Branded Health Service Medicines (Costs) (Amendment) Regulations 2023

Debate between Lord Allan of Hallam and Lord Warner

Thursday 25th May 2023 Lords Chamber

[Lord Warner (CB)]

My Lords, I support the regret Motion moved so ably by the noble Lord, Lord Hunt of Kings Heath. I agree with quite a lot of what the noble Lord, Lord Lansley, has said, but I am not going to be as wide-ranging as him. The Minister may be relieved to know that.

I speak from the perspective of having been a Pharmaceuticals Minister who negotiated a 7% reduction in the price of branded medicines, under the old PPRS, without damaging the UK’s life sciences industry and with the agreement of the Treasury. So it is possible to do these things and make such schemes work if, across government—we will come back to that—there is a willingness to engage properly with the industry. What we see here is that failure across government to deal with the industry.

Unfortunately, the regulations before us will, as has been said, significantly damage the UK life sciences sector. That was confirmed for me by the briefing received from the ABPI and some of the pharmaceutical companies that have also set out their views in relation to these regulations.

The regulations increase the repayments by pharmaceutical companies in the statutory price scheme to bring them into line with the already high levels in the voluntary price scheme, so we have a scheme which is catching up to an already unsatisfactory scheme. That is a wonderful achievement for government departments to have delivered. Government departments seem to have simply ignored the warnings they have been given about what will happen if they press on with the regulations as they stand. Instead, they have produced what I would regard as an unconvincing and wordy impact assessment, which has already been commented on. It totally downplays the warnings from the industry. The industry made its position very clear in the ABPI briefing for this debate. It points out that the proposed rebate of 27.5% of companies’ revenues

“is a rapid escalation from historical and international norms. Prior to this the average payment rate across the last four years was 10.6% and in 2022 the rate was 14.3%”.

That is almost a doubling of what the rate was a year or so ago.

When one looks at comparator countries, as has been mentioned, the UK rate is an extreme outlier within western Europe. Some countries do not even have comparable schemes, but in those that do, the rates are 12% in Germany and 7.5% in Spain and Ireland. The only comparable clawbacks to the UK’s are in Romania and Greece, two countries that, if I may say so, are hardly in the Premier League in terms of the life sciences. The ABPI brief goes on to state that

“the UK is already seeing worrying signs of decline in the UK life sciences industry including in R&D investment, access to clinical trials and medicines launches with companies making long-term decisions on the future of their UK footprint.”

The new proposed rate will accelerate this investment and jeopardise the availability of new medicines, which will lead to poorer NHS performance and patient outcomes. The ABPI contrasts the UK’s approach with incentives to new life sciences investments in France and Ireland, where Pfizer has recently announced big investments in both countries. AstraZeneca has followed suit in Ireland. The ABPI briefing is also supported by the briefing from AbbVie, a top-five, US-headquartered global biopharmaceutical company. It points out that the NHS already lags behind other countries in the take-up of new medicines. Branded medicines expenditure is reducing in the NHS, while the NHS budget is increasing. That is no mean achievement. I never got to that stage when I was the Pharmaceuticals Minister.

UK patient access to industry clinical trials is declining rapidly, and the average annual loss in the UK’s share of R&D spending is declining by about 3% a year. The briefing from Roche, another major company, is in a similar vein to that from AbbVie. This is not just the industry complaining about these regulations; these concerns are shared by patient groups. Gene People, which supports people with genetic conditions, has set out in its evidence the impact of these regulations for patients and on their access to the drugs that they will require over time.

I am genuinely puzzled by why the Department of Health and Social Care has simply ignored the evidence provided by the industry and patient groups on the damage that these regulations will do to UK life sciences and UK plc. The ABPI commissioned research which found that continued high payment rates in both the statutory and voluntary schemes would cost the UK £50 billion in GDP and £17.9 billion in tax revenue because of lost R&D investment of £5.7 billion by 2028. These are considerable losses to the UK economy. There is not a mention of them in the impact assessment. The ABPI company survey also suggests that repayment rates of around 24% across both the voluntary and statutory schemes

“would result in job losses in over 9 out of 10 companies”.

The savings to the NHS budget from these rebate schemes is modest compared to the economic damage that they do.

