Business
OBR given more powers to prevent repeat of Liz Truss mini-budget
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A new law is set to prevent any future government from sidelining the UK’s independent forecaster from assessing its economic plans like former prime minister Liz Truss did for her short-lived mini-budget.
Powers will be given to the Office for Budget Responsibility (OBR) to make judgements on any major taxation or spending announcements in a bid to deliver “stability”, the Treasury said.
Ms Truss’s mini-budget saw her administration shun the OBR when it announced £45bn in unfunded tax cuts in September 2022, spooking financial markets and leading to mortgage rates soaring.
The new Labour government hopes preventing such a move from happening again will build confidence among investors and boost economic growth.
In the City of London later on Thursday, Chancellor Rachel Reeves will tell financiers the “budget responsibility bill” will deliver economic stability, bolster market confidence, and “help protect family finances by keeping inflation, mortgages, and taxes low as low as possible”.
The law will mean the OBR, which independently monitors and checks the UK government’s financial plans, will have the power to make an assessment on announcements over the course of a financial year, which make permanent tax or spending commitments worth more than 1% of the size of the UK’s economy, or around £30bn.
If the government wanted to announce significant economic measures but did not ask for an OBR forecast on the plans, a “fiscal lock would be triggered”, the Treasury said.
This would mean the OBR at its own discretion would be able to decide to produce a forecast on such plans.
However, the law does not apply to emergency or temporary measures lasting fewer than two years, such as the government’s response to the Covid pandemic.
The lack of an OBR assessment on Ms Truss’s and her chancellor Kwasi Kwarteng’s mini-budget two years ago were seen as a key reason for the lack of investor confidence in the plans.
This is because the OBR uses its forecasts to assess whether the government is likely to meet the rules it has set for managing the economy. Its judgement is closely watched by investors to see if the plans are sound.
In the aftermath of the mini-budget, the value of the pound crashed, signalling that international investors had no confidence in the government’s measures. The Bank of England was also forced to step in to protect pension funds.
Ms Reeves said the government’s “defining mission is to deliver economic growth”, but that growth can “only come through economic stability and a commitment to sound public money”.
“So never again can a government play fast and loose with the public finances,” she added. “This new law is part of our plan to fix the foundation of our economy so we can rebuild Britain.”
Conservative leader Rishi Sunak said on Wednesday his party would examine Labour’s plans to strengthen the OBR “carefully”.
The decision by Labour gives the OBR the most power it has ever had over the government’s policies since it was set up in 2010 by then-Chancellor George Osborne, which might prompt concerns it has too much sway over elected ministers.
While forecasts help businesses plan where to invest, they are only a guide or a prediction of what will happen in the future and can be wrong.
Since leaving Downing Street, Ms Truss has accused the OBR of belonging to an “economic establishment” that is too pessimistic about the potential benefits of tax cuts on the economy.
On Wednesday, civil servants have changed documents describing Ms Truss’s mini-budget as “disastrous” after she complained they showed political bias.
But Paul Dales, chief economist at Capital Economics, said he believed the new law “just formalises the current situation that the government needs to give the OBR enough notice and that the OBR is responsible for costing policy changes and judging whether the fiscal rules are being met or not.
“I don’t think it means the OBR has too much power. Instead, I view it as strengthening the independence required to keep the government straight on fiscal matters,” he added.
Laith Khalaf, head of investment analysis at AJ Bell, added while it was “unclear” how much of the turmoil created in the wake of the mini-Budget was created by the lack of an OBR report, it “didn’t help to calm any nerves” among investors.
“Ironically Liz Truss and Kwasi Kwarteng did more to burnish the credentials of the OBR than any politicians since its inception. As things stand, the OBR is now more commanding than ever,” he added.
Business
Denmark gets Novo Nordisk to lower Ozempic prices
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On May 13, Sen. Bernie Sanders (I-Vt.) published an open letter to Novo Nordisk on the front page of a leading Danish newspaper, urging the hometown company to live up to its altruistic standards by lowering U.S. prices for its blockbuster diabetes and weight loss drugs.
What Sanders didn’t realize was that Denmark, a country of 6 million, was enduring its own crisis over how to pay for the Novo Nordisk drugs Ozempic and Wegovy.
Most other developed countries, including Denmark, negotiate down drug costs for their citizens, paying prices that are a fraction of those in the United States. But when a drug is effective and expensive, pharmaceutical companies can play hardball on pricing. And Novo Nordisk did, at least initially, pushing the Danish health system to its limits.
The country’s socialized health system had for years covered Ozempic as a diabetes treatment, but in 2022 doctors began prescribing it for weight loss, too, and soon they “emptied all the money boxes in the entire public health system,” said University of Copenhagen professor Jens Juul Holst, a co-inventor of the drug.
