The following Acts were given Royal Assent:
Counter-Terrorism and Sentencing Act,
Air Traffic Management and Unmanned Aircraft Act,
Non-Domestic Rating (Public Lavatories) Act,
Forensic Science Regulator Act,
British Library Board (Power to Borrow) Act,
Education and Training (Welfare of Children) Act,
Domestic Abuse Act,
Prisons (Substance Testing) Act,
Botulinum Toxin and Cosmetic Fillers (Children) Act,
Education (Guidance about Costs of School Uniforms) Act,
Animal Welfare (Sentencing) Act,
Financial Services Act,
Overseas Operations (Service Personnel and Veterans) Act,
Fire Safety Act,
National Security and Investment Act.
The following Measures were given Royal Assent:
Diocesan Boards of Education Measure,
(1 month, 2 weeks ago)Lords Chamber
11A: Because it is appropriate and sufficient for oversight and scrutiny of decisions made by the Secretary of State for BEIS to be conducted by their departmental select committee.
My Lords, with the leave of the House, I will speak also to Motion A1. I will, of course, address any further comments at the end of the debate.
It goes without saying that I am delighted to be back in the Chamber after a short respite while the other place has considered our amendments to this Bill. I am pleased to advise noble Lords that there was resounding support for all the amendments made by this House, with the mere exception of two. The other place has resolved against amendments which, in effect, would have introduced a reporting requirement to the Intelligence and Security Committee in relation to the NSI regime.
Amendments 11B and 11C in lieu, tabled by the noble Lord, Lord West, draw on his earlier amendments. They would require the Secretary of State to include in the annual report provided for in Clause 61 a summary of his decisions in respect of final notifications given and final orders made, varied or revoked, as well as a summary of any national security risk assessment provided by the security services in relation to those decisions. Where publication of any of that additional information would be contrary to the interests of national security, the Secretary of State may instead place that information in a confidential annexe provided to the ISC. The amendments before us would end those requirements should the memorandum of understanding that governs the remit of the ISC be amended to bring the Secretary of State’s activities under Clause 26 in scope of ISC scrutiny.
I merely echo the words of my colleague, the Minister for Small Business, Consumers and Labour Markets, on Monday, when he welcomed the “passionate and expert debate” this issue has seen in both Houses. In particular, I repeat the praise offered in this House for those who previously spoke in favour of this amendment. Rugby analogies aside, it is a particularly serious, knowledgeable and experienced group of Peers, and I of course acknowledge the weight and credibility that they undoubtedly bring to these issues.
However, the other place resolved by a significant majority of 106 to restore the Bill to its previous form in this regard. The elected Chamber has given this issue its due consideration, and a majority of 106 elected Members has made the position of the other place very clear. This includes four of the seven members of the ISC, who, similarly, sit in the other place voting with the Government, with only one Conservative Member in the entire House voting against.
I do not intend to try the patience of the House and repeat the arguments that we have heard many times before which the Government have already made on this issue, but I will address the specific changes in this amendment from the original which this House has previously considered.
The Government do not consider that the addition of an endpoint for the effective requirement on the Secretary of State to provide confidential information to the ISC makes the approach any more necessary or appropriate. It is our view that the BEIS Select Committee remains the most appropriate committee for scrutiny. It is capable, it is interested and it stands ready. The Secretary of State for BEIS has written to the chair of the BEIS Select Committee to confirm this, and this was acknowledged by the chair of the committee in the other place, also on Monday. The BEIS Select Committee will be ably supported by the Science and Technology Committee, where that is appropriate.
The Government hugely value the Intelligence and Security Committee, but we also hugely value the BEIS Select Committee and the clear and appropriate scrutiny that it provides. We do not need to conflate the two through amending this Bill, the memorandum of understanding or, indeed, anything else in this field.
The Government’s position, and that of the elected Chamber, is clear, and I can tell your Lordships that the Government have no plans to concede on this issue. I therefore ask that noble Lords respect the clear wishes of the other place and, while I am of course grateful for noble Lords’ insight and passion on this matter, I hope that this House does not insist on these amendments. Therefore, I beg to move.
Motion A1 (as an amendment to Motion A)
11B: Page 36, line 15, at end insert “, except for any confidential annex prepared under subsection (2B) while that subsection is in force”
11C Page 36, line 33, at end insert—
“(2A) Until the condition in subsection (2C) is met, each report must also provide, in respect of final notifications given, and final orders made, varied or revoked—
(a) a summary of the decision of the Secretary of State under section 26(1), and
(b) a summary provided by the Security Services of any national security risk assessment provided under section 26(3)(a)(ii) relating to each decision under section 26(1).
(2B) Until the condition in subsection (2C) is met, where the Secretary of State considers that publication of any information listed in subsection (2A) would be contrary to the interests of national security, those details may be excluded from publication and instead must be included in a confidential annex to the report provided to the Intelligence and Security Committee of Parliament on the same day that the rest of the report is laid before each House of Parliament.
(2C) Subsections (2A) and (2B) have effect only until a revised memorandum of understanding between the Prime Minister and the Intelligence and Security Committee of Parliament under section 2 of the Justice and security Act 2013 has been laid before Parliament which provides for oversight by the Intelligence and Security Committee of the activities of the Secretary of State under section 26 of this Act.””
My Lords, the question put back to this House is not whether the Government should take national security risks into account when considering investment but whether Parliament should have oversight of that process—that careful balancing of our national security against our prosperity. This House delivered a very clear message to the Government on Report that if the Bill is to provide the Secretary of State for BEIS with wide-ranging new powers, it must also provide for meaningful oversight of those powers. That meaningful oversight of high-level intelligence can be conducted only by the ISC, as the body which Parliament established for that express purpose.
I thought the strength of feeling in this House on the matter had been very clear, and, indeed, the rugby scrum to which the Minister alluded which I gathered in support had unbelievable knowledge and background in this whole area of intelligence, security and the ISC. It is therefore very disappointing that my amendment was rejected in the other place yesterday. I remain of the view that, without that amendment, the Bill does not provide for meaningful oversight by Parliament. Nevertheless, I have sought yet again to offer the Government an opportunity to see common sense on this and, therefore, rather than insisting on the original amendment, I have tabled this amendment in lieu. It requests the same substantive material—a summary of the decisions by the Secretary of State and a summary by the security services of any national security risk assessment in respect of final notifications given and final orders made, varied or revoked, which can be provided to the ISC in a confidential annexe—but it now provides that that material need not be provided if and when those activities are formally added to the memorandum of understanding, at which point ISC oversight is provided for through that route.
I have already set out why the ISC must have oversight and why it can only be the ISC, so I have no wish to try your Lordships’ patience by repeating those arguments, or indeed those made by noble Lords from across the House who spoke in support of my amendment. The substantive point has been made, and I have to say that the argument has been won—I know that from having talked to people in the other place.
I wish to examine more closely the assertions made more recently by the Government in the other place, as I would not wish any of them to muddy the water on this issue. The Government’s starting point was that the ISC can already scrutinise the information provided to the ISU by the security services. That is indeed the case—we can require the security services to provide us the information which they provide to the ISU on the national security risks—but that is missing the point. What the ISC must be able to scrutinise is the balancing of those security risks against the business elements. It is that crucial balancing which is at the heart of the Bill. There is little point in seeing what the national security risks are if you cannot see what decision has been reached regarding those risks. That is precisely why my amendment makes reference to the decision of the Secretary of State.
Moving on to that decision, the Government’s next argument is that the ISC cannot oversee decisions made by the Secretary of State for BEIS because BEIS is not listed in the ISC’s memorandum of understanding. That is indeed the case but again that is, I am afraid, missing the point, deliberately or otherwise. As I have already explained to noble Lords, the Government gave a commitment to Parliament that the ISC would, through its MoU, oversee all security and intelligence matters across all of government. The seven bodies currently listed on the MoU are those that were carrying out security and intelligence matters in 2013. That list of bodies should be kept and updated, as the Government told Parliament was their intention. It would be very simple to add something such as BEIS to the list.
With that argument dispatched, the Government move on to their next line of defence—that decisions by the Secretary of State for BEIS must be for the BEIS Committee to scrutinise, and that the ISC should not encroach on that remit. That is, I am afraid, a direct contradiction of the Government’s own MoU. The Government have already expressly said that the ISC’s scrutiny will not affect the wider scrutiny of departments such as, for example, the Home Office, FCDO and MoD by parliamentary committees. The same would be true for BEIS. If the decisions by the Secretary of State for Defence or the Home Secretary can be scrutinised by the ISC, why are the decisions by the Secretary of State for BEIS any different? I am curious as to what it is about BEIS that sets it apart and means that the ISC should not oversee it?
At this point, the Government resort to their final argument. I have to say here that I find it rather tenuous to argue that the ISC does not need to provide oversight because the BEIS Select Committee can do it. The Secretary of State for BEIS has written to the chair of the BEIS Select Committee talking about confidential briefings in a most reasonable manner. However, we need to examine what that does not say, which is, “The Government will hand over our top secret information to you, your committee and your staff for you to hold, scrutinise, take notes on, discuss, question us about and report on”. That is because the Government cannot do that. The words being used belie the practicalities of the Government’s own security procedures—unless, of course, the Minister is going to tell us that the Government are prepared to breach their own security procedures.
The proposals do not amount to meaningful scrutiny. I say this with the greatest respect to the BEIS Select Committee, whose chairman, in a most thoughtful and measured speech in the other place yesterday, supported the ISC’s oversight of this area. The BEIS Select Committee does excellent work and should rightfully be the primary oversight body for the work of BEIS and the business elements of the work of the ISU. However, the ISC is the only body that can provide oversight of the intelligence elements and balance them with the business elements. 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 those parts of departments whose work is directly concerned with intelligence and security matters, as the Government have said repeatedly until now.
The Intelligence and Security Committee was created by Parliament to handle classified information where Select Committees could not. The Government committed to using the ISC to scrutinise all their intelligence and security functions. Now we are told that the BEIS Committee is able to do exactly that. In this instance, apparently, the ISC is no longer needed. Let me be clear: the ISC currently does oversee this area of work, so the Government’s proposal is deliberately removing it from ISC oversight. Is that what is going to happen in the future? Will security work be hived off successively to departments that will be told that the ISC cannot oversee them because it is not listed in a nine year-old MoU that the Government have failed to keep up to date?
I see the longer-term consequences of rejecting our amendments and wonder whether more areas of government are destined to follow suit. This could become a very slippery slope, denying Parliament and, indeed, the nation proper scrutiny of intelligence decisions if we do not take action now. For this reason, I have sought to offer the Government yet another opportunity. Rather than simply retabling my original amendment, I have offered them an alternative. Either the Government can provide the ISC with a classified annexe covering security and the Secretary of State’s decision, or they can add those decisions to the existing MoU.
My amendment is a reasonable attempt to provide the Government with a way forward and a way out. I know that the Minister opposite has been put in a very difficult position on this issue. While recognising the strength of feeling across this House, there must be meaningful oversight of these new powers, and that can only mean the ISC. I am not looking for more work for myself, I can tell noble Lords, but only the ISC can do it. I beg to move.
My Lords, as I have done throughout this process, I support the noble Lord, Lord West, and, having had the advantage of hearing him today and earlier, I endorse without qualification his remarks and powerful arguments in support of Motion A1.
I am encouraged in that because the Government are yet to produce any reason against these proposals that could be regarded as substantive. I am further encouraged by the fact that the chair of the BEIS Committee supports the proposition and the principle that the amendment embraces. It has been suggested, although not perhaps so strongly today, that confidential information will be made available to the BEIS Committee. There is a difference between confidential and classified. What is confidential as between one Minister and another can easily not be classified. In that respect, the Government have simply not proved their case.
What will that confidential information amount to? It will amount to what the Secretary of State thinks the committee can see. One could describe that, rather pejoratively, as being spoon-fed, but it will certainly come not with its interest in objectivity but with its interest in the subjective opinion of the Secretary of State. In that respect, it is quite different—I repeat, quite different—from the role, powers and the exercise of those powers of the Intelligence and Security Committee. I am further encouraged in my position because I read that the Commons Reason for Motion A is that it is “appropriate and sufficient”—which is probably what Oliver Twist was told when he asked for some more. The words mean what people want them to mean and that, yet again, exposes the poverty of the argument offered by the Government.
I shall finish by reminding the House that members of the Intelligence and Security Committee are chosen for experience and a reputation for balanced judgment. As I have said previously, there have been occasions when nominations made to the committee have been turned down because a particular individual was not thought to have the necessary experience or qualities for the discharge of a quite remarkable responsibility. Members sign the Official Secrets Act and the procedure attached to that is a solemn moment. They form an intimate relationship with the security services—one of trust, which cannot be replicated in any circumstances, in my respectful view, by the relationship between the BEIS Committee and the Secretary of State.
The truth is that the Government do not have a good argument here and that is why they would be wise, even at this late stage, to adopt this amendment.
My Lords, I too believe that the noble Lord, Lord West, is right in insisting that the Government and the other place look again at another way of giving the ISC an explicit role in scrutinising highly classified intelligence underlying the Secretary of State’s use of the powers in this Bill. The Government’s position is, frankly, indefensible. On Report, the noble Lord, Lord West, reminded the House that at the time of the passing of Justice and Security Act 2013, the then Minister for security announced
“the intention of the Government that the ISC should have oversight of substantively all of central Government’s intelligence and security activities to be realised now and in the future.”—[Official Report, Justice and Security Bill Committee, 31/1/13; col. 98.]
The Minister in the other place confirmed on Monday that the Government stand by that statement, yet they refuse to amend the memorandum of understanding under the Act, to bring the Investment Security Unit in BEIS within the purview of the ISC. Frankly, I cannot understand why. In his amendment, the noble Lord, Lord West, has offered the Government an easy way out. If they will amend the memorandum of understanding to bring the Investment Security Unit explicitly within the purview of the ISC, as it would have been had it remained within the Cabinet Office, the problem will be solved at a stroke. There will be no need for this amendment, and if the Minister will give that assurance today, I hope that the noble Lord, Lord West, would be prepared not to press his amendment.
In the other place, a Conservative Member, Steve Baker, said that the chairman of the ISC, Dr Julian Lewis—another Conservative Member—had made an open-and-shut case for amending the MoU, and yet Mr Baker, under the constraint of his Whips still voted against the amendment. If the Minister’s reply is that the ISC can cover the Investment Security Unit without amending the MoU, I am bound to ask: what is the point of having the MoU at all? The Minister has only to say that the Government will make this amendment to the MoU and he will save the Government and all the rest of us, a good deal of trouble. Will he do so? I suspect that the Government’s position is a result of the arrogance of a Government who have a large majority in the other place. They have taken a position and refuse to change it, however strong the arguments on the other side.
The noble Lord, Lord Lansley, has indicated his desire to speak.
My Lords, I am very pleased to follow the noble Lord, Lord Butler of Brockwell. I agree entirely with what he had to say and with the noble Lords, Lord Campbell and Lord West of Spithead, too. It comes down to a very simple proposition: throughout, we have been very clear that if the Government would simply amend the memorandum of understanding with the Intelligence and Security Committee to include reference to the Investment Security Unit, there would be no need for any amendment to the Bill. That remains the case now. The question why the Government are not doing this.
The Minister in the other place said on Monday night:
“The work of the security services on investment security in support of the ISU clearly falls within the remit of the ISC.”—[Official Report, Commons, 26/4/21; col. 154]
If that is the case, what is the impediment to adding the ISU into the memorandum? I think it is that the Government do not interpret the ISC as having a remit that extends beyond what the intelligence services themselves have offered by way of information to the Investment Security Unit in BEIS, to the point where —as the noble Lord, Lord West, quite accurately summarised—the scrutiny of how national security is being maintained in the decisions that become part of the interim or final orders made under this Bill.
The Government’s problem may be that they think that if they were to include the ISU in the memorandum of understanding, they would effectively create some duplication between the scrutiny of the order-making power by the BEIS Select Committee and the Intelligence and Security Committee’s scrutiny. That need not be the case. It is perfectly clear already, within the memorandum of understanding that was quoted by Dr Lewis in the debate on Monday night, that the ISC’s work in looking at the intelligence services
“‘will not affect the wider scrutiny of departments…by other parliamentary committees. The ISC will aim to avoid any unnecessary duplication with the work of those Committees.’”—[Official Report, Commons, 26/4/21; col. 160]
It seems to me that the resolution is very simple—the Government should simply add the Investment Security Unit into the memorandum of understanding. It is clear from what the ISC’s chair and members have said that they would not expect to duplicate the work of BEIS —the primary scrutiny of BEIS’s work—in implementing this legislation, but there are specific questions that relate to the use of intelligence and highly sensitive intelligence materials.
I was not comforted by reading that the chair of that committee in the other place has been told by the Secretary of State that he will brief him on privy counsellor terms. That tells us that the chair of the committee may know something, but the BEIS Select Committee in the other place will not generally know it. Its members will not be able to discuss that information and they will not be able to report on that basis. There is clearly a deficiency, as Dr Lewis quite rightly said—a scrutiny gap—in relation to the use of top-secret material on a routine basis in informing decisions made under this legislation. The inclusion of the ISU in the remit of the Intelligence and Security Committee will close that scrutiny gap.
My Lords, the Minister used the word heavyweight; I would use the word authoritative about the speeches we have heard from the noble Lords, Lords West, Lord Butler, Lord Lansley, and my noble friend Lord Campbell. I do not have the same authority, but I have an eye for process and an eye for a discontinuity. At the heart of this is a central contradiction. This Bill is called the National Security and Investment Bill, and its central premise is that the world of security has changed. It is not about armies and air forces; it is about technology—the spread of technology and access to that technology. The Bill is built on the idea that we need an approach to the commercial use, sale and protection of this technology for the security of this country.
The speeches that the Minister has heard were characterised in his preceding speech as somehow decrying the abilities of the BEIS Select Committee. The BEIS Select Committee was not put in place to assess the security issues that these companies are facing. That is not its job; its job is to do what BEIS was there to do. This Bill, by its nature, by its very name, is a hybrid of two very important issues: investment and security. The BEIS Select Committee is there and is an expert on the first of those. The ISC is there to protect the country and to offer scrutiny on security issues. There is no problem in asking both of those committees to do what they are good at in order to fulfil the very important task that Bill seeks to undertake.
We can only conclude that, because the Government decided not to do this and because, as the noble Lord, Lord Butler of Brockwell, put it, they have a large majority in the other place, they will continue down this road. There is another opportunity for the Government to think again and do the most sensible thing, which is to amend the MoU. It does not require primary legislation, in my understanding, and would be done very quickly with the consent of this House. For that reason, if the noble Lord, Lord West, decides to put this to a vote, these Benches would like to ask that question of the people across the way, at least one more time.
My Lords, it is clear that the Government have no good reason for refusing to accord the ISC its proper role in overseeing the intelligence input into a decision by the BEIS Secretary of State to forbid an otherwise bona fide investment in an enterprise—the sort of investment that the noble Lord, Lord Fox, has just described. I am sad to say that the Minister cited only the size of the House of Commons majority and gave no argument against proper parliamentary scrutiny. Frankly, if we are to say that this House should never question what the majority in the House of Commons does, you would wonder whether there is any role for this House. The size of the majority down there is not important; what is important to the security of this country is the correctness of the views that we take.
At one point, I think in this House, it was suggested that the Government did not want to amend the MoU case by case, but why not? As the noble Lord, Lord Fox, has said, if a new law comes in that has “national security” in its title and gives powers to a Secretary of State that depend wholly on intelligence, why not scrutinise that intelligence in respect of the use to which it is put? As we have head, neither the BEIS Select Committee nor its highly respected chair—who I assume will now be made a privy counsellor, since he is about to be briefed on Privy Council terms; I will be there to congratulate him if that happens—have the security clearance or experience to question the intelligence in the sorts of ways that we have been hearing from around the House. So why not let our experts carry out that work, on behalf of Parliament? What my noble friend is asking for is simple: an amendment to a memorandum of understanding. Is that too much to ask of the Government?
I thank all noble Lords who have contributed; it has again been a good demonstration of the quality of contributions from this House. I have listened very carefully to the points that have been made, in particular by the noble Lords, Lord West, Lord Campbell and Lord Butler, and by my noble friend Lord Lansley.
I will address the primary issue head on. This was raised by the noble Lords, Lord West and Lord Campbell, and the noble Baroness, Lady Hayter. It is the issue of whether the BEIS Select Committee will have access to “top secret” information. We will make sure that the BEIS Select Committee has the information that it needs to fulfil its remit and scrutinise the work of the ISU under the NSI regime. Much of this is unlikely to be highly classified and, where the Select Committee’s questioning touches on areas of high classification, it is likely that the relevant information could be given in a way that does not require as high a classification and provided to the committee confidentially. If, however, the BEIS Select Committee requires access to highly classified information, we will carefully consider how best to provide it, while maintaining information security in close collaboration with the committee’s chair.
Another point made by the noble Lord, Lord West, was that the current system for scrutiny is run out of the Cabinet Office and therefore comes under the ISC’s unit, so the Bill reduces the ISC’s remit. The Government’s main powers to scrutinise and intervene in mergers and acquisitions for national security reasons in fact come from the Enterprise Act 2002; the powers under that Act sit with the Secretaries of State for BEIS and DCMS, not in the Cabinet Office. Giving the BEIS Select Committee oversight of the new NSI regime is entirely in keeping with this and does not represent a reduction of the ISC’s remit.
A point made particularly by my noble friend Lord Lansley was about changing the memorandum of understanding, but the question here is not whether the MoU allows for the role proposed by noble Lords, but whether that role is appropriate. Our answer—and I appreciate that noble Lords will disagree—is no. The Government have made their case, which comes off the back of a resounding vote by the elected Chamber, that no change should be made to the Bill in relation to reporting to the Intelligence and Security Committee. We maintain our view that the BEIS Select Committee remains the place for scrutiny of the investment security unit and that the Intelligence and Security Committee remains the appropriate committee for scrutiny of the intelligence services, in accordance with the memorandum of understanding and the Justice and Security Act 2013. With acknowledgement to all who have spoken and with regard to the points that I have made, I appreciate the difference of opinion on this, but ask once again that the House does not insist on these amendments.
My Lords, first, I thank those who spoke in support of my Motion. They have an incredible amount of knowledge about this issue. I find the Government’s position extraordinary and I feel sorry for the Minister opposite—for whom I have great respect—who has to parrot arrant nonsense. As an admiral and a captain who had defaulters in front of me, I have had people spouting arrant nonsense at me and I know how to spot it. This is arrant nonsense and I find that rather sad. It is unfortunate that he has to do this as I am sure that, deep down, he does not believe it, because he is an intelligent chap. I am appalled that the Government are not willing to give ground on this and I cannot understand why—I really cannot. This is not a great party-political issue or anything like that. It is quite extraordinary, so I am afraid that I will test the opinion of the House.
(1 month, 3 weeks ago)Commons Chamber
Consideration of Lords amendments
Consultation and parliamentary procedure
I beg to move, That this House agrees with Lords amendment 1.
I am delighted that the Bill has returned to this House from the other place and I am delighted to be able to speak to it briefly today following the excellent handover from the Minister for Covid Vaccine Deployment, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), who is successfully jabbing the nation as we speak. As we are at a late hour, I will not take up too much of the House’s time. I will just quickly summarise some of the changes to the Bill.
Lords amendments 1 to 10 and 12 to 14 were all tabled by my colleague in the other place, Lord Callanan. Lords amendments 1, 5, 8, 9 and 10 are what the Office of the Parliamentary Counsel would call minor and technical. Lords amendments 12, 13 and 14 pertain to the annual report as provided for by clause 61, and they reflect the decision to include additional reporting requirements that will provide further value for parliamentarians, businesses and investors. Lords amendments 2, 3, 4, 6 and 7 were made to the Bill in the spirit of a shared recognition that the requirements of the mandatory notification regime must be no more than necessary and proportionate for the protection of our national security, and that businesses and investments are not unduly burdened or stifled.
I wholeheartedly agree with the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), who said on Report that we need
“robust powers to guard our national security and…change that backs our best small businesses and our capacity for innovation. Both of these goals are possible; indeed, they are mutually reinforcing.”—[Official Report, 20 January 2021; Vol. 687, c. 1000.]
That is why we have reflected carefully during the passage of the Bill on the 15% starting threshold for the mandatory regime. Lords amendment 2 removes acquisitions between 15% and 25% from constituting notifiable acquisitions under the mandatory regime. The House will recall, though, that the Bill provides the power for the Secretary of State to call in acquisitions of control across the economy. That power remains in place. Provisions in the Bill also ensure that the Secretary of State can amend the scope of the mandatory regime through secondary legislation, which could include the introduction of a 15% threshold if deemed appropriate, although we do not currently anticipate doing so.
I will turn to Amendments 11 and 15—
On those amendments, my hon. Friend will know that there are profound and continuing concerns about scrutiny associated with the provisions and powers that the Bill provides. He will furthermore know that the Intelligence and Security Committee, of which I am a member, performs an important role in scrutinising all such security matters. He will know that there is a memorandum of understanding that underpins that between the Government and the ISC. Will he be quite clear that there is no attempt to dilute, to obscure or to escape from the provisions of that memorandum, which says that the ISC can inquire into security matters across the whole of Government?
I always value the contribution from my right hon. Friend who, as a former Security Minister and a member of the ISC, is very wise and experienced in these matters. I can confirm that the memorandum of understanding absolutely pertains and that the ISC can continue its great work to scrutinise the work of the security services, which will include where the security services’ work supports the work of the Investment Security Unit. It is also important to remember, as we consider these amendments, that we value the work of the ISC, and of the Business, Energy and Industrial Strategy Committee and the Science and Technology Committee, which I will speak about as well.
To be absolutely clear, that memorandum is, by definition, flexible. The Government have acknowledged that by history, by example and so on. That flexibility should allow the ISC to scrutinise the additional powers in this Bill, and I gather from what the Minister says that he is comfortable with that principle and that the ISC will continue to perform its role in that way. On that basis, I will support the Government tonight in any Division that might ensue.
My hon. Friend is giving helpful clarification. The Secretary of State wrote to the Chair of the Business, Energy and Industrial Strategy Committee and copied in the Chair of the ISC and me as Chair of the Science and Technology Committee. Will the Minister confirm that he is prepared to commit in a memorandum of understanding to the Chairs of those Committees being able to see, on Privy Council terms, information that might not be otherwise in the public domain?
We have got to the nub of the matter quickly. I can indeed confirm that. In the letter the Secretary of State sent to the Chair of the BEIS Committee, copying in my right hon. Friend the Chair of the Science and Technology Committee, he spoke about the fact that the BEIS Committee is able to access the material it needs to scrutinise the work of the ISU, including for example details of some of the risks that the ISU has identified under the NSI regime and the measures taken to address them. As part of that, the Secretary of State confirmed that the Department can provide the Chair of the BEIS Committee with confidential briefings on Privy Council terms, and that he would be happy to set those out in more detail in either a memorandum of understanding or further exchange of letters. The Secretary of State went on to say that he would encourage the STC to provide scrutiny of the work of the ISU where the work of the unit falls within the specific remit of that Committee. He also welcomed the Intelligence and Security Committee’s continued scrutiny of the work of the security services, which will include where the security services’ work supports the work of the ISU.
I hate to be slightly disobliging, but it is a fact, is it not, that the staffs of these Select Committees do not have the clearance necessary to see or handle top secret material, and showing a top secret document to the Chair of a Committee on his or her own, briefly in very limited circumstances, does not amount—as I will explain shortly—to effective scrutiny?
I look forward to hearing my right hon. Friend’s explanation.
I believe that the Bill as amended by the other place through amendments 11 and 15 would require the Secretary of State to provide a confidential annexe, to be provided to the ISC. I am advised by my noble Friends Lord Callanan and Lord Grimstone that there is considerable strength of feeling in the other place about ensuring that the operation of the regime receives appropriate parliamentary scrutiny, and I welcome the passionate and expert debate that this question has already received. It has been proposed that the ISC is better placed than the BEIS Committee to scrutinise the Investment and Security Unit, despite the Secretary of State for BEIS having responsibility for the unit. The implication of the amendments is that the Select Committee responsible for holding the Secretary of State to account across their responsibilities is insufficient in that regard. It is also suggested that the ISC would have inadequate access to information to carry out its duties.
In essence, the amendments would require sensitive details to be provided to the ISC regarding the Secretary of State’s decision on final notifications given and final orders made, varied or revoked, but the ISC is already able to request such information as soon as is appropriate from the security services where it forms part of its long-established scrutiny responsibilities under the Justice and Security Act 2013 and, as I hope I have made clear, its accompanying memorandum of understanding. In addition, the Bill provides that the Secretary of State must publish details of each final order made, varied or revoked, and clause 61 already requires the annual report to include the number of final orders made, together with a number of other details. Indeed, that clause was amended in the other place to include further such information in the annual report.
We do not disagree that further information may be required for appropriate parliamentary scrutiny. Where that is the case, the Government will follow existing procedures for reporting back to Parliament, but that should be done primarily through responding to the BEIS Committee as it goes about its work of ably scrutinising the work of the Department. We will ensure that the BEIS Committee is able to access the material it needs.
It is of course right that the ISC continues its excellent scrutiny of the work of the security services. The work of the security services on investment security in support of the ISU clearly falls within the remit of the ISC. That does not require any statutory change to be made. As I said, the memorandum of understanding pertains to the continuing work of the ISC, and I look forward to working with colleagues on that Committee. As such, and with the BEIS Committee having appropriate assurance that it will be provided with the information necessary, there is no need for these changes made to the Bill by the other place to stand.
In summary, with the exception of amendments 11 and 15, I believe that this House is today presented with an improved set of measures to safeguard our national security. The ISC will not have its powers—existing powers —diluted through the discussion of the memorandum of understanding, as we have already said. Therefore, I commend the amendments, with the exception of amendments 11 and 15, to the House.
Let me start by welcoming the Minister to the National Security and Investment Bill, and I would like to wish his predecessor well in his work on the vaccine roll-out. I would also like to thank colleagues in the other place who have worked so hard to improve this Bill, and the Members of both Houses who scrutinised its important provisions.
Labour is the party of national security, and has long called for a new regime to deal with evolving national security threats in corporate transactions. A robust takeover regime is also essential if we want firms in our key sectors to grow and provide good jobs here in the UK. So we support this Bill, which allows the Government to intervene when mergers and acquisitions could threaten national security. Unfortunately, the Bill in its original form lacked certain provisions, and particularly the oversight necessary to ensure it was successful in protecting our national security and national interest. So we have sought to improve the Bill along the way, and we are pleased that the Government have adopted some of our suggestions.
Members across party lines raised concerns over the capacity and capability of the new Investment Security Unit to deliver on the Bill’s ambition. We are pleased that the Government have acted on this, and Lords amendments 12 to 14 to clause 61 are based on Labour’s original amendment 31 during the House of Commons Committee stage, and a later amendment tabled by Labour at Lords Committee. Reporting the aggregate time taken for decisions will help to ensure that the new regime works more efficiently for small and medium-sized enterprises, and I was pleased to hear the Minister quoting my remarks to that effect.
We are also pleased to see that the Government have taken steps to address concerns regarding the 15% threshold for a notifiable acquisition. This follows Labour’s probing amendment 16 during Lords Committee stage and Cross-Bench concern. The Wellcome Trust labelled the 15% threshold as a
“regulatory burden for those that may not be able to afford it”.
With Lords amendment 3, the Secretary of State will still be able to call in acquisitions across the economy at or below 25%—and, if necessary, below 15%—where they reasonably suspect that material influence has been or will be acquired. But this amendment will bring the notifiable acquisition threshold in line with our allies in France, Australia and Canada. We are pleased the Government have listened to Labour and made a change that will be beneficial to small and medium-sized enterprises.
It is also welcome to see that the Government have now committed to issue public guidance, which Labour called for with our amendment 17 at the Commons Committee stage. This is good news for transparency. Our approach has been to ensure that our small and medium-sized enterprises have clarity, and that those investing in the UK understand what the rules are and how they will work. The publication of guidance will boost confidence in the new regime for national security screening.
But we are here today because of Lords amendments 11 and 15, and to vote on the Government motion to disagree. Labour believes that the Intelligence and Security Committee scrutiny is essential to provide the robust and sensitive oversight and accountability that matters of national security require. The Bill gives significant new powers to BEIS, a Department traditional lacking in national security experience. The BEIS Committee does not have the security clearance necessary to provide scrutiny, and the confidential briefings to the Chair described by the Minister will not change that.
Labour’s amendments requiring ISC scrutiny were rejected by the Government in the Commons but they won support in the Lords. The amendments would require the Secretary of State to redact any information from the annual NSI report that is damaging to national security and then provide that information to the ISC. We believe that that is entirely proportional and a step that any responsible Government who are serious about national security would undertake. We do not understand why the Government are so reluctant to involve the ISC, and the Lords agrees with us. Lord King, former Defence Secretary under Margaret Thatcher, stated:
“I think a mistake was made in the original construction of the Bill and there now seems to be a determination not to repair the one problem that exists…it is a serious gap, and we could well pay the price for it in the future.”—[Official Report, House of Lords, 15 April 2021; Vol. 811, c. 1516-17.]
Former Cabinet Secretary Lord Butler questioned the Government’s motives for excluding the ISC, asking:
“Is the reluctance on the part of the Government a hangover from their embarrassment over publication of the ISC’s report on Russian interference before the 2017 election, or is it a result of government pique about the committee’s appointment of its own chairman in place of the Government’s nominee? Whatever it is, it is difficult to understand what the Intelligence and Security Committee is there for if not to have a role on behalf of Parliament and the public in sensitive matters of this sort.”—[Official Report, House of Lords, 16 March 2021; Vol. 811, c. 242.]
I have listened carefully to the Minister’s words and I have found nothing to explain this position. The Government have fought this vital layer of scrutiny every step of the way, continually stating that the BEIS Committee can provide the correct oversight. Lord Lansley has said that the Leader of the House is “plain wrong” about this and that all the amendment seeks to do is to ensure that the Intelligence and Scrutiny Committee can fulfil its role.
There have recently been a number of requests for Intelligence and Security Committee scrutiny—for example, in relation to the Advanced Research and Invention Agency Bill and the Telecommunications (Security) Bill. The ISC has shown it is willing to do so but the Government have refused. As Lord Butler suggested, some believe that this is because the Government are not happy with Parliament’s choice of Chair of the ISC. I am loth to think that the Government would be so petty when it comes to such an important matter as national security, so I hope they will take action and support Labour’s calls for ISC oversight.
