National Security and Investment Bill (Tenth sitting)

Committee Debate: 10th sitting: House of Commons
Tuesday 8th December 2020 Public Bill Committees

The Committee consisted of the following Members:

Chairs: † Sir Graham Brady, Derek Twigg

† Aiken, Nickie (Cities of London and Westminster) (Con)

† Baynes, Simon (Clwyd South) (Con)

† Bowie, Andrew (West Aberdeenshire and Kincardine) (Con)

† Fletcher, Katherine (South Ribble) (Con)

† Flynn, Stephen (Aberdeen South) (SNP)

† Garnier, Mark (Wyre Forest) (Con)

† Gideon, Jo (Stoke-on-Trent Central) (Con)

Grant, Peter (Glenrothes) (SNP)

† Griffith, Andrew (Arundel and South Downs) (Con)

Kinnock, Stephen (Aberavon) (Lab)

† Onwurah, Chi (Newcastle upon Tyne Central) (Lab)

† Tarry, Sam (Ilford South) (Lab)

† Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)

† Western, Matt (Warwick and Leamington) (Lab)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

† Wild, James (North West Norfolk) (Con)

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

Rob Page, Yohanna Sallberg, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 8 December 2020

Afternoon

[Sir Graham Brady in the Chair]

National Security and Investment Bill

[The Chair]

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

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

[Chi Onwurah]

[Nadhim Zahawi]

[Chi Onwurah]

[Nadhim Zahawi]

[Sam Tarry (Ilford South) (Lab)]

[Chi Onwurah]

[Sam Tarry]

Clause 29 ordered to stand part of the Bill.

Clause 30

Financial assistance

[Chi Onwurah]

[The Chair]

[Chi Onwurah]

The theme of the Opposition amendments is that we wish to protect our national security, and we think that the measures could have been taken earlier. Part of the social contract is that that should be done in a way that is fair, clear and certain for businesses, so that they understand the legislative framework as far as possible, and so that they feel that it is fair and in the interests of our national security and, as part of that, our national prosperity.

Given the broad powers that the Bill gives the Secretary of State, about which we have had some back and forth, it is all the more important that the appropriate support should be there for affected businesses. I will not trespass on your good nature by drawing too many parallels, Sir Graham, but we see in the pandemic under which we are suffering that public confidence in the ability of the Government depends on the right amount of support being available for those who are adversely affected. Clearly, one aspect of that is the Government’s ability to provide financial assistance to an entity where Government intervention creates a position of loss for the entity.

We discussed in relation to clauses 24 to 26 the level of remedies, in terms of an interim or final notification and how they may affect an entity. Let us consider the example of a British start-up in some very important area—artificial intelligence, let us say—that has an investor lined up and is looking forward to expanding its work because of that investor. As a consequence of the measures in the Bill, however, a final order prevents the investor from investing in this fantastic start-up.

Let us say for the purposes of argument that this start-up is based in Newcastle—an excellent area for start-ups and innovation to come from. I should say that a fantastic small business in Newcastle will already have greater challenges in finding finance and investors, because unfortunately many potential investors are apparently put off by a short train ride from King’s Cross. Once the start-up has found a potential investor, under the provisions of the Bill it is identified that such an investment would form some present or future threat to our national security, so the start-up is prevented from raising funding as a direct consequence of the new national security screening regime. We can all imagine—in fact, it does not require imagination; we can simply anticipate––the huge financial challenges that that might create for small, innovative start-ups. Financial assistance is a critical part of making the new regime effective. A key question is why the Government are only creating the power to provide such assistance in the making of final orders, not interim orders.

I asked earlier what the maximum period for an interim order should be, because with the provisions in clause 23 for an initial period, an additional period, a voluntary period and an additional voluntary period, an interim order could last for a considerable time. I asked the Minister whether there was a maximum time for an interim order. Regardless, an interim order could impose major costs on a British start-up or prevent an acquirer from acquiring or investing in one should it increase its level of influence in an unacceptable way. That could cause the loss of business-critical investment. Does the Minister consider that it would be appropriate to be able to provide financial assistance in the case of interim orders as in the case of final notices?

A similar concern applies to more general instances where financial assistance will be critical in securing national security. Has the Minister considered a wider power of financial assistance that would allow the Government to intervene pre-emptively in cases where Government investment could secure strategic assets for the UK, even if a precise trigger event has not occurred? The clause provides for financial assistance when a final order has been made, but has he considered provision for financial assistance before a final order has been made or an event has been called in? I have in mind cases such as OneWeb satellite, where the Government made a major investment just a few months ago to secure, as we are told, strategic assets, yet that was outside trigger events or a case such as bankruptcy proceedings. Does the Minister consider that existing statutory powers are sufficient, and clear enough in law, to provide for such pre-emptive investment? In the case of OneWeb, there certainly was not sufficient clarity about whether the investment was being made for national security reasons or to replace existing investments. There was not sufficient clarity or accountability. Would it not be better to place such investments, which are made in the interests of national security, within the context of the Bill? Would there be a benefit from placing such powers in statute?

Beyond specific events where the amendment would put interim orders in scope, there is a question about the toolkit available to Government for appropriate financial assistance. Clause 30(2) says that financial assistance

“means loans, guarantees or indemnities, or any other kind of financial assistance (actual or contingent).”

That is slightly circular. Will the Minister clarify whether equity investments come under

“any other kind of financial assistance.”?

The Minister is nodding—I am not sure whether that means that he will clarify or that the equity investment is financial assistance—but can he say if it is included in the scope of the Bill or, if not, if it should be. The stakeholders within the artificial intelligence sector have specifically asked me to raise that point.

Where a small business is unable to raise equity investments because of a Government final order, giving it further debt funding might not be any help if the business’s future inability to make loan payments is threatened. Again, in the crisis in which we find ourselves we see the reluctance of business to take on further debt. In those circumstances, loans may not be considered financial assistance. The Government and the Minister need to clarify whether equity investments are part of financial assistance.

The Minister needs to accept our amendment with regard to interim orders or explain why interim orders do not raise the need for financial assistance in the same way as final orders. That is a critical question so that the Government have the powers they need to act decisively and effectively to protect national security, and to do so in a way that is fair to our small businesses.

I point to some of the evidence we heard in the evidence sessions. Christian Boney from Slaughter and May said:

“I think you make a very valid point in the context of start-up and early-stage companies. The concern I would have principally is with those companies that are in that phase of their corporate life…For them, this regime is going to make the process of getting investment more time-consuming and more complex.”––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 70, Q80.]

Will the Minister consider whether the Bill, as it stands, addresses that?

Similarly, Michael Leiter said:

“The place where I think this is more problematic…is in smaller-scale, early-stage venture investments. That is where deals can go signed to close within hours or days, and having that longer period could be quite disruptive.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 46, Q52.]

We understand that interim orders and assessments can be extended. It is crucial that the Government respond to those points and think hard about how to put into statute more general powers than this equity funding, especially for cutting-edge start-ups with strategic assets.

We share the aim of the Bill to secure our national security and to ensure that assets that are critical to our national security do not fall under the influence of hostile actors. If in so doing we undermine those assets to the extent where they can no longer contribute to our national security, that is effectively an own goal. I fail to see how the provisions of this clause avoid such an own goal. It would be much to the improvement of the Bill and of confidence in small businesses, particularly start-ups in the sectors affected, if the appropriate form of support could be clearly made available.

We are considering clause stand part, too. We recognise the importance of giving financial assistance, which is what the clause sets out to do. With regard to reporting, I would be interested to understand why the sum of £100 million has been chosen. I am not saying I have another sum to suggest, but why that sum has been chosen is something to understand.

I think the impact assessment is cited more for what it does not include than what it does, but again, it includes no estimates of financial assistance that the Government might have to provide and the associated costs that would be incurred. Will the Minister say why the sum of £100 million was chosen?

The clause also says that,

“the Secretary of State must as soon as practicable lay a report of the amount”.

I imagine that a report of the amount could be a very short one—“£100 million”—but I think all of us who have worked in start-ups and in the tech sector are quite aware that although the financial assistance provided is very important, it also very important to monitor its impact. For example, if it is a loan, in what ways will it be repaid and over what time period, and is the investment effective? I may be mistaken, but I do not see anything in the clause that sets out any need to report anything other than the amount. That is not what I would consider accountability. More generally, for a Government who I hope wish to show good practice on investment and taxpayer value for money, having more information on the amount—but also on how it was used, monitored, how it is to be repaid if it is a loan, and its impact—would also be desirable. On that basis, we support the intention of the clause, but we feel it is in need of some significant improvement.

[Stephen Flynn (Aberdeen South) (SNP)]

[Nadhim Zahawi]

[Chi Onwurah]

[Nadhim Zahawi]

[Chi Onwurah]

[Nadhim Zahawi]

[Chi Onwurah]

[Matt Western (Warwick and Leamington) (Lab)]

[Chi Onwurah]

[Nadhim Zahawi]

[Chi Onwurah]

[Matt Western]

[Chi Onwurah]

Clause 30 ordered to stand part of the Bill.

Clause 31

Interaction with CMA functions under Part 3 of Enterprise Act 2002

[Sam Tarry]

[The Chair]

[Sam Tarry]

[Nadhim Zahawi]

As directing the CMA interferes with its independence, we have drafted the clause so as to allow the Secretary of State to give a direction only where he reasonably considers that it is necessary and proportionate to prevent, remedy or mitigate a risk to national security. Furthermore, the power may be used only when a final order under the Bill is in force, or a final notification that no further action will be taken in relation to a trigger event under the Bill has been given. The clause also requires the Secretary of State to consult the CMA before giving a direction.

The amendment tabled by the hon. Member for Ilford South would require the Secretary of State, when publishing a direction given to the CMA under the clause, to set out the reasons for the direction and provide an assessment of its impact on any grounds for action by the CMA in relation to the merger. Let me reassure the Committee that I expect the use of such directions to be rare. Most mergers are unlikely to trigger both competition and national security concerns, and for those that do, the separate processes of the CMA and the Secretary of State will be able to take place smoothly in parallel with each other.

[Chi Onwurah]

[Nadhim Zahawi]

[Chi Onwurah]

[Nadhim Zahawi]

[Sam Tarry]

[Nadhim Zahawi]

[Sam Tarry]

Clause 31 ordered to stand part of the Bill.

Clause 32

Offence of completing notifiable acquisition without approval

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

[The Chair]

[Nadhim Zahawi]

[Mark Garnier (Wyre Forest) (Con)]

[Nadhim Zahawi]

[The Chair]

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

[The Chair]

[Nadhim Zahawi]

[The Chair]

[Nadhim Zahawi]

[Chi Onwurah]

[Nadhim Zahawi]

[Chi Onwurah]

[Nadhim Zahawi]

[Dr Alan Whitehead (Southampton, Test) (Lab)]

[Nadhim Zahawi]

[Nadhim Zahawi]

[Dr Whitehead]

[The Chair]

[Dr Whitehead]

The procedures in subsection (2) relate to judicial review of a “relevant decision”. Relevant decisions are specified in various clauses, and include the power to require information, the power to require the attendance of witnesses, the power to require the attendance of witnesses outside the UK, the discharge of information, data protection, CMA information, and so on. That means that a number of other decisions in the Bill are not covered by this clause, including, for example, decisions to call in a transaction.

My initial question to the Minister—I would be grateful if he intervened on me—is whether those other areas of decision, which are in the Bill but not covered by this clause, are covered by standard judicial review procedures, not covered by judicial review procedures at all, or covered by reference to the Enterprise Act 2002, which has procedures within it that do not appear to refer directly to some of the other decisions in the Bill that are not covered by this clause. Can he clarify what happens to those decisions in the Bill—I have mentioned one: the call-in notice—that are not covered in subsection (2) on what a relevant decisions means? Does he have any guidance that he can give the Committee on that?

[Nadhim Zahawi]

[Dr Whitehead]

[Chi Onwurah]

[Dr Whitehead]

[Chi Onwurah]

[Dr Whitehead]

Under our current constrained court arrangements, there is no danger of that because court cases are in a serious logjam. However, It serves to put a question mark against how and why the 28-day period was decided upon. Why were these things in particular pulled out and put into the 28 days when other sections of the Bill do not come within 28 days but within three months? What is the rationale behind that?

The amendment suggests that this is probably not a good idea. While it might be seen as redundant in that it says that these sections should not be pulled up and put in a 28-day box, it is probably better for the general principle of upholding judicial review as a reasonable defensive remedy in respect of some of the Bill’s elements to put them back to the standard three-month period. That of course arises because that is what the Government have chosen to do with the Bill. They have chosen to go with standard judicial review proceedings. It would have been possible to write a different form of proceedings into the Bill.

The Enterprise Act 2002 provides for an appeal to a tribunal, which then proceeds along standard judicial review rules but is not the standard judicial review procedure. The Government have not decided to do that, but to do something else. My question to the Minister is why. The question that follows if there is no good answer, is why not just leave it as it is? Why not leave it to the judicial review procedure with three months? That would not cause anyone any real problems but, on the contrary, might ensure that smaller businesses and organisations have a reasonable opportunity to defend themselves and pursue judicial review in the knowledge that they have more than a very small amount of time to get the judicial review procedures together when they wish to mount them.

As I have said, I am sure that it will be a pretty rare procedure, but it is nevertheless important to maintain it in the Bill. I am sure we all agree that it is an important part of UK law that that should be a remedy open to everyone to undertake, as the Minister mentioned. I hope that I will get a compelling argument from him about why this has been done in this way and what advantages outweigh the disadvantages that I have outlined. If he can do that, I hope that it will not be necessary to divide the Committee this afternoon, but I fear that it might be if the argument that comes forward proves on examination not to be as compelling as I am hoping.

[Nadhim Zahawi]

[Chi Onwurah]

[Nadhim Zahawi]

[Dr Whitehead]

[Chi Onwurah]

[Dr Whitehead]

Firms that employ very small numbers of people often find themselves tied up in this process. They need to have this remedy available to them in a way that they can genuinely use, so that they are not constrained by the imposition of what is, as I said, essentially an administratively convenient reduced timescale. I do not think that that ought to be in the Bill. For that reason, we need to press the amendment to a Division, to see whether we can restore to the Bill the three-month period in which people can exercise their right to JR.

Question put, That the amendment be made.

Clause 49 ordered to stand part of the Bill.

Clause 50

Appeals against monetary penalties

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

[The Chair]

[Nadhim Zahawi]

[Chi Onwurah]

[Nadhim Zahawi]

[Chi Onwurah]

Adjourned till Thursday 10 December at half-past Eleven o’clock.

Written evidence reported to the House

NSIB03 Joint Working Party of the Company Law Committees of the City of London Law Society and the Law Society of England and Wales

National Security and Investment Bill (Ninth sitting)

Committee stage & Committee Debate: 9th sitting: House of Commons
Tuesday 8th December 2020 Public Bill Committees

The Committee consisted of the following Members:

Chairs: Sir Graham Brady, † Derek Twigg

† Aiken, Nickie (Cities of London and Westminster) (Con)

† Baynes, Simon (Clwyd South) (Con)

† Bowie, Andrew (West Aberdeenshire and Kincardine) (Con)

† Fletcher, Katherine (South Ribble) (Con)

† Flynn, Stephen (Aberdeen South) (SNP)

† Garnier, Mark (Wyre Forest) (Con)

† Gideon, Jo (Stoke-on-Trent Central) (Con)

Grant, Peter (Glenrothes) (SNP)

† Griffith, Andrew (Arundel and South Downs) (Con)

Kinnock, Stephen (Aberavon) (Lab)

† Onwurah, Chi (Newcastle upon Tyne Central) (Lab)

† Tarry, Sam (Ilford South) (Lab)

† Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)

† Western, Matt (Warwick and Leamington) (Lab)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

† Wild, James (North West Norfolk) (Con)

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

Rob Page, Yohanna Sallberg, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 8 December 2020

(Morning)

[Derek Twigg in the Chair]

National Security and Investment Bill

09:25

[The Chair]

Before we begin, I remind colleagues of the importance of social distancing. Please switch electronic devices to silent. The Hansard reporters would be very grateful if Members could email any electronic copies of their speaking notes to [e-mail].

Clause 22

False or misleading information

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

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

Clause 22 makes provision for circumstances in which false or misleading information is provided to the Secretary of State. Hon. Members will agree that a regime that protects our national security must take appropriate account of those who would wish to mislead us. It is not often that hostile actors offer up honest answers to difficult questions. In addition to the penalties that are provided for in clause 40 and elsewhere, the clause ensures that any decision that is taken on the basis of false or misleading information, and which is materially affected by the false or misleading information, may be reconsidered by the Secretary of State. Following reconsideration, the Secretary of State is then free to affirm, vary or revoke any such decision.

That may, for example, involve calling in a trigger event after an initial decision not to do so, if, for instance, it is discovered that false or misleading information was provided in the notification form. That might ultimately lead to remedies being imposed on the trigger event, including blocking or unwinding it where that is necessary and proportionate for the purpose of safeguarding national security. The Secretary of State is required under subsection (5) to give any call-in notice within six months of discovering that the information was false or misleading.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I thank the Minister for his comments on clause 22. This possibly shows a lack of understanding on my part, but could he say a little about how the Secretary of State will ascertain, decide or judge that information has been false or misleading?

