Joint Committee on Statutory Instruments Twenty-Seventh Report


Memorandum from the Department of Health


1. The Committee has requested a memorandum on the following point concerning the above Regulations:

    The Explanatory Note indicates that these Regulations increase fees by approximately 8 to 12%. Explain the reason for the size of the increases.

2. These Regulations include, amongst other amendments, changes to the fees set out in the Medicines (Homoeopathic Medicinal Products for Human Use) Regulations 1994, the Medical Devices (Consultation Requirements) (Fees) Regulations 1995 and the Medicines (Products for Human Use - Fees) Regulations 1995 (collectively referred to in this memorandum as "the Amended Regulations"). The changes comprise an average increase of 8% for the majority of the fees set out in the Amended Regulations. There are however some areas where the increase has been greater.

3. The income received from the fees set out in the Amended Regulations is all paid into the Medicines Control Agency ("MCA") Trading Fund. Until 1992, the MCA received a proportion of funding from central Government, but since then the MCA has been funded entirely through fees charged to the pharmaceutical industry. Under section 4(1)(a) of the Government Trading Funds Act 1973 ("the 1973 Act"), the MCA (on behalf of the Secretary of State for Health) has a duty to manage the MCA Trading Fund so that-

    (i)  it consists principally of receipts in respect of funded operations, and
    (ii)  taking one year with another, the revenue of the fund is at least sufficient to meet outgoings.

4. The MCA also has a duty under section 4(1)(b) of the 1973 Act to achieve the objective set by the Treasury of earning a 6% return on capital employed in real terms. The levels of the fees in the Amended Regulations are set so as to meet these obligations.

5. Improvements in efficiency and high licence volumes enabled MCA to reduce fees between 1992 and 1998. During this period, MCA also accumulated a surplus of over £17m.

6. During 1997, the Treasury pressed the MCA to reduce its surplus. A number of options were considered including a direct rebate to industry and major fee reductions. Subsequently a strategy was agreed with the Treasury, the MCA Supervisory Board and Ministers, which provided for a further sharp general reduction in fees of 12.5% from April 1998 together with investment of part of the surplus in the Medicines Regulation Fund (and in particular the General Practice Research Database). The strategy always recognised that after operating at a deficit for a while, it would be necessary to reverse the 1998 reduction. To reverse the decrease, fees were increased by 5% for 1999/2000, 14% for 2000/2001 and 5% for 2001/2002.

7. Despite the increases in recent years, the MCA's fees are currently more than 15% lower in real terms than in 1992/3 and the Agency is currently running at an operating deficit in year budgeted at £3m. Even after the 8 to 12% increases for the year 2002/3, there will still be an operating deficit and further increases above the rate of inflation in future years are likely.

8. The pharmaceutical industry was consulted about the proposed fees increase. A consultation letter was issued in November 2001 to around 3,200 recipients. A total of 10 replies were received. It appears that the pharmaceutical industry is generally content with a higher increase of fees as long as the standards of service provided by the MCA remains high. By increasing fees to the levels set out in the Amended Regulations, the MCA will be able to maintain those standards.

9. The increases in excess of 8% relate to cases where in previous years, as a result of an oversight, certain individual fee amounts in the Amended Regulations have not been increased. Those amounts have been increased this year in order to bring them into line with the general level of fees.

22nd April 2002

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