I reiterate that Labour has consistently welcomed this Bill and we are pleased that certain issues over national security have been addressed. The UK’s takeover regime was not fit for purpose as it was, and the Bill, with today’s amendments, goes some way towards fixing that. It is undoubtedly welcome in protecting our national security, but it is only one element of protecting, nurturing and developing the vital sectors of the future that we know are crucial for our economy. We hope the Government will work with us to ensure the national security of the UK in future.
The Intelligence and Security Committee greatly appreciates the work of the Minister and of his predecessor on this important legislation. I was on the Committee in June 2013 when we identified the risks posed by foreign investment and takeovers to the United Kingdom’s critical national infrastructure, citing Huawei as a case study—and we know what happened after that. We strongly support the Government’s decision to address those risks and we welcome their assurances that national security concerns sit at the very heart of the Bill. That is exactly as it should be.
However, what was not as it should be, with the Bill as originally drafted, was the lack of adequate oversight arrangements for those security concerns and for the process when they are weighed against business and other commercial concerns by the new Investment Security Unit. The Government ought to accept amendments 11 and 15 from the other place, introduced on a cross-party basis by former Security Minister and current ISC member Lord West, former Cabinet Secretary and former ISC member Lord Butler, former party leader and former ISC member Lord Campbell, and former Defence Secretary Lord King—who was of course the first Chairman of the Intelligence and Security Committee when it was established. Their amendments make provision for that previous lack of oversight. They would require the annual report produced by the new Investment Security Unit in BEIS to include, for each final order and notification made, the Secretary of State’s decision, along with the security services’ assessment of the national security risks uncovered. They would allow the Secretary of State to move any classified information into an annex and to provide that classified annex to the ISC. With the amendments in place as they currently are, we could be confident that the Bill will create the robust regime needed to protect the United Kingdom.
Given the powerful speeches from all quarters and the size of the majority in the other place in support of the amendments, it is surprising and disappointing that the Government remain opposed to them and are seeking to overturn what is clearly common sense. The amendments provide for the ISC to scrutinise the highly classified national security elements and the weighing of those classified elements against commercial concerns.
There appear to be three arguments employed by the Government against the amendments. The first claims that because BEIS is not listed in the Justice and Security Act 2013 or in the associated memorandum of understanding on the scope of our work, the ISC cannot look at decisions taken by the new unit in BEIS. That is based on a false premise.
During the passage of the 2013 Act, the Government explicitly and repeatedly told Parliament that the Act and the MOU would provide the ISC with oversight of all security matters across Government. The MOU mechanism, again, in the Government’s own words, was a “flexible” way to ensure that the list of organisations working on security matters and therefore subject to ISC oversight would be kept up to date.
I will give way in a moment, because I would like my right hon. Friend to hear this next bit, as I think there was a bit he was missing in his earlier intervention.
These words were used in Committee in my presence by the then Security Minister, my right hon. Friend the Member for Old Bexley and Sidcup (James Brokenshire), when introducing the 2013 Act. He said:
“I want to be clear that the Government intend that, through the provisions of the MOU, substantively all of central Government’s intelligence and security activities will be subject to ISC oversight.”––[Official Report, Justice and Security Public Bill Committee, 31 January 2013; c. 97.]
As if that were not clear enough, he went on to say, and this is the bit that matters:
“Things change over time. Departments reorganise. The functions undertaken by a Department one year may be undertaken by another the following year… An MOU is flexible: it can be changed much more easily than primary legislation. It will enable the intention of the Government that the ISC should have oversight of substantively all of central Government’s intelligence and security activities to be realised now and in the future.” ––[Official Report, Justice and Security Public Bill Committee, 31 January 2013; c. 98.]
The setting up of the new Investment Security Unit in BEIS is therefore precisely the situation that the Government assured the House that the MOU was designed to address, and the unit can easily be added to the MOU by a simple exchange of letters. Indeed, if the Government were willing to give an undertaking here and now to add the new unit to those listed in the MOU, the need for these amendments would disappear.
That is precisely why I drew the Minister’s attention to the flexibility of the memorandum of understanding and asked him whether the Government stood by the terms of that memorandum. The Minister was as clear as crystal. He said that he believed in that memorandum, and he saw no attempt in what the Government were doing to dilute the powers of the ISC or its ability, of the kind that my right hon. Friend set out, to range across government, if I can put it that way, where security is concerned. I think we have had reassurance from the Minister sufficient to support the Government.
Unfortunately, and I am afraid unusually for my right hon. Friend, he missed one little part that was missing in turn from the Minister’s answer, because the MOU as it stands does not include the Investment Security Unit. The MOU has a list of seven organisations that we can currently scrutinise. The whole point about flexibility is that, as these units are set up in other Departments, they can be added to the MOU, but the Minister has given no undertaking to add the ISU to the MOU. I am happy to give way to the Minister. If he would like to say that he will add the ISU—the new unit within BEIS—to the organisations listed in the memorandum of understanding, I will stop my speech immediately and say, “Well done, Minister,” but I fear that that is not going to happen, so I will continue with my speech.
The Government’s second argument is that the BEIS Committee is both capable of providing and best placed to provide the necessary oversight. I have the greatest respect for the work and experience of the BEIS Committee, chaired by the hon. Member for Bristol North West (Darren Jones), from whom we will hear later. He and his Committee are indeed best placed to provide oversight of the business functions of the new Investment Security Unit, and there can be no doubt that that Committee will do an excellent job in that respect, yet it is simply impossible for it to provide substantive scrutiny of the highly classified national security elements or of the overarching decisions taken about how to balance them with the commercial elements.
Select Committees cannot be given proper access to top-secret material in order to scrutinise effectively. Ministers have suggested that the BEIS Committee can substantively scrutinise such material, but that is impossible. While it is true, as we have heard tonight, that the provision of classified information can be negotiated with Select Committees on a case-by-case basis, the laying out of classified material in a secure room in the Department for Members to come in and read for an hour or so—but without allowing them to take any notes, without allowing them to retain it, without allowing them to share it with their staff, without allowing them to discuss it and without allowing them to report on it since any one of those would constitute a very serious security breach—does not amount to effective oversight.
Proper oversight of the national security elements of any decision under this new regime within BEIS must include the ability to access, analyse and discuss top-secret material frequently and fully. The Government already have one body, and only one body, that can do all those things and that they created for that express purpose: the ISC. Members of the ISC are all subject to the Official Secrets Act and have a dedicated office with appropriate security facilities to store and discuss top-secret material freely, and staff who undergo the most stringent Government clearance processes before they are allowed to handle such material—I said in an intervention earlier that the staff of other Select Committees of this House are not so cleared. There is also a lengthy process through which the Committee’s reports must go ahead of publication.
My right hon. Friend will know that the call-in power and the power to refuse permission for mergers to proceed on national security grounds is long standing. It is vested in the Business Secretary and sometimes in the Secretary of State for Digital, Culture, Media and Sport. During all this time, scrutiny has been available to the ISC on those decisions. Has my right hon. Friend found that deficient in some way?
I am not sure that without concrete examples of what my right hon. Friend has in mind, I am in a position to give an answer to that question. What I do know is that it is the work of the ISC, on a basis of professional, full-time constant monitoring, to be able to look at the activities of those agencies that cannot be looked at by other Select Committees. He seems to be talking about the power of Secretaries of State to call in decisions, and I am not sure quite how that relates to the work of either Select Committees or the statutory Committee, which is the ISC.
Perhaps I did not explain myself well. What is proposed in the Bill is an amendment of the current powers. There is a long-standing power for mergers to be blocked on national security grounds. It is one of three grounds on which an intervention can take place, so this is not a new power or a novel departure. The ISC is able to scrutinise the security services’ input into that now, as it will be in the future.
The ISC, on behalf of Parliament, is able to scrutinise the input of the intelligence agencies into these processes. It would not be able to scrutinise how that input is then handled, and the trouble is that because that input is top secret, the BEIS Committee would not be able to scrutinise it either. That means that there would be a scrutiny gap between what was being scrutinised by us as it went into the process of the new unit and what was being scrutinised by BEIS minus that sensitive material, so there would be no effective parliamentary scrutiny of the process whereby, as I said earlier, the highly sensitive security requirements were being balanced and offset against the commercial imperatives. Indeed, that may be the very reason why the Government are so reluctant to let the ISC see what is going on.
I fear that my right hon. Friend may have just answered my question before I ask it, but I am most grateful to him; he is making his speech with tremendous passion and is very persuasive. I just looked up the definition of “top secret” and I am wondering what will be missing from the output of the process that would mean that there are some scrutiny gaps. I think he has just explained that he wants to scrutinise the process and I can see why he would make that case, but will he just give us some indication as to what he expects would be top secret in that analysis, if that is at all possible?
If I gave an example of something that would be top secret—even if I were in a position to do so because we had started the work that we are not being allowed to start—I would then immediately be breaking the Official Secrets Act so, no, I cannot, and I would not even if I could. However, what is a certainty is that where there are circumstances where the intelligence agencies are advising on the security aspects, for example, of a potentially hostile state buying, overtly or covertly, into a strategically important asset, such as buying up a company engaged in cutting-edge technology. This unit will have to balance that against the possible commercial advantages of major investment from that other country.
The fact is that nobody on behalf of Parliament will be able to scrutinise that process unless either these amendments are accepted or the ISU—this new unit—is added to the list of units already on the memorandum of understanding. As I have said before and say again, if at any time the Minister wants to give me the assurance that it will be added, I am happy to let these amendments go from the face of the Bill.
As I explained, this is the reason that the ISC was set up as it is. If any Committee could do what the ISC does, it would not be necessary for the ISC to have all those unique facilities and arrangements. That is why paragraph 8 of the memorandum of understanding between the Government and the ISC categorically asserts:
“The ISC is the only committee of Parliament”—
I will say that again:
“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 please listen to these next few words—
“and of those parts of Departments whose work is directly concerned with intelligence and security matters.”
A footnote to that sentence helpfully explains:
“This will not affect the wider scrutiny of departments…by other parliamentary committees. The ISC will aim to avoid any unnecessary duplication with the work of those Committees.”
With that machinery already in place, it is all the more baffling that the Government are now refusing to use the very body they created. Without including oversight by a properly structured and fully cleared security body, the Government are not placing security at the heart of the Bill.
The Government’s third and final argument is that if the ISC had a role, it would encroach on the BEIS Select Committee’s remit. This, too, is baffling and not borne out by experience. The Government’s own MOU already expressly states that the ISC scrutinises the classified parts of some Government Departments, leaving the remainder to the corresponding departmental Select Committees. That is what has always happened, perfectly harmoniously, in respect of a number of other Departments, so it is, again, bizarre that the Government now see this as a problem when they themselves have already made express provision for it.
The ISC can work seamlessly with the BEIS Select Committee on oversight of the Investment Security Unit, as it already does with other Select Committees such as the Defence Committee and the Home Affairs Committee, and in respect of the work of the Foreign, Commonwealth and Development Office. Far from being an “overreach” of our remit, in this particular case the ISC is trying to prevent its existing scope from being reduced. The unit that currently carries out investment security work is based in the Cabinet Office. Consequently, it is already overseen by the Intelligence and Security Committee. The ISC already scrutinises these activities in their current form in the Cabinet Office, so it cannot be “overreach” to do in future something that we already do. If the Government do not maintain this existing ISC scrutiny when the new Investment Security Unit takes over, it will be a step backwards from the current position.
If national security really is at the heart of the Bill, the ISC, as the national security oversight body, must be allowed to oversee it. The Government gave assurances to the House in 2013 that the ISC would oversee all security and intelligence matters. It is as simple as that. The sensible solution is that which was proposed and accepted in the other place—namely, the amendments that we are now being asked to reject for, as I have demonstrated, no good reason.
If, for some reason we have not been told, the Government cannot accept provision for oversight on the face of the Bill, there is the other solution that I have previously indicated. The Justice and Security Act and the memorandum of understanding linked to it set out the ISC’s role and remit, which the Government expressly told Parliament was the oversight of all intelligence and security matters across Government, now and in the future. The memorandum of understanding mechanism was rightly described by the security Minister at the time, my right hon. Friend the Member for Old Bexley and Sidcup (James Brokenshire), as “flexible” because
“it can be changed much more easily than primary legislation.”––[Official Report, Justice and Security Public Bill Committee, 31 January 2013; c. 98.]
The matter before us today is exactly as described in 2013: an area of Government in respect of which the ISC has oversight responsibility has been moved to a different Department. The memorandum of understanding could therefore be updated to reflect this, by way of a simple exchange of letters, to add the Investment Security Unit to the list of bodies covered by the MOU. The ISC would happily accept a commitment from the Minister to this effect tonight, in lieu of the amendment. Either method will ensure what is needed: real oversight of the national security elements of this legislation by the only body constituted and equipped to carry it out, rather than what might be described as “scrutiny in name only”.
I am very much of the view that, as Shakespeare said, “brevity is the soul of wit”. Notwithstanding that, the Chair of the Intelligence and Security Committee, the right hon. Member for New Forest East (Dr Lewis), made an incredibly professional and profound set of points that I hope the Minister listened to closely.
As the shadow Minister, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), did, I welcome the Minister to his place, notwithstanding the fact that the previous Minister, the hon. Member for Stratford-on-Avon (Nadhim Zahawi), is off doing a fantastic job—I think it is fair to say—getting the entirety of the UK vaccinated, of course in partnership with our colleague in Scotland. I am sure that he regards it as a step up in terms of ministerial oversight of the Bill.
On the Bill itself, my right hon. Friend the Member for Dundee East (Stewart Hosie) spoke on Second Reading and on Report with passion and knowledge of the subject in respect of the scrutiny that should be provided by all of us when looking at such serious matters. We have tried to be constructive with the Government and to make helpful suggestions. I am pleased with many of the amendments moved by those in the other place that the Government are agreeing to—on beefing up scrutiny and perhaps offsetting some of the concerns that some of us might have had about the danger of investment chill, which was certainly real given the original nature of the Bill.
Improvements have been made, therefore, but there is still scope for further improvement. In that regard—as I said, I will be brief, Madam Deputy Speaker—I again urge the Minister to give cognisance to the wise words of the Chair of the ISC.
I welcome the powers that the National Security and Investment Bill introduces and I am very much in favour of the amendments moved by the Government in the other place.
Those amendments temper the impact on investment of the Bill, allowing a greater proportion of transactions and investment decisions to go ahead without requiring Government approval. Furthermore, the Government’s power to intervene on their own, if needed, will be retained. That is a good compromise between the Bill’s objectives: to grant the Government the powers to defend the UK against losing companies and expertise to unfriendly competitors, without stifling the investment that we need to become the home of the industries of the future. That is vital to our national security and to our future prosperity.
We must ensure that the technologies that are so frequently developed by our brilliant scientists here in this country can also transform themselves into successful world-leading companies here. I think of the many university spin-out programmes and how often extraordinary technology is immediately shipped off somewhere else. Developing more powerful computers and software, but allowing them all to be commercialised and deployed most effectively elsewhere only makes us less secure, not more secure. They will only be commercialised and deployed here if the Government protect them from being snapped up by our competitors, thereby damaging our long-term security interests.
We have seen the impact of such problems in the past. Only last week, the Secretary of State for Digital, Culture, Media and Sport called in the potential NVIDIA-Arm deal as representing a potential threat to our national security. If Arm, the Cambridge-based silicon fen semiconductor and software design company, can pose a threat to national security, so could the sale of other critical companies in developing industries.
Quantum computing is about to revolutionise the digital age, and the UK has some of the leading research establishments, notably in London and at the University of Bristol. However, many leading companies have moved abroad in the past. The British academics who founded PsiQuantum, the company that believes it is on track to build the world’s first usable quantum computer, moved to California some years ago. I have absolutely zero financial or other interests in that company—it is only that I wish to see the UK lead the world in quantum computing, with all the associated industry and benefits that will follow that.
The four professors from Bristol and London Universities recently made an offer to the Government to build that first usable quantum computer here in the UK, ensuring that the security offered by its cutting-edge technology is based in the UK. I think we can all agree that it would have been far easier and a lot less expensive if those academics had never left the country in the first place.
As the current pandemic has shown, domestic sovereign capability will only become more important in the coming years, particularly in areas such as quantum computing. Mirroring the Prime Minister’s wise decision to develop UK-based manufacturing capacity for covid vaccines—a decision that, when placed against the current backdrop of export bans and international power politics, looks very wise indeed—we must also have a domestic sovereign capability for security-critical sectors such as quantum and artificial intelligence. That will help to ensure that the UK does not miss out on the ability to crack other people’s codes, decipher intelligence, keep our communications secure—current encryption is obsolete in the face of quantum computing—calculate the solutions to climate change, and cure the diseases of today and the future. This is not just in our economic interest; it is in our national interest too.
The Government must think extremely carefully about how they use this legislation, as well as clever policy design and strong research and development funding, to shape the UK’s future security and economy. As the Government amendments will retain the Government’s powers to intervene in deals that would prevent us from losing companies key to our national security, I am proud to support them.
In common with other hon. Members who have spoken tonight and on other occasions, the Liberal Democrats support the broad principles of the Bill. It is sensible, at a time of geopolitical uncertainty and increasingly globalised trade, to have provisions for the Secretary of State to intervene in business transactions where those transactions may have a bearing on national security. It is important, however, that the parameters of such a Bill are carefully drawn to ensure both that the transactions that may pose a threat can be caught, and that undue constraint is not placed on transactions that ought to be able to proceed freely.
The concerns raised about the Bill have focused on the fact that many of the definitions in it can be drawn too widely, and that the powers of the Secretary of State to call in transactions can be triggered too easily. That creates an environment of uncertainty for investors, as a wide variety of activities come into the scope of the Secretary of State’s powers. That will potentially act as a brake on investment, and at a crucial moment, when we are looking to strike new deals with global partners to replace the trade we are losing as a result of leaving the European Union.
I therefore welcome Lords amendments 11 and 15, which would require the Secretary of State to provide an explanation for choosing to exercise the powers granted to them. That seems to be a rational compromise. Instead of attempting to frame more precisely definitions and powers that will quickly become outdated as technology and trading practices progress, we would maintain the wider definitions but explain how and why they were being exercised.
That would provide a framework of precedent that investors could refer to when assessing investment risk. It would provide a much greater degree of transparency and accountability to the Secretary of State’s decision making. We have all seen the value of greater transparency over the last few weeks. Adopting these amendments would show that the Government were attempting, in good faith, to regain public trust after that trust has been shaken by recent revelations.
There is a distinct danger that the Bill, without amendment, will leave the Secretary of State vulnerable to pressure from those whose interests go beyond national security. We have seen this Government act to help developers avoid taxes, bankers win access to Government schemes, and shell companies win multimillion-pound personal protective equipment contracts. There is a very real danger that the UK’s reputation as a safe and orderly place to do business may be undermined, and these amendments offer the Government an excellent opportunity to restore our reputation once more. I very much hope that the Minister will take it.
The Bill is valuable and necessary, but it is only part of what is required to boost the UK’s attractiveness as a global trading partner. The scrapping of the industrial strategy in the last month and the continuing failure to construct a workable plan for achieving net zero are holding the UK back from being able to achieve all that it is capable of achieving as we emerge from the difficulties of coronavirus.
I will focus my remarks on Lords amendments 11 to 15 to clause 61, which, as we have heard, have arrived from the other place on the basis that the BEIS Committee, which I chair, does not have the access to the intelligence information that it would need in order to adequately scrutinise the Investment Security Unit in the BEIS Department. Let me start by thanking their lordships for their highly informed debate on this issue and their hard work in drafting these amendments.
It is a matter of fact that the Intelligence and Security Committee has a level of security clearance and powers to demand classified information that no other Committee of this House has, including my own. I was therefore surprised to learn that the Government were not going to update the memorandum of understanding with the ISC to extend its remit specifically to include the Investment Security Unit. That is why their lordships have sent us these amendments, which I have no issue with. On that basis, I commend the Chair of the ISC for his eloquent speech this evening. However, the Government have made it clear to my Committee and to the House that they have no intention of supporting the amendments, and nor will they be extending the memorandum of understanding in respect of the ISC.
The Secretary of State did agree with me in Committee that the Bill extends the powers of the Government to intervene in the market and that adequate scrutiny of that function is therefore important. On that basis, my Committee has received a letter from the Secretary of State, which we will formally report to the House tomorrow morning, setting out three key points. First, my Committee will be guaranteed appropriate levels of information and briefing to understand why Ministers have acted in the way they have—this is noting the points made by the ISC Chair this evening. On that basis, my Committee and the Department will enter into a new MOU to reflect this. Secondly, the Secretary of State will brief me, as Chair of the Committee, on Privy Counsellor terms, as required. Thirdly, the Science and Technology Committee, which also has standing in this area, will be recognised as sharing the scrutiny responsibility, alongside the BEIS Committee, in addition to the work of the ISC. I welcome the comments made by the Chair of the Science and Technology Committee in this evening’s debate.
My Committee has discussed this issue and wants to ensure effective scrutiny of the wide-ranging and important powers in the Bill. Given that the Government are unwilling to support their lordships’ amendments this evening, and therefore having the main scrutiny responsibility resting with the BEIS Committee, the agreement to enter into a new MOU with my Committee, and to ensure the Chair’s briefing on Privy Counsellor terms, is the next best available option. The BEIS Committee will continue to serve the House in holding the Department to account, and we will of course make it known if we are unable to do that effectively. I therefore look forward to hearing the Minister, when he sums up the debate on the Floor of the House this evening, reconfirming the commitments made by the Secretary of State and promptly agreeing the MOU in due course.
I very much appreciate the spirit and detail with which this issue has been covered in the Chamber today and the consideration that has come from the other place. I am glad that we have been able to bring forward a number of amendments to improve the Bill, ensuring that we can keep the certainty for business and are responsive to the needs of business, while clearly keeping that central focus on national security. It is so important that we keep the flexibility in the definition of “national security”, in order to future-proof the Bill, while none the less making sure that businesses and potential investors in this country know exactly the competitive regime we have here.
That goes to the point made by my hon. Friend the Member for Gravesham (Adam Holloway) about PsiQuantum. Quantum computing is an exciting technology. The Bill tackles national security, but we must also ensure that the UK is a competitive, good home for technologies such as quantum computing, not least by making sure that we can unleash innovation, and make the UK the science superpower that is the envy of the world, with people wanting to come to build quantum technology units here in the UK, through our use of research and development and by ensuring that we are competitive in all our offerings, while being able to protect businesses for our national security.
I appreciate the kind words of the shadow Minister, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), and indeed those of the hon. Member for Aberdeen South (Stephen Flynn) when he talked about my coming to this place. Indeed, not only did I follow my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi) in leading on this Bill, but I stole his flag for my office, for fear of missing out otherwise when I am on my Zoom calls, because that does symbolise the vaccination process and the fact that the Union has come together—the UK has come together—in an amazing programme.
I am really keen to tackle two more points. The hon. Member for Richmond Park (Sarah Olney) talked about flexibility versus scrutiny, which I have already talked about. She mentioned that she did not want other countries or other businesses to undermine the UK economy. Clearly, we do not have to go that far to have people undermining the UK economy; we have only to go to the Liberal Democrats for that. It is important that we do not allow that speculation—the sort of muckraking we heard from that contribution—to detract from what is a really important Bill for the UK national security regime, and from that optimism and confidence that is needed for attracting investment within this country.
I understand the concerns of my right hon. Friend the Member for New Forest East (Dr Lewis), but I reiterate the fact that it is for the BEIS Committee to oversee the work of the Department. The Committee is particularly well placed to consider how effectively and efficiently the regime interacts with business communities and investors.
I thought my right hon. Friend the Chair of the ISC really made an open and shut case, and I hope that he will not mind my saying so. If the Minister will not amend the memorandum of understanding, will he be really clear why he will not do so, because my right hon. Friend made an open and shut case that he should?
I appreciate my hon. Friend’s intervention, and I will come back to that. Let me first develop the point about scrutiny. Clearly, the BEIS Committee has business expertise and is able to determine whether the regime is effective in scrutinising relevant acquisitions of control. I do question some of the narrative that I have heard that suggests that the BEIS Committee is not well placed to scrutinise the NSI regime. Furthermore, there are no restrictions on the ISC requesting further information from the unit or the Secretary of State where it falls under the remit of that Committee. There is no barrier to the BEIS Committee handling top secret material or other sensitive material subject to the agreement between the Department and the Chair of the Committee on appropriate handling.
As part of its role, the BEIS Committee can request information that may include sensitive material from the Secretary of State for Business, Energy and Industrial Strategy, including on the Investment Security Unit’s use of information provided by the intelligence and security agencies. The Select Committee already provides scrutiny over a number of sensitive areas, and there are mechanisms in place for it to scrutinise top secret information of this kind on a case-by-case basis.
As the Secretary of State for Business, Energy and Industrial Strategy explained in front of the BEIS Committee last week, and indeed in his letter to the Chairman of the BEIS Committee, which was copied to my right hon. Friend the Member for Tunbridge Wells (Greg Clark), Chair of the Science and Technology Committee, there are three Committees that should act in collaboration. The BEIS Committee provides the primary work of scrutinising matters within BEIS competence, but two important additional Committees—the Science and Technology Committee and, indeed, the ISC—were acting in an auxiliary capacity, making sure that the essential cross-cutting nature of the Investment Security Unit benefits from the rigour of those Committees, with expertise in each area that the unit covers.
The Government therefore do not believe that we need to update the existing memorandum of understanding, because it is flexible and it does still pertain. As I have said, there is no dilution of the ISC’s work in this. The current arrangements are sufficient to ensure that we can have the correct scrutiny of this.
I appreciate that I have tried the patience of the House, but on that one point let me say that the MOU is flexible in the sense that we can add new organisations to it. The flexibility is not being used by the Government because they are refusing to add this new unit to the MOU, so the flexibility is rendered nugatory.
As I say, the direction from the Secretary of State in his letter to the Chairs of the Business, Energy and Industrial Strategy Committee and the Science and Technology Committee was clear in terms of his expectations of how this should work. The Business, Energy and Industrial Strategy Committee should be the prime Committee to scrutinise BEIS competence, but similarly the Science and Technology Committee and the Intelligence and Security Committee should absolutely be there to look at places within their competence to ensure wider scrutiny.
As I said, we have listened to Parliament. We have tabled a number of amendments to increase the amount of information included in the annual report and the various threshold. We have responded.
Lords amendment 1 agreed to.
Lords amendments 2 to 10 agreed to.
Motion made, and Question proposed, That this House disagrees with Lords amendment 11.—(Paul Scully.)
Lords amendment 11 disagreed to.
The list of Members currently certified as eligible for a proxy vote, and of the Members nominated as their proxy, is published at the end of today’s debates.
Lords amendments 12 to 14 agreed to.
Lords amendment 15 disagreed to.
Ordered, That a Committee be appointed to draw up Reasons to be assigned to the Lords for disagreeing to their amendments 11 and 15.
That Paul Scully, Michael Tomlinson, Jo Gideon, Matthew Pennycook and Stephen Flynn be members of the Committee;
That Paul Scully be the Chair of the Committee.
That three be the quorum of the Committee.
That the Committee do withdraw immediately.—(David Rutley.)
Committee to withdraw immediately; reason to be reported and communicated to the Lords.
(1 month, 3 weeks ago)Lords Chamber
My Lords, I start by expressing my gratitude to noble Lords from across the whole House for their contributions to the passage of the Bill. In particular, I thank my noble friends Lord Grimstone and Lady Bloomfield for their steadfast help, guidance and support throughout its passage. I also place on record my thanks to the noble Baroness, Lady Hayter of Kentish Town—my commiserations on the results of the Lord Speaker election—and to the noble Lords, Lord Grantchester and Lord Rooker, for their constructive attitude and helpful challenges from the Opposition Front Bench throughout the passage of the Bill. I also thank the noble Lords, Lord Fox and Lord Clement-Jones, for their customary ability to ask the most difficult questions at totally wrong times during the passage of the Bill.
It would also be remiss of me not to thank some of my noble friends who have taken a particular interest in ensuring that we get the Bill right. I am thinking in particular of my noble friends Lord Lansley, Lady Noakes, Lord Hodgson of Astley Abbotts, Lord Leigh of Hurley, Lord Vaizey of Didcot, Lady McIntosh and others.
Noble Lords from across the House have rightly held the Government’s feet to the fire in a number of areas, in the finest traditions of this House, and I can honestly say that the Bill leaves the House in a better state as a result of that scrutiny. I extend my particular thanks to parliamentary counsel for their exemplary drafting and to the clerks and all the House authorities for shepherding us through these exceptional times. The smoothness with which proceedings flow masks the sometimes immense and exceptional logistical operation going on behind the scenes.
I also extend my thanks to the officials and lawyers within my department, who have worked tirelessly on the drafting and subsequent passage of the Bill, for their immense patience in explaining some of the difficult concepts to a mere simpleton such as myself. In particular, I thank Dr Sarah Mackintosh, Mike Penry, Danny McCarthy, Arash Abzarian, Alex Midgley and George Kokkinos, who embarked on their NSI journey before I was even a Minister in this department. In my view, they act in the finest traditions of our civil servants, and I am very grateful to them for all their expert help, support and guidance. Finally, I thank the wonderful Melissa Craig, in my private office, and the immense Yasmin Kalhori in the Whips’ Office, who is ever-helpful in feeding forward suggested speaking notes—not all of which I can use in this House.
I said at Second Reading:
“This Bill will keep the British people safe.”—[Official Report, 4/2/21; col. 2335.]
In the meantime, we have had lengthy discussions on fishing, lectures to insolvency practitioners and—in one memorable case—the makeup of a particularly hawkish rugby front row. These discussions and others have made me certain that the Bill will go a long way in ensuring that the UK’s defences are fighting fit, both now and long into the future.
I am heartened that, in the finest traditions of this House, all parties have recognised the Bill’s importance, even if we have disagreed on some of the detail. In that sense, it has genuinely been a cross-party effort, and I am grateful to all noble Lords who have participated. I beg to move.
From these Benches, it is a pleasure to thank the Minister, the noble Lord, Lord Callanan, for the way that he handled this important Bill and steered it through your Lordships’ House, so ably supported by the noble Lord, Lord Grimstone, and the noble Baroness, Lady Bloomfield. At the end of a long season and Session, it is very rewarding to examine the legislation of the noble Lord, who, with his team, engaged so positively with us and the House. This resulted in real and productive improvements to the Bill—especially on new public guidance, the expert panel and turnaround times, among other features, being included in the annual report.
I am grateful to the Bill team, ably led by Mike Penry, and the department, for their exemplary attention and courtesy shown to us at all times. The broadcasting team were excellent and managed our hybrid proceedings throughout without a hitch. I am also grateful to my lead and boss on the Bill, my noble friend and colleague Lady Hayter, who was disappointed that she could not see it through all its stages to the conclusion.
I would not have been able to step up to the grade without the support my very able legislative assistant in our office, Dan Harris, who, with Ellie Robson, was able to guide me over the hurdles, draft our amendments and take the negotiations with the Public Bill Office completely out of my clumsy hands. I am very grateful to them.
Our team is especially grateful also for assistance that came from outside the House—from the Russell group of universities, the CBI and the Wellcome Trust, as well as the Henry Royce Institute, the BioIndustry Association, the Law Society and the Law Society of Scotland. They have all provided insights and appreciation of the Bill’s likely workings and omissions, which proved invaluable to our attention within the House.
A clear feature of the Bill is how co-operatively the Minister and his team have worked with us and the House throughout, to understand and accommodate the pertinent issues in the Bill from our perspective. Of course, there is one clear divergence of opinion between the House and the Government, which we are sending to the Commons for their consideration. For the achievement of that task, I am very grateful to the front row team, marshalled into a complete scrum by our admiral, my noble friend Lord West, at roll call on Report. I am also grateful to my noble friend and colleague Lord Rooker, who guested as a heavyweight on the Front Bench for the occasion. It is very good to see him back in the Chamber and back to good health.
I trust that the positive engagement from across the House—including the Lib Dem and Conservative Benches —and the commitment shown by all noble Lords to a successful outcome, will give the Bill a fair wind to find safe harbour in the Commons.
My Lords, there has never been any doubt that the Bill’s aims were supported across the whole of the House, and that has added to the quality of the debate from the start. That said, actually delivering a balanced approach to protecting the UK’s security, while ensuring that the necessary flow of investment will not be interrupted, will be a challenge. The debates that we have had have underlined the subtlety of that challenge.
However, the stakes are high. The UK has arguably been one of the most open economies in the world, and it is clear that this openness has let through some transactions that, in retrospect, should not have been permitted. The onus is now on the Government to act in such cases.
The skeletal nature of the Bill has informed quite a lot of the debate that we have had, and it is clear that, from the outset, the Government have sought to keep their options open. To my mind, phrases such as “We will take things on a case-by-case basis” have popped up too often. So I hope that, over time, there will be fewer “case-by-cases” and fewer exceptions—because people need clarity, and that clarity needs to be supported by strong communication. People need to understand how the decisions will be made. If this unit acts as a black box, that will not happen, and investment will definitely be discouraged.
Finally, before the long thank-yous, I apologise for coming back to the amendment on Report that set out the importance of climate change with respect to national security. I will say—with all due respect—that the Minister grudgingly went along with the thesis, but only to the minimum extent necessary. Perhaps his natural combativeness prevented him really appraising or acknowledging the risk.
Therefore, before the Minister moves from this Bill to his next important project, I recommend that he reads an op-ed in Politico by the NATO Secretary-General, Jens Stoltenberg, which came out today. In it, he says that it is clear that climate change
“is making the world a more dangerous place”,
“rising sea levels and more extreme weather … increasing competition for scarce resources and fueling tensions and conflict.”
“Climate change threatens global security”.
Please note, Minister. That should be reflected in the activities of the new unit.
Of course, one outstanding issue between us remains, symbolised by the flankers here—the noble Lords, Lord West and Lord Campbell—and I hope that the Minister and the Secretary of State will see some sense on that. Otherwise we will be back for ping-pong.