[Nadhim Zahawi]

I am grateful for the hon. Lady’s question. The Secretary of State has a number of tools available to him, including our security and intelligence services. Of course, if the information is deemed to be false or misleading, he will be able to take appropriate action.

There is otherwise no time limit to revising a decision. The time limits under subsections (2) and (4) of clause 2 for calling in trigger events that have already taken place do not apply. We judge that this is an important signal to send. If people provide us with false or misleading information in relation to a trigger event, the Secretary of State may still call in the event for consideration whenever the false or misleading information comes to light, even if the event has long since completed. If truthful information is provided, the time limits in subsections (2) and (4) of clause 2 apply. If people provide us with the right information, they will have certainty. If they provide us with false or misleading information, we may revisit the trigger event whenever the false or misleading information comes to light.

Without the clause, parties could, in theory, deliberately provide false information to ease the passage of their trigger event. The Secretary of State would then be powerless to reopen the investigation into the event and impose national security remedies on it. I stress that I expect cases involving the provision of false or misleading information to be few and far between, but the Government must take steps to mitigate such risks.

Hon. Members may have some concern that the Secretary of State’s ability to reconsider previous decisions chips away at businesses’ confidence to invest. To those hon. Members, I say that the provision applies only to materially false or misleading information, and even if such information is provided unintentionally, it is essential that the Secretary of State has the power to consider the case one more. Moreover, it may be the case that false or misleading information is provided deliberately by a hostile actor. I hope hon. Members will agree that as well as providing slick and efficient processes for business, the Bill must not leave any loophole to be exploited.

Question put and agreed to.

Clause 22 accordingly ordered to stand part of the Bill.

Clause 23

Meaning of “assessment period”

[Chi Onwurah]

I beg to move amendment 22, in clause 23, page 15, line 15, leave out from “as” until end of line 16 and insert

“as agreed by the Secretary of State in accordance with subsection (9)”.

This amendment seeks to limit the flexibility of extending the assessment period to the conditions set out in subsection (9), and to remove the need for the approval of the acquirer.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

New Clause 4—Complaints procedure—

‘(1) The Secretary of State shall by regulations set up a formal complaints procedure through which acquirers may raise complaints about the procedures followed during the course of an assessment under this Act.

(2) Complaints as set out in subsection (1) may be made to a Procedural Officer, who—

(a) must not have been involved in the assessment and who is to consider significant procedural complaints relating to this section or another part of this Act; and

(b) may determine or settle complaints in accordance with regulations to be published by the Secretary of State within 3 months of this Bill becoming an Act.’

This new clause would require the Secretary of State to establish a formal complaints procedure for acquirers.

[Chi Onwurah]

I rise to speak to amendment 22, which is in my name and that of my hon. Friends, and to new clause 4. It is a pleasure to serve under your chairmanship once more, Mr Twigg, and to find the Committee reconvened for the perusal of the rest of this important Bill. I thank the Minister for the letters that he has sent to me and my hon. Friends, and to the Intelligence and Security Committee, to address some of the questions that arose in previous sittings.

I am glad that, with this amendment, we move on to part 2 of the Bill, which deals with the process of addressing our national security concerns as part of the Bill’s implementation. In clause 23, we are particularly looking at the assessment period. As I have indicated, we support the intention and, indeed, the objectives of the Bill, and we would have welcomed such a Bill some years ago. Our intention, as we have shown, is to be a constructive Opposition and to make constructive proposals, so I will say at the outset that amendment 22 is a probing amendment that seeks to clarify how the Minister thinks the clause will work in practice. The amendment seeks to limit the significant flexibility of extending the assessment period to the conditions set out in subsection (9), and to remove the need for the approval of the acquirer.

As we have said, the Bill marks a radical shift in our nation’s approach to takeovers and investments. It has been labelled a “seismic shift” and a “total transformation”. We want that radical shift to give the Government the powers they need to protect our national security, as we have made clear. To be effective in doing that, the Bill needs to ensure clarity, certainty and competence—competence is a key word—for our businesses. As we have said on a number of occasions, we are particularly concerned about the impact on our small and medium-sized enterprises, which will bear the bulk of the compliance requirements and which do not have the resources that are at the disposal of many of our larger companies.

We want the Minister to provide clarity on the parts of the assessment period that we find uncertain. Specifically, the Government have set out an assessment period timeline of up to 15 weeks, which is 30 working days for an initial period and 45 working days for an additional period. Clause 23 sets out that the initial period may be extended by the Secretary of State for a further 45 working days if he

“ reasonably believes that…a risk to national security has arisen from the trigger event or would arise from the trigger event if carried into effect, and…reasonably considers that the additional period is required to assess the trigger event further.”

An extension beyond 75 working days—the initial 30-day period plus 45 days—may be agreed between the acquirer and the Secretary of State, if the Secretary of State

“is satisfied…a risk to national security has arisen from the trigger event or would arise from the trigger event if carried into effect, and…reasonably considers that the period is required to consider whether to make a final order”.

That is described as the “voluntary period”.

Our concern is that the clause offers the potential for unlimited expansion of the timeline—currently labelled, as I said, a “voluntary period” extension. That creates uncertainty for businesses and, indeed, for Government. Subsection (3)(c) suggests that a voluntary period extension

“may be agreed in writing between the Secretary of State and the acquirer”,

and yet subsection (9) sets out the ways in which the Secretary of State might agree a voluntary period where they are satisfied of the need for it. Is it a voluntary period for both parties? Will the voluntary period truly be voluntary for businesses?

According to subsection (9), the decision seems to be for the Secretary of State. Subsection (9) sets out a number of considerations

“on the balance of probabilities”,

but subsection (3)(c) implies that the period is at the agreement of the acquirer. What is the process by which an acquirer can deny the extension and what, if any, is the limit on voluntary period extensions? Businesses up and down the country and international investors in Britain’s high-value start-ups will be looking to the Government for greater clarity. We heard numerous calls for greater clarity during the evidence sessions.

The Bill presents uncertainty for not just businesses but the Government. If a business can deny agreement to extensions under subsection (3)(c), where do the Government go then? The Bill creates a 15-week assessment period, but our existing merger control process can last for 32 weeks with a full phase 1 and phase 2 review. Does the Minister concede that it is possible, especially given the likely resourcing clashes—we have already talked about potential conflicts of interest—that the voluntary period extensions will soon become default period extensions? Have the Government given themselves sufficient powers to trigger extensions, or is the current situation uncertain for businesses and for Government?

That concern is especially important because of the evidential thresholds that are required for the voluntary period extension. The Government have set a bar of reasonable suspicion—that is quite common—for a trigger event to be called in, in clause 1(1). Then there is a separate bar of reasonable belief for the Secretary of State to order an additional period, in clause 23(8), and a third bar of being

“satisfied, on the balance of probabilities”

to get a voluntary period extension. What is the difference between the three standards of reasonable suspicion, reasonable belief, and being satisfied on the balance of probabilities? I am sure that there were specific reasons for drafting those three separate standards. Could the Minister share them with us? Is he confident that this tighter approach for each step will allow the Government sufficient room to ensure that there are robust reviews and to protect our national security, especially given that the regime will be an entirely new one, with an entirely new investment security unit interpreting those three separate bars?

I note that the Government’s impact assessment contains no estimate of how many transactions are expected to require additional and voluntary period extensions. We are about to embark on a vast shift in merger control, with far more engagement and intervention by the Government in our mergers and acquisitions landscape. We seek clarity with this amendment, to give confidence to our small and medium-sized enterprises and to ensure that there is confidence in our national security. We seek to ensure that the Government have a plan and a detailed understanding of it will work to deliver on the Bill’s proposals.

As I mentioned earlier, during our evidence sessions, there was significant demand from experts to ensure the Bill delivers greater certainty. Will Jackson-Moore of PwC said,

“it is about the application of the legislation, in particular the process, the ability to pre-clear and the timelines actually being met. To understand some of these technologies is not going to be straightforward.”––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 115-116, Q152.]

Lisa Wright from Slaughter and May said that

“for people doing deals around the world who have already experienced those other regimes, it ought not to have any real negative impact at all, provided that BEIS can deliver on the aspiration set out of a slick and efficient regime, turning around notifications within sensible deal timeframes and providing the kind of informal advice and early engagement promised. That will be critical, particularly in the early stages of the regime.”––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 76, Q91.]

I ask the Minister to consider whether the clause provides that. This amendment, which sets out to limit the flexibility of extending the assessment period to the condition set out in subsection (9) and to remove the need for the approval of the inquirer, is intended to probe and highlight that.

The intention behind new clause 4 is to ensure greater clarity about the apparent omission of any formal complaints procedure for acquirers. We are concerned that it seems as though the Government have not reflected on the scale of the change that our mergers and acquisitions regime is going through in their appreciation of the operational shift needed to deliver on it.

In a sort of a mathematical trick that I fail to follow, the Government’s impact assessment talks only of an additional 18% of cases relative to the regime under the Enterprise Act 2002, but also states that there will be an increase from 12 reviews in 20 years—that is the figure under the current regime—to nearly 2,000 under this regime.

09:45

As the expert witness James Palmer of Herbert Smith Freehills said, in seeking to correct the Government’s sums,

“In my maths, 12 reviews in nearly 20 years going to nearly 2,000 a year is well over a 10,000% increase.”––[Official Report, National Security and Investment Public Bill Committee, Thursday 26 November 2020; c. 92, Q107.]

However, the impact assessment states that there will be an additional 18% of cases relative to the regime under the Enterprise Act 2002. It is almost impossible to imagine that such a huge increase in cases would take place without any concerns or complaints being expressed by businesses. It is a vast change in the task for Government and one on a scale that, I am afraid to say, the Government, in their impact assessment at least, do not seem to fully comprehend.

We have laid out a number of times our clear and specific concerns about the capacity and capability required to deliver this change in a way that works best for British security and British small and medium enterprises. I do not feel that the Government have responded to those concerns. Even with the best delivery—which, I am afraid to say, is in doubt, given what we have and have not heard from the Minister in response to our concerns—a change of this scale must cause challenges. Small and medium enterprises across the country are reasonably concerned about the change and what it will mean for them. Crucially, they are concerned about what they could do if they did not receive fair treatment in this early transition period to a vastly increased case load. I emphasise again that we are going from a standing start—12 reviews in 20 years—to this significant change, so it is almost inevitable that concerns will be raised.

The Minister may say that there are provisions for judicial review. Those provisions may indeed reassure big businesses, but they will not assure some of our brightest businesses. For many of them, the cost and delay of a judicial review would effectively mean the absence of any relief. For a start-up thwarted from a crucial investment because of a delayed national security review, the capital and the time to fight in the courts would simply not be available. I am sure the Minister will recognise that. Having worked with small businesses, he will know that seeking finance and trying to expand and be first in a competitive market really cannot wait for a judicial review.

With this new clause we want to provide relief to those small and medium enterprises and create a source of efficiency for the Government as they implement this major shift in our national security screening regime. In creating alternative and timely dispute resolution, it would also ease the burdens on our courts, especially as they seek to tackle case backlogs from the pandemic period. This change is going to arrive into our judicial system just as our courts are still dealing with the consequences of the pandemic and have a huge backlog of cases.

The new clause would apply the existing Competition and Markets Authority process for procedural disputes to the new national security process. Just as the CMA process works now, an independent procedural officer would be able to resolve disputes over process and timelines in an efficient and accelerated manner, resolving them well before they reached a severity of dispute that only the courts could resolve. The new clause creates efficiency for small and medium enterprises, for Government, and for the courts—win, win, win. It would also ensure greater confidence in the Government’s ability to deliver on the scale of change they propose and hold the new investment security unit to account in an efficient manner. When the Minister gets to his feet, I hope he is ready to accept the new clause, but in the unlikely instance that he is not, will he set out how the new investment security unit will be held to account specifically by small and medium enterprises in a timely manner?

To give what James Palmer from Herbert Smith Freehills said in evidence more fully, he said:

“there is one data point I did not agree with: the suggestion that there will be an 18% increase in the reviews; it was framed quite narrowly. In my maths, 12 reviews in nearly 20 years going to nearly 2,000 a year is well over a 10,000% increase.”

Does the Minister agree with that maths, rather than that which is in the impact assessment? James Palmer went on to say:

“I think that that is a very important context in which to look at this—as the world outside looks at this, it is potentially looked at as pretty seismic change by the UK.” ––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 92, Q108.]

Does the Minister not think it is appropriate that we have a complaints procedure for this seismic shift? The Competition and Markets Authority currently has a procedural officer mechanism overseen by someone independent of the merger investigation to mediate process disputes in an efficient manner. This mechanism allows matters such as compliance with timelines, disclosure requirements and redactions to be mediated over in the most efficient and cost-effective way possible, while retaining the full power of the CMA to undertake the investigations it needs to.

I make it clear that we are not suggesting that we should be reviewing whether or not issues of national security are part of this complaints procedure. As with the CMA complaints procedure, this is about process. It is not about whether there is an issue of national security, but about whether or not timelines have been met efficiently, and whether the process has been followed. Indeed, the Secretary of State could set a scope for the procedural officer under the new clause that still created sufficient power to investigate, as BEIS would need to, and to allow a judicial review relief for the most substantive matters, while resolving some process matters efficiently under the proposed mechanism.

I hope the Minister will recognise that, in putting forward the amendment and new clause, we seek to understand better the workings of clause 23, which sets out the meaning of an assessment period—in a way that, I have to say, is not easily understood in terms of timelines. We seek greater clarity about clause 23, which we recognise is essential to the working of the Bill, and to introduce a means by which the small and medium enterprises on which our economic prosperity and, indeed, our recovery from the greatest recession in 200 years rely, so that they can feel reassured that they have a means of holding this process to account, thereby ensuring the better working of the Bill and the more efficient and effective protection of our national security and investment.

[Nadhim Zahawi]

With your indulgence, Mr Twigg, I intend to speak first to clause 23 stand part, then to amendment 22 and new clause 4.

We are committed to the regime providing as much clarity, certainty and predictability as possible for businesses and investors. It is therefore right that we are setting out how long the Secretary of State may take to carry out a full national security assessment and make a final decision on a trigger event following a call-in notice.

Subsection (3)(a) provides for an initial assessment period of 30 working days. The Government have taken advice from the security community, and we consider that in the majority of cases 30 working days will allow for a full national security assessment and for the Secretary of State to decide whether to clear the trigger event outright or to impose final remedies on it.

More complex cases are possible, however, and it is important that a longer period is available for the Secretary of State to consider them. The clause therefore enables the Secretary of State to issue a notice to extend the assessment by 45 working days to assess the trigger event further, for example to determine the extent of the national security risk or to decide on appropriate remedies. That is referred to as the “additional period” under subsection (3)(b). The clause also provides for the assessment period to be further extended beyond the additional period, but only with the written consent of the acquirer. That is termed a “voluntary period” under subsection (3)(c).

The Government are clear that extensions should not be used lightly. The clause therefore includes specific legal tests for their use. To extend the assessment into the additional period, the Secretary of State must reasonably believe, as the hon. Lady referred to, that a trigger event has taken place, or is in progress or contemplation, and that this has given or would give rise to a national security risk. The Secretary of State must also reasonably consider that the additional time is required to assess the trigger event further.

To agree a voluntary period extension with the acquirer, the Secretary of State must be satisfied that, on the balance of probabilities, a trigger event has taken place, or is in progress or contemplation, and that this has given or would give rise to a national security risk. The Secretary of State must also reasonably consider—the third bullet point the hon. Lady mentioned—that the period is required to consider whether to impose final remedies or what those remedies should be.

What the Secretary of State may not do is simply extend the assessment period because it is convenient. The clause is drafted in this way to ensure that we protect the investors and businesses that the hon. Lady quite rightly cares about, as do Government Members, and allow them to operate and thrive in our economy. I hope that hon. Members feel assured that the Government have sought to carefully balance the flexibility required for the Secretary of State to deal with the most complex cases and the need to provide businesses and investors with clear time lines.

[Matt Western (Warwick and Leamington) (Lab)]

Just to understand and clarify the point about how realistic the voluntary period might be, in terms of getting the written agreement of the acquirer, in the Minister’s experience, how realistic is it that a business would accede to that? The business might be under financial pressure, looking for cash or a financial injection, which is the whole point about bringing in private equity. How will the Government ensure that that is possible, when all those other pressures are coming into play?

10:00

[Nadhim Zahawi]

I am grateful to the hon. Gentleman; it is a great question. We are all worrying about the small and medium-sized businesses that his particular angle would very much apply to. He will recall that, in the evidence sessions, we heard evidence to suggest that business founders and directors are best placed to know if their business has a national security angle, so the Secretary of State will clearly work with those business owners, innovators and pioneers to try to mitigate the national security risk while making sure that they can survive and thrive. It is in no one’s interests for them not to do well in the United Kingdom; that would probably create a greater national security threat.

[Matt Western]

Just to be clear, if a business is desperately seeking that inward investment, surely it would be less likely to write and agree with the Secretary of State about the additional period, because it is desperate for the funds.

[Nadhim Zahawi]

I absolutely hear what the hon. Gentleman says. The issue then becomes one of national security. As we heard in the evidence sessions, most founders and directors know exactly what they are inventing and what their intellectual property is, and therefore whether there is a national security risk, however nascent the business may be.

