National Security and Investment Bill (First sitting)

Sam Tarry Excerpts

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

[The Chair]

We have two minutes left for anyone who wants to get a quick question in.

[Sam Tarry (Ilford South) (Lab)]

Q It is an honour to serve under you, Mr Twigg. We have focused mainly on China. Thinking about regimes we could put in place to govern all this as we work through the Bill, do you think there could be exemptions—a bit like the US has done for potential allies? Could we have almost a graded system, so we can build relationships quicker and faster with those we want to support, or do you think that would be a bad idea?

Sir Richard Dearlove: You are talking about allied countries?

[Sam Tarry]

Obviously, if you are involved in global universities, for example, there will be some countries that we want to keep a much better relationship with, and whose students our intelligence services will have to monitor less.

Sir Richard Dearlove: There is definitely a graded difference in, let us say, our burgeoning relationship with India, but India can also raise some strategic security concerns for us. It has not always been entirely friendly, and bear in mind that it has quite a sophisticated weapons programme of its own. However, it would be wrong to treat India in the same way as you treat China; I agree that there is a gradation of treatment.

[The Chair]

That brings us to the end of the time allotted for the Committee to ask questions. On behalf of the Committee, I thank our witness very much for his time.

Before we finish, I want to read a message out to Members. I would appreciate it if Members did their best to arrive in the room a few minutes before this afternoon’s sitting starts at 2 pm, to ensure we can be seated in a socially distanced manner so that everybody remains safe.

National Security and Investment Bill (Second sitting)

Sam Tarry Excerpts

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

[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.

[Sam Tarry (Ilford South) (Lab)]

Q Just thinking and reflecting on a few of your comments, Mr Leiter, if we are given the timescale that you have had at CFIUS—it has a long history, it has been here a long time and you have brought in a new and updated regime to meet the threats that the US Government see are coming towards us—how could we translate that to our context as we put together this regime here? Are there any particular lessons that we could use? Are there new threats that have been captured by the new regime that you now have in place?

Michael Leiter: Thank you for your question. I will do my best to provide some advice. I do so with some hesitation, because I readily accept from my experience working with the US and the UK that although we are related, we have two very different systems. The scale of our Governments and the scale of our private sectors are different, so one should always be very careful of trying to learn lessons from any other single country.

First, I would try to take this incrementally. This is a very big step and in trying to predict second-order and third-order effects of this—both the security effects, which may be positive, and the economic effects, which may not be as positive—I would tread carefully. I would start narrowly, then open up the aperture as necessary, rather than opening up quite wide and then narrowing it down.

Secondly, I think it will take some time, and not only to develop the administrative capabilities to handle this volume within the Government. I think you would have a significant amount of learning to do within your private Bar as to how this works, but also how to manage those voluntary filings. You are talking about including voluntary notifications across the economy, which I think is quite a sensible approach, but that requires a degree of collaboration between the UK security sector and the Secretary of State and the UK private legal Bar and commercial sector to understand where those national security threats and risks may lie. This is something that has developed in the United States over the past 20 years, but does not, in my view, yet exist fully in the UK.

Next, I would say that it is very important to consider how this should be applied for limited partners in private equity. Private equity plays a massive role both in UK and US investment and having clear rules about limited partners and the rights that may or may not implicate non-British ownership in those private equity funds is a very important step to take and one that should be clarified up front. It should not be approached without further clarification.

Lastly, I think it is important to build into the scheme the ability to evolve as technology evolves. I heard some of the questions about social media during the previous panel and it would have been very difficult to understand the sensitivities that are implicated by social media 10 years ago, or perhaps even five years ago. The ability for the review and notification to evolve with changing technology, access to data and new national security threats is critically important. The regime should be a living one that will evolve with those changed political or technological circumstances, not one that keeps still.

[Sam Tarry]

Q Following on from that, given the scale and breadth of the challenge you have outlined, covering so many areas, including private equity, how do you think we would best resource and staff this arrangement? Clearly this will be a potentially large undertaking for the Department as it stands at the moment.

Michael Leiter: Having worked with some of them, I think you have some outstanding individuals in some of the relevant Departments who can look at this matter. I believe that they will have to increase their interaction with the security elements of Her Majesty’s Government in a way that does not perhaps yet fully exist. The departments and agencies that I worked with while I was in the US Government were generally fairly separate from these sorts of investment review, and it will be necessary for training among those agencies to ensure that there is an understanding of the nature of acquisitions and investments in the private sectors in a way that security agencies do not yet fully understand it. Teaching the economic agencies about those security concerns will also be necessary. I think that the Government will need an initiative to make sure that there is a degree of integration across Her Majesty’s Government based on an understanding of those cross-fertilisations, which will take some period to take hold.

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

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

Thank you for joining us, Mr Leiter. It is invaluable to have a practitioner’s perspective as we make legislation; that is something I would like us to do more often. I wanted to ask about your practitioner experience with respect to two things: first, the inclusion in the Bill of personal criminal sanctions and, secondly, its behavioural impact, from the point of view of attorneys and lawyers advising clients, on the likelihood of notification.

Michael Leiter: Let me answer that with two points. First, there is clearly an educational process when such a new regime comes into place for bankers, attorneys and business people. This regime will take some time for them to understand as well, but I think that the UK, like the US—I have already drawn some distinctions about the risk of reducing investment in both countries—remains overall one of the most attractive places to invest in the world. One of the reasons it is so attractive is that it has a strong rule of law and courts system, and clear legislation. In that regard, those who would come and invest in the UK very much understand the need to comply with these regulations, and criminal and civil penalties.

What we have seen in the United States is an appreciation, even if there was some initial shock at the scope of the review and what might be considered a national security concern, and a very robust understanding that we at the Bar and our clients have developed about the importance of these reviews and compliance with the legal regime that applies. I do not see any likelihood of, or reason for, the same not taking hold in the UK. I find that my clients are quite appreciative of the counsel we give them, whether it is related to the US or a UK foreign investment. Overall, I think that the concern tends be less about personal criminal liability, although such concern undoubtedly inspires some, and more about the ability to continue to have good, strong, open relations with regulators in the country in which business is being done. That is critical.

