Debt-ridden France is in crisis – again. François Bayrou has been ousted as Prime Minister after failing to push through his budget to reduce the country’s deficit by €44bn (£38bn). Despite the mountain of debt accrued through generous public sector pay-outs, it seems French left wing MPs are hellbent on copying our Chancellor’s doomed plan to tax the rich at all costs. No wonder Bayrou’s parting shot was to warn his country’s foolhardy legislators not to “become like Britain”.
Let us not forget Bayrou was hired by President Macron to cut the spiralling cost of the French government as it teeters on the edge of needing to be bailed out by the International Monetary Fund (IMF). The indignity of the EU’s second biggest economy needing international help before it goes bust is not lost on the vainglorious Macron, who likes to strut the world stage while his ministers struggle with the national debt.
But still they keep spending on gold-plated civil servants and their pensions, a ridiculously low retirement age of just 62 and a net zero commitment that is throwing away billions in subsidies at the failing project. And, of course, the militant French are quick to hit the streets in protest if any attempt is made to slim down their costly lifestyle.
It’s a toxic mix, and this is the fifth prime minister to fail in recent years.
What the French need is a Margaret Thatcher to reform its economy – but none of their politicians have the guts to do it.
France is now the biggest debtor in the EU and third in the world, with a national debt that is 113% of GDP. It is already one of the highest taxed countries in the world at 46% of total output. Bayrou tried to stop the rot with a high-profile freeze on welfare spending and the scrapping of two public holidays.
But he’s done nothing to stop the steady drip, drip of pension payments, which amount to a quarter of government expenditure. Unbelievably, train drivers can retire at just 56!
With left-wing MPs in the French parliament this week baying for higher taxes on the rich, Bayou used his last speech as PM to warn them
“Our British neighbours decided to tax foreigners who were exempt from taxation,” he said. “Those foreigners moved away, and the immediate consequence was an explosion in property prices in Milan.”
The criticism was a bit much coming from a country in a worse overall financial state than us, but we are not far behind with yields on government borrowing higher than under Liz Truss and our debt to GDP ratio ready to breach 100% this year.
But Bayou is right to say that many of Chancellor Rachel Reeves’ tax and spend policies are making a bad situation worse. Last year’s budget has dented growth, with the UK suffering the fastest slump in private sector hiring. Consumer spending has slowed while inflation remains stubbornly high. Analysts at Goldman Sachs bank are warning that tax increases rarely deliver growth and that cutting spending is a better way to fill government black holes.
Bayou is also right to say that high taxes scare off these entrepreneurs who make the most money for this country. As if directly on cue, self-made billionaire Sir Jim Ratcliffe, co-founder of the Ineos industrial empire, has announced this week that he is ceasing all investment in the UK and shifting that money to the US. He cites the high taxes on North Sea oil and gas as a major reason, as well as Ed Miliband’s net zero obsession, damaging our energy industry. Earlier this year, Ineos was forced to close down its Grangemouth oil refinery, which provided high-quality jobs for a century.
“We have stopped investing in Britain,” said Ineos Energy chairman Brian Gilvary. “The problem is that the UK has become one of the most unstable fiscal regimes in the world from a perspective of natural resources and energy.”
This means a direct loss of £3bn to the UK, which has instead been rerouted to benefit Donald Trump’s “drill, baby, drill” business regime in the United States. The damage is catastrophic to our economy. Who knows when we will need a bailout from the IMF?
As Macron desperately searches for a new candidate to replace the poison chalice job of PM, someone needs to tell Rachel Reeves that Labour will follow the same fate unless she cuts taxes and encourages growth. We cannot afford to lose any more big investors like Sir Jim Ratcliffe.