Proposed update to the 2023 statutory scheme to control the costs of branded health service medicines
Updated 2 March 2023
Executive summary
The Department of Health and Social Care (the department) proposes an update to the payment percentage for the statutory scheme for branded medicine pricing (known as the ‘statutory scheme’). This consultation document seeks views on the proposed update, particularly the views of the pharmaceutical industry and NHS patients.
The statutory scheme is set out in legislation in The Branded Health Service Medicines (Costs) Regulations 2018 (the regulations). It is one of 2 schemes, alongside the 2019 voluntary scheme for branded medicines pricing and access (VPAS), that control the prices of branded medicines to the NHS.
In scope for this consultation is the statutory scheme payment percentage rate for 2023, and whether this should be amended. The current statutory scheme payment percentage for 2023 was set following a consultation launched in February 2022. It was calculated before the availability of Q1 to Q3 2022 data, which now shows higher than originally forecast growth in measured sales in 2022 and a subsequent increase in the VPAS payment percentage for 2023.
We therefore consider that the statutory scheme payment percentage for 2023 should be revised to respond to this higher growth. The proposed update (which is detailed in the ‘Reasons for proposed updates’ section of this consultation) is aimed at maintaining the existing policy of broad commercial equivalence between the statutory scheme and VPAS while safeguarding the financial position of the NHS.
We propose to increase the statutory scheme payment percentage for 2023 from 24.4% to 27.5%. As this amendment will not come into force until 1 April 2023, companies who make statutory scheme payments in the first quarter of 2023 at the lower rate of 24.4% will consequently pay a higher rate of 28.6% for Q2 to Q4.
In proposing this update, the government is required to consider and consult on a number of specific areas such as the public sector equality duty and the Secretary of State’s duties as set out in the NHS Act 2006. Our assessment of the proposal in relation to these statutory requirements are set out in the ‘Statutory duties’ section, with additional information provided in the accompanying impact assessment (IA).
Introduction
The statutory scheme is one of 2 schemes, alongside VPAS, that control the prices of branded medicines to the NHS. It was established in its current form in 2018 when, following a consultation, it changed from operating as a price cut scheme to operating as a payment scheme.
Any company that supplies eligible branded health service medicines is subject to the statutory scheme unless they opt to join VPAS. It is intended that both schemes work together cohesively and in a complementary fashion to create an environment where medicines are supplied to the NHS at an affordable price, in a way consistent with supporting both the life sciences sector (including research and development) and the broader economy. To this end, we aim to maintain broad commercial equivalence between the schemes.
The overarching objectives of the statutory scheme are set out in a 2019 review of the regulations:
- limit the growth in costs of branded health services medicines to safeguard the financial position of the NHS
- ensure medicines are available on reasonable terms, accounting for the costs of research and development
- deliver the above objectives in a way consistent with supporting both the life sciences sector and broader economy
The statutory scheme works by limiting the growth in allowed sales of branded medicines. Since it took its current form in 2018, the allowed growth rate has been 1.1% (nominal) per year. Sales growth is controlled through the application of a payment percentage, a percentage of eligible sales that companies pay back to the department. Payment percentages are set in regulations at the level calculated to keep the growth rate at the allowed level each year.
The payment percentages were last updated in July 2022. In that update, the payment percentage for 2022 was set at 14.3%, and the percentage for 2023 was set at 24.4%.
Payment exemptions apply in some instances. Exemptions apply to:
- small companies with under £5 million sales to the NHS each year
- sales of low-cost presentations costing less than £2
- parallel imports
Sales made under framework agreements and public contracts which were in effect as of 31 March 2018 are also exempt from payments. Sales made under framework agreements and public contracts which were entered into on or after 1 April 2018 but before 1 January 2019 are subject to a 7.8% payment percentage. All other sales made under framework agreements and public contracts pay the standard rate set in the Regulations.
This consultation sets out the update that we are proposing for amending the statutory scheme payment percentage for 2023 to ensure we continue to control growth at a rate of 1.1% and maintain broad commercial equivalence with VPAS.
Reasons for proposed updates
This consultation sets out a proposal to update the payment percentage for the statutory scheme for 2023, to come into force from 1 April 2023.
