Peter Grant debates involving the Department for Business, Energy and Industrial Strategy during the 2019 Parliament

Draft National Security and Investment Act 2021 (Monetary Penalties) (Turnover of a Business) Regulations 2021 Draft National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021

Peter Grant Excerpts
Wednesday 20th October 2021

(5 days, 22 hours ago)

General Committees

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Department for Business, Energy and Industrial Strategy
Chi Onwurah Portrait Chi Onwurah (Newcastle upon Tyne Central) (Lab)
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It is a great pleasure to serve under your chairship, Sir George, to consider these two pieces of legislation.

As the Minister said, these regulations are made under the National Security and Investment Act 2021. I thank the Minister for setting out some of the background to that Act. During the passage of that legislation through Parliament, I was clear, as were colleagues, that the Government need new powers to deal with evolving national security threats in corporate transactions. Labour supported the legislation because it was legislation demanded by Labour, and we support these SIs too, as they are critical to the effective functioning of the new investment-screening regime.

I will say something about each of these SIs in turn, starting with the turnover of a business regulations. As the Minister has set out, this relates to the civil monetary penalties that the Secretary of State can impose under the new regime. Section 41 of the Act sets out the maximum fixed penalty and, where applicable, the maximum daily rate penalty that may be imposed. Where a business commits an offence, the maximum fine is the higher of 5% of global turnover or £10 million. I do not recall intellectual property or other assets being referenced in the Act.

Section 41 also enables the Secretary of State to make regulations specifying how the maximum penalties applicable to business should be calculated and to amend the maximum penalty amounts or percentage rates. The SI is made under section 41(8) and 41(9) of the Act and does three things: it clarifies that, for the purposes of penalties, businesses include sole traders; provides a statutory definition of where one business controls another; and establishes the test for determining the turnover of a business for the purpose of calculating maximum penalties.

We support the principle that the new regime should be underpinned by robust enforcement mechanisms, and it is important that the Secretary of State has the relevant powers to punish and deter non-compliance with the regime. However, such penalties make the need for clarity and certainty even more important.

During the Committee stage of the Act, I asked whether the monies received by the Department for Business, Energy and Industrial Strategy from the payment of penalties could be put towards a specific purpose, rather than going into the general Consolidated Fund. I urge the Government to think about that again. Would it not be fantastic if this money was, for example, spent on supporting our great innovators and start-ups to further build on our domestic resilience in these sectors?

I turn to the specification of qualifying entities regulations, which establish descriptions of qualifying entities for the purposes of section 6 in the Act. In other words, this SI defines the sectors that will fall under the scope of the mandatory regime. A notifiable acquisition takes place when a person gains control of a qualifying entity of a specified description. As Members will know, a buyer must give notice to the Secretary of State before making a notifiable acquisition in one of the 17 sectors, so the responsibility falls on the buyer to understand whether the acquisition it is contemplating is notifiable.

As the Minister set out, the definitions contained in the 17 schedules have been refined in response to stakeholder feedback following earlier consultations on the scope and definitions of the 17 sectors from November 2020 to January 2021. This led to important changes in all 17 sectors. For example, the scope of the mandatory regime within the artificial intelligence sector has been significantly narrowed to focus on only three higher-risk applications: the identification of objects, people and events, advanced robotics, and cyber security.

We welcome the fact that the Government have continued their consultation with business and wider stakeholders to refine the mandatory sector, but there is a lack of transparency in who has been involved and what the impact has been. I think it would benefit the Committee if the Minister described how the key changes made by this statutory instrument differ from the draft definitions published in March 2021, and why those changes have been made. For example, the reference to “Critical Suppliers to the Emergency Services” sector in the March proposals has become “Suppliers to the emergency services”, and the definitions of goods and services used by the emergency services have also been amended. Can he set out why those changes have been made? We see that changes have been made, but we do not know who has been consulted. It would be helpful to understand what changes have been made and why.

The Minister will know that there remain concerns about the definitions. The BioIndustry Association, which focuses on synthetic biology, has said most recently, so after the consultation, that:

“Synthetic Biology is defined too broadly in the legislation, meaning companies developing medicines and technologies with no national security implications will be captured. This risks imposing a long, unnecessary process for biotech to receive funding and could deter investment in the sector, and subsequently the development of medicines for patients.”

The Minister spoke about the level of consultation without giving specifics on how many businesses had been consulted. The BIA goes on to say:

“It is important that the new regime works well and is effective. Even once the regime commences, the BIA encourages the Government to listen to industry about how it is being perceived.”

I would be grateful if the Minister gave some indication of how he intends to continue engagement with industry and business on these issues.

There is a lack of transparency on the consultations that have led to these amendments, so can the Minister confirm what engagement he has had specifically with small businesses and organisations that represent small and medium-sized enterprises? As he will know, the Act’s impact assessment notes that 80% of transactions within the scope of the mandatory regime will involve SMEs. SMEs are the lifeblood of our economy, and it is from the growth of SMEs that we hope to build back not only better but more sustainably and fairly. That is why Labour has consistently called for SMEs to be consulted by the Government, listened to and provided with comprehensive guidance on how to navigate this new regime.

Staying with the question of guidance, I note that to date the Department for Business, Energy and Industrial Strategy has published only one piece of sector-specific guidance, for the higher education and research-intensive sector. In the Bill Committee, I and my hon. Friends repeatedly highlighted the importance of prompt and accessible guidance so that firms operating in the relevant sectors understand whether their businesses are affected.

I say to the Minister directly that, based on conversations I have had with stakeholders—including university research departments and university start-ups, but also investment and equity finance organisations, and indeed law firms—there remains significant confusion as to who may be impacted by these regulations, and indeed by the Act. That is seen as having a chilling impact on foreign direct investment in this country and—something we raised in the Bill Committee—as a job creation scheme for lawyers. Many legal firms are already setting up workstreams to address that but, as we all know, small and medium-sized enterprises do not have the benefits of large legal firms, so not to provide the kind of guidance that we have asked for is putting such enterprises at a huge disadvantage.

Will the Minister therefore confirm what wider sector-specific guidance will be published, and according to what timetable, in advance of the regime coming fully into effect on 4 January? If the regime is to operate effectively, it is critical that businesses understand how to interpret whether their activity falls within the scope of the regulations. I suggest to the Minister that he needs to do more on this over the next 12 weeks, if we are to ensure—as I emphasise yet again—that small and medium-sized enterprises are not unduly and negatively impacted by the regulations.

Before concluding, I want to say something about the important context of the draft SIs. Owing to a weak pound and lower equity prices on the FTSE when compared with other international markets, private equity firms are acquiring UK companies at the fastest rate since 2008. Unprecedented levels of dry powder mean that that is only set to continue.

The Act gives the Secretary of State the power to call in transactions across the economy, not just in the 17 mandatory sectors where that decision has given or may give rise to a national security risk. Clearly, however, the success of the new regime in protecting our national security interests, such as in the supply chain, is dependent on the Secretary of State’s willingness to use his new powers. The indications are not good.

To take Morrisons, for example, it is a much loved British company, which has been rooted in communities up and down the country for more than 100 years. It is the second-largest fresh-food manufacturer in the UK, supporting thousands of farmers across the country. That is why my right hon. Friend the Member for Doncaster North (Edward Miliband) and others have been clear for months that Morrisons is also of strategic importance to the country’s food security. Labour is clear that food security is an essential part of national security, and yet there is no indication that the Secretary of State has considered the impact of that transaction on the country’s food security.

Labour supports the two draft SIs, which will play an important role in shaping the scope of the new regime and the consequences when the rules are not followed. Labour is calling for greater transparency and greater guidance to support our small and medium-sized enterprises. We are aware that the public will be watching closely how the Government use their powers under the Act to protect our vital national interests.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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It is a pleasure to serve under your chairmanship, Sir George.

I, too, will support the draft regulations, but I have a couple of points for the Minister to pick up on in his summing up. First, on the turnover of a business regulations, he said earlier that they had been drafted to prevent a business from moving its turnover out of the reach of United Kingdom legislation. Is he completely satisfied that the regulations are tight enough to prevent turnover from simply being moved around in a circle between different companies, whether officially in the same group or under the same ownership?

We see that kind of thing happening all the time when a business is about to become insolvent: all the turnover and assets get moved into a business that will continue, and all the debts and liabilities get dumped on the company that is about to go into liquidation. If companies are able to find ways of doing that in order to avoid paying the debts of the liquidated company, they can also find ways of doing it to minimise the financial impact of failing to comply with the regulations. I would appreciate an assurance from the Minister that the loophole that exists in relation to businesses about to put themselves into liquidation will not also be there for businesses that want to understate their turnover to avoid the size of the penalty that they should incur.

My second question is about the Specification of Qualifying Entities Regulations. I am looking in particular at the schedule dealing with data infrastructure, and I do not think that anyone would query any of the designated public sector authorities that are included, but some appear to be missing. It may simply be that I have misheard, or it may be that some of them are included within a wider umbrella designation elsewhere in the list, but, for example, the National Audit Office is there but, as far as I can see, Audit Scotland is not. Audit Scotland does not audit UK Government functions, but it does carry out a lot of public audit work in Scotland; I do not know what the exact arrangements are for Wales and Northern Ireland.

As far as I can tell, the vast majority of local authorities and health authorities are not included. It might not be immediately obvious that the data infrastructure for a health authority could be critical to national security, but if we think first of all about what happens to national wellbeing if that goes badly wrong, and secondly about the data that health authorities hold on every citizen on these islands, it becomes quite clear that we need to protect health authorities from malign foreign influence. On local authorities, we should remember that in most parts of the UK, local authorities are responsible for critical transport infrastructure. Apart from motorways, most of the transport infrastructure is controlled and managed by local authorities, and considering the potential harm to wellbeing—not quite to national security, but certainly to national wellbeing—if something goes badly wrong with the data infrastructure of a social services authority or an education authority, the implications could be quite significant.

Could the Minister perhaps outline what the thinking is, not so much about the authorities being included at this stage, but about the examples that I gave just now—the kinds of public authorities that do not appear to be included? Do the Government intend to keep that list under review? If it becomes obvious that there is an issue with data infrastructure supplies to local authorities, for example, how quick and easy will it be to close that loophole before it can be exploited?

Paul Scully Portrait Paul Scully
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I thank hon. Members from both sides of the room for their valuable contributions. First, let me have another go at responding to my hon. Friend the Member for North East Bedfordshire: turnover does not include stock and assets, but it does include any income that derives from their use. The hon. Member for Newcastle upon Tyne Central raised with my right hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), now Education Secretary, when he was covering this subject in Committee, the question of where the fines go. As she knows, the fines are going to the Consolidated Fund, but none the less, she makes her case powerfully.

In terms of what changes have been made to the definitions since the consultation, the scope of a number of descriptions—communications, critical suppliers to Government, data infrastructure, energy, suppliers to the emergency services, and synthetic biology—was narrowed following the publication of the consultation response, and a few descriptions were amended. For example, in the area of communications, qualifying entities carrying on activities in the UK that related to public communications supply chains were removed from the definition, substantially narrowing the activity of the qualifying entities captured. For critical suppliers to Government, two of the five limbs of the definition set out in the Government response to the consultation were removed, again to narrow the scope of the definition. Those two limbs were the provision of services to facilitate the security of network and information systems, and the guarding of premises to insure against unauthorised access or occupation and against outbreaks of disorder or damage.

In the area of data infrastructure, as was mentioned by the hon. Member for Glenrothes, the Government response to the consultation provided a definition of a public sector authority using the meaning of “contracting authority” in the Public Contracts Regulations 2015. The final regulations revised the definition of a public sector authority to a much narrower list of authorities, set out in a table within the regulations. I understand the hon. Gentleman’s point: I would say that first of all, the purpose of that table is to make sure that the notifications to the Secretary of State are proportionate and balanced. None the less, we will review this SI within three years, rather than the normal five years, to ensure that we lean into this and get it right, to give certainty to businesses and to ensure that we capture the whole gamut of the areas that he raised.

In terms of energy, changes were made to clarify the infrastructure activities carried on in the UK and captured within this description. Suppliers to the emergency services, as the hon. Lady mentioned, and several meanings in the definition, published in the Government response to the consultation, have since been amended and narrowed to provide an objective list of activities, captured for the purposes that require self-identification. The applicability of each activity to each type of emergency service listed has been narrowed to ensure that the activities of qualifying entities, captured by mandatory notification, are as targeted and proportionate as possible.

Finally, on synthetic biology, new paragraph 6 was added to the definition to create exceptions relating to human or veterinary medicines, or immunomodulatory approaches, which is not easy to say.

The hon. Lady also asked who was consulted on this and what was said. We are proactively and extensively engaging across all the relevant sectors. For example, our policy colleagues at the Department for Business, Energy and Industrial Strategy have attended meetings with techUK members, the AI Council, an aerospace, defence, security and space group webinar, and an electricity industry forum. We conducted targeted and extensive engagement with organisations most likely to be affected by the NSI Act, including companies that invest in or acquire entities in the 17 mandatory areas of the economy, and those providing legal or financial advice in UK acquisitions.

We have met and spoken to more than 200 cross-economy organisations through workshops, teaching and presentations, including the Law Society, the Institute of Chartered Accountants in England and Wales, techUK, international investors and UK universities. Tailored communications have been sent out to more than 100 industry bodies in those mandatory areas of the economy, including 70 major law and financial services firms, 36 international investors and 550,000 businesses via Companies House.

Additional care has been taken to ensure that we can reach small and medium-sized enterprises, because the hon. Lady is absolutely right that they need to have the capacity to be ready and will be affected by the regulations. We have used associations, such as the Federation of Small Businesses, the British Chambers of Commerce and the Confederation of British Industry, so together there is a network of 580,000 businesses. We will continue to ensure that we work with SMEs in particular, to give them guidance ahead of time, because we need to keep on engaging directly with businesses around this Act, ahead of the full commencement.

The first tranche of detailed guidance has already been published to assist businesses, investors and advisers in understanding the Act and how to comply with its requirements. We have established a BEIS expert panel, which includes business representative organisations, higher education bodies, investment associations, law societies and others, that has provided detailed feedback on the draft guidance, ensuring that the guidance is fit for purpose, rather than rushing it.

Our second tranche of guidance will be published ahead of regime commencement, to continue to aid the interaction of parties with the new investment security unit and to ensure compliance, including how to submit a notification form and guidance around notifiable acquisitions. A communications campaign will focus on delivering teaching and guidance to that cross-section of businesses in the UK and internationally.

The hon. Member for Glenrothes asked about turnover and whether we were confident about getting this right; absolutely, we are. If the Secretary of State and a business disagree on the business’s turnover, the Secretary of State can overrule the business. Clearly, the Secretary of State has to act reasonably under public law duty, so it does not give him a free pass, but it is a fallback option if there is a disagreement on business turnover for the reasons mentioned.

Peter Grant Portrait Peter Grant
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I am grateful for that answer. When assessing a business’s turnover, can the Minister confirm whether sufficient attention will be paid to previous years? If a business has a big turnover for several years and it suddenly drops, looking at a single year will not necessarily flag that up. However, if that is noticed, it may well raise suspicions that turnover is being artificially depressed. Will that kind of examination be standard practice whenever a business’s turnover is being examined?

Paul Scully Portrait Paul Scully
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As is set out in the statutory instrument, annual turnover is calculated by taking the turnover for the available period and scaling it up to a full year—if there is not even information for one year. None the less, the Secretary of State will have to take a view, albeit under his public law duties, to ensure that turnover is a realistic. There must be an effective deterrent against a breach of the rules, which is why in some cases the Secretary of State may even deal with a subsidiary business with a small turnover that is funded and controlled by a large, wealthy parent business. Indeed, the subsidiary may have been established specifically to carry out the acquisition in question and may not even have a turnover, full stop, at the point when the Secretary of State is calculating a penalty. That is why there is scope for the Secretary of State to overrule and take the wider view that he is asking for.

I hope that I have covered most of the areas that were raised and provided sufficient clarifications and assurances to hon. Members on today’s statutory instruments. Both SIs are essential for the effective operation and running of the NSI Act and the provision of a safeguard for the UK, and I commend them to the Committee.

Supporting Small Business

Peter Grant Excerpts
Tuesday 19th October 2021

(6 days, 22 hours ago)

Commons Chamber

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Department for Business, Energy and Industrial Strategy
Lee Rowley Portrait Lee Rowley
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The first building block for doing that—Labour Members should listen, given that they are all so keen to intervene—is to ensure that we have a strong and sustainable economy, built on strong and sustainable public finances and with policies that are funded. By working together, we can then continue to ensure that Britain is the best place in the world to do business, both now and in future.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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It is a pleasure to contribute to this debate. I commend the Labour Front-Bench team for bringing it to the House and the shadow Chancellor, the hon. Member for Leeds West (Rachel Reeves), for her well-informed and often thought-provoking speech. As a lot of Back Benchers wish to contribute to the debate and much of the substance of the motion concerns devolved matters, I shall not detain the House for too long.

It is important that we recognise the fundamental part played by small businesses in our economy—the economy of the United Kingdom and all its constituent nations. I am reminded that many years ago my good friend Alasdair Morgan, who served with distinction in this place and in the national Parliament of Scotland, addressed a meeting about economic regeneration and pointed out that there were twice as many small businesses in his constituency as there were unemployed people. This was in the days when the unemployment figures were not fiddled, so the numbers were a lot higher than they are just now. Alasdair pointed out that if every small business could be helped to take on less than half a full-time employee, we could abolish unemployment. Instead of helping small businesses to increase their workforce, though, we are far too often faced with a Government who take steps that seem deliberately designed to make it harder for small businesses to take on additional employees.

Small businesses face structural problems that bigger businesses do not. Although we hear a lot of rhetoric from the Government about supporting small businesses, a lot of the specific difficulties that they face seem to get ignored. I confess that I never appreciated one such difficulty until several businesses in my constituency contacted me independently of each other. What they all had in common was that they had been taken to the cleaners by dodgy suppliers, because the suppliers knew that even a small business that is not much bigger than a single-person operation is regarded as a business and so has no consumer protection. Tech companies and telephone supplies companies—which tended to be the worst, by the way—understood that they could fleece small businesses and get away with it, whereas if they tried the same tactics with individuals, the consumer protection laws, although not ideal, would protect those individuals from being too badly damaged. A couple of long-established small businesses in my constituency were brought very close to closure purely for that reason. The Government might want to look into that.

Business-to-business enterprise and business-to-business commerce tends to operate on the basis that it is between two equal partners, but when a two-person or three-person operation deals with a multinational corporation with a turnover of billions, that is not an equal contest or an equal deal. Perhaps, in the same way as we need to protect individual citizens from being taken advantage of by bigger suppliers or businesses, we need to do more to give smaller businesses some kind of consumer protection.

Smaller businesses are much worse affected when there is a recruitment crisis, as there is just now. The Government blame covid, but everybody knows that Brexit is as much to blame as covid. If a company has a workforce of 100 and loses two or three people, it still has 97% of its operation; if a company has a workforce of three and loses a person, that can make the entire business unsustainable and unviable. The clear message that we get from small businesses and organisations such as the Federation of Small Businesses is that the labour shortages we see in key sectors of the economy just now have not yet been adequately addressed. I am not convinced that the Government have even adequately recognised them.

It is all very well to say, “Isn’t it great to have all these vacancies?” but if the people who are looking for work do not have the skills that are needed for those vacancies, or if there are reasons why they cannot take on the work in those jobs, it is quite possible to have very high vacancy levels. Businesses are struggling because they cannot fill those vacancies, and, at the same time, a lot of people are struggling because they cannot get a job that fits with their commitments or responsibilities outside the workplace.

Much of the debate so far has focused on the retail sector, partly because the traditional picture of the high street is one where there is a lot of retail activity, most of it generated by small independent retailers. That is a great thing to have in a town, but how many of us could walk down any high street in our constituency today and see more than half of the existing businesses independently owned and run, never mind locally owned and run?

There has been a huge shift in ownership in the retail sector, as there has been elsewhere. The sad thing is that, when times get tough, a big business, which has no soul in the community, is likely to clear out, whereas the smaller business, locally grown and locally based, is much more likely to dig in and to hang on in there for as long as it possibly can. That is why we will often find that, when things get difficult in the retail sector, the small locally owned shops will try to stay open for as long as they can, whereas the big chains will sacrifice 100, 200 or even 300 properties and the jobs that go with them at the stroke of a pen without a thought to the devastation that they are leaving behind.

I have a particular situation in Glenrothes. To the best of my knowledge, it is the only town in the United Kingdom where the high street is shut at night. A stroke of genius by the then Conservative Government in the 1990s when the development corporation was being wound up was that they sold what the Americans would call a shopping mall to private owners, and it has been struggling ever since. We do not have a night-time economy because the high street is shut. People cannot get in. If they are in and the doors are locked, they cannot get back out.

In spite of that, there are still some remarkable success stories in the Kingdom shopping centre in Glenrothes. I was delighted to pay a visit to Jessop Jewellers to congratulate the owner on their 50th anniversary in the one premises in the town. I can highly recommend their products as well by the way, although I may have made a mistake by telling the owner that I am now only a few years away from my ruby wedding, so I think she may be going to contact Mrs Grant about that in the not too distant future.

A lot of the focus today has been on non-domestic rates. Clearly, because that is devolved, the specific way in which the rates system operates in England does not apply in Scotland. For a number of years, the Scottish Government have had the most generous and most supportive non-domestic rates scheme anywhere in the United Kingdom. We had small business support, whereby small businesses did not pay any rates at all for years, before it was introduced in other parts of the United Kingdom. We still have greater support for our small businesses than any other part of the United Kingdom.

My message to the Government, and indeed to the Opposition should they be in a position to move into government in the near future, is to continue to support small businesses in England, whether through supporting the domestic rates scheme or something else. That then generates additional funding through Barnett consequentials for the devolved Parliaments in Scotland, Wales and Northern Ireland and allows those Parliaments to support our small businesses at the same time.

