§ 11.22 a.m.
§ THE CHAIRMAN or COMMITTEES (THE EARL OF LISTOWEL) had given Notice of a Motion, on consideration of the Special Report from the Special Orders Committee:
- 1. That there should be further inquiry by a Select Committee but that such inquiry should be limited to the issue whether the prices recommended by the Monopolies Commission make adequate provision for a proper allocation of group research and development expenditure in their sales of the reference drugs by the Petitioners in the United Kingdom; and, if not, what (if any) adjustment upward should be made of prices recommended by the Commission in order to make adequate provision for this expenditure:
- 2. That notwithstanding any relevant provision of paragraph 6 of Private Business Standing Order 216 the Select Committee may conduct their proceedings as they see fit:
- 3. That the Committee have power to appoint persons with specialised knowledge for the purposes of particular inquiries, either to supply information which is not readily available, or to elucidate matters of complexity within the Committee's order of reference:
- 4. That if any Order is made to continue in force the provisions of either: the Regulation of Prices (Tranquillising Drugs) (No. 2) Order 1973 or any subsequent Order having the same effect,
§ The Committee's Report was as follows:
§ The Committee, as required by Private Business Standing Order 216 have considered the Order and the Petition against it of F. Hoffmann-La-Roche and Co., A.G., Sapac Corporation Limited and Roche Products Limited, and report:
§ That having heard Counsel for the parties thereon and having considered the matters referred to in sub-paragraphs (a) to (d) of 1586 paragraph (6) of Standing Order 216 they are of opinion that there ought to be a further inquiry by a Select Committee, limited in accordance with the following paragraphs.
Paragraph (6) of the Standing Order provides that:
the proceedings of the Select Committee shall be conducted in like manner as in the case of a Private Bill and shall be subject to the provisions of Part V of these Standing Orders relating to Committees on Private Bills, far as they are applicable".
§ The Committee recognise that a literal compliance with that paragraph might require the Select Committee to investigate what has already been investigated by the Monopolies Commission. This might in the Committee's view involve undue delay and expense. They therefore recommend that notwithstanding paragraph (6) of the Standing Order a Select Committee be appointed to carry out a further inquiry limited to the issue:—whether the prices recommended by the Monopolies Commission make adequate provision for a proper allocation of group research and development expenditure in their sales of the reference drugs by the Petitioners in the United Kingdom and if not what (if any) adjustment upward should be made of prices recommended by the Commission in order to make adequate provision for this expenditure.
§ THE CHAIRMAN OF COMMITTEES (THE EARL OF LISTOWEL)
My Lords, in moving the Motion which stands in my name in the Order Paper, I think it might be helpful to the House if I said something first about the procedural background of the Special Report from the Special Orders Committee which the House is being asked to consider this morning. The Order which is the subject of this Report is what is known as a Hybrid Special Order; that is to say, in accordance with Private Bill Standing Order No. 216, it is an Order which would require, but for the provisions of the Act authorising the making of the Order—in this case the Monopolies and Mergers Act 1965—to he enacted by a Private Bill or a Hybrid Public Bill.
The fundamental purpose of the hybrid procedure in this Standing Order, which is peculiar to this House, is to safeguard the rights of the private citizen. The Standing Order confers on persons individually and adversely affected by a Hybrid Special Order, a right to petition the House against the Order. This is a right they would, of course, have had if the terms of the Order had been contained in a Bill instead of a Statutory Instrument. If a Petition is presented, as it was in this case, it is then for the 1587 Special Orders Committee to consider whether in the light of the criteria in the Standing Order there ought to be a further inquiry by a Select Committee. The purpose of these criteria is to ensure that the Special Orders Committee will not recommend that there ought to be a further inquiry unless they are satisfied that there is a substantial ground for complaint in the Petition, and that the matter has not been adequately dealt with by a previous inquiry. In simple language, they have to be satisfied that there is a prima facie case for a further inquiry.
That, my Lords, is the procedural background of the meetings of the Special Orders Committee, which sat to consider the Regulation of Prices (Tranquillising Drugs) Order and the Petition against it. I should like now to say something about the proceedings of the Committee and to try to explain the terms of my long and, I fear, rather complex Motion.
After the Committee had heard counsel for the Petitioners and for the Secretary of State during five days, and had studied' all the documentary evidence before them, they were in a position to reach a final decision. It was then decided, by a majority of 4 to 3 to recommend to the House that there should be a further inquiry by a Select Committee, but that that inquiry should be limited to the single issue set out in the first paragraph of my Motion. It might be to the convenience of the House if I were to read the terms of this issue:… whether the prices recommended by the Monopolies Commission make adequate provision for a proper allocation of group research and development expenditure in their sales of the reference drugs by the Petitioners in the United Kingdom; and, if not, what (if any), adjustment upward should he made of prices recommended by the Commission in order to make adequate provision for this expenditure:This limitation of the scope of the inquiry was proposed, the Committee say in their Report, in order to avoid a re-opening of all the matters which have already been considered by the Monopolies Commission. The first paragraph of my Motion contains the pith of what I am placing before the House. The rest of the Motion, which I shall deal with quite briefly, is procedural.
The second paragraph gives the Committee power to conduct their proceed 1588 ings as they see fit, notwithstanding the provisions of the Standing Order, which lay down that:.. the proceedings of the Select Committee shall be conducted in like manner as in the case of a Private Bill …The Committee did not consider that the Private Bill procedure would necessarily be suitable for the proceedings of a Committee engaged on a limited inquiry. For instance, if Private Bill procedure were strictly followed, the Promoter of the Order—in this case the Secretary of State —would be obliged to begin by proving the need for the whole Order; that is to say, he would have to justify the Report of the Monopolies Commission in its entirety. It would also be necessary for the Committee to consider all the matters raised in the Petition against the Order. The Committee might consider that the limitation of the inquiry recommended by the Special Orders Committee placed a burden on the Petitioners proving their complaint, and they might therefore prefer to hear the Petitioners first. If the terms of my Motion are agreed to, the Committee will be able to conduct their proceedings as they think fit.
The third paragraph of my Motion is to ensure that the Select Committee will be able to call upon professional advisers, such, for example, as accountants. They would need to do so in dealing with the complex and technical subject, which is the subject matter of their inquiry. The last paragraph is necessary because this Order expires, unless it is aproved by both Houses, after 28 days beginning from the day on which it is laid. My Motion therefore provides that each Order which is laid on the expiry of the previous Order shall be substituted for its predecessor for the purpose of the Committee's proceedings.
My Lords, I commend the Motion lo the House, because I hope the House will follow its established practice of agreeing to the Report of the Committee that has heard the arguments of the parties represented by counsel, and arrived at a decision after considering all the available evidence. The House, of course, does not have the advantage of hearing the case submitted by the parties. In the nature of things it is not possible for parties to appear or to be represented by counsel in this Chamber, while the House is sitting. It is for this reason that the House 1589 has adopted the practice to which I have referred. My Lords, I beg to move.
the Regulation of Prices (Tranquillising Drugs) (No. 2) Order 1973 or any subsequent Order having the same effect,
- 1. That there should be further inquiry by a Select Committee but that such inquiry should be limited to the issue whether the prices recommended by the Monopolies Commission make adequate provision for a proper allocation of group research and development expenditure in their sales of the reference drugs by the Petitioners in the United Kingdom; and. if not, what (if any) adjustment upward should be made of prices recommended by the Commission in order to make adequate provision for this expenditure:
- 2. That notwithstanding any relevant provision of paragraph 6 of Private Business Standing Order 216 the Select Committee may conduct their proceedings as they see fit:
- 3. That the Committee have power to appoint persons with specialised knowledge for the purposes of particular inquiries, either to supply information which is not readily available, or to elucidate matters of complexity within the Committee's order of reference:
- 4. That if any Order is made to continue in force the provisions of either:
then the new Order shall be substituted for the previous Order for the purposes of proceedings under Private Business Standing Order 216 as modified by the Order of the House of the 20th of February last.—(The Earl of Listowel.)
§ 11.29 a.m.
§ LORD DIAMOND
moved as an Amendment to the Motion, to leave out the first three paragraphs. The noble Lord said: My Lords, I hope I may, first of all, have your Lordships' permission to thank the noble Earl, the Chairman of Committees, not only for explaining the matter in his usual clear and short fashion, but for the extraordinarily fair way, which we have come to expect of him, in putting a matter which, having read the Report—as all your Lordships will have done—has placed him in a position of unusual responsibility.
My Lords, I rise to move this Amendment with considerable trepidation. First, 1590 it is an Amendment in the name of my noble friend the Leader of my Party, an ex-Leader of your Lordships' House of great experience. In moving this Amendment, I hope your Lordships will permit me to say that you are listening to one who has great respect for the procedures of Parliament. This is a respect which has been confirmed by 10 years' service as a Chairman of Standing Committees in the other place, and by the experience which I have been privileged to gain as a member of your Lordships' Select Committees dealing with delegated legislation of which, of course, this is a particular element. I know very well that procedures are the result of the distillation of great experience, thought and wisdom, and that, therefore, when approaching a matter like this which involves a very unusual departure from your Lordships normal proceedings, one starts on the matter with considerable humility and great anxiety.
The matter before your Lordships' House is basically an order by the Government which results in a very severe reduction in prices of a manufacturing company—to make the matter more important, a Swiss company, not even an English company—a company which petitioned the Special Orders Committee. As your Lordships have heard, that Committee has reported that part of the matter ought to he examined by a Select Committee. As we all know, it is the normal practice for a Committee's recommendations to be accepted, yet I am moving an Amendment the short effect of which is that there is no need for further inquiry. My Amendment, in effect, leaves it open to your Lordships' House to decide what is right to be done in relation to the main order. It prevents our getting into difficulties owing to the lapse of time with an order running out and having to be replaced. This has already happened. It would leave it open to your Lordships' House to decide whether or not to approve the order, as the other place has done.
The matter started about 1966 when the Department for Health and Social Security drew to the attention of the Swiss corporation in question, Roche Products Limited, the fact that there was room for reduction in the prices, in particular, of two drugs which, because of their somewhat unpronounceable names I hope 1591 I may refer to by their more accepted names of Librium and Valium. I do not know whether I have pronounced them correctly; I doubt whether there is any particular authority for the correct pronunciation.
The Government, after long thought, decided to refer the matter to the Monopolies Commission. The Monopolies Commission gave the matter long and careful consideration. Your Lordships will know that their Report was published in April this year. If I may, I will trouble your Lordships with a very short extract from some of the recommendations of the Monopolies Commission. The Commission consisted of seven individuals fitted for the task, chaired by the then Mr., now Lord, Justice Roskill.
Tile LORD CHANCELLOR
My Lords, I misled the noble Lord, Lord Diamond. It is Ashton Roskill and not Eustace Roskill who is the Chairman of that body.
§ LORD DIAMOND
My Lords, then it is Sir Ashton Roskill who was Chairman. The Monopolies Committee have reported. On nage 69 the second recommendation is:For reasons we have given in detail... we are satisfied that some of the cost figures referred to—in particular those for research and promotion costs—grossly exceed the levels that should be taken into account to arrive at fair prices.Recommendation (d) states:The excessive prices charged up to the present have already produced excessive profits on a very large scale …Figures are given in schedules annexed to the Report and I will quote only a few from Table 2 of Appendix 5, dealing with the combined costs and profits of these two drugs, showing that in the year 1970 the Commission conclude that the cost of manufacture of these drugs was £456,000 and that the profit, after taking account of the cost of manufacture and other overhead expenses, was just on £4 million. Those are the broad figures.
The Commission also conclude that the return on capital—I have not the exact reference with me, but no doubt this will be referred to many times during the course of our debate—was of the order of 70 per cent. I know from my own inquiries when I had certain ministerial responsibilities that the level of return on 1592 capital in industry generally in this country is of the order of 11 per cent. to 13 per cent. depending on the particular year which one is concerned with. At all events, sufficient for our present purpose is the considerable difference between the average return on capital regarded as reasonable by industry at large, and the return on capital involved in the manufacture and sale in this country of these two drugs.
The recommendation of the Report of the Monopolies Commission was that the prices of these two products should be reduced; first, as regards Librium, to not more than 40 per cent. of the selling prices in 1970; and as regards Valium, to not more than 25 per cent. of the 1970 selling prices. Paragraph 236 of the Commission's conclusions states:The prices we are recommending could be considered more than adequate in the light of the facts revealed in our report … We certainly see no room for argument that in recommending what may appear to be drastic reductions we are being unduly severe.I have already referred to your Lordships the earlier paragraph which deals with research and promotion costs.
Upon receiving and considering that Report of the Monopolies Commission, the Government, through the appropriate Department, laid the Order which is under consideration, which provides that the maximum prices to be charged for these drugs shall respectively be not more than 40 per cent. and not more than 25 per cent. of their previous prices, in the terms of the Commission's Report. These are maximum prices. I draw to your Lordships' attention that the recommendation was that these prices should be reduced to "not more than" these figures. I think I have gone into the substance of the matter sufficiently to say why I invite your Lordships to reach the conclusion that the nature of the Report of the Special Orders is such that your Lordships cannot be relieved of the responsibility of considering whether to accept it or not.
It does not need anyone to say that a committee, however distinguished, is, by its nature, a committee of a major body, and it is for that body to decide whether the advice—which is what a committee's recommendations amount to —by its nature, by its circumstances, in the context of everything that ought to be considered, must be accepted. I 1593 cannot deny myself—and I cannot relieve myself of the responsibility of saying—that I have read this Report carefully and I have sufficiently read printed evidence of what took place. I am aware of precedents and the wisdom of precedents. Nevertheless, I have the responsibility of looking fully and carefully at the recommendation made. I have reached the conclusion—and I invite your Lordships to reach the conclusion—that the limited recommendation made is not necessary, in all the circumstances. I propose to give your Lordships the reasons that have persuaded me that that is so.
First, if I may deal with the commonsense matters, this is a distinguished Committee but a small one, and a small selection is never regarded, statistically or in any other terms, as conclusive. It is a Committee of nine, including the Chairman. In fact, the final decision was taken by seven members, including the Chairman—the assumption is that the other two members were not present. The voting, as we know, was four to three. In other words, there was a clear difference of view. A unanimous Report, and a Report which indicates that opinion is more or less evenly spread, are, in my view, two different things. One can he leaned on almost entirely, the other leaves one with the responsibility of coming to one's own judgment in the light of everything, including the Report.
My second point—and I hope that I do not embarrass any of your Lordships —is that the noble Earl the Lord Chairman of Committees, who has everyone's respect, appears in the "Not-Contents". There is no need for me to say more than that. The third point—a very important one—is that the Committee did not reach the conclusion that they ought to recommend a full review. They reached the conclusion that they ought to recommend, by this slender majority, a review of one limited and extremely difficult area—the allocation of group research and development expenditure. I am not wholly inexperienced in the problems relating to the allocation of group research and development expenditure. I suggest to your Lordships that this question could be put to a dozen able, experienced chartered accountants; they could work 1594 a long time, inform themselves fully, and produce a dozen authoritative, wise, different answers. It is a matter on which it is not possible to deny the variety of truth through the simplicity of figures. In our reaching this conclusion, it is most important to consider that the one area upon which the Committee thought that there was uncertainty is likely forever to be clothed in uncertainty.
That is not the end of the matter, however, because the Commission were obviously aware of this and took this aspect of the matter fully into account. By "this aspect", I mean the fact that it is not open to anyone or any body of persons to say with pervading permanent truth that this is the figure which ought to be allocated in respect of this kind of expenditure, in respect of research, development and promotion costs, to the sales of these particular two drugs, part of the total product of the company in this country, part of the area in which the company was trading.
The Commission, having taken that fully into account, conclude that the prices we are recommending could be considered more than adequate and the prices that they are recommending do not go beyond certain limits. The Order of the Government Department fixes those limits. The Commission themselves were aware of the difficulty and fully covered it, fully allowing for any flexibility of conclusion on it, and recommended that the prices should be not more than 40 per cent. off and not more than 25 per cent. off the selling prices of these two drugs. The Government, too, did not fix a figure below the maximum, which they might have done, but fixed the maximum. In those two ways, full tolerance and flexibility have been allowed for differences of view that might be expressed with regard to the proper allocation of group research and development expenditure, in respect of which one can never hope for finality and certainty.
I therefore reach the conclusion that there has to be a considerable area of doubt in one's own mind before one wishes to review a matter which has been so fully and lengthily reviewed by such a reliable and authoritative body as the Monopolies Commission. The whole of the circumstances, in particular the expressed differing views of the Committee, and the other matters I mentioned, 1595 are not sufficient to suggest to your Lordships that this matter should go before a Select Committee and have the whole of this difficult, unsatisfactory and, I regret to say, in my view, inconclusive, matter reviewed once more. Therefore, I think that the Amendment which would omit the first three paragraphs of the Resolution before your Lordships' House, and leave the matter before your Lordships to decide in whatever way your Lordships thought fit, is one which I hope will seem to your Lordships fair, just and appropriate in all the circumstances.
§ THE LORD CHANCELLOR (LORD HAILSHAM OF SAINT MARYLEBONE)
My Lords, the original Question was that the Resolution in the name of the Lord Chairman of Committees which is placed upon the Order Paper, be agreed to, since when an Amendment has been proposed to leave out the first three paragraphs of that Resolution. The Question is that the said Amendment be agreed to.
§ 11.52 a.m.
§ LORD STOW HILL
My Lords, I rise to support the Resolution and to invite your Lordships to reject the Amendment. At the outset, may I, in accordance with custom, declare a financial interest as a shareholder in the Beecham Group and in Imperial Chemical Industries? It goes without saying that I, as did my colleagues on the Special Orders Committee, at the outset of the aural hearing, declared our interest to counsel on both sides, and counsel on both sides were good enough to say that they had no objection to our continuing to hear the case.
