§ Dr. Traffordasked the Secretary of State for Social Services if he is now able to announce the result of the review of the Voluntary Price Regulation Scheme which he has been conducting with the Association of the British Pharmaceutical Industry.
§ Sir K. JosephThe present Voluntary Price Regulation Scheme has been in operation since November, 1969, and in 329W the light of experience gained in its working I have agreed with the association to make a number of changes while still retaining the essential principle, that pharmaceutical companies should achieve a fair and reasonable level of profitability in relation to the capital employed on their home National Health Service business. The main changes are as follows.
First, although the 1969 scheme provided that we should try to devise criteria of profitability and sales promotion, the detailed financial returns which we have received from all companies have demonstrated such wide variations in trading patterns and capital structure that I conclude that it is impracticable to devise such criteria. Profitability of individual companies will therefore continue to be judged in the light of all the circumstances of the company and in any instance where it appears to be excessive we will negotiate for price reductions. I also remain concerned to discourage excessive sales promotion expenditure and this too must continue to be assessed according to the facts of the individual company.
Second, the industry makes an important contribution to the economy through its rapidly increasing exports and through further investment in research and manufacturing capacity. We have in the past taken account of factors of this kind but they are now written more formally into the amended scheme.
Third, the supply of financial information has been a burden on small companies whose profitability has generally proved not to be high enough to justify our opening negotiations with them. Accordingly I am exempting companies with annual sales to the National Health Service not exceeding £100,000 a year from providing regular financial information; companies with sales from £100,000 to £750,000 will have to supply a much simplified return. I retain the right to call for full financial returns from any company in either of these groups if circumstances appear to warrant it.
Fourth, there is at present a price restraint provision whereby companies are required to justify to the Department intended increases in the price of any branded medicine with annual National Health Service sales of £5,000 or more. Experience has shown that this control 330W was set at too low a level for practical purposes and in the amended Scheme advance justification of price increases will be required in respect of products with sales in excess of £150,000 a year or in excess of £50,000 a year where a product accounts for more than 10 per cent. of a company's total sales to the National Health Service. These price restraint provisions apply to all companies. The effect of all price changes will of course be reflected in the financial returns and the results will come under review under the main provisions of the scheme.
The revised scheme is intended to operate for five years.
The general effect of these changes is that I shall continue to exercise much the same surveillance as at present over large companies and large products, which comprise the great bulk of the market, while considerably relaxing it over small companies and small products.
I should like to express my appreciation of the helpful spirit shown by the president and members of the Association of the British Pharmaceutical Industry. This has enabled me to negotiate these changes which will reduce detailed Government interference in the industry while at the same time safeguarding my responsibility for securing medicines at reasonable prices for the National Health Service.