Oral Answers to Questions
Sam Tarry Excerpts(3 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Sam Tarry (Ilford South) (Lab)
The Minister for Business, Energy and Clean Growth (Anne-Marie Trevelyan)
We have introduced safer working guidance so that workers, including gas and electricity meter readers, can continue to work safely during national restrictions. This guidance is kept under constant review and updated in line with the latest scientific evidence.
Sam Tarry
Meter readers can visit between 50 and 200 properties a day, sometimes more in large cities. A large majority of these meter readers and their unions, such as the GMB, do not believe that it is right to enter those properties and put themselves and others at risk for the sake of someone getting an accurate gas or electric meter bill. Will the Minister listen to meter readers up and down the country and call for an end to internal meter readings during lockdown, to protect both meter readers and householders?
Anne-Marie Trevelyan
There was an extensive series of engagements to support the drafting process for the safer working guidance, with more than 1,000 users responding. The safer working guidance has had 3.3 million views, and the evidence shows that it is working well and supporting those who are doing the incredibly important work of keeping utility services going. My door is always open, and I would be very happy to discuss any concerns with the hon. Gentleman and his constituents.
National Security and Investment Bill (Twelfth sitting)
Sam Tarry ExcerptsThursday 10th December 2020
(3 years, 4 months ago)
Public Bill CommitteesRead 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 Amendment Paper: Public Bill Committee Amendments as at 10 December 2020 - (10 Dec 2020)
Brought up, and read the First time.
Sam Tarry (Ilford South) (Lab)
I beg to move, That the clause be read a Second time.
The Opposition’s new clause 5 deals with high- and low-risk acquirers. It would require the Secretary of State to maintain a list of hostile actors, including potential hostile states and allied actors, to allow different internal security to be applied based on the characteristics of the actors linked to the acquirer. I will attempt to explain the exact thinking behind the proposal.
There has been widespread agreement inside and outside the Committee that we face a geopolitical context in which many—if not all—threats emanate from a set of hostile actors or states. In fact, the Government’s statement of policy intent for the Bill recognises that
“national security risks are most likely to arise when acquirers… owe allegiance to hostile states”.
Throughout this process, the Committee has heard from various experts, including experts on China, as well as from lawyers, intelligence chiefs and think-thank experts. They have told us that origin and state of origin should be important drivers of national security screening processes. Indeed, a number of our allies—most notably, the US—exempt some countries, including Canada, Australia and the UK, from some of the most stringent mandatory notification requirements, and include country of origin among the factors to be considered in assessing security.
In that context, it is perhaps quite concerning that the Minister and the Government have not caught up or been thinking about that. In previous expositions, they have simply maintained that national security is not dependent on a particular country. When we debated a similar provision earlier in this process, I think the Minister said the Government were “agnostic” about the country of origin. That could be a mistake, because national security is not exclusively dependent on a single country. It is short-sighted and, frankly, dangerous, not to see threats that are materially country-specific.
As my hon. Friend the Member for Newcastle upon Tyne Central said, the former head of MI6 told the Committee that, essentially, we need to wake up to the strategic challenge posed by China in particular. I will explore that a little more with some specific examples from around the world of China beginning to tap into start-ups long before they are mature enough to be acquired. In Sweden, for example, between 2014 and 2019, China’s buyers acquired 51 Swedish firms and bought minority stakes in 14 additional firms. In fact, the acquisitions included some 100 subsidiaries.
More worryingly, in 2018, Chinese outfits, two of them linked to the Chinese military, bought three cutting-edge Swedish semiconductor start-ups. There is the 2017 example of Imagination Technologies—a top British chipmaker—which was acquired by a firm owned by a state-controlled Chinese investment group. Before that, a Chinese firm also bought KUKA, a leading German industrial robot-maker.
Andrew Griffith
Although this is interesting, I fear we are drifting a tiny bit off the new clause, which does not refer to geography. Given the Opposition’s desire to continue to shade in any ambiguity with greater clarity and the definition in new clause 5, will the hon. Gentleman give his definition of what “regular” would constitute?
Sam Tarry
I thank the hon. Member for that intervention. The word “regular” would clearly need to be defined in a way that did not overburden the new part of the Department that would oversee the regime, but that would provide the information on a basis that enabled the Minister to make decisions, and to be scrutinised on those decisions regularly enough that the regime was effective and did not lead to oversights.
Chi Onwurah
I thank my hon. Friend for his points on the new clause. The hon. Member for Arundel and South Downs may say that there is no reference to geography, but is it not the case that requiring a list of hostile actors might reflect geography as appropriate, and as the geography of hostile actors changes? Does the number of times that we have mentioned one country in particular—China—not indicate that geographical location can be an indicator of the likelihood of hostile actors?
Sam Tarry
Absolutely. This is not about being particularly anti-China, but it is the strongest example of where we have heard evidence of things that are under way. I will continue with a few more examples. I think this is important, because we are trying to draw back the curtain on exactly what is going on.
Simon Baynes
I perceive a similar issue in new clauses 5 and 1: being prescriptive in this way causes problems, because what happens if a new, potentially dangerous, acquirer appears on the scene who is not incorporated within the terms of the measure?
Sam Tarry
I thank the hon. Member for that intervention, which goes back to what the hon. Member for Arundel and South Downs said. That is why this needs to be looked at regularly enough to be on top of the process. Obviously, threats change. Countries rise and fall and their agendas and Governments change, but we know that in some instances countries are actively making moves to invest in technology companies in such a way that might not be caught by some of the provisions in the Bill. We feel that being more stringent here would allow the Secretary of State more powers to keep, in some ways, a better eye on exactly what is going on.
