French SME exodus to UK exaggerated

Although small French companies have been flocking across the Channel to escape sky-high taxes and social charges for some years now, the exodus won't last forever and may already be slowing down.

The UK's lenient tax regime and business-friendly environment continues to tempt small French firms to relocate across the English Channel, but the scale of the Gallic business exodus has been exaggerated.

French concern that high taxes were driving away the country's best and brightest peaked last year when top model Laetitia Casta, who had been chosen to pose for a millennium bust of French revolutionary heroine Marianne, left her native Paris to live in London. Like the rest of the UK's expatriate French business community, she cited France's burdensome tax and social security regime as her main reason for leaving.

Her departure will have caused little surprise in French business circles. In France, combined employer and employee contributions towards social security charges amount to 48% of the employee's gross salary, compared to just 11% in the UK. France's tax on business profits, set at a flat rate of 36.6% for most small to medium sized firms, also compares unfavourably with the UK's graded corporation tax. Most UK-based SMEs, generating profits of between ({@denom})10,000 and ({@denom})300,000, are taxed at just 20%. This rises to a maximum of 30% if profits exceed ({@denom})1.5 million.

Olivier Cadic, a Parisian who moved his 15-man printed circuit board manufacturing operation from Paris to Ashford four years ago, said: There's simply no comparison between the UK and French systems. Many French business people are no longer prepared to tolerate the situation in France.

Cadic has achieved notoriety in France by launching stinging attacks on the French government from his website, www.francelibre.org. His central charge is that France's tax and social security system is crippling free enterprise. He also lambasts the adversarial attitude of French tax officials.

Cadic argues that the recent proliferation of French firms through Kent, Sussex and London proves his point. Estimates vary, but the total number of French businesses registered in England is now in the region of 1,600, according to the French Embassy in London.

Inwards investment agency Locate-In-Kent says it has persuaded 40 French companies to set up shop in Kent in the past three years, creating an estimated 3,000 jobs. Advent UK, a Paris-based consultancy which specialises in advising French firms wishing to move to cross the channel, confirms that interest is running high amongst French SMEs.

We are kept very busy, said Advent's Nikki Mollat Du Jourdin, adding that the massive difference between the UK and French tax regimes is by far the most important factor in French firms' decision to relocate. For some of Advent's clients, an unexpected tax audit provides the final push, she said.

However, some experts argue that the UK's appeal to French SMEs has been overstated. Neil Mackin of Paris-based consultancy NMK, which advises UK firms on how to get a foothold in the French market, says the true picture is much more complex.

Olivier Cadic is dealing with the issue of the fiscal burden borne by French firms, and I have every sympathy, he says. But the phenomenon of firms moving to England is a marginal one.

Moreover, the traffic isn't all one way. France's size and relative prosperity means that larger UK firms who have saturated their domestic market cannot afford to ignore it. Many baulk at the expense of employing staff there, Mackin says, but interest in the French market remains strong. France has a rich and sophisticated industrial base, not to mention 60 million affluent consumers. The country isn't emptying itself; far from it, he said.

Also, the French firms that do make the move to the UK are usually of a particular type, adds Mollat Du Jourdin of Advent UK. They tend to be young and mobile, and have often already lived and worked abroad. For more experienced businesmen, especially if they have families, moving abroad is a much bigger decision. Very few of the migrant firms are involved in manufacturing, she said.

Moreover, the UK won't retain its competitive advantage over France forever. The strength of the pound sterling against the euro and other currencies makes the UK unattractive as an export base, and currency volatility will be a problem for as long as it stays out of the euro-zone.

Also, the French government has started to ease the total fiscal burden, albeit slowly. Yielding to pressure from the SME lobby amongst others, Prime Minister Lionel Jospin in his annual budget statement in August pledged to cut the corporate tax rate by 3.3 percentage points to 33.3%.

Whether any of this will be enough to tempt Olivier Cadic to move back across the Channel is another matter. As he states on his website, quand la liberte rentrera, je rentrerai!