The NHS Modernisation Bill will contain powers to ensure that pharmaceutical companies comply with an agreement negotiated with the government on how much profit they can make from the NHS.

Previously the Pharmaceutical Price Regulation Scheme has been voluntary, but ministers are keen that drug companies in future have no choice but to abide by the agreement.

This follows concerns that the NHS drugs bill has soared in recent years, and that new products, such as the impotence treatment Viagra, will place a massive strain on the NHS.

The PPRS is supposed to take account of how much companies spend on researching their products, but drugs giant Merck, Sharp and Dohme recently threatened to pull out of the scheme, unhappy at the limitations it imposes.

Retrograde step

A spokesman for the Association of the British Pharmaceutical Industry said it was in continuing negotiations with the government over reforms to the PPRS.

"The aim of these talks is both to ensure that the NHS gets its medicines at a fair and reasonable price and also to give industry the ability to continue with the high-quality research that means that seven of the world's top 25 medicines were developed in this country," he said.

The spokesman said that making the PPRS compulsory would be a "retrograde step" and would undermine the attractiveness of Britain as a centre for world excellence for pharmaceutical companies.

"Recent independent studies have shown that many other countries are providing a more welcoming environment for the pharmaceutical industry, especially in terms of the manufacture of medicines," he said.

"A unilateral decision by the Department of Health to set up a statutory scheme would send further negative UK signals to companies planning investment across the world.

"A heavy-handed approach which removes all elements of voluntary co-operation between the industry and the Department of Health will be a backwards step for the country as a whole as well as for patients and carers who desperately need the benefits of the industry's investment and research."