Multinationals like GSK now need China more than China needs them

Outlook: Clive Cowdery’s think-tank says a third of Britain is unaffordable to low earners

When it comes to curing the pharmaceuticals industry’s problems of flat sales, falling profits, the loss of patent protection for key treatments and the difficulty of finding replacements, China is a blockbuster drug. 

While the West bumps along the bottom with its monetary easing, addiction to debt and inability to lock in meaningful economic growth, China frets about a slowdown to a 7.5 per cent annual increase in GDP. Which is, anyway, largely planned.

Even if the country replaces its gallop with a more sustainable canter, it will still comfortably outpace the West for years, assuming politics don’t get in the way (always a risk when you have an increasingly educated and wealthy populace without the franchise).

That’s why GlaxoSmithKline rapidly agreed to assume to the position with respect to the bribery allegations it faced yesterday. According to the Chinese authorities, its managers used a network of travel agencies to funnel payments to corrupt officials and doctors, boost sales and hike the price of its products.

It’s ugly stuff, and Glaxo was quick to issue a statement saying it regretted the affair and “shares the desire of the Chinese authorities to root out corruption”. If even half of what has been alleged is true, GSK richly deserves what it has got coming to it.

But it is notable that it isn’t the first big foreign company to find itself in the authorities’ cross-hairs, and it probably won’t be the last. Is there an element of nationalism, and even protectionism, at play here, particularly in a country where local firms often find themselves at a disadvantage against big foreign players with recognisable brands and reputations?

Or is it simply that the Chinese Communist Party wants to make sure that those companies are in no doubt about who’s boss?

Does it matter? It might be rather refreshing for a company like GSK to operate in a country where it has the whip hand held against it rather than the other way around. In much of the world, countries queue up to attract multinationals, offering tax breaks and sweetheart deals, and sometimes turn blind eyes to questionable business practices.

In China, it’s the other way round. Now that it is fulfilling its vast economic potential, multinationals need China more than China needs them. Up until now, it’s only really America that has enjoyed that distinction.

Fairer pensions scheme may not impress Tories

How will the Conservatives react to the proposal to introduce a single rate of tax relief on pensions for everyone, regardless of which tax bracket they fall into? It will be interesting to see.

The Pensions Policy Institute reckons the current incentive for pension saving is a failure. It primarily benefits those on high incomes, and higher tax rates, who will probably save anyway, while doing much less for those with more modest means.

Even after auto-enrolment, people on basic-rate tax contribute 50 per cent of the savings, but get just 30 per cent of the tax benefits. So the institute suggests tweaking the rules to offer a single rate of tax relief on pension saving to all.

That makes a lot of sense, because it would mean the system would be better targeted and more equitable.

Polling also suggests that it would be quite popular. Not as popular as the 70 per cent plus support levels enjoyed by, say, the benefits cap, introduced nationwide yesterday, but popular none the less.

The benefits cap is seen as fair because supporters argue that it is wrong for people to receive more than the national average wage from the state for doing nothing. Its imposition will largely affect Labour supporters, but is a trap for the party because much of the measure’s support comes from Labour voters.

Redistributing pension tax relief from the wealthy to the less wealthy is different. It would ensure that everyone gets the same, so it meets the fairness test, but it could cost higher-rate taxpayers quite a bit long term. These largely Conservative supporters won’t have to move to cheaper areas, but they might have to give up second homes in retirement. So the party might not be quite so keen.

Cowdery’s home truths: Alarmist or alarming?

Clive Cowdery is making some noise beyond the City with his Resolution Foundation, and it may have a more positive impact on the country than his dalliances in the insurance sector. Let’s just say they made him a lot of money. 

Yesterday the foundation came up with the figure that a third of Britain was unaffordable to people on low incomes. Alarmist, said the Housing minister, Mark Prisk. Alarming, to anyone who isn’t socially illiterate.

Even if you disagree with the foundation’s figures, or its methodology (and these can be debated with any research like this), it’s a commonly accepted fact that there is a desperate shortage of state-provided social housing in this country. Thanks to the Bank of England’s Funding for Lending programme, which makes cheap money available to mortgage lenders, home loans are getting a little easier to come by. But you’ll still require a chunky deposit, and buying remains expensive.

Which leaves the private rental sector as the only option for a huge number of people. In desirable areas, private landlords have huge pricing power.

There will be consequences stemming from this. In the private sector, wages may have to rise as firms are forced to pay up to get hold of staff in certain regions. Expect to pay even more for your Starbucks, or your pint, or your burger, in places like London and the South-east. Expect even more pressure on schools, and hospitals too, which don’t have the option of bumping up wages. If you’re going into, say, teaching, why on earth would you do it for a laughably small inner London allowance to live in a hovel?

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