New Clause 1 - Impact on academic research spin-off enterprises

National Security and Investment Bill – in the House of Commons at 1:55 pm on 20 January 2021.

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‘(1) Within one year of this Act being passed, the Secretary of State must lay before Parliament an assessment of the Act’s impact on academic research spin-off enterprises.

(2) The assessment under subsection (1) must be reviewed at least once every five years.’—(Stewart Hosie.)

This new clause would require the Secretary of State to assess the impact of this Bill on academic research spin-off enterprises.

Brought up, and read the First time.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

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.

Photo of Stewart Hosie Stewart Hosie Shadow SNP Spokesperson (Trade)

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.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament 2:15, 20 January 2021

On Second Reading both of this Bill and of the Telecommunications (Security) Bill, it was mentioned that in 2013, the Intelligence and Security Committee first recommended measures to prevent high-risk vendors such as Huawei from penetrating our critical national infrastructure in future. It is always the way: you wait seven years for a Bill to protect against infiltration and takeover, then two come along together.

Given that background, the ISC naturally welcomed the introduction of this legislation, and we greatly appreciated the contact that we have had with the Minister, my hon. Friend Nadhim Zahawi. Not only did he keep his promise to write to us about the points made by Committee members on Second Reading, during my period of self-isolation, but he dealt with ISC concerns at the Committee stage and reached out before today’s debates as well. That is precisely the type of constructive engagement that we should like to have with the Government. If I do not secure the concessions that I want after all of that, I shall be very disappointed!

The issue on which I shall focus is parliamentary oversight. Normally, that would be straightforward. As the future arrangements laid down by the Bill will depend on the input of the new investment security unit, and as that unit will be housed in the Department for Business, Energy and Industrial Strategy, one would normally expect that general scrutiny could be conducted by Parliament as a whole and specialised scrutiny by the Select Committee on Business, Energy and Industrial Strategy. Unfortunately, that does not work in this case: much of the work of the investment security unit will depend on input from intelligence and security agencies and similar sensitive sources that cannot and must not be made public.

Furthermore, on Second Reading, the then Business Secretary, my right hon. Friend Alok Sharma, made crystal clear how central secret material would be to the practical application of the provisions of this legislation. He stated that

“the whole point of the Bill is for it to be narrow on national security grounds”.

He also said:

“These powers are narrowly defined and will be exclusively used on national security grounds. The Government will not be able to use these powers to intervene in business transactions for broader economic or public interest reasons”.—[Official Report, 1 November 2020; Vol. 684, c. 206-210.]

It follows that the very areas in which the BEIS Committee would be perfectly qualified to scrutinise policy are specifically excluded from the application of the powers conferred by the National Security and Investment Bill.

That scrutiny gap was addressed, also on Second Reading, by the shadow Business Secretary, Edward Miliband, who said:

“Given the sensitive nature of the issues involved in this Bill, I do think there needs to be a way…for this House to monitor how this is working in practice.

I do not speak for it, but we have a special Committee of the House—the Intelligence and Security Committee—that can look at these issues. I would like to raise the question with the Secretary of State whether it could play a role in scrutinising the working of the regime and some of the decisions being made, because there are real restrictions on the kind of transparency there can be on these issues…The ISC is in a sense purpose-built for some of these issues.”—[Official Report, 17 November 2020; Vol. 684, c. 214.]

It is hard to disagree with that, although I hasten to add that the Committee has not the slightest wish gratuitously to add to its workload, overburdened as we are due to our delayed reconstitution and the fact that we cannot operate virtually, where sensitive material is concerned, during periods of lockdown. Nevertheless, Parliament should be enabled to scrutinise the implementation of the powers given to Government by this legislation, which explicitly puts national security material at the heart of future decision making. It is obvious that there will be potential conflicts between encouraging business on the one hand and safeguarding national security on the other. In 1994, the ISC was established specifically for circumstances such as these—namely, to examine matters that Parliament could not because they were too sensitive for public disclosure and debate.

It has been suggested that the ISC cannot undertake this role this time because the organisation concerned, the new investment and security unit, is based in the Department for Business, Energy and Industrial Strategy, rather than Departments like the Home Office or the Cabinet Office, which traditionally handle national security matters. Yet this is fundamentally to misunderstand the legal basis under which the ISC functions.

There are two interlinked documents: the Justice and Security Act 2013 and the memorandum of understanding between the Prime Minister and the ISC for which that Act provides. The long title of the JSA makes it quite clear that it provides not only for scrutiny of MI5, MI6 and GCHQ, but for

“oversight of…other activities relating to intelligence or security matters…and for connected purposes.”

Section 2(1) of the Act refers to those three intelligence agencies specifically, but section 2(2) spells out our Committee’s wider remit:

“The ISC may examine or otherwise oversee such other activities of Her Majesty’s Government in relation to intelligence or security matters as are set out in a memorandum of understanding.”

Section 2(5) explains that that MOU can be altered by agreement between the ISC and the Prime Minister. All that is required, therefore, for a Government activity in relation to intelligence or security matters to be added to the existing list in the memorandum of understanding is a simple exchange of letters between the ISC and the Prime Minister agreeing to do so.

In other words, the 2013 Act and associated memorandum were designed exactly for circumstances such as these, where evolving intelligence and security arrangements create sensitive new functions and/or new units which need Parliamentary scrutiny to be within the same circle of secrecy as the long-established Agencies. To put the matter beyond all doubt, consider finally this extract from paragraph 8 of the MOU about our remit:

“The ISC is the only committee of Parliament that has regular access to protectively marked information that is sensitive for national security reasons: this means that only the ISC is in a position to scrutinise effectively the work of the Agencies and of those parts of departments whose work is directly concerned with intelligence and security matters.”

Inserted at the end of this sentence is a notation for the following footnote which explains:

“This will not affect the wider scrutiny of departments such as the Home Office, FCO and MOD by other parliamentary committees. The ISC will aim to avoid any unnecessary duplication with the work of those Committees.”

Indeed, having chaired the Commons Defence Committee in the previous two Parliaments, I can confirm there was never the slightest friction, overlap or intrusion from the then ISC into the work of the Defence Committee. The ISC looked at defence intelligence and offensive cyber, as set out in its MOU, and the Defence Committee continued to scrutinise everything else.

It really should not be necessary, every time a new unit is set up inside a Department not normally associated with national security or intelligence issues, to spell out in black and white, as I have done today, how and why the framers of the 2013 Act deliberately created the flexible memorandum of understanding arrangement that incorporated its role on the face of that legislation. It was, of course, to deal with exactly the sort of situation facing us today, where the intelligence and security battle in what is increasingly known as the grey zone of conflict mutates and moves into areas of responsibility far beyond traditional boundaries, as Deborah Haynes’ admirable new podcast illustrates so convincingly. That is why Business Ministers, rather than Defence or Security Ministers, are having to grapple with today’s legislation.

Following a constructive discussion with my hon. Friend the Minister yesterday, I was cautiously optimistic that the Government would recognise that the 2013 arrangements provide the correct basis for scrutiny on which to proceed. Of the 14 amendments tabled for today, there is one—new clause 7—that recognises the scrutiny gap in this legislation and proposes that a special report containing the relevant classified national security material should be prepared for, and provided to, the Intelligence and Security Committee. This Opposition amendment has much to commend it, and, as ISC Chairman, I would be minded to support it if it were the only available option. However, an undertaking by the Minister today that the Government will bring forward their own amendment in the upper House to close the scrutiny gap satisfactorily in a more streamlined way would be even better.

In his appearance before the Public Bill Committee, former chief of MI6 Sir Richard Dearlove had the following exchange with the Minister, who referred to the annual report to be prepared for Parliament as a requirement of this legislation. The Minister asked:

“What is your view on balancing transparency and ensuring Government can take national security decisions sensitively? Where does that balance lie in terms of our ability to be as transparent as we can without harming sensitivities around these decisions?”

Sir Richard replied:

“My view would be that the annual report has as much transparency as possible, but you are probably going to require a secret annexe from time to time.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 21.]

Whether we go down that route of a classified unpublished annexe to send to our Committee or follow the model used in the ISC’s own reports, which are prepared in full with subsequent redactions made and marked in the main body of the text, such an approach would be the least burdensome for the Department to prepare and for the ISC to scrutinise. Either method would effectively close the scrutiny gap and get this valuable and necessary legislation off to the best possible start.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (Digital, Culture, Media and Sport), Shadow Minister (Science, Research and Innovation)

It is a great pleasure, as always, to follow the Chair of the Intelligence and Security Committee, Dr Lewis, and I support many of his remarks.

Let me start by saying that the Opposition’s approach to this Bill is one of constructive support. That should not surprise the Minister: already at Committee stage we tabled nearly 30 targeted amendments and half a dozen new clauses to strengthen protections of our national security, although, regrettably, the Minister did not choose to accept any of them. As the Minister is also responsible for vaccine roll-out, he may have been distracted. I want to thank everybody—all the members of the Committee and the House staff involved in the Committee stage of the Bill—and confirm that we intend to continue that constructive support.

We support the Bill, because it is a Bill demanded by Labour. The problems it tackles are ones that have been highlighted by Labour, and the Government’s action, only after years of delay, seems to be a result of being constantly reminded by Labour. Reminded this Government have been, not least by their failures again and again. They were reminded in 2012, when they let the Centre for Integrated Photonics, a prize British research and development centre, be taken over by Huawei, an event that our recent head of the National Cyber Security Centre said we would not want to happen with hindsight: national security outsourced and British interests relinquished to the market.

The Government were reminded again in 2014 when they let our foremost artificial intelligence firm, DeepMind, be acquired prematurely by Google: national security interests outsourced again on account of blind market faith. They were reminded twice this time when the Government let our world-leading semiconductor firm Arm be taken over first by SoftBank and now by Nvidia. Again, an intelligence expert told our Committee that the UK had limited freedom of choice in this key strategic technology and that the deal undermined our own ability: our national interest outsourced yet again by Ministers prioritising market zeal over British security.

Following the Committee stage of the Bill, the Competition and Markets Authority has chosen to investigate that takeover. That is, shall we say, interesting to put it mildly. Photonics-Huawei, DeepMine-Google, Arm-Nvidia, the failed Pfizer-AstraZeneca attempt, Cobham, GKN, Huawei-5G—failure after failure after failure, despite reminder after reminder. Twelve national security screens in 18 years and not one instance of the Government acting decisively to block a takeover and guard our national security.

Of course, it is not only the Labour party that has led the debate. It has been by every ally of ours abroad, too. The US updated its rules in 2018. Germany did so in 2018. The European Union proposed them in 2017 and Labour has called for them persistently. It is not just in politics, I am afraid to say, that the Government have lagged. They have lagged in expert advice, too. We heard in Committee from our recent chief of MI6, who described the Government’s approach till now as “incredibly naïve” and noted that, “It was completely ridiculous” that we were considering handing our 5G network over to Huawei. So, while the Government are years behind our allies, years behind Labour’s calls to protect national security and years behind security expert advice, our approach today on the Bill is one of support—indeed, urgent support. Britain has needed a robust national security and investment regime for many years now, as the world’s post-financial crisis has brought with it rapid geopolitical, technical and economic shifts.

The Bill has come too late for some threats. It is our resolve to not let it be too little in acting against future threats. We will take the Government to task for ongoing omissions, incompetence and neglect of our national security; foremost is the protection of British citizens and British interests. The Government’s impact assessment for the Bill notes the need for change. It regrets that national security is an area of market failure requiring that the Government do something about it. That is an astonishing claim. National security is not a private concern first and a Government afterthought second. National security is the first reason for Government. It is not undersupplied by the market; it is outside the market altogether. Labour’s first principle of constructive support is to stop the outsourcing of our security. We do not want ministerial free market ideology to threaten our national security. Our approach is to bring together legal powers, multi-agency expertise and proper decision making to put British security first.

In implementing the Bill, we want to champion support for the engine of our national growth and our national prosperity, our small and medium-sized enterprises and innovative start-ups. The impact assessment noted that 80% of transactions in the scope of mandatory notification under the Bill will involve SMEs, but it fails to consider the costs faced by the acquired companies, or the overall impact of funding for our start-ups. The Opposition will not turn a blind eye to these costs for our small and medium-sized enterprises, so our new clause 6 and amendment 7 would plug gaps left by the Government’s incoherent policy making to champion British creativity and innovation. It is the least our small and medium-sized enterprises deserve.

The Telecommunications (Security) Bill is also making its way through this House, as the Chair of the Intelligence and Security Committee mentioned. That Bill seeks to encourage new entrants and homegrown telecoms capacity, as a diversified supply chain is essential to the security of our networks, and we will not achieve that if we cut off investment funding for SMEs.