The second piece I would commend you on, which is much better than the US system, is that the Bill provides for a very full and complete review by your courts. That is quite positive, especially with the change that will have to be implemented by the Government. The fact that there is an ability to turn to the courts for review is central and important. As you may know, that is not nearly equivalent in the United States. The ability to pursue remedies in the courts in the context of CFIUS is actually quite narrow. On behalf of my clients, and for improvement of the system, I am quite jealous of your approach on this front.

--- Later in debate ---

[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.

[Sam Tarry]

Q How do you think the mandatory notification framework could impact small and medium-sized enterprises in particular, which are obviously having a difficult time, given the consequences of the pandemic?

David Petrie: Yes, that is an important consideration. I hope that if small businesses have limited resources, that is recognised by the new unit, and that smaller businesses are able to have an open dialogue with it, and can say, “This is what we do, and this is what we need the money for. We are going to need it quite quickly because we are running out of money.” If the unit is able to give unequivocal guidance very quickly, that would be very helpful.

I would also say that the new unit should not treat the 30-day turnaround for a mandatory notification as the target. The target should be to respond as quickly and efficiently as it can, and in such a way that does not cause difficulty or distress for small and medium-sized companies. A five-page form for a small or medium-sized company seeking investment for a UK or a relatively straightforward overseas entity is not a terribly burdensome obligation. I hope that it will be possible for them to find their way through that at relatively low cost.

[The Chair]

I do not think there are any more questions, so once again I thank you, Mr Petrie, for generously giving your time to assist the Committee.

David Petrie: Thank you.

Examination of Witness

Chris Cummings gave evidence.

National Security and Investment Bill (Third sitting)

Sam Tarry Excerpts

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

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

Q From your professional point of view and experience to date, what could be the long-term impact of the Bill on UK business and investors? Will the Bill help or hinder the global position on investing into the United Kingdom?

Lisa Wright: In many ways, the regime just brings the UK into line with major international peers. From that perspective, for people doing deals around the world who have already experienced those other regimes, it ought not to have any real negative impact at all, provided that BEIS can deliver on the aspiration set out of a slick and efficient regime, turning around notifications within sensible deal timeframes and providing the kind of informal advice and early engagement promised. That will be critical, particularly in the early stages of the regime. From that perspective, I do not think this should have a long-term negative impact on people wanting to do deals in the UK. As Christian was mentioning earlier, it may be a slightly different picture for the start-ups and the smaller companies where they are caught up in the mandatory sectors, but overall I think it is right that this can be viewed as the UK bringing itself into line with what else is going on around the world.

Christian Boney: I agree with that. That is the right assessment.

[Sam Tarry (Ilford South) (Lab)]

Q Picking up the idea of bringing us into line with global peers and equivalent countries, there are many different regimes and you both have incredible global experience legally. If you have experience of dealing with companies and transactions, mergers and so on, particularly in the US, you will know that it has the Committee on Foreign Investment in the United States, with its white list of almost green-lighted countries, which they can deal with slightly differently. Should we consider something like the US does with its more established regime and having not necessarily an approved list but different layers for our regime, from the most hostile countries through to those who are our closest allies?

Lisa Wright: It is certainly worth considering. I would imagine that those sorts of considerations will be going through the mind of the officials and the Secretary of State tasked with making these assessments and issuing the decisions. I can see there may be some sensitivities and a desire perhaps not to make that all transparent in terms of public documents. Perhaps they think they will deal with it over time through this engagement and, with advisers and parties coming to talk to them, you will get a sense of who is okay and who is not that. But I can see that perhaps they will not want to put that down in very great detail on a public piece of paper, not least because one might imagine it could change over time. I guess there needs to be a degree of flexibility to recognise that.

Christian Boney: I agree. I am certainly not a CFIUS expert, but my understanding of the exempt list of countries is that actually the practical impact is quite tightly drawn. I do agree with Lisa. I think we are likely to get the best sense of those countries that are viewed as more risky than others through the engagement process and as people’s experience of the regime develops.

[The Chair]

We are almost at the end of the time available for this session, so there will be no further questions for these witnesses, but thank you, Ms Wright and Mr Boney, for being so generous with your time and assisting the Committee so much. We will now move on to the next witness—either we will suspend the sitting briefly until everything is sorted out or we will move seamlessly on—but thank you both very much.

Examination of Witness

Professor Ciaran Martin gave evidence.

National Security and Investment Bill (Fourth sitting)

Sam Tarry Excerpts

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

[Nadhim Zahawi]

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

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

[Sam Tarry (Ilford South) (Lab)]

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

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

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

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

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

[Sam Tarry]

Q Clearly there would be some serious resourcing implications around that. Thinking about what you said earlier, about a number of different examples that have been in the press about major UK-owned companies that were the subject of various takeovers, would you like to say a little about how industrial strategy could also relate to national security?

David Offenbach: I listened to and read the Second Reading debate in the House of Commons last week. I know that a lot of Members were concerned to try not to let issues of industrial strategy stray into areas of national security. It is a subject that I do not really want to go into.

Some people have expressed anxiety about the activities of sovereign funds in other countries posing dangers to assets in this country. Is there more of a risk from investments in China? Somehow, people feel that those investments are connected with the Government and that they are not really independent. I think the necessary protections are in this new statute that will prevent that from being an issue.

So far as industrial strategy is concerned, people are worried about sovereign funds. I think Britain should have its own sovereign wealth fund, like Norway does and like we used to have with the Industrial and Commercial Finance Corporation, and then with 3i. There are amazing investments that could be made and wonderful technological discoveries that Britain should be able to get the profits from, and that should not be going overseas. When I went on a trade visit to China a few years ago, I saw the China Investment Corporation. They said, “We are really pleased with our investment in Thames Water. We do nothing every year. The dividends come and it doesn’t cost us any money.” I thought, “Why shouldn’t Britain have the advantage of the dividends, rather than the China Investment Corporation?” Norway’s sovereign wealth fund is worth more than £26,000 for every citizen in Norway and is one of the most successful. That is something that really we ought to look at.

