Tuesday 17th November 2020
(4 years, 4 months ago)
Commons ChamberNational Security and Investment Bill 2019-21 Read Hansard Text
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Secretary of State for Business, Energy and Industrial Strategy (Alok Sharma)
I beg to move, That the Bill be now read a Second time.
Our country has always been a beacon for inward investment and a champion of free trade. We recognise and celebrate the positive impact of these twin policies in delivering prosperity and opportunities across the United Kingdom. Over the past 10 years, the UK has attracted around three quarters of a trillion dollars of foreign direct investment, which in turn has helped to create 600,000 new jobs in our country.
In 2019-20 alone, more than 39,000 jobs were created in England thanks to foreign direct investment projects, with more than 26,000 of those jobs created outside London. Almost 3,000 jobs were created in Scotland, and more than 2,500 in Wales and 2,000 in Northern Ireland respectively. That is why we will continue to work relentlessly to ensure that the UK remains a great place to do business and invest. That approach is more important than ever as we look to business to create jobs in our recovery from covid-19.
The UK is very much open for business, but being open for business does not mean that we are open to exploitation. An open approach to international investment must also include appropriate safeguards to protect our national security. Those are not conflicting approaches; prosperity and security go hand in hand. Otherwise, we leave the United Kingdom open to the risk of being targeted and compromised by potential hostile actors who are looking to disrupt our economic and wider security.
Ms Nusrat Ghani (Wealden) (Con)
From the moment that this Bill was started to now, we have learnt a lot more about security and infrastructure. Does my right hon. Friend share my concerns that the Chinese national intelligence law requires Chinese firms to assist with state intelligence work? This was brought to light for me when TikTok gave evidence to the Business, Energy and Industrial Strategy Committee. I am incredibly anxious about the data that it could potentially be harvesting and sharing back with its parent company, ByteDance.
Alok Sharma
I know that my hon. Friend cares very deeply about this issue and, indeed, she and I have had discussions about it. I would say to her that the Bill is agnostic as to the domicile of an acquirer. I think that that is right and proper, but it is also right and proper that we look at every single transaction on a case-by-case basis. Let me assure her that if there are security concerns with any transaction, of course we will act.
Bob Seely (Isle of Wight) (Con)
There is a lot in the Bill that I am sure we all support, but does my right hon. Friend accept that without a public interest test, a character test, an anti-slavery test and a human rights test, the definition of national security being offered here is extraordinarily narrow and problematic to the broader age that we live in? Does he accept that there will be debate around that point—about what constitutes national security in this age?
Alok Sharma
My hon. Friend raises a point that I know he has raised with my fellow Ministers, and other colleagues will raise a similar point. He talks about modern slavery. He knows that the Government passed the Modern Slavery Act 2015. The Home Office is looking to update and strengthen that. I note the points that he has raised, but the whole point of the Bill is for it to be narrow on national security grounds, and that is the way that it was constituted when it was first discussed in the Green Paper in 2017 and in the White Paper in 2018. However, I will try to address some of the points that he raised as I go on.
Those who seek to do us harm have found novel ways to bypass our current regime by either structuring a deal in such a manner that it is difficult to identify the ultimate owner of the investment, or by funnelling investment through a UK or ally investment fund, or indeed, by buying or licensing certain intellectual property rather than acquiring the company. Be in no doubt that the UK and our allies are facing a resurgence of threats. That is why we are updating our powers to screen investments into the UK. Our current powers date back to the Enterprise Act 2002. Technological, economic and geopolitical changes across the globe over the past 20 years mean that the reforms to the Government’s powers to scrutinise transactions on national security grounds are now required.
Mr Kevan Jones (North Durham) (Lab)
I welcome a lot of the proposals in the Bill, including on the issue of land and the removal of the thresholds in terms of ownership. One way that people have been able not only to get influence in this country but to launder money has been through the purchase of large amounts of property in the UK, which were highlighted in the Intelligence and Security Committee’s report on Russia. Does the Secretary of State see the Bill addressing that issue?
Alok Sharma
I will go on to the detail of that particular issue, but as the right hon. Gentleman identified, the Bill looks at assets and intellectual property. On the point that he raised about the size of transactions, as he knows, under the 2002 Act, apart from some limited exceptions, businesses being acquired must have a UK turnover of over £70 million or, indeed, the merger must meet a minimum 25% market threshold. This means that acquisitions of smaller but technologically sensitive companies are not covered.
The Government have been clear for a number of years about our intention to introduce new powers. Many of our international allies, including our Five Eyes partners, have also acted to update their legal frameworks to address national security risks. We, in turn, are seeking to update our legislation in a proportionate manner to ensure that we have more security for British businesses and people from hostile actors targeting our country; more certainty for businesses and quicker, slicker screening processes as we remain open to trade and recover from covid-19; and a regime that is in line with our allies, meaning that investors will be familiar with this approach.
Let me turn to some of the specifics of the Bill. Part 1, chapter 1 introduces a call-in power that the Government may use in relation to a trigger event across the economy that they reasonably suspect has given rise to or may give rise to a risk to national security. Trigger events include acquisitions of certain shares or voting rights in a qualifying entity, and the acquisition of material influence over such an entity. As the right hon. Gentleman pointed out, it will be possible for the first time to call in the acquisition of a right or interest in a qualifying asset, including intellectual property, where such an acquisition would enable the acquirer to use the asset or control or direct how it is used. That is similar to the US and other countries’ regimes.
The call-in approach is consistent with the 2002 Act, but importantly there are no minimum thresholds for the size of the business or asset to be acquired. That means that sensitive businesses and assets that may previously have slipped under the minimum size threshold will no longer do so. That will close the back door into the United Kingdom that hostile actors could exploit.
However, it is important to reassure the investment community that the Government expect to use these powers sparingly. We estimate that less than 1% of transactions in any given year will be subject to call-in. For transactions that fall outside the mandatory requirement of the regime, the Government will be able to call in a transaction within a period of five years of a trigger event having taken place where they have not been notified. When the Government become aware of a trigger event having taken place, they will have six months to issue the call-in notice. That five-year period is, again, consistent with regimes in Germany and France. The Bill requires that the Government publish a statement of policy intent explaining how they expect to use the power to issue a call-in notice.
Should the Bill become an Act, the Government’s call-in powers will apply from the date of introduction and will cover transactions that complete during its passage. That will ensure that hostile actors do not rush through the completion of transactions between the introduction of the Bill and Royal Assent as a means to avoid scrutiny under this legislation. My Department has already set up an investment security unit to field enquiries from businesses and investors about transactions under the new regime.
Under the National Security and Investment Bill, there will be no requirement to publish call-ins. That is of course in contrast to the public interest intervention notices under the 2002 Act.
Aaron Bell (Newcastle-under-Lyme) (Con)
I welcome what the Secretary of State just said about the call-in power. Will he confirm that, as a result of the measures in the Bill, most transactions can take place within 30 days, which means that the UK will remain a venue, and be an even better one, for foreign direct investment as we seek to rebuild our economy following coronavirus?
Alok Sharma
My hon. Friend makes a very important point. We are giving certainty, and we expect that most call-in decisions will be decided upon within 30 days. I said that we expect that less than 1% of all transactions in any given year will be called in, and only about 10% of those will then face detailed scrutiny.
Mark Pritchard (The Wrekin) (Con)
Will the Secretary of the State provide clarity to the House about the jurisdiction of the Bill? For example, if a German technological company was listed in Germany but the IP and research and development was based in the UK, what powers would the Government have to act?
Alok Sharma
This Bill applies to any transaction that relates to an asset or entity in the United Kingdom. If that were the case, of course it would apply.
Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)
I am interested in that point. If a malign actor made an investment in another country with a lower-standard test, which then invested in the UK, putting intellectual property rights at risk, where do the UK Government go on that? Do they give themselves the scope, which I do not see in the Bill, to act on the basis of the original investment?
Alok Sharma
I thank my right hon. Friend for his question. He has taken a great deal of interest in this legislation, and we have spoken about such matters. As I said earlier, the whole point of the Bill is that we will be able to scrutinise the precise details of a transaction and of who the ultimate beneficial owner of a particular acquiring entity may be. I would therefore hope that the Bill will indeed cover the particular set of circumstances he outlines.
Going back to the point about providing assurances, businesses and investors can be reassured that the Government will treat potential national security risks with the discretion they deserve.
Turning to the mandatory notification elements of the Bill, investors in 17 prescribed sectors of the economy will be mandated by law to notify the Government of acquisitions of entities above a certain threshold of shareholding or voting. That mandatory notification process is similar to the approach taken in the United States, Germany and France. The Government have, alongside the introduction of the Bill, published an eight-week consultation to refine the definitions of those 17 sectors. The discussions that I and other Ministers in the Department have had with the investment community suggest that that has been extremely welcome.
Many sectors, of course, are well defined, and the purpose of the consultation is to refine them further so that the definitions are clear and narrowly focused on specific parts of sectors in which risks are most likely to arise and will allow parties to self-assess whether they need to notify. The House will appreciate that we could not have published the consultation before we introduced the Bill, with its call-in powers, or we would have risked hostile actors completing transactions in the particularly sensitive sectors.
Richard Fuller (North East Bedfordshire) (Con)
My right hon. Friend is quite rightly focusing on precisely defining the sectors. Was he as concerned as I was to hear the Opposition spokesman say today that he would prefer a strategy that did not have that definition, relying instead on the whimsy of a particular Secretary of State at the time? That situation could, like it does in France, lead to a yoghurt company or water bottle business being defined as a national strategic asset.
Alok Sharma
My hon. Friend speaks with a great deal of interest and experience in investments. This Bill focuses on national security, and we have been clear that we will define the sectors where mandatory notification is required, which is right and proper. The whole point of the Bill is that we are taking a proportionate approach. We do not want some kind of chilling effect on investment coming into the UK. We have been a beacon for inward investment over many years with, as I said earlier, three quarters of a trillion dollars coming into our country over the past 10 years. We would not want that to change.
Transactions covered by mandatory notification that take place without clearance will be legally void. Again, that is in line with the French, German and Italian regimes. Parties to an acquisition may, of course, voluntarily inform the Secretary of State about their acquisitions to seek swift clearance to proceed. We have also streamlined the information required for notification from 36 pages, as required under the Enterprise Act 2002 for competition modifications, to a third of that.
The use of digital processes will make interaction with the Government much simpler, more transparent and slicker, and Government will aim to provide clearance for most transactions within 30 working days of notification, as my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) raised earlier. Having spoken to the investment community over the past week, I know that that timely approach to the clearing of transactions is welcomed.
Moving on to the assessment of called-in transactions, part 2 of the Bill provides powers to assess transactions should the Government call one in. Where the specific legal test is met, the Government may impose conditions or, in extremis, block or unwind transactions. I stress once again that the Government will use those powers sparingly and proportionately.
The Government will take the necessary powers in the Bill to gather information about any transaction. However, such information will be strictly safeguarded against inappropriate disclosure. That includes, of course, information from parties, regulators and others to make informed decisions on transactions. If no remedies are imposed, a final notification will be provided at the end of a national security assessment. Alternatively, the Government may choose to prescribe remedies.
Any notification decision under the Bill will be subject to legal challenge from the potential acquirer entity by way of judicial review or appeal, and the Government will be able to apply to the court for a closed material procedure to protect commercially sensitive and national security matters in such proceedings. The investment security unit will ensure that the entire process is streamlined and supported by robust digital structures and governance to ensure swift decision-making on assessments.
It is worth noting that the new regime will be underpinned by both civil and criminal sanctions, creating effective deterrents for non-compliance with statutory obligations. Again, that is in line with sanctions in the French and German regimes.
Mark Pritchard
Is it not the case that a call-in itself could be commercially sensitive, particularly to a listed company? In that regard, a default of self-referral to the Government would probably be a better way for industry to ensure that share prices are not unfortunately affected by what might be a legitimate call-in.
Alok Sharma
My hon. Friend raises an incredibly important point. Of course, self-referral, as he refers to it, is possible. In fact, if any company has particular concerns as to transactions that they may be undertaking or part of, they will get a swift assessment from the Government.
I make the point, though, that we will not be effectively publicising call-ins when they take place. Clearly, at the end of a transaction, if there was a particular remedy, that would be made public. It is also worth pointing out that the Government will publish an annual report, not on individual transactions, but on the scope of the transactions and sectors that have been looked at. I hope that that will give future investors an opportunity to consider the type of transactions in which the Government have a particular interest.
The final measure that I want to detail relates to the overseas disclosure of information relating to a merger investigation. Under section 243 of the 2002 Act, there is a restriction on the ability of UK public authorities to disclose merger information to overseas authorities unless the consent of the entity has been given. Clause 59 of the Bill removes that restriction. That will strengthen the Competition and Markets Authority’s ability to protect UK markets and consumers as it takes a more active role internationally, allowing the UK to set up comprehensive competition agreements with our international partners.
In conclusion, I hope that right hon. and hon. Members on both sides of the House see that the Bill updates our national security powers in a proportionate, pro-trade and pro-business manner.
Alok Sharma
My hon. Friend raises an important point. As he will know, and I am sure appreciate, I am not going to be able to set out every single test that we will apply when it comes to a national security assessment. The application of the tests will, of course, be based on information that we garner from across Government. He can be certain that in using the powers, the Government will act in a quasi-judicial fashion, we will have regard to the statement of policy that has been published, and we will act, again, in accordance with public law principles of necessity and proportionality. I also made the point earlier that any decision can, of course, be challenged by an affected entity.
Stewart Hosie (Dundee East) (SNP)
Before the Secretary of State moves on, will he give way?
Alok Sharma
I will move on, if that is all right with the hon. Gentleman.
These powers are narrowly defined and will be exclusively used on national security grounds. The Government will not be able to use these powers to intervene in business transactions for broader economic or public interest reasons, and we will not seek to interfere in deals on political grounds. They will not and cannot be used for wider economic tests. The Government already have proportionate powers in statute for intervention on the grounds of competition, financial stability, media plurality and combating a public health emergency. Going further than that would risk chilling and destabilising investment in the United Kingdom and reducing growth opportunities and jobs.
The UK has the lowest corporation tax rate in the G20. We are rated one of the most innovative countries in the world, ranking fourth in the 2020 global innovation index. We are one of the top 10 countries in the world for ease of doing business. We have a world-leading research and development environment, and the stability of our institutions, tax system and legal framework are respected globally. It is because of our pro-market approach that the United Kingdom has become one of the premier places to invest in the world, and I certainly would not want to do anything to change that. The powers we seek in the Bill support and enhance our pro-business environment, supporting economic growth, prosperity and jobs across the United Kingdom, while enhancing security for our country. I commend the Bill to the House.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
It is a pleasure, as ever, to follow the hon. Member for Newcastle upon Tyne Central (Chi Onwurah). I thank all hon. Members who have spoken in this important debate. We have had upwards of 25 speeches, all of which were thoughtfully delivered. I also thank the shadow Secretary of State, the right hon. Member for Doncaster North (Edward Miliband), for his constructive approach to this important piece of legislation. I will aim to respond to as many points made by hon. Members as possible, but I will, of course, write in response to individual questions as well.
I begin by responding to the points of the right hon. Member for Doncaster North and the hon. Member for Newcastle upon Tyne Central, who both raised the grounds for intervention when it comes to the legislation. The legal texts in the Bill are explicit in their reference to national security rather than public interest or wider economic considerations. The hon. Member for Newcastle upon Tyne Central mentioned the particular deal with DeepMind and Google. If it is deemed that the asset is so important to national security—it does not matter who the acquirer is—the Bill would allow us to intervene and block that acquisition.
I have to be clear to the House today that any action the Secretary of State takes under the proposed regime would be to protect national security and not for wider economic or industrial reasons. I am sure that the right hon. Member for Doncaster North will look forward to the industrial strategy refresh that the Secretary of State is committed to publishing in the first quarter of 2021.
To address the point made by my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton), we already have a proportionate public interest power on the statute book, and most recently we have legislated to allow intervention for mitigating the effects of public health emergencies. The right hon. Member for Doncaster North and the hon. Member for Newcastle upon Tyne Central also asked about the engagement with Government. The investment security unit will ensure that clear guidance is available to support all businesses engaging with investment screening from the outset. We have made it clear to the investment community that we are committed to effective engagement with businesses on the regime itself, and to ensuring that they are able to access a dedicated, simple online portal to notify us of any potential transaction. Of course, we note the importance of a full Government approach to investment screening. While the unit will be based in BEIS—this point was made by the right hon. Member for North Durham (Mr Jones) when he talked about the ISC—it will work closely with the security agencies and other Departments with real sector expertise. The chief executive of Make UK, Stephen Phipson has recognised this point, saying: “Technology development moves at fast pace and this Bill will modernise the UK’s approach in a proportionate way, given the Government’s commitment to a quick and streamlined process of evaluation.”
More widely, I am happy to meet any hon. and right hon. Member who has today expressed an interest in the workings of the investment security unit. The right hon. Member for Doncaster North also raised the role of the Intelligence and Security Committee, as many other colleagues have done today, and we will of course work constructively with its members and, indeed, with other Committees across the House. I wish the Chair of the Committee, the right hon. Member for New Forest East (Dr Lewis), well, and I would like to thank the other members of the Committee who spoke today. The contributions from the hon. Member for Dundee East (Stewart Hosie), the right hon. Member for North Durham, my hon. Friend the Member for The Wrekin (Mark Pritchard), my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) and my hon. Friend the Member for Beckenham (Bob Stewart) were typically excellent and well-informed.
The right hon. Member for Doncaster, North, along with the hon. Member for Bristol North West (Darren Jones), also raised the issue of the five-year period for retrospection. We have come to that view because six months would simply be too short, and we have looked at what other countries have done. It would be relatively easy for hostile parties to keep a trigger event quiet for six months and time us out, but that will be substantially more difficult in a five-year period.
Sir John Hayes
I am extremely are grateful to the Minister for his comments about the members of the ISC who have contributed to the debate. Given the range of questions posed to him by ISC members, will he commit to write to the Committee formally to pick up those points, so that the Committee has a clear set of answers to the series of questions posed? It would not be fair to expect him to deal with all of them now.
Nadhim Zahawi
I can certainly give my right hon. Friend that commitment; I will do that.
My right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith), my hon. Friend the Member for Isle of Wight (Bob Seely) and the hon. Member for Oxford West and Abingdon (Layla Moran), who is not in her place, probed on the definition of national security. A number of hon. Members have argued that the definition of national security is too narrow. I would gently point out that the Bill does not seek to define it at all, as some other Members have quite rightly argued, including, very wisely, my hon. Friend the Member for Beckenham. I think that is a real strength of the Bill, not a weakness. It means that the Government have the flexibility to act as risks change over time. The statement of policy that was published last week refers to espionage, disruption and destruction and inappropriate leverage. Those are examples of national security, not the exhaustive content of it. We need to maintain a degree of flexibility in our approach, as my hon. Friends the Members for Wantage (David Johnston) and for Beckenham recognised. I appreciate that these are quite important powers, and of course they are fully justiciable under the Bill. Hon. Members can feel secure knowing that their use, including the application of national security, can be fully tested in closed courts if necessary.
The Chair of the Science and Technology Committee, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), and my hon. Friend the Member for The Wrekin expressed concerns that these reforms will somehow threaten investment in small tech firms. I again remind the House that we estimate that the vast majority of transactions across the economy will not be affected by this legislation, and we do not expect to take action in relation to most of the small number that are notifiable. We will make any interactions with the Government simpler, quicker and slicker by providing clearance to most transactions within 30 days, and often quicker. Notifiable investments will be submitted through a new digital portal. At the spring Budget, the Government committed to increase public spending on R&D to £22 billion, which I think is music to the ears of many innovators in our country.
My right hon. Friend the Member for Tunbridge Wells and my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) made the important point that the Bill does not set out a minimum size of business affected by the regime. As the Secretary of State set out, the threats we face today do not correlate to the size of the parties concerned, as they perhaps once did. This is unfortunately the world we live in. I am glad that we live in a country in which small and medium-sized businesses thrive so mightily and are often at the vanguard of cutting-edge technologies, but it is only right that the Government have flexible powers to intervene when the acquisition of such businesses may pose a risk to our national security.
My hon. Friend the Member for Isle of Wight, the hon. Member for Bristol North West (Darren Jones) and the right hon. Member for North Durham (Mr Jones) raised the issue of supply chains. The covid pandemic has demonstrated the importance of resilience in supply chains to ensure the continued flow of essential items to keep global trade moving. We have focused on ensuring supply chains for goods such as PPE. When we entered the pandemic, only 1% was manufactured in the UK; it is now about 70%. That is why we are looking at what other steps we can take to ensure that we have diverse supply chains in place. We will consider all our global supply chains to avoid shortages in the event of future crises.
My hon. Friend the Member for Tonbridge and Malling, my right hon. Friend the Member for South Holland and The Deepings and the hon. Member for Dundee East also probed the assessment process. We will make any interaction with the Government much simpler, quicker and slicker, and I am very happy to share how we are doing that.
The Chair of the BEIS Committee, the hon. Member for Bristol North West, probed our approach to sectors. It is important for the regime to reflect technological change and keep up with the investment landscape. We welcome views from across the business community on our sector consultation, and officials from across Government are already engaging with the sectors’ experts to ensure that those definitions are tight.
In the time that I have left, I want to tackle the issue of human rights. My hon. Friends the Members for Isle of Wight and for Totnes (Anthony Mangnall), and the hon. Member for Oxford West and Abingdon raised the issue of human rights, particularly in relation to Xinjiang and the Uyghur people. We take our responsibility incredibly seriously and are concerned about gross violations of human rights being perpetrated against the Uyghur Muslims and other minorities in Xinjiang. We have played a leading international role in holding China to account on these abuses and we will continue to do so through the UN and other opportunities that we have. In respect of the risk of UK business complicity in human rights violations, including forced labour, we have urged all UK businesses to conduct due diligence on their supply chains and are taking steps to strengthen supply chain transparency.
In conclusion, we have had an excellent debate today and I again thank right hon. and hon. Members for their contributions. I look forward to further probing the Bill and getting it right together in Committee.
Question put and agreed to.
Bill accordingly read a Second time.
National Security and Investment Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the National Security and Investment Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 15 December 2020.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No.83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(David Duguid.)
Question agreed to.
National Security and Investment Bill (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act arising from the National Security and Investment Bill, it is expedient to authorise:
(1) the payment of sums out of money provided by Parliament of any expenditure incurred under or by virtue of the Act by the Secretary of State, and
(2) the payment of sums into the Consolidated Fund.—(David Duguid.)
Question agreed to.
National Security and Investment Bill (First sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 24th November 2020
(4 years, 4 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 24 November 2020 - (24 Nov 2020)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
Before we begin, I have a few preliminary points to make. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings. Members can sit in any seat marked with a “please sit here” sign. That includes the side tables and the Public Gallery, although Hansard colleagues have priority on the side tables. Members sitting in the Public Gallery should stand by the microphone to my right.
We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication, and then a motion to allow us to deliberate in private on our questions, before the oral evidence sessions. In view of the limited time available, I hope we can take these matters without too much debate. I call the Minister to move the programme motion agreed to yesterday by the Programming Sub-Committee.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
I beg to move, Date Time Witness Tuesday 24 November Until no later than 10.30 am The Royal United Services Institute Tuesday 24 November Until no later than 11.25 am Sir Richard Dearlove KCMG OBE Tuesday 24 November Until no later than 2.45 pm The Centre for International Studies, London School of Economics Tuesday 24 November Until no later than 3.30 pm Skadden, Arps, Slate, Meagher & Flom LLP Tuesday 24 November Until no later than 4.15 pm The Institute of Chartered Accountants in England and Wales Tuesday 24 November Until no later than 5 pm The Investment Association Thursday 26 November Until no later than 12.15 pm Slaughter and May Thursday 26 November Until no later than 1 pm Professor Ciaran Martin, the Blavatnik School of Government, University of Oxford Thursday 26 November Until no later than 2.30 pm Herbert Smith Freehills Thursday 26 November Until no later than 3.15 pm Simons Muirhead and Burton Thursday 26 November Until no later than 4 pm Chatham House Thursday 26 November Until no later than 4.30 pm PricewaterhouseCoopers
That—
(1) the Committee shall (in addition to its first meeting at 9.25am on Tuesday 24 November) meet—
(a) at 2.00 pm on Tuesday 24 November;
(b) at 11.30 am and 2.00 pm on Thursday 26 November;
(c) at 9.25 am and 2.00 pm on Tuesday 1 December;
(d) at 11.30 am and 2.00 pm on Thursday 3 December;
(e) at 11.30 am and 2.00 pm on Thursday 8 December;
(f) at 11.30 am and 2.00 pm on Thursday 10 December;
(g) at 9.25 am on Tuesday 15 December;
(2) the Committee shall hear oral evidence in accordance with the following Table:
TABLE
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 10; Schedule 1; Clauses 11 to 58; Schedule 2; Clauses 59 to 66; new Clauses; new Schedules; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 11.25 am on Tuesday 15 December.
It is a pleasure to serve under your chairmanship, Mr Twigg, and to serve with colleagues on this important Bill Committee.
Question put and agreed to.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Nadhim Zahawi.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Nadhim Zahawi.)
The Chair
Copies of the written evidence that the Committee receives will be made available in the Committee Room. We will now sit in private to discuss lines of questioning.
Chi Onwurah
Q
Charles Parton: That is sort of way outside my technical expertise, but I would certainly say that one major criticism I have of the Bill is that you have to set up the right structure to be able to do that. I am not sure that the Bill’s putting everything in the hands of the Department for Business, Energy and Industrial Strategy and its Secretary of State is the right answer.
Let us take Huawei and the debate we had over the last couple of years, as well as the various flip-flops that have gone on. One might add flaps, as well as flip-flops, actually. There has been a big a division between the so-called economic and security Ministries. It is right that both have a say in the decision. Economic interests are very much at stake, but so are security interests. If you put everything into the hands of BEIS, which probably does not have the expertise on China—certainly not in the defence, security and surveillance realms, although not unnaturally, since its job is to encourage investment—you will perhaps find that the security and repression elements are not given sufficient weight, and more to the point, the perception will be that they are not given sufficient weight. We might therefore go back to this sort of business with Huawei, where there is a fight back and another fight back and so on.
What we actually need is an organisation that is made up of people on all sides of the debate and that has some real experts who actually understand what the technology means. One specific example I came across a year or so ago was a very interesting computer game. Fine. What is wrong with that? Well, I understand that it was then bought up by the Chinese and used to train fighter pilots. You cannot defend against everything, but you at least need some unbiased experts—a sort of, if I can use the words, Scientific Advisory Group for Emergencies—who would be there to advise, and then decisions would actually be accepted by all sides, not questioned.
On occasion, I am sure that questions would be put up to the National Security Council and the Prime Minister for decision if they were really important. However, the issue is often about very small companies with some very interesting technologies that have not been established. The Chinese are extremely efficient at hoovering around, finding them and buying them up early. I am not convinced that the structure and decision making of the whole process are right.
Nadhim Zahawi
Q
Charles Parton: I think what covid has done is expose the nature of the Chinese Communist party, in answer to your question. I hope that it has brought home to people the nature of the beast. Looking at what happened, China did not do so well to start with, and its people were pretty upset with it. China then used its external propaganda machine to right its domestic problem, pushing forward the line, “Look how badly the foreigners have done, and look how well we are helping the foreigners out of the mess,” while hiding the fact that it had allowed the virus to propagate so fast in the first place. To many people in democracies, that brought home the fact that the Communist party of China is prepared to use that against us.
Where the Chinese Communist party was unhappy with how countries were acting, it started to put them under pressure and made threats about the delivery of personal protective equipment or whatever. Australia is really taking it in the neck at the moment because it had the temerity to ask—perfectly reasonably—for an investigation of the origins of the virus, which is essential for scientific and preventive purposes. Look at the political pressure on Australia. There is absolutely no doubt that where the Communist party sees an opportunity to use whatever is going on at the moment, it will do so.
The question that I have continuously asked is this: to what degree is investment threatened by a country such as the UK, Australia or Canada standing up for its own interest? We are not actually attacking China, but we are saying, “Sorry, but we have our own interests and our own security. You wouldn’t allow the equivalent in your country, possibly rightly, and we are not allowing it here because we are defending our security, in this case.” To what degree is the tool of depriving someone of investment a real threat? I have urged in a number of papers that the Government look at that in dispassionate terms. The China-Britain Business Council recently put out a paper, but I would not describe it as dispassionate. That is for the Government to do. My own feeling is that the likely conclusion is that, on the whole, the threats are pretty hollow. Chinese investment is not done for charitable reasons.
Since 2017—the high point was 2016—China has cut back on investment. Beijing was getting pretty annoyed at the way money was seeping out not in line with its policies, but investment is now more tightly controlled and aimed at the acquisition of science and technology. To what degree are we vulnerable? This is not charity. Money is very cheap at the moment; it can be got at negative interest rates. It is not as though China is the sole source of money. It invests because it wants technology. Surely we have to look at that carefully and ask where is the mutual benefit. If it is mutually beneficial, fantastic, let us go ahead. Let us not be too brow-beaten by this thing—that if you do not do x or y, or if you do not take Huawei, we will hit your investment. I think, in practice, if you look at that and then look at some of the other threats that China has made over the years, including to your exports, all those have grown for all countries, although they had been in the diplomatic doghouse historically—certainly in the past; we will see about the future—but I think it is greatly exaggerated.
Nadhim Zahawi
I am grateful to you, Mr Parton. I do not want to hog the floor, as I am sure many colleagues want to ask questions. Thank you very much.
Stephen Kinnock (Aberavon) (Lab)
Q
Going back to your point about resourcing the investment security unit, can you give a bit more detail about what would be an ideal outcome from your point of view? Would it be that we need specificity in the Bill that key representatives and experts of the intelligence services, of the Ministry of Defence, of the diplomatic corps and of other agencies be formally named in the legislation, so we would have that reassurance that the body doing the screening had all the necessary breadth across the spectrum of both the economy and national security?
Charles Parton: That is a good question; it is not necessarily for me and I do not necessarily have the experience to lay down precisely how it works. For me, I think, first, that all those organisations you have mentioned—although others also on the economic side, such as the Treasury and BEIS—perhaps should be there to set the parameters of what needs to be referred. I think that, as a sort of preliminary filter, one would hope that there was an ability for most companies, and most universities as well, very quickly to put forward the deals or the pieces of work that they felt might be coming up against the parameters set by such a Government body.
For a quick decision, is the topic one that is suitable, or does it need a little more investigation? Should we be working with this organisation, or in some cases this particular Chinese academic or company, which may have links to the military or to the repressive regime? The experts, as it were, which means the SAGE-type committee, surely should be very quickly—companies and academics need to move quite quickly—making a preliminary estimation of whether this needs to be referred upwards to a Government Committee that wants to look at it in more detail.
I do agree with you that the range of interests needs to be representative if the decision is to be perceived by all sides as acceptable when it is eventually made.
Chi Onwurah
Q
You have talked about the relationship between the military-industrial complex, in the case of Russia, and economic development, specifically in the case of China. We have essential industries that are critical to our economy and there has been concern that BEIS is going to be overseeing the security implications. Where we have industries and technologies that are critical for national security, they are also critical for our economic security, so our national and economic security end up being linked. You have talked about some of those links in the case of Russia and China. How can we reflect those links effectively in the Bill? Do we need structures within BEIS, or outside BEIS, to identify and reflect the overlap between economic and national security?
Sir Richard Dearlove: This is a really difficult question. I am expressing the problem, not the solutions. You have to bear in mind that I spent my life as a poacher, not a gamekeeper, so my view of these problems is mirror imaging. I was an offensive intelligence officer, not a defensive one. I spent my life trying to penetrate Chinese intelligence, if you see what I mean.
The problem is much bigger than just national security; that is one of the difficulties. It leaches into the whole future of our economic competition with China. I do not like to talk about it, but some people use the phrase “a new cold war”. I do not subscribe to that. We have to find some other way of talking about this. They are very serious competitors who are beginning to edge along the path of enmity in the way they treat us on some issues—witness Hong Kong at the moment—so you have to have some sort of flexible scrutiny arrangement.
The reason this is so difficult to comprehend is that areas like climate change and energy policy, which are national security issues but not right on the frontline, are so big that, I think, China has a pretty disturbing agenda for us. They will encourage us to follow policies that they think are disadvantageous to our economy.
If you take their statements on things like climate change, which is relevant to what we are talking about, China is going to go on increasing its carbon emissions up until 2030, if we look at the figures and understand its policies. China is going to completely miss out renewables. When it has generated enough wealth and success in its economy, it is going to jump from carbon energy straight to nuclear and hydrogen. It will have the wealth and the means to do that. Renewables for the Chinese are going to be rather peripheral, because they will not generate the energy intensity that the Chinese economy requires. China has a road map in its head that is really rather different from ours and there is no question but that, competitively, our green agenda is going to put us at an even greater disadvantage to China, if you take a 30-year view of that.
There are some very worrying aspects of this. That means that if we are gaily allowing the Chinese to walk off with all sorts of bits of our economy, we are going to pay possibly a pretty high price for that over a long period. We need to take a strategic view of this. China certainly has a strategy, and at the moment we do not really have a strategy. We are beginning to realise that we have to have one, and maybe this Bill is a healthy first step in that direction.
You will need sub-committees of some sort, with flexible thinking and experts to advise on where these problems lie. The difficulty is also that we do not want to ruin our economic relationship completely with China. We still need to partner with it in areas that are advantageous to us and our economy as well.
Nadhim Zahawi
Q
Sir Richard Dearlove: My view would be that the annual report has as much transparency as possible, but you are probably going to require a secret annexe from time to time. It is a bit like the reports of the Intelligence and Security Committee, which I dealt with frequently as chief. They and we were keen that they should publish their reports, but there comes a point where it is not in our national interest that some of this stuff is put in the public domain. I would be pretty clear cut on that.
The Chair
I call Peter Grant, who will be behind you, Sir Richard, because of the social distancing rules we have in Committees.
National Security and Investment Bill (Second sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 24th November 2020
(4 years, 4 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 24 November 2020 - (24 Nov 2020)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Chi Onwurah
Q
In terms of your work on investments, and the investment regime, is there not a risk that it ends up capturing a host of investment transactions? I am particularly thinking of the burden and impact on our innovative tech start-ups. The likely definitions of the sectors to be involved include artificial intelligence and data infrastructure. Based on your experience of other countries’ introduction of new investment screening rules, have you found patterns in how similar changes have affected foreign direct investment, and potential trade deals, which is a topical subject? Do you have any thoughts on ways to mitigate the burden and impact, particularly on start-ups?
Dr Lenihan: The Bill is arguably broader in scope on call-in powers than some other foreign direct investment regimes—I would argue that these perhaps even include the US regime—because it does leave wide latitude for call-in powers. The Bill also covers trigger events that are initiated by all investors, both domestic and foreign, and that is truly rare among Western FDI review regimes that are focused on national security. Usually, the concern is to focus the regime on investments from foreign-owned, controlled or influenced entities. Domestic entities and acquirers that have, for example, ultimate foreign ownership or influence in some ways should be able to be caught by any well-institutionalised and resourced regime. I am not sure why it is that we do not actually see the word “foreign” in the Bill, even though it is supposed to be based on foreign direct investment. Perhaps that is a concern about potential domestic threats down the road, but either way, it will lead to a much larger volume of mandatory notifications than most other national security FDI regimes—the US, Germany, Australia and other countries. Almost 17 have made changes in the past couple of years, and these have increased and been modified since the covid pandemic.
I understand that the legislation may be written as it is to include domestic investors, perhaps to avoid appearing to discriminate against foreign investors. I would suggest that that is probably too broad a formulation for focusing on and identifying real risk. The EU framework for FDI screening encourages its EU members to adopt mechanisms that do not discriminate between third-party countries, but that does not mean that it takes the word “foreign” out of its legislation to target foreign investments as opposed to domestic ones. Part of that is about the volume of transactions.
One thing I would highlight is that FIRRMA expanded the scope of covered transactions to include non-controlling investments of potential concern, as well as any other transaction or arrangement intended to circumvent CFIUS’s jurisdiction. But because it has had more cases to review on a detailed level in the past two or three years than in its history, since 1975, a major element of that Act is, again, around staffing and resources. There is a specific provision in FIRRMA, which is very clear that each of its agencies needs to hire under-secretaries in each agency just to be dedicated to this task.
There are two elements. An inter-agency review team is needed. You need enough staff to actually handle and catch all the risks. You the need the proper resources to do so—the right access to the databases, the right security clearances, the right training. On top of that, the volume of mandatory notifications will be increased by the fact that this is not just focused on foreign investment. I do not think there is much you can do about the foreign cases that you will get. There will be a high volume of those, and you need to be ready for them, but it is an important national security risk that needs to be dealt with.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
Q
Dr Lenihan: Personally, I think they are fine. I know that might not be a popular answer with some. Germany, France and even parts of the EU framework set up this five-year retroactive for cases. I think that that is at minimum important. Other countries, such as China, Russia and the US, do not place any limit on retroactivity. I would have to check up on Australia and Canada, but there have been cases that have gone beyond a year there. Under the original Government White Paper, the idea of having only a six-month period, whether or not you have been notified, is quite dangerous, because there have been cases that were well known where they have been caught after that point.
Some of my examples are from the US. The reason for that is that it is one of the longest-standing and most institutionalised regimes. It is also one of the most transparent, from which we know most about the cases that have gone through it. I have looked at over 200 cases of this type of investment over a seven-year period in the US, UK, Europe, China and Russia. One case that stands out in the US is the 3Leaf acquisition by Huawei, which was caught almost at the year mark. Another good example that went over the one-year mark would be the review in 2005 retroactively of Smartmatic, which was a Venezuelan software company, and its purchase of Sequoia Voting Systems, which was a US voting machines firm. Smartmatic was believed to have ties to Chavez. However, that acquisition completed without knowledge of CFIUS and it was not actually able to be unwound until 2007. At that point, you worry about what has happened, but at least you do not have the ongoing concern.
You do need flexibility. With the volume of notifications and the learning curve that the investment security unit will have to undergo, or whatever the final regime truly looks like, it will take time to get the team in place and get the knowledge and systems down, to accurately catch even the most obvious investments that are of concern. Dealing with the kind of evolving and emerging threats we see in terms of novel investments from countries such as China, Russia and Venezuela needs the flexibility to look at retroactively and potentially unwind transactions that the Secretary of State and the investment security unit were not even aware of.
One thing is that for mergers and acquisitions transactions, which are historically what have been covered under these regimes, across Europe, Australia, Canada, Russia, China and the US, all the systems that have been used—the M and A databases: Thomson ONE, Zephyr, Orbis—take training, but they only cover certain types of transaction. They do not cover asset transactions; they do not cover real estate transactions, which are of increasing concern, especially for espionage purposes.
It is going to take time, and I believe that flexibility really needs to be there. It can always be reviewed in the future, but I do not think that so far foreign investment has been deterred in any way in countries that have that retroactive capability. To limit the UK’s capacity to protect itself for some kind of strange feeling that we need to be perceived as being even more open than everybody else when under threat is not really wise at this time.
Matt Western (Warwick and Leamington) (Lab)
Q
Dr Lenihan: I do think the US system is the most institutionalised that we have, and the best at the moment. That being said, Germany’s system is very good; it has caught quite a bit. The German system has also been very good about regularly updating, changing and adapting its regulations as it sees new emerging threats to itself. They seem to have good feed-in across Government and they are exceptionally good at co-ordinating with other states in terms of information of concern.
In terms of national security review, Canadian and Australian systems are quite good. The problem with those systems is that they tend to do national interest reviews at the same time or in tandem with their national security reviews. Over the long term, including national interest in the regime has had an impact on how they are perceived in terms of their openness to foreign direct investment abroad. In the OECD’s FDI restrictedness index, Canada and Australia rank far lower than the US, the UK, Germany and France, and I think this is because of their inclusion of national interest concerns. Similarly, on the World Economic Forum’s global competitiveness index, they rank far lower. That does not provide investors with the type of clarity that they need. In general, we see that investors tend not to be dissuaded from investing just because there is a new foreign direct investment regime, as long as that regime is seen to have clear regulatory guidance, is transparent, and is applied consistently over time.
France sometimes gets quite a bad reputation for economic nationalism, but its review mechanism is also quite good at catching potential threats to national security. Japan is an interesting case. It has been so restrictive for so long that it is a little harder to compare with the other western countries. Its system has been tied in again to an overarching inward investment regime that has been restrictive towards foreign investment for other means beyond national security, so I find that country to be less of a comparator for these purposes. I hope that answers the question.
Chi Onwurah
Q
Michael Leiter: This is very important. I was rather taken aback by two things about the Bill. The first is the projection of over 1,000 matters, going from the very, very few that the UK has traditionally had; this is an explosive increase in matters. I am concerned that no Government are ready for that rate of change. Even in CFIUS under FIRRMA, although there is not an increase in the overall number of long-form notices, in the short-form declaration process, there was an increase. That was relatively modest, an increase of about one third, so the US now reviews approximately 240 full cases, and about another 100 short-form.
When you talk about going from a few dozen to 1,000, you have to be very sure that you have both the resources and the expertise to process that. I would be concerned by that. Another case where your Bill goes much farther than anything I have seen, and certainly much farther than anything in the United States, is in encompassing not just acquisition and investment in businesses but acquisition and investment in supplies, goods, trade secrets, databases, source code and algorithms, so it is tangible and intangible objects, rather than businesses. That scale is very difficult to predict, and if one is more in the mood for incremental change, so as to see how a Government can handle change, including those elements poses some real risk for management.
Nadhim Zahawi
Q
Michael Leiter: I am honoured to have worked with the UK Government for 20-plus years on security issues, and over the past 10 years on economic issues. I certainly think you have the potential to strike that balance. In the US, traditionally, the CFIUS structure was a balance between the security agencies, which tended to want to restrict investment, and the economic and commerce agencies, which tended to want to encourage that investment. Certainly, in the case of China, we have seen massive decline in direct investment because of both Chinese controls and US controls: a tenfold decrease from 2016 to 2018. But as you said, the scale and strength of the US economy mean that global investors look to the United States no matter what.
I do not mean to make less of the UK in any way but, from a UK perspective, one has to be a bit more careful, because you simply do not have the scale that inevitably will attract investment. The US could be a rather poor place to invest, with lots of regulation, but people would still come because of the scale of the market. You don’t have quite that luxury. That is not to say that the UK has not for generations been an incredibly attractive magnet for investment, but whereas the US can err on the side of security, from my perspective, admittedly an American one, the UK might want to be a bit more careful about restrictive measures, because the size of the market is not in and of itself so inherently attractive that companies and investors must be in it. We have a bit of an advantage over you on this one.
Peter Grant (Glenrothes) (SNP)
Q
Michael Leiter: I was able to see part of Dr Lenihan’s excellent testimony, which was quite informative and good. First, to clarify, although the US does make distinctions for exempted countries—obviously those are the UK, Australia and Canada right now—that exemption is extremely narrow. It limits those countries only on mandatory filings, and only if investors from those countries fulfil a fairly rigorous set of requirements. So, although Canadian, UK and Australian investors were quite excited before CFIUS reform, when the regulations about excepted investors were promulgated, that has had a minimal effect on those countries. It is not a significant advantage. Those countries are still subject to CFIUS review in the vast majority of investments they make. Now, that gives only half the story, because clearly investments from those nations go through a much less rigorous review, and come out with much better results than those from countries where the US has a more strained security relationship.
On what I see in the Bill, I would say a couple of pieces about the excepted possibility. First, as I read the Bill right now, it covers investments from other UK investors—not even simply those outside the UK. If my reading is correct on that front, I have to say that is probably not wise. We have already talked about the significant increase you could have, based to some extent on mandatory transactions as well as some other factors, and I think trying to take a slightly smaller bite of the apple and not including current UK businesses in the scheme would be well advised.
To the extent one has open trade and security relationships with certain countries, lowering the bar for review to exempt them, or including things such as dollar limits and getting rid of the de minimis exemption, might well make sense. That is another way of making sure that the Secretary of State can focus on those areas you think are the most sensitive from a security perspective. Whether we like to do so or not, that can be aligned to some extent with the country of origin of the investor. It is not always perfect—one must often look below that, especially when dealing with limited partners and private equity—but it is a relatively easy way to reduce the load you may experience if all these measures were implemented.
Chi Onwurah
Q
David Petrie: I have read the impact assessment, which included that example. It is a difficult situation, as described in the example. In accordance with the way that this new legislation is drafted and the number and extent of the sectors that are regarded as mandatory—the sectors in scope such that their operating activities would require a notification of the unit—the example set out in the impact statement would indeed require screening by the investment security unit. The Government would likely have the opportunity to review a potential acquisition in that software company.
I was struck by that example, in that it suggested that service had failed, or a malign actor had decided not to provide the necessary services to the airport. I think a broader question here is what might happen in reality. Those services would be procured through a commercial contract, which in turn would, presumably, be backed by insurance. If it were an absolutely critical service, I would expect that the airport would have a back-up system, whether power supplies or a parallel running system, as they do for air traffic control. There are commercial protections for the actual operating activities of critical infrastructure, which should work. It is difficult to protect against the actions of malign actors, but critical infrastructure already has systems and processes, and invests heavily in capital equipment, to ensure that there is not an interruption of supply. The question would be the extent to which ownership of that asset physically gave the owners of the shares the ability to get in and interrupt supply. That almost implies mechanical breakdown or some deliberate and malign disconnection. Again, companies have cyber-security systems in place to ensure that critical infrastructure does not fail.
The point you made was about whether suppliers of that sort of service to our critical infrastructure and their ownership should be subject to review. As the Bill is set out and as the sectors in scope are drafted—of course, the Government will consult over the next month or so on those definitions and whether they should be adjusted or whether they are as wide-reaching as they should be—a business like that would be captured. The investment security unit and, presumably, the security services would have an opportunity to review whether or not to allow that to go ahead.
Nadhim Zahawi
Q
David Petrie: I think a quasi-judicial review is really important and a part of the process, and then, if necessary, there is judicial review. I think the question cuts back to how many times that is likely to happen. We have to step back a little bit and recognise that that would be a situation where the parties to the transaction are challenging the Secretary of State’s decision as to whether or not this is in the interests of national security.
I would assume that if the sellers are British companies, they will probably have received what they feel are adequate assurances that it is okay to sell to an overseas acquirer, but the Secretary of State takes a different view, presumably based on evidence provided by our national security services. Ultimately, if there is a compelling body of evidence to suggest that a transaction should be modified or adjusted or, in extremis, blocked, it would be quite an unreasonable group of shareholders to disagree with that if the if the Secretary of State was applying the test as set out in the Bill, and indeed in the guidance note, that intervention is to be limited only to matters where the national security of this country is at threat.
That is quite different from the national interest. It is tempting—or possible, rather—in this debate to get sucked into questions about what we should and should not be doing in this country. That is not what this is about. The Government have been very clear to the investment community, and to British business more generally, about the purpose of this legislation. That is why, although markets and investors recognise that it will take a certain amount of time and effort to comply with a mandatory regime—the Government have been very clear about their purpose in introducing that—the market is generally favourably disposed towards it. We can see that it is unfortunately necessary in these modern times.
Stephen Flynn
Q
David Petrie: Perhaps I could deal with the second part of your question first, if I may, on the potential number of notifications that the new legislation is going to necessitate. The first point I make about that is that this new investment security unit will need to be very well resourced. A thousand notifications a year is four a day; I am just testing it for reasonableness, as accountants are inclined to do. That is quite a lot of inquiries. I note from the paperwork that the budget allocated to the new unit is between £3.7 million and £10.4 million. I do not know and cannot comment yet as to whether that is likely to be adequate. What I can say is that the impact statement also suggests that of those 1,000 or so transactions which are going to be subject to mandatory notification, only 70 to 95—the numbers set out in the impact statement—are likely to be called in for further review by the Secretary of State, where a very detailed analysis of those businesses and the potential target is going to be necessary.
As, I hope, has been echoed by other witnesses, it is going to be extremely important that this new unit can engage in meaningful pre-consultation with market participants—with British companies, finance directors, and investors and their advisers—so that they can get a pretty clear steer at an early stage as to whether or not this is likely to be subject to further review. If the unit operates in a way where it can give unequivocal guidance to market participants at an early stage and is open to dialogue—I understand from discussions with the Minister that this is the way the unit is being asked to operate—that would be extremely helpful.
I would say that that is about process, certainly, but I think it is also about culture. It has to be a balance, which is well achieved by the Takeover Panel, for example, in this country. You do not tend to approach the Takeover Panel unless you are well-informed and have done your homework—"Don’t bother us with stuff you ought to know” is the unwritten rule. But at the right time and place, I think it is important that there is an opportunity for market participants to be able to engage in a dialogue. The guideline where we put this “Don’t bother us with stuff you ought to know” question is going to shift. At the moment, we really do not know a lot about the way the Government are going to look at certain transactions. We do know which sectors and operating activities are in scope, but, again, we are not quite sure at what stage it will be right to consult and try and get clear guidance. This process will evolve.
I note that the Bill includes provision for the new unit to issue an annual report as to the number of transactions called in and the sectors they are in. That will be extremely helpful for market participants. An issue here, I think, is potentially asymmetry of information. In order to resolve potential asymmetry of information amongst the investment and advisory community, it would be very helpful that the unit is well resourced and able to engage in meaningful pre-consultation, but, by way of a third recommendation, it would also be extremely useful if it was able to issue meaningful market guidance notes, similar to the notes that accompany the takeover code. That would again be extremely helpful so that we can understand. It would help the market to be better informed. If, for example, the unit is receiving a lot of notifications that are not correctly filled in or with important details as to ownership missing, then it would helpful to have guidance notes as to what we can do to make sure this process works with more certainty, speed, clarity and transparency—these are the things financial markets need to see—to help us with that, beyond what has already been issued, which is very helpful, I have to say. As the market evolves, that would be extremely helpful.
Chi Onwurah
Q
Chris Cummings: Forgive me: I noticed that I missed the point about mergers and acquisitions. We regard the pre-approval facility that officials have mentioned—I believe the last witness mentioned it, as well—which is a way in which the team responsible could be approached ahead of a deal being put together, as a very sensible, practical step forward, as long as confidentiality was absolutely rigorously maintained.
In terms of definitions, we find the Japanese definition quite attractive, and again we commend it to the Committee. It clearly differentiates out investors such as the ones we represent, who are looking to provide capital for a company and share in its success for the benefit of the investors whose money we manage, but are not seeking to take an active role in the management of those companies. We are not looking to put somebody on the board; we are not looking to intervene directly in day-to-day management decisions. Our relationship is with the board chairman and so on, in order to engage in a constructive and strategic discussion, but we stop short of securing assets or taking an active role in management. That is a system that works well.
Turning to our caveats, I mentioned the five-year review period. We undoubtedly recognise the spirit in which this legislation is drafted, but Governments change, as does public opinion. The strength of this Bill is that it is focused around national security. Perhaps a definition of national security may go a little further in helping investors as well, because we could not really strike upon a catchy, well-turned phrase that defined national security, and have a reluctance to move away from national security; we would hate to see the Bill being widened into more public interest ability.
A final point to note would be the interplay between this legislation and the Takeover Panel, which has a different and distinct role to play. The notification percentages are slightly different: it is 25% in the Bill, and 30% in the Takeover Panel, so ensuring that there was no accidental misalignment would be most useful.
Nadhim Zahawi
Q
Chris Cummings: When it comes to a clarification point around national security, this is similar policy-intent-driven legislation to what we have seen in other emerged markets, such as the US, Germany, France and so on. We do not find that it is out of step with other developed markets. In other jurisdictions—I will take the US as an example—the legislation has started small and then grown as people have become familiar with it. The UK, perhaps because we feel we are playing catch-up—that is not for me to say—has started on a larger scale first. That is why there are queries around scope and around the durations. We look forward to engaging with the definition of the 17 sectors to ensure it is as specific as possible, and to ensure that we understand the operation. We would like to hear from officials and colleagues in ministerial positions on how they see it working in practice, so that the investment community is really clear that the rules of the game have not changed, and that the UK really is as attractive as we want it to be for incoming investment.
As I mentioned, we represent UK-based investment managers, but of course, those organisations are headquartered not only across Europe, but in other parts of the world, particularly the US. We are managing pension scheme money not only for UK savers and pensioners, but from other parts of Europe and places as far-flung as Brazil. If we as investors were looking to make an investment in UK plc, we would need to be clear about where head office was, and where the money was coming from. All those things could be either pre-approved or ruled in court as quickly as possible to ensure that there is not a missed beat in attracting the investment that we all want to see.
National Security and Investment Bill (Third sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 26th November 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 26 November 2020 - (26 Nov 2020)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Chi Onwurah
Q
Christian Boney: I think this question really divides into two. In terms of larger corporates, investment by, and in, larger corporates is very likely to be unimpacted in any meaningful way by this legislation, because large corporates and their advisers are very used to going through regulatory clearance processes. This will just be another thing that needs to be added to the list.
I think you make a very valid point in the context of start-up and early-stage companies. The concern I would have principally is with those companies that are in that phase of their corporate life and fall within the mandatory notification sectors. Given the kinds of companies that this country is trying to encourage to flourish—those that are active in areas like artificial intelligence, advanced robotics and quantum technologies—a reasonable number of start-ups, I would expect, would fall within those mandatory notification sectors. For them, this regime is going to make the process of getting investment more time-consuming and more complex.
Anything that can be done in the process of consulting on the mandatory sectors, and anything that can be done to pair back the regime to make it more workable for companies in that stage of life, the better. An example might be some form of de minimis threshold, which is included, such that really early-stage companies do not fall within the mandatory notification regime, but the Government can nevertheless rely on their call-in power down the track, should that early-stage company becomes successful and more strategically important within the UK. Those are my principal thoughts. Lisa, do you have anything to add?
Lisa Wright: Not on that point, no
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
Q
Chi Onwurah
To clarify, my question was this: how would you distinguish between national and economic security?
Nadhim Zahawi
My question is more about your reflections on the Bill being narrow in its purpose to deal with national security versus the wider public interest.
Lisa Wright: It is already a very broad regime; it catches a lot of transactions, as we have just discussed. I therefore think it is important and right that it is limited, in terms of the substantive concerns that it is catching, to national security. That is already a necessarily, I think, uncertain or undefined concept. Corporates and investors can make it work as long as other aspects of the regime work efficiently. That may be subject to some of the points that Christian just made about the impact on start-ups.
I think that once you broaden the regime out from national security into other considerations, you do risk introducing quite a degree of unpredictability, which possibly would impact on people’s assessment of the investment climate in the UK. My understanding is that the existing intervention regime under the Enterprise Act is planned to remain in force, so the national security considerations will come out of that and will be dealt with under this new regime. But there will still be the ability for—[Inaudible.]
The Chair
Mr Boney, do you have any observations while we are waiting for the tech to work?
Christian Boney: I agree entirely with what Lisa has been saying. I think the scope of the Bill is already broad, so to my mind, broadening it further to take account of other areas is likely to introduce the uncertainty that Lisa was referring to and, as a consequence, have a potentially negative impact on the investment climate in the UK.
The Chair
Lisa, it looks like we have got you back now. Would you like to add anything?
Lisa Wright: I am not sure at what point you lost me, but I think I was saying—
Nadhim Zahawi
We lost you while you were talking about a “degree of unpredictability”, Lisa.
Lisa Wright: Okay. In my view, if you were to broaden the regime out from national security to take into account other considerations, that would introduce quite a degree of unpredictability and would, I think, potentially impact negatively on people’s assessment of the investment climate in the UK—I am sorry if I am repeating myself. However, my understanding is that the existing intervention regime will remain, so national security will come out of it, but the Government will still be able to intervene in transactions on other public interest grounds under the Enterprise Act. That regime has some limitations, but those powers will still be there.
Stephen Kinnock (Aberavon) (Lab)
Q
Christian Boney: I think the de minimis concept is potentially relevant and helpful in the context of thinking about what needs to be subject to mandatory notification. If you are not within the mandatory notification regime, that does not mean that the Government cannot exercise the call-in power so long as the relevant tests in the legislation are satisfied; it just means that the relevant company does not have to make a notification. There are elements of the mandatory sectors where some form of de minimis has already been included. Energy is a good example of that, and that makes sense in the context of energy.
I think it is worth exploring whether, within any of the other sectors, where we are more likely to see start-up, early-stage companies operating, there is benefit in introducing some form of de minimis regime solely in respect of the mandatory notification requirement. As I say, if a small-scale company operating in critical artificial intelligence is receiving investment from somebody who we view as a hostile actor, that transaction might escape mandatory notification, but that does not mean it escapes voluntary call-in by the Government at the point they become aware of it. That is something that might be worth exploring.
Chi Onwurah
Q
Moving on slightly, a comment made numerous times on Second Reading was about the role of the intelligence services. Indeed, my right hon. Friend the Member for North Durham (Mr Jones) asked for more intelligence in the process. How can the Bill better ensure that the intelligence services, including the National Cyber Security Centre, have input and scrutiny and, indeed, provide their expertise as part of the process so that the appropriate decisions are taken?
Professor Martin: I think the essential, principal requirement is not the intelligence services’ involvement—although that is important and I will come to that in a minute—but the understanding of technology and technological developments within Government. These are fundamentally economic issues as well. Apart from anything else, if you look at some of the reasons why the Bill has come about, you will see that, in strategically important technologies, the Government have invested heavily in university-sponsored research and in private sector research, only to see the fruits of that research sold off. Even if that did not impact on national security, which in most cases it does, it is not a good return for the taxpayer in terms of long-term UK involvement if the intellectual property ends up being monetised elsewhere.
I have enormous respect for Mr Jones and I think he is on to something in terms of involving the national security and intelligence services, but I do not think this should be intelligence-led. In my experience—obviously, I cannot go into detail on this particular aspect of it—secret intelligence adds relatively little to your knowledge of intent. If we take Russia and China, the two big strategic threats to the UK, Russia does not have a strategy in this space. We have to worry about Russia and cyber-security because it attacks us, but it attacks us on the internet that the west has built.
China is very different. China has a technological, strategic dominance aim, but it is not a secret. It is published and has been translated into English in the Made in China 2025 strategy, as you know. Our knowledge about the precise, intricate details of how that is implemented gains relatively little from secret intelligence.
What secret intelligence does have, particularly in GCHQ and the NCSC within it, is a knowledge of how technology works in terms of the national security threat space. I think the UK has a head start on other countries, because the National Security Council innovations of the 2010s gave the intelligence services a much bigger voice at the table, and that is reflected in the structures that we have now. The UK should be well placed to be able to listen to the intelligence services, but I would encourage—not least to make sure that in this very delicate balance of trying to show that we still have an open economy and are not shutting the doors to investment—as much transparency as possible on the decision taking. It will not always be possible because GCHQ technologists will know about things—exploitations of particular bits of technology—that they cannot reveal. They will be able to tell that to secret forums within Government for consideration—I am quite confident about that: there will be a seat at the table for them.
My recommendation would be that, as far as can safely be done, the Government should be relatively open about why they make the judgements they make about strategic areas of technology and the interventions they will make once this Bill is passed—assuming that both Houses wish to pass it.
Nadhim Zahawi
Q
Professor Martin: I suppose the mantra, if I had one, would be, “Broad powers, sparingly used, with accountability mechanisms”. It is incredibly hard to be specific about this, for two reasons: one is that new areas of technology crop up, as they invariably do, and the other is that sweeping categorisations are needed on the face of legislation.
I am not a deep technical expert—although others are available from my former organisation—but if you take sweeping, umbrella titles like “quantum” or “artificial intelligence”, there are huge swathes of that where, actually, not a lot of these powers in the Bill will be used. There will be companies that will be doing very interesting things—10 interesting things—of which only one would be caught by this Bill.
If you take areas like specialist quantum computing and so forth, I think the community of interest and expertise is actually relatively small and has relatively good relations with Government—not least because, again, while it is not perfect, the whole system of research council funding and Government investment in funding technological research is pretty good, by international standards—so you end up knowing these people. One of the reasons that this sort of policy evolution came about, which has led to the publication of the Bill before you—I remember this from discussions within Government—is that people were volunteering to come to us. World-leading experts, people who had been funded by the Government—I will not go into individual cases because it is commercially sensitive and possibly security sensitive—would come to Government and say, “Look, we’ve had this inquiry from a Chinese behemoth,” or even, “We’ve had this inquiry from a US company,” and so forth: “What do you guys think about this?” and, invariably, we would have to have an informal influencing discussion.
I do not think that some of the businesses to which this will apply will be screaming that this is horrible Government regulation and intervention in areas where that should not be made. There was already a dialogue; there was just no legislative framework. Of course, that meant that companies that felt a loyalty to the UK and so forth but that also had to look after their commercial interests were sometimes in a real bind.
To try to answer your question, I think that the powers should be fairly broad. I think there should be accountability and transparency mechanisms, so that there is assurance that they are being fairly and sparingly applied.
Stephen Kinnock
Q
Professor Martin: I think there are broadly two or three areas in which China is very interested in doing that. I can make some comments on motivations, because I think they are very important, and then I will finish with how that manifests itself in UK casework.
Clearly, China has set out a stall, which it published in Made in China 2025, in which it said it wants to be the world’s pre-eminent leader in a number of key areas of technology. It mentioned artificial intelligence and quantum, and it is throwing vast sums of state money and long-term strategies at them, unencumbered by the need to seek re-election and popular consent, so it is a very powerful movement. That is the first thing: it is trying to build up its capability.
China is also trying to change, at least for itself—we will come to that in a minute—the way the internet works. It was reported earlier this year that Huawei and other major companies in these international standards bodies are looking at something called new IP protocols, among many other things. To give you a sense of what the motivations behind that are, at the minute when traffic flows around the internet, despite some popular impressions to the contrary, it is actually pretty hard to work out what is going through it. Therefore, it is relatively difficult to censor, although China has managed it in some ways. The new IP protocol will make it much easier to work out what sort of traffic is going through and being rerouted, so it makes it much easier to control. China is trying to dominate and essentially get a lead in the strategic technology, and also to change the character and culture of the technological age from one that started off fairly anarchic to one that is much easier to control. That is what it is trying to do.
Why is China trying to do that? A lot of this is about the assertion of its own power for itself—the regime, power, Chinese nationalism and so forth. I think it does intend to extend its sphere of influence, but I have never seen that as the primary motivation. One of the interesting things, post the pushback from the Trump Administration and the US sanctions on Huawei, is the extent to which China will now accelerate its desire for self-sufficiency, and the extent to which that leads to a separate pole of technological influence that may become less interested in countries such as the UK, European Union countries and North America.
To date, how has that manifested itself in cases in the UK? Ms Onwurah has already mentioned the Huawei controversy. If you take Huawei as a company, I think it shows the different ways in which this can manifest. The Huawei 5G controversy is going to be dealt with by a Bill that I believe is coming to the House next week, not this one. The 5G controversy was not about investment; it was about selling to British companies to build stuff. Obviously, that case has been very heavily analysed.
I think that the more interesting case in the last 10 years involving Huawei was its acquisition in 2012 of the Centre for Integrated Photonics—a world-leading British firm in a really key area of technology. That, in my view, was pretty strategically damaging. If we had our time over again, that is the sort of thing that the Bill might well notify. I know you have taken evidence from the likes of Charles Parton and people with huge China expertise. The fact that the acquisition of the Centre for Integrated Photonics did down Britain’s technological development was probably a by-product. The point is that Huawei could buy world-leading research, which China could then take and appropriate for itself very cheaply. That is what it will continue to do to build up its own capabilities.
National Security and Investment Bill (Fourth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 26th November 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 26 November 2020 - (26 Nov 2020)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Chi Onwurah
Q
James Palmer: My partner, Veronica Roberts, appeared before the Foreign Affairs Committee on Tuesday, and she and I will be submitting a list to this Committee. I am afraid we do not have time to go through it today, but I will draw out a couple. Some of the mandatory filing sectors are very broad, such as communications. Again, the Government have said that they welcome narrowing those. There are not de minimises in a number of those sectors. It is true that there are other jurisdictions that do not have de minimises, but they are not jurisdictions with as large a proportion of their GDP linked to trade, and they are not jurisdictions that are as much seen as international business headquarters as well as centres of international business; there is a difference.
There is a de minimis for transport, for example, and it is very focused on ports over a certain threshold and on airports over certain levels of traffic. That is excellent, because those are the kinds of business that it makes sense that you would want to catch. The same layering has not been applied elsewhere. In particular, I worry about catching the sale or the licensing of intellectual property in relation to any of the technology areas. I think that that will catch an awful lot of things that people have not thought about yet, and I think that it will create a big burden for those small businesses.
I can conceive that in one or two very narrow areas—in some of the material science and so on, I am told—there may be low-value things that need to be caught. I am personally very sceptical that low-value things need to be caught in many other areas, because how can they be that important to the economy if they have a value that is below £1 million?
One of our concerns is that, although we know that the Government are very committed to a free trade agenda here and trying to make this work, I have worked with new regulators as they have developed for a very long time, and—forgive my saying so—I have never seen a regulator whose remit was only at the level that was predicted when it was set up. All remits expand exponentially, and that is one of the fears we have.
I would certainly advocate ensuring that the factors that the Secretary of State has to have regard to include, for example, impact on trade. The cost-benefit analysis sets out a sensible attempt—again, it is a much more developed piece of work than the, frankly, not-that-great cost-benefit analysis done in 2017-18; this one is a good and credible attempt—to work out what the actual cash costs are. But it does not address, as the Regulatory Policy Committee drew out, the real economic costs. It may all be okay, but the risks there are not hundreds of millions, but absolutely billions, and the UK’s competitive positioning there.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
Q
James Palmer: I will just explain why. I remember working when the public interest regime still applied. The move away from the public interest regime started in the 1980s. Pre the 1980s, this country was not an international investment destination; it really was not. We have earned that position. Whatever one’s politics—I am not party political—this is something that the UK has earned. We have done that by moving to being pretty open-minded in foreign investment. We have actually not worried that much about national security considerations being controlled through ownership, because again this debate has been—sorry, let me first come back to the Minister’s point.
