My Lords, I am very glad to introduce this debate, and thankful to noble Lords who have stayed to take part in it. Underpinning this debate is a major concern about the current state of the UK economy, beset as it is with low growth, low productivity, workforce shortages, regional inequality and a dilapidated infrastructure; yet we have no industrial strategy. The Government have raised corporation tax; it is little wonder that Sir James Dyson recently accused the Government of having a “stupid” and “short-sighted” approach to the economy and business in the UK. Indeed, as Theresa May’s former chief of staff, Nick Timothy, put it on 8 May, there is an alarming decline in manufacturing as a percentage of GDP.
We ought, at least, to welcome the Prime Minister’s launch of the Government’s plan to create the UK’s place and cement it as a science and technology superpower by 2030. My concern is that the Minister and his colleagues in the Department of Health and Social Care are doing everything they can to inhibit that ambition. The life sciences industry is one of the most successful and important pillars of the UK economy, contributing more than £94.2 billion a year and 200,000 jobs in this country. Two-thirds of this is generated by the biopharmaceutical sector. The industry’s pipeline of new medicines is equally impressive.
We are at great risk of seeing this economic success falter under the watch of the Government, as companies are reducing their level of investment because of the imposition of a massive clawback that equates to one-quarter of sales revenue. We are already seeing very worrying trends in investment levels. From 2012 to 2020, the UK’s share of global pharmaceutical R&D spend decreased by more than a third. Since
2018, the UK has been falling down the global rankings across all phases of industry clinical trials. UK manufacturing production volumes have fallen by 29% since 2009. We all know that the NHS is far too slow to adopt new innovation and new medicines.
The UK is falling behind comparable countries as an early-launch market. Companies are making decisions to delay, or even not to launch, in the UK. These can be clinically important medicines that address many of the NHS’s priorities. Compared to leading countries in Europe—Italy, Spain, Germany and France—we have experienced the largest decline in our global share of new medicine launches between 2016 and 2021. This is the background to the statutory instrument that we are debating today.
I believe and hope this debate can influence the negotiations that have just started with the industry over the next phase of the voluntary scheme, otherwise known as VPAS—various noble Lords used to know it as PPRS. Under these regulations, companies in the statutory scheme will be required to pay to the Secretary of State 27.5% of their 2023 net sales income received for the supply of those medicines to the NHS.
The Government’s argument is that continued high sales growth in 2022 has led to an increase in the payment percentages in the VPAS scheme from 15% in 2022 to 26.5% in 2023, which is higher than was projected at the time of the 2022 statutory scheme consultation. As a result, the Government have ratcheted up the statutory scheme required payment rate. My argument is that both the voluntary and statutory schemes—companies have to be in one or the other, and can switch between them—are becoming a major impediment to future investment in the UK. The proposed rate of 27.5% will place the UK as a global outlier. In countries that operate similar clawback arrangements, current rates include 12% in Germany, 7.5% in Spain and 9% in Ireland, and all those countries spend more on medicines per head than we do. How on earth can the Government’s stated aim to grow the life sciences industry, as set out in the Life Sciences Vision and just recently articulated by the Chancellor, be delivered if industries expect to pay twice the level here that they do in Germany?
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I have no doubt whatever that there is a direct link between payment rates and scale of investment. Placement of clinical research clearly takes into consideration subsequent expected patient uptake and medicine sales in that country as well. This connection is further evidenced by analysis commissioned by ABPI, which found that continued high payment rates in both schemes would cost the UK £50 billion in GDP and £17.9 billion in tax revenue as a result of lost R&D investment of £5.7 billion by 2028. Without action or signals from the Government that they agree that this situation is not sustainable, there is a risk that short-term decisions or disinvestment will have long-term consequences as high payment rates are locked into business planning cycles.
Worrying signs are emerging. AstraZeneca recently announced a major expansion of its research footprint in Canada, creating over 500 new, highly skilled jobs
and a new research and development hub, because the Government there at both provincial and federal level have taken huge steps to create a more supportive environment for the biopharmaceutical industry. AbbVie left the voluntary scheme on principle and has disinvested from certain R&D activities to manage those high repayment rates. That includes halting of UK data and real-world evidence studies, some of which are continuing in other countries, and, particularly disappointing, the discontinuation of an initiative to support promising UK biotech companies by providing free lab space to facilitate technological advancement and company scale-up. Other companies are clearly taking similar actions.
The Government’s response seems incredibly complacent, and the impact assessment does not even recognise a link between payment rates and investment for the UK, nor does it reference the Life Sciences Vision. The IA states that the risk that the payment rates will delay or pause the launch of new medicines in the UK is “remote”. How on earth can the Minister justify that being stated when the decline has been so visible in industry’s investment in pharma R&D? The remarkable paragraph 101 says that
“supply side factors, such as availability of expert scientific labour and favourable tax conditions, are of greatest significance in the decision to locate R&D activity, and that siting of R&D facilities should not be affected by”
the commercial environment. That is an extraordinary statement. If you were reading this in the boardrooms of New York or New Jersey, or indeed Basel, what would you conclude? By implication, the Government are saying, “We do not have the right scientific resource available in this country, nor do we have the right tax conditions”. This is an extraordinary statement to make, and I have to ask whether a Minister ever read this IA before they signed it off. I rather doubt it.
The Government need to reset their view on this matter before they enter into serious negotiations on the new VPAS scheme. I have no doubt whatever that this is recoverable, but it is only just recoverable. I have no doubt that a successful life sciences sector has the potential to drive the health and wealth of the UK, and the Chancellor has made it clear that this is a priority for him. In his Budget he said that he wants the UK
“to be the best place in Europe for companies to locate, invest and grow”—[Official Report, Commons, 15/3/23; col. 842.]
our life sciences sector.
Agreeing a new voluntary scheme is critical, and the Government should work with industry to secure an agreement with growth at its heart. We need a sustainable approach to medicines provision for the whole branded market which rapidly brings industry payments into line with comparator countries to unlock investment and growth, maximising the potential of the UK life sciences industry as an engine for growth, including through harnessing the full value of the UK as a destination for R&D and clinical research, ensuring rapid patient access and adoption of new medicines, in partnership with a dynamic, innovative MHRA and NICE. There is not time to go into the shortages at the MHRA at the moment, which is causing great concern to industry. It can also help to improve outcomes, and
I shall come back to the need to lower the discount rate to be applied to future health gains deriving from new treatments, because the current rate is another inhibitor to investment by industry.
I appeal to the Minister. We have had a number of debates in the past and, frankly, the line in the IA is the line the department has used for 20 years. The noble Lord, Lord Warner and I, are aware of the tensions within the Department of Health in managing the NHS budget on the one hand and, for much of that time, sponsoring the industry. I suspect that the noble Lord, Lord Lansley, faced similar issues. We are at a critical stage. The Minister will know that the UK economy is fragile. We desperately need to grow the life sciences sector, but the action the Government seem to be taking with the industry is guaranteed to ensure that this will not happen. I very much hope that the Government will listen and that this will inform their negotiations with industry on the new VPAS. I beg to move.