In guarding our national interest and championing our small and medium-sized enterprises, we stand for effective scrutiny of the Government. The last decade tells us that our security is too vital to be left to Ministers alone. Never again. We must have proportionate, robust and democratically legitimate means of seeking accountable action to protect our national security.

We have heard expert evidence on the risk of this new regime opening up to lobbying, short-termism and inconsistent decisions, so our new clause 7 would stand up for scrutiny by the ISC, and the ISC would stand up for competent, coherent decision making.

These principles—national security, SME-driven prosperity and effective scrutiny—drive our amendments and new clauses, which I will now go into in a little more detail. This is the National Security and Investment Bill, and national security goes to the heart of what we are considering. It also remains an unanswered question for Parliament, for businesses looking for clarity, for our citizens seeking assurance, and for potential hostile actors who seek to take advantage of any loopholes in how the Secretary of State construes national security.

I have some sympathy with those who argue that we should not prescribe what national security is, for to do so would be to limit the Secretary of State’s flexibility to act. That is right. We should not put down a rigid definition of national security that rules things out, and that is the spirit in which new clause 5 has been tabled. It does not rule out the Secretary of State’s flexibility and it does not present a rigid definition; it simply does what other countries have done well and experts have sought. It guides to some factors that Government might consider, while allowing many more to be included in national security assessments.

Doing so is critical for businesses puzzled by the Government’s very high-level definitions of espionage, disruption and inappropriate leverage. It gives greater clarity for citizens who are worried about whether the Government will act to protect critical data transfers or our critical national infrastructure, even where those are not covered by the Government’s proposed 17 sectors. It provides assurance and, for hostile actors, it sends a clear message that we will act to protect British security with broad powers applied with accountability.

The factors highlighted in new clause 5 are comparable to guidance provided in other effective national security legislation, most notably by the US Foreign Investment Risk Review Modernization Act 2018. I will not go through each factor, but I will highlight two features of the new clause.

First, new clause 5 takes the Government’s existing analysis and puts it into action. It echoes, for example, what we read in the Government’s statement of policy intent, which says that national security risks are most likely to arise when the acquirers are hostile to the UK’s national security or when they owe allegiance to hostile states.

The origin and source of threats do matter. We had the previous chief of MI6 tell us in Committee about Chinese intelligence organising the strategic focus of both Chinese commerce and Chinese academic study in ways that are challenging to identify unless we have regard to the country of origin of those parties. The new clause takes our security context seriously and would signal to hostile actors, especially through subsection (c), that we will act with seriousness, not superficiality.

Like the Government’s focus on critical national infrastructure—CNI—more broadly, subsection (b) bridges the gap between the Government’s defined sectors and focus and the critical national infrastructure that we already define and focus on in our wider intelligence and security work. It would also bring us into line with allies. For example, Canadian guidelines list the security of Canada’s national infrastructure as an explicit factor in national security assessments. In the US Committee on Foreign Investment in the United States case, Congress listed critical infrastructure among one of six factors that the President and CFIUS may assess.

The new clause is identical to new clause 4, tabled by members of the Foreign Affairs Committee, which has done a great deal to bring scrutiny and rigour to our national security concerns. Its report yesterday was extremely helpful. I pay tribute to the Committee and its members, led ably by the Chair, Tom Tugendhat. With that principled and cross-party support, the new clause would show the world that the UK is serious about national security. We must protect our national security against threats at home and abroad. We must build our sovereign capability in the industries most strategically significant for our security. We must view security in the light of modern technological and geopolitical threats. None of these constrains the Government’s ability to act; they simply sharpen the clarity of that action and its signal to the world.

Our substantive new clause 6 builds especially on our desire to boost small and medium-sized enterprises. As Members across party lines recognise, the Government announced a radical change in the UK’s national security screening regime, applying it retrospectively, with little to no guidance to accompany that change. SMEs are scrambling around to understand how they can engage with the Government on changes that already apply, so we propose a dedicated SME unit. Some 80% of the weight—the mandatory notifications—of the new regime will be borne by SMEs. The screening will also be most challenging for them. SME funding rounds, especially for tech start-ups, are often the quickest, lasting just a few weeks, so a 15-week screening process would be a huge challenge in that timeline.

The Minister may say, as I think he did at Committee stage, that the burden is actually on the acquirer and not the acquired company, but he must recognise that a small start-up seeking funding will be expected to understand whether that will have implications for the funder when it comes to national security. SMEs do not have the deep pockets to fund a deep bench of advisers to help them navigate the Government’s unclear process. In that context, we must respect the weight we are placing on our most innovative start-ups, and we must react by easing that burden. A dedicated SME unit would do just that. Unlike the Government’s slow and unclear action, it would ensure prompt, accessible guidance, as industry experts have demanded, and would engage with SMEs prior to formal processes, easing the burden of processes.

Where possible, the unit would work closely to ensure assessment periods align with funding rounds—a critical point—not thwart them. Subsection (b) would further encourage regulatory sandboxes and clear guidelines for early engagement, so that innovative SMEs can benefit from efficient regulatory engagement, just as the Financial Conduct Authority has done for the UK’s world-leading FinTech sector. Where there is cause for complaint, as would be expected with a new, radical shift, the SME unit would play the supportive mediator. The Opposition stand for robust powers to guard our national security and for change that backs our best small businesses and our capacity for innovation. Both of these goals are possible; indeed, they are mutually reinforcing.

Let me now highlight Opposition new clause 7, which is essential both for our national security and for effective scrutiny. The new clause continues our approach to the security threats we face, which is to push for broad, robust powers of intervention, but powers that are held to account by Parliament and through transparency. Under the new clause, the Government would provide Parliament’s trusted Intelligence and Security Committee with an annual security report capturing a major thematic summary of the types of threats uncovered by the new investment screening.

The Chair of the ISC has himself ably set out the reasons for that improved scrutiny; all I would add is that our international allies do exactly that. In the US, for example, CFIUS—the Committee on Foreign Investment in the United States—has to produce annually a non-classified report for the public, but alongside that it publishes a classified report for certain members of Congress to provide them with security details, allowing congressional scrutiny while retaining sensitivity of information. New clause 7 would require the Government to publish alongside the public report an annual security report to the ISC. I understand, I hope, that the Government may bring forward a clause with the same effect as this new clause, and I look forward to a commitment from the Minister on that.

I turn to our final amendment, amendment 7, which would put into practice our principle of effective scrutiny. During our debates on the Bill, including in Committee, Members from across the House have questioned and raised concerns about the capacity and capability of the new investment security unit to deliver on the Bill’s ambition. Experts have added to that concern, describing a “seismic” and “totally transformational” set of changes that will require a thoroughly resourced unit that is especially prepared to work closely and efficiently with innovative start-ups.

Amendment 7 turns those concerns into accountability. It holds the Government to account on three important fronts: first, on the efficiency of the unit, by reporting the aggregate time taken for decisions—both assessment decisions and initial acceptance or rejection of notices—we will have a mechanism to ensure that the new regime is working efficiently for SMEs; secondly, on capacity, by taking stock of the resources behind the unit’s work, Parliament and the public will have a mechanism for holding the Government to account for what will be a major new centre for merger and investment screening in the UK; and thirdly, by tracking the SME focus of the unit’s work, we will be able to highlight specific concerns and experiences of our most innovative start-ups in interacting with the new regime. Each of those measures maintains the Government’s power to act but simply holds that power to account through transparency.

I will conclude with some brief remarks on the other amendments and new clauses that have been tabled, in addition to new clause 4. On the further amendments tabled by the hon. Members for Aberdeen South (Stephen Flynn) and for Glenrothes (Peter Grant), new clause 2 aligns with what we propose as one part of our wider SME support in new clause 6, so I hope both Members will support our proposals. Amendment 2, which focuses on debt holders and supply chains, is also partially covered by new clauses 4 and 5, but we will be interested in the Government’s response to the call for debt holders to be included in the scope of the Bill—this was discussed in Committee—where such holdings can result in some access to influence or information not included under the material influence criterion of the Bill. Finally, we remain interested in scrutiny of the impact of the Bill on academic research spin-offs, and we might even suggest including that in the reporting proposals in new clause 7. For those insightful contributions, I thank the relevant Members.

As I said, the Opposition have come to the Bill in a spirit of constructive support grounded in three priorities: protecting British citizens and British interests, supporting SMEs, and bringing effective scrutiny. National security is too important to play party politics with. For that reason, having called for such action for years, we support the Bill. I hope very much that the Government will look at the amendments in the constructive light in which they have been proposed, as measures to accelerate, improve and execute more effectively the House’s intention to protect our national security and our national interest.

Photo of Thomas Tugendhat Thomas Tugendhat Chair, Foreign Affairs Committee, Chair, Foreign Affairs Committee 2:45, 20 January 2021

First, I pay tribute to Chi Onwurah, who has spoken very kindly about the work of the Committee that I am privileged to chair. I also pay huge tribute to the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend Nadhim Zahawi. He has been tireless—that word has been overused in this place, but he has been tireless—in reaching out to all Members to speak to them about the Bill and ensure that the amendments tabled are helpful and conducive to not only the public good but the national good. He has been doing that at the same time as he has been running a vaccination programme. I have to say that the Minister’s wife’s loss is the nation’s gain: she has been selfless in allowing him to slave away for our country on two very important subjects.

The reality is that this is a hugely important Bill, and because it is so important and such a big change for the United Kingdom, it raises huge questions that are very difficult to answer. The way that the Minister has approached this is exactly right. He started off by speaking to businesses, to our intelligence services and to our regulators to understand what exactly the threat is, how it is affecting our businesses and how it can be addressed. He has had, I hope, as much help as he possibly can from them, and I hope that the help being offered from the Select Committee that I am privileged to chair and the Committee that my right hon. Friend Dr Lewis is privileged to chair is helpful.

We are trying to improve what is already a good Bill and make it into an excellent one. We have had various conversations with not only the Minister but his Whips, who have been extremely helpful—I know that this is a very odd thing to say in the House—in ensuring that he is informed about the way in which we have conducted this discussion. It would not be right for me not to also thank Alice Lynch of our Committee and Nicole Kar of Linklaters, our specialist witness who has helped us through the process of writing this report.

I rise to speak to new clause 4, which is in my name and the names of fellow members of the Foreign Affairs Committee. We looked carefully at the Bill because, over the last two to three years that I have been chairing the Foreign Affairs Committee, much of our work has been on the threat of foreign interference in the UK. One of our earlier reports in May 2018 was entitled “Moscow’s Gold: Russian Corruption in the UK”; I believe the Minister was still on the Committee when we started that report, though he had already been promoted to greater things by the time we published it. The report touched on the way that dirty money plays into our systems and the way in which we must protect those systems.

Since then, we have looked at various aspects of how our foreign policy is fundamentally about keeping the British people safe. We have always focused on the interests of the UK and the interests of the people we are lucky enough to represent. We sit here representing our communities—not other communities, not business and not anybody else, but our communities and what is fundamentally in their interests. We built up, from that early report, into looking at the various ways in which money has moved around, influencing academic freedoms and changing the way in which businesses have acted. As the Minister knows, we have called out those who we feel needed to be called out. That is why I am so pleased that he is in his place and has produced this Bill, because it finally sets a process by which this Government—any Government—can look at decisions that are being taken and assess them properly.

Photo of Kevan Jones Kevan Jones Labour, North Durham

I congratulate the hon. Gentleman and his Committee on the excellent report they have produced, but this is about the scrutiny of decisions of mainly private companies and others. Does he share my concerns about some decisions taken by Departments, particularly in the light of the Ministry of Defence’s decision to buy E-7 Wedgetail aircraft from Boeing, which results in two of them coming from China?

Photo of Thomas Tugendhat Thomas Tugendhat Chair, Foreign Affairs Committee, Chair, Foreign Affairs Committee

The right hon. Gentleman tempts me, but I am not going to get drawn on the Wedgetail discussion, as that is a slightly separate conversation. He is right to say that this Bill affects not just private business, but the way in which the Government will also conduct their procurement, so it is absolutely right that in future decisions may be looked at in different ways. This Bill, however, is slightly different, because it looks at the purchase of British business and not at the UK purchasing others.

Let me come back to where I was before the right hon. Gentleman cunningly got in his complaint about an MOD decision. This Bill goes a long way to making sure that we are in the right place, but it raises a few concerns, which I will touch on. That is why we have introduced new clause 4, which is not supposed to be a definition of national security, because that would, as the Minister knows, constrain the ability of a Government to adapt this law as national security changes. It would in effect tie concepts from 2021 into the law as it progressed. Given the change we have seen in the past 10 or 15 years, that would frankly be unwise. After all, who could have known that some of the decisions we have taken, perfectly innocently and rationally, over the past decade are some of the worst that a Government have made?

