Retained EU Law (Revocation and Reform) Bill

Lord Clement-Jones Excerpts

2nd reading
Monday 6th February 2023 Lords Chamber

[Lord Clement-Jones (LD)]

My Lords, last week I hosted a meeting with Zsuzsanna Szelényi, the brave Hungarian former MP, a member of Fidesz and the author of Tainted Democracy: Viktor Orbán and the Subversion of Hungary. I reflected that this Bill, especially in the light of the reports from the DPRRC and the SLSC, is a government land grab of powers over Parliament, fully worthy of Viktor Orbán himself and his cronies. This is no less than an attempt to achieve a tawdry version of Singapore-on-Thames in the UK without proper democratic scrutiny, to the vast detriment of consumers, workers and creatives. It is no surprise that the Regulatory Policy Committee has stated that the Bill’s impact assessment is not fit for purpose.

It is not only important regulations that are being potentially swept away, but principles of interpretation and case law, built up over nearly 50 years of membership of the EU. This Government are knocking down the pillars of certainty of application of our laws. My noble friend Lord Fox rightly quoted the Bar Council in this respect. Clause 5 would rip out the fundamental right to the protection of personal data from the UK GDPR and the Data Protection Act 2018. This is a direct threat to the UK’s data adequacy, with all the consequences that that entails. Is that really the Government’s intention?

As regards consumers, Which? has demonstrated the threat to basic food hygiene requirements for all types of food businesses: controls over meat safety, maximum pesticide levels, food additive regulations, controls over allergens in foods and requirements for baby foods. Product safety rights at risk include those affecting child safety and regulations surrounding transport safety. Civil aviation services could be sunsetted, along with airlines’ liability requirements in the event of airline accidents. Consumer rights on cancellation and information, protection against aggressive selling practices and redress for consumer law breaches across many sectors could all be impacted. Are any of these rights dispensable—mere parking tickets?

Many noble Lords—in particular the noble Baroness, Lady O’Grady, in her excellent maiden speech—the TUC and many others have pointed out the employment rights that could be lost, and health and safety requirements too. Without so much as a by-your-leave, the Government could damage the employment conditions of every single employee in this country.

For creative workers in particular, the outlook as a result of this Bill is bleak. The impact of any change on the protection of part-time and fixed-term workers is particularly important for freelance workers in the creative industries. Fixed-term workers currently have the right to be treated no less favourably than a comparable permanent employee unless the employer can justify the different treatment. Are these rights dispensable? Are they mere parking tickets?

Then there is potentially the massive change to intellectual property rights, including CJEU case law on which rights holders rely. If these fall away, it creates huge uncertainty and incentive for litigation. The IP regulations and case law on the dashboard which could be sunsetted encompass a whole range, from databases, computer programs and performing rights to protections for medicines. At particular risk are artists’ resale rights, which give visual artists and their heirs a right to a royalty on secondary sales of the artist’s original works when sold on the art market. Visual artists are some of the lowest-earning creators, earning between £5,000 and £10,000 a year. Are these rights dispensable? Have the Government formed any view at all yet?

This Bill has created a fog of uncertainty over all these areas—a blank sheet of paper, per my noble friend Lord Beith; a giant question mark, per the noble Lord, Lord Heseltine—and the impact could be disastrous. I hope this House ensures it does not see the light of day in its current form.

Horizon Europe

Lord Clement-Jones Excerpts

Thursday 8th September 2022 Lords Chamber

[Lord Callanan (Con)]

The noble Viscount is attacking the wrong target. We remain ready to associate to Horizon Europe at the earliest possible opportunity, in line with our agreement with the EU on the TCA. It is the EU that is preventing this agreement, which is why we have launched the dispute procedure. The noble Viscount is linking two entirely separate issues: the Northern Ireland protocol is a separate issue in a separate agreement. This is the EU’s fault; it is trying to hold science hostage under the banner of another issue. We remain ready to associate, so, however many times the noble Viscount asks me the question, he will get the same answer.

[Lord Clement-Jones (LD)]

My Lords, the creation of ARIA was an admission of the bureaucratic nature of the current UKRI research funding system. The Government must adopt plan B, which would be regrettable, and introduce a new research funding stream for international research co-operation. Will they commit to streamlining UKRI procedures to make them as flexible and generous regarding direct costs and innovation, and as start-up friendly, as current European funding? Surely it cannot be the Government’s intention to increase red tape if we are unable to remain in Horizon Europe.

[Lord Callanan (Con)]

I very much agree with the noble Lord; it is very much not our intention to increase red tape. We are not ready to give up on Horizon yet, but it is obviously regrettable that the EU does not want to finalise our association and abide by the agreements that it entered into. We have launched the dispute procedure mechanism as a last try to persuade it of the benefits of this co-operation. We have excellent co-operation in other areas, such as energy, where we are helping the EU out in its hour of need. So we hope that it will see sense and abide by the agreement that it entered into, but, as the noble Lord said, we have a plan B if that proves not to be the case.

Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022

Lord Clement-Jones Excerpts

Tuesday 12th July 2022 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I start by thanking the Minister for arranging the recent meetings to which he just referred to show us the progress that has been made in creating the register of overseas entities and demonstrating the prototype. I was rather impressed by the progress and, in particular, the verification process that has been included.

The verification goes some way—further than I had expected—towards the suggestion that I and others raised in the debates on the Act, which was to have a regulated person sign off publicly that they have verified the information. We could still go a little further, by ensuring that the name of that person is shown up front and central in the publicly available database. I know it can be found, but I would like to see it in the key information on people involved in the entity, right alongside the beneficiaries, officers and directors. A search function that allows the database to be searched by verifier would also be a very useful tool. It would allow users to see whether any trends emerge and would soon highlight any enablers who are not taking the verification process seriously. The more publicly visible the verification is, the more likely it is to be taken seriously by those doing it.

I hope that the Government will look at strengthening that a bit but, more importantly, that the identities of those doing the verification will be rigorously checked, that the statistics will be closely monitored to identify any trends that emerge, and that action will be taken if it becomes clear, for example, that a small number of persons are verifying a disproportionate number of entities, especially entities registered in less than transparent locations.

I realise that that all relates to the SIs tabled under the negative procedure, but it is relevant to the instrument in front of us today, which mostly covers the rules that will allow the details of an entity to be kept private. Of course, there may be perfectly innocent reasons for that—for example, a celebrity who is worried about stalking, or things of that nature—but privacy must be the exception. These sorts of rules, if not rigorously applied, can creep to become the norm if we are not careful.

Can the Minister explain how the application of these rules for keeping details private will be monitored, and at what stage the Government would step in if there was evidence that the use of the rules was becoming more common than we would expect? What statistics will be available to the public about the use of these privacy rules? How will they be reported, and how regularly?

I am not completely clear which information will be private and which will be public if someone gets a dispensation. I spoke earlier about the verification process and the making public of the identity of the regulated person who carries out the verification being an important disincentive to casual, or even false, verification. If the details of the entity are private, will that also be private? If so, why? The identity of a regulated person is not likely to be sensitive. The regulations are to protect the privacy of people on an exceptional basis; they must not become a back-door way for enablers to avoid the disinfectant of publicity. The identity of the verifier should always be public. The Minister mentioned in his opening words the penalties for false filing that will apply to the directors and officers of the entity. Can he let us know what the penalties would be for a verifier who fails to verify appropriately?

[Lord Clement-Jones (LD)]

My Lords, first, I thank the Minister for his introduction and give apologies from my noble friend Lord Fox, who is unavoidably detained up a mountain. He would never normally miss an SI debate for the whole world. It is very good to see the noble Lord, Lord Vaux, in his place, as he played such a prominent role during the Bill’s Committee stage. Like him, I thank the Minister for arranging an extremely interesting and instructive hybrid demonstration of the digital application process, the way that it is put on the register and the way that the register will be maintained.

I want to speak to all three SIs, linked as they are, even if only one needs specific approval today. I welcome the speed at which the register is being brought into effect and echo the Minister’s praises for those who have been responsible for doing so. It goes quite some way to justify the rather cursory nature of the passage of the Act itself.

Of course, we still have unfinished business on the economic crime front and I hope very much that it is actively in the pipeline, to ensure that there are no kleptocrats or oligarchs out there who are unexposed. I hope that part 2 will consolidate the UK’s fragmented and ineffective anti-money laundering supervisory regime and reform corporate criminal liability law to ensure that it includes enablers. Enablers were very much the subject of our discussion in Committee. I hope that it combats the use of strategic litigation against public participation, which stifles public interest criticism of these characters, and empowers and resources Companies House to effectively monitor, verify and investigate suspicious companies. I hope that it will significantly increase resource for law enforcement agencies fighting economic crime and support whistleblowers to play an effective role in tackling economic crime. Could the Minister give us a little indication of when we might expect those goodies in the part 2 Bill?

On Regulation 7, I hope that the provisions regarding not putting information on the public register are rigorously applied. But I think there are questions when one looks through the regulation. Will certain elements of the enforcement and crime prevention authorities be consulted when an application under Regulation 7 takes place? What checks of the evidence provided by the applicant will be carried out? That is going to be an extremely important element to maintain that rigour.

As I said, we have had much discussion about enablers. It seems that those who do not comply with the requirements or make false returns on behalf of clients will be subject only to sanctions by their professional body or regulator. Have I got that right? I believe that that is what the Minister said when we had our demonstration. If that is correct, are there plans in part 2 to have sanctions on those professionals who give false verification under Section 16 of the Act, other than via professional bodies? Otherwise, it seems a very tame way of making sure that those who provide that verification do it honestly and with integrity.

It is notable that in this SI process the Act has actually been improved along the lines suggested in Committee by myself and my noble friend Lord Fox for overseas corporate trusts and nominee companies. I used the example of a Panamanian nominee company with multiple properties to point out the flaws in the original Bill. I believe—and I hope that the Minister can confirm—that that avenue is now completely closed, and that a Panamanian nominee trust company would have to disclose the beneficial ownership of every property in its portfolio.

I see that there is no impact statement. In fact, there is a statement in each SI that there is no impact from any of the SIs. That seems very strange. Is it a technicality? In other words, does the main impact come from the passing of the primary legislation? Or is it the case that this set of SIs and maintaining the register will have no impact? It seems extraordinary to put that statement into these SIs, when what they actually do is put into effect the really important part of part 1 of the economic crime legislation. I hope that the Minister can clarify where the Government believe that the impact is.

I have a little technical teaser for the SI team. I noticed that these regulations are made partly under Section 25(3) but not under Section 25(3)(e) and (g). Given that they are being made under paragraphs (a) to (d) and (f), that seems rather odd. Paragraph (e) is

“recording of restrictions in the register”

and paragraph (g) is

“the charging of fees by the registrar for disclosing information where the regulations permit disclosure, by way of exception, in specified circumstances.”

Since the SI specifically mentions the bits of the Act which are prayed in aid to make the regulation, it would be useful to know why these two paragraphs have been excluded.

We have three SIs here. Are any other SIs needed to bring the register into effect or is that it? Can we say it is done and dusted, all that needs to happen now is that Companies House gets on with it and the register will be open as soon as possible?

Finally, it would be useful to know from the Minister by when he expects the Crown dependencies and overseas territories to introduce public company ownership registers. I believe it was meant to be by the end of the year; are they still on track for that? In the meantime, will the Government ensure that the authorities in those dependencies and overseas territories will proactively share information with UK authorities to enable comprehensive sanctions designations?

[Lord McNicol of West Kilbride (Lab)]

My Lords, I thank the Minister for explaining this instrument. As we know, it implements aspects of the new register of overseas entities, which will finally require owners of UK property to reveal their true identities and crack down on foreign criminals using UK property to launder money. I apologise for not attending the digital presentation, which sounded fascinating. Maybe I can look into that for the future.

As the Minister said, in order to do this, this instrument will require certain documents to be electronically delivered to the Registrar of Companies. It will also set up a protection regime which will allow owners and managing officers of overseas entities to apply to have their information made unavailable for public inspection, where there is evidence that they or someone in their household are at serious risk of violence or intimidation, and will set out that legal entities governed by the law of another country are subject to their own disclosure requirements.

These are all positive steps which we support. However, I think the noble Lords, Lord Vaux and Lord Clement-Jones, and I are looking for a bit more of an explanation so that these protections are not abused. If the Minister could share some of the detail of the protections that will be put in place to stop the overuse or abuse of these protections, I am sure your Lordships’ Committee would be appreciative.

There is a lot to be said here, but of course it has all been said before on many occasions, not least during the passage of the Economic Crime Act through this House in March. As such, I will not keep your Lordships for too long, repeating what has already been said. However, I have some points to make, primarily around the timetabling. The noble Lord, Lord Clement-Jones, picked up a few of those, but I would like to add to them.

There should be nothing controversial about knowing who really owns property in the UK in a healthy, transparent economy and making that information publicly available. Transparency in this area is essential. This is a matter not simply of targeting individuals or entities through sanctions but of fixing a broken system that has helped sustain Putin in his invasion of Ukraine. However, it is not just because of oligarchs and their position in Putin’s regime that this has finally being expedited. Like others, I congratulate the Bill team and the civil servants on their speed in pushing this through. It also deals with money launderers and tax evaders.

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[Lord Callanan (Con)]

I thank noble Lords for their support and their valuable contributions. I think the measure has a wide measure of support. I too pay tribute to the officials who have worked long and hard to bring this into operation.

Before I talk about this, I will answer the point from the noble Lord, Lord Clement-Jones, about economic crime 2, as we are not in fact referring to it; we are not allowed to call it that, for some strange reason, but it is the next tranche of economic crime legislation that we expect to introduce to Parliament shortly after the Summer Recess. The measure is being worked on now. I am afraid I cannot promise him that all the measures he outlined at length will be contained in it—I am sure we will have some debate about that—but we intend to take action on some or many of the things he mentioned, particularly reforms to Companies House.

The Government are committed to ensuring that this register strikes the right balance between improving transparency and minimising the burdens on legitimate commercial activity. The measures contained in this instrument will play a key part in the effectiveness of the register from its launch. To pick up on the point from the noble Lord, Lord McNicol, I hope we can bring the register live on 1 August. That is the intention.

These regulations are essential for the register of overseas entities to operate effectively from the outset. To answer the point from the noble Lord, Lord Clement-Jones, they will enable it to operate. I am afraid they are not the end of the regulations—we will need some additional ones to further clarify the operation, et cetera—but they will enable it to commence and the six-month countdown period to start. All existing entities, including those that have made transactions since 28 February, will have to register in that period. That was a discussion we had during the passage of the Act.

[Lord Clement-Jones (LD)]

I thank the Minister for the detail. Can he say whether that will be by an affirmative or a negative process?

[Lord Callanan (Con)]

Four affirmative and six negative, I am informed by the experts. So we will be back, yes. We will return, as they say.

These regulations are essential for the register to operate, so we can commence it and get the six-month countdown period started. There has been some debate about whether we might expect a large rush of applications as soon as the register goes live. I reiterate that the vast majority of these overseas entities are legitimately owning property. They are corporations and others that legitimately own land, commercial properties, et cetera, in the UK. They will want to ensure that they are in compliance from the outset.

Mandating digital delivery for certain documents ensures that the registrar is able to receive and process information in a timely manner. An effective protection regime will protect those at real risk of serious harm because of their link with the overseas entity from the public disclosure of their details. I say again that this information must still be provided and will still be available to law enforcement. I will say a few more words about that shortly.

The measure on trustees allows for a consistent approach to dealing with corporate and individual trustees. It is a complicated area, but I assure noble Lords that we are attempting to close every possible potential loophole. We will also have some further measures in the economic crime Bill to tackle this issue of trustees, which, as the noble Lord, Lord Vaux, is always reminding me, is extremely complicated. But we are determined, and we will not hesitate, to return to this if any inadvertent loopholes are discovered. But we want to make it harder for corporate structures to be altered to avoid reporting requirements.

The main point raised—predictably—by noble Lords was the issue of protections. To try to alleviate concerns, I will give some of the statistics for the existing regime. There are something like 4.9 million companies registered on the UK companies register. Since 2016 there have been 436 applications for protections from that register, of which 163 have been granted—163 out of 4.9 million. Bearing that in mind, there are about 35,000 overseas entities; it is possible, given their nature, that a slightly greater proportion of the persons with significant control of overseas entities will want to be exempted, but I hope I can reassure noble Lords that the system is not being abused and that, given the proportions, tiny numbers of applications are being granted. Of course, I will make sure that this is closely monitored and that there is no excessive use of this provision. It will be only for those who have a very real need for that protection. But I think we can see from the use of it—it is pretty much an identical regime for the persons with significant control—that it is a tiny proportion, and an even smaller proportion of applications are granted. As I said, only 163 of 436 applications were granted.

This will be a public register. All information will be displayed, aside from, as I mentioned, protected information, such as date of birth and residential address information. Of course, again, that will be available to law enforcement and other public bodies. Companies House does have experience of determining these applications for protections since the PSC regime was introduced in 2016. We will ensure that the mechanism is robust and we will require applicants to provide evidence as to why they think there is a serious risk of violence or intimidation. If necessary, we will refer cases to the appropriate law enforcement agency. I reiterate that the protection does not exempt the person from disclosing this information to Companies House and all protected information is still available to law enforcement. So there is no place to hide.

I will give the figures once again. There were 436 applications under the previous regime, and 163 of them were granted.

