All 10 contributions to the National Security and Investment Bill 2019-21

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Tue 17th Nov 2020
National Security and Investment Bill
Commons Chamber

2nd reading & 2nd reading: House of Commons & 2nd reading
Wed 20th Jan 2021
National Security and Investment Bill
Lords Chamber

1st reading (Hansard) & 1st reading (Hansard): House of Lords & 1st reading
Wed 20th Jan 2021
National Security and Investment Bill
Commons Chamber

3rd reading & 3rd reading: House of Commons & Report stage & Report stage: House of Commons & Report stage & 3rd reading
Thu 4th Feb 2021
National Security and Investment Bill
Lords Chamber

2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 2nd reading
Tue 2nd Mar 2021
Mon 26th Apr 2021
National Security and Investment Bill
Commons Chamber

Consideration of Lords amendments & Consideration of Lords Amendments
Wed 28th Apr 2021
National Security and Investment Bill
Lords Chamber

Consideration of Commons amendments
Thu 29th Apr 2021
Royal Assent
Lords Chamber

Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent

National Security and Investment Bill

2nd reading & 2nd reading: House of Commons
Tuesday 17th November 2020

(1 year, 9 months ago)

Commons Chamber
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Second Reading.
13:51
Alok Sharma Portrait The Secretary of State for Business, Energy and Industrial Strategy (Alok Sharma)
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I beg to move, That the Bill be now read a Second time.

Our country has always been a beacon for inward investment and a champion of free trade. We recognise and celebrate the positive impact of these twin policies in delivering prosperity and opportunities across the United Kingdom. Over the past 10 years, the UK has attracted around three quarters of a trillion dollars of foreign direct investment, which in turn has helped to create 600,000 new jobs in our country.

In 2019-20 alone, more than 39,000 jobs were created in England thanks to foreign direct investment projects, with more than 26,000 of those jobs created outside London. Almost 3,000 jobs were created in Scotland, and more than 2,500 in Wales and 2,000 in Northern Ireland respectively. That is why we will continue to work relentlessly to ensure that the UK remains a great place to do business and invest. That approach is more important than ever as we look to business to create jobs in our recovery from covid-19.

The UK is very much open for business, but being open for business does not mean that we are open to exploitation. An open approach to international investment must also include appropriate safeguards to protect our national security. Those are not conflicting approaches; prosperity and security go hand in hand. Otherwise, we leave the United Kingdom open to the risk of being targeted and compromised by potential hostile actors who are looking to disrupt our economic and wider security.

Nusrat Ghani Portrait Ms Nusrat Ghani (Wealden) (Con)
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From the moment that this Bill was started to now, we have learnt a lot more about security and infrastructure.  Does my right hon. Friend share my concerns that the Chinese national intelligence law requires Chinese firms to assist with state intelligence work? This was brought to light for me when TikTok gave evidence to the Business, Energy and Industrial Strategy Committee. I am incredibly anxious about the data that it could potentially be harvesting and sharing back with its parent company, ByteDance.

Alok Sharma Portrait Alok Sharma
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I know that my hon. Friend cares very deeply about this issue and, indeed, she and I have had discussions about it. I would say to her that the Bill is agnostic as to the domicile of an acquirer. I think that that is right and proper, but it is also right and proper that we look at every single transaction on a case-by-case basis. Let me assure her that if there are security concerns with any transaction, of course we will act.

Bob Seely Portrait Bob Seely (Isle of Wight) (Con)
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There is a lot in the Bill that I am sure we all support, but does my right hon. Friend accept that without a public interest test, a character test, an anti-slavery test and a human rights test, the definition of national security being offered here is extraordinarily narrow and problematic to the broader age that we live in? Does he accept that there will be debate around that point—about what constitutes national security in this age?

Alok Sharma Portrait Alok Sharma
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My hon. Friend raises a point that I know he has raised with my fellow Ministers, and other colleagues will raise a similar point. He talks about modern slavery. He knows that the Government passed the Modern Slavery Act 2015. The Home Office is looking to update and strengthen that. I note the points that he has raised, but the whole point of the Bill is for it to be narrow on national security grounds, and that is the way that it was constituted when it was first discussed in the Green Paper in 2017 and in the White Paper in 2018. However, I will try to address some of the points that he raised as I go on.

Those who seek to do us harm have found novel ways to bypass our current regime by either structuring a deal in such a manner that it is difficult to identify the ultimate owner of the investment, or by funnelling investment through a UK or ally investment fund, or indeed, by buying or licensing certain intellectual property rather than acquiring the company. Be in no doubt that the UK and our allies are facing a resurgence of threats. That is why we are updating our powers to screen investments into the UK. Our current powers date back to the Enterprise Act 2002. Technological, economic and geopolitical changes across the globe over the past 20 years mean that the reforms to the Government’s powers to scrutinise transactions on national security grounds are now required.

Kevan Jones Portrait Mr Kevan Jones (North Durham) (Lab)
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I welcome a lot of the proposals in the Bill, including on the issue of land and the removal of the thresholds in terms of ownership. One way that people have been able not only to get influence in this country but to launder money has been through the purchase of large amounts of property in the UK, which were highlighted in the Intelligence and Security Committee’s report on Russia. Does the Secretary of State see the Bill addressing that issue?

Alok Sharma Portrait Alok Sharma
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I will go on to the detail of that particular issue, but as the right hon. Gentleman identified, the Bill looks at assets and intellectual property. On the point that he raised about the size of transactions, as he knows, under the 2002 Act, apart from some limited exceptions, businesses being acquired must have a UK turnover of over £70 million or, indeed, the merger must meet a minimum 25% market threshold. This means that acquisitions of smaller but technologically sensitive companies are not covered.

The Government have been clear for a number of years about our intention to introduce new powers. Many of our international allies, including our Five Eyes partners, have also acted to update their legal frameworks to address national security risks. We, in turn, are seeking to update our legislation in a proportionate manner to ensure that we have more security for British businesses and people from hostile actors targeting our country; more certainty for businesses and quicker, slicker screening processes as we remain open to trade and recover from covid-19; and a regime that is in line with our allies, meaning that investors will be familiar with this approach.



Let me turn to some of the specifics of the Bill. Part 1, chapter 1 introduces a call-in power that the Government may use in relation to a trigger event across the economy that they reasonably suspect has given rise to or may give rise to a risk to national security. Trigger events include acquisitions of certain shares or voting rights in a qualifying entity, and the acquisition of material influence over such an entity. As the right hon. Gentleman pointed out, it will be possible for the first time to call in the acquisition of a right or interest in a qualifying asset, including intellectual property, where such an acquisition would enable the acquirer to use the asset or control or direct how it is used. That is similar to the US and other countries’ regimes.

The call-in approach is consistent with the 2002 Act, but importantly there are no minimum thresholds for the size of the business or asset to be acquired. That means that sensitive businesses and assets that may previously have slipped under the minimum size threshold will no longer do so. That will close the back door into the United Kingdom that hostile actors could exploit.

However, it is important to reassure the investment community that the Government expect to use these powers sparingly. We estimate that less than 1% of transactions in any given year will be subject to call-in. For transactions that fall outside the mandatory requirement of the regime, the Government will be able to call in a transaction within a period of five years of a trigger event having taken place where they have not been notified. When the Government become aware of a trigger event having taken place, they will have six months to issue the call-in notice. That five-year period is, again, consistent with regimes in Germany and France. The Bill requires that the Government publish a statement of policy intent explaining how they expect to use the power to issue a call-in notice.

Should the Bill become an Act, the Government’s call-in powers will apply from the date of introduction and will cover transactions that complete during its passage. That will ensure that hostile actors do not rush through the completion of transactions between the introduction of the Bill and Royal Assent as a means to avoid scrutiny under this legislation. My Department has already set up an investment security unit to field enquiries from businesses and investors about transactions under the new regime.

Under the National Security and Investment Bill, there will be no requirement to publish call-ins. That is of course in contrast to the public interest intervention notices under the 2002 Act.

Aaron Bell Portrait Aaron Bell (Newcastle-under-Lyme) (Con)
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I welcome what the Secretary of State just said about the call-in power. Will he confirm that, as a result of the measures in the Bill, most transactions can take place within 30 days, which means that the UK will remain a venue, and be an even better one, for foreign direct investment as we seek to rebuild our economy following coronavirus?

Alok Sharma Portrait Alok Sharma
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My hon. Friend makes a very important point. We are giving certainty, and we expect that most call-in decisions will be decided upon within 30 days. I said that we expect that less than 1% of all transactions in any given year will be called in, and only about 10% of those will then face detailed scrutiny.

Mark Pritchard Portrait Mark Pritchard (The Wrekin) (Con)
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Will the Secretary of the State provide clarity to the House about the jurisdiction of the Bill? For example, if a German technological company was listed in Germany but the IP and research and development was based in the UK, what powers would the Government have to act?

Alok Sharma Portrait Alok Sharma
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This Bill applies to any transaction that relates to an asset or entity in the United Kingdom. If that were the case, of course it would apply.

Iain Duncan Smith Portrait Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)
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I am interested in that point. If a malign actor made an investment in another country with a lower-standard test, which then invested in the UK, putting intellectual property rights at risk, where do the UK Government go on that? Do they give themselves the scope, which I do not see in the Bill, to act on the basis of the original investment?

Alok Sharma Portrait Alok Sharma
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I thank my right hon. Friend for his question. He has taken a great deal of interest in this legislation, and we have spoken about such matters. As I said earlier, the whole point of the Bill is that we will be able to scrutinise the precise details of a transaction and of who the ultimate beneficial owner of a particular acquiring entity may be. I would therefore hope that the Bill will indeed cover the particular set of circumstances he outlines.

Going back to the point about providing assurances, businesses and investors can be reassured that the Government will treat potential national security risks with the discretion they deserve.

Turning to the mandatory notification elements of the Bill, investors in 17 prescribed sectors of the economy will be mandated by law to notify the Government of acquisitions of entities above a certain threshold of shareholding or voting. That mandatory notification process is similar to the approach taken in the United States, Germany and France. The Government have, alongside the introduction of the Bill, published an eight-week consultation to refine the definitions of those 17 sectors. The discussions that I and other Ministers in the Department have had with the investment community suggest that that has been extremely welcome.

Many sectors, of course, are well defined, and the purpose of the consultation is to refine them further so that the definitions are clear and narrowly focused on specific parts of sectors in which risks are most likely to arise and will allow parties to self-assess whether they need to notify. The House will appreciate that we could not have published the consultation before we introduced the Bill, with its call-in powers, or we would have risked hostile actors completing transactions in the particularly sensitive sectors.

Richard Fuller Portrait Richard Fuller (North East Bedfordshire) (Con)
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My right hon. Friend is quite rightly focusing on precisely defining the sectors. Was he as concerned as I was to hear the Opposition spokesman say today that he would prefer a strategy that did not have that definition, relying instead on the whimsy of a particular Secretary of State at the time? That situation could, like it does in France, lead to a yoghurt company or water bottle business being defined as a national strategic asset.

Alok Sharma Portrait Alok Sharma
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My hon. Friend speaks with a great deal of interest and experience in investments. This Bill focuses on national security, and we have been clear that we will define the sectors where mandatory notification is required, which is right and proper. The whole point of the Bill is that we are taking a proportionate approach. We do not want some kind of chilling effect on investment coming into the UK. We have been a beacon for inward investment over many years with, as I said earlier, three quarters of a trillion dollars coming into our country over the past 10 years. We would not want that to change.

Transactions covered by mandatory notification that take place without clearance will be legally void. Again, that is in line with the French, German and Italian regimes. Parties to an acquisition may, of course, voluntarily inform the Secretary of State about their acquisitions to seek swift clearance to proceed. We have also streamlined the information required for notification from 36 pages, as required under the Enterprise Act 2002 for competition modifications, to a third of that.

The use of digital processes will make interaction with the Government much simpler, more transparent and slicker, and Government will aim to provide clearance for most transactions within 30 working days of notification, as my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) raised earlier. Having spoken to the investment community over the past week, I know that that timely approach to the clearing of transactions is welcomed.

Moving on to the assessment of called-in transactions, part 2 of the Bill provides powers to assess transactions should the Government call one in. Where the specific legal test is met, the Government may impose conditions or, in extremis, block or unwind transactions. I stress once again that the Government will use those powers sparingly and proportionately.

The Government will take the necessary powers in the Bill to gather information about any transaction. However, such information will be strictly safeguarded against inappropriate disclosure. That includes, of course, information from parties, regulators and others to make informed decisions on transactions. If no remedies are imposed, a final notification will be provided at the end of a national security assessment. Alternatively, the Government may choose to prescribe remedies.

Any notification decision under the Bill will be subject to legal challenge from the potential acquirer entity by way of judicial review or appeal, and the Government will be able to apply to the court for a closed material procedure to protect commercially sensitive and national security matters in such proceedings. The investment security unit will ensure that the entire process is streamlined and supported by robust digital structures and governance to ensure swift decision-making on assessments.

It is worth noting that the new regime will be underpinned by both civil and criminal sanctions, creating effective deterrents for non-compliance with statutory obligations. Again, that is in line with sanctions in the French and German regimes.

Mark Pritchard Portrait Mark Pritchard
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Is it not the case that a call-in itself could be commercially sensitive, particularly to a listed company? In that regard, a default of self-referral to the Government would probably be a better way for industry to ensure that share prices are not unfortunately affected by what might be a legitimate call-in.

Alok Sharma Portrait Alok Sharma
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My hon. Friend raises an incredibly important point. Of course, self-referral, as he refers to it, is possible. In fact, if any company has particular concerns as to transactions that they may be undertaking or part of, they will get a swift assessment from the Government.

I make the point, though, that we will not be effectively publicising call-ins when they take place. Clearly, at the end of a transaction, if there was a particular remedy, that would be made public. It is also worth pointing out that the Government will publish an annual report, not on individual transactions, but on the scope of the transactions and sectors that have been looked at. I hope that that will give future investors an opportunity to consider the type of transactions in which the Government have a particular interest.

The final measure that I want to detail relates to the overseas disclosure of information relating to a merger investigation. Under section 243 of the 2002 Act, there is a restriction on the ability of UK public authorities to disclose merger information to overseas authorities unless the consent of the entity has been given. Clause 59 of the Bill removes that restriction. That will strengthen the Competition and Markets Authority’s ability to protect UK markets and consumers as it takes a more active role internationally, allowing the UK to set up comprehensive competition agreements with our international partners.

In conclusion, I hope that right hon. and hon. Members on both sides of the House see that the Bill updates our national security powers in a proportionate, pro-trade and pro-business manner.

Bob Seely Portrait Bob Seely
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Unless I missed it, there is no definition of national security in the Bill. Will the Secretary of State provide a definition or will he commit to putting one in the Bill to give us something to work with?

Alok Sharma Portrait Alok Sharma
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My hon. Friend raises an important point. As he will know, and I am sure appreciate, I am not going to be able to set out every single test that we will apply when it comes to a national security assessment. The application of the tests will, of course, be based on information that we garner from across Government. He can be certain that in using the powers, the Government will act in a quasi-judicial fashion, we will have regard to the statement of policy that has been published, and we will act, again, in accordance with public law principles of necessity and proportionality. I also made the point earlier that any decision can, of course, be challenged by an affected entity.

Stewart Hosie Portrait Stewart Hosie (Dundee East) (SNP)
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Before the Secretary of State moves on, will he give way?

Alok Sharma Portrait Alok Sharma
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I will move on, if that is all right with the hon. Gentleman.

These powers are narrowly defined and will be exclusively used on national security grounds. The Government will not be able to use these powers to intervene in business transactions for broader economic or public interest reasons, and we will not seek to interfere in deals on political grounds. They will not and cannot be used for wider economic tests. The Government already have proportionate powers in statute for intervention on the grounds of competition, financial stability, media plurality and combating a public health emergency. Going further than that would risk chilling and destabilising investment in the United Kingdom and reducing growth opportunities and jobs.

The UK has the lowest corporation tax rate in the G20. We are rated one of the most innovative countries in the world, ranking fourth in the 2020 global innovation index. We are one of the top 10 countries in the world for ease of doing business. We have a world-leading research and development environment, and the stability of our institutions, tax system and legal framework are respected globally. It is because of our pro-market approach that the United Kingdom has become one of the premier places to invest in the world, and I certainly would not want to do anything to change that. The powers we seek in the Bill support and enhance our pro-business environment, supporting economic growth, prosperity and jobs across the United Kingdom, while enhancing security for our country. I commend the Bill to the House.

14:16
Edward Miliband Portrait Edward Miliband (Doncaster North) (Lab)
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I will start with the vital context to the Bill. At the heart of it is the first duty of any Government: to protect our national security, while meeting the shared desire across the House for our businesses to succeed and create wealth and jobs. The Bill must be seen against the changing geopolitical and economic landscape; the evolving nature of the threats to our national security in an age of rapid changes in technology; the lessons of covid about the critical nature of unexpected threats, including pandemics, which has thrown into sharp relief the critical need for advanced domestic capabilities in manufacturing and logistics and across supply chains; a shared sense across the House that we as a country have at times been too relaxed about some overseas interests investing in our country, with damaging national security implications; and an understanding that the existing legislation supported across parties two decades ago does not provide the basis for the kind of active industrial strategy that we need to build a safe and successful economic future. Those factors together demand legislation, and that is the context in which we view the Bill, so we support it and the fact that the Government are taking the necessary legislative steps to protect our vital national security interests. It is the right thing to do for our country.

Our main argument with the scope of the Bill is not so much about what it seeks to do on national security but what it omits on wider issues of industrial strategy. It is notable that the Bill brings us into line with other major economies on the security questions we face but fails to do so on broader issues of public interest and takeovers going beyond national security, despite the clear lessons that have been shown over the last decade. I will return to that point later in my speech, but first let me focus on the specific provisions in the Bill.

We should be candid that, in drafting the Bill, the Government face the very difficult challenge of keeping our economy open as much as possible to foreign direct investment, which is part of the lifeblood of business and jobs, and protecting our security. Navigating that challenge is hard, which is why getting the specific provisions of the Bill right is so important. This is obviously reinforced by the fact that the Bill goes significantly further in a number of respects than the 2018 White Paper envisaged—notably, the mandatory notification obligation that will apply in 17 sectors and the question of five-year retrospective application.

I want to raise a number of issues about the Bill in the interests of the constructive scrutiny that is the role of this House. These questions are about the scope of the Bill, the issue of retrospection, the capacity of the Government to make this regime work and the scrutiny of its effectiveness.

First, on the scope of the Bill, we do not take issue with the 17 key sectors identified by the Government. In quantum technologies, engineering, biology, space and a range of other emerging technologies, there are serious potential issues around national security. For example, the acquisition by a firm owned or funded by a foreign power of a company that designs graphic processes, networking routers or microchips could potentially risk national security, especially if the products are used by the UK Government. That is why the legislation is necessary.

However, as the Secretary of State acknowledged, the Bill goes well beyond those sectors. The call-in ability stretches to any entity or asset in the UK, irrespective of sector. While that was true in the old regime, this power will be viewed in the context of a much more activist, interventionist Government approach. We do not say that is wrong, or indeed out of line with some other countries, but there is a danger of a potential deterrent effect on investment.

To be fair to the Secretary of State, in his statement of policy intent accompanying the Bill he says that in those non-mandatory areas,

“transactions are only expected to be called in on an exceptional basis.”

The central question for businesses and investors in the non-mandatory sectors will be to decide whether or not to notify. The central challenge for the country is to make sure that investors are not put off from investing in the UK.

I would say to the Secretary of State that there is not yet clear, targeted guidance for market participants on how and when they should notify in those non-mandatory sectors; further detail on that will be crucial in due course. The Secretary of State will be aware of the example of the suspicious activity reports from financial institutions to the National Crime Agency where the system has, according to the Law Commission, been “swamped”. As with suspicious activity reports, there is a risk that the voluntary notification system sees businesses err on the side of over-reporting; the impact assessment already estimates that at least 1,000 notifications will be made each year. I hope that, during the passage of the Bill, Ministers can offer reassurance on that point.

Secondly, I want to raise is retrospection. The Government consulted on a six-month retrospective power to call in transactions for review, and certain respondents expressed the view that that was too long. The Government have chosen to go much further—for five-year retrospection. I appreciate that that is similar to France, Germany and Italy, and we have no inherent objection to it if the case can be made, but I have read carefully the Government’s response to the consultation, and I do say to the Secretary of State that Ministers need to do a better job of explaining the change in thinking to such a lengthy period.

In particular, I wonder whether Ministers would explain what the experience has been in those countries that have five-year retrospection—whether they have looked at its effects. As well as the possible deterrent effect on investors, there is obviously a massive challenge in unwinding a transaction that has taken place at five years’ remove. It would help if Ministers explained that, because there could be a subsequent series of transactions, so that unwinding from that would be very complex. There is also the issue that has been raised about the voiding, which is that a notifiable acquisition completed without the Secretary of State’s approval is void—not unwound by the Secretary of State, but automatically void without any decision required on his part. That is an unusual concept, and Ministers need to explain how it will work.

Thirdly—this is really important for practical purposes—I want to focus on how Government can guarantee an effective regime for the new powers. The Government have proposed a new investment security unit in BEIS. It is hard to overestimate the extent of the challenge for the new unit. It will have to respond to a large volume of mandatory, and potentially voluntary, notifications within a tight timeline set out in the Bill. The start of a new regime will always be turbulent.

The unit will have to track the development of fast-moving, highly complex technologies and monitor each of those markets, and the Secretary of State will have to take decisions on the advice of the unit, which can be challenged in court in the context of highly sensitive information and wide-ranging powers. And the unit will need to develop policy, practice and precedent to provide certainty to a wide swath of the economy. These are, as I am sure the Secretary of State knows, significant challenges, and it is no exaggeration to say that the success of the regime and the effective functioning of an important part of the economy rest on the new unit operating swiftly and effectively. If I may put it this way, the Secretary of State will be aware that his reputation and that of future Business Secretaries—not to be presumptuous —will depend on the resourcing and functioning of the unit.

I want to raise in particular the issue of small and medium-sized enterprises, which may well find the notification process most burdensome. Take the example of a small tech start-up founded by recent university graduates, who might incur much more debilitating costs in navigating the process than a large global corporation. It is essential that the Government find ways to mitigate this risk.

In any case, my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) and I are seeking from Ministers assurances that the unit will be adequately resourced, with access to the right technical capabilities; and crucially, there must be a clear flow of information and shared priorities between the unit, protecting our national security, and the Department of International Trade’s new office for investment, whose job is to get inward investment into the UK.

Kevan Jones Portrait Mr Kevan Jones
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Does my right hon. Friend agree that what is also going to be needed is some very close relationships and working with the security services, because the information that it could rely on in these cases will mostly not be accessible straightaway by this new unit?

Edward Miliband Portrait Edward Miliband
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My right hon. Friend speaks with great knowledge on this issue, and he is completely correct. Indeed, I do not want to answer for the Secretary of State, but one of the issues that was raised was the definition of national security. These things are hard to define, for a whole range of reasons that we can understand, but for the reasons that my right hon. Friend set out, it is absolutely crucial that there is a close relationship with the security services.

Iain Duncan Smith Portrait Sir Iain Duncan Smith
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Does the right hon. Member agree that the definition of national security provided in spheres such as the United States and Australia would actually help clarify for companies an idea of whether they are likely to fall within it? Without that, they are not quite sure what the judgment will be behind closed doors.

Edward Miliband Portrait Edward Miliband
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The right hon. Gentleman has taken a huge interest in these issues and, again, speaks with great expertise, and he may well be right that it is possible to do more on the definition. I am sure that is something the Secretary of State will consider. I can see there are definitely challenges, but I would agree with the right hon. Gentleman that the more guidance there can be for business about this, the better, because the more we will avoid a mountain of notifications that are not necessary and the more clarity there will be and the greater protection for our economy.

Fourthly, I want to talk about the role of this House in scrutinising the effects of this legislation. A large number of areas are left to delegated legislation in this Bill. Notably, the Bill enables Ministers to add new sectors to those subject to mandatory notification. I understand some of the reasons for this, but I do hope there can be proper scrutiny, if that is the case, in this House and, indeed, interaction with business. Given the sensitive nature of the issues involved in this Bill, I do think there needs to be a way—an annual report is envisaged, I believe, by the Secretary of State—for this House to monitor how this is working in practice.

I do not speak for it, but we have a special Committee of the House—the Intelligence and Security Committee—that can look at these issues. I would like to raise the question with the Secretary of State whether it could play a role in scrutinising the working of the regime and some of the decisions being made, because there are real restrictions on the kind of transparency there can be on these issues for the reasons raised by my right hon. Friend the Member for North Durham (Mr Jones). The ISC is in a sense purpose-built for some of these issues.

Again, this is one of a range of issues we will seek to raise during the passage of the Bill, because I think that it is really important. We see our role as a constructive Opposition to get this right. There is a shared understanding across this House that we need to update our legislation. There does need to be proper scrutiny, and I hope that there can be good scrutiny in Committee and an openness on the Government side to the points that are made across the House in relation to improving the legislation and a proper way to look at its operation, which is vital to our businesses.

Bob Seely Portrait Bob Seely
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Is the shadow Secretary of State aware that some people on this side of the House, as part of this process and as part of the scrutiny, have been calling for an annual statement on strategic trade dependency to give ourselves an overview and an understanding of the strategic direction of some of our industries, including specific examples?

Edward Miliband Portrait Edward Miliband
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It sounds like a good idea to me, and I would welcome that. Actually, that is a convenient segue to the wider points that I want to make on this Bill.

Our view is that this is only one part of the change we need, because I believe that the existing legislation has been found wanting. That legislation was passed by a Labour Government—I checked—and I think it was more or less agreed across parties; certainly, the then Opposition did not vote against it. It has been found wanting not just on national security but on wider issues such as the public interest test for takeovers on economic grounds.

I just want to raise a very specific issue, because it illustrates the point. We are in the midst of a threatened takeover in the tech sector: the Nvidia-ARM deal. We know that ARM is the crown jewel of the British tech sector. We know that Nvidia competes with companies to which ARM supplies. There is a widespread view across the tech sector and across this House that this takeover could be a risk to the future prosperity and success of the sector in the UK, but looking at the Secretary of State’s statement of intent, I do not think that it falls in this list. The list of trigger risks are: disruptive or destructive actions; espionage; or inappropriate leverage. Those are not the issues with Nvidia. The issue is our wider economic interests, which speaks to the point that the hon. Member for Isle of Wight (Bob Seely) made.

In the two months since the takeover was announced, we have heard little from Ministers. It is true that there could be a referral on competition grounds—I am sure that the Secretary of State is a bit constrained in what he can say about this, but let us hear it if there is. But we are deeply worried about the future of ARM. We are worried about the strength of the legal assurances on its headquarters and other matters. It would be good if Ministers could tell us what they think about this issue. These are deeply serious issues about our industrial strategy and our economic base, and they go beyond national security and, on my understanding, the tests that are set out in the Bill.

Andrew Griffith Portrait Andrew Griffith (Arundel and South Downs) (Con)
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The right hon. Gentleman speaks very lucidly about the deterrent effect, which he talked about earlier, as well as some of the challenges in establishing this new unit. Surely he must understand that the answer to this is to make sure that the scope of this Bill is absolutely as narrowly drawn as it can be. With respect, he has fallen into the trap of immediately hanging Christmas-tree-like baubles of employment policy and other areas of his industrial policy in what would otherwise be a very narrowly drawn and constructive Bill.

Edward Miliband Portrait Edward Miliband
- Hansard - - - Excerpts

I really appreciate the hon. Gentleman’s point. These are not Christmas tree baubles that I have suddenly raised now. In 2010, there was the issue of the Kraft takeover of Cadbury. In 2014, there was the threatened takeover by Pfizer of AstraZeneca that had deep implications for our science base. I have felt for a decade that our legislation is not fit for purpose—and I acknowledge completely that this legislation was put in place by the Labour Government. These are deeply serious questions about the future of our industrial strategy and industrial base.

I do not pretend that these issues are easy to resolve. Of course there are dangers on both sides of the ledger, and we have to strike a balance between those two dangers, but we have enough experience with Kraft-Cadbury and with Pfizer and AstraZeneca— which did not happen, but not because of any powers of Government—to be anxious about Nvidia-ARM. If, as I believe, the whole basis of this legislation is to say that other countries are taking this action when it comes to national security and so should we, the logic applies here as well. It is not straightforward, it is not simple, and I completely acknowledge that to the hon. Gentleman, but I see the case for change.

Richard Fuller Portrait Richard Fuller (North East Bedfordshire) (Con)
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The right hon. Gentleman used the phrase “I feel” and then talked about confectionary, then about how he felt about pharmaceuticals and about semiconductor chips that are used in mobile telephony. That is the problem, is it not, Mr Deputy Speaker? His feelings are not an appropriate way to interfere in the development assets of private capital. What could he provide to those businesses to protect their development from the vagaries of his feelings from time to time?

Edward Miliband Portrait Edward Miliband
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It is interesting; I believe the hon. Gentleman supports this Bill—I may be wrong—but on national security, the Government will apply some tests and we could apply some tests when it comes to our industrial base. Let me make this point to him: it is not just France, but Germany, Australia, Japan and the United States. It is all of the other major industrial economies that say, “Well, no, we do have a strategic interest in certain industries.” Of course, if we decided to go down that route, we would have a debate in this House about the specific areas in which we wanted to be able to intervene. We would have to look at exactly the criteria, and it is not just about whim, but the question is: is the status quo adequate?

I say to the hon. Gentleman that the status quo is not adequate, and we do not just have 10 years or more of experience to suggest that the status quo is not adequate; we also have a real situation now with Nvidia and ARM. If anyone in the House wants to get up and say, “We think it is fine. We think this should just go ahead. We are not concerned about what that means for our tech sector”, then fine, but everybody I speak to in the tech sector who knows about this issue, including my hon. Friend the Member for Newcastle upon Tyne Central, says that there is a real worry. Why have we not developed enough of these world-leading companies in this country? Why do we want to see ARM taken over?

Andrew Griffith Portrait Andrew Griffith
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The right hon. Gentleman is probably aware that on the journey to build the fabulous enterprise that is ARM, which is still employing thousands of British people and will continue to employ many more in the Cambridge artificial intelligence hub, that business made 22 acquisitions to equip itself to be where it is today. Had each and every one of those been subject to the jeopardy and the predations that he talks about, we may not have great British businesses like ARM in the future.

Edward Miliband Portrait Edward Miliband
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The hon. Gentleman is absolutely entitled to his view; we just have a difference of view on this. When it comes to our industrial base, I believe that the current legislation is inadequate, and there have been a series of events that illustrate that point. Indeed, I would make this point as well, which is that the Government say that the crisis of coronavirus makes parts of our corporate sector more vulnerable, and I think that only strengthens the case for action.

The overall point I would make is this: I welcome the Bill and think it is the right thing to do, but there is a broader picture here about what a modern industrial strategy looks like, and I do not think we can ignore these vital issues around our economic and industrial base.

None Portrait Several hon. Members rose—
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Edward Miliband Portrait Edward Miliband
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I have such an array of options. I think the hon. Member for Newcastle-under-Lyme (Aaron Bell) was first.

Aaron Bell Portrait Aaron Bell
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I thank the right hon. Gentleman for giving way. He is perhaps proposing an industrial strategy Bill, rather than a national security Bill, but on innovation and science and technology, does he not worry about the chilling effect of what he is proposing? Individuals who may be setting up a scientific or technology company might prefer now to do that in the United States, where they have every option of going to California and setting up the company in the first place, rather than setting up in the UK, because they might fear that he, as a potential future Secretary of State, as he indicated earlier, might prevent them from cashing in on what they have done?

Edward Miliband Portrait Edward Miliband
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The hon. Gentleman makes the point that the United States has exactly the regime that I am talking about and does indeed have those wide powers of intervention, so the notion that people are going to set up in the United States rather than Britain, when they have much stronger powers than us, does not hold water.

Tom Tugendhat Portrait Tom Tugendhat (Tonbridge and Malling) (Con)
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The right hon. Gentleman is of course right that there is a difference between the United States and the United Kingdom. One of the differences is that there are 350 million people in the United States. It is a continental power, a position that the UK sadly does not share. It does mean that our investment regime and our investment protocols have to recognise that we are having foreign direct investment of a very different nature.

I appreciate that this is a matter for debate, and I also appreciate that this is something where we will probably not agree. In fact, interestingly, the right hon. Gentleman seems to align much more closely with the former Prime Minister’s special adviser Mr Dominic Cummings than he does with me. Apart from that, it is actually a matter for a separate Bill. I may actually have some views where I sympathise more with him, but this Bill is quite clearly about national security. There are issues about how much further it should go, but what he says is not the scope of this Bill.

Edward Miliband Portrait Edward Miliband
- Hansard - - - Excerpts

I can say to the hon. Gentleman that this is the first time I have been called a Cummings-ite. I have been called many things in my time, but a Cummings-ite after Cummings is really unusual.

The final point I will make before I conclude, because many hon. and right hon. Members want to speak in this debate, is that when I listen to Government Members, I feel that they accept the logic that we have to move away from the old view—the two decades ago view best embodied perhaps by the Enterprise Act 2002—when it comes to national security. They say, “We are worried about the investment effects, but national security matters.” Of course it does, and I agree with that. But then, when it comes to our industrial base, suddenly they have a completely different view, which is, “No, no, no. We can’t go back. We can’t change our view.” I think there is a degree, dare I say it, of inconsistency on that.

Kevan Jones Portrait Mr Kevan Jones
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Is there not a direct national security issue around telecoms? When BT was privatised, the old General Post Office was advanced in both mobile technology and fibre optics. It was because the Thatcher Government decided to throw it open to the open market that the advantage we had in this country was lost. That is why we now find ourselves at mercy of Huawei and other companies.

Edward Miliband Portrait Edward Miliband
- Hansard - - - Excerpts

My right hon. Friend makes a very important point. Indeed, my hon. Friend the Member for Newcastle upon Tyne Central and I were discussing this very issue last night—that these issues can interact.

I will just say this and then I will conclude, Mr Deputy Speaker, I promise. I think the public are in a different place from some of the Government Members who have spoken. I think the public really recognise this issue. We have many great companies, but some of them have been subject to takeover, and the public do not really understand why and they do not really understand why the Government have not played more of a role. I can see some hon. Members nodding.

Updating legislation to protect national security is long overdue, and we welcome it. We will support the Government as they seek to protect national security and defend our country. We will push them to go further on industrial strategy and the takeover regime. We think this is the moment to be bold and develop the industrial strategy that 21st century Britain needs, but we want to see this Bill pass through the House. We will engage on it constructively, and I know from the Secretary of State and the way he operates that he will do the same.

Nigel Evans Portrait Mr Deputy Speaker (Mr Nigel Evans)
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As Members will notice, the call list is quite extensive and it is top heavy on the Government side, so please be mindful, particularly on the Government side, of the length of your contributions.

14:41
Iain Duncan Smith Portrait Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)
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It is always a pleasure to follow the right hon. Member for Doncaster North (Edward Miliband), not only because he followed me into leadership and discovered just exactly how pointless that really was. On that we can immediately agree, and he may well have stumbled into another point of agreement; he should know, now that he is a Cummings-ite, that I once employed him and then let him go, so maybe it is time for the right hon. Gentleman to do the same. Anyway, beyond that, I want to congratulate him, because there were things on which I did agree with him, as well as, obviously, things that would need further discussion.

I thank my right hon. Friend the Secretary of State for his deliberations on the Bill, which I will support tonight. It is long overdue. The debates around the Huawei stuff at the beginning of the year really exposed the fact that the UK had lost its way in this area in terms of threats and so on. We were behind the others—Australia, the United States; some of our big Five Eyes compatriots—but at least my right hon. Friend has grasped the nettle and brought this Bill forward, which is laudable. I also thank him for his courtesy in the course of this, in the sense that he spoke to me and, I know, to others. I particularly commend the courtesy of his Minister, the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), who is a very good friend. He went out of his way to talk this through with colleagues on both sides of the House.

This debate is in that context. This is right. I particularly like clauses 32 to 39 and onwards, which deal with penalties, fines and incarcerations, the scope of which is up to five years. These are strong recommendations—slightly stronger than I expected, to be quite frank, but they are well worth it. There are many other good things about the Bill. I will not run through them all, because the Secretary of State did that, and I want to tease out a few points that I think are relevant and need inquiry.

The Bill gives the Secretary of State great powers for industrial strategy—powers to screen these investments that we have been discussing and to address the national security risk that they involve. It also gives him the power to call in investments. We have been through those already. However, I want to pick up on the things that I think are missing from the Bill and that I hope the Secretary of State will look at again in the course of its passage.

First, we have to accept that parked across this space are two very big threats: Russia and, of course, China. In fact, I think China is now the single biggest threat and problem posed to the United Kingdom and the free world. The way it is going—its problems, its difficulties, and the way it is focusing on internal suppression, external expansion and trashing both World Trade Organisation rules and laws—means that we will have to deal with that, and I suspect that this Bill will progressively be right in the middle of that. In dealing with that, I want to raise a couple of issues. In dealing with that, I want to raise a couple of issues.

