National Security and Investment Bill

Paul Scully Excerpts

Consideration of Lords amendments
Monday 26th April 2021 Commons Chamber

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

I beg to move, That this House agrees with Lords amendment 1.

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to consider:

Lords amendments 2 to 10.

Lords amendment 11, and Government motion to disagree.

Lords amendments 12 to 14.

Lords amendment 15, and Government motion to disagree.

[Paul Scully]

I am delighted that the Bill has returned to this House from the other place and I am delighted to be able to speak to it briefly today following the excellent handover from the Minister for Covid Vaccine Deployment, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), who is successfully jabbing the nation as we speak. As we are at a late hour, I will not take up too much of the House’s time. I will just quickly summarise some of the changes to the Bill.

Lords amendments 1 to 10 and 12 to 14 were all tabled by my colleague in the other place, Lord Callanan. Lords amendments 1, 5, 8, 9 and 10 are what the Office of the Parliamentary Counsel would call minor and technical. Lords amendments 12, 13 and 14 pertain to the annual report as provided for by clause 61, and they reflect the decision to include additional reporting requirements that will provide further value for parliamentarians, businesses and investors. Lords amendments 2, 3, 4, 6 and 7 were made to the Bill in the spirit of a shared recognition that the requirements of the mandatory notification regime must be no more than necessary and proportionate for the protection of our national security, and that businesses and investments are not unduly burdened or stifled.

I wholeheartedly agree with the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), who said on Report that we need

“robust powers to guard our national security and…change that backs our best small businesses and our capacity for innovation. Both of these goals are possible; indeed, they are mutually reinforcing.”—[Official Report, 20 January 2021; Vol. 687, c. 1000.]

That is why we have reflected carefully during the passage of the Bill on the 15% starting threshold for the mandatory regime. Lords amendment 2 removes acquisitions between 15% and 25% from constituting notifiable acquisitions under the mandatory regime. The House will recall, though, that the Bill provides the power for the Secretary of State to call in acquisitions of control across the economy. That power remains in place. Provisions in the Bill also ensure that the Secretary of State can amend the scope of the mandatory regime through secondary legislation, which could include the introduction of a 15% threshold if deemed appropriate, although we do not currently anticipate doing so.

I will turn to Amendments 11 and 15—

[Sir John Hayes (South Holland and The Deepings) (Con)]

On those amendments, my hon. Friend will know that there are profound and continuing concerns about scrutiny associated with the provisions and powers that the Bill provides. He will furthermore know that the Intelligence and Security Committee, of which I am a member, performs an important role in scrutinising all such security matters. He will know that there is a memorandum of understanding that underpins that between the Government and the ISC. Will he be quite clear that there is no attempt to dilute, to obscure or to escape from the provisions of that memorandum, which says that the ISC can inquire into security matters across the whole of Government?

[Paul Scully]

I always value the contribution from my right hon. Friend who, as a former Security Minister and a member of the ISC, is very wise and experienced in these matters. I can confirm that the memorandum of understanding absolutely pertains and that the ISC can continue its great work to scrutinise the work of the security services, which will include where the security services’ work supports the work of the Investment Security Unit. It is also important to remember, as we consider these amendments, that we value the work of the ISC, and of the Business, Energy and Industrial Strategy Committee and the Science and Technology Committee, which I will speak about as well.

[Sir John Hayes]

To be absolutely clear, that memorandum is, by definition, flexible. The Government have acknowledged that by history, by example and so on. That flexibility should allow the ISC to scrutinise the additional powers in this Bill, and I gather from what the Minister says that he is comfortable with that principle and that the ISC will continue to perform its role in that way. On that basis, I will support the Government tonight in any Division that might ensue.

[Paul Scully]

I am grateful for my right hon. Friend’s enlightening words about his intention. I can indeed confirm that the memorandum of understanding is flexible. The ISC does good work and continues to do so, and I look forward to working with him.

[Greg Clark (Tunbridge Wells) (Con)]

My hon. Friend is giving helpful clarification. The Secretary of State wrote to the Chair of the Business, Energy and Industrial Strategy Committee and copied in the Chair of the ISC and me as Chair of the Science and Technology Committee. Will the Minister confirm that he is prepared to commit in a memorandum of understanding to the Chairs of those Committees being able to see, on Privy Council terms, information that might not be otherwise in the public domain?

