National Security and Investment Bill

Lord Grimstone of Boscobel Excerpts

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

I have not had sufficient time to consider whether these and other concerns are met in the inclusion of data infrastructure among the sectors. Will the Minister consider these points in his reply to ensure that the definitions are forward-thinking and cover all critical infrastructure interpretations?

[The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)]

My Lords, I extend my thanks to noble Lords for their invaluable contributions to this debate, which will allow me to clarify some important aspects of the Bill. It is a particular pleasure to be debating these matters with the experienced practitioners around the table, who have direct knowledge of these topics.

I speak first to Amendments 3 and 4, relating to when the Secretary of State can call in a trigger event, as tabled by my noble friend Lord Leigh of Hurley. These amendments would limit the use of the call-in power in respect of trigger events that have not yet occurred to those that are in progress. As drafted, as noble Lords have focused on, the Bill provides that call-in notices may be issued in relation to trigger events that are in progress or contemplation, as well as those that have already taken place. This ensures that potential national security risks can be examined at any stage of the process.

The National Security and Investment Bill draws on precedent in this approach. Under the Enterprise Act 2002, the Competition and Markets Authority and the Secretary of State may investigate mergers that are in progress or contemplation. To reassure my noble friends Lord Lansley, Lord Vaizey and Lady Noakes, this is a tried and tested phrase, and I will come back to that in a moment to elucidate further. Using this precedent ensures the NSI Bill is in good company. It would seem strange to limit the scope of intervention on national security if, through the Enterprise Act, an intervention is allowed on other public interest grounds where a merger is in progress or contemplation.

I said I would give some further details of this. The term “in contemplation” is not new. As I have already said, it features in the Enterprise Act 2002 and, importantly, the detailed guidance that has been issued by the Competition and Markets Authority. Let me give some examples of what this phrase means. First, a party may choose to notify the Secretary of State that they are contemplating a trigger event to get the certainty of the Secretary of State’s judgment. Secondly, a party may notify the Secretary of State that another party is contemplating a trigger event, such as if they have received, or become aware of, an offer to buy their business. We expect that in most cases, call-in notices will be issued following a notification, so these are likely not to be uncommon scenarios. Thirdly, a public announcement of a deal may have been made by one or more parties but not yet implemented. As noble Lords will be aware, there are certain publicity requirements for public takeovers, but this could also happen in relation to a private acquisition. Fourthly, a public announcement of a possible offer or a firm intention to make an offer may have been made, which would itself show that an offer was in contemplation.

Any decision by the Secretary of State to call in a trigger, even in contemplation, would, as with other uses of powers in this Bill, be subject to judicial oversight through judicial review. If the Secretary of State had merely found he had been able to read someone’s mind to know they were in contemplation of a transaction, that would be unlikely to satisfy the requirements of a judicial review. I hope I have provided sufficient explanation of the Government’s approach. It is a tried and tested phrase, which I would say is well known in the market. I hope my noble friend, therefore, feels able to withdraw his amendment.

I welcome Amendment 8 from my noble friend Lord Lansley, which seeks to partially define what is meant by the Secretary of State “becoming aware” of the publicised trigger event by replicating provisions in Section 24 of the Enterprise Act 2002. In relation to trigger events that have already taken place, the Secretary of State would only be able to give a call-in notice within six months of becoming aware of the trigger event. The Bill does not currently define what “becoming aware” means.

The Secretary of State will have a strong incentive to call in trigger events that might give rise to national security risks quickly after becoming aware of them, as he will want to address any risks that they present. Similarly, many parties will have a clear incentive to ensure that the Secretary of State is aware of their anticipated or completed trigger events so that they can achieve deal certainty. That is why we encourage parties to notify trigger events to the Secretary of State, rather than to wait for the trigger events to be detected and called in.

In general, we expect the Secretary of State’s market monitoring team to detect trigger events of interest. However, in a limited number of cases, providing for imputed awareness on the part of the Secretary of State where a trigger event has been publicised so it is generally known or readily ascertainable, may open up protracted arguments about whether the trigger event in question was adequately publicised.

I do not disagree that providing for imputed awareness on the part of the Competition and Markets Authority, as the Enterprise Act 2002 does in the context of merger control, is appropriate. But the NSI regime—this is an important point—will deal with a wider range and larger number of acquisitions, with no de minimis thresholds and a strong likelihood that many will not be comprehensively or accurately reported. This presents much greater scope for ambiguity, and for deals, particularly private transactions, to be publicised in ways that may still cause the Secretary of State to be unaware of the precise trigger event in question. This amendment therefore risks opening up the Secretary of State to greater challenge, while still allowing for substantial uncertainty for businesses and investors.

I will now speak to Amendment 9, tabled by the noble Lords, Lord Vaizey of Didcot and Lord Clement-Jones, and Amendment 10 from the noble Lord, Lord Grantchester, as both relate to the content of the statement under Clause 3. These amendments seek either to add to the non-exhaustive list of the aspects that the statement may include or otherwise to regulate what can be included in the statement.

I turn first to Amendment 10, in the name of the noble Lord, Lord Grantchester. I will put to one side his valid points about sector definitions, as we will return to that topic in a future group. This amendment seeks to require the Secretary of State to have regard to the domestic and future capacity of sectors to promote research and development, and innovation, and to protect national security when preparing the statement.

Supporting the UK’s innovative industries, and research and development, are priorities for the Government. However, the purpose of the Bill is to set up an investment screening regime that is concerned solely with the protection of national security. Therefore, the Secretary of State is able to consider innovation, research and development, and future capacity—very important topics though they are—only in so far as they are relevant to national security risk, when he carries out his functions under the Bill.

Amendment 9 seeks to add to the list of the aspects that the statement may include. Of course, the Government want to promote legitimate economic activity and to minimise unnecessary voluntary notifications. The purpose of this statement is to set out how the Secretary of State expects to use the call-in power. I am afraid that these amendments are not suitable for the statement. The statement looks forwards to future use of the call-in power, not to highlight actions already taken. It sets out how the Secretary of State expects to use the call-in power, and it is not intended to serve as an indicator of wider government action in relation to the regime. It is crucial that the acquirers can look at the statement and that it assists them in coming to a judgment about whether to voluntarily notify. With these points, I hope that noble Lords feel able not to press their amendments.

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[Lord Clement-Jones (LD)]

My Lords, I thank the Minister for that careful analysis, but I must admit that I am not wholly reassured as a result. I feel as though we have gone in a spiral of logic and I think we ended up where we began, in a cloud of uncertainty. In particular, I thought the Minister’s arguments on Amendment 9, that the statement was forward-looking not backward-looking, were very circular. It all depends on how the statement is constructed. It can be made both forward-looking and backward-looking simply in the way the Bill is amended. So the argument there was extremely circular.

I will read Hansard extremely carefully, but to me the question about the Secretary of State being unaware means that the Government have decided that the net is going to be extremely wide. We have assurances on the sifting process, but in the end everything falls in until it is thrown out. That, I think, is what worries quite a lot of us. The contemplation point may have some precedent, but the noble Lord, Lord Lansley, made the point that these transactions are not just mergers but intellectual property licences, know-how transfer, asset sales and a whole range of things. Is the merger regime fit for purpose for this broad range of transactions?

That is all I want to say at this stage. I thought the Minister valiantly tried to justify the current wording of the Bill, but I do not think he succeeded.

[Lord Grimstone of Boscobel (Con)]

The noble Lord, Lord Clement-Jones, and I have had the pleasure of debating these matters at a meeting prior to this Committee, and I must confess that I was probably the author of the fishing analogy, which I may live to regret. The point is that when you are dealing with matters of national security, and these matters are so important, it is perfectly appropriate to use a large net to put the fish in, but then it becomes very important that the way your screening unit works removes fish from that net as expeditiously and efficiently as possible.

[Lord Leigh of Hurley (Con)]

My Lords, I thank the Minister for his response. As the noble Lord, Lord Fox, pointed out, he almost certainly has much greater experience than all of us in this Room combined in advising on transactions. For the avoidance of doubt, sadly the noble Lord, Lord Fox, has not paid me any fees in any matter, as far as I am aware, but I travel in hope. I have to disappoint my noble friend Lord Vaizey, because it does not look like the Minister will accept his very first amendment in whole. On the other hand, I do not think he has provided a slam-dunk answer, as he hoped, to reject Amendments 3 and 4 in particular.

We are very lucky to have the benefit of my noble friend Lord Lansley’s experience and wisdom from the Enterprise Act 2002, and I accept that that is where it came from. However, I do not quite see why there should be a cut-and-paste approach. The CMA will be dealing with a relatively small number of mergers of largely public companies. This will be dealing with all sorts, from minority investments of a few thousand pounds in 15% stakes to IP and—forgive me—a completely different kettle of fish. Therefore, the last thing one wants to do is to have to rely on a traditional review to see this sorted out. That would be hugely expensive and singularly inappropriate for most of the transactions envisaged, which will be of a much larger volume than the CMA and the legislation were structured to deal with. I very much hope that the Minister will have a chance to reflect on this and that he will be persuaded in particular by the point made by the noble Baroness, Lady Bowles—arrangements in progress must be strong enough. I beg leave to withdraw.

National Security and Investment Bill

Lord Grimstone of Boscobel Excerpts

Committee stage
Tuesday 9th March 2021 Grand Committee

[Lord Grantchester (Lab)]

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.

[The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)]

My Lords, I thank my noble friend Lord Leigh of Hurley for his Amendments 20 and 24, my noble friend Lord Lansley for his Amendment 25, the noble Lord, Lord Clement-Jones, for his Amendment 26 and my noble friend Lord Leigh and the noble Lord, Lord Clement-Jones, for their package of Amendments 52A, 55A, 64A and 67A. I will take them sequentially.

I completely agree with my noble friend Lord Leigh and the noble Lord, Lord Clement-Jones, that we must be careful to do nothing that diminishes the entrepreneurial or innovative spirit in our country or to diminish the attractiveness of this country for investment. You might imagine that, as the UK’s Minister for Investment, I am especially concerned about the latter point. In answer to the noble Lord, Lord Fox, I have spoken to many investors and VCs and, once the rationale and the processes of the Bill are explained to people, I have been very reassured by the reception that the Bill has had. The key point one has to explain is that the investment screening unit will be a rational unit that will seek to minimise time spent and maximise efficiency wherever it can.

With the permission of my noble friend Lord Leigh, I will address his Amendments 20 and 24 together, given that both relate to introducing de minimis thresholds into the regime. Clause 7 defines the meaning of “qualifying entity” and “qualifying asset” for the purposes of the Bill. These definitions underpin reasonable and proportionate powers for the Secretary of State to scrutinise acquisitions of control of qualifying entities and assets where that raises national security risks.

