National Security and Investment Bill
Tuesday 16th March 2021
(3 years, 1 month ago)
Lords ChamberNational Security and Investment Bill 2019-21 View all National Security and Investment Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 165-III Third marshalled list for Committee - (11 Mar 2021)
Lord Lansley
“(aa) prescribe circumstances which are not to be regarded as gaining control of a qualifying asset which is the subject of an export control order under the Export Control Act 2002 and related provisions, and”Member’s explanatory statement
This amendment would enable the Secretary of State in regulations to set out where the control of assets under the Export Control Act should not to regarded as gaining control under this Act.
Lord Lansley (Con)
My Lords, this first group consists of two amendments, both in my name and both relating to the interaction of the export control regime with the investment screening regime. Amendment 39 would insert into Clause 11, which relates to the exceptions to the general definition of the control of assets, a power for the Secretary of State by regulation to prescribe where the control of a qualifying asset is not to be regarded as controlled under this regime. It would give the Secretary of State freedom to define circumstances where assets that are to be exported and are controlled by the export control regime would not be regarded as controlled for these purposes.
Amendment 87 is a bit more straightforward in that it would introduce a new clause requiring the Secretary of State when making final orders under the Act to take account of the effects of the Export Control Act and related provisions on that qualifying asset. Your Lordships will note in the Bill an interaction with the Competition and Markets Authority regime, but no similar provision is made for the interaction of the export control regime with this regime.
The Bill offers no substantive recognition of the interaction between the export control regime and assets under this regime. That is surprising, because paragraphs 3.85 and 3.86 of 2018 White Paper state—please forgive me, it is a fairly long quote:
“After the introduction of the reforms described in this White Paper, the export control regime will remain the key means of restricting trade in strategic goods where this might raise national security risks … The Government wishes to ensure that the new reforms are as proportionate as possible, and are not used instead of other, more targeted or proportionate policy levers. As such, where national security concerns relate solely or primarily to the export of goods, the Government expects that the export control regime would remain the primary means of protecting national security.”
The purpose of these amendments is to ask whether that is still the Government’s policy. If it is, why is it not reflected in the structure of the powers? Should it not be included in the Bill to make that clear?
The Minister may say that since the export control regime is under the control of Ministers, they have all the administrative means at their disposal to bring the two regimes together, whereas there is a separate statutory and independent agency in the Competition and Markets Authority. But that would not be transparent to those affected. I know from talking to people who would be affected that there is a long-standing relationship with the export control unit of the department and an understanding of how its powers are used. To the extent that that transparency and predictability are maintained explicitly, I think it would greatly assist those who are to be affected by these powers.
It is surely the case that Ministers, when making a final order, will take account of where qualifying assets are the subject of an export control order. That being so, I am looking not only for an assurance from the Minister that it is the Government’s intention to use the export control regime as the principal means by which the export of qualifying assets is controlled but for a recognition of this in some form in the legislation, to enable all those affected to be aware of the relationship between these two regimes and for it to be transparent. I therefore urge my noble friend to consider the merits of Amendment 87, which would introduce a new clause that simply did that without placing any constraint on Ministers. I beg to move.
Lord Purvis of Tweed (LD)
My Lords, I am grateful to the noble Lord for bringing forward these questions in such a characteristically forensic manner. The Committee will be aware that I have not participated in it so far, and I therefore intend to be brief and shall raise only a small number of questions seeking clarification from the Minister on the interaction with the Export Control Act 2002 and on an associated issue.
It has been fascinating listening to the contributions in Committee up to this point about some of the opacity in the interaction with the other legislation and, indeed, how the investment security unit will operate within the department that will cover export control licence applications, which will also make considerations on national security grounds and how they interact. It was interesting to note that in the House of Commons, on the Prime Minister’s Statement on the integrated review, Julian Lewis, the chair of the Intelligence and Security Committee, criticised the Prime Minister for not allowing there to be full scrutiny of how the investment security unit will operate. I know that my noble friend Lord Fox will raise this later and will lead on it.
How will that interaction be on the export licence regime? One area where there have been calls for the Government to have annual reports on the operation of this legislation was interesting, given the fact that under the Export Control Act 2002 there are annual reports, and there is clarity as to how many applications and the various different criteria for refusal or putting on hold applications. An interesting aspect of the Export Control Act 2002—and I reread the Explanatory Notes to the legislation after seeing the amendment from the noble Lord, Lord Lansley—is that, on one reading of the Act, which does not go into the same level of detail for defining companies as this legislation, it refers to people being part of the licence, for them and their knowledge and for their providing technical assistance. There certainly can be companies that operate almost exclusively on providing technical assistance, in the technical services industry in particular; they are covered by the Export Control Act for their work that they will then carry out, and the Government take a view as to whether that is something that should be considered as an export.
Secondly, there are companies that operate within hybrid technologies, as the Export Control Act indicated, for technologies and technical assistance, and controls can be imposed for the transfer of technology from the UK and by UK persons, anywhere and by any means. It is interesting that Section 4 of the 2002 Act says that,
“‘trade controls’ …means the prohibition or regulation of … their acquisition or disposal … their movement”,
and associated activities of any goods. The Minister may say that that means specific items, goods or technologies of a company but not the company itself—therefore, this legislation covers the company. It would be helpful if the Minister could indicate something about the interaction.
It struck me that, if any Government indicated that a certain technology or good required prohibition from being exported or their trade in that to be regulated, that would be considered under criterion 5 for national security grounds. What if the interaction of that company is then the subject of a review under this legislation, or indeed that parent company is taken over, or there are shares that meet the trigger requirement? What is the status of the export licences that that company has—because the Government have already indicated that they have sought and maybe made a decision on national security grounds? It is worth pointing out that we know from the annual report that last year there were 80 refusals on national security grounds under criterion 5 in the UK—it indicates for the national security grounds of the UK, the EU and other friendly countries. In the last set of discussions, it was interesting to hear about the interactions with decisions that other friendly countries make. The Export Control Act makes determinations for that.
Lord Grantchester (Lab)
Amendments 39 and 87, tabled by the noble Lord, Lord Lansley, probe the Minister around the question of the interaction of the NSI regime with the export control regime. The Committee must be assured that this new regime is not buried within the Business Department but works effectively across government, not least in relation to export controls. The Government’s response to the sector consultation in the report already mentioned states
“how the NSI regime sits alongside export controls to provide a comprehensive regime protecting our national security capability”.
It is not merely a question of sitting alongside, however that may be interpreted, but of interacting and co-ordinating with the Department for International Trade. The Government seem to recognise this in the comment:
“We must ensure that the export control criteria cannot be circumvented by allowing the acquisition of companies that produce such goods, rather than buying the goods themselves, without effective screening.”
More clarity and information in the procedures to this eminently sensible statement would be very welcome from the Minister.
The Government responded to the consultation that they intend to capture all materials that are considered likely to give rise to national security concerns and which are contained in the relevant legislation set out in the UK’s strategic export control list. I would be grateful if the Minister could provide better information on their intentions, and how and when this will become clear and transparent. Will he provide a guarantee that this will happen—the assurances that the noble Lord, Lord Lansley, has required during the passage of the Bill?
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
First, I thank my noble friend Lord Lansley for these two amendments, which seek to ensure seamless integration between the new regime provided for by the Bill and the existing export control regime. I shall take his amendments sequentially.
Amendment 39 seeks to ensure that the Secretary of State can, through regulations, exempt from the regime certain acquisitions of control over qualifying assets that are subject to export control orders. Clause 11 provides for exceptions relating to control of assets. Subsection (1) sets out that acquisitions made by individuals for purposes wholly or mainly outside the individual’s trade, business or craft are not to be regarded as gaining control of a qualifying asset and are therefore excluded from the scope of the call-in power. This does not apply in relation to an asset that is either land or subject to certain export controls set out in subsection (2)(b).
Subsection (3) also provides a power for the Secretary of State to amend the list of assets that are outside the scope of this exemption or to prescribe other circumstances in which a person is not to be regarded as gaining control over a qualifying asset. That includes being able to prescribe circumstances in which the acquisition of an asset subject to export control legislation is not to be regarded as gaining control over a qualifying asset. Any use of this power in subsection (3) would, of course, be guided by the operation of the regime in practice and any patterns of activity that are observed. As such, I can therefore assure my noble friend that the Bill already provides for what his amendment intends to achieve.
Amendment 87 would require the Secretary of State to ensure that any interim orders or final orders made in relation to acquisitions of control over assets take into account controls imposed under the Export Control Act 2002 and related provisions. I thank my noble friend for his proposal and commend the intent behind it. It is, of course, very important that the Secretary of State’s use of the powers provided for by the Bill is in keeping with the Government’s measures under other legislation. The Secretary of State must take into account all relevant factors when making decisions about the use of interim orders and final orders.
The legal tests in the Bill require the Secretary of State, before making an order, to reasonably consider that the provisions of the order are necessary and proportionate for the purpose. In the case of final orders, that purpose is to address a risk to national security, and in the case of interim orders, it is to prevent or reverse an action that might undermine the national security assessment process. Whether controls have been imposed under export control legislation will be relevant to whether the envisaged provisions of an order are necessary and proportionate. For example, where export controls in relation to an asset are already in place, it may not be necessary or proportionate to make an order under this Bill prohibiting the transfer of the asset overseas, but this will depend on the facts of each case.
Addressing the questions of the noble Lord, Lord Purvis of Tweed, about why we need the Bill when we already have the export control regime, I say that the export control regime is a licencing regime for certain controlled goods. It is an important part of the safe- guarding of our national security and it sits well alongside the proposed national security and investment regime. The two regimes are distinct though, and do not perform the same role. For example, the export control regime does not provide the Government with the ability to scrutinise acquisitions of UK companies or direct the use of sensitive assets used in the UK, whereas of course the NSI regime would.
On the noble Lord’s points about standard individual export licences if they have been granted for an export, I tell him that a standard individual export licence is granted to one person to export specified items to a named recipient. If the parties involved precisely follow the terms of a standard individual export licence that has already been granted following an assessment of national security risks, it is unlikely that the Secretary of State would reasonably suspect that the export might give rise to national security risks. In this situation, it is unlikely that he would be able to call that export in under the NSI regime. However, it is important to say that any decisions would need to be made on a case-by-case basis. It is important that the Secretary of State retains the ability to call in and scrutinise trigger events involving the export of assets in the event that national security risks are present.
The noble Lord asked about Northern Ireland. Qualifying entities as assets in Northern Ireland sit within the scope of the Bill, and that ensures that there are no loopholes. A trigger event under the Bill is not based on the application of EU law. For completeness, I should also say that the Secretary of State will, in any event, be subject to public law duties requiring him to consider all relevant factors when deciding whether to make an order under the Bill. Therefore, where export controls are relevant, the Secretary of State will need to take them into account when making that order.
I hope that that has explained, for the benefit of the House, the interaction between the two pieces of legislation. With the explanations that I have provided, I hope that my noble friend will feel sufficiently reassured that his concerns have been taken into account, and that he will not press his amendments.
Lord Lansley (Con)
My Lords, I am grateful for each of the contributions to the short debate. They were helpful and, indeed, added to the questions. The noble Lord, Lord Purvis of Tweed, referred appropriately to the Export Control Act provisions. I remember that I was on quadrilateral committee in the other place, about 15 or 16 years ago, so I remember how these issues were considered at that time. Indeed, there was a level of parliamentary oversight of the export control regime, which may be something we refer to at a later stage. He raised some good points: I thought the point about the EU export control regime was a very good one. The noble Lord, Lord Grantchester, made an interesting point about the interaction with the Department for International Trade in this context.
If I understand my noble friend correctly, he is more or less saying that the power under Clause 11(3)(b) would enable the Secretary of State to prescribe, by regulation, such circumstances as necessary, so in that sense my Amendment 39 is not necessary. I agree; it is not necessary but certainly the explanation of the interaction between the two regimes is desirable. However, Amendment 87, proposing a new clause, perhaps drafted differently to make it clearer about the interaction between the two regimes—both at the point where a call-in notice has to be considered, as well as the point at which interim and final orders are made—would be very useful. What I have heard from my noble friend suggests that, by administrative means, using the powers in the Bill and under public law requirements, the Secretary of State will have regard to the export control regime when using his powers under this regime. That is undeniably true. I think we all knew that, but there is much more that we put into legislation, particularly with a new system, that helps people who are to be affected by it to look at it and understand how it works.
What I found deeply surprising was that such an important part of the Government’s policy intentions—that the export of goods should still be primarily controlled by an export control regime—was not even referred to in the Bill or in the Government’s response to the consultation. It is as if it did not exist, but it does exist and it is important, as the Minister’s reply suggested. I shall reflect on what he said, but it may well be that there continues to be a “desirable interaction” clause in the Bill that makes it very clear to all those affected that the export control regime plays a significant part in the control of qualifying assets where they are to be exported. However, based on what my noble friend said, I beg leave to withdraw the amendment at this stage.
The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
We now come to the group beginning with Amendment 43. Anyone wishing to press this or anything else in the group to a Division must make that clear in the debate.
Amendment 43
Baroness Noakes
“( ) If an acquisition has been notified under section 14 and the Secretary of State has not issued a call-in notice under section 14(8)(b)(i) within the review period specified in respect of that acquisition, the Secretary of State shall be deemed to have approved the acquisition.( ) If an acquisition has been notified under section 18 and the Secretary of State has not issued a call-in notice under section 18(8)(b)(i) within the review period specified in respect of that acquisition, the Secretary of State shall be deemed to have approved the acquisition.”Member’s explanatory statement
This amendment is to give certainty that if the Secretary of State has not issued a call-in notice in respect of acquisitions notified under the mandatory or voluntary procedures, they can proceed and cannot be voided under Clause 13.
Baroness Noakes (Con)
My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, for adding her name to Amendment 43. I think it was the noble Lord, Lord Clement-Jones, who commented earlier in one of our Committee sessions that the word that would recur in our deliberations is “certainty”, and that is what lies behind my Amendment 43.
If a transaction is a notifiable acquisition, it will be void under Clause 13 unless the Secretary of State has approved it in the ways set out in Clause 13(2). An acquisition subject to the mandatory notification procedure under Clause 14 will give the Secretary of State 30 working days from the time that he accepts the notice either to give a call-in notice or to notify that no further action will be taken. In the latter case, that is treated as an approval for the purposes of Clause 13.
My Amendment 43 attempts to deal with the situation in which a mandatory notification has been made but the Secretary of State has neither called it in nor made a notification that no further action will be taken. Without this amendment or something like it, a transaction could be stranded in no man’s land, having been neither called in nor told that no further action will be taken. I am sure that there would be the possibility of some form of legal action to force the Secretary of State to do something, but those involved in transactions should not be put to that sort of expense in terms of time and effort. Clause 13 is so draconian in voiding transactions that the parties involved deserve the clarity of a definitive outcome so that they can proceed with certainty.
My amendment also deals with the similar situation that could arise under Clause 18, where a voluntary notification has been made and, at the end of the review period of 30 days, the Secretary of State has neither issued a call-in notice nor made a notification that no further action will be taken. My amendment seeks the same clarity and certainty for voluntary notifications.
Amendment 67 in this group, in the name of my noble friend Lord Hodgson of Astley Abbotts, would achieve a similar effect in respect of voluntary notifications. I have no particular attachment to my form of drafting, but a solution should be found in this Bill to the problem of both mandatory and voluntary notifications. I beg to move.
Lord Hodgson of Astley Abbotts (Con)
My Lords, as my noble friend Lady Noakes said, Amendment 67 deals with Clause 18 on the voluntary notification procedure. I entirely support what she has said and her amendment. Like her amendment, Amendment 67 is to deal with no man’s land, but it adds a further wrinkle to no man’s land beyond that which she covered in her remarks. I am grateful for the support from the noble Lords, Lord Clement-Jones and Lord Bilimoria, and I have been reliant on the expertise of the Law Society for the detailed drafting.
As I say, this amendment is concerned with voluntary notification procedures. The objective behind the establishment of voluntary notification procedures seems entirely praiseworthy in that it can speed up the investment or divestment process for those involved by seeking in advance a decision by the Government on whether the proposed action will be subject to a call-in notice. If the Secretary of State decides to issue a call-in notice, the clock starts running on the 30-day period for initial assessment.
So far so good, but the Bill as drafted is not clear —as my noble friend made clear—on the time the Secretary of State has in which to decide, following a voluntary notice, whether he or she should issue a call- in notice. The only guide we have is under Clause 18(5):
“As soon as reasonably practicable after receiving the voluntary notice, the Secretary of State must decide”
and so on. This does not give any clear idea of how elongated this process may be. In particular, the use of the word “practicable” is rather strange—practicable for whom and in what circumstances? The solution to this is to redraft the clause so that unless the Secretary of State responds to the voluntary notification, it is deemed to have been accepted. That triggers the 30 working day period, so gives an end date by which the company or the investor will achieve clarity.
Amendment 67 also aims to correct a procedural anomaly in the current drafting, which touches on a point that was the subject of a discussion between myself and my noble friend Lord Lansley on the first day in Committee. I think this point goes beyond where my noble friend’s amendment went. It is as follows: the Secretary of State has this 30 working day review period to decide whether to issue a call-in notice or notify the parties that no further action will be taken, but the drafting of Clause 18(9) appears to muddy that clarity when it says that the review period
“does not affect the operation of the time limits in subsections (2) and (4)”
of Clause 2. This was the point raised by my noble friend on our first day. This would appear to mean that the Secretary of State could fail to make a decision within the 30 working days but would still have up to six months from becoming aware of the trigger or five years from the date of the trigger to serve a call-in notice. The same difficulty applies to Clause 18(8)(b), which allows the Secretary of State to inform the parties after considering a voluntary notification that no further action will be taken. Again, it seems overridden by the provisions of Clause 2(2), with the six months or five-year period allowing for further reflection by the Secretary of State.
Amendment 67 aims to cut through this Gordian knot by requiring the Secretary of State to make a decision on the voluntary notification by the end of the 30-working day period, and the absence of such a decision would be taken as approval. Objectively, that is to give clarity and certainty to investors, as we are trying to do throughout the Bill. Without an amendment such as this, the whole purpose and the advantages of the voluntary notification procedure could be undermined.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I have added my name to the amendment in the name of the noble Baroness, Lady Noakes, and I support everything that she said. I also support what I might call the companion Amendment 67 from the noble Lord, Lord Hodgson, which has been signed by my noble friend Lord Clement-Jones. I also agree with what was said there.
I favour mechanisms to give certainty, and the way the Bill operates at the moment means that, absent a call-in or other response, a business is left in no man’s land—as the noble Baroness, Lady Noakes, called it. Indeed, the noble Lord, Lord Hodgson, pointed out that even if you escape from no man’s land, there is a piece of elastic that pings you back in again for up to five years.
I realise that with a new system the Government may not know how well it will operate, but many noble Lords have repeatedly expressed concern, and I am coming from the standpoint that it is totally unreasonable to push all the uncertainty on to industry.
We have operated without these measures for a long time—maybe for too long—but to switch to draconian uncertainty overnight does not seem fair. There needs to be a point at which no response is an all clear, even though that itself is unsatisfactory compared with the positive receipt of an all clear notice in your hand.
I have nothing else to add, but I support the amendments. The Government need to take notice and to make this whole process more workable for industry.
Baroness McIntosh of Pickering (Con)
My Lords, I am delighted to support Amendment 67 and, by the same token, everything that my noble friend Lady Noakes said in connection with her amendment. The two dovetail nicely together. It will be for the Government to determine which drafting is the best. I welcome my noble friend Lady Bloomfield to her position. I am delighted to be in the Chamber rather than in the virtual Chamber; it is an altogether more pleasant experience.
The consequences of the current drafting of Clause 18, as so ably set out by my noble friend Lord Hodgson of Astley Abbotts, together with Clause 2(2), leave everyone in a very precarious position, as the parties involved would have literally no clarity as to any certainty or finality. My understanding is that the parties would have to proceed to complete the transaction before any time limit started to run. Perhaps my noble friend the Minister could clarify that.
I welcome Amendment 67 in particular as giving clarity. I thank the Law Society for bringing it to our attention and my noble friend Lord Hodgson for bringing it forward, with the able support of the noble Lords, Lord Clement-Jones and Lord Bilimoria. I hope that my noble friend the Minister will look favourably on these amendments. If she is not minded to, will she undertake to bring forward amendments of her own? It would be very unfortunate to leave the parties in what my noble friend Lord Hodgson described as a no man’s land, without any degree of clarity or finality.
Lord Naseby (Con) [V]
My Lords, I very much welcome the amendments from my noble friends Lady Noakes and Lord Hodgson. Any of us who has worked in financial services, either before we came into Parliament or while we were in Parliament at certain stages, knows that it is difficult enough to put together a financial situation, but that the worst thing in the world is to not know the date by which something must be concluded.
Indeed, I reflect that London is, and I hope always will be, a leading financial centre in the world. In that context, we need certainty. Noble Lords will know that I have worked in south Asia. There was continually a degree of uncertainty there on some aspects of financial matters. In fact, major companies always had somebody to explain things to them, or to manoeuvre, in the nicest possible way, a situation. We do not want any of that. We really do want certainty and not this no man’s land that has been referred to.
I wonder about just one point, though. There might at some point be a situation where circumstances are such that, if these amendments are made or made in a slightly revised form, there must be some reserved power for national security. We have possibly experienced it in the pandemic that we are currently in. Some countries smaller than ours have suffered major power failure, and one could see the whole of the City of London being taken off the grid and everything else due to some unexpected event.
I am very much behind what my noble friends said in their amendments. I hope that the Government will respond to them, because they are needed, but I will understand if there is some national security dimension to the Bill that is not immediately obvious.
Lord Clement-Jones (LD)
The noble Baroness, Lady Noakes, and the noble Lord, Lord Hodgson, have demonstrated exactly why Committee is so important. The way they have teased out the real meaning of these time limits under Clauses 14 and 18 has been revelatory, if we can call it such.
I very much like the no man’s land metaphor used by the noble Lord, Lord Hodgson, but, under Clause 18(9), my noble friend Lady Bowles also talked about the piece of elastic that brings you back. It is almost as if this Bill was designed to be deliberately obscure. The reference back to Clause 2(2) and (4) has almost been sneaked in, so that the Secretary of State has the ultimate discretion.
As the noble Baroness, Lady Noakes, said on the one watchword we have throughout the Bill, we are trying to create an investment regime where there is a high degree of certainty, so that people know what the boundaries are. The time limit boundaries seem to be limitless if they apply to the Secretary of State. An ordinary investor will no doubt be absolutely under the cosh if they fail to meet any time limits that apply to them, but the Secretary of State seems to have absolute discretion.
I do not think I need to add anything further, except to say that we on these Benches strongly support Amendments 43 and 67. I have signed Amendment 67, but both the mandatory and voluntary notification procedures need curing in this respect. I very much hope that the Government will see their way to amending these clauses as we move to the next stage.
Baroness Hayter of Kentish Town (Lab)
My Lords, this sounds like a “me too” moment, because we also have tremendous sympathy with the amendments, especially after hearing the concerns of stakeholders in the research sector about the uncertainty around the time for notices to be decided by the Government. As we have heard, their concerns reflect others from business and investors.
