Clause 4 - Consultation and parliamentary procedure

National Security and Investment Bill – in the House of Commons at 10:44 pm on 26th April 2021.

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

With this it will be convenient to consider:

Lords amendments 2 to 10.

Lords amendment 11, and Government motion to disagree.

Lords amendments 12 to 14.

Lords amendment 15, and Government motion to disagree.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I am delighted that the Bill has returned to this House from the other place and I am delighted to be able to speak to it briefly today following the excellent handover from the Minister for Covid Vaccine Deployment, my hon. Friend Nadhim Zahawi, who is successfully jabbing the nation as we speak. As we are at a late hour, I will not take up too much of the House’s time. I will just quickly summarise some of the changes to the Bill.

Lords amendments 1 to 10 and 12 to 14 were all tabled by my colleague in the other place, Lord Callanan. Lords amendments 1, 5, 8, 9 and 10 are what the Office of the Parliamentary Counsel would call minor and technical. Lords amendments 12, 13 and 14 pertain to the annual report as provided for by clause 61, and they reflect the decision to include additional reporting requirements that will provide further value for parliamentarians, businesses and investors. Lords amendments 2, 3, 4, 6 and 7 were made to the Bill in the spirit of a shared recognition that the requirements of the mandatory notification regime must be no more than necessary and proportionate for the protection of our national security, and that businesses and investments are not unduly burdened or stifled.

I wholeheartedly agree with Chi Onwurah, who said on Report that we need

“robust powers to guard our national security and…change that backs our best small businesses and our capacity for innovation. Both of these goals are possible;
indeed, they are mutually reinforcing.”—[Official Report, 20 January 2021; Vol. 687, c. 1000.]

That is why we have reflected carefully during the passage of the Bill on the 15% starting threshold for the mandatory regime. Lords amendment 2 removes acquisitions between 15% and 25% from constituting notifiable acquisitions under the mandatory regime. The House will recall, though, that the Bill provides the power for the Secretary of State to call in acquisitions of control across the economy. That power remains in place. Provisions in the Bill also ensure that the Secretary of State can amend the scope of the mandatory regime through secondary legislation, which could include the introduction of a 15% threshold if deemed appropriate, although we do not currently anticipate doing so.

I will turn to Amendments 11 and 15—

Photo of John Hayes John Hayes Conservative, South Holland and The Deepings

On those amendments, my hon. Friend will know that there are profound and continuing concerns about scrutiny associated with the provisions and powers that the Bill provides. He will furthermore know that the Intelligence and Security Committee, of which I am a member, performs an important role in scrutinising all such security matters. He will know that there is a memorandum of understanding that underpins that between the Government and the ISC. Will he be quite clear that there is no attempt to dilute, to obscure or to escape from the provisions of that memorandum, which says that the ISC can inquire into security matters across the whole of Government?

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I always value the contribution from my right hon. Friend who, as a former Security Minister and a member of the ISC, is very wise and experienced in these matters. I can confirm that the memorandum of understanding absolutely pertains and that the ISC can continue its great work to scrutinise the work of the security services, which will include where the security services’ work supports the work of the Investment Security Unit. It is also important to remember, as we consider these amendments, that we value the work of the ISC, and of the Business, Energy and Industrial Strategy Committee and the Science and Technology Committee, which I will speak about as well.

Photo of John Hayes John Hayes Conservative, South Holland and The Deepings

To be absolutely clear, that memorandum is, by definition, flexible. The Government have acknowledged that by history, by example and so on. That flexibility should allow the ISC to scrutinise the additional powers in this Bill, and I gather from what the Minister says that he is comfortable with that principle and that the ISC will continue to perform its role in that way. On that basis, I will support the Government tonight in any Division that might ensue.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I am grateful for my right hon. Friend’s enlightening words about his intention. I can indeed confirm that the memorandum of understanding is flexible. The ISC does good work and continues to do so, and I look forward to working with him.

Photo of Greg Clark Greg Clark Chair, Science and Technology Committee, Chair, Science and Technology Committee

My hon. Friend is giving helpful clarification. The Secretary of State wrote to the Chair of the Business, Energy and Industrial Strategy Committee and copied in the Chair of the ISC and me as Chair of the Science and Technology Committee. Will the Minister confirm that he is prepared to commit in a memorandum of understanding to the Chairs of those Committees being able to see, on Privy Council terms, information that might not be otherwise in the public domain?

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

We have got to the nub of the matter quickly. I can indeed confirm that. In the letter the Secretary of State sent to the Chair of the BEIS Committee, copying in my right hon. Friend the Chair of the Science and Technology Committee, he spoke about the fact that the BEIS Committee is able to access the material it needs to scrutinise the work of the ISU, including for example details of some of the risks that the ISU has identified under the NSI regime and the measures taken to address them. As part of that, the Secretary of State confirmed that the Department can provide the Chair of the BEIS Committee with confidential briefings on Privy Council terms, and that he would be happy to set those out in more detail in either a memorandum of understanding or further exchange of letters. The Secretary of State went on to say that he would encourage the STC to provide scrutiny of the work of the ISU where the work of the unit falls within the specific remit of that Committee. He also welcomed the Intelligence and Security Committee’s continued scrutiny of the work of the security services, which will include where the security services’ work supports the work of the ISU.

