National Security and Investment Bill (Second sitting)

Chi Onwurah Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 24th November 2020 Public Bill Committees

[The Chair]

Thank you very much.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

Q Thank you very much, Dr Lenihan, for putting your expertise at the disposal of the Committee. I am particularly interested in your expertise in the international aspects of the debate. As you are aware—the Bill responds to this—a number of the UK’s allies have national security and investment screening regimes, and almost all of them have updated their regimes in the light of the changing geopolitical and technological contexts. From your comparative work, what governance and decision-making structures have you found others adopting to ensure that all relevant Government expertise shapes national security and investment decisions? Are they appropriately reflected or considered in the Bill?

Dr Lenihan: That is an excellent question. To answer it, I will first step back for a second and say that the Bill is a very important step in the UK’s alignment with its closest allies on this issue, and especially the Five Eyes, because there is clear evidence that states are trying to use the market and companies over which they have control and influence to gain economic, technological and even military power in foreign investment. During times of economic downturn and crisis when asset prices are low, the opportunities for that type of behaviour increase. Hence, we have seen these modifications to regimes not only in the West, but outside the West as well.

I think one of the most important elements of regimes as they have evolved—especially among the Five Eyes, but among our NATO allies and even in Russia and China—is the move to ensure that review mechanisms have the institutional capacity and resources that they really need behind them. Part of this institutional capacity usually involves a multi-agency review body of some type.

There is always a lead organisation, and in the West—especially in the US, Germany and France—these tend to be in Treasury or in business or trade Ministries, and that lead body, like the Department for Business, Energy and Industrial Strategy in the Bill, receives the information and handles the day-to-day activity. However, in the US with the Committee on Foreign Investment in the United States, the idea behind having a multi-agency review body with multiple agencies and Departments across vast areas of Government is that you have the ability for regularised monitoring and feed-in from these agencies across the spectrum of possible threats, and you have dedicated staff within those agencies who have the necessary security clearances, training and specialised knowledge over time to keep an eye on potentially risky transactions and bring them to the awareness of the lead agency.

One of the key elements of CFIUS that has been very positive is that, as it has evolved, it has brought in more agencies, not less, so you have multiple opinions on the same potential transaction being brought to light and discussed before any decision needs to be taken by a Secretary or Head of State, depending on the question. In CFIUS, that responsibility ultimately lies with the President, but the idea is that you have had a multiplicity of views and, under the Foreign Investment Risk Review Modernisation Act—the most recent update of US legislation—you have an ensured national security risk assessment made by the head of intelligence on detailed investigations of certain transactions.

The idea behind this is that—hopefully—any decision made will be viewed by the public as one that is truly based on national security concerns because of the debate that had to take place behind the scenes. That lowers the risk of politicisation and intervention, and again heightens the possibility of actually catching risky transactions in a way that otherwise can be difficult.

One of the great examples of transactions in the US caught not originally in the regularised monitoring process, but by a CFIUS employee in one of the agencies, was the unwinding in 2011 of Huawei’s purchase of 3Leaf, which was a US-based cloud computing technology company that had gone bankrupt. The assets, employees and patents had been purchased by Huawei—bankruptcy assets were not consistently monitored by the regime at that time. The purchase was caught by a Government staffer who happened to notice on his LinkedIn account that somebody whom he knew, who had partially run 3Leaf, was now listed as a consultant for Huawei. That transaction had to be reviewed and retroactively unwound. At that point, of course, one must assume that the bulk of the damage had been done, but it goes to show the importance of having not just one agency looking at these cases and being responsible; a multiplicity is needed across the piece. If I have any concerns with the Bill, my primary concern would be that the institutional capacity and resources behind the review regime are not made clear.

[Chi Onwurah]

Q Thank you, Dr Lenihan. That is absolutely fascinating. The need for different agencies to be involved needs to be recognised.

In terms of your work on investments, and the investment regime, is there not a risk that it ends up capturing a host of investment transactions? I am particularly thinking of the burden and impact on our innovative tech start-ups. The likely definitions of the sectors to be involved include artificial intelligence and data infrastructure. Based on your experience of other countries’ introduction of new investment screening rules, have you found patterns in how similar changes have affected foreign direct investment, and potential trade deals, which is a topical subject? Do you have any thoughts on ways to mitigate the burden and impact, particularly on start-ups?

Dr Lenihan: The Bill is arguably broader in scope on call-in powers than some other foreign direct investment regimes—I would argue that these perhaps even include the US regime—because it does leave wide latitude for call-in powers. The Bill also covers trigger events that are initiated by all investors, both domestic and foreign, and that is truly rare among Western FDI review regimes that are focused on national security. Usually, the concern is to focus the regime on investments from foreign-owned, controlled or influenced entities. Domestic entities and acquirers that have, for example, ultimate foreign ownership or influence in some ways should be able to be caught by any well-institutionalised and resourced regime. I am not sure why it is that we do not actually see the word “foreign” in the Bill, even though it is supposed to be based on foreign direct investment. Perhaps that is a concern about potential domestic threats down the road, but either way, it will lead to a much larger volume of mandatory notifications than most other national security FDI regimes—the US, Germany, Australia and other countries. Almost 17 have made changes in the past couple of years, and these have increased and been modified since the covid pandemic.

I understand that the legislation may be written as it is to include domestic investors, perhaps to avoid appearing to discriminate against foreign investors. I would suggest that that is probably too broad a formulation for focusing on and identifying real risk. The EU framework for FDI screening encourages its EU members to adopt mechanisms that do not discriminate between third-party countries, but that does not mean that it takes the word “foreign” out of its legislation to target foreign investments as opposed to domestic ones. Part of that is about the volume of transactions.

One thing I would highlight is that FIRRMA expanded the scope of covered transactions to include non-controlling investments of potential concern, as well as any other transaction or arrangement intended to circumvent CFIUS’s jurisdiction. But because it has had more cases to review on a detailed level in the past two or three years than in its history, since 1975, a major element of that Act is, again, around staffing and resources. There is a specific provision in FIRRMA, which is very clear that each of its agencies needs to hire under-secretaries in each agency just to be dedicated to this task.

There are two elements. An inter-agency review team is needed. You need enough staff to actually handle and catch all the risks. You the need the proper resources to do so—the right access to the databases, the right security clearances, the right training. On top of that, the volume of mandatory notifications will be increased by the fact that this is not just focused on foreign investment. I do not think there is much you can do about the foreign cases that you will get. There will be a high volume of those, and you need to be ready for them, but it is an important national security risk that needs to be dealt with.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Nadhim Zahawi)]

Q It is a pleasure to serve under your chairmanship, Sir Graham. Dr Ashley, considering your experience of other countries—we talked about the US at length in the first couple of questions—such as Japan and Germany, what are your views on the retrospective powers under our Bill?

Dr Lenihan: Personally, I think they are fine. I know that might not be a popular answer with some. Germany, France and even parts of the EU framework set up this five-year retroactive for cases. I think that that is at minimum important. Other countries, such as China, Russia and the US, do not place any limit on retroactivity. I would have to check up on Australia and Canada, but there have been cases that have gone beyond a year there. Under the original Government White Paper, the idea of having only a six-month period, whether or not you have been notified, is quite dangerous, because there have been cases that were well known where they have been caught after that point.

Some of my examples are from the US. The reason for that is that it is one of the longest-standing and most institutionalised regimes. It is also one of the most transparent, from which we know most about the cases that have gone through it. I have looked at over 200 cases of this type of investment over a seven-year period in the US, UK, Europe, China and Russia. One case that stands out in the US is the 3Leaf acquisition by Huawei, which was caught almost at the year mark. Another good example that went over the one-year mark would be the review in 2005 retroactively of Smartmatic, which was a Venezuelan software company, and its purchase of Sequoia Voting Systems, which was a US voting machines firm. Smartmatic was believed to have ties to Chavez. However, that acquisition completed without knowledge of CFIUS and it was not actually able to be unwound until 2007. At that point, you worry about what has happened, but at least you do not have the ongoing concern.

You do need flexibility. With the volume of notifications and the learning curve that the investment security unit will have to undergo, or whatever the final regime truly looks like, it will take time to get the team in place and get the knowledge and systems down, to accurately catch even the most obvious investments that are of concern. Dealing with the kind of evolving and emerging threats we see in terms of novel investments from countries such as China, Russia and Venezuela needs the flexibility to look at retroactively and potentially unwind transactions that the Secretary of State and the investment security unit were not even aware of.

One thing is that for mergers and acquisitions transactions, which are historically what have been covered under these regimes, across Europe, Australia, Canada, Russia, China and the US, all the systems that have been used—the M and A databases: Thomson ONE, Zephyr, Orbis—take training, but they only cover certain types of transaction. They do not cover asset transactions; they do not cover real estate transactions, which are of increasing concern, especially for espionage purposes.

It is going to take time, and I believe that flexibility really needs to be there. It can always be reviewed in the future, but I do not think that so far foreign investment has been deterred in any way in countries that have that retroactive capability. To limit the UK’s capacity to protect itself for some kind of strange feeling that we need to be perceived as being even more open than everybody else when under threat is not really wise at this time.

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[The Chair]

We come to our fourth panel of witnesses. We will hear oral evidence from Skadden, Arps, Slate, Meagher and Flom LLP and Affiliates. For this panel we have until 3.30 pm. Mr Leiter, I welcome you, and ask you to introduce yourself for the record.

Michael Leiter: Good afternoon. My name is Michael Leiter, and I head the national security and Committee on Foreign Investment in the United States practice at Skadden Arps. It is a pleasure to be with you this afternoon.

[Chi Onwurah]

Q Thank you, Mr Leiter, for joining us and sharing your extensive expertise with the Committee. I wanted to look at strategic and critical industry. There are a series of cases where nascent or strategically important industries might become critical to national security in the future, but they are important to industrial and economic strategy now. For example, it was not clear that there was a direct national security threat from Deep Mind’s artificial intelligence algorithms in 2014, but it is clear that the company was important for the UK then, and it is clear that artificial intelligence is important for national security now. That is reflected in the Bill. Based on other countries, how do you think the Bill can capture these forward-looking public interest or industrial strategy concerns within national security grounds for acting?

