Draft Enterprise Act 2002 (EU Foreign Direct Investment) (Modifications) Regulations 2020

Mark Harper Excerpts

Wednesday 8th July 2020 General Committees

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

I beg to move,

That the Committee has considered the draft Enterprise Act 2002 (EU Foreign Direct Investment) (Modifications) Regulations 2020.

It is a pleasure to open the debate under your chairmanship, Mrs Miller. The draft instrument was laid before the House on 8 June. I will try to clearly explain the rationale behind it, but first let me turn quickly to foreign direct investment more broadly.

The UK has a proud and hard-won reputation as one of the most open economies in the world. We remain the top destination in Europe, and the third in the world, for foreign direct investment, with 58,000 new jobs created in the UK in 2018-19 through that inward investment.

Although most FDI does not raise concerns, it is vital that any transactions that could operate against the public interest should be scrutinised. Under the Enterprise Act 2002, the Secretary of State has powers to intervene in mergers that present public interest concerns. The Government will shortly bring forward the National Security and Investment Bill to further strengthen the UK’s ability to scrutinise investment into the UK. There will be the usual opportunities to debate the Bill once it is introduced.

The European Union also recognises the security risks that can, on occasion, be posed by foreign direct investment, and has responded by bringing forward a regulation that establishes a framework for the screening of foreign direct investment into the European Union. The draft instrument will make effective that regulation, which will come into force on 11 October. As Committee members will know, under the withdrawal agreement the UK is obliged to implement EU law during the transition period. Most of the regulation’s provisions will automatically have direct effect in the UK. I will briefly set out its purpose.

The regulation will create a mechanism that will allow the UK, member states and the European Commission to share information about investments with each other. Specifically, the EU regulation does three things. First, it requires member states and—for the duration of the transition period—the UK to provide notification of any FDI that is undergoing scrutiny. That will have no impact on us, because in the UK notifications of screening under the Enterprise Act are already published on gov.uk.

Secondly, the regulation allows the UK, member states and the European Commission to issue opinions and comments on investments that are being screened elsewhere in the EU, and to request information where their own security or public order might be affected. To be clear, while any opinions expressed might be considered, they will not affect the UK Government’s right to intervene in or make decisions on merger cases that we consider may raise national security concerns: our sovereign capability is not affected.

Thirdly, the regulation requires member states and the UK to share basic information about FDI that has not already been screened where it may affect another member state’s security or public order. The UK could similarly request information or issue opinions on investments occurring in EU member states if we felt that our security or public order might be affected. Member states and the UK are not required to share information on specific security or public order concerns.

The EU regulation will automatically become part of UK law on 11 October 2020. However, some measures in the regulation require changes to UK law to ensure that it can operate effectively in the UK. The draft instrument makes those changes. It will allow the Competition and Markets Authority, the CMA, to use its existing powers, set out in the Enterprise Act, for the purposes of regulation.

However, two changes to the Enterprise Act are being made. The first extends the CMA’s existing information-gathering powers and associated penalty regime. The CMA already gathers information for businesses, when the Secretary of State intervenes in a merger, by issuing a public interest intervention notice, or PIIN. However, the EU regulation allows information to be requested about FDI that is not undergoing screening—when a PIIN has not been issued. It is these cases for which the additional information-gathering powers are needed.

The CMA will be able to gather this information only when a member state or the European Commission has requested it on the basis that FDI into the UK might affect their own security or public order. The types of information that can be requested include the ownership structure of the foreign investor, the value of the investment and the date when the investment is planned to be or has been completed. Businesses already hold that information, so it will not be burdensome to provide. If, however, a business fails to comply with a request, penalties could be issued. The instrument extends the scope of the existing civil and criminal penalty regime available to the CMA, as set out in the Enterprise Act.

The second change that the instrument makes will allow the Secretary of State and the CMA to disclose information to the European Commission or member states where the Secretary of State wishes to provide comments on FDI in a member state. The Enterprise Act already allows the Secretary of State or CMA to provide information to the Commission or member states where that is required because of a Community obligation, but that would not be the case when we actively choose to provide comments on FDI in a member state, which is why the second change is needed.