Perhaps I should explain a little what I mean by that. One of the things that we are trying to uncover and drive at with the new clause is the importance of some of the ways in which venture capital firms are being used, particularly by the Chinese and by some companies. For example, in Cambridge and Oxford—two important tech hubs for our country—start-ups are regularly invited to pitch ideas to the Chinese state investment company. Nothing particularly untoward is happening there, but it is quite interesting that Chinese investors are particularly interested in talking to emerging biotech, internet of things, artificial intelligence and agri-tech companies.
Why is China particularly interested in those areas? The publicly available “Made in China 2025” strategy to become an economic superpower says that the first three things that the Chinese are interested in are biotechnology, the internet of things, and artificial intelligence. It is quite clear that there is a specific move by the Chinese—this could be replicated by other countries, whether it be Russia or others—but it is not as obvious as, “This is a state company that is going to come in and invest.” They will be taking part in buy-ins of some of the companies. This is something that has already happened.
Peter Grant
Although I understand the intention behind the new clause, some of the wording concerns me. I supported new clause 1 because it was quite clearly permissive and expansive. This new clause is quite clearly prescriptive. Does the hon. Gentleman not accept that the Secretary of State will be guided day to day, which is much more regularly than multi-agency reviews can happen? The Secretary of State will be guided day to day by advice from the security services and others, not as to the theoretical characteristics of an acquirer that might make them a threat, but as to the actual identity and track record of the acquirer and concern.
In particular, is the hon. Gentleman not concerned about requiring the production of a list of high-risk and low-risk characteristics, or that subsection (3) of the new clause in particular would create the possibility that, at some point, somebody who ticked all the boxes for low risk, but was still a high-risk acquirer, could prevent the Secretary of State from undertaking the scrutiny that was required? Can he even explain, for example, what he means by “greater” and “lesser” scrutiny? How would I interpret whether the Secretary of State’s scrutiny had been greater or lesser?
Sam Tarry
I thank the hon. Gentleman for his intervention. Those are valid points, and part of what we are driving at here is to be more prescriptive. The feeling is that we essentially need to allow the loops in the net to be closed enough such that we catch some of these companies. We do not want a situation where a number of companies have portions of them being owned by, for example, China or another country, and do not fall foul of any of the provisions currently in the Bill. In time, that could mean that countries and entities that were hostile to Britain’s strategic goals ended up having quick and strategic access to things around nanotechnology, agriculture and a range of other areas where they had essentially got their hands into something that I think should be protected far more closely by the UK.
To give an example, in the US—this is already under way—a Palo Alto-based venture capital firm backed by the Chinese Government had dozens of US start-ups in its portfolio. On 15 November 2020, the Office of the US Trade Representative said that 151 venture capital investments in US start-ups had featured at least one Chinese investor—up from 20 in 2010. We are not saying we do not want Chinese investment, but what we do not want is a situation where we are unable to have a grip when we find that loads of our technology companies —our most cutting-edge firms—are essentially all part-owned by the Chinese Communist party or one of its subsidiaries. That is why we have been more prescriptive in many parts of the new clause.
Matt Western (Warwick and Leamington) (Lab)
My hon. Friend is making some important points. One of the striking things about, for example, Canyon Capital Advisors is how the US authorities intervened when it was looking to take over a particular US tech company. However, when it came to Imagination Technologies, of course, the UK Government did not.
Sam Tarry
That is exactly the kind of example on which we are trying to use the new clause to provide more clarity and give more force to the Bill so it can deal with these sorts of thing. If, for example, public investment by Chinese venture capital groups in western countries—whether it be this country or others—is visible but is actually just the tip of the iceberg, that is going to be a real problem. One lesson that Richard Dearlove described clearly to the Committee was that we need to take a longer medium-term view that goes beyond just being the most free-market and economically attractive investment prospect, particularly given the rise of those geopolitical challenges. The Chinese are being explicit about what their goals are. They do not want to build Britain up; they want to take us for as much as they can get. This is about protecting ourselves and ensuring that those smaller things, which may just be going on under the net and may not hit some of the parts on mandatory notices, not the big headline-grabbing things, could be looked at.
I agree with an earlier comment made by the hon. Member for Glenrothes that one problem is that, while we need regular advice from intelligence services and of course it needs to come through to the Secretary of State, having a regularised timeframe in which we know that those things will get full scrutiny is incredibly important. Parliamentarians and the public will want to see if there are any patterns developing in types of investments and the way those investment vehicles are used to buy into some of the most advanced British technology companies.
This new clause does not require the Secretary of State to publish a list of countries; it simply requires that the Secretary of State, working with the agencies, maintains a list of state-driven risks, which feed into national security risks. Our drive, as the Opposition, is our concern that the Minister does not recognise the state-based nature of those major security threats.
If this new clause is accepted, it would provide those guarantees and the extra ability to bring together the agencies that would be able to compile that list of state-driven risks, which can then inform decisions. In that context, it is vital that the country is assured of the Government’s ability to act on intelligence and expertise in protecting British security against hostile actors.
Nadhim Zahawi
New clause 5 seeks to require the Secretary of State to maintain a written list of high-risk and low-risk acquirers, as we have heard, to allow differential internal scrutiny to be applied, by reference to the characteristics of the actors linked to the acquirer, and based on regular multi-agency reviews. I assume that the intention of the hon. Member for Ilford South is that this list would be an internal document, but I would be happy to discuss my concerns about publishing such judgments, if that would be of interest to him.
