ABPI Submission: Budget 2026

The government has set out headline targets for the life sciences sector that, by 2030, the UK will have higher investment in commercial R&D; raise more scale-up finance; and secure more life sciences Foreign Direct Investment (FDI) than any other European economy – and top the rankings in all of these (excluding the U.S. and China) globally by 2035.¹

At the same time, the government has said it will put the UK among the top three fastest in Europe for patient access to medicines and medical technologies,² doubling spending on innovative medicines as a proportion of GDP, from 0.3% to 0.6% over the next 10 years.³

We agree with these ambitious targets: rapidly demonstrating progress towards meeting them through both funding commitments and objective measures of improvement are the essential pre-requisites to further unlocking globally mobile pharmaceutical industry investment.

Besides the important patient benefits of improved and faster access to the newest innovations, the fiscal case is clear. Ours is a sector which invests billions of pounds each year in research and development (£9.3bn in 2024⁴) and supports 125,000 jobs in every nation and region of the UK.⁵ Combining this world-leading science with high-value manufacturing, fuelled by inward investment and supported through skilled employment, our companies deliver £20.4 billion in GVA in direct economic contributions to the British economy.⁶

The pharmaceutical industry is uniquely placed to contribute to delivering growth across every part of the country; the companies that we represent employ and invest in every nation and region of the UK - both within and beyond the traditional hubs of the Southeast and urban centres.

Meeting the target will require a whole of government approach, enabled by financial policies set out in Budgets and Spending Reviews between now and 2035 which unlock and attract more of this investment by providing companies with the confidence that we are moving in the right direction. HM Treasury must also embed the Industrial Strategy into its framework for deciding how to allocate resources between competing departmental policy priorities, with priority going to policies that improve the UK’s global competitiveness and attract more inward investment.

The Association of the British Pharmaceutical Industry is committed to working with HM Treasury to explore how we can better capture the value of the innovation that our companies bring forward, unlock and grow investment, and meet those shared goals this government has set out.

This submission sets out six recommendations for the Budget:

1. Ensure appropriate funding is provided to operationalise planned pilot and research projects to boost medicine evaluation and adoption and enable further action to meet government spend and patient access goals

2. Maintain existing fiscal incentives for pharmaceutical companies to invest in the UK, and address a competitive disadvantage in the UK’s R&D tax credit system by making capital expenditure eligible for claims

3. Better allocation of funds to unlock the potential of health data

4. Adequately fund regulatory capacity and expertise to ensure the UK can compete internationally

5. Ensure the VAT relief for free of charge medicines protects the full range of supply for patients with unmet needs and research

6. Optimising reliefs for imports of goods for testing

Recommendation 1: Ensure appropriate funding is provided to operationalise planned pilot and research projects to boost medicine evaluation and adoption and enable further action to meet government spend and patient access goals

As part of recent pricing reforms, the government has set out plans to run a series of pilots that will test novel ways to get innovative medicines to NHS patients faster and support investment into the UK. These pilots are a first step towards operationalising its key targets to raise innovative medicines spending to 0.6% of GDP and put the UK among the top three fastest in Europe for patient access to medicines.

The pilots will run from September 2026, across four different topics: (1) ring-fenced funding of regional medicines budgets; (2) the inclusion of productivity in NICE HTA assessments; (3) reform managed access pathways; and (4) a new commercial option for the Budget Impact Test.

Each pilot will be delivered by a different part of the system, including the Department of Health and Social Care, NHS England and the National Institute for Health and Care Excellence. It is essential that each system partner is given the resources to rapidly and comprehensively deliver the pilots, and the confidence that government funding will be allocated to operationalise them fully across the ecosystem as policy changes should the approaches being tested prove successful in supporting access to innovative medicines and improving UK competitiveness. Corresponding resources must also be made available to the devolved nations to enable similar progress.

Though the NICE threshold has increased under recent government pricing reforms we are yet to see the change take effect for the threshold used for centrally procured vaccines. Given the positive impact that vaccination programmes specifically, and preventative programmes in general, have on working-age people and the productivity gains on offer, HM Treasury should support the rapid implementation of this change and broader actions which support a shift from sickness to prevention.

It is also important to note that these proposals alone will not reach government’s ambition for the UK to be one of the top three fastest places in Europe for patient access to medicines or reach the 0.6% GDP spending commitment.

