National Security and Investment Bill

Greg Clark Excerpts

2nd reading & 2nd reading: House of Commons
Tuesday 17th November 2020 Commons Chamber

[Greg Clark (Tunbridge Wells) (Con)]

It is a pleasure to follow the thoughtful speech of the hon. Member for Dundee East (Stewart Hosie). May I join my right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith) in paying tribute to the Front-Bench team for their courtesy in being open about the development of the Bill and for their communication with all parties in the House?

This is an important Bill at an important time. In recent years, we have seen a tendency on the part of some countries to move towards national measures that seek to protect their domestic economics from the open conditions of international trade, not only in goods and services but in ownership and intellectual property, and we of all nations should be a voice against that. Few nations have prospered through pursuing a policy of national self-sufficiency. Over time, they have become deprived of innovation, competition and investment, although the exposure and experience of international trade and investment can be disruptive and uncomfortable. In the end, workers become less productive than in other countries, consumers pay more and those countries use technology that is behind what other more open economies allow. In other words, they become less prosperous.

The importance of this Bill pivots on its title. Is it exclusively about national security, or is “and Investment” a doorway to a more restrictive view of overseas investment more generally? I am pleased that my right hon. Friend the Secretary of State made it absolutely clear that the Government have decided that it is the former, rather than the latter, although there are some dangers that I want to touch on.

Do we need a statutory framework to ensure our national security when it comes to commercial investments? Yes, of course we do. There are commercial activities conducted in this country that are essential to our national security—defence contractors are an obvious example. Public policy has always recognised that, whether through the use of export controls on their products or, in the case of ownership, through golden shares and the intervention powers of the Enterprise Act 2002 for national security, which have been referred to.

Does the framework need to be kept up to date? Yes, of course it does. As the Secretary of State made clear, technologies that are now pivotal to our national security had not been dreamed of 18 years ago when the Enterprise Act passed through this House. The nature of some of those technologies is such that their financial value may not be reflected in the ownership of the company concerned, so they may be pivotal but not trigger the turnover test. The turnover and the value of the transaction may not be a dependable guide to their importance to national security. The control of those technologies may not be confined any more to takeover bids for public companies; it may include ownership outside the stock market of intellectual property or other assets.

Most nations on earth have a framework for overseeing the national security consequences of investments. It is important that we have one and that ours is up to date. The Government are right not to expand the Bill beyond national security or to introduce, as the right hon. Member for Doncaster North (Edward Miliband) said, a wider public interest or industrial strategy test. I say that as the author of our current industrial strategy, of which an essential pillar is our business environment. That strategy says that we need to continue to be

“an open, liberal free-trading economy in which new businesses can be created easily”

and

“existing businesses can attract investment”.

It is obvious that if a British company has succeeded and has made an international impact, we want it to continue to succeed and prosper in this country, and to do so with its headquarters and operations here. That goes without saying. The most important thing is that the company is founded and prospers in the UK in the first place, as my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) said. Especially in fields such as the tech sector, if we tell the founders of new businesses that, should they succeed, they will be excluded from the possibility that they can receive overseas investment, or at the very least that it will be heavily questioned if they should cede control of the business, and that the more their business succeeds, the more draconian the restrictions are likely to be—although Silicon Valley continues to be a major source of international capital investment—the consequence, no doubt unintended, may be that those firms will not be founded here in the first place but will go to places where there is no risk of there being stranded assets.

[Bob Seely]

My right hon. Friend is making an important point, and there is clearly friction on this side over what we see as the crux, but does he accept that the United States and Australia—two free-market nations—will have significantly tighter restrictions after this Bill than we will, and does that concern him?

[Greg Clark]

Of course we should look at the example of other countries; I am sure we will do so during the course of the Bill. However, I would say to my hon. Friend that those two countries are very different in their markets and the size of their economies. The pool of capital that is available to start-up companies in the US is vastly greater than it is in the UK at the moment, although I hope that will change, for reasons that I will go on to discuss. Australia, conversely, is a much smaller economy, which does not have the network of policy regulatory innovation that we have.

We have been a leader; that is our international reputation, and one reason that transactions are conducted in this country is the confidence in our rule of law. We should emphasise and champion that, rather than feeling compelled to follow what other countries are doing in their entirety. Our policy—our industrial strategy—must be to make Britain an even more attractive place for innovative companies to be founded and to stay—not because they are compelled to do so, but because the environment that we provide, in terms of scientific research, educated and trained people, the availability of capital at every stage in their development and the public policy environment make it an attractive place for them to want to be.

Neither must our regime establish, in my view, a list of countries that cannot invest at all in the UK. The test must genuinely be about national security. That is very appropriate. China has been mentioned already in these discussions, and of course it is right and proper that the national security concerns that the House has about China should be reflected through this regime, and these powers are important for that. However, when I was sitting in my right hon. Friend the Secretary of State’s place, I fought hard to save, for example, British Steel in Scunthorpe, Skinningrove and Teesside. The Chinese steelmaker that bought the company, Jingye Group, is essential to the employment of many tens of thousands of people across the north and the east of England, and more in the supply chain. From my recollection, there was no intellectual property vulnerability in terms of its operations. Indeed, the retention of that substantial steelmaking capacity has enhanced our economic resilience, whereas losing it would have seen us relying on imports. I might say the same for Geely, the owner of the London Electric Vehicle Company, which my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), being a west midlands MP, will be familiar with, and which gives valuable jobs to many people.

