Branded Health Service Medicines (Costs) (Amendment) Regulations 2023 - Motion to Regret

– in the House of Lords at 1:39 pm on 25 May 2023.

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Lord Hunt of Kings Heath:

Moved by Lord Hunt of Kings Heath

That this House regrets that the Branded Health Service Medicines (Costs) (Amendment) Regulations 2023 propose a 27.5 per cent claw back rate which significantly exceeds that required by comparable countries, and which risks seriously damaging future investment in the research and development (R&D) of new drugs in the United Kingdom for the NHS, investment in the life sciences more generally, and the manufacture of branded medicines and their availability to the NHS; further regrets the short and insufficient consultation period for these measures of just 39 days over the Christmas period; and notes with concern that the UK’s share of global pharmaceutical R&D has fallen by over one-third between 2012 and 2020, and that the UK’s medicine production volumes, clinical trial delivery, and global share of new medicine launches have also all declined in recent years. (SI 2023/239)

Relevant document: 34th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)

Photo of Lord Hunt of Kings Heath Lord Hunt of Kings Heath Labour

My Lords, I am very glad to introduce this debate, and thankful to noble Lords who have stayed to take part in it. Underpinning this debate is a major concern about the current state of the UK economy, beset as it is with low growth, low productivity, workforce shortages, regional inequality and a dilapidated infrastructure; yet we have no industrial strategy. The Government have raised corporation tax; it is little wonder that Sir James Dyson recently accused the Government of having a “stupid” and “short-sighted” approach to the economy and business in the UK. Indeed, as Theresa May’s former chief of staff, Nick Timothy, put it on 8 May, there is an alarming decline in manufacturing as a percentage of GDP.

We ought, at least, to welcome the Prime Minister’s launch of the Government’s plan to create the UK’s place and cement it as a science and technology superpower by 2030. My concern is that the Minister and his colleagues in the Department of Health and Social Care are doing everything they can to inhibit that ambition. The life sciences industry is one of the most successful and important pillars of the UK economy, contributing more than £94.2 billion a year and 200,000 jobs in this country. Two-thirds of this is generated by the biopharmaceutical sector. The industry’s pipeline of new medicines is equally impressive.

We are at great risk of seeing this economic success falter under the watch of the Government, as companies are reducing their level of investment because of the imposition of a massive clawback that equates to one-quarter of sales revenue. We are already seeing very worrying trends in investment levels. From 2012 to 2020, the UK’s share of global pharmaceutical R&D spend decreased by more than a third. Since 2018, the UK has been falling down the global rankings across all phases of industry clinical trials. UK manufacturing production volumes have fallen by 29% since 2009. We all know that the NHS is far too slow to adopt new innovation and new medicines.

The UK is falling behind comparable countries as an early-launch market. Companies are making decisions to delay, or even not to launch, in the UK. These can be clinically important medicines that address many of the NHS’s priorities. Compared to leading countries in Europe—Italy, Spain, Germany and France—we have experienced the largest decline in our global share of new medicine launches between 2016 and 2021. This is the background to the statutory instrument that we are debating today.

I believe and hope this debate can influence the negotiations that have just started with the industry over the next phase of the voluntary scheme, otherwise known as VPAS—various noble Lords used to know it as PPRS. Under these regulations, companies in the statutory scheme will be required to pay to the Secretary of State 27.5% of their 2023 net sales income received for the supply of those medicines to the NHS.

The Government’s argument is that continued high sales growth in 2022 has led to an increase in the payment percentages in the VPAS scheme from 15% in 2022 to 26.5% in 2023, which is higher than was projected at the time of the 2022 statutory scheme consultation. As a result, the Government have ratcheted up the statutory scheme required payment rate. My argument is that both the voluntary and statutory schemes—companies have to be in one or the other, and can switch between them—are becoming a major impediment to future investment in the UK. The proposed rate of 27.5% will place the UK as a global outlier. In countries that operate similar clawback arrangements, current rates include 12% in Germany, 7.5% in Spain and 9% in Ireland, and all those countries spend more on medicines per head than we do. How on earth can the Government’s stated aim to grow the life sciences industry, as set out in the Life Sciences Vision and just recently articulated by the Chancellor, be delivered if industries expect to pay twice the level here that they do in Germany?

