National Security and Investment Bill (First sitting)

Matt Western Excerpts

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

[Andrew Griffith (Arundel and South Downs) (Con)]

Q It is a pleasure to serve under your chairmanship, Mr Twigg. Mr Parton, thank you for your past service. You have clearly studied China and Asia at a fascinating time in their own economic development. I will ask you to play devil’s advocate.

As a Committee considering this Bill, we will hear from a constituency that could sometimes trip over into Sinophobia, being against any form of engagement or trade with China. Looking at the economic development of that market and the opportunities that it presents, could you talk a bit about the non-risk-based categories, such as inert goods and household manufactured goods, which the Committee should draw a clear line around, and those categories that you have talked about, which are covered in the Bill and speak to a real national threat?

Charles Parton: Let me make the general point that I am sometimes accused of being anti-Chinese. I greatly resent that. I am anti-party, as anybody should be if they saw what it does in places like Xinjiang or Hong Kong. I am not anti-Chinese. I think the Chinese Communist party itself deliberately muddies the waters on that one and says, “You are anti-China,” when, actually, you are opposing the policies of the Chinese Communist party. That said, I began the session saying that we want investment from China, trade with China and good relations with China. China is a major player. This must not be a cold war. If America or China decides to pursue that, we must try to avoid it.

I always talk about the holy trinity of national security, UK interests and UK values. We should establish those with the Chinese and say, “Sorry, those are non-negotiable. Just as you sometimes come and say, ‘These are our core interests and we are not negotiating them,’ we have the right to do that too.” But beyond that, we want open trading relations and open investment relations. What is wrong with China buying London Taxis International? Nothing. If it wants to invest and that is mutually beneficial, great.

We want an open China as much as possible. We certainly want a much more level playing field than there is at the moment. China runs a series of negative lists and there is much on them, particularly in the area of services, which we would want opened up. We must press for that in conjunction with the Americans, the EU, Australia and all the other democracies that wish to trade with China. In many ways, that is in China’s interest. It is certainly in the interests of its people. A closed market, with China just relying on its own consumption—it is a big market—is not going to be good for China any more than it is good for us. I fully go along with that. I do not think we should be anti-China in any circumstances. That is, in a sense, racist. We should be anti-Communist party, or certain against its policies, but with the Chinese people, and in trading, we should maintain a perfectly normal relationship.

[Matt Western (Warwick and Leamington) (Lab)]

Q It is a pleasure to serve under your chairmanship, Mr Twigg. Mr Parton, I want to pick up your point about access to academics, universities and so on. There is clearly a big push from universities to invest heavily in China and build relationships. Do you think there should be more safeguards in the Bill for those relationships? Secondly, do you think the Bill provides sufficient protections for intellectual property?

Charles Parton: On the first question about academics, I am not sure whether this is about investment. I think that academics are in some ways a separate question, unless universities are setting up, as they do, companies, and are moving that way.

[Matt Western]

Q I am thinking about Cambridge and so on, which are moving into more commercial areas.

Charles Parton: Where academia sets up a company, and that involves itself with China, yes, that should be under the purview of the Bill. There is a separate question about when Chinese companies hire or fund—whichever you like to say—UK academics to carry out a specific piece of research for them. Universities are working on that, and that is a very urgent question. Again, I think that a much stricter regime should be put in place to stop the seeping out of technologies that could be used in the military field or the repressive one. I am not convinced that that is there at the moment; I am sure it is not. That might be a separate question. It may or may not be one that requires parliamentary legislation—people who are experts on that can make up their mind—but some form of consultation with the Government, or perhaps a sanctions regime, needs to be put in place so that that does not happen.

On the question of intellectual property rights, China has a very rigorous campaign to get hold of our IP. Some of it is stolen through cyber, and I am sure our intelligence services and others are doing their best to combat that. I am not sure about the degree to which this Bill can act as a defence against Chinese abuse. It can certainly try to encourage companies to raise their own defences, but the UK has an organisation—the Centre for the Protection of National Infrastructure—that aims to put out that advice and help. I do not know whether it is strong enough in its actions and shield; that is outside my area of expertise. It is certainly there, but perhaps it, too, needs strengthening.

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

Q It is a pleasure to serve under your chairmanship, Mr Twigg. Mr Parton, thank you for your time today. You said that small firms may come under pressure to be bought up, and are often targeted. What is your view on how this Bill can strengthen national security by ensuring that firms—particularly small firms—are not taken over by legitimate, friendly actors, which further down the road are bought up by China or whoever? Does the Bill protect us from that type of long-term acquisition?

Charles Parton: I suspect that there is a limit as to how far down the line one can go, but where activity is still going on in the UK—that is to say, where UK individuals are still running that company in the UK on behalf of a friendly foreign country, and the company is later bought up—that should be covered by this Bill. Otherwise, you are absolutely right: you may find a company in Liechtenstein buying it; then the company gets bought by the Chinese, and the technology gets siphoned out. There has to be a defence against that.

If a company is bought by a friendly country and the technology is exported, and nothing is happening in the UK, then I cannot see how extraterritoriality would be applicable.

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[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.

[Matt Western]

Q I want to pick up on a couple of points. You spoke about energy policy and, as we have seen over the past nine months, some of the risks and threats to our society and economy come from unexpected places. Do you think that the Bill does enough to recognise where those threats may come from and that they may be from a malign power?

I am thinking of the consideration of investments from China in our nuclear power stations and other infrastructure networks. Something as simple as road traffic signals or rail infrastructure might break down if someone decided they wanted that to happen. Do you think the Bill does enough to recognise the unexpected areas of investment that a malign state might want to attack?

Sir Richard Dearlove: Probably not is the answer. The Bill should take account of the complexity of modern technology and the difficulties that we could run into in the future if we allow foreign entities to have a strategic piece of our critical infrastructure. Relationships can change over time and you can cause huge difficulties by throwing a switch and engaging a piece of software that is deeply embedded in something somewhere and causing a huge problem.

I do not want to be too alarmist, but Chinese engagement and involvement in nuclear power is another area of terrific concern and worry. It is not something that we should take at face value. We need to think very carefully about some of these issues. I would much rather have a French company building a nuclear power station than a Chinese company.

[James Wild]

Q You mentioned Huawei. Were you involved in 2003 when BT was letting the contract for the network? Did you raise concerns at that point?

Sir Richard Dearlove: No, I was not. The first Huawei contracts were signed by BT in 2003 and, because BT was the primary provider, the relationship between BT and the intelligence community was, let us say, important; I will not go any further than that. BT was a successor to the General Post Office and, essentially, that was how the relationship came about.

At the time, people like myself were deeply concerned and shocked that we were signing deals with a Chinese company that looked to us to have strategic implications. Basically, as chief, I was not consulted. Basically, when I raised some questions, I was largely told, “It is nothing to do with you. These are issues we can control.” The relationship with Huawei took off without real consideration at the time that it would have a bearing on national security. I think that was extremely misplaced. I have written or said somewhere before that those of us who raised objections in 2003 were just disregarded.

National Security and Investment Bill (Second sitting)

Matt Western Excerpts

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

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

Q It is a pleasure to serve under your chairmanship, Sir Graham. Dr Ashley, considering your experience of other countries—we talked about the US at length in the first couple of questions—such as Japan and Germany, what are your views on the retrospective powers under our Bill?

Dr Lenihan: Personally, I think they are fine. I know that might not be a popular answer with some. Germany, France and even parts of the EU framework set up this five-year retroactive for cases. I think that that is at minimum important. Other countries, such as China, Russia and the US, do not place any limit on retroactivity. I would have to check up on Australia and Canada, but there have been cases that have gone beyond a year there. Under the original Government White Paper, the idea of having only a six-month period, whether or not you have been notified, is quite dangerous, because there have been cases that were well known where they have been caught after that point.

Some of my examples are from the US. The reason for that is that it is one of the longest-standing and most institutionalised regimes. It is also one of the most transparent, from which we know most about the cases that have gone through it. I have looked at over 200 cases of this type of investment over a seven-year period in the US, UK, Europe, China and Russia. One case that stands out in the US is the 3Leaf acquisition by Huawei, which was caught almost at the year mark. Another good example that went over the one-year mark would be the review in 2005 retroactively of Smartmatic, which was a Venezuelan software company, and its purchase of Sequoia Voting Systems, which was a US voting machines firm. Smartmatic was believed to have ties to Chavez. However, that acquisition completed without knowledge of CFIUS and it was not actually able to be unwound until 2007. At that point, you worry about what has happened, but at least you do not have the ongoing concern.

You do need flexibility. With the volume of notifications and the learning curve that the investment security unit will have to undergo, or whatever the final regime truly looks like, it will take time to get the team in place and get the knowledge and systems down, to accurately catch even the most obvious investments that are of concern. Dealing with the kind of evolving and emerging threats we see in terms of novel investments from countries such as China, Russia and Venezuela needs the flexibility to look at retroactively and potentially unwind transactions that the Secretary of State and the investment security unit were not even aware of.

One thing is that for mergers and acquisitions transactions, which are historically what have been covered under these regimes, across Europe, Australia, Canada, Russia, China and the US, all the systems that have been used—the M and A databases: Thomson ONE, Zephyr, Orbis—take training, but they only cover certain types of transaction. They do not cover asset transactions; they do not cover real estate transactions, which are of increasing concern, especially for espionage purposes.

It is going to take time, and I believe that flexibility really needs to be there. It can always be reviewed in the future, but I do not think that so far foreign investment has been deterred in any way in countries that have that retroactive capability. To limit the UK’s capacity to protect itself for some kind of strange feeling that we need to be perceived as being even more open than everybody else when under threat is not really wise at this time.

