Nadhim Zahawi debates involving the Department for Business, Energy and Industrial Strategy during the 2019 Parliament

Thu 10th Dec 2020
Tue 8th Dec 2020
National Security and Investment Bill (Tenth sitting)
Public Bill Committees

Committee Debate: 10th sitting: House of Commons
Thu 26th Nov 2020
National Security and Investment Bill (Fourth sitting)
Public Bill Committees

Committee stage: 4th sitting & Committee Debate: 4th sitting: House of Commons
Thu 26th Nov 2020
National Security and Investment Bill (Third sitting)
Public Bill Committees

Committee stage: 3rd sitting & Committee Debate: 3rd sitting: House of Commons
Tue 24th Nov 2020
National Security and Investment Bill (Second sitting)
Public Bill Committees

Committee stage: 2nd sitting & Committee Debate: 2nd sitting: House of Commons
Tue 24th Nov 2020
National Security and Investment Bill (First sitting)
Public Bill Committees

Committee stage: 1st sitting & Committee Debate: 1st sitting: House of Commons
Tue 17th Nov 2020
National Security and Investment Bill
Commons Chamber

2nd reading & 2nd reading & 2nd reading: House of Commons & 2nd reading

Oral Answers to Questions

Nadhim Zahawi Excerpts
Tuesday 15th December 2020

(3 years, 4 months ago)

Commons Chamber
Read Full debate Read Hansard Text Read Debate Ministerial Extracts
Joy Morrissey Portrait Joy Morrissey (Beaconsfield) (Con)
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What steps his Department is taking to support businesses during the covid-19 outbreak.

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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My Department continues to deliver a wide range of measures to support UK businesses. We have extended our loan schemes, which have already delivered more than £65 billion of finance, until the end of January.

Harriett Baldwin Portrait Harriett Baldwin
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That level of support is impressive, and I also thank the Minister for all he is doing on the vaccine roll-out. There are sections of the UK economy that are going to grow rapidly, not least the green industrial revolution, thanks to the energy White Paper announced yesterday. What steps is he taking to make sure that it is UK-based businesses that grow the workforce and benefit from the job creation as a result of the green industrial revolution?

Nadhim Zahawi Portrait Nadhim Zahawi
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I am grateful to my hon. Friend for her excellent question. The 10-point plan will build on the nearly half a million green jobs that already exist in the UK economy, supporting up to 250,000 further high-skilled jobs. The House will be interested to know that we are talking about 60,000 in offshore wind, 10,000 or more in nuclear, 50,000 in green and comfortable homes, 8,000 in hydrogen, 53,000 in carbon capture utilisation and storage and 40,000 in accelerating the shift to zero-emission vehicles.

Paul Holmes Portrait Paul Holmes
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The weekend before last, I was pleased finally to start my Christmas shopping in Botley High Street, as part of Small Business Saturday, which included visiting Wardrobe at 24 and Mermaids deli. This crucial campaign highlights the important role that businesses and entrepreneurs play. Does my hon. Friend agree that it is more important than ever to support our high streets and shop local this Christmas? Will he assure me that this Government will continue to stand by our town centres and high streets as we recover from covid?

Nadhim Zahawi Portrait Nadhim Zahawi
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I absolutely agree with my hon. Friend; now more than ever it is vital that we continue to help our local economy by supporting our town centres and high streets. That is why we have delivered one of the most generous comprehensive packages of support, with a total financial package of £200 billion.

Joy Morrissey Portrait Joy Morrissey
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Does my hon. Friend agree on what a success the recent Small Business Saturday events were and on how important small businesses are to local communities across my constituency in Gerrards Cross, Beaconsfield and Marlow? Does he agree that we must continue to fight for small businesses during this pandemic, so that we do not risk undermining the economic foundation of our country?

Nadhim Zahawi Portrait Nadhim Zahawi
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The recent Small Business Saturday event meant that the spend from the Great British public rose to £1.1 billion this year, which is a 38% rise on last year. The Government will continue to champion small businesses, through our unprecedented support schemes, as they begin to recover from the impact of covid-19. As the Secretary of State has just reminded me, the spend is not £200 billion—it is £280 billion of support for small business.

Chi Onwurah Portrait Chi Onwurah (Newcastle upon Tyne Central) (Lab) [V]
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Of the £5 billion of new online spend because of the pandemic, 40% has gone to one website, Amazon. Many small businesses are afraid that they will not make it through the winter because of a lack of Government support, and they have Brexit and climate and technological change to deal with too. So I want to ask the Minister this: what is the plan for small businesses to survive covid and build back smarter and greener? I am talking not about vague promises, but about firm commitments to help businesses invest in new technologies, as Make UK has called for, or to target procurement to support net zero businesses, as the Institution of Civil Engineers proposes. Or are the Government just going to let business down again?

Nadhim Zahawi Portrait Nadhim Zahawi
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As a fellow engineer, the hon. Lady will know that the Made Smarter initiative has been a tremendous pilot in the north-west. We recently announced a further expansion, with £300 million—£147 million coming from the Government and the balance coming from the private sector—to support the adoption of technology into manufacturing. I hope the hon. Lady will continue to support Government initiatives such as Made Smarter.

Andrew Rosindell Portrait Andrew Rosindell (Romford) (Con)
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What steps he is taking to ensure that the Green Homes Grant scheme delivers (a) value for money and (b) environmental benefits.

--- Later in debate ---
Grahame Morris Portrait Grahame Morris (Easington) (Lab)
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What assessment he has made of the availability of the local restrictions support grant (open) to businesses in areas under tier 2 covid-19 restrictions.

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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Businesses in tier 2 that are required to close can access payments of up to £1,500 per 14 days of closure. We are giving additional financial support of £1.1 billion to local authorities to support other businesses severely affected by restrictions even though open.

Chris Loder Portrait Chris Loder
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May I gently suggest to the Minister that one of the best ways he will be able to support small businesses in my constituency of West Dorset is to use his influence in discussions within Government tomorrow to reduce West Dorset from tier 2 to tier 1? In the event of that not being possible, could he outline more specifically what the Government will be doing to support the 97% of businesses that are small or micro-sized?

Nadhim Zahawi Portrait Nadhim Zahawi
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I recognise that the winter months will continue to be extremely tough on many businesses in my hon. Friend’s constituency, but I am confident that the grant programme that we have in place, alongside other measures like the job retention scheme and the support for the self-employed that have been so widely discussed this morning, will continue to deliver that support. An estimated 90% of small and medium-sized business premises in closed retail, hospitality and leisure sectors should, broadly, have their monthly rent covered by the business grant programme.

Grahame Morris Portrait Grahame Morris
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It is essential that the local restrictions support grant is available promptly to businesses and is not subject to a prolonged application process. In anticipation of some areas—hopefully my own in the north-east—moving into tier 2 this week, will the Secretary of State ensure that grants are paid quickly to businesses, including the retrospective grants, particularly to pubs?

Nadhim Zahawi Portrait Nadhim Zahawi
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The local restrictions support grants, additional restriction grants and Christmas support payments are all available now for businesses through their local authority. I know that the Secretary of State takes these businesses very seriously. Throughout this whole process, since back in March, he made sure that all his Ministers talked to local government to make sure that we do get those payments out promptly.

Chris Green Portrait Chris Green (Bolton West) (Con)
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What steps his Department is taking to support the life sciences sector.

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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The Government have invested approximately £1 billion through two life sciences sector deals, helping to generate significant industry investment in the UK. Last year the industry had a turnover in the UK of £80.7 billion.

Chris Green Portrait Chris Green
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The life sciences sector is a truly international endeavour, as can be so clearly seen with the recent vaccine research efforts. With worries in the sector about our ongoing relationship with European countries and the European Union, would my hon. Friend confirm that the concerns of the life sciences sector are of paramount importance in the ongoing negotiations?

Nadhim Zahawi Portrait Nadhim Zahawi
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Clearly, the UK’s relationship with the EU is subject to ongoing negotiations, but as we leave the EU the life sciences sector will be supported through the life sciences sector deals that I mentioned, and a new, innovative regulatory framework. The Medicines and Healthcare Products Regulatory Agency has proven itself globally to be one of the finest regulators in the world, and new international regulatory collaborations are on the way too.

Anne McLaughlin Portrait Anne McLaughlin (Glasgow North East) (SNP)
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What steps his Department is taking to support people who were mis-sold a Green Deal loan more than six years ago.

National Security and Investment Bill (Twelfth sitting)

Nadhim Zahawi Excerpts
Peter Grant Portrait Peter Grant
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Even by my standards, it feels as if it is a long time since I stood up to start speaking, so I will bring my comments to a close, Sir Graham.

The examples that I quoted of a potential software threat to our critical transport infrastructure or facilitation of large-scale money laundering are just two examples where I think it would be to the benefit of the legislation to have those factors explicitly permitted for the Secretary of State to take into account when exercising the powers created by the Bill. I understand Government Members’ concern, but I ask them not to judge the new clause by their understandable and shared concerns about the dangers of having a precise dictionary definition of national security. I ask them to judge it by the additional certainty and reassurance it will give the Secretary of State that if they take those factors into account in all of our interests, there will be no question but that the court will uphold the decision. On that basis, I commend the new clause to the Committee. If, as has happened with depressing regularity, the Committee splits along party lines, I sincerely invite the Government to think seriously about tabling a similar measure at a later stage, because the new clause could improve the Bill substantially and it would be a great shame if it was lost simply for party political considerations.

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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I am grateful to Opposition speakers, the shadow Minister and the hon. Member for Glenrothes, for their contributions and to my hon. Friends the Members for Arundel and South Downs, for North West Norfolk, for Clwyd South and for West Aberdeenshire and Kincardine for their excellent interventions.

On new clause 1, it will not surprise the hon. Member for Newcastle upon Tyne Central that the Government’s position remains consistent with that of 1 December, when amendments relating to the new clause were discussed. Such amendments included, among others, proposals for the inclusion of a definition of national security in the statement made by the Secretary of State. The new clause seeks to create a new, exhaustive list of factors that the Secretary of State may take into account when considering whether something is a risk to national security.

Chi Onwurah Portrait Chi Onwurah
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I am listening intently to the Minister’s response—given the great skills of the Committee he is taking the new clause in the right spirit—but it is not appropriate to say that we are presenting an exhaustive list when we specifically say, “this and other things”. It meant to be not an exhaustive list but a guide and a sense.

Nadhim Zahawi Portrait Nadhim Zahawi
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I apologise. I will say instead that the clause seeks to create a non-exhaustive list of factors that the Secretary of State may take into account when considering whether something is a risk to national security for the purposes of the Bill.

The Bill as drafted does not seek to define national security. It also does not include factors that the Secretary of State will take into account in coming to a national security assessment. Instead, factors that the Secretary of State expects to take into account in exercising the call-in powers are proposed to be set out, as the hon. Lady rightly said, in the statement provided for in clause 3. A draft of the statement was published on introduction of the Bill to aid the Committee’s scrutiny efforts. The draft statement includes details of what the Secretary of State is likely to be interested in when it comes to national security risks. That includes certain sectors of the economy and the types of acquisition that may raise concern.

While it is crucial for investors’ confidence that there is as much transparency in the regime as possible, there is self-evidently a limit to how much the Government can and should disclose in that regard given that the regime deals explicitly with national security matters. Nevertheless, the draft statement goes into some detail about the factors that the Secretary of State expects to take into account when making a decision on whether to call in a trigger event.

The new clause would instead place in the Bill, alongside the statement, a non-exhaustive list of factors that the Secretary of State may have regard to when assessing a risk to national security. That raises a number of issues. First, it is unclear what the benefit is of including a non-exhaustive list of factors that the Secretary of State may have regard to directly in the legislation as opposed to in the statement.

Nadhim Zahawi Portrait Nadhim Zahawi
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I will happily take the hon. Lady’s intervention once I have gone through these points.

Secondly, the new clause would not replace the statement; instead, it would appear to sit alongside it. The Government think that would probably cause confusion rather than clarity, although I have no doubt that the hon. Lady and the Opposition agree that clarity for all parties will be crucial to the regime’s success.

Thirdly, by stating what may be taken into account when assessing a risk to national security under the Bill, the new clause indirectly sets out what can be a national security risk for the purposes of the Bill, and therefore what comes within the scope of national security—many colleagues pointed out some of the evidence suggesting that we should do exactly the opposite of that—which could clearly have unintended consequences for other pieces of legislation that refer to national security. The Bill requires that the statement from the Secretary of State be reviewed at least every five years to reflect the changing national security landscape. Indeed, in practice, it is likely that it will be reviewed and updated more frequently. We think that this is the right approach, rather than binding ourselves in primary legislation.

Fourthly, but perhaps most importantly, I note in this list that the Secretary of State may have regard to an ever-broadening set of suggestions that Opposition Members wish to be taken into account as part of national security. On Second Reading, the shadow Secretary of State, the right hon. Member for Doncaster North (Edward Miliband), requested that an industrial strategy test be included in the Bill alongside national security assessments. I am afraid that an industrial strategy test is not the purpose of this legislation.

Peter Grant Portrait Peter Grant
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The Minister comments on a speech by the shadow Secretary of State at an earlier stage of the Bill’s passage and on the undesirability of building an industrial strategy test into the Bill. I do not see an industrial strategy test mentioned in the new clause, so, for the purpose of clarity, is that part of the new clause that we are debating?

Nadhim Zahawi Portrait Nadhim Zahawi
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I was referring to the shadow Secretary of State’s request on Second Reading that an industrial strategy test be included in the Bill.

As I was saying, factors that the Secretary of State may have regard to through the new clause are wide ranging. This is an important Bill about national security and national security alone. We do not wish to see an ever-growing list of factors for the Secretary of State to take into consideration. That would risk the careful balance that has been struck in this regime between protecting national security and ensuring that the UK remains one of the best places in the world to invest. The Government consider that the Secretary of State should be required to assess national security as strictly about the security of our nation. That is what the Bill requires. These powers cannot and will not be used for economic, political or any other reasons.

While I understand the objectives of the hon. Member for Newcastle upon Tyne Central, for the reasons I have set out I am not able to accept the new clause. I hope the hon. Member will agree to withdraw it.

Chi Onwurah Portrait Chi Onwurah
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I thank the Minister for his response, not all of which was entirely unexpected. I also thank the hon. Member for Glenrothes for his speech and his interventions, which were very much to the point.

I feel that the Minister was, to a certain extent, doing what the hon. Member for Arundel and South Downs accused me of doing—I did say that I had learned so much from the Minister—which was arguing both sides of the question at once. He seems to be saying that there should not be any definition, but that if there needs to be a definition, it is already there in the statement that the Secretary of State has set out. Indeed, I have been looking for that statement, because I did not recognise it from the way the Minister described it when talking about giving detail on the types of national security questions that might arise.

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Chi Onwurah Portrait Chi Onwurah
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I rise to speak briefly in support of additional support for SMEs. The hon. Member for Glenrothes is a champion of small businesses, which is a pleasure to hear. As he set out, and as has been set out in a number of the amendments that we have tabled in Committee, we are concerned to make sure that the seismic shift in our national security assessment with regard to mergers and acquisitions does not stifle our innovative but often under-resourced small businesses, which are such an important driver of our economy. New clause 2 reflects our intentions, particularly in amendments 1 and 11, to support and give further guidance to small businesses. I hope that the Minister and Conservative Members recognise the importance of supporting small businesses at this time through direct measures in the Bill.

Nadhim Zahawi Portrait Nadhim Zahawi
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I thank the hon. Member for Glenrothes and the hon. Member for Newcastle upon Tyne Central for setting out the arguments in support of new clauses 2 and 3, which both relate to the treatment of small and medium-sized enterprises in the regime.

On new clause 2, the Government are a strong supporter of SMEs and have sought to provide a slick and easily navigable regime for businesses of all sizes to interact with. We are creating a digital portal and a simple notification process to allow all businesses to interact with the regime without the need for extensive support from law firms, which is a particular burden for small businesses. Furthermore, there is no fee for filling a notification, unlike many of our allies’ regimes, which in some cases charge hundreds of thousands of pounds for a notification. Consequently, we do not expect this regime to disproportionately affect SMEs.

New clause 3 would create a grace period whereby SMEs would have a “reasonable excuse” defence if they committed an offence within six months of the Bill’s being passed. I can offer reassurance to the hon. Member for Glenrothes that we expect non-compliance to be very low, and we will be making every effort to keep it that way through, for example, effective engagement and outreach.

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Sam Tarry Portrait Sam Tarry
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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.

Nadhim Zahawi Portrait Nadhim Zahawi
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New clause 5 seeks to require the Secretary of State to maintain a written list of high-risk and low-risk acquirers, as we have heard, to allow differential internal scrutiny to be applied, by reference to the characteristics of the actors linked to the acquirer, and based on regular multi-agency reviews. I assume that the intention of the hon. Member for Ilford South is that this list would be an internal document, but I would be happy to discuss my concerns about publishing such judgments, if that would be of interest to him.

In order to exercise the call-in powers, the Bill already requires the Secretary of State to publish a statement, which we will discuss later, about how he expects to exercise the call-in power. This statement may include the factors that the Secretary of State expects to take into account when deciding whether to call in a trigger event. Guided by the statement, the Secretary of State will need to consider every acquisition on its own individual facts, as befits the complex nature of national security assessments. In my view, such a list as the one proposed would not, therefore, be the right way forward.

Mark Garnier Portrait Mark Garnier
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Has the Minister made an assessment of the resources that would be needed to look after a list such as this, not only to compile a list of hostile actors but to look after things like GDPR? There could be any number of legal challenges by companies that find themselves on this list unjustly. Perhaps the characteristics of a hostile actor may not individually be hostile, but a combination of several characteristics could be. It could easily exclude quite benign actors who accidentally fall into this. While the intention of the new clause is not unsound, it sounds like a hideous nightmare to administer.

Nadhim Zahawi Portrait Nadhim Zahawi
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My hon. Friend raises an incredibly important point, because, as he rightly says, factors other than the risk profile of the acquirer may determine whether an acquisition is subjected to greater or lesser scrutiny. It is also likely that any list would quickly go out of date. Entities in this space can change and emerge rapidly, especially if parties are attempting to evade the regime and the Secretary of State’s scrutiny. In addition, such lists being intentionally published or otherwise disclosed publicly could have significant ramifications for this country’s diplomatic relations and our place in the world, in respect of both those on one of the lists and those who are not on the list. Publishing the list may also give hostile actors information about gaming the system, to the UK’s detriment.

I would suggest that what the hon. Member for Ilford South describes would essentially be an internal and highly sensitive part of a national security assessment. While I appreciate the sentiment behind the new clause, I do not believe that it would be appropriate to set out such details in writing. It is, however, entirely reasonable for the hon. Gentleman to seek to reduce the burden on business where possible, in particular if the acquisition presents little risk and can be cleared quickly. I have an enormous amount of sympathy with that aim.

Chi Onwurah Portrait Chi Onwurah
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I do not intend to make a speech, but I wanted to intervene on this particular point. A part of the source of the new clause is the Minister’s own comments. He said that national security was not dependent on a particular country. He is giving a lot of reasons why there cannot be a list, because of different actors, but does he recognise that national security may relate to a specific country? Has he woken up to the risks that particular countries may pose?

