National Security and Investment Bill

Public Bill Committee, 3 December 2020.

(Morning)

Derek Twigg (Labour, Halton)

Good morning, everyone. Before we begin, I have a few preliminary points. As usual, please switch your electronic devices to silent; I just remembered to do mine. The Hansard reporters would be grateful if Members could email any electronic copies of their speaking notes to hansardnotes@parliament.uk.

Clause 11 - Exceptions relating to control of assets

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Clause 11 is intended to provide an exemption for certain asset acquisitions, which would otherwise be trigger events. The power to call in acquisitions of control over qualifying assets, as defined in clauses 7 and 9, will significantly expand the Government’s ability to protect our national security.

The clause ensures that these new powers will not extend to certain acquisitions made by individuals for purposes that are wholly or mainly outside the individual’s trade, business or craft. The Government do not believe, for example, that it would be right for the Secretary of State to be able to intervene in consumer purchases. Given their nature, such acquisitions cannot reasonably be expected to give rise to national security risks.

Moreover, a regime which could apply to such circumstances would quickly become impractical and could result in significant numbers of additional notifications for no national security gain whatsoever. As such, this clause explicitly limits the types of assets that the Secretary of State may scrutinise in line with the Government’s intention that the regime will primarily concern control of entities and only extend to assets as a precautionary backstop.

It would mean, for example, that sales of software products to consumers by a software company would not be caught by the regime, but—this is important—it would not prevent a transaction involving the software company selling the underlying code base supporting that software to a buyer acting in a professional capacity from the possibility of call-in under the regime, where that might give rise to a national security risk.

The Government have also carefully considered whether certain types of assets should remain outside this exemption clause. We have concluded that all assets that are either land or subject to export controls, as my hon. Friend the Member for Wyre Forest regularly reminds us, should not fall within the exemption. This approach, I believe, reflected in the clause, recognises the unique nature of the risks posed by land acquisitions and proximity risk to certain UK sites, as well as the particularly sensitive nature of items on the export control lists. The Government consider that this approach is proportionate and appropriately exempts acquisitions that do not give rise to national security risks, while ensuring flexibility exists to scrutinise hostile actors directly targeting the acquisition of sensitive assets.

Peter Grant (Scottish National Party, Glenrothes)

I note that subsection (2) lists some exceptions, many of which are framed in terms of regulations of the European Parliament and the European Council. Let me ask the Minister two things. First, why is that the case, given that we will be completely out of the European Union in a matter of days? Secondly, and perhaps more importantly, if the European Parliament and the European Council were to amend those regulations, do the Government intend to amend this legislation to keep in step with what is happening in the rest of the European Union?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am happy to write to the hon. Gentleman on that detail.

Clause 12 - TRIGGER EVENTS: SUPPLEMENTARY

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 16, in clause 12, page 8, line 4, leave out from “does” to end of line 11 and insert

“establishes that arrangements are in progress or contemplation which, if carried into effect, would result in a trigger event taking place.”

This amendment would expand the scope of events to be considered trigger events.

Derek Twigg (Labour, Halton)

With this it will be convenient to discuss clause stand part.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

It is a pleasure to serve under your chairship, Mr Twigg, and to see the Committee reconvened to debate this important Bill. On Tuesday, we had a lively, informative and generally collegiate debate in which we learned a significant amount about the Bill and each other. We learned, for example, that the hon. Member for Arundel and South Downs has an interest in low pay, the hon. Member for South Ribble is a scientist, the hon. Member for Wyre Forest has a great interest in defending business investment, and my hon. Friend the Member for Southampton, Test knows well the difference between “may” and “shall”, and entered Parliament at the same time as yourself, Mr Twigg. We learnt that my hon. Friend the Member for Ilford South has a great interest in defending our national security through supply chains. We learnt that I have a tendency to mispronounce and misplace my hon. colleagues’ constituencies—something that I am working on. We also learnt that the Minister feels this Bill is perfect in every way, clause and subsection, such was his reluctance to accept the most constructive and helpful amendments—I would say—put forward by the Opposition. As we look at our amendments today, I gently point out to the Minister that that is not a view held by everyone across the House, even by Government Members. I note the letter sent yesterday by the Intelligence and Security Committee pointing out several aspects that we have raised, requiring clarification and significantly indicating its intention—or desire—to be a greater part of both the scrutiny of this Bill and its implementation. I hope that in today’s deliberations we will meet with more support from the Minister.

We had lively debates on Tuesday and some votes, which as I have indicated that we did not win. Amendment 16, in my name and those of my hon. Friends, is a probing amendment. We seek to understand that the Minister fully understands the provisions of his Bill. That is an absolutely appropriate thing to do, as hundreds of thousands of business and individuals will be impacted by it and will have to seek to understand it. It is appropriate that we test the impact of the Bill now, particularly as the Minister has many competing duties, and, as we understand, is taking on more onerous ones.

Clause 12 contains supplementary provisions in relation to determining when a trigger event that takes place over more than one day is to be treated as taking place, and determining whether a trigger event is in progress or contemplation in circumstances where a person has entered into an agreement or arrangement that enables them to do something in the future that would result in a trigger event taking place. The amendment, as we have framed it, would considerably expand the scope of events that could be considered trigger events. In effect, it would give the Secretary of State power to call in events under contemplation, by leaving out from “does” to the end of line 11 and inserting:

“establishes that arrangements are in progress or contemplation which, if carried into effect, would result in a trigger event taking place”.

As we have discussed, the Bill gives significant powers to the Secretary of State and the amendment would significantly expand notification volumes. There are many minor transactions where parties agree that someone might have the right to buy more shares in the future, and, in themselves, these transactions do not create direct influence and are unlikely to create a threat to national security. We recognise that the amendment would require all such minor transactions to be notified; it would seek to reflect the potential intention that these minor transactions may be part of a greater contemplation of something which would lead to a trigger event.

We recognise that Government would already have the power to intervene, through notification, once a trigger event takes place, so this amendment brings all possible future trigger events into scope, not just actual, or likely, future events.

Matt Western (Labour, Warwick and Leamington)

It is a pleasure to serve under your chairmanship, Mr Twigg. On the point on these disguised elements, does my hon. Friend agree that the issue is about not simply shareholding, but, as we heard in the evidence sessions, membership of boards, and how voting rights might not necessarily be in line with shareholding percentages, and that they can be distorted at a future date?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I am grateful to my hon. Friend for that intervention. He makes a good point, which reflects why we are proposing this amendment to test the Bill. As he says, influence can be exercised in a wide range of ways.

I will elaborate on this later, but we must recognise that hostile parties will not sit back and see the Bill, then say “Oh well, that’s fine; we won’t try anything against the United Kingdom’s security,” as a consequence. They will seek ways to game and effect an influence regardless. Changes to the relationships between voting rights and shareholdings, for example, might be one way where they could seek to bypass the Bill.

I recognise that this is a wide-ranging amendment, but I seek to understand how the Minister feels that the Bill, as it stands, can address the kinds of concerns that my hon. Friend has just raised. This also reflects—I emphasise this again—the approach that we are taking, as the Opposition, on the Bill. The first priority and central plank of that approach is to put our national security first, and to do everything that we can to secure the strategic and economic resources on which our security relies; that focus on putting national security first motivates this probing amendment.

As my hon. Friend indicated, there can be a number of contingent investment transactions where parties agree to future events that transfer controls or influence. For example, a buyer might buy a low share of a company today, but might acquire with it the right to influence its shareholding in the future to levels of material influence.

I think the Minister will agree that we must watch out for these disguised transactions. They can start with innocuous levels of shareholdings, but set the ground for harder-to-notice increases in influence. At the moment, the Bill leaves out these transactions from the scope of notification, so the Government could not intervene. The amendment is therefore intended to probe the Government’s approach.

I understand—and we have discussed—that we must ensure a regime that is proportionate in its notification demand, particularly for small and medium-sized enterprises. This has been raised a number of times by Members on both sides of the Committee, who are concerned about avoiding a disproportionate burden on small and medium-sized enterprises, which will make up 80% of the mandatory notification base alone, according to the Government’s impact assessment. For them, this new regime will be a major change, and we have tabled a series of amendments to ease the burden on them.

I also recognise that the amendment expands the powers, and to do so may significantly expand notification volumes without necessarily adding significantly to incremental substantive powers. There are lots of minor transactions, where parties agree that someone might have the right to buy more shares in the future. In themselves, such transactions do not necessarily create direct influence. However, we should not loosen our grip on security to make the regime more efficient for small and medium-sized enterprises. I would hope we could both ensure proportionality for small and medium-sized enterprises and maintain—indeed, increase—our guard on our national security. None of our businesses benefit when we lower our guard.

We must be awake—this is what I hope to hear from the Minister in his response—to the ways in which hostile actors might game the new regime. I am sure they are spending just as much time studying it as we are spending scrutinising it, so we must not assume that our logic will be mirrored by compliant hostile actors. We already heard from the recent head of MI6, Sir Richard Dearlove, of the sophistication of other actors. He noted in his evidence session that,

“the Chinese are highly organised and strategic in their attitude towards the West and towards us…We need to conduct our relationship with China with much more wisdom and care. The Chinese understand us incredibly well”,––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 19-20, Q21.]

whereas we do not understand them nearly as well. We also heard from Dr Ashley Lenihan of the London School of Economics about the need for powers to deal with complex

“novel investments from countries such as China, Russia and Venezuela…that the Secretary of State and the investment security unit were not even aware of.” ––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 34, Q40.]

That is the complex and changing security context we are in. Faced with that, our approach should be to ensure a wide scope of national security powers while creating the most efficient review process for SMEs, and the most accountable scrutiny structure for Parliament to hold Government to account.

The amendment will ensure the wide scope we need to protect our national security. As a consequence, covert transactions by hostile actors, which start innocuously but are intended to grow to material influence levels, would be ones where the Government could now intervene. We must give regard to expert evidence. We heard that information, not just influence, is critical to national security. Without the amendment, it would be harder for the Government to intervene in time, having to keep a close eye on a range of contingent transactions, and having to act promptly whenever shareholder levels move to become present trigger events, so there is a bit of a cliff edge issue there. It would be much easier and more robust for the Government to be called and act when those contingent events are agreed in the first instance.

I will go back to the expert evidence. I have quoted Professor Martin a number of times. He said

“the mantra, if I had one, would be, ‘Broad powers, sparingly used, with accountability mechanisms’.”––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 80, Q96.]

I think this amendment aims to achieve that.

Christian Boney from Slaughter and May said:

“At the moment, the trigger events are focused, as you were saying, on the ability to influence a particular company, but there are certainly circumstances where, without acquiring a level of shareholding that enables a person to influence the company, the person can nevertheless gain very significant access to information”.––[Official Report, National Security and Investment Public Bill Committee, 26 November 2020; c. 75, Q88.]

The amendment seeks to probe the Government’s approach to such contingent events. I look forward to hearing from the Minister.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I thank the hon. Lady and share her reflections on the collegiate way the Committee has worked. I also thank her for her comments on the quality of the Bill. It is testament to the quality of the team that has worked on it—I place on record my thanks to the excellent civil servants who have worked on the Bill—and the level of consultation. We heard from the hon. Member for Aberavon, who is not in his place, that this has been a long time coming. There was the Green Paper in 2017, the White Paper in 2018 and then the consultation. There was, of course, deep consultation before the laying of the Bill as well.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his comments. I want to make it clear that we are not in any way indicating any criticism of the civil servants who have worked hard, in extremely difficult conditions in the midst of a pandemic, to bring the Bill before us. I think we can all agree—we had some discussion on Tuesday about the nature of parliamentary scrutiny—that the objective of the process is that the Bill benefits.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Hear, hear—I agree with every word.

For the benefit of the Committee, I will begin with clause stand part, before turning to the amendment. The Secretary of State’s power to call in trigger events that have taken place is limited to a maximum of five years after the trigger event takes place and six months after the Secretary of State becomes aware of the trigger event. It is important to bear that in mind when discussing the amendment. That means that the issue of timing as to when a trigger event actually takes place is incredibly important. Many trigger events will have a self-evident completion date, as supported by contractual or other legal agreements. However, some trigger events may be less clearcut. There could be terms agreed formally by the parties, followed by further documentation, leading to a formal completion, all spread out over a period of time.

The clause ensures that where a trigger event takes place over a period of more than one day, or if it is unclear when during a period of more than one day the event has taken place, the last day of that period is treated as the date the trigger event takes place. In addition, the clause seeks to provide clarity about when a trigger event may be considered to be in progress or contemplation, where a person enters into an agreement or arrangement enabling them to do something in the future that would result in a trigger event taking place. It makes clear that entering into such agreements or arrangements, including contingent ones, does not necessarily mean that a trigger event is in progress or contemplation at the time the agreement or arrangement is entered into.

Amendment 16 would ensure that a person entering into any agreement or arrangement that enables the person, contingently or not, to do something in the future that would result in a trigger event taking place would be deemed a trigger event in progress or contemplation for the purposes of the Bill. I welcome the intention to ensure that the Secretary of State can be notified about acquisitions before they take place and I understand the motivation behind that. That is very much the Government’s policy. Indeed, the inclusion of mandatory notification and clear requirements within the proposed 17 sectors illustrates that approach in the most sensitive parts of the economy.

