Business, Energy and Industrial Strategy Committee
Debate between Andy Slaughter and Rachel Reeves
Rachel Reeves (Leeds West) (Lab)
I am grateful to the Backbench Business Committee for giving time for this statement. This is the fifth and final report in a series of inquiries that the Business, Energy and Industrial Strategy Committee has held on the impact of Brexit on key sectors of our economy, covering the civil nuclear sector, automotives, aerospace, and food and drink, and today, we publish our report on the impact of Brexit on the pharmaceutical sector. Our Committee has made a number of recommendations to the Government on how to get the best deal for the UK as we leave the European Union. We have received over 100 pieces of written evidence, including more than 20 specifically on pharmaceuticals, including from AstraZeneca, Merck, Johnson & Johnson and the Association of the British Pharmaceutical Industry.
As Members know, the UK pharmaceutical sector is among the most productive and innovative industries in the United Kingdom, employing over 110,000 people, and it is part of a global industry in which the UK is a world leader, but Brexit puts that at risk. Pharmaceuticals contribute around 10% of our goods exports, worth almost £25 billion a year, and we import almost as much, with as much as 73% of our imports coming from the European Union.
A number of issues were raised when we took evidence, but the first issue that businesses and trade bodies raised with us were the barriers to trade after we leave the European Union, particularly around customs checks and tariffs. Specifically for pharmaceuticals, delays at borders risk time and temperature-sensitive products expiring, becoming useless to patients and therefore putting lives at risk, while new rules and paperwork mean extra costs to each shipment of medicine or ingredients. The Government must do everything they can to avoid these outcomes for patients.
For pharmaceutical products, many medicines and ingredients are tariff-free under World Trade Organisation rules. That is welcome, but the list of tariff-free medicines is not regularly updated with new medicines. The failure to reach agreements in multinational trade negotiations is stark. It has been over eight years since a deal on adding new products has been reached, meaning tariffs will apply for recent and new medicines, jeopardising cheap access to them.
The industry confirmed to us that trading on WTO terms would mean an increase in the cost of medicines. Merck estimated additional costs to its business alone of £1.6 million a year for import tariffs. The Office of Health Economics estimated a typical pharmaceutical company could expect costs of more than £23 million a year in supply chain, tariff and non-tariff costs and fees. We can expect those costs to be passed on to consumers either in pharmacies or to the national health service, the biggest buyer of pharmaceuticals in our country.
A relationship that is as close as possible, with as close to frictionless trade as possible, would therefore benefit both our country and the rest of the European Union, but the United Kingdom has the most to lose if we do not get a deal. The UK represents only 2.3% of the global pharmaceuticals market, compared with more than 22% for the rest of the EU. It is purely a bigger market than the UK alone.
Beyond the issue of customs and tariffs, there is a further, but related, issue about the regulatory regime that underpins the trade and recognition of products across the European Union. Pharmaceuticals is rightly a highly regulated industry—it has to be—but the prospect of divergence is of key concern to industry. The Confederation of British Industry estimates that each new product—as many as 100 a year—would cost £50,000 each for marketing authorisation in the United Kingdom. We agree with industry that regulatory alignment must ensure that companies do not need to build new facilities, duplicate testing regimes or recruit vast numbers of qualified staff, of which there is already a desperate shortage.
Johnson & Johnson estimated that if there is no mutual recognition of batch testing between the UK and the EU, it would lead to an additional 50,000 tests a year just for Johnson & Johnson, with a cost of almost £1 million a year. Successful British companies such as GlaxoSmithKline have confirmed that they are already spending tens of millions of pounds on setting up sites in the EU to ensure that they can still release products there, in the event of divergence or a lack of recognition of standards.
Without certainty on the future regulatory relationships, companies will either have to invest further in contingency planning or risk losing access to key markets. However, the majority of pharmaceutical companies are not big multinationals, but small and micro-businesses that are unable to afford these contingency measures. A huge and important market is at risk of being closed off to them. We cannot allow that to happen.
