French senate wants reforms to lure banks leaving London

A banker in France costs 46 percent more, all payroll charges included, than one paid the same salary in Germany, the French senate said, highlighting the need for rapid reforms to lure banks leaving London.

Paris sees an opportunity in Britain’s vote to leave the European Union, the regulatory implications of which place a question mark over London’s place as Europe’s financial centre.

As well as cutting payroll charges, France must make labour rules more predictable because the cost of doing business is a major handicap, the senate’s finance committee said in a report on Wednesday which it described as a “wake-up call”.

“The reforms aimed at strengthening the competitiveness of the Place de Paris remain at this stage insufficient and partly contradictory,” it said.

France has made its tax regime for expatriates more favourable, and set up a fast-track licence application, while President Emmanuel Macron, himself an ex-banker, promises an overhaul of the labour market, tax and pension systems.

The finance committee said that an employee with a salary of 250,000 euros per year would cost a company in Germany 15,000 euros in payroll charges, versus 137,000 euros in France, 9,000 euros in the Netherlands and 27,000 euros in Ireland.

This gap is partly explained by a specific payroll tax on the banking sector, which is exempt from value-added tax.

The committee recommended tweaking what is a progressive payroll tax system so that it has a lower impact at the high-paid end of the banking jobs sector while also introducing exemptions for expatriates working in France.

More than 20 banks and asset management firms are in advanced talks with regulators in France about shifting jobs there, former Bank of France chief Christian Noyer said in May.

So far, only HSBC Holdings PLC has said it would move staff to Paris following Britain’s EU exit, while Frankfurt has emerged as a frontrunner to attract financial firms.

“For a cost of 2 bankers in Paris, an employer can hire a third one in Frankfurt,” the senate’s report said.

The election of Macron, a former investment banker with Rothschild & Co and a pro-business candidate, could boost Paris’ chances, but much depends on the details of his reforms.

“For us, Paris passed in one year from underdog behind Frankfurt, Dublin, Amsterdam and Madrid, to top two with Frankfurt,” an executive at an international bank in Paris said.

“One could imagine a special regime for banks, a tighter labour law for banks with a ceiling of the indemnities for dismissal in order to gain competitiveness without annoying too many people,” the banker added