All 7 Lord Fox contributions to the National Security and Investment Bill 2019-21

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Thu 4th Feb 2021
National Security and Investment Bill
Lords Chamber

2nd reading (Hansard) & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 2nd reading
Tue 2nd Mar 2021
National Security and Investment Bill
Grand Committee

Committee stage & Committee stage & Lords Hansard
Tue 9th Mar 2021
Tue 16th Mar 2021
Thu 15th Apr 2021
Thu 22nd Apr 2021
Wed 28th Apr 2021
National Security and Investment Bill
Lords Chamber

Consideration of Commons amendments & Consideration of Commons amendments

National Security and Investment Bill

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

(3 years, 10 months ago)

Lords Chamber
Read Full debate National Security and Investment Bill 2019-21 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 20 January 2021 - (large version) - (20 Jan 2021)
Lord Fox Portrait Lord Fox (LD)
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My Lords, I thank the noble Lord, Lord Desai, for cheering us all up with predictions of nuclear war. I also congratulate the noble Lord, Lord Woodley, on his maiden speech, and welcome him. Like the noble Lord, Lord Harris, I hope that his distinctive voice will be heard on a regular basis.

No Peer has stood up and said that the pretext of the Bill is wrong—because no one would. But at the end of his speech the Minister said categorically, “This Bill will keep the country safe.” Actually, I think it is the implementation of some of the principles within the Bill that might help keep the country safe; that would perhaps be a less ambitious statement. It is your Lordships’ job—all of us together—to try to make sure that the law of unintended consequences does not overtake the good intentions of the Bill. That will be the challenge, and that should be our purpose.

As the noble Baroness, Lady Noakes, pointed out, there is already a more laissez-faire way of dealing with security issues that the Secretary of State has had for some time—but this Bill proposes a substantial change of gear. That, I can only presume, has been sparked by the Government’s view of a changing geopolitical situation. In fact, it would help the Bill if the Government set out how they see the geopolitical landscape—in other words, what is inspiring this change of gear.

My noble friend Lord McNally suggested that we might be entering a cold war with China. What is the Government’s view on that? With that kind of analysis, understanding the Bill would become a much easier task for the rest of us. As many noble Lords have said, there is no definition of national security. The noble Lord, Lord Desai, made that point, as did the noble Lord, Lord Lansley, and I shall make an observation on that later.

On the wider strategy, we are already seeing elements of what I would call mission creep. The questions that this debate, and the subsequent legislative process, will have to answer are: how much agency do the Government want to exercise in the market, and how do we ring-fence genuine security concerns from a given Secretary of State’s wider industrial economic plans—or do we want to? How can we be sure that future Governments and Secretaries of State will not be more ambitious, or more interventionist, in using the powers that this Government have decided to put in place? That is a big challenge, because it addresses not just what one Secretary of State says, but the future.

As we know, the Bill puts the onus to report on businesses, and on research and finance organisations, and reduces the trigger levels to report transactions. It introduces costs—it must do—and it slows things down; I will come to that later. It also brings smaller transactions into scope than would previously have been the case. It is mildly retrospective and, unlike comparable regimes, it captures domestic transactions and does not include an exemption list.

As noble Lords have said, there are many respectable external voices suggesting that the Bill as drafted could, or would, inhibit investment, and put at risk innovation funding. There is also the scope of the Bill. As we have also heard, there is a separate document outlining 17 sectors of technology, ranging far and wide. Some would like them to range further and wider. There is a consultation, as the Minister set out, and we are looking forward to seeing that more focused document, because it will be very important for the progress of the Bill that we see it.

The list of technologies is extraordinarily wide. Frankly, it would cover almost anything, and we need to see what the focused version will say. But, given that the list is amendable by secondary legislation, and also given the risk that others are very reticent about challenging the secondary legislative process, this is, in effect, a blank cheque. We should also note that, as the noble Lord, Lord Clement-Jones, observed, most technologies have dual use—civilian and security use. This opens up many deals to challenge, which might not be necessary. So this calls into question the methodology, and comes back to the point made by the noble Lord, Lord Lansley, about security risk.

Basically, the Government are seeking to build a comprehensive list of everything—every possible technology—using language that few of us understand. That may be good or it may be bad; we do not really know. So this requires an immense amount of forethought to make the list comprehensive, and it also raises speed bumps in front of all sorts of innocent deals going forward.

The key here is what the technology would be used for. What harm could it cause, or what would losing access to that technology prevent the United Kingdom doing? There is a more methodological approach to this than simply listing everything that could possibly harm us, because that is not possible.

Looking forward, how are the Government going to weigh up the need for the scale-up of technologies? Scale-up organisations need an injection of funds on a regular basis, and delay will be a problem. What is the Government’s view on losing control of this technology—potentially to an ally? For example, is it okay for a US company to buy a UK business and carry this technology off to the United States? I have experience with this, and repatriating the technology to the UK after it has been in the US can and has been stopped by the US Department of Defense. This is not a matter simply of China or Iran; it is a matter of technology moving among our allies as well. We need to understand the Government’s view on these kinds of transfers.

We heard from my noble friend Lady Bowles about how this fits in with free trade agreements. Do clauses in FTAs allowing free market activity override the Bill? If the Bill overrides the FTA, what price an FTA? Overall, what is the principal concern here to the Government? Is it losing access, losing control or handing access to someone we do not like—or is it a formula of all three? How does this work? How does the Bill discriminate between each of these?

Then we have the mechanics of reviewing the deal. The CMA is carved out of this, and a new unit is being set up. How will they work together? Who will guide the market on this process, and how? A previous speaker was very clear about the need for this. As noble Lords have said, there will be at least 30 deals a week—actually, it will be more than that—over 17 different complex technology sectors. How is this unit going to handle, sift and manage these sectors? How big will the unit be? What is the budget? What will its relationship be with other organisations across the sector? We need to understand the mechanics of this operation.

The Bill gives the Secretary of State great power to intervene in the market, and it is unclear which of all the assets will be within scope. Universities in particular have a great deal of concern, as the noble Lord, Lord Desai, just mentioned. There is a lot to be said around universities—how they will work with research deals and through scale-ups—as I have already said. It is quite clear, post Brexit and as we are coming through Covid, that the market is very nervous. How will the Government make sure that the essential flow of the right sort of investment into technology continues?

The Bill is being launched into a vacuum. The integrated security review is not there yet; as I have said, we need a better picture of the geopolitical outlook. Furthermore, there is no solid marker on genocide, and we are already hearing it come up here. The Government should and could have allotted time to deal with that in a separate Bill, and they are reaping the whirlwind of not doing that. Of course, there is also no industrial strategy. I firmly believe that work on one is necessary—not so that this Bill can enact industrial strategy but so that there is a separate process. People who want to have an industrial strategy are now wishing it upon this Bill. It is well past time that that discussion was had.

It is inside this vacuum that the Secretary of State will exercise these new quasi-judicial powers, currently with no meaningful parliamentary scrutiny. Free from strategies and unfettered by the nature of regimes, this is a blank cheque. This debate has to work out the constraints for how it will operate. The investment community, space industry, venture capitalists, universities and lawyers—lots of people—have raised legitimate concerns today. Yes, there was a consultation and, yes, there has been some movement, but there is generally much further to travel before the Bill achieves what the Minister set out at the beginning: to make the United Kingdom safer.

National Security and Investment Bill

Lord Fox Excerpts
Moved by
1: Before Clause 1, insert the following new Clause—
“Objective of this Act
(1) The overarching objective of this Act is to allow the Secretary of State to safeguard national security in respect of economic and social harm.(2) When making decisions under this Act, including for the purposes of assessing a risk to national security, the Secretary of State must have regard to the objective in subsection (1).(3) The Secretary of State must also have regard to the effect of the application of this Act on—(a) technology investment;(b) the research and innovation environment; and(c) business opportunities for small and medium-sized enterprises.”Member’s explanatory statement
This amendment sets an objective for the bill in relation to national security and includes a number of other elements to which the Secretary of State must have regard.
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Lord Fox Portrait Lord Fox (LD)
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My Lords, Amendment 1 is in my name and that of my noble friend Lord Clement-Jones. At Second Reading the Minister described the Bill as

“a major upgrade to the Government’s powers to screen certain acquisitions on national security grounds”,

which builds substantially on the Enterprise Act 2002. It certainly is, but perhaps in the Bill we are dealing with architect’s drawing of the upgrade, rather than a 3D model.

First, let me say without equivocation that those of us on our Benches see the need the Government to scrutinise potentially sensitive transactions, and we think that an upgrade is timely and sensible. However, as the Minister has acknowledged, there is the rub. Defining what is sensitive and what is a transaction of concern are key to the effective operation of the Bill. As we progress through the amendments ahead of us, I would say that virtually all seek to better define the operational process of the new investment security unit within BEIS and to ensure that the disquiet it has caused is alleviated.

At Second Reading, the Minister spoke about reflecting

“the modern economic and investment landscape in the UK.”—[Official Report, 4/2/21; col. 2332.]

In fact, what is proposed here is culturally different from what successive Governments have practised. Blair, Cameron—including and excluding us—through May to Johnson have all, so far, rightly or wrongly, pursued a distinctly hands-off approach. It is not hard to understand the alarm that the Bill might cause in the outside world.

Its publishing sends a message about the future nature of interventionism. This concern comes not just from the traditional free traders of the City but from universities, industry trade associations and sectors as wide as space and bioscience. The abiding link to these academic and industrial concerns is that these are, by necessity, international and collaborative activities.

The overwhelming concern coming from all sides of the House in that Second Reading debate was how this unit was to operate effectively without stifling innovation, scaring off capital and becoming a proxy for wider strategic considerations. It is with this in mind that my noble friend Lord Clement-Jones and I penned this first amendment, which sets out the objective of the Act. By exclusion, it also sets out what is not the objective of the Act and thus what is within and not within the purview of the investment security unit. It is designed to send clear messages about how this Bill will operate in practice.

Looking at the amendment in detail, first, in making regulations under proposed subsection (1), the Secretary of State’s overarching objective must be safeguarding national security. This is reinforced by proposed subsection (2). There is no controversy here, given that this is the purpose of the Bill, and on their own the subsections would offer nothing new. That is down to proposed subsection (3), which would add that

“The Secretary of State must also have regard to the effect of the application of this Act,”


on other things. In our case we have listed:

“technology investment … the research and innovation environment … and … business opportunities for small and medium-sized enterprises.”

We put those three there, because in our view these areas are key elements of our national security. I am happy to debate what should be on that list, but I will explain why we put these in the amendment.

Technology investment is key to keeping ahead of the security arms race, and it is reasonable that the Secretary of State and, by extension, the unit in BEIS would have regard to this technology base. Similarly, the research and innovation environment is needed to deliver that technology leadership. Without vibrancy in investment here our future security is compromised. Finally, in many cases it is the SMEs that bring true innovation to all the 17 sectors on the Minister’s list. They take technology to market and must not be disproportionately disadvantaged by the application of this Bill.

This amendment is designed to send two messages. One is internal, seeking to influence the nascent culture of the investment security unit to ensure that it recognises publicly what elements contribute to the delivery of national security. The second is an external message to the market, our universities and our innovative businesses, big and small. They need to know that these issues are in the Government’s mind when they are making security decisions. They need to be reassured that this is a vehicle to help to reassure them. The Minister may well say “trust me”, and of course I do, but what of future Ministers and future Governments? This amendment would ensure that the Government have regard to the conditions and the culture that will deliver national security and investment in that security. I beg to move.

Baroness Noakes Portrait Baroness Noakes (Con)
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My Lords, in principle, I do not support proposed new clauses such as this, whether they are called objective clauses or purpose clauses. I have tabled them myself in the past, but they are usually not much more than an excuse for another Second Reading debate, and we had a little of that in the introduction from the noble Lord, Lord Fox.

Amendment 1 could be positively harmful. It confines national security to “economic and social harm”. The obvious item omitted is physical harm, but other harms could be missing. Purpose or objective clauses would be used as an aid to interpretation of the main body of the Act so, if they are there, they have to be comprehensive in their drafting if they are not to act as a constraint on the operation of the Bill.

Similarly, the “have regard” matters in proposed new subsection (3) could act as a constraint on the Secretary of State. The noble Lord, Lord Fox, explained the rationale for his list, but I could not see why “technology investment” was singled out compared to other kinds of investment—for example, in manufacturing capability or intellectual property. What exactly is meant by “research and innovation environment” is unclear from the drafting, and is the omission of “development”, which is the normal companion to “research”, significant or not? Singling out SMEs, which we are all aware are important to our economy, implies that larger enterprises are not important in the considerations.

There is a good reason why Bills do not often contain purpose or objective clauses. They are traps for the unwary and can do more harm than good.

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Lord Fox Portrait Lord Fox (LD)
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I am grateful for the Minister’s gratitude. I am also grateful to Members of the Committee who have spoken, but I am a little shocked by the noble Baroness, Lady Noakes, who seems to have an internal inconsistency. I always think of her as such a logically consistent Peer, but in one breath the amendment was dismissed as legislative fluff and in the next it was the most harmful thing that could happen to the Bill; I suggest that it is either one thing or the other. I appreciate the Minister’s solid response.

My noble friends Lady Bowles and Lord Clement-Jones added to the point that is central to this. The culture of how the Bill is delivered by the investment security unit will be central to how it is viewed in the outside world. If the unit has a combative and aggressive culture, that will affect the way in which the investment community regards investment in this country. The amendment seeks to explicitly influence the culture of that organisation, but I am very happy if the Minister’s lawyers can find better ways to do so. However, a Minister simply saying something will not make the unit run that way. In the end, that will be the measure of how successfully the Bill sets the balance between seeking to assure national security while not throwing out all the good things that our current investment world has.

I look forward to debates on other amendments that seek different ways to do the same thing but, in the meantime, I beg leave to withdraw Amendment 1.

Amendment 1 withdrawn.
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Baroness Healy of Primrose Hill Portrait The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
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I have a received a request to speak after the Minister from the noble Lord, Lord Fox.

Lord Fox Portrait Lord Fox (LD)
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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 Portrait Lord Callanan (Con)
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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.

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Lord Vaizey of Didcot Portrait Lord Vaizey of Didcot (Con) [V]
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Yes, I am definitely here. I am sorry that I did not realise that I had to unmute myself, but I will not detain the Committee with my farcical debut in tabling amendments to a Bill. I will simply say how pleased I am to be in this group of amendments with the noble Lord, Lord Leigh, and how much I enjoyed his introduction to his amendment seeking to delete the word “contemplation”, which I have been delighted to support.

