HC Deb 28 July 1977 vol 936 cc1171-80

3.0 a.m.

Dr. Gerard Vaughan (Reading, South)

I raise this matter because we on the Opposition Benches are deeply concerned about the appalling financial situation that many chemists now face. It is extremely serious and I am sorry that we have had to raise the matter in this way, but it seems that the Government have not thought it sufficiently important for a full debate during the ordinary business of the House.

I have received a great many letters on this matter—just as hon. Members on both sides of the House have done. Many of my constituents in Reading have written to me, and I know that my hon. Friend the Member for Reading, North (Mr. Durant) has also had a large number of letters.

Nearly 250 hon. Members have signed the Early-Day Motion of my hon. Friend the Member for Beeston (Mr. Lester), who, incidentally, has asked me to say that he would have been here had Her Majesty not been visiting his constituency. Those 250 signatures alone represent a remarkable show of support. Only three motions during this Parliament have had more signatures and none has received such complete support from all parties.

The situation is serious, for two reasons. The first is that the chemists have been most unjustly and unfairly treated. The second is that unless something is done about the situation the service available to the public will be still further reduced in the near future. The financial details are very complicated but the basic situation, unfortunately, is all too simple. Chemists are closing at the rate of one a day and many more would leave if they could find anyone to buy their businesses from them. In my constituency a number of chemists have told me that they wish to retire but they are trapped and forced to carry on because they simply cannot dispose of the businesses into which they have put their life's work. They cannot pay their way and now the Government intend to reduce the money that a chemist has for his dispensing—to reduce the money that enables chemists to keep afloat.

The chemist on the corner, the small chemist in the side street, is rapidly disappearing, and already, in some parts of the country, it is now difficult for elderly people and those with young children to find a chemist near enough to them. This is so serious that I am sorry that the Secretary of State, who has been handling the negotiations with the profession and has responsibility for the situation, is not here tonight to explain to the House what it is that he is doing.

The pharmacist is a most important part of our health care team. At least 7 million visits are made each day to chemists by people seeking prescriptions, simple health remedies, advice and reassurance. Any doctor who thinks that he can do without the chemist should write his will, because without the chemist he would soon die from overwork. The chemist is a highly trained professional person who shoulders a great deal of the day to day work involved in the health care of the community that would otherwise fall on the hospital services. I suggest that at a time when we need to make greater use of pharmaceutical skills and training the Secretary of State is actually closing down the small chemists and reducing the scope of the pharmacist. It is no wonder that today the majority of pharmacists in training plan to go not into the retail chemists service but into hospitals or industry.

I cannot believe that the Secretary of State has looked into this matter personally and thought out the long-term effects of what he is doing. Earlier this year, he said that he intended to reduce chemists' income from the NHS by £11 million, and he justified it by saying that they now carried an average seven weeks' stock of drugs as opposed to 11 weeks as previously. Therefore, he argued, they should have less money. But chemists are being forced to carry less stock because they do not have sufficient money to pay for larger stocks. No allowance is made by the Government for the chemists to replace stocks at prices that are increased by inflation. Drug costs are rising by 24.6 per cent. a year because of inflation.

A chemist with £5,000 worth of stock —which is a common figure and not a lot at today's prices—will have to find an extra £1,250 out of his own pocket simply in order to keep his stock up to the level of the preceding year. That is the effect of inflation.

There is no help from the Government and not even recognition of what is happening. The hardship of this is that the NHS remuneration of small chemists is designed to show a gross profit of only £1,600 a year. After tax, the chemist is left with £1,000 a year and he is supposed to find out of that the extra money to pay a rising drugs bill. I cannot see how that arithmetic works out.

This week, the Secretary of State seems to have realised some of the damage that he is doing and has apparently accepted the case put to him by the profession and agreed that at least the chemists that are most vulnerable to closure should be helped. But he is going to do it in a most peculiar, complicated and distorted way. He is still going to take the £11 million, but he intends to return £3 million to the chemists that are most under pressure, provided that—and this seems a gross and further injustice—the most successful chemists cough up an extra £2 million—making £5 million in all.

