Fool's Gold: How the coalition government is killing Britain's chemical industry

If the coalition government proceeds with the research funding cuts to the chemical industry, it betrays that it has fundamentally misunderstood how the real economy works, placing short-term (non)-savings over long-term economic solvency.

Pfizer has already moved to close its R&D base in Kent
David Merlin-Jones
On 16 August 2011 11:00

This week, it became apparent that David Cameron and his government are unfamiliar with Aesop’s Fables.

If they were, they would remember the tale of the goose that laid the golden egg, in which the farmer, on seeing the goose lay such an egg every day, kills it, assuming the bird contains a lump of gold. On opening it, he found that the goose was the same as any other bird on the inside: by trying to gain riches all at once, the farmer deprived himself of his daily income.

On Monday morning, a letter was sent to the Prime Minister by a hundred of the world’s leading chemists warning of the dangers of cutting research funding for chemistry and the potential knock-on effect this will have for industry. This concern is rightly voiced, and like Aesop’s farmer, Cameron is potentially sacrificing a £60 billion pound industry in vain.

Simply looking at the numbers should ring alarm bells in any objective reader’s head. Taking the chemical industry at its narrowest, it employs 200,000 workers directly, 400,000 indirectly and contributed £17.1 billion in terms of gross value added in 2009 at 2006 prices. Moreover, it accounts for fifteen percent of British exports and is the sole sector with a positive trade balance.

Taking the entire input of chemistry to the economy, the Royal Society of Chemistry found it provided six million jobs and contributed £258 billion value-added to the UK economy in 2007, or twenty-one percent of UK GDP. This is a large golden egg.

The effect of cutting research funding, both for study grants and PhD studentships should be clear to everyone, though sadly and inexplicably it is not.

Chemistry is an internationally competitive business, and the UK’s loss will be the gain of Japan, China and the US. The next generation of Nobel Prize winners will emigrate to find work, leaving Britain without another generation to maintain the industry. Indeed, this should already be a pressing issue, given the average age of those in the chemical industry is over fifty.

If Britain willfully reduces its competitive advantage in such a way, the result will be that companies too will emigrate. At first, without the innovations catalysed by grants, spin-offs will stop being spun-out, and sectorial stasis will set in. Soon, the stagnant nature of UK research will lead to large multinationals pulling out of Britain as it is rapidly overtaken by other countries offering a much more dynamic business environment. In a few short years, the UK will find itself an industrial backwater.

This is very short sighted, and the way out of our economic rut is not by making petty cuts that will have no discernable effect on the government’s balance sheet - bar, of course, the huge loss of tax revenue caused by the collapse of the chemical sector. Indeed, the net outcome will be negative for the government, given the consequential rises in unemployment and benefit pay-outs. This is a false economy, in every sense of the word.

There is an additional concern. The UK chemical industry thrives because it is so enmeshed with other sectors. Even wind turbine blades are reliant on chemical innovations to provide the lightest, sturdiest materials possible. Lose the chemical cornerstone and suddenly many companies will find themselves without a reason for remaining in Britain, and that includes the green companies that the government seeks to promote.

The funding cuts are all the more surprising given Cameron’s apparent sympathy for the chemical industry. Wanting them to invest in the UK and hire British scientists, he claimed in January 2011 that he had ‘personally been on the phone to the heads of some of the biggest pharmaceutical companies, like Amgen, like Pfizer, to encourage them to do just that’.

Pfizer promptly announced it was pulling out of the UK some weeks later, embarrassing the PM, and highlighting that the Coalition’s attitude towards securing industrial investment was too weak.  In light of that, the cuts appear a vindictive manoeuvre.

That the government appears unaware of their looming disaster is symptomatic of politicians who appear entirely turned-off by manufacturing and the cuts are only one facet of this.

In my book, Chain Reactions, I have already discussed how chemical companies have to deal with huge green costs that will push their bills up from £3 million now to £17.5 million by 2020. Many firms also suffer ignorant bureaucrats creating insurmountable red tape; the ‘stick’ of punishing industry for merely existing is growing, and now the ‘carrot’ of rewarding its location in the UK is shrinking.

Overall, it is clear that modern Britain does not have a positive attitude towards industry. Commentators sometimes wonder why Germany is so much better at manufacturing than the UK, and a large factor is their ethos of fostering it. The UK’s apparently antithetical stance is a travesty, and one that the government will soon come to regret.

If the government proceeds with the research funding cuts, it betrays that it has fundamentally misunderstood how the real economy works, placing short-term (non)-savings over long-term economic solvency. This is even worse than killing the goose to get to the imagined gold inside: we know there’s no gold in there, but reach for the axe anyway.

David Merlin-Jones is a Research Fellow at the independent think tank Civitas and author of Chain Reactions: How the Chemical Industry Can Shrink Our Carbon Footprint. He specialises in economics, energy and British industry. 

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