National Security and Investment Bill Debate
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Main Page: Lord Grantchester (Labour - Excepted Hereditary)Department Debates - View all Lord Grantchester's debates with the Department for Business, Energy and Industrial Strategy
(3 years, 9 months ago)
Lords ChamberAmendments 39 and 87, tabled by the noble Lord, Lord Lansley, probe the Minister around the question of the interaction of the NSI regime with the export control regime. The Committee must be assured that this new regime is not buried within the Business Department but works effectively across government, not least in relation to export controls. The Government’s response to the sector consultation in the report already mentioned states
“how the NSI regime sits alongside export controls to provide a comprehensive regime protecting our national security capability”.
It is not merely a question of sitting alongside, however that may be interpreted, but of interacting and co-ordinating with the Department for International Trade. The Government seem to recognise this in the comment:
“We must ensure that the export control criteria cannot be circumvented by allowing the acquisition of companies that produce such goods, rather than buying the goods themselves, without effective screening.”
More clarity and information in the procedures to this eminently sensible statement would be very welcome from the Minister.
The Government responded to the consultation that they intend to capture all materials that are considered likely to give rise to national security concerns and which are contained in the relevant legislation set out in the UK’s strategic export control list. I would be grateful if the Minister could provide better information on their intentions, and how and when this will become clear and transparent. Will he provide a guarantee that this will happen—the assurances that the noble Lord, Lord Lansley, has required during the passage of the Bill?
First, I thank my noble friend Lord Lansley for these two amendments, which seek to ensure seamless integration between the new regime provided for by the Bill and the existing export control regime. I shall take his amendments sequentially.
Amendment 39 seeks to ensure that the Secretary of State can, through regulations, exempt from the regime certain acquisitions of control over qualifying assets that are subject to export control orders. Clause 11 provides for exceptions relating to control of assets. Subsection (1) sets out that acquisitions made by individuals for purposes wholly or mainly outside the individual’s trade, business or craft are not to be regarded as gaining control of a qualifying asset and are therefore excluded from the scope of the call-in power. This does not apply in relation to an asset that is either land or subject to certain export controls set out in subsection (2)(b).
Subsection (3) also provides a power for the Secretary of State to amend the list of assets that are outside the scope of this exemption or to prescribe other circumstances in which a person is not to be regarded as gaining control over a qualifying asset. That includes being able to prescribe circumstances in which the acquisition of an asset subject to export control legislation is not to be regarded as gaining control over a qualifying asset. Any use of this power in subsection (3) would, of course, be guided by the operation of the regime in practice and any patterns of activity that are observed. As such, I can therefore assure my noble friend that the Bill already provides for what his amendment intends to achieve.
Amendment 87 would require the Secretary of State to ensure that any interim orders or final orders made in relation to acquisitions of control over assets take into account controls imposed under the Export Control Act 2002 and related provisions. I thank my noble friend for his proposal and commend the intent behind it. It is, of course, very important that the Secretary of State’s use of the powers provided for by the Bill is in keeping with the Government’s measures under other legislation. The Secretary of State must take into account all relevant factors when making decisions about the use of interim orders and final orders.
The legal tests in the Bill require the Secretary of State, before making an order, to reasonably consider that the provisions of the order are necessary and proportionate for the purpose. In the case of final orders, that purpose is to address a risk to national security, and in the case of interim orders, it is to prevent or reverse an action that might undermine the national security assessment process. Whether controls have been imposed under export control legislation will be relevant to whether the envisaged provisions of an order are necessary and proportionate. For example, where export controls in relation to an asset are already in place, it may not be necessary or proportionate to make an order under this Bill prohibiting the transfer of the asset overseas, but this will depend on the facts of each case.
Addressing the questions of the noble Lord, Lord Purvis of Tweed, about why we need the Bill when we already have the export control regime, I say that the export control regime is a licencing regime for certain controlled goods. It is an important part of the safe- guarding of our national security and it sits well alongside the proposed national security and investment regime. The two regimes are distinct though, and do not perform the same role. For example, the export control regime does not provide the Government with the ability to scrutinise acquisitions of UK companies or direct the use of sensitive assets used in the UK, whereas of course the NSI regime would.