Secondly, may I say that your Lordships have heard that counsel addressed us for five days. I should like on my own behalf—and I am quite sure that I echo the feelings of my colleagues on the Special Committee—to express our indebtedness to counsel on both sides, Mr. York, for the petitioning company, and Mr. Jupp, for the Department of Trade and Industry. Although they addressed us for five days, I do not think they wasted a single word, and they took infinite pains to lead us through this exceedingly complex matter. They placed a great deal of material before us, and they directed our attention to the important aspects of the matter which we had to consider.
1596 My Lords, there is one more matter by way of introduction: my noble friend Lord Stamp and my noble friend Lord Peddie have asked me to say on their behalf that they much regret not being able to take part in this debate, and I think that it is in accordance with your Lordships' custom if I may that they would have supported the Motion.
May I put my purely personal reaction to the issue that we had to decide? First, placing some reliance on what my noble friend Lord Diamond just said, this question of allocation of group expenditure is most difficult and complex. He said—and I was most interested to hear this coming from him, with all his professional experience—that if 12 skilled accountants were asked to consider the matter they might each give a different answer. So I hope your Lordships will not think that any public time would be wasted if this one aspect of the matter were given further consideration by a Select Committee. It is not as if they would be asked to consider something the broad outline of which is clear: it is a matter of recognised difficulty. I suppose one would not be human unless one approached a matter of this sort with the memory of the thalidomide tragedy in one's mind, and the consciousness that most of us have that perhaps further expenditure (and I make no criticism of anybody) on research in that particular case might have avoided that tragedy.
My Lords, we are not considering a case of a company with regard to which it is said that it distributed to its shareholders excessive profits made in the carrying on of its enterprise. This Swiss group—it is a Swiss-Canadian group, Hoffmann, La Roche, Sapac—distributed, so we were told, something less than 2 per cent. by way of dividends. It did recover its group research and development expenditure, and it is said against it, on that head of the case, that its expenditure should not in that measure have been recoverable out of English sales. I suppose that the implication must be—and I think it emerges from the Report that it is—that that research and development expenditure was carried out on a scale which was not justified in the circumstances.
That is what is said. Now, my Lords, we at the outset had to consider, and we did consider and counsel presented very careful arguments on the subject—what 1597 the exact terms of our reference were. I would remind your Lordships of the wording of Standing Order 216, to which reference has already been made. The relevant words were that we should consider in the first place:whether the Petition [of the petitioning company] discloses substantial grounds of complaint.…Those are the initiating and guiding words. Then follow some paragraphs which I think are not relevant for this purpose, and then come the words saying that our consideration should be whether, considering the other circumstances of the case,there ought to be a further inquiry by a Select Committee. …If it were not for the words,whether the Petition … discloses substantial grounds of complaintbeing reminded, as we have been by Lord Diamond of the difficulty of this problem (and that being written all over the Report, as it were), and this being a typical case in which that problem was directly and immediately involved, I should have had no difficulty whatever in coming to the conclusion that a further look at the case on this limited aspect of it was very much in the public interest. It would be disastrous if discouragement were given to these companies which are research-based, as they are described, and in consequence they were not prepared to risk their funds on research which, in the nature of things, is largely unproductive and must be so. Only occasionally—
§ LORD BALOGH
Would the noble Lord forgive me? Appendix 7 of the Monopolies Commission Report gives quite different figures for dividends from the figures which the noble Lord has given, and I wonder whether he would enlighten us. I am referring to Appendix 7, Table 1 and Table 2. Could the noble Lord enlighten us as to how the discrepancy is to be explained?
§ LORD STOW HILL
My Lords. counsel addressed us for five days. I prepared an address which I think would have lasted three days, and I then proceeded to prune it to last about thirty-five minutes, and if I take that long I shall feel in danger of trespassing upon your Lordships' patience.
§ LORD SHACKLETON
My Lords, I appreciate that we do not want to take 1598 too long, but the noble Lord said when he read the relevant passage of the Standing Order No. 216 about substantial grounds of complaint that he thought that the words that followed were of no account, or something to that effect. I wonder why he thought they were of no account—namely, the fact that the matter had been dealt with by a Departmental Inquiry.
§ LORD STOW HILL
My Lords, I think I said, and certainly I intended to say, that they had no relevance in the present situation. The words in subparagraph (b) are:whether the matter has been so dealt with upon a departmental inquiry that further inquiry is unnecessary.They are not applicable. The next subparagraph reads:whether the submissions in the Petition could have been brought before a local inquiry and were not …That also is not applicable. Then subparagraph (d) reads:whether, having regard to the answers to the preceding questions"?—and then it becomes relevant again:and to the findings, if any, of these inquiries and to the other circumstances of the case there ought to be a further inquiry by a Select Committee. …I was intending to limit myself to what seemed to me to be that part of the Order which was relevant to this case.
My Lords, all I say with regard to the 2 per cent. is that that is what we are told in the Report.
§ LORD NUGENT OF GUILDFORD
My Lords, I wonder whether I might interrupt the noble Lord again, although I realise that I am taking his time. I am not clear about sub-paragraph (b). Am I to understand from what he said that what is called a "Departmental inquiry" is to be interpreted so narrowly that the Special Orders Committee were advised that the inquiry by the Monopolies Commission was not relevant in this context?
§ LORD STOW HILL
I so read the sub-paragraph. I read that part of it which refers to a Departmental inquiry as referring to some inquiry other than the inquiry which we were considering, namely the Commission's Report. That is how I read it. I hope I was right. But, as I have said, it was far from the case that simply because it would be in 1599 the public interest, if your Lordships think it would, that there should be a further look at this limited aspect of the Commission's finding, we ought to give the advice to the House which we are now giving, because we had in the first place to be able to apply the words,whether the Petition discloses substantial grounds of complaint".May I just give my own reaction on that—and I think that this was the view broadly accepted by my colleagues. What we had to ask ourselves was whether when one looked at the Petition one could say, hearing the arguments and considering the material before us, that the matter in the Petition, on a balance of probabilities, showed that there was some substantial ground for complaint available to the petitioning company. If I may just anticipate for a moment, I myself took the view, in formulating the question to myself, that if on a balance of probability it appeared upon consideration of the Commission's Report and the supporting material that the Commission, by their finding and recommendation, had provided for less than a fair allocation of group expenditure on "R and D", that would constitute a substantial ground of complaint available to the petitioning company. That is the view I took. Merely a marginal under-allocation, I would have said, did not constitute a substantial ground of complaint; but if there was somethting which was more than merely marginal, I took the view that it would constitute a substantial ground of complaint.
Therefore, what I, and I think my colleagues, proceeded to do was to ask ourselves whether, looking at the whole situation, one could or could not say that on a balance of probability there was something more than a merely marginal under-allocation or under-provision of group "R and D" costs provided for in the Order. That was the question that we had to decide. Speaking for myself —and I confess that I found the answer to the question that was asked us exceedingly difficult. I gave it a great deal of anxious thought and I know I speak for my colleagues when I say that they equally were very anxious about it and thought a great deal about it. I came to the conclusion, on balance, that on this limited aspect the petitioners did show 1600 that, on a balance of probability, they had a substantial ground of complaint, in that something which exceeded a mere marginal under-allocation of group costs on research and development was the result of the Commission's recommendation.
My Lords, I am supporting the Motion. Therefore I suppose I ought to support that part of the Motion which limits this inquiry to the very narrow ground which the majority recommended. The Petition —and I shall not trouble your Lordships to go through it—is lengthy, and it contained a number of complaints to the effect that the way in which the procedure which was applied operated unfairly against the petitioning company. Mr. York developed that argument with great thoroughness and cogency.
I can only say that speaking for myself —I could give examples if your Lordships wished to hear them—that part of the argument carried no conviction to my mind. I did not think that the criticisms of Sir Ashton Roskill and his colleagues had been made out at all. On the contrary, I thought that if there were room for criticism the criticism should light upon the shoulders of the petitioning company which in some respects I thought had been uncooperative and I would even go so far as to say unhelpful. I use that language with hesitation because there was argument and counter-argument and it is not directly germane. I simply say that that part of the argument left me wholly unconvinced. I thought that Sir Ashton Roskill put the issue as clearly as he possibly could at the oral hearing to Mr. Hunter who was the financial director of the petitioning company. Mr. Hunter simply replied by saying that he could suggest no criterion as to the allocation of group "R and D" expenditure.
It is relevant, perhaps, to remember the dates in that context. The reference to the Monopolies Commission was in September, 1971. In May, 1972 the Commission sent out what was called a "public interest letter" setting out a large number of issues which they thought should be given consideration and on which they wished to hear the petitioner's views. Then, in October, 1972, there was an oral hearing and Sir Ashton Roskill—most clearly, as I have said—put to Mr. Hunter these issues and, in 1601 particular, the question as to whether a company was justified in incurring limitless "R and D" expenditure and then expecting to recover it out of current sales. That was put most clearly. Mr. Hunter was asked by Sir Ashton whether he could suggest any criterion. Mr. Hunter said, "No". The report was not completed until February, 1973. I asked Mr. York in the course of the argument whether, after they had had time to consider Sir Ashton Roskill's question, they had reverted to the matter and said that they would like to make some submission on this ground. The answer was "No". Therefore in a sense I think it must be said that the company brought this on itself.
But that is not the end of the question. It was simply, in the view that I took, one of the reasons why I thought that the complaints that the procedure operated unfairly miscarried. The procedure of the Monopolies Commission was formulated by the Commission under Section 8 of the Monopolies Act 1948. It was for them to formulate it. They carried out their own procedure perfectly accurately. It was perfectly open to counsel Mr. York to argue as he did that it was rather in the nature of a French inquisitorial procedure and that therefore great pains must be taken to see that it did not in the actual case operate unfairly. He so argued—very cogently, as I have said—but in my submission he did not make out a case on that ground. He had a number of other criticisms with which I shall not trouble your Lordships. He complained, for example, with regard to the Commission's view as to the promotion costs incurred by the company. I would simply say that as to all those matters of complaint taken as a whole, I should have regarded them as quite insufficient to justify the Committee on which I sat in making a recommendation for any further inquiry by a Select Committee.
That left open the question of this group expenditure. As I have said, I found that a very difficult question to answer. Ought Ito say to myself that on a balance of probability the petitioning company had a substantial ground of complaint in that there was something more than a marginal under-allocation of the "R and D" expenditure incurred by the 1602 group in Switzerland and America?—and there was also expenditure incurred in this country. How did the matter stand on that?
Perhaps I may remind your Lordships of the broad situation as it appears in these accounts. My noble friend Lord Diamond has referred to Appendix 5, which is headed "Roche Products Limited". Table 1, Statement of Sales: Estimated Costs and Profits for: A. Librium, B. Valium, C. Other Reference Products, and so on. It is an analysis of their situation. Appendix 6 explains that included in that analysis is what I could describe, so far as "R and D" expenditure is concerned, as a basic contribution of about 14 per cent. This is made up of a fraction derived from the relation of world costs to world sales. That is the basic contribution. Then there is what is described as un uplift which raises that basic contribution to about 22 per cent.
I draw from paragraph 137 of the Report the inference that there is a further ingredient, the size of which I do not know, by way of contribution to group costs of research, contained in the difference between the basic cost of the ingredients of Librium and Valium—£9 and £20—-and the very much higher figures in Appendix 5. The representative of the company said that that increase in cost was partly accounted for by some provision for research costs. So there are three ingredients.
The approach of the Commission, as summed up in paragraph 159, was as follows. It took that analysis of cost and substituted the arm's-length cost of ingredients of £9 for Librium and £20 for Valium for the many hundreds of pounds which are attributed under that item to the cost of ingredients. It then in effect said that it would take the 14 per cent. basic contribution towards group "R and D" costs. It made those two changes in Table 2 of Appendix 5, to which my noble friend Lord Diamond referred, and by those drastic reductions produced the result that the company's profit in respect of Librium was 55 per cent. and in respect of Valium was 61 per cent. I do not dispute that those are very high profits. In so far as the Report relates to anything else into which the Commission inquired, other than this 1603 allocation of group "R and D", I would not seek for a moment to advise your Lordships to challenge the Report. However, I submit to your Lordships that it would be right that there should be one more look at the allocation of group "R and D" expenditure.
I hope that your Lordships will not feel that I waste the time of the House if I cite from the Report in order to indicate clearly the contrasting views about this matter which are very clearly brought out. I should like to read from paragraphs 222 onwards of the Report and I hope your Lordships will bear with me, as I think these paragraphs bring out the issue very clearly.Roche Products has asserted most emphatically that every relevant authority in this country accepts that the whole current research expenditure of a pharmaceutical manufacturer, whatever its amount, is properly chargeable as a cost of current sales.That was the company's argument. The Commission say:We accept that the Roche Group's practice in this respect is in accordance with the general practice of pharmaceutical manfacturers in this country and, so we understand, elsewhere. But while we also accept that there are, in general, sound reasons for adopting the practice, we think it can lead to abuse in extreme cases and that this point has been reached in the present case.Then there are some rather important general reflections. The Commission say:Research is an essential activity in the ethical drug industry; but, except to a very minor extent, current research is not a cost of production or sale of the goods currently marketed. Research expenditure is largely speculative, being incurred in the hope of developing products for sale in future years. In general, it is financed out of the internal resources of the company, that is, from the difference between total revenue and the total costs of supply of current products.It has accordingly been argued that in principle research expenditure, like expenditure on plant and machinery, should be capitalised and subsequently be written off as a cost of sales of the goods developed by the research over the years when they are actually marketed. But a high proportion of research in this industry is abortive, and it cannot be expected that successful innovations will be developed regularly over the years or have a foreseeable relationship with the research effort measured in terms of expenditure. We accept therefore that there is a practical case, on grounds of normal commercial prudence and perhaps also of encouraging innovation, for charging research expenditure against sales as it is incurred. But the effect of the practice 1604 is that current consumers pay for possible benefits which may be enjoyed by future consumers. If the practice is to be followed, either market conditions must be such as to bring sufficient pressure to bear upon the prices concerned to discourage any unreasonable and cumulative increase in research cost, or the pharmaceutical manufacturers concerned must exercise self-restraint in the pricing of successful products.The Commission found, and I respectfully agree with them, that there were not adequate competitive conditions in the case of the pharmaceutical industry to cause restraint to be exercised. The situation was that Section 41 of the Patents Act enables compulsory licences to be granted to would-be manufacturers in return for a royalty to the patentee. Two companies, D.D.S.A. and Berk Pharmaceuticals, obtained licences to sell drugs manufactured in accordance with the petitioning company's patents. Berk Pharmaceuticals put on the market a drug called "Atensine". From May, 1972, the petitioning company reduced its prices in order to keep pace with the lower prices charged by Berk Pharmaceuticals for its drugs, to the extent of 36 per cent. By so doing, it managed to retain 99 per cent. of the market. So I think the Commission are right in saying that real competitive conditions did not exist.
The Department of Health and Social Services does its best to bring to the notice of doctors other possible drugs that they might use, but again it was apparent that that did not have any compulsive effect in this case. Adequate competitive conditions did not prevail. I should add that the patent for Librium runs out in 1975 and for Valium, which is the more potent of the two, in 1976.
That is the picture. The Report continues: "Where a company in a science-based industry exercises considerable power without restraint, that power may be manifested either in excessive profits or in excessive research expenditure, or in a combination of the two, depending on the preference and policies of the management. In the present case a large proportion of the high profits obtained appear to have been retained in the business and devoted, in part at least, to expansion of the research establishment."
That is a matter of criticism in the Report, but I doubt whether it should be a matter of criticism. The human body 1605 is so frail that it is in the general interest that more and more should be paid out in research by companies ready to risk that payment. I myself would have taken a different view from the Commission on this point. That influenced me in feeling that I should come to the conclusion that, on a balance of probability, there was more than a marginal under-allocation. I quote again from the Report, paragraph 224:Thus the current cost of research is higher than it would otherwise have been as a direct result of the high prices charged for the drugs currently marketed. We do not accept that, in the virtual absence of price competition, there is no limit to the price and profit levels a manufacturer is justified in setting himself, as long as he uses the proceeds to expand his research.As a general proposition I would not seek to fault that observation. Clearly, there could be an utterly irresponsible board which might take unjustifiable risks and waste, in an irresponsible way, money on "R and D" expenditure. Nothing that I saw in what was placed before me seemed to make it clear that I should draw any such conclusion about the behaviour of the Swiss-Canadian board. I had no reason whatever to think that it did not exercise a sound judgment in trying to determine the proper level of "R and D" on which it should embark in the United States, in Switzerland and in Welwyn in this country.
§ LORD DAVIES OF LEEK
My Lords, I have listened with interest to the noble Lord, but he should turn to paragraph 156 of the Monopolies Commission Report on these two drugs. The noble Lord has spoken of research. The Commission were fully acquainted with this and that is why they asked for the following facts:
But they were refused. How, therefore, can we say that we know what part is being given to research? The research may be into cuckoo clocks for all we know.
- "(i) the value of world-wide sales of ethical products;
- (ii) the value of world-wide research costs for ethical products;
- (iii) the world-wide sales of chlordiazepoxide and diazepam respectively by value;
- (vi) the world-wide sales of chlordiazepoxide and diazepam respectively by weight (kilograms)".
§ LORD STOW HILL
My Lords, I went out of my way to say that I thought that the company itself was open to criticism. I accept at once that the information wanted was not given; I am only too conscious of that. I repeat that I think Sir Ashton Roskill showed the greatest patience and thoroughness and that none of the criticisms made against him stands up to inquiry. If there is room for criticism it should light upon the shoulders of this company. I repeat that. It is perfectly consistent with my argument. There was a great deal of criticism of the D.T.I. and of the Minister, but none of that criticism assisted me in the least, except to a very marginal extent in arriving at the conclusion which, rightly or wrongly, I thought I ought to reach.