[Paul Scully]

We have got to the nub of the matter quickly. I can indeed confirm that. In the letter the Secretary of State sent to the Chair of the BEIS Committee, copying in my right hon. Friend the Chair of the Science and Technology Committee, he spoke about the fact that the BEIS Committee is able to access the material it needs to scrutinise the work of the ISU, including for example details of some of the risks that the ISU has identified under the NSI regime and the measures taken to address them. As part of that, the Secretary of State confirmed that the Department can provide the Chair of the BEIS Committee with confidential briefings on Privy Council terms, and that he would be happy to set those out in more detail in either a memorandum of understanding or further exchange of letters. The Secretary of State went on to say that he would encourage the STC to provide scrutiny of the work of the ISU where the work of the unit falls within the specific remit of that Committee. He also welcomed the Intelligence and Security Committee’s continued scrutiny of the work of the security services, which will include where the security services’ work supports the work of the ISU.

[Dr Julian Lewis (New Forest East) (Con)]

I hate to be slightly disobliging, but it is a fact, is it not, that the staffs of these Select Committees do not have the clearance necessary to see or handle top secret material, and showing a top secret document to the Chair of a Committee on his or her own, briefly in very limited circumstances, does not amount—as I will explain shortly—to effective scrutiny?

[Paul Scully]

I look forward to hearing my right hon. Friend’s explanation.

I believe that the Bill as amended by the other place through amendments 11 and 15 would require the Secretary of State to provide a confidential annexe, to be provided to the ISC. I am advised by my noble Friends Lord Callanan and Lord Grimstone that there is considerable strength of feeling in the other place about ensuring that the operation of the regime receives appropriate parliamentary scrutiny, and I welcome the passionate and expert debate that this question has already received. It has been proposed that the ISC is better placed than the BEIS Committee to scrutinise the Investment and Security Unit, despite the Secretary of State for BEIS having responsibility for the unit. The implication of the amendments is that the Select Committee responsible for holding the Secretary of State to account across their responsibilities is insufficient in that regard. It is also suggested that the ISC would have inadequate access to information to carry out its duties.

In essence, the amendments would require sensitive details to be provided to the ISC regarding the Secretary of State’s decision on final notifications given and final orders made, varied or revoked, but the ISC is already able to request such information as soon as is appropriate from the security services where it forms part of its long-established scrutiny responsibilities under the Justice and Security Act 2013 and, as I hope I have made clear, its accompanying memorandum of understanding. In addition, the Bill provides that the Secretary of State must publish details of each final order made, varied or revoked, and clause 61 already requires the annual report to include the number of final orders made, together with a number of other details. Indeed, that clause was amended in the other place to include further such information in the annual report.

We do not disagree that further information may be required for appropriate parliamentary scrutiny. Where that is the case, the Government will follow existing procedures for reporting back to Parliament, but that should be done primarily through responding to the BEIS Committee as it goes about its work of ably scrutinising the work of the Department. We will ensure that the BEIS Committee is able to access the material it needs.

It is of course right that the ISC continues its excellent scrutiny of the work of the security services. The work of the security services on investment security in support of the ISU clearly falls within the remit of the ISC. That does not require any statutory change to be made. As I said, the memorandum of understanding pertains to the continuing work of the ISC, and I look forward to working with colleagues on that Committee. As such, and with the BEIS Committee having appropriate assurance that it will be provided with the information necessary, there is no need for these changes made to the Bill by the other place to stand.

In summary, with the exception of amendments 11 and 15, I believe that this House is today presented with an improved set of measures to safeguard our national security. The ISC will not have its powers—existing powers —diluted through the discussion of the memorandum of understanding, as we have already said. Therefore, I commend the amendments, with the exception of amendments 11 and 15, to the House.

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

Let me start by welcoming the Minister to the National Security and Investment Bill, and I would like to wish his predecessor well in his work on the vaccine roll-out. I would also like to thank colleagues in the other place who have worked so hard to improve this Bill, and the Members of both Houses who scrutinised its important provisions.

Labour is the party of national security, and has long called for a new regime to deal with evolving national security threats in corporate transactions. A robust takeover regime is also essential if we want firms in our key sectors to grow and provide good jobs here in the UK. So we support this Bill, which allows the Government to intervene when mergers and acquisitions could threaten national security. Unfortunately, the Bill in its original form lacked certain provisions, and particularly the oversight necessary to ensure it was successful in protecting our national security and national interest. So we have sought to improve the Bill along the way, and we are pleased that the Government have adopted some of our suggestions.

Members across party lines raised concerns over the capacity and capability of the new Investment Security Unit to deliver on the Bill’s ambition. We are pleased that the Government have acted on this, and Lords amendments 12 to 14 to clause 61 are based on Labour’s original amendment 31 during the House of Commons Committee stage, and a later amendment tabled by Labour at Lords Committee. Reporting the aggregate time taken for decisions will help to ensure that the new regime works more efficiently for small and medium-sized enterprises, and I was pleased to hear the Minister quoting my remarks to that effect.