That said, the passage of this Bill has been efficient, and, as the Minister has said, the overall quality of the Bill has been improved through that process. I commend the openness of the noble Baroness, Lady Bloomfield, the noble Lord, Lord Grimstone, and the noble Lord, Lord Callanan, who has shown his characteristic empathy in the process. The noble Lord listed the very considerable Bill team and all the support that has delivered the Bill, and I second, indeed third, that, because without them there would certainly be no Bill—and, of course, without many of them there would be no unit to make the Bill a reality.
I also thank the noble Baroness, Lady Hayter, and the noble Lord, Lord Grantchester, for their engagement in this process, and I thank particularly the Members opposite. There are two representatives of them here—the noble Lords, Lord Leigh and Lord Lansley—but there are others, such as the noble Baroness, Lady McIntosh. They must have added to the pressure that the Minister feels: when the noises are coming from behind as well as in front, it makes it harder to resist.
As for the home team, I hope that my colleagues will not mind if I single out, first, Sarah Pughe in the Lib Dem legislative team, who has done a magnificent job supporting us. Among Members, I would mention the noble Baronesses, Lady Bowles, Lady Berkhamsted, Lady Northover and Lady Smith of Newnham, the noble Lords, Lord Bruce of Bennachie, Lord Campbell of Pittenweem, Lord McNally and Lord Purvis of Tweed, and, last but no means least, my noble friend Lord Clement-Jones, who has been here in support. I hope that we do not have to come back—I hope the Government see sense on that amendment. That said, the Bill leaves this House in a much better state than it arrived in.
My Lords, from the Cross Benches I join previous speakers in thanking all the House of Lords officials and the Bill team.
As we have previously outlined, the Bill has a valid and important principle at its heart: the protection of national security and the lessening of economic interference in industrial control by hostile actors. Nobody would disagree with that intention, and the business community is no different. The CBI, of which I am president, supports those principles and stands ready to help make a success of the new regime. We have heard from a wide range of businesses likely to engage with the regime, many of which have complex international supply and value chains and all of which recognise the need for such regimes and already comply with counterpart regimes across the world.
However, to make a success of such a regime in a manner that reflects the approach of many of our international counterparts, the concerns of a wide subsection of the business community should continue to be heard. As I have noted previously, the extra- territoriality of the Bill, combined with no set de minimis function, could inadvertently lead to a real rise in bureaucracy at micro level and slow inward investment at macro level, so it is critical that the Government continue to engage with business and industry on the practical application of the regime. The fast-track processes and expert advisory panels that have been discussed are a very welcome move. The amendments moved by the noble Lord, Lord Callanan, on future reporting on the progress of the regime and on omitting the 15% threshold for significant control are also welcome.
Business welcomes the Bill, and I give credit to many noble Lords who have taken part, including the noble Lord, Lord Leigh, the noble Lord, Lord Clement-Jones, the noble Baroness, Lady Noakes, the noble Lord, Lord Lansley, and the noble Lord, Lord Hodgson —I could go on. The more detailed reporting requirements provide more clarity on the average processing or decision time for notifications, whether mandatory or voluntary. Business has been concerned about the transparency of the statutory process, so we welcome the Government’s reflection of that in the Bill. Moreover, the removal of the 15% threshold for significant control is welcome, as, while such a percentage may represent a critical investment in other areas, it is unsuitable when applied to significant control more widely.
Looking ahead, the spirit of dialogue that has allowed such amendments to be moved should continue to ensure that both business and government are equipped to make a success of the regime. This Bill shows the House of Lords at its best: it has greater strength by far in depth and breadth of world-class expertise than any other Chamber in the world. This Bill has seen this skill applied on a cross-party basis, enabling this House to play its role as a revising Chamber to help change legislation for the better. This can only happen, however, if the Government are prepared to listen—which they have. We are grateful to the Government, and long may the spirit of collaboration continue.
I thank noble Lords for their kind words and renewed support for the Bill. Empathy is not something I normally get accused of—I am sure that the noble Lord, Lord Fox, did not have his tongue in his cheek, so I will take that as a compliment. As I said earlier, there has been genuine cross-party enthusiasm for the Bill and, with the exception of one important detail, I have been heartened by the House’s desire to get it on the statute book. The debate has been excellent and shows the finest traditions of this Chamber.
I will certainly take up the suggestion made by the noble Lord, Lord Fox, for my considerable reading list. My in-tray is very high at the moment, but I will look at the article he referred to, and I am sure that it will enhance my understanding of the subject. For a final time, therefore, I beg to move.
Bill passed and returned to the Commons with amendments.
(2 months ago)Lords Chamber
Clause 3: Statement about exercise of call-in power
1: Clause 3, page 3, line 9, at end insert—
“( ) details of the circumstances in which the application to an asset of any export control, transfer control, technical assistance control or trade control imposed under the Export Control Act 2002 and related provisions may affect the Secretary of State’s exercise of the power to give a call-in notice, and”
My Lords, it is a privilege to open proceedings on Report. I want to say generally that Members across the House, on all sides, are supportive of the principles of the Bill. It has been clear that all the amendments tabled have the intention of trying to make it as clear, effective and workable as possible, and—as we will discuss later—to make sure that there is proper accountability and transparency in the proceedings. Several of my noble friends have tabled amendments in that spirit. I know that Ministers in charge of the Bill have responded in kind with a willingness, even in the past few days, to supply additional material on how the workings of the national security and investment regime will be made more transparent and clear to those it affects, who are substantial in number.
I come to one of the issues in the two amendments in this group, both in my name, which relate to the interaction between the national security and investment regime and the export control licensing regime. Amendment 1 relates to the exercise of the call-in power by Ministers. Amendment 37 relates to the making of interim and final orders by Ministers. I start with the first amendment.
I quoted the 2018 White Paper at more length in Committee but it stated, on behalf of the Government, that
“where national security concerns relate solely or primarily to the export of goods, the Government expects that the export control regime would remain the primary means of protecting national security”.
In Committee, I asked the Minister responding to reiterate that expectation. He failed to do so, nor did he offer any specific assurance about how the two regimes would interact. I am grateful to Ministers because, since then, they have committed to the publication of guidance, which will include the interaction of the national security and investment regime with the Competition and Markets Authority, the Takeover Panel and the export control regime. We have not, of course, yet seen the text of that guidance. Nor is a reference to the export control regime being included in the draft statement, which has to be made under Clause 3, that will explain where and in what circumstances the Secretary of State will exercise his call-in power.
The importance of that is illustrated not least by the references from time to time in the consultation on the sectors in scope of the mandatory regime, in which a number of respondents made it clear that they thought there was a widespread interaction and overlap. For example, paragraph 3.76 said that one respondent suggested that the pre-existing export control licensing regime was appropriate, for which a number of businesses had robust and sophisticated compliance programmes, noting a significant overlap between the lists and a number of the other proposed mandatory sectors.
The noble Lord, Lord Grantchester, on the Front Bench opposite, in Committee instanced other references to that in the consultation response. Indeed, he may have looked at the strategic export control list, which is 309 pages long, and the sectors in scope of the mandatory regime for the national security and investment regime. The overlap is very large indeed. It is important to those affected that these two regimes interact positively and sensibly.
Amendment 1 seeks to require that there be such a reference in the Clause 3 statement and a commitment to explaining to people how the two regimes will interact. Why does that matter? First, given the nature of the assets in the strategic export control list, a change of control of the entities that own them will often be a notifiable acquisition and therefore be subject to a mandatory notification. But will the acquisition be called in? That question will be in the minds of those affected and will depend upon the level of risk. If the acquisition is by a hostile actor, it is a fair argument that the national security and investment regime adds an extra safeguard beyond the export licensing process. However, it will be important for those who own sensitive assets to know when that issue—the nature of the acquirer—is the prompt for a call-in, not simply the sensitivity and nature of the assets themselves, since they can be safeguarded for national security purposes through the export control licensing regime. Therefore, those asset owners need to be able to reasonably predict when a call-in will be made.
Secondly, the Clause 3 statement should offer clarity about the distinction between the use of an asset and its control. The national security and investment regime is about ownership and, hence, control of assets. Export controls are directed to their use, specifically outside the United Kingdom by way of export. However, we should consider what will happen if we follow the American lead. Following the enacting three years ago of the latest US legislation, there are circumstances in which the American export control regime, because it anticipates that a given ownership could lead to a transfer of technology within an entity, deems such assets to be exports. We already see an increasing overlap between the question of control and the question of use. The statement needs to be clear about that distinction, too.
What I am really looking for from my noble friend on the Front Bench is, first, an assurance that these issues will be fully dealt with in the guidance to be published, and that there will be a specific reference in the statement to matters dealt with under Clause 3, even if that is supplemented in detail by the technical guidance.
Amendment 37 raises an important further interaction. When Ministers make interim or final orders, given the extent of overlap between assets in the scope of this regime and those in the strategic export control list, it is likely that the entities that control such assets may, if they pass into new ownership, be subject to such orders. Those orders are about not just the situation today but what should happen in future. There will be a temptation on the part of Ministers to make orders that, like contracts in law, provide for every set of circumstances in future.
My point is simple: when making orders, Ministers should always rely on the export control licensing regime to do its job effectively. They should not try to substitute for the export control regime in future by restricting, through orders, what entities are or are not able to do. Even though they have the power to do that, they should not do it. They should live up to the expectation of the 2018 White Paper that the export control regime is the means by which Ministers exercise control of the export of sensitive assets.
There are two units involved. The Export Control Joint Unit is made up of officials from the Ministry of Defence, the Department for International Trade and the Foreign, Commonwealth and Development Office, and there is the unit for the national security and investment regime. The interaction between the two units needs to be excellent. In the shape of my noble friend the Minister on the Front Bench, we have the embodiment of the relationship between the Department for International Trade and the Department for Business, Energy and Industrial Strategy. I hope that he makes sure that these two work together well.
We should not see orders under the NSI regime supplanting what should be licensing procedures under the export control licensing regime, not least because—I pre-empt an issue that we will come on to later—export control licensing is the subject of greater and specific parliamentary scrutiny by the Committees on Arms Export Controls in the other place. There is no such direct scrutiny of the orders being made under this NSI regime. I hope that I do not need to say that Ministers should not fall prey to the temptation to incorporate measures into orders under this regime because it entails less parliamentary scrutiny than would be the case for export licensing under the other regime.
When we get to Amendment 37, I hope that I will be able to rely on Ministers’ further assurances that they will not simply take account of the export control regime and will rely less on administrative law issues. It was slightly ironic that our debate in Committee was followed the following week by a debate on administrative law that suggested that statute should be as clear as possible about the requirements that people have to live up to and not rely on a general public law duty—but that is exactly what Ministers profess to rely on here. I would prefer Amendment 37 to be adopted by the Government and it to be very clear that Ministers will take full account of the export control licensing regime. Even if they are not happy to amend the legislation, I hope that what my noble friend says in response to this debate will make it clear that that will be the case. I beg to move Amendment 1.
I thank the noble Lord, Lord Lansley, for returning to the issue of the interaction of the NSI and export control regimes. He is correct to probe further with the explicit inclusion of Amendment 1, so that the new NSI regime is not buried within BEIS but works effectively across government, specifically across both regimes.
Amendment 37 underlines the need to recognise proper co-ordination in this regime. The Government had recognised only that the two regimes are distinct and would sit alongside each other, as the expression goes, yet they were concerned by activities that could circumvent the export control criteria. With the extent of the overlap to which the noble Lord, Lord Lansley, refers, this would be surprising.
Since Committee, further consideration has been given to the issue. We agree with the noble Lord in calling for greater clarity about the interaction needed with export controls, especially when a call-in notice has to be considered and when interim and final orders are being made. We are supportive of the intention behind these amendments regarding concerns about how this regime will interact with functions under the export control regime. Why does the Bill remain silent on the export control regime in its drafting?
In Committee, the Minister stated that,
“where export controls in relation to an asset are already in place, it may not be necessary or proportionate to make an order under this Bill prohibiting the transfer of the asset overseas, but this will depend on the facts of each case.”—[Official Report, 16/3/21; col. 199.]
This is not particularly helpful and could result, as the noble Lord, Lord Lansley, says, in an asset or situation being drawn into both regimes, without more explicit explanations on the interplay. What are the functions of any facts that would result in being subject to this regime, as well as having been referred to the Export Control Joint Unit? Where would it be proportionate for this to happen?
I am grateful that the Government have now recognised the validity of these concerns and committed to publishing guidance after enactment of the Bill. I am also grateful to the Minister and his departmental team for outlining an indicative list of nine points of regime guidance. Guidance 8, on how the regime will work alongside other regimes, including export control, takeovers and the CMA, will address this. However, there are still some important outstanding questions for the Minister to answer to add clarity on how duplication across both regimes will be avoided while meaningful co-ordination operates effectively. It would be most helpful if he could provide that clarity at this important stage in the passage of the Bill.
My Lords, I thank my noble friend Lord Lansley for his Amendments 1 and 37, which explore the interaction between the export control regime and the regime created through this Bill. As we start this session, I thank your Lordships for the constructive way in which they have approached this Bill and the constructive debates that we have had.
Amendment 1 would provide that the statement about the exercise of the call-in power may set out how the Secretary of State will factor in controls placed under the export control regime when deciding whether to call in asset acquisitions. Amendment 37 would ensure that the Secretary of State takes into account controls placed under the export control regime when imposing interim or final orders on asset acquisitions. These amendments follow discussions in Grand Committee on the links between export controls and NSI; I thank noble Lords for the insights that they have shared.
I am happy to confirm to my noble friend that the Secretary of State will need to take into account the impact of any controls placed under the export control regime, as well as other relevant regimes so far as they relate to national security considerations. This is required by both the legal tests in the Bill and public law duties. This is the case when he decides whether to call in an acquisition of control; whether to impose interim orders or final orders in relation to such acquisitions; and what form those orders should take.
In particular, if existing controls under the export control regime already address any national security concerns arising from the acquisition of an asset, I am happy to confirm for my noble friend that it is unlikely that the Secretary of State would be able to call in that acquisition. As has been referenced by noble Lords, I commit that we will provide guidance on the interaction of the NSI regime with other relevant regimes, including export control, which will ensure that affected parties are clear on this point.
My noble friend also asked specifically about the Statement. I am happy to confirm that the Government will consider specific reference to export controls in it if we judge this to be appropriate following the consultation on the Statement. I thank my noble friend Lord Lansley for this suggestion.
I appreciate the intent behind these amendments, and I hope that I have finally given my noble friend sufficient reassurance on these matters not to press them.
My Lords, I think I heard the Minister say that the export control regime and the regime established by this Bill will be equal, rather than one being precedent to the other. The noble Lord, Lord Lansley, quoted a White Paper which very clearly set the export control regime as having precedent over this regime. That is not what I heard the Minister say —so, in order of precedence, how does the Minister expect these two regimes, which I hope will be complementary and not conflicting, to work together?
I thank the noble Lord for that point. It is hard to give a black-and-white answer, because it would depend of course on the circumstances. Let us remind ourselves what the difference is. The export control regime, which is the licensing regime for certain controlled goods, is one important part of the safeguarding of our national security, and, of course, it sits well alongside the national security and investment regime. The two regimes are distinct and do not perform the same role. To give an example to clarify that, the export control regime does not provide the Government with the ability to scrutinise acquisitions of UK companies or the ability to direct the use of sensitive assets used in the UK, whereas the NSI regime would. In a nutshell, the precedence between these two regimes must and will depend on the circumstances that are being covered.
I thank your Lordships for this very short but useful debate—useful not least in assisting those who will be affected by the regime. I am grateful to the noble Lords, Lord Grantchester and Lord Fox, for their contributions.
The point about the White Paper and the commitment to use the export control regime primarily to deal with national security risks relating to the export of these assets, and specifically the qualifying assets, is that the export control regime sets specific limitations on the export of specific items to specific persons and places. It is very targeted in that sense. As the Minister says, it does not bear upon the question of control of entities or the overall ownership of assets, so there is a compelling need now for this new regime; it just does not need to reproduce or trespass upon those things that are being achieved through the export control regime. That is what I understood the White Paper to say, and I understood the noble Lord, Lord Fox, to be asking for that to continue to be the expectation.
I hope that Ministers will make it very clear to those affected that, where they have a compliance regime in place for export control, that will continue to be sufficient for the purposes of the management of qualifying assets, because Ministers have made it clear that rarely would they expect to invoke the national security investment regime in relation to specific assets. It is really targeted on the ownership and control of entities and, by that route, the ownership and control of large-scale assets. I am sorry to have had to explain that again, but I do hope that Ministers will take it on board.
I am most grateful to my noble friend for going further than we were able to go in Committee, and, in particular, returning to Amendment 1, what he was able to say about the Statement under Clause 3 and the additional guidance has moved us on quite a long way from where we began. I am most grateful for that, and I beg leave to withdraw Amendment 1.
Amendment 1 withdrawn.
My Lords, I apologise for speaking to two groups in a row. It is how chance would have it with the structure of the Bill.
Clause 6 of the Bill is where there is a definition of “notifiable acquisitions”. This is linked to Clause 8, which sets out the circumstances in which entities come under the control of a person, and the link between these two, as I understood it, was that if somebody takes control of an entity by any of the routes described in Clause 8, that acquisition would be notifiable under Clause 6 if it relates to a sector in scope of the mandatory regime. Therefore, I was slightly surprised that the cases presented in Clause 8 relate, in the first three instances, to shareholdings in total, or voting rights. My noble friend Lord Leigh has secured a notable concession from the Government, which he will no doubt refer to in a moment—actually, he may not, looking at the list—that secured a change. However, on his behalf I thank Ministers and I congratulate my noble friend on securing that change in the Bill in relation to shareholdings over 15%. It is a sensible shift.
However, I was looking not at shareholdings or voting rights but material influence, as defined under the Enterprise Act 2002. On the face of it, it seems that if one acquires control by virtue of material influence over an entity, why would that not also come under the Clause 6 requirement that it be a “notifiable acquisition”? In a very helpful exchange of correspondence, Ministers have explained to me that their intention is that the mandatory regime should apply only where those affected can be very clear that there is a mandatory notification requirement. Material influence, by its nature, is a less clear test. It is a subjective test and of course it can vary dramatically over time. It is much better, in the view of Ministers, that it should be governed by the voluntary notification regime or the Ministers’ power to call in if they are concerned, rather than by requiring everybody who acquires material influence over a sensitive entity to notify any change of material influence. They have explained that to me and I am very happy—so, in that sense, I am not pushing Amendment 2 any further.
I suppose the point of this short debate is to enable Ministers to explain that point, because otherwise, of course, people could fall into exactly the same confusion that I did: namely, is it control or not? The answer is that, where material influence is concerned, it may be control of a kind—you may be able to influence the policy of an entity—but there should then be a subjective question in the mind of somebody who acquires that kind of influence over the policy of a relevant entity in scope of the regime, and they should think that they should make a voluntary notification rather than being required to make a mandatory one. It does not take them out of the regime, but it changes their interaction with it. I am content that the Bill achieves that, but it is useful to explain that to those who might be affected. Otherwise, I very much welcome the government amendments in this group, and for the moment, I beg to move.
My Lords, since this is the first time I have spoken at this stage of the Bill, I add my thanks to those of my noble friend Lord Lansley to the members of the ministerial team and the Bill team for the time they have given and the meetings we have had to clarify and sort out the delicate balance we are all trying to achieve and the changes being made, which are part of the amendments in this group.
I will focus my remarks on Amendment 8, which returns to whether minority investor veto rights automatically bring the investment in question into the provisions of the Bill. It was an issue I addressed in Amendment 29 in its previous incarnation, along with Amendment 72. I found the Government’s arguments about Amendment 72 entirely convincing, so I have not retabled it, but I am not able to say the same about the response I received to Amendment 29, so I have retabled it and have discussed it with the Law Society, which seems similarly confused.
This is important because if we do not get clarity on this issue, there are at least two possible consequences: a potentially large increase in the number of voluntary notifications required, so further straining the system which the department is setting up, and/or a deterrent effect on people’s readiness to invest in the defined sectors of our economy.
I explained in Committee that a private equity investment essentially has two parts. There is the purchase of the shares, which will take place under the standard provisions of the Companies Act, and that is where the control of the entity lies. In parallel, it will be supplemented by a specially drafted, custom-made investment agreement. This is an agreement which both parties—the investee company and the investor—hope will be put into a drawer and never looked at again but, life being what it is, disagreements take place and the agreement is therefore essentially a protective device for the investor against malfeasance or bad performance by the managers of the company. The Minister needs to understand that it is essentially an agreement about corporate governance, not corporate law, which is how the company is controlled. That investment agreement is likely to require the investor’s consent to a number of major issues, such as approval of the budget, major capital expenditure proposals and so on.
When I describe it like this, it can be seen that these are protective provisions, not proactive initiating ones, but although they are protective, they are extensive, and this is where the use of the words “substantially all” in Clause 8(7) becomes significant. If that is the case, the Bill appears to bring within its ambit a range of private equity investments where the new investor has taken a minority position. It might be assumed that the new investor will be taking a minority position for malfeasance reasons, but there are a large number of reasons why private equity houses do not wish to buy 100% of a company. It may be that the existing management will not sell more than 50%. It may be that the new investor wishes the continuing management to have a real incentive to do well, and therefore likes it to have a larger stake. Last but not least, it may be that the investor has a maximum size of investment he can make and that determines the percentage that the investor can hold. So if you have an investor who can put up only £40 million and the company is worth £100 million, it can take only 40% because that is how the maths work out.
The new investors who are in a minority position need additional protections, and if they can obtain those protections only after making a notification then there are these consequences of more voluntary notifications and some diminution in the attractiveness of the sectors covered by the Bill. That does not seem a desirable outcome.
I have said that significant changes to a company’s status come about not from the investment agreement, but as a result of passages of ordinary or extraordinary resolutions under the Companies Act. Amendment 28 is therefore designed to remove some of the wording of Clause 8(6), which is untried, untested and, at least in the view of a number of law firms, open to interpretation, and replace it with company law provisions with which everyone is familiar.
When winding up the debate on this amendment on 9 March, the Minister said, “I believe that his”—that is my—
“intent is very much to seek to exclude acquisitions of minority veto rights from constituting trigger events.”
So far, so good. He then went on to say:
“However, the Government consider that the Bill already achieves this goal to some extent”—[Official Report, 9/3/21; col. GC 637-38.]
because of the provisions of subsection (7). That is the heart of the matter. The concern of the Law Society and others is that the Bill creates uncertainty where no uncertainty need exist. That uncertainty can easily be dispelled if we use familiar company law concepts.
To summarise, I argue that if no change is made to guard against these uncertainties, legal advisers to private equity investors can be expected to take a belt-and-braces approach and suggest that on all occasions a voluntary notification should be made. When he comes to reply, I invite the Minister either to say that the Government believe that minority investor rights are not covered by the Bill so that we are all clear about that or, if he cannot say that, to please agree to take a further look at it to try to create certainty and dispel uncertainty, and therefore further ensure that we get the right balance between personal property rights and the nation’s security.
My Lords, I shall speak to the Government’s amendment and to Amendment 8 in the name of the noble Lord, Lord Hodgson, but, as regards Amendment 2, the questions raised by the noble Lord, Lord Lansley, are valid and it is rather inexplicable that that subsection of Clause 8 is not included in Clause 6.
When we debated the thresholds for the trigger for mandatory notification, the noble Lord, Lord Leigh—I am sure he will get many tributes today for having pushed the envelope and succeeded in having the Government agree with him—raised issues about 15% versus 25%. The principal arguments were that keeping it at 15% would result in a huge number of notifications, the vast majority of which would not give rise to national security concerns, which would place a significant administrative burden on the new investment screening unit, and that that the current filing threshold of 15%, as set out in the Bill, is significantly below the threshold used in a number of other major foreign direct investment regimes such as France, which requires 25%, Australia which requires 20% and Canada which requires 33.3%. I am delighted that the mandatory notification threshold has been increased to 25%, which was the threshold set out originally in the White Paper. I think the Government’s reversion to their original intent is very much to be welcomed.
As regards Amendment 8, tabled by the noble Lord, Lord Hodgson, not having practised company law for many years now, I can only admire his forensic ability in setting out exactly why we need greater clarity under that provision. He has illustrated that the current language does not provide that level of clarity. In his words, it does not dispel uncertainty, but the language in his Amendment 8 certainly would. I believe it is only in the Government’s and the ISU’s interest to acknowledge that, and I very much hope the Government will accede to his request to provide clarity, either by accepting his amendment or by giving assurance that they will look at it further and take that forward at Third Reading.
My Lords, I rise to speak for the first time on this Bill. I declare my interests in the register as a director and former director of a number of companies, although none is obviously affected. I have not spoken until today because I support this Bill, and it has been making good progress without any help from me and with the forensic assistance of my noble friends Lord Lansley, Lord Hodgson of Astley Abbotts, Lady Noakes, Lord Leigh and others right across the House.
There has been a succession of regrettable takeovers of UK jewels in recent years without proper scrutiny by the authorities. The SoftBank raid was the most egregious, yet it was welcomed by the then Chancellor. ARM—my favourite firm when I was Intellectual Property Minister, if I may now say so—was the world’s leading chip maker, headquartered relatively modestly in Cambridge and run by the talented Warren East, who must look back with pleasure to that time. Allowing its subsequent takeover was a serious mistake for UK interests.
This Bill is concerned primarily with security, so I suspect it would not have caught another controversial deal, that of Kraft/Cadbury, though it would have been useful had that too been caught. That example highlighted the fact that it is not only jobs but both R&D spend and cultural support that tend to go with the head office of a company or group.
Decades of such highly leveraged deals have contributed to damage in this respect. Think of aerospace pioneer Cobham and satellite service provider Inmarsat. As an aside, how lucky those of us who have benefited from its vaccine are that AstraZeneca held out against Pfizer a few years ago. We ought to have powers to prevent such a proposal if it arose again and was not in the UK interest. The powers in this overdue Bill should, among other things, slow the sale to overseas interests of companies engaged in tech and biotech, as well as emerging forms of AI and intellectual property.
My concern today is not with the Bill but with government Amendment 3 and its associated provisions, which, as we have heard, raise the threshold, from 15% to 25%, at which investors are required to notify the Government of their deals. I know this is done for apparently good reasons, summarised by the noble Lord, Lord Clement-Jones—notably to avoid needless blockages and queues of deals awaiting approval in the new unit at the Department for Business, Energy and Industrial Strategy, my old department—but I believe it is the wrong call. No doubt the ARM deal would have been caught by the new rules anyway, but less radical deals might not. I believe that it would be better to invest more in administration at the business department, to keep the threshold as it is and to improve the incentives to discipline and speed in processing of applications.
This is such an important matter for our future that we should not skimp on the new unit, which should be staffed by top people with the ability to work at speed. My noble friend Lady Noakes and others have rightly expressed concerns on this score, which I will support later. It would be a tragedy if this new Act were undermined by administrative inadequacy.
If we are to flourish in this more competitive and dangerous world, we need to prevent British science, technology and intellectual property leaving these shores without anyone noticing or reviewing it. We need thorough scrutiny of the deals identified in this Bill, so, for me, Amendment 3 goes too far and I would find it difficult to support the Government if the House chose to divide.
My Lords, I am delighted to speak on Report. I congratulate my noble friend Lord Leigh on raising this persistently and so eloquently at earlier stages of the Bill. I congratulate my noble friend the Minister on listening to and acting on the concerns expressed across the House at that stage by bringing forward the amendments that he has today.
I particularly associate myself with Amendment 8, to Clause 8, in the name of my noble friend Lord Hodgson of Astley Abbotts. I would like to press the case a little further with my noble friend the Minister and ask that we pause for a moment at this stage and ensure that we are not going to scare off potential large investors with an increase in referrals that perhaps could not be managed or see a deterrence to potential investment, therefore possibly damaging the economy.
The way in which I would like to press my noble friend the Minister follows on from what my noble friend Lady Neville-Rolfe said in her opening remarks just now as to what extraneous factors may be taken into account that could damage potential investment in this country. Those further factors that I ask my noble friend to rule out have been put forward at earlier stages by the Law Society of England, which I supported in Committee and repeat in connection with Amendment 8 here.
Can my noble friend clarify and give greater certainty as to what constitutes national security? Will he specifically rule out extraneous factors such as employment effects, reciprocal investment and trading opportunities in other jurisdictions and a desire to protect UK business from international competition as factors that would be taken into account when assessing whether a trigger event would give rise to a national security risk? In terms of Amendment 8 and our earlier discussions, it would give clear guidance to those practitioners at this stage if we could rule out that those extraneous factors would ever constitute a potential national security risk.
My Lords, we have had a short and interesting debate. Speaking to Amendment 2, the noble Lord, Lord Lansley, has as ever uncovered an incongruity in the way the Bill is drafted. I suggest the Government are wise to listen to his advice. Similarly with Amendment 8, there is a need for clarity for people. Where do they stand on this issue? That is all people deserve when trying to manage their affairs.
We then come to the extraordinary intervention of the noble Baroness, Lady Neville-Rolfe. It is a shame that she was not around to give a Second Reading speech, which perhaps might have guided us through some of our decision-making, and arrived only at this late hour to offer her help. I suspect that, had she involved herself a little earlier, she might have been less concerned with the issues than she is now. For fear of doing the Minister’s work for him, I ask him to confirm that the regime retains the right to call in deals that are less than 25% at any time. The notion that there are deals that the regime may not see is one of the points inferred by the noble Baroness, Lady Neville-Rolfe.
This is the point: the unit has to be sufficiently resourced and efficient in its work to be able to pick these issues up. We shall talk later about where it gets its information and how the security guidance is fed in, because that comes under another group of amendments. However, with all the issues coming through, the point is how well the regime is actually operated; the noble Baroness, Lady Noakes, has mentioned this on many occasions. That will be the rub, in terms of how business will be affected by the Bill. The more the Minister can reassure us that the resources will be there to deliver this, the happier most of us will be.
My Lords, we remain committed to the principles of the Bill, and join others in thanking the Minister and his team for the way they have conducted discussions with us to resolve any issues on the Bill. One of the issues that remains involves the extensive adventure of the unit into the business environment. In Committee, my colleague and noble friend Lady Hayter introduced an amendment to delete Clause 6(2)(b), and asked why the Government wished to make subject to mandatory notification all acquisitions that resulted in only a minimum 15% stake in an entity. We consider that disproportionate. The noble Lord, Lord Leigh, also spoke passionately on the point, as did several other noble Lords. My noble friend apologises because, understandably, she cannot take part in these proceedings today.
However, it is to be welcomed that the Government have heeded the concerns about the unnecessary impact on businesses and the largely intrusive workload for the new ISU section in the department. Government Amendment 3, together with the consequential amendments in this group, would remove the 15% threshold for notifiable acquisitions from the regime. Throughout the proceedings on the Bill, we have been concerned about the impact on businesses, especially in the SME sector, and the huge workload that the Bill would create. That government concession goes a long way towards meeting those concerns.
The Government will still be able proactively to call in transactions involving acquisitions under the 25% threshold of shares or votes if such an acquisition could be deemed to result in “material influence”. However, the ISU would be notified only of transactions most likely to raise national security risks in the most sensitive sectors of the economy. This is plainly sensible. The removal of the 15% threshold will also remove unnecessary impediments to investments in smaller start-ups and enterprises, which might have concerns about hitting the 15% threshold.
Initially the Government reckoned that the new screening regime would result in about 1,800 notifications per year. We expressed scepticism at that estimate, as did several others, including the CBI. Whatever would have been the result, have the Government now recalculated how many notifications the department is likely to receive, having deleted the 15% threshold? I would be grateful if the Minister could give the House the new figure, with any further explanations as to its determination. It would be useful to reflect on it, in the light of the experiences of the unit that are to come.
I am grateful, too, to the noble Lord, Lord Hodgson, for his Amendment 8, which redrafts Clause 8(6). I understand very well the point he is making, and I await the Minister’s reply.
I am grateful to noble Lords for an interesting debate, and I am particularly grateful to my noble friends Lord Lansley and Lord Hodgson for their respective amendments in this group concerning the scope of the regime. I will turn to those in a moment, but let me start with a few remarks on the amendments in my name.
Debates on the Bill, both in this House and in the other place, have reflected that there is a strong degree of cross-party consensus on its underlying principles. I am grateful to the Opposition for making that clear. All sides agree that reforms are necessary to keep the country safe and to bring our investment screening powers in line with our friends and allies. There has also been a shared recognition that the requirements of the mandatory regime must be no more than are necessary and proportionate for the protection of our national security, so that business and investment are not unduly burdened or stifled.
The noble Lord, Lord Fox, put it well in Committee when he reminded us that the clue is in the name. This is the National Security and Investment Bill, and it is vital that we secure both these interests. To that end, the Government have reflected carefully on the scope of the mandatory regime and, in particular, on the comments made by a number of noble Lords in Committee on the 15% starting threshold. I pay particular tribute to the noble Baroness, Lady Hayter, who raised this—and who is, I am pleased to see, in her place, taking a break from her “get out the vote” campaign. Perhaps she would be better advised to be getting out the vote, but I am grateful that she has joined us. I am also grateful to my noble friends Lord Leigh and Lady Noakes, the noble Baroness, Lady Bowles, and the noble Lord, Lord Fox, who all spoke powerfully in support of her amendment.
The Government have concluded that the right approach is indeed to remove acquisitions between 15% and 25% from constituting “notifiable acquisitions”; Amendment 3 gives effect to this decision. We recognise that acquisitions between 15% and 25% will not result in material influence being acquired as a matter of course. Indeed, in many cases, we anticipate that material influence will not be acquired. We have always sought to ensure that the mandatory regime is reasonable and proportionate, and this is an important change, which I believe businesses and investors alike will welcome. I hope that it will reduce the business burden and allow the investment security unit to focus on notifications and cases that will necessarily result in control being acquired.
Let me make two further points on this amendment. First, there may be some noble Lords—my noble friend Lady Neville-Rolfe was one, I believe—who will say that this is a weakening of the regime. Let me explain why I do not believe that that is the case. As the noble Lord, Lord Fox, pointed out, the Secretary of State will continue to be able to call in acquisitions across the economy at or below 25%—and, indeed, if necessary, below 15%—where they reasonably suspect that material influence has been or will be acquired. That call-in power will be available up to five years after an acquisition takes place, so the incentive for parties to notify cases of material influence that may have national security implications remains, in order to achieve deal certainty. The five-year period also provides the Government with a significant window to identify acquisitions of concern and for the Secretary of State to call them in for scrutiny.
