The government has announced price caps to 'reverse the effect' of spiralling generic drug costs within a year.

Dramatic price rises in generics are thought to have cost the NHS£200m last year.

Junior health minister Lord Hunt said he was convinced 'a maximum price scheme backed by statutory powers is the only way to deliver substantial savings for the NHS'.

Proposed maximum prices put out to consultation in April sparked a threat to stop production of a range of drugs by the UK's biggest manufacturer of generics, Norton Healthcare. The government last month issued a revised list of proposed prices - some increased by as much as 500 per cent - for a one-week consultation. The final tariff shows further increases in some drug prices.

Norton Healthcare sales and marketing director Nick Foster said the final prices were 'at more sensible levels'. The company said it would not now 'be forced to discontinue 23 generic lines'.

British Generic Manufacturers Association director Warwick Smith was pleased prices had been increased from the 'uneconomic' levels originally proposed. But he said a statutory maximum price scheme was 'unnecessary in isolation from broader changes which are needed to the reimbursement system'.

The government said it aimed to put in place longer-term arrangements' following a review of the generic medicine supply chain, expected this summer.