PARLIAMENTARY DEBATE
National Security and Investment Bill (Tenth sitting) - 8 December 2020 (Commons/Public Bill Committees)

The Committee consisted of the following Members:

Chair(s) † Sir Graham Brady, Derek Twigg

Members† Aiken, Nickie (Cities of London and Westminster) (Con)
† Baynes, Simon (Clwyd South) (Con)
† Bowie, Andrew (West Aberdeenshire and Kincardine) (Con)
† Fletcher, Katherine (South Ribble) (Con)
† Flynn, Stephen (Aberdeen South) (SNP)
† Garnier, Mark (Wyre Forest) (Con)
† Gideon, Jo (Stoke-on-Trent Central) (Con)
Grant, Peter (Glenrothes) (SNP)
† Griffith, Andrew (Arundel and South Downs) (Con)
Kinnock, Stephen (Aberavon) (Lab)
† Onwurah, Chi (Newcastle upon Tyne Central) (Lab)
† Tarry, Sam (Ilford South) (Lab)
† Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)
† Western, Matt (Warwick and Leamington) (Lab)
† Whitehead, Dr Alan (Southampton, Test) (Lab)
† Wild, James (North West Norfolk) (Con)
† Zahawi, Nadhim (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)

ClerksRob Page, Yohanna Sallberg, Committee Clerks

† attended the Committee


Public Bill CommitteeTuesday 8 December 2020

[Sir Graham Brady in the Chair]

National Security and Investment Bill

Clause 29 ordered to stand part of the Bill.

