With this it will be convenient to discuss the following:
This amendment would make it mandatory for the Government to inform Parliament if financial assistance given in any financial year, or in any calendar year, exceeds £100 million.
Clause stand part.
My hon. Friends and I have set out how we are seeking to provide constructive support and improvement for this Bill. I am disappointed that the Minister seems to feel that no improvement is possible, but I hope to persuade him otherwise with amendment 24. It is not a probing amendment; it brings a much-needed improvement to what I consider to be an incomprehensible omission in clause 30.
Clause 30 provides that the Secretary of State may, with the consent of the Treasury, give financial assistance to, or in respect of, an entity through a loan guarantee or indemnity, or any other form of financial assistance. The financial assistance must be given as a consequence of him making a final order. That is a key point that I will return to.
Clause 30 further states that during any financial year, if the amount given under the clause totals £100 million or more, the Secretary of State must lay a report of the amount before the House of Commons. It states that during any financial year in which a report has been laid before Parliament, if the Secretary of State provides any further financial assistance under this clause, he must lay before the House a report of the amount.
I set that out to indicate that, as I understand it, the amount of financial assistance that can be provided is not limited. A report must be provided when the amount given under this clause totals £100 million or more, but there is no limit on the amount which can be provided. One would expect the Treasury to provide a limit in any year, but the Bill does not set any limit on the amount of financial assistance that the Secretary of State can make available. It does not, however, provide for any financial assistance in the case of an interim order. The provision applies only to a final order, specifically in clause 30, on page 19, in line 44. That is why we seek simply to change that to include interim orders under the scope of the financial assistance clause.
The theme of the Opposition amendments is that we wish to protect our national security, and we think that the measures could have been taken earlier. Part of the social contract is that that should be done in a way that is fair, clear and certain for businesses, so that they understand the legislative framework as far as possible, and so that they feel that it is fair and in the interests of our national security and, as part of that, our national prosperity.
Given the broad powers that the Bill gives the Secretary of State, about which we have had some back and forth, it is all the more important that the appropriate support should be there for affected businesses. I will not trespass on your good nature by drawing too many parallels, Sir Graham, but we see in the pandemic under which we are suffering that public confidence in the ability of the Government depends on the right amount of support being available for those who are adversely affected. Clearly, one aspect of that is the Government’s ability to provide financial assistance to an entity where Government intervention creates a position of loss for the entity.
We discussed in relation to clauses 24 to 26 the level of remedies, in terms of an interim or final notification and how they may affect an entity. Let us consider the example of a British start-up in some very important area—artificial intelligence, let us say—that has an investor lined up and is looking forward to expanding its work because of that investor. As a consequence of the measures in the Bill, however, a final order prevents the investor from investing in this fantastic start-up.
Let us say for the purposes of argument that this start-up is based in Newcastle—an excellent area for start-ups and innovation to come from. I should say that a fantastic small business in Newcastle will already have greater challenges in finding finance and investors, because unfortunately many potential investors are apparently put off by a short train ride from King’s Cross. Once the start-up has found a potential investor, under the provisions of the Bill it is identified that such an investment would form some present or future threat to our national security, so the start-up is prevented from raising funding as a direct consequence of the new national security screening regime. We can all imagine—in fact, it does not require imagination; we can simply anticipate––the huge financial challenges that that might create for small, innovative start-ups. Financial assistance is a critical part of making the new regime effective. A key question is why the Government are only creating the power to provide such assistance in the making of final orders, not interim orders.
I asked earlier what the maximum period for an interim order should be, because with the provisions in clause 23 for an initial period, an additional period, a voluntary period and an additional voluntary period, an interim order could last for a considerable time. I asked the Minister whether there was a maximum time for an interim order. Regardless, an interim order could impose major costs on a British start-up or prevent an acquirer from acquiring or investing in one should it increase its level of influence in an unacceptable way. That could cause the loss of business-critical investment. Does the Minister consider that it would be appropriate to be able to provide financial assistance in the case of interim orders as in the case of final notices?
A similar concern applies to more general instances where financial assistance will be critical in securing national security. Has the Minister considered a wider power of financial assistance that would allow the Government to intervene pre-emptively in cases where Government investment could secure strategic assets for the UK, even if a precise trigger event has not occurred? The clause provides for financial assistance when a final order has been made, but has he considered provision for financial assistance before a final order has been made or an event has been called in? I have in mind cases such as OneWeb satellite, where the Government made a major investment just a few months ago to secure, as we are told, strategic assets, yet that was outside trigger events or a case such as bankruptcy proceedings. Does the Minister consider that existing statutory powers are sufficient, and clear enough in law, to provide for such pre-emptive investment? In the case of OneWeb, there certainly was not sufficient clarity about whether the investment was being made for national security reasons or to replace existing investments. There was not sufficient clarity or accountability. Would it not be better to place such investments, which are made in the interests of national security, within the context of the Bill? Would there be a benefit from placing such powers in statute?
