National Security and Investment Bill (Fifth sitting)

(Limited Text - Ministerial Extracts only)

Committee stage & Committee Debate: 5th sitting: House of Commons
Tuesday 1st December 2020 Public Bill Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)]

It is a pleasure to serve under your chairmanship, Mr Twigg, and to speak on this important Bill. I am grateful for the congratulations—or perhaps commiserations!—of the shadow Minister and all colleagues on my new role as the vaccines delivery Minister. I am obviously focused on the NSI Bill now, but I am also conscious of my responsibility for delivery, and I had a very good conversation with the devolved Administrations last night.

I hope that the Committee agrees that the Second Reading debate and the evidence sessions last week demonstrated the importance both of this legislation and of getting it right. I again place on record my thanks to the Opposition parties for the constructive way in which they have approached the Bill thus far, and I look forward to discussing the amendments that they have tabled to this part of the Bill.

Amendment 3 requires the Secretary of State to assess a multi-agency review or recommendation of the Intelligence and Security Committee before issuing a call-in notice. I remind hon. Members that it is vital for the Government to have the necessary powers fully to scrutinise acquisitions of control over entities and assets that may pose national security risks. To enable this, clause 1 gives the Secretary of State power to issue a call-in notice when he or she reasonably suspects that a trigger event has taken place, or is in progress or contemplation, and that that has given rise to, or may give rise to, a national security risk. It is entirely reasonable, as Committee Members have said, to want the Secretary of State to make full use of expertise across Government and Parliament to run the most effective and proportionate regime that he or she can. The amendment aims to recognise that.

To explain why the amendment would not achieve that noble aim, it would be helpful briefly to summarise the overall screening process. First, businesses and investors can notify the Secretary of State of trigger events of potential national security concern. In certain parts of some sectors, notification by the acquirer will be mandatory. Following a notification, the Secretary of State will have a maximum of 30 working days to decide whether to call in a trigger event to scrutinise it for national security concerns. For non-notified acquisitions, the Secretary of State may call in a completed trigger event within six months of becoming aware of it, both on a case-by-case basis and when developing his overall approach. The Secretary of State intends to draw on a wide variety of expertise from across, and potentially beyond, Government as is appropriate.

If the Secretary of State calls in a trigger event, there will be a detailed review. At the end of the review, the Secretary of State may impose any remedies that he reasonably considers necessary and proportionate to address any national security risk that has been identified. The Bill gives the Secretary of State 30 working days to conduct an assessment, but this may be extended for a further 45 working days if a legal test is met, and then for a further period or periods with the agreement of the acquirer. The purpose of the initial assessment of whether a trigger event should be called in is not to conduct a detailed review of the entire case, or to determine whether the trigger event in question gives rise, or would give rise, to a risk to national security. That comes later. It is simply a preliminary assessment of whether the trigger event warrants a full assessment. Prohibiting the Secretary of State from calling in a trigger event until a multi-agency review has taken place, or the Intelligence and Security Committee has provided a recommendation, could severely upset the process – as we heard eloquently from my hon. Friend the Member for South Ribble.

[Chi Onwurah]

I thank the Minister for giving way and again congratulate him on his new role. I also thank him for his constructive tone. I sense a contradiction in the point he is making. He is saying that the Business Secretary will call on a wide range of advice and expertise, but that if he is required to call on a wide range of advice and expertise, it will upset the process.

[Nadhim Zahawi]

What I am trying to get at is the point made so eloquently by my hon. Friend the Member for South Ribble—the bottleneck issue. It is unlikely that adding this review, or requirement for a recommendation at the stage where the Secretary of State is assessing whether to issue a call-in notice, would be feasible within the 30-day window following the notification.

I remind the Committee that the Government’s impact assessment estimates that there will be at least 1,000 notifications every year. As my hon. Friend the Member for South Ribble said, under this amendment, every single one would need a multi-agency review or an Intelligence and Security Committee recommendation, which would be a truly massive and, in my view, unfeasible undertaking.

[Chi Onwurah]

The review would be required before issuing a call-in notice. The impact assessment mentioned about 1,830 notifications, but only 90 call-in notices. It is not accurate to say that the amendment would require about 1,800 reviews. It is only for those that would lead to a call-in notice, which is a much lower number.

