National Security and Investment Bill

Bob Seely Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Wednesday 20th January 2021 Commons Chamber

In conclusion, is there a reason why we cannot put all the pieces of the jigsaw together and present clear legislation which ensures that both the investor and the company know and understand the prerequisites and that we are all able to play our part to ensure that the security of this nation—the United Kingdom of Great Britain and Northern Ireland, better together—is not at stake, while enabling us to thrive in the future?

[Bob Seely (Isle of Wight) (Con)]

I thank the Minister for his work and for being here for the debate; I know how busy he is, so I am most grateful. I will speak to new clause 4, which provides a definition of “national security”. After listening to some of the speeches, I wonder whether I am going to play the role of General Melchett in “Blackadder” when I insist that “security” is not a dirty word. Let me try to put the argument in favour of a national security definition. My hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) suggested that I do so, and I am grateful to him for the opportunity. Like him, I thank Nicole Kar and Alice Lynch, who supported the work of the Foreign Affairs Committee.

New clause 4 provides a non-exclusive framework of factors that the Secretary of State would be obliged to regard when he is assessing takeovers or work in this field. It does not limit the Secretary of State in any way, as my hon. Friend the Member for South Ribble (Katherine Fletcher), who spoke eloquently, and others suggested. It provides a public recognition and a public baseline of things that should be considered. As such, it is a sensible amendment to improve the Bill, as well as providing a wider public service by defining national security in the modern era. I would like to make a few background points and then speak for between five and 10 minutes on a few other points.

We need a definition of national security, because the alternative is to have a vague and unstated set of assumptions. The amendment is broad, but it sets quite a high benchmark. It is not a generalised catch-all, nor does it contain a substitute for an industrial policy; that is another debate. The Cadbury takeover would not be included in this, nor would a Stilton creamery in South Notts—it might in France, but not in this country.

In this country we have a tendency to romanticise vagueness, as if planning were a bad thing and muddling through a strategic art as well as a national pastime, with this just-in-time Dunkirk spirit. I think it was Churchill who noted that, actually, Dunkirk was a military disaster, not a victory, and that if we had got our security and strategy right in the years previously, we could have avoided glorifying disasters because we would not have been in that disastrous position in the first place. A more systematic approach to national strategy—frankly, I think we need a national strategy council—but also to security and the definition of national security is important.

My next point is that the nature of national security has changed, and we need to be mindful of that. It is not simply about defence and espionage and the immediate threat to the realm. We have seen from Russia and China a combining of non-military and military, of covert and overt strategies—people call it hybrid war, grey war, under-the-radar war; there are about 25 definitions doing the rounds. This is not a war as such, but it is a form of state struggle and state conflict. Some states in the world, including very significant states such as Russia and, perhaps to a lesser extent, China, see things as a zero-sum game. We need to understand that liberal internationalism is not the only show in town and not the only way to understand international affairs. The west is good at many things, but seeing the world through the eyes of others is not necessarily one of them.

These new states, as many people here have said, use multiple and novel tools, including economic power, energy power, espionage, blackmail, information war and even cultural and religious power, as well as military and paramilitary power, and they use different templates and different tools in different parts of the world. Clearly, the tools that China uses in Xinjiang province are different from the ones that it uses in the City of London or to reach out to parliamentarians. The tools that Russia uses in eastern Ukraine or Kiev are different from the ones that it uses in the UK. Is the Kremlin’s use of Russian Orthodoxy a national security threat to us? No, of course not. But is its use of oligarchs and informal channels to influence senior political and financial elites in our country—the hon. Member for Aberavon (Stephen Kinnock) called it “elite capture”—a potential threat to national security? Yes.

The right hon. Member for North Durham (Mr Jones) was right to mention how states are using those new powers and how they use power to bend or break the international system. My hon. Friend the Member for Tonbridge and Malling has also spoken about that repeatedly, as indeed have many of us on the Foreign Affairs Committee. That international system is not perfect, but it has served humanity well.

It is important to understand that national security is not just about a narrow defence threat; it is broader. China has published a document, “Made in China 2025”, outlining how it plans to dominate data, artificial intelligence, big data and so on. Is it a threat to our communications infrastructure if we are dominated by a one-party state with a very different values system? I am not saying definitely, but potentially it would be.

