National Security and Investment Bill (Fourth sitting)

Chi Onwurah Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[The Chair]

We now come to our third panel. We will hear oral evidence from Mr James Palmer, senior partner from Herbert Smith Freehills. This will last until 2.30 pm. Mr Palmer, welcome; thank you for joining us. Would you be so kind as to introduce yourself for the record?

James Palmer: Thank you very much, Chair. I am James Palmer, a corporate mergers and acquisitions, and investments, partner at Herbert Smith Freehills. I have been doing that work for 34 years. I have worked with the Department for Business, Energy and Industrial Strategy on business regulation for over 25 years. I also chair our global board; we are an international firm.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

Q107 Thank you very much, Mr Palmer, for sharing your expertise with us today. I see that you were on the takeover panel for SoftBank’s £24 billion takeover of Arm. Did you consider at the time that that might raise concerns for economic security and national security? More generally in your experience of takeovers and mergers, how would you—or would you—distinguish between economic security and national security on a current and forward-looking basis, if I can put it like that?

James Palmer: I was advising the takeover panel and the regulator, not one of the parties, so our thoughts were more about their role in ensuring appropriate regulation of that takeover—not from a foreign investment perspective, obviously, but there was a foreign investment angle to it. I am not a technical expert. My read of that—nothing to do with the work I did, but obviously I followed it and all the other transactions that have been looked at—is that it was more about economic security and positioning than necessarily about national security per se, but I am not the expert on it.

I think the point that you are drawing out—I heard your question earlier today—is a really fundamental one, which is that there is a spectrum of things that can be regarded as matters of national security. Indeed, the Bill papers draw this out. On the one hand, you have things that are clearly national security, like the risk of infiltration of systems that the country’s security depends on or that the country’s systems depend on—critical infrastructure being an example—but I do think that there are aspects of the Bill that are touching on things that stray more into economic influence and stability.

Again, I am not the expert on this, but I think we all know that in the debate about what is a matter of national security, there is a question of economic dependence, supply chain dependence and so on. That is one of the most difficult areas for this legislation, because where you have a straight, obvious national security real risk of some cyber-infiltration or whatever, nobody is going to argue about that. The grey into issues of supply chain dependency and more economic security starts to raise some of the more difficult areas, which I am sure we can come to.

I do not think that there is a simple binary distinction, and I am not here to give you the answer as to what the right approach is for dependency on China for supply chains. All I would say, having worked out in Asia many years ago, is that the interconnectedness of the world is not going to reduce and we are going to need to find ways of navigating that.

[Chi Onwurah]

Q Thank you, Mr Palmer; those are very interesting and important points. In your answer to my next question, I would like you to reflect on how this could be better. You make points about the spectrum, and particularly about the need for expertise and wide-ranging consideration in this process. Do you have concerns or suggestions about how they could be better reflected in the Bill?

Also, we have heard a number of times today that under the Bill—this will be reflected in your experience—we are going from 12 call-ins to a much bigger number: 90 or 100. And the impact assessment estimates that, I think, 1,870 notifications might come in under the new regime. Could you consider how best to reflect that or to put in place the skills and the resources for the Bill, and say a little about what impact you think it might have on the attractiveness of investing in UK companies and, in particular, small and medium-sized enterprises?

James Palmer: I have focused on the same numbers as you. I hope the Minister will excuse my saying so, because I think the team have genuinely done a superb job of looking at a lot of granularity on a swathe of issues, but there is one data point I did not agree with: the suggestion that there will be an 18% increase in the reviews; it was framed quite narrowly. In my maths, 12 reviews in nearly 20 years going to nearly 2,000 a year is well over a 10,000% increase. I think that that is a very important context in which to look at this—as the world outside looks at this, it is potentially looked at as pretty seismic change by the UK. Again, there is lots that we can go on to as to the ways in which the detailed thinking around this has tried to mitigate that, and I know the Department has worked very, very hard in trying to mitigate it, but I think that we just need to be realistic.