I am referring to two decisions. First, the sale of DeepMind to Google was one of the worst strategic moves a UK Government have taken. I am not blaming anybody for it; it was a decision taken rationally at the time, without understanding the future power of artificial intelligence and the extraordinary strength of DeepMind. That is a huge credit to the team at DeepMind and to much of the investment Google has put in, but it is also a recognition that a change of ownership and geographic basing—even though the people do not change, the ownership changes—has undermined the UK. The second is the sale of Arm to SoftBank. Again, this is one friendly company being sold to a company of another friendly nation. These are not geographically specific points; they are entirely geographically neutral. My guess is that one of Arm’s products is in everybody’s pocket, because they are in 95% of computer products and so will be in almost everybody’s phone. This is one of those moments where we risked losing control of an absolutely fundamental technology that could in future promote Britain’s interests greatly. That moves us into a question about Nvidia that I will not get drawn into now; I am just putting into historical context decisions we made that we will live to regret.

This Bill allows us to look at those things and update with the times, which is why I agree that we should not have a fixed definition of national security—we should have a framework for it. Here I pay tribute to my hon. Friend Bob Seely and others on the Committee, who came up with this proposal and were extremely rigorous in doing so. I pay particular tribute to Nicole Kar of Linklaters, who helped us with the drafting of it and to the Committee Clerks who got us through it. There is a real opportunity here to enable this framework to defend us.

Governments throughout the European Union and, indeed, around the world have already started to look at how their laws that are similar to ours will apply. If we do not give enough strength to our Government, there is a danger that we will be the only ones found to be naked when the day comes and the choices have to be made. That would be a huge mistake, because the world is changing; there is a lot more cash from state-owned enterprises going around than there has been for many years. Sadly, there is likely to be a prolonged period of economic difficulty as we come out of covid; those companies and countries that are willing to underwrite companies will have an advantage when they start to snap up businesses around the world. That is why we need this legislation now.

We also need a framework that allows the legislation to work; that is why my colleagues and I have respectfully tabled our new clause. There is a slight danger in the Bill of going from nought to 100 in a split second. We are setting up a new structure within which to assess businesses, and there is a danger that it will be overwhelmed. I know the Minister is aware of this, and has heard comments about it. BT said there is a risk that it will have to make 1,000 filings a year, and we heard similar numbers from others. Legal firms in the City warned us that many companies will make filings that might technically not be necessary, just to cover their backs. That will put sand into the engine of the process that the Minister suggests.

If we provide a framework for understanding national security, and create a pre-filter, so that we set out the clear, transparent and predictable process that BT Group specifically asked for, the Minister, the Government, lawyers and businesses throughout the United Kingdom, and indeed the world, will have a little more certainty about what is, and what is not, likely to require scrutiny.

Providing that framework would, I hope, get rid of many applications that are simply unnecessary. It would free up the impressive cross-departmental team that the Minister is already pulling together, so that we use the intelligence services and call on the Foreign Office when needed to do what is really necessary, which is look at the tough cases—the hard calls that really require a fine judgment and are not clear. Those are the ones that will require ministerial involvement, civil service time and possibly even judicial oversight. Rather than waste time with nugatory filings, let us focus on the core of what matters.

The Bill is so close to doing all that that I will support it whatever the Minister does, but I do hope he will think about adopting new clause 4. As he has seen, it has cross-party support, and has been tabled with great respect for his work and the work of the civil servants he has pulled together to draft the Bill. He has done a fantastic job of it. I very much hope that he will look at the new clause, consider its merits and pull it together. We know the dangers; we have only to look at the silencing of people like Jack Ma of Ant Group, and the intervention in various other businesses around the world by some of the state-owned enterprises that are now sniffing around British businesses, to see that the risk is sadly real. I hope the Minister will look at the new clause, and will use all the extraordinary experience and skill that he has at his fingertips—many of us wish that we had it—to consider where we go and how to do this best.

Photo of Stephen Kinnock Stephen Kinnock Shadow Minister (Foreign and Commonwealth Affairs) 3:00, 20 January 2021

It is always a pleasure to follow the Chair of the Foreign Affairs Committee, who is doing sterling work in an area of increasing concern to this House and our country; the impact of hostile state actors plays an increasingly important part in how we think about our country’s place in the world. He is doing outstanding work in thought leadership and political leadership in that context.

It was a privilege to serve on the Bill Committee, and it has been a real privilege to work with my hon. Friend Chi Onwurah, who has led the team in an exemplary manner. She has been assiduous in the scrutiny of the Bill and in bringing us together around the amendments—more than 30 of them, I think—that we tabled in Committee.

Unfortunately, while I have huge respect for the Minister in charge of the Bill, he chose not to integrate any of our amendments into the Bill, which is a pity because, as my hon. Friend just pointed out from the Dispatch Box, we have approached the Bill in a spirit of constructive engagement with the Government. We wish to see its substance put in place as rapidly as possible; it is long overdue. It is a pity that that spirit was not reciprocated by the Government when it came to some of our amendments, which we genuinely tabled not for any partisan reasons, but to try to improve the Bill as much as we could.

However, we are where we are. We are through Committee, and we are looking at the Bill as it is. As has been mentioned, we heard from experts in Committee, including the former head of MI6, Richard Dearlove, and Charlie Parton, one of the leading experts on China, and their contributions were enlightening. It is worth touching on what they talked to us about, because it sets out the backdrop against which the Bill is being put on to the statute book.

I will mention two of the key takeaways from that evidence. First, the impact of covid on the ability of the British economy and businesses to withstand a hostile foreign takeover is deeply troubling; it increases their vulnerability. It feels very much like we are out on choppy waters in a relatively difficult economic climate, and are relatively isolated, of course, having left the European Union. We need to ensure that we do all we can to hold on to our strategic national assets. We should not allow them to be snapped up by investment vehicles and businesses that are sniffing around, to use the term of Tom Tugendhat, our business sector, potentially taking over businesses in a way that would be deeply damaging to our economy and national security.

The second key trend that was highlighted was, of course, the rise of China. It was made very clear by Mr Dearlove, Mr Parton and others that successive Governments since 2010 have been profoundly naive and complacent about how we respond to the rise of China. We had the so-called golden era, which was supposed to be about economic integration, and supposed to lead to China beginning to align with the rules and norms of the international rules-based order. Clearly, the opposite has happened, and as a result of that naivety and complacency, we find ourselves very exposed, and in a position that could lead to the undermining of our sovereign capabilities. The Bill is being introduced against that backdrop.

I will speak in favour of new clause 5, which is really important, and on which I worked with colleagues, including my hon. Friend the Member for Newcastle upon Tyne Central, but first I will talk about the Bill’s intentions, and whether it will achieve its goals. The Bill seeks to protect Britain’s national security from the threats posed by hostile business takeovers, and by investment vehicles that are not aligned with the UK’s values and interests, and are potentially even actively hostile and seeking to cause harm to our country. However, there is potentially a flaw at the heart of the Bill. A key part of our national security is our economic security; indeed, I would argue that it is a foundation stone of our national security. It underpins our long-term national security, in the sense that if we lose control of key parts of our economy, it leads to an undermining of our sovereignty, our sovereign capability, and our prosperity. That has a knock-on effect on our resilience and our national security.

We need to put our sovereign capabilities at the heart of the Bill, and ensure that when the Government do national security assessments, they look at long-term, strategic, structural threats in addition to the more immediate threats to our national security of espionage, intellectual property theft, and a range of others.

That is why in Committee I honed in on two issues that I felt were most critical: our critical national infrastructure, and enterprises and investment vehicles that have clear links and allegiance to other states. On the first point, the Bill unfortunately neglects to define critical national infrastructure. The Government consultation lists 17 sectors that might come under the national security regime’s mandatory notification process, but it does not list and define critical national infrastructure as an asset class in itself.

There is a difference between the list of 17 sectors in the Bill and the 13 sectors that the Centre for the Protection of National Infrastructure, which is of course a Government body, defines as critical national infrastructure. The missing five sectors are chemicals, defence, finance, health and water, which I would argue are crucial to our national interest. Potentially hostile foreign takeovers in those crucial sectors should give all of us, and certainly the Government, pause for thought. Those sectors form the basis of the safety and security of every citizen of our country, so I strongly recommend that critical national infrastructure be defined as an asset class in the Bill, and that the gap be closed between those 13 sectors and the 17 listed in the Bill.

Our critical national infrastructure of course needs protecting. Sir Richard Dearlove, in response to my question in Committee about including a defintion of critical national infrastructure, said:

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

The truth is that we have failed to protect these critical national assets for a decade. Just look at the involvement of Chinese-based investment vehicles in our water, energy and nuclear sectors. This is a serious problem that needs to be fixed urgently. It is also part of the laissez-faire approach that successive Governments have taken since 2010. It leads to a short-term business culture that opens the door to acquisitions, and to our having by far the highest number of successful hostile takeover bids of any advanced economy in the world—certainly as defined by the OECD.

Our strategic assets have too often been flogged off to the highest bidder. The case of Arm—a jewel in the crown of British tech—has been mentioned by several hon. Members; it is, of course, in the process of being sold off to NVIDIA. Huawei acquired the Centre for Integrated Photonics and of course DeepMind was sold to Google; I absolutely agree with the Chair of the Foreign Affairs Committee, who said that that was one of the most egregious decisions taken by a Government in recent political history.

All that undermines our sovereign capability, and as a result so much of our critical national infrastructure is not in our own hands. In fact, 57 of our critical infrastructure supply chains depend on China—from energy suppliers, to airports, to personal protective equipment. That is a dangerously exposed position to be in. The repercussions, of course, were felt through the pandemic. Our lack of capacity to produce personal protective equipment has cost the UK taxpayer eye-watering amounts of money, and there have been shocking stories of so-called middle men pocketing millions of pounds for simply acting as a broker between the British Government and overseas suppliers.

I now turn to the issue of foreign state involvement, state-owned enterprises and investment vehicles backed by states. Many of the so-called private takeovers and infrastructure investments are in fact being 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 own concepts of democracy, liberty and the rule of law. The most obvious and pressing case is the role of the Chinese state, which is committed to expanding its influence economically, politically and militarily in order to become the world’s leading global power. We need only recall the recent case of Imagination Technologies, which was the target of a hostile takeover attempt by an investment vehicle with direct links to the Chinese state—and, of course, there is a substantial Chinese stake in Hinkley Point.

We need to tighten our view and definition of hostile foreign takeovers when they have a particular role and when they owe allegiance to hostile foreign states. That is set out in the statement of policy intent, but it is not in the Bill. As I pointed out in Committee, it really needs to be in there as a clear definition of an additional threshold—a higher threshold and a more assiduous look at the backers of investment vehicles and companies seeking to take over British companies and interests.

In addition to the comments on these broader issues of critical national infrastructure and the state-owned and backed enterprises, it is important that we should flag up concerns about the fact that so much of it sits within the Department for Business, Energy and Industrial Strategy. That is really an issue, because decisions are going to have huge cross-departmental implications. It would be better for there to be a cross-departmental unit bringing together the Treasury, the Home Office, the Foreign, Commonwealth and Development Office, the security services and the Ministry of Defence. It would follow a model similar to that of the Committee on Foreign Investment in the United States.

There were signs that BEIS was something of a cheerleader for the Huawei deal; that does not fill us with great confidence or optimism that a sufficiently astringent look will be taken of these issues if they are left exclusively in the hands of BEIS. There is also an issue around the change of incumbent at Cabinet level, with the Secretary of State being potentially influenced. We would of course never cast such aspersions on the current incumbent, and we congratulate him on his promotion, but we really do need to make sure that we have a belt-and-braces approach and that undue influence is not exerted.

We have seen reports about so-called elite capture by foreign powers, we have seen the Russia report, and we would like far more assiduous action to be taken. It is naive to think that we are not vulnerable to these influences—

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means) 3:15, 20 January 2021

Order. Could I interrupt the hon. Gentleman to say that we have quite a few more speakers? We do have a fair amount of time, but I am hoping that speakers will take about 10 minutes, and he has now taken 15, so I hope that he might be bringing his remarks to a close before too long.

Photo of Stephen Kinnock Stephen Kinnock Shadow Minister (Foreign and Commonwealth Affairs)

With apologies, Madam Deputy Speaker, I am indeed finishing now.

Protecting our national security is just one element of protecting, nurturing and developing the sectors that are vital for the future. Technology sovereignty will be the defining issue of the coming decade. The economic dislocation we have seen from covid means that the case for action is stronger and more urgent than ever.

Photo of Jamie Stone Jamie Stone Liberal Democrat Spokesperson (Armed Forces), Liberal Democrat Spokesperson (Defence), Liberal Democrat Spokesperson (Digital, Culture, Media and Sport)

I shall heed your remarks, Madam Deputy Speaker, and try to keep my contribution short. In truth, I have not been involved thus far in this Bill, but I am my party’s defence spokesman and I therefore take a view on it.