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[Lord Grantchester (Lab)]

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 Grimstone of Boscobel (Con)]

My Lords, I welcome these amendments from my noble friend Lord Hodgson of Astley Abbotts, which concern the extraterritorial application of the call-in power. Amendment 21 seeks to ensure that where an entity is formed or recognised under the law of a country or territory outside the UK, it will be a qualifying entity only if it carries on activities in the UK but not where it supplies goods or services to persons in the UK, as the clause currently provides.

I am afraid that I was slightly unclear on the precise intent of Amendments 27 and 32 so, for the benefit of the Committee, I am interpreting them as seeking to remove the provision currently in Clause 7(6)(b): that an asset situated outside the UK or the territorial sea is a qualifying asset if it is used in connection with the supply of goods or services to persons in the UK. This would mean that an asset situated outside the UK or the territorial sea is a qualifying asset only if it is used in connection with certain activities carried on in the UK.

It is important that entities formed or recognised outside the UK which provide goods or services to persons in the UK are captured through the Bill as their acquisition may give rise to national security risks to the UK. The noble Lord, Lord Fox, asked for some examples, and I am happy to provide them. For example, a foreign-registered company that does not carry on activities in the UK may still provide essential goods or services to parts of our critical national infrastructure. If a hostile party were to acquire control over that supplier, it could use that control to degrade our infrastructure. To take another example, imagine an overseas supplier of machinery or compounds to a UK-based entity producing cutting-edge advanced materials for our military. Control over that supplier could provide a hostile party with an insight into certain military capabilities or a means to sabotage the work of the UK entity to harm our military. As my noble friend Lady Noakes recognised, this could have a severe effect on national security.

Similarly, it is important that land and moveable property assets situated outside the UK or the territorial sea and intellectual property assets used in connection with the supply of goods or services to persons in the UK are also captured as their acquisition can give rise to national security risks to the UK. For example, as I have said previously, the acquisition of a wind farm situated outside the UK and its territorial sea that provides critical energy supplies to UK industry and consumers may give rise to national security risks, even though it is not strictly used in connection with activities in the UK. If the noble Lord, Lord Clement-Jones, would like to hear this example a third time, he only has to lay a further amendment.

Of course, any extraterritorial use of the powers under this Bill should be proportionate as well as meeting the other tests in the Bill. That is why the Bill explicitly sets out a UK nexus requirement that means that the Secretary of State may intervene to assess an acquisition overseas only where it has a clear connection to the UK. Remedies may be imposed at the end of an assessment only if the Secretary of State reasonably considers that they are necessary and proportionate for the purpose of safeguarding the UK’s national security. As such, the extent of an acquisition’s connection to the UK will be a clear factor in that decision.

The Bill also explicitly limits the application of remedies to persons outside the UK to those who have a clear connection to the UK—for example, UK nationals or companies, or those who carry on business in the UK.

I am conscious that I may not have answered fully the questions from the noble Lord, Lord Grantchester. If I reflect, after looking at Hansard, that I have not, I may write to him. I understand, taking these amendments as a group, the desire to probe the Government in this area, but I hope that, with this explanation, my noble friend will feel able to withdraw his amendment.

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

I have received one request to speak after the Minister from the noble Lord, Lord Fox.

[Lord Fox (LD)]

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 (Con)]

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.

[Lord Hodgson of Astley Abbotts (Con) [V]]

My Lords, I thank all noble Lords who have participated in this debate. I was extremely relieved to hear from the noble Lord, Lord Clement-Jones, that Amendment 26 was a rogue amendment. He and I had both put our names to it originally and I withdrew mine. When I found that he had left his there, I thought he had seen some angle and I was going to be blown apart and take a torpedo amidships. I am grateful to hear that it was a rogue amendment.

I am grateful to my noble friend the Minister for the examples. I am still reaching for the implications of the question asked by the noble Lord, Lord Fox. I am not yet convinced that the qualifying entity idea has been probed enough, given that it has proved effective in the Bribery Act and has a similar purpose there. I will read what he has to say, think about it and maybe bring this back for a further discussion. In the meantime, I beg leave to withdraw the amendment.

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[Baroness Hayter of Kentish Town (Lab)]

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.

[Lord Grimstone of Boscobel (Con)]

My Lords, I begin by briefly extending my thanks to my noble friends Lord Hodgson and Lord Lansley for tabling the amendments in this group relating to the circumstances determining the control of entities in the Bill, as well as arrangements and the impact of final orders on contracts.

I am conscious of the complexity of some of the matters that we are debating. If I am not able to explain or elucidate these points fully in my comments, I will of course write to noble Lords. I will also be happy to discuss them with noble Lords outside the Committee. Some of these things are quite difficult to get straight across a table like this.

I will start by addressing my noble friend Lord Hodgson’s Amendment 29. For the purposes of the Bill, Clause 8 sets out the circumstances in which a person gains control of a qualifying entity. It explains the four ways in which control can be gained. Subsection (6) sets out the third trigger event:

“The third case is where the acquisition is of voting rights in the entity that (whether alone or together with other voting rights held by the person) enable the person to secure or prevent the passage of any class of resolution governing the affairs of the entity.”


I think that there is broad support for that concept. However, Amendment 29 seeks to narrow this so that only acquisitions of such voting rights over matters that are equivalent to those which require the passing of ordinary or special resolutions under the Companies Act 2006 would be a trigger event.

I sincerely pay tribute to my noble friend for seeking to ensure that the regime is as reasonable and proportionate as possible. I believe that his intent is very much to seek to exclude acquisitions of minority veto rights from constituting trigger events. However, the Government consider that the Bill already achieves this goal to some extent as subsection (6), which my noble friend seeks to amend, is of course subject to the qualifying provision in subsection (7), which explains how references to voting rights in an entity apply to different sorts of entity.

In the case of an entity that has a share capital, this means voting rights conferred on shareholders to vote at general meetings of the entity on all or substantially all matters. In the case of an entity that does not have a share capital—this is where some complexity arises—this means the voting rights conferred on members to vote at general meetings of the entity on all or substantially all matters. The important words in both cases are

“all or substantially all matters.”

I therefore suggest, with deference to my noble friend, that minority veto rights would be captured by subsection (6) only where such voting rights provide the holder with a right to vote on all or substantially all matters, which perhaps takes it rather beyond the worry that some people had about these minority rights being constrained.

I hope that this puts the mind of the noble Baroness, Lady Hayter, at rest but, again, if a further discussion is needed to clarify how this works, I would be very happy to hold one. I also hope that the Committee agrees that it is only right that minority veto rights, in circumstances where they really are broad enough to cover all or substantially all matters, should be in scope of the Bill. For all intents and purposes, they are the same as majority rights if they are able to do that.

I am grateful to my noble friend Lord Lansley for Amendment 30 in respect of Clause 8 and the definition of control of entities for the purposes of the Bill. This clause reflects the fact that there are ways of obtaining control over an entity other than just acquiring shares or voting rights at significant thresholds. As part of the new regime—I say without excuse that we have made this embracing because of the importance of national security—the Secretary of State must be able to scrutinise lower stakes of shares and votes or other rights or interests acquired by a person that allow them materially to influence the policy of the entity. This is consistent with the UK’s merger framework, and businesses and investors alike have welcomed our adoption of the familiar material influence concept that they have been accustomed to under the Enterprise Act 2002.

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[Lord Lansley (Con)]

My Lords, first, I express my warm thanks to my noble friend Lady Noakes, who happily introduced Amendment 97 far better than I would have. I had neglected to notice that we had reached Schedule 1, since we had not even reached the clause that introduced it. Not noticing that was entirely my fault.

If I may, I will go away and read what my noble friend said about Amendment 98, because it is purely a matter of trying to get the drafting right. He may well be correct on that.

On the other two amendments, I kindly ask my noble friend to reflect. The issue about former spouses reflects what is said in Section 127 of the Enterprise Act 2002, but this includes cohabitees, who are not in Section 127, which was subsequently amended to include civil partners. “Associated persons” has turned into “connected persons” and has broadened in ways that nobody told us was a policy.

My other point about the Enterprise Act is that I do not understand what my noble friend is saying. Earlier, he told us that the Government would not issue new guidance about material influence, because the CMA has issued guidance. I have read the CMA’s guidance and it clearly includes reference to obtaining control by stages. Obtaining control by stages, in Section 29 of the Enterprise Act 2002, includes a reference to that

“person or group of persons … materially to influence the policy of … the enterprise … to a greater degree”.

I have not invented this; it is in the Enterprise Act 2002 now. If my noble friend proposes to use the CMA’s guidance and says that everybody is happy that we are using an established understanding of what material influence is, I suggest we go away and look at whether we can use the language and guidance of the Enterprise Act to make it consistent with the practice that people have understood for the best part of 20 years.

[Lord Grimstone of Boscobel (Con)]

I thank my noble friend very much for those comments. I will reflect on them and communicate with him.

[Lord Fox (LD)]

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 (Con)]

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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[Baroness Hayter of Kentish Town (Lab)]

My Lords, I have no new information to bring to the Committee. As we have heard, a number of transactions appear likely to be caught under the Bill which are probably outwith the intention of the authors of the Bill. I think the Minister has to explain why these provisions are in it, rather than noble Lords who tabled amendments having to explain why the provisions should be taken out. We look forward to his explanation of that and, perhaps, his reassurance to the Committee that the Bill is really fit for purpose across the whole of the UK, including for the Scottish legal system.

[Lord Grimstone of Boscobel (Con)]

My Lords, with thanks to all noble Lords who have spoken with such knowledge and eloquence on the amendments tabled, I will begin by speaking to Amendments 31 and 33 in the names of the noble Lord, Lord Bruce of Bennachie, and my noble friend Lady McIntosh of Pickering. The noble Lord, supported by my noble friend, clearly raises important questions on the juxtaposition of Scottish law with the powers that we are looking at in this group.

I am grateful to the Law Society of Scotland for having supported this and, if I may, rather than attempting to deal with these points on the hoof I will take them away. I commit to being in communication with noble Lords as to what needs to be done, if anything, in relation to them. More generally, perhaps putting the important Scottish points on one side for the moment, I completely agree with the noble Baroness, Lady Hayter, that the Bill has to work for every part of the United Kingdom.