In terms of the skills, there is a fundamental question, which the Bill papers have started to try to set out, which is this: how do we focus the debate so that it is not all-encompassing? Again, the Minister is aware of my views on this. I am extremely pleased—I know that some may not share this view—that the Bill does not catch a broader public interest test. The reason for that is what happens every time we introduce a power for the Government, for very sensible reasons—these things are always about competing tensions with sensible reasons —to seek to interfere, review something and decide who should own it, or whether they want to impose conditions on that.

Let me give you an analogy. Let us say that I invite someone to come and invest in this country to build a house. At the moment, if I invite them to come to this country to build a house—or a business or a small technology business—they know they can build that house, live in it and sell it to whoever they want. If I invite them in and say, “Come and live in this country and build your house, but I reserve the right to decide who you sell it to and what conditions I impose on who you sell it to,” that is a very different prism—a new prism.

The Bill team have done a really good job of trying to narrow that so that everybody does not think, “Help! If I come to the UK, there is a Government discretion,” but there is an innate tension between, on one hand, the desire to have a broad power to interfere in circumstances that we have not all thought about to protect something as important as national security and, on the other hand, a desire to give investors certainty. My unhelpful view is that there is not a simple route through that, and I do worry about, in particular, small technology businesses.

Again, the team have done a good job of trying to narrow the sectors. This is a very different proposition, in terms of granularity, from what we saw in 2017 and 2018. But I think a lot of further work may be needed. The Government have been clear that they want to receive further feedback on how to narrow the remit. One example is the breadth of the communications sector, which has no de minimis. Artificial intelligence is not a thing done by four clever businesses anymore; it is a thing done by thousands of businesses. I think an awful lot of businesses are going to get caught that are not actually what the ministerial team are worried about.

The second bit is that, even outside the mandatory regime, other transactions may be judged with hindsight to be a matter of national security. Under the regime, a Minister—maybe not the current Minister, but whoever it is in the future—may decide that it is a matter of national security. As you have already highlighted, there is a spectrum of where economics becomes national security. People are going to worry about the predictability of investing in this country.

I am thinking particularly about smaller businesses. Obviously, there will be huge attractions to investing in the UK for technology. We have skills and expertise that can only be exploited here. The UK has had a very distinctive position as one of the few countries in the world where businesses without a particular nexus to a country have chosen to go as a destination of choice. Those businesses are the ones I am most worried about.

There is also the cost and risk for small businesses. If I was a European venture capitalist, how comfortable would I be in investing in a technology business in the UK that I will be able to sell it to an American or Danish buyer—not the Chinese—in five years’ time, or at least to do so simply? In terms of the call-in power, why would boards take a 1% risk that in five years’ time somebody will judge your transaction as being one that should have been notified? Why would I take even a 1% risk of my transaction being unravelled? I think that the Department has worked very hard—this is not just ritual politeness; I really think it has—to try to narrow it, but I do not think it has done so enough, because I think that there will be a lot more than 1,800 notifications.

[Chi Onwurah]

Q Thank you. You made it clear that you are praising the Department for the work it has done, and I accept your reluctance to criticise it; I think you are right—there is a lot of work, and this is a very complex area. Do you have any direct recommendations you would make to the Department in terms of what might need to change and in particular the preparations it should make for dealing with this large number of notifications?

James Palmer: My partner, Veronica Roberts, appeared before the Foreign Affairs Committee on Tuesday, and she and I will be submitting a list to this Committee. I am afraid we do not have time to go through it today, but I will draw out a couple. Some of the mandatory filing sectors are very broad, such as communications. Again, the Government have said that they welcome narrowing those. There are not de minimises in a number of those sectors. It is true that there are other jurisdictions that do not have de minimises, but they are not jurisdictions with as large a proportion of their GDP linked to trade, and they are not jurisdictions that are as much seen as international business headquarters as well as centres of international business; there is a difference.

