Draft Trade Union (Levy Payable to the Certification Officer) Regulations 2022 Draft Trade Union (Power of the Certification Officer to impose Financial Penalties) Regulations 2022

Mark Garnier Excerpts

Tuesday 25th January 2022 General Committees

[Mark Garnier (Wyre Forest) (Con)]

I may have missed this, but can the Minister confirm that any fines that are levied go back into the income of the certification officer, so that they subsidise future levies from unions?

[Paul Scully]

I will respond to that in my concluding remarks so that I am accurate for my hon. Friend.

The two sets of regulations will modernise the role of the certification officer so that she can continue to function as an effective regulator of trade unions and employers’ associations. It is not about constraining the ability of the unions and employers’ associations to do their valuable work. The certification officer has always operated independently of Government and that will continue.

These reforms are about giving the certification officer the tools she needs to do the job as effectively as possible and ensure that the taxpayer no longer foots the whole bill, but that unions and employers’ associations that can afford—

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[Imran Hussain]

That is a matter for the hon. Member for Stoke-on-Trent North, and I will give way if he wants to respond—or perhaps not.

As I was saying, this is an ideological, deliberate attack by the Government on our trade unions, our workers and their rights. Sadly, however, this attack is not without precedent. While they no longer send armed soldiers in to crush striking workers, this Tory Government are no less—[Interruption.] Conservative Members laugh, but they may want to check history and see that those are real events from the turn of the last century. It is not a laughing matter; it is a very serious matter, and if they choose to laugh at that, so be it. This Tory Government are no less opposed to unions.

On that point, let us remind ourselves of this Government’s record. Over the last decade, they introduced the draconian Trade Union Act 2016, eroding the ability of working people to take collective action, imposed illegal employment tribunal fees that priced people out of obtaining justice, and presided over a disgraceful rate of statutory sick pay, which is one of the worst in Europe. They have also broken a promise made during the passage of the Trade Union Act by backtracking on their commitment on electronic balloting, with the Government-commissioned Knight review, published in December 2017 and still awaiting a response from Ministers—more than four years later. It therefore comes as no surprise that Ministers have introduced these anti-union statutory instruments, as well as a further ministerial direction to once more attack working people.

[Mark Garnier]

The hon. Member is right about the trade unions, and I would echo that: I think they have done an extraordinarily good job. I worked with the Community union in my constituency at jobs fairs.

One of the characteristics of this change is that it makes the unions more independent. By giving the certification officer an independent form of financing, it means that the Government have less leverage over them, thereby ensuring more independence of the whole union movement, not less.

[Imran Hussain]

Certainly, I agree with the hon. Gentleman’s first point—that unions do a fantastic job—but unfortunately I do not agree with the rest. I am sure the hon. Gentleman is not saying this, but one could interpret from what he said that somehow, if the Government were to pay an independent regulator, they could tell that regulator what to do. We know that is not the case—of course it is not.

Again, that is not the issue today. As I said to the hon. Member for Stoke-on-Trent North, at the heart of this—I will come to this at greater length—are two points. The first is suddenly charging a levy—I know the Minister wants to say that there are other organisations where regulators are paid for in the same way, but unions are not profit-making organisations. It is almost as absurd as saying that charities should pay for the Charities Commission. The argument that the Minister made did not answer any of the questions posed from this side of the Committee, and I hope that he will do so when he sums up.

The first statutory instrument deals with the financial levy that the Government intend to impose on trade unions. That levy would impose unnecessary and disproportionate costs on trade unions, and would take money out of the funds used to fight for better pay terms and conditions. That is the crucial point. Any money that is taken from trade unions cannot be spent on defending their members. It is fine saying that it is 2.5% but, by the way, the overall figure is not capped.

That raises another interesting question: who makes up for the shortfall? If, for example, the certification officer says in two to three years that their costs will run into the millions—this instrument does not stop that; if the Minister disagrees, he can intervene—and we are saying that the cap on unions is 2.5%, who will make up for the shortfall?

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[Chris Stephens]

I stand corrected. The right hon. Member is absolutely correct: it should indeed be the TaxAvoiders Alliance. I can assure him that if we continue to refer to that organisation in this debate, I will use the appropriate term.

There are real issues with who should be allowed to make a complaint. My view has always been that I do not have a problem with a trade union member going to the certification officer with their concerns, but I will have a real concern if members of the public are allowed to do so.

We keep being told the cost to the taxpayer, but it is not a lot of money—£500,000 or £700,000. I have in front of me the transcript of the debate on the certification officer in the Trade Union Bill Committee. It is a good eight pages of reading, and it is very enlightening as to the arguments against fees and against increasing the powers of the certification officer, and the Government’s excuses about that. However, I have real concerns that what is at the heart of this legislation is an attempt to curb the work of trade unions in this country by imposing a financial cost on them.

[Mark Garnier]

Will the hon. Gentleman give way?

[Chris Stephens]

I will just finish this point and then I will give way.

The trade unions have worked to ensure that people are not on exploitative zero-hours contracts, and they have fought against short-term shift change notices. By the way, all those things are covered by my Workers (Rights and Definition) Bill, which the Government could pick up at any time.

[Mark Garnier]

I ask this question out of curiosity rather than to try to make a political point. We hear that the certification officer is costing around £750,000 a year, which could increase. What would that be as a proportion of the total revenue generated by the trade unions through membership fees? I am afraid that I just do not know the total collective income of the unions. It would be helpful if we knew what proportion that £750,000 is of total union revenue across the United Kingdom.

[Chris Stephens]

I do not know what the trade union revenue is in the whole of the United Kingdom, but I can tell the hon. Member that I was the treasurer of the Glasgow City branch of Unison and its revenue certainly was not anywhere near £700,000. If he wants to see the accounts of that organisation, I am sure I can provide him with a copy.

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[John Spellar]

Thank you, Mr Davies. I certainly do not intend to run beyond the time limit in my contribution, and nor would you let me. We are talking about specific proposals, which will bring in additional costs in order to undermine unions. In dealing with the background of that—

[Mark Garnier]

With apologies the right hon. Gentleman, may I provide an update on my intervention on the hon. Member for Glasgow South West? I have had a look at the numbers on Google. These may not be accurate, but the total revenue for unions is just under £1.3 billion a year. Spread among 6.4 million members—according to these figures—that works out as £195 per year. If, through the levy, we are going to pay the certification officer £1 million a year, which is more than we are expecting, that works out at 15p per member per year. I cannot think of anything that can be bought for 15p, anywhere—not even a KitKat—so the levy is tiny in proportion.

[John Spellar]

Of course, it is symbolic for the Tory party, but it is also part of a pattern. The union learning fund, which was mentioned previously; industrial tribunal fees; access to industrial tribunals—it is all part of a drip, drip, drip, wearing away at the ability of trade unions to represent their members.

I am slightly surprised that the Minister prays in aid a time of austerity. Did he not see what happened yesterday in the House of Lords, when his noble Friend Lord Agnew resigned from the Government, saying that they have paid out nearly a billion pounds to banks claiming the state guarantee, and that they estimate that about 20% of that was fraud? Lord Agnew went on to say:

“Total fraud loss across government is estimated at £29 billion”.—[Official Report, House of Lords, 24 January 2022; Vol. 818, c. 21.]

Rather than address that, they want to have another go at the trade unions.

In the same way, the Home Office was found in court to have broken the law by charging excessive amounts—grossly overcharging—to register children as British citizens, yet the Government still have not responded to that by introducing legislation. Again, we ask why not.

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[Paula Barker]

Listening to the debate, it is literally like going back to the future. Such is the obsession of this Conservative Government, like every one before them, with taking a sledgehammer to trade union power—what little there is left in 2022—that anyone would think that it is 1979.