[Richard Graham]

My right hon. Friend is making a very good case for why it is important to look at each investment in its own right. Geely, which bought the London Taxi Company, produced electric vehicles and now exports them to the Netherlands and France while continuing to manufacture in Coventry, is a good example of why that is so important. Does he agree that it is simply not good enough for this country to say, “China is Communist and we will not accept Communist investment, and therefore we will not accept Chinese investment.”? We must be a great deal more sophisticated and open than that.

[Greg Clark]

I would say to my hon. Friend that the Bill’s focus on national security is absolutely right. We should have a beady eye on national security, with substantial powers, as my right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith) said, to enforce that. I think the Bill has it right in its focus on national security.

The Committee that examines the Bill will need to consider in detail some of the provisions of the Bill as it is presented on Second Reading. It is essential to provide investors and UK firms with a sense of predictability and confidence, but that can be undermined if the law has administrative consequences that are unintended and not provided for. For example, there are strong reasons to think that there may be a deluge of notifications, as the hon. Member for Dundee East said, when the new unit in the Department is set up, and it must be geared up to handle that right from the outset.

The prospect of five years’ imprisonment for directors and fines of 5% of turnover, as my right hon. Friend the Secretary of State commends, for failure to notify under a mandatory regime within sectors defined as broadly as communications and transport is, in my view, likely to lead to many small transactions being notified under the voluntary regime for peace of mind regarding those very strong sanctions against an inadvertent breach. It is an enormous challenge for the Department to set up a new unit, especially since the current regime—or the previous one, since the powers are live—has dealt with a very small number of transactions each year.

As Secretary of State, I reduced the turnover threshold for review from £70 million to £1 million only two years ago. This Bill contains no de minimis threshold, and I will be interested to see during the passage of the Bill evidence of why a zero de minimis threshold is necessary, especially when the definition of technology assets extends to “ideas, information or techniques”, which is very broad. This could result in a very large number of very small transactions being notified defensively.

Even if businesses are confident that they will not be covered by the mandatory notification requirement, the advantages of voluntary notification and clearance, with its exemption from the five-year look-back, may prove to be very attractive and very important in baking in the approval of a transaction against reversal more than five years in the future. It is clearly the ambition of the right hon. Member for Doncaster North to add further public interest tests. As we approach the general election, it may well be attractive, as a defence against the action of future Governments, for companies to notify even when they do not have to. It is very important that the Department is geared up for that.

Much of the Science and Technology Committee’s work in recent months has been concerned with the nation’s response to the coronavirus. If we can learn one lesson from that—for example, from problems with the test and trace system—it is that, to have public confidence, we need to properly anticipate demand and to set up to meet it from the outset. If that demand is not supplied, public confidence, which is crucial for investment, will be undermined.

[Sir John Hayes (South Holland and The Deepings) (Con)]

Does not the coronavirus provide us with another lesson, which is that Government historically have not been terribly good at assessing risk and modelling the response to it? I say that as a former Minister, like my right hon. Friend. I was always surprised, in all the Departments I served in, at how little time is spent on modelling outcomes of the kind we are now enduring.

[Greg Clark]

My right hon. Friend is right. To look ahead, we need to develop the capabilities to do that, and for a unit in the Department that previously did not have that responsibility—it was with the CMA, advised by others—that is a steep learning curve.

The foundational feature of the UK’s commercial reputation in the world is a place where people and businesses all around the world can be confident in investing. That derives in no small part from a public policy regime that is rational, stable and rigorously and efficiently administered. We should continue to aspire to take a global position of leadership in this area, so I welcome the focus of the Bill and its ambition to bring our arrangements up to date. I look forward to helping ensure that we can be proud of the Bill and see it as a contribution to our continued reputation for having the highest standards of corporate government and investment security in the world.

--- Later in debate ---

[Sir John Hayes]

The right hon. Gentleman made that point in his contribution earlier and it seems to me to be a profound one. In establishing the new processes and the new governance associated with this legislation, it is vital that the interaction with the intelligence services, and all the skills available to the Government to assess risk, is built in to their considerations but also to the process. I am not absolutely convinced that the Bill does that. It may be that there is sufficient flexibility, to take up a point raised in an earlier intervention, to allow the Government to do so, but I hope the Minister, when he sums up the debate, will provide reassurance that the connection between intelligence and risk assessment is as sure as it needs to be. I am grateful to the right hon. Member for North Durham (Mr Jones) for making that point.

[Greg Clark]

When the decision maker is a Minister in the Government, they benefit from the advice of the security services, including the National Security Adviser. That was certainly my experience as Secretary of State. All these decisions draw extensively on the advice of the national security apparatus. I do not think—my hon. Friend the Minister will clarify it when he winds up—there is any intended change to that.

