National Security and Investment Bill (Seventh sitting)

Debate between Katherine Fletcher and Chi Onwurah

Committee stage & Committee Debate: 7th sitting: House of Commons
Thursday 3rd December 2020 Public Bill Committees

[Chi Onwurah]

Amendment 17 addresses the unwinding of void transactions. Clause 13, which is the start of chapter 3 of the Bill, is concerned with the approval of notifiable acquisitions. It provides that:

“A notifiable acquisition that is completed without the approval of the Secretary of State is void.”

It is a short clause with only three subsections, of which that is the first. Subsection (2) says that the Secretary of State may approve a notifiable acquisition by giving a notification, making a final order, or giving a final notification under various clauses. Subsection (3) says:

“A notifiable acquisition, in relation to which a final order has been made, that is completed otherwise than in accordance with the final order, is void.”

I want to emphasise the consequences and impact of such a short clause. Our amendment adds a new subsection that says that the Secretary of State must publish guidance that covers

“consideration of the impact of a notifiable acquisition being deemed void…with particular regard to…consequential obligations, liabilities and rights in completed events;…who constitutes a ‘materially affected’ person…and…the informational and evidential standards that would underpin the requirement for completion ‘in accordance with the final order’ at subsection (3).”

The amendment effectively mandates the Secretary of State to publish guidance on how the mechanism of deeming non-compliant transactions void would work in practice. Once again, we tabled it genuinely in the spirit of improving the Bill, because this issue is potentially a hugely significant part of it. The two words “is void” have a huge impact, which needs to be unpacked. This is a constructive amendment; we want to ensure that there is clarity for small and medium-sized enterprises, and accountability to Parliament, on how the new powers will be exercised.

I know that the Minister rejected further new powers in the last amendment, but even without them these new powers are significant. We welcome the expanded powers to tackle national security concerns, but we need to ensure that they come with accountability and guidance. The ability for transactions to be deemed legally void where they have not been approved by the Secretary of State, or where they have not complied with the Secretary of State’s final order, has potentially huge repercussions. Again, it marks a radical shift from today’s regime under the Enterprise Act 2002 and from the Government’s White Paper.

Under the “legally void” provision, transactions that took place three to five years ago could now be immediately deemed void. If the first transaction in a chain were deemed void, that would leave the legal rights and entitlements of all subsequent transaction parties in total uncertainty. That is not just a theoretical concern that we are raising to test or probe the Bill, but a truly practical one. A number of investment transactions involve a change of shareholder parties over a three to five-year period. The automatic default of non-compliant transactions becoming void would mean an impossible series of rights, entitlements and changes having to be unwound. It may well be practically unworkable and legally uncertain.

[Katherine Fletcher (South Ribble) (Con)]

I appreciate the point that the hon. Lady is making, in that transactions over a period of three to five years could become complex, but surely if something is called in and deemed void in the overriding interest of national security there will be an extremely good reason for it. Although the complexity of downstream transactions is regrettable, we would be acting in the British interest if we had to trigger these powers.

[Chi Onwurah]

I thank the hon. Lady for her intervention, which by and large I agree with. That is why we are not seeking to remove the power, but to ensure that the Government and the Secretary of State explain how it would work in practice. She is right that if a bad or hostile actor has deliberately gone behind our national security framework, or the legislation as set out in the Bill, to undertake a transaction, the consequences will be on their head. However, there might be a series of other transactions as a consequence that were not made by bad or hostile actors—I will give some examples—and the impact on them should be set out, as far as possible, to give some clarity, because this is a huge area of uncertainty.

As has been stated on a number of occasions, we attract more foreign investment than any European Union country, and one reason why the UK is such an attractive location for foreign investment is that we have a robust legal framework that is trusted globally, but by giving rise to uncertainty the clause might impact that. We are not seeking to remove this power, but to have it properly explained, as far as possible.

National Security and Investment Bill (Fifth sitting)

Debate between Katherine Fletcher and Chi Onwurah

Committee stage & Committee Debate: 5th sitting: House of Commons
Tuesday 1st December 2020 Public Bill Committees

[Chi Onwurah]

Another excellent contribution from my hon. Friend, who raises a delicate, nuanced, important point. Governments of all colours may have trade and geopolitical agendas that lead to, as my right hon. Friend the Member for North Durham (Mr Jones) described it, a “hug a panda” approach, whereas the ISC, which we have seen mark its independence of thought both as a Committee and in its contributions in parliamentary debates, has a duty, a responsibility and an understanding to see beyond short or even medium-term political ambitions and to focus wholeheartedly on the security of our nation. That is where its support is invaluable.

I will finish my comments on the amendment by quoting some of our parliamentary colleagues with regard to the Intelligence and Security Committee. On Second Reading, the Chair of the Select Committee on Foreign Affairs, the hon. Member for Tonbridge and Malling (Tom Tugendhat), said that

“there is a real role for Committees of this House in such processes and that the ability to subpoena both witnesses and papers would add not only depth to the Government’s investigation but protection to the Business Secretary who was forced to take the decision”.—[Official Report, 17 November 2020; Vol. 684, c. 238.]