If that is the issue between the parties —that is a misnomer because the Commission are not a party—but if that is the contrasting view, where does it leave one? The Commission say that there is a limit beyond which a manufacturer is not justified in embarking upon research expenditure. In this particular case, although the profits were retained in the group, they were used to some extent to expand the scale of research. It is a very good thing that they were.
There was a subsidiary argument, on which the Commission ruled against the petitioning company's view. The price of Librium and Valium in this country is just over one-half the price charged in other developed countries. I think we were told that Turkey is the only country in which they can be bought at a price less than the price charged in this country. The argument on behalf of the petitioning company was that the allocation of group R and D should be by reference to world average prices instead of world sales. I shall not go into the details of the argument one way and the other, but it was rejected by the Commission. I myself doubted whether they were right in rejecting it, at any rate without fuller inquiry. That is how the matter stood. The Commission said, "There is a limit beyond which you must not go, and in this case you have gone beyond it".
§ LORD HALE
My Lords. I have never interrupted the noble Lord before, and I hesitate to do so now, but there is an 1607 inevitable result of his argument. If the words, "substantial ground of complaint" are interpreted as he is interpreting them; namely, that it seriously affects the operations of the petitioners, then every Report of the Monopolies Commission which recommends restrictive action and which inevitably affects one company or another or one group, will, after a year of labour, be subject to review by the Special Orders Committee of the House of Lords who will find themselves constrained to appoint a Select Committee, thus defeating the object of the legislation.
§ LORD STOW HILL
My Lords, with all the emphasis that I can command I say that the answer to that question is, "No". I am saying that the substantial ground of complaint, if there is one—if I am right in my view that on balance of probability there is one—is that the Commission's recommendation makes more than a marginal under-allocation in the prices which they recommend for group "R and D" expenditure. If they made only a marginal recommendation, I would say that that is not a substantial ground; it must be more than a marginal allocation. In bringing out the profits, which they do, of 55 per cent. and 61 per cent., if I have understood their thinking correctly, they have taken only the basic contribution of 14 per cent. as being appropriate to inclusion for the purpose of computing the prices. I can only say to my noble friend, for whom I have a deep affection, that in this case my affection does not prevent me from saying other than a very brusque, "No".
That being so, what is the general situation that confronts us? It is common ground that this is a research-based group. If one looks at paragraph 44 of the Report, it says:According to the NEDO Report Focus on Pharmaceuticals, the Roche Group's R and D expenditure was estimated as amounting to some 590m (about £38m) in 1970.That is a very large amount. If one turns to page 3 of the publication to which the paragraph refers, Focus on Pharmaceuticals, one sees where they get that statement. Page 3 gives a list of 41 of what are described as selected companies in the pharmaceutical industry ranked by pharmaceutical turnover in 1970. Roche is shown there as spending 1608 90 million dollars, as the Commission's report stated. It is fourth in "R and D" expenditure in that list of 41 companies. I notice that Imperial Chemical Industries spend more—I think 123 million dollars. So one starts with the position that this is an extremely soundly research-based group; it spends a great deal upon research. That is money out of pocket, and I assume that it is money that is not recklessly spent, as I have said.
I have already said that the sale price of Librium and Valium in this country is something not much above half the price charged in other developed countries. One then has this swingeing recommendation by the Monopolies Commission of a reduction of the 1970 prices to 40 per cent. for Librium, and 25 per cent. for Valium. One knows, from the approach of the commission to which I have referred, how it has reached the conclusion that the company made these profits of 55 per cent. and 61 per cent. in respect of these two drugs. If there had been a larger allocation the profits would have been proportionately less. Bearing in mind that one of the reasons for that is as I have stated—namely, that they used their expenditure to enlarge the spread of their research—and that this is a limit which is imposed upon a group which, so far as I know, is an active, commercially sound group of companies, I am told that it must have its profits assessed upon the basis that only the basic contribution of 14 per cent. is to be taken into account.
Other documents were put before us for consideration. One was that of the Committee of Inquiry at which my noble friend Lord Sainsbury presided. He, in Chapter 6, examined very carefully the character of the expenditure. I derived great help from reading what he said in Chapter 6. I should like to refer your Lordships to three short passages from Chapter 6. The issue is put very clearly in paragraph 180:We are aware that there arc those who feel that research expenditure is not always a valid reason for higher prices than can be justified by manufacturing costs because the 'research' in question is often undertaken with little therapeutic justification.That is one.On the other hand the industry's research, at least that of the major companies, has not lacked defenders, including scientists of great eminence. They claim that the research efforts 1609 of the industry have resulted in the discovery and introduction into therapeutics of many if not most of the effective medicines now known. They also claim that research in this industry is exceptionally risky because only a small proportion of the many substances made and tested become successful products and because even these arc likely to be superseded by better ones before the research expenditure has been recovered.My Lords, that is a statement of the issues. The Report covers the period 1965 to 1967 and was presented in September, 1967, and I infer that the situation has changed. Paragraph 188 states:Although the foreign-owned companies together account for over 70 per cent. of the sales to the National Health Service most of those companies carried out little research in the Unite.; Kingdom until comparatively recently. But in the last few years an increasing number of them have established research organisations in Britain. The leading foreign companies have, however, very large research establishments abroad. It has been stated that expenditure on research and development by United States companies amounted to well over £100 million per annum, and by Swiss companies to over £20 million per annum. These figures greatly exceed the research expenditure of British companies and there may he other countries which are spending more than the United Kingdom on pharmaceutical research.Towards the end of that chapter there is a reference which I should like to quote. Paragraph 211 says:The idea persists that most research which leads to new medical products is done in the universities and that the pharmaceutical industry lives by exploiting other people's inventions. Although the drug industry has unquestionably carried out the commercial exploitation of a number of important medical discoveries made in the universities and similar institutions, it is far from being wholly or even largely dependent on the universities for basic research. The great advances in therapeutics during the past few decades have revolutionised the practice of medicine and it is important to recognise the major part played by the pharmaceutical industry in this.I think I need read no more than that.The list of drugs in present use which have been discovered in university departments, although some are very important, is quite small, probably because research directed to this end is not regarded as one of the prime functions of a university department.Against that background I came to the conclusion, on balance, that there was more than a marginal under-allocation of group "R and D", and that therefore there was substantial ground for complaint that that had been demonstrated on a balance of probability and that there 1610 fore, in all the circumstances, we should consider whether there should be a further inquiry—an inquiry limited to this very narrow aspect of the case, certainly not to reopen the whole issue.
The noble Earl, Lord Listowel, pointed out that the recommendation is so framed that the Select Committee can decide their own procedure, and arc in no way involved in anything except a limited inquiry into this particular aspect of the matter. I have not the least doubt in thinking that whether I was right or wrong in deciding, on the balance of probability, whether there was a substantial ground of complaint, such an inquiry, particularly in view of what my noble friend, Lord Diamond, said, would certainly he in the public interest. I feel that it is an excellent case in which the skill of accountants, in trying to work out some sensible formula—if it can he worked out—should be practised. My Lords, it is for those reasons—and I apologise for taking so long—that I support this Motion.
§ 12.38 p.m.
§ LORD FLETCHER
My Lords, I thought that I had a duty to your Lordships to explain briefly the reasons which led me to a different view from that which has just been expressed by the noble Lord, Lord Stow Hill. If I may say so with great respect to him, nothing that he has said this morning—some of which I have heard before—has led me in any way to change the view which I expressed in the Committee. I felt that it was more incumbent upon me to express the reasons for coming to my conclusion, because the noble Earl, the Chairman of Committees, who took the same view as I did, is clearly inhibited from giving his reasons.
May I begin by saying that in so far as Standing Order 216 is a matter of comment, I take the view that whatever else may be said about the procedure under Standing Order 216 (and I leave open the question whether it requires any amendment) although in some senses it is a constitutional curiosity, it is a very useful piece of constitutional machinery which, in appropriate cases, which are few and far between, enable a subject—and not only a subject, because here we are dealing with a Swiss company—with a legitimate grievance to have that grievance ventilated in this House in a way that, 1611 for some reason, is not available in another place.
Having listened to the arguments for five days, I thought that the final question under Standing Order 216 was whether the Petition disclosed a substantial ground of complaint: that, and that alone. I came to the conclusion that no substantial ground of complaint, or, indeed, any ground of complaint, had been made out by the petitioners that would justify this House in referring the matter at large to a Select Committee, which is all that is contemplated by the Standing Order, or the particular aspect of it which, as the noble Lord pointed out, involves certain procedural difficulties if there were a Select Committee set up.
It became apparent during the course of those five days' argument that a great deal of the criticism made by the Roche company was due to the way in which the Monopolies Commission had operated their inquiry. I took the view that whatever one may think about the Monopolies Act and the way it operates, and if one concedes, as I concede, that there could be some technical objections to the procedure of the Monopolies Commission in general, one has to remember that the Monopolies Commission and their procedure is pursuant to an Act of Parliament. It does not seem to me right to use the opportunity of this Order to call in question the general operations of the Monopolies Act.
I first of all thought, that we were not supposed, in the Special Orders Committee, to go into the merits of the matter, but it was inevitable that counsel on both sides went most deeply into those merits. The longer the case went on I came to the conclusion, although it is probably not appropriate in this limited debate to say so, that when the Order itself came up for decision in this House, I should have no hesitation in supporting it.
§ LORD STOW HILL: The Amendment?
§ LORD FLETCHER
My Lords, I am talking about the order made by the Minister. It also emerges, as Lord Stow Hill has quite frankly said, that the only possible point that could give rise to doubt was whether the Roche Company had allocated an excessive amount on research and development. I take the 1612 view that in the final analysis that is not a matter for judicial decision, but for political determination. I came to the conclusion that even if, following the majority recommendations of the Special Orders Committee, this House were to set up a Select Committee to inquire into that limited aspect of the matter, this would, under a procedure which is very difficult to visualise and which although designed to be limited, inevitably would lead to a very wide and prolonged debate before any Select Committee. Suppose that Select Committee came to a different conclusion from that of the Monopolies Commission as to how much should be spent by the Roche Company on research, why should any of your Lordships think that that conclusion was more weighty or valuable than the conclusion reached by the Monopolies Commission? I do not believe that any of your Lordships would contemplate a state of affairs in which a Select Committee of this House was set up for the purpose of virtually acting as a Court of Appeal over a recommendation of the Monopolies Commission. That would be completely inconsistent with the object of the Standing Order and contrary to the spirit of the Monopolies Act procedure.
There was a case some years ago of the Solus Order which arose in a peripheral form from a Report of the Monopolies Commission, where Standing Order No. 216 served a useful purpose. In that case, a commercial company had a grievance, not about the Monopolies Report in general but on one limited aspect of it. As a result of the Select Committee set up in that case on the recommendation of the Special Orders Committee, a compromise solution was reached between the Minister involved and the commercial company involved which removed that sense of injustice.
In the case we are considering, that of Roche, the final question must be this: granted that it is the case of a very large and successful group of companies, working internationally and supplying drugs throughout the world, supplying a drug which, if taken in isolation, is worth only a fraction of the price charged to the public or to the National Health Service, who is to be the judge, the company or Parliament, as to how much of those fantastic profits should be spent on research and development? Granted the 1613 necessity of a pharmaceutical company of great repute and world-wide renown to apply a large part of their profits on research in order to eliminate any kind of risk comparable to that which occurred in the case of the thalidomide children, one must either decide to let the company have an unfettered discretion as to how much of its funds should be used on research, involving as a consequence inflated charges to the British and other people throughout the world, or some other body must decide the matter.
In this case I came to the conclusion that, with respect to any Select Committee that your Lordships might decide, pursuant to the proposal of the majority, to set up, I very much doubt whether any recommendation of any such Select Committee would command at least the same measure of respect as the decision reached by the Monopolies Commission. Granted there could be differences of opinion, granted that ten different accountants or experts might come to a different conclusion, finally Parliament would have to decide. I could not overlook the political implications of this matter nor the fact that when the Minister's Order was debated in another place it was received with complete enthusiasm by representatives of all three Parties.
When the noble Earl, Lord Limerick, announced in this House that the Minister was proposing to make an Order, it was also received with considerable enthusiasm. I could not overlook the fact that because the first Order has lapsed and a second Order, in similar form, has been laid to repeat it, that Order comes in due course before the House of Commons for approval. At that stage, Members of the House of Commons will have the opportunity, if they so desire, of reading the whole transcript of the five days' evidence of the Special Orders Committee. They will also have the advantage, if there were a Hansard Report—which appears doubtful—of noting what your Lordships' have had to say as a result of your Lordships' discussions of that five-day inquiry brought before the Special Orders Committee.
One must look ahead and visualise, but I have no doubt that the House of Commons over and over again will approve this Order when it comes up for their approval, month after month, if we go through the course suggested by the 1614 majority of having a Select Committee with its inevitable delays and its eventual report and then a decision in this House. One must realise that at that stage this House, which will have to make its final political judgment on this matter as to whether it approves a Minister's order or not, will be familiar with the fact that the order, or similar orders, have been repeatedly approved with great enthusiasm in another place.
Notwithstanding those observations, I still feel that if the subject had any real grievance, your Lordships ought to direct a further inquiry. One of the primary purposes of this Standing Order, however, is to ensure that there has been a full inquiry. It is true that the terms of the Standing Order contemplate departmental inquiries, but no one can imagine that those words exclude an inquiry by the Monopolies Commission which, by definition, is almost more extensive, better informed and probably more authoritative and independent than any departmental inquiry. Therefore no one can say that there have not been the fullest possible inquiries into this matter.
As my noble friend, Lord Stow Hill, was frank enough to say, in so far as certain matters were not brought to the attention of the Monopolies Commission the fault lies with the company, because they withheld their evidence which, as they now allege, or seem to allege, if it were of value might have induced the Monopolies Commission to allow them to charge a somewhat higher price for their particular drugs than they will be allowed to charge. Therefore, although I appreciate that it may be contrary to most precedents for your Lordships to ignore a Majority Report of the Standing Orders Committee, I think that, in the particular circumstances of this case, bearing in mind the narrowness of the majority and bearing in mind—if I may say so, with great respect—the rather half-hearted commendment of the amendment of the original proposal by my noble friend, Lord Stow Hill, I hope that your Lordships will unhesitatingly support the Amendment moved by my noble friend, Lord Diamond.
§ 12.52 p.m.
§ LORD REAY
My Lords, before I come to consider the substance of this case—and I hope to give the main reasons why I voted with the majority in 1615 the Committee on this question—I must protest, and strongly protest, against the fact that last night an Amendment should have been tabled by the Leader of the Opposition the effect of which is to reject this Report of the Special Orders Committee. To table an Amendment of this importance late in the evening—I learned of it only by coincidence before I left here at about 7 o'clock—fora debate scheduled to start the next morning at 11 o'clock, and that day being a Friday when most Peers are not present and will not learn in time to be able to adjust their arrangements, really seems to be an unacceptable practice.
§ LORD SHACKLETON
My Lords, the noble Lord was aware, and so was the House, that there was to be a debate. He was aware—as I think every noble Lord who takes an interest must have been aware—that there was likely to be a Division. The only effect of this Amendment is to give three choices to the House instead of two. I was procedurally advised that it was for the convenience of the House to do it.
§ LORD REAY
I believe that there were certainly no objections and that it was quite in order to do it, but I am not sure that it is correct to say that it was expected that there would be a Division—certainly not so far as I am concerned. I had no knowledge of this until yesterday. That is not a sufficient explanation.
It is not as if this were an ordinary Amendment: it is not even an ordinary wrecking Amendment. It is an Amendment that invites the House to depart from one of its most traditional practices, as the noble Lord, Lord Diamond, said. There has been no occasion that I can trace when a recommendation to this House from the Special Orders Committee to set up a Select Committee has been opposed. Within the last ten years there have been two such recommendations—arising from the Solus Petrol Order and the Welsh Rural Development Order—and they were not opposed. On no occasion that I have heard of, at any rate since the war, has a Report from a Select Committee on an opposed Private Bill been opposed in this House. The House on all these occasions has accepted the Report of the Committee of its own 1616 members to which it delegated the matters for decision.
I could understand a challenge to this tradition. I agreed with a number of points that the noble Lord, Lord Diamond, made about the sovereignty of this House, and so forth, but in that case the House as a whole should have had proper warning that a challenge to what was hitherto accepted practice was being made. I find it difficult to believe that responsible noble Lords opposite could have properly thought out the implications of pressing the Amendment. I must ask them, therefore, to withdraw it.
§ LORD BROWN
My Lords, are we to understand that the noble Lord is suggesting that this House, simply by tradition, must rubber stamp the recommendations of this particular Committee? I, for one, would totally reject such an argument.
§ LORD REAY
I am certainly not suggesting that. If the Amendment had been put down at the beginning of the week I should have had no objection at all to this convention being challenged on this issue to-day. I do not wish to pose as an injured party, but to ask seven Peers to sit in Committee for five days to reach a decision, and then to invite the House without warning and against precedent to reject their Report, is a proposal that I find unsatisfactory. We do not know what other noble Lords might have been here if they had been aware that this challenge was to be made.
It had been my intention to make some observations about various matters of procedure, arising out of our experience on this Committee, where improvements to existing practices could perhaps be introduced. But as the week progressed and the list of speakers grew, particularly towards the end of the week when the great guns of the Opposition were rolled out from their camouflaged positions, it became evident that the issue was narrowing and a certain concentration of resources was required. Accordingly, I shall deal with only one such question because it alone has a bearing on the rest of the discussion, and that is the matter of our terms of reference as set out in Standing Order 216, paragraph 6. It seems plain to me that those terms of reference in no way restrict the Committee from regarding the factors it 1617 should take into account in reaching a decision.
