The NHS is to pay 25% more for innovative drugs in return for zero tariffs on exports of pharmaceuticals to the US under a deal with Donald Trump’s government.

Industry sources estimate it could cost about £3bn in higher spending on drugs over the next three years but also increase the portion of the NHS budget spent on medicines for diseases such as breast cancer, asthma and motor neurone disease, where innovation is key.

The National Institute for Health and Care Excellence (Nice), which sets the guidelines for expenditure on new drugs, currently approves about 70 new medicines a year. It is estimatedthe increased spending thresholds will add about three to five new drugs a year.

The office of the US trade representative, Jamieson Greer, said the deal would “reverse the decade-long trend of declining (NHS) expenditures on innovative, life-saving medicines, and increase the net price it pays for new medicines by 25%”.

The science and technology secretary, Liz Kendall, said the deal was a “vital” way to “ensure UK patients get the cutting-edge medicines they need sooner” while offering encouragement to the sector to continue innovating.

​Referring to longstanding US criticism that its pharma companies put more money into research and development but are not rewarded by national health services across Europe, the US health secretary, Robert F Kennedy Jr, said the deal “brings long-overdue balance to US-UK pharmaceutical trade”.

He added: “Americans should not pay the world’s highest drug costs for medicines they helped fund.”

The Association of the British Pharmaceutical Industry (ABPI) said the deal would increase the scope of the NHS to buy innovative medicines.

Under the deal, Nice will be asked to increase its current guideline price allowable for innovative medicine from £20,000 to £30,000 a year to a range of £25,000 to £35,000 per drug a year, widening the pool of drugs the NHS can prescribe.

The ABPI chief executive, Richard Torbett, said the deal was “an important step towards ensuring patients can access innovative medicines needed to improve wider NHS health outcomes” and encourage investment in medicine developments in the UK.

The business and trade secretary, Peter Kyle, said the deal was a win for the UK, which was now guaranteed to be shielded from US tariffs on about £3bn worth of exports a year.

The US said the tariff commitment would last for at least three years as it would “refrain from targeting UK pharmaceutical pricing practices” in any future investigations into the sector “for the duration of President Trump’s term”.

Most pharmaceuticals have been exempted from trade tariffs under World Trade Organization rules since 1994 but Trump turned a blind eye to the agreement earlier this year as part of a bid to repatriate drug manufacturing and innovation to the US from countries such as Ireland, which he said had stolen the US pharma sector.

The deal will also bring changes to a longstanding drugs-purchasing agreement with the NHS, which pharma industry leaders have argued is not competitive, discourages investment and needs reform.

The deal comes six months after the original tariff deal struck by Starmer and Trump, which promised “preferential treatment” for UK pharma.

But pressure on the UK for NHS procurement reform has intensified in recent months, with a series of drugmakers including Merck and AstraZeneca pausing or cancelling investment in the UK citing the economic climate and lack of support for the life sciences industry.

Last month the US ambassador to the UK, Warren Stephens, said further businesses would axe future investments if “there are not changes made and fast”.

At the heart of the new UK-US deal is an agreement to lower a so-called “rebate” under the controversial medicines payment arrangements between drug companies and the NHS.

Under the rebate scheme, drug companies are required to make payments to the NHS of between 23.5% and 35.6% of revenue from sales of branded medicines, if the amount the public health service uses is higher than an agreed rate.

This will be reduced to 15% under a new rebate in the existing voluntary scheme for branded medicines pricing and access.

This guarantees a continued suppressed price for the NHS for branded drugs, should the demand for them exceed a cap in any given year.

Similar schemes exist in other European countries, but the average rates for these payments are in the single digits, ranging from 9% for Ireland and 7% for Germany.

Negotiations have been led by Varun Chandra, the prime minister’s chief business adviser, and Patrick Vallance, the science minister and former head of research and development at drugs company GSK.