Margareta Pagano: Glaxo's £350m factory is worth cheering not jeering
The drugs giant's unveiling of its investment in Cumbria on the back of the Budget's 'patent box' tax rate is a move that should make the Chancellor proud
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Sunday 25 March 2012
The Chancellor just can't win: he's damned when he does help business, and damned if he doesn't. Within hours of George Osborne confirming the 10 per cent tax on profits made from the new "patent box" came the news that drugs giant GlaxoSmithKline plans to build a new £350m manufacturing plant in Cumbria creating up to 1,000 jobs.
It's GSK's first new UK factory for nearly 40 years and its chief executive, Sir Andrew Witty, said that the Chancellor's decision on patents had "transformed" the way it views the UK as a place to invest. Put into context, companies will only have to pay 10 per cent corporation tax on profits derived from UK-owned intellectual property. It means that GSK will keep its research facilities here, ensuring that medicines of the future will be discovered here. It will make them in the UK as well.
Along with the new Ulverston factory, GSK will invest another £150m or so in its two Scottish plants and sites in Hertfordshire and County Durham. It is a significant force in the UK, employing 15,000 people – 6,000 in manufacturing. Sir Andrew went further, suggesting that if the coalition could introducing more incentives for innovation, GSK would consider doubling its investment in Ulverston.
You would think this would be great news, but the reaction from much of the media has been snide and churlish, if not downright childish, by suggesting this was a PR stitch-up. Sir Andrew, who sits on David Cameron's Business Advisory Council, will have known this measure was in the Budget and will have seen it as an excellent chance for some positive spin, rare in the corporate world. You can't blame him for that.
Nor can you blame Osborne for boasting that the patent policy is a serious example of how the coalition wants to encourage research and development investment. Budgets, after all, are about inspiring confidence as much as introducing incentives.
But Osborne could have helped deflect some of the criticism about the GSK timing if he hadn't looked so smug. He should also have made it clear that the patent box was a decision taken by the Labour government, and one the coalition was continuing. No shame in that. By the same token, Labour looked silly trying to take credit for the move. It's precisely this sort of ridiculous political ping-pong game that industry finds so dispiriting. It plans investment for the long term, not the short-term dictates of the electoral cycle.
Encouraging R&D is a policy that should be agreed by all parties, and is what industrialists mean when they point out that the Government still has no long-term vision; in Germany, there have been the same R&D measures in place for the past 30 years.
And, as Sir Andrew suggests, even more should be done to encourage innovation. Our pharmaceutical and life science industry is one of the most successful in the world, so government should be doing whatever it can to bring academics, commerce and financiers together. When it works, it works well, as we saw again last week when Wellcome Trust launched its £200m fund for bio-medical start-ups.
Cuts to corporation tax were also behind GSK's vote of confidence and with the new 24 per cent starting next month, the UK is on track to have the fourth most competitive corporation tax in the world. A further cut to 22 per cent is due in 2014. But of course it wasn't a big enough or fast enough cut for many business leaders who would have liked to see it down to 20 per cent immediately. They are right and a lower, flat rate of tax would probably do much to ensure that companies from Barclays to Top Shop stop trying to avoid tax.
The big question now is whether Osborne has done enough to persuade others to follow GSK's lead. They have the dosh. British companies have around £750bn tucked away and, for the past few years, have not been persuaded to spend it. It's too early to tell but GSK's move is a good indicator.
The missing bit of the Budget was help for SMEs. There is so much to be done: slashing national insurance for companies taking on workers, more relief for R&D, reducing labour restrictions for firms with fewer than 20 employees. It's worth repeating: if each of the UK's 4.6 million SMEs employed one more person, unemployment could be wiped out overnight.
The Treasury has been looking at those "vital 6 per cent" of SMEs – the companies that create more than half of all new jobs – to see what drives them. That's what the Chancellor needs to get to grips with next.
Does UBS's new 'turbo-charged' hiring suggest the bank is fattening itself up?
What is going on at UBS? The Swiss bank is hiring one of the world's most highly paid bankers and top deal-makers, Andrea Orcel. The Italian financier, known as the "Last of the Mohicans" for having hung on so long as head of global banking and markets at Bank of America Merrill Lynch, is joining UBS as co-head of the investment bank, working alongside Carsten Kengeter. The move also reunites Orcel with an old friend, the former Merrill Lynch head of capital markets, Sergio Ermotti, the too-good-looking-for-his-own-good UBS chief executive.
Orcel is famous for lots of reasons but mainly for making loads of money – even in 2008 he received a bonus of $33.8m (£21.3m) from the banking deals he helped stitch together, including the $30bn merger of Unicredito and Capitalia.
But the polyglot is more famed for his role at Merrill Lynch, as it was before its rescue, as the architect of perhaps the worst deal in financial history – the break-up of ABN Amro and its sale to Royal Bank of Scotland, the deal that brought it down.
Merrill Lynch is said to have earned $500m in fees from this ill-fated deal which has cost the UK taxpayer nearly a £1 trillion.
Orcel used to work with Matthew Greenberg, Fred Goodwin's main adviser and driver of the ABN merger. Orcel was also close to Santander's chairman, Emilio Botin, who was involved in the early consortium. Santander's links with RBS go back far as the Spanish bank helped RBS win its bid for NatWest, when it bought the 14 per cent stake owned by the Kuwait Investment Office, swinging the takeover.
Orcel is a big coup for UBS; one banker called it "turbo-charged", but others suggested that maybe UBS is fattening itself for a sale. It has had a torrid time of late with disaster following disaster, culminating last year with the $2.25bn rogue-trader scandal. Hopefully, the Italian will be too busy re-building the bank's reputation to do any more damaging deals.
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