Climate Change: Targets

Lord Bilimoria Excerpts

Thursday 27th May 2021 Grand Committee

[Lord Bilimoria (CB) [V]]

My Lords, this year, we are organisers of both the G7 summit and COP 26. The UK has an obligation to demonstrate global leadership on climate and environmental policy, and build on our existing strengths to help others to face climate change risks. We are the first country to commit to achieving net-zero greenhouse gas emissions by 2050. I thank the noble Baroness, Lady Sheehan, for initiating this debate.

Do the Government agree that government and the private sector need to work closely together on this? The CBI, of which I am president, welcomes the industrial decarbonisation strategy. We await the Government’s net-zero strategy and look forward to the heat and building strategy, the decarbonisation of transport plan and the hydrogen plan. On Monday, the CBI launched Seize the Moment, our economic vision for the next decade, whereby decarbonisation will be a key pillar in the years to come. We urge the Government and industry to make the most of this unique time and focus on building future growth and prosperity. We need ambitious private partnerships, sustainable financing and innovative clean tech solutions. We need to cut emissions, not only in the power sector but in transport, buildings and industry. Do the Government agree?

The CBI is happy to support the National Centre for the Decarbonisation of Heat at the University of Birmingham, of which I am the chancellor. Do the Government support such an initiative? Decarbonising heat is perhaps one of the most significant challenges on our journey to net-zero emissions. We must make progress on decarbonising emissions associated with our buildings; their heating is a significant factor.

At COP 26, the CBI would like to see progress on international negotiations so that countries are aligned in setting and delivering ambitious targets for emissions reduction. Two weeks ago, as president of the CBI, I was privileged to host the B7 summit. Climate change was of course one of the key themes. There was a lot of enthusiasm across the international business community for a more sustainable future. I repeat what I said on 17 May:

“The Prime Minister said at the B7 last week that the race to net zero is not a zero-sum game. In true Boris style, he also said: ‘Green is good.’”—[Official Report, 17/5/21; col. 381.]

Professional Qualifications Bill [HL]

Lord Bilimoria Excerpts

2nd reading
Tuesday 25th May 2021 Lords Chamber

[Lord Bilimoria (CB) [V]]

My Lords, the UK services industry accounts for 80% of our economy, and the UK is the second largest services exporter in the world. It is quite remarkable how well respected our services industry is, and our UK professional qualifications are, frankly, the most well regarded in the world in many cases, whether for our lawyers, our accountants or our doctors.

The Bill was announced in the Queen’s Speech on 11 May, making provisions relating to the recognition of professional qualifications in the UK. It obviously follows a lot of consultation by the Government which ran through the autumn of last year and which created a number of regulation-making powers designed to implement a new framework for the recognition of overseas professional qualifications in the UK. That would replace the EU law in the area, including the interim provisions that have been in place since the end of the transition period, making provision for international agreements on the recognition of professional qualifications, for any powers to authorise regulators to enter into regulatory recognition agreements with regulators overseas, and the sharing of information between regulators. The Minister also mentioned amending the Architects Act 1997.

Over 160 professions are regulated by legislation in the UK, and there are more than 50 regulators. The Government have explained that they seek reciprocal agreements on the recognition of professional qualifications as part of their trade agenda. I congratulate the Government, and Liz Truss and the Department for International Trade, on the fantastic job that they have done in rolling over more than 60 bilateral EU trade agreements, and on the work that they are doing on the new trade agreements. The Australian one is imminent. The enhanced trade partnership with India will lead to an FTA, I hope. The American trade agreement is in the offing, I hope, and joining the CTPPP will be a fantastic £110 billion of trade.

On top of that, we are now making the 60-plus agreements that have been rolled over from the EU into super-duper bespoke deals between the UK and the other countries, starting with Mexico and Canada. This is great news. Professional qualifications will be a key part of all these trade agreements. The Bill is equipping regulators to pursue agreements with their counterparts in other countries where they want to do so, and the Government say that they

“want to facilitate the continued strong reputation of UK professional qualifications, which will support export opportunities, including education exports and the recruitment of international students.”

The Government have stated that the feedback from the consultation and other stakeholders indicated that the regulatory landscape that had developed for professions was complex. That is something we have to accept. The UK’s current framework for recognising professional qualifications gained overseas is derived largely from EU law. The interim system has provided certainty for UK businesses and helped to maintain workforce supply for professions, including nursing and teaching. The Government have said that many of the professions within the scope of the regulation-making powers in Clause 1 have pre-existing legislative frameworks governing the way they are regulated. While the ability to allow for an overseas qualification to be treated as though it was a specified UK qualification is set out in the Bill, along with the conditions, it is necessary for this to be implemented in a manner that is tailored to each profession by the appropriate national authority.