The theme of the Opposition amendments is that we wish to protect our national security, and we think that the measures could have been taken earlier. Part of the social contract is that that should be done in a way that is fair, clear and certain for businesses, so that they understand the legislative framework as far as possible, and so that they feel that it is fair and in the interests of our national security and, as part of that, our national prosperity.
Given the broad powers that the Bill gives the Secretary of State, about which we have had some back and forth, it is all the more important that the appropriate support should be there for affected businesses. I will not trespass on your good nature by drawing too many parallels, Sir Graham, but we see in the pandemic under which we are suffering that public confidence in the ability of the Government depends on the right amount of support being available for those who are adversely affected. Clearly, one aspect of that is the Government’s ability to provide financial assistance to an entity where Government intervention creates a position of loss for the entity.
We discussed in relation to clauses 24 to 26 the level of remedies, in terms of an interim or final notification and how they may affect an entity. Let us consider the example of a British start-up in some very important area—artificial intelligence, let us say—that has an investor lined up and is looking forward to expanding its work because of that investor. As a consequence of the measures in the Bill, however, a final order prevents the investor from investing in this fantastic start-up.
Let us say for the purposes of argument that this start-up is based in Newcastle—an excellent area for start-ups and innovation to come from. I should say that a fantastic small business in Newcastle will already have greater challenges in finding finance and investors, because unfortunately many potential investors are apparently put off by a short train ride from King’s Cross. Once the start-up has found a potential investor, under the provisions of the Bill it is identified that such an investment would form some present or future threat to our national security, so the start-up is prevented from raising funding as a direct consequence of the new national security screening regime. We can all imagine—in fact, it does not require imagination; we can simply anticipate––the huge financial challenges that that might create for small, innovative start-ups. Financial assistance is a critical part of making the new regime effective. A key question is why the Government are only creating the power to provide such assistance in the making of final orders, not interim orders.
I asked earlier what the maximum period for an interim order should be, because with the provisions in clause 23 for an initial period, an additional period, a voluntary period and an additional voluntary period, an interim order could last for a considerable time. I asked the Minister whether there was a maximum time for an interim order. Regardless, an interim order could impose major costs on a British start-up or prevent an acquirer from acquiring or investing in one should it increase its level of influence in an unacceptable way. That could cause the loss of business-critical investment. Does the Minister consider that it would be appropriate to be able to provide financial assistance in the case of interim orders as in the case of final notices?
A similar concern applies to more general instances where financial assistance will be critical in securing national security. Has the Minister considered a wider power of financial assistance that would allow the Government to intervene pre-emptively in cases where Government investment could secure strategic assets for the UK, even if a precise trigger event has not occurred? The clause provides for financial assistance when a final order has been made, but has he considered provision for financial assistance before a final order has been made or an event has been called in? I have in mind cases such as OneWeb satellite, where the Government made a major investment just a few months ago to secure, as we are told, strategic assets, yet that was outside trigger events or a case such as bankruptcy proceedings. Does the Minister consider that existing statutory powers are sufficient, and clear enough in law, to provide for such pre-emptive investment? In the case of OneWeb, there certainly was not sufficient clarity about whether the investment was being made for national security reasons or to replace existing investments. There was not sufficient clarity or accountability. Would it not be better to place such investments, which are made in the interests of national security, within the context of the Bill? Would there be a benefit from placing such powers in statute?
Beyond specific events where the amendment would put interim orders in scope, there is a question about the toolkit available to Government for appropriate financial assistance. Clause 30(2) says that financial assistance
That is slightly circular. Will the Minister clarify whether equity investments come under
The Minister is nodding—I am not sure whether that means that he will clarify or that the equity investment is financial assistance—but can he say if it is included in the scope of the Bill or, if not, if it should be. The stakeholders within the artificial intelligence sector have specifically asked me to raise that point.
Where a small business is unable to raise equity investments because of a Government final order, giving it further debt funding might not be any help if the business’s future inability to make loan payments is threatened. Again, in the crisis in which we find ourselves we see the reluctance of business to take on further debt. In those circumstances, loans may not be considered financial assistance. The Government and the Minister need to clarify whether equity investments are part of financial assistance.
The Minister needs to accept our amendment with regard to interim orders or explain why interim orders do not raise the need for financial assistance in the same way as final orders. That is a critical question so that the Government have the powers they need to act decisively and effectively to protect national security, and to do so in a way that is fair to our small businesses.
I point to some of the evidence we heard in the evidence sessions. Christian Boney from Slaughter and May said:
Will the Minister consider whether the Bill, as it stands, addresses that?
Similarly, Michael Leiter said:
We understand that interim orders and assessments can be extended. It is crucial that the Government respond to those points and think hard about how to put into statute more general powers than this equity funding, especially for cutting-edge start-ups with strategic assets.
We share the aim of the Bill to secure our national security and to ensure that assets that are critical to our national security do not fall under the influence of hostile actors. If in so doing we undermine those assets to the extent where they can no longer contribute to our national security, that is effectively an own goal. I fail to see how the provisions of this clause avoid such an own goal. It would be much to the improvement of the Bill and of confidence in small businesses, particularly start-ups in the sectors affected, if the appropriate form of support could be clearly made available.
We are considering clause stand part, too. We recognise the importance of giving financial assistance, which is what the clause sets out to do. With regard to reporting, I would be interested to understand why the sum of £100 million has been chosen. I am not saying I have another sum to suggest, but why that sum has been chosen is something to understand.
I think the impact assessment is cited more for what it does not include than what it does, but again, it includes no estimates of financial assistance that the Government might have to provide and the associated costs that would be incurred. Will the Minister say why the sum of £100 million was chosen?
The clause also says that,
I imagine that a report of the amount could be a very short one—“£100 million”—but I think all of us who have worked in start-ups and in the tech sector are quite aware that although the financial assistance provided is very important, it also very important to monitor its impact. For example, if it is a loan, in what ways will it be repaid and over what time period, and is the investment effective? I may be mistaken, but I do not see anything in the clause that sets out any need to report anything other than the amount. That is not what I would consider accountability. More generally, for a Government who I hope wish to show good practice on investment and taxpayer value for money, having more information on the amount—but also on how it was used, monitored, how it is to be repaid if it is a loan, and its impact—would also be desirable. On that basis, we support the intention of the clause, but we feel it is in need of some significant improvement.

Clause 30 ordered to stand part of the Bill.

