National Security and Investment Bill (Ninth sitting)

Debate between Nadhim Zahawi and Stephen Flynn

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

[Nadhim Zahawi]

I am grateful to the hon. Gentleman. I intend to speak first to clause 24 stand part and then turn to amendment 23. Clause 24 concerns the Secretary of State’s information-gathering powers in clause 19 and his power to require the attendance of witnesses in clause 20, with the requirement that national security assessments are completed within a defined period, which appears in clause 23.

Clause 24(4) ensures that the clock is stopped on the assessment period while the Secretary of State waits for information or for the attendance of witnesses, as required through the issuance of the relevant notices. That helps to avoid the Secretary of State being timed out of properly assessing a case simply because someone fails or refuses to provide information or to attend to give evidence.

Amendment 23 seeks to require that the annual report, provided for in clause 61, includes additional information relating to how often subsection (4) is engaged. In particular, it seeks to require the Secretary of State to include the aggregate number of days on which the clock is stopped as a result of the Secretary of State awaiting the provision of information through clause 19 or the attendance of a witness through clause 20. It also seeks to include the number of call-in days, and the number of times information notices are given for each call-in.

Our response has three parts, though the Committee will be relieved to hear that each part is distinctly and deliberately brief. First, clause 24(4) is entirely necessary to help to ensure that the Secretary of State is not timed out. Secondly, clauses 19(1) and 20(1) stipulate that the requirements to provide information or evidence must relate to the Secretary of State’s functions under the Bill. In this context, that means that they have to be relevant to assessing the trigger event and making a decision on it.

The Secretary of State will furthermore need to comply with public law duties when issuing an information notice or attendance notice, which would preclude him from doing so for an improper purpose, not that he would ever contemplate such a thing. A decision to issue a notice would also be subject to judicial review. There are therefore appropriate legal safeguards on the use of information notices and attendance notices. Finally, clause 61 does not preclude the Secretary of State from publishing such information should it later prove a helpful metric for assessing the regime.

[Stephen Flynn (Aberdeen South) (SNP)]

I have a great deal of sympathy for the amendment, but I am conscious that the Minister is unlikely to agree to it, given what he has said. Bearing that in mind, the detail that is being asked for is probably quite straightforward. I would like this on the record: were a Member to ask for such information, would the Department be willing to provide it in the future, notwithstanding the fact that the amendment will likely be defeated?

[Nadhim Zahawi]

I am grateful to the hon. Gentleman for his ingenious attempt at augmenting this excellent Bill, but for the reasons I have just set out I see no grounds for including the amendment. I therefore ask the hon. Member for Southampton, Test to please withdraw it.

National Security and Investment Bill (Tenth sitting)

Debate between Nadhim Zahawi and Stephen Flynn

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

[Stephen Flynn (Aberdeen South) (SNP)]

[Nadhim Zahawi]

National Security and Investment Bill (Tenth sitting)

Debate between Nadhim Zahawi and Stephen Flynn

Committee stage
Tuesday 8th December 2020 Public Bill Committees

[Stephen Flynn (Aberdeen South) (SNP)]

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]

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.

National Security and Investment Bill (Sixth sitting)

Debate between Nadhim Zahawi and Stephen Flynn

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

[Stephen Flynn (Aberdeen South) (SNP)]

I beg to move amendment 13, in clause 6, page 5, line 3, at end insert—

“(10) Notifiable acquisition regulations must be reviewed one year after they are made, and at least once every five years thereafter.”

This amendment would require notifiable acquisition regulations (including which sectors are covered) to be reviewed one year after they are made, and once every five years thereafter.

It is a pleasure to see you in the Chair once again, Sir Graham. As things stand, I think it is probably a fair assessment, based on what we have heard, that perhaps if the Government had their time again they might have been able to bring forward a consultation in relation to which sectors will be linked to the Bill once it is on the statute book.

I think that a disappointing approach has been taken. It could have been done in a much more constructive manner. The purpose of the amendment is to try to highlight that the issue is a real one, and to highlight the scale and scope of the sectors. As we talked about, there is perhaps concern about whether a specific sector goes far enough. For instance, does artificial intelligence look properly at the role of social media? Does the infrastructure tie into social media in any way, shape or form? There are other examples of that too. Having the review after a year would perhaps allow the Government to be a little more certain about where their priorities lie, and to provide additional certainty to businesses in what is an ever-moving landscape. National security is, of course, an ever-evolving issue, as we have heard passionately from a number of Members.

I will keep my remarks succinct. The amendment is about tightening things up and removing the difficulties that are being caused by the lag between the Bill and the consultation, and doing so in a constructive fashion to try to assist the Government.