Let us be clear: this measure represents a further attack on our civil liberties, for which the governing party has little regard anyhow. In this instance, the very organisations that defend workers’ rights and advance the call for better conditions are now in line for a further degradation of their powers. Trade unions have always sought to resolve conflict as a first resort. They balance the scales of the unequal distribution of power in our labour market, and are a force for overwhelming good in eradicating the inequalities that are deeply embedded in our society.

This statutory instrument represents a tax on trade union activity. It will give rise to the perverse situation that a trade union will have to pay its own regulator to regulate its activities.

[Mark Garnier]

I would like to correct an earlier intervention. The tax actually works out at 1.5p per member per year. I apologise for getting my maths wrong earlier, Mr Davies. I was an investment banker for 17 years.

[Paula Barker]

I did not make any comment about how much the tax is; I simply said that it was a tax.

Domestic Building Works (Consumer Protection) Bill

Mark Garnier Excerpts

Friday 19th November 2021 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

I beg to move, That the Bill be now read a Second time.

In a debate in which we will talk about the activities of some possibly not-so-enhancing builders, I wish to start by saying what is good and brilliant about builders. Builders constructed the place in which we work, which is a testament to the building trades. They build our homes, workplaces, communal spaces, places of worship and recreational facilities. They build things of utter joy and things of absolute necessity. In short, they are extraordinarily important not just to our society but to our entire way of life.

There are enormous numbers of opportunities in the building trade for many different people. The skills involved range from those of the extraordinary artisans who do stunning carvings to those of the people who help with some of the most menial tasks. Were it not for this mainly manual industry, many people who prefer to work with their hands—who may not have found academia to be something for them—may not have found any gainful and worthwhile employment. The building trade is as important for those who work in it as it is for those of us who need its services. With 1.3 million people working in the industry in the UK, it is an incredibly valuable source of income for millions of workers and their families.

The industry is very wide. We have all seen large developments of homes or other buildings being carried out by well-established, well-resourced and well-run construction companies that take responsibility for their actions. When things go wrong, they have large legal departments and the processes seem to work well, on the whole. However, I am keen to concentrate on the smaller, domestic and small-business end of the market. The sector known as the repair, maintenance and improvement sector—RM&I—is where we see lurid and appalling stories of people’s lives ruined after taking on dodgy builders. There are countless stories in the press, and TV shows have been made that specialise in such problems.



I could turn to any number of articles in the national and regional press that talk about cowboy builders. A relatively simple search for stories about rogue builders reveals 1,500 such stories from the past five years alone, and that is just those stories that make the press. We could chat to almost anyone who has had any building work done, and they will roll their eyes in frustration at the problems they have had. However, we do not have to rely on hearsay and the media to understand the problem and its implications. The Federation of Master Builders, which I have been working with, conducts surveys to see the effect of this issue on the RM&I market. A recent poll of homeowners discovered that one in three were put off having building work done on their home by the fear of being ripped off. That equates to a potential £10 billion of lost economic activity every year, as a result of the fear of being ripped off by rogue builders. I can see why and there are any number of examples. My constituent, Gillian Smith, and her husband came to see me last week about their experience with Bromsgrove Construction and Development Ltd. They showed me some pretty appalling photographs of how the back end of their house is falling down as a result of appalling behaviour. They are now entering into a huge problem in trying to resolve that issue.

The consumer is not the only victim of the rogue cowboy builder. In the industry, many find themselves victims of the same problems as consumers, and subcontractors find that they are not paid or subject to poor safety standards. Merchants are the same, and plant hire companies are frequently the victims of theft or the abuse of equipment. Alarmingly, health and safety is a low priority among many SME building firms that operate within the RM&I market. While large firms working on major commercial and civil engineering projects have embraced health and safety legislation, a blitz of small refurbishment sites by Health and Safety Executive inspectors in 2016 found that a stunning 49% of sites fell below the standards set to comply with health and safety requirements.

More alarmingly, that cavalier attitude to health and safety reveals the potential problem of cowboy builders leaving dangerous sites. When someone builds an extension, might someone else be risking life and limb when they climb those stairs to go to bed one evening? Poor-quality building results not just in shoddy work, but potentially in work that is fatally dangerous. Cowboy builders also have an effect beyond their own unhappy activities. By undercutting those reputable builders who make up the majority of the market, they force high-standard builders to cut their margins to compete for work. Price competition is fine, but not when a worthwhile and reputable SME builder is competing against someone with no care for safety, honesty, or customer satisfaction. Given that the RM&I market is dominated by occasional customers, it is likely that the key element of choice is price. Unhealthy price competition drives down standards, even if those reputable firms are unhappy at being forced to cut standards to compete.

[Sir Oliver Heald (North East Hertfordshire) (Con)]

Does my hon. Friend also want to say a word about the environmental consequences? Is it not right that a number of extensions are built with the rainwater directed into the sewers? We have been talking about the result of that over recent weeks.

[Mark Garnier]

My right hon. and learned Friend is absolutely right. The implications of cowboy or rogue builders who do not build to standard are unbelievably widespread—indeed, that opens another interesting debate about inspections by local councils in terms of the amount of work done, and there is a completely different debate about that to ensure that building standards have been maintained. Sometimes there are questions about whether some councils examine building standards properly, and my right hon. and learned Friend raises an important point.

How does the victim of the rogue builder seek redress? The answer, as it turns out, is not simple. In the first instance they could go to trading standards, but with a rogue builder being, by definition, a rogue, the sanctions available are weak at best. Ultimately, the home or small business owner who has found themselves the victim of a rogue builder has no other recourse than the courts.

This is the point at which it is really important that I declare my interest. There has been much debate of late about Members’ experiences—I think you were in the Chair, Madam Deputy Speaker, when we discussed the Domestic Abuse Bill, and we heard a stunning speech from the hon. Member for Canterbury (Rosie Duffield) about her experience, which was very valuable. When someone finds themself the victim of a rogue builder, they suddenly discover that they are in an extraordinary Kafkaesque world of misery, and trying to deal with legal practitioners, professionals and all the rest of it. I was going to speak at length about my first-hand experience but, frankly, it is important to move along in the interest of the next debate. Suffice it to say that, apart from anything else, as Members of Parliament we find ourselves subject to blackmail, threats to break into our property to recover items that we have already paid for and multiple final bills—in my case multiple fictitious final bills. The list goes on and on, and it becomes unbelievably depressing and wearing, as we find ourselves having to deal with the problem and, ultimately, there is no justice.

The fundamental fault with the whole system is that contract law simply does not work for people with problems bigger than the small claims court, which is fine, but below a value of £1 million. The reality of the situation is that anyone can make up a fictitious account that they want us to pay and we have to negotiate. In addition, if we want to get redress against a builder, we have to go to court and seek legal action. It works both ways. It is not just about bad building standards; it is also about builders’ bad business practices and vexatious bills.

To challenge or defend this type of bill requires a commitment of between £100,000 and £200,000 in legal fees, court fees and professional fees to demonstrate the loss and to provide the evidence. I have spoken to any number of friends and colleagues with very senior legal experience—this place is stuffed to the rafters with lawyers and barristers—and they all say that the type of problem I am facing, and that hundreds of thousands of people face, has nothing to do with justice and everything to do with trying to achieve a negotiated settlement.

[Anthony Mangnall (Totnes) (Con)]

My hon. Friend is making an extraordinarily important point. Many of my constituents have had to deal with rogue builders, and I am sorry for what he has had to go through. Could we improve the civil litigation process rather than creating an ombudsman under this Bill?

