National Security and Investment Bill

Lord Callanan Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 4th February 2021 Lords Chamber

Moved by

[Lord Callanan]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, this Bill represents a major upgrade to the Government’s powers to screen certain acquisitions on national security grounds. Through the new investment security unit within my department, the new regime provided for by the Bill will act as a vital new tool in the Government’s armoury to protect national security in a rapidly changing world. The UK’s current powers to intervene when mergers or acquisitions pose national security threats date from the Enterprise Act 2002. Apart from some limited exceptions, businesses must have a UK turnover of £70 million or meet a share-of-supply test for government intervention.

The world is of course a very different place now compared to when the Enterprise Act received Royal Assent in November 2002. When it comes to investment, we are seeing novel means to undermine the UK’s national security that go beyond traditional mergers and acquisitions and the reach of our current powers. The case for action in this area could therefore not be clearer.

The Government have carefully considered these reforms over time. We first published a Green Paper in October 2017, followed by a White Paper in July 2018. We have further considered what powers are necessary to reflect the modern economic and investment landscape in the UK. The Bill before us today is the culmination of all that work.

However, none of the provisions in the Bill change the Government’s position when it comes to foreign investment into the UK. Simply put, the UK economy thrives as a result of foreign direct investment. Since 2010-11 over 600,000 new jobs have been created thanks to more than 16,000 foreign direct investment projects. Inward investment stimulates economic growth in every part of our United Kingdom. In 2019-20 over 39,000 jobs were created in England thanks to FDI projects, with over 26,000 over those jobs coming outside London.

We have designed the regime with business in mind. For the first time, timelines for assessments will be set out in law, not decided by the Government on a case-by-case basis. This will give businesses certainty about the length of the assessments that they are subject to, and the Government will be able to revisit decisions only in exceptional circumstances.

The Bill brings our approach into line with many of our closest allies, including the United States, Canada, Australia, France and Germany, but it does not represent any change in our appetite for investment coming into this country from overseas. I will now go through some of its main provisions. Chapter 1 of Part 1 of the Bill provides for a “call-in” power that the Secretary of State will be able to exercise if he reasonably suspects that a trigger event has taken or may take place that could give rise to a risk to national security. Any decision to use that call-in power could follow the receipt of a notification from parties, or could be a proactive choice on the part of the Secretary of State if an unnotified acquisition meets the relevant criteria.

The call-in power must be exercised within six months of the Secretary of State becoming aware of an acquisition, and within five years if he was not made aware of it. However, the five-year limit does not apply to acquisitions subject to mandatory notification. The scope of the call-in power applies to trigger events taking place from 12 November 2020—that is, the day following the Bill’s First Reading in the other place. This is to ensure that no acquisition can be accelerated to avoid scrutiny while the Bill is making its way through Parliament.

Before the call-in power can be used, the Secretary of State must lay a Statement before Parliament setting out how he expects to exercise the power. The Secretary of State published a draft of such a Statement when the Bill was introduced in the other place. I must be clear to the House that the criteria for use of the call-in power are deliberately tightly drawn on the grounds of national security, and the Government have no intention to widen this to introduce any further “public interest” criteria.

Chapter 2 of Part 1 sets out the trigger events that are subject to the scope of the call-in power. There are broadly two types of trigger events: first, the acquisition of control over entities such as companies, limited liability partnerships and trusts; and, secondly, the acquisition of control over assets, including land and intellectual property.

In respect of entities, the Bill sets out situations where the acquisition of certain levels of shares or votes constitute trigger events. I will not set out the individual thresholds to the House now, but broadly speaking they correspond to the ability of parties to pass or block types of company resolution. The Bill also retains the concept of “material influence” over an entity, as used in the Enterprise Act 2002, as a trigger event for the purposes of the Bill.

When it comes to assets, trigger events occur when parties are able to use a qualifying asset or to direct or control how it is used. Chapter 2 also sets out instances where notifying the Secretary of State of some acquisitions in certain sectors is mandatory. Again, I will not explore each one in detail, but the Government have been careful to ensure that only those scenarios where parties can reasonably self-assess whether their acquisition qualifies are captured.

Parties involved in acquisitions that do not meet the criteria for mandatory notification, but which believe that they could pose a national security risk, will be encouraged to submit a voluntary notification to the Government. The Secretary of State will need to take a decision on whether to call in an acquisition for a full national security assessment within 30 working days of accepting a notification, or instead let it proceed. Once he has taken this decision, he cannot revisit it unless false or misleading information has been provided.

To ensure that mandatory notification continues to work as envisaged in the future, the Government propose taking a power to be able to update the situations where notification is mandatory. The power would also allow the Government to exempt certain types of investor from mandatory notification requirements.

In terms of the sectors where some acquisitions will be subject to mandatory notification, the former Secretary of State published a consultation alongside the Bill introduction on the statutory definitions of the proposed 17 sectors. That consultation closed on 6 January of this year. We have had a good number of responses and I thank all of those who took the time to provide valuable insights. We are now working hard to respond to that consultation and to bring forward draft regulations for consideration as the Bill goes through this House.

I would like to stay with mandatory notification for a minute or two longer. Chapters 3 and 4 of Part 1 set out the mechanics of mandatory notification and the consequences of proceeding with a notifiable acquisition without clearance from the Secretary of State. Put simply, if parties proceed with such an acquisition, it has no effect in law. The Government recognise that this approach represents a harsh deterrent to parties that do not comply, willingly or otherwise. I will make just two points on this. First, it is vital for our national security that parties are strongly disincentivised from trying to avoid scrutiny by this regime. This is even more pressing in the sectors of the economy where the notification of certain acquisitions is mandatory. Secondly, affected parties will have recourse to apply to the Secretary of State for retrospective validation of such acquisitions, as set out in Clause 16.

Clause 15 also obliges the Secretary of State to either call in a non-notified mandatory acquisition or retrospectively validate it once he becomes aware of it, if no national security risks arise. Clause 17 obliges him to retrospectively validate a non-notified acquisition if it is called in and subsequently cleared to proceed. The Secretary of State cannot, in other words, simply allow an acquisition to remain void once he becomes aware of it: he must take action, either to grant clearance and retrospectively validate it, or impose remedies. It has to be this way around: that is to say that non-notified acquisitions should be able to be retrospectively validated, rather than retrospectively invalidated.

The remainder of Part 1 provides for a voluntary notification mechanism whereby parties can formally submit a notification to Government. As with mandatory notification, once the Secretary of State has taken a decision to let an acquisition proceed, he cannot revisit that decision unless false or misleading information has been provided. The Government are committed to giving parties clarity when it comes to this regime and voluntary notification is a key part of that. The Bill also provides for information-gathering powers for the Secretary of State to be able to come to fully informed decisions. There are also safeguards on the use and disclosure of such information.

I turn to Part 2, which provides for the assessment process and any remedies following a call-in. The Bill provides for an initial assessment period of 30 working days once a call-in notice has been given, with an additional period of 45 working days. A further voluntary period is possible if certain criteria are met. I believe this represents a significant improvement on the current process under the Enterprise Act 2002, whereby the Secretary of State sets the assessment timetable on a case-by-case basis. For the first time, timelines for assessment will be set out in statute so that investors can build them into their own plans.

In the course of the assessment period, the Secretary of State may wish to impose interim orders to mitigate any national security risks that could arise as he undertakes this investigation. Such orders could be imposed, for example, to stop or prevent parties doing certain things that they would normally do prior to completing an acquisition, such as exchanging sensitive information. At the end of the assessment period, the Secretary of State must either give a final notification to allow the acquisition to proceed, or a final order if he believes that national security risks could arise as a result of the acquisition. All orders must be kept under review and parties are free to request that they are varied or revoked.

The Secretary of State will be supported in making decisions by the investment security unit which, as I said earlier, is being set up within my department. This new unit will be fully resourced to manage the administrative process for screening notifications and undertaking national security assessments. It will draw on expertise from across government and from the security services. If noble Lords permit, I will go through the rest of the Bill a bit more swiftly as I know there are many who wish to speak in this important debate.

Part 3 provides for a range of offences, along with associated criminal and civil sanctions, although I expect criminal cases in relation to offences committed under the regime to be exceptionally rare. Parties will, of course, have recourse to judicial review in relation to certain decisions made under the regime. Parts 4 and 5 of the Bill contain a number of miscellaneous provisions. Clauses 54 to 56 provide for smooth and timely information sharing when relevant between the Government and overseas public authorities, HMRC and the CMA. These are important clauses to ensure that time is not lost to administrative red tape and that information is appropriately handled.

Clause 61 provides for an annual report to Parliament, which will provide details of the number of notifications received, the number of call-in notices given and the sectors of the economy where they were served, among others. I will return finally to the fundamentals of the Bill before us. It is imperative for any Government to have the tools they need to protect national security in what is a rapidly changing world. This Bill will keep the British people safe. I beg to move.

--- Later in debate ---

[Lord Callanan (Con)]

My Lords, I thank all noble Lords for their contributions on this important Bill. There is clearly a wealth of expertise on this subject across the House and, as is usual in your Lordships’ House, we have had a thorough and engaging debate, with thoughtful speeches coming from all corners of it.

I start by congratulating the noble Lord, Lord Woodley, on his excellent maiden speech. It is a pleasure to see him in his place today, and I am glad that he has chosen this debate to make the first of what I am sure will be many well-informed contributions. I am glad, too, to have his support for the Bill.

I was contemplating what I had in common with the noble Lord, despite our obvious political differences. We are both from the north, him being from the north-west and me from the north-east; we are both football fans, the noble Lord being a fan of Vauxhall Motors, while I am a fan of Newcastle United; and of course we both have reasons, although different ones, to be profoundly grateful to Jeremy Corbyn. I wish him well, as I do Vauxhall Motors, which, it seems, was on a fine run of form before being stopped in its tracks by the latest national restrictions. Listening to the comments of the noble Lord, Lord McNicol, it seems that his all-weather football pitch would be particularly appropriate on a day like today.

I will do my utmost to respond to as many as possible of the issues raised, but, as always, my door is open to anyone who wishes to discuss the Bill further as it goes through the House.

I thank the noble Baroness, Lady Hayter of Kentish Town, and the noble Lord, Lord Grantchester, for the constructive tone in which they delivered their speeches. I am glad that a sort of consensus is emerging across the House that the Bill is the right step forward. I even find myself in the very unusual position of having the support of the noble Lord, Lord Rooker, and that self-declared old lefty, the noble Lord, Lord Foulkes—two of my most trenchant critics on other pieces of legislation. These are indeed strange times. I reassure the noble Lord, Lord Foulkes, that I am indeed proud to introduce this Bill, so he can put his mind at rest there.

I turn, first, to the concerns expressed about the investment security unit being within my department and its potential caseload—a point raised by the noble Baroness, Lady Hayter, and other noble Lords, including the noble Lords, Lord Reid of Cardowan, Lord Dodds of Duncairn, Lord Bilimoria, Lord Rooker and Lord Bruce. I assure them and the noble Lord, Lord Grantchester, who also raised it, that the unit will not work in isolation from the rest of government and will not in any way compromise on its duty to put national security first.

When it comes to the operation of this regime, we will not have informational barriers with other government departments. We will work closely with them to ensure that we use skills and experience from right across government. We will, though, have appropriate walls in place with those responsible for promoting investment —some walls but not others. Indeed, other departments and the security services are actively contributing to the design of the unit, thus ensuring that the plans for it take a cross-governmental approach. We have worked closely with our allies around the world on how to create an investment screening process fit for the 21st century.

I reassure noble Lords such as the noble Lords, Lord Bruce, Lord Fox and Lord Rooker, that the unit will be fully resourced to ensure that the Government provide a slick and predictable process for all parties involved. Officials will have a mix of national security, business and casework experience. The noble and gallant Lord, Lord Stirrup, spoke forcefully about the importance of having that mix of expertise, and my noble friend Lord Holmes emphasised that important point.

On the caseload for the investment security unit, I stress that the Government expect a fraction of acquisitions across the economy to be affected by the new regime. Once it beds in and investors become familiar with the process, we expect the number of notifications to decrease further. Of the transactions notified, we expect that fewer than 10% will face a detailed national security assessment and, of those facing one, only a small proportion will likely result in government intervention. We have been clear that businesses and investors will be encouraged to come to the investment security unit in advance of any formal notification, allowing for early discussions with officials about deals, although any final decision will be for the Secretary of State.

A number of noble Lords raised concerns about the impact of the regime on business investor confidence, including in relation to small and medium-sized businesses —a point made by the noble Viscount, Lord Waverley. Among those who also spoke on that issue were my noble friends Lady Noakes, Lord Leigh of Hurley and Lord Vaizey, the noble Lords, Lord Clement-Jones, Lord Reid, Lord Bilimoria and Lord Bhatia, and the noble Baronesses, Lady Bennett of Manor Castle and Lady Ritchie of Downpatrick. The Government are committed to making the regime work for business. We have already published guidance for business on GOV.UK that sets out how the process is intended to work.

Noble Lords are entirely reasonable to expect further high-quality guidance from government to help businesses and investors navigate the regime. My noble friend Lord Hodgson of Astley Abbotts was right to raise that point. On the issue of prepacks, I am pleased that he received my letter in time for this debate and I look forward to further discussions. I know that he has strong views on that subject. That is why we will bring forward further guidance well in advance of commencement to give businesses as much clarity as is meaningfully possible on how the regime will function in practice. We will work directly with businesses and their representative organisations to make sure that we get that guidance right.

More broadly, the Government will never stand in the way of innovative, high-potential businesses setting up in the UK. Our record demonstrates that. Our investment in the British Patient Capital fund has attracted £1 billion of venture capital investment to date and we will continue to invest. By investing alongside the private sector, British Patient Capital aims to support £7.5 billion-worth of investment for British businesses. We have also announced a £7 billion investment in R&D over five years as a first step towards our target to raise total R&D investment to at least 2.4% of GDP by 2027 and 3% in the longer term.

Many noble Lords spoke about introducing a definition of “national security”, including my noble friends Lady Noakes and Lady McIntosh of Pickering, the right reverend Prelate the Bishop of St Albans, the noble Baronesses, Lady Northover, Lady Ritchie of Downpatrick and Lady Jones of Moulsecoomb, the noble Lords, Lord Fox, Lord Clement-Jones, Lord Reid of Cardowan, Lord McNicol of West Kilbride and Lord Bruce, and my noble friend Lord Holmes of Richmond. The Bill does not set out the circumstances in which national security is or may be considered at risk. That reflects long-standing government policy to ensure that national security powers are sufficiently flexible to protect the nation. National security risks are multifaceted and constantly evolving. What may not constitute a risk today may do so in future. I am glad that my noble friend Lord Lansley and the noble Lords, Lord Truscott and Lord Desai, recognised that point. The ability of the Secretary of State to safeguard national security would be limited if the Bill set out the circumstances in which national security is, or may be considered to be, at risk. By defining what national security is, we would, of course, also define what it is not. This could have grave implications and deliberately show hostile actors where the Government could not intervene. It would also have unintended consequences for other national security legislation.

The noble Baroness, Lady Hayter, and the noble Lords, Lord Grantchester, and Lord West of Spithead, spoke eloquently on the issue of parliamentary scrutiny with a particular emphasis on a role for the Intelligence and Security Committee in overseeing the work of the regime. I am grateful for the discussion that we had with the noble Lord, Lord West, last week.

As I set out in my opening remarks, Clause 61 provides for an annual report to Parliament, which will be crucial in ensuring parliamentary scrutiny of the work of the investment security unit and the broader functioning of the regime. The Government will very much welcome the Intelligence and Security Committee’s review of the annual report. There are of course no restrictions on the committee requesting further information from the unit or the Secretary of State. Parliament will also be able to scrutinise the Statement, as was mentioned by the noble Baroness, Lady Bowles of Berkhamsted.

The former Secretary of State laid a draft of the Statement on introduction in the other place and we would, of course, welcome Parliament’s views on its content. We will carefully consider these views and look to reflect those in the next draft of the document, which will be published for formal public consultation, where the Statement can be fully scrutinised.

Many noble Lords spoke about the sectors subject to mandatory notification, including how they interact with other critical national infrastructure sectors. Considered arguments on this point were made by my noble friends Lady Noakes and Lord Naseby, and the noble Lords, Lord Clement-Jones, Lord Reid, Lord Woodley, Lord McNally, Lord Truscott, Lord Rooker and Lord Foulkes. The list of proposed sectors covered by mandatory notifications has been carefully developed across government, with input from all relevant departments and from the intelligence agencies. Put simply, the Government have sought to identify the sectors where certain types of acquisition could give rise to the greatest risks, while balancing this against the need to minimise the burdens on business.

As I set out in my opening remarks, we are working hard to bring forward regulations in time for your Lordships’ consideration. Some sectors, including water, as raised by my noble friends Lady Noakes, Lord Lansley and Lady McIntosh of Pickering, are part of our critical national infrastructure. However, the Government consider that other safeguards provide sufficient protection to not require their inclusion in the mandatory notification sectors. In the water sector, for example, water supply and sewerage licenses are granted by Ofwat based on an assessment of a potential operator’s managerial, financial and technical competencies. Regardless, the Secretary of State will be able to call in acquisitions of control across the economy where the legal test is met. As such, not being in a mandatory notification sector does not mean that acquisitions of control over water, financial services or other critical sectors are exempt from the regime altogether.

Given some of the appalling news around at the moment, it was right that many noble Lords spoke forcefully about human rights—my noble friend Lord Robathan, for example—particularly the situation in Xinjiang. As noble Lords will be aware, the Foreign Secretary made a Statement in the other place setting out a series of measures that the Government are taking in response. The Government are gravely concerned about the human rights situation in Xinjiang. There is growing evidence of large-scale forced labour in the region, alongside the use of extrajudicial political re-education camps and severe pressure on religion and culture. We have been clear that we want a mature approach to China and that we must work together to address global challenges, but we will never hesitate to stand up for human rights as a force for good in the world.

Finally, a number of noble Lords raised the question of the effect of the regime on academia and universities, citing concerns raised by the Russell group. These included the noble Lords, Lord Clement-Jones, Lord Reid of Cardowan, Lord Bilimoria, Lord Desai and Lord Grantchester, and the noble Baronesses, Lady Bowles of Berkhamsted and Lady Ritchie of Downpatrick. I assure them that my officials have been engaging closely with the Russell group; we will continue this engagement as the Bill goes through the House to ensure that universities have smooth engagement with the new regime where necessary.

I thank all those who have spoken today and reiterate what I said in my opening remarks: this Government will always be absolutely committed to the free flow of trade and investment. The Bill does not change that; rather, it is a vital upgrade to our current powers that will keep the British people safe. I look forward to discussing it further in Committee but, for now, I commend it to the House.