In order to exercise the call-in powers, the Bill already requires the Secretary of State to publish a statement, which we will discuss later, about how he expects to exercise the call-in power. This statement may include the factors that the Secretary of State expects to take into account when deciding whether to call in a trigger event. Guided by the statement, the Secretary of State will need to consider every acquisition on its own individual facts, as befits the complex nature of national security assessments. In my view, such a list as the one proposed would not, therefore, be the right way forward.
Nadhim Zahawi
I assure the hon. Lady that Her Majesty’s Government do exactly that, but the Bill is deliberately country-agnostic. Indeed, to give parties predictability on small business and to provide for rapid decisions where possible, the regime has clear and strict timelines, as we have heard throughout the debate. Additionally, clause 6 enables the Secretary of State to make regulations to exempt acquirers from the mandatory notification regime on the basis of their characteristics. Arguably, this places the strongest requirement on acquirers, such as where acquisitions by certain types of party are routinely notified but very rarely remedied or even called in. Taken together, these provisions are already a highly adaptable and comprehensive set of tools, so the list and its proposed use would be unnecessary and potentially harmful.
I shall touch briefly on national interests, which the new clause once again references. I have said before that the regime is intentionally and carefully focused on national security. That is specifically the security of the nation, rather than necessarily its broadest interests. This is therefore not the right place to introduce the concept of national interest, which would substantially and, we strongly believe, unhelpfully expand the scope of the regime.
In conclusion, with the strength provided by clauses 1, 3 and 6 already in the Bill, I am of the very strong opinion that the Bill already achieves its objectives. I therefore cannot accept the new clause and ask that the hon. Member for Ilford South withdraw it.
Sam Tarry
As I listened to the Minister, it struck me that one of the witnesses, Charles Parton from RUSI, said:
“Let us not forget that most foreign investment by the Chinese is state owned, so it is not just a fair bet but a fair certainty that any state-owned enterprise investing is fully politically controlled.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 17, Q19.]
That is in part our thinking. One slight contradiction with the Bill is that it does not feel as though it always quite reflects the statement of political intent published alongside it. We support that statement of political intent, so the new clause’s objective was to strengthen the Bill’s commitment to ensuring that the Investment Security Unit is provided with an assessment that recognises the relationship between hostile actors and the countries to which they owe allegiance, which is stated in the statement of political intent.
I hope that the Minister takes time to take stock of what the new clause is trying to do, but on this occasion I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 6
Access to information relevant to national security
“(1) The Secretary of State may by regulations make provision for the call-in power under section 1 to be exercisable by the Secretary of State in respect of circumstances where a person acquires access to, or the right of access to, sensitive information but does not acquire control of an entity within the meaning of section 8 or control of an asset within the meaning of section 9.
(2) For the purposes of this section, sensitive information means information of any form or description the disclosure of which may give rise to a risk to national security.”—(Dr Whitehead.)
This new clause would allow the Secretary of State to regulate to include new trigger events, where a person has access to information relevant to national security, even if the party does not acquire control or material influence over a qualifying asset or entity as a result of an investment.
Brought up, and read the First time.
Dr Alan Whitehead (Southampton, Test) (Lab)
I beg to move, That the clause be read a Second time.
Hon. Members will be sad to know that I have failed in the ballot to be one of the 2,000 supporters to watch Southampton Football Club this Saturday. I will reflect on that, but I have already sat here for much longer than 90 minutes in near-freezing conditions, watching two equally matched teams slug it out together, so I am not too upset about it. That is the last thing I will say about the unpleasant conditions in this Committee Room.
I hope this clause will be seen as helpful to the Secretary of State and as an addition to the armoury of this Bill in dealing with the multitude of different circumstances under which influence may be sought, or technologies and sensitive information may be acquired, as we have discussed. It seeks to give the Secretary of State an exercisable power under the clause 1 call-in powers and it follows on from what my hon. Friend the Member for Ilford South said in the previous debate.
Start-ups may be invested in by venture capitalists, but those venture capitalists may turn out to be bodies that are effectively seeking to gain influence in the start-up or small company, by means of investing in it. They are not seeking to control it, or to control either the entity or the asset, in terms of the meaning in section 8 or 9, but to put themselves in a position where it is pretty impossible for those companies to resist providing information to that limited partner.
In the UK, British start-ups effectively rely on foreign investment. In 2019, 90% of large tech investment rounds included US or Asian investors, according to Atomico’s “The State of European Tech.” There are many circumstances in what we might call our UK venture capital ecosystem in which that kind of sourcing of funds is a regular state of affairs. Venture capital-reliant firms in this country are now receiving millions of pounds from Chinese investors, as my hon. Friend the Member for Ilford South has enumerated for us.
Those venture capital investments do not end up, and are not supposed to end up, with the seeking of material control of those companies. As I have said, it would be difficult—practically impossible—for that venture capital-based firm to deny its limited partner investors access to technological information from portfolio companies. In such cases, especially when limited partner investments in the fund take place after an initial trigger event, those would be missed by the Bill as it currently stands. Indeed, that is made tougher still by the fact that most venture capital funds do not publish the names of limited partners. So the Government would not even know when those investments happen and when access to information passes into potentially hostile hands. That series of circumstances is becoming pretty widespread in the high-tech world, and does not appear to be focused on very accurately by the provisions already in the Bill.
