§ 3.53 p.m.
§ Mr. John Arbuthnot (Dover)
I beg to move, to leave out from "That" to the end of the Question and to add instead thereof:this House takes note of the First, Second and Third Reports from the Committee of Public Accounts in the last Session of Parliament, and of the Special Report from the Committee of Public Accounts.Until three years ago, the Public Accounts Committee and the Estimates Committee used to toil and produce their Reports. That was the end of the matter, unless a diligent newspaper brought out the more lively extracts from what we had to say. The House then decided that these Reports should be debated, and an opportunity given to those who were members of the Committees to throw further light on what we had been doing, and why, and to those who were not members of the Committees to have their say, and to put their questions on our work.
On the two previous occasions when the Reports of the Public Accounts Committee have been discussed, the necessary Amendment has been proposed by the Chairman of the Committee, the right hon. Gentleman the Member for Huyton (Mr. H. Wilson). This year, however, at his instigation, it was decided to put someone else in to hat. In part, this is because the right hon. Gentleman has been in Israel. He was hoping to be able to be back in time to listen to this debate, and because he is not we must commiserate with him, for at this very moment he is probably flying round and round over London. I should like to say, on behalf of the members of the Committee on both sides of the House, how much we appreciate the 1512 leadership that the right hon. Gentleman has given us. It has been strictly non-party, as is in the best traditions of the Committee.
It is worth emphasising that the control of expenditure falls into two parts. First, we have the control over commitments. That is not the concern of the Public Accounts Committee, but the Committee is concerned with the second form of control, making sure that the nation is getting value for money, and with seeing that payments are correctly made and waste eliminated. The Committee has been concerning itself with this for over a hundred years.
A further reason why I, a Government supporter, am moving this Amendment rather than the Committee's Chairman, a member of the Opposition, is to emphasise the fact that the functions and duties of the Committee are common ground between the parties. We are nonparty, and objective in our approach to the problems we have to consider. It follows from our Constitution that the Committee's Reports are bound to be critical. We are a fault-finding body. The Committee has neither the time nor the duty to tell any success stories, and that should be remembered if we are to keep a proper sense of proportion in considering the Reports. It should also be remembered that the Public Accounts Committee's scrutiny is comprehensive. We review the whole of Government expenditure—about £7,000 million of voted moneys, plus the Post Office, the National Insurance funds and other non-voted accounts.
It is important to bear in mind that all these accounts have been examined, and certified as correct. In other words, this money has been verified as having been spent in accordance with Parliament's wishes, and it is only in respect of a very small fraction of the total that the Committee finds evidence of weakness of system or lack of control. Our experience is that, taken as a whole, the system is sound and unrivalled in its integrity. The Committee's subject matter consists of past events. Its facts are the ways in which money has been spent and the mistakes that have been made. That limits, but does not lessen, the value of its work.
1513 The accounting processes work in two ways. In the first place, there is the negative effect. Departments are more likely to be soundly organised for spending their money correctly and economically if the permanent head of the Department has to stand up once a year to face criticism of his Department's lapses. But there is also the positive side to our work. Public spending is a continuous process. While, for example, the criticisms in the Reports now under consideration refer to transactions in a particular year, by far the greater part of those transactions relate to expenditure on services continuing from year to year. If defects in last year's system are identified and corrected, Parliament and the nation may expect to reap an economy dividend this year, and in future years.
The Public Accounts Committee, unlike other bodies, has three peculiar advantages. In the first place, we have the evidence of accounting officers, who are the permanent heads of their Departments and personally responsible for the correctness of their accounts.
Then we enjoy the services of the Comptroller and Auditor General, and I should like to say how much all the members of the Committee—and I know, all Members of the House—value these services, and regard them as being of inestimable value. Not only does the Comptroller concentrate our attention on those aspects that he thinks will best repay our further scrutiny, but he is also prepared to have his investigators probe into any part of Government spending about which individual members of the Committee may feel in doubt.
§ Mr. T. L. Iremonger (Ilford, North)
Can my hon. Friend tell us what is the standing of the Comptroller and Auditor General? To whom he is answerable and by whom he is appointed?
§ Mr. Arbuthnot
That does not quite merge into the flow of my speech, but the Comptroller and Auditor General is appointed by and answerable to Parliament—as the hon. Gentleman will learn if he does his homework.
What occurs to me is that the Comptroller's services are so prized, and with every justification, that it is suggested in some quarters that an officer with similar powers should be placed at the 1514 disposal of back-bench Members who feel that they have received a brush off "from the Establishment on constituency cases. It is not for me to express a view on the merits of such a proposal, but it does at least reflect the high esteem in which the Comptroller and Auditor General and his staff are held.
The third advantage that pertains to the Public Accounts Committee is its special relationship with the Treasury, both as a witness in P.A.C. hearings and as a co-ordinator of action by the Executive on P.A.C. recommendations. It is right that it should be a Treasury Minister who replies to this debate, and I am particularly glad that my hon. Friend the Financial Secretary is to reply this evening to the various questions that may arise. In my view, Parliament would be making a great mistake if it were ever to weaken that special relationship with the Treasury that has been built up over the years.
In this connection, I see that in its last annual report the Post Office rather gloried in the fact that this is the first year that it has been free from certain Treasury controls. I trust that that does not forecast a suggestion that the Post Office should escape the Treasury wing in its replies to P.A.C. criticisms. The Treasury is responsible for answering Committee criticism in connection with many non-voted accounts—a year ago, we examined the Independent Television Authority—and for Parliament to put any Department outside the scope of the Treasury Minute would seriously weaken the system of control that has been proved to work so well in practice, and I trust that any such move on the part of the Post Office would be resisted strongly by members of the Committee, and by Parliament itself.
The Public Accounts Committee eschews policies; we concentrate on administration. Our efficiency relies on the preservation of the well-tried system of working with the Executive at official level. The views of the Executive on the Committee's criticisms are transmitted each year to the P.A.C. by a Treasury Minute, and we have this year's Treasury Minute now before us in the Special Report of the Committee in this Session. I must remark, in passing, that I have 1515 never seen a Treasury Minute which has been so full of agreement with the various comments which the Public Accounts Committee had to make.
In due course, the P.A.C. will consider this document, together with evidence upon it, as it thinks fit, from the Treasury and from other Departments. The value and importance of receiving this statement of the views of the Executive in a document presented by the central, and in so many respects the controlling, Department in our financial system cannot be too strongly emphasised.
I now turn to some of the detailed matters in the Report of the P.A.C. for the Session 1961–62. The theme running through the Report is the need for full information if Departments are to control the heavy expenditure which is not subject to the overall test of competitive tender. I will take one or two examples which bring this out.
The first is to be found in paragraphs 47 to 53 of our Report, in which we discuss research and development. We thought that there had been considerable improvements in the methods of controlling the heavy expenditure over the several years during which successive Committees have examined the cases coming before them. We still felt that there was room for the introduction of a greater measure of competition in the matter of design and a greater degree of precision in both the dates and the costs of development contracts placed under agreed technical programmes. The admitted defects in cost control of Biue Streak, for example, mentioned in paragraphs 58 to 61, further illustrate the need for the use of improved methods.
Another example comes from the control of sub-contract prices. Our examination left us in no doubt about whether the checks were adequate, and, in particular, whether the Ministry of Aviation had enough precise information from the scale of its investigations. This wide field of sub-contracts, with its possibility of excessive prices, obviously shows the need for a systematic survey, and we look for an improvement another year in the Ministry of Aviation's control in that respect.
In paragraphs 70 to 83, concerned with certain agricultural subsidies, the 1516 Committee found evidence that lack of information in the Ministry of Agriculture, the result of inadequate records and insufficient checking, had given rise to overpayments. In the case of the lime subsidy, this lack of information resulted in failure over a long period to detect a fraud. Other illustrations of the need for more and better information are to be found in the overhead costs of the Air Ministry's work services and the cost estimating by ordnance factories.
All these cases must present difficulties—we must always realise that—and the cost of getting information or making checks must be weighed against the risk of loss and wasteful expenditure if the steps are not taken. But the Public Account Committee's inquiries show that there is room for much more vigilance.
In paragraphs 9 to 11 we deal with the latest position with regard to the firm of Bailey (Malta) Limited, the firm which bombards Members of Parliament with glossy brochures giving selective quotations which it thinks will show the firm in a favourable light. Strong criticism of this firm's activities was made in the debate on the Committee's Report last year. The House will recollect that the firm had misappropriated public funds and had used them for purposes which would not have been approved by the Colonial Office, had the Colonial Office known about them. Last year we reported that as a result of the investigations by Sir Richard Yeabsley, such action as could be taken was taken to correct the position. Three Government-nominated directors, including Sir Richard Yeabsley himself, were appointed to the board.