There is a de minimis for transport, for example, and it is very focused on ports over a certain threshold and on airports over certain levels of traffic. That is excellent, because those are the kinds of business that it makes sense that you would want to catch. The same layering has not been applied elsewhere. In particular, I worry about catching the sale or the licensing of intellectual property in relation to any of the technology areas. I think that that will catch an awful lot of things that people have not thought about yet, and I think that it will create a big burden for those small businesses.

I can conceive that in one or two very narrow areas—in some of the material science and so on, I am told—there may be low-value things that need to be caught. I am personally very sceptical that low-value things need to be caught in many other areas, because how can they be that important to the economy if they have a value that is below £1 million?

One of our concerns is that, although we know that the Government are very committed to a free trade agenda here and trying to make this work, I have worked with new regulators as they have developed for a very long time, and—forgive my saying so—I have never seen a regulator whose remit was only at the level that was predicted when it was set up. All remits expand exponentially, and that is one of the fears we have.

I would certainly advocate ensuring that the factors that the Secretary of State has to have regard to include, for example, impact on trade. The cost-benefit analysis sets out a sensible attempt—again, it is a much more developed piece of work than the, frankly, not-that-great cost-benefit analysis done in 2017-18; this one is a good and credible attempt—to work out what the actual cash costs are. But it does not address, as the Regulatory Policy Committee drew out, the real economic costs. It may all be okay, but the risks there are not hundreds of millions, but absolutely billions, and the UK’s competitive positioning there.

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

Q I was going to ask you about whether the Bill is proportionate between being very focused on national security—albeit, as you quite rightly point out, there is a spectrum of that—versus public interest, but I think that you have answered that issue in saying that you would very much guard against expanding it.

James Palmer: I will just explain why. I remember working when the public interest regime still applied. The move away from the public interest regime started in the 1980s. Pre the 1980s, this country was not an international investment destination; it really was not. We have earned that position. Whatever one’s politics—I am not party political—this is something that the UK has earned. We have done that by moving to being pretty open-minded in foreign investment. We have actually not worried that much about national security considerations being controlled through ownership, because again this debate has been—sorry, let me first come back to the Minister’s point.

I am very nervous that if you open it up to public interest, you vest that authority in a politician; forgive me, but that is what leads to lobbying, to short-termism, and to completely inconsistent decision taking. I am afraid that whatever Ministers at the time may say about these decisions, there is no external credibility on the predictability of those. It does not matter whether Ministers think they are doing it in good faith or on security grounds. It does not come over that way.

On broadening it to public interest, I completely agree. I am very grateful—because I know that there was a debate about this—that it has been rightly focused just on national security, albeit with a broad ability to intervene to protect the national interest.

--- Later in debate ---

[The Chair]

That’s all right. Thank you very much. Shadow Minister, Chi Onwurah.

[Chi Onwurah]

Q Thank you very much, Sir Graham. Welcome, David, and thank you so much for sharing your expertise and experience with us and for giving me an opening, which I cannot resist: what are your suggestions for improving this Bill?

David Offenbach: Well, there are three categories. First, are the 17 subjects that are referred to in the paper sufficient? Sir John Redwood, in the debate last week, said that food should be included, because there is nothing more important than food security. Mr Tim Loughton said that pharma and biotechnology should be included. There is not really very much on energy in the 17 subject matters. So I would like to see those included.

The next is the definition. National security is not defined in the Bill, which I actually approve of, because once it becomes too closely indicated, then it is not easy to decide what should be in it, or what should not be in it. I would like to see a definition that includes what Lord Heseltine said when Melrose took over GKN, that research and development should be a subject of importance; it should be included.

The other thing I would like to see included, contrary to the last speaker, is a general definition of public interest. The reason for that is that when you look at recent examples, you see that it is very easy for things to slip through the net that actually might be both in the national interest and in the interests of national security as a specific point.

Some of these examples have already been mentioned: SoftBank’s purchase of Arm. Now, that was world-beating British technology. It is in every computer, it is in every telephone and it came from Cambridge. It is now the subject of a bid by an American company owned by a Japanese bank. Do we really want to try and hang on to the research and development—as someone said in the House of Commons debate last week, the Crown jewels, or as Harold Macmillan said many years ago, the family silver? At this economic time, is it not desirable that we try and hang on to these important assets that are homegrown? Is self-reliance something that we should bear in mind?

