National Security and Investment Bill

Baroness Bloomfield of Hinton Waldrist Excerpts

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

[Lord Grantchester (Lab)]

I welcome the probing of Amendment 7, in the names of the noble Lords, Lord Hodgson and Lord Clement-Jones, on the extent of five years in which the Secretary of State may issue a call-in notice once a trigger event has taken place.

The debate on how long this period may need to be and the reasons behind these decisions has been interesting. When the Government originally consulted on this, the period was much shorter. The Minister will need to answer why it has changed and been extended for such a long period, as well as the other questions raised. Indeed, five years is a far horizon in today’s fast-moving world—even if it is not long enough for some, often unpopular, Government to be able to continue in office.

Could this length of time threaten the policy stability of the economy across many sectors as well as give rise to unnecessary anxiety for businesses, especially in relation to retrospective elements previously discussed? However, the interpretation of Clause 2 may be that the Secretary of State is unaware of the trigger event but that the intentions of the parties have not materialised. The clause is rather unclear, and I appreciate the remarks of the noble Lord, Lord Lansley, in his interpretation. I would certainly welcome the Minister’s reply.

[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.

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

Does the Minister wish to respond?

[Baroness Bloomfield of Hinton Waldrist (Con)]

I will respond in writing.

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

The Minister is saying she will respond in writing. Is the noble Lord, Lord Hodgson, withdrawing his amendment?

--- 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.

--- Later in debate ---

In the area of IP, of course, this would anyway be quite hard to quantify. While expanding the mandatory notification regime to assets may be a worthwhile step for easily identifiable strategic assets, such as land, the application to ideas and information could be extremely problematic. There is also the issue of the 15%, although it is not referred to in these amendments. For Wellcome, the overlap of that very low-capture area with the possibility of other things being added to the list causes it concern. I hope that, in light of that, the Minister will agree to meet me and the Wellcome Trust, because it would be better if we could capture and sort out these worries at this stage, rather than when the Bill becomes an Act. This is, as noble Lords know, an organisation well experienced in exactly the areas we are talking about, so I think its advice would be of considerable help to the Government, as well, as I say, of trying to get rid of the problem before it emerges.

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, I welcome Amendment 14 from my noble friend Lady McIntosh of Pickering, and Amendment 94 from the noble Lords, Lord Fox and Lord Clement-Jones, which overall seek further consultation and scrutiny on Clause 6 regulations. Perhaps I may say at the outset that we would be delighted to meet the noble Baroness, Lady Hayter, to discuss the concerns of the Wellcome Trust, which, as she said, is a world-class research organisation and worth hearing.

Perhaps I may begin by clarifying for the benefit of the Committee that while acquisitions of land are in scope of the call-in power, they are not in scope of the mandatory regime. Acquisitions of land, as with assets more widely, are expected to be called in only very rarely.

I turn first to Amendment 14, tabled by my noble friend Lady McIntosh of Pickering. It would require the Secretary of State to consult relevant stakeholders before making any regulations under Clause 6. Those regulations are of significance as they define the scope of the mandatory notification regime. As such, the Secretary of State has already consulted on sectoral definitions for the qualifying entities proposed to be in scope of the mandatory regime, and further engagement is planned with particular sectors in advance of turning these definitions into draft regulations. Again, I echo my noble friend’s apologies that the information on sectoral scope arrived only as we came into the Committee. The consultation was extensive and lasted from November for eight weeks. We received 94 responses and have not yet finalised all the sectoral definitions. Further targeted engagement to refine these definitions will be made in advance of laying regulations. The Secretary of State will therefore undertake consultation where appropriate.

I can reassure my noble friend Lady McIntosh and the noble Lord, Lord Bruce of Bennachie, that, given the importance and potential complexity of any future regulations under Clause 6—defining and bringing new advanced technology sectors into the regime, for example—it is difficult to foresee many instances in which consultation of relevant stakeholders will not be required. As such, there is no need to create a requirement in statute to cater for this. Public law duties already create the right incentives.

The second amendment to Clause 6, Amendment 94, proposed by the noble Lords, Lord Fox and Lord Clement- Jones, would require the Secretary of State to lay before Parliament a proposed draft of any regulations made under the clause for 30 days before the draft regulations themselves are laid and are subject to the approval of both Houses. Amendment 94 would also require the Secretary of State to identify a committee to report on the proposed draft regulations and then himself report on his consideration of the committee’s recommendations. The Bill as drafted provides for regulations made under Clause 6 clause to be subject to the affirmative resolution procedure.

While I take the points made by the noble Lord, Lord Fox, that these statutory instruments cannot be amended, they can be declined, as we have seen a small number of times in the past. This ensures an appropriate balance whereby the mandatory regime can be quickly updated should new risks to national security emerge, while still giving Parliament appropriate oversight by requiring it to approve the regulations.

In its report on the Bill published on 22 February, the Delegated Powers and Regulatory Reform Committee concluded that,

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

So, although I was in some way surprised to see the noble Lords’ amendment tabled in relation to Clause 6, in disagreement with the judgment of the committee, we can agree that the powers of the Bill are necessarily drawn widely in order to make the process more efficient. I believe that the committee recognised the careful balance that the Bill strikes in Clause 6 and other clauses between allowing the Secretary of State the flexibility to ensure that the regime is effective in protecting our national security while providing sufficient opportunity for parliamentary scrutiny and input.

I welcome the opportunity to discuss this matter further with noble Lords. However, for the reasons I have set out, I cannot accept these amendments and ask that they be withdrawn or not moved.

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

My Lords, I have received two requests to speak after the Minister: from the noble Baroness, Lady Hayter, and the noble Lord, Lord Clement-Jones.

[Lord Clement-Jones (LD)]

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

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

[Baroness Bloomfield of Hinton Waldrist (Con)]

I reiterate that we will continue to consult widely on important changes that merit further scrutiny. The Government care deeply that we get these definitions accurately put into the Bill before it receives Royal Assent.

[Lord Fox (LD)]

I anticipated the Minister’s answer on the subject of time, and 30 days is 30 days, but the Government have shown that they are relatively adept. If there really was a national security emergency requiring quick action using other means, a statutory instrument with a debate in Parliament would act as a plug. My noble friend Lord Clement-Jones made the point that there is such significance, particularly around this list but also around the other elements of Clause 6, so I hope that the Minister will read Hansard and at least find some way of moving towards the very valid arguments that she has heard today on both amendments.