National Security and Investment Bill

Baroness Noakes Excerpts

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

[Lord Fox (LD)]

My Lords, Amendment 1 is in my name and that of my noble friend Lord Clement-Jones. At Second Reading the Minister described the Bill as

“a major upgrade to the Government’s powers to screen certain acquisitions on national security grounds”,

which builds substantially on the Enterprise Act 2002. It certainly is, but perhaps in the Bill we are dealing with architect’s drawing of the upgrade, rather than a 3D model.

First, let me say without equivocation that those of us on our Benches see the need the Government to scrutinise potentially sensitive transactions, and we think that an upgrade is timely and sensible. However, as the Minister has acknowledged, there is the rub. Defining what is sensitive and what is a transaction of concern are key to the effective operation of the Bill. As we progress through the amendments ahead of us, I would say that virtually all seek to better define the operational process of the new investment security unit within BEIS and to ensure that the disquiet it has caused is alleviated.

At Second Reading, the Minister spoke about reflecting

“the modern economic and investment landscape in the UK.”—[Official Report, 4/2/21; col. 2332.]

In fact, what is proposed here is culturally different from what successive Governments have practised. Blair, Cameron—including and excluding us—through May to Johnson have all, so far, rightly or wrongly, pursued a distinctly hands-off approach. It is not hard to understand the alarm that the Bill might cause in the outside world.

Its publishing sends a message about the future nature of interventionism. This concern comes not just from the traditional free traders of the City but from universities, industry trade associations and sectors as wide as space and bioscience. The abiding link to these academic and industrial concerns is that these are, by necessity, international and collaborative activities.

The overwhelming concern coming from all sides of the House in that Second Reading debate was how this unit was to operate effectively without stifling innovation, scaring off capital and becoming a proxy for wider strategic considerations. It is with this in mind that my noble friend Lord Clement-Jones and I penned this first amendment, which sets out the objective of the Act. By exclusion, it also sets out what is not the objective of the Act and thus what is within and not within the purview of the investment security unit. It is designed to send clear messages about how this Bill will operate in practice.

Looking at the amendment in detail, first, in making regulations under proposed subsection (1), the Secretary of State’s overarching objective must be safeguarding national security. This is reinforced by proposed subsection (2). There is no controversy here, given that this is the purpose of the Bill, and on their own the subsections would offer nothing new. That is down to proposed subsection (3), which would add that

“The Secretary of State must also have regard to the effect of the application of this Act,”


on other things. In our case we have listed:

“technology investment … the research and innovation environment … and … business opportunities for small and medium-sized enterprises.”

We put those three there, because in our view these areas are key elements of our national security. I am happy to debate what should be on that list, but I will explain why we put these in the amendment.

Technology investment is key to keeping ahead of the security arms race, and it is reasonable that the Secretary of State and, by extension, the unit in BEIS would have regard to this technology base. Similarly, the research and innovation environment is needed to deliver that technology leadership. Without vibrancy in investment here our future security is compromised. Finally, in many cases it is the SMEs that bring true innovation to all the 17 sectors on the Minister’s list. They take technology to market and must not be disproportionately disadvantaged by the application of this Bill.

This amendment is designed to send two messages. One is internal, seeking to influence the nascent culture of the investment security unit to ensure that it recognises publicly what elements contribute to the delivery of national security. The second is an external message to the market, our universities and our innovative businesses, big and small. They need to know that these issues are in the Government’s mind when they are making security decisions. They need to be reassured that this is a vehicle to help to reassure them. The Minister may well say “trust me”, and of course I do, but what of future Ministers and future Governments? This amendment would ensure that the Government have regard to the conditions and the culture that will deliver national security and investment in that security. I beg to move.

[Baroness Noakes (Con)]

My Lords, in principle, I do not support proposed new clauses such as this, whether they are called objective clauses or purpose clauses. I have tabled them myself in the past, but they are usually not much more than an excuse for another Second Reading debate, and we had a little of that in the introduction from the noble Lord, Lord Fox.

Amendment 1 could be positively harmful. It confines national security to “economic and social harm”. The obvious item omitted is physical harm, but other harms could be missing. Purpose or objective clauses would be used as an aid to interpretation of the main body of the Act so, if they are there, they have to be comprehensive in their drafting if they are not to act as a constraint on the operation of the Bill.