The timing of any notification is clearly very important. It must contain sufficient information for the Secretary of State to decide whether to give a call-in notice. That means that a proposed acquisition must be at an advanced enough stage that all the key details are known: for example, the names of all the parties involved, the size of any equity stake in the entity or asset, and the specifics of any other rights—such as any board appointment rights, which the hon. Member for Warwick and Leamington cited in his intervention—being provided to the acquirer.

In some cases, however, such details may be known, but the likelihood of a trigger event actually taking place may still be low because the acquisition is conditional. For example, the striking of a futures contract or an options agreement may stipulate conditions that must be met before the acquirer is required to, or has the right to, acquire a holding in an entity or an asset. Such arrangements are common in the marketplace where, for example, a company’s future share price might be the basis of a conditional acquisition. Equally, lenders provide finance to many UK businesses on the basis of conditional agreements, often with collateral put up by the business as security in return for the loan. Those terms may, subject to certain conditions being met, allow the lender to seize collateral if repayments are not made as agreed.

Peter Grant (Scottish National Party, Glenrothes)

Can the Minister explain, first of all, why subsections (3) and (4) are included here as part of a supplementary clause when they clearly affect definitions, and as such go to the very heart of the Bill? The main clause is about defining the date on which something has happened for the purposes of calculating when later stages have to take place, but subsections (3) and (4) not only apply to those timings; they apply to everything in the Bill. I wonder whether the Minister could explain why those subsections are not included in one of the earlier clauses.

Secondly, I understand the Minister’s argument, but would it not be more prudent to work on the assumption that if somebody insists on some kind of contingent future rights being built into an agreement, they think there is a possibility that they will have to exercise them? Would it not therefore be prudent for the Government to work on the assumption that they are likely to be exercised? If not, is the Minister not concerned that we could have a situation where a whole series of small events, none of which looks particularly significant by itself, adds up to something that does become significant when taken in sequence, but there might never have been a stage during that process where the Bill, or the Act, allowed the Government to intervene?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am grateful for the hon. Gentleman’s intervention. I am just getting to the crux of the resistance to this amendment on the Government Benches, so if he will allow me, I will do that. As far as subsections (3) and (4) are concerned, we think they are exactly where they should be in the Bill.

In the loan scenario, obviously loans are routinely paid back by businesses as planned, so lenders do not have the option of enforcing any rights towards collateral. Indeed, even where businesses default on payments, lenders will often look for an alternative way to recoup their funds, such as restructuring the repayment amounts or repayment period. That is why the Secretary of State generally only expects to be notified about and, if the legal test is met, to call in acquisitions when they are genuinely in progress or contemplation, not just when they are optional or might take place in the future, as the amendment would effectively do. That could include where an option holder had resolved to exercise their option, or where a lender had decided to enforce their collateral.

None the less, the clause as drafted does provide the Secretary of State with the ability to call in at the time agreements or arrangements are entered into. That would be determined on a case-by-case basis and would, as per subsection (4), take into account how likely it is in practice that the person will do the thing that would result in a trigger event taking place. The amendment put forward by the hon. Member for Newcastle upon Tyne Central—she is right to probe on this—would mean that entry into any agreement or arrangement under which a trigger event could take place in future would be treated as a trigger event currently in progress or contemplation, allowing it to be notified and called in by the Secretary of State. We believe that this would—unintentionally, I am sure—have two significant negative implications.

First, it would mean that hundreds or thousands of theoretical acquisitions would become available for voluntary notification, many of which would simply never come to pass. It may encourage lenders and option holders to routinely notify the Secretary of State of every arrangement they enter into. It would require a huge amount of resource for Whitehall to process those cases in return for little, if any, national security gain.

Secondly, I fear it would harm our national security. Making all potential acquisitions open to voluntary notification at the stage of entry into the initial agreement or other preliminary arrangements would require the Secretary of State to make the one and only decision on whether or not to call in the acquisition at that point, too—prematurely, one would say. They would be asked to do so on the facts as they stood at that moment in time, although the acquisition may not occur for months or years, if at all.

That means that the Secretary of State would not be able to consider any subsequent significant developments, such as behaviour by the acquirer or rapid advances in the technology developed by the target entity. Furthermore, the Secretary of State would not be able to revisit the call-in decision, even if there were such developments, unless false or misleading information was provided and it materially affected the decisions. That is why entering into agreements or arrangements should not in all cases be treated as a trigger event in progress or contemplation.

I trust the hon. Lady can support this justification, and I ask her to withdraw the amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his response. I listened carefully to what he laid out. I have some considerations, which I do not feel he fully addressed.

In broad terms, he raised many points that I have raised about why the amendment is broad in scope and could lead to a huge increase in the number of potential trigger events. However, I think he said that hundreds of thousands of actions or contemplations would be considered trigger events. I think it is truer to say that they could be considered trigger events and that the power to consider them as trigger events or not, as in the wording of our amendment, would lie with the Secretary of State. It is a broadening of the Secretary of State’s powers to consider the contemplation of future acts as a trigger event. That is the aim, rather than necessarily bringing them all into scope.

I will not debate with the Minister whether we can trust the Secretary of State to exercise those powers in a proportionate way, but I think he is effectively saying that the concern is that the Secretary of State would not have the resources to do that. I still did not hear him address the gaming point—the idea that transactions would be deliberately set up in a way that escapes the remit of the Bill. The increased powers for the Secretary of State would address that.

I was also concerned that the Minister said that if an event was called in at this stage, it could not be called in again, even if there was material new information. Surely if a trigger event occurred in future, such as shareholding going above 25%, it could be called in, regardless of whether it had been called in earlier under the amendment. Would he like to respond to that question, particularly as to how this increases the powers of the Secretary of State, rather than necessarily significantly increasing the number of trigger events?

Derek Twigg (Labour, Halton)

Order. To be clear, you are asking the Minister to intervene, because he cannot come back afterwards.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Yes, I am asking whether the Minister would like to intervene.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I do not think I need to.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I am disappointed that the Minister chose not to address the genuine concern about the provisions in the Bill being gamed by hostile actors.

I share his concerns about increasing the powers of the Secretary of State at a time when, as we understand, there are many more calls on the Department’s responsibilities and it may not have the resources. We have already noted the conflict of interest that can occur between national security and the Department’s focus on increased investment.

As I said, this is a probing amendment, so I will not press it to a vote. I beg to ask leave to withdraw the amendment.

Clause 13 - Approval of notifiable acquisition

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 17, in clause 13, page 8, line 22, at end insert—

“(4) The Secretary of State must publish guidance that covers—

(a) consideration of the impact of a notifiable acquisition being deemed void under subsections (1) and (3), with particular regard to the impact on consequential obligations, liabilities and rights in completed events;

(b) who constitutes a “materially affected” person under Clause 16(1); and

(c) the informational and evidential standards that would underpin the requirement for completion “in accordance with the final order” at subsection (3).

(5) Guidance as set out under subsection (4) must be published within 3 months of this Bill becoming an Act and the Secretary of State shall review the guidance once every 12 months thereafter.”

This amendment would mandate the Secretary of State to publish guidance on the approval process of notifiable acquisitions.

Derek Twigg (Labour, Halton)

With this it will be convenient to discuss clause stand part.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Amendment 17 addresses the unwinding of void transactions. Clause 13, which is the start of chapter 3 of the Bill, is concerned with the approval of notifiable acquisitions. It provides that:

“A notifiable acquisition that is completed without the approval of the Secretary of State is void.”

It is a short clause with only three subsections, of which that is the first. Subsection (2) says that the Secretary of State may approve a notifiable acquisition by giving a notification, making a final order, or giving a final notification under various clauses. Subsection (3) says:

“A notifiable acquisition, in relation to which a final order has been made, that is completed otherwise than in accordance with the final order, is void.”

I want to emphasise the consequences and impact of such a short clause. Our amendment adds a new subsection that says that the Secretary of State must publish guidance that covers

“consideration of the impact of a notifiable acquisition being deemed void…with particular regard to…consequential obligations, liabilities and rights in completed events;…who constitutes a ‘materially affected’ person…and…the informational and evidential standards that would underpin the requirement for completion ‘in accordance with the final order’ at subsection (3).”

The amendment effectively mandates the Secretary of State to publish guidance on how the mechanism of deeming non-compliant transactions void would work in practice. Once again, we tabled it genuinely in the spirit of improving the Bill, because this issue is potentially a hugely significant part of it. The two words “is void” have a huge impact, which needs to be unpacked. This is a constructive amendment; we want to ensure that there is clarity for small and medium-sized enterprises, and accountability to Parliament, on how the new powers will be exercised.

I know that the Minister rejected further new powers in the last amendment, but even without them these new powers are significant. We welcome the expanded powers to tackle national security concerns, but we need to ensure that they come with accountability and guidance. The ability for transactions to be deemed legally void where they have not been approved by the Secretary of State, or where they have not complied with the Secretary of State’s final order, has potentially huge repercussions. Again, it marks a radical shift from today’s regime under the Enterprise Act 2002 and from the Government’s White Paper.

Under the “legally void” provision, transactions that took place three to five years ago could now be immediately deemed void. If the first transaction in a chain were deemed void, that would leave the legal rights and entitlements of all subsequent transaction parties in total uncertainty. That is not just a theoretical concern that we are raising to test or probe the Bill, but a truly practical one. A number of investment transactions involve a change of shareholder parties over a three to five-year period. The automatic default of non-compliant transactions becoming void would mean an impossible series of rights, entitlements and changes having to be unwound. It may well be practically unworkable and legally uncertain.

Katherine Fletcher (Conservative, South Ribble)

I appreciate the point that the hon. Lady is making, in that transactions over a period of three to five years could become complex, but surely if something is called in and deemed void in the overriding interest of national security there will be an extremely good reason for it. Although the complexity of downstream transactions is regrettable, we would be acting in the British interest if we had to trigger these powers.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the hon. Lady for her intervention, which by and large I agree with. That is why we are not seeking to remove the power, but to ensure that the Government and the Secretary of State explain how it would work in practice. She is right that if a bad or hostile actor has deliberately gone behind our national security framework, or the legislation as set out in the Bill, to undertake a transaction, the consequences will be on their head. However, there might be a series of other transactions as a consequence that were not made by bad or hostile actors—I will give some examples—and the impact on them should be set out, as far as possible, to give some clarity, because this is a huge area of uncertainty.

As has been stated on a number of occasions, we attract more foreign investment than any European Union country, and one reason why the UK is such an attractive location for foreign investment is that we have a robust legal framework that is trusted globally, but by giving rise to uncertainty the clause might impact that. We are not seeking to remove this power, but to have it properly explained, as far as possible.

The hon. Lady and the Committee should recognise that, as well as the uncertainty, the clause places huge requirements on the Department for Business, Energy and Industrial Strategy, as it would require significant capability and capacity from the investment security unit to execute the effect of deeming any transaction legally void. To take that further, I will talk through some examples so that we can fully comprehend why the amendment is so important.

If this provision were applied to the takeover of a public listed company that was then found to have been void, it would be exceptionally difficult to deem that transaction void and to unwind every single dealing in the company’s shares and to answer questions of legal ownership of such shares. There are enormous practical questions about the approach taken in the Bill to deeming transactions void, and the impact assessment does not address those consequences in a sufficiently rigorous way.

We might expect that events would never come to the point where transactions have to be deemed void, that parties will be deterred by that prospect—it is an excellent deterrent—and that the power will never be used, because it is such an effective deterrent that everyone will notify and comply. To that, I say two things. First, we cannot reduce legislation to our hopes of how actors might behave. We should have regard to examples elsewhere, such as Huawei’s acquisition of 3Leaf, where the threat of having to divest still did not stop Huawei pursuing the acquisition without notifying the Committee on Foreign Investment in the United States. Secondly, threats are credible when they can be carried out. Even if the point of the provision is to act as a threat, it needs to show that it can be carried out. If a threat does not work practically, or would heavily harm other, non-hostile actors, it is less effective a deterrent. Even if we believe in the deterrence of the “legally void” provision, it is critical that the Government give thought to the provision’s operation, and that we hear their thinking on that.

There are major question marks over the provision in the clause, but they are not cause to get rid of it altogether. We can see that the “legally void” provision would deter parties from failing to notify or comply, and that it has some international overlap with similar regimes, such as that in France. However, the decision to include the “legally void” provision is a major one. We can see the reasons for it, but we can also see the uncertainty and the concern that it might cause, especially for our small and medium-sized enterprises and, importantly, for those investing in them. As I said previously, there are significant barriers to investment in small and medium-sized enterprises and start-ups as it is. While national security must always come first, we do not want to create further barriers unnecessarily by not giving clarity when there is clarity to be given.

For that reason, we want to know the Government’s thinking on how the provision would operate in practice, on three important fronts. First, we would like the Government to publish guidance that reflects an understanding of how the “legally void” provision would work, and especially how it will affect the rights, obligations and liabilities of parties involved in chain transactions. If one transaction in a chain was deemed to be legally void, what would happen to the rights of employees and—this is an important point—of pension recipients?

