The UK Budget, delivered last week, offers pharmaceutical manufacturers a mixed package: targeted wins on VAT, investment and capital allowances, but little relief on labour costs and key decisions deferred to the 2027 Spending Review.
Here is Manufacturing Chemist's take on what the new Budget means for manufacturers in the UK and for those supplying or investing in the market from overseas.
Which Budget measures matter most to pharma manufacturers?
The headline pharma measure is the confirmation of a VAT zero rate on qualifying medicines supplied free of charge.
First announced in June this year (and taking effect retrospectively from 23 June), the confirmation of the measure settles a long-running issue: companies could previously face an output VAT bill on medicines they donated for early access, compassionate use, clinical trials and post-trial treatment, potentially putting these programmes under pressure.
“Removing the VAT charge on medicines that companies provide free of charge is a significant win for patients, lifting a barrier to access, protecting continuity of care and supporting the clinical research that brings new treatments to the UK," said Joe Edwards, Executive Director, UK Competitiveness, ABPI.
Capital allowances are more nuanced, however.
The government has maintained its commitment to capping corporation tax at 25% and retaining full expensing for eligible assets.
But, it will increase the main rate first-year allowance from 40% to 50% for expenditure incurred from 1 January 2027, while reducing the main writing-down allowance rate by two percentage points, from 14% to 12%, in April 2027.
In effect, the changes increase upfront tax relief for certain new investments while reducing the ongoing relief available for assets subject to the writing-down allowance.
Is the UK still attractive for pharma manufacturing investment?
It seems so. The Budget's showpiece was three public-private life sciences investment deals worth more than £1bn, backed by almost £70m in government grants.
The announcements span medical technology R&D, pharmaceutical research and drug delivery manufacturing:
- Convatec will invest more than £500m during the next decade in a new global R&D hub in Manchester
- Vertex Pharmaceuticals will invest more than £300m in a new facility in Oxford
- and Kindeva will invest £200m in Loughborough to expand its drug delivery and respiratory medicines manufacturing capabilities.
New powers under the Regulation for Growth Bill will also allow innovative products, including medicines, to be tested under temporary, controlled regulatory changes.
The Faculty of Pharmaceutical Medicine welcomed the move, saying it comes as international competition for life sciences investment intensifies.
“This is a Budget that has much to welcome for the life sciences with fresh and faster injections of capital, lower energy costs, protection of the patent box and a focus on founders," said Chris Molloy, CEO, BioIndustry Association (BIA).
How will rising costs affect pharma manufacturers?
Energy and labour remain pain points. The Budget document says wholesale UK gas prices have risen almost 200% since the Middle East conflict began.
However, the government said that it will give 10,000 energy-intensive manufacturers a 20-25% electricity discount from April 2027 under its British Industrial Competitiveness Scheme — but, eligibility criteria will determine how many pharma sites benefit.
A 3.9% rise in the National Living Wage will also add to payroll pressure, particularly for contract manufacturers.
“Manufacturing SMEs create local jobs, support UK supply chains and provide stability in communities throughout the country," said Emma Verkaik, CEO, BCMPA
They need the confidence to recruit, invest in new technology and compete internationally, yet many continue to face intense pressure from rising costs and regulation.
Downstream, Community Pharmacy England said the Budget brought “no clear sign of relief for pharmacy owners,” citing medicines supply issues and dispensing at a loss alongside rising costs — a squeeze generics suppliers will watch closely.
What should the pharma industry monitor?
The 2027 Spending Review will be the real test, with the Budget document warning that not all departments will see real-terms increases.
The BIA has said that it wants the NHS to back innovation through adoption and the UK to honour the US-UK Pharmaceutical Agreement.
“We must meet our global commitments laid out in the US-UK Pharmaceutical Agreement," added Molloy.
Any breaking of commitments made to national funding support of the sector and adoption of its medicines not only risks patients' health but encourages the golden goose that is our life sciences sector to fly abroad.
The agreement, published in April 2026, includes commitments to increase UK spending on innovative medicines over the next decade, alongside measures intended to strengthen pharma supply chains and improve the operating environment for life sciences companies.
Data and AI are the other front.
The government had separately announced £165m for a National AI Biosecurity Initiative two days prior to the Budget, while an independent review of NHS productivity and the opportunities presented by AI and technology is due to report in early 2027.
However, LabVantage’s European President, Wolf Lichtenstein, argued that laboratories must modernise their data foundations first.
“As the UK increases investment in life sciences and AI, modernising laboratory operations must also be a priority."
Streamlining laboratory workflows, reducing manual processes and ensuring data integrity can help scientists work more efficiently while establishing the data foundation required for AI adoption.
For manufacturers in the pharma space, practical priorities will now include confirming eligibility for energy support, modelling revised capital allowances against planned capex and tracking the Finance Bill consultation (where the BIA is also pressing for founders’ relief criteria that suit VC-backed biotechs).
