National Security and Investment Bill

Debate between Baroness Hayter of Kentish Town and Lord Clement-Jones

Committee stage
Tuesday 16th March 2021 Lords Chamber

[Lord Clement-Jones (LD)]

The noble Baroness, Lady Noakes, and the noble Lord, Lord Hodgson, have demonstrated exactly why Committee is so important. The way they have teased out the real meaning of these time limits under Clauses 14 and 18 has been revelatory, if we can call it such.

I very much like the no man’s land metaphor used by the noble Lord, Lord Hodgson, but, under Clause 18(9), my noble friend Lady Bowles also talked about the piece of elastic that brings you back. It is almost as if this Bill was designed to be deliberately obscure. The reference back to Clause 2(2) and (4) has almost been sneaked in, so that the Secretary of State has the ultimate discretion.

As the noble Baroness, Lady Noakes, said on the one watchword we have throughout the Bill, we are trying to create an investment regime where there is a high degree of certainty, so that people know what the boundaries are. The time limit boundaries seem to be limitless if they apply to the Secretary of State. An ordinary investor will no doubt be absolutely under the cosh if they fail to meet any time limits that apply to them, but the Secretary of State seems to have absolute discretion.

I do not think I need to add anything further, except to say that we on these Benches strongly support Amendments 43 and 67. I have signed Amendment 67, but both the mandatory and voluntary notification procedures need curing in this respect. I very much hope that the Government will see their way to amending these clauses as we move to the next stage.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, this sounds like a “me too” moment, because we also have tremendous sympathy with the amendments, especially after hearing the concerns of stakeholders in the research sector about the uncertainty around the time for notices to be decided by the Government. As we have heard, their concerns reflect others from business and investors.

Could the Minister explain why a default approval should not be included in the Bill if organisations have not heard back within a particular timeframe? She will probably know about the important process for clinical trials involving medical products prescribed in the Medicines for Human Use (Clinical Trials) Regulations. In that case, where no notice is given or where further information is requested within 60 days, the clinical trial is treated as authorised. I am not suggesting that these are two exact types of decision, but that default authorisation in legislation seems to be one we might look at. I am interested to know whether the Government have looked at a similar default approval to add here. Perhaps the Minister could say what sort of advice the Government have had on whether that would work here.

On Amendment 67, could the Minister indicate whether 30 days is right for such a process? It would be useful to know the Government’s thinking on the expected average turnaround time for a call-in notice.

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[Lord Clement-Jones (LD)]

My Lords, the noble Baroness, Lady Noakes, has coined another phrase that will run through this Bill—notably, “practical impact”. It is interesting that among those of us who have taken part in the debates on the Bill many have a practical understanding of what its impact could be. We have been in walks of life that have brought us into the investment community—not least the Minister himself—and we see the potential for major issues arising under the legislation because of the way in which it is drafted. This group of slightly disconnected amendments illustrates that. The noble Baroness, Lady Hodgson, and my noble friend Lady Bowles forensically took us through the amendment and Amendments 67B and 67C. I shall come to the question on whether Clause 30 should stand part of the Bill in a moment.

However, the amendment is definitely the kind of red tape-busting amendment that we need. My noble friend Lady Bowles said that we needed provisions that actually met the needs of the investment community and were tailored to it. The amendment is a classic example of what could be done in terms of making sure that we do not have a situation in which companies have to make notification after notification. The inter- twining of the mandatory and the voluntary notification aspects provided for in the amendment is extremely important.

Then we come to Clauses 19 and 24, and Amendments 67B and 67C. The noble Lord, Lord Hodgson, also has a way of coining a phrase, such as “stop the clock” provisions, which again give the Government all the cards and the poor old investor could be stuck for some period of time. As the noble Lord pointed out, the extent of the powers in terms of the periods are already quite long—75 working days or 15 working weeks for a national security assessment, or 30 working days or six working weeks for the initial screening period. We are not talking about modest periods but, rather like the referee in a rugby match, the Government can stop the clock and there is no control over that, as far as I can see. Therefore, we on these Benches firmly support those amendments.

