National Security and Investment Bill 2019-21

The National Security and Investment Bill 2019-21 was introduced in the House of Commons on 11 November 2020. Its Second Reading took place on 17 November 2020. Remaining stages are scheduled for 20 January 2021.

The Bill aims to introduce a new regime for reviewing and intervening in business transactions, such as takeovers, that might raise national security concerns. It would:

• enable the Secretary of State to “call in” acquisitions of sensitive entities and assets (“trigger events”) to undertake a national security assessment. This can happen up to 5 years after a trigger event has taken place;
• establish a requirement for proposed acquirers of sensitive entities and assets to seek authorisation and to obtain approval from the Secretary of State before completing their acquisition;
• create a voluntary notification system to encourage notifications from parties who consider that their trigger event may raise national security concerns; and
• create a power to impose remedies to address risks to national security, sanctions for non-compliance with the regime and mechanisms for legal challenge.

The Bill would extend to all of the United Kingdom. Its provisions would come into effect from 12 November 2020, the date of publication of the Bill.

Rationale for the Bill

The Competition and Markets Authority (CMA) is currently responsible for investigating national security concerns through a wider process for reviewing “relevant merger situations” that might give rise to public interest considerations.

Concerns have grown about the effectiveness of the current regime in managing the national security risks arising from investment in, or control of, companies and assets in a range of sectors. Technological developments have further widened the potential scope of national security concerns to include such areas as data and intellectual property.

Policy development

In 2017, the Government launched a national security infrastructure investment review. This involved an initial consultation on potential future arrangements and resulted in reductions of the thresholds that would trigger a CMA investigation and some widening of the types of economic activity covered (such as inclusion of quantum technology), as well as a wider definition of the types of transaction that would be covered.

A White Paper and a further consultation (launched in 2018 with a Government response published on the same day as the Bill) followed. These clarified that the Government wanted to more extensively overhaul its ability to scrutinise and intervene in investments that raise national security concerns. It proposed to become directly responsible for national security assessments and be able to intervene in a much broader set of situations that might lead to national security risks.

It proposed draft definitions of 17 sectors of the economy and associated activities that might be encompassed by a mandatory reporting scheme. A consultation launched alongside the Bill will run until 6 January 2021, after which the Government would set out “robust and proportionate” definitions in secondary legislation made under the Bill. The proposed new approach would also remove existing thresholds for notification.

Response from stakeholders

The Foreign Affairs and Defence Committees both launched inquiries in 2020 touching on concerns related to the current CMA regime. Comments from the Chairs of the inquiries indicate that there could be support for a strengthened regime in order to protect national security. However, neither committee has yet reported in full.

Press and stakeholder reactions so far have tended to acknowledge the need to update the existing regime to take account of new and evolving threats. However, they have also raised concerns about the implications of broad (or non-existent) definitions of relevant concepts, particularly given the wider set of proposed trigger events and the removal of existing thresholds. Some have questioned the need for such a radical overhaul, particularly given that there had only been 12 national security investigations undertaken within the existing regime.

There are also concerns that the expanded notification system will lead to a dramatic increase in cases subject to review, leading to bureaucracy as well as delay and doubts for potential investment decisions – a situation that might discourage investment. Some observers fear that pressure from interest groups might lead to the system being used for protectionism. The impact assessment published alongside the Bill indicates that there could be 1,000 to 1,830 transactions notified under the new system each year.

Second Reading

Members across the House supported the intent of the Bill, which passed without a division.

Public Bill Committee

The Public Bill Committee met 12 times between 24 November and 10 December 2020.

Members from all parties once again emphasised their support for the purpose of the Bill.

The Committee made no changes to the Bill. Labour and SNP Members put forward over 30 amendments, but they were all withdrawn or defeated on division. Among other matters, Members raised concerns about:

• the definition of “national security”
• the involvement of other Departments and agencies
• the role and accountability of the Secretary of State
• potential administrative consequences of the new regime.