The noble Lord, Lord Vaux, asked about verification. Agents who will provide the verification will be UK anti-money laundering supervised professionals—

[Lord Clement-Jones (LD)]

Before the Minister moves on to verification, I just wanted to probe a little further on the Regulation 7 points he was talking about. It is reassuring that it will be a limited number, but my question was about Regulation 7(3):

“The grounds on which an application may be made are that the applicant reasonably believes that if that protected information is available for public inspection or disclosed by the registrar … the activities of that overseas entity; or … one or more characteristics or personal attributes of the relevant individual when associated with that overseas entity, will put the relevant individual or a person living with the relevant individual at serious risk of being subjected to violence or intimidation.”


How is Companies House going to assess that? Is it going to consult other crime prevention authorities? Is there an evidence-checking process?

[Lord Callanan (Con)]

The answer to that question is: absolutely. It is kept deliberately—not vague; that is the wrong word. There is a wide scope here, because different individuals will be affected in different ways. They might be foreign diplomats, to take one example. There could be a number of different opportunities depending on their personal circumstances, but the Act is very clear: they will have to provide evidence. That evidence will be checked and verified, and if necessary the head of Companies House, the registrar, will consult the law enforcement agencies.

Noble Lords can see that 163 out of the 436 applications made were granted under the previous regime, so it is clearly a rigorous process and they will have to provide the appropriate evidence. We will monitor it and make sure that the system is not abused. I reiterate that the information is still available to law enforcement; it is just not on the public register. It is also worth saying that there is considerable interest in this from transparency organisations, who I am sure, once the register goes live, will—correctly—crawl all over it and point out any obvious errors or omissions, or anybody who is attempting to avoid the provisions.

I move on to the verification of agents. They will be UK anti-money laundering supervised professionals, and most of those individuals already carry out due diligence when completing property transactions. Those who seek to circumvent the requirements of the Act, including any who provide misleading, false or deceptive information, are liable to criminal or civil sanctions. The identity of the person carrying out the verification will be made public and appear on the face of the register, and if necessary there will be future enhancements for making that information more accessible. We are determined that there is no place to hide for either those seeking to acquire property maliciously or the professionals who enable them to do so.

Companies House will engage with the verifier’s supervisory body, but ultimately the enhanced false filing offence may be used in this circumstance, if necessary. Some of the feedback we have had from professional organisations—I shall not mention them—think that these provisions are too draconian; they are unwilling to put their name to some of them. I did say that there was unlikely to be much sympathy in the House for that position.

The noble Lord, Lord Clement-Jones, questioned the impact assessment. The secondary legislation does not make any significant changes that were not anticipated in the primary legislation impact assessment, and for this reason, in line with the better regulation framework, for which I am also responsible, we did not think another impact assessment was necessary and one has not been produced.

The noble Lord also rightly raised the point of tackling the enablers of economic crime. As I said, the information about agents and verifiers will be published on the register. We believe the supervisory regime we have in the UK is comprehensive. We regulate and supervise all businesses most at risk of facilitating money laundering, including accountants, estate and letting agents, high-value dealers, trust or company service providers, the art market, et cetera.

HMRC’s civil and criminal enforcement powers and capabilities are an integral part of government work to collect and protect revenue and build a trusted, modern tax and customs department. Our enforcement powers allow us already to tackle a minority who attempt to cheat the system and whose actions cause wider harms. HMRC uses a range of supervisory enforcement powers robustly, to address money laundering and terrorist financing risks caused by non-compliant businesses. The aim of this register is to help them in that task.

As always, of course, the Government keep the law under regular review to ensure that there is a robust legislative framework. Following concerns that parts of the criminal law may not be fit for purpose and calls for legislative certainty around the prosecution of corporate bodies for economic crime, the Government sought to establish whether there was a case for change. In 2020 the Government commissioned the Law Commission to undertake a detailed review of how the legislative framework could be improved to appropriately capture and punish criminal offences committed by corporations, with a particular focus on economic crime. That paper was published on 10 June this year. We are carefully assessing the options presented and are committed to working quickly to reform corporate criminal liability.

Economic Crime (Transparency and Enforcement) Bill

Lord Clement-Jones Excerpts

Committee stage
Monday 14th March 2022 Lords Chamber

Amendments 16, 26, 27, 31 and 32 are consequential on other amendments to ensure that the new amendments are consistent. I hope that is helpful to noble Lords. I beg to move.

[Lord Clement-Jones (LD)]

My Lords, I rise to speak to Amendment 17. I am delighted that it has also been signed by the noble Lord, Lord Agnew. This would extend the definition of a registerable beneficial owner of an overseas entity to include anyone who is the beneficial owner of land or property held by the entity.

Why does this matter? Let me give an example. Mr X wants to buy a house in London and sets up an overseas company to own the land. In this scenario, he meets the conditions for being a beneficial owner of a company; the Bill works as intended. However, assume our Mr X rather likes his anonymity, so he approaches a Panama law firm which, after a payment, buys the house for him using its general nominee company which holds legal title to many such properties all beneficially owned by different people. The nominee company issues a declaration to Mr X that it is holding the land as his nominee and that he is the beneficial owner of the property.

In this scenario, the nominee company is the overseas entity owning the property and its beneficial owner is the law firm which set it up. Depending on its ownership structure, the partners at the law firm may or may not appear on the register. However, that is not the point. They may be the beneficial owners of the nominee company but are not the beneficial owners of any of the properties owned by the company. Mr X and the other beneficial owners of the properties held by the nominee company do not tick any of the boxes for being a beneficial owner of that company. The declaration issued by the nominee company is private, so in this scenario they remain anonymous.

Is this what the Government intend? Opening the Second Reading debate last week, the Minister, the noble Baroness, Lady Williams of Trafford, said that the Bill would

“require anonymous foreign owners of UK property to reveal their real identity, ensuring that they can no longer hide behind secretive chains of shell companies.”—[Official Report, 9/3/22; col. 1484.]

That suggests that this is not what the Government intended, and this is where Amendment 17 comes in. By extending the definition of a beneficial owner of an overseas entity holding UK property to include anyone who is the beneficial owner of land or property held by the entity, we would be giving this Bill the scope the Government appear to intend for it.

Responding to last week’s debate in the other House, the Minister there said that if nominee companies were “directed by someone else”—the beneficial owner of the land—then the person doing the directing would be “caught by condition 4” in the definition of a beneficial owner: significant influence or control. But that would only be the case if a separate nominee company is set up for the particular beneficial owner. If a general nominee company is used and this acts for hundreds of different clients, then it is difficult to see that any one of them exercises significant influence or control over the nominee company. That is why Amendment 17 is needed.

[Lord Eatwell (Lab)]

My Lords, I support the theme of what the noble Lord, Lord Clement-Jones, just said, which is the general weakness of the definition of beneficial ownership in this Bill. It is very striking that in other jurisdictions within the British Isles that hold registers of beneficial ownership and have done for some years, the beneficial owner is always defined as an individual and never as a firm or a trust. An individual who ultimately owns or controls the entity must be identified. The Bill as currently constructed has significant weaknesses, which will prevent the identification of individual beneficial owners in the way that the Government apparently intend but have not as yet achieved.

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[Lord Empey (UUP)]

My Lords, I think that everybody in this House, as was the case last week, is on the same page, and we do not want to be seen to be arguing amongst ourselves until the early hours of the morning about something that is so significant. But can I ask the Minister if he and his colleagues in his department will keep a rolling review of this going, even if the gap between this legislation and the next piece of legislation is comparatively short? The last thing we would want is to see some oligarch on the front page of a national newspaper smirking that he or she had circumvented and found some way of actually getting around the will of Parliament and humiliating us. It would be seen, I think, as a failure of policy. I am sure that the Minister is very conscious of that, but it would be helpful if he could tell us that his department will monitor this on an ongoing basis, and not deal with this as a one-off and just leave it to the next piece of legislation.

[Lord Clement-Jones (LD)]

My Lords, perhaps I could just add to what the noble Lord has just said. The Minister mentioned the regulations which are possible post the passing of the Bill. Will he undertake to review some of the points made during the passage of this Bill and consider whether or not regulations might be needed to fill certain gaps?

[Lord Callanan (Con)]

Indeed, I am happy to provide the reassurances that both noble Lords have asked for—in the case of the noble Lord, Lord Clement-Jones, in terms of the regulations, and in the case of the noble Lord, Lord Empey, that we see this as an iterative process. As I mentioned, this is fairly unique legislation in the world; we are aware of only one other country, possibly, that has attempted to do something similar. When we introduced the provisions on PSCs—persons with significant control—in relation to UK companies, we had to make some iterative changes to that, as it became evident over time that aspects were not working as effectively as we had hoped. I hope that we have thought of everything on this one, and I hope that we have all of the details correct, but a lot of it—some of it anyway—has been drafted in haste and it is possible that we will have missed one or two complicated international devices. But, the noble Lord can be assured that we will keep it regularly under review, and if there are—I hesitate to use the word “loopholes”, although it is probably appropriate—devices that clever lawyers, of which there are several in this House, find to get around the provisions, we will not hesitate to close them if we need to.

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[Lord Cromwell (CB)]

My Lords, there is clearly a great deal we can learn from Jersey and I am very happy to follow the noble Lord, Lord Eatwell.

I will speak to Amendment 24, to which I have added my name, and will also make a couple of comments on Amendment 53—there may be a slight sense of déjà vu, as my noble friend Lord Vaux has done the same.

In relation to Amendment 24, on page 3 of his very helpful all-Peers letter of 11 March, the Minister explains that Companies House would not know if a legal entity registered abroad was compliant with the 14-day rule. Likewise, this would not be visible to a third party, whereas that third party could be confident that, if an annual date had passed, the register would be up to date.

I am not convinced that that is so clear-cut or indeed helpful. This approach means that, for up to 12 months, an entity could keep hidden its change in ownership structure. Only at that point would it be in breach if it had not disclosed the change—or possibly multiple changes. Assuming—which may be a bold assumption given some of the entities—that the entity indeed complied with a 12-month date to reveal changes, this would still leave the third party in the dark for up to 12 months and the entity under no obligation to register the changes and having that as a defence. In short, it is possible for entities to game the system by carefully timing their changes. Twelve months, or even one month, can be a long time in business.

This also makes it possible for an entity to waste the time and resources of the acquirer and the regulatory and enforcement agencies if, for example, it becomes subject to sanctions based on its ownership but can claim, at a time to suit itself, that the affected owner or owners actually no longer own it. A 14-day limit greatly tightens the ability of both the registrar and any third party to see, at least in the case of compliant entities, any registered changes in as close to real time as is practicable.

Where entities are not compliant and fail to declare changes in this timely way, should this emerge in due course, it should give the third-party acquirer grounds for withdrawal and the authorities grounds for pursuit. This does leave an obligation on the registrar to ensure that entries are kept up to date, but that is a technological and resourcing issue perhaps better addressed in other amendments. For these reasons, I added my name to Amendment 24 and support it. I urge the Minister to rethink the 14-day requirement.

I shall now make a few comments on Amendment 53. In paragraph 4 on page 2 of the same letter, in relation to the purpose of the Bill, the Minister acknowledges that there will be those who seek to exploit opportunities to avoid it—he also referred to this earlier today. I raised at Second Reading the issue that there are enablers whose approach to reporting suspicions is light-touch or simply to turn a blind eye. I also advocated the idea put forward very eloquently by my noble friend Lord Vaux a few moments ago of having a named senior official on the hook. Simply saying that existing regulations cover this is to deny the evidence that there are entities and enablers in the area addressed by this Bill that have been skirting round existing regulations too easily by claiming ignorance or that suspicion was only mild. I think this may be more specifically reflected in the reference in paragraph 5 on page 5 of the Minister’s letter of 11 March, which says in relation to verification of information that:

“We expect that this will include a role for professionals regulated in the UK by the Money Laundering Regulations.”


This amendment, by including suspicion rather than certain knowledge, covers the loophole by which enablers can claim not to have had certain knowledge even if they should have had reasonable suspicion. This makes it considerably more difficult for enablers and others to look the other way and strengthens the hand of those seeking to hold them better to account. I support this amendment.

[Lord Clement-Jones (LD)]

My Lords, I shall speak to Amendment 53. I thank the noble Lords, Lord Cromwell and Lord Vaux, for their support, although I understand that they would like to see this tweaked to go further. I also thank the noble Lord, Lord Eatwell, for his supportive comments.

The Bill needs to be comprehensively amended to close the loopholes that currently allow professional enablers to undermine the effectiveness of, and even circumvent, the checks aimed at detecting, disrupting and deterring economic crime. One of the key ways this can be done is by imposing a positive duty on professional enablers to disclose knowledge or reasonable suspicion that misleading, false or deceptive information has been provided to the registrar of overseas entities.

As I set out on Second Reading, professional enablers, such as lawyers, accountants and bankers, are the gatekeepers of economic crime and the Government need to adopt a comprehensive strategy towards them. Given the nature of their work, there is an inherently high risk that these professionals may unwittingly enable economic crime, but there are also enablers that specialise in services aimed at concealing the source of wealth or ownership so as to frustrate the objectives of the law.

This poses a particularly acute challenge in the context of the Bill’s attempt to tighten the checks around the beneficial ownership of property by overseas entities. The UK’s 2017 national risk assessment of money laundering and terrorist financing revealed that 50% of suspicious activity reports related to the legal sector in 2016 were linked to the property market, illustrating that real estate transactions are especially susceptible to money laundering.

As the noble Lord, Lord Vaux, very eloquently deconstructed, the Minister prayed in aid regulation by the Solicitors Regulation Authority and the Institute of Chartered Accountants in England and Wales on Second Reading. Does the Minister really believe that these regulators are the way to tackle these professional enablers? The current model for supervising professional enablers is fragmented and weak. In the legal and accountancy sectors alone, there are 22 different professional body supervisors, or PBSs. In its 2021 report, the Office for Professional Body Anti-Money Laundering Supervision found that the vast majority—some 81%—of these legal and accounting PBSs do not implement an effective risk-based approach to supervising their members as required by the money laundering regulations. Where is the evidence that they can do the kind of job needed to root out corrupt behaviour in sanctions avoidance or as envisaged by this Bill?

In summary, it is critical that the Bill addresses the heightened risk that professional enablers, particularly conveyancers and lawyers, will frustrate the objectives of the register of overseas entities. Beyond this modest amendment, urgent reform is needed—I hope it will take place in the second Bill—to ensure that there is effective, comprehensive supervision of professional enablers. This should be fully addressed when we come to the second economic crime Bill.

[Lord Rooker (Lab)]

My Lords, I had not intended to speak today. I came to learn and listen to the experts on areas I do not know much about. But listening to the noble Lords, Lord Cromwell and Lord Clement-Jones, I am reminded of an example. I know this would not be classed as money laundering, but the well-known spiv, Aaron Banks, was responsible for what is, I think, the biggest political donation in British history—I think it was £8 million—during the Brexit referendum period. When it came to investigation by the Electoral Commission, which had the responsibility for doing this, he was not an unwitting enabler. His conclusion was, “We’re cleverer than the regulator.” The Minister does not want to be faced with that during the passage of this Bill and its actions, so he would be very wise to accept the spirit of some of these amendments.

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[Lord Callanan (Con)]

Yes, that provides the required legal certainty to the third party that is buying it, at the expense of, perhaps, a certain amount of transparency for that 11.5-month period. So, yes, I accept that.

The annual update already requires an overseas entity to provide information about its current beneficial owners, as well as any changes since its last update. This latter information was added as a result of the pre-legislative scrutiny of the Bill, providing a complete picture of an overseas entity’s beneficial owners. For these reasons we do not believe a change in the updating period is necessary or desirable, and I therefore encourage noble Lords not to press their amendments.

Turning to government Amendments 49, 50, 51 and 52, the Government have listened to the concerns raised about the need to deal effectively with anyone seeking to file false or misleading information or those who know or suspect that they may be filing false information, and we have taken on board those concerns. I thank all noble Lords who raised these concerns with me. They made the point that the evidential threshold to prove intent or recklessness is too high in the clauses as drafted. I have therefore tabled these government amendments to ensure that those who provide false or misleading information “without reasonable excuse”—in other words, a lower legal barrier—can be prosecuted and are subject on conviction to an unlimited fine. This will catch those who seek to facilitate and enable money launderers and the corrupt.

Furthermore, we have amended the threshold for what, under our amendments, constitutes an aggravated offence. This removes the reference to the word “recklessly”, which caused a lot of concern in the other place and to the noble Lord, Lord Fox, and others in this place. It also retains the potential for imprisonment and an unlimited fine if convicted of the aggravated offence of knowingly filing false, misleading or deceptive information. I hope this addresses the concerns.

I thank the noble Lord, Lord Clement-Jones, for Amendment 53, which would create a criminal offence of failing to disclose to the registrar certain information when a professional knows or suspects, or has reasonable grounds for knowing or suspecting, that misleading, false, or otherwise deceptive information was provided to them in their professional capacity. Again, I understand the noble Lord’s motive for proposing this new clause, but I hope that he will agree that his aims can be met by the existing provisions in the legislation regarding offences for the provision of false information, as developed in the way I have just set out by the Government’s amendments to lower the threshold needed for prosecution. We are confident that this will ensure that enforcement agencies have sufficient capacity to tackle those who seek to subvert the integrity of the register through the provision of misleading information.

I also take this opportunity to reassure the noble Lord—

[Lord Clement-Jones (LD)]

My Lords, I am afraid I do not agree with the Minister; I am amazed that he thought that I would. The Government need a strategy to catch these enablers in the way that they currently operate. What strategy do the Government have? The Minister was just about to pass on to other things. He has prayed in aid the professional regulators, such as the SRA and the ICAEW, and he has more or less said that the legislation is absolutely fine: it will catch the enablers properly. But does the Government not need a proper strategy for dealing with enablers? They cannot gloss this over. Is the Minister prepared to look at this carefully before the next Bill?