Michael Leiter: Thank you for the question; it is quite a good one. It is one that the United States has struggled with, as have other countries and their regimes. We suggest a couple of approaches. First, one piece that I think the Bill does quite well—although there is a countervailing concern that has to be addressed—is not having a de minimis threshold, in terms of dollars. The Bill is quite strong in that regard, because as you note in your question, just because someone acquires a start-up company for a relatively modest amount—a few million pounds—it does not mean that that company and that technology does not have, or will not have, very significant national security implications.

The flipside of that is, of course, that without the de minimis threshold, it becomes a far more difficult regime to manage. The volume can be much higher. It can potentially poison venture capital innovation. This is best balanced by not having a threshold for dollars, as you do with the no de minimis threshold, but then making sure that regulators have the ability to review these matters extremely quickly. The pace of investment in emerging technologies requires a very short timeframe. It is not like a large public company transaction, which has extended timelines. As long as one implements a very rapid review process and has the officials in Government to keep up with that potential backlog, I think those two interests can be effectively balanced.

[Chi Onwurah]

Q To follow up on your point about notifications, the Government impact assessment for the Bill suggests that up to 1,830 notifications might come in each year under this new regime. I am concerned that they look at the impact on the acquirer, and they do not capture the fact that almost every start-up seeks capital investment at some point. What impact do you foresee on the overall UK investment climate, and what might FIRRMA and CFIUS changes lead us to expect in our case?

Michael Leiter: This is very important. I was rather taken aback by two things about the Bill. The first is the projection of over 1,000 matters, going from the very, very few that the UK has traditionally had; this is an explosive increase in matters. I am concerned that no Government are ready for that rate of change. Even in CFIUS under FIRRMA, although there is not an increase in the overall number of long-form notices, in the short-form declaration process, there was an increase. That was relatively modest, an increase of about one third, so the US now reviews approximately 240 full cases, and about another 100 short-form.

When you talk about going from a few dozen to 1,000, you have to be very sure that you have both the resources and the expertise to process that. I would be concerned by that. Another case where your Bill goes much farther than anything I have seen, and certainly much farther than anything in the United States, is in encompassing not just acquisition and investment in businesses but acquisition and investment in supplies, goods, trade secrets, databases, source code and algorithms, so it is tangible and intangible objects, rather than businesses. That scale is very difficult to predict, and if one is more in the mood for incremental change, so as to see how a Government can handle change, including those elements poses some real risk for management.

[Nadhim Zahawi]

Q Thank you, Mr Leiter. That is really good feedback. Building on the point made by my colleague the shadow Minister, the CFIUS regime in the US obviously operates successfully, in the sense that the US remains an incredibly attractive place for inward investment. How have the US regulators balanced those two things? Does the Bill as drafted provide us with a similar opportunity to strike that balance?

Michael Leiter: I am honoured to have worked with the UK Government for 20-plus years on security issues, and over the past 10 years on economic issues. I certainly think you have the potential to strike that balance. In the US, traditionally, the CFIUS structure was a balance between the security agencies, which tended to want to restrict investment, and the economic and commerce agencies, which tended to want to encourage that investment. Certainly, in the case of China, we have seen massive decline in direct investment because of both Chinese controls and US controls: a tenfold decrease from 2016 to 2018. But as you said, the scale and strength of the US economy mean that global investors look to the United States no matter what.

I do not mean to make less of the UK in any way but, from a UK perspective, one has to be a bit more careful, because you simply do not have the scale that inevitably will attract investment. The US could be a rather poor place to invest, with lots of regulation, but people would still come because of the scale of the market. You don’t have quite that luxury. That is not to say that the UK has not for generations been an incredibly attractive magnet for investment, but whereas the US can err on the side of security, from my perspective, admittedly an American one, the UK might want to be a bit more careful about restrictive measures, because the size of the market is not in and of itself so inherently attractive that companies and investors must be in it. We have a bit of an advantage over you on this one.

--- Later in debate ---

[Chi Onwurah]

Q Welcome, Mr Petrie, and thank you very much for placing your expertise at the disposal of the Committee. You have experience of mergers and acquisitions, and I am sure you will be aware that we have seen several transactions in this country—I will name GKN and Melrose, SoftBank and Arm, and indeed I will include the failed Pfizer-AstraZeneca case—where it appeared that the Government had no legal powers to secure jobs, pensions, research and development and key UK industries, relying instead on behind-the-scenes soft power. That created uncertainty and lack of clarity for investors. Do you think that is a problem for both Government and investors, and how do you think we could effectively tackle that gap?

David Petrie: The Government have been very clear that the purpose of this legislation is to focus on protection of national security. The guidance notes they have issued, which accompany the Bill and are intended for market participants, are very clear on that aspect. I would suggest that probably all the factors you listed in your question extend beyond a simple matter of national security—if national security can be a simple matter; no doubt that this Committee has heard this afternoon about the difficulties associated with defining national security. Many of the factors that you set out there, important elements though they are to all stakeholders in a company, are not necessarily matters of national security.

I would also say that that for some of the companies that you mentioned there, while certain of their activities might well be included within the scope of this new Bill, it would be very difficult in certain instances to suggest that they had a direct impact on our national security. Of course, that would be up to the new investment security unit to determine, based on a full representation of the facts. If that unit was at all concerned, a procedure is set out in the Bill whereby it would be able to call for as much evidence as it felt was necessary in order to be able to reach a balanced determination on whether investment by an overseas entity did indeed constitute a real threat to our national security. I think that is the point here.

[Chi Onwurah]

Q Thank you for your response. If we look at GKN-Melrose and, indeed, even SoftBank-Arm, we could consider that they had national security implications. I suppose the point is that there are essential industries that are directly critical for our economy, but that at first may not seem directly critical for national security because they are evolving technologies, as in the case of Arm and the ongoing takeover by Nvidia, or because they are indirectly critical as suppliers to downstream industries that support national security. Indeed, in the response to the Government’s consultation for this Bill, an example is given of the undermining of the functioning of an airport by a software manufacturer, which would be within the transport sector but would not necessarily immediately appear to be directly concerned with national security. Economic security and national security end up being linked. Do you think that should be reflected in the Bill, and how do you think it can be reflected?

David Petrie: I have read the impact assessment, which included that example. It is a difficult situation, as described in the example. In accordance with the way that this new legislation is drafted and the number and extent of the sectors that are regarded as mandatory—the sectors in scope such that their operating activities would require a notification of the unit—the example set out in the impact statement would indeed require screening by the investment security unit. The Government would likely have the opportunity to review a potential acquisition in that software company.

I was struck by that example, in that it suggested that service had failed, or a malign actor had decided not to provide the necessary services to the airport. I think a broader question here is what might happen in reality. Those services would be procured through a commercial contract, which in turn would, presumably, be backed by insurance. If it were an absolutely critical service, I would expect that the airport would have a back-up system, whether power supplies or a parallel running system, as they do for air traffic control. There are commercial protections for the actual operating activities of critical infrastructure, which should work. It is difficult to protect against the actions of malign actors, but critical infrastructure already has systems and processes, and invests heavily in capital equipment, to ensure that there is not an interruption of supply. The question would be the extent to which ownership of that asset physically gave the owners of the shares the ability to get in and interrupt supply. That almost implies mechanical breakdown or some deliberate and malign disconnection. Again, companies have cyber-security systems in place to ensure that critical infrastructure does not fail.

The point you made was about whether suppliers of that sort of service to our critical infrastructure and their ownership should be subject to review. As the Bill is set out and as the sectors in scope are drafted—of course, the Government will consult over the next month or so on those definitions and whether they should be adjusted or whether they are as wide-reaching as they should be—a business like that would be captured. The investment security unit and, presumably, the security services would have an opportunity to review whether or not to allow that to go ahead.

[Nadhim Zahawi]

Q Mr Petrie, you will understand better than most that businesses will want to ensure information is being treated sensitively in any transaction. I want to capture your view of the closed material procedure for judicial review under the Bill and what you think of it in terms of that sensitivity of information.

David Petrie: I think a quasi-judicial review is really important and a part of the process, and then, if necessary, there is judicial review. I think the question cuts back to how many times that is likely to happen. We have to step back a little bit and recognise that that would be a situation where the parties to the transaction are challenging the Secretary of State’s decision as to whether or not this is in the interests of national security.

I would assume that if the sellers are British companies, they will probably have received what they feel are adequate assurances that it is okay to sell to an overseas acquirer, but the Secretary of State takes a different view, presumably based on evidence provided by our national security services. Ultimately, if there is a compelling body of evidence to suggest that a transaction should be modified or adjusted or, in extremis, blocked, it would be quite an unreasonable group of shareholders to disagree with that if the if the Secretary of State was applying the test as set out in the Bill, and indeed in the guidance note, that intervention is to be limited only to matters where the national security of this country is at threat.

That is quite different from the national interest. It is tempting—or possible, rather—in this debate to get sucked into questions about what we should and should not be doing in this country. That is not what this is about. The Government have been very clear to the investment community, and to British business more generally, about the purpose of this legislation. That is why, although markets and investors recognise that it will take a certain amount of time and effort to comply with a mandatory regime—the Government have been very clear about their purpose in introducing that—the market is generally favourably disposed towards it. We can see that it is unfortunately necessary in these modern times.

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[The Chair]

We welcome Chris Cummings, the chief executive of the Investment Association. Mr Cummings, would you be so kind as to introduce yourself for the record?

Chris Cummings: Thank you for the opportunity to appear in front of you. My name is Chris Cummings, and I am the chief executive of the Investment Association. We represent UK-based fund managers, an industry of some £8.5 trillion used by three quarters of UK households today. We own roughly a third of the FTSE.

[Chi Onwurah]

Q Thank you, Mr Cummings, for sharing your expertise with us. We all recognise the importance of inward investment, and indeed of the Investment Association, to our economy. The impact assessment for the Bill estimates that up to 1,830 notifications might come in each year under the new national security and investment regime, but those numbers do not capture the fact that almost every start-up seeks capital investment at some point. The requirements to notify are put on the acquirer, but I would like your thoughts on the impact that may have on start-up companies. As part of that, I imagine it will be especially hard to hold merger and acquisition auctions while checking on the outcome of these processes. What do you foresee will be the overall impact on the UK investment climate, and in particular on the ability of our most innovative start-ups to raise capital? I am often told that access to finance is the key barrier to start-ups growing, and staying in the UK as they grow.

