National Security and Investment Bill

Lord Beamish Excerpts

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

[Alok Sharma]

My hon. Friend raises a point that I know he has raised with my fellow Ministers, and other colleagues will raise a similar point. He talks about modern slavery. He knows that the Government passed the Modern Slavery Act 2015. The Home Office is looking to update and strengthen that. I note the points that he has raised, but the whole point of the Bill is for it to be narrow on national security grounds, and that is the way that it was constituted when it was first discussed in the Green Paper in 2017 and in the White Paper in 2018. However, I will try to address some of the points that he raised as I go on.

Those who seek to do us harm have found novel ways to bypass our current regime by either structuring a deal in such a manner that it is difficult to identify the ultimate owner of the investment, or by funnelling investment through a UK or ally investment fund, or indeed, by buying or licensing certain intellectual property rather than acquiring the company. Be in no doubt that the UK and our allies are facing a resurgence of threats. That is why we are updating our powers to screen investments into the UK. Our current powers date back to the Enterprise Act 2002. Technological, economic and geopolitical changes across the globe over the past 20 years mean that the reforms to the Government’s powers to scrutinise transactions on national security grounds are now required.

[Mr Kevan Jones (North Durham) (Lab)]

I welcome a lot of the proposals in the Bill, including on the issue of land and the removal of the thresholds in terms of ownership. One way that people have been able not only to get influence in this country but to launder money has been through the purchase of large amounts of property in the UK, which were highlighted in the Intelligence and Security Committee’s report on Russia. Does the Secretary of State see the Bill addressing that issue?

[Alok Sharma]

I will go on to the detail of that particular issue, but as the right hon. Gentleman identified, the Bill looks at assets and intellectual property. On the point that he raised about the size of transactions, as he knows, under the 2002 Act, apart from some limited exceptions, businesses being acquired must have a UK turnover of over £70 million or, indeed, the merger must meet a minimum 25% market threshold. This means that acquisitions of smaller but technologically sensitive companies are not covered.

The Government have been clear for a number of years about our intention to introduce new powers. Many of our international allies, including our Five Eyes partners, have also acted to update their legal frameworks to address national security risks. We, in turn, are seeking to update our legislation in a proportionate manner to ensure that we have more security for British businesses and people from hostile actors targeting our country; more certainty for businesses and quicker, slicker screening processes as we remain open to trade and recover from covid-19; and a regime that is in line with our allies, meaning that investors will be familiar with this approach.



Let me turn to some of the specifics of the Bill. Part 1, chapter 1 introduces a call-in power that the Government may use in relation to a trigger event across the economy that they reasonably suspect has given rise to or may give rise to a risk to national security. Trigger events include acquisitions of certain shares or voting rights in a qualifying entity, and the acquisition of material influence over such an entity. As the right hon. Gentleman pointed out, it will be possible for the first time to call in the acquisition of a right or interest in a qualifying asset, including intellectual property, where such an acquisition would enable the acquirer to use the asset or control or direct how it is used. That is similar to the US and other countries’ regimes.

The call-in approach is consistent with the 2002 Act, but importantly there are no minimum thresholds for the size of the business or asset to be acquired. That means that sensitive businesses and assets that may previously have slipped under the minimum size threshold will no longer do so. That will close the back door into the United Kingdom that hostile actors could exploit.

However, it is important to reassure the investment community that the Government expect to use these powers sparingly. We estimate that less than 1% of transactions in any given year will be subject to call-in. For transactions that fall outside the mandatory requirement of the regime, the Government will be able to call in a transaction within a period of five years of a trigger event having taken place where they have not been notified. When the Government become aware of a trigger event having taken place, they will have six months to issue the call-in notice. That five-year period is, again, consistent with regimes in Germany and France. The Bill requires that the Government publish a statement of policy intent explaining how they expect to use the power to issue a call-in notice.

Should the Bill become an Act, the Government’s call-in powers will apply from the date of introduction and will cover transactions that complete during its passage. That will ensure that hostile actors do not rush through the completion of transactions between the introduction of the Bill and Royal Assent as a means to avoid scrutiny under this legislation. My Department has already set up an investment security unit to field enquiries from businesses and investors about transactions under the new regime.

Under the National Security and Investment Bill, there will be no requirement to publish call-ins. That is of course in contrast to the public interest intervention notices under the 2002 Act.

