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Second Standing Committee
on Delegated Legislation
The Committee consisted of the following Members:
Chairman:
Hywel Williams
Ainsworth, Mr. Peter (East Surrey) (Con)
†Battle, John (Leeds, West) (Lab)
Bone, Mr. Peter (Wellingborough) (Con)
†Dhanda, Mr. Parmjit (Gloucester) (Lab)
†Dobbin, Jim (Heywood and Middleton)
(Lab/Co-op)
†Evennett, Mr. David (Bexleyheath and Crayford) (Con)
†Follett, Barbara (Stevenage) (Lab)
†Havard, Mr. Dai (Merthyr Tydfil and Rhymney) (Lab)
†Jenkin, Mr. Bernard (North Essex) (Con)
†Kaufman, Sir Gerald (Manchester, Gorton) (Lab)
†Kirkbride, Miss Julie (Bromsgrove) (Con)
†Reid, Mr. Alan (Argyll and Bute) (LD)
†Rogerson, Mr. Dan (North Cornwall) (LD)
†Simon, Mr. Siôn (Birmingham, Erdington) (Lab)
†Skinner, Mr. Dennis (Bolsover) (Lab)
†Stewart, Ian (Eccles) (Lab)
†Sutcliffe, Mr. Gerry (Parliamentary Under-Secretary of State for Trade and Industry)
John Benger, Committee Clerk
† attended the Committee
The following also attended, pursuant to Standing Order No. 118(2):
Thurso, John (Caithness, Sutherland and Easter Ross) (LD)
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Wednesday 30 November 2005
[Hywel Williams in the Chair]
Supply of Relevant Veterinary Medicinal Products Order 2005
2.30 pm
Mr. Dan Rogerson (North Cornwall) (LD): I beg to move,
That the Committee has considered the Supply of Relevant Veterinary Medicinal Products Order 2005 (S.I. 2005, No. 2751).
May I start by saying how delighted I am to attend for the first time a Committee that you are chairing, Mr. Williams? I look forward to the Committee’s deliberations under the skills of your chairmanship.
I welcome the Government’s investigation into bringing down costs for farmers and others who access veterinary services. Hon. Members are well aware of the financial pressures on those involved in farming. The Government are also to be congratulated on seeking to increase the transparency of supply of veterinary medicinal products. However, the order will neither bring down costs nor increase transparency; in fact, it could have the opposite effect.
The order seeks to prevent veterinary surgeons from charging for supplying prescription-only medicines. However, the costs that they incur for their work on prescriptions must still be met. When I talk about costs, I mean the costs of a skilled veterinary surgeon’s time, which must be spent away from other duties in the practice. Prescriptions for such medicines are dissimilar to those with which we might be familiar at a GP’s surgery, in which a brief notice is inscribed on a piece of paper. Veterinary prescriptions often run to two or three pages.
I should welcome the Minister’s comments about whether the Government intend that service to be provided free to customers. If not, the cost must be passed on to customers in some way. The only mechanism for which the order provides is that charging must not distinguish between those customers whose animals require a prescription and those for whom a consultation is sufficient. In other words, the order provides that those costs must be passed on to all clients served by the vet. I argue that the order does not increase transparency, and I should welcome comments from the Minister about how it might.
Seeking to apply those costs throughout the range of services that the vet provides means moving away from transparency. It means moving from a discrete charge for a prescription, which is explained to the customer, to a hidden charge that is paid by all customers.
We are faced with the loss of transparency and, potentially, costs for a consultation will rise. The effect of the increase in consultation charges could be significant. The increase could act as a deterrent to
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contacting a vet, and there are concerns about its potential adverse effect on animal welfare. I should be interested to hear what measures the Government propose to ensure that that does not happen, and that cost does not act as a disincentive for people to consult a vet.
In discussions with veterinarians and farmers, another concern raised was the order’s consequences for veterinary services for large animals, particularly those owned by agricultural clients. Additional costs arise from travelling to clients rather than clients presenting animals at a practice. Sometimes, those costs are incurred in rural areas where great distances are involved. Up to now, such costs have been borne by vets who knew that their businesses would receive some income from other sources, such as the provision of prescription-only medicines. Vets were able to budget for those services, on the basis that their business would have other sources of income.
