US/UK pharma and medtech deal – zero tariffs and enhanced UK spend

The recently announced US/UK trade deal on pharmaceuticals and medtech has been warmly welcomed by industry representatives, research institutes and medical research charities. This would see UK-origin medicines and medtech exempt from US tariffs for at least three years, alongside a sharp increase in UK spend on new medicines from a relatively low overall share of health spend compared to similar nations (How does the NHS compare to the health care systems of other countries?, King’s Fund, 2023).

A zero tariff US/UK deal

The US administration’s Most Favoured Nation policy seeks to address the imbalance in medicines pricing between the US and other developed countries, and it is working with partners around the world on this area. A new agreement in principle between the US and the UK (US announcement, UK announcement), flowing out of the UK-US Economic Prosperity Deal in May 2025, will see:

• UK-origin pharmaceuticals, pharmaceutical ingredients, and medical technology exempt from tariffs,
• UK pharmaceutical pricing practices will not be targeted for investigation during President Trump’s term, and
• US support to ensure that UK citizens have access to the latest pharmaceutical breakthroughs.

In return, the UK will increase its spend on innovative treatments by around 25%, including through reforms to the current economic appraisal process.

Changes to NICE methodology

Health technology appraisal body, NICE, is to introduce two important changes.

• NICE currently assesses value for money for the NHS by applying a standard cost-effectiveness range per quality adjusted life year (QALY) gained over and above current treatments. For a medicine to be assessed as cost-effective, it is expected to generate the equivalent of an additional year of perfect health taking account of additional life expectancy and health-related quality of life improvements for no more than £20,000-£30,000 over the cost of current care. NICE will in future apply new thresholds of £25,000 - £35,000 per QALY.
• NICE will also introduce a new value set for valuing health-related quality of life, based on public surveys. This new value set would be used alongside EQ-5D-5L following consultation, and could lead to improvements in cost-effectiveness calculations.

NICE expects that increasing the standard threshold to £25,000 - £35,000 per QALY will permit recommendations of an additional 3-5 new medicines or indications per year.

Reduced VPAG payment percentage

Another important benefit arising from the agreement is a reduction in the repayment rates applicable to innovative medicines under the Voluntary Scheme for Branded Medicines Pricing and Access, VPAG. This is applicable in England and normally adopted in Wales and Northern Ireland, although Scotland conducts its own analysis.

We reported earlier this year on the sharp increase in percentage rates under VPAG. Met with concern across the sector, this issue has remained high on the agenda for pharma companies, and has led to an erosion of the UK’s image as a welcoming place for life sciences. The VPAG rate is to decrease to 15% or less for the duration of the current scheme.

It has been announced that the 2026 headline payment percentage for 2026 payable on eligible sales of newer medicines under VPAG will in fact be 14.5%, down from a record 22.9 per cent in 2025.

There are some voices of concern around the inevitable increase in costs for the NHS, and continuing pressure on producers of generic medicines, but overall the changes have been welcomed as a significant boost to the UK life sciences sector.

Learn more about our life sciences practice.