I think that is powerful advocacy for the amendment. A member of the ISC, the right hon. Member for South Holland and The Deepings (Sir John Hayes), said that

“we need mechanisms in place to ensure that that flexibility does not allow the Government too much scope. That is why—this point was made by my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) and I emphasise it on behalf of the ISC—Committees in this place missioned to do just that need to play an important role.”—[Official Report, 17 November 2020; Vol. 684, c. 244.]

We had support in the evidence sessions, support across the House and, most importantly, we have the support of the ISC itself, or at least its agreement that the amendment would be a constructive improvement to the Bill.

Finally, I will say a few words on amendment 5, which would require the Secretary of State to notify the Intelligence and Security Committee before making regulations under clause 6 and would provide a mechanism for the Committee to respond with recommendations. Regulations made under clause 6 would likely define the sectors that pose the greatest national security risk and would come under mandatory notification requirements. With the amendment, the ISC would be able would to provide both scrutiny and challenge to these sector definitions. The Committee will understand that the driving reasons behind the amendment are similar to those behind amendments 3 and 4, which is of course why the amendments have been grouped together, and would seek to improve the Bill through putting in place a requirement for parliamentary scrutiny specifically on the definitions.

As we have said, the Bill gives the Secretary of State major powers, and it demands mandatory notification of investments in large parts of the economy, with 17 proposed sector definitions already. I really cannot emphasise enough how broad those definitions currently seem. I know it is the intention that the definitions should be tightly drawn. However, I speak as a chartered engineer with many years’ experience in technology. Three or four decades ago, we might have talked about digital parts of the economy, but now the economy is digital. Similarly, in the future, parts of the economy not using artificial intelligence—from agriculture to leisure to retail to education—will be looking to use it.

[Katherine Fletcher (South Ribble) (Con)]

I am a scientist myself, so I share a passion from a technology perspective. I am listening to the hon. Lady’s view of the breadth of opportunities, but amendment 5 would bring the Intelligence and Security Committee into the process, and I wonder whether we would be creating a bottleneck. The hon. Lady talked earlier about breadth and said that time is critical for SMEs and larger companies that need a decision. I think she would accept that Government is perhaps not the most effective and efficient vehicle, so why does she seek to put additional steps into something that is time critical and based on national security?

[Chi Onwurah]

I welcome the hon. Lady’s intervention. It is great to have scientific knowledge in Committee and in the House. I welcome the contributions and scrutiny that a scientific background can bring. She is right that there is a tension. The technological environment is fantastic and innovative, with its start-up and enterprise culture. We have great centres of development and innovation, from Cambridge to Newcastle. I am sure hon. Members can mention other centres of great technological development that lead to lots of local start-ups in different areas. All or many of them may be caught by the provisions of the Bill, and that is a concern, but our amendments have been tabled to put in place parliamentary scrutiny.

Parliamentary scrutiny of the call-in process should be, as my hon. Friend the Member for Aberavon said, upstream of the actual call-in notification. This is about the definitions of the sectors to ensure upstream scrutiny. Small businesses, particularly start-ups, seek finance, often foreign investment. There are enough barriers in their way and we do not want to create more unnecessarily, but our amendments are about clarifying and ensuring the robustness of the definitions before they hit the coalface of our small businesses and start-ups, whose interests I want to protect. The Opposition are champions of small businesses, are we not?

--- Later in debate ---

[Chi Onwurah]

I thank the hon. Gentleman for his intervention, because I think we are getting to the nub of it. The amendment is necessary because, as I outlined, there is an inherent conflict of interest within the Department for Business, Energy and Industrial Strategy with regard to foreign investment and national security. In addition, there is a need for security-cleared knowledge. I do not know the security clearance of the current members of the Business, Energy and Industrial Strategy Committee, but I doubt it is at the same level as the members of the Intelligence and Security Committee.

[Katherine Fletcher]

Will the hon. Lady give way?

[Chi Onwurah]

I will.

[Katherine Fletcher]

Sorry, I nearly put my hand in the air then—I am still new. Listening to the debate, I was reflecting on the efficiency of the process. We must make sure we do not put Parliament within an operational procedure. Does that not also apply to amendment 3 and the idea of a pre-emptory notification? Is the hon. Lady not seeking to put together some kind of ethereal multi-agency association, when all that is really needed is a phone call to a team of people who are security cleared within BEIS? Does she accept that point?

[Chi Onwurah]

The hon. Lady makes a good point, in that much would be solved by the appropriate phone call at the appropriate time. Had Sir Richard Dearlove been phoned by the right person when the Huawei acquisition was going through, that issue would have been solved. Whichever Government are in power, we are continuously looking for ways to ensure a more joined-up approach to government.

Given the importance of national security—I think we can all agree that national security is the first duty of Government—and given the reality of the conflicting pressures on Departments, I think these proposals to improve scrutiny by involving a multi-agency approach are necessary. I also point the hon. Lady to the approach of the US Government, who have found this to be necessary, as have others of our allies. With that, I will make some progress.