Beyond specific events where the amendment would put interim orders in scope, there is a question about the toolkit available to Government for appropriate financial assistance. Clause 30(2) says that financial assistance
“means loans, guarantees or indemnities, or any other kind of financial assistance (actual or contingent).”
That is slightly circular. Will the Minister clarify whether equity investments come under
“any other kind of financial assistance.”?
The Minister is nodding—I am not sure whether that means that he will clarify or that the equity investment is financial assistance—but can he say if it is included in the scope of the Bill or, if not, if it should be. The stakeholders within the artificial intelligence sector have specifically asked me to raise that point.
Where a small business is unable to raise equity investments because of a Government final order, giving it further debt funding might not be any help if the business’s future inability to make loan payments is threatened. Again, in the crisis in which we find ourselves we see the reluctance of business to take on further debt. In those circumstances, loans may not be considered financial assistance. The Government and the Minister need to clarify whether equity investments are part of financial assistance.
The Minister needs to accept our amendment with regard to interim orders or explain why interim orders do not raise the need for financial assistance in the same way as final orders. That is a critical question so that the Government have the powers they need to act decisively and effectively to protect national security, and to do so in a way that is fair to our small businesses.
I point to some of the evidence we heard in the evidence sessions. Christian Boney from Slaughter and May said:
“I think you make a very valid point in the context of start-up and early-stage companies. The concern I would have principally is with those companies that are in that phase of their corporate life…For them, this regime is going to make the process of getting investment more time-consuming and more complex.”––[Official Report, National Security and Investment Public Bill Committee,
Will the Minister consider whether the Bill, as it stands, addresses that?
Similarly, Michael Leiter said:
“The place where I think this is more problematic…is in smaller-scale, early-stage venture investments. That is where deals can go signed to close within hours or days, and having that longer period could be quite disruptive.”––[Official Report, National Security and Investment Public Bill Committee,
We understand that interim orders and assessments can be extended. It is crucial that the Government respond to those points and think hard about how to put into statute more general powers than this equity funding, especially for cutting-edge start-ups with strategic assets.
We share the aim of the Bill to secure our national security and to ensure that assets that are critical to our national security do not fall under the influence of hostile actors. If in so doing we undermine those assets to the extent where they can no longer contribute to our national security, that is effectively an own goal. I fail to see how the provisions of this clause avoid such an own goal. It would be much to the improvement of the Bill and of confidence in small businesses, particularly start-ups in the sectors affected, if the appropriate form of support could be clearly made available.
We are considering clause stand part, too. We recognise the importance of giving financial assistance, which is what the clause sets out to do. With regard to reporting, I would be interested to understand why the sum of £100 million has been chosen. I am not saying I have another sum to suggest, but why that sum has been chosen is something to understand.
I think the impact assessment is cited more for what it does not include than what it does, but again, it includes no estimates of financial assistance that the Government might have to provide and the associated costs that would be incurred. Will the Minister say why the sum of £100 million was chosen?
The clause also says that,
“the Secretary of State must as soon as practicable lay a report of the amount”.
I imagine that a report of the amount could be a very short one—“£100 million”—but I think all of us who have worked in start-ups and in the tech sector are quite aware that although the financial assistance provided is very important, it also very important to monitor its impact. For example, if it is a loan, in what ways will it be repaid and over what time period, and is the investment effective? I may be mistaken, but I do not see anything in the clause that sets out any need to report anything other than the amount. That is not what I would consider accountability. More generally, for a Government who I hope wish to show good practice on investment and taxpayer value for money, having more information on the amount—but also on how it was used, monitored, how it is to be repaid if it is a loan, and its impact—would also be desirable. On that basis, we support the intention of the clause, but we feel it is in need of some significant improvement.
I think it was Cicero who said:
“Brevity is a great charm of eloquence.”
In that regard, I will keep my remarks brief. Obviously, what we propose here is incredibly straightforward. It would expand the scope from a financial year to a calendar year. I would not wish to imply that I do not necessarily have complete and utter confidence in the UK Government at all times, and that they might wish, perhaps, to stay away from and overcome any form of scrutiny by making some sort of payment at a certain point in time where the overlap is with a financial year. An amendment such as this, which is succinct and clear, would allow for everyone to be quite happy that where there is a need for the UK Government to put in place a financial assistance level of £100 million, irrespective of whether it is a financial year or a calendar year, Members are fully apprised of that spend.