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

I hate to be slightly disobliging, but it is a fact, is it not, that the staffs of these Select Committees do not have the clearance necessary to see or handle top secret material, and showing a top secret document to the Chair of a Committee on his or her own, briefly in very limited circumstances, does not amount—as I will explain shortly—to effective scrutiny?

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I look forward to hearing my right hon. Friend’s explanation.

I believe that the Bill as amended by the other place through amendments 11 and 15 would require the Secretary of State to provide a confidential annexe, to be provided to the ISC. I am advised by my noble Friends Lord Callanan and Lord Grimstone that there is considerable strength of feeling in the other place about ensuring that the operation of the regime receives appropriate parliamentary scrutiny, and I welcome the passionate and expert debate that this question has already received. It has been proposed that the ISC is better placed than the BEIS Committee to scrutinise the Investment and Security Unit, despite the Secretary of State for BEIS having responsibility for the unit. The implication of the amendments is that the Select Committee responsible for holding the Secretary of State to account across their responsibilities is insufficient in that regard. It is also suggested that the ISC would have inadequate access to information to carry out its duties.

In essence, the amendments would require sensitive details to be provided to the ISC regarding the Secretary of State’s decision on final notifications given and final orders made, varied or revoked, but the ISC is already able to request such information as soon as is appropriate from the security services where it forms part of its long-established scrutiny responsibilities under the Justice and Security Act 2013 and, as I hope I have made clear, its accompanying memorandum of understanding. In addition, the Bill provides that the Secretary of State must publish details of each final order made, varied or revoked, and clause 61 already requires the annual report to include the number of final orders made, together with a number of other details. Indeed, that clause was amended in the other place to include further such information in the annual report.

We do not disagree that further information may be required for appropriate parliamentary scrutiny. Where that is the case, the Government will follow existing procedures for reporting back to Parliament, but that should be done primarily through responding to the BEIS Committee as it goes about its work of ably scrutinising the work of the Department. We will ensure that the BEIS Committee is able to access the material it needs.

It is of course right that the ISC continues its excellent scrutiny of the work of the security services. The work of the security services on investment security in support of the ISU clearly falls within the remit of the ISC. That does not require any statutory change to be made. As I said, the memorandum of understanding pertains to the continuing work of the ISC, and I look forward to working with colleagues on that Committee. As such, and with the BEIS Committee having appropriate assurance that it will be provided with the information necessary, there is no need for these changes made to the Bill by the other place to stand.

In summary, with the exception of amendments 11 and 15, I believe that this House is today presented with an improved set of measures to safeguard our national security. The ISC will not have its powers—existing powers —diluted through the discussion of the memorandum of understanding, as we have already said. Therefore, I commend the amendments, with the exception of amendments 11 and 15, to the House.

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

Let me start by welcoming the Minister to the National Security and Investment Bill, and I would like to wish his predecessor well in his work on the vaccine roll-out. I would also like to thank colleagues in the other place who have worked so hard to improve this Bill, and the Members of both Houses who scrutinised its important provisions.

Labour is the party of national security, and has long called for a new regime to deal with evolving national security threats in corporate transactions. A robust takeover regime is also essential if we want firms in our key sectors to grow and provide good jobs here in the UK. So we support this Bill, which allows the Government to intervene when mergers and acquisitions could threaten national security. Unfortunately, the Bill in its original form lacked certain provisions, and particularly the oversight necessary to ensure it was successful in protecting our national security and national interest. So we have sought to improve the Bill along the way, and we are pleased that the Government have adopted some of our suggestions.

Members across party lines raised concerns over the capacity and capability of the new Investment Security Unit to deliver on the Bill’s ambition. We are pleased that the Government have acted on this, and Lords amendments 12 to 14 to clause 61 are based on Labour’s original amendment 31 during the House of Commons Committee stage, and a later amendment tabled by Labour at Lords Committee. Reporting the aggregate time taken for decisions will help to ensure that the new regime works more efficiently for small and medium-sized enterprises, and I was pleased to hear the Minister quoting my remarks to that effect.

We are also pleased to see that the Government have taken steps to address concerns regarding the 15% threshold for a notifiable acquisition. This follows Labour’s probing amendment 16 during Lords Committee stage and Cross-Bench concern. The Wellcome Trust labelled the 15% threshold as a

“regulatory burden for those that may not be able to afford it”.

With Lords amendment 3, the Secretary of State will still be able to call in acquisitions across the economy at or below 25%—and, if necessary, below 15%—where they reasonably suspect that material influence has been or will be acquired. But this amendment will bring the notifiable acquisition threshold in line with our allies in France, Australia and Canada. We are pleased the Government have listened to Labour and made a change that will be beneficial to small and medium-sized enterprises.

It is also welcome to see that the Government have now committed to issue public guidance, which Labour called for with our amendment 17 at the Commons Committee stage. This is good news for transparency. Our approach has been to ensure that our small and medium-sized enterprises have clarity, and that those investing in the UK understand what the rules are and how they will work. The publication of guidance will boost confidence in the new regime for national security screening.

