Newport Wafer Fab

Tuesday 22nd November 2022 Lords Chamber

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Monday 21 November.

“On 25 May, the then Secretary of State for Business, Energy and Industrial Strategy called in Nexperia’s acquisition of Newport Wafer Fab for a national security assessment under the National Security and Investment Act 2021. Following further detailed and thorough consideration, on 16 November, I exercised my powers under the Act to make a final order requiring Nexperia to divest of at least 86% of its shareholding in Nexperia Newport, formerly Newport Wafer Fab.

My decision follows a quasi-judicial process that ensures that all relevant matters are taken into account and that the decision is made fairly. I am sure that the House will understand that I am unable to go into further detail about the national security assessments and implications that informed the decision, nor can I go into further detail about the final order.

What I can say is that the final order requires Nexperia to follow a set process leading to divestment within a specified period. This order has been shared with Nexperia and I published a notice summarising it as well. My officials, with the support of other Departments, will actively monitor compliance with the requirements set out in the final order and ensure that the national security risks continue to be mitigated effectively.

The National Security and Investment Act enables us to continue to champion open investment while protecting national security. Hon. Members can be assured that although we are unashamedly pro-business, the Government will not hesitate to act where there is a risk to UK national security. The UK has a number of strengths in the semiconductor sector, including in south Wales, and the Government aim to set out our semiconductor strategy soon to enable this technology to further support the global economy and national security.”

15:19

[Lord Lennie (Lab)]

My Lords, the House of Commons Foreign Affairs Committee found no evidence to suggest that a review into the acquisition of Newport Wafer Fab had taken place, yet Politico reports that the Government’s National Security Adviser concluded that there were not enough security concerns to block it. Will the Government confirm on the record whether the review that was promised by the then Prime Minister Johnson took place or not? The same Foreign Affairs Committee warned that the sale of Newport Wafer Fab potentially compromises national security and is the loss of a prized asset to a competitor amid a global shortage of semiconductors. Given the sale has not been blocked, what steps are the Government taking to mitigate these risks?

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

My Lords, obviously, there is a limit to what I can say about this, but I will endeavour to be as helpful to the House as possible. I certainly can confirm to the noble Lord that the review did take place and was one of the factors that the Secretary of State took into consideration when he made his decision. It was made in a quasi-judicial manner and the Secretary of State considered that a risk to national security had arisen from the trigger event, which is why he made the order that he has.

[Lord Fox (LD)]

My Lords, I think we welcome this decision. When it comes to the National Security and Investment Act, the Minister is the best authority because, while Secretaries of State have come and gone, the Minister took it through this House and he is still here. Perhaps he can add some perspective, because at the outset of this case the Minister stood up and said that the technology in Newport Wafer Fab was not worthy of being called in through the National Security and Investment Act. Over time, that has evolved, so what has changed? Is it the Government’s view of Newport Wafer Fab or the Government’s view of China?

[Lord Callanan (Con)]

I am not sure that I said that, but I will certainly look back through the record. This has been going on for a long period. The Secretary of State has taken into account all the relevant factors, as he is obliged to do under the legislation. The noble Lord is right; we debated it extensively, but this decision has been taken purely on the grounds of national security. That is what the Secretary of State is required to do. That is what he has done, taking all the relevant factors into consideration, and he has made a final order in this case.

[Lord Wigley (PC)]

My Lords, which is the greater security threat: that the technology at Newport goes into Chinese hands or that we lose the overall capacity to be able to manufacture in this sector?

[Lord Callanan (Con)]

The noble Lord will know that I cannot go into specific details of this case, but I am delighted to say that we have an extensive range of companies in the UK manufacturing and producing in this area. South Wales is one of the notable success stories with the catapult acceleration plans that we have there.

[Lord Patel (CB)]

My Lords, with the sale of a major semiconductor company of the United Kingdom and with no gigafactory for the manufacture of batteries, what effect will this have on our ability to manufacture electric vehicles?

[Lord Callanan (Con)]

I am looking forward to the proper debate we will have on the report on electric battery vehicle manufacturing from the noble Lord’s committee later this week. We have over 100 companies active in this area in the UK and some excellent research and development and manufacturing facilities. This decision was not taken on any industrial policy matter. As is required under the legislation that we debated extensively and that the noble Lord, Lord Fox, referred to, the decision was taken on national security grounds alone.

