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14 Jan 2009 : Column 121WH—continued

We are also taking steps to ensure that childless workers claim and receive the support through working tax credit that they are entitled to—that is a point that the hon. Member for South-West Hertfordshire very fairly raised. In the pre-Budget report, the Chancellor drew attention to initiatives taken by Her Majesty’s Revenue and Customs to increase take-up, again working with other organisations. At the moment, HMRC is working with 40 organisations, which between them have more than 500,000 employees. They include the Local Government Association where, on the initiative of Sir Jeremy Beecham of the LGA, we are working with six large authorities—Manchester, Nottingham, Thameside, Camden, Leeds and Durham—to encourage take-up of working tax credits by those employees who are eligible. Furthermore, in the coming year, HMRC will aim to double that coverage by working with the new national employment partnership, which met for the first time recently, to raise employers’ awareness of working tax credit and encourage take-up in that way.
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HMRC will also work alongside Jobcentre Plus to ensure that people starting work receive advice on the support available to them.

Hywel Williams: Will the Minister tell us, or inform me by letter, what steps HMRC is taking to work with the Welsh Assembly Government, as that has a particular bearing in rural areas?

Mr. Timms: The hon. Gentleman is right to note that HMRC is a UK-wide organisation. It certainly works in Wales as well, and I shall be happy to drop him a line setting out the details.

Having mentioned Jobcentre Plus, let me pick up the point that my hon. Friend the Member for Regent's Park and Kensington, North made about the “better off in work” calculations, which are important. From everything that I have heard, including in my former role as the Minister with responsibility for Jobcentre Plus, those calculations have helped people to understand how much better off they will be when they are in work. When I was in that role, much of the lobbying that I received urged me to make those calculations more widely available. As my hon. Friend knows, they are difficult to do and take a lot of time, so there is, rightly, some reluctance to make them more complicated by adding more elements. She is right to note, however, that people need to take account of other factors, such as the cost of school meals, when making an assessment. I think she will acknowledge that there is a trade-off between how much is put into the calculations and the ability of Jobcentre Plus to provide them in a helpful form to as many people as possible.

We have talked about difficulties in the early days of the tax credit system that will have become familiar to all Members, but things have improved since then, as the hon. Member for Caernarfon acknowledged. Most people now receive a good service, although that is not true for everyone and there is room for further improvement. I acknowledge the points that the hon. Member for Rochdale (Paul Rowen) made about the difficulties that some of his constituents have faced. The tax credits transformation programme, which was introduced in 2006, has succeeded in making valuable improvements to the service.

The biggest problem has been with overpayments, which the hon. Members for Caernarfon and for Rochdale spoke about. The extent of end-of-year adjustments leading to overpayment has fallen significantly in the past couple of years, particularly as a result of the measures to improve the system that were announced in the 2005 pre-Budget report. Overpayments now constitute about 5 per cent. of gross spending on tax credits, which is still more than I would like, but is significantly less than it used to be, amounting to about £700 million last year, which is a 40 per cent. reduction on the previous year. That is better than the projection that we made in the 2005 pre-Budget report that overpayments would fall by about a third. The number of families affected by overpayments is down from 1.9 million to 1.3 million, and the average overpayment is down by almost £100 to £738.

There was a further important improvement last January, following discussions with representative organisations, when HMRC revised its guidance on when it will write off an overpayment where there has been an error by
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the Department. This matter was touched on in an intervention. The revised test means a fairer balance of responsibilities between the customer and HMRC, and a less restricted willingness to write off. My experience in my constituency surgery is that that has resulted in improved decision making and fewer overpayment problems, although I certainly would not claim that there are none. I got the impression from the hon. Member for Caernarfon that he thought that was the case, but was not sure, and I counted the hon. Member for Rochdale as having acknowledged that. I am grateful for the hon. Member for Caernarfon’s acknowledgement that that is the case.