[Matt Western (Warwick and Leamington) (Lab)]

Q It is a pleasure to serve under your chairmanship, Sir Graham. Dr Lenihan, I am keen to know more about whether, other than in the US, you have seen good exemplar approaches to screening investments into these sectors; we spoke about Japan and Germany a moment ago. Can you give examples which we might learn from?

Dr Lenihan: I do think the US system is the most institutionalised that we have, and the best at the moment. That being said, Germany’s system is very good; it has caught quite a bit. The German system has also been very good about regularly updating, changing and adapting its regulations as it sees new emerging threats to itself. They seem to have good feed-in across Government and they are exceptionally good at co-ordinating with other states in terms of information of concern.

In terms of national security review, Canadian and Australian systems are quite good. The problem with those systems is that they tend to do national interest reviews at the same time or in tandem with their national security reviews. Over the long term, including national interest in the regime has had an impact on how they are perceived in terms of their openness to foreign direct investment abroad. In the OECD’s FDI restrictedness index, Canada and Australia rank far lower than the US, the UK, Germany and France, and I think this is because of their inclusion of national interest concerns. Similarly, on the World Economic Forum’s global competitiveness index, they rank far lower. That does not provide investors with the type of clarity that they need. In general, we see that investors tend not to be dissuaded from investing just because there is a new foreign direct investment regime, as long as that regime is seen to have clear regulatory guidance, is transparent, and is applied consistently over time.

France sometimes gets quite a bad reputation for economic nationalism, but its review mechanism is also quite good at catching potential threats to national security. Japan is an interesting case. It has been so restrictive for so long that it is a little harder to compare with the other western countries. Its system has been tied in again to an overarching inward investment regime that has been restrictive towards foreign investment for other means beyond national security, so I find that country to be less of a comparator for these purposes. I hope that answers the question.

[Simon Baynes (Clwyd South) (Con)]

Q It is a pleasure to serve under your chairmanship, Sir Graham.

I have found your comments particularly interesting, Dr Lenihan. My own background is in the financial world, where I was involved in cross-border M and A and quoted equity transactions. I fully accept the premise of the Bill, which I think is important and has to be put into effect, and I draw encouragement from what you are saying about other regimes, but I am still left wondering a little bit whether, in practice, it will be really quite difficult for us to put into effect. Your point about the necessity of expertise among staff is crucial. Having sat at the centre of the process, I recognise that the point you make about a huge amount of information flowing across, especially in respect of unquoted companies, is very important; often, there is not much established information in the public domain. That first point is very important. The second point is that there is a very complex mechanism of market sensitivity as well. I do not quite know how this system intervenes with that. Also, within the UK itself there is a culture of openness, which has been touched on before, and in some respects we are a very different country from the others, particularly given the strength of the City of London. We therefore have the ability to transact in a way that some other countries do not, and a different culture.

The other point I wanted to raise and to hear your comments on is that there is a danger of political interference. I know that that is not the intention, but it must be a hazard in this process. What happens if the Government get it wrong about a company? Could not that be interpreted as political interference rather than seeking to establish a security risk?

Dr Lenihan: I started my career in mergers and acquisitions in aerospace and defence M and A, in London. I think you make an important point: the UK has historically been the most open country to foreign direct investment on most indices and indicators. That perception is strong, and I do not think that that culture of open investment will or should change with the introduction of the regime. To the contrary, it actually gives you one of the best starting points that any country has to do this.

As I said, on the whole, in the Bill as written, and in the statement of policy intent behind it, it is very clear that the powers for review and intervention should be used only for an identified risk of national security, and not on the grounds of national interest. Regimes that are based only on national security, like that in the US but also Germany and France—even with a very different culture in many ways—have not seen a lowering of levels of foreign direct investment over time, because they have introduced, modified or kept these regimes up to date. It is because, on the one hand, the stable environment that they provide and that the UK will definitely provide for foreign investors, is far more attractive than any uptick in cost from having to get up to speed on a new regime; also, they are able to retain these global perceptions of openness to foreign investment and ease of doing business because of the way in which the rules are applied. As long as the rules are applied consistently, and with clear reasons behind their use, and applied consistently and transparently over time, it should be okay.

The Bill provides for a lot of regulatory guidance, which needs to come forward in a clear and very easily comprehensible and understandable manner. As long as that happens, it should be okay. Global Britain should still be the proponent of liberal economic values that it always will be, while also being able to demonstrate to itself and to its allies that it is able to protect itself from this type of investment.

Going forward, Britain’s relationship with many of its Five Eyes allies is going to depend on having a comprehensive regime of this nature that is used well. Under FIRRMA, under US law, for example, the UK is an exempt foreign investor in certain categories—one of three with Canada and Australia. It has been stated that for that to continue––it is going to be reviewed––it needs to have a regime to protect itself. We can talk about this later, but part of that is about the potential concern about not just the ability to share intelligence on these issues, but about acquisition laundering, export controls and all these issues that tumble on behind that can affect investment, trade and intelligence-sharing relationships over time. That is important.

The research evidence shows that foreign investment is not deterred unless there is a problem in how this is applied. There has been politicisation of cases; demonstrated proportionality of response is also extremely important. There are many cases in which a threat to national security can be mitigated by agreements and undertakings without needing to block a deal. When you look at the modern history of foreign direct investment intervention across Europe and the US––even if you look at Russia and China and how they behave––the preference is, where possible, to mitigate national security concerns through comprehensive agreements, and that can be done in a host of ways. It can be that you have a board of directors that is only UK nationals, or that you require divestment of a certain black box technology company to another UK company or a friendly allied country. Whatever it may be, historically, there has been a preference for that type of action to be taken. Vetoes of cases are actually quite rare since world war one, when we first really saw this type of issue pop up.

The concern is if we see the UK blocking deals where it could mitigate because a deal has become a political hockey puck. In today’s world, where this is something that is constantly discussed in the Financial Times and The New York Times, whereas it was not 15 years ago, any case has the potential to be discussed widely in the political debate. The question is how it is treated by Government and how other countries perceive that treatment. I know that I have used US examples quite a bit, but if you look at US-China investment, China still invests a lot in the US, even though it complains every time a deal is blocked or mitigated. The reason behind that is because this is a sovereign right under customary international law, and China does the same thing when it has the same concerns. It is only if a case becomes truly politicised that there is an issue.

To give you an example, in 2005 in the US, the case of Dubai Ports World and P&O, which was a takeover of a UK company, became overly politicised in the US system. It is one of the only real examples where it has happened, and that was because there were a few US lawmakers who had a completely different view of the risk and relationship of the US vis-à-vis the United Arab Emirates than the Department of State or the Department of Defence. That is quite rare but what ended up happening was US lawmakers seeking to block a deal when most reasoned professionals in the industry and in various Government Departments thought that any risk could be mitigated simply in a host of other ways.

In the case of overuse, overbalancing, misuse, politicisation, whatever you want to call this tool of economic statecraft, there was a momentary blip in relations between the US and the UAE. There was a momentary stalling of trade talks, change in the currency basket and some uncomfortable months, but the relationship was strong enough to survive and it usually is. This is not really an aspect of going to war. I think the key is proportionality in response, how it is applied, and it is about consistency and transparency. The Bill is well written in many ways, but how it is used can go any number of ways, so it is about how the UK uses it going forward.

--- Later in debate ---

[The Chair]

In that case, the last question will come from Matt Western.

[Matt Western]

Q Thank you, Sir Graham. Mr Leiter, I would like clarification on the point about disguised takeovers, and perhaps you can use CFIUS as an example. What happens if a benign country or an organisation in a benign country, such as Canada or wherever, takes over a business and then that gets sold on to a state actor or a non-obviously state actor? How does CFIUS respond to that, and do you think that this Bill covers it?

Michael Leiter: I think your Bill does cover it. CFIUS would cover it in two ways. First, to the extent that a non-benign actor was behind the first transaction, CFIUS looks at the ultimate parent and whether it has been structured to evade review, so I think there is robust authority there. Secondly, the follow-on transaction itself would of course also be subject to CFIUS review, so I think you could catch it in the first instance or the second instance.

I think your Bill covers that. I will say also that I think the Bill is quite expansive and potentially problematically so. The US regime looks to see if there is a US business that is being acquired or invested in. That is a broad definition, but it still requires, generally, some physical presence, some people or the like. Your Bill does not seem to contemplate that, and specifically it says, “If the business simply provides supplies and goods to the UK or from the UK”. That is a very broad definition. It fundamentally means that if someone in London is buying something from a US business and it sends that to London—well, I read that as being covered by the Bill. That would actually be more expansive than CFIUS. It might, in that sense, give you greater national security protection, but I think it also may implicate a far more significant scale of transactions.

[The Chair]

Thank you very much, Mr Leiter. We are grateful to you for giving of your time so generously to assist the Committee.

Examination of Witness

David Petrie gave evidence.

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[Simon Baynes]

Q There is a fairly fine line in smaller companies in which an investment manager takes a major stake. There is a fairly fine line between having an active role in its management and having very close scrutiny of its management. From my own experience in the business, the investment manager keeps a very close eye on it in those cases. If they do not, quite a lot of risk is involved. That is quite a crucial grey area, and it therefore makes me think that a blanket exclusion would create problems. It might be viewed by private equity companies or whatever as being an unfair advantage to investment managers.

Chris Cummings: Certainly, we are keen to see those smaller and medium-sized companies get access to as much growth capital and investment as they need. Part of our enthusiasm for this piece of legislation, and indeed others, is that it is an opportunity to re-excite the UK public about the opportunities for equity—for shareholder participation in fast-growing companies. That is partly why we are so keen to work with your Committee and others to communicate the message.