[Mark Garnier]

I have privately asked all sorts of senior people and, weirdly, they just roll their eyes and say, “It is what it is.” Perhaps we could, but I am certainly not qualified. I was an investment banker rather than a lawyer, so I approach this from a slightly different direction.

One of our colleagues pointed out that the process of negotiated settlement is like being mugged and then being charged for the mugger’s knife, and it has the backing of the law. The consumer of repair, maintenance and improvement building services has no consumer protection at all. There is absolutely no practical protection for consumers that avoids the highly risky, unbelievably expensive and emotionally draining prospect of prosecuting contract law. Indeed, the subcontractors working on our home were victims of the same rogue builder. They were eventually paid, but they were not paid initially.

While we were going through this nightmare, an unrelated subcontractor came to me with a complaint that he had not been paid by the firm with which we were in litigation. The builder’s manager even boasted to our subcontractor that he usually had five legal cases on the go at any given time, playing the system to get more money. This is not just an accident; it is a deliberate action by these builders.

It is extraordinary that consumers are completely unprotected. When we think about the whole building process, it is even more astonishing. The proud homeowner who is seeking to improve their home will go to an architect, who will be regulated by the Architects Registration Board. They might contract a quantity surveyor, who will be regulated by the Royal Institution of Chartered Surveyors. They will probably need to borrow money, so they might approach a mortgage broker who is regulated by the Financial Conduct Authority. The mortgage broker will help with the mortgage, which will be provided by a lender, again regulated by the FCA and possibly by the Prudential Regulation Authority, with advice from a solicitor regulated by the Solicitors Regulation Authority. The money will then be deposited in a bank, regulated again by the FCA and the PRA. The whole process is laden with consumer protection and regulation, right up to the point at which the money is handed over to someone with no regulation—and possibly no qualifications—and with no protection mechanisms for the consumer in any way, shape or form.

Unbelievably, the problem gets worse. The victim may well prosecute the court and win—possibly both damages and costs—but at that point the rogue builder goes bust with no assets and starts a new business the following day to continue the process of ripping off consumers. Meanwhile, the costs to the victim, running into hundreds of thousands of pounds, are unpaid. The reality is that there is absolutely no disincentive for the cowboy builder to present fictitious bills or to do shoddy and appalling work. While the consumer must engage in a risky legal process to seek redress or protection, the rogue builder can game the system with no jeopardy whatsoever.

What is the solution? How do we protect honest builders and subcontractors, builders’ merchants and, importantly, consumers? I repeat that most people in the trade are very honest people who also need to be protected from the activities of rogue builders. How do we redress the balance of risk away from favouring the rogue builder to giving equal weight to both consumer and builder? We must remember that the builder is not always in the wrong, so we need to ensure that the solution is balanced. The answer must lie in a regulation and licensing scheme.

My Bill asks the Government to come up with a scheme of compulsory licensing for SME building firms working in the RM&I space. While it does not set down the specific framework for a licensing scheme with associated regulations—it would be wrong for a Back Bencher to try to undertake that work, because it is complicated—I will suggest my vision of how it would work. My experience, which informs how I look at it, is with financial services and banking regulation—back in the 2010 Parliament, we were heavily involved in changing financial services regulation—and while I do not propose anything remotely as complex as the FCA or PRA, there are some important carry-acrosses from financial regulation.

First, any regulatory scheme must not be a financial burden on the wider taxpayer. A licensing scheme for builders must be self-financed through licence fees. Rules for having a licence must be straightforward; they cannot be complicated. Importantly, no firm can be allowed to offer services direct to customers without a licence. That in itself would result in the wider industry policing the market. For example, mortgage lenders would require evidence that money would be spent on a licensed firm, while architects and surveyors acting as project managers would need to see a licence to engage a building firm, ensuring that builders were licensed. The consumer could check the builder on the regulator’s website, just as can be done with the FCA. The regulator should probably be TrustMark, which currently operates a voluntary scheme. There should be rules regarding code of conduct, honesty, safety and quality of work. Those failing to comply should face a series of sanctions resulting in the ultimate sanction of the loss of licence and, therefore, the loss of the ability to work in that industry.

[Mr Gagan Mohindra (South West Hertfordshire) (Con)]

My hon. Friend is making some valid points. Does he think that the voluntary scheme is not effective as things stand?

[Mark Garnier]

Self-evidently not. My hon. Friend is right to ask that. A voluntary scheme is good, because builders who sign up to it can demonstrate that they are maintaining a certain level of trust and obligations to their consumer. The problem is that the consumer needs to know an awful lot about the building trade to know about that scheme in the first place. We as Members of Parliament have many people coming to our surgeries who have got themselves into trouble with, for example, financial advisers, only to discover that they were not regulated. The problem is that those people did not understand the system well enough to work that out. While some will recognise that there is a voluntary scheme that they can check out, it was not until I got deep into the weeds of the Bill that I discovered it, having spoken to all sorts of quantity surveyors and all the rest of it as I tried to progress my own building problems.

Within all this, there should be rules regarding a code of conduct, honesty, safety and quality of work. Failure to comply should carry a list of sanctions, including losing the licence. An option that could be included is a compensation scheme rather like the Financial Services Compensation Scheme. That is an example of how consumers who have lost out as a result of poor and bad practice are compensated for their loss from a scheme financed, again, not by the taxpayer, but by levies placed on licence holders of the relevant sector. The double effect is that the consumer gets their losses covered, if that is deemed appropriate, while the industry as a whole is incentivised to self-police. At the end of the day, the industry does not want to pay more money to bail out these compensation schemes for rogue builders; it would be incentivised to report rogue builders. Importantly, an ombudsman would be able to assess loss to consumers without the need for expensive and lengthy engagement of legal and professional experts to defend bogus bills or to challenge poor work.

These proposals are aimed at ending the decades-long history of consumers who being ripped off in one way or another by shoddy, rogue, cowboy builders. Voluntary schemes do not seem to have done away with this problem, and the building industry seems to be the one industry remaining where consumers spend quite significant amounts of money in a totally unregulated and uncovered area. Indeed, many people agree that this is beyond redemption. The report of the Federation of Master Builders on this subject in 2018 cited the fact that even the construction firms themselves agree that a compulsory licensing scheme is necessary: 77% of SME builders agreed to the FMB proposals, while 78% of consumers did likewise. I think we would all agree that enough is enough. To steal a phrase from those on the Front Bench, you cannot build back better if you cannot trust your builder.

This is a very complicated area, and I do appreciate that it is not straightforward to go rushing in and create a compulsory licensing scheme, but I am very interested to hear what the Minister has to say. By the way, I am very grateful to him for coming along. Although building is his area, his role does not cover the Bill, but the Minister responsible for consumer protection—the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam (Paul Scully)—was not available. However, I am very interested to hear what he has to say, and incredibly keen to continue to collaborate with the Government to try to find a solution to this quite huge problem.

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[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Lee Rowley)]

Thank you for giving me the opportunity to contribute to the debate, Madam Deputy Speaker. Let me first congratulate my hon. Friend the Member for Wyre Forest (Mark Garnier) on the points that he has raised about the important issue of consumer protection and the need to get the balance right between the sale of goods and services and ensuring that quality is achieved at the end of the day. Ensuring that we have a high-quality and professional construction industry and consumer protection is very important, and I am really grateful to him for raising awareness of that.

We all know there are issues and we all have such stories, whether they are ours personally or others that we have heard, and I am very sorry to hear about his constituents Mr and Mrs Smith. We know that there is a challenge from a minority of people and organisations in this industry who do not do the right thing time in and time out. The question is not about the problem—I think the definition of the problem would be accepted by people across the House and outside it—but about what is done proportionately to try to mitigate and reduce it. As we know from other elements of consumer protection that we deal with, even if we have ombudsman schemes, licensing schemes and alternative resolutions, they may improve situations but they are not guaranteed to and they are not panaceas on their own.