I am very nervous that if you open it up to public interest, you vest that authority in a politician; forgive me, but that is what leads to lobbying, to short-termism, and to completely inconsistent decision taking. I am afraid that whatever Ministers at the time may say about these decisions, there is no external credibility on the predictability of those. It does not matter whether Ministers think they are doing it in good faith or on security grounds. It does not come over that way.
On broadening it to public interest, I completely agree. I am very grateful—because I know that there was a debate about this—that it has been rightly focused just on national security, albeit with a broad ability to intervene to protect the national interest.
Stephen Kinnock (Aberavon) (Lab)
Q
James Palmer: My own view is that I actually hope so, because I think that there is a debate here. We all identify a business that has been established in the UK, and we regard it with pride as a national asset. I completely understand that. I am not just interested in global M and A; I am interested in investment in the UK. My goal is not just M and A. It is the investment, which we will not get without M and A at the end, because investors want to know that they have the ability to realise.
My own judgment—I am not an economist, but most of the economic evidence that I have seen supports this—is that you do better by allowing people to come in, allowing them to sell, not necessarily completely untrammelled, but on a broadly liberal perspective, giving them the certainty and confidence to do that.
I think what we are debating here is about those things that are generated solely in the UK—for example, research, work and ideas that are funded by the UK Government. I can see why the UK Government might want to keep control over those things and link their funding to a level of control. If someone takes funding on that basis, I can see that. I do not know enough about the history of Arm, but it was acquired by a Japanese parent, not by a so-called hostile actor. If we are not going to allow Japanese businesses to buy into our technology businesses, I think we look like a less interesting technology investment and growth destination. We might hold on to a business for another five years, but what businesses are we losing for our children and grandchildren in 10, 20 and 30 years’ time? That is how I look at the question.
Chi Onwurah
Q
David Offenbach: It is very difficult to separate these. When you look at GKN, for example, 50,000 people—even now, after covid—are headquartered in Redditch, near the Minister’s constituency. It is one of the largest industrial companies worldwide, 250 years old, and a defence contractor to the Ministry of Defence, but the question is whether the amount of defence work it does, apart from its other engineering, is sufficient for it to be called in under the existing legislation. Clearly, the decision was made that it was not appropriate, and it is the same with Cobham. Cobham clearly had a national security element, but it was not sufficient for it to be called in and blocked by the Minister, so I think it is very difficult to separate the economic from the national interest, because these companies are multi-layered; they operate in different markets; some of their work is sensitive, and some of it is not sensitive.
That is why I think it is better to try and improve this Bill than deal with it under a separate Bill. The problem is that it has taken three years to get to where we are with this Bill. If we are just going to say, “Let’s deal with it another time”, it might take another three or four years before we get to consider that, so while it is here, while it is on the table, let’s try to improve it now and make it really work for Britain, so that we can build back better—to use a phrase—going forward.
Nadhim Zahawi
Q
David Offenbach: I am very pleased with it. It is much better than the previous regime, because now, rather than just having post-offer undertakings that are subject only to contempt of court criteria if they are breached, we have a proper statutory framework that will enable the Minister to impose orders so that for non-compliance, there is a breach of statutory duty, not merely a breach of an undertaking. Of course, one of the problems with the takeover code is that the object of a takeover code is to protect shareholders and to encourage fair dealing in takeovers. It is not there—and this has never been its job—to protect the public interest; it is there to protect the shareholders who are in receipt of an offer, so that they have been given fair treatment. For example, if you take SoftBank and Arm at the moment, we do not know whether or not they will have complied with their post-offer undertakings when the five years is up, because the price that is being paid now is more than was paid in 2016. There is no complaint. Public interest is irrelevant to the job of the takeover panel, which is why this new regime is a very welcome improvement on the old regime.
Sam Tarry (Ilford South) (Lab)
Q
For me, there is something really important we need to explore a little bit more when it comes to our approach, in terms of rushing to be the most open, the most liberal, the most pro-business country we can possibly be, and the exposure that is left—in this case—to China. Just thinking about that, are there particular areas of law that you think need to be tightened up and thought about alongside this, and that need to be looked at in tandem, perhaps around IP protection, licensing and that kind of thing?
David Offenbach: I think this actually does most of what is necessary. I do not think it needs to be improved in that regard. One thing that does slightly worry me is that the present regime, which is essentially a competition regime, has the Competition and Markets Authority as a statutory body, having lost national security to the new unit that will be set up inside BEIS. They only have financial stability, media plurality and public health, which was added this summer, but it is a proper organisation that deals with public interest in those areas. Public interest is the only area.
It is quite important for us to think that one of the reasons why one wants to extend the definition of national security to a public interest element is because there are many more areas of public interest, other than those three that are now left in the CMA. There is a little bit of an anomaly, because national security does not have its own separate statutory body to deal with these issues. It suggests that this is going to be put into a little hole somewhere in BEIS and that somehow competition is more important than national security, because it has a statutory body.
I wonder whether there should be a parallel statutory body, which could be called the national security investment commission, or something like that, that actually dealt with these things separately, outside BEIS. That would deal with some of the objections that people have and that a Minister is going to be lobbied about. It would be dealt with in more of a quasi-judicial way, in the same way that the CMA now deals with referrals to it. I wonder whether the Minister would like to consider that, as part of the amendments.
Chi Onwurah
Q
Creon Butler: On your first question, I do not think we have that yet as a country. Actually, with the previous Prime Minister we had a clear definition of a number of sectors that were felt to be very important, but it is a continuing story in terms of exactly how we are going to intervene to ensure that those sectors are strong. We have some powers, but there are a range of tools. I previously mentioned public contracting, where we do our research and development, and competition policy specifically to make it impossible for British companies to develop in those sectors, and so on. There is a broad range of policies for ensuring we have those sectors, and I think they are continuing to evolve.
Your second question is a really crucial one. I guess a key point is that this is not an absolute thing: you cannot protect the country from all possible national security risks through this route. The only way you could do that, potentially, is by having every single investment notified and examined. That would create an enormous bureaucratic monster, which would really not be what we want.
The further point is that when you are looking at the right cases, you want to be sure that the judgments that are made trade off with the national security risk, as I have defined it, but also with the potential economic benefit of having an investment in that area. To do that, you need expertise among the people who are making such judgments, which spans security expertise but also economic, investment and commercial expertise. It is very important, first, that there enough people to do the judgments properly, and secondly, that you have a breadth of expertise. Certainly in the past, we may have swung from one side to the other. Sometimes you have had what people would describe as a securocrat approach: “There is a possible risk here. Let’s go for it—let’s eliminate it, whatever the economic cost.” Sometimes, on the other hand, you have had the alternative situation: “Let’s encourage investment, whatever the risk might be.” I think it is important that we get a balance between those two.
Nadhim Zahawi
Q
Creon Butler: I think—I am sure many people have said this—it is very clear that the previous legislation needed updating and was not fit for purpose, given both the way in which the global economy as a whole has evolved and the way in which the threats have evolved. It is both necessary and urgent to update that, and the way the Bill has done that, in terms of this first phase of creating the powers both to collect information and to intervene, makes a lot of sense. We have to fine-tune it and make sure it works properly, but this is a good first step. As I said, though, it is really important, if you are going to have such broad powers, to define exactly how you will use them—and much more precisely than the Government has done hitherto.
The further point is that this piece of legislation does not do everything. Alongside it, we need to strengthen our ability to collect the information we need about those threats. There are a number of elements. One that I have some experience of and that is really important is the question of who actually owns and controls companies that are operating in the UK—the question of beneficial ownership transparency. If you do not know that a hostile power is influencing a company that might be registered in an overseas territory or something of that kind, you will not be able to take the steps that you need to take.
A further area—it is a step in the right direction, because it gives us the powers to engage with this issue —is through international co-operation. Looking forwards, we need to strengthen and enhance our international co-operation with like-minded partners by going beyond the Five Eyes and including other really key partners, such as Japan, the EU and so on. That will enable us to do two things. First, it will enable us to share information about the things that can happen, such as the techniques that hostile powers are using. You may see it come up first in one country, and if we can share that information, we know that we can be prepared for that. Even more importantly, you may have a hostile power that does a number of things in different parts of the world, and it is only when you see the entire picture that you can see what the threat is.
Having that kind of international co-operation to do that is really important. These powers are necessary to get us in the same place as some of our key allies, in terms of what we can do. I do not think we are ever going to be able to standardise the areas of intervention or the nature of powers, but we should push very hard to enhance the sharing of information in the way I described.
Stephen Kinnock
Q
“the National Security and Investment regime does not regard state-owned entities, sovereign wealth funds—or other entities affiliated with foreign states—as being inherently more likely to pose a national security risk.”
Do you agree with that assessment? Logic would seem to suggest that the closer an entity is to a foreign Government, the more likely it is to pose a risk to our national security.
Creon Butler: Clearly, some state-owned enterprises can be a significant risk, but some clearly are not. VW has a significant state element in it through North Rhine-Westphalia, but that does not make it a national security risk. At the same time—this goes back to the point I was making about who actually controls companies —you could well have a company that is registered in another country and, particularly if that country does not have very beneficial ownership transparency laws, as even some very close allies such as the US do not, the company emanating from it could have ill intent towards us.
For that reason, I think the Bill is right not to make a special regime for companies that are state owned, because that could go wrong in two ways: either you could be looking at only one set of companies when there are others that are potential threats, even though they come from close allies, or you may end up spending a lot of time looking at companies with state shareholdings that are really no threat at all. Clearly, when you come to do the analysis, whether there is a stake from a hostile state will be an important part of the analysis that you do in assessing that threat. I think the Bill gets it right in not creating a special regime, but that does not mean that this will not be an important part of the analysis that you do in assessing the threats.
Chi Onwurah
Q
Will Jackson-Moore: Yes, in many cases it is a raising of finance for a partial stake. It is an entrepreneur looking to attract capital to expand their business, seeking to bring in an investor to provide maybe 25% of additional equity capital. They want to have a competitive situation where people are offering the most beneficial terms possible. Many of those investors will be overseas investors.
Nadhim Zahawi
Q
Will Jackson-Moore: For the vast majority of existing transactions, the existing legislation was not really a major factor; it only addressed a handful of transactions each year, whereas this is much more in the mainstream of the M and A market and therefore it will be much more on people’s agenda. We already have a number of organisations reaching out to us to understand the potential implications for ongoing transactions.
I do not think the timeframe in itself represents a barrier, since it is not that dissimilar to other jurisdictions, but again it is the application. If you look at Australia, for example, buyers have the ability to pre-clear themselves, and that type of amendment would be very helpful to ensure the free flowing of capital.
National Security and Investment Bill (Fifth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 1st December 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 1 December 2020 - (1 Dec 2020)
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
It is a pleasure to serve under your chairmanship, Mr Twigg, and to speak on this important Bill. I am grateful for the congratulations—or perhaps commiserations!—of the shadow Minister and all colleagues on my new role as the vaccines delivery Minister. I am obviously focused on the NSI Bill now, but I am also conscious of my responsibility for delivery, and I had a very good conversation with the devolved Administrations last night.
I hope that the Committee agrees that the Second Reading debate and the evidence sessions last week demonstrated the importance both of this legislation and of getting it right. I again place on record my thanks to the Opposition parties for the constructive way in which they have approached the Bill thus far, and I look forward to discussing the amendments that they have tabled to this part of the Bill.
Amendment 3 requires the Secretary of State to assess a multi-agency review or recommendation of the Intelligence and Security Committee before issuing a call-in notice. I remind hon. Members that it is vital for the Government to have the necessary powers fully to scrutinise acquisitions of control over entities and assets that may pose national security risks. To enable this, clause 1 gives the Secretary of State power to issue a call-in notice when he or she reasonably suspects that a trigger event has taken place, or is in progress or contemplation, and that that has given rise to, or may give rise to, a national security risk. It is entirely reasonable, as Committee Members have said, to want the Secretary of State to make full use of expertise across Government and Parliament to run the most effective and proportionate regime that he or she can. The amendment aims to recognise that.
To explain why the amendment would not achieve that noble aim, it would be helpful briefly to summarise the overall screening process. First, businesses and investors can notify the Secretary of State of trigger events of potential national security concern. In certain parts of some sectors, notification by the acquirer will be mandatory. Following a notification, the Secretary of State will have a maximum of 30 working days to decide whether to call in a trigger event to scrutinise it for national security concerns. For non-notified acquisitions, the Secretary of State may call in a completed trigger event within six months of becoming aware of it, both on a case-by-case basis and when developing his overall approach. The Secretary of State intends to draw on a wide variety of expertise from across, and potentially beyond, Government as is appropriate.
If the Secretary of State calls in a trigger event, there will be a detailed review. At the end of the review, the Secretary of State may impose any remedies that he reasonably considers necessary and proportionate to address any national security risk that has been identified. The Bill gives the Secretary of State 30 working days to conduct an assessment, but this may be extended for a further 45 working days if a legal test is met, and then for a further period or periods with the agreement of the acquirer. The purpose of the initial assessment of whether a trigger event should be called in is not to conduct a detailed review of the entire case, or to determine whether the trigger event in question gives rise, or would give rise, to a risk to national security. That comes later. It is simply a preliminary assessment of whether the trigger event warrants a full assessment. Prohibiting the Secretary of State from calling in a trigger event until a multi-agency review has taken place, or the Intelligence and Security Committee has provided a recommendation, could severely upset the process – as we heard eloquently from my hon. Friend the Member for South Ribble.
Chi Onwurah
I thank the Minister for giving way and again congratulate him on his new role. I also thank him for his constructive tone. I sense a contradiction in the point he is making. He is saying that the Business Secretary will call on a wide range of advice and expertise, but that if he is required to call on a wide range of advice and expertise, it will upset the process.
Nadhim Zahawi
What I am trying to get at is the point made so eloquently by my hon. Friend the Member for South Ribble—the bottleneck issue. It is unlikely that adding this review, or requirement for a recommendation at the stage where the Secretary of State is assessing whether to issue a call-in notice, would be feasible within the 30-day window following the notification.
I remind the Committee that the Government’s impact assessment estimates that there will be at least 1,000 notifications every year. As my hon. Friend the Member for South Ribble said, under this amendment, every single one would need a multi-agency review or an Intelligence and Security Committee recommendation, which would be a truly massive and, in my view, unfeasible undertaking.
Chi Onwurah
The review would be required before issuing a call-in notice. The impact assessment mentioned about 1,830 notifications, but only 90 call-in notices. It is not accurate to say that the amendment would require about 1,800 reviews. It is only for those that would lead to a call-in notice, which is a much lower number.
Nadhim Zahawi
We can debate the number, but the issue is one of delay and bottlenecks. It could mean that the Secretary of State was timed out of calling in potentially harmful acquisitions and of imposing any national security remedies. Alternatively, if the initial assessment period following a notification was extended beyond 30 working days, which is not currently possible under the Bill, that could reduce certainty for businesses, which I know the hon. Lady and the hon. Member for Aberavon were also concerned about. Any delay to remedies addressing national security risks would be a problem. However, I assure hon. Members that the Secretary of State will eagerly seek expertise and advice from a wide range of sources, and we will work together to safeguard our national security. Having a slick and efficient call-in process is vital to that.
Amendment 4 seeks to require the Secretary of State to consult the Intelligence and Security Committee prior to publishing a statement on the exercise of the call-in power, known as the statement of policy intent. Clause 4 requires the Secretary of State to carry out such a consultation on a draft of the statement as he thinks appropriate, and to take into account the response to any such consultation during the drafting process. That process could include engagement with interested parties across the House, and I am delighted to learn that such esteemed colleagues as members of the ISC might wish to discuss the statement in detail. Parliament has been provided with the first draft of the statement, and we would welcome its view on its content.
I draw attention to the fact that clause 4 requires the Secretary of State to lay the statement before Parliament, as my brilliant hon. Friend the Member for West Aberdeenshire and Kincardine rightly pointed out. If either House resolves not to approve the statement within 40 sitting days, the Secretary of State must withdraw it. That provides Parliament, including members of the ISC, with plenty of opportunity to influence and scrutinise the contents of the statement, which I believe is the aim of the amendment and which I am therefore not able to accept.
Amendment 5 would require the Secretary of State to notify the Intelligence and Security Committee prior to making regulations under clause 6 and to enable the Committee to respond with recommendations. I welcome the contributions made by many members of the ISC on Second Reading, and I have since written to the Committee Chair, who unfortunately was unable to attend, to follow up on a number of the recommendations made by his colleagues.
Clause 6 defines the circumstances covered by mandatory notification. The Bill calls them “notifiable acquisitions” on the basis that they must be notified and cleared by the Secretary of State before they can take place.
Members are aware that any modern investment screening regime must provide sufficient flexibility for the Government to examine a broad range of circumstances, bearing in mind the increasingly novel way in which acquisitions are being constructed and hostile actors are pursuing their ends. The regime needs to be able to respond and adapt quickly. Regulations made under the clause will be subject to parliamentary approval through the draft affirmative procedure, giving Members ample opportunity to ensure that mandatory notification and clearance regimes work effectively.
The draft affirmative procedure means that regulations may not be made unless a draft has been laid before Parliament and approved by a resolution of each House. I am pleased to advise esteemed members of the ISC that in developing the regulations the Secretary of State will take the greatest care, and will consult as widely as is judged appropriate, while ensuring he is able to act as quickly as needed. I see no need for a formal consultation mechanism. Indeed, such a mechanism between the Committee and the Secretary of State would be unprecedented.
For the reasons I have set out, I am not able to accept the amendments, and I hope that the hon. Member for Newcastle upon Tyne Central will not press them.
Nadhim Zahawi
It is vital that the Government have the powers necessary fully to scrutinise acquisitions and control over entities and assets that might pose national security risks. The Bill refers to such acquisitions as trigger events.
The clause therefore gives the Secretary of State the power to issue a call-in notice when he or she reasonably suspects that such a trigger event has taken place or is in progress or contemplation and it has given rise to, or may give rise to, a national security risk.
The parameters of the call-in powers will give the Secretary of State sufficient flexibility to examine potentially sensitive acquisitions connected to the United Kingdom while ensuring they may be used only for national security reasons. The Committee will note that in the acquisition of or control over businesses, unlike in the Enterprise Act, there are no minimum thresholds for market share or turnover.
Why is that necessary? It is necessary because acquisitions of small businesses at the start of their ascendancy can harm our national security, particularly if they involve the kind of cutting edge, world-leading technology for which this country is known. Although there is a broad range of scenarios in which the power may be used, of course, most trigger events will not be called in, as they will not raise national security concerns.
Examples of those that may be more likely to be called in include a person acquiring control over an entity that operates part of our critical national infrastructure; a person acquiring the right to use sensitive, cutting-edge intellectual property; and boardroom changes that mean that a person acquires material influence over the policy of a key Government supplier. Clauses 5 to 12 and schedule 1 set that out in detail.
Call-in notices may be issued in relation to trigger events that are in contemplation or in progress, as well as those that have already taken place. That will ensure that potential national security risks can be examined at any stage of the process rather than, for example, waiting until a transaction has taken place or is nearing completion, when it is more difficult for the parties involved to make any changes that may be required. It is envisaged that, in most circumstances, call-in notices will be issued after the Secretary of State has received a notification about a trigger event from an involved party, but it is also important that the Secretary of State retains the ability to call in trigger events where no such notification has been received. The limits for issuing a call-in notice are set out in clause 2.
The Government are committed to ensuring that businesses have as much clarity as possible when it comes to the use of this power. We heard in the evidence session about the need for real clarity for businesses, so the Bill is proportionate. The Secretary of State may not, therefore, exercise the power until he publishes a statement for the purposes of clause 3, setting out how he expects to use the power. The Secretary of State must have regard to the statement before giving a call-in notice. A draft of the statement was published when the Bill was introduced. I do not intend to anticipate our discussions in respect of the statement when we move on to clauses 3 and 4, but I am confident that it will provide reassurance that the Secretary of State intends to exercise the call-in powers in a measured and considered way.
Hon. Members will appreciate, though, that it would not be responsible, given that national security may be at stake, for the Secretary of State to be restricted to exercising the power only in the circumstances envisaged in the statement. The purpose of the statement is, after all, to set out how the Secretary of State expects to exercise the call-in power, not to give binding assurances. That is why clause 1 specifies that nothing in the statement limits the power of the Secretary of State to give a call-in notice, though I reiterate that I expect the vast majority of call-in notices to be issued in accordance with the expectations set out in the statement.
I hope that hon. Members will agree that clause 1, alongside clauses 2, 3 and 4, enables the Government to carry out a vital assessment of relevant trigger events in a measured and effective way.
Chi Onwurah
I thank the Minister for his remarks on clause 1 stand part and for setting out the Bill’s aims and ambitions. We largely agree with those aims and ambitions, and in that spirit I will give further clarity on the Opposition’s overall position. We stand in support of the need for the Bill, and indeed we sought it years ago. We support the need for the new powers to protect our national security, as set out by the Minister, and the need for those new powers in the context of changing technological, commercial and geopolitical realities. Our approach to the Bill is therefore one of constructive challenge and is guided by three principles, the first being the security of our citizens. We do not want narrow legal definitions. Our proposed amendment to clause 1 would have ensured broad input into the considerations, such that our national security was not threatened as a result of insufficient expert advice or by the pure, ministerial market ideology of recent record. Our group of amendments sought to bring legal powers, multi-agency expertise and proper decision making to bear in putting British security first.
There has already been significant discussion of the right national security powers, both on Second Reading and in the Committee evidence sessions. An essential part of that discussion has been focused on the merits of giving the Government powers to protect our national security by using a public interest test. There are understandable concerns that too broad a test might result in a drop in investment for the UK’s start-ups and businesses, and these concerns note an economic challenge in expanding our national security powers. At the same time, however, there is widespread agreement that national security and economic security are not entirely separate. They are deeply linked. A national security expert told us that a narrow focus on direct technologies of defence, for example, was mistaken, and that we should look at the defence of technologies that seem economically strategic today and might become more strategic in future.
Our concern is that we have a Government who are years behind our allies in even contemplating the new national security investment regime. We have seen only 12 national security screenings in 18 years, and not a single instance of the Government acting decisively to block a takeover and guard our national security. In the context of what other countries are doing and how rapidly technologies progress from being economically strategic to becoming security threats, we must not just consider a narrow national security test, but pursue a road to sovereign technological capability and much more ambitious and robust routes to protecting national security and strategic interests. The Opposition will therefore put the security of our citizens first. We will not shy away from regaining national sovereign capability, and we assure our citizens that Britain will have the technology and the capability to protect its national security.
In scrutinising the Bill and this clause, we will champion clarity and support for our prized SMEs and innovative start-ups—the engine of British jobs and British prosperity. We have already heard from market participants that the Government’s belated rush with this Bill has created huge uncertainty and concern over the ability of BEIS to operate the new investment screening regime that the Minister set out. The Government’s impact assessment notes that 80% of transactions in the scope of mandatory notification will be by SMEs. We heard from our expert witnesses that the impact assessment fails to account for the costs faced by the acquired companies, and for the overall impact on funding for our start-ups. The Opposition will not turn a blind eye to those costs for our small and medium-sized enterprises. At each step, the Opposition will plug gaps left by the Government in coherent policy making, to champion British creativity and innovation. It is the least our small and medium-sized enterprises deserve.
Finally, we will stand for effective scrutiny of the Government of the day. That is why we tabled the amendment, which has unfortunately not been accepted by the Committee. However, we will find proportionate, robust and democratically legitimate means of seeking accountable action to protect our national security. Our amendments will stand up for British security, and for competent and coherent decision making. Clearly, we regret the Committee’s decision on our amendment, but we will not oppose the clause standing part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Further provision about call-in notices
Nadhim Zahawi
I hope that the hon. Member for Southampton, Test and other hon. Members will permit me, in responding to the hon. Gentleman’s points, to begin by considering stand part and by laying out the Government’s broad rationale before turning to the substance of the amendment.
The clause contains further provisions about the use of the call-in power. It is vital that the Secretary of State is able to call in and scrutinise trigger events that have taken place. However, it is right that clear limits are placed on the call-in power to ensure that it is used in a proportionate manner—the whole point here is proportionality. The clause therefore prohibits a trigger event from being called in more than once. It also provides that the Secretary of State may issue a call-in notice only up to five years after a trigger event has taken place and no longer than six months after becoming aware of the trigger event.
The time limit of five years strikes the right balance between ensuring the Secretary of State has enough time to spot completed trigger events that may pose a risk to national security. The hon. Gentleman cited evidence from Dr Lenihan on 3Leaf, which speaks more to the screening operation than the amendment. Of course, the Secretary of State also has to make sure that the risks to national security are balanced against avoiding undue uncertainty for the parties involved, which we all want to make sure we look after, and we have heard from colleagues about the challenges that small businesses face in building or rebuilding their business
For trigger events that take place before commencement but after the introduction of the Bill, the five-year time limit starts at commencement rather than from when the trigger event takes place. If the Secretary of State becomes aware of that trigger event before commencement, the six-month time limit also starts at commencement. The ability to call in trigger events that take place before the commencement of the call-in power but after the introduction of the Bill will help to safeguard against hostile actors rushing through sensitive acquisitions to avoid the new regime, now that we have set out our main areas of interest.
The five-year time limit does not apply if the Secretary of State has been given false or misleading information, as my hon. Friend the Member for North West Norfolk (James Wild) reminded us, or in relation to notifiable acquisitions that have been completed without prior approval.
In all this, we will seek to provide as much transparency and predictability as possible. The Secretary of State may not, therefore, exercise the power until under, clause 3, a statement is published setting out how.
Stephen Kinnock
Could the Minister say a little more about what the problem is with not having the Minister’s or the Secretary of State’s hands tied? Our amendment simply says that if information comes to light that creates cause for concern, the Secretary of State may, if he or she so wishes, look into it again. It is not an obligation; it simply makes sure that the option is there.
Nadhim Zahawi
I was going to address that at the end of my remarks, but I will touch on it briefly and hopefully reiterate it at the end. It is about certainty and proportionality. Everything we are doing by legislating in this way has an impact on businesses and the certainty of attracting investment and growing, as the shadow Minister, the hon. Member for Newcastle upon Tyne Central, reminded us in her opening speech.
As I was saying, a draft of the statement was published alongside the Bill. Following commencement, if parties involved in trigger events are concerned about them being called in, they will be able to remove any doubt about this by notifying the Secretary of State of their event. They will then be entitled to receive a quick and binding decision on whether the Secretary of State will call in the event.
I will turn briefly to amendment 10, which seeks to extend the Secretary of State’s power to issue a call-in notice in respect of a trigger event that has previously been called in when no new material information becomes available within five years of the trigger event. After a trigger event is called in, the Secretary of State has—
National Security and Investment Bill (Sixth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 1st December 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 1 December 2020 - (1 Dec 2020)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
It is a pleasure to serve under your chairmanship, Sir Graham. As I was saying, after a trigger event is called in, the Secretary of State has 30 working days in which to carry out a full national security assessment, although that may be extended in certain circumstances. During that period, the Secretary of State may use his information-gathering powers under the Bill to gather from relevant parties any further information he requires to make a final decision. I can reassure hon. Members that the Secretary of State will make full use of these powers to fully assess every aspect of an acquisition.
Where, at the end of an assessment, the Secretary of State imposes remedies in relation to a trigger event, the Bill provides a power for him to amend those where appropriate. Such an amendment is really relevant only in cases where a trigger event is called in for scrutiny but ultimately cleared by the Secretary of State outright, without any remedies being imposed. In cases where false or misleading information is provided that materially affects the Secretary of State’s decision to clear a trigger event outright, he may revoke his decision and give a further call-in notice up to six months after the false or misleading information is discovered.
Adding further opportunities to call in a trigger event each time new material information becomes available after the Secretary of State has already had the opportunity to carry out full scrutiny of the trigger event would be disproportionate and give rise to unjustified uncertainty for the parties involved. The Government have been clear that this regime must provide a slicker route to investment by providing clarity and predictability for investors. Sadly, the proposed amendment would create uncertainty for businesses, with them unable to assess if and when the Secretary of State might call in their trigger event again, up to five years after the trigger event has been completed. That is why I am unable to accept the amendment. I hope that the hon. Member for Southampton, Test will agree with me and withdraw it.
Dr Alan Whitehead (Southampton, Test) (Lab)
Our amendment was genuinely intended to be helpful, to try to ensure that what we see as a loophole is closed. The Minister has indicated that, in his view, that loophole would be closed at the expense of uncertainty in company land, as it were—uncertainty for those companies that might be subject to this procedure.
The circumstances that would see this amendment put into action—I have outlined some possible circumstances—would be very rare; only circumstances in which things had changed very substantially, in terms of global interest in particular areas of our economy, or circumstances in which information that could have been supplied was not supplied, and not because there was an intention to be malicious or misleading, but because people did not get to the bottom of something first time around. In those circumstances, companies would perhaps anticipate that that change might happen, and certainly if there were substantial global changes in who was interested in what, then companies would also anticipate that to a considerable extent. I do not share the Minister’s view that the amendment would place companies in general in a state of uncertainty.
The additional assistance that the amendment would provide to make the process watertight should be taken seriously. However, I hear what the Minister has said and appreciate that a balance has to be achieved between different arrangements so that they are satisfactory both for national security and for company wellbeing and development—I am sorry that he has perhaps come down slightly further on one side than on the other in his appraisal of amendment 10. However, I appreciate what he has said and therefore beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 ordered to stand part of the Bill.
Clause 3
Statement about exercise of call-in power
Nadhim Zahawi
I am pleased to speak to this group of amendments, which relate to clause 3. This clause provides for a statement to be published by the Secretary of State, setting out how he expects to exercise the call-in power. Clause 1 requires that this statement is published before the power may be used. There are three amendments in this grouping—amendments 1, 2 and 9—and I will speak to each of them in turn.
I advise the Committee that we have interpreted amendment 1, including with regard to the Members’ explanatory statement, as seeking to amend clause 3(1) rather than 3(3). The effect of this amendment, as we believe it was intended, is to require the Secretary of State to publish the statement. As I set out on Second Reading, the Government are committed to providing as much clarity and predictability as possible for business when it comes to the use of the new investment screening regime that is provided for by this Bill. The proposed statement will provide valuable information to businesses and investors, and help them to determine whether they should submit a notification about their trigger event. Indeed, the Secretary of State must lay before Parliament, publish and not withdraw the statement before the call-in power may be used. In effect, this means that the Secretary of State will need to have published a statement to use the call-in power, which is crucial to the regime.
Of course, as the security landscape changes over time, he may wish to publish an updated statement at a future point; this will need to go through the same consultation and parliamentary procedure as the original statement before it can take its place. I assure hon. Members that the Secretary of State has neither the intention nor the power to run this regime without having first published a statement.
I will now turn briefly to amendment 2, which would allow for the Secretary of State to include a definition of national security in the statement provided for by clause 3. The Secretary of State’s powers under the Bill are expressly predicated on investigating and addressing risks to national security. When exercising these powers, the Secretary of State is required to proceed on the basis that national security is strictly about the security of our nation. That is because what national security means is a question of law, which has already been answered by the highest courts of the land as being the security of our nation.
The Secretary of State will obviously need to comply with the law when exercising the powers in the Bill. There is therefore no need to define what national security means in the Bill. As Dr Ashley Lenihan—a fellow at the Centre for International Studies at the London School of Economics, who was quoted earlier by the shadow Minister—mentioned in last week’s evidence session:
“What we have seen is that most foreign direct investment regimes of this nature all refer to national security. I do not know of a single one that actually defines it or limits itself to a particular definition”.––[Official Report, National Security and Infrastructure Public Bill Committee, 24 November 2020; c. 38, Q42.]
Furthermore, as national security is a term used in the Bill, it would in any event not be appropriate for the Secretary of State to define the scope of the term in the statement; the statement is not legislation and is not subject to approval by Parliament.
Wanting to understand the Government’s aims and expectations for these powers is entirely reasonable—there is no discussion about that. However, I refer the Committee to the comments of Michael Leiter, a partner at Skadden, Arps, Slate, Meagher and Flom LLP, who told us that he would consider that
“it is a bit of a fool’s errand”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 49, Q55.]
to define national security. Instead, the statement will set out how the Secretary of State expects to use the call-in power, and we plan to include details of the types of national security risks in which the Secretary of State is especially interested.
Stephen Kinnock
I just want to come back on the point the Minister made about other regimes not using a definition of national security. The United States Foreign Investment Risk Review Modernization Act provides a sense of congress on six factors: countries of special concern; critical infrastructure, energy assets and critical materials; history of compliance with US laws; control of US industries that affect US capability and capacity to meet national security requirements; involvement of personally identifiable information; and potential new cyber-security vulnerabilities. In his comments, the Minister said that no other regime includes a definition of national security, but that sounds like a definition of national security to me.
Nadhim Zahawi
I am grateful to the hon. Member for Aberavon for his comments. I was quoting from the evidence that Dr Ashley Lenihan provided. She said:
“I do not know of a single one that actually defines it or limits itself to a particular definition,”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 38 Q42.]
if that is what he was referring to.
Instead, what I am trying to share with the Committee is that the statement will set out how the Secretary of State expects to use the call-in power. Within that, we plan to include details of the types of national security risks in which the Secretary of State is especially interested. These include certain sectors of the economy and types of acquisitions relating to entities and assets that may raise concern. I think I have said enough on that.
Matt Western (Warwick and Leamington) (Lab)
I am not sure that the Minister has; it is always a pleasure to hear his dulcet tones. In all seriousness, is this not open to interpretation with a change of Secretary of State, in the way that we have seen in the US with a change of President, and how that President chooses to define what national security means?
Nadhim Zahawi
I am grateful for the hon. Member’s contribution. Of course, no Government can tie the hands of future Governments, if that is his argument.
Moving on, I commend hon. Members for their interest in the process and function of the regime, made clear through amendment 9, which provides for additions to the statement about the exercise of the call-in power. It aims to ensure that the regime created by the Bill is properly resourced with the right numbers of skilled staff. The hon. Member for Ilford South was thoughtful in his concern about that. However, I would say to him and other Members that the purpose of the statement is to set out how the Secretary of State expects to exercise the power to give a call-in notice. It will provide information on the types of scenarios where the Secretary of State may consider there to be a national security risk. It would not be appropriate to add details about how the regime will be staffed.
Furthermore, internal arrangements on resource and skills are a matter for the Secretary of State and, of course, the permanent secretary at BEIS. I reassure hon. Members, however, that the Bill compels—this is the lever for Parliament, in my view—the Secretary of State to publish an annual report, which will provide information on the number of mandatory notices accepted and rejected, the number of voluntary notifications accepted and rejected, and the number of call-in notices and final orders made. That review is incredibly important in measuring performance. The exact details and requirements for the annual report are set out in clause 61. I will not go through all of them.
For the reasons I have set out, I am unable to accept the amendments and hope that Opposition Members feel able to withdraw them.
Chi Onwurah
I thank the Minister for his response. I particularly thank my hon. Friends for the points that they have raised. My hon. Friend the Member for Ilford South set out the importance of reporting on resourcing. I am disappointed that the Minister could not accept that amendment. He said that it was not appropriate to include details of resourcing and staffing. I point him in the direction of the Government’s misinformation unit, which was set up to grand acclaim in order to address that important issue. As the Minister for vaccines, he will have a strong interest in the effectiveness of misinformation, which could harm our wellbeing and future return to normality.
That unit was set up. Written parliamentary questions that I tabled revealed that it had no full-time staff or full-time equivalents, and we see a resultant lack of action on misinformation. I make that point to counter the Minister’s assertion that it is not important to have details on resourcing reported. On the contrary, our experience in Parliament and the civil service suggests that it is what is resourced that will get done, with the appropriate skill and care. With such a great number of cases, and such a great change in the scope of takeover and acquisition legislation that the Bill represents, reporting on resourcing is very important.
I also thank my hon. Friend the Member for Ilford South for such intriguing and at times amusing oratory on the importance of a single word in the right place.
The Chair
We must now deal formally with amendments 2 and 9, which can either be pressed to a Division or withdrawn.
Sam Tarry
I beg to move amendment 11, in clause 3, page 3, line 16, at end insert—
“(7) The Secretary of State must publish guidance for potential acquirers and other interested parties separate from the policy intent statement.
(8) Guidance under subsection (7) must cover—
(a) best practice for complying with the requirements on acquirers imposed by this Act and regulations;
(b) the enforcement of the requirements; and
(c) circumstances where the requirements do not apply.
(9) Guidance under subsection (7) must be published within six months of this Act receiving Royal Assent.”
This amendment would require the Secretary of State to provide clear guidance to potential acquirers and other interested parties.
Again, this is, in our view, a fairly simple amendment. It is important because it is about ensuring that we are an attractive destination for business. A number of witnesses were very clear that many businesses need an early warning. The amendment would require the Secretary of State to provide clear guidance to potential acquirers and other interested parties, so that people are not put off from investing or getting involved in the British economy because of red tape that they might fear being tied up in. The amendment is about providing that clear guidance to companies.
If the Government went even further and published guidance that created regulatory sandboxes and clear engagement guidelines for innovative small and medium-sized enterprises, which could benefit from efficient regulatory engagement to pursue investment transactions just as, for example, the Financial Conduct Authority has done for the UK’s world-leading FinTech sector, we could turn this into an opportunity to encourage the right types of companies from our allies around the world to invest in Britain.
One of the things we fear is the introduction of significant uncertainty. We know that hard work is going on to finalise a trade deal. Businesses have for so long felt that their big problem, in deciding about long and medium-term investment, is uncertainty. The amendment is about tackling straightaway any fears of uncertainty among businesses, particularly innovative SMEs, which will not have the resources to spend on figuring out the lengthy processes and, potentially, the accompanying guidance that could be put in place once the Bill passes. The amendment would require the Government to try to reduce that uncertainty.
Chi Onwurah
I thank my hon. Friend the Member for Ilford South for moving the amendment. The Committee must support the aims of the amendment and the implementation of the requirement to publish guidance for potential acquirers and other interested parties separate from the policy intent statement. My hon. Friend set out the importance of avoiding uncertainty and of providing certainty for companies and businesses that might come into the scope of this Bill.
Now is perhaps the time to highlight a failing of the Bill and the impact statement, in that the focus is on the acquirers—those who will acquire companies or shares through transactions. The explanatory notes explain why that is the case: because a trigger event might take two or three separate transactions to complete, such as acquiring a 25% interest, so it has to be on the acquirers to make the notification. I understand that, but I think the impact statement dramatically underestimates—in fact, it does not make an estimate—the impact that will have on those being acquired.
By that, I think particularly of small start-ups—our small, innovative new ventures and new enterprises, perhaps spun out from universities or other institutions. As they seek finance to grow and to thrive and to make further discoveries and innovations, they will have to give a lot of consideration to the provisions in the Bill. To be frank, as all of us who have worked in small businesses know, time is at a premium, as is access to legal advice. Small start-ups need this kind of guidance easily and readily available. I fail to understand why the Minister would not want the Department to provide this guidance specifically to companies, separate from the policy intent statement. I support my hon. Friend’s amendment.
Nadhim Zahawi
Amendment 11 would require the Secretary of State to publish guidance in relation to the Bill and regulations made under it within six months of Royal Assent. The hon. Member for Ilford South raised an important issue and I welcome the opportunity to discuss the Government’s plan for communicating the application of the proposed new regime, including the requirements that would or might be imposed on persons. It is important that appropriate steps are taken to make such persons aware of the requirements that would or might be placed on them. I have used “persons” here deliberately as it is the correct term, but I wish to make it clear that that includes acquirers.
First, the Government have published factsheets on the digital platform .gov that make clear what the measures in the proposed legislation are and who they apply to. The factsheet “Process for Business” sets out step by step what steps persons must or may need to take to ensure compliance with the regime. Secondly, we have set up the email address investment.screening@beis.gov.uk specifically for the purpose of providing advice on what may be in scope of the NSI regime for persons to contact to ensure that they properly understand the proposed regime. Of course, the Government believe that the Bill does not require any adjustment but should adjustments happen as it passes the scrutiny of this House and the other place, then any adjustments that affect persons would be reflected in the factsheets.
Thirdly, the Government have published and will continue to publish guidance alongside key documents in the Bill. Hon. Members will, for example, be able to review the information likely to be required for notifications online, as well as draft guidance. It is our intention to complete similar such guidance wherever it would be beneficial to parties. I hope that that provides sufficient reassurance for the hon. Member for Ilford, South and the shadow Minister that the Government are thinking carefully, and will continue to think carefully, about how to ensure that all parties who need to understand the measure are able to. For the reasons that I have set out, I cannot accept the amendment and I hope that the hon. Member for Ilford, South will withdraw it.
Nadhim Zahawi
I hope that hon. Members will recognise that the Government are committed to providing as much clarity and predictability as possible for business on the use of the new investment screening regime provided for in the Bill. Clause 3 is the third clause related to the call-in power, and concerns the statement of policy intent. Colleagues will remember that clause 1 requires that, prior to the use of the call-in power provided for in that clause, the Secretary of State must publish and not withdraw a statement that sets out how they expect to use the call-in power.
The Secretary of State was pleased to publish a draft of that statement alongside the Bill to enable hon. Members, businesses and, indeed, the general public to review the approach he expects to take. As hon. Members will no doubt have seen, the draft statement contains details of what the Secretary of State is likely to be interested in when it comes to national security risks. It includes certain sectors of the economy and the types of entities, assets and acquisitions that may raise concerns.
Although it is crucial for investors to have confidence that there is as much transparency in the regime as possible, there is self-evidently a limit to how much the Government can disclose in that regard given that the regime deals explicitly with national security matters. Nevertheless, the draft statement goes into some detail about the factors that the Secretary of State expects to take into account when making a decision on whether to call in a trigger event. The statement will also be required to be reviewed at least every five years to reflect the changing national security landscape, although in practice it may be reviewed and updated more frequently.
Taken together, I hope that hon. Members will agree that the requirement for the Secretary of State to publish a statement of policy intent prior to use of the call-in power and the requirement to review it regularly provide a good level of transparency and guidance to businesses, while not disclosing our national security vulnerabilities, which of course hostile actors would be grateful to receive. The statement will provide valuable information for businesses and investors and help them, we believe, to determine whether they should submit a notification about their trigger event. I hope that hon. Members feel that I have sufficiently explained and justified the clause and its place in the Bill.
Chi Onwurah
Clause 3 is critical, as it sets out the context in which the Secretary of State will exercise the important power to call in transactions. We have sought in our amendments to improve it. I accept the Minister’s response to and rejection of our amendments, and his belief that the clause provides for the guidance and clarity that businesses need. I would just say to him that it was the clear conclusion of just about every witness in the evidence sessions that greater clarity and understanding were required, and that to make this change was an immense mountain to climb.
In some respects, the Government could not give too much support and guidance, within the bounds of national security, to the many companies and persons who will be caught up in the measures. Having said that, given that it is an essential part of the Bill, which we support, we accept that the clause stand part.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
Consultation and parliamentary procedure
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
As I turn to clause 4, I will begin with a reference to clause 3. The statement provided for in clause 3 sets out how the Secretary of State expects to exercise the call-in powers that we have just been discussing. It is the Government’s view that this statement is important in ensuring that businesses have as much clarity and predictability as possible regarding the potential use of the call-in powers, including the areas of the economy where national security risks are likely to arise. Likewise, clause 3 also sets out that the Secretary of State is required to review the statement at least every five years.
It is right that there are mechanisms to ensure that the Secretary of State seeks external input, where appropriate, on the proposed contents of the statement and that Parliament can scrutinise the final version. Clause 4 therefore requires the Secretary of State to carry out such consultation on a draft of the statement as he thinks appropriate and to take into account the responses to any such consultation during the drafting process. Those requirements also apply when the Secretary of State seeks to amend or replace a published statement.
Our plan is to launch a public consultation shortly after the passage of the Bill to make sure that affected parties can provide comments to us in good time. Before the final statement may be published, clause 4 also requires the Secretary of State to lay it before Parliament, following which the statement will be subject to a procedure akin to the negative resolution procedure. If either House resolves not to approve the statement within 40 sitting days, the Secretary of State must withdraw the statement. I can assure the House and hon. Members that the Government are committed to ensuring that this new regime works for those most affected by it. Investor and business confidence is imperative to the recovery from the covid pandemic. That is why the Government propose to put in place these requirements before the Secretary of State is able to publish the statement and exercise the call-in power.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Meaning of “trigger event” and “acquirer”
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss:
Clause 10 stand part.
That schedule 1 be the First schedule to the Bill.
Nadhim Zahawi
I turn now to clauses 5 and 10, alongside schedule 1, which set out much of the detail on the circumstances covered by the Bill. Clause 5 begins to set the scope of what may be called in by the Secretary of State by providing the overarching definitions of “trigger event” and “acquirer”. The Government are clear that these new powers should be sufficiently broad to cover potential risks to national security. Clause 5 sets out that the new regime is focused on the acquisition of control over both qualifying entities and assets. These acquisitions are collectively known as trigger events. I do not intend now to explore what does and does not qualify as an asset or entity. Instead, I would direct hon. Members to clause 7, which provides such definitions.
Following on logically, the person gaining such control is the acquirer, and to address a query raised on Second Reading by my right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith), I should make clear that “person” includes both a body and an individual. Subsequent clauses explain the specific ways that control can be acquired for the purpose of the Bill, but this is a necessary clause to set the broad parameters of the regime. The trigger events within scope of the call-in power are defined in clauses 8 and 9 as acquisitions of control over qualifying entities and assets, but the Government consider that the Bill must supplement that by providing for interests or rights to be treated as held or acquired, and therefore for control to be acquired in certain circumstances, such as acquisitions involving indirect holdings or connected persons.
That is why clause 10, in combination with schedule 1, sets out various ways in which rights or interests are to be treated for the purposes of the Bill as being held or acquired, including, for example, joint arrangements with other parties. These edge cases are critical to ensuring that determined hostile actors cannot deliberately structure acquisitions in certain ways to avoid being covered by the regime. While many trigger events may be straightforward, direct acquisitions by a party without any connection to other persons involved in the target entity or asset, there may be broader factors that need to be taken into account when considering how control over an entity or asset may be held.
It may be that the ability to control the entity or asset is acquired, for example, as a result of arrangements between the acquirer and other shareholders or their relationship to other shareholders. The approach taken in schedule 1 broadly mirrors the concept of holding an interest in a company, already familiar in UK company law through the persons with significant control register, introduced in 2016.
Taking each in turn, paragraph 1 of schedule 1 defines joint interests, whereby two or more people holding an interest or right jointly are each treated as holding it. That means that any joint holdings of the acquirer will be taken into account when assessing whether control has been acquired over a qualifying entity or asset.
Paragraph 2 defines joint arrangements so that parties who arrange to exercise their rights jointly in a predetermined way—for example, to always vote together in a particular way—are each treated as holding the combined rights and interests of all the parties involved in such an arrangement. That is important to prevent hostile actors from being able to co-ordinate the acquisition and exercise of rights that might otherwise fall below the threshold of a trigger event.
Paragraph 3 defines indirect holdings, whereby a person holds an interest or right indirectly through a chain of entities, where each entity in the chain has a majority stake in the entity below it, the last of which holds the interest or right. We know that determined hostile actors are likely to seek to obscure their acquisitions through complex corporate structures, so it is vital that the Secretary of State can intervene in such circumstances.
Paragraph 4 simply stipulates that interests held by nominees for another are to be treated as held by the other, rather than the nominee. Paragraph 5 defines the circumstances in which rights are to be treated as held by a person who controls their exercise; this would cover, for example, instances where a person acquired a stake in an entity, but it was evident that they had an arrangement with a third party about how to exercise the rights that came with that stake.
Paragraphs 6 and 7 provide for the circumstances in which rights that are exercisable only in certain circumstances and rights attached to shares held by way of security are respectively to be treated as held, and mirror corresponding provisions in schedule 1A to the Companies Act 2006.
Paragraphs 8 to 10 define connected persons; as set out, connected persons are each to be treated as holding the combined rights or interests of both or all of them. That would cover, for example, shares in a company separately by a husband and wife or a brother and sister. Finally, paragraph 11 sets out that two or more persons sharing a common purpose are to be treated as holding the combined interests or rights for both or all. That would include two or more persons who co-ordinate their influence in relation to an entity or an asset, similar to joint arrangements. This will ensure that the Secretary of State is able to assess the impact of co-ordinated acquisitions.
Taken together, the concepts detailed in schedule 1 are a crucial part of ensuring that the new regime is flexible enough to deal with the complex reality of some acquisitions of control over entities and assets. Without these provisions, hostile actors could seek to take advantage of the gaps by structuring acquisitions in a way that would be out of scope of the regime, despite the very real risks that that might present. I trust that colleagues on both sides of the Committee want to ensure that the regime covers such cases suitably.
Chi Onwurah
I thank the Minister for his comments on clauses 5 and 10 and schedule 1, which are quite technical provisions designed to allow for the different ways in which control may be acquired over a qualifying entity or asset or a trigger event may occur. I shall not repeat what the Minister so ably set out, but simply say that we recognise the need to set out ways to mitigate the impact of hostile actors, as he put it, going to complex lengths to hide their interest in a qualifying asset or entity. However, having the powers and these definitions is not the same as actually using them. There have been several instances in which hostile actors have behaved in entirely transparent ways that we have not identified and prevented. While these provisions are necessary, we need to see the ways in which the Secretary of State will actively identify evolving risks even as they hide behind complex financial organisations.
Dr Whitehead
But if the IP, the patents and various other things have been made off with by another company, and the administrators have presumably agreed to that, although they never hold the rights, where are the shareholders and creditors’ duties and rights at that point? Indeed, what is the remedy as far as the Government are concerned in those circumstances?
I can honestly say I am fairly confused about this, so I do not have the full answer to the hon. Member’s concerns. I am raising this more because I am not sure whether the wording in the schedule is fully adequate for those circumstances. I would be grateful if the Minister gave me some assurance, took some of the clouds from my mind about this, or alternatively said, “Well, we’re going to have a look at this to see whether there is a bit of a problem that we might have to fix.”
Nadhim Zahawi
My hon. Friend the Member for Wyre Forest addressed the issue of the administrator’s acting on behalf of the creditors. The important point to focus on—I will happily write to the hon. Member for Southampton, Test after the sitting—is that ultimately, it is the acquirer. If a malign actor were come to acquire those assets, and it is notifiable as part of the 17 sectors, then the transaction is made void. That is the remedy, effectively, because the acquirer would have to come forward and make representations to the investment unit about why they are acquiring and get clearance.
Chi Onwurah
I thank my hon. Friend the Member for Southampton, Test for the points that he is making. I wish to put to him, and effectively the Minister as well, an example which was raised yesterday in debate on the Telecommunications (Security) Bill, with which I am intimately familiar as the collaboration is between Nortel, an equipment vendor for whom I worked in the past, and Huawei, on a project to develop new technology. When two entities come together and collaborate, which I do not think will meet any of the trigger events described here, but instead create something which has IP in it which is of value, how does that come under the provisions of the clauses and the schedule?
Nadhim Zahawi
Let us take the example given by the hon. Member of Nortel collaborating with Huawei or any other entity. They have to satisfy themselves that if they wish to acquire something else in future, they will effectively have to go through the same process of national security clearance. Collaboration between entities or in academia are covered under the separate guidance, including from the agencies, on who they collaborate with, but I think that is a different issue. Once an asset is created that has a national security implication for the United Kingdom, the Bill comes into play.
Question put and agreed to.
Clause 5 accordingly agreed to stand part of the Bill.
Clause 6
Notifiable acquisitions
Stephen Kinnock
I beg to move amendment 6, in clause 6, page 4, line 27, at end insert—
‘(4A) The Secretary of State must have regard to the protection of critical national infrastructure when making regulations under this section.’
This amendment would require the Secretary of State to have regard to the protection of critical national infrastructure when making notifiable acquisition regulations.
It is a pleasure to serve under your chairmanship, Sir Graham. I congratulate the Minister on his recent appointment as the vaccine tsar. I must say, he is taking multi-tasking to a whole new level, and we wish him well.
I rise to speak in favour of amendment 6, which is closely related to amendments 7 and 8. Sir Graham, should I speak to amendments 7 and 8 as well now, or to amendment 6 alone?
Stephen Kinnock
I thank my hon. Friend. His intervention is telling because it points to a fundamental failing at the heart of Government in terms of being joined up and credible. We cannot condemn aspects of China’s activity and its increasingly assertive behaviour —potential military threats to Taiwan, and sabre-rattling in the South China sea—while opening up our nuclear energy capability to that same hostile foreign actor. Security is about our credibility, resilience and ability to stand strong and united, because we know that the Chinese Communist party will exploit weakness and division. Consistency is vital—consistency and security are two sides of the same coin.
To answer my hon. Friend’s question, I profoundly and sincerely hope that the investment to which he refers would not have passed this test. Frankly, if it had passed this test, the Bill would end up not being worth the paper it is written on. This is about the implementation of the Bill and the Government’s capability to stand up for our national security and critical national infrastructure, which is at the heart of the amendment.
It is worth pointing out that the Intelligence and Security Committee defines our critical national infra- structure as
“certain ‘critical’ elements of infrastructure, the loss or comprise of which would have a major detrimental impact on the availability or integrity of essential services, leading to severe economic or social consequences or to loss of life.”
I am convinced that no Member present would argue with that definition or against putting those considerations at the heart of what Parliament and the Government stand for.
We must include critical national infrastructure. It would follow best practice—our allies the United States and Canada both include critical national infrastructure in their list of key factors to assess as part of national security, so we would not be reinventing the wheel but simply following best practice. In the expert witness sessions, I asked Sir Richard Dearlove specifically whether he thought that a definition of critical national infrastructure should be included in the Bill. He said:
“I would certainly see that as advantageous, because it defines a clear area where you start and from which you can make judgments”.––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 24, Q31.]
As I said the start of my comments, sovereign capability is what this is really about, and our sovereign capability is profoundly undermined by the fact that so much of our critical national infrastructure is not in our own hands. Supply chains are over-extended and often depend on actors that perhaps 10 years ago we did not see as we do now, which has to be taken into account. I urge hon. Members to consider the amendment seriously, because it goes to the heart of what Parliament and Government should be about.
Nadhim Zahawi
Amendment 6 would require the Secretary of State to have regard to the protection of critical national infrastructure when making notifiable acquisition regulations. I welcome the intention of the hon. Member for Aberavon to ensure that the protection of critical national infrastructure is considered by the Secretary of State. Indeed, I take it as a ringing endorsement of the approach the Government have taken in clause 6 to define the specific sectors and activities subject to mandatory notification clearance.
As the hon. Gentleman will know, we intend to introduce regulations under the clause once the Bill has received Royal Assent, and we are currently consulting on the sector definitions, which cover much of the critical national infrastructure that he quite rightly shared with the Committee, including energy, civil, nuclear, transport, communications and defence. We are publicly consulting, in particular with sector experts, the legal profession, business and investment communities, to ensure that those definitions provide clarity and certainty, and are focused on the specific parts of sectors and activities that can pose risks to our national security. I can assure the hon. Gentleman that, in developing any notifiable acquisition regulations, the Secretary of State will always take into account the national security needs of the country within the critical national infrastructure sectors, the advanced technology sectors and the wider economy.
Stephen Kinnock
I thank the Minister for giving way; he is being very generous. Does he not see the advantage of including this point on the face of the Bill? It makes an important statement—it is a political statement, really—about the need to ensure that, whatever the regulations say, critical national infrastructure is embedded in the Bill.
Nadhim Zahawi
I hear what the hon. Gentleman says. The word that slightly worries businesses is “political” statement. I think that that is a concern. I think his intention is right, and the reason why we have taken the route of mandatory notification for the 17 sectors is precisely the point he makes. I assure him that the Secretary of State will always take into account the national security needs of the country within the critical national infrastructure sectors. Indeed, the hon. Gentleman will recall that the Government introduced a statutory instrument to include health in the Enterprise Act 2002 when the covid pandemic hit.
Dr Whitehead
I wonder whether I can tempt the Minister to confirm that the 2015 Secretary of State’s investment agreement concerning Chinese control of the nuclear power station and reactor was a naive act by the Government and did not take national security properly into consideration, and that the Secretary of State who signed that agreement in the Minister’s Department clearly did not do so. Will the Minister both reflect on the naivety of that deal and give an indication that such a deal would never be contemplated by this Department in future?
Nadhim Zahawi
If the hon. Gentleman is referring to the Hinkley Point deal with EDF, the operator and junior partner in that is CGN.
Dr Whitehead
I was not quite; I was referring to the investment agreement on the Hinkley deal that enabled the Chinese state nuclear corporation to develop one third of that series of reactors entirely within its own resources. That was signed into the agreement by the then Secretary of State so that they would be junior partners in Hinkley, equal partners in Sizewell and 100% owners, operators and organisers of Bradwell. That is what I was referring to. The Minister ought to say a few words on the likely actions of the Department in future under the terms of the Bill.
The Chair
Crucially, Minister, interesting though this topic may be, those last few words should be firmly in your mind in any response you give.
Nadhim Zahawi
I am grateful to you, Sir Graham, for refocusing our attention on the amendment. Suffice it to say that national security is always taken into account when it comes to nuclear or energy, as it was at the time of those agreements. The point I am trying to make is that we must be flexible to ensure that the new regime can adapt to the threats of tomorrow. That is the right approach to ensure that we can keep this country safe. Of course, any such regulations will be subject to parliamentary approval through the draft affirmative procedure, giving Members of this House and the other place the opportunity to ensure that the mandatory notification and clearance regime works effectively. As such, I cannot accept the amendment and I hope that the hon. Member for Aberavon will seek leave to withdraw it.
Stephen Kinnock
I thank the Minister, but I am afraid that we will have to push the amendment to a Division, because it is so fundamental to how we see the purpose of the Bill. We have heard lots of assurances today along the lines of, “Trust us. We are on the right track. We get it.” I hope the Minister will forgive us, but we prefer the “trust but verify” model. Therefore, we think that this provision should be in the Bill, and I will have to press the amendment to a Division.
Question put, That the amendment be made.
Stephen Flynn (Aberdeen South) (SNP)
I beg to move amendment 13, in clause 6, page 5, line 3, at end insert—
“(10) Notifiable acquisition regulations must be reviewed one year after they are made, and at least once every five years thereafter.”
This amendment would require notifiable acquisition regulations (including which sectors are covered) to be reviewed one year after they are made, and once every five years thereafter.
It is a pleasure to see you in the Chair once again, Sir Graham. As things stand, I think it is probably a fair assessment, based on what we have heard, that perhaps if the Government had their time again they might have been able to bring forward a consultation in relation to which sectors will be linked to the Bill once it is on the statute book.
I think that a disappointing approach has been taken. It could have been done in a much more constructive manner. The purpose of the amendment is to try to highlight that the issue is a real one, and to highlight the scale and scope of the sectors. As we talked about, there is perhaps concern about whether a specific sector goes far enough. For instance, does artificial intelligence look properly at the role of social media? Does the infrastructure tie into social media in any way, shape or form? There are other examples of that too. Having the review after a year would perhaps allow the Government to be a little more certain about where their priorities lie, and to provide additional certainty to businesses in what is an ever-moving landscape. National security is, of course, an ever-evolving issue, as we have heard passionately from a number of Members.
I will keep my remarks succinct. The amendment is about tightening things up and removing the difficulties that are being caused by the lag between the Bill and the consultation, and doing so in a constructive fashion to try to assist the Government.
Nadhim Zahawi
To discuss this amendment, I believe it would be helpful to revisit briefly the role of notifiable acquisition regulations under the regime. A key part of the Bill is the ability it affords the Secretary of State to make acquisitions of certain shares or voting rights in certain entities—notifiable acquisitions, meaning they must be notified and cleared by the Secretary of State before they can take place. Those types of entity are to be specified in regulations by the Secretary of State and the Government have published a consultation on the definitions of those types of entity, which fall within 17 key sensitive sectors of the economy that we propose to initially be covered by the mandatory notifiable regime.
The regulation-making powers in the clause are the best and most proportionate way to enable the Secretary of State to change over time what does and does not constitute a notifiable acquisition. That is crucial for two main reasons. First, it would not be the right approach to set the types of entity covered by mandatory notification and their definitions in stone, forever, in 2020. We all know how difficult this year is. The Secretary of State must be able to update them, in some cases rapidly, as the threats we face evolve and to keep pace with technological development.
Secondly, the Secretary of State must be able to react to the operation of this regime in practice. While the Bill does not include a white list that exempts specific acquirers from the mandatory regime, we have been clear that we will monitor closely the volumes and patterns of the notifications made to the Secretary of State. It may emerge over time, for example, that acquisitions by institutional investors and pension funds are routinely being notified but very rarely remedied or even called in. Such evidence could build the case for using the powers in this clause to make exemptions to the definition of a notifiable acquisition, on the basis of the characteristics of the acquirer.
The Chair
Order. I do not know who the person who has just walked in is, but only Members are allowed in the room. Please leave immediately.
Nadhim Zahawi
It is therefore right that the Secretary of State keeps a constant watch on the regulations. Indeed, it is vital that he has the flexibility to re-assess and, if needed, seek to update the regulations as soon as is needed, while taking a proportionate approach that gives as much stability to business and investors as possible. Ensuring this vital timeliness and balance means it would not be appropriate to impose particular requirements on when and how frequently the Secretary of State should review the powers, so I cannot accept the amendment. However, I agree wholeheartedly with the hon. Member for Aberdeen South that keeping the regulations up to date and proportionate is of the utmost importance, and I can assure him that that is what the Secretary of State will do.
Stephen Flynn
I will certainly take that assurance from the Minister in the spirit in which it is given, but that is probably as far as that will go. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 6 defines the circumstances covered by mandatory notification. The Bill calls them notifiable acquisitions, on the basis that they must be notified and cleared by the Secretary of State before they can take place. The Government have looked carefully at investment screening regimes around the world, in particular those of our Five Eyes allies and other security partners. Common among them all is the inclusion of a mandatory notification component to ensure that the most sensitive transactions must be actively considered and receive clearance by the relevant authority before they can take place. We have concluded that that is the right step for the United Kingdom to take as well. That reflects our developed view that the Government must have greater assurance that certain acquisitions in the most sensitive sectors, including both the national infrastructure sectors and certain advanced technology sectors, are safe to proceed.
The Chair
Before I put the question formally, for the benefit of Members––particularly new Members who have not been able to be here as much in the last year as would otherwise have been the case––let me say that a good way of thinking of the rules of order in Committee is to think of them as being pretty much the same as in the Chamber. Similarly, above and below the bar applies in Committee as well as in the Chamber.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Qualifying entities and assets
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 7 provides the definitions of “qualifying entities” and “qualifying assets” within the scope of the Bill, where, if they are subject to an acquisition of control that raises national security risks, the Secretary of State may take action. The Government have deliberately adopted a broad definition of “qualifying entities” to ensure that we can protect national security, regardless of the form of the legal structure of an entity that is being acquired in a trigger event.
Entities can be established or restructured in different forms including, for example, companies, limited liability partnerships and unincorporated associations. The clause includes an indicative, and non-exhaustive, list of the entities in scope. However, “individuals” are explicitly excluded. We expect most trigger events to concern companies, but we must also ensure that hostile actors cannot undermine or bypass the new regime through an entity being structured in such a way as to avoid scrutiny. It is therefore right that the clause provides for a broad definition of an “entity”.
Equally, from time to time, there may be cases that concern the acquisition of control over non-business entities such as trade bodies or industry groups that the Government none the less need to be able to scrutinise. The clause also permits the Secretary of State to scrutinise acquisitions relating to non-UK entities, if the entity carries on activities in the UK or provides goods or services to persons in the UK. As I am sure hon. Members will acknowledge, the cross-border nature of trade and supply chains in today’s world means that conduct abroad may impact national security here. For instance, goods that are critical to the defence of the realm may be supplied from abroad. If those goods were to be interfered with, that could harm our national security.
Stephen Kinnock
I am very happy to have the opportunity to set out what we are trying to achieve with this amendment. While the previous amendment was very much about protecting our assets, this one focuses on the characteristics of the acquirer. It is absolutely clear that any successful screening regime has to be based on a solid understanding of both aspects—both the asset and the acquirer—and that both are equally vital to the successful implementation of the regime.
Harking back to the debate we had about an earlier amendment, the objective here has to be smart regulation. What do we mean by that? If we try to catch everything, we end up catching nothing. We have to prioritise. We have to have a screening system that has a smart, nuanced and well-informed understanding of risk, both in terms of the prioritisation of our assets and the prioritisation of understanding the characteristics of the acquirer. It is on that basis that we prioritise action, and when our investment security unit needs to intervene.
The amendment is focused very much on the characteristics of the acquirer. It is about ensuring that we guard ourselves against the influence of foreign powers that wish to do harm to our country—those that have an agenda. The Minister said earlier that companies get a bit worried when we use the term “political”, but national security is a fundamentally political consideration, because it is about our political analysis of the threat from hostile foreign actors and our understanding of what the national interest is in a holistic sense. We have to give that political leadership. We cannot expect the business community to take that decision for us; we have to give a lead on understanding where the investment is coming from and what the characteristics of the company or investment vehicle are. Fundamentally, going by the old adage that he who pays the piper chooses the tune, where there are state-owned and state-backed entities, it is absolutely clear who is paying the piper and who is choosing to the tune.
The amendment we have tabled would mean that any acquisition involving state-owned entities or investors originating in a country of risk to UK national security—a fundamentally political calculation—and creating a change of influence would count as a person gaining control of a qualifying entity. By including state-owned enterprises explicitly on the face of the Bill, we would be ensuring particular regard to the issue even where shareholding levels are low.
We understand the thresholds for trigger events, but what we are saying is that when the characteristics of the acquirer ring particular alarm bells, that should apply regardless of the shareholding level that is being considered by the acquirer. We know the threat from state-owned enterprises is disproportionate; that is why we are recommending a kind of disproportionate action in this amendment, to address the reality of the characteristics and to ensure that we are carefully guarding against potentially malign actors.
Again, this is not a new concept. Other countries use it in their regimes, and we are simply proposing that we follow suit and have a smarter strategy and approach to regulation at the moment. The clarity that we need, of course, is from understanding that where allied states are involved and the transactions are efficiently screened for approval there is little cause for concern, but with this amendment, even small and discrete investments from hostile states and from state-backed entities within those states would be fully captured.