Given the constituency I represent at the very top of the British mainland—north coast, east coast and west coast—I intuit from what I see that the Russian navy is no stranger to those waters. Therefore, the defence of the realm is in my mind personally as well as in speaking in the Commons. As I have said many times before, we do, alas and alack, live in a world where there are states that are not about the best interests of the United Kingdom. As other speakers have said, we see the Chinese threat and we see the Russian threat. It is within that context that I say what I say.

I want to make three or four very general points; as I say, I will try to be fairly speedy. The first is about the amendment that seeks to place an annual security report before the Intelligence and Security Committee. Yes, we have heard that the Government are proposing to bring in something similar to this amendment in the upper House, but it would be no bad thing for us to agree on it at this stage, and then let us see what the Government come back with if they decide not to accept it. In recent days, we have seen on the other side of the Atlantic the whole notion of parliamentary democracy come under some challenge. Here in the mother of Parliaments, the idea of Parliament as supreme and of reports brought back to Parliament is very much a part of our democracy. It is a vital mechanism in securing the way we do things nationally and our freedoms.

On the Chinese point, the sale of DeepMind to Google, and Arm, which will go to NVIDIA in due course, is regrettable, to say the least. Let us make no mistake: this is a quite deliberate act by China and other Governments who are hostile to us. At the end of the day, there are front organisations that are trying to get a grip on cherry-picking those parts of the British economy that are fundamental to our workings. That is extremely dangerous, to say the least.

The scope of the public interest test is important to the Liberal Democrats, as we have been saying for a long time. First and foremost, this Bill, which I support entirely, is important to the safety of the realm—to protecting British interests—but at some stage I would like the public interest test to be broadened out. Mention has been made of China. We know how incredibly badly the Chinese are treating their Muslim minority in the west of the country. It amounts to something approaching genocide: let us not muck about with this. When companies buy up a British company or business, I would like the public interest test to be applied, for instance, on child labour and on modern slavery. The trade deals should be examined in that context as well. At the end of the day—we have said it many times in the House of Commons and the House of Lords—we disapprove entirely of the way in which the Chinese have treated the Uyghurs. We have to try to take action to try to influence that. If we can stymie a trade deal on that front, that might be a very good move for the future.

I have discovered—it is a curious factor during my three years in the Commons—that on defence matters there is often broad agreement across the House, which is very encouraging. The idea of constructive opposition is important, and what comes back from the upper House will be of extraordinary interest. I hope that the lesson has been learned, and that when the Bill is enacted there will be a sensible approach to stopping the repetition of DeepMind and the sale of Arm. I give huge credit to the Chairmen of the Foreign Affairs Committee and of the Intelligence and Security Committee, who have worked assiduously, as have their Committees, on a cross-party basis, to protect the best interests of our nation. There I shall conclude my remarks.

Photo of Katherine Fletcher Katherine Fletcher Conservative, South Ribble

I join Chi Onwurah in paying tribute to all the members of the Bill Committee. The room may have been cold but, to be fair, the debate was not. I extend my thanks not only to the Front-Bench spokespeople but to all the Clerks and everyone who made that happen.

What occurred to me as I shivered, with the Thames windows open in the Committee room, was that, as my hon. Friend Tom Tugendhat pointed out, this is flipping important, but there is a risk of it becoming dry and remote. I hope that the House will bear with me if I try to bring it to life for people who spend the day on their phone and are not aware of some of the business takeovers that have occurred or of the actions of foreign states that are hostile to us.

I want specifically to speak to new clause 5 and the attempt to seek clarification on the definition of national security. In the spirit of clarity, let me take a step back to take a step forward. What does the Bill do? It enables us to catch up with nations such as America, Australia and Canada, in protecting us from threats from people overseas who try to use business and ideas, candidly, to do us harm. It gives us a legislative framework to address that, and I echo the comments of many Members to put stickers on how important that is.

The Bill gives the Government powers to investigate properly business deals that look a bit fishy or are much worse than that. National security can sometimes end up sounding like that bit in “Men in Black” where, all of a sudden, the sunglasses go on and the pen comes out. What does it mean? To me, it is not a static thing or concept—it is a fast-changing world. In seeking to define it, as new clause 5 does, we risk flagging to our enemies what the “it” of national security is, thus making a big pointy arrow saying, “Go and over there and do this, because we are not thinking about that as a Government at the moment.” The Government need flexibility to be nimble as threats evolve.

To explain that, let me give a hypothetical example. A small firm is curating a TikTok feed and videos on its channel, gaining ad revenue. It is not a huge business—a couple of people—but it is doing quite well. Those videos are funny and political, and are often further left of centre than me. They imply that I, as a Conservative, have only awful motivations for the decisions that I make in this House. Well, such is life. This is the lot that I picked, though, as an aside to the youth of today, I would like to point out that if they are getting their messages from people who are only giving them one side of the story, they should think about it quite hard, because there are always two sides to the story.

However, going back to this hypothetical company on social media. What happens if an enemy abroad who hates us, hates the British, hates what we stand for decides to try to buy this business and then uses this business’s reputation, subscribers and previous clever work to push really damaging ideas and—to use the phrase du jour—fake news? All of this to the people who just want to watch funny videos that laugh at silly Tories. Is that a question for national security? Should we intervene and stop the purchase of this business because we risk what is going forward? To be candid with the House, I do not have the answer to that question, and I think that that speaks to my point. Is it national security when a community of people are only seeing something wrong and dangerous? Is that national security and should we step in? I can speak to the answer yes. I can also speak to the answer no. No doubt this House could debate it for many, many hours in an articulate fashion, such as we have just heard.

Now, if we had defined national security, would it be certain that we had the right definition to allow for this decision to be made? It is my submission to this House that we would struggle. Also, this hypothetical example of a modern company is one from our current technology. It is only catching us up with the rapid changes that we have seen in the past five to 10 years. With the detailed definition of security, what would happen when technology in businesses moves as far away from now, as I am from the rubber-keyed ZX Spectrum computer that I played with as a child. That is a huge leap. How do we define national security that will protect for the future and how do we encode a definition for something that has not even been invented yet. I am not sure that we can without unintended consequences in terms of signalling to our enemies, leaving loopholes, or not giving the flexibility that we need.

For me, protecting the realm and all of our people—all of them—requires flexibility as well as strong oversight and that is in no doubt, so I will not be supporting new clause 5 today.

Photo of Kevan Jones Kevan Jones Labour, North Durham 3:30, 20 January 2021

I supported the Bill on Second Reading and continue to do so, because, of course, in terms of putting on the statute book the protection that we need, it is a vital piece of legislation, but, as Dr Lewis said, it is possibly some seven years late. That highlights the conflict that takes place within not just this Government, but all Governments, between wanting national prosperity and national security. We had this during the coalition Government—Tom Tugendhat, I think, referred to it as the “golden age”, or, as the Australians would call it “a Government full of panda huggers”—but that has clearly changed. What has also changed since even 2013 is that we have a better understanding of how states are using their economic power not only for defence purposes, but to project their power to change the international world order.

It has come as a great shock to many people that, in the past few years, the international rules-based order, which we have all accepted since the second world war, has come under threat not only from hostile states, but from individuals who basically want to throw everything up in the air and see what lands.

Clearly, when it comes to China, to mention one nation, its investment strategy, including belt and road and other initiatives, is clearly being used not just in terms of projecting its economic power, but for geopolitical reasons. If we look at the long list of Chinese individuals on various standard-raising bodies—whether it be UN bodies or standard setters in the telecoms industry—we can see which areas they want to influence. The Bill is very important in ensuring that we protect that critical national infrastructure. There will be that debate—as Members will see if they read the ISC’s report, in 2013—between prosperity and security. For me, security has got to be the key cornerstone of this legislation, but it will, I think, lead to some very difficult decisions having to be taken.

As I say, I broadly welcome what is being put forward in this Bill, and I will come on to some of the new clauses in a minute, but can I first refer to new clause 7? It has already been spoken to by the Chair of the ISC, the right hon. Member for New Forest East, in terms of oversight. The ISC is not looking for work, I can tell hon. Members that. I have been a member of it for a few years now, and we have a lot on our plate. We do not actually want to be a regulator or in any way to have to decide what should go ahead and what should not—that is the role of Government—but I think it is crucial that those decisions, some of which will be very controversial but taken for perfectly good security reasons, do need to have oversight from outside the Executive.

As the right hon. Gentleman has outlined, that cannot be done by the BEIS Committee. Again, I would not want to take away from any of the work it is doing, but we are the only Committee of all the Committees we have that has the levels of security clearance—it has STRAP clearance—to look at the evidence that will have to be put forward for taking these decisions. I think this would give the public confidence in the Bill, and when such decisions are being taken in future, the public can actually have confidence that there is some oversight of the reasons why they are being taken. So I do support new clause 7, but I accept what my Chairman says about wanting some indication of the Government wishing to take this on board. May I also raise the fact that this is not just for this Bill? I am also serving currently on the Telecommunications (Security) Bill Committee, and it is an issue—exactly the same issue—there as well.

I think the Minister is sympathetic to this, but I can tell him now—and I do not want him to admit it—that he will be getting a lot of pushback from the Cabinet Office, because the Cabinet Office somehow sees it as its role to prevent the ISC from seeing anything. As the right hon. Member for New Forest East said, it hides behind the Justice and Security Act 2013, but as he very eloquently outlined, there is already a mechanism to allow us to look at this. This is going to be an increasing problem. If hon. Members read the Act, they will see that it does not actually say that it is about actual Departments; it is about access to sensitive and secure information. That is going to be an increasing issue, whether for this Government or future Governments, because, as that is used by more Departments, it is important that Parliament and the public at least have some oversight of it.

I do not want to bash the Cabinet Office, but hon. Members will remember, if they look at the 2013 ISC report, that it is the same Department that, even though it was told by BT that BT was going to contract with Huawei, somehow conveniently forgot even to tell Ministers until much later. So, I think it is important to ensure that we have robust oversight. I look forward to the Minister’s response on whether he is going to agree to this letter. If he can give such an indication today, or even when it goes to the other place, that would be welcome, and if that is the case, I think it would be quite right not to press new clause 7. I think this is something that is missing from the Bill.

May I now refer to other new clauses? New clause 4 stands in the name of the hon. Member for Tonbridge and Malling and others, and I congratulate his Committee on its report. I accept what Katherine Fletcher has just said about defining national security. Putting that on the face of the Bill, as new clause 5 does, limits what can be done, although it is good to have a debate on this. New clause 4 is slightly different, however, because it sets out a framework within which these decisions can be taken.

The Bill does not define national security or the list, and I understand why: because we cannot list the entities, and, as the hon. Lady said, something might come up in the future that is critical national infrastructure but that we have not yet thought about. We need sufficient flexibility to be able to address such situations.

New clause 4 also covers the following important area:

“(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;

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

We see good examples of states that are making strategic investments for geopolitical or security reasons or in order to acquire technologies, but, as came out in the ISC Russia report, many states are increasingly using fronts and other individuals to acquire such assets, and, having not an exhaustive list, but a framework that covers this would also flag up such matters to the Department.

We talk about critical national infrastructure being things such as power stations, electricity grids, gas mains and telecoms, but might we also say that our food distribution network, for instance, is a part of critical national infrastructure? In the early 2000s we had the fuel delivery lorry drivers’ strike, which led to a critical situation, and control of such events could fall under this. These things might be done not by a state, but by individuals related to it, perhaps acquiring large property portfolios in certain areas. Although new clause 4 is not perfect, it covers these matters.

I accept what my hon. Friend Chi Onwurah is trying to achieve in amendment 7. She wants this unit to have the resources to ensure that it can do its job, and that is very important. However, we also need to ensure that there are no untimely delays, because we do not want this to be a hindrance to business.

Amendment 7 also raises the issue of the personnel who are going to perform this task. I have a huge concern, which I have raised already in terms of the Telecommunications (Security) Bill, about the type of individuals we are going to get in that unit. It is vital that we have people with not only the necessary security clearances but also the right security mindset. Some reassurance on that from the Minister would be welcome.

Overall, however, I welcome this Bill. It takes a huge step in the right direction. As my Chairman, the right hon. Member for New Forest East said, it is strange that we wait for seven years and then get two Bills very quickly, and I also look forward—I hope in the near future—to a further Bill, the hostile state actors Bill, which is another recommendation from our Russia report.

I thank the Minister for the constructive way he has taken this Bill forward—and I will be cheeky and just say to him that if he can deliver extra vaccines in Chester-le-Street this week, that will be very welcome.

Photo of Sam Tarry Sam Tarry Shadow Minister (Transport)

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.

That said, the Bill unfortunately represents a missed opportunity. It fails to go far enough to protect our national interests and our security at a time of ever changing and global emerging threats. It could and should have been used to build a more comprehensive and unified industrial strategy, which is urgently needed as we look to emerge from the pandemic and the severest economic crisis and recession in 300 years.