We then have the regulator recognition agreements—RRAs—between the UK regulators and international counterparts on the recognition of professional qualifications. The recognition of professional qualifications and the regulation of professions is of huge significance to the UK’s world-leading services providers, which rely on this provision to sell their services abroad. Following the EU-UK Trade and Cooperation Agreement, the loss of automatic recognition adds levels of complexity and administrative challenges for companies. Businesses are looking for clarity on the recognition of qualifications and what it means in practice for UK-based firms’ continued provision of services in the EU.

As president of the CBI, I can say that businesses welcome the pathway provided in the TCA to establish recognition agreements and are ready to engage with government and regulators. Across the UK, companies are clear that the recognition of professional qualifications and the regulation of professions is an essential aspect of how they operate their businesses.

I look back to the 10 business priorities for UK-EU trade after Brexit that the CBI laid out when it identified

“10 immediate practical actions both sides can take to stabilise relations and strengthen cooperation”.

One of them was to secure the recognition of professional qualifications. The automatic mutual recognition of professional qualifications has now ended between the EU and the UK but, according to the CBI,

“the TCA creates a pathway for future agreements being struck between the UK and individual EU member states via the Partnership Council—although the exact process is still to be confirmed.”

Perhaps the Minister could shine some light on this. The CBI continues:

“The loss of automatic recognition adds significant levels of complexity and administrative challenges, particularly in the professional services sector. Newly qualified individuals in regulated sectors will not be … allowed to work or to deliver services in the EU without this recognition, leaving UK professionals and businesses losing business to EU competitors”


and other competitors. It continues:

“The CBI welcomes the steps that have already taken place by the UK government in supporting regulator to regulator recognition across the UK and Ireland, with 10 agreements already made in various sectors. But the pathway for more agreements, as set out in the TCA, should be established as quickly as possible to support the trade in services on both sides.”


Does the Minister agree with this, and that

“The EU should work constructively with the UK to facilitate this dialogue through the relevant governance mechanisms”?


I am proud to be a fellow of the Institute of Chartered Accountants in England and Wales. I would go so far as to say that it is the most highly recognised and finest accountancy qualification in the world. I say that with pride, and I am sorry that I am boasting. The ICAEW welcomes the passage of the Bill and a new UK framework for recognition of professional qualifications from around the world. It says that the Bill confirms that the UK does not give preference to any one nationality or country. It is a global recognition system, no matter where you work and qualify. This is positive, as it will make processes of recognition simpler for regulators to administer and demonstrates the UK’s global outlook—totally in tune with global Britain.

This is a rare opportunity to propose much-needed amendments to sections of the Companies Act 2006, such as Section 1221, which deals with the Secretary of State’s powers to recognise foreign qualifications for eligibility to become a UK statutory auditor. Select changes to the Act would enable the UK to enter more freely into audit recognition agreements with other countries. The Bill establishes transparency by setting rules and criteria for all professionals and for all potential applicants wishing to practise a profession in the UK.

Clause 16 of the Bill says that a regulated profession

“means a profession that is regulated by law in the United Kingdom or a part of it”.

Does the definition of a regulator in the Bill includes chartered bodies, or is it the profession’s statutory regulator? In the case of the accountancy profession that is the FRC/ARGA. I assume that it is the FRC/ARGA for audit, but for accountancy the ICAEW is considered the regulator. The Bill does not define clearly which regulator will be responsible. Perhaps the Minister would like to explain.

Clause 4 dictates the contents of a regulator recognition agreement. The ICAEW has agreements with accountancy bodies around the world. Will it, as a professional body, continue to retain autonomy over the formation and content of recognition agreements with other countries, or will this become the responsibility of the FRC/ARGA, or of the department for business? Will it gain new powers to intervene in ICAEW decisions? Will the Minister respond to that?

Finally, Clause 3 requires regulators of professions in all parts of the UK to publish information on the entry and practice requirements of their profession. We welcome these transparency measures, but any additional measures and obligations should be proportionate. The Bill could lead to a major work and cost burden for professional bodies if, in the interests of transparency, they were obliged to implement customer service standards for applicants that go beyond what is currently required, such as website redesign, process times for applications, fee caps, and so on. Do the Government agree?