I have no doubt whatever that there is a direct link between payment rates and scale of investment. Placement of clinical research clearly takes into consideration subsequent expected patient uptake and medicine sales in that country as well. This connection is further evidenced by analysis commissioned by ABPI, which found that continued high payment rates in both schemes would cost the UK £50 billion in GDP and £17.9 billion in tax revenue as a result of lost R&D investment of £5.7 billion by 2028. Without action or signals from the Government that they agree that this situation is not sustainable, there is a risk that short-term decisions or disinvestment will have long-term consequences as high payment rates are locked into business planning cycles.

Worrying signs are emerging. AstraZeneca recently announced a major expansion of its research footprint in Canada, creating over 500 new, highly skilled jobs and a new research and development hub, because the Government there at both provincial and federal level have taken huge steps to create a more supportive environment for the biopharmaceutical industry. AbbVie left the voluntary scheme on principle and has disinvested from certain R&D activities to manage those high repayment rates. That includes halting of UK data and real-world evidence studies, some of which are continuing in other countries, and, particularly disappointing, the discontinuation of an initiative to support promising UK biotech companies by providing free lab space to facilitate technological advancement and company scale-up. Other companies are clearly taking similar actions.

The Government’s response seems incredibly complacent, and the impact assessment does not even recognise a link between payment rates and investment for the UK, nor does it reference the Life Sciences Vision. The IA states that the risk that the payment rates will delay or pause the launch of new medicines in the UK is “remote”. How on earth can the Minister justify that being stated when the decline has been so visible in industry’s investment in pharma R&D? The remarkable paragraph 101 says that

“supply side factors, such as availability of expert scientific labour and favourable tax conditions, are of greatest significance in the decision to locate R&D activity, and that siting of R&D facilities should not be affected by” the commercial environment. That is an extraordinary statement. If you were reading this in the boardrooms of New York or New Jersey, or indeed Basel, what would you conclude? By implication, the Government are saying, “We do not have the right scientific resource available in this country, nor do we have the right tax conditions”. This is an extraordinary statement to make, and I have to ask whether a Minister ever read this IA before they signed it off. I rather doubt it.

The Government need to reset their view on this matter before they enter into serious negotiations on the new VPAS scheme. I have no doubt whatever that this is recoverable, but it is only just recoverable. I have no doubt that a successful life sciences sector has the potential to drive the health and wealth of the UK, and the Chancellor has made it clear that this is a priority for him. In his Budget he said that he wants the UK

“to be the best place in Europe for companies to locate, invest and grow”—[Official Report, Commons, 15/3/23; col. 842.] our life sciences sector.

Agreeing a new voluntary scheme is critical, and the Government should work with industry to secure an agreement with growth at its heart. We need a sustainable approach to medicines provision for the whole branded market which rapidly brings industry payments into line with comparator countries to unlock investment and growth, maximising the potential of the UK life sciences industry as an engine for growth, including through harnessing the full value of the UK as a destination for R&D and clinical research, ensuring rapid patient access and adoption of new medicines, in partnership with a dynamic, innovative MHRA and NICE. There is not time to go into the shortages at the MHRA at the moment, which is causing great concern to industry. It can also help to improve outcomes, and I shall come back to the need to lower the discount rate to be applied to future health gains deriving from new treatments, because the current rate is another inhibitor to investment by industry.

