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Baseline Profit Rate 2017-18

Volume 623: debated on Wednesday 15 March 2017

I am today announcing that I have set the baseline profit rate for single source defence contracts at 7.46%, in line with the rate recommended by the Single Source Regulations Office (SSRO). I have also accepted the methodology used by the SSRO to calculate this figure.

I am also announcing new capital servicing rates and an SSRO funding adjustment as recommended by the SSRO, which can be found in table 1 below. These rates have also been published in the London Gazette, as required by the Defence Reform Act 2014, and will come into effect from 1 April 2017.

Table 1: Recommended Rates agreed by the Secretary of State for Defence

Element

2016 rates

2017 rates

Baseline profit rate (BPR) (% on contract cost)

8.95%

7.46%

Fixed capital servicing rate (% on fixed capital employed)

5.08%

4.84%

Working capital servicing rate (% on positive working capital employed)

1.40%

1.37%

Working capital servicing rate (% on negative working capital employed)

0.73%

0.59%

SSRO funding adjustment

n/a

-0.025%

Taxpayers can be confident that we are getting value for money as our defence budget rises by 0.5% above inflation each year of this Parliament and we deliver our £178 billion equipment programme. The defence sector is important for our prosperity, supporting highly skilled jobs, and this rate provides a fair return comparable with that in other international markets.

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