PARLIAMENTARY DEBATE
National Security and Investment Bill - 20 January 2021 (Commons/Commons Chamber)

[Relevant document: Oral evidence taken before the Defence Sub-Committee on 14 December 2020 on Foreign Involvement in the Defence Supply Chain, HC 699.]
Consideration of Bill, not amended in the Public Bill Committee
Brought up, and read the First time.

Following the Committee stage of the Bill, the Competition and Markets Authority has chosen to investigate that takeover. That is, shall we say, interesting to put it mildly. Photonics-Huawei, DeepMine-Google, Arm-Nvidia, the failed Pfizer-AstraZeneca attempt, Cobham, GKN, Huawei-5G—failure after failure after failure, despite reminder after reminder. Twelve national security screens in 18 years and not one instance of the Government acting decisively to block a takeover and guard our national security.
Of course, it is not only the Labour party that has led the debate. It has been led by every ally of ours abroad, too. The US updated its rules in 2018. Germany did so in 2018. The European Union proposed new rules in 2017 and Labour has called for them persistently. It is not just in politics, I am afraid to say, that the Government have lagged. They have lagged in expert advice, too. We heard in Committee from our recent chief of MI6, who described the Government’s approach till now as “incredibly naïve” and noted that, “It was completely ridiculous” that we were considering handing our 5G network over to Huawei. So, while the Government are years behind our allies, years behind Labour’s calls to protect national security and years behind security expert advice, our approach today on the Bill is one of support—indeed, urgent support. Britain has needed a robust national security and investment regime for many years now, as the world’s post-financial crisis has brought with it rapid geopolitical, technical and economic shifts.
The Bill has come too late for some threats. It is our resolve to not let it be too little in acting against future threats. We will take the Government to task for ongoing omissions, incompetence and neglect of our national security; foremost is the protection of British citizens and British interests. The Government’s impact assessment for the Bill notes the need for change. It regrets that national security is an area of market failure requiring that the Government do something about it. That is an astonishing claim. National security is not a private concern first and a Government afterthought second. National security is the first reason for Government. It is not undersupplied by the market; it is outside the market altogether. Labour’s first principle of constructive support is to stop the outsourcing of our security. We do not want ministerial free market ideology to threaten our national security. Our approach is to bring together legal powers, multi-agency expertise and proper decision making to put British security first.
In implementing the Bill, we want to champion support for the engine of our national growth and our national prosperity, our small and medium-sized enterprises and innovative start-ups. The impact assessment noted that 80% of transactions in the scope of mandatory notification under the Bill will involve SMEs, but it fails to consider the costs faced by the acquired companies, or the overall impact of funding for our start-ups. The Opposition will not turn a blind eye to these costs for our small and medium-sized enterprises, so our new clause 6 and amendment 7 would plug gaps left by the Government’s incoherent policy making to champion British creativity and innovation. It is the least our small and medium-sized enterprises deserve.
The Telecommunications (Security) Bill is also making its way through this House, as the Chair of the Intelligence and Security Committee mentioned. That Bill seeks to encourage new entrants and homegrown telecoms capacity, as a diversified supply chain is essential to the security of our networks, and we will not achieve that if we cut off investment funding for SMEs.
In guarding our national interest and championing our small and medium-sized enterprises, we stand for effective scrutiny of the Government. The last decade tells us that our security is too vital to be left to Ministers alone. Never again. We must have proportionate, robust and democratically legitimate means of seeking accountable action to protect our national security.
We have heard expert evidence on the risk of this new regime opening up to lobbying, short-termism and inconsistent decisions, so our new clause 7 would stand up for scrutiny by the ISC, and the ISC would stand up for competent, coherent decision making.
These principles—national security, SME-driven prosperity and effective scrutiny—drive our amendments and new clauses, which I will now go into in a little more detail. This is the National Security and Investment Bill, and national security goes to the heart of what we are considering. It also remains an unanswered question for Parliament, for businesses looking for clarity, for our citizens seeking assurance, and for potential hostile actors who seek to take advantage of any loopholes in how the Secretary of State construes national security.
I have some sympathy with those who argue that we should not prescribe what national security is, for to do so would be to limit the Secretary of State’s flexibility to act. That is right. We should not put down a rigid definition of national security that rules things out, and that is the spirit in which new clause 5 has been tabled. It does not rule out the Secretary of State’s flexibility and it does not present a rigid definition; it simply does what other countries have done well and experts have sought. It guides to some factors that Government might consider, while allowing many more to be included in national security assessments.
