“as agreed by the Secretary of State in accordance with subsection (9)”.
This amendment seeks to limit the flexibility of extending the assessment period to the conditions set out in subsection (9), and to remove the need for the approval of the acquirer.
New Clause 4—Complaints procedure—
‘(1) The Secretary of State shall by regulations set up a formal complaints procedure through which acquirers may raise complaints about the procedures followed during the course of an assessment under this Act.
(2) Complaints as set out in subsection (1) may be made to a Procedural Officer, who—
(a) must not have been involved in the assessment and who is to consider significant procedural complaints relating to this section or another part of this Act; and
(b) may determine or settle complaints in accordance with regulations to be published by the Secretary of State within 3 months of this Bill becoming an Act.’
This new clause would require the Secretary of State to establish a formal complaints procedure for acquirers.
I rise to speak to amendment 22, which is in my name and that of my hon. Friends, and to new clause 4. It is a pleasure to serve under your chairmanship once more, Mr Twigg, and to find the Committee reconvened for the perusal of the rest of this important Bill. I thank the Minister for the letters that he has sent to me and my hon. Friends, and to the Intelligence and Security Committee, to address some of the questions that arose in previous sittings.
I am glad that, with this amendment, we move on to part 2 of the Bill, which deals with the process of addressing our national security concerns as part of the Bill’s implementation. In clause 23, we are particularly looking at the assessment period. As I have indicated, we support the intention and, indeed, the objectives of the Bill, and we would have welcomed such a Bill some years ago. Our intention, as we have shown, is to be a constructive Opposition and to make constructive proposals, so I will say at the outset that amendment 22 is a probing amendment that seeks to clarify how the Minister thinks the clause will work in practice. The amendment seeks to limit the significant flexibility of extending the assessment period to the conditions set out in subsection (9), and to remove the need for the approval of the acquirer.
As we have said, the Bill marks a radical shift in our nation’s approach to takeovers and investments. It has been labelled a “seismic shift” and a “total transformation”. We want that radical shift to give the Government the powers they need to protect our national security, as we have made clear. To be effective in doing that, the Bill needs to ensure clarity, certainty and competence—competence is a key word—for our businesses. As we have said on a number of occasions, we are particularly concerned about the impact on our small and medium-sized enterprises, which will bear the bulk of the compliance requirements and which do not have the resources that are at the disposal of many of our larger companies.
We want the Minister to provide clarity on the parts of the assessment period that we find uncertain. Specifically, the Government have set out an assessment period timeline of up to 15 weeks, which is 30 working days for an initial period and 45 working days for an additional period. Clause 23 sets out that the initial period may be extended by the Secretary of State for a further 45 working days if he
“ reasonably believes that…a risk to national security has arisen from the trigger event or would arise from the trigger event if carried into effect, and…reasonably considers that the additional period is required to assess the trigger event further.”
An extension beyond 75 working days—the initial 30-day period plus 45 days—may be agreed between the acquirer and the Secretary of State, if the Secretary of State
“is satisfied…a risk to national security has arisen from the trigger event or would arise from the trigger event if carried into effect, and…reasonably considers that the period is required to consider whether to make a final order”.
That is described as the “voluntary period”.
Our concern is that the clause offers the potential for unlimited expansion of the timeline—currently labelled, as I said, a “voluntary period” extension. That creates uncertainty for businesses and, indeed, for Government. Subsection (3)(c) suggests that a voluntary period extension
“may be agreed in writing between the Secretary of State and the acquirer”, and yet subsection (9) sets out the ways in which the Secretary of State might agree a voluntary period where they are satisfied of the need for it. Is it a voluntary period for both parties? Will the voluntary period truly be voluntary for businesses?
According to subsection (9), the decision seems to be for the Secretary of State. Subsection (9) sets out a number of considerations
“on the balance of probabilities”, but subsection (3)(c) implies that the period is at the agreement of the acquirer. What is the process by which an acquirer can deny the extension and what, if any, is the limit on voluntary period extensions? Businesses up and down the country and international investors in Britain’s high-value start-ups will be looking to the Government for greater clarity. We heard numerous calls for greater clarity during the evidence sessions.