Secondly, we recognise that parties who are affected by the “legally void” provision could apply to the Secretary of State for validation, thereby avoiding the transaction being void, and we want clarity on which materially affected parties can do so. Would those whose employment rights or pension liabilities were affected by the transaction be able to apply or would only acquirers in the specific culpable transaction be able to do so? We urge the Government to provide clarity to our small and medium-sized enterprises and investors, because I know that they are worried about the nature of this power.

Thirdly, it is vital that the Government clarify what they expect when they apply the “legally void” provisions to transactions that do not complete in accordance with the Secretary of State’s final order. To comply with the order, to what degree would a party have to show their evidence, and what degree of evidence would be required for the transaction not to risk being deemed void? That might sound complicated, but the clause has complex implications. In some circumstances, orders might not be specific, or they may be subjective and behavioural, so we need a regime that is clear, specific, understanding and rational. We should be able to expect such clarity and rationality from the Government.

Ultimately, the Opposition’s approach is about ensuring that our small and medium-sized enterprises have clarity, and that those who invest in the UK understand the rules and how they work. The amendment is intended to ensure that there is clarity and confidence in the new regime for national security screening. That approach has been supported by experts who have given evidence to the Committee. For example, Dr Ashley Lenihan, of the London School of Economics, said:

“The Bill provides for a lot of regulatory guidance, which needs to come forward in a clear and very easily comprehensible and understandable manner.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 36, Q42.]

David Petrie, of the Institute of Chartered Accountants in England and Wales, said:

“If the unit operates in a way where it can give unequivocal guidance to market participants at an early stage and is open to dialogue…that would be extremely helpful.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 53, Q60.]

Dr Ashley Lenihan also said:

“Dealing with the kind of evolving and emerging threats we see in terms of novel investments from countries such as China, Russia and Venezuela needs the flexibility to look at retroactively and potentially unwind transactions that the Secretary of State and the investment security unit were not even aware of.”—[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 34, Q40.]

I think it is clear that we are supportive of the ability to void transactions.

I want to close by thinking again about the Google acquisition of DeepMind, which took place in 2014. DeepMind has been in the news this week for its fantastic, innovative work on understanding how life itself works. In a letter, the Intelligence and Security Committee has asked what transactions would have come under the purview of this Bill had it been in place earlier. The Opposition have been calling for it, as has the Intelligence and Security Committee. Had it been in place in 2014, and had the Secretary of State for Business at that time been as focused on national security as he should have been, which some might argue was not the case, what would be the expectation? Had he decided in 2019 that that transaction should have been notified because of its security implications and, as a consequence, that it was not valid and should be voided, what would have then been the expectation?

What would be the expectations of the employees of DeepMind, who are now in California, with regard to relocating back to the UK? How would their pension rights be affected? How would acquisitions that DeepMind and/or Google had made over the years be impacted? I do not expect the Minister to be able to set out in detail every potential scenario, but it is right that we have greater and more effective guidance than is to be found in the Bill or its supporting documentation. I look forward to the Minister supporting our amendment and taking it forward.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I thank the hon. Lady for her constructive engagement with the whole Bill, and especially with clause 13. She referred to the Intelligence and Security Committee, and this Committee will know that I have written to the Chairman of the Intelligence and Security Committee.

However, in answer to one of the questions raised in the letter that has been circulated to the Committee, which the hon. Lady referred to, it would clearly not be appropriate for me to speculate on individual cases, not least because decisions on past interventions have been taken by previous Ministers or Governments, who made their decisions based on the facts as they were known at the time. The Enterprise Act 2002 has provided a robust basis for nearly two decades to intervene on mergers that might have raised concern. However, it is also right that we modernise our powers, and that is exactly what this Bill will do.

The Bill provides—we had a similar discussion about that at Second Reading—that if an asset or company is deemed very valuable to the United Kingdom, it does not matter who the acquirer is, even if they are from a friendly nation, and an intervention can still be made by the Secretary State.

Clause 13 sets out the mechanisms by which the Secretary of State may approve a notifiable acquisition. After I have set out the rationale for the clause, I will speak to the amendment itself. As I have set out previously, notifiable acquisitions are acquisitions of certain shares or voting rights in specified qualifying entities active within 17 sensitive sectors of the economy. These acquisitions must be notified to, and require approval from, the Secretary of State before they may take place.

That approval can be given in three ways. First, when a mandatory notice is submitted by the acquirer, the Secretary of State may decide not to exercise the call-in power—for example, because he does not reasonably suspect that a national security risk may arise. In those circumstances, he is required to notify each relevant person, following the review period of up to 30 working days, that no further action will be taken under the Bill in relation to the proposed notifiable acquisition.

Secondly, when the Secretary of State exercises the call-in power in relation to the notifiable acquisition, he may make a final order at the end of the assessment process, which, in effect, gives approval to the notifiable acquisition, subject to conditions. Again, in that instance the notifiable acquisition is clear to proceed.

Thirdly, as an alternative to the previous scenarios, at the end of the full assessment process the Secretary of State may ultimately conclude that no remedies are required. In those circumstances, he is required to give a final notification that confirms that no further action will be taken under the Bill in relation to the call-in notice. Once more, that means that the acquisition is cleared to take place.

Those three routes and outcomes are of critical importance to business, investors and their advisers. It is the means by which they receive certainty about whether they have the Secretary of State’s approval to proceed. In those cases where the Secretary of State confirms that no further action will be taken under the Bill, he cannot revisit the acquisition again barring a narrow exception for circumstances where false or misleading information has been provided to him.

Conversely, subsection (1) places beyond doubt that notifiable acquisitions that take place without the approval of the Secretary of State are void. I am very pleased to hear that the hon. Lady thinks that is an excellent deterrent. That means that the acquisition has no legal effect.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for eloquently setting out the clause. I have to suggest that he not place words into my mouth—certainly as we have such excellent reporting. Although I did not say that I thought it was an excellent deterrent, I did indicate that it could be an effective deterrent, were it considered workable.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am grateful for that clarification. I wrote down the hon. Lady’s words. She did say that it is an excellent deterrent, and went on to make her argument for the amendment.

To return to the substance, the provision means that the acquisition has no legal effect if it is void. It is not recognised by the law as having taken place. Clearly, voiding is a situation that it is in the interests of all parties to avoid, which should act as a powerful compliance incentive, if I can describe it as such. The Government’s view is that voiding is the logical result of a regime based on mandatory notification and clearance for acquisitions in the most sensitive sectors before they take place.

Although the Secretary of State, or the courts, may be in a position to punish non-compliance with criminal or civil sanctions, voiding is necessary to limit or prevent risks to national security that may otherwise arise where such acquisitions take place without approval. For example, there may be day one risks whereby hostile actors acquire control of an entity and seek to extract its intellectual property and other assets immediately. This is a reasonable and proportionate approach, and in arriving at this position we have carefully considered the precedent of other investment screening regimes. For example, France, Germany and Italy all have voiding provisions.

Amendment 17 would require the Secretary of State to publish guidance within three months of Royal Assent and then review it annually in relation to the approval process for notifiable acquisitions. I have listened carefully to the hon. Lady’s case for the amendment, and I hope that I can begin on common ground by saying that clearly voiding an acquisition is something that it is in the interests of all parties to avoid. That is why we are consulting on the sector definitions covered by mandatory notification and clearance, rather than simply presenting them to Parliament and external stakeholders like a fait accompli in the Bill.

That approach will allow experts from the sectors and the legal profession, and businesses and investors, to help us to refine the final definitions and tighten them up to ensure that the regime is targeted and provides legal certainty. Equally, mandatory notification applies only to the clearest acquisitions, focused on objective thresholds of shares and voting rights. Together, that will help acquirers to determine whether their acquisitions are in scope of mandatory notification, and therefore allow them to comply with their statutory obligation and avoid any voiding scenarios altogether.

Peter Grant (Scottish National Party, Glenrothes)

I agree that the sensible starting point is that, if a major transaction has not complied with legal requirements, it did not happen. As the shadow Minister outlined in her comments, however, it is easy to imagine situations in which the fact of a transaction such as this becoming void could have significant impacts on people who are completely innocent of any failure to comply with the law. Is the Minister comfortable with the fact that the Bill has almost literally nothing to say about those people and that there is not provision for any kind of redress? There is no statement as to what happens to people who may quite innocently find themselves facing significant detriment through the actions and failures of others.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am grateful for the hon. Gentleman’s intervention. As I was laying out, there is precedent from other screening legislation in Germany, France and elsewhere. Of course, the hon. Member for Newcastle upon Tyne Central is concerned about the hundreds of thousands of people who may be shareholders in a company. If the acquisition was a notifiable acquisition and completed without approval, it is void, regardless of the number of shareholders.

I return to the point I was making before the hon. Gentleman’s intervention. Together, this will help the acquirers determine whether their acquisitions are in scope of mandatory notification. None the less, the Bill sets out the various ways in which an acquisition may be retrospectively validated, both proactively by the Secretary of State and in response to a validation application, where non-compliance occurs. I believe the guidance that the amendment would require the Secretary of State to publish is well meaning but fraught with difficulties.

There are a number of reasons why the Government must reject the suggested approach. First, the amendment is an invitation to the Secretary of State to, in effect, legislate through guidance to set out the legal implications of acquisitions being voided pursuant to clause 13. In our view, it would not be appropriate for the Secretary of State to do so, as it is for Parliament to legislate, but ultimately for the courts to interpret and apply that legislation.

The hon. Member for Newcastle upon Tyne Central will be aware of the much-quoted report from the House of Lords Select Committee on the Constitution, which has emphasised the importance of avoiding guidance being used as a substitute for legislation. We have no intention to do so in respect of voiding.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I confess that I am somewhat surprised by the Minister’s comments. Does he feel that all guidance is an invitation to the Secretary of State to effectively legislate through guidance? Is that something that the Minister feels is the case for all guidance? If that is the case, we will not be getting very much guidance for businesses at all. Does he not feel that, in terms of regulatory clarity, there should be effective help and guidance that is not legislation? He is right to say that it is for the legal system to interpret, but it is also right that we have clear laws to be interpreted. As the hon. Member for Glenrothes said, there is currently nothing in the Bill about what “voiding” means and what it could mean.

Derek Twigg (Labour, Halton)

Order. I remind Members to keep interventions as brief as possible.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Of course, not all guidance is guidance that the Lords Constitution Committee would have effectively considered to be a substitute for legislation. I will make some more headway, as I am conscious of the time.

Furthermore, the legal implications of voiding will depend on the particular facts of each case. It will ultimately be for the courts, as I said earlier, to resolve any disputes between parties.

Secondly, and for the same reasons, it would not be appropriate for the Secretary of State to publish guidance on who constitutes a “materially affected” person under clause 16(1). If it will assist the Committee, I will say that we consider these to be ordinary words of the English language and that whether a person has been materially affected by voiding will depend on the particular facts of each case. Ultimately, it will be for the courts to interpret this provision and to resolve any disputes between parties.

Thirdly, we do not consider guidance under paragraph (c) in the amendment to be necessary or appropriate. Final orders issued by the Secretary of State will need to be clear, and it is expected that in most instances they will follow extensive discussions with the parties so that all understand the conditions being imposed on the trigger event. That is equally true in relation to voided acquisitions scrutinised by the Secretary of State retrospectively. Where remedies imposed by the Secretary of State include restrictions on completion, it will be an objective question of fact, dependent on the circumstances of each case, whether the acquisition proceeds contrary to those conditions. This does not involve any determination by the Secretary of State, and it would ultimately be for the courts to resolve any disputes between parties, so it would not be appropriate for the Secretary of State to issue guidance setting out the “informational and evidential standards” that would apply. More generally, the value of any guidance would be limited, given that it would necessarily reflect the fact that retrospective validation will be dependent on the facts of an individual case.

The new regime understandably covers a broader range of acquisitions than is the case now. That is absolutely correct, as the hon. Lady stated. The combination of that fact with the reality that some voided acquisitions will come to light months or years after they take place and any number of events, involving numerous parties, may have occurred since then means that the Secretary of State must consider any validation application on a case-by-case basis. That is the right approach to keep this country safe, and this takes us back to the central issue that voiding is the logical result of a regime based on mandatory notification and clearance for acquisitions in the most sensitive sectors before they take place.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I sense that the Minister’s speech is coming to a close. He makes the point that voiding is the logical consequence of the new regime, based on mandatory notification. I have said that we recognise that, but, further to the intervention by the hon. Member for Glenrothes, if it is the necessary consequence, why is it not included in the impact assessment?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I thank the hon. Lady and the hon. Member for Glenrothes for their questions. It would be nigh on impossible to have an impact assessment as to what happened to a deal that should have been notified under the 17 sectors and then was voided. I believe that is something the Opposition should understand, in terms of the proportionality of the new regime, and I hope that it is something the hon. Lady and her colleagues can support. I hope that she will withdraw her amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his remarks. As I set out, we recognise the importance of this power. We were not seeking to remove the power to void—for transactions to be deemed void. But as I also set out, the two words “is void” have a huge impact, and it is of concern that neither the Bill nor the impact assessment addresses that. The Minister said that it would be impossible to assess the impact of voiding, but the impact assessment, where it looks at the number of affected businesses, estimates the number of investment decisions, notifications, security assessments and remedies. It makes estimates of all those, but has nothing to say on the number of potential voidings. That is a significant gap in the Bill and the impact assessment and, as a consequence, in the level of certainty and understanding about the Bill.

