National Security and Investment Bill

Lord Bilimoria Excerpts

Committee stage
Tuesday 16th March 2021 Lords Chamber

[Lord Bilimoria (CB) [V]]

My Lords, I speak to Amendments 89 and 92. Amendment 89 would require the Secretary of State to undertake a review of the impact of the Act on national security and foreign investment. Ensuring the success of this regime requires formal review. For balance, it is crucial that this review reflects both positive impacts on national security, as well as unintended consequences to foreign investment in the UK. As such, a specified periodic review by the Government would provide industry with reassurance that the regime is being formally monitored and that such consequences will be redressed, should they arise.

Concurrently, formal review would provide the Government with the opportunity to outline any positive impacts that the regime has had. Failure to formally review the regime will leave industry with little understanding of the feedback cycle for the regime. Business is committed to making a success of the regime but, concurrently, wants to know that the Government are willing to review its impact.

Amendment 92, on market guidance notes, would require that:

“Within six months of the passing of this Act, the Secretary of State must publish market guidance notes to provide information to assist with compliance of the Act”


and:

“The market guidance notes must be updated and re-published not more than every six months thereafter.”


This would ensure the success of this regime. It requires active engagement from BEIS and other government departments with industry. One critical function that the Government play here is the development and provision of detailed guidance for firms and the wider market to view and act on, ensuring compliance with the legislation. Timely provision and consequent updating of this guidance will allow firms to enter the process of notification with as much information and steer as possible, reducing the likelihood of unnecessary notification but, critically, capturing those transactions that rightly demand scrutiny. Failure to provide guidance, in partnership with key business organisations, could slow the process of notification or, importantly, lead to instances of failure to notify, where it is necessary to do so.

To conclude, the current drafting of the Bill makes its practical application difficult for business. It could lead to additional burden and complexity at a micro level and, potentially, an unintended deterrent to investment at a macro level. The CBI, of which I am president, has heard from a wide range of businesses with concerns about the Bill in its current form— from technology and digital to facilities management, pharmaceuticals, higher education, financial services and defence. As such, the Bill is of concern to a broad subsection of the business community. Although there is no doubt that national security is paramount and the first priority of any Government, we are the second-largest or third-largest recipient of inward investment in the world. Nothing in the Bill should jeopardise that, with Britain continuing to be a magnet for inward investment.

[Lord Clement-Jones (LD)]

My Lords, it is a pleasure to follow the noble Lord, Lord Bilimoria, particularly as I am speaking to the two amendments that he has spoken to, because he speaks with huge authority and considerable backing.

To start with Amendment 85, we on these Benches are very sympathetic to the cause of SMEs. Whether this is the best way of catering for the considerable issues that they will face under the Bill is a matter for debate. I would prefer to see the thresholds altered to accommodate the needs of small businesses, but the heart of Amendment 85 is certainly in the right place.

I turn to Amendment 89. As we have heard, throughout the course of the Bill’s passage concerns have been expressed about its impact and the culture of the ISU as it enforces the Bill’s provisions. As ever, my noble friend Lord Fox anticipated some of my arguments in the previous group. It is critical that a regular review is undertaken to ensure that the Act is achieving its aims proportionately while not unduly deterring foreign investment.

Other aspects of the Bill include the five-yearly review of the Secretary of State’s statement about the exercise of the call-in power under Clause 3 and, of course, the annual report that we have just been talking about, which is inadequate in many ways. It is currently envisaged in Clause 61 and, as we debated in the last group, it does not go nearly far enough. Neither provision makes any reference to the effectiveness of the overall scheme of the legislation, whether it is achieving its objectives and, indeed, whether its overall purpose is being achieved. As my noble friend said, two key questions need answering here—effectively, are we safe and is our investment climate healthy? Where in any of the Bill’s provisions is the provision for that to be considered?

Amendment 89 would require the Secretary of State to undertake a review of the Act and report to Parliament every three years. This would involve a cost-benefit analysis of the regime’s impact, as set out in proposed subsection(2)(c).

I support Amendment 92 in the name of the noble Lord, Lord Leigh, and have signed it. I am sure that the noble Lord would have introduced it with far greater panache than me. But the Minister—the noble Lord, Lord Callanan—said at Second Reading:

“Noble Lords are entirely reasonable to expect further high-quality guidance from government to help businesses and investors navigate the regime.”—[Official Report, 4/2/21; col. 2391.]


That is reassuring but, as was made very clear by David Petrie, the head of the Corporate Finance Faculty of the ICAEW—I declare an interest as a member of its advisory board—in the Public Bill Committee on behalf of the members of the ICAEW, and as the noble Lord, Lord Bilimoria, has confirmed, the most effective way of tackling asymmetry of information in the business, investment and advisory communities would be the periodic production by the ISU of meaningful market guidance notes, modelled around the practice statements that accompany the City Code on Takeovers and Mergers.

Market guidance notes would be an important way for the ISU to engage closely and on an ongoing basis with businesses, investors and professional advisers. They would signal a culture of professionalism and openness to investment in UK businesses. They would support a necessary communication and awareness campaign of the legislative requirements. By setting out in an accessible way and in consultation with business, professional and sector bodies why and how businesses may be affected, the ISU could ensure that consistent and accurate information reaches the population of businesses and their advisers. Of course, future updates could also be issued in this format.

Beyond raising awareness, issuing market guidance notes over time would help to inform market participants on what they could be doing to make sure that the process works with more certainty, speed, clarity and transparency—all these cultural things that we have been talking about throughout the Bill, things which financial markets and the wider UK economy need to see. There would be a positive impact on productivity as a result; they would help to ease potential resourcing pressures on the ISU by increasing the proportion of notifications being submitted correctly, with all relevant details included.

I hardly need to say that market guidance notes would not form part of the Act and accordingly would not be binding on the Secretary of State. They would be issued to provide informal but meaningful guidance to businesses, investors and professional advisers on matters such as the level of information required in a mandatory or voluntary notification, and they would also provide commentary on the ISU’s normal approach to various provisions of the Act and greatly assist market participants seeking to establish the extent to which the Act may apply in a particular case. The ISU can also use them to share insights into trends where this would benefit the process. They would be amended periodically, or withdrawn as necessary, without the need for legislation—so extremely flexible. Each note could indicate the date on which it was issued, and so on.

There are other details that I could provide. There is great enthusiasm for this instrument, and I very much hope that the Bill will provide specifically for these. It would be an extremely useful indicator of the way in which the ISU proposes to operate.