Britain's Department of Health unveiled a new five-year scheme on Wednesday to curb prescription drug prices and ensure the state healthcare system gets good value for money.
The cost of branded medicines to the National Health Service will be held flat for two years under the latest version of the pharmaceutical price regulation scheme, or PPRS.
Drugmakers will be required to rebate the difference between the allowed growth in the drugs bill and the estimated actual increase in the cost of treatments, expected to be 3.74 percent in 2014.
Costs will be allowed to rise by 1.8 percent in 2016 and 2017, and by 1.9 percent in 2018.
Governments across Europe have been taking a tough line on drug costs as stagnant economic growth hits their healthcare budgets.
In Germany, Chancellor Angela Merkel's conservatives and the centre-left Social Democrats agreed on Monday to maintain a similar tight rein on prescription drug costs via legally mandated price discounts.
The new deal struck between the British government and the Association of the British Pharmaceutical Industry (ABPI) follows several months of negotiations during which the ABPI argued that medicine prices in Britain are already among the lowest in Europe.
It also includes a statutory price cut of 15 percent for any companies that do not sign up to the voluntary PPRS scheme, the ABPI said.
Drugmakers have long complained about low prices and slow uptake of new medicines in Britain, which they argue undermines the case for investment in the country. Pharmaceuticals are an important industrial sector in Britain, although recently there have been significant site closures by a number of companies.
The trade body represents British companies such as GlaxoSmithKline Plc and AstraZeneca Plc, as well as the UK units of multinationals like Pfizer Inc and Novartis AG.