As my noble friend made clear, we are all here to serve a common purpose, which is to tease out of the Minister his thinking on the wording of the Bill. The Minister may well come back with a slam-dunk justification for “contemplation”. One of the advantages of the delayed entry of my contribution is the arguments put forward by other Members of the Committee about that amendment. It seems that it boils down to whether the Minister thinks that “contemplation” has a religious, business or technical meaning. If it has a technical meaning, it seems perhaps important that that is teased out in these proceedings to help people in the future.

As far as my own technical amendment is concerned—and I was delighted as well that my technical ineptitude meant that it was much more ably introduced by the noble Lord, Lord Clement-Jones—it seeks to echo some of the points that I made at Second Reading. Most of us who have taken an interest in the Bill and have discussed it with numerous trade bodies and City lawyers are aware that the Government’s estimate of the number of notifications under the Bill as drafted is somewhat low. We can expect thousands of precautionary voluntary notifications to come about, at least in the first instance.

More importantly—and what the amendment in my name and that of the noble Lord, Lord Clement-Jones, seeks to deal with—is that the Bill will start to have a potentially deleterious effect on foreign direct investment. As the noble Lord, Lord Leigh, pointed out, we are second in the world in terms of foreign direct investment. We often proudly say that we have more of it than Germany and France combined, at least as far as Europe is concerned. Over time, more and more companies looking at potential investments and acquisitions may well start to shy away from the UK if they feel that they have to undergo certain additional hurdles.

No one of course is saying that we should not have a national security framework to protect our vital industries. But just as the Secretary of State under this clause is required in a very good way to give guidance on how he or she is exercising the call-in powers, it is important that a very real contemplation of the potential deterrent effect that the new regime may bring about is front of mind alongside the sectors and technical thinking lying behind acquisitions that might be called in. If this amendment were accepted down the line, it would ensure that future Secretaries of State kept this front of mind.

Lord Fox Portrait Lord Fox (LD)
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My Lords, I am second to no one in my admiration for the noble Lord, Lord Callanan, but I am quite glad that we have the other Minister in the hot seat for this one, the noble Lord, Lord Grimstone. I suspect that in his previous lives he has seen more of the rough and tumble than possibly the noble Lord, Lord Leigh, and the rest of us put together, so will appreciate the nature of the debate introduced by the noble Lord.

For my part, I have usually been on the home team, the one paying advisers such as the noble Lord, Lord Leigh, huge sums of money to do deals or sell businesses. He hinted at the mischief that could be made around this, and I am sure that the Minister will understand the nature of that mischief: it is pretty ruthless and pretty hard. This gives another tool to those who would wish to cause that mischief, and it is not in the interests of the Government or the wheels of commerce for that mischief to occur.

The noble Baroness, Lady Noakes, made a really important point. It is also in the interests of the Government to sift what comes across the Government’s desk; it does not behove the department to have tens of thousands of deals flowing across its desk. The Bill is designed to pick out the big problems and issues; it is not designed to deal with sacks of chaff that will come over as well as the wheat. It is important that the objectives of these amendments are taken on board by the Government. I am sure that there are many ways of doing that, and we look forward to the Minister contemplating how “contemplation” will be defined. What is the threshold? Is it the one suggested by the noble Lords, Lord Lansley and Lord Bilimoria—is it publishing? And even then, is it in the sense that the takeover panel would require a board to respond, or is it responding to a rumour? Then we are back into mischief territory again. Some sense of that, and of how the CMA has been able to negotiate this, would be helpful.

My noble friend Lord Clement-Jones, in his amendment with the noble Lord, Lord Vaizey, is right that we need some sense of guidance and help as to how this is going to work. I go back to the point that I made at the beginning. How will this thing operate? How will the unit work? The nature of some sort of pre-emptive process seems to take on board more than a unit could normally handle. The advice that the Government have been given by your Lordships is good advice, and I look forward to the Minister’s response.

Lord Grantchester Portrait Lord Grantchester (Lab)
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I welcome the Minister responding to this group to his second Bill, this one under the auspices of the business department. I am sure that he will find it an enjoyable experience. In addition to Amendment 9 in the names of the noble Lords, Lord Vaizey and Lord Clement-Jones, I propose probing Amendment 10 to Clause 3(3), on further considerations. Amendment 9 seeks to ensure that the Government provide guidance to minimise the potential volume of voluntary notifications and any chilling effect that the Bill may have on legitimate business activity. Businesses need to be clear when transactions require notification and when it is not needed. There may soon be a time when the department could find this very useful as well.

In assessing the potential to generate unnecessary notifications, the CBI has estimated that the Government could receive up to 10,000 notifications a year. Does the Minister recognise this amount as an outcome? How have the Government calculated possible outcomes in relation to the numbers that have arisen in other countries’ experience in similar regime circumstances? I would go along with the precautionary interpretation by the noble Lord, Lord Clement-Jones. This will have resonance with later amendments probing the resourcing of the new investment security unit and turnaround timings for notifications.

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Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
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My Lords, we have heard from a chartered accountant, a banker and a lawyer all in unanimity; it is very worrying. As I understand it, this approach is consistent with some regimes in certain countries. The idea of having a transaction fully voided would lead to many innocent third parties being in limbo. Would it not be better that a transaction or certain parts of it were voidable, as some parts of the transaction may not be in any way relevant to national security. That gives HM Government more flexibility. By being voidable, it allows for negotiation, discussion and parts perhaps to be voided and not the whole thing.

Once again, insisting that the transaction could be voided in legislation will simply deter overseas investors and buyers because it is a huge amount of uncertainty to have such a black and white separation. The amendments still allow for the dictum of the noble Lord, Lord Callanan, in respect of Clause 15 of non-notified acquisitions being able to be retrospectively validated rather than retrospectively invalidated. Giving the Government maximum flexibility seems a wise and good thing to seek.

Lord Fox Portrait Lord Fox (LD)
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I want to pick up where the noble Lord, Lord Leigh, finished: it seems almost punitively value-destroying to have a mandatory process. There will clearly be times when voiding will be the inevitable consequence, but there are others when a retrospective approval would be best for the country, the value, the shareholders, the employees and all the other third parties connected to that business. To lock the Government into auto-voiding seems unnecessary. It may be designed to put people off from not reporting in future but, by their nature, those who do not report probably are not aware of these sanctions, so it is unlikely to have that deterrent effect.

On Amendments 41 and 44, the “Waste Land” amendments, certainty comes up again, as predicted. All they do is ask for a clear signal rather than something simply not happening being the signal. The noble Lord, Lord Hodgson, raised external messaging, but such clarity would also help build a body of case law which would help future practitioners understand what they should and should not do. Having that case law and those examples clearly delineated by a full stop rather than the whimper that is currently enshrined in law would be a much better way of exposing such cases for the textbook.

Lord Grantchester Portrait Lord Grantchester (Lab)
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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.

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Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted (LD) [V]
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My Lords, it is always very interesting to follow the noble Lord, Lord Lansley. He is approaching this partly in a similar way to me and partly in a different way. I was, and still am, attracted to the notion of trying to get this time of uncertainty down from five years to two. Part of what I would say to the noble Lord is that, if it is going to take five years to work out who might actually have bought something, that is something we should look at in its own right. If you cannot work out whether somebody is hostile and they have had it for five years, you have missed the boat if it is a question of whether they have learned the technology and found out things you do not want them to find out.

I would be interested to hear from the Minister the reasoning behind the length of the period. It could not really be due to a workload of investigating, because one must presume some sort of steady state pipeline with adequate staffing, but how much of it is fear that something new is not recognisable as having a security application until some time later. That thought was going through my mind: was there fear about missing things? This goes back to one of the issues I flagged at Second Reading about sifting being done by the right kind of skilled people—those who have the right kind of applied science or engineering knowledge, plus knowledge of potential usage in national security fields.

I have to say, these things are not necessarily all that obvious. I have experience of working as a patent attorney in the field of defence. I have worked with people whose job it was to invent—put two and two together and have something inventive at the end of it. If you work in a field where those kinds of things are deemed inventive, you will be very short of the people who have that kind of knowledge because, for the main part, they will probably want to be involved in more interesting and economically useful things than participating in what seems to be an overwide fish-sorting process, as it has been termed. I am turning this back to the Minister. On volume, if you cast the net wide, will you have sufficiently skilled people to be able to do the sorting, or will you find that important fish get missed? Will you then be trying to do things to backtrack on what has not been done or give yourself more time to do things?

That is a slightly different take. I know that there are some safeguards in there, but five years is quite a long time to live with uncertainty. If that uncertainty comes about because of ownership, one should sort the ownership or shareholding issues; I am actually among those people who think that we should have a lot more transparency on those kinds of things.

Lord Fox Portrait Lord Fox (LD)
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My Lords, in his excellent intervention, the noble Lord, Lord Hodgson, started out by calling for clarity. We need some clarity on the wording of this part of the Bill because a number of different interpretations have emerged. I must confess, my interpretation is similar to that of the noble Lord; by the way, we would seem to be backed up by the Law Society, which took the same view. If the Government’s intention is something different, some different words need to be used to put that forward.

Assuming that, to start with, the intention was as the noble Lord, Lord Hodgson, set out, his counter to that was very clear. I have been involved in lots of what is known as integration, which involves bringing two companies together when one has bought another. Five years is well past the point at which you would find it very difficult to unmake that company. Indeed, the entire product life cycle in the sort of industries we are talking about here is probably about two years, so they will have marched through two and a half product life cycles by the time the five-year period expires.

In a way, I hope that the Government’s intention is more closely aligned to that of the noble Lord, Lord Lansley. If that is the case, I have similar thoughts to the noble Baroness, Lady Bowles. How long do you need to leave the stable door open before the horse has definitely bolted? To me, five years seems much too long for that bolting to occur; two years is probably long enough in that respect. However, if, on the other hand, the Government’s intention is to offer an opportunity for 20:20 hindsight—in other words, the world changes and, looking back over our shoulder, that deal five years ago now does not look like such a clever deal for the nation and we want to unmake it—that is clearly unfair on investors and others but might perhaps be fair to the country.

We need a real understanding of what the Government’s intention was, and the Government need to understand that their intention needs to be articulated in a way that the outside world can understand.

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Baroness McIntosh of Pickering Portrait Baroness McIntosh of Pickering (Con)
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My Lords, in the spirit first put forward by my noble friend Lord Vaizey, I would like to tease the Minister at this point, if I may. Clause 3 states:

“The Secretary of State may publish a statement for the purposes of this section if the requirements set out in section 4(1) are satisfied”,


and now we have government Amendment 12, which amends Clause 4 to state that responses to the consultation may be required to be pursued through. What is the situation, if one might occur, if the Secretary of State chose not to publish a statement? Does the Bill permit that in this regard, and what would be the circumstances in which the Secretary of State may decide not to publish a statement?

Lord Fox Portrait Lord Fox (LD)
- Hansard - -

My Lords, as the noble Lord, Lord Lansley, said, government Amendments 37 and 75 are technical and Amendment 12 covers the ground of Amendment 11, so I will speak to the latter. I am broadly supportive. Clearly, this is an issue about “may”—my noble friend Lady Bowles and the noble Baroness, Lady McIntosh, asked the same question. If “may publish” means “may not publish”, where are we in this process, given that the statement is such an important part of setting out the modus operandi of the whole Bill? This is quite an important area.

I support Amendment 11 but it will be important to listen to the Minister’s response to decide how this might go forward in the next stage. I believe that some degree of accountability should not be left as an option to the Secretary of State; there should be an obligation on the Secretary of State to make that statement and, as the Government have said, to have the ability to remake it.

Baroness Hayter of Kentish Town Portrait Baroness Hayter of Kentish Town (Lab)
- Hansard - - - Excerpts

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?

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Baroness McIntosh of Pickering Portrait Baroness McIntosh of Pickering (Con)
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My Lords, Amendment 14 in my name came about as a result of my working closely with the Law Society of Scotland. I am very grateful to the society for drawing to my attention the fact that, on the present reading of Clause 6, the Secretary of State may make regulations without any further consultation in that regard. The reason for the amendment is that this consultation provides an additional layer of scrutiny by all interested parties. The requirement on the Secretary of State to consult will help to ensure openness and transparency of the Secretary of State’s actions. Imposing a duty to consult will ensure that any draft statutory instrument is exposed to critical comment from stakeholders, which may improve an instrument and help to avoid difficulties when it comes to progressing through Parliament.

All this assumes that the Government will actually pay attention to consultation and the results. It is felt that the provision as drafted gives the Secretary of State very wide discretion to amend the scope of notifiable acquisitions as per the present drafting of Clause 6(5). This can have far-reaching consequences, not least because, as set out in Clause 6(6), it may be used to extend the scope of notifiable acquisitions to acquisitions of qualifying assets. In particular, I want to put on record that Clause 13 states that where a notifiable acquisition takes place without the approval of the Secretary of State, this transaction will be void, although under Clause 15(2) and (3) the defect can be cured retrospectively.

This amendment addresses a concern that there will be a lacuna in relation to the impact on third parties. In particular, if the qualifying asset in question is land, and if it were to be established that a transaction had been void and that the ownership or other interest in the land had not been properly transferred, questions of liability may arise. This could be the case, for example, in relation to environmental or insurance liabilities. Although it appears that the third party would have an action under Clause 16, we are concerned that this could be both burdensome—that is the Law Society expressing its concern—upon that third party and unnecessarily complicated. There is also concern that it might not resolve all the relevant problems.

I welcome my noble friend to her speaking position, for once, this evening; I hope that this is not just paying lip service to diversity. If the Government are not minded to accept this amendment, can she say what the purpose is of introducing regulations at what would be quite a late stage and without having consulted at all with interested parties or stakeholders?

Lord Fox Portrait Lord Fox (LD)
- Hansard - -

My Lords, I fear I might have missed a trick here. I think we have two quite different amendments and I should have been smarter and disaggregated Amendment 94 from Amendment 14. I apologise to the noble Baroness, Lady McIntosh, that I am not going to speak to Amendment 14, although I firmly believe that my noble friend Lord Bruce of Bennachie will speak to it later. I will speak to Amendment 94 in my name and that of my noble friend Lord Clement-Jones.

Under Clause 6 the Secretary of State has great power to make the regulations concerning how this Bill will work. The Secretary of State can specify the description of the qualifying entity for the purpose of identifying a notable acquisition. He or she can amend the circumstances in which a notifiable acquisition takes place or does not take place, exempt acquirers with specified characteristics from the mandatory notification regime and make consequential amendments to other provisions of the Bill. These will be set before Parliament using the affirmative procedure. This was confirmed by one of the other documents that was circulated just before our proceedings began today.

For the commencement of the regime, the Secretary of State intends to make regulations only to specify the sectors subject to mandatory notification—that is, the 17 sectors we have already referred to elsewhere in this debate. This covers the activities of the entities of both sectors which give rise to an elevated national security risk. In the Government’s own words:

“Mandatory notification of certain types of transactions in 17 key sectors will ensure that the Government is informed of potential acquisitions of control or ownership in these particularly sensitive areas”.