[Nadhim Zahawi]

We can debate the number, but the issue is one of delay and bottlenecks. It could mean that the Secretary of State was timed out of calling in potentially harmful acquisitions and of imposing any national security remedies. Alternatively, if the initial assessment period following a notification was extended beyond 30 working days, which is not currently possible under the Bill, that could reduce certainty for businesses, which I know the hon. Lady and the hon. Member for Aberavon were also concerned about. Any delay to remedies addressing national security risks would be a problem. However, I assure hon. Members that the Secretary of State will eagerly seek expertise and advice from a wide range of sources, and we will work together to safeguard our national security. Having a slick and efficient call-in process is vital to that.

Amendment 4 seeks to require the Secretary of State to consult the Intelligence and Security Committee prior to publishing a statement on the exercise of the call-in power, known as the statement of policy intent. Clause 4 requires the Secretary of State to carry out such a consultation on a draft of the statement as he thinks appropriate, and to take into account the response to any such consultation during the drafting process. That process could include engagement with interested parties across the House, and I am delighted to learn that such esteemed colleagues as members of the ISC might wish to discuss the statement in detail. Parliament has been provided with the first draft of the statement, and we would welcome its view on its content.

I draw attention to the fact that clause 4 requires the Secretary of State to lay the statement before Parliament, as my brilliant hon. Friend the Member for West Aberdeenshire and Kincardine rightly pointed out. If either House resolves not to approve the statement within 40 sitting days, the Secretary of State must withdraw it. That provides Parliament, including members of the ISC, with plenty of opportunity to influence and scrutinise the contents of the statement, which I believe is the aim of the amendment and which I am therefore not able to accept.

Amendment 5 would require the Secretary of State to notify the Intelligence and Security Committee prior to making regulations under clause 6 and to enable the Committee to respond with recommendations. I welcome the contributions made by many members of the ISC on Second Reading, and I have since written to the Committee Chair, who unfortunately was unable to attend, to follow up on a number of the recommendations made by his colleagues.

Clause 6 defines the circumstances covered by mandatory notification. The Bill calls them “notifiable acquisitions” on the basis that they must be notified and cleared by the Secretary of State before they can take place.

Members are aware that any modern investment screening regime must provide sufficient flexibility for the Government to examine a broad range of circumstances, bearing in mind the increasingly novel way in which acquisitions are being constructed and hostile actors are pursuing their ends. The regime needs to be able to respond and adapt quickly. Regulations made under the clause will be subject to parliamentary approval through the draft affirmative procedure, giving Members ample opportunity to ensure that mandatory notification and clearance regimes work effectively.

The draft affirmative procedure means that regulations may not be made unless a draft has been laid before Parliament and approved by a resolution of each House. I am pleased to advise esteemed members of the ISC that in developing the regulations the Secretary of State will take the greatest care, and will consult as widely as is judged appropriate, while ensuring he is able to act as quickly as needed. I see no need for a formal consultation mechanism. Indeed, such a mechanism between the Committee and the Secretary of State would be unprecedented.

For the reasons I have set out, I am not able to accept the amendments, and I hope that the hon. Member for Newcastle upon Tyne Central will not press them.

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Division 1

Ayes: 6

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Labour: 5
Scottish National Party: 1

Noes: 10

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Conservative: 10

Question proposed, That the clause stand part of the Bill.

[Nadhim Zahawi]

It is vital that the Government have the powers necessary fully to scrutinise acquisitions and control over entities and assets that might pose national security risks. The Bill refers to such acquisitions as trigger events.

The clause therefore gives the Secretary of State the power to issue a call-in notice when he or she reasonably suspects that such a trigger event has taken place or is in progress or contemplation and it has given rise to, or may give rise to, a national security risk.

The parameters of the call-in powers will give the Secretary of State sufficient flexibility to examine potentially sensitive acquisitions connected to the United Kingdom while ensuring they may be used only for national security reasons. The Committee will note that in the acquisition of or control over businesses, unlike in the Enterprise Act, there are no minimum thresholds for market share or turnover.

Why is that necessary? It is necessary because acquisitions of small businesses at the start of their ascendancy can harm our national security, particularly if they involve the kind of cutting edge, world-leading technology for which this country is known. Although there is a broad range of scenarios in which the power may be used, of course, most trigger events will not be called in, as they will not raise national security concerns.