The Solicitors Regulation Authority supports the overall aims of this Bill, including encouraging a diversity of talent and skills into the UK, and maximising opportunities for trade in professional services by providing an easily navigable regulatory framework. It is pleased that the Government’s approach is underpinned by the need for public confidence that professionals are appropriately qualified. Regulators must be able to set the standards and to make autonomous and independent decisions. Do the Government agree?

There is already an established system for recognising overseas legal professional qualifications that is targeted and proportionate, with mechanisms in place for candidates to qualify with appropriate exemptions based on an assessment of equivalence. The Solicitors Regulation Authority was very clear in responding to last year’s call for evidence. It said that recognition of professional qualifications in the legal profession should be based on the equivalence of the standard and content of an overseas qualification, assessed on a case-by-case basis, rather than solely on reciprocity. This approach would ensure that all providers of legal services in England and Wales have the knowledge and skills to practise safely and competently, and that any restrictions are targeted and proportionate. It is pleased that the Bill supports this approach and that it is underpinned by the need for public confidence that professionals are appropriately qualified. The SRA says it is essential that regulators can set the standards and make autonomous and independent decisions. This is key for it as an organisation exercising statutory regulatory functions in the public interest. Do the Government agree?

The UK is hugely fortunate to have the finest professional services in the world. They are a jewel in our crown, and I hope that the Bill does everything to strengthen their reputation, of which we are very proud.

Post Brexit: Small Service Businesses

Lord Bilimoria Excerpts

Monday 24th May 2021 Lords Chamber

[Lord Callanan (Con)]

The proposals from the EU were complicated and would not have resolved many of these issues, so the noble Baroness should be wary of believing some of the propaganda she reads. We tried to reach a comprehensive agreement, but our proposals were rejected by the EU. I know that she will find this hard to believe but that is what happened in practice.

[Lord Bilimoria (CB) [V]]

My Lords, the nuances of the TCA mean country-by-country understandings for business travel. The CBI, of which I am president, welcomes the recently published guidance from the Government. However, do the Government agree that, as travel restrictions ease, government support should be provided to help businesses, particularly SMEs, navigate these complex new requirements? Do the Government also agree that the UK and the EU should work together to make these processes as efficient as possible?

[Lord Callanan (Con)]

I agree with the noble Lord, and we are doing exactly that to support SMEs. The Government have announced a £20 million SME Brexit support fund. We have also established a network of 38 growth hubs to support businesses, one in each local enterprise partnership area in England, and will continue to offer whatever support we can to business.

Turkey: Free Trade Agreement

Lord Bilimoria Excerpts

Tuesday 27th April 2021 Grand Committee

[Lord Bilimoria (CB) [V]]

My Lords, the UK and Turkey are both close neighbours of the EU. This will be an important economic relationship in the years ahead for both our countries. We are both members of NATO, as we have heard. The continuity agreement was a huge relief for many sectors just before the transition period ended. A wide range of manufacturers were naturally nervous, from textiles to automotives. For example, auto manufacturers would have faced a 10% tariff, so full credit goes to the Department for International Trade for getting the agreement secured in time. The continuity programme has been a success, with the vast majority of the EU FTAs rolled over. We now need to plan and look ahead, and the CBI, of which I am president, sees potential to increase investment flows and strike a modern agreement to include digital and services trade. Global trade and investment will be critical for our economic recovery. The Government’s ambition to open doors for UK companies globally, particularly in services, where we have huge advantages, is important. Does the Minister agree?

In my role as CBI president, I have been pleased to work with its Turkish counterpart, TÜSİAD. Together, our organisations will support the Governments in the talks that are continuing to ensure business interests are maximised. I thank the noble Lord, Lord Purvis, for securing this debate. As we have heard before, Turkey is the UK’s 19th largest trading partner—so, top 20—with 1.3% of the UK’s total trade. In 2019, trade in goods and services between our two countries was worth almost £19 billion. To put that in context, it is similar to Canada, with around £20 billion, Australia, with around £20 billion, and India, with around £24 billion. Almost 8,000 UK businesses exported goods to Turkey in 2019, so this agreement ensures that we can continue to import under preferential tariffs compared with no agreement. This supports importers of textiles, where the annual increase in estimated duties would have been around £102 million under WTO terms. Tariffs applied to UK imports of washing machines and televisions will remain at 0%, compared to up to 2% and 14% respectively under WTO terms.

