§ 10.0 p.m.
§ Mrs. Lynda Chalker (Wallasey)
I beg to move,That an humble Address be presented to Her Majesty, praying that the Medicines (Fees) Regulations 1976 (S.I., 1976, No. 347), dated 4th March 1976, a copy of which was laid before this House on 5th March, be annulled.There are three important reasons why my right hon. Friends and I have tabled this Prayer. First of all, we were very concerned by the timing of these Regulations and the uprating. Secondly, we were very concerned about the size of the increases to be introduced in 1976. Thirdly, we were very concerned about the effect on the industry both now and in the future. In this short debate I hope that the Minister will be able to answer the questions we have and to give some indication of the development that he sees taking place in the pharmaceutical industry.
At the start let me make the Opposition's attitude to medicines legislation quite clear. It is also the attitude of the pharmaceutical industry. There is an undisputed need for clear, decisive protective legislation for the manufacture, testing and sale of medicines for both animal and human needs. Of course, we accept its updating through Regulations. There is no doubt about that at all. And there is no question of the industry trying to evade its responsibility to the public. But there is a basic question how the pharmaceutical industry is allowed to work as it wishes to work alongside the Government, in consultation with the Government. It needs to discuss changes long enough ahead to include such changes in its forward planning. Let me give the House an example of what I mean.
Back in July 1971 my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) answered a Written Question on the Medicines Act 1968 and, as reported in col. 194 of the Official Report, he gave details of the comments from the industry on the proposals he had sent out three months earlier. Then, on 1st July that year, he announced to the House his revised proposals on the fees to be charged in connection with the licences and certificates under the Medicines Act. In view of the industry's comments, one 568 of the major decisions announced in that same column was thatThe scale of fees should recognise the position of the smaller firms and be such as to avoid placing excessive burdens on them."—[Official Report, 1st July 1971; Vol. 820, c. 194.]There were other major changes at that time which reduced the full cost of administering the licensing system from £750,000 per annum to £500,000 per annum, of which 60 per cent. was to be met by the industry on the initial scale of fees, namely £300,000.
I point not only to the ability of my right hon. Friend the Member for Leeds, North-Eeast to listen to the industry and respond to its needs but also to the further two months which elapsed before the Regulations became operative, for one month of which—I know it was in the summer—the House was in session.
So in September 1971 the system came into operation, and it began to settle down through 1972 and 1973. There were no other changes to the licensing Regulations until 1975. Last year a new Statutory Instrument No. 1975/366 was made on 12th March, was laid on 24th March and came into operation on 14th April 1975. And even last year the Government gave us a whole month between the laying of the regulations and their date of operation. At that time there were only minor modifications being made, changes in the method of payment and changes—increased flexibility, in fact—in some of the methods of calculation.
Yet, despite the known level of rising inflation last year, then around 20 per cent., the Government still only made two minor adjustments, both in a downwards direction and both special categories—one a cheaper manufacturing licence and the other a new special clinical trial and animal test certificate.
I think the House should take careful note that despite the inflation suffered in 1975 no attempts were made to change the fees upwards. There were no increased levels despite the administrative costs, which had gone up dramatically by this time. In fact, it is remarkable because in 1971 the then Secretary of State said:At future reviews it will be the objective to bring the receipts into line with the full costs …".In 1975, against a background of commitment four years before, no action was taken. 569 The then Secretary of State, my right hon. Friend the Member for Leeds, North-East, went on to say:Before any expansion of the scope of work falling within this revised definition there would be full consultation with the interested bodies."—[Official Repon, 1st July 1971; Vol. 820, c. 194.]I mention the revised definition because this was a narrowing of the definition after the 1971 consultation. With that background, even when the Government had the chance to alter the policy, or alter the size of the fees 12 months ago, nothing happened and they remained unchanged.
I wonder why there was no action in 1974 on the Medicines Act. I can understand some of the reluctances to change things, but when one has a change of Government, and presumably a new philosophy, one would have thought that this was something that was to be examined. It is all the more remarkable since, in 1974, the Government stated clearly their philosophy was about the recovery of fees.