Perhaps a clearer distinction could be found for the difference between listed and unlisted companies. That is perhaps where we could focus our attention more, on explaining—I am not sure that “blanket exception” is quite the right language for me to use because that seems to be a one-and-done exercise and perhaps there would be more to it than that—but focusing the attention on the listed sector, where it is much more obvious that we as investment managers are investing for the long term rather than seeking control over the company. I hope that would allay some of the concerns that you rightly mention.

[Matt Western]

Q Thank you, Mr Cummings, for being a witness today. I want to come back to the point about capacity in terms of the mandatory notifications. As described, do you think it is going to be able to cope with that, and just how opaque are some business organisations and ownership? With that opacity, will they realistically get to that within 30 days? That is my first question. Secondly, in terms of many transactions, the Government have no legal powers over retaining jobs or research and development in the UK—thinking about SoftBank, Arm and many others. Do you think there is a need to plug those sorts of gaps or deficiencies?

Chris Cummings: You rightly raise the question of scale and resources. It is one of the things we have been consulting our members on, and having discussions with others, to try and get a better view of what the notification process would be, who would notify, who would then respond, the scale of the team in the Department that would be exercising due diligence in the applications and whether the system could cope. Bluntly, what would concern us deeply is having a 30-day notice or turnaround period that the Department regularly missed, because that would then create a shadow over this particular piece of legislation. It would gum up the works and, frankly, none of us would wish to see that.

Looking at how the regime works at the moment, with very few notifications, there seems to be a scale difference between where we are today and what the legislation proposes. We would like to hear more from Ministers on how they are going to address that and what the processes would be. There have been discussions about a portal, a very brief form of five pages or so that would be easy to complete, but I think a degree more of reassurance on that point would not go amiss—as would the confidentiality. There is so much around any investment process and the acquisition process that has to remain entirely confidential, that investors would require and would be looking for reassurance that these conversations could be held in the strictest of confidence and that nothing would appear until the right time. In terms of scale and resources, it is a point that we share your interest in.

I was making a note of the point you raised on transactions, but could you repeat that part of the question? Apologies.

[Matt Western]

Q No problem. It was just about various deals, with the example of, say, SoftBank and Arm, and the protection of jobs, research and development and pensions in the UK, and whether the Government need to plug that gap to give assurance and protection here in the UK to those elements.

Chris Cummings: Thank you, and apologies again for omitting that. This is something that we, as the investor community, have been observing for the last few years at least, looking at the different requirements that Governments have tried to put on acquiring companies—Kraft Cadbury and so on, through to SoftBank—and seeing what has happened there, and the role that the takeover panel has been asked to play to police or report on those activities.

The intent behind the Bill at the moment seems to be for national security to preserve intellectual property in that R&D capacity here in the UK. If that is going to be seen through, transparent and accountable mechanisms need to be clarified in the Bill, on how that will work in practice, what resources will be in place to measure, monitor and report it, to whom it would report, and any sanctions that would be applicable afterwards. Those are definitely areas that we feel deserve further scrutiny.

From our point of view, as investors, the last thing we want is to invest in companies where we feel the IP is protected and the R&D facility is well known to us, but where within one, two or three years there has been either a change of management or further changes that mean that IP has been moved or duplicated elsewhere. That is a very legitimate concern.

[The Chair]

If there are no further questions, I thank you very much on behalf of the Committee for giving your time and assistance, Mr Cummings.

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

National Security and Investment Bill (Fourth sitting)

Matt Western Excerpts

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

[Andrew Bowie (West Aberdeenshire and Kincardine) (Con)]

Q Mr Offenbach, thank you very much. I have a very quick question. You ran through a long list of acquisitions at the beginning of your evidence, most of which I think you would suggest were not in the national interest, although people may disagree. Given the Bill as it stands, which, if any, of those acquisitions would have been thwarted or prevented by it? Which, if any, of those acquisitions would have fallen foul of running the risk of being a threat to national security?

David Offenbach: The answer is that one is not quite sure. That is why I want to widen the definition. The reason why there are 17 different areas and categories in the Bill is that it is hard to know what national security is at any particular time and how it is reflected in the business that is actually being considered. The only way to make sure that something does not slip through the net is to have a slightly wider definition. There is no definition of national security itself in the Bill, which is perhaps why strategic, research and development, innovation or other issues should be brought in. Then one can be quite sure one has not accidentally lost an asset where there are national security issues.

[Matt Western (Warwick and Leamington) (Lab)]

Q Thank you, Mr Offenbach, for your evidence this afternoon. I am interested in the example you gave in your statement. Has the pandemic changed the way you view national security?

David Offenbach: Completely. It has also changed how the Government view it. In the summer, public health was added to the list of items on which a public interest intervention notice can be given. So it is clear that, in the face of the national emergency that, alas, we face—according to the Chancellor it is the greatest economic crisis for 300 years—we have to hang on to our assets. That is why the Bill is even more necessary than it was before. The pandemic gives added weight to the arguments that I was making even before we had covid. We need to have a wider test to protect our national assets.

[Matt Western]

Q What is your view on the Bill’s assessment that state entities and funds pose less of a risk than private entities to the UK?

David Offenbach: I am not personally worried about state entities being said to pose more of a risk, because I think that the Bill is strong enough to make it possible to intervene where necessary. Although one is entitled to look at the asset being purchased, the acquirer and the person from whom it is acquired, I do not think that it will be a problem under the Bill as it is drafted.

[Matt Western]

Q Going back to my previous question, do you think that we should think about areas such as climate change and other things that are perhaps not necessarily of immediate urgency—some would say, of course, that climate change is urgent—as matters of national security?

David Offenbach: I do not think that there is anything other than the 17 already mentioned and the ones that I mentioned, most of which came up in the debate last Tuesday. I think that telecoms might be mentioned as well, but the list really covers all the areas where national security is a significant risk.

[Stephen Kinnock]

Q Thank you very much for this useful and important evidence. I have one relatively specific question based on your expertise in real estate. The statement of political intent states:

“Land is generally only expected to be an asset of national security interest where it is, or is proximate to, a sensitive site, examples of which include critical national infrastructure”.

Do you think that scope is too narrow? For example, we know that property in London is used to launder large amounts of money—nefarious organisations often own property in London and use it for nefarious purposes. London is sometimes referred to as a laundromat for dark money. Do you think that that is a national security risk and should be included in the scope of the Bill, and that the land definition in the statement of political intent should reflect the money laundering issue?

David Offenbach: I am not sure I quite agree with the statement of intent as part of the Bill papers. The drafting of that section of the Bill is wide enough to include the issues that you raise. It would be open to the Minister to intervene in the cases that you mention without any change to the drafting of the Bill being necessary.

--- Later in debate ---

[James Wild]

Q That is helpful. On the operational point, do you have a view on the timescales for turning round the reviews and assessments within the Bill as it stands?

Creon Butler: There is obviously a trade-off again. My sense was that the provisions that are there now are realistic and sensible, but we need to see how the thing evolves and fine tune it according to the experience that we have had. People have pointed out that this will lead to a lot more cases being looked at than before. I do not think that that is a criticism of what is happening; it is a reflection of the world that we are in. However, in the light of the experience of looking at a much broader range of cases, we should be ready to adjust the timeframes and so on, taking account of that experience.

[Matt Western]

Q I wonder, Mr Butler, if you would elaborate on, and give more examples of, the sorts of international threats that you see us facing, in terms of not just national security but economic security, and the links between the two.

Creon Butler: In my view of economic security broadly, the biggest existential threat is climate change, frankly. We are going through a ghastly pandemic. Fortunately, it looks like we can see the way out of it, but I do not think that at any point we felt that this particular virus was an existential threat to mankind more generally. My view of climate change is that it is, and it is very close. In any broad assessment of national and economic security, I would put climate change as one of the most important issues. That is why the accelerating efforts both within Governments and in the private sector to deal with it are crucial.

In terms of other kinds of threats, we have had this particular pandemic, which as far as we can see is not an existential one; there could be other pandemics that are. That is why infectious diseases have been so high on our risk register in the past. Steps to ensure that we do not face future pandemics that are even more serious than this one in terms of the threat to human life, or the economy, are a very important priority. Those are two examples of broader threats beyond hostile powers that we should incorporate in our approach to national and economic security.

[Peter Grant]

Q Good afternoon, Mr Butler. You highlighted the problem of identifying the fact that an acquiring party may have hostile intent towards us if we do not know who is really in control and who the ultimate owners are. One way of addressing that is simply to have a built-in presumption against allowing any acquisition of a security-sensitive asset or business by a company whose ultimate owners are not identified. Do we need to go as far as that? If not, what else could we do to protect ourselves from hostile elements, which will undoubtedly use that back-door access, if it is left open?

Creon Butler: It is a good question. It is something I worked on when I was in the Government. There is a pending proposal in relation to property, to ensure that no foreign company can invest in UK property without some means—whether their own register of beneficial ownership or a regime put in place in the UK—of ensuring that transparency. That is in relation to ownership of property. It did not go much broader than that, because it involves a major bureaucratic process and there is the issue of not interfering too much with the way the economy works. If we did do that, it would help in relation to one of the national security concerns we have, which was highlighted in the Bill, where a hostile power buys some property close to a very sensitive site.

I need to think about it a bit more, but I do not think it would make sense at this stage to require that we can identify the ownership of every single investment. For example, in the US they do not have consistently strong beneficial ownership rules. You might find a situation in which several US investments in the UK did not meet those transparency requirements. If they were in non-sensitive sectors and did not pose a threat to us at all, it would create a considerable burden.

Thinking it through on my feet, the logic would be to do something of that kind, where it related to sectors that we knew to be sensitive. Indeed, those are already covered by the mandatory notification case. Where you have the mandatory notification, it will presumably trigger information about who owns the company that is making that investment. If that is not clear now, that may be the route to make sure that this element is covered.

