86.The UK has one of the most productive life sciences industries in the world. In 2016, it generated £63.5 billion in turnover, employing 233,000 people. It exported 48% of its manufactured products to the EU. 74% of life science imports were from the EU in 2015.
87.According to figures published in January 2017, the UK chemical industry generated an annual turnover of £32 billion. 60% of UK chemical exports went to the EU, and 75% of UK chemical imports came from the EU. It employs 99,000 people directly. The chemical industry is also at the top of the supply chains for many other sectors, including life sciences, aerospace and the automotive industry.
88.The two industries rely on just-in-time supply chains. For the life sciences and chemical industries, the UK will leave the EU’s regulatory system and UK authorisations will not be accepted in the Single Market. Tariffs would be imposed, along with the full range of EU regulatory and customs checks, which would lead to delays at the border and disruption to supply chains.
89.On 19 June 2019, we asked witnesses to summarise the impact of no deal on the life sciences and chemical industries. Steve Bates, Chief Executive of the BioIndustry Association (BIA), said, “A disorderly no-deal Brexit will negatively impact patients, public health and the life science sector.” Martin Sawer, Executive Director of the Healthcare Distribution Association, said, “[ … ] we would expect medicine shortages and a lot of price rises for the NHS to happen pretty quickly, and some shortages in most constituencies around the UK for sure.” Nishma Patel, Chemicals Policy Director for the Chemical Industries Association, said, “It will mean that businesses face continuous price rises and costs. There will be inefficiencies. The chemical industry is a just-in-time industry, so there will be an impact on getting material in and out of the country.”
90.In November 2018, the Government published a long-term analysis of EU Exit, which stated that under a “modelled no deal”, Gross Value Added for the chemicals, pharmaceuticals rubber and plastic products sector would reduce by over 20% over 15 years, compared to what it would have been had the UK not left the EU, as set out in the chart below. It noted that due to an increase in tariff and non-tariff barriers, “chemicals, pharmaceuticals, rubber and plastics and motor vehicles and parts are estimated to see the largest reduction in economic activity.” Nishma Patel told us that the Chemical Industries Association viewed the Government’s analysis as accurate.
91.The most significant threat to an uninterrupted supply of medicines to the UK is from disruption at the short straits crossings. On 26 June 2019, Steve Oldfield, Chief Commercial Officer at the Department of Health and Social Care, wrote to suppliers outlining the level of disruption expected at the end of October. He said, “While the predicted flow rate across the short straits has improved slightly since 29th March, significant disruption would be expected for six months following a no-deal exit, with the most severe period being the first three months.”
92.Witnesses said that it was difficult to measure the extent of medicine shortages that would result from such disruption. Martin Sawer described the industry’s normal levels of resilience for supplying medicines and set out how no deal could exacerbate problems:
There are a lot of unknowns here. There are currently about 100 or 150 medicines every day that are in short supply. The supply chain works to try to fill those gaps. You might go into a pharmacy and be prescribed a medicine and they will say to come back the next day. We can usually get most medicines within 24 hours. [ … ]
There are a lot of patient conditions where there may only be 2,000 people in the UK who require a medicine—things like motor neurone disease, or there was the EpiPen issue last year, which you probably recall. The other challenge is that there might be a global problem. They may only be manufactured on a couple of sites. There may be a regulatory issue. There may be a fire at a factory, or one may be closed down. We have had a lot of that.
So there is a shortage at any one time anyway, but [no deal] is to overlay that. Some products might have a short shelf life and may need to be refrigerated the whole time when they are coming across from the EU—50% of the medicines in our warehouses have touched the EU at some point, even though they may come from other countries outside of the EU.
93.Steve Bates said, “The question that is difficult for us to understand is, beyond the normal level of stock-outs and challenges within the supply chain, how much additional will there be from the Brexit challenge?” We heard that preparing for no deal at the end of October is not the same as preparing for no deal at the end of March. First, there is significantly more pressure on warehousing capacity in October, because businesses are stocking up in the run-up to the Christmas period, constraining industry’s ability to stockpile adequately. Second, the private sector is bearing the brunt of the costs of contingency planning and there are significant financial implications, particularly for smaller firms, from replenishing those stockpiled medicines with shorter shelf lives. Martin Sawer said, “For smaller manufacturers—not the household names—that is going to be a challenge financially. The private sector is paying for all of this, largely anyway, in terms of stockpiling.”