It is vital that the UK-Turkey supply chains are protected for automotive manufacturers. For example, car parts for Ford are imported from the UK into Turkey to be assembled into Transit vehicles, and one-third of those vehicles are then re-exported back to the UK. In under two years, we have now reached agreements with 62 countries and the European Union. That is almost £900 billion of UK trade. I give full credit to the Department for International Trade. The Government’s ambition is to secure free trade agreements with countries that cover 80% of UK trade within three years. This is ambitious, but it is possible. Australia, for example, has 70% of its trade covered by free trade agreements.

In conclusion, Andy Burwell, director for international trade and investment at the CBI, said:

“This agreement will maintain bilateral trade worth over £18 billion … Businesses and government must now look to growth, creating the trading relationships which will build a competitive, dynamic and progressive future economy.”

National Security and Investment Bill

Lord Bilimoria Excerpts

3rd reading
Thursday 22nd April 2021 Lords Chamber

[Lord Bilimoria (CB) [V]]

My Lords, from the Cross Benches I join previous speakers in thanking all the House of Lords officials and the Bill team.

As we have previously outlined, the Bill has a valid and important principle at its heart: the protection of national security and the lessening of economic interference in industrial control by hostile actors. Nobody would disagree with that intention, and the business community is no different. The CBI, of which I am president, supports those principles and stands ready to help make a success of the new regime. We have heard from a wide range of businesses likely to engage with the regime, many of which have complex international supply and value chains and all of which recognise the need for such regimes and already comply with counterpart regimes across the world.

However, to make a success of such a regime in a manner that reflects the approach of many of our international counterparts, the concerns of a wide subsection of the business community should continue to be heard. As I have noted previously, the extra- territoriality of the Bill, combined with no set de minimis function, could inadvertently lead to a real rise in bureaucracy at micro level and slow inward investment at macro level, so it is critical that the Government continue to engage with business and industry on the practical application of the regime. The fast-track processes and expert advisory panels that have been discussed are a very welcome move. The amendments moved by the noble Lord, Lord Callanan, on future reporting on the progress of the regime and on omitting the 15% threshold for significant control are also welcome.

Business welcomes the Bill, and I give credit to many noble Lords who have taken part, including the noble Lord, Lord Leigh, the noble Lord, Lord Clement-Jones, the noble Baroness, Lady Noakes, the noble Lord, Lord Lansley, and the noble Lord, Lord Hodgson —I could go on. The more detailed reporting requirements provide more clarity on the average processing or decision time for notifications, whether mandatory or voluntary. Business has been concerned about the transparency of the statutory process, so we welcome the Government’s reflection of that in the Bill. Moreover, the removal of the 15% threshold for significant control is welcome, as, while such a percentage may represent a critical investment in other areas, it is unsuitable when applied to significant control more widely.

Looking ahead, the spirit of dialogue that has allowed such amendments to be moved should continue to ensure that both business and government are equipped to make a success of the regime. This Bill shows the House of Lords at its best: it has greater strength by far in depth and breadth of world-class expertise than any other Chamber in the world. This Bill has seen this skill applied on a cross-party basis, enabling this House to play its role as a revising Chamber to help change legislation for the better. This can only happen, however, if the Government are prepared to listen—which they have. We are grateful to the Government, and long may the spirit of collaboration continue.

Audit and Corporate Governance

Lord Bilimoria Excerpts

Tuesday 23rd March 2021 Lords Chamber

[Lord Bilimoria (CB) [V]]

Professor Karthik Ramanna of the Blavatnik School of Government at Oxford said in the FT last week that corporate auditing is in crisis and that the UK Government have announced a bold set of proposals aimed at restoring public trust in audits and markets. The UK’s reputation as a world leader in corporate governance is highly prized and a vital part of what makes the UK an attractive place to invest and do business. What assessment have the Government made of the impact of these reforms on UK businesses, and how will the Government ensure that they will not affect the country’s ability to attract foreign investment nor stifle entrepreneurial spirit?

[Lord Callanan (Con)]

I do not agree that the audit market is in crisis. Some worthwhile improvements can be made, which is what we are proposing. The noble Lord will see that a full impact assessment is attached to the proposals.

National Security and Investment Bill

Lord Bilimoria Excerpts

Committee stage
Tuesday 16th March 2021 Lords Chamber

[Lord Bilimoria (CB) [V]]

My Lords, I speak to Amendments 89 and 92. Amendment 89 would require the Secretary of State to undertake a review of the impact of the Act on national security and foreign investment. Ensuring the success of this regime requires formal review. For balance, it is crucial that this review reflects both positive impacts on national security, as well as unintended consequences to foreign investment in the UK. As such, a specified periodic review by the Government would provide industry with reassurance that the regime is being formally monitored and that such consequences will be redressed, should they arise.