In fact, only this week in answer to a Question by the hon. Member for Warley, East (Mr. Faulds), the Paymaster-General said:Government fees and charges are generally set at a level which is designed to recover full costs and no more.The Paymaster-General also said:The aim is to recover full costs on this basis, from 1st April 1974.That was the answer given two years after the decision on Government policy, but when for two years Government policy had not been carried out. The right hon. Gentleman also said:Any trading deficits which existed before that date—that is 1st April 1974—were written off".I ask again: why did we have no new regulations in 1974 and no upratings in 1975? Now, in 1976, we get these major fee increases. The Paymaster-General said:… the Government imposed on themselves rules analagous to those imposed on others in relation to counter-inflation policy."—[Official Report, Vol. 909, cc. 86–7.]It is curious how the Government impose a policy of price restraint on the pharmaceutical industry—admittedly relaxing it gradually now—but are unable to accept 570 the same policy of licence fee restraint in their demands to the industry. That would be inconvenient, so in one fell swoop the pharmaceutical industry is to suffer an increase in licence fees of 500 per cent. I am told that through some of the revised Regulations some increases could be as much as 3,000 per cent.
I ask the Minister to explain why, following the late autumn announcement last year, there has been such a rush to put the Regulations into operation. They were made on 4th March, laid before the House on 5th March, and became operative on 6th March. In any case, this constitutes a breach of the 21-day convention between the laying and coming into operation of a Statutory Instrument. After all the delays, I am amazed that the Government could not wait just 21 days more and would not listen to the industry. We know that the Minister has taken account of some of the comments made by the industry, but I hope he can explain this unseemly haste after four and a half years when we have done nothing about the Medicines (Fees) Regulations.
Why were these three weeks so vital? We were not even at that time involved in a change of Leader in the Government, so we cannot argue that the Government were busy doing that other important thing. I wonder why the Regulations now have to start with the date given in the Statutory Instrument and could not wait until the next financial year.
I now turn to the size of the increases. It is Government policy to give considerationto the effect which increases in charges may have on the lower paid and elderly.I am concerned that many of the people who today buy proprietary medicines, which will undoubtedly go up in price as a result of these Regulations, will instead turn to the general practitioner when they do not really need his help. This will create even more pressure on our already overworked National Health Service. I wonder what consideration the Minister has given to this point? Will he tell us how he feels on this subject, because a little self-help, I suspect, will go a long way in the proprietary medicine field where individuals buy things to get rid of their colds and without frequent visits to the GP. There is 571 a danger for many people that that will no longer remain so.
The action taken by the Government in suddenly increasing the industry's contribution in one step to a full payment of 100 per cent. is inflationary in itself. In 1971 the 60 per cent. contribution raised some £230,000. We know that the costs of the scheme have trebled and we also know that suddenly to impose a 500 per cent. increase, totalling £1.4 million, on the industry in 1975/76, will cause grave problems particularly to some of the smaller and more innovative firms. It will mean that a firm will be paying £10,000 a year now where last year it paid £2,000 or, if a larger firm, perhaps it will be paying £30,000 instead of £6,000. Some of the firms, particularly those in the animal health field with exports going to Africa and the Far East, will be very badly hit—as much as 3,000 per cent., because they have a wide range of small products for small countries with specialised needs.
I agree—and I am sure the Minister would not expect us to say otherwise—that there should be a movement towards the full recovery of costs. However, to take this step all at once will severely worsen a rapidly changing situation in the pharmaceutical industry in the United Kingdom.
The Minister, in a Written Answer to my right hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) on 20th February last—col. 856—said that in future fees would be reviewed annually. I think the pharmaceutical industry said "Thank heaven" when it read that. Such a situation of not paying its way must never be allowed to build up again. We consider that these modifications to the licensing fees could have been made over two or three years to help the industry through what is not an easy patch at the present time. What will happen now, in the case of prescribed medicines is that increased costs will fall on the National Health Service. The taxpayer will end up paying anyway. I have a distinct feeling that it would be better if the industry could be helped at this time rather than have layers of additional bureaucracy because the licence fee Regulations have been considerably expanded before the final 572 cost has been taken into account. We are continuing to rob Peter to pay Paul.
This increased bureaucracy is something we could well do without. The good minds who no doubt will be put to working out the intricacies of the system could be far better put to working in the area of preventive medicine and trying to encourage health education so that fewer people become ill through disease. These increased fees will hit most particularly the firms heavily engaged in drug research where the initial fee for the product licence increases from £300 to £1,800—with the exception of homeopathic and herbal remedies in the main.
Apart from the annual licence fees going up to the highest level anywhere in the world—£7,500 for many of the products—it is important to know just how and when the industry will be forced into paying these amounts.
I ask specifically, what is the exact extent of the retrospective nature of this legislation? We do not know at the moment what amount will be paid between 6th March and the end of August this year. The Statutory Instruments Committee has already called for an explanatory memorandum on this point.
We also wish to know whether those firms which have paid fees for 1975–76 will be saddled with a further bill for the period from 6th March to 31st August. These matters are not clear at present.