The Henry Jackson Society and I produced a report on Five Eyes supply chain reliance on China. Over a quarter of British supply chains are dominated by China, and the UK is strategically dependent on China for 229 categories of goods, 51 of which have potential applications in critical national infrastructure spheres. We need to be mindful of the impact of that on our national security.

There are companies that are going to be bought and universities that are going to be working on gait technology and facial technology. I do not doubt that there are some countries in the world that will use that technology to improve their mass transport systems, but there are countries—China is potentially one of them—that will use it as a means of controlling their people more effectively and developing the sort of Orwellian state that is a potential threat to humanity and mankind.

Let me look specifically at new clause 4. As I said, my hon. Friend the Member for South Ribble talked about the need to be nimble, and she is exactly right, but osmosis is not a way to provide a definition of national security. The new clause obliges the Government to look at a series of areas. We tried to make it broad, but it sets a high bar. It requires the Government to look at the critical supply chain, critical national infrastructure and national resource. A year ago, who would have argued that personal protective equipment manufacture, vaccine supply or AstraZeneca’s cyber-security were national security issues? Probably nobody. Who now would deny it? Probably nobody. This is a significant element of our national security.

Another example—one that has worried me greatly—is that the Government did not see Huawei’s domination of 5G as a national security issue. They chose not to listen to those people in the agencies who said that it was and set a clear political direction. It concerned me particularly that, bizarrely, BEIS and other Ministries presented Huawei in this House as a private firm when, clearly, it was part and parcel of the Chinese state. Therefore, having a clear definition in the Bill of what Ministers are obliged to look at would help to guide them to come to good decisions in the national interest, and that is what we are trying to do.

We are trying to do things in the national interest to improve the Bill where we can. Paragraphs (b) and (c) address the threat from individuals and to individuals. Paragraph (c) addresses the nature of potential acquirers of UK firms. The hon. Members for Aberavon and for Newcastle upon Tyne Central (Chi Onwurah) spoke very eloquently about this, and Huawei is instructive.

My hon. Friend the Member for Tonbridge and Malling spoke about two companies that were bought when perhaps they should not have been, and we need to look at the nature of potential acquirers of UK firms. It is not an attack on laissez-faire economics or on our role as a free market and dynamic, global economic centre to accept that a national security definition, along with good laws, helps to provide a framework for honesty and integrity in business life. Paragraph (f) addresses national security and our responsibility to oppose modern slavery and genocide, which is an important issue for me, but again it sets an extraordinarily high bar.

Paragraph (g) addresses the potential threat of global organised crime. Again Russia, specifically, has tried to influence other countries in this way. Yes, that could be a potential national security risk. Finally, paragraph (h) gives the Secretary of State the flexibility to take a generalised approach to things that are not in the interests of the UK and are a threat to our interests or our citizens.

This new clause is a baseline, not a limiting factor. It helps to provide guidance for the Secretary of State and for BEIS. Frankly, this should be cross-departmental. We need our own CFIUS, and why we do not have one I do not know. Again, that is a concern. I will not address it now, because it clearly is not in the amendment and I am wrapping up.

I fear that the vagueness on national security does not help this Bill, nor does it help national security and its role. Clarity is needed in the long term to help us provide better strategy and a better understanding of the opportunities and risks that face this country in the years ahead.

[Kim Johnson (Liverpool, Riverside) (Lab) [V]]

I start by congratulating Joe Biden and Kamala Harris, and by wishing for a violence-free inauguration today. Good riddance to the outgoing President. We will not miss his hate speech.

The National Security and Investment Bill seeks to usher in sweeping reforms to how our Government can scrutinise foreign investment. It proposes strong measures to toughen foreign investment rules and to bring the UK into line with other major countries in key sectors. These steps to keep high-growth and strategically important companies in the UK are overdue and highly welcome, but does the Secretary of State agree that, for the UK to have an active industrial policy that works in the public interest, the Government must go further than just blocking hostile mergers and acquisitions, and instead implement a robust industrial strategy that puts critical national infrastructure at the heart of Government policy?

One example is the recent takeover of Arm, the crown jewel of the British tech sector—a genuine global powerhouse worth more than £31 billion and with more than 6,000 employees. Its recent sale to Nvidia, a US tech giant worth more than £338 billion that is tucked away in the tax-light and secrecy-heavy state of Delaware, provides a clear example of the risky and problematic sale of a British firm to foreign investors, which threatens both security fears and job losses.