Examples of those that may be more likely to be called in include a person acquiring control over an entity that operates part of our critical national infrastructure; a person acquiring the right to use sensitive, cutting-edge intellectual property; and boardroom changes that mean that a person acquires material influence over the policy of a key Government supplier. Clauses 5 to 12 and schedule 1 set that out in detail.

Call-in notices may be issued in relation to trigger events that are in contemplation or in progress, as well as those that have already taken place. That will ensure that potential national security risks can be examined at any stage of the process rather than, for example, waiting until a transaction has taken place or is nearing completion, when it is more difficult for the parties involved to make any changes that may be required. It is envisaged that, in most circumstances, call-in notices will be issued after the Secretary of State has received a notification about a trigger event from an involved party, but it is also important that the Secretary of State retains the ability to call in trigger events where no such notification has been received. The limits for issuing a call-in notice are set out in clause 2.

The Government are committed to ensuring that businesses have as much clarity as possible when it comes to the use of this power. We heard in the evidence session about the need for real clarity for businesses, so the Bill is proportionate. The Secretary of State may not, therefore, exercise the power until he publishes a statement for the purposes of clause 3, setting out how he expects to use the power. The Secretary of State must have regard to the statement before giving a call-in notice. A draft of the statement was published when the Bill was introduced. I do not intend to anticipate our discussions in respect of the statement when we move on to clauses 3 and 4, but I am confident that it will provide reassurance that the Secretary of State intends to exercise the call-in powers in a measured and considered way.

Hon. Members will appreciate, though, that it would not be responsible, given that national security may be at stake, for the Secretary of State to be restricted to exercising the power only in the circumstances envisaged in the statement. The purpose of the statement is, after all, to set out how the Secretary of State expects to exercise the call-in power, not to give binding assurances. That is why clause 1 specifies that nothing in the statement limits the power of the Secretary of State to give a call-in notice, though I reiterate that I expect the vast majority of call-in notices to be issued in accordance with the expectations set out in the statement.

I hope that hon. Members will agree that clause 1, alongside clauses 2, 3 and 4, enables the Government to carry out a vital assessment of relevant trigger events in a measured and effective way.

[Chi Onwurah]

I thank the Minister for his remarks on clause 1 stand part and for setting out the Bill’s aims and ambitions. We largely agree with those aims and ambitions, and in that spirit I will give further clarity on the Opposition’s overall position. We stand in support of the need for the Bill, and indeed we sought it years ago. We support the need for the new powers to protect our national security, as set out by the Minister, and the need for those new powers in the context of changing technological, commercial and geopolitical realities. Our approach to the Bill is therefore one of constructive challenge and is guided by three principles, the first being the security of our citizens. We do not want narrow legal definitions. Our proposed amendment to clause 1 would have ensured broad input into the considerations, such that our national security was not threatened as a result of insufficient expert advice or by the pure, ministerial market ideology of recent record. Our group of amendments sought to bring legal powers, multi-agency expertise and proper decision making to bear in putting British security first.

There has already been significant discussion of the right national security powers, both on Second Reading and in the Committee evidence sessions. An essential part of that discussion has been focused on the merits of giving the Government powers to protect our national security by using a public interest test. There are understandable concerns that too broad a test might result in a drop in investment for the UK’s start-ups and businesses, and these concerns note an economic challenge in expanding our national security powers. At the same time, however, there is widespread agreement that national security and economic security are not entirely separate. They are deeply linked. A national security expert told us that a narrow focus on direct technologies of defence, for example, was mistaken, and that we should look at the defence of technologies that seem economically strategic today and might become more strategic in future.

Our concern is that we have a Government who are years behind our allies in even contemplating the new national security investment regime. We have seen only 12 national security screenings in 18 years, and not a single instance of the Government acting decisively to block a takeover and guard our national security. In the context of what other countries are doing and how rapidly technologies progress from being economically strategic to becoming security threats, we must not just consider a narrow national security test, but pursue a road to sovereign technological capability and much more ambitious and robust routes to protecting national security and strategic interests. The Opposition will therefore put the security of our citizens first. We will not shy away from regaining national sovereign capability, and we assure our citizens that Britain will have the technology and the capability to protect its national security.