National Security and Investment Bill (Fifth sitting)

Matt Western Excerpts

Committee stage & Committee Debate: 5th sitting: House of Commons
Tuesday 1st December 2020 Public Bill Committees

[Matt Western (Warwick and Leamington) (Lab)]

My hon. Friend makes a point about the market failure that we have experienced over the past decade and its relevance to or inappropriateness for national security. The Government actively encouraged inward investment from China and let the market be totally open, without any control whatsoever, which is one of the driving factors in the challenges we face today, especially with Huawei, as outlined in last night’s debate.

[Chi Onwurah]

I thank my hon. Friend for that intervention. He is absolutely right. This is particularly relevant to amendment 3, as we shall see. This Government, and previous Conservative Governments of the past 10 years, have maintained an ideological position that bypasses the question of national security and leaves Government responsibility much curtailed and focused purely on our defence capabilities and requirements without considering the impact of our technology and R&D. As the debate on the telecoms Bill showed, the Government are not considering the impact of the telecoms sector on our short-term and long-term security.

On the specifics of amendment 3—these principles guide the reason for the amendment—the Secretary of State would have to draw up a multi-agency review or act on the recommendation of Parliament’s Intelligence and Security Committee prior to issuing a call-in notice.

The Bill marks the total transformation of the UK’s existing merger control process and the provisions of the Enterprise Act 2002. It would move us away from 12 reviews in 18 years to a potential 1,830 notifications a year. It would shift the locus of merger control from the experienced Competition and Markets Authority to a novel unit of the Department for Business, Energy and Industrial Strategy. As we heard in our expert evidence, the world is looking at the UK and seeing a pretty seismic change. We recognise the need for such a change, but we do not accept that the skills and knowledge to implement and monitor such a change reside wholly in BEIS.

The Minister is a modest man, and he may not want to share with the Committee the fact that he has recently been made the tzar for vaccine acquisition and delivery across the nation, but that is one of the many responsibilities of his Department. I hope he will agree that is a considerable responsibility, but the responsibility of identifying and understanding the national security implications of 1,830 notifications a year is a particularly great challenge. As someone who champions the importance of trade and economic growth, he will agree that there is potentially a conflict of interest—we have seen this for many years, as my hon. Friend the Member for Warwick and Leamington suggested—between the trading implications of foreign direct investment and access to finance and the national security implications. This is such a huge shift that we cannot rely on discretionary judgments made potentially to suit political ends alone. We cannot rely on BEIS alone because the Department may have a conflict of interest in its separate role of boosting UK investments.

This is a critical point, and I hope to hear from the Minister how he or the Secretary of State will prioritise the role of the Department in boosting investment in the UK and in scrutinising these 1,830 notifications. We need to ensure a robust contribution from across Government and the agencies in guiding these decisions.

--- Later in debate ---

[Matt Western]

My hon. Friend is making incredibly important points. There are really two issues. One is the volume that will be coming through, as she articulated earlier, but there is also the multiplicity of the challenges and where they may come from. This is not simply about the most obvious security challenges or risks. It is not necessarily about defence contracts or telecoms; it could come from all sorts of areas. It is the soft areas that are perhaps the most vulnerable. That is where the expertise of the different Departments will come into play, and that is why a multi-agency approach is so important.

[Chi Onwurah]

My hon. Friend is absolutely right. Perhaps I should have emphasised that point more.

When we look at the examples of Huawei or DeepMind, which was allowed to be sold to Google in 2014, we are looking backwards. We now recognise the security implications. Artificial intelligence is a key security capability, as I think the Minister will agree, given that it is one of the 17 sectors for which notification will be mandatory. At that time, it was difficult and I take it—perhaps the Minister will contradict this—that the Department for Business, Innovation and Skills did not recognise the security implications of the acquisition.

The key question is, what are the acquisitions now that will have security implications in five or 10 years’ time? That is what the Secretary of State needs to know in order to make the decisions we are discussing. It is no injustice to the Secretary of State and the Department for Business, Energy and Industrial Strategy to say that alone, they are not in a position to know that. Deciding from where in the world the great threats to our security may come is not purely technological, although it requires technological expertise, and it is not even purely geopolitical. Last night we heard a lot about China and Russia. In future, we may be looking at other emerging threats. This is an attempt to improve the Bill by ensuring that there is a multi-agency approach.

[Chi Onwurah]

I do not think it would be appropriate to be prescriptive at this point. Some of the agencies I have in mind are the Intelligence and Security Committee, the National Cyber Security Centre and our security services—MI5 and MI6. I am very happy to hear from the hon. Gentleman what agencies should be involved, but the key point is that we need multiple agencies.

[Matt Western]

If the University of Cambridge were approached by a Chinese academic institution with an offer of funding to collaborate on some project, for example, surely that would need the intervention of the Department for Education. It is obviously not just about the intelligence services; it would need the engagement of the DFE and not just BEIS.

[Chi Onwurah]

I thank my hon. Friend for that important point. I am reluctant to continuously mention China, because this is not an anti-China Bill per se, but we heard in oral evidence of the real concerns about Chinese influence in our higher education institutions. He is right that the Department for Education may have an important input to make about securing our future national security.

In defining the agencies that need to be involved in this multidisciplinary approach, we could look at the Committee on Foreign Investment in the United States, which has nine voting departments, two non-voting agencies and additional White House representation on its decision-making committee. I know that the Department for Business, Energy and Industrial Strategy has done some work on comparisons with other countries, in particular our Five Eyes allies. There are models to take.

--- Later in debate ---

[Matt Western]

This is about putting it on a different footing; it is as simple as that. As was said by Sir Richard Dearlove and others in the evidence sessions last week, with the sort of agenda that a Government of any political colour may have, we have seen particularly over the past decade an embrace of, say, China, and the investment in our nuclear power stations provision as well as in other areas. Now, that could have been Russia, and if it had been Russia, what would the advice have been? What would the agenda of the Government of the day have been? Would it have been as embracing? That is why it is really important to understand from the ISC what its views are and to put this in a different setting, as my hon. Friend has said.

[Chi Onwurah]

Another excellent contribution from my hon. Friend, who raises a delicate, nuanced, important point. Governments of all colours may have trade and geopolitical agendas that lead to, as my right hon. Friend the Member for North Durham (Mr Jones) described it, a “hug a panda” approach, whereas the ISC, which we have seen mark its independence of thought both as a Committee and in its contributions in parliamentary debates, has a duty, a responsibility and an understanding to see beyond short or even medium-term political ambitions and to focus wholeheartedly on the security of our nation. That is where its support is invaluable.

I will finish my comments on the amendment by quoting some of our parliamentary colleagues with regard to the Intelligence and Security Committee. On Second Reading, the Chair of the Select Committee on Foreign Affairs, the hon. Member for Tonbridge and Malling (Tom Tugendhat), said that

“there is a real role for Committees of this House in such processes and that the ability to subpoena both witnesses and papers would add not only depth to the Government’s investigation but protection to the Business Secretary who was forced to take the decision”.—[Official Report, 17 November 2020; Vol. 684, c. 238.]

I think that is powerful advocacy for the amendment. A member of the ISC, the right hon. Member for South Holland and The Deepings (Sir John Hayes), said that

“we need mechanisms in place to ensure that that flexibility does not allow the Government too much scope. That is why—this point was made by my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) and I emphasise it on behalf of the ISC—Committees in this place missioned to do just that need to play an important role.”—[Official Report, 17 November 2020; Vol. 684, c. 244.]

We had support in the evidence sessions, support across the House and, most importantly, we have the support of the ISC itself, or at least its agreement that the amendment would be a constructive improvement to the Bill.

Finally, I will say a few words on amendment 5, which would require the Secretary of State to notify the Intelligence and Security Committee before making regulations under clause 6 and would provide a mechanism for the Committee to respond with recommendations. Regulations made under clause 6 would likely define the sectors that pose the greatest national security risk and would come under mandatory notification requirements. With the amendment, the ISC would be able would to provide both scrutiny and challenge to these sector definitions. The Committee will understand that the driving reasons behind the amendment are similar to those behind amendments 3 and 4, which is of course why the amendments have been grouped together, and would seek to improve the Bill through putting in place a requirement for parliamentary scrutiny specifically on the definitions.

As we have said, the Bill gives the Secretary of State major powers, and it demands mandatory notification of investments in large parts of the economy, with 17 proposed sector definitions already. I really cannot emphasise enough how broad those definitions currently seem. I know it is the intention that the definitions should be tightly drawn. However, I speak as a chartered engineer with many years’ experience in technology. Three or four decades ago, we might have talked about digital parts of the economy, but now the economy is digital. Similarly, in the future, parts of the economy not using artificial intelligence—from agriculture to leisure to retail to education—will be looking to use it.

National Security and Investment Bill (Sixth sitting)

Matt Western Excerpts

Committee stage & Committee Debate: 6th sitting: House of Commons
Tuesday 1st December 2020 Public Bill Committees

[Matt Western (Warwick and Leamington) (Lab)]

I am not sure that the Minister has; it is always a pleasure to hear his dulcet tones. In all seriousness, is this not open to interpretation with a change of Secretary of State, in the way that we have seen in the US with a change of President, and how that President chooses to define what national security means?

[Nadhim Zahawi]

I am grateful for the hon. Member’s contribution. Of course, no Government can tie the hands of future Governments, if that is his argument.