One vet compared the risk of a decline in services for large animals to the problems in dentistry, where dentists have moved to the private sector as a means of making their business work. When costs rise, veterinary surgeons will seek other more cost-effective ways of practising, which may mean that they move out of large animal work.
It is a false comparison to say that the provision is about competition. The need to prescribe such medicines is driven by a desire not to inflate costs, but to prescribe a particular medicine to a particular animal. Vets have also told me that they often seek to prescribe sparingly, so that resistance does not build up in animal populations.
The most significant factor in those high costs is not that such medicines are supplied through veterinary practices, but that in this country the cost of drugs is high when compared with our European neighbours. What has been done to address common European pricing and common licensing schemes? I know that some work has been done on that, but I would be interested to hear what bearing the Minister feels that has on the matter.
There is the risk that, rather than providing genuine competition across the range of veterinary medicines, pharmacists and suppliers will exercise their right to provide these products only in areas of high turnover and high profit margins, such as flea treatments. I want to know whether that has been considered.
In conclusion, it is not possible to consider the prescription of veterinary medicines in isolation from the provision of veterinary services as a whole. Those things are connected when it comes to making veterinary services viable, particularly in relation to large animal practices in rural areas. The order will have negative effects on the transparency of charging, for the reasons that I have given, and on the affordability of veterinary services for those who need them. I seek some reassurances from the Minister in addressing those concerns. If I do not feel that we have been given those reassurances, I will seek to divide the Committee.
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2.37 pm
Mr. Bernard Jenkin (North Essex) (Con): It is a pleasure to be doing business under your debut chairmanship, Mr. Williams. I commend the hon. Member for North Cornwall (Mr. Rogerson) on opening the discussion.
This controversy has arisen from an Office of Fair Trading investigation. By way of a prelude, I should say that the OFT seems to be getting a reputation for nit-picking at relatively minor problems when it has so far failed to grapple with big competition issues—not least the complete domination of the food chain by the supermarkets. Supermarkets are taking over corner shops, but the OFT seems disinclined to engage in any activity that would discourage what is quite self-evidently an uncompetitive, monopolistic practice. Very large, powerful organisations are skilled at gaming the OFT, whereas smaller professions and organisations that have innocently been going about their business—I include independent schools in this category—turn out to be victims of the most draconian anti-competition activity by the OFT. My party is increasingly concerned about whether that is the way in which the OFT should operate.
Mr. Siôn Simon (Birmingham, Erdington) (Lab): Seeing as we seem to be having a fairly general chat about the matter, I thought that the hon. Gentleman might like to enlighten us about market failure more generally and the tendency of markets naturally to oligopolise and monopolise. We cannot rely on the market to deliver good outcomes. What is needed is intervention, regulation and the shaping of markets for the ends that we as a society want to see. The market left on its own is a disaster. Is that his point?
Mr. Jenkin: The hon. Gentleman was making his own point, in his own inimitable way. Since the days of Adam Smith, it has been well known that when two merchants gather together in the same room it is to further their own interests, not to provide the competition that might be in the best interests of their customers. There has long been a role for the authorities to ensure that competition takes place. I am not questioning that point. I am saying that there are very big, powerful organisations that seem to be adept at avoiding scrutiny and investigation by the OFT when it is self-evident that their market domination is having severe consequences for their suppliers and, in some cases, their customers. I do not want to stray too far from the subject of this Committee, but I would be surprised if the hon. Gentleman did not agree with my point and we must have regard to it when discussing the order.
I have not received a great number of representations in my constituency from vets’ customers complaining about veterinary surgeons’ prescription charges. There are no longer many large animal practices in my rural constituency, but there are some cattle, plenty of horses, and there are plenty of small animal practices. I sense that the OFT, in undertaking these activities, is gleefully advertising
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and justifying its existence, but I wonder how much real public interest there is in an anti-competition investigation such as this.
Turning to the order, I submit that the Government have singularly failed to win over veterinary surgeons to the new measures. The Competition Commission looked at the market for veterinary medicines, rather than at veterinary services. The Government note that the two are “inextricably linked” so would it not have been better to broaden the inquiry to consider the effect on veterinary services as a whole and the way in which the whole market operates?