What the amendment seeks to do, as I have mentioned, is enable the Secretary of State—if it is considered by the Secretary of State to be an issue that warrants further consideration—to make regulations for the provision of that call-in power outside the terms of clause 9 of the Bill. I think that is a potentially very positive additional power that would reside in the Bill and would be an additional piece of armoury in the hands of the Secretary of State on the basis of what we think is a continuing expansion of investment which may have malicious intent to scoop up, by that venture capital arrangement, a slice of sensitive information.
I was thinking about the equivalent of Chinese dragons in “Dragons’ Den”, taking a portion of the company in return for having a hand in that company’s investments. In a sense, that is what venture capitalists will do under these circumstances. Although the control of the company, as we see in “Dragons’ Den”, remains very much in the hands of the person who has gone into the den in the first place, the investment in that company is nevertheless a source of very substantial leverage in what the company does, what information it provides and what sensitive information it gives out.
I offer this new clause in what I hope will be seen as a very constructive spirit. The clause endeavours to strengthen the Bill by providing a particular option to the Secretary of State, when looking at the entire landscape of how influence is sought, at how sensitive information may be provided and at how assets may effectively be acquired.
National Security and Investment Bill (Tenth sitting)
Sam Tarry ExcerptsTuesday 8th December 2020
(3 years, 4 months ago)
Public Bill CommitteesRead 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 Amendment Paper: Public Bill Committee Amendments as at 8 December 2020 - (8 Dec 2020)
Nadhim Zahawi
I thought I had made that clear. The Bill strikes that balance between commercial sensitivity and national security.
I return to my reassurance on the importance of considering the public interest. In addition to the general principle that one should avoid amending clauses that, essentially, fulfil their objectives—if it isn’t broken, don’t fix it—I suggest that the Bill is not the place to begin adding references to the public interest. While the Secretary of State cares profoundly about the public interest, this specific regime is intentionally and carefully focused on national security. Although it may be an attractive proposition to certain hon. Members, my strong view is that by introducing ideas of wider public interest into the Bill, we would risk confusing and stretching its scope beyond its carefully crafted calibration. I have a tremendous amount of sympathy with what hon. Members seek to achieve with the amendment but, for the reasons I have set out, I must ask that the hon. Gentleman withdraws it.
Sam Tarry (Ilford South) (Lab)
It is a pleasure to serve under your chairmanship, Sir Graham, in these temperatures, which are positively balmy compared with the Siberian ones that we experienced this morning.
I thank the Minister for his comments, but I would say that there is no stretch too far on national security. It is positive to hear that the Minister agrees that the focus on national security is crucial, and that we are driving at the interests of national security in our amendment.
Chi Onwurah
Was my hon. Friend as confused as I was when the Minister spoke about this Bill not being the place to introduce public interest? The Government, however, have introduced commercial sensitivity. We are not seeking to modify national security; it is the introduction of commercial sensitivity that requires the introduction of public interest. We are talking about modifying the importance of commercial sensitivity, not national security. Will my hon. Friend join me in rejecting the Minister’s assertion?
Sam Tarry
I agree wholeheartedly with my hon. Friend. We have been clear that the amendment is simply about preventing the Secretary of State from redacting notices of final order on commercial grounds, if redaction is contrary to the public interest. The whole point of this Bill is to together public interest, national security and commercial interest because they are one and the same. National security is our highest priority, but in the post-Brexit scenario we want to be a country that is as open and positive as possible towards investment from international partners if they share our values and our objectives of supporting and building Britain. It feels as though the Minister is agreeing with us in part, but he is not prepared to accept this amendment. For that reason, I will press the amendment to a vote.
Question put, That the amendment be made.
Clause 29 ordered to stand part of the Bill.
Interaction with CMA functions under Part 3 of Enterprise Act 2002
Sam Tarry
I beg to move amendment 25, in page 20, line 27, leave out from “in” until end of line 28 and insert
“setting out the reasons for such direction and an assessment of the impacts on grounds for action that may have arisen under Part 3 of the Enterprise Act 2002”
This amendment would require the Secretary of State to set out reasons, and an assessment of the likely impacts, when publishing directions under this section.
Sam Tarry
The amendment would require the Secretary of State to set out the reasons for and an assessment of the likely impacts of published directions under the provisions regarding the Enterprise Act 2002. That is incredibly important because, in one respect, the Bill creates a radical shift by taking the merger control process, which is currently located primarily in the Competition and Markets Authority, and creating an alternative centre for merger control in the new investment security unit in BEIS. That is a big shift. We are trying to focus on setting out the reasons, and an assessment of the likely impacts, when directions come out of the new unit.
I want to expand a little on this. We have a series of reasons for intervention in investment and merger scenarios, such as national security, competition, financial stability, media plurality, public health—the list goes on. Having a single centre for merger control in the CMA helped ensure, partially, that the different reasons for intervention were considered coherently. At the very least, they were coherent as a package, ensuring that where, for example, national security demanded one solution, competition remedies did not force another. The multiple centres that the Bill creates make coherence more challenging. This is about ensuring that the process is as smooth as possible.
The Government must clarify how they intend the CMA’s merger control process to align with their new national security screening and approval process. That is particularly important when we reflect that the Government consultation process currently indicates that national security reviews will be run in parallel with CMA assessments and that the Government will cover interaction between the CMA regime and the new national security regime in a memorandum of understanding. Unfortunately, there is no specific indication of when this will happen. The amendment pushes for clarity now and for statutory accountability when a Secretary of State could otherwise undermine the CMA or take a decision that is contrary to something it will bring forward.
