Yes, thank you very much, Sir Graham. I am consultant solicitor with Simons Muirhead & Burton solicitors, a firm of some 32 partners, and I have been there 19 years. I am here in a personal capacity. Previously, I was a senior partner of the law firm founded by my late father, and I merged my practice with Simons Muirhead in 2001.
I have acted for small public and private companies, and for 15 years, I was a non-executive director of a fully listed plc. I have been involved professionally in takeovers, and I have written on the subject. Currently, I am updating a paper I wrote previously called—this may be of interest to you—“Takeovers and the Public Interest”.
I have recently ceased being a further education college governor and non-executive director, after 18 years’ service, and I was with a social housing company for 15 years. In fact, one that I finished a term of six years with was the subject of one of the largest takeovers in the social housing sector. It is now one of the biggest housing associations.
Briefly, I welcome this Bill very much; but the UK has changed fundamentally since 2017, when the Government started their consultation on this, so I think that it is good, but it could be better. If the United Kingdom is going to build back better, as the Chancellor said yesterday, after covid and after Brexit, whether there is a deal or not, then this legislation needs to be wider than it is now, and I have some suggestions on how it could be improved and some amendments that might be made to it. Excuse me; I’ve got a bit of a cough.
Q Thank you very much, Sir Graham. Welcome, David, and thank you so much for sharing your expertise and experience with us and for giving me an opening, which I cannot resist: what are your suggestions for improving this Bill?
Well, there are three categories. First, are the 17 subjects that are referred to in the paper sufficient? Sir John Redwood, in the debate last week, said that food should be included, because there is nothing more important than food security. Mr Tim Loughton said that pharma and biotechnology should be included. There is not really very much on energy in the 17 subject matters. So I would like to see those included.
The next is the definition. National security is not defined in the Bill, which I actually approve of, because once it becomes too closely indicated, then it is not easy to decide what should be in it, or what should not be in it. I would like to see a definition that includes what Lord Heseltine said when Melrose took over GKN, that research and development should be a subject of importance; it should be included.
The other thing I would like to see included, contrary to the last speaker, is a general definition of public interest. The reason for that is that when you look at recent examples, you see that it is very easy for things to slip through the net that actually might be both in the national interest and in the interests of national security as a specific point.
Some of these examples have already been mentioned: SoftBank’s purchase of Arm. Now, that was world-beating British technology. It is in every computer, it is in every telephone and it came from Cambridge. It is now the subject of a bid by an American company owned by a Japanese bank. Do we really want to try and hang on to the research and development—as someone said in the House of Commons debate last week, the Crown jewels, or as Harold Macmillan said many years ago, the family silver? At this economic time, is it not desirable that we try and hang on to these important assets that are homegrown? Is self-reliance something that we should bear in mind?
Similarly, in 2014, Google bought DeepMind—world-beating British technology in artificial intelligence. Should that have been the subject of consideration? Recently, Lady Cobham was bemoaning the fact that Cobham had been sold to private equity for £4 billion. She said she only wished that the Act had already been in existence, and then perhaps the nine divisions that have now been reduced to four and the sell-off that started would not have happened. Of course, one of the problems is that the post-offer undertakings that can now legally be provided by companies to the takeover panel are fairly feeble and do not really deal with the issues to protect the necessary research and development and public interest.
At Immarsat, as those of you who drive around Old Street roundabout in the middle of London’s tech city will know, there was a £4 billion takeover of world-beating satellite technology. It started as a United Nations organisation, then became private and was quoted on the London stock exchange and has now gone to private equity.
Nvidia is buying Arm. When they bought Icera in 2011 in Bristol, they closed it down, 300 people lost their jobs and the technology went abroad. One that might now cause a bit of embarrassment is the case of Huawei, which bought from the East of England Development Agency the Centre for Integrated Photonics in 2012. Another piece of world-beating technology owned by the British Government has now gone abroad.
Those are just some of the numerable examples of assets that, at this difficult time, we really ought to try and hang on to. I do not want to decry the argument that Britain is open for business and that we believe in free trade. We do. There is twice as much foreign direct investment into Britain as there is into France and Germany. Several hundred thousand French people live in London. It is the fourth largest French city for French citizens. Why? Ask anybody. It is much easier to do business in London that it is in Paris.