Without this definition of national security, the Government are giving a stick to beat themselves with at the moment. Having such a definition is important for two reasons. First, it helps to improve clarity—a couple of my hon. Friends wanted clarity. I have looked at some of the definitions out there, including the American definition, which may not be perfect but it does cover some of the wider areas that I will talk about soon under transnational crimes and goes into things such as threats from drug trafficking. It is important for the Government to think carefully about this because it will help to define the Bill.

Bob Seely Portrait Bob Seely
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On what the shadow Secretary of State said, there is obviously a genuine and good debate to be had on the elements of the Bill. This is not necessarily about industrial policy—I say with great respect to those on the Benches opposite—which is part and parcel of another debate. It is about the modern definition of national security and whether we see it as narrow or broad, and there is a strong argument today for having a broader definition of national security.

Iain Duncan Smith Portrait Sir Iain Duncan Smith
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I agree with my hon. Friend and I agree that this is not the Bill to discuss industrial strategy. The right hon. Member for Doncaster North made wider points which I think are worthy of discussion, but I am not sure that that discussion should take place in relation to this Bill and I want to keep this narrow.

First, in China something very special is taking place: the idea of civil-military fusion, which is now infecting every single enterprise and company in China. The Chinese military, as we have already heard, uses this concept and strategy to acquire intellectual property, technologies and research for civilian use and for military use. An external investment screening body, therefore, should be set up under this legislation, to establish and investigate cases where this may now affect UK investments. This is very important, because the rules are very strictly applied in China: you co-operate with the intelligence services or you are out of business. You may be out of not just your livelihood but your freedoms.

Nusrat Ghani Portrait Ms Ghani
- Hansard - - - Excerpts

Is it not even more dangerous in that, under the national security law in China, not only do people have to hand over data, but if asked by a foreign state they have to deny they are handing over data? If that is the case, should we not have a bigger debate about social media companies based in this country harvesting our data and our children’s data and where that data might end up down the line?

Iain Duncan Smith Portrait Sir Iain Duncan Smith
- Hansard - - - Excerpts

I of course completely agree with my hon. Friend and I was just going to come on to the data harvesting point, because it is caught in this. She is right that China’s national intelligence law requires all Chinese firms to assist with state intelligence work and to deny that if they are asked. Let us say the Secretary of State wants to investigate and says he has strong penalties for non-compliance. By law in China they are not allowed to comply with that process at all, so there is already a national conflict in this. TikTok is owned by ByteDance, which is a very dodgy company set up in China that has huge links with the Chinese Communist Government. So we need to be very careful about where we go with this because UK nationals might get caught up and get punished for what is essentially a refusal by the Chinese Government to allow others to do this.

I am also slightly concerned about some of the things that happened in the past not being caught by the Bill. The Henry Jackson Society has today announced that, having looked through the Bill, only 23 of the 117 Chinese acquisitions over the last decade would have actually been caught. The areas that are outside of this include pharmaceuticals. The Chinese takeover of Bio Products Laboratory, which has a very significant technology with regard to blood products, would not have been caught. In education, 10 universities have many thousands of obligations to Chinese investors, where they get a trade-off on technology, some linked to defence firms. That would not have been caught. Interestingly, Thames Water and Veolia Water have significant share ownership from Chinese firms, but that certainly would not have been called into question.

Richard Fuller Portrait Richard Fuller
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My right hon. Friend is referring a lot to China, and I am sure he will not be alone in that this afternoon. Is his perspective that we should be looking in the Bill to restrict all Chinese investments in the UK, or investment in particular sectors, and what is the differentiation if the origins of that is the Chinese state, in this fusion of the state with business?

Iain Duncan Smith Portrait Sir Iain Duncan Smith
- Hansard - - - Excerpts

My view is that the Bill should help us to identify exactly which of these are genuinely private and not located in China under Chinese law. That will be a big issue. I have to tell my hon. Friend that, on that question he is right, because I believe we are now facing a very significant threat from China. So we now need to use the Bill to figure out how we deal with that threat on a wider basis, not just on individual takeovers. The Government need to look at that. Huawei was a very good example of Government policy having to be reversed on that basis. It is a growing problem and he is right to raise it.

Richard Graham Portrait Richard Graham (Gloucester) (Con)
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Does my right hon. Friend agree that it is incredibly important that we recognise that the Bill is not aimed at one particular country or any particular identified sovereign threat? It is a more general Bill about the importance and value of national security assets in this country. Does he also agree that referring to China as communist—although, of course, it is ruled by the Communist party—is a misnomer in the context of a successful model of authoritarian state capitalism with which we will have to deal and the world will have to deal? We will have to separate those companies that offer attractive investment opportunities from those that are genuine threats.

Iain Duncan Smith Portrait Sir Iain Duncan Smith
- Hansard - - - Excerpts

I thank my hon. Friend for that intervention. I know he has been a big champion of that relationship. We do not agree with each other on this matter because I think that China, with its dictatorial Government, poses a very significant threat. But I did speak about other countries—I did say that Russia also poses a threat—so I recognise his defence.

I want to move on to the national interest test. This year, the Australian Government invoked the national interest in looking at tests and they used it in similar legislation to block the acquisition of a minor stake—this might deal with the issue that my hon. Friend was talking about—in AVZ Minerals by a Chinese firm. They needed to intervene because the asset, given what has happened with covid and so on, had lowered in value unusually and unnecessarily, and that had opened it up to a takeover which they felt would have been very unhelpful. The other point I want to raise in passing is that we need to look at things like the Confucius Institute, which is here investing in universities with offers but is actually acting on behalf of the Chinese Government to follow lots of Chinese students around.

Other Members wish to speak, so I will finish my remarks. My main point is that without that national security test the Bill will lack clarity and definition, and fail to understand sometimes where it is actually looking. It could be open to pressures to turn this more into an industrial policy statement, rather than a national security issue.

The Bill also falls short of similar legislation by Five Eyes partners. My right hon. Friend the Secretary of State is absolutely right to say that they have looked across the scope of what others have done, but other Five Eyes partners have gone further on this. They are competitor countries to us, so it is not as though they have any kind of dictatorial regimes. The Committee on Foreign Investment in the United States and the Australian Foreign Investment Review Board are external bodies.

This is the point that I wanted to make to my right hon. Friend. I just wonder whether he might want to reflect on the nature of the pressure on somebody such as him, who, under the Bill, will have to sum up and make final decisions on the advice peculiarly to him. The other two organisations, in Australia and in the United States, have the ability to say that everybody on the panel makes a group decision on the evidence. I know he will argue that that process takes longer—yes, he may be right about that—but I feel that the pressure is on him.

I was in government for six years and I know what Downing Street does. It gives you a call and says, “I don’t think you have to go very far with this sort of stuff, do you? After all, this is worth a lot of money to us. Come on.” Others will say that and the Secretary of State will be sitting there thinking, “This is a balanced judgment. Where do I go on this?” I just wonder whether that pressure is fair on the Secretary of State. He would be questioned later on why certain decisions were made. If I was the Secretary of State, I would want to release myself from that situation. I would not want to be dragged to the courts to be accused of being biased in that decision and making a decision that was not agreeable. So I would look for more external bodies to be able to make that judgment.

I also say to the Government that human rights are vital nowadays. We cannot walk away from it; it is part of what makes us. The reality for us is that far too many companies have allowed themselves to quietly get sucked into the use of slave labour and other labour. We know about that, in Xinjiang province and in other areas too. My right hon. Friend does need to think about that very carefully. I do not want to make the Bill a Christmas tree, but elements of that are involved.

I congratulate the Government on bringing forward the Bill. It is the right legislation to bring forward. It is overdue, no question. However, the balance still needs to be widened somewhat. I hope that in the course of the Committee and Report stages the Secretary of State will accept that good amendments may come forward from brilliant people—not just me—who may well be able to help him in his adventures.

14:55
Stewart Hosie Portrait Stewart Hosie (Dundee East) (SNP)
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I start with my ISC hat on because it was the ISC that first investigated UK Government powers and processes for scrutinising foreign investment in sensitive areas of UK industry, found them lacking and called for more powers. In its 2013 report, “Foreign involvement in the critical national infrastructure”, the Committee looked into the issue of

“foreign investment in the Critical National Infrastructure (CNI)”

and concluded:

“The difficulty of balancing economic competitiveness and national security seems to have resulted in stalemate.”

That is not a criticism and it is not meant to be contentious. This issue has arisen over the past few years and most, if not all, advanced economies are now grappling with it. I therefore welcome the Bill, in principle, or certainly a measure like it.

While on the subject of the ISC, I offer the apologies of its Chair, the right hon. Member for New Forest East (Dr Lewis), who is self-isolating having been contacted by the English version of Trace and Protect, and is sadly missing this debate.

The Bill is designed to bring additional scrutiny of foreign investment that may have an impact on national security. I say from the outset that not only is there nothing wrong with having a national security eye on investments in critical areas—it is in fact absolutely vital.

Currently, as we have heard, the ability of the Government to scrutinise investments on national security grounds contained within part 3 of the Enterprise Act—that is, the mergers provisions—is rather limited. In practice, it means that the UK Government are unable to scrutinise on the grounds of national security without the investment first meeting competition concerns or, in very limited circumstances, a public interest test. We know this concern and similar concerns are shared globally. A number of other countries have been tightening up their investment security regimes in response to changing national security-related threats, enabling technology, the loss of intellectual property and the increasing crossover between sectors, which I may touch on later. The Committee on Foreign Investment in the United States is largely seen as setting the standard. We have also seen tightening in Japan, Canada, Sweden, Germany and France at least, with the Japanese regime extraordinarily strict, in some cases limiting ownership to barely 1% of active management or, more accurately, to barely 1% of a company in certain circumstances.

In the UK Government’s proposals, if both the trigger and the threshold are met, the individual investment can be called in by the Secretary of State for approval. The powers can be retrospective; it can be called in after it has occurred. However, the time to conduct the national security assessment—30 days, with potentially an extra 45—might be deemed to be a little short, given how shrewd, or clever, certain institutions, organisations and individuals are at hiding genuine beneficial ownership. One thinks how long it took to find where beneficial ownership existed for some entities in the UK. Were it not for the Panama papers, we would probably still never know. I therefore question whether that maximum of 75 days is actually sufficient.

The Bill adds a mandatory notification scheme whereby investment interests in certain sectors and asset types—which I do not demur with—must be pre-emptively or retrospectively declared, but it removes notification of call-ins from the competition authority to a direct serve from the involved parties. In the interests of transparency, I seek clarity from the Government on the reasons why notification via the CMA is being removed.

The Bill also introduces new powers to increase screening in respect of health and preventing hostile acquisition through strategic buying of health supplies, for example. I welcome that, but the scope of activities that might be caught is very wide. There may be a good reason for that, but it is worth exploring. The statement of policy intent describes the core areas as including things such as advanced technology, which is perfectly reasonable, but it also contains a much wider definition of national infrastructure. The impact assessment for the Bill estimates that the new regime would result in between 1,000 and 1,830 transactions being notified per year. That is very specific and it is also an eye-watering number, given that only 12 transactions were reviewed on national security grounds since the current regime was introduced 17 years ago. The necessary resources, as the right hon. Member for Doncaster North (Edward Miliband) said, and access to intelligence agency assessments, as the right hon. Member for North Durham (Mr Jones) said, must be available in the proper manner in order to carry out the work.

Kevan Jones Portrait Mr Kevan Jones
- Hansard - - - Excerpts

Does the hon. Gentleman share my concern that the Bill sets out a voluntary reporting and a notification system, but it is not clear how the security services enact any concerns they may come across into this system? I shall be making the point that I do not think this should sit within the Department for Business, Energy and Industrial Strategy. Does he have concerns on that issue?

Stewart Hosie Portrait Stewart Hosie
- Hansard - - - Excerpts

I absolutely agree that these services should not sit within another Department. I am not sure whether it would be appropriate for them to be able to request call-ins directly, not least because where the information came from would then become abundantly clear, but there must be a mechanism whereby information that an agency comes across can be fed in to the proper people in order for this call-in to happen.

It is also self-evident that Members considering this legislation need to have far more information to understand the reasons for the Bill and the changing nature of the threat it is designed to counter. We also need carefully to assess the impact the Bill will have on sectors and infrastructure, not just in the UK as a whole, but in the devolved Administrations and in the English regions, in the light of the future economic opportunities they see and the plans they are already putting in place. It is far too soon to seek assurances, but I hope the Minister will wish to take a little time just to convince himself that there are no unintended consequences, either for the UK or for the Scottish Government’s inward investment plans, when Government agencies of all sorts are out actively seeking investment in some of the areas that may be deemed to be critical national infrastructure. As an example, let me cite the whole of Scotland’s tech sector, but that of Dundee in particular. It now has a digital ecosystem that spreads out across academia and through gaming, software design and development, and data centres. Many of the component parts of that have cross-sectoral application, some of which, depending on who owns them and who wishes to use them, could certainly raise a national security concern, depending on how bits of tech are deployed. How do we ensure collectively that the Bill does not impede growth or investment in such areas?

I also briefly wish to raise, at this early stage, some issues about implementation. The Bill is set to radically overhaul the UK’s approach to foreign investment, at a time of significant economic uncertainty. On leaving the EU, the UK Government cannot afford to get their global Britain approach wrong and suffer what has been described as the “chilling effect” on investment if this appears heavy-handed. So let me turn briefly to some of the possible implications and costs of these measures.

First, the impact assessment suggests a net cost to business of £43 million. Can the Government confirm whether that is the direct cost, or whether the figure includes the cost of lost investment? I suspect that it is the former because the latter is incalculable, but if the Government get this wrong, the true figure in lost investment, and the concomitant loss of output and productivity, could be substantial.

Secondly, the impact assessment suggests that microbusinesses are in scope. As the Secretary of State will know, some of those businesses develop high-tech, cutting-edge intellectual property, and their business models include selling tranches of shares to raise cash throughout the development and life of the business. What assessment has been made of how these measures might stifle that investment and growth?

The third point is specifically on universities and academia. Throughout the whole UK, universities all have incubators, start-ups, spin-outs and commercialisable research. What assessment has been made of their ability to continue to thrive if the measures in the Bill inhibit investment by proposed sales being called in—because word will get out—or even investment being put off because of the potential additional risk of those sales being called in? We do not yet quite know what the impact on academia would be. There are some wider concerns about the possible impact on essential investment in energy, particularly renewable energy, and the possibility of retaliatory action against UK investors overseas, but I think they can be explored later in the Bill’s progress.

Let me return to one particular issue. I said earlier that the impact assessment suggested notifications of up to 1,800 transactions a year. In clause 7(4)(c), the Bill describes a qualifying asset as

“ideas, information or techniques which have industrial, commercial or other economic value.”

I know that this is not the Government’s intention, but wielding a hammer or welding a pipe are techniques that have economic value, and my concern is that companies erring on the side of caution will refer or notify themselves when they need not.

I have three brief questions that were sent to me by the Photonics Leadership Group. I intend to ask these questions now because they will be typical of what many industrial and new tech sectors are asking. First, there will be a huge number of research groups and businesses for which this Bill is relevant. Has the Department for Business, Energy and Industrial Strategy considered the number involved, and is it ready for the volume of submissions? Secondly, the information that has been sent out to relevant groups includes a flow chart, which suggests that businesses currently engaged in relevant business have from 12 November until this Bill is passed to register. This would suggest that the process is live already, but there appears not to be a template to allow businesses to contact BEIS and ask the question. Thirdly, since many in the sector cannot rely on foreign investment, how are the Government planning to replace this should there be the chill on investment that some fear?

I am pleased the Secretary of State said that the assessments would be based on information gathered from around and throughout Government, because I think we need to make our own geopolitical assessments. But the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith) quoted the Henry Jackson Society. It would be unfortunate if we found that our assessments of which investments may or may not be aligned were being driven, pushed or prodded by someone else’s geopolitical assessment. I say gently to the Secretary of State that we need to guard against that to ensure that national security is protected, but that we do not have the chill on investment that is possible if we get it wrong.

15:09
Greg Clark Portrait Greg Clark (Tunbridge Wells) (Con)
- Hansard - - - Excerpts

It is a pleasure to follow the thoughtful speech of the hon. Member for Dundee East (Stewart Hosie). May I join my right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith) in paying tribute to the Front-Bench team for their courtesy in being open about the development of the Bill and for their communication with all parties in the House?

This is an important Bill at an important time. In recent years, we have seen a tendency on the part of some countries to move towards national measures that seek to protect their domestic economics from the open conditions of international trade, not only in goods and services but in ownership and intellectual property, and we of all nations should be a voice against that. Few nations have prospered through pursuing a policy of national self-sufficiency. Over time, they have become deprived of innovation, competition and investment, although the exposure and experience of international trade and investment can be disruptive and uncomfortable. In the end, workers become less productive than in other countries, consumers pay more and those countries use technology that is behind what other more open economies allow. In other words, they become less prosperous.

The importance of this Bill pivots on its title. Is it exclusively about national security, or is “and Investment” a doorway to a more restrictive view of overseas investment more generally? I am pleased that my right hon. Friend the Secretary of State made it absolutely clear that the Government have decided that it is the former, rather than the latter, although there are some dangers that I want to touch on.

Do we need a statutory framework to ensure our national security when it comes to commercial investments? Yes, of course we do. There are commercial activities conducted in this country that are essential to our national security—defence contractors are an obvious example. Public policy has always recognised that, whether through the use of export controls on their products or, in the case of ownership, through golden shares and the intervention powers of the Enterprise Act 2002 for national security, which have been referred to.

Does the framework need to be kept up to date? Yes, of course it does. As the Secretary of State made clear, technologies that are now pivotal to our national security had not been dreamed of 18 years ago when the Enterprise Act passed through this House. The nature of some of those technologies is such that their financial value may not be reflected in the ownership of the company concerned, so they may be pivotal but not trigger the turnover test. The turnover and the value of the transaction may not be a dependable guide to their importance to national security. The control of those technologies may not be confined any more to takeover bids for public companies; it may include ownership outside the stock market of intellectual property or other assets.

Most nations on earth have a framework for overseeing the national security consequences of investments. It is important that we have one and that ours is up to date. The Government are right not to expand the Bill beyond national security or to introduce, as the right hon. Member for Doncaster North (Edward Miliband) said, a wider public interest or industrial strategy test. I say that as the author of our current industrial strategy, of which an essential pillar is our business environment. That strategy says that we need to continue to be

“an open, liberal free-trading economy in which new businesses can be created easily”

and

“existing businesses can attract investment”.

It is obvious that if a British company has succeeded and has made an international impact, we want it to continue to succeed and prosper in this country, and to do so with its headquarters and operations here. That goes without saying. The most important thing is that the company is founded and prospers in the UK in the first place, as my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) said. Especially in fields such as the tech sector, if we tell the founders of new businesses that, should they succeed, they will be excluded from the possibility that they can receive overseas investment, or at the very least that it will be heavily questioned if they should cede control of the business, and that the more their business succeeds, the more draconian the restrictions are likely to be—although Silicon Valley continues to be a major source of international capital investment—the consequence, no doubt unintended, may be that those firms will not be founded here in the first place but will go to places where there is no risk of there being stranded assets.

Bob Seely Portrait Bob Seely
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My right hon. Friend is making an important point, and there is clearly friction on this side over what we see as the crux, but does he accept that the United States and Australia—two free-market nations—will have significantly tighter restrictions after this Bill than we will, and does that concern him?

Greg Clark Portrait Greg Clark
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Of course we should look at the example of other countries; I am sure we will do so during the course of the Bill. However, I would say to my hon. Friend that those two countries are very different in their markets and the size of their economies. The pool of capital that is available to start-up companies in the US is vastly greater than it is in the UK at the moment, although I hope that will change, for reasons that I will go on to discuss. Australia, conversely, is a much smaller economy, which does not have the network of policy regulatory innovation that we have.

We have been a leader; that is our international reputation, and one reason that transactions are conducted in this country is the confidence in our rule of law. We should emphasise and champion that, rather than feeling compelled to follow what other countries are doing in their entirety. Our policy—our industrial strategy—must be to make Britain an even more attractive place for innovative companies to be founded and to stay—not because they are compelled to do so, but because the environment that we provide, in terms of scientific research, educated and trained people, the availability of capital at every stage in their development and the public policy environment make it an attractive place for them to want to be.

Neither must our regime establish, in my view, a list of countries that cannot invest at all in the UK. The test must genuinely be about national security. That is very appropriate. China has been mentioned already in these discussions, and of course it is right and proper that the national security concerns that the House has about China should be reflected through this regime, and these powers are important for that. However, when I was sitting in my right hon. Friend the Secretary of State’s place, I fought hard to save, for example, British Steel in Scunthorpe, Skinningrove and Teesside. The Chinese steelmaker that bought the company, Jingye Group, is essential to the employment of many tens of thousands of people across the north and the east of England, and more in the supply chain. From my recollection, there was no intellectual property vulnerability in terms of its operations. Indeed, the retention of that substantial steelmaking capacity has enhanced our economic resilience, whereas losing it would have seen us relying on imports. I might say the same for Geely, the owner of the London Electric Vehicle Company, which my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), being a west midlands MP, will be familiar with, and which gives valuable jobs to many people.

Richard Graham Portrait Richard Graham
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My right hon. Friend is making a very good case for why it is important to look at each investment in its own right. Geely, which bought the London Taxi Company, produced electric vehicles and now exports them to the Netherlands and France while continuing to manufacture in Coventry, is a good example of why that is so important. Does he agree that it is simply not good enough for this country to say, “China is Communist and we will not accept Communist investment, and therefore we will not accept Chinese investment.”? We must be a great deal more sophisticated and open than that.

Greg Clark Portrait Greg Clark
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I would say to my hon. Friend that the Bill’s focus on national security is absolutely right. We should have a beady eye on national security, with substantial powers, as my right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith) said, to enforce that. I think the Bill has it right in its focus on national security.

The Committee that examines the Bill will need to consider in detail some of the provisions of the Bill as it is presented on Second Reading. It is essential to provide investors and UK firms with a sense of predictability and confidence, but that can be undermined if the law has administrative consequences that are unintended and not provided for. For example, there are strong reasons to think that there may be a deluge of notifications, as the hon. Member for Dundee East said, when the new unit in the Department is set up, and it must be geared up to handle that right from the outset.

The prospect of five years’ imprisonment for directors and fines of 5% of turnover, as my right hon. Friend the Secretary of State commends, for failure to notify under a mandatory regime within sectors defined as broadly as communications and transport is, in my view, likely to lead to many small transactions being notified under the voluntary regime for peace of mind regarding those very strong sanctions against an inadvertent breach. It is an enormous challenge for the Department to set up a new unit, especially since the current regime—or the previous one, since the powers are live—has dealt with a very small number of transactions each year.

As Secretary of State, I reduced the turnover threshold for review from £70 million to £1 million only two years ago. This Bill contains no de minimis threshold, and I will be interested to see during the passage of the Bill evidence of why a zero de minimis threshold is necessary, especially when the definition of technology assets extends to “ideas, information or techniques”, which is very broad. This could result in a very large number of very small transactions being notified defensively.

Even if businesses are confident that they will not be covered by the mandatory notification requirement, the advantages of voluntary notification and clearance, with its exemption from the five-year look-back, may prove to be very attractive and very important in baking in the approval of a transaction against reversal more than five years in the future. It is clearly the ambition of the right hon. Member for Doncaster North to add further public interest tests. As we approach the general election, it may well be attractive, as a defence against the action of future Governments, for companies to notify even when they do not have to. It is very important that the Department is geared up for that.

Much of the Science and Technology Committee’s work in recent months has been concerned with the nation’s response to the coronavirus. If we can learn one lesson from that—for example, from problems with the test and trace system—it is that, to have public confidence, we need to properly anticipate demand and to set up to meet it from the outset. If that demand is not supplied, public confidence, which is crucial for investment, will be undermined.

John Hayes Portrait Sir John Hayes (South Holland and The Deepings) (Con)
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Does not the coronavirus provide us with another lesson, which is that Government historically have not been terribly good at assessing risk and modelling the response to it? I say that as a former Minister, like my right hon. Friend. I was always surprised, in all the Departments I served in, at how little time is spent on modelling outcomes of the kind we are now enduring.

Greg Clark Portrait Greg Clark
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My right hon. Friend is right. To look ahead, we need to develop the capabilities to do that, and for a unit in the Department that previously did not have that responsibility—it was with the CMA, advised by others—that is a steep learning curve.

The foundational feature of the UK’s commercial reputation in the world is a place where people and businesses all around the world can be confident in investing. That derives in no small part from a public policy regime that is rational, stable and rigorously and efficiently administered. We should continue to aspire to take a global position of leadership in this area, so I welcome the focus of the Bill and its ambition to bring our arrangements up to date. I look forward to helping ensure that we can be proud of the Bill and see it as a contribution to our continued reputation for having the highest standards of corporate government and investment security in the world.

15:23
Darren Jones Portrait Darren Jones (Bristol North West) (Lab)
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Before I begin my remarks, I should declare my interests as chair of the all-party parliamentary group on technology and national security and the parliamentary internet, communications and technology forum APPG, whose members will no doubt have interest in the Bill; as the chair of a global network of legislators interested in artificial intelligence regulation called the Institute of Artificial Intelligence; and lastly, in my capacity as Chair of the Business, Energy and Industrial Strategy Committee, I have had discussions with the management of ARM, its founder Hermann Hauser and the CEO of Nvidia about the proposed takeover.

I support the Bill and thank the Secretary of State for briefing me on its contents last week. The ability to scrutinise foreign investment and to intervene when there are national security interests is not only a critical function of the state but an increasingly important one, given the impact of technology and data on every part of our economy and our infrastructure, and the use of that avenue to cause harm to Britain’s interests. It is on that basis that we should have a robust scrutiny function, but it should also be finely balanced with the transparent, clear and pro-investment framework brought forward under this Bill. I agree with other colleagues around the House that, by international standards, Britain has been a bit of a laggard in recent years in bringing forward a robust foreign investment regime, and that is why we support the Bill, but I have a few questions today, which I hope the Minister might try to answer in summing up.

First, on the definition of sectors, the 17 sectors identified include some dual-use functions such as quantum computing, which at this point in its development seems obvious and indeed is in line with the recommendations of the Science and Technology Committee inquiry into quantum computing in the last Parliament, when I was a member of that Committee. However, as has been noted, other sectors are identified merely as “artificial intelligence” or “energy”. Artificial intelligence, for example, is a general purpose technology that will increasingly apply to every aspect of our economy, so how we ensure robust and clear definitions will clearly be important.

It has been noted that there is a risk under the Bill of over-reporting as an insurance policy. I wonder whether lessons could be learned from other regulators—for example, by introducing regulatory sandboxes within the units in the Department where interested individuals might be able to come to set forward in advance the transaction and get some initial advice on whether it falls within the definitions. If it does not, I think there will be a risk of over-reporting, but also of court cases that dispute the definitions, which, in their own right, can be fairly limited in statutory instruments and will probably not apply to every circumstance. I reaffirm the comment from the Opposition Front Bench on engaging with Parliament on the sector definitions under the statutory instruments—and not just with Parliament as a whole but with the relevant Select Committees, including my own. I also note the interest of my hon. and right hon. Friends from the Science and Technology Committee, the Foreign Affairs Committee and the Defence Committee in this matter.

Secondly, on the definition of national security, there has been some debate in advance of the publication of the Bill on whether the Government were intending to go beyond national security and to look at broader economic or jobs-related issues. As my right hon. Friend the Member for Doncaster North (Edward Miliband), the shadow Business Secretary, said from the Dispatch Box, we think that there is some legitimacy to Ministers having a right to intervene when, for example, a major employer or a sector that is strategically crucial to the British economy is under threat from a legitimate overseas acquisition that could have an impact on British jobs or British industrial capacity. I welcome the comment that this is a broader industrial strategy conversation and note the Department’s intention to rewrite that, as previously advised before Christmas, although it will presumably now take longer. I look forward to that broader debate, but I agree with colleagues on a cross-party basis that at least some legal structure around the definition of national security would be helpful, for reasons I will come on to later.

Thirdly, this is not just about mergers and acquisitions; as the Government’s Project Defend assessment has shown, there are very long supply chains relating to critical national infrastructure, through which components are sourced from companies in jurisdictions about which Ministers might legitimately have national security concerns. I would be interested to hear whether Ministers plan to expand the scope of the Bill or bring forward other legislation in future to deal with supply chain intervention, in addition to or alongside merger and acquisition issues.

I also note that while clause 7 of the Bill covers all the corporate vehicles such as limited liability partnerships, trusts and limited companies, it excludes individuals. This is probably very limited, because individuals would not want to take on the liabilities of buying big companies, but I am sure there are potential cases where individuals will buy intellectual property or assets in their own individual right, whether it is a licence to intellectual property or actual property, as my right hon. Friend the Member for North Durham (Mr Jones) mentioned, and they would fall out of the scope of this Bill. I would be interested in the Minister’s view on that.

Fourthly, the application of the Bill applies from the date of presentation, not from the date the Bill becomes law. It would be useful, given that this is now the regime in the UK, for the Department to set out what current takeovers will be subject to it. Colleagues have mentioned the ARM-Nvidia takeover, which of course is important to the British economy. I understand from press reports that the Department has not felt able to confirm whether that will be subject to this legislation, but I think it would be in Ministers’ interests to be quite clear about that.

Equally, I would stress again the comments from the Opposition Dispatch Box about the length of retrospectivity. Five years seems a very long time, and I would be interested to understand why a period of five years has been adopted by the Government. One of the attractive natures of the British economy is our policy stability and the way in which the rule of law functions, and I share the concern that five years is a long time. There could be a change of Government, a change of Ministers, a change in leadership in the unit in the Department or a change in the view on national security that could start to unwind a transaction many years after it had gone through. Ministers need to consider that carefully.



Fifthly, we are still waiting for confirmation of the Government’s intentions for our post-Brexit competition and state aid policy regime. Ministers have been quick to table statutory instruments to say that the European regime will not apply from 1 January but have not yet set out what will. The Bill is implicated in that process. It is the start of a post-Brexit state aid and competition policy. If the Minister feels able to give us a bit of a glimmer in his closing remarks about when the details of our post-Brexit competition and state aid policy might be published, I would be grateful.

Lastly, I am not entirely clear what the assessment process is under the Bill. In previous examples, such as the hostile takeover of GKN by Melrose, in which I declare a constituency interest, the national security assessments were undertaken by the Secretary of State for Defence and, perhaps for fair reasons, were done without much oversight or transparency. Given that all those sectors will now be subject to national security assessments, will it be the Ministry of Defence, the Department for Business, Energy and Industrial Strategy, the intelligence services or another body that undertakes them? It would be useful to have some transparency about who is making the assessment and how the Secretary of State will ultimately balance very difficult decisions.

In sum, I will support the progress of the Bill. I share some concerns about the speed and why it has been brought forward so quickly, and I reiterate my point about the statutory instruments, therefore, being an important part of parliamentary scrutiny when they are introduced. I hope that Ministers will engage fully in the consultation process with stakeholders to ensure that the new framework is not only fit for purpose but gets the crucial balance right between national security concerns and maintaining Britain’s leadership as a pro-investment economy that fits with our broader regulatory position post Brexit.

15:31
Tom Tugendhat Portrait Tom Tugendhat (Tonbridge and Malling) (Con)
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I start, as many other hon. Members rightly have, by paying tribute to the ministerial team and the team of civil servants for their consultation on the Bill with not just Members of this House, but the wider business community. It is a hugely important Bill. When, no doubt, some of it becomes an Act, we will all be living with the consequences, which are difficult to imagine in a fast-changing world in which technology is evolving.

I welcome enormously not just the consultation that the Secretary of State has already contributed to, and which he has welcomed, but that which he has also invited, because that is a really important part of the next few weeks and months. It shows wisdom and extreme judgment to make sure that the Bill survives contact with the enemy.

I welcome the fact that the Bill has been crafted to recognise the competition that we are seeing increasingly between states. The Minister in his place, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), as a former member of the Foreign Affairs Committee, knows only too well what we are seeing around the world and has regularly spoken with me about the various natures of competition that he, too, envisions. I welcome that he sees the Bill as being about the UK’s response and ensuring the prosperity and happiness of the British people around the world.

Power is not just about state power; it is also about the economics of strategic challenge through business. As the sadly likely recession following the covid pandemic rises, the reality is that state capitalism will pose a greater problem. As the wells of private sector investment dry up, companies able to draw on national reserves may do better.

Other countries have already seen that and reacted early. In March, in response to similar pressures that the Secretary of State responded to earlier, the Australian foreign investment review board reduced the threshold to zero for calling in acquisitions. In August, France reduced the shareholding required to trigger an inquiry from 25% to 10% for similar reasons. The United States has not followed suit on that basis, but the CFIUS regime, as we all know, is one of the most mature in the world. The Committee on Foreign Investment in the United States has, in some ways, led the way, so the need to adapt to changing circumstances is not so immediate.

For our Government to introduce the Bill now is a welcome demonstration that the UK sees the changing circumstances and recognises that state-owned enterprises pose a different threat from five, 10 or 20 years ago. The Bill also recognises, in the 17 sectors that other hon. Members have spoken about, the rapid pace of technological change that we are seeing and the urgency of making sure that we realise what we are looking at. As assets are being developed that are essential to our continued prosperity and security, they now emerge much more quickly than we ever imagined.

Indeed, I would argue that two of the biggest strategic losses for the United Kingdom in recent years were the 2014 sale of DeepMind to Google and the 2016 sale of ARM to SoftBank, but they have been completed. What those two firms have both enabled, however, is quite phenomenal. Deep Mind, which one can pretty safely say is the world’s premier AI company, is an extraordinary asset. When it started in 2010, it was seen as a sideline, but today in 2020 it is seen very much as the main event.

The UK is not directly comparable with some of the other countries that we have spoken about. Some people have mentioned France, Germany or Australia, but the UK has about double the foreign direct investment of France or Germany, and our international co-operation—our links abroad—are quite different.

Here I declare that my entry in the Register of Members’ Financial Interests shows that I, too, invest in businesses across the UK, and the reason why is that I think, as a Conservative, that if someone believes in business, they should put their money where their mouth is. I am proud to support some young people who have come up with some ideas, some of which may succeed and one of which may even make me as rich as the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stratford-on-Avon—[Laughter.]

This Bill looks at the challenge that such businesses are starting up with, and here I pay tribute to my constituency neighbour and right hon. Friend the Member for Tunbridge Wells (Greg Clark) who spoke about the de minimis clause—the minimum amount that should be called in. Of course, it is absolutely right that companies can evolve. Technology can adapt very quickly, and ideas that one thought were insignificant can become very significant.

However, the reality is that that rarely happens overnight and, with the nature of British capitalism being as it is, the value of a company will be appreciated in the market a long time before the technology is appreciated by the Government. Therefore, although I understand why the minimum number is set at zero, there is an argument—I would welcome the Government’s thoughts on this—for setting it even as low as £1 million, which is actually a very small sum these days for many of the venture capital enterprises in our country.

I welcome the fact that this Bill makes the important distinction between national interest and national security. I see the hon. Member for Aberavon (Stephen Kinnock) in his place, and I know well that if this Bill were about national interest, he would be making one of the strong speeches about the steel industry that I have heard him make over the past five years, but this Bill is not about that. This Bill is fundamentally about the threats to the UK people and to our national security, not just our immediate interests.

It is important to make that distinction in the long term because, of course, to change that would be to fundamentally open a different question. It may be one that Opposition Members or, indeed, some Government Members, would wish to engage with, but it would be a big change to the investment environment of the United Kingdom. It would change our employment structures considerably and challenge many of the services that are built on the UK economy, from law and accountancy to finance and investment. It is a rather larger question, and I am glad that it is not included in the scope of this Bill.

The Government recognise that more consideration is needed, and they could do a little more, if I may say so, just to advertise the consideration that they are looking for in the 17 sectors. Having spoken to many lawyers in recent days—a confusion of lawyers, in fact—and to several businesses, it is quite clear that, although the consultation is welcomed, not all are as aware of what is required as would be beneficial.

If I may, I am going to start claiming some credit for some of this, because the Minister will know that the Foreign Affairs Committee has long pressed for tougher measures to protect our vital national security interests against growing threats. In our May 2018 report entitled “Moscow’s Gold”, we highlighted the corrupt investments associated with the Kremlin, but not unique to that Mafia-style regime, that have direct implications for the UK’s national security. The sanctions regime we rejected is a welcome addition to the state’s arsenal against those who seek to damage our national security. In 2019, we went further: in our report, “A cautious embrace: defending democracy in an age of autocracies”, we recommended that the Government establish a power to block listings on the UK markets on national security grounds as a matter of urgency. The Government have now announced their intention to do so to stop companies with questionable ownership from taking advantage of UK listings.