Controlling sales growth to 1.1%
One of the overarching aims of both the statutory scheme and VPAS is to ensure growth in sales of branded medicines to the NHS remains within allowable limits (1.1% growth per year in the statutory scheme) – safeguarding NHS budgets and patient access to innovative medicines while supporting both the life sciences sector and broader economy.
The statutory scheme payment percentage is currently set at 24.4% for 2023. This figure was set in July 2022 and is based on a forecast of how sales to the NHS of branded medicines would grow in 2022 and 2023 that incorporated data up to Q4 2021. Sales growth in Q1 to Q3 2022 was higher than forecast at the time, with the consequence that current statutory scheme payment percentage for 2023 is set lower than required to control growth at 1.1% per year.
Maintaining broad commercial equivalence with VPAS
Unlike the statutory scheme, the VPAS payment percentage automatically adjusts in response to observed growth. As a result, the VPAS payment percentage for 2023, which as of the February consultation was projected to be 23.7%, has increased to 26.5%. We consider that this is no longer broadly commercially equivalent to the statutory scheme payment percentage of 24.4%, and therefore that we ought to update the statutory scheme payment percentage accordingly.
The 2023 VPAS payment percentage is set at 26.5% partly because of deferred payments resulting from an amendment agreed in January 2022 by the department and the Association of the British Pharmaceutical Industry to reduce the 2022 payment percentage from 19.1% to 15%. This amendment was reflected in the statutory scheme in 2022, and therefore the consequential deferral should continue to be reflected in the statutory scheme in 2023.
Consultation proposal
To control annual sales growth at 1.1% and to maintain broad commercial equivalence between the schemes, we intend to revise the statutory scheme payment percentage for 2023, as set out in this section.
We propose that this update comes to force on 1 April 2023 as scheme payments are made on a quarterly basis and this is the earliest date where, allowing time for consultation, the updates can be made on the first day of a new quarter. As the government requires time to consider the responses to this consultation as well as to reflect any updates to the regulations that result from those responses, we will be running this consultation until 26 January 2023.
Given that the updates we are proposing are limited in scope to the payment percentage for 2023 only we are of the view that this gives consultees enough time to review this consultation document and to respond to the deadline set above. As is standard practice, for any future year where the payment percentage is not being updated, the payment percentage will be that set in the latest year for which an update is made. Further consultation is likely in 2023 on the statutory scheme, alongside negotiations on a new voluntary scheme agreement with the pharmaceutical industry.
Question
Do you agree or disagree with the rationale for the proposal to update the payment percentage?
- agree
- disagree
- don’t know
Please explain your answer.
Proposal on the level of the amended payment percentages
How the updates to the payment percentages have been calculated
We calculated the proposed payment percentage for the statutory scheme using the growth of measured sales on an industry-wide level (including VPAS measured sales, statutory scheme measured sales and parallel import measured sales). This is largely the same process that is used to calculate the payment percentage for VPAS, and the consistency of approach means that appropriate payment percentages are set across both schemes.
The details of the methodology for the calculation are set out in the accompanying IA. We believe it is appropriate to continue to seek to control branded medicines growth at a rate of 1.1% each year through the statutory scheme as this strikes an appropriate balance between the objectives of supporting the pharmaceutical industry, supporting patients, and controlling costs.
The revised calculation of the 2023 payment percentage is made using data up to Q3.
Proposed payment percentage
The table below sets out our proposed payment percentages.
The revised payment percentage for 2023 will not take effect until 1 April 2023. As a result, we will set an adjusted payment percentage for any company that has made a payment in Q1 at the lower rate, which aims to ensure that across the whole year all companies are paying an average rate needed to control allowed sales growth at 1.1%.
Companies that are statutory scheme members and make a payment in Q1 2023 will do so at a rate of 24.4% on sales in Q1 2023, followed by 28.6% on sales in Q2 to Q4 2023.
Companies that join the statutory scheme after Q1 2023 and/or do not make a scheme payment in Q1 2023 will make payments at percentage rate of 27.5% on any sales made under the statutory scheme in Q2 to Q4 2023. By way of a comparison, the payment percentage for 2023 in VPAS will be 26.5%.
