British manufacturers are pressing the government to ensure small and medium-sized enterprises (SMEs) benefit significantly from the UK’s increasing defence spending. MakeUK Defence, a trade body for over 600 UK defence manufacturers, is urging the inclusion of legally binding offset agreements in future military procurement contracts. These agreements would require foreign contractors to reinvest most of the contract value back into the British economy.
Offset agreements, already in use in over 50 developed countries, mandate foreign companies winning military contracts to reinvest a portion of the contract value locally, directly in defence production or indirectly in the broader economy. Proponents argue these agreements could create high-skilled jobs and secure a sustainable domestic industrial base.
Andrew Kinniburgh, director-general of MakeUK Defence, emphasised the importance of inward investment from defence deals being a pillar of the government’s growth agenda. He noted that British SMEs have substantial capabilities and the Ministry of Defence (MoD) should leverage these to benefit from defence agreements involving overseas companies.
Currently, the UK lacks a formal offset mechanism, placing it behind international peers in securing industrial benefits from defence procurement. MakeUK Defence proposes a legally binding rule that foreign firms winning MoD contracts reinvest 75-90% of the economic value in the UK over ten years, through actions such as establishing manufacturing sites, investing in supply chains, or supporting technology transfer and training.
This policy could be valuable for the network of small and mid-sized UK defence manufacturers, as well as industries like automotive, aerospace, and oil and gas, which have relevant capabilities but face challenges in accessing defence supply chains. The proposal also suggests regional prioritisation to support the government’s levelling-up agenda, focusing on areas like the northeast and West Midlands.
Currently, SMEs receive only 25% of the UK’s annual defence spending, with 4% directly from the MoD and 21% indirectly from prime contractors. In contrast, countries like Poland and the Gulf states have used offset agreements to secure long-term inward investment, training, and technology transfer.
Prime Minister Sir Keir Starmer recently echoed these sentiments, stating the importance of ensuring military investment benefits working people directly. As the UK plans to increase defence spending from 2.3% to 2.5% of GDP by 2027, with potential further increases, industry leaders warn that without targeted industrial policy, much of this spending could benefit foreign entities.
MakeUK’s proposals aim to align UK procurement strategy with international norms, providing a potential boost to the country’s high-tech manufacturing base. Kinniburgh concluded that a robust, enforceable offset policy would treat defence spending as a long-term investment in industrial capability, regional regeneration, and national security.
For further insights, visit [UK manufacturers urge MoD to channel defence spending to SMEs through binding offset deals](https://bmmagazine.co.uk/news/uk-manufacturers-urge-mod-to-channel-defence-spending-to-smes-through-binding-offset-deals/).