[Simon Baynes (Clwyd South) (Con)]

Q Thank you very much, Mr Offenbach, for your interesting comments which, as my colleague has said, are in sharp contrast to Mr Palmer’s point of view—so that is helpful to us. I have two questions. Apart from the lack of inclusion of public interest, are you broadly happy with the Bill as it stands, in terms of what it is seeking to achieve? I suspect you are.

David Offenbach: Yes, I am.

National Security and Investment Bill (Sixth sitting)

Sam Tarry Excerpts

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

[Chi Onwurah]

I thank my hon. Friend for that intervention. As a past employee of a regulator, Ofcom, he really appeals to my sense of regulatory best practice in speaking as he does about the importance of smart regulation that is not tied to narrowly defined legalistic definitions of national security but allows, as he says, a hierarchy of assessment of the different interests. We all need to take responsibility for doing everything we can to ensure that kind of smart judgment can be made by small businesses. We encourage giving as much guidance as possible—I see the Minister nodding, so I hope that he will be receptive to the amendment.

Finally, amendment 9 would mandate Business, Energy and Industrial Strategy unit resourcing updates. I will speak briefly to amendment 9, because I know that other hon. Members wish to speak to it. This amendment provides that a statement from the Secretary of State about the exercise of call-in power may include details of the resources allocated to reviews of national security within BEIS.

The driving thought behind this, again, is to ensure that the Secretary of State’s life is made as easy as possible by consistently looking at the resources available to do this very complex and difficult job, particularly given that we are transitioning, as one witness put it, from a standing start to potentially thousands of notifications.

[Sam Tarry (Ilford South) (Lab)]

It is an honour to serve under your chairmanship so soon again, Sir Graham. Following on from the eloquent exposition of those last two amendments by my hon. Friend the Member for Newcastle upon Tyne Central, I would like to focus on amendment 9. The amendment is simple. It tries to help the Government help themselves.

Amendment 9 provides that a statement from the Secretary of State about the exercise of a call-in power may include details of the resources allocated through reviews of national security within BEIS. We know that this is a significant and large change that the Department will have to absorb. For that to be effective—in whatever state the Bill ends up passing through Parliament—there will clearly be a need for proper resource allocation and for Parliament to scrutinise that process.

The Bill transforms the UK’s merger control processes. It locates the merger control processes away from the Competition and Markets Authority, which is a new development. The CMA had a history of experience of overseeing those sorts of processes. At the moment, there is no such expertise in BEIS.

While massively expanding the scope of the intervention, as my hon. Friend the Member for Newcastle upon Tyne Central said, moving from only 12 national security interventions in 18 years to potentially over 1,800 is such a significant step change, so it will be important for Parliament to have the ability to monitor that. It is unprecedented. The Government have neither a precedent nor a plan—none has come forward with the notes to this Bill—to assure the House of how the shift will be managed. That is why we felt it was important to put forward this amendment.

I believe this amendment has support on both sides of the House. Crucially, hon. Members across the House have raised legitimate concerns about the capacity and capability that will be required to manage this major shift. My colleague from the Transport Committee, Greg Clark, said,

“It is an enormous challenge for the Department to set up a new unit, especially since the current regime…has dealt with a very small number of transactions each year.”—[Official Report, 17 November 2020; Vol. 684, c. 228.]

Similarly, James Wild said,

“It is crucial that the structures and resources are put in place to ensure that the timetables for review and assessment in the Bill are actually met.”—[Official Report, 17 November 2020; Vol. 684, c. 266.]

I think both of those points are extremely pertinent.

I do not see this as a controversial amendment. I think it is important to allow the Bill, once passed, to function effectively and with proper oversight. It also provides the appropriate scrutiny, ensuring that this critical part of our national and economic security functions effectively and efficiently. I am sure that in amendments to come we will debate where the balance should be between economic freedoms and our responsibility to safeguard our citizens. But clearly, on the simple idea put forward in this amendment, the Government will have to be transparent about the capability and capacity of BEIS on investment security, as many other countries around the world do.

[Stephen Kinnock]

My hon. Friend is setting out the case very well. To add to that argument, this is also about reassuring us as Members of Parliament. A Bill is all very well—it puts it all down on paper—but what really matters is putting it into practice. How does the implementation work? The investment security unit will be the key place for that. We need assurance that that crucial part of this process will have the capability to deliver. The amendment we are putting forward is also an assurance amendment—that when Parliament votes this Bill through, we can be assured that the implementation capability will be there.

[Sam Tarry]

My hon. Friend is absolutely right. As we have shaped our own Bill, we have been learning about regimes in other countries and comparing and contrasting provisions. For example, in the US—we have heard evidence on this from Michael Leiter earlier in the week—they look in detail at only around 240 cases, and then they look at 100 in a short form. We are saying that will have up to 1,800, and at the moment we do not have any guidance on what would be a more detailed and thorough investigation. Clearly, we need to have confidence about the amount of resources and about the fact that the Department has proper oversight of that and has been doing things properly.

This is not just about making our country the most attractive destination to do business; it is also about ensuring that we have the resources in place so that we do not slip up. We do not want another Huawei situation. We do not to be in a place where we do not have the resources, and where the former head of MI6 has to come to our evidence session and say that successive Governments have placed too much emphasis on building the economy at the expense of our security.

One of the evidence sessions last week touched on the idea of moving from just a few dozen cases to 1,000-plus being investigated. We do not know exactly when those cases will come. If there is suddenly a glut of cases at the same time, we need to make sure that the resources are there to deal with all of them. In that way, we will not have smaller companies, in particular, which are not getting the media coverage that some companies have had, falling through the net. As we know, very small, innovative technology companies sometimes develop some very radical forward-thinking technologies, and we might not even notice that they have been bought out or taken over by a state-owned business or by a business that is aligned closely with another state that may not share British values or interests.

I will leave it there, Sir Graham. This is about helping the Government to help themselves, allowing Parliament to have oversight and ensuring that the resources are in place, so that we get this right and do not have to revisit it after a calamity in a few years’ time.

--- Later in debate ---

Division 3

Ayes: 5

---

Labour: 5

Noes: 9

---

Conservative: 9

[Sam Tarry]

I beg to move amendment 11, in clause 3, page 3, line 16, at end insert—

“(7) The Secretary of State must publish guidance for potential acquirers and other interested parties separate from the policy intent statement.

