In July 2003, the Government responded to the Office of Fair Trading (OFT) report “The Control of Entry Regulations and Retail Pharmacy Services in the UK” which had recommended total deregulation, by setting out a balanced package of reform measures to the national health service regulatory system known as “control of entry”.

The majority of these reforms were introduced by revising NHS regulations in April 2005. The announcement also committed the Government to review progress in mid-2006 and to publish the findings. My right hon. Friend the Secretary of State announced that review to the House on 13 June 2006.

I am today publishing the Department’s report of that review. Copies have been placed in the Library.

There are a number of significant findings. While still early days, the reforms have had a modest impact, with more than twice as many pharmacies opening in 2005-06 than in any year in the period 1992-93 to 2004-05 and many contractors making use of the new freedoms introduced. On the evidence so far, the balanced package of reform measures has achieved the goal of opening up the market. But the impact has been uneven, with pockets of greatest activity across the country. The report finds that deprived areas are neither significantly worse nor better off, though slightly more pharmacies closed in these areas during 2005-06. Primary care trusts (PCTs) with greater social deprivation also attracted proportionately more applications using the new exemptions. Overall, there is no evidence so far of a detrimental impact on access to pharmaceutical services in deprived areas, nor have the reforms jeopardised the vast majority of the existing pharmacy network or caused widespread upheaval or change.

Nationally, the report found that most people (99 per cent.) can get to a pharmacy by car, walking or public transport within 20 minutes, including in deprived areas. While there is no national evidence yet of a return to pharmacies leapfrogging to secure the most advantageous commercial position, individual PCTs say this is happening locally. There are more pharmacies nearer GP surgeries now compared to 2003. There is no noticeable impact so far on the prices of over the counter medicines nor on the workforce.

There are some favourable patient experiences reported including better hours, access and quality services. However, this is not uniform with little change yet seen in rural areas. Patients are concerned about the longer-term impact on accessing services locally. The NHS has found the regulations difficult to administer and exempt applications in particular hamper their efforts to plan strategically and commission more clinical services. Innovatory practice is attributed more to the new contractual framework than these reforms. Business reaction has been mixed. Some reforms have been welcomed, particularly the quicker procedures for administrative decisions, but many were concerned the exemptions to control of entry could lead to long-term reduction in choice and none reported business certainty had improved.

The reforms have had a small but uneven impact on promoting more choice and competition, though access has improved where new 100-hour pharmacies open. This impact is however somewhat erratic and patchy and it is too early to predict whether these improvements will be long-lasting. While the new legislative regime has delivered benefits in terms of quicker processes for some types of application, this is tempered by the regime being complex, time-consuming and offering no greater certainty and reliability to business.

We will continue to monitor the progress made by these reforms through NHS and central statistical returns and there are a number of adjustments we wish to make to the regulations to improve the operational effectiveness of the current regime. We will come forward with further proposals in due course. These will include the remaining reforms which required primary legislation (charging for applications and new factors which PCTs will take into account when deciding competing applications) and which are now enacted in the Health Act 2006. We intend to make further announcements about the regulatory changes needed to introduce these shortly.

When considering the outcome of this report, it is important also to consider the achievements against the most recent priorities we set out in the White Paper “Our Health, Our Care, Our Say” which the Secretary of State launched last year.

While this report shows that the approach we took back in 2003 was the right way to proceed we consider it is open to further debate whether the control of entry system remains a suitable vehicle to enable primary care trusts to meet their new roles and responsibilities for commissioning a patient-led NHS. There remain considerable shortcomings in the current system. The market remains largely provider-led. Primary care trusts have insufficient influence to commission or exercise sufficient control over where services are provided to meet greatest needs. There remain particular concerns about securing adequate access to services in rural areas. All these factors create additional financial pressures on the NHS and prevent best value for money being secured.

Such shortcomings are not consonant with the principles for reform of the public sector and our White Paper ambitions for creating a patient-led NHS.

On this basis, we have decided that it would not be prudent to propose further major changes to the current system, either in terms of moving towards greater deregulation or imposing tighter restrictions.

Instead, we have concluded the time is right to consider how we can best shift the focus away from a system which is largely a legacy of the last century to more modern and reformed contractual arrangements which can better meet the health needs and challenges of this century. In short, instead of “control of entry” being the dominant market force and determinant of service provision, we shall review what action is needed to allow primary care trusts to have more powers to commission as is necessary to secure adequate service provision to meet local health needs, while ensuring the opportunities to maximise choice and contestability within a reformed system are not lost.

I am therefore pleased to announce today that the Department is initiating a series of discussions with interested stakeholders to review these contractual arrangements. I have invited Anne Galbraith, a lawyer and former chair of the Prescription Pricing Authority, to lead and chair these discussions and am delighted she has accepted. Anne also chaired the previous advisory group in 2003 which examined how best we could introduce the control of entry reforms. Anne will be inviting representatives from patient and consumer groups, the NHS and professional, representative and trade associations to put forward their views. We have asked Anne to report to the Department by March 2007 and the results of her discussions will then inform the next steps, including formal consultation in the spring, the Department needs to take.

The terms of reference for Anne’s review are:

“To examine:

current contractual arrangements for the provision of NHS pharmaceutical services in England, taking account of the existing “control of entry” system and review of progress, competition and consumer choice concerns and the principles of better regulation;

consider the extent to which these arrangements reflect wider developments in health service commissioning and contribute to the aims of the White Paper “Our Health, Our Care, Our Say”; in particular, securing high quality services which offer greater access and choice, supporting independence, well-being and improving health and providing effective help to those with high levels of need;

inform formal consultation on how best these arrangements should be developed or reformed in order to maximise this contribution and ensure value for money for the NHS and the broader community; and

to report by March 2007”.

This work will help fulfil our commitment in “Our Health, Our Care, Our Say” to review contractual arrangements in line with the White Paper’s ambitions. I very much look forward to the results of Anne’s work. I am confident this will prove an important driver for ensuring we bring pharmaceutical services into the mainstream of NHS services, provide a firm basis on which the NHS can invest to secure the improvements in health and well-being we all want to see and give business the confidence it needs to sustain its commitment to the NHS, patients and consumers alike.