Secondly, the Clause 6 powers enable the Secretary of State to amend the scope of the mandatory regime through regulations. Notwithstanding this amendment, that would include the ability to introduce, if necessary, a 15% threshold or, indeed—assuming the will of Parliament, of course—any other threshold that would be relevant to determining whether a trigger event would take place, for mandatory notification in future if that is considered appropriate. The Government do not currently envisage doing so, but I am sure that noble Lords will agree that it is important that the Bill provides the power to do so, subject to the will of Parliament, if the evidence of the regime in practice suggests that this matter should be revisited. I hope that that reassures my noble friend Lady Neville-Rolfe.
Amendments 4, 5, 10 and 21 are all consequential amendments that reflect the removal of the 15% threshold, so I do not intend to dwell on them further.
I now turn to the other amendments in this group. Amendment 2 in the name of my noble friend Lord Lansley would make the acquisition of material influence a notifiable acquisition. I have to say that, in his speech, my noble friend did such a good job of advocating for the Government’s position on his own amendment that perhaps we should welcome him back to the Front Bench at some stage; actually, he would probably make a better job of it than me.
The Government do not consider that broadening the scope of the mandatory regime to material influence would be appropriate. The mandatory regime, given that it is underpinned by voiding and criminal and civil sanctions, must be defined with sufficient certainty for acquirers to determine their obligations objectively.
Material influence is, by its very nature, subjective and will depend on the facts of an individual case. The level of shareholding, the number of board seats, the other rights to be acquired, and the status and expertise of the acquirer are all examples of the factors which will be relevant to whether material influence will be acquired. The regime must, of course, enable the Secretary of State to be able to call in such cases where they may pose a national security risk, but that is clearly a different proposition from mandatory notification.
Amendment 8 in the name of my noble friend Lord Hodgson seeks to narrow the third case of control in Clause 8 to protect minority rights. The third case currently captures the acquisition of voting rights in the entity that enable the person to secure or prevent the passage of any class of resolution governing the affairs of the entity. His amendment would mean that acquisitions of such voting rights would be captured only if they enabled the passing or prevention of a resolution in respect of any matter governing the affairs of the entity that is equivalent to a matter that can be passed by ordinary or special resolutions under the Companies Act 2006. I listened carefully to my noble friend’s comments on this matter during Grand Committee, but the Government continue to consider that the Bill already broadly achieves his aim.
I take the example of where a person acquires preferred shares which provide the ability to prevent a resolution of that class of shares in order to protect their investment or minority rights and does not provide the ability to vote on all or substantially all matters at a general meeting. This would not constitute an acquisition of control within the meaning of Clause 8(6), as subsection (7) sets out that a reference to voting rights is to the rights conferred on shareholders in respect of their shares to vote at a general meeting of the entity on all or substantially all matters. I emphasise to my noble friend that limited veto rights are unlikely—in our view—to meet that threshold so their acquisition would not be notifiable or, indeed, a trigger event at all. I hope that reassures my noble friend and that this amendment can therefore be withdrawn.
I have received a request to ask a short question for elucidation from the noble Lord, Lord Leigh of Hurley.
I suppose I should say that modesty had forbidden me from putting my name down for this group. I wanted to have a point clarified and to thank the Government for listening to the Back-Benchers. I think it was fairly random that I took the 15% point: I cannot remember how it was allocated. I thank the Minister for listening to the many people who made representations.
In respect of the point from the noble Lord, Lord Lansley, about the fourth case—Clause 8(8)—we debated this and I think I raised the question at the time as to what influencing the policy of the entity means. To return the compliment to the Government, I agree with them in this instance because if we had Clause 8(8), I can see a lot of discussion and debate as to the meaning of enabling a person to materially influence “the policy”. We discussed the meaning of this at length. I return the compliment and agree with my noble friend the Minister.
My Lords, it has been a helpful debate, not least from the point of view of helping those—I imagine that over time, there will be more of them than we imagine—who will look back and ask what the intentions were behind the Bill as it was brought forward. If I perhaps can say by way of comfort to my noble friend Lady Neville-Rolfe, the point that we have discovered going through the Bill is that there are two tracks here—I confess that my Amendment 2 was tabled originally not quite getting that point. First, there is mandatory notification, which is required in respect of a notifiable acquisition, so the definition of notifiable acquisition needs to be specified very clearly. Then there is voluntary notification but also the power of Ministers to call in any transaction. That is precisely the point that the noble Lord, Lord Fox, made very clearly and which my noble friend on the Front Bench reiterated.
The common theme here is that taking out the 15% threshold and, indeed, not including the material influence test in notifiable acquisitions, means that it is not subject to a mandatory notification requirement. As my noble friend said, we should not ignore the fact that under Clause 13(1):
“A notifiable acquisition that is completed without the approval of the Secretary of State is void.”
The risk associated with an unclear boundary between what is notifiable and what is not is that potentially large numbers of acquisitions that should be notified are not and therefore those transactions are void. We do not want to arrive at that position. We want people who run the risk of their transaction being a notifiable acquisition either being captured by the mandatory requirement or voluntarily notifying. Frankly, for many people voluntary notification will probably be the better and simpler resort.
Taking out the 15% threshold does not mean, in any sense, that those transactions are taken out of the scope of the regime but simply means that they are dealt with within the regime in a more flexible manner than would be the case through the mandatory notification requirement. Some of the press reports I have seen about this slightly miss the point. This is not a hard-and-fast threshold. It is a threshold for mandatory notification, not voluntary notification. The regime still applies.
My noble friend very helpfully responded to my Amendment 2 in precisely the way that I anticipated and quite correctly and, on that basis, I beg leave to withdraw Amendment 2.
Amendment 2 withdrawn.
Amendments 3 to 5
3: Clause 6, page 4, line 17, leave out paragraph (b)
Member’s explanatory statement
This amendment has the effect of omitting a category of notifiable acquisitions from the scope of the mandatory notification regime, namely where a person acquires a right or interest in a qualifying entity such that their shareholding or voting rights in the entity increases from less than 15% to 15% or more.
4: Clause 6, page 4, line 22, leave out from “14(1)” to “would” in line 23
Member’s explanatory statement
This amendment and the amendments at page 4, line 42, page 8, line 30 and page 21, line 7 are consequential on the removal of Clause 6(2)(b).
5: Clause 6, page 4, line 42, leave out subsection (8)
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.
Amendments 3 to 5 agreed.
We now come to the group beginning with Amendment 6. Anyone wishing to press this, or anything else in this group, to a Division, must make that clear in debate.
6: Clause 6, page 5, line 3, at end insert—
“( ) In making regulations for the purposes of this section the Secretary of State must have regard to the risk to national security posed by climate change and to the role of qualifying entities and assets in mitigating that risk.”Member’s explanatory statement
This amendment would require the Secretary of State to have regard to the risk to national security posed by climate change when making regulations relating to notifiable acquisitions.
My Lords, at the very end of the third day of Committee your Lordships had a short debate around the impact of climate change on national security. On these Benches, our view is that this is still not considered appropriately by the Bill as it is currently drafted. Climate is also possibly missed in some of the 17 technologies; I guess we will have a chance to debate that when the detailed list arrives formally. Infrastructure issues are also somewhat neglected, as we have heard on some occasions, not least from the noble Baroness, Lady Noakes, opposite.
During that debate, I suggested that the best route might not be a lengthy definition of national security, which included a part for climate change. Rather, I suggested, something that focused on Clause 6 might be a better approach. This amendment is the response to that suggestion. Amendment 6 in my name would require the Secretary of State to
“have regard to the risk to national security posed by climate change”
when making regulations relating to notifiable acquisitions. I am grateful to the noble Lord, Lord Grantchester, and to the noble Baroness, Lady Bennett of Manor Castle, for their signatures and, of course, to my noble friend Lord Clement-Jones.
It is quite clear that climate change is already causing national security issues. We have only to look at climate-inspired migration crises, which are hitting many countries, and the related security issues that arise from that mass migration, to appreciate the nexus between these two issues. It is also clear that, when it comes to meeting these challenges, access to both technologies and the raw material to deliver those technologies are crucial to our national response to the climate change threat. Further, the ownership of key infrastructure which will, I hope, help to deliver a zero-carbon footprint will be a matter of concern going forward.
All of this could implicitly fall within the remit of the Bill, and I accept that. This amendment calls for a more explicit recognition of the potential for climate change—which, in my view, includes biodiversity—to affect national security, and that is what I am looking for from the Minister today.
The Minister has previously indicated his allergy to “have regard” amendments, notwithstanding the fact that there are such clauses in Bills that the Government have asked your Lordships to approve from other departments, so perhaps this allergy is simply reserved for the BEIS area. But, recognising this, I ask the Minister, and expect him to explain, why this amendment would contaminate this Bill, because the Government have voiced their concerns around climate change, and it is easy to make that connection in some cases.
At the very least, I think it is possible for the Minister to acknowledge that climate change and its influence will be one of the factors that should be taken into consideration when making regulations related to notifiable acquisitions. I think that he could find his way to confirming that the technology and raw material issues that I set out earlier would also be on the investment unit’s checklist, because they are important elements of national security. I remain hopeful that the Minister will be able to do that while, of course, retaining the option of putting my amendment to a vote. I beg to move Amendment 6.
Amendment 7 (to Amendment 6)
7: After “climate change” insert “and biodiversity loss”
My Lords, as this is my first contribution to Report stage of this Bill, I make reference to the Law Society briefing. In summary, it expresses concerns about the Bill’s lack of a clear definition of national security, the definition of qualifying entities and assets, and the procedure for voluntary and mandatory notifications— the whole Bill then. There are grave concerns about the degree to which this has been thought through, through no fault of anyone here in this debate—a small number of people have put in a huge amount of often detailed work. On this point, it is right to note how appropriate it is that the noble Lord, Lord Lansley, opened the debate on Report. I ask noble Lords to forgive me if anything in my speech today is unclear, since I am still in recovery from a minor bit of dental work this morning.
I speak now to Amendment 6 in the names of the noble Lords, Lord Fox, Lord Clement-Jones and Lord Grantchester, to which I have attached my name, making it truly cross-party. It requires the Secretary of State to have regard to the risk to national security posed by climate change when making regulations relating to notifiable acquisitions. I also beg to move Amendment 7 and speak to Amendment 38 in my name. Amendment 7 adds “biodiversity loss” to the matters posing a risk to national security that the Secretary of State must have regard to when making regulations relating to notifiable acquisitions. Amendment 38 in some ways ties this all together, along with other matters, stating that:
“Within 6 months of the passing of this Act the Secretary of State must publish a statement which outlines how provisions in this Act will align with the United Kingdom’s long term security priorities and concerns which have been identified in the Integrated Review of Security, Defence, Development and Foreign Policy.”
That amendment is a repeat of an amendment in Committee—tabled by the noble Baroness, Lady Hayter of Kentish Town, and signed by the noble Baroness, Lady Northover, and myself—which has been only minorly updated to take account of the publication of the integrated review.
In introducing this group, the noble Lord, Lord Fox, has already spoken clearly and eloquently on the way in which the climate emergency is a national security issue. I note his focus on the list of technologies, which he has kindly offered to work with me on. I have not yet managed to get to that, but I will, and I very much appreciate his offer. I can also go to the Prime Minister’s foreword to the integrated review, which states:
“Her Majesty’s Government will make tackling climate change and biodiversity loss its number one international priority.”
I know that there are now few Members of your Lordships’ House who would at least actively deny the issue of the climate emergency. That does not include, I hope, any members of the new Environment and Climate Change Committee. Therefore, I will focus my remarks primarily on Amendment 7, which adds the concern about biodiversity to that of climate change. I might for completeness have made this amendment refer to planetary limits as a sustainable development goal-informed way of addressing the multiple national security threats from environmental degradation, social inequality and poverty, but this is at least a step along the way towards genuine systems thinking in our legislation.
I am aided by the publication this morning of a report in the journal Frontiers in Forests and Global Change, which finds that just 3% of the world’s land remains ecologically intact, with healthy populations of its original animals and undisturbed habitats. Previous estimates had been as high as 20%—now 3% of land is in decent, original condition. The more we come to understand about this planet, of which we still have so little knowledge, the more that the damage that we have done becomes evident. Those fragments of wilderness undamaged by human activities are mainly in the Amazon and Congo tropical forests, eastern Siberia, northern Canadian forests and tundra, and the Sahara. None of those is in the UK. Indeed, the UK ranks as one of the most naturally degraded nations on the planet, at 189 out of 218 nations in the independent State of Nature report. Restoration of land—for example, our upland peatlands—is something that our security very clearly depends on, whether in terms of climate, flooding or biodiversity. But, of course, there are British companies that are likely to have influence on the remaining untouched 3% of our landmass.
None the less, I can almost feel from a distance some Members of your Lordships’ House bristling, “What does this all have to do with national security?” I would argue that there is nothing more crucial to human security—national security—than the state of nature, including the state of our climate. If noble Lords do not want to listen to me, they might want to listen to the Nobel Peace Prize committee, which gave its award to the environmentalist Wangari Maathai back in 2004. Of course, she was most famous for tree planting. To make the obvious point, the very air you breathe today, the existence of life on this planet, is due to the process of photosynthesis in plants—due to nature. All the food that we eat also depends on that very same process, and it is the source of the genetics of all our current crops.
I briefly cite another recent academic study, in Global Change Biology, which demonstrates how existing crops have been greatly damaged by decades of industrial agriculture and breeding for yield, not resilience, and highlights the need to retain and support wild relatives of crops as a source for future cross-breeding to restore them. Or, to focus on something that your Lordships’ House must have at the forefront of its mind, there is also the massive ongoing threat of the SARS-CoV-2 virus. That emerged out of disturbed nature—the zoonosis threat that all the experts tell us is accelerating because of our destruction of nature.
Finally, I return to Amendment 38, which calls for a report in six months’ time on how this Bill relates to the integrated review. Again, we are talking about systems thinking, joining up different parts of government, seeing how they fit together and subjecting that to democratic scrutiny and oversight. We will debate that review next week, so I will not venture here in depth, but lots of the commentary on it has said that it identifies the problems clearly but fails to make choices between difficult alternatives—something that this amendment could help with in creating an opportunity for the House to consider those and to force the Government to confront them.
It is not my intention to test the opinion of your Lordships’ House on these two amendments. There will be ongoing debate and discussion, but I am confident that we will see climate change, biodiversity, sustainable development goals and systematic joined-up thinking at the absolute heart of our national and international security in future. I very much hope that in the future, we will look back and see that we made the right choices today, because there is no doubt at all that, in the climate emergency and the biodiversity crisis, we are right at the crunch point where action is needed.
My Lords, in Committee we debated the climate emergency as the most pressing issue that affects every aspect of everyday life. The climate crisis is not only a threat in the long term to our survival and that of the planet but a threat to security in the short to medium term. According to the Government’s own statistics, nature loss will result in a cumulative economic cost of up to £10 billion between 2011 and 2050. While the Minister may say that climate change is not directly connected to the national security and investment regime proposed in the Bill, actions by hostile actors that stifle our modern green infrastructure can only make us more vulnerable. As the former civil servant Paddy McGuinness has recently said, green networks
“provide an attractive opportunity for an adversary to unbalance, intimidate, paralyse or even defeat us."
I am grateful to the noble Lords, Lord Fox and Lord Clement-Jones, and the noble Baroness, Lady Bennett, who have returned with simple “must have regard to” wording in Amendments 6 and 7 regarding climate change and biodiversity loss. Of course, all Governments will have regard to all legislation on the statute book that impacts on our activities and lives. Nevertheless, it is imperative that the risks of climate change be recognised in the new regime being initiated through the Bill, and the Secretary of State must consider how to mitigate these deepening risks.
I am grateful to the noble Baroness, Lady Bennett, for retabling our Amendment 38 from Committee, which asks for a statement to be made on emerging threats in the light of priorities identified in the Integrated Review of Security, Defence, Development and Foreign Policy. It allows me to follow up with some further questions on the integrated review and its associated documents.
Can the minister provide an outline of how the ISU will work effectively with the MoD directorate for economic security? It is all very well to say that the ISU will be drawing on the expertise in the MoD and the Defence Secretary will be able to make representations to the Business Secretary, but what mechanisms will be set up to co-ordinate across departments? Will there be a mechanism whereby the MoD directorate can give advice directly to businesses in a defence and supply chain through policies initiated from the ISU in the business department, especially in connection with technologies and future associated threats? It would be helpful if the Minister could respond or follow up with a letter in due course.
I am grateful once again to the noble Lords, Lord Fox and Lord Clement-Jones, and the noble Baroness, Lady Bennett—I am particularly grateful that she has joined us after her dental work and of course we wish her a speedy recovery—for their respective amendments in this grouping.
With the permission of the House, I will take Amendments 6 and 7 together. Amendment 6 seeks to require the Secretary of State to
“have regard to the risk to national security posed by climate change”
when preparing secondary legislation under Clause 6 in relation to the scope of the mandatory notification regime. Amendment 7 then seeks to amend Amendment 6 to require the Secretary of State to also have regard to the risk to national security posed by biodiversity loss.
I commend the sentiment of the amendments regarding tackling climate change. As I set out in Grand Committee, this Government are of course committed to tackling the climate crisis. I can also confirm, in response to the amendment of the noble Baroness, Lady Bennett, that, just as the Prime Minister has said in his foreword to the integrated review, biodiversity loss very much sits alongside that as the UK’s top international priority. The Government continue to promote co-operation on climate action through the UK’s G7 presidency, and we look forward to the COP 26 conference in November, which will allow us to highlight our leadership in tackling the climate crisis, including biodiversity loss.
However, the Bill is focused on the risks to our national security posed by the acquisition of control over qualifying entities and assets. As the noble Lord, Lord Fox, correctly predicted, we are therefore unable to accept amendments seeking to set out what is or is not a factor to be considered when looking at national security, including factors relating to climate change and biodiversity loss, without edging closer to defining it—which, as he knows, we are reluctant to do. I hope that having my comments on the record in response to these issues provides due assistance to noble Lords. I can further reassure them that, as drafted, the Bill provides the flexibility for the Secretary of State to consider all types of risk to national security that are relevant in the context of this regime, including those that are environmental in nature.
I thank the noble Baroness, Lady Bennett, for her Amendment 38, which seeks to ensure that the national security and investment regime is consistent with the recently published integrated review. I note that a similar amendment was tabled in Grand Committee by the noble Baronesses, Lady Hayter and Lady Northover. However, whereas that amendment asked for a report
“as soon as reasonably practicable”,
the noble Baroness, Lady Bennett, has opted for “within six months”. As noble Lords will be aware, the integrated review provides a comprehensive articulation of the UK’s national security and international policy. It outlines three fundamental national interests: sovereignty, security and prosperity.
I understood the benefits of an amendment in Grand Committee when the Government had not published the integrated review but, now that we have, the alignment is clear for all to see. For example, the NSI will be tremendously valuable in countering state threats, in maintaining the UK’s resilience and in helping us to work with and learn from our allies, to name but a few areas of alignment. Indeed, as noble Lords would expect, this Bill is explicitly referenced within the review.
As noble Lords will know, the National Security and Investment Bill will prove a key tool in enabling the UK to tackle its long-term security concerns and pursue its priorities. The Bill will create carefully calibrated powers for the Secretary of State to counteract concerns around acquisitions and the flexibility to respond to changing risks and a changing security landscape. As part of this, the regulation-making powers in the Bill allow the Secretary of State to keep pace with emerging threats as they arise, such as by enabling them to update the sectors covered by mandatory notification.
Therefore, for the reasons that I have set out, I do not see a strong case for the amendments and I very much hope that their proposers will feel able to withdraw them.
Amendment 7 (to Amendment 6) withdrawn.
I thank noble Lords for that debate and I thank the Minister for his response. It was entirely predictable, as I think the noble Lord, Lord Lansley, who has just slipped out, said when we discussed the previous group.
What I heard the Minister say—
“types of risk … including those that are environmental in nature”—
was slightly more explicit than what is in the Bill. My sense when the Minister talks about long-term security is that the technology needed to maintain or further our fight against climate change will increasingly become a long-term concern. I suspect that this unit will find itself embroiled in calling in transactions that indeed concern the environment because they deal with technologies that are environmental in nature.
I will think again on this issue, and obviously I will read Hansard to make sure that I have got the words correct, but in the meantime I beg leave to withdraw the amendment.
Amendment 6 withdrawn.
Clause 8: Control of entities
Amendment 8 not moved.
We now come to the group consisting of Amendment 9. Anyone wishing to press this amendment to a Division should make that clear in debate.
9: Clause 8, page 6, line 38, at end insert—
“( ) For the purposes of this Act, a person does not gain control of a qualifying entity if the person acquires a right or interest in or in relation to the entity—(a) solely by way of obtaining security; and(b) in a situation where they obtain no effective control.”
I thank noble Lords. Amendment 9 is self-explanatory:
“Clause 8, page 6, line 38, at end insert—
“( ) For the purposes of this Act, a person does not gain control of a qualifying entity if the person acquires a right or interest in or in relation to the entity—
(a) solely by way of obtaining security; and
(b) in a situation where they obtain no effective control.”
The purpose of this is to ensure that transactions constitute a trigger event only where the person gains actual control of a qualifying entity and, very specifically, to exempt Scottish share pledges or other situations where no effective control is obtained. I moved a previous amendment in Committee, and I thank the Law Society of Scotland, which has drawn this matter to my attention. I thank both Ministers, the noble Lords, Lord Callanan and Lord Grimstone, for engaging with me, the noble Baroness, Lady McIntosh, and representatives of the Law Society of Scotland to discuss this issue, which the Law Society still feels has not been satisfactorily addressed by the Government. Obviously, this amendment would be an attempt to ensure that it was.
There is a particular point about Scots law. The amendment is intended to exclude a situation whereby the sole fact of pledging shares in security, under Scots law, would be classed as a trigger event. A Scottish shares pledge does not allow a security holder to exercise effective control over the relevant shares in a Scottish company. The primary concern is that the current proposal suggests that a trigger event would take place in a situation where no control has in fact passed. The Ministers will be aware that not only did we exchange very useful views in discussion in meetings— I repeat, we are grateful to the Ministers for engaging with us—but the Law Society president then wrote to the noble Lord, Lord Grimstone, copying in the noble Lord, Lord Callanan, to express the concern that there was still an outstanding issue that needed to be addressed. As set out in the letter, the Bill as currently drafted fails to align with clear statutory precedents for treating shares that are the subject of Scottish share pledges as still being controlled by the pledger. For example, there is the definition of “subsidiary” in Section 11(59) of the Companies Act 2006, as supplemented by paragraph 7 of Schedule 6 to that Act. That reference obviously comes from the Law Society and not from me. This would create a disparity between Scotland and England—that is the real concern —and could make it harder for Scottish companies to obtain loan finance, as well as disincentivising potential investors from establishing vehicles under Scots law.
The amendment would ensure that a trigger event was recognised at the point at which the transfer of control actually occurs. In doing so, it would enhance the ability of the Secretary of State to carry out a national security assessment and impose any safeguards, but at the most appropriate point.
The Law Society, very helpfully, has set out a hypothetical example reflecting what it would say is a common, real-life scenario. For the purposes of this, it is control over company C which gives, or may give, rise to national security concerns. The situation is this: company A is seeking to raise finance, by way of a loan, and approaches bank B. Bank B agrees to lend the money against security over the shares held by company A in its wholly owned subsidiary, company C. Under current Scots law, the only way to obtain fixed security over shares is by way of a share pledge, with the shares being transferred to bank B or its nominee. As such, it can be said that bank B holds the shares, as per Clause 8(2)—that is, the bank holds 100% of the shares in company C. However, holding the shares in this scenario is not ownership in the true sense, and does not give the security holder effective control. Bank B will be unable to sell the shares, has no right to be paid dividends, has an obligation to immediately retransfer the shares on the money secured being repaid and, most importantly, will be unable to exercise voting rights, other than in conformity with company A’s wishes. In practical terms, company A therefore remains in full control of company C, and bank B is not, in fact, in a position of control.
In the previous debate, Schedule 1 was acknowledged and it appears to address the issue, recognising a scenario where a person grants security over shares but continues to exercise de facto control. However, the clarification refers to rights attached to shares, rather than the holding of the shares. Therefore, it does not fully account for the different situation, where a lender becomes the registered holder of shares in security. That has been the case with a share pledge in Scotland and has been standard Scottish legal and business practice since the 19th century. This is different from English law because, by way of comparison, under an English charge over shares this situation just simply does not arise, because no formal transfer of the charge shares is required to perfect the charge. In the parallel English scenario, the same relationships of control or lack of control exist but—this is crucial—no trigger event is recognised. The disparity between the situations in Scotland and England is one of real concern, which has been highlighted. It is not only prejudicial to existing Scottish businesses, by increasing obstacles to obtaining finance, but risks making Scotland less attractive as a jurisdiction in which to establish a business vehicle. I do not need to remind your Lordships how important the financial services sector is to Scotland. Indeed, Scotland’s contribution to the UK economy is disproportionately large in this sector. So, in project financing, investors could prefer an English vehicle, if this makes it easier to obtain funding. The practical effect is that long-established Scottish legal and business practice is being treated adversely compared to its English counterparts. I am sure that is not the intention of the Government or Ministers, but that remains a continuing concern of the Law Society of Scotland.
Acquisitions will, of course, be notifiable only in relation to the listed sectors. However, it is not the notification requirement per se that poses the risk to the ability of Scottish business to access finance. As identified in the context of the PSC, lenders are reluctant to enter into arrangements that suggest that they have control over an entity when this is not the case. The breadth of the call-in power, the potentially broad scope of national security concerns, means that many transactions may be called in for up to five years after the event has taken place. This creates uncertainty, and uncertainty, of course, opposes a commercial risk. The potential for transactions to be called in after the event in other sectors, may ultimately have a greater impact by disincentivising lenders. I hope the House is clear that this is a point of real and substantive concern.
In real life, it is very unlikely that bank B would seek to appropriate the shares in company C, in the scenario I outlined earlier. The most common scenario, following an event of default, would be for bank B to notify company A that it was going to enforce the security, and then sell the share in company C to repay the debt. The sale of the shares in company C to another purchaser—purchaser P—would constitute a trigger event under Clause 5. There is also the potential that bank B would decide instead to retain the shares. Having given notice to company A, bank B would therefore, at that point, enter into control of company C, acquiring all voting rights, dividend rights and the ability to sell the shares. That is the point at which the trigger event should occur. Entering into control of the shares following a default could indeed be specifically recognised as a trigger event, but that scenario is already suitably covered by Clause 8(2).
In a situation where company C falls within one of the 17 listed sectors, bank B’s acquisition of control would be recognised only if the appropriate notification had been given. In a situation where the Chancellor was not compulsorily notifiable, the five-year call-in period would begin to run at the point bank B assumed control. This could give the Secretary of State a longer timeframe in which to assess any risks posed by ownership of the shares vested in bank B. Notice of bank B’s interest would appear as a matter of public record, subject to the default occurring after the annual return showing that the share pledge had been taken. That would all happen long before bank B was able to take control. For these reasons, there is no real risk of hostile actors targeting lending arrangements as a means to gain control of national security-sensitive entities. The Secretary of State would retain discretion over available remedies, which could be applied at the appropriate time.
Nothing in the remarks that I have just made will come as a surprise to Ministers, because it has been set out in detail in a letter from the president of the Law Society of Edinburgh, addressed to the noble Lord, Lord Grimstone, and copied to the noble Lord, Lord Callanan. I hope that the Minister will acknowledge that there is an outstanding point of concern. As I say, we are all grateful to the Minister for engaging with us and showing understanding that this is a real issue.
None of us is of the view that there is any intention to put Scotland and Scottish businesses at a disadvantage, but, without this amendment or some comparable amendment that the Government might agree to or introduce, there remains a real possibility of discrimination against Scottish financial services and investment businesses, which would be politically awkward and embarrassing as well as practically damaging to the interests of both Scotland and the United Kingdom sector. I hope that the Minister can acknowledge that this issue needs to be addressed head on and that assurances can be given that the concerns outlined will not actually take effect. I beg to move.
My Lords, I am delighted to speak in support of, and to have co-signed, Amendment 9. I am grateful to the noble Lord, Lord Bruce of Bennachie, for moving and speaking to the terms of the amendment so thoroughly. I also echo his thanks to the Law Society of Scotland for highlighting this issue at Committee stage and bringing forward this amendment for Report. I also thank my noble friends Lord Grimstone and Lord Callanan for the time that they spent with the noble Lord, Lord Bruce of Bennachie, me and members of the Law Society of Scotland going through the issue with us. I remind the House that I am a non-practising member of the Faculty of Advocates.
This is quite a sensitive time to be raising this matter, mindful of the fact that elections are going on in Scotland—they will be held on 6 May—so I am sure that it is not the intention of a British Government whom I overwhelmingly support to seek to disadvantage Scotland at this time. We are here to assist the Government and bring to their attention the ramifications of the preventions of the Bill currently before us. Amendment 9, so eloquently moved by the noble Lord, Lord Bruce of Bennachie, would simply ensure that transactions constitute a trigger event only where a person gains actual control of a qualifying entity—and to exempt Scottish share pledges in relation to other situations where “no effective control” is obtained.
Of all the comments made by the noble Lord, Lord Bruce, I echo the comparison that he made with English law, which could cause some confusion and has perhaps led to this regrettable situation. Of all the things that I recall from the conversation that we had on the call with my noble friends the Ministers, I want to impress on the Government that this is not just an issue but potentially one of some magnitude—my noble friend Lord Callanan seemed not to grasp that during the call, so I pause to emphasise it to him.
By way of comparison, under an English charge over shares, this situation does not arise, because no formal transfer of the charged shares is required to perfect the charge. In the parallel English scenario, the same relationships of control or lack thereof exist, but no trigger event is recognised. I am sure that this is just an unfortunate situation that has arisen, which is why it is timely to bring it to the Government’s attention today. The disparity between the situations in Scotland and England is one of the concerns that we seek to highlight as not only being prejudicial to existing Scottish businesses and increasing obstacles to obtaining finance but risking making Scotland less attractive as a jurisdiction in which to establish a business vehicle. I support all the comments that the noble Lord, Lord Bruce of Bennachie, made.
In the spirit of openness, as this is an extremely technical issue—I can quite understand if my noble friends perhaps do not fully grasp the situation in which we find ourselves—I have taken the opportunity to bring it to the attention of the Advocate-General, my noble and learned friend Lord Stewart of Dirleton, who will fully consider the ramifications. As such, I have every confidence that, before the Bill leaves this place, full and due consideration will be given to Amendment 9 and what we are seeking by moving it today.
I thank the noble Lord, Lord Bruce, and the noble Baroness, Lady McIntosh, for looking critically at the legislation in relation to Scotland and its legal approach. Clause 8 defines the circumstances in which a person gains control of a qualifying entity, thus constituting a trigger event that may be subject to assessment under this regime. Throughout this process, we have stressed the importance of clarity on who qualifies for assessment under the regime.
Amendment 9, tabled by the noble Lord, Lord Bruce, aims to ensure that transactions constitute a trigger event only when the person gains actual control of a qualifying entity and to exempt securities or other situations where no effective control is obtained. The amendment’s purpose is to avoid the potential unintended consequences of the Bill for financial transactions under Scottish law, as identified by the Law Society of Scotland. Under the amendment, rights and interests in, or in relation to, entities and assets held by way of security would be exempt from the regime, on the basis that lending and debt arrangements do not give rise to control.
We have been clear that the Bill must be fit for purpose across every part of the United Kingdom, and I ask merely whether the Minister can provide reassurances to the House that it has been properly considered in relation to its impacts on the Scottish legal system in particular. Can he reassure the House that consultation has taken place between the Scotland Office and the Scottish Administration and that there are no outstanding issues to be resolved in this respect?
I am of course grateful to the noble Lord, Lord Bruce, and my noble friend Lady McIntosh for Amendment 9 in their names. As they outlined, it seeks to exempt from the call-in power acquisitions made by way of obtaining security over a qualifying entity where no effective control is obtained. I start by placing on record my thanks to the noble Lord, my noble friend and the Law Society of Scotland for meeting my noble friend Lord Grimstone and me following Grand Committee to discuss this issue in detail. Indeed, we have considered all the points that were made.
As I emphasised in that meeting and in our subsequent correspondence, the Government do not consider that the provision of loans and finance is automatically a national security issue. Indeed, lenders need confidence that they can see a return on ordinary debt arrangements in order to provide that service. However, we must also recognise that in a small number of cases national security risks can arise through debt arrangements. Noble Lords have particular concerns about the Bill with regard to Scotland. I understand—and the noble Lord, Lord Bruce, stated—that this is because it is usual practice in Scotland for a lender to become the registered holder of shares in security through a shares pledge.
Having heard the concerns, the Government have reflected carefully on the issue, but we continue to believe that an exclusion would not be appropriate in this case. In such circumstances, the legal title to shares will, as a matter of fact, have been acquired by the lender, and it is important that we do not inadvertently create a loophole that those who wish us harm might otherwise seek to exploit.
While I note that the proposed amendment has been updated since the version debated in Grand Committee, reflecting my noble friend’s intention to limit the exemption to situations where “no effective control” is obtained, I fear that this would be difficult to reconcile with the mandatory regime.
It would introduce a new, inherently subjective concept that would sit uncomfortably with the need for acquirers to be able to objectively determine their legal obligations. I hope that noble Lords who have stayed the course on this Bill—a small, gallant band—will know by now that it is focused on the central premise of acquiring control, with these circumstances defined in detail in respect of entities in Clause 8. This amendment would lead to a circular argument in the Bill, in which a trigger event is the acquisition of control—except for when control is not acquired. I am sure that a number of lawyers in this country would be licking their lips with that provision in the Bill.
I mentioned particular concerns about how this would affect the mandatory regime, but the Government also consider that this would cause difficulties for voluntary notification and for the Secretary of State’s call-in power. None the less, both my noble friend Lord Grimstone and I have committed to monitoring the operation of the regime in practice with regard to this issue. Clause 6 provides the Secretary of State with the power to make “notifiable acquisition regulations” to amend the scope of the mandatory regime. That could be used in future, if considered appropriate, to exclude circumstances related to acquisitions by way of security from the mandatory notification regime.