We support measures to increase competition and believe it to be the most effective way of reducing prices in the best interests of both consumers and producers. We also support measures to introduce greater transparency into the functioning of markets. However, we have reservations about a number of aspects of the order and note the continuing opposition and concerns of veterinary surgeons.
The main controversy surrounds article 3. If the Government’s intention is to introduce greater transparency into the prescription and sale of prescription-only medicines, why do they prohibit vets from charging clients a fee, which vets argue is totally illogical? That sends conflicting messages on transparency to vets. By prohibiting them from discriminating between those clients for whom they provide prescriptions and those for whom they do not, the Government are effectively forcing vets to hide prescription costs in their fees for veterinary services.
The Government acknowledged in their response to the public consultation that prescription charges range between nothing and £30, with the average being £5.24. That is a significant charge to hide, particularly in a small animal practice. Do the Government believe that it is fair that clients who do not require a prescription will be forced to subsidise those who do? I should be grateful if the Minister addressed that point.
What precedent is there for such a measure? In what other sectors have the Government prevented industry from charging for a service that has been performed? I reflect on the fact that the prescription charge in the national health service is fixed and is charged regardless of the price of the medicine prescribed. Sometimes, when we go to a doctor’s surgery, we are told that it would be better to buy the medicine over the counter rather than with a prescription. The competition seems to apply only to vets and not even to private medical practices.
We are discussing a sector involving animals with a finite worth. A decision not to call out a vet because the charges are too expensive is not comparable with deciding not to call out an engineer because the dishwasher is making a strange noise. If owners cannot afford the charges for a vet’s services, animals will suffer unnecessarily. I have here a letter from a vet in Cumbria, Mr. Iain Richards, who says:
“The cow I attended had a monetary value of about £230, the calf was already dead and due to the trauma of calving there is a chance that she may not milk properly. In such circumstances how can I justify charging a professional rate, when the cost of my time, not including any form of recompense for the hour, would be nearly the animal’s worth? As economists you might say that such
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work is uneconomic and the cow should simply be slaughtered and this I fear may be one consequence if we are forced to adopt some of the hypothetical remedies. Compassion and caring carry a price that is beyond calculation.”
Veterinary surgeons such as House and Jackson argue that
“issuing a veterinary prescription is a significant professional service. We may only prescribe for animals under our care, which is a specific meaning under the Royal College of Veterinary Surgeons guide to professional conduct. Prescribing is therefore a proper professional activity. It is not merely the blind signing of a piece of paper. Hitherto, this activity would attract a reasonable professional fee to reflect the time and professional responsibility that is involved.”
The undoubted result of article 3 is that veterinary surgeons’ fees for their professional services will have to rise to offset the loss of fees they would have received from selling prescription-only medicines. What research have the Government undertaken to ensure that higher charges just for calling out the vet, or taking an animal to surgery will not discourage poorer clients from taking such actions except in dire emergencies? What assurances can the Government give that that will not have a negative impact on the welfare and timely treatment of animals?
The British Veterinary Association is concerned that higher veterinary charges will lead to a decrease in practice viability. What research have the Government conducted on the likely impact of the order on the number of vets’ practices? The Government intend to open the market in prescription-only medicines to pharmacies. In some cases, that means that prescriptions will not be collected over the counter or face to face. What steps are the Government taking to prevent the fraudulent use of, or forgery of veterinary prescriptions, particularly when transactions are made on the internet?
Article 4 sets out the requirement for a veterinary manufacturer to notify price information. We welcome the greater provision of information and transparency of pricing, but will the Minister tell us what assessment of cost to manufacturers the Government have made of that requirement? The same applies to article 5.
Article 6 deals with the prohibition of discrimination between veterinary surgeons and pharmacists by a veterinary manufacturer or wholesaler. Is it right that there should be no such discrimination, and how do the Government propose to ensure that that is enforced?
2.47 pm
Mr. Alan Reid (Argyll and Bute) (LD): Mr.d ¤Williams, it is a pleasure to see you as a member of the Chairman’s Panel and to serve under your chairmanship.
