US and UK Seal Landmark Zero-Tariff Pharmaceutical Deal, UK Commits to Increased Medicine Spending

Historic Agreement Reached on Pharmaceutical Trade

The United States and the United Kingdom announced on Monday, December 1, 2025, a significant trade agreement that will eliminate tariffs on pharmaceutical products between the two nations. This deal, a component of the ongoing UK-US Economic Prosperity Deal, is set to reshape the transatlantic pharmaceutical landscape by fostering greater access to medicines and stimulating investment in the life sciences sector.

Under the terms of the agreement, the US will exempt UK-origin pharmaceuticals, pharmaceutical ingredients, and medical technology from tariffs for a period of at least three years. This move is expected to benefit UK pharmaceutical exports, valued at approximately £5 billion annually, by ensuring they enter the US market tariff-free.

UK's Commitment to Increased Pharmaceutical Spending

In exchange for the zero-tariff arrangement, the United Kingdom has committed to a substantial increase in its spending on new medicines. The UK's National Health Service (NHS) will increase the net price it pays for new medicines by 25%, marking the first major increase in over two decades. This commitment is part of a broader plan to increase investment in new medicines from approximately 0.3% of GDP to 0.6% of GDP over the next decade.

Key changes to facilitate this increased spending include:

• Relaxing cost-effectiveness rules set by the National Institute for Health and Care Excellence (NICE).
• NICE's baseline cost-effectiveness threshold will increase from £20,000-£30,000 to £25,000-£35,000 starting in April 2026.
• The repayment rate for new medicines under the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG) will be reduced from its current range of 23.5%-35.6% to 15% for the next three years (2026-2028).

US Trade Representative Jamieson Greer stated that the agreement 'will help drive investment and innovation in both countries.'

Driving Investment and Innovation

The agreement is anticipated to have several positive impacts, including strengthening supply-chain resilience, reducing trade friction, and accelerating cross-border access to innovative therapies. UK Business and Trade Secretary Peter Kyle highlighted that the deal 'guarantees that UK pharmaceutical exports – worth at least £5 billion a year – will enter the US tariff free, protecting jobs, boosting investment and paving the way for the UK to become a global hub for life sciences.'

The deal also aims to encourage investment in the UK's pharmaceutical industry, which has faced challenges in recent months. Science and Technology Secretary Liz Kendall emphasized that the deal 'will ensure UK patients get the cutting-edge medicines they need sooner, and our world-leading UK firms keep developing the treatments that can change lives.' As a direct result of the UK's commitments, Bristol Myers Squibb anticipates investing upwards of $500 million over the next five years in research, development, and manufacturing.

Context and Future Outlook

This agreement comes after warnings that US pharmaceutical companies might reduce or cease UK-based production if the NHS did not increase its spending on medicines. The deal is seen as a strategic move to secure and expand access to vital drugs for tens of thousands of NHS patients, safeguard Britain's medical supply chain, and drive crucial investment. The Association of the British Pharmaceutical Industry (ABPI) welcomed the deal, with Chief Executive Richard Torbett stating it 'should put the UK in a stronger position to attract and retain global life science investment and advanced medicinal research.'