Nuclear Energy (Financing) Bill

Lord Vaux of Harrowden Excerpts

Report stage
Thursday 24th March 2022 Lords Chamber

[Lord McNicol of West Kilbride (Lab)]

My Lords, I shall speak also to Amendment 6 in this group.

Amendment 2

“makes clear that a company may not be designated by the Secretary of State if it is owned, wholly or in part, by a foreign power or entity specified in regulations laid by the Secretary of State.”

In Grand Committee, my noble friend Lady Wilcox of Newport very ably, in my Covid absence, introduced two Labour amendments that would have severely restricted foreign involvement in the UK’s civil nuclear industry. During the course of that debate, she suggested that if the Government were sympathetic to the arguments but uneasy with the mechanism, they could come forward with an alternative. In responding, the Minister confirmed this. These adapted amendments following Committee take on board the considerations that we debated and, although weakening the original amendments, retain their essence.

It is with that in mind that I hope the Minister will consider Amendments 2 and 6 favourably. They now provide alternatives—rather than banning foreign involvement completely, they would require the Secretary of State to establish and maintain a list of foreign powers and entities that are barred from involvement in UK nuclear projects. This feels both proportionate and reasonable. As we see it, the list would operate in a similar manner to the financial action task force’s list of high-risk countries for money laundering, which is part of our domestic law via regularly updated SIs.

The amendments do not specify criteria for including states or entities on the list; it could be national security, but the Secretary of State could also choose to bar a company that has a questionable track record in other respects—be it a poor delivery record or safety concerns. It may be that the department wishes to bar the involvement of some individuals or entities currently subject to sanctions but who may not necessarily still be on the sanctions list at the time of a future designation.

The Minister told us in Committee that this was an interesting idea and that the department would study it closely. We are grateful that he made BEIS officials available to us for discussion on this and other topics last week, but that meeting took place just hours before the deadline for tabling government amendments, and final agreement could not be reached. The Minister knows we are supportive of the Bill, but our general support should not diminish the importance of our concerns. The feeling of colleagues in Grand Committee and in private discussions since has been that the protections under the National Security and Investment Act 2021 are not sufficient in this area. We feel that Amendments 2 and 6 offer a sensible way forward, building on a system already used by other departments—Her Majesty’s Treasury, for example—and familiar to financial and other institutions across the country.

Should the amendments be accepted, I am sure the department will be free to address any drafting deficiencies, but we on these Benches believe that this is an important point of principle and will test the opinion of the House if the Minister does not accept Amendment 2. With that, I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I speak to Amendments 4, 7 and 8 in this group in my name, but, before I do that, I will quickly say that I also support Amendments 2 and 6, in the name of the noble Lord, Lord McNicol of West Kilbride. In Committee, I said I was unable to support his amendments because I felt that a blanket ban on foreign state involvement in our nuclear programme went much too far, so I am delighted that he has now found a more flexible formulation, which would enable the Secretary of State to decide who should be barred from the nuclear programme.

The amendments in my name are intended to cover a similar point, but perhaps more widely and slightly more flexibly. Last week, we spent a lot of time discussing the importance of being able to identify the ultimate beneficial owners of property in the UK. It seems to me considerably more important that we should always be certain of the identity of any party that may be able to exercise significant control over a nuclear company, either directly or indirectly, and that we should be able to take action to prevent undesirable parties, should they attempt to obtain significant control of a nuclear company. My amendments simply seek to achieve that.

As I mentioned in Committee, it was ruled out of scope when I tried to introduce an amendment that would have allowed the Secretary of State to revoke the licence of a nuclear company if an undesirable party obtained significant control. My amendments here are restricted to the designation under the Bill, but the comments I am about to make apply every bit as much to the licensing regime, and I ask the Minister to keep that in mind.

I have revised my amendments from Committee so that my three amendments now introduce a regime for designated nuclear companies that is similar to that which applies to persons with significant control of UK companies. They further give the Secretary of State the ability—not the obligation—to revoke the designation of a nuclear company either where the Secretary of State is not satisfied that the identity of a party with significant control has been verified, or if a party later obtains significant control and the Secretary of State is not satisfied that they are a fit and proper party to own or control a company.

I am very grateful to the Minister and his team for their helpful engagement on this point—again, unfortunately, just before the deadline for submitting the amendments. They have pointed me towards the National Security and Investment Act 2021—the NSI Act—as providing the protections that I am seeking and, to an extent, they are right. But there remain important gaps, and I want to raise them and hear what the Minister thinks.

First, the NSI Act comes into play only if there is a notifiable transaction, so it does not apply at the point when a nuclear company is applying to be designated. It seems to me important that we designate companies only where we are satisfied that we know the identity of all parties that might have significant control, so Amendment 4 adds a new condition that the Secretary of State is satisfied that the identity of any party with significant control has been verified.

I am sure the Minister will tell us that the Government will of course carry out this verification as part of their due diligence—he is nodding—before a designation is granted. If the Government intend to carry out this step anyway, why not accept the amendment? Secondly, it is, sadly, not uncommon for due diligence not to be completed as thoroughly as we might like—1 am sure we can all think of examples of that. The amendment would not add any burden to the Government, but it would ensure that this critical verification step must be included in the due diligence, so why not accept it?

There is another reason. If the due diligence failed to identify such a party for some reason, without Amendments 4 and 7 taken together there would be no mechanism in the Bill to remedy the situation after the designation had been granted. The NSI Act would not apply, because no qualifying transaction would have taken place. So we would be stuck with a party that we had not verified, which cannot be right.

The next problem with relying on the NSI Act is that the first remedy under the Act is that, if a notifiable transaction takes place without authorisation, it is void. But that can apply only to UK companies. If, for example, a nuclear company has a 51% shareholder that is a Japanese company, and a Chinese company later takes a stake in that Japanese company, there is no way we can void that transaction, regardless of what the NSI Act says.