Nadhim Zahawi Portrait Nadhim Zahawi
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I assure the hon. Lady that Her Majesty’s Government do exactly that, but the Bill is deliberately country-agnostic. Indeed, to give parties predictability on small business and to provide for rapid decisions where possible, the regime has clear and strict timelines, as we have heard throughout the debate. Additionally, clause 6 enables the Secretary of State to make regulations to exempt acquirers from the mandatory notification regime on the basis of their characteristics. Arguably, this places the strongest requirement on acquirers, such as where acquisitions by certain types of party are routinely notified but very rarely remedied or even called in. Taken together, these provisions are already a highly adaptable and comprehensive set of tools, so the list and its proposed use would be unnecessary and potentially harmful.

I shall touch briefly on national interests, which the new clause once again references. I have said before that the regime is intentionally and carefully focused on national security. That is specifically the security of the nation, rather than necessarily its broadest interests. This is therefore not the right place to introduce the concept of national interest, which would substantially and, we strongly believe, unhelpfully expand the scope of the regime.

In conclusion, with the strength provided by clauses 1, 3 and 6 already in the Bill, I am of the very strong opinion that the Bill already achieves its objectives. I therefore cannot accept the new clause and ask that the hon. Member for Ilford South withdraw it.

Sam Tarry Portrait Sam Tarry
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As I listened to the Minister, it struck me that one of the witnesses, Charles Parton from RUSI, said:

“Let us not forget that most foreign investment by the Chinese is state owned, so it is not just a fair bet but a fair certainty that any state-owned enterprise investing is fully politically controlled.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 17, Q19.]

That is in part our thinking. One slight contradiction with the Bill is that it does not feel as though it always quite reflects the statement of political intent published alongside it. We support that statement of political intent, so the new clause’s objective was to strengthen the Bill’s commitment to ensuring that the Investment Security Unit is provided with an assessment that recognises the relationship between hostile actors and the countries to which they owe allegiance, which is stated in the statement of political intent.

I hope that the Minister takes time to take stock of what the new clause is trying to do, but on this occasion I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 6

Access to information relevant to national security

“(1) The Secretary of State may by regulations make provision for the call-in power under section 1 to be exercisable by the Secretary of State in respect of circumstances where a person acquires access to, or the right of access to, sensitive information but does not acquire control of an entity within the meaning of section 8 or control of an asset within the meaning of section 9.

(2) For the purposes of this section, sensitive information means information of any form or description the disclosure of which may give rise to a risk to national security.”—(Dr Whitehead.)

This new clause would allow the Secretary of State to regulate to include new trigger events, where a person has access to information relevant to national security, even if the party does not acquire control or material influence over a qualifying asset or entity as a result of an investment.

Brought up, and read the First time.

Peter Grant Portrait Peter Grant
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The new clause is a significant improvement to the Bill and I hope that the Government will support it. It takes action to close a loophole that I certainly did not spot reading through the Bill the first time. I suspect a lot of others did not spot it either. It was highlighted by a number of the expert witnesses we spoke to a few weeks ago. They pointed out that a hostile operator does not necessarily need to have control or even significant influence over a security-sensitive operation to be able to do us some harm. One of the examples I vividly remember was that if somebody buys up as little as 5% or 10% of the shares of a company, possibly keeping it even below the threshold where it would need to be publicly notified to Companies House, that might still be enough by agreement to give them a seat on the board of directors. That means they will have access to pretty much everything that is going on within that company. For that kind of scenario alone, it is appropriate that we should look to strengthen the Bill.

The way the new clause is worded is entirely permissive. It would not require anybody to do anything, but it would give the Secretary of State the statutory authority to make regulations, should they be necessary, and to word them in such a way that they could be targeted towards any particular kind of involvement by a hostile power—it is difficult for us to predict now exactly what that might be.

I know that the usual format is that an Opposition amendment is not supported by the Government, but if the Government are not minded to support this one now, I sincerely hope they will bring through something similar on Report or when the Bill goes through the other place at a future date.

Nadhim Zahawi Portrait Nadhim Zahawi
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I am grateful to the hon. Member for Southampton, Test for setting out his case for the new clause and to the hon. Member for Glenrothes for his contribution.

When I first read the new clause, I was fortified to see that, despite previous debates that we have had in this Committee, Her Majesty’s Opposition are clearly now firm converts to the “may by regulations” formulation. I am incredibly grateful. We have found much common ground in the course of our line-by-line scrutiny, but this was, I admit, an unexpected area of consensus.

My understanding is that the new clause would enable the Secretary of State to, by regulations, introduce a new trigger event covering circumstances in which a person acquires access to, or the right to access, sensitive information, even if the party does not acquire control over a qualifying entity or asset. The hon. Member for Southampton, Test may have in mind particular circumstances relating to limited partnerships and the role of limited partners.

The attempt to potentially include access to national security sensitive information as a separate trigger event is, in some ways, a reasonable aim, but I fear that it would, at best, sit awkwardly with a Bill introducing a new investment screening regime that is specifically designed around acquisitions of control. At worst it would bring into scope a huge swathe of additional circumstances, outside the field of investment, in which the Secretary of State could intervene, which could be notified by parties and which could create a backlog of cases in return for little to no national security gain.

For example, such a new clause could raise significant question marks about whether the appointment of any employee who might have access to certain information would be a trigger event in scope of the Bill. I am almost certain it would. Similar concerns would apply in respect of any director, contractor, legal adviser or regulator who might have access to sensitive information. That is not the Government’s intention.

If limited partnerships are the specific target of the new clause, I can reassure the hon. Gentleman that there is no specific exemption in the regime for acquisitions of control over a limited partnership. Of course, in practice, the rights of limited partners are, by their nature, limited, so we expect to intervene here by exception. But those acquisitions remain in scope of the call-in power, along with any subsequent acquisitions of control over qualifying entities by the limited partnership—particularly where there are concerns about the general partner who controls the partnership, or limited partners who are exerting more influence than their position formally provides.

I should also highlight that the Bill already covers acquisitions of control over qualifying assets, the definition of which includes

“ideas, information or techniques which have industrial, commercial or other economic value”.

For the purposes of the Bill, a person gains control of a qualifying asset if they acquire a right or interest in, or in relation to, a qualifying asset that allows them to do one of the two things set out in clause 9(1). That means that an acquisition of a right or an interest in, or in relation to, information with industrial, commercial or other economic value that allows the acquirer to use, or control or direct the use of, that information is in scope of the Bill. Therefore, depending on the facts of a case, an investment in a business that, alongside any equity stake, provides a person with a right to use information that has industrial, commercial or other economic value may be called in by the Secretary of State where the legal test was otherwise met.

The Committee heard from our expert witnesses that these asset provisions are significant new powers and that it is right to ensure that we have the protections we need against those who seek to do us harm, but I firmly believe we must find the right balance for the new regime. That is why acquisitions of control over qualifying entities and assets are a sensible basis for the Bill. Broadening its coverage to ever-wider circumstances risks creating a regime that theoretically captures everything on paper, but that simply cannot operate in practice, due to a case load that simply cannot be serviced by Whitehall. I urge the hon. Member for Southampton, Test to reflect on that point, given all we have heard in the last few weeks about the importance of implementation and resourcing, and I respectfully ask him to withdraw the new clause.

Alan Whitehead Portrait Dr Whitehead
- Hansard - - - Excerpts

I respectfully ask the Minister to reflect carefully on what I and the hon. Member for Glenrothes have said this afternoon. Whether or not the Minister thinks the new clause is one he can reasonably adopt, he has already accepted, in terms of what he says may be in the scope of the Bill, that this is a real issue. This is something that we have to think very carefully about and that, by its nature, is fairly difficult to pin down, because it relates to a series of actions that do not easily fit into the box of control or company takeover. It is much more subtle and potentially wide-ranging, but nevertheless it is something that we know is real. As my hon. Friend the Member for Ilford South said, it is happening in silicon valley, Germany and this country. It is happening in a number of places. Interests are being bought up not because of altruistic concern for the health and welfare of that particular start-up, but for other, much more worrying reasons than simply influence as a limited partner in a company.

I am pleased that the Minister put on record that he thought that the extension of this activity might be in the scope of the Bill already, although I think it is stretching what the Bill has to say to take that line. I hope he will not regret that. When he looks at what he has said about what he thinks is in the Bill, he may find, on reflection, that the new clause would have been more use to him than he thought. However, I am not going to press the issue to a vote this afternoon.

I hope the Minister will reflect carefully. He has already said on the record that he thinks that a number of these measures can be squeezed into the Bill. I hope he will not find that there are circumstances where he needs this method of operation but that it can, after all, not be squeezed into the Bill as well as he thinks it can be. I hear what he says and wish him the best of luck with squeezing things into legislation that perhaps were not quite there. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 7

Annual report to the Intelligence and Security Committee

“(1) The Secretary of State must, in relation to each relevant period –

(a) prepare a report in accordance with this section, and

(b) provide a copy of it to the Intelligence and Security Committee of Parliament as soon as is practicable after the end of that period.

(2) Each report must provide, in respect of mandatory and voluntary notifications, trigger events called-in, and final orders given, details of—

(c) the jurisdiction of the acquirer and its incorporation;

(d) the number of state-owned entities and details of states of such entities;

(e) the nature of national security risks posed in transactions for which there were final orders;

(f) details of particular technological or sectoral expertise that were being targeted; and

(g) any other information the Secretary of State may deem instructive on the nature of national security threats uncovered through reviews undertaken under this Act.”.—(Chi Onwurah.)

This new clause would provide the Intelligence and Security Committee with information about powers exercised under this Act, allowing closer scrutiny and monitoring.

Brought up, and read the First time.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

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

It is with some regret that I rise to move new clause 7, because it is the last new clause we propose to the Bill. It is a Christmas present to the Minister. Things have certainly been interesting since we began our line-by-line scrutiny. With your leave, Sir Graham, I will take this opportunity to thank all those involved in drafting the Bill, as well as the Clerks, who have worked so hard and played such an important role in helping to draft amendments and provide support to all members of the Committee. I also thank you, Sir Graham, for chairing it so admirably.

We have learned a great deal over the last couple of weeks. I have learned just about everybody’s constituency—

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

Would the hon. Lady like a test?

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I will not take up the opportunity of a test. We have all learned a lot about air flows—in this room, at any rate—as we seek to maintain some heat. What we have not learned, though, is how the Minister believes the Bill can be improved. All our line-by-line scrutiny has yielded many assurances, compliments on our intention and, indeed, some letters, for which I am grateful, but no acceptance and not even the commitment to go and think about some of our constructive proposals, amendments and new clauses. I urge him to consider this new clause as an opportunity to show that he truly believes, as he said earlier, in the skills, experience and expertise of the Committee by reflecting on the potential for improvement.

The new clause returns to an earlier theme and would require—the Minister will be pleased to note that that is a “must”, not a “may”—an annual report to be prepared by the Secretary of State

“in accordance with this section”

and a copy of it to be provided

“to the Intelligence and Security Committee of Parliament as soon as is practicable after the end of that period.”

It sets out what should be in that report, such as the events, the number of entities, the nature of the risks and

“details of particular technological or sectoral expertise”

and so on. It would provide the Intelligence and Security Committee with information about the powers exercised under the Bill and allow closer scrutiny and monitoring.

The new clause reflects how we have consistently supported the need for the Bill. Our approach to the security threats we face is to push for change specifically to allow broad powers of intervention, but for those using those broad powers to be held to account by Parliament and through transparency. Our international allies do exactly that. The US requires CFIUS to produce a non-classified annual report for the public, alongside a classified report for certain members of Congress, to provide security detail to them, allowing congressional scrutiny while retaining sensitivity of information.

As I think the Minister acknowledges, the Government have been late in following where international allies and the Opposition have led with calls to better protect our national security, so he must not fall behind in following our calls for accountability and transparency. That is critical not just to ensure our security and wider parliamentary understanding of the nature of the threats we face but for accountability.

The Secretary of State is to be given sweeping powers. For the last time, I should say that we will go from 12 reviews in 18 years—less than one a year—to 1,830 notifications a year, which is more than five every single day. The Secretary of State will be able to intervene in every single such private transaction. It will be hard to bring claims against national security concerns in court, where the judiciary will understandably find it difficult to define national security against the Government’s definition. In that context, it is important to bring expert parliamentary scrutiny to the Government’s decisions. I do hope the Minister will reflect on that. Alongside a public report, the new clause would require the Government to publish an annual security report to the Intelligence and Security Committee so that we have greater accountability without compromising security.

I will say a few words about the evidence base and the reason for tabling the amendment. Professor Ciaran Martin said:

“I think that the powers should be fairly broad. I think there should be accountability and transparency mechanisms, so that there is assurance that they are being fairly and sparingly applied.”––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 81, Q96.]

My understanding is that the only accountability and transparency mechanism is the public report, which may be published, and the prospect of judicial review, neither of which provide for expert scrutiny on the security issues.

I also ask the Minister to reflect on Second Reading, where member after member of the Intelligence and Security Committee stood up to say that they felt that their expertise would be useful and helpful in the working of the Bill.

--- Later in debate ---

To summarise, the Minister must welcome the expertise of the Intelligence and Security Committee. He would certainly be obliged to appear before the Intelligence and Security Committee, if requested to do so. Does he agree that placing an annual report before that Committee would aid business and BEIS confidence? I previously mentioned its potential conflicts of interest, and we spoke about its having access to the right kind of resources. Agreeing to this new clause and to the placing of a report with the Intelligence and Security Committee is in the interests of both the Bill and the better working of our national security.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I am grateful to the shadow Minister for her contribution on new clause 7, which seeks to require the Secretary of State to provide an annual report to the Intelligence and Security Committee, including detailed information relating to mandatory and voluntary notifications, trigger events that were called in and final orders made. In particular, it seeks to require the Secretary of State to provide details of factors relevant to the assessment made by the regime, including the jurisdiction of the acquirer; the nature of national security risks posed in transactions where there were final orders; details of particular technological or sectoral expertise that were targeted; and other national security threats uncovered through reviews undertaken under the Bill.

I am pleased that esteemed members of the ISC are taking a continued and consistent interest, including in relation to their role in scrutinising the regime provided for by the Bill. The Committee will be aware that clause 61 requires the Secretary of State to prepare an annual report and to lay a copy before each House of Parliament. That clause provides for full parliamentary and public scrutiny of the detail of the regime, which we judge to be appropriate and which does not give rise to national security issues when published at an aggregate level. I reassure hon. Members that that annual report will include information on the sectors of the economy in which voluntary, mandatory and call-in notices were given. It will also give a sense of the areas of the economy where the greatest activity of national security concern is occurring.

We intend to follow the existing, appropriate Government procedures for reporting back to Parliament, including through responding to the Select Committee on Business, Energy and Industrial Strategy. The ISC’s remit is clearly defined by the Justice and Security Act 2013, together with the statutory memorandum of understanding. That remit does not extend to oversight of BEIS work. I am sure that the BEIS Committee will continue to do a sterling job of overseeing and scrutinising the Department’s overall work. I welcome and encourage the ISC’s security-specific expertise, which the hon. Lady referred to, and its review of the annual report when it is laid before Parliament.

For the reasons I have set out, I am not able to accept the new clause. I hope that hon. Lady will agree to withdraw it.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I thank the Minister for his response, but he did not address the issue scrutiny of sensitive aspects of how the Bill will work. I recognise that the ISC’s remit does not cover BEIS—that is the exact point of requiring such a report. As I think was discussed on Second Reading, the BEIS Committee will not scrutinise any sensitive information or information that is directly relevant to our national security. I am afraid that I cannot accept the Minister’s reasoning for his rejection of the new clause—namely, that it is effectively already covered by clause 61—so I will put it to a Division.

National Security and Investment Bill (Tenth sitting)

Nadhim Zahawi Excerpts
Chi Onwurah Portrait Chi Onwurah (Newcastle upon Tyne Central) (Lab)
- Hansard - - - Excerpts

I had been just about to conclude by saying that a key reason for the amendment moved by my hon. Friend the Member for Ilford South is that it asserts and requires the supremacy of the public interest over commercial interest in the Secretary of State’s actions in reporting on final notices. I hope that the Minister will accept the amendment.

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

With your permission, Sir Graham, I will speak to clause 29 stand part before turning to the amendment. The Committee has heard about the careful balance that the Government are striking in this regime by allowing for a discreet and commercially sensitive screening process wherever possible, while requiring transparency at key junctures where not to do so could disadvantage third parties.

Clause 29 is a key clause, the purpose of which is to deliver that essential but carefully chosen transparency. It places a duty on the Secretary of State to publish a notice of the fact that a final order has been made, varied or revoked. The main purpose of publishing notice of those facts is to ensure that third parties who may have a financial interest in a trigger event are not disadvantaged by the provision of information only to the parties involved. Examples of relevant third parties might include shareholders, suppliers or customers of the target entity, and other investors who may be considering investing.

The clause will provide important reassurance to the business community and the wider public about the circumstances in which final orders are made, varied and revoked. It specifies what information must appear in a notice, including, crucially, a summary of the order, revocation or variation, its effect, and the reasons for it. Similarly to the approach on orders, subsection (3) allows the Secretary of State to exclude information from the notice when he considers it commercially sensitive or national security sensitive. The clause is complemented by the requirement in clause 61 for the Secretary of State to report annually to Parliament on the use of the powers in the Bill. Clause 61(2) sets out an extensive list of the aggregate data that the annual report must include. Together, those provisions will help investors and businesses to understand the regime, and will ensure that Parliament can hold the Government to account on their operation at both individual and aggregate levels.

I will now turn to amendment 27 to clause 29. I remind the Committee that the clause requires the Secretary of State to publish a notice when a final order has been made, varied or revoked. As drafted, subsection (3)(a) provides that the Secretary of State may exclude from that public notice anything that he considers likely to prejudice the commercial interests of any person. The amendment would prevent the Secretary of State from excluding such information, unless he considers that publishing it would not be in the public interest.

The Committee has heard about the careful balance that the Government are seeking to strike in this regime, to allow, as I mentioned earlier, for a discreet and commercially sensitive screening process wherever possible, while requiring transparency at key junctures when not to do so may disadvantage third parties. As I set out, this is a key clause, the purpose of which is to deliver that carefully balanced transparency. Inherent in the clause is the degree of flexibility afforded to the Secretary of State to redact information when he judges that to be appropriate, whether for commercial or national security reasons. I hesitate slightly to return to a somewhat recurring theme—the difference between “may” and “shall”—but the fact that the Secretary of State “may” redact information provides him with the flexibility to decide case by case whether that is the right thing to do.

The hon. Member for Ilford South seeks to ensure with this amendment that the Secretary of State will not disregard the public interest when using the flexibility on deciding whether to redact information. The hon. Gentleman need not worry; that is my message to him. The Secretary of State will always seek to serve the public interest in this Bill and in all that he does. I can therefore assure the hon. Gentleman that the Secretary of State will carefully consider any redactions made and that he will not take the decision to exclude information lightly.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I suspect that the hon. Member for Ilford South may wonder why, if it makes so little difference, we do not include his amendment and formalise the importance of considering the public interest. I suspect that that is also the point on which the hon. Lady wishes to intervene.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

The Committee recognises the importance of giving the powers in the Bill to the Secretary of State in the interests of national security. The powers of redaction are, or could be, in the interests of commercial sensitivity. Does the Minister agree that national security and the public interest should be supreme over commercial sensitivity? Why will he not make that clear?

