Single-source Defence Contracts: Profit Rates

The strategic defence review makes it clear that we are entering a new era of threat. This demands a new era for UK defence—one focused on warfighting readiness and the ability to scale and sustain capability at pace. A resilient, productive defence industry and strong supply chains are essential to that work.

To deliver this, we need to ensure that our suppliers receive a fair return on their defence contracts, while also protecting the interests of the taxpayer. Each year, the independent Single Source Regulations Office undertakes a rigorous analysis of the profits earned by companies that undertake comparable work to our major defence suppliers. I am therefore announcing today that the Secretary of State has accepted the SSRO’s recommendation that the baseline profit rate for single-source defence contracts in financial year 2026-27 be set at 9.10%, an increase of 0.54 percentage points from 2025-26. He has also accepted the other rates recommended by the SSRO, which will come into force on 1 April 2026. These rates, which are set out at table 1, strike the right balance: they are fair to suppliers, reflect prevailing market conditions, and deliver value for money for the taxpayer.

Alongside this, the Government are progressing at pace the wider review of the Single Source Contract Regulations, as commissioned in the defence industrial strategy. We have already held workshops with industry and the SSRO, and we intend to publish the full report later this year. That review will consider how the framework can better support productivity, pace, innovation and access, while continuing to safeguard value for money.

The Government value deeply the contribution of the UK defence industry. A strong, competitive supplier base is essential to our security and growth, and that is what we are delivering through our defence industrial strategy. But that partnership must be grounded in fair returns, higher productivity and faster delivery, ensuring that defence spending translates directly into military advantage.

This approach—fair profit, strong governance, and a relentless focus on productivity and readiness—goes to the heart of ensuring that UK defence is ready to deter, fight and win.

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

[HCWS1402]