IT WAS a bad day for Merseyside’s aspiration to become home to a cluster of pharmaceutical and biotechnology firms when Glaxo SmithKline closed its Speke asthma inhaler factory in 2004.

The company said the decision was taken following a “worldwide review” of its respiratory drug manufacturing capabilities. 600 jobs were lost locally.

Speke lost out to factories in France and what at the time was a recently constructed plant at Zebulon, in North Carolina. The harsh fact is that pharmaceutical products and their delivery systems change at a rapid pace. Older factories, like Speke, are less likely to benefit from fresh investment to make updated products.

Another feature of such investment decisions will be national tax policies. The US, where there is a huge market for pharmaceutical products, is more likely to attract operational investment and countries like Ireland and Switzerland, which have very low levels of corporation tax, are more likely to woo corporate headquarters, particularly treasury management activities. GSK moved its head office to the US, Shire went to Ireland and Wolseley, an engineering firm, has relocated to Switzerland.

Many others have followed suit.

Often the job implications of relocating treasury operations are not big, but such relocations have obvious implications for the Government’s corporate tax take.

That’s why this week’s decision to cut the effective UK corporation tax rate for the offshore treasury operations of multinationals to 8% makes good sense. As does the decision to cut tax on returns from intellectual property to 10%.

IP is highly mobile. It can easily move to anywhere in the world. If Britain wants to become a world-leading knowledge economy, we must compete as hard as we can for such investment.

In what looks like a co-ordinated announcement, GSK also said this week it will now invest £500m in manufacturing projects in this country.

As well as a new £50m venture fund and new links with Nottingham University, GSK’s money will be used to develop manufacturing facilities for the company’s next generation of hi-technology respiratory inhalation devices for asthma and chronic obstructive pulmonary disease at Ware, in Hertfordshire.

The tax break will also ensure that the UK is the location for GSK’s next biopharmaceutical manufacturing plant. The company is embarking on a feasibility study on the location of this facility. Current GSK manufacturing sites in Montrose, in Scotland, Ulverston, in Cumbria, and Barnard Castle, County Durham, will be considered first.

Given this region’s expertise and ambitions in both asthma treatment and biomanufacturing, it would be hoped that Merseyside could be shortlisted as a possible location for such investment. While that is not happening on this occasion, the IP tax changes represent an opportunity for our inward investment agencies to put their best foot forward to claim a share of future investments.

Undoubtedly many on the left will complain about the iniquity of this preferential tax break, but it should not be thought of with the same sense of injustice created by the way low capital gains tax rates were exploited by private equity investors. The development of the knowledge economy can have a tangible, productive and high-value impact on the nation’s economy.

This week’s tax concessions are a clear sign that the coalition Government intends to back business with the sort of measures that make a difference.