We could quite easily have filled this Chamber with a debate that would have run for four or five days if we had invited every Member of Parliament to come in and describe the exact situation for businesses in their constituency. I know that there have been a number of contributions along those lines from Labour Back Benchers already today, but the simple fact is that the party that used to be the party of small business is not recognised as that any more, certainly not by small businesses themselves. I suspect that, in their heart of hearts, it is not recognised as a party of small business by its own members and its own voters. It has lost sight of the part that small businesses have played in creating the economy that we have just now. It has lost sight of the fact that, without small businesses, we cannot have a successful and sustainable economy. [Laughter.] I can hear the laughter from the Conservative Back Benchers—that sums up their attitude. It is the attitude that a lot of small businesses feel they have received from this Government over the past two or three years—[Interruption.]

Kevin Hollinrake Portrait Kevin Hollinrake
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As my hon. Friend the Member for Bexhill and Battle (Huw Merriman) has just said, it was not laughter; it was astonishment. I have been in business for 30 years. Not every businessperson I meet votes Conservative, but the vast majority do, and I have not heard anybody say what the hon. Member for Glenrothes (Peter Grant) has just said—that the Conservative party is no longer the party of small business. Not only that, but there is huge support for what this Government have done over the last 18 months in supporting those businesses through the worst crisis to hit business in the last 100 years.

Peter Grant Portrait Peter Grant
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If the hon. Member does not understand what the Federation of Small Businesses thinks about his Government tearing up their manifesto promise and increasing the burden of national insurance, if he does not understand what small businesses are saying about the impact that Brexit has had on them, if he does not understand that the energy crisis that the United Kingdom still faces, with massively increasing energy costs that then increase costs for every single business on these islands, and if Conservative Members do not understand that all those things are purely the result of their party’s policies, each and every one of which is devastating for the wellbeing of small business, then we have to wonder why on earth they are still in Government.

Huw Merriman Portrait Huw Merriman (Bexhill and Battle) (Con)
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Perhaps we could mention one example of this Government helping small business: the requirement for outsourcing agencies, such as National Highways and Network Rail, to put a third of all their contracts into the hands of small businesses. Indeed, Network Rail is up to that third already. Is that not a tangible example of this Government doing something to support small businesses?

Peter Grant Portrait Peter Grant
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Well, it was not quite the way that things were done with all the personal protective equipment contracts and other covid contracts. Of course, there is a better way to do it than that. Rather than telling the health service that a fraction of all its privatised contracts have to go to small businesses, why not say to the health service, “Don’t privatise it. Do it yourself.”? The public would get a better, cheaper and more efficient service, which is exactly what we are seeing with the NHS in Scotland since the SNP banned the privatisation of our services all together.

If the Conservatives want to see an example of how to support small businesses, they do not need to look beyond these islands. They need to look beyond this Chamber, beyond this city and beyond this country to some of the other countries that are supposed to be equal partners in this Union. If they do, they will see examples of Governments—I commend also some of the Welsh Government initiatives mentioned earlier—who do not just talk the talk on supporting small business, but who walk the walk as well. That might be something to do with the fact that those Governments are not run by parties whose coffers are swollen to obscene degrees by people who have made their money running big businesses—very often, big businesses that ran small businesses into the ground.

The linkage between the impact of non-domestic rates and other taxes and Government policies on small businesses is clearly complex, so it is not possible to say that simply changing the non-domestic rates scheme on its own will fix the problem. I, for one, do not like the idea of using an imaginary property valuation as a significant feature in deciding somebody’s tax bill, whether it is an individual’s council tax or a business’s non-domestic rates burden. The tax base is far too narrow on far too many businesses. We are taxing things that might have been the right things to tax 500 years ago, but which are not the right things to tax now.

Most importantly, as was mentioned by the shadow Chancellor, the hon. Member for Leeds West (Rachel Reeves), we have to move to a situation where the tax is due and is paid where the profits are made. We cannot have companies that make substantial profits on the hard work, diligence and expertise of people in the United Kingdom, but where all the profits are magicked away to some offshore tax haven so that no tax is ever paid. The Government have it in their hands to change that. They need to move a lot quicker to do that. Doing so would not only help to plug the gap in the public finances, but would give small businesses a chance to compete on fair and equal terms with the bigger competitors. I can say, for a lot of the small businesses in my constituency, let them compete on equal terms with the big boys; they will take them on and, as often as not, they will beat them, and they will make sure that profits from that success are reinvested in their local communities.

As with so many other things that we debate in this Chamber, I have indicated the successes that the Government of Scotland have had with the powers they have. Others have referred to some of the successful initiatives that the Government of Wales have introduced with the limited powers that they have. With increased powers for those devolved Parliaments will come increased success and increased wellbeing for the citizens of those nations. The only way that small businesses in Scotland will have a long-term, secure and profitable future is when the decisions that affect them are taken by a Government who are accountable to the people of Scotland and to no one else.

Huw Merriman Portrait Huw Merriman (Bexhill and Battle) (Con)
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It is an absolute pleasure to contribute to this debate. I thank the shadow Chancellor for laying this motion, which gives us an opportunity to talk about business and the support that we have for business in our communities. I will certainly be doing so, as well as speaking to the reform of business rates, which I have had a long interest in since coming here in 2015.

Before I do so, let me respond to the hon. Member for Glenrothes (Peter Grant). I had the pleasure of being up in Edinburgh for a few days over the weekend, and it was very sad to see that not just Jenners on Princes Street but shop after shop had closed. In my view, that demonstrates that across the UK changing trends are causing people to shop differently, which is having a huge impact on our high streets. It is down to this Government, and indeed all Administrations, to support their high streets. That does not just mean expecting the shopping of the past to return, because it will not, but looking at how we can turn these units back into retail, which gives more footfall within the cities and towns and helps, not least, those who are perhaps older and do not wish to live as far out. Those boarded-up shops may be the responsibility of the changing trends or may actually have something to do with the hon. Gentleman’s own Administration as well.

--- Later in debate ---
Sarah Olney Portrait Sarah Olney (Richmond Park) (LD)
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I am extremely glad that the shadow Chancellor moved the motion before the House, because the support of our small businesses has to be one of the principal priorities of the Government at this time. I know that enormous challenges are crowding in from every side as we continue to tackle the covid crisis while dealing with fuel price rises, supply chain shortages, NHS backlogs and the work to decarbonise our economy, but a thriving economy built on private enterprise will do more to help us to solve all those problems than anything else, so it is imperative that the Chancellor does all he can to support and promote small businesses over the next few months.

Given its well-publicised proximity to Heathrow airport, my constituency plays host to many companies in the travel sector. I am particularly concerned about the future of the sector. Despite announcements in recent weeks, there are still considerable restrictions on people’s ability to travel that continue to limit the opportunities for trading in the sector, not least with continued uncertainty about the sector’s prospects as covid cases continue to soar.

The travel sector underpins so many other aspects of the UK economy, both in attracting visitors to our cultural and hospitality sectors and in enabling us to seek out new markets elsewhere, so it must be a strategic priority for the Government to provide it with support. Travel industries will not thrive after the end of the pandemic if they do not receive assistance now.

I call on the Government to extend furlough to all the sectors that are still trying to operate under restrictions, but particularly to the travel sector. They also need to redesign the furlough scheme to enable companies to use it to part-pay their employees. When I spoke to travel companies at a surgery in my constituency recently, they highlighted that at the moment they have enough trade to pay their previously full-time employees to come in for two or three days a week to man the phones, take bookings and research options. They would love to have furlough to be able to pay them for the remainder of their time, just to keep going while there are still so many restrictions and so much uncertainty. Furlough was conceived as an all-or-nothing system, but it really needs to change in order to continue to support businesses that are still affected as we come out of the pandemic.

The retail and hospitality sectors were badly hit by the pandemic. Many are now struggling to reopen fully, thanks to supply chain and labour market issues. The Government need to look again at their immigration policies and think about how they can be better designed to support our key high street industries as we emerge from the pandemic. More than that, they need to complete their promised review of business rates and think again about how they are levied on town centre businesses.

There has been a lot of discussion this afternoon about what might take the place of business rates—I think that there was some freelancing from some hon. Gentlemen on the Tory Back Benches about what might replace them. They are no longer in their place, which is a shame; I was very interested to hear about their suggestions to increase VAT, although I think I am right in saying that the Conservatives committed in their 2019 manifesto to not doing so.

Peter Grant Portrait Peter Grant
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I fear that I may have anticipated the hon. Lady’s next line, but how much faith can we place in a Conservative manifesto promise not to increase tax these days?

Sarah Olney Portrait Sarah Olney
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The hon. Gentleman has indeed anticipated exactly what I was about to say, which is that, given that in their 2019 manifesto the Conservatives committed themselves to not raising VAT, we can surely expect it to be raised at some point before the end of this Parliament. Nevertheless, if the Government are not sure how to proceed on business rates, I can give the hon. Gentleman a fully fleshed-out policy from the Liberal Democrats. We believe that a commercial landowner levy would be a much fairer way of raising local revenue, by taxing landowners rather than business owners. We urge the Government to consider that option.

Small businesses provide about three fifths of the employment in the private sector, and it is vital that those jobs are supported. The Government’s recent announcement of a rise in national insurance payments will deter small businesses from creating the new jobs that are so badly needed and limit the expansion of companies seeking to offer new products and services, including those that offer the innovation we need for the green economy. The Government should limit the impact of this rise on the small business sector by quadrupling the employment allowance from £4,000 to £16,000. That would enable a small business to employ five full-time workers on the median UK salary without paying any national insurance contributions, and would incentivise and support new businesses as we make the transition towards a net zero carbon economy.

The UK faces a troubling few months. Covid is not over yet, and a return to normal patterns of life seems likely to be substantially delayed. However, problems create opportunities, and we need to help our entrepreneurs to find solutions and bring them to the people who need them. Small businesses support communities, provide employment and deliver a good society, and the Government need to support them for everyone’s benefit.

Oral Answers to Questions

Peter Grant Excerpts
Tuesday 6th July 2021

(3 months, 3 weeks ago)

Commons Chamber

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Department for Business, Energy and Industrial Strategy
Paul Scully Portrait Paul Scully
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Travel has an impact beyond the sector itself and the impact of reopening our cities. We will continue to work with the sector to offer it support and to flex our support. My hon. Friend mentioned weddings. On 21 June, the restrictions on weddings were eased, which I was pleased to see. The number is now determined by how many a venue can safely accommodate with social distancing measures in place. I am looking forward to the day when those final social distancing measures can melt away.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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This morning the Government tweeted to tell us that about 1.7 million businesses had been allowed to borrow money under the various coronavirus loan schemes. Do they also intend to send out a tweet to tell us how many jobs have been lost and how many businesses have been destroyed by the decision to exclude 3 million business owners from any coronavirus support whatever? (902316)

Paul Scully Portrait Paul Scully
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I have continued to converse, whether in person or on social media, with some of the people leading the campaign in this area. As I have said before, a lot of the schemes we put in place have been reverse engineered so we can deliver them quickly, at pace and at scale. We have not been able to save every business and every job, but clearly, we will look to not only reopen and recover, so that we can bounce back better and protect as many jobs as we can, but create new jobs as well.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (First sitting)

Peter Grant Excerpts
Tuesday 6th July 2021

(3 months, 3 weeks ago)

Public Bill Committees

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Department for Business, Energy and Industrial Strategy
Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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One of the witnesses this afternoon is from the Chartered Institute of Public Finance and Accountancy. I am a member of that institute.

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Seema Malhotra Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
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Q Thank you for your evidence today, Mr Pegge. I understand that you helped to establish the covid-19 lending schemes. The Government have suggested that some companies have been dissolved to avoid paying back Government loans given as coronavirus support. Have you seen any evidence of that? If these measures go through, do you believe, from your experience and what you have seen, that the Insolvency Service is adequately resourced to deal with the expansion of powers it would have through the Bill?

Stephen Pegge: Yes, we have seen instances of this practice being used to try and avoid liability under bounce back loans. Back in May 2020, UK Finance with the British Business Bank established the bounce bank loan fraud collaboration group. It involves attendees from the Cabinet Office; CIFAS, the UK fraud prevention service; the Treasury; BEIS; and the National Investigation Service—NATIS. The aim is for intelligence to be shared, good practice to be developed and a threat log to be maintained and fed into the National Crime Agency and the National Economic Crime Centre. In fact, this was one of the practices which had been identified through that and has led to some efforts more recently to try to intervene and intercept these cases of dissolved companies involving Companies House and BEIS.

In the meantime, it is always possible that these cases may well have got through and there is some evidence—again, reported by the Insolvency Service—that there could be around 2,000 such cases which are dissolved and where currently the powers to investigate do not exist, so it is a real problem. If it were to become a more popular route for fraud, while there are mechanisms to deal with it and creditors can object when they get notice through alerts when these situations are gazetted, unscrupulous individuals can still get through and it is important that it is closed as a loophole.

As regards the resources of the Insolvency Service, we have all been conscious that, while the number of insolvencies has been low during a period of suspension and the generous support that has been provided to businesses through public agencies and the finance industry, we would expect that to rise significantly in this next period. There is already some evidence that it will do so. It is important that the Insolvency Service is resourced sufficiently to be able to deal with this. The evidence at the moment is that they have been involved in disqualification of directors in something like 1,000 or so cases across the last year, so it is quite possible that there might be a rise in the amount of work that they will need to do. We would certainly support any investigation into what additional resources might be necessary.

Peter Grant Portrait Peter Grant
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Q Good morning, Mr Pegge. You have described the loophole of company directors being able to dissolve the company in order to avoid their liabilities. Another way that directors can act is to set up two or three companies, transfer all the assets out of a company, dissolve the company with the debts and retain the companies with the assets. Is that a loophole that will still exist, even if the Bill goes through? If that loophole continues, is there a danger that that then becomes the route of choice for dodgy directors to avoid their liabilities?

Stephen Pegge: I think the practice you are describing is sometimes called phoenixing—setting up a company in the same location with the same assets purporting to be the same business with the same directors. It has certainly been a matter of concern for some time. Putting in place these measures should help to discourage and mitigate the risks of phoenixing: I do not think it entirely removes it. As you say, it is possible, even without these additional powers of investigation, for that to take place, but certainly where there is evidence of abuse, the fact that the Insolvency Service will have powers under the discretion delegated by the Secretary of State to investigate the directors, take action against them in terms of disqualification more generally, and seek compensation from them personally for losses suffered will discourage the practice of phoenixing, which I know is a concern. As I say, I do not think that it entirely removes it, but it certainly will discourage it, and to some extent remove some of the possibilities of it taking place.

Mick Whitley Portrait Mick Whitley (Birkenhead) (Lab)
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Q Welcome, Mr Pegge. Do the Government proposals address all the problems that have been identified with the dissolution process in relation to liabilities and directors’ conduct?

Stephen Pegge: This is certainly a very important contribution to addressing major issues, and it is the one that we have been most concerned about recently. We have seen, as I mentioned, real evidence of dissolution being used as an attempt to avoid liability, but I stress that in many cases dissolution is an efficient and appropriate way for companies to be removed from the register where there is no money owing and that business is ceasing, without going through the time and cost of liquidation, which obviously is available as an alternative—for solvent businesses through members’ voluntary liquidation, or in insolvent situations through creditors’ voluntary or compulsory liquidation. I am not aware of significant other means by which we need to deal with abuse of dissolution. This is the one that has been most to the fore in the evidence that we have seen of abuse, certainly through the fraud group.

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Paul Scully Portrait Paul Scully
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Q Finally, what effect do you think there would be on lending if this regime did not come into place or the loophole were not closed? Would there be a chilling effect?

Stephen Pegge: As you say, it is a matter of a chilling effect. It is one other factor that would weigh on finance providers’ minds when making lending decisions. This is a crucial time for lenders to provide finance. If you look at the latest Bank of England figures, for May, which were published last week, some £7 billion of new lending was provided to SMEs.

Latest surveys suggest that high proportions of loan applications are being sanctioned—something like 85%—and we want that to continue. The expectation that this sort of loophole is being closed should build confidence. It will ensure that there is discouragement of bad actors, so that it does not grow out of proportion, which we fear might otherwise be the case.

Peter Grant Portrait Peter Grant
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Q Good morning again, Mr Pegge. I apologise because I think I mispronounced your name earlier because I tried to read it without my glasses on. In an earlier answer, you referred to the retrospective nature of parts of the Bill. You indicated that you supported them. In particular, you referred to the fact that the Government had made it clear since 2018 that the legislation was coming.

Clearly, we are not creating a new offence that was not illegal at the time. We are considering legislation to make it easier for the authorities to act against people who may have committed offences, which I think is an important distinction. Even given that, is there an argument that the retrospective power should apply only to the date when the Government first published their proposals to legislate? Would you still support the Insolvency Service if it wanted to take action in relation to things that had happened in, say, 2015 or 2016? Would you have any concerns about that?

Stephen Pegge: As you say, this is essentially a technical loophole, which the Bill seeks to close. All it does is confer powers of investigation, with significant and rigorous practices in terms of investigation. The risk of miscarriage of justice is relatively limited. I do not have a particular date in mind. The point I was trying to emphasise was that this has widespread support and has had for some time.

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Seema Malhotra Portrait Seema Malhotra
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If you change your mind you can always let us know.

Peter Grant Portrait Peter Grant
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Q Good morning, Mr Kerr. May I come back to the retrospective nature of parts of the legislation? The three-year period will be permitted because that is what the current timescale is. Given the notorious complexity of a lot of financial misconduct cases and the fact that they are long drawn-out processes, is there an argument for that three-year period to be extended in cases where there is an indication that there is not only misconduct, but potentially criminal fraud? I am thinking about cases in which the potential fraud runs into the tens of millions of pounds. Is there an argument that in those cases, there should be no hiding place for criminals of that scale, simply because of the length of time they have managed to get away with it?

David Kerr: That is a fair point. I suppose the statute of limitations could be considered a relevant backstop, but I will come back to my previous point that we have a three-year limit in relation to investigations into directors’ conduct in insolvent situations, and that has been with us for 35 years. I have not heard any suggestion from the Insolvency Service that that has proved to be inadequate. This is effectively an extension of the same power into dissolved company circumstances. I have not seen or heard any evidence to suggest that it is an inadequate period.

Peter Grant Portrait Peter Grant
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Q You say that you have not heard any such representations from the Insolvency Service. Have you had any such representations from lenders or creditors? They may take a different view from the Insolvency Service if it is their money that is at stake.

David Kerr: Perhaps some in the creditor community would like it to be a six-year period, but I do not think they have argued strongly for it, and I do not think there is a necessarily a case made for that. From a creditor perspective, in an ideal world, perhaps it would be open ended. That may be unrealistic.

Paul Scully Portrait Paul Scully
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Q Thank you for giving evidence, Mr Kerr. Can you talk a little bit more about the deterrent that you spoke about? How much of an impact do you think the measure, and especially the threat of disqualification, will have on providing the necessary deterrence?

David Kerr: The current disqualification provisions act as a deterrent to some extent, because directors know that, in respect of every company that goes into an insolvent liquidation or administration, there will be some inquiry. There is an obligation on the insolvency practitioner to carry out a certain amount of inquiry into the contacts of the directors of those companies and make a report in each of those cases to the Insolvency Service on their conduct. The provisions do not provide for the same report. It will have to be triggered by something else, whether that is a creditor complaint or other information, but it will provide the opportunity for the service to make the same inquiry.

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Peter Grant Portrait Peter Grant
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Q Thank you, Ms Rees, and good morning, Dr Tribe. Following on from that last question, there are three kinds of sanctions available now: the director disqualification, the compensation order and, ultimately, criminal prosecution. Are there significant differences, first, in the burden of proof required for each of those actions, and secondly, in the cost and time taken to bring any of those actions to fruition?

Dr Tribe: I think you are right to point out that there are different avenues that could be visited on the directors that we are talking about. We are not necessarily talking about directors in the general run of business; we are talking about people, as perhaps you suggest, who engage in criminal behaviour. For example, with the bounce back loan scheme, a form of fraud could lead to a prosecution.

What we are dealing with today, though, particularly with this amendment to the Company Directors Disqualification Act 1986, is a regulatory function, so we are dealing with a lower burden of proof than we would if it was a criminal sanction for any subsequent prosecution for fraud. In that sense, on the Insolvency Service’s work on what is known as a jury question in the context of directors’ disqualification, with each case being looked at on its facts, the determination whether whatever has occurred has been deemed to be unfit does have that lower evidential burden than any subsequent criminal activity that the prosecuting authorities might address. In that sense, the disqualification regime is perhaps better able to get deterrent-type results than mounting subsequent criminal prosecutions. We know, of course, that the criminal justice regime is also having some problems with funding. If the disqualification regime is able to achieve any public policy outcomes in terms of deterrent, in a regulatory manner, that is perhaps quite effective.

Peter Grant Portrait Peter Grant
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Q You also mentioned, as some other witnesses have, what is known as phoenixing. There is a variant of that practice whereby, rather than creating a new company immediately after the old one has been dissolved, you create what looks on the surface like a legitimate group company structure, and then over time, you very quietly shift all the assets over to one company, leave all their liabilities in another one, wind up the company with the liabilities, and then the directors help themselves to the company with the assets. Does this legislation do anything to address that particular loophole, and if not, what further changes are needed to prevent, or at least strongly discourage, that practice?

Dr Tribe: That is an interesting question because it highlights the long history of English and Welsh and Scottish company provisions when we are thinking about the nature of groups of companies and then single entities, and how structures and groups are used and how we move value between one entity and another.