On Clause 30 stand part, I liked the phrase of the noble Baroness, Lady Noakes: “stuff these companies with public money”. If that was the case, it would be pretty egregious. Now that noble Lords have drawn our attention to it, we can see that the Explanatory Notes on Clause 30 are vanishingly small. There is virtually nothing in there: there is no control over what the Secretary of State does. He may have to give a report if it is over a mere £100 million—and what is £100 million but small change in the circumstances? The Secretary of State can make more or less any decision and then say, “We have made the decision, but we have plenty of cash that we can stuff into your pocket.” It is the opacity, the lack of reporting and any real control in Clause 30 to which the noble Lord, Lord Hodgson, has rightly drawn attention. This is another area where I hope the Minister has something to say that not only gives quite a lot of further assurance but undertakes to create greater control over the powers in that clause.

After a bit, one gets a feeling for a Bill, and this one seems overly weighted in favour of the Secretary of State. The Secretary of State is more or less footloose and fancy free, and it is the poor old investor who will have to bear all the consequences.

[Baroness Hayter of Kentish Town (Lab)]

The lead amendment, Amendment 48A, would introduce a streamlined form for mandatory notification, and Amendment 67B would make any time limit for an information notice not less than three working days. That seemed a sensible—I think the word used was “pragmatic”—proposal.

Turning to the interesting Clause 30, the Minister in the other place said,

“final orders, in exceptional cases … when we are administering taxpayers’ money—may bring about financial difficulty for the affected parties”,—[Official Report, Commons, National Security and Investment Bill, 8/2/20; col. 288.]

which is why Clause 30 allows the Secretary of State to give financial assistance to an entity through a loan guarantee or indemnity as a consequence of making a final order.

It would be interesting to know a little more about the whole of this, as we have heard, and when a potential recipient might know that they were even in line for such help. How early in the process would it be indicated—not the actual decision but that that was a possibility? Or is it like Father Christmas appearing at the end?

As we have heard, the figure of £100 million is interesting, and it is interesting that there is no regulation-making or guidance-providing requirement such that guidance on the use of the power might have to be, if not agreed by Parliament, at least provided and open for debate and scrutiny. Will such guidance exist and how many cases a year are envisaged involving £100 million? Who would make the decision and how, as has been asked, and will it be reported in a timely manner—or, indeed, at all?

If this is the Government’s desired outcome, it seems that Clause 30 does not provide for any financial assistance in the case of an interim order. Perhaps the Minister could outline the thinking behind that, given that an interim order could also impose major costs on a British start-up or prevent an acquirer investing in one if it was thought that that investment might increase the acquirer’s level of influence unduly and trigger the next stage. There could also be the loss of a business-critical investment. It would be useful to know the thinking behind making money available to cover one sort of loss but not another. I look forward to hearing more of the thinking behind how this would work in the Minister’s response.

National Security and Investment Bill

Debate between Baroness Hayter of Kentish Town and Lord Clement-Jones

Committee stage
Tuesday 9th March 2021 Grand Committee

[Lord Clement-Jones (LD)]

My Lords, I am not going to speak for any length on Amendments 31 and 33. I just hope that the Minister has a battery of Scots lawyers advising on these amendments because it sounds as if they could be of huge significance and the issues under Scots law may well have been ignored in the drafting of the Bill. I am looking forward to hearing the Minister’s response, no doubt on advice.

I support, in particular, Amendments 34 and 35, tabled by the noble Lord, Lord Hodgson of Astley Abbotts, which he introduced so well. The common factor is that the existing wording of Clause 10(2) appears to catch intragroup investments where an ultimate parent company holds an interest indirectly through a wholly-owned subsidiary and decides to transfer the interest to itself so that it is held directly. Such transactions do not raise new or additional national risks as there is no change in the substantive control. For mandatory filings, as he also described, the initial acquisition will already have been notified and reviewed. Proposed Amendment 34 therefore makes sure that only those transactions where the initial investment took place before the commencement date are caught; they will thus not have been reviewed. Without this provision, each entity within a corporate group would need to make a separate notification for a single trigger event.