So poor chemists will have less taken away but will still be left with too little to manage, and the successful chemist will have to pay twice—his share of the £11 million and a share of the £2 million. This is extraordinary logic and arithmetic.

Two-thirds of our chemists will have a little less taken away from them and one-third—about 3,000—will lose their share of the £11 million and have to pay a share of the £2 million. I wonder whether the Minister understands that this complicated, penny-pinching, miserable policy will not halt the closing down of chemists. At its very best it will slow the process temporarily.

It is the small shop at the corner in the High Street that gives the most personal service. It is the sort of shop that perhaps helps the public most that will be the hardest hit. Some 500 shops have been losing £1,787 each year on NHS dispensing. Even under the new proposals they will continue to lose over £600 a year. What profession can be expected to shoulder a burden of that size to pay for the privilege of doing work for which its members have been trained and which the public need?

Under the Price Code the Government have said that no business shall fall below a 3 per cent. net profit margin, but the chemists are in that position. The chemists' figure is only 2.8 per cent. Even on the Government's own standards the chemists are not being allowed to obtain a reasonable business living.

In 1974 the Government used the Price Code to restrict the chemists' pay, but not now. It is now quite different. The Price Code as applied to the chemists would now actually help the chemists and would make the Government increase the amount of money they make available.

Where is the justice in the present situation? Even now, when chemists are closing at the rate of one a day, it is not too late. I suggest that the Secretary of State should rise to his responsibility for health care, and that instead of being the executioner of the small chemist he should become the champion of the chemist on the corner. We ask him to stop this foolish and short-sighted policy before too much damage is done. I wait with interest, because we feel very strongly on this issue, to hear what the Minister has to say. If he understands what is going on, if he cares about a local personal service between the chemists and all the millions of people who seek local chemists' advice, will he please look at this matter again and give it a little more thought?

3.7 p.m.

The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins)

I am grateful to have this opportunity of explaining to the House the background to the discussion that my right hon. Friend the Secretary of State has been having with the Pharmaceutical Services Negotiating Committee about the remuneration that retail pharmacists receive for their National Health Service dispensing services.

The hon. Member for Reading, South (Dr. Vaughan) is misleading the House when he says that the Government have not provided time for a debate. It has been possible for the Opposition to provide time. The Opposition have Supply Days, and they could have chosen this subject for debate at any time. They have chosen not to do so. I let others draw their own conclusion from that.

My right hon. Friend cannot be here tonight; he is in the middle of long and detailed negotiations with the Pharmaceutical Services Negotiating Committee. He is well aware of the issues involved. He has had two very full meetings in the past six weeks with the committee and discussions are still going on. I assure the House that the Government recognise the importance of maintaining a widespread network of dispensing pharmacies. I pay tribute to the high standard of professional service that is given to the community by thousands of pharmacists.

Chemists' NHS remuneration is a very complex matter, and it is bound to be so if the final outcome is to be fair to both taxpayer and pharmacist. Pharmacists are paid monthly—mainly by means of a professional fee, which is at present about 24½p per item dispensed, a standard oncost allowance of 10½ per cent. of the cost of drugs dispensed and a reimbursement of the cost of those drugs. The three principal elements used in the calculation of remuneration to pharmacists are labour costs, overhead costs and profit, which is defined, by agreement, as the product of a percentage return on the value of capital employed for NHS dispensing services.

Although the present dispute is not over the first two elements, which together make up 85 per cent. of all payments due, I think it is right for me, in order to set the present situation in perspective, to draw the House's attention to the fact that the present system identifies all labour and overhead costs, including property costs, incurred by pharmacists as a whole and reimburses them at current prices. The House will see, therefore, that pharmacists in general enjoy a guaranteed protection against inflation covering a substantial proportion of their NHS income—no mean benefit in present circumstances! In addition, a notional salary is credited in respect of each working proprietor.

I turn now to the third element in the remuneration package—profit. This is the item that has been at the centre of our negotiations with the pharmacists over the last few months. As I indicated earlier, profit is expressed in the form of a percentage return-16 per cent.—on capital employed. The present arrangement dates from an agreement in 1972, although it is only fair to say that the pharmacists would have preferred profit to be defined as a percentage of total NHS turnover.