There is the quite interesting case of Creasey v. Breachwood Motors Ltd where, because of an employment claim, value was moved into a new entity, and of course the claim was left with the original company, meaning that that employee had an empty shell through which to pursue their claim, which was problematic. The judge at first instance was able to say, “No, in the interests of justice, you can switch your claim to that new entity.” That judgment was overruled subsequently, but it does raise an important point. Indeed, in the case that overruled it, the group reconstruction that occurred was held to be legitimate for tax reasons. There are instances of the kind of behaviour that you are talking about that can perhaps be problematic in the pure phoenixing sense, but then there are legitimate reconstructions that happen where the intentions of the directors were for tax efficiency or some other purpose that is not unfit or nefarious in the way that we are discussing.

In terms of the misuse of the corporate form, one can go right back through our company law history to recite many examples of essentially what we are talking about—phoenixing, or what has been called centrebinding—and some of the critique of pre-packaged administration is around the same point. Is it appropriate that the corporate form is able to be used in this way so that the creditors of company A are left languishing while all the value is moved into company B in the way you have described?

That takes me back to my introductory response point, which is that in English and Welsh and Scottish law, for a very long time we have used the separate juristic person—the company as a thing. It is a really sacrosanct idea that, just like I am not responsible for your debts, and you are not responsible for mine, we have that structure in place for policy reasons, and have done since the 19th century originally, to aggregate wealth and entrepreneurial activity. I suppose you as the legislature expect that, as part of that privilege that you have allowed incorporators to use, over time you will get some form of abuse, and that element, which is hopefully as small as possible, has to be dealt with, like we are trying to do today, or, to some extent, tolerated.

Peter Grant Portrait Peter Grant
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Q Finally, I want to look at the retrospective nature of some of the provisions from a legal point of view. First, do you have any concerns not about the principle of creating a retrospective offence, which the Bill does not do, but about retrospectively giving powers to an enforcement agency that we used not to have? Do you have any concerns about the natural justice issues that that might raise? Alternatively, are there circumstances where the three-year time limit is too short and where you would be in favour of allowing the Insolvency Service to go back more than three years before the dissolution date?

Dr Tribe: On your first point, which was about retrospective activity, it is much like the Corporate Insolvency and Governance Act 2020 reforms, which have successfully been passed. We have seen lots of new cases on the provisions that were in that Bill; it has been very successful. The reforms in that statute were mooted much earlier, in 2018. It is the same with this suggestion to close the dissolution loophole. Much like with the 2020 CIGA provision, the coronavirus has freed up legislative time to get both sets of provisions—the CIGA activity and the dissolution activity—in front of you to get it on to the statute book. Some of this was discussed by Sarah Olney on Second Reading.

What does it mean in terms of the retrospective nature of what you are doing? We had the idea some time ago, and corona has meant that we have had to address it against the backdrop of the bounce back loan scheme. Unfortunately, the abuse of that scheme seems to be so massive—as we have seen, there is a £16 billion to £27 billion projected shortfall, or loss—that we need to go back in time to look at some behaviour. Of course, we are not generally speaking about breaches of duty in the general sense of directors’ duties. We are talking about what could be seen as the use of the corporate form purposely to avoid the insolvency provisions and the oversight that they can give, with the powers that are currently in the Act that we are dealing with.

That needs to be dealt with, and if it is in a retrospective way—you may have seen in late June that there was a disqualification order for 12 years because of some fraudulent activity that had occurred with a Mr Khan and his Birmingham-based business, where he had forged documents to get a bounce back loan of £50,000. The Insolvency Service successfully brought that action following administration. Some Glasgow-based companies have also been wound up in the public interest because of bounce back loan abuse. To answer your question briefly, it is the bounce back loan fraud that has meant we have had to act retrospectively. No, I do not have any issues on that point.

On your question about three years, I suppose that again goes back to funding and time limits, and whether the Insolvency Service is adequately resourced to deal with the amount of dissolutions—whether it is 5,000 as predicted, or whether the forthcoming PwC report shows that it is much worse. If it is well resourced, the time issues might not be such a problem. If it is not, they perhaps will be.

Peter Grant Portrait Peter Grant
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Thank you.

UK Steel Production: Greensill Capital

Peter Grant Excerpts
Kwasi Kwarteng Portrait Kwasi Kwarteng
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I am delighted to relate to my hon. Friend that she is absolutely right. We need to retrain people in new green technologies, which is precisely why I, as energy Minister, with my hon. Friend the Member for Chichester (Gillian Keegan), set up the green jobs taskforce to look at exactly the requirements and skills we need to drive the green industrial revolution.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP) [V]
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We know that Greensill was a major financer of the Gupta Family Group and, understandably, the questions today have focused on the employment concerns that its workers might have, but we do not know what other businesses may have relied on financing from Greensill and been affected. When does the Secretary of State expect to have that information fully pulled together, and can he undertake, as far as is allowed by commercial confidentiality, to keep Members of Parliament informed of any other businesses that might be at risk as a result of the collapse at Greensill?

Kwasi Kwarteng Portrait Kwasi Kwarteng
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The hon. Gentleman makes a legitimate point. The collapse of a company like Greensill has ramifying effects, and I, Ministers and officials in the Department are looking closely at the potential impact.

Budget Resolutions and Economic Situation

Peter Grant Excerpts
Tuesday 9th March 2021

(7 months, 2 weeks ago)

Commons Chamber

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Department for Business, Energy and Industrial Strategy
Nigel Evans Portrait Mr Deputy Speaker (Mr Nigel Evans)
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It was like a blast from the past there, momentarily.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP) [V]
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It is always a privilege to speak on behalf of the Scottish National party in a debate such as this. I say to the former Prime Minister, the right hon. Member for Maidenhead (Mrs May), that I do not think I have ever agreed so much with anything that she has said in her life, but I assure her that it is not a habit that I intend to continue for too long.

I commend the Minister on at least having the courage to mention Brexit in his opening remarks, because the Chancellor did not mention it once in his entire speech, despite the fact that the economic damage of Brexit is likely to be worse than that of the covid pandemic. I am puzzled as to how the Minister was able to describe that as a successful Brexit. If 4% off GDP was a successful result, I shudder to think what a bad Brexit would have been like in the Government’s eyes.

The Chancellor’s Budget speech contained all the usual words, all the usual platitudes and all the usual elements. There was a lot of bluster about how wonderful the Government are and obligatory name drops for some hand-picked Tory MPs, interspersed here and there with bits of substance, most of which we had already read in the previous weekend’s newspapers.

Perhaps unusually, I would not take immediate issue with a great deal of what the Chancellor announced. I want to see the details, obviously, because I know from experience that the reality can be very different from what is announced at the Dispatch Box, but in principle I would support a lot of what was announced. The problem is what was not announced and what the Chancellor did not say. He did not say nearly enough about permanent support for the millions of families who are living in poverty. He did not say enough about supporting millions of small businesses and self-employed people who continue to be excluded. He did not say enough about several key sectors of the economy that still face an existential threat as a result of the covid pandemic, in some cases combined with other factors. He certainly did not say enough about investing in our public services and in the people who have served them with such dedication and professionalism during the last dreadful 12 months.

The former Prime Minister, who just finished speaking, mentioned the importance of our aviation industry. Even without the pandemic, we knew that that industry needed to change radically because of climate change. Even a year ago, none of us would have predicted the almost total closure of an entire industry, so what is the Chancellor’s vision for how the aviation industry will look five to 10 years from now? How big will it be? Will air traffic be back to pre-pandemic numbers? Will aviation still directly provide 470,000 jobs and still support around 650,000 other jobs in the UK, as it did before the pandemic? If it does not, what will happen to all the people whose jobs disappear? If the Chancellor’s speech is anything to go by, the answer to all those questions is that he does not know and probably has not even thought about it, because he never mentioned aviation during his speech. In almost 6,500 words, the industry that has perhaps been the worst affected of all industries during covid was literally never mentioned.

When we look at the crisis facing our retail industry, we see, again, that changes were happening anyway because of the growth in online shopping. There were around 143,000 job losses in retail the year before the pandemic and there are likely to be a further 380,000 between 2020 and 2021. Where is the recovery plan? Do the Government even have a vision of what the recovered retail industry will look like? Yes, there is a partial continuation of short-term survival rations and, of course, there is always the towns fund if someone happens to live in a marginal constituency, but otherwise, there is no indication that the Government have any clue how they intend to help our local shops and shopping centres to recover, or even if they care whether or not they recover.

Retail, aviation and, I could mention, oil and gas are all industries where the effects of wholesale change have been greatly accelerated and magnified by the covid pandemic. While those changes may have been inevitable, the Government’s continued failure to support the people who will be affected is anything but inevitable. We cannot allow this Tory Government to turn their back on hundreds of thousands of retail workers and aviation workers in the same way that they abandoned hundreds of thousands of miners in my constituency and others across these islands.

In addition to the lack of any clear vision for key sectors in the economy, there is a continued refusal to acknowledge the desperate plight of millions of self-employed people and small business owners. Of course, I welcome the fact that the Chancellor was eventually dragged kicking and screaming to announce an overdue and humiliating U-turn on support for about 600,000 self-employed people, but we in the SNP are not going to forget the 2.4 million others—the creators, freelancers and small business owner-director—who are still being deliberately abandoned. Last year, I warned that many of these people stand to lose their houses and everything they own if their businesses go under. Last week, the Chancellor had a choice: give them the support they need and deserve, or ignore them. He chose to ignore them yet again. Before the Budget, the Prospect trade union found that 46% of all self-employed people are less likely to stay in self-employment as a result of their experiences during the pandemic and 18% are unsure. That means barely a third of people in self-employment were sure they intended to stay there, and that was before the non-support that most of them got in last week’s Budget. These are the people we rely on to drive the recovery as we come out of the covid emergency. They are not asking for charity; they are asking for a fair deal. They deserve that. It is all they want.

As well as those 3 million people, perhaps falling to 2.4 million this year, there are now millions who have had to fall back on a benefit system that was never designed to support so many people for so long and was never fit for the purpose for which it was supposed to have been designed in the first place. The continuation of the £20 uplift is welcome, but it should be continued permanently. The cliff edge the Government are talking about threatens to plunge 60,000 people, including 20,000 children, into poverty in Scotland alone. The Government claimed that the response to covid would be driven by data not dates, so why is the universal credit cliff edge being set by a date regardless of what the data might say? I submit that an economic recovery in which the poorest get left behind is no economic recovery at all. We can judge how much this Chancellor and this Government care about the eradication of poverty from the fact that the Chancellor did not mention the word “poverty” even once in his entire speech.

The Budget fails to address the economic challenges that will impact on all our living standards for decades to come. It fails adequately to support the businesses on which our economic recovery depends. It fails to provide a decent income for millions of our citizens. The people of Scotland can have no confidence in this Budget. For the last 60 years, the people of Scotland have declared they have no confidence in the Government behind the present Budget. It is now clear that most people in Scotland no longer have any confidence in a constitutional Union that allows such a Government to continue to ride roughshod over the ancient rights of the people of Scotland.

Iain Duncan Smith Portrait Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)
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I draw the attention of the House to my entry in the Register of Members’ Financial Interests.

No Chancellor has faced this kind of crisis in living memory and, by and large, I think the Chancellor has navigated through it with some skill over the last year, supporting those who need support as much as he can. The Bill, as a result, underpins all of this particular Budget: some £407 billion will be spent by the end of next year, with an eye-watering deficit of over £250 billion, as set out in the Budget he has just produced. That clouds every single judgment.

The key point I want to make, and I agree with my right hon. Friend the Member for Maidenhead (Mrs May), is that we must not lose sight of the reality of the need for growth. If we forget that, then we fall back on the idea that we will somehow get through this. The OBR’s forecasts for growth should make us sit up and look very carefully at that. I worry that the level of growth beyond the year after next is really very low in relation to where we start from now. If we cannot grow faster than that, it says a huge amount about some of our policies. I therefore remind my right hon. Friends on the Treasury Bench that growth is the No. 1 reality for us now.

That is why I was somewhat concerned about some issues, and I want to come back to them, but one thing I did like, which feeds towards the idea of growth, is the super deduction tax relief to kickstart business investment. That is the right kind of thing to do: encourage businesses to bring their money back in to invest in the UK. The news about freeports is also very good indeed. I hope the Government will have time to review the corporation tax rate and be very careful about the effect of that further down the road. I note that the Chancellor has given himself some time to look at that very carefully.

The issue here is that sometimes we compare productivity across countries. I give a warning about that. I do not know why the Treasury has not done more work on this. No two countries compile productivity rates at the same level. For example, France does not have the public sector in its productivity rates; it has only the private sector. That means that comparisons are often between apples and pears. Our problem in the UK is not productivity, because the London and the south-east have the highest productivity in the whole of Europe. Our problem is regional productivity. No other region of the UK meets the average for the UK in productivity. That single fact should tell us more than anything else why it is critical to put stuff and build things in the north, the midlands and places such as Wales. Our productivity around the country does not match that average level of productivity, as we are far too concentrated in London and the south-east.

I agree with those who have said that R&D tax credits are really important. I would stress that that is a good idea and a policy that the Government have to push forward on, because it encourages greater growth. We must remember that many of our technology advancements are made in universities these days, and we have to maximise that. On deregulation, I am going to come forward with plans shortly; there is huge scope for us to release some businesses through deregulation.

I want to draw to a close by making a couple of points. First, I want to make the case for the Government to review the universal credit money. The reason for that is that universal credit is not a flat payment; it is a dynamic process, and it is aimed at helping people back to work. So in truth, even if we invest the £6 billion in universal credit, as we get more people back to work, the cost of that falls because they are back at work and paying taxes. This is the critical bit: I do not want it to be compared with the furlough scheme, which is a very different item. Universal credit is about getting people back to work, and therefore they pay more. I recommend that the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam (Paul Scully), and his colleagues think carefully about that, because money was taken out of it some years before, and it needs that investment back in it. That was how it was intended.

My last point relates to the 0.7% on overseas aid. I understand the Government’s issue on this and I recognise their problem, but I hope they will keep this under review. As we move away from certain countries, places such as China will move in, and their money will come with serious problems. They will demand more dictatorial government. We need only to look at Burma to see what is going on when China supports countries. I just raise that as a policy point that the Government may want to think about.

Overall, I say to the Government that this has been a good Budget, but it is a Budget that needs to buy a bit of time, and we must think carefully: growth, growth, growth is the most important thing in front of us now.

Uber: Supreme Court Ruling

Peter Grant Excerpts
Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

My hon. Friend is absolutely right to make sure that we continue to look at the number of private hire licences compared with black cab licences in London to ensure that there is no unfair advantage, but, ultimately, there is a market there, as he rightly says.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP) [V]
- Hansard - -

We can judge this Government’s sincerity and their claims to care about workers’ rights by the fact that the Secretary of State is on record as saying that British workers are among the worst idlers in the world; of course, her own treatment of her staff would have got her sacked from almost any other job.

Given that in just over two months the Scottish people will, for the sixth time in succession, elect a Scottish Government who care about the rights of workers, is it not time that employment legislation was delegated to the Scottish Parliament and the Scottish Government so that, at the very least, the workers of Scotland can get the government that they vote for?

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

I am afraid that the question just goes to show that the hon. Member is more interested in votes than jobs and workers’ rights. That is why the employment rights Bill will come before this House in due course.

Coronavirus: Supporting Businesses and Individuals

Peter Grant Excerpts
Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

I have met representatives from ExcludedUK. We continue to talk to them, we continue to flex and we continue to work out what more we can do to help the economy and to help jobs and livelihoods. The Chancellor will set out his position next week.

In addition to the grant schemes, businesses have received £70 billion in loan guarantees as of 24 January. That has provided a lifeline to more than 1.5 million businesses across the nations and regions of the UK. We have extended the application deadline to apply for those loans to the end of March 2021.

Last year, we changed the bounce back loan scheme rules to allow those businesses that had originally borrowed less than their maximum to top up their existing loans. We also announced the pay as you grow measures, which give all businesses that borrowed under the bounce back loans the option to repay their loan over a period of up to 10 years and to access an additional six months repayment holiday as well as interest-only repayment periods.

On 8 February, we announced that these measures will be made more generous, removing the requirement to make six payments before accessing the six months repayment holiday. Businesses can use these options either individually or in combination with each other, and lenders have begun contacting borrowers to let them know how they can access the pay as you grow measures. These flexible repayment options will give businesses the time that they need to recover from the pandemic and the confidence to build back better.

The Chancellor has also announced our intention to allow lenders to extend the repayment for coronavirus business interruption loans where this is needed to a maximum of 10 years, and we have announced that more support will be available beyond March through a successor loan scheme, more details of which will be announced in due course.

From the outset of this pandemic, we have acted decisively to protect jobs and people’s livelihoods. The coronavirus job retention scheme, the first intervention of its kind in UK history, delivers country-wide support to protect millions of British workers. It has already helped 1.2 million employers across the UK furlough 9.9 million jobs. That scheme has been extended until the end of April 2021 for all parts of the UK, but the Chancellor has always been clear that the Government will keep the situation under review, adapting their approach as the context evolves. The Government will set out the next phase of the plan to tackle the virus and to protect jobs at the Budget next week.

A healthy hospitality sector is critical for the UK economy. It not only accounts for 2.4 million jobs and generates more than £59 billion of economic benefit, but underpins other economic sectors, including tourism and, indeed, our high streets. It is also an important part of our society, supporting social cohesion, cultural integration and mental health. It is a gathering place for communities, and we must continue to support it. The pandemic has hit the hospitality sector hard. I have worked extremely closely with the sector since March 2020 to understand the issues as far as possible so that we can strike the right balance between restrictions and business support.

Not only have the Government provided over £280 billion to support businesses, including hospitality, but we have provided support for commercial rents and deregulated to allow the better use of public spaces for outdoor hospitality. We will continue to keep all that support under review. I want the sector to open up. I want businesses to start to recover and thrive, but it must be done safely, led by the data, as the Prime Minister outlined yesterday.

The retail sector is vital not only to the UK economy, but to the communities that it serves, and I am grateful for the continued efforts of those retail staff who have kept this crucial service going throughout. I recognise that the pandemic has impacted on the sector in different ways and brought significant challenges, but while we have seen a welcome boost in the food sector and online sales, we have also witnessed a more challenging outlook for those not permitted to open, and I appreciate that it has been a really uncertain time for many retail staff. Regrettably, we have seen the closure of some well-known household retail brands, with resulting job losses, impacting on young people and women in particular.

The Government have acted to support as many businesses and employees as possible with that economic package worth over £280 billion, and those measures are carefully designed to complement one another to ensure that we protect jobs and livelihoods. However, as I said, we cannot save every business or job and the support can in no way fully compensate businesses for the loss of trade as a result of the restrictions. Retailers, pubs and hotels have been able to benefit from 100% business rates relief, worth about £10 billion in total, and we have frozen the business rates multiplier for 2021-22, saving businesses in England £575 million over the next five years.

I know that many businesses are eager for an extension to the rates relief beyond the current financial year. The next round of covid-19 support measures will be set out in the Budget next week, but the Prime Minister has written to local authorities in the meantime advising them to delay issuing business rates bills until after the Budget, which, hopefully is good news for businesses.

I know that businesses may be disappointed by the decision to delay publication of the final report into the fundamental review of business rates until the autumn, but an interim report will be published on 23 March, and the final report will be published once there is more clarity on the long-term state of the economy and public finances. I encourage the sector to continue engaging with Government on these important issues.

Supporting people back into employment is also a key priority. Our plan for jobs includes a series of measures to protect, support and create jobs, and we are helping those who have lost jobs in the pandemic back into employment through our job entry targeted support programme. A £2 billion kickstart scheme has also been launched to create opportunities for young people, and we are taking action to help the high street to evolve. In September 2020, we brought forward over £80 million-worth of investment to support immediate improvements in 101 towns selected for deals to build back better in the wake of covid-19.

On 26 December 2020, the Secretary of State for Housing, Communities and Local Government confirmed £255 million for 15 areas for the future high streets fund, with a further 57 areas receiving provisional funding offers totalling up to £576 million. We are also launching a £4 billion levelling-up fund, investing in local infrastructure that has a visible impact on people and their communities and supporting economic recovery. We will publish a prospectus for that fund soon.

To date, we have provided the largest package of emergency support in post-war history. As highlighted by the Office for Budget Responsibility and the Bank of England, without the action taken by the Government, the outlook could be so much worse. The co-ordinated approach of the UK’s authorities has also been praised internationally by the International Monetary Fund as one of the best examples of co-ordinated action globally that has helped to mitigate the damage, holding down unemployment and insolvencies. Given the current climate, it is right that we focus on supporting individuals and businesses through the pandemic. In the past, the Government have ensured that businesses and people have that certainty by extending the furlough and business grants. The announcements at the Budget will reflect the steps set out in the Prime Minister’s road map, ensuring that the next phase of our economic support package continues to deliver tailored support for individuals and businesses.

What businesses want now is that road map. They want to able to give a safe and warm welcome back to their customers, clients and people using their services, but in the meantime, as the Chancellor will set out next week, we will continue to work with businesses and individuals to protect jobs and livelihoods as we see the light at the end of the tunnel in this pandemic.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP) [V]
- Hansard - -

I am pleased to speak in this debate and to confirm that the Scottish National party will support the motion if it comes to a vote. I do not want to eat too much into the time available for the large number of Back Benchers who wish to speak, so I shall look in detail at only a small number of the items in the Labour motion. Given that so many of the main asks in the motion have been publicly supported by some highly influential Tory MPs, including a number of members of the Treasury Committee, I look forward to the Government’s supporting the motion if a vote is called later.

We support the call for business rates relief to be extended. Scotland’s Finance Secretary, Kate Forbes, made a similar request in a letter to the Chancellor on 27 January, ahead of the Scottish Budget. The SNP Scottish Government have led the way in reducing the rates bills of businesses in key sectors and of small businesses in particular. For example, the small business bonus scheme meant that last year 117,000 business properties in Scotland were paying no rates at all. Some 95% of all Scottish business properties have a lower rate poundage than they would have anywhere else in the United Kingdom. In addition, the businesses worst affected by covid restrictions—those in retail, tourism, hospitality and aviation—will pay no rates at all during the next financial year.

