National Security and Investment Bill

Lord Vaizey of Didcot Excerpts

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

[Lord Vaizey of Didcot (Con)]

My Lords, it a great pleasure to follow that tour de force from the noble Lord, Lord Harris. I pay tribute to the noble Lord, Lord Woodley, on his excellent maiden speech—I know from having served with him in the other place that he will be a formidable addition to your Lordships’ House. I also pay tribute to my noble friend Lord Callanan for all his incredible hard work over many years on so many different trade Bills and trade issues.

I think all of us in this House welcome the National Security and Investment Bill. I recall when I was a Minister looking at the potential implications of the takeover of some of our leading companies by companies from states which were perhaps not aligned with our interests and considering how on earth we would deal with that situation. Of course, I was the Minister who looked after, as it were, Huawei when it was still part of our infrastructure system, so national security is an issue that I have taken a great interest in.

It is quite right to echo what the noble Lord, Lord Harris, was saying. We find ourselves in the 2020s in a very different situation from the one we were in perhaps 30 or 40 years ago, in that state actors are now able to use corporate entities to prosecute their foreign policy. It is quite right that we are effectively looking at updating the Enterprise Act and creating a framework for national security.

Clearly the balance has to be struck between ensuring that hostile actors do not intervene with some of our greatest companies while not putting off much-needed inward investment. I refer to my entries in the register of Members’ interests before I continue with my arguments. It is quite clear from the many excellent speeches during this debate that the Government are now well aware of where the most vigorous analysis of the Bill will take place.

Many noble Lords have made the point that the Bill is drafted in a relatively relaxed fashion at the moment. One can see the combination of civil servants wanting to give Government Ministers the maximum flexibility to react to situations which they perhaps cannot anticipate colliding with very highly paid lawyers who will not want to be sued by their clients and so will give them robust advice to report each and every transaction to the new unit.

Therefore, I think that the bizarrely accurate figure cited by the Government of 1,830 referrals is a woeful underestimate of what is likely to happen when the Bill becomes law. I agree with noble Lords who have said that we are looking at something like 10,000 notifications a year, at least in the first instance. I also share the concerns of those who see normal day-to-day activity, such as research and development partnerships, being caught by this legislation, although I acknowledge, again to echo what the noble Lord, Lord Harris, was saying, that the role of universities in our national security is a crucial one that requires some scrutiny. I also share the concerns that the routine purchase of assets, such as software licences, could also inadvertently fall within the scope of the Bill. The general point has also been made that there is not yet a clear definition of national security in the context of the Bill.

I want to use my time in the Second Reading debate to highlight three issues that I hope to be able to concentrate on in Committee. The first is the proposed sanction of automatic voidness for transactions that are completed in breach of the mandatory filing requirement. It is my contention that significant sanctions should certainly apply in these circumstances, but I understand that there is considerable concern among investors about the practical difficulties that arise if the proposed approach is adopted.

I understand that the Government’s position is that the French have a similar system but I understand, certainly in my discussions with experts in this field, that the French system is much more flexible. It seems perfectly sensible to echo what happens, for example, in Australia and the US, so that we have a flexible system of sanctions even when somebody has not complied with a mandatory reporting requirement, so that we will get to a point where the Bill will, I hope, incorporate a voidable power instead of a mandatory voiding.

The other issue is the proposed extraterritorial application of the Government’s call-in power to non-UK companies. Again, this power is out of sync with similar regimes in France, Spain, Germany, Canada and Japan, all of which restrict their transactions to involve targets registered in their jurisdiction. Finally, there is significant concern that the Bill will have a deterrent effect on investment in the UK tech sector, with many of the 17 sectors specified in the Bill being very widely drawn.

I hope that in the short time allotted to me I have highlighted three important areas, which have been highlighted elsewhere. I will not yet get on to the need for parliamentary scrutiny by the Intelligence and Security Committee, which will, I am sure, come up in Committee.

National Security and Investment Bill

Lord Vaizey of Didcot Excerpts

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

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

I will try the noble Lord, Lord Vaizey again. Lord Vaizey of Didcot?

[Lord Vaizey of Didcot (Con) [V]]

Yes, I am definitely here. I am sorry that I did not realise that I had to unmute myself, but I will not detain the Committee with my farcical debut in tabling amendments to a Bill. I will simply say how pleased I am to be in this group of amendments with the noble Lord, Lord Leigh, and how much I enjoyed his introduction to his amendment seeking to delete the word “contemplation”, which I have been delighted to support.