Similarly, the “have regard” matters in proposed new subsection (3) could act as a constraint on the Secretary of State. The noble Lord, Lord Fox, explained the rationale for his list, but I could not see why “technology investment” was singled out compared to other kinds of investment—for example, in manufacturing capability or intellectual property. What exactly is meant by “research and innovation environment” is unclear from the drafting, and is the omission of “development”, which is the normal companion to “research”, significant or not? Singling out SMEs, which we are all aware are important to our economy, implies that larger enterprises are not important in the considerations.

There is a good reason why Bills do not often contain purpose or objective clauses. They are traps for the unwary and can do more harm than good.

--- Later in debate ---

[Baroness Northover (LD) [V]]

My Lords, the noble Baroness, Lady Hayter, laid out in her opening remarks the necessity for clarity about what risks this Bill seeks to address, arguing for a definition of national security in Amendment 13. There are indeed arguments for such a definition, as the Law Society of Scotland, and that for England and Wales, have laid out, lest the Government might, for example, respond to political, economic or electoral pressures to define risks which should not be brought within the scope of this Bill. Others see risks associated with such definitions and further legal minefields. However, the Law Society of England and Wales sees a risk in Amendment 2—that extending the scope of the clause to cover “public order and public safety” could give rise to similar concerns, unless these terms could be strictly defined so as not to include political motives. However, I hear what the noble Baroness says about her aim here, and about the risks to our democratic processes.

I speak here particularly to Amendment 83 in the names of the noble Baronesses, Lady Hayter and Lady Bennett of Manor Castle, which I have also signed. The amendment is extremely restrained. The Government have made much play of the importance of their proposed integrated review of security, defence, development and foreign policy. From time to time, these reviews are made. There was one after the general election of 2010, and another after the 2015 general election. Of course, that latter one included pandemic as a risk, and emphasised how important it was to the United Kingdom, economically and strategically, to be at the heart of the EU, through which, as it put it, we amplified our power and prosperity.

One might say that a new assessment is indeed desperately needed. It was due last year but was knocked off course by the pandemic, which did not stop the Government pre-empting its conclusions by merging DfID with the FCO and cutting aid, even though in 2015 this was seen as a mark of our global reach—global Britain, you might say. In addition, the Government announced spending levels for the MoD before Christmas, none of this waiting for a proper strategic review.

So now we have this Bill on threats to national security, without that review having been published. We hear that it is imminent. Could the noble Lord update us? Is it indeed being buried by the Budget coverage? We have certainly heard that it has got thinner and thinner, perhaps one-fifth the length of the 2015 one, and that it is large on rhetoric and small on how it is to be achieved. Nevertheless, this should be an important statement of what the UK identifies as threats and ambitions. Therefore, this should have preceded this Bill and underpinned what it was trying to do, if the Government are to be joined up.

Amendment 83 asks that, when the review is finally published, the Government publish a statement that outlines how provisions in the Act will align with the UK’s long-term security priorities and concerns as identified in the review. The amendment states that this should be

“As soon as reasonably practicable”,


a generous phrase that Baroness Hayter used in tabling this amendment, more generous than the one I would have used.

Perhaps, because there is little confidence in the review, as one would have thought these areas would definitely be covered, this statement should also include how the Bill will respond to emerging threats, new technology, biological weapons, cyber, misinformation and military developments by the UK’s adversaries. One of the successes of the 2015 review was certainly the emphasis on cyber and the subsequent and important expansion of UK capacity in this area. I am sure that this will not be neglected in the new review. The amendment asks the Secretary of State to lay a statement before Parliament. It is surely the least that the Government should do to try to ensure that the Bill is aligned with whatever comes forward in the strategic security review. The Government should be able to simply accept the amendment, and I look forward to the Minister’s reply.

[Baroness Noakes (Con)]

My Lords, at Second Reading, I said that I felt that a lack of definition for national security was a problem, and I still feel uneasy about that. I understand the need for flexibility to take account of how threats evolve over time. My noble friend the Minister said at Second Reading that national security was not defined in other legislation, but I am not sure that is quite good enough, given that this legislation will have a particularly big impact on commercial transactions, and what the business sector needs is certainty. Other uses of the term have not had that sort of impact on business transactions. I completely understand the difficulties of definition—problems of being too restrictive or insufficiently comprehensive. I think Amendment 13, in the name of the noble Baroness, Lady Hayter, is a better approach than Amendment 1 with its objective clause, but I am concerned that it may still carry some of the defects that I outlined when I spoke to Amendment 1.