Countries around the world are struggling with how and when to pay for Ozempic, Eli Lilly’s Mounjaro, and other drugs in the same chemical class, particularly when they are prescribed for weight loss. Indeed, the sky-high prices paid in the U.S. set a bar that pharmaceutical companies can use as they negotiate with other health systems.
In Denmark, with prescriptions for the drugs gobbling up 18% of regional drug budgets in 2023, officials were considering the unthinkable in a system that prides itself on free cradle-to-grave coverage: forcing patients to pay out-of-pocket for Ozempic — a drug made in the country.
In America, meanwhile, tightening insurance policies are making it harder for patients to get the drugs, which are listed at up to $1,350 a month.
“There are changes month to month in our clinic in terms of the supply, coverage, which drug is available,” said Michael Blaha, director of clinical research for the Johns Hopkins Ciccarone Center for the Prevention of Cardiovascular Disease. He said that doctors and patients were “playing a constant game of prior authorization and appeals.”
In particular, use of the drugs for weight loss is a hot-button issue. Novo Nordisk and Lilly are battling for coverage — joined by some doctors and patient advocate groups, many funded by the drug companies. They are pressing to overturn a 2005 federal rule that prohibits Medicare from reimbursing weight loss treatments.
“There’s a strong assumption that Medicare is going to cover these drugs for obesity treatment sooner or later,” said David Kim, an assistant professor of medicine and public health sciences at the University of Chicago. If Medicare pays, he added, commercial insurers will probably follow suit.
The impact on federal and commercial insurance budgets, he said, depends on three unanswered questions: How many people will eventually get the drugs? For how long will they take them? And at what price?
The potential Medicare market alone is enormous. In 2020 about 13.7 million Medicare beneficiaries, around a quarter of the total, were diagnosed as overweight or obese, according to Juliette Cubanski and Tricia Neuman, researchers at KFF, a health information nonprofit that includes KFF Health News. Assuming a 50% discount on a $1,300 monthly list price for Wegovy, that’s a $107 billion price tag. The entire federal share of Medicare Part D spending in 2024 was projected to be $120 billion.
Novo Nordisk spent $7.6 million lobbying Congress over the past 12 months, and lobbying disclosures show that most of that was to promote bills in the House and Senate to expand use of the GLP-1 drugs.
Pressure from drugmakers has been relentless. Pfizer, which has a GLP-1 drug in development, commissioned a white paper by consultancy Manatt arguing that Medicare law already allows payment for these anti-obesity drugs, since they have benefits beyond weight loss. Novo and other pharmaceutical companies have funded research that shows health care savings on chronic disease through use of the drugs.
But the Congressional Budget Office, whose judgments about the cost of such policies weigh heavily in whether they are eventually adopted, has yet to give a final opinion. In a March presentation, the office said it was “not aware of empirical evidence that directly links the use of anti-obesity medicines to reductions in other health care spending.”
Prime Therapeutics, a pharmacy benefit manager whose clients are employers that fund drug plans, released a study this year finding that only a third of patients put on a GLP-1 drug stayed on it for a full year. That means insurance coverage of the drugs could sometimes be a waste of money, said Patrick Gleason, Prime Therapeutics’ leader of research, since research shows that patients tend to gain the weight back after cessation.
That doesn’t completely surprise Holst, the Danish scientist, who said the GLP-1 drugs’ suppression of appetite is for many people “so miserably boring that you can’t stand it any longer and you have to go back to your old life.”
One answer might be weight loss programs that employ the GLP-1s for, say, a year, followed by maintenance therapy with cheaper drugs, Kim said.
One way or another, many experts in the field say, it’s sensible to cover weight loss before the onset of the chronic illnesses associated with obesity, like Type 2 diabetes.
Indeed, because obesity is associated with so many comorbidities, drugmakers are now doing studies showing that GLP-1 drugs also show positive impact on conditions like sleep apnea and heart, liver, and kidney diseases.
Yet even advocates for the drugs’ use acknowledge uncertainty about how long it would take for such health benefits to kick in, or whether shorter-term use would prevent or ameliorate longer-term illnesses.
“Modeling the impacts is complicated,” said Alison Sexton Ward, a research scientist at the University of Southern California’s Schaeffer Center for Health Policy and Economics. “Medical costs won’t go down immediately. The prevented diseases may be years in the future.”
Starting next year, Medicare beneficiaries’ Part D out-of-pocket costs will be capped at $2,000, meaning U.S. taxpayers will foot the bill for most Medicare drug expenses. So it’s no surprise the Congressional Budget Office believes the government will launch Medicare price negotiations for semaglutide under the Inflation Reduction Act “within the next few years,” per its March presentation.