I will address head-on the point made by the noble Lord, Lord Bruce, that this will be particularly disadvantageous to Scotland. It is important to emphasise that such lending arrangements are also possible in England and Wales—albeit we know that they are less common. This Government are staunch supporters of Scotland and it is vital that the Scottish legal and finance sectors continue to flourish.
Let me briefly make three other points on this amendment, which I hope will provide further reassurances to the noble Lord and my noble friend. First, the Bill broadly mirrors the existing approach of the persons with significant control register, which does not exclude legal owners of shares acquired by way of security. I take great confidence from the fact that this has been in place since 2016 and has had no discernible effect on the willingness of lenders to provide finance in Scotland.
Secondly, the mandatory notification and clearance element of the regime is proposed to apply only to entities of a specified description within 17 sectors of the economy. The number of circumstances requiring notification where a lender acquires the legal title to shares at or above the thresholds in this Bill is therefore likely to be low and, as with all acquisitions, the Government expect that the overwhelming majority will be quickly cleared to proceed.
Thirdly, as has been previously debated, I am sure my noble friends will welcome the removal of the 15% threshold I spoke about in a previous group. This will further reduce the number of cases covered by the mandatory regime in relation to securities.
So, for all the reasons I have outlined, I hope that both noble Lords will accept the arguments I have put forward and will feel able to withdraw the amendment.
I thank the Minister for his response and for addressing the details. I am not convinced that the Law Society will be entirely satisfied that the difference between Scottish and English law has been fully appreciated. The Minister talked about legal title but, as I said in my opening remarks, legal title is meaningless if the shares pledge explicitly excludes any mechanism for dealing with the shares—either receiving voting rights, dividends, or the right to sell and an obligation to have them back when the loan is repaid. It simply is not control.
I take note that the Minister is concerned that the Scottish situation is not unique and therefore could cause complications in England and Wales, but the practice is clearly well established in Scotland. As I said in my opening remarks, it has been since the 19th century and is relatively unusual elsewhere in the UK.
I understand that the Minister believes that there will be relatively few instances, but part of the problem with the Bill is that an awful lot is undefined, in terms of the 17 sectors, the details of how those will be determined, the circumstances in which triggers will happen and the definition of national security. All of those things are explicitly not set out in detail.
I welcome Ministers saying they will monitor the situation closely. The assurance I would be looking for if we withdraw this amendment—obviously we will ask the Law Society what it feels about the unamended Bill—is that, if it becomes apparent there is a significant negative impact on Scottish business and the Scottish sector, the Government will be prepared to act to remove such discrimination.
It is a long-established fact that one reason the Scottish financial services sector is so strong is that it has a long history of prudent asset management and insurance, which has given Scotland a disproportionate share of both national and international business because of its reputation for, if I may put it in these terms, “canniness” in managing investments and other people’s money. That being the case, we do not want a situation where the law as introduced somehow compromises that. That would not be good for Scotland or the UK either.
I hope these remarks will be noted by Ministers and they will undertake to consult and respond to any representations that emerge showing that the concerns we have outlined are real and significant. If the Minister is correct in his assurance that, though they may be real they will not be very significant, perhaps the matter can rest. But I am sure that I, the noble Baroness, Lady McIntosh, and others will make it clear to him that, if it becomes apparent that there is a significant problem for Scotland and that uncertainty is disadvantaging Scotland, he will hear about it. In the meantime, I withdraw the amendment.
Amendment 9 withdrawn.
Clause 14: Mandatory notification procedure
10: Clause 14, page 8, line 30, leave out paragraph (b)
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.
Amendment 10 agreed.
We now come to the group beginning with Amendment 11. Anyone wishing to press this or anything else in this group to a Division must make that clear in debate.
11: Clause 14, page 9, line 10, leave out “as soon as practicable” and insert “within 5 working days”
Member’s explanatory statement
This amendment imposes a specific time limit on the notification required to be made after the Secretary of State has decided whether to accept or reject a mandatory notification.
My Lords, I rise to move Amendment 11 and I will speak also to Amendment 12 in my name and Amendment 13 in the name of my noble friend Lord Lansley, to which I have added my name.
With this group of amendments, we are returning to the issue of timing that we discussed quite extensively in Committee. There is a high level of concern in the business community that the timescales set out in this Bill are excessive and breed uncertainty. If a transaction is called in, the Secretary of State has 60 working days—with the possibility of a 45-day extension—to make up his mind what to do. That adds up to five months elapsed time, which could kill many deals and, if the target company is in financial distress, could spell the end of its existence.
I accept that, if national security issues are genuinely involved, we have to allow the Government sufficient time to examine transactions in order to make the right decisions in the interests of our nation. I am, however, concerned about the timing at the front end of the process, once a transaction has been notified to the Secretary of State for both mandatory and voluntary notifications.
I hope that most mandatory notifications will not result in a call-in notice, and it is important that the parties to a proposed transaction get clarity about whether they have to enter the tunnel of uncertainty due to a call-in notice or can proceed with their deal. Under the terms of Clause 14 the Secretary of State gets 30 working days—six weeks in real money—to decide whether to call in a transaction, but that is extended by two indeterminate periods.
In the first of these, the Secretary of State has an unlimited period of
“as soon as reasonably practicable”
in which to decide whether to accept or reject a notice. We challenged this in Committee, but the Minister told us that the Government could not define this period because it would be affected by the nature and quality of the supporting information that came with the notification. I have given the Government the benefit of the doubt on that.
Once the Secretary of State has decided whether to accept or reject the mandatory notification, he then has either to reject the notice and give his reasons or to notify the parties that he has accepted it. In either case, he has to do this “as soon as practicable” and the 30-day review period does not start until that has happened. I am not sure why these second grace periods are not qualified by “reasonably”—I hope that the Minister can explain this—but, whatever the subtleties of drafting are, it does not seem to be reasonable for the Secretary of State to make his decision but then sit on it without notifying it, thus extending the period of uncertainty. My Amendments 11 and 12 would take out the “as soon as practicable” formula in Clause 14(7) and (8) and replace it with “within 5 working days”. These amendments are very modest in the whole scheme of mandatory notifications; I hope that my noble friend the Minister can accept them.
I will leave my noble friend Lord Lansley to explain the different approach that we have taken to voluntary notifications under his Amendment 13, but I will say a word on the background. Most people with experience of transactions believe that the severe penalties in this Bill, plus the ability of the Secretary of State to look back for up to five years, mean that many transactions will be notified under the voluntary procedure; that is what parties will be advised to do. There are concerns about the sheer volume of transactions and whether BEIS will be adequately resourced to process them. I know that we will discuss this later today.
There are parallel concerns about unnecessary delays to transactions once a notification disappears into the black hole of the Investment Security Unit. These concerns are particularly acute if a business is in administration or liquidation, or is teetering on the edge. Putting some certainty around how long a transaction can be held within BEIS waiting for a decision on whether a call-in notice will be issued will be hugely important for those transactions that simply need the comfort of clearance that they will going not be called in.
Amendments moved in Committee that sought to set up a fast-track procedure did not find favour with my noble friend the Minister, but I hope that he will be able to set out today how in practical terms transactions that need to be dealt with swiftly—whether mandatory or voluntary notifications—can get an appropriate degree of attention in the ISU. What kind of system of prioritisation will be set up? Will transactions that are notified be triaged or simply put on a conveyor belt? Who will be accountable for the performance of the ISU, and will that be visible?
I remind my noble friend the Minister that it is not just individual deals that are at stake. The reputation of the UK as a good place to invest will be on trial once this Bill becomes law. I know that he is well aware of this, and I hope that he can provide reassurance today that the concerns I have expressed will be central in how the ISU really operates.
I have also tabled some amendments that seek to get some quite granular annual reporting on the time taken at each of the stages of the process for both voluntary and mandatory notifications. I am a realist on substantive amendments; government departments have a “not invented here” aversion to changing the Bills that they create. With that in mind, I have drafted some amendments to create transparency instead so that, even if our worst fears on timing came to pass, it would at least be in the open; that would make sure that the Government would have to pay some attention to it.
However, since I tabled my amendments, the Government have tabled their own, less granular, versions of annual reporting. We are due to debate these in a later group, so I will say no more about them at the moment. While transparency is better than no transparency, even better would be some changes to the Bill to give more certainty to the business community. That is why we have tabled these amendments, and I look forward to the Minister’s response. I beg to move.
My Lords, I am very glad to support my noble friend Lady Noakes in her Amendments 11 and 12. I am grateful to her and the noble Lord, Lord Fox, for adding their names to Amendment 13.
My noble friend explained Amendments 11 and 12 extremely well. Let me say why separately there is an additional amendment in relation to the voluntary notification separate from mandatory notification. It is precisely because our expectation must be that there will be a significant number of voluntary notifications, particularly in the early days as people involved in various sectors begin to understand how this regime is to act and under what circumstances they should make a notification. Our expectation would also be that, partly for precisely that reason and in the early days, there will be a significant number of voluntary notifications that do not lead to further action on the part of the Government because there is not a national security risk involved and they do not need to review it any further— that is, they do not need to take it through the call-in notice for an assessment.
For many of these transactions, because of the level of uncertainty associated with this—of course, these might be transactions where the seller brings them forward to the Secretary of State to understand under what circumstances they contemplate an acquisition, and whether they should proceed and how rapidly—there are a lot of reasons why this should happen quickly. In looking at Clause 18, about the voluntary notification procedure, our problem was that the review period had “30 working days” applied to it, but that period, as is the case with the mandatory one, follows two indeterminate periods. First, there is the period of time between a notification being made to the Secretary of State and the Secretary of State deciding whether to accept or reject it and, subsequently, the Secretary of State, after a period of time—this might be very short; I hope it would be very short—notifying each relevant person. The 30 working days, therefore, could be added to by two other periods.
The purpose of Amendment 13, therefore, is straight- forward. It is to say, “Let’s try to make sure that this is no longer than it needs to be, and that the pressure inside the Investment Security Unit is for what are essentially the bureaucratic processes”—in effect, saying, “We have received a notice. Is it compliant or not?”, then, “Okay, we have accepted the notice. Have we notified all the relevant persons?” Those things happen very quickly because the important thing is that the 30 working days are devoted as far as possible to the review period to get the decision right as to whether this potential trigger event should be called in or not. That is the crucial thing. All the time should be devoted to that review. Amendment 13 says that the 30 days start at the point at which a seller or an acquirer gives a notice to the Secretary of State. I hope that that is helpful.
I noted—no doubt we have a similar view—that the bureaucratic processes should be as short as possible, but the Government, as my noble friend Lady Noakes noted, have put forward their own amendments in a later group. The one that is relevant here is Amendment 27, which would tell us how long the period is between the receipt of a notice and the decision to accept or reject it, and tell us to report that in the annual report. Frankly, that is useful, but we would rather that the pressure was built into the statutory arrangements rather than simply through the question of what is in the annual report by way of performance against that.
My Lords, in speaking to these three amendments, I am extremely fortunate to follow the noble Baroness, Lady Noakes, and the noble Lord, Lord Lansley. I do not think anyone could have explained more succinctly how these different timescales work for both the mandatory and the voluntary notification, so I will not go through it again. I really appreciate the persistence of both noble Lords, and the noble Lord, Lord Hodgson, in teasing out the real consequences of these very indeterminate timescales, which may differ between the voluntary and the mandatory notification procedures but create uncertainty in both cases. As the noble Lord, Lord Lansley, said in Committee,
“we want to ensure that the greatest possible certainty and the least possible delay intrudes into these processes for investors.”—[Official Report, 16/3/21; col. 229.]
That has been our common theme throughout this Bill.
We have heard some graphic phrases throughout, such as the noble Lord, Lord Hodgson, decrying both the “no man’s land” that we must not and do not want to fall into and the powers to “stop the clock”. We also heard the noble Lord, Lord Grimstone, try to reassure the Committee that the Secretary of State has
“no desire to push his peas around the plate”,—[Official Report, 16/3/21; col. 222.]
another phrase introduced by the noble Lord, Lord Hodgson; he will probably write a book at some stage with all these phrases included. However, that is not the same as the assurance and certainty contained in statute.
The noble Lord, Lord Callanan, said in Committee that
“the process of initially determining whether a valid and complete notice has been submitted is separate from fuller screening”.
We understand that, but there should be clear time limits in that case. He tried to give us a reassurance:
“I mention ‘maximum’ again because that is exactly what these deadlines represent. In many cases, we expect the Secretary of State to be able to review and clear notifications much more quickly.”—[Official Report, 16/3/21; col. 235.]
Businesses need certainty on whether to proceed with a transaction. A delay in the Secretary of State making a decision outside the time limits—because they can—would cause uncertainty over the validity of the transaction. This lack of a clear timescale could create uncertainty for investors, universities and businesses, making domestic and foreign investment less attractive and disincentivising industry in the process.
I heard what the noble Baroness, Lady Noakes, and the noble Lord, Lord Lansley, said about the later amendments on what should be contained in the annual report; I entirely agree that more transparency is very desirable, but that is not the same as specifying exactly what the timescales will be.
There is also the question of what I think the noble Lord, Lord Lansley, called the “bureaucratic processes”. There is not yet a great deal of reassurance on that basis. We do not know how the regime will operate. Throughout this, especially on these timescales, the impression is that all the cards are in the Government’s hands, not the hands of the potential investor. That could be a real deterrent. I hope the Government will respond to the very consistent view throughout the passage of this Bill that there needs to be a considerable tightening up in this direction.
My Lords, I will be brief, but I wanted to speak in this debate having spoken on similar amendments in Committee. I oppose Amendments 11 and 12—I will reserve judgment on Amendment 13 until I have heard the full debate—and find myself in the unusual position of supporting the Government’s proposed legislation and opposing changes to it.
The noble Lord, Lord Lansley, in introducing Amendment 13, talked about the pressure from bureaucratic processes; these amendments are trying to impose a pressure for speed. We hear talk of not wanting these rules to slow things down or to have too many limits or controls. This very much reflects the kind of language we have heard about “cutting red tape”. I always go back to the words of the hazards at work campaign: better red tape than red bandages. What are referred to as red tape are very often the rules that keep us safe, protect us and ensure our security, in the terms of this Bill.
I wanted to make sure that the Government hear voices from the other side in this debate, saying that we have to privilege the public good and national security. Processes must take as long as they need to take to be done properly and have full and proper scrutiny.
The noble Baroness, Lady McIntosh of Pickering, has withdrawn from the debate, so I call the noble Lord, Lord Hodgson of Astley Abbotts.
My Lords, I have put my name to Amendments 11 and 12, tabled by my noble friend Lady Noakes, which concern mandatory notifications, as she made clear. However, I am equally enthusiastic about Amendment 13, tabled by my noble friend Lord Lansley—even though I have not put my name to it—which addresses voluntary issues as well.
I will add a couple of points in support of these two approaches. As my noble friend made clear on Amendments 11 and 12, the use of the phrase “practicable” or “reasonably practicable”—it is not clear why we have one in one place and one in another—has come in for some pretty widespread criticism. As we have discussed before and heard from various legal advisers, the word “possible” would be a big improvement on “practicable”.
Mandatory notifications will be at the sharp end of the Bill and can be expected in many cases to be controversial. There will be a temptation for a Secretary of State, faced with a controversial decision, to try to delay it. It is common ground that, while we need to take appropriate steps to protect our national security interests, it is also in our national economic interest to encourage as much investment as possible in the chosen 17 sectors which will collectively have a significant impact on our economic future.
With great respect, I understand what the noble Baroness, Lady Bennett of Manor Castle, is trying to say, but the reality is that this is a balance; if we are in a competitive market around the world for investment and are unable to balance it properly, people will go elsewhere. It is as simple as that. Her idea of having an open-ended arrangement for the Secretary of State to make up his or her mind is a recipe for an outflow of investment which might otherwise come here to support this country, with its worldwide reputation in tech and other sectors.
On my noble friend Lord Lansley’s amendment on voluntary notifications, we have been around this course many times before; there will be a substantial flow and the new unit at BEIS may find it difficult to cope. In Committee, we discussed a number of amendments to try to help the Government with this and focus the new regime on the really significant cases. Amendments by various Members of your Lordships’ House, including me, proposed inter alia to exclude intra-group investments, to require only one trigger event for each group of companies and to limit notifications to assets used in connection with activities carried on in the UK—in other words, to limit the extraterritoriality of this Bill’s provisions.
The Government declined to accept any of these, arguing that they needed the widest possible strategic view to prevent evasive tactics by unwelcome purchasers. I must accept the force of that argument, but it means the Government must live with the consequences of those decisions. To provide an appropriate level of certainty for investors, we simply cannot risk a situation where, if a flood of voluntary notifications occurs, the Government could decline to start the 30-day clock.
In his concluding remarks, my noble friend may refer to Amendment 27, which the Government have tabled, about the contents of the annual report. If it is accepted by the House, as I expect it will be, it will include details of the number of days taken to give a decision, or the time taken to reach a voluntary notification. I do not want to add to the points the noble Lord, Lord Clement-Jones, made, but I have to say to my noble friend that it is really shutting the stable door after the horse has bolted to be told, a year later, that we have not been able to hit the targets or that they are being missed widely. There is nothing wrong with that, but we are trying to create a balanced regime that hits the ground running, and to learn, a year later, that “the system is overwhelmed”, which a number of us in this Chamber feel is likely to happen, is simply not an adequate answer.
My Lords, the noble Lord, Lord Hodgson, set out his view of a balance, and I will set out another dichotomy—between thoroughness and timeliness. I do not think any of us in the Chamber are asking for this process to be less thorough. I think we are all saying we want a thorough process. But that thoroughness cannot be at the expense of timeliness, which is what these amendments are seeking to establish.
I do not think it is the Government’s intention to sow the market with uncertainty; I am absolutely sure that is not the intention of the Bill or this element of it. However, we all know that once things get written into law, they move into a departmental process and there is a unit dealing with this, unless there are specific guidelines on achieving timeliness, things will drag and take time. Departmental clocks can run at a different speed to business clocks. We should be clear that that will cost jobs and opportunities, because the longer a transaction takes, the longer it is in play, the fewer opportunities those companies have and the more threat there is for them. This is particularly clear in sales out of distress and in businesses that are already in play. Once they are in play, they become victims of exploitation, and the longer this department maintains a business in play through this process, the more danger those businesses are in.
The Government’s “intent” has come up many times in speeches, and that is an important element here. The way this Bill is currently drafted does not reveal an intent for rapid resolution. It does not reveal an understanding of the importance of timeliness, and that is what these amendments seek to establish.
I thank the noble Baroness, Lady Noakes, and the noble Lords, Lord Hodgson and Lord Clement-Jones, for returning to the issue of the impact of this legislation on businesses and the uncertainty it would create within a business environment as businesses must interface with its bureaucracy. It has been interesting to hear the reflections from debates in Committee.
In Committee, we were sympathetic to Amendment 11 and others in the group as we have also pushed the Government to ensure greater clarity and transparency regarding how long businesses and organisations will have to wait for answers from the Government concerning notifications. It is important not only that statutory time limits are laid down to each stage of assessment but that the overall accumulated length of time of the whole process is defined. We remain supportive of the intentions behind the amendments in this group, and I am grateful to the many business interests that have expressed concerns to us. I merely ask again: what does “reasonably practicable” mean as a length of time?
In Committee, the Minister did not address whether and to what extent five working days could become practicable. The noble Baroness, Lady Noakes, asked many pertinent questions concerning the operation of the unit and its systems in addressing the tasks it will have to be administrating. Could the Minister provide more clarity? Can he give assurances today that officials in the department will engage effectively with business and provide updates and explanations regarding issues under consideration to businesses, should an answer not be forthcoming within the defined five-day limit proposed in this amendment, rather than expect businesses to delay and wait for an unspecified length of time to be proved practicable? Communication of the position would prove extremely reassuring to businesses.
My Lords, I thank my noble friends Lady Noakes and Lord Hodgson for their contributions and all the other noble Lords who have contributed so far. Perhaps it is not out of order to especially thank the noble Baroness, Lady Bennett of Manor Castle, for her rare support of the Government in this instance. I will begin with Amendments 11 and 12 together.
As currently drafted, the Bill provides that the Secretary of State must decide whether to reject or accept a mandatory or voluntary notice as soon as reasonably practicable after receiving it. They must then inform relative parties of the decision as soon as practicable. I will later draw the distinction again between “as soon as practicable” and
“As soon as reasonably practicable”.
Amendment 11 would require the Secretary of State to provide written reasons to the notice “within 5 working days” if a mandatory notice is rejected, instead of “as soon as practicable.” Amendment 12 has a similar effect but would require the Secretary of State to notify each relevant party that a mandatory notice has been accepted within five working days of acceptance, rather than as soon as is practicable, as currently drafted.
My noble friends Lady Noakes and Lord Hodgson asked about the distinction in places in the Bill between the timescales, “as soon as practicable” and
“As soon as reasonably practicable.”
These different tests reflect that some requirements are more onerous. For example, determining whether a valid notification has been given will be dependent on the facts of the case, so it is appropriate, in that instance, to use
“As soon as reasonably practicable.”
However, communicating the decision to parties should be possible without delay, so in that instance, the Secretary of State must do so as soon as practicable. I hope that clarifies that for noble Lords.
The Secretary of State already expects to be able to quickly decide to accept or reject notifications in many cases—then inform parties of those decisions—much faster than the five-day working limit proposed. However, I must stress that it is important that there is scope for flexibility in the relatively rare circumstances where more time may be needed. When notifying relevant parties that a notification has been accepted, there may, for example, be multiple, potentially international, parties needing to be contacted whose details are not immediately available.
In some cases, purely as a matter of practicalities, the Secretary of State may need more than five working days to notify a party that their notification has been rejected. Take a notification sent in by letter, from either a UK or a foreign company, without proper contact details and which does not meet the requirement for notification. The Secretary of State would, therefore, be likely to reject it. This may seem trivial, but it may take more than five working days to find the contact details for the notifier to notify them of the rejection. If the letter contained commercially sensitive or personal information, it is particularly important to get that right to make sure that any correspondence from the Secretary of State is not sent to the wrong person. This is just one practical example where it could take longer than five days to notify of an acceptance or a rejection.
Just imagine: the amendments could enable sophisticated hostile actors to game the system. There will be people out there who will want to game this system, if they can, but I am sure that that is in no way the intention of my noble friends.
Amendment 13 would start the voluntary notification review period on the day a notification is received by the Secretary of State, irrespective of whether it has been accepted by the Secretary of State that day. This differs from the current drafting, which starts the review period on the day the party submitting the notification is notified of acceptance.
I am happy to assure noble Lords that we expect to confirm acceptance of the vast majority of notifications quickly in order to begin the clock on the review period quickly but, in rare situations, it may take much longer to determine whether a notification is valid, perhaps due to large amounts of information being submitted in an unclear way. It may be deliberately unclear. In that case, if the notification were ultimately accepted, the Secretary of State would have substantially less than the 30 working days that they may need to decide whether to issue a call-in notice, potentially being timed out and forced to clear the acquisition without proper scrutiny. For cases like this, it becomes possible for hostile actors to flood notifications with information to reduce the likelihood of a call-in.
In conclusion, I assure noble Lords that the ISU will be a thinking organisation and not a conveyor belt, as some noble Lords fear. Ministers will be accountable for its operations. There is a real national interest in making sure that the ISU does its job well, and we will do all we can to ensure this. I commend my noble friends and other noble Lords on their efforts to make the new regime more agile but I hope that they understand why we cannot accept the amendments I have addressed in this group, and kindly ask that they withdraw them.
My Lords, I thank all noble Lords for taking part in this debate—even the noble Baroness, Lady Bennett of Manor Castle, with whom I never agree. This is a Government trying to take the maximum possible scope for manoeuvre in the Bill because of bad actors out there. We understand that, but we have essentially been pressing practical issues. I was disappointed by what the Minister said, because he gave us lots of extreme outlying examples of where people might be trying to game the system, which I do not quite understand, but little about what the Government will do in practice to address the uncertainty that is feared by the business community, because of a lack of concentration on timeliness will in practice be part of that.
For example, I asked my noble friend the Minister whether there would be a prioritisation or triaging system, so that those transactions that have a great need for speedy resolution can, if possible, be dealt with quickly. I heard nothing on that. I am beginning to wonder whether Ministers have a handle on what the practical arrangements will be within the ISU. My noble friend said that Ministers would be accountable. That is good because if this starts to go wrong, transactions will be caught up, which will end up doing more damage to the UK economy by creating an environment in which no investment comes to us. That would be very damaging. I had hoped that the Minister would go further and say what sorts of practical steps would be taken to increase a focus on timeliness and what the implications would be.
I will not press my amendment to a Division today but, I must say, I do not have the impression that Ministers have a grip on this yet. We accept that the Bill needs to ensure that nothing bad can happen in the area of national security. On the other hand, the Government need to accept that the business community needs much more reassurance than Ministers currently appear willing to give. I beg leave to withdraw.
Amendment 11 withdrawn.
Amendment 12 not moved.
Clause 18: Voluntary notification procedure
Amendment 13 not moved.
We now come to the group beginning with Amendment 14. Anyone wishing to press this or any other amendment in the group to a Division must make that clear in the debate.
Clause 30: Financial assistance
14: Clause 30, page 20, line 3, leave out “, with the consent of the Treasury,” and insert “by regulations”
Member’s explanatory statement
The amendments to Clause 30 in the name of Baroness Bennett of Manor Castle seek to ensure that Parliament is able to scrutinise financial assistance before the Government is committed to its provision.
My Lords, I speak to move the linked Amendments 14, 19 and 20, which appear in my name. I must begin by offering my profound thanks to the Public Bill Office for providing the expert legal assistance to deliver a legal framework for the purpose set out in the explanatory statement, which is
“to ensure that Parliament is able to scrutinise financial assistance before the Government is committed to its provision.”
Noble Lords will recall that, in Committee, the noble Lord, Lord Hodgson of Astley Abbotts, drew our attention particularly to Clause 30, which provides the Secretary of State with the power to compensate for the consequences of him or her making a final order under Clause 26. I quote the noble Lord from that debate:
“Its wording can best be described as wide, and the Explanatory Notes are not much more helpful.”
The noble Baroness, Lady Bowles, said in that debate that,
“if the Government’s requirements have caused disaster to befall a company through delay, there should be a mechanism for compensation. However, how that is to operate needs to be made clear.”
The noble Baroness, Lady McIntosh of Pickering, asked a good question about
“from which budget the grants, loans and indemnities would come.”
I will now disagree with the noble Baroness, Lady Noakes, by proving that it is possible for us to agree, at least occasionally, for I entirely agree with her comment in Committee that
“a Bill about stopping certain transactions could have morphed into one whereby the Government will stuff public money into the pockets of one or more of the parties involved, with almost no explanation.”
I conclude my little roundup with the words of the noble Lord, Lord Clement-Jones, who started this debate. He said that
“there is no control over what the Secretary of State does.”—[Official Report, 16/3/21; cols. 215-20.]
I apologise to your Lordships’ House that these amendments appeared late. Given all the discussion in Committee, I was rather hoping that someone with more experience of legislating than me would pick the issue up but, when I saw that that had not happened, I thought that I should at least give the House a chance to find the solution to a problem so clearly identified in Committee. What I am doing is taking the financial compensation—the potentially swingeing payout—from the hands of the Minister and handing it to the best possible democratic control and greatest transparency: that of Parliament.
To run through some of the regular reactions that we hear from Ministers, if the Government say, “This could be better drafted”, I would be happy for them to do so. If they say that there should be a lower limit to the sums concerned, that is certainly something to talk about. If they suggest that this would slow the process, I would point to recent times when Parliament has proved able to act very quickly—the events of 30 December 2020 come to mind—if the money is needed and justified.
However, I think that there is clearly greatly increased public concern about the Government handing over money to the private sector; that concern has increased even more since our debate in Committee. In the interests of not being seen as political, I will resist the urge to expound at length on the reasons why there is growing public concern, because I am making a serious attempt here to see if some improvement, clarity or democratic oversight can be provided to the exercise of Clause 30.
Last night, during the Financial Services Bill, we were talking about regulatory capture and, indeed, political capture—a situation in which the Government are often seen to be acting as a wing of, or advocates for, business, rather than as an advocate for the common good. I am not saying at this moment that I will not push this matter to a vote but am not saying that I will. I want to hear the, albeit rather disappointingly short, debate and anyone who might want to question the Minister’s response before making a decision on that. I should like there to be some movement, clarity and reassurance on the use of Clause 30. I beg to move.
I thank the noble Baroness, Lady Bennett, for the amendments in this group. We recognise the importance of financial assistance in relation to the regime where it would have financial impacts on businesses, following a final order being made. We understand the public significance of financial assistance and are supportive of there being parliamentary oversight and agreement to that assistance. The issue of how practical it is to undertake that before any final order is made, presumably after close contact with an affected business, is an interesting point that the Minister will address.
The noble Baroness will understand that consideration of regulations is not generally contentious. Nevertheless, her points are well made. Any greater clarity that the Minister can give in the parliamentary process regarding awards made in consequence of government decisions would be helpful. Will all individual cases of those receiving financial assistance be made public? It would be interesting to understand the Government’s intentions and the role of Parliament in scrutinising financial assistance.
My Lords, perhaps I may extend my thanks to the noble Baroness, Lady Bennett, for the amendments she has tabled. I also welcome to the Chamber one of my supporters, the noble Baroness, Lady McDonagh.
These amendments would remove the requirement for financial assistance to be given with consent from Her Majesty’s Treasury. They would require, instead, regulations to be approved by Parliament before financial assistance is given. Amendment 20 would consequently remove the reporting requirement when financial assistance exceeded £100 million in any financial year.
I think it is a sensible check in the context of this regime to set out in the Bill a requirement for the consent of HM Treasury. Parliament has a choice today in the final stages of this Bill on whether to approve the principle that financial assistance should be made available in consequence of the making of final orders. Requiring that an affirmative statutory instrument be laid each time money is proposed to be spent for these purposes would be excessive and possibly cause that principle to be debated each time. Indeed, parliamentary approval for each occasion of spending is likely to be impractical in many circumstances because of the time required. The delay could lead to the UK losing important capabilities that we may have otherwise been able to support while an appropriate acquirer was found.
On accountability, I remind the House that Parliament will already have voted on the spending estimates, and BEIS will need to account against those. The BEIS accounting officer is ultimately responsible for ensuring that budgets are spent in the correct ways. I am therefore unable to accept these amendments.
Finally, and more generally, I know that several of your Lordships are concerned about the seeming opacity of providing financial assistance. Perhaps I may say a few words to explain the provision further. The reporting provisions are intended to ensure that Parliament will be able to see what assistance the Secretary of State is providing, at least on an annual basis, and more frequently if spending rises over £100 million in any relevant period. Your Lordships may also, at any time, ask Questions to the Minister about spending on financial assistance, which will have to be answered in the House. Additionally, HM Treasury will not be forthcoming in its consent to spending unless a strong case is made, and use of the power will be subject to all obligations on using public money.
There are therefore strong checks on this provision that allow for scrutiny and ensure appropriate use of public money. The Government will not be issuing separate guidance on the use of the power to give financial assistance. I hope that I have provided the clarity that your Lordships requested on financial assistance and, for the reasons I have given, I am, regretfully, unable to accept these amendments. I hope that the noble Baroness will feel able to withdraw or not move them.
I have received no requests to speak after the Minister, so I call the noble Baroness, Lady Bennett of Manor Castle.
My Lords, I thank the noble Lord, Lord Grantchester, for his contribution and the Minister for his response. I particularly note that the noble Lord, Lord Grantchester, shared my concern about the need for greater clarity on the use of Clause 30, his focus on the need for payments to be made public and the need to understand the rationale behind them.
The Minister suggested that there was a problem with the principle being debated each time a payment was proposed. I am not sure that it is necessarily bad that principles should be debated regularly. It was interesting that he said that this proposal would be impractical in many circumstances. I must admit that I find a matter of concern his suggestion that that might be something that happens often. He also said that accountability was through the BEIS accounting officer. However, what we are talking about there is after the fact, and in the depths of a great deal of varied and complex spending.
In his general comments, the Minister said that it was always possible for your Lordships to table Questions in the House but people have to know what is going to happen if they are to have any hope of intercepting it, or at least throwing light on it, before it happens. I am concerned that there will be no separate guidance about the use of the power, which is, as in the nature of the whole Bill, a novel use of government spending.
None the less, although we have not reached where we need to get to, it is clear that I have not found the route to get there, so I beg leave to withdraw the amendment.
Amendment 14 withdrawn.
We now come to the group beginning with Amendment 15. Anyone wishing to press this or anything else in the group to a Division must make that clear in the debate.
15: Clause 30, page 20, line 3, after “may,” insert “if he or she considers that there is a risk to national security and”
Member’s explanatory statement
This amendment probes whether there could be any circumstances beyond a risk to national security which would result in financial assistance being given under Clause 30.
My Lords, I shall move the amendment and speak to Amendments 16 and 17 in my name. I thank my noble friend Lord Hodgson of Astley Abbotts and the noble Lord, Lord Fox, for adding their names. I have also added my name to Amendment 18 in the group, in the name of my noble friend Lord Hodgson of Astley Abbots.
My amendments are probing amendments, following the interesting stand part debate that we held in Committee on Clause 30, which gives the Government extraordinarily wide powers to give financial assistance. The Minister’s response in Committee raised as many questions as he answered and we have therefore tabled amendments to gain further enlightenment.
There is no constraint on the ability to provide financial assistance in the Bill, other than that it can be only
“in consequence of the making of a final order”.
My noble friend the Minister sought to reassure us that this was
“not a general compensation scheme”
and would be used only in exceptional cases. The Minister said the power
“will only be used in instances where the public interest, particularly national security interests, require it”.
Later, he said that
“the nature of national security makes it very hard to predict where some of these issues might arise. However, where they do and where national security is an issue, it is important that the power is there”.—[Official Report, 16/3/21; cols. 223-26.]
I was puzzled by this. Is national security a necessary condition for the use of the power or not? Our horrible hybrid working practices mean it is not easy to pursue questions in Committee when the Minister gives answers, so I tabled Amendment 15 to explore this further.