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I thought I had made that clear. The Bill strikes that balance between commercial sensitivity and national security.

I return to my reassurance on the importance of considering the public interest. In addition to the general principle that one should avoid amending clauses that, essentially, fulfil their objectives—if it isn’t broken, don’t fix it—I suggest that the Bill is not the place to begin adding references to the public interest. While the Secretary of State cares profoundly about the public interest, this specific regime is intentionally and carefully focused on national security. Although it may be an attractive proposition to certain hon. Members, my strong view is that by introducing ideas of wider public interest into the Bill, we would risk confusing and stretching its scope beyond its carefully crafted calibration. I have a tremendous amount of sympathy with what hon. Members seek to achieve with the amendment but, for the reasons I have set out, I must ask that the hon. Gentleman withdraws it.

Sam Tarry Portrait Sam Tarry (Ilford South) (Lab)
- Hansard - - - Excerpts

It is a pleasure to serve under your chairmanship, Sir Graham, in these temperatures, which are positively balmy compared with the Siberian ones that we experienced this morning.

I thank the Minister for his comments, but I would say that there is no stretch too far on national security. It is positive to hear that the Minister agrees that the focus on national security is crucial, and that we are driving at the interests of national security in our amendment.

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Stephen Flynn Portrait Stephen Flynn (Aberdeen South) (SNP)
- Hansard - - - Excerpts

I think it was Cicero who said:

“Brevity is a great charm of eloquence.”

In that regard, I will keep my remarks brief. Obviously, what we propose here is incredibly straightforward. It would expand the scope from a financial year to a calendar year. I would not wish to imply that I do not necessarily have complete and utter confidence in the UK Government at all times, and that they might wish, perhaps, to stay away from and overcome any form of scrutiny by making some sort of payment at a certain point in time where the overlap is with a financial year. An amendment such as this, which is succinct and clear, would allow for everyone to be quite happy that where there is a need for the UK Government to put in place a financial assistance level of £100 million, irrespective of whether it is a financial year or a calendar year, Members are fully apprised of that spend.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

For the benefit of the Committee, I will begin with clause 30 stand part, which makes provision for financial assistance. I will then turn to amendment 24, and amendment 28 from the hon. Member for Aberdeen South.

The Government recognise that final orders, in exceptional cases—and I have to stress in exceptional cases, when we are administering taxpayers’ money—may bring about financial difficulty for the affected parties. This clause therefore gives the Secretary of State the legal authority to provide financial assistance to, or in relation to, entities in consequence of the making of a final order, to mitigate the impacts of a final order, for example. It might also be used where the consequence of a final order in itself might otherwise impact the country’s national security interests.

Hon. Members will know that such clauses are required to provide parliamentary authority for spending by Government in pursuit of policy objectives where no existing statutory authority for such expenditure already exists.   I am confident that such assistance would be given only in exceptional circumstances when no alternative was available. For example, the Secretary of State could impose a final order blocking an acquisition of an entity that is an irreplaceable supplier to Government, subsequently putting the financial viability of the entity in doubt. In such a situation, the Secretary of State could provide financial assistance to the entity to ensure that the supplier could continue operating while an alternative buyer was found.

Such spending would of course be subject to the existing duty of managing public money—the hon. Member for Newcastle upon Tyne Central asked what checks and balances are in place—and compliant with any other legal obligations concerning the use of Government funds. To provide further explicit reassurance regarding the use of the power, subsection (1) specifies that any financial assistance may be given only with the consent of the Treasury.

The clause also covers reporting to the House when financial assistance is given under the clause. I will speak to that further when I turn to the amendments. I am sure that hon. Members will see the clause as necessary and appropriate, and have confidence that our Government, and future Governments, will have only limited, but sufficient, freedom to provide financial support under the regime as a result.

Amendment 24 would permit the Secretary of State to provide financial assistance in consequence of making an interim order, which was the hon. Lady’s point. As she will know, the Government take the management of our country’s finances very seriously, and such a power naturally requires appropriate safeguards to ensure that public money is spent appropriately. Restricting the power to final orders ensures that the Secretary of State may use it only to assist entities once a national security assessment has been completed and final remedies have been imposed—for example, to mitigate the impact of a final order on a company. It would not be appropriate to use the power to provide aid to an entity that is only temporarily affected by an interim order, which will last only for a period of review, likely to take 30 working days and, at most, 75.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I thank the Minister for his comments. When he says that an interim order can be in place for at most 75 days, I think he is adding 30 days, which is the initial period, to 45 days, which is the additional period. I am afraid that he is forgetting the voluntary periods.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

Yes, but the point remains that no final order has been made, and public money will be spent only in very limited circumstances, as I mentioned, in consequence of a final order. Any expenditure will be subject to appropriate safeguards.

Amendment 28, tabled by the hon. Member for Aberdeen South, would require the Secretary of State to inform Parliament if financial assistance given under clause 30 in any financial year, or any calendar year, exceeds £100 million. If during any financial year the assistance given under the clause totals £100 million or more, subsection (3) as drafted requires the Secretary of State to lay a report of the amount before the House.

If, during any financial year in which such a report has been laid, the Secretary of State provides any further financial assistance under the clause, subsection (4) requires that he lay a further report of the amount, so if he makes a report before the end of the year and then spends more money, which was the hon. Gentleman’s point, the Secretary of State will need to update the report. As I am sure the hon. Gentleman appreciates, the Government are committed to providing as much transparency as is reasonably possible when it comes to the use of the new investment screening regime provided for in the Bill.

The amendment would effectively mean that the Secretary of State must stand before Parliament twice—likely, once at the end of the calendar year and again at the end of the financial year, a few months later—to lay what is likely to be a rather similar report of the amount given in financial assistance grants under the clause. Although the Secretary of State would be flattered by his popularity, I am sure the hon. Member for Aberdeen South would agree that seeing him for that purpose twice in such a short time would be a case of duplication, and the Secretary of State would not want to take up his valuable time unnecessarily. I can assure him that the Secretary of State is fully committed to transparency and will ensure that Parliament has the information that it needs to track the use of the powers in the regime.

For those reasons, I am unable to accept the amendments, and I hope that hon. Members will not press them.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I thank the Minister for his comments, but I am disappointed that he seems determined merely to respond from his notes, regardless of the validity of the points put to him. On why it is inappropriate for financial assistance to be provided in the case of interim orders, his reason—as far as I can understand it—was purely that interim orders were too short to make any difference. Although he cannot say how long an interim order will last—he can say how long he thinks it may last—it could go on indefinitely, because I cannot see in clause 26 a limit on the number or length of voluntary periods that may be agreed for the assessment. On that basis, the assessment could last a significant time.

In any case, I hope that he, as the Minister for Business and Industry, is aware of how fast-paced the technology sector, in particular, can be. The inability to raise finance at a critical moment or to sell to a particular customer, for example, may cause significant financial and commercial damage to a small business or a start-up. I did not hear the Minister reject that point, yet he has rejected the need for any support during the period of an interim order. As I have shown, that is a mistake, and that is why we will press the amendment to a vote.

The Minister also made no response to my question about equity.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I apologise—I should have responded to that, and it was remiss of me not to. We will consider all forms of financial assistance, including equity.

To respond to the point the hon. Lady has just made about companies that may have IP or a product in its early, nascent stage of growth, that are struggling and that are fast-moving in terms of raising funds, we at BEIS talk to many companies like that, outside the remit of the Bill, and we look to support them in a variety of ways.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

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

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

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.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

In response to a point made by the hon. Member for Warwick and Leamington about a company being in distress because it has lost a client, irrespective of the national security and investment regime we talk to such companies all the time. Whether they are small, nascent, medium-sized or large, we have other avenues of assistance to help those companies. That is the point I was making.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

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.

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Sam Tarry Portrait Sam Tarry
- Hansard - - - Excerpts

The amendment would require the Secretary of State to set out the reasons for and an assessment of the likely impacts of published directions under the provisions regarding the Enterprise Act 2002. That is incredibly important because, in one respect, the Bill creates a radical shift by taking the merger control process, which is currently located primarily in the Competition and Markets Authority, and creating an alternative centre for merger control in the new investment security unit in BEIS. That is a big shift. We are trying to focus on setting out the reasons, and an assessment of the likely impacts, when directions come out of the new unit.

I want to expand a little on this. We have a series of reasons for intervention in investment and merger scenarios, such as national security, competition, financial stability, media plurality, public health—the list goes on. Having a single centre for merger control in the CMA helped ensure, partially, that the different reasons for intervention were considered coherently. At the very least, they were coherent as a package, ensuring that where, for example, national security demanded one solution, competition remedies did not force another. The multiple centres that the Bill creates make coherence more challenging. This is about ensuring that the process is as smooth as possible.

The Government must clarify how they intend the CMA’s merger control process to align with their new national security screening and approval process. That is particularly important when we reflect that the Government consultation process currently indicates that national security reviews will be run in parallel with CMA assessments and that the Government will cover interaction between the CMA regime and the new national security regime in a memorandum of understanding. Unfortunately, there is no specific indication of when this will happen. The amendment pushes for clarity now and for statutory accountability when a Secretary of State could otherwise undermine the CMA or take a decision that is contrary to something it will bring forward.

In relation to the Enterprise Act 2002, public interest intervention notice regimes allow the Secretary of State to direct the CMA to ensure that it does not inadvertently undermine the Secretary of State’s decision on national security in addressing competition concerns. The power to undermine the CMA is not in itself a problem, but it is about the accountability—that is what we are trying to drive at here. In the face of a vastly extended set of powers for the Secretary of State, the amendment would provide important clarification.

Previously, the CMA had a good reputation with business for independence and for reasons and rules-based decision making. We are really keen that that is continued, and that is what the driving force for this amendment is. For that reason, we seek greater accountability from the Secretary of State. The amendment would require that whenever the Secretary of State subordinates the CMA’s decision-making process, the reasons for doing so are published alongside an assessment of the impact in terms of whatever reasons the CMA would have had to act under its part 3 powers, whether that be competition, media plurality or quality, financial stability or, as I mentioned earlier, public health.

This is about the smooth and rational alignment of the merger control process. That is important for the integrity and impartiality of our national merger control processes and so that business can have certainty that these will be fully aligned. The question I would really like the Minister to answer is about the assurances the Government can give on providing specific, timely guidance on how many different parts of the merger control process will now work. How will the combination of the new unit and the pre-existing regime produce the guidance, and be driven by Government to do so, in a timely fashion? One thing that businesses are certainly seeking at the moment is assurances that things are set out as early and as clearly as possible. If that happens, it will allow businesses to plan in a much better way. For those reasons, I would like to hear how the Government plan to bring those two elements together.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

With your permission, Sir Graham, I will speak initially to clause 31 stand part, before turning to amendment 25. As the Bill separates out national security screening from the competition-focused merger control regime, we must, I am sure colleagues agree, ensure that the two regimes interact effectively, while also maintaining the CMA’s operational independence in relation to its merger investigations.

A trigger event under the Bill which is also a merger under the Enterprise Act may raise both national security and competition issues. Not having a power to avoid conflict between the two regimes raises an unacceptable risk for businesses’ operations and, of course, the Government’s reputation. The United Kingdom has a deserved and hard-earned reputation for being a dependable place in which to do business. Transparent regimes are fundamental to building and maintaining this reputation and fostering trust between Government and business.

Currently, under the Enterprise Act 2002, if both national security and competition concerns are raised, the CMA provides a report to the Secretary of State, who would then have the final say on how best to balance national security and competition concerns. This clause will ensure that the Secretary of State continues in his vital role of balancing national security and competition concerns. We will be able to avoid the risk of undue regime interference by maintaining regular and open channels of communication with the CMA.

There may, however, still be a risk that parallel investigations for national security and competition reasons reach conflicting conclusions. That may be particularly true in terms of the remedies required to address national security risks and competition concerns respectively. To remedy that issue, the clause enables the Secretary of State to direct the CMA to take, or not take, a particular course of action. The obligation on the Secretary of State to publish any direction given ensures that the decisions will be transparent, and provides certainty for all parties.

As directing the CMA interferes with its independence, we have drafted the clause so as to allow the Secretary of State to give a direction only where he reasonably considers that it is necessary and proportionate to prevent, remedy or mitigate a risk to national security. Furthermore, the power may be used only when a final order under the Bill is in force, or a final notification that no further action will be taken in relation to a trigger event under the Bill has been given. The clause also requires the Secretary of State to consult the CMA before giving a direction.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

The Minister says that it is unlikely that investigations would trigger concerns on both national security and competition grounds. However, the position that we are in right now with regard to Huawei is one in which the desire for more competition in our telecoms supply chain—that is, to have three vendors as opposed to two—led to a national security impact, which is why we are now in the process of ripping Huawei out of our network. Does he recognise that such examples may happen?

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I am grateful to the hon. Lady, but the difference is that I was referring to mergers. Such mergers would be rare. I do not think that anyone is merging with Huawei, or will in the future.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

It is quite clear that the acquisition of a vendor in our telecoms network by another country would have almost exactly the same outcome, so it may well apply.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I was merely pointing out that there was no merger. The hon. Lady will forgive me: she is correct, but I did say that it is a rare occurrence. That is the point that I was making to the Committee.

The amendment seeks to impose a requirement to publish the reasons for giving a direction. We do not think that that is necessary. The clause already requires the Secretary of State to publish a direction in the manner that he considers appropriate. I do not think that I would be disclosing too many state secrets were I to speculate that that would be published on gov.uk. That is a reasonable bet. In many cases, I envisage that it is likely to be accompanied by a high-level explanation, but it is right that the Secretary of State should be able to decide what is appropriate on a case-by-case basis.

The amendment also seeks to require publication of an assessment of the direction’s impact on any grounds for action under part 3 of the Enterprise Act 2002. I have two points to make to the hon. Member for Ilford South. First, such a duty would not be appropriate in all cases—for example, where a direction simply required the CMA not to make a decision on competition remedies until a national security assessment had been concluded. The amendment as drafted would still require an assessment to be published in those circumstances.

Secondly, the predominant impact on grounds for action will of course relate to competition. The CMA is the independent expert competition authority, and nothing in the clause as drafted would prevent it from publishing its own assessment of the impact of a Secretary of State direction on the possible competition issues of a case. The clause also requires the Secretary of State to consult the CMA before giving a direction, so it will be able to inform him of the likely impact and he can factor that into his decision whether to give the direction. I believe that is the right approach and while I understand the hon. Member’s motivations in tabling the amendment, I urge him to withdraw it.

Sam Tarry Portrait Sam Tarry
- Hansard - - - Excerpts

One of the questions that sprang to mind while listening to the Minister’s answer was: if there are conflicting remedies, which of security and economic competitiveness would the Secretary of State decide had primacy? In drawing the matter out as clearly as possible, we have seen that one of the issues with telecoms and Huawei was that the primacy of economic competitiveness was viewed as paramount over security. The Bill is not clear about the framework for assessing primacy when it comes to security. We have argued throughout that security needs to be the primary focus, and sometimes that will mean economic competitiveness taking a slight hit. However, we think this is about protecting our long-term economic interest.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I want to reassure the hon. Gentleman. He asks whether the Secretary of State can override the CMA’s assessment. To give him some clarity, the power to direct may be used only if a trigger event has been called in for assessment under NSI and either a final order has been enforced or a final notification of no further action has been given. That is stage 1. To direct the CMA without a trigger event having first been called in and assessed would not be either reasonable or proportionate, in the Government’s view. However, if a merger is considered to be crucial in the interests of national security after an assessment, no competition concerns should be allowed to prevent it from continuing or remaining in place. I hope that offers him that reassurance.

Sam Tarry Portrait Sam Tarry
- Hansard - - - Excerpts

Although that gives me some reassurance, the driving force behind the amendment is to ensure that that is clearly laid out in the Bill, for the reasons I have previously argued. Therefore, I will press for a Division.

Question put, That the amendment be made.

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None Portrait The Chair
- Hansard -

With this it will be convenient to discuss clauses 33 to 36 stand part.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

It is important to ensure that we are able to enforce the regime. If hostile actors realise that there is a gap in enforcement capability, that could serve to undermine the deterrent effect of the regime, and therefore compliance with it, and could cause reputational damage to the United Kingdom’s screening regime. Clauses 32 to 36 focus on enforcement and appeal. I will run through them at a relatively high level, but I am happy to discuss them in more detail if that would be of interest to hon. Members.

Clause 32 establishes the offence of completing without reasonable excuse a notifiable acquisition without approval from the Secretary of State. Completing a notifiable acquisition without approval could put national security at risk. In particular, the risk that hostile actors might seek to immediately extract sensitive intellectual property and transport it to far-flung corners of the world, may already have crystallised. Intervention after the event in such circumstances would too often be irrelevant, as that could not undo the damage done to our national security. I am confident that hon. Members will agree that this offence reflects the severe consequences that might result from completing a notifiable acquisition without approval of the Secretary of State in one of the ways set out in clause 13.

Clause 33 makes it an offence for a person to breach an interim order or a final order without reasonable excuse. Under the regime, interim orders and final orders are the mechanisms whereby the Secretary of State imposes revenues for the purposes of safeguarding the assessment and process of national security respectively. They are, therefore, vital components of the legislation. Given that a breach of an interim order or a final order could undermine the assessment process or put national security at risk, it is right that breaches of such orders carry a clear deterrent. I am confident that hon. Members will agree that it is essential to have robust measures in place to ensure effective compliance with any interim orders or final orders imposed by the Secretary of State.

I will move on to clause 34. It is vital that parties comply with information notices and attendance notices, and that parties do not provide materially false or misleading information to the Secretary of State.

Mark Garnier Portrait Mark Garnier (Wyre Forest) (Con)
- Hansard - - - Excerpts

On how all this will be policed, the Minister is talking about an incredibly important issue that is crucial to the Bill, but it is a bit like the tax evasion problem, in that a tax evader can be prosecuted only when they have been caught. What policing measures are in place to get to the point of imposing sanctions on those who infringe the measure?

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

My hon. Friend is absolutely right. Part of it is the screening process and, obviously, the security agencies play a major role in that.

Under clause 35(2), it is a defence for a person charged with an offence under this clause to prove that they reasonably believe that the use or disclosure was lawful, or that the information had already and lawfully been made available to the public. I hope that hon. Members are reassured that Government are committed to the safeguarding of information collected by the regime.

Finally, clause 36 ensures that persons in authority in bodies—for example, a body corporate, such as a company, or an unincorporated body, such as a partnership—can be prosecuted under the legislation where they are responsible for an offence committed by their body. This clause therefore ensures that individuals who are responsible for offences committed by their bodies cannot simply hide behind those bodies and escape responsibility. Instead, they too will have committed an offence and can be punished for it. If you will forgive the pun, Sir Graham, if there are skeletons in the cupboard—or filing cabinets, I suppose—it is not just the bodies that can be held responsible. I hope hon. Members will agree that these clauses are both necessary and proportionate.

None Portrait The Chair
- Hansard -

There is no guidance in my script on what I do if I do not forgive the pun.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clauses 33 to 36 ordered to stand part of the Bill.