But we are here today because of Lords amendments 11 and 15, and to vote on the Government motion to disagree. Labour believes that the Intelligence and Security Committee scrutiny is essential to provide the robust and sensitive oversight and accountability that matters of national security require. The Bill gives significant new powers to BEIS, a Department traditional lacking in national security experience. The BEIS Committee does not have the security clearance necessary to provide scrutiny, and the confidential briefings to the Chair described by the Minister will not change that.

Labour’s amendments requiring ISC scrutiny were rejected by the Government in the Commons but they won support in the Lords. The amendments would require the Secretary of State to redact any information from the annual NSI report that is damaging to national security and then provide that information to the ISC. We believe that that is entirely proportional and a step that any responsible Government who are serious about national security would undertake. We do not understand why the Government are so reluctant to involve the ISC, and the Lords agrees with us. Lord King, former Defence Secretary under Margaret Thatcher, stated:

“I think a mistake was made in the original construction of the Bill and there now seems to be a determination not to repair the one problem that exists…it is a serious gap, and we could well pay the price for it in the future.”—[Official Report, House of Lords, 15 April 2021; Vol. 811, c. 1516-17.]

Former Cabinet Secretary Lord Butler questioned the Government’s motives for excluding the ISC, asking:

“Is the reluctance on the part of the Government a hangover from their embarrassment over publication of the ISC’s report on Russian interference before the 2017 election, or is it a result of government pique about the committee’s appointment of its own chairman in place of the Government’s nominee? Whatever it is, it is difficult to understand what the Intelligence and Security Committee is there for if not to have a role on behalf of Parliament and the public in sensitive matters of this sort.”—[Official Report, House of Lords, 16 March 2021; Vol. 811, c. 242.]

I have listened carefully to the Minister’s words and I have found nothing to explain this position. The Government have fought this vital layer of scrutiny every step of the way, continually stating that the BEIS Committee can provide the correct oversight. Lord Lansley has said that the Leader of the House is “plain wrong” about this and that all the amendment seeks to do is to ensure that the Intelligence and Scrutiny Committee can fulfil its role.

There have recently been a number of requests for Intelligence and Security Committee scrutiny—for example, in relation to the Advanced Research and Invention Agency Bill and the Telecommunications (Security) Bill. The ISC has shown it is willing to do so but the Government have refused. As Lord Butler suggested, some believe that this is because the Government are not happy with Parliament’s choice of Chair of the ISC. I am loth to think that the Government would be so petty when it comes to such an important matter as national security, so I hope they will take action and support Labour’s calls for ISC oversight.

I reiterate that Labour has consistently welcomed this Bill and we are pleased that certain issues over national security have been addressed. The UK’s takeover regime was not fit for purpose as it was, and the Bill, with today’s amendments, goes some way towards fixing that. It is undoubtedly welcome in protecting our national security, but it is only one element of protecting, nurturing and developing the vital sectors of the future that we know are crucial for our economy. We hope the Government will work with us to ensure the national security of the UK in future.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament 11:00 pm, 26th April 2021

The Intelligence and Security Committee greatly appreciates the work of the Minister and of his predecessor on this important legislation. I was on the Committee in June 2013 when we identified the risks posed by foreign investment and takeovers to the United Kingdom’s critical national infrastructure, citing Huawei as a case study—and we know what happened after that. We strongly support the Government’s decision to address those risks and we welcome their assurances that national security concerns sit at the very heart of the Bill. That is exactly as it should be.

However, what was not as it should be, with the Bill as originally drafted, was the lack of adequate oversight arrangements for those security concerns and for the process when they are weighed against business and other commercial concerns by the new Investment Security Unit. The Government ought to accept amendments 11 and 15 from the other place, introduced on a cross-party basis by former Security Minister and current ISC member Lord West, former Cabinet Secretary and former ISC member Lord Butler, former party leader and former ISC member Lord Campbell, and former Defence Secretary Lord King—who was of course the first Chairman of the Intelligence and Security Committee when it was established. Their amendments make provision for that previous lack of oversight. They would require the annual report produced by the new Investment Security Unit in BEIS to include, for each final order and notification made, the Secretary of State’s decision, along with the security services’ assessment of the national security risks uncovered. They would allow the Secretary of State to move any classified information into an annex and to provide that classified annex to the ISC. With the amendments in place as they currently are, we could be confident that the Bill will create the robust regime needed to protect the United Kingdom.

Given the powerful speeches from all quarters and the size of the majority in the other place in support of the amendments, it is surprising and disappointing that the Government remain opposed to them and are seeking to overturn what is clearly common sense. The amendments provide for the ISC to scrutinise the highly classified national security elements and the weighing of those classified elements against commercial concerns.

There appear to be three arguments employed by the Government against the amendments. The first claims that because BEIS is not listed in the Justice and Security Act 2013 or in the associated memorandum of understanding on the scope of our work, the ISC cannot look at decisions taken by the new unit in BEIS. That is based on a false premise.