The statement that the Secretary of State will make under Clause 3 will certainly help businesses and their advisers but, at the end of the day, national security is the big overarching concept in the Bill which is left without further detail. Several noble Lords have already referred to the letter from my noble friend the Minister to all Peers, which came out while he was speaking earlier. I have had an opportunity to have a quick look at it on my iPad, and I do not think that any Member of the Committee will find that it advances our consideration of the Bill this afternoon at all: it just says that there is a lot more work to do.

If there is no definition or further elaboration of what national security means in the context of the powers created in the Bill, the Government will be giving the courts a blank sheet of paper if, as is probably likely, at some stage a challenge to the use of the powers under the Bill is mounted in the courts. We must remember that we have an activist judiciary, especially over the road in the Supreme Court, and the Government really ought to be alert to that fact and try and proof legislation against what can be done there. I shall be listening very carefully to what my noble friend says are the reasons for leaving national security as such a completely open issue in the Bill, and I look forward to hearing his remarks.

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

My Lords, I should perhaps begin by noting my position as the co-chair of the All-Party Parliamentary Group on Hong Kong. The noble Lord, Lord Fox, in opening this Committee, said that most of the amendments were seeking better to describe national security. The noble Baroness, Lady Hayter, said that, without a definition, the Bill is missing a vital ingredient. It would indeed be interesting if, as the noble Baroness, Lady McIntosh of Pickering, said, we were to continue to use the EU definition. My personal position is that we should keep as close to the EU as possible, but that has not seemed to be the Government’s position.

The noble Lord, Lord Fox, noted how successive Governments of different hues had taken a hands-off approach to mergers and acquisitions, those involving both national and international assets. We have had, to an extent matched by few other countries in the world, a “Robber barons welcome” sign out in the process of selling off the family silver in a veritable orgy of privatisation and financial isolation. That has clearly had an impact on public order and national security.

I will not let rip with a Second Reading speech—something that the noble Baroness, Lady Noakes, expressed concern about—but will point out that “have regard to” clauses are at the very core of democracy. If the Government are taking new or extending existing powers, for there to be democratic oversight there surely needs to be an outline of how those powers will be used, a legal framework against which a Government can be held to account, should they go off the rails. As the noble Baroness, Lady Noakes, just said, that does not reflect an activist judiciary; rather, it is one doing its job and fulfilling its constitutional role.

We know that the Government do not like to have such oversight, both democratic and legal, but it is surely the responsibility of this Committee to attempt to insist on it—for nothing more than national security, because of the degree to which it was not secured by previous Governments, having been exposed by the Covid-19 pandemic and imminently threatened by the climate emergency. I will address some of those national security concerns in my Amendment 93, which we will get to later, but I speak now on Amendment 13, in the name of the noble Baroness, Lady Hayter. I thank her for her clearly careful and detailed work on it. I will not address all its elements, but focus on a couple of paragraphs, particularly proposed new paragraph (b)(iv),

“enabling a hostile actor to … corrupt processes or systems”.

There is grave concern about the impact of big money on our quasi-democratic processes, particularly in the age of social media. These are so well known that I do not need to expound on them at length, but I will point to how the 2010 national security strategy already referred to such concerns, and they have obviously greatly grown since. Even in our conventional media, we have a quite astonishing concentration of media ownership, often foreign or offshore. That surely needs to be acknowledged as a national security concern. I note the comments of the noble Baroness, Lady Hayter, about how Amendment 2 seeks to address such issues.

I also point to proposed new paragraph (f) in Amendment 13, which is about

“the likely impact of the trigger event on the United Kingdom’s international interests and obligations, including compliance with legislation on modern slavery and compliance with the UN Genocide Convention”.

This has obviously been of great concern to your Lordships’ House; we reflect on the debate around the Trade Bill. These are surely national security concerns. They are not just moral issues, but of great effect to our national security. A stable world, in which no one is subject to genocide or held in slavery, is a world that is far more secure for every citizen of the UK and the nation as a whole.

