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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

Citation: The Pharmaceutical Journal DOI: 10.1211/PJ.2014.20066464

Readers' comments (3)

  • Mr Hickey seems preoccupied by moving the deckchairs while the NHS ship sinks. He should be more concerned with what the SNP administration has already done in this respect.
    The Institute of Fiscal Studies has shown that while the NHS in England has managed to increase its expenditure by 4.4%, in Scotland the expenditure has fallen by 1.2%, despite the extra uplift from the Barnett Formula. In another report, the same organisation highlights the huge gaps in Scottish Government finance that will require huge cuts across the board, or huge tax rises to balance the books.
    All this from a group "committed" to redistribution of wealth, though the only policy for redistribution is a cut in corporation tax. At the same time they have ignored their existing ability to vary tax rates, instead imposing a central freeze on council tax, benefitting only the well off, which has resulted in reductions in counil services, which have had a knock-on on the NHS due to lack of social care.
    And Mr Hickey STILL doesn't know which currency he will have to pay his VAT with! Only a No vote can keep the NHS working!

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  • I'm not sure that Mr Hickey makes a meaningful contribution as VAT rules apply equally across the UK. No one in their right mind would you set up a new country just to save an NHS. It will need new businesses to come yet few big companies if any have said they need the country to be independent before they will locate here.
    Scotland can spend how much it likes on its NHS from the block grant and has been able to do that for many years. Its government has even chosen to underspend that allocation in some years.
    The NHS did not feature at all in the 670 page prospectus and there was only one page of figures; a prospectus that would be unsuccessful if this was about setting up a new company.
    The NHS topic was introduced only after Mr Salmond lost the currency debate a month ago and needed a diversionary tactic to frighten people back to his cause. If I were Mr Hickey I would worry less about VAT and more about the ability of an independent country to fund it's NHS, pensions and bribes to selected voters, in a climate where it will need to borrow large sums quickly whilst it promises to renage on its debts.
    Oil prices are falling as the US becomes a nett exporter of fracked oil, and where Scotland oil reserves are to say the least speculative. With income, currency, EU and NATO membership uncertain, there are bigger things to worry about than the NHS.
    The NHS in Scotland is only under threat if it's Government chooses to do that. It now seems there are leaked 3% NHS service cuts planned by the Scottish Government
    As separation will affect the new countries finances by more than the annual NHS budget and our financial and whisky industry will be seriously damaged , our shop prices will rise our and our national security will be threatened by mass immigration I suggest eligible readers save the NHS, the United Kingdom and the wastage created by divorcing and duplicating many efficient UK organisations by voting NO.

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  • The comments regarding VAT & community pharmacy seem a little inaccurate/misleading.

    1. "VAT is charged on pharmaceutical drugs, but HM Revenues & Customs (HMRC) allows pharmacy outlets to reclaim the tax for many medicines". Not exactly - items dispensed against prescriptions written by doctors and dentists (not VETs) become zero rated for VAT.
    2. "Private pharmacies have been VAT exempt since the introduction of the tax in 1973". No they have not.

    Given these points you then start to winder about the accuracy of the other "facts" quote.

    However, I do agree that the VAT anomaly for the whole if the UK does need addressing.

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