The Bill presents uncertainty for not just businesses but the Government. If a business can deny agreement to extensions under subsection (3)(c), where do the Government go then? The Bill creates a 15-week assessment period, but our existing merger control process can last for 32 weeks with a full phase 1 and phase 2 review. Does the Minister concede that it is possible, especially given the likely resourcing clashes—we have already talked about potential conflicts of interest—that the voluntary period extensions will soon become default period extensions? Have the Government given themselves sufficient powers to trigger extensions, or is the current situation uncertain for businesses and for Government?
That concern is especially important because of the evidential thresholds that are required for the voluntary period extension. The Government have set a bar of reasonable suspicion—that is quite common—for a trigger event to be called in, in clause 1(1). Then there is a separate bar of reasonable belief for the Secretary of State to order an additional period, in clause 23(8), and a third bar of being
“satisfied, on the balance of probabilities” to get a voluntary period extension. What is the difference between the three standards of reasonable suspicion, reasonable belief, and being satisfied on the balance of probabilities? I am sure that there were specific reasons for drafting those three separate standards. Could the Minister share them with us? Is he confident that this tighter approach for each step will allow the Government sufficient room to ensure that there are robust reviews and to protect our national security, especially given that the regime will be an entirely new one, with an entirely new investment security unit interpreting those three separate bars?
I note that the Government’s impact assessment contains no estimate of how many transactions are expected to require additional and voluntary period extensions. We are about to embark on a vast shift in merger control, with far more engagement and intervention by the Government in our mergers and acquisitions landscape. We seek clarity with this amendment, to give confidence to our small and medium-sized enterprises and to ensure that there is confidence in our national security. We seek to ensure that the Government have a plan and a detailed understanding of it will work to deliver on the Bill’s proposals.
As I mentioned earlier, during our evidence sessions, there was significant demand from experts to ensure the Bill delivers greater certainty. Will Jackson-Moore of PwC said,
“it is about the application of the legislation, in particular the process, the ability to pre-clear and the timelines actually being met. To understand some of these technologies is not going to be straightforward.”––[Official Report, National Security and Investment Public Bill Committee,
Lisa Wright from Slaughter and May said that
“for people doing deals around the world who have already experienced those other regimes, it ought not to have any real negative impact at all, provided that BEIS can deliver on the aspiration set out of a slick and efficient regime, turning around notifications within sensible deal timeframes and providing the kind of informal advice and early engagement promised. That will be critical, particularly in the early stages of the regime.”––[Official Report, National Security and Investment Public Bill Committee,
I ask the Minister to consider whether the clause provides that. This amendment, which sets out to limit the flexibility of extending the assessment period to the condition set out in subsection (9) and to remove the need for the approval of the inquirer, is intended to probe and highlight that.
The intention behind new clause 4 is to ensure greater clarity about the apparent omission of any formal complaints procedure for acquirers. We are concerned that it seems as though the Government have not reflected on the scale of the change that our mergers and acquisitions regime is going through in their appreciation of the operational shift needed to deliver on it.
In a sort of a mathematical trick that I fail to follow, the Government’s impact assessment talks only of an additional 18% of cases relative to the regime under the Enterprise Act 2002, but also states that there will be an increase from 12 reviews in 20 years—that is the figure under the current regime—to nearly 2,000 under this regime.
“In my maths, 12 reviews in nearly 20 years going to nearly 2,000 a year is well over a 10,000% increase.”––[Official Report, National Security and Investment Public Bill Committee, Thursday
However, the impact assessment states that there will be an additional 18% of cases relative to the regime under the Enterprise Act 2002. It is almost impossible to imagine that such a huge increase in cases would take place without any concerns or complaints being expressed by businesses. It is a vast change in the task for Government and one on a scale that, I am afraid to say, the Government, in their impact assessment at least, do not seem to fully comprehend.
We have laid out a number of times our clear and specific concerns about the capacity and capability required to deliver this change in a way that works best for British security and British small and medium enterprises. I do not feel that the Government have responded to those concerns. Even with the best delivery—which, I am afraid to say, is in doubt, given what we have and have not heard from the Minister in response to our concerns—a change of this scale must cause challenges. Small and medium enterprises across the country are reasonably concerned about the change and what it will mean for them. Crucially, they are concerned about what they could do if they did not receive fair treatment in this early transition period to a vastly increased case load. I emphasise again that we are going from a standing start—12 reviews in 20 years—to this significant change, so it is almost inevitable that concerns will be raised.