I briefly turn to amendment 22. I am grateful for the Opposition’s continued, and in some ways unexpected, push for ever greater powers for the Secretary of State, who I am certain will be most delighted. The amendment would remove the requirement for the Secretary of State to agree the use of a voluntary period or a further voluntary period with the acquirer to consider whether to make a final order or what provision that final order should contain. I do not believe that would be the right approach.

We have set much store in the statutory timescales provided for in the Bill. It is vital for the businesses and investors that we all care about that they have confidence in when they can expect decisions so that they can plan accordingly, which goes back to the point of the hon. Member for Warwick and Leamington about planning for an investment or fundraising event. That is why any extension of the assessment period, beyond the collective 75 maximum working days of the initial period and the additional period combined, requires agreement from the acquirer in recognition of the fact that the process is being lengthened beyond the customary timeline. Enabling the Secretary of State to do that unilaterally would be a matter of concern for business and investment communities alike.

[Chi Onwurah]

I thank the Minister for his concern about our encouragement, in our probing amendment, of the Secretary of State having greater powers. When the Minister looks at other organisations, such as the Committee on Foreign Investment in the United States or, even closer to home, the CMA in the UK, which do not have voluntary period extensions, can he understand why there are concerns about how that process would work? What international comparisons has he made?

[Nadhim Zahawi]

We talk to our Five Eyes allies and other nations. As the Secretary of State and I set out on Second Reading, we have worked collaboratively with many nations to try to get the balance right so that the Bill does what it does and is proportionate.

I accept that the amendment also attempts to provide some mitigation against that by directly referencing subsection (9). That existing subsection limits the Secretary of State to being able to agree a voluntary period only where he

“is satisfied, on the balance of probabilities, that…a trigger event has taken place”

or is “in progress or contemplation”, and that

“a risk to national security has arisen…or would arise.”

He may do so only for the purpose of considering

“whether to make a final order or what provision a final order should contain.”

As such, I gently point out to the hon. Lady that the limitations that she seeks to impose on the Secretary of State through the amendment are already provided for by the clause as drafted. Subsection (3) does not provide a parallel or broader power for the Secretary of State to agree a voluntary period or further voluntary periods for other reasons. It is already subject to the limitations set out in subsection (9). I hope that addresses the hon. Lady’s principal concern. I assure her that, as with so many areas in the Bill, we are singing from the same hymn sheet. For those reasons, I cannot accept the amendment, and I respectfully ask her to withdraw it.

I will turn very briefly to new clause 4. I am grateful to hon. Members for contributing to the debate by suggesting a new clause to allow acquirers to lodge complaints. Under the current drafting of the Bill, the Government can already be held to account on their performance on screening investments. First, the Government can be held to account through the annual report that they are required to publish, as provided for in clause 61. That provision requires the Government to report on the number of notifications that they have accepted and rejected, the sectors of the economy in relation to which call-in notices were given, the financial assistance provided and the number of final notifications given.

Secondly, the Government can be held to account through the judicial review process under clause 49. Acquirers, or indeed any party to the transaction, can claim for judicial review of a relevant decision. Furthermore, throughout the review process, the parties to an acquisition can contact the investment security unit for a discussion about their case and can request to speak to a senior official if needed. Creating a formal complaints procedure would be unnecessarily bureaucratic when acquirers already have better routes available to them if they are unhappy with the decision-making process.

Members from across the House have commented that it is important—the hon. Lady mentioned this earlier—that the appropriate resources are allocated to the investment screening unit. The Government are absolutely committed to ensuring that that happens. It would be unwise to divert some of those staff from undertaking scrutiny of issues of national security to staff a complaints procedure, particularly where JR is available for any serious concern regarding the process of assessment.

[Chi Onwurah]

I hear the Minister repeatedly referencing the judicial review process without, I am afraid, addressing our point: judicial review is not an option that will give relief to a small, nimble start-up.

[Nadhim Zahawi]

I mentioned judicial review as the second way in which the Government can be held to account. The first is the requirement for the Government to report to Parliament annually. Colleagues and Committees will therefore be able scrutinise the work of the unit. Although I understand the hon. Lady’s objective with new clause 4, I am not able to accept it for the reasons that I have set out, and I hope that she will agree to withdraw it.

[Chi Onwurah]

I thank the Committee for considering our amendment and new clause, I thank the Minister for his response and I thank my hon. Friend the Member for Warwick and Leamington for his able interventions.

I am somewhat disappointed by the Minister’s response. I think it is absolutely true, as he said, that as with so much, we are on the same page when it comes to what we are trying to achieve. There are significant issues with the clause as it stands, however, and I do not feel that the Minister has addressed them in his response. He did not, for example—I am happy to take interventions on these points—address the issue of voluntary extensions. We do not see that in the US process, which has a number of stages. It allows 45 days for a national security review, including a 30-day limit for the director of national intelligence to submit intelligence analysis and an option of a 15-day presidential determination if needed, but it does not have a voluntary period for extensions. The CMA in this country does not have a voluntary period for extensions. The Government are introducing a voluntary period.

I thank the Minister for clarifying that as well as having the acquirer’s approval, the Secretary of State has to meet the conditions in subsection (9), and that both the approval and the conditions in that subsection are satisfied on the balance of probabilities. That does not, however, address the issue that my hon. Friend the Member for Warwick and Leamington raised about whether the acquirer is likely to agree to a voluntary period. Without clarity on that point, the clause allows voluntary extensions that, in practical terms, may not prove to be of use to either the acquirer or the Secretary of State.

On the new clause, I do not want to appear cynical, but I am sure that the Minister and those on the Committee who have worked in and with small businesses—particularly in our tech sector and in some of the 17 areas identified for mandatory notification, such as artificial intelligence and data infrastructure—will agree with me when I say that I do think that any small business would see an annual report to Parliament or a judicial review as a relief, given the ever-present desire for investment finance or for progress and innovation at breakneck speed. The Minister has not made a case against the need for a process to address procedural disputes.

I said that amendment 22 was a probing amendment, but I want to test the will of the Committee on supporting greater clarity and understanding for our small and medium-sized enterprises. I will seek to press the amendment to a vote, as I will for new clause 4.

[The Chair]

The decision on new clause 4 will be taken at the end of the Bill Committee.

Question put, That the amendment be made.

Division 12

Ayes: 5

---

Labour: 4
Scottish National Party: 1

Noes: 10

---

Conservative: 10

Clause 23 ordered to stand part of the Bill.

Clause 24

Effect of information notice and attendance notice

10:15

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I beg to move amendment 23, in clause 24, page 16, line 26, at end insert—

“(6) The Secretary of State must publish each year the aggregate amount of days included under subsection (4), the number of called-in events for which such days are included, and the number of times information notices are given for each called-in event in the report required at Clause 61.”

This amendment would require the Secretary of State to publish annual reports of how many information notices were given, how many days were added as a result of them, and how many notices were given in each relevant trigger event.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Dr Whitehead]

The amendment follows on from a number of concerns that have been raised about small businesses, their role in the production of information and attendance notices, and the effect on those small businesses; and about the potential development of a regime that is far more onerous than those in other parts of the world as we pursue the proper purpose of dealing with information and attendance, and shining a light on the activities of companies that may need to declare what they are doing in a reasonably timely way.

I am reminded of the question of reasonable speed and efficiency, as far as notification and evidence are concerned, as our expert witnesses mentioned earlier in our proceedings. Michael Leiter from Skadden, Arps, Slate, Meagher and Flom LLP stated:

“I think it will be an issue unless you are confident that small-scale, early-stage investors can have their transactions quickly reviewed within roughly 30 to 45 days. If it is longer than that, that will make the investment climate, I think, worse than other competing markets. I think that could have an impact.”––[Official Report, National Security and Investment Public Bill Committee, Tuesday 24 November 2020; c. 47, Q53.]

The question in front of us is how we ensure that that happens, or at least shine a light on the process and monitor it. The amendment would require the Secretary of State to publish each year the aggregate number of days included under subsection (4), the number of called-in events for which such days are included, and the number of times information notices are given for each called-in event in the report required in clause 61.

We have not debated clause 61 yet, but it requires the Secretary of State to produce an annual report of quite extensive proportions on proceedings generally under the Act, as it will be. Hon. Members will note that clause 61 provides for what one might call a quantity report. It will record expenditure, the number of mandatory notices accepted and rejected, the number of voluntary notices accepted and rejected, the number of call-in notices, and the number of final notifications. It is an annual numbers report. The amendment would add quality to that quantity.

[Chi Onwurah]

I thank my hon. Friend for giving way and for his excellent comments on the amendment. Does he also recognise that the report under clause 61 is the one that the Minister just described as providing accountability to small businesses regarding their concerns about procedure or how they might be affected by the Bill? Does my hon. Friend therefore agree that adding quality to quantity as a function of that report would be a truly important step?

[Dr Whitehead]

My hon. Friend makes an important point about the overall effect that shining a light on proceedings, and accounting for them, will have. She emphasises that it will be important for small businesses—I will come to the mechanisms by which this might be done—to see how effectively things are run and organised, ideally in their own interest when it comes to the question of turnaround in proceedings. I quoted one expert witness, but a number of them emphasised the point about turnaround and the problems that might arise for small businesses as a result of lengthy periods of consideration.

My hon. Friend emphasises what I want to emphasise, which is that the report under clause 61 does not enable anyone to assess efficiency and effectiveness. A reader of that report could look at what has occurred and what numbers have gone out, but it would not allow them to consider the efficiency with which those numbers have been arrived at. Our amendment would make that possible. The report under clause 61 would be on the numbers, but the amendment would make it much easier for a reader of the report to interrogate the numbers, and it would therefore add quality to quantity.

[Katherine Fletcher (South Ribble) (Con)]

The hon. Gentleman mentioned quality and quantity. I have been reflecting on the fact that today is a relatively momentous day, with the first vaccines going into arms. The Committee is lucky enough to have with us the Minister, who has probably been up all night doing that. Although I appreciate that I am not quite speaking to the amendment, I wanted to talk about the quality and quantity of vaccination and of the Minister’s time.

[The Chair]

I am not sure that the Minister has been administering the vaccines himself.

[Dr Whitehead]

I am grateful to the hon. Lady for that interestingly injected intervention—[Laughter.]

[Nadhim Zahawi]

More!

[Dr Whitehead]

It is the way I tell them.

[Chi Onwurah]

It is important that the Committee recognises the momentous occasion of the first use of the vaccine in this country and congratulates the Minister. It is also important that we reflect on the fact that our fantastic NHS and key workers, rather than the Minister himself, made it possible.

[Dr Whitehead]

Indeed. I was about to reflect on the appointment a long while ago—in another time and another Administration, when there was a severe and prolonged drought—of a Minister for drought, the right hon. Denis Howell. The Minister’s success was amazing: within about three days of his appointment, it poured with rain.

[Nadhim Zahawi]

rose—

[The Chair]

Before the Minister intervenes, may I say that it is important to keep to the detail of the Bill.

[Nadhim Zahawi]

Just to second what the hon. Member for Newcastle upon Tyne Central said, we have an incredible team in our NHS in England, Scotland, Wales and Northern Ireland, our military and all the other planners who have delivered today. I want to put that on the record.

[Dr Whitehead]

I absolutely endorse that. I also congratulate the Minister on the fact that things are really happening on his watch. I do not necessarily make the parallel with drought and rain falling down, but I wish him every success with the programme that is now rolling out, which started remarkably quickly after his appointment.

I want to highlight the difference that the amendment would make between quality and quantity. In practice, the decisions about issuing information notices and attendance notices will be taken by the new BEIS investment security unit, although I have to say that we have not heard much information about that unit—its resourcing, practice or key performance indicators. The operation of the entire new regime, its impact on the UK’s status as a place for investment in high-value start-ups—the impact assessment states that about 80% of transactions in the scope of the mandatory notification will affect start-ups and small and medium-sized enterprises—and its impact on national security will depend on the competence of the new unit when it is set up. So far, the Government have laid out limited plans for securing the capacity and capability it needs. In that context, the extent to which the unit will be able to act efficiently and effectively is a potential concern. To some extent, that is a question of its resourcing and of the way it is set up and required to work.

At the moment, we have no method of assessing how the unit is doing in terms of carrying out what the Bill wants it to do. The amendment, among other things, would bring much greater accountability to the unit to ensure that it carries out an efficient and effective national security screening regime. We have to remember that efficiency is about not just how well the unit goes about its business, but what judgments it makes and, for example, whether it gives multiple information notices out to businesses, as it can under the Bill. Each time a successive notice is given out, it would stop the clock on time limits and extend the period in which that overall examination would take place.

10:30

One could argue that giving out multiple notices due to operational necessity, because the unit is having difficulty going about its business—either because it is not properly resourced or because it has other difficulties in terms of its practice—might needlessly delay companies looking at business-critical investments and going about their business. The cause of that may be that the unit does not have sufficient resources to carry out its work efficiently.

[Chi Onwurah]

My hon. Friend is making a really important point, because we all know that what is measured throws a light on the process behind it. If these orders are not measured, I am concerned that they will effectively be a way for a hard-pressed department to gain more time. We have all seen during this pandemic—I refer not least to responses to parliamentary questions—how pressure on resources has increased timescales in the operation of Government Departments. This amendment would shine a light on that and prevent such misuse.

[Dr Whitehead]

My hon. Friend makes an important point on the amendment about how we undertake the difficult job of making sure something is efficiently and effectively carried out, while not taking the wheels from under the organisation as it does its job. That is a difficult process to undertake, because information notices are clearly important, as are attendance notices, and we should have no mechanisms in the Bill that prevent or undermine the ability of the organisation charged with giving notices out to do that properly. That is a given as far as the process is concerned.

However, it is equally important that substantial light is shed on how that process works in practice and whether, over a period of time, that process might be seen not to be working as well as it should be in combining the necessities of those notices with a reasonably fair approach, particularly as far as small businesses are concerned. Managing that metric properly while enabling the unit to carry out its job properly is quite a task.

The amendment would enable us to undertake that task by requiring the recording of quality—that is, the numbers of notices given out, the “aggregate amount of days” that those notices have consumed and the

“number of called-in events for which such days are included”.

By enumerating those numbers and putting them together in each report, we can see whether the unit is doing its job well overall, could improve or could undertake activities to make sure that there was a balance between efficiency, effectiveness and fairness in the whole process.

Indeed, it is not just small businesses that might welcome having a light shone on what is being done to them; it would also be a potentially important tool to allow the Secretary of State to see what the unit, which is essentially carrying out the Secretary of State’s work, would be doing over each period of the year. The Secretary of State could use that reporting mechanism as a way of ensuring that the unit is doing what it should and that the principles we have set out in the Bill for the good expedition of information and attendance notices continue to operate in the best possible way over a period of time.

Adding quality to the quantity in the report is good news all around. It enhances the Secretary of State’s ability to manage his or her own Department. It shines a light for those bodies that ought to be co-operators in the process, but that may sometimes feel themselves as victims in the process. It shines a ray of light on the operation of the organisation itself—the unit carrying out these activities—and is therefore a welcome addition to its activities. That will keep it considering the efficiency and effectiveness of its operations in the knowledge that the information will be stuck in a report each year and will be scrutinised in terms of the unit’s activities in carrying out the wishes behind what will be the Act.

The amendment would be a constructive and careful addition to the reporting process, and one that would considerably enhance the effectiveness of the Bill. I hope the Secretary of State can consider it in the light in which it is intended, which is as an addition to the Bill, and not as seeking to undermine the effectiveness of the process or the activities of the unit itself.

[Nadhim Zahawi]

I am grateful to the hon. Gentleman. I intend to speak first to clause 24 stand part and then turn to amendment 23. Clause 24 concerns the Secretary of State’s information-gathering powers in clause 19 and his power to require the attendance of witnesses in clause 20, with the requirement that national security assessments are completed within a defined period, which appears in clause 23.

Clause 24(4) ensures that the clock is stopped on the assessment period while the Secretary of State waits for information or for the attendance of witnesses, as required through the issuance of the relevant notices. That helps to avoid the Secretary of State being timed out of properly assessing a case simply because someone fails or refuses to provide information or to attend to give evidence.

Amendment 23 seeks to require that the annual report, provided for in clause 61, includes additional information relating to how often subsection (4) is engaged. In particular, it seeks to require the Secretary of State to include the aggregate number of days on which the clock is stopped as a result of the Secretary of State awaiting the provision of information through clause 19 or the attendance of a witness through clause 20. It also seeks to include the number of call-in days, and the number of times information notices are given for each call-in.

Our response has three parts, though the Committee will be relieved to hear that each part is distinctly and deliberately brief. First, clause 24(4) is entirely necessary to help to ensure that the Secretary of State is not timed out. Secondly, clauses 19(1) and 20(1) stipulate that the requirements to provide information or evidence must relate to the Secretary of State’s functions under the Bill. In this context, that means that they have to be relevant to assessing the trigger event and making a decision on it.

The Secretary of State will furthermore need to comply with public law duties when issuing an information notice or attendance notice, which would preclude him from doing so for an improper purpose, not that he would ever contemplate such a thing. A decision to issue a notice would also be subject to judicial review. There are therefore appropriate legal safeguards on the use of information notices and attendance notices. Finally, clause 61 does not preclude the Secretary of State from publishing such information should it later prove a helpful metric for assessing the regime.