I appeal to the Minister. We have had a number of debates in the past and, frankly, the line in the IA is the line the department has used for 20 years. The noble Lord, Lord Warner and I, are aware of the tensions within the Department of Health in managing the NHS budget on the one hand and, for much of that time, sponsoring the industry. I suspect that the noble Lord, Lord Lansley, faced similar issues. We are at a critical stage. The Minister will know that the UK economy is fragile. We desperately need to grow the life sciences sector, but the action the Government seem to be taking with the industry is guaranteed to ensure that this will not happen. I very much hope that the Government will listen and that this will inform their negotiations with industry on the new VPAS. I beg to move.

Photo of Lord Lansley Lord Lansley Conservative 1:45, 25 May 2023

My Lords, I intervene in this short debate just to make a number of points that I feel strongly about and have done for quite a long time, because now is an important moment, when the Government are entering the process of negotiating the voluntary price access scheme starting at the beginning of next year.

I welcome the fact that the noble Lord, Lord Hunt of Kings Heath, has sought and secured this debate: it is really important. I do not disagree with any of the points he made, and he and I know that in past debates, together with the noble Lord, Lord Warner, we have often made these points—not least when we were debating the legislation which has given the Government the powers to secure whatever pricing outcome they are looking for, frankly. We do not actually have any pharmaceutical pricing freedom in this country; we effectively have government control of it.

The purpose of the regulations is not really in debate: to ensure that the statutory scheme and voluntary scheme align. We have been in a position where they did not align when we had the Gilead example, and that is not a place we want to go back to; we want to ensure that the schemes align, if we need two such schemes at all. That is my starting point. I have no registrable interests, although as a former Secretary of State I was very much involved in these issues, and as a Member of Parliament for South Cambridgeshire I probably had, in my time in the other place, a greater interest directly in the pharmaceutical industry, the life sciences sector and the R&D activity in this country than did Members for any other constituency.

I am sure the noble Lord, Lord Hunt of Kings Heath, is right that there is a relationship at this point between the scheme’s rebate level and the willingness or otherwise of internationally mobile investment and international pharmaceutical boards to consider the United Kingdom as a location for investment. The impact assessment does not sufficiently recognise that truth. It more or less works on the basis that this was the result of the old scheme, it is all for a few months and will all be replaced next year. I fear that is not how the world works. There will be discussions at international board level where people say, “We used to think the United Kingdom was the best place in Europe”—arguably, the best place in the world—“to conduct pharmaceutical research, but at the moment we are not sure that is the case because, if we were to launch in the United Kingdom, the level of pricing rebate being imposed on us makes the risks associated too great”.

From my point of view, clearly this can be remedied with a VPAS next year which re-establishes, from the industry’s point of view, a more predictable level of rebate. I have to say that the VPAS, the statutory scheme, is based on a serious fallacy that there is such a thing within the healthcare industry of a fixed drugs budget. I know of no healthcare system that thinks that is a logical way of approaching it. The drugs budget must be part of a health budget. We have budgets in order to deliver health outcomes. We do not have a drugs budget in order to secure a health outcome, we have a total health budget. The idea that the Government should intervene in order specifically to confine and restrict the amount that we spend on medicines in the healthcare system is wrong.

We should try to get away from that. I am not saying that we should not try to ensure that we get the best possible value for money for the medicines that we buy. The NHS in this country is effectively a monopsony, so we have every possibility of having extremely competitive medicine prices, but frankly we are being, as my mother would have said, penny wise and pound foolish. If we save a bit on NHS purchasing and parade to the rest of the world that we have the lowest medicine prices, the inevitable result—which we have seen—is a doubling of the number of pharmaceutical companies withdrawing their products from NICE evaluations. That is not a place where we want to be. We want those evaluations to take place.