The Minister may say that there are provisions for judicial review. Those provisions may indeed reassure big businesses, but they will not assure some of our brightest businesses. For many of them, the cost and delay of a judicial review would effectively mean the absence of any relief. For a start-up thwarted from a crucial investment because of a delayed national security review, the capital and the time to fight in the courts would simply not be available. I am sure the Minister will recognise that. Having worked with small businesses, he will know that seeking finance and trying to expand and be first in a competitive market really cannot wait for a judicial review.
With this new clause we want to provide relief to those small and medium enterprises and create a source of efficiency for the Government as they implement this major shift in our national security screening regime. In creating alternative and timely dispute resolution, it would also ease the burdens on our courts, especially as they seek to tackle case backlogs from the pandemic period. This change is going to arrive into our judicial system just as our courts are still dealing with the consequences of the pandemic and have a huge backlog of cases.
The new clause would apply the existing Competition and Markets Authority process for procedural disputes to the new national security process. Just as the CMA process works now, an independent procedural officer would be able to resolve disputes over process and timelines in an efficient and accelerated manner, resolving them well before they reached a severity of dispute that only the courts could resolve. The new clause creates efficiency for small and medium enterprises, for Government, and for the courts—win, win, win. It would also ensure greater confidence in the Government’s ability to deliver on the scale of change they propose and hold the new investment security unit to account in an efficient manner. When the Minister gets to his feet, I hope he is ready to accept the new clause, but in the unlikely instance that he is not, will he set out how the new investment security unit will be held to account specifically by small and medium enterprises in a timely manner?
To give what James Palmer from Herbert Smith Freehills said in evidence more fully, he said:
“there is one data point I did not agree with: the suggestion that there will be an 18% increase in the reviews; it was framed quite narrowly. In my maths, 12 reviews in nearly 20 years going to nearly 2,000 a year is well over a 10,000% increase.”
Does the Minister agree with that maths, rather than that which is in the impact assessment? James Palmer went on to say:
“I think that that is a very important context in which to look at this—as the world outside looks at this, it is potentially looked at as pretty seismic change by the UK.” ––[Official Report, National Security and Investment Public Bill Committee,
Does the Minister not think it is appropriate that we have a complaints procedure for this seismic shift? The Competition and Markets Authority currently has a procedural officer mechanism overseen by someone independent of the merger investigation to mediate process disputes in an efficient manner. This mechanism allows matters such as compliance with timelines, disclosure requirements and redactions to be mediated over in the most efficient and cost-effective way possible, while retaining the full power of the CMA to undertake the investigations it needs to.
I make it clear that we are not suggesting that we should be reviewing whether or not issues of national security are part of this complaints procedure. As with the CMA complaints procedure, this is about process. It is not about whether there is an issue of national security, but about whether or not timelines have been met efficiently, and whether the process has been followed. Indeed, the Secretary of State could set a scope for the procedural officer under the new clause that still created sufficient power to investigate, as BEIS would need to, and to allow a judicial review relief for the most substantive matters, while resolving some process matters efficiently under the proposed mechanism.
I hope the Minister will recognise that, in putting forward the amendment and new clause, we seek to understand better the workings of clause 23, which sets out the meaning of an assessment period—in a way that, I have to say, is not easily understood in terms of timelines. We seek greater clarity about clause 23, which we recognise is essential to the working of the Bill, and to introduce a means by which the small and medium enterprises on which our economic prosperity and, indeed, our recovery from the greatest recession in 200 years rely, so that they can feel reassured that they have a means of holding this process to account, thereby ensuring the better working of the Bill and the more efficient and effective protection of our national security and investment.
We are committed to the regime providing as much clarity, certainty and predictability as possible for businesses and investors. It is therefore right that we are setting out how long the Secretary of State may take to carry out a full national security assessment and make a final decision on a trigger event following a call-in notice.
Subsection (3)(a) provides for an initial assessment period of 30 working days. The Government have taken advice from the security community, and we consider that in the majority of cases 30 working days will allow for a full national security assessment and for the Secretary of State to decide whether to clear the trigger event outright or to impose final remedies on it.
