National Security and Investment Bill

Stewart Hosie Excerpts

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

[Stewart Hosie (Dundee East) (SNP) [V]]

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

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

New clause 2—Report on impact on Small to Medium Enterprises—

‘Not later than 18 months after the day on which this Act receives Royal Assent, the Secretary of State must lay before Parliament—

(a) a report setting out the impacts the Act has had on Small to Medium Enterprises and early-stage ventures, and

(b) guidance for Small to Medium Enterprises and early-stage ventures on complying with the provisions of this Act.’

This new clause would require the Government to produce a report setting out the impacts of this legislation on Small to Medium Enterprises and early-stage ventures, and to produce relevant guidance.

New clause 3—Grace period for Small and Medium Enterprises—

‘For the purposes of section 32, a person has a reasonable excuse if—

(a) the entity concerned is a Small to Medium Enterprise;

(b) this Act has been in force for less than six months.’

This new clause creates a grace period whereby – for alleged offences committed under Section 32 – Small to Medium Enterprises would have a ‘reasonable excuse’ if the alleged offence was committed within the first six months after the Bill’s passage.

New clause 4—Framework for understanding national security—

‘When assessing a risk to national security for the purposes of this Act, the Secretary of State must have regard to factors including, but not restricted to—

(a) the potential impact of the trigger event on the UK’s defence capabilities and interests;

(b) whether the trigger event risks enabling a hostile actor to—

(i) gain control or significant influence of a part of a critical supply chain, critical national infrastructure, or natural resource;

(ii) conduct espionage via or exert undue leverage over the target entity;

(iii) obtain access to sensitive sites or to corrupt processes or systems;

(c) the characteristics of the acquirer, including whether it is effectively directly or indirectly under the control, or subject to the direction, of a foreign government;

(d) whether the trigger event adversely impacts the UK’s capability and capacity to maintain security of supply or strategic capability in sectors critical to the UK’s economy or creates a situation of significant economic dependency;

(e) the potential impact of the trigger event on the transfer of sensitive data, technology or potentially sensitive intellectual property in strategically important sectors, outside of the UK;

(f) the potential impact of the trigger event on the UK’s international interests and obligations, including compliance with UK legislation on modern slavery and compliance with the UN Genocide Convention;

(g) the potential of the trigger event to involve or facilitate significant illicit or subversive activities, including terrorism, organised crime, money laundering and tax evasion; and

(h) whether the trigger event may adversely impact the safety and security of UK citizens or the UK.’

The new clause provides a non-exclusive framework of factors which the Secretary of State is obliged to have regard to when assessing a risk to national security.

New clause 5—National Security Definition—

‘When assessing a risk to national security for the purposes of this Act, the Secretary of State must have regard to factors including, but not restricted to—

(a) the potential impact of the trigger event on the UK’s defence capabilities and interests;

(b) whether the trigger event risks enabling a hostile actor to—

(i) gain control or significant influence of a critical supply chain, critical national infrastructure, or natural resource;

(ii) conduct espionage or exert undue leverage over the target entity;

(iii) obtain access to sensitive sites; or

(iv) to corrupt processes or systems.

(c) the characteristics of the acquirer, including whether it is effectively directly or indirectly under the control, or subject to the direction, of a foreign government;

(d) whether the trigger event adversely impacts the UK’s capability and capacity to maintain security of supply or strategic capability in sectors critical to the UK’s economy or creates a situation of significant economic dependency;

(e) the potential impact of the trigger event on the transfer of sensitive data, technology or potentially sensitive intellectual property in strategically important sectors, outside of the UK;

(f) the potential impact of the trigger event on the UK’s international interests and obligations, including compliance with UK legislation on modern slavery and compliance with the UN Genocide Convention;

(g) the potential of the trigger event to involve or facilitate significant illicit or subversive activities, including terrorism, organised crime, money laundering and tax evasion; and

(h) whether the trigger event may adversely impact the safety and security of UK citizens or the UK.’

This new clause establishes factors which the Secretary of State must have regard to when assessing a risk to national security.

New clause 6—Dedicated Small to Medium Enterprise support—

‘(1) Within 3 months of this Act receiving Royal Assent the Secretary of State must set up, a specific division focused on engagement with Small to Medium enterprises (SMEs) engaged in any provisions of this Act.

(2) The division must focus on four functions—

(a) providing updated, efficient and accessible guidance specific to SMEs on compliance with the terms of this Act;

(b) engaging with SMEs in advance of formal notification that can allow efficient notice and assessment periods, including through use of regulatory sandboxes where beneficial for innovation and national security;

(c) providing regular engagement with and assistance to SMEs throughout the assessment periods for SMEs;

(d) seeking to deliver prompt, proportionate resolution of complaints by SMEs relating to the provisions of this Bill;

(e) monitor the impact on access to investment for SMEs and report to the Secretary of State.’

