of various elements. The tax might be one, but there are many other aspects which attract French people to London,” says Morel, who moved from France to the UK more than 25 years ago. “There have been more inquiries about people coming to London because of the 75% tax, but an increase in inquiries does not mean that they will do it.”
The lure of London
Instead – with or without the 75% tax – London’s various other attractions continue to draw in French talent and further cement our capital’s reputation as the “world’s coffee house”, where experts from all fields gather, explains Morel.
Key among these are the greater ease of doing business here, and the promotion of entrepreneurialism, which many complain is heavily stinted on the other side of the Channel.
“The tax should further benefit London and the UK as a whole, which has adopted a radically different policy towards enterprise and entrepreneurs,” says Nathan Boublil, a young UK-based French entrepreneur.
“The Cameron government has multiplied measures to attract talent and encourage entrepreneurship in the country – less red tape, decrease of corporate tax rate, specific visas, promotion of London and Cambridge clusters, legal simplification, and so on.”
As the founder of ProjectPolicy.org, an online resource tool that has recently won significant technology awards, Boublil is at the heart of the drive to boost the UK’s tech sector and overall competitiveness. He feels that online entrepreneurs are not in principle bound to any single city or country, but is frustrated about the attitudes of the French authorities, and so has stayed in the UK since coming here to study economics in 2003.
It is not just tech-savvy entrepreneurs and financial professionals who are finding conditions in the UK more favourable. Aerospace and car production are two areas where France was traditionally strong, but has since fallen behind the UK, explains Morel. Law is also getting a lot of interest from French lawyers wanting to cut their teeth in common law, he says.
Since Morel first came to live in Britain, London’s French community has continued to grow. The trend has swelled to the point that a stint in London has now become a “rite of passage” for many French people, explains Morel.
French businesspeople tend to be pulled in by the promise of big payouts, and the culture of entrepreneurialism here. Personalities like Richard Branson, who resonate with young aspiring businessmen and women, have no real equivalent in France. French talent is so drawn in by the UK’s high-risk, high-reward structure that they tend to be relatively happy to flee the confines of the famous French social safety net, Morel adds.
“Despite that the general quality of life is greater in France, this different attitude and above all the image [the 75% tax] sends internationally should further consolidate the UK’s dominance versus France in terms of business and entrepreneurship activity,” says Boublil.
The young entrepreneur doesn’t seem overly concerned that France’s taxation reforms and inhibition of entrepreneurial innovation will cause the much feared “domino effect”, whereby a weakening of France’s economy and business scene could have a negative knock-on impact on London’s economy.
“France is one of the UK’s main trading partners, and to the extent that such a measure [as the tax] may have an impact on France’s economic activity, this may have a domino economic impact on the UK too. Although this is hard to forecast for economists,” says Boublil.
“However, the widening of the economic competitiveness differential between UK and France, which this tax symbolises, is clear. Therefore, it is not hard to imagine that London will come out as a net winner as a result of this policy.”
Bienvenue à Londres!
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