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

(3 years, 7 months ago)

Commons Chamber
Read Full debate National Security and Investment Bill 2019-21 View all National Security and Investment Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts
Alok Sharma Portrait Alok Sharma
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I thank my right hon. Friend for his question. He has taken a great deal of interest in this legislation, and we have spoken about such matters. As I said earlier, the whole point of the Bill is that we will be able to scrutinise the precise details of a transaction and of who the ultimate beneficial owner of a particular acquiring entity may be. I would therefore hope that the Bill will indeed cover the particular set of circumstances he outlines.

Going back to the point about providing assurances, businesses and investors can be reassured that the Government will treat potential national security risks with the discretion they deserve.

Turning to the mandatory notification elements of the Bill, investors in 17 prescribed sectors of the economy will be mandated by law to notify the Government of acquisitions of entities above a certain threshold of shareholding or voting. That mandatory notification process is similar to the approach taken in the United States, Germany and France. The Government have, alongside the introduction of the Bill, published an eight-week consultation to refine the definitions of those 17 sectors. The discussions that I and other Ministers in the Department have had with the investment community suggest that that has been extremely welcome.

Many sectors, of course, are well defined, and the purpose of the consultation is to refine them further so that the definitions are clear and narrowly focused on specific parts of sectors in which risks are most likely to arise and will allow parties to self-assess whether they need to notify. The House will appreciate that we could not have published the consultation before we introduced the Bill, with its call-in powers, or we would have risked hostile actors completing transactions in the particularly sensitive sectors.

Richard Fuller Portrait Richard Fuller (North East Bedfordshire) (Con)
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My right hon. Friend is quite rightly focusing on precisely defining the sectors. Was he as concerned as I was to hear the Opposition spokesman say today that he would prefer a strategy that did not have that definition, relying instead on the whimsy of a particular Secretary of State at the time? That situation could, like it does in France, lead to a yoghurt company or water bottle business being defined as a national strategic asset.

Alok Sharma Portrait Alok Sharma
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My hon. Friend speaks with a great deal of interest and experience in investments. This Bill focuses on national security, and we have been clear that we will define the sectors where mandatory notification is required, which is right and proper. The whole point of the Bill is that we are taking a proportionate approach. We do not want some kind of chilling effect on investment coming into the UK. We have been a beacon for inward investment over many years with, as I said earlier, three quarters of a trillion dollars coming into our country over the past 10 years. We would not want that to change.

Transactions covered by mandatory notification that take place without clearance will be legally void. Again, that is in line with the French, German and Italian regimes. Parties to an acquisition may, of course, voluntarily inform the Secretary of State about their acquisitions to seek swift clearance to proceed. We have also streamlined the information required for notification from 36 pages, as required under the Enterprise Act 2002 for competition modifications, to a third of that.

The use of digital processes will make interaction with the Government much simpler, more transparent and slicker, and Government will aim to provide clearance for most transactions within 30 working days of notification, as my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) raised earlier. Having spoken to the investment community over the past week, I know that that timely approach to the clearing of transactions is welcomed.

Moving on to the assessment of called-in transactions, part 2 of the Bill provides powers to assess transactions should the Government call one in. Where the specific legal test is met, the Government may impose conditions or, in extremis, block or unwind transactions. I stress once again that the Government will use those powers sparingly and proportionately.

The Government will take the necessary powers in the Bill to gather information about any transaction. However, such information will be strictly safeguarded against inappropriate disclosure. That includes, of course, information from parties, regulators and others to make informed decisions on transactions. If no remedies are imposed, a final notification will be provided at the end of a national security assessment. Alternatively, the Government may choose to prescribe remedies.

Any notification decision under the Bill will be subject to legal challenge from the potential acquirer entity by way of judicial review or appeal, and the Government will be able to apply to the court for a closed material procedure to protect commercially sensitive and national security matters in such proceedings. The investment security unit will ensure that the entire process is streamlined and supported by robust digital structures and governance to ensure swift decision-making on assessments.

It is worth noting that the new regime will be underpinned by both civil and criminal sanctions, creating effective deterrents for non-compliance with statutory obligations. Again, that is in line with sanctions in the French and German regimes.