We are also pleased to see that the Government have taken steps to address concerns regarding the 15% threshold for a notifiable acquisition. This follows Labour’s probing amendment 16 during Lords Committee stage and Cross-Bench concern. The Wellcome Trust labelled the 15% threshold as a

“regulatory burden for those that may not be able to afford it”.

With Lords amendment 3, the Secretary of State will still be able to call in acquisitions across the economy at or below 25%—and, if necessary, below 15%—where they reasonably suspect that material influence has been or will be acquired. But this amendment will bring the notifiable acquisition threshold in line with our allies in France, Australia and Canada. We are pleased the Government have listened to Labour and made a change that will be beneficial to small and medium-sized enterprises.

It is also welcome to see that the Government have now committed to issue public guidance, which Labour called for with our amendment 17 at the Commons Committee stage. This is good news for transparency. Our approach has been to ensure that our small and medium-sized enterprises have clarity, and that those investing in the UK understand what the rules are and how they will work. The publication of guidance will boost confidence in the new regime for national security screening.

But we are here today because of Lords amendments 11 and 15, and to vote on the Government motion to disagree. Labour believes that the Intelligence and Security Committee scrutiny is essential to provide the robust and sensitive oversight and accountability that matters of national security require. The Bill gives significant new powers to BEIS, a Department traditional lacking in national security experience. The BEIS Committee does not have the security clearance necessary to provide scrutiny, and the confidential briefings to the Chair described by the Minister will not change that.

--- Later in debate ---

[Darren Jones (Bristol North West) (Lab) [V]]

I will focus my remarks on Lords amendments 11 to 15 to clause 61, which, as we have heard, have arrived from the other place on the basis that the BEIS Committee, which I chair, does not have the access to the intelligence information that it would need in order to adequately scrutinise the Investment Security Unit in the BEIS Department. Let me start by thanking their lordships for their highly informed debate on this issue and their hard work in drafting these amendments.

It is a matter of fact that the Intelligence and Security Committee has a level of security clearance and powers to demand classified information that no other Committee of this House has, including my own. I was therefore surprised to learn that the Government were not going to update the memorandum of understanding with the ISC to extend its remit specifically to include the Investment Security Unit. That is why their lordships have sent us these amendments, which I have no issue with. On that basis, I commend the Chair of the ISC for his eloquent speech this evening. However, the Government have made it clear to my Committee and to the House that they have no intention of supporting the amendments, and nor will they be extending the memorandum of understanding in respect of the ISC.

The Secretary of State did agree with me in Committee that the Bill extends the powers of the Government to intervene in the market and that adequate scrutiny of that function is therefore important. On that basis, my Committee has received a letter from the Secretary of State, which we will formally report to the House tomorrow morning, setting out three key points. First, my Committee will be guaranteed appropriate levels of information and briefing to understand why Ministers have acted in the way they have—this is noting the points made by the ISC Chair this evening. On that basis, my Committee and the Department will enter into a new MOU to reflect this. Secondly, the Secretary of State will brief me, as Chair of the Committee, on Privy Counsellor terms, as required. Thirdly, the Science and Technology Committee, which also has standing in this area, will be recognised as sharing the scrutiny responsibility, alongside the BEIS Committee, in addition to the work of the ISC. I welcome the comments made by the Chair of the Science and Technology Committee in this evening’s debate.

My Committee has discussed this issue and wants to ensure effective scrutiny of the wide-ranging and important powers in the Bill. Given that the Government are unwilling to support their lordships’ amendments this evening, and therefore having the main scrutiny responsibility resting with the BEIS Committee, the agreement to enter into a new MOU with my Committee, and to ensure the Chair’s briefing on Privy Counsellor terms, is the next best available option. The BEIS Committee will continue to serve the House in holding the Department to account, and we will of course make it known if we are unable to do that effectively. I therefore look forward to hearing the Minister, when he sums up the debate on the Floor of the House this evening, reconfirming the commitments made by the Secretary of State and promptly agreeing the MOU in due course.

[Paul Scully]

I very much appreciate the spirit and detail with which this issue has been covered in the Chamber today and the consideration that has come from the other place. I am glad that we have been able to bring forward a number of amendments to improve the Bill, ensuring that we can keep the certainty for business and are responsive to the needs of business, while clearly keeping that central focus on national security. It is so important that we keep the flexibility in the definition of “national security”, in order to future-proof the Bill, while none the less making sure that businesses and potential investors in this country know exactly the competitive regime we have here.