As my noble friend made clear, we are all here to serve a common purpose, which is to tease out of the Minister his thinking on the wording of the Bill. The Minister may well come back with a slam-dunk justification for “contemplation”. One of the advantages of the delayed entry of my contribution is the arguments put forward by other Members of the Committee about that amendment. It seems that it boils down to whether the Minister thinks that “contemplation” has a religious, business or technical meaning. If it has a technical meaning, it seems perhaps important that that is teased out in these proceedings to help people in the future.

As far as my own technical amendment is concerned—and I was delighted as well that my technical ineptitude meant that it was much more ably introduced by the noble Lord, Lord Clement-Jones—it seeks to echo some of the points that I made at Second Reading. Most of us who have taken an interest in the Bill and have discussed it with numerous trade bodies and City lawyers are aware that the Government’s estimate of the number of notifications under the Bill as drafted is somewhat low. We can expect thousands of precautionary voluntary notifications to come about, at least in the first instance.

More importantly—and what the amendment in my name and that of the noble Lord, Lord Clement-Jones, seeks to deal with—is that the Bill will start to have a potentially deleterious effect on foreign direct investment. As the noble Lord, Lord Leigh, pointed out, we are second in the world in terms of foreign direct investment. We often proudly say that we have more of it than Germany and France combined, at least as far as Europe is concerned. Over time, more and more companies looking at potential investments and acquisitions may well start to shy away from the UK if they feel that they have to undergo certain additional hurdles.

No one of course is saying that we should not have a national security framework to protect our vital industries. But just as the Secretary of State under this clause is required in a very good way to give guidance on how he or she is exercising the call-in powers, it is important that a very real contemplation of the potential deterrent effect that the new regime may bring about is front of mind alongside the sectors and technical thinking lying behind acquisitions that might be called in. If this amendment were accepted down the line, it would ensure that future Secretaries of State kept this front of mind.

[Lord Fox (LD)]

My Lords, I am second to no one in my admiration for the noble Lord, Lord Callanan, but I am quite glad that we have the other Minister in the hot seat for this one, the noble Lord, Lord Grimstone. I suspect that in his previous lives he has seen more of the rough and tumble than possibly the noble Lord, Lord Leigh, and the rest of us put together, so will appreciate the nature of the debate introduced by the noble Lord.

For my part, I have usually been on the home team, the one paying advisers such as the noble Lord, Lord Leigh, huge sums of money to do deals or sell businesses. He hinted at the mischief that could be made around this, and I am sure that the Minister will understand the nature of that mischief: it is pretty ruthless and pretty hard. This gives another tool to those who would wish to cause that mischief, and it is not in the interests of the Government or the wheels of commerce for that mischief to occur.

The noble Baroness, Lady Noakes, made a really important point. It is also in the interests of the Government to sift what comes across the Government’s desk; it does not behove the department to have tens of thousands of deals flowing across its desk. The Bill is designed to pick out the big problems and issues; it is not designed to deal with sacks of chaff that will come over as well as the wheat. It is important that the objectives of these amendments are taken on board by the Government. I am sure that there are many ways of doing that, and we look forward to the Minister contemplating how “contemplation” will be defined. What is the threshold? Is it the one suggested by the noble Lords, Lord Lansley and Lord Bilimoria—is it publishing? And even then, is it in the sense that the takeover panel would require a board to respond, or is it responding to a rumour? Then we are back into mischief territory again. Some sense of that, and of how the CMA has been able to negotiate this, would be helpful.

My noble friend Lord Clement-Jones, in his amendment with the noble Lord, Lord Vaizey, is right that we need some sense of guidance and help as to how this is going to work. I go back to the point that I made at the beginning. How will this thing operate? How will the unit work? The nature of some sort of pre-emptive process seems to take on board more than a unit could normally handle. The advice that the Government have been given by your Lordships is good advice, and I look forward to the Minister’s response.

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Moved by

[Lord Vaizey of Didcot]

5: Clause 1, page 1, line 18, leave out “void” and insert “voidable”
Member’s explanatory statement
This amendment, with others in the name of Lord Vaizey that substitute “voidable” for “void”, is intended to ensure that transactions are not automatically void. Instead, the Government would have power to declare a transaction (or parts of it) void if it gave rise to national security concerns.