In scrutinising the Bill and this clause, we will champion clarity and support for our prized SMEs and innovative start-ups—the engine of British jobs and British prosperity. We have already heard from market participants that the Government’s belated rush with this Bill has created huge uncertainty and concern over the ability of BEIS to operate the new investment screening regime that the Minister set out. The Government’s impact assessment notes that 80% of transactions in the scope of mandatory notification will be by SMEs. We heard from our expert witnesses that the impact assessment fails to account for the costs faced by the acquired companies, and for the overall impact on funding for our start-ups. The Opposition will not turn a blind eye to those costs for our small and medium-sized enterprises. At each step, the Opposition will plug gaps left by the Government in coherent policy making, to champion British creativity and innovation. It is the least our small and medium-sized enterprises deserve.

Finally, we will stand for effective scrutiny of the Government of the day. That is why we tabled the amendment, which has unfortunately not been accepted by the Committee. However, we will find proportionate, robust and democratically legitimate means of seeking accountable action to protect our national security. Our amendments will stand up for British security, and for competent and coherent decision making. Clearly, we regret the Committee’s decision on our amendment, but we will not oppose the clause standing part of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Further provision about call-in notices

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I hope that the Minister will accept the amendment, and certainly the spirit in which it is intended. Although we want to make it clear that it is important that, as often as possible, the trigger event and the associated call-in are clear, resolved and put to bed thereafter, there are circumstances where that is not possible, and the Minister should have the ability to rectify that problem and act in the best interests of national security and of fair play for the companies involved.

[Nadhim Zahawi]

I hope that the hon. Member for Southampton, Test and other hon. Members will permit me, in responding to the hon. Gentleman’s points, to begin by considering stand part and by laying out the Government’s broad rationale before turning to the substance of the amendment.

The clause contains further provisions about the use of the call-in power. It is vital that the Secretary of State is able to call in and scrutinise trigger events that have taken place. However, it is right that clear limits are placed on the call-in power to ensure that it is used in a proportionate manner—the whole point here is proportionality. The clause therefore prohibits a trigger event from being called in more than once. It also provides that the Secretary of State may issue a call-in notice only up to five years after a trigger event has taken place and no longer than six months after becoming aware of the trigger event.

The time limit of five years strikes the right balance between ensuring the Secretary of State has enough time to spot completed trigger events that may pose a risk to national security. The hon. Gentleman cited evidence from Dr Lenihan on 3Leaf, which speaks more to the screening operation than the amendment. Of course, the Secretary of State also has to make sure that the risks to national security are balanced against avoiding undue uncertainty for the parties involved, which we all want to make sure we look after, and we have heard from colleagues about the challenges that small businesses face in building or rebuilding their business

For trigger events that take place before commencement but after the introduction of the Bill, the five-year time limit starts at commencement rather than from when the trigger event takes place. If the Secretary of State becomes aware of that trigger event before commencement, the six-month time limit also starts at commencement. The ability to call in trigger events that take place before the commencement of the call-in power but after the introduction of the Bill will help to safeguard against hostile actors rushing through sensitive acquisitions to avoid the new regime, now that we have set out our main areas of interest.

The five-year time limit does not apply if the Secretary of State has been given false or misleading information, as my hon. Friend the Member for North West Norfolk (James Wild) reminded us, or in relation to notifiable acquisitions that have been completed without prior approval.

In all this, we will seek to provide as much transparency and predictability as possible. The Secretary of State may not, therefore, exercise the power until under, clause 3, a statement is published setting out how.

[Stephen Kinnock]

Could the Minister say a little more about what the problem is with not having the Minister’s or the Secretary of State’s hands tied? Our amendment simply says that if information comes to light that creates cause for concern, the Secretary of State may, if he or she so wishes, look into it again. It is not an obligation; it simply makes sure that the option is there.

[Nadhim Zahawi]

I was going to address that at the end of my remarks, but I will touch on it briefly and hopefully reiterate it at the end. It is about certainty and proportionality. Everything we are doing by legislating in this way has an impact on businesses and the certainty of attracting investment and growing, as the shadow Minister, the hon. Member for Newcastle upon Tyne Central, reminded us in her opening speech.

As I was saying, a draft of the statement was published alongside the Bill. Following commencement, if parties involved in trigger events are concerned about them being called in, they will be able to remove any doubt about this by notifying the Secretary of State of their event. They will then be entitled to receive a quick and binding decision on whether the Secretary of State will call in the event.

I will turn briefly to amendment 10, which seeks to extend the Secretary of State’s power to issue a call-in notice in respect of a trigger event that has previously been called in when no new material information becomes available within five years of the trigger event. After a trigger event is called in, the Secretary of State has—