--- Later in debate ---

[Edward Miliband (Doncaster North) (Lab)]

I will start with the vital context to the Bill. At the heart of it is the first duty of any Government: to protect our national security, while meeting the shared desire across the House for our businesses to succeed and create wealth and jobs. The Bill must be seen against the changing geopolitical and economic landscape; the evolving nature of the threats to our national security in an age of rapid changes in technology; the lessons of covid about the critical nature of unexpected threats, including pandemics, which has thrown into sharp relief the critical need for advanced domestic capabilities in manufacturing and logistics and across supply chains; a shared sense across the House that we as a country have at times been too relaxed about some overseas interests investing in our country, with damaging national security implications; and an understanding that the existing legislation supported across parties two decades ago does not provide the basis for the kind of active industrial strategy that we need to build a safe and successful economic future. Those factors together demand legislation, and that is the context in which we view the Bill, so we support it and the fact that the Government are taking the necessary legislative steps to protect our vital national security interests. It is the right thing to do for our country.

Our main argument with the scope of the Bill is not so much about what it seeks to do on national security but what it omits on wider issues of industrial strategy. It is notable that the Bill brings us into line with other major economies on the security questions we face but fails to do so on broader issues of public interest and takeovers going beyond national security, despite the clear lessons that have been shown over the last decade. I will return to that point later in my speech, but first let me focus on the specific provisions in the Bill.

We should be candid that, in drafting the Bill, the Government face the very difficult challenge of keeping our economy open as much as possible to foreign direct investment, which is part of the lifeblood of business and jobs, and protecting our security. Navigating that challenge is hard, which is why getting the specific provisions of the Bill right is so important. This is obviously reinforced by the fact that the Bill goes significantly further in a number of respects than the 2018 White Paper envisaged—notably, the mandatory notification obligation that will apply in 17 sectors and the question of five-year retrospective application.

I want to raise a number of issues about the Bill in the interests of the constructive scrutiny that is the role of this House. These questions are about the scope of the Bill, the issue of retrospection, the capacity of the Government to make this regime work and the scrutiny of its effectiveness.

First, on the scope of the Bill, we do not take issue with the 17 key sectors identified by the Government. In quantum technologies, engineering, biology, space and a range of other emerging technologies, there are serious potential issues around national security. For example, the acquisition by a firm owned or funded by a foreign power of a company that designs graphic processes, networking routers or microchips could potentially risk national security, especially if the products are used by the UK Government. That is why the legislation is necessary.

However, as the Secretary of State acknowledged, the Bill goes well beyond those sectors. The call-in ability stretches to any entity or asset in the UK, irrespective of sector. While that was true in the old regime, this power will be viewed in the context of a much more activist, interventionist Government approach. We do not say that is wrong, or indeed out of line with some other countries, but there is a danger of a potential deterrent effect on investment.

To be fair to the Secretary of State, in his statement of policy intent accompanying the Bill he says that in those non-mandatory areas,

“transactions are only expected to be called in on an exceptional basis.”

The central question for businesses and investors in the non-mandatory sectors will be to decide whether or not to notify. The central challenge for the country is to make sure that investors are not put off from investing in the UK.

I would say to the Secretary of State that there is not yet clear, targeted guidance for market participants on how and when they should notify in those non-mandatory sectors; further detail on that will be crucial in due course. The Secretary of State will be aware of the example of the suspicious activity reports from financial institutions to the National Crime Agency where the system has, according to the Law Commission, been “swamped”. As with suspicious activity reports, there is a risk that the voluntary notification system sees businesses err on the side of over-reporting; the impact assessment already estimates that at least 1,000 notifications will be made each year. I hope that, during the passage of the Bill, Ministers can offer reassurance on that point.

Secondly, I want to raise is retrospection. The Government consulted on a six-month retrospective power to call in transactions for review, and certain respondents expressed the view that that was too long. The Government have chosen to go much further—for five-year retrospection. I appreciate that that is similar to France, Germany and Italy, and we have no inherent objection to it if the case can be made, but I have read carefully the Government’s response to the consultation, and I do say to the Secretary of State that Ministers need to do a better job of explaining the change in thinking to such a lengthy period.

In particular, I wonder whether Ministers would explain what the experience has been in those countries that have five-year retrospection—whether they have looked at its effects. As well as the possible deterrent effect on investors, there is obviously a massive challenge in unwinding a transaction that has taken place at five years’ remove. It would help if Ministers explained that, because there could be a subsequent series of transactions, so that unwinding from that would be very complex. There is also the issue that has been raised about the voiding, which is that a notifiable acquisition completed without the Secretary of State’s approval is void—not unwound by the Secretary of State, but automatically void without any decision required on his part. That is an unusual concept, and Ministers need to explain how it will work.

Thirdly—this is really important for practical purposes—I want to focus on how Government can guarantee an effective regime for the new powers. The Government have proposed a new investment security unit in BEIS. It is hard to overestimate the extent of the challenge for the new unit. It will have to respond to a large volume of mandatory, and potentially voluntary, notifications within a tight timeline set out in the Bill. The start of a new regime will always be turbulent.