As for the other argument—that if we do not make the business climate easy, people will start up their businesses elsewhere—the answer is that they will not, because in the other places where they want to open their businesses the regimes are tougher than here, so that argument does not wash. France has just passed its recent new law. They use a slightly different test that is strategic. Their test is not quite as wide as public interest. Of course, a right to intervene on strategic grounds is what Mr Tim Loughton and Mr Bob Seely suggested in the House of Commons debate last week, and Mr Tugendhat was very sad about the fact that Google had bought DeepMind and that SoftBank had managed to acquire Arm. For all those reasons, I think we do need to add to the definitions. That is the position.
I have a quick follow-up question. Should we consider a separate test of public or strategic interest, or are you saying that our economic and security interests are intertwined, so it is the definition of security interests that needs to be expanded? What are your views on that?Q
It is very difficult to separate these. When you look at GKN, for example, 50,000 people—even now, after covid—are headquartered in Redditch, near the Minister’s constituency. It is one of the largest industrial companies worldwide, 250 years old, and a defence contractor to the Ministry of Defence, but the question is whether the amount of defence work it does, apart from its other engineering, is sufficient for it to be called in under the existing legislation. Clearly, the decision was made that it was not appropriate, and it is the same with Cobham. Cobham clearly had a national security element, but it was not sufficient for it to be called in and blocked by the Minister, so I think it is very difficult to separate the economic from the national interest, because these companies are multi-layered; they operate in different markets; some of their work is sensitive, and some of it is not sensitive.
That is why I think it is better to try and improve this Bill than deal with it under a separate Bill. The problem is that it has taken three years to get to where we are with this Bill. If we are just going to say, “Let’s deal with it another time”, it might take another three or four years before we get to consider that, so while it is here, while it is on the table, let’s try to improve it now and make it really work for Britain, so that we can build back better—to use a phrase—going forward.
Q Welcome, Mr Offenbach; thank you very much for making the time. I wanted to get your view on how you think the Bill deals with the range of sanctions available to the Secretary of State in order to protect national security. How do you see that?
I am very pleased with it. It is much better than the previous regime, because now, rather than just having post-offer undertakings that are subject only to contempt of court criteria if they are breached, we have a proper statutory framework that will enable the Minister to impose orders so that for non-compliance, there is a breach of statutory duty, not merely a breach of an undertaking. Of course, one of the problems with the takeover code is that the object of a takeover code is to protect shareholders and to encourage fair dealing in takeovers. It is not there—and this has never been its job—to protect the public interest; it is there to protect the shareholders who are in receipt of an offer, so that they have been given fair treatment. For example, if you take SoftBank and Arm at the moment, we do not know whether or not they will have complied with their post-offer undertakings when the five years is up, because the price that is being paid now is more than was paid in 2016. There is no complaint. Public interest is irrelevant to the job of the takeover panel, which is why this new regime is a very welcome improvement on the old regime.
Thank you, Mr Offenbach. This is very interesting evidence, and clearly you and the previous witness have really exposed this tension—this debate—between having an open and liberal economic approach, and our self-interest and national security. This is not a new debate: Peter Lilley Q had his famous Lilley doctrine, and earlier this week, we heard from Sir Richard Dearlove. Most of the Committee members listened in earnest to that discussion.
For me, there is something really important we need to explore a little bit more when it comes to our approach, in terms of rushing to be the most open, the most liberal, the most pro-business country we can possibly be, and the exposure that is left—in this case—to China. Just thinking about that, are there particular areas of law that you think need to be tightened up and thought about alongside this, and that need to be looked at in tandem, perhaps around IP protection, licensing and that kind of thing?
I think this actually does most of what is necessary. I do not think it needs to be improved in that regard. One thing that does slightly worry me is that the present regime, which is essentially a competition regime, has the Competition and Markets Authority as a statutory body, having lost national security to the new unit that will be set up inside BEIS. They only have financial stability, media plurality and public health, which was added this summer, but it is a proper organisation that deals with public interest in those areas. Public interest is the only area.
It is quite important for us to think that one of the reasons why one wants to extend the definition of national security to a public interest element is because there are many more areas of public interest, other than those three that are now left in the CMA. There is a little bit of an anomaly, because national security does not have its own separate statutory body to deal with these issues. It suggests that this is going to be put into a little hole somewhere in BEIS and that somehow competition is more important than national security, because it has a statutory body.
I wonder whether there should be a parallel statutory body, which could be called the national security investment commission, or something like that, that actually dealt with these things separately, outside BEIS. That would deal with some of the objections that people have and that a Minister is going to be lobbied about. It would be dealt with in more of a quasi-judicial way, in the same way that the CMA now deals with referrals to it. I wonder whether the Minister would like to consider that, as part of the amendments.
