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COVID-19: Short and long term policy impacts for investors and companies

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The policy impacts of COVID-19 will not just extend to the many measures designed to help the economy over the next few months. The political and regulatory world will change profoundly and for the long term.

We are advising investors, portfolio companies and other organisations on what help is available and how they can best advocate for and access assistance.

The Government has shown its willingness to engage with business and respond to requests for greater clarity, revised eligibility criteria or additional support, and indeed offers of help, as we have found in our work for clients.

But there are six key questions that investors and management teams should also pose about some of the policy assumptions underlying their growth plans and existing risk assessments, as they model their businesses under a range of COVID-19 scenarios:

Will gig economy and labour regulation be revaluated?

The IR35 reforms have been delayed till April 2021, allowing time for a more significant review. But COVID-19 has highlighted how exposed many gig economy workers are to any sort of crisis.

This – as well as the criticism that the Government has received from its own benches over how it has handled the issue of employment security and workers’ lost income in the early stages of this crisis – is likely to reinforce the argument for employers to bear a greater burden of responsibility for their workers and contractors, as well as their permanent employees.

As the Government loosens some of the restrictions on access to and the generosity of Universal Credit, there may be more permanent change to how this part of the welfare system works. There are longstanding political criticisms of the design of this policy that the crisis will force policy makers to address, again particularly for households in insecure work. All of this could impact labour costs and flexibility significantly.

How reliant is your business on migrant labour?

The impact of Brexit on the availability of migrant labour has been a regular theme of our due diligence for the last two years, but this crisis has shown how many other factors – relating to pandemic control and people flows – could have a much more significant, sudden and less predictable impact than Brexit.

Will the tax holidays last longer than 12 months?

It will be extremely difficult for the government to revert to pre-holiday tax levels, unless the economy bounces back strongly, and particularly difficult to reinstate taxes on nurseries, which are already permanently exempted in Scotland and Wales. It will also be difficult because of the uncertainty of current Brexit timings (which may be revised).

This could lead to a more fundamental review of business rates or indeed any other tax measure that has a big impact on businesses that rely heavily on good cash flow. As the crisis has revealed, many businesses risk extinction even after short periods of massively depressed demand.

How might new public funding priorities impact your business?

The massive fiscal stimulus will inevitably require a reallocation of resources, if not cuts in some areas. Funding for health and social care will no doubt increase to improve long term resilience and deal with the immediate impact of COVID-19. However, some aspects of health and social care may receive less resource – particularly if they are seen as less critical to ensuring prevention and improving the capacity of the system.

Local government resourcing and priorities may also change, especially to ensure that vulnerable groups and schools and other civic amenities are better prepared (especially as COVID-19 will inevitably reappear until a vaccine is developed and made widely available).

How will public and private procurement change?

Public procurement will change to reflect new government funding priorities, but will also change to reflect the need to have more resilient supply chains in the event of further similar shocks.

This may mean encouraging more local and more national supply (especially post-Brexit), to lower exposure to long supply chains that might be vulnerable to multi-country measures that could slow exports. Some public sector bodies might choose to bring more provision in-house for similar reasons.

It may also mean that procurement tenders will be broken down into more lots, to encourage a broader supply base and reduce reliance on just one or two providers.

Procurement criteria is also more likely to require more comprehensive demonstrations of business continuity preparedness.

How will Brexit and the future of the EU be affected and what impact could this have on your business

Brexit could be delayed, justified by a more plausible and politically acceptable need for a longer implementation period.

But much bigger changes could be seen across the EU, as France and Germany’s authority and appetite for further EU integration is undermined by their own trouble managing the crisis domestically, as well as the manifest desire of all EU countries to pursue their own self-interest and impose strict border controls.

We expect many other changes, in terms of how Whitehall and Westminster and major public sector bodies operate.

Over the next 12 months, GK will be tracking these developments systematically and advising clients on how best to anticipate, prepare for and influence these changes, both in the near term and beyond the end of the immediate crisis period.

 

 

 

 

gk - How is the policy and regulatory environment for rail changing_

How is the policy and regulatory environment for rail changing?