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[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)]

May I add my congratulations to President Biden and Vice-President Kamala Harris, and their national security team?

I thank all hon. Members who have tabled amendments and new clauses and have spoken to them so eloquently: the hon. Member for Dundee East (Stewart Hosie); my right hon. Friend the Member for New Forest East (Dr Lewis); the shadow Minister, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah); my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat); the hon. Member for Aberavon (Stephen Kinnock); the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone), who spoke so pithily; my hon. Friend the Member for South Ribble (Katherine Fletcher); the right hon. Member for North Durham (Mr Jones); the hon. Member for Ilford South (Sam Tarry); my hon. Friend the Member for Arundel and South Downs (Andrew Griffith); the hon. Member for Strangford (Jim Shannon); my hon. Friend the Member for Isle of Wight (Bob Seely); the hon. Member for Liverpool, Riverside (Kim Johnson); my hon. Friend the Member for Beckenham (Bob Stewart); the hon. Member for Warwick and Leamington (Matt Western), my neighbour; and of course my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes), who reminded us of the words of the great Edmund Burke.

National security is an area of utmost importance, and that has been reflected in a sober and considered debate, with the excellent contributions that we have heard today, and, indeed, over the past few months. I will take this opportunity to respond to some of the points raised this afternoon.

New clauses 4 and 5 create a non-exhaustive list of factors that the Secretary of State must have regard to when assessing national security risks arising from trigger events. In fact, the Secretary of State has joined us to demonstrate how important this Bill is to him. I congratulate him on his elevation to being my new boss at BEIS.

As currently drafted, the Bill does not seek to define national security or include factors that the Secretary of State must or may take into account when assessing national security risks. Instead, factors that the Secretary of State expects to take into account when deciding whether to exercise the call-in power are proposed to be set out in the statement provided for by clause 3, a draft of which was published alongside the Bill. The Secretary of State is unable to call in an acquisition of control until that statement has been laid before both Houses. It is clear from the debate today, and also from conversations with colleagues, that these are the amendments on which there is strongest feeling in the House, and in the Foreign Affairs and Development Committee, so I will take care to set out the Government’s case.

The Bill’s approach reflects the long-standing policy of Governments of different hues to ensure that powers relating to national security are sufficiently flexible to address the myriad risks that may arise. As we heard from my hon. Friend the Member for Beckenham, national security risks are multi-faceted and constantly evolving, and what may constitute a risk today may not be a risk in the future. Indeed, the Foreign Affairs Committee, chaired by my hon. Friend the Member for Tonbridge and Malling, said in its own excellent report that

“an overly specific definition of national security could serve to limit the Government’s ability to protect UK businesses from unforeseen security risks.”

[Bob Seely]

Does the Minister accept that what is being proposed is not a limiting arena of what constitutes national security but a baseline of what constitutes national security, and that there may be a reason to adapt it over time? Indeed, paragraph (h) of new clause 4 makes an assumption that it can be expanded.

[Nadhim Zahawi]

My hon. Friend makes an important point. As I mentioned, the statement that the Secretary of State has laid with the Bill takes in much of the direction of travel of this amendment from the Foreign Affairs Committee.

I acknowledge that the Foreign Affairs Committee is pushing for more detail rather than less, but I would reassure them that the Government agree with their main conclusion that the Secretary of State should provide as much detail as possible on the factors that will be taken into account when considering national security. Importantly, however, that is only up until the point that the detail risks the protection of national security itself. That is why the Government have taken this approach in the draft statement provided for by clause 3. In that statement, we identify three types of risk that are proposed to form the basis of the call-in national security assessment. These are: the target risk, which considers the nature of the acquisition and where it lies in the economy; the trigger event risk, which considers the level of control and how it might be used; and the acquirer risk, which covers the extent to which the acquirer raises national security concerns.

I would like to address each of the arguments made in the report, so that I can ease the concerns of hon. Members across the House. First, there are concerns that without a narrow definition of national security, the investment screening unit would be inundated by notifications, hampering its ability to deliver its crucial role. I acknowledge that, for business confidence in the regime, it is essential that we deliver on our statutory timeframes for decisions, which is why it is so essential that we do not allow any broadening of the assessment done by officials as part of the regime to occur, whether by inexhaustive lists, as my hon. Friend the Member for Isle of Wight has just said, or by any other form. To include modern slavery, genocide and tax evasion as factors that the Secretary of State must take into account as part of national security assessments, as these amendments propose, would not reduce the demands on the investment security unit but potentially increase them.