Chris Cummings: Thank you; that is such a pertinent question. Before I address the substance of it, I want to try to describe the work of many of my members, which is broadly portfolio investments. They seek not to acquire a company but to invest, taking a very small stake—a fraction of a percent—of those companies. That provides an opportunity for those companies to receive the investment they are looking for, and enables us as investors to invest in a company, an industry or a whole sector in order to generate a return for the investors whose money we are managing. They tend to be pension funds and insurance companies—institutional investors.

Of that £8.5 trillion I mentioned that we manage, about 80% to 85% comes from institutional investors; the other 15% or so comes from retail: people on the high street saving in individual savings accounts and so on. Our view on the Bill is about how we can continue to do our work to help finance companies in the UK and internationally with the investment collateral that we can bring to bear. We do that in the two major parts of the market: listed companies and unlisted companies.

Perhaps I can address the point you made about small and medium-sized enterprises. We make investments in unlisted companies—of course, small and medium-sized enterprises are not listed organisations—by developing an understanding of sectors and industries. We look for individual institutions that we regard as high-performing—that is, high-performing over a long period of time, because we are patient investors, tending to take a long-term view, unlike colleagues in other parts of the industry, who are more high-frequency, or looking at a two to three-year earn-out period. To help us do that, we need two things. The first is legal certainty around the investment climate here in the UK, so that we understand the rules of the game, so to speak. This particular Bill is helpful in establishing greater clarity about the rules of the game; we do have one or two caveats, but it is helpful. The other is publicly available information, such as analysts’ reports—the type of thing that we as investors would look to receive and interrogate, and on the back of which we would then make an investment decision.

We are really looking for whether the Bill helps make the UK more attractive; whether it helps us funnel savings into productive investment that can help companies grow, create jobs and so on; and whether it is adding to the legal certainty of our investments. You are right to ask about SMEs; our members who invest in higher-growth companies are really keen to make sure that the process is as friction-free as possible, and that there are no surprises. Being very clear about a pre-notification regime is especially important to us, as is something like the five-year review period that could come after a deal has ended. Certainty about those 17 sectors is particularly important as well. That is why we have wanted to maintain a really close dialogue with the officials—the team that has sponsored this Bill—to make sure that no inadvertent barriers have been erected to us deploying that investment in the right way.

One of the suggestions we would like to commend to this Committee is something we have seen work particularly well in Japan, which considered a similar raft of legislation: a blanket exclusion for investment—not for takeovers, obviously, but for portfolio investment, where the investment industry wants to support unlisted or listed companies, and it is clear that there is not a desire to take them over, involve ourselves in the management of those firms, seek a position on the board or secure the intellectual property, but where we are just performing the role of long-term investor. That has been judged as being outside the scope of the legislation, but we commend that to the Committee as a practical step that takes forward the principles of the Bill and secures the “investability” of the UK’s investment landscape.

[Chi Onwurah]

Q Thank you very much. I note your suggestion regarding the blanket exception for investment funds. I had two quick follow-up points: first, could you say how they would be defined in such a way that would exclude, for example, foreign sovereign investment funds and so on, which might give cause for concern? Also, you said you had a couple of caveats. I take it that is one; what is your other caveat?

Chris Cummings: Forgive me: I noticed that I missed the point about mergers and acquisitions. We regard the pre-approval facility that officials have mentioned—I believe the last witness mentioned it, as well—which is a way in which the team responsible could be approached ahead of a deal being put together, as a very sensible, practical step forward, as long as confidentiality was absolutely rigorously maintained.

In terms of definitions, we find the Japanese definition quite attractive, and again we commend it to the Committee. It clearly differentiates out investors such as the ones we represent, who are looking to provide capital for a company and share in its success for the benefit of the investors whose money we manage, but are not seeking to take an active role in the management of those companies. We are not looking to put somebody on the board; we are not looking to intervene directly in day-to-day management decisions. Our relationship is with the board chairman and so on, in order to engage in a constructive and strategic discussion, but we stop short of securing assets or taking an active role in management. That is a system that works well.

Turning to our caveats, I mentioned the five-year review period. We undoubtedly recognise the spirit in which this legislation is drafted, but Governments change, as does public opinion. The strength of this Bill is that it is focused around national security. Perhaps a definition of national security may go a little further in helping investors as well, because we could not really strike upon a catchy, well-turned phrase that defined national security, and have a reluctance to move away from national security; we would hate to see the Bill being widened into more public interest ability.

A final point to note would be the interplay between this legislation and the Takeover Panel, which has a different and distinct role to play. The notification percentages are slightly different: it is 25% in the Bill, and 30% in the Takeover Panel, so ensuring that there was no accidental misalignment would be most useful.

[Nadhim Zahawi]

Q Welcome, Mr Cummings. You mentioned the feedback from your members about keeping the Bill focused very much on national security. The message that we want to get out there is that Britain remains very much open for business, and that we want to maintain our place in the premier league of foreign direct investment. How has that statement of policy intent, which we published alongside the Bill, landed with your membership?

Chris Cummings: When it comes to a clarification point around national security, this is similar policy-intent-driven legislation to what we have seen in other emerged markets, such as the US, Germany, France and so on. We do not find that it is out of step with other developed markets. In other jurisdictions—I will take the US as an example—the legislation has started small and then grown as people have become familiar with it. The UK, perhaps because we feel we are playing catch-up—that is not for me to say—has started on a larger scale first. That is why there are queries around scope and around the durations. We look forward to engaging with the definition of the 17 sectors to ensure it is as specific as possible, and to ensure that we understand the operation. We would like to hear from officials and colleagues in ministerial positions on how they see it working in practice, so that the investment community is really clear that the rules of the game have not changed, and that the UK really is as attractive as we want it to be for incoming investment.

As I mentioned, we represent UK-based investment managers, but of course, those organisations are headquartered not only across Europe, but in other parts of the world, particularly the US. We are managing pension scheme money not only for UK savers and pensioners, but from other parts of Europe and places as far-flung as Brazil. If we as investors were looking to make an investment in UK plc, we would need to be clear about where head office was, and where the money was coming from. All those things could be either pre-approved or ruled in court as quickly as possible to ensure that there is not a missed beat in attracting the investment that we all want to see.

Draft Supplementary Protection Certificates (Amendment) (EU Exit) Regulations 2020

Chi Onwurah Excerpts

Thursday 19th November 2020 General Committees

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a great pleasure to serve under your chairmanship for the first time, Ms Ghani, and to follow the Minister—not for the first time. I welcome her opening remarks and I share her support for the United Kingdom’s world-beating life sciences sector and the fantastic innovation that it shows, for which we are particularly grateful as we face the pandemic. I agree that patents must recognise the balance between rewarding innovation and ensuring the diffusion of the often life-saving treatments, medicines and products that they protect. I also welcome the levelling of the playing field for IP attorneys, about which we have corresponded.

The UK’s relationship with its closest neighbours following the end of the transition period is yet to be decided. The Government’s ongoing negotiations are causing confusion and uncertainty for businesses across the United Kingdom. The shadow Northern Ireland Secretary, my hon. Friend the Member for Sheffield, Heeley (Louise Haigh), set out yesterday the immense frustration in Northern Ireland at the Government squandering vital time to prepare for the biggest changes that it has ever known in its trading relationship.

The Opposition wish to do everything we can to ensure effective preparation, certainty and readiness, so we will not oppose the statutory instrument and we welcome the measure of certainty that it provides. I have some brief questions, however.

As the Minister set out, following the end of the transition period and the introduction of the Northern Ireland protocol, the way in which some patent medicines and agrochemicals are regulated will change. New marketing authorisation procedures will therefore be required for those products in certain parts of the United Kingdom. The European Union’s SPCs apply to specific pharmaceutical and plant-protection products. They are designed, as the Minister said, to offset the loss of patent protection by products that occur due to the compulsory and, rightly, often lengthy testing in clinical trial phases, and are valuable intellectual property rights, taking effect when a patent expires.

The draft statutory instrument will change the existing legislation on SPCs and the authority of marketing authorisations across the whole UK. At present, two marketing authorisations are valid in the UK: the European Medicines Agency and the Medicines and Healthcare Products Regulatory Agency. Post-Brexit, marketing authorisations from the EMA will need to be converted into the UK equivalent. However, under the Northern Ireland protocol, Northern Ireland will remain bound by the EU law for the authorisation of medicines and agrochemicals, meaning that there will be separate marketing authorities for Northern Ireland and Great Britain.

Will the Minister provide the Committee with examples of the companies and products that she envisages will take advantage of this situation? Having spoken to the IPO, I know that a limited number of SPCs are granted generally—there are only 70—but the Committee would benefit from some examples so that we can know how the legislation will be used. I note that an impact assessment has not been undertaken, because of the limited impact, but we would benefit from understanding how the Government envisage the SI being used.

The SI will allow an SPC to be granted based on whichever authorisation the applicant has at the point of application. If the SPC enters into force with a marketing authorisation covering only one of either Great Britain or Northern Ireland, the protection provided by the SPC extends only to that territory, as the Minister set out. An applicant may submit an additional marketing authorisation allowing protection to be extended to the whole of the UK.

Ensuring minimum friction between Northern Ireland and Great Britain is of the utmost importance. The Prime Minister promised exactly that just over 12 months ago. My understanding—this follows on from my first question, and I discussed it briefly with the Intellectual Property Office as well—is that the draft statutory instrument could lead to drugs and agricultural products being available in Northern Ireland under different conditions and circumstances from Great Britain, in terms of whether they can be reproduced or generic equivalents can be sold.

A general impact assessment has not been performed, so I would like to know whether the Government have looked at the implications. If drugs are available under different rules, in different circumstances or with the different extent of a patent in Northern Ireland and in Great Britain, is there a possibility of that causing issues, advantages or incentives for trade or movement between Great Britain and Northern Ireland? Will the Minister reassure us that that has been considered?

Finally, will the Minister, representing the Government, provide a commitment to firms that trade in medicines and agrochemicals between Great Britain, Northern Ireland and the Republic of Ireland that the rules and regulations will not change in how they evolve, in order to provide long-term security to British and Irish businesses? The Labour party will not oppose the draft SI, and we are happy to work with the Government in future to ensure the safety of agricultural and medicine products, as well as frictionless trade between all the nations in the United Kingdom.

