I thank noble Lords for that very good debate, which has again got to the heart of why we are all here. While we are reflecting on the 1970s, we have an industrial strategy again, so who knows? The wheel turns.
I am grateful to the noble Lord, Lord Warner, for his amendment and understand that he seeks to minimise the burden on businesses; we agree with him on that aim. However, the amendment would have serious unintended consequences. I will set out why I believe that to be the case and in doing so, I hope to respond to other noble Lords’ questions.
The amendment would restrict the circumstances under which the Government could ask for information on revenues or profits accrued in connection with the manufacturing, distribution or supply of UK health service products. We have been clear throughout that the information that we seek for routine data collection does not go beyond that which would be required for tax purposes. That is the reassurance that we provide on the overall burden and how it would affect businesses. I appreciate that there is a separate question about
non-routine data collection, which I will come to, but the overall intention is not to create any additional burden.
The amendment would restrict the information-gathering powers to where a specific health service product has significantly increased in price and where there are reasonable grounds to believe that the NHS is not receiving value for money. However, it would prevent us operating our cost and price control schemes. The reason for that is that the Government collect information on revenues from companies as part of the various cost and price control schemes to be able to determine the sales of those companies to the health service. This enables us to identify the savings achieved through price cuts and which, in our reformed statutory scheme, would be a prerequisite for calculating the payments due from individual companies.
The Government require this information at product level to satisfy ourselves that the terms of the scheme are being applied correctly. As noble Lords know, this model has been in operation through the PPRS for many years, and we have not heard concerns from industry about the burden that it places upon it. Indeed, it is precisely this mechanism which demonstrated to both the Government and the ABPI that the current PPRS was not operating as expected during 2016—something to which the noble Lord, Lord Hunt, referred during our previous sitting.
We had constructive discussions with the ABPI during 2016 about why the spend measured by the PPRS and used to calculate payments under the scheme had fallen, compared to the real growth in NHS spending on branded medicines, which continues to rise. Joint analysis of company data by the ABPI and the Department of Health shows that the NHS is spending more than ever on branded medicines, with spend growth in 2016 likely to be around 5.3% of the budget.
It became clear that the cap mechanism was not capturing significant areas of branded medicines spend—in particular, parallel imports. Also, some companies left to join the statutory scheme, or divested individual products from the voluntary to the statutory scheme, but this growth was not captured by the PPRS methodology. Without action, this would have led to a significant drop in income from the scheme while branded medicines spend continued to rise, which is obviously against the spirit of the agreement. After a short period of very constructive negotiation just before Christmas, we agreed a new deal with the ABPI to cover the last two years of the scheme, details of which I set out in a Written Ministerial Statement published last week, I think—it has been only three and a half weeks, but it feels longer. This shows how well industry and the Government can work together to develop and maintain voluntary arrangements, but we can do so only with the right information available.
We have provided illustrative versions of both the information regulations and the statutory scheme regulations. I emphasise that these regulations show that the Government have no intention of routinely collecting information on profits. They do, however, set out the circumstances in which the Government might want to collect information about profits.
First, the illustrative regulations set out that we would be able to ask for information related to products where a company asks for a price increase under the statutory scheme regulations. To agree such an increase, the Government require assurance that the product is no longer profitable at its current price. Information on profitability is therefore crucial to determine this.
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Secondly, we would be able to ask for information related to profits when we have concerns about unwarranted prices for unbranded generic medicines. I think we are all agreed on the need to have that power. The information regulations demonstrate that we would ask for the cost of manufacture, the costs of R&D and non-recurring operational costs related to the product. This would help us determine whether the price is based on the actual cost or has been unduly inflated. On that point, I thank the noble Lord, Lord Young, for his support for the Bill in relation to stopping the NHS being ripped off; it is precisely the powers in this Bill that will enable us to do that for the kind of medicines he is describing.
In response to the issue about the Times investigation, the department was already aware of the practice and had been working on it with the Competition and Markets Authority. High-price generics were also the subject of the consultation on the statutory scheme that was published in December 2015. I want to dwell briefly on the point about the CMA investigation and the questions about UK or global. Technically, what is meant by a UK producer is any organisation that manufactures, supplies or distributes products required for the purposes of the UK health services—it is not necessarily about where it is domiciled, but its operational purpose. Clearly, it must be possible to ascertain information; otherwise, the CMA would not be able to carry out the investigations that it does. Through the Bill, we are aiming to have a set of powers that enable us to intervene before the CMA process is reached, which may produce fines quite a long time down the line, as happened with Flynn, which has now lost its appeal. We are trying to stop that happening upstream and stop that kind of behaviour.
It is possible to carry out such analysis. Whether there is a big data solution, I do not know. Because we are talking about the non-routine collection of data, they would not be producing masses of information. The mass of information would be the routine collections that are going on in order to carry out the main purposes of the Bill, which we have discussed and I will not go over again.
I hope that I have been able to explain under what circumstances we intend to ask for additional information relating to revenues and profits, as set out in the regulations and the Bill. I hope that I have reassured the noble Lord, Lord Warner, and other noble Lords that we are not seeking powers that will allow us to interfere unduly in the operation of businesses serving the health sector in the normal way. The amendment as it stands would make it impossible for us to run the current cost and price control schemes. On that basis, I ask the noble Lord to withdraw it.