Let us turn to the expert evidence that we received, particularly from Michael Leiter, the legal expert and lawyer, who said:
“With respect to sovereign wealth funds or state-controlled investments, there is a perfectly good argument that yes, the standard of review might be…more rigorous.”—[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 48, Q54.]
Let us be absolutely clear: we do sometimes see so-called private takeovers, where often the state-backed entity is rather obscured within the ownership structure. They are carried out by companies and investment vehicles that are in fact a front for authoritarian state actors, who have wider political, national security and geopolitical agendas and whose values are frequently at odds with ours.
A recent obvious example is the attempt by an investment vehicle backed by the Chinese state to take over Imagination Technologies. The company was the target of a hostile foreign takeover attempt, and that investment vehicle had direct links to the Chinese state. Then there are even more obvious examples, to which my hon. Friends the Members for Newcastle upon Tyne Central and for Southampton, Test have referred, particularly around Hinkley and Bradwell, where there is a clear ownership structure coming directly from the Chinese state.
We must also recognise the broader agenda with things such as China’s belt and road initiative, which is about creating debt-trap diplomacy. It is about building influence by entering other economies in such a major way that those economies effectively become dependent on the Chinese state. Of course, that comes with lots of strings attached, and it is part of the deal that those countries are not able or permitted to speak out when the Chinese state behaves in ways that we would not find acceptable. I hope that the Government and the Minister will seriously consider the amendment, because the characteristics of the acquirer must be taken into account if we are to have a smart regulation system that prioritises and does what the Bill sets out to do.
Nadhim Zahawi
This group of amendments would provide for certain cases to count as a person gaining control of a qualifying entity. The amendments are to clause 8, which defines the circumstances in which a person gains control of a qualifying entity for the purpose of the Bill.
Amendment 7 would ensure, as the hon. Member for Aberavon mentioned, that any acquisition involving state-owned entities or investors originating in a country of risk to UK national security and creating a change of influence would count as a person gaining control of a qualifying entity for the purposes of the Bill. I welcome the hon. Gentleman’s intention to ensure that national security is comprehensively protected. I reassure him that the Bill provides no carve-out or special treatment for state-owned entities or overseas investors where they acquire control of a qualifying entity or asset. They will be subject to the mandatory notification requirements in the same way as any other acquirer, and the Secretary of State will have the power to scrutinise any acquisition of control by such parties where the legal test for call-in is met. That includes the acquisition of material influence over the policy of the entity.
However, the Government have been clear that the regime is nationally agnostic, and that each acquisition will be considered on a case-by-case basis. The draft statement of policy published alongside the Bill simply states that the regime will not
“regard state-owned entities, sovereign wealth funds—or other entities affiliated with foreign states—as being inherently more likely to pose a national security risk.”
I strongly believe that this is the right approach. We must recognise that many such organisations have full operational independence in pursuing long-term investment strategies with the objective of economic return, raising no national security risks.
Moreover, the clause already sets out the circumstances that constitute control of an entity based on levels of shareholding and voting rights and material influence. Amendments such as this could, for example, capture increases of equity stakes at any level, even though many could not realistically be expected to give rise to a national security risk. Developing a list of countries of risk would likely be a moving feast that would quickly become out of date in response to changing geopolitics and would most likely harm Britain’s diplomatic relations and place in the world, giving rise to a chilling effect on investment in these shores.
Amendment 8 would create a new case of a person gaining control of a qualifying entity for “changes to material influence” in industries critical to the UK’s capability and capacity to maintain national security, including economic security. Once more, I welcome the emerging cross-party consensus that the Bill must capture more subjective acquisitions of control, rather than solely levels of shares and voting rights. I reassure the hon. Gentleman that acquisitions of material influence over the policy of an entity are very much in the scope of the Bill. That applies within the 17 sectors but also to the wider economy. Parties can notify the Secretary of State of a trigger event concerning the acquisition of a material influence, and he will have the power to proactively call in such a case if the legal test is met.
I should clarify that material influence is not a scale. It is the lowest level of control that can be acquired over a qualifying entity, which captures acquisitions of smaller stakes or other rights or interests in entities, such as board representation rights. As such, it is not immediately clear to me what circumstances such an amendment would bring into the scope of the Bill, given that it would capture changes to material influence. None the less, I admire the ingenuity of the hon. Gentleman’s seeking, at least in part, to define national security through the amendment and its explicit reference to economic security. As he will know, the Bill does not define national security, and, as I said on Second Reading, I think that is a real strength, not a weakness.
Chi Onwurah
The Minister says that this Bill is not country specific. I know he does not want to define national security in the Bill, but does he think that our national security can be country specific?
Nadhim Zahawi
I think that the Bill is proportionate and I think that national security is not dependent on a particular country. Malignant actors come from different nationalities. The Committee heard from a number of experts last week the reasons for not defining national security, not least because it might limit the Secretary of State from being able to respond to new and emerging threats that did not fall within the definitions set out in statute. For these reasons I cannot accept these amendments, and I would gently encourage the hon. Member for Aberavon to withdraw them.
Nadhim Zahawi
Perhaps the hon. Gentleman will withdraw the amendment in his intervention.
Stephen Kinnock
I thank the Minister for giving way—sort of. One of the key sentences in the Government’s statement of policy intent is in the section on acquirers, which says:
“Clearly, national security risks are most likely to arise when acquirers are hostile to the UK’s national security, or when they owe allegiance to hostile states or organisations.”
I recognise that the statement of policy intent is a draft, but clearly somebody in government thought it a good idea to put that sentence in there, and I absolutely agree with it. It is therefore very difficult to understand the disconnect that appears to exist between the Bill, which is agnostic on different national actors, and the statement of policy intent, which explicitly talks about when acquirers
“owe allegiance to hostile states or organisations.”
On that basis, the amendment touches on a crucial issue and we shall be pushing it to a Division.
Nadhim Zahawi
I do not wish to keep repeating myself, but I have set out the reasons why I cannot accept these amendments. I would again gently encourage the hon. Member to withdraw the amendment, but I suspect we will be heading to a Division.
Stephen Kinnock
We are moving back and forth here. As I set out, the issues around the characteristics of the acquirer are so important to ensuring that we have a smart approach and the sentence within the statement of policy intent is so absolutely spot on that we will push the amendment to a Division to show our support for that section of the statement.
Question put, That the amendment be made.
Sam Tarry
I beg to move amendment 12, in clause 8, page 6, line 38, at end insert—
“(10) The fifth case is where a person becomes a major debt holder and therefore gains influence over the entity’s operation and policy decisions.
(11) For the purposes of subsection (8A), a major debt holder is a person who holds at least 25% of the entity’s total debt.”
This amendment would mean that a person becoming a major debt holder would count as a person gaining control of a qualifying entity.
Mark Garnier
I am very sympathetic to the amendment tabled by the hon. Member for Ilford South. He refers to the Parliamentary Commission on Banking Standards, on which I sat. There is no question whatever that the bondholders of banks have a huge amount of influence on a bank—more so than the equity holders. I am worried about a couple of things with the amendment. The first is that it is very difficult to define what level of debt ownership constitutes control, because technically there is no control in law. It is possible to have an influence, but we cannot define what control is.
The second point is that tradeable debt, as in bond market debt, is something that is usually stuck to quite a sophisticated company. Most companies will have bank debt. Of course, if we start talking about bank debt, we introduce the tricky concept of where the bank is domiciled. For example, someone can borrow money from Barclays Bank, or they can go to a Russian, Chinese or Hong Kong-based bank. The sentiment behind the amendment is really important, because there is a lot of control by debt owners, be they banks or bond holders. However, it is too complicated to support at this level, because it needs much more debate and scrutiny, and we would need a much more cleverly worded amendment to support this. I do think it is a very important point, and I support the principle behind it.
Nadhim Zahawi
These amendments would ensure that a person becoming a major debt holder would count as a person in control of a qualifying entity. Amendment 14 would go further and ensure that a person becoming a top 3 supplier to an entity also counted as a person gaining control of a qualifying entity. I acknowledge that the hon. Members for Ilford South and for Aberdeen South are right to highlight that there are, in a small number of cases, national security risks that can be posed through debt.
Access to finance is crucial for so many businesses. In order to grow and succeed, they will often take out loans that are secured against the businesses and assets that they have fought so hard to build. That is why the Bill allows the Secretary of State to scrutinise acquisitions of control that take place where lenders exercise rights over such collateral, which goes to the point made by my hon. Friend the Member for Wyre Forest. Such an approach will prevent hostile actors from artificially structuring acquisitions in the form of loans, which, following a swift and convenient default, might otherwise allow them to evade scrutiny.
I can provide further reassurance to the Committee that the acquisition of any right or interest that enabled a person to exercise material influence over the policy of a qualifying entity, including by creditors through debt arrangements, would be in scope of the Bill. It was noted by Christian Boney, partner of Slaughter and May, that the Bill strikes an acceptable balance by not having debt providers specified as a separate case. Depending on the facts of the individual case, that might capture the acquisition of rights by the lender to appoint members of the entity’s board. That is a common approach by lenders when striking an agreement to provide significant amounts of finance, particularly for big infrastructure projects, in order to safeguard their funds. The Bill would cover a scenario where that provided material influence over the policy of the entity, but the amendments would go further still and stipulate that any person becoming the holder of 25% or more of an entity’s debt was a trigger event in itself.
The Government do not believe that the provision of loans and finance is automatically a national security issue—indeed, it is part of a healthy business ecosystem that enables businesses to flourish in this country. I fear that such an approach would likely create a chilling effect on the appetite of lenders to support otherwise attractive and viable projects. Lenders need confidence that they can see a return on ordinary debt arrangements in order to provide that service. I believe that such a chilling effect would have a detrimental impact on the range and extent of finance that is available to UK businesses, particularly SMEs, and their future prospects would suffer as a result. That is the very opposite of the Government’s intention. We must support our innovators and entrepreneurs as we seek to build back better from covid, rather than limit their opportunities to succeed.
Amendment 14 would create an additional case for any person who became a top 3 supplier to an entity. In effect, it would be a new trigger event. I share the desire of the hon. Member for Aberdeen South to ensure that business within our most sensitive supply chains can be protected. I believe the Bill does that already by allowing the Secretary of State to call in trigger events across the economy, when he reasonably suspects they may give rise to national security risks. That includes key suppliers.
Nadhim Zahawi
Clause 8 sets out for the purpose of the Bill the circumstances in which a person gains control of a qualifying entity as defined in clause 7. More specifically, the clause sets out the four ways in which control can be gained.
The first two cases are where certain shareholdings or voting rights are acquired. The clause stipulates that acquisitions increasing a person’s holding in a qualifying entity above 25%, 50%, 75% or more all constitute trigger events. The thresholds have been chosen because of their significance under UK company law.
Under the Companies Act 2006, a number of key decisions relating to shareholders’ rights in relation to the decision making of a company require a special resolution. Special resolutions require a majority of 75% of votes to be passed. This means that a holding of more than 25% allows one person to, by themselves, block a special resolution. Similarly, a holding of 75% or more allows one person to, by themselves, pass a special resolution.
Under the Companies Act, ordinary resolutions, which apply to more routine shareholder decisions, require a simple majority. This means that a holding of more than 50% allows one person to, by themselves, make decisions affecting the governance of a company.
The Government believe these thresholds represent reasonable proxies for various levels of control over entities. The clause deliberately includes references to both shares and votes to prevent the artificial construction of acquisitions to avoid meeting one of these thresholds—for example, a 40% stake with 51% of voting rights. In most cases, ordinary shares carry the equivalent amount of voting rights: one vote per share.
Recognising that the regime also concerns entities other than companies established under the Companies Act, the third case explicitly extends the same principles on voting rights enabling the passage of a resolution to other entities. That means that any acquisition of voting rights that allows a person to secure or prevent the passage of any resolution governing the affairs of the entity is a trigger event. This is important because other types of entities are not subject to the Companies Act and may have different thresholds for the passing of resolutions.
Finally, the fourth case that constitutes control of an entity is the acquisition of material influence over its policy. This reflects that no single shares or votes threshold is appropriate in every case.
Material influence is an existing concept under the Enterprise Act 2002, which denotes the lowest level of control that might give rise to a relevant merger situation that may be considered for competition or public interest reasons. Material influence captures acquisitions of smaller stakes or other rights or interests in entities, such as board representation and rights, which nonetheless enable a person materially to influence the policy of the entity.
Other factors, such as the status and expertise of the acquirer or a relationship of financial dependence, may be relevant. Clearly, determining whether material influence has been or is to be acquired will require an assessment of all the circumstances of the case by the Secretary of State. It is not possible, therefore, to provide any hard and fast rules that will be applicable in all cases.
The Competition and Markets Authority has published guidance about what it considers to constitute a material influence. The Secretary of State intends to apply that in so far as is possible in the context of this new regime, for the purposes of determining whether control has been or is to be gained over a qualifying entity.
For the avoidance of doubt, the Government have no plans to publish their own separate guidance on material influence. Collectively, these four cases represent the ways in which control of entities can be acquired for the purpose of the Bill. It is vital that they stand part of the Bill so that the Secretary of State may scrutinise acquisitions of control over entities in whatever form that takes. I hope that hon. Members will agree that this approach has been carefully considered to reflect the complexity of the make-up of modern entities.
Chi Onwurah
As we are over time, I shall not detain the Committee long, but I want to say a few words on this important clause. Our debate has again highlighted the Minister’s apparent determination and conviction that the Bill cannot be improved on, even as we all acknowledge––and as the Telecommunications (Security) Bill makes absolutely clear––that the Government’s record on national security in this context can very much be improved on. I noted his celebration of the innovators and entrepreneurs, and his concerns about the chilling effect on them of bringing debt holders into the Bill’s remit as proposed in the amendment of my hon. Friend the Member for Ilford South.
The entrepreneurs and innovators seeking investment, particularly foreign investment, are unfortunately to have no such protection from the Minister. We want a consistent and robust approach, given the breadth of powers that the Bill gives to the Secretary of State. I was concerned that, even with the wise intervention of the hon. Member for Wyre Forest, the Minister did not make a proposal to take these constructive amendments away to consider and perhaps return with Government amendments that reflect them later in the Bill’s passage. We will not oppose stand part, but I hope that the Minister will continue to consider our suggestions for the improvement of this and other clauses.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Control of assets
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 9 sets out, for the purposes of the Bill, the circumstances in which a person gains control of a qualifying asset, as defined in clause 7. A person gains control of a qualifying asset where they acquire a right or interest in, or in relation to, the asset, and as a result they can do at least one of the following.
First, they can use the asset or use it to a greater extent than prior to the acquisition. This would allow the Secretary of State to intervene, for instance, when an individual purchases a sensitive site and can therefore access and use the site. Secondly, they can direct or control how the asset is used, or direct or control its use to a greater extent than prior to the acquisition. This second mechanism by which a person can gain control over a qualifying asset is particularly important as it brings into the scope of the regime those who may not have complete control over the asset, but who can nevertheless still direct or control its operation. Without that, there would be a control loophole that hostile actors may seek to exploit.
It is worth noting the relationship between this clause and clause 11, which provides an exception for control of assets in circumstances where the acquisition is made for purposes wholly or mainly outside the individual’s trade, business or craft. That is intended to put acquisitions such as consumer purchases firmly out of scope of this regime. I reassure hon. Members that the Secretary of State does not routinely expect to call in trigger events relating to assets. However, I hope that the Committee will agree that it is nevertheless important for the Secretary of State to retain this power to guard against hostile actors who seek to acquire control over sensitive assets as an alternative to acquiring the business which owns them.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10 ordered to stand part of the Bill.
Schedule 1 agreed to.
Ordered, That further consideration be now adjourned. ––(Michael Tomlinson.)
National Security and Investment Bill (Seventh sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 3rd December 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 3 December 2020 - (3 Dec 2020)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
Good morning, everyone. Before we begin, I have a few preliminary points. As usual, please switch your electronic devices to silent; I just remembered to do mine. The Hansard reporters would be grateful if Members could email any electronic copies of their speaking notes to hansardnotes@parliament.uk.
Clause 11
Exceptions relating to control of assets
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
Clause 11 is intended to provide an exemption for certain asset acquisitions, which would otherwise be trigger events. The power to call in acquisitions of control over qualifying assets, as defined in clauses 7 and 9, will significantly expand the Government’s ability to protect our national security.
The clause ensures that these new powers will not extend to certain acquisitions made by individuals for purposes that are wholly or mainly outside the individual’s trade, business or craft. The Government do not believe, for example, that it would be right for the Secretary of State to be able to intervene in consumer purchases. Given their nature, such acquisitions cannot reasonably be expected to give rise to national security risks.
Moreover, a regime which could apply to such circumstances would quickly become impractical and could result in significant numbers of additional notifications for no national security gain whatsoever. As such, this clause explicitly limits the types of assets that the Secretary of State may scrutinise in line with the Government’s intention that the regime will primarily concern control of entities and only extend to assets as a precautionary backstop.
It would mean, for example, that sales of software products to consumers by a software company would not be caught by the regime, but—this is important—it would not prevent a transaction involving the software company selling the underlying code base supporting that software to a buyer acting in a professional capacity from the possibility of call-in under the regime, where that might give rise to a national security risk.
The Government have also carefully considered whether certain types of assets should remain outside this exemption clause. We have concluded that all assets that are either land or subject to export controls, as my hon. Friend the Member for Wyre Forest regularly reminds us, should not fall within the exemption. This approach, I believe, reflected in the clause, recognises the unique nature of the risks posed by land acquisitions and proximity risk to certain UK sites, as well as the particularly sensitive nature of items on the export control lists. The Government consider that this approach is proportionate and appropriately exempts acquisitions that do not give rise to national security risks, while ensuring flexibility exists to scrutinise hostile actors directly targeting the acquisition of sensitive assets.
Peter Grant (Glenrothes) (SNP)
I note that subsection (2) lists some exceptions, many of which are framed in terms of regulations of the European Parliament and the European Council. Let me ask the Minister two things. First, why is that the case, given that we will be completely out of the European Union in a matter of days? Secondly, and perhaps more importantly, if the European Parliament and the European Council were to amend those regulations, do the Government intend to amend this legislation to keep in step with what is happening in the rest of the European Union?
Nadhim Zahawi
I am happy to write to the hon. Gentleman on that detail.
Question put and agree to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
TRIGGER EVENTS: SUPPLEMENTARY
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
I beg to move amendment 16, in clause 12, page 8, line 4, leave out from “does” to end of line 11 and insert
“establishes that arrangements are in progress or contemplation which, if carried into effect, would result in a trigger event taking place.”
This amendment would expand the scope of events to be considered trigger events.
Nadhim Zahawi
I thank the hon. Lady and share her reflections on the collegiate way the Committee has worked. I also thank her for her comments on the quality of the Bill. It is testament to the quality of the team that has worked on it—I place on record my thanks to the excellent civil servants who have worked on the Bill—and the level of consultation. We heard from the hon. Member for Aberavon, who is not in his place, that this has been a long time coming. There was the Green Paper in 2017, the White Paper in 2018 and then the consultation. There was, of course, deep consultation before the laying of the Bill as well.
Chi Onwurah
I thank the Minister for his comments. I want to make it clear that we are not in any way indicating any criticism of the civil servants who have worked hard, in extremely difficult conditions in the midst of a pandemic, to bring the Bill before us. I think we can all agree—we had some discussion on Tuesday about the nature of parliamentary scrutiny—that the objective of the process is that the Bill benefits.
Nadhim Zahawi
Hear, hear—I agree with every word.
For the benefit of the Committee, I will begin with clause stand part, before turning to the amendment. The Secretary of State’s power to call in trigger events that have taken place is limited to a maximum of five years after the trigger event takes place and six months after the Secretary of State becomes aware of the trigger event. It is important to bear that in mind when discussing the amendment. That means that the issue of timing as to when a trigger event actually takes place is incredibly important. Many trigger events will have a self-evident completion date, as supported by contractual or other legal agreements. However, some trigger events may be less clearcut. There could be terms agreed formally by the parties, followed by further documentation, leading to a formal completion, all spread out over a period of time.
The clause ensures that where a trigger event takes place over a period of more than one day, or if it is unclear when during a period of more than one day the event has taken place, the last day of that period is treated as the date the trigger event takes place. In addition, the clause seeks to provide clarity about when a trigger event may be considered to be in progress or contemplation, where a person enters into an agreement or arrangement enabling them to do something in the future that would result in a trigger event taking place. It makes clear that entering into such agreements or arrangements, including contingent ones, does not necessarily mean that a trigger event is in progress or contemplation at the time the agreement or arrangement is entered into.
Amendment 16 would ensure that a person entering into any agreement or arrangement that enables the person, contingently or not, to do something in the future that would result in a trigger event taking place would be deemed a trigger event in progress or contemplation for the purposes of the Bill. I welcome the intention to ensure that the Secretary of State can be notified about acquisitions before they take place and I understand the motivation behind that. That is very much the Government’s policy. Indeed, the inclusion of mandatory notification and clear requirements within the proposed 17 sectors illustrates that approach in the most sensitive parts of the economy.
The timing of any notification is clearly very important. It must contain sufficient information for the Secretary of State to decide whether to give a call-in notice. That means that a proposed acquisition must be at an advanced enough stage that all the key details are known: for example, the names of all the parties involved, the size of any equity stake in the entity or asset, and the specifics of any other rights—such as any board appointment rights, which the hon. Member for Warwick and Leamington cited in his intervention—being provided to the acquirer.
In some cases, however, such details may be known, but the likelihood of a trigger event actually taking place may still be low because the acquisition is conditional. For example, the striking of a futures contract or an options agreement may stipulate conditions that must be met before the acquirer is required to, or has the right to, acquire a holding in an entity or an asset. Such arrangements are common in the marketplace where, for example, a company’s future share price might be the basis of a conditional acquisition. Equally, lenders provide finance to many UK businesses on the basis of conditional agreements, often with collateral put up by the business as security in return for the loan. Those terms may, subject to certain conditions being met, allow the lender to seize collateral if repayments are not made as agreed.
Peter Grant
Can the Minister explain, first of all, why subsections (3) and (4) are included here as part of a supplementary clause when they clearly affect definitions, and as such go to the very heart of the Bill? The main clause is about defining the date on which something has happened for the purposes of calculating when later stages have to take place, but subsections (3) and (4) not only apply to those timings; they apply to everything in the Bill. I wonder whether the Minister could explain why those subsections are not included in one of the earlier clauses.
Secondly, I understand the Minister’s argument, but would it not be more prudent to work on the assumption that if somebody insists on some kind of contingent future rights being built into an agreement, they think there is a possibility that they will have to exercise them? Would it not therefore be prudent for the Government to work on the assumption that they are likely to be exercised? If not, is the Minister not concerned that we could have a situation where a whole series of small events, none of which looks particularly significant by itself, adds up to something that does become significant when taken in sequence, but there might never have been a stage during that process where the Bill, or the Act, allowed the Government to intervene?
Nadhim Zahawi
I am grateful for the hon. Gentleman’s intervention. I am just getting to the crux of the resistance to this amendment on the Government Benches, so if he will allow me, I will do that. As far as subsections (3) and (4) are concerned, we think they are exactly where they should be in the Bill.
In the loan scenario, obviously loans are routinely paid back by businesses as planned, so lenders do not have the option of enforcing any rights towards collateral. Indeed, even where businesses default on payments, lenders will often look for an alternative way to recoup their funds, such as restructuring the repayment amounts or repayment period. That is why the Secretary of State generally only expects to be notified about and, if the legal test is met, to call in acquisitions when they are genuinely in progress or contemplation, not just when they are optional or might take place in the future, as the amendment would effectively do. That could include where an option holder had resolved to exercise their option, or where a lender had decided to enforce their collateral.
None the less, the clause as drafted does provide the Secretary of State with the ability to call in at the time agreements or arrangements are entered into. That would be determined on a case-by-case basis and would, as per subsection (4), take into account how likely it is in practice that the person will do the thing that would result in a trigger event taking place. The amendment put forward by the hon. Member for Newcastle upon Tyne Central—she is right to probe on this—would mean that entry into any agreement or arrangement under which a trigger event could take place in future would be treated as a trigger event currently in progress or contemplation, allowing it to be notified and called in by the Secretary of State. We believe that this would—unintentionally, I am sure—have two significant negative implications.
Chi Onwurah
I am disappointed that the Minister chose not to address the genuine concern about the provisions in the Bill being gamed by hostile actors.
I share his concerns about increasing the powers of the Secretary of State at a time when, as we understand, there are many more calls on the Department’s responsibilities and it may not have the resources. We have already noted the conflict of interest that can occur between national security and the Department’s focus on increased investment.
As I said, this is a probing amendment, so I will not press it to a vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 ordered to stand part of the Bill.
Clause 13
Approval of notifiable acquisition
Nadhim Zahawi
I thank the hon. Lady for her constructive engagement with the whole Bill, and especially with clause 13. She referred to the Intelligence and Security Committee, and this Committee will know that I have written to the Chairman of the Intelligence and Security Committee.
However, in answer to one of the questions raised in the letter that has been circulated to the Committee, which the hon. Lady referred to, it would clearly not be appropriate for me to speculate on individual cases, not least because decisions on past interventions have been taken by previous Ministers or Governments, who made their decisions based on the facts as they were known at the time. The Enterprise Act 2002 has provided a robust basis for nearly two decades to intervene on mergers that might have raised concern. However, it is also right that we modernise our powers, and that is exactly what this Bill will do.
The Bill provides—we had a similar discussion about that at Second Reading—that if an asset or company is deemed very valuable to the United Kingdom, it does not matter who the acquirer is, even if they are from a friendly nation, and an intervention can still be made by the Secretary State.
Clause 13 sets out the mechanisms by which the Secretary of State may approve a notifiable acquisition. After I have set out the rationale for the clause, I will speak to the amendment itself. As I have set out previously, notifiable acquisitions are acquisitions of certain shares or voting rights in specified qualifying entities active within 17 sensitive sectors of the economy. These acquisitions must be notified to, and require approval from, the Secretary of State before they may take place.
That approval can be given in three ways. First, when a mandatory notice is submitted by the acquirer, the Secretary of State may decide not to exercise the call-in power—for example, because he does not reasonably suspect that a national security risk may arise. In those circumstances, he is required to notify each relevant person, following the review period of up to 30 working days, that no further action will be taken under the Bill in relation to the proposed notifiable acquisition.
Secondly, when the Secretary of State exercises the call-in power in relation to the notifiable acquisition, he may make a final order at the end of the assessment process, which, in effect, gives approval to the notifiable acquisition, subject to conditions. Again, in that instance the notifiable acquisition is clear to proceed.
Thirdly, as an alternative to the previous scenarios, at the end of the full assessment process the Secretary of State may ultimately conclude that no remedies are required. In those circumstances, he is required to give a final notification that confirms that no further action will be taken under the Bill in relation to the call-in notice. Once more, that means that the acquisition is cleared to take place.
Chi Onwurah
I thank the Minister for eloquently setting out the clause. I have to suggest that he not place words into my mouth—certainly as we have such excellent reporting. Although I did not say that I thought it was an excellent deterrent, I did indicate that it could be an effective deterrent, were it considered workable.
Nadhim Zahawi
I am grateful for that clarification. I wrote down the hon. Lady’s words. She did say that it is an excellent deterrent, and went on to make her argument for the amendment.
To return to the substance, the provision means that the acquisition has no legal effect if it is void. It is not recognised by the law as having taken place. Clearly, voiding is a situation that it is in the interests of all parties to avoid, which should act as a powerful compliance incentive, if I can describe it as such. The Government’s view is that voiding is the logical result of a regime based on mandatory notification and clearance for acquisitions in the most sensitive sectors before they take place.
Although the Secretary of State, or the courts, may be in a position to punish non-compliance with criminal or civil sanctions, voiding is necessary to limit or prevent risks to national security that may otherwise arise where such acquisitions take place without approval. For example, there may be day one risks whereby hostile actors acquire control of an entity and seek to extract its intellectual property and other assets immediately. This is a reasonable and proportionate approach, and in arriving at this position we have carefully considered the precedent of other investment screening regimes. For example, France, Germany and Italy all have voiding provisions.
Amendment 17 would require the Secretary of State to publish guidance within three months of Royal Assent and then review it annually in relation to the approval process for notifiable acquisitions. I have listened carefully to the hon. Lady’s case for the amendment, and I hope that I can begin on common ground by saying that clearly voiding an acquisition is something that it is in the interests of all parties to avoid. That is why we are consulting on the sector definitions covered by mandatory notification and clearance, rather than simply presenting them to Parliament and external stakeholders like a fait accompli in the Bill.
That approach will allow experts from the sectors and the legal profession, and businesses and investors, to help us to refine the final definitions and tighten them up to ensure that the regime is targeted and provides legal certainty. Equally, mandatory notification applies only to the clearest acquisitions, focused on objective thresholds of shares and voting rights. Together, that will help acquirers to determine whether their acquisitions are in scope of mandatory notification, and therefore allow them to comply with their statutory obligation and avoid any voiding scenarios altogether.
Peter Grant
I agree that the sensible starting point is that, if a major transaction has not complied with legal requirements, it did not happen. As the shadow Minister outlined in her comments, however, it is easy to imagine situations in which the fact of a transaction such as this becoming void could have significant impacts on people who are completely innocent of any failure to comply with the law. Is the Minister comfortable with the fact that the Bill has almost literally nothing to say about those people and that there is not provision for any kind of redress? There is no statement as to what happens to people who may quite innocently find themselves facing significant detriment through the actions and failures of others.
Nadhim Zahawi
I am grateful for the hon. Gentleman’s intervention. As I was laying out, there is precedent from other screening legislation in Germany, France and elsewhere. Of course, the hon. Member for Newcastle upon Tyne Central is concerned about the hundreds of thousands of people who may be shareholders in a company. If the acquisition was a notifiable acquisition and completed without approval, it is void, regardless of the number of shareholders.
I return to the point I was making before the hon. Gentleman’s intervention. Together, this will help the acquirers determine whether their acquisitions are in scope of mandatory notification. None the less, the Bill sets out the various ways in which an acquisition may be retrospectively validated, both proactively by the Secretary of State and in response to a validation application, where non-compliance occurs. I believe the guidance that the amendment would require the Secretary of State to publish is well meaning but fraught with difficulties.
There are a number of reasons why the Government must reject the suggested approach. First, the amendment is an invitation to the Secretary of State to, in effect, legislate through guidance to set out the legal implications of acquisitions being voided pursuant to clause 13. In our view, it would not be appropriate for the Secretary of State to do so, as it is for Parliament to legislate, but ultimately for the courts to interpret and apply that legislation.
The hon. Member for Newcastle upon Tyne Central will be aware of the much-quoted report from the House of Lords Select Committee on the Constitution, which has emphasised the importance of avoiding guidance being used as a substitute for legislation. We have no intention to do so in respect of voiding.
Chi Onwurah
I confess that I am somewhat surprised by the Minister’s comments. Does he feel that all guidance is an invitation to the Secretary of State to effectively legislate through guidance? Is that something that the Minister feels is the case for all guidance? If that is the case, we will not be getting very much guidance for businesses at all. Does he not feel that, in terms of regulatory clarity, there should be effective help and guidance that is not legislation? He is right to say that it is for the legal system to interpret, but it is also right that we have clear laws to be interpreted. As the hon. Member for Glenrothes said, there is currently nothing in the Bill about what “voiding” means and what it could mean.
Nadhim Zahawi
Of course, not all guidance is guidance that the Lords Constitution Committee would have effectively considered to be a substitute for legislation. I will make some more headway, as I am conscious of the time.
Furthermore, the legal implications of voiding will depend on the particular facts of each case. It will ultimately be for the courts, as I said earlier, to resolve any disputes between parties.
Secondly, and for the same reasons, it would not be appropriate for the Secretary of State to publish guidance on who constitutes a “materially affected” person under clause 16(1). If it will assist the Committee, I will say that we consider these to be ordinary words of the English language and that whether a person has been materially affected by voiding will depend on the particular facts of each case. Ultimately, it will be for the courts to interpret this provision and to resolve any disputes between parties.
Thirdly, we do not consider guidance under paragraph (c) in the amendment to be necessary or appropriate. Final orders issued by the Secretary of State will need to be clear, and it is expected that in most instances they will follow extensive discussions with the parties so that all understand the conditions being imposed on the trigger event. That is equally true in relation to voided acquisitions scrutinised by the Secretary of State retrospectively. Where remedies imposed by the Secretary of State include restrictions on completion, it will be an objective question of fact, dependent on the circumstances of each case, whether the acquisition proceeds contrary to those conditions. This does not involve any determination by the Secretary of State, and it would ultimately be for the courts to resolve any disputes between parties, so it would not be appropriate for the Secretary of State to issue guidance setting out the “informational and evidential standards” that would apply. More generally, the value of any guidance would be limited, given that it would necessarily reflect the fact that retrospective validation will be dependent on the facts of an individual case.
The new regime understandably covers a broader range of acquisitions than is the case now. That is absolutely correct, as the hon. Lady stated. The combination of that fact with the reality that some voided acquisitions will come to light months or years after they take place and any number of events, involving numerous parties, may have occurred since then means that the Secretary of State must consider any validation application on a case-by-case basis. That is the right approach to keep this country safe, and this takes us back to the central issue that voiding is the logical result of a regime based on mandatory notification and clearance for acquisitions in the most sensitive sectors before they take place.
Chi Onwurah
I sense that the Minister’s speech is coming to a close. He makes the point that voiding is the logical consequence of the new regime, based on mandatory notification. I have said that we recognise that, but, further to the intervention by the hon. Member for Glenrothes, if it is the necessary consequence, why is it not included in the impact assessment?
Nadhim Zahawi
I thank the hon. Lady and the hon. Member for Glenrothes for their questions. It would be nigh on impossible to have an impact assessment as to what happened to a deal that should have been notified under the 17 sectors and then was voided. I believe that is something the Opposition should understand, in terms of the proportionality of the new regime, and I hope that it is something the hon. Lady and her colleagues can support. I hope that she will withdraw her amendment.
Chi Onwurah
I thank the Minister for his remarks. As I set out, we recognise the importance of this power. We were not seeking to remove the power to void—for transactions to be deemed void. But as I also set out, the two words “is void” have a huge impact, and it is of concern that neither the Bill nor the impact assessment addresses that. The Minister said that it would be impossible to assess the impact of voiding, but the impact assessment, where it looks at the number of affected businesses, estimates the number of investment decisions, notifications, security assessments and remedies. It makes estimates of all those, but has nothing to say on the number of potential voidings. That is a significant gap in the Bill and the impact assessment and, as a consequence, in the level of certainty and understanding about the Bill.
I have said a number of times that we are going from a standing start of 12 notifications in 18 years under the Enterprise Act 2002, which the Minister cited as having robust powers, to the almost 2,000 that we are expecting. Given his response, however, on which we see no likelihood of him moving, and given that we acknowledge the importance of the powers, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 13 ordered to stand part of the Bill.
Clause 14
Mandatory notification procedure
The Lord Commissioner of Her Majesty’s Treasury (Michael Tomlinson)
On a point of order, Mr Twigg. I beg to move—
Michael Tomlinson
I apologise to the hon. Member for Glenrothes; I will wait.
Peter Grant
It is easy to see that there will be circumstances where “as soon as reasonably practicable” becomes a very open-ended time limit—or non-time limit—indeed.
Given that so much of the rest of the Bill puts time limits on the Secretary of State to ensure that potentially beneficial transactions cannot be held up forever simply due to delays in the Department, the combination of the words “as soon as reasonably practicable” in subsection (5), right at the start of the process, and the massive uncertainty in the minds of businesses if the Secretary of State does not make regulations persuades me that the Bill should not allow the Secretary of State to make those regulations but should require the Secretary of State to make them, because the clause simply does not work or make sense if they are not made.
Ordered, That the debate be now adjourned.—(Michael Tomlinson.)
National Security and Investment Bill (Eighth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 3rd December 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 3 December 2020 - (3 Dec 2020)
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
I am grateful to the hon. Members for Ilford South, for Southampton, Test, and for Glenrothes, as well as to the shadow Minister, the hon. Member for Newcastle upon Tyne Central, for their contributions on this set of amendments and clause 14. With the agreement of the Committee, I will begin with clause 14 stand part and then turn to the amendments.
Clause 14 provides a mechanism for proposed acquirers to notify the Secretary of State of notifiable acquisitions, which are those circumstances covered by clause 6. Contrary to what the hon. Member for Newcastle upon Tyne Central said, we on this side of the House really do care about small business; indeed, we will be celebrating Small Business Saturday by highlighting the great small businesses that are trying to recover from covid-19. To avoid duplication or unnecessary burden for businesses and investors, if the Secretary of State has already given a call-in notice in relation to the proposed notifiable acquisition, no notification is required. Otherwise the proposed acquirer must submit a mandatory notice containing the necessary information for the Secretary of State to make a decision about whether to exercise the call-in power.
The Government carefully considered which parties should be legally responsible for this notification. In many cases we expect this to be a collaborative process between parties that have an aligned aim for the acquisition to take place. However, there may be instances where an acquirer who is purchasing shares from a number of individual sellers is the only party aware that, in totality, they are carrying out a notifiable acquisition. For example, if an acquirer buys 10% equity in an entity specified under the mandatory regime from two separate sellers—20% in total—each seller may be operating under the assumption their transaction does not meet the threshold of a notifiable acquisition. Equally, the entity itself may be unaware of these acquisitions until after they have taken place. As such, only the acquirer can reasonably be expected to know that their activities constitute a notifiable acquisition and the responsibility to notify therefore rests with them.
The precise information that will be required and the form of the mandatory notice will be set out in regulations by the Secretary of State in accordance with subsection (4). For the convenience of the House, the Government have recently published a draft of the information that is likely to be required in a mandatory notice. As hon. Members might expect, this is likely to include all the pertinent details about the acquisition, including the target entity, the nature of its business, the assets it owns, the parties involved, the details of the equity stake and any other rights that form part of the acquisition—for example, any board appointment rights.
Following acceptance of a satisfactory notification—for example, conforming to the format and content prescribed —the Secretary of State then has up to 30 working days to decide whether to exercise the call-in power, or to take no further action under the Bill. The Secretary of State will be entitled to reject a mandatory notice where it does not meet the specified requirements, or where it does not contain sufficient information for him to decide whether to give a call-in notice.
The nature of the information required should mean that such instances are rare, but it is crucial that the requirements of the notice are met in order for the 30-working-day clock to start only at the point the Secretary of State is in a position to make an informed decision. By the end of the 30-working-days review period, the Secretary of State must either give a call-in notice or notify each relevant person that no further action will be taken under the Bill. In effect, the latter clears the acquisitions to take place unconditionally.
The power to specify in regulations the content and form of the mandatory notice is an important one, as the Secretary of State may need to change this over time in response to the operation of the regime in practice, and in response to the volume and quality of such notices given and rejected. I certainly believe that this approach ensures that Parliament can scrutinise any such changes. This clause is a procedural necessity to give effect to the mandatory notification regime once notifiable acquisition regulations have been made, and I trust that it will be supported by both sides of the Committee.
Amendments 18 and 19 are designed to require the Secretary of State to make regulations specifying the form and content of a mandatory or voluntary notice, ensuring that the parties have clarity on what information they need to provide in order to have properly notified. That is undeniably important—I share the focus of the hon. Member for Ilford South on that point—so this is an entirely sensible proposition. I suggest, however, that the amendments are unnecessary because the Bill as drafted already achieves that aim.
In practice, in order for the notification regime to operate, the Secretary of State will first need to make regulations specifying the form and content of a notification, regardless of whether clauses 14 and 18 say that he “may” or “shall”. I pay homage to the hon. Member for Southampton, Test for introducing that experience to the Committee. Regardless of whether clauses 14 and 18 say that the Secretary of State “may” or “shall” make such regulations, the notification regimes cannot operate without the notification forms being prescribed in the regulations.
Chi Onwurah
I am somewhat confused. The Minister is saying that clause 14(4) in its entirety is unnecessary, because those things are already prescribed. Will he set out in more detail where they are already prescribed? He argues that they are already prescribed, but where are they prescribed?
Nadhim Zahawi
Let me make clear to the hon. Lady what I actually said, which was that whether clauses 14 and 18 say that the Secretary of State “may” or “shall” make such regulations, the notification regimes cannot operate without the notification forms being prescribed in regulations. My point is that whether the clauses say “may” or “shall”, it makes no difference. I therefore hope that the hon. Member for Ilford South will withdraw the amendment.
Sam Tarry (Ilford South) (Lab)
I have listened carefully to the Minister, and I feel that several issues have not been fully explored. The whole point of the amendment is to compel the Secretary of State to be clear that those regulations will be forthcoming in a timely manner, along with the reassurances that small and medium-sized enterprises seek. The amendment would mean that it was not the Secretary of State’s choice when or whether that happened. The use of the word “shall” would allow us to move forward more directly, because the Secretary of State would be compelled to do that as quickly as possible. On that basis, I will press the amendment to a Division.
Question put, That the amendment be made.
Nadhim Zahawi
Clause 15 places a duty on the Secretary of State to consider whether to retrospectively validate a notifiable acquisition that was not approved by him before it took place. As I made clear in reference to clause 13, a notifiable acquisition that is completed without the approval of the Secretary of State is void. It is in the interests of all parties to avoid that situation, and voiding should act as a powerful incentive for compliance.
None the less, there may be instances where a notifiable acquisition takes place without approval and is therefore void, but the outcome is not a permanent necessity. This clause places a duty on the Secretary of State, following the point at which he becomes aware of the acquisition, to either exercise the call-in power in relation to the acquisition within six months or else issue a validation notice. A validation notice provided for by this Bill has the effect of treating the acquisition as having been completed without the approval of the Secretary of State, as though it were never void.
There are a number of circumstances in which the Secretary of State may decide not to issue a call-in notice in relation to a void acquisition. For example, as the Secretary of State may only call in trigger events, he may decide that the acquisition does not give rise to a trigger event—for instance, the acquisition of a 15% equity stake in a specified entity is a notifiable acquisition, but is not in and of itself a trigger event. A 15% stake may or may not, depending on the facts of the case, amount to or form part of a trigger event, namely the acquisition of material influence over the policy of the entity.
Alternatively, the Secretary of State may reasonably suspect that a trigger event has taken place but not reasonably suspect that it has given rise to, or may give rise to, a national security risk. In those situations, this clause requires the Secretary of State to give a validation notice in relation to the notifiable acquisition, which in effect provides the retrospective approval for the acquisition and means that it is no longer void. I should be clear that retrospective validation does not change the fact that the acquirer may have committed an offence by completing the acquisition without first obtaining approval. If an offence has been committed, criminal and civil sanctions will be available and may be used to punish that non-compliance.
As provided for by subsection (2)(a), where the Secretary of State decides, following consideration of a void acquisition, to exercise the call-in power in relation to it, he must give a call-in notice to the acquirer and such other persons as he considers appropriate. For the purposes of considering whether a trigger event has taken place under the Bill, including when deciding whether to exercise the call-in power, clause 1(2) provides that the effect of any voiding must be ignored, meaning that a notifiable acquisition that has been completed without approval can still amount to, or form part of, a trigger event even though it is of no legal effect.
This approach has been taken because a legally void acquisition may still result in a de facto exercise of the rights purportedly acquired and, consequently, a risk to national security. Where the call-in power is exercised in relation to a void acquisition, the case follows the conventional assessment process and is subject to the same statutory timelines and information-gathering powers. At the end of this process, the Secretary of State may decide to unconditionally clear the acquisition, resulting in a validation notice being issued and the acquisition no longer being void. Alternatively, he may impose remedies in a final order.
Dr Whitehead
I have a brief inquiry, following the Minister’s recent letter to me on a previous point raised in Committee, for which I thank him for his prompt attention. If a hostile company takes over another company, effectively puts it into liquidation and walks off with the intellectual property, patents and various other things, and those are out of the door by then, will it be necessary to provide a validation for the transaction, if it has not been previously notified or noticed, and to then pursue the consequences of that validation by subsequent means, given that the company was presumably in existence at the time of the validation, if not thereafter? Would that perhaps not be a cumbersome procedure?
Nadhim Zahawi
I am grateful to the hon. Gentleman for that question; I will write to him on that point, rather than attempting to go through our thinking on this. He raises an important point on what happens after the effect.
Where the final order has the effect of clearing the acquisition outright, subject to conditions, the Bill provides that the acquisition is no longer void. Where the final order has the effect of blocking all or part of the acquisition, the Bill provides that the acquisition remains void to that extent. Further provision on this particular situation is made in clause 17. The deadline of six months for giving either a validation notice or a call-in notice was chosen by the Government to align closely with the Secretary of State’s other requirements to act within certain timescales under the Bill.
Chi Onwurah
I thank the Minister for his promise to write to my hon. Friend the Member for Southampton, Test. The Minister mentioned on a number of occasions that a transaction is no longer void when a validation notice has been given. However, the transaction was void when completed, because it was completed without approval, so there will have been a period when it was void. What are the legal implications of that period?
Nadhim Zahawi
Is the hon. Lady is talking about a period when the Secretary of State was not aware of the transaction being void? If he is unaware of it, he is unable to act. It is only once he becomes aware, through a screening process or notification—
Chi Onwurah
I want to explain myself better. The question is not about what the Secretary of State can do, because I clearly understand that he cannot act on what he is not aware of. The fact of the transaction being deemed legally void for a period, which it will have been, may have some legal implications for the owners or the customers or whoever.
Nadhim Zahawi
Again, I am happy to write to the hon. Lady on that. Clearly, only when the Secretary of State is aware that a transaction is clearly in breach of the Bill is it then void. I am not clear as to what she is saying. Is she asking about before he is able to act?
Chi Onwurah
Let me clarify. Clause 13(1) states:
“A notifiable acquisition that is completed without the approval of the Secretary of State is void.”
It is void at the time it is completed, not at the time the Secretary of State becomes aware of it. Sometime later, the Secretary of State becomes aware of it and gives a retrospective clearing of it, but there will regardless have been a period where that transaction was void. What are the legal implications for the owners? It seems to me that having a transaction being void for a period would have some legal implications, regardless of whether the Secretary of State has cleared it.
Nadhim Zahawi
Again, I am happy to write to the hon. Lady on that point. Maybe I am being thick here, but the transaction only becomes void once the information is available to the Secretary of State. Is she talking about before that period?
Chi Onwurah
My understanding is that it becomes void at the point when the transaction is completed. At some point after that, the Secretary of State gives a retrospective validation, but there is nevertheless a period of one year, or however long it takes, when the transaction was void. Does that not have legal implications?
Nadhim Zahawi
I am happy to write to the hon. Lady on that point. What I think she is talking about is about the gap between the Secretary of State being aware and when the transaction actually took place, because the date where it is void is the date of the closing of that transaction, but I am very happy to write to her about that.
It is not in the interests of either the Government or the parties for the Secretary of State to have an unfettered ability to issue a call-in notice, perhaps long after he becomes aware of the notifiable acquisition. This approach provides a sensible mechanism for resolving the effects of automatic voiding arising from failures to receive clearance. I reassert my view that such situations should be rare, but it is only proper that the Bill provides such a mechanism for the Secretary of State to resolve them satisfactorily, should they arise. I hope hon. Members agree with that position.
Chi Onwurah
I thank all the hon. Members for their contributions, and the Minister for his remarks and his good humoured response to the interrogation on certain parts of this important clause. I recognise the importance of the clause and the importance of considering retrospective validations without application giving the all-consuming power through the voiding of notifiable acquisition without the approval of the Secretary of State. This debate has illustrated the need for greater clarity.
In the absence of the additional guidance that we were looking for in our earlier amendment, this has the possibility of becoming a legal goldmine for lawyers who are requested to give advice on what would or would not constitute a void transaction at what time. I raise that in the context of the requests of my hon. Friend the Member for Southampton, Test and myself for greater clarity about the period, which may represent some sort of legal limbo, between when a transaction takes place but before it is given retrospective approval. However, we do not oppose the clause.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clause 16
Application for retrospective validation of notifiable acquisition
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 16 provides a mechanism for any person materially affected by a notifiable acquisition being void to make an application to the Secretary of State to retrospectively validate the acquisition. Although there is a duty in clause 15 for the Secretary of State to give a validation notice or a call-in notice within six months of becoming aware of the acquisition, we recognise that in practice that is often likely to be a process driven by the parties themselves. It may be, for example, that a party realises that their transaction was a notifiable acquisition only after the event, and wishes to take proactive steps to resolve the situation. The clause allows them to make a formal application for retrospective validation, following a similar process to the conventional mandatory notification route.
Subsection (3) enables the Secretary of State to make regulations prescribing the form and the content of a validation application. It is likely that that will closely resemble the mandatory notification form, given all of that information remains pertinent to the Secretary of State’s decision on whether to give a call-in notice. The Secretary of State will be entitled to reject the application where it does not meet the specified requirements, or contain sufficient information for him to decide whether to give a call-in notice.
If the validation application is accepted, all relevant parties must be notified and a 30 working-day review period begins. By the end of the review period, the Secretary of State must issue either a call-in notice or a validation notice. Once again, if a validation notice is issued, the acquisition is no longer void and the Secretary of State must confirm that no further action under the Bill will be taken in relation to that acquisition. As is the case with clause 15, retrospective validation through that route does not provide immunity against criminal or civil sanctions being pursued.
Validation does not change the fact that a notifiable acquisition did not have the Secretary of State’s approval prior to taking place. This is simply about how the acquisition itself should be treated, following the screening of all pertinent details relating to the acquisition. I hope that hon. Members will be supportive of parties being able to apply to the Secretary of State for a validation notice, and that they will see clause 16 as part of our business-friendly approach to the investment screening regime.
Dr Whitehead
This is more of a slightly extended intervention than a speech. The Minister has set out very clearly what the clause means and how it is to be operated, but I am not sure that he completely covered what the opinion of the Secretary of State may consist of. I am looking at subsection (8), which refers to the Secretary of State’s opinion that
“there has been no material change in circumstances since a previous validation application in relation to the acquisition was made.”
My concern is that the words “material change” are potentially subjective. That may be overridden by the fact that it is
“in the opinion of the Secretary of State”,
but there is no definition of what a material change might be considered to be, and what the boundaries of a material change consist of.
The provision does not say “no change”; it says “no material change”. Does the Minister consider that that is safe enough, in terms of the Secretary of State’s opinion overriding the material change, or does he consider that the subjectivity of a material change is potentially actionable if the Secretary of State were to say that there has been no material change, but somebody decided that the Secretary of State’s opinion was not reasonable or proportionate in the context of what has happened to a particular company?
Nadhim Zahawi
I think the hon. Gentleman has answered his own question. Obviously, I do consider that the Secretary of State’s ability on the opinion is safe.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17
Retrospective validation of notifiable acquisition following call-in
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 17 provides for the retrospective validation of notifiable acquisitions that have been completed without approval, following the giving of a call-in notice in either of the situations covered by clauses 15 and 16. The previous two clauses detail how the Secretary of State may give a call-in notice in relation to a notifiable acquisition that has been completed without approval and is therefore void, either on his own initiative after he becomes aware of the acquisition or following a validation application.
Following call-in, there is a national security assessment process. The Secretary of State has a period of 30 working days to either make a final order imposing remedies or give a final notification confirming that no further action will be taken under the Bill in relation to the call-in notice. The Secretary of State may extend the assessment period by an additional period of 45 working days where the legal test is met. If a further legal test is met, the Secretary of State may agree a further extension or extensions with the acquirer.
Where the Secretary of State gives a final notification, in effect giving unconditional clearance to the acquisition, subsection (2) requires him to also issue a validation notice, which means that the acquisition is no longer void. That is because voiding cannot be maintained if there is no national security justification for it. Copies of that validation notice must be given to each person who receives a copy of the final notification, any person who made a validation application and anyone else the Secretary of State considers appropriate.
Alternatively, where, following the assessment process, the Secretary of State makes a final order imposing remedies, subsections (4) and (5) provide for so much of the void acquisition as is compatible with the final order to be validated. It may be helpful if I explain what that means, with some specific examples.
Where a final order has the effect of clearing the acquisition outright, subject to conditions, it means that the entire acquisition is no longer void. Where a final order has the effect of blocking all or part of the acquisition, the acquisition remains void to that extent. That means, for example, that where the Secretary of State decides that it is necessary and proportionate, for the purpose of safeguarding national security, to block 51% of a void 100% acquisition of an entity through a final order, 49% of the acquisition will be validated and the remaining 51% will remain void.
The Bill does not seek to prescribe how such a decision is delivered by the various parties in all circumstances. The Government recognise that some acquisitions may involve a range of sellers and the Secretary of State may not wish to stipulate in every case which constituent parts of the notifiable acquisition should remain void and which should be validated. Rather, we expect the Secretary of State to set out the end state that the acquirer must arrive at and to consider proposals from them to meet these obligations as part of the assessment process before a final order is made.
Any dispute between the parties arising out of how the void or validated elements are chosen will be a private matter for the parties. The Bill does not attempt to limit or cut across any restitutive action taken by the parties against one another if they deem it necessary as a result of the notifiable acquisition, or a proportion of it, remaining void.
This overall approach absolutely fits with our desire for the regime to be as reasonable and proportionate as possible. We have incorporated requirements for notifiable acquisitions to be retrospectively validated where the call-in power is not exercised in relation to them: where they do not pose a risk to national security, for example, or where the call-in power is exercised but ultimately no further action is taken in relation to them after the assessment process. We have developed a tailored approach through this clause, which provides for so much of a void acquisition as is compatible with a final order, and therefore with national security, to be validated automatically.
This is the legislation of a Government seeking to balance the country’s national security and prosperity interests. I hope colleagues on both sides of the Committee will support that approach in the clause.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Voluntary notification procedure
Amendment proposed: 19, in clause 18, page 11, line 28, leave out “may” and insert “shall”.—(Sam Tarry.)
This amendment seeks to make the Secretary of State’s prescription of regulation of the form and content of a voluntary notice mandatory.
Question put, That the amendment be made.
Nadhim Zahawi
The Government are committed to providing as much certainty as possible for business. The clause therefore provides parties with a mechanism to require the Secretary of State to decide whether a trigger event outside the mandatory notification regime will be called in. If parties wish, they may notify the Secretary of State of such a trigger event when it is in progress or contemplation or, alternatively, after it has taken place. Any early notification will allow businesses to plan for, and mitigate, any issues that may subsequently arise.
Following the acceptance of a satisfactory notification—one that conforms to the prescribed format and content, for example—the Secretary of State has up to 30 working days to decide whether to exercise the call-in power or to take no further action under the Bill. Businesses can rest assured that where the Secretary of State decides to take no further action following assessment of a notification, that decision may not be revisited further down the line. The only exception is if the Secretary of State has been given false or misleading information in relation to the decision not to issue a call-in notice, but I expect such instances to be few and far between. On those rare occasions where the notified trigger event does require further action, early notification means that parties can also factor in a security assessment following a formal call-in early on in their commercial timelines.
I hope that the Committee will agree that that is a pragmatic approach that provides the Secretary of State with the time he requires to properly screen trigger events, while giving businesses as much certainty as possible about when they can expect decisions. I would go further and say that the Government would welcome informal discussions with parties before the notification stage begins. That would allow parties to prepare for a potential assessment, while also allowing the Secretary of State to better understand the trigger event.
This is part of our commitment to working with investors and businesses in as transparent a manner as possible while protecting national security. However, I stress that a formal notification procedure is still required to enable the Secretary of State to make an informed assessment of the trigger event based on a full suite of information. I hope that hon. Members recognise the length the Government are going to to put in place a robust regime that both protects national security and retains business and investor confidence. The voluntary notification procedure, alongside the mandatory notification part of the regime, helps to strike that balance and will, I believe, work in the interests of all parties.
Chi Onwurah
I thank the Minister for his remarks. He is aware of the Opposition’s concerns about the voluntary notification procedure. I shall not repeat what he has said, and we recognise the importance of the clause and of having such a procedure. As with the mandatory notification procedure, the Minister has rejected our request for a requirement to set out the form of that notification. I would like to press him on this and to ask whether he would perhaps write to me to set out formally where it is that the pre-existing requirement that he said exists says that the Secretary of State “must”, rather than “may”, set out the form for the voluntary notification. I am also not clear whether the voluntary notification form format and information requirements are the same as those for the mandatory notification, given the difference in one being voluntary and one mandatory. Clarification on that would be helpful.
We agree considerably that we want to minimise the burden on businesses and the chilling effect on investment, while securing national security. The clause is an important part of that, so we will not oppose it.
Nadhim Zahawi
I am very happy to write to the hon. Lady; I thought that I had touched on that in my earlier remarks. The forms should be very similar, because ultimately the decision-making process of the Secretary of State, whether the notification is voluntary or mandatory, will pretty much be the same thing. I am happy to clarify that in writing.
Chi Onwurah
I thank the Minister for that intervention, and we will not oppose clause stand part.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19
Power to require information
Dr Whitehead
Yes, it is. Only one Member has left the room, so we are still in good order.
Dr Whitehead
I hope that the hon. Gentleman will bear with me a few moments longer. Having unpacked “proportionality” in legal rather than colloquial terms, I want to put it back into the clause and see how it works, as far as the concerns of the Secretary of State go.
Indeed, the hon. Member for Glenrothes has questioned what we want to do on this clause in terms of the colloquial understanding of “proportionality”. I have mentioned how “proportionality” has come into the legal arena, specifically in terms of costs. Nevertheless, “proportionality” is now loose in the legal arena, so there is an interesting area of debate about it in general in the legal arena. That is not necessarily solely attached to the question of costs and civil litigation.
The problem is that there is virtually nothing to define that wider issue of proportionality in case law at the moment. Placing that word back into this particular clause suggests to us that the Secretary of State is restricted considerably on how that information may be gathered. The hon. Member for Glenrothes talked about research projects and various other things listed to us by our expert witnesses. I emphasise that I do not want to undermine those research projects or the presence of Chinese students. All I want to underline from that is that, on occasions, the process of getting hold of information and requiring people to give evidence can be convoluted. Indeed, it may require seeking information by going down paths that are not immediately apparent. As I say, it is not a question of someone turning up with a ring binder of things that can be perused.
In this clause, it appears that the Secretary of State may well have denied him or herself the ability to get hold of information, because it states that it has to be
“proportionate to the use to which the information is to be put in the carrying out of the Secretary of State’s functions under this Act.”
But he or she will not know about that information until it has been obtained. If there are difficulties in getting hold of the information, he or she will never know whether it is useful for carrying out his or her functions, because there is already a limit on getting the information in the first place.
I have brought the rather wobbly legal status of proportionality into the debate because it is potentially actionable through an obfuscation or refusal to put information forward by those actors. An actor who was required to give information could say, “It appears to me, your honour, that this request for information is not proportionate.” Of course, the Secretary of State may have a different point of view about what is proportionate from the person who is required to give the information.
There is also a vagueness in the application of the term “proportionate”. Although we think we know what it means in common language, that is not the case in the courts. That could be an additional issue that affects the Secretary of State’s ability to get the required information to make a judgment, over and above the fact that he or she may not know that until the information has been collected. So there are two procedural problems in the clause.
The hon. Member for Glenrothes said to me, to put it bluntly, “What exactly are you driving at? Perhaps it is not a good idea to appear to enable the Secretary of State to act disproportionately.” Of course, that is not what we are saying. We know that the Bill is more or less a giant amendment to the Enterprise Act 2002. Indeed, if hon. Members look at the back of the Bill, they will see that that is the only Act amended by it. Several amendments are made to the 2002 Act, but that is it—it is still sited within that Act. That Act was drawn up before the civil litigation changes to proportionality were put in place. The test set out in that Act, which is not amended by the Bill, is one of reasonableness, which is well understood, widely commented on and pretty clear.
If hon. Members consult the 2002 Act, they will see in clause 55 that the Secretary of State, in terms of enforcement, shall take such action
“as he considers to be reasonable and practicable to remedy”.
Therefore, we are not saying that the Secretary of State by acting disproportionately should act unreasonably. We are suggesting that the test that should be carried out is one of reasonableness, and should be in this particular clause. As the Enterprise Act already does, that would indeed prevent the Secretary of State going on fishing expeditions and undertaking actions that are wholly disproportionate because they would be unreasonable in terms of the definition of the Act. Our suggestion is to stick by that definition, which would be good enough to restrict the Secretary of State under the different circumstance that we are in today, in terms of seeking information. At the same time, it would give the Secretary of State the ability to take a path—I have said it is often a convoluted one—to obtain information that can be judged and used for the purpose of this Bill. I hope that the Minister will be favourably inclined towards that slight, but constrained, addition to his powers under this legislation.
Nadhim Zahawi
I am very pleased to be able to respond to the hon. Member for Southampton, Test on these well-intentioned amendments. I assure him that the Government and the Secretary of State will not be relying on a ring binder with highlighted paragraphs, because we have some of the best security and intelligence agencies in the world that would input into that process. It is an absolute joy to see Her Majesty’s Opposition play such a constructive role in the scrutiny of legislation, and to hear such a thoughtful speech.
Amendment 20 would remove subsection (2) of clause 19, through which the Secretary of State will be able to request information only through an information notice, where such requirements to provide information are proportionate. I agree with the hon. Member for Glenrothes on the issue. We have debated the fact that it is actually up to the courts to interpret if a particular acquirer feels somehow hard done by as a result of the process, and that there is a process to go through. The requirement to provide information is proportionate to the use to which the information is to be put in carrying out the Secretary of State’s functions under the Bill.
Amendment 21 seeks to remove subsection (2) of clause 20. Clause 20 enables the Secretary to require the attendance of witnesses and the giving of evidence. Therefore, clause 20 is complementary to clause 19, as it provides, for example, for the Secretary of State to receive expert explanation in person from those involved in a trigger event where the information previously provided does not give sufficient clarity. Clause 20(2) has a similar effect to clause 19(2). It means that the Secretary of State will be able to request information only through an attendance notice where requirement to give evidence is proportionate to the use to which the evidence is to be put in the carrying out of his functions under the Bill.
In response to both amendments, and mindful of the time, I can say that it is our view that any power of the Secretary of State to require the provision of information under clause 19, or to require the attendance of witnesses under clause 20, must be proportionate—indeed, the information-gathering powers are already significant. The Secretary of State may require information from any person in relation to the exercise of his functions under the Bill, which includes various stages of the procedure both before and after the call-in power is exercised. This may include requiring the provision of personal and commercially sensitive information about the parties in relation to a trigger event. There is good reason to include the restriction that any information required by the Secretary of State is proportionate to the use to which it is to be put in carrying out his functions. It is important that there are the safeguards for business. I have to say that I did not expect to be in the position of arguing against greater powers for the Executive from the legislature. It is clear to me, though, that business confidence and our reputation for being open for investment require it.
I hope that I have provided sufficient points of reassurance on these matters, and encourage the hon. Gentleman to withdraw his amendment.
Dr Whitehead
My hon. Friend is right. I think that, because things have changed so substantially over the past decade or so, we tend to see things in a way that we may not have easily seen them just a few years ago. Indeed, the expert witnesses who were before us made considerable points on the question of how naive we had been on some previous occasions; we had not really taken into account some of the implications of what we were doing, because we did not have a clear picture of the consequences of those actions.
My hon. Friend is right—I suppose this is to some extent wisdom of the stairs—that if we could have considered things at that particular point the way we see them now, we would have expressed ourselves in much firmer and more watertight ways. However, I do not think the fact that we did not do so then is any particular excuse for continuing not to do so now. The idea that we may miss out on the ability to get proper information that can point us in the direction we want to go, albeit possibly by very roundabout means, and that we deny ourselves that particular possibility because we have written something in the legislation that stops us doing it does not seem to me to be fully learning the lessons that we might have done from 2013 onwards.
However, far be it from me to lecture the Minister or otherwise on the wisdom of these things; I am sure he is able to decide that subsequently for himself, just as I have challenged him about the wisdom of the Secretary of State’s investment agreements a little while ago concerning Bradwell. I am sure he knows in his heart that that is an appallingly naive thing to have done in those circumstances, and we might have thought differently had that taken place even today. That is the spirit in which we are moving this amendment. As I say, we do not wish to press it to a vote, but I hope the Minister will be able to consider those points and think about how this section might best be applied in the circumstances we have before us today. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 19 gives the Secretary of State the power to require the provision of information in relation to the exercise of his functions under the Bill. The Bill provides for an investment screening regime for national security purposes—a purpose that we all agree merits appropriate tools. As such, it is essential that the Secretary of State is able to gain access to information to arrive at decisions that are fully informed. This clause provides for an information notice that the Secretary of State may issue to require any person to provide information that is proportionate to assisting the Secretary of State in carrying out his functions.
Any information notice may specify a time limit for providing the information and the manner in which the information must be provided. An information notice must specify the information sought, the purpose for which it is sought and the possible consequences of not complying with the notice. There is a range of scenarios in which the Secretary of State will need to require the provision of information, and I will provide some examples to illustrate them.
The first scenario is when the Secretary of State has reason to suspect that a trigger event that may give rise to a risk to national security is in progress or contemplation. That could be where an acquisition has not been notified but the Secretary of State becomes aware of it through market monitoring. In that situation, this clause enables the Secretary of State to require the provision of further information to inform a judgment on whether to call the acquisition in.
Secondly, when a party has submitted a voluntary or mandatory notification to the Secretary of State and that notification has been accepted, the Secretary of State may require additional information from the parties to decide whether to call in the trigger event. Thirdly, when a trigger event has been called in, the Secretary of State may need to require that parties provide further information to help to inform decision making. Information notices will allow the Secretary of State to gather evidence to support accurate and timely decision making. Hon. Members will agree that it is entirely proportionate for the Secretary of State to have recourse to this power as part of the investment screening process provided for in the Bill.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20
Attendance of witnesses
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
The clause provides the Secretary of State with the power to require the attendance of witnesses.
The Government are acutely aware that many of the acquisitions considered by this regime will be complex and highly technical. In addition to clause 19, which enables the Secretary of State to require the provision of information, most likely in written form, this clause enables the Secretary of State to require the giving of evidence. A notice requiring a person to attend under this clause is called an “attendance notice”. The clause is complementary to clause 19, discussed previously, as it provides, for example, for the Secretary of State to be able to receive expert explanation, in person, from those involved in a trigger event, where the information previously provided does not provide sufficient clarity.