Last April, these three Government-sponsored directors resigned, and it is not a very great step to assume that they were not satisfied with the way in which the company's affairs were being conducted. A new Government director, with wider powers than those of the three independent directors whom he replaced, was appointed, and the Secretary of State arranged for a full inquiry into the affairs of the company by an independent investigator. Unfortunately, the report of that independent investigator is not yet available to hon. 1517 Members, although I understand that it has reached the Government. The new Government director who has these much wider powers is Mr. Rendell, the Chief Executive Officer of the Colonial Development Corporation. Many hon. Members on both sides of the House know him well and will have every confidence in his ability, in his integrity and judgment.
The thing that appears to me to be extraordinary in the whole of this proceeding is that Mr. Rendell should continue to be saddled with the other directors of Bailey (Malta) Ltd., whose actions in the first place—which included salting, away in Bermuda in a pension fund money borrowed from the Colonial Office—were criticised last year. Since then they appear to have acted in such an unsatisfactory way that the three Government-nominated independent directors felt that they could no longer continue to serve.
In my view—and I make it clear that I am speaking without committing anybody except myself—the right solution would be for C.D.C. to be given the entire responsibility for the enterprise in Malta and to let Mr. Rendell run it with his own staff, which he is perfectly capable of doing, since no one can have much confidence so long as the remaining Bailey directors continue to occupy the positions they hold.
Each year recently the Committee has had cause to comment adversely on the relations between the Ministry of Health and the pharmaceutical industry. I know that the pharmaceutical industry feels that it is singled out to be the whipping boy not only of the P.A.C., but of Parliament. I am closely interested myself in these problems and in trying to improve the relationship between the industry and the Ministry, since I have one of the large pharmaceutical firms in my constituency and I regard myself, and I hope that I am regarded, as a friend of the industry.
The trouble arises when one has conditions which, because of patents, do not amount to free competition and at the same time the State is the largest customer. In these circumstances, the Ministry has a special duty to ensure that prices charged are "no more than fair and reasonable". Naturally, the Ministry has been cross-examined on 1518 the subject by the Committee. The Ministry, because of lack of competition existing, had to fall back on cost investigations. It found some of the firms "a bit sticky" in producing the figures required by the Ministry to fulfil its duty of ensuring that prices were reasonable.
One of the firms, Cyanamid—and there is no reason to think that it is any way exceptional in this respect—on its own showing, made a profit on capital employed which ranged between 77 per cent. and 37.3 per cent. The latter figure, which I think is more accurate, included adjustments to take account of certain claims by the firm which seem reasonable. Whichever figure one takes, the profit figure was, naturally, regarded by the Ministry as indicating that there was room for the possibility of lower prices in prices charged to the Health Service.
The Ministry's first line of defence against too high prices is competition, but in many oases that is non-existent, being thwarted by patents. The Ministry's second line of defence is cost investigation, and that has met with "a sticky response" from the firms. The Ministry's third line of defence—and this is the one which it was driven to invoke—is Section 46 of the Patents Act, 1949, under which it invited tenders by firms who had not produced or developed the drugs.
Personally, I regret that the Ministry should have had to employ Section 46 of the Patents Act and break patents, but no Ministry would take an action like that unless driven to it. I suggest that the firms who developed the drugs could have avoided this action if they had been more forthcoming and mare co-operative in the provision of information, and I hope that they will follow that line in future.
I do not believe that the Ministry is blameless in all this. In evidence before the Committee the accounting officer told us that he was dissatisfied with the firms who had developed and manufactured the drugs, since these firms were making too large a profit on capital employed. That is a perfectly tenable proposition. The Ministry therefore brought in outside manufacturers who had not borne the heat and burden of the day, but who had merely copied drugs which other people had developed. However, when I asked 1519 the accounting officer what was the percentage profit on capital employed by these firms, he replied that he did not know and did not need to find out.
I should have thought that what was sauce for the goose was sauce for the gander and that if the yardstick of percentage profit on capital employed was applied to the man who had developed a drug and as such had earned some merit, the same should be applied to the firm who had merely pinched someone else's patent under the cloak of the dubious respectability of Section 46 of the Patents Act. So long as the Ministry acts like that, although, admittedly, it had provocation, it is bound to incur distrust by the industry.
Then we come to the question of expenditure on sales promotion, £6½ million out of sales amounting to £67 million, or approximately 10 per cent. Sales promotion expenses in a free market must be left to individual firms, whose sales will suffer if they spend too little and whose profits will suffer if they spend too much on sales promotion. But when dealing with a single buyer, the British taxpayer, different considerations must apply. Sales promotion costs in this case should be limited to what will keep doctors informed. Any further expenses on promotion of one equally efficacious drug against another is a pure waste of the taxpayers' money to the aggrandisement of one firm against its rivals, and should be discouraged.
At the same time, I do not want to see the Ministry become too unpopular with the industry, particularly because of the danger to our export trade. If we get into the position where foreign-owned firms set up their subsidiaries anywhere rather than in England because they feel that they will be pilloried by the Ministry of Health if they come here, that will do our export trade immense damage in the long run, and that export trade is of great value. The 1961 figure, the latest we have, was £48 million. It is a steadily rising figure and I do not want our export trade to be damaged through a lack of understanding between the Ministry and the industry. It is important to do our utmost to improve relations between them.
Paragraphs 62 to 69 of the Report deal with an absurd situation which arose 1520 over the development and design of a wireless set. The Ministry of Aviation went out to so-called competitive tender and invited eight firms to submit tenders, suggesting that it would be helpful if the eight firms were to submit technical appreciations at the same time. Six of the firms submitted these technical appreciations. The Ministry, on receipt of the tenders, placed the contract with the firm which had quoted the highest price for development, and the second highest overall price for development and production. In other words, the whole process of tendering was rendered a farce.
One firm, which had been invited to tender, was ruled out on the ground of a poor performance on an earlier contract, and others on the grounds that the Ministry thought that they would be unlikely to be able to meet delivery dates. It is difficult to escape the conclusion that the Ministry itself failed to do its homework, and instead of producing its own technical appreciation of what it required, relied on the technical appreciations which it suggested tendering firms might care to produce. Furthermore, one would have thought that the unsuccessful firms must have a very real grievance in having been encouraged to go to the trouble and considerable expense of producing technical appreciations and of tendering when they had been virtually ruled out of the race before they started.
§ Mr. Arbuthnot
May I take this opportunity of congratulating the right hon. Member for Huyton, to whom I referred earlier in my speech, on having landed safely? We were wondering whether he was going round London in an aeroplane in the fog, having difficulty in getting down. We are very glad to see him with us.
§ Mr. H. Wilson
I apologise to the hon. Member for Dover (Mr. Arbuthnot) for having missed the first five minutes of his speech. I have listened to and admired everything that he has said since.
§ Mr. Arbuthnot
To return to the Ministry and its contract for this wireless set, I hope that it will never again 1521 stage a charade of this kind which can only bring its tendering procedure into disrepute. This incident serves again to emphasise the need for giving tenderers clear, precise, and well-considered requirements if the best value is to be obtained from competition. It may be that this essential need has been forgotten in the years when non-competitive contracts have been predominant, and the welcome return to competition must not be hampered by slackness in specification, as seems to have occurred in this case.
The last item I wish to mention in moving that note be taken of our Report concerns the Birmingham-Preston motorway, M.6, with which we deal in paragraphs 87 to 93. What happened here emphasises the importance of controlling design if value is to be obtained from the large expenditure on the roads programtm of about £100 million a year. In this instance a review of contract documents and specifications showed that large savings could be secured by detailed changes in design which did not alter the overall design of the roads. The Committee found that there had been no detailed study of savings to be obtained on an average motorway from variations in permitted gradients. We deal with this in paragraph 93, and I am glad to see from the Treasury Minute that the Ministry is now to mend its ways and do this.
My introduction of the Committee's Report has of necessity been selective in the items that I have mentioned. Other hon. Members will no doubt wish to bring out points of substance which lack of time has made it necessary for me to leave out. This Report has been a unanimous one of your Committee, and I ask that note be taken of it by the House.
§ 4.25 p.m.
§ Mr. Kenneth Robinson (St. Pancras, North)
I am sure that the whole House is appreciative of the admirable way in which the hon. Member for Dover (Mr. Arbuthnot) introduced this Motion this afternoon, and for the extremely fair speech he made.
We were very interested in the hon. Gentleman's description of the purpose and the functioning of the Public Accounts Committee. During the course of his remarks he explained that it was no purpose of the Committee to record the success stories of the Government. 1522 This leads me to reflect that if that had been its purpose, we should, perhaps, have have a rather thinner Report than this weighty document before us today.