Bill read a second time and committed to a Grand Committee.

National Security and Investment Bill

Lord Callanan Excerpts

Committee stage & Lords Hansard
Tuesday 2nd March 2021 Grand Committee

[Baroness Hayter of Kentish Town (Lab)]

My Lords, it was clear at Second Reading, and again today from when the noble Lord, Lord Fox, began, that everyone across the House agrees that national security is the number one priority.

The discussion therefore is twofold. First, will what is, and is not, covered in this legislation be clear enough? Secondly, is the balance between security needs and the desire for economic growth, research, innovation and freedom to invest, correctly delineated? On the first issue, it is obvious that the new regime must be based on the best advice coming from across government, as well as on emerging and current threats, and the behaviour and developments of our adversaries. We will come in the next group to the definition of national security.

This first amendment is focused more on the second question that I posed. Will the unit take sufficient account of technology investment, research and innovation, and business opportunities, particularly for SMEs? From everything said at Second Reading and even today, that is an important discussion. We should not expect the Bill, nor its new unit, to be the generator of investment, research and development—that is for an industrial strategy—but the Government must have a careful eye on whether the workings of the Bill have a detrimental impact on technology investment and innovation, while ensuring that the economy does not override security interests. That is a difficult judgment. If it were not, there would never be any problems for the Government to solve.

I read today—others may already have been aware—of possible changes to the listings regime to help the City compete with New York, Amsterdam and Frankfurt in attracting fast-growth companies by creating an “agile” new economy focused on innovation and technology. We welcome such moves and attention being given to making Britain a more attractive place in which entrepreneurs can take companies public.

We hope that the proposals emanating from one of our colleagues, the noble Lord, Lord Hill, on relaxations on the use of dual-class shares, to allow founders to keep control over their companies by giving them deciding votes on decisions such as corporate takeovers, could work in harmony rather than at variance with the objectives of the Bill. I hope there will be an opportunity to discuss those interplays as we go forward.

In the meantime, we will consider future amendments that will look at whether the right procedures, definitions, timelines and so on strike the right balance as to workability in making those fine judgments between security and economic interests. However, this amendment is calling for the Secretary of State to be required to have regard to those other interests. The Minister will say that, of course, he or she is bound to do so. However, it is a question on which some assurance is needed and we look forward to the Minister’s view on that.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I am grateful to noble Lords, Lord Clement-Jones and Lord Fox, for their introductions to this debate. I thank them for proposing this new clause and for enabling a further discussion on the purpose of the Bill.

Amendment 1 seeks to establish an objective for the Bill and include a number of elements to which the Secretary of State must have regard when using his powers. Let me say at the start that the intent behind this amendment is to provide a clear statement of the scope of the Bill, to prevent so-called mission creep and give certainty to businesses and investors, while avoiding the pitfalls of attempting to define “national security”. However, the legal effect of the amendment presents us with a number of challenges.

The amendment would require the Secretary of State when exercising his powers under the Bill to safeguard national security in respect of economic and social harm, which is reasonable. It is indeed possible that economic or social harms could give rise to risks to national security, but so could other harms such as physical or military harm. For example, a hostile actor could use control over a piece of critical infrastructure to put UK citizens in physical danger or they could acquire companies in the UK defence supply chain and thereby degrade our military capabilities.

The absence of other harms in the factors listed by the amendment suggests that the Secretary of State may not use his powers under the Bill to safeguard national security from those harms that I have outlined. It is also unclear how he should have regard to the factors in subsection (3) of the proposed new clause. As the amendment does not say that they are to be regarded as part of national security, that would suggest the scope of the Bill is being expanded beyond national security. It is important to note that the government position on the issue of defining, wholly or in part, “national security” remains consistent with when amendments in a similar vein to this were discussed at Second Reading and in the other place; I have discussed that with the noble Lord, Lord Fox, previously. The Bill does not set out the circumstances in which national security is, or may be, considered at risk. That reflects long-standing government policy to ensure that national security powers are sufficiently flexible to protect the nation. It also does not include factors which the Secretary of State must or may take into account in assessing national security risks on the face of the Bill.

While it is crucial for investor confidence that there is as much transparency in the regime as possible, there is clearly a limit to how much the Government can and should disclose in this regard, given that the regime deals explicitly with national security matters. National security risks are multifaceted and constantly evolving. What may not constitute a risk today may well do so in future. We may find over time that such specificity becomes outdated. Indeed, as my noble friend Lady Noakes pointed out, it is enough of a challenge to ensure sufficient specificity in the objectives of the Bill, especially with regard to concepts such as those referenced in the amendment.

While I have nothing but gratitude for the noble Lord’s intention—to provide a specific objective for the Bill—it is primarily for the reasons I have set out that I am unable to accept the amendment, and hope that in the light of that he feels able to withdraw it.

--- Later in debate ---

[Lord Lansley (Con)]

My Lords, like other noble Lords, I spoke at Second Reading and referred to this question. Together with the noble Lord, Lord Truscott, I took the view that there were inherent problems in attempting a definition of national security and that the best definition is rendered through the Bill as it stands. Once one defines the nature of an entity, the nature of the assets covered, the nature of the acquirer concerned and the extent of control—or the definition of control for these purposes—I think one arrives at what a trigger event is. By definition, a trigger event gives rise to the question: does this trigger event cause a problem for national security?

I do not dispute that large numbers of consultees to the White Paper and speakers in our debates have said that it would be very helpful to define national security and—I would expect nothing less from her—the noble Baroness, Lady Hayter, has done as well as one is likely to do. However, I fear that Amendment 13 in particular demonstrates all the flaws with providing such a definition. I will not seek to delay our debate too long, but I will go through a number of them.

The noble Baroness asked whether critical national infrastructure was included. In Amendment 13, critical national infrastructure is included but not defined. We do not know which bits of national infrastructure are in the regime and which are outside it. We know, broadly, the sectors in the scope of the mandatory regime even if we have further detail and amendments to them today. However, if I look at what the Government have published, I find the nuclear industry, the communications industry, data infrastructure, energy infrastructure and transport infrastructure, including ports, harbours and airports. I do not find water infrastructure and food security infrastructure. That is the question and, with the greatest respect, Amendment 13 does not answer whether they are in or out.

We will come on to debate these things but it slightly introduces the concept of whether we are using the EU regulation. My noble friend Lady McIntosh referred to it. The EU regulation includes food security and water. Even if we do not follow the EU lead, which of course now we will not be doing, it at least gives us an interesting list to work from and to question why there are differences.

This brings me to Amendment 2. One of the other differences between our proposed legislation here and the EU regulation is that the EU regulation says that it proposes to safeguard against threats to security and public order. Amendment 2 proposes including public order. However, the European investment screening regime includes freedom and pluralism in the media as one of its investment screening criteria. We are not including that in the Bill. Why are we not including it? It is already in the media public interest regime inserted into the Enterprise Act by the Communications Act 2003, on which I served. I also served on the Enterprise Act Standing Committee in 2002. In that sense, we are not pursuing a public order regime here; we are pursuing a security regime.

I now come to some of the other issues with Amendment 13. Proposed new paragraph (c) talks about the characteristics of the acquirer. If you were to say to me that in my little definition of what constitutes a security risk, we have definitions of the natures of the entities and assets concerned and quite exhaustive definitions of what constitutes control, I would say that what we do not have are definitions of the nature of the acquirer, other than that, presumably, it is hostile in intent.

Amendment 13 effectively tries to give us a list of the trigger events that might give rise to an intervention. In some senses, the amendment is far too narrow. There may be all sorts of unanticipated trigger events that would not be included in primary legislation through this amendment. In other respects, it might be far too wide. Proposed new paragraph (c) talks about

“the characteristics of the acquirer, including whether it is effectively under the control, or subject to the direction, of another state”.

There are virtually no Chinese entities for which that is not true. There are many American corporations for which one could say that that was true. One could certainly say the same of a number of state-owned European companies, including EDF and those engaged in our national infrastructure. What does proposed new paragraph (c) tell us? Does it tell us whether those characteristics are a threat to national security or not? It does not tell us either of those things; all it tells us is that we must have regard to them. We know that Ministers will have regard to them because they are having regard to that kind of issue. It does not get us very far.

The same is true on three occasions, in proposed new paragraphs (a), (e) and (f), which refers to

“the likely impact of the trigger event on”.

It does not say whether the impact is adverse, beneficial or on security. Therefore, almost by definition, all that Amendment 13 tells us is that Ministers should have regard to trigger events in relation to these activities, whether they relate to data or defence capabilities. That is what Ministers are setting out to do.

In a couple of respects, Amendment 13 takes us further than we were intending to go in the Bill. The idea that non-compliance with our international obligations is, by definition, a security risk to the United Kingdom seems to be misplaced. It may be a matter on which we have obligations or be of great policy importance but one cannot construe that compliance with our international obligations in every respect is a security risk to this country.

I am afraid that one also has to look at proposed new paragraph (h), which asks

“whether the trigger event may adversely affect the safety and security of British citizens or the United Kingdom”.

It does not say “British citizens in the United Kingdom”. For example, there are hundreds of thousands of British citizens in South Africa. I was in Natal a few years ago, where there are 500,000 British passport holders, many of whom are British citizens. Are they, by definition, therefore included in this security investment regime?

All that I seek to demonstrate is that although Amendment 13 is a helpful effort, trying to define all the trigger events is bound to fail. Therefore, we should focus on making sure that the listing of entities and assets—as, for example, those published today by the Government—is as good as we can make it, and we will have some debates on that. We should define control properly—not too broadly or narrowly—and we should understand what kind of acquirers we are talking about. We will talk about whether something is foreign or domestic, state or non-state, or hostile and in what circumstances. That is where the lack of definition in the Bill is as yet more important. I refer to the question of what kind of acquirers. I hope that we will talk about that matter in later debates but, for the present, I cannot see the merit of adding Amendment 13 to the Bill.

[Lord Callanan (Con)]

I thank all noble Lords who have taken part in this debate. Let me first say to the noble Baroness, Lady Hayter, that I anticipated that she might be a little critical—in her normal, super-polite way—about the letter coming out late. There were some delays in the internal approval process and, faced with a choice of whether to send it out now or wait until after Committee, I thought that, on balance, it was best to get it out to noble Lords. I was fully aware that when I arrived today, some noble Lords might have criticisms for me, but I thought they would like to see the letter rather than not see it before we started Committee. I hope that during a lull in proceedings, Members might have a chance to read the letter—all 100-odd pages of it.

I am grateful to the noble Baroness, Lady Hayter, as well for her amendments to Clause 1 and after Clause 5, which are Amendments 2 and 13 respectively on the Marshalled List, and I give my combined thanks to her and the noble Baroness, Lady Northover, for the proposed new clause relating to the integrated review.

I will begin with Amendment 2, which would expand the scope of the Bill to include public order and public safety, in addition to national security. The noble Baroness, Lady Hayter, is of course right that public order and public safety are exceptionally important and some of the highest priorities for any Government. However, the Bill is about national security—nothing more, nothing less. Including public order and public safety as grounds for calling in an acquisition would be a substantial expansion in the scope of the Bill, as has been pointed out. We do not wish to see any additions to national security, to ensure that we maintain the careful balance struck in this regime between the appropriateness of government powers for intervention and ensuring that the UK remains one of the best places in the world for investment.

In addition, I note that the regime has been carefully designed with the protection of national security in mind and not public safety or public order, as important as they of course are. For example, the trigger event thresholds in Clause 8 are calibrated to protect against activity that could harm national security due to an acquisition of control over a qualifying entity. It is far from guaranteed that these would also protect against risks to public order or public safety, or that they would be the most effective or proportionate way in which to do so.

For example, a certain type of investment may give rise to a risk to public safety or public order only if an entity were bought in its entirety or if, conversely, any investment could harm public order or public safety. Of course, there may be situations in which a risk to public safety or public order is considered to give rise to a risk to national security as well. I assure Members of the Committee that, in such cases, the Secretary of State will be able to call in the acquisition in question if it meets the tests in the Bill, and will be able to take action if appropriate.

I will pick up on a specific issue raised by the noble Baroness, Lady Hayter. The Bill would apply where a qualified acquisition could undermine democracy in a way that amounts to a national security risk.

Amendment 13 seeks to create a non-exhaustive list of factors which the Secretary of State must take into account when assessing a risk to national security for the purposes of the Bill. It will not come as a great surprise to the Committee to hear that the Government’s position on this issue remains consistent with their position when amendments related to this one were discussed on Second Reading and in the other place.

As drafted, the Bill does not set out the circumstances in which national security is, or may be, considered at risk. That reflects long-standing government policy to ensure that national security powers are sufficiently flexible to protect the nation. It also does not include factors which the Secretary of State must or may take into account under the Bill in assessing national security risks. Instead, factors which the Secretary of State expects to take into account in exercising the call-in power are proposed to be set out in the statement provided for by Clause 3. A draft of that statement was published on introduction of the Bill, to aid noble Lords in their parliamentary scrutiny. The draft statement includes details of what the Secretary of State is likely to be interested in when it comes to national security risks. That includes certain sectors of the economy, and the types of acquisitions that may raise concern.

While it is crucial for investor confidence that there is as much transparency in the regime as possible, there is obviously a limit to how much the Government can and should disclose in that regard, given that the regime deals explicitly with national security matters. Nevertheless, the draft statement goes into some detail about the factors which the Secretary of State expects to take into account when deciding whether to call in a trigger event. The proposed new clause would instead create, alongside this statement, a non-exhaustive list of factors which the Secretary of State must have regard to when assessing a risk to national security.

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[Lord Fox (LD)]

During that comprehensive answer, I think I heard the Minister say something and I would like to test whether I understood correctly. In explaining why people should not be concerned that certain parts of infrastructure are not included in the list, I think I heard the Minister say that the Bill’s call-in power is economy-wide. That suggests to me that the list of 17 issues is irrelevant because everything is on the list. In other words, anything can be called in, whether it is on the list or not. So, the list is merely indicative, but the exhaustive list is the entire economy. Could the Minister explain whether that is the correct interpretation of what I just heard?

[Lord Callanan (Con)]

If the acquisition in question poses a risk to national security, yes, there is the general power, but the point I was making is that, with regard to areas of political and national infrastructure, there are also separate powers in different pieces of legislation that would help to protect in those areas.

[Baroness Hayter of Kentish Town (Lab)]

First, I thank everyone for their contributions, which I found extremely helpful and thoughtful. In particular—this will not surprise the Minister—the Minister confirmed that it would be possible to call in any threat to democracy or anything like that. I am sorry he did not feel able to answer on when exactly the integrated review will be published, but we live in hope.

I was a bit disappointed that the Minister said that he did not want to define national security because it was long-standing government practice not to. My heart sank at that point, thinking that the Minister must have a better reason. Luckily, he did and he gave us answers other than, “It’s always been done that way”, which always seems to me a really bad answer. I am not saying I was completely persuaded by his answer, but it is a thoughtful and useful way of thinking about how we approach this. I hope it is not just because the Government would fear a JR if there are words that could be challenged over whether something should or should not have been brought in.

My fear is about the difference between the list and the call-in power. As the list will be mandatory, people will know what they have to do. Where investors, researchers or companies will probably have the biggest fear in respect of the call-in power is that they will not know in advance. I hope that we will come to the possibility of either safe harbours or a quick turnaround—though that does not get over the call-in power—because that seems the area of greatest uncertainty. We will probably have to return to that. In a sense, it is the same issue when it comes to critical national infrastructure. I guess I should leave it to those far more experienced in infrastructure to know whether those comments are helpful.

We heard a thoughtful and challenging response to the amendment from the noble Lord, Lord Lansley. If I understood him correctly, he suggested that we start at the back end: we discuss the assets; we discuss the acquirer; we look at the definition of control—which is the end part of the Bill—and use that to define national security in the front part of the Bill. I am bemused by whether that is the right way round; it may be, but by the time we have defined it, we may have got to it. It seems an odd way round to do things to have a Bill that has “national security” in its title and then to have to work through “Well, if it is that sort of asset owned by that sort of people to that sort of percentage” to decide that it comes into the category of national security. However, I want to read more carefully what the noble Lord said because the elements appear to be there, but it seems slightly upside down. The noble Lord also said:

“We know that Ministers are going to have regard … to that kind of issue.”


If we do, what is the harm in writing them down? He may know that Ministers would have regard to those issues, but will everyone else know what they are?

I have a lot more to think about having heard the wisdom expressed today. It is possible that we will want to come back to this issue on Report—maybe in a more refined way; I am sure that those who have read the Commons debates carefully will have noticed that my words were not all of my own drafting. I thank everyone who has contributed—more sincerely, perhaps, than in other debates. I beg leave to withdraw the amendment.

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[Lord Grantchester (Lab)]

I thank the noble Lord, Lord Vaizey, for these probing amendments relating to the penalty of deeming mergers and acquisitions void in the event of proper notifications and subsequent assessments by the Secretary of State not having taken place. The Minister will need to explain how this will work. Most of the amendments in this group focus on Clause 13, “Approval of notifiable acquisition”, in Chapter 3. Subsection (3) states that:

“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 appreciate the view of the noble Lord, Lord Vaizey, that there could be alternative outcomes to certain elements or aspects of any deal. Has the Minister considered whether the Secretary of State could publish guidance on how the mechanisms of deeming non-compliant transactions void would work in practice? Clarity for SMEs would be most helpful.

The ability for transactions to be deemed void where they have not been approved by the Secretary of State, have not been notified or are non-compliant with any final order could have large repercussions. Clause 15, “Requirement to consider retrospective validation without application”, and Clause 16, “Application for retrospective validation of notifiable acquisition”, raise the issue of retrospection in relation to the legally void provision. Could transactions that took place in the past, even up to five years previously, 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 transactions’ parties in total confusion. There could be conditions in a transaction that came to fruition or were exercisable over a length of time, with these events deemed the trigger events rather than the merger itself. Those elements would have had impact at the inception of any M&A activity. An impossible series of rights, entitlements and developments would have to be unwound, which would cause great legal uncertainty.

The noble Lord, Lord Vaizey, also raised the issue of other jurisdictions or cross-jurisdictions. Have these circumstances, among the many others, been considered in the provision of this power? What are the legal implications for the process where the possible imposition of a transaction to be void is under consideration? Have the Government made plans to publish guidance in this area, even though they may consider that circumstantial evidence may make such guidance highly speculative? Many speakers have found the provision impractical and unworkable.

[Lord Callanan (Con)]

My Lords, first, I apologise for my noble friend Lord Grimstone, who has had to attend a debate on Kenya in the Chamber. I am afraid you are stuck with me for this one, which is obviously disappointing for the noble Lord, Lord Fox. I thank all noble Lords who have contributed.