As we have heard, using this list they will take action to investigate and mitigate any national security risk. The list is central to the workings of this regime. Therefore, so is the making and updating of it.

For the avoidance of doubt, and possibly to bore the Committee, I want to put on record the length and breadth of this list. It includes advanced materials, advanced robotics, artificial intelligence, civil nuclear, communications, computing hardware, critical suppliers to government, critical suppliers to the emergency services, cryptographic authentication, data infrastructure, defence, energy, engineering biology—which has now been commuted to synthetic biology—military and dual use, quantum technologies, satellite and space technologies, and transport. We heard from the Minister that in fact the Secretary of State can extend beyond this list if he or she feels it appropriate.

The so-called slimline version was published today, as mentioned by the noble Baroness, Lady Hayter, who has just popped out. She referred to the artificial intelligence sector which has been “slimmed down” to the identification of objects, people and events, advanced robotics and cybersecurity. The underlying software for that is going to be machine learning, and therefore that includes all artificial intelligence. While on the face of it this has been narrowed down, the reality is that if a Secretary of State so chose, anything involving machine learning could be dragged into this process. We need to be very wary of this list, which can be expanded and changed over time.

I expect that the Minister will choose to represent the proposed use of the affirmative procedure in the Bill as meaningful parliamentary scrutiny, but in truth the list can be amended by this and any subsequent Government as they please. For one thing, Parliament cannot amend statutory instruments, and for another, this House has voted down affirmative statutory instruments just four times in the past 70 years. That is nearly as long as my noble friend Lord Clement-Jones has been alive. As the Constitution Committee noted in its 2018 report The Legislative Process: The Delegation of Powers:

“Without a genuine risk of defeat, and no amendment possible, Parliament is doing little more than rubber-stamping the Government’s secondary legislation. This is constitutionally unacceptable”.


Affirmative statutory instruments do not constitute meaningful parliamentary scrutiny. This Government, or any subsequent Government, are effectively free to amend that already long list of technologies at will, so we need some sort of genuine democratic process. I am indebted to my noble friend Lord Sharkey; he proposed a very similar amendment to the Medicines and Medical Devices Bill, and I have ruthlessly plundered his thinking as it is just as apposite to this Bill.

As noble Lords know, there is a delegated legislation procedure that allows for significant parliamentary scrutiny. To the Government, it is known as “exceptional procedures”, and to Erskine May, in part 4, chapter 31.14 as the “super-affirmative procedure”. Erskine May characterises it as follows:

“The super-affirmative procedure provides both Houses with opportunities to comment on proposals for secondary legislation and to recommend amendments before orders for affirmative approval are brought forward in their final form … the power to amend the proposed instrument remains with the Minister: the two Houses and their committees can only recommend changes, not make them.”


Amendment 94, in my name and that of my noble friend Lord Clement-Jones, follows this pattern; it is more generally based on the variant of the procedure used by the Government of the day in the Public Bodies Act 2011, so it is not a stranger to government. It refers to the Secretary of State’s regulation-making powers and includes the long list of technologies that I have just read out.

First, the Secretary of State must lay before Parliament a draft of the proposed regulations and a document explaining them; secondly, he or she must request a committee of either House whose remit includes science and technology and business to report on the draft regulations within 30 days; thirdly, in proposing a draft statutory instrument containing the regulations, the Secretary of State must take into account any representations, any resolution of either House and any recommendations of the committee to which the draft was referred. After the expiry of the 30-day period the Secretary of State may lay before Parliament regulations in terms of the original or the revised draft. The Secretary of State must also state what representations, recommendations or resolutions were given in the 30-day period and give details. He or she must also explain any changes made in a revised draft. After that, the normal affirmative process continues.

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Baroness Bloomfield of Hinton Waldrist Portrait Baroness Bloomfield of Hinton Waldrist (Con)
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I reiterate that we will continue to consult widely on important changes that merit further scrutiny. The Government care deeply that we get these definitions accurately put into the Bill before it receives Royal Assent.

Lord Fox Portrait Lord Fox (LD)
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I anticipated the Minister’s answer on the subject of time, and 30 days is 30 days, but the Government have shown that they are relatively adept. If there really was a national security emergency requiring quick action using other means, a statutory instrument with a debate in Parliament would act as a plug. My noble friend Lord Clement-Jones made the point that there is such significance, particularly around this list but also around the other elements of Clause 6, so I hope that the Minister will read Hansard and at least find some way of moving towards the very valid arguments that she has heard today on both amendments.

Baroness McIntosh of Pickering Portrait Baroness McIntosh of Pickering (Con)
- Hansard - - - Excerpts

I thank all those who have spoken on both amendments. The noble Lord, Lord Fox, will recall that we had a lengthy debate about the super-affirmative procedure during the passage of the UK Internal Market Act. I deeply regret that we did not go down the path of that procedure, for reasons that I gave. My noble friend the Minister cares passionately about Wales, and I hope that she will care equally passionately about Scotland and will be prepared to meet with me to bring these matters forward, because I do not accept that it is enough just to have regard to the public law requirements.

The Law Society of Scotland has identified three ways in which these regulations could move the parameters forward which I would like to discuss on a wider basis with her. While an official in the department said that it is not expected at this stage that those three areas will be covered, it is not excluded that that will happen in the future. I want to come back to that, but for the moment, I beg leave to withdraw the amendment.

National Security and Investment Bill

Lord Fox Excerpts
Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
- Hansard - - - Excerpts

My Lords, the Bill currently provides that the mandatory filing requirement applies equally to all investors, as my noble friend Lord Vaizey said. This is despite the Government stating quite rightly that domestic investors are inherently less likely to pose a national security risk. The Bill is ultimately about managing risk, so we need to ensure that the notifications that the ISU receives are the right sample. Exempting UK nationals from this process would be a far from proportionate approach. Since we are in the business of managing risk in a proportionate manner, we should consider whether investors from specific allies—Australia, Canada, the US and New Zealand have been suggested—should be exempt since, again, the evidence strongly suggests that such investments are less likely to pose a national security risk, although I will come on to one caveat at the end of my remarks.

This aspect would also align more closely with some of our competitor jurisdictions. In any event, since national security is always paramount, it is worth noting that these amendments concern only the mandatory filing requirement. The Secretary of State would remain fully empowered to call in such transactions for review even if they concerned our citizens or allies or were below the threshold for control. That is an important distinction. I hope it means that lots of potential acquisitions by UK players will not get covered by notifiable regulations if we approve these amendments.

I am sure that the legislation is not meant to cover the situation where someone starts a business with a great idea and, say, £1,000. That business might touch on a number of sectors including, say, defence. We know that the sector definitions are very widely drawn. This entrepreneur then goes to some family and friends to seek funding, which might be through an EIS or, even better, an SEIS or possibly an EIS fund. The family and friends are all local. I know one investor who has only ever invested—with great success—in businesses run by someone he has personally met in his local pub. Such investors are vital to the UK economy and, in my opinion, do not carry a risk to security any greater than the person who started the business. As we currently have no size threshold at all, they would be caught by the Bill. It would be a great shame if they decided that they did not want to wait the 30 days or more for the Secretary of State to opine.

We all know the purpose of the Bill and it is not to restrict UK investors investing in UK companies. If we go down the route of exempting UK companies, we need to look more carefully at the definition of a UK company, which Amendment 96 seeks to do. I recognise that this is difficult. For example, many companies have private equity investment in them. They are clearly UK companies with a UK HQ, UK board and UK business but because the general partner investor may be based in, say, Guernsey, for the limited partners requirement—and the limited partner is almost certainly based abroad—they would need to be treated as a UK company to ensure a level playing field.

My noble friend Lady Noakes and the noble Baroness, Lady Bennett of Manor Castle, have made some valid points. It is indeed true, for example, that many companies which are essentially Chinese are listed on NASDAQ. Would we call them American or Chinese? There has to be some very careful examination.

My last concern, which I mentioned in respect of Amendment 95, is to stop shell companies being created in countries such as Australia. Under these amendments, a shell company could buy a UK tech business and be sold immediately thereafter to a non-friendly company. Undertakings would therefore have to be put in to protect against that situation.

Lord Fox Portrait Lord Fox (LD)
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My Lords, I agree with the analysis of the noble Lord, Lord Vaizey, that Her Majesty’s Government have underestimated the potential workload that this unit will get, but I am not convinced that his solution to reducing that workload is the right one. We have heard many speeches but I would single out those of my noble friend Lady Bowles, the noble Baroness, Lady Noakes, and the noble Lord, Lord Lansley, as reasons why we should not be separating out one set of companies due to their nationality. The noble Lord made the point clearly that the criterion should be: is it or is it not a national security risk, rather than, does it or does it not come from Hampshire or New Hampshire? That should be the rule running through this.

The noble Lord, Lord Leigh, when moving into caveat territory, started to explain why singling out foreign companies becomes an extraordinarily difficult thing to do. First, what is one, and is it a shell company? Is it listed on NASDAQ but actually resident in Beijing? Those kinds of complications start to point to the Government’s analysis that all companies are in. Clearly, it will be easier for the company whose owner your friend meets in a pub to get through the process and not be called in, compared with one that hails from the Far East, for example. Surely, the process should be the efficiency with which the unit can deal with and dismiss issues quickly, rather than accidentally filtering out things that we should not.

On the concept that, “Our friends are our friends, so we include them as ourselves”, the noble Baroness, Lady Noakes, made the wider point about access to the technology. Access can be cut off by our friends as much as by ourselves or, indeed, by external companies. I am sorry, but I am going to repeat the example I gave at Second Reading. A British company with a US-based subsidiary took the technology to the United States, started to produce it and made one small amendment to that technology. The use and sale of the technology back to the UK was then blocked by the Department of Defense under export controls, because it considered it to then be United States strategic technology. I am sure that such things happen all the time—this example is just one that I happen to know about.

Regional agnosticism, the gospel according to the noble Lord, Lord Lansley, is the sensible approach here, and I hope that the Minister can explain his views on this issue.

Baroness Hayter of Kentish Town Portrait Baroness Hayter of Kentish Town (Lab)
- Hansard - - - Excerpts

My Lords, we have some sympathy with the intention here, which is to seek clarification about whether certain investors or countries should be more or less encouraged to invest here, although this may not be exactly the right way to achieve that. Such clarification is clearly needed and is sought in a different way by Amendment 91, which we will reach next week, I think, and which stands in the name of my noble friend Lord West.

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Lord Lansley Portrait Lord Lansley (Con)
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My Lords, I want to say a word on this group, because I am particularly interested in Amendment 29A, which would remove Clause 8(8). This is of interest, not least because of the question of how to define “material influence”, which we will come to later.

Listening to the noble Baroness, Lady Hayter, I understand what she has done; she is testing the question why material influence is there if it is one of the ways in which control of an entity can be established under Clause 8. Currently, it is not referenced in Clause 6(2)(a) as one of the cases by which that control leads to a notifiable acquisition.

Instead, taking subsection (8) out of Clause 8 and putting it into Clause 6(2)(a) would in effect be saying that a notifiable acquisition takes place when a person gains control of an entity. Clause 8 explains how you gain control of an entity. It can be by acquiring various voting shares, as defined, or by exercising material influence over the entity. That has been left out, so putting it into subsection (2)(a)—that is not precisely what we are proposing here, but I am speculating slightly—would be a much cleaner option. It would enable one to do what my noble friend Lord Leigh is proposing, which is to take the 15% out. The 15% is there only because there are conceivably circumstances in which a 15% or more voting share constitutes material influence. As the noble Baroness, Lady Hayter, said, we know that, because the Competition and Markets Authority has on occasion determined such things. It did so on BskyB v ITV, which concerned a 17.9% shareholding, and it did so in the case, which it none the less cleared, of RWE’s stake in E.ON at 16.67%.

We know that voting shares of between 15% and 25% can represent a material influence, but that is not the issue. The point is not about the voting share: 25% is, generally speaking, the voting share that gives rise to an issue of control, but about the need to say, “Material influence is what we are talking about, so why don’t we use that?” Why introduce this potentially rarely used 15% threshold instead?

My contribution is to ask Ministers if they will go away and look at whether it would be cleaner and simpler for Clause 6 to say simply, “A notifiable acquisition takes place when a person gains control of a qualifying entity of a specified description”, and Clause 8 goes on to explain what “control” means.

Lord Fox Portrait Lord Fox (LD)
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Were my noble friend Lord Clement-Jones here he would pick up his fishing rod again and say that this is a question of mesh size. But, actually, the issues raised by your Lordships should tell the Government that there is work to be done on redrafting subsections in Clauses 6 and 8 to try to clarify. Whatever we come up with, we need clarity, because there seems to be some dissonance in how this is read and regarded.

The noble Baroness, Lady Hayter, asked the right question at the beginning of her speech, which was: what is the rationale behind the 15%? My noble friend Lady Bowles set out the sliding scale of different accountabilities and rights that come with different levels of ownership and said that there was some logical mismatch with the 15%. The Minister has taken refuge in the past in the policies of the other European Union countries, and the noble Lord, Lord Leigh, can happily put his mind at rest that France uses 25%, so clearly, if it is good enough for France, it will be good enough for the Minister.

On a more serious note, the issue of material control is interesting. We have seen so-called shareholder activists reversing into companies with far less shareholding than 15% and making material changes to the strategy of businesses. So what is material and what is a change? The point that my noble friend Lady Bowles brought up about the nature of the other shareholders cannot be left out.

Tracker funds tend not to be active in the way a long or a short fund tends to be, and clearly shares get loaned in situations of activity. All these add up to the mess which the noble Lord, Lord Lansley, described well: who is in control of the business, and what is material control? To some extent, the difference between 25% and 15% is less important than where the control lies. That is harder to enumerate, and difficult for the market to understand, but it is clear that the way this stands in the Bill will not work. I hope the Government can sit down with their lawyers and drafters and come up with something that we can look at next time which takes on board the good advice the Minister has received from your Lordships.

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Baroness Noakes Portrait Baroness Noakes (Con)
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My Lords, I strongly support the amendments in this group, which seek to set up a fast-track process. Anything that can make the processes more friendly to help non-problematic business transactions is welcome. I am very worried about the impact that this Bill, which I support in principle, will have on the UK’s reputation as a good place to invest, and I echo what other noble Lords have already said today. That is why we have to work to make the operation of the Bill as painless as possible for transactions that fundamentally do not raise concerns.

I am less sure about the other amendments in this group. I understand the desire to protect SMEs and start-ups from the full force of the Bill. I do not believe that national security risks can be sized by reference to a point in time, monetary value of current assets or turnover of a business. So I do not support Amendments 20 and 24 in the name of my noble friend Lord Leigh of Hurley.