More complex cases are possible, however, and it is important that a longer period is available for the Secretary of State to consider them. The clause therefore enables the Secretary of State to issue a notice to extend the assessment by 45 working days to assess the trigger event further, for example to determine the extent of the national security risk or to decide on appropriate remedies. That is referred to as the “additional period” under subsection (3)(b). The clause also provides for the assessment period to be further extended beyond the additional period, but only with the written consent of the acquirer. That is termed a “voluntary period” under subsection (3)(c).
The Government are clear that extensions should not be used lightly. The clause therefore includes specific legal tests for their use. To extend the assessment into the additional period, the Secretary of State must reasonably believe, as the hon. Lady referred to, that a trigger event has taken place, or is in progress or contemplation, and that this has given or would give rise to a national security risk. The Secretary of State must also reasonably consider that the additional time is required to assess the trigger event further.
To agree a voluntary period extension with the acquirer, the Secretary of State must be satisfied that, on the balance of probabilities, a trigger event has taken place, or is in progress or contemplation, and that this has given or would give rise to a national security risk. The Secretary of State must also reasonably consider—the third bullet point the hon. Lady mentioned—that the period is required to consider whether to impose final remedies or what those remedies should be.
What the Secretary of State may not do is simply extend the assessment period because it is convenient. The clause is drafted in this way to ensure that we protect the investors and businesses that the hon. Lady quite rightly cares about, as do Government Members, and allow them to operate and thrive in our economy. I hope that hon. Members feel assured that the Government have sought to carefully balance the flexibility required for the Secretary of State to deal with the most complex cases and the need to provide businesses and investors with clear time lines.
Just to understand and clarify the point about how realistic the voluntary period might be, in terms of getting the written agreement of the acquirer, in the Minister’s experience, how realistic is it that a business would accede to that? The business might be under financial pressure, looking for cash or a financial injection, which is the whole point about bringing in private equity. How will the Government ensure that that is possible, when all those other pressures are coming into play?
I am grateful to the hon. Gentleman; it is a great question. We are all worrying about the small and medium-sized businesses that his particular angle would very much apply to. He will recall that, in the evidence sessions, we heard evidence to suggest that business founders and directors are best placed to know if their business has a national security angle, so the Secretary of State will clearly work with those business owners, innovators and pioneers to try to mitigate the national security risk while making sure that they can survive and thrive. It is in no one’s interests for them not to do well in the United Kingdom; that would probably create a greater national security threat.
Just to be clear, if a business is desperately seeking that inward investment, surely it would be less likely to write and agree with the Secretary of State about the additional period, because it is desperate for the funds.
I absolutely hear what the hon. Gentleman says. The issue then becomes one of national security. As we heard in the evidence sessions, most founders and directors know exactly what they are inventing and what their intellectual property is, and therefore whether there is a national security risk, however nascent the business may be.
I briefly turn to amendment 22. I am grateful for the Opposition’s continued, and in some ways unexpected, push for ever greater powers for the Secretary of State, who I am certain will be most delighted. The amendment would remove the requirement for the Secretary of State to agree the use of a voluntary period or a further voluntary period with the acquirer to consider whether to make a final order or what provision that final order should contain. I do not believe that would be the right approach.
We have set much store in the statutory timescales provided for in the Bill. It is vital for the businesses and investors that we all care about that they have confidence in when they can expect decisions so that they can plan accordingly, which goes back to the point of the hon. Member for Warwick and Leamington about planning for an investment or fundraising event. That is why any extension of the assessment period, beyond the collective 75 maximum working days of the initial period and the additional period combined, requires agreement from the acquirer in recognition of the fact that the process is being lengthened beyond the customary timeline. Enabling the Secretary of State to do that unilaterally would be a matter of concern for business and investment communities alike.
I thank the Minister for his concern about our encouragement, in our probing amendment, of the Secretary of State having greater powers. When the Minister looks at other organisations, such as the Committee on Foreign Investment in the United States or, even closer to home, the CMA in the UK, which do not have voluntary period extensions, can he understand why there are concerns about how that process would work? What international comparisons has he made?
We talk to our Five Eyes allies and other nations. As the Secretary of State and I set out on Second Reading, we have worked collaboratively with many nations to try to get the balance right so that the Bill does what it does and is proportionate.
I accept that the amendment also attempts to provide some mitigation against that by directly referencing subsection (9). That existing subsection limits the Secretary of State to being able to agree a voluntary period only where he
“is satisfied, on the balance of probabilities, that…a trigger event has taken place” or is “in progress or contemplation”, and that
“a risk to national security has arisen…or would arise.”