Doing so is critical for businesses puzzled by the Government’s very high-level definitions of espionage, disruption and inappropriate leverage. It gives greater clarity for citizens who are worried about whether the Government will act to protect critical data transfers or our critical national infrastructure, even where those are not covered by the Government’s proposed 17 sectors. It provides assurance and, for hostile actors, it sends a clear message that we will act to protect British security with broad powers applied with accountability.
The factors highlighted in new clause 5 are comparable to guidance provided in other effective national security legislation, most notably by the US Foreign Investment Risk Review Modernization Act 2018. I will not go through each factor, but I will highlight two features of the new clause.
First, new clause 5 takes the Government’s existing analysis and puts it into action. It echoes, for example, what we read in the Government’s statement of policy intent, which says that national security risks are most likely to arise when the acquirers are hostile to the UK’s national security or when they owe allegiance to hostile states.
The origin and source of threats do matter. We had the previous chief of MI6 tell us in Committee about Chinese intelligence organising the strategic focus of both Chinese commerce and Chinese academic study in ways that are challenging to identify unless we have regard to the country of origin of those parties. The new clause takes our security context seriously and would signal to hostile actors, especially through subsection (c), that we will act with seriousness, not superficiality.
Like the Government’s focus on critical national infrastructure—CNI—more broadly, subsection (b) bridges the gap between the Government’s defined sectors and focus and the critical national infrastructure that we already define and focus on in our wider intelligence and security work. It would also bring us into line with allies. For example, Canadian guidelines list the security of Canada’s national infrastructure as an explicit factor in national security assessments. In the US Committee on Foreign Investment in the United States case, Congress listed critical infrastructure among one of six factors that the President and CFIUS may assess.
The new clause is identical to new clause 4, tabled by members of the Foreign Affairs Committee, which has done a great deal to bring scrutiny and rigour to our national security concerns. Its report yesterday was extremely helpful. I pay tribute to the Committee and its members, led ably by the Chair, the hon. Member for Tonbridge and Malling (Tom Tugendhat). With that principled and cross-party support, the new clause would show the world that the UK is serious about national security. We must protect our national security against threats at home and abroad. We must build our sovereign capability in the industries most strategically significant for our security. We must view security in the light of modern technological and geopolitical threats. None of these constrains the Government’s ability to act; they simply sharpen the clarity of that action and its signal to the world.
Our substantive new clause 6 builds especially on our desire to boost small and medium-sized enterprises. As Members across party lines recognise, the Government announced a radical change in the UK’s national security screening regime, applying it retrospectively, with little to no guidance to accompany that change. SMEs are scrambling around to understand how they can engage with the Government on changes that already apply, so we propose a dedicated SME unit. Some 80% of the weight—the mandatory notifications—of the new regime will be borne by SMEs. The screening will also be most challenging for them. SME funding rounds, especially for tech start-ups, are often the quickest, lasting just a few weeks, so a 15-week screening process would be a huge challenge in that timeline.
The Minister may say, as I think he did at Committee stage, that the burden is actually on the acquirer and not the acquired company, but he must recognise that a small start-up seeking funding will be expected to understand whether that will have implications for the funder when it comes to national security. SMEs do not have the deep pockets to fund a deep bench of advisers to help them navigate the Government’s unclear process. In that context, we must respect the weight we are placing on our most innovative start-ups, and we must react by easing that burden. A dedicated SME unit would do just that. Unlike the Government’s slow and unclear action, it would ensure prompt, accessible guidance, as industry experts have demanded, and would engage with SMEs prior to formal processes, easing the burden of processes.
Where possible, the unit would work closely to ensure assessment periods align with funding rounds—a critical point—rather than thwarting them. Subsection (b) would further encourage regulatory sandboxes and clear guidelines for early engagement, so that innovative SMEs can benefit from efficient regulatory engagement, just as the Financial Conduct Authority has done for the UK’s world-leading FinTech sector. Where there is cause for complaint, as would be expected with a new, radical shift, the SME unit would play the supportive mediator. The Opposition stand for robust powers to guard our national security and for change that backs our best small businesses and our capacity for innovation. Both of these goals are possible; indeed, they are mutually reinforcing.
Let me now highlight Opposition new clause 7, which is essential both for our national security and for effective scrutiny. The new clause continues our approach to the security threats we face, which is to push for broad, robust powers of intervention, but powers that are held to account by Parliament and through transparency. Under the new clause, the Government would provide Parliament’s trusted Intelligence and Security Committee with an annual security report capturing a major thematic summary of the types of threats uncovered by the new investment screening.