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 we face and the different sources of those threats. In Committee, we heard from various expert witnesses that other countries understand perhaps far better than we do what some of those threats are. Members from across the House heard evidence in Committee from the former head of MI6, Sir Richard Dearlove, who sketched out a complex picture that clearly showed that, for too long, successive Governments over many decades have placed economic interests, including our relationship with China, ahead of our human rights obligations and strategic national security interests.

That is why Labour is calling for the Government to intervene in foreign acquisitions that could damage our national interest and hamper our national security, so that the likes of the disastrous takeover of the UK’s biggest tech company, ARM Holdings, never happen again; and to use the Bill to put in place a robust framework that ensures that and that prioritises national security above all else. That would mean the Government no longer opening our doors to the highest bidder and selling off anything and everything in the process, but instead having a long-term and strategic approach to global threats—economic and otherwise—so that in the post-Brexit world we now inhabit, national security does not take a lesser priority than free market fundamentalism.

Indeed, over the past decade, the Conservative Government have allowed foreign direct investment to grow rapidly. In the past two years alone, it has almost doubled, from £36 billion to £66 billion. That, of course, is to be commended and much welcomed in many cases, with thousands of jobs created across the country. However, where the investments are being made is the cause of a great deal of concern. Worryingly, on only 12 occasions in the past 18 years have there been national security assessments to scrutinise such investment, with not a single block on a takeover during that period. That is deeply concerning, because as has been well documented across the House, enterprises controlled by potentially hostile countries have been handed contracts for 5G or to build and invest in crucial national infrastructure, such as nuclear plants, giving them potential control of critical infrastructure, personal data and cutting-edge technologies. This should not be about making as much money as possible but about our Government prioritising our nation’s security.

We must learn from our partner nations that have put in place similar measures recently to deal with this growing threat. For example, in the US and across the EU, wide-reaching laws have been implemented to enable intervention in investment transactions where national security or national interest concerns are at stake. The EU proposed them in 2017, and Germany updated its legislation the following year, around the time the US did the same. The national security definition clause we have tabled would bring us in line with our allies and would treat this matter with the seriousness it deserves.

The Bill transforms the UK’s merger control processes, and that is a key part of it that we would not want to be overlooked, but it locates merger control processes away from the Competition and Markets Authority, with its history of merger control expertise, and into the Department for Business, Energy and Industrial Strategy, which unfortunately has no existing expertise in merger control. It does this at the same time as massively expanding the scope of intervention. In the face of such sweeping powers, we should not abandon all accountability just because the Secretary of State says the words “national security”, even though they happen to be at the top of the Bill. Too often during the pandemic, we have seen the Government run roughshod over parliamentary accountability and scrutiny, and national security is simply too important to have that happen again.

The amendments put forward by the Opposition would hold the Government to account through aggregate transparency, with specific focuses on unit efficiency, unit capacity and small and medium-sized enterprise interactions. We are also supporting the Intelligence and Security Committee’s amendment, which would require the Government to publish an annual security report to the ISC, allowing the Committee to bring some accountability and transparency to the Government’s actions without, of course, compromising on security. The UK, thankfully, is globally recognised as an open and attractive destination for foreign investors. However, our openness has made us vulnerable to exploitation by foreign actors who do not always have our nation’s best interests in mind, and we must act before our security could potentially be compromised. Labour’s amendments to the Bill, and a clearer definition of what national security means, would enhance this legislation and make it more fit for purpose.

I would like to turn to the clause that has been put forward on SME support, because this is crucial to their long-term survival, given the precarious position that many of them are currently in. Small and medium-sized enterprises are enormously important for constituencies such as my own in Ilford South. They are the backbone of our community businesses and a driver of the local economy, but they have faced unprecedented difficulties during the ongoing pandemic. It is therefore vital that the Bill does not lead to SMEs being hamstrung by more red tape.

As the true party of small business, Labour is calling for greater guidance and support for our innovative small business sectors, so that the Government do not once again allow SMEs to fall by the wayside. Any business, whether small or large, needs certainty, and the publication of comprehensive guidance and an early understanding of compliance will allow many SMEs to navigate their way through these new requirements. But above all else, guarding national security should not mean abandoning those SMEs, because they are the engine of national innovation and local economic growth in so many parts of our country. That means that the Government should establish a dedicated SME unit within the Department for Business, Energy and Industrial Strategy that can guide and mediate for those businesses as they progress through the national security screening process. National security is and must always be our highest priority; it is Labour’s highest priority. In the post-Brexit world, we want to be a country that is as open and positive as possible towards investment from international partners only if they share our values and objectives of supporting and rebuilding Britain.

Photo of Andrew Griffith Andrew Griffith Conservative, Arundel and South Downs 3:45, 20 January 2021

May I first take the opportunity today to congratulate our friends in the United States? They are one of our longest and most enduring partners, including in the domain of investment, where we are each one of the largest investors in each other’s economy. In fact, 1 million people in the UK go to work every day for an American company, and 1 million Americans work for British companies.

Unlike many of the other speakers in this debate, I want to talk about investment. This Bill should not be about the NHS or employment law or foreign policy, but it is—or at least it should be—about the world-liberating, poverty-alleviating force that is the global movement of capital to make a profitable return. We are all deeply vested in its continued success. The UK economy is one of the most open in the world, and our prosperity depends on that. The salaries and pensions of one in every three nurses, doctors and teachers depend on the cyclotron of capitalism that combines our world-leading science and intellectual capital with human talent from all over the world to invest in and create economic activity here in the UK. So I am pleased that the Minister, who I know is a great friend of business, has once again confirmed that the Government will always enthusiastically champion free trade and provide the warmest of welcomes to overseas investors. He is right to remind us that, since 2011, over 600,000 new jobs have been created in our economy, thanks to over 16,000 foreign direct investment projects.

In putting forward new clause 5, Opposition Members put forward a veritable laundry list of subjective factors that are at odds with the clarity and certainty that investors need from this Bill. They would put the UK into a concrete overcoat at just the moment of our greatest opportunity. From the buoyant top, we would plummet to the depths of the world rankings in attracting international investment. It is almost as if Opposition Members do not want the British people to taste the fruits of the successful Brexit that they tried to thwart.

From an external perspective, the British economy is a highly attractive investment prospect: a stable, pro-free enterprise democracy with tariff-free access to European markets, close links to the faster-growing Commonwealth countries and native use of English, the universal language used by the fastest-growing sectors and economies of the world. The opportunity is the stability of Switzerland, combined with the dynamism of Singapore.

As net zero champion, I see examples daily of entrepreneurs and investors pursuing opportunities in the expanding clean growth sector. British-based firms are exporting electrolysers to Europe and fuel cells to Asia. The City of London is a world-leading hub for green finance, while our airports and airlines are the same in sustainable aviation. Elsewhere, similar opportunities exist in artificial intelligence, quantum computing, the life sciences, satellites, aerospace and FinTech, where the UK science and research base positions us very strongly. It is not just rhetoric; economists rightly forecast that UK growth this year will outstrip the US, Japan and the EU.

I urge Opposition Members to withdraw their amendments to the Bill and to allow it to go forward today. Having allowed the golden goose of the UK economy to continue to prosper, we can engage in a legitimate debate about how best all may share in the fruits of that success. [Interruption.]

Photo of Eleanor Laing Eleanor Laing Deputy Speaker and Chairman of Ways and Means

Order. We cannot have Members sitting here in the Chamber—under the cover of masks, so I cannot see their mouths moving—making comments about things that people are saying virtually. It just does not work and, quite frankly, it is not fair. We really must watch the level of behaviour while we are trying to balance this difficult situation in the Chamber.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

Thank you, Madam Deputy Speaker, for allowing me the opportunity to speak this afternoon. I have followed with great interest every stage of the Bill. I do so with a somewhat vested interest. That is not that I have investment portfolios or similar, because I do not, but because I am fully aware of the potential that exists within Northern Ireland for foreign investment from the positive advantage we now have.

As the previous speaker, Andrew Griffith, said, Brexit has given us some opportunities for investment for the future. I see potential for that, as he does, and hopefully as others do, too. Northern Ireland has become the cyber capital of Europe, with our low business rates, superfast broadband in urban areas, wonderful global connectivity—before the pandemic, at least—and a highly skilled local workforce. It is little wonder that more people have decided to make Northern Ireland the home of their global business, and the opportunity is there for much more.

For that reason, I have followed the Bill closely to ensure that it protects our nation as a priority, and I am firmly behind the Government in that aim. I support the objectives that others have set out, and that the Secretary of State will set out at the end of today’s debate. I also want to ensure that the Bill is not overly prohibitive to companies that see opportunity to invest in my constituency of Strangford and in the Ards council area, but have concerns about the mechanism through which the Secretary of State can put a hold on investment for certain reasons.

I share the concerns of my colleagues that more detail is needed on what constitutes a reason for the Secretary of State to become involved. It is my desire that, rather than a substantive statement by the Secretary of State coming after the passing of the Bill, one should be appended to it. I seek some clarification on this matter. That would enable investors and those businesses seeking investment to know the parameters within which they are working.

I must be clear: I do not wish to water down the aims of the Bill—that is not my intention whatsoever. However, I share the concern of some Members that Chinese companies are under an obligation to share information with the Chinese Government. I remain concerned about overly onerous legislative commitments for small investments and small firms, but I must accept the evidence of the loopholes that foreign investment companies have made their way through by purchasing intellectual property rights and the like. I see how our system has been abused thus far, and I stand with Government on the need for an overhaul, which is the purpose of this legislation. However, I believe that we need the detail to have the strong and all-encompassing legislation required to keep our nation safe. I again implore Ministers to consider this. The safety of the nation has been spoken about by many Members, and it is certainly a priority for me and my party.

I am thankful for the trigger events set out by Government in the White Paper. I understand the rationale behind those and fully support them, especially the fact that Government’s rationale for introducing mandatory notification for these trigger events is the same as for the trigger events themselves. That is to say that the acquisition of over 25%, over 50%, over 75% or more of votes or shares represents thresholds at which parties can respectively block a special resolution, pass an ordinary resolution or pass a special resolution, as set out in the Bill. It is the delay in the secondary legislation after public consultation that concerns me. Surely the Bill will be stronger when it is complete. Again, I seek the Secretary of State’s reassurance on that.

I thank the Secretary of State, the Chair of the Foreign Affairs Committee, Tom Tugendhat, and all Committee members for their hard work. We have before us a Bill that we can be proud of and that will lead to the security we need.

In conclusion, is there a reason why we cannot put all the pieces of the jigsaw together and present clear legislation which ensures that both the investor and the company know and understand the prerequisites and that we are all able to play our part to ensure that the security of this nation—the United Kingdom of Great Britain and Northern Ireland, better together—is not at stake, while enabling us to thrive in the future?

Photo of Bob Seely Bob Seely Conservative, Isle of Wight 4:00, 20 January 2021

I thank the Minister for his work and for being here for the debate; I know how busy he is, so I am most grateful. I will speak to new clause 4, which provides a definition of “national security”. After listening to some of the speeches, I wonder whether I am going to play the role of General Melchett in “Blackadder” when I insist that “security” is not a dirty word. Let me try to put the argument in favour of a national security definition. My hon. Friend Tom Tugendhat suggested that I do so, and I am grateful to him for the opportunity. Like him, I thank Nicole Kar and Alice Lynch, who supported the work of the Foreign Affairs Committee.

New clause 4 provides a non-exclusive framework of factors that the Secretary of State would be obliged to regard when he is assessing takeovers or work in this field. It does not limit the Secretary of State in any way, as my hon. Friend Katherine Fletcher, who spoke eloquently, and others suggested. It provides a public recognition and a public baseline of things that should be considered. As such, it is a sensible amendment to improve the Bill, as well as providing a wider public service by defining national security in the modern era. I would like to make a few background points and then speak for between five and 10 minutes on a few other points.

We need a definition of national security, because the alternative is to have a vague and unstated set of assumptions. The amendment is broad, but it sets quite a high benchmark. It is not a generalised catch-all, nor does it contain a substitute for an industrial policy; that is another debate. The Cadbury takeover would not be included in this, nor would a Stilton creamery in South Notts—it might in France, but not in this country.

In this country we have a tendency to romanticise vagueness, as if planning were a bad thing and muddling through a strategic art as well as a national pastime, with this just-in-time Dunkirk spirit. I think it was Churchill who noted that, actually, Dunkirk was a military disaster, not a victory, and that if we had got our security and strategy right in the years previously, we could have avoided glorifying disasters because we would not have been in that disastrous position in the first place. A more systematic approach to national strategy—frankly, I think we need a national strategy council—but also to security and the definition of national security is important.

