UK Defence Offset Agreements: Government signals a step change

Executive summary

The UK Government’s recently launched consultation on formal offset agreements marks a significant moment for UK defence procurement. Offset agreements are contractual mechanisms used widely in defence procurements to secure economic benefits nationally to offset expenditure with overseas suppliers. For years, offset agreements have been a feature of global defence markets, but the UK has relied on informal, voluntary arrangements. The current consultation, launched on 23 October 2025, invites views on whether a formal regime should be adopted and, if so, the principles that should underpin it. Responses are due by 23 December 2025, with the implementation of offset arrangements to follow early next year.

Context to offset agreements

Offset agreements, or industrial participation policies, are contractual mechanisms used widely in defence procurement to secure economic benefits nationally that offset expenditure with overseas suppliers. Under these arrangements, foreign suppliers that are awarded defence contracts typically commit through a parallel agreement to reinvesting a proportion of the contract value into the purchasing country’s economy. This reinvestment can take various forms, including local manufacturing, technology transfer, skills development and investment in domestic supply chains.

Offset arrangements range from being direct, where the offset relates to the subject matter of the underlying contract (such as local manufacturing), through to indirect, where the offset is unrelated to or independent of the relevant contract (for instance skills training).

Globally, more than 50 countries operate a variety of formal offset regimes. Nations such as Australia, Canada, Norway and South Korea have leveraged offsets to strengthen sovereign capability, create high-skilled jobs and foster innovation. These policies aim to ensure that significant defence spending delivers broader economic and strategic benefits, in addition to the core procurement of defence capability.

In the UK, however, offsets have historically been informal and voluntary. While British exporters often meet offset obligations abroad, the UK has not imposed similar requirements domestically. This has led to concerns that overseas suppliers benefit disproportionately from UK defence contracts without reinvesting in local industry. Supporters argue that such measures would bolster regional growth, enhance supply chain resilience and secure critical technologies for national security.

What is the purpose of the Government’s consultation?

On 23 October 2025, the Ministry of Defence launched a 12 week consultation under the Defence Industrial Strategy (DIS) to explore whether the UK should adopt a formal offset regime. The consultation seeks views on two key questions:

1. Should an offset regime be implemented to support the DIS priority outcome of backing UK business?
2. If so, what design principles should underpin any future policy?

Any offset framework would likely apply in areas critical to national security or offering the greatest potential for economic growth. Responses are invited until 23 December 2025. A phased implementation of these arrangements is expected from early next year, with the consultation expected to reshape the UK’s approach to defence procurement for decades to come.

Previous legal constraints

Historically, the UK’s reluctance to adopt formal offsets stems from legal and policy constraints under EU law and international trade agreements. EU defence procurement directives generally prohibited mandatory offsets within the sector, except in limited national security circumstances. Prior to this, the UK operated an industrial participation policy, which encouraged overseas bidders to outline voluntary commitments but imposed no enforceable obligations.

These restrictions were designed to prevent discriminatory practices and maintain open competition, reinforced by the UK’s procurement commitments under WTO and bilateral trade agreements. However, post-Brexit, these constraints have eased, creating scope for a UK-specific offset regime, provided it complies with global trade obligations and avoids anti-competitive effects.

How can we help?

The introduction of formal offsets will require careful structuring to balance legal compliance, commercial certainty and policy objectives. Our team can assist by:

• Designing offset frameworks: Drafting enforceable obligations that align with UK procurement law and international trade commitments, while ensuring clarity and measurability.
• Procurement design: Integrating offset arrangements into award criteria transparently, whilst carefully considering potential overlap with social value requirements.
• Risk management: Advising on anti-bribery, corruption and competition law risks often associated with offset arrangements.
• Supply chain strategy: Helping businesses position themselves to benefit from offset opportunities through subcontracting, technology partnerships and capability development.
• Contract negotiation: Supporting prime contractors, subcontractors and authorities in negotiating viable and legally sound offset obligations.

With deep expertise in defence procurement, international trade law and complex contracting, we can help clients navigate this evolving landscape and maximise opportunities under any future offset regime.