The Chair of the ISC has himself ably set out the reasons for that improved scrutiny; all I would add is that our international allies do exactly that. In the US, for example, CFIUS—the Committee on Foreign Investment in the United States—has to produce annually a non-classified report for the public, but alongside that it publishes a classified report for certain members of Congress to provide them with security details, allowing congressional scrutiny while retaining sensitivity of information. New clause 7 would require the Government to publish alongside the public report an annual security report to the ISC. I understand, I hope, that the Government may bring forward a clause with the same effect as this new clause, and I look forward to a commitment from the Minister on that.
I turn to our final amendment, amendment 7, which would put into practice our principle of effective scrutiny. During our debates on the Bill, including in Committee, Members from across the House have questioned and raised concerns about the capacity and capability of the new investment security unit to deliver on the Bill’s ambition. Experts have added to that concern, describing a “seismic” and “totally transformational” set of changes that will require a thoroughly resourced unit that is especially prepared to work closely and efficiently with innovative start-ups.
Amendment 7 turns those concerns into accountability. It holds the Government to account on three important fronts: first, on the efficiency of the unit, by reporting the aggregate time taken for decisions—both assessment decisions and initial acceptance or rejection of notices—we will have a mechanism to ensure that the new regime is working efficiently for SMEs; secondly, on capacity, by taking stock of the resources behind the unit’s work, Parliament and the public will have a mechanism for holding the Government to account for what will be a major new centre for merger and investment screening in the UK; and thirdly, by tracking the SME focus of the unit’s work, we will be able to highlight specific concerns and experiences of our most innovative start-ups in interacting with the new regime. Each of those measures maintains the Government’s power to act but simply holds that power to account through transparency.
I will conclude with some brief remarks on the other amendments and new clauses that have been tabled, in addition to new clause 4. On the further amendments tabled by the hon. Members for Aberdeen South (Stephen Flynn) and for Glenrothes (Peter Grant), new clause 2 aligns with what we propose as one part of our wider SME support in new clause 6, so I hope both Members will support our proposals. Amendment 2, which focuses on debt holders and supply chains, is also partially covered by new clauses 4 and 5, but we will be interested in the Government’s response to the call for debt holders to be included in the scope of the Bill—this was discussed in Committee—where such holdings can result in some access to influence or information not included under the material influence criterion of the Bill. Finally, we remain interested in scrutiny of the impact of the Bill on academic research spin-offs, and we might even suggest including that in the reporting proposals in new clause 7. For those insightful contributions, I thank the relevant Members.
As I said, the Opposition have come to the Bill in a spirit of constructive support grounded in three priorities: protecting British citizens and British interests, supporting SMEs, and bringing effective scrutiny. National security is too important to play party politics with. For that reason, having called for such action for years, we support the Bill. I hope very much that the Government will look at the amendments in the constructive light in which they have been proposed, as measures to accelerate, improve and execute more effectively the House’s intention to protect our national security and our national interest.

We also need a framework that allows the legislation to work; that is why my colleagues and I have respectfully tabled our new clause. There is a slight danger in the Bill of going from nought to 100 in a split second. We are setting up a new structure within which to assess businesses, and there is a danger that it will be overwhelmed. I know the Minister is aware of this, and has heard comments about it. BT said there is a risk that it will have to make 1,000 filings a year, and we heard similar numbers from others. Legal firms in the City warned us that many companies will make filings that might technically not be necessary, just to cover their backs. That will put sand into the engine of the process that the Minister suggests.
If we provide a framework for understanding national security, and create a pre-filter, so that we set out the clear, transparent and predictable process that BT Group specifically asked for, the Minister, the Government, lawyers and businesses throughout the United Kingdom, and indeed the world, will have a little more certainty about what is, and what is not, likely to require scrutiny.
Providing that framework would, I hope, get rid of many applications that are simply unnecessary. It would free up the impressive cross-departmental team that the Minister is already pulling together, so that we use the intelligence services and call on the Foreign Office when needed to do what is really necessary, which is look at the tough cases—the hard calls that really require a fine judgment and are not clear. Those are the ones that will require ministerial involvement, civil service time and possibly even judicial oversight. Rather than waste time with nugatory filings, let us focus on the core of what matters.