We understand the aim of this group of amendments, which is to convert the automatic voiding provisions in Clause 13 into powers to void. Further amendments in this group then seek consistency with associated provisions in the Bill. I thank the noble Lords, Lord Vaizey and Lord Hodgson, for bringing together this grouping. I will first address the purpose of the automatic voiding provisions, before turning to the amendments in detail.

Notifiable acquisitions are those that occur within the most sensitive areas of the economy—sensitive enough that the Secretary of State judges that he must be notified and must clear an acquisition to proceed before it can complete. As such, it is essential that there are clear incentives for compliance with the regime and that any national security risks arising from these sensitive acquisitions being completed without approval are mitigated, as far as possible. Noble Lords present will understand that any Government’s first preference in legislating to create requirements on persons, particularly where the matters relate to serious issues such as national security, is that compliance with such requirements is incentivised and that we do not merely rest on the threat of weighty enforcement.

The automatic voiding provisions in Clause 13(1) mean that there is no way around these requirements and that parties who wish to evade the requirements are unable to complete acquisitions which must be approved by the Secretary of State and have not been. This ensures that the regime mitigates a wealth of national security risks, without the Secretary of State ever being engaged. It is efficient and effective government, and a key tool in protecting our national security.

However, voiding is not a sanction; it is instead the logical implication of not complying with a mandatory regime that concerns only the most sensitive acquisitions. Clause 13(3) ensures that any notifiable acquisition in respect of which a final order has been made, which has been completed otherwise than in accordance with the final order, is also void.

I understand that the voiding provisions have raised some concerns, as outlined by my noble friend Lord Vaizey, that the unaware may be unduly or adversely affected, which would otherwise lead to significant costs for parties who are affected by voiding. I hope that I can offer them the following reassurance. First, those who have been materially affected by the voiding of an acquisition, including sellers and third parties, not just acquirers, may apply for retrospective validation of the acquisition using Clause 16. If a valid and complete application is received, the Secretary of State will have up to 30 working days to decide whether to issue a call-in notice. If he does not issue a call-in notice, for example if there are no national security risks involved, he must validate the acquisition retrospectively. The impact of retrospective validation is that the notifiable acquisition is to be treated as having been approved by the Secretary of State and is, accordingly, not void. Anyone materially affected by the voiding, including those unaware of the requirements, is therefore able to secure retrospective validation, such that the acquisition was always valid in law.

Secondly, there are concerns around what happens if a significant purchase of shares in a publicly listed company is caught by the provision. Usually, for significant purchases, parties are advised by a law firm of high repute. I can also assure the Committee that, where the acquisition involves a takeover, BEIS works closely with the Takeover Panel to ensure the there are no issues in the interaction with the takeover code.

Thirdly, there are murmurings that the voiding provisions might create uncertainty. I do not think that Clause 13 could be clearer and more succinct about the effects of not obtaining the approval of the Secretary of State before completing a notifiable acquisition.

Let me now respond to the heart of the proposition of the amendments in this grouping—that voiding should be exercisable as a power by the Secretary of State, rather than being automatic. I am afraid this raises a number of issues. It is, first, unclear why and when the power to void would be exercised. The Secretary of State is already able to order the unwinding or divesting of acquisitions, following assessment as part of the final order. Why would he need to void the acquisition if it can simply be unwound or divested? Would it be intended that the Secretary of State would decide whether to void the acquisition prior to the assessment? If so, on what basis would he make that decision?

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[Lord Leigh of Hurley (Con)]

Does my noble friend the Minister recognise that some countries allow voiding? He pointed out some that do not, but some do. Does he agree that if a transaction is voidable, it could still be declared void?

[Lord Callanan (Con)]

Could my noble friend repeat the question please?

[Lord Leigh of Hurley (Con)]

If the legislation says a transaction is voidable, it could still be declared void.

[Lord Callanan (Con)]

Yes, but we are arguing it should be declared void by automatic obligation of statute, rather than it being a power the Secretary of State could exercise. I have just explained that.

[Lord Vaizey of Didcot (Con) [V]]

Although I mentioned it at Second Reading, I refer noble Lords to my entry in the register of interests. Also, as noble Lords have done throughout Committee, I thank all the trade bodies that have been so helpful in advising noble Lords on some of our amendments and, particularly, for me, Veronica Roberts at Herbert Smith Freehills. Just for the record, may I also say how delighted I am that it is the noble Lord, Lord Callanan, responding on my amendment rather than the noble Lord, Lord Grimstone? I had a touch of the noble Lord, Lord Grimstone, on my previous amendment, and now, to have the noble Lord, Lord Callanan, frankly, my cup runneth over.

I thank all noble Lords who have supported my amendment. Without wishing to pick any winners, I thought that the noble Baroness, Lady Noakes, put it most succinctly when she spoke of the automatic voiding penalty. She channelled her inner football commentator by saying the automatic voiding was a “massive penalty”. I think that is right. I also point to the noble Lord, Lord Leigh, who has been very good at introducing me to the mysteries of Lords amendments and has marshalled me extremely well. These amendments pose an unanswerable question to the Minister, because if they are accepted and a transaction can be made voidable, it can, by definition, be voided. It is just not automatic. It ensures voiding can apply where the Government think that is the only solution with a transaction that has not been notified.

In the real world, it is unlikely that a mandatory notification would not be made. The tenor of most of the speeches that have been made during the passage of this Bill is that the Government should expect far more notifications than they have estimated so far. The Minister is quite right to say that anyone transacting in the midst of a mandatory area is likely to have some high-powered lawyers advising them.

What I would say in response to the Minister’s excellent response to this debate is that there are certain points that I feel have not been addressed. One is obviously going back to the massive penalty phrase. If you void a transaction where it is part of a wider transaction, how do you go about unwinding it? Would there not be other, more suitable punishments than simply voiding the entire transaction? Indeed, as the Minister indicated, there will be plenty of people—shareholders, for example—who will be unduly punished by the automatic voiding provisions. Surely there must be alternative punishments.

However, by definition, given that you can effectively retrospectively apply to the Government if you have failed to comply with the mandatory notification requirements, you are, as my noble friend Lord Leigh pointed out, effectively making your transaction voidable. You are giving the Government the chance not to void the transaction, yet by introducing an automatic voiding penalty, the Government have precluded themselves from punishing the parties who failed to comply with their requirement for mandatory notification. Giving themselves flexibility by allowing themselves potentially to void a transaction also gives them the flexibility to impose other punishments.

There are other dogs that have not barked in this debate. In other amendments that we have been debating, previous legislation has been cited as an example that has guided the Bill—but there is no similar sanction, as far as I am aware, in any other business-facing legislation in this country. I hope the Minister will not mind me teasing him a bit at the end because I suspect I know—I think I am right in saying—where his sympathies lie in terms of the great debate of the past decade between Brexit and remain. Is there not an irony in him citing the great example of the French and the Germans but ignoring the far more practical Anglo-Saxon common-law tradition evidenced in the US, Canada and Australia? I beg leave to withdraw the amendment.

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[Baroness Hayter of Kentish Town (Lab)]

My Lords, we support the approach of this amendment. As we have all made clear, the new regime must focus on protecting national security. The clue is in the title of the Bill. The definition of national security has to take best advice from across the Government about the threats and behaviour of our adversaries.

While I hope the Government will monitor the impact of the Act on technological investment, innovation and SMEs—which I hope a different part of the Government is actively supporting—those interests, along with employment, investment and competition, cannot and should not trump national security, albeit that I hope that the Government would consider mitigating any detrimental domestic impact of placing security first if that were needed.

Clearly, concerns about any political pressure, rather than any disregard for the issues listed, give rise to this amendment. The tone and the purpose of it are ones that we share.

[Lord Callanan (Con)]

I thank everybody who has spoken in this debate and thank my noble friend Lady McIntosh of Pickering for tabling the amendment. It seeks to clarify that certain factors, namely employment effects, reciprocal investment or trading opportunities and the desire to protect UK businesses from international competition, cannot be taken into account in assessing whether a trigger event would give rise to national security risks. I was surprised to see that the noble Baroness, Lady Bennett, and my noble friend Lady McIntosh are now differing on some things. That is most unusual; it is something to be encouraged for the future.

My noble friend articulates a reasonable concern here: that a regime used to screen investment for national security purposes could be used to screen investments more widely. Indeed, the shadow Secretary of State, in his opening speech at Second Reading in the other place, argued that the Bill should include an industrial strategy test—I was therefore surprised to see the noble Baroness, Lady Hayter, supporting this amendment.

As such, I have some sympathy with the aims of this amendment. I can, however, reassure my noble friend that the Bill is about protecting national security, nothing more and nothing less. The Bill does not set out the circumstances in which national security is, or may be, considered at risk. As I said on previous groups, this reflects long-standing government policy to ensure that national security powers are sufficiently flexible to protect the nation. The Bill also does not include factors which the Secretary of State must or may take into account when assessing national security risks. Instead, factors that the Secretary of State expects to take into account in exercising the call-in power are proposed to be set out in the statement that we have provided a draft of and is provided for by Clause 3.

The draft statement, published upon introduction of the Bill, includes details of what the Secretary of State is likely to be interested in when it comes to national security risks. This includes certain sectors of the economy, and the types of acquisitions that may raise concern. It does not currently state anything which the Secretary of State intends not to take into account with regard to national security. This is a conscious choice. If the Secretary of State were to start listing areas of the economy or types of acquisition that he considered unlikely to present national security concerns, I suspect that this would result in a long and dense document of little use. We judge that it is therefore more helpful for businesses and investors to set out where the Secretary of State is more, rather than less, likely to use the call-in power.

I understand, however, the concern that without a definition extraneous factors may be taken into account. My reassurance for my noble friend comes from the courts. Were the Secretary of State to seek to use the powers in the Bill for a purpose beyond national security, his decisions could be challenged in the courts through judicial review and could not be successfully upheld. It is with this judicial oversight in mind that the Secretary of State is constrained in delivering the purpose of the Bill. I am therefore confident that the Bill as currently drafted contains sufficient safeguards against inappropriate use of the regime, and that the Government are already providing a good amount of information for parties affected by the regime on its likely areas of focus.

I hope that my explanation, taken together with these points, provides sufficient reassurance to my noble friend, and that she therefore feels able to withdraw her amendment.

[Baroness McIntosh of Pickering (Con)]

My Lords, I am most grateful to all those who have spoken in the debate, particularly my noble friend Lord Hodgson, and the noble Lord, Lord, Clement-Jones, for their eloquent support.

Like the Minister, I am slightly baffled by the sudden lack of support from the noble Baroness, Lady Bennett, with whom I have enjoyed a deeply cordial relationship. I obviously take issue with a number of issues to which she referred, not least setting out the importance to the economy of foreign investment, which is well established and repeated in the national security and investment government response published, I understand, this week. I also take issue with the fact that I am not a great expert on the financial crash, although I seemed to lose an awful lot of the small amount of money I had invested in the stock market. What is the saying about how to make a small fortune in the stock market? I have forgotten, but, anyway, that burnt my fingers.

I believe that the start of the financial crash was actually in the US, with the selling of mortgages, both in the US and here, for a greater value than the value of the property, and a lot of grief was caused as a result. I am pleased that my noble friend Lord Callanan feels that the Bill is still perfectly formed and fit for purpose, but I beg to differ. My noble friend referred to the statement in Clause 3, but we are told that the Secretary of State only “may” publish such a statement. Clearly, it would be immensely helpful to have such a statement at this stage, if possible, to give an indication of the direction of travel.

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[Baroness Hayter of Kentish Town (Lab)]

My Lords, we welcome the Government’s Amendment 12 to make changes to the sectors statement in respect of feedback from stakeholders. Can the Minister confirm whether all the suggested changes that come back in that consultation will actually be published?

I will make a comment about the document that has arrived in front of us today because, in a sense, it gives a very good description of how good consultation works—never mind the timing; we have made that point—in relation to the degree of change that looks as if it is going to happen as a result of conversation on that particular issue. However, it then feeds into what happens if, had this been the statement, changes were wanting to be made. For example, what we have heard today, as a result of some very good consultation, is that the definition of AI has been narrowed significantly to focus on three high-risk applications: identification of objects, people and events; advanced robotics; and cybersecurity.

The interesting thing is what happens after you have had a consultation that has got the Government to rethink and that may then have other implications. In this case, with those changes, does this change the Government’s estimate of the number of notifications that that might give rise to, in relation to the change in definition? It is that sort of issue that might come up, and it would want the dialogue that I think is being referred to in the amendment, in relation to whether there is a second stage—if it is turned down, so to speak—about having to go on further. As such, how we handle the feedback is about both the transparency of what has come back in and the full implications of any changes that that has made.

We keep coming up with the figures where, even though the Government have increased the assumption of how many notifications there would be—less than 1% or so—the CBI and other commentators feel it would be much greater. As such, that degree of dialogue is needed in relation to consultation over these very big issues. Some assurance about the results of such a consultation, as well as a second stage, seems very helpful, along the lines in the amendment.

On the Government’s Amendment 75, it would be interesting to know what advice led to the change—we are not questioning it but wondering why it has been made—to extend the regulatory power from a notice or serving an order to include all documents as well. It would be helpful, certainly to me and possibly to other Members of the Committee, to know what other types of additional documents will thus be added to this regulatory power—could the Minister spell that out?

[Lord Callanan (Con)]

First, I thank my noble friend Lord Lansley for his Amendment 11. With the permission of the Committee, I will speak first to the three minor technical amendments that the Government wish to make to the Bill: Amendments 12, 37 and 75. Briefly, before I begin, I reassure the Committee that the Secretary of State must lay and publish a statement before using the call-in power.

Amendment 12 is to Clause 4, which concerns consultation and parliamentary procedure for the statement pursuant to Clause 3, in which the Secretary of State sets out how he expects to use the call-in power. At present, Clause 4 enables the Secretary of State to meet the requirement to carry out such consultation as he considers appropriate, in relation to a draft of the statement under subsection (1)(a), before Clause 4 is commenced.

However, it does not make it clear that the Secretary of State is able to make any changes that he considers necessary in view of the responses to that consultation under subsection (1)(b) before the clause is commenced. Amendment 12 clarifies this point, ensuring that stakeholders will be able to see a revised draft statement before it is laid before Parliament.

Amendment 37 is to Clause 11, which provides an exemption for certain asset acquisitions which would otherwise be trigger events. Subsection (2), however, provides that assets that are either land or are subject to certain export controls should not fall within the exemption, and subsection (2)(b) sets out the relevant export control provisions. One of these provisions, Article 9 of the Export Control Order 2008, was revoked on implementation period completion day as a result of EU exit by Regulation 4 of the Export Control (Amendment) (EU Exit) Regulations 2019, with which I am sure all Members are very familiar. The amendment would remove the reference to this revoked provision from Clause 11.

Amendment 75 is to Clause 53, which enables the Secretary of State to make regulations, subject to the negative resolution procedure, prescribing the procedure for giving notices and serving orders under the Bill. At present this clause enables the Secretary of State to specify how a notice or order must be given or served, but does not make it clear that these powers are intended to extend to all documents given under the Bill. The amendment would clarify that point, ensuring that the Secretary of State has the power to make regulations in Clause 53(1) in relation to the procedure for service of documents for all the different types of notices, orders and other documents under the Bill. These are relatively small tweaks to the Bill, and I hope that the Committee will see fit to agree to them.

Amendment 11 was tabled by my noble friend Lord Lansley, and I will begin by briefly setting out its context. Clause 4 sets out a consultation requirement and parliamentary procedure for a statement about the exercise of the call-in power which must be published before the Secretary of State may issue a call-in notice. It requires the Secretary of State, before publishing the statement, to carry out such consultation as he thinks appropriate in relation to a draft of the statement, to make any changes to the draft that appear to him to be necessary in view of the responses, and to lay the final statement before Parliament.

My noble friend’s amendment seeks to clarify the process by which the Secretary of State may publish a new statement if either House resolves not to approve the previous version that he lays before Parliament. The apparent stumbling block that the amendment seeks to remove is that the Secretary of State is under a duty to carry out such consultation as he thinks appropriate in relation to a draft of the new statement, and make any changes to the draft that appear to him to be necessary in view of the responses to such consultation. However, I point out that the Secretary of State must carry out such consultations as he “thinks appropriate”, according to Clause 4(1)(a).

The Bill therefore provides the Secretary of State with some measure of flexibility in deciding whether, for how long and how widely the draft statement should be consulted on. Therefore, the Bill as drafted does not in appropriate circumstances prevent the Secretary of State from publishing a new updated statement, reflecting the debate in Parliament, almost immediately without first undertaking a consultation if he does not think that a consultation is appropriate.

In short, while my noble friend’s amendment seeks to ensure that a new statement may be laid speedily if either House resolves not to approve the previous version, the Bill as drafted already allows for this. I am grateful that he has afforded me the opportunity to make the functioning of this clause clear. Therefore, in the light of the explanation that I have been able to provide, I hope that he will feel able to withdraw his amendment.

[Lord Lansley (Con)]

My Lords, I am grateful to all noble Lords who have participated in this short debate. It is quite helpful just to focus on the question of making a statement because, if one looks back at Clause 1(6), it clearly states:

“The Secretary of State may not give a call-in notice unless a statement has been published (and not withdrawn) for the purposes of section 3.”


Although the word “may” is used in Clause 3, all it means in practice is that, if the Secretary of State chooses not to bring any of this into force, he would not publish a statement—but if he wants to issue call-in notices, he has to publish a statement. My noble friend the Minister is right in the sense that he must do this for the system to operate. The words I want to focus on, however, are “and not withdrawn”. If either House of Parliament resolves not to approve a statement, he must withdraw it. At that moment, the Secretary of State can issue no further call-in notices. My noble friend says the amendment is unnecessary because the Secretary of State has the power to consult only as he thinks appropriate.

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Moved by

[Lord Callanan]

12: Clause 4, page 3, line 38, leave out “requirement in subsection (1)(a)” and insert “requirements in subsection (1)(a) and (b)”
Member’s explanatory statement
This amendment ensures that as well as carrying out the consultation on the statement about the exercise of the call-in power, the requirement to make changes to the statement in view of the responses to the consultation may also be met before this section comes into force.

National Security and Investment Bill

Lord Callanan Excerpts

Committee stage
Tuesday 9th March 2021 Grand Committee

To touch on another point, the policy statement for Clause 14 allows regulations which will prescribe the form and content of a mandatory notice. Can the Minister confirm—I am sure it is the case—that the department will consult the stakeholders across all 17 sectors as they develop the form, so that it is workable and practical and is tested for accessibility with those who will have to use it? Is that possible now or could it be done afterwards in writing?

