UK Steel Production: Greensill Capital

Peter Grant Excerpts

Thursday 25th March 2021 Commons Chamber

[Kwasi Kwarteng]

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 (Glenrothes) (SNP) [V]]

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?

Budget Resolutions and Economic Situation

Peter Grant Excerpts

Tuesday 9th March 2021 Commons Chamber

[Peter Grant (Glenrothes) (SNP) [V]]

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.

National Security and Investment Bill (Twelfth sitting)

Peter Grant Excerpts

Committee Debate: 12th sitting: House of Commons
Thursday 10th December 2020 Public Bill Committees

[Chi Onwurah]

[Peter Grant (Glenrothes) (SNP)]

[Chi Onwurah]

[Peter Grant]

[Chi Onwurah]

[Peter Grant]

[Andrew Griffith]

[Peter Grant]

[The Chair]

On resuming—

[Peter Grant]

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

--- Later in debate ---

[Nadhim Zahawi]

[Peter Grant]

[Nadhim Zahawi]

--- Later in debate ---

Brought up, and read the First time.

[Peter Grant]

[The Chair]

[Peter Grant]

[Andrew Griffith]

[Peter Grant]

[James Wild]

[Peter Grant]

[Chi Onwurah]

--- Later in debate ---

We therefore need penalties to disincentivise that kind of dangerous behaviour, so while I fully appreciate the sentiment behind the new clause, such a grace period would create an unacceptable loophole that rewarded those seeking to undermine our regime. None the less, I recommit to the hon. Gentleman that the Government will continue to ensure that this regime is proportionate, and that SMEs and entities of all sizes can continue to thrive in this country while we safeguard our national security. I therefore hope that he will not press the new clause.

[Peter Grant]

New Clause 5

--- Later in debate ---

[Sam Tarry]

[Peter Grant]

[Sam Tarry]

--- Later in debate ---

[Dr Alan Whitehead (Southampton, Test) (Lab)]

[Peter Grant]

[Nadhim Zahawi]

National Security and Investment Bill (Fourth sitting)

Peter Grant Excerpts

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

[Simon Baynes]

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 (Glenrothes) (SNP)]

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]

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]

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]

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]

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]

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 (West Aberdeenshire and Kincardine) (Con)]

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

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

--- Later in debate ---

[Matt Western]

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

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

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

[Peter Grant]

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

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

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

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

[Peter Grant]

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 (Aberdeen South) (SNP)]

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 (Third sitting)

Peter Grant Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[Simon Baynes (Clwyd South) (Con)]

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 (Glenrothes) (SNP)]

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]

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 (Wyre Forest) (Con)]

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 (West Aberdeenshire and Kincardine) (Con)]

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]

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]

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]

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

[Simon Baynes]

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.

[Mark Garnier]

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]

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]

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]

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 (Second sitting)

Peter Grant Excerpts

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

[Nadhim Zahawi]

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 (Glenrothes) (SNP)]

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 (Cities of London and Westminster) (Con)]

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.

--- Later in debate ---

[Simon Baynes]

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]

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]

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]

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.

--- Later in debate ---

[Nickie Aiken]

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]

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]

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]

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.

National Security and Investment Bill (First sitting)

Peter Grant Excerpts

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

[Simon Baynes]

That is good. Thank you very much.

[Peter Grant (Glenrothes) (SNP)]

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]

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 (West Aberdeenshire and Kincardine) (Con)]

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.

--- Later in debate ---

[The Chair]

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

[Peter Grant]

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 (Wyre Forest) (Con)]

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.

Oral Answers to Questions

Peter Grant Excerpts

Tuesday 10th November 2020 Commons Chamber

[Dr Philippa Whitford (Central Ayrshire) (SNP)]

What discussions he has had with the Chancellor of the Exchequer on increasing support to businesses affected by the covid-19 outbreak.

[Peter Grant (Glenrothes) (SNP)]

What discussions he has had with the Chancellor of the Exchequer on increasing support to businesses affected by the covid-19 outbreak.

[Owen Thompson (Midlothian) (SNP)]

What discussions he has had with the Chancellor of the Exchequer on increasing support to businesses affected by the covid-19 outbreak.

--- Later in debate ---

[Kwasi Kwarteng]

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 [V]]

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]

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.