The fact that the Bill builds on both those reports is enormously welcome. They also led us to ask some pretty important questions about how the Government could achieve their aim, because there are various elements in which those questions exposed gaps or failures in the British structure that would allow the Government to be properly informed of where to get the information. That is why I will ask a few initial questions, before the Foreign Affairs Committee spends a few weeks hearing evidence and listening to commentators on the Bill and investors, practitioners and lawyers about its application. Indeed, we may even suggest amendments.

To turn to my first question, the Government have been clear that state-owned entities and sovereign wealth funds are not inherently more likely to pose a national security risk, especially if they have operational independence in economic investment strategies. This is of course important for many countries around the world, including Norway and many others, who operate very large sovereign wealth or national pension programmes. However, regimes such as that of the Chinese Communist party use opaque ownership structures to hide state interference. Will the Minister tell us what structures will be created and legal powers given to ensure that we can draw on the expertise and knowledge of those Departments and agencies across Government, including the Foreign, Commonwealth and Development Office, to shape decisions accurately? It is clear to all of us that UK missions around the world will need to be actively involved to ensure that the information required to take decisions is provided in a timely manner.

My second question is about the fact that this Bill provides gateways for disclosure of information to my right hon. Friend the Secretary of State and disclosure by him to a public or overseas authority. What we really need to know as well is not just how much he is able to exchange, but how much he is able to draw on other intelligence agencies and other partners and particularly, perhaps, on those in democratic and law-abiding countries, including the European Union, as we will no longer be part of the investment screening regulation and we have never been part of the different agencies or regulators in the United States, Australia and many other countries. Who are the likely partners with whom he is intending to share and how will we support each other?

Thirdly, the best estimate of the impact assessment suggests that the new notification regime will cost about £49 million a year and about £425 million over 10 years. Those numbers are, of course, uncertain. The new regime is expected to result in up to 1,800 notifications a year, which is a vast increase compared with the approximately 60 notifications a year that the Competition and Markets Authority currently deals with. The Bill introduces an investment security unit that will be staffed by 100 officials. May I seek assurance that this unit will have the capacity and necessary competencies to effectively screen this high volume of transactions and to expand if notifications are more than expected? The Minister will have heard from many people that there is the possibility that voluntary notification will result in a much higher level of disclosure than anyone is currently expecting, and therefore, the 100 officials could rapidly become overwhelmed and the timelines that he has very sensibly set out, of 30 and 45 days, could become impossible.

Kevan Jones Portrait Mr Kevan Jones
- Hansard - - - Excerpts

Does the hon. Gentleman agree that this unit or some of the individuals in it will need a high classification of security clearance? Without that, they will not be able to make informed judgments on some of these applications.

Tom Tugendhat Portrait Tom Tugendhat
- Hansard - - - Excerpts

I agree entirely with the right hon. Member that what we are looking at here is a multi-agency taskforce, not a BEIS departmental body. The reason, of course, why it has to be a multi-agency taskforce is that, as he says quite correctly, the need to have access to high-level intelligence is clear, but so is the need to be able to understand the changing nature of the technology and, indeed, the changing nature of some of the individuals and groups that may be affected. It is, after all, entirely possible that a company owned one day by one individual abroad is likely to be, or is in the direction of being, controlled by a rather less salubrious individual only a few days later, and the need for such multi-agency taskforce access is clear.

Insufficient resources would of course cost delays and have a serious impact on the UK economy. Indeed, it could lead to the various obstacles that I know the Minister has been incredibly careful about avoiding, which is why he has made the scope of the Bill so narrow. I am sure that he will be able to help me in assuring me that this group will have the resources it needs. Fourthly, given the sensitivity of the cases—my mistake: I was going to repeat exactly what the right hon. Member for North Durham (Mr Jones) said, so I shall skip it. I was going to ask for exactly the same.

As this Bill makes its way through the House, the Foreign Affairs Committee will be following it closely. As I have said, we will be conducting various hearings with various people along the way in the next few weeks, and we will, I hope, be making welcome suggestions that the Minister will be able to consider. Properly implemented and with due consultation and consideration, this new investment regime should provide certainty and transparency for UK businesses and investors in this country. It is an important and valuable change to our laws to ensure that our businesses are able to prosper in the safe knowledge that the information they develop and the innovations they provide allow the happiness and prosperity of these people, our friends and our allies.

15:46
Mark Logan Portrait Mark Logan (Bolton North East) (Con)
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It is a great privilege to follow my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat). I especially agree with him that the Minister and his team have been exceptionally good at communicating this over the past weeks, so long may that continue.

With the right clarifications, I stand to support the Second Reading of the Bill. It is incumbent on all of us here to think in terms of the contribution we can make to our collective livelihoods—a contribution of security, a contribution of transparency and a contribution of prosperity. On prosperity, the Minister and other colleagues have been working hard to assuage some of my concerns. I gravitate towards this side of the House because I believe in opportunity—the opportunity that overseas investors see in the UK to grow market share, reach new customers and develop cutting-edge technology, thanks to access to the brightest brains on the planet, and a confidence that a penny put into Britain today can become a pound tomorrow. We do not want the Bill to herald in uber-protectionism by stealth; otherwise I would have great difficulty in subscribing to it.

Foreign direct investment is a powerful contributor to the UK. Indeed, conservative estimates show that FDI has created over two Boltons-worth of jobs. That is 600,000-plus jobs, as the Minister actually told me last night, so I hope that is correct. Over 57,000 new jobs were created as a result of FDI in 2018-19 alone. The “World Investment Report 2019” showed that the total value of the UK’s inward investment stock was $1.89 trillion—the third highest in the world, and worth more than the figures for Germany and France combined. Indeed, the northern powerhouse has been one of the top winners from FDI. Manchester has been recognised as Europe’s fifth best large city for business, ranking ahead of places such as Rotterdam. Bolton is a significant recipient of FDI through, for example, the £250 million redevelopment of the Crompton Place shopping centre, and this is central to our town’s rebirth. We need to be on the ball, as the value of the UK’s inward FDI has been falling. In 2016, the value of inward FDI was equal to 10% of GDP, which fell to 2% in 2018. I welcome the new Office for Investment, as we must not lose out to friendly competitors on our own doorstep. FDI contributes so much to our economy and society.

Moving on to security and transparency, the Bill seeks to contribute by putting the UK on a similar footing to other major economies, such as the US, France and Germany. Indeed, the CFIUS regime in the US reviews certain foreign investments in businesses to determine whether such transactions threaten to impair US national security. That is a sound premise and one that every nation state should embody: protecting one’s core sovereign interest. Indeed, the Bill aims to offer more security for British businesses and people and protection from actors or, indeed, actresses harbouring malign intent.

I appeal to the Minister to ensure that the Government will only use their brand- spanking-new powers exclusively on national security grounds and not for broader economic or political measures. Mission creeping may lead to capital seeping. I encourage the Minister to articulate how to safeguard against spurious applications of the new powers. Some analogous screening systems are viewed as not transparent, such as those that do not give parties the opportunity to debate the conclusions. I understand the intention of our own UK version is to allow a quicker, slicker investment process for investors.

I also understand that a new digital portal will be made available to investors, and the Government have committed to a 30-working-day service timeline. Along with mandatory notification of investments in key sectors, that provides much-needed transparency for firms, while providing proportionate defence against those targeting sensitive UK assets.

Finally, my humble contribution to today’s debate will imminently fly towards the Minister, like a not quite national security-protected Airbus paper plane. Alas, I have penned a mnemonic. According to Hansard, the word “mnemonic” has only been used once in this House, and without actually producing one. This could be an epic fail, so the House should brace itself. I will give way to the Minister if he would like to intervene straight away or, indeed, anyone else in the Chamber who can rhyme off the 17 industries that may feature in this final legislation. If not, forever hold your peace. Silence—great. It goes like this, and it does not roll off the tongue. It is CQC—which we are all very familiar with—CASCADED MS TEAM. C is for communications. Q is for quantum technologies. C is for computing hardware. I could go on, but I will simply repeat again: CQC CASCADED MS TEAM. That, hon. Ladies and Gentlemen, along with the Bill’s contribution to security, transparency and prosperity, is how I would like to personally contribute to today’s debate.

00:05
Kevan Jones Portrait Mr Kevan Jones (North Durham) (Lab)
- Hansard - - - Excerpts

I was going to say it is a pleasure to follow the hon. Member for Bolton North East (Mark Logan), but I am not sure that it is. I welcome any measure that aims to protect or increase our national security. We live in an interconnected world now—a global world—in which capital is no respecter of national boundaries. We also live in a world in which nation states are using strategic investment as a way to pursue their own national interests, and there was mention earlier of the Chinese belt and road initiative.

We also live in a world in which nations or individuals use investments to launder money or to buy influence or protection, as was highlighted in the Intelligence and Security Committee’s Russia report. So the measures in the Bill are to be welcomed but, as the hon. Member for Dundee East (Stewart Hosie) said, the issues that it addresses were raised seven years ago in the ISC report on Huawei. None the less, I wish to mention a few areas where the Bill is still deficient.

The right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith) mentioned the Secretary of State’s role. A call-in will be triggered on whether a transaction creates a risk to national security. Notification takes place in one of two ways—a transaction is notifiable either under four criteria or under a voluntary system. I believe the voluntary system is fraught with administrative difficulties and needs to change. However, I want to focus on how the assessment is then made and the role that the Secretary of State plays in deciding whether a case goes forward. I do so by reference to a recent case—that of the Cobham company.

The Bill would not have prevented the £4 billion sale of Cobham to a US company, even though the Ministry of Defence had huge issues around the sale, partly because it would allow unauthorised persons to understand either the details of the MOD capacity and activities, or give them a more strategic picture of the capabilities and activities that had been built up. The MOD said that the transaction posed a risk to the existing MOD programmes if the merger entity took decisions to exit from an investment or to move offshore the associated capabilities.

At the time, Lady Cobham’s concern was that Cobham would be split into various entities and sold off—and, lo and behold, that it is exactly what is happening. It has gone from four divisions to nine, and the risks to national security were clearly evident at the time. I see nothing in the Bill that would have stopped that, because it comes back to the decision of the Business Secretary.

I am not anti-business in any way, but I am not sure that BEIS takes a view in terms of security issues, which would be perhaps more evident in the Ministry of Defence and so on. So there is an issue about who takes the final decision on such bids’ going forward. I would prefer that to be a decision of the national security committee or a sub-committee of that, so that we may have in-depth intelligence reasoning—and I accept that such decisions should be taken on national security grounds only. If we look at the United States model, we see that some very dubious decisions are taken there on national security grounds, which, frankly, are more to do with protectionism rather than anything else.

Tom Tugendhat Portrait Tom Tugendhat
- Hansard - - - Excerpts

Does the right hon. Gentleman agree that there is a real role for Committees of this House in such processes and that the ability to subpoena both witnesses and papers would add not only depth to the Government’s investigation but protection to the Business Secretary who was forced to take the decision?

Kevan Jones Portrait Mr Jones
- Hansard - - - Excerpts

I agree. There is an issue, in some of these cases, around national security. A point was raised earlier in the debate about whether the ISC should look at such decisions. Certainly there is an argument for an annual report, which I would welcome.

I said earlier that I had a fundamental problem with one individual’s taking such decisions, and I am sorry, but I do not think that the new investment security unit is the vehicle. The hon. Gentleman has referred to it as a taskforce, but unless it has national security at its heart, the push for business to get things moved on will take over, rather than what we should be looking at—national security. So decisions should not be left with the Business Secretary.

The other issue I raise is with supply chains. We all know that supply chains are now very complicated, long and diverse, from small companies right down to SMEs. I asked who will map those supply chains. We might say that small companies will self-notify, but would we miss things? There is a key role here for our security services in terms of flagging up things about particular companies, and I do not see that in this process. A small company very low down the supply chain, which may have only a very small element of either a nuclear project or a defence project, might lead to a security risk. I do not think that the new investment security unit will be able to deal with this. That is a role for our security services, which should be at the heart of this, rather than just being a member of the taskforce.

The other area I wish to focus on is in relation to the core areas. Listing them in the way that they have been listed is not helpful. For example, the term “military dual use” brings in a whole host of issues. Is a vehicle that is used for military purposes “dual use” even if it has a civilian use? Trying to define things in a list is actually very unhelpful. I would sooner come at it from the point of view of security and intelligence-driven information, which would inform the decisions that are taken. I am also a bit reluctant for things to be added to that core list by secondary legislation.

Then we come to an area that has already been touched on, which is the role of universities. The Bill mentions

“moveable property, ideas, information or techniques which have industrial, commercial or other economic value.”

When does an idea become a commercial value? I personally think that we need to be looking carefully at this. There is some perfectly legitimate and important foreign investment in our universities, and I do not want to stifle it, but if we have, for example, a Chinese or Russian company investing in a university, particularly in a research programme, is that covered by this Bill? At the initial stage, the investment goes in, but there is no actual product as such. A separate look at that needs to be part of our overall assessment, and, again, that can only be done not from a broad brush stroke approach, but from letting our security services look at some of these areas.

The other point I want to make is to do with land, which is referred to in the Bill, but, again, what is strategic? Would it be allowable, for example, for a Chinese or Russian company, or any company, to start buying up real estate with Government offices on it? The other thing that the Bill does not really cover—the Minister might say that there are measures to cover this—is the issue relating to the well-trailed arguments about the way in which Russian and former eastern European countries have used the property market in the UK, not only to launder money but to build up huge assets in terms of power and influence.

I have just two final points. One is referred to in the appeal system as closed hearings. Members may be aware of what closed hearings are. This is where intelligence, which is an informed decision, goes before a court within a closed hearing. These hearings are mainly used in terrorism-related activities or other national security cases. I would be interested to hear from the Minister in his summing up exactly how he envisages that working in relation to this Bill and how he will manage closed cases, because they are very controversial. At the moment, for example, there are a lot of legal challenges to cases when intelligence goes before the court and then it is ruled that it cannot be heard in open hearings. I just wondered what the Minister has to say on that.

My final concern is around the time limit, which I do not quite understand. It is six months from the date that it comes available to the Secretary of State. I am very opposed to anything that is retrospective, because, as has already been argued, to try to unpick these things will be very difficult. I just want to understand from the Minister the reason behind the five-year retrospection.

Yes, I welcome this Bill, but what it should have at the heart of it is security and intelligence. At the moment, there is too much emphasis on business. I am not arguing for one minute that we should get security and intelligence looking at every single investment decision. I am pro-investment, but the balance here is possibly wrong if we are trying to stop what we all want to stop, which is malign activity in our economy.

16:04
John Redwood Portrait John Redwood (Wokingham) (Con)
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I have declared my business interests in the Register of Members’ Financial Interests.

I support the idea of Ministers having powers to prevent foreign acquisitions where security matters are of concern. I trust that Ministers will want to ensure that all the other transactions that do not pose those security issues will go through smoothly, easily and quickly for obvious economic reasons.

There is a wider concern. As Ministers have rightly said, this is not the debate to deal with all the other worries we might have about unsuitable foreign investors, but there is concern out there in the public that we do not want asset-strippers, we do not want large companies that come here in order to gradually close down the UK capacity to take out a competitor, and we do not want them to come in under cover of sustaining jobs in Britain only to take away the intellectual property and then later to discover that they are not so keen on the British business after all.

We do need those protections, but where Ministers are checking their defences on competition grounds as well as on security grounds, they need to ask themselves this fundamental question: why are so many of our assets sold to foreigners? There is, of course, one very simple reason: throughout this century, under all three types of Government we have had so far, we have run a massive balance of trade deficit with the EU on trade account, so we need to raise the foreign currency to pay the bills so we can afford to buy the tomatoes, the vegetables and the German cars and all the other things that we have been importing, not matched by an equal volume of exports to pay those foreign currency bills.

We see that it is having a bigger impact now on our long-term balance of payments situation. Before we ran this long series of huge deficits, we had net assets abroad, which meant that there was a big positive line in our balance of payments, which said that as a country we earned a lot more in interest and dividends from our investments overseas than foreigners earned on the investments they had in the UK. That has now been reversed, and every year now we have a very big deficit on the interest and dividends, because there are so many more foreign claims on us than we have claims on foreign assets.

This is a matter of concern. Ministers need to work on a series of economic revival policies that put much more emphasis on British people investing in Britain, so that we recreate more of that wealth in our own national hands and do not have the vulnerability, that need for foreign currency, which has been brought about by the current twin deficits—the trade deficit and now the deficit on investment income account.

I was very pleased to hear Ministers saying, rightly, that there are many great investment opportunities in the United Kingdom, so we need to deal with this paradox: why is it that foreigners can see them and are piling in with all their money to buy our best ideas, our best companies and our best properties, and why are more British people and British companies not able to do just that? The Government need to work with the British investors, British companies and British entrepreneurs to make it an even better climate for them to do the investing, as well as taking advantage of the foreign investors coming in and giving employment opportunities.

We need that entrepreneurial Britain, which grasps this opportunity and understands that we have a huge opportunity here to take out imports—to grow more of our own food, and to produce more of our own cars and more of our own products generally—so that we chip away at the very big balance of trade deficit, and in turn then generate cash that can be reinvested in the United Kingdom.

This Second Reading debate presents an opportunity to make the wider plea to Ministers that, as we recover from covid and the damage, we remember that £100 billion deficit that we were running in 2019 before covid-19 disrupted world trade and say that that is unacceptable: that means too big an increase in claims by foreigners on our country year after year. That is why we need policies to get the investment in, chipping away at the £20 billion deficit in food with the EU and at the fishing deficit and the car deficit, so that we are generating those jobs on British capital, and starting to reverse that net liability position that now disfigures our accounts.

16:09
Charlotte Nichols Portrait Charlotte Nichols (Warrington North) (Lab)
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It is a pleasure to follow the right hon. Member for Wokingham (John Redwood), who is my dad’s Member of Parliament. Considering the number of Conservative MPs who are self-isolating, I am glad to see Minister in his place. May I take this opportunity to wish good health to the hon. Member for Warrington South (Andy Carter), who is also self-isolating?

I welcome this Bill and I am glad that the Government are at last addressing the important issue of protecting important assets when foreign acquisitions threaten national security. However, I fear that they have dragged their feet on this matter and that that has led to paralysis rather than strategic planning in several sectors, most notably civil nuclear power.

In 2016, the then Prime Minister, the right hon. Member for Maidenhead (Mrs May), delayed approval of Hinkley Point C because of fears of the potential for a controlling influence by the Chinese state firm China General Nuclear Power Group. While approval was subsequently granted, that illustrates the governmental hesitation that has beset this vital industry—an industry that depends on long-term certainties—for years now.

It has taken more than four years for the Government to bring forward the proposals in the Bill to allay those fears. In that time, the nuclear sector, which offers both reliable low-carbon energy and high-skilled, well-paid, unionised jobs, has suffered paralysis. Our fleet of nuclear power stations is ageing and needs renewing. The Government promised an energy White Paper in summer 2019, which has been delayed and delayed ever since. In that time, we have seen Hitachi withdraw from its planned investment in a nuclear plant at Wylfa because of the Government’s hesitation in agreeing a funding agreement. The whole sector, and thousands of people in quality jobs, including almost 4,500 civil nuclear workers in my constituency, are still waiting to hear a clear plan and direction from the Government. We must not lose those jobs, and the planet cannot afford stalling over this green energy sector.

We know that part of the reason for the delay has been fear of foreign influence in our strategic assets. Dozens of Conservative MPs have even formed an internal lobbying faction called the China Research Group to focus on the threats that they perceive from China. That led to the banning of Huawei from our 5G network back in July. That makes it all the more extraordinary that it has taken so long for the Bill to be brought forward. Labour has called consistently for tougher powers on takeovers since 2012. I hope that now this legislation is finally here, the Government will have no more excuses not to act to give the assurances and firm grounding that nuclear firms reasonably request.

Alongside the Bill, I look forward to early publication of an energy White Paper that lays out the groundwork for nuclear energy that is environmentally and economically secure, and where the UK’s national interest and national security are protected.

Stephen Kinnock Portrait Stephen Kinnock (Aberavon) (Lab)
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My hon. Friend is making an excellent speech. Does she agree that the fact that 57 items of our critical national infrastructure—including, of course, nuclear, but also other energy and airports—are reliant on Chinese supply chains demonstrates the abject failure of this Government to bring forward a proper industrial strategy?

Charlotte Nichols Portrait Charlotte Nichols
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I agree that, given the national security risks posed by actions being taken by the Chinese state, including what our military refers to as sub-threshold activity, we should, as a nation, make sure that we have a Bill that ensures that our national security is protected from the Chinese state and anyone else, anywhere in the world, who seeks to damage our national security.

Developing a robust takeover regime is essential if we want firms in our key sectors to grow and provide good jobs here in the UK, and this Bill is a key part of that. I worry, though, that it misses the opportunity to go much further in strengthening powers that prevent damage to the UK’s national economic interest, as well as our national security, as in the case I have outlined. I therefore hope that the Government will consider amendments in Committee to widen the scope of what constitutes national security.

16:13
John Hayes Portrait Sir John Hayes (South Holland and The Deepings) (Con)
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This Bill is welcome, necessary, important and, it has to be said, overdue. In making a few remarks about it, I draw the Minister’s attention to the fact that the Chairman of the ISC, the right hon. Member for New Forest East (Dr Lewis), is not able to be with us and sends his apology. I will make a number of points from the Committee on his behalf and that of other Committee members.

The first is that this Bill is stimulated, at least in part, by the ISC report from 2013. That report, “Foreign involvement in the Critical National Infrastructure”, made the case that new legislation was required. The hon. Member for Dundee East (Stewart Hosie) has already made that point emphatically, but the Minister does need to explain what might have happened differently had this legislation been in place seven years earlier, because some of these powers are clearly retrospective but they do not stretch back into the mists of time.

The Bill is important, not least because the Government have acknowledged that the UK faces continued and broad-ranging hostile activity from foreign intelligence agencies, hostile state actors and others. Novel means of undermining UK national security include investments that can be structured to obscure the real actors behind them. This is not a straightforward matter of takeovers that are directly linked to defence or critical national infrastructure; it is subtler than that, as the Bill acknowledges and as the Government have said. I want to dig a little further into that during my extensive, but not tediously so, contribution.

The Bill’s importance is also reflected in the dynamism of the threat that we face, which is metamorphosing, as I implied a moment ago. Those who seek to undermine our national security are becoming increasingly clever at doing so and the Bill will need to exercise all the flexibility that its provisions permit. But it may be that, as well as that, we need to return to these matters time and again. In a recent debate, I emphasised that traditionally legislation coming before this House pertaining to security has been spasmodic—it has been periodic. Legislation has stood the test of time but, as the increasing dynamism of the threats we face obliges Government to think again about means of countering them, it may be that we see more legislation than we have hitherto in this area. I happily give way to my hon. Friend, a fellow member of the ISC

Bob Stewart Portrait Bob Stewart (Beckenham) (Con)
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I thank my very good friend for giving way. It seems to me that, if we define national security closely, we will not keep up with the speed at which it changes. So I am against the idea of having a definition of what national security is. Does my right hon. Friend agree?

John Hayes Portrait Sir John Hayes
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I do, but the challenge in a democratic polity is ensuring sufficient accountability while maintaining that degree of flexibility. It is all much easier in less democratic countries—I use that term as gingerly and modestly as I can—which are not obliged to legitimise or justify what their Governments do. We are—rightly—so the Government are properly scrutinised and held to account. It is right, as my hon. Friend says, that we maintain enough flexibility to respond to the dynamism that I described. But of course, we need mechanisms in place to ensure that that flexibility does not allow the Government too much scope. That is why—this point was made by my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) and I emphasise it on behalf of the ISC—Committees in this place missioned to do just that need to play an important role. I know that the Government recognise that, and that my right hon. Friend the Member for Wokingham (John Redwood) recognises it.

John Redwood Portrait John Redwood
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Indeed. This issue—where does security end—is very difficult. If we look at the great wars of the last century, which we do not want to repeat, food supply was absolutely critical and was a great strategic vulnerability of our country.

John Hayes Portrait Sir John Hayes
- Hansard - - - Excerpts

That is true. Vulnerability, of course, is also dynamic. That is why I emphasised, in intervening on my right hon. Friend the Member for Tunbridge Wells (Greg Clark), that the Government need to get better at assessing risk and modelling the response to it. This is what the Bill begins to do. It has been a long time in the making, but I emphasise that it is welcome because it begins to look at appropriate mechanisms for doing that. So it is certainly necessary.

Kevan Jones Portrait Mr Kevan Jones
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Does the right hon. Gentleman agree that security and intelligence need to be at the heart of the Bill and that they should drive how we take decisions? That is why being located in BEIS might be a mistake.

John Hayes Portrait Sir John Hayes
- Hansard - - - Excerpts

The right hon. Gentleman made that point in his contribution earlier and it seems to me to be a profound one. In establishing the new processes and the new governance associated with this legislation, it is vital that the interaction with the intelligence services, and all the skills available to the Government to assess risk, is built in to their considerations but also to the process. I am not absolutely convinced that the Bill does that. It may be that there is sufficient flexibility, to take up a point raised in an earlier intervention, to allow the Government to do so, but I hope the Minister, when he sums up the debate, will provide reassurance that the connection between intelligence and risk assessment is as sure as it needs to be. I am grateful to the right hon. Member for North Durham (Mr Jones) for making that point.

Greg Clark Portrait Greg Clark
- Hansard - - - Excerpts

When the decision maker is a Minister in the Government, they benefit from the advice of the security services, including the National Security Adviser. That was certainly my experience as Secretary of State. All these decisions draw extensively on the advice of the national security apparatus. I do not think—my hon. Friend the Minister will clarify it when he winds up—there is any intended change to that.

John Hayes Portrait Sir John Hayes
- Hansard - - - Excerpts

Yes, the Minister needs to explain how the Government’s arrangements for the new investment security remit interface and interact with the national security structures that already exist, such as the investment security group. There needs to be clarity about the process, as I described it a few moments ago.

Stewart Hosie Portrait Stewart Hosie
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Of course, it is not just about the formal structures, because of the fast-changing nature of the threat and the way in which technology emerges and develops. Perhaps we should have an annual debate in here, where we can think out loud about emerging technologies that may become a threat and, on the other side, those technologies that have become so redundant they are no longer a threat, to avoid them being pre-emptively given to the Government and clogging up the system.

John Hayes Portrait Sir John Hayes
- Hansard - - - Excerpts

That is an excellent suggestion from another member of the Intelligence and Security Committee. My goodness, we are here in force and working as a team, as you can see, Madam Deputy Speaker. It is important that the House considers these matters, as well as the Committees I mentioned which have a particular responsibility for dealing with these things and holding the Government to account.

The point was made earlier that the national interest and national security are not identical. But they are coincidental—they do overlap—as there is a point at which national resilience, or its absence, compromises national security. The Government acknowledge that in the scope of the Bill. They talk about critical national infrastructure, as well as technology sectors of various kinds. By the way, I first looked at this issue, Madam Deputy Speaker—this is not a widely known fact, but I am happy to share it in the privacy of this intimate gathering—as a Cabinet Office Minister, with the former Member for West Dorset, Sir Oliver Letwin. We looked particularly at the threats posed to core infrastructure, such as the energy sector. By the way, that threat is posed not only by hostile state actors, but other players who might choose to disrupt core activities, with extraordinarily damaging consequences for our citizens. The Government do look at those things, but historically I do not think they have done so systematically enough. I know my right hon. Friend the Member for Tunbridge Wells, who has a distinguished record in this area, will have had similar experiences to me when we, in turn, looked at energy as part of our ministerial responsibilities.

China has been mentioned. I do not want to speak about it at great length, but clearly the ISC is currently looking at China and will be considering these very subjects in relation to that inquiry. That will come as no surprise to the House or the Minister.

I said this Bill was necessary, but necessity requires a degree of precision and I have some specific questions that I hope the Minister will deal with, either in summing up or by writing to the ISC if he does not have time to address them today. In looking at a specific case, will the investment security unit be able to consider the cumulative effect of a particular business transaction? In other words, will it take into account whether past acquisitions in that sector, when combined with the case currently under consideration, will result in a cumulative threat to national security? Moreover, will the unit consider acquisitions that might result in an indirect threat, for example, through supply chains or managed service providers? This may well involve very small businesses; sometimes a single expert or a small group of experts will play a vital role, as component parts, in either a technology or an industry that is vital to our national security.

Bob Seely Portrait Bob Seely
- Hansard - - - Excerpts

My right hon. Friend is making an excellent point in an excellent speech. He is highlighting the need to understand national security not only as individual events and individual companies, big or small, but as a series of cumulative processes. Those gradual processes, over time, are as important to understand.

Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
- Hansard - - - Excerpts

Order. Just before the right hon. Gentleman replies, let me give a gentle reminder that we have a lot of speakers still to go and I know the Minister wants to give a full reply at the end.

John Hayes Portrait Sir John Hayes
- Hansard - - - Excerpts

I am terribly grateful, Madam Deputy Speaker. I do not know whether it was the persuasiveness of the case I was making or its imperfection that has encouraged 1,001 people to intervene on me. Perhaps it was the latter, but I will give way no more and move to the concluding part of my oration.

There are questions to be asked about the proposals before us. I touch on one more before I reach my exciting summary. The Bill provides for the Government to apply to use closed material proceedings. My hon. Friend the Member for Isle of Wight (Bob Seely) and the right hon. Member for North Durham made the point about connections to other expertise, both within Government and beyond it, so how will that be impacted, given the closed material proceedings? How will closed hearings be managed effectively? I think the House will want to know the answer to that.

I said that the Bill is welcome, and it is certainly is, because it provides the means by which, for the first time, Government will consider matters of profound concern very much in line with the recommendations of the 2013 report. That report identified:

“The difficulty of balancing economic competitiveness and national security”

and suggested that it had reached a “stalemate”. With this Bill, we have moved on from that stalemate. Given the scrutiny the Bill will enjoy, in the spirit that this kind of legislation normally does, as the whole House will want to get this right, and given the Government’s willingness to listen and to take on board some of the points that have been made today and that will be made in further scrutiny, I have every confidence that we may end up with a very good piece of legislation that is fit for purpose. Edmund Burke said:

“Early and provident fear is the mother of safety.”

Sometimes it is important to be a little fearful in order to be provoked to take necessary action. In taking that action, the Minister will know that the Government have no greater responsibility than to secure the safety of the country they serve and its people.

16:29
Layla Moran Portrait Layla Moran (Oxford West and Abingdon) (LD)
- Hansard - - - Excerpts

It is a pleasure to follow the right hon. Member for South Holland and The Deepings (Sir John Hayes). I can assure the House that I will not be speaking for quite as long, although I aim to speak as eloquently. I thank the Minister for the time that he spent with the Inter-Parliamentary Alliance on China yesterday, going through some of the issues in the Bill. We operate on a cross-party basis, and I will be mentioning some of the concerns raised in that call so that they are made public.

The Liberal Democrats absolutely support the premise of the Bill. It is the right thing to be doing. My objection, however, lies in the Bill’s scope, which I genuinely believe should be wider. I appreciate that it has been constructed narrowly, presumably so that it can be put through Parliament quickly, but this is a great opportunity that should not be missed. The point that I made to the Minister yesterday was that if we are not going to amend this Bill to include some very important changes that are needed in our legislation, when are the Bills that will be necessary to fill in the cracks going to be brought to the House? I am hearing that that is what Members across the House want to know. If not now, when?

I will focus on two specific matters. The first, which has been mentioned by other Members, is the definition of national security. I found the speech of the right hon. Member for South Holland and The Deepings very interesting, because there are arguments for defining and not defining. I believe that we should be defining, so that this House can properly scrutinise whether the definition encompasses everything that we would consider a national security concern and whether those concerns will be captured in the Bill.

Anthony Mangnall Portrait Anthony Mangnall (Totnes) (Con)
- Hansard - - - Excerpts

Rather than being about not not defining national security, I wonder whether this is about broadening the definition so that it can include the many other issues with which we are all concerned.

Layla Moran Portrait Layla Moran
- Hansard - - - Excerpts

Yes, indeed; I agree. We should be broadening it, in fact, to underline the values of our country that should be enshrined in the Bill. I hope that Members would agree that there is no way that anyone could describe human rights as baubles. Human rights are not baubles off of which we are hanging a Bill. Human rights are the trunk of the tree off of which we hang the legislation and everything that we do in this place. When I suggest that we widen the scope of the Bill to include more human rights amendments, it is in that spirit.

We should not be singling out China particularly—although I am about to—but it is right that this Bill is looking at the enterprise in itself; it is not China or any Chinese investment per se that concerns Members of the House. That distinction is very important. It is equally important, especially during the time of a pandemic, that we attract business, that this country is open for business and that businesses want to invest in it. That is all correct, but I have grave concerns, particularly about companies such as TikTok, which is an example of the kind of thing that we very much hope is captured in the Bill. It is a shame that we do not know—I certainly do not—whether TikTok will fall within the scope of the regime put forward by the Minister and the Secretary of State. That is a genuine question. If it will not, let me make the case for why it should.

As has been said, this is not just about national security and infrastructure as things that we can touch. As we well know, the way in which hostile states are now operating is more to do with data flows and what they do with them. We also know that China does not think within the scope of two, three or four years; it is thinking ahead to the 20, 30, 40 and 50 year marks. What is it doing with TikTok? It is harvesting data, and primarily the data of young people—not just here, but across the world. Some 41% of TikTok’s users are aged between 16 and 24. Our young people’s data is being harvested now. Why? Competitive advantage, perhaps, but also we know that the way that the modern Chinese state is operating is to slowly build dependency. It is incredibly important to recognise the point around dependency and national security now, because it is getting a slow underground hold on our country. If we are not careful and we just focus on the parts that we can see, like the mycelium of a fungus—is it edible or not?—we forget that the majority of what is happening is underground and longer-lasting than we might imagine. Will data flows be considered specifically? Will the movement of the global HQ of TikTok to this country come under the scope of the Bill? If not, I will seek support across the House for amendments at the next stage so that that can happen.

Now is the time to fully address human rights. That is why it is important to talk about China, because yes, on the one hand, there are data flows, but on the other, there is what it has done in Hong Kong. The issues with TikTok arise from 2017, but the more recent issues in June of this year, and what it has done in Hong Kong, suggest a direction of movement for the Chinese state that is deeply concerning. Linking that to what is happening in Xinjiang with the Uyghurs, we have, almost through not paying attention, tacitly said to that state, “We think what you are doing might be okay. We are not going to challenge it directly.” Magnitsky sanctions are mentioned as the current way that the Government are dealing with this. We welcome that and think they should go further. However, it is also time that we had amendments to a Bill that specifically deal with genocide, slave labour and supply chains. This is not just about sanctioning individuals. We know that the state has a hold on its enterprises, and that needs to be addressed too.

At this stage, I have no intention of throwing any Lib Dem strops and opposing Bills, or whatever. However, I hope that the Minister knows that at the next stage some movement needs to be made on these two very important issues.

16:36
Bob Stewart Portrait Bob Stewart (Beckenham) (Con)
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I want to concentrate on what is essentially the core of this Bill—our national security. Today our country continues to face a broad-ranging hostile attack from foreign intelligence agencies. A few of our critical industries and technologies may already have been purchased, at least in part, by foreign investors, some of whom may not have a particularly benign approach to British national security.

This Bill comes not before time, considering that the Intelligence and Security Committee ruled on the matter and suggested changes in 2013. Unless the UK curbs the right of foreign firms and investors to obtain technologies through the means of mergers and acquisitions, and similar, our advanced technologies could easily find their way into the weapons systems of foreign and potentially hostile states. This would definitely harm the UK either directly or indirectly. The Bill gives the Secretary of State the power to screen investments that might just pose a national security risk, and that is what we are talking about today.

Obviously the Bill very much reflects the views of the ISC, of which most Members, apart from the Chairman, are present. [Interruption.] I didn’t use the word “you”, did I, Madam Deputy Speaker? [Interruption.] Oh good—you were looking at me with horror.

Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
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I only pointed out that I was once a member of the ISC as well.

Bob Stewart Portrait Bob Stewart
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I am always a culprit on the word “you”. I have now lost my place, thanks to your intervention, Madam Deputy Speaker!

The report produced by the ISC in 2013 contained a requirement for legislation, and we are now getting that legislation seven years later, which is rather a long delay. I am delighted that the Bill protects British industry and puts safeguards on it, but it puts particular safeguards on our national security. In future, investors will have no choice but to notify the Government if the ownership of certain businesses is to change hands—thank goodness for that. However, I note that the Secretary of State will also have the power to call in other businesses if he or she has concerns about national security. That is why I am slightly against a narrow definition of national security; I would prefer it to be a bit more fluid.

The decision to call in an investment will be based on three factors: the nature of the target of acquisition; the type and level of control being acquired and how that could be used in practice; and the extent to which the acquirer raises national security concerns. The list of sectors to be covered is under consultation. I will not use a mnemonic, which until today I thought was some sort of drill, but that list includes advanced robotics, artificial intelligence, cryptographic authentication, whatever that is, quantum technologies—I do know what that is—and satellite and space technologies, in which we are world leaders. It is very important that those sectors are guarded against being infiltrated, because that is what it is—infiltration to take away intellectual property.