The question always comes back to the philosophical discussion that we have daily in this place: what we think the Government should do, when they should intervene and when it is proportionate to do so. This is rightly about balancing how we protect the consumer and protect and support individual agency—with markets that have sufficient information and knowledge in them so that people can make decisions without needing other organisations, groups or the state to intervene—with how we prevent guilds from being created, which is vital. I am not suggesting for a moment that my hon. Friend’s Bill would do that. There are already hundreds and hundreds of employee systems that require substantial qualifications, licensing schemes or costs to be paid, which, over time, create issues for a dynamic workforce, industry and sectors that support people wanting to obtain goods and services.

As my hon. Friend rightly indicated, this is a question of risk. It is about where to draw the line. Although, I am afraid to say, on balance we as a Government are not minded to support the Bill at this time, we are very keen to continue to discuss this, because we accept that there is an issue. The question is whether a licensing scheme is proportionate to the problem at this time.

Notwithstanding the fact that we understand there is a problem, the Government are doing a lot of work on this. Let me run through some of that quickly. First, the Government have recently consulted on proposals for a mandatory alternative disputes resolution scheme in the home improvement sector. There will be more information on that in due course, because none of us wants a situation where any consumer or business should have to, want to, need to or be required to go to court in the first instance to try to resolve such a situation.

Secondly, additional work is under way through the domestic household decarbonisation retrofit programme. That is where the Government have more ability to impact processes. We are requiring installers to hold appropriate certifications or to be TrustMark-registered.

Thirdly, we are working closely with the Department for Levelling Up, Housing and Communities to look at the consumer protections available through the competent persons schemes, which allow builders to self-regulate in areas where they can self-certify. For example, competent person schemes must ensure that consumers are provided with the appropriate financial protection for a minimum of six years to put work right to dwellings that are non-compliant with building regulations.

Fourthly, we have the Building Safety Bill. To ensure that there are safe and high-quality buildings, we want to make sure that, throughout a building’s life cycle, the building safety regulations can provide support. There are powers in the Bill to make regulations regarding competence requirements. These have already been published in draft alongside the Bill.

In summary, nobody would disagree with the actuality of the problem and the challenge that it creates for individuals, such as for my hon. Friend and his constituents as well as for people in my constituency and those of all Members. Given that this is such a long-standing issue that has been around for decades, if not centuries, the question is what we do about it. We hope that the measures that are being taken, which I have outlined, indicate that the Government intend to step in where necessary while retaining proportionality in what we do and in making sure that there is a functioning market without state intervention. The Government would like to extend to hon. Members, including my hon. Friend, an invitation to continue to discuss the ways to address this issue and how we build on existing organisations and initiatives and the other activities that I have outlined. I finish by thanking my hon. Friend.

[Mark Garnier]

My hon. Friend is being incredibly kind. First, let me quickly say a great thanks to everybody, particularly the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) and all the various people who have been involved in the Bill. I think the Minister is very sincere in what he is saying about how we can collaborate. Before he finishes, in the light of all his undertakings and assurances of collaborative work, it would probably be a good idea if I were to withdraw my Bill. Am I allowed to beg to ask leave to withdraw my Bill, Madam Deputy Speaker?

[Madam Deputy Speaker (Dame Eleanor Laing)]

The hon. Gentleman cannot procedurally withdraw his Bill during an intervention on the Minister. If the Minister finishes his speech and the hon. Gentleman, with the leave of the House, is able to make another speech, then he may withdraw his Bill, but I have another Member trying to catch my eye. I think the answer might be that if we proceed speedily, all this might come to pass.

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[Mark Garnier]

Thank you, Madam Deputy Speaker. I will just rattle through some thanks to colleagues—

[Madam Deputy Speaker]

Order. The hon. Gentleman has to ask for the leave of the House. Say, “With the leave of the House”.

[Mark Garnier]

I was going to lead up to that.

[Madam Deputy Speaker]

No, you have to do it now. Can we just get on with it, please? Say, “With the leave of the House”.

[Mark Garnier]

Okay. With the leave of the House, and in the light of the Minister’s assurances of further collaborative work on this issue, I beg to ask leave to withdraw the motion.

Motion and Bill, by leave, withdrawn.

UK Space Industry

Mark Garnier Excerpts

Thursday 4th February 2021 Commons Chamber

[Mark Garnier (Wyre Forest) (Con) [V]]

Thank you very much, Madam Deputy Speaker. I draw Members’ attention to my entry in the Register of Members’ Financial Interests as well as my role as an officer of the all-party group on space.

I think we would all agree that space is absolutely fantastic and fascinating for our country. We are a nation with global ambitions and it is an absolutely basic part of our global nation’s portfolio. We would all agree that we need to engage and do well in this sector. Since 2010 it has been our ambition to achieve 10% of the global space market, a win worth around £40 billion a year. As we have just heard, that was reinforced with the industrial strategy. This is a fine ambition, but it is just that: an ambition. It does not really constitute a grand strategy or a strategic goal.

I fear that we have lost our way; the reality is that we are not driving forward this ambition in the way we should be. While we are the sixth biggest defence economy on the planet, our space sector is now languishing behind that of Italy in its activities, and although we have any number of brilliant companies here in the UK engaged in this sector, international companies seeking to locate here are faced with an extraordinarily confused regulatory landscape. We have an incredibly untidy, confusing regulatory landscape with various Government Departments looking after various parts of this regime. Our new regulatory regime brought in under the Space Industry Act 2018 faces any number of problems and confusions. In addition, no one really quite understands why flight licensing has been transferred from the UK Space Agency to the Civil Aviation Authority. Even at its most basic level, we are failing so many businesses seeking to invest in the UK because we have failed to deliver a simple customer service proposition.

While it is easy to criticise a lot of the details of the space offering, I do not want to pour cold water on what we do, but our problem is that we do not have a grand strategy. We seem to lack the clarity of vision that supports the delivery of this very important sector.

The reality is that space is a component of our national power. If we want to be a global military presence, we need to have a global space presence. If we want to be a global technology leader, we need to be a global space leader. If we want to avoid the same problems that we have faced with Huawei and 5G but in space, we need to grasp the technological nettle.

We need to recognise that our space landscape is unfathomably complex and impossible to navigate. We need to develop a strategy that will make all of this work. We need to have a proper secretariat that is empowered to deliver a cohesive and coherent space policy, and that can be effective across Government. We need to create the opportunity in other areas that will be able to support our commercial space industry, and we need to do well in academia. But we also need to look at one of the greatest resources we have in this country: the City of London.

We need to come up with a three-point strategy: create a proper strategic goal that embodies our true global Britain vision in space; build a structure with a clear delivery organisation at its head; and incentivise other brilliant sectors of the economy, especially financial services, to become a world leader in supporting our space sector.

National Security and Investment Bill (Twelfth sitting)

Mark Garnier Excerpts

Committee Debate: 12th sitting: House of Commons
Thursday 10th December 2020 Public Bill Committees

[Nadhim Zahawi]

[Mark Garnier]

[Nadhim Zahawi]

National Security and Investment Bill (Tenth sitting)

Mark Garnier Excerpts

Committee Debate: 10th sitting: House of Commons
Tuesday 8th December 2020 Public Bill Committees

[Nadhim Zahawi]

[Mark Garnier (Wyre Forest) (Con)]

[Nadhim Zahawi]

National Security and Investment Bill (Third sitting)

Mark Garnier Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[Peter Grant]

Q Thank you. I will focus a bit more on the definition of a trigger event, and in particular the catch-all provisions that define when somebody becomes a person with significant influence or control over a company.

