Don't look to François Hollande for inspiration, Ed

The French Socialist leader is a throwback, not a pioneer.

On Wednesday, François Hollande’s budget announced the doubling of a tax already planned by Nicolas Sarkozy, giving a sliver to the state of certain transactions executed in financial markets. So what, you say. Banks can afford it, can’t they? Besides, they messed up: they should pay. But it’s not that simple: like VAT or any other sales tax, the cost is simply passed on to the buyer; a paltry half-billion euros will be raised annually and the law is full of loopholes. Plus, the original Sarkozy tax was only scheduled to come into force the same day, so no-one yet knows what the effects are.

Clearly, there is a political point being made that banks must pay for their sins, but: at what cost? The advantages of a financial transactions tax are unproven, to say the least. At best, it seems like posturing: at worst, it adds to the cost of companies, and the country, raising capital, affecting growth and competitiveness. Plus, with a unilateral move, there is always the danger that people will simply take their business elsewhere, which is why no-one here – not even Miliband –  is suggesting such a unilateral tax for the City, a financial centre which easily dwarfs Paris.

Perhaps, then, it’s a good moment to take a closer look at the Hollande administration. He has, at least, one sensible positive: his belief that growth is the key rather than austerity. Good. However, unlike the UK, Eurozone rules cap his borrowing, meaning next year he needs to make €33bn of cuts. So one wonders how he can fulfil pledges which require him to spend to achieve that growth.

Then there’s his manifesto proposal for a 75 per cent “super tax” for earnings over €1m, a move not seen in Britain since the days of Denis Healey (that said, his own advisor, Harvard’s Prof. Philippe Aghion, admits it was probably just an electoral sop to the left that he didn’t really mean). But many suggested that Hollande’s manifesto largely comprised things he would not really implement, and which he now has. And these are nothing compared to Hollande’s decision to lower the national retirement age from 62 to 60, which gives an insight into some very flawed thinking, because it doesn’t seem to make sense at the level of basic maths. The explanation is quite simple and goes like this:

If I pay a portion of my salary towards a pension, I create a pot, which the government looks after for me. When I retire, that pot buys me a pension until I die, the level of which depends on the size of the pot. Four things determine the size of my pot: the percentage I pay in from my salary; the number of years; the amount I work each year (working hours, holidays, and so on); and the fourth and final thing is the number of years I’m likely to live – the more years, the bigger pot I’ll need.

The problem is in the fourth factor. Most national pension systems in the western world are broke, and are on the verge of not being able to pay out to all the pensioners. They didn’t quite count on so many people staying alive so long, so they under-provided. Most governments are therefore trying to find ways to fund the “pensions time-bomb”, by getting more money into each person’s pot.

So, what you’ve got to do is change one of the first three factors. But in France, the amount you work each year is already fixed at a relatively low level, because of its uniquely-constricting thirty-five hour week and generous statutory holidays. Then there’s the number of years you work, which in France we have just reduced by two. That leaves only one thing: to increase national insurance; raise taxes on those who are working to pay for those who aren’t – which is not really sustainable (particularly during an economic crisis). For this reason, policymakers worldwide are accepting an inevitability: people will have to work longer.

Ah, but not in France. Not in the homeland of Lagrange, Fourier and Descartes, where mathematics nowadays apparently work differently. Or rather, the raising of pensionable age makes no sense at all, because sooner or later the government will have to reverse it, as will all governments. And, in the meantime, it makes the ticking time-bomb worse. It is a sweetie, handed out to make people feel better: Hollande will give you a sweetie today, but some future government will need to take it back tomorrow twofold.

What is most disappointing for the left about Hollande, then, is that he seems much less the avant-guardiste of a new paradigm for the left, than a throwback to old, ostrich-like ways of the 1970s. It fits, too, because France itself has traditionally been the last big country in the west to accept realities such as flexible labour markets and the death of trade protectionism, as global business moves east.

The danger for Hollande, in short, is that he could end up like Spain's “Crisis? What crisis?” Zapatero, someone many on the left also had high hopes for, and whose career ended in ignominy as he was ultimately forced to take back all the sweeties. Miliband was politically astute in taking advantage of the apparent lack of connection between Hollande and Cameron, and right in going to Paris to make common cause with practically the only socialist premier left. But that, perhaps, should be as far as it goes.

Rob Marchant is an activist and former Labour Party manager who blogs at The Centre Left

French President François Hollande welcomes Labour leader Ed Miliband before a meeting at the Elysée Palace in Paris. Photograph: Getty Images.
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Scotland's huge deficit is an obstacle to independence

The country's borrowing level (9.5 per cent) is now double that of the UK. 

Ever since Brexit, and indeed before it, the possibility of a second Scottish independence referendum has loomed. But today's public spending figures are one reason why the SNP will proceed with caution. They show that Scotland's deficit has risen to £14.8bn (9.5 per cent of GDP) even when a geographic share of North Sea revenue is included. That is more than double the UK's borrowing level, which last year fell from 5 per cent of GDP to 4 per cent. 

The "oil bonus" that nationalists once boasted of has become almost non-existent. North Sea revenue last year fell from £1.8bn to a mere £60m. Total public sector revenue was £400 per person lower than for the UK, while expenditure was £1,200 higher.  

Nicola Sturgeon pre-empted the figures by warning of the cost to the Scottish economy of Brexit (which her government estimated at between £1.7bn and £11.2.bn a year by 2030). But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose considerable austerity. 

Nor would EU membership provide a panacea. Scotland would likely be forced to wait years to join owing to the scepticism of Spain and others facing their own secessionist movements. At present, two-thirds of the country's exports go to the UK, compared to just 15 per cent to other EU states.

The SNP will only demand a second referendum when it is convinced it can win. At present, that is far from certain. Though support for independence rose following the Brexit vote, a recent YouGov survey last month gave the No side a four-point lead (45-40). Until the nationalists enjoy sustained poll leads (as they have never done before), the SNP will avoid rejoining battle. Today's figures are a considerable obstacle to doing so. 

George Eaton is political editor of the New Statesman.