(8) Guidance under subsection (7) must cover—

(a) best practice for complying with the requirements on acquirers imposed by this Act and regulations;

(b) the enforcement of the requirements; and

(c) circumstances where the requirements do not apply.

(9) Guidance under subsection (7) must be published within six months of this Act receiving Royal Assent.”

This amendment would require the Secretary of State to provide clear guidance to potential acquirers and other interested parties.

Again, this is, in our view, a fairly simple amendment. It is important because it is about ensuring that we are an attractive destination for business. A number of witnesses were very clear that many businesses need an early warning. The amendment would require the Secretary of State to provide clear guidance to potential acquirers and other interested parties, so that people are not put off from investing or getting involved in the British economy because of red tape that they might fear being tied up in. The amendment is about providing that clear guidance to companies.

If the Government went even further and published guidance that created regulatory sandboxes and clear engagement guidelines for innovative small and medium-sized enterprises, which could benefit from efficient regulatory engagement to pursue investment transactions just as, for example, the Financial Conduct Authority has done for the UK’s world-leading FinTech sector, we could turn this into an opportunity to encourage the right types of companies from our allies around the world to invest in Britain.

One of the things we fear is the introduction of significant uncertainty. We know that hard work is going on to finalise a trade deal. Businesses have for so long felt that their big problem, in deciding about long and medium-term investment, is uncertainty. The amendment is about tackling straightaway any fears of uncertainty among businesses, particularly innovative SMEs, which will not have the resources to spend on figuring out the lengthy processes and, potentially, the accompanying guidance that could be put in place once the Bill passes. The amendment would require the Government to try to reduce that uncertainty.

[Mark Garnier (Wyre Forest) (Con)]

I have a lot of sympathy for what the hon. Member says, because clearly the more clarity a potential investor has when investing in the UK, the better. The only problem is that if the Government are in a position to provide guidance in the first place, they are in a position to subsequently update it. Governments of different colours could change the guidance without necessarily having to refer back to Parliament. Does the amendment therefore not perversely create greater potential uncertainty, by enabling Governments to change their guidance willy-nilly, without scrutiny?

[Sam Tarry]

The hon. Gentleman makes a valid point, but it was not really borne out in the evidence that we heard from the witnesses. They were clear, even while having different approaches, that more guidance accompanying this, and providing it early, would provide that certainty. We heard a range of approaches and opinions, and that advice should clearly be listened to. Dr Lenihan said:

“The Bill provides for a lot of regulatory guidance, which needs to come forward in a clear and very easily comprehensible and understandable manner.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 38, Q42.]

--- Later in debate ---

[Nadhim Zahawi]

Amendment 11 would require the Secretary of State to publish guidance in relation to the Bill and regulations made under it within six months of Royal Assent. The hon. Member for Ilford South raised an important issue and I welcome the opportunity to discuss the Government’s plan for communicating the application of the proposed new regime, including the requirements that would or might be imposed on persons. It is important that appropriate steps are taken to make such persons aware of the requirements that would or might be placed on them. I have used “persons” here deliberately as it is the correct term, but I wish to make it clear that that includes acquirers.

First, the Government have published factsheets on the digital platform .gov that make clear what the measures in the proposed legislation are and who they apply to. The factsheet “Process for Business” sets out step by step what steps persons must or may need to take to ensure compliance with the regime. Secondly, we have set up the email address [e-mail] specifically for the purpose of providing advice on what may be in scope of the NSI regime for persons to contact to ensure that they properly understand the proposed regime. Of course, the Government believe that the Bill does not require any adjustment but should adjustments happen as it passes the scrutiny of this House and the other place, then any adjustments that affect persons would be reflected in the factsheets.

Thirdly, the Government have published and will continue to publish guidance alongside key documents in the Bill. Hon. Members will, for example, be able to review the information likely to be required for notifications online, as well as draft guidance. It is our intention to complete similar such guidance wherever it would be beneficial to parties. I hope that that provides sufficient reassurance for the hon. Member for Ilford, South and the shadow Minister that the Government are thinking carefully, and will continue to think carefully, about how to ensure that all parties who need to understand the measure are able to. For the reasons that I have set out, I cannot accept the amendment and I hope that the hon. Member for Ilford, South will withdraw it.

[Sam Tarry]

I wish to press the amendment.

Question put, That the amendment be made:

--- Later in debate ---

Division 7

Ayes: 5

---

Labour: 5

Noes: 10

---

Conservative: 10

[Sam Tarry]

I beg to move amendment 12, in clause 8, page 6, line 38, at end insert—

“(10) The fifth case is where a person becomes a major debt holder and therefore gains influence over the entity’s operation and policy decisions.

(11) For the purposes of subsection (8A), a major debt holder is a person who holds at least 25% of the entity’s total debt.”

This amendment would mean that a person becoming a major debt holder would count as a person gaining control of a qualifying entity.

[The Chair]

With this it will be convenient to discuss amendment 14, in clause 8, page 6, line 38, at end insert—

“(10) The fifth case is where a person becomes a major debt holder and therefore gains influence over the entity’s operations and policy decisions.

(11) For the purposes of subsection (8A), a major debt holder is a person who holds at least 25% of the entity’s total debt.

(12) The sixth case is where a person becomes one of the entity’s top three suppliers of goods, services, infrastructure or resources and therefore gains influence over its operations and policy decisions.”

This amendment would mean that a person becoming a major debt holder or a major supplier would count as a person gaining control of a qualifying entity.

[Sam Tarry]

Amendment 12 is about where a person becoming a major debt holder would count as a person gaining control of the qualifying entity. I know there is some debate about the technicalities of this, but Admiral Mike Mullen, former chair of the US joint chiefs of staff, famously said of the US:

“The single greatest threat to our national security is our debt.”

This is an important point, because there is a substantial body of evidence to show that the debt holding of bondholders can indeed exert influence over companies. A particular feature of our current economic circumstances is extremely low, or zero, interest rates, so companies have drawn heavily on debt, not just equity, to fund themselves. In that context, it would be a major loophole for this Bill not to put debt investments under scrutiny in protecting our national security. This amendment would simply change that by bringing it into scope.

