All 8 contributions to the National Security and Investment Bill 2019-21 (Ministerial Extracts Only)

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

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

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

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

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

Consideration of Commons amendments

National Security and Investment Bill

(Limited Text - Ministerial Extracts only)

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

(1 year, 8 months ago)

Commons Chamber
2nd reading Page 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

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Nadhim Zahawi Portrait Nadhim Zahawi
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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

(Limited Text - Ministerial Extracts only)

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

(1 year, 6 months ago)

Commons Chamber
3rd reading Page Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 20 January 2021 - (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

and order depends on our national security. National security is the very principle on which government is based, in which spirit I support the Bill enthusiastically and look forward to its further developments—in particular, the further work that I know the Government are now raring to do on appropriate scrutiny and oversight.
Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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May I add my congratulations to President Biden and Vice-President Kamala Harris, and their national security team?

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

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

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

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

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

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

Bob Seely Portrait Bob Seely
- Hansard - - - Excerpts

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

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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

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

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

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

Tom Tugendhat Portrait Tom Tugendhat
- Hansard - - - Excerpts

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

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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

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

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 Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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 Portrait Bob Seely
- Hansard - - - Excerpts

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 Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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.

--- Later in debate ---
Julian Lewis Portrait Dr Julian Lewis
- Hansard - - - Excerpts

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 Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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.

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

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 Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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.

Julian Lewis Portrait Dr Lewis
- Hansard - - - Excerpts

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 Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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 Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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 Portrait Stewart Hosie [V]
- Hansard - - - Excerpts

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.

--- Later in debate ---
17:10

Division 208

Ayes: 269


Labour: 198
Scottish National Party: 47
Liberal Democrat: 11
Conservative: 6
Independent: 4
Plaid Cymru: 3
Social Democratic & Labour Party: 2
Alliance: 1
Green Party: 1

Noes: 351


Conservative: 350

The list of Members currently certified as eligible for a proxy vote, and of the Members nominated as their proxy, is published at the end of today’s debates.
--- Later in debate ---
17:21

Division 209

Ayes: 263


Labour: 198
Scottish National Party: 47
Liberal Democrat: 11
Independent: 4
Social Democratic & Labour Party: 2
Plaid Cymru: 2
Alliance: 1
Green Party: 1

Noes: 355


Conservative: 356

The list of Members currently certified as eligible for a proxy vote, and of the Members nominated as their proxy, is published at the end of today’s debates.
--- Later in debate ---
17:33

Division 210

Ayes: 265


Labour: 198
Scottish National Party: 47
Liberal Democrat: 11
Independent: 4
Plaid Cymru: 3
Social Democratic & Labour Party: 2
Alliance: 1
Conservative: 1
Green Party: 1

Noes: 355


Conservative: 356

Third Reading
Kwasi Kwarteng Portrait The Secretary of State for Business, Energy and Industrial Strategy (Kwasi Kwarteng)
- Hansard - - - Excerpts

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.

Nigel Evans Portrait Mr Deputy Speaker (Mr Nigel Evans)
- Hansard - - - Excerpts

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.

National Security and Investment Bill

(Limited Text - Ministerial Extracts only)

Read Full debate
2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 2nd reading
Thursday 4th February 2021

(1 year, 6 months ago)

Lords Chamber
2nd reading (Hansard) Page Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 20 January 2021 - (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

Moved by
Lord Callanan Portrait Lord Callanan
- Hansard - - - Excerpts

That the Bill be now read a second time.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
- Hansard - - - Excerpts

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.

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Lord Callanan Portrait Lord Callanan (Con)
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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.

Bill read a second time and committed to a Grand Committee.

National Security and Investment Bill

(Limited Text - Ministerial Extracts only)

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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 Portrait Baroness Hayter of Kentish Town (Lab)
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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.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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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.

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Lord Lansley Portrait Lord Lansley (Con)
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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 Portrait Lord Callanan (Con)
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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.

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Lord Fox Portrait Lord Fox (LD)
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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 Portrait Lord Callanan (Con)
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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 Portrait Baroness Hayter of Kentish Town (Lab)
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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.