I am going to finish with this thought. Even at this stage, I hope they are looking at this not only in the pharmaceutical companies, not only in ABPI but inside the department and inside the Treasury. I think all of our experience is that at the end of the day these things were determined more in the Treasury and No. 10 than they were in the Department of Health. I did not actually see a PPRS negotiation completed in my time, but I know perfectly well that is what happens. When they read this, I hope they will say: “Why don’t we move away from this kind of system?” The idea of a rate of return regulation as a mechanism for industry control is so out of date, it is practically neolithic. We have the benefit in this country of the National Institute for Health and Care Excellence which has acknowledged expertise in health technology assessment. It should make assessments.

We have in NHS England an increased capacity and propensity to negotiate medicines prices regardless of what NICE says about evaluations anyway. Let us put those two together—we have argued this many times—and enter into negotiations on medicines pricing with the industry. Wherever we can, we should operate on the basis of a market. We have a market in generics and biosimilars. We are close to market on branded generics and biosimilars, but the branded medicines are inside this scheme. They should not be inside it; they should be the subject of negotiated pricing in what is effectively a market context. They should have to demonstrate where there is a benefit to a branded generic or a branded biosimilar relative to one which is not branded but is simply generic.

But for those where there is exclusivity, clearly there is going to be a negotiated price, and it is in our interests for that negotiation to take account not only of the incremental cost effectiveness, not only the quali-benefit, as it were, but also the societal benefits and the innovation benefit of new medicines. Let us say for the sake of argument that in the course of the next five years we were suddenly to find that we had a blockbuster new medicine that gave us immense advantages in terms of delaying the onset of dementia. It is not inconceivable that that could happen. As things stand, the scheme is designed for the pharmaceutical industry to derive no benefit from the fact that it has brought forward a new medicine of that scale and advantage. That cannot be right. If, in the context of healthcare, medicines occupy a stronger position, they should secure greater funding. If, relative to them, medicines do not do the job, they should have lesser funding, but this should be a healthcare and a health budget calculation, not a rate-of-return prior regulation. I hope that, even at this stage, the Government and the industry will think of whether there might be a better way of conducting negotiations on medicines pricing in this country.

Photo of Lord Warner Lord Warner Crossbench 2:00, 25 May 2023

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?

Photo of Lord Allan of Hallam Lord Allan of Hallam Liberal Democrat Lords Spokesperson (Health)

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.

The noble Lords, Lord Lansley and Lord Hunt, commented on boardroom discussions, in which all of this will be summarised down to some bullet points for a pharmaceutical company board. The bullet point will say “UK negative, Germany positive” or “UK trending positive, Germany trending negative”. That will be based on everything the Government do, especially on revenue, because revenue is the lifeblood of any company. However well-intentioned and socially beneficial companies are, revenue matters.

I was very interested in the comments made by the noble Lord, Lord Lansley, about how we might move to a different model. I hesitate to confess ignorance in the House, but hopefully it was a constructive naivety I had when I came to this. This has been the first time I have had to read up on how this works. I was talking to somebody about it, who talked about this rate. I said “Oh, that’s the discount rate on the price for the drug”. They said “No, there is no pricing; it is a bucket”. It took me a little while to get my head around the scheme. I think most people would be quite surprised if they understood how it works.

I know that is a bigger conversation than the one we are having, but it is right that we think about whether there are models that would work better to achieve the objectives the Government have said they want: the availability of drugs at a reasonable price and continued investment in the life sciences industry. There is something to chew on there in terms of a broader discussion.

If we are serious about having a vibrant, growing life sciences sector in the UK, we need to look at how all government policies affect business decision-making, including the policy on branded medicines that we are discussing. Clearly, having a vibrant life sciences sector is better for employment and the availability of medicines for patients. It is also important for our resilience in future crises. This year, above all, we should be thinking that we need a domestic sector, whereas previously we might have been more comfortable simply relying on international solutions for drug development and availability.

If there is any area where a holistic industrial strategy might be appropriate, it is here, where the Government are a major customer. They are the most significant customer for these companies and therefore have levers to pull. Our concern with this statutory instrument is that we have got that lever and we are pulling it in the wrong direction.