[Lord Vaizey of Didcot (Con) [V]]

Second time lucky. I am not aware that an amendment like this was tabled in the other place when the Bill was being considered. However, Amendment 5 and the subsequent amendments are fairly clear, in that they substitute the word “voidable” for “void”. The amendments are designed to ensure that transactions are not automatically voided if a company fails to comply with mandatory notification procedures. I hope to set out in my opening remarks why that should be the case.

As far as I am aware, the Government have tried to make it clear that they could retrospectively accept a notification, and therefore in effect ensure that a transaction was not voided, so this amendment seeks to realise what I think is the Government’s ambition. Amending the sanctions in this way would therefore be consistent with their position and would show that the power to unwind a transaction to make it void would be a last resort used only in the most exceptional of cases. I accept, of course, that it is important to have significant sanctions in place where a transaction subject to the mandatory notification obligation is completed without first obtaining approval from the Secretary of State, but such sanctions need to be workable in practice—they need to be credible. Treating such an error as to make a transaction automatically void—as currently envisaged in Clause 13—would in reality give rise to a host of practical difficulties that would make it unworkable in practice.

I also venture to suggest that the approach is inconsistent with other established regimes in other jurisdictions, such as Australia, the US and Canada, where a problematic transaction is not automatically void but the authorities are able to step in and issue unwinding orders for parts or all of a specific transaction. It would be far preferable to provide for a similar “voidable” power, giving the Government the power to declare such a transaction—or parts of it—void if it gave rise to national security concerns but not automatically making that the case. This would mean that the Government could consider the circumstances of each transaction and provide workable steps to take to unwind the transaction where that is considered necessary because of national security concerns.

Declaring a transaction void is effectively to treat it as if it never happened. However, the acquisition which has given rise to the exercise of the voiding may be part of a much wider transaction. For example, as part of the acquisition, the acquirer will have paid consideration to the sellers as well. Following the acquisition, the acquirer may have invested in the business, and third parties may have contracted in good faith with the acquirer in relation to the business. Declaring a transaction automatically void due to breach of the standstill obligation could result in a situation where several parties—many of whom may have had no culpability at all for the failure to notify—are left in limbo and may also suffer financial losses as a result. I submit again that the proposed approach seems unworkable in practice, which is implied in the Government’s own approach but not in the Bill.

Will the Minister also consider a situation where the parties to a transaction have selected a law other than English law as the governing law of the agreement? Is it possible that a foreign court would continue to treat a non-notified transaction as valid? Would that not lead to extraordinary uncertainty? While these provisions will have full force and effect in relation to acquisitions governed by English law, I do not see how they can apply if the transaction is governed by US or other law. I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, this is the first time that I have spoken in this Committee, so I draw attention to my entry in the register of your Lordships’ House. I wish to speak to Amendments 41 and 44 in this group, which I have tabled with the support of the noble Lord, Lord Clement-Jones, for which I am extremely grateful. I am also grateful to the Law Society for its assistance.

The two amendments build on remarks made by my noble friend Lord Vaizey in moving Amendment 5. Amendments 41 and 44 are to Clause 13, which is entitled “Approval of notifiable acquisition”. I am afraid I have to argue that that title is, at best, ingenuous because, under the wording of the clause as presently drafted, there is no requirement for the Secretary of State to register his disapproval; instead, his silence is all that is needed. I argue that, from the point of view of providing certainty for investors, bankers and—last, but by no means least—companies, their management and employees, this is not good enough. Furthermore, this silence inhibits a proper degree of parliamentary scrutiny, making it more likely that cases can be slipped through under the radar. It will also prevent Parliament having the opportunity of examining how practice may be shifting as regards preserving the delicate balance that this Bill seeks to create and maintain between protecting national security and providing maximum safety for investors’ property rights.

We need the spotlight to be shone on those tricky areas so that decisions taken by the Secretary of State have to be justified openly and publicly. That is what Amendments 41 and 44 seek to achieve. Famously, TS Eliot wrote:

“This is the way the world ends

Not with a bang but a whimper.”

In this difficult policy area, a whimper is insufficient. I see no reason why in an open society the Secretary of State should not be under the maximum pressure to provide a clear, concise and public declaration of his decision and the reasons for it. Our society, together with our business and investment community, are entitled to no less, so I very much hope that the Government will be able to accept these two amendments.