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank all noble Lords who have contributed to this very useful short debate. I welcome the amendments proposed by my noble friend Lord Vaizey. Taken together, as numerous speakers have said, his amendments would exempt UK investors and investors from other particular countries from the Bill’s mandatory notification regime. As it stands, both the mandatory and the voluntary notification regimes provided for by the Bill are both actor and nationality-agnostic. The mandatory notification regime is based on the risks posed by acquisitions of target entities due to those entities’ activities, rather than the risks posed by the acquirers. The risks posed by acquirers are then considered on a case-by-case basis by the Secretary of State as part of the particular national security assessment.

My noble friend is right to suggest that, in many cases, acquisitions by UK nationals and UK-based companies, or those based in like-minded countries, are less likely to give rise to national security concerns, even in relatively sensitive sectors. Such acquirers, if their proposed acquisitions do not give rise to national security risks, will find their acquisitions cleared to proceed by the Secretary of State, following assessment or following call-in, should that be necessary, for further review.

However, an acquirer’s nationality cannot tell the Secretary of State everything he needs to know about that acquirer’s intent. For example, it is possible that a UK acquirer may be paid by a hostile actor or otherwise have strong links to hostile actors based outside the UK. A similar rationale follows for the amendment’s reference to other like-minded countries. So, excluding purely on the basis of nationality could create a loophole to exploit.

The particular approach of the amendments in this group also raises some practical challenges. For instance, the references to nationality appear not to deal with the issue of dual nationality; nor is a change of nationality covered. Key considerations in designing this regime have included ensuring that it is not discriminatory, and that it upholds our World Trade Organization and other international obligations in this regard. It is not clear that these amendments would achieve this.

None the less, we wish to consider over time how we might temper and adjust the regime to take account of areas of lower risk. Under Clause 6, the Bill gives the Secretary of State the ability to make exemptions from the mandatory notification regime based on the “characteristics” of the acquirer. This may include nationality if this is judged appropriate and the various issues that I have highlighted can be resolved.

We will of course monitor closely how the regime works in practice to determine through detailed further work and carefully assess whether any such exemptions should be introduced. Any such regulations would be subject to appropriate parliamentary scrutiny through the affirmative procedure.

I welcome the opportunity to discuss the impact of nationality on the regime with my noble friends and to set out our thinking in more detail. However, for the reasons I have given, I cannot accept my noble friend’s amendments. Before I conclude, I can confirm to the noble Baroness, Lady Hayter, that the Government will engage with a number of stakeholders on the voluntary and mandatory notification forms. Therefore, given the points I have made, I wonder whether my noble friend will consider withdrawing his amendment.

[Lord Vaizey of Didcot (Con) [V]]

My Lords, I am grateful to my noble friend the Minister for his response. Never have I seen so many noble Lords and noble Baronesses arraign so uniformly against an amendment, so the mood of the Grand Committee is clearly against me. In fact, through the powers of my advocacy I think that I even persuaded the noble Baroness, Lady Bowles, to move from being a supporter to an opposer of my amendments, if I followed her speech correctly.

I am not sure that the issue of media ownership threw much light on the power of my amendments. However distasteful we might find the antics of media owners in this country, the British ones are just as guilty as any foreign ones of potentially challenging our democracy.

My noble friend Lord Lansley was correct to say that I included New Zealand along the lines of the Five Eyes, although I notice that he said that the US regime could be helpful to UK businesses if the UK was exempt from the equivalent provisions in the US. That was the purpose of my amendment.

Fundamentally, the point I was trying to make with these amendments, which did not really shine through, is that I seek not to hide any transactions from the national security regime but simply to avoid an overwhelming number of mandatory notifications for the department. Of all the speeches that I heard, the Minister’s was the most supportive. I noted his very welcome comments that the door remains ajar, as the regime develops, to put in place provisions to ease the bureaucracy and the number of mandatory notifications.

Finally, I was inspired by my noble friend Lord Leigh of Hurley’s speech to potentially draft a new amendment as we progress—perhaps the pub amendment, whereby the only transactions that can be notified in a mandatory fashion to the Government are those that can fit into my noble friend’s local pub. I beg leave to withdraw the amendment.

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[Lord Callanan (Con)]

First, I extend my thanks to the noble Baroness, Lady Hayter, and my noble friend Lord Leigh for the amendments in this grouping. Let me start by addressing Amendments 15A and 17, which concern the scope of the mandatory notification regime.

Clause 6 sets out the circumstances where a notifiable acquisition takes place for the purposes of the Bill. Noble Lords will see in subsection (2) that the types of acquisition covered by mandatory notification are not simply the full list of trigger events in Clause 8. Rather, notifiable acquisitions are objective circumstances based primarily on an acquisition taking a party’s holding of share or votes to or past a particular numerical threshold. The amendment of the noble Baroness, Lady Hayter, would remove subsection (2)(b) to remove the lowest of the numerical thresholds: 15%. My noble friend’s amendment seeks to amend Clause 8(2)(b).

Let me make three points about these amendments, which I trust will address the concerns which the noble Baroness, Lady Hayter, and my noble friend Lord Leigh raised in their opening comments. First, acquisitions that take a party’s shares or voting rights in a specified entity to 15% or more, not exceeding 25%, are notifiable even though they are not, by themselves, trigger events that may be called in by the Secretary of State for scrutiny under the Bill. We have, nevertheless, required such acquisitions to be notified, because increases in shares or voting rights to 15% or more may realistically result in the acquirer having material influence, and therefore control, over the policy of the entity, and that would constitute a trigger event.

The notification requirement is thus intended to ensure that the Secretary of State is made aware of the proposed acquisition and can take steps to determine whether material influence will in fact be required. The 15% threshold is broadly consistent with the UK’s merger framework. As the Competition and Markets Authority notes in its merger guidance, although there is no presumption of material influence below 25%, shareholdings of 15% or more may be examined to see whether the holder might be able materially to influence the company’s policy. We think that this strikes the right balance by requiring parties to focus only on a numerical threshold, while still allowing the Secretary of State to be notified about, and then call in if the legal test is met, more subjective acquisitions of control in the most sensitive sectors.

Secondly, my noble friend made an important point: the investment security unit will be required to process notifications for acquisitions of 15%. We expect that, as with acquisitions across the regime, the vast majority will quickly be cleared to proceed. It is vital that the statutory timescales set out in the Bill for processing such notifications are met to maintain business and investor confidence; the Government will resource the investment security unit accordingly to do just that.

I understand that my noble friend has a particular interest in what “material influence over the policy of an entity” relates to. I assure him that material influence is an existing concept under the Enterprise Act 2002. The Competition and Markets Authority sets out what it considers constitutes material influence in its mergers guidance. The Secretary of State intends to apply this in so far as it is possible in the context of this new regime for the purposes of determining whether control has been, or is to be, gained over a qualifying entity. For the avoidance of doubt, the Government have no plans to publish their own separate guidance on material influence.

My noble friend also queried the reference in subsection (3) to excluding acquisitions that are “impossible” to notify from constituting notifiable acquisitions. Let me explain the reasons for this. The Government recognise that there may be circumstances where it is impossible to notify and obtain clearance from the Secretary of State for an acquisition before it takes place. They could include lack of awareness on the part of the acquirer that they were about to acquire control, or where it was otherwise impossible to notify in the time available before the acquisition took place.

Let me give an example. A beneficiary to a will may have no prior knowledge that that they stand to inherit a stake in a business that would ordinarily be a “notifiable acquisition” and will automatically do so on the execution of the will. The Bill does not exhaustively define the circumstances that are “impossible”. I have given one example around inheritance; others might include bankruptcy, intestacy and by operation of law, but these examples are indicative.

The third point I should make, specifically about my noble friend’s amendment, is that, as currently drafted, it would not simply remove the 15% threshold but replace it with a reference to 25%. On this point, I hope he will recognise that subsection (2)(a) of the clause already provides for this—or, to be specific, very close to this effect—as it draws on the existing numerical trigger event thresholds in Clause 8, which start at acquisitions taking a person’s holding past 25%. As such, the amendment would duplicate those existing provisions and would in fact result in a requirement to notify when acquiring specifically 25% and then again if moving beyond 25% in future. I trust he will agree that we should avoid this, I am sure, unintentional effect.

Amendment 19A in the name of the noble Baroness, Lady Hayter, seeks to prevent notifiable acquisition regulations being used to bring asset acquisitions in scope of the mandatory notification regime. Let me start by setting out why it is important that the delegated powers in Clause 6 are not constrained in this way before I address the amendment itself.

The noble Baroness will accept, I am sure, that the future is uncertain, that the threats we face as a nation inevitably change over time and that the ways in which hostile actors seek to bring us harm are constantly evolving. That is precisely why the Bill extends the new investment screening regime’s coverage to acquisitions of individual assets, not just acquisitions of control over entities. We cannot, and should not, rule out the possibility that changes to the scope of the mandatory notification regime may be required, based on the types of acquisition and not just the sectors in which they take place.

None the less, the noble Baroness has spoken powerfully on a couple of occasions about the concerns of the Wellcome Trust and others, so let me say this categorically: the Government have no current plans to bring assets in scope of the mandatory notification regime, and neither subsections (5)(a) nor (6) require them to do so; they merely allow for that possibility, subject to the restrictions in subsection (7). Were we or a future Government to do so, it is clear that such a move would constitute a major change to the regime. It is difficult to conceive of many instances where consultation with relevant stakeholders would not be a practical necessity for a change such as this.

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[Lord Leigh of Hurley (Con)]

I thank my noble friend the Minister for his very considered comments, in particular his explanation of Clause 6(3). I think it allows a coach and horses to be driven through most of this legislation if someone can claim an impossibility. The examples he gave were excellent but there will be many other examples where people can claim an impossible circumstance. We will come on later to talk about, for example, the position of administrators and liquidators, and I can think of many others as well. I would have thought Clause 6(3) needed refinement.

Both the Minister and the noble Lord, Lord Fox, mentioned “materially control” as opposed to “materially influence”. There is a difference and this is not about materially controlling but about materially influencing. Regarding Clause 8(8), I accept that there are definitions elsewhere of materially influencing the policy. However, I remain of the view that it is not possible below 15%, or indeed below 25%, to materially influence the policy as far as national security is concerned. Therefore, I very much hope that my noble friend the Minister has a chance to reflect on this specifically before Report.

[Lord Callanan (Con)]

I will take that as a comment and not as a question. I continue to look at all aspects of the Bill to see how they can be improved.

[Baroness Hayter of Kentish Town (Lab)]

The Minister referred to the meeting that he and the noble Baroness, Lady Bloomfield, very kindly held yesterday with the Wellcome Trust, and I very much welcome the reassurances that he has read into the record today. The shorthand for this is the nervousness in academia of bringing in assets—IP, information, ideas and software—rather than just entities. That was what we discussed at the meeting yesterday, and the Minister has now read into the record the reassurances he gave there, for which we thank him.

I thought that the suggestion—I was going to call it a wheeze—of the noble Lord, Lord Lansley, was rather crafty: if that is what you mean, why do you not say it upfront? However, from what the Minister said, there seems to be a difference between the objective and the subjective criteria. I do not know whether that is why the Government want them in different clauses, but there is a problem with the subjectivity of this phrase. It is not simply, as the noble Lord, Lord Leigh, just said, about material influence rather than material control, but also the policy, and it is hard to define what that means. It seems to me a very subjective test for the big change made in Clause 6. I remain unconvinced that we have got it clear enough.

I thank the noble Baroness, Lady Bowles, for explaining where the 15% figure, to which the Minister referred again, comes from. The CMA uses it when talking about mergers, but we are talking here about big companies, not small ones. However, because there is no threshold, much smaller companies will be covered by this. It may be absolutely important for the takeover of very large companies whether competition is taken out of the market. The Minister knows that, as a consumer champion, I am always very happy for the CMA to look at the impact on competition. However, I have my doubts whether a regime defined for competition in consumer goods and access should be lifted and shifted—the Minister said that there will not be separate guidance—into something that will sometimes affect small start-ups and new developments.

I certainly know more about the subject than I did 43 minutes ago, for which I thank all those who have spoken on the amendment. As has been said, I hope that the Minister and his draftspeople will look at whether this is clear enough, necessary and appropriate for the sorts of investments we are dealing with. When the Minister gives a bequest in a will as the reason for including a particular provision in the Bill, that feels like clutching at straws to me. I hope there are better arguments than that, but, for the moment, I beg leave to withdraw the amendment.

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Moved by

[Lord Callanan]

37: Clause 11, page 7, line 26, leave out “or 9”
Member’s explanatory statement
This amendment removes the reference to Article 9 of the Export Control Order 2008 (S.I. 2008/3231) which was revoked by regulation 4(7) of the Export Control (Amendment)(EU Exit) Regulations 2019 (S.I. 2019/137).

National Security and Investment Bill

Lord Callanan Excerpts

Committee stage
Tuesday 16th March 2021 Lords Chamber

[Lord Grantchester (Lab)]

Amendments 39 and 87, tabled by the noble Lord, Lord Lansley, probe the Minister around the question of the interaction of the NSI regime with the export control regime. The Committee must be assured that this new regime is not buried within the Business Department but works effectively across government, not least in relation to export controls. The Government’s response to the sector consultation in the report already mentioned states

“how the NSI regime sits alongside export controls to provide a comprehensive regime protecting our national security capability”.

It is not merely a question of sitting alongside, however that may be interpreted, but of interacting and co-ordinating with the Department for International Trade. The Government seem to recognise this in the comment:

“We must ensure that the export control criteria cannot be circumvented by allowing the acquisition of companies that produce such goods, rather than buying the goods themselves, without effective screening.”


More clarity and information in the procedures to this eminently sensible statement would be very welcome from the Minister.

The Government responded to the consultation that they intend to capture all materials that are considered likely to give rise to national security concerns and which are contained in the relevant legislation set out in the UK’s strategic export control list. I would be grateful if the Minister could provide better information on their intentions, and how and when this will become clear and transparent. Will he provide a guarantee that this will happen—the assurances that the noble Lord, Lord Lansley, has required during the passage of the Bill?

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

First, I thank my noble friend Lord Lansley for these two amendments, which seek to ensure seamless integration between the new regime provided for by the Bill and the existing export control regime. I shall take his amendments sequentially.

Amendment 39 seeks to ensure that the Secretary of State can, through regulations, exempt from the regime certain acquisitions of control over qualifying assets that are subject to export control orders. Clause 11 provides for exceptions relating to control of assets. Subsection (1) sets out that acquisitions made by individuals for purposes wholly or mainly outside the individual’s trade, business or craft are not to be regarded as gaining control of a qualifying asset and are therefore excluded from the scope of the call-in power. This does not apply in relation to an asset that is either land or subject to certain export controls set out in subsection (2)(b).

Subsection (3) also provides a power for the Secretary of State to amend the list of assets that are outside the scope of this exemption or to prescribe other circumstances in which a person is not to be regarded as gaining control over a qualifying asset. That includes being able to prescribe circumstances in which the acquisition of an asset subject to export control legislation is not to be regarded as gaining control over a qualifying asset. Any use of this power in subsection (3) would, of course, be guided by the operation of the regime in practice and any patterns of activity that are observed. As such, I can therefore assure my noble friend that the Bill already provides for what his amendment intends to achieve.

Amendment 87 would require the Secretary of State to ensure that any interim orders or final orders made in relation to acquisitions of control over assets take into account controls imposed under the Export Control Act 2002 and related provisions. I thank my noble friend for his proposal and commend the intent behind it. It is, of course, very important that the Secretary of State’s use of the powers provided for by the Bill is in keeping with the Government’s measures under other legislation. The Secretary of State must take into account all relevant factors when making decisions about the use of interim orders and final orders.

The legal tests in the Bill require the Secretary of State, before making an order, to reasonably consider that the provisions of the order are necessary and proportionate for the purpose. In the case of final orders, that purpose is to address a risk to national security, and in the case of interim orders, it is to prevent or reverse an action that might undermine the national security assessment process. Whether controls have been imposed under export control legislation will be relevant to whether the envisaged provisions of an order are necessary and proportionate. For example, where export controls in relation to an asset are already in place, it may not be necessary or proportionate to make an order under this Bill prohibiting the transfer of the asset overseas, but this will depend on the facts of each case.

Addressing the questions of the noble Lord, Lord Purvis of Tweed, about why we need the Bill when we already have the export control regime, I say that the export control regime is a licencing regime for certain controlled goods. It is an important part of the safe- guarding of our national security and it sits well alongside the proposed national security and investment regime. The two regimes are distinct though, and do not perform the same role. For example, the export control regime does not provide the Government with the ability to scrutinise acquisitions of UK companies or direct the use of sensitive assets used in the UK, whereas of course the NSI regime would.

On the noble Lord’s points about standard individual export licences if they have been granted for an export, I tell him that a standard individual export licence is granted to one person to export specified items to a named recipient. If the parties involved precisely follow the terms of a standard individual export licence that has already been granted following an assessment of national security risks, it is unlikely that the Secretary of State would reasonably suspect that the export might give rise to national security risks. In this situation, it is unlikely that he would be able to call that export in under the NSI regime. However, it is important to say that any decisions would need to be made on a case-by-case basis. It is important that the Secretary of State retains the ability to call in and scrutinise trigger events involving the export of assets in the event that national security risks are present.

The noble Lord asked about Northern Ireland. Qualifying entities as assets in Northern Ireland sit within the scope of the Bill, and that ensures that there are no loopholes. A trigger event under the Bill is not based on the application of EU law. For completeness, I should also say that the Secretary of State will, in any event, be subject to public law duties requiring him to consider all relevant factors when deciding whether to make an order under the Bill. Therefore, where export controls are relevant, the Secretary of State will need to take them into account when making that order.

I hope that that has explained, for the benefit of the House, the interaction between the two pieces of legislation. With the explanations that I have provided, I hope that my noble friend will feel sufficiently reassured that his concerns have been taken into account, and that he will not press his amendments.

[Lord Lansley (Con)]

My Lords, I am grateful for each of the contributions to the short debate. They were helpful and, indeed, added to the questions. The noble Lord, Lord Purvis of Tweed, referred appropriately to the Export Control Act provisions. I remember that I was on quadrilateral committee in the other place, about 15 or 16 years ago, so I remember how these issues were considered at that time. Indeed, there was a level of parliamentary oversight of the export control regime, which may be something we refer to at a later stage. He raised some good points: I thought the point about the EU export control regime was a very good one. The noble Lord, Lord Grantchester, made an interesting point about the interaction with the Department for International Trade in this context.