Draft Statutory Auditors, Third Country Auditors and International Accounting Standards (Amendment) (EU Exit) Regulations 2019

Peter Grant Excerpts

Monday 9th September 2019 General Committees

[Peter Grant (Glenrothes) (SNP)]

I am pleased to make a brief contribution. In the Chamber, several hon. Members are still paying tribute to the Speaker; shortly, there will be an application for an emergency debate to force the Government to come clean about what on earth is going on with Prorogation and much else; later, there will be another attempt to force a general election. In Westminster Hall, our colleagues are debating a petition that was possibly the quickest ever to reach more than 1 million signatures. We—the lucky few—are here talking about the Statutory Auditors, Third Country Auditors and International Accounting Standards (Amendment) (EU Exit) Regulations 2019. These regulations will not be the news headlines tonight, but perhaps they should be.

If we get this wrong—I think the Government are still getting it wrong on their second attempt—the consequences will be catastrophic for businesses, homes, jobs and the suppliers of big companies. That is why it is important for us to get it right this time. Part of the reason that we are discussing these regulations is that we did not get them right last time, because everything had to be done in such a panic-stricken rush that they were not as watertight as legislation needs to be. We should have been out of the European Union five months ago. We would have been out six months ago without a deal, if some hon. Members on the Government Benches had had their way. Even on such fundamental questions as who regulates those who regulate the conduct and misconduct of multinational businesses, however, we have still not got it right.

As the hon. Member for Sefton Central mentioned, auditors tend to be anonymous most of the time, but when we look at the causes of almost all the huge corporate failures, of which Carillion is perhaps the most recent mega-failure, there are always big questions to be asked about why the auditors did not do something and how they could not have noticed. I should mention that although I am a qualified member of the Chartered Institute of Public Finance and Accountancy, which may be why I was given the privilege of coming here this afternoon, I am not qualified to conduct statutory company audits, so I do not have an interest to declare.

As well as the questions that always come up about what the auditors were doing, the inquiry almost always concludes, although it is not inevitable, that the auditors did not break any rules at the time. We have had to completely review—realign, reset and turn inside out—the structure of the institutions that regulate statutory auditors and their profession a number of times. Try as we might, we will always struggle to keep up with the multinational chancers who look for every minor loophole in any regulation to allow their misconduct to go undetected for as long as possible—and often unpunished forever.

It is therefore important to get it right this time. The hon. Member for Sefton Central highlighted some of the concerns. When there are a lot of statutory instruments to get through, there is a danger that among some relatively minor consequential technical stuff that nobody could object to, significant changes to Government policy and to legislation are slipped in, in terms that should be brought as specific items for the whole House to consider, rather than in Committee on the upper corridors of the House of Commons on a wet Monday afternoon. I understand that quite a lot of what is in the regulations needed to be put in there, but the Committee needs to say to the Government that it cannot accept the regulations as they are.

[Luke Graham (Ochil and South Perthshire) (Con)]

I am a member of the Chartered Institute of Management Accountants. I am on the Committee and I am happy to dig into the detail, but I am not getting detail from Opposition Members, although I am hearing opposition from them. The hon. Gentleman says that there are things in the regulations to be worried about; perhaps he could outline them for us, as is the purpose of the Committee, point by point and subsection by subsection. I am happy to sit here and go through it. We have other business in the House of Commons, but as he rightly points out, this is an enormously important issue for the whole United Kingdom—it applies to the whole United Kingdom—for my constituents and for the businesses they are in. I ask him to please outline the details, so we can go through them together in a cross-party way.

[Peter Grant]

The hon. Gentleman agrees with some of the points I am making. As he helpfully points out, if Government Members were all that interested in going through the regulations in fine detail, perhaps they should have asked professionals in the various accounting and auditing institutions before the Committee. I have no doubt that Government Members will rise to speak in support of the regulations. When they do so, perhaps they will tell the Committee what could have gone disastrously wrong if they had taken the time to get the policy right on their third attempt, and asked the statutory accounting and audit bodies what the regulations would do.

[Mrs Sheryll Murray (South East Cornwall) (Con)]

Perhaps the hon. Gentleman could help me by telling us, as my hon. Friend the Member for Ochil and South Perthshire asked him to do, which specific parts of the regulations he objects to.

[Peter Grant]

It has already been pointed out. As I said, if there has not been consultation with the bodies whose purpose it is to regulate the profession, why would the Government ask a group of lay people to agree the regulations?

[Mrs Murray]

Will the hon. Gentleman give way?

