In a major shift for one of Britain’s most important export industries, the United Kingdom and the United States have sealed a deal to keep tariffs on British pharmaceutical products at zero, while committing the UK's National Health Service (NHS) to pay more for new medicines for the first time in two decades.
Under the agreement announced yesterday, the UK will raise what it pays for innovative drugs and expand its overall medicines budget, securing three years of tariff-free access for British-made medicines, ingredients, and medical technology headed for the U.S. market.
Washington, long frustrated at paying far more for pharmaceuticals than other wealthy nations, had threatened tariffs as high as 100% on branded drug imports.
U.S. Trade Representative Jamieson Greer called the deal a win for innovation on both sides of the Atlantic, and British officials say it stabilises a sector rattled by wavering investment.
Pharmaceuticals account for a substantial share of UK exports to the United States—more than £11 billion over the past year.
A major component of the agreement is a change to how the UK evaluates new treatments.
NICE, the body that decides whether drugs offer value for money, will raise its “quality-adjusted life year” threshold from £30,000 to £35,000.
The government says the updated framework better reflects the economics of modern drug development and should lead to a modest increase in approvals annually.
At the same time, the NHS will gradually lift its medicines spending from 0.3% to 0.6% of GDP over the next decade.
Drugmakers will also see the rebate they pay back to the health service capped at 15%, easing a pressure point that industry groups have long argued hampered investment.
The reaction from pharmaceutical companies was broadly optimistic.
New Jersey-based multinational pharmaceutical company, Bristol Myers Squibb, is expected to invest more than $500 million in the UK over the next five years, while British multinational, GlaxoSmithKline (GSK), welcomed what it described as a stronger foundation for the country’s life-sciences sector.
Business groups also applauded the zero-tariff guarantee, noting that few countries have secured similar terms from Washington.
However, the deal comes with financial trade-offs.
Analysts warn that higher drug prices may create fresh strain on NHS budgets already stretched across multiple fronts.
Health policy experts suspect the Treasury will likely need to step in with additional funding to prevent the higher costs from squeezing other services.
The agreement also follows a run of high-profile investment decisions that saw several UK pharmaceutical giants redirect large projects to the U.S., raising pressure on British officials to improve the environment for drug development and manufacturing.
The government now argues the new tariff protections and pricing framework will help reverse that trend.
U.S. officials say the deal brings the UK closer to paying what they consider a fairer share for cutting-edge medicines, aligning with Washington’s efforts to rebalance drug pricing globally.
With a Supreme Court ruling looming over the legality of some U.S. tariffs, analysts note the White House has been eager to finalise as many detailed trade agreements as possible while it can.
Meanwhile, London can claim a rare diplomatic and economic win, albeit one that comes with a higher pharmacy bill in the years ahead.