If I understand my noble friend correctly, he is more or less saying that the power under Clause 11(3)(b) would enable the Secretary of State to prescribe, by regulation, such circumstances as necessary, so in that sense my Amendment 39 is not necessary. I agree; it is not necessary but certainly the explanation of the interaction between the two regimes is desirable. However, Amendment 87, proposing a new clause, perhaps drafted differently to make it clearer about the interaction between the two regimes—both at the point where a call-in notice has to be considered, as well as the point at which interim and final orders are made—would be very useful. What I have heard from my noble friend suggests that, by administrative means, using the powers in the Bill and under public law requirements, the Secretary of State will have regard to the export control regime when using his powers under this regime. That is undeniably true. I think we all knew that, but there is much more that we put into legislation, particularly with a new system, that helps people who are to be affected by it to look at it and understand how it works.

What I found deeply surprising was that such an important part of the Government’s policy intentions—that the export of goods should still be primarily controlled by an export control regime—was not even referred to in the Bill or in the Government’s response to the consultation. It is as if it did not exist, but it does exist and it is important, as the Minister’s reply suggested. I shall reflect on what he said, but it may well be that there continues to be a “desirable interaction” clause in the Bill that makes it very clear to all those affected that the export control regime plays a significant part in the control of qualifying assets where they are to be exported. However, based on what my noble friend said, I beg leave to withdraw the amendment at this stage.

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I thank the noble Lord, Lord Lansley, for his pair of amendments, Amendments 54 and 66, which would enhance the clarity of the procedure under these two clauses. In my interpretation, they would also reduce the overall time available to the Secretary of State, in referring to the period starting on notification rather than acceptance of the notice. I look forward to the Minister’s reply to the noble Lord on that point. In general, on these amendments the Minister needs to provide assurances that a culture of lazy engagement does not characterise the Government’s treatment of impacted businesses and organisations through vague terminology.

[Lord Callanan (Con)]

I thank all noble Lords who have taken part in this brief debate, particularly my noble friends Lady Noakes and Lord Lansley for their contributions. I will start with Amendments 49, 62 and 64, which for the convenience of the Committee I will take together.

As drafted, the Bill provides that the Secretary of State must decide whether to reject or accept a mandatory or voluntary notice

“as soon as reasonably practicable”

after receiving it. He must then inform relevant parties of his decision as soon as is practicable. Amendment 49 would require the Secretary of State to decide whether to accept or reject a mandatory notice within five working days, as opposed to the current drafting. Amendment 62 would have the same effect, but for voluntary notices. Amendment 64 would require the Secretary of State to notify each relevant person whether a voluntary notice has been accepted within five working days of it being accepted, as opposed to the current drafting of doing so as soon as practicable.

As I am sure noble Lords would agree, mandatory and voluntary notifications should include the necessary information to enable the Secretary of State to determine whether to call in an acquisition for further scrutiny. Once a notification is accepted, the Secretary of State will be required to issue any call-in notice within 30 working days or else clear the acquisition to proceed. It is therefore important that the Secretary of State is able to reject a notification if it does not meet the requirements specified in the legislation. Of course, it is important that all decisions made under this regime by the Secretary of State are made promptly.

I therefore assure the Committee that the Secretary of State will make great efforts to ensure that decisions to accept or reject notifications are made quickly and that parties are notified in a timely way. In fact, one of my officials was keen to point out that the record so far for responding to informal guidance is 19 minutes. Civil servants will of course have different ways of going about it and will pursue different speedy methods, so I am sure that will not always be the case. Nevertheless, we will endeavour to reach these decisions to provide help and guidance to businesses and companies as speedily as possible.

As noble Lords will be aware, the Government intend to lay regulations setting out the form and content of the types of notification soon after Royal Assent. The draft notification form was published alongside the introduction of the Bill to help interested parties understand what information is likely to be required. Parties will therefore have clarity, and certainty about the information that they should provide when notifying the Secretary of State. We therefore expect notifications to be generally of high quality and, where this is the case, the Secretary of State expects to be able to decide quickly and then inform parties of decisions to accept their notices, in many cases, clearly, more quickly than the five working-day limit proposed.

However, it is important that there is scope for flexibility in the relatively rare circumstances where more time may be needed. For example, a hostile actor could intentionally provide very large amounts of unnecessary information that would take many days to read through to establish that important information was missing or incorrect. Or there might be multiple parties involved in a particularly complex acquisition that had all submitted notifications. In the event that the notifications do not match up, more detailed verification may be needed. I would argue that it is better for the Secretary of State to take the time to ensure that he has the information that he needs at the start of the process rather than risk finding gaps in information later on.

I turn to Amendments 51, 54 and 66. I know that my noble friend Lord Lansley did not speak to Amendment 51, but it is in this grouping, so, if he will forgive me, I will address the issue at this point. Clause 14 provides for the mandatory notification procedure, including subsection (6), which sets out the grounds on which the Secretary of State may reject a mandatory notice, and subsection (9), which explains when the 30-working day “clock” for reviewing a mandatory notice begins. These amendments go to the heart of both matters, so let me address each of them briefly.

Amendment 51, to which my noble friend referred although he did not speak to it, would remove the third ground for the Secretary of State to reject a mandatory notice, which is where

“it does not contain sufficient information to allow the Secretary of State to decide whether to give a call-in notice in relation to the proposed notifiable acquisition”.

I imagine that noble Lords may well consider that the first two grounds—which enable the Secretary of State to reject a mandatory notice where it does not meet the requirements of this clause or as prescribed in regulations—will cover most bases. However, we must also ensure that an acquirer cannot meet the technical requirements of providing a notice by doing so in a limited way or with incomplete information. Noble Lords will appreciate that if, for instance—in a purely hypothetical example, I was required to fill in the name of my chief executive on a mandatory notice, the ISU would have a pretty good chance of working out who “Boris” was, but in the case of the chief executive of a small start-up company that might have been operating for only a few months, a mandatory notice that had the same information would provide little to go on. I understand that it is an outlandish example, but it illustrates why we must not prevent the Secretary of State rejecting notices from those who plainly look to game the system.

Amendment 54 would adjust the timing for the beginning of the 30-working day review period from, as now, the date on which the Secretary of State confirms acceptance of a mandatory notice to the date on which he received the notice. Amendment 66 would make the equivalent changes in respect of voluntary notices. I can assure my noble friend Lord Lansley and other noble Lords that in the vast majority of circumstances we expect to confirm acceptance quickly and to begin the clock on the review period. However, the process of initially determining whether a valid and complete notice has been submitted is separate from fuller screening of the acquisition itself. Some acquisitions are likely to be complicated and a significant amount of information may be provided as part of the mandatory notice. In these instances, it is conceivable that the investment security unit may need a short time to ascertain that the relevant information has been provided. None the less, the screening will not yet have begun and, accordingly, it is right that the clock does not do so either.

Amendments 53 and 65 would reduce the time available to the Secretary of State to screen mandatory and voluntary notifications from a maximum of 30 working days to 20. I mention “maximum” again because that is exactly what these deadlines represent. In many cases, we expect the Secretary of State to be able to review and clear notifications much more quickly. The question, therefore, is what is appropriate in more complex cases and whether the ISU may need to gather input and expertise from across Whitehall on those acquisitions. The total figure of 30 working days is not arbitrarily chosen by the Government. I apologise to my noble friend Lady Noakes for saying yet again that it reflects detailed work undertaken across Whitehall to test past cases and mock scenarios against the new regime—I repeat that because it is our position. Some acquisitions may involve complicated ownership structures; the technology and activities of the target entity may not be immediately clear, and the format of the acquisition itself may be unconventional. It is vital the Secretary of State has the necessary time to examine an acquisition and to make an informed decision.

I again commend my noble friend’s efforts to make the new regime even more nimble and fleet of foot, but I hope she will understand—even if she does not agree with me—why I am unable to accept these and other amendments that I have addressed in this group. Therefore, I hope that both my noble friends will choose not to press their amendments.

[The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)]

My Lords, I have received no request to speak after the Minister, so I call the noble Baroness, Lady Noakes.

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[Lord Callanan (Con)]

I thank those who have taken part in this short debate, in particular my noble friend Lord Lansley and the noble Lords, Lord Grantchester and Lord West, for their considered and thoughtful comments on the amendments. Amendments 80 and 81 seek to add a number of additional areas of information to the annual report, namely around time taken processing cases, the resources of the investment security unit, the extent to which acquisitions involving SMEs are being called in, and the number of final orders being varied or revoked. The aims of these amendments are commendable, and the Government are a strong supporter of SMEs and government transparency.

The first part of Amendment 80, tabled by the noble Lord, Lord Grantchester, seeks the inclusion of the average number of days taken to assess a trigger event which has been called in. Noble Lords will recall that Clause 23 provides statutory time periods for assessment under the regime. The Secretary of State must assess any trigger event that has been called in within a period of 30 working days, as we have discussed in earlier debates, or, if additional time is required, within the additional period of a further 45 working days, or within any further voluntary extension or extensions agreed with the acquirer.

As there are these time limits, and they are as short as we are able to make them while also ensuring there is time for appropriate national security assessment, it does not seem that there would be any additional benefits from including average times in the annual report. Clause 61 sets out the minimum reporting requirements that the Secretary of State must meet in the annual report. The information provided in the annual report will provide Parliament with good insight into how the regime is functioning in practice.

Furthermore, the amendment seeks to add additional reporting on the minimum, average and maximum turnaround times for notifications in the annual report. The Government have laid out clear statutory timelines for responding to voluntary and mandatory notifications in Clause 23, providing investors and businesses with the certainty that they need. However, I would be happy to discuss this proposal further with the noble Lord, Lord Grantchester. The time taken to assess trigger events that are called in will vary on a case-by-case basis; therefore, it would not be helpful to share the average time.

Secondly, on the time taken for deciding whether to accept mandatory and voluntary notices, the Bill requires that the Secretary of State must do so

“as soon as reasonably practicable”,

as we discussed, after receiving a notice. In practice, this is likely to be a matter of days, but it is important to retain flexibility so that an accurate assessment of the completeness of the information is undertaken. Additionally, if the Secretary of State decides to reject a notice, he must as soon as practicable provide reasons in writing for that decision to the notifier. Where the decision is to accept a notice, the Secretary of State must as soon as practicable inform the parties of the decision.

Thirdly, where the noble Lord seeks inclusion of the average headcount of the investment security unit in the annual report, I can only repeat what my colleague Minister Zahawi said in the other place: resourcing would, of course, be

“an internal matter for the BEIS permanent secretary.”—[Official Report, Commons, National Security and Investment Bill Committee, 10/12/20; col. 334.]

I am unsure whether very high numbers would demonstrate appropriate resourcing, or insufficient efficiency. In any case, we have committed to ensuring that the investment security unit is appropriately resourced. I am sure that the Permanent Secretary will make sure that that is the case.

Furthermore, on SMEs, the report is intended to give a sense of the sectors of the economy where the greatest activity of national security concern is occurring. The Secretary of State may include additional information relating to SMEs if he considers that appropriate.

Turning to Amendment 81, tabled by my noble friend Lord Lansley—I am sorry that this is the last occasion we will hear from him—I am pleased to confirm that Clause 29 already places a duty on the Secretary of State to publish notice of the fact that a final order has been made, varied or revoked. This intentionally complements the annual report in Clause 61. We must not encumber the investment security unit with ever greater reporting as this will draw focus away from scrutinising acquisitions and responding to businesses as soon as possible. Individually, these amendments of greater reporting may seem reasonable, but combined they can be quite burdensome for the unit.

On Amendment 91, in the name of the noble Lord, Lord West of Spithead, I am grateful that this came with only his secondary armament—although I noticed that he had the noble Baroness, Lady Smith, for additional offensive capability. The amendment relates to the provision of guidance for the defence sector. It would require the Secretary of State to publish guidance for businesses in the defence supply chain about the provisions in the Bill, including a list of countries which the Secretary of State considers less likely to give rise to a risk to national security and from which investment is encouraged.

The noble Lord’s amendment highlights the importance of the defence sector and its supply chains, which is part of the reason why the defence sector is intended to form part of the Bill’s “mandatory notification regime”. A robust defence sector is vital to our national security and essential for the development of innovative and first-class military capabilities that enable us to protect our people, territories, values and interests at home and overseas. The defence sector, including businesses in its supply chains, such as those providing emerging technologies, must remain resilient to a wide range of national security risks, including those posed by hostile actors.

We are keen to ensure that the mandatory notification regime works proportionately and provides sufficiently clear parameters to inform businesses and investors of the need to notify and obtain prior approval. That is why we have consulted on the definitions of sectors covered by mandatory notification in the recent public consultation. This approach has enabled experts from the defence sector and its supply chains, along with the legal profession, businesses and investors, to help us refine the final definitions to ensure that the regime is appropriately targeted and provides legal certainty.

The noble Lord’s amendment also seeks to require the publication of a list of countries which the Secretary of State considers less likely to give rise to national security risks, and those from which investment is encouraged. As it stands, as I have said before on other amendments, both the mandatory and voluntary notification regimes provided for by the Bill are actor- and nationality-agnostic.

The mandatory notification regime is set based on the risks posed by acquisitions of target entities due to those entities’ activities rather than risks posed by the acquirers. The risks posed by an acquirer are then considered on a case-by-case basis by the Secretary of State as part of the particular national security assessment. It would not be appropriate to set out through guidance a variation to the legislation; that would confuse more than it would clarify, and it might give rise to legal challenge.

On whether guidance can be provided more generally for the defence sector on the provisions in the Bill, we must also guard against legislating through guidance. The Government will of course consider what appropriate explanatory material should accompany the regulations to define the sectors subject to mandatory notification, including the defence sector.

I thank all noble Lords and my noble friend for their amendments. For the reasons mentioned, I am afraid I cannot accept them. Therefore, I hope the noble Lord will feel able to withdraw his amendment.

[The Deputy Chairman of Committees (Lord Lexden) (Con)]

I have received no requests to speak after the Minister, so I invite the noble Lord, Lord Grantchester, to conclude the debate on his amendment.

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[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.

[Lord Callanan (Con)]

I am grateful to the noble Lords, Lord Grantchester, Lord Leigh and Lord Clement-Jones, for their amendments in relation to equity stakes of affected parties, small and medium-sized enterprises, an impact review of the regime, and market guidance.

I first turn to Amendment 84, tabled by the noble Lord, Lord Grantchester. This amendment seeks to require the Secretary of State to analyse the financial support provided by government, as part of Covid-19 support, to sectors considered more likely to give rise to national security risks. It then seeks to require him to consider converting loans and grants to equity stakes when there is a clear economic and national security rationale for doing so.

There is no doubt that the impact of Covid-19 on businesses and livelihoods of people across the country has been truly terrible, and I have a massive amount of sympathy for those affected. I can assure noble Lords that the Government are committed to supporting all UK businesses through the Covid period. The Government continue to provide extensive support to businesses to survive the pandemic, so far totalling over £280 billion, including through furlough, the Self-employment Income Support Scheme and business grants. However, I do not think that converting loans into equity stakes necessarily represents the best use of public money. As noble Lords will be aware, Clause 30 provides for the Secretary of State to give financial assistance to, or in relation to, entities in consequence of the making of a final order. However, it is expected that this will be used only in exceptional circumstances. What the noble Lord is proposing would be much wider than this and, while I am sure that it is very well intentioned, is very much a substantive diversion from the main purpose of the Bill.

I turn to Amendment 85, which would require the Secretary of State to create a small and medium enterprise engagement unit within three months of this Bill being passed. This unit would take particular actions in relation to SMEs and their interaction with the regime. I note that this amendment bears a strong similarity to an amendment proposed during Report in the other place, and it will not surprise noble Lords that my views on the subject are closely aligned with those of Nadhim Zahawi, my fellow Minister. The Government strongly support SMEs and so have sought to provide a clear and easy regime for businesses of all sizes to interact with. The Government have been happy to provide support to businesses both large and small through the contact address available on GOV.UK and discussions with BEIS officials. The Government have published fact sheets on GOV.UK which make clear what the measures in the proposed legislation are and, importantly, to whom they apply.

We are also creating a digital portal and a simple notification process to allow all businesses to interact with the regime without the need for extensive support from law firms. Furthermore, there is no fee for filing a notification, unlike many of the regimes operated by our allies. Consequently, we have no reason to believe that this regime will disproportionately affect SMEs or that this new clause is necessary.

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[Lord Clement-Jones (LD)]

My Lords, I should thank the Minister for his response; I am not sure I really want to. I found it rather extraordinary, particularly to Amendment 89. We have a Bill on foot with a purpose in mind but, when it comes to reviewing it, we are told that it is far too sensitive and we cannot possibly review whether it has met its objectives. We can keep it under review—within the department in some shape or form, I assume—but we cannot possibly undertake a periodic review of any kind. Even a normal post-legislative review process would expect to see whether an Act of Parliament was meeting its objectives. The Minister cannot even say whether that will take place at any stage.

This really adds to one’s concerns about this Bill in so many ways. It is a rather furtive creature that, if we are not careful, will be hiding in the dark for quite a long time and will not get reviewed. There is no way of seeing whether it is achieving its purpose other than the kind of review the Minister was talking about, which is purely internal to government and part of the government department’s overview. This is not particularly reassuring.

On Amendment 92, the Minister talked about just making statements about the call-in power or having the annual report. I said a set of market guidance notes would do; I did not adumbrate about six points that a set of market guidance notes could set out. They are far more extensive and market friendly than anything that is going to be caught by the call-in power statement or the annual report. We are talking about real guidance to business so that it knows what to expect and the parameters within which the Secretary of State is operating—particularly when it comes to guidance about the kinds of sector that will be caught and the current issues that the Secretary of State believes would give rise to a call-in notice and other aspects dealt with by the ISU. The idea that five years is a reasonable time to adjust a call-in power statement is laughable in the commercial world. The Takeover Panel updates its notes on a regular basis, and that is exactly what the ISU should do with market guidance.

[Lord Callanan (Con)]

I am not sure there were any questions for me there; the noble Lord has made some observations. I understand that he was unhappy with my replies, but I am afraid I cannot agree that the Bill is “furtive” or “hiding in the dark” at all. We are committed to transparency as much as possible. He says he has six additional points on market guidance notes. If he wants to send them to me, I will happily have a look at them and see what we can do. We said a maximum of five years, but of course the Secretary of State has the ability to do earlier reviews if necessary. That is a maximum date, and we could bring that forward. I take on board his points and am sorry if he is disappointed by my replies.

[Lord Grantchester (Lab)]

I thank the noble Lord, Lord Bilimoria, for his amendment in this group proposing a review of the Act and its engagement with businesses. I am sure it will become clear and the appropriate responses will be forthcoming from the department.

I thank the noble Lord, Lord Clement-Jones, for his sympathy. The effect of the regime on SMEs is very relevant, and high-quality guidance for businesses has been recognised in the Minister’s replies. I thank him also for his replies on the pandemic and the business environment with the call-in powers of the Secretary of State. He returns to the issue of the annual report, thus giving room for these matters to be considered slightly further. With that in mind, I beg leave to withdraw the amendment.