Given that the leader of the Tory party in Scotland and his colleagues demanded, ahead of the Scottish Budget, that

“retail, hospitality and leisure businesses”

be given

“certainty that they will not face full business rates in the next financial year”,

it is a wee bit disappointing that they do not seem so keen to speak up in this debate for hard-pressed businesses in other parts of this precious Union of theirs. I am sure they will do the decent thing and support the motion later.

We fully support the call to extend the 5% VAT rate, but I do not think it goes far enough, because if the sectors we are talking about currently have a 5% VAT rate, for all they know, their VAT bill could increase by 300% in just five weeks’ time. Nobody can run a business with that degree of uncertainty, so the Government need to make it clear tonight—not next week or in two or three weeks’ time—that that 5% VAT rate will be extended.

We need to start to take decisions now, based on the long-term interests of the economy, about the unprecedented levels of debt with which millions of businesses are saddled. They have had to borrow heavily, often through Government-backed schemes, to survive the first year of lockdown; they are not going to be in a position to repay those debts next year, or any time in the next two years.

In addition to supporting the call for small businesses to be allowed to defer the repayments on their loans, the SNP wants to go further. In the previous economic crisis, the Government spent huge amounts of our money on bailing out the self-same banks that were responsible for the problem; surely, it is not too much to ask that we should now give the same kind of support to the more than 5 million small businesses that have done nothing wrong and could play a vital part in our post-covid recovery. We therefore call on the Government to agree to write off the bounce back loan debts of small and medium-sized businesses and to look carefully at proposals from organisations such as TheCityUK that covid debts should be converted into equity or contingent tax liability, so that the public sector retains an interest in the business and the business is not forced to go to the wall because of a lack of cash.

My support, and that of my party, for the excluded 3 million is well documented, so I will not go into it in detail. All I will say is that, when I have raised the exclusion of those people with representatives of Her Majesty’s Revenue and Customs through the Public Accounts Committee, I have been given the excuse that it was not possible to set up a scheme quickly. It is now almost a year since the first lockdown was announced. The reason so many self-employed people and owners of small businesses are still excluded is nothing to do with the Government’s not being able to help them; it is to do with the Government’s not being prepared to help them. For the party that claims to be the party of small business, that is an absolute disgrace.

In the interests of brevity, I bring my remarks to a close with a final observation: the British Government are the only one of the four UK national Governments who have the full range of taxation and borrowing powers necessary to deliver on what the motion asks for. I cannot speak for the people of Wales or Northern Ireland, but I know that as far as my constituents and the people of Scotland are concerned, if the British Government are not prepared to use their powers to get Scotland’s businesses back on track and back into business, they should devolve those powers to a national Government who will.

Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
- Hansard - - - Excerpts

I remind hon. Members that there is now a three-minute time limit on Back-Bench speeches. When that limit is in effect, a countdown clock is visible on the screens of hon. Members participating virtually and on the screens in the Chamber. For those participating physically in the Chamber, the usual clock will operate.

National Security and Investment Bill (Eleventh sitting)

(Committee Debate: 11th sitting: House of Commons)
Peter Grant Excerpts
Thursday 10th December 2020

(10 months, 2 weeks ago)

Public Bill Committees

Read Full debate Read Hansard Text Bill Main Page
Department for Business, Energy and Industrial Strategy
Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

With your permission, Mr Twigg, I will speak initially to clause 54 stand part and then address amendment 30, relating to clause 54. I will then turn to clause 55 stand part.

On clause 54, for this regime to function effectively, the Secretary of State needs access to the right information at the right time to make decisions with the fullest range of evidence available. All relevant information required by the Secretary of State to make a decision might not be obtainable from the parties to the acquisition, but rather might be stored by other public authorities, both in the UK and overseas. The hon. Member for Newcastle upon Tyne Central referred to the speed at which deals have changed; she mentioned Facebook and others. I agree that modern deals are structured in an increasingly complex manner and often across borders and continents. There is a need to work with allies at home and abroad to ensure that we are making well-aligned, timely and correct decisions.

Therefore, the clause provides that public authorities may disclose information to the Secretary of State for the purpose of facilitating the exercise of his functions under the Bill. Equally, it permits the Secretary of State to disclose information to UK and overseas public authorities for the purpose of facilitating his functions under the Bill, but also for a limited number of other purposes, including crime prevention and the protection of national security. I absolutely agree with those who say that businesses do not want slow decisions made by multiple public authorities working in silos. We all want to see an efficient regime in place. Businesses want public authorities that can talk to each other and give a quick and efficient answer that is right first time. Being able to share information is the first step in Government making fast and informed decisions without having to burden businesses unduly, which I know the hon. Lady cares about.

I of course recognise, though, that some hon. Members will feel uneasy about the Government being able to share potentially very sensitive information both within the UK and overseas. The clause includes a number of safeguards relating to the disclosure of information by the Secretary of State. First, the clause prohibits onward disclosure of information shared by the Secretary of State or use for an alternative purpose without his consent. Secondly, when disclosing information, the Secretary of State must consider whether the disclosure would prejudice, to an unreasonable degree, the commercial interests of any person concerned.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
- Hansard - -

I fully support the principle that we should share this kind of information with friendly overseas authorities—subject to appropriate precautions to prevent it from being used for the wrong purposes. However, somebody in the UK who breaks this law will get prosecuted, but an overseas public authority cannot be prosecuted in the UK courts, so can the Minister explain why, under clause 54(7), which lists the factors that the Secretary of State has to consider before deciding whether to release information to an overseas public authority, there is no requirement to assess the rule of law in that other place and to consider whether it has equivalent legislation to prohibit the misuse of information? There is no requirement for the Secretary of State to consider whether they have been given guarantees or assurances by a Government whose word we would expect to be able to take. There is not even a requirement to consider whether the request for information itself might be an attempt to undermine national security.

If the Secretary of State is looking at a potential Chinese takeover of a sensitive undertaking in the UK and a public authority in China says, “We need this information for an inquiry that we are doing,” there is no requirement for the Secretary of State to take that into account. Can the Minister explain why none of those things is built into this clause now, and are the Government willing to consider amending the clause at a later stage to give the further protection that we may need?

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

I am grateful to the hon. Member. I hope that in my further remarks, if I can make some headway, I will be able to reassure him on those points.

Thirdly, when disclosing information to an overseas public authority, the Secretary of State must have particular regard to whether the law of the country or territory to whose authority the information is being disclosed provides protection against self-incrimination in criminal proceedings corresponding to the protection provided in the UK, and whether the matter is sufficiently serious to justify disclosure. I hope that addresses the hon. Member’s point.

Peter Grant Portrait Peter Grant
- Hansard - -

rose—

--- Later in debate ---
Peter Grant Portrait Peter Grant
- Hansard - -

I am sorry to intervene again so quickly, but the precautions in subsection (7) do not address any of the matters that I raised. Subsection (7)(a) in particular is vital and necessary, but it is nowhere near sufficient and does not address any of the points that I raised.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

I am grateful. If the drive of the hon. Member’s probing is to ensure that the Secretary of State, when he considers disclosing information to a foreign country, takes into account protecting people being caught in the regime who come from that country, I think I have just made it clear that the clause provides protection against self-incrimination in criminal proceedings corresponding to the protection provided in the United Kingdom. I hope that the hon. Member will be satisfied with that.

Finally, the disclosure is subject to data protection legislation, which provides additional safeguards in relation to the disclosure of personal data. I hope that the hon. Member for Newcastle upon Tyne Central will feel reassured that the Secretary of State may request only the information that he requires in order to exercise his function under the Bill, and that such information will be treated securely.

Amendment 30 aims to increase the scrutiny that the Secretary of State undertakes in deciding whether a person constitutes an overseas public authority for the purposes of disclosing information under clause 54. It is of course important to ensure that any person believed to be a public authority for the purposes of seeking information from, or disclosing information to, is a public authority. I am therefore pleased to reassure the hon. Lady that the Bill does that as it stands. The approach that we have taken mirrors that—I know that she does not like this—in section 243(11) of the Enterprise Act 2002, which includes a similar definition of an overseas public authority for the purposes of disclosure of specified information to overseas public authorities under the Act.

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

I have the explanatory notes, and they do not state that the clause deals with a separate topic. Paragraph 173 states:

“Clause 59 amends the overseas disclosure gateway in section 243 of the Enterprise Act 2002, removing the restriction on UK public authorities disclosing information that comes to them in connection with a merger investigation under that gateway.”

The explanatory notes do not state that the functions of the CMA are separate from national security as clearly as the Minister just has. I do not want to detain the Committee, but I register the Labour party’s concern—

Peter Grant Portrait Peter Grant
- Hansard - -

Does the hon. Lady share my understanding that the definitive statement on what the Bill is about is the long title of the Bill, not the explanatory notes? Does she agree that the long title makes no mention whatsoever of helping the CMA in the general exercise of its purpose?

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I am grateful to the hon. Gentleman for his intervention, because he is absolutely right that, rather than having a debate on the contents of the explanatory notes, line-by-line scrutiny of the Bill should focus on what the Bill says, and it does not mention general improvements to our competition and mergers regime, much as we feel that improvements could be made. Although we will not oppose the clause, I register our disappointment that we were not better informed of the Bill’s additional scope.

--- Later in debate ---
Sam Tarry Portrait Sam Tarry
- Hansard - - - Excerpts

Before turning to the amendment, it occurs to me that the Minister, in his new role as vaccinations tsar, could consider this Committee Room as somewhere to store some of the vaccine.

Amendment 31 would simply require the Secretary of State to report on the time taken to process notices, on the resource allocated to the new unit, and on the extent to which small and medium-sized enterprises are called in under the new regime. It is about requiring greater accountability from BEIS in the investment security unit’s service standards. That sounds anodyne, but it does something very important.

Throughout our discussions, there has been one point of agreement across the Committee: hon. Members, across party lines, have raised concerns about the capacity and capability that a new investment security unit will have to deliver on the Bill’s ambition. A number of the expert witnesses added to that concern, describing the shift as “seismic”—totally transformational—and said that changes will need to be thoroughly resourced in that unit, which should be especially prepared to work closely and efficiently with our innovative start-ups.

Indeed, some of the experts were pretty clear on that point. David Petrie of the ICAEW said:

“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.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 53, Q60.]

Peter Grant Portrait Peter Grant
- Hansard - -

I certainly sympathise with the hon. Gentleman’s desire for that information to be published. Can he explain why the Bill should require that it be published, rather than leaving it to ongoing scrutiny by the relevant Select Committee? Does he think that the wording of paragraph (o) of the amendment needs to be more precise to be part of an Act of Parliament? If scrutiny were left to the discretion of a Select Committee, it would not need to be quite so clear about what “average” means, for example, because five or six different words mean “average” to statisticians.

Sam Tarry Portrait Sam Tarry
- Hansard - - - Excerpts

The hon. Gentleman raises a good point. I think that the wording is precise enough. The accompanying guidance to the Bill could perhaps clarify some of those points. The key reason that we want that in the Bill, rather than for it to be overseen in the way that he has suggested, is that—

National Security and Investment Bill (Twelfth sitting)

(Committee Debate: 12th sitting: House of Commons)
Peter Grant Excerpts
Thursday 10th December 2020

(10 months, 2 weeks ago)

Public Bill Committees

Read Full debate Read Hansard Text Bill Main Page
Department for Business, Energy and Industrial Strategy
Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

Absolutely. That is why we are not seeking a statutory definition of national security. That is why we are seeking to include and to set out points that the Secretary of State may take into account. The hon. Member should recognise that the Government’s statement of intent is designed to give guidance as to how the Bill will work and be used in practice, and what might be taken into account. The guidance is there. It is just that it is very limited.

We are deliberately not seeking a prescriptive definition of national security. We recognise, as Sir Richard Dearlove did, that it can and must evolve over time. We are seeking to give greater guidance and to promote a better understanding of the remit of the Bill, so that it can be better interpreted and better implemented and so that all those who come under its remit can share that understanding. That is what other nations do. The new clause takes our security context seriously, and signals to hostile actors that we will act with seriousness, not superficiality.

Paragraph (f) bridges the gap between the Government’s defined sectors and focus and the critical national infrastructure that we already define and focus on in our wider intelligence and security work. It brings us in line with allies. Canadian guidelines list the security of Canada’s national infrastructure as an explicit factor in national security assessments. In Committee on Foreign Investment in the United States cases, Congress lists critical infrastructure among the six factors that the President and CFIUS may access.

The provision also acts on the agreement of the ex MI6 chief. In relation to having a critical national infrastructure definition in the Bill, he said:

“I would certainly see that as advantageous, because it defines a clear area where you start and from which you can make judgments”.––[Official Report, National Security and Investment Public Bill Committee, Tuesday 24 November 2020; c. 24, Q31.]

Some of the interventions have been about whether the new clause hits the right spot between prescribing and defining what national security is and giving greater clarity and focus. We would argue that the evidence that I have just set out shows that it does.

Paragraphs (g), (h) and (i) recognise that national security is about more than a narrow view of military security; it is about human security, clamping down on persistent abuses of law—as other countries do—and recognising that a party that consistently abuses human rights abroad cannot be trusted to do otherwise at home. It is about knowing that the single greatest collective threat we face, at home and across the world, lies in climate risk. It is about acting on illicit activities and money-laundering threats that underpin direct threats to national security in the form of global terror.

I recognise that many Government Members have recently raised the importance of human rights, illicit activities, money laundering and climate change in our security. In the statement on Hong Kong this week, the Minister for Asia acknowledged that human rights should be part of our considerations when it comes to trade and security but said that he did not feel that the Trade Bill was the right place for such provisions. I argue that today’s Bill is the right place for them because it deals with our national security.

The new clause would show the world that the UK is serious about national security. We must protect our national security against threats at home and abroad, and build our sovereign capability in industries that are the most strategically significant for security. We must view security in the light of modern technologies, climate and geopolitical threats. None of those constrain the Government’s ability to act; they simply sharpen the clarity of that action, and its signal to the world.

When we began line-by-line scrutiny, I spoke of my astonishment that the Government’s impact assessment referred to national security as an area of market failure that therefore required Government action. I hope that the Minister can confirm that he does not believe that national security is an area of market failure, but that it is the first responsibility of Government. The new clause sets out to give bones to that assertion and to demonstrate to the world that we understand our national security and the interests at play in promoting and securing it, and that we will act decisively in the interest of national security, taking into account this range of factors to protect our citizens, our national interest and our economic sovereignty, now and in the future.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
- Hansard - -

It is a pleasure to follow the hon. Member for Newcastle upon Tyne Central although I confess I was not quite able to pay attention to the early part of her remarks, because I was still reeling from the revelation that a born and bred Geordie is capable of feeling cold. I just hope that her constituents do not get to hear of it, or she might be in trouble at the next election.

Perhaps the aspect of the new clause that I am least comfortable about is the title. I think that is what is causing the problem. The title is “National security definition”, but what follows, thankfully, is not a definition of national security. Like a lot of people, I would love to be able to come up with a definition of national security that worked and was robust, but no one has been able to do that. The new clause, however, does not seek to prescribe what national security is, and despite what was said in some of the interventions, it certainly does not attempt to prescribe what it is not. It gives explicit statutory authority to the Secretary of State to take certain factors into account in determining whether and how, in his judgment, a particular acquisition is a threat to national security.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

I can only ascribe my lack of the usual Geordie central heating to being so far from home at the moment. I take the hon. Gentleman’s point about the new clause seriously, and I think he is right. The title misleads to the extent that we are not looking to define national security.

Peter Grant Portrait Peter Grant
- Hansard - -

If the hon. Lady thinks she is a long way from home—tell me about it.

There was discussion, and quite a lot of questions to some of the early witnesses, about whether we needed to give some kind of guidance on what national security is not. Some of us vividly remember—I think that the hon. Lady’s constituents will vividly remember—that there was a time when someone was a threat to national security if they were a coal miner who went on strike, or if they had a trade union membership card in their pocket and worked in the wrong places, such as in Government establishments that officially did not exist then. When we look at the honours that are still bestowed on the person responsible for those two abuses of the claim of national security, it can be understood why some of us are always concerned about giving any Government powers to act in the interest of national security unless clear safeguards are built in.

The other side of the coin is that I can foresee times when the Secretary of State might be grateful for the fact that the clause has been incorporated in the Bill. Let us suppose that someone wanted to take control of or influence a software company. I know that software is itself an area we would want to look at. We all know what can happen when the software that helps to control major transport systems goes wrong. We have all been affected by Heathrow terminal 5 effectively shutting down for hours at a time. When there is a major signalling fault caused by a software malfunction at one of the main London stations, the whole of the south-east can be clogged up for hours or even days.

Can that become a threat to our national security? I think there are circumstances in which it could. I can certainly foresee circumstances in which someone who wanted to damage the United Kingdom—for no other reason than wanting to damage its interests—might seek to do so by getting a way in that enables them to interfere with the code controlling software of the transport or financial services infrastructure, for example. It is not in the interest of any of us, at the point when a Secretary of State intervenes to stop such an acquisition, if the matter can be taken to court and it becomes necessary to argue that deliberately causing the national transport infrastructure to freeze is an attack on our national security. I cannot understand why anyone would want not to add a clause to the Bill to allow such an interpretation to be made if the Secretary of State saw fit.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

The hon. Gentleman reminds me that I should have mentioned either the impact assessment or the consultation response. I think the consultation response gives the deliberately induced software failure at Heathrow as an example of a failure of national security that the Bill would be able to circumvent by preventing hostile parties from owning that software company, without setting out how that would be part of the definition of national security that the Bill is seeking.

Peter Grant Portrait Peter Grant
- Hansard - -

I am grateful again for those comments. The hon. Lady has referred again to what is in the explanatory notes. Unless somebody has changed the rules, the explanatory notes are not part of the eventual Act of Parliament. In borderline cases, they may be used by a court to help to interpret what the intention of Parliament was when it passed a Bill, but as a general rule, the intention of Parliament is stated by the words in the Act as it is passed. If it does not say in the Act that a Secretary of State can take those factors into account, there will be an argument that will have to be heard and tried in court, if need be, that a Secretary of State should not have taken those factors into account.

Andrew Griffith Portrait Andrew Griffith
- Hansard - - - Excerpts

I do not know how familiar the hon. Gentleman is with the process by which the courts look at the definitions for judicial review, but one of the dangers of trying to write them down—I accept that it is “may” language, not “must”—is that the court will look at them. We could inadvertently circumscribe the degree to which the Act can be used. I know that is not the hon. Gentleman’s intention, but I have to say that, in practice—he might be familiar with how the courts work, particularly for judicial review—that is absolutely a legitimate consideration. That is one of the reasons why I would argue that the new clause should not be accepted.

Peter Grant Portrait Peter Grant
- Hansard - -

I hear what the hon. Gentleman is saying, but I am also looking at the following words:

“factors including, but not restricted to”.

Are those words completely without meaning? If they are, why is it that the Library has dozens, if not hundreds, of pieces of legislation currently in force that have those exact words included in them? Those words are there explicitly to make sure that the list is not intended to be comprehensive. The fact that the word “may” is in there is because it allows the Secretary of State to take the factors into account, but it does not require them to do it in circumstances where it is not appropriate.

The final aspect that I want to look at is the very last factor in new clause 1: money laundering. Everybody knows that money laundering is bad and that it is a threat to our economy; it is a threat to honest businesses and all the rest of it. If the only concern that the Secretary of State had about an acquisition was that it was intended to facilitate large-scale money laundering in the United Kingdom, can we be sure that a court would accept that, and that alone, as evidence of a threat to our national security? I hope it would. The way to make sure it would is to put it in the Bill right now.

We know there are very strong connections between the acquisition of huge amounts of property, particularly in London, by people who got rich very quickly after the collapse of the Soviet Union, large-scale money laundering and organised crime, with the money sometimes being laundered through London, and the growing effectiveness of the threat that the present Russian regime poses to our national security. The Intelligence and Security Committee report from about a year ago highlighted that very clearly.

We know that money laundering can become part of—[Interruption.]

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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)
- Hansard - - - Excerpts

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.

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Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

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
- Hansard - -

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
- Hansard - - - Excerpts

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.

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

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Peter Grant Portrait Peter Grant
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I am pleased to speak to the two new clauses, which stand in my name and that of my hon. Friend the Member for Aberdeen South. Throughout our debate on the Bill, Members have spoken—sometimes with a surprising degree of cross-party consensus—of the need to find the right balance between protecting our collective national security and allowing beneficial investment into the United Kingdom to continue. New clauses 2 and 3 aim to give some recognition to the fact that among the Bill’s potential detrimental effects may well be a disproportionate detrimental impact on smaller businesses and early start-up ventures.

Smaller businesses often lack the resources to have their own in-house team of lawyers or other trade law experts, and they certainly cannot afford the services of the very experienced experts that gave evidence to the Committee a few weeks ago. They may be more adversely affected than a bigger business would be by delays in bringing in investment, because they do not have the same resources to fall back on. Compared with bigger businesses that may have more international connections, smaller businesses are unlikely to be as well informed about which possible investors or partners are likely to raise security concerns. There is a danger that small businesses could commit time and resources to negotiating deals, acquisitions, mergers or investments that a bigger business with a more global perspective would immediately know were non-starters. Small businesses may spend a lot of time on abortive deals and negotiations.

All the way through, I have said that these things may happen. I am not trying to reignite arguments about “may” and “must”, but at the moment nobody really knows what the impact of the legislation will be. We cannot possibly know until it has been in place for a few months, or possibly even a bit longer. What we do know is that when this legislation comes into force, we will rely massively on the growth of existing small businesses and the launch of new ones to drive our post-covid recovery. Big businesses will not do it, and they certainly will not do it on their own. We have all got a responsibility to avoid putting unnecessary obstacles in the way of small businesses who want to start to grow. If we do find that we have unintentionally put those obstacles in the way, we need to be able to remove them.

