Brown furious at Sarkozy VAT attack

Gordon Brown, Britain’s prime minister, was left fuming on Friday after Nicolas Sarkozy, French president, denounced his flagship VAT-cutting plan and gave a picture of a Britain where industry was finished and the banks lay “close to ruin”.

Mr Sarkozy’s comments are a political gift to David Cameron, the opposition Conservative leader, and deal a blow to Mr Brown’s efforts to cement a common European position on how to fight the recession ahead of a G20 summit of world leaders in London in April.

The French president told a domestic television audience on Thursday night he would not be following Mr Brown in cutting VAT temporarily by 2.5 per cent, claiming the policy was having “absolutely no impact”.

Mr Brown’s officials telephoned Mr Sarkozy’s office to complain, but were unimpressed with the explanation. A spokesman said the Elysée had insisted “these remarks were not meant as a critique of UK economic policy – which is nice”.

The £12.5bn ($18.4bn, €14.3bn) VAT cut was the centrepiece of Mr Brown’s fiscal stimulus in November, but has been criticised by politicians in other European countries who face pressure to follow suit.

George Osborne, shadow chancellor, said: “We said at the time Brown’s VAT cut would be an expensive failure and that view is now echoed not just by British retailers, but by foreign governments, including France, Germany and Holland.”

Mr Sarkozy’s comments about Britain reflected a popular belief in France that Britain is a shrivelled industrial power brought to its knees by a failing banking system.

The president, who describes himself as an anglophile and friend of Mr Brown, declared that Britain “doesn’t have any industry left” and that the country’s banks were exposed and “close to ruin”. He said the VAT cut had been a flop: “Consumption in England has not only not picked up – it has continued to fall.”

On Friday Mr Brown’s team turned their fire back across the English Channel at France and its president.

One Brown aide pointed out that manufacturing comprised 14 per cent of Britain’s output, compared with 16 per cent in France.

“They seemed a bit surprised at the Elysée when we told them that.”

Mr Sarkozy also claimed that financial services made up 15 per cent of British gross domestic product, when the statistics show they make up 8-9 per cent.

The British government says the VAT cut is intended to sustain demand throughout 2009 and that it is too early to judge its success, although it claims retail sales in December rose.

In his interview Mr Sarkozy tried to defend his own €26bn stimulus package – focused almost entirely on investment.

But the president also adjusted his own policy to head off domestic criticism, promising at least a further €1.4bn for social measures this year, the prospect of tax cuts for families on low to middle incomes and the scrapping of a local business tax, costing up to €8bn a year.

There is growing irritation in Paris about Mr Brown’s reluctance to consult with his EU counterparts and co-ordinate bank support measures and stimulus plans.

Mr Sarkozy hinted at the lack of co-operation, saying: “Co-ordination is absolutely indispensable.”

By George Parker and Norma Cohen in London and Ben Hall in Paris
6 Feb 2009 6:55pm

Source: The Financial Times

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