Potential cost implications
41. The OFT estimated that the current system of
regulation costs £26 million per annum, consisting of £10
million in NHS administration costs, and nearly £16 million
in compliance costs to business. These costs, it is argued, would
be entirely eliminated with deregulation.[48]
Furthermore, the report also suggested that the cost of over-the-counter
medicines (OTC) will fall, resulting in "annual customer
savings of around £20-25 million on P-medicines [Pharmacy-only
medicines], and a further £5 million on GSL [General Sales
List] medicines."[49]
42. However, some witnesses argued that the OFT's
estimates of potential savings were greatly inflated, whilst others
maintained that they were simply unrealistic because costs would
increase elsewhere. Both Boots and Lloydspharmacy attempted to
replicate the OFT calculations of potential savings following
from deregulation, and both reached considerably lower figures.[50]
Boots provided a breakdown of their calculations, and estimated
that the cost of the current regulatory system amounted to approximately
£1.15 million per year for business, and £7.3 million
per year for the NHS/the taxpayer, meaning that the recurrent
system costs approximately £8.45 million in total per year,
some £17 million less than the OFT's estimates.[51]
43. Boots, along with other witnesses, also pointed
out that the OFT had not provided comprehensive estimates of the
additional costs likely to arise in connection with deregulation
of entry into the retail pharmacy market. Boots argued that there
was likely to be a range of costs, both direct and indirect, including
increasing costs to support unviable pharmacies in remote areas,
and wage costs, which would need to be taken into account in any
assessment of overall cost implications.
44. Both the OFT and ASDA acknowledge that some
small pharmacies will become unviable in a deregulated market,
and propose that the Essential Small Pharmacies Scheme (ESPS)
is the appropriate mechanism for ensuring the continued provision
of pharmacy services in rural or deprived areas.[52]
Mr May of the OFT argued that even if doubling the cost of the
ESPS, deregulation would still save money.[53]
Others, however, argue that this scheme would need considerable
expansion in a deregulated environment, which could end up costing
as much as, and possibly even more than, any administrative and
legal savings made through scrapping regulation.[54]
45. Witnesses did agree that savings could be made
in NHS administration costs by deregulation, but argued that equivalent
or greater savings could be made by amending the existing scheme
without this wholesale deregulation. This did not seem to have
been examined by the OFT report, and the Government should consider
this in responding to the OFT report. We
are not convinced that deregulation of retail pharmacy in the
UK would lead to savings, either to the public purse, or to business.
Indeed, there is some indication that (indirect) costs resulting
from deregulation might in fact outweigh any savings made. We
recommend that the Government develops a more robust set of models
of potential costs and savings before relying on an economic argument
to determine the fate of regulation of entry into the pharmacy
market.
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