Moving on, I commend hon. Members for their interest in the process and function of the regime, made clear through amendment 9, which provides for additions to the statement about the exercise of the call-in power. It aims to ensure that the regime created by the Bill is properly resourced with the right numbers of skilled staff. The hon. Member for Ilford South was thoughtful in his concern about that. However, I would say to him and other Members that the purpose of the statement is to set out how the Secretary of State expects to exercise the power to give a call-in notice. It will provide information on the types of scenarios where the Secretary of State may consider there to be a national security risk. It would not be appropriate to add details about how the regime will be staffed.

Furthermore, internal arrangements on resource and skills are a matter for the Secretary of State and, of course, the permanent secretary at BEIS. I reassure hon. Members, however, that the Bill compels—this is the lever for Parliament, in my view—the Secretary of State to publish an annual report, which will provide information on the number of mandatory notices accepted and rejected, the number of voluntary notifications accepted and rejected, and the number of call-in notices and final orders made. That review is incredibly important in measuring performance. The exact details and requirements for the annual report are set out in clause 61. I will not go through all of them.

For the reasons I have set out, I am unable to accept the amendments and hope that Opposition Members feel able to withdraw them.

--- Later in debate ---

[Stephen Kinnock]

My hon. Friend makes a crucial point. As we have constantly said, this is about risk and the hierarchy of risks we face. Risk is always sensitive to what is happening in terms of the global economic outlook. As she rightly points out, Brexit and leaving the transition period will be a seismic event for our country. It will have a massive impact on our currency and the strength of the pound. Combining that with the covid situation means that we have to be careful. We have to be vigilant and ensure that we defend our national interest. That is why it is important that our mindset involves taking a holistic view of our national interest, particularly in the turbulent times in which we find ourselves. This is fundamentally about saying that our national security is not for sale. Our national security does not have a price tag, and it has to be the primary consideration.

With those contextual comments in mind, I move on to amendment 6, which considers a particular aspect of our economy. It focuses on the asset side of the ledger in terms of this Bill—namely, critical national infrastructure. Our amendment would require the Secretary of State to have regard to the protection of critical national infrastructure when making notifiable acquisition regulations. Going back to China, it is remarkable how much of our critical national infrastructure is in the hands of Chinese enterprises or state-backed investment vehicles. This is happening now, right under our noses, and needs to be taken into account in discussing this amendment.

In essence, our amendment offers a way to ensure that critical national infrastructure is given particular and extra consideration in the national security and investment assessments within the regime. Given that the Bill fails to define national security, it does not, by definition, reference critical national infrastructure.

To drill down further, the Government’s consultation on the Bill lists the 17 sectors that might come under the regime’s mandatory notification process, but it does not explicitly list the UK’s critical national infrastructure. In fact, there is not a direct overlap. Five sectors are not included in the 17 that are in the consultation, but they are in our critical national infrastructure. The 17 range from advanced materials, advanced robotics, artificial intelligence, civil nuclear, communications, computing hardware, critical suppliers to Government, critical suppliers to the emergency services, cryptographic authentication, data infrastructure, data infrastructure, defence, energy, engineering biology, military and dual use, quantum technology, satellite and space technologies, to transport. However, the Centre for the Protection of National Infrastructure defines 13 areas as critical national infrastructure, including several sectors that are not included in the 17: food, Government more broadly––not just critical suppliers––health, space and water.

If we look at the impact of the pandemic and think about what critical national infrastructure means, we see that the 17 sectors are already out of date. Given our experience with covid and the concerns about food supply, that is clearly an issue we need to examine closely. Water is crucial to our wellbeing as a nation, yet it is not included in the 17. Our amendment argues that critical national infrastructure should be taken as an asset class. If defined as an asset class, the landscape moves and the definitions of sectors move, but there is clarity about critical national infrastructure always being within the scope of the Bill.

[Matt Western]

As always, my hon. Friend makes important points. To amplify those, if we had been sitting down and writing this Bill 10 years ago, which would have been a pretty good thing to have done, with hindsight––

[Mark Garnier]

When you were last in government?

[Matt Western]

I think I chose my time horizon pretty well. Had we been doing so, we may not have been considering these 17 categories, traffic light systems, underground systems, public transport or railway infrastructure in a way that we have to nowadays because we understand just how interconnected things are. We understand what the threats and risks are from these sorts of investments from possibly rogue organisations, states or businesses.

[Stephen Kinnock]

I thank my hon. Friend. This is genuinely not an attempt to make a party political point. There is no doubt that we should have seen the impact of the rise of China long before 2010. This is something that has been going on for a long time. President Xi Jinping was appointed in 2013 and there has been a qualitative shift in China’s outlook and the way in which it is engaging with the world. There is an increasingly aggressive and assertive set of economic policies. One of the experts said that the objective is to dominate the global technology scene. That is an explicit objective in the Made in China 2025 vision that the President and the Chinese Communist party adhere to. While we are not trying to make party political points here, a lot has changed in the last seven years.

National Security and Investment Bill (Seventh sitting)

Matt Western Excerpts

Committee stage & Committee Debate: 7th sitting: House of Commons
Thursday 3rd December 2020 Public Bill Committees

[Chi Onwurah]

It is a pleasure to serve under your chairship, Mr Twigg, and to see the Committee reconvened to debate this important Bill. On Tuesday, we had a lively, informative and generally collegiate debate in which we learned a significant amount about the Bill and each other. We learned, for example, that the hon. Member for Arundel and South Downs has an interest in low pay, the hon. Member for South Ribble is a scientist, the hon. Member for Wyre Forest has a great interest in defending business investment, and my hon. Friend the Member for Southampton, Test knows well the difference between “may” and “shall”, and entered Parliament at the same time as yourself, Mr Twigg. We learnt that my hon. Friend the Member for Ilford South has a great interest in defending our national security through supply chains. We learnt that I have a tendency to mispronounce and misplace my hon. colleagues’ constituencies—something that I am working on. We also learnt that the Minister feels this Bill is perfect in every way, clause and subsection, such was his reluctance to accept the most constructive and helpful amendments—I would say—put forward by the Opposition. As we look at our amendments today, I gently point out to the Minister that that is not a view held by everyone across the House, even by Government Members. I note the letter sent yesterday by the Intelligence and Security Committee pointing out several aspects that we have raised, requiring clarification and significantly indicating its intention—or desire—to be a greater part of both the scrutiny of this Bill and its implementation. I hope that in today’s deliberations we will meet with more support from the Minister.

We had lively debates on Tuesday and some votes, which as I have indicated that we did not win. Amendment 16, in my name and those of my hon. Friends, is a probing amendment. We seek to understand that the Minister fully understands the provisions of his Bill. That is an absolutely appropriate thing to do, as hundreds of thousands of business and individuals will be impacted by it and will have to seek to understand it. It is appropriate that we test the impact of the Bill now, particularly as the Minister has many competing duties, and, as we understand, is taking on more onerous ones.

Clause 12 contains supplementary provisions in relation to determining when a trigger event that takes place over more than one day is to be treated as taking place, and determining whether a trigger event is in progress or contemplation in circumstances where a person has entered into an agreement or arrangement that enables them to do something in the future that would result in a trigger event taking place. The amendment, as we have framed it, would considerably expand the scope of events that could be considered trigger events. In effect, it would give the Secretary of State power to call in events under contemplation, by leaving out from “does” to the end of line 11 and inserting:

“establishes that arrangements are in progress or contemplation which, if carried into effect, would result in a trigger event taking place”.

As we have discussed, the Bill gives significant powers to the Secretary of State and the amendment would significantly expand notification volumes. There are many minor transactions where parties agree that someone might have the right to buy more shares in the future, and, in themselves, these transactions do not create direct influence and are unlikely to create a threat to national security. We recognise that the amendment would require all such minor transactions to be notified; it would seek to reflect the potential intention that these minor transactions may be part of a greater contemplation of something which would lead to a trigger event.

We recognise that Government would already have the power to intervene, through notification, once a trigger event takes place, so this amendment brings all possible future trigger events into scope, not just actual, or likely, future events.

[Matt Western (Warwick and Leamington) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Twigg. On the point on these disguised elements, does my hon. Friend agree that the issue is about not simply shareholding, but, as we heard in the evidence sessions, membership of boards, and how voting rights might not necessarily be in line with shareholding percentages, and that they can be distorted at a future date?

[Chi Onwurah]

I am grateful to my hon. Friend for that intervention. He makes a good point, which reflects why we are proposing this amendment to test the Bill. As he says, influence can be exercised in a wide range of ways.

I will elaborate on this later, but we must recognise that hostile parties will not sit back and see the Bill, then say “Oh well, that’s fine; we won’t try anything against the United Kingdom’s security,” as a consequence. They will seek ways to game and effect an influence regardless. Changes to the relationships between voting rights and shareholdings, for example, might be one way where they could seek to bypass the Bill.

I recognise that this is a wide-ranging amendment, but I seek to understand how the Minister feels that the Bill, as it stands, can address the kinds of concerns that my hon. Friend has just raised. This also reflects—I emphasise this again—the approach that we are taking, as the Opposition, on the Bill. The first priority and central plank of that approach is to put our national security first, and to do everything that we can to secure the strategic and economic resources on which our security relies; that focus on putting national security first motivates this probing amendment.

As my hon. Friend indicated, there can be a number of contingent investment transactions where parties agree to future events that transfer controls or influence. For example, a buyer might buy a low share of a company today, but might acquire with it the right to influence its shareholding in the future to levels of material influence.

I think the Minister will agree that we must watch out for these disguised transactions. They can start with innocuous levels of shareholdings, but set the ground for harder-to-notice increases in influence. At the moment, the Bill leaves out these transactions from the scope of notification, so the Government could not intervene. The amendment is therefore intended to probe the Government’s approach.