Similarly, I am not convinced about restricting qualifying assets outside the UK to those in connection with activities carried out in the UK, as envisaged by my noble friend Lord Hodgson of Astley Abbotts in Amendment 26. I do see a need to be able to focus on supply chains as well as on activities carried out in the UK, and I would not want to deprive the Government of the ability to do that if genuine national security issues arose.

Lord Fox Portrait Lord Fox (LD)
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My Lords, the noble Lord, Lord Leigh, is correct to say that the Bill is far more important than the outside world seems to realise. When I have been speaking externally, I have been trying to remind people of the Bill’s existence and the need for them to read it. Perhaps we should adopt the policy of the Ancient Mariner and stop in one in three in the street and tell them about it because it does not seem that the message is getting through. Perhaps we will just have to work on their behalf.

A strong case has been made by the proponents of Amendments 20 and 24. When the Minister, the noble Lord, Lord Callanan, speaks on a number of different issues, he often talks about flexibility and keeping options open. This seems another example of where the Government are seeking to keep their options open and, as the noble Baroness, Lady Noakes, set out, there might or might not be good reason for that. When I sat on your Lordships’ Science and Technology Committee, it held an inquiry into the challenge of scale-up and the need for patient capital and for money to come in. It is very clear that the United Kingdom has a way to travel in getting the sort of funding that we are talking about for these scale-up situations. I am interested to hear from the Minister what sensitivity studies have been done on this. How much work has been done in talking to the investment and venture capital community about how it views it? Perhaps the Minister could write to us with the evidence has been received about its reception and the Government’s impression of it. I am persuaded that there is an issue. The question is how big an issue it is, given that we have a suboptimal venture capital regime in this country for this sort of scale-up. How badly and to what extent would damage be wrought?

I read Amendment 25 differently from the noble Lord, Lord Lansley. I read the words “examples include” to mean that that is not exclusive and I think the noble Lord has what he wants without having to put the words in. Perhaps the Minister can clarify that.

I find myself in complete agreement with Amendments 52A, 55A, 64A and 67A. If these transactions are not supposed to be impacted by this, let us get them out of the system as quickly as possible. The doctrine expressed by the noble Baroness, Lady Noakes, about the workability of the regime, the amount of friction it introduces and our responsibility to remove that friction wherever possible is completely correct, so those four amendments deserve noble Lords’ complete support.

Lord Grantchester Portrait Lord Grantchester (Lab)
- Hansard - - - Excerpts

I thank the noble Lords, Lord Clement-Jones and Lord Bilimoria, for the opening amendments in this group, which give rise to various considerations. We recognise the caveat in Amendments 20 and 24 to mitigate the impact of hostile actors going to complex lengths to hide their interests in a qualifying asset or entity. It is also understandable to set de minimis thresholds. Having the powers in the definition still requires a thought process to initiate using them. There have been several instances in which hostile actors have behaved entirely transparently that have not been identified and prevented. Indeed, mitigating actions may have been rejected even by the Government.

One needs only to recall the debate over the growing dependency of many nations on China and the resultant rejection of identifying potential harm that could result. It could be raised here regarding dependency on research skills and partnerships in the technology fields, with security implications. Indeed, the Government’s assessment of risk can be mysterious. In relation to the Bill, perhaps what we need to see are the ways in which the Government will actively identify evolving and growing risks, whether or not they hide behind complex organisations or a complex process of additionality. Has the Minister considered this and when a risk may change its colours?

To the proponents of the £10 million threshold in the amendments, is there some logic or any evidence that this is indeed the correct level, other than that other jurisdictions may have chosen it? The valuation of some of these types of asset is hard to quantify and the value of a database code or algorithm will be considered much greater once in the hands of a hostile intent. The intention not to overburden SMEs with the bureaucracy of this regime is worthy and commendable, but may not be easily carried out. How many SMEs would be excluded as a consequence and would it also benefit the department not to have to devote resources to excessive screenings of transactions?

Amendments 52A, 55A, 64A and 67A, also thoughtfully proposed by the noble Lords, Lord Leigh and Lord Clement-Jones, are for the fast-track procedure for notifications. Has such a procedure been considered by the Government? It has yet to be identified how the regime proposed by the Bill will deal with so-called everyday transactions in the business community and the amount of resources that will need to be committed to so-called evidently non-controversial activity. Would this allow the possibility of experience gained through the Bill to mature into a more workable format?

In the drafting of the procedure, care would need to be taken regarding the person being given the ability to give the relevant notice. In one interpretation it could be the company initiating such a request, not only the person acting on behalf of the Secretary of State. That would result in everyone requesting a fast-track procedure. The Minister’s remarks will be interesting in this respect. Overall, it would be perhaps best to ensure that the regime is set up in the first instance in the Bill to be properly resourced and to have properly identified targets for all its notifications.

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Baroness Noakes Portrait Baroness Noakes (Con)
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My Lords, I am glad that the noble Lord, Lord Clement-Jones, cleared up the position of Amendment 26 in the previous group, because I struggled, when I came to this group, to work out what else there was to say. I put my name down anyway to see what would emerge from previous speakers.

I said on the previous group that I had concerns about confining the Government’s powers to exclude those outside the UK that provide goods or services to the UK, because I believe that the Government should have as wide a definition as possible. I absolutely believe in making the processes of the Bill move as smoothly as possible and I do not want to add to what I believe will be the big burden of voluntary notifications. But, when it comes to defining where the Government could act, we need to be broad in our approach. If there is one such potential acquisition only, I would still say that it is worth having the power to go there, because these are serious issues about the national security of our land.

Lord Fox Portrait Lord Fox (LD)
- Hansard - -

This follows on quite well. Throughout this debate and lots of debates about Bills, we hear your Lordships use the phrase “unintended consequences”. Actually, giving the department credit, I assume that this is an intended rather than an unintended consequence, so I would like the Minister to explain exactly what it is seeking to achieve or prevent happening. What past examples would have been arrested, had this law been available then? Being a practical person, that would help me and others to understand what the Government are getting at.

This clearly does not have extraterritorial reach, as my noble friend Lord Clement-Jones said. It seeks to deal with all activities when it might be better to separate and segment them. I take the point of the noble Baroness, Lady Noakes; it would help us if we understood what the Government are getting at with this wording.

Lord Grantchester Portrait Lord Grantchester (Lab)
- Hansard - - - Excerpts

I thank the noble Lord, Lord Hodgson, for his three amendments in this group and the noble Lord, Lord Clement-Jones, for adding his name to the first, Amendment 21. He has an alternative to Amendment 27, Amendment 26, which was in the previous group, but both amend activities in general, so that they are more specifically attached to the person controlling those activities. The noble Lord, Lord Clement-Jones, has recognised his amendment as “rogue”.

The noble Lord, Lord Hodgson, queries the extension of Clause 7(3)(b) to suppliers of

“goods or services to persons in the United Kingdom”,

and asks for an explanation. Have there been previous incidents and what specific goods or services were involved, with what implications?

Clause 7(6) specifies land as well as “moveable property” and, in relation to Amendment 27 of the noble Lord, Lord Hodgson, gives rise to my reflections on the question of land and its use. While clearly an asset, the distinction is not made between the Bill’s application to ownership of land, in the sense of control, and any lease of its use, whereby a person other than the owner could be said to be in control. The Bill merely has the words “used in connection” to activities. Is this distinction relevant and what proof would be needed to clarify which person is in control of land?

One of the key sentences in the Government’s Statement of Policy Intent is in the section on acquirers:

“Clearly, national security risks are most likely to arise when acquirers are hostile to the UK’s national security, or when they owe allegiance to hostile states or organisations.”


Land, and the use of it in such a context, is made relevant as a qualifying asset. Yes, an operation needs to operate somewhere and will require land. Does this require any further reflection with regard to the workings of the regime? Can land in a particular country be considered a particular threat?

Amendment 32, in the name of the noble Lord, Lord Hodgson, to Clause 9, regarding control of assets, returns us to Clause 7(6). The Minister may wish merely to identify the strategic risk attaching to land in particular locations only.

Lord Bates Portrait The Deputy Chairman of Committees (Lord Bates) (Con)
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I have received one request to speak after the Minister from the noble Lord, Lord Fox.

Lord Fox Portrait Lord Fox (LD)
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I am probably being extremely stupid here, so please forgive me. In the first example of a foreign business supplying a critical operation in this country, I understand that that would be a problem were it taken over by a hostile nation. Let us imagine that a Belgian company, or perhaps a Canadian one, is being taken over by a company or a regime that we consider hostile. What is the Secretary of State’s next move in stopping it happening? I do not understand what the Secretary of State’s remit is over that Belgian or Canadian company, other than to suggest to the recipient of the supplies in this country that they have to change their supplier.

Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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I thank the noble Lord, Lord Fox, for that question. I assure him that it is not stupid. I think the answer is in what I said towards the end of my speech. The Bill explicitly limits the application of remedies to persons outside the UK to those who have a clear connection with the UK, for example, UK nationals or companies, or those who carry on business in the UK. That provides the nexus back to the UK, which I think the noble Lord was searching for.

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Lord Fox Portrait Lord Fox (LD)
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My Lords, it would seem, when looking at Clause 29 and listening to the reasoned arguments of the noble Lords, Lord Hodgson and Lord Clement-Jones, that the Government would be hard put not to agree with the objectives they set out for this amendment, so I suppose we have to listen to the Minister to hear why the Government think that the Bill already does the things which this amendment seeks to achieve, unless the Minister wants to explain why those objectives are wrong. There is a similar argument to be made about Amendment 72, which is more complex. Again, why would the Government not wish to achieve what this amendment is seeking to achieve? If they do, it is not clear in the Bill.

I dubbed Amendment 97 the Gilbert and Sullivan amendment, because you have the cousins, the sisters and the aunts all lining up in the connected parties list, or perhaps not. The noble Lord, Lord Lansley, would probably have made a fabulous argument, but in his stead the noble Baroness, Lady Noakes, makes very good points.

Coming back to the substantive point about Clause 8, we have had a long debate on the group beginning with Amendment 15A, and a smaller, shorter debate that has focused on similar issues. My noble friend Lord Clement-Jones called Clause 8 a hybrid, being both specific and broad. I hope the Minister and the Bill team will take from this that there is work to be done on this clause. It is quite clear from the debate we have had that tightening and clarifying are required to take the Bill into Report. Otherwise, I suspect there will be a lot of recalls coming from the sort of debate we have seen, particularly in the Amendment 15A group, but also, to some extent, from this one.

Baroness Hayter of Kentish Town Portrait Baroness Hayter of Kentish Town (Lab)
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My Lords, I am still slightly reeling from having to find names of people long since in my past, but maybe Hansard can piece things together.

We have heard today, both in this group and in others, and in the representations that we have all seen, that there are considerable investor concerns about bits of the Bill, some of which Amendments 29 and 72 in particular seek to address. It is important to recognise, although it has been made clear by people in Committee, that the Bill marks a radical transformation of national security screening for mergers and acquisitions. It is a new and different regime, so it is essential that the Government not only maintain business confidence but gain more confidence from businesses and the investors in them. That was why, on the first day of Committee, we set out why we thought we needed a definition of national security to provide clarity for businesses and investors and to build trust in the regime.

However, as has been said in this group, one of the things that would help that confidence is better drafting. The noble Lord, Lord Fox, is right when he says that more work is needed. I know it is the second day back at school, but it feels as if the homework has been self-marked and now needs a slightly more thorough look. As everyone has said, it is not that anyone has objections to the purpose of the Bill; the concerns are about the wording and perhaps the breadth of its scope.

Clause 8 defines the circumstances in which a person gains control of a qualifying entity, thus constituting a trigger event that may be subject to assessment under the regime. This is clearly a key part that must be got right. Amendment 29 would narrow the third circumstance to make sure that it does not capture minority investor veto rights, as has already been mentioned. Perhaps the Minister could clarify whether it is expected that minority investment veto rights would be captured.

The group of amendments raises some broad questions about the number of cases in which a person gains control of a qualifying entity. We are interested in why other cases are not included. We do not necessarily want them included but want to work out the limits that brought certain things to be put in the Bill. It is quite interesting to know what is not there. For example, is an acquisition involving state-owned entities or investors originating in a country of risk to UK national security not a concern? It is not mentioned. Neither is a person who becomes a major debt holder and could therefore gain influence over the entity’s operation and policy. Is that not of interest? It is not that I want to include them, but I am really interested in how the definitions were put together. Maybe the Government, either in writing afterwards because it may be more detailed, or in answer today could spell out why these particular cases were selected and the sort of advice that was taken in the selection process.

Amendment 97, which the noble Baroness, Lady Noakes, has discussed, raises the question of why a former partner should remain a person of concern. Probably all of us here have had difficulties with being a politically exposed person, a PEP. We have found it very difficult sometimes just to open or become a signatory to a charity’s accounts because of being a PEP. A number of difficulties were had, but I think they have been got over now after some work in this House. It really did affect those of us who have step-children and former partners and siblings we never see, and things like that.

This issue needs a little more clarification and protection, if you like. No investor or anybody involved in this wants to get caught up by something which they could not have thought at the time was of any interest. I understand that it might look suspicious if somebody divorced their partner two days before to get rid of some assets, but this is a very wide net. Perhaps the Minister can explain why this clause is needed and needs to be drawn quite as widely. This is a net that would catch whales, never mind tiddlers.

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Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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I thank my noble friend very much for those comments. I will reflect on them and communicate with him.

Lord Fox Portrait Lord Fox (LD)
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This covers similar territory to Amendment 30 and the answer that we were given to it. I will read that carefully, as some of the answers are complex, as the Minister himself said. I ask that the Minister reads his answer carefully because, knowing what he knows from his previous life, there will come a realisation that we are not quite where we should be on this.

Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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I thank the noble Lord for that. I commit to reading the questions and answers carefully to make sure that they match up with each other as far as possible.

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Lord Rooker Portrait Lord Rooker (Lab) [V]
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My Lords, although I spoke at Second Reading and have lent my name to later amendments, supporting my noble friend Lord West and the noble Lord, Lord Butler, I have to say that most of the content is way over my pay grade. I have learned an awful lot as I have listened to the debate this afternoon.

My position on the Bill is the same as on the CHIS Bill: I am with the Government. I realise that higher education is large and varied but I am not prepared to give it the blind support that I have done in the past. As such, I do not support Amendment 36.

I want to raise three aspects: pay, academic freedom and security, as it is tied to the Bill. The pay of vice-chancellors is out of control and, like the Army, where no general gets the sack for failure, no vice-chancellor walks the plank. That is due to poor governance, so it is not down to a single person. Many salaries are well north of £250,000 a year—some are £500,000 a year—with whopping increases into five figures annually, on top of which there are vast expenses and, sometimes, free accommodation. In the meantime, the so-called world-beaters screw down the staff on flimsy contracts, with pensions constantly under attack. The treatment of students during the pandemic has been appalling, in some cases. It reminds me of what I read about the Victorian mill owners’ treatment of their workers—but the students are the payees, not the employees. The leadership is not world-class, except as in snouts and troughs.