In relation to the Enterprise Act 2002, public interest intervention notice regimes allow the Secretary of State to direct the CMA to ensure that it does not inadvertently undermine the Secretary of State’s decision on national security in addressing competition concerns. The power to undermine the CMA is not in itself a problem, but it is about the accountability—that is what we are trying to drive at here. In the face of a vastly extended set of powers for the Secretary of State, the amendment would provide important clarification.
Previously, the CMA had a good reputation with business for independence and for reasons and rules-based decision making. We are really keen that that is continued, and that is what the driving force for this amendment is. For that reason, we seek greater accountability from the Secretary of State. The amendment would require that whenever the Secretary of State subordinates the CMA’s decision-making process, the reasons for doing so are published alongside an assessment of the impact in terms of whatever reasons the CMA would have had to act under its part 3 powers, whether that be competition, media plurality or quality, financial stability or, as I mentioned earlier, public health.
This is about the smooth and rational alignment of the merger control process. That is important for the integrity and impartiality of our national merger control processes and so that business can have certainty that these will be fully aligned. The question I would really like the Minister to answer is about the assurances the Government can give on providing specific, timely guidance on how many different parts of the merger control process will now work. How will the combination of the new unit and the pre-existing regime produce the guidance, and be driven by Government to do so, in a timely fashion? One thing that businesses are certainly seeking at the moment is assurances that things are set out as early and as clearly as possible. If that happens, it will allow businesses to plan in a much better way. For those reasons, I would like to hear how the Government plan to bring those two elements together.
Nadhim Zahawi
With your permission, Sir Graham, I will speak initially to clause 31 stand part, before turning to amendment 25. As the Bill separates out national security screening from the competition-focused merger control regime, we must, I am sure colleagues agree, ensure that the two regimes interact effectively, while also maintaining the CMA’s operational independence in relation to its merger investigations.
A trigger event under the Bill which is also a merger under the Enterprise Act may raise both national security and competition issues. Not having a power to avoid conflict between the two regimes raises an unacceptable risk for businesses’ operations and, of course, the Government’s reputation. The United Kingdom has a deserved and hard-earned reputation for being a dependable place in which to do business. Transparent regimes are fundamental to building and maintaining this reputation and fostering trust between Government and business.
Currently, under the Enterprise Act 2002, if both national security and competition concerns are raised, the CMA provides a report to the Secretary of State, who would then have the final say on how best to balance national security and competition concerns. This clause will ensure that the Secretary of State continues in his vital role of balancing national security and competition concerns. We will be able to avoid the risk of undue regime interference by maintaining regular and open channels of communication with the CMA.
There may, however, still be a risk that parallel investigations for national security and competition reasons reach conflicting conclusions. That may be particularly true in terms of the remedies required to address national security risks and competition concerns respectively. To remedy that issue, the clause enables the Secretary of State to direct the CMA to take, or not take, a particular course of action. The obligation on the Secretary of State to publish any direction given ensures that the decisions will be transparent, and provides certainty for all parties.
Nadhim Zahawi
I was merely pointing out that there was no merger. The hon. Lady will forgive me: she is correct, but I did say that it is a rare occurrence. That is the point that I was making to the Committee.
The amendment seeks to impose a requirement to publish the reasons for giving a direction. We do not think that that is necessary. The clause already requires the Secretary of State to publish a direction in the manner that he considers appropriate. I do not think that I would be disclosing too many state secrets were I to speculate that that would be published on gov.uk. That is a reasonable bet. In many cases, I envisage that it is likely to be accompanied by a high-level explanation, but it is right that the Secretary of State should be able to decide what is appropriate on a case-by-case basis.
The amendment also seeks to require publication of an assessment of the direction’s impact on any grounds for action under part 3 of the Enterprise Act 2002. I have two points to make to the hon. Member for Ilford South. First, such a duty would not be appropriate in all cases—for example, where a direction simply required the CMA not to make a decision on competition remedies until a national security assessment had been concluded. The amendment as drafted would still require an assessment to be published in those circumstances.
Secondly, the predominant impact on grounds for action will of course relate to competition. The CMA is the independent expert competition authority, and nothing in the clause as drafted would prevent it from publishing its own assessment of the impact of a Secretary of State direction on the possible competition issues of a case. The clause also requires the Secretary of State to consult the CMA before giving a direction, so it will be able to inform him of the likely impact and he can factor that into his decision whether to give the direction. I believe that is the right approach and while I understand the hon. Member’s motivations in tabling the amendment, I urge him to withdraw it.
Sam Tarry
One of the questions that sprang to mind while listening to the Minister’s answer was: if there are conflicting remedies, which of security and economic competitiveness would the Secretary of State decide had primacy? In drawing the matter out as clearly as possible, we have seen that one of the issues with telecoms and Huawei was that the primacy of economic competitiveness was viewed as paramount over security. The Bill is not clear about the framework for assessing primacy when it comes to security. We have argued throughout that security needs to be the primary focus, and sometimes that will mean economic competitiveness taking a slight hit. However, we think this is about protecting our long-term economic interest.
Nadhim Zahawi
I want to reassure the hon. Gentleman. He asks whether the Secretary of State can override the CMA’s assessment. To give him some clarity, the power to direct may be used only if a trigger event has been called in for assessment under NSI and either a final order has been enforced or a final notification of no further action has been given. That is stage 1. To direct the CMA without a trigger event having first been called in and assessed would not be either reasonable or proportionate, in the Government’s view. However, if a merger is considered to be crucial in the interests of national security after an assessment, no competition concerns should be allowed to prevent it from continuing or remaining in place. I hope that offers him that reassurance.
