National Security and Investment Bill

Lord Leigh of Hurley Excerpts

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

[Lord Leigh of Hurley (Con) [V]]

My Lords, I really do have to declare some interests in the context of this Bill. I am the senior partner of Cavendish Corporate Finance, which specialises in advising owners of SMEs on their exit, typically by trade sale or to private equity. I started Cavendish some 30 years ago, and mergers and acquisitions has been my line of work for some 35 years. My business has grown, as nowadays entrepreneurs frequently start a business specifically to grow it and then sell it after a few years, to let another organisation take over with different skill sets as the business outgrows its original founders. In days gone by, family businesses were just that—kept in families for generations. Although I have sold an eighth-generation family business, that is very unusual. Years ago, selling out used to have negative connotations; today, it is seen as mark of success and to be applauded. As a result, SMEs have flourished in the UK, accounting for over 95% of enterprises and some two-thirds of employment.

The UK is seen as a world leader in facilitating new businesses to start up and grow. Much has facilitated this explosion in entrepreneurial flair. Recent Governments have made it easy to start a business, and the combination of relatively low regulation, easy access to finance, and a can-do attitude—unique in Europe—has prevailed. I only hope that the Government do not bring it all to a crashing halt by increasing capital gains tax rates in the Budget next month, but that is not a subject for today.

What is for today is to recognise that FDI here has been a tremendous success. We are consistently second or third in the world, and have long been the first in Europe—and those investors can choose to invest anywhere in the world. When they are asked why, one reason cited is our high standing in the World Bank index of ease of doing business; that includes our flexibility in the labour market, which is second to none. I am looking forward to the maiden speech of the noble Lord, Lord Woodley, who may address that subject.

Another really important aspect, and top of many investors’ lists, has been our rule of law. Investors are hugely attracted to the unique UK legal system, and one of its key features is certainty. We may be about to lose that key plus point.

Many speakers here will, like my noble friend Lady Noakes and me, instinctively want the Government to push for economic growth through market freedom, allowing business to flourish away from government interference. Indeed, I am the chairman for the Lords of the Campaign for Economic Growth. Our president is my noble friend Lord Young of Graffham—a role model for many of us—and we see the dilemma that the Government face, brought into sharp focus by the issues concerning 5G and Huawei.

Economic decisions taken for political reasons rarely lead to good results. As we see in this Bill, the definitions are hard to determine. Few companies are in one sector alone; they are in many. Large numbers of acquisitive, seemingly British companies, particularly those backed by private equity, are in fact technically owned by funds based in Guernsey. Uncertainty in investment leads to only one thing: an increase in the return demanded as compensation, so lowering the price, as a result of the risk factors, and of course lowering subsequent tax revenue.

We can readily observe overseas investors stalling transactions at the moment, just to see where this is going. Why risk investing in a UK company if, when the company becomes so successful that it attracts overseas interest, the process to sell it is hampered, and may even be barred, thus reducing its value? I say “may” even be barred, because it will not be possible to give certainty. Warm words might come from this Government, which have been rightly trusted by business, but this legislation will give less competent and less business-friendly Administrations in the future—they might occur—the power to make life difficult for investors from a particular country that they just do not want to make welcome in the UK.

A former Trade Minister told me this week that he wanted to see 10 Downing Street look at every piece of new legislation through the prism of an SME. Is it helpful or is it unhelpful? This Bill is not helpful—or at least, aspects of it are not helpful. So I hope that BEIS, under its new excellent Secretary of State, will table some of the amendments that were discussed in the Commons, and were suggested by organisations such as the corporate finance faculty of the Institute of Chartered Accountants, of which I had at one point the honour to chair.

The proposed investment security unit may well be swamped: there are some 10,000 M&A deals every year. I cannot see how anyone could have made the estimate of up to 1,830 referrals a year—what an odd number. In any event, how can people possibly know? We need to look at really good precedent models like the Takeover Panel, whose appeals committee I served on, which gives guidance, help and advice to ensure an efficient market. Its practice notes could be emulated, and we must have a fast-track pre-clearing system, together with a big hike in the thresholds and the creation of sensible white-list exemptions to avoid a massive crunch in transactions.

We need much greater clarity on what is national security, and fast problem-resolving mechanisms, with a recognition that some industries, such as cybertech, will have real dual-use issues, whereby a small proportion of their business might be caught, thereby prejudicing their chance of attracting investment, as the exit will be hampered.

The UK has a proud reputation as an excellent place to invest and do business. The phenomenal growth of fintech in the UK did not happen by chance. Look at the people running these businesses, and look at where the money has come from. They have chosen the UK as they believe in the UK as a country with a mindset for standing back and letting business get on with generating wealth for our citizens. Let us not disappoint them.