[Lord Callanan (Con)]

Of course, we are constantly looking at these matters. The Treasury is implicitly engaged in pursuing crackdowns on the so-called enablers that the noble Lord has mentioned, and the anti-money laundering regulations exist. This register, which is a transparency measure, is designed to provide information to the public, HMRC and other law enforcement agencies that can then take the appropriate action under the other provisions. However—before the noble Lord, Lord Fox, gets up—I totally agree with the noble Lord that we need to look again at whether the anti-money laundering statutes are appropriate. It is not for this legislation, but I am sure it is something we will want to look at in detail before we get to the next Bill, because it is a complicated area of law. If we do not, I am sure the noble Lord will wish to table his amendments again then.

[Lord Callanan (Con)]

I am happy to agree with the noble Lord. If there is one firm of accountants or one legal practice that is turning a blind eye to these provisions, there is a problem with which we need to deal. Nobody wants to see that; we want to give the UK a reputation as the best place in the world to do business and to crack down on the small minority of the legal profession that are abusing their position and facilities—of course we would want to do that.

[Lord Clement-Jones (LD)]

My Lords, I am sorry to interrupt the Minister and slow the proceedings but, on that point, the Minister began to move, gradually, towards thinking about the enablers, and mentioned anti-money laundering legislation. But it is wider than that: it is about sanctions, economic crime in general and the provisions of this Bill. Is the Minister prepared to undertake to look more broadly across the piece?

[Lord Callanan (Con)]

Yes. Obviously, a number of different government departments would be involved in doing this, but a number have been involved in putting the provisions into this Bill, and a number will be involved in the provisions of the next economic crime Bill. Of course, we want to take action against lawyers and accountants who abuse their positions to benefit some of these oligarchs and others. We have all seen the press reports and we all know the people that we are concerned about. I would not seek to defend them in the slightest, and I hope that we will be able to put the appropriate sanctions in place to deal with them.

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Moved by

[Lord Clement-Jones]

90: Clause 47, leave out Clause 47 and insert the following new Clause—
“Civil recovery: costs of proceedings
After section 316 of the Proceeds of Crime Act 2002 insert—“Civil recovery: costs of proceedings<strong>316A </strong> Costs orders(1) This section applies to proceedings brought by an enforcement authority under part 5 of the Proceeds of Crime Act 2002.(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate, or(b) the authority acted dishonestly or improperly in the course of the proceedings.””

[Lord Clement-Jones (LD)]

This amendment would provide limits on costs orders in relation to all civil recovery proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002, which enables law enforcement authorities to recover property obtained through unlawful conduct without the evidentiary difficulties of securing a criminal conviction. The effective exercise of these powers is essential if civil recovery is to fulfil its purpose of deterring criminals who are as concerned, if not more concerned, with losing their assets than they are with losing their liberty.

The current costs regime for civil recovery is fragmented, with different rules applicable in different courts. I am very well aware that on the other side of the aisle are some of the experts in this area. Civil Procedure Rules apply in the High Court, the Court of Appeal and county courts. Rule 44.2 of the CPR sets out the general principles in civil proceedings that costs follow the result—that is, the winner pays the loser’s costs, but the court retains discretion to make a different order and determine the amount of costs to be paid. The principles relevant to the exercise of judicial discretion to award costs in civil proceedings in the Crown Court and magistrates’ courts have evolved over time through case law.

In civil proceedings brought by public authorities in the Crown Court and magistrates’ courts, the approach to costs is reflected in the so-called Perinpanathan principle. This includes civil recovery proceedings brought under Part 5 of the Proceeds of Crime Act 2002. In the Perinpanathan case, the Court of Appeal held that, where a public authority is unsuccessful in bringing an application, the default position or starting point is that no order for costs is made. However, a successful private party may be awarded costs if the conduct of the public authority justifies it. As a result, enforcement authorities will rarely have to pay costs when pursuing civil recovery in the magistrates’ court, but are exposed to significant costs in High Court proceedings, where the general rule is that the unsuccessful party pays the legal costs of the successful party.

Clauses 47 and 48 reflect a recognition that significant and deterring costs have made enforcement authorities reluctant to utilise unexplained wealth orders in their current iteration. Only nine UWOs, relating to four cases, have been obtained by the National Crime Agency since this investigative tool was introduced in January 2018. The unsuccessful UWO application in the Aliyev case, which I mentioned at Second Reading, left the NCA facing £1.5 million in legal costs.

Limiting the liability of enforcement authorities to pay costs in UWO proceedings is a welcome step, but it is a piecemeal intervention which does not address the chilling effect of adverse costs orders in civil recovery proceedings more broadly. This proposed amendment seeks to ensure consistency of approach in civil recovery proceedings so that adequate cost protections encourage enforcement authorities to put their economic crime-fighting tools to effective use. At present, the prospect of prohibitively expensive legal costs effectively renders certain assets out of the reach of underresourced law enforcement agencies. We need a new, consistent cost protection regime for law enforcement agencies and regulators under the Proceeds of Crime Act as a whole.

I am very grateful to Spotlight on Corruption for raising this issue and laying the grounds for this amendment. The starting point should be that a law enforcement body or regulator should not be ordered to pay costs where it is unsuccessful in bringing or defending civil proceedings. This would have the effect of each party bearing its own costs. However, the court should retain discretion to depart from this default rule in cases where there is good reason. This could include where the law enforcement body or regulator has acted unreasonably in bringing or defending proceedings and where the interests of justice and fairness would be offended, including where substantial financial hardship is likely to be suffered by the successful party if a costs order is not made.

I very much hope that the Government see the merits of Amendment 90 and of applying it in the same way to Scotland—the notice to oppose the Question that Clause 48 stand part of the Bill would have exactly that effect. I beg to move.

[Baroness Smith of Basildon (Lab)]

My Lords, I will be brief. I have listened very careful to the noble Lord, Lord Clement-Jones, and my understanding is that the Government are seeking to protect the enforcement bodies, such as the National Crime Agency, from the costs of legal action. Clearly, it is important to provide these agencies with an element of cover from being pursued for costs, as they must be free to investigate activities as they see fit and not fear the potential costs of bringing what they believe to be a legitimate case. As we have heard already tonight, the resources available to those being investigated is often hugely significant.

The noble Lord, Lord Clement-Jones, is proposing a much broader approach on this than in the government clauses, applying the principle to all civil recovery proceedings under Part 5 of the Proceeds of Crime Act 2002, not just to unexplained wealth orders. The Bill is quite narrow in scope, and the Government may not see fit to put this into this legislation, but I hope that there is an opportunity to debate this further. I would be grateful if the Minister could say something not just on whether it fits into this Bill but on the Government’s general approach to the issue.

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[Baroness Williams of Trafford (Con)]

Yes, I think I was clear in my opening remarks that I am not at odds with the noble Lord, Lord Clement-Jones, at all. The noble Lord, Lord Fox, is absolutely right that, in the longer term, we should look across the whole cost landscape. What I am trying to say is that, in protecting agencies incurring costs in Part 5, it unintentionally removes the current clauses relating to Part 8. I am trying to differentiate between Part 8 and Part 5 of POCA. It is utterly unintentional, I am sure, but I hope that helps the noble Lord.

[Lord Clement-Jones (LD)]

My Lords, the Minister is speaking the language I understand now—if it is technically flawed, then of course it is ripe for withdrawal. I welcome what the Minister said about getting consistency across the landscape, because that is clearly important. There is absolutely no reason why it should not be across the whole of the proceeds of crime landscape.

Perhaps I can squeeze a commitment out of the Minister. We managed to get the noble Lord, Lord Callanan, to commit to looking at certain aspects of enablers in the second economic crime Bill—I think we need to call it the ECB 2 now. If the Minister could give us a commitment that the Government will look at this question of the cost landscape as part of the second round, when we can consider these issues in much greater detail and at greater length, then I would be entirely satisfied.

[Baroness Williams of Trafford (Con)]

I am very happy to explore the cost landscape after this Bill because, as I said, I am principally not at odds with the noble Lord at all.

[Baroness Williams of Trafford (Con)]

I share the sentiment of my noble friend that they will not be a niche activity. The measures in this Bill, particularly in terms of costs, will make it far easier for our law enforcement agencies to not be stymied by costs in bringing these things forward.

[Lord Clement-Jones (LD)]

My Lords, I am grateful to the Minister for her responses. As she understands, one of my main motives is to bring pleasure to the Treasury. Given that the NCA’s budget—we talked about its budget—for crime prevention is, I think, something like £4 million and there was £1.5 million in costs in the Aliyev case, we would clearly all be winners if this review takes place. I thank the Minister for that commitment and, in the meantime, beg leave to withdraw the amendment.

Amendment 90 withdrawn.

Economic Crime (Transparency and Enforcement) Bill

Lord Clement-Jones Excerpts

2nd reading
Wednesday 9th March 2022 Lords Chamber

[Lord Clement-Jones (LD)]

My Lords, I draw attention to my entry in the register of interests. This is important and welcome legislation, which rightly we want to see pass through the House as a matter of urgency. But it must have teeth. As someone who, I confess, until recently held a solicitor’s practising certificate for 45 years, I say that it is toothless in a major respect, which has been touched on all around the House today. Whether under the beneficial owner register requirement, the unexplained wealth orders or the sanctions regime, there is a lack of provisions which comprehensively tackle enablers—the professionals used by those seeking to evade the impact of these provisions. A number of noble Lords, starting with the noble Baroness, Lady Chapman, have raised this.

As Edward Lucas put it in the Times last week:

“Putin’s ‘enablers’ live and work among us. They include bankers, lawyers, accountants, fixers and political bigwigs. Seemingly the epitome of respectability, for three decades they have prospered mightily, laundering Kremlin cronies’ fortunes and reputations.”


We have heard from my noble friend Lord Thomas of Gresford how they try to gag brave journalists, such as Catherine Belton, the author of Putin’s People, through what are called strategic lawsuits against public participation, also mentioned by the noble Lord, Lord Cromwell. But it goes much further than that. These professional advisers provide nominee and shell companies to hide disclosure of beneficial ownership of property and other assets; help to shelter unexplained wealth and freezing orders; and evade other tax, money laundering and economic crime legislation. They intimidate regulators with a mounting burden of costs if they are challenged.

As the OECD report Ending the Shell Game: Cracking Down on the Professionals who Enable Tax and White Collar Crimes, published last year, puts it:

“Over the last decades, the world has witnessed increasingly sophisticated financial crimes being perpetrated across borders—and the public interest in addressing such issues has also grown, as has been evidenced in the media through widely publicised leaks such as the Panama and Paradise Papers … These crimes are often facilitated by lawyers, accountants, financial institutions and other professionals who help engineer the legal and financial structures seen in complex tax evasion and financial crimes. The small segment of professionals that generate opportunities to facilitate the commission and/ or concealment of such crimes undermine not only the rule of law, but their own profession, public confidence in the legal and financial system, as well as the level playing field between compliant and non-compliant taxpayers.”


The report makes a very clear call to OECD countries to adopt strategies to address these issues in relation to professional enablers. But I see very little sign that such a strategy is being adopted by our Government. Last December’s Chatham House paper, The UK’s Kleptocracy Problem, makes very similar points. Where are the legal sanctions for professional enablers? Where are the measures to prevent abuse? Where are the mandatory disclosure rules? Where are the penalties for false statements? Where is the necessary whole-of-government approach that is recommended in this respect? The Prime Minister seems to think that regulation by the Solicitors Regulation Authority is a sufficient deterrent.

What is in the Bill as regards legal costs is fairly feeble too. We should be limiting costs payable by law enforcement bodies and regulators acting in the public interest in all civil cases under the Proceeds of Crime Act, as with criminal proceedings. These can represent a severe detriment to enforcement action, and I am very grateful to Spotlight on Corruption for pointing out, for instance, that the costs order against the NCA was in the region of £1.5 million in the case of the Aliyev unexplained wealth order—that is £1.5 million out of the total annual anti-corruption budget of £4 million. It is totally unacceptable. The courts should, of course, still be able to award costs against a law enforcement body or regulator where it has acted unreasonably in bringing or defending proceedings and the interests of justice or fairness would be offended, so there will still be some protection.

I will be tabling amendments in Committee which I hope noble Lords will support. We must tighten the net around these enablers. If not now, when?

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[Lord Callanan (Con)]

This is what we are attempting to address in this legislation. We are trying to make the system as transparent as possible, to improve the action on unexplained wealth orders, et cetera.

[Lord Clement-Jones (LD)]

My Lords, the noble Lord has contradicted himself. He said that there was a robust system in place, but he has just talked about money laundering for enablers.

[Lord Callanan (Con)]

I said there was a robust system in place under the money laundering regulations in response to the various points that were made about financial services professionals, estate agents, et cetera. That is not to say that we cannot improve the system; we certainly look to do that. Providing information and transparency on property ownership, unexplained wealth orders and the sanctions regime, which is what we are doing, will help to supplement that system.

In July 2021, the CPS amended its legal guidance on money laundering offences for prosecutors to make it clear that it is possible to charge someone under Section 330 of POCA, which relates to the failure to disclose money laundering in the regulated sector. This closes a long-standing gap in law enforcement’s toolkit, which will better enable us to tackle the small minority of complicit professional enablers.

In addition, the Solicitors Regulation Authority—the largest legal PBS which supervises approximately 75% of regulated legal service providers in the UK—undertook a broad range of enforcement action in 2021. This included issuing 14 fines totalling £163,000, suspending membership three times and cancelling membership 13 times, effectively preventing an individual conducting regulated activity.

To take another example, the Institute of Chartered Accountants in England and Wales—the largest accountancy PBS—undertook a broad range of enforcement action. This included issuing 59 fines, totalling £178,000, and cancelling the membership of firms six times—again, effectively preventing an individual conducting regulated activity.

The noble Lord, Lord Carlile, suggested that we should consider how we can make legal professionals report matters relating to national security in a structured way and without the benefit of legal professional privilege. This is a complicated matter and not for this Bill, but I certainly welcome his contribution and his engagement, and we will certainly look at that.

The noble Baroness, Lady Kramer, raised an important point on protecting whistleblowers. We recognise how valuable it is that whistleblowers are prepared to shine a light on wrongdoing and believe that they should be able to do so without fear of recriminations. The whistleblowing regime enables workers to seek redress if they are dismissed or suffer detriment because they have made a so-called protective disclosure about wrongdoing. It is right and proper that the Government review the whistleblowing framework once we have had sufficient time to build the necessary evidence of impact of the most recent reforms. We are considering the scope and timing of a review.

A number of noble Lords—the noble Lord, Lord Macdonald, in particular— raised an important point concerning the wording “knowingly and recklessly”. The wording is drafted on precedent, coming from the Companies Act. This clause is intended to provide a necessary and proportionate deterrent to those who may otherwise provide inaccurate or misleading information on the register of overseas entities. This was debated at length in the other place and the Government have already made a commitment to reconsider the drafting. I also welcome the comments of the noble Lord, Lord Macdonald, on the sanctions proposals.

The noble Baroness, Lady Kramer, and the noble and learned Lord, Lord Garnier, asked about the issue of the register and trusts. If the assets are owned via an overseas legal entity, then this entity is within the scope of the draft Bill and will be required to register the trustees as beneficial owners with Companies House and state the reason that they are the beneficial owner—that is, because they are the trustees of that trust.

Her Majesty’s Revenue and Customs introduced a register of trusts in 2017. Trustees of trusts that acquire UK land or property are required to register and provide information on the beneficial ownership of the trust. The information on the register can be shared with law enforcement authorities and enables them to access information on the trustees and beneficiaries of all trusts. Reforms to unexplained wealth orders will also allow law enforcement to investigate the origin of any property held via trusts.

I now turn to the points raised by the noble Lords, Lord Vaux and Lord Eatwell, on verification. Clause 16 requires the Secretary of State to make regulations requiring the verification of information before an overseas entity makes an application for registration, complies with the updating duty or makes an application to be removed from the live register. To ensure that regulations are laid in a timely way, we have added a requirement for regulations to be made before applications may be made for registration in the register of overseas entities. We expect that UK anti-money laundering supervised professionals may have a part to play in this, and we will set out details on the verification scheme in regulations. Overseas entities will be required to update their information annually, and Companies House will be given broad powers to query information it holds via the further legislation to come later in the year. Also, the very public nature of the register means that there will be many eyes viewing the data, which will of course aid in identifying any inaccuracies. I thank my noble and learned friend Lord Garnier for his comments on whether we are capturing the ultimate beneficiaries of property. This is an important point.

Advanced Research and Invention Agency Bill

Lord Clement-Jones Excerpts

Report stage
Tuesday 14th December 2021 Lords Chamber

[Lord Bethell (Con)]

My Lords, I will speak to the centrality of intellectual property to the Bill and, in particular, on two themes, very briefly. First, on the protection of intellectual property, the noble Lord, Lord Browne, spoke very movingly and interestingly about the concerns that were brought up by George Freeman in the meeting that we had. It was reassuring to hear George Freeman speak so clearly and emphatically. That is why Amendment 2 is very interesting and worth a really good look.

I am very concerned that, in our efforts to build Britain into a science and research superpower, all that we will be is a laboratory for others to borrow from and that we will simply supply the unicorns of the future from overseas. Somehow, we have to capture that value here in the UK.