Q Clearly there would be some serious resourcing implications around that. Thinking about what you said earlier, about a number of different examples that have been in the press about major UK-owned companies that were the subject of various takeovers, would you like to say a little about how industrial strategy could also relate to national security?
I listened to and read the Second Reading debate in the House of Commons last week. I know that a lot of Members were concerned to try not to let issues of industrial strategy stray into areas of national security. It is a subject that I do not really want to go into.
Some people have expressed anxiety about the activities of sovereign funds in other countries posing dangers to assets in this country. Is there more of a risk from investments in China? Somehow, people feel that those investments are connected with the Government and that they are not really independent. I think the necessary protections are in this new statute that will prevent that from being an issue.
So far as industrial strategy is concerned, people are worried about sovereign funds. I think Britain should have its own sovereign wealth fund, like Norway does and like we used to have with the Industrial and Commercial Finance Corporation, and then with 3i. There are amazing investments that could be made and wonderful technological discoveries that Britain should be able to get the profits from, and that should not be going overseas. When I went on a trade visit to China a few years ago, I saw the China Investment Corporation. They said, “We are really pleased with our investment in Thames Water. We do nothing every year. The dividends come and it doesn’t cost us any money.” I thought, “Why shouldn’t Britain have the advantage of the dividends, rather than the China Investment Corporation?” Norway’s sovereign wealth fund is worth more than £26,000 for every citizen in Norway and is one of the most successful. That is something that really we ought to look at.
Thank you very much, Mr Offenbach, for your interesting comments which, as my colleague has said, are in sharp contrast to Mr Palmer’s point of view—so that is helpful to usQ . I have two questions. Apart from the lack of inclusion of public interest, are you broadly happy with the Bill as it stands, in terms of what it is seeking to achieve? I suspect you are.
Q You refer to other regulatory regimes being tougher, but I think Mr Palmer’s point was that there would be other regimes that are weaker and more liberal. I think the point that he was trying to make is that if controls are tightened here, the capital, knowledge and companies will go elsewhere. Do you not see that as a risk?
No, I do not—not in the slightest. I am thinking of clients of mine—French—who moved from Paris to London because it is easier to set up and promote business here. Why did they not stay in France? Because they know that the regime is more restrictive. Why did they not go to Australia? Because they are a similar regime. They are more restrictive. We are a very open environment to do business, in this country. You can come here and set up a company in 24 hours, and start trading. You cannot do that in France: it is much more difficult. In Germany, it is much more difficult, and in Australia. Those comparable regimes, if you like, are less favourable. That is why people come from the Baltic countries to set up business here. It is much easier to do business.
Q I think that Mr Palmer’s point, if I understood him correctly, was that if we bring the Bill in, we create a tougher regime than there is at the moment. I think he used the example of Ireland, and I hope I am not misrepresenting what he said, but he said it was potentially an environment that would have a less structured regime, and therefore could take business away from us, to put it crudely.
We have the issue that we do not know what difference being out of the European Union is going to make to future investment; but Ireland has been very attractive for many years, partially because of the tax regime—and for lots of other reasons—so will people choose Dublin rather than London if they want to do business? They might very well, but the fact that Britain is open to trade is an important part of the British economy. People will still come here and work here, open businesses and enjoy the infrastructure of the technology and the various businesses that are already here, and that they can feed off, so I am not worried about that in the medium term.
I see from the profile that we have been given that you have considerable experience in land transaction—the legalities of land transactions—as well as company law and so on. Given that part of the Bill that we have not looked at much so far is about controls on the purchase and acquisition of land and other physical assets, as well as companies, are you comfortable with the fact that the processes for controlling potentially hostile purchases of land assets are similar to those being proposed for company takeovers or company acquisitions? Is there any reason why there needs to be different processes for them both?Q
It does not need to be any different at all. I was pleased that land was included. Certainly one knows from seeing property transactions and looking at title deeds, sometimes where the owners of these companies are or purport to be is very curious. The Bill covers that very adequately.
Q One important distinction is that while companies legislation is almost entirely reserved to the UK Parliament, a lot of legislative authority for land registration is devolved to the Scottish Parliament and the Scottish Government. Is there a risk of an unintended consequence—that we end up with legislation being passed here that could have an impact on the devolution of land use and purchase regulation to the Scottish Parliament?
I do not know. I am sure that officials in the Minister’s Department have thought about whether or not this is an issue for the devolved Administration, but I do not think it is a problem.
