The Department of Health has brokered a five-year deal with pharmaceutical companies that will bring in a fixed cap for the first time on the amount the NHS spends on branded medicines.

NHS spending on branded drugs, which totalled approximately £12bn in 2011-12, will stay flat for two years, followed by increases of up to 2 per cent in the following three years up to 2018. According to the DH, prices had previously been increasing by 5 per cent each year.

The current voluntary pricing scheme, the 2009 Pharmaceutical Price Regulation Scheme, comes to an end on 31 December and the new arrangements will be introduced from 1 January 2014.

A DH statement said: “The bill for branded medicines will now grow at an agreed level, the NHS will spend up to the agreed amount and any cost above that level will be absorbed by the industry.”

It added that the previous agreement generated savings through an agreed price cut on branded medicines sold to the NHS but with no upper limit on overall cost.

The demand for medicines has grown steadily in the UK and is expected to increase further as more people live longer.

Changes have also been made to strengthen the statutory scheme, which covers companies choosing not to take part in the voluntary scheme.

This includes introducing a 15 per cent price cut to make sure that there are always safeguards in place for the NHS relating to the prices it pays for medicines, the DH said.

Alongside these arrangements, the National Institute for Health and Care Excellence will continue its work to introduce broader value assessment for new medicines covered by value-based pricing, which will now be introduced in autumn 2014 following public consultation.

Health secretary Jeremy Hunt said: “This agreement ensures NHS patients will receive the best and most advanced medicines in the world while managing the cost.

“UK pharmaceutical companies have responded to the challenges we face as a country, both in terms of the increased demand for medicines and pressure on public spending.

“I hope in return we have given them the certainty and backing they need to flourish as a sector both here and in the global market.”