Health and beauty giant Alliance Boots faces a profits blow of as much as £80 million following a government decision to cut medicine payments to pharmacies.

The development will make it even more difficult for Alliance Boots, which was bought by private equity giant KKR last year for£9 billion, to persuade investors to buy its bonds and follows post-deal problems syndicating debt after the credit crunch threw financial markets into turmoil.

The banks that underwrote the Boots deal – including Deutsche Bank, Citigroup, Merrill Lynch and RBS – still have£8.25 billion of debt on their books that they have been unable to pass on.

A reduction in pharmacy payments had been expected, but the scale was much greater than anticipated. The Department of Health is cutting payment for generic NHS medicines by£400 million and slashing dispensing fees by 31 per cent.

Other chemists will also suffer as a result of the new rules. The negotiation body representing independent pharmacists said that it was “extremely concerned”. Shares in German company Celesio, owner of Lloydspharmcy in the UK, fell by more than 8 per cent last week in anticipation of bad news.

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