The second point, which the noble Lord, Lord Broers, spoke so movingly about and selected such a good example of, is about how we encourage the breed of entrepreneurs that I hope will come out of ARIA. We must encourage this. We should not have something like Amendment 17, which somehow suppresses the entrepreneurialism of our researchers and scientists. I have been to Kendall Square on the MIT campus, next to the Harvard campus, which is buzzing with excitement, with start-ups and major new enterprises feeding off the intellectual energy of those great universities. That is what we need to have here in the UK.

On Clause 1, I am torn between my noble friends Lord Lansley and Lady Neville-Rolfe, who both put their arguments so well. I would like to split the difference and agree with the noble Lord, Lord Browne, that these are things that I would like to hear about from George Freeman from the Dispatch Box. That argument has merit.

[Lord Clement-Jones (LD)]

My Lords, I am largely going to speak to and support Amendment 1. I commend the noble Lord, Lord Browne, for raising these important issues on the question of ARIA’s ability to impose investment conditions. Unlike the noble Baroness, Lady Neville-Rolfe, I do not see those as bureaucratic constraints.

One key issue in delivering technology into the market in this country is the commercialisation and translation of that technology. We have seen report after report telling us about that. The UK is a top nation for the global impact of its R&D but not so effective at innovation, where it ranks 11th in the world for knowledge diffusion and 27th for knowledge absorption, according to an October 2021 report by our own BEIS department. The greater risk averseness of the VC and private equity market for technology start-ups in the UK compared to that of the US is common ground in the investment community itself; we need to hang on to our unicorns. As a result, outside fintech, we have seen too many high-technology companies sold to overseas companies at too early a stage. We have heard examples from the noble Lords, Lord Broers and Lord Morse—and, in Committee, the noble Lord, Lord Browne, took the risk of quoting the Daily Telegraph.

The National Security and Investment Act will impact on that to some extent, but in a limited number of sectors involving national security. Without this kind of scale-up support we cannot become—to coin the phrase so often used by this Government—a science and tech superpower by 2030. This excellent amendment will, I hope, ensure that those making decisions about future financing at least have some friction in the system to ensure that they have to think twice about where and how to raise capital for the future; at the same time, it gives ARIA skin in the game to help it do so. The Minister has said in correspondence that he shares the objectives of this amendment, so I hope that he will agree at the last stage to accept it.

As regards the other amendments by the noble Lord, Lord Lansley, in this group, I agree in principle with many of the issues that he has raised and the support for intellectual property rights that should be retained by ARIA in certain circumstances. He had powerful support from the noble Lord, Lord Broers, whose expertise we are certainly going to miss when he retires from the House.

As the noble Lord, Lord Browne, says, we have only this Bill today. We cannot solve all the problems relating to the taking of stakes by companies or our research institutions, but we can put this into ARIA’s terms; I very much hope that we will do so today.

[Baroness Chapman of Darlington (Lab)]

My Lords, I find myself listening to some excellent speeches and frantically scratching sections from my own contribution as I do not see the point in repeating the points that have already been made. I put on record my thanks to my noble friend Lord Browne, in particular, for his generosity with his expertise and time in working so collaboratively on this issue, which has support on all sides. The principle is very simple: the state is taking a big risk by granting funds to speculative research projects. In cases where that risk pays off—we hope that is not an infrequent event, but we understand that this is about high-risk ventures—ARIA should have the ability to protect the potentially significant benefits that will arise from initial taxpayer support. It seems equally appropriate that ARIA has a say in potential takeovers or transfers of intellectual property. We know that there is a big market for speculative purchases of new technology. While ARIA may decide that there is no public interest in preventing certain events from taking place, there might be other investments that should be safeguarded.

It is clear from the debates that we have had in Committee and this evening that there is a shared desire on all sides—including, to be fair, from the Minister—to deal with this issue. He has correctly observed previously that the problem we are trying to fix is not limited to ARIA; that is understood and agreed with. However, while the amendment by the noble Lord, Lord Browne, does not fix everything, that does not mean we should not try to fix the thing that is in front of us now. It moves us in the right direction and is appropriate given the specific activity of ARIA; the Opposition are solidly in support of Amendment 1.

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[Baroness Neville-Rolfe (Con)]

My Lords, it is a great delight to hear from the noble Lord, Lord Ravensdale, who brings his business acumen and passion for both innovation and climate change to the feast. We have discussed these together often in Peers for the Planet.

We have the climate change Acts, and a huge amount of attention is paid to climate change in every part of government life and in their multi-billion-pound R&D budget. ARIA is a small, independent body and should be left to decide what is most important to our future and to the inventive opportunities that it is set up to create. That might include climate change, health, poverty or the quality of life. Technology, for example, improves our lives, but it also brings risks. ARIA should be left to decide what is most important. It should be able to think completely outside the box and make its own choices, and not be bound by precedent. I am afraid that I am therefore sceptical about these amendments.

[Lord Clement-Jones (LD)]

My Lords, the noble Lord, Lord Ravensdale, the noble Baroness, Lady Bennett, and my noble friend have made a compelling case for supporting this amendment, based on the climate and ecological emergency that we face. Tackling those challenges will require massive innovation and ingenuity and the development of practical applications from that. If ARIA has the bold, independent, innovative culture that the Minister emphasised throughout Committee, then it must be the ideal vehicle for this research, and we should spell it out. We should make ARIA an essential component of the net-zero strategy.

[Baroness Chapman of Darlington (Lab)]

My Lords, I am grateful to the noble Lord, Lord Ravensdale, for bringing back his amendment on these important issues. It has been a real pleasure working with him and hearing from him throughout the debates on this Bill. In Grand Committee, Labour proposed making addressing climate change a core purpose for the first two years of ARIA’s existence. It is, after all, one of the greatest challenges, if not the greatest, that we face, and it is science and technology that we look to for new tools and solutions. We were disappointed by the Minister’s response to that suggestion and to the proposals put forward by other noble Lords. We feel this is of critical importance, so we would be prepared to support Amendment 4—depending, of course, on what the Minister has to say.

The noble Baroness, Lady Bennett of Manor Castle, has tabled Amendment 5, which seeks to promote three of the UN sustainable development goals, which Labour supports. My noble friend Lord Collins of Highbury looks for any opportunity to press the Government to secure progress on them, domestically and overseas. Without wanting to soften the Minister’s cough—as I think we say where we are both from—I am sure he will say that the Bill is not the correct vehicle. However, whether or not there is a vote, the Government should understand that amendments such as this, which embed climate as a golden thread in legislation, will be put forward by noble Lords and Members in the other place at every opportunity.

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Moved by

[Lord Clement-Jones]

6: Clause 2, page 2, line 18, at end insert—
“(7) ARIA is a public authority within the meaning of section 3 of the Freedom of Information Act 2000, and Schedule 1 to that Act is amended accordingly.”Member’s explanatory statement
This amendment would subject ARIA to Freedom of Information requests.

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[Lord Clement-Jones (LD)]

My Lords, Amendment 6 is in my name and that of my noble friend Lord Fox, the noble Baroness, Lady Chapman, and the noble Viscount, Lord Stansgate. As my noble friend said in Committee, without the FOI amendments, ARIA would follow in the footsteps of a very small number of institutions that currently do not have Freedom of Information Act obligations. I will not extensively rehearse all the arguments, but suggest that the organisations involved, which include the Royal Family and security and intelligence bodies, are not natural bedfellows to ARIA. The Minister complained about the burdens for ARIA of responding to FOI requests but nowhere, not even in Dominic Cummings’s evidence to the Commons Science and Technology Committee last February, was the FoIA identified as an obstacle to ARIA’s success.

The Minister has continually highlighted that ARIA is modelled on DARPA. ARPA was subject to the US Freedom of Information Act and DARPA is subject to it as well. This has not prevented them achieving the successes which the Government wish ARIA to emulate. We talked in Committee about the equivalent number of requests received before the restructuring of the research bodies, which were exactly equivalent to those of DARPA. The argument that DARPA charges fees falls away too. The main classes of requester—the news media and educational staff—and requests in the public interest are not charged. In practice, only commercial requesters have to pay.

As I said in Committee, there is no question that, under the FoIA, ARIA’s research programme could be prejudiced, given the clear exemptions under the Act for research interests. In Committee, the Minister gave away the real reason for the Government’s refusal to include ARIA under the FoIA. He illustrated his general contempt for freedom of information legislation, saying:

“From my point of view, it is a truly malign piece of legislation”,


and that

“there must be many hundreds of civil servants engaged in doing nothing other than responding to these fishing expeditions”.

It looks like this is personal—or is the truth that the Government find the daylight shed on them by the FoIA truly inconvenient, and ARIA is just the start of an erosion of FoIA rights?

Transparency is crucial for all our public institutions. ARIA will be in receipt of a substantial amount of public funding—£500 million over the next three years—so there are compelling grounds for its inclusion. Coming under the FoIA is an essential part of retaining public trust.

As regards Amendment 7, which relates to procurement, the Minister said in Committee that:

“When ARIA is commissioning and contracting others to do research for it, it will be operating in a fundamentally different way from traditional R&D grant-making where procurement rules do not apply.


In my view, it is therefore appropriate for ARIA to be given freedom from procurement rules to ensure that the agency has greater flexibility in its contractual arrangements.”—[Official Report, 22/11/21; cols. GC 147-49.]


If ever I heard a circular argument, that was it.

Why are the Government having to perform drafting contortions to exclude ARIA from these procurement requirements in the Bill? Why on earth should ARIA not be subject to exactly the same procurement regime as other public bodies? UKRI is subject to rules and procures and commissions services, including research services. What makes ARIA so different? I beg to move.

[Viscount Stansgate (Lab)]

My Lords, I rise to speak to Amendment 6, to which I added my name. This is a subject I raised at Second Reading, but I reassure the noble Baroness acting as the Whip that, on this occasion, she can relax; there is unlikely to be any need to interrupt me on the grounds that I have gone on too long, because I want to be very brief.

There are two reasons why ARIA should be subject to the Freedom of Information Act. The first is one of principle. Public bodies set up in statute should be subjected to the same FOI requirements as apply elsewhere. In this country, I submit that FOI legislation is an essential safeguard in the political world in which we now live. To reject this amendment will send a bad signal and set a bad precedent. I even suggest to the Minister that he may reconsider his view as and when he sits on these Benches in the future.

The second reason is practical. We do not want to allow ARIA to come to be viewed with public suspicion and distrust, especially as it has the right to fail, so being open about its work will be beneficial. If it turns out that it is not easy to discover what it is doing, public support for ARIA might be damaged, to the detriment of its wider role. It is not difficult to imagine circumstances in which a campaign is waged against ARIA for excessive secrecy, possibly utilising inaccurate information about it, and for public support to be damaged; nor, in my judgment, would making ARIA subject to freedom of information turn out to be an excessive practical burden. Moreover, if there are aspects of ARIA’s future work that turn out to be sensitive, the Government already have powers elsewhere in the Bill for the Secretary of State to intervene on grounds of national security.

I will leave my remarks there, but I strongly urge the acceptance of Amendment 6.

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[Lord Callanan (Con)]

I think the noble Lord will find, if he looks at my remarks, that I did not say that every applicant will pay fees but that there is a general expectation that a fee of $25 will be charged, or even more in some cases if more information is required. However, there are exemptions to that, which can be exercised. If the noble Lord looks back at Hansard, he will see that I did not say that everyone would be charged a fee. In most cases, a fee would be applicable, but there are certain exemptions.

I turn to Amendment 7, in the names of the noble Lords, Lord Clement-Jones and Lord Fox, and the noble Baroness, Lady Chapman, which relates to procurement regulations. I note that the noble Lords did not address this, but it is worth while setting out the Government’s position on that amendment. I believe there are clear reasons why this exemption is beneficial to ARIA and why it will be integral to the agency’s effective operation. First, unlike other R&D funders, ARIA will be commissioning and contracting others to do research for it in pursuit of its own technological visions or research goals. The process of contracting and commissioning means ARIA will be operating in fundamentally different ways from traditional R&D grant making, where procurement rules already do not apply. Placing ARIA outside the existing public procurement rules will mean that the agency can freely procure expert investment and consultancy advice, which will be important given the highly varied and technical nature of the agency’s work.

While we imagine that the bulk of ARIA’s research activities will be carried out by its partners and funders, it remains possible that ARIA may wish to procure and own a piece of research equipment to crowd-in interest from other research partners, or to accelerate the progress of a project. Freedom from traditional procurement rules will facilitate ARIA making those investments quickly and with ease. In my view, it is appropriate for ARIA to have greater flexibility than the R&D exemption would afford it so that it can design and tailor its contractual arrangements to precisely suit its research endeavour.

Secondly, in designing ARIA, we have put a premium on the agency investing and acting quickly. In our view, this agility would be incompatible with the public tendering process mandated in the Public Contracts Regulations 2015, which can require contracting authorities to put contracts out to open tender for up to two to three months. Such a delay could prevent critical investments being made with sufficient speed or, indeed, at all. In choosing to exempt ARIA from standard procurement rules, we have learnt from the successful approach taken by DARPA, which benefits from “other transactions” authority, giving the agency the flexibility to operate outside traditional US government contracting standards. It is our belief that ARIA should benefit from similar flexibilities.

I also dispute the notion that taking ARIA outside traditional procurement rules will leave the agency vulnerable to cronyism. I think this was a point made by the noble Baroness, Lady Chapman, in Committee. This exemption will ensure ARIA’s leadership and programme managers—who have been recruited for their technical expertise and scientific vision—can take decisions on ARIA’s procurement with autonomy, as they will have the freedom to procure at arm’s length from government and Ministers.

As I have already detailed, ARIA has clear lines of accountability, transparency and scrutiny in the preparation of its an annual report, scrutiny by the NAO and an annual independent audit to report on its procurement activities. As I have already alluded to, to reflect the constructive and considered debate in Grand Committee, ARIA will publish information on its delivery partners, and this expectation will be detailed in ARIA’s framework document. I thank the noble Baroness, Lady Chapman of Darlington, for tabling an amendment to that effect previously. I hope she and other noble Lords welcome this principled commitment to transparency, which would extend to delivery partners supported through the full range of ARIA’s funding mechanism.

In conclusion, I hope noble Lords have been assured that exempting ARIA from traditional procurement rules will be integral to the agency’s effective operation. The package of accountability, conflict of interest procedures and governance provisions that sit within this Bill are an appropriate counterbalance to that. Taken in the round, this represents an essential, proportionate and balanced freedom, placed in the hands of ARIA’s incoming leadership and programme managers. Taken together, I hope that the assurances and explanations I have been able to provide for noble Lords will allow the noble Lord to withdraw his amendment.

[Lord Clement-Jones (LD)]

My Lords, I thank the Minister for his response and thank noble Lords who have taken part in this debate. There is clearly an argument to be had on our Amendment 7 and the whole procurement regime. The one argument that the Minister has is that DARPA is not subject to procurement rules.

However, the position is quite other on Amendment 6, as the noble Baroness, Lady Chapman, has said. This is a matter of principle. The Minister keeps coming up with some quite colourful phrases. This evening he said that scientists should not have to be fearful at the prospect of FoI disclosure. That is quite an interesting phrase—those scientists quivering in their labs, waiting for freedom of information disclosure. I must say it is quite a colourful way of looking at the situation, but, clearly, we have a matter of principle to decide on here, and I would like to test the opinion of the House.

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[The Deputy Speaker (Baroness Fookes) (Con)]

We come to Amendment 7 in the name of the noble Lord, Lord Clement-Jones. Is it moved or not moved?

[Lord Clement-Jones (LD)]

My Lords, I am speaking to and will support Amendment 9.

[The Deputy Speaker (Baroness Fookes) (Con)]

One moment. I asked about Amendment 7 in the noble Lord’s name.

[Lord Clement-Jones (LD)]

Not moved.

Amendment 7 not moved.

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Moved by

[Lord Clement-Jones]

9: Clause 8, leave out Clause 8

--- Later in debate ---

[Lord Clement-Jones (LD)]

My Lords, in Committee the Minister explained that he accepted the DPRRC’s recommendations regarding Clause 10, and indeed was taking it out of the Bill, but added:

“Clause 8 is, I believe, an important part of the Bill. Although the DPRRC also raised concerns about this power, there is a strong policy rationale and a clear precedent for this particular delegation of power.”


He was then able to cite one solitary example, the Administrative Justice and Tribunals Council, which was dissolved by the super-affirmative procedure, but he admitted that that was in the context of widespread public body reform. He continued:

“In contrast, the power in Clause 8 is narrow, such that ARIA can only be dissolved. It cannot be merged or have its functions or governance changed in any way, as set out in my response to the DPRRC last week.”—[Official Report, 22/11/21; cols. GC 162-63.]


I still believe that the objection from the DPRRC stands. It said it was not necessary legally, politically or practically for something created by primary legislation to be dissolved by secondary legislation. On the contrary, if Parliament creates ARIA, the right to dissolve it should naturally belong to Parliament.

This is all reinforced by the recent report of the DPRRC, Democracy Denied? The Urgent Need to Rebalance Power between Parliament and the Executive. This kind of power assumed by the Government is what it objects to. I agree with the committee’s conclusions that we need to stop this accretion of Henry VIII powers by the Government, who are still proceeding willy-nilly in the face of the clear views and warnings of one of our own very well-respected committees.

The Minister said that these were narrow and limited powers, but what could be wider than abolishing the very subject of the Bill? That seems to be an extraordinarily wide power and a completely unjustified use of a Henry VIII power. So I look forward to the Minister’s reply but I very much hope that the Government will rethink their response to the DPRRC’s objections to the inclusion of Clause 8. I beg to move.