The Companies Act 2006 has similar requirements for a company to notify Companies House if certain things happen that put someone in a position of significant influence. From a lay person’s point of view, such as my own, some of those provisions are almost word for word the same in the Companies Act and the Bill. Some appear to have the same effect but the wording is different, and therefore there will potentially be occasions when the definition is different. Would there be benefits in completely aligning both pieces of legislation so that a particular event either has to be notified or does not have to be notified? Otherwise, there is the possibility that some events will have to be notified under the Bill, and other events will have to be notified under the Companies Act but not the Bill.

Christian Boney: In short, I think there would be benefit in having as much alignment as there can be. Clearly, the two pieces of legislation are not necessarily designed with the same intent and focus in mind. Yes, I think there is merit in having as much alignment between the two as there can be.

If I may, there is just one point about the trigger events that is worth considering. One of the points in the statement of policy intent in the context of trigger events is the Government considering the risk of espionage. That seems to me to be something that is worth thinking about in the context of this regime. At the moment, the trigger events are focused, as you were saying, on the ability to influence a particular company, but there are certainly circumstances where, without acquiring a level of shareholding that enables a person to influence the company, the person can nevertheless gain very significant access to information—for example, through a board seat, which might come at a shareholding of lower than, for example, 15%. That would give that person considerable access to information within the company.  If they were a hostile actor and they wanted to act in a nefarious manner, it would enable them to feed that information back to another hostile party. We have spoken about narrowing the scope of the regime, and I appreciate that that would be an amplification of it, but I think that is a point that is worth considering.

[Mark Garnier (Wyre Forest) (Con)]

Q I will carry on with the line you took just now about an investor’s potential influence over or access to a company. A little earlier, you were talking about start-ups who sought to get staged financing in order to try to build their businesses. Of course, there are more ways of getting investment than just getting equity. We know that if a business has a relatively small amount of equity but a huge amount of debt, the provider of the debt has much more influence over the company than perhaps the shareholders do. We saw that on the banking commission when we looked at the role of bondholders in influencing banks, compared with equity holders. Clearly the bondholders, in effect, had much more influence.

The other thing is that a start-up company can raise money in other ways. The Bill tries to make sure that we are not losing intellectual property, but a business can raise finance by licensing the intellectual property that we are trying to protect—I am not sure that that would come within the scope of this Bill—or even sell the intellectual property and license it back again. There are various other ways in which a company can raise finance, over and above equity, where there is a huge amount of influence or it falls outside the Bill. Clearly, crucial national infrastructure is a very different thing, but intellectual property is something that is very difficult to grab hold of; it is like trying to grasp a handful of sand. Given the objectives, I wonder how the Bill tackles those other areas, which seem to allow malign investors a way through.

Christian Boney: I think an important aspect of the Bill—this is one of the reasons why Lisa and I have described it as a broad regime—is that it does allow policing of the acquisition and control of assets, including intellectual property. In my experience, at least, that is quite different from what you see in other international regimes. Clearly, the acquisition of control of assets does not fall within the mandatory notification regime; nevertheless, it is helpful that the Government have the power potentially to exercise a voluntary call-in in respect of, for example, an acquisition or a licence of intellectual property.

[Mark Garnier]

Q And the debt issue—the fact that debt holders can be more influential over businesses than equity holders?

Christian Boney: That is certainly fair. I think the level of influence and control that a debt provider will typically get in what I will call the ordinary courts means that it is less likely—I am certainly not saying it is impossible—to be at the level of getting such granular, sensitive, let us call it operational information, which is the kind of thing we would really be concerned about. It would more be focused on getting access to financial projections, financial performance and that kind of information, which, although it can still be sensitive, is probably less sensitive than operational data. A balance needs to be struck, it seems to me, in the context of this legislation. Not having debt providers obviously within scope does limit the legislation, but does it strike an acceptable balance? My personal view is that, on balance, it probably does.

[Nickie Aiken (Cities of London and Westminster) (Con)]

Q From your professional point of view and experience to date, what could be the long-term impact of the Bill on UK business and investors? Will the Bill help or hinder the global position on investing into the United Kingdom?

Lisa Wright: In many ways, the regime just brings the UK into line with major international peers. From that perspective, for people doing deals around the world who have already experienced those other regimes, it ought not to have any real negative impact at all, provided that BEIS can deliver on the aspiration set out of a slick and efficient regime, turning around notifications within sensible deal timeframes and providing the kind of informal advice and early engagement promised. That will be critical, particularly in the early stages of the regime. From that perspective, I do not think this should have a long-term negative impact on people wanting to do deals in the UK. As Christian was mentioning earlier, it may be a slightly different picture for the start-ups and the smaller companies where they are caught up in the mandatory sectors, but overall I think it is right that this can be viewed as the UK bringing itself into line with what else is going on around the world.

Christian Boney: I agree with that. That is the right assessment.

--- Later in debate ---

[Simon Baynes]

Q Thank you for your excellent evidence, Professor Martin. You said, if I understood you correctly, that the process needs to be relatively open about why it is making decisions, but I foresee problems, particularly where there are issues of confidentiality and national security. Would you explore that a little? I note that within the terms of the Bill, decisions will be subject to judicial review or appeal, and the Government will be able to apply for a closed material procedure to protect sensitive matters in such proceedings. It seems to me that there is a potential problem there in relation to commercial and national security information sensitivity, so the “openness” of the system might be fairly limited and it might not be as respected as it could be.

Professor Martin: I get that completely. I do not think 100% transparency will be possible in this case. Obviously, it will be judicially reviewable, but I am entirely unsurprised that there is an explicit provision for closed material procedures. It will be a minority, but there will be cases in which the reason why a particular aspect of a particular piece of technology is really sensitive—it will probably be highly specialised, and there might be a dozen people, of whom four serve in government, who actually understand why—cannot be published. Then, of course, there will be commercial sensitivities.

Having said all that, if you take, for example—these are real examples—the current debate around the potential use of offensive cyber, or the sort of allegations Edward Snowden made against Five Eyes countries in 2013, or some of the defences that the Government had to use in the 2000s about their role in the aftermath of 9/11 and Iraq and co-operating with US forces, in my view there is a clear distinction between being able to describe the operating environment and the sorts of thematic issues that you are dealing with, versus individual cases, which often contain extremely sensitive detail. National security organisations can say much more about the former than historically they have been willing to do.

In something like this, where we are talking about business confidence and how the country looks to potentially very friendly and helpful outside investors who like the UK, want to come here, want to put money here and like the high-quality research and the brilliant innovators and individuals, it should be possible to give them something that says, “In the course of the last year, we have looked at quantum resistant cryptography and here are the types of aspects of this that we are reserving and here are the bits that are more open” or that sort of thing, without disclosing anything sensitive. That is all you need to be able to say—these are the judgments. Let us say that the Bill becomes law in the middle of 2021, for sake of argument. By 2025 and the beginning of the next Parliament, the tech landscape will look very different. You will not want investors to be looking back at the debates you are having in the House now as a guide to the latest way in which the Government are applying this, or looking at drip feeds of information. You will want something official. It should be possible to do that.

[Mark Garnier]

Q I want to refer back to some earlier questions about the skills within the investigatory unit that would be within BEIS. With your knowledge of Government, do you see any sort of experiences that can be carried over from the export control joint unit within the Department for International Trade? They do not have all the skills there, but they draw on skills from other Departments, particularly when it comes to arms export control and the eight consolidated criteria. Do you think there is potentially an opportunity in the day-to-day structure of the investigations unit for some lessons to be learned and carried across from the ECJU? Or do you think that is irrelevant?

