The government has introduced a new policy requiring overseas defence contractors to reinvest in Britain when they win large contracts. Foreign firms awarded defence deals worth more than £50m will be obligated to spend an equivalent amount on British factories, jobs and training, Defence Secretary Wes Streeting announced. According to BBC News, the measure aims to ensure that British workers and businesses benefit from defence procurement, even when equipment must be sourced from overseas suppliers.
Streeting described the initiative as delivering "bang for the British buck" by securing tangible returns for the country from its defence spending. The Ministry of Defence will apply these rules on a case-by-case basis from April 2027. The government's approach mirrors similar offset strategies adopted by Poland, Norway and the Netherlands to maximise the economic benefit from defence procurement.
What counts as an eligible investment?
Contributions that satisfy the offset requirement include a broad range of activities. According to the government announcement, eligible investments encompass apprenticeships, construction or expansion of UK factories, investment in domestic suppliers, technology transfer agreements and increased use of UK-manufactured components. The policy normally sets the offset commitment at 100% of the eligible contract value, though the Ministry of Defence determines the specific commitment for each acquisition based on circumstances.
To oversee these arrangements, the government has established a central Offset Authority responsible for agreeing, valuing and monitoring commitments through dedicated Offset Agreements. The published policy specifies that offsets apply only when the Ministry of Defence determines they are lawful, proportionate and strategically justified, and allows the default £50m threshold to be adjusted for market conditions or implementation capacity.
Why is the government introducing this now?
The new rules form part of the government's broader effort to reach its target of spending 3% of gross domestic product on defence by 2030, a commitment that has drawn scrutiny from opposition politicians and defence analysts questioning whether it can be achieved. The policy appears designed to make proposed additional defence investment more politically acceptable without requiring immediate increases in direct government spending.
Streeting told BBC Breakfast that the offset strategy would help achieve the 3% target given that defence spending "does come at a cost to the country and other things we'd like to spend money on". He emphasised that the government was prioritising the purchase of British defence contracts wherever possible, and that the new approach would ensure British workers and businesses still benefit when overseas procurement becomes necessary.
The announcement comes as the government continues to face pressure over how it will fund the transition to higher defence spending. The Defence Investment Plan unveiled in July 2026 included £15bn in additional defence spending from 2026/27 to 2029/30, but the Budget allocated only £4.7bn to fully fund it, with £3bn coming from departmental capital-budget reductions and £1.7bn from Treasury contingency funding. Current government plans would leave defence spending at 2.7% of GDP through 2029/30, falling short of the 3% target.
What are politicians saying about the defence spending gap?
Tan Dhesi, Labour chair of the Commons defence select committee, criticised the government for delaying key decisions to next year's spending review rather than announcing them in the Budget.
We need to urgently rebuild our capabilities now, or we risk leaving ourselves seriously vulnerable in the event of a major conflict,Dhesi said. Conservative leader Kemi Badenoch accused Chancellor John Healey of failing his own test by not setting out a concrete plan for reaching 3% in the Budget.
Streeting has defended the government's approach, telling BBC Breakfast that he "strongly disagrees" with suggestions that ministers are "kicking the can down the road" on defence.
I think we're doing as much as we can, as fast as we can... of course there is more to do,he said. He argued that delaying detailed plans for hitting the 3% target to next year's spending review was appropriate so that ministers could examine spending across all departments.
Streeting acknowledged that the UK was not yet where it needed to be on defence readiness.
There's no sugarcoating the fact that our Armed Forces were under-invested in for more than a decade,he told BBC Breakfast. The Defence Secretary noted that the UK was prepared to respond to hostile threats, but significant gaps remained.
How much more money will be needed?
Estimates suggest the government will need to spend an additional £10bn annually to reach its 3% target by the end of the decade. Beyond that, the UK has committed to matching NATO's wider pledge of spending 3.5% of national income by 2035, which would require further increases. The scale of the funding challenge became apparent when John Healey resigned as defence secretary in June, stating at the time that the former prime minister's proposed defence investment fell "well short of what is required for defence and the country at this dangerous time".
What happens next?
Streeting and Chancellor John Healey will unveil the new offset rules during a visit to BAE Systems' shipbuilding facility in Glasgow. The government has indicated that it will set out at next year's spending review how it plans to meet the 3% of GDP target by 2030 and NATO's 3.5% commitment by 2035. For qualifying procurements where offsets are required, suppliers must meet with the Ministry of Defence no later than three months after signing an Offset Agreement to begin implementing their commitments.