Concurrently, formal review would provide the Government with the opportunity to outline any positive impacts that the regime has had. Failure to formally review the regime will leave industry with little understanding of the feedback cycle for the regime. Business is committed to making a success of the regime but, concurrently, wants to know that the Government are willing to review its impact.

Amendment 92, on market guidance notes, would require that:

“Within six months of the passing of this Act, the Secretary of State must publish market guidance notes to provide information to assist with compliance of the Act”


and:

“The market guidance notes must be updated and re-published not more than every six months thereafter.”


This would ensure the success of this regime. It requires active engagement from BEIS and other government departments with industry. One critical function that the Government play here is the development and provision of detailed guidance for firms and the wider market to view and act on, ensuring compliance with the legislation. Timely provision and consequent updating of this guidance will allow firms to enter the process of notification with as much information and steer as possible, reducing the likelihood of unnecessary notification but, critically, capturing those transactions that rightly demand scrutiny. Failure to provide guidance, in partnership with key business organisations, could slow the process of notification or, importantly, lead to instances of failure to notify, where it is necessary to do so.

To conclude, the current drafting of the Bill makes its practical application difficult for business. It could lead to additional burden and complexity at a micro level and, potentially, an unintended deterrent to investment at a macro level. The CBI, of which I am president, has heard from a wide range of businesses with concerns about the Bill in its current form— from technology and digital to facilities management, pharmaceuticals, higher education, financial services and defence. As such, the Bill is of concern to a broad subsection of the business community. Although there is no doubt that national security is paramount and the first priority of any Government, we are the second-largest or third-largest recipient of inward investment in the world. Nothing in the Bill should jeopardise that, with Britain continuing to be a magnet for inward investment.

[Lord Clement-Jones (LD)]

My Lords, it is a pleasure to follow the noble Lord, Lord Bilimoria, particularly as I am speaking to the two amendments that he has spoken to, because he speaks with huge authority and considerable backing.

To start with Amendment 85, we on these Benches are very sympathetic to the cause of SMEs. Whether this is the best way of catering for the considerable issues that they will face under the Bill is a matter for debate. I would prefer to see the thresholds altered to accommodate the needs of small businesses, but the heart of Amendment 85 is certainly in the right place.

I turn to Amendment 89. As we have heard, throughout the course of the Bill’s passage concerns have been expressed about its impact and the culture of the ISU as it enforces the Bill’s provisions. As ever, my noble friend Lord Fox anticipated some of my arguments in the previous group. It is critical that a regular review is undertaken to ensure that the Act is achieving its aims proportionately while not unduly deterring foreign investment.

Other aspects of the Bill include the five-yearly review of the Secretary of State’s statement about the exercise of the call-in power under Clause 3 and, of course, the annual report that we have just been talking about, which is inadequate in many ways. It is currently envisaged in Clause 61 and, as we debated in the last group, it does not go nearly far enough. Neither provision makes any reference to the effectiveness of the overall scheme of the legislation, whether it is achieving its objectives and, indeed, whether its overall purpose is being achieved. As my noble friend said, two key questions need answering here—effectively, are we safe and is our investment climate healthy? Where in any of the Bill’s provisions is the provision for that to be considered?

Amendment 89 would require the Secretary of State to undertake a review of the Act and report to Parliament every three years. This would involve a cost-benefit analysis of the regime’s impact, as set out in proposed subsection(2)(c).

I support Amendment 92 in the name of the noble Lord, Lord Leigh, and have signed it. I am sure that the noble Lord would have introduced it with far greater panache than me. But the Minister—the noble Lord, Lord Callanan—said at Second Reading:

“Noble Lords are entirely reasonable to expect further high-quality guidance from government to help businesses and investors navigate the regime.”—[Official Report, 4/2/21; col. 2391.]


That is reassuring but, as was made very clear by David Petrie, the head of the Corporate Finance Faculty of the ICAEW—I declare an interest as a member of its advisory board—in the Public Bill Committee on behalf of the members of the ICAEW, and as the noble Lord, Lord Bilimoria, has confirmed, the most effective way of tackling asymmetry of information in the business, investment and advisory communities would be the periodic production by the ISU of meaningful market guidance notes, modelled around the practice statements that accompany the City Code on Takeovers and Mergers.