As we have previously described, further, more substantial proposals, will be necessary in time. Funding for those must be considered within the current Spending Review period - and specifically identified within the next Spending Review - to allow DHSC flexibility to increase medicine spend without impacting other health services. Other government actions to enable the headline objectives of this policy will need to be provided, along with the appropriate fiscal support from HM Treasury, to unlock further industry investment into the UK and deliver the 0.6% GDP spend commitment on innovative medicines without impacting existing NHS services.

We positively note government recognition that “agreeing the precise expected costs and the best approach to funding these costs will be for HM Treasury and DHSC to agree in the round through future Spending Reviews (including for the 2028/29 financial year),” and intend to continue to engage government on the details.

Recommendation 2: Maintain existing fiscal incentives for pharmaceutical companies to invest in the UK, and address a competitive disadvantage in the UK’s R&D tax credit system by making capital expenditure eligible for claims

Compared to its international competitors, the UK has a relatively competitive package of incentives for investment from innovation-intensive firms, such as pharmaceutical companies. This includes: the ‘Patent Box’, which incentivises companies to commercialise their innovations within the UK; R&D tax credits; and full expensing of capital allowances, which encourages capital investments that expand the economy’s productive capacity. These policies are essential in tandem with broader government measures to boost investment, reducing the upfront costs and risks of investing in pharmaceutical R&D and manufacturing.

As an industry with investment cycles measured across decades for developing new, innovative medicines and the capital required to manufacture them, consistency in the UK’s tax and investment incentives offer remains fundamental to its competitiveness. The UK offer’s status as semi-competitive (that is, similar to a large cohort of countries competing for global investment) means and reduction or volatility would make it uncompetitive. Maintaining the Corporate Tax Roadmap is essential to avoiding this outcome, and HM Treasury should consider targeted improvements to the UK’s offer to ensure it keeps pace with recent efforts made by the UK’s global competitors.

Capital expenditure in R&D tax credits

Committing to maintain the above investment incentives and Corporation Tax in their current state is pre-requisite for delivering the government's ambitions for sector growth. But maintaining the offer may not be enough while competitors actively improve theirs:

• Ireland raised its R&D tax credit from 30 to 35 per cent in January 2026,⁷ which unlike the UK's (20 per cent), includes capital expenditure and construction costs;⁸

• Japan established a new R&D tax credit for strategic technologies, including pharmaceuticals, offering a minimum relief rate of 40 per cent, in March 2026.⁹

The UK's exclusion of capital expenditure from its R&D tax credit means the UK’s offer to companies seeking to invest in R&D capital is lacking relative to other markets – particularly for loss making organisations which may be investing heavily in the UK, or pre-revenue biotechs seeking to scale domestically. For these companies, the only non-grant incentive for R&D-related capital expenditure is via capital allowances, which loss-making companies cannot access. We recommend HM Treasury expands the R&D tax credit system to include capital expenditure to address this gap.

Capital grants

The UK's capital grants offer has significantly expanded in recent years, with significant additional investment leveraged demonstrating the value of these targeted programmes:¹⁰

• The Life Sciences Innovative Manufacturing Fund (LSIMF) is building on the success of its predecessors.¹¹ To date, it has deployed £87 million of grants to secure £657 million of private investment and support over 1,200 jobs.¹²

• The LSIMF’s ability to attract and leverage investment is expected to improve due to the Office for Life Sciences’ efforts to refine its implementation. For example, the time horizon used to assess the employment benefits of manufacturing sites has been doubled to 20 years, in recognition of their durability to economic cycles.¹³

• Accompanying the LSIMF is the Life Sciences Large Investment Portfolio, designed to secure investments over £250 million by offering an expedited grants process; and the Life Sciences Transformational R&D Investment Fund, a new £50 million pilot designed to attract major R&D investments.

The suite of available Life Sciences capital grant programmes now means that government can deploy £570 million of capital grants over a five-year period, helping it to better compete for capital investments that will create economic opportunities across the country and increase its health resilience.¹⁴

This is one of the Sector Plan's clearest successes to date, but competitor countries continue to reshape state aid rules to attract the same globally mobile investment. This offer cannot be taken for granted and requires continuous benchmarking, and evolution of assessment criteria to ensure grant programmes are internationally competitive, and responsive to changing technology and economic needs.

Supporting evidence

• Maintaining current incentives and Corporation Tax would be cost-neutral, as this only recommends HM Treasury holds its existing position.