National Security and Investment Bill

Chi Onwurah Excerpts

2nd reading & 2nd reading: House of Commons
Tuesday 17th November 2020 Commons Chamber

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

As my right hon. Friend the Member for Doncaster North (Edward Miliband) set out very well in opening the debate, we support the Bill. Inward investment is crucial for businesses across the UK and our economy, but it is also crucial that the UK has the powers in place to scrutinise and intervene in business transactions that could have implications for our national security.

In fact, we would have welcomed this Bill a long time ago. It is clear that the Government have failed to keep pace with other countries, including the United States, France and Germany, that have already taken steps to update the legislation in line with evolving security threats. From serious questions about Huawei’s dominant role in the UK’s 5G network, as raised many times by the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith), to the takeover of Imagination Technologies by Canyon Bridge, it is inarguable that the Government have been slow off the mark on foreign acquisitions and the possible implications for national security.

Right hon. and hon. Members from all sides agreed on that, including, I think, the Chairs of the Business, Energy and Industrial Strategy Committee, the Science and Technology Committee and the Foreign Affairs Committee, and all five—I think it was five—members of the Intelligence and Security Committee who spoke. I thank colleagues from across the House for their contributions and apologise in advance if I cannot do justice to all of them.

This has been an excellent debate, one that I think showed the House at its best; we heard informed and considered speeches and, where there was disagreement, it was reasoned and open. There is strong agreement across the House that new legislation is necessary to combat changing security threats and to balance those considerations against the ambition to ensure that the UK remains an attractive country in which to invest.

Companies in fast-developing fields, from quantum computing to telecommunications to artificial intelligence to cryptography, are no longer just companies; they are strategic assets that are fundamental to our nation’s security. Until now, Ministers have failed to modernise the takeover regime to keep up with this changing landscape, the pace of technological development and what that means for security. Instead, they have continued to operate within a legal framework that, as we have heard, was created almost two decades ago, before Facebook or Twitter were even invented. My hon. Friend the Member for Warrington North (Charlotte Nichols) explained the impact of that uncertainty on the nuclear industry and investment in her constituency.

That is why we strongly welcome the Bill now and agree that it is necessary. It is essential that we get the specific provisions of the Bill right, in order not to deter foreign direct investment while also balancing the need to protect our national security. First, there is the definition of national security, which was raised by many, particularly the hon. Member for Isle of Wight (Bob Seely). The right hon. Member for South Holland and The Depths (Sir John Hayes)—[Interruption.] The Deepings, sorry.

[Sir John Hayes]

As deep as you want!

--- Later in debate ---

[Chi Onwurah]

The right hon. Gentleman is always very deep in his responses. He suggested it was deliberately left undefined in the Bill. The sectors that will be subject to mandatory notification are also not defined in the Bill and, we are told, will be set out in secondary legislation. I thank the hon. Member for Bolton North East (Mark Logan) for his provisional mnemonic and wish him well in updating it.

Definitions, and the lack of them, are important because the proposed powers are not limited by size of turnover or share of supply threshold. They could apply to almost every business transaction within the sectors, and the definition of national security therefore must be set out to help provide clarity for businesses and investors, but it is unclear—perhaps the Minister could provide some of that clarity—whether the takeover of the UK artificial intelligence company DeepMind by Google would have been called in on national security grounds under the scope of this Bill.

In Committee, Labour will seek further details on how the retrospective powers to render acquisitions void would be applied and whether an assessment has been made of the economic and legal consequences for businesses and their employees of acquisitions being rendered void after the fact. The hon. Member for Dundee East (Stewart Hosie) highlighted the Government’s capacity, or lack of it, to process the sheer volume of estimated notifications that the Bill will provoke. We need also to look at how businesses, small businesses in particular, will be supported to cope with the new regulations, which may prove difficult to navigate. We will ask also whether an assessment has been made by Government of the impact the changes could have on investment in small businesses—a chilling effect—including university start-ups, particularly those in the 17 key sectors, which was a point made by the hon. Member for The Wrekin (Mark Pritchard).

Labour will also seek assurances about transparency and oversight and how the powers are applied—a worry of the hon. Member for Beckenham (Bob Stewart)—including calling on the Government to explore giving the Intelligence and Security Committee a role in scrutinising the use of powers under this legislation. My right hon. Friend the Member for North Durham (Mr Jones) was right to emphasise the importance of the involvement of and access for the intelligence services.

We hope to work with the Government to ensure that we establish a robust, transparent and fair regime that protects national security, while allowing the UK to continue to enjoy the opportunities that overseas investment affords businesses across our country and economy, but the Bill is also a missed opportunity. It is a missed opportunity to demonstrate what the Government mean by “industrial strategy” and to show that it is more than a slogan. It is a missed opportunity to help UK businesses in key sectors to flourish and grow here in the UK, sustaining and creating jobs—a point on which my hon. Friend the Member for Aberavon (Stephen Kinnock) was particularly eloquent.

Time and again, we see vibrant, growing UK companies sadly lost overseas. While we recognise that foreign acquisition can breathe new life into a company, supporting jobs and growth in the UK, far too often we see UK companies pawned off or stripped for parts. Far too often we see UK companies bought out and wound down to eliminate the competition, with the consequent loss of high-skilled jobs. Nowhere is that more evident than in the technology sector, which must be a key part of any 21st century industrial strategy.

We have lost far too many businesses to Silicon Valley, weakening our technological sovereignty. The takeover of leading UK technological company Arm by the US company Nvidia was announced recently, and while Ministers claim to have scrutinised the deal, they have not been forthcoming with the details. When Arm was previously taken over by SoftBank, legal assurances were extracted about the future of the company’s Cambridge headquarters and the UK workforce. Have Ministers extracted the same legal assurances at this time? Will the Minister come clean today?

The Business Secretary said himself that the UK should be open for business but not for exploitation. However, key companies have been cherry picked by companies in San Jose, with the UK consequently losing out. It is therefore not clear that the current takeover regime is fit for purpose.

The weaknesses in the current regime are about not just national security but industrial strategy. Under the current regime, the Secretary of State has the power to intervene in qualifying businesses on four public interest grounds: media plurality, national security, stability of the UK finance system, and the capability to combat and mitigate the effect on public health emergencies.

[Sir John Hayes]

The coincidence, as I described it, between national interests and national security is profound and is proven. When a company is taken over and technology transfer takes place, it is possible for a nation that is hostile to our interests to gain a sufficient understanding to develop systems that endanger this country, including, in some cases, weapons systems.

[Chi Onwurah]

The right hon. Member is talking to a chartered engineer who strongly believes that our capability in engineering and the kind of key technologies of which he talks is a basis for our national security, and that national security, without some degree of important technological sovereignty, is difficult to wholly achieve. I look forward to debating that in Committee.

It is worth pointing out that the Government’s powers have been used only sporadically in previous interventions, and they are seemingly not underpinned by any real strategy. The hon. Member for East Worthing and Shoreham (Tim Loughton) made a similar point.

Many Conservative Members are vehemently opposed to extending the remit of the Bill to cover industrial strategy, including, but not limited to, the hon. Members for Totnes (Anthony Mangnall), for North West Norfolk (James Wild), for Cities of London and Westminster (Nickie Aiken), for North East Bedfordshire (Richard Fuller), for Wantage (David Johnston), for Rother Valley (Alexander Stafford), for Newcastle-under-Lyme (Aaron Bell) and for South Dorset (Richard Drax). Labour believes, however, that the Government should be able to intervene in the takeover of a critical business on industrial strategy grounds. That power should be paired with defined criteria and transaction thresholds to give businesses and foreign investors clarity and confidence, and to truly make it clear that we are open for business and not exploitation—to coin a phrase.

Why did the Government not bring forward legislation to ensure that technology firms remain in the UK and to end the current ad hoc approach to industrial strategy being pursued by Ministers? That has seen binding commitments often negotiated at the last minute, companies lost, and no clarity as to the rhyme or reason why the Government choose to intervene or not. I urge the Secretary of State and the Minister to continue to approach the Bill in the spirit of collaboration, to address the undefined areas and issues that we have raised, and to shed some light on their long-term industrial strategy, including their plans to keep high-growth technological companies flourishing in the UK.

The Insolvency (Moratorium) (Special Administration for Energy Licencees) (Regulations) 2020

Chi Onwurah Excerpts

Wednesday 30th September 2020 General Committees

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a great pleasure to serve under your chairship to consider this important statutory instrument, Mr Davies.

As winter approaches, and more and more of our constituents are required to stay at home to protect themselves and their families from coronavirus, the Office for National Statistics has said that nearly half of all workers were working from home in June, and a further 2.2 million vulnerable people have been required to shield themselves. I say that to emphasise that the provision of energy to our homes is of particular importance now. There are now, according to Ofgem, more than 60 energy suppliers in the UK providing jobs and services to tens of millions of us. Although discussion about the sector is often dominated by the topic of the big six, there are many smaller energy companies currently at threat.

Insolvencies of energy companies have occurred in increasing numbers in recent years because of undercapitalisation of new entrants in the supply market, over-optimistic plans for growth and new customers, and inadequate provision for levies and other requirements on energy companies that are part of the funding landscape. Five relatively small energy providers—with fewer than 200,000 customers—went bankrupt last year, and since 2016 a total of 13 such companies, some of which were considerably larger, have gone under.

As the Minister said, the SI modifies the working of the moratorium regime in part A1 of the Insolvency Act 1986 in respect of particular energy companies involved in provision or distribution of gas, electricity and smart meter services. Currently, companies in distress can enter a moratorium period to enable possible restructuring and rescue activities to take place while in administration. The modifications that the SI introduces will require struggling companies to notify the Department for Business, Energy and Industrial Strategy that they are in a moratorium, so that the Secretary of State can consider whether to apply for a special administration order that will enable Ofgem to protect continuity of supply and, if appropriate, commence proceedings for the transfer of supply to another company through the supplier of last resort proceedings.

There is some fear about the solvency of a number of energy supply companies as a result of the financial losses that have occurred as a result of measures relating to bill payments and increasing bad debts. That could lead to companies defaulting on levy payments due in October. If that occurs, Ofgem will manage the insolvency by a series of stages to prevent a company from taking on new customers if it is seen to be failing in its licence obligations and then will enter supplier of last resort arrangements when the company is no longer able to trade.

With companies inevitably falling into those arrangements following insolvency, can the Minister tell us to what extent socialisation of compensation for companies taking over customers of failed concerns will have a detrimental effect on bill payers generally and the finances of other more stable companies? Is he considering any changes to the supplier of last resort compensation regime to make that less of a customer and company burden in the future?