The unit will have to track the development of fast-moving, highly complex technologies and monitor each of those markets, and the Secretary of State will have to take decisions on the advice of the unit, which can be challenged in court in the context of highly sensitive information and wide-ranging powers. And the unit will need to develop policy, practice and precedent to provide certainty to a wide swath of the economy. These are, as I am sure the Secretary of State knows, significant challenges, and it is no exaggeration to say that the success of the regime and the effective functioning of an important part of the economy rest on the new unit operating swiftly and effectively. If I may put it this way, the Secretary of State will be aware that his reputation and that of future Business Secretaries—not to be presumptuous —will depend on the resourcing and functioning of the unit.

I want to raise in particular the issue of small and medium-sized enterprises, which may well find the notification process most burdensome. Take the example of a small tech start-up founded by recent university graduates, who might incur much more debilitating costs in navigating the process than a large global corporation. It is essential that the Government find ways to mitigate this risk.

In any case, my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) and I are seeking from Ministers assurances that the unit will be adequately resourced, with access to the right technical capabilities; and crucially, there must be a clear flow of information and shared priorities between the unit, protecting our national security, and the Department of International Trade’s new office for investment, whose job is to get inward investment into the UK.

[Mr Kevan Jones]

Does my right hon. Friend agree that what is also going to be needed is some very close relationships and working with the security services, because the information that it could rely on in these cases will mostly not be accessible straightaway by this new unit?

[Edward Miliband]

My right hon. Friend speaks with great knowledge on this issue, and he is completely correct. Indeed, I do not want to answer for the Secretary of State, but one of the issues that was raised was the definition of national security. These things are hard to define, for a whole range of reasons that we can understand, but for the reasons that my right hon. Friend set out, it is absolutely crucial that there is a close relationship with the security services.

--- Later in debate ---

[Edward Miliband]

I can say to the hon. Gentleman that this is the first time I have been called a Cummings-ite. I have been called many things in my time, but a Cummings-ite after Cummings is really unusual.

The final point I will make before I conclude, because many hon. and right hon. Members want to speak in this debate, is that when I listen to Government Members, I feel that they accept the logic that we have to move away from the old view—the two decades ago view best embodied perhaps by the Enterprise Act 2002—when it comes to national security. They say, “We are worried about the investment effects, but national security matters.” Of course it does, and I agree with that. But then, when it comes to our industrial base, suddenly they have a completely different view, which is, “No, no, no. We can’t go back. We can’t change our view.” I think there is a degree, dare I say it, of inconsistency on that.

[Mr Kevan Jones]

Is there not a direct national security issue around telecoms? When BT was privatised, the old General Post Office was advanced in both mobile technology and fibre optics. It was because the Thatcher Government decided to throw it open to the open market that the advantage we had in this country was lost. That is why we now find ourselves at mercy of Huawei and other companies.

[Edward Miliband]

My right hon. Friend makes a very important point. Indeed, my hon. Friend the Member for Newcastle upon Tyne Central and I were discussing this very issue last night—that these issues can interact.

I will just say this and then I will conclude, Mr Deputy Speaker, I promise. I think the public are in a different place from some of the Government Members who have spoken. I think the public really recognise this issue. We have many great companies, but some of them have been subject to takeover, and the public do not really understand why and they do not really understand why the Government have not played more of a role. I can see some hon. Members nodding.

Updating legislation to protect national security is long overdue, and we welcome it. We will support the Government as they seek to protect national security and defend our country. We will push them to go further on industrial strategy and the takeover regime. We think this is the moment to be bold and develop the industrial strategy that 21st century Britain needs, but we want to see this Bill pass through the House. We will engage on it constructively, and I know from the Secretary of State and the way he operates that he will do the same.

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP)]

I start with my ISC hat on because it was the ISC that first investigated UK Government powers and processes for scrutinising foreign investment in sensitive areas of UK industry, found them lacking and called for more powers. In its 2013 report, “Foreign involvement in the critical national infrastructure”, the Committee looked into the issue of

“foreign investment in the Critical National Infrastructure (CNI)”

and concluded:

“The difficulty of balancing economic competitiveness and national security seems to have resulted in stalemate.”

That is not a criticism and it is not meant to be contentious. This issue has arisen over the past few years and most, if not all, advanced economies are now grappling with it. I therefore welcome the Bill, in principle, or certainly a measure like it.

While on the subject of the ISC, I offer the apologies of its Chair, the right hon. Member for New Forest East (Dr Lewis), who is self-isolating having been contacted by the English version of Trace and Protect, and is sadly missing this debate.

The Bill is designed to bring additional scrutiny of foreign investment that may have an impact on national security. I say from the outset that not only is there nothing wrong with having a national security eye on investments in critical areas—it is in fact absolutely vital.

