NHS faces paying more for US drugs to avoid future Trump tariffs
Britain faces paying more for US drugs as part of a deal to avoid future tariffs from Donald Trump.
The NHS will review drug pricing to take into account the 'concerns of the president', according to documents released after a trade agreement was signed earlier this year.
White House sources said it expected the NHS to pay higher prices for American drugs in an attempt to boost the interests of corporate America.
A Westminster source said: 'There's an understanding that we would look at the drug pricing issue in the concerns of the president.'
The disclosure is likely to increase concerns about American interference in the British health service, which has long been regarded as a flashpoint in trade talks.
It comes after Rachel Reeves announced a record £29 billion investment in the NHS in last week's spending review. The Chancellor's plans will drive spending on the health service up towards 50 per cent of all taxpayer expenditure by the mid-2030s, according to economists at the Resolution Foundation.
The Telegraph has also learnt that under the terms of the trade deal with America, the UK has agreed to take fewer Chinese drugs, in a clause similar to the 'veto' given to Mr Trump over Chinese investment in Britain.
The White House has asked the UK for assurances that steel and pharmaceutical products exported to the US do not originate in China, amid fears the deal could be used to 'circumvent' Mr Trump's punishing tariffs on Beijing.
Mr Trump is enraged by how much more America pays for drugs compared with other countries and considers it to be the same issue as he has raised on defence spending.
Just as the US president has heaped pressure on European nations to increase the GDP share they allocate to defence, he thinks they should spend more on drug development.
An industry source said: 'The way we've been thinking about it and many in the administration have been thinking about it, it's more like the model in Nato, where countries contribute some share of their GDP.'
Britain and the US 'intend to promptly negotiate significantly preferential treatment outcomes on pharmaceuticals and pharmaceutical ingredients', the trade deal reads.
Pharmaceutical companies are also pushing for reductions in the revenue sales rebates they pay to the NHS under the voluntary scheme for branded medicines pricing, access and growth (VPAG) – a mechanism that the UK uses to make sure the NHS does not overpay.
Non-US countries are 'free-riding'
Last week, Albert Bourla, Pfizer's chief executive, said non-US countries were 'free-riding' and called for a US government-led push to make other nations increase their proportionate spend on innovative medicines.
He said White House officials were discussing drug prices in trade negotiations with other countries. 'We represent in UK 0.3pc of their GDP per capita. That's how much they spend on medicine. So yes, they can increase prices,' Mr Bourla said.
Industry sources said there was no indication yet on what the White House would consider to be a fair level of spending.
Whatever the benchmark, Britain will face one of the biggest step-ups. UK expenditure on new innovative medicines is just 0.28pc of its GDP, roughly a third of America's proportionate spending of 0.78pc of its GDP.
Even among other G7 nations, the UK is an anomaly. Germany spends 0.4pc of its GDP while Italy spends 0.5pc.
Most large pharmaceutical companies generate between half and three quarters of their profits in the US, despite the fact that America typically makes up less than a fifth of their sales. This is because drug prices outside of the US can cost as little as 30pc of what Americans pay.
Yet, pharmaceutical companies rely on higher US prices to fund drug research and development, which the rest of the world benefits from.
A month ago, Mr Trump signed an executive order titled 'Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients', which hit out at 'global freeloading' on drug pricing.
It stated that 'Americans should not be forced to subsidise low-cost prescription drugs and biologics in other developed countries, and face overcharges for the same products in the United States' and ordered his commerce secretary to 'consider all necessary action regarding the export of pharmaceutical drugs or precursor material that may be fuelling the global price discrimination'.
Trung Huynh, the head of pharma analysis at UBS, said: 'The crux of this issue is Trump thinks that the US is subsidising the rest of the world with drug prices.
'The president has said he wants to equalise pricing between the US and ex-US. And the way he wants to do it is not necessarily to bring down US prices all the way to where ex-US prices are, but he wants to use trade and tariffs as a pressure point to get countries to increase their prices.
'If he can offset some of the price by increasing prices higher ex-US, then the prices in America don't have to go down so much.'
Mr Huynh added: 'It's going to be very hard for him to do. Because [in the UK deal] it hinges on the NHS, which we know has got zero money.'
Under VPAG, pharmaceutical companies hand back at least 23pc of their revenue from sales of branded medicines back to the NHS, worth £3bn in the past financial year.
The industry is pushing for this clawback to be cut to 10pc, which would mean the NHS would have to spend around 1.54bn more on the same medicines on an annual basis.
The Government has already committed to reviewing the scheme, a decision which is understood to pre-date US trade negotiations.
A government spokesman said: 'This Government is clear that we will only ever sign trade agreements that align with the UK's national interests and to suggest otherwise would be misleading.
'The UK has well-established and effective mechanisms for managing the costs of medicines and has clear processes in place to mitigate risks to supply.'