• The R&D tax credit system already delivers significant economic gains to the UK economic benefits to the UK economy with every £1 of R&D tax credit generates £2.4–2.7 of additional private R&D investment.¹⁵

• The Patent Box adds £2.2–3.7 billion of GVA to the UK economy annually, against £1.36 billion of relief granted in 2021/22 (a cost-benefit ratio of 1.6–2.7), offsetting 55–95% of its cost through additional tax revenue.¹⁶ Furthermore, while the UK’s Patent Box was one of the world’s first and a unique selling point, it is now a foundational necessity. Patent Boxes are now a standard part of developed countries’ investor offer. As of mid-2024, 13 of 27 EU Member States and 19 of 37 OECD countries had a Patent Box.

• According to the ABPI's Competitiveness Framework the UK's R&D tax credit ranks 6th of 12 leading life sciences markets; UK's corporation tax rate ranks joint 4th with China, Spain and Belgium.

• France and Ireland's tax and incentives policy have helped them attract and retain over €10 billion of pharmaceutical R&D and manufacturing investment.¹⁷

Recommendation 3: Better allocation of funds to unlock the potential of health data

Health data is a huge potential investment driver into Britain and a source of long-term value for the government and health service. However, fragmentation across separate systems, inconsistent standards and duplicated access routes mean this remains a benefit still to be unlocked.

The £600 million committed to build a Health Data Research Service (HDRS) is the right response, and its potential can be realised by incorporating the recommendations set out in our Pharmaceutical industry priorities for the Health Data Research Service¹⁸ report. However, incorporating budgets for the Secure Data Environment Network and some national resources does not address the ecosystem of competing data structures, each with its own funding line. Successive rounds of project-based government funding have rewarded building something new and self-contained rather than something integrated that can unlock the potential of health data for research and, ultimately, investment.

HM Treasury can and should support the government's mission in health data by requiring that funding flows outside HDRS (primarily NIHR and UKRI) distinguish between what should be funded as a project and what should be funded as infrastructure, and that the latter is funded for the value it delivers in its own right through defragmentation, interoperability and common standards.

This recommendation is cost-neutral and represents a change to allocation rules rather than to the envelope, protecting the £600 million already committed from being undercut by parallel spending that could further entrench the system fragmentation HDRS exists to fix.

Alongside this, the government must look at the model for commercial use of UK data services, which must be internationally competitive on both price and service if the UK is to compete. The companies we represent choose where to generate real-world evidence, and if UK access is more complex, costs more or takes longer than the alternatives, then research and development goes elsewhere, taking with it the trial activity and inward investment the HDRS was funded to attract.

Setting access fees to recover the full cost of the service, without reference to what we pay in comparable markets, would misprice the model, since the return comes through trial activity, investment and better use of medicines rather than through the access fee line. Pricing should be benchmarked internationally and set to maximise use.

Supporting evidence

• Better data infrastructure unlocks further industry clinical trials, which already contributed £7.4 billion to the UK economy in 2022, generated £1.2 billion in revenue for the NHS and supported 65,000 jobs. Returning to 2017 activity levels alone would add a further £3 billion to the economy, £485 million in NHS revenue and 26,000 jobs.¹⁹

• Government and Wellcome committed up to £600 million to HDRS in April 2025 (up to £500 million government, £100 million Wellcome), a flagship Life Sciences Sector Plan commitment. Minimum viable product go-live is still expected in 2026, with a single point of entry to GP, hospital episode, prescribing/dispensing and death registration data by 2030.²⁰

• The NHS Secure Data Environment Network is already working to converge more than 7,000 existing access points, which is the scale of the fragmentation problem in a single number.

• The Sudlow Review identified a single national service as the central fix for barriers holding back research on UK health data.

Recommendation 4: Adequately fund regulatory capacity and expertise to ensure the UK can compete internationally

The MHRA has restored its performance following a period in which a number of regulatory functions fell behind statutory timelines. All statutory backlogs were cleared by March 2025²¹ and, in 2025/26, the agency assessed 100 per cent of clinical trial applications and national medicines licence applications within target timelines.²² This recovery is a significant achievement which government should now consolidate.

