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14 Jan 2009 : Column 128WH—continued

On top of that, there is a rich diversity of providers. The hon. Gentleman rightly referred to one section, but more than 10,000 dispensing pharmacies operate throughout England, and they vary enormously in size
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and type—from the small, independent contractors to which he referred, through to the large national and international companies with more than 1,000 outlets, such as the high-street names of Boots, Lloyds and the big supermarkets. So, finding the right financial framework to sustain both, through the high volume and huge diversity of the system, is obviously difficult.

This is what we did: we negotiated with the representative bodies, and a funding arrangement was agreed and introduced in 2005. That is the arrangement on which we are negotiating. It was not done under duress; everybody signed the agreement. It recognised that on the products that pharmacies supply against NHS prescriptions, they retain a margin—the difference between the price they paid for the drug and the price that we as the NHS reimburse.

That was all part of the negotiations, and we recognise that the margins are part of pharmacies’ business model, so, at regular intervals within the agreement, the Department and the Pharmaceutical Services Negotiating Committee, which represents pharmacies, agree an acceptable retained medicine margin—what the pharmacies can keep—as part of the wider funding negotiations.

That brings me to the hon. Gentleman’s next point, which was about clawbacks. First, however, I repeat that we agree on what we pay, how the pharmacies purchase what they dispense and how much of the margin they can keep. To keep the margin within the agreed funding, the Department and the PSNC hold a joint survey every year to find out the average margin that pharmacies have held over the past 12 months. We then adjust it to match the overall funding settlement. So, if more has been paid than was necessary, it is agreed—through the joint survey, jointly undertaken—that it would be ludicrous for us to carry on paying more than we know we should. Things have to be evened out, but we must have the 12-month period and all the information, agree on the survey, analyse it and then make the adjustment. That is how it operates in the overall funding settlement.

In theory, we can work in one of two ways. The first is the discount clawback scale—a percentage deducted from each contract depending on its total reimbursement payment. Reducing percentages deducts less from contractors’ reimbursement, leaving them with more retained margin, and vice versa. The second, to which the hon. Gentleman referred, is adjustment of the reimbursement prices of certain generic products. Those listed in category M of the drug tariff are the ones that he mentioned. Since the new funding deal came in, the Government have only ever used the latter method—adjusting the reimbursement prices to keep the margin on track. That means paying what everybody agreed we should pay, which is the reimbursement plus the margin, with the rest then to be evened out. Why would we expect taxpayers to pay for more than they had received?

During negotiations in 2008-09, the PSNC expressed concern about pharmacies being underfunded. Although that point was made to us and the hon. Gentleman has made it again today, it is difficult to find any hard evidence. None the less, as the Minister, I agreed that in good faith we would look again at the whole funding model, in conjunction with the PSNC. In the meantime, as another generous act of good faith and despite the
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fact that the Government were of the view that we had paid more than we should have, we agreed to increase the funding settlement for 2008-09 by £150 million. The PSNC applauded that decision. It applauded us for acting—the very thing that the hon. Gentleman thinks we have not done. Sue Sharpe, its chief executive, described the funding as a “necessary and welcome uplift”.

However, funding decisions take time—they do every year. We are waiting for the analysis of the annual survey to come through and for negotiations with the PSNC to conclude before we can agree an overall settlement. The final agreement on the funding for this financial year was not completed until September 2008, which means that we were not in a position to pass on the extra money until the end of that year. But I stress, this is no different from any other year since the agreement came into place.

Mr. Sanders: May I say that there is a difference? The difference is the fact that we now have a credit crunch, so if there was any delay in the Government paying back to pharmacists what they overpaid in through the clawback—there should not be any delay at all—that would not be consistent with the other message from the Government, which is that one should pay small businesses as promptly as possible.

Dawn Primarolo: In these circumstances, and within the agreement and the complexity of the system, the Government do exactly that. The hon. Gentleman referred to it himself. Regular monthly payments were paid on account, as estimates, and the Government have to do what is necessary in looking at the scripts. The pharmacists collect their scripts for a month and physically send them, which they cannot do until the end of the month, and then they need to be checked.

I hear what the hon. Gentleman is saying, but we should consider the fact that 80 to 90 per cent. of a pharmacy’s business is dispensing prescriptions, which is a guaranteed flow of money. It is difficult to comment on what else that business might be doing or how it is run, but the flow of money is regular and predictable within the agreement, which I have agreed to revisit.

I think that the agreement is working well. Pharmacies are a little concerned and have raised a number of issues. I have said “Okay, let’s look at it,” because I entirely accept the point that the hon. Gentleman is making. As the Minister who introduced the White Paper and did a great deal of the work, I think that pharmacies have a crucial role to play in ill-health prevention, monitoring chronic diseases, helping people with long-term conditions and using the full expertise of a pharmacy, which brings them into the wider primary care family. That is exactly what the White Paper seeks to achieve.

