UK pharma and biopharma was quick to respond positively to the Chancellor of the Exchequer’s annual Budget speech last week, despite some industry disappointment at a fiscal program widely derided as safe, neutral, and, in Andrew Goodwin of Ernst & Young’s words, “one of the most predictable” of recent times.
GSK’s announcement that it plans to build its first new pharmaceutical plant in the UK for 40 years, encouraged by the Budget’s ‘Patent Box’ — which impose a lower rate of corporation tax on profits generated from UK-owned intellectual property — was a particularly ringing endorsement for the Coalition government’s measures. (Although, as the Economist Intelligence Unit’s Ana Nicholls points out, the drugmaker “has been lobbying for years for this new regime to be introduced to underpin its investment plans in the UK.) GSk also confirmed it will invest more than £500m to boost production of key active ingredients for its pharmaceutical products and vaccines across its UK factories.
The idea of the patent box is not new — it dates back to the previous Labour government — but the Coalition has broadened its reach in order to increase the benefits to the pharma industry. Under the patent box, businesses will pay just 10% tax, rather than the 22%, on any profits arising from newly commercialised patents in the UK.
Both ABPI and BIA leaders (Stephen Whitehead and Glyn Edwards, respectively) reacted to the Budget with more muted praise: “The measures announced … will help improve the UK’s general business environment and allow pharmaceutical companies operating here to remain competitive in a global market,” announced Whitehead, while Edwards declared that BIA is “pleased that the Chancellor recommitted the government to supporting the life sciences sector…”
But their concerns about the government’s vision for innovation were also underlined. “Looking beyond the Budget” Whitehead said, “it is essential that recognition is given to the importance of a strong commercial environment for industry, where the uptake of new innovative medicines is ensured and pricing rewards innovation.” For Edwards, while the Chancellor’s plan to invest £100 million in the “commercialization of research” is welcomed, this would “be helped if innovative companies have access to additional sources of funding…”
Elsewhere, private sector representatives pulled fewer punches in conveying a sense of disappointment. The Forum of Private Business’s Chief Executive, Phil Orford, said that while the Budget showed some “tentative steps in the right direction,” it wasn’t enough to instill confidence in businesses and the economy when it is most needed, that is, now.
“We saw nothing on reducing the mounting burden of business rates or fuel duty… Further, we called for tax incentives to pave the way for alternative lenders to compete more effectively in finance markets dominated by the big banks, but there was nothing on this in the Budget,” said Orford, adding “the Chancellor could have gone further to give businesses and the economy a bigger boost.”
Meanwhile, Howard Archer, Chief UK and European Economist at IHS Global Insight, warned that the UK’s projected GDP growth of 0.8% in 2012 (revised up from 0.7%) “is still worryingly weak and hardly a matter for celebration.”