At the moment, the UK is almost unique among major western economies in not having stand-alone foreign investment legislation, and this Bill will sort that out. It will give Ministers the power to look at transactions overall and to review them. The Government’s impact assessment estimates that it will result in well over 1,000 transactions a year—possibly up to 1,800, as some Members have suggested. That is a lot, and it means a lot of work for a specific department of BEIS. There will only be 100 people to do that work, which is slightly worrying.

I will finish, because I was told to be short—and I have been, in six minutes—and because I had your naughty finger pointed at me, Madam Deputy Speaker.

Bob Stewart Portrait Bob Stewart
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I am getting on with it! I am trying to finish. This is a good Bill. I hope the House will support it. I will not finish my last paragraph, because my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) has stolen my thunder. This is a good Bill, and we need it.

16:44
Stephen Kinnock Portrait Stephen Kinnock (Aberavon) (Lab)
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It is such a pleasure to follow the hon. Member for Beckenham (Bob Stewart), and I genuinely hope that your naughty finger will not be pointing towards me at any point in my remarks, Madam Deputy Speaker.

We on the Opposition Benches will not oppose the Bill, because it is a step in the right direction. It is good to see the Government finally recognising the need to put national security at the heart of how we deal with foreign investment. However, the Bill fails to address the broader issue of how takeovers and acquisitions should be regulated to promote our broader national and economic interests and, indeed, the interests of British workers and their families across the length and breadth of our country. In that sense, it draws a false distinction between national security and economic security, because it is absolutely clear that the two are intrinsically linked.

In order to properly reflect on the effectiveness of this legislation, we therefore need to go back to first principles and ask ourselves this single basic question: what is the economy actually for? It is only by reaching consensus on that fundamental point that we shall be in a position to assess the extent to which the Bill will make a positive contribution to the lives and livelihoods of our constituents.

The British economy is unbalanced, it is unstable and it is therefore profoundly lacking in resilience. It is too reliant on the financial services sector at the expense of manufacturing—our manufacturing sector has collapsed since the 1970s from 30% of GDP then to just 9% now. It is too London-centric, thus failing to harness the talents of so many people from other areas of our country; it is too inward-looking, with persistent trade deficits; it is too unequal, pushing the proceeds of growth to the wealthiest 1%, and it is too short-sighted, constantly aiming for the fast buck rather than long-term, sustainable prosperity driven by patient capital.

Every piece of legislation that is brought forward by the Department for Business, Energy and Industrial Strategy should be relentlessly focused on fixing those faulty foundations of our economy—those fundamental weaknesses—and every step that the Business Secretary takes should be a step towards an active industrial strategy that is designed to drive a modern manufacturing renaissance. He should be focused on home-grown industry, home-grown investment and home-grown technology. Those critical steps will help to build that sense of purpose and resilience into the UK economy that we are so desperately missing.

The culture of the UK’s corporations is also in urgent need of change. The prevailing business strategies are driven by short-termism, with the delivery of fast buck profits to shareholders taking precedence over all other considerations. Addressing that will require a new deal between shareholders, companies and their workforces, and between the public and private sectors. Far too many of the corporations listed in the FTSE 500 are characterised by a transactional, rootless form of ownership, which militates against the investment in R&D, innovation, skills development, new technology, plant and machinery that is desperately needed if we are to put our economy on to a more balanced and sustainable footing.

The Government’s laissez-faire approach makes a major contribution to this short-termist culture, because it opens the door to acquisitions by foreign companies, resulting in the UK’s having by far the highest number of successful hostile takeover bids of any advanced economy in the world. Time after time since 2010 we have seen our strategic national assets being flogged off to the highest bidder. Let us just look at the case of Arm, a jewel in the crown of the British tech industry, which is in the process of being sold to Nvidia, or Cadbury’s, an iconic British brand, sold to Kraft without any proper consideration of what that would mean for the long-term sustainability of the business.

Moreover, our sovereign capability is profoundly undermined by the fact that much of our critical infrastructure is not in our own hands. In fact, 57 of our critical national infrastructure supply chains depend on China, from our energy suppliers to our airports, our pharmaceuticals and our personal protective equipment. The repercussions of that overexposure have been felt during the pandemic. Our lack of capacity to produce PPE has cost the UK taxpayer an eye-watering amount of money; a breaking story today shows that a Spanish businessman has pocketed £21 million of British taxpayers’ money simply for acting as a broker between the Government and overseas suppliers—a potent symbol of systemic failure.

Let me be clear that many of these so-called private takeovers and infrastructure investments are carried out by companies and investment vehicles that are a front for authoritarian state actors who have wider political and national security agendas and whose values are at odds with our commitment to democracy, liberty and the rule of law.

The crucial point here is that our values should not be for sale.

The most obvious and pressing case, of course, is the Chinese Government, who are relentlessly expanding their influence economically, politically and militarily. We need only recall the case of Imagination Technologies, which was recently the target of a hostile takeover attempt by an investment vehicle with direct links to the Chinese state. Of course, there are also substantial Chinese stakes in Hinkley Point and other sizeable chunks of our critical national infrastructure.

Successive Conservative Governments since 2010 have been naive and complacent in their approach to China, exemplified by David Cameron and George Osborne’s disastrous “golden era” strategy. It is time for this Government, this House and, indeed, the entire country to wake up to the reality of these matters and to come to the realisation that, while we must always seek constructive engagement with China, we must take a clear-sighted, hard-headed approach to defending our national interest and our sovereign capability.

I also take this opportunity to raise another more specific way in which the Government’s lethargic tendencies have proved costly to British business and weakened the economy as a result. The Government have been naive about the deliberate attempts to weaken UK businesses through market distortion by the undermining of competition laws. The most obvious example of that is the deliberate over-production of steel way beyond global demand and the subsequent illegal dumping of that steel on European markets.

The result of those illegal uncompetitive practices combined with Conservative inertia has been the weakening of UK steel companies and the opportunity for foreign investors, many of whom come from countries that are the origin of the dumping in the first place, to buy up our strategically and nationally important asset. Some 80% of China’s steel industry is state owned, and the key point is that the illegal dumping of products from those state-owned industries into European markets is an example of the practices that are undermining the international rules-based order.

That in turn has a damaging and direct impact on our industrial base and on our communities and their families—the workforces that are directly impacted. It is a perfect example of how the global is truly local. We need a level playing field, and this legislation should be about—this is everything that the BEIS Department should be about—developing that level playing field so that our workforce is not competing with one hand tied behind its back against a system that is rigged against it from the word go.

This Bill is a big missed opportunity to strengthen the UK’s wider industrial strategy and for the Government to show that they are committed to building an economy of purpose and resilience. Moreover, it fails to reflect the impact of coronavirus on UK businesses and the increased vulnerability in the face of vulture capitalists and state-backed actors that are waiting to pounce. This legislation only really seeks to protect the UK’s national security and appears to do little to support the UK’s wider national interest, such as the need to protect jobs and support communities in this time of national emergency.

Focusing on the all-too-narrow scope of the Bill, I also have genuine concerns about the process for arriving at a decision on whether to block a takeover. Currently, the plan is that the process sits firmly within BEIS. That is an issue, first, because such a decision would have huge cross-departmental impact, so it would surely be better to create a multi-agency taskforce to rule on key decisions. Such a taskforce would include the Treasury, the Home Office, the Foreign, Commonwealth and Development Office, the intelligence and security services, and the Ministry of Defence. It could follow a similar model to the Committee on Foreign Investment in the United States. All the signs were that BEIS was a cheerleader for the Huawei deal, when it was clearly against our national interest to go ahead with that deal. That does not augur well for its ability to police the effective implementation of the Bill.

Secondly, handing all the decision-making power to the Business Secretary could lead to problems further down the line, should a future incumbent—I am in no way implying that such a fate would befall the current Business Secretary—be influenced by political or commercial interests in this country or overseas.

John Hayes Portrait Sir John Hayes
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I had not intended to intervene again in the debate, except that I want to emphasise, and perhaps amplify, the point that the hon. Gentleman has just made. The legislation brings us into line with other Five Eyes players—the intelligence community with which we work directly—but he is right to say that the mechanisms that they use are different, in some cases, from the ones employed in the Bill in exactly the way he describes. Will the Minister look at those mechanisms and see what more we can learn from them as the Bill is improved during its passage through the House?

Stephen Kinnock Portrait Stephen Kinnock
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The right hon. Member has pointed to the fact that it is such a broad, cross-departmental issue that it requires more than just one pair of eyes—if he will excuse the pun—to look at it.

Time and again, we have seen that the takeover regime is not fit for purpose. It is welcome that we are finally coming into line with other countries on national security, but we are still behind on takeovers that would harm the national interest more broadly. Protecting our national security is only one element of protecting, nurturing and developing the vital sectors of the future that we know are crucial for our economy.

Given the economic dislocation and potential corporate vulnerability caused by coronavirus, the case for action is stronger than ever. I will support the Bill, but we need to see improvements and further regulation to protect British business and the broader national interest.

16:56
Mark Pritchard Portrait Mark Pritchard (The Wrekin) (Con)
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It is always a pleasure to follow the hon. Member for Aberavon (Stephen Kinnock). Although I did not agree with everything in his speech, I have fond memories of being in his constituency playing rugby as scrum half, fishing, and go-karting on rickety self-made go-karts that often fell apart. I also went to my first rock concert at Aberavon leisure centre—The Who; I think they were at Madison Square Garden some years earlier, I hasten to add.

I welcome the Bill. As has already been stated, it is perhaps a little long overdue, given that my predecessors on the Intelligence and Security Committee suggested in 2013 that such a Bill was required urgently. I also put on record my thanks to my hon. Friend the Member for Isle of Wight (Bob Seely), who has been calling for such a Bill for many years. I am sure he is, at least in part, happy to see the Bill before the House. I also commend the Secretary of State, the Minister and, indeed, the whole ministerial team for bringing the Bill forward so early in this Parliament.

It is, of course, right that the Secretary of State has new powers to scrutinise strategic and sensitive investments in sectors that might pose a national security risk to the United Kingdom. The Bill should also act as a legislative assurance, or reassurance, for would-be investors and businesses. They can now avoid, hopefully, being targeted and potentially exploited by the hostile states and entities hidden behind the respectable veil of supposedly legitimate mergers and acquisitions that take place in the City every day—strategic partnerships, joint ventures and major investments.



The Bill also rightly responds to the huge advances in technology, as we have heard from other hon. Members today, which in itself further widens the potential scope of the Government’s national security concerns—and, indeed, remit—particularly around intellectual property, patents and copyright. Although this might prove problematic for the Government, particularly around dual technology, it is absolutely right that it should be addressed. We heard from the hon. Member for Dundee East (Stewart Hosie) earlier on the use of dual technologies. However, the Bill should not mean compromising growth or prosperity, and I was glad to hear the Minister underscore that. Got right, there is no need for it to compromise or conflict with national security and national prosperity. It is more than manageable, certainly with this excellent ministerial team, for the Government to balance national security and economic competitiveness, and to give the Government greater powers to assess and scrutinise investments that could reasonably be viewed as posing a potential risk to the UK’s national security. The Bill rightly empowers the Secretary of State, where necessary, proportionately to impose remedies up to and including blocking the transaction, using full through to lower-level measures. If the risk to national security is extreme, clearly those fuller measures should be deployed.

Of course, the Bill protects businesses that are small. We have heard from hon. Members on that as well, and I think the Government need to be careful that investors are not put off by the potential for many months of bureaucracy and hurdles to entry to market, particularly at the start-up stage or the second or third capital raising stage for entrepreneurial SMEs. The Bill will, of course, look at small businesses, and many of these small businesses have a global reach although their turnover might not be particularly large. They might—by definition, as small businesses—have fewer than 30 employees, but that does not necessarily mean that their technology and intellectual property are not of interest to some of the UK’s adversaries.

In welcoming the Bill, I would like to take the opportunity to thank my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) and his Committee for their work. He has raised this issue over many years, and I would like to put on record my thanks to him. My hon. Friend the Member for Beckenham (Bob Stewart) has rightly mentioned computing hardware, quantum technologies and satellite and space technologies. There is a list of 17, and I will not go into them now, but it is absolutely right that these very sensitive areas fall under the remit and the scrutiny of this new legislation. Madam Deputy Speaker, you will know as a previous distinguished member of the Intelligence and Security Committee, that the Committee is currently considering the threat of this whole area in its current inquiry into the national security threat that China may or may not pose. In my view, it poses a significant threat in a lot of areas. Will the Minister give an undertaking to the House that there will be a timely publication of those mandated reporting sectors?

If I may, I would like to ask a few questions, through you, Madam Deputy Speaker, of the Government. Can the Minister explain the Government’s arrangements for the new investment security unit? How will it interact with the national security apparatus and structures that already exist, including the investment security group? Will the investment security unit consider acquisitions that might result in an indirect threat—for example, through supply chains or managed service providers? What safeguards will there be in the Bill to prevent non-UK Governments from pressuring the UK Government to call in certain mergers and acquisitions that those Governments might find offensive or inappropriate even though the UK might take a different view? Also, on the issue of competitors, what safeguards will there be to prevent vexatious and spurious calls for the Government to intervene by competitors who feel they are going to lose out as a result?

This Bill is long overdue, but it is right to give credit where credit is due. I thank the Government for bringing it forward and I hope that they will work with the ISC and the whole House as it goes through to Report stage. I commend the Bill and thank the Minister for all he is doing.

00:00
Andrew Griffith Portrait Andrew Griffith (Arundel and South Downs) (Con)
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It is a pleasure to follow my hon. Friend the Member for The Wrekin (Mark Pritchard), who was a very successful businessman before he entered the House. I am also looking forward to hearing from my hon. Friend the Minister when he sums up later.

Foreign investment in the UK is an unalloyed good thing, and we would all be much the poorer without it. Inward investment stimulates our economic growth across the entirety of the UK. In 2019 alone, as the Secretary of State told us, almost 40,000 jobs were created thanks to foreign direct investment, with most of those outside London, despite its global reach.

Foreign investors in the UK create more exports and spend more on research and development than our domestic businesses, giving the lie to some of the things that we have heard from Opposition Members this afternoon. Let us remember that every doctor, nurse and careworker who has looked after us during the pandemic is paid for directly from the product of the economic growth that results from being one of the most open economies in the world. That is one reason why I congratulate the Government on recently establishing the new Office for Investment, with my noble Friend Lord Grimstone and No. 10 working together to bring high-value opportunities to the UK, such as on net zero, as well as investment in infrastructure and advancing research and development.

I approach this Bill with a degree of trepidation, much as one may occasionally have to approach a golden goose and suggest moving it to a slightly different, newer nest next door. There are many positive aspects of the Bill that I welcome, such as the clear statement of intent about enthusiastically championing free trade—we heard that from the Secretary of State today. I think it is very important that the Minister restates that at each stage of the proceedings. In many respects, this will be a more modern and slicker framework, providing more certainty and clarity for those we seek to attract here to invest. Timelines for assessments will be set out in law, and, as somebody who was previously a practitioner of acquisitions, I know how capricious the current status quo is, so I welcome anything that can make that more predictable. I also agree that aspects such as the turnover test or share of supply are backward-looking in an era when a business can become successful or strategically important while barely out of the incubator.

I hope that the Minister will not mind if I mention some areas for those on the Government Benches to focus on, from the perspective of a colleague who wants the Bill to succeed in its stated objectives. It is really important that it remains narrowly drawn around the risk to national security, and it will be good to hear the Minister again restate that very clearly. To govern is to choose, and it is important to be as clear about what the Bill is not as we are about what it is.

Bob Seely Portrait Bob Seely
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Will my hon. Friend give way?

Andrew Griffith Portrait Andrew Griffith
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I will not, because I know that so many colleagues want to get in. The Bill is not about the impact of a particular locality or even the domicile of a particular acquirer, and it must not become another fit and proper test by the back door because we do not like the identity of an acquirer or their political views on that day of the week. Investment is all about taking risk and pricing that risk, but political risk is the very hardest to price. In a globally competitive world, where every word that we say in this House will be pored over for meaning, we all have a responsibility to ensure that we provide clarity to those who are poised to invest here.

Much is hung on the speed of this regime—I think, Minister, that 30 days must mean 30 days, and I can already see some ambiguity. The Bill talks about acceptance, not just receipt. A subjective view about what constitutes acceptance cannot be a back-door way of stopping the clock. That is a notorious practice in current European competition filings. There is also talk of the Secretary of State being able to have a further 45-day extension. I think there should be a clear presumption that if this is not done within 30 days, the transaction can proceed. In truth, if we apply that logic to a pavement licence during a pandemic, I do not see any reason why we should not apply it to keep our capital markets and our lifeblood of the economy functioning. Those timeframes should be symmetrical. The state should not load the dice in its own favour, because if we look at the Bill, we see that, when it comes to appealing the decision by the Secretary of State under judicial review, the claim must be brought within only 28 days.

I thought it was very helpful of the Secretary of State to provide the context that he expects less than 1% of all M and A asset transactions to result in notification, but with respect, I want the telephone number of his lawyer, because I do not know where we are going to find the risk-averse legal advisers in transactions that do not distort that by notifying just in case, particularly given the presence of criminal liability. I agree with other colleagues that I would like the Minister to commit, if possible, to publish annual statistics on the number of notifications and the outcomes.

Finally, as ever when we pass new legislation, it is wise to think of it as an opportunity to retire some elsewhere. Media plurality has ill served the media sector, much of which now lies in foreign hands. As we look to rebuild our industrial strategy in the future, post covid, and as we strike out post Brexit, a new lighter touch approach from the Competition and Markets Authority would give many of our British businesses the scale to compete internationally.

17:11
Bob Seely Portrait Bob Seely (Isle of Wight) (Con)
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Naturally, Madam Deputy Speaker, I hope to speak for no more than six minutes. It is a pleasure—genuinely a pleasure—to follow my hon. Friend the Member for Arundel and South Downs (Andrew Griffith). In the spirit of constructive debate, I am going to disagree with some of his points, but it was undoubtedly the most eloquent argument in favour of a highly free-market approach, though I will ask some questions on it, if I may. I am going to talk a little about national security, and make some supportive suggestions for the Minister and some general points about the nature of national security in the modern world with China.

There is much to support in this Bill, and we can all agree that most of it is very necessary and very good. I would also like to thank the Minister, who is obviously held in very high regard by those on the Government Benches, for his engagement; it is always good to talk to him. I have actually rather enjoyed listening to the debate, because clearly a lot of constructive suggestions are being made, and I thank my hon. Friend the Member for The Wrekin (Mark Pritchard) for his kind remarks.

I am going to suggest some amendments and then explain why I think they are necessary. For me, there is an issue about national security and our definition of it. That has not been offered so far in the debate, but it sounds like the Government’s definition is too narrow in this age. That does not mean that we are talking about industrial policy. I was very interested to listen to many of the speeches by Opposition Members, including the hon. Member for Aberavon (Stephen Kinnock), who made some very good points. This is not the space for industrial policy, but it is a question of how we interpret national security.

The amendments I think we should be tabling are on a character test and a public interest test, if not specifically a human rights test. Nobody has ever accused me of being a bleeding heart liberal, but I think that, in this day and age, to have no human rights test, even one wrapped up in a public interest test or a character test, is genuinely confusing, especially because countries that are in many ways more free marketeer than us do have them. Australia has such a character test and a public interest test based on national security, competition, tax revenue, the impact on the country and what it describes as a common sense test. Forgive me if I am wrong, but I thought that we had rather invented common sense, but we do not necessarily have a common sense test or a character test.

While my hon. Friend the Member for Arundel and South Downs said that he is—I hope I am not misquoting him—ambivalent about the identity of people moving in, I am not. There is an issue about Huawei and there is an issue about ZTE because they are fronts for an authoritarian state. As well as a moral question over what authoritarian states do in their own countries—and, yes, we do tend to wag our fingers at people too much—there is a justified question to be asked, because how foreign authoritarian states treat their own people is very often, given half a chance, how they would treat us, so there is an issue for me here.



The next amendment relates to CFIUS, the Committee on Foreign Investment in the United States. That is a more transparent process and, if I understand it correctly, more people have to sign up to agree, so it is not just sitting within their version of the Department for Business, Energy and Industrial Strategy. Defence, the Secretary of State and other players get to sign off on funding for companies. In many ways, CFIUS has a higher threshold than we will have in this country. I do not think anyone is accusing the United States of being less free marketeer than we are, but in this area, they are more conservative. I am not saying they are right or wrong, but I think that it is an important point to note.

My right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) and the hon. Member for Dundee East (Stewart Hosie) spoke about the cumulative threat. It is not about a single company or a single issue, but the way an industry changes over time. Indeed, the hon. Member for Aberavon made that point about the slow collapse of the British steel industry. Also, the point has been made that a lot of foreign direct investment is good, but there is clearly a balance.

Finally on the amendments, I would be keen to see something more stated, more obvious or more explicit on critical national infrastructure. Where would we be with Chinese investment in our nuclear industry, for example, if this Bill was already law? That is a matter for genuine debate.

I will move on to one or two other specific points. We are forever telling people how we prioritise human rights and how we lead the world, yet there is nothing about human rights in the Bill. As I have said, I think that lacks consistency, and we need a public interest test.

Next, we are talking about national security without a definition. I was saying to my hon. Friend the Member for Bolton North East (Mark Logan) that we need a definition. He is very much a Sino expert: he lived in China and speaks Chinese, which is rather more than I do. He said that it is a very Confucian thing to say that, to have a debate, we need to understand the definition and know what we are debating. It is a genuine Confucian point: where is our definition of national security to have a debate with? We need that. In this day and age, we need a wider definition of national security. It is not just nuts and bolts on tanks—I am not saying that the Minister is saying that—but much wider than that.

The former leader of our party, my right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith) talked about civil and military fusion in China. I am somebody who lived in the Soviet Union. I have travelled in China a bit, and I have worked in sort of authoritarian states. The purest free market position here is dated. I am not saying we need an industrial policy approach, but we need an understanding that sees strategic interests—national security and the national interest—in big data, artificial intelligence, facial and gait recognition and all these technologies that Moscow and Beijing want to use to control their own people. I am surprised that the technology being developed by universities potentially does not fall under the Bill, and I believe it needs to.

My hon. Friend the Member for Gloucester (Richard Graham) made the point, as he ever does, about the importance of Chinese foreign direct investment, and I agree. The point was also made by my right hon. Friend the Member for Tunbridge Wells (Greg Clark). Chinese FDI clearly has an important role. It enriches our country, but there is a cost as well.

Finally, we need an amendment on strategic trade dependency. I would like to see an annual statement from the Government on the nature of our strategic trade dependency. If I had stood up a year ago and said, “Personal protective equipment is a strategic issue for this country,” everyone would have laughed and Front Benchers would have been swapping amused WhatsApps at the foolishness of a Back Bencher. Who now denies that PPE is a strategic issue, given the amount of money it has cost us and the delays because we did not have our own industry? Over time, that industry had faded away, and now that has caught us out. There is a wider strategic debate.

There is also the nature of dynamic risk, as my hon. Friend the Member for South Holland and The Deepings said. Everything that we know about the last year, with the changing nature of authoritarian states, such as China and Russia, the fusion of the civil and military and the entirely different approach to power in those countries, makes me realise that the national security definition that needs to be offered in the Bill, but currently is not, should be, if not broad, then at least have a greater understanding of the modern world we live in than is currently the case in the Bill or this debate. I very much hope there will be movement on that from Ministers.

17:19
Tim Loughton Portrait Tim Loughton (East Worthing and Shoreham) (Con)
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It is a pleasure to follow my hon. Friend the Member for Isle of Wight (Bob Seely), who has great experience in these matters. As he said, this has been a very thoughtful debate. I welcome the Bill, which, as many hon. Members have said, is long overdue. Much of our law on industrial security and business transactions is governed by the Enterprise Act 2002 and our very narrow and often inadequate competition and markets laws.

A lot has happened in the past 20 years. Major global corporations have exercised huge powers in mining data, monitoring and tracking populations and controlling technology in every aspect of our everyday lives. In most cases, they have done so without the need for a close physical presence. Of course, the huge issue of cyber-security and cyber-crime has become the weaponry of the 21st century. It is therefore right that we bring our laws into the 21st technological century, which would also bring us into line with some of our major allies.

This is also an investment Bill. As a global free-trading nation, we need to get the balance right and ensure that UK plc is open for business in the eyes of the international investment community and international markets. My constituency neighbour and hon. Friend the Member for Arundel and South Downs (Andrew Griffith), mentioned the great inflow of investment and jobs that that has created. The Bill needs to be targeted and proportionate so that we continue to attract safe investment, while deterring unsafe and questionable investment.

I am pleased to welcome the new systems and procedures in the Bill, including the transparent call-in notices based on trigger events, a clear and swift timetable to make decisions on call-ins, clear timelines, a single point of decision in BEIS, the interaction with the Competition and Markets Authority and the sanctions and legal challenge process. It is good to bring that in line with our Five Eyes allies. As the Minister said, it is estimated that the Bill will affect less than 1% of all mergers and acquisitions and asset transactions in this country.

My concern, like that of other right hon. and hon. Members, is whether the Bill goes far enough. Does it cover enough sectors and appropriate interests? How should the Government define national security, which is absent from the Bill? Should there not be a greater independent and external screening mechanism? Is not too much power still concentrated in a Secretary of State who, as was indicated by my right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith), can still be swayed by political considerations that sometimes—just sometimes—might trump national interests?

Where is the parliamentary scrutiny role in all this? Where is the appeal mechanism if no call-in is triggered? This is a point that not many other Members have mentioned, but does the Bill leave too many of our early-phase innovation companies exposed to being gobbled up by foreign super-giants that can take advantage of almost unlimited capital and currency swings in their favour? I remember the old days in the City when the Government had golden shares in companies such as Cable & Wireless, British Aerospace and Plessey. People had to make a foreign ownership declaration to own shares in Peninsular and Oriental, and they were only able to own deferred stock. The Government still have special shares in British Airways and Rolls-Royce, for example, but it is hard to think of the last time the UK Government blocked a takeover or major asset acquisition of a company in which they held a golden share. Are they actually that golden?

The Minister stated that he is nation agnostic and that there will be no white list of nations, but we all know—this debate has brought this out very clearly again—that China remains the biggest threat and the single most important reason why such legislation is required. I have been a lone voice on China’s human rights abuses in Tibet for many years, as chair of the all-party parliamentary group for Tibet, and it is good at last to be in company, partly sparked by the outrage that is going on against the Uyghurs, what has been going on in Hong Kong and the suppression of the indigenous Mongolian population. However, it is what we do not see that is so much more dangerous, and the row over Huawei and 5G earlier this year brought that to light.

The ownership of Huawei is quite clear: it is 99% owned by the Huawei Investment & Holding Company trade union committee. Under Chinese law, trade union committees are ultimately administered by and answerable to the All-China Federation of Trade Unions, which is according to its constitution under the control of the Chinese Communist party. It is a very clear ownership: Huawei is under state control.

Huawei is involved with at least 11 United Kingdom universities as well as six London colleges, and I have great concerns—I have raised them on many occasions in this House—about the influence of the Confucius institutes on our campuses around the country. The US has raised concerns as well. The US-China Economic and Security Review Commission last year said:

“China is using broad research relations with universities and other entities to try to fill in any technological gaps they have as well as in certain areas to try to advance Chinese standards so that Huawei and other Chinese-produced equipment will be the equipment of choice as networks get built out.”

That is a threat to national security, and we need to take account of it.

We have heard a warning just today about Scotland and Scottish universities: Scotland has the highest number of Confucius institutes per capita of any country in the world.

We all know that ultimately the CCP has a claim on any data held by Chinese companies, where it does not need to go to the inconvenience of hacking into a foreign company’s database, as happens all too often. That includes TikTok, as we have heard from many hon. Members—in particular, my hon. Friend the Member for Wealden (Ms Ghani), who has made a specialisation of this. The spread of social media is a hugely powerful tool in extending control over populations, particularly young populations. China’s national intelligence law requires all Chinese firms, not just Huawei, to assist in state intelligence work, and Huawei’s equipment is used in monitoring the population in Xinjiang province. And of course it has great form in stealing IP from countries around the world.

All the contributions in this debate so far have focused on technology and communications, but why is pharmaceuticals and biotechnology not on the list in the Bill? It has been included on the list of the equivalent legislation in France. We know from Wuhan the global reach that biotechnology can have when it goes wrong. What checks are there on Chinese laboratories operating on UK soil in dangerous materials that could compromise our security? China, as we have heard, has been taking over pharmaceutical firms, including human blood plasma firm Bio Products, originally part of the NHS and taken over in 2016 by the Creat Group. That company would not have been covered by the mandatory notification under the proposals in the Bill.

There are many other areas of Chinese ownership that cause concern, too. The China General Nuclear Power Group holds a third of Hinkley Point nuclear plant and 20% of Sizewell C, and Beijing-controlled companies control about 25% of nuclear and wind energy demand in the United Kingdom. As my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) mentioned, it is the cumulative effect of their influence and their ownership that we need to be aware of. The largest operator in the North sea is the China National Offshore Oil Corporation, accounting for 25% of UK oil production and 10% of the country’s energy needs—helped by billions of pounds-worth of tax breaks from this Government and previous Governments, it should be noted. The chairman of the CNOOC, Wang Yilin, declared in 2012:

“Large-scale deep-water rigs are our mobile national territory and a strategic weapon.”

The China Huaneng Group is building Europe’s largest battery storage project in Wiltshire, and the Hong Kong company MTR owns a 30% stake in South Western Railway and has the Crossrail franchise. I could go on and on, and the Henry Jackson Society has estimated that only 23 out of 117 Chinese acquisitions of UK corporations in the past decade would have been subject to the mandatory notification in this proposed legislation.

These are all strategic areas—energy, infrastructure, transport interests—which could have a massive impact on our security and prosperity if controlled by a malign party, and on top of that there is the monopoly China is building up in the supply of lithium and cobalt, essential components of batteries and the battery technology that we need to develop globally for environmental reasons as well.

What would the impact of the Bill be on all of those operations? What are the reciprocal rights for UK companies taking a stake—a controlling one or otherwise —in equivalent companies in China? I bet they are not equivalent. Surely there needs to be some sort of equivalence test in this legislation to ensure that we have access to assets overseas that is equal to that we are allowing overseas corporations and Governments to have in this country.

I have not mentioned human rights, which has come up many times. I have not mentioned the malign influence of Russia and heavily disguised asset purchases from those close to the Putin regime. What does the Bill do for clearer declarations of ultimate beneficial ownership and the role of Companies House? We have done much in that area on tax avoidance, but what about for the purposes of the national interest? We need far greater transparency. Surely the Bill is a way of helping to achieve that. Surely there should be a wider national interest test.

We must also mention the role and influence of friendly foreign powers, particularly the concerns about US and Japanese multinational companies that have been gobbling up UK high-tech start-ups and defence companies in recent years. The hon. Member for Aberavon (Stephen Kinnock) mentioned ARM, which was taken over by the Japanese—SoftBank—in 2016 and then by the Americans this year. It makes silicon chips for virtually all our mobile phones. There are numerous examples of high-tech start-ups in silicon fen at Cambridge. Public money has gone into universities, resulting in commercial spin-offs, and then founding shareholders have been lured by pound or dollar signs to silicon valley, US high-tech giants and social media companies. That is why we have no equivalents of Facebook, Google or TikTok in this country. We have very few tech stocks; in the FTSE, the weighting of infotech is just 1.37%.

In conclusion, Madam Deputy Speaker—before some naughty extremity of your body casts itself in my direction —surely we should be using a national interest test to grow our own in the United Kingdom. Certainly there should be a reciprocity test if national interest protection laws overseas prevent UK companies from making equivalent acquisitions or taking strategic stakes. I support the Bill, but there are many questions still to be answered, and measures certainly need to be beefed up.

17:31
Anthony Mangnall Portrait Anthony Mangnall (Totnes) (Con)
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Thank you, Madam Deputy Speaker, for calling me in such an important debate. May I start by thanking the Secretary of State and the Minister for the time that they have given me, members of the Inter-Parliamentary Alliance on China and others to discuss the contents of the Bill and what it does?

As I understand it—I hope I get this explanation right—the Bill gives the Government the power to screen and call in acquisitions of assets deemed to pose a threat to national security. Those assets might include land, physical property or intellectual property. As a result, the Secretary of State will be given retrospective powers to consider investments made over the past five years.

I welcome the cross-party consensus on the Bill. It seems to me, as a new intake Member of Parliament, that this is one of those rare moments when there is consensus in the House to produce a truly remarkable piece of legislation. I hope that the Government will listen carefully to the comments that have been made already.

I welcome the sentiments of the Bill, and I hope that passing it into law will be our first step in attempting to match Australia’s Foreign Investment Reform (Protecting Australia’s National Security) Bill and America’s Foreign Investment Risk Review Modernisation Act of 2018. But—and there is a sizeable “but”—we have, as other Members have made clear, a long way to go before this legislation reflects the comprehensive laws that many of our Five Eyes nation colleagues have in place.

The UK seeks to be a competitive, free and fair economy. I believe that that is sacrosanct and that we must do everything we can to ensure that businesses and people around the world look at our country as an attractive destination for investment. A stable democracy, a highly skilled workforce, league table topping universities, the rule of law and world-class industries such as photonics and FinTech all make the UK an attractive place to invest that benefits investors and British citizens alike.

Our laws are balanced as a result, encouraging foreign investment and adherence to UK laws and national interests. That balance has become all the more challenging with rapid technological change, internationalist agendas and our own failure, if I may say so, to hold a strategic dependency review. In short, the threats to our national security are numerous, real and present, and they come in a multitude of forms.

The narrow scope of the Bill limits its impact. It fails to address the threats that the UK is currently facing, and it holds the potential to see us become complicit with businesses and organisations that violate human rights. The national security that the Secretary of State spoke of remains ill-defined, to the detriment of the objectives of the Bill. Added to that, under the screening mechanism outlined in the Bill, a number of sectors are not addressed, such as education—a core part of the UK’s economy and an attraction to thousands of foreign students across the globe, with institutions that undertake research and development programmes in myriad areas, including defence, development and foreign affairs. A recent study found that 10 UK university laboratories are now dependent on significant investment from Chinese defence firms, yet our universities have not been specified in the scope of the Government’s consultation on sectors to which mandatory notification applies. How can that not be considered a national security risk?

The pharmaceutical sector is a global success story, with many companies basing their operations here in the UK, but there is nothing in the Bill that would have stopped or reviewed the Chinese takeover of Bio Products Laboratory. At a time when we face greater and graver challenges around the health of mankind, the Government must rethink what needs to be included in the scope of their consultation.

I have touched on two sectors but said nothing about the UK’s nuclear sector or water industry. Both need to be given the cover to protect our national security. Our core infrastructure, which is intimately connected to our national security, is routinely being placed in the hands of foreign owners. That should be a cause of great concern to the whole House. My hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) mentioned the 23 out of 117 Chinese acquisitions of UK firms—if less than 20% of Chinese acquisitions are being scrutinised under this legislation, we need to rethink parts of the Bill and strengthen it where possible.

Richard Fuller Portrait Richard Fuller
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I think it would be helpful for us to decide whether we are talking about foreign ownership of assets or Chinese ownership of assets. Obviously there is a gradation between them, but I am hearing from some of the contributions that we just do not like foreigner ownership of assets, which I am sure is not what my hon. Friend means at all.

Anthony Mangnall Portrait Anthony Mangnall
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It is important to recognise that China has a poor track record in this case, which has not been addressed, but of course we are not against foreign ownership. We want to ensure that the structure is in place to scrutinise these acquisitions in the correct way that protects opportunity in this country. I thank my hon. Friend for his intervention.

A few months ago, I broke cover early on to vote against the Government over the proposals to see our 5G network built by Huawei—and I have not lived it down yet! I did so because our core infrastructure should never be compromised by foreign investment, and that was a severe threat to our national security. I welcome the fact that the Government have moved so significantly and plan to phase out Huawei by 2027.

I also did so because of the reports of human rights violations by Huawei. The success of my right hon. Friend the Member for Maidenhead (Mrs May) in passing the Modern Slavery Act 2015 is a proud moment for the UK, but it is worthless unless we use this Bill to stop dealing with companies that are reported to be using slave labour and looking to invest in the United Kingdom. Nothing in the Bill prevents companies that are complicit in gross human rights violations from investing in the United Kingdom, and that is a huge oversight. It would be an injustice and morally wrong for the UK ever to look the other way as money created from slave labour was invested in this country.

We have been told that this is not the right Bill for such provisions, but with all due respect, that is the same excuse used by the Whips on every single occasion that I have raised concerns about a piece of legislation. If we are going to bring forward the correct pieces of legislation, let us bring them forward. If not, the Government should not be surprised if we try to tack on amendments to address the issues that so many Members across the House feel strongly about.

Bob Seely Portrait Bob Seely
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My hon. Friend is making such a brilliant speech that I do not want to interrupt him, but I will do so briefly. Does he agree that all these concerns could be wrapped up in a public interest amendment—including, for example, a human rights element—which would give Ministers some leeway and scope to address them?

