Independence can protect the Scottish NHS

It is disappointing that so many senior figures in Scottish pharmacy declined to say something meaningful when presented with the opportunity by your correspondent, Clare Morrison, in her feature (The Pharmaceutical Journal 2014;293:240).

I, like many of my colleagues, friends and family, look on aghast at what is being done to the NHS in England, where it is becoming little more than a brand name. I am thankful that our Parliament, under different political administrations, has shielded us from the excesses of the market approach favoured in England and I am fully aware that nothing less than independence can protect the Scottish NHS and give it a fighting chance of survival.

Currently, at work, I seem to be exercised by the thorny issue of VAT on hospital medicines. VAT is charged on pharmaceutical drugs, but HM Revenues & Customs (HMRC) allows pharmacy outlets to reclaim the tax for many medicines. It does not allow NHS pharmacies in hospitals to reclaim it. The tax authority regards dispensing drugs to be part of a hospital’s “non-business activities”, and so not VAT-recoverable. Private pharmacies have been VAT exempt since the introduction of the tax in 1973.

The official UK Government/HMRC line is that, although NHS pharmacies cannot recover VAT on drugs that they dispense on prescription, they are funded for that cost as part of their general funding for healthcare. Of course, this bizarre tax anomaly could be solved with the elegant stroke of a bureaucrat’s pen, but it won’t be because the UK government is using it as a way of privatising the hospital pharmacy service in England. Hospital trusts are putting services out to tender. The incumbent NHS service’s tender has to include the 20% VAT on medicines that it dispenses. If a commercial organisation submits a tender, it can reclaim the VAT. So, imagine a tender for a medium-sized hospital such as we have in Inverness, which will spend around £15m a year on medicines: a private organisation would have a £3m per annum advantage.

As recently reported in
The Independent
, such privatisation has accelerated since the 2012 Health and Social Care Act came into effect in England. Inevitably, NHS staff face changes to their terms and conditions of employment. At face value, the NHS in England makes a “saving”, but it is a saving that does not really exist. In reality, the private sector is being subsidised to undermine the public sector and NHS resource goes into shareholders’ hands. The tax system is being used as a tool to enable privatisation of the NHS. Inevitably, there will be a consequence for Scotland.

Any reduction in visible spend in England means a proportionate decrease in the resource coming to Scotland through the Barnett Formula (a mechanism used by the UK Treasury to adjust the amounts of public expenditure allocated to Northern Ireland, Scotland and Wales automatically to reflect changes in spending levels allocated to public services in England, England and Wales or Great Britain, as appropriate). NHS expenditure on medicines in England in 2012 was £13.3bn, with hospital use accounting for 36.5% of the total (http://www.hscic.gov.uk/catalogue/PUB12651). Allowing for a little inflation, that means that about £5bn might be spent on medicines in hospitals in England this year: 20% of that would be £1bn. As that is eaten into by the process of privatisation, there will be incremental and ultimately substantial reductions to the Scottish block grant. Without control of our own tax regimen we can do nothing about this and Scotland’s parliamentary resource will be automatically reduced by up to £100m per annum. This is just the pharmacy tip of the public sector funding iceberg.

Findlay M. Hickey

Strathpeffer, Ross-shire