The Pharmaceutical Journal
Vol 279 No 7465 p190-191
18 August 2007

Society summary

Retention fees 2008

Why must retention fees rise so much? The Treasurer gives some answers

Many questions have arisen since the Royal Pharmaceutical Society's decided to seek a 50 per cent increase in registration and retention fees. The Journal put some of these questions to the Society's Treasurer, Andrew Gush. His responses follow

The Journal: Why could the Society not predict that the Pharmacists and Pharmacy Technicians Order 2007 would result in higher retention fees and increase the fees more gradually over previous years?

The Treasurer: An aim of the Council in 2005 and 2006 was to ease the burden on members by limiting the increase in fees and use the reserves of the Society for a short period to fund increases in expenditure such as those arising from the new regulatory legislation. In doing so the Council agreed a deficit budget for 2007 to fund the increased expenditure.

Since then, the new actuarial valuation of the pension fund revealed a higher than anticipated deficit despite the additional injection of £1.9m in 2006. In addition the impact of changes to the rules surrounding Gift Aid has substantially increased our potential tax liability. These changes and our need to reduce our reliance on income from publications has meant that the Society has had to take the difficult step of seeking to increase members’ fees, unfortunately by a significant amount.

In doing so the Society is taking into account future expenditure needs as well as the current financial situation and is preparing and planning for the future financial stability for the Society.

Could you explain how Gift Aid changes have increased the Society’s tax burden? Could this not have been predicted and offset through cost savings?

In the Chancellor’s Budget speech in 2006, he announced a change in Gift Aid legislation which affected the way the Society managed its exposure to tax on the taxable surplus from its publications income. The change in legislation was meant to affect the use of family trust funds, etc. However, the Treasury went further than anyone imagined.

Once the announcement was made, the Society asked its external advisers to seek clarification from HM Revenue & Customs. Unfortunately this merely confirmed that the Society had to amend its use of Gift Aid. The estimated increase in our tax burden due to changes in Gift Aid regulations is £1m per annum.

At the same time the recently published White Paper has significantly altered the Society’s future. It has and will considerably alter the amount of work to be undertaken by the Society. For instance the cost of responding to the Carter Working Party has already reached £270,000 and the Society expects that Council expenses will increase by 26 per cent in response to these Government initiatives.

Why are cost savings not being considered rather than simply raising more money?

Cost savings are always looked for but our requirement to satisfy our regulatory responsibilities, while also trying to satisfy our ambitions to provide leadership and support for the profession, limits our ability to reduce costs.

The Society undertakes a rigorous budget process every year. The process involves budget holders, directors and the chairmen of the statutory committees, who discuss the budgets in detail, line by line, before it is submitted to the Resource Management Committee and then recommended to the Council for its approval.

During the budget process, cost saving initiatives are considered and, in fact, a budgeted efficiency saving is agreed and implemented into each all departmental budgets. In addition, wherever possible, projects are delayed or cancelled to arrive at the final approved budget.

For the 2007 budget, some difficult decisions were taken by the executive and the Council to delay or cease projects. Unfortunately, in 2008 and beyond, we are seeing the full year impact of the implementation of the legislative changes.

If the Society is asking the Government for funds to pay for the demerger, why are members being asked to pay? And if the Society does receive funding from the Government to pay for the demerger, can members expect to receive a refund? If the Government does not contribute, can members expect fees to rise even more?

The Society has already flagged up to the Government the need, and obligation, to cover transitional costs for the demerger. The Society has also submitted a written request to the Department of Health to increase premises fees to recover fully an equitable proportion of the regulatory costs. We believe that currently members’ fees and the contribution from publications are subsidising premises fees.

This is inequitable and we are looking to the Government to grant a proportionate increase in the premises fee. If additional funds are received from the Government towards the transitional costs, it will be taken into account when the Council sets fees next year and beyond. The Society expects the Government to make a contribution towards the costs of this transition and we are leaving ministers in no doubt about this.

The aim is to keep rises for the next two years in line with inflation, subject, of course, to any further unforeseen factors influencing the process.

Will the retention fee decrease after the Society has split?

After the split, two fees will be payable: a mandatory retention fee payable to the regulator (the General Pharmaceutical Council) and a voluntary fee for membership of the new professional body akin to a royal college. The Society does not anticipate huge growth in the total fee members will be expected to pay.

Why should members of the Society have to pay for the deficit in the Society’s pension fund, which is for the benefit of employees, not members?

The pension fund deficit is a liability of the Society and one which it cannot walk away from. We are in consultation with the trustees of the pension scheme about current and future funding arrangements.

The situation in which the Society is in, in relation to its pension fund, is, unfortunately, all too common in the UK and arises from major changes to the actuarial assumptions, such as longevity, which drive the actuarial deficit.

Many organisations are finding themselves having to increase funding to such schemes substantially.

Why are there no concessions for pharmacists who work part time?

