National Security and Investment Bill

Lord McNicol of West Kilbride Excerpts

Committee stage
Tuesday 16th March 2021 Lords Chamber

I hope that noble Lords will see this clause as necessary and appropriate and have confidence that the Government and future Governments have limited but sufficient freedom to provide financial support under the regime as a result of it. I ask my noble friend to withdraw his amendment.

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

I have received two requests so far to speak after the Minister—from the noble Lords, Lord Fox and Lord Clement-Jones.

[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?

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[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.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I thank all those who have spoken in the debate, as we struggle—that is the only word—to find the balance between national security and investor rights, and do so against a background of what is practical and realistic in the marketplace. I thank my noble friend the Minister for his extensive reply and tell him that I did not have a happy ending: we got taken over after four months, but never mind.

He has made a valiant effort. The noble Lord, Lord Clement-Jones, used the rugby match “stop the clock” analogy; I will use a cricketing analogy. I think the Minister’s officials have written him a speech that is a series of forward defensive prods, and it is rather like watching Geoffrey Boycott nought not out at lunch—but he has made a hugely valiant effort along the way.

On Amendment 48A, he says that we are completely aligned because the regulations provide for a streamlined procedure. Of course they do, but it will never happen because, unless something is written there, people will say, “Why go there, Minister? Why not just have the same old procedure we have always had?”

On Amendments 67B and 67C, I am not quite sure what appropriate incentives the Secretary of State had in mind to work the system appropriately. To be candid, it is unrealistic to say that judicial review is a possibility when you are working to the timetable these sorts of things will have to work to: it is not in touch with the reality of the marketplace.

On Clause 31, other noble Lords have made the relevant points. My noble friend the Minister made a determined effort to explain, but the loopholes and opportunities for difficulties with this are great. His example was that, if a firm’s takeover were to be blocked, help might have to be given until another buyer could be found. He knows better than any of us that, once a firm is known to be in trouble, any other offers will be very low indeed; the differential between someone selling on the uptick and when they know that the firm is a wounded bird will be very great indeed.

There is a big question to be answered about that, which he is much more familiar with than I am, of trying to meld together the realities of the marketplace with the needs of national security. We have not yet got the balance right. We have been advised by a number of leading law firms, and a number of Members of the Committee have practical experience. I cannot believe that we are wrong in everything that we are saying and that all the law firms are wrong. I cannot believe that some of the things that have been put forward are not worthy of much closer and further assessment. We are now in the territory of, “Are they fit for purpose?” “Oh yes, they are”, “Oh no they’re not”. I want the opportunity to go away, talk to the people who advised us, see what the Minister and his officials say, and then decide whether we should come back to these and other amendments at the next stage of the Bill.

In the meantime, I thank the Minister for the long speech that he made, and all other noble Lords who have spoken, and I beg leave to withdraw the amendment.

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[Lord Callanan (Con)]

I thank all noble Lords who have taken part in this brief debate, particularly my noble friends Lady Noakes and Lord Lansley for their contributions. I will start with Amendments 49, 62 and 64, which for the convenience of the Committee I will take together.

As 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. He must then inform relevant parties of his decision as soon as is practicable. Amendment 49 would require the Secretary of State to decide whether to accept or reject a mandatory notice within five working days, as opposed to the current drafting. Amendment 62 would have the same effect, but for voluntary notices. Amendment 64 would require the Secretary of State to notify each relevant person whether a voluntary notice has been accepted within five working days of it being accepted, as opposed to the current drafting of doing so as soon as practicable.

As I am sure noble Lords would agree, mandatory and voluntary notifications should include the necessary information to enable the Secretary of State to determine whether to call in an acquisition for further scrutiny. Once a notification is accepted, the Secretary of State will be required to issue any call-in notice within 30 working days or else clear the acquisition to proceed. It is therefore important that the Secretary of State is able to reject a notification if it does not meet the requirements specified in the legislation. Of course, it is important that all decisions made under this regime by the Secretary of State are made promptly.

I therefore assure the Committee that the Secretary of State will make great efforts to ensure that decisions to accept or reject notifications are made quickly and that parties are notified in a timely way. In fact, one of my officials was keen to point out that the record so far for responding to informal guidance is 19 minutes. Civil servants will of course have different ways of going about it and will pursue different speedy methods, so I am sure that will not always be the case. Nevertheless, we will endeavour to reach these decisions to provide help and guidance to businesses and companies as speedily as possible.

As noble Lords will be aware, the Government intend to lay regulations setting out the form and content of the types of notification soon after Royal Assent. The draft notification form was published alongside the introduction of the Bill to help interested parties understand what information is likely to be required. Parties will therefore have clarity, and certainty about the information that they should provide when notifying the Secretary of State. We therefore expect notifications to be generally of high quality and, where this is the case, the Secretary of State expects to be able to decide quickly and then inform parties of decisions to accept their notices, in many cases, clearly, more quickly than the five working-day limit proposed.

However, it is important that there is scope for flexibility in the relatively rare circumstances where more time may be needed. For example, a hostile actor could intentionally provide very large amounts of unnecessary information that would take many days to read through to establish that important information was missing or incorrect. Or there might be multiple parties involved in a particularly complex acquisition that had all submitted notifications. In the event that the notifications do not match up, more detailed verification may be needed. I would argue that it is better for the Secretary of State to take the time to ensure that he has the information that he needs at the start of the process rather than risk finding gaps in information later on.