Currently, as we have heard, the ability of the Government to scrutinise investments on national security grounds contained within part 3 of the Enterprise Act—that is, the mergers provisions—is rather limited. In practice, it means that the UK Government are unable to scrutinise on the grounds of national security without the investment first meeting competition concerns or, in very limited circumstances, a public interest test. We know this concern and similar concerns are shared globally. A number of other countries have been tightening up their investment security regimes in response to changing national security-related threats, enabling technology, the loss of intellectual property and the increasing crossover between sectors, which I may touch on later. The Committee on Foreign Investment in the United States is largely seen as setting the standard. We have also seen tightening in Japan, Canada, Sweden, Germany and France at least, with the Japanese regime extraordinarily strict, in some cases limiting ownership to barely 1% of active management or, more accurately, to barely 1% of a company in certain circumstances.

In the UK Government’s proposals, if both the trigger and the threshold are met, the individual investment can be called in by the Secretary of State for approval. The powers can be retrospective; it can be called in after it has occurred. However, the time to conduct the national security assessment—30 days, with potentially an extra 45—might be deemed to be a little short, given how shrewd, or clever, certain institutions, organisations and individuals are at hiding genuine beneficial ownership. One thinks how long it took to find where beneficial ownership existed for some entities in the UK. Were it not for the Panama papers, we would probably still never know. I therefore question whether that maximum of 75 days is actually sufficient.

The Bill adds a mandatory notification scheme whereby investment interests in certain sectors and asset types—which I do not demur with—must be pre-emptively or retrospectively declared, but it removes notification of call-ins from the competition authority to a direct serve from the involved parties. In the interests of transparency, I seek clarity from the Government on the reasons why notification via the CMA is being removed.

The Bill also introduces new powers to increase screening in respect of health and preventing hostile acquisition through strategic buying of health supplies, for example. I welcome that, but the scope of activities that might be caught is very wide. There may be a good reason for that, but it is worth exploring. The statement of policy intent describes the core areas as including things such as advanced technology, which is perfectly reasonable, but it also contains a much wider definition of national infrastructure. The impact assessment for the Bill estimates that the new regime would result in between 1,000 and 1,830 transactions being notified per year. That is very specific and it is also an eye-watering number, given that only 12 transactions were reviewed on national security grounds since the current regime was introduced 17 years ago. The necessary resources, as the right hon. Member for Doncaster North (Edward Miliband) said, and access to intelligence agency assessments, as the right hon. Member for North Durham (Mr Jones) said, must be available in the proper manner in order to carry out the work.

[Mr Kevan Jones]

Does the hon. Gentleman share my concern that the Bill sets out a voluntary reporting and a notification system, but it is not clear how the security services enact any concerns they may come across into this system? I shall be making the point that I do not think this should sit within the Department for Business, Energy and Industrial Strategy. Does he have concerns on that issue?

[Stewart Hosie]

I absolutely agree that these services should not sit within another Department. I am not sure whether it would be appropriate for them to be able to request call-ins directly, not least because where the information came from would then become abundantly clear, but there must be a mechanism whereby information that an agency comes across can be fed in to the proper people in order for this call-in to happen.

It is also self-evident that Members considering this legislation need to have far more information to understand the reasons for the Bill and the changing nature of the threat it is designed to counter. We also need carefully to assess the impact the Bill will have on sectors and infrastructure, not just in the UK as a whole, but in the devolved Administrations and in the English regions, in the light of the future economic opportunities they see and the plans they are already putting in place. It is far too soon to seek assurances, but I hope the Minister will wish to take a little time just to convince himself that there are no unintended consequences, either for the UK or for the Scottish Government’s inward investment plans, when Government agencies of all sorts are out actively seeking investment in some of the areas that may be deemed to be critical national infrastructure. As an example, let me cite the whole of Scotland’s tech sector, but that of Dundee in particular. It now has a digital ecosystem that spreads out across academia and through gaming, software design and development, and data centres. Many of the component parts of that have cross-sectoral application, some of which, depending on who owns them and who wishes to use them, could certainly raise a national security concern, depending on how bits of tech are deployed. How do we ensure collectively that the Bill does not impede growth or investment in such areas?

I also briefly wish to raise, at this early stage, some issues about implementation. The Bill is set to radically overhaul the UK’s approach to foreign investment, at a time of significant economic uncertainty. On leaving the EU, the UK Government cannot afford to get their global Britain approach wrong and suffer what has been described as the “chilling effect” on investment if this appears heavy-handed. So let me turn briefly to some of the possible implications and costs of these measures.

First, the impact assessment suggests a net cost to business of £43 million. Can the Government confirm whether that is the direct cost, or whether the figure includes the cost of lost investment? I suspect that it is the former because the latter is incalculable, but if the Government get this wrong, the true figure in lost investment, and the concomitant loss of output and productivity, could be substantial.

Secondly, the impact assessment suggests that microbusinesses are in scope. As the Secretary of State will know, some of those businesses develop high-tech, cutting-edge intellectual property, and their business models include selling tranches of shares to raise cash throughout the development and life of the business. What assessment has been made of how these measures might stifle that investment and growth?