The Bill is so close to doing all that that I will support it whatever the Minister does, but I do hope he will think about adopting new clause 4. As he has seen, it has cross-party support, and has been tabled with great respect for his work and the work of the civil servants he has pulled together to draft the Bill. He has done a fantastic job of it. I very much hope that he will look at the new clause, consider its merits and pull it together. We know the dangers; we have only to look at the silencing of people like Jack Ma of Ant Group, and the intervention in various other businesses around the world by some of the state-owned enterprises that are now sniffing around British businesses, to see that the risk is sadly real. I hope the Minister will look at the new clause, and will use all the extraordinary experience and skill that he has at his fingertips—many of us wish that we had it—to consider where we go and how to do this best.

All that undermines our sovereign capability, and as a result so much of our critical national infrastructure is not in our own hands. In fact, 57 of our critical infrastructure supply chains depend on China—from energy suppliers, to airports, to personal protective equipment. That is a dangerously exposed position to be in. The repercussions, of course, were felt through the pandemic. Our lack of capacity to produce personal protective equipment has cost the UK taxpayer eye-watering amounts of money, and there have been shocking stories of so-called middlemen pocketing millions of pounds for simply acting as a broker between the British Government and overseas suppliers.
I now turn to the issue of foreign state involvement, state-owned enterprises and investment vehicles backed by states. Many of the so-called private takeovers and infrastructure investments are in fact being carried out by companies and investment vehicles that are a front for authoritarian state actors who have wider political and national security agendas and whose values are at odds with our own concepts of democracy, liberty and the rule of law. The most obvious and pressing case is the role of the Chinese state, which is committed to expanding its influence economically, politically and militarily in order to become the world’s leading global power. We need only recall the recent case of Imagination Technologies, which was the target of a hostile takeover attempt by an investment vehicle with direct links to the Chinese state—and, of course, there is a substantial Chinese stake in Hinkley Point.
We need to tighten our view and definition of hostile foreign takeovers when they have a particular role and when they owe allegiance to hostile foreign states. That is set out in the statement of policy intent, but it is not in the Bill. As I pointed out in Committee, it really needs to be in there as a clear definition of an additional threshold—a higher threshold and a more assiduous look at the backers of investment vehicles and companies seeking to take over British companies and interests.
In addition to the comments on these broader issues of critical national infrastructure and the state-owned and backed enterprises, it is important that we should flag up concerns about the fact that so much of it sits within the Department for Business, Energy and Industrial Strategy. That is really an issue, because decisions are going to have huge cross-departmental implications. It would be better for there to be a cross-departmental unit bringing together the Treasury, the Home Office, the Foreign, Commonwealth and Development Office, the security services and the Ministry of Defence. It would follow a model similar to that of the Committee on Foreign Investment in the United States.
There were signs that BEIS was something of a cheerleader for the Huawei deal; that does not fill us with great confidence or optimism that a sufficiently astringent look will be taken at these issues if they are left exclusively in the hands of BEIS. There is also an issue around the change of incumbent at Cabinet level, with the Secretary of State being potentially influenced. We would of course never cast such aspersions on the current incumbent, and we congratulate him on his promotion, but we really do need to make sure that we have a belt-and-braces approach and that undue influence is not exerted.
We have seen reports about so-called elite capture by foreign powers, we have seen the Russia report, and we would like far more assiduous action to be taken. It is naive to think that we are not vulnerable to these influences—

However, going back to this hypothetical company on social media. What happens if an enemy abroad who hates us, hates the British, hates what we stand for decides to try to buy this business and then uses this business’s reputation, subscribers and previous clever work to push really damaging ideas and—to use the phrase du jour—fake news? All of this to the people who just want to watch funny videos that laugh at silly Tories. Is that a question for national security? Should we intervene and stop the purchase of this business because we risk what is going forward? To be candid with the House, I do not have the answer to that question, and I think that that speaks to my point. Is it national security when a community of people are only seeing something wrong and dangerous? Is that national security and should we step in? I can speak to the answer yes. I can also speak to the answer no. No doubt this House could debate it for many, many hours in an articulate fashion, such as we have just heard.
Now, if we had defined national security, would it be certain that we had the right definition to allow for this decision to be made? It is my submission to this House that we would struggle. Also, this hypothetical example of a modern company is one from our current technology. It is only catching us up with the rapid changes that we have seen in the past five to 10 years. With the detailed definition of security, what would happen when technology in businesses moves as far away from now, as I am from the rubber-keyed ZX Spectrum computer that I played with as a child? That is a huge leap. How do we define national security that will protect for the future and how do we encode a definition for something that has not even been invented yet? I am not sure that we can without unintended consequences in terms of signalling to our enemies, leaving loopholes, or not giving the flexibility that we need.
