National Security and Investment Bill

Stephen Kinnock Excerpts

2nd reading & 2nd reading: House of Commons
Tuesday 17th November 2020 Commons Chamber

[Charlotte Nichols (Warrington North) (Lab)]

It is a pleasure to follow the right hon. Member for Wokingham (John Redwood), who is my dad’s Member of Parliament. Considering the number of Conservative MPs who are self-isolating, I am glad to see Minister in his place. May I take this opportunity to wish good health to the hon. Member for Warrington South (Andy Carter), who is also self-isolating?

I welcome this Bill and I am glad that the Government are at last addressing the important issue of protecting important assets when foreign acquisitions threaten national security. However, I fear that they have dragged their feet on this matter and that that has led to paralysis rather than strategic planning in several sectors, most notably civil nuclear power.

In 2016, the then Prime Minister, the right hon. Member for Maidenhead (Mrs May), delayed approval of Hinkley Point C because of fears of the potential for a controlling influence by the Chinese state firm China General Nuclear Power Group. While approval was subsequently granted, that illustrates the governmental hesitation that has beset this vital industry—an industry that depends on long-term certainties—for years now.

It has taken more than four years for the Government to bring forward the proposals in the Bill to allay those fears. In that time, the nuclear sector, which offers both reliable low-carbon energy and high-skilled, well-paid, unionised jobs, has suffered paralysis. Our fleet of nuclear power stations is ageing and needs renewing. The Government promised an energy White Paper in summer 2019, which has been delayed and delayed ever since. In that time, we have seen Hitachi withdraw from its planned investment in a nuclear plant at Wylfa because of the Government’s hesitation in agreeing a funding agreement. The whole sector, and thousands of people in quality jobs, including almost 4,500 civil nuclear workers in my constituency, are still waiting to hear a clear plan and direction from the Government. We must not lose those jobs, and the planet cannot afford stalling over this green energy sector.

We know that part of the reason for the delay has been fear of foreign influence in our strategic assets. Dozens of Conservative MPs have even formed an internal lobbying faction called the China Research Group to focus on the threats that they perceive from China. That led to the banning of Huawei from our 5G network back in July. That makes it all the more extraordinary that it has taken so long for the Bill to be brought forward. Labour has called consistently for tougher powers on takeovers since 2012. I hope that now this legislation is finally here, the Government will have no more excuses not to act to give the assurances and firm grounding that nuclear firms reasonably request.

Alongside the Bill, I look forward to early publication of an energy White Paper that lays out the groundwork for nuclear energy that is environmentally and economically secure, and where the UK’s national interest and national security are protected.

[Stephen Kinnock (Aberavon) (Lab)]

My hon. Friend is making an excellent speech. Does she agree that the fact that 57 items of our critical national infrastructure—including, of course, nuclear, but also other energy and airports—are reliant on Chinese supply chains demonstrates the abject failure of this Government to bring forward a proper industrial strategy?

[Charlotte Nichols]

I agree that, given the national security risks posed by actions being taken by the Chinese state, including what our military refers to as sub-threshold activity, we should, as a nation, make sure that we have a Bill that ensures that our national security is protected from the Chinese state and anyone else, anywhere in the world, who seeks to damage our national security.

Developing a robust takeover regime is essential if we want firms in our key sectors to grow and provide good jobs here in the UK, and this Bill is a key part of that. I worry, though, that it misses the opportunity to go much further in strengthening powers that prevent damage to the UK’s national economic interest, as well as our national security, as in the case I have outlined. I therefore hope that the Government will consider amendments in Committee to widen the scope of what constitutes national security.

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[Stephen Kinnock (Aberavon) (Lab)]

It is such a pleasure to follow the hon. Member for Beckenham (Bob Stewart), and I genuinely hope that your naughty finger will not be pointing towards me at any point in my remarks, Madam Deputy Speaker.