In responding to an attendance notice and providing evidence, a person is not required to give any evidence that they could not be compelled to give in civil proceedings before the court. That protects privileged information. In addition, the Secretary of State will only be able to request information through an attendance notice that is proportionate in assisting him in carrying out his functions under the regime.
We envisage a range of scenarios where the Secretary of State may require the attendance of a witness in order to gather further evidence to make an informed decision on the case. I will provide a few to illustrate. First, I expect that a number of cases will involve complex acquisitions, either because of the advanced nature of the technology in question, or due to their financial structuring. In those cases, the Secretary of State may require those who hold expert knowledge to provide him with an explanation. There may also be cases where it seems that parties are being deliberately non-compliant, or only partly compliant with information-gathering requests. I expect those to be rare but, again, it is only right that the Secretary of State has the power to require the attendance of those parties to provide further information.
The attendance of witnesses may also be a more efficient way to secure additional information in some circumstances, and limit the risk that further time will be needed to consider additional information. There will be criminal and civil sanctions available to punish non-compliance with the notices and the provision of false or misleading information. The attendance notice is provided under threat of such sanction as it is important that the Secretary of State receives the information he needs and can count on to come to a decision.
Peter Grant
A brief question: is it the Government’s intention to allow for witnesses to attend virtually, if it is unreasonable for them to attend physically at the Department, or the Minister’s office?
Nadhim Zahawi
I suspect that the Government will accommodate whichever way is secure and provides the evidence.
I am sure that hon. Members will agree that the clause is crucial in allowing the Secretary of State to consider the fullest range of information in order to make informed decisions under this regime.
Dr Whitehead
The Minister has given a good exposition of what the clause is about: the attendance of witnesses. I note that, as he said, the witnesses are required to give evidence on the equivalent level of civil proceedings before the court—as the clause states:
“A person is not required under this section to give any evidence which that person could not be compelled to give in civil proceedings before the court.”
Dr Whitehead
I wonder if the Minister might intervene briefly, just to put my mind at rest.
Nadhim Zahawi
I think I have made very clear how these notices will work. The judicial procedure is open to any party that feels hard done by in any way by this Bill.
Dr Whitehead
I thank the Minister for confirming what I thought, which is that this can be challenged post hoc but not at the point of giving evidence. That is what I understand the Minister to have just said—but hey, I could be wrong. That is the clarification we wanted. On the issue of witness attendance, it is important that the Secretary of State is able to specify a time and that the evidence is undertaken at a level commensurate with civil proceedings. We do not oppose the clause standing part of the Bill, given the Minister’s clarification on proceedings involving witnesses.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Information notices and attendance notices: persons outside the UK
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 21 makes provision in respect of the persons on whom the Secretary of State may serve an information notice or an attendance notice outside the United Kingdom. The clause applies in relation to the two earlier clauses. Clause 19 provides the power for the Secretary of State to obtain information either before or after the call-in power is exercised. Clause 20 gives the Secretary of State the power to require the attendance of witnesses to assist him in carrying out his function under the Bill.
Those outside the United Kingdom to whom an information notice or attendance notice may be given are clearly set out in clause 21, which is technical in nature. The purpose is to ensure that certain categories of persons with a connection to the United Kingdom are caught by the information-gathering powers, even if they are outside the UK. These categories of persons are UK nationals, individuals ordinarily resident in the UK, bodies such as companies incorporated or constituted in the UK, and persons carrying on business in the UK. Perhaps more importantly, notices may also be served on persons outside the UK who have acquired, or who are in the process of or are contemplating acquiring, qualifying UK entities or qualifying assets that are either located in the UK or otherwise connected to the UK. In practice, this means that notices may be served on most parties from whom the Secretary of State may wish to require information or evidence.
Peter Grant
I certainly would not seek to oppose this clause, but will the Minister go into a bit more detail about how it works in practice? What if a notice is served on somebody who is not in the United Kingdom, who is not a UK citizen or UK national, who has never set foot in the United Kingdom and quite possibly never intends to, as might happen if a big multinational is seeking to acquire a business intertest in the United Kingdom? Is the intention to create an offence that can be committed by somebody with otherwise no connection with the United Kingdom under UK law? That would mean that the person had committed the offence in a different sovereign territory, not even by something they did, but by something they did not do—not responding to a notice and not attending when required.
I understand why the requirement has to apply to everybody, and I understand that there is no point in serving a statutory notice if there are no consequences to refusing to comply with it; I am just not sure about the practicalities. Has the Minister considered alternative sanctions in those circumstances? For example, the person could be disqualified from being a director or a shareholder in significant UK undertakings. That would potentially have the same effect.
It seems to me that, generally speaking, we would create a criminal offence for the conduct of somebody in a different sovereign territory only in specific circumstances. If somebody is serving with the UK armed forces, for example, they might be covered by UK law even when they are serving abroad. The other circumstance is if the crimes are so heinous as to be regarded as crimes against international law—crimes against humanity and war crimes, for example. I understand that the Education Secretary thinks that Britain is just the best country in the word and nobody else can touch us, but I doubt even he would think that failing to respond to a notice from the UK Secretary of State constitutes a crime against international law.
Is the Minister concerned about setting a precedent whereby we attempt to apply domestic law to the actions or non-actions of people who, in normal circumstances, are covered by the laws of the country they are in and not the criminal law of the United Kingdom? Given that this might create a difficult precedent, is he satisfied that the Government have looked at every possible alternative sanction? This could create a precedent, and other countries could start legislating to say that what UK citizens do in the United Kingdom is contrary to their laws, which would therefore make any of us subject to arrest and prosecution by the authorities of another country. I am a bit concerned about the reaction that might be provoked from Governments elsewhere if we get this part wrong.
Nadhim Zahawi
I think the hon. Gentleman is referring to parties that are abroad and have a business in the UK—what if notice is served on them and they are non-compliant? Obviously, under UK law that would be a problem for them. I certainly think that, if an information notice is served, the timeline for the Secretary of State’s assessment of a trigger event is paused until the information is provided from the individual in whatever jurisdiction they or the entity happen to be at the end of the time period provided for compliance in the information notice.
If a party does not comply during the assessment process, that may lead to more onerous and stricter remedies being imposed by the Secretary of State than would otherwise be the case, including the acquisition being blocked or unwound where appropriate. It will therefore plainly be in the interest of those involved directly in the trigger event to provide information in a timely manner to the Secretary of State in order that a speedy decision can be taken. That is where the leverage lies.
Peter Grant
I am grateful to the Minister for that clarification. As I say, I fully understand what the Government are attempting to achieve. I would expect that, in those circumstances, the Minister would block the acquisition if there was a serious failure to comply by anybody who was in practice beyond the reach of UK criminal prosecution. I would certainly hope that in those circumstances the Secretary of State would use the other powers to ensure that they could not become a controlling influence on any strategically important UK undertaking.
As I said, I do not want to divide the Committee. I did not even feel it was appropriate to table an amendment, partly because I could not think of a way of amending it that would make it any better. Having made those points, I am grateful for the Minister’s clarification, and we will leave it to future Secretaries of State to implement it as best they can.
Dr Whitehead
Briefly, we fully understand the purpose of the clause. It is obviously necessary to ensure that witnesses, wherever they are, if they have a relevant interest in these matters, should be made available to give evidence. I share some of the concerns of the hon. Member for Glenrothes about how workable it might be. I particularly wonder whether subsection (2) includes UK overseas nationals. That is particularly relevant to some of our discussions earlier today. I see in the previous clause that if someone is a UK citizen and domiciled in the UK, they get their bus fare paid if they live more than 10 miles away.
Dr Whitehead
But apparently there are no international flight payments as far as overseas witnesses are concerned. I do not know whether the Minister has that in mind, but I note a big difference between the two clauses. If such witnesses could get some payment towards their attendance in the UK, that might resolve some of the problems that the hon. Member for Glenrothes suggested—provided it is economy class, obviously.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Michael Tomlinson.)
National Security and Investment Bill (Ninth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 8th December 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 8 December 2020 - (8 Dec 2020)
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
Before we begin, I remind colleagues of the importance of social distancing. Please switch electronic devices to silent. The Hansard reporters would be very grateful if Members could email any electronic copies of their speaking notes to hansardnotes@parliament.uk.
Clause 22
False or misleading information
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
Clause 22 makes provision for circumstances in which false or misleading information is provided to the Secretary of State. Hon. Members will agree that a regime that protects our national security must take appropriate account of those who would wish to mislead us. It is not often that hostile actors offer up honest answers to difficult questions. In addition to the penalties that are provided for in clause 40 and elsewhere, the clause ensures that any decision that is taken on the basis of false or misleading information, and which is materially affected by the false or misleading information, may be reconsidered by the Secretary of State. Following reconsideration, the Secretary of State is then free to affirm, vary or revoke any such decision.
That may, for example, involve calling in a trigger event after an initial decision not to do so, if, for instance, it is discovered that false or misleading information was provided in the notification form. That might ultimately lead to remedies being imposed on the trigger event, including blocking or unwinding it where that is necessary and proportionate for the purpose of safeguarding national security. The Secretary of State is required under subsection (5) to give any call-in notice within six months of discovering that the information was false or misleading.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
I thank the Minister for his comments on clause 22. This possibly shows a lack of understanding on my part, but could he say a little about how the Secretary of State will ascertain, decide or judge that information has been false or misleading?
Nadhim Zahawi
I am grateful for the hon. Lady’s question. The Secretary of State has a number of tools available to him, including our security and intelligence services. Of course, if the information is deemed to be false or misleading, he will be able to take appropriate action.
There is otherwise no time limit to revising a decision. The time limits under subsections (2) and (4) of clause 2 for calling in trigger events that have already taken place do not apply. We judge that this is an important signal to send. If people provide us with false or misleading information in relation to a trigger event, the Secretary of State may still call in the event for consideration whenever the false or misleading information comes to light, even if the event has long since completed. If truthful information is provided, the time limits in subsections (2) and (4) of clause 2 apply. If people provide us with the right information, they will have certainty. If they provide us with false or misleading information, we may revisit the trigger event whenever the false or misleading information comes to light.
Without the clause, parties could, in theory, deliberately provide false information to ease the passage of their trigger event. The Secretary of State would then be powerless to reopen the investigation into the event and impose national security remedies on it. I stress that I expect cases involving the provision of false or misleading information to be few and far between, but the Government must take steps to mitigate such risks.
Hon. Members may have some concern that the Secretary of State’s ability to reconsider previous decisions chips away at businesses’ confidence to invest. To those hon. Members, I say that the provision applies only to materially false or misleading information, and even if such information is provided unintentionally, it is essential that the Secretary of State has the power to consider the case one more. Moreover, it may be the case that false or misleading information is provided deliberately by a hostile actor. I hope hon. Members will agree that as well as providing slick and efficient processes for business, the Bill must not leave any loophole to be exploited.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Meaning of “assessment period”
Chi Onwurah
I beg to move amendment 22, in clause 23, page 15, line 15, leave out from “as” until end of line 16 and insert
“as agreed by the Secretary of State in accordance with subsection (9)”.
This amendment seeks to limit the flexibility of extending the assessment period to the conditions set out in subsection (9), and to remove the need for the approval of the acquirer.
Nadhim Zahawi
With your indulgence, Mr Twigg, I intend to speak first to clause 23 stand part, then to amendment 22 and new clause 4.
We are committed to the regime providing as much clarity, certainty and predictability as possible for businesses and investors. It is therefore right that we are setting out how long the Secretary of State may take to carry out a full national security assessment and make a final decision on a trigger event following a call-in notice.
Subsection (3)(a) provides for an initial assessment period of 30 working days. The Government have taken advice from the security community, and we consider that in the majority of cases 30 working days will allow for a full national security assessment and for the Secretary of State to decide whether to clear the trigger event outright or to impose final remedies on it.
More complex cases are possible, however, and it is important that a longer period is available for the Secretary of State to consider them. The clause therefore enables the Secretary of State to issue a notice to extend the assessment by 45 working days to assess the trigger event further, for example to determine the extent of the national security risk or to decide on appropriate remedies. That is referred to as the “additional period” under subsection (3)(b). The clause also provides for the assessment period to be further extended beyond the additional period, but only with the written consent of the acquirer. That is termed a “voluntary period” under subsection (3)(c).
The Government are clear that extensions should not be used lightly. The clause therefore includes specific legal tests for their use. To extend the assessment into the additional period, the Secretary of State must reasonably believe, as the hon. Lady referred to, that a trigger event has taken place, or is in progress or contemplation, and that this has given or would give rise to a national security risk. The Secretary of State must also reasonably consider that the additional time is required to assess the trigger event further.
To agree a voluntary period extension with the acquirer, the Secretary of State must be satisfied that, on the balance of probabilities, a trigger event has taken place, or is in progress or contemplation, and that this has given or would give rise to a national security risk. The Secretary of State must also reasonably consider—the third bullet point the hon. Lady mentioned—that the period is required to consider whether to impose final remedies or what those remedies should be.
What the Secretary of State may not do is simply extend the assessment period because it is convenient. The clause is drafted in this way to ensure that we protect the investors and businesses that the hon. Lady quite rightly cares about, as do Government Members, and allow them to operate and thrive in our economy. I hope that hon. Members feel assured that the Government have sought to carefully balance the flexibility required for the Secretary of State to deal with the most complex cases and the need to provide businesses and investors with clear time lines.
Matt Western (Warwick and Leamington) (Lab)
Just to understand and clarify the point about how realistic the voluntary period might be, in terms of getting the written agreement of the acquirer, in the Minister’s experience, how realistic is it that a business would accede to that? The business might be under financial pressure, looking for cash or a financial injection, which is the whole point about bringing in private equity. How will the Government ensure that that is possible, when all those other pressures are coming into play?
Nadhim Zahawi
I am grateful to the hon. Gentleman; it is a great question. We are all worrying about the small and medium-sized businesses that his particular angle would very much apply to. He will recall that, in the evidence sessions, we heard evidence to suggest that business founders and directors are best placed to know if their business has a national security angle, so the Secretary of State will clearly work with those business owners, innovators and pioneers to try to mitigate the national security risk while making sure that they can survive and thrive. It is in no one’s interests for them not to do well in the United Kingdom; that would probably create a greater national security threat.
Matt Western
Just to be clear, if a business is desperately seeking that inward investment, surely it would be less likely to write and agree with the Secretary of State about the additional period, because it is desperate for the funds.
Nadhim Zahawi
I absolutely hear what the hon. Gentleman says. The issue then becomes one of national security. As we heard in the evidence sessions, most founders and directors know exactly what they are inventing and what their intellectual property is, and therefore whether there is a national security risk, however nascent the business may be.
I briefly turn to amendment 22. I am grateful for the Opposition’s continued, and in some ways unexpected, push for ever greater powers for the Secretary of State, who I am certain will be most delighted. The amendment would remove the requirement for the Secretary of State to agree the use of a voluntary period or a further voluntary period with the acquirer to consider whether to make a final order or what provision that final order should contain. I do not believe that would be the right approach.
We have set much store in the statutory timescales provided for in the Bill. It is vital for the businesses and investors that we all care about that they have confidence in when they can expect decisions so that they can plan accordingly, which goes back to the point of the hon. Member for Warwick and Leamington about planning for an investment or fundraising event. That is why any extension of the assessment period, beyond the collective 75 maximum working days of the initial period and the additional period combined, requires agreement from the acquirer in recognition of the fact that the process is being lengthened beyond the customary timeline. Enabling the Secretary of State to do that unilaterally would be a matter of concern for business and investment communities alike.
Chi Onwurah
I thank the Minister for his concern about our encouragement, in our probing amendment, of the Secretary of State having greater powers. When the Minister looks at other organisations, such as the Committee on Foreign Investment in the United States or, even closer to home, the CMA in the UK, which do not have voluntary period extensions, can he understand why there are concerns about how that process would work? What international comparisons has he made?
Nadhim Zahawi
We talk to our Five Eyes allies and other nations. As the Secretary of State and I set out on Second Reading, we have worked collaboratively with many nations to try to get the balance right so that the Bill does what it does and is proportionate.
I accept that the amendment also attempts to provide some mitigation against that by directly referencing subsection (9). That existing subsection limits the Secretary of State to being able to agree a voluntary period only where he
“is satisfied, on the balance of probabilities, that…a trigger event has taken place”
or is “in progress or contemplation”, and that
“a risk to national security has arisen…or would arise.”
He may do so only for the purpose of considering
“whether to make a final order or what provision a final order should contain.”
As such, I gently point out to the hon. Lady that the limitations that she seeks to impose on the Secretary of State through the amendment are already provided for by the clause as drafted. Subsection (3) does not provide a parallel or broader power for the Secretary of State to agree a voluntary period or further voluntary periods for other reasons. It is already subject to the limitations set out in subsection (9). I hope that addresses the hon. Lady’s principal concern. I assure her that, as with so many areas in the Bill, we are singing from the same hymn sheet. For those reasons, I cannot accept the amendment, and I respectfully ask her to withdraw it.
I will turn very briefly to new clause 4. I am grateful to hon. Members for contributing to the debate by suggesting a new clause to allow acquirers to lodge complaints. Under the current drafting of the Bill, the Government can already be held to account on their performance on screening investments. First, the Government can be held to account through the annual report that they are required to publish, as provided for in clause 61. That provision requires the Government to report on the number of notifications that they have accepted and rejected, the sectors of the economy in relation to which call-in notices were given, the financial assistance provided and the number of final notifications given.
Secondly, the Government can be held to account through the judicial review process under clause 49. Acquirers, or indeed any party to the transaction, can claim for judicial review of a relevant decision. Furthermore, throughout the review process, the parties to an acquisition can contact the investment security unit for a discussion about their case and can request to speak to a senior official if needed. Creating a formal complaints procedure would be unnecessarily bureaucratic when acquirers already have better routes available to them if they are unhappy with the decision-making process.
Members from across the House have commented that it is important—the hon. Lady mentioned this earlier—that the appropriate resources are allocated to the investment screening unit. The Government are absolutely committed to ensuring that that happens. It would be unwise to divert some of those staff from undertaking scrutiny of issues of national security to staff a complaints procedure, particularly where JR is available for any serious concern regarding the process of assessment.
Chi Onwurah
I hear the Minister repeatedly referencing the judicial review process without, I am afraid, addressing our point: judicial review is not an option that will give relief to a small, nimble start-up.
Nadhim Zahawi
I mentioned judicial review as the second way in which the Government can be held to account. The first is the requirement for the Government to report to Parliament annually. Colleagues and Committees will therefore be able scrutinise the work of the unit. Although I understand the hon. Lady’s objective with new clause 4, I am not able to accept it for the reasons that I have set out, and I hope that she will agree to withdraw it.
Chi Onwurah
I thank the Committee for considering our amendment and new clause, I thank the Minister for his response and I thank my hon. Friend the Member for Warwick and Leamington for his able interventions.
I am somewhat disappointed by the Minister’s response. I think it is absolutely true, as he said, that as with so much, we are on the same page when it comes to what we are trying to achieve. There are significant issues with the clause as it stands, however, and I do not feel that the Minister has addressed them in his response. He did not, for example—I am happy to take interventions on these points—address the issue of voluntary extensions. We do not see that in the US process, which has a number of stages. It allows 45 days for a national security review, including a 30-day limit for the director of national intelligence to submit intelligence analysis and an option of a 15-day presidential determination if needed, but it does not have a voluntary period for extensions. The CMA in this country does not have a voluntary period for extensions. The Government are introducing a voluntary period.
I thank the Minister for clarifying that as well as having the acquirer’s approval, the Secretary of State has to meet the conditions in subsection (9), and that both the approval and the conditions in that subsection are satisfied on the balance of probabilities. That does not, however, address the issue that my hon. Friend the Member for Warwick and Leamington raised about whether the acquirer is likely to agree to a voluntary period. Without clarity on that point, the clause allows voluntary extensions that, in practical terms, may not prove to be of use to either the acquirer or the Secretary of State.
On the new clause, I do not want to appear cynical, but I am sure that the Minister and those on the Committee who have worked in and with small businesses—particularly in our tech sector and in some of the 17 areas identified for mandatory notification, such as artificial intelligence and data infrastructure—will agree with me when I say that I do think that any small business would see an annual report to Parliament or a judicial review as a relief, given the ever-present desire for investment finance or for progress and innovation at breakneck speed. The Minister has not made a case against the need for a process to address procedural disputes.
I said that amendment 22 was a probing amendment, but I want to test the will of the Committee on supporting greater clarity and understanding for our small and medium-sized enterprises. I will seek to press the amendment to a vote, as I will for new clause 4.
Dr Whitehead
I am grateful to the hon. Lady for that interestingly injected intervention—[Laughter.]
Dr Whitehead
Indeed. I was about to reflect on the appointment a long while ago—in another time and another Administration, when there was a severe and prolonged drought—of a Minister for drought, the right hon. Denis Howell. The Minister’s success was amazing: within about three days of his appointment, it poured with rain.
The Chair
Before the Minister intervenes, may I say that it is important to keep to the detail of the Bill.
Nadhim Zahawi
Just to second what the hon. Member for Newcastle upon Tyne Central said, we have an incredible team in our NHS in England, Scotland, Wales and Northern Ireland, our military and all the other planners who have delivered today. I want to put that on the record.
Dr Whitehead
My hon. Friend makes an important point on the amendment about how we undertake the difficult job of making sure something is efficiently and effectively carried out, while not taking the wheels from under the organisation as it does its job. That is a difficult process to undertake, because information notices are clearly important, as are attendance notices, and we should have no mechanisms in the Bill that prevent or undermine the ability of the organisation charged with giving notices out to do that properly. That is a given as far as the process is concerned.
However, it is equally important that substantial light is shed on how that process works in practice and whether, over a period of time, that process might be seen not to be working as well as it should be in combining the necessities of those notices with a reasonably fair approach, particularly as far as small businesses are concerned. Managing that metric properly while enabling the unit to carry out its job properly is quite a task.
The amendment would enable us to undertake that task by requiring the recording of quality—that is, the numbers of notices given out, the “aggregate amount of days” that those notices have consumed and the
“number of called-in events for which such days are included”.
By enumerating those numbers and putting them together in each report, we can see whether the unit is doing its job well overall, could improve or could undertake activities to make sure that there was a balance between efficiency, effectiveness and fairness in the whole process.
Indeed, it is not just small businesses that might welcome having a light shone on what is being done to them; it would also be a potentially important tool to allow the Secretary of State to see what the unit, which is essentially carrying out the Secretary of State’s work, would be doing over each period of the year. The Secretary of State could use that reporting mechanism as a way of ensuring that the unit is doing what it should and that the principles we have set out in the Bill for the good expedition of information and attendance notices continue to operate in the best possible way over a period of time.
Adding quality to the quantity in the report is good news all around. It enhances the Secretary of State’s ability to manage his or her own Department. It shines a light for those bodies that ought to be co-operators in the process, but that may sometimes feel themselves as victims in the process. It shines a ray of light on the operation of the organisation itself—the unit carrying out these activities—and is therefore a welcome addition to its activities. That will keep it considering the efficiency and effectiveness of its operations in the knowledge that the information will be stuck in a report each year and will be scrutinised in terms of the unit’s activities in carrying out the wishes behind what will be the Act.
The amendment would be a constructive and careful addition to the reporting process, and one that would considerably enhance the effectiveness of the Bill. I hope the Secretary of State can consider it in the light in which it is intended, which is as an addition to the Bill, and not as seeking to undermine the effectiveness of the process or the activities of the unit itself.
Nadhim Zahawi
I am grateful to the hon. Gentleman. I intend to speak first to clause 24 stand part and then turn to amendment 23. Clause 24 concerns the Secretary of State’s information-gathering powers in clause 19 and his power to require the attendance of witnesses in clause 20, with the requirement that national security assessments are completed within a defined period, which appears in clause 23.
Clause 24(4) ensures that the clock is stopped on the assessment period while the Secretary of State waits for information or for the attendance of witnesses, as required through the issuance of the relevant notices. That helps to avoid the Secretary of State being timed out of properly assessing a case simply because someone fails or refuses to provide information or to attend to give evidence.
Amendment 23 seeks to require that the annual report, provided for in clause 61, includes additional information relating to how often subsection (4) is engaged. In particular, it seeks to require the Secretary of State to include the aggregate number of days on which the clock is stopped as a result of the Secretary of State awaiting the provision of information through clause 19 or the attendance of a witness through clause 20. It also seeks to include the number of call-in days, and the number of times information notices are given for each call-in.
Our response has three parts, though the Committee will be relieved to hear that each part is distinctly and deliberately brief. First, clause 24(4) is entirely necessary to help to ensure that the Secretary of State is not timed out. Secondly, clauses 19(1) and 20(1) stipulate that the requirements to provide information or evidence must relate to the Secretary of State’s functions under the Bill. In this context, that means that they have to be relevant to assessing the trigger event and making a decision on it.
The Secretary of State will furthermore need to comply with public law duties when issuing an information notice or attendance notice, which would preclude him from doing so for an improper purpose, not that he would ever contemplate such a thing. A decision to issue a notice would also be subject to judicial review. There are therefore appropriate legal safeguards on the use of information notices and attendance notices. Finally, clause 61 does not preclude the Secretary of State from publishing such information should it later prove a helpful metric for assessing the regime.
Stephen Flynn (Aberdeen South) (SNP)
I have a great deal of sympathy for the amendment, but I am conscious that the Minister is unlikely to agree to it, given what he has said. Bearing that in mind, the detail that is being asked for is probably quite straightforward. I would like this on the record: were a Member to ask for such information, would the Department be willing to provide it in the future, notwithstanding the fact that the amendment will likely be defeated?
Nadhim Zahawi
I am grateful to the hon. Gentleman for his ingenious attempt at augmenting this excellent Bill, but for the reasons I have just set out I see no grounds for including the amendment. I therefore ask the hon. Member for Southampton, Test to please withdraw it.
Dr Whitehead
I am not sure that the Minister has given sufficient consideration to what I thought were genuine points concerning, as I set out, both quality and quantity. He says that it will be possible, if the Secretary of State thought it a good idea, to include some of those points in the annual report anyway. That comes back to some of our “may” and “must” arguments. The Secretary of State might, if they want to, decide to do that in an annual report, but the circumstances under which that happened could be that they wanted to say in the report, “The unit is working brilliantly, everything is hunky dory and terrific, and here is the evidence.” Conversely, were the unit not working very well, they might decide not to put those things into an annual report.
Although the Secretary of State would have the ability to add something to the annual report, if they did not want to do it, or they felt that it was a better idea to put such things under the table, away from the light of day, no one else would ever know about it—unless, as the hon. Member for Aberdeen South suggested, some sort of undertaking were given that those numbers were available on request to hon. Members. The formula that the Minister has put forward falls well short of the mark in meeting the three tests that I have put forward for quality plus quality: that the report should be of benefit to the Minister, the unit, and the firms and companies that may be affected. The Minister addresses only one of those three.
Dr Whitehead
I cannot immediately, because as I mentioned, having that information available in some way or other—we suggest it should be in the report—is a win, win, win all round. It is useful for everybody and potentially important for some.
I do not suggest for a moment that there might be anything untoward about hiding that information away, and I am sure that the Minister absolutely would not want that to happen. However, under the mechanism he has set out and his argument for why this amendment is unnecessary, that is precisely what could happen, which is not something that we should feel very happy about. I hope that, as a minimum, the Minister will address that point, along with the intervention by the hon. Member for Aberdeen South about this information being freely available one way or another, whether in a report or not. An overwhelmingly better idea would be simply and unobtrusively to add it to the report, so that we knew it would come out and could refer to it.
I am not sure whether we would seek to divide the Committee on this—[Interruption]—but I think we might. Like my hon. Friend the Member for Newcastle upon Tyne Central, I am slightly at a loss as to why this provision would not be acknowledged and put in the Bill, or something close to it, one way or another. I invite the Minister to intervene to say whether the disclosure of this information on a regular basis would happen in the report or whether he will give an undertaking to ensure that happens in passing this legislation.
Nadhim Zahawi
We have very carefully considered the types of information that would be helpful to investors. The direction of travel—this was the question raised earlier by the hon. Member for Aberdeen South—for Parliament and the public was to include that information in the annual statement. The Committee should also note that the list does not prevent us from adding other relevant non-sensitive information, as I mentioned earlier. I hope the hon. Member will see fit—I know there is a slight disagreement on the shadow Front Bench—to withdraw the amendment.
Nadhim Zahawi
I heard the hon. Gentleman say that he was going to withdraw the amendment, then the hon. Member for Newcastle upon Tyne Central said, “No, we’re going to put it to a vote.”
Dr Whitehead
To be precise, I said that I was not sure whether we should divide, because we are a little bemused as to why, one way or another, that information should not be within the report or the Minister could not make a firm statement that it will be regularly available, and the Minister has not said either in his response.
Nadhim Zahawi
I turn to clauses 25 to 28, which I shall treat together, as they all relate to orders that the Secretary of State may make in relation to notifiable cases under the national security and investment regime. It is important that, during any national security assessment following a trigger event being called in, parties do not act in a way that undermines the assessment or any remedies that might be imposed at the end of it. Clause 25 therefore gives the Secretary of State the power to impose requirements for the purpose of preventing, reversing or mitigating actions that might pre-empt the regime through what is known as an interim order. In practice, this could include requiring that the parties do not complete a trigger event until a final decision has been issued, or, where the Secretary of State is concerned about access to sensitive intellectual property, an order could be used to prohibit the intellectual property from being transferred or shared pending the outcome of the assessment. The power is necessarily flexible to allow conditions to be tailored to particular cases and particular risks, although it rightly comes with important safeguards.
First, interim orders may be made only during the formal assessment period when a trigger event has already met the legal test to be called in for a full assessment. The Secretary of State may not, therefore, impose an interim order before he has called in a trigger event, which I hope hon. Members will agree is a significant bar to meet in and of itself. Secondly, the Secretary of State must reasonably consider that the provisions are necessary and proportionate for the purpose of preventing, reversing or mitigating a pre-emptive action. Any decision to make an order would be open to judicial review.
Thirdly, as an interim measure it is inherently time limited. In a particular case, there might be a reason why a requirement is not needed for the full duration of the assessment period. Consequently, a specific end date might be given in an order. Furthermore, unless an earlier date has been specified in the order, or the order has been revoked, an interim order will cease to have effect once the Secretary of State has given a final notification or made a final order decision.
The Bill also includes specific provisions for interim orders to be kept under review and for those subject to them to request that they be varied or revoked. That is provided for in clause 27. Without clause 25, it would be possible for a dangerous acquisition outside of the mandatory sectors to be completed before the Secretary of State has an opportunity to assess it properly. Indeed, the Government expect a genuinely determined hostile actor to seek to do just that.
Clause 26 provides for the Secretary of State either to put in place effective remedies to counter national security risks discovered during an assessment of a trigger event, or to clear a trigger event where no national security risk is found. The clause therefore provides for both final orders and final notifications, and subsection (1) requires the Secretary of State either to make a final order or to give a final notification before the end of the assessment period. Final notifications act as notice to parties that no further action is to be taken under the Bill in relation to the call-in notice.
Final orders seek to address any national security risks found during an assessment. Those will not be arbitrary and will be subject to a strict legal test. First, the Secretary of State must be satisfied on the balance of probabilities that a trigger event has taken place or is in progress or contemplation and that this would give rise to a national security risk if carried into effect. Secondly, the Secretary of State must reasonably consider that the provisions of the order are necessary and proportionate for the purpose of preventing remedy or mitigating the risk.
The permitted contents for final orders are set out in subsection (5). This includes the power to put certain conditions on a trigger event before it can proceed, or for it to remain in place. The subsection also gives the Secretary of State the power to block a trigger event or, where it has already taken place, require that to be unwound. I make it clear to hon. Members that such a course of action would be a last resort. In the nearly two decades since the Enterprise Act 2002 came into force, no Government of either colour has blocked a deal on national security grounds. However, it is still a necessary power to have. There might be some cases where a trigger event poses such an acute risk that it cannot be allowed to proceed in any form, and it would be irresponsible to leave our country unprotected.
Clause 27 provides important safeguards on the continued operation of interim orders and final orders. First, it requires the Secretary of State to keep interim and final orders under review to ensure that they are relevant and proportionate. Secondly, it empowers him to vary or revoke such orders. Thirdly, it compels him to consider any request to vary or revoke an order as soon as practicable after receiving such a request.
Dr Whitehead
Does the Minister consider that the arrangements in clauses 25 to 28 for variations, revocations and exemptions are a proper subject for inclusion in an annual report? As he will observe, clause 61 on the annual report states that the
“The Secretary of State must, in relation to each relevant period—
(a) prepare a report in accordance with this section”.
Although not specifically covered by the word “must” in the clause, does the Minister consider that the arrangements in these clauses are a proper subject for the annual report?
Nadhim Zahawi
I am grateful to the hon. Gentleman. We have had that debate already, and we have set out clearly what we think is appropriate to be in the report, notwithstanding what we might do in future if that allows investors to have greater clarity.
Matt Western
I was going to make exactly the same point as my hon. Friend the Member for Southampton, Test. Surely the intent behind the question is how we make the operation of the provision much more efficient. We are starting from a zero base. The suggestion that we consider future demands and implications is a constructive one.
Nadhim Zahawi
I see where the hon. Gentleman is coming from. The House has many levers at its disposal, including the Select Committee process, to probe the effectiveness of the new regime.
I shall now make some headway. The provision is designed to ensure that orders reflect changing circumstances and do not remain in force for perpetuity without further consideration. Parties subject to orders may themselves request that the Secretary of State vary or revoke their order. This is another mechanism to ensure that orders remain appropriate. The Secretary of State must consider such requests unless the request relates to a final order and, in the opinion of the Secretary of State, there has been no material change in circumstances since the order was made or last varied, or if the party concerned has previously made a request to vary or revoke the order since that request.
Chi Onwurah
I thank the Minister for the progress he is making in reading out the provisions of these clauses, but I am trying to understand the length of time that an interim order can be in force. What is the maximum time an interim order can be in force?
Nadhim Zahawi
It is time limited, but that does not specify what the time needs to be. I will happily write to the hon. Lady.
Chi Onwurah
I am not sure that it is time limited, because of the number of additional voluntary periods that the Secretary of State can invoke.
Nadhim Zahawi
I am happy to come back to the hon. Lady on that point.
Clause 28 requires that orders made under this Bill be served on anyone required to comply with them and anyone with whom the call-in notice was served. The clause also places certain requirements on the contents of orders or accompanying explanatory material as well as giving the Secretary of State the power to exclude sensitive information. The clause sets out the process that the Secretary of State must follow after making an interim order or final order. This provides the clarity and predictability that we all want for businesses and investors.
First, clause 25 requires the Secretary of State to serve the order on everyone who needs to be aware of it, including anyone who is required to comply with it as well as anyone on whom the call-in notice was served. That will provide clarity for affected parties. The Secretary of State is also required to serve the order on such other persons as he considers appropriate—for example, a regulator who is considering the trigger event might need to be aware of the terms of an order.
Secondly, the clause sets out the information that must be contained within an order or its accompanying explanatory material, including the reasons for making the order, the trigger event to which the order relates, the date on which the order comes into force, and the possible consequences of not complying with the order. That will help to ensure that parties are clear about why the Secretary of State has made the order and what they must now do as a result.
Thirdly, the clause enables the Secretary of State to exclude information from a copy of an order or its accompanying explanatory material that he considers commercially sensitive or national security sensitive. That will help to ensure that the process of serving orders does not negatively impact on parties’ commercial interest or on our national security interest. The clause makes provision for notifying those affected by variations and revocations of orders, with a view to ensuring that they are properly communicated in a timely manner.
I hope that hon. Members feel reassured that clauses 25 to 28 will frustrate hostile actors and enable the Government to work with business in executing this regime, that there are safeguards to ensure that orders do not stay in place longer than is necessary or proportionate, and that all relevant parties will have the information they need in relation to orders. I therefore commend the clauses to the Committee.
Chi Onwurah
Let me start my thanking the Minister for setting out the purpose and details of clauses 25 to 28, which set out the remedies and the process of the timelines that we discussed in relation to clause 23. As he has suggested, and as the Opposition recognise, many of our amendments and arguments have been focused on trying to ensure that the process of assessment, interim orders and final orders works not just as effectively as possible, but as clearly as possible. It should be as clear as possible to the many businesses that will come under the remit of the Bill, particularly the small and medium-sized enterprises that the Opposition seek to champion.
On the requirements for interim orders, which are set out in clause 25, the Minister is absolutely right to say that we have to have regard to the actions of hostile actors. Indeed, we will be looking for greater clarity on who those hostile actors might be, but we have to recognise that hostile actors might seek to circumvent the provisions of the Bill in order to make off with important intellectual property or to otherwise influence the companies’ assets that they are seeking to acquire. We therefore recognise the importance of interim orders, as set out in clause 25. As I have told the Minister, I am not clear about the maximum timeline that the interim orders can be in place. Regardless of that, it is clearly necessary for them to be put in place and to be defined. They need to be reviewed and rewritten, and other provisions in clause 25 set that out.
My understanding is that interim orders give way to final orders and the final notifications. Although we have some concerns about how those notifications are to be made, which we shall consider later, a final order, made as effectively and quickly as possible, is clearly important.
I am not sure that the Minister made it clear in clause 26(4):
“Before making a final order the Secretary of State must consider any representations made to the Secretary of State”.
This seems to me to be a very broad statement, yet here we see—as I am sure my hon. Friend the Member for Southampton, Test will observe—that it does not say “may”, but “must”. I am not clear what that is seeking to address, as I would have thought that it was normal practice for the Secretary of State to consider representations made to them.
I wonder whether this is setting up the potential for a future judicial—or other—review, should any representation be made that was not considered to have been considered. Perhaps the Minister will write to me to give his view on that, or to set out what part of the process that statement is trying to address or give accountability on.
Nadhim Zahawi
The reason for that is to enable the Secretary of State to tailor remedies accordingly, as a limited list of remedies could result in risks being ineffectively addressed. I am happy to write to her on anything else she requires.
Chi Onwurah
My question is not about the broadness of the orders, or even the discretion that the Secretary of State has, because, as the Minister has observed, we have sought to probe that level of discretion in these powers; it is about the broadness of the provision that:
“Before making a final order the Secretary of State must consider any representations made to the Secretary of State”.
What is meant by “consider”? How would a failure to do so be identified and reported on, and how would the Secretary of State be held to account? I seek further clarity on that. Perhaps it is obvious to the Minister, and perhaps it is just to me that it is not obvious.
I would say, in agreeing to the provisions set out in clauses 25 to 27, that there are concerns that they will not be part of the general reporting, certainly in the provisions of clause 25, and interim reports are not mentioned in clause 61. I share the concerns of my hon. Friend the Member for Southampton, Test about a lack of reporting on the provisions of the Bill, but we recognise the importance of the clauses and will not be opposing them.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clauses 26 to 28 ordered to stand part of the Bill.
National Security and Investment Bill (Tenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 8th December 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 8 December 2020 - (8 Dec 2020)
The Committee divided: - Ayes: 4 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
I had been just about to conclude by saying that a key reason for the amendment moved by my hon. Friend the Member for Ilford South is that it asserts and requires the supremacy of the public interest over commercial interest in the Secretary of State’s actions in reporting on final notices. I hope that the Minister will accept the amendment.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
With your permission, Sir Graham, I will speak to clause 29 stand part before turning to the amendment. The Committee has heard about the careful balance that the Government are striking in this regime by allowing for a discreet and commercially sensitive screening process wherever possible, while requiring transparency at key junctures where not to do so could disadvantage third parties.
Clause 29 is a key clause, the purpose of which is to deliver that essential but carefully chosen transparency. It places a duty on the Secretary of State to publish a notice of the fact that a final order has been made, varied or revoked. The main purpose of publishing notice of those facts is to ensure that third parties who may have a financial interest in a trigger event are not disadvantaged by the provision of information only to the parties involved. Examples of relevant third parties might include shareholders, suppliers or customers of the target entity, and other investors who may be considering investing.
The clause will provide important reassurance to the business community and the wider public about the circumstances in which final orders are made, varied and revoked. It specifies what information must appear in a notice, including, crucially, a summary of the order, revocation or variation, its effect, and the reasons for it. Similarly to the approach on orders, subsection (3) allows the Secretary of State to exclude information from the notice when he considers it commercially sensitive or national security sensitive. The clause is complemented by the requirement in clause 61 for the Secretary of State to report annually to Parliament on the use of the powers in the Bill. Clause 61(2) sets out an extensive list of the aggregate data that the annual report must include. Together, those provisions will help investors and businesses to understand the regime, and will ensure that Parliament can hold the Government to account on their operation at both individual and aggregate levels.
I will now turn to amendment 27 to clause 29. I remind the Committee that the clause requires the Secretary of State to publish a notice when a final order has been made, varied or revoked. As drafted, subsection (3)(a) provides that the Secretary of State may exclude from that public notice anything that he considers likely to prejudice the commercial interests of any person. The amendment would prevent the Secretary of State from excluding such information, unless he considers that publishing it would not be in the public interest.
The Committee has heard about the careful balance that the Government are seeking to strike in this regime, to allow, as I mentioned earlier, for a discreet and commercially sensitive screening process wherever possible, while requiring transparency at key junctures when not to do so may disadvantage third parties. As I set out, this is a key clause, the purpose of which is to deliver that carefully balanced transparency. Inherent in the clause is the degree of flexibility afforded to the Secretary of State to redact information when he judges that to be appropriate, whether for commercial or national security reasons. I hesitate slightly to return to a somewhat recurring theme—the difference between “may” and “shall”—but the fact that the Secretary of State “may” redact information provides him with the flexibility to decide case by case whether that is the right thing to do.
The hon. Member for Ilford South seeks to ensure with this amendment that the Secretary of State will not disregard the public interest when using the flexibility on deciding whether to redact information. The hon. Gentleman need not worry; that is my message to him. The Secretary of State will always seek to serve the public interest in this Bill and in all that he does. I can therefore assure the hon. Gentleman that the Secretary of State will carefully consider any redactions made and that he will not take the decision to exclude information lightly.
Nadhim Zahawi
I suspect that the hon. Member for Ilford South may wonder why, if it makes so little difference, we do not include his amendment and formalise the importance of considering the public interest. I suspect that that is also the point on which the hon. Lady wishes to intervene.
Chi Onwurah
The Committee recognises the importance of giving the powers in the Bill to the Secretary of State in the interests of national security. The powers of redaction are, or could be, in the interests of commercial sensitivity. Does the Minister agree that national security and the public interest should be supreme over commercial sensitivity? Why will he not make that clear?
Nadhim Zahawi
I thought I had made that clear. The Bill strikes that balance between commercial sensitivity and national security.
I return to my reassurance on the importance of considering the public interest. In addition to the general principle that one should avoid amending clauses that, essentially, fulfil their objectives—if it isn’t broken, don’t fix it—I suggest that the Bill is not the place to begin adding references to the public interest. While the Secretary of State cares profoundly about the public interest, this specific regime is intentionally and carefully focused on national security. Although it may be an attractive proposition to certain hon. Members, my strong view is that by introducing ideas of wider public interest into the Bill, we would risk confusing and stretching its scope beyond its carefully crafted calibration. I have a tremendous amount of sympathy with what hon. Members seek to achieve with the amendment but, for the reasons I have set out, I must ask that the hon. Gentleman withdraws it.
Sam Tarry (Ilford South) (Lab)
It is a pleasure to serve under your chairmanship, Sir Graham, in these temperatures, which are positively balmy compared with the Siberian ones that we experienced this morning.
I thank the Minister for his comments, but I would say that there is no stretch too far on national security. It is positive to hear that the Minister agrees that the focus on national security is crucial, and that we are driving at the interests of national security in our amendment.
Stephen Flynn (Aberdeen South) (SNP)
I think it was Cicero who said:
“Brevity is a great charm of eloquence.”
In that regard, I will keep my remarks brief. Obviously, what we propose here is incredibly straightforward. It would expand the scope from a financial year to a calendar year. I would not wish to imply that I do not necessarily have complete and utter confidence in the UK Government at all times, and that they might wish, perhaps, to stay away from and overcome any form of scrutiny by making some sort of payment at a certain point in time where the overlap is with a financial year. An amendment such as this, which is succinct and clear, would allow for everyone to be quite happy that where there is a need for the UK Government to put in place a financial assistance level of £100 million, irrespective of whether it is a financial year or a calendar year, Members are fully apprised of that spend.
Nadhim Zahawi
For the benefit of the Committee, I will begin with clause 30 stand part, which makes provision for financial assistance. I will then turn to amendment 24, and amendment 28 from the hon. Member for Aberdeen South.
The Government recognise that final orders, in exceptional cases—and I have to stress in exceptional cases, when we are administering taxpayers’ money—may bring about financial difficulty for the affected parties. This clause therefore gives the Secretary of State the legal authority to provide financial assistance to, or in relation to, entities in consequence of the making of a final order, to mitigate the impacts of a final order, for example. It might also be used where the consequence of a final order in itself might otherwise impact the country’s national security interests.
Hon. Members will know that such clauses are required to provide parliamentary authority for spending by Government in pursuit of policy objectives where no existing statutory authority for such expenditure already exists. I am confident that such assistance would be given only in exceptional circumstances when no alternative was available. For example, the Secretary of State could impose a final order blocking an acquisition of an entity that is an irreplaceable supplier to Government, subsequently putting the financial viability of the entity in doubt. In such a situation, the Secretary of State could provide financial assistance to the entity to ensure that the supplier could continue operating while an alternative buyer was found.
Such spending would of course be subject to the existing duty of managing public money—the hon. Member for Newcastle upon Tyne Central asked what checks and balances are in place—and compliant with any other legal obligations concerning the use of Government funds. To provide further explicit reassurance regarding the use of the power, subsection (1) specifies that any financial assistance may be given only with the consent of the Treasury.
The clause also covers reporting to the House when financial assistance is given under the clause. I will speak to that further when I turn to the amendments. I am sure that hon. Members will see the clause as necessary and appropriate, and have confidence that our Government, and future Governments, will have only limited, but sufficient, freedom to provide financial support under the regime as a result.
Amendment 24 would permit the Secretary of State to provide financial assistance in consequence of making an interim order, which was the hon. Lady’s point. As she will know, the Government take the management of our country’s finances very seriously, and such a power naturally requires appropriate safeguards to ensure that public money is spent appropriately. Restricting the power to final orders ensures that the Secretary of State may use it only to assist entities once a national security assessment has been completed and final remedies have been imposed—for example, to mitigate the impact of a final order on a company. It would not be appropriate to use the power to provide aid to an entity that is only temporarily affected by an interim order, which will last only for a period of review, likely to take 30 working days and, at most, 75.
Chi Onwurah
I thank the Minister for his comments. When he says that an interim order can be in place for at most 75 days, I think he is adding 30 days, which is the initial period, to 45 days, which is the additional period. I am afraid that he is forgetting the voluntary periods.
Nadhim Zahawi
Yes, but the point remains that no final order has been made, and public money will be spent only in very limited circumstances, as I mentioned, in consequence of a final order. Any expenditure will be subject to appropriate safeguards.
Amendment 28, tabled by the hon. Member for Aberdeen South, would require the Secretary of State to inform Parliament if financial assistance given under clause 30 in any financial year, or any calendar year, exceeds £100 million. If during any financial year the assistance given under the clause totals £100 million or more, subsection (3) as drafted requires the Secretary of State to lay a report of the amount before the House.
If, during any financial year in which such a report has been laid, the Secretary of State provides any further financial assistance under the clause, subsection (4) requires that he lay a further report of the amount, so if he makes a report before the end of the year and then spends more money, which was the hon. Gentleman’s point, the Secretary of State will need to update the report. As I am sure the hon. Gentleman appreciates, the Government are committed to providing as much transparency as is reasonably possible when it comes to the use of the new investment screening regime provided for in the Bill.
The amendment would effectively mean that the Secretary of State must stand before Parliament twice—likely, once at the end of the calendar year and again at the end of the financial year, a few months later—to lay what is likely to be a rather similar report of the amount given in financial assistance grants under the clause. Although the Secretary of State would be flattered by his popularity, I am sure the hon. Member for Aberdeen South would agree that seeing him for that purpose twice in such a short time would be a case of duplication, and the Secretary of State would not want to take up his valuable time unnecessarily. I can assure him that the Secretary of State is fully committed to transparency and will ensure that Parliament has the information that it needs to track the use of the powers in the regime.
For those reasons, I am unable to accept the amendments, and I hope that hon. Members will not press them.
Chi Onwurah
I thank the Minister for his comments, but I am disappointed that he seems determined merely to respond from his notes, regardless of the validity of the points put to him. On why it is inappropriate for financial assistance to be provided in the case of interim orders, his reason—as far as I can understand it—was purely that interim orders were too short to make any difference. Although he cannot say how long an interim order will last—he can say how long he thinks it may last—it could go on indefinitely, because I cannot see in clause 26 a limit on the number or length of voluntary periods that may be agreed for the assessment. On that basis, the assessment could last a significant time.
In any case, I hope that he, as the Minister for Business and Industry, is aware of how fast-paced the technology sector, in particular, can be. The inability to raise finance at a critical moment or to sell to a particular customer, for example, may cause significant financial and commercial damage to a small business or a start-up. I did not hear the Minister reject that point, yet he has rejected the need for any support during the period of an interim order. As I have shown, that is a mistake, and that is why we will press the amendment to a vote.
The Minister also made no response to my question about equity.
Nadhim Zahawi
I apologise—I should have responded to that, and it was remiss of me not to. We will consider all forms of financial assistance, including equity.
To respond to the point the hon. Lady has just made about companies that may have IP or a product in its early, nascent stage of growth, that are struggling and that are fast-moving in terms of raising funds, we at BEIS talk to many companies like that, outside the remit of the Bill, and we look to support them in a variety of ways.
Chi Onwurah
I genuinely thank the Minister for the clarification that equity investments will be included in this bit of the Bill.
Nadhim Zahawi
In response to a point made by the hon. Member for Warwick and Leamington about a company being in distress because it has lost a client, irrespective of the national security and investment regime we talk to such companies all the time. Whether they are small, nascent, medium-sized or large, we have other avenues of assistance to help those companies. That is the point I was making.
Chi Onwurah
I thank the Minister for that, which brings me to the point that I wanted to make in response to him. I discerned that that seemed to be his point—that the Bill may cause harm to companies, but that rather than seeking redress under the Bill, or this clause in particular, they should seek redress or some kind of compensation through the well-oiled machinery of Government that provides support for small and growing businesses. I am afraid that that response will be met with undiluted cynicism among the many small and medium-sized businesses that have dealt with Government.
Again, we are talking about a fast-moving situation. Perhaps the Minister will provide examples of where, on such timescales, support has been provided. More importantly, if that is a consequence of the Bill, why would it not be addressed in the Bill, especially as we have a clause that seeks to address this issue in the case of notices of final order. I gave the example of OneWeb satellites, which was a major investment that took some time to come about, and we were not clear whether it was a strategic asset or national security. Clarity is critical.
Sam Tarry
The amendment would require the Secretary of State to set out the reasons for and an assessment of the likely impacts of published directions under the provisions regarding the Enterprise Act 2002. That is incredibly important because, in one respect, the Bill creates a radical shift by taking the merger control process, which is currently located primarily in the Competition and Markets Authority, and creating an alternative centre for merger control in the new investment security unit in BEIS. That is a big shift. We are trying to focus on setting out the reasons, and an assessment of the likely impacts, when directions come out of the new unit.
I want to expand a little on this. We have a series of reasons for intervention in investment and merger scenarios, such as national security, competition, financial stability, media plurality, public health—the list goes on. Having a single centre for merger control in the CMA helped ensure, partially, that the different reasons for intervention were considered coherently. At the very least, they were coherent as a package, ensuring that where, for example, national security demanded one solution, competition remedies did not force another. The multiple centres that the Bill creates make coherence more challenging. This is about ensuring that the process is as smooth as possible.
The Government must clarify how they intend the CMA’s merger control process to align with their new national security screening and approval process. That is particularly important when we reflect that the Government consultation process currently indicates that national security reviews will be run in parallel with CMA assessments and that the Government will cover interaction between the CMA regime and the new national security regime in a memorandum of understanding. Unfortunately, there is no specific indication of when this will happen. The amendment pushes for clarity now and for statutory accountability when a Secretary of State could otherwise undermine the CMA or take a decision that is contrary to something it will bring forward.
In relation to the Enterprise Act 2002, public interest intervention notice regimes allow the Secretary of State to direct the CMA to ensure that it does not inadvertently undermine the Secretary of State’s decision on national security in addressing competition concerns. The power to undermine the CMA is not in itself a problem, but it is about the accountability—that is what we are trying to drive at here. In the face of a vastly extended set of powers for the Secretary of State, the amendment would provide important clarification.
Previously, the CMA had a good reputation with business for independence and for reasons and rules-based decision making. We are really keen that that is continued, and that is what the driving force for this amendment is. For that reason, we seek greater accountability from the Secretary of State. The amendment would require that whenever the Secretary of State subordinates the CMA’s decision-making process, the reasons for doing so are published alongside an assessment of the impact in terms of whatever reasons the CMA would have had to act under its part 3 powers, whether that be competition, media plurality or quality, financial stability or, as I mentioned earlier, public health.
This is about the smooth and rational alignment of the merger control process. That is important for the integrity and impartiality of our national merger control processes and so that business can have certainty that these will be fully aligned. The question I would really like the Minister to answer is about the assurances the Government can give on providing specific, timely guidance on how many different parts of the merger control process will now work. How will the combination of the new unit and the pre-existing regime produce the guidance, and be driven by Government to do so, in a timely fashion? One thing that businesses are certainly seeking at the moment is assurances that things are set out as early and as clearly as possible. If that happens, it will allow businesses to plan in a much better way. For those reasons, I would like to hear how the Government plan to bring those two elements together.
Nadhim Zahawi
With your permission, Sir Graham, I will speak initially to clause 31 stand part, before turning to amendment 25. As the Bill separates out national security screening from the competition-focused merger control regime, we must, I am sure colleagues agree, ensure that the two regimes interact effectively, while also maintaining the CMA’s operational independence in relation to its merger investigations.
A trigger event under the Bill which is also a merger under the Enterprise Act may raise both national security and competition issues. Not having a power to avoid conflict between the two regimes raises an unacceptable risk for businesses’ operations and, of course, the Government’s reputation. The United Kingdom has a deserved and hard-earned reputation for being a dependable place in which to do business. Transparent regimes are fundamental to building and maintaining this reputation and fostering trust between Government and business.
Currently, under the Enterprise Act 2002, if both national security and competition concerns are raised, the CMA provides a report to the Secretary of State, who would then have the final say on how best to balance national security and competition concerns. This clause will ensure that the Secretary of State continues in his vital role of balancing national security and competition concerns. We will be able to avoid the risk of undue regime interference by maintaining regular and open channels of communication with the CMA.
There may, however, still be a risk that parallel investigations for national security and competition reasons reach conflicting conclusions. That may be particularly true in terms of the remedies required to address national security risks and competition concerns respectively. To remedy that issue, the clause enables the Secretary of State to direct the CMA to take, or not take, a particular course of action. The obligation on the Secretary of State to publish any direction given ensures that the decisions will be transparent, and provides certainty for all parties.
Chi Onwurah
The Minister says that it is unlikely that investigations would trigger concerns on both national security and competition grounds. However, the position that we are in right now with regard to Huawei is one in which the desire for more competition in our telecoms supply chain—that is, to have three vendors as opposed to two—led to a national security impact, which is why we are now in the process of ripping Huawei out of our network. Does he recognise that such examples may happen?
Nadhim Zahawi
I am grateful to the hon. Lady, but the difference is that I was referring to mergers. Such mergers would be rare. I do not think that anyone is merging with Huawei, or will in the future.
Chi Onwurah
It is quite clear that the acquisition of a vendor in our telecoms network by another country would have almost exactly the same outcome, so it may well apply.
Nadhim Zahawi
I was merely pointing out that there was no merger. The hon. Lady will forgive me: she is correct, but I did say that it is a rare occurrence. That is the point that I was making to the Committee.
The amendment seeks to impose a requirement to publish the reasons for giving a direction. We do not think that that is necessary. The clause already requires the Secretary of State to publish a direction in the manner that he considers appropriate. I do not think that I would be disclosing too many state secrets were I to speculate that that would be published on gov.uk. That is a reasonable bet. In many cases, I envisage that it is likely to be accompanied by a high-level explanation, but it is right that the Secretary of State should be able to decide what is appropriate on a case-by-case basis.
The amendment also seeks to require publication of an assessment of the direction’s impact on any grounds for action under part 3 of the Enterprise Act 2002. I have two points to make to the hon. Member for Ilford South. First, such a duty would not be appropriate in all cases—for example, where a direction simply required the CMA not to make a decision on competition remedies until a national security assessment had been concluded. The amendment as drafted would still require an assessment to be published in those circumstances.
Secondly, the predominant impact on grounds for action will of course relate to competition. The CMA is the independent expert competition authority, and nothing in the clause as drafted would prevent it from publishing its own assessment of the impact of a Secretary of State direction on the possible competition issues of a case. The clause also requires the Secretary of State to consult the CMA before giving a direction, so it will be able to inform him of the likely impact and he can factor that into his decision whether to give the direction. I believe that is the right approach and while I understand the hon. Member’s motivations in tabling the amendment, I urge him to withdraw it.
Sam Tarry
One of the questions that sprang to mind while listening to the Minister’s answer was: if there are conflicting remedies, which of security and economic competitiveness would the Secretary of State decide had primacy? In drawing the matter out as clearly as possible, we have seen that one of the issues with telecoms and Huawei was that the primacy of economic competitiveness was viewed as paramount over security. The Bill is not clear about the framework for assessing primacy when it comes to security. We have argued throughout that security needs to be the primary focus, and sometimes that will mean economic competitiveness taking a slight hit. However, we think this is about protecting our long-term economic interest.
Nadhim Zahawi
I want to reassure the hon. Gentleman. He asks whether the Secretary of State can override the CMA’s assessment. To give him some clarity, the power to direct may be used only if a trigger event has been called in for assessment under NSI and either a final order has been enforced or a final notification of no further action has been given. That is stage 1. To direct the CMA without a trigger event having first been called in and assessed would not be either reasonable or proportionate, in the Government’s view. However, if a merger is considered to be crucial in the interests of national security after an assessment, no competition concerns should be allowed to prevent it from continuing or remaining in place. I hope that offers him that reassurance.
Nadhim Zahawi
It is important to ensure that we are able to enforce the regime. If hostile actors realise that there is a gap in enforcement capability, that could serve to undermine the deterrent effect of the regime, and therefore compliance with it, and could cause reputational damage to the United Kingdom’s screening regime. Clauses 32 to 36 focus on enforcement and appeal. I will run through them at a relatively high level, but I am happy to discuss them in more detail if that would be of interest to hon. Members.
Clause 32 establishes the offence of completing without reasonable excuse a notifiable acquisition without approval from the Secretary of State. Completing a notifiable acquisition without approval could put national security at risk. In particular, the risk that hostile actors might seek to immediately extract sensitive intellectual property and transport it to far-flung corners of the world, may already have crystallised. Intervention after the event in such circumstances would too often be irrelevant, as that could not undo the damage done to our national security. I am confident that hon. Members will agree that this offence reflects the severe consequences that might result from completing a notifiable acquisition without approval of the Secretary of State in one of the ways set out in clause 13.
Clause 33 makes it an offence for a person to breach an interim order or a final order without reasonable excuse. Under the regime, interim orders and final orders are the mechanisms whereby the Secretary of State imposes revenues for the purposes of safeguarding the assessment and process of national security respectively. They are, therefore, vital components of the legislation. Given that a breach of an interim order or a final order could undermine the assessment process or put national security at risk, it is right that breaches of such orders carry a clear deterrent. I am confident that hon. Members will agree that it is essential to have robust measures in place to ensure effective compliance with any interim orders or final orders imposed by the Secretary of State.
I will move on to clause 34. It is vital that parties comply with information notices and attendance notices, and that parties do not provide materially false or misleading information to the Secretary of State.
Mark Garnier (Wyre Forest) (Con)
On how all this will be policed, the Minister is talking about an incredibly important issue that is crucial to the Bill, but it is a bit like the tax evasion problem, in that a tax evader can be prosecuted only when they have been caught. What policing measures are in place to get to the point of imposing sanctions on those who infringe the measure?
Nadhim Zahawi
My hon. Friend is absolutely right. Part of it is the screening process and, obviously, the security agencies play a major role in that.
Under clause 35(2), it is a defence for a person charged with an offence under this clause to prove that they reasonably believe that the use or disclosure was lawful, or that the information had already and lawfully been made available to the public. I hope that hon. Members are reassured that Government are committed to the safeguarding of information collected by the regime.
Finally, clause 36 ensures that persons in authority in bodies—for example, a body corporate, such as a company, or an unincorporated body, such as a partnership—can be prosecuted under the legislation where they are responsible for an offence committed by their body. This clause therefore ensures that individuals who are responsible for offences committed by their bodies cannot simply hide behind those bodies and escape responsibility. Instead, they too will have committed an offence and can be punished for it. If you will forgive the pun, Sir Graham, if there are skeletons in the cupboard—or filing cabinets, I suppose—it is not just the bodies that can be held responsible. I hope hon. Members will agree that these clauses are both necessary and proportionate.
The Chair
There is no guidance in my script on what I do if I do not forgive the pun.
Question put and agreed to.
Clause 32 accordingly ordered to stand part of the Bill.
Clauses 33 to 36 ordered to stand part of the Bill.
Clause 37
Prosecution
Nadhim Zahawi
The Secretary of State makes decisions under the regime and has the power to impose enforceable interim and final orders. However, the institution of criminal proceedings for offences under the Bill is a matter for the appropriate prosecutor. Clause 37 therefore makes clear who may bring proceedings for an offence under the Bill.
Turning to clause 38, the Government consider it important that persons who have committed an offence under the Bill should be held accountable, particularly partnerships and other unincorporated associations. For example, clause 7 provides that partnerships and unincorporated associations are qualifying entities under the regime. Clause 38 therefore provides that proceedings for offences under the Bill may be brought against partnerships and other types of unincorporated association. I stress that the commencement of criminal proceedings in relation to this regime will likely be very rare indeed but it is nevertheless important that a full spectrum of possible offending is covered.
Clause 39 sets out the criminal penalties available on conviction for offences committed under the Bill. It is crucial that the regime carries a sufficiently robust deterrent to ensure compliance. Given the seriousness of the harm that a breach of the legislation might cause, it is right that these offences carry significant criminal penalties. I do not plan to set out all the penalties available but would be happy to discuss them in more detail if it would be of interest. I hope that hon. Members agree that it is clear who can bring prosecutions under the regime, that it should be possible to prosecute partnerships and unincorporated associations, and that penalties should be sufficiently strong for those convicted of breaking this law.
Question put and agreed to.
Clause 37 accordingly ordered to stand part of the Bill.
Clauses 38 and 39 ordered to stand part of the Bill.
Clause 40
Power to impose monetary penalties
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clauses 40 to 47 cover the civil sanctions under the Bill. I will cover them fairly briefly but I am happy to discuss them in more detail if it would be of interest to the Committee.
It is vital that the Secretary of State has appropriate powers to punish and deter non-compliance with the regime. Should a person breach an order under the regime or fail to provide information or evidence where required, it is vital that the Secretary of State has the power to bring the offender into compliance as quickly as possible to ensure the efficacy of the regime.
Clause 40 provides the Secretary of State with the powers to impose monetary penalties on a person where he is satisfied beyond reasonable doubt that the person has committed an offence under clauses 32 to 34. Clause 40(6) requires the Secretary of State to consider the amount of a monetary penalty to be appropriate before imposing it and it must not exceed the relevant maximum set out in clause 41. The power to impose monetary penalties instead of pursuing criminal proceedings will contribute to ensuring that the Secretary of State has a number of enforcement options to tailor to the situation.
The Secretary of State will not take the power to impose monetary penalties lightly and is required by clause 40(7) to take into account a number of factors, including the seriousness of the offence and any steps taken by the person to remedy the offence in question. I am confident that hon. Members will agree that the clause is valuable in ensuring that the Secretary of State has the appropriate enforcement mechanism to secure compliance with the new regime.
Clause 41 sets out the maximum fixed penalty and, where applicable, the maximum daily rate penalty that may be imposed. The penalties set out here are substantive, and I recognise that they may seem draconian, but they may have to be issued against companies that have significant financial incentive to disregard legal requirements under the regime and put national security at risk by going ahead with an acquisition, so the penalties need to be an effective incentive to comply. I also remind Members that these are maximum penalties; the Secretary of State will have a duty to ensure that any penalty imposed is reasonable and proportionate.
The clause also enables the Secretary of State to make regulations specifying how the maximum penalties applicable to businesses should be calculated and to amend the maximum penalty amounts or percentage rates. It is important that we can adjust any penalties over time, to ensure that they are a sufficient deterrent against non-compliance.
Clause 42 requires the Secretary of State to keep all monetary penalties imposed under review. It also provides a power to vary or revoke penalty notices as appropriate in the light of changing circumstances. Importantly, under the clause, where new evidence comes to light about a breach, it can be taken into account by the Secretary of State, and the penalty notice can be increased, decreased or revoked as appropriate. In all variations, there is, of course, a right of appeal, which is provided for by clause 50.
It is important that both criminal and civil sanctions should be available against offences committed under the Bill, but it would not be appropriate for them to be used in tandem. Clause 43 ensures that parties cannot be subject to both criminal and civil sanctions for the same offence. The clause is vital in giving businesses and other parties certainty and assurance that they will not be penalised in two separate ways for the same offence, which would clearly be unfair.
Clause 44 gives the Secretary of State the power to enforce monetary penalties by making unpaid penalties recoverable, as if they were payable under a court. Failure to comply with a penalty notice would be enforced in the same way as a court order to recover unpaid debts. It also provides for interest to be charged on unpaid penalties that are due.
Chi Onwurah
I thank the Minister for setting out the provisions of these clauses. Perhaps this is my ignorance, but what will happen to the moneys recouped through the penalties?
Nadhim Zahawi
I am very happy to write to the hon. Lady on that, but I suppose the money goes back to the Treasury.