For me, protecting the realm and all of our people—all of them—requires flexibility as well as strong oversight and that is in no doubt, so I will not be supporting new clause 5 today.

That said, the Bill unfortunately represents a missed opportunity. It fails to go far enough to protect our national interests and our security at a time of ever changing and global emerging threats. It could and should have been used to build a more comprehensive and unified industrial strategy, which is urgently needed as we look to emerge from the pandemic and the severest economic crisis and recession in 300 years.
The fundamental task of any Government, and the reason for the Bill overall, is the protection of our national security. A critical driver of that security is the wider public understanding of the rapidly changing threats we face and the different sources of those threats. In Committee, we heard from various expert witnesses that other countries understand perhaps far better than we do what some of those threats are. Members from across the House heard evidence in Committee from the former head of MI6, Sir Richard Dearlove, who sketched out a complex picture that clearly showed that, for too long, successive Governments over many decades have placed economic interests, including our relationship with China, ahead of our human rights obligations and strategic national security interests.
That is why Labour is calling for the Government to intervene in foreign acquisitions that could damage our national interest and hamper our national security, so that the likes of the disastrous takeover of the UK’s biggest tech company, Arm Holdings, never happen again; and to use the Bill to put in place a robust framework that ensures that and that prioritises national security above all else. That would mean the Government no longer opening our doors to the highest bidder and selling off anything and everything in the process, but instead having a long-term and strategic approach to global threats—economic and otherwise—so that in the post-Brexit world we now inhabit, national security does not take a lesser priority than free market fundamentalism.
Indeed, over the past decade, the Conservative Government have allowed foreign direct investment to grow rapidly. In the past two years alone, it has almost doubled, from £36 billion to £66 billion. That, of course, is to be commended and much welcomed in many cases, with thousands of jobs created across the country. However, where the investments are being made is the cause of a great deal of concern. Worryingly, on only 12 occasions in the past 18 years have there been national security assessments to scrutinise such investment, with not a single block on a takeover during that period. That is deeply concerning, because as has been well documented across the House, enterprises controlled by potentially hostile countries have been handed contracts for 5G or to build and invest in crucial national infrastructure, such as nuclear plants, giving them potential control of critical infrastructure, personal data and cutting-edge technologies. This should not be about making as much money as possible but about our Government prioritising our nation’s security.
We must learn from our partner nations that have put in place similar measures recently to deal with this growing threat. For example, in the US and across the EU, wide-reaching laws have been implemented to enable intervention in investment transactions where national security or national interest concerns are at stake. The EU proposed them in 2017, and Germany updated its legislation the following year, around the time the US did the same. The national security definition clause we have tabled would bring us in line with our allies and would treat this matter with the seriousness it deserves.
The Bill transforms the UK’s merger control processes, and that is a key part of it that we would not want to be overlooked, but it locates merger control processes away from the Competition and Markets Authority, with its history of merger control expertise, and into the Department for Business, Energy and Industrial Strategy, which unfortunately has no existing expertise in merger control. It does this at the same time as massively expanding the scope of intervention. In the face of such sweeping powers, we should not abandon all accountability just because the Secretary of State says the words “national security”, even though they happen to be at the top of the Bill. Too often during the pandemic, we have seen the Government run roughshod over parliamentary accountability and scrutiny, and national security is simply too important to have that happen again.
The amendments put forward by the Opposition would hold the Government to account through aggregate transparency, with specific focuses on unit efficiency, unit capacity and small and medium-sized enterprise interactions. We are also supporting the Intelligence and Security Committee’s amendment, which would require the Government to publish an annual security report to the ISC, allowing the Committee to bring some accountability and transparency to the Government’s actions without, of course, compromising on security. The UK, thankfully, is globally recognised as an open and attractive destination for foreign investors. However, our openness has made us vulnerable to exploitation by foreign actors who do not always have our nation’s best interests in mind, and we must act before our security could potentially be compromised. Labour’s amendments to the Bill, and a clearer definition of what national security means, would enhance this legislation and make it more fit for purpose.