In effect, the process is equivalent to a competitive bid from other energy companies for the customers of the failed company, with provisions about continuity of tariffs, prices and so on being part of the bid process. The company taking over the customers may be compensated for the work involved in doing so through payments socialised across the sector. Because of the risk of a high number of sizeable companies going bust, those payments have become a real source of concern for stable energy companies that find themselves having to underwrite payments for failed companies that may have previously tried to undercut them with cheap but unsustainable customer tariffs.

A substantial cause of collapse appears to be the borrowing of levy payment liabilities by troubled energy companies, using the sums required to pay those levies to keep themselves afloat. The levy payment is due each October and, historically, troubled companies have defaulted on payments of levies at that point, leading to notices issued against them from Ofgem, and either arrangements to pay the levy in instalments or effective foreclosure on the company. In 2019 we lost eight domestic energy suppliers, meaning half a million customers were moved to suppliers they did not pick, with 87% ending up back at one of the big six companies. Is the Minister considering either short or long-term changes to the conditions for the payment of the levies by energy companies in the light of the this year’s circumstances?

A combination of the energy price cap, the effects of covid-19 and the imminent emergence of this year’s levy payment point may cause a further number of energy companies to go under this year, something that the Government are effectively acknowledging through the SI. Can the Minister tell me how many companies he anticipates may become insolvent this October because of covid-19 price cap problems? How many does he fear may go under because of continued problems associated with the management of finances and payment obligations? Will his Department seek to distinguish between those companies that are in difficulty because of immediate problems and those that are in difficulty because of their own business models and poor management of liabilities? I recognise that that may be difficult to achieve. It is important to have a view on those questions, because it is important for Ofgem to manage these eventualities and ensure continuity of supply, particularly at this time.

Labour has always supported a competitive energy market that provides cheap and reliable services to consumers, and the rights of consumers always to have access to the essential energy provisions that they need. With winter approaching and the virus again spreading, we must do all we can to ensure our constituents do not have to worry about their energy provision. For that reason we will not oppose the regulations, but I would be grateful if the Minister answered some of my questions.

--- Later in debate ---

[Kwasi Kwarteng]

I appreciate the enthusiasm of hon. Members to engage with this debate, but we have to be specific about the nature of the SI. I am absolutely happy to debate and talk to my hon. Friend individually about the scope for local communities to engage with energy provision, but the scope of the SI is, unfortunately, very narrowly concerned with the financial distress in which energy companies—as defined in the measure—may find themselves. Those companies will essentially have to pre-warn or give warning to the Secretary of State, so that the Secretary of State and Ofgem can act swiftly to address the situation. That is what the SI relates to, but I am of course happy to debate wider considerations in another forum.

[Chi Onwurah]

I thank the Minister for his comments and his recognition of the contribution of my hon. Friend the Member for Southampton, Test, the shadow Minister. However, I am slightly confused. As the Minister says, the SI is about insolvency provisions for energy suppliers, yet he seems to believe that any consideration of the likely level of distress and insolvency of energy suppliers, and indeed the impact of covid-19 on the energy market, which has given rise to the need for this SI, to be out of the scope of this debate. I have to say that I find that hard to understand, given that this SI is addressing that issue.

[Kwasi Kwarteng]

We can get into a debate about what the SI does.

[Chi Onwurah]

That is the purpose of the meeting.

[Kwasi Kwarteng]

I have tried to be as clear as possible, but I have been dragged in all sorts of different directions. When financial distress occurs the SI has two provisions. First, it enjoins, instructs or demands that companies give information to the Secretary of State, so that the Secretary of State and Ofgem can intervene. Secondly, it modifies the moratorium regime that the hon. Lady described in respect of those companies and puts restrictions on legal proceedings by creditors of those firms, so it essentially protects those firms in financial distress from their creditors. The causes of the financial distress, the impacts of covid-19, are not actually addressed in the SI.

I am sure the hon. Lady will want to come back on that, but I have resisted by saying that I am prepared to debate those issues in another forum. I do not think this is the right forum in which to engage with that, because we could be here all morning if that is what she wants to do. I am struck by the fact that, if she is very engaged with the debate, so few of her colleagues have attended this critical SI, which rather tugs against her contention that we can debate those wider issues in this format.

[Chi Onwurah]

rose—

[Kwasi Kwarteng]

I am not going to give way. In conclusion, I would like to say that the regulations align the corporate moratorium regime that the Government introduced last summer with existing powers to protect energy consumers and other market participants, and on that basis I commend the regulations to the Committee.

Question put and agreed to.

Oral Answers to Questions

Chi Onwurah Excerpts

Tuesday 29th September 2020 Commons Chamber

[The Minister for Business, Energy and Clean Growth (Kwasi Kwarteng)]

I pay tribute to my hon. Friend for the work that she is doing in this area. I also congratulate the United Downs project on last month securing £4 million from the Government’s getting building fund. As the Prime Minister has said this weekend, the UK will lead by example by keeping the environment firmly on the global agenda and serving as a launchpad for a global green industrial revolution.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

Two years ago, having spent £1.2 billion of taxpayers’ money developing the European Galileo programme, the Government abandoned it to build a duplicate British system at a cost of £3 billion to £5 billion; they spent tens of millions on this “me too” sat-nav system, plus half a billion pounds on OneWeb, a bankrupt American satellite company. Now we hear that the British sat-nav system is to be abandoned too—and for what? According to newspaper reports, which are better briefed than Parliament, it is so that the Prime Minister can go head to head with Elon Musk.

[Mr Speaker]

Order. I have had this each day. I do not mind the shadow Minister asking questions, but the idea of topical questions is that they are short and punchy, not big, long statements and questions. Please can we have a quick question?

[Chi Onwurah]

What is the Government’s strategy for the British sat-nav system?

[Alok Sharma]

I think the hon. Lady is making reference to the UN global navigation satellite systems programme. It is not being closed; due to the importance of the Government’s ambitions for the space sector, the programme is being reset and its remit widened.

Draft European Structural and Investment Funds Common Provisions and COMMON PROVISION RULES ETC. (AMENDMENT) (EU EXIT) (REVOCATION) REGULATIONS 2020

Chi Onwurah Excerpts

Wednesday 16th September 2020 General Committees

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a real pleasure to serve under your chairship, Dr Huq, especially on this very important subject, which I know is close to your heart and that of all of us here. I thank the Minister for his opening remarks, which were enlightening in some respects, though not in all, as I will come on to.

Between 2014 and 2030, the UK benefited from £17.2 billion of European structural and investment funds, as well as the additional national and private co-financing that that funding leveraged. That investment continues to strengthen projects led by not-for-profit organisations, local authorities, registered charities, higher and further education institutions, voluntary and community organisations, and statutory and non-statutory public-funded bodies, but it also—the Minister briefly made reference to this point—makes its way to businesses across the regions and nations of the United Kingdom that support these sectors in making the best of the investment.

Over time, the funding streams have become an integral part of the US business landscape. Whether through research and innovation, supporting our shift towards a low-carbon economy or promoting social inclusion to combat poverty and create jobs, the European Union structural and investment funds have mitigated some of the chronic regional, socio-economic and business investment disparities we see in the UK. As an MP from the north-east of England, I know very well how vital the funds have been in plugging the gaps left in my region after a decade of austerity.

The funds are underpinned by fair and progressive distribution formulas that ensure investment gets to where it is needed most and where it will have the most impact. I am sure that the Minister will agree that is the very definition of levelling up. Indeed, the Institute for Public Policy Research’s report on the proposed shared prosperity fund, published in February 2019, states:

“After Brexit, the UK will need to continue to give targeted support and investment into regions with lower levels of growth and higher levels of poverty, or it risks worsening the geographical divide.”

Labour supports the SI, in so far as it ensures that UK-funded programmes and activities entered into as part of the MFF 2014-2020 can continue to operate smoothly through to completion beyond the end of the transition period. We recognise that the SI is largely technical in nature and that it revokes a previous SI that, as the Minister has said, is no longer relevant and must be removed from the statute book. However, I want to raise a number of concerns that I hope the Minister will be able to speak to in his response.

We have just months left until the end of the transition period, but the Government are seemingly—obviously, I would say—struggling to negotiate effectively with the European Union, and they continue to undermine their own political declaration and withdrawal agreement at every turn. It was interesting to hear the Minister say that the SI was no longer needed because the withdrawal agreement had been signed and agreed, yet we debate in this House whether the withdrawal agreement will continue to apply in certain important aspects.

As things stand, the UK will have no access to structural investment funds once the 2014-2020 funding cycle comes to an end. The Minister said that “it is proposed” that the replacement be the strategic prosperity fund, using the passive voice as if it were not part of his Department’s obligations—or promises rather than obligations. The Minister will also know that Labour has been concerned for some time that the UK shared prosperity fund has no details on how the Government will distribute and match the success of EU programmes. No details have been forthcoming whatsoever.

Labour has been pushing the Government for any kind of plan since the new fund was first suggested in the Conservative party’s 2017 manifesto—more than three years ago. We were told that we would be seeing a full consultation document and final decisions on the fund’s design as part of the 2019 spending review, so businesses and key stakeholders across the country duly geared up to work with the Government on the replacement fund. Instead, the Government cancelled the spending review and have since rowed back on their commitment to a full and transparent consultation process. The Minister made no mention of that.

A rescheduled spending review to conclude in July 2020 has been further delayed due to covid-19. We understand that, and the Government can be forgiven for having to adapt their legislative programme at short notice. However, the plans for the fund were already off schedule well before the pandemic hit. Without figures or even a simple timetable, businesses operating in all sectors across the UK are left in the dark, unable to plan for key funding applications beyond 2020, and all that just months before the transition period comes to an abrupt end. That adds even more layers of uncertainty on top of those already being felt by businesses small and large across our country as a result of the Government’s mismanagement of the coronavirus pandemic and European Union negotiations.

The British Chambers of Commerce wrote to the Government in July 2019, more than a year ago, stating:

“From city regeneration schemes to business support, investment finance to research collaboration, businesses do not want to see ‘cliff edges’ in funding, but nor do they want a copy-and-paste approach to replacing the current system of EU development finance. Government must publish long-overdue proposals for a UK Shared Prosperity Fund for consultation—with a commitment to maximum local autonomy, a strong voice for business and a focus on economic growth.”

