Business, Energy and Industrial Strategy Committee

Rachel Reeves Excerpts

Thursday 17th May 2018 Commons Chamber

[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.

[Peter Kyle (Hove) (Lab)]

The report says that regulatory divergence will cost jobs and investment, and will make certain medicines more difficult to obtain in this country. Is that correct?

[Rachel Reeves]

I can say to my hon. Friend—who sat in on the evidence sessions with me—that there are a number of issues, which I hope I put across in my statement. Some medicines lose their benefit quickly, and if there are big delays at the border, they will not have the effect that they would have had if they had reached patients quickly. That is one risk. Another is tariffs, which could also be a huge issue. Although WTO rules specify that medicines are tariff-free, they have not been updated for eight years, so many medicines are not included. Currently, medicines that are tested in any country in the European Union can then be accessed in the UK, but that may not be the case after we leave the European Union. For those three reasons, I think that there is a risk to patients from a hard Brexit, at least, or from a no-deal scenario.

[Helen Goodman (Bishop Auckland) (Lab)]

A few months ago, GSK’s chairman told me that the one-off cost of preparation for Brexit would be £70 million and the ongoing costs would be £50 million a year. Today the GSK plant in Barnard Castle is announcing a restructuring programme to cut costs, which will mean the loss of dozens of jobs. Does my hon. Friend agree that it is far more important to have regulatory alignment in the interests of jobs in modern manufacturing than to maintain the Prime Minister’s doomed attempt at unity with extreme hard-right Brexiteers?

[Rachel Reeves]

I can sense my hon. Friend’s frustration that jobs will be lost in her constituency because of the risks of Brexit. GSK has made it very clear that Brexit will cost it a lot of money. If it is testing its drugs in the UK, it may no longer have access to European markets, because those drugs will not be recognised unless they are tested in mainland Europe. That is creating new costs, as GSK is having to set up new testing facilities in the rest of Europe. If there are cost increases, it will seek to cut costs elsewhere, and the consequences of that will be borne by my hon. Friend’s constituents in Bishop Auckland and also by patients in the UK as a whole who may not have access to the drugs. As far as I can see, leaving the European Union will have no benefits for the pharmaceutical sector, or—but most important—for patients.

[Hannah Bardell (Livingston) (SNP)]

I commend the hon. Lady and her Committee for this excellent report. As she will know, I have spoken about the threat to Techno Pharma, in my constituency, and to patient safety. Does she agree that it is vital for us to have clarity on the future of medical regulation and what the Medicines and Healthcare Products Regulatory Agency will look like after the UK leaves the EU? That is being lost amid the noise of Brexit, but will it not be a huge issue as we go through this process?

[Rachel Reeves]

The hon. Lady has made an important point about clarity, which I do not think I put across sufficiently in my statement. The industry representatives who gave evidence to our Committee said that they would need two to five years to prepare for any changes in the regime and the trading arrangements with the rest of the European Union, and of course we do not have those two to five years: we have just over a year and a half until the end of the transition period. That is of great concern to the hon. Lady’s constituents, and to patients and businesses across the UK.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

Both the EU and the pharmaceutical industry contribute significant sums to medical research and development in the UK. I am thinking particularly of Cardiff University’s School of Biosciences, which does fantastic cancer research, and also—in my role as chair of the all-party parliamentary group on HIV & AIDS—of the International AIDS Vaccine Initiative facility, which has fantastic EU funding for its search for an HIV vaccine. Is my hon. Friend worried about the impact on facilities such as those?

[Rachel Reeves]

I am worried about those issues. My hon. Friend knows full well that we have benefited disproportionately from Horizon 2020: 13% of the funds have come to this country, reflecting our fantastic research base in Cardiff, in Leeds and across the UK. It is welcome that the Government have guaranteed those funds until 2020, but there have been no guarantees beyond that. As my hon. Friend knows, research does not work on two or three-year horizons; it works on 10 or 20-year horizons. We need clarity, and the certainty that we will receive that investment in key research on matters such as the HIV vaccine that my hon. Friend mentioned.

[Martin Whitfield (East Lothian) (Lab)]

The Government speak of a pragmatic approach. Do we not have a parallel interest in the European Medicines Agency, and would it not be sensible to retain some role for the UK within it?

[Rachel Reeves]

The idea that leaving the European Union is about cutting red tape is absolutely ridiculous. In fact, red tape protects us, and in pharmaceuticals that is absolutely crucial. As for the EMA and the MHRA, we will be replicating something that worked incredibly well. Why create a load of new regulators when we had a set of regulators based here in the UK doing a fantastic job? No one doubts that the EMA was doing a good job, so why replicate it now? It makes no sense.

[Paula Sherriff (Dewsbury) (Lab)]

I am sure many Members will concur that British businesses, including those in the pharma sector, desperately need some certainty. Does my hon. Friend agree that the Government should stop fighting themselves, and should start to make decisions that are in the best interests of the UK?

[Rachel Reeves]

I absolutely agree. The Government need to get on with negotiating with the European Union, rather than negotiating with their Back Benchers and even within the Cabinet. We need certainty. We need certainty on our access to the single market, we need certainty on our membership of the customs union, and we need certainty on the regulatory framework that will apply after we leave the European Union. Without that, it is incredibly difficult for businesses to plan for the future, to secure the jobs and investment that we need in this country, and, in the case of medicines and pharmaceuticals, to ensure that patients have access—timely access—to the best drugs, and new drugs.

[Mr Speaker]

In a moment, I shall call the hon. Member for Manchester, Gorton (Afzal Khan) to make an application for leave to propose a debate on a specific and important matter that should have urgent consideration under the terms of Standing Order No. 24. The hon. Gentleman has up to three minutes in which to make such an application.