94.On 23 August 2018, the Department of Health and Social Care requested suppliers stockpile an additional six weeks supply of medicines on top of their normal stock levels, and to ensure they have plans in place to air freight products that cannot be stockpiled, to avoid border delays. The UK will continue to accept the batch testing of medicines carried out in the EU, EEA or other third countries with whom the EU has a Mutual Recognition Agreement.
95.On 26 June 2019, the Government set out further contingency measures, applying to critical, ‘category 1’ goods, including medicines, medical products, veterinary medicines and chemicals. It announced an express freight service to transport small medical supplies into the UK on a 24-hour basis, plans for additional ‘roll-on, roll-off’ freight capacity to support suppliers to re-route their supply chains away from the channel short straits, and “a freight capacity framework agreement” that will provide the Government with the ability to secure freight capacity to support critical supply chains when needed. It said, “This framework [agreement] does not commit the government to purchasing or reserving any freight capacity, but it does provide a flexible list of operators and options for the provision of the capacity that can be drawn upon if needed.” Steve Bates told us that ferry capacity is “fundamentally important”.
96.The UK’s life sciences and chemical industries are currently subject to stringent EU rules and each is regulated by EU agencies. Under no deal, the UK’s participation in the EU’s regulatory system will end, and the Government will have to establish its own systems in parallel with that of the EU for both chemicals and pharmaceuticals. We heard that this will impose significant costs on businesses who operate here, and it will have consequences for the attractiveness of the UK market.
97.EU rules cover the licensing of medicines, approval of clinical trials, post-market pharmacovigilance and inspections. The UK’s life sciences industry is regulated by the European Medicines Agency (EMA), which is responsible for the scientific evaluation, supervision and safety monitoring of medicines in the EU, alongside ‘competent authorities’, which are based in each Member State. In the UK, the Medicines and Healthcare products Regulatory Agency (MHRA) is the competent authority.
98.Under no deal, and in the absence of any other agreement, the UK would be outside the EU’s regulatory architecture. For those medicines that are to be licensed and supplied in the EU, the EMA has said that marketing authorisation holders and the batch testing of medicines will need to be transferred to entities in the EU, and new medicines in the UK would need to be licensed separately. In November 2017, the Office of Health Economics said a no deal, WTO exit, would cost a large UK-based pharmaceutical company in year one an “estimated £86 million (£49.6 million implementation; £36.4 million annual maintenance).”
99.The MHRA would take on the functions that are currently undertaken by the EU for medicines on the UK market. Applications for marketing authorisations for new medicines will need to be submitted both to the EU, following one of four approval routes, and separately to the MHRA for authorisation in the UK. Witnesses said they are concerned that the need to submit applications twice would make the UK a less attractive market and could lead to the UK waiting longer for new drugs. Steve Bates told us:
The question for us is—we have seen some of this concern from Japanese companies as well as other companies—where would they put the UK outside the EU in their thinking? My view is that it is more likely that the UK would become a second division market—a small market, less than 3% of the world’s market by value—so it is likely it would go down the priority list. It is hard to know. We don’t know. We will bat for the UK to continue and for patients to get access, but my judgment is that it will probably drop out of that top league, which is America, Europe, China.
100.Martin Sawer said the risk was particularly acute for less common, low volume drugs. He said that the UK could “expect some critical shortage probably in the lower volume medicines, not the everyday ones, which are stockpiled very high.” Moreover, he said, “Unless prices go up, the medicine might not come to the UK. The manufacturer will sometimes not provide it to the UK if the prices are too low.”
101.Witnesses told us that, without provisions with the EU to continue to exchange data, the UK would be shut out of critical EU data exchanges on pharmacovigilance, falsified medicines and clinical trials. We were told that the impetus behind data sharing in the pharmaceutical industry was attributable, in part, to the thalidomide tragedy. Steve Bates said, “Problems were spotted in one country, but thalidomide continued to be prescribed for a period of time in another country. It is the sharing of that data that enables patient safety rapidly, enabling judgments to happen quickly.”
