The government's plans to introduce a  value-based pricing (VBP) scheme for NHS drugs from January 1 2014 do not include rolling-out the system proposed by the Office of Fair Trading (OFT), Health Minister Earl Howe has said.

The model put forward by the OFT in 2007 - when it declared that the Pharmaceutical Price Regulation Scheme (PPRS) was not fit for purpose and that the NHS was paying too much for branded drugs - would be "a recipe for driving drug prices down and down," said the Minister, speaking at the National Institute for Health and Clinical Excellence (NICE)'s annual conference in Birmingham.

What Ministers are seeking are new arrangements to encourage the development of drugs to address areas of unmet need and bring prices and benefits into line, and its priority is improving access to effective innovative medicines, he said.

"We've got to think about moving away from the drugs budget and towards a health budget," Earl Howe told the conference. Under the proposed new arrangements, there would be scope for the price of a drug to come down if it failed to add significant value but, on the other hand, Ministers "are not too afraid of increasing the drugs budget, as such," he added.

The Minister also cautioned that "we must be very careful" about the reference pricing position of the UK, as many other countries base their price-setting decisions on levels here, and also that pharmaceutical manufactures must not be discouraged from selecting the UK as a market for early launches of their products.

Establishing a system which defines value "won't be easy, but we have time," said the Minister, and he added that, under the new arrangements, the role of NICE "will inevitably evolve."

NICE is "self-evidently a world leader," he said, and the plans included in the Health and Social Care Bill to re-establish it as a non-departmental public body (NDPB) will put the Institute on a firmer footing and prevent the possibility of it being abolished by the government "on a whim." The primary legislation will allow NICE's role to evolve over time and ensure that it remains as relevant as it is now, he said.