Chi Onwurah
That was my assumption, but I know that in certain cases penalties can be used to offset the expenses incurred in creating the regulatory regime, or in supporting companies that are adversely affected, as we discussed earlier.
Nadhim Zahawi
I am very happy to come back to the hon. Lady on that point.
Clause 45 ensures that the Government are not unduly burdened with costs relating to the imposition of monetary penalties, which can be expensive. The clause enables the Secretary of State to recover the associated costs from those who are issued with a penalty notice. The amount demanded will depend on the circumstances of each case, but the Secretary of State will need to comply with public law duties in imposing the requirements and in fixing the amount. In particular, the amount will need to be proportionate.
Dr Alan Whitehead (Southampton, Test) (Lab)
Pursuant to the intervention of my hon. Friend the Member for Newcastle upon Tyne Central, will the Minister and his Department not only think about, but make a positive decision on, where the penalties go? I have in mind, as he will know, penalties relating to misdemeanours by electricity supply companies.
Those are routinely collected and distributed for good purposes—to keep people’s electricity bills down, among other things. Maybe the Minister will have a similar scheme that could be a good home for those penalties, so that they are turned around and put to good use.
Nadhim Zahawi
I am quite rightly grateful to my brilliant Whip for reminding me that the Bill contains the provision that the moneys be paid into the Consolidated Fund.
Clause 46 requires the Secretary of State to keep cost recovery notices under review and provides him with the power to vary or revoke a cost recovery notice as he considers appropriate. That will reassure businesses and other persons that cost recovery notices remain appropriate. Finally, it is important that the Secretary of State be able to recover the associated costs from those who are issued penalty notices. Clause 47 therefore provides for an effective range of consequences for non-compliance with a cost recovery notice, including the charging of interest, and acts as another important tool in the Secretary of State’s enforcement powers. I hope that the Committee will appreciate the rationale for clauses 40 to 47, which are essential for the effectiveness of the regime.
Question put and agreed to.
Clause 40 accordingly ordered to stand part of the Bill.
Clauses 41 to 47 ordered to stand part of the Bill.
Clause 48
Enforcement through civil proceedings
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
The regime relies on parties complying with information notices and attendance notices, and with interim orders and final orders. Those are crucial levers that the Secretary of State will use to identify, assess and address national security risks, so it is vital that he has appropriate powers to ensure that a person who is given such an order or notice complies with the requirements as set out.
The clause provides the Secretary of State with the power to bring civil proceedings for an injunction or other remedy to require compliance. The power applies whether or not the person is in the UK. Failure to comply with an order made by the court in those circumstances is likely to be considered contempt of court. We should not forget that any failure to obey an information notice or attendance notice, for example, could result in the Secretary of State having insufficient information to decide whether to call in an acquisition or carry out an effective national security assessment. Breaching the requirements of an interim order or final order may undermine the assessment process or harm national security.
Above all, I hope that the Committee will agree that the clause further strengthens the Secretary of State’s enforcement powers, playing a key role in ensuring the efficacy of the regime.
Question put and agreed to.
Clause 48 accordingly ordered to stand part of the Bill.
Clause 49
Procedure for judicial review of certain decisions
Dr Whitehead
I beg to move amendment 26, in clause 49, page 30, line 31, leave out “28 days” and insert “three months”
This amendment would extend the period within which applications for judicial review may be made from 28 days to three months.
Nadhim Zahawi
I am happy to write to the hon. Gentleman on that, but my understanding is that individuals or entities that feel that they have been wronged by the actions of the Secretary of State can JR the Secretary of State.
Dr Whitehead
I thank the Minister for that clarification, which appears to suggest that the whole of the Bill, or the decisions in it, are in principle covered by the ability to bring a judicial review. He will know that under the Civil Procedure Rules 1998 there is some pretty clear guidance about the time limits for judicial reviews. Indeed, the CPRs state that claims must be lodged promptly and, in any event, no later than three months after the grounds to make the claim first arose, unless the court exercises its discretion to extend. The judicial review rules are pretty much governed by that three-month time limit.
In the clause, the framers of the Bill have taken out certain elements of the Bill. I mentioned some of them, including the attendance of witnesses and the power to require information. They have said that, while no new procedure has been put in place for reviewing certain decisions—that is, the normal rules of judicial review apply—the big difference is that any action must be brought within 28 days of the event, and not within three months, as is the case in the standard judicial review arrangements.
Nadhim Zahawi
I am grateful to the hon. Gentleman for his reasoned and thoughtful remarks. As I said in my intervention, all decisions in the Bill are subject to judicial review. Clause 49 does not apply to information sharing post screening or enforcement decisions. The exception to JR is monetary penalties and cost recovery, which have a bespoke appeals process, as he probably knows.
Clause 49 concerns the procedure for judicial review of certain decisions. The clause provides that any claim for judicial review of certain decisions, which are set out in the clause, must be no more than 28 days after the day on which the grounds for the claim first arose, unless the court considers that there are exceptional circumstances. That period is shorter than the usual period in which a judicial review may be sought, as we have heard from the hon. Member for Southampton, Test. Generally, judicial reviews must be sought within three months, and in England and Wales, but not in Scotland or Northern Ireland, they must also be sought “promptly”.
I will set out why that is the case shortly when I turn to amendment 26, but I believe that the shortened time limit strikes the right balance for the regime, enabling sufficient time for a claim to be lodged while providing for timely certainty about the effect of relevant decisions made under the Bill. I should also note that the court may entertain proceedings that are sought after the 28-day limit if it considers that exceptional circumstances apply. The usual route to challenge a decision made by the Secretary of State is via judicial review, and this is entirely appropriate for decisions made under the Bill. However, it is vital that this route does not result in prolonged uncertainty over decisions relating to screening.
I now turn to amendment 26, which seeks to extend the period within which applications for judicial review may be made from 28 days to three months. As I have set out, the Bill’s 28-day period in which claims for judicial review of certain decisions made under the Bill generally must be filed is shorter than the usual period in which judicial review may be sought. Again, it is entirely right that the hon. Gentleman wishes to probe us on why that is the case as judicial review plays a key role, which he clearly agrees with, in ensuring that the Government, and the Secretary of State in the case of this regime, act within the limits of the law. We have thought carefully about that while developing the Bill, and I welcome this discussion.
Why the shorter period? It is undeniably important that the Secretary of State is held independently accountable for his decisions under the regime. That must, however, be balanced—this is the important thing—against the need to avoid prolonged uncertainty over the status of screened acquisitions or the general functioning of the screening regime, which may have a chilling effect on investment, leaving the types of questions that a judicial review would answer, such as whether a decision to clear a transaction was unlawful, potentially still open for three months before it is clear that a judicial review is not going to be sought, which could make it extremely difficult for the various parties affected to plan and adjust following such a decision. Any party with a sufficient interest could seek a judicial review and all parties affected could be impacted. That is why we have come to this decision.
Chi Onwurah
I thank the Minister for the points he is making, which I am seeking to understand. Clause 49(2) mentions “relevant decisions”. Why would “section 19”, “section 20” and “section 21” that deal with the powers to require information and so on cause uncertainty, and not other provisions in the Bill?
Nadhim Zahawi
The point I was trying to make is that the uncertainty in any of those sections means that any party to a transaction can, if they feel they could frustrate the process because the outcome might not be advantageous to them, use the judicial review process to add to the uncertainty of a transaction. In addition, there is also a public interest in timely certainty and finality about decisions made under the regime that are, after all, imposed for the purpose of safeguarding national security. The 28-day limit is also in line with the current merger screening regime that the hon. Member for Southampton, Test asked about, where applications for the competitions appeal tribunal made under the Enterprise Act 2002 to review a merger decision must be made within four weeks, a time period chosen after public consultation. There may be some situations where, for legitimate reasons, 28 days is simply not enough. It is therefore important to remember that this Bill provides that the court may “entertain proceedings” that are sought after the 28-day limit, if it is considered that exceptional circumstances apply.
This shortened time limit and flexibility is for the courts to deal with exceptional circumstances. It strikes the right balance for this regime, in my view. It allows sufficient time for parties to obtain legal advice and mount a challenge, while also providing timely certainty about the effect of the relevant decision made under the Bill. I therefore hope that the hon. Member for Southampton, Test will withdraw the amendment.
Dr Whitehead
I have to be honest, I did not think that was very good. Let us start with who is shortening and who is not shortening. The Minister said that the Opposition seek to lengthen the period; no, the Opposition are not seeking to lengthen the period. The Government are seeking to shorten the period that is standard in the UK justice system as far as judicial reviews overall are concerned.
That is a very important point, because the Opposition are not trying to do something that is not an ordinary principle of British justice; the Government are trying to that. The Minister’s remarks could have applied to a lot of other areas, where it might be a bit inconvenient to have a judicial review being tenable for a three-month period after an event had occurred. However, it is not a question of inconvenience. Is a matter so important to national security that the 28 days can be justified under those terms?
The Minister has sought to justify the 28 days under the terms that there may be some uncertainty if there is a longer period for judicial review to be undertaken. He is potentially right about that, but not right as far as this Bill is concerned. He is right potentially as far as any application for judicial review is concerned, in all sorts of areas in this country. That is the problem of judicial review for the Administration, under any circumstances. When someone comes along and says, “I’m going to JR this,” a lot of people clap their hands and say, “That’s very inconvenient. It really does foul things up, because we would like to do this, that and next thing, but because we have been judicially reviewed, we have to carry out the procedure that is there.”
As several people have said in a number of different circumstances, the fact that the JR procedure is there and that often ordinary people have a reasonable amount of time to get their case together to undertake the JR process, is an important principle of the British justice system. The Minister has made no serious case for why these things should be so special under these circumstances. Interestingly, the consultation document did not make any case at all for the 28 days, other than to note that it was a shorter period. I am sorry to say that this appears to be a shortened period simply for administrative convenience.
Nadhim Zahawi
With permission, Sir Graham, I will speak to clauses 50, 51 and 52 together. Clause 50 concerns appeals against penalty notices or variation notices. It is only right that parties have the opportunity to appeal decisions made by the Secretary of State in relation to monetary penalties imposed. Clause 50 provides a person who has received a penalty notice or a variation notice with the right to appeal to the court within 28 days, starting from the day after the notice is served.
On an appeal against a penalty notice, the clause provides that the court may confirm or quash the decision to impose a monetary penalty, confirm or reduce the amount of a penalty, and confirm or vary the period in which the penalty must be paid. It may not increase the amount of the monetary penalty. Where the appeal is against a variation notice, the court may confirm, vary or quash the variation, but again it may not increase the amount of the monetary penalty.
Clause 51 provides a right of appeal against decisions made by the Secretary of State related to requirements to pay costs associated with monetary penalties. Clause 52 concerns extraterritorial application and jurisdiction to try offences under the regime. Let me briefly turn back to clauses 32 to 35, which create the offences of the regime. We would normally expect that if those offences occurred, they would happen in the UK. That will not, however, always be the case, and offences will not always involve UK nationals or bodies.
As befits a regime that concerns the actions of international actors in relation to the United Kingdom, the Bill has some application beyond the shores of the UK. For example, the Bill gives the Secretary of State the power to issue final orders on conduct outside the UK by certain categories of person with a connection to the UK, including UK nationals and companies incorporated here. Therefore, clause 52 provides for the offences in clauses 32 to 35 to have extraterritorial effect, including in relation to non-UK nationals and bodies. That means that conduct abroad that amounts to an offence can be prosecuted and it also enables the Secretary of State to impose monetary penalties in relation to offences committed outside the UK. That ensures that regime obligations are not unenforceable simply because they concern conduct abroad. I hope that hon. Members will agree that, in a globalised world where transactions routinely take place across borders, it is important for enforcement to be able to react with equal agility. I therefore submit that the appeals process set out in the clauses should be adopted and that, in a globalised world, it is necessary for extraterritorial regime breaches to be enforceable.
Chi Onwurah
It is a pleasure to respond in this debate and observe how quickly we have galloped throughs parts 2 and 3. I wonder if that may in part relate to the descending temperatures that we are enjoying. While I know that the Committee shares my fascination with the various procedural and judicial issues with which we were wrestling, the temperature gave no scope for anyone to get comfortable enough to fail to pay attention. I recognise that we on this side of the Committee are in an advantageous position in that we are furthest from the open windows.
We recognise the importance of clauses 50 to 52 in terms of appeals against monetary penalties, of appeals against costs and of having extraterritorial application and jurisdiction to try offences. The Minister set out the reasons for that. To return to an intervention from the hon. Member for Wyre Forest, I am concerned about whether the provisions will be enforceable and useable in having extraterritorial application and jurisdiction over those who are not British and where the offence does not take place in the UK. Do the Government envisage––the impact assessment is, once again, remarkably silent on this––issuing international warrants to get access to those thought to have committed offences but who are not in the UK? Will the measures be pursued and enforced actively or are they there to deal with exceptional circumstances? I would be happy for the Minister to intervene.
Nadhim Zahawi
I think that the hon. Lady’s question is whether the Government will genuinely be able to punish offences committed overseas. Clearly, in a globalised world where transactions routinely take place across borders, it is important that we have the ability to punish offences and be as agile as those who wish to do us harm. It is therefore right that these offences have extraterritorial reach. We will work with overseas public authorities to ensure that offenders face justice where appropriate.
Chi Onwurah
I thank the Minister for that intervention. I am reluctant to test his tolerance by bringing Brexit into this, but I hope that we will continue to have the means to engage with overseas jurisdictions in order to pursue those who break UK law, here or abroad. We will not oppose the clauses, and I congratulate the Committee on making such speedy progress.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Clauses 51 and 52 ordered to stand part of the Bill,.
Ordered, That further consideration be now adjourned. ––(Michael Tomlinson.)
National Security and Investment Bill (Eleventh sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 10th December 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 10 December 2020 - (10 Dec 2020)
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Dr Whitehead
I think we can agree that it was brief. Bills would come to Ministers, fresh from the wells of construction and the pushing of pens to get them into good shape. I wonder whether there is a style guide, deep in the bowels of a building somewhere in Whitehall, that says, “Whenever the Minister is supposed to do something, write ‘may’ in small print.” It is such a long-serving style guide that people have forgotten why the word was ever put in the Bill in the first place.
The Minister would do a great service to the writing of Bills if he were able to say, “I don’t want to go along with the style guide. If someone is supposed to do something, I want to have that written in the Bill.” I appreciate that if the Minister were to say that when sitting around with a number of people who had a freshly minted copy of the proto-Bill in front of them, there would be much stroking of chins and suggestions of, “That is a rather brave method of proceeding, Minister.” But the Minister has the opportunity today, entirely divorced from all those influences, simply to say, “Yes, we will accept this amendment as a stake in the ground for the uprating of the style guide, wherever it happens to be.” That would be a great service to the Committee and to the nation, by getting us into a position where Bills are written to mean what they say and say what they mean.
Dr Whitehead
My hon. Friend is absolutely right. If I went to my bank manager, who had called me in about my overdraft, and I said, “I don’t need to say anything other than, ‘I may pay it back,’ but don’t worry, because I will pay it back,” my bank manager might be a little upset and might have something to say about it.
It is curious that we have locutions in the putting together of Bills that fly in the face of common-sense parlance. I agree with my hon. Friend that it really is no great defence to say, “Don’t worry. We don’t need to change this, because we are going to do it.” It would be far better all round if we were straightforward, accurate and clear and put this wording in the legislation, so that everybody knows what we are doing for the future. If, by so doing, the Minister can banish that style guide from the bowels of the building forever, that would be a great service.
Nadhim Zahawi
I beg you indulgence, Mr Twigg: I intend to speak first to clause stand part and then to amendment 29, which was tabled by the hon. Member for Southampton, Test. Clause 53 gives the Secretary of State the power to make regulations that set out the procedure that the Secretary of State must follow when giving a notice of, or serving, an order once the Bill becomes an Act. The level of detail that these provisions will involve is most appropriately dealt with in delegated legislation. That will also allow the provisions to be modified more easily if changes are deemed appropriate—in the light of operational experience, for example. I know all colleagues will share with me the wish for the unit’s operations to be as efficient and as slick as we can make them.
Examples of notices and orders include information notices, attendance notices, interim orders, final orders or penalty notices issued by the Secretary of State for non-compliance. The clause sets out what may be included in the regulations. For example, they may include the manner in which a document must be given or served and whether it is allowed to be served electronically—for example, by email.
Amendment 29 would require the Secretary of State to make these regulations, which returns, if I may say so, to the recurring theme raised by the hon. Member for Southampton, Test, about the difference between “may” and “shall”. At the risk of becoming predictable, my thoughts here carry certain echoes of our previous discussions.
As hon. Members will know, clause 53 gives the Secretary of State the power to make regulations that will set out the procedure that must the Secretary of State must follow when giving a notice or serving an order once the Bill becomes an Act. It is an entirely laudable objective to ensure that the Secretary of State provides those affected by this regime with the right information on the operation of the regime, and it is one that I shall always support. In practice, though, the amendment is unnecessary.
Although the Secretary of State may make regulations to that effect, in practice, for the regime to function effectively, he must do so. I assure hon. Members that the Secretary of State certainly does not propose to commence the regime without first making these procedural regulations. I therefore assure the hon. Member that the amendment is not required, as he and the Government seem to be in hearty agreement on the importance of such regulation. I ask him to do the honourable thing and withdraw the amendment.
Chi Onwurah
It is an honour to serve under your chairship again, Mr Twigg. I detect a slight rise in temperature, at least on this side of the Committee Room. I do not know whether that is due to the heated exchanges over “may” and “should”—
Chi Onwurah
Warm exchanges. It is certainly something to be welcomed.
I would like to say a few words to clause 53 stand part. As my hon. Friend the Member for Southampton, Test observed, this is another example of a “may” rather than a “will”. The clause exists purely to enable the Secretary of State to make regulations—that is its function—and yet it places no requirement on the Secretary of State to do so.
While the Minister gave a warm response, saying that he and my hon. Friend are on exactly the same page and so on in our desires, I remind him that the Bill is not about our desires; it is about a legislative framework that protects our national security and gives, as much as possible, clarity and certainty to those impacted by it. It is because we recognise the importance of the clause that we wish it to have some effect in law, as opposed to being the gentle suggestion it seems to be at the moment.
Chi Onwurah
I hope the Minister also agrees that we are moving to a much expanded national security screening regime. In 2002, Facebook was a year old or just being born. We are no longer in the place we were in 2002 when it comes to the issues of importance, volume, security and privacy associated with data and data sharing. I hope he will not rely on the 2002 Act as a justification, particularly as we are moving to an expanded national security screening issue and we are in a different data environment.
The strategy says that data is the economic engine, and we must be much better in assuring businesses and investors of their data protection. Instead of relying on appearances, the amendment holds up the standard of reason. Under it, the Secretary of State would have all the relevant powers of data sharing with relevant persons so long as the Secretary of State had reason, based “on a reasonable enquiry”, to think the person to be a relevant public authority.
It is critical that the UK has a national security regime that is grounded in national, competent exercise of state power to protect our security. The amendment would help to build success in that direction by removing a reliance on the use of appearance and instinct, by successive Secretaries of State, and grounding decisions in “reasonable enquiry” instead.
The expert evidence sessions provided support for that view. For example, Chris Cummings from the Investment Association said:
“There is so much around any investment process and the acquisition process that has to remain entirely confidential, that investors would require and would be looking for reassurance that these conversations could be held in the strictest of confidence and that nothing would appear until the right time.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 66, Q78.]
I ask the Committee to consider whether sharing data on the basis of appearances gives that reassurance.
The clause will give information-sharing powers to the Secretary of State. We recognise the importance of that, and we do not want to hinder it unduly, but we expect that the Secretary of State should, and importantly, should be seen to, exercise those powers on the basis of evidence. It is only right that we have clear evidential requirements. Although the 2002 Act uses similar language, it is right that we in this Committee clean up that language based on 19 further years of experience.
Nadhim Zahawi
With your permission, Mr Twigg, I will speak initially to clause 54 stand part and then address amendment 30, relating to clause 54. I will then turn to clause 55 stand part.
On clause 54, for this regime to function effectively, the Secretary of State needs access to the right information at the right time to make decisions with the fullest range of evidence available. All relevant information required by the Secretary of State to make a decision might not be obtainable from the parties to the acquisition, but rather might be stored by other public authorities, both in the UK and overseas. The hon. Member for Newcastle upon Tyne Central referred to the speed at which deals have changed; she mentioned Facebook and others. I agree that modern deals are structured in an increasingly complex manner and often across borders and continents. There is a need to work with allies at home and abroad to ensure that we are making well-aligned, timely and correct decisions.
Therefore, the clause provides that public authorities may disclose information to the Secretary of State for the purpose of facilitating the exercise of his functions under the Bill. Equally, it permits the Secretary of State to disclose information to UK and overseas public authorities for the purpose of facilitating his functions under the Bill, but also for a limited number of other purposes, including crime prevention and the protection of national security. I absolutely agree with those who say that businesses do not want slow decisions made by multiple public authorities working in silos. We all want to see an efficient regime in place. Businesses want public authorities that can talk to each other and give a quick and efficient answer that is right first time. Being able to share information is the first step in Government making fast and informed decisions without having to burden businesses unduly, which I know the hon. Lady cares about.
I of course recognise, though, that some hon. Members will feel uneasy about the Government being able to share potentially very sensitive information both within the UK and overseas. The clause includes a number of safeguards relating to the disclosure of information by the Secretary of State. First, the clause prohibits onward disclosure of information shared by the Secretary of State or use for an alternative purpose without his consent. Secondly, when disclosing information, the Secretary of State must consider whether the disclosure would prejudice, to an unreasonable degree, the commercial interests of any person concerned.
Peter Grant (Glenrothes) (SNP)
I fully support the principle that we should share this kind of information with friendly overseas authorities—subject to appropriate precautions to prevent it from being used for the wrong purposes. However, somebody in the UK who breaks this law will get prosecuted, but an overseas public authority cannot be prosecuted in the UK courts, so can the Minister explain why, under clause 54(7), which lists the factors that the Secretary of State has to consider before deciding whether to release information to an overseas public authority, there is no requirement to assess the rule of law in that other place and to consider whether it has equivalent legislation to prohibit the misuse of information? There is no requirement for the Secretary of State to consider whether they have been given guarantees or assurances by a Government whose word we would expect to be able to take. There is not even a requirement to consider whether the request for information itself might be an attempt to undermine national security.
If the Secretary of State is looking at a potential Chinese takeover of a sensitive undertaking in the UK and a public authority in China says, “We need this information for an inquiry that we are doing,” there is no requirement for the Secretary of State to take that into account. Can the Minister explain why none of those things is built into this clause now, and are the Government willing to consider amending the clause at a later stage to give the further protection that we may need?
Nadhim Zahawi
I am grateful to the hon. Member. I hope that in my further remarks, if I can make some headway, I will be able to reassure him on those points.
Thirdly, when disclosing information to an overseas public authority, the Secretary of State must have particular regard to whether the law of the country or territory to whose authority the information is being disclosed provides protection against self-incrimination in criminal proceedings corresponding to the protection provided in the UK, and whether the matter is sufficiently serious to justify disclosure. I hope that addresses the hon. Member’s point.
Peter Grant
I am sorry to intervene again so quickly, but the precautions in subsection (7) do not address any of the matters that I raised. Subsection (7)(a) in particular is vital and necessary, but it is nowhere near sufficient and does not address any of the points that I raised.
Nadhim Zahawi
I am grateful. If the drive of the hon. Member’s probing is to ensure that the Secretary of State, when he considers disclosing information to a foreign country, takes into account protecting people being caught in the regime who come from that country, I think I have just made it clear that the clause provides protection against self-incrimination in criminal proceedings corresponding to the protection provided in the United Kingdom. I hope that the hon. Member will be satisfied with that.
Finally, the disclosure is subject to data protection legislation, which provides additional safeguards in relation to the disclosure of personal data. I hope that the hon. Member for Newcastle upon Tyne Central will feel reassured that the Secretary of State may request only the information that he requires in order to exercise his function under the Bill, and that such information will be treated securely.
Amendment 30 aims to increase the scrutiny that the Secretary of State undertakes in deciding whether a person constitutes an overseas public authority for the purposes of disclosing information under clause 54. It is of course important to ensure that any person believed to be a public authority for the purposes of seeking information from, or disclosing information to, is a public authority. I am therefore pleased to reassure the hon. Lady that the Bill does that as it stands. The approach that we have taken mirrors that—I know that she does not like this—in section 243(11) of the Enterprise Act 2002, which includes a similar definition of an overseas public authority for the purposes of disclosure of specified information to overseas public authorities under the Act.
Chi Onwurah
The Minister is generous in giving way. On his rebuttal of my argument on the CMA, it is not about whether I like it. The whole point of the amendment is to take it away from likes, preferences or appearances, and base it on evidence, and the evidence is that the environment has changed dramatically since 2002 in terms of data. Also, the Secretary of State is a political figure.
Nadhim Zahawi
I am grateful to the hon. Lady. I remind her that the legislation requires the Secretary of State to act in a quasi-judicial way, not as a political figure. I appreciate that by a normal reading, “appears” may appear unduly casual, but that is merely a question of the form of legislative drafting, which is consistent, I remind her, with previous relevant legislation.
In addition, I reassure the hon. Lady that the principles of public law apply in any case. The Secretary of State therefore needs to act reasonably in fulfilling his functions under the Bill. That includes having a reasonable basis, supported by sufficient evidence, for coming to the conclusion that a person appears to be an overseas public authority prior to disclosing information. I hope I have provided the Committee with sufficient reassurances, and I therefore hope that the Opposition will withdraw the amendment.
Matt Western (Warwick and Leamington) (Lab)
I just want clarification from the Minister on the point of that being semi-judicial.
Matt Western
Quasi-judicial; sorry. How does that square with the responsibilities of the Minister in the Department for Business, Energy and Industrial Strategy?
Nadhim Zahawi
It is not a strange concept that a Minister acts in a quasi-judicial way in making such decisions.
I will now briefly turn to clause 55, which makes provision for specific restrictions in respect of information received under clause 54 from Her Majesty’s Revenue and Customs. For the regime to function effectively, the Secretary of State needs access to the right information at the right time in order to make decisions with the fullest range of evidence available. One such source of information that might be invaluable to the Secretary of State is HMRC. Although the Government expect that the Secretary of State would seek first to secure the information he needs from the parties, it is important that such information can also be provided from elsewhere in Government, if it is held there.
Clause 55 provides that where information is received by the Secretary of State from HMRC or an onward recipient pursuant to clause 54, it may not be used for purposes other than the Secretary of State’s function under the Bill, and nor may it be further disclosed without HMRC’s consent. Clause 35 provides that disclosing information in contravention of clause 55(1) is an offence, as is appropriate.
Nadhim Zahawi
I am just finishing my point.
I hope that hon. Members will agree that clause 55 provides appropriately robust safeguards for the onward sharing or use of information received from HMRC for the purposes of the regime. I recommend that clauses 54 and 55 stand part of the Bill.
Chi Onwurah
I would like to address a question to the Minister. In his remarks on these clauses, he has highlighted a concern. I might have missed it, but I do not see where the Bill sets out the information gateway through which the Secretary of State will receive information from HMRC in order to exercise his functions under the Bill. Clauses 54 and 55 are grouped together under the title of “Information gateways”. They discuss information gateways from the Secretary of State to public authorities and others, but I would really appreciate it if the Minister could write to me to set out how HMRC will disclose information to BEIS for the functions of the Bill. I am sure I do not need to remind the Committee that information held by HMRC is generally considered very sensitive by businesses and individuals alike, and there are generally clear restrictions on its sharing.
To return to the clauses and amendment more generally, part of the Minister’s argument missed what our argument was. We recognise the importance of disclosing some information, and we also recognise that clause 55 sets out tests with regard to the purposes of disclosing the information, and even to how the information can be shared onwards and to what information should be disclosed. What it does not do is test the nature of the public authority. Although we have had an interesting and, indeed, lively debate about the difference between legal language and casual language, I think we can all agree that it is in the interests of our democracy that our legislation can be read and understood by ordinary people. If the term “appears” is to be understood as it is commonly understood, the clause requires the support of our amendment.
Nadhim Zahawi
Clause 56 places a duty on the CMA to provide information and any other assistance to the Secretary of State to enable him to carry out his functions under the Bill. For this regime to function effectively, the Secretary of State needs access to the right information at the right time to make decisions with the fullest range of available evidence.
The Competition and Markets Authority, by virtue of its position as the market regulator, will naturally have access to information that could be relevant to the decisions made by the Secretary of State. Although in practice we would expect the CMA to be entirely willing to provide support to the regime, and we have worked closely with it in drafting the legislation, the clause ensures that there is no doubt in law about the duty placed on the CMA to provide any information in its possession or any other assistance in its power when directed to do so by the Secretary of State, so long as the information or assistance is reasonably required to facilitate the Secretary of State’s functions under the Bill.
I therefore anticipate that the power in the clause—mirroring section 105(5) of the Enterprise Act 2002—would, in practice, be used only rarely, given the Department’s good working relationship with the CMA. I hope the Committee will appreciate that the clause is quite simply about ensuring that the Secretary of State has access to pertinent information relevant to the decision-making process.
Dr Whitehead
I note that the Minister has used precisely the opposite argument that he used for the last clause, relating to the word “must”. In clause 56, the CMA “must” give the Secretary of State information. [Interruption.]
Chi Onwurah
I will say a few words to the clause—reflecting the comments made by my hon. Friend the Member for Southampton, Test, in particular—because there seems to be a theme in the Bill. I know that the Minister believes that the Bill is beyond improvement, and that he is reluctant even to contemplate any changes, as he said in response to the hon. Member for Glenrothes, but he must recognise that a consistent theme seems to be that requirements, or “musts”, are placed on others and the discretion—the “may”, if you like—is with the Business Secretary. The Minister himself observed that we are keen to allow the Business Secretary the necessary discretion to fully protect our national security, but does he see not that that would better achieved by clearly circumscribing the Business Secretary’s actions?
I also support my hon. Friend the Member for Warwick and Leamington in his recent contribution. Throughout this Bill, we need to ensure that the resources are there when placing requirements on bodies. I hope that the Minister can give such reassurances. On that basis, we recognise that the clause should stand part.
Question put and agreed to.
Clause 56 accordingly ordered to stand part of the Bill.
Clause 57
Data Protection
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 57 provides that the provisions in parts 1 to 4 of the Bill containing a duty or power to disclose or use information do not authorise a contravention of data protection legislation, as set out in the Data Protection Act 2018. In addition, the clause provides that that information may be used or disclosed only if it does not contravene parts 1 to 7, or chapter 1 of part 9, of the Investigatory Powers Act 2016, which contains provisions about conducting interception, including restrictions on use and disclosure of intercepted information. These standard provisions are included where legislation concerns the use or disclosure of information. I hope that hon. Members will therefore be content to support this standard clause as part of the legislation.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clause 58
Minor and Consequential Amendments and Revocations
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider that schedule 2 be the Second schedule to the Bill.
Nadhim Zahawi
Clause 58 is purely technical in nature and inserts schedule 2 into the Bill. Schedule 2 provides for minor and consequential amendments and revocations. The Secretary of State currently has the power to intervene in qualifying mergers on national security grounds by issuing a public interest intervention notice, a special intervention notice or a European intervention notice under the Enterprise Act 2002, where the statutory requirements are met. It would clearly be unnecessary for the Secretary of State to retain these powers once the provisions of the Bill come into force. Schedule 2 therefore removes national security as a ground on which the Secretary of State may intervene under the Enterprise Act 2002. The Secretary of State will retain the powers in the Enterprise Act 2002 to intervene in qualifying mergers where these raise issues of media plurality, the stability of the UK financial system or maintaining in the UK the capability to combat and to mitigate the effects of public health emergencies.
Question put and agreed to.
Clause 58 accordingly ordered to stand part of the Bill.
Schedule 2 agreed to.
Clause 59
Overseas information disclosure
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 59 removes a restriction on the ability of the Competition and Markets Authority to co-operate with its international partners on merger cases. At the end of the transition period, the UK will no longer be part of the European Union’s competition system. The CMA will become responsible for investigating the effects on competition of larger international mergers, which were previously investigated by the European Commission. In a globalised economy, effective cross-border enforcement of competition law, which protects UK markets and consumers, relies increasingly on close international co-operation. The ability to disclose confidential information to assist an overseas authority with this enforcement activity, including in circumstances where parties have not provided their consent for the information to be disclosed, is a crucial ingredient of strong co-operation.
Moreover, the willingness of an overseas authority to disclose confidential information will often depend on whether the receiving authority can reciprocate. Any restrictions on the CMA’s ability to disclose such information could therefore inhibit the effectiveness of its international co-operation. The overseas disclosure gateway, which is set out in section 243 of the Enterprise Act 2002, provides an important mechanism for the CMA to disclose information to its overseas counterparts when consent has not been provided by relevant parties. The gateway permits disclosure for the purpose of helping an overseas authority’s enforcement activities.
However, the CMA is currently unable to use the overseas disclosure gateway to disclose information that comes to it in connection with a merger investigation. This means that the CMA is restricted from sharing certain information with its overseas counterparts that might be crucial to their investigation of a merger. This restriction presents two challenges for the UK’s competition authorities. First, it weakens the control of mergers with an international dimension that might adversely affect UK markets and consumers. Secondly, it inhibits the CMA’s ability to receive information that might be critical to its own merger investigations, because it has no ability to reciprocate. That, in turn, could also weaken its protection of UK markets and consumers. Clause 59 rectifies this by removing the restriction in the overseas disclosure gateway and allowing the CMA to use the gateway to disclose merger information to overseas public authorities.
Chi Onwurah
I thank the Minister for setting out clause 59, because I had thought that it was inconsequential. I listened to what he said carefully, as I always do, but I did not hear him use the term “national security” once. The function of the Bill is national security. Although we have not defined it, we have debated that the Bill should be narrowly circumscribed to concerns of national security. Having listened carefully to the Minister, I get the impression that the clause has been added, and for very good reasons, to facilitate and enable the CMA’s competition and mergers powers.
We are putting the national security interest relating to mergers and acquisitions firmly here in the Bill, so the CMA is no longer concerned with and involved in that, yet this clause facilitates the CMA’s sharing of information with overseas public authorities. That information, by definition, will not be with regard to national security, because national security investigations will take place under the powers in the Bill that lie with the Secretary of State. I am somewhat confused as to what this clause is doing in the Bill. Would the Minister like to intervene to illuminate and clarify that the clause has something to do with national security?
Chi Onwurah
I find it somewhat worrying, given our debates about keeping the Bill focused narrowly on national security, that the Government have added a clause to help the CMA in its functions. My hon. Friends and I have been thinking of a number of ways in which we would like to help the CMA in its functions and to improve the Enterprise Act, but we have been resolute in focusing on national security, because that is the matter before the Committee. Yet it seems that the clause, although very well meaning, is designed for an entirely different function.
You are not stopping the debate, Mr Twigg, so I presume it is in order to debate the functions of the CMA in relation to competitions and mergers generally, rather than to national security specifically.
Nadhim Zahawi
It is worth respectfully reminding the hon. Lady and the Committee that this is a separate topic in the Bill that is unrelated to the NSI regime, as set out in the explanatory notes.
Chi Onwurah
I have the explanatory notes, and they do not state that the clause deals with a separate topic. Paragraph 173 states:
“Clause 59 amends the overseas disclosure gateway in section 243 of the Enterprise Act 2002, removing the restriction on UK public authorities disclosing information that comes to them in connection with a merger investigation under that gateway.”
The explanatory notes do not state that the functions of the CMA are separate from national security as clearly as the Minister just has. I do not want to detain the Committee, but I register the Labour party’s concern—
Chi Onwurah
I am grateful to the hon. Gentleman for his intervention, because he is absolutely right that, rather than having a debate on the contents of the explanatory notes, line-by-line scrutiny of the Bill should focus on what the Bill says, and it does not mention general improvements to our competition and mergers regime, much as we feel that improvements could be made. Although we will not oppose the clause, I register our disappointment that we were not better informed of the Bill’s additional scope.
Nadhim Zahawi
I think that is slightly unfair; it is included in page 4 of the explanatory notes.
Chi Onwurah
The Minister’s argument is to look at page 4 of the explanatory notes, but it does not say that the CMA’s functions are separate from national security.
The Lord Commissioner of Her Majesty’s Treasury (Michael Tomlinson)
“Interaction with” the CMA.
Chi Onwurah
It says “interaction with” the CMA. but it does not say that that is separate from national security. In this afternoon’s sitting, when we discuss the additions that we would like to the remit and definition of “national security”, I hope that the Minister will recognise that the Bill is broader than national security, as was simply understood from his previous responses.
Question put and agreed to.
Clause 59 accordingly ordered to stand part of the Bill.
Clause 60
Defamation
Question proposed, That the clause stand part of the Bill.
Nadhim Zahawi
Clause 60 provides the Secretary of State and the CMA with absolute privilege against action for defamation as a result of the exercise of functions under or by virtue of the Bill. The clause has been included to ensure that the Secretary of State and the CMA have absolute privilege from defamation claims, on the basis that the function of the regime to protect national security is too important to be at risk or in any way curtailed by claims of defamation. It is, of course, not the Government’s intention to defame anyone through the regime or more widely. I hope that hon. Members will agree that this is an appropriate protection, supported by a well-reasoned regime that seeks to protect national security while supporting businesses and investors.
Dr Whitehead
I understand the purpose of the clause and, as the Minister indicated, the question of national security is very important. I can imagine circumstances in which the Secretary of State may, for example, suggest that a company is an agent of a foreign power. That might be seen to be defamatory, but in terms of the inquiry that is being undertaken the Minister should be protected against such an action.
However, the clause states that there is absolute privilege, which appears to suggest that the privilege could be exercised even on a wholly unreasonable basis—that is, the Minister could say or write what he or she likes about anybody provided it is under the cover of, or could be attached to the purposes of, the Bill. That seems a bit of a wide-ranging provision.
I appreciate what the Minister said on the provision, and that he has already said that it would not be his intention to defame anybody, but might he provide us with an assurance today, on the record, that notwithstanding the very wide scope of the Bill, he does not see the clause as an opportunity for the Secretary of State to wantonly defame anybody if they felt like it, and that it would be strictly used in terms of inquiries that were being undertaken for the purpose of the Bill, and not for any other purposes?
Nadhim Zahawi
I hope I have already made it clear that the Government would not intend to defame anybody. The reason for the clause is that there are various points in the regime where the Secretary of State will make statements that are, in effect, published and would include communications with other parties as well as those for general public consumption. He may therefore be open to such claims, which is why the clause is in the Bill.
Question put and agreed to.
Clause 60 accordingly ordered to stand part of the Bill.
Clause 61
Annual report
Sam Tarry (Ilford South) (Lab)
I beg to move amendment 31, in clause 61, page 36, line 20, at end insert—
“(m) the average number of days taken to assess a trigger event called in under the Act;
(n) the average number of days taken for acceptance decisions in respect of mandatory and voluntary notices;
(o) the average annual headcount allocated to the operation of reviews of notices made under sections 14 and 18 over the relevant period;
(p) the proportion and number of Small to Medium Enterprises in the overall number of notices and call-in notices.”
This amendment would require the Secretary of State to report on the time taken to process notices, the resource allocated to the new Unit and the extent to which Small to Medium Enterprises are being called-in under the new regime.
Sam Tarry
Certainly, Chair. It is incredibly important to give that sense of clarity and time to small and medium enterprises. That has been a running theme for a number of our amendments, and there are three reasons, which it might help the hon. Member for Glenrothes to understand: first, the unit’s efficiency; secondly, its capacity; and thirdly, its focus on SMEs.
I will expand on that. First, on the unit’s efficiency, by reporting the aggregate time taken for decisions—both assessment decisions and initial acceptance or rejection notices—we would have a mechanism to ensure that the new regime works more efficiently for SMEs. Secondly, on capacity, the amendment drives towards taking stock of the resources behind the unit’s work, so that Parliament and the public will have a mechanism for holding the Government to account for what will be a major new centre for merger investment screening in the UK. Thirdly, we in the Labour party have really tried to make that focus on SMEs paramount in the Bill, so that we have a climate in which SMEs can thrive. That would simply mean that the unit could track the focus of SMEs in its work, and would be able to highlight specific concerns and the experiences of our most innovative start-ups when interacting with the new regime. Seeing that in live time would be useful for the forward planning of SMEs, and for the Government and Parliament to be able oversee how the process is working once it is in place.
Each paragraph of the clause maintains the Government’s power to act to protect national security. The clause simply holds power to account through what we would call aggregated transparency.
Nadhim Zahawi
I am grateful to the hon. Member for Ilford South. We are not quite at minus 70 °C, but we are probably very close to it.
I will speak initially to clause 61 stand part before turning to amendment 31. It is crucial for investor confidence that there is as much transparency as possible in the regime, but of course there is evidently a limit to how much the Government can disclose, given that the regime deals explicitly with national security matters. That said, alongside appropriate protections for personal data and commercially sensitive information around national security assessments, the Government are committed to providing as much transparency as possible when it comes to how the new regime functions at an aggregate level.
Chi Onwurah
I wholeheartedly endorse the Minister’s words on the skill and talents in this Committee Room. He said we were improving the Bill, but he is yet to accept any changes, so I am intrigued to understand what improvements he feels we have made.
Nadhim Zahawi
It is the challenge the hon. Lady offers that allows a Minister as junior as the one standing before hon. Members to be able to make the argument.
Finally, the report will also give a sense of the sectors of the economy where the greatest activity of national security concern is occurring. The Secretary of State may include additional information in relation to SMEs if he considers that to be appropriate. For those reasons, I am unable to accept the amendment, and I hope that the hon. Member for Ilford South can withdraw it.
Chi Onwurah
I will say a few words in support of the amendment and on the clause, and will respond to the Minister’s comments. I think we all recognise the importance of reporting annually on the seismic shift in our national security, and of scrutiny of mergers and acquisitions. Yet it has to be said that the Bill does not say what the report’s objective is. Neither did the Minister, in listing what was included, give an understanding of the reasons the items have been included, even as he rejected the amendment of my hon. Friend the Member for Ilford South, which seeks to add points of particular interest to small and medium-sized enterprises.
I note, for example, that the number of final notifications is given but not the number of interim notifications or interim orders made. It is hard to see whether the objective of the report is to give greater confidence, to enable us to fully understand the working, or to enable us to see whether the limited contents of the impact assessment prove to be accurate. The kind of information in the report, and in my hon. Friend’s amendment, is the information that a well-run Department should wish to have. Although we are unclear on the objective of the report, which is not set out, reporting on those items as fully as possible would certainly improve the workings of the Bill, as my hon. Friend has said he seeks to do.
Nadhim Zahawi
I now turn to the Bill’s final provisions. Clause 62 sets out the transitional provisions for cases that may qualify for intervention under both the Bill and the Enterprise Act 2002. The starting point for the transition arrangement is that the 2002 Act continues to apply in relation to national security until the new regime is commenced. That means that qualifying mergers can continue to be scrutinised under the Act where the statutory requirements are met.
However, the Government do not wish to expose to some form of double jeopardy qualifying mergers that take place after the introduction of the Bill but before commencement. The clause means that, in effect, the Secretary of State must use one Act or the other. Not doing so would create significant uncertainty for business and investors and could, at least theoretically, lead to the perverse position of the Secretary of State, following commencement of the Bill, re-examining decisions that they themselves made merely weeks ago under the 2002 Act.
Clause 63 makes provision in relation to the regulations that may be made under the Bill, setting out how they must be made and what they may contain. All the regulations that may be made under the Bill are subject to the negative resolution procedure, except regulations made under clause 6, “Notifiable acquisitions”, clause 11, “Exceptions relating to control of assets”. and clause 41, “Permitted maximum penalties”, where the draft affirmative procedure will apply. Given their nature and effect, the Government consider that regulations under those three powers should be subject to the approval of Parliament.
Clause 64 provides that any expenditure incurred by the Secretary of State under the Bill is to be paid out of money provided by Parliament. Clause 65 is purely a technical one to provide for definitions of the key terms used in the Bill. I do not intend to explore individual meanings of key terms now; I will instead direct hon. Members to lunch and to the relevant clauses that provide them. Finally, hon. Members will appreciate that clause 66 is purely a technical one to set out the Bill’s short title and provide details about the commencement of the Bill’s clauses and the extent of the Bill.
Chi Onwurah
I thank the Minister for setting out the provisions of the clauses and for moving us onwards to lunch and to the end of the Bill. I will not detain the Committee with a detailed consideration of the technical provisions in the clauses and the interpretation of the various terms. However, the Bill as a whole would benefit from greater clarity, as my hon. Friend the Member for Southampton, Test has so well set out, particularly in his reference to the use of language by bank managers.
We will not oppose the final clauses. We congratulate the Committee and particularly the Clerks and all those who have supported us in enabling us to reach the final clauses.
Question put and agreed to.
Clause 62 accordingly ordered to stand part of the Bill.
Clauses 63 to 66 ordered to stand part of the Bill.
Michael Tomlinson
On this occasion I will, without rudely interrupting anyone, beg to move that the Committee do now adjourn.
Ordered, That further consideration be now adjourned.—(Michael Tomlinson.)
National Security and Investment Bill (Twelfth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 10th December 2020
(4 years, 3 months ago)
Public Bill CommitteesNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 10 December 2020 - (10 Dec 2020)
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Peter Grant
Even by my standards, it feels as if it is a long time since I stood up to start speaking, so I will bring my comments to a close, Sir Graham.
The examples that I quoted of a potential software threat to our critical transport infrastructure or facilitation of large-scale money laundering are just two examples where I think it would be to the benefit of the legislation to have those factors explicitly permitted for the Secretary of State to take into account when exercising the powers created by the Bill. I understand Government Members’ concern, but I ask them not to judge the new clause by their understandable and shared concerns about the dangers of having a precise dictionary definition of national security. I ask them to judge it by the additional certainty and reassurance it will give the Secretary of State that if they take those factors into account in all of our interests, there will be no question but that the court will uphold the decision. On that basis, I commend the new clause to the Committee. If, as has happened with depressing regularity, the Committee splits along party lines, I sincerely invite the Government to think seriously about tabling a similar measure at a later stage, because the new clause could improve the Bill substantially and it would be a great shame if it was lost simply for party political considerations.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
I am grateful to Opposition speakers, the shadow Minister and the hon. Member for Glenrothes, for their contributions and to my hon. Friends the Members for Arundel and South Downs, for North West Norfolk, for Clwyd South and for West Aberdeenshire and Kincardine for their excellent interventions.
On new clause 1, it will not surprise the hon. Member for Newcastle upon Tyne Central that the Government’s position remains consistent with that of 1 December, when amendments relating to the new clause were discussed. Such amendments included, among others, proposals for the inclusion of a definition of national security in the statement made by the Secretary of State. The new clause seeks to create a new, exhaustive list of factors that the Secretary of State may take into account when considering whether something is a risk to national security.
Chi Onwurah
I am listening intently to the Minister’s response—given the great skills of the Committee he is taking the new clause in the right spirit—but it is not appropriate to say that we are presenting an exhaustive list when we specifically say, “this and other things”. It meant to be not an exhaustive list but a guide and a sense.
Nadhim Zahawi
I apologise. I will say instead that the clause seeks to create a non-exhaustive list of factors that the Secretary of State may take into account when considering whether something is a risk to national security for the purposes of the Bill.
The Bill as drafted does not seek to define national security. It also does not include factors that the Secretary of State will take into account in coming to a national security assessment. Instead, factors that the Secretary of State expects to take into account in exercising the call-in powers are proposed to be set out, as the hon. Lady rightly said, in the statement provided for in clause 3. A draft of the statement was published on introduction of the Bill to aid the Committee’s scrutiny efforts. The draft statement includes details of what the Secretary of State is likely to be interested in when it comes to national security risks. That includes certain sectors of the economy and the types of acquisition that may raise concern.
While it is crucial for investors’ confidence that there is as much transparency in the regime as possible, there is self-evidently a limit to how much the Government can and should disclose in that regard given that the regime deals explicitly with national security matters. Nevertheless, the draft statement goes into some detail about the factors that the Secretary of State expects to take into account when making a decision on whether to call in a trigger event.
The new clause would instead place in the Bill, alongside the statement, a non-exhaustive list of factors that the Secretary of State may have regard to when assessing a risk to national security. That raises a number of issues. First, it is unclear what the benefit is of including a non-exhaustive list of factors that the Secretary of State may have regard to directly in the legislation as opposed to in the statement.
Nadhim Zahawi
I will happily take the hon. Lady’s intervention once I have gone through these points.
Secondly, the new clause would not replace the statement; instead, it would appear to sit alongside it. The Government think that would probably cause confusion rather than clarity, although I have no doubt that the hon. Lady and the Opposition agree that clarity for all parties will be crucial to the regime’s success.
Thirdly, by stating what may be taken into account when assessing a risk to national security under the Bill, the new clause indirectly sets out what can be a national security risk for the purposes of the Bill, and therefore what comes within the scope of national security—many colleagues pointed out some of the evidence suggesting that we should do exactly the opposite of that—which could clearly have unintended consequences for other pieces of legislation that refer to national security. The Bill requires that the statement from the Secretary of State be reviewed at least every five years to reflect the changing national security landscape. Indeed, in practice, it is likely that it will be reviewed and updated more frequently. We think that this is the right approach, rather than binding ourselves in primary legislation.
Fourthly, but perhaps most importantly, I note in this list that the Secretary of State may have regard to an ever-broadening set of suggestions that Opposition Members wish to be taken into account as part of national security. On Second Reading, the shadow Secretary of State, the right hon. Member for Doncaster North (Edward Miliband), requested that an industrial strategy test be included in the Bill alongside national security assessments. I am afraid that an industrial strategy test is not the purpose of this legislation.
Peter Grant
The Minister comments on a speech by the shadow Secretary of State at an earlier stage of the Bill’s passage and on the undesirability of building an industrial strategy test into the Bill. I do not see an industrial strategy test mentioned in the new clause, so, for the purpose of clarity, is that part of the new clause that we are debating?
Nadhim Zahawi
I was referring to the shadow Secretary of State’s request on Second Reading that an industrial strategy test be included in the Bill.
As I was saying, factors that the Secretary of State may have regard to through the new clause are wide ranging. This is an important Bill about national security and national security alone. We do not wish to see an ever-growing list of factors for the Secretary of State to take into consideration. That would risk the careful balance that has been struck in this regime between protecting national security and ensuring that the UK remains one of the best places in the world to invest. The Government consider that the Secretary of State should be required to assess national security as strictly about the security of our nation. That is what the Bill requires. These powers cannot and will not be used for economic, political or any other reasons.
While I understand the objectives of the hon. Member for Newcastle upon Tyne Central, for the reasons I have set out I am not able to accept the new clause. I hope the hon. Member will agree to withdraw it.
Chi Onwurah
I thank the Minister for his response, not all of which was entirely unexpected. I also thank the hon. Member for Glenrothes for his speech and his interventions, which were very much to the point.
I feel that the Minister was, to a certain extent, doing what the hon. Member for Arundel and South Downs accused me of doing—I did say that I had learned so much from the Minister—which was arguing both sides of the question at once. He seems to be saying that there should not be any definition, but that if there needs to be a definition, it is already there in the statement that the Secretary of State has set out. Indeed, I have been looking for that statement, because I did not recognise it from the way the Minister described it when talking about giving detail on the types of national security questions that might arise.
Chi Onwurah
I rise to speak briefly in support of additional support for SMEs. The hon. Member for Glenrothes is a champion of small businesses, which is a pleasure to hear. As he set out, and as has been set out in a number of the amendments that we have tabled in Committee, we are concerned to make sure that the seismic shift in our national security assessment with regard to mergers and acquisitions does not stifle our innovative but often under-resourced small businesses, which are such an important driver of our economy. New clause 2 reflects our intentions, particularly in amendments 1 and 11, to support and give further guidance to small businesses. I hope that the Minister and Conservative Members recognise the importance of supporting small businesses at this time through direct measures in the Bill.
Nadhim Zahawi
I thank the hon. Member for Glenrothes and the hon. Member for Newcastle upon Tyne Central for setting out the arguments in support of new clauses 2 and 3, which both relate to the treatment of small and medium-sized enterprises in the regime.
On new clause 2, the Government are a strong supporter of SMEs and have sought to provide a slick and easily navigable regime for businesses of all sizes to interact with. We are creating a digital portal and a simple notification process to allow all businesses to interact with the regime without the need for extensive support from law firms, which is a particular burden for small businesses. Furthermore, there is no fee for filling a notification, unlike many of our allies’ regimes, which in some cases charge hundreds of thousands of pounds for a notification. Consequently, we do not expect this regime to disproportionately affect SMEs.
Sam Tarry
That is exactly the kind of example on which we are trying to use the new clause to provide more clarity and give more force to the Bill so it can deal with these sorts of thing. If, for example, public investment by Chinese venture capital groups in western countries—whether it be this country or others—is visible but is actually just the tip of the iceberg, that is going to be a real problem. One lesson that Richard Dearlove described clearly to the Committee was that we need to take a longer medium-term view that goes beyond just being the most free-market and economically attractive investment prospect, particularly given the rise of those geopolitical challenges. The Chinese are being explicit about what their goals are. They do not want to build Britain up; they want to take us for as much as they can get. This is about protecting ourselves and ensuring that those smaller things, which may just be going on under the net and may not hit some of the parts on mandatory notices, not the big headline-grabbing things, could be looked at.
I agree with an earlier comment made by the hon. Member for Glenrothes that one problem is that, while we need regular advice from intelligence services and of course it needs to come through to the Secretary of State, having a regularised timeframe in which we know that those things will get full scrutiny is incredibly important. Parliamentarians and the public will want to see if there are any patterns developing in types of investments and the way those investment vehicles are used to buy into some of the most advanced British technology companies.
This new clause does not require the Secretary of State to publish a list of countries; it simply requires that the Secretary of State, working with the agencies, maintains a list of state-driven risks, which feed into national security risks. Our drive, as the Opposition, is our concern that the Minister does not recognise the state-based nature of those major security threats.
If this new clause is accepted, it would provide those guarantees and the extra ability to bring together the agencies that would be able to compile that list of state-driven risks, which can then inform decisions. In that context, it is vital that the country is assured of the Government’s ability to act on intelligence and expertise in protecting British security against hostile actors.
Nadhim Zahawi
New clause 5 seeks to require the Secretary of State to maintain a written list of high-risk and low-risk acquirers, as we have heard, to allow differential internal scrutiny to be applied, by reference to the characteristics of the actors linked to the acquirer, and based on regular multi-agency reviews. I assume that the intention of the hon. Member for Ilford South is that this list would be an internal document, but I would be happy to discuss my concerns about publishing such judgments, if that would be of interest to him.
In order to exercise the call-in powers, the Bill already requires the Secretary of State to publish a statement, which we will discuss later, about how he expects to exercise the call-in power. This statement may include the factors that the Secretary of State expects to take into account when deciding whether to call in a trigger event. Guided by the statement, the Secretary of State will need to consider every acquisition on its own individual facts, as befits the complex nature of national security assessments. In my view, such a list as the one proposed would not, therefore, be the right way forward.
Mark Garnier
Has the Minister made an assessment of the resources that would be needed to look after a list such as this, not only to compile a list of hostile actors but to look after things like GDPR? There could be any number of legal challenges by companies that find themselves on this list unjustly. Perhaps the characteristics of a hostile actor may not individually be hostile, but a combination of several characteristics could be. It could easily exclude quite benign actors who accidentally fall into this. While the intention of the new clause is not unsound, it sounds like a hideous nightmare to administer.
Nadhim Zahawi
My hon. Friend raises an incredibly important point, because, as he rightly says, factors other than the risk profile of the acquirer may determine whether an acquisition is subjected to greater or lesser scrutiny. It is also likely that any list would quickly go out of date. Entities in this space can change and emerge rapidly, especially if parties are attempting to evade the regime and the Secretary of State’s scrutiny. In addition, such lists being intentionally published or otherwise disclosed publicly could have significant ramifications for this country’s diplomatic relations and our place in the world, in respect of both those on one of the lists and those who are not on the list. Publishing the list may also give hostile actors information about gaming the system, to the UK’s detriment.
I would suggest that what the hon. Member for Ilford South describes would essentially be an internal and highly sensitive part of a national security assessment. While I appreciate the sentiment behind the new clause, I do not believe that it would be appropriate to set out such details in writing. It is, however, entirely reasonable for the hon. Gentleman to seek to reduce the burden on business where possible, in particular if the acquisition presents little risk and can be cleared quickly. I have an enormous amount of sympathy with that aim.
Chi Onwurah
I do not intend to make a speech, but I wanted to intervene on this particular point. A part of the source of the new clause is the Minister’s own comments. He said that national security was not dependent on a particular country. He is giving a lot of reasons why there cannot be a list, because of different actors, but does he recognise that national security may relate to a specific country? Has he woken up to the risks that particular countries may pose?
Nadhim Zahawi
I assure the hon. Lady that Her Majesty’s Government do exactly that, but the Bill is deliberately country-agnostic. Indeed, to give parties predictability on small business and to provide for rapid decisions where possible, the regime has clear and strict timelines, as we have heard throughout the debate. Additionally, clause 6 enables the Secretary of State to make regulations to exempt acquirers from the mandatory notification regime on the basis of their characteristics. Arguably, this places the strongest requirement on acquirers, such as where acquisitions by certain types of party are routinely notified but very rarely remedied or even called in. Taken together, these provisions are already a highly adaptable and comprehensive set of tools, so the list and its proposed use would be unnecessary and potentially harmful.
I shall touch briefly on national interests, which the new clause once again references. I have said before that the regime is intentionally and carefully focused on national security. That is specifically the security of the nation, rather than necessarily its broadest interests. This is therefore not the right place to introduce the concept of national interest, which would substantially and, we strongly believe, unhelpfully expand the scope of the regime.
In conclusion, with the strength provided by clauses 1, 3 and 6 already in the Bill, I am of the very strong opinion that the Bill already achieves its objectives. I therefore cannot accept the new clause and ask that the hon. Member for Ilford South withdraw it.
Sam Tarry
As I listened to the Minister, it struck me that one of the witnesses, Charles Parton from RUSI, said:
“Let us not forget that most foreign investment by the Chinese is state owned, so it is not just a fair bet but a fair certainty that any state-owned enterprise investing is fully politically controlled.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 17, Q19.]
That is in part our thinking. One slight contradiction with the Bill is that it does not feel as though it always quite reflects the statement of political intent published alongside it. We support that statement of political intent, so the new clause’s objective was to strengthen the Bill’s commitment to ensuring that the Investment Security Unit is provided with an assessment that recognises the relationship between hostile actors and the countries to which they owe allegiance, which is stated in the statement of political intent.
I hope that the Minister takes time to take stock of what the new clause is trying to do, but on this occasion I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 6
Access to information relevant to national security
“(1) The Secretary of State may by regulations make provision for the call-in power under section 1 to be exercisable by the Secretary of State in respect of circumstances where a person acquires access to, or the right of access to, sensitive information but does not acquire control of an entity within the meaning of section 8 or control of an asset within the meaning of section 9.
(2) For the purposes of this section, sensitive information means information of any form or description the disclosure of which may give rise to a risk to national security.”—(Dr Whitehead.)
This new clause would allow the Secretary of State to regulate to include new trigger events, where a person has access to information relevant to national security, even if the party does not acquire control or material influence over a qualifying asset or entity as a result of an investment.
Brought up, and read the First time.
Peter Grant
The new clause is a significant improvement to the Bill and I hope that the Government will support it. It takes action to close a loophole that I certainly did not spot reading through the Bill the first time. I suspect a lot of others did not spot it either. It was highlighted by a number of the expert witnesses we spoke to a few weeks ago. They pointed out that a hostile operator does not necessarily need to have control or even significant influence over a security-sensitive operation to be able to do us some harm. One of the examples I vividly remember was that if somebody buys up as little as 5% or 10% of the shares of a company, possibly keeping it even below the threshold where it would need to be publicly notified to Companies House, that might still be enough by agreement to give them a seat on the board of directors. That means they will have access to pretty much everything that is going on within that company. For that kind of scenario alone, it is appropriate that we should look to strengthen the Bill.
The way the new clause is worded is entirely permissive. It would not require anybody to do anything, but it would give the Secretary of State the statutory authority to make regulations, should they be necessary, and to word them in such a way that they could be targeted towards any particular kind of involvement by a hostile power—it is difficult for us to predict now exactly what that might be.
I know that the usual format is that an Opposition amendment is not supported by the Government, but if the Government are not minded to support this one now, I sincerely hope they will bring through something similar on Report or when the Bill goes through the other place at a future date.
Nadhim Zahawi
I am grateful to the hon. Member for Southampton, Test for setting out his case for the new clause and to the hon. Member for Glenrothes for his contribution.
When I first read the new clause, I was fortified to see that, despite previous debates that we have had in this Committee, Her Majesty’s Opposition are clearly now firm converts to the “may by regulations” formulation. I am incredibly grateful. We have found much common ground in the course of our line-by-line scrutiny, but this was, I admit, an unexpected area of consensus.
My understanding is that the new clause would enable the Secretary of State to, by regulations, introduce a new trigger event covering circumstances in which a person acquires access to, or the right to access, sensitive information, even if the party does not acquire control over a qualifying entity or asset. The hon. Member for Southampton, Test may have in mind particular circumstances relating to limited partnerships and the role of limited partners.
The attempt to potentially include access to national security sensitive information as a separate trigger event is, in some ways, a reasonable aim, but I fear that it would, at best, sit awkwardly with a Bill introducing a new investment screening regime that is specifically designed around acquisitions of control. At worst it would bring into scope a huge swathe of additional circumstances, outside the field of investment, in which the Secretary of State could intervene, which could be notified by parties and which could create a backlog of cases in return for little to no national security gain.
For example, such a new clause could raise significant question marks about whether the appointment of any employee who might have access to certain information would be a trigger event in scope of the Bill. I am almost certain it would. Similar concerns would apply in respect of any director, contractor, legal adviser or regulator who might have access to sensitive information. That is not the Government’s intention.
If limited partnerships are the specific target of the new clause, I can reassure the hon. Gentleman that there is no specific exemption in the regime for acquisitions of control over a limited partnership. Of course, in practice, the rights of limited partners are, by their nature, limited, so we expect to intervene here by exception. But those acquisitions remain in scope of the call-in power, along with any subsequent acquisitions of control over qualifying entities by the limited partnership—particularly where there are concerns about the general partner who controls the partnership, or limited partners who are exerting more influence than their position formally provides.
I should also highlight that the Bill already covers acquisitions of control over qualifying assets, the definition of which includes
“ideas, information or techniques which have industrial, commercial or other economic value”.
For the purposes of the Bill, a person gains control of a qualifying asset if they acquire a right or interest in, or in relation to, a qualifying asset that allows them to do one of the two things set out in clause 9(1). That means that an acquisition of a right or an interest in, or in relation to, information with industrial, commercial or other economic value that allows the acquirer to use, or control or direct the use of, that information is in scope of the Bill. Therefore, depending on the facts of a case, an investment in a business that, alongside any equity stake, provides a person with a right to use information that has industrial, commercial or other economic value may be called in by the Secretary of State where the legal test was otherwise met.
The Committee heard from our expert witnesses that these asset provisions are significant new powers and that it is right to ensure that we have the protections we need against those who seek to do us harm, but I firmly believe we must find the right balance for the new regime. That is why acquisitions of control over qualifying entities and assets are a sensible basis for the Bill. Broadening its coverage to ever-wider circumstances risks creating a regime that theoretically captures everything on paper, but that simply cannot operate in practice, due to a case load that simply cannot be serviced by Whitehall. I urge the hon. Member for Southampton, Test to reflect on that point, given all we have heard in the last few weeks about the importance of implementation and resourcing, and I respectfully ask him to withdraw the new clause.
Chi Onwurah
I beg to move, That the clause be read a Second time.
It is with some regret that I rise to move new clause 7, because it is the last new clause we propose to the Bill. It is a Christmas present to the Minister. Things have certainly been interesting since we began our line-by-line scrutiny. With your leave, Sir Graham, I will take this opportunity to thank all those involved in drafting the Bill, as well as the Clerks, who have worked so hard and played such an important role in helping to draft amendments and provide support to all members of the Committee. I also thank you, Sir Graham, for chairing it so admirably.
We have learned a great deal over the last couple of weeks. I have learned just about everybody’s constituency—
Chi Onwurah
I will not take up the opportunity of a test. We have all learned a lot about air flows—in this room, at any rate—as we seek to maintain some heat. What we have not learned, though, is how the Minister believes the Bill can be improved. All our line-by-line scrutiny has yielded many assurances, compliments on our intention and, indeed, some letters, for which I am grateful, but no acceptance and not even the commitment to go and think about some of our constructive proposals, amendments and new clauses. I urge him to consider this new clause as an opportunity to show that he truly believes, as he said earlier, in the skills, experience and expertise of the Committee by reflecting on the potential for improvement.
The new clause returns to an earlier theme and would require—the Minister will be pleased to note that that is a “must”, not a “may”—an annual report to be prepared by the Secretary of State
“in accordance with this section”
and a copy of it to be provided
“to the Intelligence and Security Committee of Parliament as soon as is practicable after the end of that period.”
It sets out what should be in that report, such as the events, the number of entities, the nature of the risks and
“details of particular technological or sectoral expertise”
and so on. It would provide the Intelligence and Security Committee with information about the powers exercised under the Bill and allow closer scrutiny and monitoring.
The new clause reflects how we have consistently supported the need for the Bill. Our approach to the security threats we face is to push for change specifically to allow broad powers of intervention, but for those using those broad powers to be held to account by Parliament and through transparency. Our international allies do exactly that. The US requires CFIUS to produce a non-classified annual report for the public, alongside a classified report for certain members of Congress, to provide security detail to them, allowing congressional scrutiny while retaining sensitivity of information.
As I think the Minister acknowledges, the Government have been late in following where international allies and the Opposition have led with calls to better protect our national security, so he must not fall behind in following our calls for accountability and transparency. That is critical not just to ensure our security and wider parliamentary understanding of the nature of the threats we face but for accountability.