Amendment 15 adds to Clause 30(1) the words “if he or she”—that is, the Secretary of State—
“considers that there is a risk to national security”,
so that the financial assistance power could be used only if it were necessary on national security grounds. There could easily be other grounds for giving financial assistance—for example, if we had an industrial strategy, which I am definitely not advocating. I do not believe it would be appropriate to allow considerations broader than national security to underpin financial assistance under this Bill. If my noble friend the Minister thinks anything beyond national security could be involved, I suggest he needs to explain to the House what those circumstances could possibly be.
Amendment 16 takes out some words from Clause 30(2) so that financial assistance can be provided only by way of loans, guarantees or indemnities. The current wording allows practically anything under the sun and certainly allows grants and soft money. My noble friend the Minister will know that I am deeply sceptical about giving a Government powers to throw taxpayers’ money around. Powers such as these, drafted with good intent, can end up being used as cover for politically expedient expenditure. The best way to stop that happening is not to have the power in statute, as it is too much of a temptation and, even if I trust the current Government to act responsibly, which of course I do, I would not trust Governments of a different party—if we were unlucky enough to experience that again.
Lastly, Amendment 17 says that financial assistance has to be provided on arm’s-length terms. I should probably have drafted this in terms only of loans, guarantees or indemnities, as I do not think that subsidies or grants—which I am sure my noble friend the Minister will tell me he needs the power to provide—can ever be on arm’s-length terms. I was prompted to table this by what my noble friend the Minister said in Committee:
“For example, if the Government provided a loan, it would normally have to be at market rates.”—[Official Report, 16/3/21; col. 224.]
I hate weasel words such as “normally” almost as much as I hate throwing taxpayers’ money around in non-commercial transactions. I therefore ask my noble friend the Minister to say a little more about the boundary between commercial and non-commercial terms for assistance given under Clause 30. What will drive the use of market rates and, I hope, market terms and conditions? What criteria would be used for abandoning arm’s-length terms?
I would have preferred not to have this broad and undefined power sitting on the statute book, because it implies an intent to provide financial assistance. The Government could have relied on the Appropriation Act for genuinely exceptional circumstances. However, if the Government are set upon having the power, Parliament is entitled to some better explanations than we got in Committee of its potential use. I beg to move.
My Lords, once again I have the pleasure of flying in the slipstream of my noble friend Lady Noakes. Before I turn to my own Amendment 18, I will say that I entirely support the remarks she made about Amendments 15, 16 and 17, to which I have added my name.
Amendment 18, like my noble friend’s, is a probing amendment and seeks to discern the possible financial impact of this Bill on the small battalions. I hope the House will forgive me if I become a little granular and practical about how this clause might work. It can far too easily be assumed that this Bill will impact only on big companies. That is not the case. It has not been the case in the past and certainly will not be the case in future, with the big increase in the number of sectors of the economy falling within the provisions of the statute.
I would like to take the House back to our first day in Committee, when I raised the case of Impcross Ltd. Impcross had been the subject of a reference under the old regime. It was statutory instrument 2019/1490. I am not—repeat, not—going to ask my noble friend to comment on the details of the Impcross case. It would be utterly improper for me to ask, and probably even more improper for him to answer. But I want to use the Impcross case as an example of how drastic an impact the provisions of this Bill could have on smaller companies and their owners.
Impcross is based in Stroud and machines parts for the aerospace industry. Its annual turnover is just shy of £12 million, so it is not a large company but a small one, and one that in the year to 30 June 2019—according to the records at Companies House—made a small operating loss. Significantly, it has a person with significant control. In this case, the accounts reveal that a particular individual owns between 50% and 75% of the company. If you look back through the records, you can see that the individual appears to have been at the company for many years, so it is not fanciful to believe that the company is the result of a lifetime’s work and effort and, further, that perhaps the particular individual is now considering his future options, which might involve selling up the company and enjoying the fruits of his labours.
One exceptionally important and helpful aspect of the Bill the Government have brought forward is the establishment of timeframes, which we have already talked about today. We are a bit nervous about how good the timeframes are—we think they may be a bit too flexible for our wishes—but nevertheless there are some there. The Impcross case was referred in early December 2019. It was not until 10 September 2020, nine months later, that Gardner Aerospace, the Chinese-owned potential buyer, withdrew. That cannot have been an easy nine months for all involved, but it serves to underline—if I may say so to my noble friend on the Front Bench—the real importance of sticking to the fixed timetables. Otherwise, the company in the gun sights has a very uncomfortable time indeed.
This does not deal with any potential economic consequences. Let us take the example a little further. If companies are in interesting sectors, they are often sold on a multiple of turnover. Let us say it is two and a half times turnover, which would mean Impcross was worth £30 million. Let us suppose that was the figure that Gardner Aerospace offered, but that when it was refused permission to complete the transaction the next best offer was £27 million, a reduction of 10%; it could well be more. My noble friend the Minister, who has enormous and extensive experience of the City, knows that once an offer has failed to complete, there is always a concern among other buyers that there is something they have not spotted and that there is something wrong that they will need to look at more carefully.
The hard fact is that if this example were to work through in the way I have described, the owners would have lost £3 million as the direct result of the state interfering with their property rights. The probing question posed by my Amendment 18 is whether it is intended that Clause 30 will provide a means to ride to the rescue of individuals who have suffered economic harm or loss as the result of actions taken under this Bill. If Clause 30 is not so designed, what assessment have the Government made of the detrimental impact on investment, particularly early-stage investment, in these 17 critical sectors?
My Lords, I am again very fortunate in following the noble Baroness, Lady Noakes, and the noble Lord, Lord Hodgson. I have signed Amendment 18 and my noble friend Lord Fox has signed Amendments 15 and 16. I entirely endorse what the noble Baroness and the noble Lord said about the lack of clarity and the important implications of this clause.
In our clause stand part debate in Committee, the Minister, the noble Lord, Lord Grimstone, described the clause as “tightly drawn”. Today, he has talked about strong checks on the power, but I would have thought that it is now abundantly clear from the debates we have had, not only on the previous group of amendments but particularly on this group, that there is insufficient clarity about the operation of the clause. The noble Baroness, Lady Noakes, described the clause as extraordinarily wide, in particular in terms of transparency, the reporting requirement, an inadequate and arbitrary cut-off point, the nature of affected parties who could be compensated, the lack of alternatives to compensation, as mentioned by my noble friend Lord Fox, such as taking an equity stake, and the lack of a specific reference to public interest and national security in the clause. It seems we have to rely on the threat of judicial review rather than the wording of the Bill to ensure that the Secretary of State reasonably considers that the compensation is “necessary and proportionate”.
The Minister assured us that the power would be used only “responsibly and respectively”—I am not quite sure what “respectively” means in that context—but that the circumstances were hard to predict. Nothing that has been said so far today has dispelled the opacity, which I know the noble Lord intended to do. It is still extremely cloudy, and that was illustrated by both who have spoken. All this argues for a much tighter framework, such as suggested and probed by these amendments. I hope that the Minister will either take that on board or give pretty clear, detailed assurances about the workings of the clause or, probably even better, separate guidance. I understand from the Minister that that will not be provided, which seems highly regrettable. I hope that the Minister can give much greater detail about the operation of this clause, as required by these amendments.
My Lords, I am grateful that the noble Lord, Lord Grantchester, is arriving back in his place, as I am not intending to speak for very long, so he had better get there swiftly.
This seems to be the other half of the amendments that went with the previous debate, and the group, with the exception of the noble Lord, is mutually exclusive, but it is still around subsidy payment money and what it is. The central question about Clause 30 is: what was in the Government’s mind when it was drafted? What is it for? The longer the Minister refuses to be specific in answering that question, the more I am drawn to the supposition that the Government do not know what it is for and that it has been put there as an insurance measure, just in case. Frankly, that is typical of the way this Bill has been written. It has been written as widely as possible to give the department as much leeway as possible in the event of stuff happening, stuff which is as yet undefined or is perhaps undefinable. That is not a good example of what Governments should be bringing to your Lordships’ House for approval.
The questions that have been asked very clearly by the previous speakers are important. If the Minister wants to prove that there is some guiding force behind Clause 30, and not just “We’ll put it in just in case we need it”, which is what it looks like to me, I look forward to hearing his comments.
In speaking to the previous group, the Minister implied that the fact that the Treasury would have a hand on the tiller should give us comfort. If the only comfort we have is that the Treasury will be looking over your shoulder, it does not sound very comfortable. The department should know what this money is for, why it is there and what it is going to be used for. We should not have to rely on the good offices of Her Majesty’s Treasury.
I am very grateful to the noble Lord, Lord Fox, for looking after my welfare.
I am grateful to the noble Baroness, Lady Noakes, and the noble Lords, Lord Hodgson and Lord Fox, for pressing further through this group on the scope of Clause 30 concerning financial assistance, how far and in what circumstances financial assistance will be provided to businesses resultant on government decisions, and what the Government have in mind when under Clause 30(2)
“any other kind of financial assistance (actual or contingent)”
could be helpfully provided.
Amendment 18 is important in raising the issue of compensation, which I am sure the Government will continue to resist. Greater clarity will be always be helpful. Does the Minister envisage assistance being given beyond a certain figure? The sum of £100 million is specifically mentioned in the Bill. It seems to us, however, that the scope of the provision in Clause 30 is adequately drawn up.
My Lords, I am grateful for the attention that your Lordships have paid to Clause 30 today and in Grand Committee. As we know, the clause enables financial assistance to be given to, or in respect of, entities in consequence of the making of final orders. The key challenge from your Lordships towards this clause has been about transparency and how the system will work. I will do all I can today to cast some further light on this.
First, I shall address Amendment 15, tabled by my noble friends Lady Noakes and Lord Hodgson and the noble Lord, Lord Fox, which would limit financial assistance to situations in which the Secretary of State considered that there was a risk to national security. I am pleased to be able to reassure the House that this Bill already requires that financial assistance may be given only where there is a risk to national security, since it states that financial assistance may be given only when a final order has been imposed. As final orders may be imposed only once a risk to national security has been determined to exist, I am happy to confirm and to reassure noble Lords that a risk to national security is a necessary part of granting financial assistance.
All financial assistance will be further subject to the usual scrutiny and agreement of HM Treasury, as I said in Committee. I may not be completely reassuring to all noble Lords, but I have no doubt that it would be scrutinised thoroughly by HMT. Essentially, the Secretary of State will not be able to hand out money in any way they choose, or, in my noble friend Lady Noakes’s phrase, to
“stuff public money into the pockets”—[Official Report, 16/3/21; col. 218.]
Turning to Amendments 16 and 17, tabled by my noble friends Lady Noakes and Lord Hodgson, and the noble Lord, Lord Fox, Amendment 16 would limit the forms of permissible financial assistance to loans, guarantees and indemnities. Amendment 17 would specify that financial assistance would need to be given on “arm’s length terms”, which might be subject to a degree of interpretation in this context, but I appreciate that both amendments are probing the nature of any financial assistance.
It is important that the Secretary of State has some flexibility in the types of financial assistance that might be given, because there may be circumstances—perhaps unforeseen at the moment—where a form of assistance other than loans, guarantees or indemnities, will be appropriate. It would be most unfortunate if we had tied the Secretary of State’s hands so that they could not give such assistance just when it was needed. I assure noble Lords that the Government will be guided entirely by prudence when deciding what form of assistance is appropriate. However, we should not limit financial assistance in the way proposed by the amendments in lieu of a clear case for why this must be done. I am afraid I have not heard that clear case today, although I am very grateful to my noble friends for their points of explanation.
Picking up a point made in Committee, I reassure my noble friend Lady Noakes that financial assistance may be recoverable, depending on the terms set by the Secretary of State. Just as the decision to grant financial assistance will be taken on a case-by-case basis, so the terms of that assistance will be fixed on a case-by-case basis, including whether it should be recoverable. Indeed, I expect that in many circumstances the assistance would be recoverable. All such spending would be made clear in the annual report and in a separate report to the House of Commons if spending exceeded £100 million in any relevant period.
It may be the case that following a final order, only non-recoverable financial assistance would ensure that the UK does not lose capabilities considered important enough for the Secretary of State to intervene to protect them in the first place. If they are important enough to prevent losing them to actors who may do us harm, it should be open to the Secretary of State to decide whether they merit unrecoverable support. If financial assistance is given to a firm, that does not mean, in these circumstances of national security matters, as my noble friend Lord Hodgson said in Committee, that the firm is somehow a wounded bird or has become inherently unattractive. In most circumstances it may just mean that the Government are tiding it over until a more suitable acquirer, which does not pose a risk to national security, is found. To be absolutely clear, the Government do not intend for financial assistance under the NSI regime to be used as a form of back-door subsidy control. Under the Bill, financial assistance may be given only in consequence of a final order—to mitigate the effects of a final order, for example.
Amendment 18 would provide that financial assistance may include compensation given to anyone who suffers economic harm because of actions taken under the Bill. I remind your Lordships that subsection (1) already limits financial assistance to assistance given
“to or in respect of an entity in consequence of the making of a final order.”
Therefore, even with this amendment, Clause 30 is not a general compensation scheme. It relates only to final orders. Additionally, I have doubts as to whether the amendment would be straightforward to apply. For one thing, it is not entirely clear what would constitute “suffering economic harm” as a result of actions under the Bill. Furthermore, it is not clear how such harm would be assessed, what evidence would be needed or what sort of assistance would be appropriate.
I assure the House that the Government do not intend financial assistance to be a routine part of the final order process. It is intended to be provided only where such assistance is appropriate in the circumstances. Therefore, there will be no formal process to request financial assistance, and the circumstances will depend on the facts of an individual case, so it is vital that there is flexibility in how the decision process on financial support is initiated. For example, an entity may make the Secretary of State aware that they require financial assistance, which the Secretary of State may then consider, or, equally, on receiving advice from other sources, the Secretary of State may proactively offer assistance to an entity.
We believe that the Secretary of State should have flexibility in the types of financial assistance that he or she can provide, and that the Bill is right to specify who can receive financial assistance and for what purpose. I am afraid that, for the reasons I have given, I cannot accept these amendments. I hope noble Lords feel able to withdraw them.
My Lords, I thank all noble Lords who have taken part in this debate. I was not expecting many answers from my noble friend the Minister, and I was not disappointed. We can conclude that we have heard nothing that explains this clause any more clearly; it is still opaque. This probably indicates that Ministers do not know how they will be using this power, but they would like it in their back pocket just in case. I am not at all surprised by this being the case.
This will mean that ex post scrutiny and accountability of Ministers’ use of this power will become very much more important. Obviously, if there is a large amount—over £100 million—in one year, an ad hoc report will go to the other place. Otherwise, there is the content of the annual report, which will become quite important. There is the BEIS Committee in the other place, which I am sure will have an interest in this, and your Lordships will be aware that this House has recently set up the Industry and Regulators Committee, to which I am pleased to have been appointed. This power, if used, would be the kind of thing that your Lordships’ Committee would want to look at, to see how it had been used in practice and whether it had been used prudently, as the Minister has assured us it will be.
I do not think we can take this any further forward today. I beg leave to withdraw my amendment.
Amendment 15 withdrawn.
Amendments 16 to 20 not moved.
Clause 32: Offence of completing notifiable acquisition without approval
21: Clause 32, page 21, line 7, leave out paragraph (b)
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.
Amendment 21 agreed.
We now come to the group beginning with Amendment 22. Anyone wishing to press this or anything else in this group to a Division must make that clear in debate.
Clause 53: Procedure for service, etc
22: Clause 53, page 33, line 15, after “if” insert “a sender or”
Member’s explanatory statement
This amendment clarifies that regulations under Clause 53 may make provision in respect of non-individuals required to give notices and any other documents under the Bill, as well as those in receipt of such documents.
My Lords, I rise to move Amendment 22 in my name, but with the permission of the House I will also speak to Amendments 23, 25, 27 and 32. I shall begin with Amendments 25, 27 and 32.
A strong theme of debate in Grand Committee, and in the other place, has been whether there is sufficient accountability in the regime—in particular, through the reporting requirements in the annual report. In general, as the House will be aware, the Government’s position has been that, as the Secretary of State may add anything judged appropriate to the annual report, there is no need to amend the Bill to include additional reporting requirements. The Government have, however, listened to proposals, including those made through amendments tabled in Grand Committee, and seek to add additional reporting requirements where it is judged that they would provide significant additional value for parliamentarians and the general public.
Amendment 32, in my name, will therefore increase the level of detail provided on final orders in the annual report, so that in addition to their total number being published, the number of orders varied and revoked will also be published. We recognise that final orders will be significant and reflective of government intervention following the call-in of an acquisition. There will already be a duty on the Secretary of State, in Clause 29, to publish notice of the fact that a final order has been made, varied or revoked. It is therefore appropriate that we provide information on the total number of orders varied and the total number of orders revoked. I thank, in particular, my noble friend Lord Lansley for this proposal, and for our discussions on how to improve this Bill prior to, during, and following Grand Committee. His counsel has been much appreciated.
Amendments 25 and 27 address the concern that the requirements on the Secretary of State to decide whether to accept or reject a mandatory notice or voluntary notice are insufficiently specific. As it stands, the Secretary of State must decide
“As soon as reasonably practicable”
after receiving a notification, and thereafter notify parties of his decision as soon as practicable. I set out during Grand Committee that the Secretary of State would strive to ensure that decisions to accept or reject notifications were made quickly. In many cases “as soon as reasonably practicable” is expected to be a very short period indeed, but we do not consider it appropriate to limit the period to a specific number of days, so as to provide scope for flexibility where required. In place of that, the Government propose reporting on the average number of days taken to respond to voluntary notices and mandatory notices. This additional detail will, we believe, ensure that parliamentarians and the wider public will be able to judge whether the Government’s expectation that this will be a matter of hours or days is proving correct year on year. Of course, these changes do not preclude the Secretary of State from going further by providing more information than required, where the information provides value to Parliament, and where, in particular, it provides reassurance where there is no time limit expressed in terms of a number of days.
Amendments 22 and 23 are minor amendments. Noble Lords will be aware that Clause 53 provides for regulations to be made setting out the procedure for service of documents under the Bill. These changes are intended to put the scope of the power beyond doubt. A change is proposed in subsection (2)(g), so that it is clear that the regulations may specify what must, or may, be done in relation to service of documents by senders outside the United Kingdom. A corresponding change is then made to paragraph (e), to avoid any doubt that the regulations will be able to set out what must, or may, be done where a sender is not an individual.
I hope that I have made clear the principles on which the Government are approaching the amendments in this group. I beg to move.
My Lords, I have a number of amendments in this group, all of which would amend the annual reporting requirements. Some of them overlap with amendments that my noble friend has just spoken to. In particular, my Amendments 26 and 28 are similar to his Amendments 25 and 27. The difference is that my noble friend’s amendments ask for the average time to be given, whereas I ask for both the average and the maximum, because averages can be very misleading. However, we shall have some data, and I am sure that those can be used as a springboard for further examination of BEIS Ministers and officials, if either House wished to do that, so I shall not pursue those amendments.
Of my other amendments, Amendment 29 asks for differentiation between call-in notices issued for mandatory and for voluntary notifications. That is not given, and it is quite an important bit of information, which would be useful to enable us to see how important that mandatory notification route turns out to be. The other thing I have asked for is a focus on timing—the time between issuing the call-in notice and getting to the end of the process and giving the final notifications and the final orders. I continue to believe that those areas would be important for keeping an eye on how well the process is operating, especially as there are very long times available once the call-in notice is issued. Again, I am sure that questions can be tabled and Ministers can be interrogated in the usual way, so I am not worried about that. I am glad that my noble friend has moved towards more transparency, although he has perhaps not gone quite as far as I would have preferred.
Although I have not added my name to the amendment in the name of the noble Lord, Lord Grantchester, I think it is important for annual reporting to keep a focus on the resources dedicated to this, because the timing performance will be in part a reflection of whether adequate resources have been dedicated. Of course, giving numbers never gives an idea of the quality of resources, so that can only ever be an imperfect picture, but it is important for Parliament to have an opportunity to review and keep in focus the resources dedicated to the ISU processes. That is where the biggest impact is likely to be felt by businesses as they come up against the system. Well done for bringing in some transparency; a bit more would have been better.
My Lords, as I noted earlier, the administrative arrangements for consideration of deals referred to BEIS are incredibly important. This is a good Bill, but it must not be undermined by poor implementation, or UK plc will be cast in a bad light. As others have said in Committee, delays create cost and uncertainty, which can jeopardise beneficial takeovers or combinations. Deals in the 17 categories must be reviewed, but this must be done professionally and quickly.
I therefore welcome the Government’s amendments, and thank my noble friend the Minister, but I do not think they go far enough. At the least, I feel that he should also accept some or all of Amendments 28 to 31, tabled by my noble friend Lady Noakes—either in the Bill at Third Reading or through a commitment to add to guidance.
I have years of experience of being regulated, by the CMA and other anti-trust and investment authorities round the world, mainly in my former retail role. Good people, and good regulators, are both thorough—I know that has been a cause for concern right across the House—and timely. I can tell noble Lords that authorities use the set timeframes as a defence, and almost never, in my experience, report or publish ahead of the deadlines. So the timelines need to be clear, and, as argued by my noble friends Lady Noakes and Lord Lansley, and the noble Lord, Lord Fox, in the debate on Amendment 11, they need to be tight. They could perhaps also be shorter for smaller or struggling companies, which have more to lose. It would be helpful if my noble friend could have a look at that, if it is not already envisaged that we will take special care with those categories.
It is a worry that we are running out of time for the Bill in this legislative Session. As I have said, I supported the Bill at the start, and I am keen to get it on to the statute book, as I know the Government are as well.
In the light of discussion, I have four questions that probably go slightly wider than the annual report. Perhaps I could ask the Minister to respond either today or before Third Reading. My first question is whether in principle the Minister has the ability to consult on sensible arrangements on timeliness and timelines and put them into statutory guidance or whether a new power is needed, which is rather suggested by my noble friend Lord Leigh’s Amendment 36, which we will come on to.
I would also like to be crystal clear on the maximum timescales normally envisaged for clearance, both for the mandatory notifications, which is my second question, and for the voluntary notifications, which is my third question, which my noble friend Lady Noakes has said we need to put into the report as well. Operators will seek clarity even if they are not required to submit proposals for clearance ex ante.
I would very much appreciate an assurance that material on timelines could in fact be added as a guidance product—that is an unfortunate designation; in my day we used to call it guidance. In his very helpful letter yesterday, the Minister set out his plans for a number of guidance products that would be added. It struck me that this is possibly a way forward, and that it would be possible to give a little more of the assurance that business is seeking in the guidance that is now envisaged by the department. So my fourth question is: is that right?
I can be brief. I acknowledge with thanks that the Minister has brought forward government amendments that respond both to my Amendment 81 in Committee, about the number of orders varied or revoked and, in part, to what the noble Lord, Lord Grantchester, had to say on Amendment 80 in Committee, including on the time taken to decide whether to accept or reject mandatory and voluntary notifications. I will not rehearse what my noble friend Lady Noakes had to say. Knowing more about the time taken, in addition to what is already intended to be in the annual report, will certainly give us reassurance about these administrative processes, which I think will be very important—especially at the outset, bearing in mind that we start with already potentially five months’ worth of relevant transactions that are within the scope of the regime but the legislation has not yet entered into force. Operating rapidly in relation to all those potential notifiable transactions will be really important, even in the first annual report.
My Lords, I shall speak to the amendments tabled by the Minister, and I thank him for doing so. I shall also speak to those tabled by the noble Baroness, Lady Noakes, and Amendment 34, tabled by the noble Lord, Lord Grantchester, which I have signed and strongly support. The noble Lord, Lord Lansley, has highlighted the extra importance of transparency in the annual report in these circumstances where we already no doubt have a backlog of potential action.
I thank the Minister for responding to concerns in Committee and in the meantime and for taking us towards greater transparency. While the noble Baroness did not use the expression “half a loaf”, since it is perhaps three-quarters of a loaf, it goes some way towards giving us a greater understanding of how effective the regime is, particularly given the Government’s desire to keep these rather uncertain timescales that we were talking about in Committee.
In Committee, I hoped to persuade the Government to undertake a regular review of whether the Act was achieving its aims. It seems good practice to make sure that we have the right balance between the investment climate and national security concerns. The Government were unpersuaded by that, but I hope they will take on board the contents of the amendment by the noble Lord, Lord Grantchester, particularly new paragraph (p),
“the impact on levels of foreign investment in the United Kingdom brought about under this Act”,
which would be inserted as a requirement in the annual report. Currently, the annual report does not go far enough. Surely, seen in the round, one of the most important factors is the impact of the Bill on foreign investment. Is this not a key indicator that should be included in any annual report? How can we judge how the balance of the Bill’s requirements are working? Is foreign direct investment not sufficiently important to be included in the annual report? I hope that the Minister can perhaps explain, if there is no explicit reference to it, why not, and if not, whether there will be a description of how the regime is operating.
Other aspects of the amendment from the noble Lord, Lord Grantchester, are extremely important. The noble Baroness, Lady Noakes, mentioned the average staff resource allocated to the operation of reviews and so on. That resource aspect is going to be very important so that we can see transparently what resource is being devoted. Then there is the whole aspect of SMEs, which potentially could be impacted very heavily. The noble Baroness, Lady Neville-Rolfe, talked about this. I think that is a very important aspect too.
The way that the regime in the Bill impacts is extremely important. The Minister has given us some transparency, but I very much hope that he will accede to further requirements that could be included in the annual report really without very much difficulty.
I welcome the lead amendment in this group from the Government, providing greater clarity to the Clause 53 procedure for service. However, the bulk of the amendments in this group concern Clause 61, on the annual report. I thank all noble Lords who have contributed to this debate.
In commerce, I have always championed annual reports as a strategic publicity document for an organisation, displaying how it is performing, how effective it has been, what results and achievements it has attained and what wider societal responsibilities it has performed. It can be far more than a dry, lumpy statutory document that has to be produced and is a chore to be complied with. I am sure it should be the same for government departments and public agencies.
I am grateful, therefore, for the dialogue since Committee with the Minister and his team regarding this issue. I am very glad that the Government have looked again at Clause 61 and at the material that could be provided in the annual report of this new unit and its operation. I am grateful to the noble Baroness, Lady Noakes, for looking at this and extending the information to be provided to cover both mandatory notifications as well as voluntary notices.
The noble Baroness has also added many more aspects that would provide greater visibility for the activities of the ISU. It is important that the Government are transparent about these areas so businesses can see the impact on their activities and compare experiences. Parliament and the public can monitor the work of the unit and determine the value to national security activities and how far legitimate businesses are being affected. These amendments were all supported by the UK BioIndustry Association. I thank it for the briefings it has sent throughout the Bill.
However, we still believe that there is more that the Government could do to assist the understanding of this new regime. I thank the noble Lord, Lord Clement-Jones, for adding his name to my Amendment 34. Greater transparency could still be given on the resources allocated to the new unit, the extent to which small and medium-sized enterprises are called in under the regime and the Bill’s impact on foreign investment. This is about requiring greater accountability from the department on the unit’s service standards.
The business community still remains somewhat nervous concerning the impacts on it as a result of the Bill. Throughout its passage, we have sought to champion clarity and support for SMEs and innovative start-ups, which are the engine of growth in the economy, create many new jobs and enhance prosperity. We are keen to foster a business environment in which SMEs can thrive.
It would be beneficial for the Government to report on the unit’s work with SMEs in the annual report. This can only be helpful in providing detail and reassurances to SMEs on the operation of the unit and its impacts on them. I would be very grateful if the Minister could provide reassurances that his department will embrace the annual report in a positive manner and provide as wide a range of information as possible.
My Lords, first, I thank all noble Lords who spoke in this debate, particularly my noble friend Lady Noakes—for her Amendments 26, 28, 29, 30 and 31—and the noble Lords, Lord Grantchester and Lord Clement-Jones, for Amendment 34.
I also thank my noble friend Lady Neville-Rolfe, to whom I will reply first. The Government have written on plans for a range of guidance, as my noble friend said. This is intended to aid parties in understanding and complying with the Bill. Timings and matters of requirements are set out in the legislation; they were consulted on, and of course they cannot be added to in guidance. As in the past, the Constitution Committee advised us quite strongly against legislating through guidance. Of course, we remain open to further proposals for guidance that assists in understanding and complying with the basic provisions in the Bill.
I move on to Amendments 26 and 28, which seek to require the Secretary of State to report on the “maximum and average time” taken to process mandatory and voluntary notices. These amendments would also require the Secretary of State to report on the “maximum and average time” taken between a notice being accepted and a call-in notice or notification of no further action being given or issued. Clauses 14 and 18 already set out that, if a notification is accepted, the Secretary of State has up to 30 working days to either give a call-in notice or notify each relevant person that no further action will be taken under the Bill.
I outlined in Grand Committee that these timings are a maximum, not a target. I have also set out the principles by which the Government consider it appropriate to specifically amend the Bill to require additional reporting, rather than to judge over time whether it would be beneficial to publish the information. It is already clear in the Bill that the maximum time that can be taken to make a call-in decision is 30 working days.
On the point of including average times, as I hope noble Lords will appreciate, each case will turn on its own facts. Therefore, reporting an average time without explaining the complexities of every individual case would be meaningless, in my view. For example, there may be a low average for some response times where particularly straightforward cases were prevalent—this may be held up as an efficient case review. There may be another period where particularly complex cases are dealt with exceptionally efficiently but none the less slightly more slowly. What would a comparison of the averages without further details on the cases provide? To my mind, it would provide nothing but a misunderstanding.
Amendment 29 seeks to require the Secretary of State to separately report on the number of call-in notices given in response to mandatory and voluntary notifications. I reassure the noble Baroness that the Bill already allows for the Secretary of State to do this in the future if deemed useful. Clause 61 sets out minimum reporting requirements that the Secretary of State must meet in the annual report.
Amendments 30 and 31 seek to require the Secretary of State to report on the “maximum and average time” taken between a call-in notice being issued and the making of a final order as well as the “maximum and average time” taken between a call-in notice being issued and a final notification that no further action will be taken under the Bill. In my view, the same argument applies in response to these amendments.
Finally, Amendment 34 seeks to require the Secretary of State to report the resource allocated to the investment security unit and the extent to which small and medium-sized enterprises are being called in under the new regime, and to review the impact of the NSI regime on foreign investment. It goes without saying that the Government remain the strongest supporter of SMEs and have sought to provide an easily navigable regime for businesses of all sizes to interact with. In fact, one of the tests of our guidance—I set out the details of it in my letter to noble Lords—continues to be whether unadvised owners of small businesses can understand the regime and navigate the requirements just using our guidance. I reassure noble Lords that it is hard-wired into how we think about the future delivery of this regime.
On the matter of resourcing, I am afraid that our answer and argument remain the same: resourcing is an internal matter for the BEIS Permanent Secretary, including average staff numbers. The Government are of course committed to ensuring that this regime is well resourced.
Furthermore, I am aware from the Grand Committee that the noble Lord, Lord Clement-Jones, in particular is concerned about the NSI regime “unduly deterring foreign investment”. Our regime is indeed in line with many of our allies’ investment screening regimes, therefore we believe that investors will be well used to navigating this kind of regulation.
I am therefore unable to accept the amendments in this group other than those in my name. I hope that noble Lords will feel able not to move theirs and to support those that the Government have brought forward.
Amendment 22 agreed.
Amendment 23 agreed.
24: Clause 61, page 36, line 15, at end insert “, except for any confidential annex prepared under subsection (2A)”
My Lords, I will also speak to my Amendment 33, which is consequential to Amendment 24 and part of it. Both are supported by the noble Lords, Lord Butler of Brockwell, Lord Campbell of Pittenweem and Lord King of Bridgwater —a pretty impressive front row, I think noble Lords will agree. The amendments have general support across the House—I know this from my ex-CDI hat, having gone around and checked. I should make it clear that if the Government are not able to resolve this issue, I intend to test the opinion of the House on these amendments.
In Committee, the question of oversight of the investment security unit was raised—specifically, that the Bill does not allow for any oversight of the sensitive intelligence of its work, and that that oversight should be provided by the Intelligence and Security Committee of Parliament. There are many in this House who have served on the ISC, and who were therefore very concerned—as I was—by some of the misunderstandings about the operation of the ISC put forward by the Minister in Committee and what appeared effectively to be a reneging by the Government on the very clear commitments made to Parliament during the passage of the Justice and Security Act.
I assume that the Government accept that there should be a process for evaluating the national security implications of investment in British companies. That concern was first raised by the ISC. Indeed, the Government have stated that the Bill puts national security concerns at the very heart of the process—so why are those national security concerns which will be at the very heart of the process not to be properly overseen? It would mean the Government avoiding scrutiny of their decisions, and that is precisely what Parliament is here to ensure does not happen.
The Government have said that they expect the intelligence scrutiny to be undertaken by the BEIS Select Committee. With the greatest respect to the BEIS Select Committee, which is eminently qualified to scrutinise the work of BEIS, it cannot provide scrutiny of intelligence, because it cannot have access to all the national security material concerned.
The Minister has argued that the BEIS Select Committee does have access to sensitive material, and I grant that, in theory, that may be the case. The Osmotherly Rules allow the Minister discretion to give Select Committees top secret information. In practice, however, that is not the case. We know that the BEIS Select Committee has not been given any top secret information—sensitive information perhaps, but not top secret information. The reality is that it cannot be given top secret information. The BEIS Select Committee, with its excellent chairman, members and staff, cannot be given top secret material because it does not have the requisite security apparatus in place to do so. The committee’s staff do not have the security clearance required to see such material, and the committee does not have the facilities to store or discuss top secret information or have a statutory process to safeguard against the publication of top secret material. Therefore, unless the Government are intending to break their own rules on the handling of top secret material—something that would prompt an ISC inquiry in itself— the BEIS Select Committee cannot provide the scrutiny required. It cannot consider the national security material at the heart of the decision, and therefore the decision itself.
Now that we have established that the BEIS Select Committee cannot in practice be given the top secret material in question, and therefore cannot provide oversight, the question is, who can? Fortunately, the Government and Parliament had the foresight to create a body which can be given top secret material on a regular basis because it does have the requisite security apparatus in place. In 1994, the Intelligence and Security Committee was established expressly to scrutinise the intelligence and security activities of Her Majesty’s Government.
The ISC’s remit was extended through the Justice and Security Act 2013. Noble Lords will have heard it said during earlier stages in this House that the JSA provides the ISC with oversight of the three intelligence agencies. That is, perhaps, a little misleading. The ISC does not only oversee the agencies: it was established to oversee all intelligence and security matters across Government—or at least that was what Parliament was told.