Could the Minister explain why a default approval should not be included in the Bill if organisations have not heard back within a particular timeframe? She will probably know about the important process for clinical trials involving medical products prescribed in the Medicines for Human Use (Clinical Trials) Regulations. In that case, where no notice is given or where further information is requested within 60 days, the clinical trial is treated as authorised. I am not suggesting that these are two exact types of decision, but that default authorisation in legislation seems to be one we might look at. I am interested to know whether the Government have looked at a similar default approval to add here. Perhaps the Minister could say what sort of advice the Government have had on whether that would work here.
On Amendment 67, could the Minister indicate whether 30 days is right for such a process? It would be useful to know the Government’s thinking on the expected average turnaround time for a call-in notice.
Baroness Bloomfield of Hinton Waldrist (Con)
I am grateful to my noble friends Lady Noakes and Lord Hodgson of Astley Abbotts for their amendments, which, I believe with good intention, seek to bring further clarity to the status of acquisitions that have been notified to the Secretary of State after the end of the 30 working- day review period. In particular, they seek to provide that acquisitions notified to the Secretary of State are deemed to be cleared following the review period if the Secretary of State does not issue a call-in notice within that period. Both worry, as other noble Lords have, that such a transaction might be stranded in a so-called no man’s land. Amendment 43, from my noble friend Lady Noakes, would apply to both mandatory and voluntary notifications, whereas Amendment 67 from my noble friend Lord Hodgson of Astley Abbotts would apply just to voluntary notifications.
I think we are all agreed it is essential that businesses and investors have the clarity and certainty they need from this regime. That is exactly why we have included statutory timescales for cases—those covered by mandatory notification as well as voluntary notification —to be screened by the investment security unit. That is also why the Secretary of State is already required to give a call-in notice or issue a notification of no further action before the end of the review period in response to both voluntary and mandatory notification. He has no other option, and I hope that noble Lords are reassured by this. The Government consider that this is the right approach as it imposes a legal requirement on the Secretary of State to take a positive action to provide certainty one way or another. I do not believe that the default approval system suggested by the noble Baroness, Lady Hayter, would add to that certainty.
The Government do not think it would be in anyone’s interest to leave the situation ambiguous as to whether an acquisition has been cleared or requires further scrutiny, so I am pleased to be able to reassure my noble friends of the Bill’s functioning on these matters. Many of the businesses the Government have spoken to about the new regime have emphasised they would not wish to proceed with completing an acquisition without unequivocal confidence that they are cleared to do so. As such, it is not clear to me that my noble friends’ amendments would provide greater confidence in the business and investment communities.
For these reasons, I cannot accept the amendment, and I hope that my noble friend Lady Noakes will withdraw it.
Baroness Noakes (Con)
My Lords, I thank all noble Lords who have spoken on this group of amendments, especially my noble friend Lord Hodgson of Astley Abbots, who explained the interaction with Clause 2(2) and (4), and his Amendment 67, which I had not appreciated.
Apart from my Front Bench, we are agreed that there is a problem here. My noble friend the Minister explained why a time limit is put in the Bill. We understand that, but the Bill still does not give the certainty required: it does not deal with the position if the Secretary of State does not actually do something. We think the investment community is entitled to that certainty. One possibility is the default approval mechanism that the noble Baroness, Lady Hayter, referred to. We cannot just take it that because the investment community would like the certainty of a positive approval, we should let this Bill off from the ambiguity over what happens if the Secretary of State does nothing.
I shall read carefully what my noble friend has said in Hansard, but she should be aware that we will need to return to this on Report, because she has not satisfactorily dealt with the problem we have put to her. With that, I beg leave to withdraw the amendment.
Lord Lansley
Member’s explanatory statement
This amendment is linked to amendments in Lord Lansley’s name to Clause 26 which provide for undertakings to be accepted instead of a final order.
Lord Lansley (Con)
My Lords, this group consists of four amendments, all in my name. The few who are watching our proceedings may be slightly confused that all the amendments they have heard have been moved by those on the Conservative Benches. I think three-quarters of the amendments on our Marshalled List today are tabled by Conservative Members. It is because we all support the Bill, and we want to make it work well. I note that our noble friends are commending our intent; I promise them that our intent is positive in all these amendments. Many of them, like those in this group, are about trying to understand the structure of the policy and probing some of the considerations that we thought might go into it.
Amendments 45, 68 and 69 relate essentially to the policy question of whether the Secretary of State should accept undertakings as an alternative either to issuing a final notification, meaning nothing is going to happen, or to making a final order, meaning specific things must be done. Why should the Secretary of State have an intermediate option? The lawyer’s answer is that he does not need it. Since the power in Clause 26 is that a final order
“may include … provision requiring a person, or description of person”
to do or not to do particular things, there is no limit to the power conferred under the Act. Therefore, almost by definition, the legal answer to the question of whether the Secretary of State needs this additional power is no.
However, as so often, we come back to the question of what, in practice, works best. In that respect, the Competition and Markets Authority, which works on both merger cases and public interest cases, can seek commitments and accept undertakings in view of making the equivalent of an order. It does that, first, because it can be quicker: a proposal can be accepted much more rapidly than using the process of examination necessary to arrive at a final order. Secondly, it can be structured in a way that is more flexible. It can be purposive—it can set out what the entity or the person controlling the asset would need to do to satisfy the Secretary of State to mitigate or prevent the risks.
Those undertakings could, therefore, be purposive and long lasting, whereas an order must be prescriptive, a bit like legislation. It will have to tell people precisely what they are going to do, or else—I fear that this may too often be the resort of Ministers—put someone in a position to make decisions about an entity or an asset in place of the people who actually control that company or asset. I will come on to that a little later in this group, on Amendment 71.
The potential for a purposive, flexible and speedy reference to undertakings, which has long been established in relation to the merger control and public interest regimes under the Enterprise Act, would be a good way of proceeding. This is not without precedence in other jurisdictions. For example, we have referred in our discussions to the Committee on Foreign Investment in the United States. The number of times the United States resorts to presidential decisions is very modest. The number of times it enters into what is known as a mitigation agreement is much greater. What I am looking for is something a bit like a mitigation agreement.
Amendments 68 and 69 to Clause 26 would insert the ability to accept undertakings. Under Amendment 45, if undertakings were entered into and not adhered to, the notifiable acquisition would become void. Therefore, Amendment 45 is consequential on Amendments 68 and 69. I am looking to find out why Ministers have rejected the option of undertakings, and whether this is something that should be in their armoury, even if they use it rarely.
Amendment 71 relates to the question on Clause 26, which states that the Secretary of State can provide for
“the appointment of a person to conduct or supervise the conduct of activities … with such powers as may be specified or described in the order.”
Who is this person? This is purely a probing amendment to find out. Is this person simply a civil servant operating on behalf of the Secretary of State in all circumstances, and would the Government have such persons available with the qualifications and experience necessary to undertake these functions? If they are not civil servants, who are they? Under what circumstances would they be brought in, and with what qualifications would they be equipped? At the moment, as far as I can tell from the policy material issued with the White Paper and the response to consultation, these questions have not been addressed.
Lord Fox (LD)
My Lords, it is nice to be in the Chamber rather than the glass cubes in which we have been confined. I assure your Lordships, and agree with the noble Lord, Lord Lansley, that noble Lords not only on those Benches but on this side of the House want this Bill to succeed; I think that I can speak for Her Majesty’s loyal Opposition as well. However, the measure of that success will be its efficiency, its certainty and the way it manages this important element of investment.
I listened to the answer that the Minister gave to the last set of amendments; I do not expect the noble Lord, Lord Grimstone, as Minister for this set, to comment on that. However, although it is probably irregular, I ask both Ministers to listen back to the answer that was given there and answer the same questions with their departments: how would they manage a company for five years that is still sitting in that kind of limbo? How would they make investment decisions for that business while it is still not approved but not denied? I ask them to think about the management decisions that they would make. When they have come to a conclusion, I think the Ministers will agree with the proposers of those amendments that some degree of certainty needs to be delivered quickly and efficiently—and that brings us to this set of amendments. The noble Lord, Lord Lansley, has eloquently set out an alternative to the—we might say—digital approach that the Bill has taken, with the option of remedies. Businesses are familiar with remedies, I would say, having worked with the CMA and others. The merits as set out by the noble Lord of speed, flexibility and durability are all things to be aspired to.
I know this sounds patronising, but I remind the Government that the title of the Bill includes the words “security and investment”—the investment part should have equal weight to that of security. It is straight- forward to stop things happening and tick a security box; it is harder to make sure that we have a regime that continues to encourage investment. Everything that takes time or injects uncertainty pushes investment away. The Ministers should listen to the wise words of the noble Lord, Lord Lansley, and think about this middle way, which can move things quickly, keep investment in the game and make sure that, at the same time as getting investment, we are also getting the security that the title of the Bill demands.
Baroness Hayter of Kentish Town (Lab)
My Lords, there is something going around my mind now about letting foxes out of their glass cubes—I am not sure how dangerous that is.
These amendments would allow for undertakings to be accepted instead of a final order—a case well made by the noble Lord, Lord Lansley. During Committee in the other place, Dr Lenihan from the LSE said:
“There are many cases in which a threat to national security can be mitigated by agreements and undertakings without needing to block a deal.”
Perhaps the Minister could inform the House what thought was given to that proposal.
As we have heard, Amendment 71 is in a way a probing amendment to learn more about the type of person the Secretary of State could appoint to supervise a final order. We will be particularly interested to hear the Minister’s reply on this. What sort of specialism would be involved? Would the person need to have any relevant training, background or experience? It would be interesting to know how they would be selected and whether the job description would be included in the report that would in any case be made, so that one could see the basis on which the selection happened.
Clause 26(4) states:
“Before making a final order the Secretary of State must consider any representations made”.
We are interested in what exactly is meant by the word “consider”. Would that be part of a dialogue, perhaps as part of the negotiations, or simply a requirement that representations are in the dossier submitted to the Secretary of State for ratification? Assuming that the representations had not been successful—if there were a final order, that would presumably be against the wishes of the parties—it would be interesting to know whether the reasoning for rejecting them would be noted and reported on elsewhere, possibly to the ISC. It would be important for someone to be able to reflect on the decision-making that had taken place.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, I start by extending my thanks to my noble friend Lord Lansley for these amendments. I also thank other noble Lords who have spoken; all I think welcome the broad thrust of the Bill even if they wish, quite rightly, to probe certain aspects of how it will work.
I begin by addressing Amendments 45, 68 and 69. Amendments 68 and 69 would allow the Secretary of State to accept “undertakings” from the acquirer
“as the Secretary of State deems appropriate to remedy, mitigate or prevent any risk to national security”,
rather than issuing a final order or a final notification. Amendment 45 would then, as I read it, make a consequential change to Clause 13 in respect of notifiable acquisitions so that those which are completed otherwise than in accordance with the final order or the agreed undertakings are void.
The Bill as drafted allows the Secretary of State two options once he has exercised his call-in power: first, to issue a “final order”, which contains remedies. I would add here that remedies are not necessarily just black and white—they could have a whole set of actions incorporated into them; some noble Lords may not fully have comprehended that. Secondly, the Secretary of State can issue a “final notification”, which states that no further action is to be taken under the Bill.
Undertakings proposed by my noble friend in these amendments would come into force when the undertakings were accepted. They could be varied or superseded through the Secretary of State accepting another undertaking, replaced by a final order made by the Secretary of State at any time, or the Secretary of State would be able to release the acquirer from their undertaking.
I am grateful that my noble friend is seeking to expand the options available to the Secretary of State but, as I hope to explain convincingly in just a moment, the Secretary of State does not need these additional options. Undertakings would not be appropriate because the Bill already provides the dual benefit of certainty for parties while giving the Secretary of State the “teeth” needed to enforce a regime built around our national security.
The Bill includes the ability for the Secretary of State to establish the terms of any remedy through the power to make final orders. I emphasise that point again. The terms of a remedy may require someone to dispose of part of something or to do something in relation to one bit of an undertaking but not another. It is a comprehensive term which allows all sorts of matters to be included within it. Indeed, the Bill states in Clause 26(5)(a) that a final order may require a person
“to do, or not to do, particular things”.
I am advised that that is a strong statutory footing which the Government consider is both required and sufficient for remedies under this regime.
My noble friend Lord Lansley was right on the button when he said that this gives the Secretary of State all that he requires. The Secretary of State does not need any additional powers because this power gives him all that he might conceivably want to do. Of course, before the Secretary of State determines his final order, he is likely to engage with parties to an acquisition—acquirers and others—to explore potential remedies.
However, it is right for the purposes of national security that these remedies—once they have been considered, and once they might have been discussed and looked at—should then be able to be imposed through a final order rather than assented to by the Secretary of State. We believe that this imposition is necessary because the matters that we are dealing with here are matters of national security. The Bill as drafted provides the Secretary of State with the power to impose remedies through a final order or to take no further action under the Bill, which is all that is required.
With Amendment 71, my noble friend addresses an important part of the Bill; namely, the carrying out of activities pursuant to final orders. The execution of final orders is of course vital to ensure that any remedies imposed by the Secretary of State have their desired effect. There would not be much point in just imposing orders if they were not carried through afterwards. This amendment seeks to make explicit a requirement that anyone who will conduct, or supervise the conduct of, activities mandated by final orders must be “suitably-qualified”. While I appreciate the good intention of my noble friend, I do not believe that this amendment would add anything substantial to the Bill.
First, the Secretary of State is unlikely to appoint someone who could not conduct or supervise the conduct of activities mandated under the final order. It would be daft of him to put someone in to do the job who was not qualified to do it. Why would he or she wish to do that? To do so may undermine the Secretary of State’s remedy; the remedy may not be carried out in full or in part if the person is not qualified, which would be against the decision that the Secretary of State has made. It is therefore very much in the Secretary of State’s own interests that the person appointed has to be “suitably-qualified,” even if the Bill does not say that specifically. I take it for granted that that is what the Secretary of State would want to do.
Secondly, the Secretary of State will be subject to public law duties when providing for a person to be appointed. Those public law duties will require him to act reasonably and take into account all relevant considerations. This would include whether the person is suitably qualified to undertake the task. He would be failing in his public law duties if he appointed someone who was not so qualified.
Thirdly, should it be helpful to noble Lords, I am happy to state categorically on the Floor of the Committee that the investment security unit will comprise eminently qualified people of the right skills and experience. For example, if a particular case requires someone qualified in chartered accountancy or in audit, the Secretary of State will appoint somebody who has those qualifications to carry out what is required.
For these reasons, I believe that although noble Lords are trying to be helpful in putting forward the amendments in this group, they are unnecessary. What they seek to do is already covered by the powers that exist in the Bill, and I hope that my noble friend will feel able to withdraw Amendment 45.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
I have received one request to speak after the Minister from the noble Lord, Lord Fox.
Lord Fox (LD)
My Lords, I thank the Minister for his answer. I want to follow up on his last point. There is a certain ambiguity in his answer around where this person would be drawn from. In one sentence the Minister referred to the ISU and in the next sentence he referred to drawing on a particular power. It is not clear: is this a standing group of people who will be set in or will people be seconded from other companies or pulled in from other departments? A little more sense of what the source of these people is would give us more security around this.
Lord Grimstone of Boscobel (Con)
My Lords, I thank the noble Lord for that question. It will be horses for courses. It will be either qualified people from inside or, if a person from inside does not have the qualifications, someone will be drawn in from outside and appointed to do it. The test will be to make sure that the person you ask to do the role has the capabilities and the qualifications to do it. I say yet again: why would the Secretary of State wish to do other than to appoint somebody who is qualified to do this task?
Lord Lansley (Con)
I am grateful to my noble friend the Minister for his responses to this short debate, and indeed to those who participated in it. It was helpful to elaborate some of the issues, although I am not sure that we solved many of the questions that were posed.
My noble friend correctly deduced that I did not see Amendment 71 as needed. It was designed to find out who these people are. Although my noble friend did not say so, the implication is that they are the staff of the department, working in the investment security unit. In a sense, that tells us already that, when we come on to think about some of the implementation of this and the annual reports and so on, we are dealing not only with a flow of cases through the investment security unit but with a continuing role for the unit in the scrutiny and the conduct of the activities that are the subject of final orders. I hope that we will be dealing with only some dozens of final orders a year, but it will build up over time since many of these final orders in relation to entities will have a continuing relationship.
I did not expect the “suitably-qualified” question to arrive at any other answer than that they are civil servants recruited into or drawn from the department, but if they were other than that, it would be very useful for us to be told. I am assuming that they are not.
On the question of undertakings, as I surmised at the outset, the Secretary of State has all the powers the Secretary of State requires. The point, however, is that when making final orders, it may be flexible from the Secretary of State’s point of view, since the Secretary of State can include anything the Secretary of State wishes to include in it. However, it is not necessarily flexible from the point of view of the people affected, since once the order is made, the flexibility has completely disappeared. What is flexible about undertakings is the ability of the acquirers to make commitments at the time they are contemplating an acquisition in order to bring those two things together to enable the acquisition to continue—the noble Lord, Lord Fox, made that point, perfectly reasonably. If we want to promote investment and to assist those who are acquiring entities and assets in the United Kingdom, other foreign direct investment jurisdictions such as the US allow for mitigation agreements. The American one does not impose orders, or rarely does so. There may still be merit in having the flexibility to enter into agreements with acquirers rather than imposing orders on them. I am surprised that the Government have simply dismissed that possibility. Having it on the statute book does not mean that Ministers have to use it, but if it is not on the statute book, they cannot do it. That is why we are thinking about it at this stage.
However, in the light of what my noble friend says by way of the powers in the Bill, I suppose that at this stage it is probably best to beg leave to withdraw the amendment.
Member’s explanatory statement
This amendment seeks to reduce the regulatory burden for persons who have submitted notifications on previous occasions.
Lord Hodgson of Astley Abbotts (Con)
My Lords, in moving Amendment 48A, I shall speak to Amendments 67B and 67C, and propose that Clause 30 should not stand part of the Bill.
On the first three amendments, I have been assisted by the Global Infrastructure Investor Association and its legal advisers, Ashurst. The association, as its name suggests, represents major investors who participate in multiple infrastructure projects around the world. The purpose behind these amendments, as with so much of our debate today and on the previous two days in Committee, is to provide clarity, certainty and speed. My noble friend Lady Noakes, the noble Lords, Lord Fox and Lord Clement-Jones, and the noble Baroness, Lady Bowles, all talked about the extraordinary impact of uncertainty and time on companies. Let me give a brief example.
A few years ago, I was a non-executive director of a public company that was the subject of what is known as a dawn raid. My chairman was rung at 8.30 am by the chairman of a major competitor to say that, overnight, it had purchased 28% of our share capital from our investors. It was immediately referred to the Competition and Markets Authority, because these were two quite large companies in the sector, and we had a collective, organisational nervous breakdown. This went on for three or four months. The predator spent the whole time trying to persuade the CMA that there was no reason why the purchase should not go ahead; meanwhile, we in the victim company were trying to preserve morale, keep business going and assure people that their jobs were safe. But there was a degree of uncertainty, because it was not our decision in the end. The Ministers on the Front Bench deal with this in a sort of “it’ll be all right on the night” way, but it is very difficult in the real world out there. I give that example having been through this extraordinarily difficult period myself, and seeing how it could arise if we do not get the wording, clarity and speed of the Bill right.
Amendment 48A is the first. It would insert a provision for a more streamlined procedure for those who may be making frequent applications under the provisions of the mandatory notification procedure in Clause 14. Subsection (4) of that clause gives the Secretary of State powers, by regulation, to decide the “form and content” of any mandatory notification. The background to Amendment 48A is that there are many low-risk investors in the UK who currently and regularly invest in sectors that could trigger a notification once the Act comes into force. It would reduce the bureaucratic load if, once an investor had made a notification, or maybe one or two notifications, such an investor could make streamlined notifications, allowing them to avoid submitting the same information repeatedly —always, of course, with a statement that there had been no change in their circumstances in the meantime.
In the debate a few days ago on the group beginning with Amendment 15, the noble Lord, Lord Callanan, talked about the proposal in Clause 6(5), which does not entirely break new ground. It provides for the Secretary of State to make exceptions
“by reference to the characteristics”
of the acquirer. All that Amendment 48A seeks to happen is to move that sensible clarification and proposal into this subsection for this group of investors.
Amendments 67B and 67C are linked and seek to clarify the position of the Secretary of State under the stop-the-clock provisions of the assessment period and to ensure that any such powers are not abused. This is an add-on to the point made by my noble friend Lady Noakes earlier about no man’s land; the stop-the-clock provisions can be used to extend the period.
The two amendments relate to Clause 19, which concerns the power to require information, and Clause 24, which concerns the effect of the information notice and attendance notice. It is understandable that the Government may well need, and should be able to seek, further and better particulars for any transaction, but the extent of the power needs to be considered against two factors: first, the context of a regime where the basic assessment period is already quite long—75 working days or 15 working weeks for a national security assessment, or 30 working days or six working weeks for the initial screening process; and, secondly, that this statutory period can be extended by the Secretary of State using the stop-the-clock power. Under this power, the Secretary of State can require further information and must set a time limit by which it must be provided. Without being too cynical, it is perfectly possible for a Secretary of State with a tricky, controversial decision to make frequent requests for more information, stopping the clock on each occasion by imposing an unreasonably short time for the supply of the information. The process by which he or she pushes the pea around the plate could, eventually and ultimately, frustrate the transaction, without the Secretary of State ever having to take a decision at all.
Amendments 67B and 67C attempt to deal with this by a twin-track approach. Amendment 67B proposes that any information notice served under Clause 19 must allow a reasonable period of time for response, which must, in any case, be not less than three days. Without this safeguard, as I have said, the Secretary of State could repeatedly ask for more information, each time stopping the clock almost immediately. In parallel, Amendment 67C amends Clause 24, so that the stop-the-clock powers are discretionary and not automatic. Therefore, if complex questions take longer to answer, the Secretary of State does not have to stop the clock. Such an approach would mirror that followed by Section 34ZB of the Enterprise Act, in granting extensions to the statutory time limits to which the Competition and Markets Authority is subject for merger control purposes.
The final proposal in this group is that Clause 30 should not stand part of the Bill. I had thought about degrouping this, but decided that we have enough groups and should crack on. Clause 30 is entitled “Financial assistance”. Its wording can best be described as wide, and the Explanatory Notes are not much more helpful. In principle, there is nothing wrong with the Secretary of State having the power to compensate for the consequences of him or her making a final order under Clause 26. This is a probing amendment to ask my noble friend to provide what I might describe as a stream-of-consciousness description of how these powers are likely to be used.
For example, how is any compensation process to be initiated? Will it be at the request of the party which is the subject of a Clause 26 order or an offer by the Secretary of State? Is there an official or a body that will consider and assess such requests or will the decision flow from the Secretary of State’s desk? It may be that the expert person referred to by my noble friend Lord Lansley has a role to play here. What factors will be taken into account? Who decides the quantum of any compensation? Lastly but most important, how long is any process expected to take to complete?