Anthony Mangnall Portrait Anthony Mangnall
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My hon. Friend is absolutely correct. I hope that the Minister is listening, that we might expect such an amendment to arrive before us in due course, and that, with the consent of the House, we might see it implemented.

As I was saying, the line between state and civil actor has been blurred. The civil/military fusion requires legislation, and the Bill is in need of development to counter it. I therefore ask the Government very quickly to consider the following few proposals.

First, I would suggest the introduction of a committee on foreign investment. Our colleagues in America have introduced such a system. That would alleviate the pressure for any decisions to be made from political expediency. I believe, as my hon. Friend the Member for East Worthing and Shoreham was saying, that that would promote parliamentary scrutiny and transparency and ensure that there was an understanding of the entire system.

Secondly, I would suggest that the definition of national security be expanded to include human rights. We do more often than not, in this country and in this place, develop policy around moral obligations. This should be one of those cases.

Thirdly, I suggest that we increase the Bill’s scope and use it to tackle organised crime. That has not been mentioned. The UK very successfully closed the domestic trade in ivory. There was a trade across the globe—a domestic trade in ivory that was linked to al-Shabab. There is a way to track organised crime down to terrorist organisations. There is scope within the Bill to do so.

Fourthly, a recent study found that at least 929 UK shell companies used in 89 corruption and money laundering cases accounted for £137 billion. Those companies are registered through Companies House. The Bill should be used to alleviate the burdens and ensure that there are fewer implications for the UK.

We can attract investment and tackle malign activities. I hope the Government will engage, in the same constructive manner in which they have introduced the Bill, and I will be supporting them tonight. I am sorry for going on for so long.

17:47
James Wild Portrait James Wild (North West Norfolk) (Con)
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It is a pleasure to be called to follow my hon. Friend the Member for Totnes (Anthony Mangnall) and make a contribution reflecting my time as an adviser in the Ministry of Defence, as well as in the Cabinet Office, where I was involved in national security issues and the investment regime.

In three years advising the Defence Secretary, there were issues with an increasing number of transactions that, typically, related to small firms involved in sensitive parts of the defence supply chain or in emerging technologies. The regime at that time, because of the threshold limit, did not allow the Government to impose formal remedies, let alone block transactions. Instead, we had to rely on a quiet word with those seeking to sell firms, to discourage them from such action. In more than one case, a suspicion was that a hostile actor, a state actor, was seeking to use a transaction to acquire key intellectual property to support their offensive military capabilities.

Persuasion did ensure that none of those transactions came to fruition, but the risk was clearly there. It is not acceptable to leave that gap in our powers. In the Cabinet Office I worked on measures to improve the Government’s ability to take a more strategic view of risks, and to understand the cumulative impact that my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) and others have talked about, as well as bringing in the regulations to lower the threshold for military dual-use goods and advanced technologies. That dealt with some of the problems, but the case for comprehensive reform to strengthen the current legal framework is compelling.

In legislating, our role here today is to judge how best to protect national security while encouraging investment and maintaining the UK’s hard-fought reputation as one of the best places to do business. In my view, that is best done by having a regime that is targeted, predictable, transparent and efficient, so I welcome the Bill, which improves on the proposals set out in the White Paper. It gives more clarity on the sectors where the greatest risks to national security exist, and for which a mandatory approach will therefore rightly apply, subject to consultation.

However, investors must be assured that the regime is about national security; it is not a power to block transactions that Ministers do not like, or a back door to protectionism. There also needs to be an efficient screening system. It is crucial that the structures and resources are put in place to ensure that the timetables for review and assessment in the Bill are actually met. I know that the proposed investment security unit will sit within BEIS. Others have mentioned that issue. I should be grateful if the Minister would explain how the unit will work—for example, with the National Security Secretariat within the Cabinet Office—and whether there will be joint staffing, given the need for people with sufficient experience and vetting to provide the advice, because the success of the regime depends on being able to deal with the number of notifications coming forward. Will there also be additional resourcing for the agencies and other parts of Government that will provide those assessments?

The Bill represents a proportionate approach to provide the powers to screen transactions on national security grounds and ensures that the UK remains open for business—but not at any cost.

11:30
Nickie Aiken Portrait Nickie Aiken (Cities of London and Westminster) (Con)
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First, I note that I am the only woman on the Government Benches speaking in the debate today. That is not because many of my colleagues do not wish to. For example, my hon. Friends the Members for South Ribble (Katherine Fletcher) and for Rutland and Melton (Alicia Kearns) cannot speak today because they are self-isolating or shielding and our virtual Parliament does not allow them to take part in these debates. The sooner we allow Members who are having to self-isolate and shield to take part in debates, the better.

I welcome the Bill and the work it will do not only to protect British business and our national security, but to provide more safety and comfort to companies and individuals from abroad investing in the United Kingdom. There is a clear need for the Bill to secure new investment as we transition into a genuinely independent trading nation for the simple reason that legislation in this area was last written at the beginning of this century, and it has not kept up with business and advances in technology since then.

I regularly speak to financial and professional services based in my constituency of the Cities of London and Westminster, and the legislation technology lag is often a key concern. I am glad that the Government are taking action to prevent the lag from growing any greater. As we recover from covid-19, it is essential, for the economy to recover, that we remain a vibrant and attractive destination for global investment. The actions taken under the Bill to make interactions with the Government simpler, more transparent and swifter than the current regime have to be welcomed for the benefits to both domestic business seeking international capital and those investing from abroad alike.

The Bill, as I understand it, will also create an investment screening regime in line with those that already exist in other nations around the world—many have been mentioned today—meaning that investors will be familiar with the processes that they will likely have to undertake. I am pleased that my right hon. Friend the Secretary of State is keenly aware that we must strike a balance between preserving national security and enshrining the UK’s world-leading position as an investment location. Of course, we are aware that it is only a small minority of rogue players who might pose a risk to our national security, so we must welcome legitimate investment as openly as possible. I hope the Government will continue to work with businesses as the Bill progresses to ensure that that balance is maintained.

Having said that, I understand that the Government predict, in their impact assessments, that less than 1% of all mergers and acquisitions and asset transactions will result in voluntary notification to Government. Some of the magic circle law firms based in my constituency believe that the Government may have underestimated those figures and, indeed, even if they are correct, it will none the less result in a much greater number of transactions being reviewed than is currently the case. They are concerned that the increased administrative burden of more reviews might deter investors. I would welcome a response from the Minister on that point.

I am pleased that the Bill’s focus is on national security concerns and that it will not enable the Government to intervene for wider economic reasons. This appears to remove the potential for any political interference when reviewing mergers and acquisitions. I would welcome assurances from my hon. Friend the Minister that it is the Government’s intention to take the politics out of that as much as possible. Furthermore, I am reassured that the new investment security unit will be within the Department for Business, Energy and Industrial Strategy, rather than across Government—although I take the point made by my hon. Friend the Member for North West Norfolk (James Wild)—meaning greater consistency and potential speed in decision making. It is about that speed. As has been said already today, 30 days should really mean 30 days if we are to ensure that we do not block investment.

Finally, the Bill is to be welcomed in the broader context of other legislation before the House. I spoke last week in the Second Reading debate on the Financial Services Bill, brought forward by Her Majesty’s Treasury. Taken together, I believe the Bills represent a clear indicator that across Government, this Administration understand the priority and impact the financial and professional services, many based in the City of London, have on UK plc and the wider global economy. They will lead the recapitalisation of the economy post covid-19 and they will finance the Government’s levelling up agenda. It is right that we do what we can to ensure that they can operate safely and securely as technology advances in the financial marketplace.

I hope that my right hon. Friend the Secretary of State and ministerial colleagues will continue to consult business as the Bill progresses through the House. Should I be able to act as a conduit to the business community in my constituency, I would be delighted to help. I commend the Bill to the House.

17:49
Richard Fuller Portrait Richard Fuller (North East Bedfordshire) (Con)
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It is a pleasure to follow my hon. Friend the Member for Cities of London and Westminster (Nickie Aiken), who represents a constituency where many businesses will have to wrestle with some of the implications of the Bill as it passes through and becomes law. I congratulate my right hon. Friend the Secretary of State and the Minister on their preparation of this Bill. A lot of good time has been put in over the past couple of years and good evidence has been presented to prepare the Bill for debate today, and it will be my pleasure to support it.

It is both easier and right to look at this as a national security measure and not so much as an investment measure; we have to deal with the investment implications, but it is important that we get the national security measures right. There has been lots of conversation today about the requirements of the Bill, but I have to say that the evidence of historical examples has not been quite as strong as some of the measures in it. In many cases, this is a precautionary Bill, rather than one driven by the evidence historically. I do not think we want to be too critical of what we have been doing over the past 10 or 15 years. As many Members have said, this Bill is bringing something up to date so that we can deal with the things we think might be coming in the next 10 or 20 years.

I can now see why the Minister has had to thread a needle to try to land this precisely. Many voices, on all sides, have been asking him to extend the Bill. Indeed, the Bill has the potential to be an expansive octopus, given the pressures that might be put on the Government to extend it. I have heard about having a wider national interest test and including more sectors than the 17 we already have. We have talked about a definition of the national interest, which has been portrayed to the Minister as something that might restrict, but, as he well knows, the more precise a definition, the broader it can be in terms of how it is interpreted for others.

There have been many cautionary comments from others about the extension of the Bill into a national industry strategy for the country—that is not the purpose of the Bill. The right hon. Member for Doncaster North (Edward Miliband), the Opposition spokesman, who is no longer in his place, misjudged the Bill in saying that that is something we need to adorn it with. That would be completely inappropriate and it would take away from some of the scrutiny I hope Members will give the Bill as it goes through Committee.

I ask the Minister to be aware of and listen to people on the potential for unintended consequences. We have heard a lot about the decision in respect of Huawei, but he will be aware of the potential for retaliatory measures by us. Please look at the unintended consequences in respect of innovation in some of the sectors that may be affected. In that regard, I just point Members to my entry in the Register of Members’ Financial Interests as an adviser to a technology company.

May we also feed something in from the Government Benches about a pattern we are seeing? As we are bringing forward more regulatory measures and as we take back regulatory powers from the EU, parliamentarians are constantly raising the question of what parliamentary oversight of those regulatory powers there is. It would be useful if Ministers would look at that. I congratulate the Minister on presenting the Bill and I am grateful for the opportunity to make some comments today.

17:53
David Johnston Portrait David Johnston (Wantage) (Con)
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It is a pleasure to follow my hon. Friend the Member for North East Bedfordshire (Richard Fuller), who always brings a lot of expertise to debates about business matters in this House. I welcome the Bill, and I say that as a supporter of open trade and investment, not as a supporter of protectionism, not least because I want to see companies and products from the UK in every country in the world.

The Government’s No. 1 job is our national security, as is any Government’s. The regime for assessing that through an investment lens was designed in 2002. We can all pick something from 2002 that indicates just how long ago that was, but I have opted for the fact that it was in 2002 that President George W. Bush declared Iran, Iraq and North Korea as being the “axis of evil”. Whether or not we think he was right to do that and that those were the right countries, it illustrates just how much geopolitics has changed in that time and shows that we were not thinking about the threats we now face, at least in the same way, in 2002. It is therefore right that the Government now update the regime that we use to assess these matters. It is also right to have a system of mandatory notifications in the 17 areas that have been defined. In 2002, we did not even understand how artificial intelligence or advanced robotics might improve our lives, never mind the ways in which they might be used by hostile states to endanger our national security.

It is right that the Secretary of State will have a five-year period in which to call in trigger events after they have happened. That will enable him or her to perceive a threat that may not have been immediately obvious at the time of the trigger event. The Government rightly say that this Bill is not about one country or one threat—we should not be looking through the lens of 2002 for the current regime; we should make legislation now based on which countries we think are the threats in 2020. But I was one of the people concerned about the position we had got into with Huawei, which is, in many ways, a good example of why we need that retrospective power. Difficult though it may be to unwind some decisions, there are times when we have to do so. It is also right that there is no turnover threshold. If it relates to national security, it relates to national security. Turnover simply should not be a factor.

Unusually, I found that a lot of criticisms of the Bill that I looked at before this debate were actually in its favour, although a number of Members have actually made great contributions today about the ways in which we might further strengthen the legislation. The fact that we might, by the Government’s estimate, see between 1,000 and 1,830 notifications made says to me not that the new regime is too strong, but that our old regime has not been strong enough. Maybe it will end up at that number and maybe it will not, but having only had 12 assessments done in the period since 2002 suggests to me that we are not dealing with a strong enough set of tools to assess these situations. The fact that 100 instances might have to go through a full national security assessment and that we might seek to impose remedies on 50—again, by the Government’s assessment—just underlines why this legislation is important and why we need a much stronger regime.

It is right that national security is not defined in this legislation, as that will enable the Government—and, importantly, our security services—to interpret it as broadly as they can, and to perceive threats that they may not have perceived before. It is also right that the Secretary of State makes the decisions. I have seen some pooh-poohing of the role of politicians in this process, with the idea that they might use it for political gain or domestic considerations that are not really about national security, but we elect politicians to make judgments about national security. They are the ones who are truly accountable, rather than officials. It is right that that role should sit with the Secretary of State.

I welcome the way in which we have borrowed from international examples: mandatory notifications such as those in the US and Japan, and a retrospective period such as that in France and Germany. This suggests that we have looked at examples around the world, and borrowed from them all to try to get the best system for us. Of course, it also underlines the fact that we are behind a number of our partners—both the Five Eyes and our western European partners—and therefore the importance of passing this legislation quickly.

I will continue to welcome foreign investment and foreign trade, but I will never do so with any risk to national security. Given the actions that we see from hostile states through their investment decisions on a weekly basis, the passage of this Bill cannot come quickly enough.

00:04
Alexander Stafford Portrait Alexander Stafford (Rother Valley) (Con)
- Hansard - - - Excerpts

It is a pleasure to follow my hon. Friend the Member for Wantage (David Johnston) and also to recall the axis of evil. He mentions that things have moved on, but I challenge that and say that those countries that were part of that axis of evil are still threats today. Some of us were warning about the likes of China and Russia back in 2000, so I believe that the world is becoming a far more dangerous place. We have an increased number of threats rather than fewer, which is why this Bill is so fundamentally important. We need to have national security as our watchword. I know that this Government understand that perfectly well, so, as well as encouraging new investment into Britain, we need to increase the security and safety of British interests from hostile actors.

The Bill will give the Government new powers to block mergers and acquisitions when they are national security risks. It will also introduce an extension of screening powers to include assets and intellectual property as well as companies.

Why is this Bill so necessary? There is no doubt that foreign direct investment is vital to the UK economy. In the past 10 years, over 600,000 new jobs have been created from more than 16,000 FDI projects and $750 billion have flowed into the UK as a result of FDI. Foreign direct investment is overwhelmingly a good thing. As a Conservative, I am greatly anticipating throwing open our doors to global inward investment as we exit the Brexit transition period. I support unrestricted international trade and, for me, attracting investment into Britain is one of the most exciting things about leaving the European Union. Let me make this clear: leaving the European Union allows us to increase investment in this country, and it will be better economically for all of us.

However, we cannot be naive about the threat that certain regimes pose for the United Kingdom. They exert their influence by taking over companies in strategic areas and increasing our dependency on their products and services, limiting our independence and stifling our dissent in the process. We cannot overthrow the shackles of the European Union only for hostile powers to come over and take over the jewels in the British crown. That is not acceptable.

Members will know well that one of my political interests is the combating of the malign influence of the People’s Republic of China. The Government demonstrated strong leadership earlier this year by banning Huawei from Britain’s 5G infrastructure. I pay tribute to my hon. Friend the Member for Totnes (Anthony Mangnall), who is no longer in his place, who helped the Government to come to the realisation of these malign influences. However, despite Huawei’s weak protestations of independence from the Chinese Communist party, western politicians and companies know the price of conducting business in the PRC. A mainland Chinese telecom company, founded by a former People’s Liberation Army officer, has no chance of avoiding Beijing’s meddling, especially when the company in question is playing a central role in critical western infrastructure.

The same can be said of TikTok, a Chinese-owed app, which has enjoyed explosive growth in the west among teenagers. It is not all fun and games though, with the company being accused of having close links with the Chinese regime and of gathering data on our young people. Indeed, we heard from representatives of TikTok on the Business, Energy and Industrial Strategy Committee a couple of weeks ago, and we heard their protestations saying that they had no connection almost and that they were not passing over data. However, how can that be true when TikTok is owned by China—a state that is naturally hostile to human rights and many other aspects?

There are very real fears that the Chinese state is using its economic influence to weaken our Government, sow discord in our societies and extend its surveillance network in our lives. Let us be honest, it is not just in Britain that we see China act in such a way. We have seen it act across the middle east and into Africa as well. We are not the only country over which China is trying to extend its influence and it is great that this Bill will go some way to stop that influence and protect our national infrastructure. I am pleased that the Bill takes such a strong stance.

Huawei and TikTok should act as a cautionary tale to us for the future. The PRC’s unforgivable actions in Hong Kong, an autonomous territory, against the Uyghurs, a distinct and proud people, and against the Christians in China show us that Beijing cannot play by the rules and we cannot rely on them to look after our best interests.

However, the PRC is not the only regime about which we must worry. I do not need to remind Members of the threat posed by Russia and Iran and other despotic dictatorships. My priority is the protection of the British national interest and the safety of UK citizens. As the UK’s current powers to oversee foreign investment date from legislation in 2002, new primary legislation is needed to bring the UK Government’s powers up to date. As my hon. Friend the Member for Wantage said, much has changed over the past 20 years and therefore these new powers must take into account new threats and technological, economic and geopolitical changes. The Government must have powers to intervene effectively and efficiently to protect the UK. Furthermore, to be an effective and trustworthy ally to our friends and partners around the world, we must bring our powers into line with theirs. Australia, Japan and the United States have already taken action in this area, and we must not be left behind, because if we are, our businesses and our infrastructure will be ripe for the picking for these malign regimes.

This Bill means that we can continue to work on bringing investment to our shores, boosting GDP and creating jobs as we recover from the coronavirus while defending ourselves against those who threaten the safety of the British people and the UK’s sensitive assets. I expect Members in all parts of the House to support this crucial piece of legislation, which will ensure that we are prepared for the challenges and the threats of the future, because the world is not a safe place and there are many countries and regimes that want to do us down. We will always stand with the British people and with British business to protect our interests.

18:05
Aaron Bell Portrait Aaron Bell (Newcastle-under-Lyme) (Con)
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It is a pleasure to follow my hon. Friend the Member for Rother Valley (Alexander Stafford), and indeed colleagues around the House, as the last Back-Bench speaker in this debate.

This has been a very thoughtful debate with lots of interesting suggestions for the Minister from all sides. I thank the Secretary of State for his opening remarks and the Minister for his engagement with these issues. He met the Science and Technology Committee last week to talk through the Bill. It was obviously time well spent, because three of my colleagues from the Committee have already spoken, and now he has me as well—so well done to the Minister.

It is tempting, from a science and technology perspective, to seek to widen the scope of the Bill to attempt, for example, to protect start-ups in these fields, which are very innovative. Ultimately, however, I come down in the same place as the Chairman of the Committee, my right hon. Friend the Member for Tunbridge Wells (Greg Clark). Countries that try to legislate themselves into self-sufficiency instead end up self-satisfied, and that would then strangle the very innovation that we all seek and want to see in our businesses in the spheres of science and technology. I am therefore pleased that the Bill is drawn narrowly.

The Bill sits at the nexus of our domestic economy and our international relations. If we were to widen its scope beyond the fairly narrow way it has been drawn, that could have unintended consequences for both those things. We heard the excellent and witty speech from the former Leader of the Opposition, the right hon. Member for Doncaster North (Edward Miliband), who clearly has lots of ambitions in the area of industrial strategy. I look forward to him putting that into the next Labour manifesto, perhaps, and that is where we can discuss these things, but this Bill is not the place to try to detail all the elements, whether it is about confectionery companies, union control or any of those sorts of things. This needs to be a narrow Bill so that we do not move into too many unintended consequences.

On international relations, as my hon. Friend the Member for Wantage (David Johnston) said, we need to move with the times and in response to events. The exact nature of the threats we face evolves and changes over time. I trust my right hon. Friends the Foreign Secretary and the Prime Minister, and we need to give them the leeway to make judgments about national security in the face of what the international situation is at the time. This Bill is not just for the next five years. It is not just for the threat that we clearly face from the expansionist tendencies of Russia and China. It needs to stand the test of time, and by drawing it narrowly, we give it a better chance of doing that.

I support the Bill as it is, although many colleagues around the Chamber have made thoughtful suggestions for amendments, and I know the Minister will speak to those when he winds up. First, it gives us more security. Others in this place are far more expert on national security than I am, but it is clear that the developments we have seen over the past decade have meant that we have had to re-evaluate our relations with potentially hostile actors, such as China. My right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith) spoke very firmly about that. This Bill gives us a proportionate defence against hostile actors who are targeting sensitive UK assets, and in ever more novel and complex ways that we could not have imagined in 2002 when the Enterprise Act on which our current defences rest was passed. It is time to update those powers, and I hope we can do so in a way that will stand the test of time. It is also right that we update those powers with a turnover requirement, because, again to echo my hon. Friend the Member for Wantage, national security is no respecter of the size of a company or where it is in terms of growth. Sometimes very nascent companies could have a significant impact on our national security in future.

The Bill provides more certainty for businesses and a regime that prioritises swift resolution of referrals and call-ins. That is absolutely, fundamentally important. My hon. Friend the Member for Arundel and South Downs (Andrew Griffith) was very much to the point on this. Businesses deserve certainty. If the answer is no on national security grounds, that is fair enough, but we cannot leave things in limbo. One might think that the five-year period does leave businesses in limbo to some extent. I acknowledge my hon. Friend’s point that most lawyers will probably suggest that they notify the Minister, and so, as he said, publishing statistics on notifications would be welcome. We need to maintain the UK as a premier foreign direct investment destination, because it is so important to our future, to our recovery from covid, to meeting our net zero targets—I congratulate my hon. Friend the Member for Arundel and South Downs on his appointment on that—and to levelling up. It is particularly relevant to me, in Newcastle-under-Lyme in north Staffordshire, that we continue to attract foreign direct investment so that we can continue to regrow our national economy and our local economies in areas that have not had much investment in the past couple of decades.

To sum up, this Bill will give us a regime in line with some of our strongest allies in the world. It will protect our national security and ensure that Britain remains fully open for business, and for all those reasons, I will be supporting it on Second Reading.

18:10
Chi Onwurah Portrait Chi Onwurah (Newcastle upon Tyne Central) (Lab)
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As my right hon. Friend the Member for Doncaster North (Edward Miliband) set out very well in opening the debate, we support the Bill. Inward investment is crucial for businesses across the UK and our economy, but it is also crucial that the UK has the powers in place to scrutinise and intervene in business transactions that could have implications for our national security.

In fact, we would have welcomed this Bill a long time ago. It is clear that the Government have failed to keep pace with other countries, including the United States, France and Germany, that have already taken steps to update the legislation in line with evolving security threats. From serious questions about Huawei’s dominant role in the UK’s 5G network, as raised many times by the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith), to the takeover of Imagination Technologies by Canyon Bridge, it is inarguable that the Government have been slow off the mark on foreign acquisitions and the possible implications for national security.

Right hon. and hon. Members from all sides agreed on that, including, I think, the Chairs of the Business, Energy and Industrial Strategy Committee, the Science and Technology Committee and the Foreign Affairs Committee, and all five—I think it was five—members of the Intelligence and Security Committee who spoke. I thank colleagues from across the House for their contributions and apologise in advance if I cannot do justice to all of them.

This has been an excellent debate, one that I think showed the House at its best; we heard informed and considered speeches and, where there was disagreement, it was reasoned and open. There is strong agreement across the House that new legislation is necessary to combat changing security threats and to balance those considerations against the ambition to ensure that the UK remains an attractive country in which to invest.

Companies in fast-developing fields, from quantum computing to telecommunications to artificial intelligence to cryptography, are no longer just companies; they are strategic assets that are fundamental to our nation’s security. Until now, Ministers have failed to modernise the takeover regime to keep up with this changing landscape, the pace of technological development and what that means for security. Instead, they have continued to operate within a legal framework that, as we have heard, was created almost two decades ago, before Facebook or Twitter were even invented. My hon. Friend the Member for Warrington North (Charlotte Nichols) explained the impact of that uncertainty on the nuclear industry and investment in her constituency.

That is why we strongly welcome the Bill now and agree that it is necessary. It is essential that we get the specific provisions of the Bill right, in order not to deter foreign direct investment while also balancing the need to protect our national security. First, there is the definition of national security, which was raised by many, particularly the hon. Member for Isle of Wight (Bob Seely). The right hon. Member for South Holland and The Depths (Sir John Hayes)—[Interruption.] The Deepings, sorry.

John Hayes Portrait Sir John Hayes
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As deep as you want!

Chi Onwurah Portrait Chi Onwurah
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The right hon. Gentleman is always very deep in his responses. He suggested it was deliberately left undefined in the Bill. The sectors that will be subject to mandatory notification are also not defined in the Bill and, we are told, will be set out in secondary legislation. I thank the hon. Member for Bolton North East (Mark Logan) for his provisional mnemonic and wish him well in updating it.

Definitions, and the lack of them, are important because the proposed powers are not limited by size of turnover or share of supply threshold. They could apply to almost every business transaction within the sectors, and the definition of national security therefore must be set out to help provide clarity for businesses and investors, but it is unclear—perhaps the Minister could provide some of that clarity—whether the takeover of the UK artificial intelligence company DeepMind by Google would have been called in on national security grounds under the scope of this Bill.

In Committee, Labour will seek further details on how the retrospective powers to render acquisitions void would be applied and whether an assessment has been made of the economic and legal consequences for businesses and their employees of acquisitions being rendered void after the fact. The hon. Member for Dundee East (Stewart Hosie) highlighted the Government’s capacity, or lack of it, to process the sheer volume of estimated notifications that the Bill will provoke. We need also to look at how businesses, small businesses in particular, will be supported to cope with the new regulations, which may prove difficult to navigate. We will ask also whether an assessment has been made by Government of the impact the changes could have on investment in small businesses—a chilling effect—including university start-ups, particularly those in the 17 key sectors, which was a point made by the hon. Member for The Wrekin (Mark Pritchard).

Labour will also seek assurances about transparency and oversight and how the powers are applied—a worry of the hon. Member for Beckenham (Bob Stewart)—including calling on the Government to explore giving the Intelligence and Security Committee a role in scrutinising the use of powers under this legislation. My right hon. Friend the Member for North Durham (Mr Jones) was right to emphasise the importance of the involvement of and access for the intelligence services.

We hope to work with the Government to ensure that we establish a robust, transparent and fair regime that protects national security, while allowing the UK to continue to enjoy the opportunities that overseas investment affords businesses across our country and economy, but the Bill is also a missed opportunity. It is a missed opportunity to demonstrate what the Government mean by “industrial strategy” and to show that it is more than a slogan. It is a missed opportunity to help UK businesses in key sectors to flourish and grow here in the UK, sustaining and creating jobs—a point on which my hon. Friend the Member for Aberavon (Stephen Kinnock) was particularly eloquent.

Time and again, we see vibrant, growing UK companies sadly lost overseas. While we recognise that foreign acquisition can breathe new life into a company, supporting jobs and growth in the UK, far too often we see UK companies pawned off or stripped for parts. Far too often we see UK companies bought out and wound down to eliminate the competition, with the consequent loss of high-skilled jobs. Nowhere is that more evident than in the technology sector, which must be a key part of any 21st century industrial strategy.

We have lost far too many businesses to Silicon Valley, weakening our technological sovereignty. The takeover of leading UK technological company Arm by the US company Nvidia was announced recently, and while Ministers claim to have scrutinised the deal, they have not been forthcoming with the details. When Arm was previously taken over by SoftBank, legal assurances were extracted about the future of the company’s Cambridge headquarters and the UK workforce. Have Ministers extracted the same legal assurances at this time? Will the Minister come clean today?

The Business Secretary said himself that the UK should be open for business but not for exploitation. However, key companies have been cherry picked by companies in San Jose, with the UK consequently losing out. It is therefore not clear that the current takeover regime is fit for purpose.

The weaknesses in the current regime are about not just national security but industrial strategy. Under the current regime, the Secretary of State has the power to intervene in qualifying businesses on four public interest grounds: media plurality, national security, stability of the UK finance system, and the capability to combat and mitigate the effect on public health emergencies.

John Hayes Portrait Sir John Hayes
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The coincidence, as I described it, between national interests and national security is profound and is proven. When a company is taken over and technology transfer takes place, it is possible for a nation that is hostile to our interests to gain a sufficient understanding to develop systems that endanger this country, including, in some cases, weapons systems.

Chi Onwurah Portrait Chi Onwurah
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The right hon. Member is talking to a chartered engineer who strongly believes that our capability in engineering and the kind of key technologies of which he talks is a basis for our national security, and that national security, without some degree of important technological sovereignty, is difficult to wholly achieve. I look forward to debating that in Committee.

It is worth pointing out that the Government’s powers have been used only sporadically in previous interventions, and they are seemingly not underpinned by any real strategy. The hon. Member for East Worthing and Shoreham (Tim Loughton) made a similar point.

Many Conservative Members are vehemently opposed to extending the remit of the Bill to cover industrial strategy, including, but not limited to, the hon. Members for Totnes (Anthony Mangnall), for North West Norfolk (James Wild), for Cities of London and Westminster (Nickie Aiken), for North East Bedfordshire (Richard Fuller), for Wantage (David Johnston), for Rother Valley (Alexander Stafford), for Newcastle-under-Lyme (Aaron Bell) and for South Dorset (Richard Drax). Labour believes, however, that the Government should be able to intervene in the takeover of a critical business on industrial strategy grounds. That power should be paired with defined criteria and transaction thresholds to give businesses and foreign investors clarity and confidence, and to truly make it clear that we are open for business and not exploitation—to coin a phrase.

Why did the Government not bring forward legislation to ensure that technology firms remain in the UK and to end the current ad hoc approach to industrial strategy being pursued by Ministers? That has seen binding commitments often negotiated at the last minute, companies lost, and no clarity as to the rhyme or reason why the Government choose to intervene or not. I urge the Secretary of State and the Minister to continue to approach the Bill in the spirit of collaboration, to address the undefined areas and issues that we have raised, and to shed some light on their long-term industrial strategy, including their plans to keep high-growth technological companies flourishing in the UK.

18:23
Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
- Hansard - - - Excerpts

It is a pleasure, as ever, to follow the hon. Member for Newcastle upon Tyne Central (Chi Onwurah). I thank all hon. Members who have spoken in this important debate. We have had upwards of 25 speeches, all of which were thoughtfully delivered. I also thank the shadow Secretary of State, the right hon. Member for Doncaster North (Edward Miliband), for his constructive approach to this important piece of legislation. I will aim to respond to as many points made by hon. Members as possible, but I will, of course, write in response to individual questions as well.

I begin by responding to the points of the right hon. Member for Doncaster North and the hon. Member for Newcastle upon Tyne Central, who both raised the grounds for intervention when it comes to the legislation. The legal texts in the Bill are explicit in their reference to national security rather than public interest or wider economic considerations. The hon. Member for Newcastle upon Tyne Central mentioned the particular deal with DeepMind and Google. If it is deemed that the asset is so important to national security—it does not matter who the acquirer is—the Bill would allow us to intervene and block that acquisition.

I have to be clear to the House today that any action the Secretary of State takes under the proposed regime would be to protect national security and not for wider economic or industrial reasons. I am sure that the right hon. Member for Doncaster North will look forward to the industrial strategy refresh that the Secretary of State is committed to publishing in the first quarter of 2021.

To address the point made by my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton), we already have a proportionate public interest power on the statute book, and most recently we have legislated to allow intervention for mitigating the effects of public health emergencies. The right hon. Member for Doncaster North and the hon. Member for Newcastle upon Tyne Central also asked about the engagement with Government. The investment security unit will ensure that clear guidance is available to support all businesses engaging with investment screening from the outset. We have made it clear to the investment community that we are committed to effective engagement with businesses on the regime itself, and to ensuring that they are able to access a dedicated, simple online portal to notify us of any potential transaction. Of course, we note the importance of a full Government approach to investment screening. While the unit will be based in BEIS—this point was made by the right hon. Member for North Durham (Mr Jones) when he talked about the ISC—it will work closely with the security agencies and other Departments with real sector expertise. The chief executive of Make UK, Stephen Phipson has recognised this point, saying: “Technology development moves at fast pace and this Bill will modernise the UK’s approach in a proportionate way, given the Government’s commitment to a quick and streamlined process of evaluation.”

More widely, I am happy to meet any hon. and right hon. Member who has today expressed an interest in the workings of the investment security unit. The right hon. Member for Doncaster North also raised the role of the Intelligence and Security Committee, as many other colleagues have done today, and we will of course work constructively with its members and, indeed, with other Committees across the House. I wish the Chair of the Committee, the right hon. Member for New Forest East (Dr Lewis), well, and I would like to thank the other members of the Committee who spoke today. The contributions from the hon. Member for Dundee East (Stewart Hosie), the right hon. Member for North Durham, my hon. Friend the Member for The Wrekin (Mark Pritchard), my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) and my hon. Friend the Member for Beckenham (Bob Stewart) were typically excellent and well-informed.

The right hon. Member for Doncaster, North, along with the hon. Member for Bristol North West (Darren Jones), also raised the issue of the five-year period for retrospection. We have come to that view because six months would simply be too short, and we have looked at what other countries have done. It would be relatively easy for hostile parties to keep a trigger event quiet for six months and time us out, but that will be substantially more difficult in a five-year period.

John Hayes Portrait Sir John Hayes
- Hansard - - - Excerpts

I am extremely are grateful to the Minister for his comments about the members of the ISC who have contributed to the debate. Given the range of questions posed to him by ISC members, will he commit to write to the Committee formally to pick up those points, so that the Committee has a clear set of answers to the series of questions posed? It would not be fair to expect him to deal with all of them now.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

I can certainly give my right hon. Friend that commitment; I will do that.

My right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith), my hon. Friend the Member for Isle of Wight (Bob Seely) and the hon. Member for Oxford West and Abingdon (Layla Moran), who is not in her place, probed on the definition of national security. A number of hon. Members have argued that the definition of national security is too narrow. I would gently point out that the Bill does not seek to define it at all, as some other Members have quite rightly argued, including, very wisely, my hon. Friend the Member for Beckenham. I think that is a real strength of the Bill, not a weakness. It means that the Government have the flexibility to act as risks change over time. The statement of policy that was published last week refers to espionage, disruption and destruction and inappropriate leverage. Those are examples of national security, not the exhaustive content of it. We need to maintain a degree of flexibility in our approach, as my hon. Friends the Members for Wantage (David Johnston) and for Beckenham recognised. I appreciate that these are quite important powers, and of course they are fully justiciable under the Bill. Hon. Members can feel secure knowing that their use, including the application of national security, can be fully tested in closed courts if necessary.

The Chair of the Science and Technology Committee, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), and my hon. Friend the Member for The Wrekin expressed concerns that these reforms will somehow threaten investment in small tech firms. I again remind the House that we estimate that the vast majority of transactions across the economy will not be affected by this legislation, and we do not expect to take action in relation to most of the small number that are notifiable. We will make any interactions with the Government simpler, quicker and slicker by providing clearance to most transactions within 30 days, and often quicker. Notifiable investments will be submitted through a new digital portal. At the spring Budget, the Government committed to increase public spending on R&D to £22 billion, which I think is music to the ears of many innovators in our country.

My right hon. Friend the Member for Tunbridge Wells and my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) made the important point that the Bill does not set out a minimum size of business affected by the regime. As the Secretary of State set out, the threats we face today do not correlate to the size of the parties concerned, as they perhaps once did. This is unfortunately the world we live in. I am glad that we live in a country in which small and medium-sized businesses thrive so mightily and are often at the vanguard of cutting-edge technologies, but it is only right that the Government have flexible powers to intervene when the acquisition of such businesses may pose a risk to our national security.

My hon. Friend the Member for Isle of Wight, the hon. Member for Bristol North West (Darren Jones) and the right hon. Member for North Durham (Mr Jones) raised the issue of supply chains. The covid pandemic has demonstrated the importance of resilience in supply chains to ensure the continued flow of essential items to keep global trade moving. We have focused on ensuring supply chains for goods such as PPE. When we entered the pandemic, only 1% was manufactured in the UK; it is now about 70%. That is why we are looking at what other steps we can take to ensure that we have diverse supply chains in place. We will consider all our global supply chains to avoid shortages in the event of future crises.

My hon. Friend the Member for Tonbridge and Malling, my right hon. Friend the Member for South Holland and The Deepings and the hon. Member for Dundee East also probed the assessment process. We will make any interaction with the Government much simpler, quicker and slicker, and I am very happy to share how we are doing that.