New clause 2 makes two simple requests—it has two simple requirements. The first is that the Secretary of State reports back to Parliament on impacts the Act has had on small and medium-sized enterprises and early-stage ventures, giving Parliament the chance—should it need it—to consider whether we have created unintended barriers to small businesses. The second requirement is for the Secretary of State to provide guidance to those same companies to give them a bit more certainty about what they need to do to stay on the right side of the law without having to spend money on expensive consultants or legal experts.

New clause 3 tries to minimise the potential damage that the Act could do to small businesses, particularly in the early days when they may be unused to some of the impacts. Clause 32 creates a new offence of completing a notifiable acquisition without reasonable excuse and without the proper authority of the Secretary of State. New clause 3 seeks to recognise that small businesses in particular may find themselves in the wrong side of that clause in the early days of the legislation, not through any malice or wilful neglect, but simply through ignorance, lack of experience or being too busy trying to run their business to be keeping an eye on what is happening in the Houses of Parliament. New clause 3 would effectively provide a grace period of six months in which a small business can put forward the fact that the legislation is new to be taken as a reasonable excuse, which would mean that neither they nor the directors were liable to criminal prosecution. It is critically important to bear in mind that nothing in new clause 3 would do anything whatever to dilute or reduce the effectiveness of the Bill in doing what it is supposed to do. It would not have any impact on the ability of the Secretary of State to take action to protect our national security. It would not have any impact on the exercise of powers either to block an acquisition or merger or to impose conditions on it, should that be necessary. It would not change the fact that if a small business during that six-month period completes an acquisition that should not have been completed, that acquisition would be just as void under the law as any other acquisition.

I understand that new clause 3 is a slightly unusual clause for a piece of legislation, but it would allow us to make sure that the Bill continues to protect national security to the fullest extent it can, but at the same time that we do not have businesses being scared to act in case they end up on the wrong side of the law. We would not have the possibility of the courts having to take up time dealing with prosecutions of small businesses or directors who genuinely meant no harm, but who just—

Andrew Griffith Portrait Andrew Griffith
- Hansard - - - Excerpts

I welcome the hon. Gentleman’s conversion to the zealous promotion of free enterprise and the cause of small businesses, but would he extend his support to any new taxation measures, new business regulation or employment measures that are advanced by the Government? While I support the thrust, the principle and the philosophy from which he clearly speaks, I do worry that the new clause could create somewhat of a precedent, and I am not sure that all of his colleagues have fully thought through the profound implications for the application of the law on business in this land.

Peter Grant Portrait Peter Grant
- Hansard - -

I can assure the hon. Gentleman that I have been a supporter of small businesses significantly longer than he has perhaps. I did make it clear that this is a way that we can protect small businesses without in any way compromising the integrity of the Bill. There is nothing in the new clause that will in any way weaken the effectiveness of the Bill and protecting our national security. I would be happy at another time to debate the reasons why, for example, employment measures in Scotland should be taken by the Parliament and Government elected by the people of Scotland rather than somewhere down here, but that is not a debate for today. I expect, Sir Graham, that neither you nor anybody else would be too pleased if we started to take up time this afternoon on that subject.

James Wild Portrait James Wild
- Hansard - - - Excerpts

In clause 32, there is provision to look at whether a reasonable excuse exists in an individual case. The hon. Member’s amendment would give a blanket exemption to any small business by dint of being a small business. Is the case-by-case basis not a better way to approach the issue?

Peter Grant Portrait Peter Grant
- Hansard - -

That is a valid point, but I do not think it is. The difficulty with the case-by-case basis is that it creates uncertainty and worry for the small business concerned. We are talking about a period of only six months. I do not really think that hostile overseas investors are waiting to pounce during those six months to gobble up small businesses in a way that will damage our national security. Let us face it: if they were going to do that in the first six months, they would be doing it now or they would have done it in the last six months.

I hear what the hon. Gentleman is saying, but the new clause is deliberately worded to explicitly recognise the importance of small businesses, particularly during this period. The Bill is likely to come into force at the exact time that small businesses will be trying to get back on their feet. They need all the help they can get. There is a danger that the way that the Bill could be implemented and enforced will be an unintentional barrier to their growth.

All that we are asking is that, for a short period, until smaller businesses get used to the new legislation, it does not allow them to go ahead with transactions that are otherwise prohibited and would otherwise be blocked by the Secretary of State. The Secretary of State will still have the full power to block those transactions or to impose conditions on them. It does not mean that an acquisition is legally valid if it would otherwise be void under the terms of the legislation. The only difference it makes is that it removes the danger of small businesses or their directors spending time defending themselves in court when they should be developing their business and helping to get the economy back on its feet. On that basis, I commend both new clauses to the Committee.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

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.

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Peter Grant Portrait Peter Grant
- Hansard - -

I hear what the Minister is saying, but I am still not convinced that he was listening to all the comments from this side of the Committee. However, I do not seek to divide the Committee on either new clause. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 4

Complaints procedure

“(1) The Secretary of State shall by regulations set up a formal complaints procedure through which acquirers may raise complaints about the procedures followed during the course of an assessment under this Act.

(2) Complaints as set out in subsection (1) may be made to a Procedural Officer, who—

(a) must not have been involved in the assessment and who is to consider significant procedural complaints relating to this section or another part of this Act; and

(b) may determine or settle complaints in accordance with regulations to be published by the Secretary of State within 3 months of this Bill becoming an Act.”—(Chi Onwurah.)

This new clause would require the Secretary of State to establish a formal complaints procedure for acquirers.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

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Sam Tarry Portrait Sam Tarry
- Hansard - - - Excerpts

I thank the hon. Member for that intervention, which goes back to what the hon. Member for Arundel and South Downs said. That is why this needs to be looked at regularly enough to be on top of the process. Obviously, threats change. Countries rise and fall and their agendas and Governments change, but we know that in some instances countries are actively making moves to invest in technology companies in such a way that might not be caught by some of the provisions in the Bill. We feel that being more stringent here would allow the Secretary of State more powers to keep, in some ways, a better eye on exactly what is going on.

Perhaps I should explain a little what I mean by that. One of the things that we are trying to uncover and drive at with the new clause is the importance of some of the ways in which venture capital firms are being used, particularly by the Chinese and by some companies. For example, in Cambridge and Oxford—two important tech hubs for our country—start-ups are regularly invited to pitch ideas to the Chinese state investment company. Nothing particularly untoward is happening there, but it is quite interesting that Chinese investors are particularly interested in talking to emerging biotech, internet of things, artificial intelligence and agri-tech companies.

Why is China particularly interested in those areas? The publicly available “Made in China 2025” strategy to become an economic superpower says that the first three things that the Chinese are interested in are biotechnology, the internet of things, and artificial intelligence. It is quite clear that there is a specific move by the Chinese—this could be replicated by other countries, whether it be Russia or others—but it is not as obvious as, “This is a state company that is going to come in and invest.” They will be taking part in buy-ins of some of the companies. This is something that has already happened.

Peter Grant Portrait Peter Grant
- Hansard - -

Although I understand the intention behind the new clause, some of the wording concerns me. I supported new clause 1 because it was quite clearly permissive and expansive. This new clause is quite clearly prescriptive. Does the hon. Gentleman not accept that the Secretary of State will be guided day to day, which is much more regularly than multi-agency reviews can happen? The Secretary of State will be guided day to day by advice from the security services and others, not as to the theoretical characteristics of an acquirer that might make them a threat, but as to the actual identity and track record of the acquirer and concern.

In particular, is the hon. Gentleman not concerned about requiring the production of a list of high-risk and low-risk characteristics, or that subsection (3) of the new clause in particular would create the possibility that, at some point, somebody who ticked all the boxes for low risk, but was still a high-risk acquirer, could prevent the Secretary of State from undertaking the scrutiny that was required? Can he even explain, for example, what he means by “greater” and “lesser” scrutiny? How would I interpret whether the Secretary of State’s scrutiny had been greater or lesser?

Sam Tarry Portrait Sam Tarry
- Hansard - - - Excerpts

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

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

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

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

Hon. Members will be sad to know that I have failed in the ballot to be one of the 2,000 supporters to watch Southampton Football Club this Saturday. I will reflect on that, but I have already sat here for much longer than 90 minutes in near-freezing conditions, watching two equally matched teams slug it out together, so I am not too upset about it. That is the last thing I will say about the unpleasant conditions in this Committee Room.

I hope this clause will be seen as helpful to the Secretary of State and as an addition to the armoury of this Bill in dealing with the multitude of different circumstances under which influence may be sought, or technologies and sensitive information may be acquired, as we have discussed. It seeks to give the Secretary of State an exercisable power under the clause 1 call-in powers and it follows on from what my hon. Friend the Member for Ilford South said in the previous debate.

Start-ups may be invested in by venture capitalists, but those venture capitalists may turn out to be bodies that are effectively seeking to gain influence in the start-up or small company, by means of investing in it. They are not seeking to control it, or to control either the entity or the asset, in terms of the meaning in section 8 or 9, but to put themselves in a position where it is pretty impossible for those companies to resist providing information to that limited partner.

In the UK, British start-ups effectively rely on foreign investment. In 2019, 90% of large tech investment rounds included US or Asian investors, according to Atomico’s “The State of European Tech.” There are many circumstances in what we might call our UK venture capital ecosystem in which that kind of sourcing of funds is a regular state of affairs. Venture capital-reliant firms in this country are now receiving millions of pounds from Chinese investors, as my hon. Friend the Member for Ilford South has enumerated for us.

Those venture capital investments do not end up, and are not supposed to end up, with the seeking of material control of those companies. As I have said, it would be difficult—practically impossible—for that venture capital-based firm to deny its limited partner investors access to technological information from portfolio companies. In such cases, especially when limited partner investments in the fund take place after an initial trigger event, those would be missed by the Bill as it currently stands. Indeed, that is made tougher still by the fact that most venture capital funds do not publish the names of limited partners. So the Government would not even know when those investments happen and when access to information passes into potentially hostile hands. That series of circumstances is becoming pretty widespread in the high-tech world, and does not appear to be focused on very accurately by the provisions already in the Bill.

What the amendment seeks to do, as I have mentioned, is enable the Secretary of State—if it is considered by the Secretary of State to be an issue that warrants further consideration—to make regulations for the provision of that call-in power outside the terms of clause 9 of the Bill. I think that is a potentially very positive additional power that would reside in the Bill and would be an additional piece of armoury in the hands of the Secretary of State on the basis of what we think is a continuing expansion of investment which may have malicious intent to scoop up, by that venture capital arrangement, a slice of sensitive information.

I was thinking about the equivalent of Chinese dragons in “Dragons’ Den”, taking a portion of the company in return for having a hand in that company’s investments. In a sense, that is what venture capitalists will do under these circumstances. Although the control of the company, as we see in “Dragons’ Den”, remains very much in the hands of the person who has gone into the den in the first place, the investment in that company is nevertheless a source of very substantial leverage in what the company does, what information it provides and what sensitive information it gives out.

I offer this new clause in what I hope will be seen as a very constructive spirit. The clause endeavours to strengthen the Bill by providing a particular option to the Secretary of State, when looking at the entire landscape of how influence is sought, at how sensitive information may be provided and at how assets may effectively be acquired.

Peter Grant Portrait Peter Grant
- Hansard - -

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
- Hansard - - - Excerpts

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.

National Security and Investment Bill (Seventh sitting)

(Committee Debate: 7th sitting: House of Commons)
Peter Grant Excerpts
Thursday 3rd December 2020

(10 months, 3 weeks ago)

Public Bill Committees

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Department for Business, Energy and Industrial Strategy
Nadhim Zahawi Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)
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Clause 11 is intended to provide an exemption for certain asset acquisitions, which would otherwise be trigger events. The power to call in acquisitions of control over qualifying assets, as defined in clauses 7 and 9, will significantly expand the Government’s ability to protect our national security.

The clause ensures that these new powers will not extend to certain acquisitions made by individuals for purposes that are wholly or mainly outside the individual’s trade, business or craft. The Government do not believe, for example, that it would be right for the Secretary of State to be able to intervene in consumer purchases. Given their nature, such acquisitions cannot reasonably be expected to give rise to national security risks.

Moreover, a regime which could apply to such circumstances would quickly become impractical and could result in significant numbers of additional notifications for no national security gain whatsoever. As such, this clause explicitly limits the types of assets that the Secretary of State may scrutinise in line with the Government’s intention that the regime will primarily concern control of entities and only extend to assets as a precautionary backstop.

It would mean, for example, that sales of software products to consumers by a software company would not be caught by the regime, but—this is important—it would not prevent a transaction involving the software company selling the underlying code base supporting that software to a buyer acting in a professional capacity from the possibility of call-in under the regime, where that might give rise to a national security risk.

The Government have also carefully considered whether certain types of assets should remain outside this exemption clause. We have concluded that all assets that are either land or subject to export controls, as my hon. Friend the Member for Wyre Forest regularly reminds us, should not fall within the exemption. This approach, I believe, reflected in the clause, recognises the unique nature of the risks posed by land acquisitions and proximity risk to certain UK sites, as well as the particularly sensitive nature of items on the export control lists. The Government consider that this approach is proportionate and appropriately exempts acquisitions that do not give rise to national security risks, while ensuring flexibility exists to scrutinise hostile actors directly targeting the acquisition of sensitive assets.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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I note that subsection (2) lists some exceptions, many of which are framed in terms of regulations of the European Parliament and the European Council. Let me ask the Minister two things. First, why is that the case, given that we will be completely out of the European Union in a matter of days? Secondly, and perhaps more importantly, if the European Parliament and the European Council were to amend those regulations, do the Government intend to amend this legislation to keep in step with what is happening in the rest of the European Union?

Nadhim Zahawi Portrait Nadhim Zahawi
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I am happy to write to the hon. Gentleman on that detail.

Question put and agree to.

Clause 11 accordingly ordered to stand part of the Bill.

Clause 12

TRIGGER EVENTS: SUPPLEMENTARY

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Nadhim Zahawi Portrait Nadhim Zahawi
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Hear, hear—I agree with every word.

For the benefit of the Committee, I will begin with clause stand part, before turning to the amendment. The Secretary of State’s power to call in trigger events that have taken place is limited to a maximum of five years after the trigger event takes place and six months after the Secretary of State becomes aware of the trigger event. It is important to bear that in mind when discussing the amendment. That means that the issue of timing as to when a trigger event actually takes place is incredibly important. Many trigger events will have a self-evident completion date, as supported by contractual or other legal agreements. However, some trigger events may be less clearcut. There could be terms agreed formally by the parties, followed by further documentation, leading to a formal completion, all spread out over a period of time.

The clause ensures that where a trigger event takes place over a period of more than one day, or if it is unclear when during a period of more than one day the event has taken place, the last day of that period is treated as the date the trigger event takes place. In addition, the clause seeks to provide clarity about when a trigger event may be considered to be in progress or contemplation, where a person enters into an agreement or arrangement enabling them to do something in the future that would result in a trigger event taking place. It makes clear that entering into such agreements or arrangements, including contingent ones, does not necessarily mean that a trigger event is in progress or contemplation at the time the agreement or arrangement is entered into.

Amendment 16 would ensure that a person entering into any agreement or arrangement that enables the person, contingently or not, to do something in the future that would result in a trigger event taking place would be deemed a trigger event in progress or contemplation for the purposes of the Bill. I welcome the intention to ensure that the Secretary of State can be notified about acquisitions before they take place and I understand the motivation behind that. That is very much the Government’s policy. Indeed, the inclusion of mandatory notification and clear requirements within the proposed 17 sectors illustrates that approach in the most sensitive parts of the economy.

The timing of any notification is clearly very important. It must contain sufficient information for the Secretary of State to decide whether to give a call-in notice. That means that a proposed acquisition must be at an advanced enough stage that all the key details are known: for example, the names of all the parties involved, the size of any equity stake in the entity or asset, and the specifics of any other rights—such as any board appointment rights, which the hon. Member for Warwick and Leamington cited in his intervention—being provided to the acquirer.

In some cases, however, such details may be known, but the likelihood of a trigger event actually taking place may still be low because the acquisition is conditional. For example, the striking of a futures contract or an options agreement may stipulate conditions that must be met before the acquirer is required to, or has the right to, acquire a holding in an entity or an asset. Such arrangements are common in the marketplace where, for example, a company’s future share price might be the basis of a conditional acquisition. Equally, lenders provide finance to many UK businesses on the basis of conditional agreements, often with collateral put up by the business as security in return for the loan. Those terms may, subject to certain conditions being met, allow the lender to seize collateral if repayments are not made as agreed.

Peter Grant Portrait Peter Grant
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Can the Minister explain, first of all, why subsections (3) and (4) are included here as part of a supplementary clause when they clearly affect definitions, and as such go to the very heart of the Bill? The main clause is about defining the date on which something has happened for the purposes of calculating when later stages have to take place, but subsections (3) and (4) not only apply to those timings; they apply to everything in the Bill. I wonder whether the Minister could explain why those subsections are not included in one of the earlier clauses.

Secondly, I understand the Minister’s argument, but would it not be more prudent to work on the assumption that if somebody insists on some kind of contingent future rights being built into an agreement, they think there is a possibility that they will have to exercise them? Would it not therefore be prudent for the Government to work on the assumption that they are likely to be exercised? If not, is the Minister not concerned that we could have a situation where a whole series of small events, none of which looks particularly significant by itself, adds up to something that does become significant when taken in sequence, but there might never have been a stage during that process where the Bill, or the Act, allowed the Government to intervene?

Nadhim Zahawi Portrait Nadhim Zahawi
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I am grateful for the hon. Gentleman’s intervention. I am just getting to the crux of the resistance to this amendment on the Government Benches, so if he will allow me, I will do that. As far as subsections (3) and (4) are concerned, we think they are exactly where they should be in the Bill.

In the loan scenario, obviously loans are routinely paid back by businesses as planned, so lenders do not have the option of enforcing any rights towards collateral. Indeed, even where businesses default on payments, lenders will often look for an alternative way to recoup their funds, such as restructuring the repayment amounts or repayment period. That is why the Secretary of State generally only expects to be notified about and, if the legal test is met, to call in acquisitions when they are genuinely in progress or contemplation, not just when they are optional or might take place in the future, as the amendment would effectively do. That could include where an option holder had resolved to exercise their option, or where a lender had decided to enforce their collateral.

None the less, the clause as drafted does provide the Secretary of State with the ability to call in at the time agreements or arrangements are entered into. That would be determined on a case-by-case basis and would, as per subsection (4), take into account how likely it is in practice that the person will do the thing that would result in a trigger event taking place. The amendment put forward by the hon. Member for Newcastle upon Tyne Central—she is right to probe on this—would mean that entry into any agreement or arrangement under which a trigger event could take place in future would be treated as a trigger event currently in progress or contemplation, allowing it to be notified and called in by the Secretary of State. We believe that this would—unintentionally, I am sure—have two significant negative implications.

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Nadhim Zahawi Portrait Nadhim Zahawi
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I am grateful for that clarification. I wrote down the hon. Lady’s words. She did say that it is an excellent deterrent, and went on to make her argument for the amendment.

To return to the substance, the provision means that the acquisition has no legal effect if it is void. It is not recognised by the law as having taken place. Clearly, voiding is a situation that it is in the interests of all parties to avoid, which should act as a powerful compliance incentive, if I can describe it as such. The Government’s view is that voiding is the logical result of a regime based on mandatory notification and clearance for acquisitions in the most sensitive sectors before they take place.

Although the Secretary of State, or the courts, may be in a position to punish non-compliance with criminal or civil sanctions, voiding is necessary to limit or prevent risks to national security that may otherwise arise where such acquisitions take place without approval. For example, there may be day one risks whereby hostile actors acquire control of an entity and seek to extract its intellectual property and other assets immediately. This is a reasonable and proportionate approach, and in arriving at this position we have carefully considered the precedent of other investment screening regimes. For example, France, Germany and Italy all have voiding provisions.

Amendment 17 would require the Secretary of State to publish guidance within three months of Royal Assent and then review it annually in relation to the approval process for notifiable acquisitions. I have listened carefully to the hon. Lady’s case for the amendment, and I hope that I can begin on common ground by saying that clearly voiding an acquisition is something that it is in the interests of all parties to avoid. That is why we are consulting on the sector definitions covered by mandatory notification and clearance, rather than simply presenting them to Parliament and external stakeholders like a fait accompli in the Bill.

That approach will allow experts from the sectors and the legal profession, and businesses and investors, to help us to refine the final definitions and tighten them up to ensure that the regime is targeted and provides legal certainty. Equally, mandatory notification applies only to the clearest acquisitions, focused on objective thresholds of shares and voting rights. Together, that will help acquirers to determine whether their acquisitions are in scope of mandatory notification, and therefore allow them to comply with their statutory obligation and avoid any voiding scenarios altogether.

Peter Grant Portrait Peter Grant
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I agree that the sensible starting point is that, if a major transaction has not complied with legal requirements, it did not happen. As the shadow Minister outlined in her comments, however, it is easy to imagine situations in which the fact of a transaction such as this becoming void could have significant impacts on people who are completely innocent of any failure to comply with the law. Is the Minister comfortable with the fact that the Bill has almost literally nothing to say about those people and that there is not provision for any kind of redress? There is no statement as to what happens to people who may quite innocently find themselves facing significant detriment through the actions and failures of others.

Nadhim Zahawi Portrait Nadhim Zahawi
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I am grateful for the hon. Gentleman’s intervention. As I was laying out, there is precedent from other screening legislation in Germany, France and elsewhere. Of course, the hon. Member for Newcastle upon Tyne Central is concerned about the hundreds of thousands of people who may be shareholders in a company. If the acquisition was a notifiable acquisition and completed without approval, it is void, regardless of the number of shareholders.