During the passage of the 2013 Act, the Government explicitly and repeatedly told Parliament that the Act and the MOU would provide the ISC with oversight of all security matters across Government. The MOU mechanism, again, in the Government’s own words, was a “flexible” way to ensure that the list of organisations working on security matters and therefore subject to ISC oversight would be kept up to date.

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

I will give way in a moment, because I would like my right hon. Friend to hear this next bit, as I think there was a bit he was missing in his earlier intervention.

These words were used in Committee in my presence by the then Security Minister, my right hon. Friend James Brokenshire, when introducing the 2013 Act. He said:

“I want to be clear that the Government intend that, through the provisions of the MOU, substantively all of central Government’s intelligence and security activities will be subject to ISC oversight.”––[Official Report, Justice and Security Public Bill Committee, 31 January 2013; c. 97.]

As if that were not clear enough, he went on to say, and this is the bit that matters:

“Things change over time. Departments reorganise. The functions undertaken by a Department one year may be undertaken by another the following year… An MOU is flexible: it can be changed much more easily than primary legislation. It will enable the intention of the Government that the ISC should have oversight of substantively all of central Government’s intelligence and security activities to be realised now and in the future.” ––[Official Report, Justice and Security Public Bill Committee, 31 January 2013; c. 98.]

The setting up of the new Investment Security Unit in BEIS is therefore precisely the situation that the Government assured the House that the MOU was designed to address, and the unit can easily be added to the MOU by a simple exchange of letters. Indeed, if the Government were willing to give an undertaking here and now to add the new unit to those listed in the MOU, the need for these amendments would disappear.

Photo of John Hayes John Hayes Conservative, South Holland and The Deepings

That is precisely why I drew the Minister’s attention to the flexibility of the memorandum of understanding and asked him whether the Government stood by the terms of that memorandum. The Minister was as clear as crystal. He said that he believed in that memorandum, and he saw no attempt in what the Government were doing to dilute the powers of the ISC or its ability, of the kind that my right hon. Friend set out, to range across government, if I can put it that way, where security is concerned. I think we have had reassurance from the Minister sufficient to support the Government.

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

Unfortunately, and I am afraid unusually for my right hon. Friend, he missed one little part that was missing in turn from the Minister’s answer, because the MOU as it stands does not include the Investment Security Unit. The MOU has a list of seven organisations that we can currently scrutinise. The whole point about flexibility is that, as these units are set up in other Departments, they can be added to the MOU, but the Minister has given no undertaking to add the ISU to the MOU. I am happy to give way to the Minister. If he would like to say that he will add the ISU—the new unit within BEIS—to the organisations listed in the memorandum of understanding, I will stop my speech immediately and say, “Well done, Minister,” but I fear that that is not going to happen, so I will continue with my speech.

The Government’s second argument is that the BEIS Committee is both capable of providing and best placed to provide the necessary oversight. I have the greatest respect for the work and experience of the BEIS Committee, chaired by Darren Jones, from whom we will hear later. He and his Committee are indeed best placed to provide oversight of the business functions of the new Investment Security Unit, and there can be no doubt that that Committee will do an excellent job in that respect, yet it is simply impossible for it to provide substantive scrutiny of the highly classified national security elements or of the overarching decisions taken about how to balance them with the commercial elements.

Select Committees cannot be given proper access to top-secret material in order to scrutinise effectively. Ministers have suggested that the BEIS Committee can substantively scrutinise such material, but that is impossible. While it is true, as we have heard tonight, that the provision of classified information can be negotiated with Select Committees on a case-by-case basis, the laying out of classified material in a secure room in the Department for Members to come in and read for an hour or so—but without allowing them to take any notes, without allowing them to retain it, without allowing them to share it with their staff, without allowing them to discuss it and without allowing them to report on it since any one of those would constitute a very serious security breach—does not amount to effective oversight.

Proper oversight of the national security elements of any decision under this new regime within BEIS must include the ability to access, analyse and discuss top-secret material frequently and fully. The Government already have one body, and only one body, that can do all those things and that they created for that express purpose: the ISC. Members of the ISC are all subject to the Official Secrets Act and have a dedicated office with appropriate security facilities to store and discuss top-secret material freely, and staff who undergo the most stringent Government clearance processes before they are allowed to handle such material—I said in an intervention earlier that the staff of other Select Committees of this House are not so cleared. There is also a lengthy process through which the Committee’s reports must go ahead of publication.

Photo of Greg Clark Greg Clark Chair, Science and Technology Committee, Chair, Science and Technology Committee

My right hon. Friend will know that the call-in power and the power to refuse permission for mergers to proceed on national security grounds is long standing. It is vested in the Business Secretary and sometimes in the Secretary of State for Digital, Culture, Media and Sport. During all this time, scrutiny has been available to the ISC on those decisions. Has my right hon. Friend found that deficient in some way?

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

I am not sure that without concrete examples of what my right hon. Friend has in mind, I am in a position to give an answer to that question. What I do know is that it is the work of the ISC, on a basis of professional, full-time constant monitoring, to be able to look at the activities of those agencies that cannot be looked at by other Select Committees. He seems to be talking about the power of Secretaries of State to call in decisions, and I am not sure quite how that relates to the work of either Select Committees or the statutory Committee, which is the ISC.