First, as the noble Lord, Lord Stow Hill, pointed out, the Committeeare simply asked to consider whether or not the petitioners have "substantial grounds for complaint". That is unqualified: no type of complaint is excluded. Secondly, sub-paragraph (b) reads:whether the matter has been so dealt with upon a departmental inquiry that further inquiry is unnecessary".Even if that had applied in this case, the phrasing is such that objections to any aspect of the character of that inquiry could have been considered by the Committee. Thirdly, the phrase "to have regard to the other circumstances of the case" amounts to a final permission to the Committee to use their own discretion in picking the criteria according to which their decision should be made. In other words, it seems plain that no considerations are excluded by the Standing Order. They are not restricted to deciding whether the petitioners have already been heard sufficiently fully or fairly, but may consider whether the recommendations are wrong, whether the means by which they are reached are unconvincing, or any other objections.
I did not understand in Committee and I do not understand to-clay the argument of the noble Lord, Lord Fletcher, that it was not our business to question the merits of the Monopolies Commission's Report. If it had been enough to satisfy ourselves that no further inquiry was necessary on the grounds that the Monopolies Commission had gone into the matter at sufficient length, it would hardly have been necessary to sit for five days. Indeed, it would hardly have been necessary to convene the Committee at all. The necessary information could have been gathered in a single visit to the Printed Paper Office.
And what more substantial ground of complaint could the petitioners have than that the recommendations of the Monopolies Commision were wrong, or that they needed further inquiry before the Committee could be satisfied that they were right? In practice, the view that there could be no restrictions on what was considered by the Committee prevailed, because counsel, who held the initiative, were never inhibited from covering whatever ground they chose. To 1618 speculate about what the intentions of Parliament must have been or should have been is a metaphysical exercise, unless these are clearly expressed in Standing Orders. The noble Lord, Lord Fletcher, may be quite right in his opinion that the Special Orders Committee should not act as a court of appeal against recommendations of the Monopolies Commission. It is possible that a majority of this House, or a majority in Parliament, might support him in that view; but if that is correct, if that is Parliament's intention that the Special Orders Committee should not operate in that way, Standing Order 216, paragraph 6, needs to he entirely recast.
In coming to the substance of the case, I should like to make it plain that what I say, even though I was a member of the majority on the Committee, must be taken as being said on my behalf alone. Even our slender majority cannot be shown to have shared any opinion save that expressed in the terms of our Report to this House. The only remark I should like to make about my colleagues as a body—and 1 address this particularly to noble Lords who sit on the Back Benches opposite in case they should feel intimidated by the intellect and solidarity of their own Front Bench—is that the Party opposite had a majority on this Committee. There were four members out of seven of the Party opposite on the Committee and two voted one way and two Voted the other way. I hope that if we arc to have a Division this afternoon noble Lords opposite will show the same admirable disregard for Party considerations and orthodox political reactions, and in the meantime that they will feel strengthened by this reflection to consider this highly complex question with all the impartial attention that it requires.
But there is something more that I need to add by way of introduction. First, as the only other member of the majority, apart from the noble Lord, Lord Stow Hill, who is present this morning, and in the presence of a Government which I can at best expect to be neutral, I shall be speaking at greater length than usual. Secondly, I should state that my own objections to the Monopolies Commission's Report, as I shall show, go wider than the terms of our Report to this House, but I supported the restricted terms of our references to a Select Committee 1619 partly because I could see the value, after our own experiences, of restricting the gaze of a Select Committee to a single issue, and partly because, of all the issues at stake, the question of research costs is the most important.
The claim was made by the company —and it was not contested by the Department—that the effect of the Monopolies Commission's recommendations would be to reduce the revenue of the Roche group from sales in the United Kingdom to one-half of their present value, other things being equal, and, if the prices adopted here were to be followed in other countries, to reduce their world revenue to one quarter of its present value, other things being equal. The magnitude of this effect is explained by the high current dependence of the group on sales of the drugs in question: 70 per cent. of their world turnover in drugs is in Librium and Valium. The proportionately greater effect on world revenue, rather than on domestic revenue, that such price reductions would have is explained by the much less well-known but equally unchallenged fact that prices paid by the National Health Service for these drugs prior to the recent Order were less than one half of the world average price paid, the range being quite wide: Switzerland paying one-third as much as the United Kingdom for Librium and almost twice as much for Valium; the United States paying two and a half times as much for Librium and almost four times as much for Valium.
It is hardly to be expected that other countries would tolerate for long a situation in which the United Kingdom paid one-seventh and one-ninth of the price those countries were paying for the same drugs, and that is the situation that would exist if prices paid by other countries remained as they have been and prices here were those set under the Order. So, on the face of it, there can be no doubt that the future of the groups, with all the research expenditure to which it is committed, must be most seriously threatened by the Governmental Order which followed the Monopolies Commission's Report.
The question therefore is, is this country justified in choosing to reduce from a low level to an almost negligible 1620 level, by comparative international standards, the amount it contributes to Roche's future research? What will it risk foregoing as a consumer if it does so? What harmful national consequences may follow, both with regard to attracting and retaining pharmaceutical investment in this country and with regard to retaliation that can be taken against British companies who follow the same practices? And, finally, do the principles of justice which we like to follow, if not set, justify us in picking out one company from among many in the industry simply to demonstrate that State power and British power is greater than private power and foreign power?
I think it would be true to say that everyone on the Committee felt that by their persistent and even obstinate refusal to disclose certain information, and by the manner with which in their correspondence with the Department they had apparently sought to act as equals with the Department, imposing conditions on discussions, breaking off discussions when those conditions were not met, and so on, the company had provoked the reference to the Monopolies Commision and had provoked much of the aggression which the Monopolies Commission display in their Report towards them.
How much the secretiveness of the company derives from Swiss traditions I should not like to say. How far disclosures fall behind practices in other countries I am not familiar enough with company law to know. But it is a dream these days to imagine that one can on the one hand enjoy the protection of national patent law and the tolerance or support of a purchaser in a monopoly position like the National Health Service, and, on the other hand, refuse to permit the penetration of national Governments into a greater knowledge of one's affairs, and if necessary into some measure of control over one's expenditure.
I should not expect, and I am not certain if I should wish, Roche to get any redress from the Select Committee if, as I hope, a Select Committee is established or any greater generosity from the Government, if they do not appreciate and respond to these demands of our time. Figures hitherto withheld must be produced. Respect, correspondingly, must be shown for any reasonable 1621 request not to publish what the company does not wish to have published. Hitherto at critical moments they have shown themselves unwilling to co-operate. They acted at such moments as if from strength. The challenge was accepted and they were answered in the same style. But, having said that, I think it is legitimate to wonder whether an aggressive response by the Commission to an unconstructive position taken up by Roche is a sufficient way to deal with this complex problem.
About research, I do not wish to add much more to what I and the noble Lord, Lord Stow Hill, have said, except to point out that the principle of protecting the company that does research from the companies that do not is embodied in our patent law, and to remind noble Lords that the Banks Committee concluded that patent protection should be extended, not reduced, from 16 to 20 years, in line with international trends. This recommendation has not, or not yet, been enacted.
They also recommended the repeal of Section 41 of the Patents and Designs Act 1919, the compulsory licence provision, on the grounds, and I quote, that:… the benefit which may accrue to the public through the licensing of an alternative supplier does not outweigh the discouragement to research inherent in a system which may deprive a successful researcher of a part of his expected return.In 1972, the "Neddy" publication on pharmaceuticals, to which the noble Lord. Lord Stow Hill, has referred, urged the Government to implement these recommendations as soon as possible. "Neddy" also urged the Government to recognise that the maintenance of prices of prescription medicines substantially lower in this country than in other countries could, whilst benefiting the National Health Service in the short term, have adverse lone-term effects upon the flow of new products. In particular, they were concerned that research into drugs for diseases common in poorer countries, and for the rarer diseases in richer countries, would be curtailed. My Lords, it is no contribution to this problem to cut drastically the revenues of one of the principal research-based drug companies in the world.
I should like also to add that "Neddy" was alarmed about the abnormally low level of prices paid by the National 1622 Health Service for its pharmaceutical products, not only because of the possible future effects on research. Let me quote this from page 80 in their report:Since the United Kingdom is currently one of the lowest-priced markets for drugs, multinational companies with a choice of production locations are beginning to take the view that the United Kingdom is not a good base for the supply of pharmaceuticals in final form to countries where the price is linked to that in the country of origin. This factor may tend to reduce investment in the United Kingdom if the United Kingdom remains one of the lowest-priced markets for a sufficiently long period to affect investment decisions.May I, in addition, quote this from the same page:Currently pharmaceutical investment in the United Kingdom is continuing to grow. However persistence of the apparent current lack of alignment of prescription medicine prices in the United Kingdom with those in comparable overseas markets, in so far as this affects profitability and the assessment by pharmaceutical companies of their future prospects, could cause a reduction in the share of new investment located in the United Kingdom".So there were various grounds for being disturbed about the level of prices paid by the National Health Service for its medicines even before this Order to reduce them in this instance was made. I do not believe, either, that the Commission justified their conclusion that:Some of the cost figures referred to—in particular those for research and promotion costs"—they were referring to cost figures given by the company—grossly exceed the levels which should be taken into account to arrive at fair prices".On the question of promotion costs, I could understand the view that too much was spent by the industry generally on promotion. But the Commission certainly did not succeed in showing that Roche as a firm spent on promotion out of line with firms of comparable size. Moreover, the whole question of promotion is complicated and badly studied. For one thing, the most expensive element in promotion is the maintenance of a system whereby representatives of large companies visit doctors annually throughout the country. We need to know whether or not this is of benefit to medical practitioners and medical practice.
Nor do I believe that the Commission's brief dismissal of possible cost increases 1623 was sufficient. All the Commission produced on the subject was a footnote, which in its entirety reads:We have no reason to think that cost increases since 1970 should significantly affect the general picture.Let me quote again this from the same "Neddy" publication:The cost of research and development per project and the time taken to develop the marketing of product candidates have increased very substantially in recent years.Moreover, everyone knows that that must be the story, given the intense public concern about toxicity, and the precautions required as a consequence of this concern, and the labour intensive character of highly skilled research.
My Lords, I do not wish to adjudicate. I am not in a position to adjudicate between the conflicting conclusions of separately appointed public bodies, but I must say that it is most difficult to accept the right the Monopolies Commission felt they had to ignore considerations which have been of such concern to others who have been appointed to study the problem. That in itself, I suggest, is sufficient reason to postpone final judgment on the Monopolies Commission's conclusions.
To conclude, I should like to say this. The course which was embarked on when these drugs were first referred to the Monopolies Commission had dangers which I am not certain have yet been appreciated. We have in this country a vital pharmaceutical industry which in recent years has been producing an increasingly favourable balance of payments, and which can certainly expect to enjoy Governmental support in maximising its overseas prices. On the face of it, since the company under attack is Swiss and Switzerland has a small home market, the risk of serious direct retaliation may have seemed insignificant. But it is at least questionable whether, for the sake of a relatively small additional saving on our import bill and to our National Exchequer, we should have opened up a question when we were doing relatively favourably as things were, and when a greater rationalisation might bring others more benefit than it brought ourselves.
Having opened up the question, I think we should pursue it. Counsel for Roche 1624 gave some indication that they hoped the Select Committee might recommend a Royal Commission. It was not up to us as a Committee to recommend this solution to the Select Committee, but for my part I should now welcome this outcome. The extreme complexity of the subject, the areas of ignorance, the clash between public emotion and public interest, the different sources of public emotion—whether originating in a dislike of the idea of waste, including a waste of national resources involved in promotion, or a desire to control the profits of private business—the conflict between this desire to control the profits of private business, on the one hand, and the facts of international competition, on the other: all these combine to produce the formidable problem which will require many years of study, discussion and historical development before a situation is reached in which present demands and future needs are reconciled and in which the need for research is recognised and honestly and rationally supported.
The last thing we should do is what this Amendment requests us to do. For this Amendment invites us to believe that by confirming our willingness to damage a foreign competitor we are somehow doing something of constructive value. Whereas, I respectfully submit, it is the Report itself which, by offering a possibility of a continuing public inquest, alone Rives us the chance of attaining any worthwhile solution to a problem that will in any case be with us for years to come.
§ 1.18 p.m.
§ LORD SAINSBURY
My Lords, having studied the Monopolies Commission Report, and much of the evidence presented to the Special Orders Committee, it seems to me that the principal point of difference between the Commission and Roche is the treatment of research expenditure in relation to pharmaceutical prices. As Chairman of the Committee that spent nearly two and a half years examining the relationship of the pharmaceutical industry with the National Health Service, I am aware of the difficulties inherent in the examination of this problem. Nevertheless, an attempt must be made to answer certain key questions. What is Roche's total research expenditure? Does it seem reasonable or is it seemingly an inflated figure? Is 1625 it in line with accepted norms in the industry? If it is not, are there any special justifications for it?
The Monopolies Commission, despite Roche's unwillingness to provide some essential data, attempted to answer some of these questions before coming to a conclusion. I am aware that counsel for Roche appearing before the Special Orders Committee claimed that the Commission's figures had been shot clown in flames. However, judging by the examples he gave to the Committee I do not consider that this claim is in any way justified. The fact is that the Monopolies Commission estimated in 1970 that Roche Products Limited had allocated more than 20 per cent. of its revenue from the sale of ethical pharmaceuticals in the United Kingdom to the group's research and development expenses. Those figures may be checked from Table 1,'Appendix 5 of the Monopolies Commission Report. Furthermore, the company claims that additional research costs are charged in the inflated transfer prices that the British subsidiary pays to the Swiss parent.
It is quite clear that even if one ignores this additional charge, Roche's research percentage is very much higher than for most other large pharmaceutical companies. In fact, a report by the Little Neddy" for the chemical industry said that a range of 7 to 12 per cent. is one which experience has shown to be inadequate to produce a sufficient flow of new drugs to provide future profits without jeopardising cashflow in the present. Therefore, the difference between Roche's research expenditure and that of comparable companies is truly spectacular. This, in my view, requires special justification.
In the course of our inquiries into the relationship of the pharmaceutical industry with the National Health Service we received some evidence which showed that, while research expenditure under a certain minimum is unlikely to yield significant results, there is also a maximum above which research and development yields diminishing returns. Of course, it is very difficult to determine with absolute certainty where this maximum lies. However, as Roche claims to spend considerably more in relative terms than other companies, it is in my opinion up to Roche to prove that its figures are calculated in an acceptable way and that 1626 its high level of research expenditure is justified. It is up to Roche to prove that there is no duplication or wasted expenditure and that the proportion of its research devoted to the circumvention of existing patents is not unduly high. It had every opportunity, but it failed to do so. It has even refused to reveal its total sales and research bill and to provide the information necessary to test its claims to the Monopolies Commission. This to my mind indicates that the company knew that its claims would be hard to justify.
In view of this, my Lords, I find the conclusions of the Monopolies Commission unchallengable. The Report makes a very strong case for not allowing all of the company's claimed research expenditure to be recouped through high prices. It also shows that the company has been making excessive profits, and there is no reason to suppose that the recommended prices do not make an adequate allowance for justifiable research costs. For these reasons, I strongly support the minority view of the Special Orders Committee. I do not consider that the setting up of a Select Committee to consider the upward adjustment of the prices recommended by the Monopolies Commission is in any way justified and I shall not have the slightest hesitation in supporting the Amendment in the Lobby if a Division is called.
§ 1.26 p.m.
§ LORD DAVIES OF LEEK
My Lords, I am sure that the entire House is grateful to the noble Lord, Lord Sainsbury. We all know that had he so desired, after that important Report of which he was Chairman, he too could have taken about 50 minutes talking to the House. I hope that I shall take my pattern from his speech. I myself have gone through all the minutes of all the days' reports. I have never heard such a pejorative approach to the problem as that put forward by counsel Mr. York when I had the pleasure of listening to, and later the task of reading, the repetitive objections to the Monopolies Commission's findings.
The language was not the kind that I should have expected. As a Celt, if I were trying to persuade noble Lords opposite to vote Socialist, that is the kind of language that I might quite fairly use. But it was not the kind of language I expected in the quiet atmosphere of the 1627 Moses Room. Perhaps it was an appropriate room for them to meet in, with Moses on the wall bringing down the Tablets. But whatever Tablets Moses brought down, his commandments were far better than the ethical approaches of the drug company that counsel was trying to defend. I shall try to prove that as I go along.
The first question is the old cry: should drug companies tell all? I must declare an interest in a drug company, as a director of a very small firm which has also had a technological breakthrough in gastro-enterology. It is so small that everybody would laugh at it; our research and development is a "pipsqueak" amount. But I want to correct an impression given when impressive figures were quoted by the noble Lord, Lord Stow Hill. If he looks at page 23 of The Times Business Supplement of May 4 (and I was delighted that Lord Sainsbury mentioned that the optimum amount is about £120 million of sales) he will see that the largest firms are not necessarily the largest producers of major innovations. America spends ten times as much as Great Britain on research but produces only four times as much in therapeutically significant pharmaceutical compounds. In other words, Great Britain is two and a half times more efficient than the United States of America in its drug research. So let us eradicate the fantastic belief that the bigger the pot of gold you have for research, the more you will benefit mankind.
There is a lot of luck in research. I know of the work that is going on, while we are talking here this afternoon on a special drug. It has been going on for three years with no results whatsoever by first-class qualified biochemists, pharmacological research and other things. This is one of the risks that all companies face. But what the whole House is missing is this. We are dealing with two drugs which have a trade mark name. What the Commission was dealing with was the real basic compounds, chlordiazepoxide and diazepam. One could call them cuckoos if one wished —they could have been packaged up with a lovely picture of a cuckoo on the outside and saying, "This is a Swiss product called 'Cuckoo' and it is a marvel 1628 lous tranquilliser". And let me pay a great tribute. These two drugs which this famous Swiss firm have produced represent the finest tranquillisers in the world, with no teratological effects, so far as we can tell. They have not had the tragedy of the thalidomide distillers people. The side-effects are minimal and the drugs have brought great benefit to millions of people throughout the world.