The amendment would ensure that an entity holding more than a quarter of a company’s debt became a qualifying entity, bringing transactions into the scope of the national security screen. We think this is really important, because we would want that level of scrutiny. We also know that a number of states use this kind of leverage in some of the companies that they are taking over or, indeed, taking the debt from. Without it, hostile actors can be expected to exert explicit influence by buying up UK companies’ debt, and that is something that should worry us all of us. Indeed, the Parliamentary Commission on Banking Standards talked about the importance of how debt can be used to exert influence. It said that,

“while a bank remains solvent, the formal powers of other creditors, such as bondholders, are much more limited.”

However,

“The terms of some bond issuances may have provisions in situations when the security of the bond may be affected”,

secured against

“creditors, such as securitised or covered bond holders”.

So in practice, the scale of the funding provided by bank creditors means they simply have more influence over companies. If debt was bought in that way, we could indeed have a situation where a loophole was used to bring in hopefully benign, but potentially troubling influence within a company which could impact our national security.

There is considerable research showing that, in some companies, there is a strategy of using a negative relationship between debt investments in research and development that has actually stopped innovation, so we want to tackle all those things, but most importantly simply focus on closing the loophole that is here. There may be some pushback from the Government side of the Committee to say that, legally, debt holders have no operational control over a company. Of course, technically that is correct, but in practice companies’ executives pay huge attention to bondholders and are materially influenced by them in substantive practice. There are a number of examples of that. From our point of view, we would like to push forward this amendment so that we bring into scope something that is otherwise a major loophole.

[Stephen Flynn]

I will be brief, as our amendment 14 is incredibly similar to the amendment moved by the hon. Member for Ilford South—not the hon. Member for Southampton, Test; I know that much. In any case, it is indeed very similar; I would just add that we must be clear about the fact that power does not just lie in ownership and investment, but also in debt and, indeed, in suppliers too. If we are standing blind to that, then I am not quite sure where we are at, particularly in terms of national security. Surely, it is an issue that we should be giving cognisance to, and the amendment certainly seems like a constructive proposal for the Minister to take forward.

I also have a fear that, as we approach anything to do with national security and investment, the bad guys, as they are often portrayed—and rightly so—will look for ways to get around things. If there is potentially a way to get around things, particularly by buying up debt or buying up the supply chain into an organisation, then I have absolutely no doubt they will do that. As we know, they will seek to exploit every opportunity available to them to wreak the damage they want to cause. We need to be mindful of that.

--- Later in debate ---

Taken together, Sir Graham, I do not believe these two amendments are in the interest of supporting business in this country to succeed. They do not offer the protections to national security that the Bill already appropriately and proportionately provides. As such, I respectfully ask the hon. Members to withdraw them.

[Sam Tarry]

I thank the hon. Members for Wyre Forest and for Aberdeen South for their contributions. It is my fear that, in some of the Minister’s answers, there was perhaps an admission from Government colleagues that there is a correct driver, in terms of what we are trying to push at with this amendment. It would be more ideal if we were able to bring back an amended amendment that would win the support of the Government side, given that there clearly is recognition from experienced Members of the House that this is a problem and it could continue to be a problem. That could be a risk. For that reason, we will press for a Division.

[The Chair]

I am sorry. Can I be clear that you would like a Division?

[Sam Tarry]

We would indeed, because it is a point of key principle.

Question put, That the amendment be made.

National Security and Investment Bill (Seventh sitting)

Sam Tarry Excerpts

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

[Sam Tarry (Ilford South) (Lab)]

I beg to move amendment 18, in clause 14, page 8, line 36, leave out “may” and insert “shall”.

This amendment seeks to make the Secretary of State’s prescription of regulation of the form and content of a mandatory notice mandatory.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 19, in clause 18, page 11, line 28, leave out “may” and insert “shall”.

This amendment seeks to make the Secretary of State’s prescription of regulation of the form and content of a voluntary notice mandatory.

Clause stand part.

[Sam Tarry]

It is an honour to serve under your chairmanship, Mr Twigg. These two amendments are simply about giving more direction. One issue that we have debated on every day of the Committee’s scrutiny so far is how the Bill will radically transform the merger control process and create an entirely new centre for that process within BEIS.

Small and medium-sized enterprises across the country will look at these changes with great interest and understanding that national security is important and imperative, but also with uncertainty as they consider the need to seek investment to grow and create jobs. We owe those businesses clarity, confidence and certainty in the new regime, which is why the amendment simply seeks to make the Secretary of State’s prescription of regulation of the form and content of a mandatory notice mandatory by deleting “may” and inserting “shall”.

The Bill gives some clarity on the assessment period and the review period under the new regime, but there is still major uncertainty about the first stage of the regime. It is unclear how long the Secretary of State can take to decide on rejecting a mandatory or voluntary notice. The Government’s consultation suggested that it would be as soon as reasonably practicable, but unfortunately that is of no assurance. For a new unit with major resourcing challenges, as soon as reasonably practicable could be far from soon.

My hon. Friend the Member for Southampton, Test spoke earlier in the week about his experience and the bad practice that could occur if the Secretary of State was left with so much discretion, rather than a little more compulsion. There are a number of examples, including the Energy Act 2013, where having “may” rather than “shall” meant that, in real terms, what was determined by the Bill never came into being.

Clause 66 of the Bill says that some clauses will immediately come into force, but it later says “may”. The Secretary of State could—hopefully he would not—wait for years or not do it at all. In both clauses referred to by the amendments, the regulations must be laid by the Secretary of State, and the term “may” creates some degree of uncertainty. It would be far better to take a more direct approach by inserting “shall”.

It is also unclear what specific form of content and information could be required in the mandatory or voluntary notices that firms and investors would have to provide. We could end that uncertainty. It is already an incredibly challenging time for firms to engage with a major new control process in the midst of a pandemic and, of course, while waiting to hear what our new relationship with the European Union will be.

[Chi Onwurah]

I thank my hon. Friend for the excellent remarks he is making. Is his experience of small and medium enterprises in Ilford South the same as mine in Newcastle, in that they generally do not have the time to fill out the multiple forms required to receive grants or to apply for support? To expect them not only to respond, but to design the form and decide what should go into it is really taking our small and medium enterprises for granted.