Clause 31 ordered to stand part of the Bill.
National Security and Investment Bill (Fourth sitting)
Sam Tarry ExcerptsThursday 26th November 2020
(3 years, 5 months ago)
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Nadhim Zahawi
Q
David Offenbach: I am very pleased with it. It is much better than the previous regime, because now, rather than just having post-offer undertakings that are subject only to contempt of court criteria if they are breached, we have a proper statutory framework that will enable the Minister to impose orders so that for non-compliance, there is a breach of statutory duty, not merely a breach of an undertaking. Of course, one of the problems with the takeover code is that the object of a takeover code is to protect shareholders and to encourage fair dealing in takeovers. It is not there—and this has never been its job—to protect the public interest; it is there to protect the shareholders who are in receipt of an offer, so that they have been given fair treatment. For example, if you take SoftBank and Arm at the moment, we do not know whether or not they will have complied with their post-offer undertakings when the five years is up, because the price that is being paid now is more than was paid in 2016. There is no complaint. Public interest is irrelevant to the job of the takeover panel, which is why this new regime is a very welcome improvement on the old regime.
Sam Tarry (Ilford South) (Lab)
Q
For me, there is something really important we need to explore a little bit more when it comes to our approach, in terms of rushing to be the most open, the most liberal, the most pro-business country we can possibly be, and the exposure that is left—in this case—to China. Just thinking about that, are there particular areas of law that you think need to be tightened up and thought about alongside this, and that need to be looked at in tandem, perhaps around IP protection, licensing and that kind of thing?
David Offenbach: I think this actually does most of what is necessary. I do not think it needs to be improved in that regard. One thing that does slightly worry me is that the present regime, which is essentially a competition regime, has the Competition and Markets Authority as a statutory body, having lost national security to the new unit that will be set up inside BEIS. They only have financial stability, media plurality and public health, which was added this summer, but it is a proper organisation that deals with public interest in those areas. Public interest is the only area.
It is quite important for us to think that one of the reasons why one wants to extend the definition of national security to a public interest element is because there are many more areas of public interest, other than those three that are now left in the CMA. There is a little bit of an anomaly, because national security does not have its own separate statutory body to deal with these issues. It suggests that this is going to be put into a little hole somewhere in BEIS and that somehow competition is more important than national security, because it has a statutory body.
I wonder whether there should be a parallel statutory body, which could be called the national security investment commission, or something like that, that actually dealt with these things separately, outside BEIS. That would deal with some of the objections that people have and that a Minister is going to be lobbied about. It would be dealt with in more of a quasi-judicial way, in the same way that the CMA now deals with referrals to it. I wonder whether the Minister would like to consider that, as part of the amendments.
Sam Tarry
Q
David Offenbach: I listened to and read the Second Reading debate in the House of Commons last week. I know that a lot of Members were concerned to try not to let issues of industrial strategy stray into areas of national security. It is a subject that I do not really want to go into.
Some people have expressed anxiety about the activities of sovereign funds in other countries posing dangers to assets in this country. Is there more of a risk from investments in China? Somehow, people feel that those investments are connected with the Government and that they are not really independent. I think the necessary protections are in this new statute that will prevent that from being an issue.
So far as industrial strategy is concerned, people are worried about sovereign funds. I think Britain should have its own sovereign wealth fund, like Norway does and like we used to have with the Industrial and Commercial Finance Corporation, and then with 3i. There are amazing investments that could be made and wonderful technological discoveries that Britain should be able to get the profits from, and that should not be going overseas. When I went on a trade visit to China a few years ago, I saw the China Investment Corporation. They said, “We are really pleased with our investment in Thames Water. We do nothing every year. The dividends come and it doesn’t cost us any money.” I thought, “Why shouldn’t Britain have the advantage of the dividends, rather than the China Investment Corporation?” Norway’s sovereign wealth fund is worth more than £26,000 for every citizen in Norway and is one of the most successful. That is something that really we ought to look at.
Simon Baynes (Clwyd South) (Con)
Q
David Offenbach: Yes, I am.
National Security and Investment Bill (Third sitting)
Sam Tarry ExcerptsThursday 26th November 2020
(3 years, 5 months ago)
Public Bill CommitteesRead 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 Amendment Paper: Public Bill Committee Amendments as at 26 November 2020 - (26 Nov 2020)
Nickie Aiken (Cities of London and Westminster) (Con)
Q
Lisa Wright: In many ways, the regime just brings the UK into line with major international peers. From that perspective, for people doing deals around the world who have already experienced those other regimes, it ought not to have any real negative impact at all, provided that BEIS can deliver on the aspiration set out of a slick and efficient regime, turning around notifications within sensible deal timeframes and providing the kind of informal advice and early engagement promised. That will be critical, particularly in the early stages of the regime. From that perspective, I do not think this should have a long-term negative impact on people wanting to do deals in the UK. As Christian was mentioning earlier, it may be a slightly different picture for the start-ups and the smaller companies where they are caught up in the mandatory sectors, but overall I think it is right that this can be viewed as the UK bringing itself into line with what else is going on around the world.
Christian Boney: I agree with that. That is the right assessment.
