International Investment

Lord Fox Excerpts

Tuesday 17th October 2017 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I thank the Minister for repeating the Statement in this House. I also thank him for his personal interest in these matters, not just in relation to Bombardier but for his deep involvement in shaping the Green Paper, which is shown through its pages.

I turn to the last part of the Statement, which is the very welcome news that Bombardier and Airbus have determined to create a joint venture to look at developing the C Series aircraft. The pairing of these two cutting-edge product lines is a very exciting prospect for the future of aerospace manufacturing and the excellent industry that we have here. We are hugely encouraged by such a step and what it means for the UK. I would be grateful to the Minister for some further information on what assurances or indications the Government have gained from both companies as to the likely investment or potential for jobs growth in this country as a result of such an excellent step. I reaffirm the broad consensus of the House, as demonstrated during the course of the last Statement, that we strongly support the Government’s actions in defending Bombardier’s position against a completely unjustified and unwarranted attack by Boeing, and a process which we are not convinced is as straightforward and clear as it could be. We urge the Government to do whatever they can and we support their continued efforts to try to ensure a swift and speedy resolution of these matters.

We warmly welcome the excellent and timely Green Paper National Security and Investment and Infrastructure Review. We are pleased that the Government have chosen to look at how we can update our structures to deal more effectively with changing times. As a general observation, this creates further changes to our merger regime, some of which the Minister has already mentioned, such as matters involving the Takeover Panel and the FCA and further reviews of corporate governance. Even some of the insolvency reforms have a bearing on how we look at this regime. I make a plea for a more holistic process in how we review these issues of industrial strategy. Especially as we face Brexit, it would be useful if the Government could come up with a more joined-up approach to how these different parts can achieve the outcomes that we want, rather than having conflicting and competing claims or unwelcome consequences.

In relation to the principles from which we approach this review, it is important to state—as the review itself does—that we have to ensure that the UK remains open for investment and participation. We still want to be a major global player in all these areas. Sometimes the indication that we are involved in a review creates a chill. We should be clear that, while it is entirely legitimate to protect the country’s interests, we will not create a large investment review. This also applies to how we address issues such as the clawback of funds and how those funds might be used for early development or other things for companies which might not be eligible. That provision would itself raise a series of questions. One has to assess things delicately and put them in sensible terms. The intention is clearly right, but we would not want it to have unwelcome consequences.

We are pleased with the short-term and long-term approach to ensuring that we have an adaptable and operational system. The review stresses our foreign direct investment position, which this House has discussed many times. We are mildly sceptical about the nature of some of this investment. The charts in the paper identify the level. If we subtract the gold transactions which take place in the UK as goods received—which effectively net each other out—I am not sure the position would be so flattering. Our FDI position is not as good as is suggested and we should be conscious that we have a long way to go in encouraging the right sort of job-creating investment. The review should be seen in that context, rather than giving the feeling that we are in a much stronger position than we are.

Will the Minister provide some thoughts on the following issues? First, what are our national security requirements? Are these strategic or are they direct security concerns? What balance will be in place on issues such as security of supply versus strategic control, as well as our own capacity to ensure that we have certain technologies? We welcome the important short-term measure of lower thresholds, which does plug gaps. On long-term measures, the review is right to look at mechanisms such as call-ins and notifications. However, these raise questions themselves, the first of which is the nature of acquisitions and security concerns as companies develop in the modern world. This is not always about the takeover of a company. As we have seen from the way in which companies acquire access to technology and other things, this can frequently be done through partnerships, joint ventures and other things which do not involve a complete and direct transfer of equity. Sometimes control changes due to debt, so we need to consider all these measures. I would be very grateful for the Minister’s observations on those points.

In relation to the nature of these companies, we have looked at lower tests on dual use in the military sector and those involved in the design of computer chips and quantum technology. Certainly, our security concerns can be identified in other high-tech sectors, including life sciences and even food technology, as well as other areas of science and research. I would be very grateful to be told how the Government decided which sectors to select.

In the context of the voluntary and mandatory reforms, what was the thinking behind the notion that you can divide those sectors into voluntary and mandatory? Certainly, the guidance the Minister talked about would be enhanced by giving a much clearer view on that.

Finally—I do not wish to sound too mischievous, but I will ask this question anyway—does our reviewing the matter at this stage suggest that we may well take a different view over the long term, as these companies already fell within the threshold, or that we might be open to taking a different view on what took place in relation to ARM or even Hinkley Point?

[Lord Fox (LD)]

My Lords, I draw your Lordships’ attention to the interests registered in my name. I, too, thank the Minister for repeating the Statement in this House. He is of course right to declare that the UK economy should be open. All of us on these Benches earnestly hope that that is the way the Government continue to play it and that we do not start to close down and become a little England.

The Minister also rightly highlighted the need for changes in appropriate safeguards. The world is changing very quickly, national security needs are changing and the Government are right to keep those under review, so this is a timely process.

The noble Lord, Lord Mendelsohn, asked for a holistic approach to the whole issue of mergers and acquisitions. En passant, I add pensions to that list, which he did not include, because increasingly pensions and the rights of pensioners are becoming a driver within the mergers and acquisitions section.

