The NHS will increase the amount it spends on medicines in response to criticism from pharmaceutical companies that the UK is becoming uncompetitive, science minister Lord Vallance has told MPs.

Investments worth close to £2bn have been paused or cancelled this year by three of the world’s largest companies, Merck, AstraZeneca and Eli Lilly, amid a fraught negotiation between the industry and government over medicines pricing.

Addressing an emergency session of the science, technology and innovation select committee, Lord Vallance acknowledged that low prices historically paid by the NHS, and pressure from US President Donald Trump to cut prices for US consumers, had made the UK less attractive to industry.

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He said: “I’m deeply concerned that there’s been a 10-year decrease in the investment in support for a vital industry; vital for the economy, vital for patients and vital for the NHS at a time when medicines are making a bigger contribution than ever.

“I think the NHS will spend a larger percentage of its budget on medicines. These things are all about trade-offs, and the trade-off that has been made for the last decade has been [to spend] a lower percentage on medicines.

“We are now reaping the consequences of that in a very urgent way, and that is what we need now to address.”

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Lord Vallance’s comments came after industry executives warned MPs the UK’s commitment to the life sciences faces a “credibility challenge”, and was losing out on investment to competitors including Germany, Ireland and Singapore.

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Science minister Lord Vallance

Ben Lucas, the UK managing director of drugs giant Merck, which last week cancelled a £1bn research investment in London, said the decision was made in part because of the “end-to-end” difficulty of doing business in the UK.

He said: “This is a credibility challenge. The reality is we have been having, with successive governments, this continued conversation about the potential of the UK. But from a US-based executive team looking in, I hear; ‘We have heard this plan before, but it hasn’t necessarily been delivered’.”

Tom Keith-Roach, the UK president of AstraZeneca, which has paused or cancelled $650m of investment in recent months, said: “The UK is an increasingly challenging place to bring forward that innovation, to get through the front door… of the NHS, to deliver to patients and improve patient lives.

“What we are seeing globally is that discretionary investment in R&D is flowing into countries that are seen to value innovation and pull that through to patients. It is increasingly challenging to bring that investment into an environment that is apparently not.”

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The industry wants the threshold for allowing new drugs into the NHS increased from the current £20,000-£30,000, unchanged since 1999, and to increase an overall medicines budget that has fallen in real terms by 11% in a decade.

It also wants a reduction in the complex “clawback” arrangements governing drug pricing, which this year will see the industry return 23% of total revenues to the NHS, around four times comparable schemes in Europe.

Lord Vallance said discussions with industry over reforming the clawback arrangements continued, despite formal negotiations ending without agreement earlier this year.