National Security and Investment Bill

Baroness Noakes Excerpts

Committee stage
Tuesday 16th March 2021 Lords Chamber

Moved by

[Baroness Noakes]

43: Clause 13, page 8, line 20, at end insert—
“( ) 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.

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[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.

Amendment withdrawn.

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[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.

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Moved by

[Baroness Noakes]

49: Clause 14, page 9, line 1, leave out “As soon as reasonably practicable” and insert “Within 5 working days”
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.

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[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.

Amendment 49 withdrawn.