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For Vince Cable, the news could hardly have come at a worse moment. Any business minister would be depressed by the axe falling on more than 2,000 jobs, and the closure of a sleek, hi‑tech research facility. But with the coalition under fire for failing to set out its "vision" for growth, and rising fears of a slide back into recession, the announcement that the US drugmaker Pfizer was closing its lab in Sandwich was the last thing Cable wanted to hear.
Britain lacks the "national champions" beloved of governments in Germany and France – and arguably even the US, where the collapse of the carmaker General Motors at the height of the financial crisis was deemed so unthinkable that Washington stepped in and nationalised it. But with the global giants GlaxoSmithKline and AstraZeneca based here, pharmaceuticals is probably as close as Britain gets to a strategic industry.
So Pfizer's decision to close the plant, with the loss of up to 2,400 jobs, cast a shadow over the government's hopes for an economic renaissance, with hi-tech, knowledge-intensive jobs helping to take up the slack as the bloated financial services sector shrinks and the Treasury's axe-swinging results in hundreds of thousands of public-sector layoffs.
"It was very disappointing," says Cable, who met local councillors on Wednesday to discuss how government can help safeguard some of the jobs. The science minister David Willetts will visit next week, underlining how seriously the government is taking the decision.
Unemployment has risen to hit 2.5 million, according to the latest official figures, and the coalition urgently needs a jobs boost from the private sector. But with the coalition's "growth strategy" yet to appear, Pfizer's decision underlines how difficult it may be to keep employment up in the face of tough global competition.
Low-skilled manufacturing jobs have been heading overseas to cheaper locations for decades, hollowing out the UK's industrial base, and that process continued under Labour – more than 1.5m manufacturing jobs have been lost since 1997. But politicians and economists often comforted themselves with the idea that, with its highly skilled workforce and liberal capital markets, Britain could hang on to higher-value jobs in research and development.
Jeegar Kakkad at the manufacturers' organisation EEF says we shouldn't kid ourselves. "There's no such thing as a sustainable competitive advantage," he says. "The Chinese and the Indians were never going to be satisfied with just doing low-value manufacturing." He says emerging markets' rising importance is acting as a big draw. "The reason production is going abroad these days is not because it's lower cost; it's because it makes sense to be closer to the customer."
Pfizer itself was quick to insist that its decision was not a vote of no confidence in the UK as a business environment but rather reflected a broader rethink of priorities. "We have chosen to focus our efforts in areas where we believe we can deliver the greatest medical and commercial impact," said a spokeswoman. "We propose to exit certain therapeutic areas, including allergy & respiratory, which is based at Sandwich." She also stressed that Pfizer would press ahead with research collaborations with other firms and universities.
This approach reflects a growing shift among drugs firms globally away from in-house research and development (R&D) departments towards buying in research by swallowing up new firms or tapping the expertise of university researchers – a model known as "open innovation", which has also been adopted in the hi-tech sector.
But the shadow business secretary, John Denham, says the news from Sandwich is "hugely significant", adding: "What it tells us is that the growth strategy we need now has got to meet much harder tests than a few years ago – it certainly can't come from a few tax cuts or a few incentives."
Stian Westlake, director of research at the National Endowment for Science, Technology and the Arts, agrees that the trend towards open innovation means that instead of wooing a few high-profile investors, ministers must now wade through rules and regulations to ensure the UK nurtures the kinds of innovative start-ups where the most exciting R&D now takes place.
He points, for example, to tax rules which mean that when a charity such as Cancer Research collaborates with a company, even on just 5% of a research project, the full value of that project becomes liable for VAT – hitting exactly the kinds of partnerships the government would like to encourage.
"We have got to create the environment for high-growth companies to thrive," he says. "Some of those things benefit everyone, such as having a highly skilled workforce, but you also need to have a sectoral perspective."
Rebalancing and growth
In Rotherham on Friday to set out the coalition's approach to "rebalancing" the economy, Nick Clegg, the deputy prime minister, derided the industrial policy decisions made in the dying days of the Labour government as a "pick-and-mix" of help for particular sectors. The £80m loan to steelmaker Sheffield Forgemasters to help them build parts for nuclear reactors, for example, was cancelled by the coalition as unaffordable.
"Growth is going to come from the private sector," Cable says. "It's going to come from exports and manufacturing. We have identified a series of market failures where government can step in. We are concerned about looking at all aspects of government policy, like planning, like competition policy, and ensuring that the whole government works together."
But many share the concerns of the outgoing CBI boss, Sir Richard Lambert, who warned in his valedictory speech that instead of a "vision" for growth, the government had produced "a few rather vague ideas about the scope for supporting a number of predictable sectors".
Insiders paint a chaotic picture of a "growth paper" being drafted, signed off and shown to lobby groups before being pulled at the last minute. The much-vaunted "green investment bank", offering state backing for innovative new firms, has yet to open and ministers have still not agreed how it will work. When Cable called a "manufacturing summit" with business leaders last month, the press conference had to be put back for three hours because he got stuck in traffic on his way back from a visit to bike-maker Brompton, in west London.
Labour's John Denham suggests ideological ambivalence may explain the government's reticence in setting out a new economic direction for Britain. "They're basically tied to the idea that if government does less, and they cut corporation tax, the private sector will come through."
Adam Lent, head of economics at the TUC, says it has been easier for the coalition to focus on the more concrete challenge of tackling the deficit. "They don't really know exactly where they stand. They want an export-led recovery, they want us to be like Germany; but Germany did that over a number of decades, through quite extensive industrial policy – they had state investment banks, they had skills levies, for example".
But Cable insists: "We're not laissez-faire." He cites "a series of steps", first tackling the deficit, then introducing pro-business measures such as extra funding for apprenticeships, banking reform and the green investment bank, details of which are due in May.
The government is also proud of the so-called "patent box", proposed by Labour and implemented by the coalition, which grants firms a tax cut on products developed from technology patented in the UK.
Glaxo cited the patent box as a reason for its recent launch of a new £50m "venture capital fund" to invest in university spin-outs and early-stage healthcare firms, and to spend £500m on expanding manufacturing in the UK. Andrew Witty, Glaxo's chief executive, said: "The patent box has… changed the game: why would we build anywhere else except Britain? It is very attractive for us to invest here."
Another of Cable's plans is a network of "technology and innovation centres" to help develop scientific discoveries into commercial products – often a difficult step. But one business source noted that the £200m the government set aside for the centres is little more than the £185m Princeton University is spending on a single giant chemistry lab, financed by the proceeds of the cancer drug Alimta, discovered by one of its scientists.
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