Sam Tarry (Ilford South) (Lab)
Q
Lisa Wright: It is certainly worth considering. I would imagine that those sorts of considerations will be going through the mind of the officials and the Secretary of State tasked with making these assessments and issuing the decisions. I can see there may be some sensitivities and a desire perhaps not to make that all transparent in terms of public documents. Perhaps they think they will deal with it over time through this engagement and, with advisers and parties coming to talk to them, you will get a sense of who is okay and who is not that. But I can see that perhaps they will not want to put that down in very great detail on a public piece of paper, not least because one might imagine it could change over time. I guess there needs to be a degree of flexibility to recognise that.
Christian Boney: I agree. I am certainly not a CFIUS expert, but my understanding of the exempt list of countries is that actually the practical impact is quite tightly drawn. I do agree with Lisa. I think we are likely to get the best sense of those countries that are viewed as more risky than others through the engagement process and as people’s experience of the regime develops.
The Chair
We are almost at the end of the time available for this session, so there will be no further questions for these witnesses, but thank you, Ms Wright and Mr Boney, for being so generous with your time and assisting the Committee so much. We will now move on to the next witness—either we will suspend the sitting briefly until everything is sorted out or we will move seamlessly on—but thank you both very much.
Examination of Witness
Professor Ciaran Martin gave evidence.
National Security and Investment Bill (Second sitting)
Sam Tarry ExcerptsTuesday 24th November 2020
(3 years, 5 months ago)
Public Bill CommitteesRead 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 Amendment Paper: Public Bill Committee Amendments as at 24 November 2020 - (24 Nov 2020)
Nickie Aiken (Cities of London and Westminster) (Con)
Q
Michael Leiter: Right now, it is a very robust list. In fact, I would probably err on the side of going in the other direction. I think this is a good list of 17, but what is critical is that these sectors gain further definition about what this actually means. Let me give you a quick example: artificial intelligence. I invite you to go online and try to find more than 10 companies in the world right now who are doing well and do not advertise their use of artificial intelligence in one way or another. It is one of the most commonly used marketing terms there is: artificial intelligence and machine learning, all to serve you in your area of work. If one interprets artificial intelligence as encompassing all those businesses, there will be a flood of reviews. Now, if one focuses on those companies not using artificial intelligence but actually developing artificial intelligence, I think the definition of the mandatory sector will make much more sense. That is an area where I think the US is still finding its way. As Dr Lenihan noted, the US began with a set of listed sectors where transactions were more likely to be mandatory. They eliminated that and now focus purely on export controls, but again, it is not that a company uses export control technology; it is that it produces export control technology.
That may be too narrow for your liking, but if one mapped out your 17 sectors as currently described to their widest description, I think there would be very little left in the UK economy, except for some very basic manufacturing and some other services that would not be encompassed. This is a very broad list and, again, I think it will take some time to tune those definitions so they are not overly encompassing. Again, if you look at data infrastructure, communications, transportation —at their extreme, that is quite a broad set of industry descriptions.
Sam Tarry (Ilford South) (Lab)
Q
Michael Leiter: Thank you for your question. I will do my best to provide some advice. I do so with some hesitation, because I readily accept from my experience working with the US and the UK that although we are related, we have two very different systems. The scale of our Governments and the scale of our private sectors are different, so one should always be very careful of trying to learn lessons from any other single country.
First, I would try to take this incrementally. This is a very big step and in trying to predict second-order and third-order effects of this—both the security effects, which may be positive, and the economic effects, which may not be as positive—I would tread carefully. I would start narrowly, then open up the aperture as necessary, rather than opening up quite wide and then narrowing it down.
Secondly, I think it will take some time, and not only to develop the administrative capabilities to handle this volume within the Government. I think you would have a significant amount of learning to do within your private Bar as to how this works, but also how to manage those voluntary filings. You are talking about including voluntary notifications across the economy, which I think is quite a sensible approach, but that requires a degree of collaboration between the UK security sector and the Secretary of State and the UK private legal Bar and commercial sector to understand where those national security threats and risks may lie. This is something that has developed in the United States over the past 20 years, but does not, in my view, yet exist fully in the UK.
Next, I would say that it is very important to consider how this should be applied for limited partners in private equity. Private equity plays a massive role both in UK and US investment and having clear rules about limited partners and the rights that may or may not implicate non-British ownership in those private equity funds is a very important step to take and one that should be clarified up front. It should not be approached without further clarification.
Lastly, I think it is important to build into the scheme the ability to evolve as technology evolves. I heard some of the questions about social media during the previous panel and it would have been very difficult to understand the sensitivities that are implicated by social media 10 years ago, or perhaps even five years ago. The ability for the review and notification to evolve with changing technology, access to data and new national security threats is critically important. The regime should be a living one that will evolve with those changed political or technological circumstances, not one that keeps still.
Sam Tarry
Q
Michael Leiter: Having worked with some of them, I think you have some outstanding individuals in some of the relevant Departments who can look at this matter. I believe that they will have to increase their interaction with the security elements of Her Majesty’s Government in a way that does not perhaps yet fully exist. The departments and agencies that I worked with while I was in the US Government were generally fairly separate from these sorts of investment review, and it will be necessary for training among those agencies to ensure that there is an understanding of the nature of acquisitions and investments in the private sectors in a way that security agencies do not yet fully understand it. Teaching the economic agencies about those security concerns will also be necessary. I think that the Government will need an initiative to make sure that there is a degree of integration across Her Majesty’s Government based on an understanding of those cross-fertilisations, which will take some period to take hold.
Andrew Griffith (Arundel and South Downs) (Con)
Q
Thank you for joining us, Mr Leiter. It is invaluable to have a practitioner’s perspective as we make legislation; that is something I would like us to do more often. I wanted to ask about your practitioner experience with respect to two things: first, the inclusion in the Bill of personal criminal sanctions and, secondly, its behavioural impact, from the point of view of attorneys and lawyers advising clients, on the likelihood of notification.