If the subject of a Clause 26 order is a small, fast-growing company in urgent need of additional finance in the form of working capital to fund its expansion and the investment is suddenly blocked, any long delay may well prove terminal for the company as a whole. What about smaller companies where a single individual has spent a lifetime building up the business? Now he or she wishes to retire to enjoy the benefits of years of toil. Such a sale is then blocked on grounds of national security. What compensation or redress is available? It would be helpful if my noble friend could explain how this will work. In the meantime, I beg to move.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I support the amendments in this group, which, as usual, the noble Lord, Lord Hodgson, has done a very good job of introducing. I was particularly drawn to the notion of streamlining, as suggested in Amendment 48A. I admit that my interests are probably wider than in this particular instance, but what we are dealing with here is a situation where there may already have been a previous notification and much of the same information might be needed again. If this is thought too wide, in that it goes on for ever so that it is hard to believe that updating might not be required, perhaps the streamlining could be for a certain period and, as the noble Lord, Lord Hodgson, also suggested, on the condition that nothing else has changed or, perhaps as an alternative, that one has to notify only what changes have been made.
This also raises the question of how much record-keeping the Government are going to undertake. I raised a somewhat similar query last week when I was thinking about licences and an investment agreement that covered options for licensing and whether they could be covered at once or, as perhaps this amendment envisages, there could be some kind of streamlining. However, the response from the Minister was that each instance had to be dealt with on its own. That would be a great shame from the industry side of things. That is no way to build up, if you like, intelligence, and for that to work both for the department and industry in helping to make it simpler to get through these notifications and to understand what is going on.
Looking at how a lot of notifications are made on a precautionary basis—much of the interest in the Bill is about making sure that an acquisition is safe—if an acquisition has already been cleared as being not of interest in response to a voluntary notification, for example, is it then sold on again? Is it safe to assume that, if there has been no significant change in activity but it was felt previously to have fallen within the definitions, it is safe to go ahead again with a voluntary activity? That is because again there will otherwise be a temptation to think that safety requires another notification. I would have thought that it was in everyone’s interests to cut down on the number of voluntary notifications.
Amendment 67B is self-evident, given that the “reasonable in all circumstances” provision must cover not only any urgency perceived by government but also the facilities at the disposal of the person. One interesting point that I would like to make here, although it goes a little beyond what the amendment is all about, is that Clauses 19 and 20 bear some resemblance to clauses in the Internal Market Act 2020, which were in turn lifted from the CMA information requirements. If the noble Lord, Lord Callanan, was answering this —although it is not—I am sure there would be a recollection that I recalled bitterly that those conditions were inappropriate. It is interesting to see that, in what might be called rather stronger situations, a slightly lighter touch is nevertheless being adopted here; that is, when individuals are involved in something that is necessarily of a security interest. Perhaps that reflects some recognition by the Government that people who have done no wrong should not be subjected to overly coercive requirements as though they were wrongdoers. That is a comment on an aspect of this part of the Bill, rather than in direct relation to the amendments.
I support these amendments. I was not sure what the noble Lord was going to say on the financial clause. Some very good points have been made, but I tend to be of the view that if the Government’s requirements have caused disaster to befall a company through delay, there should be a mechanism for compensation. However, how that is to operate needs to be made clear.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, it is a pleasure to follow the noble Baroness, Lady Bowles. I shall speak briefly to this group because my focus is solely on the final provision, which is that Clause 30 should not stand part of the Bill. I thank the noble Lord, Lord Hodgson of Astley Abbotts, for drawing our attention to this issue.
The whole subject of government spending, in particular where it relates to contracts but also to government aid, is now a matter of great public interest and concern. It is therefore important that this whole area should be given a great deal more attention and focus. We have seen, through our concern about international trade deals, the way in which companies carrying out their business and taking risks, which is supposed to be our economic model, have sought to attain compensation for, for example, government decisions about environmental matters or public health. We need to be concerned about the links in this, in particular as regards the ISDS arrangements, which I have debated with other Members of your Lordships’ House.
I would also ask the Minister if, either today or perhaps in the future, he would spell out how the Government see this working, especially what the mechanisms would be, and put a specific question to him about democracy and transparency. Clause 3 states that this legislation is to cover spending of £100 million or more. How has that figure been arrived at? Given that we are talking about government money, should it not perhaps be lower?
Baroness McIntosh of Pickering (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Bennett. I support the amendments in this group and I am delighted to have the opportunity to speak to the proposal that Clause 30 should not stand part.
The impact assessment sets out graphically what the financial implications of the measures in this Bill will be. It states that the costs are to be found in two main areas where the new regime could incur additional costs, notably additional administrative costs and the potential impact of a new regulatory regime on investment decisions. Of course, what we do not know are the known unknowns of possible investments, particularly in infrastructure, that may be cancelled. I am delighted to see that my noble friend Lord Grimstone is the Minister to reply, given his background with the Trade Bill. However, do the Government have any idea what the implications might be?
I understand that the Government have put a figure in the cost-benefit analysis of the costs to business and the Government together being, on average, between £26.2 million and £73.1 million per year. My understanding was that, when we were in the European Union, we attracted more foreign direct investment than any other EU country, and that, as of 2019, we currently have the seventh highest inward foreign direct investment flow, as the impact assessment tells us. I have some involvement in the OECD and water policy and note that,, in paragraph 168 of the impact assessment, we are told that:
“ The National Infrastructure Pipeline details long-term plans to invest over £400 billion (including £190 billion to be invested—”
this year—
“across 700 projects in water, energy and transport infrastructure. A large proportion of this would have been in conjunction with overseas investors.”
Water is attracting a high proportion of foreign investment, which the Treasury and the Government have consistently and rightly encouraged.
My noble friend Lord Hodgson, in his remarks on the question on whether Clause 30 stand part of the Bill asked a lot of the right questions regarding who will decide and so on. I should add a few other questions. Are these loan guarantees or indemnities recoverable and, if so, what would be the timeframe within which they would be recovered? I should also be interested to know from which budget the grants, loans and indemnities would come. The clause recognises the financial hit that many of the parties and investors might attract, which is welcome, but, as my noble friend Lord Hodgson identified, we do not find a great deal of information in the clause. There is no supporting schedule that one might normally expect in those circumstances and the Explanatory Notes say little. That is why I welcome the opportunity to ask those questions and I look forward to my noble friend’s responses when he sums up.
Baroness Noakes (Con)
My Lords, I support my noble friend Lord Hodgson of Astley Abbotts in all his amendments. This House has an obligation to ensure that the Bill does everything possible to ameliorate the practical impact that it will have on business transactions. While most of the transactions will not, by the Government’s reckoning, engage national security issues, the fact is that they might do so and will inevitably result in a lot of precautionary notifications. We have to minimise the impact of the processes on ordinary investment decisions.
I particularly wanted to speak in respect of the question on whether Clause 30 stand part of the Bill and support what my noble friend Lord Hodgson said. It is extraordinary that a Bill about stopping certain transactions could have morphed into one whereby the Government will stuff public money into the pockets of one or more of the parties involved, with almost no explanation. As my noble friend Lady McIntosh of Pickering has said, one will find nothing in the Explanatory Notes or any of the other documents around the Bill. There is no comparable power in relation to the activities of the Competition and Markets Authority. That is extraordinary because the Government have taken the decision-making power to themselves in respect of transactions. They can then use public money in almost any way they choose. At the very least, we are entitled to have some clarity on how the Government expect to use the power.
I expect that the other place will claim financial privilege if we try to do anything to the clause, but we should not be deterred because of that.
Lord Naseby (Con) [V]
My Lords, I am grateful to my noble friend Lord Hodgson for tabling the amendment because what is behind it is absolutely right, as a number of my noble friends have said in the debate. That is fine, particularly in a situation whereby we are hoping to set the environment in which new companies can be created. After the pandemic, we are highly likely to see a number of movements in that area that would not normally happen.
One area on which I have a slight query is the preference to be given to someone who has done it before, particularly if they are not a company but someone who is handling the matter. That gives an advantage over someone who has not done it before. Therefore, regarding the point made by the noble Baroness, Lady Bowles, about a time limit or distance limit in terms of time, there needs to be some stop on that. Otherwise, an unfair advantage is given to one party over another.
Another element that I worry about a little, which covers security matters as much as anything, is that some people out there are enormously creative in terms of manoeuvring and so on. Two things may seem similar but can be yards apart—miles sometimes. Not all that is written on the outside packet of a product or company represents what is happening underneath.
While I support the broad thrust of my noble friend Lord Hodgson, I have those reservations and shall listen carefully to my noble friend on the Front Bench.
Lord Clement-Jones (LD)
My Lords, the noble Baroness, Lady Noakes, has coined another phrase that will run through this Bill—notably, “practical impact”. It is interesting that among those of us who have taken part in the debates on the Bill many have a practical understanding of what its impact could be. We have been in walks of life that have brought us into the investment community—not least the Minister himself—and we see the potential for major issues arising under the legislation because of the way in which it is drafted. This group of slightly disconnected amendments illustrates that. The noble Baroness, Lady Hodgson, and my noble friend Lady Bowles forensically took us through the amendment and Amendments 67B and 67C. I shall come to the question on whether Clause 30 should stand part of the Bill in a moment.
However, the amendment is definitely the kind of red tape-busting amendment that we need. My noble friend Lady Bowles said that we needed provisions that actually met the needs of the investment community and were tailored to it. The amendment is a classic example of what could be done in terms of making sure that we do not have a situation in which companies have to make notification after notification. The inter- twining of the mandatory and the voluntary notification aspects provided for in the amendment is extremely important.
Then we come to Clauses 19 and 24, and Amendments 67B and 67C. The noble Lord, Lord Hodgson, also has a way of coining a phrase, such as “stop the clock” provisions, which again give the Government all the cards and the poor old investor could be stuck for some period of time. As the noble Lord pointed out, the extent of the powers in terms of the periods are already quite long—75 working days or 15 working weeks for a national security assessment, or 30 working days or six working weeks for the initial screening period. We are not talking about modest periods but, rather like the referee in a rugby match, the Government can stop the clock and there is no control over that, as far as I can see. Therefore, we on these Benches firmly support those amendments.
On Clause 30 stand part, I liked the phrase of the noble Baroness, Lady Noakes: “stuff these companies with public money”. If that was the case, it would be pretty egregious. Now that noble Lords have drawn our attention to it, we can see that the Explanatory Notes on Clause 30 are vanishingly small. There is virtually nothing in there: there is no control over what the Secretary of State does. He may have to give a report if it is over a mere £100 million—and what is £100 million but small change in the circumstances? The Secretary of State can make more or less any decision and then say, “We have made the decision, but we have plenty of cash that we can stuff into your pocket.” It is the opacity, the lack of reporting and any real control in Clause 30 to which the noble Lord, Lord Hodgson, has rightly drawn attention. This is another area where I hope the Minister has something to say that not only gives quite a lot of further assurance but undertakes to create greater control over the powers in that clause.
After a bit, one gets a feeling for a Bill, and this one seems overly weighted in favour of the Secretary of State. The Secretary of State is more or less footloose and fancy free, and it is the poor old investor who will have to bear all the consequences.
Baroness Hayter of Kentish Town (Lab)
The lead amendment, Amendment 48A, would introduce a streamlined form for mandatory notification, and Amendment 67B would make any time limit for an information notice not less than three working days. That seemed a sensible—I think the word used was “pragmatic”—proposal.
Turning to the interesting Clause 30, the Minister in the other place said,
“final orders, in exceptional cases … when we are administering taxpayers’ money—may bring about financial difficulty for the affected parties”,—[Official Report, Commons, National Security and Investment Bill, 8/2/20; col. 288.]
which is why Clause 30 allows the Secretary of State to give financial assistance to an entity through a loan guarantee or indemnity as a consequence of making a final order.
It would be interesting to know a little more about the whole of this, as we have heard, and when a potential recipient might know that they were even in line for such help. How early in the process would it be indicated—not the actual decision but that that was a possibility? Or is it like Father Christmas appearing at the end?
As we have heard, the figure of £100 million is interesting, and it is interesting that there is no regulation-making or guidance-providing requirement such that guidance on the use of the power might have to be, if not agreed by Parliament, at least provided and open for debate and scrutiny. Will such guidance exist and how many cases a year are envisaged involving £100 million? Who would make the decision and how, as has been asked, and will it be reported in a timely manner—or, indeed, at all?
If this is the Government’s desired outcome, it seems that Clause 30 does not provide for any financial assistance in the case of an interim order. Perhaps the Minister could outline the thinking behind that, given that an interim order could also impose major costs on a British start-up or prevent an acquirer investing in one if it was thought that that investment might increase the acquirer’s level of influence unduly and trigger the next stage. There could also be the loss of a business-critical investment. It would be useful to know the thinking behind making money available to cover one sort of loss but not another. I look forward to hearing more of the thinking behind how this would work in the Minister’s response.
Lord Grimstone of Boscobel (Con)
My Lords, first, I thank my noble friend Lord Hodgson of Astley Abbotts for tabling Amendments 48A, 67B and 67C. I hope that the transaction he referred to had a happy ending.
Amendment 48A seeks to make it explicit that a streamlined mandatory notification form may be provided for in regulations if a person has previously submitted a mandatory or voluntary notification to the Secretary of State. The Bill requires a mandatory notice to be submitted to, and receive clearance from, the Secretary of State prior to the completion of a notifiable acquisition. Clause 14(4) provides for the Secretary of State to prescribe the form and content of a mandatory notice in regulations.
The amendment would amend the regulation-making power to make it explicit that such regulations could provide for those who have previously submitted either a voluntary or a mandatory notification form to submit a streamlined form. I am pleased to say that we are completely aligned with noble Lords who want the process under the Bill to be as streamlined as possible. As the Minister for Investment, looking to the interests of investors, I completely endorse that. I reassure noble Lords that the regulation power as drafted already provides for that.
In addition, the Government are designing both the voluntary and mandatory notification forms with business in mind, while ensuring that the Secretary of State receives the information that he needs to decide whether to issue a call-in notice in relation to a proposed notifiable acquisition.
I stress that the Government are keen to ensure that all the forms are clear and simple to complete. A draft notification form was published for comment during the Commons passage of the Bill, and the Government continue to engage interested parties to test the ease of completing the forms and the clarity and relevance of the questions.
Amendment 67B seeks to create a floor for the minimum time which the Secretary of State must provide to a party for responding to an information note. The minimum floor proposed is three working days. As noble Lords will be aware, Clause 19 provides for an information note which the Secretary of State may issue to require any person to provide information which is proportionate in assisting the Secretary of State in carrying out his functions.
An information notice may include a time limit for providing the information and the manner in which the information must be provided. An information notice must specify the information sought and the purpose for which it is sought, as well as the possible consequences of not complying with the notice.
It will be in the Secretary of State’s interest that any party from whom information is required is provided appropriate time for collecting and providing such information, or else confirming that they do not possess it. Providing insufficient time for doing this will only lead either to incomplete information being provided or to information being provided in a form which is more difficult to analyse. It might also lead to unwelcome outcomes, such as a party undertaking due diligence as to whether they possess the relevant information, but there then being insufficient time for them to establish that with certainty.
It is with these issues in mind that I assume that my noble friend tabled his amendments. I reassure him that the Secretary of State will already have the appropriate incentives to allow appropriate time for a response, and that, more widely, public law duties will require him to take a reasonable approach in setting a time limit for responding to an information notice under the Bill.
The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
I have received two requests so far to speak after the Minister—from the noble Lords, Lord Fox and Lord Clement-Jones.
Lord Fox (LD)
My Lords, I thank the Minister for his thorough answers. In his answer on Clause 30, the Minister referred to “affected parties” and did not rule out the aggressor, as well as the target, from potential compensation—or mitigation, as I think the Minister described it. Am I right in assuming that the aggressor might also feel that they are eligible for mitigation?
Secondly, the nature of that mitigation seems to rule out the Government taking a share in a potential company, rather than simply bailing it out. Given that this Government have already spent $500 million taking a 20% share in OneWeb, which was not even strategic, why would they not leave themselves open to taking a share in a company so important that they felt they needed to prop it up?
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for that question. I will give him an additional example of where this power or type of power might be used. As I stressed earlier, it is not a general compensation power and will only be used in instances where the public interest, particularly national security interests, require it. As I also said earlier, any financial assistance would be subject to Treasury consent and would have to be shown to provide value for money. For example, if the Government provided a loan, it would normally have to be at market rates. The clause does allow the Secretary of State to bail out any business, either directly or surreptitiously, through soft loans.
Equally, the aim is not for this Bill to cause businesses financial distress, nor do we anticipate it doing so. The Secretary of State—this is the key point—may make a final order only if he “reasonably considers” that it is “necessary and proportionate” to address an identified national security risk.
Let me give an example. A case might arise whereby an asset has to be secured to prevent the national security risk of someone else getting hold of it. The Secretary of State might have imposed a final order that blocked a trigger event of a UK company that was working on unique or world-leading technology. If the company could not immediately find an alternative buyer, and if the collapse of the company could itself pose a national security risk, the Secretary of State could consider using this power. In such a situation, the Secretary of State may decide that he or she wishes to provide financial assistance to ensure that the company could continue operating until an alternative acceptable buyer was found. As such, this power will be used only in very tightly drawn circumstances where doing so is clearly in the national interest.
Lord Clement-Jones (LD)
My Lords, I know that the Minister is trying to be as helpful as possible by tying down the way Clause 30 will work. However, “tightly drawn” is not how I would describe its wording, so I assume he is really saying that it is the risk of judicial review hanging over the Secretary of State that keeps him honest in the circumstances. That is not a very good place to be when you are dealing with a Bill of this kind.
The other aspect is transparency. The noble Lord did not really explain the reason for the threshold of £100 million. He said it was for transactions—or compensation, if you like—and financial assistance under £100 million in aggregate would have to be reported for the annual review. However, if it was £99 million, say, that would not apply and it would not be subject to a separate report; it would just be aggregated along with all the financial assistance given over the course of the year. Why?
These powers are very wide; we need to know how they are being used and what direction the financial assistance is going in. Therefore, simply drawing a line at £100 million does not seem to be very satisfactory in the circumstances.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord, Lord Clement-Jones, for his question, and I understand the concerns that he raised.
I will first deal with the £100 million figure. Of course, that is a lot of money for the Government to have to spend without having to report to Parliament. However, I assure noble Lords that, in order to offer this level of financial assistance, the situation would have to be truly extraordinary. The only circumstances I can envisage where the Secretary of State would need to use this power would be for some of the most significant nationally important firms. The significant nature of these firms means that they may be large, so the Government have put in this reasonable cap of £100 million. Personally, I would be very surprised if anything like that were spent. However, of course, any spending under this power will be subject to Treasury consent, as I have said—and the Treasury does not rush forward with money for departments in situations like this.
I have to say—and, in a sense, apologise—that the nature of national security makes it very hard to predict where some of these issues might arise. However, where they do and where national security is an issue, it is important that the power is there, provided that it is only ever used responsibly and respectively.
The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
As there are no further speakers, I call the noble Lord, Lord Hodgson of Astley Abbotts.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I thank all those who have spoken in the debate, as we struggle—that is the only word—to find the balance between national security and investor rights, and do so against a background of what is practical and realistic in the marketplace. I thank my noble friend the Minister for his extensive reply and tell him that I did not have a happy ending: we got taken over after four months, but never mind.
He has made a valiant effort. The noble Lord, Lord Clement-Jones, used the rugby match “stop the clock” analogy; I will use a cricketing analogy. I think the Minister’s officials have written him a speech that is a series of forward defensive prods, and it is rather like watching Geoffrey Boycott nought not out at lunch—but he has made a hugely valiant effort along the way.
On Amendment 48A, he says that we are completely aligned because the regulations provide for a streamlined procedure. Of course they do, but it will never happen because, unless something is written there, people will say, “Why go there, Minister? Why not just have the same old procedure we have always had?”
On Amendments 67B and 67C, I am not quite sure what appropriate incentives the Secretary of State had in mind to work the system appropriately. To be candid, it is unrealistic to say that judicial review is a possibility when you are working to the timetable these sorts of things will have to work to: it is not in touch with the reality of the marketplace.
On Clause 31, other noble Lords have made the relevant points. My noble friend the Minister made a determined effort to explain, but the loopholes and opportunities for difficulties with this are great. His example was that, if a firm’s takeover were to be blocked, help might have to be given until another buyer could be found. He knows better than any of us that, once a firm is known to be in trouble, any other offers will be very low indeed; the differential between someone selling on the uptick and when they know that the firm is a wounded bird will be very great indeed.
There is a big question to be answered about that, which he is much more familiar with than I am, of trying to meld together the realities of the marketplace with the needs of national security. We have not yet got the balance right. We have been advised by a number of leading law firms, and a number of Members of the Committee have practical experience. I cannot believe that we are wrong in everything that we are saying and that all the law firms are wrong. I cannot believe that some of the things that have been put forward are not worthy of much closer and further assessment. We are now in the territory of, “Are they fit for purpose?” “Oh yes, they are”, “Oh no they’re not”. I want the opportunity to go away, talk to the people who advised us, see what the Minister and his officials say, and then decide whether we should come back to these and other amendments at the next stage of the Bill.
In the meantime, I thank the Minister for the long speech that he made, and all other noble Lords who have spoken, and I beg leave to withdraw the amendment.
Baroness Noakes
Member’s explanatory statement
This would require the Secretary of State to make a decision on whether to accept a mandatory notification within 5 working days to give more certainty to those who wish to progress notifiable acquisitions.
Baroness Noakes (Con)
My Lords, I shall also speak to Amendments 53, 62 and 65. I thank the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lord Lansley, for adding their names to all these amendments, and the noble Lord, Lord Grantchester, who has added his name to Amendments 49 and 62.
These amendments address some aspects of the length of time for which transactions might be caught up in the processes under the Bill. They are probing amendments for today, to understand what is driving the approach to the timing of the early stages of this Bill’s processes, but they are against a background that parties to transactions must be confident that their transactions will be dealt with speedily and efficiently, whether they are in the mandatory notification category or are voluntarily notified.
I remind my noble friend the Minister that there is much scepticism, around the Committee and outside the House, about the volume of transactions likely to be caught up in these processes when the Bill becomes law. Most of us believe that very large numbers of transactions will be notified, particularly on a precautionary basis under the voluntary procedure. If the UK is to keep its reputation as a good place to invest and do business, we cannot afford to let these processes, set up to protect national security, end up being a major barrier to investment.
A mandatory notice given under Clause 14(5) requires the Secretary of State to decide, as soon as “practicable”, whether to accept or reject the notice. Similar wording applies to voluntary notifications by virtue of Clause 18(4). My Amendments 49 and 62 replace
“as soon as reasonably practical”
with “five working days”. This should be the easiest part of the notification procedure for the Secretary of State to deal with, and a loose formulation such as
“as soon as reasonably practical”
gives no certainty to the parties to a transaction. The Secretary of State should be able to make the preliminary judgments on whether to reject the notification or trigger the review period, which will result either in a call-in notice or a notification that no further action will be taken.
Amendments 53 and 65 deal with the review period of 30 working days in which the Secretary of State gets to decide whether to issue a call-in notice once he notifies an applicant that he has accepted a notification under the mandatory or voluntary notification procedure. A decision to issue a call-in notice is not the end of the process; it is the start of the process of the Secretary of State deciding whether to approve a transaction. The question is: how long does it take to work out that there are issues which suggest that close examination is required? This review period is not, or should not be, a part of the period of assessment, which is also specified at 30 working days, under Clause 23, with the possibility of an extension of a further 45 working days. The Clause 14 and 18 review periods should be as short as possible. A case has not been made for 30 working days—six whole weeks—just to decide that a transaction should be looked at in more depth under the call-in process.