According to the terms of the act, Ozempic would be eligible for government price negotiation as early as next year, with new prices reflected in 2027. The negotiated unit price would apply to all forms of the drug — Ozempic; its higher-dose, weight loss-branded version, Wegovy; and a pill, Rybelsus.
Where the price would land is unclear. Wegovy costs patients up to $365 a month in Denmark, which typically doesn’t cover the drug — and about $140 in Germany and $92 in the U.K.
Meanwhile, generic drugmakers are gearing up to sell their versions of semaglutide. Those appear set to go on sale in China and Brazil as early as 2026. Americans are likely to have to wait until at least 2032 because of U.S. patent restrictions. The Federal Trade Commission has tried to nibble at the drugs’ exclusivity periods by challenging Novo Nordisk patent filings on applicators used to inject the drugs — which would extend their market exclusivity up to 30 months.
For now, patients who can’t afford or access the drugs often turn to compounded forms, which are not FDA-approved although their raw material comes from FDA-registered factories. Blaha has “a number of patients” who can’t access the branded drugs and show up at the clinic with compound drug vials.
Two weeks before Sanders published his letter in Denmark, Novo Nordisk cut the local price of Ozempic by 34%, to $130 a month — about 15% of its U.S. list price. The government, which had warned it would stop paying for the drug, agreed to cover Ozempic diabetes treatment, but only for patients who had first tried a cheaper medicine such as metformin.
Wegovy, the same medicine but at a higher dose, targeted to weight loss, would in nearly all cases remain the patient’s responsibility at $365 monthly, a price that, while modest by U.S. standards, has sparked intense discussions about the uneven impact of class on its affordability, said Nils Jakob Knudsen, an endocrinologist in Copenhagen.
The calculus of the drugs’ price is complex for the Danes, he added, because “the blooming economy for Novo is also driving our very healthy Danish economy.”
Novo Nordisk’s market valuation of $591 billion on Aug. 2 was considerably higher than the entire GDP of Denmark.
Business
Weekly mortgage refinance demand soars 16% as rates sink to lowest level in over a year
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An aerial view shows a subdivision that has replaced the once rural landscape in Hawthorn Woods, Illinois.
Scott Olson | Getty Images
Mortgage interest rates dropped last week to the lowest level since May 2023, causing a surge in mortgage demand from both homebuyers and especially current homeowners.
Total mortgage application volume rose 6.9% last week compared with the previous week according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was at the highest level since January of this year.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.55% from 6.82%, with points decreasing to 0.58 from 0.62 (including the origination fee) for loans with a 20% down payment.
“Mortgage rates decreased across the board last week…following doveish communication from the Federal Reserve and a weak jobs report, which added to increased concerns of an economy slowing more rapidly than expected,” said Joel Kan, MBA’s vice president and deputy chief economist in a release.
Applications to refinance a home loan, which are most sensitive to weekly rate changes, jumped 16% for the week and were 59% higher than the same week one year ago. While the percentage increases are large, they are still coming off a very small base. The vast majority of borrowers today have loans with rates below 5%. There are less than one million borrowers who can benefit from a refinance and shave at least 75 basis points off their current rate.
Applications for a mortgage to purchase a home increased just 1% for the week but were still 11% lower than the same week one year ago.
“Despite the downward movement in rates, purchase activity only saw small gains, with an increase in conventional purchase applications offset by decreases in government purchase applications. For-sale inventory is beginning to increase gradually in some parts of the country and homebuyers might be biding their time to enter the market given the prospect of lower rates,” added Kan.
Mortgage rates fell further to start this week, following a stock market rout Monday. They rose sharply again, however, on Tuesday following some more positive economic data.
“This is how things often play out when the bond market forces a quick move to extreme rate levels. For example, several of the biggest drops in daily mortgage rates have followed quick moves to long-term highs,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.
Business
Further rate cuts could fuel house price rises, says Halifax
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Lower mortgage rates and more interest rate cuts could fuel a “modest” rise in house prices for the rest of this year, Halifax has said.
The mortgage lender’s prediction came after property prices increased marginally in July following a flat few months.
Halifax said recent mortgage rate drops were “encouraging” for first-time buyers, those moving along the housing ladder or those refinancing.
But it warned affordability challenges and lack of available properties still posed problems for buyers.
“Against the backdrop of lower mortgage rates and potential further [Bank of England] base rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year,” Amanda Bryden, head of mortgages at Halifax said.
Last week the Bank of England lowered interest rates to 5% – the first cut since the start of the pandemic in March 2020.
The Bank’s rate dictates the cost of borrowing set by High Street banks and money lenders for the likes of mortgages and credit cards.
The UK’s largest lender said a typical property cost £291,268 in July, up more than £2,200 compared to the previous month.
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