Then we see the negative aspects of academic freedom —that is, its decline—becoming the norm. The Civitas report makes for very disturbing reading. The study of campus censorship over the three years between 2017 and 2020 is grim. It covered all 137 registered universities and 22 variables were assessed. Noble Lords will be pleased to learn that I do not intend to detail them, but the key finding was that only 19 of the 137 universities were considered “the most friendly”. Seventy—that is 51% of them—were not performing well and were classed as “moderately restrictive”, leaving 48 universities, including some of the highest-ranked ones, performing badly on free speech. They were classed as the most restrictive. It would take too long to list them so I shall give just seven examples: St Andrews, Cambridge, Oxford, Liverpool, Exeter, UCL and Imperial College, London. There are more. There is a very strong correlation of them with the high pay of vice-chancellors. The Russell group of world-class universities did not come out very well either: 42% were recorded as “most restrictive”; 54% were “moderately restrictive”; and only one registered Russell group university came out with a “most friendly” score.

Before I come to my final point, it is worth pointing out that your Lordships’ House does not hear much about this aspect of education. The last time I checked, which was about three years ago, there were over 40 university chancellors in your Lordships’ House. That speaks volume.

My final point on why Amendment 36 should not be accepted by the Government is that too many universities are almost subsidiaries of the Chinese Communist Party Ltd. Tom Tugendhat, the chair of the Commons Foreign Affairs Select Committee, has called for a clamp-down on British university research relationships with China to stop the flow of intelligence secrets. Bloomberg has reported that UK intelligence agencies are concerned about these links and the passing of sensitive information about defence technology from the UK to China. Too much Chinese money is going into UK universities. It is alleged that at least 20 British universities have relationships with 29 Chinese universities with strong ties to the Chinese military, as well as some of China’s largest weapons producers.

Earlier today came the report from the Policy Institute, The China Question. I have not had time to read it all, so I will make just two or three points. In 1990, there were 100 co-authored papers between Chinese and UK universities. By 2000, it was 750. In 2019, there were over 16,000. The report, which I have only glanced at, points out the reliance on significant tuition fee income by UK universities from China, which is used to cross-subsidise research. This creates a strategic dependency and potential vulnerability. We are not managing the risks associated with this aspect of our education and Chinese influence.

In short, it is a sorry tale from higher education. While I support my noble friend Lady Hayter’s Amendment 88, the Government should reject Amendment 36 out of hand.

Lord Fox Portrait Lord Fox (LD)
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I remind the noble Lord, Lord Rooker, that this is a particular Bill designed to do a particular thing. It is not a higher education Bill. While he may feel strongly about many of the issues, I will not comment on them, because they do not fall into the remit of the Bill. I point out that I am also not a university vice-chancellor.

The noble Lord, Lord Lansley, set out the danger, and this was supported by my noble friend Lord Clement-Jones. If this Bill is used to police these issues, the deluge that will fall on the agency will be huge. We are back to the point that my noble friend made on the previous group: we are creating a Bill that does everything, then the Government will gradually calibrate what they do and do not need to do. That is not the best legislative approach.

There are issues with the research relationships that universities may have, but this Bill is not the policing agency that we should be using for them. I do not 100% agree about the outset of a relationship, as set out by the noble Lord, Lord Vaizey, in his and my noble friend’s amendment. Sometimes that has to be looked at, as well as the outcome of that relationship, but I do not think this Bill is the place to do it.

To steal a word that was used earlier and use it differently, we are also looking at the nexus between this and export control. Universities seem much more comfortable with export control, and if there is an issue with universities it could be addressed through the increased and more rigorous use of these measures, not through this Bill.

I return to the point which I asked the noble Lord, Lord Grimstone, about last time and which I put to ask the Minister now, what are we seeking to stop? In other words, in putting this Bill together, how many partnership agreements does the Bill team imagine would have been stopped by this process? What sort of things are the Government seeking to arrest, stop or cancel compared to that which the export control regime would be doing anyway?

Baroness Hayter of Kentish Town Portrait Baroness Hayter of Kentish Town (Lab)
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My Lords, as the Minister knows and as has been said, there is considerable concern in the higher education and research sector about the potential impact of the Bill on research partnerships. We agree with the intention of Amendment 40, which is, as we have heard, to provide clarity for the sector. Indeed, it reflects a recommendation from the Russell group which said that a key concern is that it is unclear which type of asset transactions should be referred for screening. That will cause problems for the group as well as to the unit, which could have simply too many referrals. Amendment 40 is also to ensure that research and development partnerships, such as those between commercial organisations and universities to create new intellectual property and potentially qualifying assets, are not required to provide notification of the creation of such partnerships.

Amendment 88 in my name and that of the noble Lord, Lord Clement-Jones, reflects similar concerns. I hope it takes an approach that the Government are able to accept. It would require the Government to publish specific guidance for the HE and research sector, including a clear explanation of asset transactions indicating how contract research, consultancy work and collaborative research and development are affected and how the provisions apply to strategic security partnerships and domestic partners. The amendment also requires—and this is key—the Government to consult the higher education and research sector in a meaningful way in advance of the guidance so that the published guidance reflects what is workable for both sides, particularly in relation to that definition of assets which otherwise could lead to great uncertainty. The amendment therefore is about developing guidance and promoting good practice in that it should be done in co-operation with the sector. I thank my noble friend Lord Rooker and the noble Lord, Lord Lansley, for their support for this approach. The wording of my amendment may not be perfect, and we could perhaps tweak that on Report, but it will be important to have this in the Bill.

Perhaps the Minister who is about to reply—or may be doing that next week—would indicate the Government’s acceptance of this need for guidance as well as the way of getting it. As the Russell group says, without clear guidance a significant proportion of universities’ routine engagement with British business could be inadvertently captured by the Bill. We are all in favour of that engagement between universities and business. We want to make sure it happens. Any hiccups could delay time-sensitive research deals if the unit was preoccupied with this.

Universities want to help make this Bill work. They acknowledge that there are risks. I disagree with the noble Lord, Lord Fox. I think that the issue raised by my noble friend Lord Rooker about the amount of collaboration with certain countries is key and we must face up to it. I think that the leaders of the universities are aware of that. They want to be part of the solution, so I hope that the Minister will accept Amendment 88.

National Security and Investment Bill

Lord Fox Excerpts
Lord Fox Portrait Lord Fox (LD)
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My Lords, it is nice to be in the Chamber rather than the glass cubes in which we have been confined. I assure your Lordships, and agree with the noble Lord, Lord Lansley, that noble Lords not only on those Benches but on this side of the House want this Bill to succeed; I think that I can speak for Her Majesty’s loyal Opposition as well. However, the measure of that success will be its efficiency, its certainty and the way it manages this important element of investment.

I listened to the answer that the Minister gave to the last set of amendments; I do not expect the noble Lord, Lord Grimstone, as Minister for this set, to comment on that. However, although it is probably irregular, I ask both Ministers to listen back to the answer that was given there and answer the same questions with their departments: how would they manage a company for five years that is still sitting in that kind of limbo? How would they make investment decisions for that business while it is still not approved but not denied? I ask them to think about the management decisions that they would make. When they have come to a conclusion, I think the Ministers will agree with the proposers of those amendments that some degree of certainty needs to be delivered quickly and efficiently—and that brings us to this set of amendments. The noble Lord, Lord Lansley, has eloquently set out an alternative to the—we might say—digital approach that the Bill has taken, with the option of remedies. Businesses are familiar with remedies, I would say, having worked with the CMA and others. The merits as set out by the noble Lord of speed, flexibility and durability are all things to be aspired to.

I know this sounds patronising, but I remind the Government that the title of the Bill includes the words “security and investment”—the investment part should have equal weight to that of security. It is straight- forward to stop things happening and tick a security box; it is harder to make sure that we have a regime that continues to encourage investment. Everything that takes time or injects uncertainty pushes investment away. The Ministers should listen to the wise words of the noble Lord, Lord Lansley, and think about this middle way, which can move things quickly, keep investment in the game and make sure that, at the same time as getting investment, we are also getting the security that the title of the Bill demands.

Baroness Hayter of Kentish Town Portrait Baroness Hayter of Kentish Town (Lab)
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My Lords, there is something going around my mind now about letting foxes out of their glass cubes—I am not sure how dangerous that is.

These amendments would allow for undertakings to be accepted instead of a final order—a case well made by the noble Lord, Lord Lansley. During Committee in the other place, Dr Lenihan from the LSE said:

“There are many cases in which a threat to national security can be mitigated by agreements and undertakings without needing to block a deal.”


Perhaps the Minister could inform the House what thought was given to that proposal.

As we have heard, Amendment 71 is in a way a probing amendment to learn more about the type of person the Secretary of State could appoint to supervise a final order. We will be particularly interested to hear the Minister’s reply on this. What sort of specialism would be involved? Would the person need to have any relevant training, background or experience? It would be interesting to know how they would be selected and whether the job description would be included in the report that would in any case be made, so that one could see the basis on which the selection happened.

Clause 26(4) states:

“Before making a final order the Secretary of State must consider any representations made”.


We are interested in what exactly is meant by the word “consider”. Would that be part of a dialogue, perhaps as part of the negotiations, or simply a requirement that representations are in the dossier submitted to the Secretary of State for ratification? Assuming that the representations had not been successful—if there were a final order, that would presumably be against the wishes of the parties—it would be interesting to know whether the reasoning for rejecting them would be noted and reported on elsewhere, possibly to the ISC. It would be important for someone to be able to reflect on the decision-making that had taken place.

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Lord Fox Portrait Lord Fox (LD)
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My Lords, I thank the Minister for his answer. I want to follow up on his last point. There is a certain ambiguity in his answer around where this person would be drawn from. In one sentence the Minister referred to the ISU and in the next sentence he referred to drawing on a particular power. It is not clear: is this a standing group of people who will be set in or will people be seconded from other companies or pulled in from other departments? A little more sense of what the source of these people is would give us more security around this.

Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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My Lords, I thank the noble Lord for that question. It will be horses for courses. It will be either qualified people from inside or, if a person from inside does not have the qualifications, someone will be drawn in from outside and appointed to do it. The test will be to make sure that the person you ask to do the role has the capabilities and the qualifications to do it. I say yet again: why would the Secretary of State wish to do other than to appoint somebody who is qualified to do this task?

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Lord McNicol of West Kilbride Portrait The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
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I have received two requests so far to speak after the Minister—from the noble Lords, Lord Fox and Lord Clement-Jones.

Lord Fox Portrait Lord Fox (LD)
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My Lords, I thank the Minister for his thorough answers. In his answer on Clause 30, the Minister referred to “affected parties” and did not rule out the aggressor, as well as the target, from potential compensation—or mitigation, as I think the Minister described it. Am I right in assuming that the aggressor might also feel that they are eligible for mitigation?

Secondly, the nature of that mitigation seems to rule out the Government taking a share in a potential company, rather than simply bailing it out. Given that this Government have already spent $500 million taking a 20% share in OneWeb, which was not even strategic, why would they not leave themselves open to taking a share in a company so important that they felt they needed to prop it up?

Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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I thank the noble Lord for that question. I will give him an additional example of where this power or type of power might be used. As I stressed earlier, it is not a general compensation power and will only be used in instances where the public interest, particularly national security interests, require it. As I also said earlier, any financial assistance would be subject to Treasury consent and would have to be shown to provide value for money. For example, if the Government provided a loan, it would normally have to be at market rates. The clause does allow the Secretary of State to bail out any business, either directly or surreptitiously, through soft loans.

Equally, the aim is not for this Bill to cause businesses financial distress, nor do we anticipate it doing so. The Secretary of State—this is the key point—may make a final order only if he “reasonably considers” that it is “necessary and proportionate” to address an identified national security risk.

Let me give an example. A case might arise whereby an asset has to be secured to prevent the national security risk of someone else getting hold of it. The Secretary of State might have imposed a final order that blocked a trigger event of a UK company that was working on unique or world-leading technology. If the company could not immediately find an alternative buyer, and if the collapse of the company could itself pose a national security risk, the Secretary of State could consider using this power. In such a situation, the Secretary of State may decide that he or she wishes to provide financial assistance to ensure that the company could continue operating until an alternative acceptable buyer was found. As such, this power will be used only in very tightly drawn circumstances where doing so is clearly in the national interest.

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Lord Janvrin Portrait Lord Janvrin (CB) [V]
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My Lords, it is a pleasure to follow the noble Baroness, Lady Ritchie of Downpatrick. I speak as yet another former member of the Intelligence and Security Committee of Parliament. I strongly support the Bill, but there is a scrutiny gap which has been well identified in this short debate. Other speakers have made the key point in support of explicit oversight by the Intelligence and Security Committee of decisions taken under the Bill based on classified evidence from secret intelligence sources, and I strongly endorse those arguments.

I want to underline very briefly the important point of principle underlying these amendments. The ISC is a vital part of the intelligence agencies’ licence to operate in a democracy by making the agencies accountable to Parliament. It helps maintain public trust and confidence in the secret activities of the state. This obviously includes maintaining trust in government decisions about the activities of the intelligence community. Those broad decisions are taken in the interests of the nation as a whole, but maintaining public trust will surely be just as important when it comes to government decisions that may be narrower but could directly affect the future of individual British companies and the livelihoods of their employees.

The Bill will set up a regime that could materially change people’s lives in the wider interest of national security. However, as drafted, it does so without those people knowing for certain that any decisions based on secret evidence are not automatically subject to scrutiny and examination by the one committee of Parliament specifically set up to be able to do this: the ISC. This seems wrong in principle.

There is then the point of practice. I think we would all argue that effective scrutiny leads to better decision-making. The Minister in another place said that there is nothing to stop the ISC calling for evidence on a specific decision. That may be true, but is it practical? It calls to mind Donald Rumsfeld’s “unknown unknowns”: how does the ISC know which decisions to examine in detail? I question whether such a hit-or-miss approach to scrutiny would lead to better decision-making.

Amendments 70, 78, 79 and 82 all suggest means to provide effective ISC scrutiny. As has been pointed out, Amendment 70, in the name of my noble friend Lord Butler, has the merit of real-time accountability. This should be examined carefully, but the other amendments ensuring regular and automatic classified reporting to the ISC will, I believe, do much to ensure public trust in the processes of the Bill. As the noble Lord, Lord West, said, without one of these amendments, there would be no effective oversight.

I very much look forward to the Minister’s reply, and I hope he will be sympathetic to some kind of movement on this important issue. As I said at the beginning, this is a matter of trust.