Q Finally, going back to the acquisition of companies, although it could also be relevant to the acquisition of properties, a key factor is going to be the identity of the person or the business who wants to make the acquisition. That is okay if everybody can see who the owner is. Is the Bill tight enough to give adequate protection against a potentially hostile buyer who sets up a holding company under an anonymous name in some offshore jurisdiction, so that the ultimate buyer of the asset in the United Kingdom is not made public? Is the Bill strong enough to protect against anybody using that as a way of buying up assets that they would not have been allowed to buy up if they had done so in their own name?
Q But what about once you get to the point where you follow the beneficial ownership and find that it is a company registered somewhere offshore, where the identities of the directors, who have ultimate control, or the shareholders, are not made public?
Q So you are suggesting we need to block any purchase of a sensitive asset from a company whose ultimate controlling partner is registered in a tax-haven type regime overseas. Would you go as far as that?
Q You were suggesting earlier that the definition of the national security interest needs to be widened to include other national interests such as the strategic economic interest. Are you suggesting that there are some businesses or some assets in the United Kingdom that, although they do not have any national security implications, should not be allowed to be bought over by a company whose ultimate controlling partner remains anonymous?
Well, I remember there was an outcry years ago when Michael Portillo was a Defence Minister and they were going to sell the Ministry of Defence. There was an outcry and it was withdrawn. Should Admiralty Arch become a hotel or is that an asset? These are the sort of issues which, if they come up, will be dealt with at the time. I like to think that certain things are fairly sacrosanct. We would not sell Buckingham Palace or Windsor Castle to a foreign buyer if we did not know who they were—or at all, in fact.
Mr Offenbach, thank you very much. I have a very quick question. You ran through a long list of acquisitions at the beginning of your evidence, most of which I think you would suggest were not in the national interest, although people may disagree. Given the Bill as it stands, which, if any, of those acquisitions would have been thwarted or prevented by it? Which, if any, of those acquisitions would have fallen foul of running the risk of being a threat to national security?Q
The answer is that one is not quite sure. That is why I want to widen the definition. The reason why there are 17 different areas and categories in the Bill is that it is hard to know what national security is at any particular time and how it is reflected in the business that is actually being considered. The only way to make sure that something does not slip through the net is to have a slightly wider definition. There is no definition of national security itself in the Bill, which is perhaps why strategic, research and development, innovation or other issues should be brought in. Then one can be quite sure one has not accidentally lost an asset where there are national security issues.
Thank you, Mr Offenbach, for your evidence this afternoon. I am interested in the example you gave in your statement. Has the pandemic changed the way you view national securityQ ?
Completely. It has also changed how the Government view it. In the summer, public health was added to the list of items on which a public interest intervention notice can be given. So it is clear that, in the face of the national emergency that, alas, we face—according to the Chancellor it is the greatest economic crisis for 300 years—we have to hang on to our assets. That is why the Bill is even more necessary than it was before. The pandemic gives added weight to the arguments that I was making even before we had covid. We need to have a wider test to protect our national assets.
I am not personally worried about state entities being said to pose more of a risk, because I think that the Bill is strong enough to make it possible to intervene where necessary. Although one is entitled to look at the asset being purchased, the acquirer and the person from whom it is acquired, I do not think that it will be a problem under the Bill as it is drafted.
Q Going back to my previous question, do you think that we should think about areas such as climate change and other things that are perhaps not necessarily of immediate urgency—some would say, of course, that climate change is urgent—as matters of national security?
I do not think that there is anything other than the 17 already mentioned and the ones that I mentioned, most of which came up in the debate last Tuesday. I think that telecoms might be mentioned as well, but the list really covers all the areas where national security is a significant risk.
Q Thank you very much for this useful and important evidence. I have one relatively specific question based on your expertise in real estate. The statement of political intent states:
“Land is generally only expected to be an asset of national security interest where it is, or is proximate to, a sensitive site, examples of which include critical national infrastructure”.
Do you think that scope is too narrow? For example, we know that property in London is used to launder large amounts of money—nefarious organisations often own property in London and use it for nefarious purposes. London is sometimes referred to as a laundromat for dark money. Do you think that that is a national security risk and should be included in the scope of the Bill, and that the land definition in the statement of political intent should reflect the money laundering issue?
I am not sure I quite agree with the statement of intent as part of the Bill papers. The drafting of that section of the Bill is wide enough to include the issues that you raise. It would be open to the Minister to intervene in the cases that you mention without any change to the drafting of the Bill being necessary.
If there are no further questions at this point, I will say thank you very much, Mr Offenbach. The next witness is not due until 3.15 so we will have a 10-minute suspension.