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

Lord Warner Excerpts

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.

--- Later in debate ---

[The Parliamentary Under-Secretary of State, Department of Health and Social Care (Lord Markham) (Con)]

I thank noble Lords for the debate, and I particularly thank the noble Lord, Lord Hunt, for bringing forward this important subject. It was clear from the contributions of noble Lords that we all want the same thing here, and this is a discussion about how best to achieve it. We all want the UK to be a

“science and technology superpower by 2030”,

as quoted by the Prime Minister. We all want a thriving life science sector, we want access to the best medicines for the NHS and we all want to ensure that the NHS is achieving value, in terms of money for the front line—I think we are united on those things. I also commend the fact that this debate was very much a discussion, so I will respond in that vein, rather than reading out a speech. I will try to discuss this from the Government’s point of view. I apologise if that means that I might not come across as quite as polished, but I would rather respond directly to the points raised.

We would all accept that we are striking a delicate balance here: between having value for the NHS—through, for example, the funding of £2.5 billion this year—and having value and making savings for frontline services, which we all want to see. While we are focusing on those, we also want to make sure that we do not go too far and damage what is, and what we want to be, a thriving sector.

The noble Lord, Lord Hunt, asked whether the Government are being complacent about this. The words of the Prime Minister, saying that he wants a negotiated outcome with the ABPI, are probably the strongest sentiment in terms of wanting a sensible, negotiated outcome. At this point, I say to the noble Lord, Lord Warner, that I am responding on behalf of the Government.

As the noble Lord, Lord Warner, pointed out, just today, the Chancellor is having a round table with the life sciences industry. That, too, is very much about getting a solution that works all the way round. Having said that, please remember that some of the comments I am making in this debate are about a balance. We are all aware that we are entering into a negotiation and obviously, in any negotiation, sides make points—sometimes at the negotiating table and sometimes publicly. Please take my comments in that vein; we want to make sure that a balance is brought to the debate.

[Lord Warner (CB)]

I am sorry to interrupt the Minister’s flow. He said that we are having the fruitful discussions that the Prime Minister wants with the industry and that they are starting to progress. However, the industry itself is starting with a figure in the single figures, nowhere near 27%. I am curious as to why we are having this discussion about progressing these regulations, as they seem to be going in totally the opposite direction from the aspirations the Prime Minister has.

[Lord Markham (Con)]

The mechanics behind this debate—I was planning to say that my noble friend Lord Lansley made this point—are about the alignment of the voluntary and statutory schemes. I think that we would all agree that it is sensible that the two are roughly aligned. We can argue over how high or low that figure should be, but we would agree, I think, that it is quite sensible that the two are aligned. If you had large disparities between the two, you would disadvantage, for instance, the members who have joined the VPAS system.

[Lord Warner (CB)]

I am sorry to interrupt the Minister again. We are talking about signals given to the outside world, in these discussions that are now taking place about the voluntary scheme. As the noble Lord, Lord Lansley, asked, rather elegantly, why do we have two schemes in the first place? There is something very odd about levelling up to a voluntary scheme’s level with a big increase and, at the same time, sitting down with the industry and saying how much we love it and that we want a new, agreed programme, when the industry is talking about figures which are nowhere near the figures in these two schemes. It seems almost politically inept.

[Lord Markham (Con)]

As I said, this is about the scheme and the pricing for this year. The negotiations happening now are about future years, while, technically, this debate is about making sure that the alignment is there for this year and its pricing. Given that the discount has been decided on for this year for the voluntary scheme, having alignment will ensure fairness, so that members in the voluntary scheme are not suddenly disadvantaged against the statutory scheme—which would happen if we were not putting in a similar price. It does not in any way predicate what a negotiated outcome might be for future years.

In terms of a future negotiation, if there was a VPAS-type scheme—again, everything is on the table—you would have the argument about alignment. Most people would accept, as my noble friend Lord Lansley was saying, that having an alignment between the two is a sensible mechanism. The real debate today is about what level that discount should be. Regarding the balance—and I am not making any value judgment about what the right level is—when this was first forecast in 2018, a forecast was put out about what the discount would be over a five-year period, and in year 5 it showed a discount in 2023 of 31.1%. Those were the projections made, at that time—in 2018—the ABPI welcomed the scheme as an innovative one. In fact, today, the discount is less than that, at 26.5%. This was all known and projected as part of the scheme at the time. That is not to say that, in these negotiations, it should not be reset or that we should not make sure that there is a sensible conversation, but I am trying to do this while making sure that there is a balance in the negotiation.