These amendments concern Clauses 8 and 9 and the circumstances where acquisitions of control of entities and assets take place for the purposes of the Bill. They seek, I believe, to ensure that rights or interests in, or in relation to, entities and assets held by way of security are exempt from the regime, on the understandable basis that lending and debt arrangements do not give rise to control. Let me agree right away with the thrust of the concern expressed by the noble Lord and my noble friend. The Government do not consider that the provision of loans and finance is automatically a national security issue. Indeed, it is part of a healthy business ecosystem which enables businesses to flourish and grow in this country. Lenders need confidence that they can see a return on ordinary debt arrangements to provide that service, which is of course vital to the proper functioning of the economy. But we must recognise that there are, in a small number of cases, national security risks that can be posed through debt. I will come to this in a moment.

Access to finance is crucial for so many businesses and, to grow and succeed, they will often take out loans secured against the very businesses and assets they have fought so hard to build. That is why the Bill allows the Secretary of State to scrutinise acquisitions of control that take place when lenders exercise their rights over the collateral. The important point is that it is not where the lenders have hypothetical rights but where they exercise their rights over the collateral. This approach is needed because it will prevent hostile actors artificially structuring acquisitions in the form of loans which, following a swift and convenient default—let us put it that way—might otherwise allow them to evade scrutiny. This is a proportionate approach, and one that I am confident will keep finance flowing into UK companies and infrastructure while ensuring that our national security can be protected.

Amendments 34 and 35 in the name of my noble friend Lord Hodgson relate to Clause 10, which, in combination with Schedule 1, sets out various ways in which rights or interests are to be treated, for the purposes of the Bill, as held or acquired. These include indirect holdings whereby, for example, a person holds an interest or right indirectly if that person has a majority stake in an entity that is part of a chain of entities, each of which holds a majority stake in the entity immediately below it, the last company in the chain of which holds the interest or right. That example is relevant because Amendment 34 seeks to ensure that intragroup investments are not covered by Clause 10 and, as a result, Schedule 1 as well.

My interpretation is that my noble friend wishes to prevent internal reorganisations within the same corporate chain of entities from resulting in trigger events by virtue of Schedule 1. I confirm to the Committee that, in the vast majority of cases, that will not have an impact but, depending on the facts of the case, internal reorganisations may be in scope of the Bill. That is because there may be rare cases in which internal reorganisations pose national security risks. That may be true even if the ultimate beneficial owner is the same before and after the trigger event: for example, if there are concerns about changes to the level of control acquired by other links in the chain as a result of the internal reorganisation.

Clause 10(2)(b), which the amendment seeks to amend, is therefore important, because it makes it clear that in circumstances where a person is already treated as holding an interest or right, when something happens that would be regarded as the acquisition of that interest or right by the same person, then it is treated as such.

This means, for example, that an ultimate beneficial owner at the top of a corporate chain transferring existing majority holdings held by entities lower down in the chain to those above them could be a trigger event if it can be regarded as an acquisition by virtue of Schedule 1.

Amendment 35 would insert a new subsection into Clause 10 to provide that only one trigger event arises where more than one person is treated as acquiring an interest or right due to the provisions of Schedule 1. I can clearly see that my noble friend is seeking to help the Government by looking to ensure that the investment security unit is not deluged by duplicate notifications by corporate chains each time a new acquisition is made by an entity towards the bottom of the chain.

I can assure him that we are carefully designing the notification process and forms so that, wherever possible in situations such as these, a single notification providing all the details of the entities in the same corporate structure can be considered together. That is different from his amendment, which would seek to provide in the Bill that only one trigger event takes place. I am afraid that the Government consider that this would introduce ambiguity into the Bill, as it would not make it clear which trigger event is the one which takes place, and which should be discounted.

Hostile actors could try to exploit such a provision to avoid scrutiny by using shell companies at the bottom of long and complex corporate chains to acquire sensitive entities and assets. If only one trigger event is considered to take place by virtue of Schedule 1, the entity immediately above it in the chain could notify the acquisition, while not necessarily disclosing the control acquired by more troubling persons higher up the chain. In these circumstances, the amendment would mean that these could not be treated as separate trigger events, whereas surely they should be.

With the arguments I have outlined and my undertaking to write to the noble Lord, Lord Bruce, and my noble friend Lady McIntosh about the important Scottish matters they raised, I ask that the noble Lord agrees to withdraw the amendment.

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

I have received one request to speak after the Minister, from the noble Lord, Lord Clement-Jones.

--- Later in debate ---

[Lord Grimstone of Boscobel (Con)]

My Lords, I thank the noble Lord for that comment. Let me take it on the chin and, if I can, answer it.

Some of the hostile actors that we are trying to prevent acquiring sensitive matter are extremely sophisticated and wily. It is not appropriate to go into details, but we know this. We know that they are absolutely capable of structuring transactions to find the most minute loopholes and acquire control of assets that affect our national security. I think we all accept the premise that national security is paramount, and to protect ourselves against these threats we have to have these complex arrangements.

I completely understand noble Lords’ points that some of the things we are describing are complex almost to the point of absurdity. However, they have to be if we are to protect ourselves against these hostile actors. This is key and something that we will have to keep coming back to. It is why it will be so incumbent on the investment security unit to act sensibly and pragmatically. When things have to be notified to catch the important fish—in the noble Lord’s analogy—they will have to be dealt with quickly and moved out; otherwise, we risk circumventing the very thing that we are trying to avoid with this Bill, which is threats to our national security.

National Security and Investment Bill

Lord Grimstone of Boscobel Excerpts

Committee stage
Tuesday 16th March 2021 Lords Chamber

[Baroness Hayter of Kentish Town (Lab)]

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.

[The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)]

My Lords, I start by extending my thanks to my noble friend Lord Lansley for these amendments. I also thank other noble Lords who have spoken; all I think welcome the broad thrust of the Bill even if they wish, quite rightly, to probe certain aspects of how it will work.

I begin by addressing Amendments 45, 68 and 69. Amendments 68 and 69 would allow the Secretary of State to accept “undertakings” from the acquirer

“as the Secretary of State deems appropriate to remedy, mitigate or prevent any risk to national security”,

rather than issuing a final order or a final notification. Amendment 45 would then, as I read it, make a consequential change to Clause 13 in respect of notifiable acquisitions so that those which are completed otherwise than in accordance with the final order or the agreed undertakings are void.

The Bill as drafted allows the Secretary of State two options once he has exercised his call-in power: first, to issue a “final order”, which contains remedies. I would add here that remedies are not necessarily just black and white—they could have a whole set of actions incorporated into them; some noble Lords may not fully have comprehended that. Secondly, the Secretary of State can issue a “final notification”, which states that no further action is to be taken under the Bill.

Undertakings proposed by my noble friend in these amendments would come into force when the undertakings were accepted. They could be varied or superseded through the Secretary of State accepting another undertaking, replaced by a final order made by the Secretary of State at any time, or the Secretary of State would be able to release the acquirer from their undertaking.

I am grateful that my noble friend is seeking to expand the options available to the Secretary of State but, as I hope to explain convincingly in just a moment, the Secretary of State does not need these additional options. Undertakings would not be appropriate because the Bill already provides the dual benefit of certainty for parties while giving the Secretary of State the “teeth” needed to enforce a regime built around our national security.

The Bill includes the ability for the Secretary of State to establish the terms of any remedy through the power to make final orders. I emphasise that point again. The terms of a remedy may require someone to dispose of part of something or to do something in relation to one bit of an undertaking but not another. It is a comprehensive term which allows all sorts of matters to be included within it. Indeed, the Bill states in Clause 26(5)(a) that a final order may require a person

“to do, or not to do, particular things”.

I am advised that that is a strong statutory footing which the Government consider is both required and sufficient for remedies under this regime.

My noble friend Lord Lansley was right on the button when he said that this gives the Secretary of State all that he requires. The Secretary of State does not need any additional powers because this power gives him all that he might conceivably want to do. Of course, before the Secretary of State determines his final order, he is likely to engage with parties to an acquisition—acquirers and others—to explore potential remedies.

However, it is right for the purposes of national security that these remedies—once they have been considered, and once they might have been discussed and looked at—should then be able to be imposed through a final order rather than assented to by the Secretary of State. We believe that this imposition is necessary because the matters that we are dealing with here are matters of national security. The Bill as drafted provides the Secretary of State with the power to impose remedies through a final order or to take no further action under the Bill, which is all that is required.

With Amendment 71, my noble friend addresses an important part of the Bill; namely, the carrying out of activities pursuant to final orders. The execution of final orders is of course vital to ensure that any remedies imposed by the Secretary of State have their desired effect. There would not be much point in just imposing orders if they were not carried through afterwards. This amendment seeks to make explicit a requirement that anyone who will conduct, or supervise the conduct of, activities mandated by final orders must be “suitably-qualified”. While I appreciate the good intention of my noble friend, I do not believe that this amendment would add anything substantial to the Bill.

First, the Secretary of State is unlikely to appoint someone who could not conduct or supervise the conduct of activities mandated under the final order. It would be daft of him to put someone in to do the job who was not qualified to do it. Why would he or she wish to do that? To do so may undermine the Secretary of State’s remedy; the remedy may not be carried out in full or in part if the person is not qualified, which would be against the decision that the Secretary of State has made. It is therefore very much in the Secretary of State’s own interests that the person appointed has to be “suitably-qualified,” even if the Bill does not say that specifically. I take it for granted that that is what the Secretary of State would want to do.

Secondly, the Secretary of State will be subject to public law duties when providing for a person to be appointed. Those public law duties will require him to act reasonably and take into account all relevant considerations. This would include whether the person is suitably qualified to undertake the task. He would be failing in his public law duties if he appointed someone who was not so qualified.

Thirdly, should it be helpful to noble Lords, I am happy to state categorically on the Floor of the Committee that the investment security unit will comprise eminently qualified people of the right skills and experience. For example, if a particular case requires someone qualified in chartered accountancy or in audit, the Secretary of State will appoint somebody who has those qualifications to carry out what is required.

For these reasons, I believe that although noble Lords are trying to be helpful in putting forward the amendments in this group, they are unnecessary. What they seek to do is already covered by the powers that exist in the Bill, and I hope that my noble friend will feel able to withdraw Amendment 45.

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

I have received one request to speak after the Minister from the noble Lord, Lord Fox.

[Lord Fox (LD)]

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 (Con)]

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?

[Lord Lansley (Con)]

I am grateful to my noble friend the Minister for his responses to this short debate, and indeed to those who participated in it. It was helpful to elaborate some of the issues, although I am not sure that we solved many of the questions that were posed.