I return to the point I was making before the hon. Gentleman’s intervention. Together, this will help the acquirers determine whether their acquisitions are in scope of mandatory notification. None the less, the Bill sets out the various ways in which an acquisition may be retrospectively validated, both proactively by the Secretary of State and in response to a validation application, where non-compliance occurs. I believe the guidance that the amendment would require the Secretary of State to publish is well meaning but fraught with difficulties.

There are a number of reasons why the Government must reject the suggested approach. First, the amendment is an invitation to the Secretary of State to, in effect, legislate through guidance to set out the legal implications of acquisitions being voided pursuant to clause 13. In our view, it would not be appropriate for the Secretary of State to do so, as it is for Parliament to legislate, but ultimately for the courts to interpret and apply that legislation.

The hon. Member for Newcastle upon Tyne Central will be aware of the much-quoted report from the House of Lords Select Committee on the Constitution, which has emphasised the importance of avoiding guidance being used as a substitute for legislation. We have no intention to do so in respect of voiding.

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Sam Tarry Portrait Sam Tarry
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One of the things that we have probed a number of times, when taking evidence from witnesses and in our debates in Committee, is the idea that we need to give businesses clarity, because many are feeling uncertain. If they cannot make decisions about forward planning, clearly that will be detrimental as we move through the crisis.

Perhaps I should refer to some of the expert evidence we heard last week. Michael Leiter, who represents a very large, global limited liability partnership, told us:

“I think this is a rather seismic shift in the UK’s approach to review of investment… having some opportunity to make sure that both the private sector and the public sector are ready for that and understand the rules…is particularly important”.––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 46, Q52.]

That was in our discussion about resourcing, and one of the questions that I and colleagues on both sides of the Committee raised was on the resourcing of BEIS. As my hon. Friend the Member for Newcastle upon Tyne Central suggested, rather than the burden falling on small and medium-sized enterprises, there should be a fully resourced and expanding new unit within BEIS. Given that the number of call-ins could rise from 12 to 1,800, as we have heard, we need a huge scaling up of BEIS’s ability to look at these, and obviously it does not have the same experience that the Competition and Markets Authority had previously.

I humbly point out that the Minister assured the House on Second Reading that:

“The investment security unit will ensure that clear guidance is available to support all businesses engaging with investment screening”.—[Official Report, 17 November 2020; Vol. 684, c. 277.]

The amendment is intended to secure that assurance in substance; not to tie the hands of the Secretary of State, but to give clarity to businesses by shifting from something that may happen to something that shall happen.

Peter Grant Portrait Peter Grant
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It is a pleasure to serve under your chairmanship, Mr Twigg. I know that there was quite a bit of discussion in an earlier sitting, which I was unable to attend, about the different between “may” and “must”. In relation to clause 14—my comments apply also to clause 18—if we try to imagine the circumstances in which the Secretary of State would choose not to make those regulations, we realise that there are none. If no regulations have been made, most of subsection (6), which clearly is the meat of the clause, just does not make sense.

Subsection (6) states that the Secretary of State may reject the mandatory notice if

“it does not meet the requirements of this section”.

But the clause does not place any requirements on the notice. A letter that says, “Dear Secretary of State, this is a notice under section 14” would meet all the requirements of that subsection, so it cannot be rejected on those grounds. Clearly, it cannot be rejected on the grounds that

“it does not meet the requirements prescribed by the regulations”,

unless the Secretary of State has made the regulations. It can be rejected if

“it does not contain sufficient information to allow the Secretary of State to”

make a decision. How can it possibly be fair for a business to have a notice rejected on the grounds that it does not contain sufficient information to allow a decision to be made by somebody who has chosen not to state what information needs to be provided?

Therefore, two of the grounds on which the Secretary of State can reject the notice are meaningless. The third one has meaning, but it is surely not a reasonable way to treat any business. If there is information that the Secretary of State feels will be necessary to allow her or him to come to a decision on the notice, surely that information should be set out in regulations so that there can be no doubt.

It is perfectly in order for the statutory form of notice to require additional information that cannot be specified in advance. Clearly, the Bill will cover a wide range of transactions, and there will always be information that is needed for one transaction but maybe not for others, but surely we will need to know the name of the acquirer, the identity of the asset and the timing of the intent to acquire. It will be impossible to process any notice without those kinds of things, so surely the Secretary of State will at the very least make regulations requiring that information to be provided. If the Minister can persuade me that there are realistic circumstances in which the Secretary of State can choose not to make any regulations at all, perhaps I would not support the amendment, but the clause will simply not work if the regulations have not been made. For that reason, it should require the Secretary of State to make those regulations.

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Michael Tomlinson Portrait Michael Tomlinson
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I apologise to the hon. Member for Glenrothes; I will wait.

Peter Grant Portrait Peter Grant
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It is easy to see that there will be circumstances where “as soon as reasonably practicable” becomes a very open-ended time limit—or non-time limit—indeed.

Given that so much of the rest of the Bill puts time limits on the Secretary of State to ensure that potentially beneficial transactions cannot be held up forever simply due to delays in the Department, the combination of the words “as soon as reasonably practicable” in subsection (5), right at the start of the process, and the massive uncertainty in the minds of businesses if the Secretary of State does not make regulations persuades me that the Bill should not allow the Secretary of State to make those regulations but should require the Secretary of State to make them, because the clause simply does not work or make sense if they are not made.

Ordered, That the debate be now adjourned.—(Michael Tomlinson.)

National Security and Investment Bill (Eighth sitting)

(Committee Debate: 8th sitting: House of Commons)
Peter Grant Excerpts
Thursday 3rd December 2020

(10 months, 3 weeks ago)

Public Bill Committees

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Department for Business, Energy and Industrial Strategy
Alan Whitehead Portrait Dr Whitehead
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The amendments relate to clauses 19 and 20. Amendment 20 might be regarded as slightly unusual, as it seeks to remove a number of sentences in the Bill: to be precise, lines 24 to 27 on page 12—it would remove clause 19(2), while amendment 21 would remove clause 20(2). The Minister might be saying to himself that Oppositions usually try to restrict Ministers’ powers, yet here we are trying to extend their powers through these amendments. I want to explain why we think that is important.

We want to hear from the Minister why he thinks those particular paragraphs should remain in the Bill, and how the restriction that they place on the Secretary of State’s activity is advantageous to the Bill’s main purpose. The paragraphs that the amendments would take out relate to the power to require information and the power to require the attendance of witnesses and seek evidence. I am sure that hon. Members can read clause 19 for themselves, but I will point out the key part:

“The Secretary of State is not to require the provision of information under this section except where the requirement to provide information is proportionate to the use to which the information is to be put in the carrying out of the Secretary of State’s functions under this Act.”

That is to say that unless it can be, or is, established that the requirement to provide information is proportionate to what the Secretary of State wants to do under the Act, the Secretary of State is not able to require the provision of information. That is effectively what the clause states.

We have already heard during evidence to the Committee that there may well be a complex web when it comes to getting information and working out what is and is not relevant, particularly if a hostile power or body is seeking to take over a company or gain access to its information and IP. The information may well not consist of what it appears to consist of, or there may be a number of paths by which that information can be obtained.

From our expert witnesses we heard some interesting examples of things they thought looked rather far from the central activity of information provision. For example, on academic projects, in his expert evidence, Charlie Parton from the Royal United Services Institute told us:

“It is quite difficult to distinguish some of these and to know about them all, but a few weeks ago The Daily Telegraph did a story on, I think, Oxford University and Huawei’s commissioning of research. I think there were 17 projects. I looked at those, and I am not a technologist by any means, but some of them rang certain alarm bells.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 6.]

He was suggesting that, of a number of those postgraduate and PhD projects, there were some that he might have put a question mark against and others not, but he was not sure which were which. Nevertheless he seemed to think that some of those research projects—although they were cited within the ordinary parameters of whatever the research project might be, and who might be collaborating with whom, and who might get what information out of that—might ring alarm bells. That was in terms of who was collaborating, how the information might be used and where it might be going.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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I think I understand what the amendment is intended to achieve, but is not the hon. Gentleman concerned about the danger of almost explicitly building in a recognition that the powers in the Bill do not have to be used proportionately?

Alan Whitehead Portrait Dr Whitehead
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The hon. Gentleman raises an important point. I will come to the word “proportionate” in a moment, because that is an important part of this clause. I hope I can satisfy him about my concerns about the word “proportionate”. He may want to come back when we have that discussion.

We heard from Sir Richard Dearlove, who said that,

“the Chinese are highly organised and strategic in their attitude towards the West and towards us. For example, some of the thousands of Chinese students who are being educated in Western universities, particularly in the UK and the United States, are unquestionably organised and targeted in terms of subjects”.––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 19.]

Before we go any further, perhaps I should say that I have nothing against Chinese students coming to the UK. On the contrary, I think that in general, Chinese students in UK universities is a very positive thing, and spreads a very good element of international learning into the process. I also think we might be reasonably confident that those Chinese students are getting as much from us, in terms of our way of life and our way of organising things, as we are from them. I do not think Sir Richard Dearlove’s point was partial towards Chinese students, but he made the point that he thought that some of those students may have targeted, or have been targeted towards, particular subjects and areas in the UK and the United States. Again, that is extremely difficult to find out and go forward on.

I am citing those particular expert witnesses in the context of this area of information, particularly concerning somebody—a company, an organisation, or indeed a state actor—that has hostile, malevolent intent towards the information that they have. It is not very likely that they will simply present that information in a ring binder with coloured markers, specifying where the various bits are; it is a very different process indeed. The clause therefore appears to very much limit the extent to which the requirement to provide information can be carried out, and it does so by requiring the provision of information to be proportionate to the use to which the information is to be put.

The word “proportionate” is very important here, and is potentially a real problem in terms of ensuring that the search for information that may be necessary by diverse means can be carried out properly. On the surface, looking at the ordinary language, one might say that the use of the word “proportionate” is a thoroughly good idea. If we apply the ordinary language test—what is the opposite of proportionate?—the opposite would be unproportionate; we would not want the Secretary of State to go about this in an unproportionate way. However, in legal terms, the word “proportionate” has rather a different context,

Proportionality as a legal term is a relative newcomer to the legal lexicon. It entered the legal arena—I am not saying that it had not been used before, but it was put forward as a concept around which a lot of other matters might turn—with the civil litigation reforms introduced in April 2013, known as the Jackson reforms. They covered the concept of proportionality in legal terms as it relates to costs in legal cases, but the question of proportionality was discussed in a wider context. The concept of proportionality, which had not been a particular issue in legal matters before, stuck itself firmly into the legal lexicon. Since then, there have been a number of debates about whether ways of apportioning legal costs were proportionate, even if they might otherwise be seen as reasonable.

Up until that point, the guidance on the issue of proportionality came from Lord Woolf in the Court of Appeal in—I am sure hon. Members will remember the case well—Lownds v. Home Office, where he concluded that if the legal steps that had been taken had been reasonable and necessary, the other party could not object to the cost of these steps on the grounds of proportionality. The test of reasonability and necessity overrode the question of the grounds of proportionality.

That is what changed in 2013 with the civil litigation reforms. An interesting commentary was made in an article published on 12 March 2014 in The Law Society Gazette, entitled “Proportionality and legal costs”—I am saying all this because I am not sure I will get the article to Hansard easily.

The author had this to say about the meaning of proportionality:

“However, the meaning of proportionality is not straightforward and the new rules do not provide clear guidance on how proportionality should be applied. The suggestion seems to be that a body of law will develop on a case-by-case basis until gradually the meaning will become clear. Until that happens, litigants, legal advisers and judges will have to guess at what costs will be considered proportionate in particular circumstances.”

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Alan Whitehead Portrait Dr Whitehead
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Yes, it is. Only one Member has left the room, so we are still in good order.

Peter Grant Portrait Peter Grant
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I fear that the hon. Gentleman is taking the definition of proportionality into a context very different from what is mentioned here in the Bill, because this is not about whether the costs of civil proceedings are justified by the likely outcome, or even how those costs should be divided among the parties.

My reading is that subsection (2) is there to prevent a future Secretary of State—obviously, no one in the present Government would ever do this—from imposing extremely onerous requirements on a business, when it was perfectly possible for the Secretary of State to do due diligence and do the checks he needed to do without that information’s being provided.

I have not heard anything from the hon. Gentleman that would explain why he wants that protection to be taken out. He has said a lot about Chinese students, who may or may not collectively be working against our national interest, but this clause does not protect against that. What does the hon. Gentleman have against the idea that the Secretary of State is not allowed to put unreasonable and onerous demands on businesses when there is no clear benefit to national security of those demands’ being made?

Alan Whitehead Portrait Dr Whitehead
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I hope that the hon. Gentleman will bear with me a few moments longer. Having unpacked “proportionality” in legal rather than colloquial terms, I want to put it back into the clause and see how it works, as far as the concerns of the Secretary of State go.

Indeed, the hon. Member for Glenrothes has questioned what we want to do on this clause in terms of the colloquial understanding of “proportionality”. I have mentioned how “proportionality” has come into the legal arena, specifically in terms of costs. Nevertheless, “proportionality” is now loose in the legal arena, so there is an interesting area of debate about it in general in the legal arena. That is not necessarily solely attached to the question of costs and civil litigation.

The problem is that there is virtually nothing to define that wider issue of proportionality in case law at the moment. Placing that word back into this particular clause suggests to us that the Secretary of State is restricted considerably on how that information may be gathered. The hon. Member for Glenrothes talked about research projects and various other things listed to us by our expert witnesses. I emphasise that I do not want to undermine those research projects or the presence of Chinese students. All I want to underline from that is that, on occasions, the process of getting hold of information and requiring people to give evidence can be convoluted. Indeed, it may require seeking information by going down paths that are not immediately apparent. As I say, it is not a question of someone turning up with a ring binder of things that can be perused.

In this clause, it appears that the Secretary of State may well have denied him or herself the ability to get hold of information, because it states that it has to be

“proportionate to the use to which the information is to be put in the carrying out of the Secretary of State’s functions under this Act.”

But he or she will not know about that information until it has been obtained. If there are difficulties in getting hold of the information, he or she will never know whether it is useful for carrying out his or her functions, because there is already a limit on getting the information in the first place.

I have brought the rather wobbly legal status of proportionality into the debate because it is potentially actionable through an obfuscation or refusal to put information forward by those actors. An actor who was required to give information could say, “It appears to me, your honour, that this request for information is not proportionate.” Of course, the Secretary of State may have a different point of view about what is proportionate from the person who is required to give the information.

There is also a vagueness in the application of the term “proportionate”. Although we think we know what it means in common language, that is not the case in the courts. That could be an additional issue that affects the Secretary of State’s ability to get the required information to make a judgment, over and above the fact that he or she may not know that until the information has been collected. So there are two procedural problems in the clause.

The hon. Member for Glenrothes said to me, to put it bluntly, “What exactly are you driving at? Perhaps it is not a good idea to appear to enable the Secretary of State to act disproportionately.” Of course, that is not what we are saying. We know that the Bill is more or less a giant amendment to the Enterprise Act 2002. Indeed, if hon. Members look at the back of the Bill, they will see that that is the only Act amended by it. Several amendments are made to the 2002 Act, but that is it—it is still sited within that Act. That Act was drawn up before the civil litigation changes to proportionality were put in place. The test set out in that Act, which is not amended by the Bill, is one of reasonableness, which is well understood, widely commented on and pretty clear.

If hon. Members consult the 2002 Act, they will see in clause 55 that the Secretary of State, in terms of enforcement, shall take such action

“as he considers to be reasonable and practicable to remedy”.

Therefore, we are not saying that the Secretary of State by acting disproportionately should act unreasonably. We are suggesting that the test that should be carried out is one of reasonableness, and should be in this particular clause. As the Enterprise Act already does, that would indeed prevent the Secretary of State going on fishing expeditions and undertaking actions that are wholly disproportionate because they would be unreasonable in terms of the definition of the Act. Our suggestion is to stick by that definition, which would be good enough to restrict the Secretary of State under the different circumstance that we are in today, in terms of seeking information. At the same time, it would give the Secretary of State the ability to take a path—I have said it is often a convoluted one—to obtain information that can be judged and used for the purpose of this Bill. I hope that the Minister will be favourably inclined towards that slight, but constrained, addition to his powers under this legislation.

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Nadhim Zahawi Portrait Nadhim Zahawi
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The clause provides the Secretary of State with the power to require the attendance of witnesses.

The Government are acutely aware that many of the acquisitions considered by this regime will be complex and highly technical. In addition to clause 19, which enables the Secretary of State to require the provision of information, most likely in written form, this clause enables the Secretary of State to require the giving of evidence. A notice requiring a person to attend under this clause is called an “attendance notice”. The clause is complementary to clause 19, discussed previously, as it provides, for example, for the Secretary of State to be able to receive expert explanation, in person, from those involved in a trigger event, where the information previously provided does not provide sufficient clarity.

In responding to an attendance notice and providing evidence, a person is not required to give any evidence that they could not be compelled to give in civil proceedings before the court. That protects privileged information. In addition, the Secretary of State will only be able to request information through an attendance notice that is proportionate in assisting him in carrying out his functions under the regime.

We envisage a range of scenarios where the Secretary of State may require the attendance of a witness in order to gather further evidence to make an informed decision on the case. I will provide a few to illustrate. First, I expect that a number of cases will involve complex acquisitions, either because of the advanced nature of the technology in question, or due to their financial structuring. In those cases, the Secretary of State may require those who hold expert knowledge to provide him with an explanation. There may also be cases where it seems that parties are being deliberately non-compliant, or only partly compliant with information-gathering requests. I expect those to be rare but, again, it is only right that the Secretary of State has the power to require the attendance of those parties to provide further information.

The attendance of witnesses may also be a more efficient way to secure additional information in some circumstances, and limit the risk that further time will be needed to consider additional information. There will be criminal and civil sanctions available to punish non-compliance with the notices and the provision of false or misleading information. The attendance notice is provided under threat of such sanction as it is important that the Secretary of State receives the information he needs and can count on to come to a decision.

Peter Grant Portrait Peter Grant
- Hansard - -

A brief question: is it the Government’s intention to allow for witnesses to attend virtually, if it is unreasonable for them to attend physically at the Department, or the Minister’s office?

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

I suspect that the Government will accommodate whichever way is secure and provides the evidence.

I am sure that hon. Members will agree that the clause is crucial in allowing the Secretary of State to consider the fullest range of information in order to make informed decisions under this regime.

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Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

Clause 21 makes provision in respect of the persons on whom the Secretary of State may serve an information notice or an attendance notice outside the United Kingdom. The clause applies in relation to the two earlier clauses. Clause 19 provides the power for the Secretary of State to obtain information either before or after the call-in power is exercised. Clause 20 gives the Secretary of State the power to require the attendance of witnesses to assist him in carrying out his function under the Bill.

Those outside the United Kingdom to whom an information notice or attendance notice may be given are clearly set out in clause 21, which is technical in nature. The purpose is to ensure that certain categories of persons with a connection to the United Kingdom are caught by the information-gathering powers, even if they are outside the UK. These categories of persons are UK nationals, individuals ordinarily resident in the UK, bodies such as companies incorporated or constituted in the UK, and persons carrying on business in the UK. Perhaps more importantly, notices may also be served on persons outside the UK who have acquired, or who are in the process of or are contemplating acquiring, qualifying UK entities or qualifying assets that are either located in the UK or otherwise connected to the UK. In practice, this means that notices may be served on most parties from whom the Secretary of State may wish to require information or evidence.

Peter Grant Portrait Peter Grant
- Hansard - -

I certainly would not seek to oppose this clause, but will the Minister go into a bit more detail about how it works in practice? What if a notice is served on somebody who is not in the United Kingdom, who is not a UK citizen or UK national, who has never set foot in the United Kingdom and quite possibly never intends to, as might happen if a big multinational is seeking to acquire a business intertest in the United Kingdom? Is the intention to create an offence that can be committed by somebody with otherwise no connection with the United Kingdom under UK law? That would mean that the person had committed the offence in a different sovereign territory, not even by something they did, but by something they did not do—not responding to a notice and not attending when required.

I understand why the requirement has to apply to everybody, and I understand that there is no point in serving a statutory notice if there are no consequences to refusing to comply with it; I am just not sure about the practicalities. Has the Minister considered alternative sanctions in those circumstances? For example, the person could be disqualified from being a director or a shareholder in significant UK undertakings. That would potentially have the same effect.

It seems to me that, generally speaking, we would create a criminal offence for the conduct of somebody in a different sovereign territory only in specific circumstances. If somebody is serving with the UK armed forces, for example, they might be covered by UK law even when they are serving abroad. The other circumstance is if the crimes are so heinous as to be regarded as crimes against international law—crimes against humanity and war crimes, for example. I understand that the Education Secretary thinks that Britain is just the best country in the word and nobody else can touch us, but I doubt even he would think that failing to respond to a notice from the UK Secretary of State constitutes a crime against international law.

Is the Minister concerned about setting a precedent whereby we attempt to apply domestic law to the actions or non-actions of people who, in normal circumstances, are covered by the laws of the country they are in and not the criminal law of the United Kingdom? Given that this might create a difficult precedent, is he satisfied that the Government have looked at every possible alternative sanction? This could create a precedent, and other countries could start legislating to say that what UK citizens do in the United Kingdom is contrary to their laws, which would therefore make any of us subject to arrest and prosecution by the authorities of another country. I am a bit concerned about the reaction that might be provoked from Governments elsewhere if we get this part wrong.

Nadhim Zahawi Portrait Nadhim Zahawi
- Hansard - - - Excerpts

I think the hon. Gentleman is referring to parties that are abroad and have a business in the UK—what if notice is served on them and they are non-compliant? Obviously, under UK law that would be a problem for them. I certainly think that, if an information notice is served, the timeline for the Secretary of State’s assessment of a trigger event is paused until the information is provided from the individual in whatever jurisdiction they or the entity happen to be at the end of the time period provided for compliance in the information notice.

