National Security and Investment Bill

Mark Pritchard Excerpts

2nd reading & 2nd reading: House of Commons
Tuesday 17th November 2020 Commons Chamber

[Alok Sharma]

My hon. Friend makes a very important point. We are giving certainty, and we expect that most call-in decisions will be decided upon within 30 days. I said that we expect that less than 1% of all transactions in any given year will be called in, and only about 10% of those will then face detailed scrutiny.

[Mark Pritchard (The Wrekin) (Con)]

Will the Secretary of the State provide clarity to the House about the jurisdiction of the Bill? For example, if a German technological company was listed in Germany but the IP and research and development was based in the UK, what powers would the Government have to act?

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[Alok Sharma]

My hon. Friend speaks with a great deal of interest and experience in investments. This Bill focuses on national security, and we have been clear that we will define the sectors where mandatory notification is required, which is right and proper. The whole point of the Bill is that we are taking a proportionate approach. We do not want some kind of chilling effect on investment coming into the UK. We have been a beacon for inward investment over many years with, as I said earlier, three quarters of a trillion dollars coming into our country over the past 10 years. We would not want that to change.

Transactions covered by mandatory notification that take place without clearance will be legally void. Again, that is in line with the French, German and Italian regimes. Parties to an acquisition may, of course, voluntarily inform the Secretary of State about their acquisitions to seek swift clearance to proceed. We have also streamlined the information required for notification from 36 pages, as required under the Enterprise Act 2002 for competition modifications, to a third of that.

The use of digital processes will make interaction with the Government much simpler, more transparent and slicker, and Government will aim to provide clearance for most transactions within 30 working days of notification, as my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) raised earlier. Having spoken to the investment community over the past week, I know that that timely approach to the clearing of transactions is welcomed.

Moving on to the assessment of called-in transactions, part 2 of the Bill provides powers to assess transactions should the Government call one in. Where the specific legal test is met, the Government may impose conditions or, in extremis, block or unwind transactions. I stress once again that the Government will use those powers sparingly and proportionately.

The Government will take the necessary powers in the Bill to gather information about any transaction. However, such information will be strictly safeguarded against inappropriate disclosure. That includes, of course, information from parties, regulators and others to make informed decisions on transactions. If no remedies are imposed, a final notification will be provided at the end of a national security assessment. Alternatively, the Government may choose to prescribe remedies.

Any notification decision under the Bill will be subject to legal challenge from the potential acquirer entity by way of judicial review or appeal, and the Government will be able to apply to the court for a closed material procedure to protect commercially sensitive and national security matters in such proceedings. The investment security unit will ensure that the entire process is streamlined and supported by robust digital structures and governance to ensure swift decision-making on assessments.

It is worth noting that the new regime will be underpinned by both civil and criminal sanctions, creating effective deterrents for non-compliance with statutory obligations. Again, that is in line with sanctions in the French and German regimes.

[Mark Pritchard]

Is it not the case that a call-in itself could be commercially sensitive, particularly to a listed company? In that regard, a default of self-referral to the Government would probably be a better way for industry to ensure that share prices are not unfortunately affected by what might be a legitimate call-in.

[Alok Sharma]

My hon. Friend raises an incredibly important point. Of course, self-referral, as he refers to it, is possible. In fact, if any company has particular concerns as to transactions that they may be undertaking or part of, they will get a swift assessment from the Government.

I make the point, though, that we will not be effectively publicising call-ins when they take place. Clearly, at the end of a transaction, if there was a particular remedy, that would be made public. It is also worth pointing out that the Government will publish an annual report, not on individual transactions, but on the scope of the transactions and sectors that have been looked at. I hope that that will give future investors an opportunity to consider the type of transactions in which the Government have a particular interest.

The final measure that I want to detail relates to the overseas disclosure of information relating to a merger investigation. Under section 243 of the 2002 Act, there is a restriction on the ability of UK public authorities to disclose merger information to overseas authorities unless the consent of the entity has been given. Clause 59 of the Bill removes that restriction. That will strengthen the Competition and Markets Authority’s ability to protect UK markets and consumers as it takes a more active role internationally, allowing the UK to set up comprehensive competition agreements with our international partners.

In conclusion, I hope that right hon. and hon. Members on both sides of the House see that the Bill updates our national security powers in a proportionate, pro-trade and pro-business manner.