I have said a number of times that we are going from a standing start of 12 notifications in 18 years under the Enterprise Act 2002, which the Minister cited as having robust powers, to the almost 2,000 that we are expecting. Given his response, however, on which we see no likelihood of him moving, and given that we acknowledge the importance of the powers, I beg to ask leave to withdraw the amendment.

Clause 14 - Mandatory notification procedure

Sam Tarry (Labour, Ilford South)

I beg to move amendment 18, in clause 14, page 8, line 36, leave out “may” and insert “shall”.

This amendment seeks to make the Secretary of State’s prescription of regulation of the form and content of a mandatory notice mandatory.

Derek Twigg (Labour, Halton)

With this it will be convenient to discuss the following:

Amendment 19, in clause 18, page 11, line 28, leave out “may” and insert “shall”.

This amendment seeks to make the Secretary of State’s prescription of regulation of the form and content of a voluntary notice mandatory.

Clause stand part.

Sam Tarry (Labour, Ilford South)

It is an honour to serve under your chairmanship, Mr Twigg. These two amendments are simply about giving more direction. One issue that we have debated on every day of the Committee’s scrutiny so far is how the Bill will radically transform the merger control process and create an entirely new centre for that process within BEIS.

Small and medium-sized enterprises across the country will look at these changes with great interest and understanding that national security is important and imperative, but also with uncertainty as they consider the need to seek investment to grow and create jobs. We owe those businesses clarity, confidence and certainty in the new regime, which is why the amendment simply seeks to make the Secretary of State’s prescription of regulation of the form and content of a mandatory notice mandatory by deleting “may” and inserting “shall”.

The Bill gives some clarity on the assessment period and the review period under the new regime, but there is still major uncertainty about the first stage of the regime. It is unclear how long the Secretary of State can take to decide on rejecting a mandatory or voluntary notice. The Government’s consultation suggested that it would be as soon as reasonably practicable, but unfortunately that is of no assurance. For a new unit with major resourcing challenges, as soon as reasonably practicable could be far from soon.

My hon. Friend the Member for Southampton, Test spoke earlier in the week about his experience and the bad practice that could occur if the Secretary of State was left with so much discretion, rather than a little more compulsion. There are a number of examples, including the Energy Act 2013, where having “may” rather than “shall” meant that, in real terms, what was determined by the Bill never came into being.

Clause 66 of the Bill says that some clauses will immediately come into force, but it later says “may”. The Secretary of State could—hopefully he would not—wait for years or not do it at all. In both clauses referred to by the amendments, the regulations must be laid by the Secretary of State, and the term “may” creates some degree of uncertainty. It would be far better to take a more direct approach by inserting “shall”.

It is also unclear what specific form of content and information could be required in the mandatory or voluntary notices that firms and investors would have to provide. We could end that uncertainty. It is already an incredibly challenging time for firms to engage with a major new control process in the midst of a pandemic and, of course, while waiting to hear what our new relationship with the European Union will be.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank my hon. Friend for the excellent remarks he is making. Is his experience of small and medium enterprises in Ilford South the same as mine in Newcastle, in that they generally do not have the time to fill out the multiple forms required to receive grants or to apply for support? To expect them not only to respond, but to design the form and decide what should go into it is really taking our small and medium enterprises for granted.

Sam Tarry (Labour, Ilford South)

I agree. It is Small Business Saturday this weekend, and I imagine that many SMEs will be telling us when we are back in our constituencies about exactly these kinds of issues: the uncertainty, and the decisions they want to take about investment in staff, in technology and, of course, in equipment.

With this amendment we are trying to focus on ensuring that businesses have as much clarity as possible, so that they can begin to plan. If that uncertainty is ended, as we come out of the covid crisis and move forward from the debacle of Brexit, it will be better for businesses to have clarity, so that they can begin to take the positive decisions that will hopefully create jobs.

It is already challenging for firms to engage in such a tricky process. Remember that small and medium enterprises will not have the vast resources that are perhaps available to the multinationals or mergers-and-acquisitions-type companies from which we heard evidence. It will be far more frightening for SMEs to face such things given everything else they are dealing with at the moment.

The amendment would go a long way towards ending uncertainty for SMEs and ensuring that the Government act with clarity and, of course, with competence. It would require the Government to publish guidance on the form and content of the notices that firms will have to fill out. There will always be a degree of paperwork for businesses, but this is about ensuring that it can be filled in as quickly as possible. The recommendation is that guidance should create efficient forms and content requirements, and that it contains some indication of how long the Government will take to accept or reject a mandatory or voluntary notice,

Matt Western (Labour, Warwick and Leamington)

My hon. Friend is making some important points. The issue here, as he is illustrating, is simply that the pressures that SMEs face in particular are about cash-flow and attracting inward investment. They do not have the resources or the capacity to cope with those sorts of approaches and will be under huge pressure. That is why the amendment is so important.

Sam Tarry (Labour, Ilford South)

My hon. Friend makes a good point. Businesses are feeling huge pressure. SMEs will often experience a degree of fear at the moment about potentially having to grapple with a whole series of new regulations—not just under this important Bill, but under the spin-outs that come out of our ongoing negotiations with the European Union. Many businesses are, I think, holding back on investment and investment decisions—even inward investment into their own company—simply because of the uncertainty. It is incredibly important to remove those barriers and to get people back investing in both staff and technology and feeling that they have the ability to see forward far enough to keep staff on the books through such a difficult crisis.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

My hon. Friend is making an excellent point about Brexit, but I will not test the Committee’s patience on that. As for the changing forms and the requirements on SMEs, does my hon. Friend understand why the Minister is putting the onus for deciding what information is required on to small businesses, rather than on to his Department and the civil service, which could do that?

Sam Tarry (Labour, Ilford South)

One of the things that we have probed a number of times, when taking evidence from witnesses and in our debates in Committee, is the idea that we need to give businesses clarity, because many are feeling uncertain. If they cannot make decisions about forward planning, clearly that will be detrimental as we move through the crisis.

Perhaps I should refer to some of the expert evidence we heard last week. Michael Leiter, who represents a very large, global limited liability partnership, told us:

“I think this is a rather seismic shift in the UK’s approach to review of investment… having some opportunity to make sure that both the private sector and the public sector are ready for that and understand the rules…is particularly important”.––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 46, Q52.]

That was in our discussion about resourcing, and one of the questions that I and colleagues on both sides of the Committee raised was on the resourcing of BEIS. As my hon. Friend the Member for Newcastle upon Tyne Central suggested, rather than the burden falling on small and medium-sized enterprises, there should be a fully resourced and expanding new unit within BEIS. Given that the number of call-ins could rise from 12 to 1,800, as we have heard, we need a huge scaling up of BEIS’s ability to look at these, and obviously it does not have the same experience that the Competition and Markets Authority had previously.

I humbly point out that the Minister assured the House on Second Reading that:

“The investment security unit will ensure that clear guidance is available to support all businesses engaging with investment screening”.—[Official Report, 17 November 2020; Vol. 684, c. 277.]

The amendment is intended to secure that assurance in substance; not to tie the hands of the Secretary of State, but to give clarity to businesses by shifting from something that may happen to something that shall happen.

Peter Grant (Scottish National Party, Glenrothes)

It is a pleasure to serve under your chairmanship, Mr Twigg. I know that there was quite a bit of discussion in an earlier sitting, which I was unable to attend, about the different between “may” and “must”. In relation to clause 14—my comments apply also to clause 18—if we try to imagine the circumstances in which the Secretary of State would choose not to make those regulations, we realise that there are none. If no regulations have been made, most of subsection (6), which clearly is the meat of the clause, just does not make sense.

Subsection (6) states that the Secretary of State may reject the mandatory notice if

“it does not meet the requirements of this section”.

But the clause does not place any requirements on the notice. A letter that says, “Dear Secretary of State, this is a notice under section 14” would meet all the requirements of that subsection, so it cannot be rejected on those grounds. Clearly, it cannot be rejected on the grounds that

“it does not meet the requirements prescribed by the regulations”,

unless the Secretary of State has made the regulations. It can be rejected if

“it does not contain sufficient information to allow the Secretary of State to”

make a decision. How can it possibly be fair for a business to have a notice rejected on the grounds that it does not contain sufficient information to allow a decision to be made by somebody who has chosen not to state what information needs to be provided?

Therefore, two of the grounds on which the Secretary of State can reject the notice are meaningless. The third one has meaning, but it is surely not a reasonable way to treat any business. If there is information that the Secretary of State feels will be necessary to allow her or him to come to a decision on the notice, surely that information should be set out in regulations so that there can be no doubt.

It is perfectly in order for the statutory form of notice to require additional information that cannot be specified in advance. Clearly, the Bill will cover a wide range of transactions, and there will always be information that is needed for one transaction but maybe not for others, but surely we will need to know the name of the acquirer, the identity of the asset and the timing of the intent to acquire. It will be impossible to process any notice without those kinds of things, so surely the Secretary of State will at the very least make regulations requiring that information to be provided. If the Minister can persuade me that there are realistic circumstances in which the Secretary of State can choose not to make any regulations at all, perhaps I would not support the amendment, but the clause will simply not work if the regulations have not been made. For that reason, it should require the Secretary of State to make those regulations.

That is made more important by the points that the hon. Member for Ilford South made, in that subsection (5) only requires the Secretary of State to come to a decision

“As soon as reasonably practicable”.

That is about as vague and woolly a time requirement as it is possible to put in legislation. I remember, thinking back to my days in the Health and Safety Executive, that the phrase “reasonably practicable” appeared in a lot of legislation on health and safety requirements. The “reasonably” part means taking into account the other circumstances applying to the Secretary of State and the Department at the time, so if they are up to their eyes in dealing with Brexit, trade deals, getting the vaccine distributed or anything else, then “as soon as reasonably practicable” could become a very open-ended time limit indeed. As soon as the Secretary of State has decided to accept—

Michael Tomlinson (Conservative, Mid Dorset and North Poole)

On a point of order, Mr Twigg. I beg to move—

Derek Twigg (Labour, Halton)

Order. The hon. Gentleman cannot move to adjourn while a Member is speaking.

Michael Tomlinson (Conservative, Mid Dorset and North Poole)

I apologise to the hon. Member for Glenrothes; I will wait.

Peter Grant (Scottish National Party, Glenrothes)

It is easy to see that there will be circumstances where “as soon as reasonably practicable” becomes a very open-ended time limit—or non-time limit—indeed.

Given that so much of the rest of the Bill puts time limits on the Secretary of State to ensure that potentially beneficial transactions cannot be held up forever simply due to delays in the Department, the combination of the words “as soon as reasonably practicable” in subsection (5), right at the start of the process, and the massive uncertainty in the minds of businesses if the Secretary of State does not make regulations persuades me that the Bill should not allow the Secretary of State to make those regulations but should require the Secretary of State to make them, because the clause simply does not work or make sense if they are not made.

Derek Twigg (Labour, Halton)

Order. I remind the Committee that interventions should be short. If Members wish to make wider points, they have an opportunity to make a speech, so they should seek to catch my eye while the lead amendment is being moved.

Derek Twigg (Labour, Halton)

I remind the Committee that with this we are discussing the following:

Amendment 19, in clause 18, page 11, line 28, leave out “may” and insert “shall”.

This amendment seeks to make the Secretary of State’s prescription of regulation of the form and content of a voluntary notice mandatory.

Clause stand part.

Alan Whitehead (Labour, Southampton, Test)

I will not take up too much of the Committee’s time, but I wish to say a few words about the excellent contribution that my hon. Friend the Member for Ilford South has made to our continuing discussions about “may” and “must”. It is a particularly egregious case that he has highlighted. If we look at the number of “musts” that appear in clause 14—this point has been made by other Members—we see that the subsequent “musts” would fall immediately if the Secretary of State may not prescribe by regulation the form and content of a mandatory notice—so the “must” in subsection (5) is relevant only if the Secretary of State does that in the first place, as are the “musts” in subsections (7) and (8), as my hon. Friend pointed out earlier.

There is also an interesting “must” at the beginning of the clause, which relates to the mandatory notification procedure itself. Subsection (1) states that

“a person must give notice to the Secretary of State before the person, pursuant to a notifiable acquisition…gains control in circumstances”

and so on. So subsection (1) appears to stand whether or not, in subsection (4), the Secretary of State decides to prescribe by regulation the form and content of a mandatory notice. That means that a person must provide a mandatory notice, even if the Secretary of State has not prescribed any form or content of that notice. The person may therefore have no idea what is to be in that mandatory notice, because the Secretary of State has not put it in regulations, but still they must give notice because this subsection says “must”.

That does not seem to be particularly proportionate. It appears to be constructed in such a way that, regardless of whether the concept is completely unknown to the person giving the notice, it is entirely up to the Secretary of State whether he or she makes the mandatory notice in any way comprehensible. I think that is quite an odd juxtaposition in this instance of “mays” and “musts”.

The “may” in subsection (6) is perfectly acceptable, in as much as its states that:

“The Secretary of State may reject the mandatory notice on one or more of the following grounds”.

That “may” is absolutely appropriate. However, the positioning of “must” right at the beginning of the clause, and the positioning of “may” in subsection (4), does not look reasonable to me. That could easily be solved by using the word “shall”, so that the situation is proportionate between those circumstances. That is the essence of the amendment 18, as my hon. Friend the Member for Ilford South outlined earlier.