My noble friend correctly deduced that I did not see Amendment 71 as needed. It was designed to find out who these people are. Although my noble friend did not say so, the implication is that they are the staff of the department, working in the investment security unit. In a sense, that tells us already that, when we come on to think about some of the implementation of this and the annual reports and so on, we are dealing not only with a flow of cases through the investment security unit but with a continuing role for the unit in the scrutiny and the conduct of the activities that are the subject of final orders. I hope that we will be dealing with only some dozens of final orders a year, but it will build up over time since many of these final orders in relation to entities will have a continuing relationship.

I did not expect the “suitably-qualified” question to arrive at any other answer than that they are civil servants recruited into or drawn from the department, but if they were other than that, it would be very useful for us to be told. I am assuming that they are not.

On the question of undertakings, as I surmised at the outset, the Secretary of State has all the powers the Secretary of State requires. The point, however, is that when making final orders, it may be flexible from the Secretary of State’s point of view, since the Secretary of State can include anything the Secretary of State wishes to include in it. However, it is not necessarily flexible from the point of view of the people affected, since once the order is made, the flexibility has completely disappeared. What is flexible about undertakings is the ability of the acquirers to make commitments at the time they are contemplating an acquisition in order to bring those two things together to enable the acquisition to continue—the noble Lord, Lord Fox, made that point, perfectly reasonably. If we want to promote investment and to assist those who are acquiring entities and assets in the United Kingdom, other foreign direct investment jurisdictions such as the US allow for mitigation agreements. The American one does not impose orders, or rarely does so. There may still be merit in having the flexibility to enter into agreements with acquirers rather than imposing orders on them. I am surprised that the Government have simply dismissed that possibility. Having it on the statute book does not mean that Ministers have to use it, but if it is not on the statute book, they cannot do it. That is why we are thinking about it at this stage.

However, in the light of what my noble friend says by way of the powers in the Bill, I suppose that at this stage it is probably best to beg leave to withdraw the amendment.

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[Baroness Hayter of Kentish Town (Lab)]

The lead amendment, Amendment 48A, would introduce a streamlined form for mandatory notification, and Amendment 67B would make any time limit for an information notice not less than three working days. That seemed a sensible—I think the word used was “pragmatic”—proposal.

Turning to the interesting Clause 30, the Minister in the other place said,

“final orders, in exceptional cases … when we are administering taxpayers’ money—may bring about financial difficulty for the affected parties”,—[Official Report, Commons, National Security and Investment Bill, 8/2/20; col. 288.]

which is why Clause 30 allows the Secretary of State to give financial assistance to an entity through a loan guarantee or indemnity as a consequence of making a final order.

It would be interesting to know a little more about the whole of this, as we have heard, and when a potential recipient might know that they were even in line for such help. How early in the process would it be indicated—not the actual decision but that that was a possibility? Or is it like Father Christmas appearing at the end?

As we have heard, the figure of £100 million is interesting, and it is interesting that there is no regulation-making or guidance-providing requirement such that guidance on the use of the power might have to be, if not agreed by Parliament, at least provided and open for debate and scrutiny. Will such guidance exist and how many cases a year are envisaged involving £100 million? Who would make the decision and how, as has been asked, and will it be reported in a timely manner—or, indeed, at all?

If this is the Government’s desired outcome, it seems that Clause 30 does not provide for any financial assistance in the case of an interim order. Perhaps the Minister could outline the thinking behind that, given that an interim order could also impose major costs on a British start-up or prevent an acquirer investing in one if it was thought that that investment might increase the acquirer’s level of influence unduly and trigger the next stage. There could also be the loss of a business-critical investment. It would be useful to know the thinking behind making money available to cover one sort of loss but not another. I look forward to hearing more of the thinking behind how this would work in the Minister’s response.

[Lord Grimstone of Boscobel (Con)]

My Lords, first, I thank my noble friend Lord Hodgson of Astley Abbotts for tabling Amendments 48A, 67B and 67C. I hope that the transaction he referred to had a happy ending.

Amendment 48A seeks to make it explicit that a streamlined mandatory notification form may be provided for in regulations if a person has previously submitted a mandatory or voluntary notification to the Secretary of State. The Bill requires a mandatory notice to be submitted to, and receive clearance from, the Secretary of State prior to the completion of a notifiable acquisition. Clause 14(4) provides for the Secretary of State to prescribe the form and content of a mandatory notice in regulations.

The amendment would amend the regulation-making power to make it explicit that such regulations could provide for those who have previously submitted either a voluntary or a mandatory notification form to submit a streamlined form. I am pleased to say that we are completely aligned with noble Lords who want the process under the Bill to be as streamlined as possible. As the Minister for Investment, looking to the interests of investors, I completely endorse that. I reassure noble Lords that the regulation power as drafted already provides for that.

In addition, the Government are designing both the voluntary and mandatory notification forms with business in mind, while ensuring that the Secretary of State receives the information that he needs to decide whether to issue a call-in notice in relation to a proposed notifiable acquisition.

I stress that the Government are keen to ensure that all the forms are clear and simple to complete. A draft notification form was published for comment during the Commons passage of the Bill, and the Government continue to engage interested parties to test the ease of completing the forms and the clarity and relevance of the questions.

Amendment 67B seeks to create a floor for the minimum time which the Secretary of State must provide to a party for responding to an information note. The minimum floor proposed is three working days. As noble Lords will be aware, Clause 19 provides for an information note which the Secretary of State may issue to require any person to provide information which is proportionate in assisting the Secretary of State in carrying out his functions.

An information notice may include a time limit for providing the information and the manner in which the information must be provided. An information notice must specify the information sought and the purpose for which it is sought, as well as the possible consequences of not complying with the notice.

It will be in the Secretary of State’s interest that any party from whom information is required is provided appropriate time for collecting and providing such information, or else confirming that they do not possess it. Providing insufficient time for doing this will only lead either to incomplete information being provided or to information being provided in a form which is more difficult to analyse. It might also lead to unwelcome outcomes, such as a party undertaking due diligence as to whether they possess the relevant information, but there then being insufficient time for them to establish that with certainty.

It is with these issues in mind that I assume that my noble friend tabled his amendments. I reassure him that the Secretary of State will already have the appropriate incentives to allow appropriate time for a response, and that, more widely, public law duties will require him to take a reasonable approach in setting a time limit for responding to an information notice under the Bill.

--- Later in debate ---

[Lord Fox (LD)]

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 (Con)]

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.

[Lord Clement-Jones (LD)]

My Lords, I know that the Minister is trying to be as helpful as possible by tying down the way Clause 30 will work. However, “tightly drawn” is not how I would describe its wording, so I assume he is really saying that it is the risk of judicial review hanging over the Secretary of State that keeps him honest in the circumstances. That is not a very good place to be when you are dealing with a Bill of this kind.

The other aspect is transparency. The noble Lord did not really explain the reason for the threshold of £100 million. He said it was for transactions—or compensation, if you like—and financial assistance under £100 million in aggregate would have to be reported for the annual review. However, if it was £99 million, say, that would not apply and it would not be subject to a separate report; it would just be aggregated along with all the financial assistance given over the course of the year. Why?

These powers are very wide; we need to know how they are being used and what direction the financial assistance is going in. Therefore, simply drawing a line at £100 million does not seem to be very satisfactory in the circumstances.

[Lord Grimstone of Boscobel (Con)]

I thank the noble Lord, Lord Clement-Jones, for his question, and I understand the concerns that he raised.

I will first deal with the £100 million figure. Of course, that is a lot of money for the Government to have to spend without having to report to Parliament. However, I assure noble Lords that, in order to offer this level of financial assistance, the situation would have to be truly extraordinary. The only circumstances I can envisage where the Secretary of State would need to use this power would be for some of the most significant nationally important firms. The significant nature of these firms means that they may be large, so the Government have put in this reasonable cap of £100 million. Personally, I would be very surprised if anything like that were spent. However, of course, any spending under this power will be subject to Treasury consent, as I have said—and the Treasury does not rush forward with money for departments in situations like this.

I have to say—and, in a sense, apologise—that the nature of national security makes it very hard to predict where some of these issues might arise. However, where they do and where national security is an issue, it is important that the power is there, provided that it is only ever used responsibly and respectively.

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

As there are no further speakers, I call the noble Lord, Lord Hodgson of Astley Abbotts.

--- Later in debate ---

[Baroness McIntosh of Pickering (Con)]

I thank my noble friend Lord Lansley for tabling these two amendments. I would like to speak to Amendment 63, which gives me the opportunity to raise an issue raised with me, and I am sure with other noble Lords, by the Law Society of England. I put a direct question to the Minister in summing up this small group of amendments. Can he confirm that the Government have actually considered, and have regard to, the impact of the sheer large numbers of filings that they may receive on the new regime’s ability to dispense with these filings in a timely manner? My noble friend has done us a great service here by highlighting the level of information required in the first instance or that may be required at a later date.

The estimated volume of filings stated in the impact assessment, deemed to be between 1,000 and 1,830 transactions notified per year is, in the view of the Law Society, an underestimate. That is because, for reasons that my noble friend gave, there is likely to be a very large number of voluntary filings and requests for informal guidance, especially when the regime is new and businesses are accustoming themselves to its requirements. In my view, the Law Society has raised legitimate concerns, which are reflected in these two amendments. Can I have a reassurance that there will be sufficient resources to deal with the sheer number of requests that are expected to avoid delays and burdens for businesses, which could be avoided in this regard?

[Lord Grimstone of Boscobel (Con)]

My Lords, I extend my thanks to my noble friend Lord Lansley for his Amendments 50 and 63. I shall deal first with a couple of points that have been made. If a voluntary notification is incomplete, it is not effective. That may mean that the Secretary of State may choose to exercise his call- in powers at some point in future in relation to that.

My noble friend Lady McIntosh asked whether we had underestimated the number of transactions that were likely to come before the unit. She referred to the work that the Law Society has done on that. All I can say is that we have thought about this carefully, and I am happy to repeat the assurance that we will make sure that the unit is fully resourced. If the number is greater than we anticipate, the resources of the unit will have to be expanded to cope with those greater numbers.

I extend my thanks again to my noble friend Lord Lansley for Amendments 50 and 63 which both relate to the information that must be provided as part of a notification. Clause 14 sets out the mandatory notification procedure and Clause 18 the voluntary notification procedure. Both clauses provide powers to the Secretary of State, by regulations, to prescribe the form and content of a mandatory notice and a voluntary notice respectively. Both clauses also provide that the Secretary of State may reject a notice where it does not meet the requirements of the clause, or the requirements prescribed by the regulations.