This new clause would require the Secretary of State to set up a Small to Medium Enterprise (SME) engagement unit to assist and support SMEs through the national security screening process.

New clause 7—Reports to the Intelligence and Security Committee of Parliament—

‘(1) The Secretary of State must, in relation to each relevant period—

(a) prepare a report in accordance with this section, and

(b) provide a copy of it to the Intelligence and Security Committee of Parliament as soon as is practicable after the end of that period.

(2) Each report must provide, in respect of mandatory and voluntary notifications, call-in notices, and final orders made under this Act, details of—

(a) the jurisdiction of the acquirer and its incorporation;

(b) the number of state-owned entities and details of states of such entities;

(c) the nature of national security risks posed in transactions for which there were final orders;

(d) details of particular technological or sectoral expertise that were being targeted; and

(e) any other information the Secretary of State may deem instructive on the nature of national security threats uncovered through review undertaken under this Act.’

This new clause would require the Government to publish an ‘Annual Security Report’ to the Intelligence and Security Committee of Parliament.

Amendment 3, in clause 3, page 3, line 10, leave out subsection (4) and insert—

‘(4) The Secretary of State must review a statement published under this section within one year after the publication of the first such statement, and thereafter at least once every 5 years.’

This amendment would require the Secretary of State to review the statement about exercise of call-in power to be reviewed one year after they are made, and once every five years thereafter.

Amendment 1, in clause 6, page 5, line 3, at end insert—

‘(10) Notifiable acquisition regulations must be reviewed one year after they are made, and once every five years thereafter.’

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

Amendment 6, page 5, line 3, at end insert—

‘(10) Notifiable acquisition regulations must bring broadcast, print and social media companies within the scope of the mandatory notification regime.’

Amendment 2, in clause 8, page 6, line 38, at end insert—

‘(8A) The fifth case is where a person becomes a major debt holder and therefore gains influence over the entity’s operation and policy decisions.

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

(8C) The sixth case is where a person becomes a supplier to the entity of goods, services, infrastructure or resources to such an extent that the withholding of the supply would seriously undermine the entity’s ability to continue its operations.’

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.

Amendment 4, in clause 30, page 20, line 3, after ‘period’ insert ‘or any calendar year’

This amendment would make it mandatory for the Government to inform Parliament if financial assistance given in any financial year, or in any calendar year, exceeds £100 million.

Amendment 5, in clause 54, page 33, line 42, at end insert—

‘(aa) whether the law of the country or territory to whose authority the disclosure would be made contains provisions and prohibit any use or disclosure of the information contrary to subsection (4),

(ab) whether the Secretary of State considers that disclosing the information to that authority would in itself pose a threat to national security, and’

This amendment would add to the list of factors the Secretary of State takes into consideration a sub-clause to ensure that a country or territory making a disclosure request has sufficient safeguarding in place to prevent any action that would be considered unlawful in the UK.

Amendment 7, 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 staff resource allocated to the operation of reviews of notices made under sections 14 and 18 over the relevant period;

(p) the number and proportion of notices and call-in notices concerning the acquisition of a Small to Medium Enterprise; and

(q) in respect of the transactions stated subsection (p), the sectors of the economy in relation to which call-in notices were given.’

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.

[Stewart Hosie]

The new clause is in my name and the names of my hon. Friends, as are new clauses 2 and 3 and amendments 1 to 6.

On Second Reading of this Bill, I described how it was designed to bring additional scrutiny of foreign investment that may have an impact on national security. I agreed that not only was there nothing wrong with having a national security eye on investments in critical areas, but it was in fact absolutely vital. During that debate, the House appeared to acknowledge the concern about the national security implication from investments that are shared globally and that a number of other countries had been tightening up their investment security regimes in response to changing national security-related threats to enabling technology, to intellectual property and so on. The debate also saw descriptions of the tightening of these regulations in Japan, Canada, Sweden, Germany and elsewhere. There was little disagreement on the Government’s proposals where, if the trigger and threshold were both met, an individual investment could be called in by the Secretary of State for approval, the powers could be retrospective, and an investment could be called in after it had occurred. There was some concern about the time to conduct the national security assessments—30 days with potentially an extra 45, which might actually be deemed a little short and it still prompts the question of whether 75 days was actually sufficient. There was, however, broad agreement about the mandatory notification process where investment interests in certain sectors and asset types must be pre-emptively or retrospectively declared. There were real concerns that this may lead to a very large number of notifications from businesses erring on the side of caution.