Despite all this evidence, Ministers from the Department of Health and Social Care are ploughing on with these regulations, seemingly unaware that the industry’s timescales for making R&D investment decisions are much closer than they realise. In the next year or so, these decisions will be taken in relation to 2030 onwards. Somewhat bizarrely, 2030 is the date the Prime Minister is talking about for cementing the UK’s place as a science and technology superpower.

It crossed my mind as I prepared for this debate whether the Prime Minister and No. 10 are aware of the contradictions between the Department of Health and Social Care and the Prime Minister’s aspirations for the UK economy. It is also strange that on the very day that we are debating this regret Motion on these regulations, the Chancellor is sitting with the industry at the Life Sciences Council, discussing the life sciences sector in this country. It seems an interesting coincidence.

I should like clarification from the Minister on one point and to ask him a question. The point of clarification is whether, as the usual convention requires, he is speaking fully on behalf of the Government in responding to the Motion tabled by the noble Lord, Lord Hunt. My question relates to the new discussions on the voluntary scheme, which are taking place or have begun. Can the Minister confirm that these discussions are indeed taking place? If so, what is the point of pursuing these regulations if, in these new discussions, there is the possibility of a more positive approach to rebates under both schemes, given the more sensible proposals put on the table by the ABPI—the Minister may be able to confirm this—which suggest that we should be talking about single-figure rebates if we want this country’s life sciences industry to be successful?

[Lord Allan of Hallam (LD)]

My Lords, I am very grateful to the noble Lord, Lord Hunt, for his Motion, and for giving us an opportunity to debate a series of questions raised by the statutory instrument about the life sciences sector more broadly.

I do not think that it is enough for us simply to say, “Look, Britain is great”, and expect that to act as a magnet for international pharmaceutical companies to invest in it. We certainly have a very strong sector and excellent skills, but the market is not sentimental: it reacts to financial signals. The noble Lord, Lord Lansley, was quite right to put us in the position of those people sitting in boardrooms, where soft signals such as the Prime Minister holding a summit are fine but the determinations will be based on hard numbers in spreadsheets. That is the way businesses work.

The concern that we should have in considering the statutory instrument is whether this settlement will be absorbed as simply the cost of doing business in the UK or whether it will change behaviour of businesses in a negative way. On all sides of the House, I think we hope that it will not do the latter. The ideal outcome is that businesses continue to invest in spite of taking a hit, but the risk that that will not be the case is genuine and deserves the debate that we are having today.

We have already seen some companies move from the voluntary to the statutory scheme. It would be helpful if the Minister could indicate how many. I understand that the rates are similar, but it is a pretty strong signal when a company says in that board discussion that it is important for them to say, “We are not taking this lying down. We are upset. Therefore, we will pay what we have to pay, but only if you make us do it. We are not willing to do it on a voluntary basis.” As I said, the numbers may look similar, but the signal seems pretty clear to me. I hope the Minister can indicate the scale of the trend and his views on whether we should be concerned that that is happening.

It is interesting to note from the Explanatory Notes to the legislation that the consultation responses were nearly uniformly negative. I was going to say that they were uniformly negative, but they were not: only 30 out of 33 were. I was fascinated by this comment in paragraph 10.3, which referred to having more responses than in previous years. It said:

“It is likely this rise in the number of responses reflects a stronger level of interest in the consultation from industry in advance of negotiations for a new voluntary scheme to succeed VPAS, which expires at the end of 2023.”


I suggest that the increased number of consultations reflects something else: it is a cry for help and a protest against the fact that the rate is now over 20% and seems to be rising inexorably. Businesses are not responding in greater numbers just because of something happening in the process but because of the substance. When the noble Lord, Lord Warner, made his 7% reduction some years ago, I suspect he would not have had the same number of responses, because the reduction was not at the levels we are seeing now. The fact that we are at over 20%, and that there seems no prospect that that will reduce, means that businesses want to engage.

Here is the question for the Government: what signal do they want to send to these major companies that produce medicines that our population depends on? Is it that the trend is going to improve over time, so that they are encouraged to invest in test facilities and research in the UK—that they can expect to have more free cash flow, as it were, from the sales that they are making in the UK, to invest back into the UK? Or will the trend stay the same, at a level that they have told us they already find unacceptable, or even worsen? As the Covid backlog is, hopefully, dealt with more expeditiously, there will be more dispensing of branded drugs, and there is a scenario in which things continue to get worse. If companies feel that they have less to invest, those signals will be negative.