AsianFin -- Britain has struck a deal with the U.S. to exempt pharmaceuticals from tariffs in exchange for significantly higher spending on medicines through the NHS (National Health Service), the publicly funded healthcare system for the kingdom. The agreement marks the first increase in NHS drug pricing thresholds in over two decades.

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Under the deal announced Monday, Britain will boost medicine spending by 25% and cap rebates drugmakers pay to the NHS at 15%, down from approximately 23%. The arrangement ensures British pharmaceutical exports worth at least £5 billion annually will enter the U.S. tariff-free for three years, protecting a sector that comprised 17.4% of Britain's goods exports to America in the 12 months through September.

The agreement could cost the NHS an estimated additional £3 billion annually, according to industry sources cited by British media. While pharmaceutical companies and industry groups welcomed the deal as crucial for attracting investment, patient advocacy groups criticized it as a betrayal that will divert funds from other healthcare services.

The deal represents a victory for President Donald Trump's push to end what he calls "freeloading" by developed nations on U.S. pharmaceutical research and innovation. The U.S. agreed to refrain from targeting British pharmaceutical pricing practices in Section 301 trade investigations during Trump's term.

Spending Increases and Rebate Reductions

Britain will increase the price threshold used by NICE (National Institute for Health and Care Excellence) to determine whether drugs are cost-effective, raising it from £20,000-£30,000 per quality-adjusted life year to £25,000-£35,000. This represents the first adjustment since NICE's establishment in 1999.

The NHS will also increase overall medicine spending from 0.3% of GDP to 0.6% over the next decade. Currently spending £14.4 billion annually on innovative therapies, the service will need to double this allocation as a percentage of GDP.

The rebate cap at 15% addresses a key industry complaint. Under Britain's voluntary scheme for branded medicines pricing, drugmakers must repay the government if NHS medicine spending exceeds agreed levels. Last year, companies paid back more than 20%. Other European countries maintain lower rebate rates, with Germany at 7% and Ireland at 9%.

Pharmaceutical Industry Response

Bristol-Myers Squibb Co. said it expects to invest more than $500 million in Britain over the next five years based on the new commitments, covering research, development and manufacturing, according to Chief Executive Officer Chris Boerner.

"The deal is an important step towards ensuring patients can access innovative medicines needed to improve wider NHS health outcomes," said Richard Torbett, chief executive of the Association of the British Pharmaceutical Industry. "It should also put Britain in a stronger position to attract and retain global life science investment."

The agreement comes after several major pharmaceutical companies paused or canceled British investments in recent months, citing pricing disputes with the government. AstraZeneca Plc halted a planned £200 million Cambridge research facility investment, while U.S. pharmaceutical company Merck scrapped a planned £1 billion expansion of British operations.

Healthcare Impact and Criticism

NICE said the changes will likely lead to approval of three to five additional medicines annually, on top of the roughly 70 it currently assesses each year, with a 90% approval rate. The additional drugs are expected to include newly developed cancer treatments and therapies for rare conditions.

However, Diarmaid McDonald, executive director at patient lobby group Just Treatment, called the deal a "betrayal" of NHS patients. "Big Pharma have got what they want. Donald Trump has got what he want," he said. "Thousands of patients will pay for this with their lives, as precious funds get stripped from other parts of the health service."

Sally Gainsbury of the Nuffield Trust think tank said the agreement could lead to an extra £3 billion being spent on drugs, calling it "bad news" given stretched budgets. "The extra cost will need to be fully-funded by the Treasury," she said, arguing the money would be better invested in GP services or tackling hospital backlogs.

Broader Trade Context

The pharmaceutical agreement forms part of the broader U.S.-Britain trade framework established earlier this year. Trump had threatened tariffs as high as 100% on branded drug imports, using powers under Section 232 of the Trade Expansion Act, which allows tariffs on goods deemed critical to national security.

According to Veda Partners' Henrietta Treyz, the deal signals the Trump administration may be losing latitude to impose sectoral tariffs, particularly on pharmaceuticals and semiconductors, as midterm elections approach in November 2026. The administration faces political pressure over potentially raising prescription costs for Americans.

The U.S. Office of Trade Representative said Britain became the only country to secure a zero percent tariff rate on pharmaceutical shipments. The U.S. has offered similar relief to other trading partners, including capping the tariff rate on drugs from the European Union at 15%.