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[Lord Clement-Jones (LD)]

My Lords, I thank the Minister for her reply, which, I am afraid, amounted to a very polite raspberry to the DPRRC. She used very polite phrases such as “carefully considered”, but the fact is that the Government are intent on ignoring one of the major recommendations of the committee—namely, that the powers in Clause 8 are inappropriate.

The Minister talked about a clear precedent, and I referred to the precedent that the Minister, the noble Lord, Lord Callanan, cited in Committee. But when the Administrative Justice and Tribunals Council was abolished, it was done by the super-affirmative procedure, and the Government have not even offered to use that in this case. This is rather different to that situation; this is effectively abolishing the whole substance of what the Bill is about: ARIA itself. I do not think there could be anything more radical than a Henry VIII power that does that.

I am afraid that I do not really regard what the Minister said as a full response to the DPRRC, and I am certainly not persuaded by the Government’s position. But this is part of a longer, long-running argument between the Executive and Parliament. Clearly, the DPRRC, which I support very strongly, wants much greater parliamentary involvement and oversight in decisions such as this. It believes that, where possible, primary legislation is the appropriate instrument, not secondary legislation. Does the Minister want me to give way?

[Baroness Bloomfield of Hinton Waldrist (Con)]

Before the noble Lord sits down, perhaps I could come back on the specific point he made about the Public Bodies Act. This Act was developed in the context of widespread public body reform. It was therefore appropriate that the super-affirmative procedure was applied. In the context of much broader powers, it was right that their use was subject to this higher level of parliamentary scrutiny. In contrast, the power in Clause 8 is much more narrowly defined, such that ARIA can only be dissolved—it cannot be merged, or have its functions or governance changed. That is a significant difference between the two.

[Lord Clement-Jones (LD)]

My Lords, that is a significant difference between us. Merging is one thing, but total abolition is another. Perhaps the Minister could have offered the super-affirmative procedure in those circumstances. As I say, this is part of a long-running argument. The Executive are determined to hang on to their Henry VIII powers. I hope that Parliament will continue to press for fewer Henry VIII powers, much greater use of primary legislation, where appropriate, less use of skeleton Bills, and so on. This is a very broad landscape that we are debating. In the meantime, I beg leave to withdraw my amendment.

Amendment 9 withdrawn.

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I look forward to the Minister’s reply, because what she could do very quickly and easily is reassure the mathematical community that it is included in the definition under Clause 11 and that, to some extent, this whole debate may have been unnecessary, as long as it is made clear from the Dispatch Box that mathematics is valued and included.

[Lord Clement-Jones (LD)]

My Lords, I have signed and I support Amendments 12, 13 and 14. As someone immersed in issues relating to AI, machine learning and the application of algorithms to decision-making over the years, I, too, support Protect Pure Maths in its campaign to protect pure maths and advance the mathematical sciences in the UK—and these amendments, tabled by the noble and gallant Lord, Lord Craig, reflect that.

The campaign points out that pure maths has been a great British success story, with Alan Turing, Andrew Wiles and Roger Penrose, the Nobel Prize winner—and, of course, more recently Hannah Fry has popularised mathematics. Stephen Hawking was a great exemplar, too. However, despite its value to society, maths does not always receive the funding and support that it warrants. Giving new funding to AI, for instance, risks overlooking the fundamental importance of maths to technology.

As Protect Pure Maths says, the 2004 BEIS guidelines on research and development, updated in 2010, currently limit the definition of science and research and development for tax purposes to the systematic study of the nature and behaviour of the physical and material universe. We should ensure that the ARIA Bill does not make the same mistake, and that the focus and capacity of the Bill’s provisions also explicitly include the mathematical sciences, including pure maths. Maths needs to be explicitly included as a part of scientific knowledge and research, and I very much hope that the Government accept these amendments.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I thank the noble and gallant Lord, Lord Craig of Radley, and the noble Viscount, Lord Hanworth, for tabling Amendments 12 to 14, and those who contributed to the debate. We recognise the fundamental importance of pure and applied maths to other sciences, and as the focus of scientific inquiry in its own right. It is right that we take the opportunity to note that importance here.

The noble and gallant Lord gave a number of potent examples of the importance of mathematical contributions to scientific innovation. Much like, we hope, the projects and advances that will be supported by ARIA, breakthroughs in mathematics can lead to unexpected leaps of progress in separate fields or find application in solving intractable and seemingly unrelated problems in other areas of science. As we just heard from the noble Lord, Lord Clement-Jones, who rightly reminded us, the UK has been home to many outstanding mathematicians of global significance, from Isaac Newton to Andrew Wiles.

However, I emphasise to the noble and gallant Lord, Lord Craig of Radley, and the noble Viscount, Lord Hanworth, that the drafting of the clause that they have sought to amend follows existing powers in the Science and Technology Act 1965, and the Higher Education and Research Act 2017. It is important that it does so. Research into mathematics, including pure mathematics, has been funded in the UK using those powers for over five decades. Maths research is funded by the Engineering and Physical Sciences Research Council—one of the research councils that make up UKRI. The EPSRC spends more than £200 million on this theme, which includes research into maths in areas from number theory to topology and artificial intelligence. It is clear that maths is included in the definition of sciences as currently included in the Bill.

The 2004 guidance referenced by the noble Viscount, Lord Stansgate, predates the Higher Education and Research Act, which makes it clear that maths is included in the definition of science as drafted in the Bill. There is no need to particularise the interpretation through these amendments. Indeed, it would clearly be undesirable to seek to list exhaustively every possible field of scientific inquiry within the Bill. Departing from the existing embedded way these powers to fund research, including in mathematics, are drawn would be unhelpful.

ARIA’s programme managers will set ambitious programme-level goals. Although we do not often expect programme-level goals to lie within pure mathematics, it is right to highlight that ARIA might need to draw on pure and applied maths to achieve those goals, given their importance within the new fields noble Lords highlighted. It is right that ARIA may fund research in those areas.

We are confident that any activities of this nature that ARIA will seek to pursue are covered by its functions, and that the results of scientific research will encompass the results of mathematical inquiry that might be needed by ARIA. ARIA’s supplementary powers provide further reassurance. When exercising its functions, such as funding a programme with a specific scientific objective, ARIA’s supplementary powers allow it to do whatever is necessary in support of that. It is therefore the case that any mathematical endeavours that ARIA needed to draw on for a programme—for example, in support of a particular objective for machine learning—could be funded under its supplementary powers as well.

On that basis, although the noble and gallant Lord and the noble Viscount have raised important points, I hope they will be satisfied that there is no need for their amendments and feel able not to press them.

Advanced Research and Invention Agency Bill

Lord Clement-Jones Excerpts

Committee stage
Monday 22nd November 2021 Grand Committee

20A: Clause 2, page 1, line 11, at end insert—
“(d) support the UK Government’s obligations under the Climate Change Act 2008.”Member’s explanatory statement
This amendment would require ARIA to have regard to climate change by ensuring that ARIA had an obligation to support the Climate Change Act 2008 and the obligations flowing from that Act.

[Lord Clement-Jones (LD)]

My Lords, since nobody else is speaking and I had prepared a response to the noble Viscount, Lord Stansgate, I might as well briefly respond. I was going to say—indeed, I am saying—that this is a slightly random collection of amendments to say the least. As the noble Lord is not here, I can perhaps adopt a slightly more doubtful tone. As my noble friend Lord Oates made plain in the very good debate on Amendment 1:

“If the purpose of DARPA was to protect the national security of the United States by retaining its scientific edge against the threat of the Soviet Union, today, the threat from climate change, although very different, is some orders of magnitude greater.”—[Official Report, 17/11/21; col. GC 86.]


He went on to say that he agreed that it should be part of ARIA’s objectives. I very much agree with him.

On Amendment 26A, many of us asked this question at Second Reading; indeed, that is why we have tabled, and will be discussing, Amendment 47 regarding the framework for ARIA. It is extraordinary that we do not yet know what the arrangements will be with UKRI, research bodies and so forth, particularly in view of what the Minister said last week in Committee:

“UKRI has a broad portfolio of projects that it funds to tackle climate change across 12 different areas”.—[Official Report, 17/11/21; col. GC 96.]


He set out what all those areas are, but the risk of overlap seems considerable. Therefore, it seems important that we get to know what the relationships are between ARIA and other research bodies.

I am rather lukewarm about the renaming of ARIA. The noble Lord, Lord Ravensdale, quoted the Science and Technology Committee saying that ARIA was a

“brand in search of a product”.

The problem is not the brand; we want to look under the bonnet and see what it is actually going to do. The name is not what many of us are concerned about.

[Baroness Chapman of Darlington (Lab)]

My Lords, in the absence of my noble friend Lord Stansgate, I should say a couple of words about his amendments. We tackled the issue of climate in some depth when we met last week; I thought that it was a useful discussion. On the name, I think that he was trying to get at why the change had been proposed. Perhaps the Minister, when he responds, can talk us through the Government’s thinking. I do not think that it amounts to a hill of beans, but it was something that my noble friend wanted to explore, to find out what was behind the change of thinking.

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[Lord Broers (CB)]

I would like to respond to that, which I find very interesting. I would like to know whether ARPA and DARPA have restraints on certain types of information. Having operated in industry in an R&D environment, I am familiar with the problems of what you have to keep secret and what you do not. In the American economy, by far the largest fraction of the vast amount of progress that is made is made in industry with private funds—and industry invests those private funds in R&D only if it can be assured that the products of that R&D will remain exclusive to it. I have been in situations where there has been industrial espionage and design manuals have been stolen for products that took billions to develop. Those thefts in the United States were of course prosecuted and those who obtained the information were fined large sums of money.

ARPA is going to be in that situation. It has to work with industry, using the results of its most advanced R&D, perhaps in new ways, to come up with new systems. It must be able to sign some memorandum of understanding, or in some way say to industry that it will protect from public knowledge that information. In an industry where you are relying primarily on novel processes, you do not tend to patent things, because patenting them puts them in the public domain. You rely on trade secrets and, to have a trade secret validated as a trade secret, you have to show that you have done enough due diligence to make sure that the information is not generally available to your competitors.

It has been a problem internationally for the past several decades that there has been international espionage on a large scale to obtain information from inside industries in the West. I ask the Minister whether that is being taken into account. Clearly, what the noble Lord, Lord Fox, and others have been saying is incontrovertible: we do not want the agency at risk because people are wasting vast sums of public money. On the other hand, you have to take into account that, if ARIA is to be successful and produce new capabilities that can be commercially exploited for the benefit of the UK, there must be adequate protection of what in industry is normally commercially sensitive and secret.

[Lord Clement-Jones (LD)]

My Lords, my noble friend Lord Fox, in his amendment, and other noble Lords in theirs have pointed to the anomaly of ARIA not being subject to the Freedom of Information Act, and it has been a great pleasure listening to the noble Baroness, Lady Noakes, quoting Tony Blair with approval—a rare delight.

The Government have put forward a number of weak reasons to justify ARIA not being subject to the FoIA, and the noble Baroness, Lady Chapman, raised the first of them, the burden of responding to FoI requests—an extraordinary argument for a body that is going to have a budget of £500 million over the first three years. Many bodies subject to the FoIA have tiny budgets and staff numbers compared with those that ARIA will enjoy.

The noble Baroness, Lady Noakes, called it costly, but will it be for ARIA? Interestingly, the noble Lord, Lord Browne, raised a number of questions prompted by the comparison or assertion that the Minister made at Second Reading that, because we do not have to pay for access to freedom of information requests, they will be pouring into ARIA, unlike in the United States. As the noble Lord, Lord Browne, pointed out, actually the requests to each of the research councils is pretty much on a par with those that are put to DARPA. I do not think that that argument is there either.

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[Lord Callanan (Con)]

I start with Amendment 24 from the noble Baroness, Lady Chapman, Amendment 32A from the noble Viscount, Lord Stansgate, and Amendment 39 from the noble Lord, Lord Clement-Jones, which all deal with the Freedom of Information Act. As I said at Second Reading, our decision not to subject ARIA to FoI was made after much consideration. As on so many of these things, I find myself in full agreement with my noble friend Lady Noakes and I thank my noble friend Lord Patten for his support during the Second Reading debate.

I was hoping that some of my noble friends who have been in government would comment on how they found the Freedom of Information Act in government. From my point of view, it is a truly malign piece of legislation. At the risk of trashing his reputation even further in the Labour Party, I agree with Tony Blair on this matter. I agree with the noble Lord, Lord Fox, that all information on government contracts et cetera should be published, even if it is embarrassing for the Government. However, I think he will find that all the contracts to which he refers were not released under freedom of information but under normal government contract transparency.

In my experience, not much is ever released under freedom of information that causes any problems for government; it is normally stuff that is released in the normal transparency of contract negotiations and government transparency returns. I am fully in favour of decisions, and information about them, being released, but I fail to see how the processology of government benefits at all from FoI disclosures. I find that people just modify their behaviour and communication to take account of the fact that private conversations may be released in the future. I genuinely do not think that it achieves anything at all, but that is my personal perspective and not necessarily a matter for this debate. It was also new to me to discover at Second Reading that the US charges a fee for freedom of information disclosures. I think that is an excellent idea, even if it is only a nominal amount to get rid of some of the somewhat spurious fishing expeditions that many go people in for. Anyway, that is a separate matter for different discussions.

In contrast to UKRI, which comprises the seven research councils, ARIA is a new, unique organisation that we anticipate will attract a disproportionate number of FoI requests for its size. On the point made by the noble Lord, Lord Browne, I would reiterate, as I did at Second Reading, that comparisons between ARIA and DARPA do not hold, precisely because, as I said, DARPA adds a standard fee to the requester, which is not comparable to the situation in the UK, although we should certainly consider it.

[Lord Clement-Jones (LD)]

My Lords, if I may have the privilege of intervening—a wonderful feeling, having been under different rules for a period of time—does the Minister not accept what the noble Lord, Lord Browne, said: that the individual research councils receive no more than the number of requests that DARPA receive, something of the order of 47? It is quite coincidental that the average is 47. Why does the Minister think that ARIA will be inundated with freedom of information requests?

[Lord Callanan (Con)]

Because it is a fairly new and exciting agency doing new things. I suppose we will have to disagree on that. There is no point and nothing to be gained by doing otherwise. In designing ARIA, we are envisaging a lean agency that will employ people in the tens. I do not know how many people across government are currently employed to respond to the hundreds if not thousands of FoI requests that we get, but given the bundles of documentation that sometimes pass my desk, there must be many hundreds of civil servants engaged in doing nothing other than responding to these fishing expeditions. As I said, ARIA will be an agency employing people in the tens, with around 1% of the R&D budget.

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[Baroness Chapman of Darlington (Lab)]

My Lords, I rise briefly to support the amendment from the noble Lord, Lord Fox. It seems entirely appropriate that this committee should involve itself in asking for information from ARIA. I am fairly confident, given the Minister’s responses so far, that he would not share that view. This is the same theme that we have been on throughout all our deliberations. Whether it is this specific proposal, or one of the others that we have been trying to tempt the Government with, I am sure that we will be back at this in a couple of weeks’ time.

[Lord Clement-Jones (LD)]

This has been such a short debate that it is barely worth winding up. I will just reinforce the point that this is a cultural issue, in the sense that we are trying to get over here. It was interesting that the Minister made the rather runic comment that ARIA will interact with Select Committees of this House and the other place in the normal way. I think what we are trying to do is underline the fact that we need rather more than that; we need disclosure as well—otherwise, we are worried that we will not get that. Good heavens, the committee might even look at the framework document when it eventually sees the light of day. How about that? That would be quite novel.

One has seen the benefit of committee reports. The Science and Technology Committee has made extremely constructive comments around ARIA and UKRI. It has demonstrated the benefit of parliamentary scrutiny. Why do the Government think that parliamentary oversight is such a bad thing?

[Viscount Stansgate (Lab)]

I rise briefly to emphasise the points made by both Front Benches and to say that the Government should welcome an amendment that enables ARIA to be subject to investigation by both Select Committees in both Houses. One of the strengths of Parliament is its Select Committee system, and the reputation of the Science and Technology Committee in another place is very high. I think that, when the Government look back on ARIA in 2031, they will rather wish to have put on record their support for amendments such as this, for the reasons given.

--- Later in debate ---

[Lord Callanan (Con)]

Amendments 38, 41 and 43 are consequential on the omission of Clause 10 from the Bill and the narrowing of the power we talked about earlier to make consequential amendments through regulations. The Delegated Powers and Regulatory Reform Committee suggested that any necessary consequential amendments should be added to Schedule 3, so we are responding to that recommendation here. The amendments apply to ARIA a set of relevant obligations that would usually apply to “public authorities”, which are sometimes defined in reference to Schedule 1 to the Freedom of Information Act 2000, which, of course, ARIA is not listed in. Bespoke provisions therefore are required.

I will briefly summarise the obligations that will apply to ARIA as a result of these amendments. The first relate to the Income Tax (Earnings and Pensions) Act 2003 and the Social Security Contributions (Intermediaries) Regulations 2000, with which I am sure all noble Lords are intimately familiar. This legislation includes the off-payroll working rules, which are designed to ensure that individuals working like employees but through their own company—usually a personal service company—pay broadly the same income tax and national insurance contributions as those who are directly employed. These rules have been reformed over the past five years to improve compliance by moving the responsibility for determining whether the off-payroll working rules apply from the individual’s personal service company to the client engaging them. That reform came into effect in the public sector in April 2017, and in the private and voluntary sectors on 6 April this year. I do not believe that there is a justification for ARIA to be treated differently from any other public bodies here.

