Hollande forced into U-turn after France's "Pigeons" swoop on tax plan

Atlas shrugs in France, and wins.

François Hollande was pressured into reneging on a highly unpopular tax bill on Thursday after fiscal changes outlined in the 2013 budget provoked uproar amongst France’s entrepreneurial sector.

The climb-down came after a viral barrage launched by a group of web entrepreneurs calling themselves ‘Les Pigeons’ (French slang for ‘chumps’). The movement has garnered a significant wave of support, with almost 63,000 members on Facebook alone and the hashtag #geonpi trending worldwide on Twitter.

At present, French entrepreneurs pay 19 per cent capital gains tax (plus 15.5 per cent in social security contributions). New measures announced in the September 28th budget pledged to bring capital tax in line with income tax, meaning that start-ups that take in over €150,000 annually (most of them) would be forced to pay a whopping 45 per cent in capital gains tax, practically double the current amount. When added to the mandatory 15.5 per cent in social contributions, the total tax rate clocks in at a staggering 60 per cent.

To put that into perspective, the average European capital gains tax lies somewhere between 18 and 25 per cent, with maximum rates set in the UK (28 per cent) and Germany (26.4 per cent).

"Les Pigeons" protest that such shifts in the country’s fiscal policy are unfairly skewed against the startup community. Commentators warn that such tax increases could decapitate France’s entrepreneurial base, choking innovation and rendering small businesses creation almost entirely untenable.

Crucially, Hollande’s decision to introduce such exorbitant tax hikes represents a fundamental backtrack on earlier campaign pledges to re-balance taxes in favour of startups, leaving many entrepreneurs asking themselves if they still have a future in France.

“The government thinks France’s entrepreneurs are pigeons”, the movement’s Facebook page declares. “Anti-economic policies are crushing the entrepreneurial spirit and exposing France to a big risk”.

The formidable lobbying force of the ‘Pigeons’ movement led to finance minister, Pierre Moscovici, setting up emergency talks with entrepreneurs last Thursday to negotiate changes to the tax bill.

“We don’t want to give the impression that we want to punish the Pigeons”, a Hollande representative told Reuters. “We’ll find a solution … the Pigeons should return to their nest”.

However, despite the climb-down, Hollande has set a dangerous precedent. By alienating France’s thriving entrepreneurial community, he runs the risk of squandering the sector’s promising economic potential. A study of 108 French SMEs revealed a drastic 33 per cent growth in revenue from €753m in 2010 to €1bn in 2011. These impressive growth rates ran parallel to a 24 per cent increase in employment figures, with most workers employed under a CDI contract - the strongest of its type in France.

The decision to saddle such a burgeoning sector with a salvo of taxes seems confusing at a time when many of country’s larger corporations find themselves struggling to remain competitive. Peugeot and Bouygues have already laid off thousands this summer and the mood in the French business community is souring. Hollande is alienating small business precisely when he needs them to drive growth.

Such economic oversight comes at a bad time for Hollande. With unemployment at a 13-year high and 2013 growth forecasted at shocking -0.2 per cent, Hollande’s perceived pursuit of an anti-capitalist, anti-economic agenda won’t do him any favours - especially if he is to fulfill his election promise to hoist the French economy back on its feet.

Concerns are rising in France that the government’s strident model of budgetary rigour is simply incompatible with nurturing a flourishing entrepreneurial sector.

For François, the Honeymoon has ended abruptly. And with his approval rating plummeting from 56 to 41 per cent since his inauguration, he needs all the friends he can get.

François Hollande. Photo: Parti Socialiste

Alex Ward is a London-based freelance journalist who has previously worked for the Times & the Press Association. Twitter: @alexward3000

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John McDonnell interview: "We’re going to destroy Osborne’s credibility"

The shadow chancellor on the Spending Review, Jeremy Corbyn's leadership and why trade unions will have to break the law. 