Photo of Greg Clark Greg Clark Chair, Science and Technology Committee, Chair, Science and Technology Committee

Perhaps I did not explain myself well. What is proposed in the Bill is an amendment of the current powers. There is a long-standing power for mergers to be blocked on national security grounds. It is one of three grounds on which an intervention can take place, so this is not a new power or a novel departure. The ISC is able to scrutinise the security services’ input into that now, as it will be in the future.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament 11:15 pm, 26th April 2021

The ISC, on behalf of Parliament, is able to scrutinise the input of the intelligence agencies into these processes. It would not be able to scrutinise how that input is then handled, and the trouble is that because that input is top secret, the BEIS Committee would not be able to scrutinise it either. That means that there would be a scrutiny gap between what was being scrutinised by us as it went into the process of the new unit and what was being scrutinised by BEIS minus that sensitive material, so there would be no effective parliamentary scrutiny of the process whereby, as I said earlier, the highly sensitive security requirements were being balanced and offset against the commercial imperatives. Indeed, that may be the very reason why the Government are so reluctant to let the ISC see what is going on.

Photo of Steven Baker Steven Baker Conservative, Wycombe

I fear that my right hon. Friend may have just answered my question before I ask it, but I am most grateful to him; he is making his speech with tremendous passion and is very persuasive. I just looked up the definition of “top secret” and I am wondering what will be missing from the output of the process that would mean that there are some scrutiny gaps. I think he has just explained that he wants to scrutinise the process and I can see why he would make that case, but will he just give us some indication as to what he expects would be top secret in that analysis, if that is at all possible?

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

If I gave an example of something that would be top secret—even if I were in a position to do so because we had started the work that we are not being allowed to start—I would then immediately be breaking the Official Secrets Act so, no, I cannot, and I would not even if I could. However, what is a certainty is that where there are circumstances where the intelligence agencies are advising on the security aspects, for example, of a potentially hostile state buying, overtly or covertly, into a strategically important asset, such as buying up a company engaged in cutting-edge technology. This unit will have to balance that against the possible commercial advantages of major investment from that other country.

The fact is that nobody on behalf of Parliament will be able to scrutinise that process unless either these amendments are accepted or the ISU—this new unit—is added to the list of units already on the memorandum of understanding. As I have said before and say again, if at any time the Minister wants to give me the assurance that it will be added, I am happy to let these amendments go from the face of the Bill.

As I explained, this is the reason that the ISC was set up as it is. If any Committee could do what the ISC does, it would not be necessary for the ISC to have all those unique facilities and arrangements. That is why paragraph 8 of the memorandum of understanding between the Government and the ISC categorically asserts:

“The ISC is the only committee of Parliament”—

I will say that again:

“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 please listen to these next few words—

“and of those parts of Departments whose work is directly concerned with intelligence and security matters.”

A footnote to that sentence helpfully explains:

“This will not affect the wider scrutiny of departments…by other parliamentary committees. The ISC will aim to avoid any unnecessary duplication with the work of those Committees.”

With that machinery already in place, it is all the more baffling that the Government are now refusing to use the very body they created. Without including oversight by a properly structured and fully cleared security body, the Government are not placing security at the heart of the Bill.

The Government’s third and final argument is that if the ISC had a role, it would encroach on the BEIS Select Committee’s remit. This, too, is baffling and not borne out by experience. The Government’s own MOU already expressly states that the ISC scrutinises the classified parts of some Government Departments, leaving the remainder to the corresponding departmental Select Committees. That is what has always happened, perfectly harmoniously, in respect of a number of other Departments, so it is, again, bizarre that the Government now see this as a problem when they themselves have already made express provision for it.

The ISC can work seamlessly with the BEIS Select Committee on oversight of the Investment Security Unit, as it already does with other Select Committees such as the Defence Committee and the Home Affairs Committee, and in respect of the work of the Foreign, Commonwealth and Development Office. Far from being an “overreach” of our remit, in this particular case the ISC is trying to prevent its existing scope from being reduced. The unit that currently carries out investment security work is based in the Cabinet Office. Consequently, it is already overseen by the Intelligence and Security Committee. The ISC already scrutinises these activities in their current form in the Cabinet Office, so it cannot be “overreach” to do in future something that we already do. If the Government do not maintain this existing ISC scrutiny when the new Investment Security Unit takes over, it will be a step backwards from the current position.

If national security really is at the heart of the Bill, the ISC, as the national security oversight body, must be allowed to oversee it. The Government gave assurances to the House in 2013 that the ISC would oversee all security and intelligence matters. It is as simple as that. The sensible solution is that which was proposed and accepted in the other place—namely, the amendments that we are now being asked to reject for, as I have demonstrated, no good reason.

If, for some reason we have not been told, the Government cannot accept provision for oversight on the face of the Bill, there is the other solution that I have previously indicated. The Justice and Security Act and the memorandum of understanding linked to it set out the ISC’s role and remit, which the Government expressly told Parliament was the oversight of all intelligence and security matters across Government, now and in the future. The memorandum of understanding mechanism was rightly described by the security Minister at the time, my right hon. Friend James Brokenshire, as “flexible” because

“it can be changed much more easily than primary legislation.”––[Official Report, Justice and Security Public Bill Committee, 31 January 2013; c. 98.]