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[Lord Callanan (Con)]

Yes, but we are arguing it should be declared void by automatic obligation of statute, rather than it being a power the Secretary of State could exercise. I have just explained that.

[Lord Vaizey of Didcot (Con) [V]]

Although I mentioned it at Second Reading, I refer noble Lords to my entry in the register of interests. Also, as noble Lords have done throughout Committee, I thank all the trade bodies that have been so helpful in advising noble Lords on some of our amendments and, particularly, for me, Veronica Roberts at Herbert Smith Freehills. Just for the record, may I also say how delighted I am that it is the noble Lord, Lord Callanan, responding on my amendment rather than the noble Lord, Lord Grimstone? I had a touch of the noble Lord, Lord Grimstone, on my previous amendment, and now, to have the noble Lord, Lord Callanan, frankly, my cup runneth over.

I thank all noble Lords who have supported my amendment. Without wishing to pick any winners, I thought that the noble Baroness, Lady Noakes, put it most succinctly when she spoke of the automatic voiding penalty. She channelled her inner football commentator by saying the automatic voiding was a “massive penalty”. I think that is right. I also point to the noble Lord, Lord Leigh, who has been very good at introducing me to the mysteries of Lords amendments and has marshalled me extremely well. These amendments pose an unanswerable question to the Minister, because if they are accepted and a transaction can be made voidable, it can, by definition, be voided. It is just not automatic. It ensures voiding can apply where the Government think that is the only solution with a transaction that has not been notified.

In the real world, it is unlikely that a mandatory notification would not be made. The tenor of most of the speeches that have been made during the passage of this Bill is that the Government should expect far more notifications than they have estimated so far. The Minister is quite right to say that anyone transacting in the midst of a mandatory area is likely to have some high-powered lawyers advising them.

What I would say in response to the Minister’s excellent response to this debate is that there are certain points that I feel have not been addressed. One is obviously going back to the massive penalty phrase. If you void a transaction where it is part of a wider transaction, how do you go about unwinding it? Would there not be other, more suitable punishments than simply voiding the entire transaction? Indeed, as the Minister indicated, there will be plenty of people—shareholders, for example—who will be unduly punished by the automatic voiding provisions. Surely there must be alternative punishments.

However, by definition, given that you can effectively retrospectively apply to the Government if you have failed to comply with the mandatory notification requirements, you are, as my noble friend Lord Leigh pointed out, effectively making your transaction voidable. You are giving the Government the chance not to void the transaction, yet by introducing an automatic voiding penalty, the Government have precluded themselves from punishing the parties who failed to comply with their requirement for mandatory notification. Giving themselves flexibility by allowing themselves potentially to void a transaction also gives them the flexibility to impose other punishments.

There are other dogs that have not barked in this debate. In other amendments that we have been debating, previous legislation has been cited as an example that has guided the Bill—but there is no similar sanction, as far as I am aware, in any other business-facing legislation in this country. I hope the Minister will not mind me teasing him a bit at the end because I suspect I know—I think I am right in saying—where his sympathies lie in terms of the great debate of the past decade between Brexit and remain. Is there not an irony in him citing the great example of the French and the Germans but ignoring the far more practical Anglo-Saxon common-law tradition evidenced in the US, Canada and Australia? I beg leave to withdraw the amendment.

Amendment 5 withdrawn.

National Security and Investment Bill

Lord Vaizey of Didcot Excerpts

Committee stage
Tuesday 9th March 2021 Grand Committee

Moved by

[Lord Vaizey of Didcot]

15: Clause 6, page 4, line 14, after “a” insert “foreign”

[Lord Vaizey of Didcot (Con) [V]]

My Lords, Amendment 15 and other subsequent amendments seek to bring in an exemption from the mandatory filing requirement for acquisitions and investments by entities that are ultimately controlled by UK nationals or nationals from certain countries allied to the UK. It is important to stress that this is to exempt companies from the mandatory filing requirement, not from having to file at all.

The Bill currently provides that the mandatory filing requirement applies equally to all investors, despite the fact that the Government have acknowledged that UK investors are inherently less likely to give rise to national security concerns. A more targeted and proportionate approach, which would better reflect where national security risks are most likely to lie, would be to exempt from the mandatory filing requirement acquisitions and investments by UK nationals or entities that are ultimately controlled by UK nationals.