The long title of the Justice and Security Act is,
“An Act to provide for oversight of the Security Service, the Secret Intelligence Service, the Government Communications Headquarters and other activities relating to intelligence or security matters”.
The memorandum of understanding which sits underneath the JSA, and which was expressly agreed by the Prime Minister, says that this means,
“those parts of Departments whose work is directly concerned with intelligence and security matters”.
Both Parliament in the JSA, and the Government in the MoU, have already expressly agreed that the ISC has oversight of all intelligence and security matters across Government.
In case there can be any lingering doubt, I draw your attention to the commitment given by the then Security Minister during the passage of the Bill when he said that it was,
“the intention of the Government that the ISC should have oversight of substantively all of central Government’s intelligence and security activities to be realised now and in the future”.
I trust the Minister has noted the wording there: “now and in the future”.
At the time the MOU was written there were seven such organisations, and these are therefore listed in the MOU. The then Security Minister also made it very clear during the passage of the Bill that the MOU was intended to be updated. He told Parliament:
“Things change over time. Departments reorganise. The functions undertaken by a Department one year may be undertaken by another the following year. The intelligence world is no different from any other part of Government ... An MOU is flexible: it can be changed much more easily than primary legislation”.—[Official Report, Commons, Justice and Security Bill (Lords) Committee 31/1/2013; col. 98.]
Clearly, the Minister’s argument that the ISU is not listed in the MoU is irrelevant. That is what the Minister said. His Government have already committed to changing the MOU when necessary in order to ensure the ISC has oversight of all intelligence and security matters. It really could not be any clearer. It is therefore of very grave concern that, despite Parliament’s clear intent and the Government’s clear commitments, oversight is being expressly denied.
The Minister also said that the ISC does not need to be given oversight expressly because the ISC can scrutinise the public report and can ask for other information about the ISU. Again, I am afraid this misses the point entirely. Of course the ISC can ask for information: we can ask for information from any part of the Government, but that does not mean to say that they will give it to us. By contrast, the organisations listed in the MoU—and therefore within the Committee’s remit—are required to provide information to the ISC. This is quite a different proposition, and demonstrates why the ISC should expressly be given oversight.
One last argument that has been put forward is around demarcation. There is concern that the work of BEIS should be overseen by the BEIS Select Committee, and therefore concern that to give the ISC oversight of the work of the ISU would have the ISC parking its tanks on the BEIS Committee’s lawn. This is simply not the case. The ISC chairman has already discussed this with the chairman of the BEIS Committee and they recognise that this issue cannot be overseen by the BEIS Committee and that some accommodation is required.
The ISC already oversees parts of departments that, for the most part, fall to a departmental Select Committee. The OSCT—I think it is now called Homeland Security—in the Home Office is just one such example, and the ISC and HASC have worked harmoniously for some years. I draw the Minister’s attention yet again to the commitments already given in this respect. The MoU clearly states 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”.
This will not affect the wider scrutiny of departments such as the Home Office, FCO and MoD—ditto BEIS —by other parliamentary committees. It really could not be any clearer and the Government have already recognised that demarcation is not a problem. So, I hope the Minister does not seek to put it forward today as an argument against ISC oversight.
I trust that I have demonstrated thus far why proper oversight is needed, why that can only fall to the ISC, why there is no reason for it not to fall to the ISC, and how the Government have already given commitments previously to Parliament that the ISC will oversee these matters. Now perhaps I might explain the amendment I have laid, with the support of the noble Lords I have mentioned. It seeks to provide this missing oversight and thereby enable the Government to honour their commitment.
Clause 61 mandates the Secretary of State to provide an annual report to Parliament. The information in that report is limited, and obviously will not include any sensitive security information. My amendment to Clause 61 would add two further categories of information to that annual report and provides a mechanism for the Secretary of State to redact any of this information from the public report, should it be deemed damaging to national security. That information must be moved into a classified annexe, understandably, which must then be provided to the ISC, thereby ensuring that if Parliament as a whole cannot scrutinise it—which clearly it cannot because of its classification—the ISC can.
Noble Lords will have noticed that this amendment simplifies the amendment I laid in Committee. The ISC has consistently tried to engage with the Government on this issue, to understand their concerns about our approach, and to try to chart a course through. Despite this, the committee and I remain wholly ignorant of the real reason for the Government’s intransigence. The arguments put forth by the Minister in this House in Committee were flawed, I am afraid, as I think I have shown. They cannot therefore be the real reason why the Government appear to be seeking to renege on the commitments given to Parliament during the passage of the Justice and Security Act.
The noble Lord, Lord Butler, has questioned whether there is some deep-seated dislike of the ISC at the heart of Government. Certainly, oversight is not comfortable, but it is not meant to be comfortable. I cannot believe that the Government would prioritise a petty squabble regarding the committee’s Russia report or the chairmanship of the committee over the clear commitments that they have given to Parliament. I am sure that cannot be the case, knowing the Minister as I do. We will therefore see the Government, I hope, honour their commitments today.
To show that I am an unusually flexible naval officer, I wish to reiterate the offer I made to the Government in Committee. If our amendment is unacceptable, for some reason that they have not yet told us, then the alternative is to put the Investment Security Unit into the MoU and provide for oversight by the ISC in that way. The MoU was intended to be a living document; it is very simply amended by way of an exchange of letters between the Prime Minister and the committee chairman. Perhaps the Minister was unaware of the simplicity of the mechanism, when he said that putting the Investment Security Unit into the MoU was a “substantial amendment”.
The Minister may be unaware that in the work of the Investment Security Unit, the unit which currently takes these decisions is the Investment Security Group in the Cabinet Office, and that is currently overseen by the ISC. Therefore, adding the Investment Security Unit to the MoU is not some radical step but simply preserves the status quo, rather than actively removing it from ISC oversight.
The means by which oversight is provided is less important than the end result. What matters is that Parliament must maintain its sight, and its sovereignty, over a crucial part of national security. Despite the various attempts we have heard to argue that the BEIS Select Committee will provide it, the simple fact is that it is only the ISC which can oversee the national security rationale for decisions made. I repeat the wording that the Government agreed:
“only the ISC is in a position to scrutinise effectively ... those parts of Departments whose work is directly concerned with intelligence and security matters ... This will not affect the wider scrutiny of departments … by other parliamentary committees.”
The BEIS Committee will oversee the business element, as is entirely right and proper, and the ISC will oversee the security element and the decision which weighs that security element. Working together, we will therefore ensure that the wide-ranging powers granted under this Bill are exercised as intended.
Security threats are increasing in both number and complexity; we see that all the time. This legislation is part of the Government’s response to that, and I am very glad about the overall thrust of the legislation, but the Government must recognise that if they wish to maintain public confidence in their abilities to protect the UK at this challenging time, they cannot dismantle democratic oversight. They cannot renege on the commitment they gave to Parliament about that oversight. I apologise for the length of this, but I feel very strongly about it. I beg to move.
My Lords, I was flattered to be included in the front row that my noble friend set out. I have one qualification about it though, and that is that these days, such is the pressure of rugby that the front row is often completely substituted at half-time. But this is a front row that has not been substituted at half-time. I and the noble Lords, Lord Butler and Lord King, have lasted the pace.
It is not necessary for me to expand in any way upon what were, if I may say so, the most compelling arguments put forward by the noble Lord just a moment or two ago. I acknowledge my interest in these matters, having been a member of the Intelligence and Security Committee for seven years, but I am afraid that I take issue with some of the flavour of the correspondence that has passed between some of us on this matter. The dismissal of the amendments, and the arguments that lie behind them, has been, in my respectful view, cavalier and verging on the insulting. This is a fundamental issue and it demanded a more reasoned set of arguments for simply refusing to accept the amendments that have just been so eloquently proposed.
I will say a word or two repeating to some extent what I said in Committee. When Huawei was first raised it was not raised with the Intelligence and Security Committee, as it ought to have been, but officials sent it to the Secretary of State for Trade and Industry. Had the importance and understanding of the Intelligence and Security Committee been properly recognised perhaps some of the difficulties that ultimately presented themselves with Huawei would have been avoided.
The other point I want to make is slightly self-aggrandising, I suppose, but those who have chosen to be members of the Intelligence and Security Committee are carefully vetted. On some occasions, when the leaders of political parties have made nominations, these have been turned down. It is supposed to reflect those with experience and judgment, who can be relied on to accept the onerous responsibility that membership brings. That involves signing the Official Secrets Act and going through the necessary processes attached to it. I do not understand that the BEIS Committee will be subject to that. Although the Secretary of State may offer classified information, the BEIS Committee will not have the statutory rights, as pointed out so eloquently by the noble Lord who last spoke. I fear this is yet another illustration of how the Government believe that, with a docile majority in the House of Commons, they can, if not ignore what happens in this place, at least enter their opposition in the hope, belief and perhaps the knowledge that if it goes back to the other place the Government’s position can be restored.
The last point I want to make is this: what can be more important than issues of national security? What can be more important than ensuring that those charged with oversight are given every opportunity, based on experience and judgment, to consider these issues and reach conclusions? There seems to be no recognition of that in this issue. It is deeply disappointing.
As the noble Lord who introduced the amendment pointed out, there are not only undertakings on the part of the Government but statutory principles to be observed. My submission is that the Government should think again, but they have already said that, irrespective of argument, they will not accept this amendment. They can hardly be surprised, therefore, if those who support it believe that the attitude of the House must now be taken.
My Lords, in supporting the amendment I will first say how disappointed I am to be here at all. As we have gone through the Bill’s stages the argument has been very clearly made. I think a mistake was made in the original construction of the Bill and there now seems to be a determination not to repair the one problem that exists.
I say this as somebody who strongly supports the Bill. We need to have powers for the Secretary of State to prevent serious loss and threats to our national security. I note my noble friend Lady Neville-Rolfe’s comments, citing some of the pretty valuable businesses that should not have been allowed to go. If wiser counsel had prevailed that could have been prevented. This Bill would have helped that.
The other important thing that the Government have got absolutely right is ensuring that, if we are going to have this Bill and give the Secretary of State these new powers, there has to be proper parliamentary oversight of it. But they either were negligent or perhaps unaware of the important background: there are limitations affecting the operation the BEIS Committee. It is not qualified and will not be able to see any “top secret” information. If anybody on the government side seriously suggests that there could not possibly be any “top secret” information arising in connection with some possible takeover or acquisition, that position is not one they can seriously seek to sustain in a rapidly changing, increasingly technical and pretty dangerous world, as the noble Lord, Lord West, said. This is a pity, because I would like to pay my compliments to the Minister for the way he has handled the Bill. In every other respect it has been a model of parliamentary oversight and the proper review of it.
Referring again to what we now call the front row of the scrum, it seems, if I may say so, that we in your Lordships’ House each come from a different background. I, having been Secretary of State for a number of departments and then, for seven years, chairman of the ISC, was able to see this from both sides and saw the importance of there being, in the end, proper oversight of the intelligence agencies and of the intelligence and information that may be coming to them which government Ministers might be relying on.
Somebody has kindly sent me a copy of the letter sent by Jacob Rees-Mogg to Julian Lewis, and I echo something the noble Lords, Lord Campbell and Lord West, said: it is pretty dismissive and merely says that the committee’s role should not be on an ad-hoc, Bill-by-Bill basis, and that it would be a significant precedent, providing parliamentary oversight of the UK’s intelligence community. Although my noble friend Lord Grimstone paid what may have been a perfectly well-deserved tribute in Committee to the qualities of the BEIS Select Committee, the simple fact is, as my two colleagues have said, it will not be allowed to see any top secret information. It is not cleared for top secret intelligence that comes in, which might, on some occasions, be the key consideration that affects a decision the Secretary of State takes, for which there would then be no parliamentary accountability or oversight.
I have some sympathy with the Minister, because there are others who seem to have dug their heels in on this one, but even at this late stage, the argument does not stack up. A sensible decision by the Government would be to include this limited amendment to an otherwise excellent Bill and get on with it. Otherwise, it is a serious gap, and we could well pay the price for it in the future.
My Lords, in my rugby-playing days I played in the back row, and I think I am right in saying that the noble Lord, Lord Campbell, played on the wing. However, I am very happy, in this case, to be in the front row with the noble Lords, Lord West, Lord Campbell and Lord King, even though the rules might say that that is one too many.
This is a very important amendment, and the House and the Government have to take it seriously. The noble Lord, Lord West, has made an irrefutable case for the involvement of the ISC, on the basis of what the Government promised Parliament during the passing of the Justice and Security Act and subsequently, and there really can be no answer to that.
I will come to the role of the ISC in a moment, but first I will draw attention to an oddity of Clause 61 in its present form if the amendment moved by the noble Lord, Lord West, is not accepted. We have been discussing the content of that clause, which stipulates that the Secretary of State must make an annual report to each House of Parliament about the exercise of the powers in the Bill. The clause requires that the annual report should cover details in no less than 12 areas, and the Government are now proposing to add to that. So much detail—but all the details are administrative. The clause in its present form omits the essential matter in which Parliament and the public will be interested: namely, the actual decisions of the Secretary of State and the justification for them—the grounds on which they were made. That is an extraordinary omission, and the first part of the amendment moved by the noble Lord, Lord West, puts it right.
The noble Lord’s Amendment 33 requires that, in addition to the matters listed under Clause 61, currently and as it has been expanded today, the annual report must give a summary of the Secretary of State’s actual decisions on final orders and notifications, and the reasons for them, in terms of the underlying national security risk assessment. Of course, it is the decisions themselves and the justification for them that Parliament and the public will want to know about, and it is extraordinary that the list of the matters covered in the annual report, in the Bill as it stands, does not include them. I cannot see how the Government can possibly refuse to put that omission right.
The second part of the amendment is the provision for a confidential report to the ISC, when necessary, containing any details considered too sensitive to be included in the published report. In the debate in Committee, the Minister answering made much of the role of the BEIS Select Committee in another place. He pointed out that it could receive classified information, if necessary. I accept that the Select Committee in the other place must be Parliament’s principal instrument in scrutinising the Government’s use of the powers in the Bill that relate to inward investment. The amendment of the noble Lord, Lord West, provides for a summary of the national risk assessments provided by the Security Service to be published in the annual report, which the BEIS Select Committee will use.
It may be that further unpublished intelligence material can be given to the BEIS Select Committee on a confidential basis, as the Minister suggested in Committee, but, as the noble Lord, Lord West, said today, this misses the point. There is very likely to be relevant intelligence material that is so sensitive that the appropriate body to question the intelligence services about it is the body established by Parliament within the ring of secrecy for that very purpose. Why should the Government rule out a mechanism to provide for that contingency? As the noble Lord, Lord West, said, this is not just a question of security. With the best will in the world, it is not within the competence of the BEIS Committee to establish the validity of intelligence; that is the realm of the ISC.
I remind the House that the amendment of the noble Lord, Lord West, does not require such an annexe in every case, but only in those cases where it is necessary because the underlying information is of such sensitivity that it cannot be published. In that case, the amendment provides that it should be made available to the specialist committee established by Parliament for that purpose, which can then advise Parliament and the BEIS Committee, as appropriate. What can the objection to such a provision possibly be? There can be no valid objection and I urge the Government to accept these necessary and very reasonable amendments. If they do not, the noble Lord, Lord West, has said that he will test the opinion of the House, and I hope that the House will passes the amendments.
My Lords, I express my support for the amendments presented by the noble Lord, Lord West of Spithead, and his colleagues. Curiously, we seem to have four on the front row, but I am perfectly happy where I am, because I am quite a big chap and used to play left lock, so that will be fine.
Colleagues will recall that I had an amendment in Committee to extend the remit of the Intelligence and Security Committee under the 2013 Act. I think the place we have reached on Report is right; my amendment was unnecessary and might have led to precisely the criticism which my successor bar five as Leader of the House of Commons has put to the chair of that committee—that it is expanding the role of the committee beyond its original statutory function. Jacob Rees-Mogg has expressed this criticism about where we are now, but I am afraid he is plain wrong. That is precisely not what this amendment seeks to do; it seeks to ensure that the Intelligence and Security Committee can fulfil the role it was given in precisely the terms that the noble Lord, Lord West of Spithead, set out in introducing his two amendments. I very much support him.
I fear the noble Lord, Lord Butler of Brockwell, may have hit on why the Government are resisting this; not for the reasons they have expressed, but because it will enable the quality of some of those decisions to be examined in detail, including with reference to the security risks that must be incorporated into this decision-making. Perhaps they do not wish that to happen, but that is why we have parliamentary oversight and why, in particular, the Intelligence and Security Committee was originally instituted. I was not a Member of the other House at the time it was instituted, but I was director of the Conservative Research Department and my deputy director is now chair of that committee—as my mother would say, as these things go around, they come around. I am very happy to support their role.
I will mention one other thing. He is not with us this afternoon, but in Committee the noble Lord, Lord Janvrin, made an essential point about the Government’s argument that the ISC can go after the information it is looking for and make inquiries of whoever. He said:
“I think we would all argue that effective scrutiny leads to better decision-making. The Minister in another place said that there is nothing to stop the ISC calling for evidence on a specific decision. That may be true, but is it practical? It calls to mind Donald Rumsfeld’s ‘unknown unknowns’: how does the ISC know which decisions to examine in detail? I question whether such a hit-or-miss approach to scrutiny would lead to better decision-making.”—[Official Report, 16/3/21; col. 250.]
We do not want a hit-or-miss approach. Even less, frankly, do we want the ISC to have to go out on fishing expeditions to try to find out on what the intelligence material on which decisions were made was based. I would far rather it was done in a well-constructed manner. I support these amendments for that reason and hope my noble friend, at the very least, will be able to say that the Government will bring back their own amendments at Third Reading to serve this purpose or amend the memorandum of understanding in the right way. If not, I will have to support these amendments this afternoon.
My Lords, the fact that such esteemed Members on all sides of the House have coalesced on this amendment speaks volumes for your Lordships’ concern about this issue.
It has been a heavyweight debate, with all due respect to the four amigos who have been speaking. I will now bring it down to earth with a bit of politics. It has been an authoritative debate and, all other things being equal, we would expect and hope that it causes the Minister not just to listen but to act. However, I fear his hands—metaphorically if not actually—are tied behind his back by other things. A couple of previous speakers mentioned the letter from the Lord President of the Council, Leader of the House of Commons, to wit, the right honourable Mr Jacob Rees-Mogg. This seems to indicate the bindings the Minister is currently under.
In this short tome, as we have heard, Mr Rees-Mogg tells the right honourable Dr Julian Lewis MP, who is, as we know, chairman of the ISC, that decisions regarding committees’ roles and remits should not be made on an ad hoc, Bill-by-Bill basis, and that there needs to be careful consideration.
I suggest this is a patronising view of the proceedings of your Lordships’ House. When have your Lordships’ considerations not been careful? The most reckless behaviour I have seen during the course of this Bill has been the Minister’s wholesale consumption of sugar-based products, so where is the carelessness that the right honourable Member for North East Somerset speaks of? We should be a little outraged by that suggestion.
This Bill is written by BEIS, and it is understandable that BEIS would want to favour its own Select Committee. I am sure that is how we set out along this route. I think it was the noble Lord, Lord Butler, who said that we have set out in the wrong direction. I feel sure that is what happened. Good governance would be to understand that, take advice and make changes.
It would not be so bad if the BEIS Committee had not been so obviously exposed by the comments we have heard today to be the wrong committee to do the security part of the scrutiny of this very important Bill. It is absolutely clear that it is the wrong committee. If the Minister cannot make or promise changes, I believe he can undertake to accurately reflect both the strength of feeling of your Lordships’ House and the facts, rather than the assumption of the facts that appears to be driving the letter that Jacob Rees-Mogg has written.
I ask just one question of the Minister. If the Bill in considered by the Government to be an ad hoc process, what is careful consideration? What does careful consideration look like if it is not the careful scrutiny of legislation?
My Lords, they did not do rugby at my secondary technical school, and I am only guesting for my noble friend on the front row for this debate. I will be brief, as I do not want to repeat what was said in this debate or in Committee, when I spoke briefly.
As has already been commented, my noble friend Lord West has made an irrefutable case for the amendment. It is quite clear that there is a serious problem here. No one is arguing with the committee in the other place or wants to devalue or undermine the role of elected Members of Parliament and the departmental Select Committees. They have been an enormous success since they were introduced in, I think, the 1980s and early 1990s. But they have a specific role, which does not cover security matters. Parliament and government decided together to form a different structure for that purpose, which is effectively what we are debating today.
With all due respect, I feel sorry for the Minister, because others are making the decisions on this and he is but their messenger and will give us their message. The fact is that no acceptable, reasonable reason has been given by anybody in government for opposing the procedure envisaged in this amendment: that the Intelligence and Security Committee should have oversight of these decisions. We have no reason for it at all.
The noble Lord, Lord Campbell, referred to the Government’s docile majority. We have to be careful about that; we are hoping that docile majority will support your Lordships’ House, so in my view they are obviously all very intelligent, alert parliamentarians, putting the interests of the country and their constituents first. It is very important that we take that on board.
The noble Lord, Lord King of Bridgwater, mentioned the cruciality of parliamentary oversight in respect of the committee he once chaired—indeed, he was the first chair—and made it clear that the Select Committee in the other place that oversees the department’s day-to-day activities cannot possibly have the relevant information put before it in all the cases. One is not arguing that every single case of a takeover or merger will be referred.
The noble Lord, Lord Butler, made the point that of course the principal role of scrutiny of BEIS lies in the Commons with the departmental Select Committee. However, the Government seem to be ruling out the ability for questions to be asked of the security services by opposing the amendment. That cannot be good. He wants to know what the objection is.
The noble Lord, Lord Lansley, referred to the noble Lord, Lord Janvrin. I was going to refer to him, too, because the brief intervention that I made at the end of Committee on 16 March was to follow up on a point that the noble Lord had made. Perhaps I can get the answer now because I did not get one then and the matter has been sitting there for a month. I simply said to the Minister:
“I have a question for him, based essentially on the speech of the noble Lord, Lord Janvrin, which I do not think he referred to. How could rumours about government action in respect of a private company which may be market-sensitive be dealt with to public satisfaction unless the ISC has oversight? It would not matter if the ISC reports were redacted; Parliament would accept that; the media would accept it.”—[Official Report, 16/3/21; col. 259.]
However, businesses out there that are involved in this market-sensitive information would also know that it had been examined at the highest possible level in Parliament by the committee that scrutinises the security services and accept the decision. If the matter is left in the other place to the BEIS Select Committee, when it is known that the committee cannot have the top-secret information, all kinds of rumours may fester in the markets, affecting the companies concerned. How do the Government propose in due course to overcome those issues?
We are out to send a message to the House of Commons, which has the last word on everything. I always say to people outside this House that we are simply a massive sub-committee that has the ability to ask the Commons to think again and again—and again, if the matter is a red-line issue. This is a serious warning that I have to give to my parliamentary colleagues in the Commons from serious people of substance. They include a former First Sea Lord and Chief of Naval Staff, and security adviser to the Prime Minister; a former Defence Secretary and Northern Ireland Secretary who has been chair of the ISC; someone who was a successful lawyer and athlete before becoming a party leader, as well as being an ex-member of the ISC; in Committee, a former principal Private Secretary to Her Majesty the Queen and former member of the ISC; and a former head of the Home Civil Service and Cabinet Office who served five Prime Ministers and is an ex-member of the Intelligence and Security Committee. These are the people who have contributed and drafted these amendments. I am not excluding the noble Lord, Lord Lansley, who served with distinction as a member of the Cabinet, but the point is that the jobs that the others did and their roles were absolutely relevant and spot-on.
The key players in the other place, as I see it, are Johnson, Gove and Rees-Mogg. From a political point of view, those are not people of substance. Shallow, mediocre and trivial is the way in which I would sum them up. That is the issue. We have messages here from people who have been at the front line, and we are simply saying to the Commons, “We want you to think again about this, and the reasons we want you to do so have been deployed in this debate.” They, the Commons, ought to be asking the Government—and no one has had the answer yet, unless we get it from the Minister—what is the Government’s central objection? That is what this is all about and, unless we get an answer from the Minister, I will certainly recommend that my noble friends support my noble friend Lord West in a Division.
My Lords, perhaps I may start by welcoming back to the Front Bench the noble Lord, Lord Rooker, who is an extremely adequate substitute, if I might say. It is a delight to see him back and fully recovered from injury.
There have been a lot of analogies about rugby and positions in this debate. I did not really play much rugby in my career, which is probably a good thing, but the occasional time that we played at school, I seemed always to be the hooker, which seemed, in the poor quality of rugby that we played, to be the one in the middle of the scrum being kicked by everybody else—somewhat appropriate in this debate.
I thank the noble Lords, Lord West and Lord Butler, for their Amendments 24 and 33, which would require the Secretary of State to provide additional information on regime decisions, either in the annual report, or, where details are too sensitive to publish, in a confidential annexe to the Intelligence and Security Committee. This information would include summaries of decisions to make final orders or to give final notifications, and summaries of the national security assessments provided by the security services in relation to those decisions.
A number of noble Lords have spoken with such passion and knowledge on this important issue, both in this debate and when we previously discussed amendments in this area during Grand Committee. I am particularly grateful—I say this genuinely—to the noble Lords, Lords West and Lord Butler, for their careful consideration of the words used by my colleague my noble friend Lord Grimstone during Grand Committee, and for their continued pursuit of an amendment that attempts to satisfy all parties.
The noble Lords’ amendment would effectively require the Secretary of State to include material provided by the security services in a confidential annexe. Of course, the ISC is already able to request such information from the security services as part of its long-established scrutiny of those organisations, as is set out in the Justice and Security Act 2013 and its accompanying memorandum of understanding.
I will directly address the issue raised by the noble Lord, Lord West, and others, about the BEIS Select Committee and its access to sensitive or classified information. The Government maintain their view that there is no barrier to the committee handling top-secret or other sensitive material, subject to agreement between the department and the chair of the committee on appropriate handling. As part of its role, the BEIS Select Committee can request information, which may include sensitive material, from the Secretary of State for BEIS, including on the investment security unit’s use of information provided by the intelligence and security agencies. The Select Committee already provides scrutiny of a number of sensitive areas and there are mechanisms in place for them to scrutinise top-secret information of this kind on a case-by-case basis.
The amendment would also require sensitive details to be provided to the ISC of the Secretary of State’s decisions in respect of final notifications given and final orders made, varied, or revoked. As we discussed earlier, the Bill already provides that the Secretary of State must publish details of each final order made, varied, or revoked. The Government have also recognised that providing this information at an aggregate level will be helpful, and Amendment 32 in my name would require the Secretary of State to include the number of final orders varied and revoked in the annual report. Even without Amendment 32, Clause 61 already requires the report to include the number of final orders made. The Secretary of State must also include in his annual report a number of other details pertinent to this amendment. I am confident that this will provide a rich and informed picture of the Government’s work to protect our national security from risks arising from qualifying investments and other acquisitions of control.
As I have said before, for further scrutiny, we welcome the fact that we can follow existing appropriate government procedures for reporting back to Parliament, including through responding to the BEIS Select Committee, which does such an excellent job of scrutinising the work of the department. As the Secretary of State for BEIS said on 13 April, during a session of that committee, the NSI Bill “sits within BEIS” and the powers of the Bill sit with the Secretary of State for BEIS.
The chair of the BEIS Select Committee—who, I remind noble Lords, is an Opposition Member of Parliament—supported the view that his committee should scrutinise the investment security unit as part of its oversight of the department. Therefore, it makes sense that, from a governance perspective, the BEIS committee should be the appropriate scrutinising committee.
As this was discussed at length in Grand Committee, I do not wish to try the patience of the House by repeating the assurance that my noble friend Lord Grimstone, the Minister, provided to the House on the ability of the BEIS Select Committee to request and see materials regarding the work of the investment security unit. Therefore, I hope—it is probably more in hope than expectation—that noble Lords will accept my explanation and feel able to withdraw their amendments.
My Lords, I thank all those who had an input in this debate, particularly those supporters. We almost got a full scrum, with the noble Lord, Lord Lansley, added as well—we had a bit of weight there. We are more second than front row, to be quite honest, but I have now found that the Government Minister is actually a hooker, so we have a bit of front row around. As he rightly says, the hooker gets punched by everyone—I am afraid that that is the way that it is going tonight.
I have considerable sympathy for the Minister: I was in that position when I had to argue for 90 days pre-trial detention. Because I am not really a politician, I had actually already said on the “Today” programme that I thought that this was a very dodgy thing to do—and then I had to stand at the Dispatch Box and argue for it. Lo and behold, I am in Guinness World Records for the biggest defeat of the Government since the House ceased being entirely hereditary—so I feel for the Minister.
However, I am afraid I question a couple of the things that he said—for example, the chairman of the BEIS Committee has no objection to my amendment at all, so he was given some wrong information there. I also fear that the Minister has failed to provide an explanation for the Government’s intransigence and indeed seems willing to stop Parliament having a mechanism whereby it can scrutinise highly classified intelligence, based on which key decisions are made. To cut it short—I have spoken for far too long—I therefore have no choice but to test the opinion of the House on this key amendment.
25: Clause 61, page 36, line 22, at end insert—
“(da) the average number of working days—(i) from receipt of a mandatory notice to notification of a decision to accept that notice, and(ii) from receipt of a mandatory notice to giving written reasons for a decision to reject that notice,”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the average length of time taken to give notification of a decision to accept or reject a mandatory notice is included in the annual report that must be made by the Secretary of State under Clause 61.
Amendment 25 agreed.
Amendment 26 not moved.
27: Clause 61, page 36, line 26, at end insert—
“(ga) the average number of working days—(i) from receipt of a voluntary notice to notification of a decision to accept that notice, and(ii) from receipt of a voluntary notice to giving written reasons for a decision to reject that notice,”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the average length of time taken to give notification of a decision to accept or reject a voluntary notice is included in the annual report that must be made by the Secretary of State under Clause 61.
Amendment 27 agreed.
Amendments 28 to 31 not moved.
32: Clause 61, page 36, line 33, at end insert—
“(m) the number of final orders varied,(n) the number of final orders revoked.”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the number of final orders varied or revoked is included in the annual report that must be made by the Secretary of State under Clause 61.
Amendment 32 agreed.
33: Clause 61, page 36, line 33, at end insert—
“(m) in respect of final notifications given, and final orders made, varied or revoked— (i) a summary of the decision of the Secretary of State under section 26(1), and(ii) a summary provided by the Security Services of any national security risk assessment provided under section 26(3)(a)(ii) relating to each decision under section 26(1).(2A) Where the Secretary of State considers that publication of any information listed in paragraph (2)(m) would be contrary to the interests of national security, those details may be excluded from publication and instead must be included in a confidential annex to the report provided to the Intelligence and Security Committee of Parliament on the same day that the rest of the report is laid before each House of Parliament.”
Amendment 33 agreed.
Amendment 34 not moved.
35: After Clause 61, insert the following new Clause—
“Higher education guidance
(1) Within three months of the day on which this Act is passed, the Secretary of State must publish guidance for the higher education and research sector in relation to provisions in this Act, which includes, but is not limited to—(a) a clear explanation of asset transactions in respect of which higher education institutions must give notice to the Secretary of State;(b) how the provisions of the Act affect contract research, consultancy work, and collaborative research and development;(c) the application of the provisions of the Act to strategic security partnerships and domestic partners.(2) The Government must consult the higher education and research sector on draft guidance and include feedback in the final publication.”
My Lords, I beg to move Amendment 35, which was tabled in the name of my noble friend Lord Grantchester.
As my noble friend Lady Hayter said in Committee, there is considerable concern in the higher education and research sectors about the potential impact of the Bill on research partnerships. Organisations have been crying out for clarity. Amendment 35, which I move on behalf of my noble friend—I thank the noble Lords, Lord Lansley and Lord Clement-Jones, for signing it—would require the Government to
“publish guidance for the higher education and research sector”,
“a clear explanation of asset transactions”
“research, consultancy work, and collaborative research and development”
will be affected and how the provisions apply to
“strategic security partnerships and domestic partners.”
The amendment would also require the Government to
“consult the higher education and research sector”
in a meaningful way in advance of the guidance. The amendment is therefore about developing guidance and promoting good practice, in that it should be done in co-operation with the sector. I certainly hope that the Government will agree to that.
The Russell group has said that, without clear guidance, a significant proportion of universities’ routine engagement with British business could inadvertently be captured by the Bill. I am grateful to the Minister for his engagement on this issue; I understand that there has been an indication that the Government have listened. Without getting ahead of the Minister, when he comes to wind up, will he confirm when the guidance will be published by the Government and how higher education and research institutions will be involved in drafting it? Will a draft of the guidance be published beforehand, for example? How will higher education institutions be highlighted in the critical sectors? Will the guidance include hypothetical scenarios so that people can plan?
Universities want to help to make the Bill work, as we all do; the Bill has enormous support across Parliament. We can all be united in recognising the benefits of businesses working with research institutions, which we want not only to continue to support and allow to flourish but to continue increasing. I beg to move.
My Lords, I thank the Minister, my noble friend Lord Callanan—he is not in his place—for his letter to us regarding guidance products. I was a bit confused by the word “products” but let us let that pass for the moment. The letter tells us about the expert panel, which is welcome; I gather that it has already sat, so that is a good start. I was slightly disappointed not to see any representatives from the insolvency profession on that panel because I think that, when they wake up to it, they will find that this Bill affects them much more than they realise. R3 had already told me that it would like to be on the panel, and no doubt the IPA, after its annual lecture the other week, will be keen to have representations on it. I also hope that the expert panel might include members of the public and practitioners who feel that they can contribute usefully.
To be honest, I welcomed point 9 on market guidance until I read it. It says:
“This will draw on an analysis of patterns or trends in notifications received by the ISU, focusing on where notifications were unnecessary.”
I am grateful to my noble friend Lord Lansley for coining the expression that this is “about markets”, not “to markets”. What one is hoping to see is guidance to the market on the modus operandi of the Bill and the ISU. In its last sentence, Point 9 helpfully says:
“It may also highlight where other guidance has been recently updated.”
What we are looking for here—I accept that this is slightly beyond the scope of the amendment, but it is relevant to it—is that guidance will be issued to the market on practical day-to-day matters so that particular sellers of businesses can understand how the system might work.