I come to proposed new paragraph (g) on

“organised crime, money laundering and tax evasion”.

The security of funding for schools, hospitals, roads, police and all the other services on which we rely depends on companies in our society paying their taxes. When it comes to money laundering, we have seen, in many aspects of our society and internationally, the disastrous impact of dirty money—something that, in some societies around the world, has led to almost a total state breakdown.

Overall, having such a set of definitions, as many noble Lords have said, has been of help to the Government, giving the relevant Minister a list against which their decisions can be checked. Without such a list providing an explanation against its clauses, how can a Minister avoid accusations of corruption, malfeasance or simple neglect of duty?

I am pleased to attach my name to Amendment 83 in the name of the noble Baroness, Lady Hayter, also signed by the noble Baroness, Lady Northover, which refers to the integrated defence review. It is a great pity that we are forced to debate the Bill without that. It is a situation in which we find ourselves in many areas of government work. The reasons for ensuring that we have a tight interlinking between the review and the Bill have been clearly outlined by the noble Baroness, Lady Northover, so I will not go into them further.

--- Later in debate ---

On Amendment 8, a number of the time limits which apply to the exercise of the call-in power are expressed by reference to the date on which the Secretary of State became aware of the relevant trigger event. It is important, as the noble Lord, Lord Lansley, said, that investors have legal certainty about how that date will be determined in order to be clear when the relevant period starts to run. As the noble Lord, Lord Lansley, also explained, it is based on a very good precedent in the Enterprise Act, and the Secretary of State will be treated as becoming aware of the trigger event if it has been publicised such as to be generally known or readily ascertainable, including through publication in a national newspaper or the London Gazette. I very much hope that in order to create the certainty that we are all looking for in the Bill the Minister will carefully consider the amendments in this group.

[Baroness Noakes (Con)]

My Lords, there are very wide powers in the Bill, and the amendments in this group are sensible and proportionate and go some way to reining in the extent of those powers. Other noble Lords have spoken extensively about Amendments 3 and 4, which I fully support. When I first focused on that language, I simply could not believe that the Government would have drafted the basis of calling in being the Secretary of State thinking that somebody else is thinking about something. My noble friend Lord Leigh of Hurley has set out the very dangerous consequences that could have for prospective transactions.

I am grateful to my noble friend Lord Lansley for explaining the link under the Enterprise Act to how the CMA operates. My view is that we should not simply rely on guidance to make an unsatisfactory formulation in legislation work better. I do not believe that “in … contemplation” is the right place to start, and guidance which will go some way to reversing what the ordinary understanding of “in … contemplation” means is not a satisfactory way forward.

I also agree with my noble friend Lord Lansley’s Amendment 8, given that the Bill, as has been pointed out, gives the Secretary of State time limits that start to run from when he becomes aware of transactions. It is just not reasonable for him ever to claim that he has no knowledge of something that is clearly in the public domain. I fully support that.

I also support Amendment 9, which the noble Lord, Lord Clement-Jones, spoke to a moment ago, because the Government need to consider the negative impact that the Bill is likely to give rise to. It is going to be very difficult to avoid the Bill having negative impacts on legitimate economic activity. It is absolutely right that the Secretary of State should actively consider that fact when he draws up his Clause 3 statement.

Like the noble Lord, Lord Clement-Jones, I believe that the volume of precautionary but unnecessary voluntary notifications is likely to be very significant, and it makes sense for the Secretary of State to ensure that his Clause 3 statement gives as many steers as possible to allow transactions to go ahead without having the Bill hanging over them. If the Secretary of State does not get this right it will result in the security and investment unit being overwhelmed by transactions, and that will do nobody any good at all.

The amendments in this group are soundly based and I look forward to hearing my noble friend the Minister’s response.

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

I will try the noble Lord, Lord Vaizey again. Lord Vaizey of Didcot?

--- Later in debate ---

This approach is also inconsistent with other established foreign investment regimes, such as those of Australia and the US. It would be far preferable—and the argument has been very well made by the noble Lords, Lord Hodgson and Lord Vaizey—to provide for a “voidable” power, giving the Government the power to declare such a transaction, or particular parts of it, void if it gave rise to national security concerns. This would allow the particular circumstances of each such transaction to be considered and workable steps taken to unwind the transaction to the extent that this is considered necessary to address national security concerns. Amending the sanctions in this way would also be entirely consistent with the Government’s stated position that the power to unwind a transaction would be a last resort used only in the most exceptional of cases.