The second element is the Data Protection Act 2018, which gives the GDPR effect in UK law. Through the Bill as it was introduced, ARIA would already be subject to the normal requirements of the GDPR, but the obligations on public authorities are different, in terms of the bases for data processing and governance and oversight arrangements. Similarly, in this case, I do not believe that there is a justification for ARIA to be treated differently from other comparable bodies in this important area.

Finally, the amendments to the Enterprise Act 2016 and Small Business, Enterprise and Employment Act 2015 allow us to avoid a situation where ARIA is considered part of the private sector for the purposes of business impact assessments of regulatory activities. Again, I do not believe that it is appropriate for impacts to ARIA, as a public sector body, to be included in any such considerations. I also do not believe that it would be appropriate for ARIA to avail itself of the support available through the office of the Small Business Commissioner, which is intended for private sector entities. So, while public authority obligations in other legislation have been considered, they were not assessed to be sufficiently relevant to ARIA to make further amendments here. I beg to move.

[Lord Clement-Jones (LD)]

My Lords, there is a splendid irony in what the Minister has just said as he trotted through the contortions of these amendments. I think he had a former life as a contortionist: it was quite extraordinary, really.

I do not think that these amendments are consequential; I think they are “Oops, we forgot something, actually”, as far as the Bill is concerned. Because of the way they treated the FoIA, suddenly everybody woke up to the fact that, for the purposes of that, ARIA was not a public body, because the Government had been so keen not to define it as a public body and therefore it had to be defined as a public body for the purposes of other legislation in a rather different way. So I do not think that this is consequential—except that it is something that probably should have been thought about when the original FoIA omission decision was made. No doubt everything will be clear after Report: the Minister will have his definition of a public body, everything will be logical and clear, and we will not have to have contortions such as this.

[Baroness Chapman of Darlington (Lab)]

I thank the noble Lord for his explanation, which I find rather more digestible than the Minister’s. It would be very inconsistent of me not to make this one point: we would not need to be going through all of this had the Government done what they ought and subjected ARIA to FoI. It shows what a strange decision it was that the Government have had to do all this. I just wanted to make that point, really. I do not think there is much more to say about all of this except that, should the Government change their mind, or have their mind changed, on Report, we might have to have this kind of carry-on again as a consequence. Let us hope that we do.

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[Baroness Noakes (Con)]

If ARIA does not exist until the Act is commenced, how can there be a framework agreement that involves ARIA being a party to the agreement to be tabled before the commencement of the Act?

[Lord Clement-Jones (LD)]

My Lords, I do not need to do very much more. My noble friend is finishing this symphony of a Bill Committee con brio, with metaphorical charabancs, mystery and magic. What more do we need at the end of a Bill stage?

I point out that the equivalent UKRI document of 2018 runs to 60 pages and 16 chapters. It covers a huge range of information: the purpose of UK research and innovation, its powers and duties, its aims, the partnership principles, and the responsibilities of the CEO. It then goes on to deal with devolution and relationships with other bodies, public appointments to UKRI, reviews of boards and committees, and so on. There is some really important content in the UKRI framework document, and I am sure that the ARIA document will not be very different. I very much hope that the Minister will reconsider the decision. On the arrival of the CEO, the Minister said that it followed the Treasury’s standard template. Even something in draft, which does not have to be agreed by the CEO, would seem fundamental to our understanding of what ARIA is going to do.

Advanced Research and Invention Agency Bill

Lord Clement-Jones Excerpts

2nd reading
Tuesday 2nd November 2021 Lords Chamber

[Lord Clement-Jones (LD)]

My Lords, clearly we need to discuss the R&D and innovation context in which ARIA is designed to sit. We now know the spending context; the UK has a long-term target for UK R&D to reach 2.4% of GDP by 2027. But the Chancellor has pushed back the target of £22 billion per annum on R&D, from 2024-25 to 2026-27, which may impact on private investment.

Beyond this, there is no shortage of road maps, reviews and strategies which lay out government policy in this landscape. In 2020, we had the well-intentioned R&D road map. Since then, we have had the UK Innovation Strategy with its “Vision 2035”, the AI strategy, the Life Sciences Vision, the fintech strategic review—all, it seems, informed by the integrated review’s determination that we will have

“secured our status as a Science and Tech Superpower by 2030”—

language repeated recently by the Chancellor. I see now that we are due a review of UKRI, on top of the Nurse review. I am sure that they are meant to give us a warm feeling, but it is very unclear how all the aspirations reflected in these documents fit together, let alone with ARIA—

“a brand in search of a product”,

to quote the Science and Technology Committee.

The noble Lord, Lord Hague, wrote a wise piece in the Times a couple of weeks ago. In concluding, he said:

“But the officials working on so many new strategies should be running down the corridors by now and told to come back only when they have some detailed plans that go far beyond expressing our ambitions.”

The problem is working out how and whether the creation of ARIA is any kind of priority, and practically how it will operate in terms of skills and resources. The key to understanding this seems to be the framework document which will outline the operational relationships for ARIA, but we are told this will not be published until after the Bill is through. That cannot be acceptable.

The budget for ARIA, at £800 million over four years, looks relatively modest when compared with the research councils’ budgets, especially when funding is actually only £500 million up to the end of this spending review period. From what one can see, ARIA will be entirely independent of UKRI, as the Minister stated, including Innovate UK. My concerns are the opposite of those of the Science and Technology Committee regarding ARIA’s potential dislocation from mainstream innovation strategy. Given that, what oversight over ARIA will the Treasury have? What will be the public accountability of ARIA, and how transparent its activities? Will it co-ordinate activities with UKRI at all? Will the National Science and Technology Council have any role in relation to ARIA?

It is surely completely unacceptable, as the ICO has pointed out, that it should be exempt from Freedom of Information Act requirements. As it said:

“Without this, there will be a lack of transparency, accountability, trust and confidence in ARIA.”

After all, the US equivalent of ARIA, DARPA, is covered by the US FOIA. As the ICO also says, the FOIA

“includes safeguards which allow a balance to be struck between the public interest in transparency and the protection of legitimate interests.”

As the Minister described, programme managers, it seems, will be appointed to commission work funded by ARIA. But what is the operating model—along the lines of the Crick or the Turing or that of the EPSRC? How will it commission research and collaborate with universities, the start-up community, catapults or research operations of larger companies? Where does ARIA fit with the levelling up regional aspirations for R&D? What is the likely interaction of ARIA with the UK’s technology clusters and with initiatives for regional and local innovation? Of course, as the Delegated Powers and Regulatory Reform Committee has pointed out, ARIA’s existence could be short-lived—abolished by the Secretary of State’s fiat.

The truth of the matter, however, is that we do already rank highly in the world of early-stage research, and some late-stage, not least in AI. It is in commercialisation —translational research and industrial R&D—where we continue to fall down. As the noble Lord, Lord Willetts, is quoted as saying in a recent excellent HEPI paper “Catching the wave: harnessing regional research and development to level up”:

“We all know the problem – we have great universities and win Nobel Prizes, but we don’t do so well at commercialisation.”

The functions for ARIA listed in the Bill include to

“encourage, facilitate and provide advice”

and to provide grants, loans and investments in companies, so what will be the long-term relationship with Innovate UK? Despite the creation of and support from the British Business Bank, our investment culture is more risk averse than Silicon Valley. Our innovators are having to sell out too early. The DARPA model has a powerful relationship with industry. Is that the intention here?

There are many other things that we could improve in our UK R&D and innovation universe, beyond the creation of ARIA. Our research sponsoring bodies could be less micromanaging. I welcome the Chancellor’s moves to extend R&D tax credits to investment in cloud computing infrastructure and datasets, but our patent box scheme is complex to apply for and not cost effective. There should be more support for catapults, which have crucial roles as technology and innovation centres, as the House of Lords Science and Technology Committee recommended. We could also emulate America’s Seed Fund, the SBIR and STTR programmes. On the regional front, we should be seeking to make universities regional powerhouses, tied in with the economic future of our city regions through university enterprise zones.

But finally, will the Minister give us a hint as to which technologies the Government consider will form the core of ARIA’s programmes? I am very enthusiastic about the future of UK research and development, innovation and their commercial translation in the UK, and want them to thrive for all our benefit. However, I remain to be convinced that ARIA is the answer to many of these questions. It is not enough to say, as the innovation strategy paper does:

“we do not know what ARIA will create. That is the point.”

We need a great deal more assurance about where it fits and whether it will be a useful addition to our R&D and innovation landscape.

National Security and Investment Bill

Lord Clement-Jones Excerpts

Report stage
Thursday 15th April 2021 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, since this is the first time I have spoken at this stage of the Bill, I add my thanks to those of my noble friend Lord Lansley to the members of the ministerial team and the Bill team for the time they have given and the meetings we have had to clarify and sort out the delicate balance we are all trying to achieve and the changes being made, which are part of the amendments in this group.

I will focus my remarks on Amendment 8, which returns to whether minority investor veto rights automatically bring the investment in question into the provisions of the Bill. It was an issue I addressed in Amendment 29 in its previous incarnation, along with Amendment 72. I found the Government’s arguments about Amendment 72 entirely convincing, so I have not retabled it, but I am not able to say the same about the response I received to Amendment 29, so I have retabled it and have discussed it with the Law Society, which seems similarly confused.

This is important because if we do not get clarity on this issue, there are at least two possible consequences: a potentially large increase in the number of voluntary notifications required, so further straining the system which the department is setting up, and/or a deterrent effect on people’s readiness to invest in the defined sectors of our economy.

I explained in Committee that a private equity investment essentially has two parts. There is the purchase of the shares, which will take place under the standard provisions of the Companies Act, and that is where the control of the entity lies. In parallel, it will be supplemented by a specially drafted, custom-made investment agreement. This is an agreement which both parties—the investee company and the investor—hope will be put into a drawer and never looked at again but, life being what it is, disagreements take place and the agreement is therefore essentially a protective device for the investor against malfeasance or bad performance by the managers of the company. The Minister needs to understand that it is essentially an agreement about corporate governance, not corporate law, which is how the company is controlled. That investment agreement is likely to require the investor’s consent to a number of major issues, such as approval of the budget, major capital expenditure proposals and so on.

When I describe it like this, it can be seen that these are protective provisions, not proactive initiating ones, but although they are protective, they are extensive, and this is where the use of the words “substantially all” in Clause 8(7) becomes significant. If that is the case, the Bill appears to bring within its ambit a range of private equity investments where the new investor has taken a minority position. It might be assumed that the new investor will be taking a minority position for malfeasance reasons, but there are a large number of reasons why private equity houses do not wish to buy 100% of a company. It may be that the existing management will not sell more than 50%. It may be that the new investor wishes the continuing management to have a real incentive to do well, and therefore likes it to have a larger stake. Last but not least, it may be that the investor has a maximum size of investment he can make and that determines the percentage that the investor can hold. So if you have an investor who can put up only £40 million and the company is worth £100 million, it can take only 40% because that is how the maths work out.

The new investors who are in a minority position need additional protections, and if they can obtain those protections only after making a notification then there are these consequences of more voluntary notifications and some diminution in the attractiveness of the sectors covered by the Bill. That does not seem a desirable outcome.

I have said that significant changes to a company’s status come about not from the investment agreement, but as a result of passages of ordinary or extraordinary resolutions under the Companies Act. Amendment 28 is therefore designed to remove some of the wording of Clause 8(6), which is untried, untested and, at least in the view of a number of law firms, open to interpretation, and replace it with company law provisions with which everyone is familiar.

When winding up the debate on this amendment on 9 March, the Minister said, “I believe that his”—that is my—

“intent is very much to seek to exclude acquisitions of minority veto rights from constituting trigger events.”

So far, so good. He then went on to say:

“However, the Government consider that the Bill already achieves this goal to some extent”—[Official Report, 9/3/21; col. GC 637-38.]


because of the provisions of subsection (7). That is the heart of the matter. The concern of the Law Society and others is that the Bill creates uncertainty where no uncertainty need exist. That uncertainty can easily be dispelled if we use familiar company law concepts.

To summarise, I argue that if no change is made to guard against these uncertainties, legal advisers to private equity investors can be expected to take a belt-and-braces approach and suggest that on all occasions a voluntary notification should be made. When he comes to reply, I invite the Minister either to say that the Government believe that minority investor rights are not covered by the Bill so that we are all clear about that or, if he cannot say that, to please agree to take a further look at it to try to create certainty and dispel uncertainty, and therefore further ensure that we get the right balance between personal property rights and the nation’s security.

[Lord Clement-Jones (LD)]

My Lords, I shall speak to the Government’s amendment and to Amendment 8 in the name of the noble Lord, Lord Hodgson, but, as regards Amendment 2, the questions raised by the noble Lord, Lord Lansley, are valid and it is rather inexplicable that that subsection of Clause 8 is not included in Clause 6.

When we debated the thresholds for the trigger for mandatory notification, the noble Lord, Lord Leigh—I am sure he will get many tributes today for having pushed the envelope and succeeded in having the Government agree with him—raised issues about 15% versus 25%. The principal arguments were that keeping it at 15% would result in a huge number of notifications, the vast majority of which would not give rise to national security concerns, which would place a significant administrative burden on the new investment screening unit, and that that the current filing threshold of 15%, as set out in the Bill, is significantly below the threshold used in a number of other major foreign direct investment regimes such as France, which requires 25%, Australia which requires 20% and Canada which requires 33.3%. I am delighted that the mandatory notification threshold has been increased to 25%, which was the threshold set out originally in the White Paper. I think the Government’s reversion to their original intent is very much to be welcomed.

As regards Amendment 8, tabled by the noble Lord, Lord Hodgson, not having practised company law for many years now, I can only admire his forensic ability in setting out exactly why we need greater clarity under that provision. He has illustrated that the current language does not provide that level of clarity. In his words, it does not dispel uncertainty, but the language in his Amendment 8 certainly would. I believe it is only in the Government’s and the ISU’s interest to acknowledge that, and I very much hope the Government will accede to his request to provide clarity, either by accepting his amendment or by giving assurance that they will look at it further and take that forward at Third Reading.

[Baroness Neville-Rolfe (Con)]

My Lords, I rise to speak for the first time on this Bill. I declare my interests in the register as a director and former director of a number of companies, although none is obviously affected. I have not spoken until today because I support this Bill, and it has been making good progress without any help from me and with the forensic assistance of my noble friends Lord Lansley, Lord Hodgson of Astley Abbotts, Lady Noakes, Lord Leigh and others right across the House.

There has been a succession of regrettable takeovers of UK jewels in recent years without proper scrutiny by the authorities. The SoftBank raid was the most egregious, yet it was welcomed by the then Chancellor. ARM—my favourite firm when I was Intellectual Property Minister, if I may now say so—was the world’s leading chip maker, headquartered relatively modestly in Cambridge and run by the talented Warren East, who must look back with pleasure to that time. Allowing its subsequent takeover was a serious mistake for UK interests.

This Bill is concerned primarily with security, so I suspect it would not have caught another controversial deal, that of Kraft/Cadbury, though it would have been useful had that too been caught. That example highlighted the fact that it is not only jobs but both R&D spend and cultural support that tend to go with the head office of a company or group.

Decades of such highly leveraged deals have contributed to damage in this respect. Think of aerospace pioneer Cobham and satellite service provider Inmarsat. As an aside, how lucky those of us who have benefited from its vaccine are that AstraZeneca held out against Pfizer a few years ago. We ought to have powers to prevent such a proposal if it arose again and was not in the UK interest. The powers in this overdue Bill should, among other things, slow the sale to overseas interests of companies engaged in tech and biotech, as well as emerging forms of AI and intellectual property.

My concern today is not with the Bill but with government Amendment 3 and its associated provisions, which, as we have heard, raise the threshold, from 15% to 25%, at which investors are required to notify the Government of their deals. I know this is done for apparently good reasons, summarised by the noble Lord, Lord Clement-Jones—notably to avoid needless blockages and queues of deals awaiting approval in the new unit at the Department for Business, Energy and Industrial Strategy, my old department—but I believe it is the wrong call. No doubt the ARM deal would have been caught by the new rules anyway, but less radical deals might not. I believe that it would be better to invest more in administration at the business department, to keep the threshold as it is and to improve the incentives to discipline and speed in processing of applications.

This is such an important matter for our future that we should not skimp on the new unit, which should be staffed by top people with the ability to work at speed. My noble friend Lady Noakes and others have rightly expressed concerns on this score, which I will support later. It would be a tragedy if this new Act were undermined by administrative inadequacy.

If we are to flourish in this more competitive and dangerous world, we need to prevent British science, technology and intellectual property leaving these shores without anyone noticing or reviewing it. We need thorough scrutiny of the deals identified in this Bill, so, for me, Amendment 3 goes too far and I would find it difficult to support the Government if the House chose to divide.

--- Later in debate ---

[Lord Lansley (Con)]

My Lords, I am very glad to support my noble friend Lady Noakes in her Amendments 11 and 12. I am grateful to her and the noble Lord, Lord Fox, for adding their names to Amendment 13.

My noble friend explained Amendments 11 and 12 extremely well. Let me say why separately there is an additional amendment in relation to the voluntary notification separate from mandatory notification. It is precisely because our expectation must be that there will be a significant number of voluntary notifications, particularly in the early days as people involved in various sectors begin to understand how this regime is to act and under what circumstances they should make a notification. Our expectation would also be that, partly for precisely that reason and in the early days, there will be a significant number of voluntary notifications that do not lead to further action on the part of the Government because there is not a national security risk involved and they do not need to review it any further— that is, they do not need to take it through the call-in notice for an assessment.