The third point is specifically on universities and academia. Throughout the whole UK, universities all have incubators, start-ups, spin-outs and commercialisable research. What assessment has been made of their ability to continue to thrive if the measures in the Bill inhibit investment by proposed sales being called in—because word will get out—or even investment being put off because of the potential additional risk of those sales being called in? We do not yet quite know what the impact on academia would be. There are some wider concerns about the possible impact on essential investment in energy, particularly renewable energy, and the possibility of retaliatory action against UK investors overseas, but I think they can be explored later in the Bill’s progress.

Let me return to one particular issue. I said earlier that the impact assessment suggested notifications of up to 1,800 transactions a year. In clause 7(4)(c), the Bill describes a qualifying asset as

“ideas, information or techniques which have industrial, commercial or other economic value.”

I know that this is not the Government’s intention, but wielding a hammer or welding a pipe are techniques that have economic value, and my concern is that companies erring on the side of caution will refer or notify themselves when they need not.

I have three brief questions that were sent to me by the Photonics Leadership Group. I intend to ask these questions now because they will be typical of what many industrial and new tech sectors are asking. First, there will be a huge number of research groups and businesses for which this Bill is relevant. Has the Department for Business, Energy and Industrial Strategy considered the number involved, and is it ready for the volume of submissions? Secondly, the information that has been sent out to relevant groups includes a flow chart, which suggests that businesses currently engaged in relevant business have from 12 November until this Bill is passed to register. This would suggest that the process is live already, but there appears not to be a template to allow businesses to contact BEIS and ask the question. Thirdly, since many in the sector cannot rely on foreign investment, how are the Government planning to replace this should there be the chill on investment that some fear?

I am pleased the Secretary of State said that the assessments would be based on information gathered from around and throughout Government, because I think we need to make our own geopolitical assessments. But the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith) quoted the Henry Jackson Society. It would be unfortunate if we found that our assessments of which investments may or may not be aligned were being driven, pushed or prodded by someone else’s geopolitical assessment. I say gently to the Secretary of State that we need to guard against that to ensure that national security is protected, but that we do not have the chill on investment that is possible if we get it wrong.

--- Later in debate ---

[Tom Tugendhat (Tonbridge and Malling) (Con)]

I start, as many other hon. Members rightly have, by paying tribute to the ministerial team and the team of civil servants for their consultation on the Bill with not just Members of this House, but the wider business community. It is a hugely important Bill. When, no doubt, some of it becomes an Act, we will all be living with the consequences, which are difficult to imagine in a fast-changing world in which technology is evolving.

I welcome enormously not just the consultation that the Secretary of State has already contributed to, and which he has welcomed, but that which he has also invited, because that is a really important part of the next few weeks and months. It shows wisdom and extreme judgment to make sure that the Bill survives contact with the enemy.

I welcome the fact that the Bill has been crafted to recognise the competition that we are seeing increasingly between states. The Minister in his place, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), as a former member of the Foreign Affairs Committee, knows only too well what we are seeing around the world and has regularly spoken with me about the various natures of competition that he, too, envisions. I welcome that he sees the Bill as being about the UK’s response and ensuring the prosperity and happiness of the British people around the world.

Power is not just about state power; it is also about the economics of strategic challenge through business. As the sadly likely recession following the covid pandemic rises, the reality is that state capitalism will pose a greater problem. As the wells of private sector investment dry up, companies able to draw on national reserves may do better.

Other countries have already seen that and reacted early. In March, in response to similar pressures that the Secretary of State responded to earlier, the Australian foreign investment review board reduced the threshold to zero for calling in acquisitions. In August, France reduced the shareholding required to trigger an inquiry from 25% to 10% for similar reasons. The United States has not followed suit on that basis, but the CFIUS regime, as we all know, is one of the most mature in the world. The Committee on Foreign Investment in the United States has, in some ways, led the way, so the need to adapt to changing circumstances is not so immediate.

For our Government to introduce the Bill now is a welcome demonstration that the UK sees the changing circumstances and recognises that state-owned enterprises pose a different threat from five, 10 or 20 years ago. The Bill also recognises, in the 17 sectors that other hon. Members have spoken about, the rapid pace of technological change that we are seeing and the urgency of making sure that we realise what we are looking at. As assets are being developed that are essential to our continued prosperity and security, they now emerge much more quickly than we ever imagined.

Indeed, I would argue that two of the biggest strategic losses for the United Kingdom in recent years were the 2014 sale of DeepMind to Google and the 2016 sale of ARM to SoftBank, but they have been completed. What those two firms have both enabled, however, is quite phenomenal. Deep Mind, which one can pretty safely say is the world’s premier AI company, is an extraordinary asset. When it started in 2010, it was seen as a sideline, but today in 2020 it is seen very much as the main event.