On our last day in Committee, we had a run around the issues when my noble friend Lord Leigh of Hurley and the noble Lord, Lord Clement-Jones, spoke to amendments which would have introduced a fast-track procedure. My noble friend Lord Grimstone of Boscobel said that the 30 working days was worked out by officials based on
“past cases and mock scenarios”.—[Official Report, 9/3/21; col. GC 616.]
I hope my noble friend the Minister can tell the Committee how Ministers got comfortable with this. Was it subjected to independent scrutiny or challenge, for example, by using red teaming? My noble friend Lord Grimstone, who is not speaking to this group of amendments, will know from his own career in the Civil Service that there is no incentive for officials to be anything but ultra-cautious on things such as timetables.
My noble friend Lord Grimstone said on the previous Committee day that he expected many transactions to be cleared within a six-week period, and it was not a target. I suspect that my noble friend temporarily forgot what it was like to be a civil servant. There is no reward for speed and no penalty for taking whatever time the law allows. It is fair to say that the investment community will have little faith in the process being speedy with such extraordinary time limits being enshrined in law.
I also draw my noble friend the Minister’s attention to the points raised by my noble friend Lord Leigh of Hurley in respect of insolvency: administrators and liquidators must act speedily if they are to preserve value as well as protect viable businesses and jobs. I would add to that situations of corporate financial stress which can occur before formal insolvency remedies are invoked. For example, if a company cannot raise new debt or equity until it can be sure that it can sell a part of its business, a delay of six or more weeks, even assuming that no security issues result in a call-in notice, might in turn be enough to cause the business to go under. My noble friend Lord Grimstone did not answer those points last week; I hope my noble friend Lord Callanan can today. I beg to move.
Lord Lansley (Con)
My Lords, I am very grateful to my noble friend Lady Noakes for introducing this group of amendments. She has explained very well how we want to ensure that the greatest possible certainty and the least possible delay intrudes into these processes for investors. I have four amendments in this group. Amendment 51 probably relates to the next group so, if the Minister is content, I do not propose to speak to Amendment 51 now. It is almost consequential on Amendments 50 and 63 in the next group, and is linked to Amendment 50, so I will not refer to it now.
My Amendments 54, 64 and 66 are rather like my noble friend’s amendment in trying to explore much more specifically how these timetables work. Amendment 54 relates to mandatory notifications, and Amendment 66 to voluntary notifications, but they would have the same effect. Amendment 54 looks at the review period, which Clause 14(9) says is
“30 working days beginning with the day on which the notification under subsection (8)(a) is given to the person who gave the mandatory notice.”
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I added my name to the amendments of the noble Baroness, Lady Noakes, as they are yet another way to incrementally reduce the various points of uncertainty. It is notable how many of these can be found as we go through the Bill. As the noble Baroness explained, these amendments relate to the time for accepting a mandatory notice, from which other time periods can also flow, and then shortens the time for deciding whether to issue a call-in notice. As she explained, this is not meant to be part of the assessment and can therefore be short.
Now that the noble Lord, Lord Lansley, has explained his take on solving what is basically the same problem, I wonder whether it is better to look at the whole period, or to keep it cut up into segments so that people know where they are as they go along. As the noble Lord explained, it is very important not to start the process with two “as soon as practicable” requirements, because that just looks like a bottomless pit.
I will not repeat what has been said, and I am sure I can anticipate the Minister’s answer, but it seems that at every point in the Bill, the balance of convenience rests with the Secretary of State and the department. It does not make for a good business environment when there is no pressure put on the department. It reminds me of conversations I had not that long ago when I was chairing a regulatory strategy group looking at doing business in China. The repeated refrain from the business side was, “How do we get legal certainty?” The answer was always that you cannot; it is when the party decides. That is where this Bill puts us, and I fear the collateral damage it will create. I regret that I have to use the language of warfare and bombs to bring that home, but this should be made much more business-friendly.
Lord Naseby (Con) [V]
My Lords, I shall be very brief. I am full of admiration for my dear noble friend Lady Noakes for the thoroughness with which she has trawled through the Bill and these particular aspects. I have been in and have knowledge of a situation of a mandatory notice—I make no comment on the other aspect—and my noble friend is absolutely right: we need certainty in life. Whether five working days is the appropriate length of time I personally am not able to judge, but it seems entirely reasonable, and if its sponsors and their experienced colleagues from the City believe in it, I am more than happy to go with it. It does not seem to allow for any wriggle room; the worst thing in politics and making law is to allow for wriggle room, so I am absolutely behind Amendment 49.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, the noble Baroness, Lady Noakes, outlined very clearly what this group is about. She may not be entirely surprised that I am coming from the opposite angle, although we can perhaps agree that this is a question of balancing public good—making decisions about national security—versus private profit and convenience. The financial and other implications that might arise from more time being taken over whether or not to progress are weighed against both the chance of missing something important and using significant public resources, making a fuller assessment unnecessary.
I am here, rather unusually, to defend the Bill against the amendments. Broadly, in this debate we have heard a great deal of uncertainty about how the Bill, once enacted, will work: how the details will play out in practice, how many firms will be involved and what resources will be required. I am not sure how five days was arrived at as a firm deadline, given that there is such uncertainty about the actual operation of the Bill. As it currently stands, deciding whether to accept a mandatory notification should take as long as it takes; it should not be subject to an arbitrary—a very short —deadline.
Lord Clement-Jones (LD)
My Lords, these amendments are very much of a piece with many of the amendments we have heard in Committee—all designed to create a much tighter and less discretionary regime. That is quite right in the case of these amendments, which one would have thought the Government would find extremely straightforward to accept.
Under Clause 14, the Bill currently envisages that the investment security unit will reach an initial decision as to whether to clear a notified transaction or to call it in for a detailed assessment within 30 working days of acceptance of the notification as complete. As the noble Baroness, Lady Noakes, said in her excellent introduction, there will be a significant number of transactions that fall within the scope of the mandatory notification requirements—they are set out in the impact assessment—due to the target’s activities being in a specified sector but which clearly do not raise national security concerns.
Timescales for decision-making are currently extremely unpredictable. Even before defined timescales for decision-making kick in, the Secretary of State has an initial period, as has been described, to decide whether a notification has been submitted in the correct form. The Secretary of State must make this decision as soon as reasonably practicable. That is a set of weasel words which suit the convenience of the Secretary of State, not the investor.
This lack of clear timescales creates uncertainty for investors, universities and businesses, making domestic and foreign investment in university spin-outs less attractive, while disincentivising industry partners from engaging in collaborative R&D. These are all the downsides of uncertainty, as we have heard throughout this Committee. In addition, the Secretary of State has 30 days in which to review the notice after acceptance. Especially in circumstances of fast-moving corporate finance transactions, 20 days, as proposed, seems much more proportionate. Similarly, under Clause 18, relating to the voluntary notification procedures, greater certainty would be achieved if these amendments, regarding when a voluntary notice is accepted and setting out how long the review period should be, were included.
The noble Baroness, Lady Noakes, made an extremely good point: these provisions, where the timescales say “as soon as practicable” or 30 days, will be adhered to, to the letter. They are not going to be done speedily. Civil servants are going to interpret them extremely conservatively, as my own profession—the legal profession —would, because the penalties of getting it wrong will be seen to be too high. People will not want to get it wrong, whether they are in the position of giving advice to the Secretary of State or advising investors. That is why we need very clear provisions in the Bill, and we are certainly not there yet.
Lord Grantchester (Lab)
I thank the noble Baroness, Lady Noakes, for her Amendment 49, to which I have added my name. It leads this group of probing amendments which focuses on one theme: how long will businesses and organisations have to wait in suspense for responses from the Government concerning the notification procedures? This theme stems in part from the fear that the Government will be swamped by notifications, with the CBI suggesting that the department could have to deal with up to 10,000 of them each year. Some discipline needs to be set up from the outset that will require the Government to keep up.
Of course, we support the aims of the Bill to monitor, guarantee and protect our UK national security, so in this probing group I have not added my name to Amendments 53 or 65, in the name of the noble Baroness, Lady Noakes. This is not because I specifically disagree with her—quite the contrary. However, it can be appreciated that some notifications will take more time than others to review, with some of them likely to raise more concern—alarm, even—thus requiring more extensive considerations and checks. The length of the period is a maximum duration, not a target for delay and procrastination. It should be understood how financial takeovers can become incredibly complex, so it is entirely correct that complexity is reviewed sufficiently and deeply. However, perhaps the Minister could answer as to whether a full six weeks may be needed and whether a four-week period could be maintained.
Overall, it is understood that unnecessary delays can lengthen anxieties that legitimate investments may fall through and exclusivity terms expire, leading to research partnerships breaking down or, in worst-case scenarios, businesses running out of cash and finance facilities. This heightens the requirement for the new unit to be properly and adequately resourced. This could be enforced through transparency about the turnaround times for notifications. These amendments also pair up neatly with Clause 14 on mandatory notifications and Clause 18 on the voluntary notification procedure. As the wording in the Bill is consistent across both alternatives, are the two distinctive categories so similar in importance and workload to require symmetry in their determinations?
With these thoughts, I have added my name to Amendment 62 in the name of the noble Baroness, Lady Noakes, giving the Secretary of State five working days instead of the nebulous “reasonably practicable” length of time. What does “reasonably practicable” actually mean to a Government? It is vague for SMEs and an elastic piece of time for the department. The Law Society has raised concerns, especially on the voluntary notice procedure in Clause 18, as “practicable” implies that a degree of delay will be acceptable and is to be tolerated. How does the Minister react to that? Can he explain whether five working days could be practicable and, if not, why not?
Lord Callanan (Con)
I thank all noble Lords who have taken part in this brief debate, particularly my noble friends Lady Noakes and Lord Lansley for their contributions. I will start with Amendments 49, 62 and 64, which for the convenience of the Committee I will take together.
As drafted, the Bill provides that the Secretary of State must decide whether to reject or accept a mandatory or voluntary notice
“as soon as reasonably practicable”
after receiving it. He must then inform relevant parties of his decision as soon as is practicable. Amendment 49 would require the Secretary of State to decide whether to accept or reject a mandatory notice within five working days, as opposed to the current drafting. Amendment 62 would have the same effect, but for voluntary notices. Amendment 64 would require the Secretary of State to notify each relevant person whether a voluntary notice has been accepted within five working days of it being accepted, as opposed to the current drafting of doing so as soon as practicable.
As I am sure noble Lords would agree, mandatory and voluntary notifications should include the necessary information to enable the Secretary of State to determine whether to call in an acquisition for further scrutiny. Once a notification is accepted, the Secretary of State will be required to issue any call-in notice within 30 working days or else clear the acquisition to proceed. It is therefore important that the Secretary of State is able to reject a notification if it does not meet the requirements specified in the legislation. Of course, it is important that all decisions made under this regime by the Secretary of State are made promptly.
I therefore assure the Committee that the Secretary of State will make great efforts to ensure that decisions to accept or reject notifications are made quickly and that parties are notified in a timely way. In fact, one of my officials was keen to point out that the record so far for responding to informal guidance is 19 minutes. Civil servants will of course have different ways of going about it and will pursue different speedy methods, so I am sure that will not always be the case. Nevertheless, we will endeavour to reach these decisions to provide help and guidance to businesses and companies as speedily as possible.
As noble Lords will be aware, the Government intend to lay regulations setting out the form and content of the types of notification soon after Royal Assent. The draft notification form was published alongside the introduction of the Bill to help interested parties understand what information is likely to be required. Parties will therefore have clarity, and certainty about the information that they should provide when notifying the Secretary of State. We therefore expect notifications to be generally of high quality and, where this is the case, the Secretary of State expects to be able to decide quickly and then inform parties of decisions to accept their notices, in many cases, clearly, more quickly than the five working-day limit proposed.
However, it is important that there is scope for flexibility in the relatively rare circumstances where more time may be needed. For example, a hostile actor could intentionally provide very large amounts of unnecessary information that would take many days to read through to establish that important information was missing or incorrect. Or there might be multiple parties involved in a particularly complex acquisition that had all submitted notifications. In the event that the notifications do not match up, more detailed verification may be needed. I would argue that it is better for the Secretary of State to take the time to ensure that he has the information that he needs at the start of the process rather than risk finding gaps in information later on.
I turn to Amendments 51, 54 and 66. I know that my noble friend Lord Lansley did not speak to Amendment 51, but it is in this grouping, so, if he will forgive me, I will address the issue at this point. Clause 14 provides for the mandatory notification procedure, including subsection (6), which sets out the grounds on which the Secretary of State may reject a mandatory notice, and subsection (9), which explains when the 30-working day “clock” for reviewing a mandatory notice begins. These amendments go to the heart of both matters, so let me address each of them briefly.
Amendment 51, to which my noble friend referred although he did not speak to it, would remove the third ground for the Secretary of State to reject a mandatory notice, which is where
“it does not contain sufficient information to allow the Secretary of State to decide whether to give a call-in notice in relation to the proposed notifiable acquisition”.
I imagine that noble Lords may well consider that the first two grounds—which enable the Secretary of State to reject a mandatory notice where it does not meet the requirements of this clause or as prescribed in regulations—will cover most bases. However, we must also ensure that an acquirer cannot meet the technical requirements of providing a notice by doing so in a limited way or with incomplete information. Noble Lords will appreciate that if, for instance—in a purely hypothetical example, I was required to fill in the name of my chief executive on a mandatory notice, the ISU would have a pretty good chance of working out who “Boris” was, but in the case of the chief executive of a small start-up company that might have been operating for only a few months, a mandatory notice that had the same information would provide little to go on. I understand that it is an outlandish example, but it illustrates why we must not prevent the Secretary of State rejecting notices from those who plainly look to game the system.
Amendment 54 would adjust the timing for the beginning of the 30-working day review period from, as now, the date on which the Secretary of State confirms acceptance of a mandatory notice to the date on which he received the notice. Amendment 66 would make the equivalent changes in respect of voluntary notices. I can assure my noble friend Lord Lansley and other noble Lords that in the vast majority of circumstances we expect to confirm acceptance quickly and to begin the clock on the review period. However, the process of initially determining whether a valid and complete notice has been submitted is separate from fuller screening of the acquisition itself. Some acquisitions are likely to be complicated and a significant amount of information may be provided as part of the mandatory notice. In these instances, it is conceivable that the investment security unit may need a short time to ascertain that the relevant information has been provided. None the less, the screening will not yet have begun and, accordingly, it is right that the clock does not do so either.
Amendments 53 and 65 would reduce the time available to the Secretary of State to screen mandatory and voluntary notifications from a maximum of 30 working days to 20. I mention “maximum” again because that is exactly what these deadlines represent. In many cases, we expect the Secretary of State to be able to review and clear notifications much more quickly. The question, therefore, is what is appropriate in more complex cases and whether the ISU may need to gather input and expertise from across Whitehall on those acquisitions. The total figure of 30 working days is not arbitrarily chosen by the Government. I apologise to my noble friend Lady Noakes for saying yet again that it reflects detailed work undertaken across Whitehall to test past cases and mock scenarios against the new regime—I repeat that because it is our position. Some acquisitions may involve complicated ownership structures; the technology and activities of the target entity may not be immediately clear, and the format of the acquisition itself may be unconventional. It is vital the Secretary of State has the necessary time to examine an acquisition and to make an informed decision.
I again commend my noble friend’s efforts to make the new regime even more nimble and fleet of foot, but I hope she will understand—even if she does not agree with me—why I am unable to accept these and other amendments that I have addressed in this group. Therefore, I hope that both my noble friends will choose not to press their amendments.
The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
My Lords, I have received no request to speak after the Minister, so I call the noble Baroness, Lady Noakes.
Baroness Noakes (Con)
My Lords, I thank all noble Lords who have spoken in this debate. Important issues have been raised. I particularly like the idea behind my noble friend Lord Lansley’s Amendments 54 and 66, which would create one period in the initial phase rather than two or more. Taken overall, the various time periods throughout the Bill, including “as soon as reasonably practicable”, “30 working days”, an additional “45 working days” as well as the ability to stop the clock here and there, represent an extraordinary period of uncertainty to which a business transaction could be exposed. At the end of the day, the transaction might not even raise what are adjudged to be national security issues and many of those who go through the process are likely to end up being cleared. I liked the analogy drawn by the noble Baroness, Lady Bowles of Berkhamsted, with China, and this seeming a bit like “when the Party decides”: it is when BEIS decides that a transaction can be dealt with and cleared.
Thirty working days is a long period of time. We talked about it as six weeks. Six weeks is actually 42 working days. If you are in the private sector and doing an acquisition, your processes do not respect weekends. You would expect to be working right the way through, and I am not sure that we should expect any less from those in the Civil Service handling the processes. The new unit being set up may need to be completely re-engineered from the normal Civil Service way of doing things, which is clearly driving the assessment of the time limits involved. My noble friend the Minister again gave me the mock scenarios and detailed analysis by civil servants of the time they would like to take handling these things, but he did not answer my specific question as to whether that had been independently challenged, potentially by using red teaming, and whether the processes had been rethought from the perspective of how we give certainty to the business community, which needs to progress investment decisions.
My noble friend the Minister gave us the example of 19 minutes for informal guidance. That is a complete red herring, because it is informal guidance and not a decision made under any of the provisions of the Bill. Nobody will expect 19 minutes to be the answer for any of the mandatory procedures or voluntary notification procedures taken under this Bill.
I said that my amendments were probing, and I do not intend to take them forward today, but we need to step back and reflect on the cumulative impact of the time periods set out in the Bill on the way in which the UK is perceived as a good place to do business and to invest. If we lose that, we will lose the potential for continuing economic growth. Our economic growth has been boosted considerably by the inward investment that we have been able to attract. If we become a bad place to do business, this country will be hurt in many ways that are worse than might be feared in respect of national security implications. We will need to return to this in one way or another on Report, but, for now, I beg leave to withdraw the amendment.
Lord Lansley
Member’s explanatory statement
The purpose of this amendment is to ensure that the requirement for information to support a decision by the Secretary of State will need to be specified in the Regulations.
Lord Lansley (Con)
My Lords, there are just two amendments in this group. They are both to the same purpose. As I explained previously, one relates to mandatory notifications, the other to voluntary notifications. My noble friend the Minister answered on Amendment 51 in his response to the previous group, but for my purposes it is linked to Amendment 50 in any case, so I will touch on it.
Amendments 50 and 63 essentially raise two questions. The first relates to circumstances where somebody gives a notice to the Secretary of State and they meet the requirements in the regulations—they have looked and said, “To give a notice to the Secretary of State, I have to tell the Secretary of State A, B, C, D”, or however many pieces of information. That should be specified in the regulations. As the Bill is drafted, the Secretary of State can then come back to them and say, “Yes, you provided all the information required under the regulations, but you didn’t provide us this further information, which would enable us to make a decision whether to accept or reject your notice.”
The purpose of these amendments is to say that we should not arrive at that situation. Somebody starting this process with a notice should be able to rely on the information specified in the regulations to accompany a notice being sufficient to start the process definitely, one way or the other. That is why Amendments 50 and 63 say what they do. As my noble friend Lord Callanan said in response to the previous group, the two initial points—does it meet the requirements of the section and the requirements prescribed in regulations?—should be enough, but the amendments would add, to make it absolutely clear,
“including as to the information required to be provided in relation to the notifiable acquisition”
or the trigger event in the case of a voluntary notification, so that there is no uncertainty about this. The regulations should say what information has to be provided. If it is provided, then the notice should be rejected or accepted.
The second question that arises from this is on voluntary notifications. Since it is not explained in the Bill, what happens if the Secretary of State receives a voluntary notification, decides that there is insufficient information, rejects it, sends a letter to the person who supplied the voluntary notification saying “You didn’t give me additional information X, Y or Z”, and the person concerned then decides not to bother? What would the Secretary of State do about this? It is not a notifiable acquisition. If it were the Secretary of State would have a degree of control, but on a voluntary notice there is no such control. I do not see what happens when a notice is rejected under those circumstances.
Perhaps when my noble friend replies on this short group he would also explain why notices should be rejected because people have not supplied the Secretary of State with information that he did not ask for, and what happens if somebody makes a voluntary notification, the Secretary of State rejects it and they then do nothing about it. I beg to move.
Baroness McIntosh of Pickering (Con)
I thank my noble friend Lord Lansley for tabling these two amendments. I would like to speak to Amendment 63, which gives me the opportunity to raise an issue raised with me, and I am sure with other noble Lords, by the Law Society of England. I put a direct question to the Minister in summing up this small group of amendments. Can he confirm that the Government have actually considered, and have regard to, the impact of the sheer large numbers of filings that they may receive on the new regime’s ability to dispense with these filings in a timely manner? My noble friend has done us a great service here by highlighting the level of information required in the first instance or that may be required at a later date.
The estimated volume of filings stated in the impact assessment, deemed to be between 1,000 and 1,830 transactions notified per year is, in the view of the Law Society, an underestimate. That is because, for reasons that my noble friend gave, there is likely to be a very large number of voluntary filings and requests for informal guidance, especially when the regime is new and businesses are accustoming themselves to its requirements. In my view, the Law Society has raised legitimate concerns, which are reflected in these two amendments. Can I have a reassurance that there will be sufficient resources to deal with the sheer number of requests that are expected to avoid delays and burdens for businesses, which could be avoided in this regard?
Lord Grimstone of Boscobel (Con)
My Lords, I extend my thanks to my noble friend Lord Lansley for his Amendments 50 and 63. I shall deal first with a couple of points that have been made. If a voluntary notification is incomplete, it is not effective. That may mean that the Secretary of State may choose to exercise his call- in powers at some point in future in relation to that.
My noble friend Lady McIntosh asked whether we had underestimated the number of transactions that were likely to come before the unit. She referred to the work that the Law Society has done on that. All I can say is that we have thought about this carefully, and I am happy to repeat the assurance that we will make sure that the unit is fully resourced. If the number is greater than we anticipate, the resources of the unit will have to be expanded to cope with those greater numbers.
I extend my thanks again to my noble friend Lord Lansley for Amendments 50 and 63 which both relate to the information that must be provided as part of a notification. Clause 14 sets out the mandatory notification procedure and Clause 18 the voluntary notification procedure. Both clauses provide powers to the Secretary of State, by regulations, to prescribe the form and content of a mandatory notice and a voluntary notice respectively. Both clauses also provide that the Secretary of State may reject a notice where it does not meet the requirements of the clause, or the requirements prescribed by the regulations.
These amendments seek to make it clear that the Secretary of State can reject a mandatory or voluntary notice where information relating to either a notifiable acquisition or a trigger event has not been provided despite being specified as required in regulations. These amendments also seek, as a result, to ensure that any such regulations include a requirement to provide the information about the notifiable acquisition or trigger event needed to make a call-in decision.
I am happy that I can reassure my noble friend, I hope completely, that the Secretary of State absolutely intends to use the regulation-making powers under both these clauses to prescribe both the form and content of mandatory notices and voluntary notices. Indeed, our view is that the regime simply cannot work and will not work without such regulations being made. The primary entry mechanisms into the regime are based on notification, so it is vital that we are clear with businesses and investors about what information they must provide and in what format.
That is why, ahead of Committee in the other place, we published a draft of the information likely to be required as part of a mandatory notice or voluntary notice. I continue to welcome comments from noble Lords about that draft, but I think I can reassure my noble friend that information about notifiable acquisitions and trigger events will certainly form part of such requirements.