In addition, investors from countries which are closely allied to the UK, such as Australia, Canada, New Zealand and the US, plus any other country subsequently specified by the Secretary of State, should also be exempt from mandatory filing requirements for the reasons I have already stated. That is the thinking behind my Amendment 95, which is included in this group. To the extent that national security risks arise in relation to any such transaction, the Secretary of State would still retain the power to call in a qualifying transaction for review. As I say, the exemption would relate solely to the mandatory filing requirements.

Amending the Bill in this way would also better align the UK’s regime with those of other countries, such as the US and Australia, which I have already mentioned. I can understand why the Government may wish to appear agnostic when it comes to providing exemptions to UK nationals and friendly countries. While there is no doubt that, for example, investments from China in sensitive sectors would come under close scrutiny under the new regime—no one should pretend otherwise—it is important to bear in mind that only four of the 12 national security interventions under the existing regimes have involved Chinese investments.

It is important for me to acknowledge that the Government have intervened in eight transactions that involved investors from countries that have historically been allies, such as the US, Canada, Italy and Germany; they extracted undertakings from those investors to protect UK national security interests. A consistent theme in those interventions, in addition to the usual concerns about access to sensitive data, has been the Government’s interest in ensuring continuity of supply to critical services to government and to maintain strategic capabilities. Such concerns, I acknowledge, are effectively nationality-agnostic, because they go to ensuring that critical capabilities, skills and manufacturing are maintained in the UK and not moved abroad. As a result, it is likely that in particularly sensitive sectors we will see the Government calling in transactions involving investors from so-called friendly countries and imposing remedies under the new regime. The Government can, via regulation, exempt certain acquirers from notification requirements but no investors or classes of investor are currently exempt. Nevertheless, these interventions happened before the Bill was introduced, so I do not believe that they undermine my point—namely, that friendly countries and UK investors should be exempt from the mandatory filing requirement, which will not exist until the Bill is passed.

I looked at the evidence given to the Bill Committee in the other place and was particularly struck by two interventions from witnesses. One was from Dr Ashley Lenihan from the London School of Economics, who said that for the legislation to cover domestic investors would be “truly rare” in comparison to similar legislation in other countries and, importantly, that the inclusion of domestic investors will

“lead to a much larger volume of mandatory notifications than most other national security FDI regimes”.—[Official Report, Commons, National Security and Investment Bill Committee, 24/11/20; col. 33.]

This brings out the point that was a theme of our debate on our first day in Committee and at Second Reading, which is that the Government have wildly underestimated the number of notifications they expect to get. As I say, I think we are all united in wanting to see this legislation passed, but we all want to see it passed in a form that is workable, does not overwhelm the new unit that the Government are setting up and does not put off investors by placing too onerous burdens on them.

In addition, other evidence given to the Bill Committee in the other place in the same session included that of Michael Leiter, a lawyer from Skadden Arps, a US law firm. He said that including domestic investors “is probably not wise”. He went on:

“I think trying to take a slightly smaller bite of the apple and not including current UK businesses in the scheme would be well advised.”—[Official Report, Commons, National Security and Investment Bill Committee, 24/11/20; col. 42.]


So I pray in aid those two experts in making the point that this amendment in no way undermines the regime that the Government propose to bring in, but it does make it a slightly more practical approach as this legislation beds down. Indeed, Mr Leiter pointed out later that the Bill can still catch transactions in which the ultimate actor may be foreign, because the unit that the Government are setting up can still look at the ultimate parent or, indeed, at a follow-on transaction.

I understand why the Government may want the legislation to pass in its current form—to have a belt-and-braces approach and to avoid people trying to hide behind a UK investor or a friendly foreign investor—but in my view the Government will still have powers to call in such transactions if they believe that this is the case. I beg to move.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I am grateful to the noble Lord, Lord Vaizey, for introducing his amendments and explaining some issues that I agree with, such as whether the Government are trying to make a failsafe, will it catch too many people and whether there will be too much to do. Although I understand that there may be different levels of concern, depending on the relationship with the country of the acquirer, I do not fully support the amendments in this group.

Where there are already sensitive industries, especially related to defence, who owns them matters in the sense of whether they are fit and proper for that kind of industry. Those considerations can apply within the UK as well as outside so, at some point, they have to be looked at. The question is whether they should be within the same regime or left to other operations that, the Government have considered, do not necessarily pick up everything.