Similarly, in 2014, Google bought DeepMind—world-beating British technology in artificial intelligence. Should that have been the subject of consideration? Recently, Lady Cobham was bemoaning the fact that Cobham had been sold to private equity for £4 billion. She said she only wished that the Act had already been in existence, and then perhaps the nine divisions that have now been reduced to four and the sell-off that started would not have happened. Of course, one of the problems is that the post-offer undertakings that can now legally be provided by companies to the takeover panel are fairly feeble and do not really deal with the issues to protect the necessary research and development and public interest.

At Immarsat, as those of you who drive around Old Street roundabout in the middle of London’s tech city will know, there was a £4 billion takeover of world-beating satellite technology. It started as a United Nations organisation, then became private and was quoted on the London stock exchange and has now gone to private equity.

Nvidia is buying Arm. When they bought Icera in 2011 in Bristol, they closed it down, 300 people lost their jobs and the technology went abroad. One that might now cause a bit of embarrassment is the case of Huawei, which bought from the East of England Development Agency the Centre for Integrated Photonics in 2012. Another piece of world-beating technology owned by the British Government has now gone abroad.

Those are just some of the numerable examples of assets that, at this difficult time, we really ought to try and hang on to. I do not want to decry the argument that Britain is open for business and that we believe in free trade. We do. There is twice as much foreign direct investment into Britain as there is into France and Germany. Several hundred thousand French people live in London. It is the fourth largest French city for French citizens. Why? Ask anybody. It is much easier to do business in London that it is in Paris.

As for the other argument—that if we do not make the business climate easy, people will start up their businesses elsewhere—the answer is that they will not, because in the other places where they want to open their businesses the regimes are tougher than here, so that argument does not wash. France has just passed its recent new law. They use a slightly different test that is strategic. Their test is not quite as wide as public interest. Of course, a right to intervene on strategic grounds is what Mr Tim Loughton and Mr Bob Seely suggested in the House of Commons debate last week, and Mr Tugendhat was very sad about the fact that Google had bought DeepMind and that SoftBank had managed to acquire Arm. For all those reasons, I think we do need to add to the definitions. That is the position.

[Chi Onwurah]

Q I have a quick follow-up question. Should we consider a separate test of public or strategic interest, or are you saying that our economic and security interests are intertwined, so it is the definition of security interests that needs to be expanded? What are your views on that?

David Offenbach: It is very difficult to separate these. When you look at GKN, for example, 50,000 people—even now, after covid—are headquartered in Redditch, near the Minister’s constituency. It is one of the largest industrial companies worldwide, 250 years old, and a defence contractor to the Ministry of Defence, but the question is whether the amount of defence work it does, apart from its other engineering, is sufficient for it to be called in under the existing legislation. Clearly, the decision was made that it was not appropriate, and it is the same with Cobham. Cobham clearly had a national security element, but it was not sufficient for it to be called in and blocked by the Minister, so I think it is very difficult to separate the economic from the national interest, because these companies are multi-layered; they operate in different markets; some of their work is sensitive, and some of it is not sensitive.

That is why I think it is better to try and improve this Bill than deal with it under a separate Bill. The problem is that it has taken three years to get to where we are with this Bill. If we are just going to say, “Let’s deal with it another time”, it might take another three or four years before we get to consider that, so while it is here, while it is on the table, let’s try to improve it now and make it really work for Britain, so that we can build back better—to use a phrase—going forward.

[Nadhim Zahawi]

Q Welcome, Mr Offenbach; thank you very much for making the time. I wanted to get your view on how you think the Bill deals with the range of sanctions available to the Secretary of State in order to protect national security. How do you see that?