There is a problem here that the Government are right to tackle. The problem is the high cost of veterinary medicines in Britain compared with elsewhere. The differentials in prices between Britain and other countries, most notably the Irish Republic, have clearly encouraged the development of a black market in illegally imported veterinary products, the
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safety of which are highly questionable. There is a problem but, like other hon. Members, I am concerned that the solutions that the Government propose will make the situation worse.
In its submission to the Competition Commission, the National Farmers Union of Scotland
“expressed surprise that the CC had focused possible remedies so heavily on the veterinary profession and not paid more attention to the pricing policies of manufacturers.”
It added:
“Whilst greater competition between veterinarians and pharmacies might go some way towards reducing the prices to producers of POM products, the real solution lay with the manufacturers and their dominance of the UK market.”
The Government should be investigating why the big pharmaceutical companies charge so much more for veterinary medicines in Britain compared with other countries—even our neighbouring country of Ireland—rather than following a course of action via the order that risks squeezing the profits out of rural veterinary practices. The hon. Member for North Essex (Mr. Jenkin) was right to highlight the fact that the OFT is concentrating very much on small business, rather than tackling some of the large companies.
Many veterinary practices, especially those in remote rural areas, are working on very tight profit margins. The reality is that if the Government, as a result of the order, squeeze the profits of those practices, they could well force some of them out of the large animal business. That would obviously have a terrible effect on animal welfare and the whole rural economy. Because farms in the highlands and islands are scattered, the loss of even one veterinary practice could well mean the end of farming in the area that it served. It is painfully obvious that, if vets lose money from the sale of medicines or from being able to charge for writing prescriptions, the only course of action open to them will be to put up their consultation fees and call-out charges.
Again, I quote from the submission of the National Farmers Union of Scotland, which
“observed that a reduction in veterinary surgeons’ margins on medicines would necessarily result in a corresponding increase in call-out fees. Any disruption to the financial viability of veterinary practices would jeopardize the health and welfare of farmed livestock and was the last thing livestock producers wanted.”
The people that this order is meant to help—the farmers—are concerned about its impact.
Who will be the beneficiary of the regulations? The answer is obvious: pharmacists. They stand to profit, but if they are profiting, money must be coming from elsewhere, because no new product or service is being created. Somebody must lose, and that loser will be the vet, the farmer or probably both.
When the order is passed, there will be a risk that pharmacists and other suppliers will seek to provide only those products for which there is a high turnover—flea treatment, wormers and so on. If that is the case, it is unlikely that the overall cost to farmers for a veterinary service, which includes the consultation and the medication, will reduce; it is more likely that it will increase. Many farmers currently struggle to pay their veterinary fees, and that is before any increases resulting from the new legislation.
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With regard to article 3 of the order, another area of concern is the lack of transparency in the cost of prescriptions to clients. It is important to note that the Competition Commission was highly critical of the veterinary profession for failing to provide itemised invoices to clients. The same commission concludes that this measure will order the same profession to hide the costs of writing prescriptions by forcing it to include the charge within the consultation fee.
The order seems to be a complete contradiction of the principles of an open and transparent market. That is made even worse by the fact that the cost of providing a prescription will have to be borne by all clients, irrespective of whether they required a prescription and/or medicine.
It is totally illogical for the Government to seek greater transparency in the cost of veterinary products or services on the one hand, while forcing practices to hide the costs of their prescription within their consultation fee on the other. The order is inherently unfair, requiring all clients of the practice to bear the cost of providing medicines and writing prescriptions, and not allowing vets to discriminate in their consultation fees between those who require a prescription and those who do not.
The Government’s response to the consultation on the order states:
“We accept that consultation fees may rise, but the corresponding downward pressure on prices for medicines should”—
I stress “should”—
“mitigate against this, and may even outweigh this through removal of the inherent inefficiencies of cross-subsidisation.”
The Government do not seem confident about the outcome of the order. They think it “should” mitigate against increases and “may” even outweigh them.
There is concern that the one effect of the order will be the loss of veterinary practices in remote areas, particularly in my own area—the highlands and islands. That would have severe implications for animal welfare, the future of farming and the ability of the country to cope should we have another foot and mouth epidemic.