Michael Leiter: Let me answer that with two points. First, there is clearly an educational process when such a new regime comes into place for bankers, attorneys and business people. This regime will take some time for them to understand as well, but I think that the UK, like the US—I have already drawn some distinctions about the risk of reducing investment in both countries—remains overall one of the most attractive places to invest in the world. One of the reasons it is so attractive is that it has a strong rule of law and courts system, and clear legislation. In that regard, those who would come and invest in the UK very much understand the need to comply with these regulations, and criminal and civil penalties.
What we have seen in the United States is an appreciation, even if there was some initial shock at the scope of the review and what might be considered a national security concern, and a very robust understanding that we at the Bar and our clients have developed about the importance of these reviews and compliance with the legal regime that applies. I do not see any likelihood of, or reason for, the same not taking hold in the UK. I find that my clients are quite appreciative of the counsel we give them, whether it is related to the US or a UK foreign investment. Overall, I think that the concern tends be less about personal criminal liability, although such concern undoubtedly inspires some, and more about the ability to continue to have good, strong, open relations with regulators in the country in which business is being done. That is critical.
The second piece I would commend you on, which is much better than the US system, is that the Bill provides for a very full and complete review by your courts. That is quite positive, especially with the change that will have to be implemented by the Government. The fact that there is an ability to turn to the courts for review is central and important. As you may know, that is not nearly equivalent in the United States. The ability to pursue remedies in the courts in the context of CFIUS is actually quite narrow. On behalf of my clients, and for improvement of the system, I am quite jealous of your approach on this front.
Peter Grant
Q
David Petrie: I suspect that would be the corollary of that, yes. We are probably dealing with a relatively unusual set of circumstances here. It rather assumes that the shareholders of the British company are absolutely determined to sell or take investment from an entity where its ultimate ownership is quite difficult to identify. We are dealing with quite an unusual situation—not unprecedented, certainly, but relatively unusual. I do not know what resources the new unit will have at its disposal, but given that this is relatively rare and is a question of national security, I would expect that the Secretary of State would ask it to use whatever resources are necessary to gain the information it needs.
I hope—again, we will see—that the closed doors process for the judicial review, should it come to that, would enable national security to be protected, so that if there were some other breaches as a result of the investigation, or if explaining how we found out what we know caused a breach in national security elsewhere, that problem could be resolved. I am comfortable—I think that would be the right expression—that those difficulties can be dealt with in circumstances in which the absolute preferred option for the company is to take investment, but I have to say that I think those circumstances would be relatively rare.
Sam Tarry
Q
David Petrie: Yes, I have. The Government have been very clear about the need to bring this legislation on to the statute book, and they have done so through the Green and White Papers. When consulting on the White Paper, they sought opinion from a very broad spectrum, including business groups, businesses, the investment community and so on. They have set that out in the response to the consultation.
The next consultation is the one on the sectors within the scope of the mandatory regime, and the next month or so is going to be a very important stage in this process. Defining those sectors in a way that market participants understand and that does not trigger manifestly unnecessary notifications is going to be very important, and we look forward to engaging in that process, as does the legal and investment profession and British business.
Sam Tarry
Q
David Petrie: Yes, that is an important consideration. I hope that if small businesses have limited resources, that is recognised by the new unit, and that smaller businesses are able to have an open dialogue with it, and can say, “This is what we do, and this is what we need the money for. We are going to need it quite quickly because we are running out of money.” If the unit is able to give unequivocal guidance very quickly, that would be very helpful.
I would also say that the new unit should not treat the 30-day turnaround for a mandatory notification as the target. The target should be to respond as quickly and efficiently as it can, and in such a way that does not cause difficulty or distress for small and medium-sized companies. A five-page form for a small or medium-sized company seeking investment for a UK or a relatively straightforward overseas entity is not a terribly burdensome obligation. I hope that it will be possible for them to find their way through that at relatively low cost.
The Chair
I do not think there are any more questions, so once again I thank you, Mr Petrie, for generously giving your time to assist the Committee.
David Petrie: Thank you.
Examination of Witness
Chris Cummings gave evidence.
National Security and Investment Bill (First sitting)
Sam Tarry ExcerptsTuesday 24th November 2020
(3 years, 5 months ago)
Public Bill CommitteesRead 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 Amendment Paper: Public Bill Committee Amendments as at 24 November 2020 - (24 Nov 2020)
Sam Tarry (Ilford South) (Lab)
Q
Sir Richard Dearlove: You are talking about allied countries?
Sam Tarry
Obviously, if you are involved in global universities, for example, there will be some countries that we want to keep a much better relationship with, and whose students our intelligence services will have to monitor less.
Sir Richard Dearlove: There is definitely a graded difference in, let us say, our burgeoning relationship with India, but India can also raise some strategic security concerns for us. It has not always been entirely friendly, and bear in mind that it has quite a sophisticated weapons programme of its own. However, it would be wrong to treat India in the same way as you treat China; I agree that there is a gradation of treatment.
The Chair
That brings us to the end of the time allotted for the Committee to ask questions. On behalf of the Committee, I thank our witness very much for his time.
Before we finish, I want to read a message out to Members. I would appreciate it if Members did their best to arrive in the room a few minutes before this afternoon’s sitting starts at 2 pm, to ensure we can be seated in a socially distanced manner so that everybody remains safe.