If a party does not comply during the assessment process, that may lead to more onerous and stricter remedies being imposed by the Secretary of State than would otherwise be the case, including the acquisition being blocked or unwound where appropriate. It will therefore plainly be in the interest of those involved directly in the trigger event to provide information in a timely manner to the Secretary of State in order that a speedy decision can be taken. That is where the leverage lies.

Peter Grant Portrait Peter Grant
- Hansard - -

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

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

Matt Western Portrait Matt Western
- Hansard - - - Excerpts

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

“a qualifying entity which is formed or recognised”.

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

National Security and Investment Bill (Third sitting)

(Committee Debate: 3rd sitting: House of Commons)
Peter Grant Excerpts
Simon Baynes Portrait Simon Baynes (Clwyd South) (Con)
- Hansard - - - Excerpts

Q Thank you both for your submissions this morning. I want to go further into the issue of how you, the Government or the agency it sets up to do this makes a judgment about whether a small or start-up company really falls within being a threat to national security. I imagine that that might be quite a difficult judgment to make. I am putting to one side the issue of mandatory notification, which Mr Kinnock has looked at in more detail. I am saying that once it has been notified, how do you make the judgment about whether it is a threat to national security?

I would have thought that there are two aspects to that. One is the nature of the acquirer, which is partly what you have already alluded to. The second part is that I would have thought that it is quite difficult to ascertain whether something at the cutting edge of technology is or is not a threat. I would have thought that that is a really difficult judgment to make in practice. Do you have any thoughts on that, and what experience do you have of other regimes trying to make that kind of judgment?

Lisa Wright: I think there are probably a number of ways to tackle that question. I guess that an answer is that it is ultimately a question for the Government. They are the ones who understand the threats and the intelligence. As advisers, we can look at the guidance and cases that have happened in the past, and we can speak to the unit, which, as we understand it, will be open for engagement and will welcome that. We can guide clients through the process, using the touch points and information that is available to us, but ultimately it is the Government that are in possession of the full set of facts and considerations that go into the decisions about whether that particular transaction is a problem or not. I guess what that speaks to is having the right people in the unit and getting them plugged into the right people elsewhere in Government to arm them with the ability to make these assessments.

Christian Boney: To pick up on that, I agree entirely with what Lisa said. It is not necessarily an easy thing for the advisory community or clients themselves to make a judgment about whether they are presenting risk to national security. That is why this concept of real-time, interactive engagement with the unit that is set up to police this regime is going to be so important.

In the world I operate in, one of the regulators we deal with is the Takeover Panel, which is fantastic at being responsive, with real-time engagement. It results in a dialogue and an interaction that helps advisers navigate their clients through a regime that is not straightforward at times. That is the kind of practice that could usefully be learned from in the context of the investment security unit, because that kind of real-time feedback and informal advice will be very helpful in helping companies make the judgment about which side of the line they fall.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
- Hansard - -

Q Good morning, Ms Wright and Mr Boney. I want to look in more detail at the kind of information that might be included in the Secretary of State’s clause 3 statement, which will set out the kind of factors that they will take into account in deciding whether they needed to intervene.

There is a fair amount of information in the Bill and the documents published alongside it about the kinds of businesses being acquired or taken over that might give rise to concern. There are quite clear definitions of what constitutes a trigger event, whether it is a purchase of shares or whatever, but there is very little detail about how the Secretary of State will decide which potential acquirers pose a threat. There are clearly good reasons why that information cannot be made public in too much detail, but is the fact that there is so little on the face of the Bill about how that decision is arrived at a problem? Does it make it less certain and therefore more likely to result in legal challenge?

Christian Boney: Acquirer risk is one of the points picked up in the statement of policy intent that is going to be looked at when determining the level of risk that a transaction presents. When looking at and explaining acquirer risk, I think that helpful additional guidance could be added to it to, for example, make clearer how the Government will consider acquirer risk in the context of things such as private equity funds and other funds that may be looking to invest in the UK. By that, I mean in particular whether the Government will be willing to disregard the identity of limited partners and other investors in funds that sit above the particular acquisition vehicle that is doing the relevant transaction. That is the kind of thing that I think there would be real benefit in trying to make clearer in the statement of policy intent.

Peter Grant Portrait Peter Grant
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Q Thank you. I will focus a bit more on the definition of a trigger event, and in particular the catch-all provisions that define when somebody becomes a person with significant influence or control over a company.

The Companies Act 2006 has similar requirements for a company to notify Companies House if certain things happen that put someone in a position of significant influence. From a lay person’s point of view, such as my own, some of those provisions are almost word for word the same in the Companies Act and the Bill. Some appear to have the same effect but the wording is different, and therefore there will potentially be occasions when the definition is different. Would there be benefits in completely aligning both pieces of legislation so that a particular event either has to be notified or does not have to be notified? Otherwise, there is the possibility that some events will have to be notified under the Bill, and other events will have to be notified under the Companies Act but not the Bill.

Christian Boney: In short, I think there would be benefit in having as much alignment as there can be. Clearly, the two pieces of legislation are not necessarily designed with the same intent and focus in mind. Yes, I think there is merit in having as much alignment between the two as there can be.

If I may, there is just one point about the trigger events that is worth considering. One of the points in the statement of policy intent in the context of trigger events is the Government considering the risk of espionage. That seems to me to be something that is worth thinking about in the context of this regime. At the moment, the trigger events are focused, as you were saying, on the ability to influence a particular company, but there are certainly circumstances where, without acquiring a level of shareholding that enables a person to influence the company, the person can nevertheless gain very significant access to information—for example, through a board seat, which might come at a shareholding of lower than, for example, 15%. That would give that person considerable access to information within the company.  If they were a hostile actor and they wanted to act in a nefarious manner, it would enable them to feed that information back to another hostile party. We have spoken about narrowing the scope of the regime, and I appreciate that that would be an amplification of it, but I think that is a point that is worth considering.

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

Q I will carry on with the line you took just now about an investor’s potential influence over or access to a company. A little earlier, you were talking about start-ups who sought to get staged financing in order to try to build their businesses. Of course, there are more ways of getting investment than just getting equity. We know that if a business has a relatively small amount of equity but a huge amount of debt, the provider of the debt has much more influence over the company than perhaps the shareholders do. We saw that on the banking commission when we looked at the role of bondholders in influencing banks, compared with equity holders. Clearly the bondholders, in effect, had much more influence.

The other thing is that a start-up company can raise money in other ways. The Bill tries to make sure that we are not losing intellectual property, but a business can raise finance by licensing the intellectual property that we are trying to protect—I am not sure that that would come within the scope of this Bill—or even sell the intellectual property and license it back again. There are various other ways in which a company can raise finance, over and above equity, where there is a huge amount of influence or it falls outside the Bill. Clearly, crucial national infrastructure is a very different thing, but intellectual property is something that is very difficult to grab hold of; it is like trying to grasp a handful of sand. Given the objectives, I wonder how the Bill tackles those other areas, which seem to allow malign investors a way through.

Christian Boney: I think an important aspect of the Bill—this is one of the reasons why Lisa and I have described it as a broad regime—is that it does allow policing of the acquisition and control of assets, including intellectual property. In my experience, at least, that is quite different from what you see in other international regimes. Clearly, the acquisition of control of assets does not fall within the mandatory notification regime; nevertheless, it is helpful that the Government have the power potentially to exercise a voluntary call-in in respect of, for example, an acquisition or a licence of intellectual property.

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Andrew Bowie Portrait Andrew Bowie (West Aberdeenshire and Kincardine) (Con)
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Q Professor Martin, I have been listening with interest—it has been fascinating—especially when you were talking about the need to balance national security, the national interest and economic security. I have been reading the very good briefing by the Law Society of England and Wales, which suggests that the Bill could be improved by the insertion of a definition of national security. Do you agree?

Professor Martin: I do not vehemently disagree with that suggestion, but I am not persuaded by it. It is not a new issue. I remember cases—they have nothing to do with this—going back to the aftermath of the so-called global war on terror, with demands during inquiries for definitions of national security. I am not sure what that would achieve other than it would be heavily litigated. In terms of both definitions of national security and the categories of technology, a better answer is a drumbeat of reviewable activity, which is by definition transparent, about how the Government interpret the scope of the Bill, if it becomes an Act, and the sort of cases it applies to so that, over time, you build up a broadly accepted framework—of course, not everyone will accept it—that is seen to be fair and rational.

Peter Grant Portrait Peter Grant
- Hansard - -

Q I understand the reluctance to have an explicit legal definition of national security, but would there be a benefit in having an “except for” clause that makes it clear that certain activities do not come under the category of a threat to national security? Would that help to allay fears about infringements of rights of democratic participation—the right to protest and so on?

Professor Martin: I certainly would not be against things like that, if it could be done in a way that did not compromise the wider use of the Bill, because I do not think there is intent to interfere in the democratic process. I think the intelligence services take that pretty seriously. I remember in other contexts, when asked to co-operate on cyber-security with other countries, given that some cyber-security capabilities—by no means all—can be intrusive, that a lot of due diligence is always done on whether they could be turned by more authoritarian regimes against their own people. I would not object to that in principle. I do not know whether you have a case in mind when you say that might be necessary, but I have an open mind on that.

Peter Grant Portrait Peter Grant
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Q There has been some discussion of whether the investment security unit is best placed within BEIS, the business Department. Do you have a view on that? Does it matter where in government it is based? If it does, would BEIS be your preferred location, or do you think it should be based elsewhere?

Professor Martin: In general terms—this is a personal view, for what it is worth—I do not think the location of most government functions matters a great deal. Perhaps I am just a bit of a contrarian on that point, and always have been. The Government is the Government. Institutions do have cultures. I do not know whether the Government or the intelligence services have offered a formal view, but personally I would be reluctant to put it within the national security estate, first, because it has to be economically literate, and secondly, because it has to justify its existence and use. A strong national security input is important, but I would not leave it in the national security community.

I am sorry to sound like a broken record on this point, but I think the more important force in function is some form of reviewable transparency requirement. If you set it up and let it go away, first, you take away pressure to perform well, and secondly, you take away pressure to justify the decisions that are made.

This is a really hard problem. When I was still in government and there were discussions around it, this was not the sort of Bill that most Ministers and politicians came into Government to want to pass. It is a necessity of a bunch of case work that we have become concerned about that has required us to do this. It is sort of the least bad option. The country wants to be open to investment—we are all mindful of the impression it may give that it is trying to deter investment—so it is probably the least bad option, as I say.

I do not think there is any arrogance in government or belief that a bunch of civil servants assembled in BEIS or another Department will make infallible judgments on individual cases, but what is the alternative way to stop the sort of things we have seen happening—world-class taxpayer-funded research in key strategic technologies that are going to be vital for national security being sold for a song to potentially hostile regimes?

Peter Grant Portrait Peter Grant
- Hansard - -

I will leave it there, Sir Graham. I may want to come back later, but I will let someone else in now.

Simon Baynes Portrait Simon Baynes
- Hansard - - - Excerpts

Q Thank you for your excellent evidence, Professor Martin. You said, if I understood you correctly, that the process needs to be relatively open about why it is making decisions, but I foresee problems, particularly where there are issues of confidentiality and national security. Would you explore that a little? I note that within the terms of the Bill, decisions will be subject to judicial review or appeal, and the Government will be able to apply for a closed material procedure to protect sensitive matters in such proceedings. It seems to me that there is a potential problem there in relation to commercial and national security information sensitivity, so the “openness” of the system might be fairly limited and it might not be as respected as it could be.

Professor Martin: I get that completely. I do not think 100% transparency will be possible in this case. Obviously, it will be judicially reviewable, but I am entirely unsurprised that there is an explicit provision for closed material procedures. It will be a minority, but there will be cases in which the reason why a particular aspect of a particular piece of technology is really sensitive—it will probably be highly specialised, and there might be a dozen people, of whom four serve in government, who actually understand why—cannot be published. Then, of course, there will be commercial sensitivities.

Having said all that, if you take, for example—these are real examples—the current debate around the potential use of offensive cyber, or the sort of allegations Edward Snowden made against Five Eyes countries in 2013, or some of the defences that the Government had to use in the 2000s about their role in the aftermath of 9/11 and Iraq and co-operating with US forces, in my view there is a clear distinction between being able to describe the operating environment and the sorts of thematic issues that you are dealing with, versus individual cases, which often contain extremely sensitive detail. National security organisations can say much more about the former than historically they have been willing to do.

In something like this, where we are talking about business confidence and how the country looks to potentially very friendly and helpful outside investors who like the UK, want to come here, want to put money here and like the high-quality research and the brilliant innovators and individuals, it should be possible to give them something that says, “In the course of the last year, we have looked at quantum resistant cryptography and here are the types of aspects of this that we are reserving and here are the bits that are more open” or that sort of thing, without disclosing anything sensitive. That is all you need to be able to say—these are the judgments. Let us say that the Bill becomes law in the middle of 2021, for sake of argument. By 2025 and the beginning of the next Parliament, the tech landscape will look very different. You will not want investors to be looking back at the debates you are having in the House now as a guide to the latest way in which the Government are applying this, or looking at drip feeds of information. You will want something official. It should be possible to do that.

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Mark Garnier Portrait Mark Garnier
- Hansard - - - Excerpts

Q Do you think it should be formalised or do you think an informal relationship with other Government Departments will be adequate?

Professor Martin: I think it should be formal. The Government are not new to this. There should be some sort of review board to make sure that it has the right resources, the right performance, the right skillset and so forth. I would encourage ministerial interest. It may be something that the National Security Council wants to periodically review. In my time in national security, there were standing issues that the Government would come back to twice a year, whether there was anything interesting happening on them or not, just to take stock. That might be an issue. In answer to the previous question about transparency, there may be a case for a formal presentation, secret detail and all, to the National Security Council every year, which would include all the potentially covert and sensitive stuff. It really needs to work with the grain of ministerial thinking as well. That will need to be done collectively, at some point, so there may be a role for the NSC.

Peter Grant Portrait Peter Grant
- Hansard - -

Q Good afternoon, Professor Martin. As part of the provisions for transparency and parliamentary oversight of the way the powers in the Bill would be used, the Bill would require the Secretary of State to have a statement approved by Parliament and then reviewed at least once every five years. Does that time period seem reasonable to you? Is there an argument for a shorter review period, especially in the early days when everybody will be feeling their way as to how the Bill works?

Professor Martin: There is a reasonable case for a more frequently reviewable point. There is also a cultural point about the way in which the political processes work. There are aspects of government about which questions are not routinely asked in Parliament, because they seem to be too secret. Again, it is a point about casework versus framework.

To my mind, there is no reason why the Secretary of State for BEIS could not be asked from time to time to update on this or why questions in the House should not be asked. I do not think technology changes fast enough that the whole framework of categories of regulated activity and so forth have to be updated more than every five years, but there will be a possibility of more frequent updates on working, approving listings and that sort of thing.

Peter Grant Portrait Peter Grant
- Hansard - -

To be fair, there is nothing to stop MPs from asking questions about international security, but the chances of us ever getting an answer may be somewhat less.

Chi Onwurah Portrait Chi Onwurah
- Hansard - - - Excerpts

Q You have placed a lot of emphasis on the right technological skills and said that they should be forward looking, for a number of reasons, including identifying new technologies, but also giving clarity and certainty to businesses. Where do you see those tech skills being located? How can the Bill ensure adequate appropriate access to them?

Professor Martin: I am not sure if the Bill will get in the way or help, one way or the other. I think Government technological nous across the civil service needs to be invested in properly. There is a deep, fairly sizeable reservoir in GCHQ. Again, without going into too much detail, more and more people are being transferred and seconded from there into other areas. That is a good thing, and we should welcome that rather than cast aspersions on this being all secret state stuff. It should be permeating normal Government activity.

There will be issues about how to pay for some of the specialists that are needed. I do not think we will ever compete with the big tech companies, but there may be scope for paying some specialists a bit more and bringing them in here. There is something about creating a career path for technologists in Government. There are big issues for the heads of the civil service and the permanent secretaries. If I were heading it, I would want an immediate infusion of seconded talent and private sector buy-ins relatively quickly. Government can do that quite well some- times, and sometimes not so well. There also needs to be a long-term strategy for technologists in Government.

National Security and Investment Bill (Fourth sitting)

(Committee Debate: 4th sitting: House of Commons)
Peter Grant Excerpts
Simon Baynes Portrait Simon Baynes
- Hansard - - - Excerpts

Q I think that Mr Palmer’s point, if I understood him correctly, was that if we bring the Bill in, we create a tougher regime than there is at the moment. I think he used the example of Ireland, and I hope I am not misrepresenting what he said, but he said it was potentially an environment that would have a less structured regime, and therefore could take business away from us, to put it crudely.

David Offenbach: We have the issue that we do not know what difference being out of the European Union is going to make to future investment; but Ireland has been very attractive for many years, partially because of the tax regime—and for lots of other reasons—so will people choose Dublin rather than London if they want to do business? They might very well, but the fact that Britain is open to trade is an important part of the British economy. People will still come here and work here, open businesses and enjoy the infrastructure of the technology and the various businesses that are already here, and that they can feed off, so I am not worried about that in the medium term.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
- Hansard - -

Q I see from the profile that we have been given that you have considerable experience in land transaction—the legalities of land transactions—as well as company law and so on. Given that part of the Bill that we have not looked at much so far is about controls on the purchase and acquisition of land and other physical assets, as well as companies, are you comfortable with the fact that the processes for controlling potentially hostile purchases of land assets are similar to those being proposed for company takeovers or company acquisitions? Is there any reason why there needs to be different processes for them both?

David Offenbach: It does not need to be any different at all. I was pleased that land was included. Certainly one knows from seeing property transactions and looking at title deeds, sometimes where the owners of these companies are or purport to be is very curious. The Bill covers that very adequately.

Peter Grant Portrait Peter Grant
- Hansard - -

Q One important distinction is that while companies legislation is almost entirely reserved to the UK Parliament, a lot of legislative authority for land registration is devolved to the Scottish Parliament and the Scottish Government. Is there a risk of an unintended consequence—that we end up with legislation being passed here that could have an impact on the devolution of land use and purchase regulation to the Scottish Parliament?

David Offenbach: I do not know. I am sure that officials in the Minister’s Department have thought about whether or not this is an issue for the devolved Administration, but I do not think it is a problem.

Peter Grant Portrait Peter Grant
- Hansard - -

Q Finally, going back to the acquisition of companies, although it could also be relevant to the acquisition of properties, a key factor is going to be the identity of the person or the business who wants to make the acquisition. That is okay if everybody can see who the owner is. Is the Bill tight enough to give adequate protection against a potentially hostile buyer who sets up a holding company under an anonymous name in some offshore jurisdiction, so that the ultimate buyer of the asset in the United Kingdom is not made public? Is the Bill strong enough to protect against anybody using that as a way of buying up assets that they would not have been allowed to buy up if they had done so in their own name?

David Offenbach: Yes, it is. The first thing that will be looked at is where is the beneficial ownership. It is, first, follow the money and, secondly, follow the beneficial ownership.

Peter Grant Portrait Peter Grant
- Hansard - -

Q But what about once you get to the point where you follow the beneficial ownership and find that it is a company registered somewhere offshore, where the identities of the directors, who have ultimate control, or the shareholders, are not made public?

David Offenbach: Then you block it.

Peter Grant Portrait Peter Grant
- Hansard - -

Q So you are suggesting we need to block any purchase of a sensitive asset from a company whose ultimate controlling partner is registered in a tax-haven type regime overseas. Would you go as far as that?

David Offenbach: Yes, I am sure that is what the security unit will do. If it cannot be established where the beneficial ownership is, then they will block it, and so they should.

Peter Grant Portrait Peter Grant
- Hansard - -

Q You were suggesting earlier that the definition of the national security interest needs to be widened to include other national interests such as the strategic economic interest. Are you suggesting that there are some businesses or some assets in the United Kingdom that, although they do not have any national security implications, should not be allowed to be bought over by a company whose ultimate controlling partner remains anonymous?

David Offenbach: Well, I remember there was an outcry years ago when Michael Portillo was a Defence Minister and they were going to sell the Ministry of Defence. There was an outcry and it was withdrawn. Should Admiralty Arch become a hotel or is that an asset? These are the sort of issues which, if they come up, will be dealt with at the time. I like to think that certain things are fairly sacrosanct. We would not sell Buckingham Palace or Windsor Castle to a foreign buyer if we did not know who they were—or at all, in fact.

Andrew Bowie Portrait Andrew Bowie (West Aberdeenshire and Kincardine) (Con)
- Hansard - - - Excerpts

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

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

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

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

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

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

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

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

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

Peter Grant Portrait Peter Grant
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Q To be clear, you mentioned in your answer the need to regulate foreign-registered companies from certain types of acquisitions. Does that also apply to UK-registered companies, which are in turn owned by foreign companies? The bad guys will set up a UK company to do all the bad stuff through. Do you agree that we need to follow the chain of ownership and control right back to the ultimate controller?

Creon Butler: Absolutely. We currently have a public register of beneficial ownership for all UK-registered companies. That was a major and important step. There are issues about whether we are doing enough to enforce those legal requirements. That area could be looked at helpfully in this context. When that regime was designed, the view was that market forces, external pressures and gathering information from NGOs and others would ensure that the information on the register was accurate. I am not sure that we can now be sure that is the case. We want to get that transparency for UK-registered companies, and we may need to do more in that direction, particularly through the enforcement process in Companies House.

Stephen Flynn Portrait Stephen Flynn (Aberdeen South) (SNP)
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Q Thank you, Mr Butler, for your evidence so far. It has been incredibly enlightening. It is probably fair to say that national security—what is tantamount to national security—is an ever-evolving feast, particularly given the technology that is now available. Do you feel that the scope of the Bill, particularly the consultation of the 17 sectors that have been included, satisfies your concerns around national security? I am particularly thinking of social media and the level of data that is pertinent within that. Do you think that is adequately covered by the Bill as it stands?

