The United Kingdom has a deserved reputation as one of the most open economies in the world, one that welcomes international investment and the benefits it brings. Our position as the fifth-largest economy in the world has been built on international trade and investment. Today’s Green Paper affirms our commitment to that approach, and sets out proposed reforms of our scrutiny of foreign investment to ensure that our national security is protected.
An open approach to international investment must include appropriate safeguards. It is vital that the UK Government can deliver on their primary duty to safeguard national security and ensure that the interests of the British people are protected, and it is important for the Government to have both knowledge of potential national security risks to the UK and the ability to act where necessary. Our review has highlighted the need for that to be updated to take account of the changing structure and size of companies in sectors that are critical to our national security. Our reforms will bring the UK in line with many major developed economies. We want to develop clear, consistent and proportionate rules which will enable us to scrutinise the ownership of our infrastructure, but which will also be well understood and will give international investors the clarity and transparency that they require.
We are proposing a two-stage approach. First, I am updating our current arrangements by consulting on amendments to the Enterprise Act 2002 to enable the Government, if necessary, to intervene in mergers that fall outside the current provisions. In most sectors, the thresholds in the Act allow the Government to intervene in mergers on public interest grounds only if the acquired company has a UK turnover of more than £70 million, or if the share of supply is 25% or more of the market. The thresholds are no longer appropriate for certain sectors, particularly those in which smaller companies may hold technologies that are critical to national security. For those sectors, we are proposing to introduce amendments through secondary legislation that would lower the turnover threshold to £1 million and remove the requirement for the merger to increase the share of supply to 25% or more.
Specifically, I am consulting on amendments to the thresholds for the dual use and military sector, and certain parts of the advanced technology sectors. The first relates to items that are currently subject to export controls. Hostile actors should not be able to acquire such items, or knowledge about how to make them, by buying UK-based businesses. The second relates to companies that are involved in the design of computer chips and quantum technology. Advanced technologies can create threats that are difficult to detect, and may mean that devices could be directed remotely should a hostile actor gain access.
The Green Paper also seeks public views about options for broader reforms to the way in which we scrutinise investment for national security purposes. In particular, we are seeking views on two proposals: broadening the range of transactions that the Government are able to review for national security purposes, and the introduction of mandatory notification of foreign investment in certain parts of the economy that are critical for national security, such as the civil nuclear and defence sectors. The Government intend any reforms to be firmly targeted at national security. While the national security assessment must, by its very nature, remain confidential, we will also seek to provide greater certainty and clarity for businesses in respect of the process itself. Our proposals will ensure that our arrangements for protecting national security are aligned with the practices in other major countries, and are more robust in response to the evolving nature of national security threats and technological change.
Let me say something about takeovers more generally, outside the area of national security. We have held discussions with stakeholders, including the Takeover Panel, about the current process. Those discussions have covered the need for more information and time to allow for the assessment of takeover bids by interested parties, and to enable assurances given during the takeover process to be properly assessed and compliance-scrutinised. We believe that the changes recently proposed by the Takeover Panel would improve the UK’s takeover rules, and we look forward to the conclusion of the consultation.
The Government will also act, when appropriate, to ensure that public funds are protected in mergers. In particular, we will take steps to ensure that Government-funded research and development grants can be clawed back following a takeover if the new company would have been ineligible to receive the grant. or if the purpose for which the grant was made has changed.
Let me now turn to an international investment announcement that was made late last night. On Tuesday, I briefed the House on the trade dispute brought by Boeing against Bombardier. My colleagues and I have been constantly engaged from the outset, and have considered all the alternatives that we can bring to bear to resolve the dispute. I am pleased to be able to tell the House that yesterday the boards of Bombardier and Airbus announced plans for a joint venture involving the C series aircraft. The deal is expected to be completed by the second half of next year. I have spoken directly to the chairman of Bombardier and the chief executive of Airbus about the joint venture specifically, and I have also discussed the matter with Chrystia Freeland, Canada’s Minister of Foreign Affairs. My top priority has been to emphasise the importance of giving certainty to Bombardier’s high-quality UK workforce, now and in the future.
As the House well knows, the Shorts factory in Belfast employs more than 4,200 highly skilled workers and supports a supply chain of hundreds of companies and many more jobs across the United Kingdom. Airbus also has a large presence in the UK, employing more than 15,000 people, and is firmly rooted in the UK’s advanced-technology industrial base. It is in all our interests for the C series to be successful. Both Bombardier and Airbus have made a number of important commitments to me, including commitments that C series wing manufacturing will continue in Belfast, and that the strategy will be one of building on existing strengths and commitments.
This announcement offers the potential to protect the interests of Bombardier’s Belfast workers and the UK supply chain. The UK is already Airbus’s wing factory for the world, and the announcement reinforces that position. The trade dispute brought by Boeing against Bombardier’s C series remains in place. We consider Boeing’s action to be totally unjustified, unwarranted and incompatible with the conduct that we would expect of a company that has a long-term business relationship with the United Kingdom. We reject entirely any suggestion that our support for Shorts contravenes international rules. We will continue to work to see the dispute resolved while Bombardier and Airbus complete their merger.
I remain in close contact with Airbus, Bombardier, and the Canadian and US Governments. I will be speaking to the chairman of Bombardier and the chief executive of Airbus again later this week for an update on progress. I will, of course, continue to meet the representatives, and to meet Members of Parliament with constituency interests, who have been assiduous in standing up for their constituents. I will do everything I can to secure, at all times, the best possible future for Bombardier’s Belfast workforce and its UK-based suppliers.