For the benefit of the Committee, I will begin with clause 30 stand part, which makes provision for financial assistance. I will then turn to amendment 24, and amendment 28 from the hon. Member for Aberdeen South.
The Government recognise that final orders, in exceptional cases—and I have to stress in exceptional cases, when we are administering taxpayers’ money—may bring about financial difficulty for the affected parties. This clause therefore gives the Secretary of State the legal authority to provide financial assistance to, or in relation to, entities in consequence of the making of a final order, to mitigate the impacts of a final order, for example. It might also be used where the consequence of a final order in itself might otherwise impact the country’s national security interests.
Hon. Members will know that such clauses are required to provide parliamentary authority for spending by Government in pursuit of policy objectives where no existing statutory authority for such expenditure already exists. I am confident that such assistance would be given only in exceptional circumstances when no alternative was available. For example, the Secretary of State could impose a final order blocking an acquisition of an entity that is an irreplaceable supplier to Government, subsequently putting the financial viability of the entity in doubt. In such a situation, the Secretary of State could provide financial assistance to the entity to ensure that the supplier could continue operating while an alternative buyer was found.
Such spending would of course be subject to the existing duty of managing public money—the hon. Member for Newcastle upon Tyne Central asked what checks and balances are in place—and compliant with any other legal obligations concerning the use of Government funds. To provide further explicit reassurance regarding the use of the power, subsection (1) specifies that any financial assistance may be given only with the consent of the Treasury.
The clause also covers reporting to the House when financial assistance is given under the clause. I will speak to that further when I turn to the amendments. I am sure that hon. Members will see the clause as necessary and appropriate, and have confidence that our Government, and future Governments, will have only limited, but sufficient, freedom to provide financial support under the regime as a result.
Amendment 24 would permit the Secretary of State to provide financial assistance in consequence of making an interim order, which was the hon. Lady’s point. As she will know, the Government take the management of our country’s finances very seriously, and such a power naturally requires appropriate safeguards to ensure that public money is spent appropriately. Restricting the power to final orders ensures that the Secretary of State may use it only to assist entities once a national security assessment has been completed and final remedies have been imposed—for example, to mitigate the impact of a final order on a company. It would not be appropriate to use the power to provide aid to an entity that is only temporarily affected by an interim order, which will last only for a period of review, likely to take 30 working days and, at most, 75.
I thank the Minister for his comments. When he says that an interim order can be in place for at most 75 days, I think he is adding 30 days, which is the initial period, to 45 days, which is the additional period. I am afraid that he is forgetting the voluntary periods.
Yes, but the point remains that no final order has been made, and public money will be spent only in very limited circumstances, as I mentioned, in consequence of a final order. Any expenditure will be subject to appropriate safeguards.
Amendment 28, tabled by the hon. Member for Aberdeen South, would require the Secretary of State to inform Parliament if financial assistance given under clause 30 in any financial year, or any calendar year, exceeds £100 million. If during any financial year the assistance given under the clause totals £100 million or more, subsection (3) as drafted requires the Secretary of State to lay a report of the amount before the House.
If, during any financial year in which such a report has been laid, the Secretary of State provides any further financial assistance under the clause, subsection (4) requires that he lay a further report of the amount, so if he makes a report before the end of the year and then spends more money, which was the hon. Gentleman’s point, the Secretary of State will need to update the report. As I am sure the hon. Gentleman appreciates, the Government are committed to providing as much transparency as is reasonably possible when it comes to the use of the new investment screening regime provided for in the Bill.
The amendment would effectively mean that the Secretary of State must stand before Parliament twice—likely, once at the end of the calendar year and again at the end of the financial year, a few months later—to lay what is likely to be a rather similar report of the amount given in financial assistance grants under the clause. Although the Secretary of State would be flattered by his popularity, I am sure the hon. Member for Aberdeen South would agree that seeing him for that purpose twice in such a short time would be a case of duplication, and the Secretary of State would not want to take up his valuable time unnecessarily. I can assure him that the Secretary of State is fully committed to transparency and will ensure that Parliament has the information that it needs to track the use of the powers in the regime.
For those reasons, I am unable to accept the amendments, and I hope that hon. Members will not press them.