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[Lord Grantchester (Lab)]

My Lords, unlike the noble Lord, Lord Fox, I am not unduly fearful of the noble Baroness, Lady Bennett. I have always thought that being Green does not allow for having a whip. However, I thank the noble Baroness for proposing this new clause to the Bill. I am certainly clear that the climate emergency must hang as a backcloth to every action that we undertake.

The aim of Amendment 93 is completely understood and appreciated. It seeks a Ministerial Statement on how the provisions set out in this Bill will be exercised in relation to the national security impacts caused by climate, environmental or ecological damage. The climate crisis is not only a threat to our way of life in the long term but a threat to national security in the short to medium term. Only last week, Jens Stoltenberg, the NATO Secretary-General, said that

“climate change makes the world more unsafe, so NATO needs to step up and play a bigger role in combating it.”

A few weeks ago, even the Prime Minister made a comment that climate change is a threat to our society. How will the new regime take account of this and reflect on his comments?

The Committee has already questions about the list of sectors affected, especially the energy sector, as well as about protecting green infrastructure. I have raised with the Minister the EV infrastructure, solar and wind industries and how their growth should be protected. It is certainly important that we hear more from him on the issue and what the difficulties would be in undertaking to produce the kind of statement being proposed by the noble Baroness, Lady Bennett. If the Government are resistant to producing such a statement, could the issue be included as an integral part of the annual report?

[Lord Callanan (Con)]

My Lords, let me thank the noble Baroness, Lady Bennett, for her amendment and begin by expressing my heartfelt sympathy to the noble Lord, Lord Fox, on being admonished by her. All that I can say is, welcome to the club.

The amendment would require the Secretary of State to publish within six months of the Bill becoming law a statement on how the regime will be exercised in relation to national security impacts caused by climate, environmental and ecological damage. As the noble Baroness, Lady Bennett, knows—we have debated these matters on numerous occasions in this House—this Government are committed to tackling climate change. We are especially looking forward to the COP 26 conference in November, which will highlight our leadership on this issue and promote co-operation on climate action through the UK’s G7 presidency, as Alok Sharma MP set out in a speech to the UN on 8 February. Of course, the COP 26 preparations continue to be led by Alok Sharma, who opened Second Reading on the Bill in the other place. I am sure that we all wish him well as he strives to bring the world to ambitious agreements in Glasgow.

The Bill, however, focuses on national security risks arising from acquisitions of control over qualifying entities and assets. If we were to view national security through a particular lens, as the amendment seeks to do through environmental concerns, we would be in some way defining national security. We have deliberately avoided defining it in the Bill, a matter that we have debated previously. We have expounded on that at some length in this House and in the other place.

Without rehearsing those arguments, which I am sure noble Lords are familiar with, I hope they will understand that we cannot accept amendments that seek to define national security in a particular way. The noble Baroness’s amendment asks for a statement on how the provisions in the Bill will be exercised. The most fundamental provision is the call-in power. The Bill already requires the Secretary of State to publish a statement on how that is expected to be exercised before being able to use the power. A draft of that statement was published on introduction of the Bill in November. The Government would be very pleased to receive comments and have committed to consult on it publicly. The final version of the statement must be laid before Parliament and will be subject to the negative resolution procedure.

Finally, two provisions in the noble Baroness’s amendment—proposed new paragraphs 2(a) and 2(b)—address specifically environmental concerns. Laudable as they are, they are not directly connected to the national security and investment regime proposed in the Bill. That is because the regime concerns whether the acquisition of qualifying entities and assets poses a risk to national security, not the actions of those entities or assets themselves. Given the Government’s commitment to environmental policies, but recognising that the Bill deliberately avoids defining national security, and given that a statement on how the call-in power is expected to be used is already provided for, I hope that the noble Baroness, in the light of what I have said, is able to withdraw her amendment.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, I thank the Minister for his response and for pointing out how the Committee has taken a neatly circular route, almost like a circular economy, in getting back to more or less where we started—debating definitions of national security. I also note his welcome for comments on the statement on the call-in power, which I certainly hope to pick up and run with.

I should perhaps begin with an apology to the noble Lord, Lord Fox, if he took my comments as being directed at him or anyone taking part in this debate. As is often the case with Greens, I am not concerned with individual behaviour but systems change. It is clear that the systems in your Lordships’ House tend to result in a narrow range of Peers taking part in Bills related to financial matters. Yet, in our heavily financialised society, and given that finance is such an important part of security in this instance, we need input from a broader range of sources. I am certainly not blaming the noble Lord for that, although perhaps he could encourage fellow Peers from his party and others to engage on this issue.

I very much thank the noble Lord for his offer to work together, particularly on the list of technologies, which is also something I will be taking up. I understood his suggestion that we should all be focusing on the need for the Government to have an integrated strategy for 2050, but I pick up on the comments of the noble Lord, Lord Grantchester, who said that every action we undertake has to take account of the climate and ecological emergencies. To use a technical term, we are talking about mainstreaming. The climate emergency and ecological crisis must be at the forefront of our minds in every aspect of what the Government and your Lordships’ House do.

This is an emergency. Looking at the Chamber now, as I speak remotely, I think back to what it was like in March 12 months ago, when all anyone was thinking about was the Covid emergency, but we are also in a climate emergency and an ecological emergency.

I am aware that this is the final amendment to be debated. I hope we will see more people engaged in this debate when we get to Report. We have made some progress, I think, and so, for now, I beg leave to withdraw the amendment, although I expect I will still be looking at what we may do on Report.

National Security and Investment Bill

Lord Callanan Excerpts

Report stage
Thursday 15th April 2021 Lords Chamber

[Lord Grantchester (Lab)]

My Lords, we remain committed to the principles of the Bill, and join others in thanking the Minister and his team for the way they have conducted discussions with us to resolve any issues on the Bill. One of the issues that remains involves the extensive adventure of the unit into the business environment. In Committee, my colleague and noble friend Lady Hayter introduced an amendment to delete Clause 6(2)(b), and asked why the Government wished to make subject to mandatory notification all acquisitions that resulted in only a minimum 15% stake in an entity. We consider that disproportionate. The noble Lord, Lord Leigh, also spoke passionately on the point, as did several other noble Lords. My noble friend apologises because, understandably, she cannot take part in these proceedings today.

However, it is to be welcomed that the Government have heeded the concerns about the unnecessary impact on businesses and the largely intrusive workload for the new ISU section in the department. Government Amendment 3, together with the consequential amendments in this group, would remove the 15% threshold for notifiable acquisitions from the regime. Throughout the proceedings on the Bill, we have been concerned about the impact on businesses, especially in the SME sector, and the huge workload that the Bill would create. That government concession goes a long way towards meeting those concerns.

The Government will still be able proactively to call in transactions involving acquisitions under the 25% threshold of shares or votes if such an acquisition could be deemed to result in “material influence”. However, the ISU would be notified only of transactions most likely to raise national security risks in the most sensitive sectors of the economy. This is plainly sensible. The removal of the 15% threshold will also remove unnecessary impediments to investments in smaller start-ups and enterprises, which might have concerns about hitting the 15% threshold.

Initially the Government reckoned that the new screening regime would result in about 1,800 notifications per year. We expressed scepticism at that estimate, as did several others, including the CBI. Whatever would have been the result, have the Government now recalculated how many notifications the department is likely to receive, having deleted the 15% threshold? I would be grateful if the Minister could give the House the new figure, with any further explanations as to its determination. It would be useful to reflect on it, in the light of the experiences of the unit that are to come.

I am grateful, too, to the noble Lord, Lord Hodgson, for his Amendment 8, which redrafts Clause 8(6). I understand very well the point he is making, and I await the Minister’s reply.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I am grateful to noble Lords for an interesting debate, and I am particularly grateful to my noble friends Lord Lansley and Lord Hodgson for their respective amendments in this group concerning the scope of the regime. I will turn to those in a moment, but let me start with a few remarks on the amendments in my name.

Debates on the Bill, both in this House and in the other place, have reflected that there is a strong degree of cross-party consensus on its underlying principles. I am grateful to the Opposition for making that clear. All sides agree that reforms are necessary to keep the country safe and to bring our investment screening powers in line with our friends and allies. There has also been a shared recognition that the requirements of the mandatory regime must be no more than are necessary and proportionate for the protection of our national security, so that business and investment are not unduly burdened or stifled.

The noble Lord, Lord Fox, put it well in Committee when he reminded us that the clue is in the name. This is the National Security and Investment Bill, and it is vital that we secure both these interests. To that end, the Government have reflected carefully on the scope of the mandatory regime and, in particular, on the comments made by a number of noble Lords in Committee on the 15% starting threshold. I pay particular tribute to the noble Baroness, Lady Hayter, who raised this—and who is, I am pleased to see, in her place, taking a break from her “get out the vote” campaign. Perhaps she would be better advised to be getting out the vote, but I am grateful that she has joined us. I am also grateful to my noble friends Lord Leigh and Lady Noakes, the noble Baroness, Lady Bowles, and the noble Lord, Lord Fox, who all spoke powerfully in support of her amendment.

The Government have concluded that the right approach is indeed to remove acquisitions between 15% and 25% from constituting “notifiable acquisitions”; Amendment 3 gives effect to this decision. We recognise that acquisitions between 15% and 25% will not result in material influence being acquired as a matter of course. Indeed, in many cases, we anticipate that material influence will not be acquired. We have always sought to ensure that the mandatory regime is reasonable and proportionate, and this is an important change, which I believe businesses and investors alike will welcome. I hope that it will reduce the business burden and allow the investment security unit to focus on notifications and cases that will necessarily result in control being acquired.

Let me make two further points on this amendment. First, there may be some noble Lords—my noble friend Lady Neville-Rolfe was one, I believe—who will say that this is a weakening of the regime. Let me explain why I do not believe that that is the case. As the noble Lord, Lord Fox, pointed out, the Secretary of State will continue to be able to call in acquisitions across the economy at or below 25%—and, indeed, if necessary, below 15%—where they reasonably suspect that material influence has been or will be acquired. That call-in power will be available up to five years after an acquisition takes place, so the incentive for parties to notify cases of material influence that may have national security implications remains, in order to achieve deal certainty. The five-year period also provides the Government with a significant window to identify acquisitions of concern and for the Secretary of State to call them in for scrutiny.

Secondly, the Clause 6 powers enable the Secretary of State to amend the scope of the mandatory regime through regulations. Notwithstanding this amendment, that would include the ability to introduce, if necessary, a 15% threshold or, indeed—assuming the will of Parliament, of course—any other threshold that would be relevant to determining whether a trigger event would take place, for mandatory notification in future if that is considered appropriate. The Government do not currently envisage doing so, but I am sure that noble Lords will agree that it is important that the Bill provides the power to do so, subject to the will of Parliament, if the evidence of the regime in practice suggests that this matter should be revisited. I hope that that reassures my noble friend Lady Neville-Rolfe.

Amendments 4, 5, 10 and 21 are all consequential amendments that reflect the removal of the 15% threshold, so I do not intend to dwell on them further.

I now turn to the other amendments in this group. Amendment 2 in the name of my noble friend Lord Lansley would make the acquisition of material influence a notifiable acquisition. I have to say that, in his speech, my noble friend did such a good job of advocating for the Government’s position on his own amendment that perhaps we should welcome him back to the Front Bench at some stage; actually, he would probably make a better job of it than me.

The Government do not consider that broadening the scope of the mandatory regime to material influence would be appropriate. The mandatory regime, given that it is underpinned by voiding and criminal and civil sanctions, must be defined with sufficient certainty for acquirers to determine their obligations objectively.

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[Lord Leigh of Hurley (Con)]

I suppose I should say that modesty had forbidden me from putting my name down for this group. I wanted to have a point clarified and to thank the Government for listening to the Back-Benchers. I think it was fairly random that I took the 15% point: I cannot remember how it was allocated. I thank the Minister for listening to the many people who made representations.

In respect of the point from the noble Lord, Lord Lansley, about the fourth case—Clause 8(8)—we debated this and I think I raised the question at the time as to what influencing the policy of the entity means. To return the compliment to the Government, I agree with them in this instance because if we had Clause 8(8), I can see a lot of discussion and debate as to the meaning of enabling a person to materially influence “the policy”. We discussed the meaning of this at length. I return the compliment and agree with my noble friend the Minister.

[Lord Callanan (Con)]

I will just say that, as always, I agree with my noble friend.

[Lord Lansley (Con)]

My Lords, it has been a helpful debate, not least from the point of view of helping those—I imagine that over time, there will be more of them than we imagine—who will look back and ask what the intentions were behind the Bill as it was brought forward. If I perhaps can say by way of comfort to my noble friend Lady Neville-Rolfe, the point that we have discovered going through the Bill is that there are two tracks here—I confess that my Amendment 2 was tabled originally not quite getting that point. First, there is mandatory notification, which is required in respect of a notifiable acquisition, so the definition of notifiable acquisition needs to be specified very clearly. Then there is voluntary notification but also the power of Ministers to call in any transaction. That is precisely the point that the noble Lord, Lord Fox, made very clearly and which my noble friend on the Front Bench reiterated.

The common theme here is that taking out the 15% threshold and, indeed, not including the material influence test in notifiable acquisitions, means that it is not subject to a mandatory notification requirement. As my noble friend said, we should not ignore the fact that under Clause 13(1):

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


The risk associated with an unclear boundary between what is notifiable and what is not is that potentially large numbers of acquisitions that should be notified are not and therefore those transactions are void. We do not want to arrive at that position. We want people who run the risk of their transaction being a notifiable acquisition either being captured by the mandatory requirement or voluntarily notifying. Frankly, for many people voluntary notification will probably be the better and simpler resort.

Taking out the 15% threshold does not mean, in any sense, that those transactions are taken out of the scope of the regime but simply means that they are dealt with within the regime in a more flexible manner than would be the case through the mandatory notification requirement. Some of the press reports I have seen about this slightly miss the point. This is not a hard-and-fast threshold. It is a threshold for mandatory notification, not voluntary notification. The regime still applies.

My noble friend very helpfully responded to my Amendment 2 in precisely the way that I anticipated and quite correctly and, on that basis, I beg leave to withdraw Amendment 2.

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Moved by

[Lord Callanan]

3: Clause 6, page 4, line 17, leave out paragraph (b)
Member’s explanatory statement
This amendment has the effect of omitting a category of notifiable acquisitions from the scope of the mandatory notification regime, namely where a person acquires a right or interest in a qualifying entity such that their shareholding or voting rights in the entity increases from less than 15% to 15% or more.

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[Lord Grantchester (Lab)]

My Lords, in Committee we debated the climate emergency as the most pressing issue that affects every aspect of everyday life. The climate crisis is not only a threat in the long term to our survival and that of the planet but a threat to security in the short to medium term. According to the Government’s own statistics, nature loss will result in a cumulative economic cost of up to £10 billion between 2011 and 2050. While the Minister may say that climate change is not directly connected to the national security and investment regime proposed in the Bill, actions by hostile actors that stifle our modern green infrastructure can only make us more vulnerable. As the former civil servant Paddy McGuinness has recently said, green networks

“provide an attractive opportunity for an adversary to unbalance, intimidate, paralyse or even defeat us."

I am grateful to the noble Lords, Lord Fox and Lord Clement-Jones, and the noble Baroness, Lady Bennett, who have returned with simple “must have regard to” wording in Amendments 6 and 7 regarding climate change and biodiversity loss. Of course, all Governments will have regard to all legislation on the statute book that impacts on our activities and lives. Nevertheless, it is imperative that the risks of climate change be recognised in the new regime being initiated through the Bill, and the Secretary of State must consider how to mitigate these deepening risks.

I am grateful to the noble Baroness, Lady Bennett, for retabling our Amendment 38 from Committee, which asks for a statement to be made on emerging threats in the light of priorities identified in the Integrated Review of Security, Defence, Development and Foreign Policy. It allows me to follow up with some further questions on the integrated review and its associated documents.

Can the minister provide an outline of how the ISU will work effectively with the MoD directorate for economic security? It is all very well to say that the ISU will be drawing on the expertise in the MoD and the Defence Secretary will be able to make representations to the Business Secretary, but what mechanisms will be set up to co-ordinate across departments? Will there be a mechanism whereby the MoD directorate can give advice directly to businesses in a defence and supply chain through policies initiated from the ISU in the business department, especially in connection with technologies and future associated threats? It would be helpful if the Minister could respond or follow up with a letter in due course.

[Lord Callanan (Con)]

I am grateful once again to the noble Lords, Lord Fox and Lord Clement-Jones, and the noble Baroness, Lady Bennett—I am particularly grateful that she has joined us after her dental work and of course we wish her a speedy recovery—for their respective amendments in this grouping.

With the permission of the House, I will take Amendments 6 and 7 together. Amendment 6 seeks to require the Secretary of State to

“have regard to the risk to national security posed by climate change”

when preparing secondary legislation under Clause 6 in relation to the scope of the mandatory notification regime. Amendment 7 then seeks to amend Amendment 6 to require the Secretary of State to also have regard to the risk to national security posed by biodiversity loss.

I commend the sentiment of the amendments regarding tackling climate change. As I set out in Grand Committee, this Government are of course committed to tackling the climate crisis. I can also confirm, in response to the amendment of the noble Baroness, Lady Bennett, that, just as the Prime Minister has said in his foreword to the integrated review, biodiversity loss very much sits alongside that as the UK’s top international priority. The Government continue to promote co-operation on climate action through the UK’s G7 presidency, and we look forward to the COP 26 conference in November, which will allow us to highlight our leadership in tackling the climate crisis, including biodiversity loss.

However, the Bill is focused on the risks to our national security posed by the acquisition of control over qualifying entities and assets. As the noble Lord, Lord Fox, correctly predicted, we are therefore unable to accept amendments seeking to set out what is or is not a factor to be considered when looking at national security, including factors relating to climate change and biodiversity loss, without edging closer to defining it—which, as he knows, we are reluctant to do. I hope that having my comments on the record in response to these issues provides due assistance to noble Lords. I can further reassure them that, as drafted, the Bill provides the flexibility for the Secretary of State to consider all types of risk to national security that are relevant in the context of this regime, including those that are environmental in nature.

I thank the noble Baroness, Lady Bennett, for her Amendment 38, which seeks to ensure that the national security and investment regime is consistent with the recently published integrated review. I note that a similar amendment was tabled in Grand Committee by the noble Baronesses, Lady Hayter and Lady Northover. However, whereas that amendment asked for a report

“as soon as reasonably practicable”,

the noble Baroness, Lady Bennett, has opted for “within six months”. As noble Lords will be aware, the integrated review provides a comprehensive articulation of the UK’s national security and international policy. It outlines three fundamental national interests: sovereignty, security and prosperity.