The UK is not directly comparable with some of the other countries that we have spoken about. Some people have mentioned France, Germany or Australia, but the UK has about double the foreign direct investment of France or Germany, and our international co-operation—our links abroad—are quite different.

Here I declare that my entry in the Register of Members’ Financial Interests shows that I, too, invest in businesses across the UK, and the reason why is that I think, as a Conservative, that if someone believes in business, they should put their money where their mouth is. I am proud to support some young people who have come up with some ideas, some of which may succeed and one of which may even make me as rich as the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stratford-on-Avon—[Laughter.]

This Bill looks at the challenge that such businesses are starting up with, and here I pay tribute to my constituency neighbour and right hon. Friend the Member for Tunbridge Wells (Greg Clark) who spoke about the de minimis clause—the minimum amount that should be called in. Of course, it is absolutely right that companies can evolve. Technology can adapt very quickly, and ideas that one thought were insignificant can become very significant.

However, the reality is that that rarely happens overnight and, with the nature of British capitalism being as it is, the value of a company will be appreciated in the market a long time before the technology is appreciated by the Government. Therefore, although I understand why the minimum number is set at zero, there is an argument—I would welcome the Government’s thoughts on this—for setting it even as low as £1 million, which is actually a very small sum these days for many of the venture capital enterprises in our country.

I welcome the fact that this Bill makes the important distinction between national interest and national security. I see the hon. Member for Aberavon (Stephen Kinnock) in his place, and I know well that if this Bill were about national interest, he would be making one of the strong speeches about the steel industry that I have heard him make over the past five years, but this Bill is not about that. This Bill is fundamentally about the threats to the UK people and to our national security, not just our immediate interests.

It is important to make that distinction in the long term because, of course, to change that would be to fundamentally open a different question. It may be one that Opposition Members or, indeed, some Government Members, would wish to engage with, but it would be a big change to the investment environment of the United Kingdom. It would change our employment structures considerably and challenge many of the services that are built on the UK economy, from law and accountancy to finance and investment. It is a rather larger question, and I am glad that it is not included in the scope of this Bill.

The Government recognise that more consideration is needed, and they could do a little more, if I may say so, just to advertise the consideration that they are looking for in the 17 sectors. Having spoken to many lawyers in recent days—a confusion of lawyers, in fact—and to several businesses, it is quite clear that, although the consultation is welcomed, not all are as aware of what is required as would be beneficial.

If I may, I am going to start claiming some credit for some of this, because the Minister will know that the Foreign Affairs Committee has long pressed for tougher measures to protect our vital national security interests against growing threats. In our May 2018 report entitled “Moscow’s Gold”, we highlighted the corrupt investments associated with the Kremlin, but not unique to that Mafia-style regime, that have direct implications for the UK’s national security. The sanctions regime we rejected is a welcome addition to the state’s arsenal against those who seek to damage our national security. In 2019, we went further: in our report, “A cautious embrace: defending democracy in an age of autocracies”, we recommended that the Government establish a power to block listings on the UK markets on national security grounds as a matter of urgency. The Government have now announced their intention to do so to stop companies with questionable ownership from taking advantage of UK listings.

The fact that the Bill builds on both those reports is enormously welcome. They also led us to ask some pretty important questions about how the Government could achieve their aim, because there are various elements in which those questions exposed gaps or failures in the British structure that would allow the Government to be properly informed of where to get the information. That is why I will ask a few initial questions, before the Foreign Affairs Committee spends a few weeks hearing evidence and listening to commentators on the Bill and investors, practitioners and lawyers about its application. Indeed, we may even suggest amendments.

To turn to my first question, the Government have been clear that state-owned entities and sovereign wealth funds are not inherently more likely to pose a national security risk, especially if they have operational independence in economic investment strategies. This is of course important for many countries around the world, including Norway and many others, who operate very large sovereign wealth or national pension programmes. However, regimes such as that of the Chinese Communist party use opaque ownership structures to hide state interference. Will the Minister tell us what structures will be created and legal powers given to ensure that we can draw on the expertise and knowledge of those Departments and agencies across Government, including the Foreign, Commonwealth and Development Office, to shape decisions accurately? It is clear to all of us that UK missions around the world will need to be actively involved to ensure that the information required to take decisions is provided in a timely manner.

My second question is about the fact that this Bill provides gateways for disclosure of information to my right hon. Friend the Secretary of State and disclosure by him to a public or overseas authority. What we really need to know as well is not just how much he is able to exchange, but how much he is able to draw on other intelligence agencies and other partners and particularly, perhaps, on those in democratic and law-abiding countries, including the European Union, as we will no longer be part of the investment screening regulation and we have never been part of the different agencies or regulators in the United States, Australia and many other countries. Who are the likely partners with whom he is intending to share and how will we support each other?

