A new CCA analysis has found that the actual value of retained margin ought to be at least £1.28 billion in England.
The analysis examined what the value of retained margin should be had it grown in line with inflation and the volume of dispensing since 2014/15. It found that the £850 million of margin allocated for 2024/25 falls short by almost £430 million.
The CCA analysis also found that:
- The retained margin per-item has fallen by a third (33%) in real terms since 2014/15.
- Retained margin per-item is nearly a quarter (23%) less than it was 5 years ago.
Moreover, the £50m uplift in margin to £850m for 2024/25 was offset by rising dispensing volumes and inflationary pressures. Consequently, despite the uplift, the retained margin per-item still declined in real terms.
Retained margin was increased by £50m to £900m for 2025/26 in the most recent contractual agreement. The analysis demonstrates that even when accounting for this £50m increase a significant shortfall still remains compared to what retained margin’s actual value ought to be.
While the model of procurement, combining Drug Tariff pricing and retained margin, has led to the UK having some of the lowest medicine prices in the world, continued underfunding of both threatens the UK’s attractiveness in a global market.
Additional investment into retained margin would bring greater flexibility to procurement and stock monitoring teams in community pharmacy.
Properly funding both the Drug Tariff and retained margin would increase medicines supply resilience and security. Medicines shortages remain a significant burden on patients and community pharmacy teams – additional funding in the medicines supply chain would help reduce this.
A separate CCA analysis highlighted the link between depressed Drug Tariff pricing leading to avoidable shortages, and the taxpayer having to foot the bill for inflated prices to secure the supply of those medicines. The analysis highlighted that in some cases, the cost of securing the supply of medicines through price concessions far outweighs the savings made from driving down prices in the first place.1
The CCA also urges the Department to explore the merits of implementing a shared margin system across Great Britain. This principle, already in place in Scotland, ensures the benefits of cost savings from effective medicines procurement are shared equally between pharmacies and the NHS. Pharmacies in Scotland are incentivised to continue to source medicines at the best possible value for the taxpayer. In instances of ‘over-delivery’ (procurement of medicines over and above the capped level of retained margin), additional savings are shared between community pharmacy and Scottish Health Boards. This allows Health Boards to reinvest any additional monies back into frontline services.
Company Chemists’ Association (CCA) Chief Executive Malcolm Harrison said: “The retained margin system only works if it is funded properly. Inadequate funding can act as a dis-incentive for value-based procurement.
The £430m gap between what margin is and what it should be is deeply concerning.
Investment in margin and Drug Tariff pricing is necessary to ensure the UK is a far more attractive place to supply medicines and to build greater resilience in the supply chain”.
REFERENCES
1 – CCA, Penny-pinching is leading to avoidable medicine shortages, 19 March 2025
NOTES TO EDITORS
Retained margin
Pharmacies are incentivised to buy medicines as cheaply as possible to reduce the bill to the taxpayer. When pharmacies buy medicines for less than the Drug Tariff price, they retain some of this difference – ‘retained margin’.
In England, retained margin was increased to £900m for 2025/26 in the most recent contractual agreement.
England’s pharmacy funding settlement for 2022/23 and 2023/24 included an uplift to the Drug Tariff, as £100m in excess margin earned by the sector in previous years was written off. This was spread evenly over the two years (i.e. £50m in 2022/23 and £50m in 2023/24).
The total uplifted margin target for 2023/24 became £850m due to the agreed ‘write off’, however the baseline margin allowance remained at £800m.
METHODOLOGY
Retained margin per item is calculated as follows:
- The number of items dispensed are sourced from the NHS Business’ Services Authority PD1 reports for pharmacy contractors – available here.
- Retained margin was £800m per annum between 2014/15 and 2023/24. In 2024/25, it was £850m. This excludes any excess margin owed back to the Government, which was written off.
- To calculate retained margin per item, the number of items is divided by the amount of money allocated to retained margin.
Adjusting for inflation:
- Historical financial data was adjusted to 2024/25 prices using the HM Treasury statistics GDP deflators at market prices, and money GDP June 2025 (Quarterly National Accounts)
- The GDP deflator is a measure of the money price of all new, domestically produced, final goods and services in an economy in a year relative to the real value of them. It can be used as a measure of the value of money.
- Between 2014/15 and 2024/25, the number of items increased by 18%. Over the same period, the value of money fell by around 35%.
- The total shortfall (approx. £430m) is calculated by multiplying the number of items dispensed in 2024/25 by the retained margin per item in 2014/15 (£1.11 adjusted to 2024/25 prices), and then subtracting the total retained margin allowance for 2024/25 (£850m).