102.Witnesses set out the impact of leaving the EU’s data exchange networks using the example of the Falsified Medicines Directive (FMD). Measures implementing that Directive in the UK have, since 9 February 2019, ensured that every pack of medicine put on the EU market has a unique barcode to be scanned before the medicine can be dispensed. Martin Sawer told us that this is to prevent the distribution of unsafe or counterfeit drugs. Steve Bates said, “when you scan the barcode in the pharmacy it needs to go back to a database and then get a response from the database system, be it good or not. If you are cut off from that database, the scanning does not do anything.” In written evidence, the BIA said:
Should the UK leave the EU without a deal in place, packs of medicines would be expected to have their unique code decommissioned on export from the EU. In a no deal the UK would be a third country and without negotiating access to EU databases (the central data hub underpins FMD safety features) will not be able to be part of FMD. Therefore, as part of the UK Government’s ‘no deal’ contingency planning, the UK Government has stated the UK would revoke the FMD Safety Features legislation. Regulatory obligations relating to FMD safety features would therefore cease to apply in the UK.
103.The BIA said that that there is a “real threat of counterfeit medicines entering the UK supply chain” and that the Government should reconsider its decision to revoke the implementing legislation. It pointed out that the importance of the FMD was demonstrated recently when the MHRA recalled medicines in the UK, including those for Parkinson’s, epilepsy and blood clots that were then removed from the supply chain.
104.REACH is the main EU legislation for the regulation of chemicals in the EU. Its main aims are to protect human health and the environment from the use of chemicals. We were told that it is becoming the industry standard worldwide and that despite initial industry reservations, there is no appetite to diverge from its specifications:
On top of that, if we also look at other global economies, particularly where the chemical industry is quite significant in terms of its footprint, most of those, with the exception of the US I guess, are looking to or already have implemented REACH-like legislation. It would not really make much sense for the UK to diverge or do something different from that.
105.REACH requires substances that are manufactured or imported into the EU, in quantities of more than one tonne, to be registered with the European Chemicals Agency (ECHA), and it provides a framework by which the use of hazardous substances can be restricted. The Health and Safety Executive (HSE) is the UK’s enforcement authority for the industry.
106.Under a no deal exit, and in the absence of any other agreement, the UK would become a third party to REACH. REACH registrations for companies based in the UK would no longer be valid, as only companies in the EEA can register directly with the ECHA. To export chemicals to the EU, UK companies would still need to comply with REACH and other regulations. As of August 2018, UK businesses held over 12,000 REACH registrations. Under no deal, they would only be able to sell into the EU if they had transferred their existing registration to an EU-based entity. The Government’s no deal technical notice on REACH accepts this position. Nishma Patel said:
The European Chemicals Agency transfer fee for a single registration is around £1,500, excluding admin costs. Businesses would need to meet both UK and EU requirements when they register new chemicals or seek authorisation to sell into both markets, creating duplication of registration fees and additional administrative burdens. EU WTO tariffs of on average 5% would also apply.
107.The Government will need to establish a new UK system to govern how chemicals will be regulated here, and it has already passed legislation for this purpose. It has said that it will set up a ‘UK REACH’, and that the HSE would act as the lead UK regulatory authority, instead of the ECHA. A new IT system “similar to the EU IT system” would be used for the registration of chemicals under UK REACH, administered by the HSE. The Government has set out details on how the system would operate to roll over existing REACH registrations into the UK system:
108.Environmental campaign groups are concerned that separating from EU REACH in a no deal scenario could result in lower standards of chemical regulation and safety. For example, on 13 June 2019, it was reported that CHEM Trust is threatening to take the Government to court over its UK REACH plans, which CHEM Trust has said omits EU equivalent oversight mechanisms.