[Stephen Flynn (Aberdeen South) (SNP)]

I have a great deal of sympathy for the amendment, but I am conscious that the Minister is unlikely to agree to it, given what he has said. Bearing that in mind, the detail that is being asked for is probably quite straightforward. I would like this on the record: were a Member to ask for such information, would the Department be willing to provide it in the future, notwithstanding the fact that the amendment will likely be defeated?

[Nadhim Zahawi]

I am grateful to the hon. Gentleman for his ingenious attempt at augmenting this excellent Bill, but for the reasons I have just set out I see no grounds for including the amendment. I therefore ask the hon. Member for Southampton, Test to please withdraw it.

[Dr Whitehead]

I am not sure that the Minister has given sufficient consideration to what I thought were genuine points concerning, as I set out, both quality and quantity. He says that it will be possible, if the Secretary of State thought it a good idea, to include some of those points in the annual report anyway. That comes back to some of our “may” and “must” arguments. The Secretary of State might, if they want to, decide to do that in an annual report, but the circumstances under which that happened could be that they wanted to say in the report, “The unit is working brilliantly, everything is hunky dory and terrific, and here is the evidence.” Conversely, were the unit not working very well, they might decide not to put those things into an annual report.

Although the Secretary of State would have the ability to add something to the annual report, if they did not want to do it, or they felt that it was a better idea to put such things under the table, away from the light of day, no one else would ever know about it—unless, as the hon. Member for Aberdeen South suggested, some sort of undertaking were given that those numbers were available on request to hon. Members. The formula that the Minister has put forward falls well short of the mark in meeting the three tests that I have put forward for quality plus quality: that the report should be of benefit to the Minister, the unit, and the firms and companies that may be affected. The Minister addresses only one of those three.

10:45

[Chi Onwurah]

Given that, as my hon. Friend sets out, this information should be of use to the unit’s internal workings and that it would, I hope, be readily available in the Department, as part of the workflow in modern-day information management systems, can he think of any reason why the Secretary of State would not want to make it available?

[Dr Whitehead]

I cannot immediately, because as I mentioned, having that information available in some way or other—we suggest it should be in the report—is a win, win, win all round. It is useful for everybody and potentially important for some.

I do not suggest for a moment that there might be anything untoward about hiding that information away, and I am sure that the Minister absolutely would not want that to happen. However, under the mechanism he has set out and his argument for why this amendment is unnecessary, that is precisely what could happen, which is not something that we should feel very happy about. I hope that, as a minimum, the Minister will address that point, along with the intervention by the hon. Member for Aberdeen South about this information being freely available one way or another, whether in a report or not. An overwhelmingly better idea would be simply and unobtrusively to add it to the report, so that we knew it would come out and could refer to it.

I am not sure whether we would seek to divide the Committee on this—[Interruption]—but I think we might. Like my hon. Friend the Member for Newcastle upon Tyne Central, I am slightly at a loss as to why this provision would not be acknowledged and put in the Bill, or something close to it, one way or another. I invite the Minister to intervene to say whether the disclosure of this information on a regular basis would happen in the report or whether he will give an undertaking to ensure that happens in passing this legislation.

[Nadhim Zahawi]

We have very carefully considered the types of information that would be helpful to investors. The direction of travel—this was the question raised earlier by the hon. Member for Aberdeen South—for Parliament and the public was to include that information in the annual statement. The Committee should also note that the list does not prevent us from adding other relevant non-sensitive information, as I mentioned earlier. I hope the hon. Member will see fit—I know there is a slight disagreement on the shadow Front Bench—to withdraw the amendment.

[Dr Whitehead]

I think there is not so much disagreement as puzzlement.

[Nadhim Zahawi]

I heard the hon. Gentleman say that he was going to withdraw the amendment, then the hon. Member for Newcastle upon Tyne Central said, “No, we’re going to put it to a vote.”

[Dr Whitehead]

To be precise, I said that I was not sure whether we should divide, because we are a little bemused as to why, one way or another, that information should not be within the report or the Minister could not make a firm statement that it will be regularly available, and the Minister has not said either in his response.

[Chi Onwurah]

My hon. Friend is making an excellent point. Does he agree that it would be helpful if we could be sure that the Minister’s accuracy were not as low when reporting my hon. Friend’s words as when reporting on the functioning of the clause?

[Dr Whitehead]

To be kind, I think the Minister was reflecting on what the motives for our brief discussion about dividing might have been, rather than attempting in any way to put words in people’s mouths that were not there.

I will put Committee members out of their misery. I do not think there was sufficient reassurance in the responses that have been given, and I think we ought to record that we would like the amendment to be in the Bill. Therefore, we will divide the Committee.

Question put, That the amendment be made.

Division 13

Ayes: 5

---

Labour: 4
Scottish National Party: 1

Noes: 10

---

Conservative: 10

Clause 24 ordered to stand part of the Bill.

Clause 25

Interim orders

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

[The Chair]

With this it will be convenient to discuss clauses 26 to 28 stand part.

[Nadhim Zahawi]

I turn to clauses 25 to 28, which I shall treat together, as they all relate to orders that the Secretary of State may make in relation to notifiable cases under the national security and investment regime. It is important that, during any national security assessment following a trigger event being called in, parties do not act in a way that undermines the assessment or any remedies that might be imposed at the end of it. Clause 25 therefore gives the Secretary of State the power to impose requirements for the purpose of preventing, reversing or mitigating actions that might pre-empt the regime through what is known as an interim order. In practice, this could include requiring that the parties do not complete a trigger event until a final decision has been issued, or, where the Secretary of State is concerned about access to sensitive intellectual property, an order could be used to prohibit the intellectual property from being transferred or shared pending the outcome of the assessment. The power is necessarily flexible to allow conditions to be tailored to particular cases and particular risks, although it rightly comes with important safeguards.

First, interim orders may be made only during the formal assessment period when a trigger event has already met the legal test to be called in for a full assessment. The Secretary of State may not, therefore, impose an interim order before he has called in a trigger event, which I hope hon. Members will agree is a significant bar to meet in and of itself. Secondly, the Secretary of State must reasonably consider that the provisions are necessary and proportionate for the purpose of preventing, reversing or mitigating a pre-emptive action. Any decision to make an order would be open to judicial review.

Thirdly, as an interim measure it is inherently time limited. In a particular case, there might be a reason why a requirement is not needed for the full duration of the assessment period. Consequently, a specific end date might be given in an order. Furthermore, unless an earlier date has been specified in the order, or the order has been revoked, an interim order will cease to have effect once the Secretary of State has given a final notification or made a final order decision.

The Bill also includes specific provisions for interim orders to be kept under review and for those subject to them to request that they be varied or revoked. That is provided for in clause 27. Without clause 25, it would be possible for a dangerous acquisition outside of the mandatory sectors to be completed before the Secretary of State has an opportunity to assess it properly. Indeed, the Government expect a genuinely determined hostile actor to seek to do just that.

Clause 26 provides for the Secretary of State either to put in place effective remedies to counter national security risks discovered during an assessment of a trigger event, or to clear a trigger event where no national security risk is found. The clause therefore provides for both final orders and final notifications, and subsection (1) requires the Secretary of State either to make a final order or to give a final notification before the end of the assessment period. Final notifications act as notice to parties that no further action is to be taken under the Bill in relation to the call-in notice.

Final orders seek to address any national security risks found during an assessment. Those will not be arbitrary and will be subject to a strict legal test. First, the Secretary of State must be satisfied on the balance of probabilities that a trigger event has taken place or is in progress or contemplation and that this would give rise to a national security risk if carried into effect. Secondly, the Secretary of State must reasonably consider that the provisions of the order are necessary and proportionate for the purpose of preventing remedy or mitigating the risk.

The permitted contents for final orders are set out in subsection (5). This includes the power to put certain conditions on a trigger event before it can proceed, or for it to remain in place. The subsection also gives the Secretary of State the power to block a trigger event or, where it has already taken place, require that to be unwound. I make it clear to hon. Members that such a course of action would be a last resort. In the nearly two decades since the Enterprise Act 2002 came into force, no Government of either colour has blocked a deal on national security grounds. However, it is still a necessary power to have. There might be some cases where a trigger event poses such an acute risk that it cannot be allowed to proceed in any form, and it would be irresponsible to leave our country unprotected.

Clause 27 provides important safeguards on the continued operation of interim orders and final orders. First, it requires the Secretary of State to keep interim and final orders under review to ensure that they are relevant and proportionate. Secondly, it empowers him to vary or revoke such orders. Thirdly, it compels him to consider any request to vary or revoke an order as soon as practicable after receiving such a request.

[Dr Whitehead]

Does the Minister consider that the arrangements in clauses 25 to 28 for variations, revocations and exemptions are a proper subject for inclusion in an annual report? As he will observe, clause 61 on the annual report states that the

“The Secretary of State must, in relation to each relevant period—

(a) prepare a report in accordance with this section”.

Although not specifically covered by the word “must” in the clause, does the Minister consider that the arrangements in these clauses are a proper subject for the annual report?

11:00

[Nadhim Zahawi]

I am grateful to the hon. Gentleman. We have had that debate already, and we have set out clearly what we think is appropriate to be in the report, notwithstanding what we might do in future if that allows investors to have greater clarity.

[Matt Western]

I was going to make exactly the same point as my hon. Friend the Member for Southampton, Test. Surely the intent behind the question is how we make the operation of the provision much more efficient. We are starting from a zero base. The suggestion that we consider future demands and implications is a constructive one.

[Nadhim Zahawi]

I see where the hon. Gentleman is coming from. The House has many levers at its disposal, including the Select Committee process, to probe the effectiveness of the new regime.

I shall now make some headway. The provision is designed to ensure that orders reflect changing circumstances and do not remain in force for perpetuity without further consideration. Parties subject to orders may themselves request that the Secretary of State vary or revoke their order. This is another mechanism to ensure that orders remain appropriate. The Secretary of State must consider such requests unless the request relates to a final order and, in the opinion of the Secretary of State, there has been no material change in circumstances since the order was made or last varied, or if the party concerned has previously made a request to vary or revoke the order since that request.

[Chi Onwurah]

I thank the Minister for the progress he is making in reading out the provisions of these clauses, but I am trying to understand the length of time that an interim order can be in force. What is the maximum time an interim order can be in force?

[Nadhim Zahawi]

It is time limited, but that does not specify what the time needs to be. I will happily write to the hon. Lady.

[Chi Onwurah]

I am not sure that it is time limited, because of the number of additional voluntary periods that the Secretary of State can invoke.

[Nadhim Zahawi]

I am happy to come back to the hon. Lady on that point.

Clause 28 requires that orders made under this Bill be served on anyone required to comply with them and anyone with whom the call-in notice was served. The clause also places certain requirements on the contents of orders or accompanying explanatory material as well as giving the Secretary of State the power to exclude sensitive information. The clause sets out the process that the Secretary of State must follow after making an interim order or final order. This provides the clarity and predictability that we all want for businesses and investors.

First, clause 25 requires the Secretary of State to serve the order on everyone who needs to be aware of it, including anyone who is required to comply with it as well as anyone on whom the call-in notice was served. That will provide clarity for affected parties. The Secretary of State is also required to serve the order on such other persons as he considers appropriate—for example, a regulator who is considering the trigger event might need to be aware of the terms of an order.

Secondly, the clause sets out the information that must be contained within an order or its accompanying explanatory material, including the reasons for making the order, the trigger event to which the order relates, the date on which the order comes into force, and the possible consequences of not complying with the order. That will help to ensure that parties are clear about why the Secretary of State has made the order and what they must now do as a result.

Thirdly, the clause enables the Secretary of State to exclude information from a copy of an order or its accompanying explanatory material that he considers commercially sensitive or national security sensitive. That will help to ensure that the process of serving orders does not negatively impact on parties’ commercial interest or on our national security interest. The clause makes provision for notifying those affected by variations and revocations of orders, with a view to ensuring that they are properly communicated in a timely manner.

I hope that hon. Members feel reassured that clauses 25 to 28 will frustrate hostile actors and enable the Government to work with business in executing this regime, that there are safeguards to ensure that orders do not stay in place longer than is necessary or proportionate, and that all relevant parties will have the information they need in relation to orders. I therefore commend the clauses to the Committee.

[Chi Onwurah]

Let me start my thanking the Minister for setting out the purpose and details of clauses 25 to 28, which set out the remedies and the process of the timelines that we discussed in relation to clause 23. As he has suggested, and as the Opposition recognise, many of our amendments and arguments have been focused on trying to ensure that the process of assessment, interim orders and final orders works not just as effectively as possible, but as clearly as possible. It should be as clear as possible to the many businesses that will come under the remit of the Bill, particularly the small and medium-sized enterprises that the Opposition seek to champion.

On the requirements for interim orders, which are set out in clause 25, the Minister is absolutely right to say that we have to have regard to the actions of hostile actors. Indeed, we will be looking for greater clarity on who those hostile actors might be, but we have to recognise that hostile actors might seek to circumvent the provisions of the Bill in order to make off with important intellectual property or to otherwise influence the companies’ assets that they are seeking to acquire. We therefore recognise the importance of interim orders, as set out in clause 25. As I have told the Minister, I am not clear about the maximum timeline that the interim orders can be in place. Regardless of that, it is clearly necessary for them to be put in place and to be defined. They need to be reviewed and rewritten, and other provisions in clause 25 set that out.

My understanding is that interim orders give way to final orders and the final notifications. Although we have some concerns about how those notifications are to be made, which we shall consider later, a final order, made as effectively and quickly as possible, is clearly important.

I am not sure that the Minister made it clear in clause 26(4):

“Before making a final order the Secretary of State must consider any representations made to the Secretary of State”.

This seems to me to be a very broad statement, yet here we see—as I am sure my hon. Friend the Member for Southampton, Test will observe—that it does not say “may”, but “must”. I am not clear what that is seeking to address, as I would have thought that it was normal practice for the Secretary of State to consider representations made to them.

I wonder whether this is setting up the potential for a future judicial—or other—review, should any representation be made that was not considered to have been considered. Perhaps the Minister will write to me to give his view on that, or to set out what part of the process that statement is trying to address or give accountability on.

[Nadhim Zahawi]

If the hon. Lady’s question is about how broad clause 26 is—

[Chi Onwurah]

Clause 26(4).

[Nadhim Zahawi]

The reason for that is to enable the Secretary of State to tailor remedies accordingly, as a limited list of remedies could result in risks being ineffectively addressed. I am happy to write to her on anything else she requires.

[Chi Onwurah]

My question is not about the broadness of the orders, or even the discretion that the Secretary of State has, because, as the Minister has observed, we have sought to probe that level of discretion in these powers; it is about the broadness of the provision that:

“Before making a final order the Secretary of State must consider any representations made to the Secretary of State”.

What is meant by “consider”? How would a failure to do so be identified and reported on, and how would the Secretary of State be held to account? I seek further clarity on that. Perhaps it is obvious to the Minister, and perhaps it is just to me that it is not obvious.

I would say, in agreeing to the provisions set out in clauses 25 to 27, that there are concerns that they will not be part of the general reporting, certainly in the provisions of clause 25, and interim reports are not mentioned in clause 61. I share the concerns of my hon. Friend the Member for Southampton, Test about a lack of reporting on the provisions of the Bill, but we recognise the importance of the clauses and will not be opposing them.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clauses 26 to 28 ordered to stand part of the Bill.

[Mark Garnier (Wyre Forest) (Con)]

On a point of order, Mr Twigg. Is it possible to turn up the heating in here? It is incredibly cold.

[The Chair]

I am sorry, but there is nothing I can do about that.

[Mark Garnier]

I think there is recommended guidance of 16°.

[The Chair]

I am afraid that is not in my power. We have 10 minutes more to get through. We will ask about heating, but I do not think there is much we can do about it.

Clause 29

Publication of notice of final order

11:15

[Sam Tarry (Ilford South) (Lab)]

I beg to move amendment 27, in clause 29, page 19, line 39, leave out paragraph (a) and insert—

“(a) would be likely to prejudice the commercial interests of any person and where the publication would not be in the public interest, or”.

This amendment would prevent the Secretary of State from redacting notices of final order (and information within them) on commercial grounds if redacting is contrary to the public interest.

It is a pleasure to serve under your chairmanship on this frosty morning, Mr Twigg. The amendment is on the public interest for disclosure. It is really about preventing the Secretary of State from redacting notices of final order and the information with them. The Opposition believe that commercial grounds for redacting are contrary to the public interest. It is about putting as much information as possible into the public realm about stuff that is particularly controversial but is really about clear protection of our national security.

Our strong belief is that the fundamental task of any Government, and the reason for the Bill overall, is the protection of our national security. A critical driver of that security is the wider public understanding of the rapidly changing threats that we face, and the different sources of those threats. We have heard from various expert witnesses over the past few weeks that other countries understand, perhaps far better than we do, what some of those threats are, and that our public understanding of threats is even more limited.

When Sir Richard Dearlove gave evidence, with vast experience spanning decades, he said:

“What is important about the Bill is that it raises parliamentary and public awareness of the issue.”—[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 24, Q30.]

Everyone on both sides of the House would like to see that. He also said, talking about China specifically:

“We need to conduct our relationship with China with much more wisdom and care. The Chinese understand us incredibly well. They have put their leadership through our universities for 20 or 30 years. We in comparison hardly know anything about China”—[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 20, Q21.]