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[Mark Pritchard (The Wrekin) (Con)]

It is always a pleasure to follow the hon. Member for Aberavon (Stephen Kinnock). Although I did not agree with everything in his speech, I have fond memories of being in his constituency playing rugby as scrum half, fishing, and go-karting on rickety self-made go-karts that often fell apart. I also went to my first rock concert at Aberavon leisure centre—The Who; I think they were at Madison Square Garden some years earlier, I hasten to add.

I welcome the Bill. As has already been stated, it is perhaps a little long overdue, given that my predecessors on the Intelligence and Security Committee suggested in 2013 that such a Bill was required urgently. I also put on record my thanks to my hon. Friend the Member for Isle of Wight (Bob Seely), who has been calling for such a Bill for many years. I am sure he is, at least in part, happy to see the Bill before the House. I also commend the Secretary of State, the Minister and, indeed, the whole ministerial team for bringing the Bill forward so early in this Parliament.

It is, of course, right that the Secretary of State has new powers to scrutinise strategic and sensitive investments in sectors that might pose a national security risk to the United Kingdom. The Bill should also act as a legislative assurance, or reassurance, for would-be investors and businesses. They can now avoid, hopefully, being targeted and potentially exploited by the hostile states and entities hidden behind the respectable veil of supposedly legitimate mergers and acquisitions that take place in the City every day—strategic partnerships, joint ventures and major investments.



The Bill also rightly responds to the huge advances in technology, as we have heard from other hon. Members today, which in itself further widens the potential scope of the Government’s national security concerns—and, indeed, remit—particularly around intellectual property, patents and copyright. Although this might prove problematic for the Government, particularly around dual technology, it is absolutely right that it should be addressed. We heard from the hon. Member for Dundee East (Stewart Hosie) earlier on the use of dual technologies. However, the Bill should not mean compromising growth or prosperity, and I was glad to hear the Minister underscore that. Got right, there is no need for it to compromise or conflict with national security and national prosperity. It is more than manageable, certainly with this excellent ministerial team, for the Government to balance national security and economic competitiveness, and to give the Government greater powers to assess and scrutinise investments that could reasonably be viewed as posing a potential risk to the UK’s national security. The Bill rightly empowers the Secretary of State, where necessary, proportionately to impose remedies up to and including blocking the transaction, using full through to lower-level measures. If the risk to national security is extreme, clearly those fuller measures should be deployed.

Of course, the Bill protects businesses that are small. We have heard from hon. Members on that as well, and I think the Government need to be careful that investors are not put off by the potential for many months of bureaucracy and hurdles to entry to market, particularly at the start-up stage or the second or third capital raising stage for entrepreneurial SMEs. The Bill will, of course, look at small businesses, and many of these small businesses have a global reach although their turnover might not be particularly large. They might—by definition, as small businesses—have fewer than 30 employees, but that does not necessarily mean that their technology and intellectual property are not of interest to some of the UK’s adversaries.

In welcoming the Bill, I would like to take the opportunity to thank my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) and his Committee for their work. He has raised this issue over many years, and I would like to put on record my thanks to him. My hon. Friend the Member for Beckenham (Bob Stewart) has rightly mentioned computing hardware, quantum technologies and satellite and space technologies. There is a list of 17, and I will not go into them now, but it is absolutely right that these very sensitive areas fall under the remit and the scrutiny of this new legislation. Madam Deputy Speaker, you will know as a previous distinguished member of the Intelligence and Security Committee, that the Committee is currently considering the threat of this whole area in its current inquiry into the national security threat that China may or may not pose. In my view, it poses a significant threat in a lot of areas. Will the Minister give an undertaking to the House that there will be a timely publication of those mandated reporting sectors?

If I may, I would like to ask a few questions, through you, Madam Deputy Speaker, of the Government. Can the Minister explain the Government’s arrangements for the new investment security unit? How will it interact with the national security apparatus and structures that already exist, including the investment security group? Will the investment security unit consider acquisitions that might result in an indirect threat—for example, through supply chains or managed service providers? What safeguards will there be in the Bill to prevent non-UK Governments from pressuring the UK Government to call in certain mergers and acquisitions that those Governments might find offensive or inappropriate even though the UK might take a different view? Also, on the issue of competitors, what safeguards will there be to prevent vexatious and spurious calls for the Government to intervene by competitors who feel they are going to lose out as a result?

This Bill is long overdue, but it is right to give credit where credit is due. I thank the Government for bringing it forward and I hope that they will work with the ISC and the whole House as it goes through to Report stage. I commend the Bill and thank the Minister for all he is doing.