I accept that there have been a number of occasions when, although I have not particularly liked “may” going into a Bill, it has had some justification. However, the particular juxtaposition that we see here causes me to think that it is a rather important issue, as far as “may” and “shall” are concerned. I am interested to hear whether the Minister thinks that the wording could give rise to the sorts of problems that I have suggested, in the event that another Minister—not himself, of course—might be tempted not to produce such regulations when defining the form and content, because I think that could cause potential problems for reasonableness, as far as this clause is concerned.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I rise to give some thoughts on clause 14 stand part, but will also refer to the amendment proposed by my hon. Friend the Member for Ilford South. Clause 14 is a critical part of this process, because it sets out the mandatory notification procedure. In some respects, it is the mandatory notification which places the greatest burden on those falling, or who might consider themselves to fall, within its remit. This is because it requires the person who is to make a notifiable acquisition to give a mandatory notice to the Secretary of State prior to the acquisition taking place.

The clause goes on to give the Secretary of State the option to set out the form and content of the mandatory notice. I shall come back to that. It then sets out the process by which the Secretary of State “must” decide whether to reject or accept that notice. If a mandatory notice is rejected, the Secretary of State must provide reasons in writing for that decision to be made. It also sets out the timescale elements and the persons to be notified. We recognise that mandatory notifications are an important part of making the Bill have the desired impact on our national security. It is absolutely right that in key areas the onus should be on those who will be aware that the transaction is taking place to notify the Secretary of State.

However, the amendment set out by hon. Friend is all about protecting and supporting the interests of small businesses. I am concerned that the Minister does not seem to be as vigilant about reducing the burden on and setting out the guidance for small businesses as we would like. All our constituencies have small businesses—it is often said that they are the lifeblood of the economy—yet in the Bill, and particularly in the clause, the Minister is not setting out the minimum support that they might require.

My hon. Friend the Member for Southampton, Test got to the nub of the matter in one of his very informative discussions about the difference between “must” and “may”. He observed that the “must” falls on the person who has to do the notifying. For example, it could be a small artificial intelligence start-up with a few members of staff, none of whom is a lawyer—remember that there are no de minimis provisions in the Bill for the size of the acquisition that must be notified—that is seeking investment from a foreign party. That start-up would be asked to indicate whether that investment would involve making a notification. Not only that, it must decide itself the form that the notification should take.

I really cannot understand why the Bill apparently seeks to give discretion to the Secretary of State to lighten his load, but not to our fantastic small businesses or to business generally. As my hon. Friend the Member for Ilford South said, why should a small business, the notifier, also have to set out the format in which its notification takes place? Given that the clause sets out,

“The Secretary of State may by regulations prescribe the form”,

why can we not simply turn that into “shall by regulation prescribe the form and content of a mandatory notice”?

Equally, when voluntary notices are considered, I hope the Minister has some ideas about what should be in the notification. If he does, is it not simple and desirable for him to share his ideas with our business community, which in less than a month’s time is facing a huge change in how it trades and does business with the European Union, our largest trading partner by value? That involves countless new forms to be filled out, as we have discussed in the Chamber, some of which are not yet designed. At the same time that that is happening, to require that they should decide for themselves what is involved in a notification seems wholly unacceptable.

On that basis, I ask the Minister to set out whether he intends to accept the amendment. If not, will he tell us what work has gone on in the Department to look at the kind of information might be required? How will the impact assessment assess the likely level of familiarisation required for this legislation—there is a phrase that says that there is not expected to be a huge amount of familiarisation required in it—while at the same time there is no guidance, assessment or inkling about the kind of information that will be required to be included in that notification?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am grateful to the hon. Members for Ilford South, for Southampton, Test, and for Glenrothes, as well as to the shadow Minister, the hon. Member for Newcastle upon Tyne Central, for their contributions on this set of amendments and clause 14. With the agreement of the Committee, I will begin with clause 14 stand part and then turn to the amendments.

Clause 14 provides a mechanism for proposed acquirers to notify the Secretary of State of notifiable acquisitions, which are those circumstances covered by clause 6. Contrary to what the hon. Member for Newcastle upon Tyne Central said, we on this side of the House really do care about small business; indeed, we will be celebrating Small Business Saturday by highlighting the great small businesses that are trying to recover from covid-19. To avoid duplication or unnecessary burden for businesses and investors, if the Secretary of State has already given a call-in notice in relation to the proposed notifiable acquisition, no notification is required. Otherwise the proposed acquirer must submit a mandatory notice containing the necessary information for the Secretary of State to make a decision about whether to exercise the call-in power.

The Government carefully considered which parties should be legally responsible for this notification. In many cases we expect this to be a collaborative process between parties that have an aligned aim for the acquisition to take place. However, there may be instances where an acquirer who is purchasing shares from a number of individual sellers is the only party aware that, in totality, they are carrying out a notifiable acquisition. For example, if an acquirer buys 10% equity in an entity specified under the mandatory regime from two separate sellers—20% in total—each seller may be operating under the assumption their transaction does not meet the threshold of a notifiable acquisition. Equally, the entity itself may be unaware of these acquisitions until after they have taken place. As such, only the acquirer can reasonably be expected to know that their activities constitute a notifiable acquisition and the responsibility to notify therefore rests with them.

The precise information that will be required and the form of the mandatory notice will be set out in regulations by the Secretary of State in accordance with subsection (4). For the convenience of the House, the Government have recently published a draft of the information that is likely to be required in a mandatory notice. As hon. Members might expect, this is likely to include all the pertinent details about the acquisition, including the target entity, the nature of its business, the assets it owns, the parties involved, the details of the equity stake and any other rights that form part of the acquisition—for example, any board appointment rights.

Following acceptance of a satisfactory notification—for example, conforming to the format and content prescribed —the Secretary of State then has up to 30 working days to decide whether to exercise the call-in power, or to take no further action under the Bill. The Secretary of State will be entitled to reject a mandatory notice where it does not meet the specified requirements, or where it does not contain sufficient information for him to decide whether to give a call-in notice.

The nature of the information required should mean that such instances are rare, but it is crucial that the requirements of the notice are met in order for the 30-working-day clock to start only at the point the Secretary of State is in a position to make an informed decision. By the end of the 30-working-days review period, the Secretary of State must either give a call-in notice or notify each relevant person that no further action will be taken under the Bill. In effect, the latter clears the acquisitions to take place unconditionally.

The power to specify in regulations the content and form of the mandatory notice is an important one, as the Secretary of State may need to change this over time in response to the operation of the regime in practice, and in response to the volume and quality of such notices given and rejected. I certainly believe that this approach ensures that Parliament can scrutinise any such changes. This clause is a procedural necessity to give effect to the mandatory notification regime once notifiable acquisition regulations have been made, and I trust that it will be supported by both sides of the Committee.

Amendments 18 and 19 are designed to require the Secretary of State to make regulations specifying the form and content of a mandatory or voluntary notice, ensuring that the parties have clarity on what information they need to provide in order to have properly notified. That is undeniably important—I share the focus of the hon. Member for Ilford South on that point—so this is an entirely sensible proposition. I suggest, however, that the amendments are unnecessary because the Bill as drafted already achieves that aim.

In practice, in order for the notification regime to operate, the Secretary of State will first need to make regulations specifying the form and content of a notification, regardless of whether clauses 14 and 18 say that he “may” or “shall”. I pay homage to the hon. Member for Southampton, Test for introducing that experience to the Committee. Regardless of whether clauses 14 and 18 say that the Secretary of State “may” or “shall” make such regulations, the notification regimes cannot operate without the notification forms being prescribed in the regulations.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I am somewhat confused. The Minister is saying that clause 14(4) in its entirety is unnecessary, because those things are already prescribed. Will he set out in more detail where they are already prescribed? He argues that they are already prescribed, but where are they prescribed?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Let me make clear to the hon. Lady what I actually said, which was that whether clauses 14 and 18 say that the Secretary of State “may” or “shall” make such regulations, the notification regimes cannot operate without the notification forms being prescribed in regulations. My point is that whether the clauses say “may” or “shall”, it makes no difference. I therefore hope that the hon. Member for Ilford South will withdraw the amendment.

Sam Tarry (Labour, Ilford South)

I have listened carefully to the Minister, and I feel that several issues have not been fully explored. The whole point of the amendment is to compel the Secretary of State to be clear that those regulations will be forthcoming in a timely manner, along with the reassurances that small and medium-sized enterprises seek. The amendment would mean that it was not the Secretary of State’s choice when or whether that happened. The use of the word “shall” would allow us to move forward more directly, because the Secretary of State would be compelled to do that as quickly as possible. On that basis, I will press the amendment to a Division.

Clause 15 - Requirement to consider retrospective validation without application

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Clause 15 places a duty on the Secretary of State to consider whether to retrospectively validate a notifiable acquisition that was not approved by him before it took place. As I made clear in reference to clause 13, a notifiable acquisition that is completed without the approval of the Secretary of State is void. It is in the interests of all parties to avoid that situation, and voiding should act as a powerful incentive for compliance.

None the less, there may be instances where a notifiable acquisition takes place without approval and is therefore void, but the outcome is not a permanent necessity. This clause places a duty on the Secretary of State, following the point at which he becomes aware of the acquisition, to either exercise the call-in power in relation to the acquisition within six months or else issue a validation notice. A validation notice provided for by this Bill has the effect of treating the acquisition as having been completed without the approval of the Secretary of State, as though it were never void.

There are a number of circumstances in which the Secretary of State may decide not to issue a call-in notice in relation to a void acquisition. For example, as the Secretary of State may only call in trigger events, he may decide that the acquisition does not give rise to a trigger event—for instance, the acquisition of a 15% equity stake in a specified entity is a notifiable acquisition, but is not in and of itself a trigger event. A 15% stake may or may not, depending on the facts of the case, amount to or form part of a trigger event, namely the acquisition of material influence over the policy of the entity.

Alternatively, the Secretary of State may reasonably suspect that a trigger event has taken place but not reasonably suspect that it has given rise to, or may give rise to, a national security risk. In those situations, this clause requires the Secretary of State to give a validation notice in relation to the notifiable acquisition, which in effect provides the retrospective approval for the acquisition and means that it is no longer void. I should be clear that retrospective validation does not change the fact that the acquirer may have committed an offence by completing the acquisition without first obtaining approval. If an offence has been committed, criminal and civil sanctions will be available and may be used to punish that non-compliance.

As provided for by subsection (2)(a), where the Secretary of State decides, following consideration of a void acquisition, to exercise the call-in power in relation to it, he must give a call-in notice to the acquirer and such other persons as he considers appropriate. For the purposes of considering whether a trigger event has taken place under the Bill, including when deciding whether to exercise the call-in power, clause 1(2) provides that the effect of any voiding must be ignored, meaning that a notifiable acquisition that has been completed without approval can still amount to, or form part of, a trigger event even though it is of no legal effect.

This approach has been taken because a legally void acquisition may still result in a de facto exercise of the rights purportedly acquired and, consequently, a risk to national security. Where the call-in power is exercised in relation to a void acquisition, the case follows the conventional assessment process and is subject to the same statutory timelines and information-gathering powers. At the end of this process, the Secretary of State may decide to unconditionally clear the acquisition, resulting in a validation notice being issued and the acquisition no longer being void. Alternatively, he may impose remedies in a final order.

Alan Whitehead (Labour, Southampton, Test)

I have a brief inquiry, following the Minister’s recent letter to me on a previous point raised in Committee, for which I thank him for his prompt attention. If a hostile company takes over another company, effectively puts it into liquidation and walks off with the intellectual property, patents and various other things, and those are out of the door by then, will it be necessary to provide a validation for the transaction, if it has not been previously notified or noticed, and to then pursue the consequences of that validation by subsequent means, given that the company was presumably in existence at the time of the validation, if not thereafter? Would that perhaps not be a cumbersome procedure?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am grateful to the hon. Gentleman for that question; I will write to him on that point, rather than attempting to go through our thinking on this. He raises an important point on what happens after the effect.

Where the final order has the effect of clearing the acquisition outright, subject to conditions, the Bill provides that the acquisition is no longer void. Where the final order has the effect of blocking all or part of the acquisition, the Bill provides that the acquisition remains void to that extent. Further provision on this particular situation is made in clause 17. The deadline of six months for giving either a validation notice or a call-in notice was chosen by the Government to align closely with the Secretary of State’s other requirements to act within certain timescales under the Bill.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his promise to write to my hon. Friend the Member for Southampton, Test. The Minister mentioned on a number of occasions that a transaction is no longer void when a validation notice has been given. However, the transaction was void when completed, because it was completed without approval, so there will have been a period when it was void. What are the legal implications of that period?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Is the hon. Lady is talking about a period when the Secretary of State was not aware of the transaction being void? If he is unaware of it, he is unable to act. It is only once he becomes aware, through a screening process or notification—

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I want to explain myself better. The question is not about what the Secretary of State can do, because I clearly understand that he cannot act on what he is not aware of. The fact of the transaction being deemed legally void for a period, which it will have been, may have some legal implications for the owners or the customers or whoever.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Again, I am happy to write to the hon. Lady on that. Clearly, only when the Secretary of State is aware that a transaction is clearly in breach of the Bill is it then void. I am not clear as to what she is saying. Is she asking about before he is able to act?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Let me clarify. Clause 13(1) states:

“A notifiable acquisition that is completed without the approval of the Secretary of State is void.”