We on the Opposition Benches will not oppose the Bill, because it is a step in the right direction. It is good to see the Government finally recognising the need to put national security at the heart of how we deal with foreign investment. However, the Bill fails to address the broader issue of how takeovers and acquisitions should be regulated to promote our broader national and economic interests and, indeed, the interests of British workers and their families across the length and breadth of our country. In that sense, it draws a false distinction between national security and economic security, because it is absolutely clear that the two are intrinsically linked.

In order to properly reflect on the effectiveness of this legislation, we therefore need to go back to first principles and ask ourselves this single basic question: what is the economy actually for? It is only by reaching consensus on that fundamental point that we shall be in a position to assess the extent to which the Bill will make a positive contribution to the lives and livelihoods of our constituents.

The British economy is unbalanced, it is unstable and it is therefore profoundly lacking in resilience. It is too reliant on the financial services sector at the expense of manufacturing—our manufacturing sector has collapsed since the 1970s from 30% of GDP then to just 9% now. It is too London-centric, thus failing to harness the talents of so many people from other areas of our country; it is too inward-looking, with persistent trade deficits; it is too unequal, pushing the proceeds of growth to the wealthiest 1%, and it is too short-sighted, constantly aiming for the fast buck rather than long-term, sustainable prosperity driven by patient capital.

Every piece of legislation that is brought forward by the Department for Business, Energy and Industrial Strategy should be relentlessly focused on fixing those faulty foundations of our economy—those fundamental weaknesses—and every step that the Business Secretary takes should be a step towards an active industrial strategy that is designed to drive a modern manufacturing renaissance. He should be focused on home-grown industry, home-grown investment and home-grown technology. Those critical steps will help to build that sense of purpose and resilience into the UK economy that we are so desperately missing.

The culture of the UK’s corporations is also in urgent need of change. The prevailing business strategies are driven by short-termism, with the delivery of fast buck profits to shareholders taking precedence over all other considerations. Addressing that will require a new deal between shareholders, companies and their workforces, and between the public and private sectors. Far too many of the corporations listed in the FTSE 500 are characterised by a transactional, rootless form of ownership, which militates against the investment in R&D, innovation, skills development, new technology, plant and machinery that is desperately needed if we are to put our economy on to a more balanced and sustainable footing.

The Government’s laissez-faire approach makes a major contribution to this short-termist culture, because it opens the door to acquisitions by foreign companies, resulting in the UK’s having by far the highest number of successful hostile takeover bids of any advanced economy in the world. Time after time since 2010 we have seen our strategic national assets being flogged off to the highest bidder. Let us just look at the case of Arm, a jewel in the crown of the British tech industry, which is in the process of being sold to Nvidia, or Cadbury’s, an iconic British brand, sold to Kraft without any proper consideration of what that would mean for the long-term sustainability of the business.

Moreover, our sovereign capability is profoundly undermined by the fact that much of our critical infrastructure is not in our own hands. In fact, 57 of our critical national infrastructure supply chains depend on China, from our energy suppliers to our airports, our pharmaceuticals and our personal protective equipment. The repercussions of that overexposure have been felt during the pandemic. Our lack of capacity to produce PPE has cost the UK taxpayer an eye-watering amount of money; a breaking story today shows that a Spanish businessman has pocketed £21 million of British taxpayers’ money simply for acting as a broker between the Government and overseas suppliers—a potent symbol of systemic failure.

Let me be clear that many of these so-called private takeovers and infrastructure investments are carried out by companies and investment vehicles that are a front for authoritarian state actors who have wider political and national security agendas and whose values are at odds with our commitment to democracy, liberty and the rule of law.

The crucial point here is that our values should not be for sale.

The most obvious and pressing case, of course, is the Chinese Government, who are relentlessly expanding their influence economically, politically and militarily. We need only recall the case of Imagination Technologies, which was recently the target of a hostile takeover attempt by an investment vehicle with direct links to the Chinese state. Of course, there are also substantial Chinese stakes in Hinkley Point and other sizeable chunks of our critical national infrastructure.