Far from being erratic, capricious and cost-cutting, the Department, within an agreed framework, is doing its best to get the money through as quickly as possible. None the less, given the importance of pharmacies, we have to ensure that the system always operates the best it can, hence my willingness to reconsider the agreement and to invest the other £150 million as an act of good faith. That is on the basis of saying, “While we are trying to sort this out, we don’t want to leave anything to chance.”

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It is always difficult, particularly for Ministers, when general points are made without specifics. I say to the hon. Gentleman that if he has an example of a pharmacy in his constituency that is going out of business directly as a result of this agreement—not as a result of other business decisions that the wider pharmacy business took—I am happy to look at it. I have asked the primary care trust in his area and the strategic health authority whether there are any particular issues and at the moment they are not aware of any, but I make that offer to him.

I want to return, because I cannot allow them to pass, to the hon. Gentleman’s comments on polyclinics and the threat to pharmacies or any other provision. I want to hit that on the head now. The thrust of Government policy is to provide exactly what patients, whose best interests we should always act on, say they want, which is as many services as is practical to be close to home—that is, local where possible and centralised where necessary.

The use of extended clinics, or polyclinics, to bring out of hospitals and into local communities the services that can be accessed there is not centralisation, but decentralisation, which is important for the local community. It also offers a unique opportunity to ensure that pharmacies and all their skills are used to the maximum. That means ensuring that where a pharmacy can provide services that we need in local communities because it already has 10,000 outlets, and where it can do so in a way that respects patient confidentiality and privacy and gets patients to the expertise, it does so. That is precisely what the White Paper is about. I get the impression from the hon. Gentleman’s comments that he is as committed as I am to that principle.

The funding mechanism is being looked at in good faith—not because we think that there is a problem, but because others tell us there is. We have given extra money just in case, we are in negotiation and we are not aware of any pharmacy that is having problems because of the payment flow from the NHS. We see that the future of pharmacies in our local communities is about them providing those important, unique services that they can provide to strengthen the diversity of our health service and ensure that the communities that the hon. Gentleman talks about, in rural and more sparsely populated areas, get the services that they are entitled to.

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Exchange Rate Policy

4.30 pm

Mr. Christopher Chope (Christchurch) (Con): It is delightful to serve under your chairmanship, Mr. Weir, and to be able to raise the important subject of economic transparency, which is fundamental to public accountability. That is what one gets with flexible exchange rates, for which I am a great enthusiast, but I am not quite so sure whether the Government are as enthusiastic, particularly now that judgment is being passed on the British economy by the markets.

This debate would be better entitled, “The Pound in Your Pocket”. What can people buy with the money that they earn? Can they afford a foreign holiday this year? What are their assets worth in the world marketplace? What is their pension or benefit cheque worth in the real world? Those are the questions that people have to face up to, and the answer to them is that, in 2008, according to Bank of England statistics, the pound in your pocket, Mr. Weir, in my pocket and in the Minister’s pocket was devalued by 25p—by one quarter. The exact figure was 24.7 per cent. That was the decline in the sterling exchange rate index between 31 December 2007 and 31 December 2008. Those are incontrovertible facts.

The value of the pound coins in our pockets reflects the collective worth of our country in comparison with other countries. It takes into account the value of our raw materials, assets, natural resources and, obviously, debts and liabilities. The sterling exchange rate index is an accurate and unbiased barometer, or measure, of how UK plc is performing in comparison with other countries, and the unavoidable verdict is that our country has lost one quarter of its wealth in just one year.

The full implications for most consumers have yet to be realised. Retailers have been desperately destocking because of the recession, and although they are warning of substantially higher prices when they restock, those prices have not for the most part yet got through to the consumer. Nor has the impact of the 25 per cent. devaluation of the pound against the dollar come through in higher oil prices, because it is being disguised by the global fall in the price of oil, but those price increases will come. The Bank of England is already forecasting that inflation as a result of imports will increase significantly in the coming year.

The extent of devaluation in 2008 was greater than in 1992, when the United Kingdom was forced out of the exchange rate mechanism. It was greater even than in 1966, when the International Monetary Fund had to bail out the Labour Government. The last time that the UK lost one quarter of its wealth was after the second world war. The loss we suffered then was a price worth paying for defeating Hitler and preserving our freedom. We know why we lost 25 per cent. of our wealth then, but why did we do so again in 2008?