My experience suggests that, in most instances, companies already used to dealing with sensitive matters would already be alert to what might not be desirable, and that it would either not happen or not happen often, but that does not mean that there should be no way of acting when it does. Therefore, they should all be included within this generic framework.

The Bill will apply to more companies or interests than companies used to dealing with sensitive matters, as I have just called them. Quite a lot still looks speculative, so I wonder whether there is, or in due course might be, further subdivision where certain geographies and industries might have different thresholds, depending on how likely they are to be particularly sensitive.

There will certainly be instances where the ownership interests of Five Eyes countries or other allies are of less or maybe no concern, but that may not always be the case if the security of supply or knowledge base is threatened. There are examples in the defence industry where, following takeovers by US corporations, research has been closed down, leaving only certification, assembly or supply of parts as the UK activity. This has led to a serious loss of forward vision and an undermining of the knowledge base, as well as other issues, such as access to technology. Sometimes that might be accepted, but not always.

It is one thing to recognise that we do not—indeed cannot—stand alone on defence issues, but quite another to accept, always and without review, what might be serious diminution or removal of all active participation. Therefore, although I expect the results of reviews to be different for different categories of acquirer, I do not see how there can be any blanket exclusion at the initial filtering stage. I am very interested in how different thresholds may play a part in reducing the number of transactions that would have to be filtered.

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[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank all noble Lords who have contributed to this very useful short debate. I welcome the amendments proposed by my noble friend Lord Vaizey. Taken together, as numerous speakers have said, his amendments would exempt UK investors and investors from other particular countries from the Bill’s mandatory notification regime. As it stands, both the mandatory and the voluntary notification regimes provided for by the Bill are both actor and nationality-agnostic. The mandatory notification regime is based on the risks posed by acquisitions of target entities due to those entities’ activities, rather than the risks posed by the acquirers. The risks posed by acquirers are then considered on a case-by-case basis by the Secretary of State as part of the particular national security assessment.

My noble friend is right to suggest that, in many cases, acquisitions by UK nationals and UK-based companies, or those based in like-minded countries, are less likely to give rise to national security concerns, even in relatively sensitive sectors. Such acquirers, if their proposed acquisitions do not give rise to national security risks, will find their acquisitions cleared to proceed by the Secretary of State, following assessment or following call-in, should that be necessary, for further review.

However, an acquirer’s nationality cannot tell the Secretary of State everything he needs to know about that acquirer’s intent. For example, it is possible that a UK acquirer may be paid by a hostile actor or otherwise have strong links to hostile actors based outside the UK. A similar rationale follows for the amendment’s reference to other like-minded countries. So, excluding purely on the basis of nationality could create a loophole to exploit.

The particular approach of the amendments in this group also raises some practical challenges. For instance, the references to nationality appear not to deal with the issue of dual nationality; nor is a change of nationality covered. Key considerations in designing this regime have included ensuring that it is not discriminatory, and that it upholds our World Trade Organization and other international obligations in this regard. It is not clear that these amendments would achieve this.

None the less, we wish to consider over time how we might temper and adjust the regime to take account of areas of lower risk. Under Clause 6, the Bill gives the Secretary of State the ability to make exemptions from the mandatory notification regime based on the “characteristics” of the acquirer. This may include nationality if this is judged appropriate and the various issues that I have highlighted can be resolved.

We will of course monitor closely how the regime works in practice to determine through detailed further work and carefully assess whether any such exemptions should be introduced. Any such regulations would be subject to appropriate parliamentary scrutiny through the affirmative procedure.

I welcome the opportunity to discuss the impact of nationality on the regime with my noble friends and to set out our thinking in more detail. However, for the reasons I have given, I cannot accept my noble friend’s amendments. Before I conclude, I can confirm to the noble Baroness, Lady Hayter, that the Government will engage with a number of stakeholders on the voluntary and mandatory notification forms. Therefore, given the points I have made, I wonder whether my noble friend will consider withdrawing his amendment.

[Lord Vaizey of Didcot (Con) [V]]

My Lords, I am grateful to my noble friend the Minister for his response. Never have I seen so many noble Lords and noble Baronesses arraign so uniformly against an amendment, so the mood of the Grand Committee is clearly against me. In fact, through the powers of my advocacy I think that I even persuaded the noble Baroness, Lady Bowles, to move from being a supporter to an opposer of my amendments, if I followed her speech correctly.

