Opmerkingen Sarkozy over economie zorgen voor beroering in Engeland (en)
A diplomatic row between Paris and London has erupted over comments made by French PresidentNicholas Sarkozy i on national television on Thursday evening (5 February).
A week after 1-2 million French citizens protested on the streets over deteriorating living standards, Mr Sarkozy's appearance on three national television channels was an attempt to highlight his government's capable handling of the economic crisis.
However, comments made towards the end of the programme in which Mr Sarkozy criticised UK Prime Minister Gordon Brown's i decision last November to cut the UK value added tax (VAT) have angered government officials in London.
"When you see the situation in the US and the UK, you don't want to repeat it," said Mr Sarkozy. "The English have opted for trying to boost consumer spending and it has made absolutely no difference."
The dispute comes just weeks before the two leaders are scheduled to hold talks in London at the G20 meeting on 2 April.
Gordon Brown released his emergency economic rescue package last November to help fight the recession. One of the major parts of this plan was a cut in VAT from 17.5 to 15 per cent, the legal EU minimum.
It is anticipated that the cut, which came into effect on 1 December last year and is due to run for 13 months, will cost the British exchequer £2.5 billion every year.
Tom Hoskin, a spokesman for Mr Brown hit back on Friday, saying: "All along, we have said that other countries must decide which measures are appropriate for their own economic circumstances."
He went on to say that Mr Sarkozy's office had "been in contact this morning to assure us that these remarks were not meant as a critique of UK policy, which was nice."
In December, German finance minister Peer Steinbrueck also criticised Mr Brown's bank rescue plan by saying it marked a move away from "decades of supply-side politics" to "crass Keynesianism."
The debate on whether tax cuts are the best way to stimulate an economy is a point of much discussion amongst economists.
Whereas some feel they will have little effect when consumer confidence is low, others believe they are a viable method to boost consumption if used correctly.
"If you give an incentive for a short period of time – it can work," senior economist with ING, Carsten Brzeski, told this website.
He argues that VAT cuts over a short period of time can be an effective mechanism to bring forward consumer purchases. This in turn can cause a short, sharp boost to the economy and may provide the necessary kickstart for longer-term growth. "If you know VAT will be cut for a week – would you go out and by something?"
Mr Brown's mistake was to increase other taxes at the same time as the VAT cut and thereby neutralise any positive effects it may have made, said Mr Brzeski.
The British government announced in November that it would increase taxes on alcohol, tobacco and petrol to ensure those products did not benefit from the cut in VAT. It also signalled that it wanted to increase the top personal tax rate from 40 percent to 45 percent from 2011.