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Edward Miliband Portrait Edward Miliband
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I really appreciate the hon. Gentleman’s point. These are not Christmas tree baubles that I have suddenly raised now. In 2010, there was the issue of the Kraft takeover of Cadbury. In 2014, there was the threatened takeover by Pfizer of AstraZeneca that had deep implications for our science base. I have felt for a decade that our legislation is not fit for purpose—and I acknowledge completely that this legislation was put in place by the Labour Government. These are deeply serious questions about the future of our industrial strategy and industrial base.

I do not pretend that these issues are easy to resolve. Of course there are dangers on both sides of the ledger, and we have to strike a balance between those two dangers, but we have enough experience with Kraft-Cadbury and with Pfizer and AstraZeneca— which did not happen, but not because of any powers of Government—to be anxious about Nvidia-ARM. If, as I believe, the whole basis of this legislation is to say that other countries are taking this action when it comes to national security and so should we, the logic applies here as well. It is not straightforward, it is not simple, and I completely acknowledge that to the hon. Gentleman, but I see the case for change.

Richard Fuller Portrait Richard Fuller (North East Bedfordshire) (Con)
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The right hon. Gentleman used the phrase “I feel” and then talked about confectionary, then about how he felt about pharmaceuticals and about semiconductor chips that are used in mobile telephony. That is the problem, is it not, Mr Deputy Speaker? His feelings are not an appropriate way to interfere in the development assets of private capital. What could he provide to those businesses to protect their development from the vagaries of his feelings from time to time?

Edward Miliband Portrait Edward Miliband
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It is interesting; I believe the hon. Gentleman supports this Bill—I may be wrong—but on national security, the Government will apply some tests and we could apply some tests when it comes to our industrial base. Let me make this point to him: it is not just France, but Germany, Australia, Japan and the United States. It is all of the other major industrial economies that say, “Well, no, we do have a strategic interest in certain industries.” Of course, if we decided to go down that route, we would have a debate in this House about the specific areas in which we wanted to be able to intervene. We would have to look at exactly the criteria, and it is not just about whim, but the question is: is the status quo adequate?

I say to the hon. Gentleman that the status quo is not adequate, and we do not just have 10 years or more of experience to suggest that the status quo is not adequate; we also have a real situation now with Nvidia and ARM. If anyone in the House wants to get up and say, “We think it is fine. We think this should just go ahead. We are not concerned about what that means for our tech sector”, then fine, but everybody I speak to in the tech sector who knows about this issue, including my hon. Friend the Member for Newcastle upon Tyne Central, says that there is a real worry. Why have we not developed enough of these world-leading companies in this country? Why do we want to see ARM taken over?

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Iain Duncan Smith Portrait Sir Iain Duncan Smith
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I of course completely agree with my hon. Friend and I was just going to come on to the data harvesting point, because it is caught in this. She is right that China’s national intelligence law requires all Chinese firms to assist with state intelligence work and to deny that if they are asked. Let us say the Secretary of State wants to investigate and says he has strong penalties for non-compliance. By law in China they are not allowed to comply with that process at all, so there is already a national conflict in this. TikTok is owned by ByteDance, which is a very dodgy company set up in China that has huge links with the Chinese Communist Government. So we need to be very careful about where we go with this because UK nationals might get caught up and get punished for what is essentially a refusal by the Chinese Government to allow others to do this.

I am also slightly concerned about some of the things that happened in the past not being caught by the Bill. The Henry Jackson Society has today announced that, having looked through the Bill, only 23 of the 117 Chinese acquisitions over the last decade would have actually been caught. The areas that are outside of this include pharmaceuticals. The Chinese takeover of Bio Products Laboratory, which has a very significant technology with regard to blood products, would not have been caught. In education, 10 universities have many thousands of obligations to Chinese investors, where they get a trade-off on technology, some linked to defence firms. That would not have been caught. Interestingly, Thames Water and Veolia Water have significant share ownership from Chinese firms, but that certainly would not have been called into question.

Richard Fuller Portrait Richard Fuller
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My right hon. Friend is referring a lot to China, and I am sure he will not be alone in that this afternoon. Is his perspective that we should be looking in the Bill to restrict all Chinese investments in the UK, or investment in particular sectors, and what is the differentiation if the origins of that is the Chinese state, in this fusion of the state with business?