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I have not had sufficient time to consider whether these and other concerns are met in the inclusion of data infrastructure among the sectors. Will the Minister consider these points in his reply to ensure that the definitions are forward-thinking and cover all critical infrastructure interpretations?
Lord Grimstone of Boscobel Portrait The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
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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.

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Lord Clement-Jones Portrait Lord Clement-Jones (LD)
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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 Portrait Lord Grimstone of Boscobel (Con)
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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 Portrait Lord Leigh of Hurley (Con)
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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.

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Lord Grantchester Portrait Lord Grantchester (Lab)
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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 Portrait Lord Callanan (Con)
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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?

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Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
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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 Callanan Portrait Lord Callanan (Con)
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Could my noble friend repeat the question please?

Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
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If the legislation says a transaction is voidable, it could still be declared void.

Lord Callanan Portrait Lord Callanan (Con)
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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 Portrait Lord Vaizey of Didcot (Con) [V]
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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.

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Baroness Hayter of Kentish Town Portrait Baroness Hayter of Kentish Town (Lab)
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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 Portrait Lord Callanan (Con)
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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 Portrait Baroness McIntosh of Pickering (Con)
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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.

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Baroness Hayter of Kentish Town Portrait Baroness Hayter of Kentish Town (Lab)
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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 Portrait Lord Callanan (Con)
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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 Portrait Lord Lansley (Con)
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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.

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Moved by
12: Clause 4, page 3, line 38, leave out “requirement in subsection (1)(a)” and insert “requirements in subsection (1)(a) and (b)”
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.

National Security and Investment Bill

(Limited Text - Ministerial Extracts only)

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Report stage
Thursday 15th April 2021

(1 year, 3 months ago)

Lords Chamber
Report stage Page 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

I am grateful that the Government have now recognised the validity of these concerns and committed to publishing guidance after enactment of the Bill. I am also grateful to the Minister and his departmental team for outlining an indicative list of nine points of regime guidance. Guidance 8, on how the regime will work alongside other regimes, including export control, takeovers and the CMA, will address this. However, there are still some important outstanding questions for the Minister to answer to add clarity on how duplication across both regimes will be avoided while meaningful co-ordination operates effectively. It would be most helpful if he could provide that clarity at this important stage in the passage of the Bill.
Lord Grimstone of Boscobel Portrait The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
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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.

Baroness Fookes Portrait The Deputy Speaker (Baroness Fookes) (Con)
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I have received one request to speak after the Minister. I call the noble Lord, Lord Fox.

Lord Fox Portrait Lord Fox (LD)
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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 Portrait Lord Grimstone of Boscobel (Con)
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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 Portrait Lord Lansley (Con)
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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.

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Lord Grantchester Portrait Lord Grantchester (Lab)
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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.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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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.

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Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
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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 Portrait Lord Callanan (Con)
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I will just say that, as always, I agree with my noble friend.

Lord Lansley Portrait Lord Lansley (Con)
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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.

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Moved by
3: Clause 6, page 4, line 17, leave out paragraph (b)
Member’s explanatory statement
This amendment has the effect of omitting a category of notifiable acquisitions from the scope of the mandatory notification regime, namely where a person acquires a right or interest in a qualifying entity such that their shareholding or voting rights in the entity increases from less than 15% to 15% or more.
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Lord Grantchester Portrait Lord Grantchester (Lab)
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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 Portrait Lord Callanan (Con)
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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 Portrait Baroness Bennett of Manor Castle (GP) [V]
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I beg leave to withdraw the amendment.

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Lord Callanan Portrait Lord Callanan (Con)
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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 Portrait Lord Bruce of Bennachie (LD) [V]
- Hansard - - - Excerpts

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.

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Moved by
10: Clause 14, page 8, line 30, leave out paragraph (b)
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.
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Lord Grantchester Portrait Lord Grantchester (Lab)
- Hansard - - - Excerpts

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 Portrait Lord Grimstone of Boscobel (Con)
- Hansard - - - Excerpts

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.