Lord Fox Portrait Lord Fox (LD)
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My Lords, it is a huge pleasure to follow such assembled knowledge and experience. I shall do my best to sum up from these Benches.

On a previous Committee day, we debated an amendment, tabled by the noble Baroness, Lady Hayter, on defining national security. In his answer to that amendment, the Minister—the noble Lord, Lord Callanan —responded that enshrining national security in law would be an inflexible response and the Government sought the ability to have a “flexible” response to future threats. I found this reasonably persuasive. However, who in the Government and department is defining, at that point in time, what the threat to national security is? Where does the expertise lie? Herein come the amendments before us—all except for Amendment 90, look towards the ISC for that expertise.

In his speech, the noble Lord, Lord Butler of Brockwell, set out what is at stake. These are extraordinary powers that the Government are taking upon themselves to stop private sector activity. That has been the concern of many of us throughout all the amendments that we have been putting forward. A lot of those powers are being kept very close to the Minister and very flexible, as my noble friend Lord Clement-Jones said when speaking on a previous group today.

One of the problems that has concerned those of us speaking about the investment part of the Bill is mission creep. Having a role for the ISC at the heart of it would ensure that this really is about security, rather than other issues that can creep into the picture.

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Lord Lansley Portrait Lord Lansley (Con)
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My Lords, this group should not take us very long. There are just two points in it. Amendment 76 relates to Clause 54, “Disclosure of information,” and in that clause, there is a power for the Secretary of State to disclose information

“to a public authority or an overseas public authority.”

When deciding whether to disclose information to an overseas public authority, under subsection (7) of that clause, there are two issues the Secretary of State must have regard to: the protection against self-incrimination in criminal proceedings; and whether the matter in respect of which disclosure is sought is sufficiently serious to justify making that disclosure.

Amendment 76 in my name proposes to add one further matter to which the Secretary of State must have regard—whether there is a reciprocal agreement with the country or territory concerned. It would not mean that where there was no reciprocal agreement the Secretary of State could not make a disclosure to an overseas public authority, but it should be something that he should have in mind.

I am glad that my noble friend is on the Front Bench because he will have fond memories of Amendment 77. It concerns the disclosure of information where a statutory gateway is made and how such a statutory gateway is to be considered alongside the prohibitions to be found in data protection legislation and in the Investigatory Powers Act. The amendment to Clause 57 covers this. My noble friend will recall that under the Trade (Disclosure of Information) Act 2020, where there was a power to disclose information that might contravene the data protection legislation, that would be prevented, but the duty or power in the 2020 Act was to be considered alongside that prohibition. We can see that in Clause 57(2)(a), which makes it clear that the duty to disclose in this legislation would not contravene data protection legislation or the provisions of the Investigatory Powers Act, but that the duty or power in this legislation must be taken into account.

Clause 57 puts that qualification alongside the data protection legislation, but it has not put it alongside the prohibitions in the Investigatory Powers Act; I do not know why. I know why it is there because we went through this on the Trade Bill. It is there because of the 2016 Supreme Court decision in The Christian Institute & Others v The Lord Advocate made it clear that the decision-maker should have in mind both the prohibitions and the powers in the Act, and balance the two together. In Clause 57(2)(a) this legislation enables the Secretary of State to balance the two. The question is: why not in the Investigatory Powers Act? If the answer is that under no circumstances would a prohibition under the Investigatory Powers Act be overridden by reference to the duty or powers in this legislation, I will be content with that. However, otherwise I do not understand why it is not included in Clause 57(2)(b) in the same way as it is in subsection (2)(a). I beg to move.

Lord Fox Portrait Lord Fox (LD)
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My Lords, I rise to beat the rush and clamour to respond to these two amendments. Taking them in turn, from these Benches, Amendment 76 seems to make a relatively straightforward point. I will be interested to hear from the Minister what possible objection there might be to it. My suspicion about Amendment 77 concerns what normally happens to amendments like this tabled by the noble Lord, Lord Lansley. The Minister will say, “We do not need these powers because—”. I have looked at the legislation and I cannot find any evidence of where the “because” might be. I shall sit down and wait to find out.

Lord Russell of Liverpool Portrait The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
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We have not heard from the noble Baroness, Lady Hayter of Kentish Town, so I call the Minister.

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Lord Fox Portrait Lord Fox (LD)
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My Lords, I will make two brief points. On Amendment 91, I add in support of the noble Lord, Lord West of Spithead, that, having worked for a business that was both in the defence supply chain and was also a civil supplier, some companies do not even realise that they are selling into the defence supply chain—particularly SMEs, which tend to sell to whomever will buy their product, often across civil and security sectors. Advice on how you know when you are coming into the remit of the Bill is going to be very important.

Speaking to the long list set out in Clause 61, which would become longer should the advice of the noble Lord, Lord Grantchester, be accepted, I have a problem because it is essentially a process. It is “What we have done this year”; it is a list of things we did. The Bill has two purposes: one is to keep the country safe, and the other is to not harmfully impact the flow of investment. It is impossible to infer any of that from these things. If we are going to have an annual report—I am remiss for not having tabled an amendment myself—let us have one that enables us to judge the success of the Bill year on year. What has been the effect—the impact —of the Bill on the investment landscape in this country? Are we still safe? We could have done all the things on this list, and, frankly, all the things on the list of the noble Lord, Lord Grantchester, and the stable door could be wide open, but we would not know it from this annual report.

I have prepared lots of business annual reports: literally thousands of things are reported, none of which is actually useful information about what the business is doing but is required by law. So my suggestion, for what it is worth, is: let us have an annual report that enables us to effectively judge the Bill’s success—are we safe and has the investment landscape not been impacted?

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This is a dangerous world. We are in an age of shocks. Our security is in grave danger. We need to know what the Government’s plans are when it comes to investments affecting climate and ecological emergencies. I beg to move.
Lord Fox Portrait Lord Fox (LD)
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My Lords, I feel justifiably aggrieved to have been admonished by the noble Baroness, Lady Bennett, for not being passionate or plentiful enough. Telling people off who are here because there are not enough of us is perhaps a little unfair. Perhaps she could reserve her fire for colleagues who have decided not to be here. There is also a certain symmetry here. During our debate on the first amendment I had the pleasure of speaking on I was roundly admonished by the noble Baroness, Lady Noakes, for using it as a chance to repeat my Second Reading speech—which of course I denied.

The noble Baroness, Lady Bennett, has a point. There is a very important element of security around the climate emergency and she is right to highlight that we need to factor in how climate, environment and ecological damage will affect the future security of this country. When we debated Clause 6 much earlier in this process, we looked at the 17 technologies that had been identified by the department as technologies of concern. That is an area where I think some input on this level could be made, and I would be happy to work with the noble Baroness, Lady Bennett, going forward to look at that list and make some suggestions on whether there are missing technologies related to environmental and ecological damage issues that should be factored in.

I do not like to be self-referential—but I will be anyway. During the Budget debate I made it very clear that one of the things missing from the Budget was a strategy to get to the 2050 net-zero target. It was completely absent. There is no strategy to get there. I would advise that that is where we should focus our energy. The Government, the Opposition and everyone in Parliament should be delivering an integrated strategy to get to what in this case is our public policy for 2050. I know that different parties have different targets, but that process would tease out the technologies, the businesses and the areas of activity that we need to make sure we retain access to in order to move forward and deliver on the strategy.

The noble Baroness, Lady Bennett, is right to bring this issue up, but I am not sure that adding a clause to this Bill is the right route. As I say, however, I would be happy to work with her on the list of technologies, and indeed I am happy to work with everyone to try to deliver the route map to get to net zero.

Lord Grantchester Portrait Lord Grantchester (Lab)
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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?

National Security and Investment Bill

Lord Fox Excerpts
Baroness Fookes Portrait The Deputy Speaker (Baroness Fookes) (Con)
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I have received one request to speak after the Minister. I call the noble Lord, Lord Fox.

Lord Fox Portrait Lord Fox (LD)
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My Lords, I think I heard the Minister say that the export control regime and the regime established by this Bill will be equal, rather than one being precedent to the other. The noble Lord, Lord Lansley, quoted a White Paper which very clearly set the export control regime as having precedent over this regime. That is not what I heard the Minister say —so, in order of precedence, how does the Minister expect these two regimes, which I hope will be complementary and not conflicting, to work together?

Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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I thank the noble Lord for that point. It is hard to give a black-and-white answer, because it would depend of course on the circumstances. Let us remind ourselves what the difference is. The export control regime, which is the licensing regime for certain controlled goods, is one important part of the safeguarding of our national security, and, of course, it sits well alongside the national security and investment regime. The two regimes are distinct and do not perform the same role. To give an example to clarify that, the export control regime does not provide the Government with the ability to scrutinise acquisitions of UK companies or the ability to direct the use of sensitive assets used in the UK, whereas the NSI regime would. In a nutshell, the precedence between these two regimes must and will depend on the circumstances that are being covered.

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Baroness McIntosh of Pickering Portrait Baroness McIntosh of Pickering (Con)
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My Lords, I am delighted to speak on Report. I congratulate my noble friend Lord Leigh on raising this persistently and so eloquently at earlier stages of the Bill. I congratulate my noble friend the Minister on listening to and acting on the concerns expressed across the House at that stage by bringing forward the amendments that he has today.

I particularly associate myself with Amendment 8, to Clause 8, in the name of my noble friend Lord Hodgson of Astley Abbotts. I would like to press the case a little further with my noble friend the Minister and ask that we pause for a moment at this stage and ensure that we are not going to scare off potential large investors with an increase in referrals that perhaps could not be managed or see a deterrence to potential investment, therefore possibly damaging the economy.

The way in which I would like to press my noble friend the Minister follows on from what my noble friend Lady Neville-Rolfe said in her opening remarks just now as to what extraneous factors may be taken into account that could damage potential investment in this country. Those further factors that I ask my noble friend to rule out have been put forward at earlier stages by the Law Society of England, which I supported in Committee and repeat in connection with Amendment 8 here.

Can my noble friend clarify and give greater certainty as to what constitutes national security? Will he specifically rule out extraneous factors such as employment effects, reciprocal investment and trading opportunities in other jurisdictions and a desire to protect UK business from international competition as factors that would be taken into account when assessing whether a trigger event would give rise to a national security risk? In terms of Amendment 8 and our earlier discussions, it would give clear guidance to those practitioners at this stage if we could rule out that those extraneous factors would ever constitute a potential national security risk.

Lord Fox Portrait Lord Fox (LD)
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My Lords, we have had a short and interesting debate. Speaking to Amendment 2, the noble Lord, Lord Lansley, has as ever uncovered an incongruity in the way the Bill is drafted. I suggest the Government are wise to listen to his advice. Similarly with Amendment 8, there is a need for clarity for people. Where do they stand on this issue? That is all people deserve when trying to manage their affairs.

We then come to the extraordinary intervention of the noble Baroness, Lady Neville-Rolfe. It is a shame that she was not around to give a Second Reading speech, which perhaps might have guided us through some of our decision-making, and arrived only at this late hour to offer her help. I suspect that, had she involved herself a little earlier, she might have been less concerned with the issues than she is now. For fear of doing the Minister’s work for him, I ask him to confirm that the regime retains the right to call in deals that are less than 25% at any time. The notion that there are deals that the regime may not see is one of the points inferred by the noble Baroness, Lady Neville-Rolfe.

This is the point: the unit has to be sufficiently resourced and efficient in its work to be able to pick these issues up. We shall talk later about where it gets its information and how the security guidance is fed in, because that comes under another group of amendments. However, with all the issues coming through, the point is how well the regime is actually operated; the noble Baroness, Lady Noakes, has mentioned this on many occasions. That will be the rub, in terms of how business will be affected by the Bill. The more the Minister can reassure us that the resources will be there to deliver this, the happier most of us will be.

Lord Grantchester Portrait Lord Grantchester (Lab)
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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.

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Moved by
6: Clause 6, page 5, line 3, at end insert—
“( ) In making regulations for the purposes of this section the Secretary of State must have regard to the risk to national security posed by climate change and to the role of qualifying entities and assets in mitigating that risk.”Member’s explanatory statement
This amendment would require the Secretary of State to have regard to the risk to national security posed by climate change when making regulations relating to notifiable acquisitions.
Lord Fox Portrait Lord Fox (LD)
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My Lords, at the very end of the third day of Committee your Lordships had a short debate around the impact of climate change on national security. On these Benches, our view is that this is still not considered appropriately by the Bill as it is currently drafted. Climate is also possibly missed in some of the 17 technologies; I guess we will have a chance to debate that when the detailed list arrives formally. Infrastructure issues are also somewhat neglected, as we have heard on some occasions, not least from the noble Baroness, Lady Noakes, opposite.

During that debate, I suggested that the best route might not be a lengthy definition of national security, which included a part for climate change. Rather, I suggested, something that focused on Clause 6 might be a better approach. This amendment is the response to that suggestion. Amendment 6 in my name would require the Secretary of State to

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

when making regulations relating to notifiable acquisitions. I am grateful to the noble Lord, Lord Grantchester, and to the noble Baroness, Lady Bennett of Manor Castle, for their signatures and, of course, to my noble friend Lord Clement-Jones.

It is quite clear that climate change is already causing national security issues. We have only to look at climate-inspired migration crises, which are hitting many countries, and the related security issues that arise from that mass migration, to appreciate the nexus between these two issues. It is also clear that, when it comes to meeting these challenges, access to both technologies and the raw material to deliver those technologies are crucial to our national response to the climate change threat. Further, the ownership of key infrastructure which will, I hope, help to deliver a zero-carbon footprint will be a matter of concern going forward.

All of this could implicitly fall within the remit of the Bill, and I accept that. This amendment calls for a more explicit recognition of the potential for climate change—which, in my view, includes biodiversity—to affect national security, and that is what I am looking for from the Minister today.

The Minister has previously indicated his allergy to “have regard” amendments, notwithstanding the fact that there are such clauses in Bills that the Government have asked your Lordships to approve from other departments, so perhaps this allergy is simply reserved for the BEIS area. But, recognising this, I ask the Minister, and expect him to explain, why this amendment would contaminate this Bill, because the Government have voiced their concerns around climate change, and it is easy to make that connection in some cases.

At the very least, I think it is possible for the Minister to acknowledge that climate change and its influence will be one of the factors that should be taken into consideration when making regulations related to notifiable acquisitions. I think that he could find his way to confirming that the technology and raw material issues that I set out earlier would also be on the investment unit’s checklist, because they are important elements of national security. I remain hopeful that the Minister will be able to do that while, of course, retaining the option of putting my amendment to a vote. I beg to move Amendment 6.