[Sam Tarry]

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

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

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

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

[Matt Western]

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

--- Later in debate ---

[Sam Tarry]

My hon. Friend makes a good point. Businesses are feeling huge pressure. SMEs will often experience a degree of fear at the moment about potentially having to grapple with a whole series of new regulations—not just under this important Bill, but under the spin-outs that come out of our ongoing negotiations with the European Union. Many businesses are, I think, holding back on investment and investment decisions—even inward investment into their own company—simply because of the uncertainty. It is incredibly important to remove those barriers and to get people back investing in both staff and technology and feeling that they have the ability to see forward far enough to keep staff on the books through such a difficult crisis.

[Chi Onwurah]

My hon. Friend is making an excellent point about Brexit, but I will not test the Committee’s patience on that. As for the changing forms and the requirements on SMEs, does my hon. Friend understand why the Minister is putting the onus for deciding what information is required on to small businesses, rather than on to his Department and the civil service, which could do that?

[Sam Tarry]

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]

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.

National Security and Investment Bill (Eighth sitting)

Sam Tarry Excerpts

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

[Nadhim Zahawi]

Let me make clear to the hon. Lady what I actually said, which was that whether clauses 14 and 18 say that the Secretary of State “may” or “shall” make such regulations, the notification regimes cannot operate without the notification forms being prescribed in regulations. My point is that whether the clauses say “may” or “shall”, it makes no difference. I therefore hope that the hon. Member for Ilford South will withdraw the amendment.

[Sam Tarry (Ilford South) (Lab)]

I have listened carefully to the Minister, and I feel that several issues have not been fully explored. The whole point of the amendment is to compel the Secretary of State to be clear that those regulations will be forthcoming in a timely manner, along with the reassurances that small and medium-sized enterprises seek. The amendment would mean that it was not the Secretary of State’s choice when or whether that happened. The use of the word “shall” would allow us to move forward more directly, because the Secretary of State would be compelled to do that as quickly as possible. On that basis, I will press the amendment to a Division.

Question put, That the amendment be made.

National Security and Investment Bill (Ninth sitting)

Sam Tarry Excerpts

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

[Sam Tarry (Ilford South) (Lab)]

I beg to move amendment 27, in clause 29, page 19, line 39, leave out paragraph (a) and insert—

“(a) would be likely to prejudice the commercial interests of any person and where the publication would not be in the public interest, or”.

This amendment would prevent the Secretary of State from redacting notices of final order (and information within them) on commercial grounds if redacting is contrary to the public interest.

It is a pleasure to serve under your chairmanship on this frosty morning, Mr Twigg. The amendment is on the public interest for disclosure. It is really about preventing the Secretary of State from redacting notices of final order and the information with them. The Opposition believe that commercial grounds for redacting are contrary to the public interest. It is about putting as much information as possible into the public realm about stuff that is particularly controversial but is really about clear protection of our national security.

Our strong belief is that the fundamental task of any Government, and the reason for the Bill overall, is the protection of our national security. A critical driver of that security is the wider public understanding of the rapidly changing threats that we face, and the different sources of those threats. We have heard from various expert witnesses over the past few weeks that other countries understand, perhaps far better than we do, what some of those threats are, and that our public understanding of threats is even more limited.

When Sir Richard Dearlove gave evidence, with vast experience spanning decades, he said:

“What is important about the Bill is that it raises parliamentary and public awareness of the issue.”—[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 24, Q30.]

Everyone on both sides of the House would like to see that. He also said, talking about China specifically:

“We need to conduct our relationship with China with much more wisdom and care. The Chinese understand us incredibly well. They have put their leadership through our universities for 20 or 30 years. We in comparison hardly know anything about China”—[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 20, Q21.]

The wider point in his evidence was that for too long our business priorities and the desire to be an attractive investment destination had overridden some of the security concerns, across a number of different Governments, perhaps creating a pattern of not taking the threats posed by China as seriously as possible.

The Bill requires the Secretary of State to publish notices of final order, setting out the details of persons and events involving national security that meant the notices were made. Those details are critical to our security and to our understanding of the threats. They must be made public. The amendment would put into the public domain the accurate information that will create public confidence on what the clause seeks to achieve.

As drafted, the clause prevents the publication of information that is critical to our security if it prejudices commercial interest. The Opposition believe that is the wrong judgment. The whole point of the Bill is to take a more strategic view, as indicated by Sir Richard Dearlove. The focus should be on long-term security, but the Bill is a way to protect not only security but our long-term commercial interests. The approach in the amendment might mean some short-term commercial challenges, but it is absolutely right for our national security and our longer-term prosperity.

The amendment would require the Government to publish all details of a final order notice where it is in the interests of national security and the public interest, even when commercial interest could be prejudiced. Where a hostile actor acts against our security interests, it is crucial for the British public to know about it and that we have some appropriate conversations in the public domain. Not to disclose such threats or events for the sake of protecting imminent profits in the short term would be the wrong judgment.

[Chi Onwurah]

I thank my hon. Friend for the amendment and for the excellent point that he is making. Does he think that if a company was being acquired by a hostile actor, and the Secretary of State thought that knowledge of the acquisition would be detrimental to the commercial interests of the company, the clause would allow the Secretary of State to redact that information? It would be in the general public’s interest to know that such an acquisition was taking place.

[Sam Tarry]

My hon. Friend makes a very good point. It is our belief that national security must be the overriding priority when threats emerge in an ever-changing world. We have heard evidence that threats that should have been seen were not dealt with in the correct way. Bringing that into the public domain through the amendment is incredibly important. That would override the short-term commercial pain if it guaranteed that security was paramount.

If we did not disclose such threats or events, and the focus was just on the short-term protection of swift profits, that would be the wrong judgment, because it would downgrade the overarching purpose of the Bill, which is to use all its mechanisms to enhance our security and ensure that we are on top of it at all times. The amendment would correct the focal point of this area of the Bill, by requiring before any redaction on commercial grounds an assessment of whether publishing would be in the public interest. That puts the onus on, and gives power to, the Secretary of State to make those crucial judgments.