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With the resolution – for now – of the ongoing debate over the High Speed 2 rail line, as well as debates over public ownership of passenger services, what should businesses with an interest in the rail sector be bearing in mind from a policy and regulatory perspective?

 Overview

 Rail policy is one of the most important aspects of infrastructure spending by the UK Government and often the front line of greater ideological debates over public and private ownership of essential services. A priority for parties across the House of Commons, it is viewed as both an essential contributor to economic growth and a magnet for media scrutiny when failures arise. Its wide public reach offers significant political influence to stakeholders across the sector, including Train Operating Companies (TOCs), SMEs and larger companies in the multi-product supply chains of UK and overseas rail networks, as well as retailers and caterers operating at railway stations and their own supply chains.

 Over recent years, much of the political attention has naturally been on the approach of both the Government and the Labour Party to passenger services and the role of private companies in operating these, particularly in the context of problems faced by Southern Rail and Govia Thameslink, and the transfers of Northern and East Coast Main Line services to the Government’s Operator of Last Resort. The Government commissioned the Williams Rail Review in 2018 to examine the current franchising model, and Labour’s policy of ‘re-nationalisation’ – waiting for existing franchises to expire and bringing them in-house – has been one of the flagship policies of its last three general election manifestos.

 Outside of the high-profile issues in relation to passenger service franchising and public ownership, as well as the ongoing debate over HS2 and other large projects like Crossrail, there are a number of policy priorities for the Government in terms of expansion of rail capacity, as well as ongoing projects to maintain and improve existing rail infrastructure across the country led by Network Rail. The decision to proceed with HS2 can be taken as an indication of Ministers’ commitment to additional capacity in the rail network, while Network Rail is engaging in an ambitious programme focused on maintenance and renewals.

 Network Rail sets out its priority workstreams according to five-year ‘control periods’. The last control period (CP5) concentrated on electrification (such as the Gospel Oak – Barking line in London and the Transpennine line between Manchester and Leeds), renovation of large stations (including London Bridge) and improving speed and capacity across a range of lines. A number of these projects have been significantly delayed and have come in over budget, creating some pressure on the Government and Network Rail to review how future investment programmes are decided. Control period 6 (CP6) began in April 2019 and will end in March 2024. There is a new programme of work focused on maintenance and renewals, and Network Rail is also aiming to complete outstanding projects from CP5 as part of CP6.

Current issues

Much of the Government’s time on rail policy will inevitably be spent on franchised passenger services as the Williams Review draws to a close and it continues to be a topic of political contention. Beyond this, the timely and cost-effective completion of CP6 projects will be a key issue given the overspend and delays to projects from CP5. The scale of what Network Rail is seeking to achieve in CP6 as it seeks also to complete outstanding elements from CP5 means that there should be ongoing opportunities for contractors to Network Rail, though suppliers should be aware of the continued pressure for the Government to change how rail investment decisions are made. The political priority attached to HS2 as a major national infrastructure should also provide opportunities, despite likely political and media scrutiny of spending and procurement decisions as the cost of the project continues to be debated.

Points to consider
  • Progress of CP6 and flow of funding – where are the opportunities for suppliers and contractors, and which are the priority projects for Network Rail and the Government? What are the prospects for further delays to existing and new projects under CP6 and how is the Government trying to prevent more overspend?
  • The Williams Rail Review – final recommendations for reforming the franchising system for passenger services and potential consequences for other parts of the sector
  • Overall approach to public procurement – in a post-Carillion environment, how does the Government think about outsourcing elements of significant infrastructure and construction projects to the private sector, and how might the regulatory framework for awarding Network Rail contracts change in this context?
  • Brexit and workforce – how will the new immigration system affect recruitment of skilled and unskilled workers, and domestic changes to employment status and IR35 affect engagement with the contractor workforce?

 For more information on how GK can help you navigate policy and regulatory change in this market, please contact jamie@gkstrategy.com

gk - What is the policy and regulatory environment for online pharmacies

What is the policy and regulatory environment for online pharmacies?

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Online pharmacy is a sector that has seen considerable growth over recent years, and policy and regulation is evolving quickly as a result. Those with an interest in the market should be aware of the issues to consider and the likely future direction of travel.