I thank the Minister for his comments, but I am disappointed that he seems determined merely to respond from his notes, regardless of the validity of the points put to him. On why it is inappropriate for financial assistance to be provided in the case of interim orders, his reason—as far as I can understand it—was purely that interim orders were too short to make any difference. Although he cannot say how long an interim order will last—he can say how long he thinks it may last—it could go on indefinitely, because I cannot see in clause 26 a limit on the number or length of voluntary periods that may be agreed for the assessment. On that basis, the assessment could last a significant time.
In any case, I hope that he, as the Minister for Business and Industry, is aware of how fast-paced the technology sector, in particular, can be. The inability to raise finance at a critical moment or to sell to a particular customer, for example, may cause significant financial and commercial damage to a small business or a start-up. I did not hear the Minister reject that point, yet he has rejected the need for any support during the period of an interim order. As I have shown, that is a mistake, and that is why we will press the amendment to a vote.
The Minister also made no response to my question about equity.
I apologise—I should have responded to that, and it was remiss of me not to. We will consider all forms of financial assistance, including equity.
To respond to the point the hon. Lady has just made about companies that may have IP or a product in its early, nascent stage of growth, that are struggling and that are fast-moving in terms of raising funds, we at BEIS talk to many companies like that, outside the remit of the Bill, and we look to support them in a variety of ways.
I genuinely thank the Minister for the clarification that equity investments will be included in this bit of the Bill.
We are focusing greatly on small and medium-sized businesses, but this can also happen to slightly larger organisations, which might be outside the commonly used definition of an SME. When a larger business is distressed because it has lost a major customer and finds itself in financial difficulty, it needs that cash injection, so that sort of assurance is important.
As always, my hon. Friend makes a really important point, and one that I had not thought of. The point about this being applicable to medium-sized businesses is absolutely right. In some ways, medium-sized businesses can often be at a critical point; cash flow is so important, and they could suddenly become very distressed, but with the right cash flow or the right injection of capital, they could expand greatly.
Will the Minister consider this? During the pandemic, when certain innovations have become incredibly important, and cash and support are needed to significantly increase the volume of production—of a vaccine, shall we say, with which the Minister is intimately concerned—a delay of 30, 70 or whatever days will create a huge problem for a medium-sized or growing business, as well as for small businesses.
In response to a point made by the hon. Member for Warwick and Leamington about a company being in distress because it has lost a client, irrespective of the national security and investment regime we talk to such companies all the time. Whether they are small, nascent, medium-sized or large, we have other avenues of assistance to help those companies. That is the point I was making.
I thank the Minister for that, which brings me to the point that I wanted to make in response to him. I discerned that that seemed to be his point—that the Bill may cause harm to companies, but that rather than seeking redress under the Bill, or this clause in particular, they should seek redress or some kind of compensation through the well-oiled machinery of Government that provides support for small and growing businesses. I am afraid that that response will be met with undiluted cynicism among the many small and medium-sized businesses that have dealt with Government.
Again, we are talking about a fast-moving situation. Perhaps the Minister will provide examples of where, on such timescales, support has been provided. More importantly, if that is a consequence of the Bill, why would it not be addressed in the Bill, especially as we have a clause that seeks to address this issue in the case of notices of final order. I gave the example of OneWeb satellites, which was a major investment that took some time to come about, and we were not clear whether it was a strategic asset or national security. Clarity is critical.
This is important. I take on board exactly what the Minister is saying, but I am sure he can assure me on this. To give one specific example, Imagination Technologies is a fantastic company, which lost its major customer, which was Apple. Chinese-backed investment—private equity—then came in. The US refused the company the chance to buy into a US business in 2017. I would love to think that whoever was in BEIS in 2017 looked at it closely and offered support. This might be beyond our remit, but it is important that such businesses are reached out to. Will someone in the Minister’s team confirm that the Government tried to support Imagination Technologies?
I very much hope that the Minister or his Department will respond to that. My hon. Friend gave an example of an innovative company in need of support from the Department. Presumably it was similar to the cases we are discussing now, and that support was offered. If confirmation is not forthcoming, we should perhaps look for it via a parliamentary question, which might help us.
I want to say one word about amendment 28, which seeks to ensure that the term of the reporting does not undermine what is reported or its effectiveness. The Minister said that if the £100 million barrier was crossed, another report would have to be made on any further expenditure. However, the amendment concerns a small amount of expenditure in a given period, followed by a larger amount, and whether the periods in which the expenditure was made might mean that a report did not have to be made. The Minister also did not address the question of why £100 million was the right threshold for making a report. On that basis, I wish to press the amendment.