UK Government Raises Medicine Costs to Protect Pharmaceutical Exports
Introduction
In late September 2025, the UK government announced plans to increase spending on certain medicines purchased for the National Health Service (NHS) to safeguard its pharmaceutical exports, particularly to the United States. This decision comes amid escalating trade tensions and threats from the Trump administration to impose 100% tariffs on branded drugs unless companies establish manufacturing facilities in the U.S. The UK’s move aims to appease U.S. demands and ensure continued access to the American market for British pharmaceutical companies.
Background: The Voluntary Scheme for Branded Medicines Pricing and Access (VPAG)
The VPAG is a voluntary agreement between the UK government and the pharmaceutical industry that caps NHS spending on branded medicines. If NHS expenditure exceeds the agreed cap, companies are required to pay a rebate. In 2025, the rebate rate surged to nearly 23% due to higher-than-anticipated NHS spending, prompting concerns from the pharmaceutical industry about reduced profitability and investment incentives (The Week).
U.S. Tariff Threats and Their Implications
President Donald Trump has threatened to impose a 100% tariff on branded pharmaceuticals imported into the U.S. unless companies establish manufacturing operations within the country. This policy, aimed at reducing domestic drug prices, has created uncertainty for UK pharmaceutical exports. The UK government is actively engaging with the U.S. to negotiate favorable terms and protect its pharmaceutical sector (The Guardian).
UK Government’s Response: Increasing Medicine Spending
To counteract the potential impact of U.S. tariffs, the UK government is preparing to offer higher payments for certain medicines purchased for the NHS. This strategy is intended to offset revenue losses for drugmakers facing U.S.-mandated price cuts by allowing price increases in the UK market. Prime Minister Keir Starmer’s chief business adviser, Varun Chandra, is set to visit Washington to discuss this proposal (Reuters).
Industry Reactions
Pharmaceutical companies have expressed mixed reactions to the UK’s proposed policy changes. Eli Lilly CEO Dave Ricks criticized the UK’s drug pricing policies, labeling it “probably the worst country in Europe” for drug prices. He warned that without increased prices and the elimination of the rebate scheme, the UK might miss out on access to new medicines and lose pharmaceutical investment (Reuters).
Conversely, some companies have shown cautious optimism. Moderna, for instance, has reaffirmed its commitment to the UK, recently opening a new vaccine plant near Oxford capable of producing 250 million doses annually (Financial Times).
Potential Impact on the NHS
While the UK’s strategy aims to protect pharmaceutical exports, it raises concerns about increased costs for the NHS. Higher drug prices could strain the NHS budget, potentially diverting funds from other critical areas. Experts caution that without corresponding increases in the quality or quantity of healthcare services, higher spending on medicines may not translate into better patient outcomes (nuffieldtrust.org.uk).
Broader Trade and Economic Implications
The UK’s decision to raise medicine spending also has broader trade and economic implications. It reflects a shift towards more flexible trade negotiations, where economic interests are balanced with public health considerations. This approach may set a precedent for future trade agreements, where sectors like pharmaceuticals could be subject to more dynamic pricing and investment commitments (Grant Thornton UK).
1. Eli Lilly’s Critique of the UK’s Drug Pricing
Eli Lilly CEO Dave Ricks has publicly criticized the UK’s drug pricing policies, labeling it “probably the worst country in Europe” for drug prices. This criticism stems from the UK’s Voluntary Scheme for Branded Medicines Pricing and Access (VPAG), which caps NHS spending on branded medicines. Ricks argues that such pricing structures discourage investment and innovation, potentially leading to reduced access to new treatments in the UK (Reuters).
2. Merck’s Withdrawal from UK Research Operations
In response to the UK’s drug pricing environment, Merck has decided to abandon its research operations in London. This move highlights the challenges pharmaceutical companies face in the UK market, where pricing policies may not align with the industry’s financial expectations. Merck’s decision underscores the potential consequences of stringent drug pricing on research and development activities within the country (Reuters).
3. AstraZeneca’s Pause on £200 Million Investment
AstraZeneca has paused a £200 million investment in its Cambridge research site, citing concerns over the UK’s drug pricing policies. This pause reflects the company’s apprehension about the financial viability of large-scale investments in a market where drug prices are tightly controlled. AstraZeneca’s decision serves as a cautionary example of how pricing policies can influence pharmaceutical companies’ investment strategies (Reuters).
4. Moderna’s Commitment to UK Operations
In contrast to some of its peers, Moderna has reaffirmed its commitment to the UK by opening a new vaccine plant near Oxford, capable of producing 250 million doses annually. This investment indicates that, despite the challenges posed by the UK’s drug pricing policies, some companies still find the UK an attractive location for manufacturing and research, possibly due to factors like regulatory environment and access to skilled labor (Reuters).
5. UK-Vietnam Pharmaceutical Trade Agreement
The UK has reached an agreement with Vietnam to ease pharmaceutical trade barriers, facilitating the sale of UK-made medicines in the Southeast Asian market. Under the deal, Vietnam will expedite the registration process for new medicines and vaccines and will start recognizing approvals from additional regulators, including the UK’s Medicines and Healthcare products Regulatory Agency. This agreement is part of Britain’s newly launched trade strategy that prioritizes quick, targeted deals over comprehensive free trade agreements. The deal is projected to bring £250 million to the UK pharmaceutical sector over five years (Reuters).
6. Brexit’s Impact on UK Pharmaceutical Exports
Research indicates that Brexit has exacerbated the UK’s pharmaceutical trade challenges. The country has experienced a decline in pharmaceutical exports, moving from a $9.7 billion surplus in 2010 to a $1 billion deficit in 2020. This downturn is attributed to increased trade costs and regulatory complexities post-Brexit, which have hindered the competitiveness of UK pharmaceutical products in international markets (Cambridge Industrial Innovation Policy).
7. UK’s Strategic Response to U.S. Tariff Threats
In light of the U.S. administration’s threat to impose a 100% tariff on British pharmaceuticals unless companies establish manufacturing operations in the U.S., the UK government is considering increasing spending on specific medicines to protect its pharmaceutical exports. This strategic move aims to counter the potential impact of U.S. tariffs and maintain the competitiveness of UK pharmaceutical companies in the global market (Reuters).
Conclusion
The UK’s approach to pharmaceutical pricing and export strategies illustrates the complex balance between maintaining affordable healthcare domestically and ensuring the competitiveness of its pharmaceutical industry internationally. While some companies express concerns over pricing policies, others continue to invest in the UK market, highlighting the multifaceted nature of global pharmaceutical trade and policy.