[Chi Onwurah]

I rise to say a few words in support of my hon. Friend’s amendment. The excellent points that he has made have highlighted a theme of the Committee’s discussions: the potential conflict between the Department’s focus on supporting business and investment into the UK, and our national security. As he set out, the public interest might be in knowing that a hostile acquisition was taking place and in being better informed generally about national security. In addition, I can think of many examples in which the knowledge that a company had come into the purview of the Bill could have a detrimental impact on its stock valuation or reputation.

When the Minister responds, I hope that he will set out what he expects the Secretary of State to do when there is a conflict of interest between public knowledge of hostile actors and specific measures in the Bill to ensure that companies related to potential hostile actors, or those for whom our national security is not in their interests—through chains of influence or company holdings, for example—should not be beyond the reach of the Bill. The clause, by enabling the Secretary of State to leave out details that prejudice the commercial interests of any person, seems to put the focus back on commercial interests rather than national security. The amendment would put the focus back on national security and the public interest.

National Security and Investment Bill (Tenth sitting)

Sam Tarry Excerpts

Committee stage
Tuesday 8th December 2020 Public Bill Committees

[Nadhim Zahawi]

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

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

[Sam Tarry (Ilford South) (Lab)]

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

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

[Chi Onwurah]

Was my hon. Friend as confused as I was when the Minister spoke about this Bill not being the place to introduce public interest? The Government, however, have introduced commercial sensitivity. We are not seeking to modify national security; it is the introduction of commercial sensitivity that requires the introduction of public interest. We are talking about modifying the importance of commercial sensitivity, not national security. Will my hon. Friend join me in rejecting the Minister’s assertion?

[Sam Tarry]

I agree wholeheartedly with my hon. Friend. We have been clear that the amendment is simply about preventing the Secretary of State from redacting notices of final order on commercial grounds, if redaction is contrary to the public interest. The whole point of this Bill is to together public interest, national security and commercial interest because they are one and the same. National security is our highest priority, but in the post-Brexit scenario we want to be a country that is as open and positive as possible towards investment from international partners if they share our values and our objectives of supporting and building Britain. It feels as though the Minister is agreeing with us in part, but he is not prepared to accept this amendment. For that reason, I will press the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

Interaction with CMA functions under Part 3 of Enterprise Act 2002

[Sam Tarry]

I beg to move amendment 25, in page 20, line 27, leave out from “in” until end of line 28 and insert

“setting out the reasons for such direction and an assessment of the impacts on grounds for action that may have arisen under Part 3 of the Enterprise Act 2002”

This amendment would require the Secretary of State to set out reasons, and an assessment of the likely impacts, when publishing directions under this section.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Sam Tarry]

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

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

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

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

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

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

[Nadhim Zahawi]

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

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

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

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

--- Later in debate ---

[Nadhim Zahawi]

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

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

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

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

[Sam Tarry]

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

[Nadhim Zahawi]

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

[Sam Tarry]

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

Question put, That the amendment be made.

National Security and Investment Bill (Eleventh sitting)

Sam Tarry Excerpts

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

[Nadhim Zahawi]

I hope I have already made it clear that the Government would not intend to defame anybody. The reason for the clause is that there are various points in the regime where the Secretary of State will make statements that are, in effect, published and would include communications with other parties as well as those for general public consumption. He may therefore be open to such claims, which is why the clause is in the Bill.

Question put and agreed to.

Clause 60 accordingly ordered to stand part of the Bill.

Clause 61

Annual report

[Sam Tarry (Ilford South) (Lab)]

I beg to move amendment 31, in clause 61, page 36, line 20, at end insert—

“(m) the average number of days taken to assess a trigger event called in under the Act;

(n) the average number of days taken for acceptance decisions in respect of mandatory and voluntary notices;

(o) the average annual headcount allocated to the operation of reviews of notices made under sections 14 and 18 over the relevant period;

(p) the proportion and number of Small to Medium Enterprises in the overall number of notices and call-in notices.”

This amendment would require the Secretary of State to report on the time taken to process notices, the resource allocated to the new Unit and the extent to which Small to Medium Enterprises are being called-in under the new regime.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Sam Tarry]

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]

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]

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—

[The Chair]

Would the hon. Gentleman face the Chair when he is speaking, please? Thank you.

[Sam Tarry]

Certainly, Chair. It is incredibly important to give that sense of clarity and time to small and medium enterprises. That has been a running theme for a number of our amendments, and there are three reasons, which it might help the hon. Member for Glenrothes to understand: first, the unit’s efficiency; secondly, its capacity; and thirdly, its focus on SMEs.

I will expand on that. First, on the unit’s efficiency, by reporting the aggregate time taken for decisions—both assessment decisions and initial acceptance or rejection notices—we would have a mechanism to ensure that the new regime works more efficiently for SMEs. Secondly, on capacity, the amendment drives towards taking stock of the resources behind the unit’s work, so that Parliament and the public will have a mechanism for holding the Government to account for what will be a major new centre for merger investment screening in the UK. Thirdly, we in the Labour party have really tried to make that focus on SMEs paramount in the Bill, so that we have a climate in which SMEs can thrive. That would simply mean that the unit could track the focus of SMEs in its work, and would be able to highlight specific concerns and the experiences of our most innovative start-ups when interacting with the new regime. Seeing that in live time would be useful for the forward planning of SMEs, and for the Government and Parliament to be able oversee how the process is working once it is in place.

Each paragraph of the clause maintains the Government’s power to act to protect national security. The clause simply holds power to account through what we would call aggregated transparency.

[Nadhim Zahawi]

I am grateful to the hon. Member for Ilford South. We are not quite at minus 70 °C, but we are probably very close to it.

I will speak initially to clause 61 stand part before turning to amendment 31. It is crucial for investor confidence that there is as much transparency as possible in the regime, but of course there is evidently a limit to how much the Government can disclose, given that the regime deals explicitly with national security matters. That said, alongside appropriate protections for personal data and commercially sensitive information around national security assessments, the Government are committed to providing as much transparency as possible when it comes to how the new regime functions at an aggregate level.