David Offenbach: I am very pleased with it. It is much better than the previous regime, because now, rather than just having post-offer undertakings that are subject only to contempt of court criteria if they are breached, we have a proper statutory framework that will enable the Minister to impose orders so that for non-compliance, there is a breach of statutory duty, not merely a breach of an undertaking. Of course, one of the problems with the takeover code is that the object of a takeover code is to protect shareholders and to encourage fair dealing in takeovers. It is not there—and this has never been its job—to protect the public interest; it is there to protect the shareholders who are in receipt of an offer, so that they have been given fair treatment. For example, if you take SoftBank and Arm at the moment, we do not know whether or not they will have complied with their post-offer undertakings when the five years is up, because the price that is being paid now is more than was paid in 2016. There is no complaint. Public interest is irrelevant to the job of the takeover panel, which is why this new regime is a very welcome improvement on the old regime.

--- Later in debate ---

[The Chair]

We will now hear oral evidence from our fifth panel. We welcome Mr Creon Butler from Chatham House. We have until 4 o’clock for this session. Mr Butler, may I welcome you to the Committee? Please will you introduce yourself for the record?

Creon Butler: I am Creon Butler, the director of the global economy and finance programme at Chatham House. I am very pleased to have the opportunity to give evidence.

[Chi Onwurah]

Q Welcome, Mr Butler, and thank you for sharing your expertise with the Committee. Your expertise is considerable, given that you have advised on policy issues such as climate change, national resource security, global health security and economic security. There are clearly many aspects of security. Are both the distinction and the links between national security and economic security appropriately reflected in the Bill, or could they be better reflected?

Creon Butler: You get right to the heart of the matter and, indeed, to one of the points I wanted to make. Yesterday I looked at how national security is defined, and the “Collins English Dictionary” defines it as preventing a country from being attacked by hostile powers. One very important thing in relation to this Bill is that, first, while there is a good justification for having a broad range of powers to intervene, given the breadth of those powers to intervene and collect information, it is important that the Government define more clearly than they have hitherto exactly what those powers will be used for and, in those terms, use them in relation to national security. Specifically, I mean investments that could lead a hostile power to have technology that would enable it to make better weapons to attack us or would enable it to intervene in our critical national infrastructure.

There are other aspects of economic security, such as having a major industry in AI, renewable energy or something of that kind, that could be relevant to broader security in the future. You may well want to have a strategic intervention to ensure that the UK has that kind of industry, but I do not think this is the Bill for doing that. I think there are other tools you would want to use, including competition policy, strategic investments, contracting, R&D and so forth. That is one of the points I wanted to make.

[Chi Onwurah]

Q Are the other tools or powers needed to make interventions with regard to strategic capability in place under the Enterprise Act 2002, such as for the Arm takeover? I am not sure that they are. Given your experience, will you say a bit about the level of resourcing and expertise the unit would need to make such assessments?

Creon Butler: On your first question, I do not think we have that yet as a country. Actually, with the previous Prime Minister we had a clear definition of a number of sectors that were felt to be very important, but it is a continuing story in terms of exactly how we are going to intervene to ensure that those sectors are strong. We have some powers, but there are a range of tools. I previously mentioned public contracting, where we do our research and development, and competition policy specifically to make it impossible for British companies to develop in those sectors, and so on. There is a broad range of policies for ensuring we have those sectors, and I think they are continuing to evolve.

Your second question is a really crucial one. I guess a key point is that this is not an absolute thing: you cannot protect the country from all possible national security risks through this route. The only way you could do that, potentially, is by having every single investment notified and examined. That would create an enormous bureaucratic monster, which would really not be what we want.

The further point is that when you are looking at the right cases, you want to be sure that the judgments that are made trade off with the national security risk, as I have defined it, but also with the potential economic benefit of having an investment in that area. To do that, you need expertise among the people who are making such judgments, which spans security expertise but also economic, investment and commercial expertise. It is very important, first, that there enough people to do the judgments properly, and secondly, that you have a breadth of expertise. Certainly in the past, we may have swung from one side to the other. Sometimes you have had what people would describe as a securocrat approach: “There is a possible risk here. Let’s go for it—let’s eliminate it, whatever the economic cost.” Sometimes, on the other hand, you have had the alternative situation: “Let’s encourage investment, whatever the risk might be.” I think it is important that we get a balance between those two.