--- Later in debate ---

[Sam Tarry]

I agree. It is Small Business Saturday this weekend, and I imagine that many SMEs will be telling us when we are back in our constituencies about exactly these kinds of issues: the uncertainty, and the decisions they want to take about investment in staff, in technology and, of course, in equipment.

With this amendment we are trying to focus on ensuring that businesses have as much clarity as possible, so that they can begin to plan. If that uncertainty is ended, as we come out of the covid crisis and move forward from the debacle of Brexit, it will be better for businesses to have clarity, so that they can begin to take the positive decisions that will hopefully create jobs.

It is already challenging for firms to engage in such a tricky process. Remember that small and medium enterprises will not have the vast resources that are perhaps available to the multinationals or mergers-and-acquisitions-type companies from which we heard evidence. It will be far more frightening for SMEs to face such things given everything else they are dealing with at the moment.

The amendment would go a long way towards ending uncertainty for SMEs and ensuring that the Government act with clarity and, of course, with competence. It would require the Government to publish guidance on the form and content of the notices that firms will have to fill out. There will always be a degree of paperwork for businesses, but this is about ensuring that it can be filled in as quickly as possible. The recommendation is that guidance should create efficient forms and content requirements, and that it contains some indication of how long the Government will take to accept or reject a mandatory or voluntary notice,

[Matt Western]

My hon. Friend is making some important points. The issue here, as he is illustrating, is simply that the pressures that SMEs face in particular are about cash-flow and attracting inward investment. They do not have the resources or the capacity to cope with those sorts of approaches and will be under huge pressure. That is why the amendment is so important.

National Security and Investment Bill (Eighth sitting)

Matt Western Excerpts

Committee stage & Committee Debate: 8th sitting: House of Commons
Thursday 3rd December 2020 Public Bill Committees

[Dr Whitehead]

I appreciate what the Minister has had to say. He is clearly confident that the fine print of this clause is not going to be a problem. I slightly beg to differ: I think it may be. I also wonder whether the Minister has considered the extent to which what is already there—or, should I say, what I think is already there—in the Enterprise Act 2002 effectively restricts the Minister in his actions, in much the same way as this clause does, except that the restriction is much clearer from a legal point of view. That is to say, by relying on the restrictions that are already in the Enterprise Act, the Minister would probably not act any differently from how he would under this particular clause, but by relying on that element of the 2002 Act, his actions would be far less potentially actionable.

Before the Minister gets carried away by the idea that the legislature, or in this instance the Opposition, is clamouring for the Secretary of State to have far more powers, that is not our case. Our case is that it would be rather wiser to restrict what the Secretary of State may do through clearer legal definitions, which are already there, than through the rather woolly definition that is in the Bill. Before the Minister goes home thinking, “I have free rein to do whatever I like now”, that is not so: it is not so according to the Enterprise Act 2002, and it is something we want to stand strongly by. We do not want to underscore the idea that the Minister can act unreasonably, especially since the phrase “acting unreasonably” has a long pedigree, both in terms of civil action and administrative law over a long period of time.

I am sorry that the Minister does not accept our case, with all the caveats on it, although it may be that he is less inclined to accept the case now that we have highlighted the fact that there are caveats on what the Minister can do. I do not think we want to press this amendment to a Division, but we do so rather more in sorrow than in anger, because we think this could have been a prudent way to proceed with this Bill.

[Matt Western (Warwick and Leamington) (Lab)]

As always, my hon. Friend is making important points. I was surprised to see the letter from the Chair of the Intelligence and Security Committee, which dates back to its 2013 report. Does my hon. Friend agree that if that Committee had been involved and consulted before this legislation was drawn up, some of the issues he is raising could have been brought out into the open and addressed better?

[Dr Whitehead]

My hon. Friend is right. I think that, because things have changed so substantially over the past decade or so, we tend to see things in a way that we may not have easily seen them just a few years ago. Indeed, the expert witnesses who were before us made considerable points on the question of how naive we had been on some previous occasions; we had not really taken into account some of the implications of what we were doing, because we did not have a clear picture of the consequences of those actions.

My hon. Friend is right—I suppose this is to some extent wisdom of the stairs—that if we could have considered things at that particular point the way we see them now, we would have expressed ourselves in much firmer and more watertight ways. However, I do not think the fact that we did not do so then is any particular excuse for continuing not to do so now. The idea that we may miss out on the ability to get proper information that can point us in the direction we want to go, albeit possibly by very roundabout means, and that we deny ourselves that particular possibility because we have written something in the legislation that stops us doing it does not seem to me to be fully learning the lessons that we might have done from 2013 onwards.

However, far be it from me to lecture the Minister or otherwise on the wisdom of these things; I am sure he is able to decide that subsequently for himself, just as I have challenged him about the wisdom of the Secretary of State’s investment agreements a little while ago concerning Bradwell. I am sure he knows in his heart that that is an appallingly naive thing to have done in those circumstances, and we might have thought differently had that taken place even today. That is the spirit in which we are moving this amendment. As I say, we do not wish to press it to a vote, but I hope the Minister will be able to consider those points and think about how this section might best be applied in the circumstances we have before us today. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Peter Grant]

I am grateful to the Minister for that clarification. As I say, I fully understand what the Government are attempting to achieve. I would expect that, in those circumstances, the Minister would block the acquisition if there was a serious failure to comply by anybody who was in practice beyond the reach of UK criminal prosecution. I would certainly hope that in those circumstances the Secretary of State would use the other powers to ensure that they could not become a controlling influence on any strategically important UK undertaking.

As I said, I do not want to divide the Committee. I did not even feel it was appropriate to table an amendment, partly because I could not think of a way of amending it that would make it any better. Having made those points, I am grateful for the Minister’s clarification, and we will leave it to future Secretaries of State to implement it as best they can.

[Matt Western]

I will pick up on one issue, which concerns subsection (3)(a). I would like some clarification from the Minister. I am trying to get my head around what is meant by

“a qualifying entity which is formed or recognised”.

Could he give an illustration of what is meant by “recognised”? I assume that this is about some takeover, merger or acquisition. Could it be some sort of shell company or some other form? Perhaps the Minister could clarify what is meant by recognition under the law.

[The Chair]

Well, the Minister has not intervened. I call Dr Alan Whitehead.

National Security and Investment Bill (Ninth sitting)

Matt Western Excerpts

Committee stage & Committee Debate: 9th sitting: House of Commons
Tuesday 8th December 2020 Public Bill Committees

[Nadhim Zahawi]

With your indulgence, Mr Twigg, I intend to speak first to clause 23 stand part, then to amendment 22 and new clause 4.

We are committed to the regime providing as much clarity, certainty and predictability as possible for businesses and investors. It is therefore right that we are setting out how long the Secretary of State may take to carry out a full national security assessment and make a final decision on a trigger event following a call-in notice.

Subsection (3)(a) provides for an initial assessment period of 30 working days. The Government have taken advice from the security community, and we consider that in the majority of cases 30 working days will allow for a full national security assessment and for the Secretary of State to decide whether to clear the trigger event outright or to impose final remedies on it.

More complex cases are possible, however, and it is important that a longer period is available for the Secretary of State to consider them. The clause therefore enables the Secretary of State to issue a notice to extend the assessment by 45 working days to assess the trigger event further, for example to determine the extent of the national security risk or to decide on appropriate remedies. That is referred to as the “additional period” under subsection (3)(b). The clause also provides for the assessment period to be further extended beyond the additional period, but only with the written consent of the acquirer. That is termed a “voluntary period” under subsection (3)(c).

The Government are clear that extensions should not be used lightly. The clause therefore includes specific legal tests for their use. To extend the assessment into the additional period, the Secretary of State must reasonably believe, as the hon. Lady referred to, that a trigger event has taken place, or is in progress or contemplation, and that this has given or would give rise to a national security risk. The Secretary of State must also reasonably consider that the additional time is required to assess the trigger event further.

To agree a voluntary period extension with the acquirer, the Secretary of State must be satisfied that, on the balance of probabilities, a trigger event has taken place, or is in progress or contemplation, and that this has given or would give rise to a national security risk. The Secretary of State must also reasonably consider—the third bullet point the hon. Lady mentioned—that the period is required to consider whether to impose final remedies or what those remedies should be.

What the Secretary of State may not do is simply extend the assessment period because it is convenient. The clause is drafted in this way to ensure that we protect the investors and businesses that the hon. Lady quite rightly cares about, as do Government Members, and allow them to operate and thrive in our economy. I hope that hon. Members feel assured that the Government have sought to carefully balance the flexibility required for the Secretary of State to deal with the most complex cases and the need to provide businesses and investors with clear time lines.

[Matt Western (Warwick and Leamington) (Lab)]

Just to understand and clarify the point about how realistic the voluntary period might be, in terms of getting the written agreement of the acquirer, in the Minister’s experience, how realistic is it that a business would accede to that? The business might be under financial pressure, looking for cash or a financial injection, which is the whole point about bringing in private equity. How will the Government ensure that that is possible, when all those other pressures are coming into play?

[Nadhim Zahawi]

I am grateful to the hon. Gentleman; it is a great question. We are all worrying about the small and medium-sized businesses that his particular angle would very much apply to. He will recall that, in the evidence sessions, we heard evidence to suggest that business founders and directors are best placed to know if their business has a national security angle, so the Secretary of State will clearly work with those business owners, innovators and pioneers to try to mitigate the national security risk while making sure that they can survive and thrive. It is in no one’s interests for them not to do well in the United Kingdom; that would probably create a greater national security threat.

[Matt Western]

Just to be clear, if a business is desperately seeking that inward investment, surely it would be less likely to write and agree with the Secretary of State about the additional period, because it is desperate for the funds.