[Baroness Noakes (Con)]

My Lords, the voiding of a commercial transaction that has already taken place is a massive penalty for those who have entered into the transaction. Parliament should be very wary of legislating in this way if it is not absolutely necessary. I believe that, as drafted, the Bill goes beyond what is necessary.

A transaction may not have been notified where the parties to it did not believe that they were covered by the legislation, perhaps relying on a misinterpretation of the statement that will come out under Clause 3 or perhaps a misunderstanding of advice received from the investment security unit about the transaction. These could occur in situations of good faith, yet the Act is capable of inflicting the penalty of voiding the transaction even in such an instance.

I do not doubt that voiding a transaction may well be the right result if the transaction really does engage national security, but even then it is not necessarily the case that every transaction should be voided. We have to understand that Clause 13 is one of the parts of the Bill that will drive unnecessary voluntary notification, which I know that the Government will wish to avoid. The amendments in this group are helpful and proportionate and I hope that the Government can accept one of the formulations.

[Lord Leigh of Hurley (Con)]

My Lords, we have heard from a chartered accountant, a banker and a lawyer all in unanimity; it is very worrying. As I understand it, this approach is consistent with some regimes in certain countries. The idea of having a transaction fully voided would lead to many innocent third parties being in limbo. Would it not be better that a transaction or certain parts of it were voidable, as some parts of the transaction may not be in any way relevant to national security. That gives HM Government more flexibility. By being voidable, it allows for negotiation, discussion and parts perhaps to be voided and not the whole thing.

Once again, insisting that the transaction could be voided in legislation will simply deter overseas investors and buyers because it is a huge amount of uncertainty to have such a black and white separation. The amendments still allow for the dictum of the noble Lord, Lord Callanan, in respect of Clause 15 of non-notified acquisitions being able to be retrospectively validated rather than retrospectively invalidated. Giving the Government maximum flexibility seems a wise and good thing to seek.

--- Later in debate ---

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

My Lords, it is a pleasure to follow the noble Baroness, Lady McIntosh of Pickering, with whom I am often in agreement—although, I am afraid, not in this case.

In my little over a year in your Lordships’ House I have noticed a strong tendency for Members to sign up to speak on amendments that they support and not those that they oppose. However, this has a clear and damaging effect, and slants the debate. Proponents get to put their case and the Government attempt to bat it away, often on merely technical grounds, and only one side of the argument is put. That sets the tone of the debate beyond just that day; it unbalances it. There is also the issue that, on Bills such as this, as a noble Lord said earlier, we often have an accountant followed by a banker followed by a lawyer. That is not a representative sample of society or opinion. It is for that reason that I signed up to speak on the amendment and express my strong opposition. I will be brief but clear.

The earlier groups of amendments on which I spoke, including Amendment 2, sought to define the national security on which the Bill seeks to allow the Government to act. The amendment does the very opposite by seeking to restrict the Government’s hand. The former amendments were “have regard to” amendments. This is a “shall not be taken into account” amendment. It is extremely ideological and seeks to assert the primacy of the market and the interests of business—which, by definition, given the nature of the Bill, is almost certainly big business, giant multinational companies—over what might be regarded as a key concern of the Government regarding employment. That is also, I would strongly argue, a national security issue—certainly a public order issue—with regard to Amendment 2.

The market is a human creation, not some natural process or action such as photosynthesis or the tides. To say that the market should have primacy over the well-being of society is a profoundly ideological argument that would have been very strange for most of the 20th century and reflects a particular neoliberal political position. Again, we are back to talking about investor confidence and the idea that we have to be a competitive nation—the very ideology that led us to the 2007-08 financial crash.

[Baroness Noakes (Con)]

My Lords, I respect the opinions of the noble Baroness, Lady Bennett of Manor Castle, but she will not be surprised to find that I do not agree with a single word of what she said. I agree with the sentiments behind Amendment 6, but I expect that the Minister will say that the amendment is unnecessary because the items listed in it could never be considered to be national security considerations. If I am correct in that assumption, I hope that he will make a very clear Dispatch Box statement to that effect, with no hedging about or qualification.