The MHRA is funded predominantly through fees charged to industry, set to recover the full cost of the services delivered in line with HM Treasury's Managing Public Money. In 2024/25 the Agency received £64 million in funding from DHSC alongside £158.8 million of income from statutory fees and charges, meaning approximately 70 per cent of its income is derived from the companies it regulates.²³

Full cost recovery is an appropriate basis for services provided directly to applicants. It is less appropriate for the growing proportion of the agency's activity which constitutes a public good rather than a specific service to industry, including regulatory science, horizon scanning, international regulatory leadership and the delivery of innovation-enabling reforms commissioned by government. Where new responsibilities are allocated to the Agency without corresponding public funding, the cost is currently met through fees. The effect is that our companies fund the delivery of the government's regulatory ambitions in addition to the assessment and/or maintenance on the market of their own products.

The removal of the MHRA's trading fund status, which took effect on 1 April 2022, has compounded this. The Agency is no longer able to retain reserves to manage periods of under-recovery and is consequently reliant on short-term funding cycles which constrain strategic planning and capacity building. This limits its ability to develop specialist capability in advance of demand, particularly in relation to novel modalities.

We recommend that HM Treasury establishes a funding settlement for the MHRA which reflects the full and growing scope of the Agency's responsibilities, with public funding directed towards those functions delivering wider public benefit / non-regulatory activities, and with multi-year certainty sufficient to allow capacity to be built ahead of demand. Where statutory fees are increased, any increase should be linked to measurable improvements in service and performance. Increased charges in the absence of such improvements would raise the cost of operating in the UK without commensurate benefit.

Regulatory capacity and predictability influence decisions on where medicines are launched first, and 84 per cent of respondents to ABPI research²⁴ holding an unfavourable view of the UK regulatory environment cited these factors as reasons for not selecting the UK as a first-launch market. Adequate funding of the MHRA therefore represents a comparatively low-cost means of improving the UK's attractiveness as a launch and investment destination.

Supporting evidence

• MHRA performance has recovered from a low base. In 2023/24, 40 per cent of clinical trial applications were assessed within the statutory 30 days and 25 per cent of new active substance applications via the national route within the 210-day statutory timeline. All statutory backlogs were cleared by March 2025; in 2025/26, the agency approved 921 medicinal products including 39 new medicines while assessing 100 per cent of clinical trial and national medicines licence applications within target timelines.

• The Agency's remit continues to expand. The MHRA–NICE aligned pathway aims to accelerate patient access by up to six months and the agency is developing a Rare Disease Therapies Regulatory Framework alongside the AI Airlock, for example. Each adds demand without adding public funding.

Recommendation 5: Ensure the VAT relief for free of charge medicines protects the full range of supply for patients with unmet needs and research

Pharmaceutical companies provide medicines free of charge in a range of circumstances, including early-access schemes, compassionate-use programmes, continuation of treatment after a clinical trial, and to researchers conducting Phase IV trials.

Current application of the VAT deemed-supply rules requires companies to account for output VAT on these medicines despite receiving no consideration. The resulting liability may be calculated by reference to the cost or value of the product and can therefore be substantial, particularly for high-value medicines supplied over an extended period. This creates a direct financial disincentive to provide or continue access and affects decisions about the design and location of clinical trials where companies are expected – according to the ethical standards held by trial committees – to maintain treatment for participating patients afterwards.

Because these medicines are supplied without charge and generate no sales revenue, the VAT charge is not a sustainable source of Exchequer revenue. Where the liability makes programmes uneconomic, companies will reduce, close or choose not to establish them in the UK, ending patient access and eliminating the theoretical tax yield. In the case of post-trial continuation, it also increases the cost of conducting research in the UK and weakens the UK’s competitiveness for clinical trials.

We welcome the government’s commitment to resolve the VAT treatment of free of charge medicines. The solution must ensure that the full range of arrangements used in practice are covered to support patient access to medicines and the UK’s competitiveness in research.

Alongside this prospective solution, HMT should take a pragmatic approach to historic liabilities that takes account of the impacts on individual UK affiliates. Where historic liabilities are absorbed at the local level, companies have been clear that these may still impact both current and future operations and plans. We look forward to further HMT engagement on this issue.

Recommendation 6: Optimising reliefs for imports of goods for testing

Pre-clinical development, contract research and laboratory testing organisations play a critical role in the UK life sciences ecosystem, supporting the research, development, safety assessment and regulatory approval of pharmaceutical, biotechnology and medical technology products. These organisations together with pharmaceutical companies conducting their own in-house research, regularly import compounds, biological samples, reference materials and related goods into the UK for testing, analysis and research.

