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The community pharmacy retained margin for 2024/2025 is almost £430m short of its true value, according to analysis by the Company Chemists’ Association (CCA).
The analysis, shared on 24 September 2025, examined what the value of retained margin should be if it had grown in line with inflation and the volume of dispensing since 2014/2015. It found that the £850m of margin allocated for 2024/2025 falls short by almost £430m.
“The actual value of retained margin ought to be at least £1.28bn in England,” the CCA said.
Retained margin is the profit pharmacies can earn from buying medicines at a lower price than the reimbursement price set out in the drug tariff.
The analysis also found that, per item, the retained margin has fallen by one-third (33%) in real terms since 2014/2015 and is nearly one-quarter (23%) less than it was five years ago.
“The £50m uplift in margin to £850m for 2024/2025 was offset by rising dispensing volumes and inflationary pressures. Consequently, despite the uplift, the retained margin per-item still declined in real terms,” the CCA said.
It added that the £50m increase to the margin to £900m for 2025/2026 “demonstrates 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,” the CCA said.
“Additional investment into the retained margin would bring greater flexibility to procurement and stock monitoring teams in community pharmacy.”
The CCA added that improved funding would increase medicines 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.”
Citing Scotland as an example, the CCA said it urged the government 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.”
Malcolm Harrison, chief executive of the CCA, described the £430m margin gap as “deeply concerning”.
“The retained margin system only works if it is funded properly. Inadequate funding can act as a disincentive for value-based procurement.”
“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,” he added.
Henry Gregg, chief executive of the National Pharmacy Association, commented: “We share the view that we must adequately fund and reimburse pharmacies for the vital roles they carry out supporting their patients.
“The way to achieve this is to fundamentally reform the pharmacy contract, so it properly recognises the varied and growing role of pharmacy teams as well as adequately reimburses them for the medicines they dispense.”
“Despite a recent step in the right direction from the government, NHS England’s own analysis shows that pharmacies still face a £2.6bn gap in their funding,” he added.
“If we are to fully realise the potential community pharmacy has to offer and deliver the ambitions of the ten-year plan, we must close this deplorable funding gap, properly funding pharmacies for the vital services their communities depend on now and in the future.”
A spokesperson for Community Pharmacy England (CPE) said: “In the past ten years, there has been a significant increase in overall prescription item volumes, meaning that ‘margin per item’ has been spread more thinly over time.
“The real-terms decrease in margin per item, once inflation is taken into account, is even greater. CPE analysis shows real terms margin had reduced by more than 40% in 2024/2025, compared to 2014/2015.
“Every prescription item dispensed by pharmacies is extra work that has to be done, not just at the pharmacy itself, but all through the supply chain as well. It is a perverse characteristic of the system that because the total funding pot is limited, the more work there is to do, the lower the payment for each unit of work must be to stay within budget.”
They added: “The costs of dispensing increase over time as all costs do – driven by wage increases, utilities prices, rents and rates, fuel prices, etc. These general inflationary pressures act to consistently push up the cost of providing medicines to patients, whereas the mechanism for funding pharmacies to do this applies a consistent downward pressure on their per unit incomes.
“We are continuing to press government to protect the supply of medicines by ensuring that pharmacy medicines supply services are funded in an economically sustainable way.”