These amendments seek to make it clear that the Secretary of State can reject a mandatory or voluntary notice where information relating to either a notifiable acquisition or a trigger event has not been provided despite being specified as required in regulations. These amendments also seek, as a result, to ensure that any such regulations include a requirement to provide the information about the notifiable acquisition or trigger event needed to make a call-in decision.

I am happy that I can reassure my noble friend, I hope completely, that the Secretary of State absolutely intends to use the regulation-making powers under both these clauses to prescribe both the form and content of mandatory notices and voluntary notices. Indeed, our view is that the regime simply cannot work and will not work without such regulations being made. The primary entry mechanisms into the regime are based on notification, so it is vital that we are clear with businesses and investors about what information they must provide and in what format.

That is why, ahead of Committee in the other place, we published a draft of the information likely to be required as part of a mandatory notice or voluntary notice. I continue to welcome comments from noble Lords about that draft, but I think I can reassure my noble friend that information about notifiable acquisitions and trigger events will certainly form part of such requirements.

With that said, I fear that my noble friend’s amendments would therefore be duplicative in this instance. Clause 14(4) and Clause 18(4) allow the Secretary of State to make these regulations. Clause 14(6) and Clause 18(6) allow the Secretary of State to reject a notice where it does not meet the requirements specified in the regulations. The Government consider that this approach provides the powers that the Secretary of State needs to reject a notice where insufficient or the wrong information has been provided, whatever the final notification forms look like.

I hope my noble friend is reassured by my explanation of these clauses and the Government’s general approach on this matter, and I hope, therefore, that he feels able to withdraw his amendment.

[Lord Lansley (Con)]

I am grateful to my noble friend. I think he slightly confused two things together at the end, in talking about insufficient or wrong information. If there is wrong information, then clearly a notice can be rejected. The question about the sufficiency of information is the point I am coming back to. My noble friend was quite clear on—and I think it is very clearly set out—what it is the Government expect to be provided by way of information for these notices. The question is: why should they have a power to reject a notice on grounds that they require more information beyond what has been asked for in the material that has already been published? That is the power they are taking.

If the Government say—as my noble friend Lord Callanan said—one must set out who the chief executive is, and someone puts their given name but not their family name, they can reject it. The point is, however, that that was specified in the regulations. The question is: does it require his other information, and what is the other information? People might reasonably say, “You have rejected it because I did not provide the information that you required, but you didn’t tell me you required it.” That is my problem.

I will go away and think about this a bit more; maybe it is not important enough for us to persist with. For the moment at least, I will make my point and beg leave to withdraw Amendment 50.

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[Lord Grimstone of Boscobel (Con)]

My Lords, I am grateful to the noble Baroness, Lady Hayter of Kentish Town, the noble Lords, Lord West of Spithead, Lord Rooker and Lord Butler of Brockwell, and my noble friend Lord Lansley for their amendments on the role of the ISC in relation to the national security and investment regime. I assure the noble Baroness that she will hear my own words rather than those of the noble Lord, Lord Callanan.

I start by saying that I have the deepest respect for the expertise and experience of the noble Lords who have spoken in the debate this evening. I have listened to what they have said carefully and with great attention. However, despite the eminence of those who have spoken, I fear that I may disappoint them in this speech.

I assure noble Lords that the Government are committed to publishing information in relation to the regime that properly balances the desire for information with protecting national security. I shall come back later to the important point about parliamentary scrutiny and accountability. What I am saying also takes account of the existing position in relation to scrutiny of the Department for Business, Energy and Industrial Strategy, BEIS.

These amendments represent a number of approaches to requiring the Secretary of State to provide sensitive information to the ISC. Amendments 78 and 79 would in practice require him to create a confidential annexe to the annual report. Amendment 82 would require an additional, separate confidential report to be provided to the ISC. Amendment 70 would require him to share intelligence relevant to a final order with the ISC and not to make that order until the ISC has reported to Parliament on it.

Amendment 86 would extend the remit of the ISC through amending the Justice and Security Act 2013 to enable the committee to scrutinise the operation of the Investment Security Unit. As we heard, Amendment 90 seeks to relocate the Investment Security Unit, within six months of the Bill becoming law, from the Department for Business, Energy and Industrial Strategy to the Cabinet Office. It would also establish a wide-ranging advisory board to the Investment Security Unit, which should include, but not be limited to, representatives from relevant government departments, security and defence organisations, and business bodies.

I will address Amendments 78, 79 and 82 together. The reports proposed under these amendments would contain very similar information, including in relation to mandatory and voluntary notifications, trigger events that were called in and final orders made. In particular, they would require the Secretary of State to provide details of factors relevant to the assessments made by the regime. These include: the jurisdiction of the acquirer; the nature of national security risks posed in transactions when there were final orders; details of particular technological or sectoral expertise that was targeted; and other national security threats uncovered through reviews undertaken under this Bill. I note that similar proposals were put forward in the other place and it is perhaps not surprising that my views on this align closely with those expressed by the Parliamentary Under-Secretary of State for Business and Industry at the time.

I respectfully draw noble Lords’ attention to Clause 61, which requires the Secretary of State to prepare an annual report and to lay a copy of it before each House of Parliament. This clause provides for appropriate scrutiny of the regime. We judge this to be appropriate, because that information does not give rise to national security issues when published at an aggregate level. It will also rightly give a sense of the areas of the economy where activity of the greatest national security concern is occurring.

Of course, it is right that there is also wider scrutiny of the work of BEIS and the work of the unit within BEIS. We therefore intend to follow the existing appropriate government procedures for reporting back to Parliament, including through responding to the BEIS Select Committee, which, I have to say, does an excellent job of scrutinising the work of the department. Indeed, I note that the BEIS Select Committee can and does handle sensitive material; for example, on our civil nuclear programme. The UK’s merger control regime under the Enterprise Act 2002 currently includes screening on national security grounds, and this function is overseen by the BEIS Select Committee.

In case there is any doubt of this—and coming back to the specific point that the noble Baroness made—there is no barrier to the BEIS Select Committee handling highly classified material, subject to agreement between the department and the chair of the committee on appropriate handling. The BEIS Select Committee will be able to see all the material that it needs in order to make its assessments within its role.

I argue that it is the right committee to oversee the work of the investment security unit within the broader remit of BEIS. We should not forget that the BEIS Select Committee is as much a part of our structure of parliamentary scrutiny and democratic accountability as the ISC. With great respect, I would not want any of our comments to appear to be disparaging to the work of the BEIS Select Committee and the very valuable scrutiny work that it does.

I believe that the BEIS Select Committee is excellently placed to consider how effectively and efficiently the regime interacts with the business community and investors. It can also ensure that the NSI regime does not create disproportionate impacts on the economy, and, with its business expertise, it is able to scrutinise whether the regime is effective in scrutinising relevant acquisitions of control. I have to say, with deep respect, that I would therefore question some of the narrative I have heard that suggests that the BEIS Select Committee is not well placed to scrutinise the NSI regime.

I turn back to the ISC. There are, of course, no restrictions on the ISC requesting further information from the unit or from the Secretary of State for matters where it falls under the remit of that committee. The Intelligence and Security Committee’s remit, however, is clearly defined by the Justice and Security Act 2013, together with the statutory memorandum of understanding. I know that this irritates noble Lords, but that remit does not extend to the oversight of BEIS’ work. I therefore welcome and encourage the Intelligence and Security Committee’s considerable security-specific expertise and its review of the annual report when it is laid before Parliament.

Before turning to Amendment 86, I will first revisit precisely what the Justice and Security Act 2013 provides for. I remind noble Lords that this Act sets out the role of the Intelligence and Security Committee alongside a memorandum of understanding. The Act sets out that

“the ISC may examine or otherwise oversee the expenditure, administration, policy and operations of … the Security Service … the Secret Intelligence Service, and … the Government Communications Headquarters.”

The Act also provides that:

“The ISC may examine or otherwise oversee such other activities of Her Majesty's Government in relation to intelligence or security matters as are set out in a memorandum of understanding”


agreed between the Prime Minister and the committee.

The present memorandum of understanding states that the ISC is, in addition, responsible for overseeing the activities of parts of the Ministry of Defence, parts of the Cabinet Office—including the National Security Secretariat and the Joint Intelligence Organisation —and the Office for Security and Counter-Terrorism. The ISC must report to Parliament annually on the discharge of its functions, and may make such other reports as it considers appropriate concerning any aspect of its functions. Redactions are agreed by the Prime Minister for any material that may prejudice the functions of the intelligence agencies or of other parts of the intelligence and security community.

Extending the remit of the ISC to oversight of the investment security unit would be a substantial amendment. In particular, the Justice and Security Act currently refers only to intelligence agencies, of which the investment security unit is not one. Noble Lords will have seen the strength of feeling in both this House and the other place concerning the role of the investment security unit in relation to the national security and investment regime—I am well aware of this. I understand that this proposed new clause is the result of careful consideration and an attempt to find a compromise, and for that I am grateful to my noble friend. However, for the same reasons that the Government have cautioned against other amendments that seek to provide for a more formal role for the ISC in relation to the NSI regime, I cannot accept it.

Amendment 70 seeks a similar privileged role for the ISC but in a way that, I have to say, would present additional problems. The Bill as currently drafted requires the Secretary of State, as the sole and quasi-judicial decision-maker, to follow clearly and tightly defined timescales and to handle sensitive information from a range of sources. Requiring the ISC to review every final order before it could be made would risk adding substantial delays into this process, harming both national security and business certainty.

The Government have faced amendments seeking for a national security assessment to be completed in one-third less time on large and complex acquisitions, for the purpose of limiting any wait by business. This amendment, however, while at the end of the process—and while final orders will, of course, be more limited in number than national security assessments undertaken—seeks to add potentially significant further delay without a clear benefit. There is also a risk that, depending on how long it takes the ISC to produce its report, the Secretary of State could be timed out of making a final order at all, as the tests for extending the assessment period do not currently allow for an extension due to ISC scrutiny. It would also, I think, be an unprecedented role for a parliamentary committee, although I have no doubt that others such as the noble Lord, as an ex-Cabinet Secretary, will have a much better sense of precedent in this area.

The report laid before Parliament, which this amendment would require, would be based solely on intelligence. It would therefore likely need to be so highly redacted as to make it uninformative. I can instead assure the noble Lord that, in making a final order, the Secretary of State will draw on information and expertise from across government, including the intelligence agencies, to ensure that he has all the information he needs.