 Overview and market development

 The growth of the online pharmacy market has arisen in the context of severe financial constraints on the NHS. Increases in the level of demand for NHS services, increasing complexity of patient conditions, complex structural changes within the NHS and the overall constraints on fiscal policy pursued by the Government since 2010 have resulted in an environment in which traditional pharmacies have struggled. The expectation for community pharmacies in particular to offer additional health services in light of funding constraints elsewhere in the health ecosystem at the same time as suffering direct funding cuts, as well as the high fixed costs associated with a bricks-and-mortar pharmacy, has meant that the traditional model has come to be seen by senior stakeholders – including NHS England chief executive Sir Simon Stevens – as expensive and inefficient.

 Although community pharmacy figures in the NHS Long Term Plan and the Government is enshrining in legislation a commitment to increase NHS funding each year to 2023/24, the traditional pharmacy model should not be assumed to be an immediate beneficiary of these funding uplifts. Online pharmacy will, therefore, continue to benefit from an environment in which financial resources for pharmacies continue to be limited and online providers can offer a more efficient alternative.

 Despite a shift in focus towards online pharmacies, the Government and regulators are increasingly conscious of public and health stakeholder concerns that the online market has been under-regulated. While policy-makers will be keen to ensure that efficient and cost-effective alternatives to traditional service models are actively promoted, they will also be mindful of the risk to patients where apparent loopholes exist. Recent regulatory debates have focused on introducing more stringent checks of patient identification before prescribing medicines for conditions such as diabetes, epilepsy and asthma, and broadening the remits of the Care Quality Commission and General Pharmaceutical Council to ensure online pharmacies are fully covered by regulations regarding workforce qualifications.

Drug pricing

The Drug Tariff is set by the NHS Business Services Authority (NHS BSA) and is split into three categories: Category A, popular generic drugs where prices are set according to a weighted average of list items from four large suppliers; Category C, drugs that are not available as generics; and Category M, popular generics where prices are set according to information submitted by manufacturers and are changed on a quarterly basis. Drug pricing is monitored through the Pharmaceutical Price Regulation Scheme. Category M, which contains more than 500 generic medicines, has often been widely criticised by the pharmacy industry on the basis that products in this category are often not available to purchase for the amount by which pharmacies are reimbursed by the NHS, a key driver in funding squeezes on community pharmacy and growing demand for online pharmacy. The reimbursement rate for pharmacy contractors is also subject to clawback – a discount deduction that is set according to the monthly value of the medicines dispensed for each contract. The average clawback rate is currently 8%.

Current issues

The regulatory environment for online pharmacies is still developing. The sector is in a strong position to benefit from existing pressures on traditional and community pharmacies which are unlikely to ease in the short term but must be agile in responding to inevitable policy and regulatory change. The main challenge for online pharmacies is to be able to demonstrate to policy-makers and regulators that they are not only compliant with current regulatory requirements, but are proactively ensuring that they are taking steps to ensure that they are prioritising patient safety, and offering a reliable and consistent service across local commissioning areas.

Businesses in this space should also be mindful of potential reputational issues associated with the growth of other areas of online primary care such as the online GP market, and political attitudes towards high-profile providers such as Babylon, where there is also an evolving regulatory framework that is responding to the twin challenges of addressing diminished capacity within traditional NHS services, and concerns from local commissioners and others over patient safeguarding and sharing of sensitive medical data in relation to use of new technologies. Businesses should take note of these issues and understand where similar political and media scrutiny might arise in relation to online pharmacies, and the risk of these businesses being caught up in clampdowns on other online primary care services.