Clause 37

Prosecution

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss clauses 38 and 39 stand part.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

The Secretary of State makes decisions under the regime and has the power to impose enforceable interim and final orders. However, the institution of criminal proceedings for offences under the Bill is a matter for the appropriate prosecutor. Clause 37 therefore makes clear who may bring proceedings for an offence under the Bill.

Turning to clause 38, the Government consider it important that persons who have committed an offence under the Bill should be held accountable, particularly partnerships and other unincorporated associations. For example, clause 7 provides that partnerships and unincorporated associations are qualifying entities under the regime. Clause 38 therefore provides that proceedings for offences under the Bill may be brought against partnerships and other types of unincorporated association. I stress that the commencement of criminal proceedings in relation to this regime will likely be very rare indeed but it is nevertheless important that a full spectrum of possible offending is covered.

Clause 39 sets out the criminal penalties available on conviction for offences committed under the Bill. It is crucial that the regime carries a sufficiently robust deterrent to ensure compliance. Given the seriousness of the harm that a breach of the legislation might cause, it is right that these offences carry significant criminal penalties. I do not plan to set out all the penalties available but would be happy to discuss them in more detail if it would be of interest. I hope that hon. Members agree that it is clear who can bring prosecutions under the regime, that it should be possible to prosecute partnerships and unincorporated associations, and that penalties should be sufficiently strong for those convicted of breaking this law.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Clauses 38 and 39 ordered to stand part of the Bill.

Clause 40

Power to impose monetary penalties

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

None Portrait The Chair
- Hansard -

With this, it will be convenient to discuss clauses 41 to 47 stand part.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

Clauses 40 to 47 cover the civil sanctions under the Bill. I will cover them fairly briefly but I am happy to discuss them in more detail if it would be of interest to the Committee.

It is vital that the Secretary of State has appropriate powers to punish and deter non-compliance with the regime. Should a person breach an order under the regime or fail to provide information or evidence where required, it is vital that the Secretary of State has the power to bring the offender into compliance as quickly as possible to ensure the efficacy of the regime.

Clause 40 provides the Secretary of State with the powers to impose monetary penalties on a person where he is satisfied beyond reasonable doubt that the person has committed an offence under clauses 32 to 34. Clause 40(6) requires the Secretary of State to consider the amount of a monetary penalty to be appropriate before imposing it and it must not exceed the relevant maximum set out in clause 41. The power to impose monetary penalties instead of pursuing criminal proceedings will contribute to ensuring that the Secretary of State has a number of enforcement options to tailor to the situation.

The Secretary of State will not take the power to impose monetary penalties lightly and is required by clause 40(7) to take into account a number of factors, including the seriousness of the offence and any steps taken by the person to remedy the offence in question. I am confident that hon. Members will agree that the clause is valuable in ensuring that the Secretary of State has the appropriate enforcement mechanism to secure compliance with the new regime.

Clause 41 sets out the maximum fixed penalty and, where applicable, the maximum daily rate penalty that may be imposed. The penalties set out here are substantive, and I recognise that they may seem draconian, but they may have to be issued against companies that have significant financial incentive to disregard legal requirements under the regime and put national security at risk by going ahead with an acquisition, so the penalties need to be an effective incentive to comply. I also remind Members that these are maximum penalties; the Secretary of State will have a duty to ensure that any penalty imposed is reasonable and proportionate.

The clause also enables the Secretary of State to make regulations specifying how the maximum penalties applicable to businesses should be calculated and to amend the maximum penalty amounts or percentage rates. It is important that we can adjust any penalties over time, to ensure that they are a sufficient deterrent against non-compliance.

Clause 42 requires the Secretary of State to keep all monetary penalties imposed under review. It also provides a power to vary or revoke penalty notices as appropriate in the light of changing circumstances. Importantly, under the clause, where new evidence comes to light about a breach, it can be taken into account by the Secretary of State, and the penalty notice can be increased, decreased or revoked as appropriate. In all variations, there is, of course, a right of appeal, which is provided for by clause 50.

It is important that both criminal and civil sanctions should be available against offences committed under the Bill, but it would not be appropriate for them to be used in tandem. Clause 43 ensures that parties cannot be subject to both criminal and civil sanctions for the same offence. The clause is vital in giving businesses and other parties certainty and assurance that they will not be penalised in two separate ways for the same offence, which would clearly be unfair.

Clause 44 gives the Secretary of State the power to enforce monetary penalties by making unpaid penalties recoverable, as if they were payable under a court. Failure to comply with a penalty notice would be enforced in the same way as a court order to recover unpaid debts. It also provides for interest to be charged on unpaid penalties that are due.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I thank the Minister for setting out the provisions of these clauses. Perhaps this is my ignorance, but what will happen to the moneys recouped through the penalties?

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I am very happy to write to the hon. Lady on that, but I suppose the money goes back to the Treasury.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

That was my assumption, but I know that in certain cases penalties can be used to offset the expenses incurred in creating the regulatory regime, or in supporting companies that are adversely affected, as we discussed earlier.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I am very happy to come back to the hon. Lady on that point.

Clause 45 ensures that the Government are not unduly burdened with costs relating to the imposition of monetary penalties, which can be expensive. The clause enables the Secretary of State to recover the associated costs from those who are issued with a penalty notice. The amount demanded will depend on the circumstances of each case, but the Secretary of State will need to comply with public law duties in imposing the requirements and in fixing the amount. In particular, the amount will need to be proportionate.

Alan Whitehead Portrait Dr Alan Whitehead (Southampton, Test) (Lab)
- Hansard - - - Excerpts

Pursuant to the intervention of my hon. Friend the Member for Newcastle upon Tyne Central, will the Minister and his Department not only think about, but make a positive decision on, where the penalties go? I have in mind, as he will know, penalties relating to misdemeanours by electricity supply companies.

Those are routinely collected and distributed for good purposes—to keep people’s electricity bills down, among other things. Maybe the Minister will have a similar scheme that could be a good home for those penalties, so that they are turned around and put to good use.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I am quite rightly grateful to my brilliant Whip for reminding me that the Bill contains the provision that the moneys be paid into the Consolidated Fund.

Clause 46 requires the Secretary of State to keep cost recovery notices under review and provides him with the power to vary or revoke a cost recovery notice as he considers appropriate. That will reassure businesses and other persons that cost recovery notices remain appropriate. Finally, it is important that the Secretary of State be able to recover the associated costs from those who are issued penalty notices. Clause 47 therefore provides for an effective range of consequences for non-compliance with a cost recovery notice, including the charging of interest, and acts as another important tool in the Secretary of State’s enforcement powers. I hope that the Committee will appreciate the rationale for clauses 40 to 47, which are essential for the effectiveness of the regime.

Question put and agreed to.

Clause 40 accordingly ordered to stand part of the Bill.

Clauses 41 to 47 ordered to stand part of the Bill.

Clause 48

Enforcement through civil proceedings

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

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

The regime relies on parties complying with information notices and attendance notices, and with interim orders and final orders. Those are crucial levers that the Secretary of State will use to identify, assess and address national security risks, so it is vital that he has appropriate powers to ensure that a person who is given such an order or notice complies with the requirements as set out.

The clause provides the Secretary of State with the power to bring civil proceedings for an injunction or other remedy to require compliance. The power applies whether or not the person is in the UK. Failure to comply with an order made by the court in those circumstances is likely to be considered contempt of court. We should not forget that any failure to obey an information notice or attendance notice, for example, could result in the Secretary of State having insufficient information to decide whether to call in an acquisition or carry out an effective national security assessment. Breaching the requirements of an interim order or final order may undermine the assessment process or harm national security.

Above all, I hope that the Committee will agree that the clause further strengthens the Secretary of State’s enforcement powers, playing a key role in ensuring the efficacy of the regime.

Question put and agreed to.

Clause 48 accordingly ordered to stand part of the Bill.

Clause 49

Procedure for judicial review of certain decisions

Alan Whitehead Portrait Dr Whitehead
- Hansard - - - Excerpts

I beg to move amendment 26, in clause 49, page 30, line 31, leave out “28 days” and insert “three months”

This amendment would extend the period within which applications for judicial review may be made from 28 days to three months.

--- Later in debate ---

My initial question to the Minister—I would be grateful if he intervened on me—is whether those other areas of decision, which are in the Bill but not covered by this clause, are covered by standard judicial review procedures, not covered by judicial review procedures at all, or covered by reference to the Enterprise Act 2002, which has procedures within it that do not appear to refer directly to some of the other decisions in the Bill that are not covered by this clause. Can he clarify what happens to those decisions in the Bill—I have mentioned one: the call-in notice—that are not covered in subsection (2) on what a relevant decisions means? Does he have any guidance that he can give the Committee on that?

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I am happy to write to the hon. Gentleman on that, but my understanding is that individuals or entities that feel that they have been wronged by the actions of the Secretary of State can JR the Secretary of State.

Alan Whitehead Portrait Dr Whitehead
- Hansard - - - Excerpts

I thank the Minister for that clarification, which appears to suggest that the whole of the Bill, or the decisions in it, are in principle covered by the ability to bring a judicial review. He will know that under the Civil Procedure Rules 1998 there is some pretty clear guidance about the time limits for judicial reviews. Indeed, the CPRs state that claims must be lodged promptly and, in any event, no later than three months after the grounds to make the claim first arose, unless the court exercises its discretion to extend. The judicial review rules are pretty much governed by that three-month time limit.

In the clause, the framers of the Bill have taken out certain elements of the Bill. I mentioned some of them, including the attendance of witnesses and the power to require information. They have said that, while no new procedure has been put in place for reviewing certain decisions—that is, the normal rules of judicial review apply—the big difference is that any action must be brought within 28 days of the event, and not within three months, as is the case in the standard judicial review arrangements.

--- Later in debate ---

As I have said, I am sure that it will be a pretty rare procedure, but it is nevertheless important to maintain it in the Bill. I am sure we all agree that it is an important part of UK law that that should be a remedy open to everyone to undertake, as the Minister mentioned. I hope that I will get a compelling argument from him about why this has been done in this way and what advantages outweigh the disadvantages that I have outlined. If he can do that, I hope that it will not be necessary to divide the Committee this afternoon, but I fear that it might be if the argument that comes forward proves on examination not to be as compelling as I am hoping.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I am grateful to the hon. Gentleman for his reasoned and thoughtful remarks. As I said in my intervention, all decisions in the Bill are subject to judicial review. Clause 49 does not apply to information sharing post screening or enforcement decisions. The exception to JR is monetary penalties and cost recovery, which have a bespoke appeals process, as he probably knows.

Clause 49 concerns the procedure for judicial review of certain decisions. The clause provides that any claim for judicial review of certain decisions, which are set out in the clause, must be no more than 28 days after the day on which the grounds for the claim first arose, unless the court considers that there are exceptional circumstances. That period is shorter than the usual period in which a judicial review may be sought, as we have heard from the hon. Member for Southampton, Test. Generally, judicial reviews must be sought within three months in England and Wales, but not in Scotland or Northern Ireland, where they must also be sought promptly.

I will set out why that is the case shortly when I turn to amendment 26, but I believe that the shortened time limit strikes the right balance for the regime, enabling sufficient time for a claim to be lodged while providing for timely certainty about the effect of relevant decisions made under the Bill. I should also note that the court may entertain proceedings that are sought after the 28-day limit if it considers that exceptional circumstances apply. The usual route to challenge a decision made by the Secretary of State is via judicial review, and this is entirely appropriate for decisions made under the Bill. However, it is vital that this route does not result in prolonged uncertainty over decisions relating to screening.

I now turn to amendment 26, which seeks to extend the period within which applications for judicial review may be made from 28 days to three months. As I have set out, the Bill’s 28-day period in which claims for judicial review of certain decisions made under the Bill generally must be filed is shorter than the usual period in which judicial review may be sought. Again, it is entirely right that the hon. Gentleman wishes to probe us on why that is the case as judicial review plays a key role, which he clearly agrees with, in ensuring that the Government, and the Secretary of State in the case of this regime, act within the limits of the law. We have thought carefully about that while developing the Bill, and I welcome this discussion.

Why the shorter period? It is undeniably important that the Secretary of State is held independently accountable for his decisions under the regime. That must, however, be balanced—this is the important thing—against the need to avoid prolonged uncertainty over the status of screened acquisitions or the general functioning of the screening regime, which may have a chilling effect on investment, leaving the types of questions that a judicial review would answer, such as whether a decision to clear a transaction was unlawful, potentially still open for three months before it is clear that a judicial review is not going to be sought, which could make it extremely difficult for the various parties affected to plan and adjust following such a decision. Any party with a sufficient interest could seek a judicial review and all parties affected could be impacted. That is why we have come to this decision.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I thank the Minister for the points he is making, which I am seeking to understand. Clause 49(2) mentions “relevant decisions”. Why would “section 19”, “section 20” and “section 21” that deal with the powers to require information and so on cause uncertainty, and not other provisions in the Bill?

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

The point I was trying to make is that the uncertainty in any of those sections means that any party to a transaction can, if they feel they could frustrate the process because the outcome might not be advantageous to them, use the judicial review process to add to the uncertainty of a transaction. In addition, there is also a public interest in timely certainty and finality about decisions made under the regime that are, after all, imposed for the purpose of safeguarding national security. The 28-day limit is also in line with the current merger screening regime that the hon. Member for Southampton, Test asked about, where applications for the competitions appeal tribunal made under the Enterprise Act 2002 to review a merger decision must be made within four weeks, a time period chosen after public consultation. There may be some situations where, for legitimate reasons, 28 days is simply not enough. It is therefore important to remember that this Bill provides that the court may “entertain proceedings” that are sought after the 28-day limit, if it is considered that exceptional circumstances apply.

This shortened time limit and flexibility is for the courts to deal with exceptional circumstances. It strikes the right balance for this regime, in my view. It allows sufficient time for parties to obtain legal advice and mount a challenge, while also providing timely certainty about the effect of the relevant decision made under the Bill. I therefore hope that the hon. Member for Southampton, Test will withdraw the amendment.

Alan Whitehead Portrait Dr Whitehead
- Hansard - - - Excerpts

I have to be honest, I did not think that was very good. Let us start with who is shortening and who is not shortening. The Minister said that the Opposition seek to lengthen the period; no, the Opposition are not seeking to lengthen the period. The Government are seeking to shorten the period that is standard in the UK justice system as far as judicial reviews overall are concerned.

That is a very important point, because the Opposition are not trying to do something that is not an ordinary principle of British justice; the Government are trying to that. The Minister’s remarks could have applied to a lot of other areas, where it might be a bit inconvenient to have a judicial review being tenable for a three-month period after an event had occurred. However, it is not a question of inconvenience. Is a matter so important to national security that the 28 days can be justified under those terms?

The Minister has sought to justify the 28 days under the terms that there may be some uncertainty if there is a longer period for judicial review to be undertaken. He is potentially right about that, but not right as far as this Bill is concerned. He is right potentially as far as any application for judicial review is concerned, in all sorts of areas in this country. That is the problem of judicial review for the Administration, under any circumstances. When someone comes along and says, “I’m going to JR this,” a lot of people clap their hands and say, “That’s very inconvenient. It really does foul things up, because we would like to do this, that and next thing, but because we have been judicially reviewed, we have to carry out the procedure that is there.”

As several people have said in a number of different circumstances, the fact that the JR procedure is there and that often ordinary people have a reasonable amount of time to get their case together to undertake the JR process, is an important principle of the British justice system. The Minister has made no serious case for why these things should be so special under these circumstances. Interestingly, the consultation document did not make any case at all for the 28 days, other than to note that it was a shorter period. I am sorry to say that this appears to be a shortened period simply for administrative convenience.

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None Portrait The Chair
- Hansard -

With this it will be convenient to discuss clauses 51 and 52 stand part.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

With permission, Sir Graham, I will speak to clauses 50, 51 and 52 together. Clause 50 concerns appeals against penalty notices or variation notices. It is only right that parties have the opportunity to appeal decisions made by the Secretary of State in relation to monetary penalties imposed. Clause 50 provides a person who has received a penalty notice or a variation notice with the right to appeal to the court within 28 days, starting from the day after the notice is served.

On an appeal against a penalty notice, the clause provides that the court may confirm or quash the decision to impose a monetary penalty, confirm or reduce the amount of a penalty, and confirm or vary the period in which the penalty must be paid. It may not increase the amount of the monetary penalty. Where the appeal is against a variation notice, the court may confirm, vary or quash the variation, but again it may not increase the amount of the monetary penalty.

Clause 51 provides a right of appeal against decisions made by the Secretary of State related to requirements to pay costs associated with monetary penalties. Clause 52 concerns extraterritorial application and jurisdiction to try offences under the regime. Let me briefly turn back to clauses 32 to 35, which create the offences of the regime. We would normally expect that if those offences occurred, they would happen in the UK. That will not, however, always be the case, and offences will not always involve UK nationals or bodies.

As befits a regime that concerns the actions of international actors in relation to the United Kingdom, the Bill has some application beyond the shores of the UK. For example, the Bill gives the Secretary of State the power to issue final orders on conduct outside the UK by certain categories of person with a connection to the UK, including UK nationals and companies incorporated here. Therefore, clause 52 provides for the offences in clauses 32 to 35 to have extraterritorial effect, including in relation to non-UK nationals and bodies. That means that conduct abroad that amounts to an offence can be prosecuted and it also enables the Secretary of State to impose monetary penalties in relation to offences committed outside the UK. That ensures that regime obligations are not unenforceable simply because they concern conduct abroad. I hope that hon. Members will agree that, in a globalised world where transactions routinely take place across borders, it is important for enforcement to be able to react with equal agility. I therefore submit that the appeals process set out in the clauses should be adopted and that, in a globalised world, it is necessary for extraterritorial regime breaches to be enforceable.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

It is a pleasure to respond in this debate and observe how quickly we have galloped throughs parts 2 and 3. I wonder if that may in part relate to the descending temperatures that we are enjoying. While I know that the Committee shares my fascination with the various procedural and judicial issues with which we were wrestling, the temperature gave no scope for anyone to get comfortable enough to fail to pay attention. I recognise that we on this side of the Committee are in an advantageous position in that we are furthest from the open windows.

We recognise the importance of clauses 50 to 52 in terms of appeals against monetary penalties, of appeals against costs and of having extraterritorial application and jurisdiction to try offences. The Minister set out the reasons for that. To return to an intervention from the hon. Member for Wyre Forest, I am concerned about whether the provisions will be enforceable and useable in having extraterritorial application and jurisdiction over those who are not British and where the offence does not take place in the UK. Do the Government envisage––the impact assessment is, once again, remarkably silent on this––issuing international warrants to get access to those thought to have committed offences but who are not in the UK? Will the measures be pursued and enforced actively or are they there to deal with exceptional circumstances? I would be happy for the Minister to intervene.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I think that the hon. Lady’s question is whether the Government will genuinely be able to punish offences committed overseas. Clearly, in a globalised world where transactions routinely take place across borders, it is important that we have the ability to punish offences and be as agile as those who wish to do us harm. It is therefore right that these offences have extraterritorial reach. We will work with overseas public authorities to ensure that offenders face justice where appropriate.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I thank the Minister for that intervention. I am reluctant to test his tolerance by bringing Brexit into this, but I hope that we will continue to have the means to engage with overseas jurisdictions in order to pursue those who break UK law, here or abroad. We will not oppose the clauses, and I congratulate the Committee on making such speedy progress.

Question put and agreed to.