I would like to turn to the new clause that has been put forward on SME support, because this is crucial to their long-term survival, given the precarious position that many of them are currently in. Small and medium-sized enterprises are enormously important for constituencies such as my own in Ilford South. They are the backbone of our community businesses and a driver of the local economy, but they have faced unprecedented difficulties during the ongoing pandemic. It is therefore vital that the Bill does not lead to SMEs being hamstrung by more red tape.
As the true party of small business, Labour is calling for greater guidance and support for our innovative small business sectors, so that the Government do not once again allow SMEs to fall by the wayside. Any business, whether small or large, needs certainty, and the publication of comprehensive guidance and an early understanding of compliance will allow many SMEs to navigate their way through these new requirements. But above all else, guarding national security should not mean abandoning those SMEs, because they are the engine of national innovation and local economic growth in so many parts of our country. That means that the Government should establish a dedicated SME unit within the Department for Business, Energy and Industrial Strategy that can guide and mediate for those businesses as they progress through the national security screening process. National security is and must always be our highest priority; it is Labour’s highest priority. In the post-Brexit world, we want to be a country that is as open and positive as possible towards investment from international partners only if they share our values and objectives of supporting and rebuilding Britain.

I am thankful for the trigger events set out by the Government in the White Paper. I understand the rationale behind those and fully support them, especially the fact that the Government’s rationale for introducing mandatory notification for these trigger events is the same as for the trigger events themselves. That is to say that the acquisition of over 25%, over 50%, over 75% or more of votes or shares represents thresholds at which parties can respectively block a special resolution, pass an ordinary resolution or pass a special resolution, as set out in the Bill. It is the delay in the secondary legislation after public consultation that concerns me. Surely the Bill will be stronger when it is complete. Again, I seek the Secretary of State’s reassurance on that.
I thank the Secretary of State, the Chair of the Foreign Affairs Committee, the hon. Member for Tonbridge and Malling (Tom Tugendhat), and all Committee members for their hard work. We have before us a Bill that we can be proud of and that will lead to the security we need.
In conclusion, is there a reason why we cannot put all the pieces of the jigsaw together and present clear legislation which ensures that both the investor and the company know and understand the prerequisites and that we are all able to play our part to ensure that the security of this nation—the United Kingdom of Great Britain and Northern Ireland, better together—is not at stake, while enabling us to thrive in the future?

Nvidia competes with companies that Arm supplies. Arm’s co-founder declared the takeover to be a “disaster” that will destroy the company’s business model and lead to job losses at its Cambridge headquarters and elsewhere in the UK. He also said:
At the time of the sale, Unite the Union, which represents Arm workers, declared that, if allowed to go ahead, the sale
I wholeheartedly support Unite’s call for the Government to protect tech firms from being hollowed out by detrimental takeovers, and to provide the investment needed for the sector as a whole to flourish.
Although the Bill makes great strides in bringing UK legislation in line with that of other countries in giving the Government significant powers and oversight of all investments to protect national security, gaping holes remain in our powers to protect jobs and industry here in the UK. With the country’s manufacturing sector already on its knees, dismantled and sold off in the Thatcher years and subsequent decades, do the Government not agree that it is high time for a robust industrial strategy that bolsters high-skilled, high-paid and sustainable jobs, to invest in our communities and rebuild after decades of industrial decline and the economic fall-out from coronavirus?
We need to support this legislation to protect UK jobs and industries from foreign, hostile acquisitions that could damage the UK economy and lead to job losses, but we cannot ignore the lack of investment or attention by our Government in developing the UK’s industrial strategy. If we are talking about protecting jobs and industry here in the UK, the two cannot be separated. If the Government are serious about industrial strategy, we need stronger powers, such as those in France and the USA, to intervene in takeovers to protect our vital interests, particularly in our tech sector.
We also need serious planning and investment in these sectors, training and reskilling of our workers, and strategic investment in line with the plans for regional levelling up to provide the necessary conditions for these sectors, and the communities dependent on these jobs, to flourish. Now is the time for bold action to put critical national infrastructure at the heart of Government policy, and to retain high-growth and strategically important companies in the UK.

We also heard from Sir Richard Dearlove, former director of MI6, who expanded on the threats and made it quite clear that the extreme naivety of recent UK Governments had allowed the Chinese in particular, although there were other states too, to become deeply embedded in the UK economy. He underlined his concerns by saying that we had been
He added that
That is what is important about the Bill.