Amendment 35 deals with cases where corporate group companies comprise multiple, separate entities because Clause 10, as drafted, also appears to require each entity within the corporate group to make a separate notification for a single trigger event that takes place relating to the group.

These are well-crafted amendments and were well described by the noble Lord, Lord Hodgson, who, as he said, is supported by the Law Society. We have a Law Society group of amendments here relating to England, Wales and Scotland. I am sure that the Minister will have huge pleasure in responding on this group.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I have no new information to bring to the Committee. As we have heard, a number of transactions appear likely to be caught under the Bill which are probably outwith the intention of the authors of the Bill. I think the Minister has to explain why these provisions are in it, rather than noble Lords who tabled amendments having to explain why the provisions should be taken out. We look forward to his explanation of that and, perhaps, his reassurance to the Committee that the Bill is really fit for purpose across the whole of the UK, including for the Scottish legal system.

National Security and Investment Bill

Debate between Baroness Hayter of Kentish Town and Lord Clement-Jones

Committee stage & Lords Hansard
Tuesday 2nd March 2021 Grand Committee

[Lord Clement-Jones (LD)]

My Lords, it was a pleasure to put my name to the amendment in the name of the noble Baroness, Lady McIntosh, because I think that I understand its intentions entirely. It is also a pleasure to follow the noble Baroness, Lady Noakes, and the noble Lord, Lord Hodgson, in their elucidation of what the amendment is about. I think the noble Baroness, Lady Bennett, has entirely misunderstood the essence of this amendment.

Earlier in Committee today we were trying to get some sort of definition of national security, and I think that the noble Lord, Lansley, in his inimitable way, managed to unpick that rather successfully. As far as national security is concerned, it is a mission impossible to try to carry everything in one bundle in a definition. This tries the other way on and, as the noble Lord, Lord Hodgson, said, it is designed to avoid mission creep. It is trying to make sure that the definition of national security is not used as a blanket term to cover damage to the economy and society. It has the huge benefit of simplicity; it tells us what is not in national security rather than what is in it. It clarifies that certain factors such as employment, reciprocal investment or trading opportunities, and protectionism will not be taken into account when assessing national security. If there was mission creep in the way that was described, it would undermine legal certainty and damage investor confidence in the way that we have heard from a number of noble Lords.

The Government have kept assuring us that this is not, in the words of the noble Lord, Lord Callanan, a national interest Bill but a national security Bill. That is exactly what this amendment is trying to ensure—that we do not have that all-encompassing national security definition used by lobbyists or others to try to bring things into the net. I have seen it happen in the United States. The CFIUS is absolutely that kind of spider-like operation that brings in all sorts of spurious transactions. I very much hope that we will keep this provision absolutely focused, and this amendment is a very good way of doing it.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, we support the approach of this amendment. As we have all made clear, the new regime must focus on protecting national security. The clue is in the title of the Bill. The definition of national security has to take best advice from across the Government about the threats and behaviour of our adversaries.

While I hope the Government will monitor the impact of the Act on technological investment, innovation and SMEs—which I hope a different part of the Government is actively supporting—those interests, along with employment, investment and competition, cannot and should not trump national security, albeit that I hope that the Government would consider mitigating any detrimental domestic impact of placing security first if that were needed.

Clearly, concerns about any political pressure, rather than any disregard for the issues listed, give rise to this amendment. The tone and the purpose of it are ones that we share.

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[Lord Clement-Jones (LD)]

My Lords, there are distinct common factors in both these amendments. The proposers do not believe that the current way of approving regulations under Clause 6, purely the affirmative procedure, is satisfactory. That is because of the importance of the regulations under Clause 6. As we heard, they underpin the necessity for mandatory notification for certain types of transactions in 17 sectors and they can be changed. We heard, particularly from my noble friend Lord Fox, that the definitions of these sectors are highly complex.

My noble friend took the example of artificial intelligence, a technology I have taken considerable interest in. As he explained, machine learning technology permeates almost every single sector and every use for both consumers and businesses one can think of—fintech, edtech, regtech, you name it. Artificial intelligence permeates those, and the new description of the AI sector published in the government response today states:

“In narrowing the definition, the definition now provides further clarity for businesses and investors”.


