The international going-rate for state aid to part-fund a large pharmaceutical facility costing a few hundred billion pounds, euros, dollars, or whatever, is hard to pin down. Governments don’t publicise sweeteners and a company’s thinking will be guided by many factors, including the wider tax regime. But a rough rule of thumb, say industry insiders, is a 15%-25% subsidy for capital costs. Singapore has a reputation for being more generous.
Thus, if it is correct, as the FT reports, that Jeremy Hunt verbally offered AstraZeneca £65m towards a proposed £450m vaccine-manufacturing plant in Speke in Merseyside, one could say the last chancellor did OK with 14%.
On the one hand, he was advantaged in the negotiation by dealing with the UK’s national champion in pharmaceuticals – a company that already manufactures in Merseyside as well as having a big research facility in Cambridge. On the other hand, he will have known Speke would have been a bad project to see slip overseas: upgrading domestic vaccine-making capacity is more important after Covid, and in 2021 AstraZeneca chose Ireland over Warrington for a facility making active pharmaceutical ingredients.
The Speke project was announced in March this year, with the usual ra-ra boasts from the company and the government about a vote of confidence in the UK. The only minor uncertainty was in the last line which mentioned the company’s investment decision being “contingent upon mutual agreement with the UK government and third parties”.
Now, five months and one change of government later, the agreement has still to be nailed down. Rachel Reeves, today’s chancellor, is hoping to cut the amount of state aid for the project to about £40m.
AstraZeneca won’t comment and the Treasury says “positive discussions” continue, so harmony may still prevail. Yet any hint of doubt still looks terrible. It also jars horribly with Reeves’s rhetoric about boosting growth, firing up private-sector investment and setting a more stable climate for policymaking.
One could argue that the chancellor is within her rights to revisit her predecessor’s commitments to try to save a few quid. And some may take the view that AstraZeneca, with a stock market value of £200bn, is rich enough to fund its plants itself, noting that a £25m gap would be only a few million less than Pascal Soriot, AstraZeneca’s CEO, could earn personally this year.
Unfortunately, the cold commercial reality is that big pharma firms have choices about where to invest. As with the energy sector and the Inflation Reduction Act in the US, companies react to financial incentives. Other European countries, one suspects, would be willing to cough up more than £65m to have a state-of-the-art vaccine plant on their soil. Pragmatism says Reeves should hurry up and get the Speke deal nailed down.
Under the Conservatives, there was a long period of tension with the pharma sector over everything from research and development tax credits, the pricing of prescription medicines and the NHS’s capacity to conduct clinical trials. Investment undoubtedly suffered. Life sciences is “still the object of suspicion and incomprehension within parts of government”, said Dame Kate Bingham, the former vaccines tsar, in early 2023, arguing that short-term pressures were crowding out long-term solutions.
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It was only towards the end of the last administration’s time in office that the mood seemed to improve – and the Speke announcement was emblematic of that. It would be quite a reversal if the deal were to come unstuck now.
“We are committed to making the UK one of the best places in the world to develop and manufacture new and innovative medicines,” says today’s Treasury. Very good, but very vague. Subsidies for £450m plants, sadly, are a fact of life and, like it or not, AstraZeneca holds a strong hand at Speke. To be pro-growth, chancellors sometimes have to play the game.