[Peter Grant]

No, I will not give way again. The hon. Lady will get a chance to speak if she wishes. I would be interested to know why the Government did not have that consultation. Why are they making significant changes to policy during a process that the House agreed could be used to make technical, consequential, minor and non-controversial changes, of which there would need to be millions to get us even vaguely ready for 31 October? Why are they trying to put in much more significant and substantive changes that should have been tested on the Floor of the House before they passed into law?

[Sir Oliver Heald (North East Hertfordshire) (Con)]

Will the hon. Gentleman give way?

[Peter Grant]

I can see that lots of Members want to speak, so perhaps the best thing is for me to sit down and give them a chance to do so.

[Kelly Tolhurst]

I thank the hon. Member for Sefton Central for his comments, but I must pick him up on one point. He questioned whether the Government respect democracy. We have sat across from each other numerous times in Committees this year, and I point out to him that respecting democracy is exactly what we are doing. The regulations ensure we are fit and ready for when we exit the European Union. That is respecting democracy and the 2016 democratic vote. I need to point that out, and it is exactly why my Department has been doing the work that is required for us to ensure that we are fit and ready to leave with or without a deal.

I remind the Committee that the regulations are part of what will enable us to ensure that the EU retained law that comes into UK law is fit and proper for when we leave the European Union. We are ensuring that we can communicate that to business, and that the current laws will continue to operate correctly in the UK. As the hon. Member for Glenrothes pointed out, the limitations in the withdrawal agreement set out what the Government can do when bringing secondary legislation through the House. He will note that the only change in the regulations is to ensure the smooth and effective running of regulatory systems when we leave.

Members also commented on the quality of audit and on their concerns about the performance of some UK companies. As the hon. Member for Sefton Central will know, we had the Sir John Kingman review of the Financial Reporting Council, and the Government are working through that and consulting where possible to make modifications and changes within the FRC. That ongoing piece of work by Government is not necessarily completely related to these regulations.

The hon. Gentleman will know that the IFRS is a high-quality, internationally accepted and supported set of financial reporting standards that is regarded as a benchmark throughout the world by listed companies.

[Peter Grant]

The Minister seems, rightly, to be recognising the importance of that organisation of experts. Why will the Government not listen to other organisations of experts in their consideration of the Brexit proposals?

[Kelly Tolhurst]

I am here to speak to the regulations that are in front of us. I assure the hon. Gentleman that the experts in the Department for Business, Energy and Industrial Strategy, as well as our stakeholders and partners across the sectors, have been spoken to. I challenge him to name the organisations that I have ignored or chosen not to speak to.

[Peter Grant]

The Minister will be aware that there are six recognised chartered accounting bodies in the United Kingdom. Can she name the ones that were consulted over these regulations, or is she saying that those organisations are not experts?

[Kelly Tolhurst]

As part of our ongoing engagement with stakeholders across all the Department’s responsibilities, we have regular dialogue with those organisations, whether it be on this statutory instrument or on any of the Department’s other business.

Oral Answers to Questions

Peter Grant Excerpts

Tuesday 16th October 2018 Commons Chamber

The Secretary of State was asked—

[Peter Grant (Glenrothes) (SNP)]

1. What assessment he has made of the effect on business growth in Scotland of the UK leaving the EU internal market.

[Patrick Grady (Glasgow North) (SNP)]

17. What assessment he has made of the effect on business growth in Scotland of the UK leaving the EU internal market.

[The Secretary of State for Business, Energy and Industrial Strategy (Greg Clark)]

Reaching a good agreement with the European Union will have a positive effect on business growth in Scotland and in every other part of the United Kingdom. In Green GB Week, it is important to highlight the huge clean growth opportunities in Scotland in a sector that supports tens of thousands of jobs and brings £11 billion into Scotland’s economy.

[Peter Grant]

Yesterday, AstraZeneca joined a long line of major UK employers that have put investment plans on hold because of Brexit uncertainty. The Governor of the Bank of England has indicated that, even before we leave, Brexit has already cost £900 per UK household. Does the Secretary of State agree with the Governor’s estimate? If he does not, what is his estimate of what Brexit has cost us to date?

[Greg Clark]

The hon. Gentleman’s point underlines why it is important that we secure a positive deal, and the implication of that analysis is that if we do secure that deal, as I hope and expect that we will, there will be a substantial upside for the economy. The hon. Gentleman is interested in the negotiations because they provide us with access to European markets, but it is a matter of record that the Scottish National party wants to take Scotland out of the internal market of the United Kingdom by dint of leaving the rest of the UK, with which Scotland does four times as much trade as it does with the rest of the EU, so I would call for a bit of consistency from the hon. Gentleman.