109.We heard that while the Government’s no deal stakeholder engagement had improved, there were many UK ‘downstream’ companies, which do not hold an EU REACH registration and are currently purchasing chemicals from an EEA country, which will need to ensure the substances purchased are covered by a valid UK REACH registration. Nishma Patel said, “Those companies perhaps have no idea that they are going to be stung by the UK REACH regulation and will need to put in a registration that not only takes time but has a big cost implication.” She called for stakeholder engagement to continue to improve, “to make sure that everybody in the supply chain is aware of their obligations under no deal.”
110.On 18 December 2018, Nishma Patel told the Environmental Audit Committee that the two-year deadline for full registration was ambitious:
[ … ] it is not just about moving a registration from one system to another; you need to entangle the legal contracts that go with it. You need to renegotiate the access to data. If you do not have it, you need to test, which takes a lot longer than two years to do in itself.
111.Furthermore, she told us in June that “the UK is pretty much starting from scratch” in terms of having the data to register in full with the HSE, and that to get it, “a very hefty cost is attached to that.” She explained:
How the registration process works is, essentially, at the moment it is one substance, one registration. Whether you are a company in the UK, Germany or France, if you are making or importing the same, or a similar, substance it is one registration. The objective behind that is to minimise testing—particularly animal testing—so you are sharing data. This is all done under commercial negotiations. There is one data holder—perhaps not the UK company. They essentially get a letter of access to use that data for their registration for EU REACH purposes.
With UK REACH in place, there will need to be a further negotiation on the data in order to dissect that data and take it back out, and perhaps a commercial advantage to that EU data holder, or anywhere else in the world. Perhaps they would charge more to the UK company to access that data, and use it to submit under UK REACH for a UK chemicals database.
112.On 18 February 2019, the Chemical Business Association published results from a survey of the UK’s chemical supply chain. It found that three-quarters of companies do not own the testing data for registrations they currently hold under EU REACH. Nishma Patel warned that without access to EU data some companies may decide that it is not commercially viable to invest in the UK. She said, “Some 70% of our members are globally headquartered. They already have registrations in the EU for the EU27 marketplace. If it is not cost efficient or worth getting for the UK, we lose a marketplace.”
113.Under no deal, the introduction of tariffs would challenge the viability of supply chains for a range of complex goods, including chemicals and pharmaceuticals, that cross borders multiple times. In February 2018, the Chemical Industries Association said that the most important aspect in any scenario is to facilitate frictionless trade between the EU and the UK, including the maintenance of tariff-free trade:
With most of our products going to or coming from the EU the imposition of tariffs and related non-tariff barriers will negatively impact trade in both directions. The manufacturing supply chains are well established, with materials crossing the channel four or five times for some complex products. Even minimal tariffs, when combined with the related bureaucracy and need for documents to precede goods at borders are likely to mean that companies will re-evaluate their manufacturing strategies.
A February 2018 report by Squire Patton Boggs, a law firm, and the Chemical Industries Association, said, “Consequently any presumption that 4–6% in average tariffs can be absorbed by companies is naïve and ignores the economic reality of UK Chemical Industry’s trade.”
114.For pharmaceuticals, the WTO’s Pharmaceutical Tariff Elimination Agreement means that finished pharmaceutical products, and certain components, are subject to 0% tariffs. The Government has confirmed that the UK will continue to benefit from the Agreement:
The Pharmaceutical Agreement is extended on a Most-Favoured Nation (MFN) basis. This means that signatories extend the tariff eliminations to all WTO members. So, all WTO members enjoy the benefits of tariff free trade to signatory countries irrespective of whether or not they themselves are members. The UK will therefore continue to benefit from the tariff eliminations of negotiating parties and in line with our technical rectification approach, the UK will continue to place zero tariffs on pharmaceutical goods covered by the Agreement.