On the Statement, there is a powerful case for strengthening the public interest in takeovers, as, indeed our leader Vince Cable has argued regularly, most recently, I think, on the AstraZeneca case. However, while lowering the threshold is a welcome step, the Government’s proposals are narrow and do not add a great deal to the overall public interest element, which should be covered in a more holistic approach. In recent months we have seen several of the UK’s high-tech companies snapped up by foreign competitors. This has been exacerbated by the fall in the value of the pound. That is a regrettable outcome. Therefore, today’s inclusion of computer chips in the list of new technologies singled out is somewhat interesting given that it follows the much publicised acquisition of ARM, arguably the world’s best chip designer. That, again, was driven by the weakness of the pound. Perhaps the Minister agrees that there is an element of closing the stable door here. We wish that some of the measures we are discussing were in place at that time.

The addition of quantum technology raises the question: why only that? Again, the noble Lord, Lord Mendelsohn, opened up a list of other technologies. I had biosciences and some aspects of IT and encryption on my list. It seems to me a rather narrow list when you consider the potential threats to a range of technologies. In some technologies, the threats have not been thought of yet but they exist. In our view the scope should be widened to defend not just the science base from a security point of view but also the overall knowledge base of this country. Knowledge can leak out from this country through a variety of means, of which mergers and acquisitions is but one. Joint research projects are another. In many cases you often have competing aims where inward development exercises try to draw foreign investors into research projects where the IP driver in this country would be to exclude some of those investors. In many cases, therefore, we are creating a situation that is leaking out valuable information —whether it is for security interests or economically valuable—through actions that the Government or local government are driving. Perhaps this is something that the Minister could look at. At the heart of this is the narrow look at security needs. These Benches would widen that to cover more economic interests of this country, and we hope the Government will take that on board.

Turning to Bombardier, I am sure the whole House welcomes the announcement of this deal, which should protect the future of the plane-maker. Clearly, only a few days ago, we were discussing a very bleak future for the 4,000-plus workers and all of those indirectly involved in the economic area that it has created in Belfast, so this is good news. I said at the time that even though this is not a case that would, in the end, be won by Boeing, time was the issue that would kill off and affect Bombardier. This is a very effective way of trying to bridge that time and of negating that problem. We should all congratulate everybody who has been involved in expediting this so swiftly and effectively. I am sure there are “i”s to be dotted and “t”s to be crossed, and I hope the Minister will give assistance to all those who require it to make sure that happens. In that regard, will the Minister tell us what anti-trust hoops he expects this deal to have to jump through?

We would also welcome some clarity from the Minister on what assurances have been forthcoming, both on investment and on the public statement made by the CEO, Tom Enders, on the notion that operations will be more efficient. What will be the job implications in both Belfast and perhaps in Broughton? What assurances have been given, and how will he be able to uphold them? In many ways, the US Administration and Boeing might feel that they have got off the hook somewhat by this, but there are still huge tariffs outstanding on this aircraft. The actions of the US remain a salutary warning to this country that its relationship with the Trump Administration is, at best, strained and poses something of a black cloud.

In conclusion, today’s announcement on takeovers and mergers sets out steps in the right direction. We welcome greater breadth in scrutiny and the requirement for notification. I am sure that, as the consultation process goes through, the Government will look at the technologies, and at which elements of which technologies we should be concerned about. I hope they will also take on board the public interest aspect in mergers and acquisitions.

[Lord Prior of Brampton]

I thank both noble Lords for their broad welcome for the news on Bombardier and the Green Paper. Turning first to Bombardier, both noble Lords would like further information about jobs, growth and possible anti-trust implications, but it is too early to say at the moment. This joint venture has only just been announced. It is still subject to negotiations between the two parties. Rather than hazard a guess at where they will come out, perhaps we should report back to the House when further details become clear.

Turning to the Green Paper, both noble Lords would like a more holistic approach. The noble Lord was referring particularly to the takeover context, and he is absolutely right. Pensions are absolutely essential in that context, as are environmental obligations and the like. The noble Lord, Lord Mendelsohn, referred more to a holistic approach in the context of industrial strategy more generally, rather than specifically on takeovers. He will have to wait until later in November, when we will announce our industrial strategy. I hope he will agree, when that strategy is before him, that it is a holistic, joined-up approach to industrial strategy.

I will deal with some of the other issues that both noble Lords raised. Of course foreign direct investment is essential. There is a balance; we want to be open to foreign direct investment—the last thing we want to create is a chill, as the noble Lord put it, on investment coming into this country. Although it is absolutely true that a number of high-tech British companies have been sold over the last two or three years, particularly to American buyers, in the vast majority of cases those American companies have brought capital and support. I refer, for example, to Google’s acquisition of DeepMind; it has put huge resources behind that company which might not have been there had it remained a private British business. SoftBank’s acquisition of ARM falls into that category as well; it gave a number of important undertakings about research and keeping that research in the UK. Therefore, there is a balance to be struck in these areas and the last thing we want to do in this country is shut ourselves off from investment from the US and elsewhere. If one looks at how we support small tech companies, it raises a much broader issue about patient capital, spin-outs from universities and the like. I hope we will deal with those issues when we come to our industrial strategy in a few weeks’ time.

Both noble Lords raised whether the definitions of quantum computing chips and dual-use defence were too narrow. They will, no doubt, want to comment on that issue in the consultation. We have gone for quantum computing and chips in particular because they are often embedded into infrastructure and safety-critical areas. Quantum computing is precisely the area where cybersecurity is so important; we can use it to break complex encryption codes and the like. We felt, having done a lot of consultation, that those areas of chips and quantum computing were the critical ones. I understand the noble Lord’s point about life sciences; there may be other areas that he would like us to consider as part of the consultation. In general, however, this is a question of balance and where we draw the line. We can always argue about the balance, but I am reassured that we have not got it too far wrong when both noble Lords broadly support what we are doing.