Creon Butler: I think this comes again to the point about how we will tightly define national security in relation to these broad powers. I think you are thinking of a hostile power investing in a social media platform that can then be used to attack the UK—I guess that is what you have in mind. It is, again, something that I have not thought through. Probably, I would not see the nature of the threat as being so great that we would necessarily make it a mandatory notification, but by using other sources to collect information about threats, we might use the other powers in the Bill—the calling in and those kind of powers, and the voluntary notification —to make sure that we had covered the threat. I do not think I would put it in the mandatory category, but I would want to use other information and powers to collect information, and to call in a particular investment if I felt it was a threat.

National Security and Investment Bill (First sitting)

(Committee Debate: 1st sitting: House of Commons)
Peter Grant Excerpts
Simon Baynes Portrait Simon Baynes
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That is good. Thank you very much.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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24 Nov 2020, 10:05 a.m.

Q I am pleased to take part in this Committee under your chairmanship, Mr Twigg.

Mr Parton, the Bill looks primarily at direct investment by potentially hostile operators. Does it give sufficient protection against indirect control? For example, a company may be reliant on its bankers, who may or may not be based in a hostile territory, and who may rely on technology through a company such as Huawei; or a company’s ultimate owners and controlling party could be registered in an offshore tax haven, and it could be that nobody has any idea who actually owns that company. Does the Bill give sufficient protection against those kinds of threats through indirect influence and control?

Charles Parton: I am not a legal expert, but the Committee stage of the Bill needs to look deeply at that question. If there is any doubt as to who the ultimate owners are, that should be taken into account by whatever organisation makes the recommendation on whether a particular investment is acceptable. If we cannot follow through relatively easily back to the ultimate beneficial owners and users, that is a factor that needs to be weighed very heavily in the decision on allowing a particular, possibly sensitive, investment to go ahead.

Peter Grant Portrait Peter Grant
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Q In your experience, is that a technique that either the Chinese Communist party or other potential hostile players either have used or are likely to use if it is in their interests? Do you have knowledge, for example, of China using non-disclosure territories to set up companies in order to try to invest in the UK or elsewhere? Are you aware of them using the influence of the technology, for example, to try to exert influence on companies that do not, at first glance, appear to be directly owned from China?

Charles Parton: I have to say that that is outside my expertise, but I do think it is an extremely good and important question that could be researched relatively easily. Forgive me if I am pushing RUSI here, but I suspect that RUSI has the capability in one of its teams to do some data mining on that, and come up with an answer. It is a very important question, but I am not aware of any research, though there may be some, that goes deeply into that question. It is certainly one that should be followed up.

Andrew Bowie Portrait Andrew Bowie (West Aberdeenshire and Kincardine) (Con)
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24 Nov 2020, 10:20 a.m.

Q It is a pleasure to serve under your chairmanship, Mr Twigg. Good morning, Mr Parton. The Bill obviously aims to protect national security while promoting investment in the United Kingdom and not dissuading any inward investment into the country. With your experience, and given everything that you have said this morning, do you think the Bill will succeed in its aims?

Charles Parton: Again, I am not a legal expert, but it seems to set out the legal framework. It all very much depends on the structures and mechanisms, and the resourcing of them, that are set up to ensure whether the judgments about a particular company or a piece of academic research and the technology from them should be blocked or allowed through. I put it back to the Committee: if its detailed research, and the measures that go into the Bill, show that whatever organisation is set up is sufficient unto the job, and that the channels are there to ensure that all these small and sometimes obscure technologies are at least passed by it, that is a really important piece of work.

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Peter Grant Portrait Peter Grant
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24 Nov 2020, midnight

Q I think this is the first time I have had to stand further away from somebody to speak to them. Thank you for your attendance today. We have heard a lot this morning about the threat from China and a bit about the threat from Russia. There may well be other hostile states out there that have their eyes on us. There are certainly hostile non-state enterprises that have their eyes on us. Is the Bill wide-ranging enough to allow the Government to respond to all those different kinds of threat? Does it allow enough flexibility to respond to the threats that we have not yet discovered, that we do not know about or have not yet been invented?

Sir Richard Dearlove: Obviously, the threat scenarios shift and change. I think I accept that. Clearly, at the moment, what is driving our considerations is mainly China, but you are right. It applies to others—Iran, North Korea—and there may be other states.

A good example in the past, not a current one, is Pakistan. The Pakistani bomb built by A. Q. Khan—the Khan Research Laboratories—was created by sending 600 Pakistani PhD students to do separate bits of research in different universities around the world. That is the origin of our thinking on counter-proliferation, and it is another very clear example of where you have to have control from the security services. Now, I believe, we register PhDs in relation to the nationalities studying in certain areas.

The Bill should be able to accommodate a changing set of scenarios, and you are right to say that non-governmental organisations can become problematic. The proliferation issue, whereby Khan was trying to sell his technology to other countries, happened around the time of my retirement and the disarmament of Libya. That was all based on Pakistani technology, but there was a commercial network run by a family of Swiss engineers called the Tinners. This is an example of how dangerous things can be. The Tinner network had several semi-clandestine factories dotted around the world that were all making different parts for nuclear centrifuges. Okay, that network was eventually dismantled by the UK and the Americans, but the problem of national security goes into some pretty odd areas, and you are right to identify those as not necessarily just being China or, in the past, Russia. There are still aspirations on the part of certain powers to break the non-prefoliation treaty and become nuclear weapons states.

Mark Garnier Portrait Mark Garnier (Wyre Forest) (Con)
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Q It is a pleasure to serve under your chairmanship, Mr Twigg. Sir Richard, I want to ask some questions about how the Bill and the mechanisms that make it operate cut across certain other parts of Government Departments. That is clearly looking at how we can scrutinise investments coming into the UK, but we also have a department with respect to export control. Broadly speaking, this is quite a similar type of problem. Although it is not necessarily looking at intellectual assets, it certainly looks at the ability of countries that are buying certain things to reverse-engineer, and therefore to try to steal our intellectual property in that way.

I am interested in your view on how the department that is proposed to be set up within BEIS to scrutinise this cuts across the Export Control Joint Unit, which is obviously a combination involving four Government Departments. Is that complementing it or contradicting it? Can they cut across each other? How do you see those two departments working together? They ultimately have the same aim, although they come from slightly different objectives.

Sir Richard Dearlove: I cannot give you a detailed answer to that question. From my experience, I would say that on some of these issues the co-ordination of Government Departments is one of the really big challenges, particularly when they ultimately have different objectives. The sophistication of our co-ordination mechanisms in the UK has not been highly developed, so we have run into problems in the past. My suggestion would be that this be given forethought rather than afterthought—that there is some arrangement to avoid those clashes of departmental interest.

National Security and Investment Bill (Second sitting)

(Committee Debate: 2nd sitting: House of Commons)
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Nadhim Zahawi Portrait Nadhim Zahawi
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24 Nov 2020, 2:51 p.m.

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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24 Nov 2020, 2:54 p.m.

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.

Nickie Aiken Portrait Nickie Aiken (Cities of London and Westminster) (Con)
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24 Nov 2020, 2:58 p.m.

Q There are 17 sectors included in the Bill, but are any sectors missing? Is there scope for future-proofing?

Michael Leiter: Right now, it is a very robust list. In fact, I would probably err on the side of going in the other direction. I think this is a good list of 17, but what is critical is that these sectors gain further definition about what this actually means. Let me give you a quick example: artificial intelligence. I invite you to go online and try to find more than 10 companies in the world right now who are doing well and do not advertise their use of artificial intelligence in one way or another. It is one of the most commonly used marketing terms there is: artificial intelligence and machine learning, all to serve you in your area of work. If one interprets artificial intelligence as encompassing all those businesses, there will be a flood of reviews. Now, if one focuses on those companies not using artificial intelligence but actually developing artificial intelligence, I think the definition of the mandatory sector will make much more sense. That is an area where I think the US is still finding its way. As Dr Lenihan noted, the US began with a set of listed sectors where transactions were more likely to be mandatory. They eliminated that and now focus purely on export controls, but again, it is not that a company uses export control technology; it is that it produces export control technology.

That may be too narrow for your liking, but if one mapped out your 17 sectors as currently described to their widest description, I think there would be very little left in the UK economy, except for some very basic manufacturing and some other services that would not be encompassed. This is a very broad list and, again, I think it will take some time to tune those definitions so they are not overly encompassing. Again, if you look at data infrastructure, communications, transportation —at their extreme, that is quite a broad set of industry descriptions.

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Simon Baynes Portrait Simon Baynes
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24 Nov 2020, 3:58 p.m.

Q But they would be quite difficult to police, would they not? How would you know—

David Petrie: Yes. I don’t think anyone is suggesting that the job of this new investment security unit is going to be straightforward. In fact, we are absolutely not suggesting that. It is going to be absolutely essential for Government Departments to work together and, going back to my original point, for this unit to be extremely well resourced, to be able to respond quickly and appropriately to what is put before it.

Peter Grant Portrait Peter Grant
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24 Nov 2020, 4 p.m.

Q Good afternoon, Mr Petrie. There will be some entities that try to take over British businesses where the warning flags are flown immediately, because it is well known that either it is a foreign state, or a company controlled by a foreign state. Often, it is difficult or even impossible to know who the ultimate controlling party of a business is if they have arranged to have their ultimate ownership registered somewhere offshore, where that information is not made public. Does the Bill, as presently worded, provide enough protection against a hostile power trying to infiltrate the system by going through a secretive intermediary state? If it does not, what more should be done in the Bill to protect us against that scenario?

David Petrie: This is an issue that is well recognised by the investment and advisory community. I think that, as you say so rightly in your question, the warning flags, flares or whatever they might be will already be going off if this is a particularly sensitive military asset that is being considered for acquisition. I think that the unit will be able to look first at the nature of the asset, and it will be apparent very quickly as to whether this is a very sensitive issue. If the acquirer is not a British public limited company, a British private company or one invested in by private equity, if the ultimate ownership is structured in a way that is not conventional—many companies are held through offshore companies for entirely conventional, obvious and transparent reasons for the investment community—and if there is something strange about that ownership structure that makes it extremely difficult to trace the ultimate ownership, it feels to me as though that would be one of the 70 to 90 cases that the Secretary of State would want to review in a lot more detail. Then, due and diligent inquiries would be made to try and understand the ultimate ownership of those holding companies. There would be lots of complicated diagrams drawn, no doubt, showing who owns which bit of what and who are the key individuals and shareholders. The answer would be that, I am afraid, this unit is going to have to keep digging until they get to the bottom of who are the ultimate shareholders.

The Bill is drafted in such a way that you do not need to own much in the way of shares—or there are provisions included within it such that if an entity or individuals, or individuals reporting elsewhere, have control or influence over those holding companies, that in itself would be something we would be concerned about. The Bill includes provision for that because we know, and I believe the security services are well aware, that the equivalent of layering is used for acquisition of these sorts of businesses, or people have certainly tried to do that. So, it is going to be a matter of hard work and digging to get to the bottom of who really owns and controls those entities.

Peter Grant Portrait Peter Grant
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24 Nov 2020, 4:03 p.m.

Q When you talk about a lot of hard work and digging to get to the bottom of it, does that include potentially gaining information that is not in the public domain and from a jurisdiction where that information is not allowed to be disclosed? Does that potentially mean having to rely on information that is gained covertly by British intelligence, which then cannot be shared in open court if the case is challenged?

David Petrie: I suspect that would be the corollary of that, yes. We are probably dealing with a relatively unusual set of circumstances here. It rather assumes that the shareholders of the British company are absolutely determined to sell or take investment from an entity where its ultimate ownership is quite difficult to identify. We are dealing with quite an unusual situation—not unprecedented, certainly, but relatively unusual. I do not know what resources the new unit will have at its disposal, but given that this is relatively rare and is a question of national security, I would expect that the Secretary of State would ask it to use whatever resources are necessary to gain the information it needs.

I hope—again, we will see—that the closed doors process for the judicial review, should it come to that, would enable national security to be protected, so that if there were some other breaches as a result of the investigation, or if explaining how we found out what we know caused a breach in national security elsewhere, that problem could be resolved. I am comfortable—I think that would be the right expression—that those difficulties can be dealt with in circumstances in which the absolute preferred option for the company is to take investment, but I have to say that I think those circumstances would be relatively rare.

Sam Tarry Portrait Sam Tarry
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24 Nov 2020, 4:06 p.m.

Q How have you found your engagement with Government so far, and what processes are you looking for, in terms of how the Government engage with you and the industry—whether it is with your organisation or more widely? Do you have any comments on that?

David Petrie: Yes, I have. The Government have been very clear about the need to bring this legislation on to the statute book, and they have done so through the Green and White Papers. When consulting on the White Paper, they sought opinion from a very broad spectrum, including business groups, businesses, the investment community and so on. They have set that out in the response to the consultation.

The next consultation is the one on the sectors within the scope of the mandatory regime, and the next month or so is going to be a very important stage in this process. Defining those sectors in a way that market participants understand and that does not trigger manifestly unnecessary notifications is going to be very important, and we look forward to engaging in that process, as does the legal and investment profession and British business.

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Nickie Aiken Portrait Nickie Aiken
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24 Nov 2020, 4:27 p.m.

Q On the 17 sectors that were included in the Bill, do you think there are too many or do you think any sectors are missing?

Chris Cummings: That is something we are looking forward to engaging with. When you first hear it, 17 sectors sounds like quite a lot, but having worked through the 17 sectors and looked at some of the draft definitions, I think that each one is justifiable.

We would be keen to point out a few things to the Government. First, the greater the specificity around the definitions, the better. Secondly, we should not rush to change the sectors by adding to them too quickly. Investment needs a degree of stability, and legislative stability most of all.

Thirdly, in consulting with industry and thinking about the operations and practice, I would ask to have industry expertise around the table. We found time and again working with officials—they are hugely valuable, talented individuals, but do not come from a commercial background, almost by definition, although some do—that having the commercial insight, we can play a role in nudging in the right area, to ensure that nothing is hard-coded that would prevent a deal because the nuance has not been appreciated. Having that industry insight would be a big step forward, if it could be accommodated.

Peter Grant Portrait Peter Grant
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24 Nov 2020, 4:29 p.m.

Q Good afternoon. The Government’s impact assessment expresses the view that a national security regime such as this does not have much of an impact on overseas investors and their investment decisions, as long as they are comfortable that any interventions are appropriate and the regime is predictable. Do you share that view?

Chris Cummings: With any new piece of legislation, and certainly one of this character and this far-reaching, investors will always want to understand the motivations that led to it being introduced, how it will work in practice and whether we can give case studies as quickly as possible to prove that it does work in this way.

The important thing—I cannot stress this enough—is how it gets spoken about by Ministers. That enduring political support for investment carries such weight with investors. More than the words on the page, what matters is how it is presented—how Ministers then talk about the desire to continue to attract investment and how they make themselves available to investors.

All major economies, because of the covid-19 crisis, are seeking new levels of investment, whether for individual corporates or infrastructure investment, let alone Government debt. We feel very strongly that the UK has a tremendous story to tell. Introducing new legislation such as this at a time when, bluntly, we are looking for more investment to come into the UK, will require a degree more explanation. The way it has been phrased so far, as national security and almost as a catch-up activity with other developed jurisdictions, is fine. However, if Ministers make themselves very much available to investors to explain how this will work, and make a bonus of the pre-authorisation facility, so that if investors are troubled that an investment they are considering could attract attention, there is an ability within 30 days —that is a really important point: within 30 days—to have it pre-approved and then stood by, that will go a long way in the investment community.

As you can tell, we will have to paddle a little bit harder, but that has the potential to be a short-term explanation for a long-term gain. Potentially, that is fine, but I say again that we hope Ministers will seize the opportunity to explain this to investors, the course will be set and we will not see further iterations or scope creep from national security to other sectors, which then becomes a little more worrisome.

Peter Grant Portrait Peter Grant
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24 Nov 2020, 4:31 p.m.

Q Thank you. Decisions under this legislation will initially be taken by the Secretary of State. In the United Kingdom, the way that Ministers exercise the authority given to them by legislation, and indeed the way that Governments or Prime Ministers exercise the authority that comes down through the concept of the royal prerogative, is governed as much by tradition, convention and understanding as it is by hard legislation. Recently, we have seen an increasing number of occasions when Governments have chosen to do things that are allowed but are completely unprecedented and not according to the usual traditions and conventions. There are some notable examples here, and clearly a number of examples from the outgoing President of the United States. Does that give you a concern that legislation might be passed giving a Minister power under certain understandings, but that the understandings themselves might have no legal force, so a future Minister might exercise that power in a way that is very different from what had been expected or intended when the legislation was passed?

Chris Cummings: Forgive me, but it is obviously not my role to advise future Ministers on attitudes they may take. I can simply say, from an investor’s point of view, that we prize stability, predictability and accountability beyond all things. Making sure that the rule of law applies and that there is no handbrake turn in policy direction matters hugely. Investment is being sought by every economy around the world, and it would be a very rash Minister indeed who decided to unpick something that is a great strength of the UK and one of our global competitive advantages: a system based on the rule of law and an approach to policy making that is entirely transparent and accountable to Parliament, which gives the investment community great confidence that the UK retains its position as being one of the safest places in the world to invest in.

From our perspective, that accounts for one of the reasons why our investment management industry here in the UK is globally pre-eminent. The UK is not only the largest investment centre in Europe; we are bigger than the next two or three added together. Only the US is a bigger market, and that is because of its substantial domestic scale. When it comes to international investment, the UK is streets ahead of its competitors. We would very strongly urge any parliamentarian, and certainly any Minister, to think twice before taking actions that would have a lasting consequence for our international reputation.

Simon Baynes Portrait Simon Baynes
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24 Nov 2020, 4:34 p.m.

Q Thank you, Mr Cummings, for a very good presentation. I just want to go back to your point about the blanket exclusion for investment managers. First, you say that is the situation in Japan, but maybe you could say where else it exists. Secondly, why is it needed? I totally accept that, on the whole, the investments being made by your members will not fall within the trigger points, because they will not be taking over 25% of Shell or even some small companies, but they might do in certain circumstances.

Thirdly, to what extent do hedge funds represent members within your organisation? Obviously, they have greater capacity, or greater natural affinity, for investing in smaller companies—not always, but in certain cases. They might actually fall within the remit of the triggers, so I do not quite see how we could implement the blanket exclusion, if from time to time there are exceptions to the exclusion.

Chris Cummings: Thank you for asking me to clarify; I apologise that I was not as clear as I should have been. The hedge fund community has a representative organisation. It is a splendid one that can do a tremendous job in speaking for them, and I would not put myself in that position; I would not try to speak for them. We have members that invest substantially through private markets into smaller and unlisted companies. Again, it comes down to intention. The intention is not to invest in such a way as to take over the company and to seize the reins; the intention is to make an investment that is in the strategic direction of the company, to support its growth.

I am trying not the use the term “passive investment”, because we are anything other than passive when it comes to investing, but it is an approach that is designed to support the company, rather than to change dramatically the company’s ownership or direction, or to land one of our members on its board—in effect, they would then be part of the management and governance of that company. I hope it is more than a subtle definition; it is a distinction with a real difference. That is part of why we think it is an important distinction to make.

Other jurisdictions have been through similar experiences. The Japanese example is so relevant, because it is only a year or so ago that the Japanese Government were considering very similar legislation. As a result of consultation, they came up with the approach that we are suggesting: to exclude the activities of investors, insurance companies and so on, because it is around the intentionality—not wanting to take an active role in the management or to change the company’s direction, but to support through investment rather than to seek control.

The US has a similar modus operandi. It is not quite as framed in the legislation as it is in Japan—again, just through history. The approaches that we have seen in Germany and France also nudge in the direction that I am describing, so there are parallels. The Japanese experience is the closest match that I can offer the Committee, but we will continue to do further investigations and to feed in ideas through the Bill’s stages and through the consultation on individual sectors.

Oral Answers to Questions

Peter Grant Excerpts
Tuesday 10th November 2020

(11 months, 2 weeks ago)

Commons Chamber

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Department for Business, Energy and Industrial Strategy
Philippa Whitford Portrait Dr Philippa Whitford (Central Ayrshire) (SNP)
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What discussions he has had with the Chancellor of the Exchequer on increasing support to businesses affected by the covid-19 outbreak. [908544]

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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What discussions he has had with the Chancellor of the Exchequer on increasing support to businesses affected by the covid-19 outbreak. [908571]

Owen Thompson Portrait Owen Thompson (Midlothian) (SNP)
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What discussions he has had with the Chancellor of the Exchequer on increasing support to businesses affected by the covid-19 outbreak. [908572]

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Kwasi Kwarteng Portrait Kwasi Kwarteng
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Obviously, I am not familiar with the exact details that the hon. Lady refers to. What I can point out is that in her constituency of Central Ayrshire, banks have provided something like £37 million of business loans, but I would be very interested to hear the specifics of that case and to see what we can do to meet those concerns.

Peter Grant Portrait Peter Grant [V]
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In response to a question from my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), the Secretary of State claimed that Her Majesty’s Revenue and Customs does not have the information necessary to distinguish between an active, working owner-director of a small business, and an absentee shareholder of a big business who contributes no part to the running of the business. HMRC may not have all that information, but Companies House definitely does and most of it is on public record, so can the Minister tell us what discussions his Department has had with Companies House in the last seven months with a view to using that information to identify the million or so small businesses that have been deliberately excluded from Government support up until now?

Kwasi Kwarteng Portrait Kwasi Kwarteng
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We are in constant contact with Companies House and other sources of information relating to businesses. With regard to the specifics, I am not as familiar with those charges as the hon. Gentleman, but again I point out that something like £30 million of loan money—of credit—has been supplied to companies in his constituency.