The Chair of the BEIS Committee, the hon. Member for Bristol North West, probed our approach to sectors. It is important for the regime to reflect technological change and keep up with the investment landscape. We welcome views from across the business community on our sector consultation, and officials from across Government are already engaging with the sectors’ experts to ensure that those definitions are tight.

In the time that I have left, I want to tackle the issue of human rights. My hon. Friends the Members for Isle of Wight and for Totnes (Anthony Mangnall), and the hon. Member for Oxford West and Abingdon raised the issue of human rights, particularly in relation to Xinjiang and the Uyghur people. We take our responsibility incredibly seriously and are concerned about gross violations of human rights being perpetrated against the Uyghur Muslims and other minorities in Xinjiang. We have played a leading international role in holding China to account on these abuses and we will continue to do so through the UN and other opportunities that we have. In respect of the risk of UK business complicity in human rights violations, including forced labour, we have urged all UK businesses to conduct due diligence on their supply chains and are taking steps to strengthen supply chain transparency.

In conclusion, we have had an excellent debate today and I again thank right hon. and hon. Members for their contributions. I look forward to further probing the Bill and getting it right together in Committee.

Question put and agreed to.

Bill accordingly read a Second time.

National Security and Investment Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the National Security and Investment Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 15 December 2020.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and up to and including Third Reading

(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No.83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(David Duguid.)

Question agreed to.

National Security and Investment Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act arising from the National Security and Investment Bill, it is expedient to authorise:

(1) the payment of sums out of money provided by Parliament of any expenditure incurred under or by virtue of the Act by the Secretary of State, and

(2) the payment of sums into the Consolidated Fund.—(David Duguid.)

Question agreed to.

National Security and Investment Bill

1st reading (Hansard) & 1st reading (Hansard): House of Lords & 1st reading
Wednesday 20th January 2021

(1 year, 6 months ago)

Lords Chamber
Read Full debate 1st reading (Hansard) Page Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 20 January 2021 - (20 Jan 2021)
First Reading
The Bill was brought from the Commons, read a first time and ordered to be printed.

National Security and Investment Bill

3rd reading & 3rd reading: House of Commons & Report stage & Report stage: House of Commons
Wednesday 20th January 2021

(1 year, 6 months ago)

Commons Chamber
Read Full debate 3rd reading Page Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 20 January 2021 - (20 Jan 2021)
[Relevant document: Oral evidence taken before the Defence Sub-Committee on 14 December 2020 on Foreign Involvement in the Defence Supply Chain, HC 699.]
Consideration of Bill, not amended in the Public Bill Committee
New Clause 1
Impact on academic research spin-off enterprises
‘(1) Within one year of this Act being passed, the Secretary of State must lay before Parliament an assessment of the Act’s impact on academic research spin-off enterprises.
(2) The assessment under subsection (1) must be reviewed at least once every five years.’—(Stewart Hosie.)
This new clause would require the Secretary of State to assess the impact of this Bill on academic research spin-off enterprises.
Brought up, and read the First time.
14:05
Stewart Hosie Portrait Stewart Hosie (Dundee East) (SNP) [V]
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I beg to move, That the clause be read a Second time.

Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
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With this it will be convenient to discuss the following:

New clause 2—Report on impact on Small to Medium Enterprises

‘Not later than 18 months after the day on which this Act receives Royal Assent, the Secretary of State must lay before Parliament—

(a) a report setting out the impacts the Act has had on Small to Medium Enterprises and early-stage ventures, and

(b) guidance for Small to Medium Enterprises and early-stage ventures on complying with the provisions of this Act.’

This new clause would require the Government to produce a report setting out the impacts of this legislation on Small to Medium Enterprises and early-stage ventures, and to produce relevant guidance.

New clause 3—Grace period for Small and Medium Enterprises

‘For the purposes of section 32, a person has a reasonable excuse if—

(a) the entity concerned is a Small to Medium Enterprise;

(b) this Act has been in force for less than six months.’

This new clause creates a grace period whereby – for alleged offences committed under Section 32 – Small to Medium Enterprises would have a ‘reasonable excuse’ if the alleged offence was committed within the first six months after the Bill’s passage.

New clause 4—Framework for understanding national security

‘When assessing a risk to national security for the purposes of this Act, the Secretary of State must have regard to factors including, but not restricted to—

(a) the potential impact of the trigger event on the UK’s defence capabilities and interests;

(b) whether the trigger event risks enabling a hostile actor to—

(i) gain control or significant influence of a part of a critical supply chain, critical national infrastructure, or natural resource;

(ii) conduct espionage via or exert undue leverage over the target entity;

(iii) obtain access to sensitive sites or to corrupt processes or systems;

(c) the characteristics of the acquirer, including whether it is effectively directly or indirectly under the control, or subject to the direction, of a foreign government;

(d) whether the trigger event adversely impacts the UK’s capability and capacity to maintain security of supply or strategic capability in sectors critical to the UK’s economy or creates a situation of significant economic dependency;

(e) the potential impact of the trigger event on the transfer of sensitive data, technology or potentially sensitive intellectual property in strategically important sectors, outside of the UK;

(f) the potential impact of the trigger event on the UK’s international interests and obligations, including compliance with UK legislation on modern slavery and compliance with the UN Genocide Convention;

(g) the potential of the trigger event to involve or facilitate significant illicit or subversive activities, including terrorism, organised crime, money laundering and tax evasion; and

(h) whether the trigger event may adversely impact the safety and security of UK citizens or the UK.’

The new clause provides a non-exclusive framework of factors which the Secretary of State is obliged to have regard to when assessing a risk to national security.

New clause 5—National Security Definition

‘When assessing a risk to national security for the purposes of this Act, the Secretary of State must have regard to factors including, but not restricted to—

(a) the potential impact of the trigger event on the UK’s defence capabilities and interests;

(b) whether the trigger event risks enabling a hostile actor to—

(i) gain control or significant influence of a critical supply chain, critical national infrastructure, or natural resource;

(ii) conduct espionage or exert undue leverage over the target entity;

(iii) obtain access to sensitive sites; or

(iv) to corrupt processes or systems.

(c) the characteristics of the acquirer, including whether it is effectively directly or indirectly under the control, or subject to the direction, of a foreign government;

(d) whether the trigger event adversely impacts the UK’s capability and capacity to maintain security of supply or strategic capability in sectors critical to the UK’s economy or creates a situation of significant economic dependency;

(e) the potential impact of the trigger event on the transfer of sensitive data, technology or potentially sensitive intellectual property in strategically important sectors, outside of the UK;

(f) the potential impact of the trigger event on the UK’s international interests and obligations, including compliance with UK legislation on modern slavery and compliance with the UN Genocide Convention;

(g) the potential of the trigger event to involve or facilitate significant illicit or subversive activities, including terrorism, organised crime, money laundering and tax evasion; and

(h) whether the trigger event may adversely impact the safety and security of UK citizens or the UK.’

This new clause establishes factors which the Secretary of State must have regard to when assessing a risk to national security.

New clause 6—Dedicated Small to Medium Enterprise support

‘(1) Within 3 months of this Act receiving Royal Assent the Secretary of State must set up, a specific division focused on engagement with Small to Medium enterprises (SMEs) engaged in any provisions of this Act.

(2) The division must focus on four functions—

(a) providing updated, efficient and accessible guidance specific to SMEs on compliance with the terms of this Act;

(b) engaging with SMEs in advance of formal notification that can allow efficient notice and assessment periods, including through use of regulatory sandboxes where beneficial for innovation and national security;

(c) providing regular engagement with and assistance to SMEs throughout the assessment periods for SMEs;

(d) seeking to deliver prompt, proportionate resolution of complaints by SMEs relating to the provisions of this Bill;

(e) monitor the impact on access to investment for SMEs and report to the Secretary of State.’

This new clause would require the Secretary of State to set up a Small to Medium Enterprise (SME) engagement unit to assist and support SMEs through the national security screening process.

New clause 7—Reports to the Intelligence and Security Committee of Parliament

‘(1) The Secretary of State must, in relation to each relevant period—

(a) prepare a report in accordance with this section, and

(b) provide a copy of it to the Intelligence and Security Committee of Parliament as soon as is practicable after the end of that period.

(2) Each report must provide, in respect of mandatory and voluntary notifications, call-in notices, and final orders made under this Act, details of—

(a) the jurisdiction of the acquirer and its incorporation;

(b) the number of state-owned entities and details of states of such entities;

(c) the nature of national security risks posed in transactions for which there were final orders;

(d) details of particular technological or sectoral expertise that were being targeted; and

(e) any other information the Secretary of State may deem instructive on the nature of national security threats uncovered through review undertaken under this Act.’

This new clause would require the Government to publish an ‘Annual Security Report’ to the Intelligence and Security Committee of Parliament.

Amendment 3, in clause 3, page 3, line 10, leave out subsection (4) and insert—

‘(4) The Secretary of State must review a statement published under this section within one year after the publication of the first such statement, and thereafter at least once every 5 years.’

This amendment would require the Secretary of State to review the statement about exercise of call-in power to be reviewed one year after they are made, and once every five years thereafter.

Amendment 1, in clause 6, page 5, line 3, at end insert—

‘(10) Notifiable acquisition regulations must be reviewed one year after they are made, and once every five years thereafter.’

This amendment would require notifiable acquisition regulations (including which sectors are covered) to be reviewed one year after they are made, and once every five years thereafter.

Amendment 6, page 5, line 3, at end insert—

‘(10) Notifiable acquisition regulations must bring broadcast, print and social media companies within the scope of the mandatory notification regime.’

Amendment 2, in clause 8, page 6, line 38, at end insert—

‘(8A) The fifth case is where a person becomes a major debt holder and therefore gains influence over the entity’s operation and policy decisions.

(8B) For the purposes of subsection (8A), a major debt holder is a person who holds at least 25% of the entity’s total debt.

(8C) The sixth case is where a person becomes a supplier to the entity of goods, services, infrastructure or resources to such an extent that the withholding of the supply would seriously undermine the entity’s ability to continue its operations.’

This amendment would mean that a person becoming a major debt holder or a major supplier would count as a person gaining control of a qualifying entity.

Amendment 4, in clause 30, page 20, line 3, after ‘period’ insert ‘or any calendar year’

This amendment would make it mandatory for the Government to inform Parliament if financial assistance given in any financial year, or in any calendar year, exceeds £100 million.

Amendment 5, in clause 54, page 33, line 42, at end insert—

‘(aa) whether the law of the country or territory to whose authority the disclosure would be made contains provisions and prohibit any use or disclosure of the information contrary to subsection (4),

(ab) whether the Secretary of State considers that disclosing the information to that authority would in itself pose a threat to national security, and’

This amendment would add to the list of factors the Secretary of State takes into consideration a sub-clause to ensure that a country or territory making a disclosure request has sufficient safeguarding in place to prevent any action that would be considered unlawful in the UK.

Amendment 7, in clause 61, page 36, line 20, at end insert—

‘(m) the average number of days taken to assess a trigger event called in under the Act;

(n) the average number of days taken for acceptance decisions in respect of mandatory and voluntary notices;

(o) the average staff resource allocated to the operation of reviews of notices made under sections 14 and 18 over the relevant period;

(p) the number and proportion of notices and call-in notices concerning the acquisition of a Small to Medium Enterprise; and

(q) in respect of the transactions stated subsection (p), the sectors of the economy in relation to which call-in notices were given.’

This amendment would require the Secretary of State to report on the time taken to process notices, the resource allocated to the new Unit and the extent to which Small to Medium Enterprises are being called-in under the new regime.

Stewart Hosie Portrait Stewart Hosie
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The new clause is in my name and the names of my hon. Friends, as are new clauses 2 and 3 and amendments 1 to 6.

On Second Reading of this Bill, I described how it was designed to bring additional scrutiny of foreign investment that may have an impact on national security. I agreed that not only was there nothing wrong with having a national security eye on investments in critical areas, but it was in fact absolutely vital. During that debate, the House appeared to acknowledge the concern about the national security implication from investments that are shared globally and that a number of other countries had been tightening up their investment security regimes in response to changing national security-related threats to enabling technology, to intellectual property and so on. The debate also saw descriptions of the tightening of these regulations in Japan, Canada, Sweden, Germany and elsewhere. There was little disagreement on the Government’s proposals where, if the trigger and threshold were both met, an individual investment could be called in by the Secretary of State for approval, the powers could be retrospective, and an investment could be called in after it had occurred. There was some concern about the time to conduct the national security assessments—30 days with potentially an extra 45, which might actually be deemed a little short and it still prompts the question of whether 75 days was actually sufficient. There was, however, broad agreement about the mandatory notification process where investment interests in certain sectors and asset types must be pre-emptively or retrospectively declared. There were real concerns that this may lead to a very large number of notifications from businesses erring on the side of caution.

The Bill also introduced new powers to increase screening in respect of health and preventing hostile acquisition through strategic buying of health supplies, and I welcome that, with the warning that the scope of activities that may be caught is very wide. That is because the statement of policy intent, which describes the core areas as including such things as advanced technology, is perfectly reasonable, but it also contains a much wider definition of national infrastructure.

That debate did focus on the impact assessment for the Bill, which estimated that the new regime would result in somewhere between 1,000 and 1,800 transactions being notified each year—a very high number given that only 12 transactions were reviewed on national security grounds since the current regime was introduced 17 years ago. It does also remain the case that we still need to carefully assess the impact of the Bill—the impact that it will have on sectors and on infrastructure not just in the UK as a whole, but in the devolved nations and in the English regions. On Second Reading, I asked the Minister to take a little time to convince himself that there were no unintended consequences either for the UK or, indeed, for the Scottish Government’s inward investment plans when Government agencies of all sorts are actively seeking investment in some areas, which may be deemed to be critical national infrastructure. That is an issue that I do hope he will still address today. How do we ensure collectively that this Bill does not impede growth or investment in such areas.

The key concern I had was about implementation. The Bill is set to radically overhaul the UK’s approach to foreign investment at a time of significant economic uncertainty. On leaving the EU, the UK Government cannot afford to get their global Britain approach wrong and suffer what has been described as the potentially chilling effect on investment if the measures in the Bill appear to be heavy-handed. That is a concern across the board, given that even microbusinesses are in scope.

I take this brief opportunity to thank my hon. Friends the Members for Glenrothes (Peter Grant) and for Aberdeen South (Stephen Flynn), who served on the Bill Committee. They raised a large number of concerns, including the impact on academic research spin-offs, SMEs and early-stage ventures. They called for a grace period for SMEs falling foul of this new legislation, a review of exercisable call-ins and a review of the notifiable acquisition regulations. They suggested that broadcast, print and social media companies should be in scope. They suggested that major debt holders should be defined as a person gaining control of a qualifying asset and they suggested a requirement to report if financial compensation from Government exceeded £100 million in either a calendar or financial year.

All those amendments and contributions were made for very good reasons. The Scottish National party has long argued that it is right to have this legislation and for it to be made. In some ways it is long overdue, but that does not mean there are no concerns, which is why we have tabled new clauses 1 to 3 and amendments 1 to 6.

New clause 1 would require the Secretary of State to assess the impact of the Bill on academic research spin-off enterprises. New clause 2 would require the Government to produce a report setting out the impacts of the legislation on small and medium enterprises and on early-stage ventures and to produce relevant guidance. New clause 3 would create a grace period whereby for alleged offences committed under clause 32, SMEs would have a reasonable excuse if the alleged offence was committed within the first six months of the Bill being in operation.

I will turn briefly to the amendments. Amendment 1 would require notifiable acquisition regulations, including the sectors to be covered, to be reviewed one year after they are made and five years thereafter. Amendment 2 would mean that a person becoming a major debt holder or a major supplier would count as a person gaining control of a qualifying asset. Amendment 3 would require the Secretary of State to review statements about the exercise of call-in power one year after they are made, and once every five years thereafter. Amendment 4 would make it mandatory for the Government to inform Parliament if financial assistance given in any financial or calendar year exceeded £100 million. Amendment 5 would add to the list of factors the Secretary of State has to take into account. They would have to ensure that a country or territory making a disclosure request had sufficient safeguarding in place to prevent any action that would be considered unlawful in the UK. Amendment 6 would ensure that notifiable acquisition regulations bring broadcast, print and social media companies into the scope of the mandatory notification regime.

All those new clauses and amendments in essence are designed to ensure that the scope of the legislation is appropriate, but that the impact, particularly on investment, is proportionate. I have not determined yet whether to press any of them to a vote. What I would prefer is for the Minister to give a commitment, not simply to have infrequent if regular reviews of parts of this Bill, but to keep the Bill under permanent review to ensure that the scope remains valid—not too wide and not too narrow—and that the impact on investment and risk, particularly in small and medium-sized enterprises, academia and research, is proportionate. Through that, we can ensure that we quite rightly protect national security, but do not suffer from the investment chill that some fear could be the consequence if we get this wrong. With those brief remarks, I commend the new clauses and amendments to the House.

00:05
Julian Lewis Portrait Dr Julian Lewis (New Forest East) (Con)
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On Second Reading both of this Bill and of the Telecommunications (Security) Bill, it was mentioned that in 2013, the Intelligence and Security Committee first recommended measures to prevent high-risk vendors such as Huawei from penetrating our critical national infrastructure in future. It is always the way: you wait seven years for a Bill to protect against infiltration and takeover, then two come along together.

Given that background, the ISC naturally welcomed the introduction of this legislation, and we greatly appreciated the contact that we have had with the Minister, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi). Not only did he keep his promise to write to us about the points made by Committee members on Second Reading, during my period of self-isolation, but he dealt with ISC concerns at the Committee stage and reached out before today’s debates as well. That is precisely the type of constructive engagement that we should like to have with the Government. If I do not secure the concessions that I want after all of that, I shall be very disappointed!

The issue on which I shall focus is parliamentary oversight. Normally, that would be straightforward. As the future arrangements laid down by the Bill will depend on the input of the new investment security unit, and as that unit will be housed in the Department for Business, Energy and Industrial Strategy, one would normally expect that general scrutiny could be conducted by Parliament as a whole and specialised scrutiny by the Select Committee on Business, Energy and Industrial Strategy. Unfortunately, that does not work in this case: much of the work of the investment security unit will depend on input from intelligence and security agencies and similar sensitive sources that cannot and must not be made public.

Furthermore, on Second Reading, the then Business Secretary, my right hon. Friend the Member for Reading West (Alok Sharma), made crystal clear how central secret material would be to the practical application of the provisions of this legislation. He stated that

“the whole point of the Bill is for it to be narrow on national security grounds”.

He also said:

“These powers are narrowly defined and will be exclusively used on national security grounds. The Government will not be able to use these powers to intervene in business transactions for broader economic or public interest reasons”.—[Official Report, 1 November 2020; Vol. 684, c. 206-210.]

It follows that the very areas in which the BEIS Committee would be perfectly qualified to scrutinise policy are specifically excluded from the application of the powers conferred by the National Security and Investment Bill.

That scrutiny gap was addressed, also on Second Reading, by the shadow Business Secretary, the right hon. Member for Doncaster North (Edward Miliband), who said:

“Given the sensitive nature of the issues involved in this Bill, I do think there needs to be a way…for this House to monitor how this is working in practice.

I do not speak for it, but we have a special Committee of the House—the Intelligence and Security Committee—that can look at these issues. I would like to raise the question with the Secretary of State whether it could play a role in scrutinising the working of the regime and some of the decisions being made, because there are real restrictions on the kind of transparency there can be on these issues…The ISC is in a sense purpose-built for some of these issues.”—[Official Report, 17 November 2020; Vol. 684, c. 214.]

It is hard to disagree with that, although I hasten to add that the Committee has not the slightest wish gratuitously to add to its workload, overburdened as we are due to our delayed reconstitution and the fact that we cannot operate virtually, where sensitive material is concerned, during periods of lockdown. Nevertheless, Parliament should be enabled to scrutinise the implementation of the powers given to Government by this legislation, which explicitly puts national security material at the heart of future decision making. It is obvious that there will be potential conflicts between encouraging business on the one hand and safeguarding national security on the other. In 1994, the ISC was established specifically for circumstances such as these—namely, to examine matters that Parliament could not because they were too sensitive for public disclosure and debate.

It has been suggested that the ISC cannot undertake this role this time because the organisation concerned, the new investment and security unit, is based in the Department for Business, Energy and Industrial Strategy, rather than Departments like the Home Office or the Cabinet Office, which traditionally handle national security matters. Yet this is fundamentally to misunderstand the legal basis under which the ISC functions.

There are two interlinked documents: the Justice and Security Act 2013 and the memorandum of understanding between the Prime Minister and the ISC for which that Act provides. The long title of the JSA makes it quite clear that it provides not only for scrutiny of MI5, MI6 and GCHQ, but for

“oversight of…other activities relating to intelligence or security matters…and for connected purposes.”

Section 2(1) of the Act refers to those three intelligence agencies specifically, but section 2(2) spells out our Committee’s wider remit:

“The ISC may examine or otherwise oversee such other activities of Her Majesty’s Government in relation to intelligence or security matters as are set out in a memorandum of understanding.”

Section 2(5) explains that that MOU can be altered by agreement between the ISC and the Prime Minister. All that is required, therefore, for a Government activity in relation to intelligence or security matters to be added to the existing list in the memorandum of understanding is a simple exchange of letters between the ISC and the Prime Minister agreeing to do so.

In other words, the 2013 Act and associated memorandum were designed exactly for circumstances such as these, where evolving intelligence and security arrangements create sensitive new functions and/or new units which need Parliamentary scrutiny to be within the same circle of secrecy as the long-established Agencies. To put the matter beyond all doubt, consider finally this extract from paragraph 8 of the MOU about our remit:

“The ISC is the only committee of Parliament that has regular access to protectively marked information that is sensitive for national security reasons: this means that only the ISC is in a position to scrutinise effectively the work of the Agencies and of those parts of departments whose work is directly concerned with intelligence and security matters.”

Inserted at the end of this sentence is a notation for the following footnote which explains:

“This will not affect the wider scrutiny of departments such as the Home Office, FCO and MOD by other parliamentary committees. The ISC will aim to avoid any unnecessary duplication with the work of those Committees.”

Indeed, having chaired the Commons Defence Committee in the previous two Parliaments, I can confirm there was never the slightest friction, overlap or intrusion from the then ISC into the work of the Defence Committee. The ISC looked at defence intelligence and offensive cyber, as set out in its MOU, and the Defence Committee continued to scrutinise everything else.

It really should not be necessary, every time a new unit is set up inside a Department not normally associated with national security or intelligence issues, to spell out in black and white, as I have done today, how and why the framers of the 2013 Act deliberately created the flexible memorandum of understanding arrangement that incorporated its role on the face of that legislation. It was, of course, to deal with exactly the sort of situation facing us today, where the intelligence and security battle in what is increasingly known as the grey zone of conflict mutates and moves into areas of responsibility far beyond traditional boundaries, as Deborah Haynes’ admirable new podcast illustrates so convincingly. That is why Business Ministers, rather than Defence or Security Ministers, are having to grapple with today’s legislation.

Following a constructive discussion with my hon. Friend the Minister yesterday, I was cautiously optimistic that the Government would recognise that the 2013 arrangements provide the correct basis for scrutiny on which to proceed. Of the 14 amendments tabled for today, there is one—new clause 7—that recognises the scrutiny gap in this legislation and proposes that a special report containing the relevant classified national security material should be prepared for, and provided to, the Intelligence and Security Committee. This Opposition amendment has much to commend it, and, as ISC Chairman, I would be minded to support it if it were the only available option. However, an undertaking by the Minister today that the Government will bring forward their own amendment in the upper House to close the scrutiny gap satisfactorily in a more streamlined way would be even better.

In his appearance before the Public Bill Committee, former chief of MI6 Sir Richard Dearlove had the following exchange with the Minister, who referred to the annual report to be prepared for Parliament as a requirement of this legislation. The Minister asked:

“What is your view on balancing transparency and ensuring Government can take national security decisions sensitively? Where does that balance lie in terms of our ability to be as transparent as we can without harming sensitivities around these decisions?”

Sir Richard replied:

“My view would be that the annual report has as much transparency as possible, but you are probably going to require a secret annexe from time to time.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 21.]

Whether we go down that route of a classified unpublished annexe to send to our Committee or follow the model used in the ISC’s own reports, which are prepared in full with subsequent redactions made and marked in the main body of the text, such an approach would be the least burdensome for the Department to prepare and for the ISC to scrutinise. Either method would effectively close the scrutiny gap and get this valuable and necessary legislation off to the best possible start.

Chi Onwurah Portrait Chi Onwurah (Newcastle upon Tyne Central) (Lab)
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It is a great pleasure, as always, to follow the Chair of the Intelligence and Security Committee, the right hon. Member for New Forest East (Dr Lewis), and I support many of his remarks.

Let me start by saying that the Opposition’s approach to this Bill is one of constructive support. That should not surprise the Minister: already at Committee stage we tabled nearly 30 targeted amendments and half a dozen new clauses to strengthen protections of our national security, although, regrettably, the Minister did not choose to accept any of them. As the Minister is also responsible for vaccine roll-out, he may have been distracted. I want to thank everybody—all the members of the Committee and the House staff involved in the Committee stage of the Bill—and confirm that we intend to continue that constructive support.

We support the Bill, because it is a Bill demanded by Labour. The problems it tackles are ones that have been highlighted by Labour, and the Government’s action, only after years of delay, seems to be a result of being constantly reminded by Labour. Reminded this Government have been, not least by their failures again and again. They were reminded in 2012, when they let the Centre for Integrated Photonics, a prize British research and development centre, be taken over by Huawei, an event that our recent head of the National Cyber Security Centre said we would not want to happen with hindsight: national security outsourced and British interests relinquished to the market.

The Government were reminded again in 2014 when they let our foremost artificial intelligence firm, DeepMind, be acquired prematurely by Google: national security interests outsourced again on account of blind market faith. They were reminded twice this time when the Government let our world-leading semiconductor firm Arm be taken over first by SoftBank and now by Nvidia. Again, an intelligence expert told our Committee that the UK had limited freedom of choice in this key strategic technology and that the deal undermined our own ability: our national interest outsourced yet again by Ministers prioritising market zeal over British security.

14:30
Following the Committee stage of the Bill, the Competition and Markets Authority has chosen to investigate that takeover. That is, shall we say, interesting to put it mildly. Photonics-Huawei, DeepMine-Google, Arm-Nvidia, the failed Pfizer-AstraZeneca attempt, Cobham, GKN, Huawei-5G—failure after failure after failure, despite reminder after reminder. Twelve national security screens in 18 years and not one instance of the Government acting decisively to block a takeover and guard our national security.
Of course, it is not only the Labour party that has led the debate. It has been by every ally of ours abroad, too. The US updated its rules in 2018. Germany did so in 2018. The European Union proposed them in 2017 and Labour has called for them persistently. It is not just in politics, I am afraid to say, that the Government have lagged. They have lagged in expert advice, too. We heard in Committee from our recent chief of MI6, who described the Government’s approach till now as “incredibly naïve” and noted that, “It was completely ridiculous” that we were considering handing our 5G network over to Huawei. So, while the Government are years behind our allies, years behind Labour’s calls to protect national security and years behind security expert advice, our approach today on the Bill is one of support—indeed, urgent support. Britain has needed a robust national security and investment regime for many years now, as the world’s post-financial crisis has brought with it rapid geopolitical, technical and economic shifts.
The Bill has come too late for some threats. It is our resolve to not let it be too little in acting against future threats. We will take the Government to task for ongoing omissions, incompetence and neglect of our national security; foremost is the protection of British citizens and British interests. The Government’s impact assessment for the Bill notes the need for change. It regrets that national security is an area of market failure requiring that the Government do something about it. That is an astonishing claim. National security is not a private concern first and a Government afterthought second. National security is the first reason for Government. It is not undersupplied by the market; it is outside the market altogether. Labour’s first principle of constructive support is to stop the outsourcing of our security. We do not want ministerial free market ideology to threaten our national security. Our approach is to bring together legal powers, multi-agency expertise and proper decision making to put British security first.
In implementing the Bill, we want to champion support for the engine of our national growth and our national prosperity, our small and medium-sized enterprises and innovative start-ups. The impact assessment noted that 80% of transactions in the scope of mandatory notification under the Bill will involve SMEs, but it fails to consider the costs faced by the acquired companies, or the overall impact of funding for our start-ups. The Opposition will not turn a blind eye to these costs for our small and medium-sized enterprises, so our new clause 6 and amendment 7 would plug gaps left by the Government’s incoherent policy making to champion British creativity and innovation. It is the least our small and medium-sized enterprises deserve.
The Telecommunications (Security) Bill is also making its way through this House, as the Chair of the Intelligence and Security Committee mentioned. That Bill seeks to encourage new entrants and homegrown telecoms capacity, as a diversified supply chain is essential to the security of our networks, and we will not achieve that if we cut off investment funding for SMEs.
In guarding our national interest and championing our small and medium-sized enterprises, we stand for effective scrutiny of the Government. The last decade tells us that our security is too vital to be left to Ministers alone. Never again. We must have proportionate, robust and democratically legitimate means of seeking accountable action to protect our national security.
We have heard expert evidence on the risk of this new regime opening up to lobbying, short-termism and inconsistent decisions, so our new clause 7 would stand up for scrutiny by the ISC, and the ISC would stand up for competent, coherent decision making.
These principles—national security, SME-driven prosperity and effective scrutiny—drive our amendments and new clauses, which I will now go into in a little more detail. This is the National Security and Investment Bill, and national security goes to the heart of what we are considering. It also remains an unanswered question for Parliament, for businesses looking for clarity, for our citizens seeking assurance, and for potential hostile actors who seek to take advantage of any loopholes in how the Secretary of State construes national security.
I have some sympathy with those who argue that we should not prescribe what national security is, for to do so would be to limit the Secretary of State’s flexibility to act. That is right. We should not put down a rigid definition of national security that rules things out, and that is the spirit in which new clause 5 has been tabled. It does not rule out the Secretary of State’s flexibility and it does not present a rigid definition; it simply does what other countries have done well and experts have sought. It guides to some factors that Government might consider, while allowing many more to be included in national security assessments.
Doing so is critical for businesses puzzled by the Government’s very high-level definitions of espionage, disruption and inappropriate leverage. It gives greater clarity for citizens who are worried about whether the Government will act to protect critical data transfers or our critical national infrastructure, even where those are not covered by the Government’s proposed 17 sectors. It provides assurance and, for hostile actors, it sends a clear message that we will act to protect British security with broad powers applied with accountability.
The factors highlighted in new clause 5 are comparable to guidance provided in other effective national security legislation, most notably by the US Foreign Investment Risk Review Modernization Act 2018. I will not go through each factor, but I will highlight two features of the new clause.
First, new clause 5 takes the Government’s existing analysis and puts it into action. It echoes, for example, what we read in the Government’s statement of policy intent, which says that national security risks are most likely to arise when the acquirers are hostile to the UK’s national security or when they owe allegiance to hostile states.
The origin and source of threats do matter. We had the previous chief of MI6 tell us in Committee about Chinese intelligence organising the strategic focus of both Chinese commerce and Chinese academic study in ways that are challenging to identify unless we have regard to the country of origin of those parties. The new clause takes our security context seriously and would signal to hostile actors, especially through subsection (c), that we will act with seriousness, not superficiality.
Like the Government’s focus on critical national infrastructure—CNI—more broadly, subsection (b) bridges the gap between the Government’s defined sectors and focus and the critical national infrastructure that we already define and focus on in our wider intelligence and security work. It would also bring us into line with allies. For example, Canadian guidelines list the security of Canada’s national infrastructure as an explicit factor in national security assessments. In the US Committee on Foreign Investment in the United States case, Congress listed critical infrastructure among one of six factors that the President and CFIUS may assess.
The new clause is identical to new clause 4, tabled by members of the Foreign Affairs Committee, which has done a great deal to bring scrutiny and rigour to our national security concerns. Its report yesterday was extremely helpful. I pay tribute to the Committee and its members, led ably by the Chair, the hon. Member for Tonbridge and Malling (Tom Tugendhat). With that principled and cross-party support, the new clause would show the world that the UK is serious about national security. We must protect our national security against threats at home and abroad. We must build our sovereign capability in the industries most strategically significant for our security. We must view security in the light of modern technological and geopolitical threats. None of these constrains the Government’s ability to act; they simply sharpen the clarity of that action and its signal to the world.
Our substantive new clause 6 builds especially on our desire to boost small and medium-sized enterprises. As Members across party lines recognise, the Government announced a radical change in the UK’s national security screening regime, applying it retrospectively, with little to no guidance to accompany that change. SMEs are scrambling around to understand how they can engage with the Government on changes that already apply, so we propose a dedicated SME unit. Some 80% of the weight—the mandatory notifications—of the new regime will be borne by SMEs. The screening will also be most challenging for them. SME funding rounds, especially for tech start-ups, are often the quickest, lasting just a few weeks, so a 15-week screening process would be a huge challenge in that timeline.
The Minister may say, as I think he did at Committee stage, that the burden is actually on the acquirer and not the acquired company, but he must recognise that a small start-up seeking funding will be expected to understand whether that will have implications for the funder when it comes to national security. SMEs do not have the deep pockets to fund a deep bench of advisers to help them navigate the Government’s unclear process. In that context, we must respect the weight we are placing on our most innovative start-ups, and we must react by easing that burden. A dedicated SME unit would do just that. Unlike the Government’s slow and unclear action, it would ensure prompt, accessible guidance, as industry experts have demanded, and would engage with SMEs prior to formal processes, easing the burden of processes.
Where possible, the unit would work closely to ensure assessment periods align with funding rounds—a critical point—not thwart them. Subsection (b) would further encourage regulatory sandboxes and clear guidelines for early engagement, so that innovative SMEs can benefit from efficient regulatory engagement, just as the Financial Conduct Authority has done for the UK’s world-leading FinTech sector. Where there is cause for complaint, as would be expected with a new, radical shift, the SME unit would play the supportive mediator. The Opposition stand for robust powers to guard our national security and for change that backs our best small businesses and our capacity for innovation. Both of these goals are possible; indeed, they are mutually reinforcing.
Let me now highlight Opposition new clause 7, which is essential both for our national security and for effective scrutiny. The new clause continues our approach to the security threats we face, which is to push for broad, robust powers of intervention, but powers that are held to account by Parliament and through transparency. Under the new clause, the Government would provide Parliament’s trusted Intelligence and Security Committee with an annual security report capturing a major thematic summary of the types of threats uncovered by the new investment screening.
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The Chair of the ISC has himself ably set out the reasons for that improved scrutiny; all I would add is that our international allies do exactly that. In the US, for example, CFIUS—the Committee on Foreign Investment in the United States—has to produce annually a non-classified report for the public, but alongside that it publishes a classified report for certain members of Congress to provide them with security details, allowing congressional scrutiny while retaining sensitivity of information. New clause 7 would require the Government to publish alongside the public report an annual security report to the ISC. I understand, I hope, that the Government may bring forward a clause with the same effect as this new clause, and I look forward to a commitment from the Minister on that.
I turn to our final amendment, amendment 7, which would put into practice our principle of effective scrutiny. During our debates on the Bill, including in Committee, Members from across the House have questioned and raised concerns about the capacity and capability of the new investment security unit to deliver on the Bill’s ambition. Experts have added to that concern, describing a “seismic” and “totally transformational” set of changes that will require a thoroughly resourced unit that is especially prepared to work closely and efficiently with innovative start-ups.
Amendment 7 turns those concerns into accountability. It holds the Government to account on three important fronts: first, on the efficiency of the unit, by reporting the aggregate time taken for decisions—both assessment decisions and initial acceptance or rejection of notices—we will have a mechanism to ensure that the new regime is working efficiently for SMEs; secondly, on capacity, by taking stock of the resources behind the unit’s work, Parliament and the public will have a mechanism for holding the Government to account for what will be a major new centre for merger and investment screening in the UK; and thirdly, by tracking the SME focus of the unit’s work, we will be able to highlight specific concerns and experiences of our most innovative start-ups in interacting with the new regime. Each of those measures maintains the Government’s power to act but simply holds that power to account through transparency.
I will conclude with some brief remarks on the other amendments and new clauses that have been tabled, in addition to new clause 4. On the further amendments tabled by the hon. Members for Aberdeen South (Stephen Flynn) and for Glenrothes (Peter Grant), new clause 2 aligns with what we propose as one part of our wider SME support in new clause 6, so I hope both Members will support our proposals. Amendment 2, which focuses on debt holders and supply chains, is also partially covered by new clauses 4 and 5, but we will be interested in the Government’s response to the call for debt holders to be included in the scope of the Bill—this was discussed in Committee—where such holdings can result in some access to influence or information not included under the material influence criterion of the Bill. Finally, we remain interested in scrutiny of the impact of the Bill on academic research spin-offs, and we might even suggest including that in the reporting proposals in new clause 7. For those insightful contributions, I thank the relevant Members.
As I said, the Opposition have come to the Bill in a spirit of constructive support grounded in three priorities: protecting British citizens and British interests, supporting SMEs, and bringing effective scrutiny. National security is too important to play party politics with. For that reason, having called for such action for years, we support the Bill. I hope very much that the Government will look at the amendments in the constructive light in which they have been proposed, as measures to accelerate, improve and execute more effectively the House’s intention to protect our national security and our national interest.
Tom Tugendhat Portrait Tom Tugendhat (Tonbridge and Malling) (Con)
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First, I pay tribute to the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), who has spoken very kindly about the work of the Committee that I am privileged to chair. I also pay huge tribute to the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi). He has been tireless—that word has been overused in this place, but he has been tireless—in reaching out to all Members to speak to them about the Bill and ensure that the amendments tabled are helpful and conducive to not only the public good but the national good. He has been doing that at the same time as he has been running a vaccination programme. I have to say that the Minister’s wife’s loss is the nation’s gain: she has been selfless in allowing him to slave away for our country on two very important subjects.