With that said, I fear that my noble friend’s amendments would therefore be duplicative in this instance. Clause 14(4) and Clause 18(4) allow the Secretary of State to make these regulations. Clause 14(6) and Clause 18(6) allow the Secretary of State to reject a notice where it does not meet the requirements specified in the regulations. The Government consider that this approach provides the powers that the Secretary of State needs to reject a notice where insufficient or the wrong information has been provided, whatever the final notification forms look like.
I hope my noble friend is reassured by my explanation of these clauses and the Government’s general approach on this matter, and I hope, therefore, that he feels able to withdraw his amendment.
Lord Lansley (Con)
I am grateful to my noble friend. I think he slightly confused two things together at the end, in talking about insufficient or wrong information. If there is wrong information, then clearly a notice can be rejected. The question about the sufficiency of information is the point I am coming back to. My noble friend was quite clear on—and I think it is very clearly set out—what it is the Government expect to be provided by way of information for these notices. The question is: why should they have a power to reject a notice on grounds that they require more information beyond what has been asked for in the material that has already been published? That is the power they are taking.
If the Government say—as my noble friend Lord Callanan said—one must set out who the chief executive is, and someone puts their given name but not their family name, they can reject it. The point is, however, that that was specified in the regulations. The question is: does it require his other information, and what is the other information? People might reasonably say, “You have rejected it because I did not provide the information that you required, but you didn’t tell me you required it.” That is my problem.
I will go away and think about this a bit more; maybe it is not important enough for us to persist with. For the moment at least, I will make my point and beg leave to withdraw Amendment 50.
Lord Butler of Brockwell
“( ) Before a final order is made, the Secretary of State must share with the Intelligence and Security Committee of Parliament any intelligence relevant to such an order, and a final order shall not be made before the Intelligence and Security Committee has made a report to Parliament on the order.”
Lord Butler of Brockwell (CB)
My Lords, the noble Lord, Lord Rooker, has added his name to this amendment, although he is not able to speak today. I shall also speak to other amendments in this group.
Something strange is happening here. The Bill gives the Government extraordinary powers to intervene in, and possibly prevent, private sector commercial transactions. I accept that there may be occasions on which the Government need to protect British industries against incursions from foreign companies, particularly if those companies are under the control of unfriendly states, but these powers are extraordinary and their exercise, and the justification for that exercise, will often depend on intelligence information that the Government cannot, naturally, make public. How then is Parliament going to scrutinise and the Government to justify the use of these powers in those circumstances?
In the Intelligence Services Act 1994, the Conservative Government established a parliamentary mechanism precisely for this purpose, by setting up the Intelligence and Security Committee of Parliament. The coalition Government reinforced the committee’s powers in the Justice and Security Act 2013. That committee comprises Members of both Houses of Parliament with experience of intelligence who are admitted within the ring of secrecy so that they can have access to highly classified information and advise the Government and Parliament on its use. I declare an interest, having served on the committee for five years. Yet the Government have refused to provide, in the Bill, for the ISC to have a role in scrutinising the use of the powers in it. It is as if the Government have acquired a watchdog, yet are unwilling to let it bark just when it is needed.
This point was raised by the Opposition parties in the other place, and the Minister produced repeated excuses for denying the ISC an explicit role. Ultimately, the Minister said that the ISC could review the annual report which the investment security unit established by the Bill is required to make to Parliament. That made it necessary for the chairman of the ISC, Dr Julian Lewis, to intervene and say that the annual report would be a public document, which could not, by definition, contain classified information. The Minister’s reply to that was that the ISC could subsequently ask the Secretary of State for such classified information.
The noble Baroness, Lady Hayter, with the support of the noble Lord, Lord Fox, and the noble Baroness, Lady Bennett, has tabled Amendment 82, requiring that the Secretary of State should publish a separate annual report to the ISC which can include classified information. The noble Lord, Lord West, who is your Lordships’ current representative on the ISC, has put down an amendment, with the support of the noble Lords, Lord Rooker and Lord Campbell of Pittenweem, requiring classified information to be contained in a confidential annexe to the annual report of the investment security unit, to be made available only to the ISC. I will support these amendments if my own amendment is not acceptable, but if I may respectfully say so, an annual report after the event involves examining the operation of the stable door after several horses may have bolted.
My own amendment requires that, when a transaction is called in, any relevant intelligence should be made available to the ISC, and the ISC should make a report to Parliament before the Secretary of State makes a final order. The assessment period of 30 days under the Bill, extendable to 45 days, provides adequate time for the ISC to assess the intelligence provided to it, take evidence and give its opinion to Parliament. It seems to me unlikely that there will be so large a volume of transactions actually called in as to make this an unsustainable burden. In this House, we are used to Select Committees such as the Delegated Powers Committee and the Constitution Committee scrutinising Bills in short order and reporting on them to the House before the Bills go forward. If Parliament is to have any effective scrutiny of the use of the powers in the Bill, this seems preferable—if it is practicable—to an annual report after final orders have been made.
It is a matter for speculation why the Government have been so coy about giving the ISC an explicit role in the Bill. Paragraph 8 of the memorandum of understanding agreed between the Government and the ISC after the 2013 Act, says that
“only the ISC is in a position to scrutinise effectively the work of the Agencies and of those parts of Departments whose work is directly concerned with intelligence and security matters.”
Those were the words agreed between the Government and the ISC. The irony is that the ISC’s role is potentially helpful to the Government. Only the ISC can have access to the intelligence information justifying the Government’s intention to intervene. To give an example, I recall that, when I was a member of the ISC, there was a press story that GCHQ was piggybacking on the American NSA to obtain intelligence that it could not obtain under its own powers. The ISC examined the records and was able to reassure Parliament and the public that the reports were false.
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. I beg to move.
Lord West of Spithead (Lab)
My Lords, I am speaking to my Amendment 78 and will touch on Amendment 70 in the name of the noble Lord, Lord Butler, to which he has just spoken, as well as Amendment 82 in the name of my noble friend Lady Hayter and Amendment 86 in the name of the noble Lord, Lord Lansley. All relate to the same concern and try to resolve it in slightly different ways. I also thank the noble Lords, Lord Campbell of Pittenweem and Lord Rooker, for their support, and the noble Lords, Lord King and Lord Janvrin, for having expressed support for the measure in broad terms. It is rather good that this is the first amendment this afternoon being raised from this side rather than from the Government; that is quite interesting I think.
Noble Lords will be aware it was the Intelligence and Security Committee of Parliament which first raised the fact—and the alarm—that when the Government were considering major investment decisions, national security concerns were not being taken into account. There are those in this House who served on the committee at that time and should be thanked for their work bringing this issue to light. This was some seven years ago, and noble Lords will know from my previous interventions on this topic that I strongly support the need for this Bill, as I think all of us do in this Chamber.
However, there is a glaring hole in the legislation which the Government have not yet resolved: namely, there is no meaningful oversight. This Bill has national security at its heart, yet the Government will not let anyone oversee this secretive heart. The Minister has said that the ISC—the one body Parliament expressly established to oversee secret matters on its behalf—will not be given proper oversight of this secret activity. The offer that the ISC can scrutinise the public report and ask for any further information it wants is not good enough. The public annual report is just that, as the noble Lord, Lord Butler, said—it is public. Parliament itself can therefore scrutinise it, so there is no role for the ISC, which is designed to look at secret reports, not public ones. The Minister says that the ISC can request further information. But there is no obligation for that information to be provided. The ISC can only require information from those bodies that fall within its remit, and the investment security unit is not one of those bodies.
Without specific provision, there is a possibility that, even if this Government are well intentioned—which I am sure they are—future Governments may refuse to provide such information to the ISC. Consequently, I am afraid the Minister’s proposals do not meet the requirement for proper oversight. Worse than that, they represent a step backwards from the current oversight provisions. The unit that currently takes these decisions—the investment security group in the Cabinet Office—is overseen by the ISC. By moving this activity to the investment security unit in BEIS, the Government are actively removing it from ISC oversight. I am sure that this cannot be what the Government intend. This is the glaring hole in the Bill that we must fix, and my amendment does that. I thank the noble Lords, Lord Rooker and Lord Campbell of Pittenweem, for putting their names to this amendment.
Clause 61 mandates the Secretary of State to produce an annual report to Parliament. The information in that report is limited and obviously will not include any sensitive security information. My amendment to Clause 61 will add to that annual report further categories of information: details about the jurisdiction of acquirers; the nature of national security concerns raised; the particular technological or sectoral expertise being targeted; and any other information that the Secretary of State deems instructive on the nature of national security threats uncovered in the new regime.
The amendment then provides a mechanism for the Secretary of State to redact any of this information from the public report, should it be deemed damaging to national security. That information must be moved into a classified annexe, ensuring that, if Parliament cannot scrutinise it, the ISC can, on behalf of Parliament. This is an approach already used by organisations such as the Investigatory Powers Commissioner’s Office under the Investigatory Powers Act 2016.
The amendment proposed by the noble Baroness, Lady Hayter, and the noble Lord, Lord Fox, provides for a second separate annual report to the ISC. It seeks to achieve the same outcome as mine—namely, oversight of the security matters at the heart of the Bill. My understanding was that Ministers in the other place had found the annexe solution more palatable, in that it would minimise the reporting burden on the new unit. However, the ISC itself is ambivalent as to whether there is a secret annexe or a separate report; the key is that there is reporting on the security aspects, in whatever form that takes.
This is not a power grab by the ISC—far from it; we have more than enough work to do as it is, and nor do we have any interest in the wider work of BEIS. It is only the intelligence and security work of the new unit, which is, after all, our job. The ISC was expressly established to scrutinise the intelligence and security activities of government—as the noble Lord, Lord Butler, said—initially, within the three intelligence agencies, and then from 2013, throughout the full national security apparatus. That change in 2013 was a result of the Justice and Security Act. The long title of that Act refers to
“activities relating to intelligence or security matters”,
and these are set out in a memorandum of understanding under the Act, which was then deemed to be a practical vehicle for listing those bodies overseen by the committee, since it could be easily kept up to date. This was best explained by the then Security Minister, who, during the passage of the Act, said:
“Things change over time. Departments reorganise. The functions undertaken by a Department one year may be undertaken by another the following year.”—[Official Report, Commons, Justice and Security Bill Committee, 31/1/13; col. 98.]
And that is exactly what has happened.
Under this Bill, intelligence and security activity is moving from the Cabinet Office to BEIS, yet the Government have not updated the MoU to include it. They have not honoured their clearly stated intention that the ISC should have oversight of all government intelligence and security activities, and it is not just this unit; other units have been set up in other departments to carry out national security and they have not yet been added to the ISC’s MoU. This is not good enough.
Lord Lansley (Con)
My Lords, I will speak briefly to my Amendment 86 in this group and express my support for Amendments 78 and 79, in the name of the noble Lord, Lord West of Spithead. I will not repeat his arguments; I thought they were compelling. Amendment 86 would put the investment security unit of the Department for Business, Energy and Industrial Strategy into the remit of the Intelligence and Security Committee in the Justice and Security Act.
I am grateful to the noble Lord, Lord Fox, for supporting the amendment; I am sure he agrees with me on this. We would not need it if Ministers would permit adding the investment security unit of BEIS to the memorandum of understanding, as part of the remit of the Intelligence and Security Committee. If forced to, it would be better to amend the Act to put it into the remit, rather than to put something in the legislation that directly impacts the memorandum of understanding. That is not the way that the MoU should work.
I remind your Lordships that the memorandum of understanding, which was published with the annual report in 2013-14, said:
“The ISC is the only committee of Parliament that has regular access to protectively marked information that is sensitive for national security reasons: this means that only the ISC is in a position to scrutinise effectively the work of the Agencies and of those parts of Departments whose work is directly concerned with intelligence and security matters.”
That is precisely the point being made here: the ISC must complement the other committees, including the BEIS Committee, in its scrutiny of this work. As the footnote to the MoU said:
“This will not affect the wider scrutiny of departments such as the Home Office, FCO and MOD by other parliamentary committees.”
It is consistent with scrutiny of activity generally but, for scrutiny relating to intelligence and security matters to happen, confidential material may need to be supplied to the ISC and the ISC needs to have it added to its remit. I hope my noble friend can give us that assurance, if not today, on Report.
Lord Campbell of Pittenweem (LD)
My Lords, I too shall begin by declaring an interest, having been a member of the Intelligence and Security Committee for seven years, five of which were enhanced, if I may say, by the presence of the noble Lord, Lord Butler of Brockwell. I have a further advantage because I have been listening, along with other noble Lords, to the three preceding speeches in this debate, which have set out the principles clearly and powerfully against what appears to be intransigence on the part of the Government. At this point, therefore, I shall adopt what has been said by the noble Lord, Lord West of Spithead, with which I agree entirely. I am also influenced to some extent by the fact that your Lordships have been exemplary in the dispatch of business today. I have been watching from the pavilion, as it were, and it seems that the conduct of this Committee stage so far could be recommended or possibly even compelled for the Committee stages of other Bills.
There is nothing that I can usefully add to the arguments put forward by the three preceding speakers, but I can make one further contribution. In advance of the debate today, I consulted the 2013 report of the Intelligence and Security Committee entitled Foreign Involvement in the Critical National Infrastructure. The noble Lord, Lord Butler, and I were members of the committee at the time and the chair was Sir Malcolm Rifkind. Among other things, the committee applied its mind to the issue of Huawei, in particular to its entry into the United Kingdom market and the fact that in doing so it entered into contractual arrangements with BT. What happened was that BT did as it was supposed to do and advised the relevant government departments of the position, but the officials then communicated what had been brought to their attention by BT not to any of the Ministers with responsibility for national security but to the then Secretary of State at the Department of Trade and Industry. That was done on the ground that the only thing which appealed to the officials to draw to ministerial attention was the possible impact on British businesses.
That having happened, for quite a long time, Huawei enjoyed not a privileged but certainly an unremarkable position in the British economy. It was only some years later that it became clear that there were other implications to be drawn from its interest in the economy of the United Kingdom. At that point, the Intelligence and Security Committee deemed it appropriate to include it as part of the inquiry whose report I have described. As a consequence, the committee was able, as has been hinted at already, to come to a much better and more informed judgment about Huawei because of its access to intelligence that would not otherwise have been available either to committees or to Parliament itself. I recommend the report as a good illustration of how an inquiry of that kind should be carried out and how profitable, if you like, the consequences are of so doing.
The issue is clear. If, at the stage of the involvement of Huawei in the economy of the United Kingdom it had been understood and perused by those with access to a very high level of classified intelligence, perhaps, since the moment of Huawei’s arrival into this economy, there would have been a much greater understanding throughout government of the significance of its entry into the United Kingdom and the implications for security which that has necessarily involved. For these and other reasons that I have indicated previously, I support the amendment tabled by the noble Lord, Lord West of Spithead, to which I have added my name.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, I have attached my name to Amendment 82 in this group, tabled by the noble Baroness, Lady Hayter of Kentish Town, and signed by the noble Lord, Lord Fox. It is perhaps unfortunate that the structure of the debate means that neither of them have spoken in favour up to now. Some of the other speakers have briefly outlined what that amendment consists of. As with all the amendments in the group, it is an attempt to ensure proper parliamentary oversight of the operation of the Bill.
This is a classic “prepare a report” amendment and specifies in considerable detail what would be in that report, including the nature of the national security risks posed in transactions for which there were final orders, the particular technological expertise that was being targeted and any other relevant information. I admit that, having listened to the noble Lord, Lord Butler of Brockwell, introduce Amendment 70, which essentially calls for oversight scrutiny to be in real time as decisions are being made, [Inaudible], and having listened to the debate, on reflection, that would be the best outcome. If I were to make a case for Amendment 82 in comparison, there would be advantages in having a specified list of what the report contains and making sure that full information is being provided to the ISC. I rather suspect that the ISC would be strong-minded if it thought that it was not getting the information it needed.
It is interesting how support for this group of amendments is coming from all sides of the Committee, and it is clear that there is a real problem for the Bill without some kind of provision on reporting to the ISC. That would ideally be done in real time but there should certainly be some democratic oversight. The noble Lord, Lord Butler, was pre-empting a ministerial suggestion that there would not be enough time. As the noble Lord said that, I thought about sitting in the Chamber of your Lordships’ House on 30 December and how much legislation those in both Houses of Parliament were able to get through in that one day. I am sure that the ISC could cope with the level of work required.
The noble Lord, Lord West, put it well. Without one of these amendments, there is no oversight. No one has referred to this yet but about an hour before we met, the integrated review was finally published and I skimmed through it as fast as I could. One matter highlighted in it was the competitive advantage coming from Britain’s democracy. I will be raising that issue again later but if we are going to claim competitive advantage from democracy, it would be good to have some of it. We have heard the phrase, “Take back control”, a great deal. The structure of our alleged democracy is supposed to rest within Parliament, which is where scrutiny and oversight of the Executive is supposed to happen. I join other noble Lords in saying that we must have some form of reporting to the ISC.
Lord King of Bridgwater (Con) [V]
My Lords, I am delighted to follow the noble Baroness, Lady Bennett, who has bravely intruded in this debate involving an old-school reunion of former members of the ISC. I am delighted to follow two of the promising newer Members, in the shape of the noble Lords, Lord Butler and Lord Campbell. Another, the noble Lord, Lord Janvrin, is still to come.
The examples given by the noble Lords, Lord Butler and Lord West, set out the arguments very clearly. Having been involved, as I was for so long, with the founding of the ISC and its initial seven years of operation, what was carried on subsequently—[Interruption] —bugger! I am sorry; excuse my language.
Baroness Ritchie of Downpatrick (Non-Afl) [V]
My Lords, it is a pleasure to follow the noble Lord, Lord King of Bridgwater. Unlike him and other noble Lords who have spoken on this issue, I do not have any particular expertise in the ISC or in intelligence and security matters. None the less, it is a privilege to follow the noble Lord, who, as a former Secretary of State for Northern Ireland, was fully aware of many of the intelligence and security issues. I will refer later to one which I think arose during his tenure as Secretary of State for Northern Ireland.
Notwithstanding that, I support the amendments in this group, the context of which was initially addressed at Second Reading by many of their movers: the noble Lords, Lord West of Spithead and Lord Rooker, and the noble Baroness, Lady Hayter. They all revolve around the need for parliamentary oversight and accountability, and thus the involvement of the Intelligence and Security Committee in Parliament.
I am concerned about the impact of inappropriate takeovers and dual ownership of firms that are key to the development of the UK’s infrastructure, including the digital sector. The gaping hole in parliamentary scrutiny and oversight needs to be examined and legislative provision made for it. That is where the hole lies in this legislation.
All noble Lords who have spoken have elaborated on the sensitive nature of investment issues involving other countries which may have a strategic or other ulterior interest in the UK. Those need to be subject to parliamentary scrutiny, particularly decisions on notifications that will be taken by BEIS. A strong case was made in the Commons for the Intelligence and Security Committee to be given an explicit role in scrutinising the outworking of the Bill, but unfortunately the Government rejected it. I thank noble Lords who have spoken and I agree with them. The Intelligence and Security Committee could do a proper and adequate job if it was given a report on how the powers in the Bill are or are not being used.
There is currently no provision for oversight of national security material on which decisions will be taken, hence my support for these amendments as they would expand the current reporting requirements to include reporting to the ISC, incorporating details of the national security decision-making process into the existing annual report in Clause 61, an issue already referred to by the noble Lord, Lord West of Spithead. It is vital that there is oversight of matters that Parliament cannot itself oversee. Oversight and parliamentary scrutiny are key in this respect.
The ISC was established in 1994. I recall that in 1987-88 a company in Northern Ireland that was allocated a demolition contract for Northern Ireland Electricity Service had its contract and its ability to act as a subcontractor withdrawn on national security grounds. It never found out the nature of those national security grounds. No doubt various views were attributed to it. This case was subject to legal proceedings, and the European Court of Justice eventually sided with the inappropriateness of the actions that the Government had taken. I honestly believe that if the ISC had been established at that time, it would have been able to examine papers associated with that case and to judge the appropriateness of the actions and the company. That parliamentary oversight was unfortunately not available at that time, but it is now available and should be utilised to scrutinise global contracts and notifications within the unit in BEIS.
Parliamentary scrutiny is not something that should be feared. It allows engagement, consultation and a degree of transparency, subject to the rules of confidentiality. I support the amendments in this group.
Lord Janvrin (CB) [V]
My Lords, it is a pleasure to follow the noble Baroness, Lady Ritchie of Downpatrick. I speak as yet another former member of the Intelligence and Security Committee of Parliament. I strongly support the Bill, but there is a scrutiny gap which has been well identified in this short debate. Other speakers have made the key point in support of explicit oversight by the Intelligence and Security Committee of decisions taken under the Bill based on classified evidence from secret intelligence sources, and I strongly endorse those arguments.
I want to underline very briefly the important point of principle underlying these amendments. The ISC is a vital part of the intelligence agencies’ licence to operate in a democracy by making the agencies accountable to Parliament. It helps maintain public trust and confidence in the secret activities of the state. This obviously includes maintaining trust in government decisions about the activities of the intelligence community. Those broad decisions are taken in the interests of the nation as a whole, but maintaining public trust will surely be just as important when it comes to government decisions that may be narrower but could directly affect the future of individual British companies and the livelihoods of their employees.
The Bill will set up a regime that could materially change people’s lives in the wider interest of national security. However, as drafted, it does so without those people knowing for certain that any decisions based on secret evidence are not automatically subject to scrutiny and examination by the one committee of Parliament specifically set up to be able to do this: the ISC. This seems wrong in principle.
There is then the point of practice. I think we would all argue that effective scrutiny leads to better decision-making. The Minister in another place said that there is nothing to stop the ISC calling for evidence on a specific decision. That may be true, but is it practical? It calls to mind Donald Rumsfeld’s “unknown unknowns”: how does the ISC know which decisions to examine in detail? I question whether such a hit-or-miss approach to scrutiny would lead to better decision-making.
Amendments 70, 78, 79 and 82 all suggest means to provide effective ISC scrutiny. As has been pointed out, Amendment 70, in the name of my noble friend Lord Butler, has the merit of real-time accountability. This should be examined carefully, but the other amendments ensuring regular and automatic classified reporting to the ISC will, I believe, do much to ensure public trust in the processes of the Bill. As the noble Lord, Lord West, said, without one of these amendments, there would be no effective oversight.
I very much look forward to the Minister’s reply, and I hope he will be sympathetic to some kind of movement on this important issue. As I said at the beginning, this is a matter of trust.
Lord Fox (LD)
My Lords, it is a huge pleasure to follow such assembled knowledge and experience. I shall do my best to sum up from these Benches.
On a previous Committee day, we debated an amendment, tabled by the noble Baroness, Lady Hayter, on defining national security. In his answer to that amendment, the Minister—the noble Lord, Lord Callanan —responded that enshrining national security in law would be an inflexible response and the Government sought the ability to have a “flexible” response to future threats. I found this reasonably persuasive. However, who in the Government and department is defining, at that point in time, what the threat to national security is? Where does the expertise lie? Herein come the amendments before us—all except for Amendment 90, look towards the ISC for that expertise.
In his speech, the noble Lord, Lord Butler of Brockwell, set out what is at stake. These are extraordinary powers that the Government are taking upon themselves to stop private sector activity. That has been the concern of many of us throughout all the amendments that we have been putting forward. A lot of those powers are being kept very close to the Minister and very flexible, as my noble friend Lord Clement-Jones said when speaking on a previous group today.