For many of these transactions, because of the level of uncertainty associated with this—of course, these might be transactions where the seller brings them forward to the Secretary of State to understand under what circumstances they contemplate an acquisition, and whether they should proceed and how rapidly—there are a lot of reasons why this should happen quickly. In looking at Clause 18, about the voluntary notification procedure, our problem was that the review period had “30 working days” applied to it, but that period, as is the case with the mandatory one, follows two indeterminate periods. First, there is the period of time between a notification being made to the Secretary of State and the Secretary of State deciding whether to accept or reject it and, subsequently, the Secretary of State, after a period of time—this might be very short; I hope it would be very short—notifying each relevant person. The 30 working days, therefore, could be added to by two other periods.

The purpose of Amendment 13, therefore, is straight- forward. It is to say, “Let’s try to make sure that this is no longer than it needs to be, and that the pressure inside the Investment Security Unit is for what are essentially the bureaucratic processes”—in effect, saying, “We have received a notice. Is it compliant or not?”, then, “Okay, we have accepted the notice. Have we notified all the relevant persons?” Those things happen very quickly because the important thing is that the 30 working days are devoted as far as possible to the review period to get the decision right as to whether this potential trigger event should be called in or not. That is the crucial thing. All the time should be devoted to that review. Amendment 13 says that the 30 days start at the point at which a seller or an acquirer gives a notice to the Secretary of State. I hope that that is helpful.

I noted—no doubt we have a similar view—that the bureaucratic processes should be as short as possible, but the Government, as my noble friend Lady Noakes noted, have put forward their own amendments in a later group. The one that is relevant here is Amendment 27, which would tell us how long the period is between the receipt of a notice and the decision to accept or reject it, and tell us to report that in the annual report. Frankly, that is useful, but we would rather that the pressure was built into the statutory arrangements rather than simply through the question of what is in the annual report by way of performance against that.

[Lord Clement-Jones (LD)]

My Lords, in speaking to these three amendments, I am extremely fortunate to follow the noble Baroness, Lady Noakes, and the noble Lord, Lord Lansley. I do not think anyone could have explained more succinctly how these different timescales work for both the mandatory and the voluntary notification, so I will not go through it again. I really appreciate the persistence of both noble Lords, and the noble Lord, Lord Hodgson, in teasing out the real consequences of these very indeterminate timescales, which may differ between the voluntary and the mandatory notification procedures but create uncertainty in both cases. As the noble Lord, Lord Lansley, said in Committee,

“we want to ensure that the greatest possible certainty and the least possible delay intrudes into these processes for investors.”—[Official Report, 16/3/21; col. 229.]

That has been our common theme throughout this Bill.

We have heard some graphic phrases throughout, such as the noble Lord, Lord Hodgson, decrying both the “no man’s land” that we must not and do not want to fall into and the powers to “stop the clock”. We also heard the noble Lord, Lord Grimstone, try to reassure the Committee that the Secretary of State has

“no desire to push his peas around the plate”,—[Official Report, 16/3/21; col. 222.]

another phrase introduced by the noble Lord, Lord Hodgson; he will probably write a book at some stage with all these phrases included. However, that is not the same as the assurance and certainty contained in statute.

The noble Lord, Lord Callanan, said in Committee that

“the process of initially determining whether a valid and complete notice has been submitted is separate from fuller screening”.

We understand that, but there should be clear time limits in that case. He tried to give us a reassurance:

“I mention ‘maximum’ again because that is exactly what these deadlines represent. In many cases, we expect the Secretary of State to be able to review and clear notifications much more quickly.”—[Official Report, 16/3/21; col. 235.]


Businesses need certainty on whether to proceed with a transaction. A delay in the Secretary of State making a decision outside the time limits—because they can—would cause uncertainty over the validity of the transaction. This lack of a clear timescale could create uncertainty for investors, universities and businesses, making domestic and foreign investment less attractive and disincentivising industry in the process.

I heard what the noble Baroness, Lady Noakes, and the noble Lord, Lord Lansley, said about the later amendments on what should be contained in the annual report; I entirely agree that more transparency is very desirable, but that is not the same as specifying exactly what the timescales will be.

There is also the question of what I think the noble Lord, Lord Lansley, called the “bureaucratic processes”. There is not yet a great deal of reassurance on that basis. We do not know how the regime will operate. Throughout this, especially on these timescales, the impression is that all the cards are in the Government’s hands, not the hands of the potential investor. That could be a real deterrent. I hope the Government will respond to the very consistent view throughout the passage of this Bill that there needs to be a considerable tightening up in this direction.

--- Later in debate ---

The hard fact is that if this example were to work through in the way I have described, the owners would have lost £3 million as the direct result of the state interfering with their property rights. The probing question posed by my Amendment 18 is whether it is intended that Clause 30 will provide a means to ride to the rescue of individuals who have suffered economic harm or loss as the result of actions taken under this Bill. If Clause 30 is not so designed, what assessment have the Government made of the detrimental impact on investment, particularly early-stage investment, in these 17 critical sectors?

[Lord Clement-Jones (LD)]

My Lords, I am again very fortunate in following the noble Baroness, Lady Noakes, and the noble Lord, Lord Hodgson. I have signed Amendment 18 and my noble friend Lord Fox has signed Amendments 15 and 16. I entirely endorse what the noble Baroness and the noble Lord said about the lack of clarity and the important implications of this clause.

In our clause stand part debate in Committee, the Minister, the noble Lord, Lord Grimstone, described the clause as “tightly drawn”. Today, he has talked about strong checks on the power, but I would have thought that it is now abundantly clear from the debates we have had, not only on the previous group of amendments but particularly on this group, that there is insufficient clarity about the operation of the clause. The noble Baroness, Lady Noakes, described the clause as extraordinarily wide, in particular in terms of transparency, the reporting requirement, an inadequate and arbitrary cut-off point, the nature of affected parties who could be compensated, the lack of alternatives to compensation, as mentioned by my noble friend Lord Fox, such as taking an equity stake, and the lack of a specific reference to public interest and national security in the clause. It seems we have to rely on the threat of judicial review rather than the wording of the Bill to ensure that the Secretary of State reasonably considers that the compensation is “necessary and proportionate”.

The Minister assured us that the power would be used only “responsibly and respectively”—I am not quite sure what “respectively” means in that context—but that the circumstances were hard to predict. Nothing that has been said so far today has dispelled the opacity, which I know the noble Lord intended to do. It is still extremely cloudy, and that was illustrated by both who have spoken. All this argues for a much tighter framework, such as suggested and probed by these amendments. I hope that the Minister will either take that on board or give pretty clear, detailed assurances about the workings of the clause or, probably even better, separate guidance. I understand from the Minister that that will not be provided, which seems highly regrettable. I hope that the Minister can give much greater detail about the operation of this clause, as required by these amendments.

[Lord Fox (LD)]

My Lords, I am grateful that the noble Lord, Lord Grantchester, is arriving back in his place, as I am not intending to speak for very long, so he had better get there swiftly.

This seems to be the other half of the amendments that went with the previous debate, and the group, with the exception of the noble Lord, is mutually exclusive, but it is still around subsidy payment money and what it is. The central question about Clause 30 is: what was in the Government’s mind when it was drafted? What is it for? The longer the Minister refuses to be specific in answering that question, the more I am drawn to the supposition that the Government do not know what it is for and that it has been put there as an insurance measure, just in case. Frankly, that is typical of the way this Bill has been written. It has been written as widely as possible to give the department as much leeway as possible in the event of stuff happening, stuff which is as yet undefined or is perhaps undefinable. That is not a good example of what Governments should be bringing to your Lordships’ House for approval.

The questions that have been asked very clearly by the previous speakers are important. If the Minister wants to prove that there is some guiding force behind Clause 30, and not just “We’ll put it in just in case we need it”, which is what it looks like to me, I look forward to hearing his comments.

In speaking to the previous group, the Minister implied that the fact that the Treasury would have a hand on the tiller should give us comfort. If the only comfort we have is that the Treasury will be looking over your shoulder, it does not sound very comfortable. The department should know what this money is for, why it is there and what it is going to be used for. We should not have to rely on the good offices of Her Majesty’s Treasury.

--- Later in debate ---

[Lord Lansley (Con)]

I can be brief. I acknowledge with thanks that the Minister has brought forward government amendments that respond both to my Amendment 81 in Committee, about the number of orders varied or revoked and, in part, to what the noble Lord, Lord Grantchester, had to say on Amendment 80 in Committee, including on the time taken to decide whether to accept or reject mandatory and voluntary notifications. I will not rehearse what my noble friend Lady Noakes had to say. Knowing more about the time taken, in addition to what is already intended to be in the annual report, will certainly give us reassurance about these administrative processes, which I think will be very important—especially at the outset, bearing in mind that we start with already potentially five months’ worth of relevant transactions that are within the scope of the regime but the legislation has not yet entered into force. Operating rapidly in relation to all those potential notifiable transactions will be really important, even in the first annual report.

[Lord Clement-Jones (LD)]

My Lords, I shall speak to the amendments tabled by the Minister, and I thank him for doing so. I shall also speak to those tabled by the noble Baroness, Lady Noakes, and Amendment 34, tabled by the noble Lord, Lord Grantchester, which I have signed and strongly support. The noble Lord, Lord Lansley, has highlighted the extra importance of transparency in the annual report in these circumstances where we already no doubt have a backlog of potential action.

I thank the Minister for responding to concerns in Committee and in the meantime and for taking us towards greater transparency. While the noble Baroness did not use the expression “half a loaf”, since it is perhaps three-quarters of a loaf, it goes some way towards giving us a greater understanding of how effective the regime is, particularly given the Government’s desire to keep these rather uncertain timescales that we were talking about in Committee.

In Committee, I hoped to persuade the Government to undertake a regular review of whether the Act was achieving its aims. It seems good practice to make sure that we have the right balance between the investment climate and national security concerns. The Government were unpersuaded by that, but I hope they will take on board the contents of the amendment by the noble Lord, Lord Grantchester, particularly new paragraph (p),

“the impact on levels of foreign investment in the United Kingdom brought about under this Act”,

which would be inserted as a requirement in the annual report. Currently, the annual report does not go far enough. Surely, seen in the round, one of the most important factors is the impact of the Bill on foreign investment. Is this not a key indicator that should be included in any annual report? How can we judge how the balance of the Bill’s requirements are working? Is foreign direct investment not sufficiently important to be included in the annual report? I hope that the Minister can perhaps explain, if there is no explicit reference to it, why not, and if not, whether there will be a description of how the regime is operating.

Other aspects of the amendment from the noble Lord, Lord Grantchester, are extremely important. The noble Baroness, Lady Noakes, mentioned the average staff resource allocated to the operation of reviews and so on. That resource aspect is going to be very important so that we can see transparently what resource is being devoted. Then there is the whole aspect of SMEs, which potentially could be impacted very heavily. The noble Baroness, Lady Neville-Rolfe, talked about this. I think that is a very important aspect too.

The way that the regime in the Bill impacts is extremely important. The Minister has given us some transparency, but I very much hope that he will accede to further requirements that could be included in the annual report really without very much difficulty.

[Lord Grantchester (Lab)]

I welcome the lead amendment in this group from the Government, providing greater clarity to the Clause 53 procedure for service. However, the bulk of the amendments in this group concern Clause 61, on the annual report. I thank all noble Lords who have contributed to this debate.

In commerce, I have always championed annual reports as a strategic publicity document for an organisation, displaying how it is performing, how effective it has been, what results and achievements it has attained and what wider societal responsibilities it has performed. It can be far more than a dry, lumpy statutory document that has to be produced and is a chore to be complied with. I am sure it should be the same for government departments and public agencies.

I am grateful, therefore, for the dialogue since Committee with the Minister and his team regarding this issue. I am very glad that the Government have looked again at Clause 61 and at the material that could be provided in the annual report of this new unit and its operation. I am grateful to the noble Baroness, Lady Noakes, for looking at this and extending the information to be provided to cover both mandatory notifications as well as voluntary notices.

The noble Baroness has also added many more aspects that would provide greater visibility for the activities of the ISU. It is important that the Government are transparent about these areas so businesses can see the impact on their activities and compare experiences. Parliament and the public can monitor the work of the unit and determine the value to national security activities and how far legitimate businesses are being affected. These amendments were all supported by the UK BioIndustry Association. I thank it for the briefings it has sent throughout the Bill.

However, we still believe that there is more that the Government could do to assist the understanding of this new regime. I thank the noble Lord, Lord Clement-Jones, for adding his name to my Amendment 34. Greater transparency could still be given on the resources allocated to the new unit, the extent to which small and medium-sized enterprises are called in under the regime and the Bill’s impact on foreign investment. This is about requiring greater accountability from the department on the unit’s service standards.

The business community still remains somewhat nervous concerning the impacts on it as a result of the Bill. Throughout its passage, we have sought to champion clarity and support for SMEs and innovative start-ups, which are the engine of growth in the economy, create many new jobs and enhance prosperity. We are keen to foster a business environment in which SMEs can thrive.

It would be beneficial for the Government to report on the unit’s work with SMEs in the annual report. This can only be helpful in providing detail and reassurances to SMEs on the operation of the unit and its impacts on them. I would be very grateful if the Minister could provide reassurances that his department will embrace the annual report in a positive manner and provide as wide a range of information as possible.

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[Lord Lansley (Con)]

I am very glad to support Amendment 35 in the name of the noble Lord, Lord Grantchester, so ably moved by the noble Lord, Lord Rooker. It follows a debate in Committee led by the noble Baroness, Lady Hayter, which I thought drew out some of the issues for the higher education and research sector very well.

I am really pleased that our noble friends on the Front Bench have responded that they will provide guidance. I was originally looking for what amounted virtually to a safe harbour for higher education and research institutions, which I accept may be a stretch too far, but there is a substantial range of transactions that the higher education sector is concerned may be within scope.

When one looks at the consultation on the scope of the regime and the range of assets that are in scope, one sees that its concern about it is entirely justifiable. What it really comes down to is understanding through guidance and the sort of scenarios that the noble Lord, Lord Rooker, was referring to, how this is actually going to work. One of the central issues is that this is a regime about ownership and control, not about use. I am sorry; I have not given my noble friend notice of this question so if he wants to write to me about it subsequently I will completely understand, but I will take one example, which is non-exclusive licensing.

There are instances, and I think they are reasonably frequent, where the licensing process will allow people the use of an asset but will not allow them control of it, which remains within the higher education institution. It would be really helpful if the Minister were able to say, “Yes, the guidance will cover that and our expectation is that non-exclusive licencing would not be within the likely call-in”, not least because if the assets were to be used outside the United Kingdom and by particular persons outside it then, coming back to my earlier point, the export licensing regime would catch that use. The two regimes, working alongside each other, would work in harmony in that sense but would focus on the control and ownership of the technology in question rather than trying to capture all its potential uses.

With that said and with that question asked, I am glad that the Minister was able to give us some guidance —I should not say “guidance about the guidance”—or some expectation of the use of the guidance in the way that we wanted that to happen. I am very glad to support Amendment 35 but hope that, in reiterating that expectation, the Minister will allow this to be withdrawn.

[Lord Clement-Jones (LD)]

My Lords, it is a pleasure to speak on this group of amendments because of the progress that has been made. It is also a pleasure to follow the noble Lord, Lord Rooker, in his new Front-Bench incarnation. Long may it last.

On Amendment 35, I declare an interest as chair of the governing body of Queen Mary University. As I said in Committee, although the Bill does not directly reference universities, given the width of the sectors included in the scope of the Bill, it is clear that there is an intention to capture partnership entered into by universities. Elements of the Bill, while introducing measures to protect national security, could have unintended consequences for future investment in UK R&D and could cause BEIS to be overloaded with references from the university sector. That would add to lead-in times and create red tape for both universities and businesses, and that would not be to the benefit of R&D in our universities. I am delighted that the Government have now accepted the case that there is a need for specific guidance for higher education when the trawler of the noble Lords, Lord Grimstone and Lord Callanan, goes by. It is really about the specificity that the noble Lord, Lord Lansley, mentioned; the nature of the guidance needs to be specific.

In Committee the noble Baroness, Lady Bloomfield, assured us that

“we do not generally expect the acquisition of qualifying assets for exclusive use by UK-based research or higher education institutions to give rise to national security concerns. Indeed, to go further, the use of assets where there is no acquisition of a right or interest resulting in control over a qualifying asset would not even constitute a trigger event”.

I hope that kind of thing is going to be spelled out. Similarly, the noble Baroness pointed to the three levels of risk set out in the draft statement on the Secretary of State’s call-in power. She said:

“I am confident that higher education and research institutions will be able to assess their activities and decide in which of these three areas of risk they fall.”


Again, I very much hope that that is spelled out in the guidance. The summary certainly looks quite promising in terms of talking about the scenarios that are going to be outlined. She concluded:

“The Government very much appreciate the Russell group’s ideas on inclusion for guidance”,—[Official Report, 9/3/21; cols. 657-58GC.]


and I very much hope that they will continue to listen. I see that the Russell group is represented on the expert group, and I think that is extremely helpful.

I think we can be much more confident that the Government will turn that appreciation into tangible guidance, but I hope that the Minister will—in the way that the noble Lord, Lord Rooker, mentioned—give further comfort on the nature of the consultation, the timing and with whom it will take place, in respect of that particular set of guidance.