The wider point in his evidence was that for too long our business priorities and the desire to be an attractive investment destination had overridden some of the security concerns, across a number of different Governments, perhaps creating a pattern of not taking the threats posed by China as seriously as possible.

The Bill requires the Secretary of State to publish notices of final order, setting out the details of persons and events involving national security that meant the notices were made. Those details are critical to our security and to our understanding of the threats. They must be made public. The amendment would put into the public domain the accurate information that will create public confidence on what the clause seeks to achieve.

As drafted, the clause prevents the publication of information that is critical to our security if it prejudices commercial interest. The Opposition believe that is the wrong judgment. The whole point of the Bill is to take a more strategic view, as indicated by Sir Richard Dearlove. The focus should be on long-term security, but the Bill is a way to protect not only security but our long-term commercial interests. The approach in the amendment might mean some short-term commercial challenges, but it is absolutely right for our national security and our longer-term prosperity.

The amendment would require the Government to publish all details of a final order notice where it is in the interests of national security and the public interest, even when commercial interest could be prejudiced. Where a hostile actor acts against our security interests, it is crucial for the British public to know about it and that we have some appropriate conversations in the public domain. Not to disclose such threats or events for the sake of protecting imminent profits in the short term would be the wrong judgment.

[Chi Onwurah]

I thank my hon. Friend for the amendment and for the excellent point that he is making. Does he think that if a company was being acquired by a hostile actor, and the Secretary of State thought that knowledge of the acquisition would be detrimental to the commercial interests of the company, the clause would allow the Secretary of State to redact that information? It would be in the general public’s interest to know that such an acquisition was taking place.

[Sam Tarry]

My hon. Friend makes a very good point. It is our belief that national security must be the overriding priority when threats emerge in an ever-changing world. We have heard evidence that threats that should have been seen were not dealt with in the correct way. Bringing that into the public domain through the amendment is incredibly important. That would override the short-term commercial pain if it guaranteed that security was paramount.

If we did not disclose such threats or events, and the focus was just on the short-term protection of swift profits, that would be the wrong judgment, because it would downgrade the overarching purpose of the Bill, which is to use all its mechanisms to enhance our security and ensure that we are on top of it at all times. The amendment would correct the focal point of this area of the Bill, by requiring before any redaction on commercial grounds an assessment of whether publishing would be in the public interest. That puts the onus on, and gives power to, the Secretary of State to make those crucial judgments.

[Chi Onwurah]

I rise to say a few words in support of my hon. Friend’s amendment. The excellent points that he has made have highlighted a theme of the Committee’s discussions: the potential conflict between the Department’s focus on supporting business and investment into the UK, and our national security. As he set out, the public interest might be in knowing that a hostile acquisition was taking place and in being better informed generally about national security. In addition, I can think of many examples in which the knowledge that a company had come into the purview of the Bill could have a detrimental impact on its stock valuation or reputation.

When the Minister responds, I hope that he will set out what he expects the Secretary of State to do when there is a conflict of interest between public knowledge of hostile actors and specific measures in the Bill to ensure that companies related to potential hostile actors, or those for whom our national security is not in their interests—through chains of influence or company holdings, for example—should not be beyond the reach of the Bill. The clause, by enabling the Secretary of State to leave out details that prejudice the commercial interests of any person, seems to put the focus back on commercial interests rather than national security. The amendment would put the focus back on national security and the public interest.

11:25

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.

National Security and Investment Bill (Tenth sitting)

Committee stage
Tuesday 8th December 2020 Public Bill Committees

The Committee consisted of the following Members:

Chairs: † Sir Graham Brady, Derek Twigg

† Aiken, Nickie (Cities of London and Westminster) (Con)

† Baynes, Simon (Clwyd South) (Con)

† Bowie, Andrew (West Aberdeenshire and Kincardine) (Con)

† Fletcher, Katherine (South Ribble) (Con)

† Flynn, Stephen (Aberdeen South) (SNP)

† Garnier, Mark (Wyre Forest) (Con)

† Gideon, Jo (Stoke-on-Trent Central) (Con)

Grant, Peter (Glenrothes) (SNP)

† Griffith, Andrew (Arundel and South Downs) (Con)

Kinnock, Stephen (Aberavon) (Lab)

† Onwurah, Chi (Newcastle upon Tyne Central) (Lab)

† Tarry, Sam (Ilford South) (Lab)

† Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)

† Western, Matt (Warwick and Leamington) (Lab)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

† Wild, James (North West Norfolk) (Con)

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

Rob Page, Yohanna Sallberg, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 8 December 2020

Afternoon

[Sir Graham Brady in the Chair]

National Security and Investment Bill

14:00

[The Chair]

Before we adjourned, the Committee was considering amendment 27 to clause 29, and I believe that Chi Onwurah was in the process of concluding her remarks.

Clause 29

Publication of notice of final order

Amendment proposed this day: 27, in clause 29, page 19, line 39, leave out paragraph (a) and insert—

“(a) would be likely to prejudice the commercial interests of any person and where the publication would not be in the public interest, or”—(Sam Tarry.)

This amendment would prevent the Secretary of State from redacting notices of final order (and information within them) on commercial grounds if redacting is contrary to the public interest.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I had been just about to conclude by saying that a key reason for the amendment moved by my hon. Friend the Member for Ilford South is that it asserts and requires the supremacy of the public interest over commercial interest in the Secretary of State’s actions in reporting on final notices. I hope that the Minister will accept the amendment.

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

With your permission, Sir Graham, I will speak to clause 29 stand part before turning to the amendment. The Committee has heard about the careful balance that the Government are striking in this regime by allowing for a discreet and commercially sensitive screening process wherever possible, while requiring transparency at key junctures where not to do so could disadvantage third parties.

Clause 29 is a key clause, the purpose of which is to deliver that essential but carefully chosen transparency. It places a duty on the Secretary of State to publish a notice of the fact that a final order has been made, varied or revoked. The main purpose of publishing notice of those facts is to ensure that third parties who may have a financial interest in a trigger event are not disadvantaged by the provision of information only to the parties involved. Examples of relevant third parties might include shareholders, suppliers or customers of the target entity, and other investors who may be considering investing.

The clause will provide important reassurance to the business community and the wider public about the circumstances in which final orders are made, varied and revoked. It specifies what information must appear in a notice, including, crucially, a summary of the order, revocation or variation, its effect, and the reasons for it. Similarly to the approach on orders, subsection (3) allows the Secretary of State to exclude information from the notice when he considers it commercially sensitive or national security sensitive. The clause is complemented by the requirement in clause 61 for the Secretary of State to report annually to Parliament on the use of the powers in the Bill. Clause 61(2) sets out an extensive list of the aggregate data that the annual report must include. Together, those provisions will help investors and businesses to understand the regime, and will ensure that Parliament can hold the Government to account on their operation at both individual and aggregate levels.

I will now turn to amendment 27 to clause 29. I remind the Committee that the clause requires the Secretary of State to publish a notice when a final order has been made, varied or revoked. As drafted, subsection (3)(a) provides that the Secretary of State may exclude from that public notice anything that he considers likely to prejudice the commercial interests of any person. The amendment would prevent the Secretary of State from excluding such information, unless he considers that publishing it would not be in the public interest.

The Committee has heard about the careful balance that the Government are seeking to strike in this regime, to allow, as I mentioned earlier, for a discreet and commercially sensitive screening process wherever possible, while requiring transparency at key junctures when not to do so may disadvantage third parties. As I set out, this is a key clause, the purpose of which is to deliver that carefully balanced transparency. Inherent in the clause is the degree of flexibility afforded to the Secretary of State to redact information when he judges that to be appropriate, whether for commercial or national security reasons. I hesitate slightly to return to a somewhat recurring theme—the difference between “may” and “shall”—but the fact that the Secretary of State “may” redact information provides him with the flexibility to decide case by case whether that is the right thing to do.

The hon. Member for Ilford South seeks to ensure with this amendment that the Secretary of State will not disregard the public interest when using the flexibility on deciding whether to redact information. The hon. Gentleman need not worry; that is my message to him. The Secretary of State will always seek to serve the public interest in this Bill and in all that he does. I can therefore assure the hon. Gentleman that the Secretary of State will carefully consider any redactions made and that he will not take the decision to exclude information lightly.

[Chi Onwurah]

rose—

[Nadhim Zahawi]

I suspect that the hon. Member for Ilford South may wonder why, if it makes so little difference, we do not include his amendment and formalise the importance of considering the public interest. I suspect that that is also the point on which the hon. Lady wishes to intervene.

[Chi Onwurah]

The Committee recognises the importance of giving the powers in the Bill to the Secretary of State in the interests of national security. The powers of redaction are, or could be, in the interests of commercial sensitivity. Does the Minister agree that national security and the public interest should be supreme over commercial sensitivity? Why will he not make that clear?

[Nadhim Zahawi]

I thought I had made that clear. The Bill strikes that balance between commercial sensitivity and national security.

I return to my reassurance on the importance of considering the public interest. In addition to the general principle that one should avoid amending clauses that, essentially, fulfil their objectives—if it isn’t broken, don’t fix it—I suggest that the Bill is not the place to begin adding references to the public interest. While the Secretary of State cares profoundly about the public interest, this specific regime is intentionally and carefully focused on national security. Although it may be an attractive proposition to certain hon. Members, my strong view is that by introducing ideas of wider public interest into the Bill, we would risk confusing and stretching its scope beyond its carefully crafted calibration. I have a tremendous amount of sympathy with what hon. Members seek to achieve with the amendment but, for the reasons I have set out, I must ask that the hon. Gentleman withdraws it.

[Sam Tarry (Ilford South) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Graham, in these temperatures, which are positively balmy compared with the Siberian ones that we experienced this morning.

I thank the Minister for his comments, but I would say that there is no stretch too far on national security. It is positive to hear that the Minister agrees that the focus on national security is crucial, and that we are driving at the interests of national security in our amendment.

[Chi Onwurah]

Was my hon. Friend as confused as I was when the Minister spoke about this Bill not being the place to introduce public interest? The Government, however, have introduced commercial sensitivity. We are not seeking to modify national security; it is the introduction of commercial sensitivity that requires the introduction of public interest. We are talking about modifying the importance of commercial sensitivity, not national security. Will my hon. Friend join me in rejecting the Minister’s assertion?

[Sam Tarry]

I agree wholeheartedly with my hon. Friend. We have been clear that the amendment is simply about preventing the Secretary of State from redacting notices of final order on commercial grounds, if redaction is contrary to the public interest. The whole point of this Bill is to together public interest, national security and commercial interest because they are one and the same. National security is our highest priority, but in the post-Brexit scenario we want to be a country that is as open and positive as possible towards investment from international partners if they share our values and our objectives of supporting and building Britain. It feels as though the Minister is agreeing with us in part, but he is not prepared to accept this amendment. For that reason, I will press the amendment to a vote.

Question put, That the amendment be made.

Division 14

Ayes: 4

---

Labour: 4

Noes: 10

---

Conservative: 10

Clause 29 ordered to stand part of the Bill.

Clause 30

Financial assistance

[Chi Onwurah]

I beg to move amendment 24, in clause 30, page 19, line 44, leave out

“making of a final order”

and insert

“making of an interim or a final order”.

This amendment would enable the Secretary of State to give financial assistance in consequence of the making of an interim order.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 28, in clause 30, page 20, line 3, after “period” insert “or any calendar year,”.

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

Clause stand part.

[Chi Onwurah]

My hon. Friends and I have set out how we are seeking to provide constructive support and improvement for this Bill. I am disappointed that the Minister seems to feel that no improvement is possible, but I hope to persuade him otherwise with amendment 24. It is not a probing amendment; it brings a much-needed improvement to what I consider to be an incomprehensible omission in clause 30.

Clause 30 provides that the Secretary of State may, with the consent of the Treasury, give financial assistance to, or in respect of, an entity through a loan guarantee or indemnity, or any other form of financial assistance. The financial assistance must be given as a consequence of him making a final order. That is a key point that I will return to.

Clause 30 further states that during any financial year, if the amount given under the clause totals £100 million or more, the Secretary of State must lay a report of the amount before the House of Commons. It states that during any financial year in which a report has been laid before Parliament, if the Secretary of State provides any further financial assistance under this clause, he must lay before the House a report of the amount.

I set that out to indicate that, as I understand it, the amount of financial assistance that can be provided is not limited. A report must be provided when the amount given under this clause totals £100 million or more, but there is no limit on the amount which can be provided. One would expect the Treasury to provide a limit in any year, but the Bill does not set any limit on the amount of financial assistance that the Secretary of State can make available. It does not, however, provide for any financial assistance in the case of an interim order. The provision applies only to a final order, specifically in clause 30, on page 19, in line 44. That is why we seek simply to change that to include interim orders under the scope of the financial assistance clause.

14:15

The theme of the Opposition amendments is that we wish to protect our national security, and we think that the measures could have been taken earlier. Part of the social contract is that that should be done in a way that is fair, clear and certain for businesses, so that they understand the legislative framework as far as possible, and so that they feel that it is fair and in the interests of our national security and, as part of that, our national prosperity.

Given the broad powers that the Bill gives the Secretary of State, about which we have had some back and forth, it is all the more important that the appropriate support should be there for affected businesses. I will not trespass on your good nature by drawing too many parallels, Sir Graham, but we see in the pandemic under which we are suffering that public confidence in the ability of the Government depends on the right amount of support being available for those who are adversely affected. Clearly, one aspect of that is the Government’s ability to provide financial assistance to an entity where Government intervention creates a position of loss for the entity.

We discussed in relation to clauses 24 to 26 the level of remedies, in terms of an interim or final notification and how they may affect an entity. Let us consider the example of a British start-up in some very important area—artificial intelligence, let us say—that has an investor lined up and is looking forward to expanding its work because of that investor. As a consequence of the measures in the Bill, however, a final order prevents the investor from investing in this fantastic start-up.

Let us say for the purposes of argument that this start-up is based in Newcastle—an excellent area for start-ups and innovation to come from. I should say that a fantastic small business in Newcastle will already have greater challenges in finding finance and investors, because unfortunately many potential investors are apparently put off by a short train ride from King’s Cross. Once the start-up has found a potential investor, under the provisions of the Bill it is identified that such an investment would form some present or future threat to our national security, so the start-up is prevented from raising funding as a direct consequence of the new national security screening regime. We can all imagine—in fact, it does not require imagination; we can simply anticipate––the huge financial challenges that that might create for small, innovative start-ups. Financial assistance is a critical part of making the new regime effective. A key question is why the Government are only creating the power to provide such assistance in the making of final orders, not interim orders.

I asked earlier what the maximum period for an interim order should be, because with the provisions in clause 23 for an initial period, an additional period, a voluntary period and an additional voluntary period, an interim order could last for a considerable time. I asked the Minister whether there was a maximum time for an interim order. Regardless, an interim order could impose major costs on a British start-up or prevent an acquirer from acquiring or investing in one should it increase its level of influence in an unacceptable way. That could cause the loss of business-critical investment. Does the Minister consider that it would be appropriate to be able to provide financial assistance in the case of interim orders as in the case of final notices?

A similar concern applies to more general instances where financial assistance will be critical in securing national security. Has the Minister considered a wider power of financial assistance that would allow the Government to intervene pre-emptively in cases where Government investment could secure strategic assets for the UK, even if a precise trigger event has not occurred? The clause provides for financial assistance when a final order has been made, but has he considered provision for financial assistance before a final order has been made or an event has been called in? I have in mind cases such as OneWeb satellite, where the Government made a major investment just a few months ago to secure, as we are told, strategic assets, yet that was outside trigger events or a case such as bankruptcy proceedings. Does the Minister consider that existing statutory powers are sufficient, and clear enough in law, to provide for such pre-emptive investment? In the case of OneWeb, there certainly was not sufficient clarity about whether the investment was being made for national security reasons or to replace existing investments. There was not sufficient clarity or accountability. Would it not be better to place such investments, which are made in the interests of national security, within the context of the Bill? Would there be a benefit from placing such powers in statute?

Beyond specific events where the amendment would put interim orders in scope, there is a question about the toolkit available to Government for appropriate financial assistance. Clause 30(2) says that financial assistance

“means loans, guarantees or indemnities, or any other kind of financial assistance (actual or contingent).”

That is slightly circular. Will the Minister clarify whether equity investments come under

“any other kind of financial assistance.”?

The Minister is nodding—I am not sure whether that means that he will clarify or that the equity investment is financial assistance—but can he say if it is included in the scope of the Bill or, if not, if it should be. The stakeholders within the artificial intelligence sector have specifically asked me to raise that point.

Where a small business is unable to raise equity investments because of a Government final order, giving it further debt funding might not be any help if the business’s future inability to make loan payments is threatened. Again, in the crisis in which we find ourselves we see the reluctance of business to take on further debt. In those circumstances, loans may not be considered financial assistance. The Government and the Minister need to clarify whether equity investments are part of financial assistance.

The Minister needs to accept our amendment with regard to interim orders or explain why interim orders do not raise the need for financial assistance in the same way as final orders. That is a critical question so that the Government have the powers they need to act decisively and effectively to protect national security, and to do so in a way that is fair to our small businesses.

I point to some of the evidence we heard in the evidence sessions. Christian Boney from Slaughter and May said:

“I think you make a very valid point in the context of start-up and early-stage companies. The concern I would have principally is with those companies that are in that phase of their corporate life…For them, this regime is going to make the process of getting investment more time-consuming and more complex.”––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 70, Q80.]

