National Security and Investment Bill

Lord Lexden Excerpts

Committee stage
Tuesday 16th March 2021 Lords Chamber

Amendments 78 and 79 not moved.

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

At last, we move to the group beginning with Amendment 80.

Amendment 80

Moved by

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[Lord Lansley (Con)]

Noble Lords will be pleased to know that this is the last time they will hear from me in this Committee. My amendment is terribly simple. In so far as the annual report lists the number of final orders made, Clause 27 provides the power for the Secretary of State to vary orders or revoke them. One of the things that one might want an annual report to do is to enable one to understand the stock of orders as well as their flow. Therefore, I have suggested in Amendment 81 that the number of orders varied or revoked should be added to the list of subjects in the annual report.

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

I call the guns of the noble Lord, Lord West of Spithead.

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[Baroness Smith of Newnham (LD) [V]]

My Lords, this is my one foray into the National Security and Investment Bill, and I am speaking to Amendment 91, in the names of the noble Lords, Lord West of Spithead and Lord Alton of Liverpool, and myself.

As the noble Lord, Lord West, pointed out, this is in many ways a probing amendment, but it is very important. The relevance is clear: the HCDC report talks about the presence of Chinese business already in the defence supply chain. It goes slightly wider than that; anyone who has been in the armed services or happens to be in the Armed Forces Parliamentary Scheme might have looked at the labels of the uniforms—the camouflage—and noticed that they were made in China. I have always thought it slightly strange that NATO-issued uniforms should be made in China, but that seems to be the case. That does not necessarily endanger our national security, but it does raise some very odd questions about what we are actually doing and why we are purchasing kit from China. The HCDC notes that seven companies in the defence supply chain have been acquired by Chinese companies; that at least needs to be looked into.

This is a very modest amendment, which asks for a report. It does not go quite as far as the HCDC recommendation, because it does not say that other countries should be barred from investing in the supply chain, but will the Minister consider what signals the current approach to allowing investment in the defence supply chain sends, particularly on the day that the integrated review has been published?

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

The next speaker on the list, the noble Baroness, Lady McIntosh of Pickering, has withdrawn from the debate, so I call the noble Lord, Lord Fox.

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[Lord Callanan (Con)]

I thank those who have taken part in this short debate, in particular my noble friend Lord Lansley and the noble Lords, Lord Grantchester and Lord West, for their considered and thoughtful comments on the amendments. Amendments 80 and 81 seek to add a number of additional areas of information to the annual report, namely around time taken processing cases, the resources of the investment security unit, the extent to which acquisitions involving SMEs are being called in, and the number of final orders being varied or revoked. The aims of these amendments are commendable, and the Government are a strong supporter of SMEs and government transparency.

The first part of Amendment 80, tabled by the noble Lord, Lord Grantchester, seeks the inclusion of the average number of days taken to assess a trigger event which has been called in. Noble Lords will recall that Clause 23 provides statutory time periods for assessment under the regime. The Secretary of State must assess any trigger event that has been called in within a period of 30 working days, as we have discussed in earlier debates, or, if additional time is required, within the additional period of a further 45 working days, or within any further voluntary extension or extensions agreed with the acquirer.

As there are these time limits, and they are as short as we are able to make them while also ensuring there is time for appropriate national security assessment, it does not seem that there would be any additional benefits from including average times in the annual report. Clause 61 sets out the minimum reporting requirements that the Secretary of State must meet in the annual report. The information provided in the annual report will provide Parliament with good insight into how the regime is functioning in practice.

Furthermore, the amendment seeks to add additional reporting on the minimum, average and maximum turnaround times for notifications in the annual report. The Government have laid out clear statutory timelines for responding to voluntary and mandatory notifications in Clause 23, providing investors and businesses with the certainty that they need. However, I would be happy to discuss this proposal further with the noble Lord, Lord Grantchester. The time taken to assess trigger events that are called in will vary on a case-by-case basis; therefore, it would not be helpful to share the average time.

Secondly, on the time taken for deciding whether to accept mandatory and voluntary notices, the Bill requires that the Secretary of State must do so

“as soon as reasonably practicable”,

as we discussed, after receiving a notice. In practice, this is likely to be a matter of days, but it is important to retain flexibility so that an accurate assessment of the completeness of the information is undertaken. Additionally, if the Secretary of State decides to reject a notice, he must as soon as practicable provide reasons in writing for that decision to the notifier. Where the decision is to accept a notice, the Secretary of State must as soon as practicable inform the parties of the decision.

Thirdly, where the noble Lord seeks inclusion of the average headcount of the investment security unit in the annual report, I can only repeat what my colleague Minister Zahawi said in the other place: resourcing would, of course, be

“an internal matter for the BEIS permanent secretary.”—[Official Report, Commons, National Security and Investment Bill Committee, 10/12/20; col. 334.]

I am unsure whether very high numbers would demonstrate appropriate resourcing, or insufficient efficiency. In any case, we have committed to ensuring that the investment security unit is appropriately resourced. I am sure that the Permanent Secretary will make sure that that is the case.

Furthermore, on SMEs, the report is intended to give a sense of the sectors of the economy where the greatest activity of national security concern is occurring. The Secretary of State may include additional information relating to SMEs if he considers that appropriate.

Turning to Amendment 81, tabled by my noble friend Lord Lansley—I am sorry that this is the last occasion we will hear from him—I am pleased to confirm that Clause 29 already places a duty on the Secretary of State to publish notice of the fact that a final order has been made, varied or revoked. This intentionally complements the annual report in Clause 61. We must not encumber the investment security unit with ever greater reporting as this will draw focus away from scrutinising acquisitions and responding to businesses as soon as possible. Individually, these amendments of greater reporting may seem reasonable, but combined they can be quite burdensome for the unit.