The Secretary of State is to be given sweeping powers. For the last time, I should say that we will go from 12 reviews in 18 years—less than one a year—to 1,830 notifications a year, which is more than five every single day. The Secretary of State will be able to intervene in every single such private transaction. It will be hard to bring claims against national security concerns in court, where the judiciary will understandably find it difficult to define national security against the Government’s definition. In that context, it is important to bring expert parliamentary scrutiny to the Government’s decisions. I do hope the Minister will reflect on that. Alongside a public report, the new clause would require the Government to publish an annual security report to the Intelligence and Security Committee so that we have greater accountability without compromising security.
I will say a few words about the evidence base and the reason for tabling the amendment. Professor Ciaran Martin said:
“I think that the powers should be fairly broad. I think there should be accountability and transparency mechanisms, so that there is assurance that they are being fairly and sparingly applied.”––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 81, Q96.]
My understanding is that the only accountability and transparency mechanism is the public report, which may be published, and the prospect of judicial review, neither of which provide for expert scrutiny on the security issues.
I also ask the Minister to reflect on Second Reading, where member after member of the Intelligence and Security Committee stood up to say that they felt that their expertise would be useful and helpful in the working of the Bill.
Nadhim Zahawi
I am grateful to the shadow Minister for her contribution on new clause 7, which seeks to require the Secretary of State to provide an annual report to the Intelligence and Security Committee, including detailed information relating to mandatory and voluntary notifications, trigger events that were called in and final orders made. In particular, it seeks to require the Secretary of State to provide details of factors relevant to the assessment made by the regime, including the jurisdiction of the acquirer; the nature of national security risks posed in transactions where there were final orders; details of particular technological or sectoral expertise that were targeted; and other national security threats uncovered through reviews undertaken under the Bill.
I am pleased that esteemed members of the ISC are taking a continued and consistent interest, including in relation to their role in scrutinising the regime provided for by the Bill. The Committee will be aware that clause 61 requires the Secretary of State to prepare an annual report and to lay a copy before each House of Parliament. That clause provides for full parliamentary and public scrutiny of the detail of the regime, which we judge to be appropriate and which does not give rise to national security issues when published at an aggregate level. I reassure hon. Members that that annual report will include information on the sectors of the economy in which voluntary, mandatory and call-in notices were given. It will also give a sense of the areas of the economy where the greatest activity of national security concern is occurring.
We intend to follow the existing, appropriate Government procedures for reporting back to Parliament, including through responding to the Select Committee on Business, Energy and Industrial Strategy. The ISC’s remit is clearly defined by the Justice and Security Act 2013, together with the statutory memorandum of understanding. That remit does not extend to oversight of BEIS work. I am sure that the BEIS Committee will continue to do a sterling job of overseeing and scrutinising the Department’s overall work. I welcome and encourage the ISC’s security-specific expertise, which the hon. Lady referred to, and its review of the annual report when it is laid before Parliament.
For the reasons I have set out, I am not able to accept the new clause. I hope that hon. Lady will agree to withdraw it.
Chi Onwurah
I thank the Minister for his response, but he did not address the issue scrutiny of sensitive aspects of how the Bill will work. I recognise that the ISC’s remit does not cover BEIS—that is the exact point of requiring such a report. As I think was discussed on Second Reading, the BEIS Committee will not scrutinise any sensitive information or information that is directly relevant to our national security. I am afraid that I cannot accept the Minister’s reasoning for his rejection of the new clause—namely, that it is effectively already covered by clause 61—so I will put it to a Division.
Wednesday 20th January 2021
(4 years, 2 months ago)
Commons ChamberNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 20 January 2021 - (large version) - (20 Jan 2021)
17:10 - The House divided: - Ayes: 269 / Noes: 351 - Question accordingly negatived.
17:21 - The House divided: - Ayes: 263 / Noes: 355 - Question accordingly negatived.
17:33 - The House divided: - Ayes: 265 / Noes: 355 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
May I add my congratulations to President Biden and Vice-President Kamala Harris, and their national security team?
I thank all hon. Members who have tabled amendments and new clauses and have spoken to them so eloquently: the hon. Member for Dundee East (Stewart Hosie); my right hon. Friend the Member for New Forest East (Dr Lewis); the shadow Minister, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah); my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat); the hon. Member for Aberavon (Stephen Kinnock); the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone), who spoke so pithily; my hon. Friend the Member for South Ribble (Katherine Fletcher); the right hon. Member for North Durham (Mr Jones); the hon. Member for Ilford South (Sam Tarry); my hon. Friend the Member for Arundel and South Downs (Andrew Griffith); the hon. Member for Strangford (Jim Shannon); my hon. Friend the Member for Isle of Wight (Bob Seely); the hon. Member for Liverpool, Riverside (Kim Johnson); my hon. Friend the Member for Beckenham (Bob Stewart); the hon. Member for Warwick and Leamington (Matt Western), my neighbour; and of course my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes), who reminded us of the words of the great Edmund Burke.
National security is an area of utmost importance, and that has been reflected in a sober and considered debate, with the excellent contributions that we have heard today, and, indeed, over the past few months. I will take this opportunity to respond to some of the points raised this afternoon.
New clauses 4 and 5 create a non-exhaustive list of factors that the Secretary of State must have regard to when assessing national security risks arising from trigger events. In fact, the Secretary of State has joined us to demonstrate how important this Bill is to him. I congratulate him on his elevation to being my new boss at BEIS.
As currently drafted, the Bill does not seek to define national security or include factors that the Secretary of State must or may take into account when assessing national security risks. Instead, factors that the Secretary of State expects to take into account when deciding whether to exercise the call-in power are proposed to be set out in the statement provided for by clause 3, a draft of which was published alongside the Bill. The Secretary of State is unable to call in an acquisition of control until that statement has been laid before both Houses. It is clear from the debate today, and also from conversations with colleagues, that these are the amendments on which there is strongest feeling in the House, and in the Foreign Affairs and Development Committee, so I will take care to set out the Government’s case.
The Bill’s approach reflects the long-standing policy of Governments of different hues to ensure that powers relating to national security are sufficiently flexible to address the myriad risks that may arise. As we heard from my hon. Friend the Member for Beckenham, national security risks are multi-faceted and constantly evolving, and what may constitute a risk today may not be a risk in the future. Indeed, the Foreign Affairs Committee, chaired by my hon. Friend the Member for Tonbridge and Malling, said in its own excellent report that
“an overly specific definition of national security could serve to limit the Government’s ability to protect UK businesses from unforeseen security risks.”
Bob Seely
Does the Minister accept that what is being proposed is not a limiting arena of what constitutes national security but a baseline of what constitutes national security, and that there may be a reason to adapt it over time? Indeed, paragraph (h) of new clause 4 makes an assumption that it can be expanded.
Nadhim Zahawi
My hon. Friend makes an important point. As I mentioned, the statement that the Secretary of State has laid with the Bill takes in much of the direction of travel of this amendment from the Foreign Affairs Committee.
I acknowledge that the Foreign Affairs Committee is pushing for more detail rather than less, but I would reassure them that the Government agree with their main conclusion that the Secretary of State should provide as much detail as possible on the factors that will be taken into account when considering national security. Importantly, however, that is only up until the point that the detail risks the protection of national security itself. That is why the Government have taken this approach in the draft statement provided for by clause 3. In that statement, we identify three types of risk that are proposed to form the basis of the call-in national security assessment. These are: the target risk, which considers the nature of the acquisition and where it lies in the economy; the trigger event risk, which considers the level of control and how it might be used; and the acquirer risk, which covers the extent to which the acquirer raises national security concerns.
I would like to address each of the arguments made in the report, so that I can ease the concerns of hon. Members across the House. First, there are concerns that without a narrow definition of national security, the investment screening unit would be inundated by notifications, hampering its ability to deliver its crucial role. I acknowledge that, for business confidence in the regime, it is essential that we deliver on our statutory timeframes for decisions, which is why it is so essential that we do not allow any broadening of the assessment done by officials as part of the regime to occur, whether by inexhaustive lists, as my hon. Friend the Member for Isle of Wight has just said, or by any other form. To include modern slavery, genocide and tax evasion as factors that the Secretary of State must take into account as part of national security assessments, as these amendments propose, would not reduce the demands on the investment security unit but potentially increase them.
Secondly, there is concern that ambiguity could hinder the success of the regime. Let me be clear that this regime is about protecting national security—nothing more, nothing less—hence its real focus. Thirdly, the Foreign Affairs Committee report suggests that the staff responsible for screening transactions may lack sufficient clarity on what kinds of transactions represent legitimate national security risks, leading to important transactions being missed or to a large volume of benign transactions overwhelming the investment security unit. I want to assure hon. Members, and my hon. Friend the Chairman of the Foreign Affairs Committee, that the investment security unit will be staffed by the brightest and best, with many of them being recruited on the basis that they have essentially written the book on national security.
Tom Tugendhat
I am grateful to my hon. Friend for highlighting this point. May I assure him that I have absolute confidence that the people he will recruit into the unit will be the best and brightest? I pay huge tribute and send many congratulations to the Secretary of State for Business, Energy and Industrial Strategy, who is sitting next to him. He is a friend of long standing, and I am delighted to see him serving Cabinet; that is well earned and somewhat overdue. I am sure that they are both going to have the best judgment possible. However—I am afraid there is a “however”—there are other people who are going to have to decide whether or not to file, and there is therefore a danger that people will over-file, even though the judgments will have been very cautiously made.
Nadhim Zahawi
That is something I have been watching carefully as we introduced this legislation, obviously. We have had around 36 inquiries to the team already, so it feels to me that where we have landed is proportionate and right.
Mr Kevan Jones
I have no doubt that the Minister will aim to recruit the brightest and best. However, what assurance can he give that those individuals will have not only the necessary security clearance but the culture of thinking about security, as opposed to business and regulation?
Nadhim Zahawi
They will be able to draw on all the experience, culture and, of course, resources of Government to be able to do their job properly, I assure the right hon. Member of that.
The report sets out a fear, as we have heard elsewhere, that without a definition of national security in the Bill, interventions under the NSI regime will be politicised. I wholeheartedly agree that it is crucial for the success of the regime that decisions made are not political but rather technocratic, dispassionate and well judged. I repeat the words of my right hon. Friend the Member for Reading West (Alok Sharma), the former Business Secretary, who on Second Reading assured the House that:
“The Government will not be able to use these powers to intervene in business transactions for broader economic or public interest reasons, and we will not seek to interfere in deals on political grounds.”—[Official Report, 17 November 2020; Vol. 684, c. 210.]
Indeed, if the Secretary of State took into account political factors outside the remit of national security, the decision could not be upheld on judicial review. It is with this in mind, and our focus on protecting foreign direct investment, which so many colleagues are concerned about, especially as we come out of the covid challenge, that politicised decisions will not be possible under the NSI regime. I hope right hon. and hon. Members feel I have sufficiently explained the Government’s approach. We have sought to deliver what the Foreign Affairs Committee and the Opposition recommend.
Bob Seely
I will not labour the point beyond this. The Minister says that tax evasion will not be a bar. I accept that the Government made that statement. Does he accept that, in Australia, tax evasion is one of those significant elements? He rather implies that tax evasion and tax evaders will not be opposed in buying UK companies, so how high will the bar be set on criminality or on unsavoury characters—maybe people close to Russian Presidents and oligarchs and questionable companies?
Nadhim Zahawi
As colleagues have said, the Bill has been a long time in gestation, from 2017 to the 2018 consultation and White Paper and now today. We look at what other countries do, and I think we have reached a proportionate position. Of course, as I say, the Secretary of State’s statement sets out exactly how he would assess the risks to national security. I hope I have addressed that.
My final point of reassurance is that there will be further scrutiny on this point. As I explained in Committee, the statement provided for by clause 3 will go out to full public consultation prior to being laid before Parliament, and the Government will listen carefully to any proposals for further detail.
Amendments 1, 2, 3 and 6 broadly seek to ensure that the scope of the regime as a whole is right, that mandatory notification covers the right sectors and that both the statement and the notifiable acquisition regulations are reviewed within a year. Amendment 1 would require notifiable acquisition regulations to be reviewed within a year of having been made, and once every five years thereafter. It is right that the Secretary of State keeps a constant watch on these regulations. Indeed, it is vital that he has the flexibility to reassess and, if needed, seek to update the regulations at any time. The nature of his responsibilities under the regime creates sufficient incentive for this regular review.
Amendment 2 would, in effect, introduce two further trigger events to the regime. It would mean that a person becoming a major debt holder would count as a person gaining control of a qualifying entity. The amendment would also mean that a person becoming a major supplier to an entity counted as a person gaining control of a qualifying entity.
We on the Government Benches believe that access to finance is crucial for so many small businesses and large businesses to grow and succeed. They will often take out loans secured against the very businesses and assets that they have fought so hard to build; I did just that when I started YouGov. That is why the Bill allows the Secretary of State to scrutinise acquisitions of control that take place where lenders exercise rights over such collateral, but the Government do not consider that the provision of loans and finance is automatically a national security issue. Indeed, it is part of a healthy business ecosystem that enables businesses to flourish in this country.
Dr Julian Lewis
For the sake of clarity, the annual report that will be supplied to Parliament will not have any security-sensitive information in it. The Minister says that we could request further information. The only information we want to request is the information of a security-sensitive nature that will routinely have played a part in leading to these decisions. I do not want to tell any tales out of school. All I can say is that the Minister seemed very receptive when I put forward the idea of an annexe to the report, which would come to the Committee, or alternatively there could be an unredacted or redacted version of the report. Is he saying that the Cabinet Office is declining to do that? If so, it would appear that the malign influence of one Mr Cummings is not entirely eliminated from that Department.
Nadhim Zahawi
I am grateful for my right hon. Friend’s intervention. What I was saying is that there are no restrictions. His Committee will be able to invite the Secretary of State to give evidence to it, and it will also be able to ask for further information, which the unit will be able to provide.
Mr Kevan Jones
The Minister is wrong when he talks about asking the Secretary of State, because his is not one of the Departments that we overlook, but it is already there that this information be provided. I do not know why he and the Government are resisting this, because it will give certain confidence in terms of ensuring that decisions are taken on national security grounds. If he thinks for one minute that the Cabinet Office will divulge information easily to us, I can assure him that it will not. It does not do so. We have to drag it out of them kicking and screaming every time. I am sorry, but this is very disappointing.
Nadhim Zahawi
I am grateful to the right hon. Gentleman for his intervention. Let me repeat again: there are no restrictions on the Committee requesting further information from the unit or from the Secretary of State.
Dr Lewis
Is this what the Minister wants? Every year, the Committee will request to have a comprehensive explanation of the security sensitive information that has underlain the different decisions that the unit has taken. All he is saying is that we can request this ad hoc every year and we will get it—I will believe that when I see it. If that were to be the case, there could be no possible objection to incorporating this in the legislation now so that it is not at the whim of a future Minister to either give us what we need or deny us what we need.
Nadhim Zahawi
I am grateful to my right hon. Friend for his intervention and his powerful argument, but I just repeat that there are no restrictions on his Committee requesting that information.
Nadhim Zahawi
I will not give way. There is a lot to get through and time is short.
The Government will more generally monitor the operation of the regime and regularly review the contents of the annual reports, including in relation to academic research, spin-off enterprise or SMEs, and we will pay close attention to the resourcing and the timelines of the regime.
If, during any financial year, the assistance given under clause 30 totals £100 million or more, the Bill requires the Secretary of State to lay a report of the amount before the House. Requiring him to lay what would likely be a very similar report for every calendar year as well as for every financial year, which is in amendment 4, appears to be excessive in our view. He would likely have to give Parliament two very similar reports only a few months apart.
On amendment 5, I can reassure the House that, under clause 54, the Secretary of State would be subject to public law duties when deciding whether to share information with an overseas public authority. That includes a requirement to take all relevant considerations into account in making decisions. These are therefore considerations that the Secretary of State would already need to take into account in order to comply with public law duties.
Moving on to new clause 6, I want to be clear that we do not expect the regime to disproportionately affect SMEs, although we will of course closely monitor its impact. The Government have been happy to provide support to businesses both large and small through the contact address available on gov.uk. Furthermore, the factsheets make it clear what the measures in the proposed legislation are and to whom they apply, so there is real clarity on this. It would therefore not be necessary to provide the grace period for SMEs proposed under new clause 3 and neither would it be appropriate. Notifiable acquisitions by SMEs may well present national security concerns and this proposed new clause would, I am afraid, create a substantial loophole.
To conclude, although I am very grateful for the constructive and collegiate engagement from hon. and right hon. Members across the House, for the reasons that I have mentioned I cannot accept the amendments and new clauses tabled for this debate and therefore hope that they will agree to withdraw them.
Stewart Hosie [V]
This has been a detailed and considered debate. I thought there were some particularly thoughtful contributions from the Chair of the ISC and from the right hon. Member for North Durham (Mr Jones) in relation to the oversight of sensitive and confidential information that should fall within the remit of the ISC. It was disappointing to hear the Minister’s response in his last contribution. My main concern, however, was to ensure that the scope of the Bill was appropriate and that the impact of the measures was proportionate, particularly for smaller businesses and for academia. Given what the Minister has just said about the regulations and procedures being under constant watch, with the Secretary of State having the flexibility to update them at any time, I am satisfied that, should we identify an overly burdensome course of action being taken in relation to small businesses or academia in the future, the Minister would respond swiftly. I therefore beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 4
Framework for understanding national security
“When assessing a risk to national security for the purposes of this Act, the Secretary of State must have regard to factors including, but not restricted to—
(a) the potential impact of the trigger event on the UK’s defence capabilities and interests;
(b) whether the trigger event risks enabling a hostile actor to—
(i) gain control or significant influence of a part of a critical supply chain, critical national infrastructure, or natural resource;
(ii) conduct espionage via or exert undue leverage over the target entity;
(iii) obtain access to sensitive sites or to corrupt processes or systems;
(c) the characteristics of the acquirer, including whether it is effectively directly or indirectly under the control, or subject to the direction, of a foreign government;
(d) whether the trigger event adversely impacts the UK’s capability and capacity to maintain security of supply or strategic capability in sectors critical to the UK’s economy or creates a situation of significant economic dependency;
(e) the potential impact of the trigger event on the transfer of sensitive data, technology or potentially sensitive intellectual property in strategically important sectors, outside of the UK;
(f) the potential impact of the trigger event on the UK’s international interests and obligations, including compliance with UK legislation on modern slavery and compliance with the UN Genocide Convention;
(g) the potential of the trigger event to involve or facilitate significant illicit or subversive activities, including terrorism, organised crime, money laundering and tax evasion; and
(h) whether the trigger event may adversely impact the safety and security of UK citizens or the UK.”—(Tom Tugendhat.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The Secretary of State for Business, Energy and Industrial Strategy (Kwasi Kwarteng)
I beg to move, That the Bill be now read the Third time.
First, I would like to pay tribute to my immediate predecessor, my right hon. Friend—my very good friend—the Member for Reading West (Alok Sharma), who took the Bill through on Second Reading. I pay tribute to him for being such a motivating force behind this Bill, and also for providing excellent leadership in our Department up to only a couple of weeks ago. I wish him well, and I am sure he will continue the excellent work that he has already started as president of COP26, which I am sure will be a brilliant and vital success.
I would like to return to the very core of why we need this Bill. As my right hon. Friend told this House, the UK remains
“open for business, but being open for business does not mean that we are open to exploitation. An open approach to international investment must also include”—
has to include—
“appropriate safeguards to protect our national security.”—[Official Report, 17 November 2020; Vol. 684, c. 205.]
This Bill provides those safeguards.
Subject to the debate in the other place and the views of the other place, the Government will be automatically informed of certain acquisitions in key sectors and will be able to scrutinise a range of others across the economy. The Government will also be able to look at deals involving assets, including intellectual property, whose acquisition might pose a national security concern. There will be no thresholds for intervention, as there are currently under the Enterprise Act 2002. This means that acquisitions involving emerging innovative businesses will also be covered by the Bill. All this adds up to a significant upgrade to our abilities and powers to reflect the sweeping technological, economic and geopolitical changes across the globe over the past 20 years.
I would like to make further acknowledgement of the work done so ably by those from across the House and in my Department that has got us to this point. I thank the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), and the Bill team for their fantastic work to date. He even managed to convince me. I know he is working flat out to ensure we can all return to normal before too long. I thank those who have ensured that the proceedings of this House continued without any disruption in the meantime. I therefore place on record, Mr Deputy Speaker, my thanks to you, to Madam Deputy Speaker, and to all the House staff who have ensured that today’s proceedings and previous stages of the Bill were undertaken with exemplary smoothness—no mean feat in the circumstances.
I also thank the members of the Public Bill Committee from across the House for their keen and diligent scrutiny of the Bill, and particularly its Chairs, the hon. Member for Halton (Derek Twigg) and my hon. Friend the Member for Altrincham and Sale West (Sir Graham Brady). I also thank all those who contributed to this very important debate. We heard from eminent Select Committee Chairs. My hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) is no longer in his place, but I have known him for a very long time, and I was very pleased to hear his able contribution to this debate. I thank my right hon. Friend the Member for New Forest East (Dr Lewis), the Chair of the Intelligence and Security Committee. His expertise is widely acknowledged across the House and was brought to bear in the proceedings.
In addition, we heard from Members from across the House, including my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes), and my hon. Friends the Members for Beckenham (Bob Stewart), for Isle of Wight (Bob Seely), for South Ribble (Katherine Fletcher) and for Arundel and South Downs (Andrew Griffith). The right hon. Member for North Durham (Mr Jones) is an acknowledged expert, and devotes himself to these highly important issues. There were also contributions I noted from the hon. Members for Aberavon (Stephen Kinnock), for Ilford South (Sam Tarry), for Liverpool, Riverside (Kim Johnson), for Warwick and Leamington (Matt Western), for Caithness, Sutherland and Easter Ross (Jamie Stone) and for Strangford (Jim Shannon). I thank all those right hon. and hon. Members for their important contributions.
Although there have been one or two differences, I have above all been struck by the broad consensus that has emerged across the House on the Bill, and by how important it is that we all agree that the Government should act in this area. There is a degree of debate about the details of the Bill. I thank the Opposition Front Benchers—the right hon. Member for Doncaster North (Edward Miliband) and the hon. Member for Newcastle upon Tyne Central (Chi Onwurah)—and the SNP spokesperson, the hon. Member for Dundee East (Stewart Hosie). All have acknowledged the need for this crucial legislation. Broadly, they have approached the Bill in a constructive manner. For that, my right hon. Friend the Member for Reading West and I are and have been extremely grateful.
Returning to what my right hon. Friend the Member for Reading West said on Second Reading, this country has always been a beacon for inward investment and a champion of free trade. The Bill does not change that. It does not turn its back on that history, but it feels very apposite for me to say that prosperity and security should go hand in hand. The Bill really captures that insight and represents a proportionate approach to the threats we face in today’s world. On that basis, I commend the Bill to the House.
Mr Deputy Speaker (Mr Nigel Evans)
As this is the first time I have been in the Chair since your promotion and appearance at the Dispatch Box, I congratulate you on your new role.
Thursday 4th February 2021
(4 years, 1 month ago)
Lords ChamberNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 20 January 2021 - (large version) - (20 Jan 2021)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, this Bill represents a major upgrade to the Government’s powers to screen certain acquisitions on national security grounds. Through the new investment security unit within my department, the new regime provided for by the Bill will act as a vital new tool in the Government’s armoury to protect national security in a rapidly changing world. The UK’s current powers to intervene when mergers or acquisitions pose national security threats date from the Enterprise Act 2002. Apart from some limited exceptions, businesses must have a UK turnover of £70 million or meet a share-of-supply test for government intervention.
The world is of course a very different place now compared to when the Enterprise Act received Royal Assent in November 2002. When it comes to investment, we are seeing novel means to undermine the UK’s national security that go beyond traditional mergers and acquisitions and the reach of our current powers. The case for action in this area could therefore not be clearer.
The Government have carefully considered these reforms over time. We first published a Green Paper in October 2017, followed by a White Paper in July 2018. We have further considered what powers are necessary to reflect the modern economic and investment landscape in the UK. The Bill before us today is the culmination of all that work.
However, none of the provisions in the Bill change the Government’s position when it comes to foreign investment into the UK. Simply put, the UK economy thrives as a result of foreign direct investment. Since 2010-11 over 600,000 new jobs have been created thanks to more than 16,000 foreign direct investment projects. Inward investment stimulates economic growth in every part of our United Kingdom. In 2019-20 over 39,000 jobs were created in England thanks to FDI projects, with over 26,000 over those jobs coming outside London.
We have designed the regime with business in mind. For the first time, timelines for assessments will be set out in law, not decided by the Government on a case-by-case basis. This will give businesses certainty about the length of the assessments that they are subject to, and the Government will be able to revisit decisions only in exceptional circumstances.
The Bill brings our approach into line with many of our closest allies, including the United States, Canada, Australia, France and Germany, but it does not represent any change in our appetite for investment coming into this country from overseas. I will now go through some of its main provisions. Chapter 1 of Part 1 of the Bill provides for a “call-in” power that the Secretary of State will be able to exercise if he reasonably suspects that a trigger event has taken or may take place that could give rise to a risk to national security. Any decision to use that call-in power could follow the receipt of a notification from parties, or could be a proactive choice on the part of the Secretary of State if an unnotified acquisition meets the relevant criteria.
The call-in power must be exercised within six months of the Secretary of State becoming aware of an acquisition, and within five years if he was not made aware of it. However, the five-year limit does not apply to acquisitions subject to mandatory notification. The scope of the call-in power applies to trigger events taking place from 12 November 2020—that is, the day following the Bill’s First Reading in the other place. This is to ensure that no acquisition can be accelerated to avoid scrutiny while the Bill is making its way through Parliament.
Before the call-in power can be used, the Secretary of State must lay a Statement before Parliament setting out how he expects to exercise the power. The Secretary of State published a draft of such a Statement when the Bill was introduced in the other place. I must be clear to the House that the criteria for use of the call-in power are deliberately tightly drawn on the grounds of national security, and the Government have no intention to widen this to introduce any further “public interest” criteria.
Chapter 2 of Part 1 sets out the trigger events that are subject to the scope of the call-in power. There are broadly two types of trigger events: first, the acquisition of control over entities such as companies, limited liability partnerships and trusts; and, secondly, the acquisition of control over assets, including land and intellectual property.
In respect of entities, the Bill sets out situations where the acquisition of certain levels of shares or votes constitute trigger events. I will not set out the individual thresholds to the House now, but broadly speaking they correspond to the ability of parties to pass or block types of company resolution. The Bill also retains the concept of “material influence” over an entity, as used in the Enterprise Act 2002, as a trigger event for the purposes of the Bill.
When it comes to assets, trigger events occur when parties are able to use a qualifying asset or to direct or control how it is used. Chapter 2 also sets out instances where notifying the Secretary of State of some acquisitions in certain sectors is mandatory. Again, I will not explore each one in detail, but the Government have been careful to ensure that only those scenarios where parties can reasonably self-assess whether their acquisition qualifies are captured.
Parties involved in acquisitions that do not meet the criteria for mandatory notification, but which believe that they could pose a national security risk, will be encouraged to submit a voluntary notification to the Government. The Secretary of State will need to take a decision on whether to call in an acquisition for a full national security assessment within 30 working days of accepting a notification, or instead let it proceed. Once he has taken this decision, he cannot revisit it unless false or misleading information has been provided.
To ensure that mandatory notification continues to work as envisaged in the future, the Government propose taking a power to be able to update the situations where notification is mandatory. The power would also allow the Government to exempt certain types of investor from mandatory notification requirements.
In terms of the sectors where some acquisitions will be subject to mandatory notification, the former Secretary of State published a consultation alongside the Bill introduction on the statutory definitions of the proposed 17 sectors. That consultation closed on 6 January of this year. We have had a good number of responses and I thank all of those who took the time to provide valuable insights. We are now working hard to respond to that consultation and to bring forward draft regulations for consideration as the Bill goes through this House.
I would like to stay with mandatory notification for a minute or two longer. Chapters 3 and 4 of Part 1 set out the mechanics of mandatory notification and the consequences of proceeding with a notifiable acquisition without clearance from the Secretary of State. Put simply, if parties proceed with such an acquisition, it has no effect in law. The Government recognise that this approach represents a harsh deterrent to parties that do not comply, willingly or otherwise. I will make just two points on this. First, it is vital for our national security that parties are strongly disincentivised from trying to avoid scrutiny by this regime. This is even more pressing in the sectors of the economy where the notification of certain acquisitions is mandatory. Secondly, affected parties will have recourse to apply to the Secretary of State for retrospective validation of such acquisitions, as set out in Clause 16.
Clause 15 also obliges the Secretary of State to either call in a non-notified mandatory acquisition or retrospectively validate it once he becomes aware of it, if no national security risks arise. Clause 17 obliges him to retrospectively validate a non-notified acquisition if it is called in and subsequently cleared to proceed. The Secretary of State cannot, in other words, simply allow an acquisition to remain void once he becomes aware of it: he must take action, either to grant clearance and retrospectively validate it, or impose remedies. It has to be this way around: that is to say that non-notified acquisitions should be able to be retrospectively validated, rather than retrospectively invalidated.
The remainder of Part 1 provides for a voluntary notification mechanism whereby parties can formally submit a notification to Government. As with mandatory notification, once the Secretary of State has taken a decision to let an acquisition proceed, he cannot revisit that decision unless false or misleading information has been provided. The Government are committed to giving parties clarity when it comes to this regime and voluntary notification is a key part of that. The Bill also provides for information-gathering powers for the Secretary of State to be able to come to fully informed decisions. There are also safeguards on the use and disclosure of such information.
I turn to Part 2, which provides for the assessment process and any remedies following a call-in. The Bill provides for an initial assessment period of 30 working days once a call-in notice has been given, with an additional period of 45 working days. A further voluntary period is possible if certain criteria are met. I believe this represents a significant improvement on the current process under the Enterprise Act 2002, whereby the Secretary of State sets the assessment timetable on a case-by-case basis. For the first time, timelines for assessment will be set out in statute so that investors can build them into their own plans.
In the course of the assessment period, the Secretary of State may wish to impose interim orders to mitigate any national security risks that could arise as he undertakes this investigation. Such orders could be imposed, for example, to stop or prevent parties doing certain things that they would normally do prior to completing an acquisition, such as exchanging sensitive information. At the end of the assessment period, the Secretary of State must either give a final notification to allow the acquisition to proceed, or a final order if he believes that national security risks could arise as a result of the acquisition. All orders must be kept under review and parties are free to request that they are varied or revoked.
The Secretary of State will be supported in making decisions by the investment security unit which, as I said earlier, is being set up within my department. This new unit will be fully resourced to manage the administrative process for screening notifications and undertaking national security assessments. It will draw on expertise from across government and from the security services. If noble Lords permit, I will go through the rest of the Bill a bit more swiftly as I know there are many who wish to speak in this important debate.
Part 3 provides for a range of offences, along with associated criminal and civil sanctions, although I expect criminal cases in relation to offences committed under the regime to be exceptionally rare. Parties will, of course, have recourse to judicial review in relation to certain decisions made under the regime. Parts 4 and 5 of the Bill contain a number of miscellaneous provisions. Clauses 54 to 56 provide for smooth and timely information sharing when relevant between the Government and overseas public authorities, HMRC and the CMA. These are important clauses to ensure that time is not lost to administrative red tape and that information is appropriately handled.
Clause 61 provides for an annual report to Parliament, which will provide details of the number of notifications received, the number of call-in notices given and the sectors of the economy where they were served, among others. I will return finally to the fundamentals of the Bill before us. It is imperative for any Government to have the tools they need to protect national security in what is a rapidly changing world. This Bill will keep the British people safe. I beg to move.
Lord Callanan (Con)
My Lords, I thank all noble Lords for their contributions on this important Bill. There is clearly a wealth of expertise on this subject across the House and, as is usual in your Lordships’ House, we have had a thorough and engaging debate, with thoughtful speeches coming from all corners of it.
I start by congratulating the noble Lord, Lord Woodley, on his excellent maiden speech. It is a pleasure to see him in his place today, and I am glad that he has chosen this debate to make the first of what I am sure will be many well-informed contributions. I am glad, too, to have his support for the Bill.
I was contemplating what I had in common with the noble Lord, despite our obvious political differences. We are both from the north, him being from the north-west and me from the north-east; we are both football fans, the noble Lord being a fan of Vauxhall Motors, while I am a fan of Newcastle United; and of course we both have reasons, although different ones, to be profoundly grateful to Jeremy Corbyn. I wish him well, as I do Vauxhall Motors, which, it seems, was on a fine run of form before being stopped in its tracks by the latest national restrictions. Listening to the comments of the noble Lord, Lord McNicol, it seems that his all-weather football pitch would be particularly appropriate on a day like today.
I will do my utmost to respond to as many as possible of the issues raised, but, as always, my door is open to anyone who wishes to discuss the Bill further as it goes through the House.
I thank the noble Baroness, Lady Hayter of Kentish Town, and the noble Lord, Lord Grantchester, for the constructive tone in which they delivered their speeches. I am glad that a sort of consensus is emerging across the House that the Bill is the right step forward. I even find myself in the very unusual position of having the support of the noble Lord, Lord Rooker, and that self-declared old lefty, the noble Lord, Lord Foulkes—two of my most trenchant critics on other pieces of legislation. These are indeed strange times. I reassure the noble Lord, Lord Foulkes, that I am indeed proud to introduce this Bill, so he can put his mind at rest there.
I turn, first, to the concerns expressed about the investment security unit being within my department and its potential caseload—a point raised by the noble Baroness, Lady Hayter, and other noble Lords, including the noble Lords, Lord Reid of Cardowan, Lord Dodds of Duncairn, Lord Bilimoria, Lord Rooker and Lord Bruce. I assure them and the noble Lord, Lord Grantchester, who also raised it, that the unit will not work in isolation from the rest of government and will not in any way compromise on its duty to put national security first.
When it comes to the operation of this regime, we will not have informational barriers with other government departments. We will work closely with them to ensure that we use skills and experience from right across government. We will, though, have appropriate walls in place with those responsible for promoting investment —some walls but not others. Indeed, other departments and the security services are actively contributing to the design of the unit, thus ensuring that the plans for it take a cross-governmental approach. We have worked closely with our allies around the world on how to create an investment screening process fit for the 21st century.
I reassure noble Lords such as the noble Lords, Lord Bruce, Lord Fox and Lord Rooker, that the unit will be fully resourced to ensure that the Government provide a slick and predictable process for all parties involved. Officials will have a mix of national security, business and casework experience. The noble and gallant Lord, Lord Stirrup, spoke forcefully about the importance of having that mix of expertise, and my noble friend Lord Holmes emphasised that important point.
On the caseload for the investment security unit, I stress that the Government expect a fraction of acquisitions across the economy to be affected by the new regime. Once it beds in and investors become familiar with the process, we expect the number of notifications to decrease further. Of the transactions notified, we expect that fewer than 10% will face a detailed national security assessment and, of those facing one, only a small proportion will likely result in government intervention. We have been clear that businesses and investors will be encouraged to come to the investment security unit in advance of any formal notification, allowing for early discussions with officials about deals, although any final decision will be for the Secretary of State.
A number of noble Lords raised concerns about the impact of the regime on business investor confidence, including in relation to small and medium-sized businesses —a point made by the noble Viscount, Lord Waverley. Among those who also spoke on that issue were my noble friends Lady Noakes, Lord Leigh of Hurley and Lord Vaizey, the noble Lords, Lord Clement-Jones, Lord Reid, Lord Bilimoria and Lord Bhatia, and the noble Baronesses, Lady Bennett of Manor Castle and Lady Ritchie of Downpatrick. The Government are committed to making the regime work for business. We have already published guidance for business on GOV.UK that sets out how the process is intended to work.
Noble Lords are entirely reasonable to expect further high-quality guidance from government to help businesses and investors navigate the regime. My noble friend Lord Hodgson of Astley Abbotts was right to raise that point. On the issue of prepacks, I am pleased that he received my letter in time for this debate and I look forward to further discussions. I know that he has strong views on that subject. That is why we will bring forward further guidance well in advance of commencement to give businesses as much clarity as is meaningfully possible on how the regime will function in practice. We will work directly with businesses and their representative organisations to make sure that we get that guidance right.
More broadly, the Government will never stand in the way of innovative, high-potential businesses setting up in the UK. Our record demonstrates that. Our investment in the British Patient Capital fund has attracted £1 billion of venture capital investment to date and we will continue to invest. By investing alongside the private sector, British Patient Capital aims to support £7.5 billion-worth of investment for British businesses. We have also announced a £7 billion investment in R&D over five years as a first step towards our target to raise total R&D investment to at least 2.4% of GDP by 2027 and 3% in the longer term.
Many noble Lords spoke about introducing a definition of “national security”, including my noble friends Lady Noakes and Lady McIntosh of Pickering, the right reverend Prelate the Bishop of St Albans, the noble Baronesses, Lady Northover, Lady Ritchie of Downpatrick and Lady Jones of Moulsecoomb, the noble Lords, Lord Fox, Lord Clement-Jones, Lord Reid of Cardowan, Lord McNicol of West Kilbride and Lord Bruce, and my noble friend Lord Holmes of Richmond. The Bill does not set out the circumstances in which national security is or may be considered at risk. That reflects long-standing government policy to ensure that national security powers are sufficiently flexible to protect the nation. National security risks are multifaceted and constantly evolving. What may not constitute a risk today may do so in future. I am glad that my noble friend Lord Lansley and the noble Lords, Lord Truscott and Lord Desai, recognised that point. The ability of the Secretary of State to safeguard national security would be limited if the Bill set out the circumstances in which national security is, or may be considered to be, at risk. By defining what national security is, we would, of course, also define what it is not. This could have grave implications and deliberately show hostile actors where the Government could not intervene. It would also have unintended consequences for other national security legislation.
The noble Baroness, Lady Hayter, and the noble Lords, Lord Grantchester, and Lord West of Spithead, spoke eloquently on the issue of parliamentary scrutiny with a particular emphasis on a role for the Intelligence and Security Committee in overseeing the work of the regime. I am grateful for the discussion that we had with the noble Lord, Lord West, last week.
As I set out in my opening remarks, Clause 61 provides for an annual report to Parliament, which will be crucial in ensuring parliamentary scrutiny of the work of the investment security unit and the broader functioning of the regime. The Government will very much welcome the Intelligence and Security Committee’s review of the annual report. There are of course no restrictions on the committee requesting further information from the unit or the Secretary of State. Parliament will also be able to scrutinise the Statement, as was mentioned by the noble Baroness, Lady Bowles of Berkhamsted.
The former Secretary of State laid a draft of the Statement on introduction in the other place and we would, of course, welcome Parliament’s views on its content. We will carefully consider these views and look to reflect those in the next draft of the document, which will be published for formal public consultation, where the Statement can be fully scrutinised.
Many noble Lords spoke about the sectors subject to mandatory notification, including how they interact with other critical national infrastructure sectors. Considered arguments on this point were made by my noble friends Lady Noakes and Lord Naseby, and the noble Lords, Lord Clement-Jones, Lord Reid, Lord Woodley, Lord McNally, Lord Truscott, Lord Rooker and Lord Foulkes. The list of proposed sectors covered by mandatory notifications has been carefully developed across government, with input from all relevant departments and from the intelligence agencies. Put simply, the Government have sought to identify the sectors where certain types of acquisition could give rise to the greatest risks, while balancing this against the need to minimise the burdens on business.
As I set out in my opening remarks, we are working hard to bring forward regulations in time for your Lordships’ consideration. Some sectors, including water, as raised by my noble friends Lady Noakes, Lord Lansley and Lady McIntosh of Pickering, are part of our critical national infrastructure. However, the Government consider that other safeguards provide sufficient protection to not require their inclusion in the mandatory notification sectors. In the water sector, for example, water supply and sewerage licenses are granted by Ofwat based on an assessment of a potential operator’s managerial, financial and technical competencies. Regardless, the Secretary of State will be able to call in acquisitions of control across the economy where the legal test is met. As such, not being in a mandatory notification sector does not mean that acquisitions of control over water, financial services or other critical sectors are exempt from the regime altogether.
Given some of the appalling news around at the moment, it was right that many noble Lords spoke forcefully about human rights—my noble friend Lord Robathan, for example—particularly the situation in Xinjiang. As noble Lords will be aware, the Foreign Secretary made a Statement in the other place setting out a series of measures that the Government are taking in response. The Government are gravely concerned about the human rights situation in Xinjiang. There is growing evidence of large-scale forced labour in the region, alongside the use of extrajudicial political re-education camps and severe pressure on religion and culture. We have been clear that we want a mature approach to China and that we must work together to address global challenges, but we will never hesitate to stand up for human rights as a force for good in the world.
Finally, a number of noble Lords raised the question of the effect of the regime on academia and universities, citing concerns raised by the Russell group. These included the noble Lords, Lord Clement-Jones, Lord Reid of Cardowan, Lord Bilimoria, Lord Desai and Lord Grantchester, and the noble Baronesses, Lady Bowles of Berkhamsted and Lady Ritchie of Downpatrick. I assure them that my officials have been engaging closely with the Russell group; we will continue this engagement as the Bill goes through the House to ensure that universities have smooth engagement with the new regime where necessary.
I thank all those who have spoken today and reiterate what I said in my opening remarks: this Government will always be absolutely committed to the free flow of trade and investment. The Bill does not change that; rather, it is a vital upgrade to our current powers that will keep the British people safe. I look forward to discussing it further in Committee but, for now, I commend it to the House.
Tuesday 2nd March 2021
(4 years ago)
Grand CommitteeNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: HL Bill 165-I(a) Amendments for Grand Committee (for Second Marshalled List) - (1 Mar 2021)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Baroness Hayter of Kentish Town (Lab)
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 the right balance as to workability in making those fine judgments between security and economic interests. However, this amendment is calling for the Secretary of State to be required to have regard to those other interests. The Minister will say that, of course, he or she is bound to do so. However, it is a question on which some assurance is needed and we look forward to the Minister’s view on that.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
I am grateful to noble Lords, Lord Clement-Jones and Lord Fox, for their introductions to this debate. I thank them for proposing this new clause and for enabling a further discussion on the purpose of the Bill.
Amendment 1 seeks to establish an objective for the Bill and include a number of elements to which the Secretary of State must have regard when using his powers. Let me say at the start that the intent behind this amendment is to provide a clear statement of the scope of the Bill, to prevent so-called mission creep and give certainty to businesses and investors, while avoiding the pitfalls of attempting to define “national security”. However, the legal effect of the amendment presents us with a number of challenges.
The amendment would require the Secretary of State when exercising his powers under the Bill to safeguard national security in respect of economic and social harm, which is reasonable. It is indeed possible that economic or social harms could give rise to risks to national security, but so could other harms such as physical or military harm. For example, a hostile actor could use control over a piece of critical infrastructure to put UK citizens in physical danger or they could acquire companies in the UK defence supply chain and thereby degrade our military capabilities.
The absence of other harms in the factors listed by the amendment suggests that the Secretary of State may not use his powers under the Bill to safeguard national security from those harms that I have outlined. It is also unclear how he should have regard to the factors in subsection (3) of the proposed new clause. As the amendment does not say that they are to be regarded as part of national security, that would suggest the scope of the Bill is being expanded beyond national security. It is important to note that the government position on the issue of defining, wholly or in part, “national security” remains consistent with when amendments in a similar vein to this were discussed at Second Reading and in the other place; I have discussed that with the noble Lord, Lord Fox, previously. The Bill does not set out the circumstances in which national security is, or may be, considered at risk. That reflects long-standing government policy to ensure that national security powers are sufficiently flexible to protect the nation. It also does not include factors which the Secretary of State must or may take into account in assessing national security risks on the face of the Bill.
While it is crucial for investor confidence that there is as much transparency in the regime as possible, there is clearly a limit to how much the Government can and should disclose in this regard, given that the regime deals explicitly with national security matters. National security risks are multifaceted and constantly evolving. What may not constitute a risk today may well do so in future. We may find over time that such specificity becomes outdated. Indeed, as my noble friend Lady Noakes pointed out, it is enough of a challenge to ensure sufficient specificity in the objectives of the Bill, especially with regard to concepts such as those referenced in the amendment.
While I have nothing but gratitude for the noble Lord’s intention—to provide a specific objective for the Bill—it is primarily for the reasons I have set out that I am unable to accept the amendment, and hope that in the light of that he feels able to withdraw it.
Lord Lansley (Con)
My Lords, like other noble Lords, I spoke at Second Reading and referred to this question. Together with the noble Lord, Lord Truscott, I took the view that there were inherent problems in attempting a definition of national security and that the best definition is rendered through the Bill as it stands. Once one defines the nature of an entity, the nature of the assets covered, the nature of the acquirer concerned and the extent of control—or the definition of control for these purposes—I think one arrives at what a trigger event is. By definition, a trigger event gives rise to the question: does this trigger event cause a problem for national security?
I do not dispute that large numbers of consultees to the White Paper and speakers in our debates have said that it would be very helpful to define national security and—I would expect nothing less from her—the noble Baroness, Lady Hayter, has done as well as one is likely to do. However, I fear that Amendment 13 in particular demonstrates all the flaws with providing such a definition. I will not seek to delay our debate too long, but I will go through a number of them.
The noble Baroness asked whether critical national infrastructure was included. In Amendment 13, critical national infrastructure is included but not defined. We do not know which bits of national infrastructure are in the regime and which are outside it. We know, broadly, the sectors in the scope of the mandatory regime even if we have further detail and amendments to them today. However, if I look at what the Government have published, I find the nuclear industry, the communications industry, data infrastructure, energy infrastructure and transport infrastructure, including ports, harbours and airports. I do not find water infrastructure and food security infrastructure. That is the question and, with the greatest respect, Amendment 13 does not answer whether they are in or out.
We will come on to debate these things but it slightly introduces the concept of whether we are using the EU regulation. My noble friend Lady McIntosh referred to it. The EU regulation includes food security and water. Even if we do not follow the EU lead, which of course now we will not be doing, it at least gives us an interesting list to work from and to question why there are differences.
This brings me to Amendment 2. One of the other differences between our proposed legislation here and the EU regulation is that the EU regulation says that it proposes to safeguard against threats to security and public order. Amendment 2 proposes including public order. However, the European investment screening regime includes freedom and pluralism in the media as one of its investment screening criteria. We are not including that in the Bill. Why are we not including it? It is already in the media public interest regime inserted into the Enterprise Act by the Communications Act 2003, on which I served. I also served on the Enterprise Act Standing Committee in 2002. In that sense, we are not pursuing a public order regime here; we are pursuing a security regime.
I now come to some of the other issues with Amendment 13. Proposed new paragraph (c) talks about the characteristics of the acquirer. If you were to say to me that in my little definition of what constitutes a security risk, we have definitions of the natures of the entities and assets concerned and quite exhaustive definitions of what constitutes control, I would say that what we do not have are definitions of the nature of the acquirer, other than that, presumably, it is hostile in intent.
Amendment 13 effectively tries to give us a list of the trigger events that might give rise to an intervention. In some senses, the amendment is far too narrow. There may be all sorts of unanticipated trigger events that would not be included in primary legislation through this amendment. In other respects, it might be far too wide. Proposed new paragraph (c) talks about
“the characteristics of the acquirer, including whether it is effectively under the control, or subject to the direction, of another state”.
There are virtually no Chinese entities for which that is not true. There are many American corporations for which one could say that that was true. One could certainly say the same of a number of state-owned European companies, including EDF and those engaged in our national infrastructure. What does proposed new paragraph (c) tell us? Does it tell us whether those characteristics are a threat to national security or not? It does not tell us either of those things; all it tells us is that we must have regard to them. We know that Ministers will have regard to them because they are having regard to that kind of issue. It does not get us very far.
The same is true on three occasions, in proposed new paragraphs (a), (e) and (f), which refers to
“the likely impact of the trigger event on”.
It does not say whether the impact is adverse, beneficial or on security. Therefore, almost by definition, all that Amendment 13 tells us is that Ministers should have regard to trigger events in relation to these activities, whether they relate to data or defence capabilities. That is what Ministers are setting out to do.
In a couple of respects, Amendment 13 takes us further than we were intending to go in the Bill. The idea that non-compliance with our international obligations is, by definition, a security risk to the United Kingdom seems to be misplaced. It may be a matter on which we have obligations or be of great policy importance but one cannot construe that compliance with our international obligations in every respect is a security risk to this country.
I am afraid that one also has to look at proposed new paragraph (h), which asks
“whether the trigger event may adversely affect the safety and security of British citizens or the United Kingdom”.
It does not say “British citizens in the United Kingdom”. For example, there are hundreds of thousands of British citizens in South Africa. I was in Natal a few years ago, where there are 500,000 British passport holders, many of whom are British citizens. Are they, by definition, therefore included in this security investment regime?
All that I seek to demonstrate is that although Amendment 13 is a helpful effort, trying to define all the trigger events is bound to fail. Therefore, we should focus on making sure that the listing of entities and assets—as, for example, those published today by the Government—is as good as we can make it, and we will have some debates on that. We should define control properly—not too broadly or narrowly—and we should understand what kind of acquirers we are talking about. We will talk about whether something is foreign or domestic, state or non-state, or hostile and in what circumstances. That is where the lack of definition in the Bill is as yet more important. I refer to the question of what kind of acquirers. I hope that we will talk about that matter in later debates but, for the present, I cannot see the merit of adding Amendment 13 to the Bill.
Lord Callanan (Con)
I thank all noble Lords who have taken part in this debate. Let me first say to the noble Baroness, Lady Hayter, that I anticipated that she might be a little critical—in her normal, super-polite way—about the letter coming out late. There were some delays in the internal approval process and, faced with a choice of whether to send it out now or wait until after Committee, I thought that, on balance, it was best to get it out to noble Lords. I was fully aware that when I arrived today, some noble Lords might have criticisms for me, but I thought they would like to see the letter rather than not see it before we started Committee. I hope that during a lull in proceedings, Members might have a chance to read the letter—all 100-odd pages of it.
I am grateful to the noble Baroness, Lady Hayter, as well for her amendments to Clause 1 and after Clause 5, which are Amendments 2 and 13 respectively on the Marshalled List, and I give my combined thanks to her and the noble Baroness, Lady Northover, for the proposed new clause relating to the integrated review.
I will begin with Amendment 2, which would expand the scope of the Bill to include public order and public safety, in addition to national security. The noble Baroness, Lady Hayter, is of course right that public order and public safety are exceptionally important and some of the highest priorities for any Government. However, the Bill is about national security—nothing more, nothing less. Including public order and public safety as grounds for calling in an acquisition would be a substantial expansion in the scope of the Bill, as has been pointed out. We do not wish to see any additions to national security, to ensure that we maintain the careful balance struck in this regime between the appropriateness of government powers for intervention and ensuring that the UK remains one of the best places in the world for investment.
In addition, I note that the regime has been carefully designed with the protection of national security in mind and not public safety or public order, as important as they of course are. For example, the trigger event thresholds in Clause 8 are calibrated to protect against activity that could harm national security due to an acquisition of control over a qualifying entity. It is far from guaranteed that these would also protect against risks to public order or public safety, or that they would be the most effective or proportionate way in which to do so.
For example, a certain type of investment may give rise to a risk to public safety or public order only if an entity were bought in its entirety or if, conversely, any investment could harm public order or public safety. Of course, there may be situations in which a risk to public safety or public order is considered to give rise to a risk to national security as well. I assure Members of the Committee that, in such cases, the Secretary of State will be able to call in the acquisition in question if it meets the tests in the Bill, and will be able to take action if appropriate.
I will pick up on a specific issue raised by the noble Baroness, Lady Hayter. The Bill would apply where a qualified acquisition could undermine democracy in a way that amounts to a national security risk.
Amendment 13 seeks to create a non-exhaustive list of factors which the Secretary of State must take into account when assessing a risk to national security for the purposes of the Bill. It will not come as a great surprise to the Committee to hear that the Government’s position on this issue remains consistent with their position when amendments related to this one were discussed on Second Reading and in the other place.
As drafted, the Bill does not set out the circumstances in which national security is, or may be, considered at risk. That reflects long-standing government policy to ensure that national security powers are sufficiently flexible to protect the nation. It also does not include factors which the Secretary of State must or may take into account under the Bill in assessing national security risks. Instead, factors which the Secretary of State expects to take into account in exercising the call-in power are proposed to be set out in the statement provided for by Clause 3. A draft of that statement was published on introduction of the Bill, to aid noble Lords in their parliamentary scrutiny. The draft statement includes details of what the Secretary of State is likely to be interested in when it comes to national security risks. That includes certain sectors of the economy, and the types of acquisitions that may raise concern.
While it is crucial for investor confidence that there is as much transparency in the regime as possible, there is obviously a limit to how much the Government can and should disclose in that regard, given that the regime deals explicitly with national security matters. Nevertheless, the draft statement goes into some detail about the factors which the Secretary of State expects to take into account when deciding whether to call in a trigger event. The proposed new clause would instead create, alongside this statement, a non-exhaustive list of factors which the Secretary of State must have regard to when assessing a risk to national security.
Lord Fox (LD)
During that comprehensive answer, I think I heard the Minister say something and I would like to test whether I understood correctly. In explaining why people should not be concerned that certain parts of infrastructure are not included in the list, I think I heard the Minister say that the Bill’s call-in power is economy-wide. That suggests to me that the list of 17 issues is irrelevant because everything is on the list. In other words, anything can be called in, whether it is on the list or not. So, the list is merely indicative, but the exhaustive list is the entire economy. Could the Minister explain whether that is the correct interpretation of what I just heard?
Lord Callanan (Con)
If the acquisition in question poses a risk to national security, yes, there is the general power, but the point I was making is that, with regard to areas of political and national infrastructure, there are also separate powers in different pieces of legislation that would help to protect in those areas.
Baroness Hayter of Kentish Town (Lab)
First, I thank everyone for their contributions, which I found extremely helpful and thoughtful. In particular—this will not surprise the Minister—the Minister confirmed that it would be possible to call in any threat to democracy or anything like that. I am sorry he did not feel able to answer on when exactly the integrated review will be published, but we live in hope.
I was a bit disappointed that the Minister said that he did not want to define national security because it was long-standing government practice not to. My heart sank at that point, thinking that the Minister must have a better reason. Luckily, he did and he gave us answers other than, “It’s always been done that way”, which always seems to me a really bad answer. I am not saying I was completely persuaded by his answer, but it is a thoughtful and useful way of thinking about how we approach this. I hope it is not just because the Government would fear a JR if there are words that could be challenged over whether something should or should not have been brought in.
My fear is about the difference between the list and the call-in power. As the list will be mandatory, people will know what they have to do. Where investors, researchers or companies will probably have the biggest fear in respect of the call-in power is that they will not know in advance. I hope that we will come to the possibility of either safe harbours or a quick turnaround—though that does not get over the call-in power—because that seems the area of greatest uncertainty. We will probably have to return to that. In a sense, it is the same issue when it comes to critical national infrastructure. I guess I should leave it to those far more experienced in infrastructure to know whether those comments are helpful.
We heard a thoughtful and challenging response to the amendment from the noble Lord, Lord Lansley. If I understood him correctly, he suggested that we start at the back end: we discuss the assets; we discuss the acquirer; we look at the definition of control—which is the end part of the Bill—and use that to define national security in the front part of the Bill. I am bemused by whether that is the right way round; it may be, but by the time we have defined it, we may have got to it. It seems an odd way round to do things to have a Bill that has “national security” in its title and then to have to work through “Well, if it is that sort of asset owned by that sort of people to that sort of percentage” to decide that it comes into the category of national security. However, I want to read more carefully what the noble Lord said because the elements appear to be there, but it seems slightly upside down. The noble Lord also said:
“We know that Ministers are going to have regard … to that kind of issue.”
If we do, what is the harm in writing them down? He may know that Ministers would have regard to those issues, but will everyone else know what they are?
I have a lot more to think about having heard the wisdom expressed today. It is possible that we will want to come back to this issue on Report—maybe in a more refined way; I am sure that those who have read the Commons debates carefully will have noticed that my words were not all of my own drafting. I thank everyone who has contributed—more sincerely, perhaps, than in other debates. I beg leave to withdraw the amendment.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, I extend my thanks to noble Lords for their invaluable contributions to this debate, which will allow me to clarify some important aspects of the Bill. It is a particular pleasure to be debating these matters with the experienced practitioners around the table, who have direct knowledge of these topics.
I speak first to Amendments 3 and 4, relating to when the Secretary of State can call in a trigger event, as tabled by my noble friend Lord Leigh of Hurley. These amendments would limit the use of the call-in power in respect of trigger events that have not yet occurred to those that are in progress. As drafted, as noble Lords have focused on, the Bill provides that call-in notices may be issued in relation to trigger events that are in progress or contemplation, as well as those that have already taken place. This ensures that potential national security risks can be examined at any stage of the process.
The National Security and Investment Bill draws on precedent in this approach. Under the Enterprise Act 2002, the Competition and Markets Authority and the Secretary of State may investigate mergers that are in progress or contemplation. To reassure my noble friends Lord Lansley, Lord Vaizey and Lady Noakes, this is a tried and tested phrase, and I will come back to that in a moment to elucidate further. Using this precedent ensures the NSI Bill is in good company. It would seem strange to limit the scope of intervention on national security if, through the Enterprise Act, an intervention is allowed on other public interest grounds where a merger is in progress or contemplation.
I said I would give some further details of this. The term “in contemplation” is not new. As I have already said, it features in the Enterprise Act 2002 and, importantly, the detailed guidance that has been issued by the Competition and Markets Authority. Let me give some examples of what this phrase means. First, a party may choose to notify the Secretary of State that they are contemplating a trigger event to get the certainty of the Secretary of State’s judgment. Secondly, a party may notify the Secretary of State that another party is contemplating a trigger event, such as if they have received, or become aware of, an offer to buy their business. We expect that in most cases, call-in notices will be issued following a notification, so these are likely not to be uncommon scenarios. Thirdly, a public announcement of a deal may have been made by one or more parties but not yet implemented. As noble Lords will be aware, there are certain publicity requirements for public takeovers, but this could also happen in relation to a private acquisition. Fourthly, a public announcement of a possible offer or a firm intention to make an offer may have been made, which would itself show that an offer was in contemplation.
Any decision by the Secretary of State to call in a trigger, even in contemplation, would, as with other uses of powers in this Bill, be subject to judicial oversight through judicial review. If the Secretary of State had merely found he had been able to read someone’s mind to know they were in contemplation of a transaction, that would be unlikely to satisfy the requirements of a judicial review. I hope I have provided sufficient explanation of the Government’s approach. It is a tried and tested phrase, which I would say is well known in the market. I hope my noble friend, therefore, feels able to withdraw his amendment.
I welcome Amendment 8 from my noble friend Lord Lansley, which seeks to partially define what is meant by the Secretary of State “becoming aware” of the publicised trigger event by replicating provisions in Section 24 of the Enterprise Act 2002. In relation to trigger events that have already taken place, the Secretary of State would only be able to give a call-in notice within six months of becoming aware of the trigger event. The Bill does not currently define what “becoming aware” means.
The Secretary of State will have a strong incentive to call in trigger events that might give rise to national security risks quickly after becoming aware of them, as he will want to address any risks that they present. Similarly, many parties will have a clear incentive to ensure that the Secretary of State is aware of their anticipated or completed trigger events so that they can achieve deal certainty. That is why we encourage parties to notify trigger events to the Secretary of State, rather than to wait for the trigger events to be detected and called in.
In general, we expect the Secretary of State’s market monitoring team to detect trigger events of interest. However, in a limited number of cases, providing for imputed awareness on the part of the Secretary of State where a trigger event has been publicised so it is generally known or readily ascertainable, may open up protracted arguments about whether the trigger event in question was adequately publicised.
I do not disagree that providing for imputed awareness on the part of the Competition and Markets Authority, as the Enterprise Act 2002 does in the context of merger control, is appropriate. But the NSI regime—this is an important point—will deal with a wider range and larger number of acquisitions, with no de minimis thresholds and a strong likelihood that many will not be comprehensively or accurately reported. This presents much greater scope for ambiguity, and for deals, particularly private transactions, to be publicised in ways that may still cause the Secretary of State to be unaware of the precise trigger event in question. This amendment therefore risks opening up the Secretary of State to greater challenge, while still allowing for substantial uncertainty for businesses and investors.
I will now speak to Amendment 9, tabled by the noble Lords, Lord Vaizey of Didcot and Lord Clement-Jones, and Amendment 10 from the noble Lord, Lord Grantchester, as both relate to the content of the statement under Clause 3. These amendments seek either to add to the non-exhaustive list of the aspects that the statement may include or otherwise to regulate what can be included in the statement.
I turn first to Amendment 10, in the name of the noble Lord, Lord Grantchester. I will put to one side his valid points about sector definitions, as we will return to that topic in a future group. This amendment seeks to require the Secretary of State to have regard to the domestic and future capacity of sectors to promote research and development, and innovation, and to protect national security when preparing the statement.
Supporting the UK’s innovative industries, and research and development, are priorities for the Government. However, the purpose of the Bill is to set up an investment screening regime that is concerned solely with the protection of national security. Therefore, the Secretary of State is able to consider innovation, research and development, and future capacity—very important topics though they are—only in so far as they are relevant to national security risk, when he carries out his functions under the Bill.
Amendment 9 seeks to add to the list of the aspects that the statement may include. Of course, the Government want to promote legitimate economic activity and to minimise unnecessary voluntary notifications. The purpose of this statement is to set out how the Secretary of State expects to use the call-in power. I am afraid that these amendments are not suitable for the statement. The statement looks forwards to future use of the call-in power, not to highlight actions already taken. It sets out how the Secretary of State expects to use the call-in power, and it is not intended to serve as an indicator of wider government action in relation to the regime. It is crucial that the acquirers can look at the statement and that it assists them in coming to a judgment about whether to voluntarily notify. With these points, I hope that noble Lords feel able not to press their amendments.
Lord Clement-Jones (LD)
My Lords, I thank the Minister for that careful analysis, but I must admit that I am not wholly reassured as a result. I feel as though we have gone in a spiral of logic and I think we ended up where we began, in a cloud of uncertainty. In particular, I thought the Minister’s arguments on Amendment 9, that the statement was forward-looking not backward-looking, were very circular. It all depends on how the statement is constructed. It can be made both forward-looking and backward-looking simply in the way the Bill is amended. So the argument there was extremely circular.
I will read Hansard extremely carefully, but to me the question about the Secretary of State being unaware means that the Government have decided that the net is going to be extremely wide. We have assurances on the sifting process, but in the end everything falls in until it is thrown out. That, I think, is what worries quite a lot of us. The contemplation point may have some precedent, but the noble Lord, Lord Lansley, made the point that these transactions are not just mergers but intellectual property licences, know-how transfer, asset sales and a whole range of things. Is the merger regime fit for purpose for this broad range of transactions?
That is all I want to say at this stage. I thought the Minister valiantly tried to justify the current wording of the Bill, but I do not think he succeeded.
Lord Grimstone of Boscobel (Con)
The noble Lord, Lord Clement-Jones, and I have had the pleasure of debating these matters at a meeting prior to this Committee, and I must confess that I was probably the author of the fishing analogy, which I may live to regret. The point is that when you are dealing with matters of national security, and these matters are so important, it is perfectly appropriate to use a large net to put the fish in, but then it becomes very important that the way your screening unit works removes fish from that net as expeditiously and efficiently as possible.
Lord Leigh of Hurley (Con)
My Lords, I thank the Minister for his response. As the noble Lord, Lord Fox, pointed out, he almost certainly has much greater experience than all of us in this Room combined in advising on transactions. For the avoidance of doubt, sadly the noble Lord, Lord Fox, has not paid me any fees in any matter, as far as I am aware, but I travel in hope. I have to disappoint my noble friend Lord Vaizey, because it does not look like the Minister will accept his very first amendment in whole. On the other hand, I do not think he has provided a slam-dunk answer, as he hoped, to reject Amendments 3 and 4 in particular.
We are very lucky to have the benefit of my noble friend Lord Lansley’s experience and wisdom from the Enterprise Act 2002, and I accept that that is where it came from. However, I do not quite see why there should be a cut-and-paste approach. The CMA will be dealing with a relatively small number of mergers of largely public companies. This will be dealing with all sorts, from minority investments of a few thousand pounds in 15% stakes to IP and—forgive me—a completely different kettle of fish. Therefore, the last thing one wants to do is to have to rely on a traditional review to see this sorted out. That would be hugely expensive and singularly inappropriate for most of the transactions envisaged, which will be of a much larger volume than the CMA and the legislation were structured to deal with. I very much hope that the Minister will have a chance to reflect on this and that he will be persuaded in particular by the point made by the noble Baroness, Lady Bowles—arrangements in progress must be strong enough. I beg leave to withdraw.
Lord Grantchester (Lab)
I thank the noble Lord, Lord Vaizey, for these probing amendments relating to the penalty of deeming mergers and acquisitions void in the event of proper notifications and subsequent assessments by the Secretary of State not having taken place. The Minister will need to explain how this will work. Most of the amendments in this group focus on Clause 13, “Approval of notifiable acquisition”, in Chapter 3. Subsection (3) states that:
“A notifiable acquisition, in relation to which a final order has been made, that is completed otherwise than in accordance with the final order, is void.”
I appreciate the view of the noble Lord, Lord Vaizey, that there could be alternative outcomes to certain elements or aspects of any deal. Has the Minister considered whether the Secretary of State could publish guidance on how the mechanisms of deeming non-compliant transactions void would work in practice? Clarity for SMEs would be most helpful.
The ability for transactions to be deemed void where they have not been approved by the Secretary of State, have not been notified or are non-compliant with any final order could have large repercussions. Clause 15, “Requirement to consider retrospective validation without application”, and Clause 16, “Application for retrospective validation of notifiable acquisition”, raise the issue of retrospection in relation to the legally void provision. Could transactions that took place in the past, even up to five years previously, be immediately deemed void? If the first transaction in a chain were deemed void, that would leave the legal rights and entitlements of all subsequent transactions’ parties in total confusion. There could be conditions in a transaction that came to fruition or were exercisable over a length of time, with these events deemed the trigger events rather than the merger itself. Those elements would have had impact at the inception of any M&A activity. An impossible series of rights, entitlements and developments would have to be unwound, which would cause great legal uncertainty.