Will the Minister consider whether the Bill, as it stands, addresses that?

Similarly, Michael Leiter said:

“The place where I think this is more problematic…is in smaller-scale, early-stage venture investments. That is where deals can go signed to close within hours or days, and having that longer period could be quite disruptive.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 46, Q52.]

We understand that interim orders and assessments can be extended. It is crucial that the Government respond to those points and think hard about how to put into statute more general powers than this equity funding, especially for cutting-edge start-ups with strategic assets.

We share the aim of the Bill to secure our national security and to ensure that assets that are critical to our national security do not fall under the influence of hostile actors. If in so doing we undermine those assets to the extent where they can no longer contribute to our national security, that is effectively an own goal. I fail to see how the provisions of this clause avoid such an own goal. It would be much to the improvement of the Bill and of confidence in small businesses, particularly start-ups in the sectors affected, if the appropriate form of support could be clearly made available.

We are considering clause stand part, too. We recognise the importance of giving financial assistance, which is what the clause sets out to do. With regard to reporting, I would be interested to understand why the sum of £100 million has been chosen. I am not saying I have another sum to suggest, but why that sum has been chosen is something to understand.

14:30

I think the impact assessment is cited more for what it does not include than what it does, but again, it includes no estimates of financial assistance that the Government might have to provide and the associated costs that would be incurred. Will the Minister say why the sum of £100 million was chosen?

The clause also says that,

“the Secretary of State must as soon as practicable lay a report of the amount”.

I imagine that a report of the amount could be a very short one—“£100 million”—but I think all of us who have worked in start-ups and in the tech sector are quite aware that although the financial assistance provided is very important, it also very important to monitor its impact. For example, if it is a loan, in what ways will it be repaid and over what time period, and is the investment effective? I may be mistaken, but I do not see anything in the clause that sets out any need to report anything other than the amount. That is not what I would consider accountability. More generally, for a Government who I hope wish to show good practice on investment and taxpayer value for money, having more information on the amount—but also on how it was used, monitored, how it is to be repaid if it is a loan, and its impact—would also be desirable. On that basis, we support the intention of the clause, but we feel it is in need of some significant improvement.

[Stephen Flynn (Aberdeen South) (SNP)]

I think it was Cicero who said:

“Brevity is a great charm of eloquence.”

In that regard, I will keep my remarks brief. Obviously, what we propose here is incredibly straightforward. It would expand the scope from a financial year to a calendar year. I would not wish to imply that I do not necessarily have complete and utter confidence in the UK Government at all times, and that they might wish, perhaps, to stay away from and overcome any form of scrutiny by making some sort of payment at a certain point in time where the overlap is with a financial year. An amendment such as this, which is succinct and clear, would allow for everyone to be quite happy that where there is a need for the UK Government to put in place a financial assistance level of £100 million, irrespective of whether it is a financial year or a calendar year, Members are fully apprised of that spend.

[Nadhim Zahawi]

For the benefit of the Committee, I will begin with clause 30 stand part, which makes provision for financial assistance. I will then turn to amendment 24, and amendment 28 from the hon. Member for Aberdeen South.

The Government recognise that final orders, in exceptional cases—and I have to stress in exceptional cases, when we are administering taxpayers’ money—may bring about financial difficulty for the affected parties. This clause therefore gives the Secretary of State the legal authority to provide financial assistance to, or in relation to, entities in consequence of the making of a final order, to mitigate the impacts of a final order, for example. It might also be used where the consequence of a final order in itself might otherwise impact the country’s national security interests.

Hon. Members will know that such clauses are required to provide parliamentary authority for spending by Government in pursuit of policy objectives where no existing statutory authority for such expenditure already exists.   I am confident that such assistance would be given only in exceptional circumstances when no alternative was available. For example, the Secretary of State could impose a final order blocking an acquisition of an entity that is an irreplaceable supplier to Government, subsequently putting the financial viability of the entity in doubt. In such a situation, the Secretary of State could provide financial assistance to the entity to ensure that the supplier could continue operating while an alternative buyer was found.

Such spending would of course be subject to the existing duty of managing public money—the hon. Member for Newcastle upon Tyne Central asked what checks and balances are in place—and compliant with any other legal obligations concerning the use of Government funds. To provide further explicit reassurance regarding the use of the power, subsection (1) specifies that any financial assistance may be given only with the consent of the Treasury.

The clause also covers reporting to the House when financial assistance is given under the clause. I will speak to that further when I turn to the amendments. I am sure that hon. Members will see the clause as necessary and appropriate, and have confidence that our Government, and future Governments, will have only limited, but sufficient, freedom to provide financial support under the regime as a result.

Amendment 24 would permit the Secretary of State to provide financial assistance in consequence of making an interim order, which was the hon. Lady’s point. As she will know, the Government take the management of our country’s finances very seriously, and such a power naturally requires appropriate safeguards to ensure that public money is spent appropriately. Restricting the power to final orders ensures that the Secretary of State may use it only to assist entities once a national security assessment has been completed and final remedies have been imposed—for example, to mitigate the impact of a final order on a company. It would not be appropriate to use the power to provide aid to an entity that is only temporarily affected by an interim order, which will last only for a period of review, likely to take 30 working days and, at most, 75.

[Chi Onwurah]

I thank the Minister for his comments. When he says that an interim order can be in place for at most 75 days, I think he is adding 30 days, which is the initial period, to 45 days, which is the additional period. I am afraid that he is forgetting the voluntary periods.

[Nadhim Zahawi]

Yes, but the point remains that no final order has been made, and public money will be spent only in very limited circumstances, as I mentioned, in consequence of a final order. Any expenditure will be subject to appropriate safeguards.

Amendment 28, tabled by the hon. Member for Aberdeen South, would require the Secretary of State to inform Parliament if financial assistance given under clause 30 in any financial year, or any calendar year, exceeds £100 million. If during any financial year the assistance given under the clause totals £100 million or more, subsection (3) as drafted requires the Secretary of State to lay a report of the amount before the House.

If, during any financial year in which such a report has been laid, the Secretary of State provides any further financial assistance under the clause, subsection (4) requires that he lay a further report of the amount, so if he makes a report before the end of the year and then spends more money, which was the hon. Gentleman’s point, the Secretary of State will need to update the report. As I am sure the hon. Gentleman appreciates, the Government are committed to providing as much transparency as is reasonably possible when it comes to the use of the new investment screening regime provided for in the Bill.

The amendment would effectively mean that the Secretary of State must stand before Parliament twice—likely, once at the end of the calendar year and again at the end of the financial year, a few months later—to lay what is likely to be a rather similar report of the amount given in financial assistance grants under the clause. Although the Secretary of State would be flattered by his popularity, I am sure the hon. Member for Aberdeen South would agree that seeing him for that purpose twice in such a short time would be a case of duplication, and the Secretary of State would not want to take up his valuable time unnecessarily. I can assure him that the Secretary of State is fully committed to transparency and will ensure that Parliament has the information that it needs to track the use of the powers in the regime.

For those reasons, I am unable to accept the amendments, and I hope that hon. Members will not press them.

[Chi Onwurah]

I thank the Minister for his comments, but I am disappointed that he seems determined merely to respond from his notes, regardless of the validity of the points put to him. On why it is inappropriate for financial assistance to be provided in the case of interim orders, his reason—as far as I can understand it—was purely that interim orders were too short to make any difference. Although he cannot say how long an interim order will last—he can say how long he thinks it may last—it could go on indefinitely, because I cannot see in clause 26 a limit on the number or length of voluntary periods that may be agreed for the assessment. On that basis, the assessment could last a significant time.

In any case, I hope that he, as the Minister for Business and Industry, is aware of how fast-paced the technology sector, in particular, can be. The inability to raise finance at a critical moment or to sell to a particular customer, for example, may cause significant financial and commercial damage to a small business or a start-up. I did not hear the Minister reject that point, yet he has rejected the need for any support during the period of an interim order. As I have shown, that is a mistake, and that is why we will press the amendment to a vote.

The Minister also made no response to my question about equity.

[Nadhim Zahawi]

I apologise—I should have responded to that, and it was remiss of me not to. We will consider all forms of financial assistance, including equity.

To respond to the point the hon. Lady has just made about companies that may have IP or a product in its early, nascent stage of growth, that are struggling and that are fast-moving in terms of raising funds, we at BEIS talk to many companies like that, outside the remit of the Bill, and we look to support them in a variety of ways.

[Chi Onwurah]

I genuinely thank the Minister for the clarification that equity investments will be included in this bit of the Bill.

[Matt Western (Warwick and Leamington) (Lab)]

We are focusing greatly on small and medium-sized businesses, but this can also happen to slightly larger organisations, which might be outside the commonly used definition of an SME. When a larger business is distressed because it has lost a major customer and finds itself in financial difficulty, it needs that cash injection, so that sort of assurance is important.

[Chi Onwurah]

As always, my hon. Friend makes a really important point, and one that I had not thought of. The point about this being applicable to medium-sized businesses is absolutely right. In some ways, medium-sized businesses can often be at a critical point; cash flow is so important, and they could suddenly become very distressed, but with the right cash flow or the right injection of capital, they could expand greatly.

Will the Minister consider this? During the pandemic, when certain innovations have become incredibly important, and cash and support are needed to significantly increase the volume of production—of a vaccine, shall we say, with which the Minister is intimately concerned—a delay of 30, 70 or whatever days will create a huge problem for a medium-sized or growing business, as well as for small businesses.

14:45

[Nadhim Zahawi]

In response to a point made by the hon. Member for Warwick and Leamington about a company being in distress because it has lost a client, irrespective of the national security and investment regime we talk to such companies all the time. Whether they are small, nascent, medium-sized or large, we have other avenues of assistance to help those companies. That is the point I was making.

[Chi Onwurah]

I thank the Minister for that, which brings me to the point that I wanted to make in response to him. I discerned that that seemed to be his point—that the Bill may cause harm to companies, but that rather than seeking redress under the Bill, or this clause in particular, they should seek redress or some kind of compensation through the well-oiled machinery of Government that provides support for small and growing businesses. I am afraid that that response will be met with undiluted cynicism among the many small and medium-sized businesses that have dealt with Government.

Again, we are talking about a fast-moving situation. Perhaps the Minister will provide examples of where, on such timescales, support has been provided. More importantly, if that is a consequence of the Bill, why would it not be addressed in the Bill, especially as we have a clause that seeks to address this issue in the case of notices of final order. I gave the example of OneWeb satellites, which was a major investment that took some time to come about, and we were not clear whether it was a strategic asset or national security. Clarity is critical.

[Matt Western]

This is important. I take on board exactly what the Minister is saying, but I am sure he can assure me on this. To give one specific example, Imagination Technologies is a fantastic company, which lost its major customer, which was Apple. Chinese-backed investment—private equity—then came in. The US refused the company the chance to buy into a US business in 2017. I would love to think that whoever was in BEIS in 2017 looked at it closely and offered support. This might be beyond our remit, but it is important that such businesses are reached out to. Will someone in the Minister’s team confirm that the Government tried to support Imagination Technologies?

[Chi Onwurah]

I very much hope that the Minister or his Department will respond to that. My hon. Friend gave an example of an innovative company in need of support from the Department. Presumably it was similar to the cases we are discussing now, and that support was offered. If confirmation is not forthcoming, we should perhaps look for it via a parliamentary question, which might help us.

I want to say one word about amendment 28, which seeks to ensure that the term of the reporting does not undermine what is reported or its effectiveness. The Minister said that if the £100 million barrier was crossed, another report would have to be made on any further expenditure. However, the amendment concerns a small amount of expenditure in a given period, followed by a larger amount, and whether the periods in which the expenditure was made might mean that a report did not have to be made. The Minister also did not address the question of why £100 million was the right threshold for making a report. On that basis, I wish to press the amendment.

Question put, That the amendment be made.

Division 15

Ayes: 5

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Labour: 4
Scottish National Party: 1

Noes: 9

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Conservative: 9

Clause 30 ordered to stand part of the Bill.

Clause 31

Interaction with CMA functions under Part 3 of Enterprise Act 2002

[Sam Tarry]

I beg to move amendment 25, in page 20, line 27, leave out from “in” until end of line 28 and insert

“setting out the reasons for such direction and an assessment of the impacts on grounds for action that may have arisen under Part 3 of the Enterprise Act 2002”

This amendment would require the Secretary of State to set out reasons, and an assessment of the likely impacts, when publishing directions under this section.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Sam Tarry]

The amendment would require the Secretary of State to set out the reasons for and an assessment of the likely impacts of published directions under the provisions regarding the Enterprise Act 2002. That is incredibly important because, in one respect, the Bill creates a radical shift by taking the merger control process, which is currently located primarily in the Competition and Markets Authority, and creating an alternative centre for merger control in the new investment security unit in BEIS. That is a big shift. We are trying to focus on setting out the reasons, and an assessment of the likely impacts, when directions come out of the new unit.

I want to expand a little on this. We have a series of reasons for intervention in investment and merger scenarios, such as national security, competition, financial stability, media plurality, public health—the list goes on. Having a single centre for merger control in the CMA helped ensure, partially, that the different reasons for intervention were considered coherently. At the very least, they were coherent as a package, ensuring that where, for example, national security demanded one solution, competition remedies did not force another. The multiple centres that the Bill creates make coherence more challenging. This is about ensuring that the process is as smooth as possible.

The Government must clarify how they intend the CMA’s merger control process to align with their new national security screening and approval process. That is particularly important when we reflect that the Government consultation process currently indicates that national security reviews will be run in parallel with CMA assessments and that the Government will cover interaction between the CMA regime and the new national security regime in a memorandum of understanding. Unfortunately, there is no specific indication of when this will happen. The amendment pushes for clarity now and for statutory accountability when a Secretary of State could otherwise undermine the CMA or take a decision that is contrary to something it will bring forward.

In relation to the Enterprise Act 2002, public interest intervention notice regimes allow the Secretary of State to direct the CMA to ensure that it does not inadvertently undermine the Secretary of State’s decision on national security in addressing competition concerns. The power to undermine the CMA is not in itself a problem, but it is about the accountability—that is what we are trying to drive at here. In the face of a vastly extended set of powers for the Secretary of State, the amendment would provide important clarification.

Previously, the CMA had a good reputation with business for independence and for reasons and rules-based decision making. We are really keen that that is continued, and that is what the driving force for this amendment is. For that reason, we seek greater accountability from the Secretary of State. The amendment would require that whenever the Secretary of State subordinates the CMA’s decision-making process, the reasons for doing so are published alongside an assessment of the impact in terms of whatever reasons the CMA would have had to act under its part 3 powers, whether that be competition, media plurality or quality, financial stability or, as I mentioned earlier, public health.

This is about the smooth and rational alignment of the merger control process. That is important for the integrity and impartiality of our national merger control processes and so that business can have certainty that these will be fully aligned. The question I would really like the Minister to answer is about the assurances the Government can give on providing specific, timely guidance on how many different parts of the merger control process will now work. How will the combination of the new unit and the pre-existing regime produce the guidance, and be driven by Government to do so, in a timely fashion? One thing that businesses are certainly seeking at the moment is assurances that things are set out as early and as clearly as possible. If that happens, it will allow businesses to plan in a much better way. For those reasons, I would like to hear how the Government plan to bring those two elements together.

[Nadhim Zahawi]

With your permission, Sir Graham, I will speak initially to clause 31 stand part, before turning to amendment 25. As the Bill separates out national security screening from the competition-focused merger control regime, we must, I am sure colleagues agree, ensure that the two regimes interact effectively, while also maintaining the CMA’s operational independence in relation to its merger investigations.

A trigger event under the Bill which is also a merger under the Enterprise Act may raise both national security and competition issues. Not having a power to avoid conflict between the two regimes raises an unacceptable risk for businesses’ operations and, of course, the Government’s reputation. The United Kingdom has a deserved and hard-earned reputation for being a dependable place in which to do business. Transparent regimes are fundamental to building and maintaining this reputation and fostering trust between Government and business.

Currently, under the Enterprise Act 2002, if both national security and competition concerns are raised, the CMA provides a report to the Secretary of State, who would then have the final say on how best to balance national security and competition concerns. This clause will ensure that the Secretary of State continues in his vital role of balancing national security and competition concerns. We will be able to avoid the risk of undue regime interference by maintaining regular and open channels of communication with the CMA.

There may, however, still be a risk that parallel investigations for national security and competition reasons reach conflicting conclusions. That may be particularly true in terms of the remedies required to address national security risks and competition concerns respectively. To remedy that issue, the clause enables the Secretary of State to direct the CMA to take, or not take, a particular course of action. The obligation on the Secretary of State to publish any direction given ensures that the decisions will be transparent, and provides certainty for all parties.

15:00

As directing the CMA interferes with its independence, we have drafted the clause so as to allow the Secretary of State to give a direction only where he reasonably considers that it is necessary and proportionate to prevent, remedy or mitigate a risk to national security. Furthermore, the power may be used only when a final order under the Bill is in force, or a final notification that no further action will be taken in relation to a trigger event under the Bill has been given. The clause also requires the Secretary of State to consult the CMA before giving a direction.