Clause 50 accordingly ordered to stand part of the Bill.

Clauses 51 and 52 ordered to stand part of the Bill,.

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

National Security and Investment Bill (Fourth sitting)

Nadhim Zahawi Excerpts
Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 26th November 2020

(3 years, 4 months ago)

Public Bill Committees
Read Full debate National Security and Investment Bill 2019-21 View all National Security and Investment Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 26 November 2020 - (26 Nov 2020)
Chi Onwurah Portrait Chi Onwurah
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Q Thank you. You made it clear that you are praising the Department for the work it has done, and I accept your reluctance to criticise it; I think you are right—there is a lot of work, and this is a very complex area. Do you have any direct recommendations you would make to the Department in terms of what might need to change and in particular the preparations it should make for dealing with this large number of notifications?

James Palmer: My partner, Veronica Roberts, appeared before the Foreign Affairs Committee on Tuesday, and she and I will be submitting a list to this Committee. I am afraid we do not have time to go through it today, but I will draw out a couple. Some of the mandatory filing sectors are very broad, such as communications. Again, the Government have said that they welcome narrowing those. There are not de minimises in a number of those sectors. It is true that there are other jurisdictions that do not have de minimises, but they are not jurisdictions with as large a proportion of their GDP linked to trade, and they are not jurisdictions that are as much seen as international business headquarters as well as centres of international business; there is a difference.

There is a de minimis for transport, for example, and it is very focused on ports over a certain threshold and on airports over certain levels of traffic. That is excellent, because those are the kinds of business that it makes sense that you would want to catch. The same layering has not been applied elsewhere. In particular, I worry about catching the sale or the licensing of intellectual property in relation to any of the technology areas. I think that that will catch an awful lot of things that people have not thought about yet, and I think that it will create a big burden for those small businesses.

I can conceive that in one or two very narrow areas—in some of the material science and so on, I am told—there may be low-value things that need to be caught. I am personally very sceptical that low-value things need to be caught in many other areas, because how can they be that important to the economy if they have a value that is below £1 million?

One of our concerns is that, although we know that the Government are very committed to a free trade agenda here and trying to make this work, I have worked with new regulators as they have developed for a very long time, and—forgive my saying so—I have never seen a regulator whose remit was only at the level that was predicted when it was set up. All remits expand exponentially, and that is one of the fears we have.

I would certainly advocate ensuring that the factors that the Secretary of State has to have regard to include, for example, impact on trade. The cost-benefit analysis sets out a sensible attempt—again, it is a much more developed piece of work than the, frankly, not-that-great cost-benefit analysis done in 2017-18; this one is a good and credible attempt—to work out what the actual cash costs are. But it does not address, as the Regulatory Policy Committee drew out, the real economic costs. It may all be okay, but the risks there are not hundreds of millions, but absolutely billions, and the UK’s competitive positioning there.

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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Q I was going to ask you about whether the Bill is proportionate between being very focused on national security—albeit, as you quite rightly point out, there is a spectrum of that—versus public interest, but I think that you have answered that issue in saying that you would very much guard against expanding it.

James Palmer: I will just explain why. I remember working when the public interest regime still applied. The move away from the public interest regime started in the 1980s. Pre the 1980s, this country was not an international investment destination; it really was not. We have earned that position. Whatever one’s politics—I am not party political—this is something that the UK has earned. We have done that by moving to being pretty open-minded in foreign investment. We have actually not worried that much about national security considerations being controlled through ownership, because again this debate has been—sorry, let me first come back to the Minister’s point.

I am very nervous that if you open it up to public interest, you vest that authority in a politician; forgive me, but that is what leads to lobbying, to short-termism, and to completely inconsistent decision taking. I am afraid that whatever Ministers at the time may say about these decisions, there is no external credibility on the predictability of those. It does not matter whether Ministers think they are doing it in good faith or on security grounds. It does not come over that way.

On broadening it to public interest, I completely agree. I am very grateful—because I know that there was a debate about this—that it has been rightly focused just on national security, albeit with a broad ability to intervene to protect the national interest.

Stephen Kinnock Portrait Stephen Kinnock (Aberavon) (Lab)
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Q Thank you very much indeed for your useful and interesting evidence. I want to ask about some tangible examples, just to get a sense of where you stand on this spectrum—in this debate between economic openness and national security. You have made your position on it quite clear, which is that we should not sacrifice one to the other. Do you think that the Arm-SoftBank transaction would have gone through under this regime?

James Palmer: My own view is that I actually hope so, because I think that there is a debate here. We all identify a business that has been established in the UK, and we regard it with pride as a national asset. I completely understand that. I am not just interested in global M and A; I am interested in investment in the UK. My goal is not just M and A. It is the investment, which we will not get without M and A at the end, because investors want to know that they have the ability to realise.

My own judgment—I am not an economist, but most of the economic evidence that I have seen supports this—is that you do better by allowing people to come in, allowing them to sell, not necessarily completely untrammelled, but on a broadly liberal perspective, giving them the certainty and confidence to do that.

I think what we are debating here is about those things that are generated solely in the UK—for example, research, work and ideas that are funded by the UK Government. I can see why the UK Government might want to keep control over those things and link their funding to a level of control. If someone takes funding on that basis, I can see that. I do not know enough about the history of Arm, but it was acquired by a Japanese parent, not by a so-called hostile actor. If we are not going to allow Japanese businesses to buy into our technology businesses, I think we look like a less interesting technology investment and growth destination. We might hold on to a business for another five years, but what businesses are we losing for our children and grandchildren in 10, 20 and 30 years’ time? That is how I look at the question.

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Chi Onwurah Portrait Chi Onwurah
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Q I have a quick follow-up question. Should we consider a separate test of public or strategic interest, or are you saying that our economic and security interests are intertwined, so it is the definition of security interests that needs to be expanded? What are your views on that?

David Offenbach: It is very difficult to separate these. When you look at GKN, for example, 50,000 people—even now, after covid—are headquartered in Redditch, near the Minister’s constituency. It is one of the largest industrial companies worldwide, 250 years old, and a defence contractor to the Ministry of Defence, but the question is whether the amount of defence work it does, apart from its other engineering, is sufficient for it to be called in under the existing legislation. Clearly, the decision was made that it was not appropriate, and it is the same with Cobham. Cobham clearly had a national security element, but it was not sufficient for it to be called in and blocked by the Minister, so I think it is very difficult to separate the economic from the national interest, because these companies are multi-layered; they operate in different markets; some of their work is sensitive, and some of it is not sensitive.

That is why I think it is better to try and improve this Bill than deal with it under a separate Bill. The problem is that it has taken three years to get to where we are with this Bill. If we are just going to say, “Let’s deal with it another time”, it might take another three or four years before we get to consider that, so while it is here, while it is on the table, let’s try to improve it now and make it really work for Britain, so that we can build back better—to use a phrase—going forward.

Nadhim Zahawi Portrait Nadhim Zahawi
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Q Welcome, Mr Offenbach; thank you very much for making the time. I wanted to get your view on how you think the Bill deals with the range of sanctions available to the Secretary of State in order to protect national security. How do you see that?

David Offenbach: I am very pleased with it. It is much better than the previous regime, because now, rather than just having post-offer undertakings that are subject only to contempt of court criteria if they are breached, we have a proper statutory framework that will enable the Minister to impose orders so that for non-compliance, there is a breach of statutory duty, not merely a breach of an undertaking. Of course, one of the problems with the takeover code is that the object of a takeover code is to protect shareholders and to encourage fair dealing in takeovers. It is not there—and this has never been its job—to protect the public interest; it is there to protect the shareholders who are in receipt of an offer, so that they have been given fair treatment. For example, if you take SoftBank and Arm at the moment, we do not know whether or not they will have complied with their post-offer undertakings when the five years is up, because the price that is being paid now is more than was paid in 2016. There is no complaint. Public interest is irrelevant to the job of the takeover panel, which is why this new regime is a very welcome improvement on the old regime.

Sam Tarry Portrait Sam Tarry (Ilford South) (Lab)
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Q Thank you, Mr Offenbach. This is very interesting evidence, and clearly you and the previous witness have really exposed this tension—this debate—between having an open and liberal economic approach, and our self-interest and national security. This is not a new debate: Peter Lilley had his famous Lilley doctrine, and earlier this week, we heard from Sir Richard Dearlove. Most of the Committee members listened in earnest to that discussion.

For me, there is something really important we need to explore a little bit more when it comes to our approach, in terms of rushing to be the most open, the most liberal, the most pro-business country we can possibly be, and the exposure that is left—in this case—to China. Just thinking about that, are there particular areas of law that you think need to be tightened up and thought about alongside this, and that need to be looked at in tandem, perhaps around IP protection, licensing and that kind of thing?

David Offenbach: I think this actually does most of what is necessary. I do not think it needs to be improved in that regard. One thing that does slightly worry me is that the present regime, which is essentially a competition regime, has the Competition and Markets Authority as a statutory body, having lost national security to the new unit that will be set up inside BEIS. They only have financial stability, media plurality and public health, which was added this summer, but it is a proper organisation that deals with public interest in those areas. Public interest is the only area.

It is quite important for us to think that one of the reasons why one wants to extend the definition of national security to a public interest element is because there are many more areas of public interest, other than those three that are now left in the CMA. There is a little bit of an anomaly, because national security does not have its own separate statutory body to deal with these issues. It suggests that this is going to be put into a little hole somewhere in BEIS and that somehow competition is more important than national security, because it has a statutory body.

I wonder whether there should be a parallel statutory body, which could be called the national security investment commission, or something like that, that actually dealt with these things separately, outside BEIS. That would deal with some of the objections that people have and that a Minister is going to be lobbied about. It would be dealt with in more of a quasi-judicial way, in the same way that the CMA now deals with referrals to it. I wonder whether the Minister would like to consider that, as part of the amendments.

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Chi Onwurah Portrait Chi Onwurah
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Q Are the other tools or powers needed to make interventions with regard to strategic capability in place under the Enterprise Act 2002, such as for the Arm takeover? I am not sure that they are. Given your experience, will you say a bit about the level of resourcing and expertise the unit would need to make such assessments?

Creon Butler: On your first question, I do not think we have that yet as a country. Actually, with the previous Prime Minister we had a clear definition of a number of sectors that were felt to be very important, but it is a continuing story in terms of exactly how we are going to intervene to ensure that those sectors are strong. We have some powers, but there are a range of tools. I previously mentioned public contracting, where we do our research and development, and competition policy specifically to make it impossible for British companies to develop in those sectors, and so on. There is a broad range of policies for ensuring we have those sectors, and I think they are continuing to evolve.

Your second question is a really crucial one. I guess a key point is that this is not an absolute thing: you cannot protect the country from all possible national security risks through this route. The only way you could do that, potentially, is by having every single investment notified and examined. That would create an enormous bureaucratic monster, which would really not be what we want.

The further point is that when you are looking at the right cases, you want to be sure that the judgments that are made trade off with the national security risk, as I have defined it, but also with the potential economic benefit of having an investment in that area. To do that, you need expertise among the people who are making such judgments, which spans security expertise but also economic, investment and commercial expertise. It is very important, first, that there enough people to do the judgments properly, and secondly, that you have a breadth of expertise. Certainly in the past, we may have swung from one side to the other. Sometimes you have had what people would describe as a securocrat approach: “There is a possible risk here. Let’s go for it—let’s eliminate it, whatever the economic cost.” Sometimes, on the other hand, you have had the alternative situation: “Let’s encourage investment, whatever the risk might be.” I think it is important that we get a balance between those two.

Nadhim Zahawi Portrait Nadhim Zahawi
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Q Welcome, Mr Butler, and thank you very much for your attendance. Reflecting on the changing nature of the national security threats that we are now facing, which you alluded to in your answer to my colleague, the hon. Member for Newcastle upon Tyne Central, how do you think the Bill builds on the Enterprise Act 2002? It has been 18 years since that legislation was introduced, so it would be great to get your take on that. Given your CV, it is worth getting your reflection on that while we have you here.

Creon Butler: I think—I am sure many people have said this—it is very clear that the previous legislation needed updating and was not fit for purpose, given both the way in which the global economy as a whole has evolved and the way in which the threats have evolved. It is both necessary and urgent to update that, and the way the Bill has done that, in terms of this first phase of creating the powers both to collect information and to intervene, makes a lot of sense. We have to fine-tune it and make sure it works properly, but this is a good first step. As I said, though, it is really important, if you are going to have such broad powers, to define exactly how you will use them—and much more precisely than the Government has done hitherto.

The further point is that this piece of legislation does not do everything. Alongside it, we need to strengthen our ability to collect the information we need about those threats. There are a number of elements. One that I have some experience of and that is really important is the question of who actually owns and controls companies that are operating in the UK—the question of beneficial ownership transparency. If you do not know that a hostile power is influencing a company that might be registered in an overseas territory or something of that kind, you will not be able to take the steps that you need to take.

A further area—it is a step in the right direction, because it gives us the powers to engage with this issue —is through international co-operation. Looking forwards, we need to strengthen and enhance our international co-operation with like-minded partners by going beyond the Five Eyes and including other really key partners, such as Japan, the EU and so on. That will enable us to do two things. First, it will enable us to share information about the things that can happen, such as the techniques that hostile powers are using. You may see it come up first in one country, and if we can share that information, we know that we can be prepared for that. Even more importantly, you may have a hostile power that does a number of things in different parts of the world, and it is only when you see the entire picture that you can see what the threat is.

Having that kind of international co-operation to do that is really important. These powers are necessary to get us in the same place as some of our key allies, in terms of what we can do. I do not think we are ever going to be able to standardise the areas of intervention or the nature of powers, but we should push very hard to enhance the sharing of information in the way I described.

Stephen Kinnock Portrait Stephen Kinnock
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Q Thank you very much for the very interesting evidence that you are providing. I want to focus on the acquirer risk element of the Bill. The statement of political intent states that

“the National Security and Investment regime does not regard state-owned entities, sovereign wealth funds—or other entities affiliated with foreign states—as being inherently more likely to pose a national security risk.”

Do you agree with that assessment? Logic would seem to suggest that the closer an entity is to a foreign Government, the more likely it is to pose a risk to our national security.

Creon Butler: Clearly, some state-owned enterprises can be a significant risk, but some clearly are not. VW has a significant state element in it through North Rhine-Westphalia, but that does not make it a national security risk. At the same time—this goes back to the point I was making about who actually controls companies —you could well have a company that is registered in another country and, particularly if that country does not have very beneficial ownership transparency laws, as even some very close allies such as the US do not, the company emanating from it could have ill intent towards us.

For that reason, I think the Bill is right not to make a special regime for companies that are state owned, because that could go wrong in two ways: either you could be looking at only one set of companies when there are others that are potential threats, even though they come from close allies, or you may end up spending a lot of time looking at companies with state shareholdings that are really no threat at all. Clearly, when you come to do the analysis, whether there is a stake from a hostile state will be an important part of the analysis that you do in assessing that threat. I think the Bill gets it right in not creating a special regime, but that does not mean that this will not be an important part of the analysis that you do in assessing the threats.

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Chi Onwurah Portrait Chi Onwurah
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Q What that says to me is that, while the impact assessment looks at the cost to the acquirer, there will actually be a cost to the acquired party in terms of clearing themselves in advance or clarifying what their situation is, and I do not think that is covered in the impact assessment as it stands.

Will Jackson-Moore: Yes, in many cases it is a raising of finance for a partial stake. It is an entrepreneur looking to attract capital to expand their business, seeking to bring in an investor to provide maybe 25% of additional equity capital. They want to have a competitive situation where people are offering the most beneficial terms possible. Many of those investors will be overseas investors.

Nadhim Zahawi Portrait Nadhim Zahawi
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Q Following on that, Mr Jackson-Moore, the current regime under the Enterprise Act 2002 stipulates that the assessment of transactions is dealt with on a case-by-case basis by the Government. This legislation effectively puts into law the timeline by which assessments are made. Do you think that and other provisions in this Bill will send a message to the industry and to the investment community of a slicker, more efficient way of dealing with assessment of transactions?

Will Jackson-Moore: For the vast majority of existing transactions, the existing legislation was not really a major factor; it only addressed a handful of transactions each year, whereas this is much more in the mainstream of the M and A market and therefore it will be much more on people’s agenda. We already have a number of organisations reaching out to us to understand the potential implications for ongoing transactions.

I do not think the timeframe in itself represents a barrier, since it is not that dissimilar to other jurisdictions, but again it is the application. If you look at Australia, for example, buyers have the ability to pre-clear themselves, and that type of amendment would be very helpful to ensure the free flowing of capital.

None Portrait The Chair
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Stephen Flynn.

National Security and Investment Bill (Third sitting)

Nadhim Zahawi Excerpts
Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 26th November 2020

(3 years, 4 months ago)

Public Bill Committees
Read Full debate National Security and Investment Bill 2019-21 View all National Security and Investment Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 26 November 2020 - (26 Nov 2020)
Chi Onwurah Portrait Chi Onwurah
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Q You mentioned, and I think it is absolutely right, the issue about going from a standing start to such an increase in the number of callings but also in the number of notifications—the impact assessment estimates 1,830 notifications. That is on the acquirer and does not take into account the fact that almost every start-up seeks capital investment at some point and I imagine would, therefore, as a consequence have to think about this regime. What impact do you foresee on the UK’s investment climate and especially on capital sources for small and medium-sized enterprises? How could that impact be mitigated or encouraged to be as positive as possible?

Christian Boney: I think this question really divides into two. In terms of larger corporates, investment by, and in, larger corporates is very likely to be unimpacted in any meaningful way by this legislation, because large corporates and their advisers are very used to going through regulatory clearance processes. This will just be another thing that needs to be added to the list.

I think you make a very valid point in the context of start-up and early-stage companies. The concern I would have principally is with those companies that are in that phase of their corporate life and fall within the mandatory notification sectors. Given the kinds of companies that this country is trying to encourage to flourish—those that are active in areas like artificial intelligence, advanced robotics and quantum technologies—a reasonable number of start-ups, I would expect, would fall within those mandatory notification sectors. For them, this regime is going to make the process of getting investment more time-consuming and more complex.

Anything that can be done in the process of consulting on the mandatory sectors, and anything that can be done to pair back the regime to make it more workable for companies in that stage of life, the better. An example might be some form of de minimis threshold, which is included, such that really early-stage companies do not fall within the mandatory notification regime, but the Government can nevertheless rely on their call-in power down the track, should that early-stage company becomes successful and more strategically important within the UK. Those are my principal thoughts. Lisa, do you have anything to add?

Lisa Wright: Not on that point, no

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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Q May I return to the national security issue—as opposed to the wider public interest test, which is an important question—and get your view as to the Bill’s scope, which is very much focused on national security, versus the wider public interest, to which I think my colleague’s first question alluded?

Chi Onwurah Portrait Chi Onwurah
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To clarify, my question was this: how would you distinguish between national and economic security?

Nadhim Zahawi Portrait Nadhim Zahawi
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My question is more about your reflections on the Bill being narrow in its purpose to deal with national security versus the wider public interest.

Lisa Wright: It is already a very broad regime; it catches a lot of transactions, as we have just discussed. I therefore think it is important and right that it is limited, in terms of the substantive concerns that it is catching, to national security. That is already a necessarily, I think, uncertain or undefined concept. Corporates and investors can make it work as long as other aspects of the regime work efficiently. That may be subject to some of the points that Christian just made about the impact on start-ups.