[Nadhim Zahawi]

Q Welcome, Mr Butler, and thank you very much for your attendance. Reflecting on the changing nature of the national security threats that we are now facing, which you alluded to in your answer to my colleague, the hon. Member for Newcastle upon Tyne Central, how do you think the Bill builds on the Enterprise Act 2002? It has been 18 years since that legislation was introduced, so it would be great to get your take on that. Given your CV, it is worth getting your reflection on that while we have you here.

Creon Butler: I think—I am sure many people have said this—it is very clear that the previous legislation needed updating and was not fit for purpose, given both the way in which the global economy as a whole has evolved and the way in which the threats have evolved. It is both necessary and urgent to update that, and the way the Bill has done that, in terms of this first phase of creating the powers both to collect information and to intervene, makes a lot of sense. We have to fine-tune it and make sure it works properly, but this is a good first step. As I said, though, it is really important, if you are going to have such broad powers, to define exactly how you will use them—and much more precisely than the Government has done hitherto.

The further point is that this piece of legislation does not do everything. Alongside it, we need to strengthen our ability to collect the information we need about those threats. There are a number of elements. One that I have some experience of and that is really important is the question of who actually owns and controls companies that are operating in the UK—the question of beneficial ownership transparency. If you do not know that a hostile power is influencing a company that might be registered in an overseas territory or something of that kind, you will not be able to take the steps that you need to take.

A further area—it is a step in the right direction, because it gives us the powers to engage with this issue —is through international co-operation. Looking forwards, we need to strengthen and enhance our international co-operation with like-minded partners by going beyond the Five Eyes and including other really key partners, such as Japan, the EU and so on. That will enable us to do two things. First, it will enable us to share information about the things that can happen, such as the techniques that hostile powers are using. You may see it come up first in one country, and if we can share that information, we know that we can be prepared for that. Even more importantly, you may have a hostile power that does a number of things in different parts of the world, and it is only when you see the entire picture that you can see what the threat is.

Having that kind of international co-operation to do that is really important. These powers are necessary to get us in the same place as some of our key allies, in terms of what we can do. I do not think we are ever going to be able to standardise the areas of intervention or the nature of powers, but we should push very hard to enhance the sharing of information in the way I described.

--- Later in debate ---

[The Chair]

We have until 4.30 pm at the latest for this session. Mr Jackson-Moore, will you introduce yourself for the record?

Will Jackson-Moore: I am a partner at PricewaterhouseCoopers. I am responsible for our relationships with private equity, infrastructure, real estate and sovereign funds on a global basis. I started working in our Sheffield office, predominantly with small and medium-sized industrial organisations, before moving into our deals practice, where I spent the majority of my career working with corporates and private equity houses, undertaking transactions here in the UK and abroad. I then relocated with my family, while still at PWC to the middle east, where I spent a number of years —I got quite a lot of exposure to the sovereign funds there—before moving back to the UK and into my current role.

My areas of expertise are flows of international capital and the deals market. I am not a specialist in national security matters.

[Chi Onwurah]

Thank you for sharing your expertise with us, Mr Jackson-Moore. What impact do you expect the measures in the Bill to have on the sovereign funds and others you represent—the investors and potential acquirers of UK assets? You said clearly that you were not an expert in national security—why should you be? —but how will you identify those acquirers who may be considered to pose a national security threat? What kind of engagement would you expect to have with the Department for Business in order to make that sort of call?

Will Jackson-Moore: That is a two-part question. On how the proposed Bill will impact the flow of capital into the UK, generally these are sophisticated investors who operate across the globe, investing in territories that already have equivalent legislation, so the actual legislation itself will not come as a surprise or a barrier. It is in the application of it that there will be concerns, in that, quite rightly, the definitions are drawn quite broadly and we believe that a significant number of transactions and inbound investments will be brought into this—in many cases, voluntarily, so people can get guidance. That will be an area of concern, in terms of whether it will create a barrier, either through publicity or with the timing of bringing capital into the UK. That is probably one of the main concerns right now.