Clearly, the House is at liberty to discuss any one or all of the dozens of items of expenditure which are dealt with in this Report. Many of them are important, but none, I think, more important than the question of drug prices and price control, to which the hon. Gentleman devoted part of his speech. It is to this issue that I wish to address my remarks, and I hope that the House will think it desirable to devote part of the time allotted to this debate to a discussion of the pharmaceutical issues.
I think that the House and the taxpayer should be grateful to the Committee, under the chairmanship of my right hon. Friend the Member for Huyton (Mr. H. Wilson), for what I can only call its relentless pursuit over a long period of savings in the procurement of drugs for the National Health Service. I hope that the Minister of Health, and, indeed, the Treasury, feel the same gratitude, because the Committee has without doubt strengthened to a considerable extent the hand of the Ministry in negotiating price reductions.
I want to make one thing clear at the outset. I have said this many times before, but I had better get it on the record once again. I am sure that everyone, and particularly those in any way associated with the National Health Service, must be profoundly grateful to the drug industry for the life-saving products which pharmaceutical research has given us, especially in recent years. The discoveries which they make are a great contribution to the health of peoples all over the world, but these sentiments, however sincerely held, cannot, and, I believe, should not, inhibit us in any way from criticising, where criticism in our view is justified, the methods used in the commercial exploitation of those discoveries.
Equally, I think that we are entitled, indeed I think it is our duty, to demand the most stringent testing and independent appraisal before new drugs are released on to the market and administered to human beings. But this is a matter which does not directly arise out of these Reports, and I hope that perhaps we can discuss it more fully on another occasion.
1523 Most of these Reports deal with drugs covering the operation of the voluntary price regulation scheme which was first introduced in, I believe, 1957, and substantially revised about two years ago. This is the scheme which fixed the price of drugs by an agreement which we use for the general pharmaceutical services of the National Health Service, and I should remind the House that this price fixing becomes operative only after the expiry of a three-year period during which the producers of new drugs are entitled to charge whatever sums they think fit. This is designed to recoup them for the research expenditure which has gone into the production of these and perhaps other less successful drugs, and, indeed, into a number of drugs which are failures.
It is clear that from the beginning of its investigations the Committee had a feeling that the Minister of Health had been somewhat weak-kneed in conducting these price negotiations, that he had perhaps too often been out-manoeuvred by manufacturers who are described in this Report by the accounting officer of the Ministry as tough negotiators. But in the last year or two, under the stimulus of the Public Accounts Committee, and, indeed, of certain observations made from this side of the House, a number of improvements and savings have been made in drug procurement.
First, a more stringent voluntary price regulation scheme was negotiated with the industry when the original scheme came up for renewal. Price reductions, one or two of them a quite substantial, followed the revision of that scheme. But, in my view, the scheme still contains many inherent weaknesses. For example, as the hon. Member for Dover explained, there are alternative bases for fixing prices. There is the basis of profitability of a drug, the basis of profitability of a manufacturer's whole United Kingdom business or whole National Health Service business and the basis that is hinged to the price which the manufacturer obtains in export markets. As between these three methods of calculation the manufacturer is free to choose the one which suits him best, and, by definition, that is the one which suits the taxpayer worst.
Furthermore, these negotiations inevitably must depend on information 1524 which only the manufacturer can supply to the Minister—information about profit margins, about manufacturing and ingredient costs, and about research and general overheads. Many manufacturers have shown extreme reluctance in providing this information. The hon. Member for Dover said that they had been a bit sticky, which, I suggest, is one of the understatements of the Session. Pharmaceutical manufacturers can be compelled to provide this information. The Minister has power to enforce the provision of it, but I understand that it is never used. I have read the Minutes of Evidence and the accounting officer's suggestion that this is a power kept in reserve. I think that he said in one answer that it was "brandished". The Public Accounts Committee thinks—and I agree—that the Ministry has been very slow to use this compulsory power, or even to threaten to use it.
I call attention to the case of the four Swiss firms—Ciba, Geigy, Sandoz and Roche—referred to in the Report. Negotiations have been going on with them fax two and a half years in trying to fix the prices of certain drugs. The fact that they have not yet reached finality is unquestionably due to the reluctance and, indeed, the refusal over a long period of these companies to provide the essential information which the Ministry needs in order to fix prices on the chosen basis of calculation.
There is the case of the four British subsidiaries of United States drug manufacturers. Here the negotiations dragged on for eighteen months in respect of drugs to the value of over £10 million per annum which were sold to the National Health Service alone.
The unfortunate thing is that there is every incentive to delay on the part of the manufacturer. This is another weakness of the regulation scheme, because there is no provision for retrospection. In question No. 802 on page 64 of the Minutes of Evidence, the Chairman asked the accounting officer:Does this not give an incentive to them"—that is, the manufacturers—to drag out the negotiations?The answer was:I suppose the honest answer to that is, on information yes. It also naturally gives an incentive to us 1525 in the opposite direction and since, as regards the provision of information, it is we and not they who hold the whip hand"—presumably that is a reference to the compulsory powers—then I should hope it would be our incentive which would prove to be more forceful in the event than theirs.In the event, there is no doubt that it is the manufacturers' incentive to delay which has proved more forceful. As for the Ministry's whip hand, I can only suggest that it seems to be tied behind its back.
I should like the Financial Secretary to tell us, when he replies, why settlements cannot be back-dated. Much of the evidence before the Committee suggested that this would give rise to all sorts of administrative difficulties. I cannot believe that they are insuperable difficulties. Surely if one negotiates at a price, and wishes to back-date it to the beginning of the negotiations, it is not beyond the wit of man to issue credit notes to wholesalers and from wholesalers to retailers for the difference between the negotiated price and the original price. I cannot think that that would lead to any considerable difficulty.
Perhaps a compromise may be arrived at by which, once negotiations to fix the price of a drug start, a time limit is set on the negotiations—say, three months—and that if the negotiations are concluded within that period the price becomes operative from the time that they are concluded, but that if they drag on beyond the three months it is back-dated to the beginning of the negotiations. In this way, there would be an incentive to press ahead with the negotiations, and it would be in the interests of the manufacturers to co-operate to that end.
I come to the nature of the information which has to be supplied by the manufacturers to the Ministry and the different interpretations that can be, and are, placed on various pieces of information. There is a good example of that in this Report, that of Merck, Sharp and Dohme, the manufacturers of ohlorothiazide. If hon. Members refer to question No. 826 and the following questions on page 66 of the Minutes of Evidence, they will see that the United Kingdom profits of this firm, as worked out by the Ministry of Health, were 184 per cent. on the capital employed.
1526 Bat the industry's accountants, Messrs. Cooper Bros., produced a totally different basis for calculating profits on capital. I understand that they took in a part of the American capital which was supposed to be relevant to the British subsidiary. By doing that, they brought the rate of profit on capital employed down from 184 to 30 per cent.
To prove which of these is a fair assessment we need a lot more information. For example, we need to know whether the British subsidiary bought its basic ingredients from the parent company in America and, if so, the price? If it bought them at cost price, then that is reasonable, but if it bought them at an inflated price, incorporating a considerable measure of profit for the United States parent company, or, indeed, if it paid royalities on the drug to the parent company, those payments could well be taken as servicing the amount of the United States capital that had been applied to the British subsidiary. In that case, the figure of 184 per cent. would be correct. Does the Ministry ask for this information? If so, does it get it?
The answer that we always get when we criticise high drug prices is that these are due to research. We are told that vast sums are spent on research and that these must be recouped, and that the only way that they can be recouped is by ensuring that there is a healthy margin of profit on the minority of successful drugs thrown up by the research departments. There is a good deal in this argument, but the fact is that most basic pharmaceutical research is done by a very small number of companies in Britain. I think that an article in the Sunday Times last Sunday suggested that the number was only half a dozen. I should have put the figure slightly higher than that.
Many pharmaceutical companies do little or none of this basic research. Their effort is directed much more to finding a slight variant of an existing successful drug which can give them a patent monopoly and allow them to get a share of the market. Some do no research at all. The same criteria cannot or should not with justice be applied to the different types of manufacturer when it comes to research.
Then we come to another matter dealt with by the hon. Member for Dover, the 1527 very vexed question of promotion costs. Here again, for years, the Ministry has been trying to discover the percentage of manufacturing costs which were represented by such things as advertising, free samples and the cost of representatives calling on doctors. At long last, the Ministry has managed to obtain some figures and they are published in the Report. They are the figures for the industry as a whole. The total amounts to about £6½ million which, as the hon. Member said, represents 10 per cent. of the net sales. That in itself—I agree with him—His a very high figure indeed when we are dealing with drugs where there is virtually only one purchaser, the Minister, either directly or indirectly.