Nevertheless, we are living in a world where more people stuff bottles of patent medicines down their throats than ever before in the history of mankind. Some of the neurotic approaches of Western man to his problems, as compared with that of Oriental man, have not been cured by the most famous drug companies and the most marvellous tranquillisers. We are trying to be sentimental about this. There were moments when I wanted to take a violin in to the Moses Room when I heard the appeal. We were supposed to be ruining Roche Products by asking for these reductions. What the Committee seemed to have missed while I sat in there was the fact that we were asking for reductions on the price as it was in 1970. The price now in 1973 is higher, and consequently the reductions are much less than one would have expected. The United States spends ten times more than Britain on drug research. Nevertheless, we are two and a half times' more efficient than that country in our research.
§ LORD BALOGH
My Lords, does the noble Lord realise that American expenditure is so high because American salaries, expressed in exchange rates at present, are three and a half times' ours?
LORD DAVIES or LEEK
Certainly, I know that. But the noble Lord has missed the point. It does not matter if it costs ten times as much, our compound output and our results of research are two and a half times better than those of the United States. That is the nub of the point. We are not concerned with what we pay to our Ph.D.s, immunologists, pharmacologists and so on. There is no need to argue further about that; it is a fact.
My next point is that there is no tax on research and development. So this nation is also subsidising research in another way. The income tax authorities do not draw any inland revenue on sums used for research and development. I 1629 could bore the House with masses of quotations, and I regret that some people have done this, but all the information is here in the Report for those who wish to study it. I regret that this is such a short debate, on a Friday. The Report gives details of the, research; it gives the number of doctors visited—more than 23,000 in Britain. It is all in the Report, as are details of the millions spent just in promoting a drug. "R and D" are two very difficult things. The world has not yet discovered a reliable method of deciding when research returns from a certain drug should stop. These are the horns of the dilemma on which we are impaled, and it is difficult to decide, particularly when a firm is so thick-skinned that it is not prepared to give essential data to the Government.
Paragraph 156 of the Monopolies Commission Report—which was quoted by the noble Lord who spoke so briefly but excellently—shows that essential data was not supplied. But the Monopolies Commission, doing its best without the data, arrived at the notional idea. When comments were made about Britain's approach to this matter Doctor Kenner was quoted. He used the kind of language that I would use on certain occasions when I felt in the mood. A letter from The Times of May 3 was quoted in which the Professor of Organic Chemistry at Liverpool University saidThe name of the game in Britain is apparently Soak the foreigner but don't pay his bills '".He was so delighted with that phrase that he quoted it twice on the same page.
The implication is that the British people set out to soak the foreigner. The poor people who are taking these drugs and tranquillisers are sometimes psychotics, sometimes in mental homes. They are taking the drugs only because they are recommended by the medical practitioners. They are not taking them to "soak the foreigner". They, if they had enough sense to know what they were doing, would wish they did not have to take the drugs. One must take into account the social cost of the sick. The two drugs with which we are dealing make up 70 per cent. of all Roche's sales. We are asking that revenue from those two drugs be used for research for an undetermined period. That means that 1630 we are asking the sick and others to subsidise research. There is something wrong in this. I wish we could find an easy answer but we shall not find it by sending this matter to another Committee. There is no guarantee—and that was intimated by the Committee—that even when that new Committee meets it will get all the necessary information from Roche. It therefore behoves us, I think, to support the amendment put down by my noble friends.
There are seven faults in Roche's reasoning, as was beautifully pointed out by Professor Hart. You may remember their magnificent advertisement: £44,000 has been spent on it up to now. Dr. Marks, the head of the firm, as quoted in the papers last week, said that this would do good. He said it would give great publicity and increase the profits. I am not concerned with increasing the profits; I am concerned with getting a fair deal for Roche and for the sick and a fair deal for research in therapeutics throughout the world.
We are threatened that if they do not succeeed here they will take the matter to Brussels and the European Commission. It would be a wiser approach for the European drug people to get together to see how this dilemma of research can be solved. It is because I see no hope in the suggestion of the Committee, put forward by a majority of only one vote, that I shall go into the lobbies, if they divide, with my noble friends.
Professor Start said that the advertisement of Hoffmann-La Roche which was published in The Times could be faulted on two grounds. It implies that expansion can only be financed retrospectively out of ploughed-back earnings. This is false. Well-managed companies will often finance expansion through debt issues and previously earned and taxed profits, and these are not the only resources available. A much more serious point is the fact that many lay readers of the Roche statement will he given the impression that Roche must pay for its research effort out of earnings after tax. This is quite false, whatever form of financing is employed, since research and development costs are deductible for tax purposes. Indeed, Sir Keith Joseph argues that as a result of this deductibility the British taxpayer has financed at least 1631 40 per cent. of Roche's research and development costs attributable to the sales of its products in this country.
I am coming to an end because, despite the fact that I should like to make other answers and develop my argument, it would be impinging on the tolerance of this House on a Friday. But I must say that I am tired of this country being pushed around by multi-national firms, and I warn this House, having been in the other place and here for over 28 years, that the power of Parliament should be retained. The charisma of Britain is being lost by this malaise, this sudden rush into losing our sovereignty and other things. I do not want a foolish sovereignty, but I assure this House that if this Motion were to go through and this arcane Committee were set up, and if my noble friend's Amendment is not accepted, we shall lose some of the sovereignty that the British Parliament should retain.
§ 1.40 p.m.
§ LORD BALOGH
My Lords, this case, as my noble friend, Lord Diamond explained, has a special character. I can add another aspect to that special character. It is the first time that I am able to correct a pronunciation in this House. It is not Roche to rhyme with "cockroach". There are three aspects of this case: there is the legal, the political and the economic. I have no sort of claim on the first two, but I was very interested by Lord Fletcher's argument on the political aspect of the situation. So far as the legal aspect is concerned, I should have thought—I am sure I can be corrected here—that if evidence which could and should have been submitted to the Monopolies Commission has not been submitted, but has been refused, then to say that new evidence has come to light on the basis of which the case should be reviewed is obviously false. I also want to say, though without reading the last 10 per cent. of the Report of the Monopolies Commission which has not already been read out, that the figures so far as the dividends and profits are concerned read as follows on page 79:
I will not animadvert on this any further.
"Profit for the year £6,598,000 Dividend £3,524,000"
My Lords, may I just say now what I should have said when that question was put before? May I give my authority for the statement I made? It may be right or it may be wrong, but I should put before the House why the figure of 2 per cent. was mentioned. It came from Mr. York's argument on the first day. He said:We plough virtually everything back into our business. We have never distributed to our shareholders, for more than 20 years, as much as 2 per cent. of our turnover. Our figure is often -5".It may be right or it may be wrong.
The noble Lord referred to Appendix 7, in which dividends are referred to as £3.524,000, on a profit of £6,598,000. The only information I got from the Report was those figures taken together with paragraph 207, which treats that return as a return presented on behalf of the company showing that it earned 6 per cent. on sales, obviously saying that in a critical sense. I did not myself think—I may be wrong or I may be right; the noble Lord knows much more about it than I—that that clinched the matter. I do not know what £.31 million is on the authorised or issued capital. I had counsel's statement before me and I assumed that this was right-2 per cent. on turnover for 20 years and often less. I apologise for interruption the noble Lord. I should have given that answer before.
§ LORD BALOGH
My Lords, the noble Lord, I fear, ought to stick to the juridical aspect of the matter. The figures which he gave, of course, include profits. The bigger the profits, the smaller the distribution; but that does not mean that on capital engaged, which is the important thing, one cannot make 50, 60, 80 or 100 per cent. I shall be one of those shoemakers who stick to my last, and therefore I just want to say a few things about the Monopolies Commission Report, and the meaningfulness of our Special Committee's recommendation.
I have always been against the Monopolies Commission. I think it is a clumsy sort of blunderbuss, which hits in an unexpected way. It is not a generalised policy. It has seemed to me just recently that the Government have learned that a price policy is the proper way to deal with these matters, not singling out a few special cases and then bringing the State's power down like a ton of bricks. I also 1633 want to say that I unhesitatingly accept that very large profits must be made on successful drugs, exactly in the same way as I unhesitatingly accepted in a previous campaign I led on oil that the oil companies must make very large profits, because otherwise the unsuccessful ventures cannot be covered either in oil and in drugs.
Of course, one must ask oneself how much the profit should be. I am afraid, however one looks at it—my noble Friend, Lord Sainsbury, expressed it far better than I ever could—that this is obviously not an objective but a subjective matter depending on yourself, whether you are timid, not timid, expanding, wishing to expand or whether you want to keep your place. It is a matter which varies from firm to firm and also from time to time. It is not an objective affair. It depends entirely on judgments of extreme complexity. The one point which Lord Sainsbury has contributed decisively to this debate is that if it can be shown that the increase in expenditure yields less and less, at that point there is an objective marker. But, of course, Roche have not come forward with this idea at all.
Our Committee says that the inquiry should be limited to adequate provisions. What is adequate? Who will tell us what is adequate? Adequate for Mr. Getty is clearly very different from what is adequate for me. But I have other advantages. This means, of course, that the Committee decided that the Monopolies Commission's recommendation was wrong. It seems to me extraordinary that five noble Lords should get together and say that there is a grievance. To me this is a somewhat esoteric sight. None of them has ever studied industry. Perhaps they have studied law and all sorts of other aspects. But it seems rather quaint that five noble Lords should declare that a very complicated economic analysis by the Monopolies Commission, which has two of the most eminent industrial economists among its members, is wrong.
Another matter that I find extraordinary is that, apparently, the Committee accepted that, whatever the research expenditure is, it should be put on to the price. I have never heard such a thing in my whole life. This means that we accept that the whole of the structure is monopoly. But if one accepts that it is 1634 monopoly, it is up to the Government to control it, because there is no objective market force to control the price. That is the great difference between an oligopolistic or monopolistic price formation system and an ordinary system of competitive price. In this there is no such thing as a competitive price.
Finally, though this ought not to be stressed, what my noble friend Lord Davies of Leek said has a great importance; that so far as we can make out only one-twentieth of the total research of this company takes place in this country. If we were to alter the price recommended by the Monopolies Commission, not only should be place a burden on the balance of payments but we should create a new and very dangerous precedent on the basis of which much more burden could be laid by one company or another on the unsuspecting British Government and public.
§ 1.54 p.m.
THE EARL OF HALSBURY
My Lords, I support the Motion before the House and I oppose the Amendment. I was once in the pharmaceutical industry and had to take in my stride all the problems that the noble Lord, Lord Davies of Leek, and the noble Lord, Lord Diamond, say cannot be solved. We had to do it on a day-to-day basis. I can assure the noble Lord, Lord Diamond, who pirouetted with his usual elegance round the 12 accountants who could not agree on how to recover essential research charges, that the difficulties are all imaginary. It only turns on where one draws certain imaginary lines through the organisation: they are not real lines. Everything ultimately turns on cash flow.
I have no connection with the Roche company, although some of their directors and scientific staff are friends of mine. However, I am informed that the reason that the parent company was somewhat uninformative in its evidence to the Monopolies Commission was based on a difficulty, and not just obstinacy. Swiss company law and Swiss commercial practice arc not the same as in this country. Companies are not required to disclose a lot of things to shareholders that would be the case with a British company. I understand that the president of Roche was prepared to provide this information on a confidential basis, but, 1635 possibly wisely, the Monopolies Commission decided not to receive it on a confidential basis. There arose deadlock. I believe that it was not due to any lack of goodwill on the part of Roche. The company felt that it could not disclose to the machinery of government and administration in a foreign country information that it was not accustomed to give to its own shareholders.
I think there is some danger of a little folie de grandeur in the attitudes we adopt towards this matter. We do not cut a big figure in the pharmaceutical world. Our consumption is about 4 per cent. of the world's consumption, and 64 per cent. of that reaches us through the subsidiaries of foreign companies. We represent about 21 per cent. of the market for those who supply us with 64 per cent. of what we need. In this connection I should like to emphasise the points made by the noble Lord, Lord Braye, that we are in great danger of cutting off our noses to spite our faces, because these companies can easily settle in Eire. One can run a British business in Eire quite well and outside the jurisdiction of anything like the Monopolies Commission.
To put our own pharmaceutical industry into proportion, I could mention at least three houses—Hoffmann-La Roche, Ceiba Geigy, and Merck in America—which are larger, each individually, than the whole of the British pharmaceutical industry. This shows up in the Monopolies Commission's report where Hoffmann's research expenditure is given as £30 million, whereas the United Kingdom research expenditure is little more than half that, £22 million. Its subsidiary company, Roche Products, has been a good citizen in this country. It has supplied us with Valium and Librium, which are major scientific breakthroughs. It has supplied us for a long time past at prices below world levels, out of its cash flow. It has spent £10 million on a factory in Ayrshire which gives employment to our people. That factory will export 61 per cent. of the world's requirement of vitamin B' and pantothenic acid. I reckon it a good citizen which ought to have a certain amount of support and not to be nagged at.
It should be remembered that if that 64 per cent. upon which we are de 1636 pendent were translated in money terms, if we did not have these foreign firms manufacturing in this country we should throw a burden of £180 million a year on to our imports. Do we really want to do that by affronting one of the distinguished members of the international pharmaceutical community?
Had there been a monopoly commissioner instead of a Monopolies Commission, and had it been me, I think I should have written my report very briefly. I should have said, first, that as we were buying Valium below world prices there was no major cause for complaint; secondly, that this point about whether the research expenditure was allowable or not for tax when shown separately, but allowable when lumped in with raw material prices so that raw material prices look pretty silly, was due to our own silly tax system; and lastly, that if the money to build the factories had not been provided out of profits it would have had to be provided from somewhere else or foregone. The merits or demerits of doing this were no business of mine.
There is a lot of confused thinking about the way in which companies set out their budgetary forecasts and precalculate their profits. Governments decide on their expenditure first and then look for taxes to meet it afterwards; a commercial company proceeds in the reverse sense. One starts off with the sales forecasts for the coming year, volume and price, but usually based upon notional increments in the previous year's selling based on trends. Then one looks at expenditure. It does not matter how the expenditure is classified, and one ends up with what looks like a net profit. Then one reviews that from the standpoint of cash flow. One has to decide whether it is sufficient to finance the growth of the business, remembering that every growing business needs an injection of working capital in proportion to the scale of the business and an injection of fixed capital in proportion to the difference between capital expenditure and depreciation allowances; otherwise, one merely sags downhill. The matter then gets pushed round the decision loop—a sort of feedback mechanism—and eventually up comes a model for the coming year, which everybody adopts as the target.
1637 Section 220(b) of the Monopolies Commission Report announces a doctrine which makes my hair stand on end from the standpoint of its universal applicability. I should like to quote it in two parts, with a slight interruption in the middle. What they say is:Although the amount the manufacturer chooses to spend on research is a matter for his own judgment, it is open to question whether all such expenditure should be regarded as properly recoverable from current sales whatever the circumstances.If it is not recoverable from sales, what is it recoverable from? Is it to be done on borrowed money and then capitalised? Everybody who has done that has gone bust. The latest example of it is Rolls-Royce.
§ LORD DIAMOND
May I interrupt the noble Lord to say that perhaps the noble Earl did not notice that the accent is on "current". The only question is whether it is spread on current sales or spread forward on current and future sales.
THE EARL OF HALSBURY
In that case it will rank as a creditor and will have to be paid off. That is what Rolls-Royce found. This is what Rolls-Royce did. They carried their research expenditure forward so that they were showing a notional profit in the accounts and they suddenly ran out of cash to pay the dividends with and had to borrow, and they went into liquidation in due course.
Now I continue my quotation from Section 220(b):The proposition, indeed, becomes untenable if funds which become available from excessive profits are used to expand the scale of research, with the result that current research expenditure is pushed to exceptionally high levels and continually increased.That is the second way to go insolvent, my Lords. I cannot imagine that the Director of Research at Hoffman-La Roche, finding himself in possession of a surplus, is allowed, without reference to his colleagues on the board, to spend it on research, just because research is research, without any attention to the merits of the various research targets. There are always more targets coming forward than the money available to fill them.
I have had to do these jobs in practice and I know it. I could always postulate 1638 a research ten times as costly as anything that was actually going on. Although the noble Lord, Lord Davies of Leek, tells me I cannot solve this problem, 1 can—and do—on a day-to-day basis. The mere fact that Hoffmann-La Roche is prosperous would indicate that this is not the way it goes about its business. To suggest that this is a sort of model with which people should comply—as I said before, it makes my hair stand on end from a purely commercial point of view.
What one does from the accountancy point of view is to net the revenues by subtracting all discounts, subtract all the expenses and arrive at the net profit which is expressed as a per cent. return on the capital employed in the business. One cannot, in some cases, do that, because it has been the policy of Hoffmann-Roche for years to write its fixed assets down to nil, so one does not know what they are worth, although an insurance value is given in the report. But does it matter? If its fixed assets are written down to zero, it merely means that it puts itself in a position to scrap something and to rebuild a more modern successor at any moment of its pleasing. I hope it will not be to scrap Roche Products in this country and to rebuild them in Eire, hut it is in a position to do so. I wish that all the companies of which I am a director were in the same position. Over and over again there is something surviving from the 19th century that I should dearly love to pull down, if only the money were there to do it with.