Professor Martin: I do not know the ECJU that well, but it is relevant. I remember, although it was some time ago, being asked for specific inputs into that sort of point. The important thing is that the unit achieves a prominence and reach across the Government, because bits of Government will have to be involved occasionally and there will be bits that will be embedded. It needs a home—in our system of government, every organisation needs a home with a responsible Minister and an accounting officer and all that. However, I do think this needs to be broadly based and multidisciplinary. Export controls are one of the few areas where we have had to do that consistently for a number of years, so I agree that it is well worth a look.

[Mark Garnier]

Q Do you think it should be formalised or do you think an informal relationship with other Government Departments will be adequate?

Professor Martin: I think it should be formal. The Government are not new to this. There should be some sort of review board to make sure that it has the right resources, the right performance, the right skillset and so forth. I would encourage ministerial interest. It may be something that the National Security Council wants to periodically review. In my time in national security, there were standing issues that the Government would come back to twice a year, whether there was anything interesting happening on them or not, just to take stock. That might be an issue. In answer to the previous question about transparency, there may be a case for a formal presentation, secret detail and all, to the National Security Council every year, which would include all the potentially covert and sensitive stuff. It really needs to work with the grain of ministerial thinking as well. That will need to be done collectively, at some point, so there may be a role for the NSC.

[Peter Grant]

Q Good afternoon, Professor Martin. As part of the provisions for transparency and parliamentary oversight of the way the powers in the Bill would be used, the Bill would require the Secretary of State to have a statement approved by Parliament and then reviewed at least once every five years. Does that time period seem reasonable to you? Is there an argument for a shorter review period, especially in the early days when everybody will be feeling their way as to how the Bill works?

Professor Martin: There is a reasonable case for a more frequently reviewable point. There is also a cultural point about the way in which the political processes work. There are aspects of government about which questions are not routinely asked in Parliament, because they seem to be too secret. Again, it is a point about casework versus framework.

To my mind, there is no reason why the Secretary of State for BEIS could not be asked from time to time to update on this or why questions in the House should not be asked. I do not think technology changes fast enough that the whole framework of categories of regulated activity and so forth have to be updated more than every five years, but there will be a possibility of more frequent updates on working, approving listings and that sort of thing.

National Security and Investment Bill (Fourth sitting)

Mark Garnier Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[The Chair]

We have less than five minutes left, so I suspect that this will be the last question. Mark Garnier.

[Mark Garnier (Wyre Forest) (Con)]

Q When you were answering Chi Onwurah’s question, you posed the question, why would you buy a company if there is just a 1% risk that you would not be able to sell? I was going to ask you how the Bill could be market distorting in terms of the valuations of some of these businesses. You raise a very good point about investing in a business where you think you have fewer buyers than there were originally because of the Bill. That is a very important point. The flip side of that is the extent to which the Bill could be used as a frustrating measure for hostile takeovers. Have you done much on the price-distorting nature of what is going on?

James Palmer: I have not done any analysis, and I have not read the economics—that is beyond my pay grade—but I have worked on hostile takeovers for a very long time, and I have been involved in loads of auctions of businesses, with debates about who the buyers are and so on. It is blindingly obvious, isn’t it, that if you have fewer buyers, it has a price impact? I think the question is, what is the appropriate, proportionate acceptance of that? I do not think we should kid ourselves; if we want to dial up focus on national security, there will be a level of impact. I think what the Government are trying to do—they have sent very strong signals that this is their goal, which I am supportive of—is to ensure that, yes, we do it, and, yes, there may be a little bit of consequence, but that we try to keep it in proportion.

I think the risk we have here is not with the 10 or so active interventions that the Minister and Lord Grimstone have talked about in briefings on this, which is a very positive signal and a big reduction from the 50 or so that were consulted on before—that gave us, frankly, very high levels of concern. The concerns are, first, will that be held without a really rigorous review mechanism that ensures there is accountability over that review? I would raise four-year, eight-year, 12-year, continual reviews, where you actually look at economic impact and there are evidence-based requirements. I would also bring in proportionality on those to the judgments, because if you ask a group of very intelligent civil servants to think about risk and say that their job is to protect national security, you can find national security risks in almost anything.

I think there will be market distortion impact. John Fingleton, the former chief executive of the Office of Fair Trading, has commented broadly on this. The Economist wrote in an August article about the negative economic impact on US GDP being significant from its equivalent step up of the CFIUS rules. I think it is about trying to thread the needle in a way that keeps that very narrow and limited.

[Mark Garnier]

Q Very quickly, although this looks at equity investment, do you have any thoughts about the fact that debt holders can be much more influential and therefore possibly get away with the assets?

James Palmer: I heard the question that you raised this morning on that. I am not troubled by that. I think debt is a bit of a myth. The material influence test that the Government have picked is lower than a number of other EU countries have gone for but is at least consistent—it is levered off the test we already use, which I think is helpful—so I am personally a bit less worried about that than some others are. Finance does not worry me that much. If somebody seeks to foreclose and exercise, they are not going to be able to do so if they are going to be caught. I think we could get ourselves in a knot, and I think the London financing markets could be disastrously impacted if we were to start to try to regulate lending heavily on this.

[The Chair]

I am afraid that brings us pretty much to the end of the time available. Many thanks, Mr Palmer, for your time and your assistance to the Committee.

We will move seamlessly on to the next session and hear evidence from David Offenbach, a consultant at Simons Muirhead & Burton. While he is taking his seat, let me say to those members of the Committee who were not able to ask questions last time that I will try to make sure that you get an opportunity on this occasion or a future one.

Examination of Witness

David Offenbach gave evidence.

--- Later in debate ---

[Stephen Kinnock]

Q I am sorry; I saw that you have done a lot of work with private equity and thought that you may have been involved in that aspect of it. On sovereign wealth funds, do you see the China Investment Corporation—I do not know if you have ever done any work with it—as an arm of the Chinese Communist party?

Will Jackson-Moore: I am not in a position to talk about specific individual organisations. A number of sovereign funds in China are very well regarded in the international capital markets. However, in terms of their interaction with Chinese Government, that is not something that I have a perspective on.

[Mark Garnier]

Q My apologies for not being here at the beginning. I am interested in your work on sovereign wealth funds and private equity funds, in terms of working out the value of an investment asset. We heard evidence in the first session this afternoon—I do not know if you were here—than the fact that this Bill will restrict the number of potential buyers out there might then restrict the amount of interest coming in to start with; an investor with a target company to invest in may have limited numbers of people that they could sell it to when they want to exit, which will adjust the price. Have you had any thoughts about that at all?

Will Jackson-Moore: As I mentioned earlier, the UK is the gold standard for a location to invest in, particularly within Europe. Investors like investing in the UK because of the fairness and transparency, UK law and UK courts, and as a place to be based and to live, so there is an inherent benefit to doing UK-based transactions. However, and as we sit here right now, on a scorecard-type approach, the UK is not as attractive a location as it has been historically. We have the uncertainties of Brexit and we have a number of other territories looking to recover and rethink their economies given the situation we are all in, so there will be more—

[Mark Garnier]

Competition?

Will Jackson-Moore: Yes, there will be more competition for international flows of capital. As I have said, I do not think this Bill in its own right fundamentally changes the attractiveness, but it does create another level of shorter-term uncertainty, just because people have not seen it operating in practice yet.

[Mark Garnier]

Q Let me rephrase the question, then. Countries have directions of travel. Do you think that our direction of travel, as evidenced by things like Brexit and possibly this Bill and others, is a direction to a less attractive place, or not? If you were in government with a five-year plan to try to make us attractive, would this be part of your plan?