This is a figure not far short of the total figure claimed for research expenditure by the industry in this country. Of the £6½ million, nearly £3 million went on representatives who call on doctors, and £3½ million on advertising and on free samples. But, of course, all figures for the whole industry are quite useless for the purpose of price negotiation, particularly when we are negotiating for individual drugs.
These figures are supplied by the Association of the British Pharmaceutical Industry. They can only have been obtained by getting the figures from individual companies represented by the Association and adding them together. Why could not the Association have sent to the Ministry the figures for the individual companies? We all know that one or two firms, particularly firms which originated in the United States, spent far more than the average on promotion costs. Why cannot the Ministry get a break-down and take these promotional costs into account in negotiating prices for the National Health Service?
I do not know why the Ministry takes such a prim view about promotional expenditure, why it is so reluctant to say what it considers to be a reasonable percentage of expenditure on promotion, and what represents, in its view, excessive expenditure. We all appreciate that the Minister cannot dictate what a pharmaceutical company spends on promoting its products, but, at least, he can insist that excessive advertisement costs are not paid for by the National Health Service. 1528 That is the only point that I am making, and I think the main point that the Public Accounts Committee was making.
I strongly support the recommendation on page xxxiv of the Report that…the Ministry should not confine their activities to seeking a reduction of profit but should also be critical of costs, particularly those of sales promotion activities, which should be accepted only if they are of proved value to the Health Service.I agree with the hon. Member that we are here dealing with an almost unique situation that the products which the Minister directly or indirectly buys are almost the whole home production. There are in addition, in some cases, exports.
There is little evidence still, I think, that the Minister recognises or, indeed, if he recognises, exploits the full strength of his bargaining position in these negotiations. They are, of course, patented drugs, and, in general, patent confers monopoly. But the 1949 Patents Act, in protecting the patent holder, also went some way in protecting the public interest against exploitation by monopoly.
There are two Sections in that Act, Sections 41 and 46, which do this, and I have always understood that they were Sections for which the late Sir Stafford Cripps was largely responsible. Section 46 has already been referred to. This is the Section which entitles a Government Department to make use of any patented invention for the services of the Crown subject to a royalty either to be agreed by the patent holders, or in default of agreement to be fixed by the High Court. I do not share with the hon. Member for Dover his sorrow that recourse had to be made to Section 46. This seems to me a perfectly proper use of a safeguard for the taxpayer which was deliberately inserted in this Act of Parliament. We know that for some time before the Minister acted, certain hospital authorities had been buying from continental sources a few drugs, mainly antibiotics, at less than half the figure that they cost in the United Kingdom.
It is over a year ago that the Minister decided to purchase five of these drugs centrally, by annual contract and competitive tender, for use in hospitals. I emphasise this because the use of these drugs in hospitals is only about 15 per cent. of the total use throughout the 1529 National Health Service. So this represents only a marginal saving. The five contracts were duly let and the Report reveals that the cost of these drugs was about 60 per cent. below the price being charged by the United Kingdom manufacturers, the monopoly and the patent holders, all of whom in this case, I think, were British subsidiaries of American firms.
The interesting thing is that this price, which is 40 per cent. only of the United Kingdom price, included an import duty which certainly was not less than 10 per cent. and which, in some cases, might have been higher. This means that these drugs are being produced at something like one-third of the cost at which they are being sold by the licensees in the United Kingdom.
These contracts were for one year only. The have just expired. I should like to ask one or two questions about what is happening in the future. Were the contracts satisfactorily carried out? Was the quality of the drugs supplied and their distribution satisfactory? Have any new contracts been let for the corning year and, if so, was this regarded by the Ministry as a successful experiment? Has it invited tenders for any further drugs which are widely used in the National Health Service, and where it feels that the price that it has to pay is excessive? If it has not, I should like to know why not.
Before leaving Section 46, I should like to ask one further question. I understand that one United States firm, Messrs. Pfizer, began proceedings against the Minister for his action under Section 46. I do not know whether that case is proceeding or whether it has been dropped.
I spoke of two Sections. The other Section of the Patents Act, Section 41, seems to me to be in serious danger of becoming a dead letter very much on account of the Machiavellian, or, perhaps, I ought to say Fabian tactics of some of the larger drug houses. Perhaps I should remind the House what this Section does. It contains the provision for the granting of compulsory licences. It is potentially a very great safeguard for the public interest against monopoly. If a firm applies to a patent holder for a licence to manufacture and that licence is either refused or offered on wholly 1530 unreasonable terms, under Section 41 that firm can apply to the Patents Court for a compulsory licence. The Act states that a licence shall be granted if the court is satisfied that the firm applying is perfectly capable of producing the products.
The purpose is that if the product—and this is limited to food and drugs—can be manufactured and sold at less than the monopoly price after the payment of a reasonable royalty, the public should have the benefit of the lower price. I believe that only one such licence has ever been granted since this Act came into operation thirteen years ago. I am told that even in that case the product in question was never manufactured by the firm that was granted the compulsory licence—an odd fact, to say the least.
There are same applications in the pipeline at the moment and this is a longer and more sluggish pipeline than the one we hear so much about from Scottish Ministers from time to time. Here again, the value of delay to the monopolists is enormous. They can easily spin out the negotiations for a voluntary licence for a year or more before the negotiations actually break down, which is necessary for the applicant to apply under Section 41. At the end of the day they can demand a wholly unreasonable royalty and then, when an application for a compulsory licence is made, they can ask for and invariably obtain postponment after postponement, dragging on the negotiations for months and in some instances for years before the case even comes for a hearing before the Patents Court.
Most drugs have only a limited profitable life before they are superseded by something better, and if this process is dragged on long enough it is no longer worth while the applicant carrying on with his application. Firms which apply for compulsory licences under Section 41 deserve more help and encouragement than they get at the moment from Government Departments, and particularly from the Board of Trade and the Ministry of Health. After all, the taxpayer can only gain from the granting of compulsory licences. Reductions amounting to about £3 million a year have been obtained in the last couple of years since the Voluntary Price Regulation Scheme was revised.
1531 When we were discussing the question of the double prescription charge I told the Minister of Health that if he was looking for savings he would do far better to look at drug prices more thoroughly. I am glad that the right hon. Gentleman has taken that advice and has followed the lead of the Public Accounts Committee, but we on this side of the House believe that a good deal more can be done. After all, the supply of drugs to the Health Service is a very big business indeed. Many millions of pounds are involved. These price negotiations are tough, and I wish that I could think that the Ministry brought the same toughness and resources to bear on the negotiations as the industry does.
The House will know that the whole question of drug testing, clinical trials, and the search for new drugs is very much under scrutiny at the moment. We already have a spokesman for the pharmaceutical industry saying that if more elaborate and thorough testing has to take place it means an increase in drug prices. Before we, the taxpayers, assent to this proposition we must be absolutely sure that the existing profit margins cannot absorb this extra cost. In many cases I have no doubt that they could absorb them.
Many pharmaceutical manufacturers, I readily admit, and I think most of the indigenous British firms, are, in general, content with a fairly reasonable margin of profit. A few—and one must mention in this connection the subsidiaries of United States and Swiss firms—are clearly out to exploit their monopoly position. It is the duty of the Minister, of the Treasury, and of the House to see that the National Health Service is not a mulch cow for any commercial interest.
I repeat that we should all be grateful for what the Public Accounts Committee has done to this end, on our behalf and on behalf of taxpayers.
§ 4.55 p.m.
§ Mr. Compton Carr (Barons Court)
I welcome the opportunity of following in the debate the hon. Member for St. Pancras, North (Mr. K. Robinson), because I should like to pay attention briefly to questions raised before the Public Accounts Committee on advertising by the pharmaceutical industry. I am 1532 not really the man to speak about advertising, because I am probably the most sales-resistant man in the House. No man comes to the door and sells to me—not even the man selling onions—and telephone calls offering me a free dancing lesson leave me absolutely cold.
I appreciate, as I used to believe everyone in the country appreciated, that advertising is a necessary part of free enterprise. In view of the atmosphere in which discussions of this matter take place and the fact that one is very often left, as I think with great respect the hon. Member for St. Pancras, North left us, with the impression that the pharmaceutical industry is, to use an American expression, "gouging" and is trying to take every possible cent out of the Health Service, it is only fair to mention, as I have not heard mention, the survey which the A.P.B.I. completed recently. It was to determine the cumulative values of price reductions and increases for branded drugs over the period 1957–61. This showed that there was a net saving in that period of over £9 million to the Health Service. The sales value of the reductions was well over £9 million, and the sales value of increases was about £110,000.