The noble Lord, Lord Vaizey, also raised the issue of other jurisdictions or cross-jurisdictions. Have these circumstances, among the many others, been considered in the provision of this power? What are the legal implications for the process where the possible imposition of a transaction to be void is under consideration? Have the Government made plans to publish guidance in this area, even though they may consider that circumstantial evidence may make such guidance highly speculative? Many speakers have found the provision impractical and unworkable.
Lord Callanan (Con)
My Lords, first, I apologise for my noble friend Lord Grimstone, who has had to attend a debate on Kenya in the Chamber. I am afraid you are stuck with me for this one, which is obviously disappointing for the noble Lord, Lord Fox. I thank all noble Lords who have contributed.
We understand the aim of this group of amendments, which is to convert the automatic voiding provisions in Clause 13 into powers to void. Further amendments in this group then seek consistency with associated provisions in the Bill. I thank the noble Lords, Lord Vaizey and Lord Hodgson, for bringing together this grouping. I will first address the purpose of the automatic voiding provisions, before turning to the amendments in detail.
Notifiable acquisitions are those that occur within the most sensitive areas of the economy—sensitive enough that the Secretary of State judges that he must be notified and must clear an acquisition to proceed before it can complete. As such, it is essential that there are clear incentives for compliance with the regime and that any national security risks arising from these sensitive acquisitions being completed without approval are mitigated, as far as possible. Noble Lords present will understand that any Government’s first preference in legislating to create requirements on persons, particularly where the matters relate to serious issues such as national security, is that compliance with such requirements is incentivised and that we do not merely rest on the threat of weighty enforcement.
The automatic voiding provisions in Clause 13(1) mean that there is no way around these requirements and that parties who wish to evade the requirements are unable to complete acquisitions which must be approved by the Secretary of State and have not been. This ensures that the regime mitigates a wealth of national security risks, without the Secretary of State ever being engaged. It is efficient and effective government, and a key tool in protecting our national security.
However, voiding is not a sanction; it is instead the logical implication of not complying with a mandatory regime that concerns only the most sensitive acquisitions. Clause 13(3) ensures that any notifiable acquisition in respect of which a final order has been made, which has been completed otherwise than in accordance with the final order, is also void.
I understand that the voiding provisions have raised some concerns, as outlined by my noble friend Lord Vaizey, that the unaware may be unduly or adversely affected, which would otherwise lead to significant costs for parties who are affected by voiding. I hope that I can offer them the following reassurance. First, those who have been materially affected by the voiding of an acquisition, including sellers and third parties, not just acquirers, may apply for retrospective validation of the acquisition using Clause 16. If a valid and complete application is received, the Secretary of State will have up to 30 working days to decide whether to issue a call-in notice. If he does not issue a call-in notice, for example if there are no national security risks involved, he must validate the acquisition retrospectively. The impact of retrospective validation is that the notifiable acquisition is to be treated as having been approved by the Secretary of State and is, accordingly, not void. Anyone materially affected by the voiding, including those unaware of the requirements, is therefore able to secure retrospective validation, such that the acquisition was always valid in law.
Secondly, there are concerns around what happens if a significant purchase of shares in a publicly listed company is caught by the provision. Usually, for significant purchases, parties are advised by a law firm of high repute. I can also assure the Committee that, where the acquisition involves a takeover, BEIS works closely with the Takeover Panel to ensure the there are no issues in the interaction with the takeover code.
Thirdly, there are murmurings that the voiding provisions might create uncertainty. I do not think that Clause 13 could be clearer and more succinct about the effects of not obtaining the approval of the Secretary of State before completing a notifiable acquisition.
Let me now respond to the heart of the proposition of the amendments in this grouping—that voiding should be exercisable as a power by the Secretary of State, rather than being automatic. I am afraid this raises a number of issues. It is, first, unclear why and when the power to void would be exercised. The Secretary of State is already able to order the unwinding or divesting of acquisitions, following assessment as part of the final order. Why would he need to void the acquisition if it can simply be unwound or divested? Would it be intended that the Secretary of State would decide whether to void the acquisition prior to the assessment? If so, on what basis would he make that decision?
Lord Leigh of Hurley (Con)
Does my noble friend the Minister recognise that some countries allow voiding? He pointed out some that do not, but some do. Does he agree that if a transaction is voidable, it could still be declared void?
Lord Leigh of Hurley (Con)
If the legislation says a transaction is voidable, it could still be declared void.
Lord Callanan (Con)
Yes, but we are arguing it should be declared void by automatic obligation of statute, rather than it being a power the Secretary of State could exercise. I have just explained that.
Lord Vaizey of Didcot (Con) [V]
Although I mentioned it at Second Reading, I refer noble Lords to my entry in the register of interests. Also, as noble Lords have done throughout Committee, I thank all the trade bodies that have been so helpful in advising noble Lords on some of our amendments and, particularly, for me, Veronica Roberts at Herbert Smith Freehills. Just for the record, may I also say how delighted I am that it is the noble Lord, Lord Callanan, responding on my amendment rather than the noble Lord, Lord Grimstone? I had a touch of the noble Lord, Lord Grimstone, on my previous amendment, and now, to have the noble Lord, Lord Callanan, frankly, my cup runneth over.
I thank all noble Lords who have supported my amendment. Without wishing to pick any winners, I thought that the noble Baroness, Lady Noakes, put it most succinctly when she spoke of the automatic voiding penalty. She channelled her inner football commentator by saying the automatic voiding was a “massive penalty”. I think that is right. I also point to the noble Lord, Lord Leigh, who has been very good at introducing me to the mysteries of Lords amendments and has marshalled me extremely well. These amendments pose an unanswerable question to the Minister, because if they are accepted and a transaction can be made voidable, it can, by definition, be voided. It is just not automatic. It ensures voiding can apply where the Government think that is the only solution with a transaction that has not been notified.
In the real world, it is unlikely that a mandatory notification would not be made. The tenor of most of the speeches that have been made during the passage of this Bill is that the Government should expect far more notifications than they have estimated so far. The Minister is quite right to say that anyone transacting in the midst of a mandatory area is likely to have some high-powered lawyers advising them.
What I would say in response to the Minister’s excellent response to this debate is that there are certain points that I feel have not been addressed. One is obviously going back to the massive penalty phrase. If you void a transaction where it is part of a wider transaction, how do you go about unwinding it? Would there not be other, more suitable punishments than simply voiding the entire transaction? Indeed, as the Minister indicated, there will be plenty of people—shareholders, for example—who will be unduly punished by the automatic voiding provisions. Surely there must be alternative punishments.
However, by definition, given that you can effectively retrospectively apply to the Government if you have failed to comply with the mandatory notification requirements, you are, as my noble friend Lord Leigh pointed out, effectively making your transaction voidable. You are giving the Government the chance not to void the transaction, yet by introducing an automatic voiding penalty, the Government have precluded themselves from punishing the parties who failed to comply with their requirement for mandatory notification. Giving themselves flexibility by allowing themselves potentially to void a transaction also gives them the flexibility to impose other punishments.
There are other dogs that have not barked in this debate. In other amendments that we have been debating, previous legislation has been cited as an example that has guided the Bill—but there is no similar sanction, as far as I am aware, in any other business-facing legislation in this country. I hope the Minister will not mind me teasing him a bit at the end because I suspect I know—I think I am right in saying—where his sympathies lie in terms of the great debate of the past decade between Brexit and remain. Is there not an irony in him citing the great example of the French and the Germans but ignoring the far more practical Anglo-Saxon common-law tradition evidenced in the US, Canada and Australia? I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town (Lab)
My Lords, we support the approach of this amendment. As we have all made clear, the new regime must focus on protecting national security. The clue is in the title of the Bill. The definition of national security has to take best advice from across the Government about the threats and behaviour of our adversaries.
While I hope the Government will monitor the impact of the Act on technological investment, innovation and SMEs—which I hope a different part of the Government is actively supporting—those interests, along with employment, investment and competition, cannot and should not trump national security, albeit that I hope that the Government would consider mitigating any detrimental domestic impact of placing security first if that were needed.
Clearly, concerns about any political pressure, rather than any disregard for the issues listed, give rise to this amendment. The tone and the purpose of it are ones that we share.
Lord Callanan (Con)
I thank everybody who has spoken in this debate and thank my noble friend Lady McIntosh of Pickering for tabling the amendment. It seeks to clarify that certain factors, namely employment effects, reciprocal investment or trading opportunities and the desire to protect UK businesses from international competition, cannot be taken into account in assessing whether a trigger event would give rise to national security risks. I was surprised to see that the noble Baroness, Lady Bennett, and my noble friend Lady McIntosh are now differing on some things. That is most unusual; it is something to be encouraged for the future.
My noble friend articulates a reasonable concern here: that a regime used to screen investment for national security purposes could be used to screen investments more widely. Indeed, the shadow Secretary of State, in his opening speech at Second Reading in the other place, argued that the Bill should include an industrial strategy test—I was therefore surprised to see the noble Baroness, Lady Hayter, supporting this amendment.
As such, I have some sympathy with the aims of this amendment. I can, however, reassure my noble friend that the Bill is about protecting national security, nothing more and nothing less. The Bill does not set out the circumstances in which national security is, or may be, considered at risk. As I said on previous groups, this reflects long-standing government policy to ensure that national security powers are sufficiently flexible to protect the nation. The Bill also does not include factors which the Secretary of State must or may take into account when assessing national security risks. Instead, factors that the Secretary of State expects to take into account in exercising the call-in power are proposed to be set out in the statement that we have provided a draft of and is provided for by Clause 3.
The draft statement, published upon introduction of the Bill, includes details of what the Secretary of State is likely to be interested in when it comes to national security risks. This includes certain sectors of the economy, and the types of acquisitions that may raise concern. It does not currently state anything which the Secretary of State intends not to take into account with regard to national security. This is a conscious choice. If the Secretary of State were to start listing areas of the economy or types of acquisition that he considered unlikely to present national security concerns, I suspect that this would result in a long and dense document of little use. We judge that it is therefore more helpful for businesses and investors to set out where the Secretary of State is more, rather than less, likely to use the call-in power.
I understand, however, the concern that without a definition extraneous factors may be taken into account. My reassurance for my noble friend comes from the courts. Were the Secretary of State to seek to use the powers in the Bill for a purpose beyond national security, his decisions could be challenged in the courts through judicial review and could not be successfully upheld. It is with this judicial oversight in mind that the Secretary of State is constrained in delivering the purpose of the Bill. I am therefore confident that the Bill as currently drafted contains sufficient safeguards against inappropriate use of the regime, and that the Government are already providing a good amount of information for parties affected by the regime on its likely areas of focus.
I hope that my explanation, taken together with these points, provides sufficient reassurance to my noble friend, and that she therefore feels able to withdraw her amendment.
Baroness McIntosh of Pickering (Con)
My Lords, I am most grateful to all those who have spoken in the debate, particularly my noble friend Lord Hodgson, and the noble Lord, Lord, Clement-Jones, for their eloquent support.
Like the Minister, I am slightly baffled by the sudden lack of support from the noble Baroness, Lady Bennett, with whom I have enjoyed a deeply cordial relationship. I obviously take issue with a number of issues to which she referred, not least setting out the importance to the economy of foreign investment, which is well established and repeated in the national security and investment government response published, I understand, this week. I also take issue with the fact that I am not a great expert on the financial crash, although I seemed to lose an awful lot of the small amount of money I had invested in the stock market. What is the saying about how to make a small fortune in the stock market? I have forgotten, but, anyway, that burnt my fingers.
I believe that the start of the financial crash was actually in the US, with the selling of mortgages, both in the US and here, for a greater value than the value of the property, and a lot of grief was caused as a result. I am pleased that my noble friend Lord Callanan feels that the Bill is still perfectly formed and fit for purpose, but I beg to differ. My noble friend referred to the statement in Clause 3, but we are told that the Secretary of State only “may” publish such a statement. Clearly, it would be immensely helpful to have such a statement at this stage, if possible, to give an indication of the direction of travel.
Baroness Hayter of Kentish Town (Lab)
My Lords, we welcome the Government’s Amendment 12 to make changes to the sectors statement in respect of feedback from stakeholders. Can the Minister confirm whether all the suggested changes that come back in that consultation will actually be published?
I will make a comment about the document that has arrived in front of us today because, in a sense, it gives a very good description of how good consultation works—never mind the timing; we have made that point—in relation to the degree of change that looks as if it is going to happen as a result of conversation on that particular issue. However, it then feeds into what happens if, had this been the statement, changes were wanting to be made. For example, what we have heard today, as a result of some very good consultation, is that the definition of AI has been narrowed significantly to focus on three high-risk applications: identification of objects, people and events; advanced robotics; and cybersecurity.
The interesting thing is what happens after you have had a consultation that has got the Government to rethink and that may then have other implications. In this case, with those changes, does this change the Government’s estimate of the number of notifications that that might give rise to, in relation to the change in definition? It is that sort of issue that might come up, and it would want the dialogue that I think is being referred to in the amendment, in relation to whether there is a second stage—if it is turned down, so to speak—about having to go on further. As such, how we handle the feedback is about both the transparency of what has come back in and the full implications of any changes that that has made.
We keep coming up with the figures where, even though the Government have increased the assumption of how many notifications there would be—less than 1% or so—the CBI and other commentators feel it would be much greater. As such, that degree of dialogue is needed in relation to consultation over these very big issues. Some assurance about the results of such a consultation, as well as a second stage, seems very helpful, along the lines in the amendment.
On the Government’s Amendment 75, it would be interesting to know what advice led to the change—we are not questioning it but wondering why it has been made—to extend the regulatory power from a notice or serving an order to include all documents as well. It would be helpful, certainly to me and possibly to other Members of the Committee, to know what other types of additional documents will thus be added to this regulatory power—could the Minister spell that out?
Lord Callanan (Con)
First, I thank my noble friend Lord Lansley for his Amendment 11. With the permission of the Committee, I will speak first to the three minor technical amendments that the Government wish to make to the Bill: Amendments 12, 37 and 75. Briefly, before I begin, I reassure the Committee that the Secretary of State must lay and publish a statement before using the call-in power.
Amendment 12 is to Clause 4, which concerns consultation and parliamentary procedure for the statement pursuant to Clause 3, in which the Secretary of State sets out how he expects to use the call-in power. At present, Clause 4 enables the Secretary of State to meet the requirement to carry out such consultation as he considers appropriate, in relation to a draft of the statement under subsection (1)(a), before Clause 4 is commenced.
However, it does not make it clear that the Secretary of State is able to make any changes that he considers necessary in view of the responses to that consultation under subsection (1)(b) before the clause is commenced. Amendment 12 clarifies this point, ensuring that stakeholders will be able to see a revised draft statement before it is laid before Parliament.
Amendment 37 is to Clause 11, which provides an exemption for certain asset acquisitions which would otherwise be trigger events. Subsection (2), however, provides that assets that are either land or are subject to certain export controls should not fall within the exemption, and subsection (2)(b) sets out the relevant export control provisions. One of these provisions, Article 9 of the Export Control Order 2008, was revoked on implementation period completion day as a result of EU exit by Regulation 4 of the Export Control (Amendment) (EU Exit) Regulations 2019, with which I am sure all Members are very familiar. The amendment would remove the reference to this revoked provision from Clause 11.
Amendment 75 is to Clause 53, which enables the Secretary of State to make regulations, subject to the negative resolution procedure, prescribing the procedure for giving notices and serving orders under the Bill. At present this clause enables the Secretary of State to specify how a notice or order must be given or served, but does not make it clear that these powers are intended to extend to all documents given under the Bill. The amendment would clarify that point, ensuring that the Secretary of State has the power to make regulations in Clause 53(1) in relation to the procedure for service of documents for all the different types of notices, orders and other documents under the Bill. These are relatively small tweaks to the Bill, and I hope that the Committee will see fit to agree to them.
Amendment 11 was tabled by my noble friend Lord Lansley, and I will begin by briefly setting out its context. Clause 4 sets out a consultation requirement and parliamentary procedure for a statement about the exercise of the call-in power which must be published before the Secretary of State may issue a call-in notice. It requires the Secretary of State, before publishing the statement, to carry out such consultation as he thinks appropriate in relation to a draft of the statement, to make any changes to the draft that appear to him to be necessary in view of the responses, and to lay the final statement before Parliament.
My noble friend’s amendment seeks to clarify the process by which the Secretary of State may publish a new statement if either House resolves not to approve the previous version that he lays before Parliament. The apparent stumbling block that the amendment seeks to remove is that the Secretary of State is under a duty to carry out such consultation as he thinks appropriate in relation to a draft of the new statement, and make any changes to the draft that appear to him to be necessary in view of the responses to such consultation. However, I point out that the Secretary of State must carry out such consultations as he “thinks appropriate”, according to Clause 4(1)(a).
The Bill therefore provides the Secretary of State with some measure of flexibility in deciding whether, for how long and how widely the draft statement should be consulted on. Therefore, the Bill as drafted does not in appropriate circumstances prevent the Secretary of State from publishing a new updated statement, reflecting the debate in Parliament, almost immediately without first undertaking a consultation if he does not think that a consultation is appropriate.
In short, while my noble friend’s amendment seeks to ensure that a new statement may be laid speedily if either House resolves not to approve the previous version, the Bill as drafted already allows for this. I am grateful that he has afforded me the opportunity to make the functioning of this clause clear. Therefore, in the light of the explanation that I have been able to provide, I hope that he will feel able to withdraw his amendment.
Lord Lansley (Con)
My Lords, I am grateful to all noble Lords who have participated in this short debate. It is quite helpful just to focus on the question of making a statement because, if one looks back at Clause 1(6), it clearly states:
“The Secretary of State may not give a call-in notice unless a statement has been published (and not withdrawn) for the purposes of section 3.”
Although the word “may” is used in Clause 3, all it means in practice is that, if the Secretary of State chooses not to bring any of this into force, he would not publish a statement—but if he wants to issue call-in notices, he has to publish a statement. My noble friend the Minister is right in the sense that he must do this for the system to operate. The words I want to focus on, however, are “and not withdrawn”. If either House of Parliament resolves not to approve a statement, he must withdraw it. At that moment, the Secretary of State can issue no further call-in notices. My noble friend says the amendment is unnecessary because the Secretary of State has the power to consult only as he thinks appropriate.
Lord Callanan
Member’s explanatory statement
This amendment ensures that as well as carrying out the consultation on the statement about the exercise of the call-in power, the requirement to make changes to the statement in view of the responses to the consultation may also be met before this section comes into force.
Tuesday 9th March 2021
(4 years ago)
Grand CommitteeNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: HL Bill 165-II Second marshalled list for Grand Committee - (4 Mar 2021)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
I thank all noble Lords who have contributed to this very useful short debate. I welcome the amendments proposed by my noble friend Lord Vaizey. Taken together, as numerous speakers have said, his amendments would exempt UK investors and investors from other particular countries from the Bill’s mandatory notification regime. As it stands, both the mandatory and the voluntary notification regimes provided for by the Bill are both actor and nationality-agnostic. The mandatory notification regime is based on the risks posed by acquisitions of target entities due to those entities’ activities, rather than the risks posed by the acquirers. The risks posed by acquirers are then considered on a case-by-case basis by the Secretary of State as part of the particular national security assessment.
My noble friend is right to suggest that, in many cases, acquisitions by UK nationals and UK-based companies, or those based in like-minded countries, are less likely to give rise to national security concerns, even in relatively sensitive sectors. Such acquirers, if their proposed acquisitions do not give rise to national security risks, will find their acquisitions cleared to proceed by the Secretary of State, following assessment or following call-in, should that be necessary, for further review.
However, an acquirer’s nationality cannot tell the Secretary of State everything he needs to know about that acquirer’s intent. For example, it is possible that a UK acquirer may be paid by a hostile actor or otherwise have strong links to hostile actors based outside the UK. A similar rationale follows for the amendment’s reference to other like-minded countries. So, excluding purely on the basis of nationality could create a loophole to exploit.
The particular approach of the amendments in this group also raises some practical challenges. For instance, the references to nationality appear not to deal with the issue of dual nationality; nor is a change of nationality covered. Key considerations in designing this regime have included ensuring that it is not discriminatory, and that it upholds our World Trade Organization and other international obligations in this regard. It is not clear that these amendments would achieve this.
None the less, we wish to consider over time how we might temper and adjust the regime to take account of areas of lower risk. Under Clause 6, the Bill gives the Secretary of State the ability to make exemptions from the mandatory notification regime based on the “characteristics” of the acquirer. This may include nationality if this is judged appropriate and the various issues that I have highlighted can be resolved.
We will of course monitor closely how the regime works in practice to determine through detailed further work and carefully assess whether any such exemptions should be introduced. Any such regulations would be subject to appropriate parliamentary scrutiny through the affirmative procedure.
I welcome the opportunity to discuss the impact of nationality on the regime with my noble friends and to set out our thinking in more detail. However, for the reasons I have given, I cannot accept my noble friend’s amendments. Before I conclude, I can confirm to the noble Baroness, Lady Hayter, that the Government will engage with a number of stakeholders on the voluntary and mandatory notification forms. Therefore, given the points I have made, I wonder whether my noble friend will consider withdrawing his amendment.
Lord Vaizey of Didcot (Con) [V]
My Lords, I am grateful to my noble friend the Minister for his response. Never have I seen so many noble Lords and noble Baronesses arraign so uniformly against an amendment, so the mood of the Grand Committee is clearly against me. In fact, through the powers of my advocacy I think that I even persuaded the noble Baroness, Lady Bowles, to move from being a supporter to an opposer of my amendments, if I followed her speech correctly.
I am not sure that the issue of media ownership threw much light on the power of my amendments. However distasteful we might find the antics of media owners in this country, the British ones are just as guilty as any foreign ones of potentially challenging our democracy.
My noble friend Lord Lansley was correct to say that I included New Zealand along the lines of the Five Eyes, although I notice that he said that the US regime could be helpful to UK businesses if the UK was exempt from the equivalent provisions in the US. That was the purpose of my amendment.
Fundamentally, the point I was trying to make with these amendments, which did not really shine through, is that I seek not to hide any transactions from the national security regime but simply to avoid an overwhelming number of mandatory notifications for the department. Of all the speeches that I heard, the Minister’s was the most supportive. I noted his very welcome comments that the door remains ajar, as the regime develops, to put in place provisions to ease the bureaucracy and the number of mandatory notifications.
Finally, I was inspired by my noble friend Lord Leigh of Hurley’s speech to potentially draft a new amendment as we progress—perhaps the pub amendment, whereby the only transactions that can be notified in a mandatory fashion to the Government are those that can fit into my noble friend’s local pub. I beg leave to withdraw the amendment.
Lord Callanan (Con)
First, I extend my thanks to the noble Baroness, Lady Hayter, and my noble friend Lord Leigh for the amendments in this grouping. Let me start by addressing Amendments 15A and 17, which concern the scope of the mandatory notification regime.
Clause 6 sets out the circumstances where a notifiable acquisition takes place for the purposes of the Bill. Noble Lords will see in subsection (2) that the types of acquisition covered by mandatory notification are not simply the full list of trigger events in Clause 8. Rather, notifiable acquisitions are objective circumstances based primarily on an acquisition taking a party’s holding of share or votes to or past a particular numerical threshold. The amendment of the noble Baroness, Lady Hayter, would remove subsection (2)(b) to remove the lowest of the numerical thresholds: 15%. My noble friend’s amendment seeks to amend Clause 8(2)(b).
Let me make three points about these amendments, which I trust will address the concerns which the noble Baroness, Lady Hayter, and my noble friend Lord Leigh raised in their opening comments. First, acquisitions that take a party’s shares or voting rights in a specified entity to 15% or more, not exceeding 25%, are notifiable even though they are not, by themselves, trigger events that may be called in by the Secretary of State for scrutiny under the Bill. We have, nevertheless, required such acquisitions to be notified, because increases in shares or voting rights to 15% or more may realistically result in the acquirer having material influence, and therefore control, over the policy of the entity, and that would constitute a trigger event.
The notification requirement is thus intended to ensure that the Secretary of State is made aware of the proposed acquisition and can take steps to determine whether material influence will in fact be required. The 15% threshold is broadly consistent with the UK’s merger framework. As the Competition and Markets Authority notes in its merger guidance, although there is no presumption of material influence below 25%, shareholdings of 15% or more may be examined to see whether the holder might be able materially to influence the company’s policy. We think that this strikes the right balance by requiring parties to focus only on a numerical threshold, while still allowing the Secretary of State to be notified about, and then call in if the legal test is met, more subjective acquisitions of control in the most sensitive sectors.
Secondly, my noble friend made an important point: the investment security unit will be required to process notifications for acquisitions of 15%. We expect that, as with acquisitions across the regime, the vast majority will quickly be cleared to proceed. It is vital that the statutory timescales set out in the Bill for processing such notifications are met to maintain business and investor confidence; the Government will resource the investment security unit accordingly to do just that.
I understand that my noble friend has a particular interest in what “material influence over the policy of an entity” relates to. I assure him that material influence is an existing concept under the Enterprise Act 2002. The Competition and Markets Authority sets out what it considers constitutes material influence in its mergers guidance. The Secretary of State intends to apply this in so far as it is possible in the context of this new regime for the purposes of determining whether control has been, or is to be, gained over a qualifying entity. For the avoidance of doubt, the Government have no plans to publish their own separate guidance on material influence.
My noble friend also queried the reference in subsection (3) to excluding acquisitions that are “impossible” to notify from constituting notifiable acquisitions. Let me explain the reasons for this. The Government recognise that there may be circumstances where it is impossible to notify and obtain clearance from the Secretary of State for an acquisition before it takes place. They could include lack of awareness on the part of the acquirer that they were about to acquire control, or where it was otherwise impossible to notify in the time available before the acquisition took place.
Let me give an example. A beneficiary to a will may have no prior knowledge that that they stand to inherit a stake in a business that would ordinarily be a “notifiable acquisition” and will automatically do so on the execution of the will. The Bill does not exhaustively define the circumstances that are “impossible”. I have given one example around inheritance; others might include bankruptcy, intestacy and by operation of law, but these examples are indicative.
The third point I should make, specifically about my noble friend’s amendment, is that, as currently drafted, it would not simply remove the 15% threshold but replace it with a reference to 25%. On this point, I hope he will recognise that subsection (2)(a) of the clause already provides for this—or, to be specific, very close to this effect—as it draws on the existing numerical trigger event thresholds in Clause 8, which start at acquisitions taking a person’s holding past 25%. As such, the amendment would duplicate those existing provisions and would in fact result in a requirement to notify when acquiring specifically 25% and then again if moving beyond 25% in future. I trust he will agree that we should avoid this, I am sure, unintentional effect.
Amendment 19A in the name of the noble Baroness, Lady Hayter, seeks to prevent notifiable acquisition regulations being used to bring asset acquisitions in scope of the mandatory notification regime. Let me start by setting out why it is important that the delegated powers in Clause 6 are not constrained in this way before I address the amendment itself.
The noble Baroness will accept, I am sure, that the future is uncertain, that the threats we face as a nation inevitably change over time and that the ways in which hostile actors seek to bring us harm are constantly evolving. That is precisely why the Bill extends the new investment screening regime’s coverage to acquisitions of individual assets, not just acquisitions of control over entities. We cannot, and should not, rule out the possibility that changes to the scope of the mandatory notification regime may be required, based on the types of acquisition and not just the sectors in which they take place.
None the less, the noble Baroness has spoken powerfully on a couple of occasions about the concerns of the Wellcome Trust and others, so let me say this categorically: the Government have no current plans to bring assets in scope of the mandatory notification regime, and neither subsections (5)(a) nor (6) require them to do so; they merely allow for that possibility, subject to the restrictions in subsection (7). Were we or a future Government to do so, it is clear that such a move would constitute a major change to the regime. It is difficult to conceive of many instances where consultation with relevant stakeholders would not be a practical necessity for a change such as this.
Lord Leigh of Hurley (Con)
I thank my noble friend the Minister for his very considered comments, in particular his explanation of Clause 6(3). I think it allows a coach and horses to be driven through most of this legislation if someone can claim an impossibility. The examples he gave were excellent but there will be many other examples where people can claim an impossible circumstance. We will come on later to talk about, for example, the position of administrators and liquidators, and I can think of many others as well. I would have thought Clause 6(3) needed refinement.
Both the Minister and the noble Lord, Lord Fox, mentioned “materially control” as opposed to “materially influence”. There is a difference and this is not about materially controlling but about materially influencing. Regarding Clause 8(8), I accept that there are definitions elsewhere of materially influencing the policy. However, I remain of the view that it is not possible below 15%, or indeed below 25%, to materially influence the policy as far as national security is concerned. Therefore, I very much hope that my noble friend the Minister has a chance to reflect on this specifically before Report.
Lord Callanan (Con)
I will take that as a comment and not as a question. I continue to look at all aspects of the Bill to see how they can be improved.
Baroness Hayter of Kentish Town (Lab)
The Minister referred to the meeting that he and the noble Baroness, Lady Bloomfield, very kindly held yesterday with the Wellcome Trust, and I very much welcome the reassurances that he has read into the record today. The shorthand for this is the nervousness in academia of bringing in assets—IP, information, ideas and software—rather than just entities. That was what we discussed at the meeting yesterday, and the Minister has now read into the record the reassurances he gave there, for which we thank him.
I thought that the suggestion—I was going to call it a wheeze—of the noble Lord, Lord Lansley, was rather crafty: if that is what you mean, why do you not say it upfront? However, from what the Minister said, there seems to be a difference between the objective and the subjective criteria. I do not know whether that is why the Government want them in different clauses, but there is a problem with the subjectivity of this phrase. It is not simply, as the noble Lord, Lord Leigh, just said, about material influence rather than material control, but also the policy, and it is hard to define what that means. It seems to me a very subjective test for the big change made in Clause 6. I remain unconvinced that we have got it clear enough.
I thank the noble Baroness, Lady Bowles, for explaining where the 15% figure, to which the Minister referred again, comes from. The CMA uses it when talking about mergers, but we are talking here about big companies, not small ones. However, because there is no threshold, much smaller companies will be covered by this. It may be absolutely important for the takeover of very large companies whether competition is taken out of the market. The Minister knows that, as a consumer champion, I am always very happy for the CMA to look at the impact on competition. However, I have my doubts whether a regime defined for competition in consumer goods and access should be lifted and shifted—the Minister said that there will not be separate guidance—into something that will sometimes affect small start-ups and new developments.
I certainly know more about the subject than I did 43 minutes ago, for which I thank all those who have spoken on the amendment. As has been said, I hope that the Minister and his draftspeople will look at whether this is clear enough, necessary and appropriate for the sorts of investments we are dealing with. When the Minister gives a bequest in a will as the reason for including a particular provision in the Bill, that feels like clutching at straws to me. I hope there are better arguments than that, but, for the moment, I beg leave to withdraw the amendment.
Lord Grantchester (Lab)
I thank the noble Lords, Lord Clement-Jones and Lord Bilimoria, for the opening amendments in this group, which give rise to various considerations. We recognise the caveat in Amendments 20 and 24 to mitigate the impact of hostile actors going to complex lengths to hide their interests in a qualifying asset or entity. It is also understandable to set de minimis thresholds. Having the powers in the definition still requires a thought process to initiate using them. There have been several instances in which hostile actors have behaved entirely transparently that have not been identified and prevented. Indeed, mitigating actions may have been rejected even by the Government.
One needs only to recall the debate over the growing dependency of many nations on China and the resultant rejection of identifying potential harm that could result. It could be raised here regarding dependency on research skills and partnerships in the technology fields, with security implications. Indeed, the Government’s assessment of risk can be mysterious. In relation to the Bill, perhaps what we need to see are the ways in which the Government will actively identify evolving and growing risks, whether or not they hide behind complex organisations or a complex process of additionality. Has the Minister considered this and when a risk may change its colours?
To the proponents of the £10 million threshold in the amendments, is there some logic or any evidence that this is indeed the correct level, other than that other jurisdictions may have chosen it? The valuation of some of these types of asset is hard to quantify and the value of a database code or algorithm will be considered much greater once in the hands of a hostile intent. The intention not to overburden SMEs with the bureaucracy of this regime is worthy and commendable, but may not be easily carried out. How many SMEs would be excluded as a consequence and would it also benefit the department not to have to devote resources to excessive screenings of transactions?
Amendments 52A, 55A, 64A and 67A, also thoughtfully proposed by the noble Lords, Lord Leigh and Lord Clement-Jones, are for the fast-track procedure for notifications. Has such a procedure been considered by the Government? It has yet to be identified how the regime proposed by the Bill will deal with so-called everyday transactions in the business community and the amount of resources that will need to be committed to so-called evidently non-controversial activity. Would this allow the possibility of experience gained through the Bill to mature into a more workable format?
In the drafting of the procedure, care would need to be taken regarding the person being given the ability to give the relevant notice. In one interpretation it could be the company initiating such a request, not only the person acting on behalf of the Secretary of State. That would result in everyone requesting a fast-track procedure. The Minister’s remarks will be interesting in this respect. Overall, it would be perhaps best to ensure that the regime is set up in the first instance in the Bill to be properly resourced and to have properly identified targets for all its notifications.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, I thank my noble friend Lord Leigh of Hurley for his Amendments 20 and 24, my noble friend Lord Lansley for his Amendment 25, the noble Lord, Lord Clement-Jones, for his Amendment 26 and my noble friend Lord Leigh and the noble Lord, Lord Clement-Jones, for their package of Amendments 52A, 55A, 64A and 67A. I will take them sequentially.
I completely agree with my noble friend Lord Leigh and the noble Lord, Lord Clement-Jones, that we must be careful to do nothing that diminishes the entrepreneurial or innovative spirit in our country or to diminish the attractiveness of this country for investment. You might imagine that, as the UK’s Minister for Investment, I am especially concerned about the latter point. In answer to the noble Lord, Lord Fox, I have spoken to many investors and VCs and, once the rationale and the processes of the Bill are explained to people, I have been very reassured by the reception that the Bill has had. The key point one has to explain is that the investment screening unit will be a rational unit that will seek to minimise time spent and maximise efficiency wherever it can.
With the permission of my noble friend Lord Leigh, I will address his Amendments 20 and 24 together, given that both relate to introducing de minimis thresholds into the regime. Clause 7 defines the meaning of “qualifying entity” and “qualifying asset” for the purposes of the Bill. These definitions underpin reasonable and proportionate powers for the Secretary of State to scrutinise acquisitions of control of qualifying entities and assets where that raises national security risks.
Lord Grantchester (Lab)
I thank the noble Lord, Lord Hodgson, for his three amendments in this group and the noble Lord, Lord Clement-Jones, for adding his name to the first, Amendment 21. He has an alternative to Amendment 27, Amendment 26, which was in the previous group, but both amend activities in general, so that they are more specifically attached to the person controlling those activities. The noble Lord, Lord Clement-Jones, has recognised his amendment as “rogue”.
The noble Lord, Lord Hodgson, queries the extension of Clause 7(3)(b) to suppliers of
“goods or services to persons in the United Kingdom”,
and asks for an explanation. Have there been previous incidents and what specific goods or services were involved, with what implications?
Clause 7(6) specifies land as well as “moveable property” and, in relation to Amendment 27 of the noble Lord, Lord Hodgson, gives rise to my reflections on the question of land and its use. While clearly an asset, the distinction is not made between the Bill’s application to ownership of land, in the sense of control, and any lease of its use, whereby a person other than the owner could be said to be in control. The Bill merely has the words “used in connection” to activities. Is this distinction relevant and what proof would be needed to clarify which person is in control of land?
One of the key sentences in the Government’s Statement of Policy Intent is in the section on acquirers:
“Clearly, national security risks are most likely to arise when acquirers are hostile to the UK’s national security, or when they owe allegiance to hostile states or organisations.”
Land, and the use of it in such a context, is made relevant as a qualifying asset. Yes, an operation needs to operate somewhere and will require land. Does this require any further reflection with regard to the workings of the regime? Can land in a particular country be considered a particular threat?
Amendment 32, in the name of the noble Lord, Lord Hodgson, to Clause 9, regarding control of assets, returns us to Clause 7(6). The Minister may wish merely to identify the strategic risk attaching to land in particular locations only.
Lord Grimstone of Boscobel (Con)
My Lords, I welcome these amendments from my noble friend Lord Hodgson of Astley Abbotts, which concern the extraterritorial application of the call-in power. Amendment 21 seeks to ensure that where an entity is formed or recognised under the law of a country or territory outside the UK, it will be a qualifying entity only if it carries on activities in the UK but not where it supplies goods or services to persons in the UK, as the clause currently provides.
I am afraid that I was slightly unclear on the precise intent of Amendments 27 and 32 so, for the benefit of the Committee, I am interpreting them as seeking to remove the provision currently in Clause 7(6)(b): that an asset situated outside the UK or the territorial sea is a qualifying asset if it is used in connection with the supply of goods or services to persons in the UK. This would mean that an asset situated outside the UK or the territorial sea is a qualifying asset only if it is used in connection with certain activities carried on in the UK.
It is important that entities formed or recognised outside the UK which provide goods or services to persons in the UK are captured through the Bill as their acquisition may give rise to national security risks to the UK. The noble Lord, Lord Fox, asked for some examples, and I am happy to provide them. For example, a foreign-registered company that does not carry on activities in the UK may still provide essential goods or services to parts of our critical national infrastructure. If a hostile party were to acquire control over that supplier, it could use that control to degrade our infrastructure. To take another example, imagine an overseas supplier of machinery or compounds to a UK-based entity producing cutting-edge advanced materials for our military. Control over that supplier could provide a hostile party with an insight into certain military capabilities or a means to sabotage the work of the UK entity to harm our military. As my noble friend Lady Noakes recognised, this could have a severe effect on national security.
Similarly, it is important that land and moveable property assets situated outside the UK or the territorial sea and intellectual property assets used in connection with the supply of goods or services to persons in the UK are also captured as their acquisition can give rise to national security risks to the UK. For example, as I have said previously, the acquisition of a wind farm situated outside the UK and its territorial sea that provides critical energy supplies to UK industry and consumers may give rise to national security risks, even though it is not strictly used in connection with activities in the UK. If the noble Lord, Lord Clement-Jones, would like to hear this example a third time, he only has to lay a further amendment.
Of course, any extraterritorial use of the powers under this Bill should be proportionate as well as meeting the other tests in the Bill. That is why the Bill explicitly sets out a UK nexus requirement that means that the Secretary of State may intervene to assess an acquisition overseas only where it has a clear connection to the UK. Remedies may be imposed at the end of an assessment only if the Secretary of State reasonably considers that they are necessary and proportionate for the purpose of safeguarding the UK’s national security. As such, the extent of an acquisition’s connection to the UK will be a clear factor in that decision.
The Bill also explicitly limits the application of remedies to persons outside the UK to those who have a clear connection to the UK—for example, UK nationals or companies, or those who carry on business in the UK.
I am conscious that I may not have answered fully the questions from the noble Lord, Lord Grantchester. If I reflect, after looking at Hansard, that I have not, I may write to him. I understand, taking these amendments as a group, the desire to probe the Government in this area, but I hope that, with this explanation, my noble friend will feel able to withdraw his amendment.
The Deputy Chairman of Committees (Lord Bates) (Con)
I have received one request to speak after the Minister from the noble Lord, Lord Fox.
Lord Fox (LD)
I am probably being extremely stupid here, so please forgive me. In the first example of a foreign business supplying a critical operation in this country, I understand that that would be a problem were it taken over by a hostile nation. Let us imagine that a Belgian company, or perhaps a Canadian one, is being taken over by a company or a regime that we consider hostile. What is the Secretary of State’s next move in stopping it happening? I do not understand what the Secretary of State’s remit is over that Belgian or Canadian company, other than to suggest to the recipient of the supplies in this country that they have to change their supplier.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord, Lord Fox, for that question. I assure him that it is not stupid. I think the answer is in what I said towards the end of my speech. The Bill explicitly limits the application of remedies to persons outside the UK to those who have a clear connection with the UK, for example, UK nationals or companies, or those who carry on business in the UK. That provides the nexus back to the UK, which I think the noble Lord was searching for.
Lord Hodgson of Astley Abbotts (Con) [V]
My Lords, I thank all noble Lords who have participated in this debate. I was extremely relieved to hear from the noble Lord, Lord Clement-Jones, that Amendment 26 was a rogue amendment. He and I had both put our names to it originally and I withdrew mine. When I found that he had left his there, I thought he had seen some angle and I was going to be blown apart and take a torpedo amidships. I am grateful to hear that it was a rogue amendment.
I am grateful to my noble friend the Minister for the examples. I am still reaching for the implications of the question asked by the noble Lord, Lord Fox. I am not yet convinced that the qualifying entity idea has been probed enough, given that it has proved effective in the Bribery Act and has a similar purpose there. I will read what he has to say, think about it and maybe bring this back for a further discussion. In the meantime, I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town (Lab)
My Lords, I am still slightly reeling from having to find names of people long since in my past, but maybe Hansard can piece things together.
We have heard today, both in this group and in others, and in the representations that we have all seen, that there are considerable investor concerns about bits of the Bill, some of which Amendments 29 and 72 in particular seek to address. It is important to recognise, although it has been made clear by people in Committee, that the Bill marks a radical transformation of national security screening for mergers and acquisitions. It is a new and different regime, so it is essential that the Government not only maintain business confidence but gain more confidence from businesses and the investors in them. That was why, on the first day of Committee, we set out why we thought we needed a definition of national security to provide clarity for businesses and investors and to build trust in the regime.
However, as has been said in this group, one of the things that would help that confidence is better drafting. The noble Lord, Lord Fox, is right when he says that more work is needed. I know it is the second day back at school, but it feels as if the homework has been self-marked and now needs a slightly more thorough look. As everyone has said, it is not that anyone has objections to the purpose of the Bill; the concerns are about the wording and perhaps the breadth of its scope.
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 the regime. This is clearly a key part that must be got right. Amendment 29 would narrow the third circumstance to make sure that it does not capture minority investor veto rights, as has already been mentioned. Perhaps the Minister could clarify whether it is expected that minority investment veto rights would be captured.
The group of amendments raises some broad questions about the number of cases in which a person gains control of a qualifying entity. We are interested in why other cases are not included. We do not necessarily want them included but want to work out the limits that brought certain things to be put in the Bill. It is quite interesting to know what is not there. For example, is an acquisition involving state-owned entities or investors originating in a country of risk to UK national security not a concern? It is not mentioned. Neither is a person who becomes a major debt holder and could therefore gain influence over the entity’s operation and policy. Is that not of interest? It is not that I want to include them, but I am really interested in how the definitions were put together. Maybe the Government, either in writing afterwards because it may be more detailed, or in answer today could spell out why these particular cases were selected and the sort of advice that was taken in the selection process.
Amendment 97, which the noble Baroness, Lady Noakes, has discussed, raises the question of why a former partner should remain a person of concern. Probably all of us here have had difficulties with being a politically exposed person, a PEP. We have found it very difficult sometimes just to open or become a signatory to a charity’s accounts because of being a PEP. A number of difficulties were had, but I think they have been got over now after some work in this House. It really did affect those of us who have step-children and former partners and siblings we never see, and things like that.
This issue needs a little more clarification and protection, if you like. No investor or anybody involved in this wants to get caught up by something which they could not have thought at the time was of any interest. I understand that it might look suspicious if somebody divorced their partner two days before to get rid of some assets, but this is a very wide net. Perhaps the Minister can explain why this clause is needed and needs to be drawn quite as widely. This is a net that would catch whales, never mind tiddlers.
Lord Grimstone of Boscobel (Con)
My Lords, I begin by briefly extending my thanks to my noble friends Lord Hodgson and Lord Lansley for tabling the amendments in this group relating to the circumstances determining the control of entities in the Bill, as well as arrangements and the impact of final orders on contracts.
I am conscious of the complexity of some of the matters that we are debating. If I am not able to explain or elucidate these points fully in my comments, I will of course write to noble Lords. I will also be happy to discuss them with noble Lords outside the Committee. Some of these things are quite difficult to get straight across a table like this.
I will start by addressing my noble friend Lord Hodgson’s Amendment 29. For the purposes of the Bill, Clause 8 sets out the circumstances in which a person gains control of a qualifying entity. It explains the four ways in which control can be gained. Subsection (6) sets out the third trigger event:
“The third case is where the acquisition is of voting rights in the entity that (whether alone or together with other voting rights held by the person) enable the person to secure or prevent the passage of any class of resolution governing the affairs of the entity.”
I think that there is broad support for that concept. However, Amendment 29 seeks to narrow this so that only acquisitions of such voting rights over matters that are equivalent to those which require the passing of ordinary or special resolutions under the Companies Act 2006 would be a trigger event.
I sincerely pay tribute to my noble friend for seeking to ensure that the regime is as reasonable and proportionate as possible. I believe that his intent is very much to seek to exclude acquisitions of minority veto rights from constituting trigger events. However, the Government consider that the Bill already achieves this goal to some extent as subsection (6), which my noble friend seeks to amend, is of course subject to the qualifying provision in subsection (7), which explains how references to voting rights in an entity apply to different sorts of entity.
In the case of an entity that has a share capital, this means voting rights conferred on shareholders to vote at general meetings of the entity on all or substantially all matters. In the case of an entity that does not have a share capital—this is where some complexity arises—this means the voting rights conferred on members to vote at general meetings of the entity on all or substantially all matters. The important words in both cases are
“all or substantially all matters.”
I therefore suggest, with deference to my noble friend, that minority veto rights would be captured by subsection (6) only where such voting rights provide the holder with a right to vote on all or substantially all matters, which perhaps takes it rather beyond the worry that some people had about these minority rights being constrained.
I hope that this puts the mind of the noble Baroness, Lady Hayter, at rest but, again, if a further discussion is needed to clarify how this works, I would be very happy to hold one. I also hope that the Committee agrees that it is only right that minority veto rights, in circumstances where they really are broad enough to cover all or substantially all matters, should be in scope of the Bill. For all intents and purposes, they are the same as majority rights if they are able to do that.
I am grateful to my noble friend Lord Lansley for Amendment 30 in respect of Clause 8 and the definition of control of entities for the purposes of the Bill. This clause reflects the fact that there are ways of obtaining control over an entity other than just acquiring shares or voting rights at significant thresholds. As part of the new regime—I say without excuse that we have made this embracing because of the importance of national security—the Secretary of State must be able to scrutinise lower stakes of shares and votes or other rights or interests acquired by a person that allow them materially to influence the policy of the entity. This is consistent with the UK’s merger framework, and businesses and investors alike have welcomed our adoption of the familiar material influence concept that they have been accustomed to under the Enterprise Act 2002.
Lord Lansley (Con)
My Lords, first, I express my warm thanks to my noble friend Lady Noakes, who happily introduced Amendment 97 far better than I would have. I had neglected to notice that we had reached Schedule 1, since we had not even reached the clause that introduced it. Not noticing that was entirely my fault.
If I may, I will go away and read what my noble friend said about Amendment 98, because it is purely a matter of trying to get the drafting right. He may well be correct on that.
On the other two amendments, I kindly ask my noble friend to reflect. The issue about former spouses reflects what is said in Section 127 of the Enterprise Act 2002, but this includes cohabitees, who are not in Section 127, which was subsequently amended to include civil partners. “Associated persons” has turned into “connected persons” and has broadened in ways that nobody told us was a policy.
My other point about the Enterprise Act is that I do not understand what my noble friend is saying. Earlier, he told us that the Government would not issue new guidance about material influence, because the CMA has issued guidance. I have read the CMA’s guidance and it clearly includes reference to obtaining control by stages. Obtaining control by stages, in Section 29 of the Enterprise Act 2002, includes a reference to that
“person or group of persons … materially to influence the policy of … the enterprise … to a greater degree”.
I have not invented this; it is in the Enterprise Act 2002 now. If my noble friend proposes to use the CMA’s guidance and says that everybody is happy that we are using an established understanding of what material influence is, I suggest we go away and look at whether we can use the language and guidance of the Enterprise Act to make it consistent with the practice that people have understood for the best part of 20 years.
Lord Grimstone of Boscobel (Con)
I thank my noble friend very much for those comments. I will reflect on them and communicate with him.
Lord Fox (LD)
This covers similar territory to Amendment 30 and the answer that we were given to it. I will read that carefully, as some of the answers are complex, as the Minister himself said. I ask that the Minister reads his answer carefully because, knowing what he knows from his previous life, there will come a realisation that we are not quite where we should be on this.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for that. I commit to reading the questions and answers carefully to make sure that they match up with each other as far as possible.
Baroness Hayter of Kentish Town (Lab)
My Lords, I have no new information to bring to the Committee. As we have heard, a number of transactions appear likely to be caught under the Bill which are probably outwith the intention of the authors of the Bill. I think the Minister has to explain why these provisions are in it, rather than noble Lords who tabled amendments having to explain why the provisions should be taken out. We look forward to his explanation of that and, perhaps, his reassurance to the Committee that the Bill is really fit for purpose across the whole of the UK, including for the Scottish legal system.
Lord Grimstone of Boscobel (Con)
My Lords, with thanks to all noble Lords who have spoken with such knowledge and eloquence on the amendments tabled, I will begin by speaking to Amendments 31 and 33 in the names of the noble Lord, Lord Bruce of Bennachie, and my noble friend Lady McIntosh of Pickering. The noble Lord, supported by my noble friend, clearly raises important questions on the juxtaposition of Scottish law with the powers that we are looking at in this group.
I am grateful to the Law Society of Scotland for having supported this and, if I may, rather than attempting to deal with these points on the hoof I will take them away. I commit to being in communication with noble Lords as to what needs to be done, if anything, in relation to them. More generally, perhaps putting the important Scottish points on one side for the moment, I completely agree with the noble Baroness, Lady Hayter, that the Bill has to work for every part of the United Kingdom.
These amendments concern Clauses 8 and 9 and the circumstances where acquisitions of control of entities and assets take place for the purposes of the Bill. They seek, I believe, to ensure that rights or interests in, or in relation to, entities and assets held by way of security are exempt from the regime, on the understandable basis that lending and debt arrangements do not give rise to control. Let me agree right away with the thrust of the concern expressed by the noble Lord and my noble friend. The Government do not consider that the provision of loans and finance is automatically a national security issue. Indeed, it is part of a healthy business ecosystem which enables businesses to flourish and grow in this country. Lenders need confidence that they can see a return on ordinary debt arrangements to provide that service, which is of course vital to the proper functioning of the economy. But we must recognise that there are, in a small number of cases, national security risks that can be posed through debt. I will come to this in a moment.
Access to finance is crucial for so many businesses and, to grow and succeed, they will often take out loans secured against the very businesses and assets they have fought so hard to build. That is why the Bill allows the Secretary of State to scrutinise acquisitions of control that take place when lenders exercise their rights over the collateral. The important point is that it is not where the lenders have hypothetical rights but where they exercise their rights over the collateral. This approach is needed because it will prevent hostile actors artificially structuring acquisitions in the form of loans which, following a swift and convenient default—let us put it that way—might otherwise allow them to evade scrutiny. This is a proportionate approach, and one that I am confident will keep finance flowing into UK companies and infrastructure while ensuring that our national security can be protected.
Amendments 34 and 35 in the name of my noble friend Lord Hodgson relate to Clause 10, which, in combination with Schedule 1, sets out various ways in which rights or interests are to be treated, for the purposes of the Bill, as held or acquired. These include indirect holdings whereby, for example, a person holds an interest or right indirectly if that person has a majority stake in an entity that is part of a chain of entities, each of which holds a majority stake in the entity immediately below it, the last company in the chain of which holds the interest or right. That example is relevant because Amendment 34 seeks to ensure that intragroup investments are not covered by Clause 10 and, as a result, Schedule 1 as well.
My interpretation is that my noble friend wishes to prevent internal reorganisations within the same corporate chain of entities from resulting in trigger events by virtue of Schedule 1. I confirm to the Committee that, in the vast majority of cases, that will not have an impact but, depending on the facts of the case, internal reorganisations may be in scope of the Bill. That is because there may be rare cases in which internal reorganisations pose national security risks. That may be true even if the ultimate beneficial owner is the same before and after the trigger event: for example, if there are concerns about changes to the level of control acquired by other links in the chain as a result of the internal reorganisation.
Clause 10(2)(b), which the amendment seeks to amend, is therefore important, because it makes it clear that in circumstances where a person is already treated as holding an interest or right, when something happens that would be regarded as the acquisition of that interest or right by the same person, then it is treated as such.
This means, for example, that an ultimate beneficial owner at the top of a corporate chain transferring existing majority holdings held by entities lower down in the chain to those above them could be a trigger event if it can be regarded as an acquisition by virtue of Schedule 1.
Amendment 35 would insert a new subsection into Clause 10 to provide that only one trigger event arises where more than one person is treated as acquiring an interest or right due to the provisions of Schedule 1. I can clearly see that my noble friend is seeking to help the Government by looking to ensure that the investment security unit is not deluged by duplicate notifications by corporate chains each time a new acquisition is made by an entity towards the bottom of the chain.
I can assure him that we are carefully designing the notification process and forms so that, wherever possible in situations such as these, a single notification providing all the details of the entities in the same corporate structure can be considered together. That is different from his amendment, which would seek to provide in the Bill that only one trigger event takes place. I am afraid that the Government consider that this would introduce ambiguity into the Bill, as it would not make it clear which trigger event is the one which takes place, and which should be discounted.
Hostile actors could try to exploit such a provision to avoid scrutiny by using shell companies at the bottom of long and complex corporate chains to acquire sensitive entities and assets. If only one trigger event is considered to take place by virtue of Schedule 1, the entity immediately above it in the chain could notify the acquisition, while not necessarily disclosing the control acquired by more troubling persons higher up the chain. In these circumstances, the amendment would mean that these could not be treated as separate trigger events, whereas surely they should be.
With the arguments I have outlined and my undertaking to write to the noble Lord, Lord Bruce, and my noble friend Lady McIntosh about the important Scottish matters they raised, I ask that the noble Lord agrees to withdraw the amendment.
The Deputy Chairman of Committees (Lord Bates) (Con)
I have received one request to speak after the Minister, from the noble Lord, Lord Clement-Jones.
Lord Grimstone of Boscobel (Con)
My Lords, I thank the noble Lord for that comment. Let me take it on the chin and, if I can, answer it.
Some of the hostile actors that we are trying to prevent acquiring sensitive matter are extremely sophisticated and wily. It is not appropriate to go into details, but we know this. We know that they are absolutely capable of structuring transactions to find the most minute loopholes and acquire control of assets that affect our national security. I think we all accept the premise that national security is paramount, and to protect ourselves against these threats we have to have these complex arrangements.
I completely understand noble Lords’ points that some of the things we are describing are complex almost to the point of absurdity. However, they have to be if we are to protect ourselves against these hostile actors. This is key and something that we will have to keep coming back to. It is why it will be so incumbent on the investment security unit to act sensibly and pragmatically. When things have to be notified to catch the important fish—in the noble Lord’s analogy—they will have to be dealt with quickly and moved out; otherwise, we risk circumventing the very thing that we are trying to avoid with this Bill, which is threats to our national security.
Lord Callanan
Member’s explanatory statement
This amendment removes the reference to Article 9 of the Export Control Order 2008 (S.I. 2008/3231) which was revoked by regulation 4(7) of the Export Control (Amendment)(EU Exit) Regulations 2019 (S.I. 2019/137).
Tuesday 16th March 2021
(4 years ago)
Lords ChamberNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: HL Bill 165-III Third marshalled list for Committee - (11 Mar 2021)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Grantchester (Lab)
Amendments 39 and 87, tabled by the noble Lord, Lord Lansley, probe the Minister around the question of the interaction of the NSI regime with the export control regime. The Committee must be assured that this new regime is not buried within the Business Department but works effectively across government, not least in relation to export controls. The Government’s response to the sector consultation in the report already mentioned states
“how the NSI regime sits alongside export controls to provide a comprehensive regime protecting our national security capability”.
It is not merely a question of sitting alongside, however that may be interpreted, but of interacting and co-ordinating with the Department for International Trade. The Government seem to recognise this in the comment:
“We must ensure that the export control criteria cannot be circumvented by allowing the acquisition of companies that produce such goods, rather than buying the goods themselves, without effective screening.”
More clarity and information in the procedures to this eminently sensible statement would be very welcome from the Minister.
The Government responded to the consultation that they intend to capture all materials that are considered likely to give rise to national security concerns and which are contained in the relevant legislation set out in the UK’s strategic export control list. I would be grateful if the Minister could provide better information on their intentions, and how and when this will become clear and transparent. Will he provide a guarantee that this will happen—the assurances that the noble Lord, Lord Lansley, has required during the passage of the Bill?
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
First, I thank my noble friend Lord Lansley for these two amendments, which seek to ensure seamless integration between the new regime provided for by the Bill and the existing export control regime. I shall take his amendments sequentially.
Amendment 39 seeks to ensure that the Secretary of State can, through regulations, exempt from the regime certain acquisitions of control over qualifying assets that are subject to export control orders. Clause 11 provides for exceptions relating to control of assets. Subsection (1) sets out that acquisitions made by individuals for purposes wholly or mainly outside the individual’s trade, business or craft are not to be regarded as gaining control of a qualifying asset and are therefore excluded from the scope of the call-in power. This does not apply in relation to an asset that is either land or subject to certain export controls set out in subsection (2)(b).
Subsection (3) also provides a power for the Secretary of State to amend the list of assets that are outside the scope of this exemption or to prescribe other circumstances in which a person is not to be regarded as gaining control over a qualifying asset. That includes being able to prescribe circumstances in which the acquisition of an asset subject to export control legislation is not to be regarded as gaining control over a qualifying asset. Any use of this power in subsection (3) would, of course, be guided by the operation of the regime in practice and any patterns of activity that are observed. As such, I can therefore assure my noble friend that the Bill already provides for what his amendment intends to achieve.
Amendment 87 would require the Secretary of State to ensure that any interim orders or final orders made in relation to acquisitions of control over assets take into account controls imposed under the Export Control Act 2002 and related provisions. I thank my noble friend for his proposal and commend the intent behind it. It is, of course, very important that the Secretary of State’s use of the powers provided for by the Bill is in keeping with the Government’s measures under other legislation. The Secretary of State must take into account all relevant factors when making decisions about the use of interim orders and final orders.
The legal tests in the Bill require the Secretary of State, before making an order, to reasonably consider that the provisions of the order are necessary and proportionate for the purpose. In the case of final orders, that purpose is to address a risk to national security, and in the case of interim orders, it is to prevent or reverse an action that might undermine the national security assessment process. Whether controls have been imposed under export control legislation will be relevant to whether the envisaged provisions of an order are necessary and proportionate. For example, 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.
Addressing the questions of the noble Lord, Lord Purvis of Tweed, about why we need the Bill when we already have the export control regime, I say that the export control regime is a licencing regime for certain controlled goods. It is an important part of the safe- guarding of our national security and it sits well alongside the proposed national security and investment regime. The two regimes are distinct though, and do not perform the same role. For example, the export control regime does not provide the Government with the ability to scrutinise acquisitions of UK companies or direct the use of sensitive assets used in the UK, whereas of course the NSI regime would.
On the noble Lord’s points about standard individual export licences if they have been granted for an export, I tell him that a standard individual export licence is granted to one person to export specified items to a named recipient. If the parties involved precisely follow the terms of a standard individual export licence that has already been granted following an assessment of national security risks, it is unlikely that the Secretary of State would reasonably suspect that the export might give rise to national security risks. In this situation, it is unlikely that he would be able to call that export in under the NSI regime. However, it is important to say that any decisions would need to be made on a case-by-case basis. It is important that the Secretary of State retains the ability to call in and scrutinise trigger events involving the export of assets in the event that national security risks are present.
The noble Lord asked about Northern Ireland. Qualifying entities as assets in Northern Ireland sit within the scope of the Bill, and that ensures that there are no loopholes. A trigger event under the Bill is not based on the application of EU law. For completeness, I should also say that the Secretary of State will, in any event, be subject to public law duties requiring him to consider all relevant factors when deciding whether to make an order under the Bill. Therefore, where export controls are relevant, the Secretary of State will need to take them into account when making that order.
I hope that that has explained, for the benefit of the House, the interaction between the two pieces of legislation. With the explanations that I have provided, I hope that my noble friend will feel sufficiently reassured that his concerns have been taken into account, and that he will not press his amendments.
Lord Lansley (Con)
My Lords, I am grateful for each of the contributions to the short debate. They were helpful and, indeed, added to the questions. The noble Lord, Lord Purvis of Tweed, referred appropriately to the Export Control Act provisions. I remember that I was on quadrilateral committee in the other place, about 15 or 16 years ago, so I remember how these issues were considered at that time. Indeed, there was a level of parliamentary oversight of the export control regime, which may be something we refer to at a later stage. He raised some good points: I thought the point about the EU export control regime was a very good one. The noble Lord, Lord Grantchester, made an interesting point about the interaction with the Department for International Trade in this context.
If I understand my noble friend correctly, he is more or less saying that the power under Clause 11(3)(b) would enable the Secretary of State to prescribe, by regulation, such circumstances as necessary, so in that sense my Amendment 39 is not necessary. I agree; it is not necessary but certainly the explanation of the interaction between the two regimes is desirable. However, Amendment 87, proposing a new clause, perhaps drafted differently to make it clearer about the interaction between the two regimes—both at the point where a call-in notice has to be considered, as well as the point at which interim and final orders are made—would be very useful. What I have heard from my noble friend suggests that, by administrative means, using the powers in the Bill and under public law requirements, the Secretary of State will have regard to the export control regime when using his powers under this regime. That is undeniably true. I think we all knew that, but there is much more that we put into legislation, particularly with a new system, that helps people who are to be affected by it to look at it and understand how it works.
What I found deeply surprising was that such an important part of the Government’s policy intentions—that the export of goods should still be primarily controlled by an export control regime—was not even referred to in the Bill or in the Government’s response to the consultation. It is as if it did not exist, but it does exist and it is important, as the Minister’s reply suggested. I shall reflect on what he said, but it may well be that there continues to be a “desirable interaction” clause in the Bill that makes it very clear to all those affected that the export control regime plays a significant part in the control of qualifying assets where they are to be exported. However, based on what my noble friend said, I beg leave to withdraw the amendment at this stage.
Baroness Hayter of Kentish Town (Lab)
My Lords, there is something going around my mind now about letting foxes out of their glass cubes—I am not sure how dangerous that is.
These amendments would allow for undertakings to be accepted instead of a final order—a case well made by the noble Lord, Lord Lansley. During Committee in the other place, Dr Lenihan from the LSE said:
“There are many cases in which a threat to national security can be mitigated by agreements and undertakings without needing to block a deal.”
Perhaps the Minister could inform the House what thought was given to that proposal.
As we have heard, Amendment 71 is in a way a probing amendment to learn more about the type of person the Secretary of State could appoint to supervise a final order. We will be particularly interested to hear the Minister’s reply on this. What sort of specialism would be involved? Would the person need to have any relevant training, background or experience? It would be interesting to know how they would be selected and whether the job description would be included in the report that would in any case be made, so that one could see the basis on which the selection happened.
Clause 26(4) states:
“Before making a final order the Secretary of State must consider any representations made”.
We are interested in what exactly is meant by the word “consider”. Would that be part of a dialogue, perhaps as part of the negotiations, or simply a requirement that representations are in the dossier submitted to the Secretary of State for ratification? Assuming that the representations had not been successful—if there were a final order, that would presumably be against the wishes of the parties—it would be interesting to know whether the reasoning for rejecting them would be noted and reported on elsewhere, possibly to the ISC. It would be important for someone to be able to reflect on the decision-making that had taken place.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, I start by extending my thanks to my noble friend Lord Lansley for these amendments. I also thank other noble Lords who have spoken; all I think welcome the broad thrust of the Bill even if they wish, quite rightly, to probe certain aspects of how it will work.
I begin by addressing Amendments 45, 68 and 69. Amendments 68 and 69 would allow the Secretary of State to accept “undertakings” from the acquirer
“as the Secretary of State deems appropriate to remedy, mitigate or prevent any risk to national security”,
rather than issuing a final order or a final notification. Amendment 45 would then, as I read it, make a consequential change to Clause 13 in respect of notifiable acquisitions so that those which are completed otherwise than in accordance with the final order or the agreed undertakings are void.
The Bill as drafted allows the Secretary of State two options once he has exercised his call-in power: first, to issue a “final order”, which contains remedies. I would add here that remedies are not necessarily just black and white—they could have a whole set of actions incorporated into them; some noble Lords may not fully have comprehended that. Secondly, the Secretary of State can issue a “final notification”, which states that no further action is to be taken under the Bill.
Undertakings proposed by my noble friend in these amendments would come into force when the undertakings were accepted. They could be varied or superseded through the Secretary of State accepting another undertaking, replaced by a final order made by the Secretary of State at any time, or the Secretary of State would be able to release the acquirer from their undertaking.
I am grateful that my noble friend is seeking to expand the options available to the Secretary of State but, as I hope to explain convincingly in just a moment, the Secretary of State does not need these additional options. Undertakings would not be appropriate because the Bill already provides the dual benefit of certainty for parties while giving the Secretary of State the “teeth” needed to enforce a regime built around our national security.
The Bill includes the ability for the Secretary of State to establish the terms of any remedy through the power to make final orders. I emphasise that point again. The terms of a remedy may require someone to dispose of part of something or to do something in relation to one bit of an undertaking but not another. It is a comprehensive term which allows all sorts of matters to be included within it. Indeed, the Bill states in Clause 26(5)(a) that a final order may require a person
“to do, or not to do, particular things”.
I am advised that that is a strong statutory footing which the Government consider is both required and sufficient for remedies under this regime.
My noble friend Lord Lansley was right on the button when he said that this gives the Secretary of State all that he requires. The Secretary of State does not need any additional powers because this power gives him all that he might conceivably want to do. Of course, before the Secretary of State determines his final order, he is likely to engage with parties to an acquisition—acquirers and others—to explore potential remedies.
However, it is right for the purposes of national security that these remedies—once they have been considered, and once they might have been discussed and looked at—should then be able to be imposed through a final order rather than assented to by the Secretary of State. We believe that this imposition is necessary because the matters that we are dealing with here are matters of national security. The Bill as drafted provides the Secretary of State with the power to impose remedies through a final order or to take no further action under the Bill, which is all that is required.