The Bill also introduced new powers to increase screening in respect of health and preventing hostile acquisition through strategic buying of health supplies, and I welcome that, with the warning that the scope of activities that may be caught is very wide. That is because the statement of policy intent, which describes the core areas as including such things as advanced technology, is perfectly reasonable, but it also contains a much wider definition of national infrastructure.

That debate did focus on the impact assessment for the Bill, which estimated that the new regime would result in somewhere between 1,000 and 1,800 transactions being notified each year—a very high number given that only 12 transactions were reviewed on national security grounds since the current regime was introduced 17 years ago. It does also remain the case that we still need to carefully assess the impact of the Bill—the impact that it will have on sectors and on infrastructure not just in the UK as a whole, but in the devolved nations and in the English regions. On Second Reading, I asked the Minister to take a little time to convince himself that there were no unintended consequences either for the UK or, indeed, for the Scottish Government’s inward investment plans when Government agencies of all sorts are actively seeking investment in some areas, which may be deemed to be critical national infrastructure. That is an issue that I do hope he will still address today. How do we ensure collectively that this Bill does not impede growth or investment in such areas.

The key concern I had was about implementation. The Bill is set to radically overhaul the UK’s approach to foreign investment at a time of significant economic uncertainty. On leaving the EU, the UK Government cannot afford to get their global Britain approach wrong and suffer what has been described as the potentially chilling effect on investment if the measures in the Bill appear to be heavy-handed. That is a concern across the board, given that even microbusinesses are in scope.

I take this brief opportunity to thank my hon. Friends the Members for Glenrothes (Peter Grant) and for Aberdeen South (Stephen Flynn), who served on the Bill Committee. They raised a large number of concerns, including the impact on academic research spin-offs, SMEs and early-stage ventures. They called for a grace period for SMEs falling foul of this new legislation, a review of exercisable call-ins and a review of the notifiable acquisition regulations. They suggested that broadcast, print and social media companies should be in scope. They suggested that major debt holders should be defined as a person gaining control of a qualifying asset and they suggested a requirement to report if financial compensation from Government exceeded £100 million in either a calendar or financial year.

All those amendments and contributions were made for very good reasons. The Scottish National party has long argued that it is right to have this legislation and for it to be made. In some ways it is long overdue, but that does not mean there are no concerns, which is why we have tabled new clauses 1 to 3 and amendments 1 to 6.

New clause 1 would require the Secretary of State to assess the impact of the Bill on academic research spin-off enterprises. New clause 2 would require the Government to produce a report setting out the impacts of the legislation on small and medium enterprises and on early-stage ventures and to produce relevant guidance. New clause 3 would create a grace period whereby for alleged offences committed under clause 32, SMEs would have a reasonable excuse if the alleged offence was committed within the first six months of the Bill being in operation.

I will turn briefly to the amendments. Amendment 1 would require notifiable acquisition regulations, including the sectors to be covered, to be reviewed one year after they are made and five years thereafter. Amendment 2 would mean that a person becoming a major debt holder or a major supplier would count as a person gaining control of a qualifying asset. Amendment 3 would require the Secretary of State to review statements about the exercise of call-in power one year after they are made, and once every five years thereafter. Amendment 4 would make it mandatory for the Government to inform Parliament if financial assistance given in any financial or calendar year exceeded £100 million. Amendment 5 would add to the list of factors the Secretary of State has to take into account. They would have to ensure that a country or territory making a disclosure request had sufficient safeguarding in place to prevent any action that would be considered unlawful in the UK. Amendment 6 would ensure that notifiable acquisition regulations bring broadcast, print and social media companies into the scope of the mandatory notification regime.

All those new clauses and amendments in essence are designed to ensure that the scope of the legislation is appropriate, but that the impact, particularly on investment, is proportionate. I have not determined yet whether to press any of them to a vote. What I would prefer is for the Minister to give a commitment, not simply to have infrequent if regular reviews of parts of this Bill, but to keep the Bill under permanent review to ensure that the scope remains valid—not too wide and not too narrow—and that the impact on investment and risk, particularly in small and medium-sized enterprises, academia and research, is proportionate. Through that, we can ensure that we quite rightly protect national security, but do not suffer from the investment chill that some fear could be the consequence if we get this wrong. With those brief remarks, I commend the new clauses and amendments to the House.

--- Later in debate ---

[Nadhim Zahawi]

I will not give way. There is a lot to get through and time is short.

The Government will more generally monitor the operation of the regime and regularly review the contents of the annual reports, including in relation to academic research, spin-off enterprise or SMEs, and we will pay close attention to the resourcing and the timelines of the regime.