I realise that a large amount of this was due to reductions required by the Voluntary Price Regulation Scheme, but it was not as much as hon. Members sometimes believe and certainly not as much as the public are sometimes led to believe. Less than half of the reduction was due to the scheme. It is fair to the industry to mention figures of that nature, and it is fair to say, as everyone involved in the industry will know, that that saving was achieved despite increases in costs and wages.
We have been assured by hon. Members on both sides of the House, in several debates on the pharmaceutical industry, that it is estimated that the manufacturers have made and are making a tremendous contribution to the advance of therapeutics in this country through their research and development. But there is always an "if" and a "but" after this. I hope that I shall not be accused of making the suggestion, but it strikes me that if one follows the argument of the hon. Member for St. Pancras, North this industry might expect eventually to have no kind of protection. 1533 The logical conclusion is to say that patent protection is monopoly, and monopoly enables the seller in a limited market—and that the Government—to take some profit, whether that be large or small. This is very often a matter of pure surmise and opinion and, therefore, the argument might be followed logically to exclude this kind of industry from the protection of the Patents Act.
This is the direction in which some hon. Members oposite point. They point towards their desire to see the pharmaceutical industry, with its huge capacity for research and development, as part of the Health Service. It has been said before and I do not think that we have heard the last of it. Surely that is the logical outcome of a complete blanket argument on these grounds.
I do not say for a moment, and I do not think that anybody who knows the pharmaceutical industry as well as I do would say, that there are not many black sheep in the fold, Obviously, there are, as there are in every profession, including the one to which I have the honour to belong. We seek to sort out the black sheep from the white, and to give the white sheep a fair measure of profit in their dealings with the industry.
I now return to the question of expenditure on advertising and sales promotion. This is lumped together in the figure given by the hon. Member. The £6½ million includes the expenditure incurred in visits by representatives to doctors, as well as the cost of sending samples, together with what is true sales promotion, namely, the advertising matter that comes through the letter box and appears in the journals.
§ Mr. Carr
There is a great difference between sales promotion of the second type and that of the representative. In the case of other industries the costs involved by representatives are often left out of the advertising figures. That is why the hon. Member's figure is misleading.
It was admitted before the Public Accounts Committee that representatives who called on doctors brought a great deal of knowledge with them. Although, at one time, it was suggested that many 1534 representatives did not have much knowledge, it was finally agreed that most were well qualified, and that these people brought knowledge to bear upon doctors' problems and maintained a steady service of opinion to the doctors which those doctors might miss if literature were merely delivered through their letter boxes or appeared in the Press.
§ Mr. Carr
The question is whether one agrees that competition is a good thing. It has been marginally suggested that there is no competition here, and that what we have is a lot of producers of different items—items so different that in reality these producers are advertising their wares against no competition. That suggestion is unfair.
§ Dr. Barnett Stross (Stoke-on-Trent, Central)
Casting my mind back and remembering the benefits that I received from representatives who came to my surgery, I wonder whether the hon. Member is not loading the dice in their favour. The representative may be a different type of person now, but in my time he came to sell and to describe the virtues of the products that his firm was making. He came for no other purpose. I do not believe that he is coming for any other purpose now. That fact ought to be accepted. It is reasonable; after all, the doctor can always refuse to see him if he does not want to. I admit that some of these representatives are well qualified to speak to their own brief, but they are expensive people to have, and their number—2,400 for the country as a whole—is rather excessive.
§ Mr. Carr
The hon. Member and I seem to be slightly at cross-purposes. Obviously, these representatives come to sell, but if we are to work up a system of connections between the pharmaceutical companies and the doctors whom they serve, these representatives form a valuable link. Although it cannot be said that a kind of early warning system is provided solely by these representatives, their is no doubt that if any drug were causing alarm to the ordinary general practitioner the representative on the doorstep would be one of the first people to hear about it. That is a fair indication that they have more worth than is suggested by their being called 1535 merely pill peddlars. They cannot be written off as useless and it cannot be suggested that the cost involved is excessive.
People do not advertise for fun. Anybody who works in industry knows that advertising expenditure may go too far in any one company or industry, but it always boomerangs back against the company or industry which is trying to push it too high.
§ Mr. K. Robinson
How can the hon. Member say that this is not excessive? Let us suppose that half this expenditure were incurred by one firm. Would not he consider that excessive? The hon. Member says that they do not advertise for fun. Perhaps that is so, but if they feel that they can get all their advertising costs paid back by the National Health Service there is not much inducement to cut down on promotional expenses.
§ Mr. Carr
That is true. On the other hand, if a company spends a large amount, thereby boosting its sales, the increase in sales of itself tends to reduce the price of its goods. The mere fact that a company is spending a lot of money does not mean that it is spending a large percentage per pill on promotional literature. This is an argument which can go on for ever. If a person does not believe in advertising in its own right, as a service, he never will believe it in connection with the pharmaceutical industry or any other industry.
The firm which does not advertise tends to sell less than the firm which does, and the firm which sells less has a higher unit price, simply because it has a smaller production. That is one of the facts of industrial life. It is not possible to take one item and say that it is not merely excessive, but that it ought not to exist at all. Anybody who is guilty of merely boosting a price to sell his own goods must expect to be dealt with appropriately, especially when he is dealing with the State.
This is the essence of the A.B.P.I.'s agreement to the various measures which the Ministry has taken in recent years. The only point is that the A.B.P.I. feels that it is unfair to use this general argument against advertising— 1536 this allegation that it is wasteful to advertise beyond a certain level—simply to attack the pharmaceutical industry. In considering the question of goods put out to tender one does not ask where the financial and promotional level is.
§ Mr. K. Robinson
This is the second time that this point has been raised. The hon. Member for Dover (Mr. Arbuthnot) also raised it. The difference is that if goods are being bought by competitive tender there is not the same necessity to look into finance and castings as there is if they are being supplied by a monopoly.
§ Mr. Carr
I am grateful to the hon. Member for coming back to that point. There is no absolute monopoly in the pharmaceutical industry. No single individual and no single part of the industry has an absolute monopoly of any one drug. There are always variants of a drug. The hon. Member may call it molecular roulette, or what he likes, but other companies manufacture the drug. I may be wrong—I know that the hon. Member knows a great deal about the industry, and my interest is only of a few years' standing—but I do not think that there is a single case in which it can be said that one company produces a drug which no other company produces. If that could be said, then obviously there would be a monopoly.
§ Dr. Stross
I thank the hon. Member for giving way, but this is a non-party matter. Has not he realised that the weakness of his argument lies in the fact that different firms produce completely identical drugs which they supply with different trade names? That being the case, a firm's advertisements are directed to the sales of its own drug—which is the same as the drugs of some of its competitors—and its efforts are directed towards getting doctors to prescribe its own drug. If that is the case—and in my opinion it is—is not that wasteful? Should we pay for this?
§ Mr. Carr
With great respect, that is just what I maintain. It is not wasteful. This is the thing which cuts away the argument about monopoly. If Bloggs, Spinks and Snooks are all producing the same thing, they create a ring and make the same prices. That is "gouging", to use a vulgar term. If they all produce 1537 an almost identical product and they say that doctors should use it because it is better—and if, indeed, it is as good as the others and doctors would not say "I would not have that stuff in the place"—if they are all equal in value, surely, that is the whole essence of free enterprise. It does not of itself add to the expense; in fact, it reduces expense because of the element of competition.
I know that one uses that phrase and that some hon. Members do not like it, but surely most hon. Members are aware that it has already been dealt with by the Harvard Business Review in what was a very interesting look at the Russian pharmaceutical industry. One of the things which, I am sure, hon. Members wilt have noticed arose was that one suddenly found representatives of the Soviet Minister of Health complaining that the retail prices were four, five or even six times the wholesale prices for pharmaceutical goods, and it was said that this was something which would have to be stopped.
But much the more interesting thing was that it became quite obvious when one looked at the Soviet system that the branded name, or whatever one likes to call it, is something which has come into being. If a factory turns out something of a lower standard than is required, one could lay the blame where it was due, and this is exactly what has happened with some of the branded names over here. I am quite sure that the hon. Member himself, in the days when he was sitting behind a desk, would not have prescribed something which would not do what he wanted it to do or which it claimed to do.
I have taken up a great deal of time, unwittingly, but, as the hon. Member said, this is a non-party matter. There is one other thing which has been said, and I am sure that it was referred to in the Report, and that is the comparison with advertising. The hon. Member for St. Pancras, North (Mr. K. Robinson) mentioned the comparison between the total cost of advertising and sales promotion and the industry's ex penditure on research. I think that this is a little unfair, because there are quite a few large companies in this country whose research and development is done overseas, and, therefore, one cannot take that argument a very long way.