As drug prices have consistently outpaced all other costs, this would have inevitably given pharmacists an increasing profit which would have been hard on the taxpayer and not specifically related to any improvement in the service to the patient. A return on capital employed, on the other hand, directly rewards the investment which the pharmacist has made in order to provide an NHS dispensing service

Part of capital employed consists of money invested in fixtures and fittings used for NHS purposes, but by far the larger proportion—some 80 per cent.—consists of the stocks of drugs held on the shelves in the dispensary—that is, working capital. In 1972 it had been assumed for the purposes of arriving at the value of capital employed that pharmacists held, on average, 11 weeks' stocks. I emphasise "assumed", because it has a great deal of relevance to the present situation. An independent inquiry into stockholding was held in 1975 by a respected firm of valuers under the joint instructions of the PSNC and the Department. The findings of the inquiry disclosed that instead of an assumed 11 weeks' capital pharmacists held only seven weeks' stock of working capital. The inevitable consequence of this replacement of assumptions by facts was a reduction in the value of capital employed and a corresponding fall in the amount required from a 16 per cent. return on it. The fall in the amount of profit to which pharmacists are entitled under the terms of the 1972 agreement was £2 million in 1975, rising to £4 million in 1976 and £5 million in 1977 —hence the figure of £11 million so-called "cut" which we have heard so much about.

In order to offset the drop in entitlement arising from the stockholding inquiry, the PSNC submitted a claim in March 1976 for an increase in the percentage return on capital employed, but we have been unable to find any ground on which to increase the present rate of 16 per cent. The value of capital employed is constantly increasing in line with drug price inflation and it is, therefore, assessed on the basis of "current cost".

Pharmacists have, I know, drawn hon. Members' attention to their declining remuneration, but I would point out that the total sums due in 1975 were 23 per cent. higher than in 1974, with a further increase of 17 per cent. in 1976. Even after account has been taken of the new stockholding period, we expect that the sums payable in the current year will show another substantial increase.

Mr. Alan Haselhurst (Saffron Walden)

I should like to be absolutely clear about this matter, in which I have declared an interest. Will the hon. Gentleman explain why pharmacies are continuing to close at an alarming rate? Will he also tell us how he can justify the continuing closure of pharmacies in rural areas, which has certainly been helped by the withdrawal of the rural subsidy for pharmacists, who believe that they are in business not only for their own interests—certainly—but also, perhaps, to provide a very valuable service to a rural community?

Mr. Deakins

I promise the hon. Gentleman that I shall come to that point later, because it is important. I was saying that there has been this increase in the total sums payable in the current year which will show another substantial increase. I should like to emphasise that there has never been any question of our reducing the current rates of fee or oncost in order to take account of the revised stockholding period. I am afraid that many retail pharmacists have got the impression that a cut of £11 million in their payments is imminent. I can give a categorical assurance that this is not so.

Dr. Vaughan

Is the Minister then saying that the situation which I have presented and the figures which I gave him are wrong? I would be glad to know.

Mr. Deakins

It is the interpretation which the hon. Gentleman has put on the figures that is incorrect. This is a complicated subject and I am doing my best to make it clear, but, obviously, there are a lot of figures involved. I am sure that when the hon. Gentleman reads Hansard he will see that what I have said is correct.

Dr. Vaughan

Are my figures incorrect?

Mr. Deakins

What I have said is correct. That is all I am saying. I can give the hon. Gentleman and the House an assurance that the facts that I am presenting are perfectly correct. They are unchallengeable. Where there are figures which are a matter of interpretation, as, for example, with the stockholding inquiry, that is a different set of affairs. On the issue of closures, there again people can put their own interpretation on what is happening.

In the course of making representations on the profit margin claim the PSNC expressed its concern about the rate of closures of pharmacies and pointed out that many of its members were experiencing severe cash flow problems. When it met my right hon. Friend on 16th June he asked the PSNC to let him have fur-their details of the problems which smaller pharmacies in particular were facing and of the threat which this posed to the maintenance of the network of dispensing pharmacies.

