Rebates paid by drugs firms to the NHS are being cut by more than a third next year following the recent tariff deal with the US.

The Government said the rebate costs for companies – the proportion of revenues from new branded medicine sales that drugs firms must pay back into the NHS – would fall to 14.5% in 2026 from 22.9% this year.

It comes after the UK-US tariff deal earlier this month, which will see zero tariffs on British pharmaceutical products imported into the US in return for the NHS raising spending on medicines.

As part of the deal, it was also agreed that repayment rates on NHS drug prices would be capped at 15% for the first three years.

This is the amount that drugs firms pay back to the NHS to ensure it does not overspend its allocated budget for branded medicines.

The Government said it is able to offset the lower rebate thanks to falling costs for medicines, in part driven by drugs coming off patent.

But Downing Street admitted soon after the trade deal that the agreement to increase the threshold for what the NHS can pay for new medicines by 25% will cost it around £1 billion extra a year by 2029.

The Association of the British Pharmaceutical Industry (ABPI) said the “high and unpredictable” rebate costs had been a “significant drag on UK life science competitiveness in recent years”.

Richard Torbett, chief executive of the ABPI, said: “It’s good that the amount of revenue companies will need to pay to the UK government has come down in 2026.”

He added: “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 Department for Health said the lower rebate costs should also make the UK an attractive place for investment by pharma firms, clinical trials and the early launch of new medicines.

Health innovation minister Dr Zubir Ahmed said that together with the tariff deal, “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.”