I think that once you broaden the regime out from national security into other considerations, you do risk introducing quite a degree of unpredictability, which possibly would impact on people’s assessment of the investment climate in the UK. My understanding is that the existing intervention regime under the Enterprise Act is planned to remain in force, so the national security considerations will come out of that and will be dealt with under this new regime. But there will still be the ability for—[Inaudible.]

None Portrait The Chair
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Mr Boney, do you have any observations while we are waiting for the tech to work?

Christian Boney: I agree entirely with what Lisa has been saying. I think the scope of the Bill is already broad, so to my mind, broadening it further to take account of other areas is likely to introduce the uncertainty that Lisa was referring to and, as a consequence, have a potentially negative impact on the investment climate in the UK.

None Portrait The Chair
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Lisa, it looks like we have got you back now. Would you like to add anything?

Lisa Wright: I am not sure at what point you lost me, but I think I was saying—

Nadhim Zahawi Portrait Nadhim Zahawi
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We lost you while you were talking about a “degree of unpredictability”, Lisa.

Lisa Wright: Okay. In my view, if you were to broaden the regime out from national security to take into account other considerations, that would introduce quite a degree of unpredictability and would, I think, potentially impact negatively on people’s assessment of the investment climate in the UK—I am sorry if I am repeating myself. However, my understanding is that the existing intervention regime will remain, so national security will come out of it, but the Government will still be able to intervene in transactions on other public interest grounds under the Enterprise Act. That regime has some limitations, but those powers will still be there.

Stephen Kinnock Portrait Stephen Kinnock (Aberavon) (Lab)
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Q Thank you very much for the really excellent evidence you have already given us. I want to go back to what Mr Boney said about de minimis thresholds and whether you might look at introducing de minimis thresholds for particular areas, sectors or industries that I guess you would say are considered to be low risk from a security point of view and highly beneficial to the UK economy, which should therefore affect our thinking about how you might filter this whole process. But are there not other considerations on filtering as well? In essence, this is a risk management process and you have to identify the highest risks. Surely issues of critical national infrastructure would place a type of acquisition into the high-risk quadrant. If the acquirer is close to a state or Government—particularly a hostile Government—that would place it in the high-risk quadrant. Therefore, on having a more filtered process, is the de minimis threshold the right way to go, or would it not be better to have a strategic approach based on a hierarchy of risks?

Christian Boney: I think the de minimis concept is potentially relevant and helpful in the context of thinking about what needs to be subject to mandatory notification. If you are not within the mandatory notification regime, that does not mean that the Government cannot exercise the call-in power so long as the relevant tests in the legislation are satisfied; it just means that the relevant company does not have to make a notification. There are elements of the mandatory sectors where some form of de minimis has already been included. Energy is a good example of that, and that makes sense in the context of energy.

I think it is worth exploring whether, within any of the other sectors, where we are more likely to see start-up, early-stage companies operating, there is benefit in introducing some form of de minimis regime solely in respect of the mandatory notification requirement. As I say, if a small-scale company operating in critical artificial intelligence is receiving investment from somebody who we view as a hostile actor, that transaction might escape mandatory notification, but that does not mean it escapes voluntary call-in by the Government at the point they become aware of it. That is something that might be worth exploring.

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Chi Onwurah Portrait Chi Onwurah
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Q Thank you. I am very taken by your definition of sovereign and friendly capability. Indeed, that is exactly what we do not have in our 5G networks, hence the mess with Huawei.

Moving on slightly, a comment made numerous times on Second Reading was about the role of the intelligence services. Indeed, my right hon. Friend the Member for North Durham (Mr Jones) asked for more intelligence in the process. How can the Bill better ensure that the intelligence services, including the National Cyber Security Centre, have input and scrutiny and, indeed, provide their expertise as part of the process so that the appropriate decisions are taken?

Professor Martin: I think the essential, principal requirement is not the intelligence services’ involvement—although that is important and I will come to that in a minute—but the understanding of technology and technological developments within Government. These are fundamentally economic issues as well. Apart from anything else, if you look at some of the reasons why the Bill has come about, you will see that, in strategically important technologies, the Government have invested heavily in university-sponsored research and in private sector research, only to see the fruits of that research sold off. Even if that did not impact on national security, which in most cases it does, it is not a good return for the taxpayer in terms of long-term UK involvement if the intellectual property ends up being monetised elsewhere.

I have enormous respect for Mr Jones and I think he is on to something in terms of involving the national security and intelligence services, but I do not think this should be intelligence-led. In my experience—obviously, I cannot go into detail on this particular aspect of it—secret intelligence adds relatively little to your knowledge of intent. If we take Russia and China, the two big strategic threats to the UK, Russia does not have a strategy in this space. We have to worry about Russia and cyber-security because it attacks us, but it attacks us on the internet that the west has built.

China is very different. China has a technological, strategic dominance aim, but it is not a secret. It is published and has been translated into English in the Made in China 2025 strategy, as you know. Our knowledge about the precise, intricate details of how that is implemented gains relatively little from secret intelligence.

What secret intelligence does have, particularly in GCHQ and the NCSC within it, is a knowledge of how technology works in terms of the national security threat space. I think the UK has a head start on other countries, because the National Security Council innovations of the 2010s gave the intelligence services a much bigger voice at the table, and that is reflected in the structures that we have now. The UK should be well placed to be able to listen to the intelligence services, but I would encourage—not least to make sure that in this very delicate balance of trying to show that we still have an open economy and are not shutting the doors to investment—as much transparency as possible on the decision taking. It will not always be possible because GCHQ technologists will know about things—exploitations of particular bits of technology—that they cannot reveal. They will be able to tell that to secret forums within Government for consideration—I am quite confident about that: there will be a seat at the table for them.

My recommendation would be that, as far as can safely be done, the Government should be relatively open about why they make the judgements they make about strategic areas of technology and the interventions they will make once this Bill is passed—assuming that both Houses wish to pass it.

Nadhim Zahawi Portrait Nadhim Zahawi
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Q Professor, that was excellent and I am very grateful for it. I will follow on from that thought and ask about the proposed powers within the regime for the Secretary of State to gather that information, which, as you quite rightly remind us, is not necessarily secret but about understanding the technology, or a particular piece of the technology, within the sector. What are your thoughts on the regime for the Secretary of State to be able to gather that information to inform a decision or to call in witnesses, so that they are able to really understand that particular issue and therefore make a decision on it?

Professor Martin: I suppose the mantra, if I had one, would be, “Broad powers, sparingly used, with accountability mechanisms”. It is incredibly hard to be specific about this, for two reasons: one is that new areas of technology crop up, as they invariably do, and the other is that sweeping categorisations are needed on the face of legislation.

I am not a deep technical expert—although others are available from my former organisation—but if you take sweeping, umbrella titles like “quantum” or “artificial intelligence”, there are huge swathes of that where, actually, not a lot of these powers in the Bill will be used. There will be companies that will be doing very interesting things—10 interesting things—of which only one would be caught by this Bill.

If you take areas like specialist quantum computing and so forth, I think the community of interest and expertise is actually relatively small and has relatively good relations with Government—not least because, again, while it is not perfect, the whole system of research council funding and Government investment in funding technological research is pretty good, by international standards—so you end up knowing these people. One of the reasons that this sort of policy evolution came about, which has led to the publication of the Bill before you—I remember this from discussions within Government—is that people were volunteering to come to us. World-leading experts, people who had been funded by the Government—I will not go into individual cases because it is commercially sensitive and possibly security sensitive—would come to Government and say, “Look, we’ve had this inquiry from a Chinese behemoth,” or even, “We’ve had this inquiry from a US company,” and so forth: “What do you guys think about this?” and, invariably, we would have to have an informal influencing discussion.

I do not think that some of the businesses to which this will apply will be screaming that this is horrible Government regulation and intervention in areas where that should not be made. There was already a dialogue; there was just no legislative framework. Of course, that meant that companies that felt a loyalty to the UK and so forth but that also had to look after their commercial interests were sometimes in a real bind.

To try to answer your question, I think that the powers should be fairly broad. I think there should be accountability and transparency mechanisms, so that there is assurance that they are being fairly and sparingly applied.

Stephen Kinnock Portrait Stephen Kinnock
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Q This is very interesting evidence. I want to ask you a little bit more about China. As you rightly pointed out, much of this is in the public domain, and the Made in China 2025 strategy is very clear about the objective, which is to achieve global technological dominance. Given your experience at the National Cyber Security Centre, can you share with us a little bit more about how that would manifest itself in practice? What do you see as China’s next moves, in terms of rewriting the rules on technology and on creating that dominant position that you have talked about? How do you see that manifesting itself?

Professor Martin: I think there are broadly two or three areas in which China is very interested in doing that. I can make some comments on motivations, because I think they are very important, and then I will finish with how that manifests itself in UK casework.

Clearly, China has set out a stall, which it published in Made in China 2025, in which it said it wants to be the world’s pre-eminent leader in a number of key areas of technology. It mentioned artificial intelligence and quantum, and it is throwing vast sums of state money and long-term strategies at them, unencumbered by the need to seek re-election and popular consent, so it is a very powerful movement. That is the first thing: it is trying to build up its capability.

China is also trying to change, at least for itself—we will come to that in a minute—the way the internet works. It was reported earlier this year that Huawei and other major companies in these international standards bodies are looking at something called new IP protocols, among many other things. To give you a sense of what the motivations behind that are, at the minute when traffic flows around the internet, despite some popular impressions to the contrary, it is actually pretty hard to work out what is going through it. Therefore, it is relatively difficult to censor, although China has managed it in some ways. The new IP protocol will make it much easier to work out what sort of traffic is going through and being rerouted, so it makes it much easier to control. China is trying to dominate and essentially get a lead in the strategic technology, and also to change the character and culture of the technological age from one that started off fairly anarchic to one that is much easier to control. That is what it is trying to do.

Why is China trying to do that? A lot of this is about the assertion of its own power for itself—the regime, power, Chinese nationalism and so forth. I think it does intend to extend its sphere of influence, but I have never seen that as the primary motivation. One of the interesting things, post the pushback from the Trump Administration and the US sanctions on Huawei, is the extent to which China will now accelerate its desire for self-sufficiency, and the extent to which that leads to a separate pole of technological influence that may become less interested in countries such as the UK, European Union countries and North America.

To date, how has that manifested itself in cases in the UK? Ms Onwurah has already mentioned the Huawei controversy. If you take Huawei as a company, I think it shows the different ways in which this can manifest. The Huawei 5G controversy is going to be dealt with by a Bill that I believe is coming to the House next week, not this one. The 5G controversy was not about investment; it was about selling to British companies to build stuff. Obviously, that case has been very heavily analysed.

I think that the more interesting case in the last 10 years involving Huawei was its acquisition in 2012 of the Centre for Integrated Photonics—a world-leading British firm in a really key area of technology. That, in my view, was pretty strategically damaging. If we had our time over again, that is the sort of thing that the Bill might well notify. I know you have taken evidence from the likes of Charles Parton and people with huge China expertise. The fact that the acquisition of the Centre for Integrated Photonics did down Britain’s technological development was probably a by-product. The point is that Huawei could buy world-leading research, which China could then take and appropriate for itself very cheaply. That is what it will continue to do to build up its own capabilities.

National Security and Investment Bill (Second sitting)

Nadhim Zahawi Excerpts
Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 24th November 2020

(3 years, 5 months ago)

Public Bill Committees
Read Full debate National Security and Investment Bill 2019-21 View all National Security and Investment Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 24 November 2020 - (24 Nov 2020)
Chi Onwurah Portrait Chi Onwurah
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Q Thank you, Dr Lenihan. That is absolutely fascinating. The need for different agencies to be involved needs to be recognised.

In terms of your work on investments, and the investment regime, is there not a risk that it ends up capturing a host of investment transactions? I am particularly thinking of the burden and impact on our innovative tech start-ups. The likely definitions of the sectors to be involved include artificial intelligence and data infrastructure. Based on your experience of other countries’ introduction of new investment screening rules, have you found patterns in how similar changes have affected foreign direct investment, and potential trade deals, which is a topical subject? Do you have any thoughts on ways to mitigate the burden and impact, particularly on start-ups?

Dr Lenihan: The Bill is arguably broader in scope on call-in powers than some other foreign direct investment regimes—I would argue that these perhaps even include the US regime—because it does leave wide latitude for call-in powers. The Bill also covers trigger events that are initiated by all investors, both domestic and foreign, and that is truly rare among Western FDI review regimes that are focused on national security. Usually, the concern is to focus the regime on investments from foreign-owned, controlled or influenced entities. Domestic entities and acquirers that have, for example, ultimate foreign ownership or influence in some ways should be able to be caught by any well-institutionalised and resourced regime. I am not sure why it is that we do not actually see the word “foreign” in the Bill, even though it is supposed to be based on foreign direct investment. Perhaps that is a concern about potential domestic threats down the road, but either way, it will lead to a much larger volume of mandatory notifications than most other national security FDI regimes—the US, Germany, Australia and other countries. Almost 17 have made changes in the past couple of years, and these have increased and been modified since the covid pandemic.

I understand that the legislation may be written as it is to include domestic investors, perhaps to avoid appearing to discriminate against foreign investors. I would suggest that that is probably too broad a formulation for focusing on and identifying real risk. The EU framework for FDI screening encourages its EU members to adopt mechanisms that do not discriminate between third-party countries, but that does not mean that it takes the word “foreign” out of its legislation to target foreign investments as opposed to domestic ones. Part of that is about the volume of transactions.

One thing I would highlight is that FIRRMA expanded the scope of covered transactions to include non-controlling investments of potential concern, as well as any other transaction or arrangement intended to circumvent CFIUS’s jurisdiction. But because it has had more cases to review on a detailed level in the past two or three years than in its history, since 1975, a major element of that Act is, again, around staffing and resources. There is a specific provision in FIRRMA, which is very clear that each of its agencies needs to hire under-secretaries in each agency just to be dedicated to this task.

There are two elements. An inter-agency review team is needed. You need enough staff to actually handle and catch all the risks. You the need the proper resources to do so—the right access to the databases, the right security clearances, the right training. On top of that, the volume of mandatory notifications will be increased by the fact that this is not just focused on foreign investment. I do not think there is much you can do about the foreign cases that you will get. There will be a high volume of those, and you need to be ready for them, but it is an important national security risk that needs to be dealt with.

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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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 Portrait Matt Western (Warwick and Leamington) (Lab)
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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.

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Chi Onwurah Portrait Chi Onwurah
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Q To follow up on your point about notifications, the Government impact assessment for the Bill suggests that up to 1,830 notifications might come in each year under this new regime. I am concerned that they look at the impact on the acquirer, and they do not capture the fact that almost every start-up seeks capital investment at some point. What impact do you foresee on the overall UK investment climate, and what might FIRRMA and CFIUS changes lead us to expect in our case?

Michael Leiter: This is very important. I was rather taken aback by two things about the Bill. The first is the projection of over 1,000 matters, going from the very, very few that the UK has traditionally had; this is an explosive increase in matters. I am concerned that no Government are ready for that rate of change. Even in CFIUS under FIRRMA, although there is not an increase in the overall number of long-form notices, in the short-form declaration process, there was an increase. That was relatively modest, an increase of about one third, so the US now reviews approximately 240 full cases, and about another 100 short-form.

When you talk about going from a few dozen to 1,000, you have to be very sure that you have both the resources and the expertise to process that. I would be concerned by that. Another case where your Bill goes much farther than anything I have seen, and certainly much farther than anything in the United States, is in encompassing not just acquisition and investment in businesses but acquisition and investment in supplies, goods, trade secrets, databases, source code and algorithms, so it is tangible and intangible objects, rather than businesses. That scale is very difficult to predict, and if one is more in the mood for incremental change, so as to see how a Government can handle change, including those elements poses some real risk for management.

Nadhim Zahawi Portrait Nadhim Zahawi
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Q Thank you, Mr Leiter. That is really good feedback. Building on the point made by my colleague the shadow Minister, the CFIUS regime in the US obviously operates successfully, in the sense that the US remains an incredibly attractive place for inward investment. How have the US regulators balanced those two things? Does the Bill as drafted provide us with a similar opportunity to strike that balance?

Michael Leiter: I am honoured to have worked with the UK Government for 20-plus years on security issues, and over the past 10 years on economic issues. I certainly think you have the potential to strike that balance. In the US, traditionally, the CFIUS structure was a balance between the security agencies, which tended to want to restrict investment, and the economic and commerce agencies, which tended to want to encourage that investment. Certainly, in the case of China, we have seen massive decline in direct investment because of both Chinese controls and US controls: a tenfold decrease from 2016 to 2018. But as you said, the scale and strength of the US economy mean that global investors look to the United States no matter what.

I do not mean to make less of the UK in any way but, from a UK perspective, one has to be a bit more careful, because you simply do not have the scale that inevitably will attract investment. The US could be a rather poor place to invest, with lots of regulation, but people would still come because of the scale of the market. You don’t have quite that luxury. That is not to say that the UK has not for generations been an incredibly attractive magnet for investment, but whereas the US can err on the side of security, from my perspective, admittedly an American one, the UK might want to be a bit more careful about restrictive measures, because the size of the market is not in and of itself so inherently attractive that companies and investors must be in it. We have a bit of an advantage over you on this one.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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Q Good afternoon. I do not know whether your saw much of the previous witness’s evidence, but she commented on how countries such as the United States have a limited number of excluded or exempt countries—including the United Kingdom—that are not covered by their equivalent legislation. What are your thoughts on how the Bill does not have any provision to exempt entire countries from its scope?

Michael Leiter: I was able to see part of Dr Lenihan’s excellent testimony, which was quite informative and good. First, to clarify, although the US does make distinctions for exempted countries—obviously those are the UK, Australia and Canada right now—that exemption is extremely narrow. It limits those countries only on mandatory filings, and only if investors from those countries fulfil a fairly rigorous set of requirements. So, although Canadian, UK and Australian investors were quite excited before CFIUS reform, when the regulations about excepted investors were promulgated, that has had a minimal effect on those countries. It is not a significant advantage. Those countries are still subject to CFIUS review in the vast majority of investments they make. Now, that gives only half the story, because clearly investments from those nations go through a much less rigorous review, and come out with much better results than those from countries where the US has a more strained security relationship.

On what I see in the Bill, I would say a couple of pieces about the excepted possibility. First, as I read the Bill right now, it covers investments from other UK investors—not even simply those outside the UK. If my reading is correct on that front, I have to say that is probably not wise. We have already talked about the significant increase you could have, based to some extent on mandatory transactions as well as some other factors, and I think trying to take a slightly smaller bite of the apple and not including current UK businesses in the scheme would be well advised.

To the extent one has open trade and security relationships with certain countries, lowering the bar for review to exempt them, or including things such as dollar limits and getting rid of the de minimis exemption, might well make sense. That is another way of making sure that the Secretary of State can focus on those areas you think are the most sensitive from a security perspective. Whether we like to do so or not, that can be aligned to some extent with the country of origin of the investor. It is not always perfect—one must often look below that, especially when dealing with limited partners and private equity—but it is a relatively easy way to reduce the load you may experience if all these measures were implemented.