Photo of Baroness Wheeler Baroness Wheeler Shadow Spokesperson (Health and Social Care), Opposition Deputy Chief Whip (Lords) 2:15, 25 May 2023

My Lords, I thank my noble friend for his usual expert and comprehensive explanation of his regret Motion on this SI, which is so important for the future of the NHS and the UK’s pharmaceutical industry and life sciences sector.

While the Government’s argument for maintaining equivalence between the two schemes makes sense, we certainly do not want companies to choose to leave the voluntary scheme for better rates. We on these Benches fully recognise the strong concerns about the impact and potential damage that the 27.5% clawback rate will cause to the manufacturer of branded medicines, to the availability of those medicines to the NHS and its patients and to future investment in the research and development of new drugs.

I point out that this is the first opportunity, on such an important subject, that we have had to discuss in depth the key issues my noble friend and other speakers across the House have raised, since the short Grand Committee debate last October on pharmaceutical research and development spending. The Minister will recall that it was his first debate as Health Minister and that he surprised us all by bursting into maiden speech mode when he summed up the debate. He expressed his confidence that the Government


He also made the acknowledgement that growing the UK’s proportion of global pharmaceutical investment meant improving

“every aspect of the life science ecosystem”.—[Official Report, 13/20/22; col. 133GC.]

As my noble friend and other expert speakers have shown today, this is just not happening.

The continuing dramatic decline in the UK’s share of global pharmaceutical investment is clear evidence of this, causing the loss of billions of pounds to the industry over the past 10 years. We have heard the stark figures. The NHS faces huge challenges and obstacles to becoming an effective innovation partner in supporting the access to and uptake of new and innovative drugs, which are so critical to developing better outcomes for patients and creating a thriving life sciences ecosystem. If the NHS continues to be slow on the uptake of innovative medicines and treatments, the UK could lose its position as a world leader in life sciences, particularly with the rapid advancements in biotechnology and AI.

For the UK to become a destination of choice for cutting-edge research, urgent action has to be taken to reverse the sharp decline in industry clinical research trials within the NHS and to address the standstill we have reached in developing the comprehensive strategy on patient data and research that is vitally needed. We need to balance the safeguards for patients and public engagement with the ability of accredited researchers to access the data they need to develop the valuable research at the heart of innovative medicines and treatments. What consideration are the Government giving to further embedding research within the NHS, both to underline the importance of patient participation and to allow a more direct link between health and science? During Covid we saw how, with the right drive and attitude, this can be done successfully for vaccine development, with life-saving results.

That is why the background and context of the proposals in this SI are so important. Despite the “remote” risk optimism of the impact assessment, and all the flaws that noble Lords outlined, the SI’s proposals for a substantial clawback, in 2023, of net sales income for UK biopharmaceutical companies greatly increases the risk of them reducing their current level of R&D investment. I look forward to the Minister’s explanation of how other countries that have similar clawback schemes—Ireland, Germany and Spain—managed to keep their clawback rates considerably lower than half what is proposed in the UK. This was mentioned by a couple of speakers. What assessment have the Government made of the impact these lower rates would have on investment in the UK? Why do they think that AbbVie and Lilly chose to leave the voluntary scheme?

In 2023, manufacturers of branded drugs in the voluntary scheme will be required to return almost £3.3 billion—or 26.5% of sales—to the Government, up from around £0.6 billion in 2021 and £1.8 billion in 2022. ABPI says that this means that the money spent on branded drugs has declined by 14% in real terms over the past decade, despite rising demand. The noble Lord, Lord Warner, pointed out that, overall, the savings to be made are minor when compared with the likely damage.

On the consultation exercise, I look forward to the Minister’s explanation of how 39 days of consultation over the Christmas period was sufficient to provide this. This is made even starker by the fact that 32 out of 33 respondents opposed the proposals. One thing we know businesses need in order to invest their money is certainty, but they are not getting it.