I ask the Minister to consider what this one fell swoop of increases is doing to some of the new developments. I refer to just two drugs which have recently been pioneered in this country. One is Intal—a treatment for asthma. It is a big export earner. It is gaining new money for this country week by week. The other is Buffrin—a treatment for rheumatic pains. That, again, is a big export earner. Both drugs, made by United Kingdom companies, are being manufactured in this country and earning high income. We want more of these innovative products manufactured in this country. We want to see the export earnings of the pharmaceutical industry going up.
It is remarkable that the surplus on the balance of trade—exports less imports—in the pharmaceutical industry in 1975 573 was £276 million—an increase of 32 per cent. on 1974. But, with Regulations such as we are discussing tonight, we are fast becoming the most expensive country in the world in which to develop and market drugs. That worries me when I look at the record of a good industry.
Beechams, back in the 1960s, made an unexpected discovery. At that time all its pharmaceutical production was in the United Kingdom. Its exports represented an extremely high percentage of its manufacturing income. Since that date most of the developing countries have called on that company and said "Come and manufacture here". Beechams has found it more profitable to expand in Belgium, Singapore, the United States, West Germany and Latin America. In 1974–75 Beechams' exports, including its consumer products, represented only 10 per cent. of its total sales—a very different story from the near 50 per cent. at one stage.
Looking at the industry as a whole, we see a balance of trade surplus which has increased by a factor of five over the last 10 years—a surplus of £56.4 million in 1965 rising to £106.3 million in 1970 and to £276 million in 1975. Over 10 years the export-import ratio has risen from three to one to nearly four to one now. It exceeds that of any other country, except for Switzerland, which has only marginally surpassed it.
With these facts and realising what the industry is trying to do for itself, the Minister must take a real look at the dramatic contribution that pharmaceuticals have made to our gross national product.
The Minister will know that 1974 was the first year when the value of exports by the pharmaceutical industry exceeded sales to the National Health Service—£301 million in exports compared with £280 million in sales to the NHS.
In the six years 1968 to 1974, the pharmaceutical industry had a productivity record of 9.7 per cent., which compares most favourably with 6.1 per cent. in the chemical industry and only 2 per cent. in manufacturing industry as a whole. It shows a good investment and work record, which does not deserve to be penalised.
The other hoary question we must examine about the industry is its profits. 574 After Sainsbury, in 1967, there was a 27.2 per cent. return on capital, but through the actions of both Governments it fell in 1974 to 14.6 per cent. I remind the House that the industry needs 12 per cent. of that 14.6 per cent. to be used annually as investment for research projects which are, after all, a big income earner.
Prices in the pharmaceutical industry have not risen astronomically. We have only to look at what has happened there as compared with manufactured products as a whole over the four years 1970–74—a price increase of 52 per cent. in manufactured products as a whole as compared with a 27 per cent. price increase in the pharmaceutical industry. That is about half the rate of increase in prices.
We have a viable and a thrusting industry which wants to do better and to expand. It needs its profits for reinvestment and for the small specialist lines to open up new markets. It has in this country, as well as in Amercia, a great advance in vaccines and many of the products for animal health. Although some of these things may start as minor products, they increase in importance and become big income earners for the United Kingdom.
There is a grave danger of this investment going elsewhere. The House should consider for one moment a company with an average turnover of £3 million and 20 products on the market. If it has its initial product licence here, under the new Regulations it will now cost the company £1,800 and then an annual fee of £7,500. But if it were developed in America, it would have no initial licence fee and no annual fee of this nature. If it were developed in France, the initial fee would be £220, as compared with £1,800 here, and would have no annual licence fee, compared with £7,500 here. If it were developed in West Germany, there would be a big initial fee of £1,500, but then no annual licence fee. In Sweden the figures are high, but in Switzerland they are ridiculously low—a £50 initial fee and about a £14 annual fee.
I fear that the major competing countries will attract more development away from this country and more trial and initial production will be lost. There are 575 many instances today in the pharmaceutical industry of products starting off here a few years back but now going elsewhere. In the case of a new product to manage ostomy conditions, the main manufacture will go to Ireland.
It is not only the fees. It is also the taxation involved. A new fermentation plant was due to go to a special development area in Britain, but that is now going to Italy because the company fears what will happen to the pharmaceutical industry here.
To sum up, the Government delayed in bringing the 1974 Government accounting procedures into action. This has to a large extent, because of the new sudden increases, destroyed confidence beyond all measure. The method of the discussion process is very much in question. I know that over the last couple of months the Minister has been busily engaged with the industry. However, I suggest that the whole discussion process badly needs revision. I hope that the Minister can give the House and the industry an assurance that we shall never get ourselves tied up in this situation in the future. I look forward to hearing what he has to say.
