John McDonnell would look to reform or scrap a £1bn tax relief that was initially designed by the previous Labour government as a means of promoting innovation in companies, including in the pharmaceutical industry.
The shadow chancellor said the so-called patent box, which boosts profits from patented innovations by halving the rate of corporation tax due to 10%, was a “potential tax loophole with limited impact on research”.
McDonnell said the benefit was enjoyed mainly by large corporations and was not proven to drive up research. He proposed using the savings to set up a fund for Alzheimer’s research.
“It’s time we redirected those resources to focus on the urgent priorities our society faces, including much-needed research into dementia,” McDonnell said.
On Thursday Jeremy Corbyn told an audience at his Labour leadership campaign launch that medical research “shouldn’t be farmed out to big pharmaceutical companies like Pfizer”.
There have been accusations from some supporters that his opponent in the leadership contest, Owen Smith, is a “Blair-lite” candidate because of his previous work in policy and corporate affairs at both Pfizer and Amgem.
Corbyn’s comments led another Labour MP, Helen Goodman, who sits on the Treasury select committee, to say the industry should not to be used as a political football.
“Our pharmaceutical companies are a prime example of a competitive British international success story. Pharma companies employ 93,000 people in the UK and frequently collaborate with our excellent universities, for example in Newcastle and London,” she said.
Goodman added that life sciences epitomised what modern manufacturing should be: “High-value, high-skill jobs.”
Speaking before the new policy was revealed, she said: “That’s why we have the bipartisan agreement over the patent box tax regime, designed by Labour and implemented by the coalition government. What industry wants is medium-term stability for investment. We are already dealing with Brexit uncertainty and we shouldn’t be adding any more.”
Goodman said it was “totally unrealistic” to nationalise research and development functions. “The value of the intellectual property is huge – the industry is worth £13bn a year in gross value added – and nationalising it would cost billions that could be put to better use on, for example, housing.”
Others pointed out that the Medical Research Council, an NHS body that carries out studies into drugs, spends around £506m a year on research and development, while Pfizer alone spends £4.8bn.
Dr Richard Torbett, executive director of the Association Of the British Pharmaceutical Industry, called the patent box an important incentive to help keep life sciences research, development and manufacturing in the UK. He said: This not only helps UK patients, through the development of new medicines but also supports investment and high value jobs.
“At a time of significant uncertainty for life science companies, since the UK referendum to leave the European Union, it is critically important that the UK sends a strong signal that it is open for business. We should encourage, not abolish, proven initiatives that attract companies thinking of investing in hi-tech industries like the UK life-sciences.”
McDonnell said Corbyn’s comments on the pharmaceutical industry had been misinterpreted.
He told the BBC’s Andrew Marr that Corbyn had been “arguing that research in this country – not just pharmaceutical research, but right the way across the piece – should be better managed and more effective. So when it came to pharmaceutical research, it should be better managed and better supported. In fact we should be increasing our resources.”
McDonnell said the policy to look again at the patent box was not an attack on companies but a move to close down loopholes, amid the suggestion that the policy could be used to avoid tax.
He said there was little evidence that it was an effective way of driving research, highlighting criticism by the Institute for Fiscal Studies, and argued that it was effectively a £1bn handout to corporations.
Rebeccca Long-Bailey, the shadow chief secretary to the Treasury, said: “It’s unacceptable that millions of people see their public services underfunded and their in-work benefits cut while the government fails to scrutinise the tax reliefs it gives to multinational corporations.”
The economist Marianna Mazzucato, who has advised McDonnell, has called the patent box a “scam with no effects on innovation”.
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