 Points to consider
  •  Implementation of the Long Term Plan – how will this play out for community pharmacy and will it mean that limited capacity in other areas of the health service continues to drive demand for online alternatives?
  • Reputational and regulatory risks – what changes could be introduced to the regulatory framework to address concerns over patient safeguarding? What steps can businesses take to pre-empt any regulatory change and demonstrate that they are proactively responding to these concerns?
  • Drug pricing – what scope is there for changes to drug pricing and the current approach to pharmacy remuneration, reimbursement and clawback? How well are businesses set up to respond to changes in pricing for different categories of medicine, and can online pharmacies maintain a competitive advantage if the funding model for community pharmacy were to change and clawback increased for online contractors 

For more information on how GK can help you navigate policy and regulatory change in this market, please contact jamie@gkstrategy.com

gk - The Medicines and Medical Devices Bill- the impact and opportunity

The Medicines and Medical Devices Bill: the impact and opportunity

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On the 2nd March 2020, the Medicines and Medical Devices Bill 2019-20 went through its second reading in parliament. It has been one of the first pieces of domestic legislation to be introduced since the Queen’s Speech in December 2019 and represents a critical area of post-Brexit regulatory change.

The Bill is politically uncontroversial. It passed first and second readings unopposed by the Labour Party and is more about the need for legislation to return regulatory powers to central government rather than a Brexit-fuelled political move.

Nevertheless, the legislation can define the medicines and medical devices regulatory environment for years to come.

Specifically, the legislation could have a significant impact on contract research organisations (CROs) whose interest is in stymying excessive divergence from US and EU clinical trial regulation. The following are just a few areas the bill might interfere:

  1. The speed of approval processes for clinical trial applications

The UK has a reputation for world-leading standards in clinical research. It has several world-leading universities, research organisations, institutes and scientists operating around the ‘Golden Triangle’ (London, Cambridge and Oxford) and beyond. These hubs ensure pharmaceutical companies get the most out of phase I-III research, while also having applications approved quickly by the renowned Medicines and Healthcare products Regulatory Agency (MHRA). The combination of an effective and accessible regulator in the MHRA and its close relationship with NICE must be protected.

  1. Alignment to the EU Clinical Trial Regulations (CTR)

The UK and, specifically, the Clinical Trials Unit of the MHRA played an active and leading role in the development of the EU Clinical Trial Regulations over the past five years – due for implementation during 2020. The regulations aim to create a single set of standards across the EU, establish a single method for submissions to assessment processes and increase transparency, collaboration and information sharing across EU Member States.

While the UK’s departure from the EU means that it won’t be implementing the regulations it helped to develop, CROs across the country will want to ensure that the future of the UK’s clinical research regulation is as closely aligned to the EU as possible. This will ensure its ability to deliver competitive, expeditious and high-quality research. The Medicines and Medical Devices Bill should facilitate this alignment.

  1. The introduction of bureaucratic processes and regulatory burden for CROs

There is some anxiety in the CRO sector that the new regulatory environment will cause a significant bureaucratic burden when it comes to clinical trial applications. If the legislation oversees a divergence in regulatory standards and processes from other markets, applications to the MHRA could require more and different information to the U.S. Food and Drug Administration and the European Medicines Agency. CROs will be eager to mitigate this risk.

These are just a handful of areas where the Bill might affect CROs and the life sciences industry. Others include patient safety, pharmacies and medicine supply chains, as well as manufacturing, labelling and packaging.

GK Strategy are experts in political and government engagement, with long-standing experience and understanding of the life sciences and clinical research sectors. To discuss further with our team, please do get in touch via ian@gkstrategy.com

gk - GK - David Laws' take on the cabinet reshuffle

David Laws’ take on the cabinet reshuffle

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“Some reshuffles are about changing policy directions. Others are about chopping out the Cabinet “dead wood”. This one was about control – specifically, increasing the control over government from 10 Downing Street, including Boris Johnson’s powerful adviser, Dominic Cummings. Out went some senior ministers who Number 10 didn’t consider to be sufficiently “on side”. But the most significant move to “take control” was the insistence that Chancellor Sajid Javid should either consent to joint policy making between Numbers 10 and 11 Downing Street, or leave his post. Mr. Javid chose the latter option.

“Boris Johnson is not the first PM to discover in office that the Treasury can be far more powerful than the centre of government at Number 10. Number 10 has few human resources compared with the mighty Treasury, and limited direct options to shape economic and social policy. There are only three ways of resolving the power imbalance – for the PM to support a Chancellor he completely trusts and works with closely (Cameron/Osborne); for the PM to cede economic policy to the Chancellor but make occasional bids for influence (Blair/Brown), or for the PM to try to create a mechanism to force the Treasury to work hand in glove with his own advisers. The latter is now the option being pursued with the new Chancellor, Rishi Sunak.