With Amendment 71, my noble friend addresses an important part of the Bill; namely, the carrying out of activities pursuant to final orders. The execution of final orders is of course vital to ensure that any remedies imposed by the Secretary of State have their desired effect. There would not be much point in just imposing orders if they were not carried through afterwards. This amendment seeks to make explicit a requirement that anyone who will conduct, or supervise the conduct of, activities mandated by final orders must be “suitably-qualified”. While I appreciate the good intention of my noble friend, I do not believe that this amendment would add anything substantial to the Bill.
First, the Secretary of State is unlikely to appoint someone who could not conduct or supervise the conduct of activities mandated under the final order. It would be daft of him to put someone in to do the job who was not qualified to do it. Why would he or she wish to do that? To do so may undermine the Secretary of State’s remedy; the remedy may not be carried out in full or in part if the person is not qualified, which would be against the decision that the Secretary of State has made. It is therefore very much in the Secretary of State’s own interests that the person appointed has to be “suitably-qualified,” even if the Bill does not say that specifically. I take it for granted that that is what the Secretary of State would want to do.
Secondly, the Secretary of State will be subject to public law duties when providing for a person to be appointed. Those public law duties will require him to act reasonably and take into account all relevant considerations. This would include whether the person is suitably qualified to undertake the task. He would be failing in his public law duties if he appointed someone who was not so qualified.
Thirdly, should it be helpful to noble Lords, I am happy to state categorically on the Floor of the Committee that the investment security unit will comprise eminently qualified people of the right skills and experience. For example, if a particular case requires someone qualified in chartered accountancy or in audit, the Secretary of State will appoint somebody who has those qualifications to carry out what is required.
For these reasons, I believe that although noble Lords are trying to be helpful in putting forward the amendments in this group, they are unnecessary. What they seek to do is already covered by the powers that exist in the Bill, and I hope that my noble friend will feel able to withdraw Amendment 45.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
I have received one request to speak after the Minister from the noble Lord, Lord Fox.
Lord Fox (LD)
My Lords, I thank the Minister for his answer. I want to follow up on his last point. There is a certain ambiguity in his answer around where this person would be drawn from. In one sentence the Minister referred to the ISU and in the next sentence he referred to drawing on a particular power. It is not clear: is this a standing group of people who will be set in or will people be seconded from other companies or pulled in from other departments? A little more sense of what the source of these people is would give us more security around this.
Lord Grimstone of Boscobel (Con)
My Lords, I thank the noble Lord for that question. It will be horses for courses. It will be either qualified people from inside or, if a person from inside does not have the qualifications, someone will be drawn in from outside and appointed to do it. The test will be to make sure that the person you ask to do the role has the capabilities and the qualifications to do it. I say yet again: why would the Secretary of State wish to do other than to appoint somebody who is qualified to do this task?
Lord Lansley (Con)
I am grateful to my noble friend the Minister for his responses to this short debate, and indeed to those who participated in it. It was helpful to elaborate some of the issues, although I am not sure that we solved many of the questions that were posed.
My noble friend correctly deduced that I did not see Amendment 71 as needed. It was designed to find out who these people are. Although my noble friend did not say so, the implication is that they are the staff of the department, working in the investment security unit. In a sense, that tells us already that, when we come on to think about some of the implementation of this and the annual reports and so on, we are dealing not only with a flow of cases through the investment security unit but with a continuing role for the unit in the scrutiny and the conduct of the activities that are the subject of final orders. I hope that we will be dealing with only some dozens of final orders a year, but it will build up over time since many of these final orders in relation to entities will have a continuing relationship.
I did not expect the “suitably-qualified” question to arrive at any other answer than that they are civil servants recruited into or drawn from the department, but if they were other than that, it would be very useful for us to be told. I am assuming that they are not.
On the question of undertakings, as I surmised at the outset, the Secretary of State has all the powers the Secretary of State requires. The point, however, is that when making final orders, it may be flexible from the Secretary of State’s point of view, since the Secretary of State can include anything the Secretary of State wishes to include in it. However, it is not necessarily flexible from the point of view of the people affected, since once the order is made, the flexibility has completely disappeared. What is flexible about undertakings is the ability of the acquirers to make commitments at the time they are contemplating an acquisition in order to bring those two things together to enable the acquisition to continue—the noble Lord, Lord Fox, made that point, perfectly reasonably. If we want to promote investment and to assist those who are acquiring entities and assets in the United Kingdom, other foreign direct investment jurisdictions such as the US allow for mitigation agreements. The American one does not impose orders, or rarely does so. There may still be merit in having the flexibility to enter into agreements with acquirers rather than imposing orders on them. I am surprised that the Government have simply dismissed that possibility. Having it on the statute book does not mean that Ministers have to use it, but if it is not on the statute book, they cannot do it. That is why we are thinking about it at this stage.
However, in the light of what my noble friend says by way of the powers in the Bill, I suppose that at this stage it is probably best to beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town (Lab)
The lead amendment, Amendment 48A, would introduce a streamlined form for mandatory notification, and Amendment 67B would make any time limit for an information notice not less than three working days. That seemed a sensible—I think the word used was “pragmatic”—proposal.
Turning to the interesting Clause 30, the Minister in the other place said,
“final orders, in exceptional cases … when we are administering taxpayers’ money—may bring about financial difficulty for the affected parties”,—[Official Report, Commons, National Security and Investment Bill, 8/2/20; col. 288.]
which is why Clause 30 allows the Secretary of State to give financial assistance to an entity through a loan guarantee or indemnity as a consequence of making a final order.
It would be interesting to know a little more about the whole of this, as we have heard, and when a potential recipient might know that they were even in line for such help. How early in the process would it be indicated—not the actual decision but that that was a possibility? Or is it like Father Christmas appearing at the end?
As we have heard, the figure of £100 million is interesting, and it is interesting that there is no regulation-making or guidance-providing requirement such that guidance on the use of the power might have to be, if not agreed by Parliament, at least provided and open for debate and scrutiny. Will such guidance exist and how many cases a year are envisaged involving £100 million? Who would make the decision and how, as has been asked, and will it be reported in a timely manner—or, indeed, at all?
If this is the Government’s desired outcome, it seems that Clause 30 does not provide for any financial assistance in the case of an interim order. Perhaps the Minister could outline the thinking behind that, given that an interim order could also impose major costs on a British start-up or prevent an acquirer investing in one if it was thought that that investment might increase the acquirer’s level of influence unduly and trigger the next stage. There could also be the loss of a business-critical investment. It would be useful to know the thinking behind making money available to cover one sort of loss but not another. I look forward to hearing more of the thinking behind how this would work in the Minister’s response.
Lord Grimstone of Boscobel (Con)
My Lords, first, I thank my noble friend Lord Hodgson of Astley Abbotts for tabling Amendments 48A, 67B and 67C. I hope that the transaction he referred to had a happy ending.
Amendment 48A seeks to make it explicit that a streamlined mandatory notification form may be provided for in regulations if a person has previously submitted a mandatory or voluntary notification to the Secretary of State. The Bill requires a mandatory notice to be submitted to, and receive clearance from, the Secretary of State prior to the completion of a notifiable acquisition. Clause 14(4) provides for the Secretary of State to prescribe the form and content of a mandatory notice in regulations.
The amendment would amend the regulation-making power to make it explicit that such regulations could provide for those who have previously submitted either a voluntary or a mandatory notification form to submit a streamlined form. I am pleased to say that we are completely aligned with noble Lords who want the process under the Bill to be as streamlined as possible. As the Minister for Investment, looking to the interests of investors, I completely endorse that. I reassure noble Lords that the regulation power as drafted already provides for that.
In addition, the Government are designing both the voluntary and mandatory notification forms with business in mind, while ensuring that the Secretary of State receives the information that he needs to decide whether to issue a call-in notice in relation to a proposed notifiable acquisition.
I stress that the Government are keen to ensure that all the forms are clear and simple to complete. A draft notification form was published for comment during the Commons passage of the Bill, and the Government continue to engage interested parties to test the ease of completing the forms and the clarity and relevance of the questions.
Amendment 67B seeks to create a floor for the minimum time which the Secretary of State must provide to a party for responding to an information note. The minimum floor proposed is three working days. As noble Lords will be aware, Clause 19 provides for an information note which the Secretary of State may issue to require any person to provide information which is proportionate in assisting the Secretary of State in carrying out his functions.
An information notice may include a time limit for providing the information and the manner in which the information must be provided. An information notice must specify the information sought and the purpose for which it is sought, as well as the possible consequences of not complying with the notice.
It will be in the Secretary of State’s interest that any party from whom information is required is provided appropriate time for collecting and providing such information, or else confirming that they do not possess it. Providing insufficient time for doing this will only lead either to incomplete information being provided or to information being provided in a form which is more difficult to analyse. It might also lead to unwelcome outcomes, such as a party undertaking due diligence as to whether they possess the relevant information, but there then being insufficient time for them to establish that with certainty.
It is with these issues in mind that I assume that my noble friend tabled his amendments. I reassure him that the Secretary of State will already have the appropriate incentives to allow appropriate time for a response, and that, more widely, public law duties will require him to take a reasonable approach in setting a time limit for responding to an information notice under the Bill.
Lord Fox (LD)
My Lords, I thank the Minister for his thorough answers. In his answer on Clause 30, the Minister referred to “affected parties” and did not rule out the aggressor, as well as the target, from potential compensation—or mitigation, as I think the Minister described it. Am I right in assuming that the aggressor might also feel that they are eligible for mitigation?
Secondly, the nature of that mitigation seems to rule out the Government taking a share in a potential company, rather than simply bailing it out. Given that this Government have already spent $500 million taking a 20% share in OneWeb, which was not even strategic, why would they not leave themselves open to taking a share in a company so important that they felt they needed to prop it up?
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for that question. I will give him an additional example of where this power or type of power might be used. As I stressed earlier, it is not a general compensation power and will only be used in instances where the public interest, particularly national security interests, require it. As I also said earlier, any financial assistance would be subject to Treasury consent and would have to be shown to provide value for money. For example, if the Government provided a loan, it would normally have to be at market rates. The clause does allow the Secretary of State to bail out any business, either directly or surreptitiously, through soft loans.
Equally, the aim is not for this Bill to cause businesses financial distress, nor do we anticipate it doing so. The Secretary of State—this is the key point—may make a final order only if he “reasonably considers” that it is “necessary and proportionate” to address an identified national security risk.
Let me give an example. A case might arise whereby an asset has to be secured to prevent the national security risk of someone else getting hold of it. The Secretary of State might have imposed a final order that blocked a trigger event of a UK company that was working on unique or world-leading technology. If the company could not immediately find an alternative buyer, and if the collapse of the company could itself pose a national security risk, the Secretary of State could consider using this power. In such a situation, the Secretary of State may decide that he or she wishes to provide financial assistance to ensure that the company could continue operating until an alternative acceptable buyer was found. As such, this power will be used only in very tightly drawn circumstances where doing so is clearly in the national interest.
Lord Clement-Jones (LD)
My Lords, I know that the Minister is trying to be as helpful as possible by tying down the way Clause 30 will work. However, “tightly drawn” is not how I would describe its wording, so I assume he is really saying that it is the risk of judicial review hanging over the Secretary of State that keeps him honest in the circumstances. That is not a very good place to be when you are dealing with a Bill of this kind.
The other aspect is transparency. The noble Lord did not really explain the reason for the threshold of £100 million. He said it was for transactions—or compensation, if you like—and financial assistance under £100 million in aggregate would have to be reported for the annual review. However, if it was £99 million, say, that would not apply and it would not be subject to a separate report; it would just be aggregated along with all the financial assistance given over the course of the year. Why?
These powers are very wide; we need to know how they are being used and what direction the financial assistance is going in. Therefore, simply drawing a line at £100 million does not seem to be very satisfactory in the circumstances.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord, Lord Clement-Jones, for his question, and I understand the concerns that he raised.
I will first deal with the £100 million figure. Of course, that is a lot of money for the Government to have to spend without having to report to Parliament. However, I assure noble Lords that, in order to offer this level of financial assistance, the situation would have to be truly extraordinary. The only circumstances I can envisage where the Secretary of State would need to use this power would be for some of the most significant nationally important firms. The significant nature of these firms means that they may be large, so the Government have put in this reasonable cap of £100 million. Personally, I would be very surprised if anything like that were spent. However, of course, any spending under this power will be subject to Treasury consent, as I have said—and the Treasury does not rush forward with money for departments in situations like this.
I have to say—and, in a sense, apologise—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, provided that it is only ever used responsibly and respectively.
The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
As there are no further speakers, I call the noble Lord, Lord Hodgson of Astley Abbotts.
Lord Callanan (Con)
I thank all noble Lords who have taken part in this brief debate, particularly my noble friends Lady Noakes and Lord Lansley for their contributions. I will start with Amendments 49, 62 and 64, which for the convenience of the Committee I will take together.
As 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. He must then inform relevant parties of his decision as soon as is practicable. Amendment 49 would require the Secretary of State to decide whether to accept or reject a mandatory notice within five working days, as opposed to the current drafting. Amendment 62 would have the same effect, but for voluntary notices. Amendment 64 would require the Secretary of State to notify each relevant person whether a voluntary notice has been accepted within five working days of it being accepted, as opposed to the current drafting of doing so as soon as practicable.
As I am sure noble Lords would agree, mandatory and voluntary notifications should include the necessary information to enable the Secretary of State to determine whether to call in an acquisition for further scrutiny. Once a notification is accepted, the Secretary of State will be required to issue any call-in notice within 30 working days or else clear the acquisition to proceed. It is therefore important that the Secretary of State is able to reject a notification if it does not meet the requirements specified in the legislation. Of course, it is important that all decisions made under this regime by the Secretary of State are made promptly.
I therefore assure the Committee that the Secretary of State will make great efforts to ensure that decisions to accept or reject notifications are made quickly and that parties are notified in a timely way. In fact, one of my officials was keen to point out that the record so far for responding to informal guidance is 19 minutes. Civil servants will of course have different ways of going about it and will pursue different speedy methods, so I am sure that will not always be the case. Nevertheless, we will endeavour to reach these decisions to provide help and guidance to businesses and companies as speedily as possible.
As noble Lords will be aware, the Government intend to lay regulations setting out the form and content of the types of notification soon after Royal Assent. The draft notification form was published alongside the introduction of the Bill to help interested parties understand what information is likely to be required. Parties will therefore have clarity, and certainty about the information that they should provide when notifying the Secretary of State. We therefore expect notifications to be generally of high quality and, where this is the case, the Secretary of State expects to be able to decide quickly and then inform parties of decisions to accept their notices, in many cases, clearly, more quickly than the five working-day limit proposed.
However, it is important that there is scope for flexibility in the relatively rare circumstances where more time may be needed. For example, a hostile actor could intentionally provide very large amounts of unnecessary information that would take many days to read through to establish that important information was missing or incorrect. Or there might be multiple parties involved in a particularly complex acquisition that had all submitted notifications. In the event that the notifications do not match up, more detailed verification may be needed. I would argue that it is better for the Secretary of State to take the time to ensure that he has the information that he needs at the start of the process rather than risk finding gaps in information later on.
I turn to Amendments 51, 54 and 66. I know that my noble friend Lord Lansley did not speak to Amendment 51, but it is in this grouping, so, if he will forgive me, I will address the issue at this point. Clause 14 provides for the mandatory notification procedure, including subsection (6), which sets out the grounds on which the Secretary of State may reject a mandatory notice, and subsection (9), which explains when the 30-working day “clock” for reviewing a mandatory notice begins. These amendments go to the heart of both matters, so let me address each of them briefly.
Amendment 51, to which my noble friend referred although he did not speak to it, would remove the third ground for the Secretary of State to reject a mandatory notice, which is where
“it does not contain sufficient information to allow the Secretary of State to decide whether to give a call-in notice in relation to the proposed notifiable acquisition”.
I imagine that noble Lords may well consider that the first two grounds—which enable the Secretary of State to reject a mandatory notice where it does not meet the requirements of this clause or as prescribed in regulations—will cover most bases. However, we must also ensure that an acquirer cannot meet the technical requirements of providing a notice by doing so in a limited way or with incomplete information. Noble Lords will appreciate that if, for instance—in a purely hypothetical example, I was required to fill in the name of my chief executive on a mandatory notice, the ISU would have a pretty good chance of working out who “Boris” was, but in the case of the chief executive of a small start-up company that might have been operating for only a few months, a mandatory notice that had the same information would provide little to go on. I understand that it is an outlandish example, but it illustrates why we must not prevent the Secretary of State rejecting notices from those who plainly look to game the system.
Amendment 54 would adjust the timing for the beginning of the 30-working day review period from, as now, the date on which the Secretary of State confirms acceptance of a mandatory notice to the date on which he received the notice. Amendment 66 would make the equivalent changes in respect of voluntary notices. I can assure my noble friend Lord Lansley and other noble Lords that in the vast majority of circumstances we expect to confirm acceptance quickly and to begin the clock on the review period. However, the process of initially determining whether a valid and complete notice has been submitted is separate from fuller screening of the acquisition itself. Some acquisitions are likely to be complicated and a significant amount of information may be provided as part of the mandatory notice. In these instances, it is conceivable that the investment security unit may need a short time to ascertain that the relevant information has been provided. None the less, the screening will not yet have begun and, accordingly, it is right that the clock does not do so either.
Amendments 53 and 65 would reduce the time available to the Secretary of State to screen mandatory and voluntary notifications from a maximum of 30 working days to 20. 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. The question, therefore, is what is appropriate in more complex cases and whether the ISU may need to gather input and expertise from across Whitehall on those acquisitions. The total figure of 30 working days is not arbitrarily chosen by the Government. I apologise to my noble friend Lady Noakes for saying yet again that it reflects detailed work undertaken across Whitehall to test past cases and mock scenarios against the new regime—I repeat that because it is our position. Some acquisitions may involve complicated ownership structures; the technology and activities of the target entity may not be immediately clear, and the format of the acquisition itself may be unconventional. It is vital the Secretary of State has the necessary time to examine an acquisition and to make an informed decision.
I again commend my noble friend’s efforts to make the new regime even more nimble and fleet of foot, but I hope she will understand—even if she does not agree with me—why I am unable to accept these and other amendments that I have addressed in this group. Therefore, I hope that both my noble friends will choose not to press their amendments.
The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
My Lords, I have received no request to speak after the Minister, so I call the noble Baroness, Lady Noakes.
Baroness McIntosh of Pickering (Con)
I thank my noble friend Lord Lansley for tabling these two amendments. I would like to speak to Amendment 63, which gives me the opportunity to raise an issue raised with me, and I am sure with other noble Lords, by the Law Society of England. I put a direct question to the Minister in summing up this small group of amendments. Can he confirm that the Government have actually considered, and have regard to, the impact of the sheer large numbers of filings that they may receive on the new regime’s ability to dispense with these filings in a timely manner? My noble friend has done us a great service here by highlighting the level of information required in the first instance or that may be required at a later date.
The estimated volume of filings stated in the impact assessment, deemed to be between 1,000 and 1,830 transactions notified per year is, in the view of the Law Society, an underestimate. That is because, for reasons that my noble friend gave, there is likely to be a very large number of voluntary filings and requests for informal guidance, especially when the regime is new and businesses are accustoming themselves to its requirements. In my view, the Law Society has raised legitimate concerns, which are reflected in these two amendments. Can I have a reassurance that there will be sufficient resources to deal with the sheer number of requests that are expected to avoid delays and burdens for businesses, which could be avoided in this regard?
Lord Grimstone of Boscobel (Con)
My Lords, I extend my thanks to my noble friend Lord Lansley for his Amendments 50 and 63. I shall deal first with a couple of points that have been made. If a voluntary notification is incomplete, it is not effective. That may mean that the Secretary of State may choose to exercise his call- in powers at some point in future in relation to that.
My noble friend Lady McIntosh asked whether we had underestimated the number of transactions that were likely to come before the unit. She referred to the work that the Law Society has done on that. All I can say is that we have thought about this carefully, and I am happy to repeat the assurance that we will make sure that the unit is fully resourced. If the number is greater than we anticipate, the resources of the unit will have to be expanded to cope with those greater numbers.
I extend my thanks again to my noble friend Lord Lansley for Amendments 50 and 63 which both relate to the information that must be provided as part of a notification. Clause 14 sets out the mandatory notification procedure and Clause 18 the voluntary notification procedure. Both clauses provide powers to the Secretary of State, by regulations, to prescribe the form and content of a mandatory notice and a voluntary notice respectively. Both clauses also provide that the Secretary of State may reject a notice where it does not meet the requirements of the clause, or the requirements prescribed by the regulations.
These amendments seek to make it clear that the Secretary of State can reject a mandatory or voluntary notice where information relating to either a notifiable acquisition or a trigger event has not been provided despite being specified as required in regulations. These amendments also seek, as a result, to ensure that any such regulations include a requirement to provide the information about the notifiable acquisition or trigger event needed to make a call-in decision.
I am happy that I can reassure my noble friend, I hope completely, that the Secretary of State absolutely intends to use the regulation-making powers under both these clauses to prescribe both the form and content of mandatory notices and voluntary notices. Indeed, our view is that the regime simply cannot work and will not work without such regulations being made. The primary entry mechanisms into the regime are based on notification, so it is vital that we are clear with businesses and investors about what information they must provide and in what format.
That is why, ahead of Committee in the other place, we published a draft of the information likely to be required as part of a mandatory notice or voluntary notice. I continue to welcome comments from noble Lords about that draft, but I think I can reassure my noble friend that information about notifiable acquisitions and trigger events will certainly form part of such requirements.
With that said, I fear that my noble friend’s amendments would therefore be duplicative in this instance. Clause 14(4) and Clause 18(4) allow the Secretary of State to make these regulations. Clause 14(6) and Clause 18(6) allow the Secretary of State to reject a notice where it does not meet the requirements specified in the regulations. The Government consider that this approach provides the powers that the Secretary of State needs to reject a notice where insufficient or the wrong information has been provided, whatever the final notification forms look like.
I hope my noble friend is reassured by my explanation of these clauses and the Government’s general approach on this matter, and I hope, therefore, that he feels able to withdraw his amendment.
Lord Lansley (Con)
I am grateful to my noble friend. I think he slightly confused two things together at the end, in talking about insufficient or wrong information. If there is wrong information, then clearly a notice can be rejected. The question about the sufficiency of information is the point I am coming back to. My noble friend was quite clear on—and I think it is very clearly set out—what it is the Government expect to be provided by way of information for these notices. The question is: why should they have a power to reject a notice on grounds that they require more information beyond what has been asked for in the material that has already been published? That is the power they are taking.
If the Government say—as my noble friend Lord Callanan said—one must set out who the chief executive is, and someone puts their given name but not their family name, they can reject it. The point is, however, that that was specified in the regulations. The question is: does it require his other information, and what is the other information? People might reasonably say, “You have rejected it because I did not provide the information that you required, but you didn’t tell me you required it.” That is my problem.
I will go away and think about this a bit more; maybe it is not important enough for us to persist with. For the moment at least, I will make my point and beg leave to withdraw Amendment 50.
Lord Grimstone of Boscobel (Con)
My Lords, I am grateful to the noble Baroness, Lady Hayter of Kentish Town, the noble Lords, Lord West of Spithead, Lord Rooker and Lord Butler of Brockwell, and my noble friend Lord Lansley for their amendments on the role of the ISC in relation to the national security and investment regime. I assure the noble Baroness that she will hear my own words rather than those of the noble Lord, Lord Callanan.
I start by saying that I have the deepest respect for the expertise and experience of the noble Lords who have spoken in the debate this evening. I have listened to what they have said carefully and with great attention. However, despite the eminence of those who have spoken, I fear that I may disappoint them in this speech.
I assure noble Lords that the Government are committed to publishing information in relation to the regime that properly balances the desire for information with protecting national security. I shall come back later to the important point about parliamentary scrutiny and accountability. What I am saying also takes account of the existing position in relation to scrutiny of the Department for Business, Energy and Industrial Strategy, BEIS.
These amendments represent a number of approaches to requiring the Secretary of State to provide sensitive information to the ISC. Amendments 78 and 79 would in practice require him to create a confidential annexe to the annual report. Amendment 82 would require an additional, separate confidential report to be provided to the ISC. Amendment 70 would require him to share intelligence relevant to a final order with the ISC and not to make that order until the ISC has reported to Parliament on it.
Amendment 86 would extend the remit of the ISC through amending the Justice and Security Act 2013 to enable the committee to scrutinise the operation of the Investment Security Unit. As we heard, Amendment 90 seeks to relocate the Investment Security Unit, within six months of the Bill becoming law, from the Department for Business, Energy and Industrial Strategy to the Cabinet Office. It would also establish a wide-ranging advisory board to the Investment Security Unit, which should include, but not be limited to, representatives from relevant government departments, security and defence organisations, and business bodies.
I will address Amendments 78, 79 and 82 together. The reports proposed under these amendments would contain very similar information, including in relation to mandatory and voluntary notifications, trigger events that were called in and final orders made. In particular, they would require the Secretary of State to provide details of factors relevant to the assessments made by the regime. These include: the jurisdiction of the acquirer; the nature of national security risks posed in transactions when there were final orders; details of particular technological or sectoral expertise that was targeted; and other national security threats uncovered through reviews undertaken under this Bill. I note that similar proposals were put forward in the other place and it is perhaps not surprising that my views on this align closely with those expressed by the Parliamentary Under-Secretary of State for Business and Industry at the time.
I respectfully draw noble Lords’ attention to Clause 61, which requires the Secretary of State to prepare an annual report and to lay a copy of it before each House of Parliament. This clause provides for appropriate scrutiny of the regime. We judge this to be appropriate, because that information does not give rise to national security issues when published at an aggregate level. It will also rightly give a sense of the areas of the economy where activity of the greatest national security concern is occurring.
Of course, it is right that there is also wider scrutiny of the work of BEIS and the work of the unit within BEIS. We therefore intend to follow the existing appropriate government procedures for reporting back to Parliament, including through responding to the BEIS Select Committee, which, I have to say, does an excellent job of scrutinising the work of the department. Indeed, I note that the BEIS Select Committee can and does handle sensitive material; for example, on our civil nuclear programme. The UK’s merger control regime under the Enterprise Act 2002 currently includes screening on national security grounds, and this function is overseen by the BEIS Select Committee.
In case there is any doubt of this—and coming back to the specific point that the noble Baroness made—there is no barrier to the BEIS Select Committee handling highly classified material, subject to agreement between the department and the chair of the committee on appropriate handling. The BEIS Select Committee will be able to see all the material that it needs in order to make its assessments within its role.
I argue that it is the right committee to oversee the work of the investment security unit within the broader remit of BEIS. We should not forget that the BEIS Select Committee is as much a part of our structure of parliamentary scrutiny and democratic accountability as the ISC. With great respect, I would not want any of our comments to appear to be disparaging to the work of the BEIS Select Committee and the very valuable scrutiny work that it does.
I believe that the BEIS Select Committee is excellently placed to consider how effectively and efficiently the regime interacts with the business community and investors. It can also ensure that the NSI regime does not create disproportionate impacts on the economy, and, with its business expertise, it is able to scrutinise whether the regime is effective in scrutinising relevant acquisitions of control. I have to say, with deep respect, that I would therefore question some of the narrative I have heard that suggests that the BEIS Select Committee is not well placed to scrutinise the NSI regime.
I turn back to the ISC. There are, of course, no restrictions on the ISC requesting further information from the unit or from the Secretary of State for matters where it falls under the remit of that committee. The Intelligence and Security Committee’s remit, however, is clearly defined by the Justice and Security Act 2013, together with the statutory memorandum of understanding. I know that this irritates noble Lords, but that remit does not extend to the oversight of BEIS’ work. I therefore welcome and encourage the Intelligence and Security Committee’s considerable security-specific expertise and its review of the annual report when it is laid before Parliament.
Before turning to Amendment 86, I will first revisit precisely what the Justice and Security Act 2013 provides for. I remind noble Lords that this Act sets out the role of the Intelligence and Security Committee alongside a memorandum of understanding. The Act sets out that
“the ISC may examine or otherwise oversee the expenditure, administration, policy and operations of … the Security Service … the Secret Intelligence Service, and … the Government Communications Headquarters.”
The Act also provides that:
“The ISC may examine or otherwise oversee such other activities of Her Majesty's Government in relation to intelligence or security matters as are set out in a memorandum of understanding”
agreed between the Prime Minister and the committee.
The present memorandum of understanding states that the ISC is, in addition, responsible for overseeing the activities of parts of the Ministry of Defence, parts of the Cabinet Office—including the National Security Secretariat and the Joint Intelligence Organisation —and the Office for Security and Counter-Terrorism. The ISC must report to Parliament annually on the discharge of its functions, and may make such other reports as it considers appropriate concerning any aspect of its functions. Redactions are agreed by the Prime Minister for any material that may prejudice the functions of the intelligence agencies or of other parts of the intelligence and security community.
Extending the remit of the ISC to oversight of the investment security unit would be a substantial amendment. In particular, the Justice and Security Act currently refers only to intelligence agencies, of which the investment security unit is not one. Noble Lords will have seen the strength of feeling in both this House and the other place concerning the role of the investment security unit in relation to the national security and investment regime—I am well aware of this. I understand that this proposed new clause is the result of careful consideration and an attempt to find a compromise, and for that I am grateful to my noble friend. However, for the same reasons that the Government have cautioned against other amendments that seek to provide for a more formal role for the ISC in relation to the NSI regime, I cannot accept it.
Amendment 70 seeks a similar privileged role for the ISC but in a way that, I have to say, would present additional problems. The Bill as currently drafted requires the Secretary of State, as the sole and quasi-judicial decision-maker, to follow clearly and tightly defined timescales and to handle sensitive information from a range of sources. Requiring the ISC to review every final order before it could be made would risk adding substantial delays into this process, harming both national security and business certainty.
The Government have faced amendments seeking for a national security assessment to be completed in one-third less time on large and complex acquisitions, for the purpose of limiting any wait by business. This amendment, however, while at the end of the process—and while final orders will, of course, be more limited in number than national security assessments undertaken—seeks to add potentially significant further delay without a clear benefit. There is also a risk that, depending on how long it takes the ISC to produce its report, the Secretary of State could be timed out of making a final order at all, as the tests for extending the assessment period do not currently allow for an extension due to ISC scrutiny. It would also, I think, be an unprecedented role for a parliamentary committee, although I have no doubt that others such as the noble Lord, as an ex-Cabinet Secretary, will have a much better sense of precedent in this area.
The report laid before Parliament, which this amendment would require, would be based solely on intelligence. It would therefore likely need to be so highly redacted as to make it uninformative. I can instead assure the noble Lord that, in making a final order, the Secretary of State will draw on information and expertise from across government, including the intelligence agencies, to ensure that he has all the information he needs.
Lord West of Spithead (Lab)
My Lords, I am a poacher turned gamekeeper, as a fully signed-up member of the rolled-up trouser-leg and funny handshake brigade. For many years in the intelligence world, I hated the thought that government, Parliament or anyone else could look at my intelligence; how much nicer not to give any of that away. I am very glad that system does not work in this country. We have set up a mechanism whereby Parliament can see that highly sensitive intelligence that all of us involved in that world are immediately nervous when anyone touches. Of course if you have that intelligence, you want to hang on to it and not tell other people about it. It sounds to me as though the BEIS Select Committee will be delighted that it is to be the one making all the decisions based on the intelligence that it has. I do not really like that as a way of going forward. I could say a lot more about the response from the Government because I am not very happy about it.
Can the Minister look again at this debate and what has been asked for, because it seems very sensible for the ISC, which after all was tasked in the Justice and Security Act to do exactly this? The BEIS Committee was not. It is not too much to ask that this is looked at; it sounds very sensible.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for his courteous comments. Of course I will review the contents of this whole debate to see whether there are any lessons that I can learn from it.
Lord Rooker (Lab) [V]
My Lords, I much regret that, due to my own IT incompetence, I was unable to speak today. However, I say to the Minister as politely as I can that he has completely misread the House, and I think he will have to look at this again. The ISC is not a bog-standard Select Committee. 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. The Government have a democratic licence to operate only because of Parliament. The Minister should go away and, before Report, explain to those who have spoken and other Peers where the Government’s democratic licence to operate is in this respect, having ruled out parliamentary scrutiny in a very precise way.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for his comments. I apologise to noble Lords if they feel that I have misread the mood of the House. The key point that I want to make in response to him is that the BEIS Select Committee—I say it again—is part of our parliamentary scrutiny and has democratic accountability in the other place. The Government are not avoiding scrutiny of the investment security unit; they are putting it somewhere where they believe that the scrutiny will be most effective, looking at the work of the unit in the round. They believe that the most effective overall scrutiny of the ISU will be found in the BEIS Select Committee.
Baroness Hayter of Kentish Town (Lab)
I have a couple of questions for the Minister. He said that the remit of the ISC under the 2013 Act does not cover the work of BEIS. If that is the case, that justifies even more an amendment to the Bill to amend the 2013 Act to put in such a provision. If the Government wanted to do it, that would be the way. I do not think that we should use the law as an excuse. The law can be changed; we are making an Act now.
I have just double-checked the names, but can the Minister confirm that the current members of the BEIS Select Committee are not all even privy counsellors and certainly do not have security clearance which goes beyond Privy Council? Can he confirm that there is no House of Lords Member on the BEIS Select Committee? Can he also confirm that nothing that we have done in any of these amendments to give the ISC a role removes the role of the BEIS Select Committee—in other words, it can still look at the industrial or investment parts? We are not taking those away from it, so it would continue to have the role that he has spelt out for it, but we are adding another bit. Can he confirm those three points?
Lord Grimstone of Boscobel (Con)
I thank the noble Baroness for those questions. First, I repeat that there is no barrier to the BEIS Select Committee handling highly classified, top-secret material. Appropriate arrangements can be put in hand to ensure that the members of that committee have access, after processes have been gone through, to that material. Secondly, of course, the committee is a committee of the other House —that is self-evident. I come back to my core point. Where the agencies which report to the ISC have done work of relevance to this, the ISC will be able to speak to them about such work, but that is very different from the ISC being responsible for monitoring the work of the ISU, which goes far wider than the responsibilities of the ISC. I have deep respect for the opinions that have been put forward, but I am afraid that I do not agree with them.
Lord Campbell of Pittenweem (LD)
My Lords, I am grateful for the opportunity to remedy an omission from my earlier remarks, to some extent stimulated by the response of the Minister. During my time in the other place, I was a member of the Trade and Industry Committee, the Defence Committee and the Foreign Affairs Committee. Unless things have changed very considerably, in my time as a member of these committees we were never admitted to intelligence of the quality which is available on a daily basis to the Intelligence and Security Committee. We were never required to sign the Official Secrets Act, which is an obligation incumbent upon those who wish to serve on the Intelligence and Security Committee.
Since the nominations are made by party leaders, it is not unknown for reservations to be expressed about the reliability of a possible member of the Intelligence and Security Committee, the result being that the leader of the party in question determines to withdraw that nomination. To suggest that the quality of information available is the same in Select Committees on security matters as that available to the Intelligence and Security Committee is to misunderstand the different obligations incumbent on membership.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for these comments and in no way want to second-guess the deep experience that he has on these matters. But I repeat yet again: there seems to be a worry that BEIS Select Committee members will not have sufficient security clearance to be able to do the work required of them. I repeat from this Dispatch Box that there is no barrier to BEIS Select Committee members handling top-secret and other classified material, subject to agreement between the department and the chair of the committee on appropriate handling. I am not sure that I can say more than that, but they will be able to have the information they need to carry out their functions.
Lord Butler of Brockwell (CB)
My Lords, I am grateful for this debate. I am afraid that I have to say to the Minister that, while he may have used his own words in answer to the debate, he used the brief that would have been used by the noble Lord, Lord Callanan. I do not want to decry the work of the BEIS Select Committee at all, but the Minister gave the game away when he said that access to highly classified intelligence for the Select Committee would be based on an agreement between the chair and the Secretary of State. The Secretary of State would control it. In that case, Parliament would be in the position of Glendower in “Henry IV”, who says:
“I can call spirits from the vasty deep.”
So you can, is the reply:
“But will they come when you do call for them?”.
Under the memorandum of understanding, the Intelligence and Security Committee has a right to get the intelligence that it needs. A Select Committee of the House of Commons does not have that similar right.
What has run through this debate, from everybody who has spoken apart from the Minister, is that we want one simple thing. We want to make proper use of a tool that is there for Parliament and has been created for this purpose: the Intelligence and Security Committee. There are various ways of doing it, as has been made clear. It could be by annual reports; it could be by changing the terms of reference, which can be done so easily; it could be a transfer to the Cabinet Office, which would bring it within the terms of the ISC.
I suggested that this should be a real-time operation. If I may say so, the Minister misrepresented that. There is no reason why that should extend the time necessary for the assessment. The Intelligence and Security Committee will be looking at one thing—the highly classified intelligence on which the Secretary of State is acting—and reporting on that. That is not a huge job. The ISC could say quite shortly that it was satisfied, and 99 times out of 100, I think, it would say that there were good grounds for the order that the Secretary of State was proposing to be make. I think that could quite easily be done within the 30 days allowed under the Bill for the assessment. It would not even need to make use of the 15-day extension.
Member’s explanatory statement
This amendment ensures that the power to make regulations in clause 53(1) in relation to the procedure for service of documents extends to cover all of the different types of notices, orders and documents under the Bill.
Lord Grimstone of Boscobel (Con)
My Lords, I turn to the amendments relating to information sharing and data protection. As always, I am grateful to my noble friend Lord Lansley, who we know examines these Bills with such a critical eye that nothing can escape his eagle gaze. The first amendment relates to Clause 54 and seeks to require the Secretary of State, when deciding whether to disclose information to an overseas public authority, to have regard to whether there is a reciprocal agreement with the country or territory to whose authority the disclosure would be made.
As this clause is about sharing information, I believe that my noble friend is envisaging the reciprocal agreement with another country or territory to be in relation to the sharing of information for a specified purpose, such as facilitating the exercise by the Secretary of State of his functions under the Bill or the prevention or detection of crime. Clause 54(7) specifies certain considerations that the Secretary of State must have particular regard to when deciding whether to disclose information to an overseas public authority. It includes consideration of whether the law of the country or territory to whose authority the disclosure would be made provides protection against self-incrimination in criminal proceedings corresponding to the protection provided in the UK, as well as consideration of whether the matter is sufficiently serious to justify making the disclosure. The clause permits the Secretary of State to disclose information but, I stress, does not require him to do so.
The Secretary of State, as often elsewhere in the Bill, will be subject to public law duties when deciding whether to share information with an overseas public authority under this clause. These duties include a requirement to take all relevant considerations into account, although this will obviously depend on the facts of each case, and whether there is a reciprocal agreement in place. In some circumstances, for example where information is to be shared for the purpose of protecting national security, it may well be appropriate to proceed in the absence of a reciprocal agreement. When deciding whether to disclose information to an overseas public authority, the Secretary of State will also be bound by the data protection legislation provisions, which include certain restrictions in respect of international transfers of personal data and consideration of appropriate safeguards. There is therefore no need to include additional restrictions in the Bill.
I turn to Amendment 77, which relates to Clause 57. It seeks to ensure that when considering whether a disclosure or use of information pursuant to a duty or power under Parts 1 to 4 of the Bill would contravene the Investigatory Powers Act 2016, the duty or power itself would need to be taken into account. A similar provision exists in relation to consideration of whether a disclosure or use of information would contravene the data protection legislation. Clause 57 states that the provisions in Parts 1 to 4 containing a duty or power to disclose or use information do not authorise a contravention of the data protection legislation as defined in the Data Protection Act 2018. The clause also sets out that such a duty or power to disclose or use information does not authorise contravention of Parts 1 to 7, or Chapter 1, Part 9, of the Investigatory Powers Act 2016. That Act contains provisions about conducting interception, including restrictions on use and disclosure of intercepted information. These are standard provisions included where legislation concerns the use or disclosure of information.
To reassure my noble friend, there is no call for the Secretary of State to consider the duty or power to disclose or use information under the Bill to determine whether a particular disclosure or use pursuant to it would contravene the Investigatory Powers Act. This will simply require consideration of what the relevant provisions of the Act prohibit, and none of the prohibitions turns on whether a duty or power exists or its terms. In comparison, the data protection legislation provides a framework for processing personal information but allows for other provisions, such as those found in the Bill, to specify more details about the use or sharing of personal information. Therefore, a duty or power to disclose or use information under the Bill will need to be taken into account when considering whether a disclosure or use of personal information pursuant to it would contravene the data protection legislation. As explained, this is not required when considering compatibility with the Investigatory Powers Act, due to the differing nature of the legislation.
Therefore, while I understand the objectives of my noble friend and his desire, as always, to be helpful, for the reasons I have set out, I am not able to accept these amendments, and I hope that my noble friend will agree to withdraw or not move them.
Lord Callanan (Con)
I thank those who have taken part in this short debate, in particular my noble friend Lord Lansley and the noble Lords, Lord Grantchester and Lord West, for their considered and thoughtful comments on the amendments. Amendments 80 and 81 seek to add a number of additional areas of information to the annual report, namely around time taken processing cases, the resources of the investment security unit, the extent to which acquisitions involving SMEs are being called in, and the number of final orders being varied or revoked. The aims of these amendments are commendable, and the Government are a strong supporter of SMEs and government transparency.
The first part of Amendment 80, tabled by the noble Lord, Lord Grantchester, seeks the inclusion of the average number of days taken to assess a trigger event which has been called in. Noble Lords will recall that Clause 23 provides statutory time periods for assessment under the regime. The Secretary of State must assess any trigger event that has been called in within a period of 30 working days, as we have discussed in earlier debates, or, if additional time is required, within the additional period of a further 45 working days, or within any further voluntary extension or extensions agreed with the acquirer.
As there are these time limits, and they are as short as we are able to make them while also ensuring there is time for appropriate national security assessment, it does not seem that there would be any additional benefits from including average times in the annual report. Clause 61 sets out the minimum reporting requirements that the Secretary of State must meet in the annual report. The information provided in the annual report will provide Parliament with good insight into how the regime is functioning in practice.
Furthermore, the amendment seeks to add additional reporting on the minimum, average and maximum turnaround times for notifications in the annual report. The Government have laid out clear statutory timelines for responding to voluntary and mandatory notifications in Clause 23, providing investors and businesses with the certainty that they need. However, I would be happy to discuss this proposal further with the noble Lord, Lord Grantchester. The time taken to assess trigger events that are called in will vary on a case-by-case basis; therefore, it would not be helpful to share the average time.
Secondly, on the time taken for deciding whether to accept mandatory and voluntary notices, the Bill requires that the Secretary of State must do so
“as soon as reasonably practicable”,
as we discussed, after receiving a notice. In practice, this is likely to be a matter of days, but it is important to retain flexibility so that an accurate assessment of the completeness of the information is undertaken. Additionally, if the Secretary of State decides to reject a notice, he must as soon as practicable provide reasons in writing for that decision to the notifier. Where the decision is to accept a notice, the Secretary of State must as soon as practicable inform the parties of the decision.
Thirdly, where the noble Lord seeks inclusion of the average headcount of the investment security unit in the annual report, I can only repeat what my colleague Minister Zahawi said in the other place: resourcing would, of course, be
“an internal matter for the BEIS permanent secretary.”—[Official Report, Commons, National Security and Investment Bill Committee, 10/12/20; col. 334.]
I am unsure whether very high numbers would demonstrate appropriate resourcing, or insufficient efficiency. In any case, we have committed to ensuring that the investment security unit is appropriately resourced. I am sure that the Permanent Secretary will make sure that that is the case.
Furthermore, on SMEs, the report is intended to give a sense of the sectors of the economy where the greatest activity of national security concern is occurring. The Secretary of State may include additional information relating to SMEs if he considers that appropriate.
Turning to Amendment 81, tabled by my noble friend Lord Lansley—I am sorry that this is the last occasion we will hear from him—I am pleased to confirm that Clause 29 already places a duty on the Secretary of State to publish notice of the fact that a final order has been made, varied or revoked. This intentionally complements the annual report in Clause 61. We must not encumber the investment security unit with ever greater reporting as this will draw focus away from scrutinising acquisitions and responding to businesses as soon as possible. Individually, these amendments of greater reporting may seem reasonable, but combined they can be quite burdensome for the unit.
On Amendment 91, in the name of the noble Lord, Lord West of Spithead, I am grateful that this came with only his secondary armament—although I noticed that he had the noble Baroness, Lady Smith, for additional offensive capability. The amendment relates to the provision of guidance for the defence sector. It would require the Secretary of State to publish guidance for businesses in the defence supply chain about the provisions in the Bill, including a list of countries which the Secretary of State considers less likely to give rise to a risk to national security and from which investment is encouraged.
The noble Lord’s amendment highlights the importance of the defence sector and its supply chains, which is part of the reason why the defence sector is intended to form part of the Bill’s “mandatory notification regime”. A robust defence sector is vital to our national security and essential for the development of innovative and first-class military capabilities that enable us to protect our people, territories, values and interests at home and overseas. The defence sector, including businesses in its supply chains, such as those providing emerging technologies, must remain resilient to a wide range of national security risks, including those posed by hostile actors.
We are keen to ensure that the mandatory notification regime works proportionately and provides sufficiently clear parameters to inform businesses and investors of the need to notify and obtain prior approval. That is why we have consulted on the definitions of sectors covered by mandatory notification in the recent public consultation. This approach has enabled experts from the defence sector and its supply chains, along with the legal profession, businesses and investors, to help us refine the final definitions to ensure that the regime is appropriately targeted and provides legal certainty.
The noble Lord’s amendment also seeks to require the publication of a list of countries which the Secretary of State considers less likely to give rise to national security risks, and those from which investment is encouraged. As it stands, as I have said before on other amendments, both the mandatory and voluntary notification regimes provided for by the Bill are actor- and nationality-agnostic.
The mandatory notification regime is set based on the risks posed by acquisitions of target entities due to those entities’ activities rather than risks posed by the acquirers. The risks posed by an acquirer are then considered on a case-by-case basis by the Secretary of State as part of the particular national security assessment. It would not be appropriate to set out through guidance a variation to the legislation; that would confuse more than it would clarify, and it might give rise to legal challenge.
On whether guidance can be provided more generally for the defence sector on the provisions in the Bill, we must also guard against legislating through guidance. The Government will of course consider what appropriate explanatory material should accompany the regulations to define the sectors subject to mandatory notification, including the defence sector.
I thank all noble Lords and my noble friend for their amendments. For the reasons mentioned, I am afraid I cannot accept them. Therefore, I hope the noble Lord will feel able to withdraw his amendment.
The Deputy Chairman of Committees (Lord Lexden) (Con)
I have received no requests to speak after the Minister, so I invite the noble Lord, Lord Grantchester, to conclude the debate on his amendment.
Lord Clement-Jones (LD)
My Lords, it is a pleasure to follow the noble Lord, Lord Bilimoria, particularly as I am speaking to the two amendments that he has spoken to, because he speaks with huge authority and considerable backing.
To start with Amendment 85, we on these Benches are very sympathetic to the cause of SMEs. Whether this is the best way of catering for the considerable issues that they will face under the Bill is a matter for debate. I would prefer to see the thresholds altered to accommodate the needs of small businesses, but the heart of Amendment 85 is certainly in the right place.
I turn to Amendment 89. As we have heard, throughout the course of the Bill’s passage concerns have been expressed about its impact and the culture of the ISU as it enforces the Bill’s provisions. As ever, my noble friend Lord Fox anticipated some of my arguments in the previous group. It is critical that a regular review is undertaken to ensure that the Act is achieving its aims proportionately while not unduly deterring foreign investment.
Other aspects of the Bill include the five-yearly review of the Secretary of State’s statement about the exercise of the call-in power under Clause 3 and, of course, the annual report that we have just been talking about, which is inadequate in many ways. It is currently envisaged in Clause 61 and, as we debated in the last group, it does not go nearly far enough. Neither provision makes any reference to the effectiveness of the overall scheme of the legislation, whether it is achieving its objectives and, indeed, whether its overall purpose is being achieved. As my noble friend said, two key questions need answering here—effectively, are we safe and is our investment climate healthy? Where in any of the Bill’s provisions is the provision for that to be considered?
Amendment 89 would require the Secretary of State to undertake a review of the Act and report to Parliament every three years. This would involve a cost-benefit analysis of the regime’s impact, as set out in proposed subsection(2)(c).
I support Amendment 92 in the name of the noble Lord, Lord Leigh, and have signed it. I am sure that the noble Lord would have introduced it with far greater panache than me. But the Minister—the noble Lord, Lord Callanan—said at Second Reading:
“Noble Lords are entirely reasonable to expect further high-quality guidance from government to help businesses and investors navigate the regime.”—[Official Report, 4/2/21; col. 2391.]
That is reassuring but, as was made very clear by David Petrie, the head of the Corporate Finance Faculty of the ICAEW—I declare an interest as a member of its advisory board—in the Public Bill Committee on behalf of the members of the ICAEW, and as the noble Lord, Lord Bilimoria, has confirmed, the most effective way of tackling asymmetry of information in the business, investment and advisory communities would be the periodic production by the ISU of meaningful market guidance notes, modelled around the practice statements that accompany the City Code on Takeovers and Mergers.
Market guidance notes would be an important way for the ISU to engage closely and on an ongoing basis with businesses, investors and professional advisers. They would signal a culture of professionalism and openness to investment in UK businesses. They would support a necessary communication and awareness campaign of the legislative requirements. By setting out in an accessible way and in consultation with business, professional and sector bodies why and how businesses may be affected, the ISU could ensure that consistent and accurate information reaches the population of businesses and their advisers. Of course, future updates could also be issued in this format.
Beyond raising awareness, issuing market guidance notes over time would help to inform market participants on what they could be doing to make sure that the process works with more certainty, speed, clarity and transparency—all these cultural things that we have been talking about throughout the Bill, things which financial markets and the wider UK economy need to see. There would be a positive impact on productivity as a result; they would help to ease potential resourcing pressures on the ISU by increasing the proportion of notifications being submitted correctly, with all relevant details included.
I hardly need to say that market guidance notes would not form part of the Act and accordingly would not be binding on the Secretary of State. They would be issued to provide informal but meaningful guidance to businesses, investors and professional advisers on matters such as the level of information required in a mandatory or voluntary notification, and they would also provide commentary on the ISU’s normal approach to various provisions of the Act and greatly assist market participants seeking to establish the extent to which the Act may apply in a particular case. The ISU can also use them to share insights into trends where this would benefit the process. They would be amended periodically, or withdrawn as necessary, without the need for legislation—so extremely flexible. Each note could indicate the date on which it was issued, and so on.
There are other details that I could provide. There is great enthusiasm for this instrument, and I very much hope that the Bill will provide specifically for these. It would be an extremely useful indicator of the way in which the ISU proposes to operate.
Lord Callanan (Con)
I am grateful to the noble Lords, Lord Grantchester, Lord Leigh and Lord Clement-Jones, for their amendments in relation to equity stakes of affected parties, small and medium-sized enterprises, an impact review of the regime, and market guidance.
I first turn to Amendment 84, tabled by the noble Lord, Lord Grantchester. This amendment seeks to require the Secretary of State to analyse the financial support provided by government, as part of Covid-19 support, to sectors considered more likely to give rise to national security risks. It then seeks to require him to consider converting loans and grants to equity stakes when there is a clear economic and national security rationale for doing so.
There is no doubt that the impact of Covid-19 on businesses and livelihoods of people across the country has been truly terrible, and I have a massive amount of sympathy for those affected. I can assure noble Lords that the Government are committed to supporting all UK businesses through the Covid period. The Government continue to provide extensive support to businesses to survive the pandemic, so far totalling over £280 billion, including through furlough, the Self-employment Income Support Scheme and business grants. However, I do not think that converting loans into equity stakes necessarily represents the best use of public money. As noble Lords will be aware, Clause 30 provides for the Secretary of State to give financial assistance to, or in relation to, entities in consequence of the making of a final order. However, it is expected that this will be used only in exceptional circumstances. What the noble Lord is proposing would be much wider than this and, while I am sure that it is very well intentioned, is very much a substantive diversion from the main purpose of the Bill.
I turn to Amendment 85, which would require the Secretary of State to create a small and medium enterprise engagement unit within three months of this Bill being passed. This unit would take particular actions in relation to SMEs and their interaction with the regime. I note that this amendment bears a strong similarity to an amendment proposed during Report in the other place, and it will not surprise noble Lords that my views on the subject are closely aligned with those of Nadhim Zahawi, my fellow Minister. The Government strongly support SMEs and so have sought to provide a clear and easy regime for businesses of all sizes to interact with. The Government have been happy to provide support to businesses both large and small through the contact address available on GOV.UK and discussions with BEIS officials. The Government have published fact sheets on GOV.UK which make clear what the measures in the proposed legislation are and, importantly, to whom they apply.
We are also creating a digital portal and a simple notification process to allow all businesses to interact with the regime without the need for extensive support from law firms. Furthermore, there is no fee for filing a notification, unlike many of the regimes operated by our allies. Consequently, we have no reason to believe that this regime will disproportionately affect SMEs or that this new clause is necessary.
Lord Clement-Jones (LD)
My Lords, I should thank the Minister for his response; I am not sure I really want to. I found it rather extraordinary, particularly to Amendment 89. We have a Bill on foot with a purpose in mind but, when it comes to reviewing it, we are told that it is far too sensitive and we cannot possibly review whether it has met its objectives. We can keep it under review—within the department in some shape or form, I assume—but we cannot possibly undertake a periodic review of any kind. Even a normal post-legislative review process would expect to see whether an Act of Parliament was meeting its objectives. The Minister cannot even say whether that will take place at any stage.
This really adds to one’s concerns about this Bill in so many ways. It is a rather furtive creature that, if we are not careful, will be hiding in the dark for quite a long time and will not get reviewed. There is no way of seeing whether it is achieving its purpose other than the kind of review the Minister was talking about, which is purely internal to government and part of the government department’s overview. This is not particularly reassuring.
On Amendment 92, the Minister talked about just making statements about the call-in power or having the annual report. I said a set of market guidance notes would do; I did not adumbrate about six points that a set of market guidance notes could set out. They are far more extensive and market friendly than anything that is going to be caught by the call-in power statement or the annual report. We are talking about real guidance to business so that it knows what to expect and the parameters within which the Secretary of State is operating—particularly when it comes to guidance about the kinds of sector that will be caught and the current issues that the Secretary of State believes would give rise to a call-in notice and other aspects dealt with by the ISU. The idea that five years is a reasonable time to adjust a call-in power statement is laughable in the commercial world. The Takeover Panel updates its notes on a regular basis, and that is exactly what the ISU should do with market guidance.
Lord Callanan (Con)
I am not sure there were any questions for me there; the noble Lord has made some observations. I understand that he was unhappy with my replies, but I am afraid I cannot agree that the Bill is “furtive” or “hiding in the dark” at all. We are committed to transparency as much as possible. He says he has six additional points on market guidance notes. If he wants to send them to me, I will happily have a look at them and see what we can do. We said a maximum of five years, but of course the Secretary of State has the ability to do earlier reviews if necessary. That is a maximum date, and we could bring that forward. I take on board his points and am sorry if he is disappointed by my replies.
Lord Grantchester (Lab)
I thank the noble Lord, Lord Bilimoria, for his amendment in this group proposing a review of the Act and its engagement with businesses. I am sure it will become clear and the appropriate responses will be forthcoming from the department.
I thank the noble Lord, Lord Clement-Jones, for his sympathy. The effect of the regime on SMEs is very relevant, and high-quality guidance for businesses has been recognised in the Minister’s replies. I thank him also for his replies on the pandemic and the business environment with the call-in powers of the Secretary of State. He returns to the issue of the annual report, thus giving room for these matters to be considered slightly further. With that in mind, I beg leave to withdraw the amendment.
Lord Grantchester (Lab)
My Lords, unlike the noble Lord, Lord Fox, I am not unduly fearful of the noble Baroness, Lady Bennett. I have always thought that being Green does not allow for having a whip. However, I thank the noble Baroness for proposing this new clause to the Bill. I am certainly clear that the climate emergency must hang as a backcloth to every action that we undertake.
The aim of Amendment 93 is completely understood and appreciated. It seeks a Ministerial Statement on how the provisions set out in this Bill will be exercised in relation to the national security impacts caused by climate, environmental or ecological damage. The climate crisis is not only a threat to our way of life in the long term but a threat to national security in the short to medium term. Only last week, Jens Stoltenberg, the NATO Secretary-General, said that
“climate change makes the world more unsafe, so NATO needs to step up and play a bigger role in combating it.”
A few weeks ago, even the Prime Minister made a comment that climate change is a threat to our society. How will the new regime take account of this and reflect on his comments?
The Committee has already questions about the list of sectors affected, especially the energy sector, as well as about protecting green infrastructure. I have raised with the Minister the EV infrastructure, solar and wind industries and how their growth should be protected. It is certainly important that we hear more from him on the issue and what the difficulties would be in undertaking to produce the kind of statement being proposed by the noble Baroness, Lady Bennett. If the Government are resistant to producing such a statement, could the issue be included as an integral part of the annual report?
Lord Callanan (Con)
My Lords, let me thank the noble Baroness, Lady Bennett, for her amendment and begin by expressing my heartfelt sympathy to the noble Lord, Lord Fox, on being admonished by her. All that I can say is, welcome to the club.
The amendment would require the Secretary of State to publish within six months of the Bill becoming law a statement on how the regime will be exercised in relation to national security impacts caused by climate, environmental and ecological damage. As the noble Baroness, Lady Bennett, knows—we have debated these matters on numerous occasions in this House—this Government are committed to tackling climate change. We are especially looking forward to the COP 26 conference in November, which will highlight our leadership on this issue and promote co-operation on climate action through the UK’s G7 presidency, as Alok Sharma MP set out in a speech to the UN on 8 February. Of course, the COP 26 preparations continue to be led by Alok Sharma, who opened Second Reading on the Bill in the other place. I am sure that we all wish him well as he strives to bring the world to ambitious agreements in Glasgow.
The Bill, however, focuses on national security risks arising from acquisitions of control over qualifying entities and assets. If we were to view national security through a particular lens, as the amendment seeks to do through environmental concerns, we would be in some way defining national security. We have deliberately avoided defining it in the Bill, a matter that we have debated previously. We have expounded on that at some length in this House and in the other place.
Without rehearsing those arguments, which I am sure noble Lords are familiar with, I hope they will understand that we cannot accept amendments that seek to define national security in a particular way. The noble Baroness’s amendment asks for a statement on how the provisions in the Bill will be exercised. The most fundamental provision is the call-in power. The Bill already requires the Secretary of State to publish a statement on how that is expected to be exercised before being able to use the power. A draft of that statement was published on introduction of the Bill in November. The Government would be very pleased to receive comments and have committed to consult on it publicly. The final version of the statement must be laid before Parliament and will be subject to the negative resolution procedure.
Finally, two provisions in the noble Baroness’s amendment—proposed new paragraphs 2(a) and 2(b)—address specifically environmental concerns. Laudable as they are, they are not directly connected to the national security and investment regime proposed in the Bill. That is because the regime concerns whether the acquisition of qualifying entities and assets poses a risk to national security, not the actions of those entities or assets themselves. Given the Government’s commitment to environmental policies, but recognising that the Bill deliberately avoids defining national security, and given that a statement on how the call-in power is expected to be used is already provided for, I hope that the noble Baroness, in the light of what I have said, is able to withdraw her amendment.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, I thank the Minister for his response and for pointing out how the Committee has taken a neatly circular route, almost like a circular economy, in getting back to more or less where we started—debating definitions of national security. I also note his welcome for comments on the statement on the call-in power, which I certainly hope to pick up and run with.
I should perhaps begin with an apology to the noble Lord, Lord Fox, if he took my comments as being directed at him or anyone taking part in this debate. As is often the case with Greens, I am not concerned with individual behaviour but systems change. It is clear that the systems in your Lordships’ House tend to result in a narrow range of Peers taking part in Bills related to financial matters. Yet, in our heavily financialised society, and given that finance is such an important part of security in this instance, we need input from a broader range of sources. I am certainly not blaming the noble Lord for that, although perhaps he could encourage fellow Peers from his party and others to engage on this issue.
I very much thank the noble Lord for his offer to work together, particularly on the list of technologies, which is also something I will be taking up. I understood his suggestion that we should all be focusing on the need for the Government to have an integrated strategy for 2050, but I pick up on the comments of the noble Lord, Lord Grantchester, who said that every action we undertake has to take account of the climate and ecological emergencies. To use a technical term, we are talking about mainstreaming. The climate emergency and ecological crisis must be at the forefront of our minds in every aspect of what the Government and your Lordships’ House do.
This is an emergency. Looking at the Chamber now, as I speak remotely, I think back to what it was like in March 12 months ago, when all anyone was thinking about was the Covid emergency, but we are also in a climate emergency and an ecological emergency.
I am aware that this is the final amendment to be debated. I hope we will see more people engaged in this debate when we get to Report. We have made some progress, I think, and so, for now, I beg leave to withdraw the amendment, although I expect I will still be looking at what we may do on Report.
Thursday 15th April 2021
(3 years, 11 months ago)
Lords ChamberNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: HL Bill 183-I Marshalled list for Report - (12 Apr 2021)
18:12 - Division on Amendment 24 - Ayes: 296 / Noes: 232 - Amendment 24 agreed.
19:07 - Division conducted remotely on Amendment 39 - Ayes: 118 / Noes: 255 - Amendment 39 disagreed.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
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.
The Deputy Speaker (Baroness Fookes) (Con)
I have received one request to speak after the Minister. I call the noble Lord, Lord Fox.
Lord Fox (LD)
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?
Lord Grimstone of Boscobel (Con)
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.
Lord Lansley (Con)
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.
Lord Grantchester (Lab)
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.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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.
Lord Leigh of Hurley (Con)
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.
Lord Callanan (Con)
I will just say that, as always, I agree with my noble friend.
Lord Lansley (Con)
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.
Lord Callanan
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.
Lord Grantchester (Lab)
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.
Lord Callanan (Con)
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.
Baroness Bennett of Manor Castle (GP) [V]
I beg leave to withdraw the amendment.
Lord Callanan (Con)
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.
Lord Bruce of Bennachie (LD) [V]
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.
Lord Callanan
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.
Lord Grantchester (Lab)
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.
Lord Grimstone of Boscobel (Con)
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.
Lord Grantchester (Lab)
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.
Lord Grimstone of Boscobel (Con)
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.
Lord Grantchester (Lab)
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.
Lord Grimstone of Boscobel (Con)
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.]
of companies.
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.
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.
Lord Callanan
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.
Lord Callanan (Con)
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.
Baroness Noakes (Con)
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.
Lord Grantchester (Lab)
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.
Lord Callanan (Con)
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.
Lord Callanan (Con)
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.
Lord West of Spithead (Lab)
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.
“(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.
“(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.
“(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.
Lord Grimstone of Boscobel (Con)
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.
The Deputy Speaker (Lord Lexden) (Con)
My Lords, I have received a request to speak after the Minister from the noble Baroness, Lady Neville-Rolfe.
Baroness Neville-Rolfe (Con)
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.
Lord Grimstone of Boscobel (Con)
I thank my noble friend for those comments. It certainly seems a bit weird that the Constitution Committee will have a role in this. If I may, I will look into the matter, write to the noble Baroness and put a copy in the Library.
Lord Lansley (Con)
I wanted to inquire whether my noble friend might write to me about the question of non-exclusive licensing of technology in the higher education sector, as I mentioned earlier.
Lord Grimstone of Boscobel (Con)
Yes, I am very happy to give my noble friend the assurance that I will write to him on that topic.
Lord Rooker (Lab)
In the main, the Minister’s reply was a model of its kind. I beg leave to withdraw the amendment.
Lord Grantchester (Lab)
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.
Lord Callanan (Con)
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.
Lord Fox (LD)
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.
Thursday 22nd April 2021
(3 years, 11 months ago)
Lords ChamberNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: HL Bill 183-I Marshalled list for Report - (12 Apr 2021)
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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.
Lord Callanan (Con)
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.
Monday 26th April 2021
(3 years, 10 months ago)
Commons ChamberNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Commons Consideration of Lords Amendments as at 26 April 2021 - (26 Apr 2021)
23:45 - The House divided: - Ayes: 366 / Noes: 260 - Question accordingly agreed to.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
I beg to move, That this House agrees with Lords amendment 1.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to consider:
Lords amendments 2 to 10.
Lords amendment 11, and Government motion to disagree.
Lords amendments 12 to 14.
Lords amendment 15, and Government motion to disagree.
Paul Scully
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—
Sir John Hayes (South Holland and The Deepings) (Con)
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?
Paul Scully
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.
Sir John Hayes
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.
Paul Scully
I am grateful for my right hon. Friend’s enlightening words about his intention. I can indeed confirm that the memorandum of understanding is flexible. The ISC does good work and continues to do so, and I look forward to working with him.
Greg Clark (Tunbridge Wells) (Con)
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?
Paul Scully
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.
Dr Julian Lewis (New Forest East) (Con)
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?
Paul Scully
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.
Chi Onwurah (Newcastle upon Tyne Central) (Lab) [V]
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.
Darren Jones (Bristol North West) (Lab) [V]
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.
Paul Scully
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.
Mr Steve Baker
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?
Paul Scully
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.
Dr Lewis
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.
Paul Scully
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.
Clause 61
Annual Report
Motion made, and Question proposed, That this House disagrees with Lords amendment 11.—(Paul Scully.)
Wednesday 28th April 2021
(3 years, 10 months ago)
Lords ChamberNational Security and Investment Bill 2019-21 Read Hansard Text Amendment Paper: Commons Consideration of Lords Message as at 28 April 2021 - (28 Apr 2021)
14:07 - Division conducted remotely on Motion A1 - Ayes: 318 / Noes: 241 - Motion A1 agreed.
This text is a record of ministerial contributions to a debate held as part of the National Security and Investment Bill 2019-21 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
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Lord Callanan
That this House do not insist on its Amendments 11 and 15, to which the Commons have disagreed for their Reason 11A.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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)
Baroness Hayter of Kentish Town (Lab)
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?
Lord Callanan (Con)
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.
Lord West of Spithead (Lab)
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.