My next point is that the nature of national security has changed, and we need to be mindful of that. It is not simply about defence and espionage and the immediate threat to the realm. We have seen from Russia and China a combining of non-military and military, of covert and overt strategies—people call it hybrid war, grey war, under-the-radar war; there are about 25 definitions doing the rounds. This is not a war as such, but it is a form of state struggle and state conflict. Some states in the world, including very significant states such as Russia and, perhaps to a lesser extent, China, see things as a zero-sum game. We need to understand that liberal internationalism is not the only show in town and not the only way to understand international affairs. The west is good at many things, but seeing the world through the eyes of others is not necessarily one of them.

These new states, as many people here have said, use multiple and novel tools, including economic power, energy power, espionage, blackmail, information war and even cultural and religious power, as well as military and paramilitary power, and they use different templates and different tools in different parts of the world. Clearly, the tools that China uses in Xinjiang province are different from the ones that it uses in the City of London or to reach out to parliamentarians. The tools that Russia uses in eastern Ukraine or Kiev are different from the ones that it uses in the UK. Is the Kremlin’s use of Russian Orthodoxy a national security threat to us? No, of course not. But is its use of oligarchs and informal channels to influence senior political and financial elites in our country—Stephen Kinnock called it “elite capture”—a potential threat to national security? Yes.

Mr Jones was right to mention how states are using those new powers and how they use power to bend or break the international system. My hon. Friend the Member for Tonbridge and Malling has also spoken about that repeatedly, as indeed have many of us on the Foreign Affairs Committee. That international system is not perfect, but it has served humanity well.

It is important to understand that national security is not just about a narrow defence threat; it is broader. China has published a document, “Made in China 2025”, outlining how it plans to dominate data, artificial intelligence, big data and so on. Is it a threat to our communications infrastructure if we are dominated by a one-party state with a very different values system? I am not saying definitely, but potentially it would be.

The Henry Jackson Society and I produced a report on Five Eyes supply chain reliance on China. Over a quarter of British supply chains are dominated by China, and the UK is strategically dependent on China for 229 categories of goods, 51 of which have potential applications in critical national infrastructure spheres. We need to be mindful of the impact of that on our national security.

There are companies that are going to be bought and universities that are going to be working on gait technology and facial technology. I do not doubt that there are some countries in the world that will use that technology to improve their mass transport systems, but there are countries—China is potentially one of them—that will use it as a means of controlling their people more effectively and developing the sort of Orwellian state that is a potential threat to humanity and mankind.

Let me look specifically at new clause 4. As I said, my hon. Friend the Member for South Ribble talked about the need to be nimble, and she is exactly right, but osmosis is not a way to provide a definition of national security. The new clause obliges the Government to look at a series of areas. We tried to make it broad, but it sets a high bar. It requires the Government to look at the critical supply chain, critical national infrastructure and national resource. A year ago, who would have argued that personal protective equipment manufacture, vaccine supply or AstraZeneca’s cyber-security were national security issues? Probably nobody. Who now would deny it? Probably nobody. This is a significant element of our national security.

Another example—one that has worried me greatly—is that the Government did not see Huawei’s domination of 5G as a national security issue. They chose not to listen to those people in the agencies who said that it was and set a clear political direction. It concerned me particularly that, bizarrely, BEIS and other Ministries presented Huawei in this House as a private firm when, clearly, it was part and parcel of the Chinese state. Therefore, having a clear definition in the Bill of what Ministers are obliged to look at would help to guide them to come to good decisions in the national interest, and that is what we are trying to do.

We are trying to do things in the national interest to improve the Bill where we can. Paragraphs (b) and (c) address the threat from individuals and to individuals. Paragraph (c) addresses the nature of potential acquirers of UK firms. The hon. Members for Aberavon and for Newcastle upon Tyne Central (Chi Onwurah) spoke very eloquently about this, and Huawei is instructive.

My hon. Friend the Member for Tonbridge and Malling spoke about two companies that were bought when perhaps they should not have been, and we need to look at the nature of potential acquirers of UK firms. It is not an attack on laissez-faire economics or on our role as a free market and dynamic, global economic centre to accept that a national security definition, along with good laws, helps to provide a framework for honesty and integrity in business life. Paragraph (f) addresses national security and our responsibility to oppose modern slavery and genocide, which is an important issue for me, but again it sets an extraordinarily high bar.

Paragraph (g) addresses the potential threat of global organised crime. Again Russia, specifically, has tried to influence other countries in this way. Yes, that could be a potential national security risk. Finally, paragraph (h) gives the Secretary of State the flexibility to take a generalised approach to things that are not in the interests of the UK and are a threat to our interests or our citizens.

This new clause is a baseline, not a limiting factor. It helps to provide guidance for the Secretary of State and for BEIS. Frankly, this should be cross-departmental. We need our own CFIUS, and why we do not have one I do not know. Again, that is a concern. I will not address it now, because it clearly is not in the amendment and I am wrapping up.

I fear that the vagueness on national security does not help this Bill, nor does it help national security and its role. Clarity is needed in the long term to help us provide better strategy and a better understanding of the opportunities and risks that face this country in the years ahead.

Photo of Kim Johnson Kim Johnson Labour, Liverpool, Riverside

I start by congratulating Joe Biden and Kamala Harris, and by wishing for a violence-free inauguration today. Good riddance to the outgoing President. We will not miss his hate speech.

The National Security and Investment Bill seeks to usher in sweeping reforms to how our Government can scrutinise foreign investment. It proposes strong measures to toughen foreign investment rules and to bring the UK into line with other major countries in key sectors. These steps to keep high-growth and strategically important companies in the UK are overdue and highly welcome, but does the Secretary of State agree that, for the UK to have an active industrial policy that works in the public interest, the Government must go further than just blocking hostile mergers and acquisitions, and instead implement a robust industrial strategy that puts critical national infrastructure at the heart of Government policy?

One example is the recent takeover of Arm, the crown jewel of the British tech sector—a genuine global powerhouse worth more than £31 billion and with more than 6,000 employees. Its recent sale to Nvidia, a US tech giant worth more than £338 billion that is tucked away in the tax-light and secrecy-heavy state of Delaware, provides a clear example of the risky and problematic sale of a British firm to foreign investors, which threatens both security fears and job losses.

Nvidia competes with companies that Arm supplies. Arm’s co-founder declared the takeover to be a “disaster” that will destroy the company’s business model and lead to job losses at its Cambridge headquarters and elsewhere in the UK. He also said:

“It is very much in Nvidia’s interest to kill Arm.”

At the time of the sale, Unite the union, which represents Arm workers, declared that, if allowed to go ahead, the sale

“risks the company’s UK operations being run down and jobs and investment moved abroad.”

I wholeheartedly support Unite’s call for the Government to protect tech firms from being hollowed out by detrimental takeovers, and to provide the investment needed for the sector as a whole to flourish.

Although the Bill makes great strides in bringing UK legislation in line with that of other countries in giving the Government significant powers and oversight of all investments to protect national security, gaping holes remain in our powers to protect jobs and industry here in the UK. With the country’s manufacturing sector already on its knees, dismantled and sold off in the Thatcher years and subsequent decades, do the Government not agree that it is high time for a robust industrial strategy that bolsters high-skilled, high-paid and sustainable jobs, to invest in our communities and rebuild after decades of industrial decline and the economic fall-out from coronavirus?

We need to support this legislation to protect UK jobs and industries from foreign, hostile acquisitions that could damage the UK economy and lead to job losses, but we cannot ignore the lack of investment or attention by our Government in developing the UK’s industrial strategy. If we are talking about protecting jobs and industry here in the UK, the two cannot be separated. If the Government are serious about industrial strategy, we need stronger powers, such as those in France and the USA, to intervene in takeovers to protect our vital interests, particularly in our tech sector.

We also need serious planning and investment in these sectors, training and reskilling of our workers, and strategic investment in line with the plans for regional levelling up to provide the necessary conditions for these sectors, and the communities dependent on these jobs, to flourish. Now is the time for bold action to put critical national infrastructure at the heart of Government policy, and to retain high-growth and strategically important companies in the UK.

Photo of Bob Stewart Bob Stewart Conservative, Beckenham 4:15, 20 January 2021

Enhanced protection of our national security is obviously at the heart of the Bill. It has come not before time, too. It has had a gestation period of something like seven years since the Intelligence and Security Committee first raised the matters that it addresses directly. As a member of the Committee, I will not repeat what my right hon. Friend Dr Lewis, the Chair of the ISC, or the senior Opposition member of the ISC, Mr Jones, have said with regard to oversight of investments. I think the point has been well made, and I totally accept that the Minister gets those points.

Let us be clear, though, that if a potential enemy state can get critical information and technologies, it is highly likely to do so. In truth, as we all know, the UK is a primary target for a broad range of national security attacks from both foreign intelligence agencies and organisations, as well as companies, which certainly are operating at the moment. If a company that is British and world leading in a technology—for instance, artificial intelligence or robotics—is bought by a foreign investor from a country that is not particularly friendly to the UK, we must have a system to ensure that British technology, ideas and even hardware are not simply hijacked and possibly used against us. We have to stop that.

Unless the United Kingdom curbs the right of foreign firms and investors to obtain technologies through the means of mergers and acquisitions and similar, our advanced technologies could easily find their way into weapons systems of foreign, potentially hostile states. These days, weapons systems should be much more broadly defined. They include possible attacks on the way we live. For example, using the internet to turn off water purification and supplies or just sewerage would have a dramatic and immediate impact on British society. I reckon that is a weapons system these days. In future, investors will have no choice but to notify the Government if the ownership of certain businesses is to change hands. That is good news. I note, too, that the Secretary of State will also have the power to call in other businesses if he or she has concerns about national security. That is good, too: it allows for sensible flexibility.

In contrast to others who have spoken, I think we should be careful about defining exactly what national security involves because it changes all the time. It is difficult to pin it down. We know what it is, but I am worried about defining it.

Within the Department for Business, Energy and Industrial Strategy will now sit this new investment security unit, which will be tasked with supervising sensitive sectors of our economy. I know that those sectors have yet to be fully defined, but most are pretty obvious—defence communications, energy, cryptography, satellite and space technologies and many more. But in the fast-moving modern world that we live in, it will also be important for the investment security unit to look actively at seemingly innocent technologies and systems, which in the wrong hands could bring our society to a grinding standstill. Others have mentioned the national grid: if that could be disabled by the simple means of remote instructions, the whole of the country’s electricity supplies could be turned off. Just think of how difficult that would be!

Keeping sovereign control over the methods of controlling something like the national grid is crucial. I presume and hope that the investment security unit will spend some time looking out for non-obvious threats. Having once been an intelligence officer, I know that trying to identify the threat, the signals that identify what is about to happen, is really difficult because they are embedded in a plethora of noise. But this investment security unit will have to try.

I am pleased that the Bill extends the current screening powers to allow the Secretary of State to investigate the acquisition of sensitive assets in intellectual property as well as the straightforward acquisition of companies. In short, I support the Bill and I am pleased that it has at last reached this stage.

Photo of Matt Western Matt Western Opposition Whip (Commons)

It is a pleasure to follow Bob Stewart. I join my hon. Friend Chi Onwurah and others in thanking the Bill Committee, the Clerks and others who supported us so well—including the expert witnesses from whom we got to hear during that fortnight. I had not sat through Second Reading, but we had a particularly enlightening series of sessions.

I wish to speak to new clauses 5, 6 and 7, which I will be supporting, along with the Bill.  I emphasise how strongly colleagues and I feel about how important national security is, and how much Labour prioritises it. That is why we welcome the Bill, following, as it does, unfortunately, the leadership of states such as the United States, Germany and the EU; perhaps we are just that much behind the curve. I am sorry to say that it is clear that the Government failed to recognise the clear and present danger of the commercial strategy of other powers. Although I very much support the Bill, as it introduces the greater powers for Government to intervene when corporate transactions threaten our national security, it is late, perhaps even a decade or more late.

As so many have said, national security has traditionally been viewed quite narrowly. Perhaps we have had the light touch of economically liberal Governments welcoming investment when in fact those acquisitions are aimed at reducing the competition, improving margins and protecting domestic interests. Also we have seen the purpose being to asset-strip those businesses of their intellectual property, often at considerable cost to the UK in terms of our knowledge base and expertise, but with the risk of seriously damaging our supply chains and having the consequent economic impact. Often this results in those businesses moving overseas. So overall, although the Government’s proposal brings the UK in line with other countries on national security, there is the need for greater powers on mergers and acquisitions, particularly in respect of what may be deemed to be beyond security but actually in the national interest, as in the US and France, where they have the powers to block takeovers of companies deemed strategic or that have major implications for national interests.