That was requested more than a year ago.

First, can the Minister clarify today when we can expect to see a credible plan for the UK’s shared prosperity fund? Secondly, can he confirm whether a full public consultation will take place to ensure all views and stakeholders get an equal opportunity to feed into this important and nation-shaping fund? Can he also clarify what work his Department has done to audit the impact of the European Union structural investment fund on businesses across the regions of the UK? Labour believes it is important for the Department and Ministers to have a clear picture of the impact before plans for a replacement fund can be decided upon. Can he agree that that vital work will be placed in the public domain before any consultation takes place?

The all-party parliamentary group for post-Brexit funding for nations, regions and local areas believes that the European regional development fund, the European social fund and the local growth fund, a non-EU fund, may be considered for amalgamation. The Minister mentioned a series of smaller funds including the European maritime and fisheries fund, and there is also the LEADER programme for rural development and the youth employment initiative. They could be considered for folding into the UK shared prosperity fund too. Taking into account the inflation uprating of those funding pots, as well as the additional designated “less developed regions” and “transition regions” the UK would have been allocated in the next MFF, the APPG suggests that any new shared prosperity fund should total just over £4 billion. Taking that figure as a starting point, will the Minister say whether the Government’s fund will be higher or lower than that figure?

On devolution, the Welsh Government have legitimate concerns about the shared prosperity fund being directed centrally from Whitehall, which they would see as an attack on devolution. Welsh businesses need the Government here in Westminster to ensure that the extraordinary benefits experienced by Welsh businesses under the European structural and investment funds are not lost in the transition to a new fund. Many local authorities across England, Scotland and Northern Ireland share that concern. I want to see the replacement fund enabling local leaders, businesses and people to have more say on how money is spent in communities. Indeed, in March this year the Institute for Government said

“Although the UK government has committed that the UK Shared Prosperity Fund will operate in a way that respects the devolution settlements, the devolved administrations are also suspicious that it might be used to allow the UK government to spend money directly in devolved areas, bypassing the devolved governments. This could signal a centralisation of regional development policy which would, according to Welsh First Minister Mark Drakeford, represent “a direct attack on devolution”.”

Can the Minister reassure us that that is not his intention?

In a letter to the Chancellor in February, the chair of the North East England Chamber of Commerce, James Ramsbotham, called out the Government’s “extremely poor” approach to engagement and consultation on the UK shared prosperity fund, which must recognise the north-east’s specific challenges regarding deprivation and lower economic performance. You will understand, Dr Huq, that as a north-east MP I cite a north-east example, but I know that other regions have concerns about the lack of consultation. Many businesses I speak to are also concerned that the Government may move to a shorter funding cycle. A seven-year funding cycle is embedded in European Union structural and investment funds, which enables businesses to plan strategically to make smarter investments in their workforce and operations over a longer period of time. I ask the Minister to acknowledge the value of longer-term cycles. Will the Minister be advocating for that approach on behalf of UK businesses in any new fund?

I have concerns that the Government will propagate politically motivated funding strategies via the shared prosperity fund that could negatively impact areas that most need investment. We have seen cynical funding formulas deployed in the future high street fund and in the town of culture funds, targeting Conservative party seats that have received disproportionate levels of funding. Will the Minister allay the concerns of businesses and non-Conservative target seats by declaring today that the Government have no intention of leaving out areas that are in urgent need of investment?

[Chair]

Does any other Member wish to catch my eye, any Back Bencher? SNP not here? That’s them for you, isn’t it.

[Nadhim Zahawi]

I thank the Shadow Minister for her remarks, and I will attempt to address those in my closing comments. I thank my colleagues for listening so intently to such an enthralling statutory instrument.

Now that, obviously, the UK has left the European Union we are able to design and implement our own regional funding programmes that I mentioned. Just a couple of small typos to mention, I do not want Hansard to get it wrong: I think the hon. Lady meant that businesses benefitted from the funds from 2014 to 2020, I think maybe she mistakenly said 2030 in her opening remarks, and she talked about US businesses, and I think she meant UK businesses.

[Chi Onwurah]

If I said 2030, I meant 2014 to 2020. I am pretty sure I said UK businesses.

[Nadhim Zahawi]

Absolutely. I will touch on the hon. Lady’s remarks about what the UK shared prosperity fund will look like. The 2019 Conservative manifesto commits to creating the UK shared prosperity fund, a programme of investment to bind together the whole of the United Kingdom. I take slight issue with her final remark about our in some way discriminating; the Prime Minister is absolutely committed to levelling up all over the United Kingdom and, of course, binding the four nations together, tackling inequality and deprivation in each of our four nations. Through the UK shared prosperity fund the Government can cut out bureaucracy and create a fund that invests in UK priorities, at least as much as the current European fund has done, and is easier for local areas to access.

The hon. Lady asked about clarity. The Government recognise the importance of providing clarity on the UK shared prosperity fund. Decisions on the design of the fund will need to be taken after the cross-Government spending review. In the meantime, we will continue to work closely with interested parties. On the hon. Lady’s question about consultation on the fund, the Government recognise the importance of reassuring local communities, including her own constituency, on the future of local growth funding and providing clarity on the UK shared prosperity fund. I can confirm that Government officials have held 26 engagement events in total, including 25 across the United Kingdom and one in Gibraltar. They were attended by more than 500 representatives from a breadth of sectors and designed to aid the development of the fund.

The hon. Lady asked about how the Government would set up the fund. Obviously, leaving the European Union provides us with fresh opportunities to create a fund that invests in UK priorities and targets funding where it is most needed, which was her point, while maintaining support for our businesses and communities.

The findings from the Scottish and Welsh Governments’ consultations are certainly welcome. We want to ensure that the UK Government and their institutions are working effectively to realise the benefits of four nations working together as one United Kingdom. UK Government officials have held 16 engagement events across Scotland, Wales and Northern Ireland designed to aid policy development.

On devolution and the future of funding, clearly the House will recognise that international arrangements are a reserved matter and that it is for the United Kingdom Government to negotiate a future relationship with the EU for the whole of the United Kingdom. The programmes in which the UK is considering participation are those that represent benefits to the UK, provided the terms reached in negotiations are fair and appropriate. Those programmes were selected based on business cases that the devolved Administrations had the opportunity to feed into, as far as possible. BEIS has ensured that the views of the devolved Administrations were reflected.

The UK Government remain committed to engaging with the devolved Administrations on the negotiations, including on the discussions about participation in those EU programmes that were considered as listed in the UK’s approach.

[Chi Onwurah]

I thank the Minister for his responses to my questions. I agree with him about much of what he says that the shared prosperity fund should do, but does he recognise that we have left the European Union and yet we still have no detail on that fund? There is nothing stopping the Government designing that fund now, now that we have left the European Union, so why do we still not have any detail on that fund? Can he please let us know when we will have some information on that fund, which, as a sovereign nation, we have the power to design?

[Nadhim Zahawi]

I am grateful to the shadow Minister for her question, and maybe I should have repeated what I said in my opening remarks; I thought she had actually got it the first time. Although we have left the European Union, the funding for business will carry on through 2021 all the way to 2023, so this idea that somehow we are being negligent is incorrect. The right thing to do is to go through the spending review and to design the UK shared prosperity fund correctly, so that it benefits the whole of the United Kingdom.

There have been some queries about future participation in EU programmes, and if that is the hon. Lady’s point, I am happy to address it, because we will continue to take part in the PEACE PLUS Programme, which is so important to the people of Northern Ireland.

--- Later in debate ---

[Chi Onwurah]

I did listen to the Minister’s opening remarks with rapt attention, and I acknowledge that he said that the funding and subsequent winding-up of funding could go on until 2025-26. However, we now have the power to design the shared prosperity fund and as I made numerous references to, businesses, business organisations and local authorities have been crying out for two or three years now for some indication of what will happen to that fund. The barrier is not the European Union; the barrier is the Government getting on with it and designing the fund.

[Nadhim Zahawi]

I am grateful to the hon. Lady for her intervention. I do not think there is a lack of focus or seriousness in wanting to design the fund and get it right. However, I hope that she will agree that it is important that we deliver that once we have the spending review delivered. I will not dwell any further on this matter, but clearly, decisions on the design of the fund will need to be taken after the cross-Government spending review. In the meantime, we will continue to work closely with interested parties, while developing the fund.

Dr Huq, I do not want to take up any more of your time, so I will finally conclude my remarks. In the context of the current pandemic, I will just add that managing authorities and devolved Administrations have made use of the flexibilities provided by the European Commission’s coronavirus response investment initiative, as well as working with partners to provide assurance on business survival and job protection in the most exposed sectors of the economy.

I commend this draft regulation to the House.

Question put and agreed to.

Draft Square Kilometre Array Observatory (Immunities and Privileges) Order 2020

Chi Onwurah Excerpts

Wednesday 9th September 2020 General Committees

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Edward, and to follow the Minister in this debate on a subject of the greatest importance to humanity and to all of us. Space and its many unanswered questions inspire awe and excitement across the globe. For nearly 70 years, the official British space programme has been seeking to answer those big questions—as the Minister suggested—drawing on our world-leading science and research sectors. In fact, the British Interplanetary Society is the oldest space advocacy organisation on earth—there may be others elsewhere. As a nation, we have a proud history of space exploration and international collaboration. In 1957, British Skylark rockets were launched from Woomera, Australia. In 1962, the UK partnered with NASA to launch the Ariel satellite programme, launching rockets from an Italian base off the coast of Kenya. And at the turn of the millennium, the British National Space Centre was the third largest financial contributor to the European Space Agency.

This statutory instrument is a welcome continuation of Britain’s ambition and international collaboration in space exploration. I have been particularly inspired by the SKA since I attended a reception at South Africa House to present South Africa’s bid back in 2011.

As the Minister said, the SKA is an intergovernmental radio telescope project, with headquarters based at our own Jodrell Bank and bases built in Australia and South Africa. It was first conceived of as a project in the early 1990s and has seen many delays over the years. On the expected completion date in 2027, the SKA will be 50 times more sensitive than any other radio instrument on earth and it will provide the highest resolution images ever seen in astronomy, surveying the sky 10,000 times faster than ever before. This is a significant step forward in our ability to understand our universe, and the UK will be playing a leading role.