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Chi Onwurah Portrait Chi Onwurah
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Q Thank you for your response. If we look at GKN-Melrose and, indeed, even SoftBank-Arm, we could consider that they had national security implications. I suppose the point is that there are essential industries that are directly critical for our economy, but that at first may not seem directly critical for national security because they are evolving technologies, as in the case of Arm and the ongoing takeover by Nvidia, or because they are indirectly critical as suppliers to downstream industries that support national security. Indeed, in the response to the Government’s consultation for this Bill, an example is given of the undermining of the functioning of an airport by a software manufacturer, which would be within the transport sector but would not necessarily immediately appear to be directly concerned with national security. Economic security and national security end up being linked. Do you think that should be reflected in the Bill, and how do you think it can be reflected?

David Petrie: I have read the impact assessment, which included that example. It is a difficult situation, as described in the example. In accordance with the way that this new legislation is drafted and the number and extent of the sectors that are regarded as mandatory—the sectors in scope such that their operating activities would require a notification of the unit—the example set out in the impact statement would indeed require screening by the investment security unit. The Government would likely have the opportunity to review a potential acquisition in that software company.

I was struck by that example, in that it suggested that service had failed, or a malign actor had decided not to provide the necessary services to the airport. I think a broader question here is what might happen in reality. Those services would be procured through a commercial contract, which in turn would, presumably, be backed by insurance. If it were an absolutely critical service, I would expect that the airport would have a back-up system, whether power supplies or a parallel running system, as they do for air traffic control. There are commercial protections for the actual operating activities of critical infrastructure, which should work. It is difficult to protect against the actions of malign actors, but critical infrastructure already has systems and processes, and invests heavily in capital equipment, to ensure that there is not an interruption of supply. The question would be the extent to which ownership of that asset physically gave the owners of the shares the ability to get in and interrupt supply. That almost implies mechanical breakdown or some deliberate and malign disconnection. Again, companies have cyber-security systems in place to ensure that critical infrastructure does not fail.

The point you made was about whether suppliers of that sort of service to our critical infrastructure and their ownership should be subject to review. As the Bill is set out and as the sectors in scope are drafted—of course, the Government will consult over the next month or so on those definitions and whether they should be adjusted or whether they are as wide-reaching as they should be—a business like that would be captured. The investment security unit and, presumably, the security services would have an opportunity to review whether or not to allow that to go ahead.

Nadhim Zahawi Portrait Nadhim Zahawi
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Q Mr Petrie, you will understand better than most that businesses will want to ensure information is being treated sensitively in any transaction. I want to capture your view of the closed material procedure for judicial review under the Bill and what you think of it in terms of that sensitivity of information.

David Petrie: I think a quasi-judicial review is really important and a part of the process, and then, if necessary, there is judicial review. I think the question cuts back to how many times that is likely to happen. We have to step back a little bit and recognise that that would be a situation where the parties to the transaction are challenging the Secretary of State’s decision as to whether or not this is in the interests of national security.

I would assume that if the sellers are British companies, they will probably have received what they feel are adequate assurances that it is okay to sell to an overseas acquirer, but the Secretary of State takes a different view, presumably based on evidence provided by our national security services. Ultimately, if there is a compelling body of evidence to suggest that a transaction should be modified or adjusted or, in extremis, blocked, it would be quite an unreasonable group of shareholders to disagree with that if the if the Secretary of State was applying the test as set out in the Bill, and indeed in the guidance note, that intervention is to be limited only to matters where the national security of this country is at threat.

That is quite different from the national interest. It is tempting—or possible, rather—in this debate to get sucked into questions about what we should and should not be doing in this country. That is not what this is about. The Government have been very clear to the investment community, and to British business more generally, about the purpose of this legislation. That is why, although markets and investors recognise that it will take a certain amount of time and effort to comply with a mandatory regime—the Government have been very clear about their purpose in introducing that—the market is generally favourably disposed towards it. We can see that it is unfortunately necessary in these modern times.

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

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

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

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

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

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Chi Onwurah Portrait Chi Onwurah
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Q Thank you very much. I note your suggestion regarding the blanket exception for investment funds. I had two quick follow-up points: first, could you say how they would be defined in such a way that would exclude, for example, foreign sovereign investment funds and so on, which might give cause for concern? Also, you said you had a couple of caveats. I take it that is one; what is your other caveat?

Chris Cummings: Forgive me: I noticed that I missed the point about mergers and acquisitions. We regard the pre-approval facility that officials have mentioned—I believe the last witness mentioned it, as well—which is a way in which the team responsible could be approached ahead of a deal being put together, as a very sensible, practical step forward, as long as confidentiality was absolutely rigorously maintained.

In terms of definitions, we find the Japanese definition quite attractive, and again we commend it to the Committee. It clearly differentiates out investors such as the ones we represent, who are looking to provide capital for a company and share in its success for the benefit of the investors whose money we manage, but are not seeking to take an active role in the management of those companies. We are not looking to put somebody on the board; we are not looking to intervene directly in day-to-day management decisions. Our relationship is with the board chairman and so on, in order to engage in a constructive and strategic discussion, but we stop short of securing assets or taking an active role in management. That is a system that works well.

Turning to our caveats, I mentioned the five-year review period. We undoubtedly recognise the spirit in which this legislation is drafted, but Governments change, as does public opinion. The strength of this Bill is that it is focused around national security. Perhaps a definition of national security may go a little further in helping investors as well, because we could not really strike upon a catchy, well-turned phrase that defined national security, and have a reluctance to move away from national security; we would hate to see the Bill being widened into more public interest ability.

A final point to note would be the interplay between this legislation and the Takeover Panel, which has a different and distinct role to play. The notification percentages are slightly different: it is 25% in the Bill, and 30% in the Takeover Panel, so ensuring that there was no accidental misalignment would be most useful.

Nadhim Zahawi Portrait Nadhim Zahawi
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Q Welcome, Mr Cummings. You mentioned the feedback from your members about keeping the Bill focused very much on national security. The message that we want to get out there is that Britain remains very much open for business, and that we want to maintain our place in the premier league of foreign direct investment. How has that statement of policy intent, which we published alongside the Bill, landed with your membership?

Chris Cummings: When it comes to a clarification point around national security, this is similar policy-intent-driven legislation to what we have seen in other emerged markets, such as the US, Germany, France and so on. We do not find that it is out of step with other developed markets. In other jurisdictions—I will take the US as an example—the legislation has started small and then grown as people have become familiar with it. The UK, perhaps because we feel we are playing catch-up—that is not for me to say—has started on a larger scale first. That is why there are queries around scope and around the durations. We look forward to engaging with the definition of the 17 sectors to ensure it is as specific as possible, and to ensure that we understand the operation. We would like to hear from officials and colleagues in ministerial positions on how they see it working in practice, so that the investment community is really clear that the rules of the game have not changed, and that the UK really is as attractive as we want it to be for incoming investment.

As I mentioned, we represent UK-based investment managers, but of course, those organisations are headquartered not only across Europe, but in other parts of the world, particularly the US. We are managing pension scheme money not only for UK savers and pensioners, but from other parts of Europe and places as far-flung as Brazil. If we as investors were looking to make an investment in UK plc, we would need to be clear about where head office was, and where the money was coming from. All those things could be either pre-approved or ruled in court as quickly as possible to ensure that there is not a missed beat in attracting the investment that we all want to see.

None Portrait The Chair
- Hansard -

Nickie Aiken.

National Security and Investment Bill (First sitting)

Nadhim Zahawi Excerpts
Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 24th November 2020

(3 years, 5 months ago)

Public Bill Committees
Read Full debate National Security and Investment Bill 2019-21 View all National Security and Investment Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 24 November 2020 - (24 Nov 2020)
None Portrait The Chair
- Hansard -

Before we begin, I have a few preliminary points to make. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings. Members can sit in any seat marked with a “please sit here” sign. That includes the side tables and the Public Gallery, although Hansard colleagues have priority on the side tables. Members sitting in the Public Gallery should stand by the microphone to my right.

We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication, and then a motion to allow us to deliberate in private on our questions, before the oral evidence sessions. In view of the limited time available, I hope we can take these matters without too much debate. I call the Minister to move the programme motion agreed to yesterday by the Programming Sub-Committee.

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

I beg to move,

That—

(1) the Committee shall (in addition to its first meeting at 9.25am on Tuesday 24 November) meet—

(a) at 2.00 pm on Tuesday 24 November;

(b) at 11.30 am and 2.00 pm on Thursday 26 November;

(c) at 9.25 am and 2.00 pm on Tuesday 1 December;

(d) at 11.30 am and 2.00 pm on Thursday 3 December;

(e) at 11.30 am and 2.00 pm on Thursday 8 December;

(f) at 11.30 am and 2.00 pm on Thursday 10 December;

(g) at 9.25 am on Tuesday 15 December;

(2) the Committee shall hear oral evidence in accordance with the following Table:

TABLE

Date

Time

Witness

Tuesday 24 November

Until no later than 10.30 am

The Royal United Services Institute

Tuesday 24 November

Until no later than 11.25 am

Sir Richard Dearlove KCMG OBE

Tuesday 24 November

Until no later than 2.45 pm

The Centre for International Studies, London School of Economics

Tuesday 24 November

Until no later than 3.30 pm

Skadden, Arps, Slate, Meagher & Flom LLP

Tuesday 24 November

Until no later than 4.15 pm

The Institute of Chartered Accountants in England and Wales

Tuesday 24 November

Until no later than 5 pm

The Investment Association

Thursday 26 November

Until no later than 12.15 pm

Slaughter and May

Thursday 26 November

Until no later than 1 pm

Professor Ciaran Martin, the Blavatnik School of Government, University of Oxford

Thursday 26 November

Until no later than 2.30 pm

Herbert Smith Freehills

Thursday 26 November

Until no later than 3.15 pm

Simons Muirhead and Burton

Thursday 26 November

Until no later than 4 pm

Chatham House

Thursday 26 November

Until no later than 4.30 pm

PricewaterhouseCoopers



(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 10; Schedule 1; Clauses 11 to 58; Schedule 2; Clauses 59 to 66; new Clauses; new Schedules; remaining proceedings on the Bill;

(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 11.25 am on Tuesday 15 December.

It is a pleasure to serve under your chairmanship, Mr Twigg, and to serve with colleagues on this important Bill Committee.

Question put and agreed to.

Resolved,

That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Nadhim Zahawi.)

Resolved

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Nadhim Zahawi.)

None Portrait The Chair
- Hansard -

Copies of the written evidence that the Committee receives will be made available in the Committee Room. We will now sit in private to discuss lines of questioning.

--- Later in debate ---
Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

Q I think you addressed the core of my question. I really like your phrase “defence of technology”, rather than the technology of defence, because the question was around how you distinguish in the industrial strategy between specific security concerns and the development of technologies that give us capability in those sectors. Can we identify at what point that becomes a national security concern?

Charles Parton: That is sort of way outside my technical expertise, but I would certainly say that one major criticism I have of the Bill is that you have to set up the right structure to be able to do that. I am not sure that the Bill’s putting everything in the hands of the Department for Business, Energy and Industrial Strategy and its Secretary of State is the right answer.

Let us take Huawei and the debate we had over the last couple of years, as well as the various flip-flops that have gone on. One might add flaps, as well as flip-flops, actually. There has been a big a division between the so-called economic and security Ministries. It is right that both have a say in the decision. Economic interests are very much at stake, but so are security interests. If you put everything into the hands of BEIS, which probably does not have the expertise on China—certainly not in the defence, security and surveillance realms, although not unnaturally, since its job is to encourage investment—you will perhaps find that the security and repression elements are not given sufficient weight, and more to the point, the perception will be that they are not given sufficient weight. We might therefore go back to this sort of business with Huawei, where there is a fight back and another fight back and so on.

What we actually need is an organisation that is made up of people on all sides of the debate and that has some real experts who actually understand what the technology means. One specific example I came across a year or so ago was a very interesting computer game. Fine. What is wrong with that? Well, I understand that it was then bought up by the Chinese and used to train fighter pilots. You cannot defend against everything, but you at least need some unbiased experts—a sort of, if I can use the words, Scientific Advisory Group for Emergencies—who would be there to advise, and then decisions would actually be accepted by all sides, not questioned.

On occasion, I am sure that questions would be put up to the National Security Council and the Prime Minister for decision if they were really important. However, the issue is often about very small companies with some very interesting technologies that have not been established. The Chinese are extremely efficient at hoovering around, finding them and buying them up early. I am not convinced that the structure and decision making of the whole process are right.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

Q Good morning, Mr Parton, it is great to see you. Without going further on your last point, I want to reassure you that the Bill is designed to deliver a quasi-judicial role for the Secretary of State for Business, Energy and Industrial Strategy. The team’s infrastructure will be pulling in all parts of Government expertise. My question is this: how do you think the current challenge of covid has exposed national security threats through investment? What are you seeing? How do you see the behaviour of malign actors anywhere in the world at a time of covid?

Charles Parton: I think what covid has done is expose the nature of the Chinese Communist party, in answer to your question. I hope that it has brought home to people the nature of the beast. Looking at what happened, China did not do so well to start with, and its people were pretty upset with it. China then used its external propaganda machine to right its domestic problem, pushing forward the line, “Look how badly the foreigners have done, and look how well we are helping the foreigners out of the mess,” while hiding the fact that it had allowed the virus to propagate so fast in the first place. To many people in democracies, that brought home the fact that the Communist party of China is prepared to use that against us.

Where the Chinese Communist party was unhappy with how countries were acting, it started to put them under pressure and made threats about the delivery of personal protective equipment or whatever. Australia is really taking it in the neck at the moment because it had the temerity to ask—perfectly reasonably—for an investigation of the origins of the virus, which is essential for scientific and preventive purposes. Look at the political pressure on Australia. There is absolutely no doubt that where the Communist party sees an opportunity to use whatever is going on at the moment, it will do so.

The question that I have continuously asked is this: to what degree is investment threatened by a country such as the UK, Australia or Canada standing up for its own interest? We are not actually attacking China, but we are saying, “Sorry, but we have our own interests and our own security. You wouldn’t allow the equivalent in your country, possibly rightly, and we are not allowing it here because we are defending our security, in this case.” To what degree is the tool of depriving someone of investment a real threat? I have urged in a number of papers that the Government look at that in dispassionate terms. The China-Britain Business Council recently put out a paper, but I would not describe it as dispassionate. That is for the Government to do. My own feeling is that the likely conclusion is that, on the whole, the threats are pretty hollow. Chinese investment is not done for charitable reasons.

Since 2017—the high point was 2016—China has cut back on investment. Beijing was getting pretty annoyed at the way money was seeping out not in line with its policies, but investment is now more tightly controlled and aimed at the acquisition of science and technology. To what degree are we vulnerable? This is not charity. Money is very cheap at the moment; it can be got at negative interest rates. It is not as though China is the sole source of money. It invests because it wants technology. Surely we have to look at that carefully and ask where is the mutual benefit. If it is mutually beneficial, fantastic, let us go ahead. Let us not be too brow-beaten by this thing—that if you do not do x or y, or if you do not take Huawei, we will hit your investment. I think, in practice, if you look at that and then look at some of the other threats that China has made over the years, including to your exports, all those have grown for all countries, although they had been in the diplomatic doghouse historically—certainly in the past; we will see about the future—but I think it is greatly exaggerated.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I am grateful to you, Mr Parton. I do not want to hog the floor, as I am sure many colleagues want to ask questions. Thank you very much.

Stephen Kinnock Portrait Stephen Kinnock (Aberavon) (Lab)
- Hansard - - - Excerpts

Q It is a pleasure to serve under your chairmanship, Mr Twigg. I do not know whether you can see me, Charlie, but I am here. I am sitting at the back due to social distancing, but it is good to see you.

Going back to your point about resourcing the investment security unit, can you give a bit more detail about what would be an ideal outcome from your point of view? Would it be that we need specificity in the Bill that key representatives and experts of the intelligence services, of the Ministry of Defence, of the diplomatic corps and of other agencies be formally named in the legislation, so we would have that reassurance that the body doing the screening had all the necessary breadth across the spectrum of both the economy and national security?

Charles Parton: That is a good question; it is not necessarily for me and I do not necessarily have the experience to lay down precisely how it works. For me, I think, first, that all those organisations you have mentioned—although others also on the economic side, such as the Treasury and BEIS—perhaps should be there to set the parameters of what needs to be referred. I think that, as a sort of preliminary filter, one would hope that there was an ability for most companies, and most universities as well, very quickly to put forward the deals or the pieces of work that they felt might be coming up against the parameters set by such a Government body.

For a quick decision, is the topic one that is suitable, or does it need a little more investigation? Should we be working with this organisation, or in some cases this particular Chinese academic or company, which may have links to the military or to the repressive regime? The experts, as it were, which means the SAGE-type committee, surely should be very quickly—companies and academics need to move quite quickly—making a preliminary estimation of whether this needs to be referred upwards to a Government Committee that wants to look at it in more detail.

I do agree with you that the range of interests needs to be representative if the decision is to be perceived by all sides as acceptable when it is eventually made.

--- Later in debate ---
Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

Q Absolutely. I appreciate the response and I would like details of the Soviet case of the military-industrial complex that was dismantled, which you mentioned. That would be interesting to compare.

You have talked about the relationship between the military-industrial complex, in the case of Russia, and economic development, specifically in the case of China. We have essential industries that are critical to our economy and there has been concern that BEIS is going to be overseeing the security implications. Where we have industries and technologies that are critical for national security, they are also critical for our economic security, so our national and economic security end up being linked. You have talked about some of those links in the case of Russia and China. How can we reflect those links effectively in the Bill? Do we need structures within BEIS, or outside BEIS, to identify and reflect the overlap between economic and national security?

Sir Richard Dearlove: This is a really difficult question. I am expressing the problem, not the solutions. You have to bear in mind that I spent my life as a poacher, not a gamekeeper, so my view of these problems is mirror imaging. I was an offensive intelligence officer, not a defensive one. I spent my life trying to penetrate Chinese intelligence, if you see what I mean.

The problem is much bigger than just national security; that is one of the difficulties. It leaches into the whole future of our economic competition with China. I do not like to talk about it, but some people use the phrase “a new cold war”. I do not subscribe to that. We have to find some other way of talking about this. They are very serious competitors who are beginning to edge along the path of enmity in the way they treat us on some issues—witness Hong Kong at the moment—so you have to have some sort of flexible scrutiny arrangement.

The reason this is so difficult to comprehend is that areas like climate change and energy policy, which are national security issues but not right on the frontline, are so big that, I think, China has a pretty disturbing agenda for us. They will encourage us to follow policies that they think are disadvantageous to our economy.

If you take their statements on things like climate change, which is relevant to what we are talking about, China is going to go on increasing its carbon emissions up until 2030, if we look at the figures and understand its policies. China is going to completely miss out renewables. When it has generated enough wealth and success in its economy, it is going to jump from carbon energy straight to nuclear and hydrogen. It will have the wealth and the means to do that. Renewables for the Chinese are going to be rather peripheral, because they will not generate the energy intensity that the Chinese economy requires. China has a road map in its head that is really rather different from ours and there is no question but that, competitively, our green agenda is going to put us at an even greater disadvantage to China, if you take a 30-year view of that.