I must ask the Minister for some clarification of what fees are payable from 6th March to 31st August of this year, how back accounting methods will work; whether there will be rebates and then further bills, and whether there will be further levies on the year 1975–76.
My greatest concern is that the Government's practice in this field is seen to be very uncaring for the industry. I want to see it as a partnership. The industry needs a Minister who will work with it. I am sure that the Minister of State will do so. However, it is only happening after a great deal of discomfort on all sides, which was unnecessary.
I hope that we shall be reviewing the whole area of drugs, both on and off prescription, in the light of the real capability of the National Health Service and the real effect of prescription charges. I hope also that the Minister will consider whether there is any way of further alleviating the burden on the small companies in the pharmaceutical industry over the next year. He knows as well as we do that we need the export earnings. We 576 need to get European expansion going in the United Kingdom.
The way in which we have dealt with the industry in the House is bad for the industry, bad for the National Health Service and bad for Britain. I hope that in the future we shall do a great deal better.
§ 10.25 p.m.
§ Mr. Michael Grylls (Surrey, North-West)
I warmly congratulate my hon. Friend the Member for Wallasey (Mrs. Chalker) on the way in which she introduced the Prayer. The debate is important and it is a pity that it has not attracted many hon. Members from the Government side of the House. It is important because it involves an important industry. In her detailed and well-thought-out critique of the fees my hon. Friend drew attention to some of the achievements of the industry. Some people may feel that it is not an industry which needs to apologise for itself. It stands out from other British industries, for its shining success, particularly in its export record.
When the Secretary of State was royally entertained at a dinner given by the pharmaceutical industry a few months age, she said that she expected the industry to export and to achieve certain targets because it was important for it to do that. Most people involved in the industry took that as a challenge. Last year's figures showing £370 million worth of exports by the pharmaceutical industry should show the Government that it has responded well to the challege. The industry is not only established in Britain but has a large international element.
It is important for the industry to be sufficiently profitable to enable it to invest money into research in Britain and to attract foreign companies here to start research. It is also important for it to become involved in overseas research. The figures are startling. In 1975 £70 million was spent on research but if one adds world-wide research to that the figure is £900 million. All that research is available for us in this country.
Members of the Labour Party in the House and outside who complain about the price of medicines should recognise that the price of our pharmaceutical products is about half the average world price. The Health Service is a ready-made customer and gets a good deal. 577 That is important at a time like this when we are looking at public expenditure. The Minister therefore is right to say that the costs of running the control of medicines has gone up and that the industry should contribute more. Few people would say that it should not pay a greater share in the cost of running the system and people do not object to that.
But people argue that if the Government are asking the industry to pay for the cost of running the system, it is fair for the industry to want to work with the Government in examining the system to ensure that it is as efficient as it should be. The old maxim of "he who pays the piper calls the tune" applies in this case. I do not think that the Minister quibbles at that because he has said that he wants to have talks with the industry on how the system works.
The fees reflect the bureaucratic costs of the licensing system. I do not necessarily criticise it for being bureaucratic. It must be, but the House will want to hear how the Minister intends to control the bureaucracy, and what the fees will be next year. Shall we have this massive inflation in the cost of running the system? Will it go on leap-frogging each year? In this time of high inflation and examination of costs to Government, does the Minister intend to get on top of the system and make sure that it is efficient? I hear comments that there are too many bureaucrats and not enough experts. I am sure that the Minister will want to mention efficiency and cost-effectiveness.
There are alarming figures about the length of time it takes to obtain a licence. I understand that it takes about eight months, which is a long time. It even takes that long for the same preparation in a slightly different formulation, such as an injectable form of a medicine already available for three years in tablet form. That seems absurd, and it has dangers for the industry.
There is also the question of research and development. Clinical trial certificates appear to be taking a long time to come through. Again, I have heard eight months quoted. Even variations in clinical trial certificates—for example, the varying of dosages, which is a relatively minor matter—can take two to six months.
578 I know that the Minister takes the industry very seriously and realises its value in the health of the country. It has a vital role alongside the other parts of the National Health Service. He will recognise the importance of new drugs continuing to be introduced first in Britain, and I am sure that he would not want to bring in any system that made that less attractive to firms.
A recent survey by the magazine World Pharmaceutical Introductions showed that:The United Kingdom is ranking first place in new product launches.There is no doubt because of the great amount of research done here. Our research is much more efficient than that in most other countries—about two and a half times as efficient as in the United States. It is important that the new drugs should go on being introduced here first.
