National Security and Investment Bill

Debate between Lord Hodgson of Astley Abbotts and Baroness Bloomfield of Hinton Waldrist

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

[Baroness Bloomfield of Hinton Waldrist (Con)]

I thank my noble friend Lord Hodgson for his amendment, which intends to shorten the time limit for the Secretary of State to call in trigger events which have already taken place. The Bill as drafted allows the Secretary of State to call in trigger events up to five years after they have taken place. This ensures that the regime powers can be applied to completed trigger events which have given rise to, or which may give rise to, risks to national security but which have not been notified to the Secretary of State.

The length of five years is important to give the Secretary of State sufficient time to become aware of the trigger event and to make it difficult for the parties to keep the trigger event hidden. However, the proposed change from five years to two would make it easier for hostile actors to hide their acquisitions and effectively time-out the Secretary of State. It would increase the incentives to keep an acquisition quiet or inactive, as hostile actors would need to do so for only two years.

While not necessarily straightforward, this is clearly easier—both practically and financially—than keeping an acquisition hidden for a longer period. For example, if a hostile actor acquires an entity and intends to merge it with their existing operations, there are practical costs of not doing so within five years. They would not be able to merge IT, payroll, HR, et cetera, or take advantage of that entity and its assets. Likewise, if a hostile actor acquired an entity for its technology, that technology might well be obsolete in five years, so they would need to use their acquisition now to get the benefit.

In the Government’s view, five years strikes the right balance between creating a substantial disincentive for efforts to obfuscate and conceal relevant acquisitions while giving legitimate business certainty that they will not be called in after that period. Importantly, this approach puts us into line with our international partners. For example, in Germany a review may be initiated up to five years after the purchase agreement. It is in line with other countries, including France and Germany, and we believe that it is appropriate. Indeed, it is shorter than some partners, including the USA and Japan, which have no time limits. Further, a five-year reach-back period applies only to trigger events which have completed or which will complete after the introduction of the Bill, contrary to what some observers have suggested. That is to say that no acquisition which has been completed prior to 12 November 2020 may be called in under the Bill.

As helpfully noted by my noble friend Lord Lansley, in the Bill the five-year period is tempered by the requirement for the Secretary of State to call in a completed trigger event within six months of becoming aware of it. This further reduces the time limit for intervention and creates greater certainty for parties to a relevant acquisition. If there is doubt, parties should submit a voluntary notification to the Secretary of State. This will give them certainty on whether their trigger event will be called in.

Before I conclude, in response to my noble friend’s query relating to whether final orders can require the unwinding of acquisitions, that is very much within the scope of the power. The order, however, makes commands and may not deal with practical arrangements. How remedies are given effect will be for parties to finalise, subject to the requirements of the order.

My noble friend Lord Lansley asked about the nature of the acquirer. To clarify, the five-year backstop applies to the date on which the acquisition itself took place. Circumstances where the identity of the acquirer is not known until some time after the trigger event took place are precisely why the reach-back period might be important in certain cases. In circumstances where a notification was given and false or misleading information was given about the true identity of the acquirer, the Bill already provides that the Secretary of State can re-examine such cases.

With reassurance provided for business, knowing that we are acting in line with allies, and for the reasons I have set out, I hope my noble friend will withdraw his amendment.

[Lord Hodgson of Astley Abbotts (Con)]

I am grateful to my noble friend for her reply. I do not think I heard whether future pre-emptive actions under the new regime will be the subject of a statutory instrument or will just happen from the Secretary of State’s desk. Perhaps, she could answer how this or the other House will know what is happening.

I am grateful to everybody who spoke on this. It is obviously a tricky area. I am grateful to the noble Lord, Lord Clement-Jones. Undesirable, uncertain and impractical—I could not have put it better myself. I am grateful to the noble Baroness, Lady Bowles, for drawing attention to the question of the difference between two years and five years, and what will happen in that three-year period other than causing uncertainty among investors. The noble Lord, Lord Fox, raised very practical points.

Let me meet my noble friend Lord Lansley some of the way. I do not think that this will happen very frequently, but, like the noble Baroness, Lady Bowles, I am not convinced that the three additional years are really needed. The point my noble friend makes, which has certainly eluded the Law Society, is the interplay between the six-month trigger and the five years. In the tech sector, these companies grow like Topsy: they are nothing now, and they will be quite big very quickly indeed. You could have a situation where some event, ex post, could have been described as a trigger event but was not picked up as such at the time. It is unfair for people to have that uncertainty lasting for five years. The Secretary of State could say, “I never became aware of that, so I have more time to start the unwinding process, as long as it isn’t within the five-year period.” I see my noble friend’s point, and I accept that it is a rare occasion, but I still think there is something to be teased out about how the different pieces fit together, particularly in sectors of the market where very fast growth occurs.

I would be grateful if the Minister could tell me about the statutory instruments and how publicity of pre-emptive actions is to be provided.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts (Con)]

Was it the fact or just the implication?

[Baroness Bloomfield of Hinton Waldrist (Con)]

No, I will respond to the noble Lord in writing.

[Lord Hodgson of Astley Abbotts (Con)]

Okay, that is fine. We need to go away and put my noble friend Lord Lansley in the blue corner and the Law Society in the red corner and see how we get on. In the mean- time, I beg leave to withdraw the amendment.