I have some questions for the Minister. Why has a risk assessment not been carried out on the likelihood of vets going out of business, and the consequences if that were to happen? What plans do the Government have for providing a veterinary service in any areas left without a veterinary practice as a result of the order? Why does the explanatory note accompanying the order say that there is no impact on the public sector, when higher consultation charges will have an impact on the highlands and islands veterinary service scheme?
What other industry have the Government insisted perform a task of work without being allowed to charge for it? Do the Government believe that charges should be hidden in other fees, and that clients should be charged for a service—in this case, prescriptions—whether or not they receive that service?
There is a serious problem of higher charges for veterinary medicines in Britain compared with the rest of Europe. I am concerned that the approach in this
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order will simply transfer the burden from charges for medicines to charges for consultations and make the situation worse. Instead, the Government and the OFT should be investigating why the big pharmaceutical companies are charging so much more in Britain compared with countries such as Ireland. I look forward to the Minister’s response and I hope that he will be able to address those concerns.
2.56 pm
Miss Julie Kirkbride (Bromsgrove) (Con): I would like to take part in this debate because the Minister has not made a very good case so far. The three contributions we have heard so far, from my hon. Friend the Member for North Essex and from the hon. Members for North Cornwall and for Argyll and Bute (Mr. Reid), give rise to serious reservations about why the Government are accepting the recommendation.
If it is the case, as the hon. Member for Argyll and Bute suggested, that the problem lies with the cost of veterinary medicines, the Minister should consider that matter. That might mean examining pharmaceutical companies and their international pricing policy, or even price fixing in the United Kingdom when the products arrive. It certainly does not follow that the answer to the problem of expensive veterinary medicines is to prevent vets from charging for issuing a prescription.
I agree with what other hon. Members have said so far, not least because I have been lobbied on the matter in my constituency. A common good is unlikely to be achieved by not allowing vets to be transparent in their pricing policy. After all, vets operate privately. They are not part of the national health service and they offer a service like anyone else, whether they be an accountant, a lawyer or whoever. Vets are perfectly entitled to issue a series of charges for their services, one of which might be a prescription.
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): May I put on record before I make my case, which the hon. Lady says is not a strong one, that the measures are supported by the Royal College of Veterinary Surgeons, which implemented many of the recommendations of the Competition Commission?
Miss Kirkbride: I am sure that that is helpful to the Government’s case; it does not necessarily mean that it is right. Based on the representations that I have received, the proposals do not have much support from the members of that organisation, but that is not a matter for this Committee.
Vets are private practices. They are not supported by the Government in any way. They provide a service to their local communities, whether that is looking after pampered pooches or farm animals. They provide an important service, whatever their clientele might be. It is perfectly reasonable in the circumstances that those wishing to seek their services should pay according to what they have received.
Inevitably, as my hon. Friend the Member for North Essex said, in the regions, vets will have to be more circumspect about the charges that they make.
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Vets who work in the farming industry have to recognise that their services will not be required if they charge more than the value of the animals they are seeking to protect and to nurture back to health. They will have to make some accommodations on occasion on the structure of their pricing, but inhibiting them in the way the Government propose seems to make no sense at all.
Vets will not be able to charge clients who are perfectly able to afford a prescription fee, but will, inevitably, if they wish to stay in business—no one opts to have a cut in income—maintain their income by increasing their call-out charges. I do not see how the Minister thinks that that adds to his arguments for greater transparency in the market.
I urge the Minister to be more suspicious of the recommendations of the OFT. Again, I agree with my hon. Friend the Member for North Essex that it seems to go after the small fry and ignore the big cheeses when it comes to improving competition and competitiveness in the UK. I urge the Government to ignore the recommendations and to look again at what may well be a perfectly legitimate argument about the costs of veterinary medicines. Anything that we can do to help the farmers is much appreciated, as the Minister will be aware. There are many other ways in which one can help the farmers. Before you call me to order, Mr. Williams, I shall not go into them. However, I am sure that we could all provide a long list.
The order pursues the wrong target. We should look again at why the supply of veterinary medicines in the United Kingdom is more expensive, rather than introduce this measure, which appears to have little support in Committee.
3.1 pm
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