GlaxoSmithKline's plans for expansion will see it pay more tax in the UK but also deliver the prospect of new jobs

Andrew Witty, CEO of GlaxoSmithKline, has reiterated that the government's patent box will make the UK more attractive to businesses. Photograph: Linda Nylind

http://www.guardian.co.uk/business/2011/jul/26/gsk-uk-economy-tax-pledge

GlaxoSmithKline lent its support to the UK economy on Tuesday by pledging to hire more staff and pay more taxes – in stark contrast to its US rival Pfizer, which is shutting a key centre in southern England.



Glaxo's chief executive, Andrew Witty, reiterated that the government's patent box – which will offer lower rates of corporation tax on profits generated from the fruits of UK research and development from 2013 – had made the UK more attractive. He has previously attacked British companies that relocate in search of lower taxes, lambasting businesses that turn themselves into "mid-Atlantic floating entities" with no connection to society. The UK's largest pharmaceuticals company, based in Brentford, west London, employs about 16,000 people in Britain of a global workforce of 98,000, and is promising to expand at a time when Pfizer is shutting its R&D centre in Sandwich.



"We expect over the next several years to be increasing our activity in the UK. What we want to do is have more manufacturing and do more R&D work in Britain," Witty said on Tuesday. "We would expect this to lead to us paying a greater tax yield in the UK."



This will increase the corporation tax paid by the company – £500m last year, with 97% of sales made outside Britain – because more profits will be deemed to be generated here. He added the company would be a "net hirer of personnel" in the UK in the next few years, which also means higher employee taxes. Witty cautioned that any further cuts to drug prices could make the UK less attractive as a base but added that the UK managed to strike a good balance between setting competitive prices for medicines and supporting research.



Glaxo has started to bring back some manufacturing that had been moved to India and intends to build a new factory in Britain for the first time in 25 years, which could create 500 jobs. It is considering Cumbria, County Durham and two sites in Scotland as locations. Globally, it expects to reduce its tax rate from 27% to 25% by 2014 as it shifts drug production from the US to emerging markets.



The drugmaker moved back into the black with a £1.1bn profit in the second quarter following a £340m loss a year ago, when it was hit by a £1.6bn legal charge to settle litigation over Avandia's links to heart risks. It reported a 4% drop in sales for April to June to £6.7bn, following sales declines of 10% and 11% in previous quarters.



GSK also announced that Promacta had produced positive results in late-stage clinical tests for hepatitis C.



Under Witty, Glaxo is focusing more on consumer healthcare and emerging markets. He hailed bumper sales of Sensodyne toothpaste and Horlicks, one of the most popular drinks in India, and said that the group would return to sales growth next year after a run of patent losses. "This is quite an important turning point for the group. The headwinds are diminishing. This is a fundamentally different-looking group to the one we started with a few years ago."



One of the first big pharma companies to revamp its research operations, GSK will now make £300m more cost savings than expected, bringing the total to £2.5bn by the end of 2012.



Witty was confident that GSK would be an R&D winner. It has been spending around 14% of sales on research since 2007. Opinion is divided over whether Big Pharma companies should slash their R&D budgets and buy in more drugs developed by biotech firms and universities to boost their profits and share prices.



Last year spending on R&D by the pharma industry fell for the first time, as Pfizer started chopping its R&D budget by $1.5bn to $6.5bn following its acquisition of Wyeth. This means it will only be committing 10-11% of its 2012 estimated revenues to R&D. Pfizer's former head of research John LaMattina has warned that the cuts may come back to haunt Pfizer."That's a pretty low percentage for the largest pharmaceutical company in the world," he said recently. Historically, the industry has spent 15% to 20% of sales on R&D.