Defence Secretary Gavin Williamson today announced a rise in the baseline profit rate for single source defence contracts to 7.63 per cent.
The new rate for 2019/20, recommended by the Single Source Regulations Office (SSRO), sees the first rise after several years of cuts to the baseline profit rate. However, it remains low by historic and international standards.
ADS Chief Executive Paul Everitt said:
“Today’s announcement sets out a welcome rise in the baseline profit rate for 2019/20, bringing an end to sustained declines in the rate in recent years.
“Despite today’s announcement, there is continuing concern the baseline profit rate does not reflect the commercial, technological and delivery risks associated with some of the UK’s most significant defence procurement programmes. The low rate impacts on the willingness of companies to invest in UK defence skills, capabilities and innovation.
“The UK defence industry is delivering world class capability and support to our armed forces. It is working hard to provides value for money for the taxpayer and contribute to our nation’s prosperity. The defence industry supports high value, long-term jobs in all parts of the UK, helping to sustain local communities, promoting apprenticeships and creating career opportunities.”
The baseline profit rate is calculated as a three-year average of underlying rates announced annually. It has fallen from 10.70 per cent in 2014/15 to a low of 6.81 per cent in 2018/19, and rises to 7.63 per cent in 2019/20.
The UK defence industry plays a vital role in protecting our national security, and employs 140,000 people in a high value sector worth more than £22bn to the economy.