Thirdly, the best estimate of the impact assessment suggests that the new notification regime will cost about £49 million a year and about £425 million over 10 years. Those numbers are, of course, uncertain. The new regime is expected to result in up to 1,800 notifications a year, which is a vast increase compared with the approximately 60 notifications a year that the Competition and Markets Authority currently deals with. The Bill introduces an investment security unit that will be staffed by 100 officials. May I seek assurance that this unit will have the capacity and necessary competencies to effectively screen this high volume of transactions and to expand if notifications are more than expected? The Minister will have heard from many people that there is the possibility that voluntary notification will result in a much higher level of disclosure than anyone is currently expecting, and therefore, the 100 officials could rapidly become overwhelmed and the timelines that he has very sensibly set out, of 30 and 45 days, could become impossible.

[Mr Kevan Jones]

Does the hon. Gentleman agree that this unit or some of the individuals in it will need a high classification of security clearance? Without that, they will not be able to make informed judgments on some of these applications.

[Tom Tugendhat]

I agree entirely with the right hon. Member that what we are looking at here is a multi-agency taskforce, not a BEIS departmental body. The reason, of course, why it has to be a multi-agency taskforce is that, as he says quite correctly, the need to have access to high-level intelligence is clear, but so is the need to be able to understand the changing nature of the technology and, indeed, the changing nature of some of the individuals and groups that may be affected. It is, after all, entirely possible that a company owned one day by one individual abroad is likely to be, or is in the direction of being, controlled by a rather less salubrious individual only a few days later, and the need for such multi-agency taskforce access is clear.

Insufficient resources would of course cost delays and have a serious impact on the UK economy. Indeed, it could lead to the various obstacles that I know the Minister has been incredibly careful about avoiding, which is why he has made the scope of the Bill so narrow. I am sure that he will be able to help me in assuring me that this group will have the resources it needs. Fourthly, given the sensitivity of the cases—my mistake: I was going to repeat exactly what the right hon. Member for North Durham (Mr Jones) said, so I shall skip it. I was going to ask for exactly the same.

As this Bill makes its way through the House, the Foreign Affairs Committee will be following it closely. As I have said, we will be conducting various hearings with various people along the way in the next few weeks, and we will, I hope, be making welcome suggestions that the Minister will be able to consider. Properly implemented and with due consultation and consideration, this new investment regime should provide certainty and transparency for UK businesses and investors in this country. It is an important and valuable change to our laws to ensure that our businesses are able to prosper in the safe knowledge that the information they develop and the innovations they provide allow the happiness and prosperity of these people, our friends and our allies.

--- Later in debate ---

[Mr Kevan Jones (North Durham) (Lab)]

I was going to say it is a pleasure to follow the hon. Member for Bolton North East (Mark Logan), but I am not sure that it is. I welcome any measure that aims to protect or increase our national security. We live in an interconnected world now—a global world—in which capital is no respecter of national boundaries. We also live in a world in which nation states are using strategic investment as a way to pursue their own national interests, and there was mention earlier of the Chinese belt and road initiative.

We also live in a world in which nations or individuals use investments to launder money or to buy influence or protection, as was highlighted in the Intelligence and Security Committee’s Russia report. So the measures in the Bill are to be welcomed but, as the hon. Member for Dundee East (Stewart Hosie) said, the issues that it addresses were raised seven years ago in the ISC report on Huawei. None the less, I wish to mention a few areas where the Bill is still deficient.

The right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith) mentioned the Secretary of State’s role. A call-in will be triggered on whether a transaction creates a risk to national security. Notification takes place in one of two ways—a transaction is notifiable either under four criteria or under a voluntary system. I believe the voluntary system is fraught with administrative difficulties and needs to change. However, I want to focus on how the assessment is then made and the role that the Secretary of State plays in deciding whether a case goes forward. I do so by reference to a recent case—that of the Cobham company.

The Bill would not have prevented the £4 billion sale of Cobham to a US company, even though the Ministry of Defence had huge issues around the sale, partly because it would allow unauthorised persons to understand either the details of the MOD capacity and activities, or give them a more strategic picture of the capabilities and activities that had been built up. The MOD said that the transaction posed a risk to the existing MOD programmes if the merger entity took decisions to exit from an investment or to move offshore the associated capabilities.

At the time, Lady Cobham’s concern was that Cobham would be split into various entities and sold off—and, lo and behold, that it is exactly what is happening. It has gone from four divisions to nine, and the risks to national security were clearly evident at the time. I see nothing in the Bill that would have stopped that, because it comes back to the decision of the Business Secretary.