The amendment tabled by the hon. Member for Ilford South would require the Secretary of State, when publishing a direction given to the CMA under the clause, to set out the reasons for the direction and provide an assessment of its impact on any grounds for action by the CMA in relation to the merger. Let me reassure the Committee that I expect the use of such directions to be rare. Most mergers are unlikely to trigger both competition and national security concerns, and for those that do, the separate processes of the CMA and the Secretary of State will be able to take place smoothly in parallel with each other.

[Chi Onwurah]

The Minister says that it is unlikely that investigations would trigger concerns on both national security and competition grounds. However, the position that we are in right now with regard to Huawei is one in which the desire for more competition in our telecoms supply chain—that is, to have three vendors as opposed to two—led to a national security impact, which is why we are now in the process of ripping Huawei out of our network. Does he recognise that such examples may happen?

[Nadhim Zahawi]

I am grateful to the hon. Lady, but the difference is that I was referring to mergers. Such mergers would be rare. I do not think that anyone is merging with Huawei, or will in the future.

[Chi Onwurah]

It is quite clear that the acquisition of a vendor in our telecoms network by another country would have almost exactly the same outcome, so it may well apply.

[Nadhim Zahawi]

I was merely pointing out that there was no merger. The hon. Lady will forgive me: she is correct, but I did say that it is a rare occurrence. That is the point that I was making to the Committee.

The amendment seeks to impose a requirement to publish the reasons for giving a direction. We do not think that that is necessary. The clause already requires the Secretary of State to publish a direction in the manner that he considers appropriate. I do not think that I would be disclosing too many state secrets were I to speculate that that would be published on gov.uk. That is a reasonable bet. In many cases, I envisage that it is likely to be accompanied by a high-level explanation, but it is right that the Secretary of State should be able to decide what is appropriate on a case-by-case basis.

The amendment also seeks to require publication of an assessment of the direction’s impact on any grounds for action under part 3 of the Enterprise Act 2002. I have two points to make to the hon. Member for Ilford South. First, such a duty would not be appropriate in all cases—for example, where a direction simply required the CMA not to make a decision on competition remedies until a national security assessment had been concluded. The amendment as drafted would still require an assessment to be published in those circumstances.

Secondly, the predominant impact on grounds for action will of course relate to competition. The CMA is the independent expert competition authority, and nothing in the clause as drafted would prevent it from publishing its own assessment of the impact of a Secretary of State direction on the possible competition issues of a case. The clause also requires the Secretary of State to consult the CMA before giving a direction, so it will be able to inform him of the likely impact and he can factor that into his decision whether to give the direction. I believe that is the right approach and while I understand the hon. Member’s motivations in tabling the amendment, I urge him to withdraw it.

[Sam Tarry]

One of the questions that sprang to mind while listening to the Minister’s answer was: if there are conflicting remedies, which of security and economic competitiveness would the Secretary of State decide had primacy? In drawing the matter out as clearly as possible, we have seen that one of the issues with telecoms and Huawei was that the primacy of economic competitiveness was viewed as paramount over security. The Bill is not clear about the framework for assessing primacy when it comes to security. We have argued throughout that security needs to be the primary focus, and sometimes that will mean economic competitiveness taking a slight hit. However, we think this is about protecting our long-term economic interest.

[Nadhim Zahawi]

I want to reassure the hon. Gentleman. He asks whether the Secretary of State can override the CMA’s assessment. To give him some clarity, the power to direct may be used only if a trigger event has been called in for assessment under NSI and either a final order has been enforced or a final notification of no further action has been given. That is stage 1. To direct the CMA without a trigger event having first been called in and assessed would not be either reasonable or proportionate, in the Government’s view. However, if a merger is considered to be crucial in the interests of national security after an assessment, no competition concerns should be allowed to prevent it from continuing or remaining in place. I hope that offers him that reassurance.

[Sam Tarry]

Although that gives me some reassurance, the driving force behind the amendment is to ensure that that is clearly laid out in the Bill, for the reasons I have previously argued. Therefore, I will press for a Division.

Question put, That the amendment be made.

Division 16

Ayes: 5

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Labour: 4
Scottish National Party: 1

Noes: 9

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Conservative: 9

Clause 31 ordered to stand part of the Bill.

Clause 32

Offence of completing notifiable acquisition without approval

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

[The Chair]

With this it will be convenient to discuss clauses 33 to 36 stand part.

[Nadhim Zahawi]

It is important to ensure that we are able to enforce the regime. If hostile actors realise that there is a gap in enforcement capability, that could serve to undermine the deterrent effect of the regime, and therefore compliance with it, and could cause reputational damage to the United Kingdom’s screening regime. Clauses 32 to 36 focus on enforcement and appeal. I will run through them at a relatively high level, but I am happy to discuss them in more detail if that would be of interest to hon. Members.

Clause 32 establishes the offence of completing without reasonable excuse a notifiable acquisition without approval from the Secretary of State. Completing a notifiable acquisition without approval could put national security at risk. In particular, the risk that hostile actors might seek to immediately extract sensitive intellectual property and transport it to far-flung corners of the world, may already have crystallised. Intervention after the event in such circumstances would too often be irrelevant, as that could not undo the damage done to our national security. I am confident that hon. Members will agree that this offence reflects the severe consequences that might result from completing a notifiable acquisition without approval of the Secretary of State in one of the ways set out in clause 13.

Clause 33 makes it an offence for a person to breach an interim order or a final order without reasonable excuse. Under the regime, interim orders and final orders are the mechanisms whereby the Secretary of State imposes revenues for the purposes of safeguarding the assessment and process of national security respectively. They are, therefore, vital components of the legislation. Given that a breach of an interim order or a final order could undermine the assessment process or put national security at risk, it is right that breaches of such orders carry a clear deterrent. I am confident that hon. Members will agree that it is essential to have robust measures in place to ensure effective compliance with any interim orders or final orders imposed by the Secretary of State.

I will move on to clause 34. It is vital that parties comply with information notices and attendance notices, and that parties do not provide materially false or misleading information to the Secretary of State.

[Mark Garnier (Wyre Forest) (Con)]

On how all this will be policed, the Minister is talking about an incredibly important issue that is crucial to the Bill, but it is a bit like the tax evasion problem, in that a tax evader can be prosecuted only when they have been caught. What policing measures are in place to get to the point of imposing sanctions on those who infringe the measure?

[Nadhim Zahawi]

My hon. Friend is absolutely right. Part of it is the screening process and, obviously, the security agencies play a major role in that.

Under clause 35(2), it is a defence for a person charged with an offence under this clause to prove that they reasonably believe that the use or disclosure was lawful, or that the information had already and lawfully been made available to the public. I hope that hon. Members are reassured that Government are committed to the safeguarding of information collected by the regime.

Finally, clause 36 ensures that persons in authority in bodies—for example, a body corporate, such as a company, or an unincorporated body, such as a partnership—can be prosecuted under the legislation where they are responsible for an offence committed by their body. This clause therefore ensures that individuals who are responsible for offences committed by their bodies cannot simply hide behind those bodies and escape responsibility. Instead, they too will have committed an offence and can be punished for it. If you will forgive the pun, Sir Graham, if there are skeletons in the cupboard—or filing cabinets, I suppose—it is not just the bodies that can be held responsible. I hope hon. Members will agree that these clauses are both necessary and proportionate.

[The Chair]

There is no guidance in my script on what I do if I do not forgive the pun.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clauses 33 to 36 ordered to stand part of the Bill.

Clause 37

Prosecution

15:15

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

[The Chair]

With this it will be convenient to discuss clauses 38 and 39 stand part.

[Nadhim Zahawi]

The Secretary of State makes decisions under the regime and has the power to impose enforceable interim and final orders. However, the institution of criminal proceedings for offences under the Bill is a matter for the appropriate prosecutor. Clause 37 therefore makes clear who may bring proceedings for an offence under the Bill.

Turning to clause 38, the Government consider it important that persons who have committed an offence under the Bill should be held accountable, particularly partnerships and other unincorporated associations. For example, clause 7 provides that partnerships and unincorporated associations are qualifying entities under the regime. Clause 38 therefore provides that proceedings for offences under the Bill may be brought against partnerships and other types of unincorporated association. I stress that the commencement of criminal proceedings in relation to this regime will likely be very rare indeed but it is nevertheless important that a full spectrum of possible offending is covered.

Clause 39 sets out the criminal penalties available on conviction for offences committed under the Bill. It is crucial that the regime carries a sufficiently robust deterrent to ensure compliance. Given the seriousness of the harm that a breach of the legislation might cause, it is right that these offences carry significant criminal penalties. I do not plan to set out all the penalties available but would be happy to discuss them in more detail if it would be of interest. I hope that hon. Members agree that it is clear who can bring prosecutions under the regime, that it should be possible to prosecute partnerships and unincorporated associations, and that penalties should be sufficiently strong for those convicted of breaking this law.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Clauses 38 and 39 ordered to stand part of the Bill.

Clause 40

Power to impose monetary penalties

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

[The Chair]

With this, it will be convenient to discuss clauses 41 to 47 stand part.

[Nadhim Zahawi]

Clauses 40 to 47 cover the civil sanctions under the Bill. I will cover them fairly briefly but I am happy to discuss them in more detail if it would be of interest to the Committee.

It is vital that the Secretary of State has appropriate powers to punish and deter non-compliance with the regime. Should a person breach an order under the regime or fail to provide information or evidence where required, it is vital that the Secretary of State has the power to bring the offender into compliance as quickly as possible to ensure the efficacy of the regime.

Clause 40 provides the Secretary of State with the powers to impose monetary penalties on a person where he is satisfied beyond reasonable doubt that the person has committed an offence under clauses 32 to 34. Clause 40(6) requires the Secretary of State to consider the amount of a monetary penalty to be appropriate before imposing it and it must not exceed the relevant maximum set out in clause 41. The power to impose monetary penalties instead of pursuing criminal proceedings will contribute to ensuring that the Secretary of State has a number of enforcement options to tailor to the situation.

The Secretary of State will not take the power to impose monetary penalties lightly and is required by clause 40(7) to take into account a number of factors, including the seriousness of the offence and any steps taken by the person to remedy the offence in question. I am confident that hon. Members will agree that the clause is valuable in ensuring that the Secretary of State has the appropriate enforcement mechanism to secure compliance with the new regime.

Clause 41 sets out the maximum fixed penalty and, where applicable, the maximum daily rate penalty that may be imposed. The penalties set out here are substantive, and I recognise that they may seem draconian, but they may have to be issued against companies that have significant financial incentive to disregard legal requirements under the regime and put national security at risk by going ahead with an acquisition, so the penalties need to be an effective incentive to comply. I also remind Members that these are maximum penalties; the Secretary of State will have a duty to ensure that any penalty imposed is reasonable and proportionate.

The clause also enables the Secretary of State to make regulations specifying how the maximum penalties applicable to businesses should be calculated and to amend the maximum penalty amounts or percentage rates. It is important that we can adjust any penalties over time, to ensure that they are a sufficient deterrent against non-compliance.

Clause 42 requires the Secretary of State to keep all monetary penalties imposed under review. It also provides a power to vary or revoke penalty notices as appropriate in the light of changing circumstances. Importantly, under the clause, where new evidence comes to light about a breach, it can be taken into account by the Secretary of State, and the penalty notice can be increased, decreased or revoked as appropriate. In all variations, there is, of course, a right of appeal, which is provided for by clause 50.

It is important that both criminal and civil sanctions should be available against offences committed under the Bill, but it would not be appropriate for them to be used in tandem. Clause 43 ensures that parties cannot be subject to both criminal and civil sanctions for the same offence. The clause is vital in giving businesses and other parties certainty and assurance that they will not be penalised in two separate ways for the same offence, which would clearly be unfair.

Clause 44 gives the Secretary of State the power to enforce monetary penalties by making unpaid penalties recoverable, as if they were payable under a court. Failure to comply with a penalty notice would be enforced in the same way as a court order to recover unpaid debts. It also provides for interest to be charged on unpaid penalties that are due.

[Chi Onwurah]

I thank the Minister for setting out the provisions of these clauses. Perhaps this is my ignorance, but what will happen to the moneys recouped through the penalties?

[Nadhim Zahawi]

I am very happy to write to the hon. Lady on that, but I suppose the money goes back to the Treasury.

[Chi Onwurah]

That was my assumption, but I know that in certain cases penalties can be used to offset the expenses incurred in creating the regulatory regime, or in supporting companies that are adversely affected, as we discussed earlier.

[Nadhim Zahawi]

I am very happy to come back to the hon. Lady on that point.

Clause 45 ensures that the Government are not unduly burdened with costs relating to the imposition of monetary penalties, which can be expensive. The clause enables the Secretary of State to recover the associated costs from those who are issued with a penalty notice. The amount demanded will depend on the circumstances of each case, but the Secretary of State will need to comply with public law duties in imposing the requirements and in fixing the amount. In particular, the amount will need to be proportionate.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Pursuant to the intervention of my hon. Friend the Member for Newcastle upon Tyne Central, will the Minister and his Department not only think about, but make a positive decision on, where the penalties go? I have in mind, as he will know, penalties relating to misdemeanours by electricity supply companies.

Those are routinely collected and distributed for good purposes—to keep people’s electricity bills down, among other things. Maybe the Minister will have a similar scheme that could be a good home for those penalties, so that they are turned around and put to good use.

[Nadhim Zahawi]

I am quite rightly grateful to my brilliant Whip for reminding me that the Bill contains the provision that the moneys be paid into the Consolidated Fund.

Clause 46 requires the Secretary of State to keep cost recovery notices under review and provides him with the power to vary or revoke a cost recovery notice as he considers appropriate. That will reassure businesses and other persons that cost recovery notices remain appropriate. Finally, it is important that the Secretary of State be able to recover the associated costs from those who are issued penalty notices. Clause 47 therefore provides for an effective range of consequences for non-compliance with a cost recovery notice, including the charging of interest, and acts as another important tool in the Secretary of State’s enforcement powers. I hope that the Committee will appreciate the rationale for clauses 40 to 47, which are essential for the effectiveness of the regime.

Question put and agreed to.

Clause 40 accordingly ordered to stand part of the Bill.

Clauses 41 to 47 ordered to stand part of the Bill.

Clause 48

Enforcement through civil proceedings

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

[Nadhim Zahawi]

The regime relies on parties complying with information notices and attendance notices, and with interim orders and final orders. Those are crucial levers that the Secretary of State will use to identify, assess and address national security risks, so it is vital that he has appropriate powers to ensure that a person who is given such an order or notice complies with the requirements as set out.

The clause provides the Secretary of State with the power to bring civil proceedings for an injunction or other remedy to require compliance. The power applies whether or not the person is in the UK. Failure to comply with an order made by the court in those circumstances is likely to be considered contempt of court. We should not forget that any failure to obey an information notice or attendance notice, for example, could result in the Secretary of State having insufficient information to decide whether to call in an acquisition or carry out an effective national security assessment. Breaching the requirements of an interim order or final order may undermine the assessment process or harm national security.

Above all, I hope that the Committee will agree that the clause further strengthens the Secretary of State’s enforcement powers, playing a key role in ensuring the efficacy of the regime.

Question put and agreed to.

Clause 48 accordingly ordered to stand part of the Bill.

Clause 49

Procedure for judicial review of certain decisions

[Dr Whitehead]

I beg to move amendment 26, in clause 49, page 30, line 31, leave out “28 days” and insert “three months”

This amendment would extend the period within which applications for judicial review may be made from 28 days to three months.

[The Chair]

With this it will be convenient to discuss clause 49 stand part.

[Dr Whitehead]

I have not spoken other than to intervene, so the amendment gives me a brief opportunity to commend the heroism of my fellow Committee members for carrying on proceedings when most of them wish they were somewhere else because they are too cold. I hope that the authorities will consider ameliorative steps so that we can be a little warmer when the Committee meets on Thursday. Alternatively, Sir Graham, we may need to invent a new Standing Order by which the Chair can rule on whether Members have permission to remove their coats, rather than the customary jackets, before the beginning of proceedings. I am sure that would not be necessary if reasonable action were taken.

The amendment concerns what is referred to in the clause title: the procedure for judicial review of certain decisions. It would be helpful if the Minister clarified what the clause means for other decisions that are set out in the Bill but not included in the provisions for judicial review set out in this clause.

15:30

The procedures in subsection (2) relate to judicial review of a “relevant decision”. Relevant decisions are specified in various clauses, and include the power to require information, the power to require the attendance of witnesses, the power to require the attendance of witnesses outside the UK, the discharge of information, data protection, CMA information, and so on. That means that a number of other decisions in the Bill are not covered by this clause, including, for example, decisions to call in a transaction.

My initial question to the Minister—I would be grateful if he intervened on me—is whether those other areas of decision, which are in the Bill but not covered by this clause, are covered by standard judicial review procedures, not covered by judicial review procedures at all, or covered by reference to the Enterprise Act 2002, which has procedures within it that do not appear to refer directly to some of the other decisions in the Bill that are not covered by this clause. Can he clarify what happens to those decisions in the Bill—I have mentioned one: the call-in notice—that are not covered in subsection (2) on what a relevant decisions means? Does he have any guidance that he can give the Committee on that?

[Nadhim Zahawi]

I am happy to write to the hon. Gentleman on that, but my understanding is that individuals or entities that feel that they have been wronged by the actions of the Secretary of State can JR the Secretary of State.

