National Security and Investment Bill

Lord Fox Excerpts

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

[Lord Fox (LD)]

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.