That goes to the point made by my hon. Friend the Member for Gravesham (Adam Holloway) about PsiQuantum. Quantum computing is an exciting technology. The Bill tackles national security, but we must also ensure that the UK is a competitive, good home for technologies such as quantum computing, not least by making sure that we can unleash innovation, and make the UK the science superpower that is the envy of the world, with people wanting to come to build quantum technology units here in the UK, through our use of research and development and by ensuring that we are competitive in all our offerings, while being able to protect businesses for our national security.

I appreciate the kind words of the shadow Minister, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), and indeed those of the hon. Member for Aberdeen South (Stephen Flynn) when he talked about my coming to this place. Indeed, not only did I follow my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi) in leading on this Bill, but I stole his flag for my office, for fear of missing out otherwise when I am on my Zoom calls, because that does symbolise the vaccination process and the fact that the Union has come together—the UK has come together—in an amazing programme.

I am really keen to tackle two more points. The hon. Member for Richmond Park (Sarah Olney) talked about flexibility versus scrutiny, which I have already talked about. She mentioned that she did not want other countries or other businesses to undermine the UK economy. Clearly, we do not have to go that far to have people undermining the UK economy; we have only to go to the Liberal Democrats for that. It is important that we do not allow that speculation—the sort of muckraking we heard from that contribution—to detract from what is a really important Bill for the UK national security regime, and from that optimism and confidence that is needed for attracting investment within this country.

I understand the concerns of my right hon. Friend the Member for New Forest East (Dr Lewis), but I reiterate the fact that it is for the BEIS Committee to oversee the work of the Department. The Committee is particularly well placed to consider how effectively and efficiently the regime interacts with business communities and investors.

[Mr Steve Baker]

I thought my right hon. Friend the Chair of the ISC really made an open and shut case, and I hope that he will not mind my saying so. If the Minister will not amend the memorandum of understanding, will he be really clear why he will not do so, because my right hon. Friend made an open and shut case that he should?

[Paul Scully]

I appreciate my hon. Friend’s intervention, and I will come back to that. Let me first develop the point about scrutiny. Clearly, the BEIS Committee has business expertise and is able to determine whether the regime is effective in scrutinising relevant acquisitions of control. I do question some of the narrative that I have heard that suggests that the BEIS Committee is not well placed to scrutinise the NSI regime. Furthermore, there are no restrictions on the ISC requesting further information from the unit or the Secretary of State where it falls under the remit of that Committee. There is no barrier to the BEIS Committee handling top secret material or other sensitive material subject to the agreement between the Department and the Chair of the Committee on appropriate handling.

As part of its role, the BEIS Committee can request information that may include sensitive material from the Secretary of State for Business, Energy and Industrial Strategy, including on the Investment Security Unit’s use of information provided by the intelligence and security agencies. The Select Committee already provides scrutiny over a number of sensitive areas, and there are mechanisms in place for it to scrutinise top secret information of this kind on a case-by-case basis.

As the Secretary of State for Business, Energy and Industrial Strategy explained in front of the BEIS Committee last week, and indeed in his letter to the Chairman of the BEIS Committee, which was copied to my right hon. Friend the Member for Tunbridge Wells (Greg Clark), Chair of the Science and Technology Committee, there are three Committees that should act in collaboration. The BEIS Committee provides the primary work of scrutinising matters within BEIS competence, but two important additional Committees—the Science and Technology Committee and, indeed, the ISC—were acting in an auxiliary capacity, making sure that the essential cross-cutting nature of the Investment Security Unit benefits from the rigour of those Committees, with expertise in each area that the unit covers.

The Government therefore do not believe that we need to update the existing memorandum of understanding, because it is flexible and it does still pertain. As I have said, there is no dilution of the ISC’s work in this. The current arrangements are sufficient to ensure that we can have the correct scrutiny of this.

[Dr Lewis]

I appreciate that I have tried the patience of the House, but on that one point let me say that the MOU is flexible in the sense that we can add new organisations to it. The flexibility is not being used by the Government because they are refusing to add this new unit to the MOU, so the flexibility is rendered nugatory.

[Paul Scully]

As I say, the direction from the Secretary of State in his letter to the Chairs of the Business, Energy and Industrial Strategy Committee and the Science and Technology Committee was clear in terms of his expectations of how this should work. The Business, Energy and Industrial Strategy Committee should be the prime Committee to scrutinise BEIS competence, but similarly the Science and Technology Committee and the Intelligence and Security Committee should absolutely be there to look at places within their competence to ensure wider scrutiny.

As I said, we have listened to Parliament. We have tabled a number of amendments to increase the amount of information included in the annual report and the various threshold. We have responded.

Lords amendment 1 agreed to.

Lords amendments 2 to 10 agreed to.

Clause 61

Annual Report

Motion made, and Question proposed, That this House disagrees with Lords amendment 11.—(Paul Scully.)