UK baseline profit rate for single source defence contracts increased

Above: Defence Secretary Ben Wallace.
Courtesy gov.uk

The new rate for 2020/21 is in line with the recommendation of the Single Source Regulations Office (SSRO). While the underlying profit rate fell from 8.5 per cent for 2019/20 to 8.23 per cent for 2020/21, the three-year rolling average saw a rise of 0.59 per cent from last year’s 7.63 per cent.

ADS Chief Executive Paul Everitt said: “Today’s announcement by the Defence Secretary is welcome news and will support industry as it manages the economic challenges ahead.

“The profit rate remains low by international standards, but with two consecutive increases in the rate we have now seen an end to the sustained declines of previous years.

“The UK defence industry delivers world class capability and support to our armed forces. It is important that the profit rate should reflect the importance of sustained investment in innovation and the risks inherent to delivery of the UK’s most significant defence procurement programmes.”

The baseline profit rate is calculated as a three-year average of underlying rates announced annually. It fell from 10.70 per cent in 2014/15 to a low of 6.81 per cent in 2018/19, before rising to 7.63 per cent in 2019/20 and now 8.22 per cent for 2020/21.

The UK’s £22bn defence industry plays a vital role in protecting our national security and employs 135,000 people, generating prosperity in communities across the country.