I am afraid that the past 10 years show that consecutive Conservative and coalition Governments have been persistently slow and muted in intervening to protect national security in a series of cases: Huawei and 5G has been cited frequently this afternoon: Pfizer and AstraZeneca—the proposal of course failed, but we can only imagine what would have happened to the cost of vaccines had those two companies merged and had we been reliant on one major player; Google and DeepMind; and now Nvidia and Arm technologies. Among a great many others, we have also had the takeover of GKN by Melrose and the acquisition of Cobham aviation. They are now owned by businesses based in a friendly state, which is okay and acceptable, but it is questionable how we are prepared to let some of these important businesses—important leaders in technologies—be disposed of, with the assets, the research and the intellectual properties of those businesses moved offshore, to elsewhere.

New clause 5 seeks to define national security. Interestingly, Alok Sharma, the former Secretary of State, has stated that the Government had a very narrow interpretation of national security. It was surprising what came to light in the Bill Committee, where we heard that, as I understand it, in drawing up this legislation the Government had failed to engage with the Intelligence and Security Committee in the first instance. That was a shortcoming. The evidence sessions proved more than enlightening, particularly when we were hearing from some of the expert witnesses. Some of what we heard was deeply disturbing. The words spoken by Charles Parton of the Royal United Services Institute were some of the most alarming of all. He said:

“we should not underestimate the degree to which Xi Jinping and the Communist party intend, as Xi said to the first politburo meeting, to get the upper hand against western democracies… When you add that to his policy of civil-military fusion—using civil in the military context—and the fact that he has set up a party organisation specifically to push that forward, and the change in investment policy away from things such as property, football clubs and other things, very much towards benefitting China and its technology, we have to be a lot more careful than we have been in the past.”

I think he said that, perhaps deliberately, with extraordinary understatement. Perhaps most alarmingly, he added:

“I am not aware of a really good assessment of just how much technology has been bought, the targets and so on. Maybe the Government have one—I don’t know—but I do not think that they do.”

––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 6, Q2.]

Perhaps that is something that the Minister could answer when he sums up.

We also heard from Sir Richard Dearlove, former director of MI6, who expanded on the threats and made it quite clear that the extreme naivety of recent UK Governments had allowed the Chinese in particular, although there were other states too, to become deeply embedded in the UK economy. He underlined his concerns by saying that we had been

“pretty naive and had forgotten the fundamental dangers of having a close relationship with China.”

He added that

“we have to understand where we restrict their access, where we control their access and where we do not allow them to build strategic positions at our expense and literally take us for a ride It was completely ridiculous that we should even have been considering Huawei to build our 5G.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 19-27, Q21.]

That is what is important about the Bill.

Although I have a lot of sympathy for new clause 4, I will concentrate on new clause 5. Sir Richard set out the breadth of the threat; he highlighted the fact that it was not just to our businesses but to our infrastructure and academic institutions. It is worth remembering that only 10 years ago, the coalition Government were hailing a new golden era, and were desperately seeking to attract investment from China, seemingly oblivious to the national security issues surrounding any investment in nuclear power stations or transport infrastructure. Meanwhile, the open access that Chinese businesses have had to UK universities includes the hiring of UK academics. That is both is surprising and unexpected, and a recent report demonstrated the scale of the problem, stating that at Oxford University, 17 projects were under way with Huawei.

It is clear that the narrow, more obvious view of national security, as we have heard, is incredibly naive about what is happening around us. The UK has been guilty, particularly in the last decade, of playing to the old rules when the game has moved on. If we did not understand that, we should really have learned from 9/11 that the threats to national security, as we heard from Bob Stewart, are both the same and very different. That is why we have introduced the new clause—to widen the definition of security, so that it includes critical national infrastructure, energy resilience, and food supply, and also relates to human rights and environmental security. We are pushing for greater guidance and clarity for businesses, as well as true security for our citizens in the broadest sense.

New clause 6 seeks to set up a small and medium-sized enterprise engagement unit to help SMEs engage with this process. For years, the Government have refused to do more to protect growing UK companies. Developing a robust takeover regime is essential if we want firms in our key sectors to grow and provide good jobs in the UK, rather than sell up and move abroad. We must keep those businesses here in our country.

The regime means that we would go from 12 national security investigations in total since 2003 to an annual expectation of 1,800 or 1,900 notifications, with perhaps 60 to 100 called in by the Secretary of State and subjected to detailed review. That vast expansion would be managed by the entirely new unit that we have heard about. It would be based in BEIS, which traditionally has not taken responsibility for national security. We must ensure that there is sufficient resourcing and expertise, as we discussed frequently in the Bill Committee, and we must also ensure that there is accountability to Parliament, as well as performance transparency.

On that huge increase in referrals, the Government expect SMEs to account for about 80% of mandatory notifications under the new regime. Naturally, that represents a huge challenge for tech start-ups that raise investment in rapid transactions in sectors that are capital-intensive, particularly in the early phases of their development. There is clearly a need for greater BEIS resource to support SMEs with early engagement, and we must ensure that there is accountability from BEIS in that regard.

Recent history is littered with examples of great nascent businesses being lost to voracious venture capitalists, whether they are from benign nations or, more concerningly, are a front for the investment arm of a state, especially those states that we regard as less than friendly. A small business example is Stonewood Electronics, a global leader and innovator in data security. It was a supplier to the UK Government, intelligence services and military—a home-grown business based in the UK. It was a brilliant, advanced technology company, but is now just a shell based in Farnborough, with all the value transferred to the US. It is not just companies such as GKN and Cobham aviation or the Centre for Integrated Photonics; so many businesses across the UK are seen as very attractive targets to friendly, benign nations, as well as to those who have more concerning interests in taking over some of our technologies.

Finally, I will address new clause 7, which would require the Government to publish an annual security report to the Intelligence and Security Committee of Parliament. It is clear that with the day-to-day pressures, and the wider picture of activity and patterns, there is a need for this kind of reporting—and perhaps it should be even more frequent than is being suggested. I listened with interest to the remarks of Dr Lewis, and was surprised that his views and those of the Committee were not taken on board earlier. The ISC should be much more centrally involved, where appropriate. It will have material that is really important to the Committee, but that might not be available to the BEIS unit.

It is important that there be these powers for intervention, given the various types of threats that I described. The investment screening process—the scrutiny—needs to be so great, and that is why the abilities and skills of other Departments should be brought into play. We proposed that in Committee; we suggested that there be an overarching structure that can bring in the minds and understanding of people in the sectors, whether they be in the academic sphere or from the Department for Environment, Food and Rural Affairs, so that they can discuss their knowledge of the sector with BEIS.

What is most important is that there is the capacity in the unit, given the increase in the volume of referrals that I described, particularly from small and medium-sized enterprises, which will be desperate for funding, tie-ups and opportunities. The speed with which this unit can respond will be really important, and this report should identify where there are issues and bottlenecks, so that we can ensure a speedy process. That way, small businesses that need the funding and support can be allowed to proceed where the takeover is not deemed to be suspicious, or to the detriment of the UK.

In summing up, I confirm that we on the Opposition Benches absolutely welcome the Bill. Colleagues who have been in Parliament for many more years than me have long called for it. We are indeed playing catch-up, but we are where we are. We do have regulation, and it is needed, but countries such as the US have had stronger regulatory enforcement for decades; interestingly that was strengthened and broadened under the most recent Trump Administration. France introduced very similar measures to those we are talking about back in 2014, and recently, Germany introduced further measures to block foreign takeovers in the health sector, for example.

It is quite clear that national security is not just in our defence interests; national security is the defence of our prosperity, and indeed our way of life. With this Bill, we are at last considering our commercial interests, including the interests of our research institutions, and the areas where the two meet. National security is a primary responsibility of Government, and hopefully the Bill will see the Government start to think about our economic strategy and resilience, but they must also think about our social resilience, as so many have said. That has to be a good thing.

Photo of John Hayes John Hayes Conservative, South Holland and The Deepings 4:30, 20 January 2021

This Bill is apposite. It is an appropriate response to an ever-pressing but rapidly changing problem: our national wellbeing. I want to speak briefly about its scope, its dynamism, and the oversight that is necessary to make it as effective as it can be.

That national security is inextricably linked to our national interest is axiomatic. It is obvious that our trade and investment also serve our interest. The potentially paradoxical objects of economic interest and keeping our nation safe are brought into sharp focus by the Bill, which I welcome, and I congratulate the Government and the Minister on bringing it forward. The Government response to the changing circumstances that we face could not be more significant. Malevolent forces of ill intent—both hostile state actors and non-state organisations, including global commercial interests—must be countered, curtailed and, where necessary, controlled. As Stephen Kinnock said, greater assiduity in this respect is to be commended. No longer can we be naive about the ethics of the free market or free trade; nor should we appease foreign powers that, frankly, embody tyrannical tendencies, in a chilling echo of the worst of the 20th century.

As the scope of the Bill’s provision must be used appropriately, so it should also be used as necessary, and as circumstances dictate. I am afraid it is not enough to count risk and resilience in the way we have, historically; we need to measure risk and prepare the necessary resilience in a new way. So I am sympathetic to new clauses 4 and 5, which look to establish factors to which the Secretary of State must have regard when assessing risk, but I hear what my hon. Friend Bob Stewart said: given that that risk is as I have described it—dynamic—it is important that there should be a framework, rather than specifying precisely what the risks are or may be. It does seem to me, however, that the Government can do more work, as the Bill continues its passage through both Houses, to be clearer about the circumstances in which the Government might assess risk and define its character and the response to it.

That BEIS is to take the lead in this policy area is new, and it empowers Ministers in a very particular way, but in my estimation, security is likely to be the business of all aspects of Government. As has been said by previous speakers, in respect of health, is it really in the national interest for vital health supplies to be dependent on provision from unstable and unhelpful places? Should the supply of technology, which is so critical to so much of what we do in business, in the public sector and as individuals, be in the hands of those who are either capriciously cavalier or maliciously malign? Should our universities become so dependent on funds from overseas that they are obliged to transfer knowledge to individuals or states that may use it against us?

From now on, the whole of Government have to be associated with the effort to measure risk, develop resilience and understand the threats to our security. In those terms, the Bill must allow sufficient responsiveness to metamorphosising threats, to allow us to alter our response to counter those threats. That implies acting quickly and Ministers using their executive power without the scope, space or time always to seek parliamentary approval. If they did seek such approval, they would be doing so almost every week, certainly every month, and possibly by the day or hour. That is why oversight matters so much, yet the Bill is not yet quite right in that respect, as several contributors to the debate have said.

The existing accountability to Select Committees is valuable, but not enough. As the Chairman of the ISC, my right hon. Friend Dr Lewis, explained, that Committee is designated. Indeed, it was set up for precisely this purpose, dealing with highly sensitive information, including secret documents that would normally not pass through the House as a whole because of the public implications of that. Adequate oversight is therefore essential.

That brings me to new clause 7. As drafted, the Bill does not yet provide sufficient oversight, but I welcome the Minister’s engagement and the assurance that the Government are considering these matters closely. I look forward to what the Government say about the contents of new clause 7, which will provide the means by which scrutiny could take place through the provision of an annual report detailing when the Government acted and why. The Chairman of the ISC has suggested an alternative, which is an annexe to the existing annual report. Depending on what the Government say about that, it might well satisfy our call for greater scrutiny.

As I said at the outset, the Government have acted in an appropriate way. I welcome the change of emphasis that this Bill, and other legislation that has been brought before us recently, represents. There seems to be a new understanding of the character of the threats our country faces and a willingness to do something about it. Some would say that that is long overdue given that the ISC highlighted these matters some years ago. Nevertheless, one must, I think, be generous in recognising that not just this Minister but the whole of Government are now acting as they should. The Minister must not be timid about using the provisions of this Bill: he must be prepared to use them in defence of our interests and for the common good. It was Edmund Burke who said,

“Good order is the foundation of all things”,

and order depends on our national security. National security is the very principle on which government is based, in which spirit I support the Bill enthusiastically and look forward to its further developments—in particular, the further work that I know the Government are now raring to do on appropriate scrutiny and oversight.

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care 4:45, 20 January 2021

May I add my congratulations to President Biden and Vice-President Kamala Harris, and their national security team?

I thank all hon. Members who have tabled amendments and new clauses and have spoken to them so eloquently: Stewart Hosie; my right hon. Friend Dr Lewis; the shadow Minister, Chi Onwurah; my hon. Friend Tom Tugendhat; Stephen Kinnock; Jamie Stone, who spoke so pithily; my hon. Friend Katherine Fletcher; Mr Jones; Sam Tarry; my hon. Friend Andrew Griffith; Jim Shannon; my hon. Friend Bob Seely; Kim Johnson; my hon. Friend Bob Stewart; Matt Western, my neighbour; and of course my right hon. Friend Sir John Hayes, who reminded us of the words of the great Edmund Burke.