The implied way in which the Monopolies Commission have gone to work in their thinking is that out of this balance of cash flow they subtract one item—research—and they say that this shows a gross profit which is much too large and that therefore the research item is much too large. That is a fantastic argument. Why not subtract the wages bill and say that that is much too large? Or the materials bill, and say that that is too large? Why not add the whole lot together and say that the total expenditure of the company is much too large? What is it supposed that hoards of directors are always doing, saying that their expenses are much too large and cutting down on them? This is straight commercial thinking—
§ LORD DAVIES OF LEEK
My Lords, I apologise, but is the noble Earl quite sure that it is really that? Because the nub of the argument is that La Roche is asking for the same contribution for research per kilogram that it gets from any other country in the world. In fact, everywhere it sells it expects the same share per kilogram. That is part of the argument. I think it is fair.
THE EARL OF HALSBURY
My Lords, if the noble Lord will allow me I will deal with that point a little later.
I come now to this sort of purely rhetorical question: what can one afford to spend on research? There is no answer to this question, but I will provide a notional answer which is the answer one uses in practice. One can afford to spend on research as much as one's competitors, provided it is done as effectively, because it goes on to the price of the product. If one is more cost/effective than one's competitors, one can afford to spend a little more. One has to judge whether £1 of research will produce £10 of revenue in the future more than one's competitors. Somehow, that decision gets taken too.
The concept of itemising research cost over products when one is developing a large range of products, of which one knows that only a few will be successful, is quite impossible. There are suggestions throughout the Report that this should be done. Who pays for the losers? If the research on a particular product was all that one was allowed to recover out of sales, who would pay for the losers? They must come out of profits. But the profits must be big. Of course the winners must pay for the losers.
There is more to it than that. If one is working on an expanding scale one has to assume that every winner was once upon a time financed by a predecessor and during the course of its career it will be providing the finance for its successor, even though one cannot specify which of the various research projects to which it is contributing that will be. Naturally, on an expanding scale a given winner will have to bear essential research charges heavier than those borne by its predecessor, and its successor will bear heavier ones too. Surely the right thing to do is to concentrate research on to where it is highly cost/effective.
1640 In so far as the research expenditure at Hoffmann-La Roche is a higher proportion of turnover than the average, surely they are more than average cost/effective. I simply cannot follow the argument which says that because they tackle more projects they are on the law of diminishing returns. We should be grateful to them for a number of lessons, if we are willing to learn. They taught us how not to be a lame duck. They taught us to achieve a cash flow which relieves the pressure on the markets—pressure which drives up interest rates if the money has to be borrowed instead. They have given us a lesson in cost/effectiveness. Another thing we have to learn is not to put anybody who tries to do anything into the dilemma of coming under one of two accusations: either that he is a lame duck, if he does not make any money, or that he is caught by the Monopolies Commission if he does, and is told that he is making too much. What is too much? How long is a piece of string?
Why should we not let people make hay while the sun shines, if they are deserving cases and we shall get some side-effect benefits out of them? The trouble with Reports of bodies like the Monopolies Commission is that they never see the problem as a whole. They are not concerned with cash-flow problems and reinvestment. They are not concerned with the fact that Roche Products in this country was probably running at a loss for the decade 1950 to 1960, when it was in a very thin state. All this disappears, yet the commercial man remembers it.
When either public folly or a long motor journey have tired me to the point where the usual nightcap will not send me to sleep, I occasionally take a Valium tablet. What does it cost me to buy a bottle of 100? I cannot remember, but I know what Roche Products get for it when they supply it. For 100 Valium they get 21p. That is 0.2 of a penny per dose. One-fifth of a penny for a good night's sleep, when one wakes up feeling fresh in the morning—does anybody really grudge it them? Compare the price of Aspro, which is 30p for the same quantity; of Anadin, which is 34p and Alka Seltzer, which is 60p. If 60p is a fair price for Alka Seltzer, would something a little higher than 21p perhaps be a fair price for Valium? It seems to be 1641 a pretty derisory sum for one night's sleep. Even if it was the price that it was in 1970, which was four times that—83—it would still be a fairly low price.
I do not want to trespass on the time of the House—
§ LORD DAVIES OF LEEK: Oh!
THE EARL OF HALSBURY
—but it seems to me that we are rather like Kipling's last story in the Jungle Book, "The Butterfly that Stamped". You will remember that King Solomon and Queen Balkis were highly amused at the butterfly going through the motions of stamping and uttering threats all round. Our attitudes are in somewhat marked contrast to the laconic comments of the the president of Hoffman La Roche who, despite all our commotion, sees no reason to modify his policies. That is exactly the sort of thing that William Tell used to tell Gessler at a time when the Swiss were showing the Austrian Hapsburgs out of Switzerland.
p>I believe that we have a lot to learn about this subject I remember a conversation which I had with Professor Stowell, who was both President of the Union of Pure and Applied Chemistry on the one hand, and on the other President of the Saundo Company. I asked him what his research policy was and he told me that his policy was to tackle something very difficult and do it very well. Then, if he made a success of it, it was not worth while anyone else's trying to repeat his work and he could get his price all over the world. That sort of robust ambition is something which we might well emulate. I do not like to see us nagging at the 64 per cent. of those who supply us when we are only 2-1 per cent. of their market. We are in a very sensitive position. I am glad to see the noble Lord. Lord Braye, back in his place because I am hammering home some of the points he made in his speech.
§ 2.14 p.m.
§ LORD WELLS-PESTELL
My Lords, it would never have occurred to me, if I may say so to the noble Earl, Lord Helsbury, to take Alka Seltzer for a good night's sleep. I do not see how one can equate Alka Seltzer with Valium, which he clearly knows much more about than I do.
§ LORD WELLS-PESTELL
My Lords, then I do not see how one can make a comparable price for them.
I rise because I want to support the Amendment which stands in the name of my noble friend Lord Diamond, but not because my arm has been twisted by anyone on my Front Bench. In fact, when I went into the Chief Whip's office to put my name down to speak to-day, I found I was the first and only name at that time; the others seem to have crept in since then. I should be the last to question the rightful use of Standing Order 216, because clearly it is a Standing Order of supreme importance not only to this House but to people who have recourse to it in one way or another, but what I do question—and I will not go into this point at any great length, as my noble friend Lord Fletcher dealt with it rather more effectively than I can —is the use of Standing Order 216 in this particular matter, having regard to the long, deep and involved hearing which the Monopolies Commission gave to this issue which resulted in the Order which has been before both Houses of Parliament. The use of Standing Order 216 to call in question a decision of the Monopolies Commission which has been set up by both Houses of Parliament is neither appropriate nor desirable in this instance.
From my understanding of the situation, the Monopolies Commission thoroughly explored this matter over 18 months and I cannot but feel that during those 18 months and in the number of sittings which they held they became much more informed of the position—and I say this with the greatest respect—than the Special Orders Committee could have clone in five days. I think the Commission explored the position from the Roche point of view as far as that company or combine would allow them to do so. The firm of Roche had every opportunity to deal with the matter when it was before the Monopolies Commission, and if it had been more frank about its financial position the situation which we are debating to-day would not have arisen.
I know the noble Earl, Lord Halsbury. said that the procedure in Switzerland 1643 relating to the publication or disclosure of company's affairs differs vastly from that in this country, but I cannot accept that Swiss firms do not know what is required of them when they are operating in other countries. They must have known that in appearing before the Monopolies Commission a full disclosure of the financial situation was absolutely necessary.
I do not deny that Librium and Valium are perhaps two of the most successful drugs that we have had for some considerable time. I merely want to concern myself with the recommendation of the Special Orders Committee in relation to setting up a Select Committee to consider making adequate provision for a proper allocation of group research and development. I do not want to deal with percentages I would rather deal in figures. I should like to quote from the Under-Secretary of State for Trade and Industry, Mr. Peter Emery, when he introduced this Regulation of Prices (Tranquillising Drugs) Order in another place on May 3 last. He said:The starting point was the massive discrepancy between the manufacturing costs of the active ingredients of the products"—Librium and Valium——apprmimately £9 and £20 per kilo respectively—ard the transfer prices paid by the United Kingdom company to the Group—over £360 and £900 per kilo."—[OFFICIAL REPORT, Commons, col. 1604.]In other words, the manufacturing cost of Librium was £9 and was sold to the Roche Product Company in this country at £360 per kilo.
TILE EARL OF HALSBURY
My Lords, the noble Lord has not taken my point. This was because the Inland Revenue in this country would not accept the full central research charge and directed that they were prepared to ignore it if it was added to the price of the material.
§ LORD WELLS-PESTELL
My Lords, I take the noble Earl's point, but it does not alter the fact that it is sold to the Roche Products (United Kingdom) company at 40 times more than the cost of production in the case of Librium and 45 times more than the cost in the case of Valium. The Sunday Times, on May 27, 1973—and I must be frank with your Lordships that I have relied more on the national Press than perhaps I have relied 1644 on other sources, because I wanted figures and not percentages—said the respective drugs sold in the United Kingdom at £655 per kilo for Librium and £1,260 per kilo for Valium. These are drugs that started at £9 and £20 per kilo. I can well understand a combine not wanting to disclose its financial accounts as in my view it might well result in a kind of indecent exposure. I think the Government acted with commendable speed—and we ought to say so, particularly those of us who from time to time presume to criticise them—following the Report of the Monopolies Commission, when they recommended a substantial reduction in the prices of these two drugs charged by Roche. The Monopolies Commission's work was very thorough, and I believe that the seven people who were responsible for the Report produced a very fine one indeed.
We know that there have been previous difficulties with Roche over the -prices of Librium and Valium. In the 1960s a substantial amount was repaid to the Department of Health and Social Security in respect of overpricing. This is nothing new so far as this combine is concerned. When the time came in 1970 for Roche to to provide information to the Department of Health and Social Security, it refused to do so voluntarily. A statutory direction had to be issued to compel it, and the combine finally complied in 1971. It seems that there has always been difficulty in finding out the true position of the Roche combine.
In conclusion, 1 may say that the Union Bank of Switzerland put the turnover of the group at 5,800 million Swiss francs in 1971, which in round figures equals about £750 million sterling. The president of the group is reported to have stated that research expenditure is equal to about 15 per cent. of turnover. An element of secrecy has always been present when dealing with this concern, and the United Kingdom group, Roche Products, told the Monopolies Commission that it is not possible to obtain exact information concerning ownership and control. I think it would be a mistake to adopt the recommendation of the Special Orders Committee. I say this with some regret, because there is perhaps not a more important Standing Order than No. 216 in your Lordships' House. It is one that we must guard very carefully, although in 1645 matters of this kind in the future we may have to do something to prevent a situation like this from arising again.
§ 2.24 p.m.
§ LORD BROWN
My Lords, I am grateful to my noble friend, Lord WellsPestell, for reiterating the figures; it saves me from doing so, and I will not take up the time of the House. They are pretty horrifying. I will make one point: when the firm of Roche increased the price of the active ingredients by figures of, respectively, 4,000 and 4,500 per cent. before charging them to this country, they were indulging in a form of tax evasion of a very serious kind, as the profits arising from those increases of transfer prices accrued in Switzerland, where they were subject to Swiss tax, instead of accruing in this country where they should probably have accrued and been subject to British tax. The point has not been made, but that is all I have to say about the figures.
I listened to my noble and learned friend Lord Stow Hill, and the noble Earl, Lord Halsbury, and with great respect, when they were arguing about the percentage of money that should be spent on research. Those arguments are largely irrelevant to the question, as we are not a tribunal or a body to decide how much is an appropriate amount for research. The noble Earl, Lord Halsbury, was saying that even if this company in Switzerland had increased their research costs by fifty times more than they are at present, the arguments he adduced would still have applied, as he did not seek in any way to limit the amount they spent; and that whatever they decided should be spent, the British public would have to pay accordingly. It seemed to me a most extraordinary argument. We have a Monopolies Commission to protect the British public against this form of exploitation, and in their wisdom they have come to certain conclusions.
I want to get on to rather different arguments, as it seemed to me that the case which Roche really had to press with the Committee was not concerned with re-arguing about the Monopolies Commission, but, if possible, to display the fact that the Commission had not done their job properly or legally. I should like to take up some of the argu 1646 ments Roche used, as I am one of those who spent the early hours of this morning reading the whole of the evidence before the Committee. It accused the Monopolies Committee of being a creature of the Department of Health and Social Security.
The language of the company's counsel was highly impertinent and abusive throughout. He said that the D.H.S.S. eventually pay for it so they employ their creatures to get on to an investigation, their creatures do what they are told and put the price up. This is scurrilous comment. The fact is that, as anybody who has any familiarity with procedures in the Board of Trade (as it was) knows very well, any President who gets anywhere near the Monopolies Commission during his term of office is warned by all his civil servants to keep away. They are separate bodies and the legal considerations in the Commission and the decisions of the President or the Secretary of State subsequent to the Commission issuing their Report are entirely separate things. I believe that the weakest form of argument that one can possibly employ in any situation is to pour scorn on the integrity of one's opponent. That is what Roche were doing in this case, much to the detriment of its own status, I believe.
§ LORD BROWN
That is to separate the arguments put forward by counsel employed by Roche from the opinions of Roche. I do not know where we stand on the matter. It was counsel, but I take it that Roche takes responsibility for what its counsel said in its defence. It would be a very peculiar situation if it did not.
The secondary accusation was that there was no proper consultation. I do not know whether the House is aware that since 1968 the Government have followed a consistent practice of refusing the interests concerned the opportunity of commenting on the findings of the Monopolies Commission. Your Lordships may ask why, and I will tell you: because previous experience has shown that the almost invariable result was a rehearsing of the evidence and the arguments that had already been: considered by the 1647 Monopolies Commission. This is an inevitable consequence of offering to discuss the results with the party concerned. Thus since 1968 Ministers have simply discussed the means of implementing the findings with the parties involved, except in cases where the Minister seeks to follow actions different from the Commission's recommendations.
Thus, consultation about implementation is important, as it usually has led to voluntary co-operation on the part of the companies involved in implementing the Minister's decisions. No order is thus required. For example, in the Petrol Station Order, some years back, 36 companies co-operated voluntarily. No order was made against them. One refused and, as your noble Lords know, the matter had to come before this House. Roche not only refused voluntary co-operation with the Commission in supplying information, but refused to discuss price reductions and repayments or voluntary co-operation with the Minister until the D.T.I. had undertaken to change the United Kingdom patent law. It is effrontery for a British company, let alone a foreign company, to try to make bargains with a British Government Ministry to change the law before it will enter into discussion, very properly, over prices and the rest.
The Minister rightly refused the opportunity to Roche of reopening the findings of the Monopolies Commission. He was right. Had he done otherwise he would in the future have had to give to every company whose affairs came before the Monopolies Commission a similar right to reopen the case and discuss it all over again. What Roche was seeking was procedural changes—changes in the Monopolies Act—and they have no right to do that.
Then there was the accusation of too much speed: "indecent haste", was the term used of the action of the Secretary of State. The Secretary of State had the Order for two months and he then laid it before Parliament. If that is indecent speed, it is justified by the fact that every day he delayed placing the Order and getting it passed was costing this country £10,000. It is a consideration for any Minister to delay that and then to have to face Parliament, having wasted 1648 £10,000 for every day that he delayed it. Roche also sought to argue that the Order should have been laid in draft form so that they could discuss it. The company had to retreat on that point, because it is inconsistent with the law.
It claimed that it had right of appeal through the procedure of this House and the Select Committee. The Monopolies Act does not give right of appeal. If it had been intended that it should, it would have been explicit in the Act. Are we now to turn Select Committee procedure into an appeals procedure? That is what is being suggested—that the whole matter should be re-explored before a Committee which has no accountants, economists, or statisticians in its service. which has to hear everything on evidence, and which is unable to keep anything confidential—because it is very much in the interests of the parties who are presenting their case that it should sometimes be kept confidential. The Select Committee will not be able to do any of that and it will he deprived of some evidence as a result.
To send this matter to a Select Committee is not consistent with our procedure or our law. The Chairman of the Special Orders Committee, in introducing this subject, referred to the fact that the Select Committee was designed as a means of protecting the interests of the citizen and the individual. He was right: that is what it is for. The whole business is not seeking to preserve the rights of the individual: this is a corporate body, a commercial company, which is quite a different matter. In turning down the sending of this matter to a Select Committee and in accepting the Amendment we are not striking a blow against the rights of the individual or the citizen; we are dealing in a proper way with the interests of a commercial company and defending the British subject from being grossly overcharged for a drug which is extremely valuable.
The Monopolies Commission who have sat on this matter have a great deal of relative experience of hearing a whole range of cases in the past. If we send this question to a Select Committee, it will have no experience whatever and it is likely that the witnesses will have very little experience either. Anyone who examines a matter of this kind must make 1649 a subjective decision; one cannot make an objective decision about the proper level of research to load on to the price of an object like a drug. It is a subjective decision that must be made on the basis of wide and prolonged experience. There is only one body in this country which has that wide and prolonged experience, and that is the Monopolies Commission.
If anyone wants to appeal against the way in which the Monopolies Commission have dealt with this matter, it is an issue for the courts. He has the right to complain to the High Court that the Monopolies Commission have failed to carry out the legislation under which they act, and that is the course open to Roche Products. There is no denial of the right of appeal; that is its way of appeal. It has not the right to reopen the whole case with this body.
Much of the argument that has been put to-day concerning the amount of money that should be spent on research and thus added to the price is not a matter that we can debate in this House. We are concerned with procedure here, and the procedure which has been suggested—of sending this matter to a Select Committee—can have only one result: we shall be asking a Select Committee to do a job which it will not be capable of doing nearly as well as the body which was set up for this purpose by the Monopolies Act.
Roche have not only a bad case, but a case which it spoiled further by the intransigence which it displayed by its refusal to disclose the facts which were required to support its case—if it had one—and by the abuse which it has heaped on civil servants, on the Secretary of State and on our legal procedure. I think that it will have to accept the decisions of the Monopolies Commission and I hope that this House will accept the Amendment and thereby place it in that position.