We probably have some of the people most skilled in research. It is sad that more Government Members who make their criticisms of the industry, perfectly fairly, are not here tonight. It is important that people should understand the amount of valuable research done not only to try to get on top of disease in this country but to help exports.
When the Minister introduces increased fees, he should take the industry along with him, and I have a feeling that he wants to do that. I am sure that the Minister is well aware of the benefit of introducing drugs into this country first and of the fact that we do not want to do anything to make that more difficult.
Will the Minister examine the system to see whether it is the most efficient and not too bureaucratic? If it is too bureaucratic, will he try to take steps to make it less so? Will he try to make its processes work more quickly since that would be of great value to the industry? Although there is to be a steep increase in fees, the Minister would settle many of the industry's worries if he said "I guarantee to do all in my power in future to see that the costs of administering the system are kept to a bare minimum. "If the costs of the system go on escalating, it could well inflict a great deal of damage on the pharmaceutical industry. I hope that the Minister will be able to give me answers on these points.
§ 10.36 p.m.
§ Mr. Graham Page (Crosby)
I wish to congratulate my hon. Friend the Member for Wallasey (Mrs. Chalker) on introducing a Prayer against these Regulations and on the way in which she set out in substance their merits and demerits. If I come down to the details of the Regulations, I hope that I shall not be accused of lowering the tone of the debate. However, there are some peculiarities about the form of the Regulations as they affect the pharmaceutical industry.
I wish first to draw attention to the dates set out at the top of the Regulations, as indeed did my hon. Friend the Member for Wallasey. The Regulations were made on one day, laid the next and came into operation on the third day. That is a peculiar way for Regulations to be brought in when they impose such a substantial burden of fees and involve so many complications. Similar provisions were laid last year at almost the same time of the year. They were made on 12th March 1975, laid before Parliament on 24th March, and came into operation on 14th April of that year, which is about the normal time span for such matters.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
From his great experience as Chairman of the Select Committee on Statutory Instruments, can my right hon. Friend recall an occasion when an important measure imposing substantial new charges on the subject was introduced in such haste that it was not even available in print for several days after it came into force? Does this not mean that the taxpayer did not have any legal document to which to refer to ascertain whether charges he was being asked to pay were or were not legal?
§ Mr. Page
I was coming to the point of publication of the Regulations. I cannot recollect a measure of this kind which was made, laid and came into operation in three days. One frequently sees this type of procedure adopted in the case of Customs and Excise duties when it is necessary to avoid some member of the public jumping the gun, but the present Regulations involve no such matter and indeed are not taxation but involve payment of annual fees in an industry.
580 I suppose one excuse may be that there were consultations between the Department and the industry and that the industry well knew what was contained in the Regulations and therefore that it did not matter that neither we in the House nor members of the public knew anything about them until they were printed a few days later. Indeed, it is true that there were consultations. They began as long ago as August 1975. But I understand that they were negotiations and consultations on the new fee for the licence year from 1st September 1975 to 31st August 1976. It is a peculiar year and not the financial year to which we are accustomed.
Apparently, the negotiations started only in August—a month before the licence year was due to start. I do not know when they were completed, but there was a rush to get the Regulations into operation when the negotiations were over.
It is said that such large sums of money are involved that the Government ought not to delay the Regulations for 21 days, but that is no excuse for bringing in the Regulations in this way. They should have been laid 21 days before 6th March and not brought into operation so suddenly. I understand that the licence fees are intended to cover the cost of operating the administration. We are told that we would have lost £200,000 if we had waited 21 days after 6th March before bringing the Regulations into operation. That is not what I have suggested, but does the administration cost that much? A figure of £200,000 in three weeks is a fantastic amount.
According to the Regulations, there is now a licence year from 6th March to 31st August 1976. That is a funny sort of year. I understand that those who apply for licences in that period will have to pay the annual fee for the year based on turnover for the full year between September 1975 and August 1976. This seems to be retrospective legislation. We are calling on some manufacturers who make applications between March and August this year to pay an annual fee based upon figures relating to the whole year from September 1975 to August 1976. I do not see how it can be claimed that this is not retrospective legislation. As I read the parent statute, the Secretary of State has no power to make 581 retrospective legislation in applying these fees. It must fall to the Minister to explain what power the Secretary of State purports to have to make this retrospective legislation.