[Lord Pickles (Con)]

My Lords, this is an unusual case in so far as it is retrospective. My understanding is that the National Security and Investment Act came into being only in January. In another place the prospect was raised of other companies being in the control of hostile countries. What process is in place to review that, in terms of not only future hostile takeovers but ones that might currently exist?

[Lord Callanan (Con)]

My noble friend is right that the Act came into operation in January. There were some retrospective elements in that. A trigger event occurred and therefore the Secretary of State could exercise his power. When future trigger events occur, we will look at every transaction based on national security implications, as is required under the Act.

[Lord Purvis of Tweed (LD)]

My Lords, the final order stated that the security risk was the reintroduction of semiconductor production at that site. Now that have a £39 billion trade deficit with China, what are the Government’s assessments of the key sectors of the UK economy which are vulnerable to Chinese technology on the same basis as this final order?

[Lord Callanan (Con)]

As was printed in it, the final order was based on the technology and know-how that could result from a potential reintroduction of compound semiconductor activities at the Newport site. The noble Lord has read the final order. As I said in a previous answer, this has no implication for any other policies. Every one of these transactions is looked at on national security grounds in the context of the legislation that was passed giving quasi-judicial power to the Secretary of State. It has no implication for any other sectors of the economy. Every transaction is looked at on an individual basis.

[Lord Forsyth of Drumlean (Con)]

My Lords, I bought a new Land Rover in July, and I am still waiting for a second key because of the shortage of chips. Given the Chinese aggression towards Taiwan, and given its dependency, surely this decision is to be welcomed. We should aim for a degree of self-sufficiency, as far as is possible, in the production of chips, given our determination to be a country which is secure against totalitarian states and their aggression.

[Lord Callanan (Con)]

I am sorry to hear about my noble friend’s Land Rover key; I hope it is restored to him as quickly as possible. We have a very active semi- conductor manufacturing and research and development facility in this country. We have over 100 companies actively working with compound semiconductor devices. Around 5,000 UK companies, 90% of which are SMEs, are designing and making electronics components devices, systems and products. The Chancellor announced an increase in funding in this area. The south Wales cluster is particularly important. We are spending hundreds of millions of pounds promoting it. We are very proud of it. This has no implications beyond that specific transaction, which was considered on national security grounds under the legislation, as the Secretary of State is required to do.

[The Earl of Erroll (CB)]

Does the Minister agree that it is not just a matter of intellectual property or the number of research and development staff, but that we must manufacture stuff and not be totally reliant on foreign supplies? Reinforcing what the noble Lord, Lord Forsyth, just said, it is a bit like being unable to grow crops and feed your people. If we cannot manufacture, we will collapse because we cannot import the stuff. It could be bog standard chips or bog standard anything. We need to get our manufacturing capability up in this modern world, where there will be a shortage of all this stuff.

[Lord Callanan (Con)]

I agree with the noble Lord. That is why in 2016 we set up the Compound Semiconductor Applications Catapult, with £50 million of funding. Since then, it has initiated over £100 million of projects and collaborative projects which have generated or saved over 4,700 jobs in the UK. Therefore, we are very active in this space. This decision has no implications for that investment, which will continue. It was a quasi-judicial decision on national security grounds, which is what the Secretary of State is required to do.

[Lord Adonis (Lab)]

Are there any other national security investigations of this kind under way?

[Lord Callanan (Con)]

The noble Lord knows that I cannot comment on other live cases until final orders are made. I can give him some figures from the National Security and Investment Act report, published in March. The NSI unit received 222 notifications and 17 applications were called in. Since then, we have made 10 final orders, and acquisitions have been unwound or blocked on three occasions.

[Lord Howell of Guildford]

My Lords, there has been some change of view over time about this case, so might we expect further changes of view in other areas where the Chinese are deeply involved—for instance, in civil nuclear power, where they are embedded? There have been doubts about that all the way along. Can the Minister assure us that when and if a change of view is beginning to develop, or new facts come to light, he will keep us informed on this change in policy in the way that our entire nuclear programme is going?

[Lord Callanan (Con)]

I do not accept that there has been a change in policy. The policy is the National Security and Investment Act, which this House passed. If and when other trigger events occur, there will be a full investigation by the NSI team in my department and the Secretary of State will take a quasi-judicial decision, as he has done in this case.