On the noble Lord’s points about standard individual export licences if they have been granted for an export, I tell him that a standard individual export licence is granted to one person to export specified items to a named recipient. If the parties involved precisely follow the terms of a standard individual export licence that has already been granted following an assessment of national security risks, it is unlikely that the Secretary of State would reasonably suspect that the export might give rise to national security risks. In this situation, it is unlikely that he would be able to call that export in under the NSI regime. However, it is important to say that any decisions would need to be made on a case-by-case basis. It is important that the Secretary of State retains the ability to call in and scrutinise trigger events involving the export of assets in the event that national security risks are present.
The noble Lord asked about Northern Ireland. Qualifying entities as assets in Northern Ireland sit within the scope of the Bill, and that ensures that there are no loopholes. A trigger event under the Bill is not based on the application of EU law. For completeness, I should also say that the Secretary of State will, in any event, be subject to public law duties requiring him to consider all relevant factors when deciding whether to make an order under the Bill. Therefore, where export controls are relevant, the Secretary of State will need to take them into account when making that order.
I hope that that has explained, for the benefit of the House, the interaction between the two pieces of legislation. With the explanations that I have provided, I hope that my noble friend will feel sufficiently reassured that his concerns have been taken into account, and that he will not press his amendments.
My Lords, these amendments are very much of a piece with many of the amendments we have heard in Committee—all designed to create a much tighter and less discretionary regime. That is quite right in the case of these amendments, which one would have thought the Government would find extremely straightforward to accept.
Under Clause 14, the Bill currently envisages that the investment security unit will reach an initial decision as to whether to clear a notified transaction or to call it in for a detailed assessment within 30 working days of acceptance of the notification as complete. As the noble Baroness, Lady Noakes, said in her excellent introduction, there will be a significant number of transactions that fall within the scope of the mandatory notification requirements—they are set out in the impact assessment—due to the target’s activities being in a specified sector but which clearly do not raise national security concerns.
Timescales for decision-making are currently extremely unpredictable. Even before defined timescales for decision-making kick in, the Secretary of State has an initial period, as has been described, to decide whether a notification has been submitted in the correct form. The Secretary of State must make this decision as soon as reasonably practicable. That is a set of weasel words which suit the convenience of the Secretary of State, not the investor.
This lack of clear timescales creates uncertainty for investors, universities and businesses, making domestic and foreign investment in university spin-outs less attractive, while disincentivising industry partners from engaging in collaborative R&D. These are all the downsides of uncertainty, as we have heard throughout this Committee. In addition, the Secretary of State has 30 days in which to review the notice after acceptance. Especially in circumstances of fast-moving corporate finance transactions, 20 days, as proposed, seems much more proportionate. Similarly, under Clause 18, relating to the voluntary notification procedures, greater certainty would be achieved if these amendments, regarding when a voluntary notice is accepted and setting out how long the review period should be, were included.
The noble Baroness, Lady Noakes, made an extremely good point: these provisions, where the timescales say “as soon as practicable” or 30 days, will be adhered to, to the letter. They are not going to be done speedily. Civil servants are going to interpret them extremely conservatively, as my own profession—the legal profession —would, because the penalties of getting it wrong will be seen to be too high. People will not want to get it wrong, whether they are in the position of giving advice to the Secretary of State or advising investors. That is why we need very clear provisions in the Bill, and we are certainly not there yet.
I thank the noble Baroness, Lady Noakes, for her Amendment 49, to which I have added my name. It leads this group of probing amendments which focuses on one theme: how long will businesses and organisations have to wait in suspense for responses from the Government concerning the notification procedures? This theme stems in part from the fear that the Government will be swamped by notifications, with the CBI suggesting that the department could have to deal with up to 10,000 of them each year. Some discipline needs to be set up from the outset that will require the Government to keep up.