Iain Duncan Smith Portrait Sir Iain Duncan Smith
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My view is that the Bill should help us to identify exactly which of these are genuinely private and not located in China under Chinese law. That will be a big issue. I have to tell my hon. Friend that, on that question he is right, because I believe we are now facing a very significant threat from China. So we now need to use the Bill to figure out how we deal with that threat on a wider basis, not just on individual takeovers. The Government need to look at that. Huawei was a very good example of Government policy having to be reversed on that basis. It is a growing problem and he is right to raise it.

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Anthony Mangnall Portrait Anthony Mangnall (Totnes) (Con)
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Thank you, Madam Deputy Speaker, for calling me in such an important debate. May I start by thanking the Secretary of State and the Minister for the time that they have given me, members of the Inter-Parliamentary Alliance on China and others to discuss the contents of the Bill and what it does?

As I understand it—I hope I get this explanation right—the Bill gives the Government the power to screen and call in acquisitions of assets deemed to pose a threat to national security. Those assets might include land, physical property or intellectual property. As a result, the Secretary of State will be given retrospective powers to consider investments made over the past five years.

I welcome the cross-party consensus on the Bill. It seems to me, as a new intake Member of Parliament, that this is one of those rare moments when there is consensus in the House to produce a truly remarkable piece of legislation. I hope that the Government will listen carefully to the comments that have been made already.

I welcome the sentiments of the Bill, and I hope that passing it into law will be our first step in attempting to match Australia’s Foreign Investment Reform (Protecting Australia’s National Security) Bill and America’s Foreign Investment Risk Review Modernisation Act of 2018. But—and there is a sizeable “but”—we have, as other Members have made clear, a long way to go before this legislation reflects the comprehensive laws that many of our Five Eyes nation colleagues have in place.

The UK seeks to be a competitive, free and fair economy. I believe that that is sacrosanct and that we must do everything we can to ensure that businesses and people around the world look at our country as an attractive destination for investment. A stable democracy, a highly skilled workforce, league table topping universities, the rule of law and world-class industries such as photonics and FinTech all make the UK an attractive place to invest that benefits investors and British citizens alike.

Our laws are balanced as a result, encouraging foreign investment and adherence to UK laws and national interests. That balance has become all the more challenging with rapid technological change, internationalist agendas and our own failure, if I may say so, to hold a strategic dependency review. In short, the threats to our national security are numerous, real and present, and they come in a multitude of forms.

The narrow scope of the Bill limits its impact. It fails to address the threats that the UK is currently facing, and it holds the potential to see us become complicit with businesses and organisations that violate human rights. The national security that the Secretary of State spoke of remains ill-defined, to the detriment of the objectives of the Bill. Added to that, under the screening mechanism outlined in the Bill, a number of sectors are not addressed, such as education—a core part of the UK’s economy and an attraction to thousands of foreign students across the globe, with institutions that undertake research and development programmes in myriad areas, including defence, development and foreign affairs. A recent study found that 10 UK university laboratories are now dependent on significant investment from Chinese defence firms, yet our universities have not been specified in the scope of the Government’s consultation on sectors to which mandatory notification applies. How can that not be considered a national security risk?

The pharmaceutical sector is a global success story, with many companies basing their operations here in the UK, but there is nothing in the Bill that would have stopped or reviewed the Chinese takeover of Bio Products Laboratory. At a time when we face greater and graver challenges around the health of mankind, the Government must rethink what needs to be included in the scope of their consultation.

I have touched on two sectors but said nothing about the UK’s nuclear sector or water industry. Both need to be given the cover to protect our national security. Our core infrastructure, which is intimately connected to our national security, is routinely being placed in the hands of foreign owners. That should be a cause of great concern to the whole House. My hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) mentioned the 23 out of 117 Chinese acquisitions of UK firms—if less than 20% of Chinese acquisitions are being scrutinised under this legislation, we need to rethink parts of the Bill and strengthen it where possible.

Richard Fuller Portrait Richard Fuller
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I think it would be helpful for us to decide whether we are talking about foreign ownership of assets or Chinese ownership of assets. Obviously there is a gradation between them, but I am hearing from some of the contributions that we just do not like foreigner ownership of assets, which I am sure is not what my hon. Friend means at all.