“Just how much will the change in Chancellor result in a big change in policy – with extra public spending, and more borrowing to fund it? I doubt that the policy consequences will be quite as big as now predicted by many – Javid was already committed to extra borrowing to fund infrastructure spending, and the new Chancellor’s  CV hardly indicates that he is likely to turn into a big spender or pursue fiscally incontinent policies. What Mr. Cummings and Mr. Johnson clearly hope is that there will now be a much closer working relationship between Numbers 10 and 11 – and though Mr. Johnson cannot afford to lose another Chancellor anytime soon, the ruthlessness that he has demonstrated in this reshuffle will concentrate the minds of all senior ministers.

“What else is worth noting from the reshuffle? Certainly the appointment of Suella Braverman to the post of Attorney General – serious friction between the government and the judiciary seems likely. And while the fate of junior ministers usually doesn’t matter much, the departure of universities minister Chris Skidmore looks interesting. Skidmore was well respected by the universities sector, and appeared to take their “side” on many policy issues. Can we now expect a more radical approach to higher education policy and a revisiting of some of the Augar Review recommendations? This should be watched closely.”

GK - How important are select committees and their new chairs_

How important are select committees and their new chairs?

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As we wait for both Labour and the Liberal Democrats to complete their respective leadership elections, some other significant elections have taken place within the House of Commons recently. The chairs of the Commons select committees – the prominent cross-party groups of MPs that scrutinise the activity of each government department and other political issues – were confirmed at the end of last month. Alongside frontbench opposition MPs, committee chairs are some of the highest-profile politicians outside of the Government.

With a majority of the committees chaired by Conservative MPs, how important are these committees, and how will their new make-up affect how policy is made?

A chance for Tory sceptics to find a new outlet…

Of the 16 Conservative MPs who will chair a select committee in this parliament, only one – Julian Knight, the newly-elected chair of the Digital, Culture, Media and Sport Committee – supported Boris Johnson in last year’s Conservative leadership election. While that is not to say that all of the others are necessarily opposed to Johnson’s political project, it is an opportunity for well-known chairs such as Jeremy Hunt – the former Health Secretary and Johnson’s leadership rival, now chair of the Health and Social Care Committee – to challenge the Government, and sustain their influence and profile within the party and across the Commons.

…and for new MPs to make a name for themselves…

Being active on a select committee is one of the ways in which ambitious new MPs can begin to carve out an identity for themselves. Whether loyal Conservatives with an eye on junior ministerial posts later in the parliament, critics of the Government wanting to build their profile, opposition members looking to catch Ministers out or subject-specialists wanting to contribute their experience, committee membership is one of the best opportunities for new MPs to make themselves known and advance their parliamentary careers. If you are looking for a parliamentary advocate for a particular cause or interest, understanding these dynamics is important.

Will select committees provide meaningful parliamentary opposition to the Government?

As well as chairing many of the committees, a large majority for the Conservatives means that they also hold sway over the broader committee memberships, as each party’s share of committee members is proportionate to the overall size of their parliamentary party. This means that while all MPs will take their committee responsibilities seriously in terms of providing scrutiny of government policy, in many cases it may be reasonable to assume that a significant proportion of members of any given committee are likely to be at least sympathetic to the aims of the Government.

There is also one important committee chairmanship that is yet to be decided: that of the Liaison Committee, membership of which comprises the chairs of all other committees and frequently calls the Prime Minister to give evidence on a range of areas of government policy. Outside of Prime Minister’s Questions, this should be one of the main ways in which MPs can scrutinise Johnson, but he has not yet appeared in front of the committee during his time in Downing Street and its new chair is unlikely to be elected for several weeks, further delaying the Prime Minister’s debut in front of the committee.

Select committees can be powerful and influential stakeholders in the policy-making process but, like many other political and parliamentary actors, their role is likely to be different with an executive that has a large Commons majority. For businesses thinking about engaging with MPs and the parliamentary process, understanding these changes is essential.