There are some peculiar drafting defects in the Regulations. I refer the Minister to Regulation 5(5) in which it is said:If the Minister … is satisfied that the applicant, in the course of a business carried on by him, did not manufacture or assemble …Is not "then" in the wrong place? Should not the passage read:
- (b) substances or articles the manufacture or assembly of which is subject to the restrictions…then:—
- (i) during the period between 1st September 1972 and 31st August 1973, the additional sum payable in accordance with the provisions of paragraph (4)".during the period between 1st September 1972 and 31st August 1973, then the additional sum payableand so on through the other paragraphs? The periods mentioned in paragraphs (1), (2) and (3) are periods of non-manufacture or assembly and not retrospective periods during which the additional sum is payable. If they are retrospective periods during which the additional sum is payable then, again, the Statutory Instrument is retrospective legislation. If the wording remains as it is, it is retrospective and does not mean what it was intended to mean.
Regulation 7(2) is difficult to understand. The fee payable under paragraph (1) is £24. Will the total sum described in the previous seven lines ever be less than that? Presumably, if it is more than £25 the initial fee will be payable, as we see from the definition at the top of page 2 and in the Schedule. I ask the Minister to look at the wording of that paragraph.
Under Regulation 20(1)(a), if someone is liable to pay £10 under the 1975 Regulations in force before these Regulations came into force, and £50 under these Regulations, the minimum amount payable in respect of the licence years 1976 and 1977 is to be £10, but what is the maximum liability? Do both fees have to be paid? There is considerable doubt about what fees are payable.
My main complaint about the Regulations is that they seem to require the annual fee to be paid by those who apply 582 in one half year, the fee to be calculated over a full year, six months of which fell before the Regulations came into force. To that extent the Regulations are retrospective legislation for which I doubt whether the Secretary of State has power under the parent statute.
§ 10.50 p.m.
§ The Minister of State, Department of Health and Social Security (Dr. David Owen)
The debate has ranged fairly widely, and opportunities have been taken to discuss the whole pharmaceutical industry. I do not want to deal with that at length, but I reiterate that the industry plays a very valuable role in the economy. It has a very good export record, and an expanding and improving one. I pay tribute to the effort being put in at all levels of the industry to achieve that record, and I hope that it can improve on it even more.
I wish to attract inward investment into the pharmaceutical industry in this country. I recognise that the Government of the day will not always see eye to eye with the industry on all aspects of policy. Despite some differences on some aspects, there is a very broad measure of agreement on what is necessary in the industry. As the hon. Member for Surrey, North-West (Mr. Grylls) said, the United Kingdom was first in the league table of new product launches, and that is very satisfactory.
I had not seen the figure which he quoted, but it means that many people, including foreign companies, feel that this is a very good country in which to invest and put their research and launch their products. That owes a great deal to the Medicines Act. They know that if they win the approval under the Act and of the medical profession here, a successful launch in this country is often the precursor to considerable world-wide market penetration.
The hon. Gentleman raised the point that in order to achieve the confidence of the international pharmaceutical industry, it is necessary that our procedures should be swift and that, in particular, product licences do not become bogged down by bureaucratic delays. We have to be careful here. In mentioning the word "bureaucracy", we tend to think of a large number of administrators. There are 98 professional licensing staff 583 with 16 equivalent administrative staff—what one might call "bureaucrats", but they all have a detailed knowledge of the industry. The problem is to strike the right balance between achieving safety, which is so necessary, and not having unnecessary delay. Our record in comparison with that of many other countries which have very bureaucratic procedures is very good, but I watch the situation with great care.
I agree that, in recent years, there has been a slight tendency for the period to increase. Inasmuch as some of that has been due to increased testing necessary, that is unavoidable. But there was a period when we had some professional staff shortage, and we have tried to eradicate such delays. I attach great importance to this aspect, particularly when we are asking the industry to bear the full cost of the licensing procedure.
I apologise that this order was laid at such short notice. The right hon. Member for Crosby (Mr. Page) mentioned that I might use the excuse that there had been full consultation. There was full consultation. I do not think the Regulations came as any surprise to the industry. But the House also has a responsibility, and it deserves more time than I gave it on this occasion. I regret that and will do my utmost to ensure that it does not happen again. It happened for peculiar reasons. We went into detailed consultations on a number of alternative schemes, and we were not able to reach agreement. But I accept that there is need to give the House longer notice. We should do everything possible to keep to the normal 21 days. We shall do our best to do so in future.
The hon. Member for Wallasey (Mrs. Chalker) drew attention to the whole question, and quite fairly recited some of the history behind these Regulations, and I shall not go into it in great detail. As the hon. Lady knows, it has been broadly the decision of all Governments that the full cost should be borne. The question that needs some explaining is why we should have to face this large increase. It will be known that the industry does not bear the total cost. Only about half the total cost of the Medicines Act falls to be met out of the fees under the formula put to the House by the right hon. Member for Leeds, North-East (Sir K. Joseph). 584 In 1971 the Conservative Government announced another concession—namely, a scale of fees which aimed to recover 60 per cent. of the reduced cost annually. However, the Conservative Government indicated that there would be future reviews with the object of bringing receipts into line with the whole of the costs. The fees remained at the level established by the 1971 Regulations until the 1975 Regulations.