When I interviewed John McDonnell in March, before the general election, he predicted that Labour would be the largest party and confessed to a “sneaking feeling that we could win a small majority – because I think the Tory vote is really soft”. As the long-standing chair of the Socialist Campaign Group, McDonnell anticipated leading the resistance inside Labour to any spending cuts made by Ed Miliband. Eight months later, he is indeed campaigning against austerity – but as shadow chancellor against a Conservative majority government.

I meet McDonnell in his new Westminster office in Norman Shaw South, a short walk down the corridor from that of his close friend and greatest ally, Jeremy Corbyn. The day before George Osborne delivers his Spending Review and Autumn Statement, his desk is cluttered with economic papers in preparation for his response.

“The message we’re trying to get across is that this concept of the Tories’ having a ‘long-term economic plan’ is an absolute myth and they’re in chaos, really in chaos on many fronts,” he tells me. McDonnell points to the revolt against cuts to tax credits and policing, and the social care crisis, as evidence that Osborne’s programme is unravelling. On health, he says: “He’s trying to dig out money as best as he can for the NHS, he’s announced the frontloading of some of it, but that simply covers the deficits that there are. Behind that, he’s looking for £22bn of savings, so this winter the NHS is going to be in crisis again.”

Asked what Labour’s equivalent is to the Tories’ undeniably effective “long-term economic plan” message, he said: “I don’t think we’re going to get into one-liners in that way. We’ll be more sophisticated in the way that we communicate. We’re going to have an intelligent and a mature economic debate. If I hear again that they’re going to ‘fix the roof while the sun shines’ I will throw up. It’s nauseating, isn’t it? It reduces debate, intellectual debate, economic debate, to the lowest level of a slogan. That’s why we’re in the mess we are.”

Having abandoned his original support for the Chancellor’s fiscal charter, which mandated a budget surplus by 2020, McDonnell makes an unashamed case for borrowing to invest. “The biggest failure of the last five years under Osborne is the failure to invest,” he says. “Borrowing at the moment is at its cheapest level, but in addition to that I’m not even sure we’ll need to borrow great amounts, because we can get more efficient spending in terms of government spending. If we can address the tax cuts that have gone ahead, particularly around corporation tax, that will give us the resources to actually start paying again in terms of investment.”

He promises a “line-by-line budget review” when I ask whether there are any areas in which he believes spending should be reduced. “My background is hard-nosed bureaucrat . . . we’ll be looking at where we can shift expenditure into more productive areas.”

From 1982 until 1985, John McDonnell, who is 64, was chair of finance at the Greater London Council under Ken Livingstone. After vowing to defy the Thatcher government’s rate-capping policy he was sacked by Livingstone, who accused him of manipulating figures for political purposes. “We’re going to look like the biggest fucking liars since Goebbels,” the future mayor of London told him. McDonnell, who later described Livingstone’s account as “complete fiction”, has since resolved his differences with the man now co-chairing Labour’s defence review.

After his election as the MP for Hayes and Harlington in 1997, McDonnell achieved renown as one of New Labour’s most vociferous opponents, rebelling with a frequency rivalled only by Corbyn. His appointment as shadow chancellor was the most divisive of the Labour leader’s reshuffle. “People like Jeremy even if they don’t agree with him. People don’t like John,” one MP told me at the time. Mindful of this, McDonnell has sought to transform his image. He has apologised for his past praise of the IRA and for joking about assassinating Margaret Thatcher, rebranding himself as a “boring bank manager”. But there are moments when his more radical side surfaces.

He told me that he supports workers breaking the law if the trade union bill, which would limit the right to strike, is passed. “It’s inevitable, I think it’s inevitable. If the bill is introduced in its existing form and is used against any particular trade unionist or trade union, I think it’s inevitable that people will resist. We established our rights by campaigning against unjust laws and taking the risk if necessary. I think that’s inevitable and I’ll support them.”

“Chaos” might be how McDonnell describes Osborne’s position but the same term is now daily applied to Labour. The party is riven over air strikes in Syria and the renewal of Trident and MPs are ever more scornful of Corbyn’s leadership.

