Failed AstraZeneca deal is no way to sell Labour’s pro-growth ambitions

Good morning. Chancellor Rachel Reeves took a bruising last week when pharma giant AstraZeneca — the UK’s largest listed company — announced it was pulling the plug on its planned £450mn vaccine manufacturing site in Speke, Liverpool. The original agreement had been signed to much fanfare by former chancellor Jeremy Hunt in spring of last year.

It was extra painful because the pharmaceutical company’s decision came just hours after Reeves name-checked AstraZeneca as one of Britain’s “great companies” in her big speech about Labour’s plans for growth, as she trumpeted the UK as a top location for business investment.

The slow-motion disintegration of a £450mn project covers neither the Labour government nor AstraZeneca in glory.

Dissecting a failed deal

Several sources involved in talks with government say the pharma giant crow-barred its wider financial and commercial interests in the UK into its negotiations, including frustration about its breast cancer drug being rejected by the NHS because it was deemed too expensive. People on the government’s side also say AstraZeneca moved the goalposts on how much it was planning to invest in research and development in the UK. This meant that when the Treasury applied its standard internal calculations to determine grant funding, the overall figure came out less.

Some have also questioned how serious AstraZeneca was about building the vaccine plant in the UK, especially given it ended up rejecting a Labour offer of state support that came pretty close to what Hunt had originally offered — £78mn vs £90mn. They have also asked how necessary the extra £12mn was to a company that posted $13.5bn in profits in 2023.

In spite of these things, the cancelled project seems like (another) case of the Labour administration missing the political salience of a funding decision, and thereby allowing it to slip through its fingers. 

Starmer’s government is desperate to show that it has a credible plan to inject growth into the economy. One way of showing whether that plan is working is being able to point to inward investment from the private sector. You may have noticed how cabinet ministers are programmed to mention roughly once a day the £63bn that companies committed to invest in Britain at the global investment summit last autumn.

And it is not just optics. When it comes to the life sciences, a lot of the value chain for high-end medicines is not just in research, where the UK already punches well above its weight, but in manufacturing, where the UK is not particularly strong.

The truth is that when the prime minister and the chancellor really want to get a deal done because they see its huge value to the economy and to the narrative they are trying to craft, they find a way to get it done. 

Another prime example of this is the supercomputer project that was supposed to be built at Edinburgh university. The Conservative government had promised £800mn to fund the “exascale” supercomputer, which would be able to perform a billion billion calculations a second. It was billed to be one of the most advanced supercomputers in the world, allowing Britain to compete with the likes of the US, China, France and Japan. Tech experts and government officials agreed it was crucial for the UK to invest in sovereign compute capacity to ensure it can build a successful artificial intelligence sector and remain ahead of the curve in scientific research.

But one of the first things Peter Kyle did when he came in as tech and science secretary was to scrap the programme, insisting it had never been budgeted for. It is true that the former government had never stumped up the cash to actually fund it from Treasury coffers — same as with the AstraZeneca site in Speke. But where there’s a will, you’d think there would be a way.

Instead, Starmer announced last month that his government would publish a long-term compute strategy in the spring, even though there had already been a comprehensive review conducted into the Future of Compute in 2023. That had called for . . . “immediate investments” in exascale compute.

It seems likely that when the spring review comes around the government will announce plans to invest in a supercomputer — probably even at Edinburgh university — while having squandered months of work and a lot of political capital along the way.

Both the AstraZeneca and Exascale projects appear to be — at least in part — examples of ministers listening to naysayers in the Treasury and accepting their technocratic logic, without anticipating the political implications of the decision (see also the government’s decision on winter fuel payments).

These decisions are particularly perilous given the projects in question fit squarely within the remit of the government’s “principle” mission: growth.

Now try this

I’m planning to go to the Brasil! Brasil! exhibition at the Royal Academy on my day off on Friday. With the weather forecast suggesting we are in for a delightful mix of clouds and rain here in London, I am very much looking forward to transporting myself into the warmth of Tarsila do Amaral’s bright and playful modernist world.

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