§ 2.36 p.m.
§ LORD BRABAZON OF TARA
My Lords, I was under the impression that not only were we talking about procedure this afternoon, but that noble Lords were being allowed to air their general views on the drug trade. I have had a certain amount of dealing with the Swiss, on a supporting basis, so to speak. One has to get to know them. It is all 1650 very well to put a pistol to their heads and say, "You have to produce these figures." They will shut up when one does that. If Hoffmann-La Roche wrote to the Bank of England and said that it would like to open an account, but, before doing so, the Bank should be prepared to produce its proper balance sheet and profit and loss account, Hoffmann-La Roche would get a pretty rude answer. When one is dealing with the Swiss, one has to anticipate that kind of thing.
Hoffmann-La Roche's figures are secret, but it is almost certainly the largest manufacturers of medical drugs in the world, and possibly the most distinguished manufacturers of that sort of drug that has ever existed. It has not been suggested to-day, but it has been mentioned to me once or twice by Members of your Lordships' House, that any company with a capital whose shares stand at £20,000 must be profiteering. That is absolute "hooey". Under Swiss law, scrip issues are not allowed. Rights issues are allowed, but as La Roche do not want money they do not have rights issues. They are 77 years old and, being successful, they have built up a considerable position in the world without asking either their own shareholders or any of the public for extra finance. They have 70,000 shares outstanding. I.C.I. have 480 million. There is a well-known stores company in this country which is never accused of profiteering; it is usually regarded as giving very good value for money. But if one had bought its shares at fl in 1935, those shares would now be worth £200-odd. That was due to scrip issues and keeping the shares down to what appears to be the acceptable level in this country.
A number of references have been made as to how to allocate research expenditure. It is almost impossible. If one researches into 10 products, and if 10 per cent. were a reasonable profit on each, if only one in 10 is successful one must have 100 per cent. profit on that, otherwise research stops. All this business of repaying money and so on, if one looks at the history of Hoffmann-La Roche, one finds that among other things they produced a drug which was not patentable but which virtually shut TB clinics in the civilised world. Surely they ought to be able to claim a bonus 1651 for that; but they have not. They have got, I understand, a most promising attack on Parkinson's disease which they think will work, but they will not make much money on it because, fortunately, very few people have Parkinson's disease.
My worry in all this is whether we have started a chain reaction in the world. We have suggested cuts in prices; other countries have asked for cuts in prices. It starts with Roche, but it will go on to every other drug company in the world, and one just asks oneself whether it is desirable to interfere with research into drugs, as I should have thought this undoubtedly will do. Companies will just think that it is not worth doing.
My Lords, all I want to say, in conclusion, is that the Department can well pat itself on the back for saving the National Health Service a few million pounds, and trying to claim back a million or so, but I should have thought that for the future health of the human race it was better to have Hoffmann-La Roche, even if they profiteer—which I do not think they do—rather than no Hoffmann-La Roche.
§ 2.43 p.m.
§ LORD HALE
My Lords, I am sure the noble Lord who has just spoken suffered as I shall do from the necessity of considerably abbreviating his remarks, even up to 60 to 75 per cent. Therefore, while I should not like to criticise, I must say that I thought some of his facts were selective.
I, too, read these 300 pages last night. It took me seven hours, and I took a Roche pill to give me two or three hours sleep afterwards—and very excellent their pills are. I began to read the eloquent speech which was made with great sympathy: this simple Swiss family producing ethical drugs by ethical means and operating in ethical ways; charging only 2 per cent. on a grossly exaggerated turnover, and thus laying up treasures in Heaven and capital profits in this world; founding another company in the American hemisphere, registered in Canada and operated in Uruguay, in which there were also 70,000 shares, of which only two possessed voting rights, so the entire control could be run on ethical grounds 1652 from Switzerland, and by ethical means; operating a system which permitted them to sell to developing countries at reduced rates, but did not necessitate their saying how little; considering the special position of Turkey, selling one drug at 49 per cent. under the Turkish Government's regulations, and not selling any of the other because there was no profitable market for it; laying down their own ethical rules, by which they described themselves as saying, "We base the price on the amount the market will pay."
My Lords, if they base the price on the amount the market will pay, this is a country in which they have virtually and effectively only one customer. It is very convenient. They sell through the shops. They do not sell to the Department of Health, but in the end the Department of Health pay for nearly everything, except for the reduced advertising matter they give to the hospitals and to the Army, a practice which is not very good.
The noble Lord has said that if you tickle a Swiss in this way, and if you upset him, he is apt to "clam up". But they did not "clam up". They never released any relevant figures. They always declined, on moral grounds, to give the figures which really are relevant. They endeavoured to establish a method of computation in which you take the exaggerated prices and then work you way down, so if you are charging 11 per cent. advertising matter on a price of £1,000 per kilo when it ought to be £500, that 11 per cent. is really 22 per cent. They produced a method of mathematics which is really quite surprising; but, they did not "clam up". They did correspond with the Department of Health, and, so far from "clamming up", they disgorged over £ 1 million as recognised over-payment, and ever since then the Department of Health has been justly kicking itself for signing the receipt in full discharge of claims up to date because it has come to the conclusion that it ought to have asked for at least four times as much.
That really is the position of the general ethics in the matter. No one disputes that Roche are a prosperous firm, a good firm, or that they produce excellent products. No one has ever said anything to the contrary. However, I must 1653 confess that as I proceeded to pages 2 and 3, and was becoming quiet tired, it was this astonishing absence of figures which struck me. I was not surprised, of course, that I found the real point on the penultimate page, which I imagine is about page 260. I apologise to the noble Lord, Lord Fletcher, who has already made an excellent speech, for quoting his remarks, but they seem to sum up the position precisely, because I can also quote the reply. Right at the end, the noble Lord, Lord Fletcher, says to counsel for Messrs. Roche:You say that nothing can be done. If you feel able to comment I would appreciate it, but if you feel you cannot, I will understand. The Order we set out to consider was approved in the House of Commons, if I may say so, with some enthusiasm. It has now lapsed and another Order has been made and by agreement we are considering your Petition as affecting that Order. That Order will, in clue course, come before the House of Commons. All Members of the House of Commons will presumably then have available the transcript of the proceedings here and they will be able to read the weighty arguments you raised and the powerful arguments against the reasonableness of the Order. Therefore, to some extent the House of Commons will be able to exercise a much more informed judgment than before as to whether it should pass the necessary resolution or not. Therefore it is not quite true to say that there is no other redress.There really cannot be any disputing that. The Select Committee does not give any reason for their decision, as far as I know, and I am inclined to think that it might have been better if they had; but no doubt the Select Committee followed the usual practice.
Mr. York replies first, in a brief paragraph, to say that matters of justice have always been left to the quieter atmosphere of the House of Lords, and he then goes on to say:Members of Parliament are very busy men and to expect them to read, digest and understand five days' transcripts and all the associated documents is not realistic.Of course, that is true: we know that Members of Parliament do not read all the documents. I remember being told in 1946 by a well-informed historian of statesmen that a member of the Cabinet could not read all his Cabinet papers if he sat on his backside from one Cabinet meeting to another and tried to get through all the relevant documents. I discovered that, essentially speaking, that is true. It is not the system by which we work, and counsel knows it. We have specialised Committees sitting, and every 1654 ex-Member of the House of Commons knows that most of the work of the House of Commons is done in the Committees which are considering these matters and giving special attention to them. They always have someone who is completely well-informed who can give guidance and help Members to arrive at a decision; and there are Party meetings, and so on.
I have already used 35 per cent. of my 40 per cent., and I want therefore to turn immediately to Standing Order 216, paragraph 6. It is important that we should look at it again. There was a good deal of argument in the Committee as to the meaning of "substantial grounds of complaint". Someone said, "Is it big?" Well, of course not. This is a remedy for the oppressed. Is it important financially or in magnitude? What is "a substantial ground of complaint?" Surely, interpreting it roughly, it means that someone has been unjustly oppressed and has made it clear that he has been unjustly oppressed, and has had no opportunity to be heard. I should have thought that that was the question before the Committee. And Heaven knows! Roche had an opportunity to be heard on 16 occasions and have never put forward the information which could reasonably be required.
The second thing to be considered—sub-paragraph (b)—iswhether the matter has been so dealt with upon a departmental inquiry that further inquiry is unnecessary.My Lords, what is a departmental inquiry? Does anybody know? Is it a term of art? No, it is not. It is not even spelt with capital letters, which is normal for a term of art. I have sat on Departmental Committees, Select Committees, Royal Commissions—every kind of committee known to science, and some that were not—the Joint Committee of the Lords and Commons, and so on; but a departmental inquiry I do not know.
It means one of two things. Either it is intended to be interpreted strictly as a full inquiry by the Department concerned, in which case there was one—it immediately preceded the setting up of the Royal Commission. They corresponded. There were bundles of correspondence that looked like the Poulson case being handed round the Committee 1655 Room, as I understand, from reading. The information was there. Every question had been asked. Very few had been answered. Or, in a wider sense, if it means, in general words, a full inquiry connected with Government activities or Ministerial activities, then of course the Royal Commission have done it, done it thoroughly and done it well. I do not think that their Report is very well written, and I do not think it is very clear in parts; but there is no doubt that it dealt with everything. It has made everything clear and it has given Roche the benefit of the doubt, whatever it did. It did not recommend prices being reduced by 60 per cent. or 75 per cent. It recommended that they be reduced by those figures at least, and said that this was a very generous estimate.
Finally, I would just mention sub-paragraph (d):whether, having regard to the answers to the preceding questions and to the findings, if any of these inquiries and to the other circumstances of the case, there ought to be a further inquiry by a Select Committee.…And if there is, what happens? We have the Royal Commission on one side, the Select Committee on the other; the Royal Commission saying "We have looked into this", and the Select Committee saying, "You have not looked into it quite enough."
§ LORD BROWN
My Lords, I think my noble friend is unaware that he is using the term "Royal Commission" when I am quite sure that he means the Monopolies Commission.
§ LORD HALE
My Lords, I mean the Monopolies Commission, of course, which, exercises the statutory powers entrusted to it by Parliament and whose procedure, because of complaints, was in fact the subject of a special inquiry, ordered by a recent Prime Minister, by the Lord Chancellor of the day and the Attorney General. Both reported that its procedure was being carried out in accordance with the will of Parliament, with the powers it possessed, and with considerable diligence. That is the position.
In those circumstances, while thanking the Committee for its very gifted labours, for its patience, for the questions that were asked and for this Report, which will be helpful to both Houses in considering the 1656 Order, I venture to think that my noble friend the Leader of the Opposition is right in his Motion and that it merits support.
§ 2.54 p.m.
§ LORD FERRIER
My Lords, I came to this House not intending to speak, and I am doing so only because I spent 12 years in the pharmaceutical industry, to which I came as a layman, as an industrialist. I must say at the outset that I had the impression during this debate, as I have said before in your Lordships' House when discussing pharmaceutical problems, that we must remember that the end product we are considering is the relief of human suffering, not only in this country but throughout the world. Although, as I have said, I was at one time interested in the industry, I ceased to be connected with it in 1965. My only interest now is that I hold few shares in one English company. At the same time. during the period I was in the industry I had the experience mentioned in a number of papers to which your Lordships have referred, of the time when the then Minister of Health, Mr. Enoch Powell, used Section 46 of the Patents Act to seize a patent of a product which was the property of Pfizer. This, I admit, was the first occasion on which I realised that the right honourable gentleman was capable of doing things which in my view were odd. A row ensued and it is mentioned in a number of the Reports to which your Lordships have referred.
However, it is well to remember that that was in 1961. The situation to-day is very different. We are talking now of Section 41 of the Patents and Designs Act. This is quite another matter. As I see it, the position has now been stabilised. The present Minister for Health, my right honourable friend Sir Keith Joseph, has got the thing working properly... It is well understood between the National Health Service and the industry; or so I believe. At any rate, these drugs are the only ones that there has been a row about. I believe that the noble Lord, Lord Stow Hill, referred to this. He said he hoped that we should find a sensible formula by extending this inquiry. I believe that a sensible formula exists to-day.
Having said that, I think it is fair also, in connection with my opening remarks, 1657 to remember that these are absolute wonder drugs. This a real breakthrough, comparable with the sulpha drugs and the like, and going back through thousands of years to opium. As such, they have saved and are saving the State huge sums of money in reducing the number of patients in hospitals for those who are mentally ill. Somebody with experience told me last week that in visiting a hospital with which he was concerned he found there were 1,400 patients, whereas the previous year there had been 2,000. The answer was, "Oh yes—Valium; people can be sent home much sooner." It is well to remember that.
In saying that, I have a great deal of sympathy with what my noble friend Lord Reay said, and the noble Earl, Lord Halsbury, in bringing out the important factors about the need for research, the cost of research, the impossibility of saying of a certain figure, "That is the right amount." One cannot do it. And to quote the noble Earl's phrase, which will replace something I had jotted down, one must remember that the winners have to pay for the losers. It is not just the cost of the research that produced Valium. It is the cost of research for a whole spectrum of drugs, only one of which may be a winner. That must be borne in mind.
But—and I think it is a big "but"—in this case, as the noble Lord, Lord Hale, and a number of others have pointed out, I think that Roche has been arrogant, stubborn and secretive. Although it has provided supplies of these drugs to hospitals and the like which is one way of promoting them; and a very good way, too!—I feel that it has only itself to blame for the fact that the Minister for Health had no alternative but to act, and act swiftly, as he did on the Report of the Monopolies Commission. I will not go on referring to that again. It has been referred to over and over again.
Referring to my noble friend Lord Reay, I think it is very valuable to know that, with the views he holds, he also holds a responsible position in the Councils of Europe. But I go some way with him in complaining about the way in which this debate has been brought upon us without really letting us know that it would lead to a Division. I am glad that we are to have a Division, and I support Lord Diamond's Amendment. He mentioned the need for a Royal Com 1658 mission, and it may well be that we should have another "full-dresser" on this subject, though we must remember that the whole problem of patents will be reviewed as we go into the EEC.
This leads me to my last point, which is Section 41. I return to the Banks Committee's Report, at page 118, where in Section 410(2) they say:We think it wrong, in principle, that a patentee who exercises his rights with moderation"—words which I myself underline though they are not underlined in the Report—should stand to lose a part of the profit to which he is reasonably entitled to another supplier, who has not undertaken the research necessary to discover and develop the drug.At the end of that paragraph the Committee recommend the repeal of Section 41, Compulsory Licence Provision, which is the section on which this Order is based.
I turn to the speech of the noble Lord, Lord Stow Hill, who said that the time spent on the admittedly narrow Select Committee which the whole Report recommends would not be wasted in the public interest. My Lords, I take the opposite view in terms of this Section 41. It would mean vast expenditure in terms of money, vast expenditure in terms of money, vast expenditure in terms of your Lordships' time, all over the weir, in my opinion, because this section is to be repealed, and the situation will be reviewed again. For that reason I, for one, feel that in this case it is important that we follow the advice given to us by the noble Lord, Lord Fletcher and the noble Lord, Lord Brown, with whose speeches I entirely agree; and I would only say that it is a thousand pities that we have no Hansard and it may be weeks before we can really peruse what is said in this debate.
§ 3.5 p.m.
LORD DOUGLAS OF BAR LOCH
My Lords, I shall not detain your Lordships long, but I do have some experience of this problem, because I was a member of the Public Accounts Committee of the House of Commons from 1944 until 1946, and we had the problem of monopoly prices and monopoly profits before us on quite a number of occasions. Undoubtedly these things present difficulties. There is always an element of 1659 judgment about what is reasonable or what is not reasonable, but it is the case, in regard to what we are discussing today, that we are dealing with a monopoly, and that the proprietors of it can charge as much as they think the traffic will bear. Therefore the profit has no relationship whatsoever to ordinary commercial competitive prices.
What the noble Earl, Lord Halsbury, said may be perfectly true about competitive businesses, but it is not true in this case. This is a monopoly. It has been investigated by the Monopolies Commission and it is a waste of time, superfluous and ineffective that a Committee of your Lordships' House should attempt to investigate one particular facet of this problem in the terms of the resolution which is now before us; namely,whether the prices recommended by the Monopolies Commission make adequate provision for a proper allocation of group research and development expenditure in the sales of the reference drugs by the Petitioners in the United Kingdom.…This presupposes that the total of the group's research and development expenditure is entirely unassailable, under any criteria related to monopoly profits, and that all the Select Committee will do will be to produce some new allocation between one branch of this company's numerous ramifications and another instead of that which the Monopolies Commission arrived at.
I submit, my Lords, that it is impossible for the Committee to get to work upon that basis. If anything is to be done, they will have to go into the whole matter, root and branch, from the beginning, because one cannot make a judgment of any reasoned character within the terms of what is contained in the Report of the Select Committee. I do beg your Lordships not to commit this House to an enterprise which is not practicable. After all, the Monopolies Commission took a year and a half or so to investigate this problem. They were experienced in this kind of job; they had expert assistance at their disposal, and still they took all that time. Can a Committee of your Lordships' House compete with that expertise, and can it work any more quickly? Surely this is reducing our procedure to an absurdity.
§ 3.9 p.m.
§ LoRD CONESFORD
My Lords, I will delay the noble Lord, Lord Byers, only for a few moments. I think I differ from many of the speakers on both sides of the House to-day in that they all seem to have found the matter before us very simple. Some seem to think that it is quite obvious we should vote for the Amendment, others that it is obvious we should support our own Committee. My Lords, I do not mind confessing that I find the question extremely difficult: but I have come to the definite conclusion that we ought to support our own Special Orders Committee. My reasons for that do not show any lack of respect for the Monopolies Commission. As a former Parliamentary Secretary to the Board of Trade, I have had some fairly close connection with many of its activities in the past.