115.All finished pharmaceutical products are covered automatically by the Agreement, but active ingredients and intermediates, which are used in the manufacture of finished pharmaceuticals, do not qualify automatically and must be added formally to the list of eligible products, through the agreement of all signatories. The Agreement includes a commitment to update the list every three years, but it has not been updated since 2010, and it has been estimated that up to 1,000 finished products and 700 ingredients are not currently included in the list and would therefore be subject to tariffs when traded on WTO terms. Steve Bates told us that the BIA had asked the Government to ensure that it maintains party to the Agreement, but warned:
new products that have been developed or the ingredients for those new products since 2010—nine years ago—are not covered by that agreement. Many elements that go into the manufacture of pharmaceuticals when they are made here, such as bioprocessing bags, are not covered by issues such as the pharmaceutical tariff.
116.In 2018, AstraZeneca told the Business, Energy and Industrial Strategy Committee that they could still face duties of between 4% and 6.5% for active pharmaceutical ingredients and intermediates in all countries, including EU Member States.
117.The success of the UK’s chemical and pharmaceutical sectors rests on highly-integrated just-in-time supply chains. A disorderly no deal would disrupt these supply chains overnight, and, according to the Government’s own figures, would reduce GVA for the pharmaceutical and chemical sectors by over 20% over 15 years, compared to what it would have been had the UK not left the EU, as a result of tariff and non-tariff barriers. Pharmaceutical industry representatives were clear in evidence to us that no deal is a leap into the unknown, but that it would likely harm the life sciences sector and increase risks to patient safety, affect the supply of medicines and could lead to price rises for the NHS. For the chemical industry, which is at the top of supply chains for numerous other sectors, disruption at the border will have profound consequences for UK manufacturing, with resulting costs to the UK economy.
118.Under no deal, chemical and pharmaceutical companies operating in the UK will be cut off from EU regulatory systems and databases, which protect the environment and patient safety. Companies operating in both markets will need to register chemicals or seek marketing approvals for drugs twice, in the UK and the EU, an expensive and bureaucratic process that will reduce the attractiveness of doing business in the UK. Chemical companies will need to undertake new commercial negotiations with competitors to secure data needed to register chemicals. For the pharmaceutical sector, no deal will mean the UK’s relegation from the first to the second league of international markets, and the likelihood of longer waiting times for certain medicines as a result.
119.The EU has said that in the event of no deal, the UK will be treated as a third country and there would be no provisions in place on the exchange of data between the two entities. This carries harmful consequences for the life sciences sector which relies on the exchange of data for clinical trials, pharmacovigilance and the detection of unsafe or counterfeit medicines. The risk of any reduction in patient safety is unacceptable. The industry has already invested in the implementation of the Falsified Medicines Directive and the Government must set out urgently options for a replacement safety framework to eliminate the risk of unsafe and counterfeit medicines entering the UK supply chain.
120.The manufacturing process for pharmaceuticals and chemicals often entails components crossing borders multiple times. The sudden introduction of tariffs would therefore seriously challenge the viability of the two industries’ supply chains. While the Pharmaceutical Tariff Elimination Agreement would soften the impact of a no deal based on WTO terms, it has not been updated for nine years and does not cover a wide range of finished pharmaceuticals, components and equipment, meaning tariff barriers would be imposed on the newest, most innovative medicines and components that are traded between the UK and the EU.
123 HM Government, , 21 December 2017
124 Environmental Audit Committee, , January 2019
125 House of Commons Library Briefing, , 6 November 2018
126 HM Government, , 21 December 2017
127 The Government’s chemical sector report states, “The sector inputs to a range of sectors such as aerospace and automotive through the provision of coatings, adhesives, rubbers and plastics, as well as providing intermediary ingredients to the pharmaceutical, cosmetics, agrochemical, personal care, paint and home care sectors.” See, HM Government, , 21 December 2017
128 European Commission,
130 HM Government, , November 2018
132 Department of Health and Social Care, , 26 June 2019
138 Department of Health and Social Care, , 23 August 2018, and Department of Health and Social Care, , 26 June 2019
139 Batch testing is the process of confirming every batch of medicine has the correct composition, through laboratory tests. See, Department of Health and Social Care, , Updated 14 September 2018
140 HC 26 June 2019, Vol. 662,
142 According to the Political Declaration, the Government’s preferred relationship with these agencies, is as follows: “The Parties will also explore the possibility of cooperation of United Kingdom authorities with Union agencies such as the European Medicines Agency (EMA), the European Chemicals Agency (ECHA), and the European Aviation Safety Agency (EASA).” See, European Commission, , 22 November 2018, para 24
143 The Government has compiled a list of EU directives and regulations that apply to the life sciences sector. See, HM Government, , 21 December 2017, pp 12–14
144 Office of Health Economics, , November 2017, p3
145 Medicines & Healthcare products Regulatory Agency, , Updated 26 February 2019
146 Medicines are required to go through one of four procedures for market authorisation, depending on the product that is being approved and its intended level of availability across the EU.