The reality is that this is a hugely important Bill, and because it is so important and such a big change for the United Kingdom, it raises huge questions that are very difficult to answer. The way that the Minister has approached this is exactly right. He started off by speaking to businesses, to our intelligence services and to our regulators to understand what exactly the threat is, how it is affecting our businesses and how it can be addressed. He has had, I hope, as much help as he possibly can from them, and I hope that the help being offered from the Select Committee that I am privileged to chair and the Committee that my right hon. Friend the Member for New Forest East (Dr Lewis) is privileged to chair is helpful.

We are trying to improve what is already a good Bill and make it into an excellent one. We have had various conversations with not only the Minister but his Whips, who have been extremely helpful—I know that this is a very odd thing to say in the House—in ensuring that he is informed about the way in which we have conducted this discussion. It would not be right for me not to also thank Alice Lynch of our Committee and Nicole Kar of Linklaters, our specialist witness who has helped us through the process of writing this report.

I rise to speak to new clause 4, which is in my name and the names of fellow members of the Foreign Affairs Committee. We looked carefully at the Bill because, over the last two to three years that I have been chairing the Foreign Affairs Committee, much of our work has been on the threat of foreign interference in the UK. One of our earlier reports in May 2018 was entitled “Moscow’s Gold: Russian Corruption in the UK”; I believe the Minister was still on the Committee when we started that report, though he had already been promoted to greater things by the time we published it. The report touched on the way that dirty money plays into our systems and the way in which we must protect those systems.

Since then, we have looked at various aspects of how our foreign policy is fundamentally about keeping the British people safe. We have always focused on the interests of the UK and the interests of the people we are lucky enough to represent. We sit here representing our communities—not other communities, not business and not anybody else, but our communities and what is fundamentally in their interests. We built up, from that early report, into looking at the various ways in which money has moved around, influencing academic freedoms and changing the way in which businesses have acted. As the Minister knows, we have called out those who we feel needed to be called out. That is why I am so pleased that he is in his place and has produced this Bill, because it finally sets a process by which this Government—any Government—can look at decisions that are being taken and assess them properly.

Kevan Jones Portrait Mr Kevan Jones (North Durham) (Lab)
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I congratulate the hon. Gentleman and his Committee on the excellent report they have produced, but this is about the scrutiny of decisions of mainly private companies and others. Does he share my concerns about some decisions taken by Departments, particularly in the light of the Ministry of Defence’s decision to buy E-7 Wedgetail aircraft from Boeing, which results in two of them coming from China?

Tom Tugendhat Portrait Tom Tugendhat
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The right hon. Gentleman tempts me, but I am not going to get drawn on the Wedgetail discussion, as that is a slightly separate conversation. He is right to say that this Bill affects not just private business, but the way in which the Government will also conduct their procurement, so it is absolutely right that in future decisions may be looked at in different ways. This Bill, however, is slightly different, because it looks at the purchase of British business and not at the UK purchasing others.

Let me come back to where I was before the right hon. Gentleman cunningly got in his complaint about an MOD decision. This Bill goes a long way to making sure that we are in the right place, but it raises a few concerns, which I will touch on. That is why we have introduced new clause 4, which is not supposed to be a definition of national security, because that would, as the Minister knows, constrain the ability of a Government to adapt this law as national security changes. It would in effect tie concepts from 2021 into the law as it progressed. Given the change we have seen in the past 10 or 15 years, that would frankly be unwise. After all, who could have known that some of the decisions we have taken, perfectly innocently and rationally, over the past decade are some of the worst that a Government have made?

I am referring to two decisions. First, the sale of DeepMind to Google was one of the worst strategic moves a UK Government have taken. I am not blaming anybody for it; it was a decision taken rationally at the time, without understanding the future power of artificial intelligence and the extraordinary strength of DeepMind. That is a huge credit to the team at DeepMind and to much of the investment Google has put in, but it is also a recognition that a change of ownership and geographic basing—even though the people do not change, the ownership changes—has undermined the UK. The second is the sale of Arm to SoftBank. Again, this is one friendly company being sold to a company of another friendly nation. These are not geographically specific points; they are entirely geographically neutral. My guess is that one of Arm’s products is in everybody’s pocket, because they are in 95% of computer products and so will be in almost everybody’s phone. This is one of those moments where we risked losing control of an absolutely fundamental technology that could in future promote Britain’s interests greatly. That moves us into a question about Nvidia that I will not get drawn into now; I am just putting into historical context decisions we made that we will live to regret.

This Bill allows us to look at those things and update with the times, which is why I agree that we should not have a fixed definition of national security—we should have a framework for it. Here I pay tribute to my hon. Friend the Member for Isle of Wight (Bob Seely) and others on the Committee, who came up with this proposal and were extremely rigorous in doing so. I pay particular tribute to Nicole Kar of Linklaters, who helped us with the drafting of it and to the Committee Clerks who got us through it. There is a real opportunity here to enable this framework to defend us.

Governments throughout the European Union and, indeed, around the world have already started to look at how their laws that are similar to ours will apply. If we do not give enough strength to our Government, there is a danger that we will be the only ones found to be naked when the day comes and the choices have to be made. That would be a huge mistake, because the world is changing; there is a lot more cash from state-owned enterprises going around than there has been for many years. Sadly, there is likely to be a prolonged period of economic difficulty as we come out of covid; those companies and countries that are willing to underwrite companies will have an advantage when they start to snap up businesses around the world. That is why we need this legislation now.

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We also need a framework that allows the legislation to work; that is why my colleagues and I have respectfully tabled our new clause. There is a slight danger in the Bill of going from nought to 100 in a split second. We are setting up a new structure within which to assess businesses, and there is a danger that it will be overwhelmed. I know the Minister is aware of this, and has heard comments about it. BT said there is a risk that it will have to make 1,000 filings a year, and we heard similar numbers from others. Legal firms in the City warned us that many companies will make filings that might technically not be necessary, just to cover their backs. That will put sand into the engine of the process that the Minister suggests.
If we provide a framework for understanding national security, and create a pre-filter, so that we set out the clear, transparent and predictable process that BT Group specifically asked for, the Minister, the Government, lawyers and businesses throughout the United Kingdom, and indeed the world, will have a little more certainty about what is, and what is not, likely to require scrutiny.
Providing that framework would, I hope, get rid of many applications that are simply unnecessary. It would free up the impressive cross-departmental team that the Minister is already pulling together, so that we use the intelligence services and call on the Foreign Office when needed to do what is really necessary, which is look at the tough cases—the hard calls that really require a fine judgment and are not clear. Those are the ones that will require ministerial involvement, civil service time and possibly even judicial oversight. Rather than waste time with nugatory filings, let us focus on the core of what matters.
The Bill is so close to doing all that that I will support it whatever the Minister does, but I do hope he will think about adopting new clause 4. As he has seen, it has cross-party support, and has been tabled with great respect for his work and the work of the civil servants he has pulled together to draft the Bill. He has done a fantastic job of it. I very much hope that he will look at the new clause, consider its merits and pull it together. We know the dangers; we have only to look at the silencing of people like Jack Ma of Ant Group, and the intervention in various other businesses around the world by some of the state-owned enterprises that are now sniffing around British businesses, to see that the risk is sadly real. I hope the Minister will look at the new clause, and will use all the extraordinary experience and skill that he has at his fingertips—many of us wish that we had it—to consider where we go and how to do this best.
Stephen Kinnock Portrait Stephen Kinnock (Aberavon) (Lab) [V]
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It is always a pleasure to follow the Chair of the Foreign Affairs Committee, who is doing sterling work in an area of increasing concern to this House and our country; the impact of hostile state actors plays an increasingly important part in how we think about our country’s place in the world. He is doing outstanding work in thought leadership and political leadership in that context.

It was a privilege to serve on the Bill Committee, and it has been a real privilege to work with my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah), who has led the team in an exemplary manner. She has been assiduous in the scrutiny of the Bill and in bringing us together around the amendments—more than 30 of them, I think—that we tabled in Committee.

Unfortunately, while I have huge respect for the Minister in charge of the Bill, he chose not to integrate any of our amendments into the Bill, which is a pity because, as my hon. Friend just pointed out from the Dispatch Box, we have approached the Bill in a spirit of constructive engagement with the Government. We wish to see its substance put in place as rapidly as possible; it is long overdue. It is a pity that that spirit was not reciprocated by the Government when it came to some of our amendments, which we genuinely tabled not for any partisan reasons, but to try to improve the Bill as much as we could.

However, we are where we are. We are through Committee, and we are looking at the Bill as it is. As has been mentioned, we heard from experts in Committee, including the former head of MI6, Richard Dearlove, and Charlie Parton, one of the leading experts on China, and their contributions were enlightening. It is worth touching on what they talked to us about, because it sets out the backdrop against which the Bill is being put on to the statute book.

I will mention two of the key takeaways from that evidence. First, the impact of covid on the ability of the British economy and businesses to withstand a hostile foreign takeover is deeply troubling; it increases their vulnerability. It feels very much like we are out on choppy waters in a relatively difficult economic climate, and are relatively isolated, of course, having left the European Union. We need to ensure that we do all we can to hold on to our strategic national assets. We should not allow them to be snapped up by investment vehicles and businesses that are sniffing around, to use the term of the hon. Member for Tonbridge and Malling (Tom Tugendhat), our business sector, potentially taking over businesses in a way that would be deeply damaging to our economy and national security.

The second key trend that was highlighted was, of course, the rise of China. It was made very clear by Mr Dearlove, Mr Parton and others that successive Governments since 2010 have been profoundly naive and complacent about how we respond to the rise of China. We had the so-called golden era, which was supposed to be about economic integration, and supposed to lead to China beginning to align with the rules and norms of the international rules-based order. Clearly, the opposite has happened, and as a result of that naivety and complacency, we find ourselves very exposed, and in a position that could lead to the undermining of our sovereign capabilities. The Bill is being introduced against that backdrop.

I will speak in favour of new clause 5, which is really important, and on which I worked with colleagues, including my hon. Friend the Member for Newcastle upon Tyne Central, but first I will talk about the Bill’s intentions, and whether it will achieve its goals. The Bill seeks to protect Britain’s national security from the threats posed by hostile business takeovers, and by investment vehicles that are not aligned with the UK’s values and interests, and are potentially even actively hostile and seeking to cause harm to our country. However, there is potentially a flaw at the heart of the Bill. A key part of our national security is our economic security; indeed, I would argue that it is a foundation stone of our national security. It underpins our long-term national security, in the sense that if we lose control of key parts of our economy, it leads to an undermining of our sovereignty, our sovereign capability, and our prosperity. That has a knock-on effect on our resilience and our national security.

We need to put our sovereign capabilities at the heart of the Bill, and ensure that when the Government do national security assessments, they look at long-term, strategic, structural threats in addition to the more immediate threats to our national security of espionage, intellectual property theft, and a range of others.

That is why in Committee I honed in on two issues that I felt were most critical: our critical national infrastructure, and enterprises and investment vehicles that have clear links and allegiance to other states. On the first point, the Bill unfortunately neglects to define critical national infrastructure. The Government consultation lists 17 sectors that might come under the national security regime’s mandatory notification process, but it does not list and define critical national infrastructure as an asset class in itself.

There is a difference between the list of 17 sectors in the Bill and the 13 sectors that the Centre for the Protection of National Infrastructure, which is of course a Government body, defines as critical national infrastructure. The missing five sectors are chemicals, defence, finance, health and water, which I would argue are crucial to our national interest. Potentially hostile foreign takeovers in those crucial sectors should give all of us, and certainly the Government, pause for thought. Those sectors form the basis of the safety and security of every citizen of our country, so I strongly recommend that critical national infrastructure be defined as an asset class in the Bill, and that the gap be closed between those 13 sectors and the 17 listed in the Bill.

Our critical national infrastructure of course needs protecting. Sir Richard Dearlove, in response to my question in Committee about including a defintion of critical national infrastructure, said:

“I would certainly see that as advantageous, because it defines a clear area where you start and from which you can make judgments”.––[Official Report, National Security and Investment Public Bill Committee, Tuesday 24 November 2020; c. 24, Q31.]

The truth is that we have failed to protect these critical national assets for a decade. Just look at the involvement of Chinese-based investment vehicles in our water, energy and nuclear sectors. This is a serious problem that needs to be fixed urgently. It is also part of the laissez-faire approach that successive Governments have taken since 2010. It leads to a short-term business culture that opens the door to acquisitions, and to our having by far the highest number of successful hostile takeover bids of any advanced economy in the world—certainly as defined by the OECD.

Our strategic assets have too often been flogged off to the highest bidder. The case of Arm—a jewel in the crown of British tech—has been mentioned by several hon. Members; it is, of course, in the process of being sold off to NVIDIA. Huawei acquired the Centre for Integrated Photonics and of course DeepMind was sold to Google; I absolutely agree with the Chair of the Foreign Affairs Committee, who said that that was one of the most egregious decisions taken by a Government in recent political history.

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All that undermines our sovereign capability, and as a result so much of our critical national infrastructure is not in our own hands. In fact, 57 of our critical infrastructure supply chains depend on China—from energy suppliers, to airports, to personal protective equipment. That is a dangerously exposed position to be in. The repercussions, of course, were felt through the pandemic. Our lack of capacity to produce personal protective equipment has cost the UK taxpayer eye-watering amounts of money, and there have been shocking stories of so-called middle men pocketing millions of pounds for simply acting as a broker between the British Government and overseas suppliers.
I now turn to the issue of foreign state involvement, state-owned enterprises and investment vehicles backed by states. Many of the so-called private takeovers and infrastructure investments are in fact being carried out by companies and investment vehicles that are a front for authoritarian state actors who have wider political and national security agendas and whose values are at odds with our own concepts of democracy, liberty and the rule of law. The most obvious and pressing case is the role of the Chinese state, which is committed to expanding its influence economically, politically and militarily in order to become the world’s leading global power. We need only recall the recent case of Imagination Technologies, which was the target of a hostile takeover attempt by an investment vehicle with direct links to the Chinese state—and, of course, there is a substantial Chinese stake in Hinkley Point.
We need to tighten our view and definition of hostile foreign takeovers when they have a particular role and when they owe allegiance to hostile foreign states. That is set out in the statement of policy intent, but it is not in the Bill. As I pointed out in Committee, it really needs to be in there as a clear definition of an additional threshold—a higher threshold and a more assiduous look at the backers of investment vehicles and companies seeking to take over British companies and interests.
In addition to the comments on these broader issues of critical national infrastructure and the state-owned and backed enterprises, it is important that we should flag up concerns about the fact that so much of it sits within the Department for Business, Energy and Industrial Strategy. That is really an issue, because decisions are going to have huge cross-departmental implications. It would be better for there to be a cross-departmental unit bringing together the Treasury, the Home Office, the Foreign, Commonwealth and Development Office, the security services and the Ministry of Defence. It would follow a model similar to that of the Committee on Foreign Investment in the United States.
There were signs that BEIS was something of a cheerleader for the Huawei deal; that does not fill us with great confidence or optimism that a sufficiently astringent look will be taken of these issues if they are left exclusively in the hands of BEIS. There is also an issue around the change of incumbent at Cabinet level, with the Secretary of State being potentially influenced. We would of course never cast such aspersions on the current incumbent, and we congratulate him on his promotion, but we really do need to make sure that we have a belt-and-braces approach and that undue influence is not exerted.
We have seen reports about so-called elite capture by foreign powers, we have seen the Russia report, and we would like far more assiduous action to be taken. It is naive to think that we are not vulnerable to these influences—
Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
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Order. Could I interrupt the hon. Gentleman to say that we have quite a few more speakers? We do have a fair amount of time, but I am hoping that speakers will take about 10 minutes, and he has now taken 15, so I hope that he might be bringing his remarks to a close before too long.

Stephen Kinnock Portrait Stephen Kinnock
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With apologies, Madam Deputy Speaker, I am indeed finishing now.

Protecting our national security is just one element of protecting, nurturing and developing the sectors that are vital for the future. Technology sovereignty will be the defining issue of the coming decade. The economic dislocation we have seen from covid means that the case for action is stronger and more urgent than ever.

Jamie Stone Portrait Jamie Stone (Caithness, Sutherland and Easter Ross) (LD) [V]
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I shall heed your remarks, Madam Deputy Speaker, and try to keep my contribution short. In truth, I have not been involved thus far in this Bill, but I am my party’s defence spokesman and I therefore take a view on it.

Given the constituency I represent at the very top of the British mainland—north coast, east coast and west coast—I intuit from what I see that the Russian navy is no stranger to those waters. Therefore, the defence of the realm is in my mind personally as well as in speaking in the Commons. As I have said many times before, we do, alas and alack, live in a world where there are states that are not about the best interests of the United Kingdom. As other speakers have said, we see the Chinese threat and we see the Russian threat. It is within that context that I say what I say.

I want to make three or four very general points; as I say, I will try to be fairly speedy. The first is about the amendment that seeks to place an annual security report before the Intelligence and Security Committee. Yes, we have heard that the Government are proposing to bring in something similar to this amendment in the upper House, but it would be no bad thing for us to agree on it at this stage, and then let us see what the Government come back with if they decide not to accept it. In recent days, we have seen on the other side of the Atlantic the whole notion of parliamentary democracy come under some challenge. Here in the mother of Parliaments, the idea of Parliament as supreme and of reports brought back to Parliament is very much a part of our democracy. It is a vital mechanism in securing the way we do things nationally and our freedoms.

On the Chinese point, the sale of DeepMind to Google, and Arm, which will go to NVIDIA in due course, is regrettable, to say the least. Let us make no mistake: this is a quite deliberate act by China and other Governments who are hostile to us. At the end of the day, there are front organisations that are trying to get a grip on cherry-picking those parts of the British economy that are fundamental to our workings. That is extremely dangerous, to say the least.

The scope of the public interest test is important to the Liberal Democrats, as we have been saying for a long time. First and foremost, this Bill, which I support entirely, is important to the safety of the realm—to protecting British interests—but at some stage I would like the public interest test to be broadened out. Mention has been made of China. We know how incredibly badly the Chinese are treating their Muslim minority in the west of the country. It amounts to something approaching genocide: let us not muck about with this. When companies buy up a British company or business, I would like the public interest test to be applied, for instance, on child labour and on modern slavery. The trade deals should be examined in that context as well. At the end of the day—we have said it many times in the House of Commons and the House of Lords—we disapprove entirely of the way in which the Chinese have treated the Uyghurs. We have to try to take action to try to influence that. If we can stymie a trade deal on that front, that might be a very good move for the future.

I have discovered—it is a curious factor during my three years in the Commons—that on defence matters there is often broad agreement across the House, which is very encouraging. The idea of constructive opposition is important, and what comes back from the upper House will be of extraordinary interest. I hope that the lesson has been learned, and that when the Bill is enacted there will be a sensible approach to stopping the repetition of DeepMind and the sale of Arm. I give huge credit to the Chairmen of the Foreign Affairs Committee and of the Intelligence and Security Committee, who have worked assiduously, as have their Committees, on a cross-party basis, to protect the best interests of our nation. There I shall conclude my remarks.

Katherine Fletcher Portrait Katherine Fletcher (South Ribble) (Con)
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I join the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) in paying tribute to all the members of the Bill Committee. The room may have been cold but, to be fair, the debate was not. I extend my thanks not only to the Front-Bench spokespeople but to all the Clerks and everyone who made that happen.

What occurred to me as I shivered, with the Thames windows open in the Committee room, was that, as my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) pointed out, this is flipping important, but there is a risk of it becoming dry and remote. I hope that the House will bear with me if I try to bring it to life for people who spend the day on their phone and are not aware of some of the business takeovers that have occurred or of the actions of foreign states that are hostile to us.

I want specifically to speak to new clause 5 and the attempt to seek clarification on the definition of national security. In the spirit of clarity, let me take a step back to take a step forward. What does the Bill do? It enables us to catch up with nations such as America, Australia and Canada, in protecting us from threats from people overseas who try to use business and ideas, candidly, to do us harm. It gives us a legislative framework to address that, and I echo the comments of many Members to put stickers on how important that is.

The Bill gives the Government powers to investigate properly business deals that look a bit fishy or are much worse than that. National security can sometimes end up sounding like that bit in “Men in Black” where, all of a sudden, the sunglasses go on and the pen comes out. What does it mean? To me, it is not a static thing or concept—it is a fast-changing world. In seeking to define it, as new clause 5 does, we risk flagging to our enemies what the “it” of national security is, thus making a big pointy arrow saying, “Go and over there and do this, because we are not thinking about that as a Government at the moment.” The Government need flexibility to be nimble as threats evolve.

To explain that, let me give a hypothetical example. A small firm is curating a TikTok feed and videos on its channel, gaining ad revenue. It is not a huge business—a couple of people—but it is doing quite well. Those videos are funny and political, and are often further left of centre than me. They imply that I, as a Conservative, have only awful motivations for the decisions that I make in this House. Well, such is life. This is the lot that I picked, though, as an aside to the youth of today, I would like to point out that if they are getting their messages from people who are only giving them one side of the story, they should think about it quite hard, because there are always two sides to the story.

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However, going back to this hypothetical company on social media. What happens if an enemy abroad who hates us, hates the British, hates what we stand for decides to try to buy this business and then uses this business’s reputation, subscribers and previous clever work to push really damaging ideas and—to use the phrase du jour—fake news? All of this to the people who just want to watch funny videos that laugh at silly Tories. Is that a question for national security? Should we intervene and stop the purchase of this business because we risk what is going forward? To be candid with the House, I do not have the answer to that question, and I think that that speaks to my point. Is it national security when a community of people are only seeing something wrong and dangerous? Is that national security and should we step in? I can speak to the answer yes. I can also speak to the answer no. No doubt this House could debate it for many, many hours in an articulate fashion, such as we have just heard.
Now, if we had defined national security, would it be certain that we had the right definition to allow for this decision to be made? It is my submission to this House that we would struggle. Also, this hypothetical example of a modern company is one from our current technology. It is only catching us up with the rapid changes that we have seen in the past five to 10 years. With the detailed definition of security, what would happen when technology in businesses moves as far away from now, as I am from the rubber-keyed ZX Spectrum computer that I played with as a child. That is a huge leap. How do we define national security that will protect for the future and how do we encode a definition for something that has not even been invented yet. I am not sure that we can without unintended consequences in terms of signalling to our enemies, leaving loopholes, or not giving the flexibility that we need.
For me, protecting the realm and all of our people—all of them—requires flexibility as well as strong oversight and that is in no doubt, so I will not be supporting new clause 5 today.
Kevan Jones Portrait Mr Kevan Jones (North Durham) (Lab)
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I supported the Bill on Second Reading and continue to do so, because, of course, in terms of putting on the statute book the protection that we need, it is a vital piece of legislation, but, as the right hon. Member for New Forest East (Dr Lewis) said, it is possibly some seven years late. That highlights the conflict that takes place within not just this Government, but all Governments, between wanting national prosperity and national security. We had this during the coalition Government—the hon. Member for Tonbridge and Malling (Tom Tugendhat), I think, referred to it as the “golden age”, or, as the Australians would call it “a Government full of panda huggers”—but that has clearly changed. What has also changed since even 2013 is that we have a better understanding of how states are using their economic power not only for defence purposes, but to project their power to change the international world order.

It has come as a great shock to many people that, in the past few years, the international rules-based order, which we have all accepted since the second world war, has come under threat not only from hostile states, but from individuals who basically want to throw everything up in the air and see what lands.

Clearly, when it comes to China, to mention one nation, its investment strategy, including belt and road and other initiatives, is clearly being used not just in terms of projecting its economic power, but for geopolitical reasons. If we look at the long list of Chinese individuals on various standard-raising bodies—whether it be UN bodies or standard setters in the telecoms industry—we can see which areas they want to influence. The Bill is very important in ensuring that we protect that critical national infrastructure. There will be that debate—as Members will see if they read the ISC’s report, in 2013—between prosperity and security. For me, security has got to be the key cornerstone of this legislation, but it will, I think, lead to some very difficult decisions having to be taken.

As I say, I broadly welcome what is being put forward in this Bill, and I will come on to some of the new clauses in a minute, but can I first refer to new clause 7? It has already been spoken to by the Chair of the ISC, the right hon. Member for New Forest East, in terms of oversight. The ISC is not looking for work, I can tell hon. Members that. I have been a member of it for a few years now, and we have a lot on our plate. We do not actually want to be a regulator or in any way to have to decide what should go ahead and what should not—that is the role of Government—but I think it is crucial that those decisions, some of which will be very controversial but taken for perfectly good security reasons, do need to have oversight from outside the Executive.

As the right hon. Gentleman has outlined, that cannot be done by the BEIS Committee. Again, I would not want to take away from any of the work it is doing, but we are the only Committee of all the Committees we have that has the levels of security clearance—it has STRAP clearance—to look at the evidence that will have to be put forward for taking these decisions. I think this would give the public confidence in the Bill, and when such decisions are being taken in future, the public can actually have confidence that there is some oversight of the reasons why they are being taken. So I do support new clause 7, but I accept what my Chairman says about wanting some indication of the Government wishing to take this on board. May I also raise the fact that this is not just for this Bill? I am also serving currently on the Telecommunications (Security) Bill Committee, and it is an issue—exactly the same issue—there as well.

I think the Minister is sympathetic to this, but I can tell him now—and I do not want him to admit it—that he will be getting a lot of pushback from the Cabinet Office, because the Cabinet Office somehow sees it as its role to prevent the ISC from seeing anything. As the right hon. Member for New Forest East said, it hides behind the Justice and Security Act 2013, but as he very eloquently outlined, there is already a mechanism to allow us to look at this. This is going to be an increasing problem. If hon. Members read the Act, they will see that it does not actually say that it is about actual Departments; it is about access to sensitive and secure information. That is going to be an increasing issue, whether for this Government or future Governments, because, as that is used by more Departments, it is important that Parliament and the public at least have some oversight of it.

I do not want to bash the Cabinet Office, but hon. Members will remember, if they look at the 2013 ISC report, that it is the same Department that, even though it was told by BT that BT was going to contract with Huawei, somehow conveniently forgot even to tell Ministers until much later. So, I think it is important to ensure that we have robust oversight. I look forward to the Minister’s response on whether he is going to agree to this letter. If he can give such an indication today, or even when it goes to the other place, that would be welcome, and if that is the case, I think it would be quite right not to press new clause 7. I think this is something that is missing from the Bill.

May I now refer to other new clauses? New clause 4 stands in the name of the hon. Member for Tonbridge and Malling and others, and I congratulate his Committee on its report. I accept what the hon. Member for South Ribble (Katherine Fletcher) has just said about defining national security. Putting that on the face of the Bill, as new clause 5 does, limits what can be done, although it is good to have a debate on this. New clause 4 is slightly different, however, because it sets out a framework within which these decisions can be taken.

The Bill does not define national security or the list, and I understand why: because we cannot list the entities, and, as the hon. Lady said, something might come up in the future that is critical national infrastructure but that we have not yet thought about. We need sufficient flexibility to be able to address such situations.

New clause 4 also covers the following important area:

“(g) the potential of the trigger event to involve or facilitate significant illicit or subversive activities, including terrorism, organised crime, money laundering and tax evasion; and

(h) whether the trigger event may adversely impact the safety and security of UK citizens or the UK.”

We see good examples of states that are making strategic investments for geopolitical or security reasons or in order to acquire technologies, but, as came out in the ISC Russia report, many states are increasingly using fronts and other individuals to acquire such assets, and, having not an exhaustive list, but a framework that covers this would also flag up such matters to the Department.

We talk about critical national infrastructure being things such as power stations, electricity grids, gas mains and telecoms, but might we also say that our food distribution network, for instance, is a part of critical national infrastructure? In the early 2000s we had the fuel delivery lorry drivers’ strike, which led to a critical situation, and control of such events could fall under this. These things might be done not by a state, but by individuals related to it, perhaps acquiring large property portfolios in certain areas. Although new clause 4 is not perfect, it covers these matters.

I accept what my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) is trying to achieve in amendment 7. She wants this unit to have the resources to ensure that it can do its job, and that is very important. However, we also need to ensure that there are no untimely delays, because we do not want this to be a hindrance to business.

Amendment 7 also raises the issue of the personnel who are going to perform this task. I have a huge concern, which I have raised already in terms of the Telecommunications (Security) Bill, about the type of individuals we are going to get in that unit. It is vital that we have people with not only the necessary security clearances but also the right security mindset. Some reassurance on that from the Minister would be welcome.

Overall, however, I welcome this Bill. It takes a huge step in the right direction. As my Chairman, the right hon. Member for New Forest East said, it is strange that we wait for seven years and then get two Bills very quickly, and I also look forward—I hope in the near future—to a further Bill, the hostile state actors Bill, which is another recommendation from our Russia report.

I thank the Minister for the constructive way he has taken this Bill forward—and I will be cheeky and just say to him that if he can deliver extra vaccines in Chester-le-Street this week, that will be very welcome.

Eleanor Laing Portrait Madam Deputy Speaker (Dame Eleanor Laing)
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We now go over to Sam Tarry—oh no, he’s here!

Sam Tarry Portrait Sam Tarry (Ilford South) (Lab)
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I am indeed, Madam Deputy Speaker; I hope you are not too confused that I am here physically. Thank you very much for kicking me off.

I spoke at length on this legislation in Committee, where I moved a number of Opposition amendments to try to strengthen it and where we heard salient and wide-ranging witness statements and testimony on this crucial legislation. Indeed, as many Members across the House have said, the Bill is an important and, frankly, long overdue piece of legislation that will provide more robust powers for the Government to intervene when corporate transactions threaten national security, as the Labour party has long demanded. That is why we support the Bill and have tabled amendments to make it more robust.

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That said, the Bill unfortunately represents a missed opportunity. It fails to go far enough to protect our national interests and our security at a time of ever changing and global emerging threats. It could and should have been used to build a more comprehensive and unified industrial strategy, which is urgently needed as we look to emerge from the pandemic and the severest economic crisis and recession in 300 years.
The fundamental task of any Government, and the reason for the Bill overall, is the protection of our national security. A critical driver of that security is the wider public understanding of the rapidly changing threats we face and the different sources of those threats. In Committee, we heard from various expert witnesses that other countries understand perhaps far better than we do what some of those threats are. Members from across the House heard evidence in Committee from the former head of MI6, Sir Richard Dearlove, who sketched out a complex picture that clearly showed that, for too long, successive Governments over many decades have placed economic interests, including our relationship with China, ahead of our human rights obligations and strategic national security interests.
That is why Labour is calling for the Government to intervene in foreign acquisitions that could damage our national interest and hamper our national security, so that the likes of the disastrous takeover of the UK’s biggest tech company, ARM Holdings, never happen again; and to use the Bill to put in place a robust framework that ensures that and that prioritises national security above all else. That would mean the Government no longer opening our doors to the highest bidder and selling off anything and everything in the process, but instead having a long-term and strategic approach to global threats—economic and otherwise—so that in the post-Brexit world we now inhabit, national security does not take a lesser priority than free market fundamentalism.
Indeed, over the past decade, the Conservative Government have allowed foreign direct investment to grow rapidly. In the past two years alone, it has almost doubled, from £36 billion to £66 billion. That, of course, is to be commended and much welcomed in many cases, with thousands of jobs created across the country. However, where the investments are being made is the cause of a great deal of concern. Worryingly, on only 12 occasions in the past 18 years have there been national security assessments to scrutinise such investment, with not a single block on a takeover during that period. That is deeply concerning, because as has been well documented across the House, enterprises controlled by potentially hostile countries have been handed contracts for 5G or to build and invest in crucial national infrastructure, such as nuclear plants, giving them potential control of critical infrastructure, personal data and cutting-edge technologies. This should not be about making as much money as possible but about our Government prioritising our nation’s security.
We must learn from our partner nations that have put in place similar measures recently to deal with this growing threat. For example, in the US and across the EU, wide-reaching laws have been implemented to enable intervention in investment transactions where national security or national interest concerns are at stake. The EU proposed them in 2017, and Germany updated its legislation the following year, around the time the US did the same. The national security definition clause we have tabled would bring us in line with our allies and would treat this matter with the seriousness it deserves.
The Bill transforms the UK’s merger control processes, and that is a key part of it that we would not want to be overlooked, but it locates merger control processes away from the Competition and Markets Authority, with its history of merger control expertise, and into the Department for Business, Energy and Industrial Strategy, which unfortunately has no existing expertise in merger control. It does this at the same time as massively expanding the scope of intervention. In the face of such sweeping powers, we should not abandon all accountability just because the Secretary of State says the words “national security”, even though they happen to be at the top of the Bill. Too often during the pandemic, we have seen the Government run roughshod over parliamentary accountability and scrutiny, and national security is simply too important to have that happen again.
The amendments put forward by the Opposition would hold the Government to account through aggregate transparency, with specific focuses on unit efficiency, unit capacity and small and medium-sized enterprise interactions. We are also supporting the Intelligence and Security Committee’s amendment, which would require the Government to publish an annual security report to the ISC, allowing the Committee to bring some accountability and transparency to the Government’s actions without, of course, compromising on security. The UK, thankfully, is globally recognised as an open and attractive destination for foreign investors. However, our openness has made us vulnerable to exploitation by foreign actors who do not always have our nation’s best interests in mind, and we must act before our security could potentially be compromised. Labour’s amendments to the Bill, and a clearer definition of what national security means, would enhance this legislation and make it more fit for purpose.
I would like to turn to the clause that has been put forward on SME support, because this is crucial to their long-term survival, given the precarious position that many of them are currently in. Small and medium-sized enterprises are enormously important for constituencies such as my own in Ilford South. They are the backbone of our community businesses and a driver of the local economy, but they have faced unprecedented difficulties during the ongoing pandemic. It is therefore vital that the Bill does not lead to SMEs being hamstrung by more red tape.
As the true party of small business, Labour is calling for greater guidance and support for our innovative small business sectors, so that the Government do not once again allow SMEs to fall by the wayside. Any business, whether small or large, needs certainty, and the publication of comprehensive guidance and an early understanding of compliance will allow many SMEs to navigate their way through these new requirements. But above all else, guarding national security should not mean abandoning those SMEs, because they are the engine of national innovation and local economic growth in so many parts of our country. That means that the Government should establish a dedicated SME unit within the Department for Business, Energy and Industrial Strategy that can guide and mediate for those businesses as they progress through the national security screening process. National security is and must always be our highest priority; it is Labour’s highest priority. In the post-Brexit world, we want to be a country that is as open and positive as possible towards investment from international partners only if they share our values and objectives of supporting and rebuilding Britain.
Andrew Griffith Portrait Andrew Griffith (Arundel and South Downs) (Con) [V]
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May I first take the opportunity today to congratulate our friends in the United States? They are one of our longest and most enduring partners, including in the domain of investment, where we are each one of the largest investors in each other’s economy. In fact, 1 million people in the UK go to work every day for an American company, and 1 million Americans work for British companies.

Unlike many of the other speakers in this debate, I want to talk about investment. This Bill should not be about the NHS or employment law or foreign policy, but it is—or at least it should be—about the world-liberating, poverty-alleviating force that is the global movement of capital to make a profitable return. We are all deeply vested in its continued success. The UK economy is one of the most open in the world, and our prosperity depends on that. The salaries and pensions of one in every three nurses, doctors and teachers depend on the cyclotron of capitalism that combines our world-leading science and intellectual capital with human talent from all over the world to invest in and create economic activity here in the UK. So I am pleased that the Minister, who I know is a great friend of business, has once again confirmed that the Government will always enthusiastically champion free trade and provide the warmest of welcomes to overseas investors. He is right to remind us that, since 2011, over 600,000 new jobs have been created in our economy, thanks to over 16,000 foreign direct investment projects.

In putting forward new clause 5, Opposition Members put forward a veritable laundry list of subjective factors that are at odds with the clarity and certainty that investors need from this Bill. They would put the UK into a concrete overcoat at just the moment of our greatest opportunity. From the buoyant top, we would plummet to the depths of the world rankings in attracting international investment. It is almost as if Opposition Members do not want the British people to taste the fruits of the successful Brexit that they tried to thwart.

From an external perspective, the British economy is a highly attractive investment prospect: a stable, pro-free enterprise democracy with tariff-free access to European markets, close links to the faster-growing Commonwealth countries and native use of English, the universal language used by the fastest-growing sectors and economies of the world. The opportunity is the stability of Switzerland, combined with the dynamism of Singapore.