My Lords, somebody said that there is no appeal under Statute from the Monopolies Commission, and that by the Order, which I am supporting, we are trying to create, in effect, an appeal. I agree that there is, under Statute, no appeal from reports of the Monopolies Commission, but it is an equally important fact that the law does not provide for the conclusions of the Monopolies Commission being automatically brought into force and made the law of the land. For that the intervention of the Minister in Parliament is normally necessary. When this House takes a view on the merits of the Order proposed by the Minister, it is doing its duty under the rules that govern Parliament, and the fact that there is no appeal under Statute from a Report of the Monopolies Commission really has nothing to do with it.
The noble Lord, Lord Fletcher, in an admirably clear and succinct speech said, in effect, that we shall be doing something futile if we support the majority of our own Select Committee. With all respect, we shall not. The noble Lord said that if we decided there should be a Select Committee to consider this limited point, and the Committee differed from the Monopolies Commission, we should have to choose between their findings; and one would have no more value than the other. With great respect to the noble Lord, I do not think that would be the result. I think the result would be that if the Select Committee suggested that 1661 the Order ought to be changed, the Minister would consider their Report and, in the light of the new knowledge in that Report and the Report of the Monopolies Commission, would make his recommendation to both Houses of Parliament as to what the Order should be.
So far as I understand the matter, I personally think that the new knowledge that might emerge from this Select Committee, if set up, would be very valuable. I confess that, even before I heard the noble Earl, Lord Halsbury, I was alarmed about the effect of the general proposition that too much money is spent on research. It is a very dangerous thing to say. Conceivably, it may be right—I do not know—but I believe it most desirable that a Select Committee should further consider it. It is a very good thing that, unless the circumstances are altogether exceptional, we should support the advice given to us by our own Select Committee. This is particularly the case when the Government themselves have an interest and when the Petitioner is not even a British subject. In passing, I should like to correct a statement made by the noble Lord, Lord Brown. In referring to our own Standing Order, he used the word "individual" and said that it would not include a company. I think he will find that the word is "person" and that undoubtedly it does include a company.
§ LORD BROWN
My Lords, I was quoting the Chairman of Committees, as the noble Lord will understand when he reads Hansard.
§ LORD CONESFORD
It may take some time before I am able to read Hansard, but I shall do as the noble Lord suggests.
For those reasons I hope that the House will vote against the Amendment and support our Committee.
§ 3.16 p.m.
§ LORD BYERS
My Lords, I agree with one thing that the noble Lord, Lord Conesford, said, and that is that this is not an easy matter to decide. I shall not argue the merits of this case; I am concerned with what the House should decide to-day when it comes to a vote in a few minutes' time. I find the whole matter disturbing, both in substance and 1662 in procedure. The Monopolies Commission took 18 months to make a detailed study in depth of the whole problem. They concluded, presumably having made a number of judgments on such matters as the proper allocation of research costs, distribution expenses, promotion expenses and so on, that the drugs were greatly overpriced. I do not pretend to understand how they were able to do this. I do not understand how anyone outside the business concerned can pronounce with any confidence on the correct order of expenditure or cost in the different categories of accounting, particularly if there are no guidelines, regulations or Government contract to interpret. However, if any body of people is qualified to make an approximate judgment it must surely be the Monopolies Commission.
When the Minister received the Report he made this Order. It was challenged by the Petitioners, as they were fully entitled to do, and the Special Orders Committee of this House sat for five days taking the most detailed evidence in order to decide, on a 4 to 3 vote, whether to send the matter to a Select Committee. In my view this is a procedural nonsense, and very costly. With all respect to the Special Orders Committee, it is not—nor is it expected to be—competent to deal with matters of this complexity. The House is now placed in a serious dilemma through no fault of the Special Orders Committee. If it rejects the Motion to send the matter to a Select Committee, the Petitioners may well feel aggrieved that they have been denied the full process of the procedures of this House. That would be unfortunate, but it may well have to be faced, and I am prepared to face it.
On the other hand, if the House decides to send the matter to a Select Committee there is no guarantee, in my view, that any fairer result will be achieved, after that Committee has examined all the evidence, than was achieved by the Monopolies Commission after 18 months of painstaking investigation. I am worried lest we should get into the position where a Select Committee of this House is turned into a court of appeal. I do not believe that this was even the intention of the people who drew up the Standing Order. I hope that the whole procedure in relation to cases of this sort, arising from bodies such as the Monopolies 1663 Commission and cases of such technical complexity, will be considered very carefully by the Committee of the noble Lord, Lord Brooke, on delegated legislation. I hope that the Department of Health and Social Service will find a far more satisfactory system for agreeing the formula for pricing such goods as ethical goods well in advance of their being put on the market. In the meantime, because I do not think that any Select Committee is necessarily better qualified in a case such as this than the Monopolies Commission, I reluctantly support the Amendment.
§ 3.19 p.m.
§ LORD SHACKLETON
My Lords, owing to the lateness of the hour, I shall devote my remarks mainly to the procedural aspect. The noble Lord, Lord Byers, in his usual extraordinarily able way, has put in a nutshell what would have taken me 20 minutes to say. It is a fact that the majority of speakers to-day have supported the Amendment, though I am bound to say that if one adds up the length of the speeches it may have been rather more equal. Because it is necessary for us to try to settle this matter pretty soon—before, say, a quarter to four, because I know that a number of noble Lords want to catch their trains—I shall confine my remarks to the procedural point, and in particular to the argument of the noble Lord, Lord Reay, who criticised me for tabling the Amendment. He was the only speaker to bring Party politics into the debate. He talked about the great engines of the Opposition being trundled out. With all his peripatetic manoeuvrings round the House, from the Liberal Benches—I am not sure whether he stopped at the Cross Benches—and then on the Conservative Benches, and with his speeches on the Spectator, I think I must tell him something about the procedure of this House and why a former Leader of the House or Leader of the Opposition or any noble Lord should approach a problem like this in terms of the correct procedure of the House of Lords.
The reason I tabled the Amendment was that it took me about four days of careful reading and studying precedents —the Report was published only ten days ago—to make up my mind that, despite all the precedents, I ought to oppose the recomendations of the Special Orders 1664 Committee. Having come to that view, and having informed certain House authorities, the great engines of Opposition were then trundled out and it was obvious that there would be a vote. Rather late in the day, in this fairly short period, we discovered that if we just voted down the recommendation of the Special Orders Committee the whole weary business would start again. New petitions would come in.
Therefore this Amendment provides the House with three choices. The House can either vote against the Amendment on the grounds that it does not want the Order now to be laid and dealt with in the ordinary way. The House can none the less vote, having rejected the Amendment, for the Report, or the House can vote against the Report. This follows later. If the House votes against the whole Report, it goes back to the Special Orders Committee, and I am bound to say that this procedure seems to me to be the best way. It is always difficult to ensure in our debates in the House that one gets issues clearly before the House in such a way that a decision can be taken.
Now, my Lords, I should like to say why I believe in these exceptional circumstances we ought to reject the recommendations of the Special Orders Committee. The arguments have been fairly deployed, both by my noble friend, Lord Fletcher, and by other noble Lords; and the noble Lord, Lord Reay, made—if I may now say something nice to him—a very good speech on the other side of the matter. But I do not accept as a constitutional principle—and it would be an exceedingly dangerous thing if we as a House accepted it as a constitutional principle—that we must in every case accept the recommendation of one of our Select Committees.
My Lords, I will go a little further on this point. The fact is that in this case, as noble Lords have pointed out, the Special Orders Committee were given a particularly difficult task. They voted four to three. We know that the Chairman of the Committee, the noble Earl, Lord Listowel, in his usual impeccable and fair way, put the case to the Special Orders Committee in a very fair and impartial way. We know that he voted against this recommendation, and I think there is some reason to believe—as my 1665 noble friend, Lord Hale, pointed out—that the Committee in certain respects misdirected itself, because when my noble friend, Lord Stow Hill, was interupted by me and subsequently challenged by the noble Lord, Lord Nugent, he said in regard to the passage in Standing Order 216 concerning the sort of consideration that the Committee must take into account in deciding:whether the matter has been so dealt with: upon a departmental inquiry that further Inquiry is unnecessary.that he thought that because this was not technically a Departmental Inquiry, with a capital "D" and a capital "I", it was not a consideration they should take into account. I hope I do not misinterpret him. As my noble friend pointed out, it is printed—if we are going into this sort of detail—with a small "d" and a small "i", but if an inquiry ordered or asked for by a Department is not a Departmental Inquiry, I do not know what it is.
In any case, scope is given in the Order to take into account any of the other circumstances of the case, and the Report of the Monopolies Commission is quite crucial in this respect. It is a far more thorough-going report than any normal Departmental Inquiry. This brings us to the further point as to whether our Special Orders Committee can usefully do a job in this matter. The Special Orders Committee are bound by Standing Order 216. Although they obviously were very divided on it, and I personally would not have agreed with their recommendation, none the less they took it perfectly properly. However, Standing Order 216 does not apply to the House of Lords, and because I appreciate that the Government are in a difficult position, and the noble Lord the Leader of the House has an obligation both to advise the House as to practice and at the same time not bring the pressure of Government to bear, because they are an interested party, I have felt that it was my duty—and, indeed, the duty of other noble Lords—to form a view on this issue.
In the case of a Private Bill, we should be exceedingly ill-advised if we departed other than in the most exceptional circumstances—and I think that we must admit that there are some—from the Report of one of our Select Committees. 1666 But, my Lords, that is a very different type of operation, and it has been usual on those Committees that there has been either a unanimous Report or an overwhelming majority one way. That is not the case here, and I believe that to extend this principle into a constitutional principle is extremely unsound, and indeed dangerous, for the House. Furthermore—and I say this because 1 have a very high regard for the opinion of the noble Lord, Lord Conesford—it is only after the most careful thought that I have felt it right to recommend the Amendment that I have put forward.
My Lords, many arguments have been given on both sides in this matter with which I should have liked to deal. I do not myself believe that a Select Committee can do the job in the period that is necessary or that it is desirable, notwithstanding the advice of the noble Earl, Lord Halsbury—and I acknowledge that the noble Earl is a first-class research scientist and a most eloquent technologist, but not a very sound proceduralist. In this matter, we have to apply the judgment of common sense, the common sense which your Lordships' House shows, and decide that we have given Roche a pretty good run today.
Admittedly, there is prejudice against Roche. I have refrained from commenting on Roche's quite extraordinary performance, because it is important that we come to our view not just on a judgment as to how they behaved—although there has been plenty of evidence on that —but on whether it is right for the House to take this matter any further. I would submit that if this Amendment commends itself to the House the effect will be that the Government Order will be proceeded with and it will be possible for both Houses to take their decisions in the usual way.
§ 3.30 p.m.
§ LORD WINDLESHAM
My Lords, this has been a full debate and one that has done credit to your Lordships' House. We have seen an impressive range of special knowledge and experience deployed by noble Lords who have taken part. Their contributions have undoubtedly provided a most thoughtful and valuable preparation of our minds for a decision of considerable 1667 importance. I should first of all, on behalf of the House, like to thank those noble Lords who served on the Special Orders Committee which considered whether the Petition of the Roche Company should be referred to a Select Committee. The Special Orders Committee met on five separate occasions, three of them while the House was in recess.
The noble Lord, Lord Diamond, in moving the Amendment, and the noble Lord the Leader of the Opposition, in the speech he made just now and others who have supported them, have put a powerful argument for the House to set aside the recommendation of its Special Orders Committee that there should be further inquiry by a Select Committee into the particular issue of whether or not the prices recommended by the Monopolies Commission for profitable drugs which are already on the market made adequate provision for a proper allocation for group research and development expenditure.
As I understand it, the basis of the argument is that an Order made by the Government of the day, following a careful review of the evidence of the Monopolies Commission—a body created by both Houses of Parliament—and furthermore an Order which is open to challenge by way of normal Parliamentary procedures relating to Statutory Instruments, is not an appropriate case in which the Special Orders Committee should recommend that an Order should be referred to a Select Committee of your Lordships' House for further examination. Against this view stand the speeches of those who have spoken in support of the Motion in the name of the noble Earl, Lord Listowel, who presided over the Special Orders Committee when it considered this Order. Although the noble Earl himself voted with the minority on the Committee, he has advised your Lordships in his speech in opening the debate that in this instance the established practice of the House should be followed. The Lord Chairman reminded us that we normally agree to reports of a Committee which has heard the argument of the parties represented by counsel, something which, by definition, the whole House cannot do in considering the Committee's 1668 Report. The noble Lord, Lord Reay, a member of the Special Orders Committee, also developed the argument for adhering to the usual practice.
What we have to do now is to weigh up in our own minds what we judge to be the merits of this issue. There are several strands. There are the interests of the Government; there are the interests of the House; there is the importance of maintaining the effectiveness of the Monopolies Commission; and there is the consideration that aggrieved parties should be able to pursue the remedies open to them to the full. Each of these is part of what we mean when we talk about "the public interest". Of course, all assessments on matters of this kind are inevitably subjective: we have seen in several speeches to-day how interpretations differ of where the interests of the House and the national interest lie. My own role, it seems to me, being at the same time the Leader of your Lordships' House and a member of the Government, is essentially a hybrid one, with all the complications that that status involves.
Since the Government is a party to these proceedings, as the noble Lord, Lord Conesford, reminded us, it did not seem appropriate that my noble friend Lord Limerick, who speaks for the Department of Trade and Industry in the House, or I, should argue the Government's case for making the Order. The Government have already demonstrated by their action in making the Order that they believed it right to move urgently to reduce the prices charged by Roche for the drugs which were subject to the Monopolies Commission reference.
The Commission is a body, as has been said, of high standing, and, as the noble Lord, Lord Brown, pointed out, it is used to dealing with a wide range of commercial, financial and industrial matters. It is charged by Statute with the task of investigating situations such as the pricing of the drugs with which we are concerned to-day. The Commission concluded, after a detailed inquiry, that Roche's prices in this country had for some time been too high, and that the Roche Group had obtained from the sale of these drugs in this country profits in excess of what they considered justifiable. The Order, which had been affirmed in another place, implemented 1669 the Monopolies Commission's recommendations on price levels. The Government believe that it was right to make that Order, and continue to believe that, as a matter of public policy, the Order should receive the approval of Parliament.
Let me now turn to the procedural aspects which are the second factor that we must take into account in reaching a decision on whether or not to accept the recommendation of the Special Orders Committee that there should be further inquiry. Under Private Business Standing Order No. 216, the Special Orders Committee is empowered to consider whether a Special Order is hybrid. If it reports that the Special Order is hybrid. It is open for a party affected by the order to petition against it, and the Special Orders Committee must consider whether or not to recommend that the Petition should be referred to a Select Committee. The Special Orders Committee has given this Order the most thorough and conscientious consideration—I am sure that we can all agree about that—and has reached, by a majority of 4 to 3, the conclusion that it should be considered further by a Select Committee.
My Lords, in these circumstances, and after listening to the debate this afternoon, the Government are content to let the procedures of the House take their course. There are differing views about the desirability of the present procedure of your Lordships' House whereby hybrid orders can be sent to a Select Committee. It is true that this procedure is available to Petitioners such as Roche only in the House of Lords. Nevertheless, the House has this procedure. The noble Lord, Lord Fletcher, said he thought it had some advantages and the question that must be answered is whether it should be observed in the normal way, or whether the usual practice should be departed from in this instance, in the case of one exceptional and controversial case.
I know that I am giving nothing away if I say that the Joint Select Committee on Delegated Legislation under the chairmanship of my noble friend Lord Brooke of Cumnor is considering whether the Lords' procedure on hybrid orders is a useful one and whether it should continue as it is, or be altered in the 1670 future. I understand that the Committee hopes to report before long, and in the light of the recommendations it makes, we shall then be able to decide whether this particular procedure of your Lordships' House should be amended.
Underlying our whole discussion this afternoon there has been one aspect not much mentioned in the debate, although the noble Lord, Lord Byers, touched on it in his short speech a few moments ago. That is the consideration of fairness and natural justice. The procedure of the House on hybrid Bills or Orders allows private interests affected by public actions certain remedies. An aggrieved party is entitled to expect that he can pursue these remedies to the limit. To cut off this procedure before the last and possibly the most effective stage from the standpoint of the petitioner is a course of action that requires careful thought. These are very difficult issues and it may be, for the reasons advanced by the noble Lord, Lord Shackleton, and others who supported him in his amendment, that the procedure should be terminated at this stage. That is for your Lordships to decide but, before reaching a decision, we should have in our own minds the full range of considerations involved.
In conclusion, I should like to say that, speaking for myself, I cannot find in the report from the Special Orders Committee any challenge to Her Majesty's Government in seeking to abrogate from the Government their right to make policy decisions. Under the procedure of your Lordships' House, the Special Orders Committee was called upon to recommend simply whether or not further consideration of a particular matter should be given by a Select Committee. By a small majority, they decided in the affirmative. As has been explained, they recommended that further consideration should be limited to the particular issue of the cost of research and development of new drugs in relation to the profitability of existing drugs which have found a wide market.
Your Lordships have now heard the arguments that have been deployed—and they have been deployed fully and effectively. I have made it clear that I do not think that the Government should seek to influence the decision of the House in any way. Noble Lords will want to give due weight to the arguments 1671 of the noble Lords, Lord Diamond, Lord Shackleton, Lord Fletcher and others who spoke for the Amendment, and to set them against the considerations we have heard put forward by the noble Lords, Lord Stow Hill, Lord Reay, Lord Halsbury and others. In the end, it is for your Lordships to decide. This is the
§ Resolved in the Affirmative, and Amendment agreed to accordingly.