Frank Young editorial director of Civitas.
Northern Ireland has bedevilled the Prime Minister since his breezy promises to ‘get Brexit done’. It is still the cause of fractious negotiation. It hasn’t gone unnoticed that getting Brexit done has left one part of the UK looking both ways, beholden to EU rules but legally part of an independent nation state. It’s a tricky position for the province and certainly our Brexit negotiators.
The unique position of Northern Ireland might just present Jacob Rees-Mogg with the one of the most eye-catching ‘Brexit opportunities.’ A major new report for Civitas by Phil Radford, a trade analyst, has landed on Whitehall desks setting out ambitious plans to turn Northern Ireland into a huge, super low tax pharma production freeport. In a warning shot to Brexiteers, this report shows how the EU is capitalising on UK taxpayer funded research by attracting big pharma to set up factories overseas with the promise of low taxes.
The numbers tell their own story in a disaster decade for Britain. Ministers have literally let billions of pounds slip through their fingers, with new analysis uncovering £10 billion of annual lost pharmaceutical exports through uncompetitive taxes levied on pharma companies. In the five years preceding the referendum, the value of pharma goods produced by UK factories dropped by a third and UK pharma manufacturing has almost halved. This was a calamity of our own making. In the noughties pharmaceuticals were the UKs fastest growing export sector, more than doubling in value between 2000 – 2010.
Despite spending huge sums on pharmaceutical research and developing new drugs, big pharma firms take that UK inspired knowledge and use it to manufacture drugs in countries that offer a more attractive tax regime. No shame in that, these mega firms operate on a global scale and their finance department will know exactly where to go to make the biggest buck.
Over the past decade, private sector investment in pharma manufacturing has swerved away from the UK towards other EU countries. The Republic of Ireland has taken full advantage of the global race to attract pharma manufacturers. Irish pharma exports topped a massive €62 billion in 2020, with Irish officials recently claiming ‘“close to the biggest wave of investment in bio-tech facilities anywhere in the world.’” This is twice the figure for British exports.
We now import almost twice the value of drugs from the EU as we did just ten years ago, and 80 per cent of the UK’s imported pharmaceuticals come from the EU. It’s a mind-boggling position for the country to be in, only months after the Chancellor announced billions in extra research spending to keep Britain top of the league for pharmaceutical research. We have some of the best brains in the world but the missing piece has been getting factories set up and drugs rolling off a conveyer belt. If the Prime Minster could fuse his enthusiasm for freeports with an eye-catching new approach to pharma production he might yet turn his biggest Brexit headache into a post Brexit money-spinner.
There’s a solution: create a super low-tax pharma manufacturing freeport in Northern Ireland by taking advantage of its unique post-Brexit position.
Northern Ireland is now in a unique position to become a major pharmaceutical manufacturing powerhouse, if ministers slash taxes on the production of new drugs in the province. The Treasury could pile tax breaks into pharmaceutical investment and manufacturing in Northern Ireland without prejudicing its tax regime in the rest of the UK.
The Northern Ireland (NI) Protocol requires the region to follow EU laws for manufacturing new drugs. The UK government still sets taxes levied on companies doing business in the province. Drugs produced in Northern Ireland can still be sold seamlessly to the EU and the UK. Turning Northern Ireland into a special pharma production tax zone would allow the province to compete aggressively on tax and scoop up pharmaceutical skills and expertise over the border in the Republic of Ireland.
The paradox of Northern Ireland can be turned into a manufacturing opportunity. Pharmaceuticals produced in Northern Ireland will, in the end, have seamless access to both markets. If the UK can’t shift the investment calculus for global pharma, dependence on overseas pharma supply will increase and profits from UK science will show up on the balance sheets in other countries.
History will almost certainly write up Boris Johnson as an unlucky Prime Minister. A whole life focused on becoming “world king” only to land the top job in Britain just as a global pandemic hits. No amount of reshuffling of Downing Street deck chairs will make up for the time lost in managing our response to Covid. Having raided the piggy bank for public spending, one of the few leavers the Prime Minister has left is tax. In Northern Ireland, a surgically targeted tax cut on producing drugs could turn the tables on our European competitors. What’s more, this sort of innovation could be used to pilot the sort of radical deregulation that Brexiteers wanted, but that Whitehall seems unable to deliver.