The hon. Gentleman was right to highlight the importance of having good arrangements in place to allow the recovery of overpayments over a period, instead of demanding it straight away. HMRC restricts recovery on overpayments from continuing awards to 10 per cent. for those on the maximum award and to 25 per cent. for those on the first income layer, so those difficulties have already been taken into account when recovery rates are assessed. A 12-month instalment arrangement is available for those who no longer receive an award, with longer payback periods where that is appropriate. If those rates of recovery still cause hardship, people can contact HMRC, which is required to consider operating a slower rate of recovery and even writing off overpayments in exceptional circumstances.

I am glad that the hon. Member for Rochdale has been able to resolve the problems in both of the cases that he described. Clearly, resolution took far too long in those cases. I am always happy to look at problems with individual cases when Members raise them with me.

I want to spend some time on the child care element of working tax credit, which was at the centre of the speech made by my hon. Friend the Member for Regent's Park and Kensington, North. The latest figures show that 461,500 families benefited from the child care element of the working tax credit last December. That is an increase of 8 per cent. on 12 months ago, which is 37 per cent. higher compared with April 2005. My hon. Friend gave the figure for the number of families benefiting in her constituency, which I believe is 60 per cent. higher than it was four years ago, in April 2005.

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My hon. Friend is right that access to good-quality affordable child care can be more difficult in high-cost areas such as London. The London child care affordability pilots have gone some way to addressing that problem. As I have mentioned, we announced in the pre-Budget report a taskforce of experts to help with promotion. Those initiatives should help to meet the challenges in London in particular, as will the agreements that were announced in the London child poverty strategy in November.

The aim of the child care element is to break down barriers to work. We have introduced free nursery places and free early-years education for three and four-year-olds, and we are extending the entitlement to up to 16.5 hours a week by 2010.

Ms Buck: Will my right hon. Friend discuss or write to me about my concerns about the child care element and care for older children in extended schools, in the light of the research by the Department for Children, Schools and Families that the number of children who are being assisted in this way has declined?

Mr. Timms: I am happy to drop my hon. Friend a line about that, perhaps following discussion with DCSF officials.

The hon. Member for Basingstoke (Mrs. Miller) said that the Prime Minister’s commitment had been watered down or withdrawn, but that is not the case. Indeed, the White Paper that was published yesterday sets out the first step in delivering that commitment for two-year-olds as well.

There has rightly been a good deal of debate about take-up of the child care element, which is difficult to assess. I certainly do not have clear data on it. The difficulty is in knowing how many people want it. My hon. Friend has suggested that it is taken up by about 10 per cent. of those in her constituency who receive tax credits, but we need to ask how many we expect or want to access it, perhaps by taking up formal child care and therefore using up the child care element. We do not have clear data on that, and it may be useful to do extra work in that area to get a sense of the extent of the need being met, which I think is rather higher than has been suggested.

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Pharmacy Payments

4 pm

Mr. Adrian Sanders (Torbay) (LD): I am grateful for the opportunity to discuss an important issue. The economic downturn is adversely affecting many parts of society, but community pharmacists are shouldering a significant burden. In recent years, the reimbursement regime has led to financial uncertainty, which is compounded by restrictions in credit. The White Paper, “Pharmacy in England: Building on Strengths—Delivering the Future”, provides an outstanding opportunity to consolidate the good work done by pharmacists and further develop their role to the benefit of the communities that they serve. However, that opportunity might be missed if the current financial problems are not solved. Not only will many pharmacists be unable to afford diversification, but some might be threatened with bankruptcy by the capricious nature of the clawback system.

The future of community pharmacy is at a crux and the Government must act carefully to ensure that a vital community resource is not irreparably damaged. The fundamental problem is the nature of reimbursement for category M drugs. Combined with the profit cut for pharmacies, changes in price tariffs for category M drugs have prompted the erratic measure of clawing back excess profit. In addition, recalculations requiring additional reimbursement and further clawbacks at short notice have taken place. The fault in category M reimbursement lies in its complexity—it is complicated, it lacks transparency, and changes cannot be foreseen. The Pharmaceutical Services Negotiating Committee gives the following outline of how pharmacies are reimbursed:

average item value—

If that is not enough, it goes on to state:

the NHS business service authority—

It could not get more complicated, although I accept that the local government funding formula probably comes close.

