Establishment payments for community pharmacy premises and running costs should be considered, Community Pharmacy England (CPE) has told a parliamentary inquiry into pharmacy.

In the short term, the negotiator would also like to see increased funding to ‘close the gap’ caused by inflationary costs, as well as the write-off of accrued retained margin, it said.

And it is calling for a review of supply chain and margin mechanisms.

CPE chief executive Janet Morrison also confirmed that discussions on the next contractual framework, which is expected to be a one-year interim agreement, have not yet begun – although she has received an opening letter from the government on the negotiations.

Ms Morrison told the Health and Social Care Select Committee (HSCC) on Monday that the income pharmacies currently get from margin payments and dispensing fees was ‘not sufficient’ for pharmacies ‘to invest in buildings, people, staffing, bills [and] running costs’.

It was her view that the return of the establishment payment ‘should certainly be considered’ as part of the committee’s recommendations to government.

‘If you want those pharmacies to be in those areas, then you should ensure that they can at least put the lights on, have the staff in place and have the facilities that are required for the future services we'd like to see delivered,’ Ms Morrison told the HSCC.

Annual establishment payments of £25,000 per pharmacy were phased out from 2016 under chief pharmaceutical officer Keith Ridge.

At the time, the Department of Health and Social Care said the new contractual framework would ‘place greater emphasis on rewarding pharmacies for the quality of services provided to the public’.

As part of a fixed annual budget, a quality payment scheme, a pharmacy integration fund and access payments for pharmacies in deprived areas were introduced.

But at this week’s inquiry, CPE’s director of pharmacy funding Mike Dent said that community pharmacy was now experiencing an ‘enormous’ funding gap caused by the fixed budget alongside increased activity.

And he said that CPE had called on the government to ‘close the gap on funding’ for the sector.

‘It is so enormous, the pressure through not having an inflationary rise for so long and through increased volume of activity,’ he told the committee.

The government should also write off the excess retained margin accrued by the sector throughout the last few years, he suggested.

‘We’ve accrued some retained margin that we could owe back to the government, and the government wishes to recover that,’ said Mr Dent.

‘We’re suggesting that there is so much pressure on the system that it’s almost impossible to recover it, and also the process of trying to recover it would damage the supply chain even further.’

He added: ‘It would be wise to say that excess occurred during Covid and Brexit, it was effectively an insurance policy because you’ve kept the drug tariff quite generous, rightly so, so we think it would be inappropriate to claw it back.’

And he said that CPE was also calling for a review of supply chain and retained margin.

‘There are challenges with delivering critical funding to contractors using something like retained margin,’ he said.

He suggested that the retained margin system ‘had worked really well’ until it moved to a fixed amount, meaning that if more was earned by the sector it would have to be paid back.

‘It means you can’t predict, it means you can’t invest, […] you might have earned something, but you don’t know if you can keep it until later,’ Mr Dent explained.

Instead, he suggested there needed to be payments ‘for being there’, for activity, ‘and then a level or a layer of benefit sharing’ between contractors and the NHS that ‘puts the right incentives in the system’.