Amendment 7 (to Amendment 6)

Moved by
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Amendment 7 (to Amendment 6) withdrawn.
Lord Fox Portrait Lord Fox (LD)
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I thank noble Lords for that debate and I thank the Minister for his response. It was entirely predictable, as I think the noble Lord, Lord Lansley, who has just slipped out, said when we discussed the previous group.

What I heard the Minister say—

“types of risk … including those that are environmental in nature”—

was slightly more explicit than what is in the Bill. My sense when the Minister talks about long-term security is that the technology needed to maintain or further our fight against climate change will increasingly become a long-term concern. I suspect that this unit will find itself embroiled in calling in transactions that indeed concern the environment because they deal with technologies that are environmental in nature.

I will think again on this issue, and obviously I will read Hansard to make sure that I have got the words correct, but in the meantime I beg leave to withdraw the amendment.

Amendment 6 withdrawn.
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Lord Hodgson of Astley Abbotts Portrait Lord Hodgson of Astley Abbotts (Con)
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My Lords, I have put my name to Amendments 11 and 12, tabled by my noble friend Lady Noakes, which concern mandatory notifications, as she made clear. However, I am equally enthusiastic about Amendment 13, tabled by my noble friend Lord Lansley—even though I have not put my name to it—which addresses voluntary issues as well.

I will add a couple of points in support of these two approaches. As my noble friend made clear on Amendments 11 and 12, the use of the phrase “practicable” or “reasonably practicable”—it is not clear why we have one in one place and one in another—has come in for some pretty widespread criticism. As we have discussed before and heard from various legal advisers, the word “possible” would be a big improvement on “practicable”.

Mandatory notifications will be at the sharp end of the Bill and can be expected in many cases to be controversial. There will be a temptation for a Secretary of State, faced with a controversial decision, to try to delay it. It is common ground that, while we need to take appropriate steps to protect our national security interests, it is also in our national economic interest to encourage as much investment as possible in the chosen 17 sectors which will collectively have a significant impact on our economic future.

With great respect, I understand what the noble Baroness, Lady Bennett of Manor Castle, is trying to say, but the reality is that this is a balance; if we are in a competitive market around the world for investment and are unable to balance it properly, people will go elsewhere. It is as simple as that. Her idea of having an open-ended arrangement for the Secretary of State to make up his or her mind is a recipe for an outflow of investment which might otherwise come here to support this country, with its worldwide reputation in tech and other sectors.

On my noble friend Lord Lansley’s amendment on voluntary notifications, we have been around this course many times before; there will be a substantial flow and the new unit at BEIS may find it difficult to cope. In Committee, we discussed a number of amendments to try to help the Government with this and focus the new regime on the really significant cases. Amendments by various Members of your Lordships’ House, including me, proposed inter alia to exclude intra-group investments, to require only one trigger event for each group of companies and to limit notifications to assets used in connection with activities carried on in the UK—in other words, to limit the extraterritoriality of this Bill’s provisions.

The Government declined to accept any of these, arguing that they needed the widest possible strategic view to prevent evasive tactics by unwelcome purchasers. I must accept the force of that argument, but it means the Government must live with the consequences of those decisions. To provide an appropriate level of certainty for investors, we simply cannot risk a situation where, if a flood of voluntary notifications occurs, the Government could decline to start the 30-day clock.

In his concluding remarks, my noble friend may refer to Amendment 27, which the Government have tabled, about the contents of the annual report. If it is accepted by the House, as I expect it will be, it will include details of the number of days taken to give a decision, or the time taken to reach a voluntary notification. I do not want to add to the points the noble Lord, Lord Clement-Jones, made, but I have to say to my noble friend that it is really shutting the stable door after the horse has bolted to be told, a year later, that we have not been able to hit the targets or that they are being missed widely. There is nothing wrong with that, but we are trying to create a balanced regime that hits the ground running, and to learn, a year later, that “the system is overwhelmed”, which a number of us in this Chamber feel is likely to happen, is simply not an adequate answer.

Lord Fox Portrait Lord Fox (LD)
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My Lords, the noble Lord, Lord Hodgson, set out his view of a balance, and I will set out another dichotomy—between thoroughness and timeliness. I do not think any of us in the Chamber are asking for this process to be less thorough. I think we are all saying we want a thorough process. But that thoroughness cannot be at the expense of timeliness, which is what these amendments are seeking to establish.

I do not think it is the Government’s intention to sow the market with uncertainty; I am absolutely sure that is not the intention of the Bill or this element of it. However, we all know that once things get written into law, they move into a departmental process and there is a unit dealing with this, unless there are specific guidelines on achieving timeliness, things will drag and take time. Departmental clocks can run at a different speed to business clocks. We should be clear that that will cost jobs and opportunities, because the longer a transaction takes, the longer it is in play, the fewer opportunities those companies have and the more threat there is for them. This is particularly clear in sales out of distress and in businesses that are already in play. Once they are in play, they become victims of exploitation, and the longer this department maintains a business in play through this process, the more danger those businesses are in.

The Government’s “intent” has come up many times in speeches, and that is an important element here. The way this Bill is currently drafted does not reveal an intent for rapid resolution. It does not reveal an understanding of the importance of timeliness, and that is what these amendments seek to establish.

Lord Grantchester Portrait Lord Grantchester (Lab)
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I thank the noble Baroness, Lady Noakes, and the noble Lords, Lord Hodgson and Lord Clement-Jones, for returning to the issue of the impact of this legislation on businesses and the uncertainty it would create within a business environment as businesses must interface with its bureaucracy. It has been interesting to hear the reflections from debates in Committee.

In Committee, we were sympathetic to Amendment 11 and others in the group as we have also pushed the Government to ensure greater clarity and transparency regarding how long businesses and organisations will have to wait for answers from the Government concerning notifications. It is important not only that statutory time limits are laid down to each stage of assessment but that the overall accumulated length of time of the whole process is defined. We remain supportive of the intentions behind the amendments in this group, and I am grateful to the many business interests that have expressed concerns to us. I merely ask again: what does “reasonably practicable” mean as a length of time?

In Committee, the Minister did not address whether and to what extent five working days could become practicable. The noble Baroness, Lady Noakes, asked many pertinent questions concerning the operation of the unit and its systems in addressing the tasks it will have to be administrating. Could the Minister provide more clarity? Can he give assurances today that officials in the department will engage effectively with business and provide updates and explanations regarding issues under consideration to businesses, should an answer not be forthcoming within the defined five-day limit proposed in this amendment, rather than expect businesses to delay and wait for an unspecified length of time to be proved practicable? Communication of the position would prove extremely reassuring to businesses.

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Lord Clement-Jones Portrait Lord Clement-Jones (LD)
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My Lords, I am again very fortunate in following the noble Baroness, Lady Noakes, and the noble Lord, Lord Hodgson. I have signed Amendment 18 and my noble friend Lord Fox has signed Amendments 15 and 16. I entirely endorse what the noble Baroness and the noble Lord said about the lack of clarity and the important implications of this clause.

In our clause stand part debate in Committee, the Minister, the noble Lord, Lord Grimstone, described the clause as “tightly drawn”. Today, he has talked about strong checks on the power, but I would have thought that it is now abundantly clear from the debates we have had, not only on the previous group of amendments but particularly on this group, that there is insufficient clarity about the operation of the clause. The noble Baroness, Lady Noakes, described the clause as extraordinarily wide, in particular in terms of transparency, the reporting requirement, an inadequate and arbitrary cut-off point, the nature of affected parties who could be compensated, the lack of alternatives to compensation, as mentioned by my noble friend Lord Fox, such as taking an equity stake, and the lack of a specific reference to public interest and national security in the clause. It seems we have to rely on the threat of judicial review rather than the wording of the Bill to ensure that the Secretary of State reasonably considers that the compensation is “necessary and proportionate”.

The Minister assured us that the power would be used only “responsibly and respectively”—I am not quite sure what “respectively” means in that context—but that the circumstances were hard to predict. Nothing that has been said so far today has dispelled the opacity, which I know the noble Lord intended to do. It is still extremely cloudy, and that was illustrated by both who have spoken. All this argues for a much tighter framework, such as suggested and probed by these amendments. I hope that the Minister will either take that on board or give pretty clear, detailed assurances about the workings of the clause or, probably even better, separate guidance. I understand from the Minister that that will not be provided, which seems highly regrettable. I hope that the Minister can give much greater detail about the operation of this clause, as required by these amendments.

Lord Fox Portrait Lord Fox (LD)
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My Lords, I am grateful that the noble Lord, Lord Grantchester, is arriving back in his place, as I am not intending to speak for very long, so he had better get there swiftly.

This seems to be the other half of the amendments that went with the previous debate, and the group, with the exception of the noble Lord, is mutually exclusive, but it is still around subsidy payment money and what it is. The central question about Clause 30 is: what was in the Government’s mind when it was drafted? What is it for? The longer the Minister refuses to be specific in answering that question, the more I am drawn to the supposition that the Government do not know what it is for and that it has been put there as an insurance measure, just in case. Frankly, that is typical of the way this Bill has been written. It has been written as widely as possible to give the department as much leeway as possible in the event of stuff happening, stuff which is as yet undefined or is perhaps undefinable. That is not a good example of what Governments should be bringing to your Lordships’ House for approval.

The questions that have been asked very clearly by the previous speakers are important. If the Minister wants to prove that there is some guiding force behind Clause 30, and not just “We’ll put it in just in case we need it”, which is what it looks like to me, I look forward to hearing his comments.

In speaking to the previous group, the Minister implied that the fact that the Treasury would have a hand on the tiller should give us comfort. If the only comfort we have is that the Treasury will be looking over your shoulder, it does not sound very comfortable. The department should know what this money is for, why it is there and what it is going to be used for. We should not have to rely on the good offices of Her Majesty’s Treasury.

Lord Grantchester Portrait Lord Grantchester (Lab)
- Hansard - - - Excerpts

I am very grateful to the noble Lord, Lord Fox, for looking after my welfare.

I am grateful to the noble Baroness, Lady Noakes, and the noble Lords, Lord Hodgson and Lord Fox, for pressing further through this group on the scope of Clause 30 concerning financial assistance, how far and in what circumstances financial assistance will be provided to businesses resultant on government decisions, and what the Government have in mind when under Clause 30(2)

“any other kind of financial assistance (actual or contingent)”

could be helpfully provided.

Amendment 18 is important in raising the issue of compensation, which I am sure the Government will continue to resist. Greater clarity will be always be helpful. Does the Minister envisage assistance being given beyond a certain figure? The sum of £100 million is specifically mentioned in the Bill. It seems to us, however, that the scope of the provision in Clause 30 is adequately drawn up.

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Lord Lansley Portrait Lord Lansley (Con)
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My Lords, I express my support for the amendments presented by the noble Lord, Lord West of Spithead, and his colleagues. Curiously, we seem to have four on the front row, but I am perfectly happy where I am, because I am quite a big chap and used to play left lock, so that will be fine.

Colleagues will recall that I had an amendment in Committee to extend the remit of the Intelligence and Security Committee under the 2013 Act. I think the place we have reached on Report is right; my amendment was unnecessary and might have led to precisely the criticism which my successor bar five as Leader of the House of Commons has put to the chair of that committee—that it is expanding the role of the committee beyond its original statutory function. Jacob Rees-Mogg has expressed this criticism about where we are now, but I am afraid he is plain wrong. That is precisely not what this amendment seeks to do; it seeks to ensure that the Intelligence and Security Committee can fulfil the role it was given in precisely the terms that the noble Lord, Lord West of Spithead, set out in introducing his two amendments. I very much support him.

I fear the noble Lord, Lord Butler of Brockwell, may have hit on why the Government are resisting this; not for the reasons they have expressed, but because it will enable the quality of some of those decisions to be examined in detail, including with reference to the security risks that must be incorporated into this decision-making. Perhaps they do not wish that to happen, but that is why we have parliamentary oversight and why, in particular, the Intelligence and Security Committee was originally instituted. I was not a Member of the other House at the time it was instituted, but I was director of the Conservative Research Department and my deputy director is now chair of that committee—as my mother would say, as these things go around, they come around. I am very happy to support their role.

I will mention one other thing. He is not with us this afternoon, but in Committee the noble Lord, Lord Janvrin, made an essential point about the Government’s argument that the ISC can go after the information it is looking for and make inquiries of whoever. He said:

“I think we would all argue that effective scrutiny leads to better decision-making. The Minister in another place said that there is nothing to stop the ISC calling for evidence on a specific decision. That may be true, but is it practical? It calls to mind Donald Rumsfeld’s ‘unknown unknowns’: how does the ISC know which decisions to examine in detail? I question whether such a hit-or-miss approach to scrutiny would lead to better decision-making.”—[Official Report, 16/3/21; col. 250.]


We do not want a hit-or-miss approach. Even less, frankly, do we want the ISC to have to go out on fishing expeditions to try to find out on what the intelligence material on which decisions were made was based. I would far rather it was done in a well-constructed manner. I support these amendments for that reason and hope my noble friend, at the very least, will be able to say that the Government will bring back their own amendments at Third Reading to serve this purpose or amend the memorandum of understanding in the right way. If not, I will have to support these amendments this afternoon.

Lord Fox Portrait Lord Fox (LD)
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My Lords, the fact that such esteemed Members on all sides of the House have coalesced on this amendment speaks volumes for your Lordships’ concern about this issue.

It has been a heavyweight debate, with all due respect to the four amigos who have been speaking. I will now bring it down to earth with a bit of politics. It has been an authoritative debate and, all other things being equal, we would expect and hope that it causes the Minister not just to listen but to act. However, I fear his hands—metaphorically if not actually—are tied behind his back by other things. A couple of previous speakers mentioned the letter from the Lord President of the Council, Leader of the House of Commons, to wit, the right honourable Mr Jacob Rees-Mogg. This seems to indicate the bindings the Minister is currently under.

In this short tome, as we have heard, Mr Rees-Mogg tells the right honourable Dr Julian Lewis MP, who is, as we know, chairman of the ISC, that decisions regarding committees’ roles and remits should not be made on an ad hoc, Bill-by-Bill basis, and that there needs to be careful consideration.

I suggest this is a patronising view of the proceedings of your Lordships’ House. When have your Lordships’ considerations not been careful? The most reckless behaviour I have seen during the course of this Bill has been the Minister’s wholesale consumption of sugar-based products, so where is the carelessness that the right honourable Member for North East Somerset speaks of? We should be a little outraged by that suggestion.

This Bill is written by BEIS, and it is understandable that BEIS would want to favour its own Select Committee. I am sure that is how we set out along this route. I think it was the noble Lord, Lord Butler, who said that we have set out in the wrong direction. I feel sure that is what happened. Good governance would be to understand that, take advice and make changes.