Successive Conservative Governments since 2010 have been naive and complacent in their approach to China, exemplified by David Cameron and George Osborne’s disastrous “golden era” strategy. It is time for this Government, this House and, indeed, the entire country to wake up to the reality of these matters and to come to the realisation that, while we must always seek constructive engagement with China, we must take a clear-sighted, hard-headed approach to defending our national interest and our sovereign capability.

I also take this opportunity to raise another more specific way in which the Government’s lethargic tendencies have proved costly to British business and weakened the economy as a result. The Government have been naive about the deliberate attempts to weaken UK businesses through market distortion by the undermining of competition laws. The most obvious example of that is the deliberate over-production of steel way beyond global demand and the subsequent illegal dumping of that steel on European markets.

The result of those illegal uncompetitive practices combined with Conservative inertia has been the weakening of UK steel companies and the opportunity for foreign investors, many of whom come from countries that are the origin of the dumping in the first place, to buy up our strategically and nationally important asset. Some 80% of China’s steel industry is state owned, and the key point is that the illegal dumping of products from those state-owned industries into European markets is an example of the practices that are undermining the international rules-based order.

That in turn has a damaging and direct impact on our industrial base and on our communities and their families—the workforces that are directly impacted. It is a perfect example of how the global is truly local. We need a level playing field, and this legislation should be about—this is everything that the BEIS Department should be about—developing that level playing field so that our workforce is not competing with one hand tied behind its back against a system that is rigged against it from the word go.

This Bill is a big missed opportunity to strengthen the UK’s wider industrial strategy and for the Government to show that they are committed to building an economy of purpose and resilience. Moreover, it fails to reflect the impact of coronavirus on UK businesses and the increased vulnerability in the face of vulture capitalists and state-backed actors that are waiting to pounce. This legislation only really seeks to protect the UK’s national security and appears to do little to support the UK’s wider national interest, such as the need to protect jobs and support communities in this time of national emergency.

Focusing on the all-too-narrow scope of the Bill, I also have genuine concerns about the process for arriving at a decision on whether to block a takeover. Currently, the plan is that the process sits firmly within BEIS. That is an issue, first, because such a decision would have huge cross-departmental impact, so it would surely be better to create a multi-agency taskforce to rule on key decisions. Such a taskforce would include the Treasury, the Home Office, the Foreign, Commonwealth and Development Office, the intelligence and security services, and the Ministry of Defence. It could follow a similar model to the Committee on Foreign Investment in the United States. All the signs were that BEIS was a cheerleader for the Huawei deal, when it was clearly against our national interest to go ahead with that deal. That does not augur well for its ability to police the effective implementation of the Bill.

Secondly, handing all the decision-making power to the Business Secretary could lead to problems further down the line, should a future incumbent—I am in no way implying that such a fate would befall the current Business Secretary—be influenced by political or commercial interests in this country or overseas.

[Sir John Hayes]

I had not intended to intervene again in the debate, except that I want to emphasise, and perhaps amplify, the point that the hon. Gentleman has just made. The legislation brings us into line with other Five Eyes players—the intelligence community with which we work directly—but he is right to say that the mechanisms that they use are different, in some cases, from the ones employed in the Bill in exactly the way he describes. Will the Minister look at those mechanisms and see what more we can learn from them as the Bill is improved during its passage through the House?

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[Stephen Kinnock]

The right hon. Member has pointed to the fact that it is such a broad, cross-departmental issue that it requires more than just one pair of eyes—if he will excuse the pun—to look at it.

Time and again, we have seen that the takeover regime is not fit for purpose. It is welcome that we are finally coming into line with other countries on national security, but we are still behind on takeovers that would harm the national interest more broadly. Protecting our national security is only one element of protecting, nurturing and developing the vital sectors of the future that we know are crucial for our economy.

Given the economic dislocation and potential corporate vulnerability caused by coronavirus, the case for action is stronger than ever. I will support the Bill, but we need to see improvements and further regulation to protect British business and the broader national interest.