He may do so only for the purpose of considering
“whether to make a final order or what provision a final order should contain.”
As such, I gently point out to the hon. Lady that the limitations that she seeks to impose on the Secretary of State through the amendment are already provided for by the clause as drafted. Subsection (3) does not provide a parallel or broader power for the Secretary of State to agree a voluntary period or further voluntary periods for other reasons. It is already subject to the limitations set out in subsection (9). I hope that addresses the hon. Lady’s principal concern. I assure her that, as with so many areas in the Bill, we are singing from the same hymn sheet. For those reasons, I cannot accept the amendment, and I respectfully ask her to withdraw it.
I will turn very briefly to new clause 4. I am grateful to hon. Members for contributing to the debate by suggesting a new clause to allow acquirers to lodge complaints. Under the current drafting of the Bill, the Government can already be held to account on their performance on screening investments. First, the Government can be held to account through the annual report that they are required to publish, as provided for in clause 61. That provision requires the Government to report on the number of notifications that they have accepted and rejected, the sectors of the economy in relation to which call-in notices were given, the financial assistance provided and the number of final notifications given.
Secondly, the Government can be held to account through the judicial review process under clause 49. Acquirers, or indeed any party to the transaction, can claim for judicial review of a relevant decision. Furthermore, throughout the review process, the parties to an acquisition can contact the investment security unit for a discussion about their case and can request to speak to a senior official if needed. Creating a formal complaints procedure would be unnecessarily bureaucratic when acquirers already have better routes available to them if they are unhappy with the decision-making process.
Members from across the House have commented that it is important—the hon. Lady mentioned this earlier—that the appropriate resources are allocated to the investment screening unit. The Government are absolutely committed to ensuring that that happens. It would be unwise to divert some of those staff from undertaking scrutiny of issues of national security to staff a complaints procedure, particularly where JR is available for any serious concern regarding the process of assessment.
I hear the Minister repeatedly referencing the judicial review process without, I am afraid, addressing our point: judicial review is not an option that will give relief to a small, nimble start-up.
I mentioned judicial review as the second way in which the Government can be held to account. The first is the requirement for the Government to report to Parliament annually. Colleagues and Committees will therefore be able scrutinise the work of the unit. Although I understand the hon. Lady’s objective with new clause 4, I am not able to accept it for the reasons that I have set out, and I hope that she will agree to withdraw it.
I am somewhat disappointed by the Minister’s response. I think it is absolutely true, as he said, that as with so much, we are on the same page when it comes to what we are trying to achieve. There are significant issues with the clause as it stands, however, and I do not feel that the Minister has addressed them in his response. He did not, for example—I am happy to take interventions on these points—address the issue of voluntary extensions. We do not see that in the US process, which has a number of stages. It allows 45 days for a national security review, including a 30-day limit for the director of national intelligence to submit intelligence analysis and an option of a 15-day presidential determination if needed, but it does not have a voluntary period for extensions. The CMA in this country does not have a voluntary period for extensions. The Government are introducing a voluntary period.
I thank the Minister for clarifying that as well as having the acquirer’s approval, the Secretary of State has to meet the conditions in subsection (9), and that both the approval and the conditions in that subsection are satisfied on the balance of probabilities. That does not, however, address the issue that my hon. Friend the Member for Warwick and Leamington raised about whether the acquirer is likely to agree to a voluntary period. Without clarity on that point, the clause allows voluntary extensions that, in practical terms, may not prove to be of use to either the acquirer or the Secretary of State.
On the new clause, I do not want to appear cynical, but I am sure that the Minister and those on the Committee who have worked in and with small businesses—particularly in our tech sector and in some of the 17 areas identified for mandatory notification, such as artificial intelligence and data infrastructure—will agree with me when I say that I do think that any small business would see an annual report to Parliament or a judicial review as a relief, given the ever-present desire for investment finance or for progress and innovation at breakneck speed. The Minister has not made a case against the need for a process to address procedural disputes.
I said that amendment 22 was a probing amendment, but I want to test the will of the Committee on supporting greater clarity and understanding for our small and medium-sized enterprises. I will seek to press the amendment to a vote, as I will for new clause 4.