There are some very worrying aspects of this. That means that if we are gaily allowing the Chinese to walk off with all sorts of bits of our economy, we are going to pay possibly a pretty high price for that over a long period. We need to take a strategic view of this. China certainly has a strategy, and at the moment we do not really have a strategy. We are beginning to realise that we have to have one, and maybe this Bill is a healthy first step in that direction.

You will need sub-committees of some sort, with flexible thinking and experts to advise on where these problems lie. The difficulty is also that we do not want to ruin our economic relationship completely with China. We still need to partner with it in areas that are advantageous to us and our economy as well.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

Q The Bill provides for an annual report to Parliament, Sir Richard. What is your view on balancing transparency and ensuring Government can take national security decisions sensitively? Where does that balance lie in terms of our ability to be as transparent as we can without harming sensitivities around these decisions?

Sir Richard Dearlove: My view would be that the annual report has as much transparency as possible, but you are probably going to require a secret annexe from time to time. It is a bit like the reports of the Intelligence and Security Committee, which I dealt with frequently as chief. They and we were keen that they should publish their reports, but there comes a point where it is not in our national interest that some of this stuff is put in the public domain. I would be pretty clear cut on that.

None Portrait The Chair
- Hansard -

I call Peter Grant, who will be behind you, Sir Richard, because of the social distancing rules we have in Committees.

National Security and Investment Bill

Nadhim Zahawi Excerpts
2nd reading & 2nd reading: House of Commons
Tuesday 17th November 2020

(3 years, 5 months ago)

Commons Chamber
Read Full debate National Security and Investment Bill 2019-21 View all National Security and Investment Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts
Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
- Hansard - -

It is a pleasure, as ever, to follow the hon. Member for Newcastle upon Tyne Central (Chi Onwurah). I thank all hon. Members who have spoken in this important debate. We have had upwards of 25 speeches, all of which were thoughtfully delivered. I also thank the shadow Secretary of State, the right hon. Member for Doncaster North (Edward Miliband), for his constructive approach to this important piece of legislation. I will aim to respond to as many points made by hon. Members as possible, but I will, of course, write in response to individual questions as well.

I begin by responding to the points of the right hon. Member for Doncaster North and the hon. Member for Newcastle upon Tyne Central, who both raised the grounds for intervention when it comes to the legislation. The legal texts in the Bill are explicit in their reference to national security rather than public interest or wider economic considerations. The hon. Member for Newcastle upon Tyne Central mentioned the particular deal with DeepMind and Google. If it is deemed that the asset is so important to national security—it does not matter who the acquirer is—the Bill would allow us to intervene and block that acquisition.

I have to be clear to the House today that any action the Secretary of State takes under the proposed regime would be to protect national security and not for wider economic or industrial reasons. I am sure that the right hon. Member for Doncaster North will look forward to the industrial strategy refresh that the Secretary of State is committed to publishing in the first quarter of 2021.

To address the point made by my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton), we already have a proportionate public interest power on the statute book, and most recently we have legislated to allow intervention for mitigating the effects of public health emergencies. The right hon. Member for Doncaster North and the hon. Member for Newcastle upon Tyne Central also asked about the engagement with Government. The investment security unit will ensure that clear guidance is available to support all businesses engaging with investment screening from the outset. We have made it clear to the investment community that we are committed to effective engagement with businesses on the regime itself, and to ensuring that they are able to access a dedicated, simple online portal to notify us of any potential transaction. Of course, we note the importance of a full Government approach to investment screening. While the unit will be based in BEIS—this point was made by the right hon. Member for North Durham (Mr Jones) when he talked about the ISC—it will work closely with the security agencies and other Departments with real sector expertise. The chief executive of Make UK, Stephen Phipson has recognised this point, saying: “Technology development moves at fast pace and this Bill will modernise the UK’s approach in a proportionate way, given the Government’s commitment to a quick and streamlined process of evaluation.”

More widely, I am happy to meet any hon. and right hon. Member who has today expressed an interest in the workings of the investment security unit. The right hon. Member for Doncaster North also raised the role of the Intelligence and Security Committee, as many other colleagues have done today, and we will of course work constructively with its members and, indeed, with other Committees across the House. I wish the Chair of the Committee, the right hon. Member for New Forest East (Dr Lewis), well, and I would like to thank the other members of the Committee who spoke today. The contributions from the hon. Member for Dundee East (Stewart Hosie), the right hon. Member for North Durham, my hon. Friend the Member for The Wrekin (Mark Pritchard), my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) and my hon. Friend the Member for Beckenham (Bob Stewart) were typically excellent and well-informed.

The right hon. Member for Doncaster, North, along with the hon. Member for Bristol North West (Darren Jones), also raised the issue of the five-year period for retrospection. We have come to that view because six months would simply be too short, and we have looked at what other countries have done. It would be relatively easy for hostile parties to keep a trigger event quiet for six months and time us out, but that will be substantially more difficult in a five-year period.

John Hayes Portrait Sir John Hayes
- Hansard - - - Excerpts

I am extremely are grateful to the Minister for his comments about the members of the ISC who have contributed to the debate. Given the range of questions posed to him by ISC members, will he commit to write to the Committee formally to pick up those points, so that the Committee has a clear set of answers to the series of questions posed? It would not be fair to expect him to deal with all of them now.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

I can certainly give my right hon. Friend that commitment; I will do that.

My right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith), my hon. Friend the Member for Isle of Wight (Bob Seely) and the hon. Member for Oxford West and Abingdon (Layla Moran), who is not in her place, probed on the definition of national security. A number of hon. Members have argued that the definition of national security is too narrow. I would gently point out that the Bill does not seek to define it at all, as some other Members have quite rightly argued, including, very wisely, my hon. Friend the Member for Beckenham. I think that is a real strength of the Bill, not a weakness. It means that the Government have the flexibility to act as risks change over time. The statement of policy that was published last week refers to espionage, disruption and destruction and inappropriate leverage. Those are examples of national security, not the exhaustive content of it. We need to maintain a degree of flexibility in our approach, as my hon. Friends the Members for Wantage (David Johnston) and for Beckenham recognised. I appreciate that these are quite important powers, and of course they are fully justiciable under the Bill. Hon. Members can feel secure knowing that their use, including the application of national security, can be fully tested in closed courts if necessary.

The Chair of the Science and Technology Committee, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), and my hon. Friend the Member for The Wrekin expressed concerns that these reforms will somehow threaten investment in small tech firms. I again remind the House that we estimate that the vast majority of transactions across the economy will not be affected by this legislation, and we do not expect to take action in relation to most of the small number that are notifiable. We will make any interactions with the Government simpler, quicker and slicker by providing clearance to most transactions within 30 days, and often quicker. Notifiable investments will be submitted through a new digital portal. At the spring Budget, the Government committed to increase public spending on R&D to £22 billion, which I think is music to the ears of many innovators in our country.

My right hon. Friend the Member for Tunbridge Wells and my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) made the important point that the Bill does not set out a minimum size of business affected by the regime. As the Secretary of State set out, the threats we face today do not correlate to the size of the parties concerned, as they perhaps once did. This is unfortunately the world we live in. I am glad that we live in a country in which small and medium-sized businesses thrive so mightily and are often at the vanguard of cutting-edge technologies, but it is only right that the Government have flexible powers to intervene when the acquisition of such businesses may pose a risk to our national security.

My hon. Friend the Member for Isle of Wight, the hon. Member for Bristol North West (Darren Jones) and the right hon. Member for North Durham (Mr Jones) raised the issue of supply chains. The covid pandemic has demonstrated the importance of resilience in supply chains to ensure the continued flow of essential items to keep global trade moving. We have focused on ensuring supply chains for goods such as PPE. When we entered the pandemic, only 1% was manufactured in the UK; it is now about 70%. That is why we are looking at what other steps we can take to ensure that we have diverse supply chains in place. We will consider all our global supply chains to avoid shortages in the event of future crises.

My hon. Friend the Member for Tonbridge and Malling, my right hon. Friend the Member for South Holland and The Deepings and the hon. Member for Dundee East also probed the assessment process. We will make any interaction with the Government much simpler, quicker and slicker, and I am very happy to share how we are doing that.

The Chair of the BEIS Committee, the hon. Member for Bristol North West, probed our approach to sectors. It is important for the regime to reflect technological change and keep up with the investment landscape. We welcome views from across the business community on our sector consultation, and officials from across Government are already engaging with the sectors’ experts to ensure that those definitions are tight.

In the time that I have left, I want to tackle the issue of human rights. My hon. Friends the Members for Isle of Wight and for Totnes (Anthony Mangnall), and the hon. Member for Oxford West and Abingdon raised the issue of human rights, particularly in relation to Xinjiang and the Uyghur people. We take our responsibility incredibly seriously and are concerned about gross violations of human rights being perpetrated against the Uyghur Muslims and other minorities in Xinjiang. We have played a leading international role in holding China to account on these abuses and we will continue to do so through the UN and other opportunities that we have. In respect of the risk of UK business complicity in human rights violations, including forced labour, we have urged all UK businesses to conduct due diligence on their supply chains and are taking steps to strengthen supply chain transparency.

In conclusion, we have had an excellent debate today and I again thank right hon. and hon. Members for their contributions. I look forward to further probing the Bill and getting it right together in Committee.

Question put and agreed to.

Bill accordingly read a Second time.

National Security and Investment Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the National Security and Investment Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 15 December 2020.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and up to and including Third Reading

(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No.83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(David Duguid.)

Question agreed to.

National Security and Investment Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act arising from the National Security and Investment Bill, it is expedient to authorise:

(1) the payment of sums out of money provided by Parliament of any expenditure incurred under or by virtue of the Act by the Secretary of State, and

(2) the payment of sums into the Consolidated Fund.—(David Duguid.)

Question agreed to.

Business, Energy and Industrial Strategy

Nadhim Zahawi Excerpts
Thursday 12th November 2020

(3 years, 5 months ago)

Ministerial Corrections
Read Full debate Read Hansard Text Read Debate Ministerial Extracts
The following is an extract from the debate on the coronavirus business interruption loan scheme on 5 November 2020.
Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

The Government acknowledge that access to debt finance is important, but it can only form part of our approach to supporting businesses through this period. We have already provided the devolved Administrations with unprecedented up-front funding guarantees, so that they have the certainty they need to decide how and when to provide support. The funding guarantees to the Scottish Government are worth £7.2 billion, to the Welsh Government £4.4 billion, and to Northern Ireland £2.4 billion.

[Official Report, 5 November 2020, Vol. 683, c. 559.]

Letter of correction from the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Stratford-on-Avon (Nadhim Zahawi):

An error has been identified in my response to the hon. Member for Midlothian (Owen Thompson).

The correct response should have been:

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - -

The Government acknowledge that access to debt finance is important, but it can only form part of our approach to supporting businesses through this period. We have already provided the devolved Administrations with unprecedented up-front funding guarantees, so that they have the certainty they need to decide how and when to provide support. The funding guarantees to the Scottish Government are worth £8.2 billion, to the Welsh Government £5 billion, and to Northern Ireland £2.8 billion.

Oral Answers to Questions

Nadhim Zahawi Excerpts
Tuesday 10th November 2020

(3 years, 5 months ago)

Commons Chamber
Read Full debate Read Hansard Text Read Debate Ministerial Extracts
Bill Esterson Portrait Bill Esterson (Sefton Central) (Lab)
- Hansard - - - Excerpts

What recent assessment he has made of which business sectors have been most affected by the covid-19 outbreak.

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

We know that many areas of the economy face challenges, as we have just heard, especially in sectors that have closed under new national restrictions, such as hospitality. That is why we have extended the coronavirus job retention scheme to March and provided an unprecedented support package to businesses and to workers.

Bill Esterson Portrait Bill Esterson
- Hansard - - - Excerpts

Many working people have been excluded since March. They do not qualify for furlough; they do not qualify for the self-employed scheme; and their businesses do not qualify for the grants. It is no good the Government giving the mantra about universal credit. It will not wash, because most people who have been excluded do not qualify for universal credit. The Government were right to U-turn over the injustice facing hungry children, so when will they fix the growing injustice faced by millions of excluded people in this country who just want to put food on the table for their children?

Nadhim Zahawi Portrait Nadhim Zahawi
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The Government have put forward a comprehensive package of support, as we heard from the Secretary of State, for both individuals and businesses. The self-employed income support scheme has also been extended. The support package is not only about the welfare system, which has had an additional £9 billion put into it to help people, but about the bounce back loans, the tax deferrals and the rental support, which are all important parts of it, as well as mortgage holidays and other business support grants through local government.

Lucy Powell Portrait Lucy Powell (Manchester Central) (Lab/Co-op)
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Today’s unemployment figures are a sobering reminder of the scale and pace of the economic crisis now upon us. It is becoming increasingly clear that, despite the Government’s initial early action, their slowness and constant indecision are making the jobs crisis worse. Will they now get ahead of the curve, as France, Germany and Spain have done, not only to protect our key industries such as aerospace and automotive, but to bring forward an ambitious plan for their green renewal at a scale and pace to match the crisis? As we are seeing at Rolls-Royce and elsewhere, once decent jobs go, they are gone for good; and communities across the north and midlands can ill afford to lose them.

Nadhim Zahawi Portrait Nadhim Zahawi
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The hon. Lady makes an important point about the labour market statistics released this morning. The Government are committed to helping the most vulnerable, as was demonstrated with the £2 billion kickstart scheme for young people, who have in many ways been heavily impacted by the challenge of covid. She will see from this Government a green industrial strategy. As the Secretary of State has already set out—judge us by what we do—36% of the world’s offshore energy is produced by this country, and we will go much further.

Anna McMorrin Portrait Anna McMorrin (Cardiff North) (Lab)
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What steps his Department is taking to reduce the use of dismiss and re-engage tactics by employers.

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Tom Hunt Portrait Tom Hunt (Ipswich) (Con)
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What steps his Department is taking to support businesses during the covid-19 outbreak.

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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My Department continues to deliver a wide range of measures to support UK business. We have extended our loan schemes across the board, which have already delivered over £62 billion of finance, until the end of January, and the new local authority grants will also offer further support to businesses affected by the national restrictions.

Nickie Aiken Portrait Nickie Aiken
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I thank the Minister for his reply. During this second lockdown, many of us are likely to find comfort in reading. My constituent David Campbell, who runs Everyman’s Library, has written—with the backing of over 20 leading authors, including Salman Rushdie, Simon Jenkins and Sebastian Faulks—to the Prime Minister asking that books be considered an essential item for sale during the current restrictions. Does my hon. Friend agree that, to support small businesses during the covid-19 crisis, it would be preferable that local independent shops, which are based in the heart of their local communities and often employ local people, remain open and secure sales, rather than a global internet brand?

Nadhim Zahawi Portrait Nadhim Zahawi
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My hon. Friend makes an important point. It is a very difficult decision that we have grappled with. Independent bookshops are of great importance to local communities, with books playing a vital role in people’s mental health and wellbeing. The decision to close non-essential retail is part of a wider package of measures to make it clear that people should stay at home and accept this for a limited period of time. Of course, bookshops can offer delivery and click-and-collect services, which I am sure that her constituent, David Campbell, is probably considering.

Julian Sturdy Portrait Julian Sturdy [V]
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The Government’s new support measures for businesses provide a genuine lifeline. However, support to stay closed is not the long-term answer, and many will only remain viable if they can be open as normal for the pre-Christmas season. May I ask what the Minister is doing to urgently lobby Government and the Prime Minister on the necessity of keeping businesses going and getting them reopened from 2 December, including in hospitality, which is so important to a city like York?

Nadhim Zahawi Portrait Nadhim Zahawi
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My hon. Friend makes a very powerful point, and I absolutely agree with him. This is not the long-term answer, and I fully appreciate that retailers across England will be desperate to reopen in time for the important Christmas trading period. The regulations, as the Prime Minister said, will expire on 2 December, and we will return to the local restrictions thereafter—the tiered system. Of course, Ministers and officials are regularly engaging across Government, including my colleagues in BEIS, to ensure the sector can reopen safely on 2 December.

Ben Spencer Portrait Dr Spencer
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I thank the Minister for his answer: financial support for businesses is such a lifeline at this time. Speaking to businesses across the spectrum in Runnymede and Weybridge—from those in the wedding sector to logistics and corporate events—they tell me that one of the biggest challenges they face is uncertainty around planning for the next six months to a year. Does my hon. Friend agree with me that one of the best supports for business we can give is a long-term plan for how we deal with and get out of the covid pandemic?

Nadhim Zahawi Portrait Nadhim Zahawi
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I am grateful for my hon. Friend’s question. The current restrictions will expire on 2 December. After those restrictions have expired, we intend to return to the tiered system, as I just mentioned on an earlier question. Of course, we have to make sure that businesses have that clarity, hence why the Chancellor extended the furlough scheme all the way to the end of March for businesses. The British Chambers of Commerce made it very clear to me a few days ago in a phone call that that was incredibly important help at the right time.

Tom Hunt Portrait Tom Hunt
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The Arcade Tavern is one of the most popular pubs in Ipswich. It has insurance against income loss because of notifiable diseases, but its insurers, New India, is refusing to pay out, blaming the Government for the loss of income. This has left the business fighting this pandemic and for the money that it is entitled to. Will my hon. Friend assure me that the Government will look unfavourably on insurers that do not honour their contracts and that this is not the case of the little man being stitched up? I have the letter right here, so I am happy to share it with him after this.

Nadhim Zahawi Portrait Nadhim Zahawi
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I will happily look at the letter, and it sounds incredibly concerning that any insurer would act in this way. Pubs, of course, are a valuable part of many local communities across the country. We are in continual dialogue with the insurance sector regarding its response to this unprecedented situation. I will happily look at the letter and the details of my hon. Friend’s case.

Ruth Jones Portrait Ruth Jones (Newport West) (Lab)
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What steps he is taking to support the development of marine renewable energy.

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Dan Poulter Portrait Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)
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What plans he has to help ensure adequate Government scrutiny of the Sizewell C nuclear power station development consent order application.

Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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The Planning Inspectorate’s examining authority will robustly examine the application for the proposed Sizewell C nuclear generating station. The Secretary of State will then give careful consideration to the examining authority’s report and recommendations, before taking a final decision.

Dan Poulter Portrait Dr Poulter [V]
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Undoubtedly, Sizewell C can bring many benefits to Suffolk in terms of increased employment opportunities, and it is an important part of decarbonising and improving our energy security. However, it is not a case of Sizewell C being built at any cost, and many people in Suffolk have concerns about the failure of EDF properly to engage with the consultation process. More than 50 outstanding concerns have been raised by Suffolk County Council. What reassurances can the Minister provide to me and my constituents, particularly those in the Wickham Market and Hacheston areas, that EDF will be held to account, will properly engage with the consultation, and will implement the changes that are needed to improve road and rail infrastructure?

Nadhim Zahawi Portrait Nadhim Zahawi
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My hon. Friend makes a powerful point and his message has been heard clearly. I reassure him that proposals for mitigating the potential impact of Sizewell C will be considered during the examination of the development consent application, and local people and local bodies, such as the county council, will have the opportunity to make representations. The Secretary of State will then thoroughly examine and consider the recommendations from the Planning Inspectorate, which will be submitted to him following that examination. I give my hon. Friend that guarantee.

Felicity Buchan Portrait Felicity Buchan (Kensington) (Con)
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What steps his Department is taking to help achieve the net zero emissions target by 2050.