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Reuters interview with ECB Vice President de Guindos
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But I think that, from a practical viewpoint, there are other necessary conditions before we get there and these are not yet in place. Q: Do you think it could be prudent for the ECB and the Eurosystem's national central banks to bring back some of the gold reserves they store in New York? A: There is no doubt in my mind that they are totally safe. Q: Even when a new Federal Reserve Chair will be appointed next year? A: Well, I don't know who the next Chair is going to be, but I expect it will be a competent and sensible person. Q: Fair enough. But has there been a discussion about this or didn't it even come up? A: Even the possibility of it didn't come up. Q: Over the past few years, the ECB has learned some lessons, such as that you also have to react forcefully to inflation when it's too high. This didn't seem to be a problem a few years ago, yet all of a sudden it was. So, with that in mind, how would you like the new strategy document to reflect that? A: As you have said, the framework for inflation was totally different five years ago. And now we have had a period of high inflation, which was an important change. This is going to be a reassessment of our strategy review. In my view, we are not going to see modifications in the definition of price stability. With respect to the toolkit, I think that all the instruments are going to remain available for use in the future. Simultaneously, we have learned much more about side effects, and we are going to pay more attention to financial stability considerations. QE, for instance, was a new instrument added to the toolkit in 2015. What is important is that when you use an instrument, you can gauge its real impact. Sometimes it's much easier to start using the instrument than to withdraw it -- that's something we have learned as well. And finally, the framework of the global economy is going to be very different from the one we had in 2021. In one sense, I think we are going to have a much more fragmented world. In 2021, we didn't have any discussions about trade. Deflation, or low inflation, was the main point of our review, and how close we were to the lower bound. At the same time, some academics raised the issue of the natural interest rate. This is interesting from a conceptual and an academic standpoint, but not for actual monetary policy decision-making. Q: What should we expect from the new strategy statement? A: I would not expect big surprises. This is about evolution, not revolution. It is just a reassessment. It will be much more focused on how the framework for central banks and for the ECB has changed over the last five years. Q: In a multipolar world, what role can China play for the ECB as a partner, and the People's of Bank of China particularly? A: China is an important player. It's the world's second largest economy. We have some monetary arrangements with the central bank, like our swap lines. Sometimes when we talk about trade policies, we look only at bilateral tariffs. But we need to have a holistic approach. In the case, for instance, of the negotiations between the United States and Europe, what is going to be key is not only the final outcome in terms of bilateral tariffs, but the potential impact of trade diversion. You need to be holistic with respect to trade, because otherwise, perhaps, you are missing the real impact that these trade negotiations are going to have. Q: Do you see that as a big risk, trade diversion? Your colleague Isabel Schnabel seemed to suggest this was not a major risk. A: Well, I don't know whether it's going to be a big risk, but undoubtedly this is something that we have to monitor and take into consideration. Q: Could the ECB work with the People's Bank of China, for example in the field of payments? China has its own digital currency. A: We are fully behind a digital euro. We believe that it's something that is going to be very important in Europe. There will be new legislation in the United States about stablecoins. They are going to become a means of payment and most projects are going to come from the United States. My reading of the digital euro project is digital public money: it will be a means of payment, it's not going to pay an interest rate, and it will not replace cash. We are going to take financial stability implications into consideration too. People, at the end of the day, both in the analogue and digital context, always want to have public money. For them, that's real money. And if people doubt whether they can transform their current account balance into banknotes, then a bank run can take place. The digital euro is going to play a similar role in a digital world. Q: If the case for a digital euro is so clear, why does the legislator not see it? Brussels has been dragging its feet. Why is that, and do you expect a change? A: I hope that we will be able to convince the legislators, but you have to ask them why they have so many doubts. From our standpoint, it's quite clear that a digital euro is something that is extremely relevant and useful in the payment context in Europe. And I think that eventually, they will be convinced of the clear advantages of a digital euro.
Reuters
24 minutes ago
- Reuters
ECB relaxed about euro strength, risk of too low inflation, de Guindos says
FRANKFURT, June 16 (Reuters) - Tariffs will weigh on euro zone economic growth and prices for years, but there is little risk of inflation falling too low, and even the euro's surge against the dollar is not a major worry, European Central Bank Vice President Luis de Guindos said. The ECB signalled a pause in policy easing this month despite projections showing price growth dipping below its 2% target temporarily on the strong euro and low oil prices, reviving worries that the ultra-low inflation environment of the pre-pandemic decade could return. But de Guindos played down those fears, arguing that the ECB was finally within striking distance of its target after years of under- and overshooting. "The risk of undershooting is very limited in my view," de Guindos told Reuters in an interview. "Our assessment is that risks for inflation are balanced." A key reason why inflation will rebound to target after dipping to 1.4% in the first quarter of 2026 is that the labour market remains tight and unions will keep demanding healthy increases, keeping compensation growth at 3%, de Guindos argued. While de Guindos did not explicitly argue for a pause in policy easing, he said that financial investors, who now bet on just one more interest rate cut, possibly towards the end of the year, correctly interpreted ECB President Christine Lagarde's message. "Markets have understood perfectly well what the President said about being in a good position," he said. "I think that markets believe and discount that we are very close to our target of sustainable 2% inflation over the medium term." The euro has risen by 11% against the dollar in the past three months, hitting its highest level in almost four years at $1.1632 on Thursday. As well as dealing exporters another blow on top of U.S. tariffs, a stronger euro could lower imported prices further. But de Guindos said the exchange rate had not been volatile, nor had its appreciation been rapid, two key metrics in his view. "I think that, at $1.15, the euro's exchange rate is not going to be a big obstacle," said de Guindos, a former Spanish economy minister and the longest-serving ECB board member. De Guindos poured cold water on talk that the euro could soon challenge the dollar's status as the world's dominant currency. The euro zone still lacked the necessary financial architecture or defence capabilities to become a real challenger and that is also going to limit its gains, another argument to counter fears over too low inflation. "The role of the U.S. dollar as a reserve currency in the short term is not going to be challenged, in my opinion," de Guindos said. The dollar accounted for about 58% of global foreign exchange reserves at the end of 2024. While that is down 10 percentage points from a decade earlier, the euro's share has not increased from around 20%. Instead, smaller currencies have benefited. Although excessive government spending and erratic policy in the U.S. have raised questions about debt sustainability and the status of the dollar, there are no doubts about the reliability of the U.S. Federal Reserve, de Guindos added. He said the ECB was convinced that the Fed's recently renewed dollar backstop would remain in place and that gold reserves kept by some of the bloc's central banks at the New York Fed were so safe that even the idea of moving them amid the current political turmoil did not come up.
