My Lords, I am very grateful to the noble Lord, Lord Hunt, for his Motion, and for giving us an opportunity to debate a series of questions raised by the statutory instrument about the life sciences sector more broadly.
I do not think that it is enough for us simply to say, “Look, Britain is great”, and expect that to act as a magnet for international pharmaceutical companies to invest in it. We certainly have a very strong sector and excellent skills, but the market is not sentimental: it reacts to financial signals. The noble Lord, Lord Lansley, was quite right to put us in the position of those people sitting in boardrooms, where soft signals such as the Prime Minister holding a summit are fine but the determinations will be based on hard numbers in spreadsheets. That is the way businesses work.
The concern that we should have in considering the statutory instrument is whether this settlement will be absorbed as simply the cost of doing business in the UK or whether it will change behaviour of businesses in a negative way. On all sides of the House, I think we hope that it will not do the latter. The ideal outcome is that businesses continue to invest in spite of taking a hit, but the risk that that will not be the case is genuine and deserves the debate that we are having today.
We have already seen some companies move from the voluntary to the statutory scheme. It would be helpful if the Minister could indicate how many. I understand that the rates are similar, but it is a pretty strong signal when a company says in that board discussion that it is important for them to say, “We are not taking this lying down. We are upset. Therefore, we will pay what we have to pay, but only if you make us do it. We are not willing to do it on a voluntary basis.” As I said, the numbers may look similar, but the signal seems pretty clear to me. I hope the Minister can indicate the scale of the trend and his views on whether we should be concerned that that is happening.
It is interesting to note from the Explanatory Notes to the legislation that the consultation responses were nearly uniformly negative. I was going to say that they were uniformly negative, but they were not: only 30 out of 33 were. I was fascinated by this comment in paragraph 10.3, which referred to having more responses than in previous years. It said:
“It is likely this rise in the number of responses reflects a stronger level of interest in the consultation from industry in advance of negotiations for a new voluntary scheme to succeed VPAS, which expires at the end of 2023.”
I suggest that the increased number of consultations reflects something else: it is a cry for help and a protest against the fact that the rate is now over 20% and seems to be rising inexorably. Businesses are not responding in greater numbers just because of something happening in the process but because of the substance. When the noble Lord, Lord Warner, made his 7% reduction some years ago, I suspect he would not have had the same number of responses, because the reduction was not at the levels we are seeing now. The fact that we are at over 20%, and that there seems no prospect that that will reduce, means that businesses want to engage.
Here is the question for the Government: what signal do they want to send to these major companies that produce medicines that our population depends on? Is it that the trend is going to improve over time, so that they are encouraged to invest in test facilities and research in the UK—that they can expect to have more free cash flow, as it were, from the sales that they are making in the UK, to invest back into the UK? Or will the trend stay the same, at a level that they have told us they already find unacceptable, or even worsen? As the Covid backlog is, hopefully, dealt with more expeditiously, there will be more dispensing of branded drugs, and there is a scenario in which things continue to get worse. If companies feel that they have less to invest, those signals will be negative.
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The noble Lords, Lord Lansley and Lord Hunt, commented on boardroom discussions, in which all of this will be summarised down to some bullet points for a pharmaceutical company board. The bullet point will say “UK negative, Germany positive” or “UK trending positive, Germany trending negative”. That will be based on everything the Government do, especially on revenue, because revenue is the lifeblood of any company. However well-intentioned and socially beneficial companies are, revenue matters.
I was very interested in the comments made by the noble Lord, Lord Lansley, about how we might move to a different model. I hesitate to confess ignorance in the House, but hopefully it was a constructive naivety I had when I came to this. This has been the first time I have had to read up on how this works. I was talking to somebody about it, who talked about this rate. I said “Oh, that’s the discount rate on the price for the drug”. They said “No, there is no pricing; it is a bucket”. It took me a little while to get my head around the scheme. I think most people would be quite surprised if they understood how it works.
I know that is a bigger conversation than the one we are having, but it is right that we think about whether there are models that would work better to achieve the objectives the Government have said they want: the availability of drugs at a reasonable price and continued investment in the life sciences industry. There is something to chew on there in terms of a broader discussion.
If we are serious about having a vibrant, growing life sciences sector in the UK, we need to look at how all government policies affect business decision-making, including the policy on branded medicines that we are discussing. Clearly, having a vibrant life sciences sector is better for employment and the availability of medicines for patients. It is also important for our resilience in future crises. This year, above all, we should be thinking that we need a domestic sector, whereas previously we might have been more comfortable simply relying on international solutions for drug development and availability.
If there is any area where a holistic industrial strategy might be appropriate, it is here, where the Government are a major customer. They are the most significant customer for these companies and therefore have levers to pull. Our concern with this statutory instrument is that we have got that lever and we are pulling it in the wrong direction.