Of course, we support the aims of the Bill to monitor, guarantee and protect our UK national security, so in this probing group I have not added my name to Amendments 53 or 65, in the name of the noble Baroness, Lady Noakes. This is not because I specifically disagree with her—quite the contrary. However, it can be appreciated that some notifications will take more time than others to review, with some of them likely to raise more concern—alarm, even—thus requiring more extensive considerations and checks. The length of the period is a maximum duration, not a target for delay and procrastination. It should be understood how financial takeovers can become incredibly complex, so it is entirely correct that complexity is reviewed sufficiently and deeply. However, perhaps the Minister could answer as to whether a full six weeks may be needed and whether a four-week period could be maintained.
Overall, it is understood that unnecessary delays can lengthen anxieties that legitimate investments may fall through and exclusivity terms expire, leading to research partnerships breaking down or, in worst-case scenarios, businesses running out of cash and finance facilities. This heightens the requirement for the new unit to be properly and adequately resourced. This could be enforced through transparency about the turnaround times for notifications. These amendments also pair up neatly with Clause 14 on mandatory notifications and Clause 18 on the voluntary notification procedure. As the wording in the Bill is consistent across both alternatives, are the two distinctive categories so similar in importance and workload to require symmetry in their determinations?
With these thoughts, I have added my name to Amendment 62 in the name of the noble Baroness, Lady Noakes, giving the Secretary of State five working days instead of the nebulous “reasonably practicable” length of time. What does “reasonably practicable” actually mean to a Government? It is vague for SMEs and an elastic piece of time for the department. The Law Society has raised concerns, especially on the voluntary notice procedure in Clause 18, as “practicable” implies that a degree of delay will be acceptable and is to be tolerated. How does the Minister react to that? Can he explain whether five working days could be practicable and, if not, why not?
I am pleased to open this group of amendments by moving my Amendment 80, concerning the department’s annual report on this legislation. Generally speaking, Governments, regrettably, do not tend to offer widespread information in reports, whether annual or not—except, of course, where they consider that they heap praise on themselves.
Clause 61 can be made to look extensive, comprising as it does a total of 12 mandatory pieces of information—13, should the addition of the noble Lord, Lord Lansley, not be considered unlucky. This list can form the basis of information on the way the Government provide a dashboard to view the new unit. However, in considering how well it is performing and its relationship with and effect on the business community, any audit certainly needs to ask for the additional six listed in my amendment.
My Amendment 80 requires the Secretary of State to report on the time taken to process notices, which was part of our earlier discussion on the resource allocation to the new unit and the extent to which small and medium-sized enterprises are called in under the new regime. The amendment is about requiring a greater degree of accountability from the department regarding the investment security unit’s service standards and functions. It states that the report needs to include the aggregate time for decision-making, in both assessments and initial answers, acceptances and rejection notices, providing a measure to ensure that the screening process is working effectively and efficiently for SMEs.
Secondly, on elements of capacity monitoring, the amendment enhances the ability to take stock of the resources behind the unit’s work, so that Parliament and the public can appreciate the report as a mechanism for holding the Government to account for what will be a major new centre for merger investment screening for the security of the UK.
Thirdly, we are keen to maintain a business climate in which SMEs can thrive. It would be beneficial in this respect for the unit to track and monitor the focus of SMEs in its work. Information would be able to highlight any specific concerns and the experiences of the most innovative start-ups in their interactions with the new regime.
The general questions across the Committee regarding how the new unit will operate, be resourced, perform and impact those throughout the economy whom it will affect can be answered in the more comprehensive information that an annual report can offer. In addressing the Commons Committee, David Petrie of the ICAEW wanted to test the capabilities of the regime in an accountant’s way by assessing the reasonableness of his assumption that even 1,000 notifications a year amounts to four a day and a considerable workload. How will that work and what information must be provided to check it through the annual report? What will be the annual budget for this regime and what increase for the department will be necessary? Will the new unit be able to request and receive additional funding to meet the challenges it has yet to experience?