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Lord Grantchester Portrait Lord Grantchester (Lab)
- Hansard - - - Excerpts

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 Portrait Lord Grimstone of Boscobel (Con)
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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.

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Lord Grantchester Portrait Lord Grantchester (Lab)
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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 Portrait Lord Grimstone of Boscobel (Con)
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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.

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Moved by
21: Clause 32, page 21, line 7, leave out paragraph (b)
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.
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Moved by
22: Clause 53, page 33, line 15, after “if” insert “a sender or”
Member’s explanatory statement
This amendment clarifies that regulations under Clause 53 may make provision in respect of non-individuals required to give notices and any other documents under the Bill, as well as those in receipt of such documents.
Lord Callanan Portrait Lord Callanan (Con)
- Hansard - - - Excerpts

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 Portrait Baroness Noakes (Con)
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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.

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Lord Grantchester Portrait Lord Grantchester (Lab)
- Hansard - - - Excerpts

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 Portrait Lord Callanan (Con)
- Hansard - - - Excerpts

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.

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The key players in the other place, as I see it, are Johnson, Gove and Rees-Mogg. From a political point of view, those are not people of substance. Shallow, mediocre and trivial is the way in which I would sum them up. That is the issue. We have messages here from people who have been at the front line, and we are simply saying to the Commons, “We want you to think again about this, and the reasons we want you to do so have been deployed in this debate.” They, the Commons, ought to be asking the Government—and no one has had the answer yet, unless we get it from the Minister—what is the Government’s central objection? That is what this is all about and, unless we get an answer from the Minister, I will certainly recommend that my noble friends support my noble friend Lord West in a Division.
Lord Callanan Portrait Lord Callanan (Con)
- Hansard - - - Excerpts

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 Portrait Lord West of Spithead (Lab)
- Hansard - - - Excerpts

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.

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18:12

Division 1

Ayes: 296


Labour: 120
Liberal Democrat: 77
Crossbench: 71
Independent: 18
Conservative: 4
Green Party: 2
Democratic Unionist Party: 2
Bishops: 1
Plaid Cymru: 1

Noes: 232


Conservative: 222
Independent: 7
Crossbench: 2
Ulster Unionist Party: 1

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Moved by
25: Clause 61, page 36, line 22, at end insert—
“(da) the average number of working days—(i) from receipt of a mandatory notice to notification of a decision to accept that notice, and(ii) from receipt of a mandatory notice to giving written reasons for a decision to reject that notice,”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the average length of time taken to give notification of a decision to accept or reject a mandatory notice is included in the annual report that must be made by the Secretary of State under Clause 61.
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Moved by
27: Clause 61, page 36, line 26, at end insert—
“(ga) the average number of working days—(i) from receipt of a voluntary notice to notification of a decision to accept that notice, and(ii) from receipt of a voluntary notice to giving written reasons for a decision to reject that notice,”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the average length of time taken to give notification of a decision to accept or reject a voluntary notice is included in the annual report that must be made by the Secretary of State under Clause 61.
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Moved by
32: Clause 61, page 36, line 33, at end insert—
“(m) the number of final orders varied,(n) the number of final orders revoked.”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the number of final orders varied or revoked is included in the annual report that must be made by the Secretary of State under Clause 61.
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Finally, I welcome the suite of products. I do not like the word “product” either. I think “sets of guidance” is more apposite. I very much hope that those who are affected by the Bill and its provisions when it becomes an Act are not required to read a huge pile of documents. In the case of market guidance notes, for instance, I hope that the notification process is included and that we do not just expect everybody to read 10 documents before they can grasp the requirements under the Act. The same applies to higher education. The approach of rolling in the risk profile of the transactions into the policy statement would be a great deal more helpful than simply expecting people to read individual documents as they go through the process.
Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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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.

Lord Lexden Portrait The Deputy Speaker (Lord Lexden) (Con)
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My Lords, I have received a request to speak after the Minister from the noble Baroness, Lady Neville-Rolfe.

Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe (Con)
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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 Portrait Lord Grimstone of Boscobel (Con)
- Hansard - - - Excerpts

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 Portrait Lord Lansley (Con)
- Hansard - - - Excerpts

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 Portrait Lord Grimstone of Boscobel (Con)
- Hansard - - - Excerpts

Yes, I am very happy to give my noble friend the assurance that I will write to him on that topic.

Lord Rooker Portrait Lord Rooker (Lab)
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In the main, the Minister’s reply was a model of its kind. I beg leave to withdraw the amendment.

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Lord Grantchester Portrait Lord Grantchester (Lab)
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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 Portrait Lord Callanan (Con)
- Hansard - - - Excerpts

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 Portrait Lord Fox (LD)
- Hansard - - - Excerpts

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.

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19:07

Division 2

Ayes: 118


Liberal Democrat: 76
Crossbench: 29
Labour: 7
Independent: 5
Green Party: 1

Noes: 255


Conservative: 209
Crossbench: 27
Independent: 12
Labour: 2
Democratic Unionist Party: 2
Ulster Unionist Party: 2
Bishops: 1

National Security and Investment Bill

(Limited Text - Ministerial Extracts only)

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3rd reading
Thursday 22nd April 2021

(1 year, 3 months ago)

Lords Chamber
3rd reading Page 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

Moved by
Lord Callanan Portrait Lord Callanan
- Hansard - - - Excerpts

That the Bill do now pass.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
- Hansard - - - Excerpts

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.

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Lord Callanan Portrait Lord Callanan (Con)
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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.

National Security and Investment Bill

(Limited Text - Ministerial Extracts only)

Read Full debate

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

Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
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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 Portrait Paul Scully
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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—

John Hayes Portrait Sir John Hayes (South Holland and The Deepings) (Con)
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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 Portrait Paul Scully
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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.

John Hayes Portrait Sir John Hayes
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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 Portrait Paul Scully
- Hansard - - - Excerpts

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 Portrait Greg Clark (Tunbridge Wells) (Con)
- Parliament Live - Hansard - - - Excerpts

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 Portrait Paul Scully
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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.

Julian Lewis Portrait Dr Julian Lewis (New Forest East) (Con)
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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 Portrait Paul Scully
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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 Portrait Chi Onwurah (Newcastle upon Tyne Central) (Lab) [V]
- Hansard - - - Excerpts

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.

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Darren Jones Portrait Darren Jones (Bristol North West) (Lab) [V]
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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 Portrait Paul Scully
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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.

Steve Baker Portrait Mr Steve Baker
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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 Portrait Paul Scully
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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.

Julian Lewis Portrait Dr Lewis
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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 Portrait Paul Scully
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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.)

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23:45

Division 277

Ayes: 366


Conservative: 357
Democratic Unionist Party: 8

Noes: 260


Labour: 195
Scottish National Party: 44
Liberal Democrat: 11
Independent: 4
Plaid Cymru: 3
Social Democratic & Labour Party: 2
Alliance: 1
Conservative: 1
Green Party: 1

Lords amendment 11 disagreed to.

National Security and Investment Bill

(Limited Text - Ministerial Extracts only)

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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

Moved by
Lord Callanan Portrait Lord Callanan
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That this House do not insist on its Amendments 11 and 15, to which the Commons have disagreed for their Reason 11A.

11A: Because it is appropriate and sufficient for oversight and scrutiny of decisions made by the Secretary of State for BEIS to be conducted by their departmental select committee.
Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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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)

Moved by
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Baroness Hayter of Kentish Town Portrait Baroness Hayter of Kentish Town (Lab)
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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 Portrait Lord Callanan (Con)
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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 Portrait Lord West of Spithead (Lab)
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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.

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14:07

Division 1

Ayes: 318


Labour: 147
Liberal Democrat: 80
Crossbench: 64
Independent: 16
Democratic Unionist Party: 5
Green Party: 2
Conservative: 2
Ulster Unionist Party: 1
Plaid Cymru: 1

Noes: 241


Conservative: 219
Crossbench: 11
Independent: 10
Ulster Unionist Party: 1