Reflections on proposed drug pricing changes on the UK life sciences sector
In this blog, BIA CEO Steve Bates OBE gives his take on the announcement that the UK government is consulting on introducing a new law to raise the Statutory Scheme payment rate for newer branded medicines from 15.5% to 32.2% of subject companies' NHS sales revenues in the second half of 2025.
Last week, the UK government proposed to change the payment rates made by companies selling innovative medicines to the NHS in the UK. The government is proposing to raise the Statutory Scheme payment rate for newer branded medicines from 15.5% to 32.2% of subject companies' NHS sales revenues in the second half of 2025.
This means the UK is set to demand a third of pharmaceutical company revenue from NHS sales in the second half of 2025, by law, in parliament.
This is an additional sector-specific charge paid in addition to all the other taxes by companies such as national insurance contributions and corporation tax.
By comparison, banks in the UK currently pay a special surcharge of 3% on their profits (not revenues), which was introduced after the last financial crisis in recognition of the risks banks’ activities pose to the wider economy and this levy has been more than halved from 8% in recent years.
The life science sector, rather than crashing the economy, was crucial in delivering a speedy bounce back from the pandemic through rapid vaccine development and deployment. We have also rightly been identified as a key export sector able to deliver economic growth.
With most pharma companies global in reach, and with ready incentives and healthier margins in other markets, trying to tax life sciences into growth in the UK will not work.
These new UK levy rates came as a shock to industry and were well out of line with the expected rates of the 5-year deal negotiated last year.
The research and innovation ecosystem is linked to the usage of new drugs in an economy because much innovative research relies on comparators with global high standards of care and many countries link R&D and market incentives in their industrial strategies.
Why this matters to NHS patients is that this underinvestment has impacted patient access to medicines, contributing to poor health outcomes. Research by the King’s Fund shows the UK in relegation position (16th and 18th, respectively in a basket of 19 comparable countries), for preventable and treatable causes of mortality.
The NHS already pays among the lowest prices for drugs in the developed world. The UK is now completely out of line with comparator countries, with medicines accounting for just 9% of the UK’s healthcare spending compared to countries like Germany and Italy (both 17%) and France (15%).
So, when BIA members like Tom Keith-Roach, President of AstraZeneca in the UK, say: “The commercial environment needs to reflect the level of ambition the government has for the sector and we need to see a substantive and long-term commitment to improvement as a key plank of the life sciences strategy”, and Kylie Bromley, Managing Director of Biogen UK, says the payments were having “a major impact on our work in the UK and our investment here”, in this new publication by the ABPI, I listen.
No one has yet found a way for hospitals or GPs to “go generic”. Drugs retire from patented life and come back and work for much less for many years thereafter – without demanding expensive pensions.
So, economically, Treasury officials should be encouraging the NHS to spend more on drugs, else increased NHS spending will be focused toward the economically inefficient parts of the system. Perversely more and more money going on less and less efficient spending in the health service was heralded as success by NHS England.
This needs fixing. And one part of the solution must be to ensure that medicines receive the same proportional increase in funding as the rest of the NHS enabling better health outcomes and encouraging global pharma investment into the UK not forcing it overseas.