Pharmacists in my constituency tell me that the system is too cumbersome and has prevented pharmacies, especially smaller operators, from being able to manage and plan their cash flow effectively. The Independent Pharmacy Federation states that there has been a significant financial impact on the ability of independents to pay their bills since January 2008. Pharmacies have no advance view of the wider picture of transactions and cannot foresee how much excess profit is generated. None the less, the Government clawed back on average £30,000 per pharmacy between October 2007 and March 2008. Some pharmacists in my constituency have told me that they are essentially
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facing a reduction of 10 per cent. in their income this year and that they do not have the same security offered to other parts of the health service. A reduction in income and uncertainty of income are, at best, preventing investment in local pharmacies—at worst, they could cause bankruptcy.

In the past, banks were able to offer sympathetic overdrafts and sufficient credit to allow pharmacists to offset somewhat that absurd reimbursement regime. There are fears that the next unexpected clawback will not find the banks in such an understanding frame of mind. A mechanism is clearly required to ensure accurate reimbursement and to maintain a satisfactory margin of profit for pharmacies. Although the White Paper advocates substantial innovation, there is no need fundamentally to change the working—particularly the financial model—of pharmacies. However, category M is only one of several elements of income for pharmacists, and the complexity of the reimbursement process is itself a great cause for concern. There are also commercial pressures on pharmacies.

The move towards direct-to-pharmacy supply chains will also reduce pharmacists’ profits, and further dissuade forward investment. Problems have already arisen, with wholesalers occasionally requiring pressure to reduce prices to the levels of the drug tariff, and the reduced competition direct to pharmacy will exacerbate that difficulty. The potential of pharmacies to contribute to the NHS has been neglected in recent years, and the White Paper provides a perfect opportunity to bolster the service. So far, there has been little co-ordination with primary care trusts, GP surgeries and pharmacies—in some cases, there has even been a spirit of competition between them.

Lord Hunt has acknowledged that the NHS reform programme has adversely affected pharmacies and that not enough has been done to promote the wider range of services that they can offer. There is the barrier of IT integration and a lack of sharing of best practice on how to incorporate pharmacies into holistic local health care provision. The spectre of polyclinics also seems to threaten pharmacy stability. With any centralisation of GP practice, there will follow a centralisation of prescribing businesses, and pharmacies will close down in rural and deprived areas—places where such community resources are most vital.

Polyclinics highlight a trend towards centralisation that could remove services from deprived areas. Indeed, the financial pressures on small chains of market-oriented pharmacists could force them to cut branches, which will inevitably be in the less profitable but most needy areas. The emphasis on competition and choice is not well founded; it pits professional groups against one another, and it leads to a lack of co-ordination and co-operation. PCTs have not developed as effective commissioners. In some senses, they have not been allowed to develop effectively, and the danger is that that approach will create effects contrary to those desired by patients.

Instead of the cost cutting that inevitably occurs with competition, impeccable standards across the board are desired in health care. The focus seems to be purely financial, and as a result professional ethics will suffer. The White Paper is a timely response to those issues and if properly implemented, the measures it contains could expand organically the role of pharmacies, reduce the
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burden on GPs, and provide better services for the public. A more balanced health care system that engenders co-operation between GPs, pharmacies, PCTs and other groups would improve the service to patients. The most important factor in achieving that is stability.

Investment in new, improved services is funded through pharmacists’ margins and is fundamentally entrepreneurial. The instability of cash flow inherent in the reimbursement system seriously deters that entrepreneurial spirit. Some pharmacists have started to develop add-on services, and have aimed to tender for locally enhanced services, but when clawbacks have been announced, the additional staff taken on for those services are the first to be laid off. The sometimes daunting prospect of engaging with the PCTs’ tendering process can also dissuade investment in additional services. The White Paper aims to address the disparity between PCTs’ commissioning practices, which will be a vital element of ensuring the stability needed for improved service delivery. PCTs need a greater, better informed say in this area of provision, but they must not have an iron grip over the commissioning service, which would severely alter the free-market nature of community pharmacies.

