Community pharmacies remain strong, viable businesses and are the lifeblood for many of the communities they serve.
Their value extends far beyond dispensing prescriptions. Pharmacies provide accessible healthcare, employ local people and increasingly act as hubs for wellbeing and preventative care. As the NHS looks to deliver more services closer to patients’ homes, their role should become even more important.
But the October budget underlines a difficult reality. There is currently more pressure coming through the cost base of pharmacies than there is relief coming the other way.
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First of all, there is the National Living Wage. From April 1, 2027, the rate for workers aged 21 and over will rise by 3.9%, from £12.71 to £13.21 an hour, while the rate for 18- to 20-year-olds will increase to £11.27.
While this is welcome for employees, it will inevitably have an impact on pharmacy wage bills. The effect will differ depending on workforce mix, geography and contracted hours, but staffing represents a significant cost for community pharmacies.
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For illustration, a business employing 50 full-time people on the National Living Wage for 37.5 hours a week would see approximately £48,750 added to its annual basic wage bill from the 50p increase alone.
That is before employer National Insurance, pensions, overtime, cover and the potential impact of maintaining pay differentials are taken into consideration.
The bigger picture
Wages cannot be considered in isolation. Pharmacies have also been dealing with wider inflationary pressures across energy, logistics, medicines and other operating costs.
That matters particularly in pharmacy, because operators have limited ability to pass increased costs on to the general public. When the cost of running the business rises faster than its income, margins inevitably come under pressure.
There are positives, though.
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The budget provides a further £190m to NHS England in 2026/27 to help manage the pressures winter brings.
And more significantly for pharmacy, the 2026/27 Community Pharmacy Contractual Framework provides £3.636bn of funding, a £340m increase on 2025/26. The allowed medicines margin has also increased by £200m to £1.1bn, and up to £239m of historic net contract funding over-delivery is being written off.
Increasing the contract is undoubtedly positive and provides greater certainty, but it needs to be considered alongside the cumulative increases pharmacies have experienced across their cost base.
An opportunity to evolve
There is another reason for optimism: the role of community pharmacy itself is developing all the time.
Independent prescribing is being introduced into the contractual framework, building on services such as Pharmacy First and creating greater scope for pharmacists to deliver clinical services traditionally associated with other primary care providers such as GPs.
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For operators, these services can supplement core dispensing income while making better use of pharmacists’ clinical expertise.
But there is an investment requirement. New services need trained people, appropriate equipment and, in some cases, pharmacies reconfigured to provide consultation space. The opportunity is real, but capturing it requires investment and good financial planning.
Different businesses, different pressures
From a lending perspective, I increasingly see a distinction between different parts of the pharmacy market.
Larger regional groups can benefit from scale, established management teams, strong systems and larger balance sheets. This can give them greater capacity to absorb increases in wages, energy or financing costs and continue investing in their businesses.
For a smaller, one- or two-site independent pharmacy, the same combination of pressures can be harder to absorb.
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That certainly does not mean smaller pharmacies cannot prosper. Many are excellent businesses with exceptionally strong relationships with the communities they serve. But resilience is increasingly dependent on understanding the numbers and acting early.
Good stock management, tight financial controls and accurate management information are essential. So too is having a strong network of specialist advisers, whether that is an accountant, solicitor, financial adviser or banking partner who understands the pharmacy market.
Operators are understandably focused on the everyday realities of running their businesses: managing stock and staffing, looking after patients and deciding which additional services they can provide. But in a challenging economic environment, periodically stepping back and stress-testing the business model is increasingly important.
Resilience is crucial
Community pharmacy has a compelling future. Government policy is encouraging more healthcare to be delivered in community settings, NHS funding for the sector has increased and new clinical services provide opportunities to diversify income.
At the same time, increasing wages, inflationary pressures and financing costs mean those opportunities will not automatically translate into stronger profitability.
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For me, that is the real message following the budget. The pressures are significant, but so is the value of the sector.
The pharmacies best-placed to prosper will be those that combine what they have always done well - serving their local communities - with strong financial management, good advice and a willingness to adapt. That resilience will be crucial if community pharmacies are to seize the opportunities ahead and continue playing their vital role in local healthcare.
Paul Kelly is healthcare lead at Unity Trust Bank.