The proposed scenarios are illustrated below.
Table 1: proposed payment percentages – breakdown for 2023 in the statutory scheme
Quarter | Companies that make scheme payments in Q1 2023 at 24.4% | Companies that make scheme payments after Q2 2023 |
---|---|---|
Q1 2023 | 24.4% | Not applicable |
Q2 to Q4 2023 | 28.6% | 27.5% |
Payment percentages at these rates result in the good functioning of the scheme by controlling sales growth at 1.1%, while having regard for the objectives of the scheme around the impact on industry, the economy, and patients. It also ensures broad commercial equivalence between the schemes.
In contrast, a ‘do nothing’ scenario in which the payment percentage remains unamended would not be in line with our commitment to broad commercial equivalence or to the objective of the scheme of controlling NHS spend on branded medicines. This is because the current payment percentage rate for 2023 does not take into account the higher than forecast growth in sales for 2022.
Impact of the proposed payment percentages
The IA published alongside this consultation sets out that the application of a higher payment percentage in 2023 will help to ensure the continued effectiveness of the statutory scheme and VPAS.
Question
Do you agree or disagree with the levels at which we propose to set the statutory scheme payment percentage?
- agree
- disagree
- don’t know
Please explain your answer.
Question
Do you have any comments on the proposed methodology used in determining the payment percentage (as set out in the impact assessment)? Please give reasons and provide any evidence or analysis that would support any refinement you think the government should make.
Specific consultation requirements in the NHS Act
The statutory scheme was established using powers under section 263(1) of the NHS Act 2006. The Health Service Medical Supplies (Costs) Act 2017 amended the NHS Act 2006 to include requirements that consultation about the exercise of powers in section 263(1) must include consultation about the:
- economic consequences for the life sciences industry in the United Kingdom
- consequences for the economy of the United Kingdom
- consequences for patients to whom any health service medicines are to be supplied and for other health service patients
An assessment of the likely impact of the proposals, including on the above areas, is set out in the IA which accompanies this consultation. However, a summary of the assessment relating to those areas outlined in the NHS Act 2006 is detailed below.
Our proposal to update the payment percentages for the statutory scheme will have impacts on NHS patients, the life sciences industry, and the UK economy.
For patients and the NHS, the updates will help ensure the continued effectiveness of the statutory scheme and VPAS in controlling NHS spending on branded medicines. This will ensure that NHS spending on medicines continues to be affordable, allowing continued NHS investment in update of the most clinically and cost-effective medicines to the benefit of patients as well as investment in other patient services.
For statutory scheme member companies and their shareholders there will be decreased revenues compared to the counterfactual where no update is made. However, the update to the regulations is made in response to revised forecasts of higher than projected sales growth, which had positive impacts for pharmaceutical companies. The chosen allowed growth of 1.1%, and therefore the payment percentages set, ought to be in line with the expectations of the pharmaceutical industry.
Impact on the wider economy is hard to quantify. Reduced pharmaceutical revenues may lead to some reduction in research and development investment, of which a proportion would be felt in the UK. The department considers that research and development investment leads to ‘spillover’ effects – for example, through the generation of knowledge and human capital – which generate net societal benefits, compared to companies spending their capital on other things. However, NHS spending on non-medicine services may have greater economic benefit than NHS spending on medicines services because non-medicines economic production is more likely to occur within the UK.
See the detailed calculations on additional benefits to the UK economy in the IA.
Question
Do you agree or disagree with the analysis in the impact assessment of our proposals, including impacts on those areas where the NHS Act 2006 requires that we consult?
- agree
- disagree
- don’t know
Please explain your answer and provide evidence to support further development of our analysis.
Statutory duties
There are some specific duties that must be considered when proposing updates to the statutory scheme. These include consideration of the Secretary of State’s duties under the NHS Act 2006 Act, the public sector equality duty under the Equality Act 2010 and the family test.
