National Security and Investment Bill (Fourth sitting)

Mark Garnier Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[The Chair]

We have less than five minutes left, so I suspect that this will be the last question. Mark Garnier.

[Mark Garnier (Wyre Forest) (Con)]

Q When you were answering Chi Onwurah’s question, you posed the question, why would you buy a company if there is just a 1% risk that you would not be able to sell? I was going to ask you how the Bill could be market distorting in terms of the valuations of some of these businesses. You raise a very good point about investing in a business where you think you have fewer buyers than there were originally because of the Bill. That is a very important point. The flip side of that is the extent to which the Bill could be used as a frustrating measure for hostile takeovers. Have you done much on the price-distorting nature of what is going on?

James Palmer: I have not done any analysis, and I have not read the economics—that is beyond my pay grade—but I have worked on hostile takeovers for a very long time, and I have been involved in loads of auctions of businesses, with debates about who the buyers are and so on. It is blindingly obvious, isn’t it, that if you have fewer buyers, it has a price impact? I think the question is, what is the appropriate, proportionate acceptance of that? I do not think we should kid ourselves; if we want to dial up focus on national security, there will be a level of impact. I think what the Government are trying to do—they have sent very strong signals that this is their goal, which I am supportive of—is to ensure that, yes, we do it, and, yes, there may be a little bit of consequence, but that we try to keep it in proportion.

I think the risk we have here is not with the 10 or so active interventions that the Minister and Lord Grimstone have talked about in briefings on this, which is a very positive signal and a big reduction from the 50 or so that were consulted on before—that gave us, frankly, very high levels of concern. The concerns are, first, will that be held without a really rigorous review mechanism that ensures there is accountability over that review? I would raise four-year, eight-year, 12-year, continual reviews, where you actually look at economic impact and there are evidence-based requirements. I would also bring in proportionality on those to the judgments, because if you ask a group of very intelligent civil servants to think about risk and say that their job is to protect national security, you can find national security risks in almost anything.

I think there will be market distortion impact. John Fingleton, the former chief executive of the Office of Fair Trading, has commented broadly on this. The Economist wrote in an August article about the negative economic impact on US GDP being significant from its equivalent step up of the CFIUS rules. I think it is about trying to thread the needle in a way that keeps that very narrow and limited.

[Mark Garnier]

Q Very quickly, although this looks at equity investment, do you have any thoughts about the fact that debt holders can be much more influential and therefore possibly get away with the assets?

James Palmer: I heard the question that you raised this morning on that. I am not troubled by that. I think debt is a bit of a myth. The material influence test that the Government have picked is lower than a number of other EU countries have gone for but is at least consistent—it is levered off the test we already use, which I think is helpful—so I am personally a bit less worried about that than some others are. Finance does not worry me that much. If somebody seeks to foreclose and exercise, they are not going to be able to do so if they are going to be caught. I think we could get ourselves in a knot, and I think the London financing markets could be disastrously impacted if we were to start to try to regulate lending heavily on this.

[The Chair]

I am afraid that brings us pretty much to the end of the time available. Many thanks, Mr Palmer, for your time and your assistance to the Committee.

We will move seamlessly on to the next session and hear evidence from David Offenbach, a consultant at Simons Muirhead & Burton. While he is taking his seat, let me say to those members of the Committee who were not able to ask questions last time that I will try to make sure that you get an opportunity on this occasion or a future one.

Examination of Witness

David Offenbach gave evidence.

--- Later in debate ---

[Stephen Kinnock]

Q I am sorry; I saw that you have done a lot of work with private equity and thought that you may have been involved in that aspect of it. On sovereign wealth funds, do you see the China Investment Corporation—I do not know if you have ever done any work with it—as an arm of the Chinese Communist party?

Will Jackson-Moore: I am not in a position to talk about specific individual organisations. A number of sovereign funds in China are very well regarded in the international capital markets. However, in terms of their interaction with Chinese Government, that is not something that I have a perspective on.

[Mark Garnier]

Q My apologies for not being here at the beginning. I am interested in your work on sovereign wealth funds and private equity funds, in terms of working out the value of an investment asset. We heard evidence in the first session this afternoon—I do not know if you were here—than the fact that this Bill will restrict the number of potential buyers out there might then restrict the amount of interest coming in to start with; an investor with a target company to invest in may have limited numbers of people that they could sell it to when they want to exit, which will adjust the price. Have you had any thoughts about that at all?

Will Jackson-Moore: As I mentioned earlier, the UK is the gold standard for a location to invest in, particularly within Europe. Investors like investing in the UK because of the fairness and transparency, UK law and UK courts, and as a place to be based and to live, so there is an inherent benefit to doing UK-based transactions. However, and as we sit here right now, on a scorecard-type approach, the UK is not as attractive a location as it has been historically. We have the uncertainties of Brexit and we have a number of other territories looking to recover and rethink their economies given the situation we are all in, so there will be more—

[Mark Garnier]

Competition?

Will Jackson-Moore: Yes, there will be more competition for international flows of capital. As I have said, I do not think this Bill in its own right fundamentally changes the attractiveness, but it does create another level of shorter-term uncertainty, just because people have not seen it operating in practice yet.

[Mark Garnier]

Q Let me rephrase the question, then. Countries have directions of travel. Do you think that our direction of travel, as evidenced by things like Brexit and possibly this Bill and others, is a direction to a less attractive place, or not? If you were in government with a five-year plan to try to make us attractive, would this be part of your plan?

Will Jackson-Moore: It is entirely appropriate to have legislation to protect matters of national security, so perhaps this puts us on a level playing field with other nations. But does it specifically enhance our position for the attraction of international capital? The answer is not specifically, but it sets a standard that the international capital markets expect us to put in place.

[Mark Garnier]

That is very helpful. Thank you.

[The Chair]

We have no further questions from the Committee, so thank you very much, Mr Jackson-Moore, for your time and assistance. We are finishing slightly ahead of time, but I invite the Government Whip to propose to adjourn.

Ordered, That further consideration be now adjourned. —(Michael Tomlinson.)

4 pm

Adjourned till Tuesday 1 December at twenty-five minutes past Nine o’clock.