National Security and Investment Bill

Lord Reid of Cardowan Excerpts

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

[Lord Reid of Cardowan (Lab) [V]]

My Lords, I thank the Minister for his introduction and remind the House of my interests, as registered. Thus far, the Bill has enjoyed qualified support from all sides of both Houses during its passage through Parliament. However, I confess some concerns about its scope. For instance, I share the concern expressed by the noble Baroness, Lady Noakes, that essential elements of our critical national infrastructure appear to be inexplicably missing from the coverage of the Bill.

However, today I want to focus on one general point that I believe may prove potentially dangerous for our economic well-being and, ultimately, our national security. I refer to the Secretary of State’s assertion that the Bill strikes the right balance between encouraging inward investment and protecting national security. That remains an assertion since, inevitably, at present it remains untested and unproven. It can and will be affirmed only by successful implementation.

Colleagues from all Benches have offered several amendments intended to ensure a successful outcome of that balance: all thus far have been defeated. I say to the Government that in due course they may find that their victories on this are proved pyrrhic, so I hope that they will be more open-minded to some of these constructive amendments in the course of our following debates. There are some areas where we can agree. We can surely agree that in a networked world it has become clear that a qualifying entity or asset of concern can no longer be defined just by the size of the venture, its market share or its direct involvement in the defence sector. It is right also that the threshold for concern, the “trigger event”, is changed and that consideration extends for a five-year window.

Yet the threshold for change is no easy matter. Colleagues on all Benches are right to raise questions about basic definitions—not least for “national security” —which made filling the scrutiny gap helpful rather than a hindrance to the intended legislative outcomes. We should proceed with care. Now is not the time for the United Kingdom to hamper productivity gains.

Vaccine nationalism has given us a taste of how counterproductive any isolationism can be. Likewise, many of our most severe national security challenges are global. If “build back better” and “levelling up” are to support a “global Britain”—all slogans at the forefront of the Government’s mind—then imposing disproportionate and unaffordable costs on the wellsprings of productivity will be most unwise. Large organisations may absorb these transaction costs, but networks of small and medium-sized enterprises, not to mention start-ups trying to scale up and, above all, the universities from which these arise, will struggle to absorb such transaction costs.

It is not so much the land or tangible assets that are the problem. It is that amorphous third category of qualifying asset—ideas. Those will be the hard cases. If we are wise, we should track the implications of the Bill back to our universities. The evidence over decades is clear. It is not financiers, nor the entrepreneurial state per se that catalyses innovation-driven productivity —it is our universities. You have only to look at the genealogy of our biggest unicorns to see how much they owe to universities, both directly and with ideas created from research, and in enabling start-ups to scale up with highly educated workers. Ultimately, our security rests on a productive economy. Everything flows from that, and that has to be innovation driven.

The Government’s consultation listed 17 sectors, 15 of which covered almost all growth areas in which SMEs, start-ups and universities catalyse the uptake of innovation. Asking them to master the tracking of dual-use, beneficial ownership or agents of influence seeking to take control is a tall order indeed. If our future productivity is not to experience a severe chill, the sector-specific guidance offered by BEIS’s new investment security unit will have to come with much support from competent staff and adequate resourcing to support SMEs and other organisations or networks unable to fully or adequately provide them themselves. It would be wise too, as several noble Lords have mentioned, for the unit to be properly scrutinised.

If these things are not done, the potential for harm may be hard to overestimate, making a nonsense of the assertion that a proper balance between national security and productivity has been struck. In short, we cannot ignore the evolving security risks and the Government are right to address them in this Bill, but we need to be able to handle them in a pragmatic and proportionate way. Otherwise, in the long run, that would be a real threat to our national security.