The Prime Minister has indicated that the Government recognise the benefit of association with the European Medicines Agency—the regulatory body—but that is not enough. Brexit is already seeing investment flow out of the UK, without a guarantee that it will come back even if a deal is reached. The Government need to provide urgent certainty, otherwise businesses will have no choice but to focus on the rest of Europe, and again, this is something we must avoid.
The EMA, the regulatory body that oversees the rules governing what pharmaceuticals can be sold in the EU, has of course been based here in the UK since 1995. It is currently in Canary Wharf, but as right hon. and hon. Members know, last autumn, the EU announced that the EMA would move to Amsterdam. As a consequence, more than 1,000 jobs and a prestigious body will be leaving the UK and going overseas. The UK has been an influential part of the EMA since its creation, with the UK’s Medicines and Healthcare Products Regulatory Agency being responsible for a disproportionate share of the work on the authorisation of new medicines for use in the EU.
For the EU, the loss of our expertise will put pressure on regulators in the remaining states. For the UK, there is a risk that the MHRA will not have the capacity to work alone, even just for the UK market. It is not too late to save some of these jobs and this expertise for our country, and avoid the duplication of work. Given the mutual benefits of the UK working with the EMA, and the challenges for the organisation in relocating from London to its new home in Amsterdam, our Committee has recommended that the Government seek a continued presence for some EMA staff and facilities in the UK, as well as a continued relationship after we leave. It is in the best interests of patients and consumers across Europe, including in the UK, to do so.
Our Committee heard that any regulatory divergence, and any tariffs or barriers at the border, will see the cost of medicines go up. The American Pharmaceutical Group told us that it “firmly believes” that a no-deal scenario will
“threaten…the position of the NHS as a world-leading health service”,
because it will struggle to access drugs as quickly and cheaply as it does today. For the vast majority of medicines that are supplied to the NHS, the cost will either be borne by the taxpayer or trigger a reduction in the range of medicines available to patients. The Government must secure a deal that does not see that happen.
I give credit to the Government: they have set out a pragmatic approach. We welcome the positive words from the Prime Minister, as well as from the Business Secretary and the Health Secretary in their article in the Financial Times last year. However, as with all the sectors of our economy, the Government now need to turn those words into deeds to secure the best possible deal for the United Kingdom in the interests of business and primarily, of patients.
Throughout our inquiries into sectors, we have sought to find benefits and opportunities from Brexit for those industries, but we have heard no evidence of any real opportunities for any of the sectors we have considered. In already globalised parts of our economy, large untapped markets yearning for British goods are a fantasy. In the responses that we have received so far to our reports on aerospace and automotives, the Government did not dispute our conclusion on the lack of opportunity or the need for close alignment.
For the sectors we considered, we have found specific challenges and risks that Brexit will incur. For civil nuclear, leaving Euratom means leaving an effective nuclear safeguards regime and going it alone. For automotives, “just in time” manufacturing processes are threatened by increased costs and delays at the borders. For aerospace, divergence from European standards would risk our chance of accessing the substantial growth that that sector is experiencing. For processed food and drink, there is a risk that border delays will make products unusable, and costly border delays may cause food prices to rise.
I hope that I have shown the impact of Brexit on pharmaceuticals: customs delays, potential new tariffs, and, in particular, the risks of regulatory barriers to trade. Perhaps there are benefits from leaving the European Union, but we have seen no evidence of what they may be, at least in the sectors that we have considered.
Andy Slaughter (Hammersmith) (Lab)
GSK is based in west London, and I am well aware of the damage that Brexit will do to the pharmaceutical industry. During her investigations, did my hon. Friend see any advantages at all—any indication that, as the Brexiteers maintain, markets will suddenly open up to the industry if we do leave the EU?
Rachel Reeves
We already export to countries outside the European Union. We are a success in that sector. We took huge amounts of evidence in the UK and in Brussels from small and big businesses, and not a single one pointed to any benefits of leaving the EU, or any opportunities we could seize that we do not have today.