[Nadhim Zahawi]

To discuss this amendment, I believe it would be helpful to revisit briefly the role of notifiable acquisition regulations under the regime. A key part of the Bill is the ability it affords the Secretary of State to make acquisitions of certain shares or voting rights in certain entities—notifiable acquisitions, meaning they must be notified and cleared by the Secretary of State before they can take place. Those types of entity are to be specified in regulations by the Secretary of State and the Government have published a consultation on the definitions of those types of entity, which fall within 17 key sensitive sectors of the economy that we propose to initially be covered by the mandatory notifiable regime.

The regulation-making powers in the clause are the best and most proportionate way to enable the Secretary of State to change over time what does and does not constitute a notifiable acquisition. That is crucial for two main reasons. First, it would not be the right approach to set the types of entity covered by mandatory notification and their definitions in stone, forever, in 2020. We all know how difficult this year is. The Secretary of State must be able to update them, in some cases rapidly, as the threats we face evolve and to keep pace with technological development.

Secondly, the Secretary of State must be able to react to the operation of this regime in practice. While the Bill does not include a white list that exempts specific acquirers from the mandatory regime, we have been clear that we will monitor closely the volumes and patterns of the notifications made to the Secretary of State. It may emerge over time, for example, that acquisitions by institutional investors and pension funds are routinely being notified but very rarely remedied or even called in. Such evidence could build the case for using the powers in this clause to make exemptions to the definition of a notifiable acquisition, on the basis of the characteristics of the acquirer.

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[Nadhim Zahawi]

It is therefore right that the Secretary of State keeps a constant watch on the regulations. Indeed, it is vital that he has the flexibility to re-assess and, if needed, seek to update the regulations as soon as is needed, while taking a proportionate approach that gives as much stability to business and investors as possible. Ensuring this vital timeliness and balance means it would not be appropriate to impose particular requirements on when and how frequently the Secretary of State should review the powers, so I cannot accept the amendment. However, I agree wholeheartedly with the hon. Member for Aberdeen South that keeping the regulations up to date and proportionate is of the utmost importance, and I can assure him that that is what the Secretary of State will do.

[Stephen Flynn]

I will certainly take that assurance from the Minister in the spirit in which it is given, but that is probably as far as that will go. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Nadhim Zahawi]

Clause 6 defines the circumstances covered by mandatory notification. The Bill calls them notifiable acquisitions, on the basis that they must be notified and cleared by the Secretary of State before they can take place. The Government have looked carefully at investment screening regimes around the world, in particular those of our Five Eyes allies and other security partners. Common among them all is the inclusion of a mandatory notification component to ensure that the most sensitive transactions must be actively considered and receive clearance by the relevant authority before they can take place. We have concluded that that is the right step for the United Kingdom to take as well. That reflects our developed view that the Government must have greater assurance that certain acquisitions in the most sensitive sectors, including both the national infrastructure sectors and certain advanced technology sectors, are safe to proceed.

National Security and Investment Bill (Second sitting)

Debate between Nadhim Zahawi and Stephen Flynn

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

[Nadhim Zahawi]

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]

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.

Oral Answers to Questions

Debate between Nadhim Zahawi and Stephen Flynn

Tuesday 21st July 2020 Commons Chamber

[Stephen Flynn (Aberdeen South) (SNP)]

What discussions he has had with the Chancellor of the Exchequer on increasing support for businesses in Scotland.

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

The Secretary of State and I hold regular discussions with the Chancellor of the Exchequer on the issue of business support, including on the schemes available to support Scottish businesses affected by the covid-19 pandemic.

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[Nadhim Zahawi]

I have weekly calls with my counterparts in the devolved Administrations, including the Minister for economy and fair work in Scotland. The most successful market is the UK internal market—that is without doubt. That is what the Scottish Government should support. It is a shame that my officials, working with officials from Northern Ireland and, of course, Wales, can move forward, yet the Scottish Government chose to withdraw their officials back in March. I urge my colleague from the SNP to ask the Scottish Government to reintroduce those officials to the system. We would thrive as a United Kingdom.

[Stephen Flynn]

To protect and rebuild the local economy of Aberdeen and the north-east of Scotland, we need huge investment from the UK Government in the hydrogen economy, carbon capture and underground storage, and an energy transition zone all through an oil and gas sector deal. Will the Minister confirm that his Government intend to sign off an oil and gas sector deal this calendar year—yes or no?

[Nadhim Zahawi]

It is a manifesto commitment of this Government to deliver an oil and gas sector deal, and we are working with the sector. My brilliant colleague, the Minister with responsibility for energy, has been engaging constantly with the sector to ensure it can take the opportunities that are before it in offshore wind generation and all sorts of other areas. Of course, hydrogen will be incredibly important to the energy White Paper, which we will publish in the autumn, as the Secretary of State set out.