The convention, Command Paper 154, treaty No. 27, signed by the UK Government in March 2019, defines the Square Kilometre Array Observatory as an international organisation and provides the appropriate framework—the framework required for it to function internationally. This SI will provide the SKA Organisation with the legal capacity and immunities that are granted to multinational intercontinental projects, allowing it to function freely. This ensures that the UK is acting in accordance with article 4 of the convention and is taking the necessary action to ensure the legality of the SKA Organisation.

I want to take this opportunity to congratulate British scientists and researchers on establishing the UK’s world-leading capability in space to the extent that we are taking such a leading role in pushing back the boundaries of our understanding. The Minister and I agree on the importance of that. I do wonder, however, the day after a Government Secretary of State admitted to seeking to breach international law, whether the Minister thinks that our standing in relation to international agreements of this type will be undermined.

Has the Minister spoken with the Foreign Office or others to get a timetable for ratification from other signing nations? I found it difficult to discover which nations have signed and where we are in that process. What effect does the status of other member countries’ ratification processes have on our ability to develop the SKA infrastructure needed in the UK?

This statutory instrument depends not just on international law and our rules-based order, but, as the Minister indicated, on the integral role that international collaboration plays in space exploration. The UK Space Agency recognises that, and has provided up to £152 million in grants over five years to the international scientific community as part of this international partnership programme. The programme closed in April, so I would be grateful if the Minister can tell us how much of that £152 million has been released in the first year of the scheme.

Even in space, there is no escape from Brexit. In December, the UK Space Agency committed to contribute £374 million a year for the first five years to the European Space Agency, ensuring the UK’s continued participation in programmes such as Lunar Gateway. As we have said, this order is possible only because of the UK’s leadership and international collaboration, so will the Minister confirm that that commitment will remain in place, regardless of the outcome of the ongoing Brexit negotiations? What does she want the future relationship between the UK and European space agencies to look like following the initial five-year investment?

In addition to the SKA, UK firms have recently secured funding to play a key role in the European Union’s Copernicus Earth observation programme. Can the Minister guarantee that UK businesses that have contracts with delivery dates that run past 1 January 2021 will be able to deliver that work? Will she tell us what the Government are doing to ensure the long-term strategic and commercial benefits for UK businesses through the UK Space Agency from this programme and others? As we have heard, the UK is a world leader in science and research, and playing a key role in the SKA project is mutually beneficial. Some £6 million has already flowed into the Jodrell Bank facility in Macclesfield, which I visited—it is a credit to us all.

Space research is not only about broadening our horizons and venturing into parts unknown. NASA estimates that discoveries originating from space research have saved nearly half a million lives. UK Government figures estimate that the UK space industry has contributed £5.7 billion to the wider economy. The Minister spoke of the breakthroughs in big data anticipated as part of the SKA programme. What is her Department doing to secure the long-term viability of third-party organisations, and ensure the wider supply chain benefits from UK space research?

Labour is passionate about the long-term future and potential of the space sector. It provides high-skill, high-paid jobs, which are needed to address some of the challenges that we face. To achieve that, the space sector needs a long-term plan and clear direction from the Government so that it remains an attractive place for future projects similar to the SKA. Will the Minister commit to publishing a space industrial strategy to provide a roadmap for UK space exploration?

[The Chair]

Order. Some of the hon. Lady’s comments are straying very wide indeed. This debate is quite narrowly framed, so we need to get back to the observatory and Jodrell Bank.

[Chi Onwurah]

I appreciate that comment, Sir Edward. I am just trying to set the order in context.

The Government have recently made a £400 million investment in the OneWeb satellite programme. Can the Minister set out whether that is a wider UK Space Agency programme, like the subject of this order?

Labour is eager to support the long-term future of the UK space sector, and this order is a positive step, but we need to see a clear strategic outline of the Government’s vision for UK space. The SKA can provide the world with another giant leap, and we must see it as an example of the potential that can be unlocked through ingenuity, expertise and collaboration.

[The Chair]

I call Chris Bryant.

DRAFT INTELLECTUAL PROPERTY (AMENDMENT ETC.) (EU EXIT) REGULATIONS 2020

Chi Onwurah Excerpts

Wednesday 9th September 2020 General Committees

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a great pleasure to serve under your chairmanship, Sir David. I welcome the Minister to her first SI Committee; it is a pleasure to shadow her. Science is an area on which there is general agreement in our aims, if not always in our implementation, approach and support for it. The Opposition’s aim is that the UK should be the most innovative nation in the world. Although our fourth place is something to be proud of, it is not something to be satisfied with.

As the Minister said, intellectual property makes a significant contribution to the UK economy each year. The 2017 report by the Intellectual Property Office estimated that UK firms invested £133 billion in knowledge assets, compared with £121 billion in tangible assets. A really important distinction often overlooked is that much of our property and business assets are in intangibles and IP, as opposed to bricks, mortar and manufacturing. The sector is estimated to represent 4.2% of total GDP. As the IPO has noted, it is growing UK investment in intangible assets that is protected by intellectual property, rising by £23 billion since the millennium.

The Minister said that intellectual property laws have been seamlessly—perhaps she did not this emphasise this enough—harmonised across Europe for many years, with much of the UK’s legislative framework in this area composed of EU regulations and directives that are shared across the 27 member states. These rules have protected businesses and benefited consumers. This is not just a debate about academic legal terms; it will have very real effects and will help support many of our constituents. It is the shared, for example while abroad —although obviously travel abroad is much limited these days.

Labour recognises that the purpose of the statutory instrument is to address a semantic issue and move the implementation date of several regulations from the exit day to the end of the IP competition day. We acknowledge that this measure is important and will ensure that a series of key rights remain in place until the end of the transition period, enforceable where necessary. We also recognise that the Government’s intention is to provide a degree of certainty to businesses between now and the end of the year by amending the existing 2019 regulations, which will ensure that UK and European Union proprietor rights remain in place at the end of the transition period and are fully protected for their duration. We welcome that.

However, we are concerned that existing sensible harmonised and reciprocal protections will cease to be available to UK nationals, residents and businesses after the transition period. The Minister spoke a good deal and very well on the rights of UK citizens and businesses in the UK. We are concerned about the rights of UK citizens and businesses within the European Union.

The Conservative party once claimed to be the party of business and, as such, the Government must understand that providing certainty for only the next three months is not really any certainty at all. Businesses of all sizes across the UK, and European Union businesses wishing to trade effectively with us, remain in the dark on what the future regime will look like. Many have told me how worried they are that they are not going to be able to plan to ensure that their intellectual property is protected immediately following the transition period.

Despite many rounds of negotiations, as we are all too aware, the Government are yet to make any progress on a future relationship with the European Union, which is causing huge uncertainty for businesses, which, as we all know, have already been hit hard by the unexpected coronavirus pandemic. This lack of progress puts UK businesses at a huge disadvantage.

As things stand, UK trademark attorneys will no longer have a right of representation at the European Union Intellectual Property Office, but European economic area practitioners will still continue to be able to provide an address for services before the UK Intellectual Property Office, which may lead to UK businesses and good jobs leaving for the European Union. The Minister and I have corresponded on this issue, and I have met the Chartered Institute of Trade Mark Attorneys, for whom this issue is really important—as it is for those who depend on those jobs.

The Government have said that the rights of representation before EU institutions and courts are the preserve of the single market, but it is deeply concerning to UK businesses and the Labour party that the Government will not include that as a part of the UK’s approach to negotiations with the European Union. What is the Minister doing to address that imbalance, which will give an advantage to European Union trademark attorneys and put ours at a significant disadvantage? What is she doing to support UK IP practitioners? We acknowledge and welcome the consultation that the Government ran over the summer, but time is fast running out and we need action.

The political declaration, which the Government co-produced with the European Union, makes an explicit commitment to seek enforceable and reciprocal intellectual property protections,

“going beyond the standards of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights and the World Intellectual Property Organisation conventions”.

Unfortunately, we have seen the Government rowing back on some of the principles laid out in their own political declaration, which has left businesses unsure about what they can rely on the Government to deliver. Will the Minister take this opportunity to confirm whether harmonised IP and copyright-related protections are still a key negotiating objective of the Government, and give us an update on what progress has been made in this area of negotiations?

Businesses in the UK benefit from automatic database protections that are a unique feature of European Union law. Labour is pleased to see that this statutory instrument recognises the importance of that provision by extending it to the end of the transition period for all European economic area nationals, residents and businesses. However, it is unclear what protections will be available to businesses that, for example, might have multiple sites across the European Union, with shared databases being accessed across borders. That could lead to the absurd situation where one outpost was automatically protected by the harmonised European Union legal framework and another was covered by a UK limited legal framework. What are the Government doing to ensure that does not happen?

Equality and support for the disabled is one of our core values in the Labour party and something we take very seriously, so it is concerning that the proposed legislative change would lead to blind or visually impaired people in the UK having no automatic right to accessible format copies of materials under the widely celebrated European Union directive 2017/1564. As the UK is not currently party to the Marrakesh treaty, the additional opportunity to secure the right outlined here will not be available immediately after the transition period comes to an end without a bespoke agreement. Can the Minister be clear about what steps she is taking to ensure that there will not be a negative impact on blind, visually impaired or otherwise print-disabled people when we leave the transition period?

Finally, some businesses have communicated to me their concern that the sheer number of European Union trademarks that need to be converted into UK rights before the end of the transition period will place additional pressure on the registrar, and that gaps in cover could therefore occur. Can the Minister reassure those businesses that the Government have taken all necessary steps to ensure that the UK IPO is adequately resourced and ready to deal with the added red tape that comes from the predicted 700,000 trademarks that now need to be transposed? Can she tell us how many have been transposed to date?

Will the Minister take this opportunity to outline what consideration she has given to how the UK and the European Union, whatever the future trading relationship looks like, can co-operate and exchange information on issues of intellectual property, copyright and approaches to trademarks design and patents, as laid out in the political declaration?

Labour has always supported intellectual property; it was the last Labour Government that transformed the Patent Office into the Intellectual Property Office in 2007, and 30 years earlier it was a Labour Government that introduced the Patents Act 1977. We are happy to support the Government as a constructive Opposition on this issue, when they are right, and there are many examples of that within this SI. However, we have also raised many questions about how the UK will move forward following the end of the transition period. It is vital that British businesses, IP practitioners and consumers get the answers to these questions as soon as possible, so that they can navigate any future relationship in just 118 days’ time, and potentially at a time when we see a resurgence of the pandemic. I thank the Minister in advance for her response.

