Cabinet in chaos over chemists

A Cabinet split has thrown plans to relax pharmacies' stranglehold over the £8.6bn-a-year prescription medicine market into chaos.

The Government has just four days to make a statement on its plans before the parliamentary recess, but Trade and Industry Secretary Patricia Hewitt and Chancellor Gordon Brown are still haggling over the detail.

Whitehall sources revealed that the Treasury favours full deregulation of the market, to allow supermarkets to compete with Boots, Lloyds Pharmacy and independent chemists. But the Department of Trade and Industry, backed by the Department for Health, believes opening up the markets to competition may threaten the future of up to 6,000 small chemists and hinder reforms of the NHS.

Ms Hewitt had pencilled in Tuesday for a statement to the House of Commons, but the Government may delay the announcement until Thursday to allow extra time for talks.

The row was triggered by the January publication of an Office of Fair Trading (OFT) investigation into the dispensing market. This found consumers could save £30m a year on medicines if the regulations that excluded the supermarkets were lifted. The Treasury supports the report because the NHS pays the UK's 12,250 pharmacies around £840m to dispense drugs. It also distributes subsidies to keep remote and unprofitable pharmacies open.

In March, the DTI signalled it would water down the OFT's proposals, arguing there were "limits to the markets". But the Treasury has dug its heels in and is demanding that the proposals remain largely unchanged.

In a bid to placate the Treasury, it is understood that officials from the DTI and DfH met last month to work on a compromise. The main idea was a complex formula that would calculate the concentration of pharmacies in a particular area. This would be used to draw up a "competition map" to identify specific areas where super- markets could dispense prescription drugs.

A Treasury spokesman said: "We have been in discussions with the DTI. Whatever is published will be the Government's view. I cannot comment further."

A DTI spokesman said: "We are on track to announce a balanced package of proposals which we believe is the most effective means of promoting change to open up the market ... without diminishing the role pharmacies play."

Whoever wins the argument, this week's announcement will be controversial.

A spokeswoman for Asda said: "The reluctance of existing pharmacy operators to pass on price cuts has led Asda to conclude that they are using their privileged position to keep prices high." Lucy Neville Rolfe, director of corporate affairs at Tesco, said: "We hope the Government will implement the OFT recommendations. More competition in the pharmacy sector will be in the interests of patients and consumers."

But a Boots spokesman warned: "Those who depend most on community pharmacy may find their local chemist is forced to close. The OFT's estimate of customer savings is not robust."