I understood the benefits of an amendment in Grand Committee when the Government had not published the integrated review but, now that we have, the alignment is clear for all to see. For example, the NSI will be tremendously valuable in countering state threats, in maintaining the UK’s resilience and in helping us to work with and learn from our allies, to name but a few areas of alignment. Indeed, as noble Lords would expect, this Bill is explicitly referenced within the review.

As noble Lords will know, the National Security and Investment Bill will prove a key tool in enabling the UK to tackle its long-term security concerns and pursue its priorities. The Bill will create carefully calibrated powers for the Secretary of State to counteract concerns around acquisitions and the flexibility to respond to changing risks and a changing security landscape. As part of this, the regulation-making powers in the Bill allow the Secretary of State to keep pace with emerging threats as they arise, such as by enabling them to update the sectors covered by mandatory notification.

Therefore, for the reasons that I have set out, I do not see a strong case for the amendments and I very much hope that their proposers will feel able to withdraw them.

[Baroness Bennett of Manor Castle (GP) [V]]

I beg leave to withdraw the amendment.

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[Lord Callanan (Con)]

I am of course grateful to the noble Lord, Lord Bruce, and my noble friend Lady McIntosh for Amendment 9 in their names. As they outlined, it seeks to exempt from the call-in power acquisitions made by way of obtaining security over a qualifying entity where no effective control is obtained. I start by placing on record my thanks to the noble Lord, my noble friend and the Law Society of Scotland for meeting my noble friend Lord Grimstone and me following Grand Committee to discuss this issue in detail. Indeed, we have considered all the points that were made.

As I emphasised in that meeting and in our subsequent correspondence, the Government do not consider that the provision of loans and finance is automatically a national security issue. Indeed, lenders need confidence that they can see a return on ordinary debt arrangements in order to provide that service. However, we must also recognise that in a small number of cases national security risks can arise through debt arrangements. Noble Lords have particular concerns about the Bill with regard to Scotland. I understand—and the noble Lord, Lord Bruce, stated—that this is because it is usual practice in Scotland for a lender to become the registered holder of shares in security through a shares pledge.

Having heard the concerns, the Government have reflected carefully on the issue, but we continue to believe that an exclusion would not be appropriate in this case. In such circumstances, the legal title to shares will, as a matter of fact, have been acquired by the lender, and it is important that we do not inadvertently create a loophole that those who wish us harm might otherwise seek to exploit.

While I note that the proposed amendment has been updated since the version debated in Grand Committee, reflecting my noble friend’s intention to limit the exemption to situations where “no effective control” is obtained, I fear that this would be difficult to reconcile with the mandatory regime.

It would introduce a new, inherently subjective concept that would sit uncomfortably with the need for acquirers to be able to objectively determine their legal obligations. I hope that noble Lords who have stayed the course on this Bill—a small, gallant band—will know by now that it is focused on the central premise of acquiring control, with these circumstances defined in detail in respect of entities in Clause 8. This amendment would lead to a circular argument in the Bill, in which a trigger event is the acquisition of control—except for when control is not acquired. I am sure that a number of lawyers in this country would be licking their lips with that provision in the Bill.

I mentioned particular concerns about how this would affect the mandatory regime, but the Government also consider that this would cause difficulties for voluntary notification and for the Secretary of State’s call-in power. None the less, both my noble friend Lord Grimstone and I have committed to monitoring the operation of the regime in practice with regard to this issue. Clause 6 provides the Secretary of State with the power to make “notifiable acquisition regulations” to amend the scope of the mandatory regime. That could be used in future, if considered appropriate, to exclude circumstances related to acquisitions by way of security from the mandatory notification regime.

I will address head-on the point made by the noble Lord, Lord Bruce, that this will be particularly disadvantageous to Scotland. It is important to emphasise that such lending arrangements are also possible in England and Wales—albeit we know that they are less common. This Government are staunch supporters of Scotland and it is vital that the Scottish legal and finance sectors continue to flourish.

Let me briefly make three other points on this amendment, which I hope will provide further reassurances to the noble Lord and my noble friend. First, the Bill broadly mirrors the existing approach of the persons with significant control register, which does not exclude legal owners of shares acquired by way of security. I take great confidence from the fact that this has been in place since 2016 and has had no discernible effect on the willingness of lenders to provide finance in Scotland.

Secondly, the mandatory notification and clearance element of the regime is proposed to apply only to entities of a specified description within 17 sectors of the economy. The number of circumstances requiring notification where a lender acquires the legal title to shares at or above the thresholds in this Bill is therefore likely to be low and, as with all acquisitions, the Government expect that the overwhelming majority will be quickly cleared to proceed.

Thirdly, as has been previously debated, I am sure my noble friends will welcome the removal of the 15% threshold I spoke about in a previous group. This will further reduce the number of cases covered by the mandatory regime in relation to securities.

So, for all the reasons I have outlined, I hope that both noble Lords will accept the arguments I have put forward and will feel able to withdraw the amendment.

[Lord Bruce of Bennachie (LD) [V]]

I thank the Minister for his response and for addressing the details. I am not convinced that the Law Society will be entirely satisfied that the difference between Scottish and English law has been fully appreciated. The Minister talked about legal title but, as I said in my opening remarks, legal title is meaningless if the shares pledge explicitly excludes any mechanism for dealing with the shares—either receiving voting rights, dividends, or the right to sell and an obligation to have them back when the loan is repaid. It simply is not control.

I take note that the Minister is concerned that the Scottish situation is not unique and therefore could cause complications in England and Wales, but the practice is clearly well established in Scotland. As I said in my opening remarks, it has been since the 19th century and is relatively unusual elsewhere in the UK.

I understand that the Minister believes that there will be relatively few instances, but part of the problem with the Bill is that an awful lot is undefined, in terms of the 17 sectors, the details of how those will be determined, the circumstances in which triggers will happen and the definition of national security. All of those things are explicitly not set out in detail.

I welcome Ministers saying they will monitor the situation closely. The assurance I would be looking for if we withdraw this amendment—obviously we will ask the Law Society what it feels about the unamended Bill—is that, if it becomes apparent there is a significant negative impact on Scottish business and the Scottish sector, the Government will be prepared to act to remove such discrimination.

It is a long-established fact that one reason the Scottish financial services sector is so strong is that it has a long history of prudent asset management and insurance, which has given Scotland a disproportionate share of both national and international business because of its reputation for, if I may put it in these terms, “canniness” in managing investments and other people’s money. That being the case, we do not want a situation where the law as introduced somehow compromises that. That would not be good for Scotland or the UK either.

I hope these remarks will be noted by Ministers and they will undertake to consult and respond to any representations that emerge showing that the concerns we have outlined are real and significant. If the Minister is correct in his assurance that, though they may be real they will not be very significant, perhaps the matter can rest. But I am sure that I, the noble Baroness, Lady McIntosh, and others will make it clear to him that, if it becomes apparent that there is a significant problem for Scotland and that uncertainty is disadvantaging Scotland, he will hear about it. In the meantime, I withdraw the amendment.

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Moved by

[Lord Callanan]

10: Clause 14, page 8, line 30, leave out paragraph (b)
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.

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Moved by

[Lord Callanan]

22: Clause 53, page 33, line 15, after “if” insert “a sender or”
Member’s explanatory statement
This amendment clarifies that regulations under Clause 53 may make provision in respect of non-individuals required to give notices and any other documents under the Bill, as well as those in receipt of such documents.

[Lord Callanan (Con)]

My Lords, I rise to move Amendment 22 in my name, but with the permission of the House I will also speak to Amendments 23, 25, 27 and 32. I shall begin with Amendments 25, 27 and 32.

A strong theme of debate in Grand Committee, and in the other place, has been whether there is sufficient accountability in the regime—in particular, through the reporting requirements in the annual report. In general, as the House will be aware, the Government’s position has been that, as the Secretary of State may add anything judged appropriate to the annual report, there is no need to amend the Bill to include additional reporting requirements. The Government have, however, listened to proposals, including those made through amendments tabled in Grand Committee, and seek to add additional reporting requirements where it is judged that they would provide significant additional value for parliamentarians and the general public.

Amendment 32, in my name, will therefore increase the level of detail provided on final orders in the annual report, so that in addition to their total number being published, the number of orders varied and revoked will also be published. We recognise that final orders will be significant and reflective of government intervention following the call-in of an acquisition. There will already be a duty on the Secretary of State, in Clause 29, to publish notice of the fact that a final order has been made, varied or revoked. It is therefore appropriate that we provide information on the total number of orders varied and the total number of orders revoked. I thank, in particular, my noble friend Lord Lansley for this proposal, and for our discussions on how to improve this Bill prior to, during, and following Grand Committee. His counsel has been much appreciated.

Amendments 25 and 27 address the concern that the requirements on the Secretary of State to decide whether to accept or reject a mandatory notice or voluntary notice are insufficiently specific. As it stands, the Secretary of State must decide

“As soon as reasonably practicable”


after receiving a notification, and thereafter notify parties of his decision as soon as practicable. I set out during Grand Committee that the Secretary of State would strive to ensure that decisions to accept or reject notifications were made quickly. In many cases “as soon as reasonably practicable” is expected to be a very short period indeed, but we do not consider it appropriate to limit the period to a specific number of days, so as to provide scope for flexibility where required. In place of that, the Government propose reporting on the average number of days taken to respond to voluntary notices and mandatory notices. This additional detail will, we believe, ensure that parliamentarians and the wider public will be able to judge whether the Government’s expectation that this will be a matter of hours or days is proving correct year on year. Of course, these changes do not preclude the Secretary of State from going further by providing more information than required, where the information provides value to Parliament, and where, in particular, it provides reassurance where there is no time limit expressed in terms of a number of days.

Amendments 22 and 23 are minor amendments. Noble Lords will be aware that Clause 53 provides for regulations to be made setting out the procedure for service of documents under the Bill. These changes are intended to put the scope of the power beyond doubt. A change is proposed in subsection (2)(g), so that it is clear that the regulations may specify what must, or may, be done in relation to service of documents by senders outside the United Kingdom. A corresponding change is then made to paragraph (e), to avoid any doubt that the regulations will be able to set out what must, or may, be done where a sender is not an individual.

I hope that I have made clear the principles on which the Government are approaching the amendments in this group. I beg to move.

[Baroness Noakes (Con)]

My Lords, I have a number of amendments in this group, all of which would amend the annual reporting requirements. Some of them overlap with amendments that my noble friend has just spoken to. In particular, my Amendments 26 and 28 are similar to his Amendments 25 and 27. The difference is that my noble friend’s amendments ask for the average time to be given, whereas I ask for both the average and the maximum, because averages can be very misleading. However, we shall have some data, and I am sure that those can be used as a springboard for further examination of BEIS Ministers and officials, if either House wished to do that, so I shall not pursue those amendments.

Of my other amendments, Amendment 29 asks for differentiation between call-in notices issued for mandatory and for voluntary notifications. That is not given, and it is quite an important bit of information, which would be useful to enable us to see how important that mandatory notification route turns out to be. The other thing I have asked for is a focus on timing—the time between issuing the call-in notice and getting to the end of the process and giving the final notifications and the final orders. I continue to believe that those areas would be important for keeping an eye on how well the process is operating, especially as there are very long times available once the call-in notice is issued. Again, I am sure that questions can be tabled and Ministers can be interrogated in the usual way, so I am not worried about that. I am glad that my noble friend has moved towards more transparency, although he has perhaps not gone quite as far as I would have preferred.

Although I have not added my name to the amendment in the name of the noble Lord, Lord Grantchester, I think it is important for annual reporting to keep a focus on the resources dedicated to this, because the timing performance will be in part a reflection of whether adequate resources have been dedicated. Of course, giving numbers never gives an idea of the quality of resources, so that can only ever be an imperfect picture, but it is important for Parliament to have an opportunity to review and keep in focus the resources dedicated to the ISU processes. That is where the biggest impact is likely to be felt by businesses as they come up against the system. Well done for bringing in some transparency; a bit more would have been better.

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[Lord Grantchester (Lab)]

I welcome the lead amendment in this group from the Government, providing greater clarity to the Clause 53 procedure for service. However, the bulk of the amendments in this group concern Clause 61, on the annual report. I thank all noble Lords who have contributed to this debate.

In commerce, I have always championed annual reports as a strategic publicity document for an organisation, displaying how it is performing, how effective it has been, what results and achievements it has attained and what wider societal responsibilities it has performed. It can be far more than a dry, lumpy statutory document that has to be produced and is a chore to be complied with. I am sure it should be the same for government departments and public agencies.

I am grateful, therefore, for the dialogue since Committee with the Minister and his team regarding this issue. I am very glad that the Government have looked again at Clause 61 and at the material that could be provided in the annual report of this new unit and its operation. I am grateful to the noble Baroness, Lady Noakes, for looking at this and extending the information to be provided to cover both mandatory notifications as well as voluntary notices.

The noble Baroness has also added many more aspects that would provide greater visibility for the activities of the ISU. It is important that the Government are transparent about these areas so businesses can see the impact on their activities and compare experiences. Parliament and the public can monitor the work of the unit and determine the value to national security activities and how far legitimate businesses are being affected. These amendments were all supported by the UK BioIndustry Association. I thank it for the briefings it has sent throughout the Bill.

However, we still believe that there is more that the Government could do to assist the understanding of this new regime. I thank the noble Lord, Lord Clement-Jones, for adding his name to my Amendment 34. Greater transparency could still be given on the resources allocated to the new unit, the extent to which small and medium-sized enterprises are called in under the regime and the Bill’s impact on foreign investment. This is about requiring greater accountability from the department on the unit’s service standards.

The business community still remains somewhat nervous concerning the impacts on it as a result of the Bill. Throughout its passage, we have sought to champion clarity and support for SMEs and innovative start-ups, which are the engine of growth in the economy, create many new jobs and enhance prosperity. We are keen to foster a business environment in which SMEs can thrive.

It would be beneficial for the Government to report on the unit’s work with SMEs in the annual report. This can only be helpful in providing detail and reassurances to SMEs on the operation of the unit and its impacts on them. I would be very grateful if the Minister could provide reassurances that his department will embrace the annual report in a positive manner and provide as wide a range of information as possible.

[Lord Callanan (Con)]

My Lords, first, I thank all noble Lords who spoke in this debate, particularly my noble friend Lady Noakes—for her Amendments 26, 28, 29, 30 and 31—and the noble Lords, Lord Grantchester and Lord Clement-Jones, for Amendment 34.

I also thank my noble friend Lady Neville-Rolfe, to whom I will reply first. The Government have written on plans for a range of guidance, as my noble friend said. This is intended to aid parties in understanding and complying with the Bill. Timings and matters of requirements are set out in the legislation; they were consulted on, and of course they cannot be added to in guidance. As in the past, the Constitution Committee advised us quite strongly against legislating through guidance. Of course, we remain open to further proposals for guidance that assists in understanding and complying with the basic provisions in the Bill.

I move on to Amendments 26 and 28, which seek to require the Secretary of State to report on the “maximum and average time” taken to process mandatory and voluntary notices. These amendments would also require the Secretary of State to report on the “maximum and average time” taken between a notice being accepted and a call-in notice or notification of no further action being given or issued. Clauses 14 and 18 already set out that, if a notification is accepted, the Secretary of State has up to 30 working days to either give a call-in notice or notify each relevant person that no further action will be taken under the Bill.

I outlined in Grand Committee that these timings are a maximum, not a target. I have also set out the principles by which the Government consider it appropriate to specifically amend the Bill to require additional reporting, rather than to judge over time whether it would be beneficial to publish the information. It is already clear in the Bill that the maximum time that can be taken to make a call-in decision is 30 working days.

On the point of including average times, as I hope noble Lords will appreciate, each case will turn on its own facts. Therefore, reporting an average time without explaining the complexities of every individual case would be meaningless, in my view. For example, there may be a low average for some response times where particularly straightforward cases were prevalent—this may be held up as an efficient case review. There may be another period where particularly complex cases are dealt with exceptionally efficiently but none the less slightly more slowly. What would a comparison of the averages without further details on the cases provide? To my mind, it would provide nothing but a misunderstanding.

Amendment 29 seeks to require the Secretary of State to separately report on the number of call-in notices given in response to mandatory and voluntary notifications. I reassure the noble Baroness that the Bill already allows for the Secretary of State to do this in the future if deemed useful. Clause 61 sets out minimum reporting requirements that the Secretary of State must meet in the annual report.

Amendments 30 and 31 seek to require the Secretary of State to report on the “maximum and average time” taken between a call-in notice being issued and the making of a final order as well as the “maximum and average time” taken between a call-in notice being issued and a final notification that no further action will be taken under the Bill. In my view, the same argument applies in response to these amendments.

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The key players in the other place, as I see it, are Johnson, Gove and Rees-Mogg. From a political point of view, those are not people of substance. Shallow, mediocre and trivial is the way in which I would sum them up. That is the issue. We have messages here from people who have been at the front line, and we are simply saying to the Commons, “We want you to think again about this, and the reasons we want you to do so have been deployed in this debate.” They, the Commons, ought to be asking the Government—and no one has had the answer yet, unless we get it from the Minister—what is the Government’s central objection? That is what this is all about and, unless we get an answer from the Minister, I will certainly recommend that my noble friends support my noble friend Lord West in a Division.

[Lord Callanan (Con)]

My Lords, perhaps I may start by welcoming back to the Front Bench the noble Lord, Lord Rooker, who is an extremely adequate substitute, if I might say. It is a delight to see him back and fully recovered from injury.

There have been a lot of analogies about rugby and positions in this debate. I did not really play much rugby in my career, which is probably a good thing, but the occasional time that we played at school, I seemed always to be the hooker, which seemed, in the poor quality of rugby that we played, to be the one in the middle of the scrum being kicked by everybody else—somewhat appropriate in this debate.

I thank the noble Lords, Lord West and Lord Butler, for their Amendments 24 and 33, which would require the Secretary of State to provide additional information on regime decisions, either in the annual report, or, where details are too sensitive to publish, in a confidential annexe to the Intelligence and Security Committee. This information would include summaries of decisions to make final orders or to give final notifications, and summaries of the national security assessments provided by the security services in relation to those decisions.

A number of noble Lords have spoken with such passion and knowledge on this important issue, both in this debate and when we previously discussed amendments in this area during Grand Committee. I am particularly grateful—I say this genuinely—to the noble Lords, Lords West and Lord Butler, for their careful consideration of the words used by my colleague my noble friend Lord Grimstone during Grand Committee, and for their continued pursuit of an amendment that attempts to satisfy all parties.