As directing the CMA interferes with its independence, we have drafted the clause so as to allow the Secretary of State to give a direction only where he reasonably considers that it is necessary and proportionate to prevent, remedy or mitigate a risk to national security. Furthermore, the power may be used only when a final order under the Bill is in force, or a final notification that no further action will be taken in relation to a trigger event under the Bill has been given. The clause also requires the Secretary of State to consult the CMA before giving a direction.
The amendment tabled by the hon. Member for Ilford South would require the Secretary of State, when publishing a direction given to the CMA under the clause, to set out the reasons for the direction and provide an assessment of its impact on any grounds for action by the CMA in relation to the merger. Let me reassure the Committee that I expect the use of such directions to be rare. Most mergers are unlikely to trigger both competition and national security concerns, and for those that do, the separate processes of the CMA and the Secretary of State will be able to take place smoothly in parallel with each other.

Clause 31 ordered to stand part of the Bill.
Question proposed, That the clause stand part of the Bill.

Question proposed, That the clause stand part of the Bill.

The procedures in subsection (2) relate to judicial review of a “relevant decision”. Relevant decisions are specified in various clauses, and include the power to require information, the power to require the attendance of witnesses, the power to require the attendance of witnesses outside the UK, the discharge of information, data protection, CMA information, and so on. That means that a number of other decisions in the Bill are not covered by this clause, including, for example, decisions to call in a transaction.
My initial question to the Minister—I would be grateful if he intervened on me—is whether those other areas of decision, which are in the Bill but not covered by this clause, are covered by standard judicial review procedures, not covered by judicial review procedures at all, or covered by reference to the Enterprise Act 2002, which has procedures within it that do not appear to refer directly to some of the other decisions in the Bill that are not covered by this clause. Can he clarify what happens to those decisions in the Bill—I have mentioned one: the call-in notice—that are not covered in subsection (2) on what a relevant decisions means? Does he have any guidance that he can give the Committee on that?

Under our current constrained court arrangements, there is no danger of that because court cases are in a serious logjam. However, It serves to put a question mark against how and why the 28-day period was decided upon. Why were these things in particular pulled out and put into the 28 days when other sections of the Bill do not come within 28 days but within three months? What is the rationale behind that?
The amendment suggests that this is probably not a good idea. While it might be seen as redundant in that it says that these sections should not be pulled up and put in a 28-day box, it is probably better for the general principle of upholding judicial review as a reasonable defensive remedy in respect of some of the Bill’s elements to put them back to the standard three-month period. That of course arises because that is what the Government have chosen to do with the Bill. They have chosen to go with standard judicial review proceedings. It would have been possible to write a different form of proceedings into the Bill.
The Enterprise Act 2002 provides for an appeal to a tribunal, which then proceeds along standard judicial review rules but is not the standard judicial review procedure. The Government have not decided to do that, but to do something else. My question to the Minister is why. The question that follows if there is no good answer, is why not just leave it as it is? Why not leave it to the judicial review procedure with three months? That would not cause anyone any real problems but, on the contrary, might ensure that smaller businesses and organisations have a reasonable opportunity to defend themselves and pursue judicial review in the knowledge that they have more than a very small amount of time to get the judicial review procedures together when they wish to mount them.
As I have said, I am sure that it will be a pretty rare procedure, but it is nevertheless important to maintain it in the Bill. I am sure we all agree that it is an important part of UK law that that should be a remedy open to everyone to undertake, as the Minister mentioned. I hope that I will get a compelling argument from him about why this has been done in this way and what advantages outweigh the disadvantages that I have outlined. If he can do that, I hope that it will not be necessary to divide the Committee this afternoon, but I fear that it might be if the argument that comes forward proves on examination not to be as compelling as I am hoping.

Firms that employ very small numbers of people often find themselves tied up in this process. They need to have this remedy available to them in a way that they can genuinely use, so that they are not constrained by the imposition of what is, as I said, essentially an administratively convenient reduced timescale. I do not think that that ought to be in the Bill. For that reason, we need to press the amendment to a Division, to see whether we can restore to the Bill the three-month period in which people can exercise their right to JR.
Question put, That the amendment be made.
Clause 49 ordered to stand part of the Bill.
Question proposed, That the clause stand part of the Bill.

Adjourned till Thursday 10 December at half-past Eleven o’clock.
NSIB03 Joint Working Party of the Company Law Committees of the City of London Law Society and the Law Society of England and Wales