[Nadhim Zahawi]

I absolutely hear what the hon. Gentleman says. The issue then becomes one of national security. As we heard in the evidence sessions, most founders and directors know exactly what they are inventing and what their intellectual property is, and therefore whether there is a national security risk, however nascent the business may be.

I briefly turn to amendment 22. I am grateful for the Opposition’s continued, and in some ways unexpected, push for ever greater powers for the Secretary of State, who I am certain will be most delighted. The amendment would remove the requirement for the Secretary of State to agree the use of a voluntary period or a further voluntary period with the acquirer to consider whether to make a final order or what provision that final order should contain. I do not believe that would be the right approach.

We have set much store in the statutory timescales provided for in the Bill. It is vital for the businesses and investors that we all care about that they have confidence in when they can expect decisions so that they can plan accordingly, which goes back to the point of the hon. Member for Warwick and Leamington about planning for an investment or fundraising event. That is why any extension of the assessment period, beyond the collective 75 maximum working days of the initial period and the additional period combined, requires agreement from the acquirer in recognition of the fact that the process is being lengthened beyond the customary timeline. Enabling the Secretary of State to do that unilaterally would be a matter of concern for business and investment communities alike.

--- Later in debate ---

[Nadhim Zahawi]

I am grateful to the hon. Gentleman. We have had that debate already, and we have set out clearly what we think is appropriate to be in the report, notwithstanding what we might do in future if that allows investors to have greater clarity.

[Matt Western]

I was going to make exactly the same point as my hon. Friend the Member for Southampton, Test. Surely the intent behind the question is how we make the operation of the provision much more efficient. We are starting from a zero base. The suggestion that we consider future demands and implications is a constructive one.

[Nadhim Zahawi]

I see where the hon. Gentleman is coming from. The House has many levers at its disposal, including the Select Committee process, to probe the effectiveness of the new regime.

I shall now make some headway. The provision is designed to ensure that orders reflect changing circumstances and do not remain in force for perpetuity without further consideration. Parties subject to orders may themselves request that the Secretary of State vary or revoke their order. This is another mechanism to ensure that orders remain appropriate. The Secretary of State must consider such requests unless the request relates to a final order and, in the opinion of the Secretary of State, there has been no material change in circumstances since the order was made or last varied, or if the party concerned has previously made a request to vary or revoke the order since that request.

National Security and Investment Bill (Tenth sitting)

Matt Western Excerpts

Committee stage
Tuesday 8th December 2020 Public Bill Committees

[Chi Onwurah]

I genuinely thank the Minister for the clarification that equity investments will be included in this bit of the Bill.

[Matt Western (Warwick and Leamington) (Lab)]

We are focusing greatly on small and medium-sized businesses, but this can also happen to slightly larger organisations, which might be outside the commonly used definition of an SME. When a larger business is distressed because it has lost a major customer and finds itself in financial difficulty, it needs that cash injection, so that sort of assurance is important.

[Chi Onwurah]

As always, my hon. Friend makes a really important point, and one that I had not thought of. The point about this being applicable to medium-sized businesses is absolutely right. In some ways, medium-sized businesses can often be at a critical point; cash flow is so important, and they could suddenly become very distressed, but with the right cash flow or the right injection of capital, they could expand greatly.

Will the Minister consider this? During the pandemic, when certain innovations have become incredibly important, and cash and support are needed to significantly increase the volume of production—of a vaccine, shall we say, with which the Minister is intimately concerned—a delay of 30, 70 or whatever days will create a huge problem for a medium-sized or growing business, as well as for small businesses.

--- Later in debate ---

[Chi Onwurah]

I thank the Minister for that, which brings me to the point that I wanted to make in response to him. I discerned that that seemed to be his point—that the Bill may cause harm to companies, but that rather than seeking redress under the Bill, or this clause in particular, they should seek redress or some kind of compensation through the well-oiled machinery of Government that provides support for small and growing businesses. I am afraid that that response will be met with undiluted cynicism among the many small and medium-sized businesses that have dealt with Government.

Again, we are talking about a fast-moving situation. Perhaps the Minister will provide examples of where, on such timescales, support has been provided. More importantly, if that is a consequence of the Bill, why would it not be addressed in the Bill, especially as we have a clause that seeks to address this issue in the case of notices of final order. I gave the example of OneWeb satellites, which was a major investment that took some time to come about, and we were not clear whether it was a strategic asset or national security. Clarity is critical.

[Matt Western]

This is important. I take on board exactly what the Minister is saying, but I am sure he can assure me on this. To give one specific example, Imagination Technologies is a fantastic company, which lost its major customer, which was Apple. Chinese-backed investment—private equity—then came in. The US refused the company the chance to buy into a US business in 2017. I would love to think that whoever was in BEIS in 2017 looked at it closely and offered support. This might be beyond our remit, but it is important that such businesses are reached out to. Will someone in the Minister’s team confirm that the Government tried to support Imagination Technologies?

[Chi Onwurah]

I very much hope that the Minister or his Department will respond to that. My hon. Friend gave an example of an innovative company in need of support from the Department. Presumably it was similar to the cases we are discussing now, and that support was offered. If confirmation is not forthcoming, we should perhaps look for it via a parliamentary question, which might help us.

I want to say one word about amendment 28, which seeks to ensure that the term of the reporting does not undermine what is reported or its effectiveness. The Minister said that if the £100 million barrier was crossed, another report would have to be made on any further expenditure. However, the amendment concerns a small amount of expenditure in a given period, followed by a larger amount, and whether the periods in which the expenditure was made might mean that a report did not have to be made. The Minister also did not address the question of why £100 million was the right threshold for making a report. On that basis, I wish to press the amendment.

Question put, That the amendment be made.

National Security and Investment Bill (Eleventh sitting)

Matt Western Excerpts

Committee stage & Committee Debate: 11th sitting: House of Commons
Thursday 10th December 2020 Public Bill Committees

[Nadhim Zahawi]

I am grateful to the hon. Lady. I remind her that the legislation requires the Secretary of State to act in a quasi-judicial way, not as a political figure. I appreciate that by a normal reading, “appears” may appear unduly casual, but that is merely a question of the form of legislative drafting, which is consistent, I remind her, with previous relevant legislation.

In addition, I reassure the hon. Lady that the principles of public law apply in any case. The Secretary of State therefore needs to act reasonably in fulfilling his functions under the Bill. That includes having a reasonable basis, supported by sufficient evidence, for coming to the conclusion that a person appears to be an overseas public authority prior to disclosing information. I hope I have provided the Committee with sufficient reassurances, and I therefore hope that the Opposition will withdraw the amendment.

[Matt Western (Warwick and Leamington) (Lab)]

I just want clarification from the Minister on the point of that being semi-judicial.

[Nadhim Zahawi]

Quasi-judicial.

[Matt Western]

Quasi-judicial; sorry. How does that square with the responsibilities of the Minister in the Department for Business, Energy and Industrial Strategy?

[Nadhim Zahawi]

It is not a strange concept that a Minister acts in a quasi-judicial way in making such decisions.

I will now briefly turn to clause 55, which makes provision for specific restrictions in respect of information received under clause 54 from Her Majesty’s Revenue and Customs. For the regime to function effectively, the Secretary of State needs access to the right information at the right time in order to make decisions with the fullest range of evidence available. One such source of information that might be invaluable to the Secretary of State is HMRC. Although the Government expect that the Secretary of State would seek first to secure the information he needs from the parties, it is important that such information can also be provided from elsewhere in Government, if it is held there.

Clause 55 provides that where information is received by the Secretary of State from HMRC or an onward recipient pursuant to clause 54, it may not be used for purposes other than the Secretary of State’s function under the Bill, and nor may it be further disclosed without HMRC’s consent. Clause 35 provides that disclosing information in contravention of clause 55(1) is an offence, as is appropriate.

--- Later in debate ---

[Dr Whitehead]

Even though the Minister has worked well with the CMA, as he has just said, and is assured that the relationship will work well, he has put it into legislation just to make sure that it does.

[Matt Western]

My hon. Friend the Member for Southampton, Test has stolen my thunder—had I known that he was going to stand up, I perhaps would not have done so. It is interesting that paragraph (a) says “must” but paragraph (b) says “may”. Another valid point, beyond the semantics, is about the substance and the resource of the CMA, and whether there should be provision for that in the Bill. Can the Minister comment on the capacity of the CMA to support the demands and obligations set out in the clause?

[Chi Onwurah]

I will say a few words to the clause—reflecting the comments made by my hon. Friend the Member for Southampton, Test, in particular—because there seems to be a theme in the Bill. I know that the Minister believes that the Bill is beyond improvement, and that he is reluctant even to contemplate any changes, as he said in response to the hon. Member for Glenrothes, but he must recognise that a consistent theme seems to be that requirements, or “musts”, are placed on others and the discretion—the “may”, if you like—is with the Business Secretary. The Minister himself observed that we are keen to allow the Business Secretary the necessary discretion to fully protect our national security, but does he see not that that would better achieved by clearly circumscribing the Business Secretary’s actions?

I also support my hon. Friend the Member for Warwick and Leamington in his recent contribution. Throughout this Bill, we need to ensure that the resources are there when placing requirements on bodies. I hope that the Minister can give such reassurances. On that basis, we recognise that the clause should stand part.

Question put and agreed to.

Clause 56 accordingly ordered to stand part of the Bill.

Clause 57

Data Protection

Question proposed, That the clause stand part of the Bill.

National Security and Investment Bill (Twelfth sitting)

Matt Western Excerpts

Committee stage
Thursday 10th December 2020 Public Bill Committees

[Sam Tarry]

I thank the hon. Gentleman for his intervention. Those are valid points, and part of what we are driving at here is to be more prescriptive. The feeling is that we essentially need to allow the loops in the net to be closed enough such that we catch some of these companies. We do not want a situation where a number of companies have portions of them being owned by, for example, China or another country, and do not fall foul of any of the provisions currently in the Bill. In time, that could mean that countries and entities that were hostile to Britain’s strategic goals ended up having quick and strategic access to things around nanotechnology, agriculture and a range of other areas where they had essentially got their hands into something that I think should be protected far more closely by the UK.