The hon. Lady has belaboured me about the lack of change in that period, but matters remained unchanged because we continued the consultations that were started by the Conservative Government in 1973. There is a long tradition of taking a long time in consultation. I think that the consultation procedure continues for too long.
§ Dr. Owen
In 1975 we followed the same proposals that were put forward by the Conservative Government, but in August 1975 we went to the industry with substantial suggestions for a total change. The income from fees has never come up to the amount estimated. I make no criticism of Conservative Members. It was very difficult to estimate with any exactitude the number of licences for which application would be made and the income that would accrue before licensing began.
In the meantime, costs have risen considerably. In the first year of licensing the fees may have covered about 50 per cent. of total expenditure when we expected them to cover 60 per cent. By the 1974–75 financial year little more than 20 per cent. was covered by fees. The time had come for a major review and we instigated one in August 1975. It would have been possible to withdraw the original consultation and to produce a major scheme for change, but we decided not to do so. It took a long time to produce the changes with which we came forward in August 1975.
We may be accused of some delay, but there were reasons for not trying to increase costs during that period. There was a general tendency to try to hold down prices. Our proposals were drawn up with the object of securing an annual income of £1.4 million, which was the best estimate that could then be made 585 of the current annual cost of operating the licensing scheme. It was our intention that the new proposals should come into operation in October.
The industry raised a great many objections to the proposals and I and my officials have gone to a great deal of trouble to discuss these matters with the representative bodies and to attempt to explain the policy and to deal with the points they have raised. It is for this reason that there has been the significant delay in bringing the Regulations into effect. Almost the whole of another financial year has gone by in which the income from fees has fallen well short of the total expenditure. The shortfall in 1975–76 will need to be taken into account in carrying out the next review of these fees which is due very shortly. The next set of Regulations will need to be in operation by 1st September 1976 and we aim to commence consultation on this in a few weeks' time.
The right hon. Gentleman in a Question he put to me in February suggested that the increase should be "phased" over not less than three years. It will be appreciated from what I have said that the increase envisaged by his right hon. Friend in 1971 has already been phased over five years, and in fact we shall clearly not have the accounts entirely right for at least another year. In effect, we have wiped off the debt accumulated in the first four financial years of licensing which must amount to well over a million pounds. That is a significant concession for the industry.
The general Government policy on this matter is conveniently set out in the Written Answer which appeared in Hansard on 6th April. This shows that the general procedure is that all arrears back to 1st April 1974 should be collected. In the present case it has been agreed that the date from which the required sum should be collected is 1st April 1975, and that is a concession to the industry. If by phasing the increase the Opposition have in mind some procedure whereby we waive the fees for another whole year and collect something less than full fees in the current financial year and next year, they are in effect asking for about £2 million, which would not seem appropriate in the present economic circumstances.
586 A number of detailed points have been raised. I readily accept the need to cut the present administration cost and we shall do everything possible on that score. The industry has been given a great deal of facts and information on this. A reasonable exchange of information is required in such a situation. But the key to it is to try to improve our procedure so that the actual licensing takes less time, and that is what the industry is most concerned about. However, £200,000 is still a great deal of money.
Three drafting points have been raised. Regulation No. 5 simply deals with the case where a firm applies late and has thus been manufacturing without a licence. This is not a new provision. It was in the 1975 regulations. I shall write to the hon. Members concerned about the other points which were raised.
There has been a lot of talk about retrospection. There is some confusion over this. When the proposals were made in 1975 the industry objected to the feature by which a company which did not become liable to pay a product fee in 1975–76 because it made no application would, when it made an application become liable to a higher fee. The proposals were framed in accordance with the Medicines Act. The industry objected to this feature on the ground that the intention behind it was retrospective in that it would seek recovery from present licence holders of increases based on past fees when lower fees were payable. We do not accept this. However, as the point was controversial and since it would not have had much effect until September 1976 we deliberately omitted it from the present Regulations. We are discussing this issue with the industry at the moment. I hope that we can resolve it. There is no doubt about liability to the new fees. Any firm which makes an application about 6th March 1976 is liable to pay only the fee for 1975–76.
§ Mr. Graham Page
Does this mean that anyone applying after 6th March will be paying an annual fee which includes the period of six months before he made the application?
§ Dr. Owen
He will be paying the new annual fee. There is nothing new in this provision. The question whether 587 there is any change in the earlier Regulations does not give rise, to any problem of retrospection, but I am prepared to look into this.