I will not steal the thunder of the mighty guns of my noble friend Lord West by saying much at this point about his Amendment 91, which is in this group. He has already spoken authoritatively on security matters. However, we are sympathetic to and support his amendment, as businesses in the defence sector have asked that the impact of the new regime on them be clarified. The amendment reflects the Defence Committee’s report on foreign investment, which called for banning investments in the UK’s defence supply chain from certain countries, namely, China and Russia. What is the Minister’s view on this?
In considering the annual report and the guidance my noble friend seeks for the defence sector, and the other reports undertaken under, for example, Amendment 78 or Amendment 82 in the name of my noble friend Lady Hayter, it would be helpful if the Minister could also outline the relevant interactions, not least with reports from the export control regime, in order to provide a comprehensive assessment. It would be unfortunate to find information disappearing into gaps between them and vulnerability opening up in the security screening process. I beg to move.
Noble Lords will be pleased to know that this is the last time they will hear from me in this Committee. My amendment is terribly simple. In so far as the annual report lists the number of final orders made, Clause 27 provides the power for the Secretary of State to vary orders or revoke them. One of the things that one might want an annual report to do is to enable one to understand the stock of orders as well as their flow. Therefore, I have suggested in Amendment 81 that the number of orders varied or revoked should be added to the list of subjects in the annual report.
I have received no requests to speak after the Minister, so I invite the noble Lord, Lord Grantchester, to conclude the debate on his amendment.
I thank those who have taken part in this short debate on the annual report, especially the Minister for the tone of his reply. It has been very helpful. The dashboard of information to be provided in an annual report must be extensive enough to provide clarity on the operation of the unit and how it has performed. I have always considered annual reports an excellent opportunity to promote an organisation’s credentials and it is surprising to hear that the Minister would not wish to show how the unit has performed effectively against statutory targets. I thank him for expressing the wish to discuss this further and I look forward to doing that with him.
Defence in the supply chain is a particular vulnerability and, on my noble friend’s guidance, the need can be found in the government response to the sector consultation. The defence chapter states:
“Some respondents stated the definition could capture contractors or subcontractors who are providing goods or services unrelated to defence”.
This returns the Committee to its considerations regarding clear definitions of national security and how these may be provided. They are certainly important issues to consider further in the light of the Minister’s reply. I beg leave to withdraw the amendment at this stage.
I am glad I am providing balance for the noble Lord, Lord Lansley, before he departs the Committee. This side of the House is tabling amendments and challenging the Government on this legislation. We too want the Bill to work well and consider that it is important that various elements have been fully considered. One of the elements to reflect on concerns the effect on the SME sector. We champion clarity and support for SMEs and innovative start-ups, so often the engine of growth, jobs and prosperity.
SMEs may experience degrees of anxiety about potentially having to engage with a whole series of new regulations under the Bill. Amendment 84 is a probing amendment to ask whether the Government are considering whether the Covid business loans and grants in any sectors under national security screening could be converted into equity stakes should there be a clear economic or national security rationale so to do. The public will generally look back in appreciation of the support provided by the Government to businesses over the pandemic interruptions. That could also mean ensuring that gains from public support—not merely the losses of failure—accrue to the benefit of all of us. Simply, are equity stakes being considered in these circumstances, even if the Government are generally not in favour of taking equity risks, even in terms of securing our national security? What are the recoverabilities of loans and the implications for security of these vulnerabilities? What assessments have the Government given to this?
Amendment 85 would go a long way towards ending uncertainties and anxieties for SMEs, ensuring that the Government act with clarity, competence and care. It would ensure a business climate of appreciation of the SME sector in which it can thrive. SMEs have been inquiring how best to engage with government in the many changes that will apply. We propose that part of the new unit be dedicated to the SME sector, as some 80% of the likely notifications of the new regime and the requirements this will generate will be borne by SMEs. The screenings will also be most challenging for them, especially in regard to SME funding rounds, especially since, for tech start-ups, the necessary speed of response that could be required to the many weeks of inquiries could present insurmountable challenges. SMEs do not generally have deep pockets to fund a comprehensive array of advisers to help them navigate the Government’s less than clear process. The unit, and consequently the legislation, need to be aware of the pressure this puts on innovation start-ups, which need the confidence to be able to respond effectively.