Will Jackson-Moore: It is entirely appropriate to have legislation to protect matters of national security, so perhaps this puts us on a level playing field with other nations. But does it specifically enhance our position for the attraction of international capital? The answer is not specifically, but it sets a standard that the international capital markets expect us to put in place.

[Mark Garnier]

That is very helpful. Thank you.

[The Chair]

We have no further questions from the Committee, so thank you very much, Mr Jackson-Moore, for your time and assistance. We are finishing slightly ahead of time, but I invite the Government Whip to propose to adjourn.

Ordered, That further consideration be now adjourned. —(Michael Tomlinson.)

4 pm

Adjourned till Tuesday 1 December at twenty-five minutes past Nine o’clock.

National Security and Investment Bill (First sitting)

Mark Garnier Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 24th November 2020 Public Bill Committees

[Peter Grant]

Q I think this is the first time I have had to stand further away from somebody to speak to them. Thank you for your attendance today. We have heard a lot this morning about the threat from China and a bit about the threat from Russia. There may well be other hostile states out there that have their eyes on us. There are certainly hostile non-state enterprises that have their eyes on us. Is the Bill wide-ranging enough to allow the Government to respond to all those different kinds of threat? Does it allow enough flexibility to respond to the threats that we have not yet discovered, that we do not know about or have not yet been invented?

Sir Richard Dearlove: Obviously, the threat scenarios shift and change. I think I accept that. Clearly, at the moment, what is driving our considerations is mainly China, but you are right. It applies to others—Iran, North Korea—and there may be other states.

A good example in the past, not a current one, is Pakistan. The Pakistani bomb built by A. Q. Khan—the Khan Research Laboratories—was created by sending 600 Pakistani PhD students to do separate bits of research in different universities around the world. That is the origin of our thinking on counter-proliferation, and it is another very clear example of where you have to have control from the security services. Now, I believe, we register PhDs in relation to the nationalities studying in certain areas.

The Bill should be able to accommodate a changing set of scenarios, and you are right to say that non-governmental organisations can become problematic. The proliferation issue, whereby Khan was trying to sell his technology to other countries, happened around the time of my retirement and the disarmament of Libya. That was all based on Pakistani technology, but there was a commercial network run by a family of Swiss engineers called the Tinners. This is an example of how dangerous things can be. The Tinner network had several semi-clandestine factories dotted around the world that were all making different parts for nuclear centrifuges. Okay, that network was eventually dismantled by the UK and the Americans, but the problem of national security goes into some pretty odd areas, and you are right to identify those as not necessarily just being China or, in the past, Russia. There are still aspirations on the part of certain powers to break the non-prefoliation treaty and become nuclear weapons states.

[Mark Garnier (Wyre Forest) (Con)]

Q It is a pleasure to serve under your chairmanship, Mr Twigg. Sir Richard, I want to ask some questions about how the Bill and the mechanisms that make it operate cut across certain other parts of Government Departments. That is clearly looking at how we can scrutinise investments coming into the UK, but we also have a department with respect to export control. Broadly speaking, this is quite a similar type of problem. Although it is not necessarily looking at intellectual assets, it certainly looks at the ability of countries that are buying certain things to reverse-engineer, and therefore to try to steal our intellectual property in that way.

I am interested in your view on how the department that is proposed to be set up within BEIS to scrutinise this cuts across the Export Control Joint Unit, which is obviously a combination involving four Government Departments. Is that complementing it or contradicting it? Can they cut across each other? How do you see those two departments working together? They ultimately have the same aim, although they come from slightly different objectives.

Sir Richard Dearlove: I cannot give you a detailed answer to that question. From my experience, I would say that on some of these issues the co-ordination of Government Departments is one of the really big challenges, particularly when they ultimately have different objectives. The sophistication of our co-ordination mechanisms in the UK has not been highly developed, so we have run into problems in the past. My suggestion would be that this be given forethought rather than afterthought—that there is some arrangement to avoid those clashes of departmental interest.

[Mark Garnier]

Q I would not want to put words in your mouth, but it sounds like you would suggest that this Committee urge the Government to look at the possibility of developing relationships between those two departments, so that they are not contradicting each other.

Sir Richard Dearlove: Yes, because they could be pulling in different directions. You have to have some degree of co-ordination. It is always better if these things are anticipated and something is put in place in advance, rather than scrabbling around to sort it out afterwards. I have seen that happen a lot.

[The Chair]

We are back to facing the front now, Sir Richard. Most members of the Committee wish to speak and I want to get everyone in, but I will have to cut them off at 11.25. Keep questions as succinct as possible.

National Security and Investment Bill (Second sitting)

Mark Garnier Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 24th November 2020 Public Bill Committees

[The Chair]

Dr Lenihan, I was trying to squeeze two more questions in, but I think it will probably be just one.

[Mark Garnier (Wyre Forest) (Con)]

Q Thank you, Sir Graham. Dr Lenihan, my questions refer back to points you made in response to the first batch of questions. You spoke of the review regime not being quite up to full standard. It is an interesting dichotomy that the Bill sets up a new review regime in BEIS, but there is an export control unit in the Department for International Trade that already looks at arms control, as well as intellectually sensitive exports. I would be interested to hear your comments about how those two play together.

Secondly, it is worth bearing in mind that the Minister, Lord Grimstone, sits in both the DIT and BEIS. He is responsible for investment promotion. We are talking about more acquisitive types of investment, but do you see a potential conflict of interest between the ambitions of the Government to secure more investment into the UK and potentially having the wrong kind of investment?

[The Chair]

Sorry, Mark, but we have about 90 seconds for that to be answered. Please have a go, Dr Lenihan.

Dr Lenihan: I would suggest that the investment security unit and the unit that will handle the processing of this regime remain in BEIS. That is fine; however, it would be useful to set up in the Bill some sort of multi-departmental review body that contributes regularly, and that has staff in those Departments who monitor the risks in relation to this concern. As you say, the Department for International Trade will be able to monitor, find and catch risk that others—such as the Foreign, Commonwealth and Development Office, GCHQ and its new cyber unit—cannot.

It would seem very strange to not have a feed-in from intelligence agencies and the Ministry of Defence on a regular basis. If you set that up in an institution that is clear, at least to the outside world, about its composition and makeup, as opposed to having ad hoc feed-in over time, it would help with the perception of openness from the outside. It would also help to counter any claims of an individual or place being politicised or used for some other purpose by a particular Minister, because then they could give a balanced opinion for the Secretary of State in charge to make a final decision.

--- Later in debate ---

[Stephen Flynn]

Q Thank you, Mr Petrie, for your answers so far. I just have a couple of straightforward points for you to address. We discussed the timeframe in earlier sessions, in relation to the five years of retrospectivity, the six-month call-in and the potential 75 days. Do you have any concerns about the impact that that might have on potential investors into the UK? On a similar note, in terms of the fact that there will potentially be in excess of 1,800 notifications annually, an entirely new body will have to be set up, possibly working across Departments and involving the security agencies. A lot of detail will need to be put behind that, and again, that will take time. Do you think any of that will cause any uncertainty among investors and perhaps lead them to look elsewhere?

David Petrie: Perhaps I could deal with the second part of your question first, if I may, on the potential number of notifications that the new legislation is going to necessitate. The first point I make about that is that this new investment security unit will need to be very well resourced. A thousand notifications a year is four a day; I am just testing it for reasonableness, as accountants are inclined to do. That is quite a lot of inquiries. I note from the paperwork that the budget allocated to the new unit is between £3.7 million and £10.4 million. I do not know and cannot comment yet as to whether that is likely to be adequate. What I can say is that the impact statement also suggests that of those 1,000 or so transactions which are going to be subject to mandatory notification, only 70 to 95—the numbers set out in the impact statement—are likely to be called in for further review by the Secretary of State, where a very detailed analysis of those businesses and the potential target is going to be necessary.

