In a move that could reshape the future of Britain’s pharmaceutical sector, the UK government has announced a significant reduction in the rebate rate pharmaceutical companies must pay back to the National Health Service (NHS) for new medicine sales starting in 2026. The decision, unveiled on December 10, 2025, follows a landmark trade agreement with the United States and is being hailed as a positive—if partial—step toward making the UK a more attractive destination for life sciences investment and innovation.
Under the new arrangement, the rebate rate for newer branded medicines under the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) will be set at 14.5% in 2026, a sharp drop from the record 22.9% required in 2025, according to Reuters and Global Banking and Finance Review. The government has committed that this rate will not exceed 15% for the next three years, providing a measure of certainty for drugmakers that has been sorely lacking in recent years. The deal also includes an additional 1% contribution of sales from companies to support a new investment program aimed at bolstering the UK’s health and life sciences infrastructure.
This reduction comes on the heels of mounting criticism from the pharmaceutical sector, which has long argued that high and unpredictable rebate rates were stifling investment and innovation. The Association of the British Pharmaceutical Industry (ABPI), a leading industry body, has warned that if rebates remained above 20%, the UK could lose up to £11 billion ($14.7 billion) in research and development investments by 2033. The new rate, while welcomed, is still seen as higher than what many in the industry would like.
Richard Torbett, chief executive of the ABPI, captured the cautious optimism in a statement on December 10, 2025: “It’s good that the amount of revenue companies will need to pay to the UK government has come down in 2026. However, this is only the first step in returning the UK to a more competitive position. Payment rates remain much higher than in similar countries, and there is work to do to accelerate the NHS’s adoption and use of cost-effective medicines to improve patient care.”
The new terms are part of a broader UK-US trade deal that also eliminates tariffs on British pharmaceutical products and medical devices exported to the US for the next three years. This makes the UK the first—and currently only—country to secure zero tariffs on pharmaceuticals shipped to the world’s largest drugs market, a detail confirmed by the Department of Health & Social Care. The agreement is widely seen as a response to repeated complaints from the US administration, led by President Donald Trump, about so-called “global freeloading,” where other wealthy nations pay less for innovative drugs than the US.
“President Trump has said European countries should pay more for drugs,” Reuters reported, highlighting the political pressures that helped drive the deal. The UK’s willingness to boost its spending on new medicines—raising the threshold for NHS spending by 25%—is expected to cost around £1 billion extra per year by 2029, according to government estimates. Still, officials argue the move will help secure the UK’s status as a global life sciences powerhouse, benefiting patients, the NHS, and the wider economy.
Health innovation minister Dr. Zubir Ahmed echoed this sentiment, saying, “This will help secure and drive investment in the sector, ensuring Britain remains a powerhouse for life sciences for the benefit of our patients, our NHS and our economy.” Science minister Lord Vallance added, “We need our brilliant life sciences companies to discover and get important new medicines to patients right across the NHS and to create jobs in the UK. This new rate helps achieve that.”
The government’s announcement also comes amid a period of introspection for the UK’s pharmaceutical industry, which has seen its share of total health spending on medicines fall from 14% to 9% over the past decade—lagging behind countries like Italy, Spain, Germany, and France, according to ABPI data. The new plan aims to reverse this trend by increasing investment in new medicines from around 0.3% to 0.6% of GDP over the next ten years, with total spending on all medicines rising from 9% to 12% of health expenditures.
While the new 14.5% rate is a relief compared to previous years, it is still above the single-digit rates sought by many in the sector. Paul Hudson, group chief executive of Sanofi, welcomed the government’s “recognition of the urgent need to improve patient access to innovation,” but cautioned, “There is no single fix to decades of decline.” The government, for its part, has promised to consult with industry leaders in the new year about further reforms to the VPAG scheme, with a view toward developing a new model for 2029 and beyond.
Companies now face a choice: join the voluntary VPAG scheme, with its newly reduced rates, or opt for the statutory scheme, which currently carries a much higher repayment rate of 24.3% for 2026. The government is expected to adjust the statutory rate soon, as both pathways are intended to be roughly comparable. Firms have until December 16, 2025, to make their decision, according to the ABPI.
In addition to the rebate changes, the government has launched a consultation on how it evaluates the cost-effectiveness of medicines—a process central to NHS drug coverage decisions. The so-called quality-adjusted life year (QALY) measure, used by the National Institute for Health and Care Excellence (NICE), will see its cost-effectiveness range increased from £20,000–£30,000 per year to £25,000–£35,000 per year. This adjustment is expected to encourage the adoption of more innovative treatments by making it easier for new, expensive drugs to gain NHS approval.
As the dust settles on this historic agreement, the consensus among industry leaders and government officials is clear: while the rebate rate reduction is a step in the right direction, it is far from the finish line. The UK must continue to reform its approach to medicine pricing, access, and innovation if it hopes to regain its footing as a global leader in life sciences. For now, though, the new deal offers a glimmer of hope for patients, investors, and the broader health system alike.
With the new rebate rate set and further reforms on the horizon, all eyes will be on how the UK’s pharmaceutical landscape evolves—and whether this latest policy shift will truly deliver on its promise of better medicines, stronger investment, and improved patient care.
