The Government has announced a new defence procurement policy designed to ensure overseas defence contracts generate jobs, skills and industrial investment in the UK, as part of a wider drive to strengthen the country's defence manufacturing base.
Under a new Offsets policy, overseas companies awarded major UK defence contracts will be required to deliver economic benefits back into Britain. The measures will apply to selected overseas defence procurements worth more than £50 million from April 2027.
The initiative forms part of the Government's wider ‘Back British’ approach and follows its commitment to increase defence spending to 3% of GDP by 2030, on a pathway towards the NATO target of 3.5% by 2035.
The policy means foreign defence contractors could be required to invest in the UK to a value equivalent to the contract they have secured. This could include creating jobs and apprenticeships, opening or expanding manufacturing facilities, investing in UK suppliers, transferring technology and increasing the use of British-made components.
For example, a £100 million overseas defence contract could generate up to £100 million of associated economic benefits in the UK through industrial investment, skills development and supply chain opportunities.
The Government said the policy is intended to maximise the domestic benefits of defence spending while recognising that some specialist capabilities and equipment will continue to be sourced from overseas suppliers.
Announcing the policy, Chancellor John Healey said: "We are putting British jobs and British businesses at the heart of how Government spends taxpayers' money.
"When a big contract goes overseas, these changes will ensure 100% of the value creates new opportunities for workers and businesses here at home, strengthening our industrial base and supporting growth across Britain."
Defence Secretary Wes Streeting said the new approach would help strengthen both national security and the domestic industrial base.
"Every pound we invest in defence should be judged by what it does for Britain. That's why we are backing British by buying British wherever we can.
"Even when that is not possible, we are acting to ensure that any investment brings jobs, skills and investment back home, strengthening our national security by boosting our domestic industry."
According to Government figures, more than £35.2 billion was spent on defence contracts and services with overseas suppliers between 2016-17 and 2025-26, representing around 11% of total Ministry of Defence direct expenditure with industry and commerce during that period.
The Government believes the new policy will ensure future spending of this type generates greater economic returns for UK industry and creates new opportunities for small and medium-sized enterprises to join international defence supply chains.
A new central Offset Authority will be established to oversee the policy, agreeing, valuing and monitoring commitments through dedicated Offset Agreements. The Ministry of Defence said the arrangements would be applied on a case-by-case basis and would provide clear guidance to suppliers on when offset requirements apply.
The UK joins a number of nations, including Poland, Norway and the Netherlands, that already use offset-style arrangements to enhance the economic benefits of defence procurement.
The announcement comes alongside the Government's recently published Defence Investment Plan, backed by £298 billion of funding over the next four years. The plan aims to strengthen military capability while supporting industrial growth throughout the UK.
Last year alone, Ministry of Defence investment supported 274,000 jobs across UK industry, with £34.1 billion spent with British businesses. Government figures indicate that around 85% of MOD expenditure already goes to UK-based firms.