Although I have a lot of sympathy for new clause 4, I will concentrate on new clause 5. Sir Richard set out the breadth of the threat; he highlighted the fact that it was not just to our businesses but to our infrastructure and academic institutions. It is worth remembering that only 10 years ago, the coalition Government were hailing a new golden era, and were desperately seeking to attract investment from China, seemingly oblivious to the national security issues surrounding any investment in nuclear power stations or transport infrastructure. Meanwhile, the open access that Chinese businesses have had to UK universities includes the hiring of UK academics. That is both surprising and unexpected, and a recent report demonstrated the scale of the problem, stating that at Oxford University, 17 projects were under way with Huawei.
It is clear that the narrow, more obvious view of national security, as we have heard, is incredibly naive about what is happening around us. The UK has been guilty, particularly in the last decade, of playing to the old rules when the game has moved on. If we did not understand that, we should really have learned from 9/11 that the threats to national security, as we heard from the hon. Member for Beckenham (Bob Stewart), are both the same and very different. That is why we have introduced the new clause—to widen the definition of security, so that it includes critical national infrastructure, energy resilience, and food supply, and also relates to human rights and environmental security. We are pushing for greater guidance and clarity for businesses, as well as true security for our citizens in the broadest sense.
New clause 6 seeks to set up a small and medium-sized enterprise engagement unit to help SMEs engage with this process. For years, the Government have refused to do more to protect growing UK companies. Developing a robust takeover regime is essential if we want firms in our key sectors to grow and provide good jobs in the UK, rather than sell up and move abroad. We must keep those businesses here in our country.
The regime means that we would go from 12 national security investigations in total since 2003 to an annual expectation of 1,800 or 1,900 notifications, with perhaps 60 to 100 called in by the Secretary of State and subjected to detailed review. That vast expansion would be managed by the entirely new unit that we have heard about. It would be based in BEIS, which traditionally has not taken responsibility for national security. We must ensure that there is sufficient resourcing and expertise, as we discussed frequently in the Bill Committee, and we must also ensure that there is accountability to Parliament, as well as performance transparency.
On that huge increase in referrals, the Government expect SMEs to account for about 80% of mandatory notifications under the new regime. Naturally, that represents a huge challenge for tech start-ups that raise investment in rapid transactions in sectors that are capital-intensive, particularly in the early phases of their development. There is clearly a need for greater BEIS resource to support SMEs with early engagement, and we must ensure that there is accountability from BEIS in that regard.
Recent history is littered with examples of great nascent businesses being lost to voracious venture capitalists, whether they are from benign nations or, more concerningly, are a front for the investment arm of a state, especially those states that we regard as less than friendly. A small business example is Stonewood, a global leader and innovator in data security. It was a supplier to the UK Government, intelligence services and military—a home-grown business based in the UK. It was a brilliant, advanced technology company, but is now just a shell based in Farnborough, with all the value transferred to the US. It is not just companies such as GKN and Cobham aviation or the Centre for Integrated Photonics; so many businesses across the UK are seen as very attractive targets to friendly, benign nations, as well as to those who have more concerning interests in taking over some of our technologies.
Finally, I will address new clause 7, which would require the Government to publish an annual security report to the Intelligence and Security Committee of Parliament. It is clear that with the day-to-day pressures, and the wider picture of activity and patterns, there is a need for this kind of reporting—and perhaps it should be even more frequent than is being suggested. I listened with interest to the remarks of the right hon. Member for New Forest East (Dr Lewis), and was surprised that his views and those of the Committee were not taken on board earlier. The ISC should be much more centrally involved, where appropriate. It will have material that is really important to the Committee, but that might not be available to the BEIS unit.
It is important that there be these powers for intervention, given the various types of threats that I described. The investment screening process—the scrutiny—needs to be so great, and that is why the abilities and skills of other Departments should be brought into play. We proposed that in Committee; we suggested that there be an overarching structure that can bring in the minds and understanding of people in the sectors, whether they be in the academic sphere or from the Department for Environment, Food and Rural Affairs, so that they can discuss their knowledge of the sector with BEIS.
What is most important is that there is the capacity in the unit, given the increase in the volume of referrals that I described, particularly from small and medium-sized enterprises, which will be desperate for funding, tie-ups and opportunities. The speed with which this unit can respond will be really important, and this report should identify where there are issues and bottlenecks, so that we can ensure a speedy process. That way, small businesses that need the funding and support can be allowed to proceed where the takeover is not deemed to be suspicious, or to the detriment of the UK.