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[Lord West of Spithead (Lab)]

My Lords, I am a poacher turned gamekeeper, as a fully signed-up member of the rolled-up trouser-leg and funny handshake brigade. For many years in the intelligence world, I hated the thought that government, Parliament or anyone else could look at my intelligence; how much nicer not to give any of that away. I am very glad that system does not work in this country. We have set up a mechanism whereby Parliament can see that highly sensitive intelligence that all of us involved in that world are immediately nervous when anyone touches. Of course if you have that intelligence, you want to hang on to it and not tell other people about it. It sounds to me as though the BEIS Select Committee will be delighted that it is to be the one making all the decisions based on the intelligence that it has. I do not really like that as a way of going forward. I could say a lot more about the response from the Government because I am not very happy about it.

Can the Minister look again at this debate and what has been asked for, because it seems very sensible for the ISC, which after all was tasked in the Justice and Security Act to do exactly this? The BEIS Committee was not. It is not too much to ask that this is looked at; it sounds very sensible.

[Lord Grimstone of Boscobel (Con)]

I thank the noble Lord for his courteous comments. Of course I will review the contents of this whole debate to see whether there are any lessons that I can learn from it.

[Lord Rooker (Lab) [V]]

My Lords, I much regret that, due to my own IT incompetence, I was unable to speak today. However, I say to the Minister as politely as I can that he has completely misread the House, and I think he will have to look at this again. The ISC is not a bog-standard Select Committee. I have a question for him, based essentially on the speech of the noble Lord, Lord Janvrin, which I do not think he referred to. How could rumours about government action in respect of a private company which may be market-sensitive be dealt with to public satisfaction unless the ISC has oversight? It would not matter if the ISC reports were redacted; Parliament would accept that; the media would accept it. The Government have a democratic licence to operate only because of Parliament. The Minister should go away and, before Report, explain to those who have spoken and other Peers where the Government’s democratic licence to operate is in this respect, having ruled out parliamentary scrutiny in a very precise way.

[Lord Grimstone of Boscobel (Con)]

I thank the noble Lord for his comments. I apologise to noble Lords if they feel that I have misread the mood of the House. The key point that I want to make in response to him is that the BEIS Select Committee—I say it again—is part of our parliamentary scrutiny and has democratic accountability in the other place. The Government are not avoiding scrutiny of the investment security unit; they are putting it somewhere where they believe that the scrutiny will be most effective, looking at the work of the unit in the round. They believe that the most effective overall scrutiny of the ISU will be found in the BEIS Select Committee.

[Baroness Hayter of Kentish Town (Lab)]

I have a couple of questions for the Minister. He said that the remit of the ISC under the 2013 Act does not cover the work of BEIS. If that is the case, that justifies even more an amendment to the Bill to amend the 2013 Act to put in such a provision. If the Government wanted to do it, that would be the way. I do not think that we should use the law as an excuse. The law can be changed; we are making an Act now.

I have just double-checked the names, but can the Minister confirm that the current members of the BEIS Select Committee are not all even privy counsellors and certainly do not have security clearance which goes beyond Privy Council? Can he confirm that there is no House of Lords Member on the BEIS Select Committee? Can he also confirm that nothing that we have done in any of these amendments to give the ISC a role removes the role of the BEIS Select Committee—in other words, it can still look at the industrial or investment parts? We are not taking those away from it, so it would continue to have the role that he has spelt out for it, but we are adding another bit. Can he confirm those three points?

[Lord Grimstone of Boscobel (Con)]

I thank the noble Baroness for those questions. First, I repeat that there is no barrier to the BEIS Select Committee handling highly classified, top-secret material. Appropriate arrangements can be put in hand to ensure that the members of that committee have access, after processes have been gone through, to that material. Secondly, of course, the committee is a committee of the other House —that is self-evident. I come back to my core point. Where the agencies which report to the ISC have done work of relevance to this, the ISC will be able to speak to them about such work, but that is very different from the ISC being responsible for monitoring the work of the ISU, which goes far wider than the responsibilities of the ISC. I have deep respect for the opinions that have been put forward, but I am afraid that I do not agree with them.

[Lord Campbell of Pittenweem (LD)]

My Lords, I am grateful for the opportunity to remedy an omission from my earlier remarks, to some extent stimulated by the response of the Minister. During my time in the other place, I was a member of the Trade and Industry Committee, the Defence Committee and the Foreign Affairs Committee. Unless things have changed very considerably, in my time as a member of these committees we were never admitted to intelligence of the quality which is available on a daily basis to the Intelligence and Security Committee. We were never required to sign the Official Secrets Act, which is an obligation incumbent upon those who wish to serve on the Intelligence and Security Committee.

Since the nominations are made by party leaders, it is not unknown for reservations to be expressed about the reliability of a possible member of the Intelligence and Security Committee, the result being that the leader of the party in question determines to withdraw that nomination. To suggest that the quality of information available is the same in Select Committees on security matters as that available to the Intelligence and Security Committee is to misunderstand the different obligations incumbent on membership.

[Lord Grimstone of Boscobel (Con)]

I thank the noble Lord for these comments and in no way want to second-guess the deep experience that he has on these matters. But I repeat yet again: there seems to be a worry that BEIS Select Committee members will not have sufficient security clearance to be able to do the work required of them. I repeat from this Dispatch Box that there is no barrier to BEIS Select Committee members handling top-secret and other classified material, subject to agreement between the department and the chair of the committee on appropriate handling. I am not sure that I can say more than that, but they will be able to have the information they need to carry out their functions.

[Lord Butler of Brockwell (CB)]

My Lords, I am grateful for this debate. I am afraid that I have to say to the Minister that, while he may have used his own words in answer to the debate, he used the brief that would have been used by the noble Lord, Lord Callanan. I do not want to decry the work of the BEIS Select Committee at all, but the Minister gave the game away when he said that access to highly classified intelligence for the Select Committee would be based on an agreement between the chair and the Secretary of State. The Secretary of State would control it. In that case, Parliament would be in the position of Glendower in “Henry IV”, who says:

“I can call spirits from the vasty deep.”


So you can, is the reply:

“But will they come when you do call for them?”.


Under the memorandum of understanding, the Intelligence and Security Committee has a right to get the intelligence that it needs. A Select Committee of the House of Commons does not have that similar right.

What has run through this debate, from everybody who has spoken apart from the Minister, is that we want one simple thing. We want to make proper use of a tool that is there for Parliament and has been created for this purpose: the Intelligence and Security Committee. There are various ways of doing it, as has been made clear. It could be by annual reports; it could be by changing the terms of reference, which can be done so easily; it could be a transfer to the Cabinet Office, which would bring it within the terms of the ISC.

I suggested that this should be a real-time operation. If I may say so, the Minister misrepresented that. There is no reason why that should extend the time necessary for the assessment. The Intelligence and Security Committee will be looking at one thing—the highly classified intelligence on which the Secretary of State is acting—and reporting on that. That is not a huge job. The ISC could say quite shortly that it was satisfied, and 99 times out of 100, I think, it would say that there were good grounds for the order that the Secretary of State was proposing to be make. I think that could quite easily be done within the 30 days allowed under the Bill for the assessment. It would not even need to make use of the 15-day extension.

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Moved by

[Lord Grimstone of Boscobel]

75: Clause 53, page 33, line 6, leave out from “followed” to end and insert “when a provision of or made under this Act requires or allows a notice, order, notification or document of any kind to be given or served.”
Member’s explanatory statement
This amendment ensures that the power to make regulations in clause 53(1) in relation to the procedure for service of documents extends to cover all of the different types of notices, orders and documents under the Bill.

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[Lord Grimstone of Boscobel (Con)]

My Lords, I turn to the amendments relating to information sharing and data protection. As always, I am grateful to my noble friend Lord Lansley, who we know examines these Bills with such a critical eye that nothing can escape his eagle gaze. The first amendment relates to Clause 54 and seeks to require the Secretary of State, when deciding whether to disclose information to an overseas public authority, to have regard to whether there is a reciprocal agreement with the country or territory to whose authority the disclosure would be made.

As this clause is about sharing information, I believe that my noble friend is envisaging the reciprocal agreement with another country or territory to be in relation to the sharing of information for a specified purpose, such as facilitating the exercise by the Secretary of State of his functions under the Bill or the prevention or detection of crime. Clause 54(7) specifies certain considerations that the Secretary of State must have particular regard to when deciding whether to disclose information to an overseas public authority. It includes consideration of whether the law of the country or territory to whose authority the disclosure would be made provides protection against self-incrimination in criminal proceedings corresponding to the protection provided in the UK, as well as consideration of whether the matter is sufficiently serious to justify making the disclosure. The clause permits the Secretary of State to disclose information but, I stress, does not require him to do so.

The Secretary of State, as often elsewhere in the Bill, will be subject to public law duties when deciding whether to share information with an overseas public authority under this clause. These duties include a requirement to take all relevant considerations into account, although this will obviously depend on the facts of each case, and whether there is a reciprocal agreement in place. In some circumstances, for example where information is to be shared for the purpose of protecting national security, it may well be appropriate to proceed in the absence of a reciprocal agreement. When deciding whether to disclose information to an overseas public authority, the Secretary of State will also be bound by the data protection legislation provisions, which include certain restrictions in respect of international transfers of personal data and consideration of appropriate safeguards. There is therefore no need to include additional restrictions in the Bill.

I turn to Amendment 77, which relates to Clause 57. It seeks to ensure that when considering whether a disclosure or use of information pursuant to a duty or power under Parts 1 to 4 of the Bill would contravene the Investigatory Powers Act 2016, the duty or power itself would need to be taken into account. A similar provision exists in relation to consideration of whether a disclosure or use of information would contravene the data protection legislation. Clause 57 states that the provisions in Parts 1 to 4 containing a duty or power to disclose or use information do not authorise a contravention of the data protection legislation as defined in the Data Protection Act 2018. The clause also sets out that such a duty or power to disclose or use information does not authorise contravention of Parts 1 to 7, or Chapter 1, Part 9, of the Investigatory Powers Act 2016. That Act contains provisions about conducting interception, including restrictions on use and disclosure of intercepted information. These are standard provisions included where legislation concerns the use or disclosure of information.

To reassure my noble friend, there is no call for the Secretary of State to consider the duty or power to disclose or use information under the Bill to determine whether a particular disclosure or use pursuant to it would contravene the Investigatory Powers Act. This will simply require consideration of what the relevant provisions of the Act prohibit, and none of the prohibitions turns on whether a duty or power exists or its terms. In comparison, the data protection legislation provides a framework for processing personal information but allows for other provisions, such as those found in the Bill, to specify more details about the use or sharing of personal information. Therefore, a duty or power to disclose or use information under the Bill will need to be taken into account when considering whether a disclosure or use of personal information pursuant to it would contravene the data protection legislation. As explained, this is not required when considering compatibility with the Investigatory Powers Act, due to the differing nature of the legislation.