Market guidance notes would be an important way for the ISU to engage closely and on an ongoing basis with businesses, investors and professional advisers. They would signal a culture of professionalism and openness to investment in UK businesses. They would support a necessary communication and awareness campaign of the legislative requirements. By setting out in an accessible way and in consultation with business, professional and sector bodies why and how businesses may be affected, the ISU could ensure that consistent and accurate information reaches the population of businesses and their advisers. Of course, future updates could also be issued in this format.

Beyond raising awareness, issuing market guidance notes over time would help to inform market participants on what they could be doing to make sure that the process works with more certainty, speed, clarity and transparency—all these cultural things that we have been talking about throughout the Bill, things which financial markets and the wider UK economy need to see. There would be a positive impact on productivity as a result; they would help to ease potential resourcing pressures on the ISU by increasing the proportion of notifications being submitted correctly, with all relevant details included.

I hardly need to say that market guidance notes would not form part of the Act and accordingly would not be binding on the Secretary of State. They would be issued to provide informal but meaningful guidance to businesses, investors and professional advisers on matters such as the level of information required in a mandatory or voluntary notification, and they would also provide commentary on the ISU’s normal approach to various provisions of the Act and greatly assist market participants seeking to establish the extent to which the Act may apply in a particular case. The ISU can also use them to share insights into trends where this would benefit the process. They would be amended periodically, or withdrawn as necessary, without the need for legislation—so extremely flexible. Each note could indicate the date on which it was issued, and so on.

There are other details that I could provide. There is great enthusiasm for this instrument, and I very much hope that the Bill will provide specifically for these. It would be an extremely useful indicator of the way in which the ISU proposes to operate.

National Security and Investment Bill

Lord Bilimoria Excerpts

Committee stage
Tuesday 9th March 2021 Grand Committee

[Lord Clement-Jones (LD)]

My Lords, it is a pleasure to follow the noble Lord, Lord Leigh, on his amendments. I think he will cause quite a stir when he gives his annual lecture. I will speak first to Amendments 20 and 24. I refer to my interests in the register.

Amendments 20 and 24 take account of the fact that the Bill as drafted does not include any de minimis thresholds for qualifying entities and assets, in stark contrast to other leading foreign investment regimes. The point behind these amendments is to ensure that mandatory notification requirements involving businesses have a de minimis threshold. Not having one would be disproportionate, given the likely cost of making mandatory filings and the relatively low risk of any national security issue arising in the context of such transactions. It would also act as a significant disincentive to global investors and the start-up and early stage businesses that they fund, which may simply relocate to a jurisdiction that takes a more benign approach. As the noble Lord, Lord Leigh, said, this risks seriously dampening innovation in the UK, particularly in the continued development of the technology sector and start-ups, which rely heavily on venture capital investment.

Introducing value thresholds of £10 million annual turnover in the UK for qualifying entities and £10 million gross value for qualifying assets, subject to anti-avoidance provisions to prevent the circumvention of the Act, would ensure a much more proportionate approach. Value thresholds are also used in a number of other leading foreign investment regimes. For example, Australia and Canada use a tiered threshold system based on the identity of the investor and the nature of the business, and, in the case of Australia, the level of control acquired.

The noble Lord, Lord Leigh, also explained the other amendments that he and I put forward in this group, Amendments 52A, 55A, 64A and 67A, which would introduce another red tape busting proposal: a fast-track process for non-problematic transactions. The Bill currently envisages that the investment security unit will reach an initial decision as to whether to clear a notified transaction or to call it in for a detailed assessment within 30 working days of acceptance of the notification as complete. As the noble Lord explained, a significant number of transactions will fall within the scope of the mandatory notification requirements due to the target’s activities being in a specified sector—we have seen those in the document published last week—but which clearly do not raise national security concerns. To minimise the deterrent effect of the new regime on foreign investment into the UK, these amendments would introduce a fast-track procedure for such non-problematic transactions, enabling the acquirer to request a review period, as the noble Lord again explained, within a period of 10 workings days instead of 30, combined with reduced information requirements for the notification.

I have mentioned Australia and Canada; if the Minister would prefer it, I can refer in this case to a special accelerated procedure recently introduced in France for certain transactions. The use of a fast-track initial review procedure would not prevent the Secretary of State referring a transaction for in-depth assessment, as the noble Lord, Lord Leigh, cogently explained, if this was considered necessary and the timetable for such subsequent review would not be affected.

I very much hope that, as I said, these two red tape busting amendments will be very carefully considered by the Government. Otherwise, we seriously risk the Bill’s impact being disproportionate and having a chilling effect on investment.