National Security and Investment Bill

Greg Clark Excerpts

Consideration of Lords amendments
Monday 26th April 2021 Commons Chamber

[Paul Scully]

I am grateful for my right hon. Friend’s enlightening words about his intention. I can indeed confirm that the memorandum of understanding is flexible. The ISC does good work and continues to do so, and I look forward to working with him.

[Greg Clark (Tunbridge Wells) (Con)]

My hon. Friend is giving helpful clarification. The Secretary of State wrote to the Chair of the Business, Energy and Industrial Strategy Committee and copied in the Chair of the ISC and me as Chair of the Science and Technology Committee. Will the Minister confirm that he is prepared to commit in a memorandum of understanding to the Chairs of those Committees being able to see, on Privy Council terms, information that might not be otherwise in the public domain?

[Paul Scully]

We have got to the nub of the matter quickly. I can indeed confirm that. In the letter the Secretary of State sent to the Chair of the BEIS Committee, copying in my right hon. Friend the Chair of the Science and Technology Committee, he spoke about the fact that the BEIS Committee is able to access the material it needs to scrutinise the work of the ISU, including for example details of some of the risks that the ISU has identified under the NSI regime and the measures taken to address them. As part of that, the Secretary of State confirmed that the Department can provide the Chair of the BEIS Committee with confidential briefings on Privy Council terms, and that he would be happy to set those out in more detail in either a memorandum of understanding or further exchange of letters. The Secretary of State went on to say that he would encourage the STC to provide scrutiny of the work of the ISU where the work of the unit falls within the specific remit of that Committee. He also welcomed the Intelligence and Security Committee’s continued scrutiny of the work of the security services, which will include where the security services’ work supports the work of the ISU.

--- Later in debate ---

[Dr Lewis]

Unfortunately, and I am afraid unusually for my right hon. Friend, he missed one little part that was missing in turn from the Minister’s answer, because the MOU as it stands does not include the Investment Security Unit. The MOU has a list of seven organisations that we can currently scrutinise. The whole point about flexibility is that, as these units are set up in other Departments, they can be added to the MOU, but the Minister has given no undertaking to add the ISU to the MOU. I am happy to give way to the Minister. If he would like to say that he will add the ISU—the new unit within BEIS—to the organisations listed in the memorandum of understanding, I will stop my speech immediately and say, “Well done, Minister,” but I fear that that is not going to happen, so I will continue with my speech.

The Government’s second argument is that the BEIS Committee is both capable of providing and best placed to provide the necessary oversight. I have the greatest respect for the work and experience of the BEIS Committee, chaired by the hon. Member for Bristol North West (Darren Jones), from whom we will hear later. He and his Committee are indeed best placed to provide oversight of the business functions of the new Investment Security Unit, and there can be no doubt that that Committee will do an excellent job in that respect, yet it is simply impossible for it to provide substantive scrutiny of the highly classified national security elements or of the overarching decisions taken about how to balance them with the commercial elements.

Select Committees cannot be given proper access to top-secret material in order to scrutinise effectively. Ministers have suggested that the BEIS Committee can substantively scrutinise such material, but that is impossible. While it is true, as we have heard tonight, that the provision of classified information can be negotiated with Select Committees on a case-by-case basis, the laying out of classified material in a secure room in the Department for Members to come in and read for an hour or so—but without allowing them to take any notes, without allowing them to retain it, without allowing them to share it with their staff, without allowing them to discuss it and without allowing them to report on it since any one of those would constitute a very serious security breach—does not amount to effective oversight.

Proper oversight of the national security elements of any decision under this new regime within BEIS must include the ability to access, analyse and discuss top-secret material frequently and fully. The Government already have one body, and only one body, that can do all those things and that they created for that express purpose: the ISC. Members of the ISC are all subject to the Official Secrets Act and have a dedicated office with appropriate security facilities to store and discuss top-secret material freely, and staff who undergo the most stringent Government clearance processes before they are allowed to handle such material—I said in an intervention earlier that the staff of other Select Committees of this House are not so cleared. There is also a lengthy process through which the Committee’s reports must go ahead of publication.

[Greg Clark]

My right hon. Friend will know that the call-in power and the power to refuse permission for mergers to proceed on national security grounds is long standing. It is vested in the Business Secretary and sometimes in the Secretary of State for Digital, Culture, Media and Sport. During all this time, scrutiny has been available to the ISC on those decisions. Has my right hon. Friend found that deficient in some way?

[Dr Lewis]

I am not sure that without concrete examples of what my right hon. Friend has in mind, I am in a position to give an answer to that question. What I do know is that it is the work of the ISC, on a basis of professional, full-time constant monitoring, to be able to look at the activities of those agencies that cannot be looked at by other Select Committees. He seems to be talking about the power of Secretaries of State to call in decisions, and I am not sure quite how that relates to the work of either Select Committees or the statutory Committee, which is the ISC.

[Greg Clark]

Perhaps I did not explain myself well. What is proposed in the Bill is an amendment of the current powers. There is a long-standing power for mergers to be blocked on national security grounds. It is one of three grounds on which an intervention can take place, so this is not a new power or a novel departure. The ISC is able to scrutinise the security services’ input into that now, as it will be in the future.