Therefore, while I understand the objectives of my noble friend and his desire, as always, to be helpful, for the reasons I have set out, I am not able to accept these amendments, and I hope that my noble friend will agree to withdraw or not move them.

National Security and Investment Bill

Lord Grimstone of Boscobel Excerpts

Report stage
Thursday 15th April 2021 Lords Chamber

I am grateful that the Government have now recognised the validity of these concerns and committed to publishing guidance after enactment of the Bill. I am also grateful to the Minister and his departmental team for outlining an indicative list of nine points of regime guidance. Guidance 8, on how the regime will work alongside other regimes, including export control, takeovers and the CMA, will address this. However, there are still some important outstanding questions for the Minister to answer to add clarity on how duplication across both regimes will be avoided while meaningful co-ordination operates effectively. It would be most helpful if he could provide that clarity at this important stage in the passage of the Bill.

[The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)]

My Lords, I thank my noble friend Lord Lansley for his Amendments 1 and 37, which explore the interaction between the export control regime and the regime created through this Bill. As we start this session, I thank your Lordships for the constructive way in which they have approached this Bill and the constructive debates that we have had.

Amendment 1 would provide that the statement about the exercise of the call-in power may set out how the Secretary of State will factor in controls placed under the export control regime when deciding whether to call in asset acquisitions. Amendment 37 would ensure that the Secretary of State takes into account controls placed under the export control regime when imposing interim or final orders on asset acquisitions. These amendments follow discussions in Grand Committee on the links between export controls and NSI; I thank noble Lords for the insights that they have shared.

I am happy to confirm to my noble friend that the Secretary of State will need to take into account the impact of any controls placed under the export control regime, as well as other relevant regimes so far as they relate to national security considerations. This is required by both the legal tests in the Bill and public law duties. This is the case when he decides whether to call in an acquisition of control; whether to impose interim orders or final orders in relation to such acquisitions; and what form those orders should take.

In particular, if existing controls under the export control regime already address any national security concerns arising from the acquisition of an asset, I am happy to confirm for my noble friend that it is unlikely that the Secretary of State would be able to call in that acquisition. As has been referenced by noble Lords, I commit that we will provide guidance on the interaction of the NSI regime with other relevant regimes, including export control, which will ensure that affected parties are clear on this point.

My noble friend also asked specifically about the Statement. I am happy to confirm that the Government will consider specific reference to export controls in it if we judge this to be appropriate following the consultation on the Statement. I thank my noble friend Lord Lansley for this suggestion.

I appreciate the intent behind these amendments, and I hope that I have finally given my noble friend sufficient reassurance on these matters not to press them.

[The Deputy Speaker (Baroness Fookes) (Con)]

I have received one request to speak after the Minister. I call the noble Lord, Lord Fox.

[Lord Fox (LD)]

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 (Con)]

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.

[Lord Lansley (Con)]

I thank your Lordships for this very short but useful debate—useful not least in assisting those who will be affected by the regime. I am grateful to the noble Lords, Lord Grantchester and Lord Fox, for their contributions.

The point about the White Paper and the commitment to use the export control regime primarily to deal with national security risks relating to the export of these assets, and specifically the qualifying assets, is that the export control regime sets specific limitations on the export of specific items to specific persons and places. It is very targeted in that sense. As the Minister says, it does not bear upon the question of control of entities or the overall ownership of assets, so there is a compelling need now for this new regime; it just does not need to reproduce or trespass upon those things that are being achieved through the export control regime. That is what I understood the White Paper to say, and I understood the noble Lord, Lord Fox, to be asking for that to continue to be the expectation.

I hope that Ministers will make it very clear to those affected that, where they have a compliance regime in place for export control, that will continue to be sufficient for the purposes of the management of qualifying assets, because Ministers have made it clear that rarely would they expect to invoke the national security investment regime in relation to specific assets. It is really targeted on the ownership and control of entities and, by that route, the ownership and control of large-scale assets. I am sorry to have had to explain that again, but I do hope that Ministers will take it on board.

I am most grateful to my noble friend for going further than we were able to go in Committee, and, in particular, returning to Amendment 1, what he was able to say about the Statement under Clause 3 and the additional guidance has moved us on quite a long way from where we began. I am most grateful for that, and I beg leave to withdraw Amendment 1.

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[Lord Grantchester (Lab)]

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.

[Lord Grimstone of Boscobel (Con)]

My Lords, I thank my noble friends Lady Noakes and Lord Hodgson for their contributions and all the other noble Lords who have contributed so far. Perhaps it is not out of order to especially thank the noble Baroness, Lady Bennett of Manor Castle, for her rare support of the Government in this instance. I will begin with Amendments 11 and 12 together.

As currently drafted, the Bill provides that the Secretary of State must decide whether to reject or accept a mandatory or voluntary notice as soon as reasonably practicable after receiving it. They must then inform relative parties of the decision as soon as practicable. I will later draw the distinction again between “as soon as practicable” and

“As soon as reasonably practicable”.


Amendment 11 would require the Secretary of State to provide written reasons to the notice “within 5 working days” if a mandatory notice is rejected, instead of “as soon as practicable.” Amendment 12 has a similar effect but would require the Secretary of State to notify each relevant party that a mandatory notice has been accepted within five working days of acceptance, rather than as soon as is practicable, as currently drafted.

My noble friends Lady Noakes and Lord Hodgson asked about the distinction in places in the Bill between the timescales, “as soon as practicable” and

“As soon as reasonably practicable.”


These different tests reflect that some requirements are more onerous. For example, determining whether a valid notification has been given will be dependent on the facts of the case, so it is appropriate, in that instance, to use

“As soon as reasonably practicable.”


However, communicating the decision to parties should be possible without delay, so in that instance, the Secretary of State must do so as soon as practicable. I hope that clarifies that for noble Lords.

The Secretary of State already expects to be able to quickly decide to accept or reject notifications in many cases—then inform parties of those decisions—much faster than the five-day working limit proposed. However, I must stress that it is important that there is scope for flexibility in the relatively rare circumstances where more time may be needed. When notifying relevant parties that a notification has been accepted, there may, for example, be multiple, potentially international, parties needing to be contacted whose details are not immediately available.

In some cases, purely as a matter of practicalities, the Secretary of State may need more than five working days to notify a party that their notification has been rejected. Take a notification sent in by letter, from either a UK or a foreign company, without proper contact details and which does not meet the requirement for notification. The Secretary of State would, therefore, be likely to reject it. This may seem trivial, but it may take more than five working days to find the contact details for the notifier to notify them of the rejection. If the letter contained commercially sensitive or personal information, it is particularly important to get that right to make sure that any correspondence from the Secretary of State is not sent to the wrong person. This is just one practical example where it could take longer than five days to notify of an acceptance or a rejection.

Just imagine: the amendments could enable sophisticated hostile actors to game the system. There will be people out there who will want to game this system, if they can, but I am sure that that is in no way the intention of my noble friends.

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[Lord Grantchester (Lab)]

I thank the noble Baroness, Lady Bennett, for the amendments in this group. We recognise the importance of financial assistance in relation to the regime where it would have financial impacts on businesses, following a final order being made. We understand the public significance of financial assistance and are supportive of there being parliamentary oversight and agreement to that assistance. The issue of how practical it is to undertake that before any final order is made, presumably after close contact with an affected business, is an interesting point that the Minister will address.

The noble Baroness will understand that consideration of regulations is not generally contentious. Nevertheless, her points are well made. Any greater clarity that the Minister can give in the parliamentary process regarding awards made in consequence of government decisions would be helpful. Will all individual cases of those receiving financial assistance be made public? It would be interesting to understand the Government’s intentions and the role of Parliament in scrutinising financial assistance.

[Lord Grimstone of Boscobel (Con)]

My Lords, perhaps I may extend my thanks to the noble Baroness, Lady Bennett, for the amendments she has tabled. I also welcome to the Chamber one of my supporters, the noble Baroness, Lady McDonagh.

These amendments would remove the requirement for financial assistance to be given with consent from Her Majesty’s Treasury. They would require, instead, regulations to be approved by Parliament before financial assistance is given. Amendment 20 would consequently remove the reporting requirement when financial assistance exceeded £100 million in any financial year.

I think it is a sensible check in the context of this regime to set out in the Bill a requirement for the consent of HM Treasury. Parliament has a choice today in the final stages of this Bill on whether to approve the principle that financial assistance should be made available in consequence of the making of final orders. Requiring that an affirmative statutory instrument be laid each time money is proposed to be spent for these purposes would be excessive and possibly cause that principle to be debated each time. Indeed, parliamentary approval for each occasion of spending is likely to be impractical in many circumstances because of the time required. The delay could lead to the UK losing important capabilities that we may have otherwise been able to support while an appropriate acquirer was found.

On accountability, I remind the House that Parliament will already have voted on the spending estimates, and BEIS will need to account against those. The BEIS accounting officer is ultimately responsible for ensuring that budgets are spent in the correct ways. I am therefore unable to accept these amendments.

Finally, and more generally, I know that several of your Lordships are concerned about the seeming opacity of providing financial assistance. Perhaps I may say a few words to explain the provision further. The reporting provisions are intended to ensure that Parliament will be able to see what assistance the Secretary of State is providing, at least on an annual basis, and more frequently if spending rises over £100 million in any relevant period. Your Lordships may also, at any time, ask Questions to the Minister about spending on financial assistance, which will have to be answered in the House. Additionally, HM Treasury will not be forthcoming in its consent to spending unless a strong case is made, and use of the power will be subject to all obligations on using public money.

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[Lord Grantchester (Lab)]

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.

[Lord Grimstone of Boscobel (Con)]

My Lords, I am grateful for the attention that your Lordships have paid to Clause 30 today and in Grand Committee. As we know, the clause enables financial assistance to be given to, or in respect of, entities in consequence of the making of final orders. The key challenge from your Lordships towards this clause has been about transparency and how the system will work. I will do all I can today to cast some further light on this.

First, I shall address Amendment 15, tabled by my noble friends Lady Noakes and Lord Hodgson and the noble Lord, Lord Fox, which would limit financial assistance to situations in which the Secretary of State considered that there was a risk to national security. I am pleased to be able to reassure the House that this Bill already requires that financial assistance may be given only where there is a risk to national security, since it states that financial assistance may be given only when a final order has been imposed. As final orders may be imposed only once a risk to national security has been determined to exist, I am happy to confirm and to reassure noble Lords that a risk to national security is a necessary part of granting financial assistance.