National security is an area of utmost importance, and that has been reflected in a sober and considered debate, with the excellent contributions that we have heard today, and, indeed, over the past few months. I will take this opportunity to respond to some of the points raised this afternoon.

New clauses 4 and 5 create a non-exhaustive list of factors that the Secretary of State must have regard to when assessing national security risks arising from trigger events. In fact, the Secretary of State has joined us to demonstrate how important this Bill is to him. I congratulate him on his elevation to being my new boss at BEIS.

As currently drafted, the Bill does not seek to define national security or include factors that the Secretary of State must or may take into account when assessing national security risks. Instead, factors that the Secretary of State expects to take into account when deciding whether to exercise the call-in power are proposed to be set out in the statement provided for by clause 3, a draft of which was published alongside the Bill. The Secretary of State is unable to call in an acquisition of control until that statement has been laid before both Houses. It is clear from the debate today, and also from conversations with colleagues, that these are the amendments on which there is strongest feeling in the House, and in the Foreign Affairs and Development Committee, so I will take care to set out the Government’s case.

The Bill’s approach reflects the long-standing policy of Governments of different hues to ensure that powers relating to national security are sufficiently flexible to address the myriad risks that may arise. As we heard from my hon. Friend the Member for Beckenham, national security risks are multi-faceted and constantly evolving, and what may constitute a risk today may not be a risk in the future. Indeed, the Foreign Affairs Committee, chaired by my hon. Friend the Member for Tonbridge and Malling, said in its own excellent report that

“an overly specific definition of national security could serve to limit the Government’s ability to protect UK businesses from unforeseen security risks.”

Photo of Bob Seely Bob Seely Conservative, Isle of Wight

Does the Minister accept that what is being proposed is not a limiting arena of what constitutes national security but a baseline of what constitutes national security, and that there may be a reason to adapt it over time? Indeed, paragraph (h) of new clause 4 makes an assumption that it can be expanded.

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care

My hon. Friend makes an important point. As I mentioned, the statement that the Secretary of State has laid with the Bill takes in much of the direction of travel of this amendment from the Foreign Affairs Committee.

I acknowledge that the Foreign Affairs Committee is pushing for more detail rather than less, but I would reassure them that the Government agree with their main conclusion that the Secretary of State should provide as much detail as possible on the factors that will be taken into account when considering national security. Importantly, however, that is only up until the point that the detail risks the protection of national security itself. That is why the Government have taken this approach in the draft statement provided for by clause 3. In that statement, we identify three types of risk that are proposed to form the basis of the call-in national security assessment. These are: the target risk, which considers the nature of the acquisition and where it lies in the economy; the trigger event risk, which considers the level of control and how it might be used; and the acquirer risk, which covers the extent to which the acquirer raises national security concerns.

I would like to address each of the arguments made in the report, so that I can ease the concerns of hon. Members across the House. First, there are concerns that without a narrow definition of national security, the investment screening unit would be inundated by notifications, hampering its ability to deliver its crucial role. I acknowledge that, for business confidence in the regime, it is essential that we deliver on our statutory timeframes for decisions, which is why it is so essential that we do not allow any broadening of the assessment done by officials as part of the regime to occur, whether by inexhaustive lists, as my hon. Friend the Member for Isle of Wight has just said, or by any other form. To include modern slavery, genocide and tax evasion as factors that the Secretary of State must take into account as part of national security assessments, as these amendments propose, would not reduce the demands on the investment security unit but potentially increase them.

Secondly, there is concern that ambiguity could hinder the success of the regime. Let me be clear that this regime is about protecting national security—nothing more, nothing less—hence its real focus. Thirdly, the Foreign Affairs Committee report suggests that the staff responsible for screening transactions may lack sufficient clarity on what kinds of transactions represent legitimate national security risks, leading to important transactions being missed or to a large volume of benign transactions overwhelming the investment security unit. I want to assure hon. Members, and my hon. Friend the Chairman of the Foreign Affairs Committee, that the investment security unit will be staffed by the brightest and best, with many of them being recruited on the basis that they have essentially written the book on national security.

Photo of Thomas Tugendhat Thomas Tugendhat Chair, Foreign Affairs Committee, Chair, Foreign Affairs Committee

I am grateful to my hon. Friend for highlighting this point. May I assure him that I have absolute confidence that the people he will recruit into the unit will be the best and brightest? I pay huge tribute and send many congratulations to the Secretary of State for Business, Energy and Industrial Strategy, who is sitting next to him. He is a friend of long standing, and I am delighted to see him serving Cabinet; that is well earned and somewhat overdue. I am sure that they are both going to have the best judgment possible. However—I am afraid there is a “however”—there are other people who are going to have to decide whether or not to file, and there is therefore a danger that people will over-file, even though the judgments will have been very cautiously made.

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care

That is something I have been watching carefully as we introduced this legislation, obviously. We have had around 36 inquiries to the team already, so it feels to me that where we have landed is proportionate and right.

Photo of Kevan Jones Kevan Jones Labour, North Durham

I have no doubt that the Minister will aim to recruit the brightest and best. However, what assurance can he give that those individuals will have not only the necessary security clearance but the culture of thinking about security, as opposed to business and regulation?

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care

They will be able to draw on all the experience, culture and, of course, resources of Government to be able to do their job properly, I assure the right hon. Member of that.

The report sets out a fear, as we have heard elsewhere, that without a definition of national security in the Bill, interventions under the NSI regime will be politicised. I wholeheartedly agree that it is crucial for the success of the regime that decisions made are not political but rather technocratic, dispassionate and well judged. I repeat the words of my right hon. Friend Alok Sharma, the former Business Secretary, who on Second Reading assured the House that:

“The Government will not be able to use these powers to intervene in business transactions for broader economic or public interest reasons, and we will not seek to interfere in deals on political grounds.”—[Official Report, 17 November 2020; Vol. 684, c. 210.]

Indeed, if the Secretary of State took into account political factors outside the remit of national security, the decision could not be upheld on judicial review. It is with this in mind, and our focus on protecting foreign direct investment, which so many colleagues are concerned about, especially as we come out of the covid challenge, that politicised decisions will not be possible under the NSI regime. I hope right hon. and hon. Members feel I have sufficiently explained the Government’s approach. We have sought to deliver what the Foreign Affairs Committee and the Opposition recommend.

Photo of Bob Seely Bob Seely Conservative, Isle of Wight

I will not labour the point beyond this. The Minister says that tax evasion will not be a bar. I accept that the Government made that statement. Does he accept that, in Australia, tax evasion is one of those significant elements? He rather implies that tax evasion and tax evaders will not be opposed in buying UK companies, so how high will the bar be set on criminality or on unsavoury characters—maybe people close to Russian Presidents and oligarchs and questionable companies?

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care

As colleagues have said, the Bill has been a long time in gestation, from 2017 to the 2018 consultation and White Paper and now today. We look at what other countries do, and I think we have reached a proportionate position. Of course, as I say, the Secretary of State’s statement sets out exactly how he would assess the risks to national security. I hope I have addressed that.

My final point of reassurance is that there will be further scrutiny on this point. As I explained in Committee, the statement provided for by clause 3 will go out to full public consultation prior to being laid before Parliament, and the Government will listen carefully to any proposals for further detail.

Amendments 1, 2, 3 and 6 broadly seek to ensure that the scope of the regime as a whole is right, that mandatory notification covers the right sectors and that both the statement and the notifiable acquisition regulations are reviewed within a year. Amendment 1 would require notifiable acquisition regulations to be reviewed within a year of having been made, and once every five years thereafter. It is right that the Secretary of State keeps a constant watch on these regulations. Indeed, it is vital that he has the flexibility to reassess and, if needed, seek to update the regulations at any time. The nature of his responsibilities under the regime creates sufficient incentive for this regular review.

Amendment 2 would, in effect, introduce two further trigger events to the regime. It would mean that a person becoming a major debt holder would count as a person gaining control of a qualifying entity. The amendment would also mean that a person becoming a major supplier to an entity counted as a person gaining control of a qualifying entity.

We on the Government Benches believe that access to finance is crucial for so many small businesses and large businesses to grow and succeed. They will often take out loans secured against the very businesses and assets that they have fought so hard to build; I did just that when I started YouGov. That is why the Bill allows the Secretary of State to scrutinise acquisitions of control that take place where lenders exercise rights over such collateral, but the Government do not consider that the provision of loans and finance is automatically a national security issue. Indeed, it is part of a healthy business ecosystem that enables businesses to flourish in this country.

I share the desire of the hon. Members for Aberdeen South, for Glenrothes and for Dundee East to ensure that businesses in our most sensitive supply chains are protected. The Bill does that already by allowing the Secretary of State to call in trigger events across the economy where he reasonably suspects that they may give rise to national security risks. That includes key suppliers.

Amendment 3 proposes that the Secretary of State must review the first statement under clause 3, which sets out how he expects to exercise the call-in power, within one year of its publication. As drafted, the amendment requires the Secretary of State to review that statement “at least” every five years. Let me assure the House that the Secretary of State will maintain the closest watch on the changing security landscape. He will therefore review and, if appropriate, update the statement more frequently than every five years if needed.

Finally, amendment 6 would require the Secretary of State to bring all broadcast, print and social media companies in scope of mandatory notification when making notifiable acquisition regulations. The requirement for mandatory notification should be limited to the most sensitive sectors. The vast majority of acquisition of shares or voting rights in media companies will not raise national security concerns. Indeed, they are captured by the Enterprise Act 2002. I hope that Members are reassured to know that the Bill allows Government to use the call-in power across the economy where any risks may arise.

I turn to the new clauses and amendments that consider reporting and accountability, with a particular interest in small and medium enterprises. The aims of these amendments are laudable, and the Government are a strong supporter of SMEs and of appropriate safeguards around information sharing and transparency. Indeed, as Members will be aware, clause 61 sets out the minimum reporting requirements that the Secretary of State must meet in the annual report. This clause provides for the fullest parliamentary and public scrutiny of the detail of the regime, which at the same time avoids giving rise to national security risks when published at an aggregate level.

On top of that, new clause 7 would create additional reporting requirements to the Intelligence and Security Committee. While I very much understand the grounds for seeking such reporting, and I was grateful for the discussion with the Chair of the Intelligence and Security Committee, my right hon. Friend the Member for New Forest East, the Government are unable to accept this amendment. I wish instead to welcome and encourage the ISC’s security-specific expertise and its review of the annual report when it is laid before Parliament. Indeed, there is no restriction on the Secretary of State providing further information in the annual report, should it be appropriate, to the ISC.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament 5:00, 20 January 2021

For the sake of clarity, the annual report that will be supplied to Parliament will not have any security-sensitive information in it. The Minister says that we could request further information. The only information we want to request is the information of a security-sensitive nature that will routinely have played a part in leading to these decisions. I do not want to tell any tales out of school. All I can say is that the Minister seemed very receptive when I put forward the idea of an annexe to the report, which would come to the Committee, or alternatively there could be an unredacted or redacted version of the report. Is he saying that the Cabinet Office is declining to do that? If so, it would appear that the malign influence of one Mr Cummings is not entirely eliminated from that Department.

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care

I am grateful for my right hon. Friend’s intervention. What I was saying is that there are no restrictions. His Committee will be able to invite the Secretary of State to give evidence to it, and it will also be able to ask for further information, which the unit will be able to provide.

Photo of Kevan Jones Kevan Jones Labour, North Durham

The Minister is wrong when he talks about asking the Secretary of State, because his is not one of the Departments that we overlook, but it is already there that this information be provided. I do not know why he and the Government are resisting this, because it will give certain confidence in terms of ensuring that decisions are taken on national security grounds. If he thinks for one minute that the Cabinet Office will divulge information easily to us, I can assure him that it will not. It does not do so. We have to drag it out of them kicking and screaming every time. I am sorry, but this is very disappointing.

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care

I am grateful to the right hon. Gentleman for his intervention. Let me repeat again: there are no restrictions on the Committee requesting further information from the unit or from the Secretary of State.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament

Is this what the Minister wants? Every year, the Committee will request to have a comprehensive explanation of the security sensitive information that has underlain the different decisions that the unit has taken. All he is saying is that we can request this ad hoc every year and we will get it—I will believe that when I see it. If that were to be the case, there could be no possible objection to incorporating this in the legislation now so that it is not at the whim of a future Minister to either give us what we need or deny us what we need.

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care

I am grateful to my right hon. Friend for his intervention and his powerful argument, but I just repeat that there are no restrictions on his Committee requesting that information.

Photo of Nadhim Zahawi Nadhim Zahawi Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), The Parliamentary Under-Secretary for Health and Social Care

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 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.

Photo of Stewart Hosie Stewart Hosie Shadow SNP Spokesperson (Trade)

This has been a detailed and considered debate. I thought there were some particularly thoughtful contributions from the Chair of the ISC and from 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.