While Corbyn has so far refused to offer Labour MPs a free vote on Syria, McDonnell says that he favours one and would oppose military action. “My position on wars has always been that it’s a moral issue and therefore I veer towards free votes . . . We’re waiting for Cameron’s statement; we’ll analyse that, there’ll be a discussion in shadow cabinet and in the PLP [Parliamentary Labour Party] and then we’ll make a decision. I’m still in a situation where I’ve expressed the view that I’m opposed to the bombing campaign or engagement. I think the history of the UK involvement in the Middle East has been a disaster, to say the least . . .This isn’t like the Second World War where you have a military campaign – you defeat the enemy, you sign a peace agreement and that’s it – this is asymmetric warfare. In addition to the risks that are in the battlefield there’s a risk in every community in our land as a result of it.”

Would he want any of the 14 former shadow cabinet members who refused to serve under Corbyn to return? “All of them, we’re trying to get them all back. We’ve got Yvette [Cooper] helping us on a review we’re doing about the economy and women . . . It’s an open door policy, I’m trying to meet them all over these next few weeks.”

Livingstone, a member of Labour’s National Executive Committee, recently called for Simon Danczuk, who revealed details of a private meeting with Corbyn in the Mail on Sunday, and Frank Field, who told me that MPs should run as independents if deselected, to be disciplined. But McDonnell takes a more conciliatory line. “With Simon [Danczuk] in particular and the others, it’s just a matter of saying look at the long-term interests of the party. People don’t vote for a divided party. They’ll accept, though, that within a party you can have democratic debate. As I said time and time again, don’t mistake democracy for division. It’s the way in which you express those different views that are important. All I’m saying is let people express their views, let’s have democratic engagement but please don’t personalise this. I think there’s a reaction within the community, not just the party, against personalised politics. It’s not Jeremy’s style, he never responds in that way. It’s unfortunate but we’ll get through it. It’s just minor elements of it, that’s all.”

McDonnell disavows moves by some in Momentum, the Corbyn-aligned group, to deselect critical MPs. “What we’re not into is deselecting people, what we want to try and do is make sure that everyone’s involved in a democratic engagement process, simple as that.

“So I’ve said time and time again, this isn’t about deselection or whatever. But at the same what we’re trying to say to everybody is even if you disagree, treat each other with respect. At the height of the debates around tuition fees and the Iraq war, even though we had heated disagreements we always treated each other with mutual respect and I think we’ve got to adhere to that. Anyone who’s not doing that just lets themselves down, that’s not the culture of the Labour Party.”

In private, the 90 per cent of MPs who did not support Corbyn’s leadership bid speak often of how and when he could be removed. One point of debate is whether, under the current rules, the Labour leader would automatically make the ballot if challenged or be forced to re-seek nominations. McDonnell is emphatic that the former is the case: “Oh yeah, that’s the rule, yeah.”

McDonnell’s recent media performances have been praised by MPs, and he is spoken of by some on the left as a possible replacement if Corbyn is removed or stands down before 2020. His speech to the PLP on 23 November was described to me by one shadow minister as a “leadership bid”. But McDonnell rules out standing in any future contest. “No, no, I’ve tried twice [in 2007 and 2010], I’m not going to try again, there’s no way I would.”

Despite opinion polls showing Labour as much as 15 points behind the Conservatives, McDonnell insists that the party can win in 2020. “Oh definitely, yeah, you’ll see that. I think this next year’s going to be pivotal for us. We’re going to destroy Osborne’s credibility over the next six months. But more importantly than that, we can’t just be a negative party . . . we’re going to present a positive view of what Labour’s future will be and the future of the economy.

“Over the next 18 months, we’ll be in a situation where we’ve destroyed the Tories’ economic reputation and we’ve built up our own but we’ll do it in a visionary way that presents people with a real alternative.”  

George Eaton is political editor of the New Statesman.