Turning to Amendment 36, I am delighted to follow the noble Lord, Lord Leigh. I declare an interest as a member of the advisory board of the corporate finance faculty of the ICAEW. Of course, it follows that the noble Lord, Lord Leigh, and I have been very carefully following the correspondence between the noble Lord, Lord Callanan, and David Petrie of the ICAEW. Again, I am delighted that the Minister has accepted that the statement about the exercise of the call-in power will not be sufficient for the investment community and that the annual report—and, indeed, the fact sheets mentioned in Committee—is not the best vehicle and that the Government have now committed to issuing market guidance.

But the market guidance notes really must do what they say on the tin. The noble Lord, Lord Leigh, had a slightly veiled criticism of how detailed these were going to be in terms of their use to those who are transacting. This has rather different wording from that applied to higher education. It seems to me that the wording is much more helpful when it talks about scenarios in higher education; this talks about drawing on analysis of patterns or trends in notifications received by the investment security unit. It is all about the notifications; it is not an end-to-end analysis of the trends as regards the Secretary of State’s decisions, call-in and so on. There is a great deal more that could be covered. I welcome the flexibility shown by the noble Lord, Lord Callanan, in his letters to the ICAEW, offering to make progress on developing guidance notes. I very much hope that will happen now that the ICAEW is part of that expert group.

I think it might be helpful to put on record significant detailed additions that could be put into the guidance notes. In addition to some of the points made by the noble Lord, Lord Leigh, I suggest that it would be useful to have contained in the market guidance notes details about at what stage in a transaction advisers or companies should contact the ISU, and how sellers seeking to retain control of the process might manage that element of the transaction—although, of course, we know that most of the emphasis is on the acquirer notifying the unit. It might also be useful to have advice for investors on the provisions that could be exercised and the circumstances in which the Secretary of State has declared deals as null and void, and commentary that recognises the need for maintaining competitive tension in an investment or sales process in order to obtain optimum terms from investors or acquirers, in terms of enabling a limited number of final bidders in a trade auction process. These are the sorts of the things that could be envisaged. It could also include advice about mechanisms to prevent bidders submitting vexatious or deliberately incomplete notifications, and advice designed to avoid frequent requests to investors and/or acquirers for additional information.

A market guidance note might be useful when it becomes clear that the Secretary of State is unwilling to permit investment and control in particular subsectors that have been identified. Additionally, I think that the ICAEW has mentioned that a market guidance note specifically for private equity investors would be useful. Of course, publishing these market guidance notes in a timely and regular fashion as circumstances change is really important. Again, on the question of the consultation, I very much hope that the Minister will say who will be consulted and when such market guidance notes might be available—that would be good.

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[Lord Clement-Jones (LD)]

Noble Lords will be relieved to hear that I have very little to add to what my noble friend has just said. The basic fact is that everything we have discussed in the course of our consideration of the Bill could be changed by regulation. If noble Lords do not believe me, they can look at Policy Statements Regarding Statutory Instruments Required for the Commencement of the NSI Regime, as updated on 2 March 2021. There are eight extensive areas—my noble friend mentioned a few of them—for changing the sectors covered. If that is not a massive change, I do not know what is. Changing the trigger thresholds, which we have been debating today, would effectively change the entire mandatory regime. These changes could all radically change the nature of the Bill. Whether or not noble Lords accept the scenarios put forward by my noble friend, that should be a real wake-up call. No primary legislation should be subject to the possibility of change as broad as that. So I support my noble friend’s amendment, and I very much hope the Minister will rethink the attitude taken by the Government in Committee to this self-same amendment. The super-affirmative process is a good one; it gives proper deliberation to changes and it is far more democratically accountable.

[Lord Grantchester (Lab)]

I am grateful to the noble Lords, Lord Fox and Lord Clement-Jones, for the amendment, which proposes a super-affirmative process for regulations under subsection (1) of Clause 6, “Notifiable acquisitions”. This was debated at length in Committee, and we certainly agree that parliamentary scrutiny of regulations is not always as meaningful as it might be. We can feel sympathy with the view that notifiable acquisition regulations are highly significant and require proper oversight, not merely by both Houses of Parliament but also by many experts who might become involved.

The opinions of those experts could be sought and made available to Parliament and deliberated on. The importance of consultations with stakeholders who are knowledgeable and familiar with the situation at the leading edge is also recognised. However, the Delegated Powers and Regulatory Reform Committee did not call for the super-affirmative procedure to be adopted for these regulations under the Bill. Indeed, in its report of 22 February it said that

“there is nothing in the Bill to which we would wish to draw the attention of the House.”

It would be unusual to take a view contrary to the considered opinion of that well-respected committee of your Lordships’ House.

We remain somewhat sceptical about how the super-affirmative procedure would work in practice, over and above the normal affirmative procedure, in this case, even if custom and practice deemed the process less than ideal in all circumstances. We feel that experience needs to be gained first before undertaking this extra affirmative process. I hope this confirmation of what the noble Lord, Lord Fox, may have heard about our view on his amendment may not greatly startle him.

National Security and Investment Bill

Lord Clement-Jones Excerpts

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 Naseby (Con) [V]]

My Lords, I am grateful to my noble friend Lord Hodgson for tabling the amendment because what is behind it is absolutely right, as a number of my noble friends have said in the debate. That is fine, particularly in a situation whereby we are hoping to set the environment in which new companies can be created. After the pandemic, we are highly likely to see a number of movements in that area that would not normally happen.

One area on which I have a slight query is the preference to be given to someone who has done it before, particularly if they are not a company but someone who is handling the matter. That gives an advantage over someone who has not done it before. Therefore, regarding the point made by the noble Baroness, Lady Bowles, about a time limit or distance limit in terms of time, there needs to be some stop on that. Otherwise, an unfair advantage is given to one party over another.

Another element that I worry about a little, which covers security matters as much as anything, is that some people out there are enormously creative in terms of manoeuvring and so on. Two things may seem similar but can be yards apart—miles sometimes. Not all that is written on the outside packet of a product or company represents what is happening underneath.

While I support the broad thrust of my noble friend Lord Hodgson, I have those reservations and shall listen carefully to my noble friend on the Front Bench.

[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.

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[Lord Grimstone of Boscobel (Con)]

I thank the noble Lord for that question. I will give him an additional example of where this power or type of power might be used. As I stressed earlier, it is not a general compensation power and will only be used in instances where the public interest, particularly national security interests, require it. As I also said earlier, any financial assistance would be subject to Treasury consent and would have to be shown to provide value for money. For example, if the Government provided a loan, it would normally have to be at market rates. The clause does allow the Secretary of State to bail out any business, either directly or surreptitiously, through soft loans.

Equally, the aim is not for this Bill to cause businesses financial distress, nor do we anticipate it doing so. The Secretary of State—this is the key point—may make a final order only if he “reasonably considers” that it is “necessary and proportionate” to address an identified national security risk.

Let me give an example. A case might arise whereby an asset has to be secured to prevent the national security risk of someone else getting hold of it. The Secretary of State might have imposed a final order that blocked a trigger event of a UK company that was working on unique or world-leading technology. If the company could not immediately find an alternative buyer, and if the collapse of the company could itself pose a national security risk, the Secretary of State could consider using this power. In such a situation, the Secretary of State may decide that he or she wishes to provide financial assistance to ensure that the company could continue operating until an alternative acceptable buyer was found. As such, this power will be used only in very tightly drawn circumstances where doing so is clearly in the national interest.

[Lord Clement-Jones (LD)]

My Lords, I know that the Minister is trying to be as helpful as possible by tying down the way Clause 30 will work. However, “tightly drawn” is not how I would describe its wording, so I assume he is really saying that it is the risk of judicial review hanging over the Secretary of State that keeps him honest in the circumstances. That is not a very good place to be when you are dealing with a Bill of this kind.

The other aspect is transparency. The noble Lord did not really explain the reason for the threshold of £100 million. He said it was for transactions—or compensation, if you like—and financial assistance under £100 million in aggregate would have to be reported for the annual review. However, if it was £99 million, say, that would not apply and it would not be subject to a separate report; it would just be aggregated along with all the financial assistance given over the course of the year. Why?

These powers are very wide; we need to know how they are being used and what direction the financial assistance is going in. Therefore, simply drawing a line at £100 million does not seem to be very satisfactory in the circumstances.

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[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, the noble Baroness, Lady Noakes, outlined very clearly what this group is about. She may not be entirely surprised that I am coming from the opposite angle, although we can perhaps agree that this is a question of balancing public good—making decisions about national security—versus private profit and convenience. The financial and other implications that might arise from more time being taken over whether or not to progress are weighed against both the chance of missing something important and using significant public resources, making a fuller assessment unnecessary.

I am here, rather unusually, to defend the Bill against the amendments. Broadly, in this debate we have heard a great deal of uncertainty about how the Bill, once enacted, will work: how the details will play out in practice, how many firms will be involved and what resources will be required. I am not sure how five days was arrived at as a firm deadline, given that there is such uncertainty about the actual operation of the Bill. As it currently stands, deciding whether to accept a mandatory notification should take as long as it takes; it should not be subject to an arbitrary—a very short —deadline.

[Lord Clement-Jones (LD)]

My Lords, these amendments are very much of a piece with many of the amendments we have heard in Committee—all designed to create a much tighter and less discretionary regime. That is quite right in the case of these amendments, which one would have thought the Government would find extremely straightforward to accept.

Under Clause 14, 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 Baroness, Lady Noakes, said in her excellent introduction, there will be a significant number of transactions that fall within the scope of the mandatory notification requirements—they are set out in the impact assessment—due to the target’s activities being in a specified sector but which clearly do not raise national security concerns.

Timescales for decision-making are currently extremely unpredictable. Even before defined timescales for decision-making kick in, the Secretary of State has an initial period, as has been described, to decide whether a notification has been submitted in the correct form. The Secretary of State must make this decision as soon as reasonably practicable. That is a set of weasel words which suit the convenience of the Secretary of State, not the investor.

This lack of clear timescales creates uncertainty for investors, universities and businesses, making domestic and foreign investment in university spin-outs less attractive, while disincentivising industry partners from engaging in collaborative R&D. These are all the downsides of uncertainty, as we have heard throughout this Committee. In addition, the Secretary of State has 30 days in which to review the notice after acceptance. Especially in circumstances of fast-moving corporate finance transactions, 20 days, as proposed, seems much more proportionate. Similarly, under Clause 18, relating to the voluntary notification procedures, greater certainty would be achieved if these amendments, regarding when a voluntary notice is accepted and setting out how long the review period should be, were included.

The noble Baroness, Lady Noakes, made an extremely good point: these provisions, where the timescales say “as soon as practicable” or 30 days, will be adhered to, to the letter. They are not going to be done speedily. Civil servants are going to interpret them extremely conservatively, as my own profession—the legal profession —would, because the penalties of getting it wrong will be seen to be too high. People will not want to get it wrong, whether they are in the position of giving advice to the Secretary of State or advising investors. That is why we need very clear provisions in the Bill, and we are certainly not there yet.

[Lord Grantchester (Lab)]

I thank the noble Baroness, Lady Noakes, for her Amendment 49, to which I have added my name. It leads this group of probing amendments which focuses on one theme: how long will businesses and organisations have to wait in suspense for responses from the Government concerning the notification procedures? This theme stems in part from the fear that the Government will be swamped by notifications, with the CBI suggesting that the department could have to deal with up to 10,000 of them each year. Some discipline needs to be set up from the outset that will require the Government to keep up.

Of course, we support the aims of the Bill to monitor, guarantee and protect our UK national security, so in this probing group I have not added my name to Amendments 53 or 65, in the name of the noble Baroness, Lady Noakes. This is not because I specifically disagree with her—quite the contrary. However, it can be appreciated that some notifications will take more time than others to review, with some of them likely to raise more concern—alarm, even—thus requiring more extensive considerations and checks. The length of the period is a maximum duration, not a target for delay and procrastination. It should be understood how financial takeovers can become incredibly complex, so it is entirely correct that complexity is reviewed sufficiently and deeply. However, perhaps the Minister could answer as to whether a full six weeks may be needed and whether a four-week period could be maintained.

Overall, it is understood that unnecessary delays can lengthen anxieties that legitimate investments may fall through and exclusivity terms expire, leading to research partnerships breaking down or, in worst-case scenarios, businesses running out of cash and finance facilities. This heightens the requirement for the new unit to be properly and adequately resourced. This could be enforced through transparency about the turnaround times for notifications. These amendments also pair up neatly with Clause 14 on mandatory notifications and Clause 18 on the voluntary notification procedure. As the wording in the Bill is consistent across both alternatives, are the two distinctive categories so similar in importance and workload to require symmetry in their determinations?

With these thoughts, I have added my name to Amendment 62 in the name of the noble Baroness, Lady Noakes, giving the Secretary of State five working days instead of the nebulous “reasonably practicable” length of time. What does “reasonably practicable” actually mean to a Government? It is vague for SMEs and an elastic piece of time for the department. The Law Society has raised concerns, especially on the voluntary notice procedure in Clause 18, as “practicable” implies that a degree of delay will be acceptable and is to be tolerated. How does the Minister react to that? Can he explain whether five working days could be practicable and, if not, why not?

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[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.

[Lord Callanan (Con)]

I am grateful to the noble Lords, Lord Grantchester, Lord Leigh and Lord Clement-Jones, for their amendments in relation to equity stakes of affected parties, small and medium-sized enterprises, an impact review of the regime, and market guidance.

I first turn to Amendment 84, tabled by the noble Lord, Lord Grantchester. This amendment seeks to require the Secretary of State to analyse the financial support provided by government, as part of Covid-19 support, to sectors considered more likely to give rise to national security risks. It then seeks to require him to consider converting loans and grants to equity stakes when there is a clear economic and national security rationale for doing so.

There is no doubt that the impact of Covid-19 on businesses and livelihoods of people across the country has been truly terrible, and I have a massive amount of sympathy for those affected. I can assure noble Lords that the Government are committed to supporting all UK businesses through the Covid period. The Government continue to provide extensive support to businesses to survive the pandemic, so far totalling over £280 billion, including through furlough, the Self-employment Income Support Scheme and business grants. However, I do not think that converting loans into equity stakes necessarily represents the best use of public money. As noble Lords will be aware, Clause 30 provides for the Secretary of State to give financial assistance to, or in relation to, entities in consequence of the making of a final order. However, it is expected that this will be used only in exceptional circumstances. What the noble Lord is proposing would be much wider than this and, while I am sure that it is very well intentioned, is very much a substantive diversion from the main purpose of the Bill.

I turn to Amendment 85, which would require the Secretary of State to create a small and medium enterprise engagement unit within three months of this Bill being passed. This unit would take particular actions in relation to SMEs and their interaction with the regime. I note that this amendment bears a strong similarity to an amendment proposed during Report in the other place, and it will not surprise noble Lords that my views on the subject are closely aligned with those of Nadhim Zahawi, my fellow Minister. The Government strongly support SMEs and so have sought to provide a clear and easy regime for businesses of all sizes to interact with. The Government have been happy to provide support to businesses both large and small through the contact address available on GOV.UK and discussions with BEIS officials. The Government have published fact sheets on GOV.UK which make clear what the measures in the proposed legislation are and, importantly, to whom they apply.

We are also creating a digital portal and a simple notification process to allow all businesses to interact with the regime without the need for extensive support from law firms. Furthermore, there is no fee for filing a notification, unlike many of the regimes operated by our allies. Consequently, we have no reason to believe that this regime will disproportionately affect SMEs or that this new clause is necessary.

--- Later in debate ---

[The Deputy Chairman of Committees (Lord Lexden) (Con)]

I have received one request to speak after the Minister, and I call the noble Lord, Lord Clement-Jones.

[Lord Clement-Jones (LD)]

My Lords, I should thank the Minister for his response; I am not sure I really want to. I found it rather extraordinary, particularly to Amendment 89. We have a Bill on foot with a purpose in mind but, when it comes to reviewing it, we are told that it is far too sensitive and we cannot possibly review whether it has met its objectives. We can keep it under review—within the department in some shape or form, I assume—but we cannot possibly undertake a periodic review of any kind. Even a normal post-legislative review process would expect to see whether an Act of Parliament was meeting its objectives. The Minister cannot even say whether that will take place at any stage.

This really adds to one’s concerns about this Bill in so many ways. It is a rather furtive creature that, if we are not careful, will be hiding in the dark for quite a long time and will not get reviewed. There is no way of seeing whether it is achieving its purpose other than the kind of review the Minister was talking about, which is purely internal to government and part of the government department’s overview. This is not particularly reassuring.

On Amendment 92, the Minister talked about just making statements about the call-in power or having the annual report. I said a set of market guidance notes would do; I did not adumbrate about six points that a set of market guidance notes could set out. They are far more extensive and market friendly than anything that is going to be caught by the call-in power statement or the annual report. We are talking about real guidance to business so that it knows what to expect and the parameters within which the Secretary of State is operating—particularly when it comes to guidance about the kinds of sector that will be caught and the current issues that the Secretary of State believes would give rise to a call-in notice and other aspects dealt with by the ISU. The idea that five years is a reasonable time to adjust a call-in power statement is laughable in the commercial world. The Takeover Panel updates its notes on a regular basis, and that is exactly what the ISU should do with market guidance.

[Lord Callanan (Con)]

I am not sure there were any questions for me there; the noble Lord has made some observations. I understand that he was unhappy with my replies, but I am afraid I cannot agree that the Bill is “furtive” or “hiding in the dark” at all. We are committed to transparency as much as possible. He says he has six additional points on market guidance notes. If he wants to send them to me, I will happily have a look at them and see what we can do. We said a maximum of five years, but of course the Secretary of State has the ability to do earlier reviews if necessary. That is a maximum date, and we could bring that forward. I take on board his points and am sorry if he is disappointed by my replies.