On Amendment 91, in the name of the noble Lord, Lord West of Spithead, I am grateful that this came with only his secondary armament—although I noticed that he had the noble Baroness, Lady Smith, for additional offensive capability. The amendment relates to the provision of guidance for the defence sector. It would require the Secretary of State to publish guidance for businesses in the defence supply chain about the provisions in the Bill, including a list of countries which the Secretary of State considers less likely to give rise to a risk to national security and from which investment is encouraged.

The noble Lord’s amendment highlights the importance of the defence sector and its supply chains, which is part of the reason why the defence sector is intended to form part of the Bill’s “mandatory notification regime”. A robust defence sector is vital to our national security and essential for the development of innovative and first-class military capabilities that enable us to protect our people, territories, values and interests at home and overseas. The defence sector, including businesses in its supply chains, such as those providing emerging technologies, must remain resilient to a wide range of national security risks, including those posed by hostile actors.

We are keen to ensure that the mandatory notification regime works proportionately and provides sufficiently clear parameters to inform businesses and investors of the need to notify and obtain prior approval. That is why we have consulted on the definitions of sectors covered by mandatory notification in the recent public consultation. This approach has enabled experts from the defence sector and its supply chains, along with the legal profession, businesses and investors, to help us refine the final definitions to ensure that the regime is appropriately targeted and provides legal certainty.

The noble Lord’s amendment also seeks to require the publication of a list of countries which the Secretary of State considers less likely to give rise to national security risks, and those from which investment is encouraged. As it stands, as I have said before on other amendments, both the mandatory and voluntary notification regimes provided for by the Bill are actor- and nationality-agnostic.

The mandatory notification regime is set based on the risks posed by acquisitions of target entities due to those entities’ activities rather than risks posed by the acquirers. The risks posed by an acquirer are then considered on a case-by-case basis by the Secretary of State as part of the particular national security assessment. It would not be appropriate to set out through guidance a variation to the legislation; that would confuse more than it would clarify, and it might give rise to legal challenge.

On whether guidance can be provided more generally for the defence sector on the provisions in the Bill, we must also guard against legislating through guidance. The Government will of course consider what appropriate explanatory material should accompany the regulations to define the sectors subject to mandatory notification, including the defence sector.

I thank all noble Lords and my noble friend for their amendments. For the reasons mentioned, I am afraid I cannot accept them. Therefore, I hope the noble Lord will feel able to withdraw his amendment.

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

I have received no requests to speak after the Minister, so I invite the noble Lord, Lord Grantchester, to conclude the debate on his amendment.

[Lord Grantchester (Lab)]

I thank those who have taken part in this short debate on the annual report, especially the Minister for the tone of his reply. It has been very helpful. The dashboard of information to be provided in an annual report must be extensive enough to provide clarity on the operation of the unit and how it has performed. I have always considered annual reports an excellent opportunity to promote an organisation’s credentials and it is surprising to hear that the Minister would not wish to show how the unit has performed effectively against statutory targets. I thank him for expressing the wish to discuss this further and I look forward to doing that with him.

Defence in the supply chain is a particular vulnerability and, on my noble friend’s guidance, the need can be found in the government response to the sector consultation. The defence chapter states:

“Some respondents stated the definition could capture contractors or subcontractors who are providing goods or services unrelated to defence”.


This returns the Committee to its considerations regarding clear definitions of national security and how these may be provided. They are certainly important issues to consider further in the light of the Minister’s reply. I beg leave to withdraw the amendment at this stage.

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

The noble Baroness, Lady McIntosh of Pickering, whose name is next on the list, has withdrawn from the debate on this amendment. I call the noble Lord, Lord Bilimoria.

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To conclude this grouping, for all the reasons I have set out I am unable to accept these amendments and hope that noble Lords will feel able to withdraw them.

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

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

[Lord Clement-Jones (LD)]

My Lords, I should thank the Minister for his response; I am not sure I really want to. I found it rather extraordinary, particularly to Amendment 89. We have a Bill on foot with a purpose in mind but, when it comes to reviewing it, we are told that it is far too sensitive and we cannot possibly review whether it has met its objectives. We can keep it under review—within the department in some shape or form, I assume—but we cannot possibly undertake a periodic review of any kind. Even a normal post-legislative review process would expect to see whether an Act of Parliament was meeting its objectives. The Minister cannot even say whether that will take place at any stage.

This really adds to one’s concerns about this Bill in so many ways. It is a rather furtive creature that, if we are not careful, will be hiding in the dark for quite a long time and will not get reviewed. There is no way of seeing whether it is achieving its purpose other than the kind of review the Minister was talking about, which is purely internal to government and part of the government department’s overview. This is not particularly reassuring.

On Amendment 92, the Minister talked about just making statements about the call-in power or having the annual report. I said a set of market guidance notes would do; I did not adumbrate about six points that a set of market guidance notes could set out. They are far more extensive and market friendly than anything that is going to be caught by the call-in power statement or the annual report. We are talking about real guidance to business so that it knows what to expect and the parameters within which the Secretary of State is operating—particularly when it comes to guidance about the kinds of sector that will be caught and the current issues that the Secretary of State believes would give rise to a call-in notice and other aspects dealt with by the ISU. The idea that five years is a reasonable time to adjust a call-in power statement is laughable in the commercial world. The Takeover Panel updates its notes on a regular basis, and that is exactly what the ISU should do with market guidance.