A number of other points have been raised on the whole question of the Regulations. I have seen it suggested in some quarters that the Government views the technique of turnover relation as providing a ready means of escalating the income from fees. I should like to assure the industry that the Government have no such plans in mind. The fees under the Act are to defray the cost of operating the Act and not to provide a general source of revenue. If any further increase is made it will be because it is necessary to cover these costs and not for any other purpose. Perhaps I should take this opportunity of making it clear that the fact that a large part of the income comes from fees does not mean that we are any less cost-conscious in this respect. I have covered this to some extent by explaining the basis of the fees to the industry.
There is one other feature of the new fee scale which perhaps deserves special mention. This is the fee of £1,800 which is the initial fee payable for certain classes of product licence. This is a very large figure, but it applies only to those cases where an application relates to a new chemical entity or to a product which has an entirely new use or application of an existing compound. Before such a product can be authorised for marketing it is clearly necessary that it should be examined very thoroughly. In practice, before a company submits an application to market such a product, it has to carry out very expensive trials and tests and the documentation is commonly voluminous. In the context of this situation I doubt whether an additional charge of £1,800 is significant.
Much has been made about comparable fees in other countries. One can interpret figures in a number of different ways. There are some countries, such as the United States, where it is fair to say that they are cheaper than in this country, but many European countries charge more than we do. We are not sufficiently out of line for the fears which the hon. Lady, the Member for Wallasey mentioned to act as an incentive to take away a new product launch. I agree 588 that this has to be kept under constant attention.
This is very much an international industry, and international industry will, particularly in its investment policies, go where conditions are right. It is my belief that conditions in this country are very good for investment, both for research and development and for production and manufacture. I wish it to remain that way and for the export effort of the industry to go on improving.
§ Mr. Grylls
Will the Minister of State indicate that he will keep that point under review in consultation with the industry? If it is seen to be a deterrent and to be causing problems, particularly, as he mentioned, with multinational companies which can go to other countries, will he review the situation if those companies are going elsewhere?
§ Dr. Owen
Then I will give him that undertaking. One problem is to strike a balance between large and small companies, and one alternative answer is to try to do that.
It is difficult for the industry to reach unanimity because it represents a wide range of companies in size and it is difficult to put them in a position in which they all agree. Sometimes the Government have to decide what is fair. We have to try to achieve a fair balance between small and large companies. I recognise that the Regulations are attempting to do that.
We shall have an opportunity to discuss this matter again because no sooner are these proposals approved than we are going into further consultations about the Regulations to be submitted in September. We shall do everything in our power to see that there is a suitable period for discussion and that the Regulations are laid for a longer period than in the past. I hope that the House will agree to the Regulations.
§ 11.8 p.m.
§ Mrs. Chalker
We understand and accept the Minister's apology over the bad timing of the Regulations. There was obviously some problem, but it is 589 not just a problem of time. Government is never an easy matter, but nor is the management of industry in the special cash flow problems of the last few years. We should never forget that.
I am glad that the Minister has said that he will keep the comparable position with other countries, particularly European countries, under review, because we may have a number of instances where a major manufacturer is likely to go outside the United Kingdom. Although we would not say that the licence fee was the only matter driving them away, it is one more on top of the level of corporate taxation which the industry pays which is making this country less and less attractive for developments here.
I am also grateful for the undertaking given to my hon. Friend the Member for Surrey, North-West (Mr. Grylls) about the review of initial licences, the £1,800, because this is worrying smaller companies, particularly those in the international field and those manufacturing smaller quantities for export.
I feel that there are a number of matters raised by my right hon. Friend the Member for Crosby (Mr. Page) on which we are still not clear, I hope that by the time September comes and we are discussing yet another round of Medicines (Fees) Regulations we shall be a little clearer in looking at the subject, in our deliberations and in what we say to the industry, because it is the industry that has to work with the Regulations——
§ Mr. Graham Page
It would make the position clearer to the industry if it know that under last year's Regulations the fee period, the period for which a licence fee was paid, was 12 months from the date on which the licence was applied for. Under this Statutory Instrument, the licence year for which the payment is made is from September 1975 to August 1976. There is a complete difference in the system of payment. That is why I said that it was retrospective.
§ Mrs. Chalker
I am grateful to my right hon. Friend for that intervention. It clearly places another responsibility upon the Minister's shoulders to sort out the regulations that we have before us. However, in view of the consideration which the Minister, together with the in- 590 dustry, has given to the whole matter, I beg to ask leave to withdraw the motion.
§ Motion, by leave, withdrawn.