It is void at the time it is completed, not at the time the Secretary of State becomes aware of it. Sometime later, the Secretary of State becomes aware of it and gives a retrospective clearing of it, but there will regardless have been a period where that transaction was void. What are the legal implications for the owners? It seems to me that having a transaction being void for a period would have some legal implications, regardless of whether the Secretary of State has cleared it.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Again, I am happy to write to the hon. Lady on that point. Maybe I am being thick here, but the transaction only becomes void once the information is available to the Secretary of State. Is she talking about before that period?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

My understanding is that it becomes void at the point when the transaction is completed. At some point after that, the Secretary of State gives a retrospective validation, but there is nevertheless a period of one year, or however long it takes, when the transaction was void. Does that not have legal implications?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am happy to write to the hon. Lady on that point. What I think she is talking about is about the gap between the Secretary of State being aware and when the transaction actually took place, because the date where it is void is the date of the closing of that transaction, but I am very happy to write to her about that.

It is not in the interests of either the Government or the parties for the Secretary of State to have an unfettered ability to issue a call-in notice, perhaps long after he becomes aware of the notifiable acquisition. This approach provides a sensible mechanism for resolving the effects of automatic voiding arising from failures to receive clearance. I reassert my view that such situations should be rare, but it is only proper that the Bill provides such a mechanism for the Secretary of State to resolve them satisfactorily, should they arise. I hope hon. Members agree with that position.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank all the hon. Members for their contributions, and the Minister for his remarks and his good humoured response to the interrogation on certain parts of this important clause. I recognise the importance of the clause and the importance of considering retrospective validations without application giving the all-consuming power through the voiding of notifiable acquisition without the approval of the Secretary of State. This debate has illustrated the need for greater clarity.

In the absence of the additional guidance that we were looking for in our earlier amendment, this has the possibility of becoming a legal goldmine for lawyers who are requested to give advice on what would or would not constitute a void transaction at what time. I raise that in the context of the requests of my hon. Friend the Member for Southampton, Test and myself for greater clarity about the period, which may represent some sort of legal limbo, between when a transaction takes place but before it is given retrospective approval. However, we do not oppose the clause.

Clause 16 - Application for retrospective validation of notifiable acquisitionClause 16

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Clause 16 provides a mechanism for any person materially affected by a notifiable acquisition being void to make an application to the Secretary of State to retrospectively validate the acquisition. Although there is a duty in clause 15 for the Secretary of State to give a validation notice or a call-in notice within six months of becoming aware of the acquisition, we recognise that in practice that is often likely to be a process driven by the parties themselves. It may be, for example, that a party realises that their transaction was a notifiable acquisition only after the event, and wishes to take proactive steps to resolve the situation. The clause allows them to make a formal application for retrospective validation, following a similar process to the conventional mandatory notification route.

Subsection (3) enables the Secretary of State to make regulations prescribing the form and the content of a validation application. It is likely that that will closely resemble the mandatory notification form, given all of that information remains pertinent to the Secretary of State’s decision on whether to give a call-in notice. The Secretary of State will be entitled to reject the application where it does not meet the specified requirements, or contain sufficient information for him to decide whether to give a call-in notice.

If the validation application is accepted, all relevant parties must be notified and a 30 working-day review period begins. By the end of the review period, the Secretary of State must issue either a call-in notice or a validation notice. Once again, if a validation notice is issued, the acquisition is no longer void and the Secretary of State must confirm that no further action under the Bill will be taken in relation to that acquisition. As is the case with clause 15, retrospective validation through that route does not provide immunity against criminal or civil sanctions being pursued.

Validation does not change the fact that a notifiable acquisition did not have the Secretary of State’s approval prior to taking place. This is simply about how the acquisition itself should be treated, following the screening of all pertinent details relating to the acquisition. I hope that hon. Members will be supportive of parties being able to apply to the Secretary of State for a validation notice, and that they will see clause 16 as part of our business-friendly approach to the investment screening regime.

Alan Whitehead (Labour, Southampton, Test)

This is more of a slightly extended intervention than a speech. The Minister has set out very clearly what the clause means and how it is to be operated, but I am not sure that he completely covered what the opinion of the Secretary of State may consist of. I am looking at subsection (8), which refers to the Secretary of State’s opinion that

“there has been no material change in circumstances since a previous validation application in relation to the acquisition was made.”

My concern is that the words “material change” are potentially subjective. That may be overridden by the fact that it is

“in the opinion of the Secretary of State”,

but there is no definition of what a material change might be considered to be, and what the boundaries of a material change consist of.

The provision does not say “no change”; it says “no material change”. Does the Minister consider that that is safe enough, in terms of the Secretary of State’s opinion overriding the material change, or does he consider that the subjectivity of a material change is potentially actionable if the Secretary of State were to say that there has been no material change, but somebody decided that the Secretary of State’s opinion was not reasonable or proportionate in the context of what has happened to a particular company?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I think the hon. Gentleman has answered his own question. Obviously, I do consider that the Secretary of State’s ability on the opinion is safe.

Clause 17 - Retrospective validation of notifiable acquisition following call-in

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Clause 17 provides for the retrospective validation of notifiable acquisitions that have been completed without approval, following the giving of a call-in notice in either of the situations covered by clauses 15 and 16. The previous two clauses detail how the Secretary of State may give a call-in notice in relation to a notifiable acquisition that has been completed without approval and is therefore void, either on his own initiative after he becomes aware of the acquisition or following a validation application.

Following call-in, there is a national security assessment process. The Secretary of State has a period of 30 working days to either make a final order imposing remedies or give a final notification confirming that no further action will be taken under the Bill in relation to the call-in notice. The Secretary of State may extend the assessment period by an additional period of 45 working days where the legal test is met. If a further legal test is met, the Secretary of State may agree a further extension or extensions with the acquirer.

Where the Secretary of State gives a final notification, in effect giving unconditional clearance to the acquisition, subsection (2) requires him to also issue a validation notice, which means that the acquisition is no longer void. That is because voiding cannot be maintained if there is no national security justification for it. Copies of that validation notice must be given to each person who receives a copy of the final notification, any person who made a validation application and anyone else the Secretary of State considers appropriate.

Alternatively, where, following the assessment process, the Secretary of State makes a final order imposing remedies, subsections (4) and (5) provide for so much of the void acquisition as is compatible with the final order to be validated. It may be helpful if I explain what that means, with some specific examples.

Where a final order has the effect of clearing the acquisition outright, subject to conditions, it means that the entire acquisition is no longer void. Where a final order has the effect of blocking all or part of the acquisition, the acquisition remains void to that extent. That means, for example, that where the Secretary of State decides that it is necessary and proportionate, for the purpose of safeguarding national security, to block 51% of a void 100% acquisition of an entity through a final order, 49% of the acquisition will be validated and the remaining 51% will remain void.

The Bill does not seek to prescribe how such a decision is delivered by the various parties in all circumstances. The Government recognise that some acquisitions may involve a range of sellers and the Secretary of State may not wish to stipulate in every case which constituent parts of the notifiable acquisition should remain void and which should be validated. Rather, we expect the Secretary of State to set out the end state that the acquirer must arrive at and to consider proposals from them to meet these obligations as part of the assessment process before a final order is made.

Any dispute between the parties arising out of how the void or validated elements are chosen will be a private matter for the parties. The Bill does not attempt to limit or cut across any restitutive action taken by the parties against one another if they deem it necessary as a result of the notifiable acquisition, or a proportion of it, remaining void.

This overall approach absolutely fits with our desire for the regime to be as reasonable and proportionate as possible. We have incorporated requirements for notifiable acquisitions to be retrospectively validated where the call-in power is not exercised in relation to them: where they do not pose a risk to national security, for example, or where the call-in power is exercised but ultimately no further action is taken in relation to them after the assessment process. We have developed a tailored approach through this clause, which provides for so much of a void acquisition as is compatible with a final order, and therefore with national security, to be validated automatically.

This is the legislation of a Government seeking to balance the country’s national security and prosperity interests. I hope colleagues on both sides of the Committee will support that approach in the clause.

Clause 18 - Voluntary notification procedure

Nadhim Zahawi (Conservative, Stratford-on-Avon)

The Government are committed to providing as much certainty as possible for business. The clause therefore provides parties with a mechanism to require the Secretary of State to decide whether a trigger event outside the mandatory notification regime will be called in. If parties wish, they may notify the Secretary of State of such a trigger event when it is in progress or contemplation or, alternatively, after it has taken place. Any early notification will allow businesses to plan for, and mitigate, any issues that may subsequently arise.

Following the acceptance of a satisfactory notification—one that conforms to the prescribed format and content, for example—the Secretary of State has up to 30 working days to decide whether to exercise the call-in power or to take no further action under the Bill. Businesses can rest assured that where the Secretary of State decides to take no further action following assessment of a notification, that decision may not be revisited further down the line. The only exception is if the Secretary of State has been given false or misleading information in relation to the decision not to issue a call-in notice, but I expect such instances to be few and far between. On those rare occasions where the notified trigger event does require further action, early notification means that parties can also factor in a security assessment following a formal call-in early on in their commercial timelines.

I hope that the Committee will agree that that is a pragmatic approach that provides the Secretary of State with the time he requires to properly screen trigger events, while giving businesses as much certainty as possible about when they can expect decisions. I would go further and say that the Government would welcome informal discussions with parties before the notification stage begins. That would allow parties to prepare for a potential assessment, while also allowing the Secretary of State to better understand the trigger event.

This is part of our commitment to working with investors and businesses in as transparent a manner as possible while protecting national security. However, I stress that a formal notification procedure is still required to enable the Secretary of State to make an informed assessment of the trigger event based on a full suite of information. I hope that hon. Members recognise the length the Government are going to to put in place a robust regime that both protects national security and retains business and investor confidence. The voluntary notification procedure, alongside the mandatory notification part of the regime, helps to strike that balance and will, I believe, work in the interests of all parties.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his remarks. He is aware of the Opposition’s concerns about the voluntary notification procedure. I shall not repeat what he has said, and we recognise the importance of the clause and of having such a procedure. As with the mandatory notification procedure, the Minister has rejected our request for a requirement to set out the form of that notification. I would like to press him on this and to ask whether he would perhaps write to me to set out formally where it is that the pre-existing requirement that he said exists says that the Secretary of State “must”, rather than “may”, set out the form for the voluntary notification. I am also not clear whether the voluntary notification form format and information requirements are the same as those for the mandatory notification, given the difference in one being voluntary and one mandatory. Clarification on that would be helpful.

We agree considerably that we want to minimise the burden on businesses and the chilling effect on investment, while securing national security. The clause is an important part of that, so we will not oppose it.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am very happy to write to the hon. Lady; I thought that I had touched on that in my earlier remarks. The forms should be very similar, because ultimately the decision-making process of the Secretary of State, whether the notification is voluntary or mandatory, will pretty much be the same thing. I am happy to clarify that in writing.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for that intervention, and we will not oppose clause stand part.

Clause 19 - Power to require information

Alan Whitehead (Labour, Southampton, Test)

I beg to move amendment 20, in clause 19, page 12, leave out lines 24 to 27.

This amendment seeks to broaden the Secretary of State’s powers to require information.

Derek Twigg (Labour, Halton)

With this it will be convenient to discuss amendment 21, in clause 20, page 13, leave out lines 17 to 20.

This amendment seeks to broaden the information gathering powers of the Secretary of State, in specific regard to witness attendance.

Alan Whitehead (Labour, Southampton, Test)

I ought to explain to the Committee that the Opposition are under some multi-tasking pressures this afternoon, Mr Twigg. I should have been in the previous debate in the main Chamber on the future of coal, in my role as energy Front-Bench spokesperson for Labour. I managed to factor that job out to somebody else in order to be here in the Committee this afternoon, and I am sure that the Committee is delighted to hear that. Unfortunately, there was no such luck for the shadow Minister, my hon. Friend the Member for Newcastle upon Tyne Central.

Katherine Fletcher (Conservative, South Ribble)

I thank the hon. Gentleman for highlighting that our time is precious in the House. I, too, was hoping to be in the future of coal debate, to highlight the importance of the West Lancashire light railway. I thank him for bringing it to the attention of the Committee.

Derek Twigg (Labour, Halton)

I think we should stick to the business.

Alan Whitehead (Labour, Southampton, Test)

I just wanted to explain the musical chairs that have gone on this afternoon, Mr Twigg.

Derek Twigg (Labour, Halton)

We are very grateful.

Alan Whitehead (Labour, Southampton, Test)

The amendments relate to clauses 19 and 20. Amendment 20 might be regarded as slightly unusual, as it seeks to remove a number of sentences in the Bill: to be precise, lines 24 to 27 on page 12—it would remove clause 19(2), while amendment 21 would remove clause 20(2). The Minister might be saying to himself that Oppositions usually try to restrict Ministers’ powers, yet here we are trying to extend their powers through these amendments. I want to explain why we think that is important.

