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Written statement made by Earl Howe (Conservative) on Wednesday, 15 March 2017 in the House of Lords, on behalf of the Ministry of Defence.

Baseline Profit Rate 2017-18

The Secretary of State for Defence (Sir Michael Fallon) has made the following Written Ministerial Statement.

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 at 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

Secondary information

Type
Written statement
Reference
HLWS538 
Session
2016-17
Subjects
Defence Finance Procurement Profits Prices Single Source Regulations Office
Contains statistics
Yes
Link
View this Written statement on www.parliament.uk