Open consultation

Defence Industrial Strategy (DIS) Offset Written Consultation

Published 23 October 2025

Introduction

The DIS recognised that we have seen offsets work effectively to achieve secondary benefits from defence procurement spend in other countries. It also recognised there are both benefits and risks of an offset regime and that this policy must be explored and developed in partnership with the defence sector. For those reasons, this consultation seeks insights to:

(a.) Build the evidence base needed for ministers to take a decision on whether to implement an offsets regime as a measure to support the DIS priority outcome of backing UK businesses, by ensuring increased defence spending is directed towards UK suppliers and increasing investment in priority sub-sectors, places and skills.

And;

(b.) If an offsets regime were to be implemented, what the key design principles should be.

The Ministry of Defence (MOD) seeks responses to the three questions contained within this consultation by 23 December 2025.

Scope

The UK would look to apply an offset policy in areas of the industrial base that are essential for national security or offer the highest potential for UK economic growth – these areas are defined in the Defence Industrial Strategy under Strategic Framework, National Security Priorities.

For national security subsectors, the secondary benefits that the UK may wish to achieve include skills, licensed and co-production, technology transfer and supply chain resilience.  For economic growth, this will include benefits that will help boost the long-term productivity of the UK economy as a whole i.e. increases in physical capital, human capital, and total factor productivity.

Offsets policies have worked effectively in other countries to achieve secondary benefits from defence procurement, for example in Australia, Norway and the Republic of Korea. Learning from these experiences, any UK model must reflect the unique nature and requirements of our domestic industrial base. Any future offsets policy that may be pursued, following the consultation, will be in line with the UK’s international trade commitments.

We invite responses from the full range of defence sector and other interested stakeholders.

DIS Background

The DIS sets out the path to becoming a leading tech-enabled defence power by 2035, making defence an engine for growth and driving forward the government’s Plan for Change. It sets out the roadmap and actions needed to deliver the national security and economic growth to keep our nation safe and prosperous in a new era of threat.

Fundamentally, the DIS is a strategy built with UK industry, for UK industry. Alongside supporting national security, the DIS prioritises championing, nurturing and sustaining our UK defence industry. To strengthen the UK industrial base and bolster the economic benefits of defence procurement, without losing the benefits of competition, we are committed to exploring a UK offsets policy in partnership with the wider defence sector. Adopting a UK offsets policy was a strong theme of the feedback we received during the DIS Statement of Intent public consultation which concluded in February 2025.

This is part of our broader package of support to UK based businesses, which includes reforming our approach to social value, reforms to planning, export licencing and the creation of the Defence Office for Small Business Growth; all of which will ensure we grow a stronger, more resilient and more competitive industrial base here in the UK, and that the UK is the best place to grow a defence business and export from.

In recognition of both the benefits and risks of a potential offsets regime, development of these proposals will be robust, evidence-based, and reflective of the breadth of defence sector needs.

What are offsets?

Offsets, also often referred to as industrial participation policies, are typically defined as a reciprocal economic exchange to offset economic outflows associated with spending taxpayers’ money with offshore vendors. Offsets often take the form of industrial agreements that can include outcomes such as co-production, licensed production, technology transfer and other benefits. They are often managed in parallel to the primary procurement that an offset obligation is attached to.

Australia – Balancing Sovereign Development and Building Strategic Partnerships

Australia’s approach to offset has been evolving since it was established in the 1970s, from an early voluntary scheme to a formalised offset approach to the flexible, lightly regulated policy we see today.

Australia has successfully prioritised balancing the desire to generate domestic supply chain and economic benefit with the safeguarding of key strategic relationship. Their approach to offsets sits alongside a wider raft of policies to support and promote the benefits of working with Australian suppliers for major overseas procurements.

Striking a balance between sovereign development and building strategic partnerships, Australia’s policy, alongside other measures, acts as a strategic enabler for partnerships with key allies in defence. The resultant approach has been credited with driving the development of a niche defence aerospace segment within which overseas OEMs undertake development work in-country; a prominent example being Boeing Australia’s development of the MQ-28 Ghost Bat, Australia’s first ‘sovereign’ UAS and marking the country’s return to combat air production after a long hiatus. Australia’s involvement in AUKUS further augments the strategic benefit of the flexible approach.

A UK offset policy candidate

To strengthen the UK industrial base and bolster economic benefits of defence procurement, without losing the benefits of competition, the government is committed to exploring and testing a UK offsets policy in partnership with experts to back UK-based business and drive growth.

Offset policy development is entering a three-month consultation phase to seek further input from experts that will be used to inform a possible UK offsets regime. The aim of this process is a UK model that can enter a phased launch in the first half of 2026.

A UK offset mechanism would aim to:

(a.) Support UK industrial growth by driving investment into the domestic defence sector.

(b.) Enhance strategic outcomes such as greater SME participation in defence supply chains, skills development, innovation, and supplier resilience.

(c.) Strengthen international partnerships and industrial collaboration delivering measurable economic benefits to the UK taxpayer.

(d.) Take a proportionate approach to where we apply requirements, with active consideration of the competitiveness of our defence industry and particularly of SMEs and non-traditional suppliers.

To ensure secondary benefits are achieved from procurement spend, its objectives will be targeted to deliver economic growth, develop industrial capacity, and boost military capability. Following preliminary policy development, we are considering the pragmatic approach to application of the Australian model and the robust implementation, monitoring and enforcement of Norway. The candidate UK model may include: 

(a.) The flexibility to decide which procurements fall within scope (type of procurement, financial threshold, country of origin)

(b.) The outcomes sought (growth or defence capacity/capability development)

(c.) The nature and level of obligation (direct or indirect, job creation, UK workshare or UK content, tech transfer, use of UK SMEs in supply chains)

(d.) Monitoring mechanisms and enforcement measures to address underperformance

Other key components of a successful regime include:

(a.) Clear outcomes (aligned to our priority sectors)

(b.) Multipliers to drive investment to priority areas and sub-sectors (NSSCs)

(c.) Obligations which are both specific and targeted in their nature and extent, to achieve the desired aims of the regime (direct or indirect; job creation; UK workshare or content; tech transfer; etc)

(d.) A robust implementation regime, including penalties for underperformance

Questions

Please consider the following questions and provide responses via the consultation mailbox no later than 23 December 2025. Contact details are provided below.

Including, but not limited to, the Australia/Norway model considered above: 

(a.) What are the benefits and risks of introducing an offset policy in the UK?

(b.) What are the opportunities for greater international collaboration from introducing a UK offset policy? What can be learned from the offset policies of other countries (such as those listed above)?

(c.) How would the introduction of an offset policy impact the defence market in the UK? 

We invite responses from the full range of defence sector stakeholders to the questions and proposal.

Transparency and Contact Information

The MOD is committed to ensuring transparency throughout the consultation process. Stakeholders can access the consultation document and related materials on GOV.UK. Responses should be submitted via the DIS consultation mailbox, and any queries can be directed to the consultation sponsor or designated points of contact.

Consultation Sponsor: Defence Industrial Strategy and Exports (DISE) Team

Consultation Mailbox: SPODISE-DIS@mod.gov.uk

For more information on this consultation, please contact the consultation mailbox above.

Data Protection and Handling

All responses will be handled in accordance with MOD data protection policies.  

Full details of MOD’s data protection policy can be found in the MOD privacy notice.

This consultation represents a significant step in shaping the future of the UK defence industrial base. Your input is critical to ensuring the development of an offset policy that delivers maximum value for the UK economy and defence sector. We look forward to your participation.