We want to hear from the Minister why he thinks those particular paragraphs should remain in the Bill, and how the restriction that they place on the Secretary of State’s activity is advantageous to the Bill’s main purpose. The paragraphs that the amendments would take out relate to the power to require information and the power to require the attendance of witnesses and seek evidence. I am sure that hon. Members can read clause 19 for themselves, but I will point out the key part:

“The Secretary of State is not to require the provision of information under this section except where the requirement to provide information is proportionate to the use to which the information is to be put in the carrying out of the Secretary of State’s functions under this Act.”

That is to say that unless it can be, or is, established that the requirement to provide information is proportionate to what the Secretary of State wants to do under the Act, the Secretary of State is not able to require the provision of information. That is effectively what the clause states.

We have already heard during evidence to the Committee that there may well be a complex web when it comes to getting information and working out what is and is not relevant, particularly if a hostile power or body is seeking to take over a company or gain access to its information and IP. The information may well not consist of what it appears to consist of, or there may be a number of paths by which that information can be obtained.

From our expert witnesses we heard some interesting examples of things they thought looked rather far from the central activity of information provision. For example, on academic projects, in his expert evidence, Charlie Parton from the Royal United Services Institute told us:

“It is quite difficult to distinguish some of these and to know about them all, but a few weeks ago The Daily Telegraph did a story on, I think, Oxford University and Huawei’s commissioning of research. I think there were 17 projects. I looked at those, and I am not a technologist by any means, but some of them rang certain alarm bells.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 6.]

He was suggesting that, of a number of those postgraduate and PhD projects, there were some that he might have put a question mark against and others not, but he was not sure which were which. Nevertheless he seemed to think that some of those research projects—although they were cited within the ordinary parameters of whatever the research project might be, and who might be collaborating with whom, and who might get what information out of that—might ring alarm bells. That was in terms of who was collaborating, how the information might be used and where it might be going.

Peter Grant (Scottish National Party, Glenrothes)

I think I understand what the amendment is intended to achieve, but is not the hon. Gentleman concerned about the danger of almost explicitly building in a recognition that the powers in the Bill do not have to be used proportionately?

Alan Whitehead (Labour, Southampton, Test)

The hon. Gentleman raises an important point. I will come to the word “proportionate” in a moment, because that is an important part of this clause. I hope I can satisfy him about my concerns about the word “proportionate”. He may want to come back when we have that discussion.

We heard from Sir Richard Dearlove, who said that,

“the Chinese are highly organised and strategic in their attitude towards the West and towards us. For example, some of the thousands of Chinese students who are being educated in Western universities, particularly in the UK and the United States, are unquestionably organised and targeted in terms of subjects”.––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 19.]

Before we go any further, perhaps I should say that I have nothing against Chinese students coming to the UK. On the contrary, I think that in general, Chinese students in UK universities is a very positive thing, and spreads a very good element of international learning into the process. I also think we might be reasonably confident that those Chinese students are getting as much from us, in terms of our way of life and our way of organising things, as we are from them. I do not think Sir Richard Dearlove’s point was partial towards Chinese students, but he made the point that he thought that some of those students may have targeted, or have been targeted towards, particular subjects and areas in the UK and the United States. Again, that is extremely difficult to find out and go forward on.

I am citing those particular expert witnesses in the context of this area of information, particularly concerning somebody—a company, an organisation, or indeed a state actor—that has hostile, malevolent intent towards the information that they have. It is not very likely that they will simply present that information in a ring binder with coloured markers, specifying where the various bits are; it is a very different process indeed. The clause therefore appears to very much limit the extent to which the requirement to provide information can be carried out, and it does so by requiring the provision of information to be proportionate to the use to which the information is to be put.

The word “proportionate” is very important here, and is potentially a real problem in terms of ensuring that the search for information that may be necessary by diverse means can be carried out properly. On the surface, looking at the ordinary language, one might say that the use of the word “proportionate” is a thoroughly good idea. If we apply the ordinary language test—what is the opposite of proportionate?—the opposite would be unproportionate; we would not want the Secretary of State to go about this in an unproportionate way. However, in legal terms, the word “proportionate” has rather a different context,

Proportionality as a legal term is a relative newcomer to the legal lexicon. It entered the legal arena—I am not saying that it had not been used before, but it was put forward as a concept around which a lot of other matters might turn—with the civil litigation reforms introduced in April 2013, known as the Jackson reforms. They covered the concept of proportionality in legal terms as it relates to costs in legal cases, but the question of proportionality was discussed in a wider context. The concept of proportionality, which had not been a particular issue in legal matters before, stuck itself firmly into the legal lexicon. Since then, there have been a number of debates about whether ways of apportioning legal costs were proportionate, even if they might otherwise be seen as reasonable.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Riveting!

Alan Whitehead (Labour, Southampton, Test)

Yes, it is. Only one Member has left the room, so we are still in good order.

Peter Grant (Scottish National Party, Glenrothes)

I fear that the hon. Gentleman is taking the definition of proportionality into a context very different from what is mentioned here in the Bill, because this is not about whether the costs of civil proceedings are justified by the likely outcome, or even how those costs should be divided among the parties.

My reading is that subsection (2) is there to prevent a future Secretary of State—obviously, no one in the present Government would ever do this—from imposing extremely onerous requirements on a business, when it was perfectly possible for the Secretary of State to do due diligence and do the checks he needed to do without that information’s being provided.

I have not heard anything from the hon. Gentleman that would explain why he wants that protection to be taken out. He has said a lot about Chinese students, who may or may not collectively be working against our national interest, but this clause does not protect against that. What does the hon. Gentleman have against the idea that the Secretary of State is not allowed to put unreasonable and onerous demands on businesses when there is no clear benefit to national security of those demands’ being made?

Alan Whitehead (Labour, Southampton, Test)

I hope that the hon. Gentleman will bear with me a few moments longer. Having unpacked “proportionality” in legal rather than colloquial terms, I want to put it back into the clause and see how it works, as far as the concerns of the Secretary of State go.

Indeed, the hon. Member for Glenrothes has questioned what we want to do on this clause in terms of the colloquial understanding of “proportionality”. I have mentioned how “proportionality” has come into the legal arena, specifically in terms of costs. Nevertheless, “proportionality” is now loose in the legal arena, so there is an interesting area of debate about it in general in the legal arena. That is not necessarily solely attached to the question of costs and civil litigation.

The problem is that there is virtually nothing to define that wider issue of proportionality in case law at the moment. Placing that word back into this particular clause suggests to us that the Secretary of State is restricted considerably on how that information may be gathered. The hon. Member for Glenrothes talked about research projects and various other things listed to us by our expert witnesses. I emphasise that I do not want to undermine those research projects or the presence of Chinese students. All I want to underline from that is that, on occasions, the process of getting hold of information and requiring people to give evidence can be convoluted. Indeed, it may require seeking information by going down paths that are not immediately apparent. As I say, it is not a question of someone turning up with a ring binder of things that can be perused.

In this clause, it appears that the Secretary of State may well have denied him or herself the ability to get hold of information, because it states that it has to be

“proportionate to the use to which the information is to be put in the carrying out of the Secretary of State’s functions under this Act.”

But he or she will not know about that information until it has been obtained. If there are difficulties in getting hold of the information, he or she will never know whether it is useful for carrying out his or her functions, because there is already a limit on getting the information in the first place.

I have brought the rather wobbly legal status of proportionality into the debate because it is potentially actionable through an obfuscation or refusal to put information forward by those actors. An actor who was required to give information could say, “It appears to me, your honour, that this request for information is not proportionate.” Of course, the Secretary of State may have a different point of view about what is proportionate from the person who is required to give the information.

There is also a vagueness in the application of the term “proportionate”. Although we think we know what it means in common language, that is not the case in the courts. That could be an additional issue that affects the Secretary of State’s ability to get the required information to make a judgment, over and above the fact that he or she may not know that until the information has been collected. So there are two procedural problems in the clause.

The hon. Member for Glenrothes said to me, to put it bluntly, “What exactly are you driving at? Perhaps it is not a good idea to appear to enable the Secretary of State to act disproportionately.” Of course, that is not what we are saying. We know that the Bill is more or less a giant amendment to the Enterprise Act 2002. Indeed, if hon. Members look at the back of the Bill, they will see that that is the only Act amended by it. Several amendments are made to the 2002 Act, but that is it—it is still sited within that Act. That Act was drawn up before the civil litigation changes to proportionality were put in place. The test set out in that Act, which is not amended by the Bill, is one of reasonableness, which is well understood, widely commented on and pretty clear.

If hon. Members consult the 2002 Act, they will see in clause 55 that the Secretary of State, in terms of enforcement, shall take such action

“as he considers to be reasonable and practicable to remedy”.

Therefore, we are not saying that the Secretary of State by acting disproportionately should act unreasonably. We are suggesting that the test that should be carried out is one of reasonableness, and should be in this particular clause. As the Enterprise Act already does, that would indeed prevent the Secretary of State going on fishing expeditions and undertaking actions that are wholly disproportionate because they would be unreasonable in terms of the definition of the Act. Our suggestion is to stick by that definition, which would be good enough to restrict the Secretary of State under the different circumstance that we are in today, in terms of seeking information. At the same time, it would give the Secretary of State the ability to take a path—I have said it is often a convoluted one—to obtain information that can be judged and used for the purpose of this Bill. I hope that the Minister will be favourably inclined towards that slight, but constrained, addition to his powers under this legislation.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I am very pleased to be able to respond to the hon. Member for Southampton, Test on these well-intentioned amendments. I assure him that the Government and the Secretary of State will not be relying on a ring binder with highlighted paragraphs, because we have some of the best security and intelligence agencies in the world that would input into that process. It is an absolute joy to see Her Majesty’s Opposition play such a constructive role in the scrutiny of legislation, and to hear such a thoughtful speech.

Amendment 20 would remove subsection (2) of clause 19, through which the Secretary of State will be able to request information only through an information notice, where such requirements to provide information are proportionate. I agree with the hon. Member for Glenrothes on the issue. We have debated the fact that it is actually up to the courts to interpret if a particular acquirer feels somehow hard done by as a result of the process, and that there is a process to go through. The requirement to provide information is proportionate to the use to which the information is to be put in carrying out the Secretary of State’s functions under the Bill.

Amendment 21 seeks to remove subsection (2) of clause 20. Clause 20 enables the Secretary to require the attendance of witnesses and the giving of evidence. Therefore, clause 20 is complementary to clause 19, as it provides, for example, for the Secretary of State to receive expert explanation in person from those involved in a trigger event where the information previously provided does not give sufficient clarity. Clause 20(2) has a similar effect to clause 19(2). It means that the Secretary of State will be able to request information only through an attendance notice where requirement to give evidence is proportionate to the use to which the evidence is to be put in the carrying out of his functions under the Bill.

In response to both amendments, and mindful of the time, I can say that it is our view that any power of the Secretary of State to require the provision of information under clause 19, or to require the attendance of witnesses under clause 20, must be proportionate—indeed, the information-gathering powers are already significant. The Secretary of State may require information from any person in relation to the exercise of his functions under the Bill, which includes various stages of the procedure both before and after the call-in power is exercised. This may include requiring the provision of personal and commercially sensitive information about the parties in relation to a trigger event. There is good reason to include the restriction that any information required by the Secretary of State is proportionate to the use to which it is to be put in carrying out his functions. It is important that there are the safeguards for business. I have to say that I did not expect to be in the position of arguing against greater powers for the Executive from the legislature. It is clear to me, though, that business confidence and our reputation for being open for investment require it.

I hope that I have provided sufficient points of reassurance on these matters, and encourage the hon. Gentleman to withdraw his amendment.

Alan Whitehead (Labour, Southampton, Test)

I appreciate what the Minister has had to say. He is clearly confident that the fine print of this clause is not going to be a problem. I slightly beg to differ: I think it may be. I also wonder whether the Minister has considered the extent to which what is already there—or, should I say, what I think is already there—in the Enterprise Act 2002 effectively restricts the Minister in his actions, in much the same way as this clause does, except that the restriction is much clearer from a legal point of view. That is to say, by relying on the restrictions that are already in the Enterprise Act, the Minister would probably not act any differently from how he would under this particular clause, but by relying on that element of the 2002 Act, his actions would be far less potentially actionable.

Before the Minister gets carried away by the idea that the legislature, or in this instance the Opposition, is clamouring for the Secretary of State to have far more powers, that is not our case. Our case is that it would be rather wiser to restrict what the Secretary of State may do through clearer legal definitions, which are already there, than through the rather woolly definition that is in the Bill. Before the Minister goes home thinking, “I have free rein to do whatever I like now”, that is not so: it is not so according to the Enterprise Act 2002, and it is something we want to stand strongly by. We do not want to underscore the idea that the Minister can act unreasonably, especially since the phrase “acting unreasonably” has a long pedigree, both in terms of civil action and administrative law over a long period of time.

I am sorry that the Minister does not accept our case, with all the caveats on it, although it may be that he is less inclined to accept the case now that we have highlighted the fact that there are caveats on what the Minister can do. I do not think we want to press this amendment to a Division, but we do so rather more in sorrow than in anger, because we think this could have been a prudent way to proceed with this Bill.

