National Security and Investment Bill

Lord Hodgson of Astley Abbotts Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 4th February 2021 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con) [V]]

My Lords, I add my congratulations to the noble Lord, Lord Woodley, on his distinguished if somewhat combative maiden speech.

I congratulate the Government on bringing forward the Bill. It raises some fundamental principles, standing as it does at the intersection between the needs of the nation on the one hand and the rights of the individual on the other. The fact that respect for individual property rights in this country stretches back for getting on for 400 years should not be underestimated as a factor in making the country an attractive investment destination, as my noble friend Lady Noakes pointed out, and it is one that we fiddle with at our peril.

I have a second reason to congratulate the Government. I chair the Secondary Legislation Scrutiny Committee of your Lordships’ House. Early last autumn, we scrutinised the two regulations that are referred to on page 4 of the excellent Library briefing on the Bill, one lowering the thresholds and the other extending the range of categories laid down in the Enterprise Act. Our committee was pretty concerned because we felt that important decisions like that ought to be in primary legislation and were not appropriate for secondary legislation. The Government response then was that primary legislation would come forward when time allowed, and I have to say that my committee was not entirely impressed with that reply. So it is good to see that the Government have acted promptly, and I congratulate my noble friend.

Having complimented him, I was at this point going to give him a mild kicking. I was going to say that it contrasted unfavourably with the slow response to the undertaking that he gave to the House last June about pre-pack legislation, but only half an hour or so ago, at 3.25 pm, a letter from his department pinged into my inbox—he no doubt thinking that I was going to raise this—and I now have to read the letter before I can let the kicking commence.

I go back to the Bill. Of course I understand the macro risks to our national security and I agree that we have to have adequate safeguards in place against them, but in my remarks I want to focus on what may be the practical implications if this Bill does not provide a clear, balanced and stable policy framework. In doing this, I draw the attention of the House to my career in private equity as an adviser, investor, director and chairman.

As the Government have removed the turnover test and extended the categories covered, the number of companies that fall within the provisions of the Bill has grown exponentially. Investing in early-stage companies is, as they say, a tough paper round. Out of 10 investments, probably at least half will fail, two or three will limp along, known in the trade as the living dead, and one, or if you are lucky, two will provide the reward to compensate for the money lost on the others. To get sufficiently attractive returns, the individual company will almost certainly have had to expand overseas. The UK market alone is not really large enough, and that brings the company to the attention of overseas investors and Governments.

Noble Lords can see where I am heading: just as the investors are about to reap their reward, the Government step in with a call-in notice. That is not just devastating to the investors, who the noble Lord, Lord Rooker, was slightly dismissive about; it will be a huge shock to the operations of the company itself. Markets being markets, as my noble friend Lord Leigh of Hurley pointed out, they will react as the new regime beds down and begin to price in the risk. Due diligence schedules will be amended to include a new inquiry as to whether the company operates in one of the designated sectors. As a result, those sectors, in which we in this country probably wish above all to encourage investment, may find it more expensive to obtain funding.

Much can be done to offset this if the Government can provide maximum certainty about what lies ahead—and I was glad to hear my noble friend’s remark that they understand this. As we go into Committee, I hope that we can discuss more about what constitutes national security, what constraints there are to be on the Government adding more sectors, the need to publish codes of practice on the Government’s detailed approach and to ensure that they are updated frequently in the light of experience and, last but not least, as many noble Lords have said, the need adequately to staff the investment security unit to meet the 30-day deadline—and with an estimated 30-plus references a week, that will be no easy task.

In my last minute I shall make two small points. In our discussion so far, we have tended to talk about successful companies, but there will be unsuccessful companies in the designated sectors which may find that a foreign investor is the only port in the storm. What is the policy response then? Is it to provide the necessary funding from the public purse under Clause 30, to let the company collapse and disappear or to allow the foreign takeover to go ahead?

Finally, in my last 30 seconds, the House should be aware that under this new regime we will be considering not just professional investors and managers but family businesses, men and women who after a lifetime of effort involving considerable sacrifice in building up a successful business now wish to reap their rewards. Under the provisions of the Bill, the Government could prevent the sale of such companies. Will Clause 13 provide compensation for a lifetime’s work in those circumstances?