Under the normal import VAT rules, import VAT is generally recoverable only by the person that owns the goods, subject to the usual conditions. However, modern life sciences research is frequently undertaken by specialist service providers using materials owned by an overseas sponsor, entity or client. The company undertaking the R&D/testing may act as importer of record and incur the import VAT but cannot recover it because it does not own the materials. Where an appropriate import relief is unavailable or impractical to operate, this can create an irrecoverable cost, cash-flow burden or additional administrative complexity for research undertaken in the UK.

Goods for Testing relief can relieve Customs Duty and import VAT on materials imported for qualifying testing, analysis or examination. However, aspects of its administration do not adequately reflect modern life sciences operating models, under which:

• testing and stability programmes may continue for several years;

• materials may be consumed, transformed or generate residual samples;

• samples may need to be transferred to another specialist facility in the UK or abroad;

• study requirements may change after import, requiring re-export or additional testing elsewhere; and

• materials may need to be retained for regulatory, scientific or quality-assurance purposes.

The current requirements for individual notifications, permissions and transaction-level evidence can therefore make the relief disproportionately burdensome and uncertain, even where the materials are imported solely for genuine research or testing and there is no material risk to the Exchequer. HMRC guidance already recognises both that goods may be completely used up during testing and that alternative arrangements may be available for regular users of the relief.

Proposed solutions

HM Treasury and HMRC should work with the life sciences sector to:

• introduce a simplified, risk-based approval framework for regular and compliant users of Goods for Testing relief, including quarterly or annual reporting rather than transaction-by-transaction notifications;

• permit testing and regulatory retention periods that reflect the documented duration of the relevant study or regulatory requirement, rather than applying a standard time limit;

• simplify the treatment of transfers between approved testing facilities, destruction, residual materials and re-exports;

• issue clear, consolidated guidance covering modern contract research and laboratory testing arrangements;

A more practical, proportionate and technology-neutral framework would preserve appropriate controls while reducing avoidable cost and uncertainty. This would strengthen the UK’s competitiveness as a location for pharmaceutical, biotechnology and medical technology research, development and testing.

References

• 1 ‘Life Science Sector Plan’, HM Government (Jul 2025)

• 2 ‘Life Science Sector Plan’, HM Government (Jul 2025)

• 3 ‘Arrangement between the United States of America and the United Kingdom on pharmaceutical pricing’, HM Government (Apr 2026)

• 4 'Business enterprise research and development UK: 2024’, Office for National Statistics (Dec 2025)

• 5 ‘Business Register and Employment Survey', NOMIS (Oct 2025)

• 6 ‘Regional gross value added (balanced) by industry: all ITL regions’, Office for National Statistics (2025)

• 7 ‘Finance Act 2025’, Houses of the Oireachtas (Jul 2026) 

• 8 ‘Ireland: Corporate – Tax credits and incentives’, PwC (Jul 2026)

• 9 ‘2026 Japan tax reform outline’, EY (Jul 2026) Link

• 10 ‘Creating the conditions for investment and growth’, ABPI (Sep 2025) 

• 11 ‘Vital medicines and new jobs in over £80 million for UK life sciences’, DSIT (Jun 2026)

• 12 ‘Life Sciences Sector Plan: One Year On’, HM Government (Jul 2026) 

• 13 ‘Green Book Analysis’, CEPA (Sep 2025)

• 14 ‘Life Sciences Innovative Manufacturing Fund (LSIMF): application guide’, OLS Jul 2025)

• 15 ‘Evaluation of the research and development expenditure credit’, HMRC (Nov 2020) 

• 16 Analysis undertaken by Flint Global and commissioned by GSK.

• 17 ‘Creating the conditions for investment and growth’, ABPI (Sep 2025)

• 18 ‘Pharmaceutical industry priorities for the Health Data Research Service’, ABPI (Aug 2026)

• 19 ‘The value of industry clinical trials to the UK', ABPI (Dec 2024) 

• 20 ‘Prime Minister turbocharges medical research’, HM Government (Apr 2025)

• 21 'MHRA's 2024–25 Annual Report and Accounts and Impact Report show progress on safety, innovation, and regulatory excellence', MHRA (Jul 2025) 

• 22 'MHRA delivers record performance as 2025–26 Annual Report and Accounts confirms growing global influence', MHRA (Jul 2026) 

• 23 'Annual Report and Accounts 2024–2025', MHRA (Jul 2025) 

• 24 ‘Enhancing the role of UK medicine regulation’, ABPI (Dec 2024)