As net zero champion, I see examples daily of entrepreneurs and investors pursuing opportunities in the expanding clean growth sector. British-based firms are exporting electrolysers to Europe and fuel cells to Asia. The City of London is a world-leading hub for green finance, while our airports and airlines are the same in sustainable aviation. Elsewhere, similar opportunities exist in artificial intelligence, quantum computing, the life sciences, satellites, aerospace and FinTech, where the UK science and research base positions us very strongly. It is not just rhetoric; economists rightly forecast that UK growth this year will outstrip the US, Japan and the EU.

I urge Opposition Members to withdraw their amendments to the Bill and to allow it to go forward today. Having allowed the golden goose of the UK economy to continue to prosper, we can engage in a legitimate debate about how best all may share in the fruits of that success. [Interruption.]

Eleanor Laing Portrait Madam Deputy Speaker (Dame Eleanor Laing)
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Order. We cannot have Members sitting here in the Chamber—under the cover of masks, so I cannot see their mouths moving—making comments about things that people are saying virtually. It just does not work and, quite frankly, it is not fair. We really must watch the level of behaviour while we are trying to balance this difficult situation in the Chamber.

Jim Shannon Portrait Jim Shannon (Strangford) (DUP) [V]
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Thank you, Madam Deputy Speaker, for allowing me the opportunity to speak this afternoon. I have followed with great interest every stage of the Bill. I do so with a somewhat vested interest. That is not that I have investment portfolios or similar, because I do not, but because I am fully aware of the potential that exists within Northern Ireland for foreign investment from the positive advantage we now have.

As the previous speaker, the hon. Member for Arundel and South Downs (Andrew Griffith), said, Brexit has given us some opportunities for investment for the future. I see potential for that, as he does, and hopefully as others do, too. Northern Ireland has become the cyber capital of Europe, with our low business rates, superfast broadband in urban areas, wonderful global connectivity—before the pandemic, at least—and a highly skilled local workforce. It is little wonder that more people have decided to make Northern Ireland the home of their global business, and the opportunity is there for much more.

For that reason, I have followed the Bill closely to ensure that it protects our nation as a priority, and I am firmly behind the Government in that aim. I support the objectives that others have set out, and that the Secretary of State will set out at the end of today’s debate. I also want to ensure that the Bill is not overly prohibitive to companies that see opportunity to invest in my constituency of Strangford and in the Ards council area, but have concerns about the mechanism through which the Secretary of State can put a hold on investment for certain reasons.

I share the concerns of my colleagues that more detail is needed on what constitutes a reason for the Secretary of State to become involved. It is my desire that, rather than a substantive statement by the Secretary of State coming after the passing of the Bill, one should be appended to it. I seek some clarification on this matter. That would enable investors and those businesses seeking investment to know the parameters within which they are working.

I must be clear: I do not wish to water down the aims of the Bill—that is not my intention whatsoever. However, I share the concern of some Members that Chinese companies are under an obligation to share information with the Chinese Government. I remain concerned about overly onerous legislative commitments for small investments and small firms, but I must accept the evidence of the loopholes that foreign investment companies have made their way through by purchasing intellectual property rights and the like. I see how our system has been abused thus far, and I stand with Government on the need for an overhaul, which is the purpose of this legislation. However, I believe that we need the detail to have the strong and all-encompassing legislation required to keep our nation safe. I again implore Ministers to consider this. The safety of the nation has been spoken about by many Members, and it is certainly a priority for me and my party.

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I am thankful for the trigger events set out by Government in the White Paper. I understand the rationale behind those and fully support them, especially the fact that Government’s rationale for introducing mandatory notification for these trigger events is the same as for the trigger events themselves. That is to say that the acquisition of over 25%, over 50%, over 75% or more of votes or shares represents thresholds at which parties can respectively block a special resolution, pass an ordinary resolution or pass a special resolution, as set out in the Bill. It is the delay in the secondary legislation after public consultation that concerns me. Surely the Bill will be stronger when it is complete. Again, I seek the Secretary of State’s reassurance on that.
I thank the Secretary of State, the Chair of the Foreign Affairs Committee, the hon. Member for Tonbridge and Malling (Tom Tugendhat), and all Committee members for their hard work. We have before us a Bill that we can be proud of and that will lead to the security we need.
In conclusion, is there a reason why we cannot put all the pieces of the jigsaw together and present clear legislation which ensures that both the investor and the company know and understand the prerequisites and that we are all able to play our part to ensure that the security of this nation—the United Kingdom of Great Britain and Northern Ireland, better together—is not at stake, while enabling us to thrive in the future?
Bob Seely Portrait Bob Seely (Isle of Wight) (Con)
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I thank the Minister for his work and for being here for the debate; I know how busy he is, so I am most grateful. I will speak to new clause 4, which provides a definition of “national security”. After listening to some of the speeches, I wonder whether I am going to play the role of General Melchett in “Blackadder” when I insist that “security” is not a dirty word. Let me try to put the argument in favour of a national security definition. My hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) suggested that I do so, and I am grateful to him for the opportunity. Like him, I thank Nicole Kar and Alice Lynch, who supported the work of the Foreign Affairs Committee.

New clause 4 provides a non-exclusive framework of factors that the Secretary of State would be obliged to regard when he is assessing takeovers or work in this field. It does not limit the Secretary of State in any way, as my hon. Friend the Member for South Ribble (Katherine Fletcher), who spoke eloquently, and others suggested. It provides a public recognition and a public baseline of things that should be considered. As such, it is a sensible amendment to improve the Bill, as well as providing a wider public service by defining national security in the modern era. I would like to make a few background points and then speak for between five and 10 minutes on a few other points.

We need a definition of national security, because the alternative is to have a vague and unstated set of assumptions. The amendment is broad, but it sets quite a high benchmark. It is not a generalised catch-all, nor does it contain a substitute for an industrial policy; that is another debate. The Cadbury takeover would not be included in this, nor would a Stilton creamery in South Notts—it might in France, but not in this country.

In this country we have a tendency to romanticise vagueness, as if planning were a bad thing and muddling through a strategic art as well as a national pastime, with this just-in-time Dunkirk spirit. I think it was Churchill who noted that, actually, Dunkirk was a military disaster, not a victory, and that if we had got our security and strategy right in the years previously, we could have avoided glorifying disasters because we would not have been in that disastrous position in the first place. A more systematic approach to national strategy—frankly, I think we need a national strategy council—but also to security and the definition of national security is important.

My next point is that the nature of national security has changed, and we need to be mindful of that. It is not simply about defence and espionage and the immediate threat to the realm. We have seen from Russia and China a combining of non-military and military, of covert and overt strategies—people call it hybrid war, grey war, under-the-radar war; there are about 25 definitions doing the rounds. This is not a war as such, but it is a form of state struggle and state conflict. Some states in the world, including very significant states such as Russia and, perhaps to a lesser extent, China, see things as a zero-sum game. We need to understand that liberal internationalism is not the only show in town and not the only way to understand international affairs. The west is good at many things, but seeing the world through the eyes of others is not necessarily one of them.

These new states, as many people here have said, use multiple and novel tools, including economic power, energy power, espionage, blackmail, information war and even cultural and religious power, as well as military and paramilitary power, and they use different templates and different tools in different parts of the world. Clearly, the tools that China uses in Xinjiang province are different from the ones that it uses in the City of London or to reach out to parliamentarians. The tools that Russia uses in eastern Ukraine or Kiev are different from the ones that it uses in the UK. Is the Kremlin’s use of Russian Orthodoxy a national security threat to us? No, of course not. But is its use of oligarchs and informal channels to influence senior political and financial elites in our country—the hon. Member for Aberavon (Stephen Kinnock) called it “elite capture”—a potential threat to national security? Yes.

The right hon. Member for North Durham (Mr Jones) was right to mention how states are using those new powers and how they use power to bend or break the international system. My hon. Friend the Member for Tonbridge and Malling has also spoken about that repeatedly, as indeed have many of us on the Foreign Affairs Committee. That international system is not perfect, but it has served humanity well.

It is important to understand that national security is not just about a narrow defence threat; it is broader. China has published a document, “Made in China 2025”, outlining how it plans to dominate data, artificial intelligence, big data and so on. Is it a threat to our communications infrastructure if we are dominated by a one-party state with a very different values system? I am not saying definitely, but potentially it would be.

The Henry Jackson Society and I produced a report on Five Eyes supply chain reliance on China. Over a quarter of British supply chains are dominated by China, and the UK is strategically dependent on China for 229 categories of goods, 51 of which have potential applications in critical national infrastructure spheres. We need to be mindful of the impact of that on our national security.

There are companies that are going to be bought and universities that are going to be working on gait technology and facial technology. I do not doubt that there are some countries in the world that will use that technology to improve their mass transport systems, but there are countries—China is potentially one of them—that will use it as a means of controlling their people more effectively and developing the sort of Orwellian state that is a potential threat to humanity and mankind.

Let me look specifically at new clause 4. As I said, my hon. Friend the Member for South Ribble talked about the need to be nimble, and she is exactly right, but osmosis is not a way to provide a definition of national security. The new clause obliges the Government to look at a series of areas. We tried to make it broad, but it sets a high bar. It requires the Government to look at the critical supply chain, critical national infrastructure and national resource. A year ago, who would have argued that personal protective equipment manufacture, vaccine supply or AstraZeneca’s cyber-security were national security issues? Probably nobody. Who now would deny it? Probably nobody. This is a significant element of our national security.

Another example—one that has worried me greatly—is that the Government did not see Huawei’s domination of 5G as a national security issue. They chose not to listen to those people in the agencies who said that it was and set a clear political direction. It concerned me particularly that, bizarrely, BEIS and other Ministries presented Huawei in this House as a private firm when, clearly, it was part and parcel of the Chinese state. Therefore, having a clear definition in the Bill of what Ministers are obliged to look at would help to guide them to come to good decisions in the national interest, and that is what we are trying to do.

We are trying to do things in the national interest to improve the Bill where we can. Paragraphs (b) and (c) address the threat from individuals and to individuals. Paragraph (c) addresses the nature of potential acquirers of UK firms. The hon. Members for Aberavon and for Newcastle upon Tyne Central (Chi Onwurah) spoke very eloquently about this, and Huawei is instructive.

My hon. Friend the Member for Tonbridge and Malling spoke about two companies that were bought when perhaps they should not have been, and we need to look at the nature of potential acquirers of UK firms. It is not an attack on laissez-faire economics or on our role as a free market and dynamic, global economic centre to accept that a national security definition, along with good laws, helps to provide a framework for honesty and integrity in business life. Paragraph (f) addresses national security and our responsibility to oppose modern slavery and genocide, which is an important issue for me, but again it sets an extraordinarily high bar.

Paragraph (g) addresses the potential threat of global organised crime. Again Russia, specifically, has tried to influence other countries in this way. Yes, that could be a potential national security risk. Finally, paragraph (h) gives the Secretary of State the flexibility to take a generalised approach to things that are not in the interests of the UK and are a threat to our interests or our citizens.

This new clause is a baseline, not a limiting factor. It helps to provide guidance for the Secretary of State and for BEIS. Frankly, this should be cross-departmental. We need our own CFIUS, and why we do not have one I do not know. Again, that is a concern. I will not address it now, because it clearly is not in the amendment and I am wrapping up.

I fear that the vagueness on national security does not help this Bill, nor does it help national security and its role. Clarity is needed in the long term to help us provide better strategy and a better understanding of the opportunities and risks that face this country in the years ahead.

Kim Johnson Portrait Kim Johnson (Liverpool, Riverside) (Lab) [V]
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I start by congratulating Joe Biden and Kamala Harris, and by wishing for a violence-free inauguration today. Good riddance to the outgoing President. We will not miss his hate speech.

The National Security and Investment Bill seeks to usher in sweeping reforms to how our Government can scrutinise foreign investment. It proposes strong measures to toughen foreign investment rules and to bring the UK into line with other major countries in key sectors. These steps to keep high-growth and strategically important companies in the UK are overdue and highly welcome, but does the Secretary of State agree that, for the UK to have an active industrial policy that works in the public interest, the Government must go further than just blocking hostile mergers and acquisitions, and instead implement a robust industrial strategy that puts critical national infrastructure at the heart of Government policy?

One example is the recent takeover of Arm, the crown jewel of the British tech sector—a genuine global powerhouse worth more than £31 billion and with more than 6,000 employees. Its recent sale to Nvidia, a US tech giant worth more than £338 billion that is tucked away in the tax-light and secrecy-heavy state of Delaware, provides a clear example of the risky and problematic sale of a British firm to foreign investors, which threatens both security fears and job losses.

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Nvidia competes with companies that Arm supplies. Arm’s co-founder declared the takeover to be a “disaster” that will destroy the company’s business model and lead to job losses at its Cambridge headquarters and elsewhere in the UK. He also said:
“It is very much in Nvidia’s interest to kill Arm.”
At the time of the sale, Unite the union, which represents Arm workers, declared that, if allowed to go ahead, the sale
“risks the company’s UK operations being run down and jobs and investment moved abroad.”
I wholeheartedly support Unite’s call for the Government to protect tech firms from being hollowed out by detrimental takeovers, and to provide the investment needed for the sector as a whole to flourish.
Although the Bill makes great strides in bringing UK legislation in line with that of other countries in giving the Government significant powers and oversight of all investments to protect national security, gaping holes remain in our powers to protect jobs and industry here in the UK. With the country’s manufacturing sector already on its knees, dismantled and sold off in the Thatcher years and subsequent decades, do the Government not agree that it is high time for a robust industrial strategy that bolsters high-skilled, high-paid and sustainable jobs, to invest in our communities and rebuild after decades of industrial decline and the economic fall-out from coronavirus?
We need to support this legislation to protect UK jobs and industries from foreign, hostile acquisitions that could damage the UK economy and lead to job losses, but we cannot ignore the lack of investment or attention by our Government in developing the UK’s industrial strategy. If we are talking about protecting jobs and industry here in the UK, the two cannot be separated. If the Government are serious about industrial strategy, we need stronger powers, such as those in France and the USA, to intervene in takeovers to protect our vital interests, particularly in our tech sector.
We also need serious planning and investment in these sectors, training and reskilling of our workers, and strategic investment in line with the plans for regional levelling up to provide the necessary conditions for these sectors, and the communities dependent on these jobs, to flourish. Now is the time for bold action to put critical national infrastructure at the heart of Government policy, and to retain high-growth and strategically important companies in the UK.
Bob Stewart Portrait Bob Stewart (Beckenham) (Con)
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Enhanced protection of our national security is obviously at the heart of the Bill. It has come not before time, too. It has had a gestation period of something like seven years since the Intelligence and Security Committee first raised the matters that it addresses directly. As a member of the Committee, I will not repeat what my right hon. Friend the Member for New Forest East (Dr Lewis), the Chair of the ISC, or the senior Opposition member of the ISC, the right hon. Member for North Durham (Mr Jones), have said with regard to oversight of investments. I think the point has been well made, and I totally accept that the Minister gets those points.

Let us be clear, though, that if a potential enemy state can get critical information and technologies, it is highly likely to do so. In truth, as we all know, the UK is a primary target for a broad range of national security attacks from both foreign intelligence agencies and organisations, as well as companies, which certainly are operating at the moment. If a company that is British and world leading in a technology—for instance, artificial intelligence or robotics—is bought by a foreign investor from a country that is not particularly friendly to the UK, we must have a system to ensure that British technology, ideas and even hardware are not simply hijacked and possibly used against us. We have to stop that.

Unless the United Kingdom curbs the right of foreign firms and investors to obtain technologies through the means of mergers and acquisitions and similar, our advanced technologies could easily find their way into weapons systems of foreign, potentially hostile states. These days, weapons systems should be much more broadly defined. They include possible attacks on the way we live. For example, using the internet to turn off water purification and supplies or just sewerage would have a dramatic and immediate impact on British society. I reckon that is a weapons system these days. In future, investors will have no choice but to notify the Government if the ownership of certain businesses is to change hands. That is good news. I note, too, that the Secretary of State will also have the power to call in other businesses if he or she has concerns about national security. That is good, too: it allows for sensible flexibility.

In contrast to others who have spoken, I think we should be careful about defining exactly what national security involves because it changes all the time. It is difficult to pin it down. We know what it is, but I am worried about defining it.

Within the Department for Business, Energy and Industrial Strategy will now sit this new investment security unit, which will be tasked with supervising sensitive sectors of our economy. I know that those sectors have yet to be fully defined, but most are pretty obvious—defence communications, energy, cryptography, satellite and space technologies and many more. But in the fast-moving modern world that we live in, it will also be important for the investment security unit to look actively at seemingly innocent technologies and systems, which in the wrong hands could bring our society to a grinding standstill. Others have mentioned the national grid: if that could be disabled by the simple means of remote instructions, the whole of the country’s electricity supplies could be turned off. Just think of how difficult that would be!

Keeping sovereign control over the methods of controlling something like the national grid is crucial. I presume and hope that the investment security unit will spend some time looking out for non-obvious threats. Having once been an intelligence officer, I know that trying to identify the threat, the signals that identify what is about to happen, is really difficult because they are embedded in a plethora of noise. But this investment security unit will have to try.

I am pleased that the Bill extends the current screening powers to allow the Secretary of State to investigate the acquisition of sensitive assets in intellectual property as well as the straightforward acquisition of companies. In short, I support the Bill and I am pleased that it has at last reached this stage.

Matt Western Portrait Matt Western (Warwick and Leamington) (Lab) [V]
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It is a pleasure to follow the hon. Member for Beckenham (Bob Stewart). I join my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) and others in thanking the Bill Committee, the Clerks and others who supported us so well—including the expert witnesses from whom we got to hear during that fortnight. I had not sat through Second Reading, but we had a particularly enlightening series of sessions.

I wish to speak to new clauses 5, 6 and 7, which I will be supporting, along with the Bill.  I emphasise how strongly colleagues and I feel about how important national security is, and how much Labour prioritises it. That is why we welcome the Bill, following, as it does, unfortunately, the leadership of states such as the United States, Germany and the EU; perhaps we are just that much behind the curve. I am sorry to say that it is clear that the Government failed to recognise the clear and present danger of the commercial strategy of other powers. Although I very much support the Bill, as it introduces the greater powers for Government to intervene when corporate transactions threaten our national security, it is late, perhaps even a decade or more late.

As so many have said, national security has traditionally been viewed quite narrowly. Perhaps we have had the light touch of economically liberal Governments welcoming investment when in fact those acquisitions are aimed at reducing the competition, improving margins and protecting domestic interests. Also we have seen the purpose being to asset-strip those businesses of their intellectual property, often at considerable cost to the UK in terms of our knowledge base and expertise, but with the risk of seriously damaging our supply chains and having the consequent economic impact. Often this results in those businesses moving overseas. So overall, although the Government’s proposal brings the UK in line with other countries on national security, there is the need for greater powers on mergers and acquisitions, particularly in respect of what may be deemed to be beyond security but actually in the national interest, as in the US and France, where they have the powers to block takeovers of companies deemed strategic or that have major implications for national interests.

I am afraid that the past 10 years show that consecutive Conservative and coalition Governments have been persistently slow and muted in intervening to protect national security in a series of cases: Huawei and 5G has been cited frequently this afternoon: Pfizer and AstraZeneca—the proposal of course failed, but we can only imagine what would have happened to the cost of vaccines had those two companies merged and had we been reliant on one major player; Google and DeepMind; and now Nvidia and Arm technologies. Among a great many others, we have also had the takeover of GKN by Melrose and the acquisition of Cobham aviation. They are now owned by businesses based in a friendly state, which is okay and acceptable, but it is questionable how we are prepared to let some of these important businesses—important leaders in technologies—be disposed of, with the assets, the research and the intellectual properties of those businesses moved offshore, to elsewhere.

New clause 5 seeks to define national security. Interestingly, the right hon. Member for Reading West (Alok Sharma), the former Secretary of State, has stated that the Government had a very narrow interpretation of national security. It was surprising what came to light in the Bill Committee, where we heard that, as I understand it, in drawing up this legislation the Government had failed to engage with the Intelligence and Security Committee in the first instance. That was a shortcoming. The evidence sessions proved more than enlightening, particularly when we were hearing from some of the expert witnesses. Some of what we heard was deeply disturbing. The words spoken by Charles Parton of the Royal United Services Institute were some of the most alarming of all. He said:

“we should not underestimate the degree to which Xi Jinping and the Communist party intend, as Xi said to the first politburo meeting, to get the upper hand against western democracies… When you add that to his policy of civil-military fusion—using civil in the military context—and the fact that he has set up a party organisation specifically to push that forward, and the change in investment policy away from things such as property, football clubs and other things, very much towards benefitting China and its technology, we have to be a lot more careful than we have been in the past.”

I think he said that, perhaps deliberately, with extraordinary understatement. Perhaps most alarmingly, he added:

“I am not aware of a really good assessment of just how much technology has been bought, the targets and so on. Maybe the Government have one—I don’t know—but I do not think that they do.”

––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 6, Q2.]

Perhaps that is something that the Minister could answer when he sums up.

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We also heard from Sir Richard Dearlove, former director of MI6, who expanded on the threats and made it quite clear that the extreme naivety of recent UK Governments had allowed the Chinese in particular, although there were other states too, to become deeply embedded in the UK economy. He underlined his concerns by saying that we had been
“pretty naive and had forgotten the fundamental dangers of having a close relationship with China.”
He added that
“we have to understand where we restrict their access, where we control their access and where we do not allow them to build strategic positions at our expense and literally take us for a ride It was completely ridiculous that we should even have been considering Huawei to build our 5G.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 19-27, Q21.]
That is what is important about the Bill.
Although I have a lot of sympathy for new clause 4, I will concentrate on new clause 5. Sir Richard set out the breadth of the threat; he highlighted the fact that it was not just to our businesses but to our infrastructure and academic institutions. It is worth remembering that only 10 years ago, the coalition Government were hailing a new golden era, and were desperately seeking to attract investment from China, seemingly oblivious to the national security issues surrounding any investment in nuclear power stations or transport infrastructure. Meanwhile, the open access that Chinese businesses have had to UK universities includes the hiring of UK academics. That is both is surprising and unexpected, and a recent report demonstrated the scale of the problem, stating that at Oxford University, 17 projects were under way with Huawei.
It is clear that the narrow, more obvious view of national security, as we have heard, is incredibly naive about what is happening around us. The UK has been guilty, particularly in the last decade, of playing to the old rules when the game has moved on. If we did not understand that, we should really have learned from 9/11 that the threats to national security, as we heard from the hon. Member for Beckenham (Bob Stewart), are both the same and very different. That is why we have introduced the new clause—to widen the definition of security, so that it includes critical national infrastructure, energy resilience, and food supply, and also relates to human rights and environmental security. We are pushing for greater guidance and clarity for businesses, as well as true security for our citizens in the broadest sense.
New clause 6 seeks to set up a small and medium-sized enterprise engagement unit to help SMEs engage with this process. For years, the Government have refused to do more to protect growing UK companies. Developing a robust takeover regime is essential if we want firms in our key sectors to grow and provide good jobs in the UK, rather than sell up and move abroad. We must keep those businesses here in our country.
The regime means that we would go from 12 national security investigations in total since 2003 to an annual expectation of 1,800 or 1,900 notifications, with perhaps 60 to 100 called in by the Secretary of State and subjected to detailed review. That vast expansion would be managed by the entirely new unit that we have heard about. It would be based in BEIS, which traditionally has not taken responsibility for national security. We must ensure that there is sufficient resourcing and expertise, as we discussed frequently in the Bill Committee, and we must also ensure that there is accountability to Parliament, as well as performance transparency.
On that huge increase in referrals, the Government expect SMEs to account for about 80% of mandatory notifications under the new regime. Naturally, that represents a huge challenge for tech start-ups that raise investment in rapid transactions in sectors that are capital-intensive, particularly in the early phases of their development. There is clearly a need for greater BEIS resource to support SMEs with early engagement, and we must ensure that there is accountability from BEIS in that regard.
Recent history is littered with examples of great nascent businesses being lost to voracious venture capitalists, whether they are from benign nations or, more concerningly, are a front for the investment arm of a state, especially those states that we regard as less than friendly. A small business example is Stonewood Electronics, a global leader and innovator in data security. It was a supplier to the UK Government, intelligence services and military—a home-grown business based in the UK. It was a brilliant, advanced technology company, but is now just a shell based in Farnborough, with all the value transferred to the US. It is not just companies such as GKN and Cobham aviation or the Centre for Integrated Photonics; so many businesses across the UK are seen as very attractive targets to friendly, benign nations, as well as to those who have more concerning interests in taking over some of our technologies.
Finally, I will address new clause 7, which would require the Government to publish an annual security report to the Intelligence and Security Committee of Parliament. It is clear that with the day-to-day pressures, and the wider picture of activity and patterns, there is a need for this kind of reporting—and perhaps it should be even more frequent than is being suggested. I listened with interest to the remarks of the right hon. Member for New Forest East (Dr Lewis), and was surprised that his views and those of the Committee were not taken on board earlier. The ISC should be much more centrally involved, where appropriate. It will have material that is really important to the Committee, but that might not be available to the BEIS unit.
It is important that there be these powers for intervention, given the various types of threats that I described. The investment screening process—the scrutiny—needs to be so great, and that is why the abilities and skills of other Departments should be brought into play. We proposed that in Committee; we suggested that there be an overarching structure that can bring in the minds and understanding of people in the sectors, whether they be in the academic sphere or from the Department for Environment, Food and Rural Affairs, so that they can discuss their knowledge of the sector with BEIS.
What is most important is that there is the capacity in the unit, given the increase in the volume of referrals that I described, particularly from small and medium-sized enterprises, which will be desperate for funding, tie-ups and opportunities. The speed with which this unit can respond will be really important, and this report should identify where there are issues and bottlenecks, so that we can ensure a speedy process. That way, small businesses that need the funding and support can be allowed to proceed where the takeover is not deemed to be suspicious, or to the detriment of the UK.
In summing up, I confirm that we on the Opposition Benches absolutely welcome the Bill. Colleagues who have been in Parliament for many more years than me have long called for it. We are indeed playing catch-up, but we are where we are. We do have regulation, and it is needed, but countries such as the US have had stronger regulatory enforcement for decades; interestingly that was strengthened and broadened under the most recent Trump Administration. France introduced very similar measures to those we are talking about back in 2014, and recently, Germany introduced further measures to block foreign takeovers in the health sector, for example.
It is quite clear that national security is not just in our defence interests; national security is the defence of our prosperity, and indeed our way of life. With this Bill, we are at last considering our commercial interests, including the interests of our research institutions, and the areas where the two meet. National security is a primary responsibility of Government, and hopefully the Bill will see the Government start to think about our economic strategy and resilience, but they must also think about our social resilience, as so many have said. That has to be a good thing.
John Hayes Portrait Sir John Hayes (South Holland and The Deepings) (Con) [V]
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This Bill is apposite. It is an appropriate response to an ever-pressing but rapidly changing problem: our national wellbeing. I want to speak briefly about its scope, its dynamism, and the oversight that is necessary to make it as effective as it can be.

That national security is inextricably linked to our national interest is axiomatic. It is obvious that our trade and investment also serve our interest. The potentially paradoxical objects of economic interest and keeping our nation safe are brought into sharp focus by the Bill, which I welcome, and I congratulate the Government and the Minister on bringing it forward. The Government response to the changing circumstances that we face could not be more significant. Malevolent forces of ill intent—both hostile state actors and non-state organisations, including global commercial interests—must be countered, curtailed and, where necessary, controlled. As the hon. Member for Aberavon (Stephen Kinnock) said, greater assiduity in this respect is to be commended. No longer can we be naive about the ethics of the free market or free trade; nor should we appease foreign powers that, frankly, embody tyrannical tendencies, in a chilling echo of the worst of the 20th century.

As the scope of the Bill’s provision must be used appropriately, so it should also be used as necessary, and as circumstances dictate. I am afraid it is not enough to count risk and resilience in the way we have, historically; we need to measure risk and prepare the necessary resilience in a new way. So I am sympathetic to new clauses 4 and 5, which look to establish factors to which the Secretary of State must have regard when assessing risk, but I hear what my hon. Friend the Member for Beckenham (Bob Stewart) said: given that that risk is as I have described it—dynamic—it is important that there should be a framework, rather than specifying precisely what the risks are or may be. It does seem to me, however, that the Government can do more work, as the Bill continues its passage through both Houses, to be clearer about the circumstances in which the Government might assess risk and define its character and the response to it.

That BEIS is to take the lead in this policy area is new, and it empowers Ministers in a very particular way, but in my estimation, security is likely to be the business of all aspects of Government. As has been said by previous speakers, in respect of health, is it really in the national interest for vital health supplies to be dependent on provision from unstable and unhelpful places? Should the supply of technology, which is so critical to so much of what we do in business, in the public sector and as individuals, be in the hands of those who are either capriciously cavalier or maliciously malign? Should our universities become so dependent on funds from overseas that they are obliged to transfer knowledge to individuals or states that may use it against us?

From now on, the whole of Government have to be associated with the effort to measure risk, develop resilience and understand the threats to our security. In those terms, the Bill must allow sufficient responsiveness to metamorphosising threats, to allow us to alter our response to counter those threats. That implies acting quickly and Ministers using their executive power without the scope, space or time always to seek parliamentary approval. If they did seek such approval, they would be doing so almost every week, certainly every month, and possibly by the day or hour. That is why oversight matters so much, yet the Bill is not yet quite right in that respect, as several contributors to the debate have said.

The existing accountability to Select Committees is valuable, but not enough. As the Chairman of the ISC, my right hon. Friend the Member for New Forest East (Dr Lewis), explained, that Committee is designated. Indeed, it was set up for precisely this purpose, dealing with highly sensitive information, including secret documents that would normally not pass through the House as a whole because of the public implications of that. Adequate oversight is therefore essential.

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That brings me to new clause 7. As drafted, the Bill does not yet provide sufficient oversight, but I welcome the Minister’s engagement and the assurance that the Government are considering these matters closely. I look forward to what the Government say about the contents of new clause 7, which will provide the means by which scrutiny could take place through the provision of an annual report detailing when the Government acted and why. The Chairman of the ISC has suggested an alternative, which is an annexe to the existing annual report. Depending on what the Government say about that, it might well satisfy our call for greater scrutiny.
As I said at the outset, the Government have acted in an appropriate way. I welcome the change of emphasis that this Bill, and other legislation that has been brought before us recently, represents. There seems to be a new understanding of the character of the threats our country faces and a willingness to do something about it. Some would say that that is long overdue given that the ISC highlighted these matters some years ago. Nevertheless, one must, I think, be generous in recognising that not just this Minister but the whole of Government are now acting as they should. The Minister must not be timid about using the provisions of this Bill: he must be prepared to use them in defence of our interests and for the common good. It was Edmund Burke who said,
“Good order is the foundation of all things”,
and order depends on our national security. National security is the very principle on which government is based, in which spirit I support the Bill enthusiastically and look forward to its further developments—in particular, the further work that I know the Government are now raring to do on appropriate scrutiny and oversight.
Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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May I add my congratulations to President Biden and Vice-President Kamala Harris, and their national security team?

I thank all hon. Members who have tabled amendments and new clauses and have spoken to them so eloquently: the hon. Member for Dundee East (Stewart Hosie); my right hon. Friend the Member for New Forest East (Dr Lewis); the shadow Minister, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah); my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat); the hon. Member for Aberavon (Stephen Kinnock); the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone), who spoke so pithily; my hon. Friend the Member for South Ribble (Katherine Fletcher); the right hon. Member for North Durham (Mr Jones); the hon. Member for Ilford South (Sam Tarry); my hon. Friend the Member for Arundel and South Downs (Andrew Griffith); the hon. Member for Strangford (Jim Shannon); my hon. Friend the Member for Isle of Wight (Bob Seely); the hon. Member for Liverpool, Riverside (Kim Johnson); my hon. Friend the Member for Beckenham (Bob Stewart); the hon. Member for Warwick and Leamington (Matt Western), my neighbour; and of course my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes), who reminded us of the words of the great Edmund Burke.

National security is an area of utmost importance, and that has been reflected in a sober and considered debate, with the excellent contributions that we have heard today, and, indeed, over the past few months. I will take this opportunity to respond to some of the points raised this afternoon.

New clauses 4 and 5 create a non-exhaustive list of factors that the Secretary of State must have regard to when assessing national security risks arising from trigger events. In fact, the Secretary of State has joined us to demonstrate how important this Bill is to him. I congratulate him on his elevation to being my new boss at BEIS.

As currently drafted, the Bill does not seek to define national security or include factors that the Secretary of State must or may take into account when assessing national security risks. Instead, factors that the Secretary of State expects to take into account when deciding whether to exercise the call-in power are proposed to be set out in the statement provided for by clause 3, a draft of which was published alongside the Bill. The Secretary of State is unable to call in an acquisition of control until that statement has been laid before both Houses. It is clear from the debate today, and also from conversations with colleagues, that these are the amendments on which there is strongest feeling in the House, and in the Foreign Affairs and Development Committee, so I will take care to set out the Government’s case.

The Bill’s approach reflects the long-standing policy of Governments of different hues to ensure that powers relating to national security are sufficiently flexible to address the myriad risks that may arise. As we heard from my hon. Friend the Member for Beckenham, national security risks are multi-faceted and constantly evolving, and what may constitute a risk today may not be a risk in the future. Indeed, the Foreign Affairs Committee, chaired by my hon. Friend the Member for Tonbridge and Malling, said in its own excellent report that

“an overly specific definition of national security could serve to limit the Government’s ability to protect UK businesses from unforeseen security risks.”

Bob Seely Portrait Bob Seely
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Does the Minister accept that what is being proposed is not a limiting arena of what constitutes national security but a baseline of what constitutes national security, and that there may be a reason to adapt it over time? Indeed, paragraph (h) of new clause 4 makes an assumption that it can be expanded.

Nadhim Zahawi Portrait Nadhim Zahawi
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My hon. Friend makes an important point. As I mentioned, the statement that the Secretary of State has laid with the Bill takes in much of the direction of travel of this amendment from the Foreign Affairs Committee.

I acknowledge that the Foreign Affairs Committee is pushing for more detail rather than less, but I would reassure them that the Government agree with their main conclusion that the Secretary of State should provide as much detail as possible on the factors that will be taken into account when considering national security. Importantly, however, that is only up until the point that the detail risks the protection of national security itself. That is why the Government have taken this approach in the draft statement provided for by clause 3. In that statement, we identify three types of risk that are proposed to form the basis of the call-in national security assessment. These are: the target risk, which considers the nature of the acquisition and where it lies in the economy; the trigger event risk, which considers the level of control and how it might be used; and the acquirer risk, which covers the extent to which the acquirer raises national security concerns.

I would like to address each of the arguments made in the report, so that I can ease the concerns of hon. Members across the House. First, there are concerns that without a narrow definition of national security, the investment screening unit would be inundated by notifications, hampering its ability to deliver its crucial role. I acknowledge that, for business confidence in the regime, it is essential that we deliver on our statutory timeframes for decisions, which is why it is so essential that we do not allow any broadening of the assessment done by officials as part of the regime to occur, whether by inexhaustive lists, as my hon. Friend the Member for Isle of Wight has just said, or by any other form. To include modern slavery, genocide and tax evasion as factors that the Secretary of State must take into account as part of national security assessments, as these amendments propose, would not reduce the demands on the investment security unit but potentially increase them.

Secondly, there is concern that ambiguity could hinder the success of the regime. Let me be clear that this regime is about protecting national security—nothing more, nothing less—hence its real focus. Thirdly, the Foreign Affairs Committee report suggests that the staff responsible for screening transactions may lack sufficient clarity on what kinds of transactions represent legitimate national security risks, leading to important transactions being missed or to a large volume of benign transactions overwhelming the investment security unit. I want to assure hon. Members, and my hon. Friend the Chairman of the Foreign Affairs Committee, that the investment security unit will be staffed by the brightest and best, with many of them being recruited on the basis that they have essentially written the book on national security.

Tom Tugendhat Portrait Tom Tugendhat
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I am grateful to my hon. Friend for highlighting this point. May I assure him that I have absolute confidence that the people he will recruit into the unit will be the best and brightest? I pay huge tribute and send many congratulations to the Secretary of State for Business, Energy and Industrial Strategy, who is sitting next to him. He is a friend of long standing, and I am delighted to see him serving Cabinet; that is well earned and somewhat overdue. I am sure that they are both going to have the best judgment possible. However—I am afraid there is a “however”—there are other people who are going to have to decide whether or not to file, and there is therefore a danger that people will over-file, even though the judgments will have been very cautiously made.

Nadhim Zahawi Portrait Nadhim Zahawi
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That is something I have been watching carefully as we introduced this legislation, obviously. We have had around 36 inquiries to the team already, so it feels to me that where we have landed is proportionate and right.

Kevan Jones Portrait Mr Kevan Jones
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I have no doubt that the Minister will aim to recruit the brightest and best. However, what assurance can he give that those individuals will have not only the necessary security clearance but the culture of thinking about security, as opposed to business and regulation?