Government reforms of controls on drug prices have been given a cautious welcome by managers.

Ministers claimed that the NHS would save£200m a year as a result of revamping the pharmaceutical price regulation scheme.

Drug companies will have to stick to a 4.5 per cent limit on price rises across their whole range of branded products from October, followed by a 15-month price freeze. But they will still be able to set the price of new drugs and will be rewarded by more generous research and development allowances.

NHS Confederation policy manager Tim Jones said: 'If the scheme does save£200m a year that is excellent.'

But 'whatever the PPRS does for the Exchequer', the cost of new drugs will still 'have a real impact on the ground', particularly with the introduction of locally capped drug budgets this year, he said.

The Association of the British Pharmaceutical Industry greeted the deal with relief. Ministers had threatened to bring in a statutory scheme to replace the existing voluntary agreement.

ABPI president Michael Bailey said: 'The terms of the new PPRS represent a fair deal for the NHS, the taxpayer and the UK-based pharmaceutical industry.' Any company that does not join the scheme 'will be subject to statutory price control, the Department of Health warned.