Duties under the NHS Act 2006
1. To promote a comprehensive health service (section 1 NHS Act 2006)
The Secretary of State is required to continue the promotion in England of a comprehensive health service designed to secure improvement in:
- the physical and mental health of the people of England
- the prevention, diagnosis and treatment for physical and mental illness
The proposed approach to amend the payment percentage for 2023 will ensure growth continues to be controlled at a rate of 1.1% per year and that the statutory scheme remains broadly commercially equivalent to VPAS. This will ensure the ongoing affordability of NHS medicines spending and supporting the ability of the NHS to continue investing in patient access to medicines.
Under the revised payment percentages, the department will receive higher statutory scheme payments than currently set out in the Regulations. Payments will be apportioned to the NHS across the UK and can be used in the best interests of patients.
Furthermore, the updates to the payment percentages will ensure the continued stability of the schemes. This is critical to ensuring that both schemes can continue to fulfil their broader objectives of controlling costs whilst supporting the life sciences sector, patient access and the wider economy.
In contrast, if the department was to proceed with the ‘do nothing’ option and the statutory scheme had a payment percentage of 24.4%, we consider that this would destabilise the schemes by allowing growth to exceed 1.1% within the statutory scheme and undermining the principle of broad commercial equivalence. It is therefore important that the payment percentage is updated to reflect increased growth.
Updating the payment percentage will therefore help to ensure the effective running of the scheme and therefore supports the Secretary of State’s duty to promote a comprehensive health service.
2. To act with a view to securing continuous improvement in the quality of services (section 1A of the NHS Act 2006)
The Secretary of State is required to exercise his NHS functions with a view to securing continuous improvement in the quality of services provided to individuals.
As above, following the recommended option of updating the payment percentage will ensure continued effective operation of and confidence in the schemes.
This will help to ensure sales growth continues to be controlled, allowing the NHS to budget effectively and make decisions in the best interests of patients about the provision of services, including ensuring a quality service.
In discharging this duty, the Secretary of State must have regard to the National Institute for Health and Care Excellence (NICE) quality standards which define quality and quality improvement for particular kinds of care and treatment. As set out above, a decision to update the payment percentage helps to ensure the effective operation of the schemes and ensures NHS costs are controlled. This supports the Secretary of State to meet duties in securing continuous improvement in the quality of services, in line with the NICE quality standards.
3. To have regard to the NHS constitution
Regard must be given to the values, principles, pledges and rights in the NHS constitution. We have considered this duty and believe that it is not negatively affected by the proposed approach.
In addition, we have considered certain elements of the NHS constitution when considering other duties. In particular:
- principle 1: to provide a comprehensive health service available to all
- principle 4: relating to the role of patients
- principle 6: value for money in so far as this relates to the government and NHS spend on branded medicines
We have considered this duty in the context of the constitution’s pledges to, and the rights of, NHS patients.
As set out above, a decision to update the payment percentage helps to ensure the effective operation of the schemes and ensures NHS costs are controlled. This supports the Secretary of State to deliver on the duty to promote a more comprehensive health service, supports the NHS in providing services to patients, and ensures continued value for money on branded medicines spend.
4. To have regard to the need to reduce health inequalities (section 1C NHS Act 2006)
With their functions in relation to the NHS, the Secretary of State must have regard to reducing inequalities between the people of England with respect to the benefits that they can obtain from the NHS.
It is important to emphasise that this duty is separate from public sector equality duty. Impacts need therefore to be considered in terms of other socio-economic factors such as income, social deprivation and rural isolation.
We do not envisage any negative impacts on health inequalities as a result of the proposal. Ensuring the continued sustainability of NHS medicines spending is critical to enabling the NHS to provide widespread access to medicines and respond to health inequalities.
5. To promote autonomy (section 1D NHS Act 2006)
The Secretary of State must have regard to securing, so far as is consistent with the interests of the NHS:
- that any other person exercising NHS functions or providing services for its purpose is free to exercise those functions or provide those services in the manner that it considers most appropriate
- that unnecessary burdens are not imposed on any such person
The proposed updates to the statutory scheme do not impact on the freedom of NHS bodies or providers to provide NHS services as they see fit.