--- Later in debate ---

[Chi Onwurah]

I will say a few words in support of the amendment and on the clause, and will respond to the Minister’s comments. I think we all recognise the importance of reporting annually on the seismic shift in our national security, and of scrutiny of mergers and acquisitions. Yet it has to be said that the Bill does not say what the report’s objective is. Neither did the Minister, in listing what was included, give an understanding of the reasons the items have been included, even as he rejected the amendment of my hon. Friend the Member for Ilford South, which seeks to add points of particular interest to small and medium-sized enterprises.

I note, for example, that the number of final notifications is given but not the number of interim notifications or interim orders made. It is hard to see whether the objective of the report is to give greater confidence, to enable us to fully understand the working, or to enable us to see whether the limited contents of the impact assessment prove to be accurate. The kind of information in the report, and in my hon. Friend’s amendment, is the information that a well-run Department should wish to have. Although we are unclear on the objective of the report, which is not set out, reporting on those items as fully as possible would certainly improve the workings of the Bill, as my hon. Friend has said he seeks to do.

[Sam Tarry]

I listened to the Minister’s assessment. We want to tackle a number of other substantial issues this afternoon, so on that basis I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 61 ordered to stand part of the Bill.

Clause 62

Transitional and saving provision in relation to the Enterprise Act 2002

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

[The Chair]

With this it will be convenient to discuss clauses 63 to 66 stand part.

National Security and Investment Bill (Twelfth sitting)

Sam Tarry Excerpts

Committee stage
Thursday 10th December 2020 Public Bill Committees

Brought up, and read the First time.

[Sam Tarry (Ilford South) (Lab)]

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

The Opposition’s new clause 5 deals with high- and low-risk acquirers. It would require the Secretary of State to maintain a list of hostile actors, including potential hostile states and allied actors, to allow different internal security to be applied based on the characteristics of the actors linked to the acquirer. I will attempt to explain the exact thinking behind the proposal.

There has been widespread agreement inside and outside the Committee that we face a geopolitical context in which many—if not all—threats emanate from a set of hostile actors or states. In fact, the Government’s statement of policy intent for the Bill recognises that

“national security risks are most likely to arise when acquirers… owe allegiance to hostile states”.

Throughout this process, the Committee has heard from various experts, including experts on China, as well as from lawyers, intelligence chiefs and think-thank experts. They have told us that origin and state of origin should be important drivers of national security screening processes. Indeed, a number of our allies—most notably, the US—exempt some countries, including Canada, Australia and the UK, from some of the most stringent mandatory notification requirements, and include country of origin among the factors to be considered in assessing security.

In that context, it is perhaps quite concerning that the Minister and the Government have not caught up or been thinking about that. In previous expositions, they have simply maintained that national security is not dependent on a particular country. When we debated a similar provision earlier in this process, I think the Minister said the Government were “agnostic” about the country of origin. That could be a mistake, because national security is not exclusively dependent on a single country. It is short-sighted and, frankly, dangerous, not to see threats that are materially country-specific.

As my hon. Friend the Member for Newcastle upon Tyne Central said, the former head of MI6 told the Committee that, essentially, we need to wake up to the strategic challenge posed by China in particular. I will explore that a little more with some specific examples from around the world of China beginning to tap into start-ups long before they are mature enough to be acquired. In Sweden, for example, between 2014 and 2019, China’s buyers acquired 51 Swedish firms and bought minority stakes in 14 additional firms. In fact, the acquisitions included some 100 subsidiaries.

More worryingly, in 2018, Chinese outfits, two of them linked to the Chinese military, bought three cutting-edge Swedish semiconductor start-ups. There is the 2017 example of Imagination Technologies—a top British chipmaker—which was acquired by a firm owned by a state-controlled Chinese investment group. Before that, a Chinese firm also bought KUKA, a leading German industrial robot-maker.

[Andrew Griffith]

Although this is interesting, I fear we are drifting a tiny bit off the new clause, which does not refer to geography. Given the Opposition’s desire to continue to shade in any ambiguity with greater clarity and the definition in new clause 5, will the hon. Gentleman give his definition of what “regular” would constitute?

[Sam Tarry]

I thank the hon. Member for that intervention. The word “regular” would clearly need to be defined in a way that did not overburden the new part of the Department that would oversee the regime, but that would provide the information on a basis that enabled the Minister to make decisions, and to be scrutinised on those decisions regularly enough that the regime was effective and did not lead to oversights.

[Chi Onwurah]

I thank my hon. Friend for his points on the new clause. The hon. Member for Arundel and South Downs may say that there is no reference to geography, but is it not the case that requiring a list of hostile actors might reflect geography as appropriate, and as the geography of hostile actors changes? Does the number of times that we have mentioned one country in particular—China—not indicate that geographical location can be an indicator of the likelihood of hostile actors?

[Sam Tarry]

Absolutely. This is not about being particularly anti-China, but it is the strongest example of where we have heard evidence of things that are under way. I will continue with a few more examples. I think this is important, because we are trying to draw back the curtain on exactly what is going on.

[Simon Baynes]

I perceive a similar issue in new clauses 5 and 1: being prescriptive in this way causes problems, because what happens if a new, potentially dangerous, acquirer appears on the scene who is not incorporated within the terms of the measure?

[Sam Tarry]

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]

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]

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

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

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

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

[Sam Tarry]

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

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

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

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

[Nadhim Zahawi]

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

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

--- Later in debate ---

[Nadhim Zahawi]

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

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

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

[Sam Tarry]

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

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

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

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

Clause, by leave, withdrawn.

New Clause 6

Access to information relevant to national security

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

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

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

Brought up, and read the First time.

National Security and Investment Bill

Sam Tarry Excerpts

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

[Madam Deputy Speaker (Dame Eleanor Laing)]

We now go over to Sam Tarry—oh no, he’s here!

[Sam Tarry (Ilford South) (Lab)]

I am indeed, Madam Deputy Speaker; I hope you are not too confused that I am here physically. Thank you very much for kicking me off.

I spoke at length on this legislation in Committee, where I moved a number of Opposition amendments to try to strengthen it and where we heard salient and wide-ranging witness statements and testimony on this crucial legislation. Indeed, as many Members across the House have said, the Bill is an important and, frankly, long overdue piece of legislation that will provide more robust powers for the Government to intervene when corporate transactions threaten national security, as the Labour party has long demanded. That is why we support the Bill and have tabled amendments to make it more robust.