[Lord Bilimoria (CB) [V]]

My Lords, I will speak to Amendments 20 and 24 in the name of the noble Lord, Lord Leigh. The CBI, of which I am president, supports the principle of the legislation in the Bill in protecting national security, which will always be top priority. However, the current drafting makes the practical application of the Bill difficult for business and could lead to additional burdens and complexity at a micro level and be an unintended deterrent to investment at a macro level.

With no set de minimis thresholds for transactions caught by the legislation, there is a risk that a high volume of notifications will inadvertently represent relatively low-risk activity caught by this maximalist approach from legal teams and counsel. On top of that is the extraterritorial nature of the provisions in the Bill. Many transactions involving target suppliers supplying goods and services outside the nation will be caught in the notification requirements. Given this backdrop of a maximalist approach, there is real concern in business that the Government’s capacity to process the projected number of notifications while the regulations are in their infancy will be a problem.

According to the CFIUS annual report, in the United States in 2019, 231 notices were filed for screening, with 113 resulting in investigation. The Government currently estimate, and I wonder whether the Minister can confirm, that there will be 1,800 annual notifications. However, there is concern that the true estimate could be up to 10,000. We should not have the unintended consequence, mentioned by the noble Lords, Lord Leigh and Lord Clement-Jones, of deterring foreign investment just when the UK needs to increase its attractiveness to it. We are just coming through the pandemic, we have had Brexit, and we are establishing ourselves as an independent trading nation—global Britain. We are the second or third largest recipient of inward investment in the world, and a magnet for it. We are a gateway to Europe when it comes to investment, and we need to continue to be so.

Amendments 20 and 24, in the name of the noble Lord, Lord Leigh,

“seek to introduce value thresholds for qualifying entities and assets (subject to anti-avoidance provisions to prevent the circumvention of the Act), which would bring the NSI regime in line with other leading foreign investment regimes that have de minimis financial thresholds for notification.”

Such thresholds provide a critical floor to the regime, ensuring that higher-value, higher-interest transactions, entities and assets are predominantly in focus. Of course the Government should consider national security threats of all sizes. However, in order to provide officials with sufficient breathing space to make a success of the predicted number of notifications, which I spoke about earlier, this threshold should be applied.

Importantly, this amendment would concurrently bring the planned regime in line with other leading foreign investment regimes, as we have heard from other speakers. International comparisons and their consequential impact on the UK’s attractiveness as a location for inward investment should be a continual focus for government when implementing this regime.

Before I come to what the noble Lord, Lord Clement-Jones, mentioned, I should say that the Bill represents a significant expansion of the UK’s FDI. Since the Enterprise Act intervention regime was introduced in 2002, nearly 20 years ago, there have been just 12 interventions on the basis of national security. It appears that this new regime will see a large increase in the government’s workload and, as the noble Lord said, a much stricter regime than those brought in by other countries, including the USA, Australia, Japan and many countries in Europe.

We must not jeopardise, at any cost, our attraction for inward investment. Of course, national security is important, but we have to be a magnet for inward investment and the Bill must not prevent that happening.

National Security and Investment Bill

Lord Bilimoria Excerpts

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

[Lord Bilimoria (CB) [V]]

My Lords, the National Security and Investment Bill has a number of provisions: a separate national security screening regime, a broadening of the range of investments in scope, a statutory requirement for parties to notify relevant transactions in the most sensitive areas of the economy, and a new process for business investors supported by a call-in power to enable the BEIS Secretary of State to assess deals that may give rise to national security risks. The Bill allows for a retrospective call-in decision for up to five years, with criminal sanctions attached, and a predictable statutory process.

The CBI, of which I am president, supports the principle of the legislation in protecting national security, which will always be a priority. However, the current drafting makes the practical application of the Bill difficult for business. It could lead to additional burden, complexity at a micro level and, potentially, an unintended deterrent to investment at a macro level.

We heard from a wide range of businesses and members who share concerns about the Bill in its current form, from technology and digital to facilities management, to pharmaceuticals, to higher education, to financial services and to defence. There is a concern for a broad subsection of the business community. For example, the Russell Group says that if reporting under either the mandatory or voluntary regimes leads to delays or concerns from the business community over its ability to do business with universities, this could harm its members’ ability to attract investment to all parts of the UK in future.

With no set de minimis thresholds for transactions caught by the legislation, there is a risk that a high volume of notifications will inadvertently represent relatively low-risk activity driven by a maximalist approach from legal teams and counsel. The extraterritorial nature of the provisions of the Bill means that many transactions involving target suppliers supplying goods and services outside the UK will be caught in the notification requirements. Against a backdrop of the maximalist approach in business, there is a real concern about the Government’s capacity to process the projected number of notifications while the regulation is in its infancy.