Even if an efficient and effective commissioning regime is created, it must be complemented by a smoothing-out of the funding stream, particularly from category M. Ultimately, pharmacies are small and medium-sized businesses, and the Government must honour their commitment to reimburse businesses promptly by instituting a fairer and more transparent funding formula. Even without clawbacks, pharmacies can wait up to three months to receive reimbursements for prescription costs. For local, enhanced services, the reimbursement, which is the responsibility of primary care trusts, can take even longer. It is fundamental to the aims of the White Paper that it should create a stable and transparent reimbursement process, but the credit crunch makes addressing the financial aspect of pharmacy care provision even more urgent. There is clearly a problem and, should the financial crisis continue, it may manifest itself in a serious contraction of pharmacy numbers, with a direct impact on the quality of local health services.

What can be done about that problem? There is no significant demand for radical change, but most pharmacists would be keen to explore the provision of enhanced services, and to enable that, we need to smooth the reimbursement regime. There needs to be more transparency for individual pharmacists and confidence in the integrity of the system. Increased notice of reimbursement rate changes, and a smoothing of the peaks and troughs over time are absolutely essential. Should pharmacies start closing due to the lack of available credit, the Government will have step in with financial assistance.

The Scottish Government have recognised the scale of the problem. In November, the clawback in Scotland was significantly reduced to alleviate the strain on pharmacists, and I am not just saying that because you are in the Chair, Mr. Weir. The Scottish Government have recognised the extent of the problem, and a similar, immediate alleviation is much needed in England. Overall, pharmacies face an unprecedented financial squeeze. Category M is forcing disjointed and sudden price realignments, shifting pharmacists’ incomes and margins violently and capriciously. The cap on the available margin dissuades innovation, and the way in which
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price realignments are instituted lacks clarity and transparency. Those alignments are complicated by how PCTs buy locally, and by the complex way in which that interacts with the national formula for redistribution. With the lack of competence in commissioning, many pharmacies appear to be at the mercy of their PCTs and many are suffering as a result. The more patient-focused and outcome-focused aspects of the White Paper may be dashed by those problems, and the contractual framework used for pharmacies may be fundamentally flawed.

The reimbursement scheme makes other Government schemes such as tax credits look like a walk in the park. The rapid changes will steamroller many individual pharmacies, as they abruptly reverse any additional investment in services that those pharmacies undertake—investment that the Government want to encourage. The Government’s urgent attention is required on this important and pressing issue.

4.13 pm

The Minister of State, Department of Health (Dawn Primarolo): Good afternoon, Mr Weir. It is a pleasure to see you in the Chair. I congratulate the hon. Member for Torbay (Mr. Sanders) on securing the debate, which I know is of great interest to him. His remarks fall into two categories: he referred to pharmacy reimbursement and to the role of pharmacies in primary care and the White Paper, which is under consultation.

I shall seek to address the hon. Gentleman’s points, but, regrettably, I must profoundly disagree with his use of terms such as “erratic”, “capricious”, “rapid changes” and “cost-cutting”, not only because they do not describe what is going on, but because the Government have worked, and the Department of Health continues to work very closely, with the pharmacy profession. Our approach to the situation has received considerable accolade.

I start with the question of reimbursement. The hon. Gentleman is absolutely right that it is a complex area, so it might be fair to challenge him to explain how complex and challenging it is. He touched on the following point, but I remind him that we are discussing independent contractors, and 80 to 90 per cent. of their business involves issuing prescriptions. They do other things too, but it is always important to strike the right balance between obtaining value for money for the taxpayer and investment in services, and creating, as he said, the healthy commercial conditions that sustain businesses. It is not the Department’s job, however, to undermine the rest of the business of pharmacy; it is the Department’s job to ensure that, where it uses services, it pays for them effectively.

The hon. Gentleman picked up on two points about the payment process, and he referred to the so-called clawbacks, to which I shall return. First, we must make clear the sheer scale and complexity of the exercise. Last year, pharmacies dispensed about 700 million prescription items, worth more than £8.7 billion. Every prescription has to be priced, recorded and then reimbursed, and the profession and pharmacies recognise that.

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