Anthony Mangnall Portrait Anthony Mangnall
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It is important to recognise that China has a poor track record in this case, which has not been addressed, but of course we are not against foreign ownership. We want to ensure that the structure is in place to scrutinise these acquisitions in the correct way that protects opportunity in this country. I thank my hon. Friend for his intervention.

A few months ago, I broke cover early on to vote against the Government over the proposals to see our 5G network built by Huawei—and I have not lived it down yet! I did so because our core infrastructure should never be compromised by foreign investment, and that was a severe threat to our national security. I welcome the fact that the Government have moved so significantly and plan to phase out Huawei by 2027.

I also did so because of the reports of human rights violations by Huawei. The success of my right hon. Friend the Member for Maidenhead (Mrs May) in passing the Modern Slavery Act 2015 is a proud moment for the UK, but it is worthless unless we use this Bill to stop dealing with companies that are reported to be using slave labour and looking to invest in the United Kingdom. Nothing in the Bill prevents companies that are complicit in gross human rights violations from investing in the United Kingdom, and that is a huge oversight. It would be an injustice and morally wrong for the UK ever to look the other way as money created from slave labour was invested in this country.

We have been told that this is not the right Bill for such provisions, but with all due respect, that is the same excuse used by the Whips on every single occasion that I have raised concerns about a piece of legislation. If we are going to bring forward the correct pieces of legislation, let us bring them forward. If not, the Government should not be surprised if we try to tack on amendments to address the issues that so many Members across the House feel strongly about.

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Richard Fuller Portrait Richard Fuller (North East Bedfordshire) (Con)
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It is a pleasure to follow my hon. Friend the Member for Cities of London and Westminster (Nickie Aiken), who represents a constituency where many businesses will have to wrestle with some of the implications of the Bill as it passes through and becomes law. I congratulate my right hon. Friend the Secretary of State and the Minister on their preparation of this Bill. A lot of good time has been put in over the past couple of years and good evidence has been presented to prepare the Bill for debate today, and it will be my pleasure to support it.

It is both easier and right to look at this as a national security measure and not so much as an investment measure; we have to deal with the investment implications, but it is important that we get the national security measures right. There has been lots of conversation today about the requirements of the Bill, but I have to say that the evidence of historical examples has not been quite as strong as some of the measures in it. In many cases, this is a precautionary Bill, rather than one driven by the evidence historically. I do not think we want to be too critical of what we have been doing over the past 10 or 15 years. As many Members have said, this Bill is bringing something up to date so that we can deal with the things we think might be coming in the next 10 or 20 years.

I can now see why the Minister has had to thread a needle to try to land this precisely. Many voices, on all sides, have been asking him to extend the Bill. Indeed, the Bill has the potential to be an expansive octopus, given the pressures that might be put on the Government to extend it. I have heard about having a wider national interest test and including more sectors than the 17 we already have. We have talked about a definition of the national interest, which has been portrayed to the Minister as something that might restrict, but, as he well knows, the more precise a definition, the broader it can be in terms of how it is interpreted for others.

There have been many cautionary comments from others about the extension of the Bill into a national industry strategy for the country—that is not the purpose of the Bill. The right hon. Member for Doncaster North (Edward Miliband), the Opposition spokesman, who is no longer in his place, misjudged the Bill in saying that that is something we need to adorn it with. That would be completely inappropriate and it would take away from some of the scrutiny I hope Members will give the Bill as it goes through Committee.

I ask the Minister to be aware of and listen to people on the potential for unintended consequences. We have heard a lot about the decision in respect of Huawei, but he will be aware of the potential for retaliatory measures by us. Please look at the unintended consequences in respect of innovation in some of the sectors that may be affected. In that regard, I just point Members to my entry in the Register of Members’ Financial Interests as an adviser to a technology company.

May we also feed something in from the Government Benches about a pattern we are seeing? As we are bringing forward more regulatory measures and as we take back regulatory powers from the EU, parliamentarians are constantly raising the question of what parliamentary oversight of those regulatory powers there is. It would be useful if Ministers would look at that. I congratulate the Minister on presenting the Bill and I am grateful for the opportunity to make some comments today.