In summing up, I confirm that we on the Opposition Benches absolutely welcome the Bill. Colleagues who have been in Parliament for many more years than me have long called for it. We are indeed playing catch-up, but we are where we are. We do have regulation, and it is needed, but countries such as the US have had stronger regulatory enforcement for decades; interestingly that was strengthened and broadened under the most recent— Trump—Administration. France introduced very similar measures to those we are talking about back in 2014, and recently, Germany introduced further measures to block foreign takeovers in the health sector, for example.
It is quite clear that national security is not just in our defence interests; national security is the defence of our prosperity, and indeed our way of life. With this Bill, we are at last considering our commercial interests, including the interests of our research institutions, and the areas where the two meet. National security is a primary responsibility of Government, and hopefully the Bill will see the Government start to think about our economic strategy and resilience, but they must also think about our social resilience, as so many have said. That has to be a good thing.

That brings me to new clause 7. As drafted, the Bill does not yet provide sufficient oversight, but I welcome the Minister’s engagement and the assurance that the Government are considering these matters closely. I look forward to what the Government say about the contents of new clause 7, which will provide the means by which scrutiny could take place through the provision of an annual report detailing when the Government acted and why. The Chairman of the ISC has suggested an alternative, which is an annexe to the existing annual report. Depending on what the Government say about that, it might well satisfy our call for greater scrutiny.
As I said at the outset, the Government have acted in an appropriate way. I welcome the change of emphasis that this Bill, and other legislation that has been brought before us recently, represents. There seems to be a new understanding of the character of the threats our country faces and a willingness to do something about it. Some would say that that is long overdue given that the ISC highlighted these matters some years ago. Nevertheless, one must, I think, be generous in recognising that not just this Minister but the whole of Government are now acting as they should. The Minister must not be timid about using the provisions of this Bill: he must be prepared to use them in defence of our interests and for the common good. It was Edmund Burke who said,
and order depends on our national security. National security is the very principle on which government is based, in which spirit I support the Bill enthusiastically and look forward to its further developments—in particular, the further work that I know the Government are now raring to do on appropriate scrutiny and oversight.

I share the desire of the hon. Members for Aberdeen South, for Glenrothes and for Dundee East to ensure that businesses in our most sensitive supply chains are protected. The Bill does that already by allowing the Secretary of State to call in trigger events across the economy where he reasonably suspects that they may give rise to national security risks. That includes key suppliers.
Amendment 3 proposes that the Secretary of State must review the first statement under clause 3, which sets out how he expects to exercise the call-in power, within one year of its publication. As drafted, the amendment requires the Secretary of State to review that statement “at least” every five years. Let me assure the House that the Secretary of State will maintain the closest watch on the changing security landscape. He will therefore review and, if appropriate, update the statement more frequently than every five years if needed.
Finally, amendment 6 would require the Secretary of State to bring all broadcast, print and social media companies in scope of mandatory notification when making notifiable acquisition regulations. The requirement for mandatory notification should be limited to the most sensitive sectors. The vast majority of acquisition of shares or voting rights in media companies will not raise national security concerns. Indeed, they are captured by the Enterprise Act 2002. I hope that Members are reassured to know that the Bill allows Government to use the call-in power across the economy where any risks may arise.
I turn to the new clauses and amendments that consider reporting and accountability, with a particular interest in small and medium enterprises. The aims of these amendments are laudable, and the Government are a strong supporter of SMEs and of appropriate safeguards around information sharing and transparency. Indeed, as Members will be aware, clause 61 sets out the minimum reporting requirements that the Secretary of State must meet in the annual report. This clause provides for the fullest parliamentary and public scrutiny of the detail of the regime, which at the same time avoids giving rise to national security risks when published at an aggregate level.
On top of that, new clause 7 would create additional reporting requirements to the Intelligence and Security Committee. While I very much understand the grounds for seeking such reporting, and I was grateful for the discussion with the Chair of the Intelligence and Security Committee, my right hon. Friend the Member for New Forest East, the Government are unable to accept this amendment. I wish instead to welcome and encourage the ISC’s security-specific expertise and its review of the annual report when it is laid before Parliament. Indeed, there is no restriction on the Secretary of State providing further information in the annual report, should it be appropriate, to the ISC.

The list of Members currently certified as eligible for a proxy vote, and of the Members nominated as their proxy, is published at the end of today’s debates.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The list of Members currently certified as eligible for a proxy vote, and of the Members nominated as their proxy, is published at the end of today’s debates.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Third Reading

Sitting suspended.