[Mr Mark Harper (Forest of Dean) (Con)]

May I ask the Minister a question about that second point? I have been listening very carefully to what he said. The explanatory notes make it clear that these regulations will be revoked at the end of this year, when the transition period comes to an end. In the Bill that we will introduce, are we proposing to allow Ministers to continue sharing information with the European Union where they choose to do so in the cases that he set out, or will that come to an end when these regulations are revoked?

[Paul Scully]

I thank my right hon. Friend for his intervention. The regulations will be repealed as part of the wider European Union (Withdrawal Agreement) Act 2020. They do not interact with the Bill that we are introducing, but add further powers that can be used.

The UK and the EU have both stated that we intend to support ambitious, close and lasting co-operation on external threats. That co-operation should respect both sides’ strategic and security interests and respective legal orders. We are open to participation in security-facing EU programmes and instruments on a case-by-case basis.

--- Later in debate ---

[Paul Scully]

As I say, although we are obviously obliged to abide by EU law during the transition period, we do not believe it would be appropriate to remain part of the reciprocal information-sharing channel after the transition period has come to an end. As I say, when the National Security and Investment Bill is introduced, we will be able to debate that fully.

[Mr Harper]

May I clarify something? I think the right hon. Member for North Durham is asking a slightly different question about reciprocal obligations. My question was more straightforward. These regulations give the CMA a power that it does not currently have to share information that we wish to share.

All I was asking was this: in the future, when we are no longer obligated to share information with the EU, will Ministers have the legal power to share that information if they chose to? They will under these regulations, but once those are revoked will Ministers have the power, under the Bill that the Minister has talked about, to share information with the EU if they choose to do so? That is all I was asking. I did not go quite as far as the right hon. Gentleman was suggesting.

[Paul Scully]

I thank my right hon. Friend for that clarification. We already share a lot of this information on gov.uk, and it is not particularly burdensome on businesses to release the information we are looking for. Much of this work is in effect tidying up, because we have gone that little bit further in the Enterprise Act.

--- Later in debate ---

[Mr Harper]

I have one question and one point. I am conscious of your injunction, Mrs Miller, to stick to the subject. This is directly related to points that are made in the explanatory statement.

I disagree with the hon. Gentleman about the future framework—

[Mr Jones]

Right hon.

[Mr Harper]

The right hon. Gentleman. I disagree with him on the compulsory nature of the information sharing. I am perfectly happy with a co-operative framework. The point I was driving at—I think this is the substance of the regulations—is that in order for the CMA to share information, it has to have the power to share the information. If it shared the information, even if it wants to, that would be unlawful; it does not have the power to do that sharing.

My point, which I think is different from that of the right hon. Gentleman, is that I am perfectly relaxed that we are not able to compel European Union member states, post the transition period, to share information with us, because I am content that they should not be able to compel us to share information with them. I do, however, want to see a structure where we co-operate with them, so that where we choose to share information with them, we are empowered to do so. The regulations specifically address allowing us to share information.

My question to the Minister is about what is intended to come afterwards. Do we intend to replicate the ability for us to share information where we choose to do so? That is a different point from that made by the right hon. Gentleman, which, I think, is about some element of compulsion.

My second point is that the explanatory notes explicitly say that the intention is to revoke not just the instrument we are debating today but the retained version of the foreign direct investment regulations in their entirety at the end of the transition period. Paragraph 7.1 of the explanatory memorandum states that the FDI regulations do not

“affect the UK’s ability to screen investments into the UK”

because we will retain our own responsibility for national security. Once we have removed those FDI regulations, do we currently have domestic powers to do that screening, or is that what the new Bill is for?

That is an important question, because if we currently have powers and the new piece of legislation the Minister refers to is about strengthening or extending them, I am fairly relaxed about whether there is a gap before the Bill comes into force, because if we already have substantial powers and we are talking about beefing them up, I can live with there being a gap. If we revoke the FDI regulations on 31 December, however—and with them, our current ability to do screening for our own national security—the right hon. Member for North Durham is right to say that we would need the new legislation to come into force immediately upon their revocation or there would be a gap, not just in the sharing of information, but in our own national security. That is a point on which I differ from the right hon. Gentleman, but also one very specific question that pertains to points in the explanatory note.