The UK government is introducing a new defence procurement policy requiring foreign companies awarded major military contracts to deliver equivalent economic benefits to Britain,
including investment in domestic manufacturing, job creation, apprenticeships and technology development.
The initiative, announced on 30 October by the Ministry of Defence and HM Treasury, is designed to ensure that British businesses and workers benefit even when the country purchases military equipment and services from overseas suppliers.
Under the new Offsets Policy, foreign defence contractors securing eligible UK government contracts worth more than £50 million will be expected to reinvest in the British economy. Depending on the agreement, these commitments could amount to as much as the full value of the original contract.
For example, a foreign company awarded a £100 million defence contract could be required to generate up to £100 million in additional economic benefits in the UK through new industrial facilities, employment opportunities, workforce training or investment in domestic supply chains.
The policy forms part of the government's broader Back British strategy, which aims to strengthen the country's industrial base and ensure that public spending supports domestic economic growth. Ministers say the government will continue to prioritise British suppliers wherever possible, while introducing new safeguards to ensure that overseas procurement also creates opportunities at home.
The announcement was made by Chancellor John Healey and Defence Secretary Wes Streeting during a visit to BAE Systems' Scotstoun shipyard in Glasgow.
The new arrangements are intended to encourage international defence manufacturers to establish long-term partnerships with British companies, particularly small and medium-sized enterprises (SMEs). By integrating domestic suppliers into international production networks, the government hopes to expand access to export markets, strengthen industrial expertise and create additional skilled employment.
Chancellor John Healey said the government wanted public procurement to deliver tangible benefits for the domestic economy.
He explained that when major defence contracts are awarded to foreign companies, the new requirements would ensure that the value of those agreements also generates opportunities for British businesses and workers, helping to reinforce the country's industrial capacity and support economic growth.
Defence Secretary Wes Streeting said defence expenditure should contribute not only to military capabilities but also to Britain's economic and industrial resilience.
He stressed that the government would continue to favour domestic procurement wherever possible, while ensuring that contracts awarded internationally also produce benefits for British employment, skills development and manufacturing.
The policy comes against the backdrop of substantial existing defence-related economic activity. According to government figures, Scotland's defence industry generates approximately £2.5 billion annually and directly employs around 12,200 people.
Recent major projects have demonstrated the sector's contribution to regional employment. A £10 billion export agreement with Norway for Type 26 frigates is supporting approximately 2,000 jobs, while a £453 million contract for the Typhoon radar system is sustaining around 300 positions in Edinburgh.
The government also highlighted the scale of overseas procurement in recent years. Between 2016/17 and 2025/26, the Ministry of Defence spent more than £35.2 billion on contracts and services with international suppliers. This represented approximately 11% of its total direct expenditure with industry and commerce during the period.
Under the new framework, qualifying contractors will be able to fulfil their obligations through several forms of investment, including:
Establishing new jobs and apprenticeship programmes across the UK.
Building new factories or expanding existing manufacturing facilities.
Increasing investment in British companies and domestic suppliers.
Transferring advanced technologies, technical expertise and industrial know-how to UK businesses.
Incorporating a greater proportion of British-made components into defence equipment and production processes.
A new central Offset Authority will oversee the arrangements, negotiate individual Offset Agreements, assess the value of proposed investments and monitor whether contractors meet their commitments throughout the duration of each agreement.
The Ministry of Defence will determine which procurements are subject to the requirements on a case-by-case basis. The UK is joining several NATO and European partners, including Poland, Norway and the Netherlands, which already operate comparable mechanisms to ensure that international defence purchases generate additional economic benefits domestically.
The announcement follows the government's decision to increase defence spending to 3% of GDP by 2030, as part of its longer-term trajectory towards NATO's 3.5% defence spending commitment by 2035.
The wider investment programme is backed by £298 billion in defence funding over the next four years. According to the government, defence investment supported approximately 274,000 jobs in British industry last year, an increase of 10% compared with the previous year. Some £34.1 billion was directed to UK-based businesses, with domestic companies already receiving around 85% of Ministry of Defence expenditure.
The new policy also complements recent financial measures announced by the Chancellor, including plans for the National Wealth Fund and British Business Bank to invest up to £5 billion over the next four years in defence, dual-use technologies and other strategically important industries.
In parallel, the government is beginning treaty negotiations with the Netherlands, Poland and Finland on a Multilateral Defence Mechanism intended to enable joint procurement on a larger scale and the stockpiling of essential military equipment.
The Offset Policy was published on 30 October 2026. Its first requirements are expected to apply to selected defence procurement contracts from April 2027. International suppliers will be informed in advance when their contracts are subject to the new obligations. Photo by Photo: Harland Quarrington/MOD, Wikimedia commons.