147 [Steve Bates]
151 A written submission from the BIA said, “FMD safety features legislation came into force on 9 February 2019, including in the UK. The Falsified Medicines Directive (Directive 2011/62/EU) introduced measures such as: Obligatory safety features – a unique identifier and an anti-tampering device - on the outer packaging of medicines; a common, EU-wide logo to identify legal online pharmacies; tougher rules on import of active pharmaceutical ingredients; and strengthened record-keeping requirements for wholesale distributors.” See, BioIndustry Association, , July 2019
153 Securing Industry, “ , 27 June 2019 and, see, BioIndustry Association, , July 2019. The Government has said, “The UK is proceeding with implementation of the EU requirements for new safety features to prevent the entry into the legal supply chain of falsified medicinal products in the UK. However, as stated in the MHRA’s consultation, in the event of no deal, it is expected UK stakeholders would no longer be able to comply with the requirement to verify and authenticate. Therefore, the legal obligations related to this would be removed for all actors in the UK supply chain.” See, MHRA, , 26 February 2019
154 BioIndustry Association, , July 2019
155 REACH also aims to regulate the people who place chemicals on the market (manufacturers and importers responsible for understanding and managing the risks associated with their use.); to allow the free movement of substances on the EU market; to enhance innovation in and the competitiveness of the EU chemicals industry; and to promote the use of alternative methods for the assessment of the hazardous properties of substances. See, HSE,
157 HM Government, , 26 February 2019
158 The current responsibilities of the European Commission will pass to the Secretary of State for Environment, Food and Rural Affairs. For example, the Secretary of State will make decisions to authorise the use of a substance of very high concern or to restrict chemicals based on an opinion from HSE. A safeguard clause allows the Secretary of State and devolved Administrations to take urgent action where it is needed to protect human health or the environment. This must be followed up with the normal restriction process to see if there should be a UK-wide control. As REACH covers environmental protection, which is devolved, the Secretary of State must act with the consent of the devolved Administrations where a decision relates to an area of devolved competence. See HL Deb, 26 March 2019, Vol. 796,
159 ChemicalWatch, , 13 June 2019
161 Environmental Audit Committee, Oral evidence: Chemical Regulation after the UK has left the EU, HC 1769, 4 December 2018,
162 [Nishma Patel]
164 The online survey, conducted between 6–15 February 2019, covered 38 key companies in the UK chemical supply chain that currently hold 351 registrations under EU REACH. See, Chemical Business Association, , 18 February 2019
166 Squire Patton Boggs for the Chemicals Industry Association, , February 2018. The EU’s simple average of MFN applied duties is 4.5% for chemicals. See, HM Government, , 21 December 2017
167 Squire Patton Boggs, , February 2018
168 Furthermore, the EU’s MFN applied duty is 0% for the majority of medical devices tariff lines
169 House of Lords, Supplementary Written Evidence from Lord Bridges of Headley MBE, Parliamentary Under Secretary of State for Exiting the European Union, Department for Exiting the European Union, and Lord Price CVO, Minister of State for Trade Policy, Department for International Trade on the future trading relationship between the UK and EU in goods and services, EU External Affairs and Internal Markets subcommittee, , 24 February 2017
170 HM Government, , 21 December 2017
171 Business, Energy and Industrial Strategy Committee, Ninth Report of Session 2017–19, , HC 382, 17 May 2018
173 Business, Energy and Industrial Strategy Committee, Ninth Report of Session 2017–19, , HC 382, 17 May 2018, Written evidence from AstraZeneca,
Published: 19 July 2019