6. To promote research (section 1E NHS Act 2006)
In exercising his functions in relation to the NHS, the Secretary of State must promote:
- research on matters relevant to the NHS
- the use in the NHS of evidence obtained from research
We consider that the proposed approach, which will reduce statutory scheme member company revenues compared to the counterfactual where no update is made, may lead to some reduction in research and development investment of which a proportion would be felt in the UK. The department considers that research and development investments lead to ‘spillover’ effects – for example, through the generation of knowledge and human capital – which generate net societal benefits, compared to other companies spending their capital on other things. In addition, research and development investment could lead to improved medicines in the future that would be of benefit to patients and the health service.
However, by updating the scheme to keep NHS spending on medicines at 1.1% per year we are ensuring the long-term sustainability of NHS medicines spend and the use of medicines in the UK. Sustainable growth in sales allows the NHS to invest in innovative products, in clinical research and in process innovation.
We consider that growth of 1.1% per year in the statutory scheme and 2% in the voluntary scheme strikes an appropriate balance between the scheme objectives of supporting the pharmaceutical industry, supporting patients, and controlling costs.
7. To secure education and training (section 1F NHS Act 2006)
The Secretary of State must exercise his NHS (and other) functions to secure an effective system for the planning and delivery of education and training for the persons employed, or considering becoming employed, in the NHS or connected activities.
We have considered this duty in relation to the measures and do not consider it to be affected.
8. To review treatment of providers (section 1G of the NHS Act 2006)
The Secretary of State is required to keep under review any matter which might affect the ability of healthcare providers to provide NHS services or the reward available to them for doing so.
We do not consider this duty to be affected.
Public sector equality duty
This duty comprises 3 equality objectives, each of which needs to be considered separately. Ministers have regard to the need to:
- eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or under the Equality Act 2010
- advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it
- foster good relations between persons who share a relevant protected characteristic and persons who do not share it
The protected characteristics covered by this duty are age, disability, gender reassignment, pregnancy and maternity, race, religion or belief, sex and sexual orientation.
We do not believe there will be any disproportionate negative impact on the 3 objectives by the proposals to amend the payment percentages.
This is because, by updating the payment percentages, we are ensuring the good operation of the schemes, so NHS medicines spend within the statutory scheme continues to be maintained at 1.1% per year and VPAS continues to be effective. This means the NHS will continue to use those funds in the best interest of patients, including those with protected characteristics. It also avoids indirect impacts on persons who share protected characteristics should loss of income under the scheme result in reduced spending elsewhere in the NHS.
The Family Test
The Secretary of State must consider, where sensible and proportionate, apply the family test, when making policy. The Family Test questions are:
-
What kind of impact might the policy have on family formation?
-
What kind of impact will the policy have on families going through key transitions such as becoming parents, getting married, fostering or adopting, bereavement, redundancy, new caring responsibilities or the onset of a long-term health condition?
-
What impacts will the policy have on all family members’ ability to play a full role in family life, including with respect to parenting and other caring responsibilities?
-
How does the policy impact families before, during and after couple separation?
-
How does the policy impact on those families most at risk of deterioration of relationship quality and breakdown?
We have considered the Family Test and believe the recommended updates will not have a negative impact in relation to any of the relevant questions.
Amending the payment percentage will ensure that the statutory scheme continues to function, and control allowed sales growth at 1.1%, with payments received allocated to the NHS. This will help support family members who require medicines and their carers to play a full role in family life through access to medicines and any services required through the NHS.
Conclusion on statutory duties
Consequently, we think that our proposal to amend the payment percentages for the statutory scheme will have a positive impact on the Secretary of State’s ability to deliver on the relevant statutory duties.
In particular, making these amendments will help to ensure the Secretary of State continues to promote a comprehensive health service as the statutory scheme will continue to operate effectively ensuring long term sustainability in NHS spending on medicines that allows effective allocation of resources across the health service.
As detailed above, we believe that a number of duties are unaffected by the proposal, in particular reviewing treatment of providers, promoting autonomy and securing education and training.
Question
Do you agree or disagree with our initial conclusions about the impact that the proposed updates to the statutory scheme payment percentages will have on the statutory duties of the Secretary of State?
- agree
- disagree
- don’t know
Please explain your answer and provide evidence to support further development of our analysis.
How to respond
The consultation will run until 26 January 2023. We welcome responses from any interested person, business or organisation.
You can respond to this consultation by using the online form.