1538 On the question of prices and the high cost of advertising, it does not seem possible that one can continue to maintain that position in the face of our experience over the years in free enterprise. There is one other thing which I think it is fair to bring into this discussion, and it is that a statement has been made which may give rise to the impression that the A.B.P.I. did not care about the conduct of members. One could draw that inference, especially on the basis of advertising. No one has mentioned the A.B.P.I.'s efforts in sales promotion.
It may not be generally known that the A.B.P.I. itself has established a code of conduct for its members which covers a tremendous range. It contains a penalty clause in which it is clearly stated that non-adherence to the code could lead to expulsion from the Association. Therefore, it is only fair that this should be known. The new issue of the code is only the second edition, and it will be available soon. It is very comprehensive indeed, and I think that it is only fair to the industry that it should be mentioned.
I am most grateful to the Committee for allowing me so much time to speak, even if some of my speech was in the nature of cross-talk, and for the treatment which I have been accorded in speaking on a subject upon which I have not spoken in this House before.
§ 5.17 p.m.
§ Dr. Barnett Stross (Stoke-on-Trent, Central)
I, too, would like, in the first place, to say how much I enjoyed the speech of the hon. Member for Dover (Mr. Arbuthnot) and also the speech of my hon. Friend the Member for St. Pancras, North (Mr. K. Robinson). I have not read all the evidence that was given before the Committee, but I have spent some hours on it, and I was astonished to find how much knowledge seemed to be available by members of the Committee when they were cross-examining expert witnesses. I think that we are all greatly indebted to them, and I am very happy to be able to say this. It represented a remarkable amount of work which obviously meant very considerable application on the part of hon. Members in order to be able to arm themselves with sufficient knowledge to conduct themselves as they evidently did.
I should say that I have an interest to declare. I have for years been a director 1539 of a manufacturing firm of fine drugs, and this rightly inhibits me to some extent. Therefore, I want to speak particularly about chemists' remuneration, because that will take up the point which I rose to discuss with the hon. Member for Barons Court (Mr. Compton Carr). Chemists' remuneration is dealt with by the Public Accounts Committee, and its Report discusses the negotiations with the Ministry and the Minister's proposal for a reduction of the remuneration of chemists.
Hon. Members will perhaps remember that the chemists wanted an increase, but that, in the end, the Minister decided that they should not have an increase but that there should be a reduction in the fees made available to them. Whether that be right or wrong, I do not know, because I do not know all the facts. There is a dispute, and the Minister, in any event, has said that the smaller chemists, those with the lowest total incomes, should not have any reduction. I think that that has been accepted.
The point I want to raise is this. The chemists have said, and I know this is true, that they have a great deal of dead stock, and that they lose money because they bought expensive things, not to keep in stock, but because prescriptions are brought into them by private citizens on the E.C.10 form handed to them by their doctors, who prescribe under a particular name a branded drug. If the chemists have not got that drug, they say, "I am sorry, but I have not got it", and, if it is in the evening, they say that if the person would call again by 12 noon on the following day, they would have time to get it in.
Let us consider the possibility that this is a life-saving drug. Let us suppose that it is a soluble form of penicillin to give to a child. I find it wrong that if a chemist has five out of the six completely identical preparations in his shop and it is the sixth, an identical one to all the other five, which is prescribed, he is not allowed to substitute one identical drug for another. Obviously, therefore, the chemist gets a good deal of wastage and bad stock. This causes him to lose money.
If the chemist were allowed to do what I am suggesting—substitute a completely identical preparation which he 1540 has in stock for the one which is ordered—two things would happen. The lesser in importance is that he would not lose so much money and, therefore, any reduction that the Minister proposes to make would not hurt him so much. What is to me much more important is that people who are seriously ill, particularly children, would not have to wait overnight until next day until a life-saving drug was made available.
When dealing with hospitals, one finds that the hospital pharmacist does exactly what I am pleading should be possible for the chemist to do in his shop. The Financial Secretary to the Treasury may not know this, but if the Minister were sitting with him he would agree that this is so. When a consultant prescribes, the hospital pharmacist can perform that act of substitution—and why not?
Take an extreme and absurd case, which, perhaps, touches upon advertising. Vaseline is a proprietary word, a branded name, and petrolatum is the normal substance. If a general practitioner prescribes Vaseline for his patients, he soon gets sat upon because it costs much more, because it has a branded name and is advertised, than petrolatum, which is exactly the same thing. He is expected to prescribe petrolatum. If he wrote on his prescription the word "Vaseline", the chemist in the shop would have to supply a tin with the name Vaseline on it. To me, this sounds quite silly.
Take another instance. We hear a great deal about phenobarbitone. A lot of it is used, perhaps too much and by too many people. I sometimes wonder how many people have accidents in the morning when driving because they have taken phenobarbitone the night before. It takes many hours—longer than twelve—before all trace of a drug of this kind is eliminated from the human body. However, phenobarbitone is the normal name for a particular drug. Another name is Luminal, which is a proprietary name and which, when I was in practice, cost about six times as much; but it is exactly the same. When I was a young medical man—that is going back some years—in my ignorance I used to prescribe Luminal. I was visited by the district medical officer in charge of prescribing; he taught me the facts of life and I have never prescribed it since. I 1541 realise that it was absurd to give a prescription for something that unnecessarily costs so much. The reason why it cost so much was that it was advertised expensively.
When I say that it is not fair that a chemist should be loaded with a lot of things all of which are advertised and all of which are identical in their groups, I consider this to be an unnecessary expense upon the country. It is wrong for our citizens, too, that they should have to face this sort of thing. It is bad that doctors should have to be seen by skilled representatives each of them singing the merits of different preparations when amongst those things so many are identical. This is not good enough and I regard it as a mistake.
I hope that the Financial Secretary will say to the Minister, "Why do you not tackle the British Medical Association and demand from them the same thing that happens in the hospitals, namely, that if substances are absolutely identical there can be a substitution in the shop by the chemist when a prescription is brought in? "This would save money and prevent waste and I cannot see any valid argument against it.
I should like to say a general word about research. Research in the drug industry is a fairly recent phenomenon. It has grown in volume thanks to the work that discovered penicillin. It is since the first antibiotic was discovered, showing itself to be such a great lifesaving drug, that we have had a great deal of research and a lot of money has been spent. Most of it has been spent in America.
It is worth noting—and we must admit it—that it is in America that so many of these remarkable drugs have been discovered and that far more of them have come from the West than from behind the Iron Curtain, where there has been less pressure. It may be that the profit motive combined with the private large sums of money which could be poured into research has brought this about. Because this is the case, and because it is a good thing, there can be a bad aftermath from it. It is possible to suspect and to see a hysterical sort of search for variations of drugs or variations of a proven valuable drug or completely new drugs, because there are great prizes for a real winner.
1542 I agree very much with my hon. Friend the Member for St. Pancras, North that we must not be afraid to demand the most careful testing of drugs. However careful we may be, we shall never be able to guarantee to human beings that some kind of tragedy at some time or other may not occur again and again. At least, we should try to do rather more than we have done in the past.
I have said that the Americans have been successful. They have had great rewards. They have made great profits and I do not envy them. When, however, a particular drug has been patented and has had a remarkable volume of sales all over the world for many years, perhaps for ten, eleven or twelve years, and still has a few years to run and has made, like chloramphenicol has done, £20, £30, £40, or even £50 million profit net, surely the time comes when it should be sold much more cheaply.
The Minister has been right to take the advice that we urged upon him a couple of years ago in the case of selected drugs—only five—to use Section 46. He should look at Section 41. At the same time, those of us who are interested in the industry know that there must be sufficient money to continue to do research. There are still great benefits to be obtained for mankind if research is steadily and quietly conducted and encouraged. We need the results of research to be tested by independent organisations, such as, for example, the Medical Research Council or bodies of that kind, wherever possible. We need the most careful testing.
If we were to attack the industry too much and paralyse or impoverish it, something would be lost, but that danger is remote. It is the last thing that anybody in the House of Commons wants to do. The reason why the Public Accounts Committee scrutinised the industry is because we want a reasonable return for the taxpayer's money. Nobody wants to hurt or destroy an industry or prevent it from carrying on with research as successfully as possible. We are all grateful to the industry for what it has done. We do not, however, want to feel that we are being exploited—and there has been exploitation and we know it. That is all I intended to say. I am 1543 grateful that I had the opportunity of listening to the hon. Member for Barons Court, who preceded me.
§ 5.30 p.m.
