GlaxoSmithKline split: a parable for Britain today

Earlier this month, London got a new member of its FTSE100 index, as GlaxoSmithKline split, amoeba-like, its non-drugs business from the pharmaceuticals. A fortnight on, it’s safe to say that the separation has not meant an instant transformation in the fortunes of the shareholders. The two businesses are currently worth less than the previous combination.

Perhaps that is to miss the point: a small group of individuals are very much better off, thanks to the fees such operations generate. A select band of bankers, brokers, lawyers and the tail-end Charlies in financial PR will be sharing tens of millions of pounds in fees.

The Glaxo shareholders have long lived with disappointment, as they watched arch-rival AstraZeneca prosper while their investment stagnated. The pressure to do something had become overwhelming, and the de-merger was the result. It looks like a classic case of Something must be done, this is something, therefore it must be done. The logic was secondary to the fees.

It’s a sort of parable for Britain today. A very few people at the top have become rich in recent years, in most cases not by creating wealth where there was none before, but by getting to the right place in the big company, investment bank, solicitors’ or accountancy firm. The sums they deal with are so substantial (Haleon, the GSK healthcare spin-off, is valued at £28bn) that the sliver that sticks to their metaphorical shovels is enough to help them become seriously rich.

The partners in the leading firms are typically taking home high six figure, or even seven-figure sums. Solicitors McFarlanes paid an average of £2.5m to each full partner last year. Those at Clifford Chance, for example, are averaging £2m each and many others are in the same league after a year of frenetic deal-making, prompting an anonymous source to tell The Sunday Times that “it’s been exhausting for everyone.” The rest of us can only express our deepest sympathies.

At accountants EY, the partners have decided that auditing ain’t what it was, and are splitting the firm. If they can agree, those going into the consultancy arm will have shares worth around $8m each, while those staying in boring old audit will each get a $2m payment. Audit has not been EY’s strong suit recently; it failed to spot $4bn of undisclosed debt at NMC Health, once a FTSE100 group. The administrators have filed a $2.5bn claim for negligence for failing to carry out “basic checks.” EY is also the firm which audited Wirecard, Germany’s biggest financial scandal.

This relatively small number of individuals has been paid so much that they make the average figure for take-home pay in the UK quite respectable, disguising the stagnation or worse for the majority. We may not much like the tactics employed by trades union leaders, but their members have seen the value of their pay stagnate or get eaten by inflation. Militancy from those who represent them and have the industrial muscle to cause pain is no surprise, even without the pantomime villain approach of Mick Lynch of the RMT.

Wherever they can, workers are trying to protect themselves against getting poorer, competing for a slice of a cake which is not getting any bigger. The combination of Covid costs, past policy errors like Test & Trace, financing the war in Ukraine and the financial black hole that is the NHS is reflected in double-digit inflation. Both candidates for prime minister talk about going for growth, but on what they have said so far neither has any convincing idea of how to get it.

Obsessed with tax cuts, they have nothing useful to say about strikes, and miss the point that so many public services are failing. From the Passport Office to the DVLA and border controls, the impression is of workers who are not much interested in working. The legacy of the Johnson years is a builder’s skipfull of attention-grabbing headlines which could never be turned into practice. Instead, we have a public sector full of people sitting at desks – or working from home – and too few actually providing public service.

Like the long-suffering shareholders in Glaxo, those actually doing the grunt work can see who have been the real gainers from years of incompetent management – and it’s not them.

You can be Sirius

Two years ago mining giant Anglo American bought Sirius Minerals, a bizarre venture to mine fertiliser off the North York Moors National Park. To avoid disrupting this natural beauty, the polyhalite is to be sent through a 22-mile underground conveyor belt to its shipment terminal.

The original promoter was so enthusiastic that tens of thousands of locals bought shares (in defiance of much outside advice). When it came, Anglo’s bid, at 5.5p a share was essentially a rescue for the project. The company effectively admitted this when it wrote down its value by $739m, rather more than the £405m cost of the takeover.

Now those who lost their shirts are grumbling that the scheme’s architect and former boss, Chris Fraser, was paid $3.3m last year, as he moved up the Anglo pecking order. He has at least ensured that his plan is being realised, even if a statue in Whitby is unlikely.

In A Long Time In Finance this week:

The Tory leadership contest has been badged as a “battle of economic ideas” between “prudent” Rishi Sunak and “go for growth” Liz Truss. But what exactly are these ideas, where do they come from, and how relevant are they to Britain’s current situation? Neil and Jonathan talk to economic historian Duncan Weldon about the contenders’ plans to put Britain back on track.