I turn to Amendments 51, 54 and 66. I know that my noble friend Lord Lansley did not speak to Amendment 51, but it is in this grouping, so, if he will forgive me, I will address the issue at this point. Clause 14 provides for the mandatory notification procedure, including subsection (6), which sets out the grounds on which the Secretary of State may reject a mandatory notice, and subsection (9), which explains when the 30-working day “clock” for reviewing a mandatory notice begins. These amendments go to the heart of both matters, so let me address each of them briefly.

Amendment 51, to which my noble friend referred although he did not speak to it, would remove the third ground for the Secretary of State to reject a mandatory notice, which is where

“it does not contain sufficient information to allow the Secretary of State to decide whether to give a call-in notice in relation to the proposed notifiable acquisition”.

I imagine that noble Lords may well consider that the first two grounds—which enable the Secretary of State to reject a mandatory notice where it does not meet the requirements of this clause or as prescribed in regulations—will cover most bases. However, we must also ensure that an acquirer cannot meet the technical requirements of providing a notice by doing so in a limited way or with incomplete information. Noble Lords will appreciate that if, for instance—in a purely hypothetical example, I was required to fill in the name of my chief executive on a mandatory notice, the ISU would have a pretty good chance of working out who “Boris” was, but in the case of the chief executive of a small start-up company that might have been operating for only a few months, a mandatory notice that had the same information would provide little to go on. I understand that it is an outlandish example, but it illustrates why we must not prevent the Secretary of State rejecting notices from those who plainly look to game the system.

Amendment 54 would adjust the timing for the beginning of the 30-working day review period from, as now, the date on which the Secretary of State confirms acceptance of a mandatory notice to the date on which he received the notice. Amendment 66 would make the equivalent changes in respect of voluntary notices. I can assure my noble friend Lord Lansley and other noble Lords that in the vast majority of circumstances we expect to confirm acceptance quickly and to begin the clock on the review period. However, the process of initially determining whether a valid and complete notice has been submitted is separate from fuller screening of the acquisition itself. Some acquisitions are likely to be complicated and a significant amount of information may be provided as part of the mandatory notice. In these instances, it is conceivable that the investment security unit may need a short time to ascertain that the relevant information has been provided. None the less, the screening will not yet have begun and, accordingly, it is right that the clock does not do so either.

Amendments 53 and 65 would reduce the time available to the Secretary of State to screen mandatory and voluntary notifications from a maximum of 30 working days to 20. I mention “maximum” again because that is exactly what these deadlines represent. In many cases, we expect the Secretary of State to be able to review and clear notifications much more quickly. The question, therefore, is what is appropriate in more complex cases and whether the ISU may need to gather input and expertise from across Whitehall on those acquisitions. The total figure of 30 working days is not arbitrarily chosen by the Government. I apologise to my noble friend Lady Noakes for saying yet again that it reflects detailed work undertaken across Whitehall to test past cases and mock scenarios against the new regime—I repeat that because it is our position. Some acquisitions may involve complicated ownership structures; the technology and activities of the target entity may not be immediately clear, and the format of the acquisition itself may be unconventional. It is vital the Secretary of State has the necessary time to examine an acquisition and to make an informed decision.

I again commend my noble friend’s efforts to make the new regime even more nimble and fleet of foot, but I hope she will understand—even if she does not agree with me—why I am unable to accept these and other amendments that I have addressed in this group. Therefore, I hope that both my noble friends will choose not to press their amendments.

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

My Lords, I have received no request to speak after the Minister, so I call the noble Baroness, Lady Noakes.

[Baroness Noakes (Con)]

My Lords, I thank all noble Lords who have spoken in this debate. Important issues have been raised. I particularly like the idea behind my noble friend Lord Lansley’s Amendments 54 and 66, which would create one period in the initial phase rather than two or more. Taken overall, the various time periods throughout the Bill, including “as soon as reasonably practicable”, “30 working days”, an additional “45 working days” as well as the ability to stop the clock here and there, represent an extraordinary period of uncertainty to which a business transaction could be exposed. At the end of the day, the transaction might not even raise what are adjudged to be national security issues and many of those who go through the process are likely to end up being cleared. I liked the analogy drawn by the noble Baroness, Lady Bowles of Berkhamsted, with China, and this seeming a bit like “when the Party decides”: it is when BEIS decides that a transaction can be dealt with and cleared.

Thirty working days is a long period of time. We talked about it as six weeks. Six weeks is actually 42 working days. If you are in the private sector and doing an acquisition, your processes do not respect weekends. You would expect to be working right the way through, and I am not sure that we should expect any less from those in the Civil Service handling the processes. The new unit being set up may need to be completely re-engineered from the normal Civil Service way of doing things, which is clearly driving the assessment of the time limits involved. My noble friend the Minister again gave me the mock scenarios and detailed analysis by civil servants of the time they would like to take handling these things, but he did not answer my specific question as to whether that had been independently challenged, potentially by using red teaming, and whether the processes had been rethought from the perspective of how we give certainty to the business community, which needs to progress investment decisions.

My noble friend the Minister gave us the example of 19 minutes for informal guidance. That is a complete red herring, because it is informal guidance and not a decision made under any of the provisions of the Bill. Nobody will expect 19 minutes to be the answer for any of the mandatory procedures or voluntary notification procedures taken under this Bill.

I said that my amendments were probing, and I do not intend to take them forward today, but we need to step back and reflect on the cumulative impact of the time periods set out in the Bill on the way in which the UK is perceived as a good place to do business and to invest. If we lose that, we will lose the potential for continuing economic growth. Our economic growth has been boosted considerably by the inward investment that we have been able to attract. If we become a bad place to do business, this country will be hurt in many ways that are worse than might be feared in respect of national security implications. We will need to return to this in one way or another on Report, but, for now, I beg leave to withdraw the amendment.