The Government have always been expert in taking credit for others’ efforts, while finding scapegoats for their own failures, and so, true to form, the Prime Minister has been trying to blame our national economic humiliation on the international or global banking crisis that was triggered in the United States. Indeed, he did exactly that today during Prime Minister’s questions when he spoke about the global financial crisis.

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The Prime Minister’s claims that the problems are all caused by some global financial crisis are manifestly absurd. If that were true, the pound would not have devalued by 25 per cent., particularly against the dollar. If the real crisis is in the US, why is our crisis much worse? The answer is that the Government mismanaged the economy in the period running up to 2008.

It is worth reminding ourselves of what the Prime Minister said when he was the shadow Chancellor of the Exchequer and was commenting on the last sterling crisis in 1992. Addressing the Labour party conference, he stated:

The Prime Minister’s highly perceptive analysis in 1992 is equally applicable, if not more so, today.

The weakness of our currency is indeed the result of the weakness of the economy, and who is responsible for that? None other than the Prime Minister, who, before becoming Prime Minister, was Chancellor for the duration of the Labour Government, who have now been in office for almost 12 years. That is where the responsibility lies. Why is the Prime Minister not prepared to accept that and take the blame?

The Government have given the impression that they have no exchange rate responsibility, but paragraphs 7 and 8 of the May 1997 letter from the Chancellor to the Governor of the Bank of England emphasised:

and that they can instruct the Bank to intervene in foreign exchange markets.

Interventions have been rare. The last one, which involved support of the euro, took place in September 2000, but one might also include the bizarre and ill-judged decision by the Chancellor to sell 60 per cent. of our gold reserves at the bottom of the market. The price was less than one third of what those same gold reserves would be worth now—again, a major error of judgment for which we have never had an apology from the Prime Minister.

In a fascinating exchange in the Treasury Committee on 10 December, the current Chancellor was asked whether he would be prepared to support sterling, if necessary. His answer was:

The Chancellor was not willing to accept responsibility for his part in this, which is to deal with exchange rates. He said that the Bank of England will not deal with exchange rates. Of course it will not, because that would be outside the remit given to it by the Chancellor in 1997.

Have the Government accepted any responsibility for where the exchange rate is now? What is their policy? In a written answer on 21 April 2008, the Exchequer Secretary stated:

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Unfortunately, despite my best endeavours—I asked the Library for help—I have been unable to get a definition of “medium term”, but I am sure that the Minister can explain how the 25 per cent. devaluation in 2008 was consistent with a policy of stability in the medium term. I hope that in a moment of frankness he will say that, of course, it was not, but that would be an unusual admission for the Government to make.

The reality is that this Government’s macro-economic policy is an utter shambles. The so-called golden rules have been dumped because they became an embarrassment, and all that has been put in their place is a policy of ever more state intervention, borrowing and waste. That will undermine our nation’s economic prospects for years to come, probably for a generation. The Government’s failure to deliver on their avowed policies, whether eliminating boom and bust or monitoring and maintaining a stable exchange rate, is causing untold hardship up and down the country.

This debate is timely, because I have received representations from a company in my constituency that is the largest importer of a type of sport-related promotional product. In less than a year, the cost of its imports have risen dramatically making it hard to deliver to UK customers on agreed contractual terms. The managing director told me that he did not insure against currency risk. On asking why not, he replied that he had accepted the Government’s statements that the exchange rate would remain stable. He cannot be blamed for not realising that, far from remaining stable, the exchange rate would decline by 25 per cent. What message of apology does the Minister have for that individual, his company and the people who work for him?

With the Government’s policy of exchange rate stability in ruins, where do we go from here? The policy of maintaining sound public finances has been abandoned in favour of ever-higher borrowing. I am sure the Minister will accept that that will lead to a further devaluation and a significant inflationary problem.

In November 2007, the Governor of the Bank of England claimed that anyone searching for a stable, trade-weighted exchange rate

Were businesses wrong to rely on the Governor’s words? Were foreign investors wrong to look to him as an expert on the matter?

In evidence to the Treasury Committee on 25 November 2008, the deputy governor of the Bank of England, Mr. Bean, said that the more than 20 per cent. depreciation in sterling

He stated that the Bank of England had

He said that there was an unsustainably large current account deficit caused by the Government that needed correcting. That it has not been corrected, but rather exacerbated, is one reason why our currency has declined so much in value. How does that fit in with what the Governor said a year earlier about stability in the exchange rate? Does it not just demonstrate what a mess the Government are in on this area of policy?

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Numerous articles have been written in recent months about the sterling crisis. I could quote a number of commentators. Does the Minister agree with Peter Spencer, the economic adviser to the Ernst and Young ITEM Club, which uses the Treasury’s forecasting computer? On 11 December, he was quoted in the Financial Times as saying:

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