The matter before us today is exactly as described in 2013: an area of Government in respect of which the ISC has oversight responsibility has been moved to a different Department. The memorandum of understanding could therefore be updated to reflect this, by way of a simple exchange of letters, to add the Investment Security Unit to the list of bodies covered by the MOU. The ISC would happily accept a commitment from the Minister to this effect tonight, in lieu of the amendment. Either method will ensure what is needed: real oversight of the national security elements of this legislation by the only body constituted and equipped to carry it out, rather than what might be described as “scrutiny in name only”.

Photo of Stephen Flynn Stephen Flynn Shadow SNP Spokesperson (Business, Energy and Industrial Strategy)

I am very much of the view that, as Shakespeare said, “brevity is the soul of wit”. Notwithstanding that, the Chair of the Intelligence and Security Committee, Dr Lewis, made an incredibly professional and profound set of points that I hope the Minister listened to closely.

As the shadow Minister, Chi Onwurah, did, I welcome the Minister to his place, notwithstanding the fact that the previous Minister, Nadhim Zahawi, is off doing a fantastic job—I think it is fair to say—getting the entirety of the UK vaccinated, of course in partnership with our colleague in Scotland. I am sure that he regards it as a step up in terms of ministerial oversight of the Bill.

On the Bill itself, my right hon. Friend Stewart Hosie spoke on Second Reading and on Report with passion and knowledge of the subject in respect of the scrutiny that should be provided by all of us when looking at such serious matters. We have tried to be constructive with the Government and to make helpful suggestions. I am pleased with many of the amendments moved by those in the other place that the Government are agreeing to—on beefing up scrutiny and perhaps offsetting some of the concerns that some of us might have had about the danger of investment chill, which was certainly real given the original nature of the Bill.

Improvements have been made, therefore, but there is still scope for further improvement. In that regard—as I said, I will be brief, Madam Deputy Speaker—I again urge the Minister to give cognisance to the wise words of the Chair of the ISC.

Photo of Adam Holloway Adam Holloway Conservative, Gravesham

I welcome the powers that the National Security and Investment Bill introduces and I am very much in favour of the amendments moved by the Government in the other place.

Those amendments temper the impact on investment of the Bill, allowing a greater proportion of transactions and investment decisions to go ahead without requiring Government approval. Furthermore, the Government’s power to intervene on their own, if needed, will be retained. That is a good compromise between the Bill’s objectives: to grant the Government the powers to defend the UK against losing companies and expertise to unfriendly competitors, without stifling the investment that we need to become the home of the industries of the future. That is vital to our national security and to our future prosperity.

We must ensure that the technologies that are so frequently developed by our brilliant scientists here in this country can also transform themselves into successful world-leading companies here. I think of the many university spin-out programmes and how often extraordinary technology is immediately shipped off somewhere else. Developing more powerful computers and software, but allowing them all to be commercialised and deployed most effectively elsewhere only makes us less secure, not more secure. They will only be commercialised and deployed here if the Government protect them from being snapped up by our competitors, thereby damaging our long-term security interests.

We have seen the impact of such problems in the past. Only last week, the Secretary of State for Digital, Culture, Media and Sport called in the potential NVIDIA-Arm deal as representing a potential threat to our national security. If Arm, the Cambridge-based silicon fen semiconductor and software design company, can pose a threat to national security, so could the sale of other critical companies in developing industries.

Quantum computing is about to revolutionise the digital age, and the UK has some of the leading research establishments, notably in London and at the University of Bristol. However, many leading companies have moved abroad in the past. The British academics who founded PsiQuantum, the company that believes it is on track to build the world’s first usable quantum computer, moved to California some years ago. I have absolutely zero financial or other interests in that company—it is only that I wish to see the UK lead the world in quantum computing, with all the associated industry and benefits that will follow that.

The four professors from Bristol and London Universities recently made an offer to the Government to build that first usable quantum computer here in the UK, ensuring that the security offered by its cutting-edge technology is based in the UK. I think we can all agree that it would have been far easier and a lot less expensive if those academics had never left the country in the first place.

As the current pandemic has shown, domestic sovereign capability will only become more important in the coming years, particularly in areas such as quantum computing. Mirroring the Prime Minister’s wise decision to develop UK-based manufacturing capacity for covid vaccines—a decision that, when placed against the current backdrop of export bans and international power politics, looks very wise indeed—we must also have a domestic sovereign capability for security-critical sectors such as quantum and artificial intelligence. That will help to ensure that the UK does not miss out on the ability to crack other people’s codes, decipher intelligence, keep our communications secure—current encryption is obsolete in the face of quantum computing—calculate the solutions to climate change, and cure the diseases of today and the future. This is not just in our economic interest; it is in our national interest too.

The Government must think extremely carefully about how they use this legislation, as well as clever policy design and strong research and development funding, to shape the UK’s future security and economy. As the Government amendments will retain the Government’s powers to intervene in deals that would prevent us from losing companies key to our national security, I am proud to support them.