If, during any financial year, the assistance given under clause 30 totals £100 million or more, the Bill requires the Secretary of State to lay a report of the amount before the House. Requiring him to lay what would likely be a very similar report for every calendar year as well as for every financial year, which is in amendment 4, appears to be excessive in our view. He would likely have to give Parliament two very similar reports only a few months apart.

On amendment 5, I can reassure the House that, under clause 54, the Secretary of State would be subject to public law duties when deciding whether to share information with an overseas public authority. That includes a requirement to take all relevant considerations into account in making decisions. These are therefore considerations that the Secretary of State would already need to take into account in order to comply with public law duties.

Moving on to new clause 6, I want to be clear that we do not expect the regime to disproportionately affect SMEs, although we will of course closely monitor its impact. The Government have been happy to provide support to businesses both large and small through the contact address available on gov.uk. Furthermore, the factsheets make it clear what the measures in the proposed legislation are and to whom they apply, so there is real clarity on this. It would therefore not be necessary to provide the grace period for SMEs proposed under new clause 3 and neither would it be appropriate. Notifiable acquisitions by SMEs may well present national security concerns and this proposed new clause would, I am afraid, create a substantial loophole.

To conclude, although I am very grateful for the constructive and collegiate engagement from hon. and right hon. Members across the House, for the reasons that I have mentioned I cannot accept the amendments and new clauses tabled for this debate and therefore hope that they will agree to withdraw them.

[Stewart Hosie [V]]

This has been a detailed and considered debate. I thought there were some particularly thoughtful contributions from the Chair of the ISC and from the right hon. Member for North Durham (Mr Jones) in relation to the oversight of sensitive and confidential information that should fall within the remit of the ISC. It was disappointing to hear the Minister’s response in his last contribution. My main concern, however, was to ensure that the scope of the Bill was appropriate and that the impact of the measures was proportionate, particularly for smaller businesses and for academia. Given what the Minister has just said about the regulations and procedures being under constant watch, with the Secretary of State having the flexibility to update them at any time, I am satisfied that, should we identify an overly burdensome course of action being taken in relation to small businesses or academia in the future, the Minister would respond swiftly. I therefore beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 4

Framework for understanding national security

“When assessing a risk to national security for the purposes of this Act, the Secretary of State must have regard to factors including, but not restricted to—

(a) the potential impact of the trigger event on the UK’s defence capabilities and interests;

(b) whether the trigger event risks enabling a hostile actor to—

(i) gain control or significant influence of a part of a critical supply chain, critical national infrastructure, or natural resource;

(ii) conduct espionage via or exert undue leverage over the target entity;

(iii) obtain access to sensitive sites or to corrupt processes or systems;

(c) the characteristics of the acquirer, including whether it is effectively directly or indirectly under the control, or subject to the direction, of a foreign government;

(d) whether the trigger event adversely impacts the UK’s capability and capacity to maintain security of supply or strategic capability in sectors critical to the UK’s economy or creates a situation of significant economic dependency;

(e) the potential impact of the trigger event on the transfer of sensitive data, technology or potentially sensitive intellectual property in strategically important sectors, outside of the UK;

(f) the potential impact of the trigger event on the UK’s international interests and obligations, including compliance with UK legislation on modern slavery and compliance with the UN Genocide Convention;

(g) the potential of the trigger event to involve or facilitate significant illicit or subversive activities, including terrorism, organised crime, money laundering and tax evasion; and

(h) whether the trigger event may adversely impact the safety and security of UK citizens or the UK.”—(Tom Tugendhat.)

Brought up, and read the First time.

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

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP) [V]]

I also offer my congratulations to the Secretary of State on his promotion. I thank all the staff who have worked on the Bill so far and the businesses, trade bodies and others that advised on what might or might not be good about the legislation as it has gone through its stages. Finally, I thank Members from all parties—not just those who took part in the set piece debates, but those who put in a shift in Committee as well. They did a fantastic job.

In this short Third Reading speech, I should say briefly that I share the general agreement that this legislation is not just necessary—it is—but overdue. There is a broad consensus that that is the case. Changes may yet be made in the other place—including, I hope, as we just heard from the Chair of the Intelligence and Security Committee, a formal role for the ISC—but whether those changes happen or not, we must now all hope that this legislation will go on to deliver the anticipated additional national security benefits. As that happens, the Government must also step in quickly if the impact of the Bill starts to chill vital investment across different areas of the economy.

I am sure that the first part will happen: that the national security benefits will be there and obvious for all to see. We must all, however, be on our guard and realise that the burdens that we are placing on businesses —to notify when investment is happening or to have investment called in subsequently—may chill investment. We must all guard against that to make sure that, as well as there being additional security for those in the UK, businesses can continue to grow, thrive and seek the investment they need.