As, I hope, has been echoed by other witnesses, it is going to be extremely important that this new unit can engage in meaningful pre-consultation with market participants—with British companies, finance directors, and investors and their advisers—so that they can get a pretty clear steer at an early stage as to whether or not this is likely to be subject to further review. If the unit operates in a way where it can give unequivocal guidance to market participants at an early stage and is open to dialogue—I understand from discussions with the Minister that this is the way the unit is being asked to operate—that would be extremely helpful.

I would say that that is about process, certainly, but I think it is also about culture. It has to be a balance, which is well achieved by the Takeover Panel, for example, in this country. You do not tend to approach the Takeover Panel unless you are well-informed and have done your homework—"Don’t bother us with stuff you ought to know” is the unwritten rule. But at the right time and place, I think it is important that there is an opportunity for market participants to be able to engage in a dialogue. The guideline where we put this “Don’t bother us with stuff you ought to know” question is going to shift. At the moment, we really do not know a lot about the way the Government are going to look at certain transactions. We do know which sectors and operating activities are in scope, but, again, we are not quite sure at what stage it will be right to consult and try and get clear guidance. This process will evolve.

I note that the Bill includes provision for the new unit to issue an annual report as to the number of transactions called in and the sectors they are in. That will be extremely helpful for market participants. An issue here, I think, is potentially asymmetry of information. In order to resolve potential asymmetry of information amongst the investment and advisory community, it would be very helpful that the unit is well resourced and able to engage in meaningful pre-consultation, but, by way of a third recommendation, it would also be extremely useful if it was able to issue meaningful market guidance notes, similar to the notes that accompany the takeover code. That would again be extremely helpful so that we can understand. It would help the market to be better informed. If, for example, the unit is receiving a lot of notifications that are not correctly filled in or with important details as to ownership missing, then it would helpful to have guidance notes as to what we can do to make sure this process works with more certainty, speed, clarity and transparency—these are the things financial markets need to see—to help us with that, beyond what has already been issued, which is very helpful, I have to say. As the market evolves, that would be extremely helpful.

[Mark Garnier]

Q May I follow on from that question about the resources? There is talk about 1,800 companies coming forward and voluntarily disclosing that this transaction is going on, but I am just as interested in what happens with those companies that do not disclose this? I am not for a moment suggesting that there are a huge number of dishonest actors involved in the corporate finance market, but given the fact that the threshold was reduced to £1 million a year under the recent review, there are an awful lot of small businesses with turnover of about £1 million a year that are not very well resourced for their corporate governance functions and that could easily miss the requirement to disclose, should a transaction come through that is enticing for the shareholders, who are presumably offered the same as the directors. Are you confident that the Government have in place sufficient resources to be able to police the whole sector, to make sure that we are not missing out on a number of transactions that are going through? Even if we do, are we getting in there quick enough to make sure that the intellectual damage is not done by the time we have found out what is going on?

David Petrie: That is a very difficult question. We will find out—that is the answer to that. I think businesses working in sectors where there is a real threat to national security know that. They know that they are involved in weapons design or designing software that could have a dual use. In advising companies over the years, I have found that no one knows better than the company directors about the value of their assets and their business, both from a market perspective and to competitors or others seeking to gain access to their technology.

The Bill has been in discussion for some years now, and the advisory community is well aware of its existence and of the Government’s desire to put this legislation on the statute book, so I do not think there will be many corporate finance advisers for whom the Bill emerging last week was a surprise. I am very sympathetic to the points made about small companies falling under the provisions of the Bill, but I hope that it will be possible for them to complete what, in the first instance, is a five-page questionnaire—when completed, it could run to 20 pages or more—at a relatively low cost.

To my earlier point, I hope they are able to engage in formal and meaningful dialogue with the unit at the earliest possible opportunity by saying, “This is what we do, and this is what we are worried about.” They have to say, “We’re concerned about this. These are the people from whom we are hoping to attract investment to take the business to the next stage. How do you feel about our business, and how do you feel about the people we are talking to? How does the Government feel about xyz corporation?” I think that kind of steer would help remove a great deal of uncertainty from the circumstances that you have set out.

[Simon Baynes]

Q Thank you, Mr Petrie, for a very interesting presentation. I want to look at two areas. One was touched on by the previous witness: the inclusion of not only businesses, but tangible and intangible assets. That is one issue. The second is the acquisition of material influence over qualifying entities’ policy being another trigger point. I would have thought that these are more subjective—perhaps I am wrong—in terms of how you define them, whereas the other trigger points are obviously very clear cut. There are different levels of voting shares in the qualifying entity. I think the previous witness was somewhat surprised to see the tangible and intangible assets element of it and said that this goes further than other similar regimes in other countries. Can you comment first on whether you are surprised or whether you think it makes perfect sense? Secondly, is it easy to define the material influence and the assets, either intangible or tangible?

David Petrie: On the question of tangible assets, it really depends on what we are talking about. Again, it was trailed in the White Paper and the Green Paper that assets would also be within scope, so it is not going to be a surprise. It depends very much on the nature of those assets. In a relatively small country, the ability to acquire land or other buildings—strategic assets—immediately next to a sensitive military installation is, presumably, now included within scope because people who know about these things think it ought to be. I think the investment community will have a degree of sympathy there.

With intangible assets, that is a much more difficult question. It depends on the extent to which ownership of those assets is necessary in order for a malign actor to have the control or the information that they might need. It is possible to gain access to intellectual property through means other than ownership, so the question here is, how might those intangible assets be applied in ways that might prejudice our national security in some way? Again, that is something that the unit is going to have to assess on a case-by-case basis.

It makes sense to include assets that could be sold separately, without the sale of shares in a business. Companies often do that. They may well sell a parcel of patents, or parcel up a division and sell it on because it is no longer core to their operating activities. That is understandable. The investment community will understand that. In short, it is not a surprise, and we are going to have to find our way through this on a case-by-case basis.

Oral Answers to Questions

Mark Garnier Excerpts

Tuesday 21st January 2020 Commons Chamber

[Kwasi Kwarteng]

The hon. Gentleman will be pleased to know that we have sector deals handling exactly that problem, for example in the oil and gas sector. We are making a successful transition from old industries to the new low-carbon-emitting, greener industries of the future. Offshore wind, of which there are a number of examples—I believe that there is a supply chain near the hon. Gentleman’s constituency—is a great success: we have 35% of global capacity. That is part of the transformation of the economy that we are talking about.

[Mark Garnier (Wyre Forest) (Con)]

9. What steps she is taking to support the space industry in the UK.

[The Minister for Universities, Science, Research and Innovation (Chris Skidmore)]

The UK space sector employs 42,000 highly skilled people, generating more than £300 billion for the wider economy. We recently committed ourselves to investing £374 million a year—a record 15% increase—with the European Space Agency over the next five years, and our national space council and space strategy will help us to lead the way in the evolution of this high-technology sector.

[Mark Garnier]

Following the welcome announcements in the Queen’s Speech about investment in the UK space sector, will my hon. Friend tell us the status of funding for innovation in the sector and of plans for the proposed UK space strategy?

[Chris Skidmore]

I thank my hon. Friend for his work as vice-chairman of a newly formed all-party parliamentary group, the parliamentary space committee. I know that he plans to fly to the United States next month to attend the launch of the European Space Agency’s solar orbiter, which was built in Stevenage. It is a fantastic piece of UK science engineering and was funded by the Government to the tune of £216 million.

I understand that the space industry has proposed a space innovation fund, and I am interested in working with the industry on that. The national space council will consider how we can build on existing commitments through a comprehensive UK space strategy, which will help to create thousands of jobs across the country.