One of the problems that has concerned those of us speaking about the investment part of the Bill is mission creep. Having a role for the ISC at the heart of it would ensure that this really is about security, rather than other issues that can creep into the picture.
Baroness Hayter of Kentish Town (Lab)
My Lords, the case has been well made as to why the ISC should, and indeed must, have a role in scrutinising the use of powers contained in the Bill—or maybe if not scrutinising them, then, as the noble Lord, Lord Butler, says, having a role before they have been exercised. As my noble friend Lord West and others have said, we have been clear throughout that we support the need for the Bill. However, when broad powers of intervention are expanded, those using such powers must be held to account by Parliament and through greater transparency, as other noble Lords have said.
In the Commons Public Bill Committee, Professor Martin from Oxford University said that
“there should be accountability and transparency mechanisms, so that there is assurance that”
the powers
“are being fairly and sparingly applied.”—[Official Report, Commons, National Security and Investment Bill Committee, 26/11/20; col. 81.]
Sir Richard Dearlove said that while the annual report should have as much transparency as possible, it could
“require a secret annexe from time to time”—[Official Report, Commons, National Security and Investment Bill Committee, 24/11/20; col. 21.]
such as is now provided for in Amendments 78 and 79.
Amendment 82 in my name and those of the noble Lord, Lord Fox, and the noble Baroness, Lady Bennett of Manor Castle, would put on the face of the Bill the case made convincingly here today but also in the Commons, where the chair of the ISC set out how this oversight fell well within his committee’s remit. However, the belt-and-braces approach of Amendment 86 is also welcome, just in case the Government’s only answer to a role being given to the ISC is that such scrutiny would go beyond its existing terms of reference. If so, they should amend the terms of reference.
It is important not simply that the ISC has a role, but—to give confidence to this new regime—that everyone, particularly business and researchers, knows that it has such a statutory role. This will be particularly important, as the noble Lord, Lord Janvrin, just said, where a key investment is stopped or voided. Everyone concerned will want reassurance that the security questions that have come into play were indeed properly analysed and assessed.
The power to be used needs reviewing, and it is not sufficient to say—as I have heard said—that the Business Select Committee is equipped for that. It has neither the specialism and expertise nor the clearance to handle and judge such security information. Nor, as the noble Lord, Lord Lansley, said, is it even able to do so, according to the quotes that he gave us. It is also a committee drawn only from the Commons, which would preclude, as the noble Lord, Lord Fox, just said, those in this House being able to have any input into the scrutiny that can take place through the ISC.
As we heard, in the Commons, the Minister said that the ISC could seek information—so clearly there is no problem in it having the information. We simply say that it should not have to ask—as was pointed out, it can then be rejected—but it should also not have to ask to see what has gone on. The noble Lord, Lord Janvrin, reminded us about Donald Rumsfeld and his “unknown unknowns”. You do not know what you do not know, therefore you do not even know what you should be able to ask. As I pointed out at Second Reading, how do you know what the questions are if you do not know what you have not been told?
Then there is, as has just been referred to, the Bill title. We do not even have to go into the content of it; the words “National Security” are in the title, so it is slightly hard to see why the security committee should be excluded.
Amendment 82 therefore provides for an annual report to the ISC, including certain detailed information in relation to state-owned entities, the expertise being targeted, the jurisdiction of acquirers and other national security threats. We are not wedded to the particular wording—I am sure that we can come to an agreement on what should be there—but it is important for our functioning democracy that new, extensive powers for the Secretary of State go hand in hand with accountability. I would think that the Minister would welcome the expertise—indeed, the challenge—of the expert and experienced members of the Intelligence and Security Committee and the confidence that the knowledge that the committee is looking at it would give to the wider group of stakeholders.
I turn now to what the noble Lord, Lord Fox, called an orphan amendment. Maybe I should have put it into a different group; if so, I apologise. Amendment 90, in my name, and those of the noble Lords, Lord Fox and Lord Rooker, is a probing one, to ask the Government to spell out why they think that BEIS is the correct home for the new unit. We seek assurances that the balance of interests between those concerned with the economy and those with our security have proper channels to have their views heard, and heard in a way that is sufficiently speedy and effective to deal with real or imagined problems.
We have heard a lot, quite rightly, about whether business can get its information handled quickly enough, but the same is true for security: those demands and queries must also be handled in a timely manner. There is a balance between those who are interested in the economy and those who are interested in security—it is the same people, very often—and it is always a challenge to get that balance right. As the ISC noted:
“There is an obvious inherent tension between the Government’s prosperity agenda and the need to protect national security.”
Locating the unit in the business department is a statement about which they think is the more important. It makes some sense, obviously, because the issues are about investment, but it will be vital that all sorts of intelligence, from across Whitehall, about possible targets and areas of investment are considered.
The Department for Transport will know a lot about where investment is flowing and it and others will have critical infrastructure where they need to be involved. The ISC’s Russia report, having reflected on Russia’s attempts to influence electoral outcomes in other countries, notes that the Government’s defending democracy programme and their work to protect the democratic processes from interference is under the leadership of the Cabinet Office. It would be useful to know whether consideration was given to collocating this new unit also under the Chancellor of the Duchy of Lancaster, or, indeed, how sufficient input from the Cabinet Office will flow into this unit.
More widely, the ISC, reviewing the co-ordination of security policy across Whitehall when it was looking at Russia, noted that responsibility fell to 14 different departments and agencies. The requirements of the Bill may well be similar: it will need tentacles all across those agencies and departments. It would be helpful to have some reassurance that there is a strong and appropriate lead and that the Government are confident that that lead is correctly placed in the business department rather than in the Cabinet Office, which normally does that cross-department work—the cross-Whitehall responsibilities are often put there for exactly that reason of drawing on expertise.
The amendment also suggests an advisory body, but what it is really pointing to, again, is the importance of pulling in all relevant parties and stakeholders with expertise to what will be big decisions. We have heard about the sort of investments that could be stopped by this, so these are big and important decisions. We look forward to some reassurance that all the right expertise will be used.
I turn to what is the main subject of this group, the ISC. I do not know whether it is the intransigence mentioned by the noble Lord, Lord Campbell, or whether it is something else that has turned such a cold shoulder on what we would all expect normally to be involved in this issue—that is, the ISC. We are not asking for much from the Minister today, perhaps just a cast-iron assurance that the MoU will be adopted in the way suggested. I think that that would satisfy most of us. I suggest that he puts the speaking notes that the noble Lord, Lord Callanan, passed to him to one side. What we really want to hear from him is that he has listened to the debate today, that he will take this back to the department and that it will be given serious consideration.
Lord Grimstone of Boscobel (Con)
My Lords, I am grateful to the noble Baroness, Lady Hayter of Kentish Town, the noble Lords, Lord West of Spithead, Lord Rooker and Lord Butler of Brockwell, and my noble friend Lord Lansley for their amendments on the role of the ISC in relation to the national security and investment regime. I assure the noble Baroness that she will hear my own words rather than those of the noble Lord, Lord Callanan.
I start by saying that I have the deepest respect for the expertise and experience of the noble Lords who have spoken in the debate this evening. I have listened to what they have said carefully and with great attention. However, despite the eminence of those who have spoken, I fear that I may disappoint them in this speech.
I assure noble Lords that the Government are committed to publishing information in relation to the regime that properly balances the desire for information with protecting national security. I shall come back later to the important point about parliamentary scrutiny and accountability. What I am saying also takes account of the existing position in relation to scrutiny of the Department for Business, Energy and Industrial Strategy, BEIS.
These amendments represent a number of approaches to requiring the Secretary of State to provide sensitive information to the ISC. Amendments 78 and 79 would in practice require him to create a confidential annexe to the annual report. Amendment 82 would require an additional, separate confidential report to be provided to the ISC. Amendment 70 would require him to share intelligence relevant to a final order with the ISC and not to make that order until the ISC has reported to Parliament on it.
Amendment 86 would extend the remit of the ISC through amending the Justice and Security Act 2013 to enable the committee to scrutinise the operation of the Investment Security Unit. As we heard, Amendment 90 seeks to relocate the Investment Security Unit, within six months of the Bill becoming law, from the Department for Business, Energy and Industrial Strategy to the Cabinet Office. It would also establish a wide-ranging advisory board to the Investment Security Unit, which should include, but not be limited to, representatives from relevant government departments, security and defence organisations, and business bodies.
I will address Amendments 78, 79 and 82 together. The reports proposed under these amendments would contain very similar information, including in relation to mandatory and voluntary notifications, trigger events that were called in and final orders made. In particular, they would require the Secretary of State to provide details of factors relevant to the assessments made by the regime. These include: the jurisdiction of the acquirer; the nature of national security risks posed in transactions when there were final orders; details of particular technological or sectoral expertise that was targeted; and other national security threats uncovered through reviews undertaken under this Bill. I note that similar proposals were put forward in the other place and it is perhaps not surprising that my views on this align closely with those expressed by the Parliamentary Under-Secretary of State for Business and Industry at the time.
I respectfully draw noble Lords’ attention to Clause 61, which requires the Secretary of State to prepare an annual report and to lay a copy of it before each House of Parliament. This clause provides for appropriate scrutiny of the regime. We judge this to be appropriate, because that information does not give rise to national security issues when published at an aggregate level. It will also rightly give a sense of the areas of the economy where activity of the greatest national security concern is occurring.
Of course, it is right that there is also wider scrutiny of the work of BEIS and the work of the unit within BEIS. We therefore intend to follow the existing appropriate government procedures for reporting back to Parliament, including through responding to the BEIS Select Committee, which, I have to say, does an excellent job of scrutinising the work of the department. Indeed, I note that the BEIS Select Committee can and does handle sensitive material; for example, on our civil nuclear programme. The UK’s merger control regime under the Enterprise Act 2002 currently includes screening on national security grounds, and this function is overseen by the BEIS Select Committee.
In case there is any doubt of this—and coming back to the specific point that the noble Baroness made—there is no barrier to the BEIS Select Committee handling highly classified material, subject to agreement between the department and the chair of the committee on appropriate handling. The BEIS Select Committee will be able to see all the material that it needs in order to make its assessments within its role.
I argue that it is the right committee to oversee the work of the investment security unit within the broader remit of BEIS. We should not forget that the BEIS Select Committee is as much a part of our structure of parliamentary scrutiny and democratic accountability as the ISC. With great respect, I would not want any of our comments to appear to be disparaging to the work of the BEIS Select Committee and the very valuable scrutiny work that it does.
I believe that the BEIS Select Committee is excellently placed to consider how effectively and efficiently the regime interacts with the business community and investors. It can also ensure that the NSI regime does not create disproportionate impacts on the economy, and, with its business expertise, it is able to scrutinise whether the regime is effective in scrutinising relevant acquisitions of control. I have to say, with deep respect, that I would therefore question some of the narrative I have heard that suggests that the BEIS Select Committee is not well placed to scrutinise the NSI regime.
I turn back to the ISC. There are, of course, no restrictions on the ISC requesting further information from the unit or from the Secretary of State for matters where it falls under the remit of that committee. The Intelligence and Security Committee’s remit, however, is clearly defined by the Justice and Security Act 2013, together with the statutory memorandum of understanding. I know that this irritates noble Lords, but that remit does not extend to the oversight of BEIS’ work. I therefore welcome and encourage the Intelligence and Security Committee’s considerable security-specific expertise and its review of the annual report when it is laid before Parliament.
Before turning to Amendment 86, I will first revisit precisely what the Justice and Security Act 2013 provides for. I remind noble Lords that this Act sets out the role of the Intelligence and Security Committee alongside a memorandum of understanding. The Act sets out that
“the ISC may examine or otherwise oversee the expenditure, administration, policy and operations of … the Security Service … the Secret Intelligence Service, and … the Government Communications Headquarters.”
The Act also provides that:
“The ISC may examine or otherwise oversee such other activities of Her Majesty's Government in relation to intelligence or security matters as are set out in a memorandum of understanding”
agreed between the Prime Minister and the committee.
The present memorandum of understanding states that the ISC is, in addition, responsible for overseeing the activities of parts of the Ministry of Defence, parts of the Cabinet Office—including the National Security Secretariat and the Joint Intelligence Organisation —and the Office for Security and Counter-Terrorism. The ISC must report to Parliament annually on the discharge of its functions, and may make such other reports as it considers appropriate concerning any aspect of its functions. Redactions are agreed by the Prime Minister for any material that may prejudice the functions of the intelligence agencies or of other parts of the intelligence and security community.
Extending the remit of the ISC to oversight of the investment security unit would be a substantial amendment. In particular, the Justice and Security Act currently refers only to intelligence agencies, of which the investment security unit is not one. Noble Lords will have seen the strength of feeling in both this House and the other place concerning the role of the investment security unit in relation to the national security and investment regime—I am well aware of this. I understand that this proposed new clause is the result of careful consideration and an attempt to find a compromise, and for that I am grateful to my noble friend. However, for the same reasons that the Government have cautioned against other amendments that seek to provide for a more formal role for the ISC in relation to the NSI regime, I cannot accept it.
Amendment 70 seeks a similar privileged role for the ISC but in a way that, I have to say, would present additional problems. The Bill as currently drafted requires the Secretary of State, as the sole and quasi-judicial decision-maker, to follow clearly and tightly defined timescales and to handle sensitive information from a range of sources. Requiring the ISC to review every final order before it could be made would risk adding substantial delays into this process, harming both national security and business certainty.
The Government have faced amendments seeking for a national security assessment to be completed in one-third less time on large and complex acquisitions, for the purpose of limiting any wait by business. This amendment, however, while at the end of the process—and while final orders will, of course, be more limited in number than national security assessments undertaken—seeks to add potentially significant further delay without a clear benefit. There is also a risk that, depending on how long it takes the ISC to produce its report, the Secretary of State could be timed out of making a final order at all, as the tests for extending the assessment period do not currently allow for an extension due to ISC scrutiny. It would also, I think, be an unprecedented role for a parliamentary committee, although I have no doubt that others such as the noble Lord, as an ex-Cabinet Secretary, will have a much better sense of precedent in this area.
The report laid before Parliament, which this amendment would require, would be based solely on intelligence. It would therefore likely need to be so highly redacted as to make it uninformative. I can instead assure the noble Lord that, in making a final order, the Secretary of State will draw on information and expertise from across government, including the intelligence agencies, to ensure that he has all the information he needs.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
I have had four requests to speak after the Minister, from the noble Lords, Lord West and Lord Rooker, the noble Baroness, Lady Hayter, and the noble Lord, Lord Campbell. I will call them in that order. Lord West of Spithead?
Lord West of Spithead (Lab)
My Lords, I am a poacher turned gamekeeper, as a fully signed-up member of the rolled-up trouser-leg and funny handshake brigade. For many years in the intelligence world, I hated the thought that government, Parliament or anyone else could look at my intelligence; how much nicer not to give any of that away. I am very glad that system does not work in this country. We have set up a mechanism whereby Parliament can see that highly sensitive intelligence that all of us involved in that world are immediately nervous when anyone touches. Of course if you have that intelligence, you want to hang on to it and not tell other people about it. It sounds to me as though the BEIS Select Committee will be delighted that it is to be the one making all the decisions based on the intelligence that it has. I do not really like that as a way of going forward. I could say a lot more about the response from the Government because I am not very happy about it.
Can the Minister look again at this debate and what has been asked for, because it seems very sensible for the ISC, which after all was tasked in the Justice and Security Act to do exactly this? The BEIS Committee was not. It is not too much to ask that this is looked at; it sounds very sensible.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for his courteous comments. Of course I will review the contents of this whole debate to see whether there are any lessons that I can learn from it.
Lord Rooker (Lab) [V]
My Lords, I much regret that, due to my own IT incompetence, I was unable to speak today. However, I say to the Minister as politely as I can that he has completely misread the House, and I think he will have to look at this again. The ISC is not a bog-standard Select Committee. I have a question for him, based essentially on the speech of the noble Lord, Lord Janvrin, which I do not think he referred to. How could rumours about government action in respect of a private company which may be market-sensitive be dealt with to public satisfaction unless the ISC has oversight? It would not matter if the ISC reports were redacted; Parliament would accept that; the media would accept it. The Government have a democratic licence to operate only because of Parliament. The Minister should go away and, before Report, explain to those who have spoken and other Peers where the Government’s democratic licence to operate is in this respect, having ruled out parliamentary scrutiny in a very precise way.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for his comments. I apologise to noble Lords if they feel that I have misread the mood of the House. The key point that I want to make in response to him is that the BEIS Select Committee—I say it again—is part of our parliamentary scrutiny and has democratic accountability in the other place. The Government are not avoiding scrutiny of the investment security unit; they are putting it somewhere where they believe that the scrutiny will be most effective, looking at the work of the unit in the round. They believe that the most effective overall scrutiny of the ISU will be found in the BEIS Select Committee.
Baroness Hayter of Kentish Town (Lab)
I have a couple of questions for the Minister. He said that the remit of the ISC under the 2013 Act does not cover the work of BEIS. If that is the case, that justifies even more an amendment to the Bill to amend the 2013 Act to put in such a provision. If the Government wanted to do it, that would be the way. I do not think that we should use the law as an excuse. The law can be changed; we are making an Act now.
I have just double-checked the names, but can the Minister confirm that the current members of the BEIS Select Committee are not all even privy counsellors and certainly do not have security clearance which goes beyond Privy Council? Can he confirm that there is no House of Lords Member on the BEIS Select Committee? Can he also confirm that nothing that we have done in any of these amendments to give the ISC a role removes the role of the BEIS Select Committee—in other words, it can still look at the industrial or investment parts? We are not taking those away from it, so it would continue to have the role that he has spelt out for it, but we are adding another bit. Can he confirm those three points?
Lord Grimstone of Boscobel (Con)
I thank the noble Baroness for those questions. First, I repeat that there is no barrier to the BEIS Select Committee handling highly classified, top-secret material. Appropriate arrangements can be put in hand to ensure that the members of that committee have access, after processes have been gone through, to that material. Secondly, of course, the committee is a committee of the other House —that is self-evident. I come back to my core point. Where the agencies which report to the ISC have done work of relevance to this, the ISC will be able to speak to them about such work, but that is very different from the ISC being responsible for monitoring the work of the ISU, which goes far wider than the responsibilities of the ISC. I have deep respect for the opinions that have been put forward, but I am afraid that I do not agree with them.
Lord Campbell of Pittenweem (LD)
My Lords, I am grateful for the opportunity to remedy an omission from my earlier remarks, to some extent stimulated by the response of the Minister. During my time in the other place, I was a member of the Trade and Industry Committee, the Defence Committee and the Foreign Affairs Committee. Unless things have changed very considerably, in my time as a member of these committees we were never admitted to intelligence of the quality which is available on a daily basis to the Intelligence and Security Committee. We were never required to sign the Official Secrets Act, which is an obligation incumbent upon those who wish to serve on the Intelligence and Security Committee.
Since the nominations are made by party leaders, it is not unknown for reservations to be expressed about the reliability of a possible member of the Intelligence and Security Committee, the result being that the leader of the party in question determines to withdraw that nomination. To suggest that the quality of information available is the same in Select Committees on security matters as that available to the Intelligence and Security Committee is to misunderstand the different obligations incumbent on membership.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for these comments and in no way want to second-guess the deep experience that he has on these matters. But I repeat yet again: there seems to be a worry that BEIS Select Committee members will not have sufficient security clearance to be able to do the work required of them. I repeat from this Dispatch Box that there is no barrier to BEIS Select Committee members handling top-secret and other classified material, subject to agreement between the department and the chair of the committee on appropriate handling. I am not sure that I can say more than that, but they will be able to have the information they need to carry out their functions.
Lord Butler of Brockwell (CB)
My Lords, I am grateful for this debate. I am afraid that I have to say to the Minister that, while he may have used his own words in answer to the debate, he used the brief that would have been used by the noble Lord, Lord Callanan. I do not want to decry the work of the BEIS Select Committee at all, but the Minister gave the game away when he said that access to highly classified intelligence for the Select Committee would be based on an agreement between the chair and the Secretary of State. The Secretary of State would control it. In that case, Parliament would be in the position of Glendower in “Henry IV”, who says:
“I can call spirits from the vasty deep.”
So you can, is the reply:
“But will they come when you do call for them?”.
Under the memorandum of understanding, the Intelligence and Security Committee has a right to get the intelligence that it needs. A Select Committee of the House of Commons does not have that similar right.
What has run through this debate, from everybody who has spoken apart from the Minister, is that we want one simple thing. We want to make proper use of a tool that is there for Parliament and has been created for this purpose: the Intelligence and Security Committee. There are various ways of doing it, as has been made clear. It could be by annual reports; it could be by changing the terms of reference, which can be done so easily; it could be a transfer to the Cabinet Office, which would bring it within the terms of the ISC.
I suggested that this should be a real-time operation. If I may say so, the Minister misrepresented that. There is no reason why that should extend the time necessary for the assessment. The Intelligence and Security Committee will be looking at one thing—the highly classified intelligence on which the Secretary of State is acting—and reporting on that. That is not a huge job. The ISC could say quite shortly that it was satisfied, and 99 times out of 100, I think, it would say that there were good grounds for the order that the Secretary of State was proposing to be make. I think that could quite easily be done within the 30 days allowed under the Bill for the assessment. It would not even need to make use of the 15-day extension.
Member’s explanatory statement
This amendment ensures that the power to make regulations in clause 53(1) in relation to the procedure for service of documents extends to cover all of the different types of notices, orders and documents under the Bill.
Lord Lansley
“( ) whether the United Kingdom has a reciprocal agreement with the country or territory to whose authority the disclosure would be made, and”Member’s explanatory statement
This amendment would require the Secretary of State to take into consideration whether there is a reciprocal agreement in place when deciding to disclose information to an overseas public authority.
Lord Lansley (Con)
My Lords, this group should not take us very long. There are just two points in it. Amendment 76 relates to Clause 54, “Disclosure of information,” and in that clause, there is a power for the Secretary of State to disclose information
“to a public authority or an overseas public authority.”
When deciding whether to disclose information to an overseas public authority, under subsection (7) of that clause, there are two issues the Secretary of State must have regard to: the protection against self-incrimination in criminal proceedings; and whether the matter in respect of which disclosure is sought is sufficiently serious to justify making that disclosure.
Amendment 76 in my name proposes to add one further matter to which the Secretary of State must have regard—whether there is a reciprocal agreement with the country or territory concerned. It would not mean that where there was no reciprocal agreement the Secretary of State could not make a disclosure to an overseas public authority, but it should be something that he should have in mind.
I am glad that my noble friend is on the Front Bench because he will have fond memories of Amendment 77. It concerns the disclosure of information where a statutory gateway is made and how such a statutory gateway is to be considered alongside the prohibitions to be found in data protection legislation and in the Investigatory Powers Act. The amendment to Clause 57 covers this. My noble friend will recall that under the Trade (Disclosure of Information) Act 2020, where there was a power to disclose information that might contravene the data protection legislation, that would be prevented, but the duty or power in the 2020 Act was to be considered alongside that prohibition. We can see that in Clause 57(2)(a), which makes it clear that the duty to disclose in this legislation would not contravene data protection legislation or the provisions of the Investigatory Powers Act, but that the duty or power in this legislation must be taken into account.