If you have additional evidence you wish to submit, email statutory_scheme_consultation@dhsc.gov.uk.
Or you can post your response to:
Statutory scheme consultation
Medicine and Pharmacy Directorate
3rd floor
39 Victoria Street
London
SW1H 0EU
Please note that although hard copy responses will be accepted, electronic responses via the online form are preferred. We ask that hard copies are only submitted by those unable to use the online form.
Comments on the consultation process
If you have concerns or comments which you would like to make relating specifically to the consultation process itself, please contact the consultation co-ordinator:
Department of Health and Social Care
2e26 Quarry House
Leeds
LS2 7UE
Email consultation.co-ordinator@dhsc.gov.uk – do not send consultation responses to this address.
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We manage the information you provide in response to this consultation in accordance with the Department of Health and Social Care’s personal information charter, which includes the department’s privacy notice.
The information we receive, including personal information, may be published or disclosed in accordance with the access to information regimes (primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 2018 (DPA) and the Environmental Information Regulations 2004).
If you want the information that you provide to be treated as confidential, please be aware that under the FOIA, there is a statutory code of practice with which public authorities must comply and which deals, among other things, with obligations of confidence.
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The department will process your personal data in accordance with the DPA and in most circumstances, this will mean that your personal data will not be disclosed to third parties.
Privacy notice
Summary of initiative or policy
The Department of Health and Social Care (the department) proposes to update the payment percentages in the statutory scheme for branded medicine pricing (known as the ‘statutory scheme’).
Data controller
Department of Health and Social Care is the data controller.
What personal data we collect
We will be collecting information in relation to the following:
- the capacity a person is responding to the survey. That is, if the respondent is sharing their personal views and experiences, their professional views and experiences, or responding on behalf of an organisation
- if the person is responding as an individual, we collect information on their protected characteristics (age, sex, whether they consider themselves to have a disability or not, and so on). It will not be mandatory for individuals to provide this information in order to respond to the policy questions in the consultation
- if the person responding as an individual is sharing their professional views and experience, we will collect information on what sector they work in (the NHS, elsewhere in the public sector, private or voluntary sector and so on). It will not be mandatory for individuals to provide this information in order to respond to the policy questions in the consultation
- alternatively, if the person is responding on behalf of an organisation, we collect information on the type of the organisation they are responding as (for example whether it is a pharmaceuticals company who is a member of either branded medicine pricing scheme, sector representative organisation, charity, NHS organisation and so on)
- whether they would like to receive information on other consultations caried out by DHSC
- the individual or organisation’s email address. It will not be mandatory to provide this information in order to respond to the policy questions in the consultation
How we use your data (purposes)
We will collect personal information via the survey for the consultation. If you write or email us directly then we will collect your personal information via this channel.
We need to hold your information to understand what capacity you are responding as this is crucial in our analysis of how our proposals will affect different individuals and organisations.
We ask you to provide your email address for the following reasons:
- if you need to contact us about amending or deleting your response the only way, we can verify that it is your response is via your email address
- if our policy team have a follow-up question to ask you, we can contact you
We ask you to provide information about your protected characteristics so that we can understand the range of individuals represented in the response to the consultation, as we would like to ensure that a broad cross section of the population is included in the consultation.
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Under Article 9 of the United Kingdom General Data Protection Regulation (UK GDPR), the conditions we rely on for processing any special category data are:
- (h) Health and Social Care (necessary for the purposes of preventative or occupational medicine, the provision of health or social care treatment and the management of health or social care systems and services
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Personal data will only be shared internally within DHSC with employees involved in this consultation.
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These rights are:
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Comments or complaints
Anyone unhappy or wishing to complain about how personal data is used as part of this programme, should contact data_protection@dhsc.gov.uk in the first instance or write to:
Data Protection Officer
1st Floor North
39 Victoria Street
London
SW1H 0EU
Anyone who is still not satisfied can complain to the Information Commissioners Office. Their website address is www.ico.org.uk and their postal address is:
Information Commissioner's Office
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Wilmslow
Cheshire
SK9 5AF
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Changes to this policy
This privacy notice is kept under regular review, and new versions will be available on our privacy notice page on our website. This privacy notice was last updated on 16 December 2022.