The noble Lords’ amendment would effectively require the Secretary of State to include material provided by the security services in a confidential annexe. Of course, the ISC is already able to request such information from the security services as part of its long-established scrutiny of those organisations, as is set out in the Justice and Security Act 2013 and its accompanying memorandum of understanding.

I will directly address the issue raised by the noble Lord, Lord West, and others, about the BEIS Select Committee and its access to sensitive or classified information. The Government maintain their view that there is no barrier to the committee handling top-secret or other sensitive material, subject to agreement between the department and the chair of the committee on appropriate handling. As part of its role, the BEIS Select Committee can request information, which may include sensitive material, from the Secretary of State for BEIS, including on the investment security unit’s use of information provided by the intelligence and security agencies. The Select Committee already provides scrutiny of a number of sensitive areas and there are mechanisms in place for them to scrutinise top-secret information of this kind on a case-by-case basis.

The amendment would also require sensitive details to be provided to the ISC of the Secretary of State’s decisions in respect of final notifications given and final orders made, varied, or revoked. As we discussed earlier, the Bill already provides that the Secretary of State must publish details of each final order made, varied, or revoked. The Government have also recognised that providing this information at an aggregate level will be helpful, and Amendment 32 in my name would require the Secretary of State to include the number of final orders varied and revoked in the annual report. Even without Amendment 32, Clause 61 already requires the report to include the number of final orders made. The Secretary of State must also include in his annual report a number of other details pertinent to this amendment. I am confident that this will provide a rich and informed picture of the Government’s work to protect our national security from risks arising from qualifying investments and other acquisitions of control.

As I have said before, for further scrutiny, we welcome the fact that we can follow existing appropriate government procedures for reporting back to Parliament, including through responding to the BEIS Select Committee, which does such an excellent job of scrutinising the work of the department. As the Secretary of State for BEIS said on 13 April, during a session of that committee, the NSI Bill “sits within BEIS” and the powers of the Bill sit with the Secretary of State for BEIS.

The chair of the BEIS Select Committee—who, I remind noble Lords, is an Opposition Member of Parliament—supported the view that his committee should scrutinise the investment security unit as part of its oversight of the department. Therefore, it makes sense that, from a governance perspective, the BEIS committee should be the appropriate scrutinising committee.

As this was discussed at length in Grand Committee, I do not wish to try the patience of the House by repeating the assurance that my noble friend Lord Grimstone, the Minister, provided to the House on the ability of the BEIS Select Committee to request and see materials regarding the work of the investment security unit. Therefore, I hope—it is probably more in hope than expectation—that noble Lords will accept my explanation and feel able to withdraw their amendments.

[Lord West of Spithead (Lab)]

My Lords, I thank all those who had an input in this debate, particularly those supporters. We almost got a full scrum, with the noble Lord, Lord Lansley, added as well—we had a bit of weight there. We are more second than front row, to be quite honest, but I have now found that the Government Minister is actually a hooker, so we have a bit of front row around. As he rightly says, the hooker gets punched by everyone—I am afraid that that is the way that it is going tonight.

I have considerable sympathy for the Minister: I was in that position when I had to argue for 90 days pre-trial detention. Because I am not really a politician, I had actually already said on the “Today” programme that I thought that this was a very dodgy thing to do—and then I had to stand at the Dispatch Box and argue for it. Lo and behold, I am in Guinness World Records for the biggest defeat of the Government since the House ceased being entirely hereditary—so I feel for the Minister.

However, I am afraid I question a couple of the things that he said—for example, the chairman of the BEIS Committee has no objection to my amendment at all, so he was given some wrong information there. I also fear that the Minister has failed to provide an explanation for the Government’s intransigence and indeed seems willing to stop Parliament having a mechanism whereby it can scrutinise highly classified intelligence, based on which key decisions are made. To cut it short—I have spoken for far too long—I therefore have no choice but to test the opinion of the House on this key amendment.

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[Lord Grantchester (Lab)]

I am grateful to the noble Lords, Lord Fox and Lord Clement-Jones, for the amendment, which proposes a super-affirmative process for regulations under subsection (1) of Clause 6, “Notifiable acquisitions”. This was debated at length in Committee, and we certainly agree that parliamentary scrutiny of regulations is not always as meaningful as it might be. We can feel sympathy with the view that notifiable acquisition regulations are highly significant and require proper oversight, not merely by both Houses of Parliament but also by many experts who might become involved.

The opinions of those experts could be sought and made available to Parliament and deliberated on. The importance of consultations with stakeholders who are knowledgeable and familiar with the situation at the leading edge is also recognised. However, the Delegated Powers and Regulatory Reform Committee did not call for the super-affirmative procedure to be adopted for these regulations under the Bill. Indeed, in its report of 22 February it said that

“there is nothing in the Bill to which we would wish to draw the attention of the House.”

It would be unusual to take a view contrary to the considered opinion of that well-respected committee of your Lordships’ House.

We remain somewhat sceptical about how the super-affirmative procedure would work in practice, over and above the normal affirmative procedure, in this case, even if custom and practice deemed the process less than ideal in all circumstances. We feel that experience needs to be gained first before undertaking this extra affirmative process. I hope this confirmation of what the noble Lord, Lord Fox, may have heard about our view on his amendment may not greatly startle him.

[Lord Callanan (Con)]

My Lords, I of course welcome the amendment from the noble Lords, Lord Fox and Lord Clement-Jones, which seeks further parliamentary scrutiny of Clause 6 regulations, and the opportunity to put forward the Government’s case once more. I can spare the noble Lord, Lord Fox, the agony and tell him that, great though my ministerial powers are, I am not a miracle worker and, therefore, probably will not satisfy him.

The Bill as drafted provides for regulations made under Clause 6 to be subject to the affirmative resolution procedure. This amendment would require the Secretary of State to lay a proposed draft of any regulations made under Clause 6 before Parliament for 30 days before the draft regulations themselves are laid and subject to the approval of both Houses. It would also require the Secretary of State to identify a committee to report on the proposed draft regulations and then report on their consideration of the committee’s recommendations.

We have, as the noble Lord, Lord Fox, said, previously discussed the importance of regulation under Clause 6, and I thank the noble Lords for their commitment to ensuring meaningful parliamentary scrutiny of the making of such regulations. However, the Government’s position remains that the affirmative procedure—or regulations made under Clause 6—ensures such scrutiny by requiring Parliament to approve regulations. In Grand Committee, the noble Lord also highlighted the importance of the Secretary of State maintaining “serious technology foresight” and making any regulations under Clause 6 to protect our national security effectively. I can assure noble Lords that the Government are committed to keeping regulations under constant review to ensure that this regime is effective in protecting our national security and reflects technological changes.

The affirmative procedure will, in addition, provide the Secretary of State with the flexibility to update the mandatory regime quickly should new risks to national security arise. For all these reasons, I ask that the noble Lord withdraw his amendment though, in the absence of the requested miracle, I suspect that he is not going to do so.

[Lord Fox (LD)]

I thank the Minister for his response and the noble Lord, Lord Grantchester, for his speech. The Minister is correct: there was no miracle, and there was no surprise. Of course, I was aware that the Secondary Legislation Scrutiny Committee had not recommended opposing this in any way. Sitting through three days in Committee and a day on Report would activate many people who worry about the way in which Governments run their affairs. Therefore, with all due respect to everyone, having been through that process, it would be remiss if someone did not bring an amendment of this kind before your Lordships’ House. To that end, I would like to test the mood of the House.

National Security and Investment Bill

Lord Callanan Excerpts

3rd reading
Thursday 22nd April 2021 Lords Chamber

Moved by

[Lord Callanan]

That the Bill do now pass.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, I start by expressing my gratitude to noble Lords from across the whole House for their contributions to the passage of the Bill. In particular, I thank my noble friends Lord Grimstone and Lady Bloomfield for their steadfast help, guidance and support throughout its passage. I also place on record my thanks to the noble Baroness, Lady Hayter of Kentish Town—my commiserations on the results of the Lord Speaker election—and to the noble Lords, Lord Grantchester and Lord Rooker, for their constructive attitude and helpful challenges from the Opposition Front Bench throughout the passage of the Bill. I also thank the noble Lords, Lord Fox and Lord Clement-Jones, for their customary ability to ask the most difficult questions at totally wrong times during the passage of the Bill.

It would also be remiss of me not to thank some of my noble friends who have taken a particular interest in ensuring that we get the Bill right. I am thinking in particular of my noble friends Lord Lansley, Lady Noakes, Lord Hodgson of Astley Abbotts, Lord Leigh of Hurley, Lord Vaizey of Didcot, Lady McIntosh and others.

Noble Lords from across the House have rightly held the Government’s feet to the fire in a number of areas, in the finest traditions of this House, and I can honestly say that the Bill leaves the House in a better state as a result of that scrutiny. I extend my particular thanks to parliamentary counsel for their exemplary drafting and to the clerks and all the House authorities for shepherding us through these exceptional times. The smoothness with which proceedings flow masks the sometimes immense and exceptional logistical operation going on behind the scenes.

I also extend my thanks to the officials and lawyers within my department, who have worked tirelessly on the drafting and subsequent passage of the Bill, for their immense patience in explaining some of the difficult concepts to a mere simpleton such as myself. In particular, I thank Dr Sarah Mackintosh, Mike Penry, Danny McCarthy, Arash Abzarian, Alex Midgley and George Kokkinos, who embarked on their NSI journey before I was even a Minister in this department. In my view, they act in the finest traditions of our civil servants, and I am very grateful to them for all their expert help, support and guidance. Finally, I thank the wonderful Melissa Craig, in my private office, and the immense Yasmin Kalhori in the Whips’ Office, who is ever-helpful in feeding forward suggested speaking notes—not all of which I can use in this House.

I said at Second Reading:

“This Bill will keep the British people safe.”—[Official Report, 4/2/21; col. 2335.]


In the meantime, we have had lengthy discussions on fishing, lectures to insolvency practitioners and—in one memorable case—the makeup of a particularly hawkish rugby front row. These discussions and others have made me certain that the Bill will go a long way in ensuring that the UK’s defences are fighting fit, both now and long into the future.

I am heartened that, in the finest traditions of this House, all parties have recognised the Bill’s importance, even if we have disagreed on some of the detail. In that sense, it has genuinely been a cross-party effort, and I am grateful to all noble Lords who have participated. I beg to move.

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[Lord Callanan (Con)]

I thank noble Lords for their kind words and renewed support for the Bill. Empathy is not something I normally get accused of—I am sure that the noble Lord, Lord Fox, did not have his tongue in his cheek, so I will take that as a compliment. As I said earlier, there has been genuine cross-party enthusiasm for the Bill and, with the exception of one important detail, I have been heartened by the House’s desire to get it on the statute book. The debate has been excellent and shows the finest traditions of this Chamber.

I will certainly take up the suggestion made by the noble Lord, Lord Fox, for my considerable reading list. My in-tray is very high at the moment, but I will look at the article he referred to, and I am sure that it will enhance my understanding of the subject. For a final time, therefore, I beg to move.

National Security and Investment Bill

Lord Callanan Excerpts

Consideration of Commons amendments
Wednesday 28th April 2021 Lords Chamber

Moved by

[Lord Callanan]

That this House do not insist on its Amendments 11 and 15, to which the Commons have disagreed for their Reason 11A.

11A: Because it is appropriate and sufficient for oversight and scrutiny of decisions made by the Secretary of State for BEIS to be conducted by their departmental select committee.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, with the leave of the House, I will speak also to Motion A1. I will, of course, address any further comments at the end of the debate.

It goes without saying that I am delighted to be back in the Chamber after a short respite while the other place has considered our amendments to this Bill. I am pleased to advise noble Lords that there was resounding support for all the amendments made by this House, with the mere exception of two. The other place has resolved against amendments which, in effect, would have introduced a reporting requirement to the Intelligence and Security Committee in relation to the NSI regime.

Amendments 11B and 11C in lieu, tabled by the noble Lord, Lord West, draw on his earlier amendments. They would require the Secretary of State to include in the annual report provided for in Clause 61 a summary of his decisions in respect of final notifications given and final orders made, varied or revoked, as well as a summary of any national security risk assessment provided by the security services in relation to those decisions. Where publication of any of that additional information would be contrary to the interests of national security, the Secretary of State may instead place that information in a confidential annexe provided to the ISC. The amendments before us would end those requirements should the memorandum of understanding that governs the remit of the ISC be amended to bring the Secretary of State’s activities under Clause 26 in scope of ISC scrutiny.

I merely echo the words of my colleague, the Minister for Small Business, Consumers and Labour Markets, on Monday, when he welcomed the “passionate and expert debate” this issue has seen in both Houses. In particular, I repeat the praise offered in this House for those who previously spoke in favour of this amendment. Rugby analogies aside, it is a particularly serious, knowledgeable and experienced group of Peers, and I of course acknowledge the weight and credibility that they undoubtedly bring to these issues.

However, the other place resolved by a significant majority of 106 to restore the Bill to its previous form in this regard. The elected Chamber has given this issue its due consideration, and a majority of 106 elected Members has made the position of the other place very clear. This includes four of the seven members of the ISC, who, similarly, sit in the other place voting with the Government, with only one Conservative Member in the entire House voting against.

I do not intend to try the patience of the House and repeat the arguments that we have heard many times before which the Government have already made on this issue, but I will address the specific changes in this amendment from the original which this House has previously considered.

The Government do not consider that the addition of an endpoint for the effective requirement on the Secretary of State to provide confidential information to the ISC makes the approach any more necessary or appropriate. It is our view that the BEIS Select Committee remains the most appropriate committee for scrutiny. It is capable, it is interested and it stands ready. The Secretary of State for BEIS has written to the chair of the BEIS Select Committee to confirm this, and this was acknowledged by the chair of the committee in the other place, also on Monday. The BEIS Select Committee will be ably supported by the Science and Technology Committee, where that is appropriate.

The Government hugely value the Intelligence and Security Committee, but we also hugely value the BEIS Select Committee and the clear and appropriate scrutiny that it provides. We do not need to conflate the two through amending this Bill, the memorandum of understanding or, indeed, anything else in this field.

The Government’s position, and that of the elected Chamber, is clear, and I can tell your Lordships that the Government have no plans to concede on this issue. I therefore ask that noble Lords respect the clear wishes of the other place and, while I am of course grateful for noble Lords’ insight and passion on this matter, I hope that this House does not insist on these amendments. Therefore, I beg to move.

Motion A1 (as an amendment to Motion A)

Moved by

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[Baroness Hayter of Kentish Town (Lab)]

My Lords, it is clear that the Government have no good reason for refusing to accord the ISC its proper role in overseeing the intelligence input into a decision by the BEIS Secretary of State to forbid an otherwise bona fide investment in an enterprise—the sort of investment that the noble Lord, Lord Fox, has just described. I am sad to say that the Minister cited only the size of the House of Commons majority and gave no argument against proper parliamentary scrutiny. Frankly, if we are to say that this House should never question what the majority in the House of Commons does, you would wonder whether there is any role for this House. The size of the majority down there is not important; what is important to the security of this country is the correctness of the views that we take.

At one point, I think in this House, it was suggested that the Government did not want to amend the MoU case by case, but why not? As the noble Lord, Lord Fox, has said, if a new law comes in that has “national security” in its title and gives powers to a Secretary of State that depend wholly on intelligence, why not scrutinise that intelligence in respect of the use to which it is put? As we have head, neither the BEIS Select Committee nor its highly respected chair—who I assume will now be made a privy counsellor, since he is about to be briefed on Privy Council terms; I will be there to congratulate him if that happens—have the security clearance or experience to question the intelligence in the sorts of ways that we have been hearing from around the House. So why not let our experts carry out that work, on behalf of Parliament? What my noble friend is asking for is simple: an amendment to a memorandum of understanding. Is that too much to ask of the Government?

[Lord Callanan (Con)]

I thank all noble Lords who have contributed; it has again been a good demonstration of the quality of contributions from this House. I have listened very carefully to the points that have been made, in particular by the noble Lords, Lord West, Lord Campbell and Lord Butler, and by my noble friend Lord Lansley.

I will address the primary issue head on. This was raised by the noble Lords, Lord West and Lord Campbell, and the noble Baroness, Lady Hayter. It is the issue of whether the BEIS Select Committee will have access to “top secret” information. We will make sure that the BEIS Select Committee has the information that it needs to fulfil its remit and scrutinise the work of the ISU under the NSI regime. Much of this is unlikely to be highly classified and, where the Select Committee’s questioning touches on areas of high classification, it is likely that the relevant information could be given in a way that does not require as high a classification and provided to the committee confidentially. If, however, the BEIS Select Committee requires access to highly classified information, we will carefully consider how best to provide it, while maintaining information security in close collaboration with the committee’s chair.

Another point made by the noble Lord, Lord West, was that the current system for scrutiny is run out of the Cabinet Office and therefore comes under the ISC’s unit, so the Bill reduces the ISC’s remit. The Government’s main powers to scrutinise and intervene in mergers and acquisitions for national security reasons in fact come from the Enterprise Act 2002; the powers under that Act sit with the Secretaries of State for BEIS and DCMS, not in the Cabinet Office. Giving the BEIS Select Committee oversight of the new NSI regime is entirely in keeping with this and does not represent a reduction of the ISC’s remit.

A point made particularly by my noble friend Lord Lansley was about changing the memorandum of understanding, but the question here is not whether the MoU allows for the role proposed by noble Lords, but whether that role is appropriate. Our answer—and I appreciate that noble Lords will disagree—is no. The Government have made their case, which comes off the back of a resounding vote by the elected Chamber, that no change should be made to the Bill in relation to reporting to the Intelligence and Security Committee. We maintain our view that the BEIS Select Committee remains the place for scrutiny of the investment security unit and that the Intelligence and Security Committee remains the appropriate committee for scrutiny of the intelligence services, in accordance with the memorandum of understanding and the Justice and Security Act 2013. With acknowledgement to all who have spoken and with regard to the points that I have made, I appreciate the difference of opinion on this, but ask once again that the House does not insist on these amendments.

[Lord West of Spithead (Lab)]

My Lords, first, I thank those who spoke in support of my Motion. They have an incredible amount of knowledge about this issue. I find the Government’s position extraordinary and I feel sorry for the Minister opposite—for whom I have great respect—who has to parrot arrant nonsense. As an admiral and a captain who had defaulters in front of me, I have had people spouting arrant nonsense at me and I know how to spot it. This is arrant nonsense and I find that rather sad. It is unfortunate that he has to do this as I am sure that, deep down, he does not believe it, because he is an intelligent chap. I am appalled that the Government are not willing to give ground on this and I cannot understand why—I really cannot. This is not a great party-political issue or anything like that. It is quite extraordinary, so I am afraid that I will test the opinion of the House.