A dedicated SME division, as outlined in Amendment 85, would do just that. It would ensure prompt, accessible guidance, as industry experts have been demanding in their briefings, to engage with SMEs prior to formal processes to ease the burden of bureaucracy. Could the Minister outline the specific support that the Government could provide SMEs in assistance targeted on the good working of the new investment unit? How will a focus on SMEs be hard-wired into the new unit? I beg to move.
I am not sure there were any questions for me there; the noble Lord has made some observations. I understand that he was unhappy with my replies, but I am afraid I cannot agree that the Bill is “furtive” or “hiding in the dark” at all. We are committed to transparency as much as possible. He says he has six additional points on market guidance notes. If he wants to send them to me, I will happily have a look at them and see what we can do. We said a maximum of five years, but of course the Secretary of State has the ability to do earlier reviews if necessary. That is a maximum date, and we could bring that forward. I take on board his points and am sorry if he is disappointed by my replies.
I thank the noble Lord, Lord Bilimoria, for his amendment in this group proposing a review of the Act and its engagement with businesses. I am sure it will become clear and the appropriate responses will be forthcoming from the department.
I thank the noble Lord, Lord Clement-Jones, for his sympathy. The effect of the regime on SMEs is very relevant, and high-quality guidance for businesses has been recognised in the Minister’s replies. I thank him also for his replies on the pandemic and the business environment with the call-in powers of the Secretary of State. He returns to the issue of the annual report, thus giving room for these matters to be considered slightly further. With that in mind, I beg leave to withdraw the amendment.
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.
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?
My Lords, let me thank the noble Baroness, Lady Bennett, for her amendment and begin by expressing my heartfelt sympathy to the noble Lord, Lord Fox, on being admonished by her. All that I can say is, welcome to the club.
The amendment would require the Secretary of State to publish within six months of the Bill becoming law a statement on how the regime will be exercised in relation to national security impacts caused by climate, environmental and ecological damage. As the noble Baroness, Lady Bennett, knows—we have debated these matters on numerous occasions in this House—this Government are committed to tackling climate change. We are especially looking forward to the COP 26 conference in November, which will highlight our leadership on this issue and promote co-operation on climate action through the UK’s G7 presidency, as Alok Sharma MP set out in a speech to the UN on 8 February. Of course, the COP 26 preparations continue to be led by Alok Sharma, who opened Second Reading on the Bill in the other place. I am sure that we all wish him well as he strives to bring the world to ambitious agreements in Glasgow.
The Bill, however, focuses on national security risks arising from acquisitions of control over qualifying entities and assets. If we were to view national security through a particular lens, as the amendment seeks to do through environmental concerns, we would be in some way defining national security. We have deliberately avoided defining it in the Bill, a matter that we have debated previously. We have expounded on that at some length in this House and in the other place.
Without rehearsing those arguments, which I am sure noble Lords are familiar with, I hope they will understand that we cannot accept amendments that seek to define national security in a particular way. The noble Baroness’s amendment asks for a statement on how the provisions in the Bill will be exercised. The most fundamental provision is the call-in power. The Bill already requires the Secretary of State to publish a statement on how that is expected to be exercised before being able to use the power. A draft of that statement was published on introduction of the Bill in November. The Government would be very pleased to receive comments and have committed to consult on it publicly. The final version of the statement must be laid before Parliament and will be subject to the negative resolution procedure.
Finally, two provisions in the noble Baroness’s amendment—proposed new paragraphs 2(a) and 2(b)—address specifically environmental concerns. Laudable as they are, they are not directly connected to the national security and investment regime proposed in the Bill. That is because the regime concerns whether the acquisition of qualifying entities and assets poses a risk to national security, not the actions of those entities or assets themselves. Given the Government’s commitment to environmental policies, but recognising that the Bill deliberately avoids defining national security, and given that a statement on how the call-in power is expected to be used is already provided for, I hope that the noble Baroness, in the light of what I have said, is able to withdraw her amendment.