The British government announced the launch of a new defence procurement offset policy on 30 October 2026, aimed at returning value and investment to the UK on foreign procurement contracts.

Announcing the new policy during a visit to BAE Systems’ Scotstoun site in Glasgow, UK Defence Secretary Streeting stated, “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.”

Under the new policy contracts valued at over GBP 50 million (EUR 60 million) will be considered for offsets, with a requirement to reinvest 100% of the contract value into the UK. A new offset authority will be established within the UK Ministry of Defence (MoD) and will be responsible for the negotiation, approval, administration and enforcement of offset agreements. The unit will also collaborate with other government organisations, such as the MoD’s Ploughshare defence innovation commercialisation organisation, as well as the Office for Investments (OFI) and the Competition and Markets Authority (CMA).

Multipliers – which reduce the financial burden on the supplying company – were not published as part of the policy announcement. Indicators within the policy show that multipliers will be available for contracting companies that are based on the location of investments, projects that advance the country’s Defence Growth Framework, technological and human capital development, and those that support priority UK industrial capabilities designated by the government.  

Current priority areas include: combat air, next-generation land and maritime capabilities, directed-energy weapons and complex weapons; unmanned systems; advanced manufacturing and materials; space technology; artificial intelligence (AI); quantum technology; defence exports and supply chain integration; and dual-use technologies.

Exemptions to offset requirements will be made by the MoD under conditions such as multinational programmes, urgent operational requirements and acquisitions conducted under binding treaty obligations. All projects have to be completed within a 10-year period.

The definition of a ‘UK company’ in terms of an obligor is yet to be decided, but the announcement noted that offsets would apply to contracts where “a significant part of the contract value, production or value creation is located or sourced from abroad”. As there are many foreign firms with a significant presence in the UK through historical acquisition and expansion – such as Leonardo, Thales, Lockheed Martin and Boeing – the new offset policies may inadvertently serve to deter new market entrants to the UK. Establishing a new presence, or partnering with local industry, may not now be the desired route to market, and could ultimately reduce the level of competition for the UK.

Offset leveraging for regional development 

The new policy came shortly after the MoD released the UK Defence Footprint 2026 report, which reported that the ministry spent GBP 34.1 million with UK industry in 2025/26, of which GBP 1.3 billion was spent on small- and medium-sized enterprises. Southeast England was the largest recipient of MoD spending, with GBP 8.5 billion spent in the region in 2025-26. This was followed by southwest England (GBP 6.7 billion) and northwest England (GBP 5.4 billion).

Offset policies in Europe have worked to support regional economic growth and tackle unemployment, as well as address political and economic equality. Under Croatia’s offset regulations, additional multipliers are made available to companies for investing in areas with high unemployment rates, while Switzerland requires delivery of offset policies across the range of linguistic regions that make up the country.

Under the outline of the UK policy, “enhanced credit” for suppliers will be provided for projects that “strengthen regional industrial clusters and supply chains, particularly where activity builds on existing strengths, supports Defence Growth Deals or generates sustainable economic benefit in priority places”.

Additionally, projects that support “levelling up, place-based growth and the development of resilient local and regional defence ecosystems” will also gain enhanced credit. A medium-term gain from this approach to offsets will be to leverage defence spending increases into areas with unemployment challenges – potentially staving off the government’s right-wing rivals who are demanding greater spending on defence and national security as well as job growth in economically challenged seats.

Such work can, however, be limited in its overall economic growth impacts. Direct offset projects, where work is performed in country to support the specific procurement project, only span the life of the procurement. While the overall obligation period is for 10 years, shorter projects will likely create short-term employment booms that turn to busts once the work is completed.

Outlook

The formation of the UK offset policy is something of a curiosity, given the country’s advanced defence-industrial capabilities. Other countries, such as Turkey and the Gulf states, have used offsets to return value to their countries and create a defence-industrial capability. Similarly, Poland used offsets to reinvigorate its defence-industrial base from the late 1990s and has emerged as a country with a continually expanding defence development and manufacturing capability. Turkey has also been able to significant grow its defence-industrial base to the point of achieving high levels of self-sufficiency in equipment and subcomponent manufacture, design and systems integration.

The UK had previously operated an offset programme until 1990, when it was changed to a voluntary industrial participation policy. The pre-1990 offset policy ran afoul of reporting and a lack of success, with Hansard debates at the time showing concerns around the delivery of jobs promised by Boeing as part of the acquisition of the Royal Air Force’s Boeing E-3 Sentry Airborne Warning and Control System aircraft. Boeing was operating under a 130 % obligation on the then-GBP 1.2 billion deal.

The likelihood of success of the new programme will be hard to tell. Many of the UK’s current major procurements – complex weapons, naval vessels and next-generation aircraft – are being developed domestically or through multinational partnerships. Other major procurements, such as for the ARTEC Boxer, are well underway and could argue for any further options or orders to be exempted from offset requirements. Similarly, countries such as Australia and Israel exempt US Foreign Military Sales (FMS) from industrial participation requirements. While the UK spend on FMS programmes is declining, a total of GBP 623 million was spent on FMS contracts in 2024/5. Acquisition through the FMS programme will likely continue, with the value ultimately not being returned to the UK.

Requiring partner nations to hand over defence technology – or support the development of a potential competitor – could likely be a downfall of the offset programme. As the UK is an advanced defence-industrial nation, technology transfer is likely to be less successful. The policy’s real drive, integrating into foreign supply chains and enabling exports, may prove challenging due to the cost of labour in the UK and already-strong supply chains operated by foreign and domestic manufacturers.