I am not anti-business in any way, but I am not sure that BEIS takes a view in terms of security issues, which would be perhaps more evident in the Ministry of Defence and so on. So there is an issue about who takes the final decision on such bids’ going forward. I would prefer that to be a decision of the national security committee or a sub-committee of that, so that we may have in-depth intelligence reasoning—and I accept that such decisions should be taken on national security grounds only. If we look at the United States model, we see that some very dubious decisions are taken there on national security grounds, which, frankly, are more to do with protectionism rather than anything else.

[Tom Tugendhat]

Does the right hon. Gentleman agree 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?

[Mr Jones]

I agree. There is an issue, in some of these cases, around national security. A point was raised earlier in the debate about whether the ISC should look at such decisions. Certainly there is an argument for an annual report, which I would welcome.

I said earlier that I had a fundamental problem with one individual’s taking such decisions, and I am sorry, but I do not think that the new investment security unit is the vehicle. The hon. Gentleman has referred to it as a taskforce, but unless it has national security at its heart, the push for business to get things moved on will take over, rather than what we should be looking at—national security. So decisions should not be left with the Business Secretary.

The other issue I raise is with supply chains. We all know that supply chains are now very complicated, long and diverse, from small companies right down to SMEs. I asked who will map those supply chains. We might say that small companies will self-notify, but would we miss things? There is a key role here for our security services in terms of flagging up things about particular companies, and I do not see that in this process. A small company very low down the supply chain, which may have only a very small element of either a nuclear project or a defence project, might lead to a security risk. I do not think that the new investment security unit will be able to deal with this. That is a role for our security services, which should be at the heart of this, rather than just being a member of the taskforce.

The other area I wish to focus on is in relation to the core areas. Listing them in the way that they have been listed is not helpful. For example, the term “military dual use” brings in a whole host of issues. Is a vehicle that is used for military purposes “dual use” even if it has a civilian use? Trying to define things in a list is actually very unhelpful. I would sooner come at it from the point of view of security and intelligence-driven information, which would inform the decisions that are taken. I am also a bit reluctant for things to be added to that core list by secondary legislation.

Then we come to an area that has already been touched on, which is the role of universities. The Bill mentions

“moveable property, ideas, information or techniques which have industrial, commercial or other economic value.”

When does an idea become a commercial value? I personally think that we need to be looking carefully at this. There is some perfectly legitimate and important foreign investment in our universities, and I do not want to stifle it, but if we have, for example, a Chinese or Russian company investing in a university, particularly in a research programme, is that covered by this Bill? At the initial stage, the investment goes in, but there is no actual product as such. A separate look at that needs to be part of our overall assessment, and, again, that can only be done not from a broad brush stroke approach, but from letting our security services look at some of these areas.

The other point I want to make is to do with land, which is referred to in the Bill, but, again, what is strategic? Would it be allowable, for example, for a Chinese or Russian company, or any company, to start buying up real estate with Government offices on it? The other thing that the Bill does not really cover—the Minister might say that there are measures to cover this—is the issue relating to the well-trailed arguments about the way in which Russian and former eastern European countries have used the property market in the UK, not only to launder money but to build up huge assets in terms of power and influence.

I have just two final points. One is referred to in the appeal system as closed hearings. Members may be aware of what closed hearings are. This is where intelligence, which is an informed decision, goes before a court within a closed hearing. These hearings are mainly used in terrorism-related activities or other national security cases. I would be interested to hear from the Minister in his summing up exactly how he envisages that working in relation to this Bill and how he will manage closed cases, because they are very controversial. At the moment, for example, there are a lot of legal challenges to cases when intelligence goes before the court and then it is ruled that it cannot be heard in open hearings. I just wondered what the Minister has to say on that.

My final concern is around the time limit, which I do not quite understand. It is six months from the date that it comes available to the Secretary of State. I am very opposed to anything that is retrospective, because, as has already been argued, to try to unpick these things will be very difficult. I just want to understand from the Minister the reason behind the five-year retrospection.

Yes, I welcome this Bill, but what it should have at the heart of it is security and intelligence. At the moment, there is too much emphasis on business. I am not arguing for one minute that we should get security and intelligence looking at every single investment decision. I am pro-investment, but the balance here is possibly wrong if we are trying to stop what we all want to stop, which is malign activity in our economy.

--- Later in debate ---

[Sir John Hayes]

That is true. Vulnerability, of course, is also dynamic. That is why I emphasised, in intervening on my right hon. Friend the Member for Tunbridge Wells (Greg Clark), that the Government need to get better at assessing risk and modelling the response to it. This is what the Bill begins to do. It has been a long time in the making, but I emphasise that it is welcome because it begins to look at appropriate mechanisms for doing that. So it is certainly necessary.

[Mr Kevan Jones]

Does the right hon. Gentleman agree that security and intelligence need to be at the heart of the Bill and that they should drive how we take decisions? That is why being located in BEIS might be a mistake.

[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.