In terms of sovereign funds, I am not in a position to say whether an individual investor or fund is a threat to national security. That is not something I would be looking to comment on.

[Chi Onwurah]

Q Would you be expecting to advise your clients as to whether the proposals in the Bill might impact on them? Would you expect to be able to engage with the Department in order to establish that? Have you made, for example, predictions of the number of transactions in which you are involved that might be subject to the proposals in this Bill?

Will Jackson-Moore: In terms of how we might engage with organisations on the applicability of the Bill, I think we would be asked questions about the industries that are covered, the definitions of an industry and what a business actually does. Whether an organisation is drawn into the legislation—whether it is considered a national security threat—is not something we would be involved in. I would be pointing organisations in the direction of their legal advisers on that.

As I said, there are something in the order of 6,000 investments into venture capital in the UK each year. There are approaching 10,000 mergers and acquisitions transactions a year in the UK, plus a number of infrastructure investments, and many of those will fall into the definitions within the Bill. I do not think it is entirely clear to buyers yet whether they would be caught. A traditional private equity house or a venture capitalist looking to invest in a start-up in the UK, may well be owned by Britons, with a management team who are British, but they may have structures that include overseas entities, and many of their investors will be overseas investors. I think that many of those organisations will be wanting guidance as to whether they will be considered an overseas acquirer, even though on the face of it they appear relatively British.

[Chi Onwurah]

Q Specifically on whether they meet the definition of an overseas acquirer, I was also interested in this. I think one of the assumptions has been that there will be a large number of self-notifications in order to get guidance early on, but you seem to be implying that that might be considered to be declaring yourself as a threat to national security, and that might be a barrier.

Will Jackson-Moore: No. The way traditional fundraising for a start-up or a transaction takes place is that a business is either put up for sale or seeks investment from a number of parties; the entrepreneur wants to raise finance and have a competitive situation in which the providers of capital are making the most attractive offers possible to reduce the cost of capital for the organisation. I think there would be an incentive for them to be able to say to potential investors, “We are not going to be considered as an asset that is important to national security”. The definitions are quite broad and many organisations will have technologies that right now appear relatively benign and are used for purely civilian purposes but are cutting-edge and on a trajectory whereby in two years’ time they may have military applications or other things that could be a threat to national security.

[Chi Onwurah]

Q What that says to me is that, while the impact assessment looks at the cost to the acquirer, there will actually be a cost to the acquired party in terms of clearing themselves in advance or clarifying what their situation is, and I do not think that is covered in the impact assessment as it stands.

Will Jackson-Moore: Yes, in many cases it is a raising of finance for a partial stake. It is an entrepreneur looking to attract capital to expand their business, seeking to bring in an investor to provide maybe 25% of additional equity capital. They want to have a competitive situation where people are offering the most beneficial terms possible. Many of those investors will be overseas investors.

[Nadhim Zahawi]

Q Following on that, Mr Jackson-Moore, the current regime under the Enterprise Act 2002 stipulates that the assessment of transactions is dealt with on a case-by-case basis by the Government. This legislation effectively puts into law the timeline by which assessments are made. Do you think that and other provisions in this Bill will send a message to the industry and to the investment community of a slicker, more efficient way of dealing with assessment of transactions?

Will Jackson-Moore: For the vast majority of existing transactions, the existing legislation was not really a major factor; it only addressed a handful of transactions each year, whereas this is much more in the mainstream of the M and A market and therefore it will be much more on people’s agenda. We already have a number of organisations reaching out to us to understand the potential implications for ongoing transactions.

I do not think the timeframe in itself represents a barrier, since it is not that dissimilar to other jurisdictions, but again it is the application. If you look at Australia, for example, buyers have the ability to pre-clear themselves, and that type of amendment would be very helpful to ensure the free flowing of capital.