Finally, today’s discussions have made a convincing case for taking a long, hard look at the current scheme and how it is working. Negotiations are under way for the new voluntary scheme for pricing, access and growth, and we will watch them carefully. The priority must be to find a solution that allows patient access to the best-quality treatments, with good value for the NHS and taxpayer, while ensuring a fair return for the industry. We need to secure arrangements that will build confidence and provide mutual benefit for the NHS and industry. Can the Minister provide an update on the early talks or negotiations that have taken place? I noted the comments of the noble Lord, Lord Warner, about how this SI’s approach could be paused in the light of any significant developments that are likely to take place.

Photo of Lord Markham Lord Markham The Parliamentary Under-Secretary for Health and Social Care

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.

Photo of Lord Warner Lord Warner Crossbench

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.

Photo of Lord Markham Lord Markham The Parliamentary Under-Secretary for Health and Social Care

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.

Photo of Lord Warner Lord Warner Crossbench

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.

Photo of Lord Markham Lord Markham The Parliamentary Under-Secretary for Health and Social Care

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.

Turning to what the noble Baroness, Lady Wheeler, said about access, the evidence shows that we are in the top three in the world in terms of access and speed at which we get the top medicines. NICE has reduced the approval period from an average of 10 months to two months, so we really can get these things very quickly, and as we have shown, it approved 92% of medicines. We can see that we are getting access for patients. However, the key issue is not that but whether we are going to set the right conditions for the life sciences industry.

Again, as the noble Baroness, Lady Wheeler, and other noble Lords mentioned, it is not just about the price of drugs in the UK, because the UK is just one part of a very large market. When a company is deciding where to invest, it looks at all the conditions—how available clinical research is and how easy it is to do it, and whether the skilled people and the tax regimes, including tax credits, are in place. I absolutely accept that pricing is obviously a part of that, but you are making the R&D decisions across those bucket measures. It is vital in this debate that we make sure we are doing everything we can in the clinical research space; that is why I am so glad about the investments we are making in the federated data platform, so there is that clinical research database that industry can draw on. Obviously, we will look at a balance of recommendations in clinical research, so that we make sure we put the best environment in place.

On the point made by the noble Lord, Lord Hunt, about the discount rate, that is a matter for NICE, which I know it is considering. That is a slightly different point, but it is relevant in all this.

My noble friend Lord Lansley referred to branded generic drugs and whether they should be outside the scheme. It is a very good point, and one that is recognised, and it is being considered in the negotiations. Regarding whether we were discouraging new drugs coming on to the scheme and our getting access to them, of course, there is a three-year exemption from the VPAS, so with any new drug it is only in the fourth year that the rebates apply. It is precisely designed so there is that three-year runway, which will, I hope, ensure that we get access to the best drugs early on. As I said before, that is what the evidence shows.

Regarding how our pricing compares to other countries, the difficulty in trying to compare rebates is what level you start those rebates from, because you have different pricing to begin with. You cannot like-for-like compare 26% to 12%, because it all depends on what it is a discount from. So it is a complex area. If you look at the average spend per patient on medicines, assuming that European countries generally have a similar approach to the sorts of medicines that patients should have, you will see that our average spend is comparable to other European countries. So, on a very broad basis, I would say that the pricing is largely comparable and, to my knowledge, is not particularly out of kilter.

In response to the question from the noble Lord, Lord Allan, about the number of companies leaving: to my knowledge, five companies have moved recently. Clearly, if any more than zero companies move we should always want to understand the reason, so that is something that we need to be taking note of. I understand about signals to business. As the House knows, I was a CFO, and I know that when you are making your projections, suddenly having a large amount to claw back from your budget is not helpful in terms of investment decisions.