Photo of Sarah Olney Sarah Olney Liberal Democrat Spokesperson (Business, Energy and Industrial Strategy), Liberal Democrat Spokesperson (Transport) 11:30 pm, 26th April 2021

In common with other hon. Members who have spoken tonight and on other occasions, the Liberal Democrats support the broad principles of the Bill. It is sensible, at a time of geopolitical uncertainty and increasingly globalised trade, to have provisions for the Secretary of State to intervene in business transactions where those transactions may have a bearing on national security. It is important, however, that the parameters of such a Bill are carefully drawn to ensure both that the transactions that may pose a threat can be caught, and that undue constraint is not placed on transactions that ought to be able to proceed freely.

The concerns raised about the Bill have focused on the fact that many of the definitions in it can be drawn too widely, and that the powers of the Secretary of State to call in transactions can be triggered too easily. That creates an environment of uncertainty for investors, as a wide variety of activities come into the scope of the Secretary of State’s powers. That will potentially act as a brake on investment, and at a crucial moment, when we are looking to strike new deals with global partners to replace the trade we are losing as a result of leaving the European Union.

I therefore welcome Lords amendments 11 and 15, which would require the Secretary of State to provide an explanation for choosing to exercise the powers granted to them. That seems to be a rational compromise. Instead of attempting to frame more precisely definitions and powers that will quickly become outdated as technology and trading practices progress, we would maintain the wider definitions but explain how and why they were being exercised.

That would provide a framework of precedent that investors could refer to when assessing investment risk. It would provide a much greater degree of transparency and accountability to the Secretary of State’s decision making. We have all seen the value of greater transparency over the last few weeks. Adopting these amendments would show that the Government were attempting, in good faith, to regain public trust after that trust has been shaken by recent revelations.

There is a distinct danger that the Bill, without amendment, will leave the Secretary of State vulnerable to pressure from those whose interests go beyond national security. We have seen this Government act to help developers avoid taxes, bankers win access to Government schemes, and shell companies win multimillion-pound personal protective equipment contracts. There is a very real danger that the UK’s reputation as a safe and orderly place to do business may be undermined, and these amendments offer the Government an excellent opportunity to restore our reputation once more. I very much hope that the Minister will take it.

The Bill is valuable and necessary, but it is only part of what is required to boost the UK’s attractiveness as a global trading partner. The scrapping of the industrial strategy in the last month and the continuing failure to construct a workable plan for achieving net zero are holding the UK back from being able to achieve all that it is capable of achieving as we emerge from the difficulties of coronavirus.

Photo of Darren Jones Darren Jones Chair, Business, Energy and Industrial Strategy Committee, Chair, Business, Energy and Industrial Strategy Committee

I will focus my remarks on Lords amendments 11 to 15 to clause 61, which, as we have heard, have arrived from the other place on the basis that the BEIS Committee, which I chair, does not have the access to the intelligence information that it would need in order to adequately scrutinise the Investment Security Unit in the BEIS Department. Let me start by thanking their lordships for their highly informed debate on this issue and their hard work in drafting these amendments.

It is a matter of fact that the Intelligence and Security Committee has a level of security clearance and powers to demand classified information that no other Committee of this House has, including my own. I was therefore surprised to learn that the Government were not going to update the memorandum of understanding with the ISC to extend its remit specifically to include the Investment Security Unit. That is why their lordships have sent us these amendments, which I have no issue with. On that basis, I commend the Chair of the ISC for his eloquent speech this evening. However, the Government have made it clear to my Committee and to the House that they have no intention of supporting the amendments, and nor will they be extending the memorandum of understanding in respect of the ISC.

The Secretary of State did agree with me in Committee that the Bill extends the powers of the Government to intervene in the market and that adequate scrutiny of that function is therefore important. On that basis, my Committee has received a letter from the Secretary of State, which we will formally report to the House tomorrow morning, setting out three key points. First, my Committee will be guaranteed appropriate levels of information and briefing to understand why Ministers have acted in the way they have—this is noting the points made by the ISC Chair this evening. On that basis, my Committee and the Department will enter into a new MOU to reflect this. Secondly, the Secretary of State will brief me, as Chair of the Committee, on Privy Counsellor terms, as required. Thirdly, the Science and Technology Committee, which also has standing in this area, will be recognised as sharing the scrutiny responsibility, alongside the BEIS Committee, in addition to the work of the ISC. I welcome the comments made by the Chair of the Science and Technology Committee in this evening’s debate.

My Committee has discussed this issue and wants to ensure effective scrutiny of the wide-ranging and important powers in the Bill. Given that the Government are unwilling to support their lordships’ amendments this evening, and therefore having the main scrutiny responsibility resting with the BEIS Committee, the agreement to enter into a new MOU with my Committee, and to ensure the Chair’s briefing on Privy Counsellor terms, is the next best available option. The BEIS Committee will continue to serve the House in holding the Department to account, and we will of course make it known if we are unable to do that effectively. I therefore look forward to hearing the Minister, when he sums up the debate on the Floor of the House this evening, reconfirming the commitments made by the Secretary of State and promptly agreeing the MOU in due course.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I very much appreciate the spirit and detail with which this issue has been covered in the Chamber today and the consideration that has come from the other place. I am glad that we have been able to bring forward a number of amendments to improve the Bill, ensuring that we can keep the certainty for business and are responsive to the needs of business, while clearly keeping that central focus on national security. It is so important that we keep the flexibility in the definition of “national security”, in order to future-proof the Bill, while none the less making sure that businesses and potential investors in this country know exactly the competitive regime we have here.