According to the CFIUS annual report, 231 notices were filed with the US investment screening regime in 2019, with 113 resulting in subsequent investigation. The Government currently estimate that there will be up to 1,800 annual notifications under the regime, and there is concern that the true predicted estimates could reach up to 10,000, although the Government say that the number of transactions called in would be no more than 100. Can the Minister confirm that?

To allow for greater efficiency in the system, the UK might wish proactively to utilise the benefits of a white-list process for countries and/or companies. That could be incorporated through future trade deals if the legislation provides flexibility. However, this investment regime should not have the unintended consequence of deterring foreign investment just when the UK needs to increase its attractiveness to foreign investment, and just as we have come through the pandemic and established the UK as an independent trading nation post Brexit.

We are the second or third largest recipient of inward investment in the world. We have always been a gateway to the European Union, and we need to continue to be a gateway, including for foreign direct investment. The requirements for mandatory reporting in 17 sectors across the economy will vastly increase reporting requirements for business, damage the competitiveness of key sectors such as the tech sector, which relies on investment in start-up and scale-up, and create an impossible workload for British officials.

Companies across key sectors of the economy, from finance to universities, are also concerned that the UK regime is more onerous than its equivalents in the US, France, Germany and Australia, with more stringent thresholds for transactions and less clear guidance in areas. I ask the Government: have they carried out clear benchmarking and taken the best of all other existing regimes before coming up with our legislation now?

We should not forget the SMEs, which do not have the legal departments to wade through the complex provisions of the Bill. We want to work with business, and direct engagement with the Business Department has so far been very good. The Government have shown a willingness to consider targeted changes to the Bill, to ensure that business can help to make it a success.

I will run through a few of these changes, which could include a de minimis; making sanctions for transactions for mandatory filing that has not been made more workable; reducing the extra-territorial application of the call-in power; and introducing a fast-track process for less risky transactions, clarifying the time limits on the exercise of the call-in power. That could include creating checks and balances beyond the threat of judicial review, such as appraisal from an expert panel drawn from Whitehall and industry, introducing detailed guidance for investors. When qualifying assets are authorised for access for export through the UK Export Council regime, consideration should be given to exemption for the call-in. Further changes could ensure that for key sectors there is scope for the mandatory regime to be as clearly and narrowly defined as it is for those sectors that are of material interest to national security. There should be clarifications that IP provisions would not mean that companies exporting sensitive goods with de facto transfer of IP would not need to double report, if they had already received an export licence.

The City of London has given feedback and commented that the Bill represents a significant expansion of the UK’s FDI regime, given that since the Enterprise Act intervention regime was introduced in 2002, nearly 20 years ago, there have been just 12 interventions on the basis of national security. It appears that a new regime will see a large increase in the Government’s workload. Once again, the City of London said that it seems to be a much stricter regime than those brought in by other countries, including the USA, Australia, Japan and many in Europe. City sources also said that they recognise that it now sits alongside the new Office for Investment, a unit designed to attract high value and strategic FDI into the UK.

To conclude, the University of Cambridge—I declare my interest—says that it stands ready to work with the Government to protect Britain from emerging national threats by hostile foreign actors. The university understands and fully supports the dual thrust of the Bill materially to expand the Government’s ability to manage risk and foreign investment on national security grounds while avoiding adversely impacting the UK’s economy, global competitiveness and attractions as a forum for inward investment. However, it is concerned about the possible adverse impact of some elements of the Bill on higher education and the rest of the business sector.

Hospitality Sector Minister

Lord Bilimoria Excerpts

Wednesday 3rd February 2021 Lords Chamber

[Lord Callanan (Con) [V]]

As I said in my previous Answer, the responsibility for creating new ministerial positions rests with the Prime Minister. I think he has responded in writing to some of these questions from the Liaison Committee on that matter.

[Lord Bilimoria (CB) [V]]

My Lords, the hospitality industry has suffered more than just about any other sector over the last ten and a half months, being closed for more than half that period. Does the Minister agree that the Government should provide a road map, as the CBI—of which I am president—has recommended? This would guide businesses on the opening up of the economy, including whether a tier system is going to return and the use of rapid mass tests. Does he also agree that business support needs to be extended for the hospitality industry in particular, including extending the furlough scheme until the end of June and the business rates holiday, so that there is no March cliff edge?