All financial assistance will be further subject to the usual scrutiny and agreement of HM Treasury, as I said in Committee. I may not be completely reassuring to all noble Lords, but I have no doubt that it would be scrutinised thoroughly by HMT. Essentially, the Secretary of State will not be able to hand out money in any way they choose, or, in my noble friend Lady Noakes’s phrase, to

“stuff public money into the pockets”—[Official Report, 16/3/21; col. 218.]

of companies.

Turning to Amendments 16 and 17, tabled by my noble friends Lady Noakes and Lord Hodgson, and the noble Lord, Lord Fox, Amendment 16 would limit the forms of permissible financial assistance to loans, guarantees and indemnities. Amendment 17 would specify that financial assistance would need to be given on “arm’s length terms”, which might be subject to a degree of interpretation in this context, but I appreciate that both amendments are probing the nature of any financial assistance.

It is important that the Secretary of State has some flexibility in the types of financial assistance that might be given, because there may be circumstances—perhaps unforeseen at the moment—where a form of assistance other than loans, guarantees or indemnities, will be appropriate. It would be most unfortunate if we had tied the Secretary of State’s hands so that they could not give such assistance just when it was needed. I assure noble Lords that the Government will be guided entirely by prudence when deciding what form of assistance is appropriate. However, we should not limit financial assistance in the way proposed by the amendments in lieu of a clear case for why this must be done. I am afraid I have not heard that clear case today, although I am very grateful to my noble friends for their points of explanation.

Picking up a point made in Committee, I reassure my noble friend Lady Noakes that financial assistance may be recoverable, depending on the terms set by the Secretary of State. Just as the decision to grant financial assistance will be taken on a case-by-case basis, so the terms of that assistance will be fixed on a case-by-case basis, including whether it should be recoverable. Indeed, I expect that in many circumstances the assistance would be recoverable. All such spending would be made clear in the annual report and in a separate report to the House of Commons if spending exceeded £100 million in any relevant period.

It may be the case that following a final order, only non-recoverable financial assistance would ensure that the UK does not lose capabilities considered important enough for the Secretary of State to intervene to protect them in the first place. If they are important enough to prevent losing them to actors who may do us harm, it should be open to the Secretary of State to decide whether they merit unrecoverable support. If financial assistance is given to a firm, that does not mean, in these circumstances of national security matters, as my noble friend Lord Hodgson said in Committee, that the firm is somehow a wounded bird or has become inherently unattractive. In most circumstances it may just mean that the Government are tiding it over until a more suitable acquirer, which does not pose a risk to national security, is found. To be absolutely clear, the Government do not intend for financial assistance under the NSI regime to be used as a form of back-door subsidy control. Under the Bill, financial assistance may be given only in consequence of a final order—to mitigate the effects of a final order, for example.

Amendment 18 would provide that financial assistance may include compensation given to anyone who suffers economic harm because of actions taken under the Bill. I remind your Lordships that subsection (1) already limits financial assistance to assistance given

“to or in respect of an entity in consequence of the making of a final order.”

Therefore, even with this amendment, Clause 30 is not a general compensation scheme. It relates only to final orders. Additionally, I have doubts as to whether the amendment would be straightforward to apply. For one thing, it is not entirely clear what would constitute “suffering economic harm” as a result of actions under the Bill. Furthermore, it is not clear how such harm would be assessed, what evidence would be needed or what sort of assistance would be appropriate.

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Moved by

[Lord Grimstone of Boscobel]

21: Clause 32, page 21, line 7, leave out paragraph (b)
Member’s explanatory statement
See the explanatory statement to the amendment at page 4, line 22.

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Moved by

[Lord Grimstone of Boscobel]

25: Clause 61, page 36, line 22, at end insert—
“(da) the average number of working days—(i) from receipt of a mandatory notice to notification of a decision to accept that notice, and(ii) from receipt of a mandatory notice to giving written reasons for a decision to reject that notice,”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the average length of time taken to give notification of a decision to accept or reject a mandatory notice is included in the annual report that must be made by the Secretary of State under Clause 61.

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Moved by

[Lord Grimstone of Boscobel]

27: Clause 61, page 36, line 26, at end insert—
“(ga) the average number of working days—(i) from receipt of a voluntary notice to notification of a decision to accept that notice, and(ii) from receipt of a voluntary notice to giving written reasons for a decision to reject that notice,”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the average length of time taken to give notification of a decision to accept or reject a voluntary notice is included in the annual report that must be made by the Secretary of State under Clause 61.

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Moved by

[Lord Grimstone of Boscobel]

32: Clause 61, page 36, line 33, at end insert—
“(m) the number of final orders varied,(n) the number of final orders revoked.”Member’s explanatory statement
This amendment adds a reporting requirement to ensure that the number of final orders varied or revoked is included in the annual report that must be made by the Secretary of State under Clause 61.

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Finally, I welcome the suite of products. I do not like the word “product” either. I think “sets of guidance” is more apposite. I very much hope that those who are affected by the Bill and its provisions when it becomes an Act are not required to read a huge pile of documents. In the case of market guidance notes, for instance, I hope that the notification process is included and that we do not just expect everybody to read 10 documents before they can grasp the requirements under the Act. The same applies to higher education. The approach of rolling in the risk profile of the transactions into the policy statement would be a great deal more helpful than simply expecting people to read individual documents as they go through the process.

[Lord Grimstone of Boscobel (Con)]

My Lords, I thank noble Lords for their amendments, which seek to require the provision of guidance. As a former practitioner, I am very pleased with the progress we have made in this area with your Lordships’ help. It is an important topic.

Amendment 35 requires that the Secretary of State provides guidance for the higher education and research sector within three months of the Bill passing. This amendment also requires the Government to consult the higher education and research sector on the draft guidance. I thank the noble Lords, across three parties no less, for their amendment. As has been said, this amendment and others encouraged my noble friend Lord Callanan to write to all Peers on Tuesday setting out our intention to publish guidance. I am pleased to be able to commit on the Floor of the House that the Government will provide guidance to the higher education sector within three months of Royal Assent.

I am happy to assure the noble Lord, Lord Rooker, that we are already working with the Russell group and others as part of our expert panel across all guidance. This panel is providing feedback and input to ensure that parties have the utmost clarity and assistance in understanding and complying with the regime. In this guidance, we will pay care, as the amendment seeks, to the treatment of assets under the regime. I can confirm that the Government will also engage with representatives from the broader research sector as part of this work.

I will just make a few further, brief points. First, I wish to make it clear that asset acquisitions will not be in scope of the mandatory notification regime, so there will be no obligation to notify any asset acquisition. Secondly, as my noble friend Lady Bloomfield set out during Grand Committee, the statement provided for in Clause 3 sets out core areas and core activities to which the Secretary of State is likely to pay closer attention, and the majority of research, consultancy work and collaborative research will fall outside these areas. The guidance we are publishing will provide higher education and research establishments with hypothetical scenarios—effectively case studies—of where acquisitions in the research sector could fall in scope of the regime. It is our aim that the guidance will aid the higher education sector’s understanding of where acquisitions in its sector may be in scope and will prevent unnecessary voluntary notifications, which is clearly in everyone’s interest.

Thirdly, the amendment makes reference to the application of the provisions of the Bill to security partnerships and domestic partners. I am pleased to clarify that this Bill covers only acquisitions of control over qualifying entities and assets, so does not apply specifically to the formation of partnerships. An acquisition of control by a partnership will be in scope of the regime in the same way as any other acquisition of a qualifying entity or asset by a party but, if there is no acquisition of control, this regime would not apply.

Amendment 36, from my noble friend Lord Leigh of Hurley, would require the Secretary State to provide market guidance notes within six months of the Bill passing and every six months thereafter. Such market guidance notes would provide information to assist with compliance with the regime.

I am pleased to confirm to my noble friend and other noble Lords on the Floor of this House that it is indeed the Government’s intention to provide market guidance notes, sometimes known as practice statements or practice notes, and we will draw on the expert panel. The composition of the panel was set out in the letter that noble Lords recently received, and no doubt the composition of the panel can be adjusted over time to make sure the appropriate experts are on it.

These practice statements will be issued periodically and based on an analysis of the notifications received and, of course, feedback on what it would be helpful for them to contain. I believe this guidance will be helpful to advisers in particular. It will refer to and emphasise aspects of the statement where it is clear such emphasis would benefit parties in coming to a judgment about whether to notify. The statement will be published by the Secretary of State on how he expects to exercise his call-in power as provided for by Clause 3. We remain open to considering over time what further information will be helpful to guide parties as part of such market guidance. I have already carefully noted the suggestions noble Lords made today in that respect.

I thank noble Lords for these amendments, and for their discussions with me. The Government have listened and acted as a result of their helpful suggestions, and I have no doubt that the regime will be better understood as a result. I hope I have reassured noble Lords with the commitments I have made in the House today and I therefore ask that they do not press their amendments.

[The Deputy Speaker (Lord Lexden) (Con)]

My Lords, I have received a request to speak after the Minister from the noble Baroness, Lady Neville-Rolfe.

[Baroness Neville-Rolfe (Con)]

I thank the Minister for what he has said, particularly on education. I am also grateful for the letter sent by the noble Lord, Lord Callanan, which I expressed my appreciation for when speaking on Amendment 22.

My question relates to something said at that time: the suggestion that market guidance to buyers and sellers could not cover timelines, timeliness and the modus operandi. There was a reference to the Constitution Committee apparently making that problematic. Clearly, guidance on such issues is very helpful to operators, so I wondered whether it would be possible to have a little more detail—not now, but later—as to why there is a problem in covering that in guidance. If there is a problem, perhaps the Minister would consider whether we need to take a power, which I think the amendment tabled by my noble friend Lord Leigh provides for. This would ensure that we can give operators the sort of guidance they need to make operations work well, as we all hope.

[Lord Grimstone of Boscobel (Con)]

I thank my noble friend for those comments. It certainly seems a bit weird that the Constitution Committee will have a role in this. If I may, I will look into the matter, write to the noble Baroness and put a copy in the Library.

[Lord Lansley (Con)]

I wanted to inquire whether my noble friend might write to me about the question of non-exclusive licensing of technology in the higher education sector, as I mentioned earlier.

[Lord Grimstone of Boscobel (Con)]

Yes, I am very happy to give my noble friend the assurance that I will write to him on that topic.

[Lord Rooker (Lab)]

In the main, the Minister’s reply was a model of its kind. I beg leave to withdraw the amendment.