Clause 57 puts that qualification alongside the data protection legislation, but it has not put it alongside the prohibitions in the Investigatory Powers Act; I do not know why. I know why it is there because we went through this on the Trade Bill. It is there because of the 2016 Supreme Court decision in The Christian Institute & Others v The Lord Advocate made it clear that the decision-maker should have in mind both the prohibitions and the powers in the Act, and balance the two together. In Clause 57(2)(a) this legislation enables the Secretary of State to balance the two. The question is: why not in the Investigatory Powers Act? If the answer is that under no circumstances would a prohibition under the Investigatory Powers Act be overridden by reference to the duty or powers in this legislation, I will be content with that. However, otherwise I do not understand why it is not included in Clause 57(2)(b) in the same way as it is in subsection (2)(a). I beg to move.
Lord Fox (LD)
My Lords, I rise to beat the rush and clamour to respond to these two amendments. Taking them in turn, from these Benches, Amendment 76 seems to make a relatively straightforward point. I will be interested to hear from the Minister what possible objection there might be to it. My suspicion about Amendment 77 concerns what normally happens to amendments like this tabled by the noble Lord, Lord Lansley. The Minister will say, “We do not need these powers because—”. I have looked at the legislation and I cannot find any evidence of where the “because” might be. I shall sit down and wait to find out.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
We have not heard from the noble Baroness, Lady Hayter of Kentish Town, so I call the Minister.
Lord Grimstone of Boscobel (Con)
My Lords, I turn to the amendments relating to information sharing and data protection. As always, I am grateful to my noble friend Lord Lansley, who we know examines these Bills with such a critical eye that nothing can escape his eagle gaze. The first amendment relates to Clause 54 and seeks to require the Secretary of State, when deciding whether to disclose information to an overseas public authority, to have regard to whether there is a reciprocal agreement with the country or territory to whose authority the disclosure would be made.
As this clause is about sharing information, I believe that my noble friend is envisaging the reciprocal agreement with another country or territory to be in relation to the sharing of information for a specified purpose, such as facilitating the exercise by the Secretary of State of his functions under the Bill or the prevention or detection of crime. Clause 54(7) specifies certain considerations that the Secretary of State must have particular regard to when deciding whether to disclose information to an overseas public authority. It includes consideration of whether the law of the country or territory to whose authority the disclosure would be made provides protection against self-incrimination in criminal proceedings corresponding to the protection provided in the UK, as well as consideration of whether the matter is sufficiently serious to justify making the disclosure. The clause permits the Secretary of State to disclose information but, I stress, does not require him to do so.
The Secretary of State, as often elsewhere in the Bill, will be subject to public law duties when deciding whether to share information with an overseas public authority under this clause. These duties include a requirement to take all relevant considerations into account, although this will obviously depend on the facts of each case, and whether there is a reciprocal agreement in place. In some circumstances, for example where information is to be shared for the purpose of protecting national security, it may well be appropriate to proceed in the absence of a reciprocal agreement. When deciding whether to disclose information to an overseas public authority, the Secretary of State will also be bound by the data protection legislation provisions, which include certain restrictions in respect of international transfers of personal data and consideration of appropriate safeguards. There is therefore no need to include additional restrictions in the Bill.
I turn to Amendment 77, which relates to Clause 57. It seeks to ensure that when considering whether a disclosure or use of information pursuant to a duty or power under Parts 1 to 4 of the Bill would contravene the Investigatory Powers Act 2016, the duty or power itself would need to be taken into account. A similar provision exists in relation to consideration of whether a disclosure or use of information would contravene the data protection legislation. Clause 57 states that the provisions in Parts 1 to 4 containing a duty or power to disclose or use information do not authorise a contravention of the data protection legislation as defined in the Data Protection Act 2018. The clause also sets out that such a duty or power to disclose or use information does not authorise contravention of Parts 1 to 7, or Chapter 1, Part 9, of the Investigatory Powers Act 2016. That Act contains provisions about conducting interception, including restrictions on use and disclosure of intercepted information. These are standard provisions included where legislation concerns the use or disclosure of information.
To reassure my noble friend, there is no call for the Secretary of State to consider the duty or power to disclose or use information under the Bill to determine whether a particular disclosure or use pursuant to it would contravene the Investigatory Powers Act. This will simply require consideration of what the relevant provisions of the Act prohibit, and none of the prohibitions turns on whether a duty or power exists or its terms. In comparison, the data protection legislation provides a framework for processing personal information but allows for other provisions, such as those found in the Bill, to specify more details about the use or sharing of personal information. Therefore, a duty or power to disclose or use information under the Bill will need to be taken into account when considering whether a disclosure or use of personal information pursuant to it would contravene the data protection legislation. As explained, this is not required when considering compatibility with the Investigatory Powers Act, due to the differing nature of the legislation.
Therefore, while I understand the objectives of my noble friend and his desire, as always, to be helpful, for the reasons I have set out, I am not able to accept these amendments, and I hope that my noble friend will agree to withdraw or not move them.
Lord Lansley (Con)
I am grateful to my noble friend for his response. I will read it carefully, but, if I understand it correctly, I entirely agree with him on the explanation of Clause 57 and the different approach to data protection legislation on the one hand and investigatory powers on the other, so there is no problem there.
To be perfectly honest, I do not understand the argument regarding Amendment 76. If my noble friend is resting his argument on the fact that there is a public law duty and that all relevant considerations must be taken into account, why does that not equally apply to the considerations specified in Clause 54? If they are to be specified there, I do not understand why a reciprocal agreement could not be properly included. It is a matter of policy as to whether it should or should not, and it seems to me that there is a good argument that it should be considered, but I will reflect further on that and, for the moment, I beg leave to withdraw Amendment 76.
The Deputy Chairman of Committees (Lord Lexden) (Con)
At last, we move to the group beginning with Amendment 80.
Amendment 80
Lord Grantchester
“( ) the average number of days taken to assess a trigger event called in under the Act,( ) the average number of days taken for acceptance decisions in respect of mandatory and voluntary notices,( ) the average staff resource allocated to the operation of reviews of notices made under sections 14 and 18 over the relevant period,( ) the number and proportion of notices and call-in notices concerning the acquisition of a small or medium-sized enterprise,( ) in respect of the acquisition of a small or medium-sized enterprise, the sectors of the economy in relation to which call-in notices were given,( ) the minimum, average and maximum turnaround times for notifications.”
Lord Grantchester (Lab)
I am pleased to open this group of amendments by moving my Amendment 80, concerning the department’s annual report on this legislation. Generally speaking, Governments, regrettably, do not tend to offer widespread information in reports, whether annual or not—except, of course, where they consider that they heap praise on themselves.
Clause 61 can be made to look extensive, comprising as it does a total of 12 mandatory pieces of information—13, should the addition of the noble Lord, Lord Lansley, not be considered unlucky. This list can form the basis of information on the way the Government provide a dashboard to view the new unit. However, in considering how well it is performing and its relationship with and effect on the business community, any audit certainly needs to ask for the additional six listed in my amendment.
My Amendment 80 requires the Secretary of State to report on the time taken to process notices, which was part of our earlier discussion on the resource allocation to the new unit and the extent to which small and medium-sized enterprises are called in under the new regime. The amendment is about requiring a greater degree of accountability from the department regarding the investment security unit’s service standards and functions. It states that the report needs to include the aggregate time for decision-making, in both assessments and initial answers, acceptances and rejection notices, providing a measure to ensure that the screening process is working effectively and efficiently for SMEs.
Secondly, on elements of capacity monitoring, the amendment enhances the ability to take stock of the resources behind the unit’s work, so that Parliament and the public can appreciate the report as a mechanism for holding the Government to account for what will be a major new centre for merger investment screening for the security of the UK.
Thirdly, we are keen to maintain a business climate in which SMEs can thrive. It would be beneficial in this respect for the unit to track and monitor the focus of SMEs in its work. Information would be able to highlight any specific concerns and the experiences of the most innovative start-ups in their interactions with the new regime.
The general questions across the Committee regarding how the new unit will operate, be resourced, perform and impact those throughout the economy whom it will affect can be answered in the more comprehensive information that an annual report can offer. In addressing the Commons Committee, David Petrie of the ICAEW wanted to test the capabilities of the regime in an accountant’s way by assessing the reasonableness of his assumption that even 1,000 notifications a year amounts to four a day and a considerable workload. How will that work and what information must be provided to check it through the annual report? What will be the annual budget for this regime and what increase for the department will be necessary? Will the new unit be able to request and receive additional funding to meet the challenges it has yet to experience?
I will not steal the thunder of the mighty guns of my noble friend Lord West by saying much at this point about his Amendment 91, which is in this group. He has already spoken authoritatively on security matters. However, we are sympathetic to and support his amendment, as businesses in the defence sector have asked that the impact of the new regime on them be clarified. The amendment reflects the Defence Committee’s report on foreign investment, which called for banning investments in the UK’s defence supply chain from certain countries, namely, China and Russia. What is the Minister’s view on this?
In considering the annual report and the guidance my noble friend seeks for the defence sector, and the other reports undertaken under, for example, Amendment 78 or Amendment 82 in the name of my noble friend Lady Hayter, it would be helpful if the Minister could also outline the relevant interactions, not least with reports from the export control regime, in order to provide a comprehensive assessment. It would be unfortunate to find information disappearing into gaps between them and vulnerability opening up in the security screening process. I beg to move.
Lord Lansley (Con)
Noble Lords will be pleased to know that this is the last time they will hear from me in this Committee. My amendment is terribly simple. In so far as the annual report lists the number of final orders made, Clause 27 provides the power for the Secretary of State to vary orders or revoke them. One of the things that one might want an annual report to do is to enable one to understand the stock of orders as well as their flow. Therefore, I have suggested in Amendment 81 that the number of orders varied or revoked should be added to the list of subjects in the annual report.
The Deputy Chairman of Committees (Lord Lexden) (Con)
I call the guns of the noble Lord, Lord West of Spithead.
Lord West of Spithead (Lab)
My Lords, I am going to be using secondary rather than main armament for this particular amendment.
I see Amendment 91 as more of a probing amendment than anything else. It is in fact a direct recommendation from the HCDC report, Foreign Involvement in the Defence Supply Chain, which came out last month:
“The Ministry of Defence’s open and country-agnostic approach to foreign involvement means that the defence supply chain has been open to potentially hostile foreign involvement, with reports of companies being owned and influenced by foreign Governments whose values and behaviours are at odds with our own”.
That is, of course, part of the whole point of this Bill. It also said:
“The Ministry of Defence should publish a list of countries it considers friendly and from whom investment should be encouraged. All those countries falling outside of this list should be barred from investing in the UK’s defence supply chain”.
The committee’s reasoning was that these companies, particularly the SMEs and smaller companies, need to know because they do not have the ability to initially assess the risk of dealing with some of the countries with which they often come into contact, and it was felt that this needed to be made clear. This would mean that time and money would not be wasted pursuing contracts and deals that were not going to be allowed. It all relates to that high degree of certainty to which so many of the amendments discussed today have related. I need say no more than that.
Baroness Smith of Newnham (LD) [V]
My Lords, this is my one foray into the National Security and Investment Bill, and I am speaking to Amendment 91, in the names of the noble Lords, Lord West of Spithead and Lord Alton of Liverpool, and myself.
As the noble Lord, Lord West, pointed out, this is in many ways a probing amendment, but it is very important. The relevance is clear: the HCDC report talks about the presence of Chinese business already in the defence supply chain. It goes slightly wider than that; anyone who has been in the armed services or happens to be in the Armed Forces Parliamentary Scheme might have looked at the labels of the uniforms—the camouflage—and noticed that they were made in China. I have always thought it slightly strange that NATO-issued uniforms should be made in China, but that seems to be the case. That does not necessarily endanger our national security, but it does raise some very odd questions about what we are actually doing and why we are purchasing kit from China. The HCDC notes that seven companies in the defence supply chain have been acquired by Chinese companies; that at least needs to be looked into.
This is a very modest amendment, which asks for a report. It does not go quite as far as the HCDC recommendation, because it does not say that other countries should be barred from investing in the supply chain, but will the Minister consider what signals the current approach to allowing investment in the defence supply chain sends, particularly on the day that the integrated review has been published?
The Deputy Chairman of Committees (Lord Lexden) (Con)
The next speaker on the list, the noble Baroness, Lady McIntosh of Pickering, has withdrawn from the debate, so I call the noble Lord, Lord Fox.
Lord Fox (LD)
My Lords, I will make two brief points. On Amendment 91, I add in support of the noble Lord, Lord West of Spithead, that, having worked for a business that was both in the defence supply chain and was also a civil supplier, some companies do not even realise that they are selling into the defence supply chain—particularly SMEs, which tend to sell to whomever will buy their product, often across civil and security sectors. Advice on how you know when you are coming into the remit of the Bill is going to be very important.
Speaking to the long list set out in Clause 61, which would become longer should the advice of the noble Lord, Lord Grantchester, be accepted, I have a problem because it is essentially a process. It is “What we have done this year”; it is a list of things we did. The Bill has two purposes: one is to keep the country safe, and the other is to not harmfully impact the flow of investment. It is impossible to infer any of that from these things. If we are going to have an annual report—I am remiss for not having tabled an amendment myself—let us have one that enables us to judge the success of the Bill year on year. What has been the effect—the impact —of the Bill on the investment landscape in this country? Are we still safe? We could have done all the things on this list, and, frankly, all the things on the list of the noble Lord, Lord Grantchester, and the stable door could be wide open, but we would not know it from this annual report.
I have prepared lots of business annual reports: literally thousands of things are reported, none of which is actually useful information about what the business is doing but is required by law. So my suggestion, for what it is worth, is: let us have an annual report that enables us to effectively judge the Bill’s success—are we safe and has the investment landscape not been impacted?
Lord Callanan (Con)
I thank those who have taken part in this short debate, in particular my noble friend Lord Lansley and the noble Lords, Lord Grantchester and Lord West, for their considered and thoughtful comments on the amendments. Amendments 80 and 81 seek to add a number of additional areas of information to the annual report, namely around time taken processing cases, the resources of the investment security unit, the extent to which acquisitions involving SMEs are being called in, and the number of final orders being varied or revoked. The aims of these amendments are commendable, and the Government are a strong supporter of SMEs and government transparency.
The first part of Amendment 80, tabled by the noble Lord, Lord Grantchester, seeks the inclusion of the average number of days taken to assess a trigger event which has been called in. Noble Lords will recall that Clause 23 provides statutory time periods for assessment under the regime. The Secretary of State must assess any trigger event that has been called in within a period of 30 working days, as we have discussed in earlier debates, or, if additional time is required, within the additional period of a further 45 working days, or within any further voluntary extension or extensions agreed with the acquirer.
As there are these time limits, and they are as short as we are able to make them while also ensuring there is time for appropriate national security assessment, it does not seem that there would be any additional benefits from including average times in the annual report. Clause 61 sets out the minimum reporting requirements that the Secretary of State must meet in the annual report. The information provided in the annual report will provide Parliament with good insight into how the regime is functioning in practice.
Furthermore, the amendment seeks to add additional reporting on the minimum, average and maximum turnaround times for notifications in the annual report. The Government have laid out clear statutory timelines for responding to voluntary and mandatory notifications in Clause 23, providing investors and businesses with the certainty that they need. However, I would be happy to discuss this proposal further with the noble Lord, Lord Grantchester. The time taken to assess trigger events that are called in will vary on a case-by-case basis; therefore, it would not be helpful to share the average time.
Secondly, on the time taken for deciding whether to accept mandatory and voluntary notices, the Bill requires that the Secretary of State must do so
“as soon as reasonably practicable”,
as we discussed, after receiving a notice. In practice, this is likely to be a matter of days, but it is important to retain flexibility so that an accurate assessment of the completeness of the information is undertaken. Additionally, if the Secretary of State decides to reject a notice, he must as soon as practicable provide reasons in writing for that decision to the notifier. Where the decision is to accept a notice, the Secretary of State must as soon as practicable inform the parties of the decision.
Thirdly, where the noble Lord seeks inclusion of the average headcount of the investment security unit in the annual report, I can only repeat what my colleague Minister Zahawi said in the other place: resourcing would, of course, be
“an internal matter for the BEIS permanent secretary.”—[Official Report, Commons, National Security and Investment Bill Committee, 10/12/20; col. 334.]
I am unsure whether very high numbers would demonstrate appropriate resourcing, or insufficient efficiency. In any case, we have committed to ensuring that the investment security unit is appropriately resourced. I am sure that the Permanent Secretary will make sure that that is the case.
Furthermore, on SMEs, the report is intended to give a sense of the sectors of the economy where the greatest activity of national security concern is occurring. The Secretary of State may include additional information relating to SMEs if he considers that appropriate.
Turning to Amendment 81, tabled by my noble friend Lord Lansley—I am sorry that this is the last occasion we will hear from him—I am pleased to confirm that Clause 29 already places a duty on the Secretary of State to publish notice of the fact that a final order has been made, varied or revoked. This intentionally complements the annual report in Clause 61. We must not encumber the investment security unit with ever greater reporting as this will draw focus away from scrutinising acquisitions and responding to businesses as soon as possible. Individually, these amendments of greater reporting may seem reasonable, but combined they can be quite burdensome for the unit.
On Amendment 91, in the name of the noble Lord, Lord West of Spithead, I am grateful that this came with only his secondary armament—although I noticed that he had the noble Baroness, Lady Smith, for additional offensive capability. The amendment relates to the provision of guidance for the defence sector. It would require the Secretary of State to publish guidance for businesses in the defence supply chain about the provisions in the Bill, including a list of countries which the Secretary of State considers less likely to give rise to a risk to national security and from which investment is encouraged.
The noble Lord’s amendment highlights the importance of the defence sector and its supply chains, which is part of the reason why the defence sector is intended to form part of the Bill’s “mandatory notification regime”. A robust defence sector is vital to our national security and essential for the development of innovative and first-class military capabilities that enable us to protect our people, territories, values and interests at home and overseas. The defence sector, including businesses in its supply chains, such as those providing emerging technologies, must remain resilient to a wide range of national security risks, including those posed by hostile actors.
We are keen to ensure that the mandatory notification regime works proportionately and provides sufficiently clear parameters to inform businesses and investors of the need to notify and obtain prior approval. That is why we have consulted on the definitions of sectors covered by mandatory notification in the recent public consultation. This approach has enabled experts from the defence sector and its supply chains, along with the legal profession, businesses and investors, to help us refine the final definitions to ensure that the regime is appropriately targeted and provides legal certainty.
The noble Lord’s amendment also seeks to require the publication of a list of countries which the Secretary of State considers less likely to give rise to national security risks, and those from which investment is encouraged. As it stands, as I have said before on other amendments, both the mandatory and voluntary notification regimes provided for by the Bill are actor- and nationality-agnostic.
The mandatory notification regime is set based on the risks posed by acquisitions of target entities due to those entities’ activities rather than risks posed by the acquirers. The risks posed by an acquirer are then considered on a case-by-case basis by the Secretary of State as part of the particular national security assessment. It would not be appropriate to set out through guidance a variation to the legislation; that would confuse more than it would clarify, and it might give rise to legal challenge.
On whether guidance can be provided more generally for the defence sector on the provisions in the Bill, we must also guard against legislating through guidance. The Government will of course consider what appropriate explanatory material should accompany the regulations to define the sectors subject to mandatory notification, including the defence sector.
I thank all noble Lords and my noble friend for their amendments. For the reasons mentioned, I am afraid I cannot accept them. Therefore, I hope the noble Lord will feel able to withdraw his amendment.
The Deputy Chairman of Committees (Lord Lexden) (Con)
I have received no requests to speak after the Minister, so I invite the noble Lord, Lord Grantchester, to conclude the debate on his amendment.
Lord Grantchester (Lab)
I thank those who have taken part in this short debate on the annual report, especially the Minister for the tone of his reply. It has been very helpful. The dashboard of information to be provided in an annual report must be extensive enough to provide clarity on the operation of the unit and how it has performed. I have always considered annual reports an excellent opportunity to promote an organisation’s credentials and it is surprising to hear that the Minister would not wish to show how the unit has performed effectively against statutory targets. I thank him for expressing the wish to discuss this further and I look forward to doing that with him.
Defence in the supply chain is a particular vulnerability and, on my noble friend’s guidance, the need can be found in the government response to the sector consultation. The defence chapter states:
“Some respondents stated the definition could capture contractors or subcontractors who are providing goods or services unrelated to defence”.
This returns the Committee to its considerations regarding clear definitions of national security and how these may be provided. They are certainly important issues to consider further in the light of the Minister’s reply. I beg leave to withdraw the amendment at this stage.
Lord Grantchester
“Equity stakes and national security review
(1) Within one month of the day on which this Act is passed, the Secretary of State must conduct a review of business loans and grants which have been distributed in response to severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) to sectors in relation to which the Secretary of State considers that trigger events are more likely to give rise to a risk to national security.(2) If loans and grants have been accepted by businesses in these sectors, the Secretary of State must consider converting loans and grants into equity stakes if there is a clear economic and national security rationale for doing so.”
Lord Grantchester (Lab)
I am glad I am providing balance for the noble Lord, Lord Lansley, before he departs the Committee. This side of the House is tabling amendments and challenging the Government on this legislation. We too want the Bill to work well and consider that it is important that various elements have been fully considered. One of the elements to reflect on concerns the effect on the SME sector. We champion clarity and support for SMEs and innovative start-ups, so often the engine of growth, jobs and prosperity.
SMEs may experience degrees of anxiety about potentially having to engage with a whole series of new regulations under the Bill. Amendment 84 is a probing amendment to ask whether the Government are considering whether the Covid business loans and grants in any sectors under national security screening could be converted into equity stakes should there be a clear economic or national security rationale so to do. The public will generally look back in appreciation of the support provided by the Government to businesses over the pandemic interruptions. That could also mean ensuring that gains from public support—not merely the losses of failure—accrue to the benefit of all of us. Simply, are equity stakes being considered in these circumstances, even if the Government are generally not in favour of taking equity risks, even in terms of securing our national security? What are the recoverabilities of loans and the implications for security of these vulnerabilities? What assessments have the Government given to this?
Amendment 85 would go a long way towards ending uncertainties and anxieties for SMEs, ensuring that the Government act with clarity, competence and care. It would ensure a business climate of appreciation of the SME sector in which it can thrive. SMEs have been inquiring how best to engage with government in the many changes that will apply. We propose that part of the new unit be dedicated to the SME sector, as some 80% of the likely notifications of the new regime and the requirements this will generate will be borne by SMEs. The screenings will also be most challenging for them, especially in regard to SME funding rounds, especially since, for tech start-ups, the necessary speed of response that could be required to the many weeks of inquiries could present insurmountable challenges. SMEs do not generally have deep pockets to fund a comprehensive array of advisers to help them navigate the Government’s less than clear process. The unit, and consequently the legislation, need to be aware of the pressure this puts on innovation start-ups, which need the confidence to be able to respond effectively.
A dedicated SME division, as outlined in Amendment 85, would do just that. It would ensure prompt, accessible guidance, as industry experts have been demanding in their briefings, to engage with SMEs prior to formal processes to ease the burden of bureaucracy. Could the Minister outline the specific support that the Government could provide SMEs in assistance targeted on the good working of the new investment unit? How will a focus on SMEs be hard-wired into the new unit? I beg to move.