Secondly, there is concern that ambiguity could hinder the success of the regime. Let me be clear that this regime is about protecting national security—nothing more, nothing less—hence its real focus. Thirdly, the Foreign Affairs Committee report suggests that the staff responsible for screening transactions may lack sufficient clarity on what kinds of transactions represent legitimate national security risks, leading to important transactions being missed or to a large volume of benign transactions overwhelming the investment security unit. I want to assure hon. Members, and my hon. Friend the Chairman of the Foreign Affairs Committee, that the investment security unit will be staffed by the brightest and best, with many of them being recruited on the basis that they have essentially written the book on national security.

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[Nadhim Zahawi]

They will be able to draw on all the experience, culture and, of course, resources of Government to be able to do their job properly, I assure the right hon. Member of that.

The report sets out a fear, as we have heard elsewhere, that without a definition of national security in the Bill, interventions under the NSI regime will be politicised. I wholeheartedly agree that it is crucial for the success of the regime that decisions made are not political but rather technocratic, dispassionate and well judged. I repeat the words of my right hon. Friend the Member for Reading West (Alok Sharma), the former Business Secretary, who on Second Reading assured the House that:

“The Government will not be able to use these powers to intervene in business transactions for broader economic or public interest reasons, and we will not seek to interfere in deals on political grounds.”—[Official Report, 17 November 2020; Vol. 684, c. 210.]

Indeed, if the Secretary of State took into account political factors outside the remit of national security, the decision could not be upheld on judicial review. It is with this in mind, and our focus on protecting foreign direct investment, which so many colleagues are concerned about, especially as we come out of the covid challenge, that politicised decisions will not be possible under the NSI regime. I hope right hon. and hon. Members feel I have sufficiently explained the Government’s approach. We have sought to deliver what the Foreign Affairs Committee and the Opposition recommend.

[Bob Seely]

I will not labour the point beyond this. The Minister says that tax evasion will not be a bar. I accept that the Government made that statement. Does he accept that, in Australia, tax evasion is one of those significant elements? He rather implies that tax evasion and tax evaders will not be opposed in buying UK companies, so how high will the bar be set on criminality or on unsavoury characters—maybe people close to Russian Presidents and oligarchs and questionable companies?

[Nadhim Zahawi]

As colleagues have said, the Bill has been a long time in gestation, from 2017 to the 2018 consultation and White Paper and now today. We look at what other countries do, and I think we have reached a proportionate position. Of course, as I say, the Secretary of State’s statement sets out exactly how he would assess the risks to national security. I hope I have addressed that.

My final point of reassurance is that there will be further scrutiny on this point. As I explained in Committee, the statement provided for by clause 3 will go out to full public consultation prior to being laid before Parliament, and the Government will listen carefully to any proposals for further detail.

Amendments 1, 2, 3 and 6 broadly seek to ensure that the scope of the regime as a whole is right, that mandatory notification covers the right sectors and that both the statement and the notifiable acquisition regulations are reviewed within a year. Amendment 1 would require notifiable acquisition regulations to be reviewed within a year of having been made, and once every five years thereafter. It is right that the Secretary of State keeps a constant watch on these regulations. Indeed, it is vital that he has the flexibility to reassess and, if needed, seek to update the regulations at any time. The nature of his responsibilities under the regime creates sufficient incentive for this regular review.

Amendment 2 would, in effect, introduce two further trigger events to the regime. It would mean that a person becoming a major debt holder would count as a person gaining control of a qualifying entity. The amendment would also mean that a person becoming a major supplier to an entity counted as a person gaining control of a qualifying entity.

We on the Government Benches believe that access to finance is crucial for so many small businesses and large businesses to grow and succeed. They will often take out loans secured against the very businesses and assets that they have fought so hard to build; I did just that when I started YouGov. That is why the Bill allows the Secretary of State to scrutinise acquisitions of control that take place where lenders exercise rights over such collateral, but the Government do not consider that the provision of loans and finance is automatically a national security issue. Indeed, it is part of a healthy business ecosystem that enables businesses to flourish in this country.