§ Mr. Frank Hooleyasked the Chancellor of the Exchequer whether a decision has been reached on the new profit formula for Government contracts to achieve the target return announced by the Government in February, 1968.
§ Mr. DiamondThe Government have now reached agreement with industry on the profit rates to be applied to non-competitive contracts let on or after 26th February, 1968, and priced under the new Standard Conditions. For risk work these rates will be 11 per cent. on capital employed plus 3 per cent. on cost. The Rates for non-risk work placed from the same date will be 8 per cent. on capital employed plus up to 3 per cent. on cost for efficiency. This new profit formula is248W expressed in the terms of the Government's accounting conventions.
The Government are now discussing with industry the establishment of the Government Contracts Review Board. In addition to reviewing the profits earned on individual risk contracts priced under the formula the Board will consider periodically the profit formula and average earnings on non-competitive contracts and compare them with the overall average earnings of British manufacturing industry. In the negotiations which have now been concluded the Government and industry have sought to achieve a formula yielding over the next three years an average return in industry's terms of 14 per cent. on capital. The Review Board will be asked to make an interim report within twelve months on some of the complex accounting issues which have a bearing on this agreed target. Meanwhile the Government's present accounting conventions will continue to apply, subject to any agreement which may be reached with industry on any particular point.