While it is difficult to talk too much about what is going on in negotiations, I would hope that noble Lords can see from my responses that there is a wide consideration of factors in play here. There is a balance we are trying to get right between it all. I should say in terms of balance that we are still in the top three countries in terms of investment. We had £1.9 billion invested from overseas in the UK, which put us in the top three worldwide, compared with £600 million just a few years ago in 2019. We raised £7 billion in terms of equity, so, while there are clearly areas that we need to keep an eagle eye on and not be complacent, at the same time, in terms of balance, we should accept that we are performing well in those areas.

After this last point, I hope I will have covered all the points raised, but, as ever, I will write a detailed response. In terms of the consultation period, I know that six weeks might generally be considered quite a short time. In this industry, where the scheme is very well known, there is a lot of knowledge and the forecasts have been highlighted for quite a while, I think the general feeling was that actually six weeks was not an unreasonable period, given the knowledge base; it was not as if this was a normal consultation.

I hope from the way I have responded to this debate that noble Lords go away with the impression that we are trying to get a balanced outcome here. As I say, we are all united in the objectives we are trying to get in terms of value for the NHS and access to these top medicines, while at the same time creating a thriving ecosystem for drug and pharmaceutical companies to come here.

In conclusion, I thank the noble Lord, Lord Hunt, for bringing forward this debate. I am sure this is something that we will all enjoy and discuss further as the negotiations progress. I can assure noble Lords that this is very, very high on our priority list.

Photo of Lord Hunt of Kings Heath Lord Hunt of Kings Heath Labour 2:30, 25 May 2023

My Lords, I am very grateful to the Minister. I think he has responded in a positive way, which is gratifying and, I hope, sets the foundation for a proper negotiation with the industry to get a jointly owned voluntary scheme which will incentivise global pharma to invest in the UK.

For me, two or three themes come from this. First, the noble Lord, Lord Lansley, talked about the curiosity of a fixed drugs budget, and I found it curious when the Minister said we need value for money on medicines in order to have resources for front-line services. But medicines are a front-line service. Why is it a good thing to increase the number of doctors and nurses and buy more medical equipment, but it is suddenly shock-horror to spend more on medicines? What would we do without medicines? It is curious. I have never understood why the Department of Health has such a downer on the medicines budget, when it has just said—and I declare an interest as a member of the GMC—that it wants to see a massive expansion in medical school places. Why is the medicines budget regarded as such a negative factor? It defies all understanding; of all the great advances we have made in healthcare, how many have been made through new medicines? And I have to say that new medicines are rather easier to get than extra staff.

Photo of Lord Markham Lord Markham The Parliamentary Under-Secretary for Health and Social Care

May I just clarify? I completely agree that medicines are of course valuable. My comments were not about not spending money on medicines but about getting value for what we spend on medicines—not the quantity, not the quality, but the price that we are paying. I think that all noble Lords would agree that we want to make sure that we are getting the best value on pricing.

Photo of Lord Hunt of Kings Heath Lord Hunt of Kings Heath Labour

I fully accept that, but the sentiment that comes through is something that is shared throughout the National Health Service: that drugs expenditure, per se, is something to be held down. That is why, even though we have NICE, and bilateral negotiations—as the noble Lord, Lord Lansley, said—between NHS England and pharma companies in relation to specific drugs, at local level you have formularies and all sorts of mechanisms designed to ration medicines to patients. It is a curiosity about our whole approach. I agree with the Minister that one needs to start with a health budget. If we have—and I hope we do—new medicines coming on in relation to, say, Alzheimer’s, we will need to spend extra money in order to invest in them.

My second point—also made by the noble Lords, Lord Warner and Lord Allan, and my noble friend Lady Wheeler—is that it is very important that this is seen as a cross-government approach. If this is seen simply an issue for the Department of Health and NHS England in terms of the NHS budget, we will never get the kind of agreement that we need. If the Prime Minister is true to his word in terms of trying to reset the relationship—as the Minister implied—that is very welcome indeed.

This has been a very useful debate and I am very grateful to the Minister and other noble Lords. I beg leave to withdraw my Motion.

Motion withdrawn.