I am not sure that the issue of media ownership threw much light on the power of my amendments. However distasteful we might find the antics of media owners in this country, the British ones are just as guilty as any foreign ones of potentially challenging our democracy.

My noble friend Lord Lansley was correct to say that I included New Zealand along the lines of the Five Eyes, although I notice that he said that the US regime could be helpful to UK businesses if the UK was exempt from the equivalent provisions in the US. That was the purpose of my amendment.

Fundamentally, the point I was trying to make with these amendments, which did not really shine through, is that I seek not to hide any transactions from the national security regime but simply to avoid an overwhelming number of mandatory notifications for the department. Of all the speeches that I heard, the Minister’s was the most supportive. I noted his very welcome comments that the door remains ajar, as the regime develops, to put in place provisions to ease the bureaucracy and the number of mandatory notifications.

Finally, I was inspired by my noble friend Lord Leigh of Hurley’s speech to potentially draft a new amendment as we progress—perhaps the pub amendment, whereby the only transactions that can be notified in a mandatory fashion to the Government are those that can fit into my noble friend’s local pub. I beg leave to withdraw the amendment.

Amendment 15 withdrawn.

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Moved by

[Lord Vaizey of Didcot]

22: Clause 7, page 5, line 17, after “land” insert “subject to subsection (7)”

[Lord Vaizey of Didcot (Con) [V]]

My Lords, I am delighted that it will be my noble friend Lady Bloomfield answering for the Government on this occasion. Almost every amendment that I have put forward has had a substitute Minister step in and I am flattered that every member of the team wants to have a go at one of my amendments. I will be as brief as possible because it is important that we make as much progress as possible on the Bill. I hope that all the noble Lords and Baronesses who are no doubt lined up to rubbish my amendment will do so as briefly as possible.

Amendment 22 is about land. The Government have stated they expect to use their call-in powers in relation to acquisitions of land only where the land is being acquired proximate to a “sensitive site.” However, there is currently no definition of what is meant by “proximate”—near—in this context, and the location of sensitive sites will not necessarily be public. Given that the onus will be on acquirers to assess the risk of an acquisition of land being called in for review, the Bill should expressly specify that land will be regarded as a qualifying asset only if it is located within one mile of a sensitive site. No doubt we can debate that distance as we progress.

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[Baroness Bloomfield of Hinton Waldrist (Con)]

I am grateful for those comments. They will be noted.

[Lord Vaizey of Didcot (Con) [V]]

My Lords, I would never put my noble friend the Minister in the same paragraph as “Yes Minister”. She is a far classier act than that and a wonderful and effective force in your Lordships’ House. But, in a hesitant fashion, I will say that, when listening to the Government’s response, my concerns continued to grow. It seems that their position, which is perhaps understandable, is that they have crafted a Bill that covers every conceivable transaction. Then they will see how it works in practice, over the next couple of years, and gradually narrow it down. That was the tone of the response that I got from my noble friend Lord Callanan. When my noble friend Lady Bloomfield was responding, I began to wonder whether the sale of an iPhone to a Chinese government official in a phone shop in Westfield in Shepherd’s Bush would count as a transaction.

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[Lord Lansley (Con)]

My Lords, we come to a group that contains just one amendment in my name, Amendment 36, which touches on the issue of higher education. We will, at a later stage, deal with the question of the time taken to review notifications. That is a pretty central issue for higher education, but I do not propose to talk about that in this group.

Judging from the earlier discussion between the Minister and the noble Baroness, Lady Hayter, about the meeting to discuss research and higher education interests, I am sure that this is well known to Ministers. The purpose of Amendment 36 is to create a safe harbour for activity undertaken by and maintained within British universities and research institutes. I can perfectly well see the objection to a safe harbour for this activity. It was well illustrated by a report published by my noble friend Lord Johnson of Marylebone and looking at the extent to which there were, in his instance, Chinese interests in university research in this country. Something like 30% of all principal research activity in higher education has Chinese interest somewhere in it.

The point is this: Clause 9, which we have just agreed, extends as structured to the right to use qualifying assets. The breadth of qualifying assets, when one considers them alongside the right to use them, brings in the Lambert report principles, which universities use for research activity. They extend the right to use to their financial, or mostly industrial, sponsors, so a large number of research activities in universities might be the subject of notifications.