The Council considered this question some time ago and came to the conclusion that the cost involved in registering members was the same regardless of the hours worked. For any one group of pharmacists to receive a concessionary fee could only be achieved at the cost of those who perhaps had no choice but to work full time.

Members will want to give an informed response to the Society’s consultation. To facilitate this, can you provide a breakdown of exactly how the money raised through the retention fee increase will be spent?

The Society aims to raise £6m through the increase in fees. The planned use of the additional funds is £3m to boost the reserves to cover the deficits in the last two years, £1m to cover the impact of Gift Aid changes, and £2m for a 7 per cent increase in budgets generally, and particularly for fitness to practise, education and communications activities.

In the Society’s statutory accounts, members will note that the reserves have reduced substantially over the past three years. The reasons for this had already been highlighted. It is of paramount importance that this addressed so that the Society remains financially viable.

Publications continues to make a contribution to the Society’s overall funds; however, the Society is liable to pay corporation tax on these surpluses. A change in legislation has meant the Society can no longer benefit from Gift Aid and its previous tax bill of zero is no longer applicable. The Society’s tax planning measures will of course attempt to achieve the lowest tax liability payable at all times.

As detailed above, the full-year impact in 2008 and beyond of the legislative changes has meant there is an increase in specific directorate budgets. In addition, there is a clear intention to include an increase in membership services to benefit members. The results of the current consultation exercise will be reviewed closely where members have highlighted specific membership services they wish to be considered.

Further communication will be provided after the results of the consultation document have been presented and reviewed. Initial forecasts show that the 2008 budget will increase by around 7 per cent.

Which “independent external body” will analyse the responses to the consultation, and will its report be made available to members?

Anthony Harrison, an independent consultant, will be analysing the responses to the consultation. He audited a major General Medical Council consultation and also analysed the Society’s consultation on the principles of pharmacy education and training. He has a part-time appointment as a senior fellow at the King’s Fund (but the King’s Fund is not involved in analysing the fees consultation). He has also acted as an independent adviser to the House of Commons Health Select Committee.

The report will be for the Council in the first instance, but could be made public, as with other consultation documents in the past.

Does the Society not agree that its consultation process is outdated (as evidenced by the fact that an unofficial online petition has been set up, which collected 3,500 signatures before The Journal announcing the rises and consultation went to press)?

The timing of the petition was unfortunate for the Society in that it preceded the formal consultation document being published. The press release [announcing the increase in fees] was also published ahead of the consultation document to meet the schedules of the pharmacy press. The consultation document had to be checked and amended following the Council deliberations so there was a gap between the release and announcing the Council recommendation. We apologise for that delay.

Will the Society be responding to the online petition, which by 10am on Friday 10 August had well over 9,000 signatories?

A consultation on the proposals to increase fees is in progress and runs until 3 October 2007. Responding to the consultation is the route by which members can make their views known in a meaningful way.

The Society understands that there is a belief among some members that the Society’s consultation is some kind of knee-jerk reaction to the online petition. This is absolutely not the case and the detailed content of the Society’s consultation should be clear proof of that.

The Society has asked that, to ensure that the petition is taken into account by the Council, it should be sent to the fees consultation e-mail address, or to the Secretary and Registrar’s office by 3 October 2007. This will ensure that the petition is analysed as part of the consultation process and that the analysis will reflect the complete picture.

A fee of £425 will be difficult for some families to find immediately after Christmas, even more so if both parents are pharmacists. What steps is the Society taking to ease this burden?

The Council is supportive of staged payments being introduced as quickly as possible. Making a change like this, which seems straightforward to members, is actually a complicated process involving changes to legislation.

The Society is actively taking legal advice and will then engage with members to undertake a consultation. The Privy Council will need to ratify the decision and the Department of Health will be asked to take forward the change to legislation at a time when it has other priorities. Be assured the Society will do everything it possibly can to allow the introduction of stage payments at the earliest possible time.

How many people does the Society expect to come off the Register this year as a result of the rise?

This is extremely difficult to predict. The Society recognises and appreciates this increase is giving rise to significant debate and concern for some members however, very much hopes that all members stay with the Society during this period.

The Society hopes to demonstrate satisfactorily to its members the importance of the future financial sustainability of the Society.

The premises retention fee has been described as “disproportionately low”. How does the Society hope to remedy this? Might a sliding scale of fees according to business turnover be more appropriate?

The Society has written to the Department of Health with a case to increase the premises fees to recover costs on a full cost recovery basis. The Society has been making this argument for a number of years but the DoH has limited our increases to something close to inflation.

It has also been argued (following feedback from members) that the basis on which the fee is levied should be reviewed. However, the DoH will in its consultations on the increases seek the views of other pharmacy bodies including the Pharmaceutical Services Negotiating Committee, the National Pharmaceutical Association and others. In the past, their responses have not been supportive of premises fee increases.