Si
“Does anyone really understand why Defence Inflation always sits between 5-7%”.
Quite complex, but two simple everyday factors are;
Industry must somehow recoup the R&D costs they incur. MoD R&D funding is negligible.
At a more mundane, but equally important level, the MoD contracting policy (competition) and the grossly inefficient and bizarre way in which it is implemented, means companies have to invest huge sums bidding for work which only the winner can recoup. Small and medium size enterprises suffer disproportionately, often being forced to spend man-years bidding for a piddling job. It is common for the bid costs to be upwards of 10% of the contract value.