§ Mr. A. P. Costain (Folkestone and Hythe)
I want first to congratulate my hon. Friend the Member for Dover (Mr. Arbuthnot) on the manner in which he opened the debate. It is always a personal pleasure for me to be able to congratulate my constituency Member. His comprehensive survey of the Reports highlighted the main facts. He was followed by the hon. Member for St. Pancras, North (Mr. K. Robinson). Since then the debate has been rather limited to pharmaceutical matters. I shall not attempt to follow the hon. Member for Stoke-on-Trent, Central (Dr. Stross), who is such an expert on these matters.
I am a comparatively new boy on the Committee of Public Accounts. I haw, had only one year's service. It would therefore be improper for me to say much in response to the kind remarks which have been made about the Committee. I see the hon. Member for Chesterfield (Sir G. Benson), the father of the Committee, in his place. If he is fortunate enough to catch the eye of the Chair, he will be better equipped to deal with this matter than I am.
Having served for one year on the Committee of Public Accounts, for one year on the Estimates Committee, and for 25 years in a managerial capacity in a public company, I want to give the House my impressions. Until I became a member of the Committee of Public Accounts, I did not fully appreciate the dual rôle which the Permanent Secretary of a Department has as Permanent Secretary and as accounting officer, on the first account being responsible to his Minister and on the second account being responsible to the Committee of Public Accounts. I did not appreciate why, whilst not relieving his Minister of the ultimate responsibility for his Department, he was responsible to the Committee of Public Accounts. I think that the nation should appreciate this and be grateful that we have such capable and experienced people in these positions.
1544 The doctrine of Ministerial responsibility for all that goes on in a Department, for every decision taken, does much to make for extreme caution in those who have the day-to-day operational responsibilities. Much of their energy and time must of necessity be devoted to avoiding mistakes. One of our outstanding features, which is not often understood by other nations, is the extreme loyalty of civil servants to their Minister, regardless of party. I suggest that, because of their loyalty, they are over-anxious not to take some calculated risk which a director of a company might take, for fear of creating a situation which could be embarrassing for their Minister.
Because of the ultimate Ministerial responsibility, the occasions on which senior civil servants appear before Members of this House without being accompanied by their own Ministers are rare. Although there are many justifications for the work of the Committee of Public Accounts, the fact that it is only before this Committee and the Estimates Committee that senior civil servants regularly appear and give back benchers the opportunity of seeing their work is an important factor in the day-to-day operation of our democratic system.
A further justification for the existence of the Committee of Public Accounts is that it assists accounting officers to maintain their high standard of morality in matters of public finance. Although I have no experience in this connection, I should not be surprised if the fact that an accounting officer is ultimately responsible to the Committee for his Department's expenditure enables him to prevent his Minister—I remind the House that this is an all-party debate—being too easily persuaded by his friends on the back benches to act as "Lady Bountiful" in the distribution of the nation's funds.
In this House we often refer to the "cold clammy hand of the Treasury" because it fails to meet what we think are the just demands of our constituents. However, we are only too anxious to attack the overall expenditure. If I were to develop this matter any further, I am sure that I should be out of order.
I believe that the responsibility of accounting officers in general gives them 1545 an authority to match their responsibility. It can be generally accepted in industrial practice that a good man in business ensures that responsibility and authority go hand in hand. The evidence we have collected during the course of the year in general indicates that this position exists.
It came to our notice that an unsatisfactory state of affairs exists, in that the Ministry of Housing and Local Government has the responsibility of issuing Exchequer grants to local authorities for all their services, over some of which services this Ministry has no control—for example, education. I draw attention to page 79 of the Special Report. The accounting officer to the Ministry of Housing and Local Government, when asked whether she was not able to give the Committee some reason why there should be under-spending in the education services, replied as follows:I think I ought to say at the outset that it is really for Education to answer that. We are in an odd and perhaps unique position now, in that while my Ministry must account for the grant, because we make the order, in fact it is only the different Departments, who negotiate with the local authorities and deal with the Treasury about it, who are responsible for the estimates of their own services. In the whole of the general grant there is only one service which is ours, and that is Town and Country Planning. So it would not be right for me to endeavour to answer for the Ministry of Education's estimating.Same of the reasons for this are outlined in Appendix 2, on page 444. A number of aspects of this have now been put right.
Basically, we are debating the best methods by which to control authorised expenditure. The fundamental difference between the ultimate control exercised by an industrial company as against a Government Department is the comparative ease with which an industrial group is able to produce a balance sheet, bankruptcy being the ultimate result of inefficient management, whereas one is conscious of the difficulty of obtaining any reliable yardstick of efficiency in the case of a Government Department.
I should like to see—I know that this view is shared by other members of the Committee of Public Accounts—a concentrated effort to evolve a system of yardsticks of efficiency inside Government Departments. This could be achieved by the greater use of mechanisa- 1546 tion and the mare extensive use of computers in Government Departments. The fact that the Committee of Public Accounts in general deals only with the accounts of those Departments with which the Auditor General's Department is not entirely satisfied tends to give an exaggerated impression of the inefficiency of the various Government Departments.
In endeavouring to eliminate loopholes there is a danger of introducing a too-colossal checking machine. I have not infrequently wondered whether the cost of such checking is not out of proportion to the resultant saving. A difficulty in this connection is that neither the accounting officer nor indeed the Committee of Public Accounts is in a position to take a calculated risk, a risk which an employer even in a public company can reasonably take.
In my studies in this connection I have come across a publication produced by a very well known and efficient company in this country—Marks and Spencer. I have no direct connection with Marks and Spencer, except that I understood from my wife this morning that she has a few shares in the company. This is an extremely interesting document, entitled "Publicity relating to the simplification of paper work". The Organisation and Methods Division of the Treasury has made some reference to this publication in one of its bulletins. I want to tell the House what that body has said about the whole documentation, which is simply a process by which the chairman of Marks and Spencer went round and asked, "Is this checking really necessary? Have we created a machine over the years which does not effectively work?".
These are the words of the Organisation and Methods Division of the Treasury:These are examples of a most refreshing approach to the problems of excessive paperwork. For the Civil Service, the question is perhaps whether our obligation to adhere to the accumulated edicts of the Public Accounts Committee or the Treasury Officer of Accounts, arising from the very tight control involved in their concept of public accountability, rules out the chance of a similar drive for simplicity and economy. Take, for example, the question of goods received notes. There must be hundreds of millions of goods received notes in the various Civil Service Departments. Does the existence of an established code of procedure mean that there is but slight prospect of getting rid of a goodly number of 1547 them? Do we have to conclude that the civil servant must have a piece of paper acknowledging the receipt of goods while others can be trusted to do without it?The results of the Marks and Spencer operation provide a great encouragement to the O. & M. officer, wherever he is. There is always a dividend to be obtained from the challenging approach (for example, on methods work) and, even if our Civil Service attitudes (and, let it be said, improved arrangements already achieved) may make an attack less immediately profitable than in the Marks and Spencer organisation, the attack should nevertheless be joined. We may yet for instance see the day when some bold spirit will cost the effect of some of the Civil Service traditional accounting practices and thus help to precipitate important changes.The chairman of an important company is in a position to take that bold and imaginative approach. My fear is that the complexity of the Government machine makes an approach of this sort almost impossible to justify. It is only on the Floor of the House that such a bold and imaginative approach can take place.
On many occasions hon. Members on both sides of the House have been highly critical of mistakes which have been made. Opposition and Government back benchers have made hay when the searchlight of criticism has shone on mistakes. I often wonder whether the machinery set up does not cost, in some instances at any rate, more than the mistakes we set out to eliminate.
There are very few occasions when the Committee of Public Accounts, or indeed the House, congratulates an accounting officer on his incentive in taking what in commerce would be a quite justifiable risk. The attitude of civil servants must therefore be, "We must play safe".
A whole series of Public Accounts Committees has been critical of waste. Is it not possible that we are always on these occasions shutting the stable door after the horse has bolted and sealing the stable door with the seal of the Committee of Public Accounts, a seal which I think has great value? I do not in any way underestimate that seal, but what I do suggest to the House is that it might be advisable sometimes to pat accounting officers on the back rather than grab them by the shoulder as a policeman might. I think that this can be achieved only if we have a better 1548 costing system within the various Departments.
I hold the view—I think that some of my colleagues on the Committee share it—that there are very many more instances where we could have comparative costs between Departments. There are occasions where we could have comparative costs between Departments and industry. Where that would not be possible, we might make comparisons with other countries. In my study of the subject, I have looked for yardsticks, for an efficient costing system.