My noble friend the Minister has already raised, quite rightly, his concerns that he does not want to see buyers gaming the system. One way to avoid that is for guidance to be issued on what is actually happening and how to avoid that. Questions have arisen, such as if a purchaser is contemplating a bid—as we discussed in earlier sittings—and goes for a clearance to the ISU, will the ISU tell the seller that it has received such a notification from a purchaser, or is that kept confidential from the seller? That is not clear at all. Under the voluntary notification regime, for example, can the seller seek guidance on whether the Secretary of State will not call in the transaction if the selling auction is restricted to, say, UK purchasers? All sorts of helpful guidance might be issued to sellers of businesses, as the noble Lord, Lord Hodgson, said. It is a very fraught and important time, and reducing the number of purchasers in a transaction can have a dramatic effect on the value of the transaction.
As the noble Baroness, Lady Neville-Rolfe, said, we are all anxious that the ISU is properly staffed. I read the impact statement last night to refresh my memory. It talked about 1,830 transactions—based on 2,500 completed last year—which runs to about four a day. Of course, that is just transactions completed. As an M&A advisor, I have to tell noble Lords that, sadly, many more transactions fail than complete. However, many of them will go to the ISU for voluntary notification, thus ramping up the numbers.
The one thing we seek is certainty. To get it, we need consistency. Therefore, if the market guidance explains to the market what has happened in transactions clearly and precisely, consistency can be achieved in the market; that will help transactions to complete smoothly and inward investment not to be deterred.
I very much hope that my noble friend the Minister will consider the amendment that I have put forward in that light, or perhaps write to us afterwards with some further thoughts on it.
I am very glad to support Amendment 35 in the name of the noble Lord, Lord Grantchester, so ably moved by the noble Lord, Lord Rooker. It follows a debate in Committee led by the noble Baroness, Lady Hayter, which I thought drew out some of the issues for the higher education and research sector very well.
I am really pleased that our noble friends on the Front Bench have responded that they will provide guidance. I was originally looking for what amounted virtually to a safe harbour for higher education and research institutions, which I accept may be a stretch too far, but there is a substantial range of transactions that the higher education sector is concerned may be within scope.
When one looks at the consultation on the scope of the regime and the range of assets that are in scope, one sees that its concern about it is entirely justifiable. What it really comes down to is understanding through guidance and the sort of scenarios that the noble Lord, Lord Rooker, was referring to, how this is actually going to work. One of the central issues is that this is a regime about ownership and control, not about use. I am sorry; I have not given my noble friend notice of this question so if he wants to write to me about it subsequently I will completely understand, but I will take one example, which is non-exclusive licensing.
There are instances, and I think they are reasonably frequent, where the licensing process will allow people the use of an asset but will not allow them control of it, which remains within the higher education institution. It would be really helpful if the Minister were able to say, “Yes, the guidance will cover that and our expectation is that non-exclusive licencing would not be within the likely call-in”, not least because if the assets were to be used outside the United Kingdom and by particular persons outside it then, coming back to my earlier point, the export licensing regime would catch that use. The two regimes, working alongside each other, would work in harmony in that sense but would focus on the control and ownership of the technology in question rather than trying to capture all its potential uses.
With that said and with that question asked, I am glad that the Minister was able to give us some guidance —I should not say “guidance about the guidance”—or some expectation of the use of the guidance in the way that we wanted that to happen. I am very glad to support Amendment 35 but hope that, in reiterating that expectation, the Minister will allow this to be withdrawn.
My Lords, it is a pleasure to speak on this group of amendments because of the progress that has been made. It is also a pleasure to follow the noble Lord, Lord Rooker, in his new Front-Bench incarnation. Long may it last.
On Amendment 35, I declare an interest as chair of the governing body of Queen Mary University. As I said in Committee, although the Bill does not directly reference universities, given the width of the sectors included in the scope of the Bill, it is clear that there is an intention to capture partnership entered into by universities. Elements of the Bill, while introducing measures to protect national security, could have unintended consequences for future investment in UK R&D and could cause BEIS to be overloaded with references from the university sector. That would add to lead-in times and create red tape for both universities and businesses, and that would not be to the benefit of R&D in our universities. I am delighted that the Government have now accepted the case that there is a need for specific guidance for higher education when the trawler of the noble Lords, Lord Grimstone and Lord Callanan, goes by. It is really about the specificity that the noble Lord, Lord Lansley, mentioned; the nature of the guidance needs to be specific.
In Committee the noble Baroness, Lady Bloomfield, assured us that
“we do not generally expect the acquisition of qualifying assets for exclusive use by UK-based research or higher education institutions to give rise to national security concerns. Indeed, to go further, the use of assets where there is no acquisition of a right or interest resulting in control over a qualifying asset would not even constitute a trigger event”.
I hope that kind of thing is going to be spelled out. Similarly, the noble Baroness pointed to the three levels of risk set out in the draft statement on the Secretary of State’s call-in power. She said:
“I am confident that higher education and research institutions will be able to assess their activities and decide in which of these three areas of risk they fall.”
Again, I very much hope that that is spelled out in the guidance. The summary certainly looks quite promising in terms of talking about the scenarios that are going to be outlined. She concluded:
“The Government very much appreciate the Russell group’s ideas on inclusion for guidance”,—[Official Report, 9/3/21; cols. 657-58GC.]
and I very much hope that they will continue to listen. I see that the Russell group is represented on the expert group, and I think that is extremely helpful.
I think we can be much more confident that the Government will turn that appreciation into tangible guidance, but I hope that the Minister will—in the way that the noble Lord, Lord Rooker, mentioned—give further comfort on the nature of the consultation, the timing and with whom it will take place, in respect of that particular set of guidance.
Turning to Amendment 36, I am delighted to follow the noble Lord, Lord Leigh. I declare an interest as a member of the advisory board of the corporate finance faculty of the ICAEW. Of course, it follows that the noble Lord, Lord Leigh, and I have been very carefully following the correspondence between the noble Lord, Lord Callanan, and David Petrie of the ICAEW. Again, I am delighted that the Minister has accepted that the statement about the exercise of the call-in power will not be sufficient for the investment community and that the annual report—and, indeed, the fact sheets mentioned in Committee—is not the best vehicle and that the Government have now committed to issuing market guidance.
But the market guidance notes really must do what they say on the tin. The noble Lord, Lord Leigh, had a slightly veiled criticism of how detailed these were going to be in terms of their use to those who are transacting. This has rather different wording from that applied to higher education. It seems to me that the wording is much more helpful when it talks about scenarios in higher education; this talks about drawing on analysis of patterns or trends in notifications received by the investment security unit. It is all about the notifications; it is not an end-to-end analysis of the trends as regards the Secretary of State’s decisions, call-in and so on. There is a great deal more that could be covered. I welcome the flexibility shown by the noble Lord, Lord Callanan, in his letters to the ICAEW, offering to make progress on developing guidance notes. I very much hope that will happen now that the ICAEW is part of that expert group.
I think it might be helpful to put on record significant detailed additions that could be put into the guidance notes. In addition to some of the points made by the noble Lord, Lord Leigh, I suggest that it would be useful to have contained in the market guidance notes details about at what stage in a transaction advisers or companies should contact the ISU, and how sellers seeking to retain control of the process might manage that element of the transaction—although, of course, we know that most of the emphasis is on the acquirer notifying the unit. It might also be useful to have advice for investors on the provisions that could be exercised and the circumstances in which the Secretary of State has declared deals as null and void, and commentary that recognises the need for maintaining competitive tension in an investment or sales process in order to obtain optimum terms from investors or acquirers, in terms of enabling a limited number of final bidders in a trade auction process. These are the sorts of the things that could be envisaged. It could also include advice about mechanisms to prevent bidders submitting vexatious or deliberately incomplete notifications, and advice designed to avoid frequent requests to investors and/or acquirers for additional information.
A market guidance note might be useful when it becomes clear that the Secretary of State is unwilling to permit investment and control in particular subsectors that have been identified. Additionally, I think that the ICAEW has mentioned that a market guidance note specifically for private equity investors would be useful. Of course, publishing these market guidance notes in a timely and regular fashion as circumstances change is really important. Again, on the question of the consultation, I very much hope that the Minister will say who will be consulted and when such market guidance notes might be available—that would be good.
Finally, I welcome the suite of products. I do not like the word “product” either. I think “sets of guidance” is more apposite. I very much hope that those who are affected by the Bill and its provisions when it becomes an Act are not required to read a huge pile of documents. In the case of market guidance notes, for instance, I hope that the notification process is included and that we do not just expect everybody to read 10 documents before they can grasp the requirements under the Act. The same applies to higher education. The approach of rolling in the risk profile of the transactions into the policy statement would be a great deal more helpful than simply expecting people to read individual documents as they go through the process.
My Lords, I thank noble Lords for their amendments, which seek to require the provision of guidance. As a former practitioner, I am very pleased with the progress we have made in this area with your Lordships’ help. It is an important topic.
Amendment 35 requires that the Secretary of State provides guidance for the higher education and research sector within three months of the Bill passing. This amendment also requires the Government to consult the higher education and research sector on the draft guidance. I thank the noble Lords, across three parties no less, for their amendment. As has been said, this amendment and others encouraged my noble friend Lord Callanan to write to all Peers on Tuesday setting out our intention to publish guidance. I am pleased to be able to commit on the Floor of the House that the Government will provide guidance to the higher education sector within three months of Royal Assent.
I am happy to assure the noble Lord, Lord Rooker, that we are already working with the Russell group and others as part of our expert panel across all guidance. This panel is providing feedback and input to ensure that parties have the utmost clarity and assistance in understanding and complying with the regime. In this guidance, we will pay care, as the amendment seeks, to the treatment of assets under the regime. I can confirm that the Government will also engage with representatives from the broader research sector as part of this work.
I will just make a few further, brief points. First, I wish to make it clear that asset acquisitions will not be in scope of the mandatory notification regime, so there will be no obligation to notify any asset acquisition. Secondly, as my noble friend Lady Bloomfield set out during Grand Committee, the statement provided for in Clause 3 sets out core areas and core activities to which the Secretary of State is likely to pay closer attention, and the majority of research, consultancy work and collaborative research will fall outside these areas. The guidance we are publishing will provide higher education and research establishments with hypothetical scenarios—effectively case studies—of where acquisitions in the research sector could fall in scope of the regime. It is our aim that the guidance will aid the higher education sector’s understanding of where acquisitions in its sector may be in scope and will prevent unnecessary voluntary notifications, which is clearly in everyone’s interest.
Thirdly, the amendment makes reference to the application of the provisions of the Bill to security partnerships and domestic partners. I am pleased to clarify that this Bill covers only acquisitions of control over qualifying entities and assets, so does not apply specifically to the formation of partnerships. An acquisition of control by a partnership will be in scope of the regime in the same way as any other acquisition of a qualifying entity or asset by a party but, if there is no acquisition of control, this regime would not apply.
Amendment 36, from my noble friend Lord Leigh of Hurley, would require the Secretary State to provide market guidance notes within six months of the Bill passing and every six months thereafter. Such market guidance notes would provide information to assist with compliance with the regime.
I am pleased to confirm to my noble friend and other noble Lords on the Floor of this House that it is indeed the Government’s intention to provide market guidance notes, sometimes known as practice statements or practice notes, and we will draw on the expert panel. The composition of the panel was set out in the letter that noble Lords recently received, and no doubt the composition of the panel can be adjusted over time to make sure the appropriate experts are on it.
These practice statements will be issued periodically and based on an analysis of the notifications received and, of course, feedback on what it would be helpful for them to contain. I believe this guidance will be helpful to advisers in particular. It will refer to and emphasise aspects of the statement where it is clear such emphasis would benefit parties in coming to a judgment about whether to notify. The statement will be published by the Secretary of State on how he expects to exercise his call-in power as provided for by Clause 3. We remain open to considering over time what further information will be helpful to guide parties as part of such market guidance. I have already carefully noted the suggestions noble Lords made today in that respect.
I thank noble Lords for these amendments, and for their discussions with me. The Government have listened and acted as a result of their helpful suggestions, and I have no doubt that the regime will be better understood as a result. I hope I have reassured noble Lords with the commitments I have made in the House today and I therefore ask that they do not press their amendments.
I thank the Minister for what he has said, particularly on education. I am also grateful for the letter sent by the noble Lord, Lord Callanan, which I expressed my appreciation for when speaking on Amendment 22.
My question relates to something said at that time: the suggestion that market guidance to buyers and sellers could not cover timelines, timeliness and the modus operandi. There was a reference to the Constitution Committee apparently making that problematic. Clearly, guidance on such issues is very helpful to operators, so I wondered whether it would be possible to have a little more detail—not now, but later—as to why there is a problem in covering that in guidance. If there is a problem, perhaps the Minister would consider whether we need to take a power, which I think the amendment tabled by my noble friend Lord Leigh provides for. This would ensure that we can give operators the sort of guidance they need to make operations work well, as we all hope.
Amendment 35 withdrawn.
Amendments 36 to 38 not moved.
39: Clause 63, page 37, line 39, at end insert—
“(6) Before making regulations under section 6(1) the Secretary of State must lay before Parliament— (a) the proposed draft of the regulations, and(b) a document which explains the proposed draft regulations.(7) Where a proposed draft of the regulations is laid before Parliament under subsection (6), no draft statutory instrument containing the regulations is to be laid before Parliament until after the expiry of the 30-day period.(8) The Secretary of State must request a committee of either House whose remit includes industrial strategy, economic affairs, science or technology to report on the proposed draft regulations within the 30-day period.(9) In preparing a draft statutory instrument containing the regulations, the Secretary of State must take account of—(a) any representations,(b) any resolution of either House of Parliament, and(c) any recommendations of a committee under subsection (8),made within the 30-day period with regard to the proposed draft regulations.(10) If, after the 30-day period, the Secretary of State wishes to make regulations in the terms of the proposed draft or revised draft regulations, they must lay before Parliament a statement—(a) stating whether any representations, resolutions or recommendations were made under subsection (9),(b) giving details of any representations, resolutions or recommendations so made, and(c) explaining any changes made in any revised draft of the regulations.(11) The Secretary of State may make a statutory instrument containing the regulations (whether or not revised) if, after laying a statement under subsection (10), a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament as outlined in subsection (5).(12) In this section, reference to “the 30-day period” in relation to any draft regulations is to the period of 30 days beginning with the day on which the initial proposed draft regulations were laid before Parliament.(13) For the purposes of subsection (12) no account is to be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than four days.”Member’s explanatory statement
This amendment would introduce the super-affirmative procedure for regulations made under section 6(1).
My Lords, your Lordships will be pleased to know that I will not repeat the entire, long speech that I gave in Committee. The wording of this amendment has not changed between Committee and Report, but there are a few points I want to remind your Lordships of. I am sure the speech is still fresh in noble Lords’ minds. To be clear, I will be putting this amendment to a vote at the end of this process.
Under Clause 6, the Secretary of State has great power to make the regulations concerning how the Bill will work. The Secretary of State can specify the description of the qualifying identity for the purpose of identifying a notifiable acquisition. He or she can amend the circumstances in which a notifiable acquisition takes place or does not take place, exempt acquirers with specified characteristics from the mandatory notification regime and make consequential amendments to other provisions in the Bill.
The Minister has represented, as he did in Committee, the proposed use of the affirmative procedure in the Bill as meaningful parliamentary scrutiny. However, the truth is that, from the perspective of these Benches, this means that Clause 6 can be amended by this and any subsequent Government as they please. Parliament cannot amend statutory instruments and, perhaps more importantly, this House has voted down affirmatory statutory instruments just four times in the past 70 years. I refer, as I did last time, because it is important, to the Constitution Committee’s 2018 report, The Legislative Process: The Delegation of Powers, which states:
“Without a genuine risk of defeat, and no amendment possible, Parliament is doing little more than rubber-stamping the Government’s secondary legislation. This is constitutionally unacceptable.”
For this reason, affirmative statutory instruments do not constitute meaningful parliamentary scrutiny. This Government—or, I remind the Minister, any subsequent Government—are effectively free to amend the Bill as and when they please. The Minister sort of said this when speaking to the second group of today’s amendments.
Regrettably, I do not think Her Majesty’s loyal Opposition will roll behind me when this moves to a vote. That is the indication I have been given. I know that the noble Lord, Lord Grantchester, is as up for scrutiny as any man or woman. He likes a bit of scrutiny, and he is possibly not averse to knocking back legislation from time to time. However, his colleagues, particularly those at the other end—who are, even now, trying to measure up ministerial curtains in advance of their march towards power—would not welcome the democratic speed bumps proposed in this amendment, so their reaction, while regrettable in the great scheme of things, can be explained in that way.
Those sitting on the Benches opposite will live to regret not putting in place such measures. Members of their own party are not above adapting powers of Bills to create micromanagement, but we certainly heard enough at Second Reading, from some Members of Her Majesty’s Official Opposition, to feel that there are those who will seek to use this as a proxy for interventionist market strategy. I support having a collaborative strategy for national prosperity, but this Bill should not be used to enforce such aspirations.
The super-affirmative procedure in the amendment would provide both Houses with opportunities to comment on proposals for secondary legislation, and to recommend amendments, before orders for affirmative approval are brought in their final form. However, the power to amend the proposed instrument remains with the Minister. The two Houses and their committees can only recommend changes, not make them. So I ask the Minister what there is to fear from that. I beg to move Amendment 39, and I give formal notice that, unless a miracle occurs, I expect to divide the House on this issue.
Noble Lords will be relieved to hear that I have very little to add to what my noble friend has just said. The basic fact is that everything we have discussed in the course of our consideration of the Bill could be changed by regulation. If noble Lords do not believe me, they can look at Policy Statements Regarding Statutory Instruments Required for the Commencement of the NSI Regime, as updated on 2 March 2021. There are eight extensive areas—my noble friend mentioned a few of them—for changing the sectors covered. If that is not a massive change, I do not know what is. Changing the trigger thresholds, which we have been debating today, would effectively change the entire mandatory regime. These changes could all radically change the nature of the Bill. Whether or not noble Lords accept the scenarios put forward by my noble friend, that should be a real wake-up call. No primary legislation should be subject to the possibility of change as broad as that. So I support my noble friend’s amendment, and I very much hope the Minister will rethink the attitude taken by the Government in Committee to this self-same amendment. The super-affirmative process is a good one; it gives proper deliberation to changes and it is far more democratically accountable.
I am grateful to the noble Lords, Lord Fox and Lord Clement-Jones, for the amendment, which proposes a super-affirmative process for regulations under subsection (1) of Clause 6, “Notifiable acquisitions”. This was debated at length in Committee, and we certainly agree that parliamentary scrutiny of regulations is not always as meaningful as it might be. We can feel sympathy with the view that notifiable acquisition regulations are highly significant and require proper oversight, not merely by both Houses of Parliament but also by many experts who might become involved.
The opinions of those experts could be sought and made available to Parliament and deliberated on. The importance of consultations with stakeholders who are knowledgeable and familiar with the situation at the leading edge is also recognised. However, the Delegated Powers and Regulatory Reform Committee did not call for the super-affirmative procedure to be adopted for these regulations under the Bill. Indeed, in its report of 22 February it said that
“there is nothing in the Bill to which we would wish to draw the attention of the House.”
It would be unusual to take a view contrary to the considered opinion of that well-respected committee of your Lordships’ House.
We remain somewhat sceptical about how the super-affirmative procedure would work in practice, over and above the normal affirmative procedure, in this case, even if custom and practice deemed the process less than ideal in all circumstances. We feel that experience needs to be gained first before undertaking this extra affirmative process. I hope this confirmation of what the noble Lord, Lord Fox, may have heard about our view on his amendment may not greatly startle him.
My Lords, I of course welcome the amendment from the noble Lords, Lord Fox and Lord Clement-Jones, which seeks further parliamentary scrutiny of Clause 6 regulations, and the opportunity to put forward the Government’s case once more. I can spare the noble Lord, Lord Fox, the agony and tell him that, great though my ministerial powers are, I am not a miracle worker and, therefore, probably will not satisfy him.
The Bill as drafted provides for regulations made under Clause 6 to be subject to the affirmative resolution procedure. This amendment would require the Secretary of State to lay a proposed draft of any regulations made under Clause 6 before Parliament for 30 days before the draft regulations themselves are laid and subject to the approval of both Houses. It would also require the Secretary of State to identify a committee to report on the proposed draft regulations and then report on their consideration of the committee’s recommendations.
We have, as the noble Lord, Lord Fox, said, previously discussed the importance of regulation under Clause 6, and I thank the noble Lords for their commitment to ensuring meaningful parliamentary scrutiny of the making of such regulations. However, the Government’s position remains that the affirmative procedure—or regulations made under Clause 6—ensures such scrutiny by requiring Parliament to approve regulations. In Grand Committee, the noble Lord also highlighted the importance of the Secretary of State maintaining “serious technology foresight” and making any regulations under Clause 6 to protect our national security effectively. I can assure noble Lords that the Government are committed to keeping regulations under constant review to ensure that this regime is effective in protecting our national security and reflects technological changes.
The affirmative procedure will, in addition, provide the Secretary of State with the flexibility to update the mandatory regime quickly should new risks to national security arise. For all these reasons, I ask that the noble Lord withdraw his amendment though, in the absence of the requested miracle, I suspect that he is not going to do so.
I thank the Minister for his response and the noble Lord, Lord Grantchester, for his speech. The Minister is correct: there was no miracle, and there was no surprise. Of course, I was aware that the Secondary Legislation Scrutiny Committee had not recommended opposing this in any way. Sitting through three days in Committee and a day on Report would activate many people who worry about the way in which Governments run their affairs. Therefore, with all due respect to everyone, having been through that process, it would be remiss if someone did not bring an amendment of this kind before your Lordships’ House. To that end, I would like to test the mood of the House.
(3 months, 2 weeks ago)Grand Committee
Committee (1st Day)
My Lords, the hybrid Grand Committee will now begin. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I must ask Members in the Room to wear a face covering except when seated at their desk, to speak sitting down, and to wipe down their desk, chair and any other touch points before and after use. If the capacity of the Committee Room is exceeded, or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
I will call Members to speak in the order listed. During the debate on each group, I invite Members, including Members in the Grand Committee Room, to email the clerk, if they wish to speak after the Minister, using the Grand Committee address. I will call Members to speak in order of request.
The groupings are binding. Leave should be given to withdraw amendments. When putting the question, I will collect voices in the Grand Committee Room only. I remind Members that Divisions cannot take place in Grand Committee. It takes unanimity to amend the Bill, so if a single voice says “Not Content” an amendment is negatived, and if a single voice says “Content” a clause stands part. If a Member taking part remotely wants their voice accounted for if the question is put, they must make this clear when speaking on the group. We will now begin.
1: Before Clause 1, insert the following new Clause—
“Objective of this Act
(1) The overarching objective of this Act is to allow the Secretary of State to safeguard national security in respect of economic and social harm.(2) When making decisions under this Act, including for the purposes of assessing a risk to national security, the Secretary of State must have regard to the objective in subsection (1).(3) The Secretary of State must also have regard to the effect of the application of this Act on—(a) technology investment;(b) the research and innovation environment; and(c) business opportunities for small and medium-sized enterprises.”Member’s explanatory statement
This amendment sets an objective for the bill in relation to national security and includes a number of other elements to which the Secretary of State must have regard.
My Lords, Amendment 1 is in my name and that of my noble friend Lord Clement-Jones. At Second Reading the Minister described the Bill as
“a major upgrade to the Government’s powers to screen certain acquisitions on national security grounds”,
which builds substantially on the Enterprise Act 2002. It certainly is, but perhaps in the Bill we are dealing with architect’s drawing of the upgrade, rather than a 3D model.
First, let me say without equivocation that those of us on our Benches see the need the Government to scrutinise potentially sensitive transactions, and we think that an upgrade is timely and sensible. However, as the Minister has acknowledged, there is the rub. Defining what is sensitive and what is a transaction of concern are key to the effective operation of the Bill. As we progress through the amendments ahead of us, I would say that virtually all seek to better define the operational process of the new investment security unit within BEIS and to ensure that the disquiet it has caused is alleviated.
At Second Reading, the Minister spoke about reflecting
“the modern economic and investment landscape in the UK.”—[Official Report, 4/2/21; col. 2332.]
In fact, what is proposed here is culturally different from what successive Governments have practised. Blair, Cameron—including and excluding us—through May to Johnson have all, so far, rightly or wrongly, pursued a distinctly hands-off approach. It is not hard to understand the alarm that the Bill might cause in the outside world.
Its publishing sends a message about the future nature of interventionism. This concern comes not just from the traditional free traders of the City but from universities, industry trade associations and sectors as wide as space and bioscience. The abiding link to these academic and industrial concerns is that these are, by necessity, international and collaborative activities.
The overwhelming concern coming from all sides of the House in that Second Reading debate was how this unit was to operate effectively without stifling innovation, scaring off capital and becoming a proxy for wider strategic considerations. It is with this in mind that my noble friend Lord Clement-Jones and I penned this first amendment, which sets out the objective of the Act. By exclusion, it also sets out what is not the objective of the Act and thus what is within and not within the purview of the investment security unit. It is designed to send clear messages about how this Bill will operate in practice.
Looking at the amendment in detail, first, in making regulations under proposed subsection (1), the Secretary of State’s overarching objective must be safeguarding national security. This is reinforced by proposed subsection (2). There is no controversy here, given that this is the purpose of the Bill, and on their own the subsections would offer nothing new. That is down to proposed subsection (3), which would add that
“The Secretary of State must also have regard to the effect of the application of this Act,”
on other things. In our case we have listed:
“technology investment … the research and innovation environment … and … business opportunities for small and medium-sized enterprises.”
We put those three there, because in our view these areas are key elements of our national security. I am happy to debate what should be on that list, but I will explain why we put these in the amendment.
Technology investment is key to keeping ahead of the security arms race, and it is reasonable that the Secretary of State and, by extension, the unit in BEIS would have regard to this technology base. Similarly, the research and innovation environment is needed to deliver that technology leadership. Without vibrancy in investment here our future security is compromised. Finally, in many cases it is the SMEs that bring true innovation to all the 17 sectors on the Minister’s list. They take technology to market and must not be disproportionately disadvantaged by the application of this Bill.
This amendment is designed to send two messages. One is internal, seeking to influence the nascent culture of the investment security unit to ensure that it recognises publicly what elements contribute to the delivery of national security. The second is an external message to the market, our universities and our innovative businesses, big and small. They need to know that these issues are in the Government’s mind when they are making security decisions. They need to be reassured that this is a vehicle to help to reassure them. The Minister may well say “trust me”, and of course I do, but what of future Ministers and future Governments? This amendment would ensure that the Government have regard to the conditions and the culture that will deliver national security and investment in that security. I beg to move.
My Lords, in principle, I do not support proposed new clauses such as this, whether they are called objective clauses or purpose clauses. I have tabled them myself in the past, but they are usually not much more than an excuse for another Second Reading debate, and we had a little of that in the introduction from the noble Lord, Lord Fox.
Amendment 1 could be positively harmful. It confines national security to “economic and social harm”. The obvious item omitted is physical harm, but other harms could be missing. Purpose or objective clauses would be used as an aid to interpretation of the main body of the Act so, if they are there, they have to be comprehensive in their drafting if they are not to act as a constraint on the operation of the Bill.
Similarly, the “have regard” matters in proposed new subsection (3) could act as a constraint on the Secretary of State. The noble Lord, Lord Fox, explained the rationale for his list, but I could not see why “technology investment” was singled out compared to other kinds of investment—for example, in manufacturing capability or intellectual property. What exactly is meant by “research and innovation environment” is unclear from the drafting, and is the omission of “development”, which is the normal companion to “research”, significant or not? Singling out SMEs, which we are all aware are important to our economy, implies that larger enterprises are not important in the considerations.
There is a good reason why Bills do not often contain purpose or objective clauses. They are traps for the unwary and can do more harm than good.
My Lords, there are very wide-reaching powers in this Bill and, to start where I ended my Second Reading speech:
“I am not against the notion of interventions, but the Bill should be more than notion and compulsion, and I hope that it is possible to include more direction and balance.”—[Official Report, 4/2/21; col. 2364.]
That is exactly the aim of Amendment 1. It aims to be positive rather than negative, by defining an overarching objective. One might debate whether it could be slightly different, but the idea is to have an overarching objective to safeguard national security in respect of economic and social harm. “Social harm” is a very broad term. Recognising that broad scope, it specifically lists that the Secretary of State must
“have regard to the effect … on technology investment… the research and innovation environment … and business opportunities for small and medium-sized enterprises.”
I can almost hear the Minister assuring us that the Secretary of State will have regard to a lot of things, and that would be right, but it is also necessary to make sure that there are correct messages given by the Bill—messages that endure and give confidence to the business sectors most likely to suffer, perhaps entirely unnecessarily, from rumours, concern or finger-pointing from competing jurisdictions.
If we take the starting point that the Bill has good intentions, that there are similar moves internationally, that we have perhaps been too slack in the past, and that there are inevitably burdens arising from both notification requirements and notification concern, that will lead to unnecessary voluntary notification. One wonders if there are not more mechanisms that can give an all-clear signal.
Maybe some will become clearer or develop over time but, wherever that is possible, as we work through the Bill, I am mainly looking to see what incremental steps can be made towards certainty. That can be helped right at the start of the Bill by using the combination of broad objective plus a list of the most sensitive “have regard” matters. This appears in various other pieces of UK legislation, not least in the financial services legislation that is occupying both my time and that of the noble Baroness, Lady Noakes, on the days either side of this sitting. Therefore, I hope that the Minister sees the advantage of taking that approach here.
My Lords, I will disappoint my noble friend Lady Noakes by making a comment that is more a Second Reading comment than anything else. But it is important we see this Bill in context. The genesis of this Bill is, I assume, largely about Chinese influence and the debates we have had about Huawei and so on. I want to raise only one issue on the context; it is the way in which British commerce and the economy are so intricately and deeply linked with China. Is that globalisation? I am not sure.
We all know how much we buy now comes from China on the one belt, one road programme or elsewhere. The interdependence between western consumers and economies and the Chinese economy is extraordinarily deep-rooted. I am going to use a little example—a silly one, you may say. Old-fashioned fellow that I am, I try to buy British if I can. Looking for a butter dish online, I bought quite an attractive one from the English Tableware Company. I thought that was pretty safe, until the moment it arrived. I turned it over and found it was made in China, which seems quite strange to me. I took it up with the company, and it came back to me saying its products were all ethically sourced and it had checked the suppliers. Of course, we have no idea about the working conditions or possibility of slave labour in Chinese factories.
We know quite a lot about what is sadly happening in Xinjiang, and that the Chinese Communist Party sees commercial influence as intricately linked to broader power. We should all remember what has happened to the relations between China and Australia since Australia demanded an investigation into the roots of the Covid crisis. The Chinese apparently talk about civil/military fusion. Butter dishes may not be of huge importance to intelligence, but they reflect the broader context of the intricate involvement of western economies with the Chinese economy.
My Lords, I declare my interests as stated in the register. My noble friends Lord Fox and Lady Bowles have cogently outlined the purposes of Amendment 1 and the importance of having a framework of this kind for the Secretary of State when he is exercising his powers under the Bill.
I am taken by the fishing analogy which has been used in relation to the Bill. On these Benches, we support the trawling process and its purpose, but a large number of questions in consequence need answering about the extent of the net, the size of the mesh, and which species will be taken on board and which discarded, and how long that will take. We will come to those questions later in Committee. This amendment asks the broader question: what impact on the broader ecology is the trawling having? The Secretary of State cannot be oblivious to the impact on the investment ecology, as set out in the proposed new paragraphs, but must take account of the impact of what he or she is doing. I am sure that the Minister will want to give us assurances on many questions to do with the Bill as drafted. But we need certainty about this aspect and how the Secretary of State will exercise these considerable powers yet not thereby damage what we have in the UK—a thriving investment climate. As my noble friend Lord Fox has pointed out, it is not just the City but universities, trade associations and sectors such as space and biosciences that have raised concerns about the width of the Secretary of State’s powers.
Today, we have seen the outcome of the sector consultation, all 111 pages of it, which allays concerns somewhat, but I anticipate that many will still believe—as I do—that the net is being too widely drawn. This amendment is designed to constructively allay that concern. I hope that the Minister will recognise its merits. It is far from harmful, as the noble Baroness, Lady Noakes, suggested it was. She asked why we singled out these three elements: it is because, looking at the sectors, it is precisely those areas that we believe are most likely to be damaged if a net is drawn too wide. I am going to resist the temptation to pick up the points made by the noble Lord, Lord Robathan, because I am conscious we are not on Second Reading, but he has raised some interesting questions.
My Lords, it was clear at Second Reading, and again today from when the noble Lord, Lord Fox, began, that everyone across the House agrees that national security is the number one priority.
The discussion therefore is twofold. First, will what is, and is not, covered in this legislation be clear enough? Secondly, is the balance between security needs and the desire for economic growth, research, innovation and freedom to invest, correctly delineated? On the first issue, it is obvious that the new regime must be based on the best advice coming from across government, as well as on emerging and current threats, and the behaviour and developments of our adversaries. We will come in the next group to the definition of national security.
This first amendment is focused more on the second question that I posed. Will the unit take sufficient account of technology investment, research and innovation, and business opportunities, particularly for SMEs? From everything said at Second Reading and even today, that is an important discussion. We should not expect the Bill, nor its new unit, to be the generator of investment, research and development—that is for an industrial strategy—but the Government must have a careful eye on whether the workings of the Bill have a detrimental impact on technology investment and innovation, while ensuring that the economy does not override security interests. That is a difficult judgment. If it were not, there would never be any problems for the Government to solve.
I read today—others may already have been aware—of possible changes to the listings regime to help the City compete with New York, Amsterdam and Frankfurt in attracting fast-growth companies by creating an “agile” new economy focused on innovation and technology. We welcome such moves and attention being given to making Britain a more attractive place in which entrepreneurs can take companies public.
We hope that the proposals emanating from one of our colleagues, the noble Lord, Lord Hill, on relaxations on the use of dual-class shares, to allow founders to keep control over their companies by giving them deciding votes on decisions such as corporate takeovers, could work in harmony rather than at variance with the objectives of the Bill. I hope there will be an opportunity to discuss those interplays as we go forward.
In the meantime, we will consider future amendments that will look at whether the right procedures, definitions, timelines and so on strike t