It would not be so bad if the BEIS Committee had not been so obviously exposed by the comments we have heard today to be the wrong committee to do the security part of the scrutiny of this very important Bill. It is absolutely clear that it is the wrong committee. If the Minister cannot make or promise changes, I believe he can undertake to accurately reflect both the strength of feeling of your Lordships’ House and the facts, rather than the assumption of the facts that appears to be driving the letter that Jacob Rees-Mogg has written.

I ask just one question of the Minister. If the Bill in considered by the Government to be an ad hoc process, what is careful consideration? What does careful consideration look like if it is not the careful scrutiny of legislation?

Lord Rooker Portrait Lord Rooker (Lab)
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My Lords, they did not do rugby at my secondary technical school, and I am only guesting for my noble friend on the front row for this debate. I will be brief, as I do not want to repeat what was said in this debate or in Committee, when I spoke briefly.

As has already been commented, my noble friend Lord West has made an irrefutable case for the amendment. It is quite clear that there is a serious problem here. No one is arguing with the committee in the other place or wants to devalue or undermine the role of elected Members of Parliament and the departmental Select Committees. They have been an enormous success since they were introduced in, I think, the 1980s and early 1990s. But they have a specific role, which does not cover security matters. Parliament and government decided together to form a different structure for that purpose, which is effectively what we are debating today.

With all due respect, I feel sorry for the Minister, because others are making the decisions on this and he is but their messenger and will give us their message. The fact is that no acceptable, reasonable reason has been given by anybody in government for opposing the procedure envisaged in this amendment: that the Intelligence and Security Committee should have oversight of these decisions. We have no reason for it at all.

The noble Lord, Lord Campbell, referred to the Government’s docile majority. We have to be careful about that; we are hoping that docile majority will support your Lordships’ House, so in my view they are obviously all very intelligent, alert parliamentarians, putting the interests of the country and their constituents first. It is very important that we take that on board.

The noble Lord, Lord King of Bridgwater, mentioned the cruciality of parliamentary oversight in respect of the committee he once chaired—indeed, he was the first chair—and made it clear that the Select Committee in the other place that oversees the department’s day-to-day activities cannot possibly have the relevant information put before it in all the cases. One is not arguing that every single case of a takeover or merger will be referred.

The noble Lord, Lord Butler, made the point that of course the principal role of scrutiny of BEIS lies in the Commons with the departmental Select Committee. However, the Government seem to be ruling out the ability for questions to be asked of the security services by opposing the amendment. That cannot be good. He wants to know what the objection is.

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Moved by
39: Clause 63, page 37, line 39, at end insert—
“(6) Before making regulations under section 6(1) the Secretary of State must lay before Parliament— (a) the proposed draft of the regulations, and(b) a document which explains the proposed draft regulations.(7) Where a proposed draft of the regulations is laid before Parliament under subsection (6), no draft statutory instrument containing the regulations is to be laid before Parliament until after the expiry of the 30-day period.(8) The Secretary of State must request a committee of either House whose remit includes industrial strategy, economic affairs, science or technology to report on the proposed draft regulations within the 30-day period.(9) In preparing a draft statutory instrument containing the regulations, the Secretary of State must take account of—(a) any representations,(b) any resolution of either House of Parliament, and(c) any recommendations of a committee under subsection (8),made within the 30-day period with regard to the proposed draft regulations.(10) If, after the 30-day period, the Secretary of State wishes to make regulations in the terms of the proposed draft or revised draft regulations, they must lay before Parliament a statement—(a) stating whether any representations, resolutions or recommendations were made under subsection (9),(b) giving details of any representations, resolutions or recommendations so made, and(c) explaining any changes made in any revised draft of the regulations.(11) The Secretary of State may make a statutory instrument containing the regulations (whether or not revised) if, after laying a statement under subsection (10), a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament as outlined in subsection (5).(12) In this section, reference to “the 30-day period” in relation to any draft regulations is to the period of 30 days beginning with the day on which the initial proposed draft regulations were laid before Parliament.(13) For the purposes of subsection (12) no account is to be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than four days.”Member’s explanatory statement
This amendment would introduce the super-affirmative procedure for regulations made under section 6(1).
Lord Fox Portrait Lord Fox (LD)
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My Lords, your Lordships will be pleased to know that I will not repeat the entire, long speech that I gave in Committee. The wording of this amendment has not changed between Committee and Report, but there are a few points I want to remind your Lordships of. I am sure the speech is still fresh in noble Lords’ minds. To be clear, I will be putting this amendment to a vote at the end of this process.

Under Clause 6, the Secretary of State has great power to make the regulations concerning how the Bill will work. The Secretary of State can specify the description of the qualifying identity for the purpose of identifying a notifiable acquisition. He or she can amend the circumstances in which a notifiable acquisition takes place or does not take place, exempt acquirers with specified characteristics from the mandatory notification regime and make consequential amendments to other provisions in the Bill.

The Minister has represented, as he did in Committee, the proposed use of the affirmative procedure in the Bill as meaningful parliamentary scrutiny. However, the truth is that, from the perspective of these Benches, this means that Clause 6 can be amended by this and any subsequent Government as they please. Parliament cannot amend statutory instruments and, perhaps more importantly, this House has voted down affirmatory statutory instruments just four times in the past 70 years. I refer, as I did last time, because it is important, to the Constitution Committee’s 2018 report, The Legislative Process: The Delegation of Powers, which states:

“Without a genuine risk of defeat, and no amendment possible, Parliament is doing little more than rubber-stamping the Government’s secondary legislation. This is constitutionally unacceptable.”


For this reason, affirmative statutory instruments do not constitute meaningful parliamentary scrutiny. This Government—or, I remind the Minister, any subsequent Government—are effectively free to amend the Bill as and when they please. The Minister sort of said this when speaking to the second group of today’s amendments.

Regrettably, I do not think Her Majesty’s loyal Opposition will roll behind me when this moves to a vote. That is the indication I have been given. I know that the noble Lord, Lord Grantchester, is as up for scrutiny as any man or woman. He likes a bit of scrutiny, and he is possibly not averse to knocking back legislation from time to time. However, his colleagues, particularly those at the other end—who are, even now, trying to measure up ministerial curtains in advance of their march towards power—would not welcome the democratic speed bumps proposed in this amendment, so their reaction, while regrettable in the great scheme of things, can be explained in that way.

Those sitting on the Benches opposite will live to regret not putting in place such measures. Members of their own party are not above adapting powers of Bills to create micromanagement, but we certainly heard enough at Second Reading, from some Members of Her Majesty’s Official Opposition, to feel that there are those who will seek to use this as a proxy for interventionist market strategy. I support having a collaborative strategy for national prosperity, but this Bill should not be used to enforce such aspirations.

The super-affirmative procedure in the amendment would provide both Houses with opportunities to comment on proposals for secondary legislation, and to recommend amendments, before orders for affirmative approval are brought in their final form. However, the power to amend the proposed instrument remains with the Minister. The two Houses and their committees can only recommend changes, not make them. So I ask the Minister what there is to fear from that. I beg to move Amendment 39, and I give formal notice that, unless a miracle occurs, I expect to divide the House on this issue.

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Lord Callanan Portrait Lord Callanan (Con)
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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 Portrait Lord Fox (LD)
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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 Fox Excerpts
Lord Fox Portrait Lord Fox (LD)
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My Lords, there has never been any doubt that the Bill’s aims were supported across the whole of the House, and that has added to the quality of the debate from the start. That said, actually delivering a balanced approach to protecting the UK’s security, while ensuring that the necessary flow of investment will not be interrupted, will be a challenge. The debates that we have had have underlined the subtlety of that challenge.

However, the stakes are high. The UK has arguably been one of the most open economies in the world, and it is clear that this openness has let through some transactions that, in retrospect, should not have been permitted. The onus is now on the Government to act in such cases.

The skeletal nature of the Bill has informed quite a lot of the debate that we have had, and it is clear that, from the outset, the Government have sought to keep their options open. To my mind, phrases such as “We will take things on a case-by-case basis” have popped up too often. So I hope that, over time, there will be fewer “case-by-cases” and fewer exceptions—because people need clarity, and that clarity needs to be supported by strong communication. People need to understand how the decisions will be made. If this unit acts as a black box, that will not happen, and investment will definitely be discouraged.

Finally, before the long thank-yous, I apologise for coming back to the amendment on Report that set out the importance of climate change with respect to national security. I will say—with all due respect—that the Minister grudgingly went along with the thesis, but only to the minimum extent necessary. Perhaps his natural combativeness prevented him really appraising or acknowledging the risk.

Therefore, before the Minister moves from this Bill to his next important project, I recommend that he reads an op-ed in Politico by the NATO Secretary-General, Jens Stoltenberg, which came out today. In it, he says that it is clear that climate change

“is making the world a more dangerous place”,

with,

“rising sea levels and more extreme weather … increasing competition for scarce resources and fueling tensions and conflict.”

He states:

“Climate change threatens global security”.


Please note, Minister. That should be reflected in the activities of the new unit.

Of course, one outstanding issue between us remains, symbolised by the flankers here—the noble Lords, Lord West and Lord Campbell—and I hope that the Minister and the Secretary of State will see some sense on that. Otherwise we will be back for ping-pong.

That said, the passage of this Bill has been efficient, and, as the Minister has said, the overall quality of the Bill has been improved through that process. I commend the openness of the noble Baroness, Lady Bloomfield, the noble Lord, Lord Grimstone, and the noble Lord, Lord Callanan, who has shown his characteristic empathy in the process. The noble Lord listed the very considerable Bill team and all the support that has delivered the Bill, and I second, indeed third, that, because without them there would certainly be no Bill—and, of course, without many of them there would be no unit to make the Bill a reality.

I also thank the noble Baroness, Lady Hayter, and the noble Lord, Lord Grantchester, for their engagement in this process, and I thank particularly the Members opposite. There are two representatives of them here—the noble Lords, Lord Leigh and Lord Lansley—but there are others, such as the noble Baroness, Lady McIntosh. They must have added to the pressure that the Minister feels: when the noises are coming from behind as well as in front, it makes it harder to resist.

As for the home team, I hope that my colleagues will not mind if I single out, first, Sarah Pughe in the Lib Dem legislative team, who has done a magnificent job supporting us. Among Members, I would mention the noble Baronesses, Lady Bowles, Lady Berkhamsted, Lady Northover and Lady Smith of Newnham, the noble Lords, Lord Bruce of Bennachie, Lord Campbell of Pittenweem, Lord McNally and Lord Purvis of Tweed, and, last but no means least, my noble friend Lord Clement-Jones, who has been here in support. I hope that we do not have to come back—I hope the Government see sense on that amendment. That said, the Bill leaves this House in a much better state than it arrived in.

National Security and Investment Bill

Lord Fox Excerpts
Lord Lansley Portrait Lord Lansley (Con)
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My Lords, I am very pleased to follow the noble Lord, Lord Butler of Brockwell. I agree entirely with what he had to say and with the noble Lords, Lord Campbell and Lord West of Spithead, too. It comes down to a very simple proposition: throughout, we have been very clear that if the Government would simply amend the memorandum of understanding with the Intelligence and Security Committee to include reference to the Investment Security Unit, there would be no need for any amendment to the Bill. That remains the case now. The question why the Government are not doing this.

The Minister in the other place said on Monday night:

“The work of the security services on investment security in support of the ISU clearly falls within the remit of the ISC.”—[Official Report, Commons, 26/4/21; col. 154]


If that is the case, what is the impediment to adding the ISU into the memorandum? I think it is that the Government do not interpret the ISC as having a remit that extends beyond what the intelligence services themselves have offered by way of information to the Investment Security Unit in BEIS, to the point where —as the noble Lord, Lord West, quite accurately summarised—the scrutiny of how national security is being maintained in the decisions that become part of the interim or final orders made under this Bill.

The Government’s problem may be that they think that if they were to include the ISU in the memorandum of understanding, they would effectively create some duplication between the scrutiny of the order-making power by the BEIS Select Committee and the Intelligence and Security Committee’s scrutiny. That need not be the case. It is perfectly clear already, within the memorandum of understanding that was quoted by Dr Lewis in the debate on Monday night, that the ISC’s work in looking at the intelligence services

“‘will not affect the wider scrutiny of departments…by other parliamentary committees. The ISC will aim to avoid any unnecessary duplication with the work of those Committees.’”—[Official Report, Commons, 26/4/21; col. 160]

It seems to me that the resolution is very simple—the Government should simply add the Investment Security Unit into the memorandum of understanding. It is clear from what the ISC’s chair and members have said that they would not expect to duplicate the work of BEIS —the primary scrutiny of BEIS’s work—in implementing this legislation, but there are specific questions that relate to the use of intelligence and highly sensitive intelligence materials.

I was not comforted by reading that the chair of that committee in the other place has been told by the Secretary of State that he will brief him on privy counsellor terms. That tells us that the chair of the committee may know something, but the BEIS Select Committee in the other place will not generally know it. Its members will not be able to discuss that information and they will not be able to report on that basis. There is clearly a deficiency, as Dr Lewis quite rightly said—a scrutiny gap—in relation to the use of top-secret material on a routine basis in informing decisions made under this legislation. The inclusion of the ISU in the remit of the Intelligence and Security Committee will close that scrutiny gap.

Lord Fox Portrait Lord Fox (LD)
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My Lords, the Minister used the word heavyweight; I would use the word authoritative about the speeches we have heard from the noble Lords, Lords West, Lord Butler, Lord Lansley, and my noble friend Lord Campbell. I do not have the same authority, but I have an eye for process and an eye for a discontinuity. At the heart of this is a central contradiction. This Bill is called the National Security and Investment Bill, and its central premise is that the world of security has changed. It is not about armies and air forces; it is about technology—the spread of technology and access to that technology. The Bill is built on the idea that we need an approach to the commercial use, sale and protection of this technology for the security of this country.

The speeches that the Minister has heard were characterised in his preceding speech as somehow decrying the abilities of the BEIS Select Committee. The BEIS Select Committee was not put in place to assess the security issues that these companies are facing. That is not its job; its job is to do what BEIS was there to do. This Bill, by its nature, by its very name, is a hybrid of two very important issues: investment and security. The BEIS Select Committee is there and is an expert on the first of those. The ISC is there to protect the country and to offer scrutiny on security issues. There is no problem in asking both of those committees to do what they are good at in order to fulfil the very important task that Bill seeks to undertake.

We can only conclude that, because the Government decided not to do this and because, as the noble Lord, Lord Butler of Brockwell, put it, they have a large majority in the other place, they will continue down this road. There is another opportunity for the Government to think again and do the most sensible thing, which is to amend the MoU. It does not require primary legislation, in my understanding, and would be done very quickly with the consent of this House. For that reason, if the noble Lord, Lord West, decides to put this to a vote, these Benches would like to ask that question of the people across the way, at least one more time.