The Deputy Chairman of Committees (Lord Lexden) (Con)
The noble Baroness, Lady McIntosh of Pickering, whose name is next on the list, has withdrawn from the debate on this amendment. I call the noble Lord, Lord Bilimoria.
Lord Bilimoria (CB) [V]
My Lords, I speak to Amendments 89 and 92. Amendment 89 would require the Secretary of State to undertake a review of the impact of the Act on national security and foreign investment. Ensuring the success of this regime requires formal review. For balance, it is crucial that this review reflects both positive impacts on national security, as well as unintended consequences to foreign investment in the UK. As such, a specified periodic review by the Government would provide industry with reassurance that the regime is being formally monitored and that such consequences will be redressed, should they arise.
Concurrently, formal review would provide the Government with the opportunity to outline any positive impacts that the regime has had. Failure to formally review the regime will leave industry with little understanding of the feedback cycle for the regime. Business is committed to making a success of the regime but, concurrently, wants to know that the Government are willing to review its impact.
Amendment 92, on market guidance notes, would require that:
“Within six months of the passing of this Act, the Secretary of State must publish market guidance notes to provide information to assist with compliance of the Act”
and:
“The market guidance notes must be updated and re-published not more than every six months thereafter.”
This would ensure the success of this regime. It requires active engagement from BEIS and other government departments with industry. One critical function that the Government play here is the development and provision of detailed guidance for firms and the wider market to view and act on, ensuring compliance with the legislation. Timely provision and consequent updating of this guidance will allow firms to enter the process of notification with as much information and steer as possible, reducing the likelihood of unnecessary notification but, critically, capturing those transactions that rightly demand scrutiny. Failure to provide guidance, in partnership with key business organisations, could slow the process of notification or, importantly, lead to instances of failure to notify, where it is necessary to do so.
To conclude, the current drafting of the Bill makes its practical application difficult for business. It could lead to additional burden and complexity at a micro level and, potentially, an unintended deterrent to investment at a macro level. The CBI, of which I am president, has heard from a wide range of businesses with concerns about the Bill in its current form— from technology and digital to facilities management, pharmaceuticals, higher education, financial services and defence. As such, the Bill is of concern to a broad subsection of the business community. Although there is no doubt that national security is paramount and the first priority of any Government, we are the second-largest or third-largest recipient of inward investment in the world. Nothing in the Bill should jeopardise that, with Britain continuing to be a magnet for inward investment.
Lord Clement-Jones (LD)
My Lords, it is a pleasure to follow the noble Lord, Lord Bilimoria, particularly as I am speaking to the two amendments that he has spoken to, because he speaks with huge authority and considerable backing.
To start with Amendment 85, we on these Benches are very sympathetic to the cause of SMEs. Whether this is the best way of catering for the considerable issues that they will face under the Bill is a matter for debate. I would prefer to see the thresholds altered to accommodate the needs of small businesses, but the heart of Amendment 85 is certainly in the right place.
I turn to Amendment 89. As we have heard, throughout the course of the Bill’s passage concerns have been expressed about its impact and the culture of the ISU as it enforces the Bill’s provisions. As ever, my noble friend Lord Fox anticipated some of my arguments in the previous group. It is critical that a regular review is undertaken to ensure that the Act is achieving its aims proportionately while not unduly deterring foreign investment.
Other aspects of the Bill include the five-yearly review of the Secretary of State’s statement about the exercise of the call-in power under Clause 3 and, of course, the annual report that we have just been talking about, which is inadequate in many ways. It is currently envisaged in Clause 61 and, as we debated in the last group, it does not go nearly far enough. Neither provision makes any reference to the effectiveness of the overall scheme of the legislation, whether it is achieving its objectives and, indeed, whether its overall purpose is being achieved. As my noble friend said, two key questions need answering here—effectively, are we safe and is our investment climate healthy? Where in any of the Bill’s provisions is the provision for that to be considered?
Amendment 89 would require the Secretary of State to undertake a review of the Act and report to Parliament every three years. This would involve a cost-benefit analysis of the regime’s impact, as set out in proposed subsection(2)(c).
I support Amendment 92 in the name of the noble Lord, Lord Leigh, and have signed it. I am sure that the noble Lord would have introduced it with far greater panache than me. But the Minister—the noble Lord, Lord Callanan—said at Second Reading:
“Noble Lords are entirely reasonable to expect further high-quality guidance from government to help businesses and investors navigate the regime.”—[Official Report, 4/2/21; col. 2391.]
That is reassuring but, as was made very clear by David Petrie, the head of the Corporate Finance Faculty of the ICAEW—I declare an interest as a member of its advisory board—in the Public Bill Committee on behalf of the members of the ICAEW, and as the noble Lord, Lord Bilimoria, has confirmed, the most effective way of tackling asymmetry of information in the business, investment and advisory communities would be the periodic production by the ISU of meaningful market guidance notes, modelled around the practice statements that accompany the City Code on Takeovers and Mergers.
Market guidance notes would be an important way for the ISU to engage closely and on an ongoing basis with businesses, investors and professional advisers. They would signal a culture of professionalism and openness to investment in UK businesses. They would support a necessary communication and awareness campaign of the legislative requirements. By setting out in an accessible way and in consultation with business, professional and sector bodies why and how businesses may be affected, the ISU could ensure that consistent and accurate information reaches the population of businesses and their advisers. Of course, future updates could also be issued in this format.
Beyond raising awareness, issuing market guidance notes over time would help to inform market participants on what they could be doing to make sure that the process works with more certainty, speed, clarity and transparency—all these cultural things that we have been talking about throughout the Bill, things which financial markets and the wider UK economy need to see. There would be a positive impact on productivity as a result; they would help to ease potential resourcing pressures on the ISU by increasing the proportion of notifications being submitted correctly, with all relevant details included.
I hardly need to say that market guidance notes would not form part of the Act and accordingly would not be binding on the Secretary of State. They would be issued to provide informal but meaningful guidance to businesses, investors and professional advisers on matters such as the level of information required in a mandatory or voluntary notification, and they would also provide commentary on the ISU’s normal approach to various provisions of the Act and greatly assist market participants seeking to establish the extent to which the Act may apply in a particular case. The ISU can also use them to share insights into trends where this would benefit the process. They would be amended periodically, or withdrawn as necessary, without the need for legislation—so extremely flexible. Each note could indicate the date on which it was issued, and so on.
There are other details that I could provide. There is great enthusiasm for this instrument, and I very much hope that the Bill will provide specifically for these. It would be an extremely useful indicator of the way in which the ISU proposes to operate.
Lord Callanan (Con)
I am grateful to the noble Lords, Lord Grantchester, Lord Leigh and Lord Clement-Jones, for their amendments in relation to equity stakes of affected parties, small and medium-sized enterprises, an impact review of the regime, and market guidance.
I first turn to Amendment 84, tabled by the noble Lord, Lord Grantchester. This amendment seeks to require the Secretary of State to analyse the financial support provided by government, as part of Covid-19 support, to sectors considered more likely to give rise to national security risks. It then seeks to require him to consider converting loans and grants to equity stakes when there is a clear economic and national security rationale for doing so.
There is no doubt that the impact of Covid-19 on businesses and livelihoods of people across the country has been truly terrible, and I have a massive amount of sympathy for those affected. I can assure noble Lords that the Government are committed to supporting all UK businesses through the Covid period. The Government continue to provide extensive support to businesses to survive the pandemic, so far totalling over £280 billion, including through furlough, the Self-employment Income Support Scheme and business grants. However, I do not think that converting loans into equity stakes necessarily represents the best use of public money. As noble Lords will be aware, Clause 30 provides for the Secretary of State to give financial assistance to, or in relation to, entities in consequence of the making of a final order. However, it is expected that this will be used only in exceptional circumstances. What the noble Lord is proposing would be much wider than this and, while I am sure that it is very well intentioned, is very much a substantive diversion from the main purpose of the Bill.
I turn to Amendment 85, which would require the Secretary of State to create a small and medium enterprise engagement unit within three months of this Bill being passed. This unit would take particular actions in relation to SMEs and their interaction with the regime. I note that this amendment bears a strong similarity to an amendment proposed during Report in the other place, and it will not surprise noble Lords that my views on the subject are closely aligned with those of Nadhim Zahawi, my fellow Minister. The Government strongly support SMEs and so have sought to provide a clear and easy regime for businesses of all sizes to interact with. The Government have been happy to provide support to businesses both large and small through the contact address available on GOV.UK and discussions with BEIS officials. The Government have published fact sheets on GOV.UK which make clear what the measures in the proposed legislation are and, importantly, to whom they apply.
We are also creating a digital portal and a simple notification process to allow all businesses to interact with the regime without the need for extensive support from law firms. Furthermore, there is no fee for filing a notification, unlike many of the regimes operated by our allies. Consequently, we have no reason to believe that this regime will disproportionately affect SMEs or that this new clause is necessary.
The Deputy Chairman of Committees (Lord Lexden) (Con)
I have received one request to speak after the Minister, and I call the noble Lord, Lord Clement-Jones.
Lord Clement-Jones (LD)
My Lords, I should thank the Minister for his response; I am not sure I really want to. I found it rather extraordinary, particularly to Amendment 89. We have a Bill on foot with a purpose in mind but, when it comes to reviewing it, we are told that it is far too sensitive and we cannot possibly review whether it has met its objectives. We can keep it under review—within the department in some shape or form, I assume—but we cannot possibly undertake a periodic review of any kind. Even a normal post-legislative review process would expect to see whether an Act of Parliament was meeting its objectives. The Minister cannot even say whether that will take place at any stage.
This really adds to one’s concerns about this Bill in so many ways. It is a rather furtive creature that, if we are not careful, will be hiding in the dark for quite a long time and will not get reviewed. There is no way of seeing whether it is achieving its purpose other than the kind of review the Minister was talking about, which is purely internal to government and part of the government department’s overview. This is not particularly reassuring.
On Amendment 92, the Minister talked about just making statements about the call-in power or having the annual report. I said a set of market guidance notes would do; I did not adumbrate about six points that a set of market guidance notes could set out. They are far more extensive and market friendly than anything that is going to be caught by the call-in power statement or the annual report. We are talking about real guidance to business so that it knows what to expect and the parameters within which the Secretary of State is operating—particularly when it comes to guidance about the kinds of sector that will be caught and the current issues that the Secretary of State believes would give rise to a call-in notice and other aspects dealt with by the ISU. The idea that five years is a reasonable time to adjust a call-in power statement is laughable in the commercial world. The Takeover Panel updates its notes on a regular basis, and that is exactly what the ISU should do with market guidance.
Lord Callanan (Con)
I am not sure there were any questions for me there; the noble Lord has made some observations. I understand that he was unhappy with my replies, but I am afraid I cannot agree that the Bill is “furtive” or “hiding in the dark” at all. We are committed to transparency as much as possible. He says he has six additional points on market guidance notes. If he wants to send them to me, I will happily have a look at them and see what we can do. We said a maximum of five years, but of course the Secretary of State has the ability to do earlier reviews if necessary. That is a maximum date, and we could bring that forward. I take on board his points and am sorry if he is disappointed by my replies.
Lord Grantchester (Lab)
I thank the noble Lord, Lord Bilimoria, for his amendment in this group proposing a review of the Act and its engagement with businesses. I am sure it will become clear and the appropriate responses will be forthcoming from the department.
I thank the noble Lord, Lord Clement-Jones, for his sympathy. The effect of the regime on SMEs is very relevant, and high-quality guidance for businesses has been recognised in the Minister’s replies. I thank him also for his replies on the pandemic and the business environment with the call-in powers of the Secretary of State. He returns to the issue of the annual report, thus giving room for these matters to be considered slightly further. With that in mind, I beg leave to withdraw the amendment.
“Statement on climate, environment and ecological security
(1) Within six months of the passing of this Act, the Secretary of State must publish a statement on how the provisions contained in this Act will be exercised in relation to national security impacts caused by climate, environment and ecological damage.(2) The statement must include, but is not limited to—(a) a review of how damage to climate, environment and ecological impacts affect national security;(b) an assessment of how climate, environment and ecological damage affects biosecurity risks, including pandemics; and(c) a list of conditions in which it is likely that the actions or omissions of a qualifying entity or qualifying asset are likely to be deemed as a risk to national security due to their impact on climate, environment and ecology.”
Baroness Bennett of Manor Castle (GP) [V]
My Lords, we started this day, the final day of Committee on the National Security and Investment Bill, with an advantage that we have not previously enjoyed: access, finally, to Global Britain in a Competitive Age: the Integrated Review of Security, Defence, Development and Foreign Policy—if only just, as it appeared on the Government website about an hour before our debate started. It is particularly useful in presenting this amendment, particularly given our debate thus far, which has often been stuck in a narrow, pre-21st century idea of what delivers “security”.
Certainly, the term “cyber” has been thrown around a lot, and there are provisions that address—and we have debated—crucial issues of resilience and the dangers of complex, interlinked technological systems, but it has been noticeable that the answers always seem to involve more complex technology rather than consideration of what technology should and should not be doing, and the dangers it represents. I note the important work in this area of the NGO, Drone Wars.
I have to doubt, with the greatest respect to the participants, the level of expertise in covering these complex, fast-moving and highly technical areas of cybersecurity. It is a pity that we have not seen some of the House’s cyber experts in this Committee. I noted in the Financial Services Bill just how thin the debate was, how small the number of Peers participating and how short were many of the debates. I note the adjective “furtive” used by the noble Lord, Lord Clement-Jones, in the debate on the previous group. That is in stark contrast to the debates on the Domestic Abuse Bill, where scores of Members of your Lordships’ House are passionately engaged, as is a broad swathe of civil society. That observation applies even more strongly in this Committee. All we can do is what we can do, and in this amendment I am obviously on natural ground for a Green Peer—but, then, as a talk show host said to me recently, “Everyone’s talking green now.”
I have been skim-reading the integrated review and can confirm just that. In the foreword, the Prime Minister says:
“COVID-19 has reminded us that security threats and tests of national resilience can take many forms.”
Yes. The existence of nuclear weapons is clearly a huge security threat. The world cannot be secure until the global ban on these hideous weapons of mass destruction is delivered. That that is a threat we intend to increase is a decision that can be described only as incredibly dangerous, heightening tension in an unstable world. I also remind the Committee that the Trident nuclear replacement has been forecast to cost nearly £200 billion over its lifetime—surely more now if there are more weapons—while the Government’s 10-point plan for a green industrial revolution has a budget of £12 billion. Choices are being made, choices that are terrifyingly bad for the security of us all.
Thinking about the Government’s decision-making under this Bill, what if a key manufacturer of wind turbine components were to be threatened with takeover by a company wanting to convert it to weapons manufacture pumping out more arms into a world already awash with them? It would be a lose-lose for national security. Amendment 93 addresses one side of that scenario: the climate, environmental and ecological emergencies, fittingly being debated on a day when we are reminded of the dangerously poor state of our natural world, with the disappearance of yet another hen harrier beside a grouse moor.
Before the Whips start questioning what hen harriers have to do with national security, I shall paraphrase a long-term Green saying: there is no security on a dead or dying planet, or in a country with a collapsed natural world. If noble Lords prefer, I shall quote the financial costs identified in the integrated review, which states that
“nature loss could result in a cumulative economic cost of up to $10 trillion between 2011 and 2050”.
Should we have—we can but hope—a company making, say, massive strides in restoring a large spread of our carbon-depleted, nature-razed uplands, its takeover by another with intentions to return to driven grouse shooting management would be a security issue for the nation, a climate issue, a biodiversity issue and, very directly, an issue for the flood-threatened communities downstream of it.
The Prime Minister’s foreword to the integrated review says that
“Her Majesty’s Government will make tackling climate change and biodiversity loss its number one international priority”—
albeit that that is in the final paragraph of the second page of a 2.5-page foreword. I did a little analysis of our Committee’s debates thus far, looking for mentions of the climate emergency and excluding occasions when “climate” appeared in the context of “investment climate”. On day 1, the word did not come up once. On day 2, it did, when I referred to it. The noble Lord, Lord Grantchester, twice mentioned the net zero carbon target on day 1. As for “nature”—in the biodiversity sense—or “ecology”, those did not come up, although I will give credit to the noble Lord, Lord Grimstone of Boscobel, who appears to have a pleasing attachment to offshore wind farms as a case study.
Lord Fox (LD)
My Lords, I feel justifiably aggrieved to have been admonished by the noble Baroness, Lady Bennett, for not being passionate or plentiful enough. Telling people off who are here because there are not enough of us is perhaps a little unfair. Perhaps she could reserve her fire for colleagues who have decided not to be here. There is also a certain symmetry here. During our debate on the first amendment I had the pleasure of speaking on I was roundly admonished by the noble Baroness, Lady Noakes, for using it as a chance to repeat my Second Reading speech—which of course I denied.
The noble Baroness, Lady Bennett, has a point. There is a very important element of security around the climate emergency and she is right to highlight that we need to factor in how climate, environment and ecological damage will affect the future security of this country. When we debated Clause 6 much earlier in this process, we looked at the 17 technologies that had been identified by the department as technologies of concern. That is an area where I think some input on this level could be made, and I would be happy to work with the noble Baroness, Lady Bennett, going forward to look at that list and make some suggestions on whether there are missing technologies related to environmental and ecological damage issues that should be factored in.
I do not like to be self-referential—but I will be anyway. During the Budget debate I made it very clear that one of the things missing from the Budget was a strategy to get to the 2050 net-zero target. It was completely absent. There is no strategy to get there. I would advise that that is where we should focus our energy. The Government, the Opposition and everyone in Parliament should be delivering an integrated strategy to get to what in this case is our public policy for 2050. I know that different parties have different targets, but that process would tease out the technologies, the businesses and the areas of activity that we need to make sure we retain access to in order to move forward and deliver on the strategy.
The noble Baroness, Lady Bennett, is right to bring this issue up, but I am not sure that adding a clause to this Bill is the right route. As I say, however, I would be happy to work with her on the list of technologies, and indeed I am happy to work with everyone to try to deliver the route map to get to net zero.
Lord Grantchester (Lab)
My Lords, unlike the noble Lord, Lord Fox, I am not unduly fearful of the noble Baroness, Lady Bennett. I have always thought that being Green does not allow for having a whip. However, I thank the noble Baroness for proposing this new clause to the Bill. I am certainly clear that the climate emergency must hang as a backcloth to every action that we undertake.
The aim of Amendment 93 is completely understood and appreciated. It seeks a Ministerial Statement on how the provisions set out in this Bill will be exercised in relation to the national security impacts caused by climate, environmental or ecological damage. The climate crisis is not only a threat to our way of life in the long term but a threat to national security in the short to medium term. Only last week, Jens Stoltenberg, the NATO Secretary-General, said that
“climate change makes the world more unsafe, so NATO needs to step up and play a bigger role in combating it.”
A few weeks ago, even the Prime Minister made a comment that climate change is a threat to our society. How will the new regime take account of this and reflect on his comments?
The Committee has already questions about the list of sectors affected, especially the energy sector, as well as about protecting green infrastructure. I have raised with the Minister the EV infrastructure, solar and wind industries and how their growth should be protected. It is certainly important that we hear more from him on the issue and what the difficulties would be in undertaking to produce the kind of statement being proposed by the noble Baroness, Lady Bennett. If the Government are resistant to producing such a statement, could the issue be included as an integral part of the annual report?
Lord Callanan (Con)
My Lords, let me thank the noble Baroness, Lady Bennett, for her amendment and begin by expressing my heartfelt sympathy to the noble Lord, Lord Fox, on being admonished by her. All that I can say is, welcome to the club.
The amendment would require the Secretary of State to publish within six months of the Bill becoming law a statement on how the regime will be exercised in relation to national security impacts caused by climate, environmental and ecological damage. As the noble Baroness, Lady Bennett, knows—we have debated these matters on numerous occasions in this House—this Government are committed to tackling climate change. We are especially looking forward to the COP 26 conference in November, which will highlight our leadership on this issue and promote co-operation on climate action through the UK’s G7 presidency, as Alok Sharma MP set out in a speech to the UN on 8 February. Of course, the COP 26 preparations continue to be led by Alok Sharma, who opened Second Reading on the Bill in the other place. I am sure that we all wish him well as he strives to bring the world to ambitious agreements in Glasgow.
The Bill, however, focuses on national security risks arising from acquisitions of control over qualifying entities and assets. If we were to view national security through a particular lens, as the amendment seeks to do through environmental concerns, we would be in some way defining national security. We have deliberately avoided defining it in the Bill, a matter that we have debated previously. We have expounded on that at some length in this House and in the other place.
Without rehearsing those arguments, which I am sure noble Lords are familiar with, I hope they will understand that we cannot accept amendments that seek to define national security in a particular way. The noble Baroness’s amendment asks for a statement on how the provisions in the Bill will be exercised. The most fundamental provision is the call-in power. The Bill already requires the Secretary of State to publish a statement on how that is expected to be exercised before being able to use the power. A draft of that statement was published on introduction of the Bill in November. The Government would be very pleased to receive comments and have committed to consult on it publicly. The final version of the statement must be laid before Parliament and will be subject to the negative resolution procedure.
Finally, two provisions in the noble Baroness’s amendment—proposed new paragraphs 2(a) and 2(b)—address specifically environmental concerns. Laudable as they are, they are not directly connected to the national security and investment regime proposed in the Bill. That is because the regime concerns whether the acquisition of qualifying entities and assets poses a risk to national security, not the actions of those entities or assets themselves. Given the Government’s commitment to environmental policies, but recognising that the Bill deliberately avoids defining national security, and given that a statement on how the call-in power is expected to be used is already provided for, I hope that the noble Baroness, in the light of what I have said, is able to withdraw her amendment.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, I thank the Minister for his response and for pointing out how the Committee has taken a neatly circular route, almost like a circular economy, in getting back to more or less where we started—debating definitions of national security. I also note his welcome for comments on the statement on the call-in power, which I certainly hope to pick up and run with.
I should perhaps begin with an apology to the noble Lord, Lord Fox, if he took my comments as being directed at him or anyone taking part in this debate. As is often the case with Greens, I am not concerned with individual behaviour but systems change. It is clear that the systems in your Lordships’ House tend to result in a narrow range of Peers taking part in Bills related to financial matters. Yet, in our heavily financialised society, and given that finance is such an important part of security in this instance, we need input from a broader range of sources. I am certainly not blaming the noble Lord for that, although perhaps he could encourage fellow Peers from his party and others to engage on this issue.
I very much thank the noble Lord for his offer to work together, particularly on the list of technologies, which is also something I will be taking up. I understood his suggestion that we should all be focusing on the need for the Government to have an integrated strategy for 2050, but I pick up on the comments of the noble Lord, Lord Grantchester, who said that every action we undertake has to take account of the climate and ecological emergencies. To use a technical term, we are talking about mainstreaming. The climate emergency and ecological crisis must be at the forefront of our minds in every aspect of what the Government and your Lordships’ House do.
This is an emergency. Looking at the Chamber now, as I speak remotely, I think back to what it was like in March 12 months ago, when all anyone was thinking about was the Covid emergency, but we are also in a climate emergency and an ecological emergency.
I am aware that this is the final amendment to be debated. I hope we will see more people engaged in this debate when we get to Report. We have made some progress, I think, and so, for now, I beg leave to withdraw the amendment, although I expect I will still be looking at what we may do on Report.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
My Lords, that concludes proceedings on the Bill.