That goes to the point made by my hon. Friend Adam Holloway about PsiQuantum. Quantum computing is an exciting technology. The Bill tackles national security, but we must also ensure that the UK is a competitive, good home for technologies such as quantum computing, not least by making sure that we can unleash innovation, and make the UK the science superpower that is the envy of the world, with people wanting to come to build quantum technology units here in the UK, through our use of research and development and by ensuring that we are competitive in all our offerings, while being able to protect businesses for our national security.

I appreciate the kind words of the shadow Minister, Chi Onwurah, and indeed those of Stephen Flynn when he talked about my coming to this place. Indeed, not only did I follow my hon. Friend Nadhim Zahawi in leading on this Bill, but I stole his flag for my office, for fear of missing out otherwise when I am on my Zoom calls, because that does symbolise the vaccination process and the fact that the Union has come together—the UK has come together—in an amazing programme.

I am really keen to tackle two more points. Sarah Olney talked about flexibility versus scrutiny, which I have already talked about. She mentioned that she did not want other countries or other businesses to undermine the UK economy. Clearly, we do not have to go that far to have people undermining the UK economy; we have only to go to the Liberal Democrats for that. It is important that we do not allow that speculation—the sort of muckraking we heard from that contribution—to detract from what is a really important Bill for the UK national security regime, and from that optimism and confidence that is needed for attracting investment within this country.

I understand the concerns of my right hon. Friend Dr Lewis, but I reiterate the fact that it is for the BEIS Committee to oversee the work of the Department. The Committee is particularly well placed to consider how effectively and efficiently the regime interacts with business communities and investors.

Photo of Steven Baker Steven Baker Conservative, Wycombe

I thought my right hon. Friend the Chair of the ISC really made an open and shut case, and I hope that he will not mind my saying so. If the Minister will not amend the memorandum of understanding, will he be really clear why he will not do so, because my right hon. Friend made an open and shut case that he should?

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I appreciate my hon. Friend’s intervention, and I will come back to that. Let me first develop the point about scrutiny. Clearly, the BEIS Committee has business expertise and is able to determine whether the regime is effective in scrutinising relevant acquisitions of control. I do question some of the narrative that I have heard that suggests that the BEIS Committee is not well placed to scrutinise the NSI regime. Furthermore, there are no restrictions on the ISC requesting further information from the unit or the Secretary of State where it falls under the remit of that Committee. There is no barrier to the BEIS Committee handling top secret material or other sensitive material subject to the agreement between the Department and the Chair of the Committee on appropriate handling.

As part of its role, the BEIS Committee can request information that may include sensitive material from the Secretary of State for Business, Energy and Industrial Strategy, including on the Investment Security Unit’s use of information provided by the intelligence and security agencies. The Select Committee already provides scrutiny over a number of sensitive areas, and there are mechanisms in place for it to scrutinise top secret information of this kind on a case-by-case basis.

As the Secretary of State for Business, Energy and Industrial Strategy explained in front of the BEIS Committee last week, and indeed in his letter to the Chairman of the BEIS Committee, which was copied to my right hon. Friend Greg Clark, Chair of the Science and Technology Committee, there are three Committees that should act in collaboration. The BEIS Committee provides the primary work of scrutinising matters within BEIS competence, but two important additional Committees—the Science and Technology Committee and, indeed, the ISC—were acting in an auxiliary capacity, making sure that the essential cross-cutting nature of the Investment Security Unit benefits from the rigour of those Committees, with expertise in each area that the unit covers.

The Government therefore do not believe that we need to update the existing memorandum of understanding, because it is flexible and it does still pertain. As I have said, there is no dilution of the ISC’s work in this. The current arrangements are sufficient to ensure that we can have the correct scrutiny of this.

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

I appreciate that I have tried the patience of the House, but on that one point let me say that the MOU is flexible in the sense that we can add new organisations to it. The flexibility is not being used by the Government because they are refusing to add this new unit to the MOU, so the flexibility is rendered nugatory.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

As I say, the direction from the Secretary of State in his letter to the Chairs of the Business, Energy and Industrial Strategy Committee and the Science and Technology Committee was clear in terms of his expectations of how this should work. The Business, Energy and Industrial Strategy Committee should be the prime Committee to scrutinise BEIS competence, but similarly the Science and Technology Committee and the Intelligence and Security Committee should absolutely be there to look at places within their competence to ensure wider scrutiny.

As I said, we have listened to Parliament. We have tabled a number of amendments to increase the amount of information included in the annual report and the various threshold. We have responded.

Lords amendment 1 agreed to.

Lords amendments 2 to 10 agreed to.