However, the definition still covers:

“the identification of objects, people, and events; advanced robotics and cyber security.”

That is pretty broad.

The policy statement published today is also extremely helpful in emphasising the importance of Clause 6 regulations. The policy statement says:

“Under Clause 6, the Secretary of State has the power to make regulations to:… a) specify the description of a qualifying entity for the purpose of identifying a notifiable acquisition; …b) amend the circumstances in which a notifiable acquisition takes place … c) exempt acquirers with specified characteristics … d) make consequential amendments of other provisions of the Bill resulting from provisions set out in paragraphs (b) and (c).”—[Interruption.]


I hope that I am having some impact on the Minister, my Lords. The policy statement goes on to say:

“For the commencement of the regime, the Secretary of State intends to make regulations only to specify the sectors subject to mandatory notification.”


I underline “only” because you would have thought that was significant enough in itself. This is obviously a self-denying ordinance, but it is not a very large self-denying ordinance when you are dealing with the intricacies of those 17 sectors.

My noble friend Lord Fox has rightly quoted the Constitution Committee’s 2018 report The Legislative Process: Delegated Powers, which talked about the rubber-stamping of the Government’s secondary legislation. He also referred to my long life, and in my already long life I have been responsible for overturning a statutory instrument. The Blackpool casino was very much wanted by the citizens of Blackpool, so the SI for east Manchester was defeated by three votes in the House of Lords, and one of those votes was from the Archbishop of Canterbury—the former Archbishop of Canterbury, I am glad to say. It was I who put the Motion, and we passed it by three votes to deny the Government the right to build the casino in east Manchester. Unfortunately, the Government never came back with a proposal for Blackpool, and that is a sad piece of history. I do not know why they did not; it would have been a great place to build a casino.

However, that does show that, on a simple proposition, it is possible to have an effective debate. When you are dealing with 17 sectors and 111 pages of text, which are going to be the subject of this regulation, that illustrates that the form of affirmative resolution proposed in this Bill is not fit for purpose. This kind of super-affirmative procedure means that there would be a genuine debate on the regulations and the 17 sectors and their extent.

I have huge sympathy with the amendment of the noble Baroness, Lady McIntosh, because of course one wishes to see consultation among stakeholders. In an ideal world, one would like to see both that and the super-affirmative resolution. But, to be frank, consultation is not the same as, or a substitute for, proper parliamentary scrutiny. These are crucial regulations, and it is right that they are opened up for full debate in this way. I am probably going to embarrass the noble Lord, Lord Lansley, by saying that he said earlier we will have some debates about the sectors—well, not really, unless this amendment is accepted.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, as we have just been hearing, these notifiable acquisition regulations are significant and require proper oversight, not just from both Houses of Parliament but also from experts involved, and with the opinions of those experts being made available to legislators. It will obviously be important to ensure that the stakeholders to be consulted are knowledgeable and, if I may say it, at the cutting edge of technology.

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[Baroness Hayter of Kentish Town (Lab)]

I forgot to declare at the beginning that I used to work for the Wellcome Trust. It was 20 years ago, but I think it should still be noted.

[Lord Clement-Jones (LD)]

My Lords, I thank the Minister for her response but I do not think that she has quite got to grips with the full concern about this. It is not so much that there has not been consultation about the current sectors; there has been an extensive consultation and the Government have come back with their views and have explicitly said that they may change them even further. Yet they are still going to return to Parliament with a pure affirmative process. It is not as if parliamentarians will be able to change it. The stakeholder discussion and consultation is going forward as she said, but there is no guarantee that when that set of regulations is passed there will be proper debate in the House, nor will there be thereafter if the sectors are changed and made more specific, less specific, added to—whatever. There is no guarantee that consultation will take place.

The Minister said that there are the right incentives. That is a bit thin. If that is the guarantee of government consultation, it is not very solid, and even then, Parliament is entitled to have a view about the width of those sectors in the light of changing circumstances. It might have different views about new risks emerging, to use the Minister’s phrase. Therefore, it would be entirely legitimate to have that debate if those regulations were revised. The Minister has not got the nub of the concern in all of this.