In all Departments I came up against the difficulty of assessing the cost of Parliamentary Questions. I wonder whether all hon. Members realise the cost of having quick Answers to Questions. I believe that we should save quite a bit of public expense if we were allowed to have two types of Question, one for immediate answer, the other—perhaps relating to more mundane matters—for answer within a fortnight. I suggest that an investigation of this possibility might show us a way of making a considerable saving.
What I plead for this evening is that we should, so far as we can, adopt a changed attitude, the sort of attitude outlined in the Organisation and Methods document to which I have referred. I wish that we could encourage those civil servants who are prepared to take the initiative and, as a House, welcome what they do in that direction.
§ 5.46 p.m.
§ Mr. Laurence Pavitt (Willesden, West)
The House will have appreciated the comments of the hon. Member for Folkestone and Hythe (Mr. Costain) who has given us an impression of his first year of very hard service. It is always interesting to both sides of the House when someone who has tackled a new job in the service of the House comes later to tell us what he feels about it. The hon. Gentleman's comments, which ranged widely over the Reports, were most valuable, and we all appreciate the service which he has given during his year of office. Having browsed through sufficient of the 485 pages of the Reports, I know that the hon. Gentleman spent a considerable time during the past year in asking most pertinent questions.
1549 I differ from the hon. Gentleman on certain matters. I accept that, if we had greater mechanisation, if we used more computers, and so forth, this should lead to an overall saving in Government Departments, but I do not consider that it would reduce the work of the Public Accounts Committee because, inevitably, at the end of the day, we should still need the watch dogs, the human beings who would check what the machines had done.
§ Mr. Costain
If I gave the impression that it would reduce the work of the Public Accounts Committee, I did not mean to do so. My suggestion was for cutting down costs in Government Departments.
§ Mr. Pavitt
I fully understand that. It was precisely on that point that I was saying that, even if we were able to cut down the cost of work in Government Departments by greater mechanisation, we should still need an overall check at the end.
I do not share the hon. Gentleman's enthusiasm for Organisation and Methods. Those of us who serve on hospital management committees sometimes feel that the gentlemen of O. & M. spend a good deal of time, money and energy in suggesting methods of organisation which a little common sense on the part of our administrators has usually provided long before the O. & M. report is received.
The hon. Gentleman's comment that we are inclined to lock the stable door after the horse has bolted is not relevant to the Third Report of the Public Accounts Committee which reveals that, as a result of previous Reports, there was a saving of £500,000 on drugs, and the whole process was initiated by the Public Accounts Committee's previous efforts in this respect.
I wish to address myself primarily to the section of the Report which deals with drugs. I am glad that the previous pressure of the Committee and the way the Minister has responded to the suggested use of Section 46 has meant a saving on drugs, but I should be interested to know whether the Minister put up a fight about the ruling which was made that this could apply only to drugs in the hospital service. I understand that the patent law provides that 1550 supplies for the service of the Crown are the things which can be dealt with under that Section.
The total drug bill has to be met ultimately by the taxpayer, whether the drugs are administered to the patient by hospitals or by the family doctor. If it is possible to save £500,000 on the limited amount dispensed through hospitals, is not the time ripe for the Public Accounts Committee and the Minister of Health to look at the matter again and consider whether it is possible to operate the bulk buying system, with subsequent negotiation about royalties, in respect of the great mass of drugs which are dispensed by the family doctor?
My hon. Friend the Member far St. Pancras, North (Mr. K. Robinson) did a service to the House in drawing attention to the other section of the Act, Section 41. There has been a good deal of talk about whether action will be possible in that connection, and I suggest that this is a subject for the Public Accounts Committee to take up in its future discussions arising out of the investigation which it makes from time to time into the cost of drugs.
The hon. Member for Barons Court (Mr. Compton Carr) put a case for advertising. The approach of the Public Accounts Committee has been right in concentrating a good deal of attention on the cost of drugs in the National Health Service. The supply of drugs under the Health Service is different on two counts from any other kind of commercial activity. Sales promotion goes on to persuade doctors to prescribe things for which they do not have to pay. The money is found by the taxpayer. This is a unique sort of sales promotion. I imagine that any salesman would be delighted to be able to sell his goods in that way, persuading people to take articles for which they do not have to pay. On that ground, it is right for the Public Accounts Committee to direct attention to the cost of promotion as part of the total bill.
Secondly, drugs supplied in this way are not ordinary marketable commodities. They are meant for the alleviation of sickness. Moral considerations enter into the matter. If a man is suffering pain, one should not try to make undue 1551 profits out of him. I am sure that that line of thought ran through a good deal of the questioning recorded in the Minutes we have before us.
Can one justify 2,426 representatives calling on doctors? I know that general practitioners sometimes very much welcome the gentlemen who call. The purpose of their calls is supposed to be the giving of information. But, with 22,000 general practitioners on the medical lists, this means that there is more than one representative for every 100 general practitioners. Ls not this a substantial element in the total drug bill which the taxpayer has to meet?
The plea that the representatives give information is quite correct. They do, each selling his own product. But is it not the responsibility of the Minister of Health to provide information? He accents it to an extent. He now publishes every two months the Pre-scriber's Journal which has taken the place of the previous Prescriber's Notes. But the Minister's publication does not really compete with the promotion carried on by the drug houses. They are able to use all the arts of persuasion, whereas one can only describe the Prescriber's Journal as extremely dull. It looks dull and its contents are very limited in approach.
It would pay the Minister of Health, from the point of view of saving money on drugs, to produce a journal for prescribers which doctors would be anxious to have, which would present information in a form easily and quickly digested and give the kind of information which they really wanted. In this way, the Minister might well save an enormous amount of the cost of sales representation which goes on.
When I attended an international conference of doctors last month, I got into conversation with three general practitioners, one with a large list in Leeds, one from Bristol and one from the wilds of Sheerness. We discussed the problem of sales promotion. They all agreed that, when it came to making out the E.C.10, what influenced the practitioner most was not the glossy literature coming through the letter-box in large quantities every day, not the calendars, the diaries or the give-away desk gimmicks but the representative with whom he had 1552 developed some kind of friendly relationship and whom he felt that he could trust. This may be heartening to people who like to feel that the human contact is more important than the printed word, but it does mean that not by the merits or scientific content of the commodities offered but by the personality of a very good salesman a doctor can be induced to prescribe quantities of drugs which may lead to excessive expenditure by the Ministry of Health.
My hon. Friend the Member for St. Pancras, North reminded us that testing was an important matter, but he said that it was not really within the ambit of this debate. I think that he was referring primarily to clinical testing. I suggest that the Report of the Public Accounts Committee shows good reason why the Minister should pay more attention to quality testing. We are buying large quantities of drugs, and the amount of quality testing done is, I regret to say, totally inadequate.
Recently, a very interesting report was published by an officer of the Birmingham local authority. As the House knows, there are two ways of finding out whether what is described on the label is up to standard. One method comes within the ambit of the Food and Drugs Acts which are the concern of the local authority. The other form of testing is done under the Ministry's own testing scheme. Noteworthy variations in the contents of capsules tested in Birmingham were revealed. In some cases, there was excess up to 24 per cent.; in others, there were deficiencies of as much as 45 per cent.
If a patient is prescribed a medicine which is paid for at a standard price, it is reasonable to expect that a standard commodity will be given to him. If we are paying £69 million a year, it is only right that we should regard as significant the quality of what we are buying. Out of 125 tested samples of penicillin solution supplied by the proprietary companies, 38 proved to be deficient. This is what the Ministry is paying for, but the quality may or may not be up to standard. In barbiturate tablets the discrepancy between one firm and another supplying the National Health Service was extremely remarkable. Four firms were tested and in 83 samples not a single error could be found. Those were what the hon. Member for Barons Court would call the white 1553 sheep. There was 100 per cent. satisfaction that they were delivering the commodities ordered. With two other firms, however, out of 67 samples, no fewer than 42 had to be rejected for not having the quantity of drug supposed to be in them. A question which should be considered is whether the Service is paying for the right quantity.
A further wide range of drugs was tested in Birmingham and out of 131 from one manufacturer there was not a single fault, but out of 208 from another manufacturer there were 70 faults. It seems that the case is made for the Ministry at least to tighten up its testing scheme. The testing scheme provides only that it must identify what is in the capsule, not whether the quantity is the precise amount which should be there.
Two main streams of argument have gone through the debate arising out of the Committee's questions on drugs to excuse high profits. The first has been that of research and the second the need to export. Of £48 million exports of drugs the proprietary houses exported only £14 million, less than a third of the total. In the case of the National Health Service, the Minister is constantly being urged to reduce the number of proprietary drugs prescribed and by using the National Formulary reduce the costs. It would seem that the proportion of N.H.S. profits going to the proprietary medicine firms is greater than their share of drug exports warrants.