[Dr Whitehead]

I thank the Minister for that clarification, which appears to suggest that the whole of the Bill, or the decisions in it, are in principle covered by the ability to bring a judicial review. He will know that under the Civil Procedure Rules 1998 there is some pretty clear guidance about the time limits for judicial reviews. Indeed, the CPRs state that claims must be lodged promptly and, in any event, no later than three months after the grounds to make the claim first arose, unless the court exercises its discretion to extend. The judicial review rules are pretty much governed by that three-month time limit.

In the clause, the framers of the Bill have taken out certain elements of the Bill. I mentioned some of them, including the attendance of witnesses and the power to require information. They have said that, while no new procedure has been put in place for reviewing certain decisions—that is, the normal rules of judicial review apply—the big difference is that any action must be brought within 28 days of the event, and not within three months, as is the case in the standard judicial review arrangements.

[Chi Onwurah]

I thank my hon. Friend for the excellent points that he is making, which give cause for concern and thought. Given the Minister’s earlier assertion that there was no need for a complaints procedure with regard to the provisions of the Bill, does my hon. Friend agree that neither the reporting requirement, which we have identified will not mean reporting on everything, nor the judicial review provisions, which we have now identified are not reviewable in the normal timescales for everything, will be sufficient to address the concerns of small and medium-sized enterprises? Does he also agree that that will clearly not be the case given the complexities that he has outlined?

[Dr Whitehead]

My hon. Friend makes an important point about the extent to which justice in such circumstances might be like the Ritz: open to everybody, but not necessarily quite as open to some as to others.

Certainly, that is the case with the time reduction applied to those particular things in the clause. Nevertheless, that reduction has to fit in with judicial review rules for everything else. That is, no new procedure is set out in the Bill, which is otherwise reliant on the standard judicial review procedures.

Hon. Members will see that elsewhere the civil procedure rules refer to the provision of skeleton arguments before a judicial review can be heard. Under those rules, such arguments must be undertaken within 21 working days of a hearing, which in practice means close to the 28 days in the clause, which are not as working days. Given the adherence to the rest of the judicial review rules, therefore, the 28 days can conceivably reduce to virtually nothing the period in which a person may apply for a claim to judicial review under the Bill.

Furthermore—this is what I think my hon. Friend was alluding to—given that brief timescale, it is important and I would say necessary to have a clear idea of when the event that caused the 28-day timescale to come in took place. I turned up an interesting article, one of Weightmans’ “Insights”, from October 2013, entitled “Is the clock ticking? The importance of time limits in judicial review”. The point made in that article is that getting the point at which the clock started ticking absolutely right is important.

I am not certain whether all the events specified in the clause have identical starting points. That is, is the starting point a trigger mechanism? Is the starting point the issuing of a notice? Is the starting point the receipt of a notice? If the receipt of a notice is delayed—and the judicial review procedure very much hinges on the actions of the Secretary of State in issuing notices—my hon. Friend can imagine that, for a small business, that could be very confusing and possibly difficult to adhere to. If it turns out that the point at which the 28-day clock starts to tick varies according to different provisions of the clause, descibed as the particular provisions that the Secretary of State has reserved for the 28-day reduction in judicial review, that will be pretty difficult for people to adhere to properly.

Judicial review is a very important part of the process; not that it would often be used, but it is important that it is there in the Bill. It is also important that the people affected by the arrangements have access to the judicial review process. The Government obviously recognise that by putting it into legislation. I am concerned not about the fact that it is in the legislation—it should be—but about whether placing certain areas of concern in the Bill under that 28-day heading has been completely thought out. If it has been completely thought out, why has it been thought out in that particular way? What is it about those things that requires the normal rules of judicial review to be reduced from three months to 28 days?

[Chi Onwurah]

I am sorry to interrupt my hon. Friend while he is in full flow, and I am immensely grateful for what I am learning about the intricacies of the judicial review process and the importance of understanding the initial timing and what the trigger event was. He mentioned that skeleton hearings must take place within 21 working days. Can he say a little bit more, for my understanding, about how those skeleton hearings affect the following timetables in the process?

[Dr Whitehead]

My hon. Friend somehow suggests that I have knowledge and expertise beyond my calling. I should say that I am not a lawyer, so I have only limited guidance to give her on this. However, from my reading of civil procedure rules, there are certainly elements, which I think relate to working days in some instances and to simple time in others, that are sub-time limits within the overall limit for judicial review. Civil procedure rules give those sub-limits as working practices for the operation of judicial review overall. The skeleton argument rule requires skeleton arguments to be put to the court within a certain period before the hearing takes place. If the hearing is delayed for a long time after the initial event, the 21 days apply before the court hearing. However, if the court hearing is close to the event, those sub-rules within the overall judicial review rules could affect quite substantially an individual’s remaining time to get their case together prior to the hearing.

15:45

Under our current constrained court arrangements, there is no danger of that because court cases are in a serious logjam. However, It serves to put a question mark against how and why the 28-day period was decided upon. Why were these things in particular pulled out and put into the 28 days when other sections of the Bill do not come within 28 days but within three months? What is the rationale behind that?

The amendment suggests that this is probably not a good idea. While it might be seen as redundant in that it says that these sections should not be pulled up and put in a 28-day box, it is probably better for the general principle of upholding judicial review as a reasonable defensive remedy in respect of some of the Bill’s elements to put them back to the standard three-month period. That of course arises because that is what the Government have chosen to do with the Bill. They have chosen to go with standard judicial review proceedings. It would have been possible to write a different form of proceedings into the Bill.

The Enterprise Act 2002 provides for an appeal to a tribunal, which then proceeds along standard judicial review rules but is not the standard judicial review procedure. The Government have not decided to do that, but to do something else. My question to the Minister is why. The question that follows if there is no good answer, is why not just leave it as it is? Why not leave it to the judicial review procedure with three months? That would not cause anyone any real problems but, on the contrary, might ensure that smaller businesses and organisations have a reasonable opportunity to defend themselves and pursue judicial review in the knowledge that they have more than a very small amount of time to get the judicial review procedures together when they wish to mount them.

As I have said, I am sure that it will be a pretty rare procedure, but it is nevertheless important to maintain it in the Bill. I am sure we all agree that it is an important part of UK law that that should be a remedy open to everyone to undertake, as the Minister mentioned. I hope that I will get a compelling argument from him about why this has been done in this way and what advantages outweigh the disadvantages that I have outlined. If he can do that, I hope that it will not be necessary to divide the Committee this afternoon, but I fear that it might be if the argument that comes forward proves on examination not to be as compelling as I am hoping.

[Nadhim Zahawi]

I am grateful to the hon. Gentleman for his reasoned and thoughtful remarks. As I said in my intervention, all decisions in the Bill are subject to judicial review. Clause 49 does not apply to information sharing post screening or enforcement decisions. The exception to JR is monetary penalties and cost recovery, which have a bespoke appeals process, as he probably knows.

Clause 49 concerns the procedure for judicial review of certain decisions. The clause provides that any claim for judicial review of certain decisions, which are set out in the clause, must be no more than 28 days after the day on which the grounds for the claim first arose, unless the court considers that there are exceptional circumstances. That period is shorter than the usual period in which a judicial review may be sought, as we have heard from the hon. Member for Southampton, Test. Generally, judicial reviews must be sought within three months, and in England and Wales, but not in Scotland or Northern Ireland, they must also be sought “promptly”.

I will set out why that is the case shortly when I turn to amendment 26, but I believe that the shortened time limit strikes the right balance for the regime, enabling sufficient time for a claim to be lodged while providing for timely certainty about the effect of relevant decisions made under the Bill. I should also note that the court may entertain proceedings that are sought after the 28-day limit if it considers that exceptional circumstances apply. The usual route to challenge a decision made by the Secretary of State is via judicial review, and this is entirely appropriate for decisions made under the Bill. However, it is vital that this route does not result in prolonged uncertainty over decisions relating to screening.

I now turn to amendment 26, which seeks to extend the period within which applications for judicial review may be made from 28 days to three months. As I have set out, the Bill’s 28-day period in which claims for judicial review of certain decisions made under the Bill generally must be filed is shorter than the usual period in which judicial review may be sought. Again, it is entirely right that the hon. Gentleman wishes to probe us on why that is the case as judicial review plays a key role, which he clearly agrees with, in ensuring that the Government, and the Secretary of State in the case of this regime, act within the limits of the law. We have thought carefully about that while developing the Bill, and I welcome this discussion.

Why the shorter period? It is undeniably important that the Secretary of State is held independently accountable for his decisions under the regime. That must, however, be balanced—this is the important thing—against the need to avoid prolonged uncertainty over the status of screened acquisitions or the general functioning of the screening regime, which may have a chilling effect on investment, leaving the types of questions that a judicial review would answer, such as whether a decision to clear a transaction was unlawful, potentially still open for three months before it is clear that a judicial review is not going to be sought, which could make it extremely difficult for the various parties affected to plan and adjust following such a decision. Any party with a sufficient interest could seek a judicial review and all parties affected could be impacted. That is why we have come to this decision.

[Chi Onwurah]

I thank the Minister for the points he is making, which I am seeking to understand. Clause 49(2) mentions “relevant decisions”. Why would “section 19”, “section 20” and “section 21” that deal with the powers to require information and so on cause uncertainty, and not other provisions in the Bill?

[Nadhim Zahawi]

The point I was trying to make is that the uncertainty in any of those sections means that any party to a transaction can, if they feel they could frustrate the process because the outcome might not be advantageous to them, use the judicial review process to add to the uncertainty of a transaction. In addition, there is also a public interest in timely certainty and finality about decisions made under the regime that are, after all, imposed for the purpose of safeguarding national security. The 28-day limit is also in line with the current merger screening regime that the hon. Member for Southampton, Test asked about, where applications for the competitions appeal tribunal made under the Enterprise Act 2002 to review a merger decision must be made within four weeks, a time period chosen after public consultation. There may be some situations where, for legitimate reasons, 28 days is simply not enough. It is therefore important to remember that this Bill provides that the court may “entertain proceedings” that are sought after the 28-day limit, if it is considered that exceptional circumstances apply.

This shortened time limit and flexibility is for the courts to deal with exceptional circumstances. It strikes the right balance for this regime, in my view. It allows sufficient time for parties to obtain legal advice and mount a challenge, while also providing timely certainty about the effect of the relevant decision made under the Bill. I therefore hope that the hon. Member for Southampton, Test will withdraw the amendment.

[Dr Whitehead]

I have to be honest, I did not think that was very good. Let us start with who is shortening and who is not shortening. The Minister said that the Opposition seek to lengthen the period; no, the Opposition are not seeking to lengthen the period. The Government are seeking to shorten the period that is standard in the UK justice system as far as judicial reviews overall are concerned.

That is a very important point, because the Opposition are not trying to do something that is not an ordinary principle of British justice; the Government are trying to that. The Minister’s remarks could have applied to a lot of other areas, where it might be a bit inconvenient to have a judicial review being tenable for a three-month period after an event had occurred. However, it is not a question of inconvenience. Is a matter so important to national security that the 28 days can be justified under those terms?

The Minister has sought to justify the 28 days under the terms that there may be some uncertainty if there is a longer period for judicial review to be undertaken. He is potentially right about that, but not right as far as this Bill is concerned. He is right potentially as far as any application for judicial review is concerned, in all sorts of areas in this country. That is the problem of judicial review for the Administration, under any circumstances. When someone comes along and says, “I’m going to JR this,” a lot of people clap their hands and say, “That’s very inconvenient. It really does foul things up, because we would like to do this, that and next thing, but because we have been judicially reviewed, we have to carry out the procedure that is there.”

As several people have said in a number of different circumstances, the fact that the JR procedure is there and that often ordinary people have a reasonable amount of time to get their case together to undertake the JR process, is an important principle of the British justice system. The Minister has made no serious case for why these things should be so special under these circumstances. Interestingly, the consultation document did not make any case at all for the 28 days, other than to note that it was a shorter period. I am sorry to say that this appears to be a shortened period simply for administrative convenience.

[Chi Onwurah]

Does my hon. Friend think that shortening the JR period for administrative reasons is especially contentious, given that the judicial review process would be the only option for small and medium enterprises to complain about the way in which they are being treated under this process? The Minister says that their only option to make a complaint is effectively to JR it, yet they are given less time to JR it.

[Dr Whitehead]

My hon. Friend hits the nail on the head. In many circumstances, we are not talking about the sort of JRs that we hear about in the press, where a big corporation has been judicially reviewed on some subject by another large corporation, or some big body has judicially reviewed someone else about a planning decision.

16:00

Firms that employ very small numbers of people often find themselves tied up in this process. They need to have this remedy available to them in a way that they can genuinely use, so that they are not constrained by the imposition of what is, as I said, essentially an administratively convenient reduced timescale. I do not think that that ought to be in the Bill. For that reason, we need to press the amendment to a Division, to see whether we can restore to the Bill the three-month period in which people can exercise their right to JR.

Question put, That the amendment be made.

Division 17

Ayes: 5

---

Labour: 4
Scottish National Party: 1

Noes: 10

---

Conservative: 10

Clause 49 ordered to stand part of the Bill.

Clause 50

Appeals against monetary penalties

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

[The Chair]

With this it will be convenient to discuss clauses 51 and 52 stand part.

[Nadhim Zahawi]

With permission, Sir Graham, I will speak to clauses 50, 51 and 52 together. Clause 50 concerns appeals against penalty notices or variation notices. It is only right that parties have the opportunity to appeal decisions made by the Secretary of State in relation to monetary penalties imposed. Clause 50 provides a person who has received a penalty notice or a variation notice with the right to appeal to the court within 28 days, starting from the day after the notice is served.

On an appeal against a penalty notice, the clause provides that the court may confirm or quash the decision to impose a monetary penalty, confirm or reduce the amount of a penalty, and confirm or vary the period in which the penalty must be paid. It may not increase the amount of the monetary penalty. Where the appeal is against a variation notice, the court may confirm, vary or quash the variation, but again it may not increase the amount of the monetary penalty.

Clause 51 provides a right of appeal against decisions made by the Secretary of State related to requirements to pay costs associated with monetary penalties. Clause 52 concerns extraterritorial application and jurisdiction to try offences under the regime. Let me briefly turn back to clauses 32 to 35, which create the offences of the regime. We would normally expect that if those offences occurred, they would happen in the UK. That will not, however, always be the case, and offences will not always involve UK nationals or bodies.

As befits a regime that concerns the actions of international actors in relation to the United Kingdom, the Bill has some application beyond the shores of the UK. For example, the Bill gives the Secretary of State the power to issue final orders on conduct outside the UK by certain categories of person with a connection to the UK, including UK nationals and companies incorporated here. Therefore, clause 52 provides for the offences in clauses 32 to 35 to have extraterritorial effect, including in relation to non-UK nationals and bodies. That means that conduct abroad that amounts to an offence can be prosecuted and it also enables the Secretary of State to impose monetary penalties in relation to offences committed outside the UK. That ensures that regime obligations are not unenforceable simply because they concern conduct abroad. I hope that hon. Members will agree that, in a globalised world where transactions routinely take place across borders, it is important for enforcement to be able to react with equal agility. I therefore submit that the appeals process set out in the clauses should be adopted and that, in a globalised world, it is necessary for extraterritorial regime breaches to be enforceable.

[Chi Onwurah]

It is a pleasure to respond in this debate and observe how quickly we have galloped throughs parts 2 and 3. I wonder if that may in part relate to the descending temperatures that we are enjoying. While I know that the Committee shares my fascination with the various procedural and judicial issues with which we were wrestling, the temperature gave no scope for anyone to get comfortable enough to fail to pay attention. I recognise that we on this side of the Committee are in an advantageous position in that we are furthest from the open windows.

We recognise the importance of clauses 50 to 52 in terms of appeals against monetary penalties, of appeals against costs and of having extraterritorial application and jurisdiction to try offences. The Minister set out the reasons for that. To return to an intervention from the hon. Member for Wyre Forest, I am concerned about whether the provisions will be enforceable and useable in having extraterritorial application and jurisdiction over those who are not British and where the offence does not take place in the UK. Do the Government envisage––the impact assessment is, once again, remarkably silent on this––issuing international warrants to get access to those thought to have committed offences but who are not in the UK? Will the measures be pursued and enforced actively or are they there to deal with exceptional circumstances? I would be happy for the Minister to intervene.

[Nadhim Zahawi]

I think that the hon. Lady’s question is whether the Government will genuinely be able to punish offences committed overseas. Clearly, in a globalised world where transactions routinely take place across borders, it is important that we have the ability to punish offences and be as agile as those who wish to do us harm. It is therefore right that these offences have extraterritorial reach. We will work with overseas public authorities to ensure that offenders face justice where appropriate.

[Chi Onwurah]

I thank the Minister for that intervention. I am reluctant to test his tolerance by bringing Brexit into this, but I hope that we will continue to have the means to engage with overseas jurisdictions in order to pursue those who break UK law, here or abroad. We will not oppose the clauses, and I congratulate the Committee on making such speedy progress.

Question put and agreed to.

Clause 50 accordingly ordered to stand part of the Bill.

Clauses 51 and 52 ordered to stand part of the Bill,.

Ordered, That further consideration be now adjourned. ––(Michael Tomlinson.)

16:11

Adjourned till Thursday 10 December at half-past Eleven o’clock.

Written evidence reported to the House

NSIB03 Joint Working Party of the Company Law Committees of the City of London Law Society and the Law Society of England and Wales