I will shorten this debate by saying that, if one does not go down the route of a safe harbour for universities, we need a very positive approach to Amendment 88, in the name of the noble Baroness, Lady Hayter, which says that universities need specific, detailed guidance about the circumstances in which they need to make notifications. Otherwise, the number of notifications will be very large and there will be a substantial diversion of activity of the investment security unit away from areas where the risks are greatest to volume activity, where risks are lower.

I know that universities have plenty of experience—I will come on to in the next group of amendments—of working with the Export Control Joint Unit. If they have a similar relationship with and understanding of the requirements when notification is appropriate and when they can avoid voluntary notifications in large numbers, higher education will be able to live with this regime far better than they fear at the moment.

I move Amendment 36, but I encourage the Minister to respond positively to Amendment 88.

[Lord Vaizey of Didcot (Con) [V]]

My Lords, this amendment seeks to ensure that research and development partnerships, such as those that are widely formed between companies and universities to create intellectual property and therefore qualifying assets, are not required to provide notification of the creation of these partnerships. If these partnerships lead to the creation of a qualifying asset, the trigger event should be determined to be the point of creation of the qualifying asset. It would minimise the notification burden on business and industry, and avoid discouraging these important relationships. This is the theme of many of my amendments.

To give your Lordships some background, UK companies are major funders of research and development at British universities across the world. They enter into hundreds, if not thousands, of research agreements every year. Those agreements can be a simple, straightforward funding of a PhD student or major multilateral projects valued at many millions of pounds. Business enterprise R&D represents something like two-thirds of the total, according to the latest figures from the Office for National Statistics. The biggest sectors for business enterprise R&D overlap significantly with the 17 sectors identified in the Bill. For example, computer programming is almost £2 billion, aerospace is almost £2 billion and software development is £1.5 billion.

This business investment, allied with our world-class universities, means that the UK is obviously at the forefront of many of these technologies, from quantum technology to artificial intelligence. The purpose of the research is, of course, to create new technology and new intellectual property that can be used by those British companies to grow British businesses, but at the beginning of any partnership the creation of intellectual property is simply an aspiration. It is certainly not guaranteed.

These projects risk being caught by the same minimal risk issue flagged in other debates on the Bill where companies seek pre-emptively to notify where there is a risk of a trigger event because there is a lack of clarity on this issue. All the amendment seeks to do is to postpone the need to consider notification until such time as the research has been successful, in effect by creating a qualifying asset.

[Lord Clement-Jones (LD)]

My Lords, I am very pleased to have put my name to all three amendments in this group. Rather like the noble Lord, Lord Lansley, I think that we have to find a way to deal with research and development partnerships in higher education. These are various alternative ways to do that, but whichever one is chosen we must find a constructive way. Having a debate and discussion at this stage is really important.

Although the Bill does not directly reference universities and a great deal depends on the Secretary of State and his statement saying how he will define and use the powers, given the width of the sectors it is clear that there is an intention to catch those partnerships entered into by universities. The Bill’s scope is so wide that it means universities could have to refer a significant proportion of their routine business collaborations for screening.

A key concern is that it is unclear which types of asset transaction should be referred for screening. The proposed definition of assets that should be referred to BEIS is very broad and could cover a significant proportion of what universities might consider run-of-the-mill engagement with businesses, including contract research, consultancy work and collaborative R&D. Elements of the Bill, while introducing measures to protect national security, could have unintended consequences for future investment in UK R&D and could cause BEIS to be overloaded with referrals from the university sector.

Up to 95% of Russell group research contracts grant external partners some form of intellectual property and could therefore be captured by the voluntary regime, given the current broad definition of assets. With uncertainty over definitions, universities will be forced to adopt a cautious approach and therefore will expect to refer a significant proportion of the partnerships that I have mentioned: their contract research, consultancy, and collaborative research projects, including those conducted with British businesses. This will add to lead-in times and create red tape for universities and businesses. That surely cannot be for the benefit of R&D in our universities.

As chair of the governing body of a research-intensive university, I can testify to the fact that protecting sensitive research from hostile foreign actors is now a priority for universities. Universities dedicate significant resource to complying with export control legislation and are now working to implement recommendations arising from last year’s guidance from Universities UK, Managing Risks in Internationalisation. As a result, enhanced due diligence processes have run in parallel to concerted efforts to secure R&D investment from domestic and international businesses. This includes due diligence on risk assessment, international research partnerships, policies and contractual agreements to protect intellectual property and dual-use technologies and export control legislation.