National Security and Investment Bill

Lord Bruce of Bennachie Excerpts

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

[Lord Bruce of Bennachie (LD) [V]]

My Lords, the Bill has arrived in this House from the other place unamended, and across the House there has been general recognition of the need to reform takeover and investment rules to take account of national security considerations. However, for the Bill to be effective and proportionate it needs a clear statement of government strategy on what comprises national interest and security. At the moment, the provisional list of sectors is a catch-all and needs more detail. The Law Society of Scotland has stated reasonably that the Bill should be clear and that definitions of national security and details arising should not be left to secondary legislation. Without clarity, businesses and investors will face uncertainty about whether an acquisition or an investment in an influencing stake should trigger a referral, as other noble Lords have already stated. Should the fact that a foreign agency has a stake or qualifying interest in a UK-based company in any of the key sectors be, of itself, a reason for referral? The Law Society of Scotland and others believe that with a lack of clarity the number of referrals could be high, and that has been raised by a number of noble Lords.

There is also concern that, as the briefing states, almost anything purchased could conceivably be employed to attack national security. Examples are computers, drones, cameras and HDMI cables. So a medium-sized contractor preparing to start a contract could find itself subject to a referral, so delaying the contract and leading to extra costs and potential penalty clauses. This could even arise out of a malicious complaint from a competitor.

The society also highlights issues with Scots law relating to securities. This could be resolved if Clause 8 were amended to make it clear that nothing is triggered where the party taking security does not factually take control. Will the Minister consider this as failing to do so could specifically deter investment in Scottish companies?

There are also concerns that the possibility of referral could have an impact on the investment management industry, which is also important to the Scottish economy. The Institute of Directors, while accepting that the Government’s powers to intervene in the economy on grounds of national security need to be robust, is concerned about politicisation if the law is not clear. It is concerned that there will be a huge increase in workload, with real burdens on SMEs and that this, in turn, could, as the IoD puts it, have a chilling effect on investment.

Writing in the FT John Fingleton, former head of the OFT argues that the Bill goes far beyond measures introduced elsewhere in terms of its scope and in the measures that it introduces, including calling in deals up to five years after they were concluded. The Bill is also retrospective and applies to deals concluded the day after it was published, yet deals that may be affected can be referred to a new investment and security unit. Can the Minister say how that will be established and resourced because, as many noble Lords have said, the workload could be enormous and the specialisation should be very specific?

Both Fingleton and the IoD are concerned that, as the legislation is framed, it could lead to political lobbying for intervention with the possibility of Ministers using subjective, topical, political criteria. With this amount of uncertainty, there is a real danger that potential investors in UK businesses will be deterred and will look elsewhere. Many successful small and medium-sized businesses look for foreign investors to enable them to grow. They may find it harder if they are in one of the key sectors. The time and delay for an adjudication could be a decisive factor in preventing new investment or urgent refinancing or restructuring.

The current UK Government have been driven by their determination to deliver Brexit. The fall-out from the TCA will be felt for many years. What is not clear at home or abroad is what the Government’s strategic objectives are for the UK’s trade and investment future. Where is the industrial strategy? They have decided that our geography is not a prime asset. Why else would we tear up market access in Europe for as yet unquantifiable access to markets on the other side of the world? We have world-class universities and research and areas of technical excellence. I do not suggest that the Government should pick winners, but surely a strategy for building our economy based on our strengths and actively seeking international partnerships is a reasonable task. Of course, security threats may not be anticipated, and the Government need to be able to act when we are threatened, but a clearer set of criteria would balance national security against the need to keep Britain open for business.

In that context, I want Scotland to continue to offer an attractive location for inward investment. It is key to building a modern economy, developing new skills and improving the balance between the public, private and mixed sectors. We can be in the forefront of 5G, AI and quantum computing as well as biosciences and space and science technology, which was mentioned by the noble Lord, Lord McNally. Brexit presents bumps in the road, but uncertainty over Scottish independence could create roadblocks. Let not this Bill become another obstacle to investment. If it is clear, targeted and proportionate, it can protect our national security and investment promotion, and I hope that when it leaves this House it will do precisely that.