To give an example, in the US—this is already under way—a Palo Alto-based venture capital firm backed by the Chinese Government had dozens of US start-ups in its portfolio. On 15 November 2020, the Office of the US Trade Representative said that 151 venture capital investments in US start-ups had featured at least one Chinese investor—up from 20 in 2010. We are not saying we do not want Chinese investment, but what we do not want is a situation where we are unable to have a grip when we find that loads of our technology companies —our most cutting-edge firms—are essentially all part-owned by the Chinese Communist party or one of its subsidiaries. That is why we have been more prescriptive in many parts of the new clause.

[Matt Western (Warwick and Leamington) (Lab)]

My hon. Friend is making some important points. One of the striking things about, for example, Canyon Capital Advisors is how the US authorities intervened when it was looking to take over a particular US tech company. However, when it came to Imagination Technologies, of course, the UK Government did not.

[Sam Tarry]

That is exactly the kind of example on which we are trying to use the new clause to provide more clarity and give more force to the Bill so it can deal with these sorts of thing. If, for example, public investment by Chinese venture capital groups in western countries—whether it be this country or others—is visible but is actually just the tip of the iceberg, that is going to be a real problem. One lesson that Richard Dearlove described clearly to the Committee was that we need to take a longer medium-term view that goes beyond just being the most free-market and economically attractive investment prospect, particularly given the rise of those geopolitical challenges. The Chinese are being explicit about what their goals are. They do not want to build Britain up; they want to take us for as much as they can get. This is about protecting ourselves and ensuring that those smaller things, which may just be going on under the net and may not hit some of the parts on mandatory notices, not the big headline-grabbing things, could be looked at.

I agree with an earlier comment made by the hon. Member for Glenrothes that one problem is that, while we need regular advice from intelligence services and of course it needs to come through to the Secretary of State, having a regularised timeframe in which we know that those things will get full scrutiny is incredibly important. Parliamentarians and the public will want to see if there are any patterns developing in types of investments and the way those investment vehicles are used to buy into some of the most advanced British technology companies.

This new clause does not require the Secretary of State to publish a list of countries; it simply requires that the Secretary of State, working with the agencies, maintains a list of state-driven risks, which feed into national security risks. Our drive, as the Opposition, is our concern that the Minister does not recognise the state-based nature of those major security threats.

If this new clause is accepted, it would provide those guarantees and the extra ability to bring together the agencies that would be able to compile that list of state-driven risks, which can then inform decisions. In that context, it is vital that the country is assured of the Government’s ability to act on intelligence and expertise in protecting British security against hostile actors.

National Security and Investment Bill

Matt Western Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Wednesday 20th January 2021 Commons Chamber

[Bob Stewart (Beckenham) (Con)]

Enhanced protection of our national security is obviously at the heart of the Bill. It has come not before time, too. It has had a gestation period of something like seven years since the Intelligence and Security Committee first raised the matters that it addresses directly. As a member of the Committee, I will not repeat what my right hon. Friend the Member for New Forest East (Dr Lewis), the Chair of the ISC, or the senior Opposition member of the ISC, the right hon. Member for North Durham (Mr Jones), have said with regard to oversight of investments. I think the point has been well made, and I totally accept that the Minister gets those points.

Let us be clear, though, that if a potential enemy state can get critical information and technologies, it is highly likely to do so. In truth, as we all know, the UK is a primary target for a broad range of national security attacks from both foreign intelligence agencies and organisations, as well as companies, which certainly are operating at the moment. If a company that is British and world leading in a technology—for instance, artificial intelligence or robotics—is bought by a foreign investor from a country that is not particularly friendly to the UK, we must have a system to ensure that British technology, ideas and even hardware are not simply hijacked and possibly used against us. We have to stop that.

Unless the United Kingdom curbs the right of foreign firms and investors to obtain technologies through the means of mergers and acquisitions and similar, our advanced technologies could easily find their way into weapons systems of foreign, potentially hostile states. These days, weapons systems should be much more broadly defined. They include possible attacks on the way we live. For example, using the internet to turn off water purification and supplies or just sewerage would have a dramatic and immediate impact on British society. I reckon that is a weapons system these days. In future, investors will have no choice but to notify the Government if the ownership of certain businesses is to change hands. That is good news. I note, too, that the Secretary of State will also have the power to call in other businesses if he or she has concerns about national security. That is good, too: it allows for sensible flexibility.

In contrast to others who have spoken, I think we should be careful about defining exactly what national security involves because it changes all the time. It is difficult to pin it down. We know what it is, but I am worried about defining it.

Within the Department for Business, Energy and Industrial Strategy will now sit this new investment security unit, which will be tasked with supervising sensitive sectors of our economy. I know that those sectors have yet to be fully defined, but most are pretty obvious—defence communications, energy, cryptography, satellite and space technologies and many more. But in the fast-moving modern world that we live in, it will also be important for the investment security unit to look actively at seemingly innocent technologies and systems, which in the wrong hands could bring our society to a grinding standstill. Others have mentioned the national grid: if that could be disabled by the simple means of remote instructions, the whole of the country’s electricity supplies could be turned off. Just think of how difficult that would be!

Keeping sovereign control over the methods of controlling something like the national grid is crucial. I presume and hope that the investment security unit will spend some time looking out for non-obvious threats. Having once been an intelligence officer, I know that trying to identify the threat, the signals that identify what is about to happen, is really difficult because they are embedded in a plethora of noise. But this investment security unit will have to try.

I am pleased that the Bill extends the current screening powers to allow the Secretary of State to investigate the acquisition of sensitive assets in intellectual property as well as the straightforward acquisition of companies. In short, I support the Bill and I am pleased that it has at last reached this stage.

[Matt Western (Warwick and Leamington) (Lab) [V]]

It is a pleasure to follow the hon. Member for Beckenham (Bob Stewart). I join my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) and others in thanking the Bill Committee, the Clerks and others who supported us so well—including the expert witnesses from whom we got to hear during that fortnight. I had not sat through Second Reading, but we had a particularly enlightening series of sessions.

I wish to speak to new clauses 5, 6 and 7, which I will be supporting, along with the Bill.  I emphasise how strongly colleagues and I feel about how important national security is, and how much Labour prioritises it. That is why we welcome the Bill, following, as it does, unfortunately, the leadership of states such as the United States, Germany and the EU; perhaps we are just that much behind the curve. I am sorry to say that it is clear that the Government failed to recognise the clear and present danger of the commercial strategy of other powers. Although I very much support the Bill, as it introduces the greater powers for Government to intervene when corporate transactions threaten our national security, it is late, perhaps even a decade or more late.

As so many have said, national security has traditionally been viewed quite narrowly. Perhaps we have had the light touch of economically liberal Governments welcoming investment when in fact those acquisitions are aimed at reducing the competition, improving margins and protecting domestic interests. Also we have seen the purpose being to asset-strip those businesses of their intellectual property, often at considerable cost to the UK in terms of our knowledge base and expertise, but with the risk of seriously damaging our supply chains and having the consequent economic impact. Often this results in those businesses moving overseas. So overall, although the Government’s proposal brings the UK in line with other countries on national security, there is the need for greater powers on mergers and acquisitions, particularly in respect of what may be deemed to be beyond security but actually in the national interest, as in the US and France, where they have the powers to block takeovers of companies deemed strategic or that have major implications for national interests.

I am afraid that the past 10 years show that consecutive Conservative and coalition Governments have been persistently slow and muted in intervening to protect national security in a series of cases: Huawei and 5G has been cited frequently this afternoon: Pfizer and AstraZeneca—the proposal of course failed, but we can only imagine what would have happened to the cost of vaccines had those two companies merged and had we been reliant on one major player; Google and DeepMind; and now Nvidia and Arm technologies. Among a great many others, we have also had the takeover of GKN by Melrose and the acquisition of Cobham aviation. They are now owned by businesses based in a friendly state, which is okay and acceptable, but it is questionable how we are prepared to let some of these important businesses—important leaders in technologies—be disposed of, with the assets, the research and the intellectual properties of those businesses moved offshore, to elsewhere.

New clause 5 seeks to define national security. Interestingly, the right hon. Member for Reading West (Alok Sharma), the former Secretary of State, has stated that the Government had a very narrow interpretation of national security. It was surprising what came to light in the Bill Committee, where we heard that, as I understand it, in drawing up this legislation the Government had failed to engage with the Intelligence and Security Committee in the first instance. That was a shortcoming. The evidence sessions proved more than enlightening, particularly when we were hearing from some of the expert witnesses. Some of what we heard was deeply disturbing. The words spoken by Charles Parton of the Royal United Services Institute were some of the most alarming of all. He said:

“we should not underestimate the degree to which Xi Jinping and the Communist party intend, as Xi said to the first politburo meeting, to get the upper hand against western democracies… When you add that to his policy of civil-military fusion—using civil in the military context—and the fact that he has set up a party organisation specifically to push that forward, and the change in investment policy away from things such as property, football clubs and other things, very much towards benefitting China and its technology, we have to be a lot more careful than we have been in the past.”

I think he said that, perhaps deliberately, with extraordinary understatement. Perhaps most alarmingly, he added:

“I am not aware of a really good assessment of just how much technology has been bought, the targets and so on. Maybe the Government have one—I don’t know—but I do not think that they do.”

––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 6, Q2.]

Perhaps that is something that the Minister could answer when he sums up.