The most striking fact that has emerged from these discussions has been the inequitable effect of the present flat-rate system of payment, under which every pharmicist, whether he dispenses 10,000, 30,000 or 60,000 prescriptions a year, is paid exactly the same fee per item and the same rate of on-cost. The result of this apparently egalitarian system is that many smaller pharmacies are not even covering their NHS operating costs, while many of the larger pharmacies are getting considerably more profit than the 16 per cent entitlement. This really is a case where some are more equal than others.

I hasten to add that the flat-rate system was not imposed by the present Government but was introduced in 1964 at the request of the pharmacists' own representatives. A general increase in the profit margin would do nothing to correct this imbalance.

My right hon. Friend met representatives of the PSNC again last Monday to continue discussions in the light of the evidence to which I have referred and he is extremely concerned that something should be done to help the smaller pharmacies. He has, therefore, put forward certain proposals with this aim in view to the PSNC. He has offered to provide an additional sum of £5 million over two years in order to help launch a system of graduated payments which we hope will remove the worst inequities which exist at present.

Details of the offer and of our proposed scheme have been sent to the PSNC but, in broad terms, over 6,000 pharmacies would receive additional payments of up to £1,350 a year, of which some 2,750 would gain, on average, about £1,100, another 2,500 would receive an average sum of £700, and a further 1,500 about £200 a year. The larger pharmacies would lose some of their present excess over their entitlement, but on the basis of the evidence we feel that we are amply justified in asking them to help their smaller brethren.

We think that this is a practical way of meeting the needs of the smaller pharmacies which are most threatened with closure and which it is in the interests of patients to sustain. In a period of the most severe constraint on public expenditure it simply is not possible for us to do more. We certainly could not have contemplated meeting the PSNC's claims in full. They would have totalled about £27 million in the first year—an increase in remuneration of no less than 21. per cent. on top of the increased sums that would in any event become due as a result of rising labour and overhead costs and of the reassessment of capital employed at current values.

Mr. Haselhurst

In the calculation that the Minister has just made, is he saying that a pharmacy should be determined purely as a pharmacy but that if another business is attached this will be taken into account in determining its size, or is he basing the calculation purely on the service provided to the community?

Mr. Deakins

We are assessing it on the service to the community through the NHS dispensing service. Pharmacies vary. Some sell few things and others many things. I have set out clearly the basis on which pharmacies are remunerated and I do not wish to go back over it.

Hon. Members have mentioned the problem of pharmacy closures. It is true that in recent years there has been an annual decline of about 2 per cent. in the number of pharmacies. There are many contributory factors involved—for example, changes in shopping habits. I would not accept that the sole or even main cause has been the overall level of remuneration for NHS dispensing, although the evidence the PSNC has presented has convinced my right hon. Friend that the way that remuneration is distributed has played an important part.

We know that some closures have caused inconvenience and individual difficulty, and naturally we are sympathetic to the needs of less mobile people. But so far most closures have been in localities where there are other pharmacies. We have little evidence that they have caused widespread serious difficulties for patients. Only five of the pharmacies which closed in 1976 were more than one mile from another pharmacy. This is counter-balanced by the fact that of the 152 new pharmacies in 1976, five were more than one mile from another pharmacy.

Our aim is, of course, to maintain an adequate NHS dispensing service. We are concerned that the present rate of decline in the number of pharmacies shall not continue, lest serious gaps appear in the dispensing network. This aim is reflected in the discussions which my right hon. Friend the Secretary of State is having with the pharmaceutical profession about remuneration. I am convinced that it is not only just but necessary to achieve a more equitable distribution of the funds available, to reward the smaller pharmacy more fairly and thus improve its viability and continuing prospects.

My Department will continue to monitor closely the rate of closures and the extent to which it is altered by the changes that we are now trying to negotiate in the remuneration system. We may need to look at means of achieving a more even distribution of pharmacies in the longer term, in the interest of both public and pharmacists. I understand that both the PSNC and PSGB are already giving some thoughts to this. I can assure the House that we shall give due consideration to any proposals that they may put forward along these lines.