Foreign defence contractors awarded UK contracts worth more than £50m will be required to invest an equivalent value back into the British economy under new rules announced by Defence Secretary Wes Streeting, as the government seeks to increase domestic benefit from overseas military procurement.
The Ministry of Defence will apply the rules on a case-by-case basis from April 2027, the government said in a statement. Countries including Poland, Norway and the Netherlands have mandated similar rules to boost the economic benefit from defence procurement, the statement added.
The move comes as the government continues to face pressure to hit its target of spending 3% of GDP on defence by 2030 amid tight public finances. Some estimates have suggested an additional £10bn annually will be needed to reach the target by the end of the decade and to match the Nato-wide commitment of 3.5% of national income by 2035.
Streeting told BBC Breakfast the policy would help achieve the spending target given it “does come at a cost to the country and other things we'd like to spend money on”. The aim was to get “bang for the British buck back here at home”, he said.
The government described the rules as its "offset strategy", intended to ensure British workers and businesses still benefit when defence equipment must be bought from overseas.
Tan Dhesi, the Labour chair of the Commons defence select committee, said key decisions had been “lamentably delayed” to next year's spending review rather than being announced in Wednesday's Budget. “We need to urgently rebuild our capabilities now, or we risk leaving ourselves seriously vulnerable in the event of a major conflict,” he said.
Tory leader Kemi Badenoch said on Wednesday that Chancellor John Healey "failed his own test" by not setting out a plan for 3% in the Budget.
Streeting hit back at criticism, saying he “strongly disagrees” with Dhesi. He told BBC Breakfast: “I think we're doing as much as we can, as fast as we can... of course there is more to do.” He said delaying detail about hitting the 3% target to next year's spending review was “the right thing to do” so ministers could look at spending in the round. He said the government was not, as its critics claim, kicking the can down the road on defence.
He said the UK was ready to deal with hostile threats but “we're not where we'd want to be”, adding: “There's no sugarcoating the fact that our Armed Forces were under-invested in for more than a decade.”
Healey resigned as Sir Keir Starmer's defence secretary in June, claiming 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”.
Analysis
Why This Matters
- The new rules ensure that large foreign defence contracts deliver domestic investment, potentially reshaping how international contractors approach the UK market.
- The policy is part of the government's broader effort to meet its 3% of GDP defence spending target without immediate direct spending increases.
- The debate highlights ongoing tension between defence readiness and fiscal constraints, a key issue for UK security policy.
Background
The UK government has committed to increasing defence spending to 3% of GDP by 2030, a target that some opposition MPs and defence analysts have questioned the government's ability to deliver given tight public finances. The new offset rules, announced by Defence Secretary Wes Streeting, aim to secure economic benefit from overseas procurement. Similar rules already exist in Poland, Norway and the Netherlands.
Key Perspectives
Wes Streeting (Defence Secretary): Defends the offset rules as a way to get "bang for the British buck" and says the government is doing as much as it can on defence within current constraints.
Tan Dhesi (Labour chair of Commons defence select committee): Says key decisions have been delayed and that urgent rebuilding is needed to avoid vulnerability in a major conflict.
Kemi Badenoch (Tory leader): Accuses Chancellor John Healey of failing his own test by not presenting a plan for 3% in the Budget.
John Healey (Chancellor, former defence secretary): Resigned in June arguing the then-government's investment fell "well short" of defence needs.
What to Watch
- The government's next spending review, where detailed plans for reaching the 3% defence spending target are expected.
- The specific implementation of the offset rules when they take effect in April 2027.
Checked
12 claims in this story checked against 1 source: 12 supported.
Show each claim
- SupportedForeign defence contractors awarded UK contracts worth more than £50m must invest an equivalent value in Britain.BBC News: “Under the new rules, companies receiving more than £50m will need to spend an equivalent amount on British factories, jobs and training.”
- SupportedDefence Secretary Wes Streeting announced the rules, which apply from April 2027.BBC News: “The Ministry of Defence will apply the rules on a "case-by-case" basis from April 2027, the government said in a statement.”
- SupportedThe Ministry of Defence will apply the rules case by case.BBC News: “The Ministry of Defence will apply the rules on a "case-by-case" basis from April 2027, the government said in a statement.”
- SupportedThe government is seeking greater domestic benefit from overseas defence procurement.BBC News: “The investment stipulations for foreign businesses, which the government described as its "offset strategy", are hoped to increase investment in Britain's defence industry.”
- SupportedThe government faces pressure to meet its 3% of GDP defence-spending target by 2030 amid tight public finances.BBC News: “It comes as a row continues over how the government will reach its defence spending targets amid tight public finances.”
- SupportedSome estimates say an extra £10bn annually will be needed to reach the 3% target by the end of the decade and match Nato’s 3.5% commitment by 2035.BBC News: “Some estimates have suggested the government will need to spend an additional £10bn annually to reach its 3% target by the end of the decade, and match the Nato-wide commitment of spending 3.5% of national income by 2035.”
- SupportedStreeting told BBC Breakfast the policy would help achieve the spending target because it “does come at a cost to the country and other things we'd like to spend money on”.BBC News: “Streeting told BBC Breakfast the new rules would help achieve this target given it "does come at a cost to the country and other things we'd like to spend money on".”
- SupportedStreeting said the aim was to get “bang for the British buck back here at home”.BBC News: “"What we're aiming to do is on the most valuable of those contracts worth £50m or more, is to try and get benefit for Britain, bang for the British buck back here at home," he added.”
- SupportedTan Dhesi said key decisions had been “lamentably delayed” to next year's spending review instead of being announced in Wednesday's Budget.BBC News: “Tan Dhesi, Labour chair of the Commons defence select Committee, said key decisions had been "lamentably delayed" to next year's spending review rather than being announced in Wednesday's Budget.”
- SupportedDhesi said Britain risked being seriously vulnerable in a major conflict if it did not urgently rebuild its capabilities.BBC News: “"We need to urgently rebuild our capabilities now, or we risk leaving ourselves seriously vulnerable in the event of a major conflict," the MP said.”
- SupportedKemi Badenoch said Healey “failed his own test” by not setting out a plan for 3% in the Budget.BBC News: “And Tory leader Kemi Badenoch said on Wednesday that Healey "failed his own test" by not setting out a "plan for 3%" in the Budget.”
- SupportedHealey resigned as Starmer's defence secretary in June, saying the proposed defence investment fell “well short” of what was required.BBC News: “Healey resigned as Sir Keir Starmer's defence secretary in June, claiming 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".”