Matt Western (Labour, Warwick and Leamington)

As always, my hon. Friend is making important points. I was surprised to see the letter from the Chair of the Intelligence and Security Committee, which dates back to its 2013 report. Does my hon. Friend agree that if that Committee had been involved and consulted before this legislation was drawn up, some of the issues he is raising could have been brought out into the open and addressed better?

Alan Whitehead (Labour, Southampton, Test)

My hon. Friend is right. I think that, because things have changed so substantially over the past decade or so, we tend to see things in a way that we may not have easily seen them just a few years ago. Indeed, the expert witnesses who were before us made considerable points on the question of how naive we had been on some previous occasions; we had not really taken into account some of the implications of what we were doing, because we did not have a clear picture of the consequences of those actions.

My hon. Friend is right—I suppose this is to some extent wisdom of the stairs—that if we could have considered things at that particular point the way we see them now, we would have expressed ourselves in much firmer and more watertight ways. However, I do not think the fact that we did not do so then is any particular excuse for continuing not to do so now. The idea that we may miss out on the ability to get proper information that can point us in the direction we want to go, albeit possibly by very roundabout means, and that we deny ourselves that particular possibility because we have written something in the legislation that stops us doing it does not seem to me to be fully learning the lessons that we might have done from 2013 onwards.

However, far be it from me to lecture the Minister or otherwise on the wisdom of these things; I am sure he is able to decide that subsequently for himself, just as I have challenged him about the wisdom of the Secretary of State’s investment agreements a little while ago concerning Bradwell. I am sure he knows in his heart that that is an appallingly naive thing to have done in those circumstances, and we might have thought differently had that taken place even today. That is the spirit in which we are moving this amendment. As I say, we do not wish to press it to a vote, but I hope the Minister will be able to consider those points and think about how this section might best be applied in the circumstances we have before us today. I beg to ask leave to withdraw the amendment.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Clause 19 gives the Secretary of State the power to require the provision of information in relation to the exercise of his functions under the Bill. The Bill provides for an investment screening regime for national security purposes—a purpose that we all agree merits appropriate tools. As such, it is essential that the Secretary of State is able to gain access to information to arrive at decisions that are fully informed. This clause provides for an information notice that the Secretary of State may issue to require any person to provide information that is proportionate to assisting the Secretary of State in carrying out his functions.

Any information notice may specify a time limit for providing the information and the manner in which the information must be provided. An information notice must specify the information sought, the purpose for which it is sought and the possible consequences of not complying with the notice. There is a range of scenarios in which the Secretary of State will need to require the provision of information, and I will provide some examples to illustrate them.

The first scenario is when the Secretary of State has reason to suspect that a trigger event that may give rise to a risk to national security is in progress or contemplation. That could be where an acquisition has not been notified but the Secretary of State becomes aware of it through market monitoring. In that situation, this clause enables the Secretary of State to require the provision of further information to inform a judgment on whether to call the acquisition in.

Secondly, when a party has submitted a voluntary or mandatory notification to the Secretary of State and that notification has been accepted, the Secretary of State may require additional information from the parties to decide whether to call in the trigger event. Thirdly, when a trigger event has been called in, the Secretary of State may need to require that parties provide further information to help to inform decision making. Information notices will allow the Secretary of State to gather evidence to support accurate and timely decision making. Hon. Members will agree that it is entirely proportionate for the Secretary of State to have recourse to this power as part of the investment screening process provided for in the Bill.

Clause 20 - Attendance of witnesses

Nadhim Zahawi (Conservative, Stratford-on-Avon)

The clause provides the Secretary of State with the power to require the attendance of witnesses.

The Government are acutely aware that many of the acquisitions considered by this regime will be complex and highly technical. In addition to clause 19, which enables the Secretary of State to require the provision of information, most likely in written form, this clause enables the Secretary of State to require the giving of evidence. A notice requiring a person to attend under this clause is called an “attendance notice”. The clause is complementary to clause 19, discussed previously, as it provides, for example, for the Secretary of State to be able to receive expert explanation, in person, from those involved in a trigger event, where the information previously provided does not provide sufficient clarity.

In responding to an attendance notice and providing evidence, a person is not required to give any evidence that they could not be compelled to give in civil proceedings before the court. That protects privileged information. In addition, the Secretary of State will only be able to request information through an attendance notice that is proportionate in assisting him in carrying out his functions under the regime.

We envisage a range of scenarios where the Secretary of State may require the attendance of a witness in order to gather further evidence to make an informed decision on the case. I will provide a few to illustrate. First, I expect that a number of cases will involve complex acquisitions, either because of the advanced nature of the technology in question, or due to their financial structuring. In those cases, the Secretary of State may require those who hold expert knowledge to provide him with an explanation. There may also be cases where it seems that parties are being deliberately non-compliant, or only partly compliant with information-gathering requests. I expect those to be rare but, again, it is only right that the Secretary of State has the power to require the attendance of those parties to provide further information.

The attendance of witnesses may also be a more efficient way to secure additional information in some circumstances, and limit the risk that further time will be needed to consider additional information. There will be criminal and civil sanctions available to punish non-compliance with the notices and the provision of false or misleading information. The attendance notice is provided under threat of such sanction as it is important that the Secretary of State receives the information he needs and can count on to come to a decision.

Peter Grant (Scottish National Party, Glenrothes)

A brief question: is it the Government’s intention to allow for witnesses to attend virtually, if it is unreasonable for them to attend physically at the Department, or the Minister’s office?

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I suspect that the Government will accommodate whichever way is secure and provides the evidence.

I am sure that hon. Members will agree that the clause is crucial in allowing the Secretary of State to consider the fullest range of information in order to make informed decisions under this regime.

Alan Whitehead (Labour, Southampton, Test)

The Minister has given a good exposition of what the clause is about: the attendance of witnesses. I note that, as he said, the witnesses are required to give evidence on the equivalent level of civil proceedings before the court—as the clause states:

“A person is not required under this section to give any evidence which that person could not be compelled to give in civil proceedings before the court.”

To return to our previous debate, if that is the test—if the sanction is not a criminal sanction—what if the witness were to say, “I do not consider the evidence I am being required to give to be proportionate to the use to which it will be put”? What would that mean for the evidence in front of the Secretary of State? Would it be stopped? Would the Secretary of State then be unable to sanction that witness further? Or could the witness be compelled to provide information even if they did not think it was proportionate, and could they take action against the Secretary of State on the grounds that the evidence they had given in the first place was not proportionate? Perhaps the Minister could take us through that procedure, possibly in an intervention.

Derek Twigg (Labour, Halton)

If the Minister wishes to make an intervention, that is a matter for him.

Alan Whitehead (Labour, Southampton, Test)

I wonder if the Minister might intervene briefly, just to put my mind at rest.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I think I have made very clear how these notices will work. The judicial procedure is open to any party that feels hard done by in any way by this Bill.

Alan Whitehead (Labour, Southampton, Test)

I thank the Minister for confirming what I thought, which is that this can be challenged post hoc but not at the point of giving evidence. That is what I understand the Minister to have just said—but hey, I could be wrong. That is the clarification we wanted. On the issue of witness attendance, it is important that the Secretary of State is able to specify a time and that the evidence is undertaken at a level commensurate with civil proceedings. We do not oppose the clause standing part of the Bill, given the Minister’s clarification on proceedings involving witnesses.

Clause 21 - Information notices and attendance notices: persons outside the UK

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Clause 21 makes provision in respect of the persons on whom the Secretary of State may serve an information notice or an attendance notice outside the United Kingdom. The clause applies in relation to the two earlier clauses. Clause 19 provides the power for the Secretary of State to obtain information either before or after the call-in power is exercised. Clause 20 gives the Secretary of State the power to require the attendance of witnesses to assist him in carrying out his function under the Bill.

Those outside the United Kingdom to whom an information notice or attendance notice may be given are clearly set out in clause 21, which is technical in nature. The purpose is to ensure that certain categories of persons with a connection to the United Kingdom are caught by the information-gathering powers, even if they are outside the UK. These categories of persons are UK nationals, individuals ordinarily resident in the UK, bodies such as companies incorporated or constituted in the UK, and persons carrying on business in the UK. Perhaps more importantly, notices may also be served on persons outside the UK who have acquired, or who are in the process of or are contemplating acquiring, qualifying UK entities or qualifying assets that are either located in the UK or otherwise connected to the UK. In practice, this means that notices may be served on most parties from whom the Secretary of State may wish to require information or evidence.

Peter Grant (Scottish National Party, Glenrothes)

I certainly would not seek to oppose this clause, but will the Minister go into a bit more detail about how it works in practice? What if a notice is served on somebody who is not in the United Kingdom, who is not a UK citizen or UK national, who has never set foot in the United Kingdom and quite possibly never intends to, as might happen if a big multinational is seeking to acquire a business intertest in the United Kingdom? Is the intention to create an offence that can be committed by somebody with otherwise no connection with the United Kingdom under UK law? That would mean that the person had committed the offence in a different sovereign territory, not even by something they did, but by something they did not do—not responding to a notice and not attending when required.

I understand why the requirement has to apply to everybody, and I understand that there is no point in serving a statutory notice if there are no consequences to refusing to comply with it; I am just not sure about the practicalities. Has the Minister considered alternative sanctions in those circumstances? For example, the person could be disqualified from being a director or a shareholder in significant UK undertakings. That would potentially have the same effect.

It seems to me that, generally speaking, we would create a criminal offence for the conduct of somebody in a different sovereign territory only in specific circumstances. If somebody is serving with the UK armed forces, for example, they might be covered by UK law even when they are serving abroad. The other circumstance is if the crimes are so heinous as to be regarded as crimes against international law—crimes against humanity and war crimes, for example. I understand that the Education Secretary thinks that Britain is just the best country in the word and nobody else can touch us, but I doubt even he would think that failing to respond to a notice from the UK Secretary of State constitutes a crime against international law.

Is the Minister concerned about setting a precedent whereby we attempt to apply domestic law to the actions or non-actions of people who, in normal circumstances, are covered by the laws of the country they are in and not the criminal law of the United Kingdom? Given that this might create a difficult precedent, is he satisfied that the Government have looked at every possible alternative sanction? This could create a precedent, and other countries could start legislating to say that what UK citizens do in the United Kingdom is contrary to their laws, which would therefore make any of us subject to arrest and prosecution by the authorities of another country. I am a bit concerned about the reaction that might be provoked from Governments elsewhere if we get this part wrong.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

I think the hon. Gentleman is referring to parties that are abroad and have a business in the UK—what if notice is served on them and they are non-compliant? Obviously, under UK law that would be a problem for them. I certainly think that, if an information notice is served, the timeline for the Secretary of State’s assessment of a trigger event is paused until the information is provided from the individual in whatever jurisdiction they or the entity happen to be at the end of the time period provided for compliance in the information notice.

If a party does not comply during the assessment process, that may lead to more onerous and stricter remedies being imposed by the Secretary of State than would otherwise be the case, including the acquisition being blocked or unwound where appropriate. It will therefore plainly be in the interest of those involved directly in the trigger event to provide information in a timely manner to the Secretary of State in order that a speedy decision can be taken. That is where the leverage lies.

Peter Grant (Scottish National Party, Glenrothes)

I am grateful to the Minister for that clarification. As I say, I fully understand what the Government are attempting to achieve. I would expect that, in those circumstances, the Minister would block the acquisition if there was a serious failure to comply by anybody who was in practice beyond the reach of UK criminal prosecution. I would certainly hope that in those circumstances the Secretary of State would use the other powers to ensure that they could not become a controlling influence on any strategically important UK undertaking.

As I said, I do not want to divide the Committee. I did not even feel it was appropriate to table an amendment, partly because I could not think of a way of amending it that would make it any better. Having made those points, I am grateful for the Minister’s clarification, and we will leave it to future Secretaries of State to implement it as best they can.

Matt Western (Labour, Warwick and Leamington)

I will pick up on one issue, which concerns subsection (3)(a). I would like some clarification from the Minister. I am trying to get my head around what is meant by

“a qualifying entity which is formed or recognised”.

Could he give an illustration of what is meant by “recognised”? I assume that this is about some takeover, merger or acquisition. Could it be some sort of shell company or some other form? Perhaps the Minister could clarify what is meant by recognition under the law.

Derek Twigg (Labour, Halton)

Well, the Minister has not intervened. I call Dr Alan Whitehead.

Alan Whitehead (Labour, Southampton, Test)

Briefly, we fully understand the purpose of the clause. It is obviously necessary to ensure that witnesses, wherever they are, if they have a relevant interest in these matters, should be made available to give evidence. I share some of the concerns of the hon. Member for Glenrothes about how workable it might be. I particularly wonder whether subsection (2) includes UK overseas nationals. That is particularly relevant to some of our discussions earlier today. I see in the previous clause that if someone is a UK citizen and domiciled in the UK, they get their bus fare paid if they live more than 10 miles away.

Nadhim Zahawi (Conservative, Stratford-on-Avon)

Quite right.

Alan Whitehead (Labour, Southampton, Test)

But apparently there are no international flight payments as far as overseas witnesses are concerned. I do not know whether the Minister has that in mind, but I note a big difference between the two clauses. If such witnesses could get some payment towards their attendance in the UK, that might resolve some of the problems that the hon. Member for Glenrothes suggested—provided it is economy class, obviously.