Oral Answers to Questions

Chi Onwurah Excerpts

Tuesday 21st July 2020 Commons Chamber

[Paul Scully]

I am grateful to the hon. Lady for her question and her continued highlighting of the sub-postmasters’ situation. I hope to announce the chair of the review very soon so that we can start on it at pace in September.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

The Post Office Horizon scandal is one of the biggest miscarriages of justice of our times: 20 years of reputations ruined, families torn apart and lives lost. Sub-postmasters were betrayed by a Post Office that so persecuted them that what compensation they have won has largely gone on legal fees, and they have now turned to the parliamentary ombudsman to investigate the full costs of a Government that failed

“to undertake its statutory duty of oversight”.

As we break for our summer holidays, will the Minister finally do the right thing and commit to a full, judge-led inquiry that will get to the bottom of the wrongs suffered and deliver both justice and compensation?

[Paul Scully]

The chairman or woman of the review will be announced in due course so that we can start the review of this injustice in September at pace. It is important that we speak to the Post Office, the Government, the sub-postmasters and other people, including at Fujitsu, to get to the bottom of this matter so that we can learn the lessons and move forward for the sub-postmasters of the future.

Draft Enterprise Act 2002 (Share of Supply) (Amendment) Order 2020

Chi Onwurah Excerpts

Monday 13th July 2020 General Committees

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a pleasure to serve for the first time with you in the Chair, Ms Nokes, and on a debate of such national importance.

The Labour party welcomes foreign direct investment into the UK. It helps to protect jobs and keeps us economically competitive on the international stage. The UK has been a magnet for foreign investment, attracting more than any other country in the European Union—when we were in it, of course; and we hope that will not change now that we have left. However, mergers and acquisitions can have implications that go far beyond the companies concerned. They may significantly reduce competition, leaving consumers vulnerable. They may provide unacceptable threats to jobs and communities. They may have an impact on our national security and the resilience of our critical national infrastructure.

With regard to the last two points in particular, enhancements to the Enterprise Act 2002 are required from time to time, to reflect evolving national security and critical infrastructure requirements. We understand perfectly that it is important to maintain national capabilities in key areas. Indeed, if we had acted to maintain capability in the key area of telecommunications, we would be in a much better position when dealing with the challenge of high-risk vendors, such as Huawei, to the security of our mobile communications.

By the way, we are still waiting for the telecoms security Bill that was a belated attempt to do just that, so perhaps the Minister can tell us when we will see it. An important example of updating the criteria of the Act in response to evolving requirements was Labour’s introduction of the UK’s financial system as a criterion in the Act following the 2008 global financial crisis—an intervention that will no doubt be protecting businesses from hostile takeovers during the covid-19 recession.

Labour broadly welcomes the addition of artificial intelligence, cryptographic authentication and advanced materials in the relevant enterprise categories. As the shadow Minister for science, research and digital, I know only too well how vital those sectors are to our national security and infrastructure, and the importance of retaining pioneering tech organisations, but I am concerned that the Government do not value our world-leading tech enterprises enough.

In 2014, Britain had probably the most important and groundbreaking artificial intelligence company in the world, DeepMind, which Forbes described as “world-leading”. Nevertheless, the Government allowed it to be sold to Google for £400 million with no investigation or action, even though its acquisition generated significant concerns of monopoly provision.

Concerns have previously been raised by stakeholders about the suitability of the definitions of the relevant enterprise categories. It is important that the Government show they are listening and respond to businesses asking for further clarity, to ensure that no business falls under the scope of the Act without good reason. The Government will also need to keep the relevant enterprise category lists under review and up to date with any relevant new technologies and sectors as they emerge, with the consent of Parliament.

It is important to know what discussions the Government have had with key institutes and societies in the field to define the categories. For example, have they discussed the definition of artificial intelligence with the Alan Turing Institute? I find the definition quite broad.

Small businesses play a significant role in driving innovation in the sectors that we are talking about, as the Minister mentioned, so Labour supports the principle of lowering the turnover threshold from £70 million, which will be applied by a parallel order made under section 28(6) of the 2002 Act. However, I reiterate the anxieties of trade associations, which say that the £1 million figure that the Minister cited could lead to microbusinesses that develop or trade in products or services that could be a threat to national security slipping through the net.

Why does the Minister think it is necessary to have a threshold barrier to the Government intervening on mergers on the grounds of public interest or national security? Could the Competition and Markets Authority not decide whether a merger was important enough to meet the tests? Why was the £1 million figure chosen? We encourage the Government to remove or review the figure in due course.

One of the main reasons that small innovative businesses actively seek out acquisition or foreign investment is to access finance and resources. Since its acquisition, DeepMind has benefited from significant support from Google, a company whose resources exceed that of many states—although not, I hope, the United Kingdom. Does the Minister have plans to do anything in those key technology sectors apart from blocking takeovers?

When a takeover is blocked on those grounds, what support will be offered to the UK company concerned? For example, if the sale of DeepMind had been blocked, as it could well have been, had the Government understood the importance of artificial intelligence earlier, what support would it have received from the UK Government? Are the Government looking at new models to support businesses in critical areas such as this?

I am referring to something that the Government find it very hard to talk about: industrial strategy. As I have said, we have seen nothing of the promised industrial strategy to diversify our telecoms supply chain. What measures are the Government looking at to strengthen and diversify the supply in artificial intelligence, cryptographic authentication and advanced materials? Earlier this year, I asked in a parliamentary question how much the Government were spending on developing quantum computing technologies, one of the existing sectors. I received a garbled response, which talked of

“combined public and private investment through the UK’s ten year National Quantum Technologies Programme”,

without actually answering the question.

The legislation will provide a means of stopping companies being acquired by foreign investors but not of helping them. Indeed, it will not even stop companies relocating. I refer the Minister to the example of PsiQuantum, a world-leading quantum computing company credited with building the world’s first useful quantum computer. Quantum computing is already a relevant enterprise category, and the company was started in Bristol by local academics but relocated to Silicon Valley to access greater support. How will the Minister address such cases?

PsiQuantum and DeepMind exemplify the fact that, although our security concerns might currently be directed towards China, takeovers may come from anywhere in the world. Indeed, many of them have come from the US. The Minister seemed to imply that the legislation would be used only against malicious takeovers and mergers, but does he recognise that many takeovers and mergers are made on purely commercial grounds but may nevertheless have the effect of reducing our capability in a critical national area? DeepMind was one such example. I do not consider Google to have been a malicious actor on that occasion, but perhaps the Minister would like to correct me on that. Does he agree that the measures must not be targeted at one particular country or purely at what are considered to be malicious actors?

Lastly, we ask the Government to commit to a formal review of the order in due course, in order to assess the additional administrative burden on businesses that now fall within its scope and any negative impacts that it has had on foreign direct investment overall. Britain is a world-leading science country, but we do not benefit as we should from the commercialisation of the science. We also need to recognise the strategic as well as the commercial importance of critical new technologies to our national security. Labour welcomes measures to support our national security in mergers and acquisitions.

[Nadhim Zahawi]

Let me attempt to address some of the issues raised by the hon. Lady, who is a fellow engineer—we need more of them in Parliament. She rightly asked what will happen after a deal is blocked, and how the Government would intend to support a business that needed liquidity. The first thing to remind the Committee is that the Government have never blocked a deal, although it is important to retain the power to do so, given that some mergers may be such a risk to national security that softer remedies are not possible. It is far more likely, however, that the Government will work with the relevant parties to agree undertakings in lieu of a phase 2 CMA investigation. The UK Government have only ever agreed undertakings and have not yet blocked a deal.

With regard to injecting liquidity and providing urgent liquidity to small and medium-sized businesses by different routes, I hope that the hon. Lady would agree that the coronavirus business interruption loan scheme, the large business interruption loan scheme and the bounce back loan scheme have been truly innovative interventions in the economy to help businesses weather the storm of covid.

The hon. Lady also asked what plans the Government have to expand the concept of the public interest regime. The mergers regime is designed to offer clarity for businesses and build investor confidence, because that confidence makes our economy so dynamic and, as a result, highly regarded the world over. It is based on transparent rules, administered consistently by expert bodies—namely, the Competition and Markets Authority. Our regime restricts Ministers’ ability to intervene to public interest grounds, covering only national security, financial stability, public health emergencies and media plurality, hence why we are making these orders.

[Chi Onwurah]

Just to clarify, I was not asking whether they have plans, or suggesting that they should have plans, to expand the regime. I wanted to understand what additional support, outside of the mergers and acquisition regime, would be given to companies that fell under this provision. Having identified these sectors as being key, what other support, apart from in mergers and acquisitions, is being offered?

[Nadhim Zahawi]

The hon. Lady will forgive me if I strayed into areas that she did not ask about—additional transparency is always good for the Committee. She is right to talk about that, but we should look at the Chancellor’s track record. When many companies in these emerging technologies were deliberately loss making, the Chancellor acted immediately with the future fund to bring liquidity to those businesses, matched by their current investors. That fund has been incredibly successful. I remind the House that this Government are committed to raising investment in research and development from £12 billion a year, where it is today, to £22 billion a year by 2024-25. That is a truly ambitious target to invest in emerging technologies.

I will conclude shortly, but first I will respond to a couple more things, including the question about whether the provision chokes off investment for these firms. I do not believe it will, but rather it will allow us to focus more on becoming an innovative knowledge economy in the future.

[Chi Onwurah]

Can I remind the Minister about my question regarding the £1 million threshold?

[Nadhim Zahawi]

I was about to come to that. Forgive me; that was my final response to the hon. Lady. To remind the Committee, the question was about worries about small companies below the £1 million threshold. We currently have a range of powers to ensure that national security remains protected. The lower threshold of £1 million is considered to be an appropriate level of turnover to capture those businesses that, although small, may have a critical role in matters that may affect national security.

I will end by thanking you, Ms Nokes, and the Committee for its consideration of the statutory instrument and its valuable contribution to this important debate. The amendments contained in the SI are essential. Without this SI, the Government would not have the powers we need to protect our national security in the specific enterprise categories outlined in the order. The order is a proportionate amendment to ensure that the Government can scrutinise the most worrying of mergers in three sensitive areas, at an unprecedented time, and I commend it to the Committee.

Question put and agreed to.