I commend my statement to the House.
The news that Bombardier and Airbus will be forming a partnership will be welcome to the thousands of Airbus and Bombardier staff who are employed in the United Kingdom, but can the Secretary of State confirm that he has received unequivocal assurances from Airbus and Bombardier about the security of UK jobs in the long term? The pairing of two cutting-edge product lines is very exciting for the future of aerospace manufacturing, but it should not be an excuse for the Government to diminish their efforts to ensure that the unfair tariffs imposed in the United States are dropped. Will the Secretary of State give more details about the further action that he proposes to take? For example, has he written to the European Commission?
Britain clearly wants to be open to investment, despite reports that the Office for National Statistics is revising its investment position downwards. However, it would be naive to allow key businesses to be at risk from people who have no interest in the long-term success of a business, its workers and its pensioners, or in the long-term interests of the British economy.
Today’s proposals are welcome, but I have some concerns. First, I am concerned about the delay in the presenting of the proposals. In the last year or so, we have seen mergers that have called into question the adequacy of our merger regime to defend vital economic interests: jobs, research and development, and the significance of the company involved to the supply chain, to name but a few. For instance, our biggest chip manufacturer, ARM, was sold to Japan’s SoftBank. ARM is one of the jewels in our crown, developing cutting-edge chip design and generating thousands of jobs, yet there was no guarantee that R and D—or investment, or jobs—would be protected in the long run. The best that our takeover regime could generate was post-offer undertakings by SoftBank for five years on some of those issues.
That is not an isolated example in the high-tech world. The UK firm Imagination Technologies was sold to Canyon Bridge just a few weeks ago, and our automobile sector has also witnessed the shortcomings of the takeover regime. PSA’s purchase of Opel and Vauxhall raised concerns about jobs and investment. Yet again, our takeover regime was unable to guarantee that those things would be protected, and this week we have heard about the risk of voluntary redundancies. My first question to the Secretary of State is this: why did it take so long, given the manifest deficiencies in the regime to which we drew his attention earlier this year?
My second concern relates to the inadequacy of the proposals. They seem to lower the threshold tests that must take place before the competition authorities and the Government can scrutinise a merger. However, those lower tests apply only to the dual-use and military sector, and to companies that are involved in the design of computer chips and quantum technology. But there are other high-technology sectors that are also in need of the same protections, including life sciences, and food, chemical and automobile manufacturing, to name but a few on a very long list of sectors and business areas that are systemically important to UK plc. These powers would have given no assurances to companies like Unilever, for example, who might try to resist a takeover and have been calling for better safeguards in the takeover regime overall.
Similarly, it is not clear how these powers would have helped in many of the cases I have mentioned where they potentially do apply. Indeed, this morning when the Secretary of State was asked whether these powers would have altered the takeover of ARM, he stated that the turnover of that firm already qualified for scrutiny so this would have made no difference.
So, finally, does the Secretary of State agree that his proposals, while welcome, on the thresholds in particular, fail to protect companies that still fall within them, and will he confirm what further action he proposes to take, because action is desperately needed?
I am grateful to the hon. Lady for her response and questions. On Bombardier, I am grateful for her recognition—which I hope and think is shared across the House and certainly in Northern Ireland—that this is a very positive step forward. I have been very clear that we will continue to seek to strike out and resolve the trade dispute that has been brought by Boeing. Given what we have been doing during the weeks since the initial complaint was made, I do not think anyone could accuse the Government of being anything other than full-hearted in our attempts to resolve this, and our efforts, with our Canadian Government counterparts, to find a secure source of guarantees for Belfast have been widely welcomed this morning.
In terms of the assurances given, Bombardier and Airbus have clearly said they regard the Belfast wing operation as foundational. They expect to expand the production, which means good prospects for those jobs in Northern Ireland and the supply chain across the United Kingdom. That is extremely good news. We will continue to pursue to the point of resolution the trade dispute. The hon. Lady asked about the European Commissioner: my right hon. Friend the International Trade Secretary has discussed this personally with the European Commissioner for Trade. We will leave no stone unturned in seeking a resolution of this dispute.
On the proposals in the Green Paper on international investment, I would have thought the hon. Lady should welcome the fact that we continue to be the third-biggest destination in the world for overseas investment. One of the major strengths of our economy is that we have a reputation for dependability and openness, and it is important that we preserve that while upgrading our systems of scrutiny to make sure that the national interest is protected, particularly in the case of national security. In saying that, I note that the hon. Lady suggests that there has been some delay in so doing, but the changes we are making were changes that were not made during 13 years when the Labour party had the chance to address these matters. I hope she will respond to the consultation and welcome it.
It is right that the threshold should be dropped in order to admit small companies: everyone knows that as technology develops, smaller companies can have a critical role to play in producing products that are part of a wider system. It is right to have that degree of scrutiny. But when the hon. Lady reads the Green Paper she will see that, in addition to those initial changes, we are consulting on whether there should be a wider set of powers to require the mandatory notification of mergers in other sectors of the economy, and we make some proposals around that. It is right to consult on that, but it would not be right for every single transaction in the economy to be required to go through an administrative process when it does not pose a threat to our national interest. That is the purpose of the consultation, and I hope she will welcome it.
The hon. Lady raises the question of Unilever. One of the features of the proposed takeover of Unilever was that the company—correctly, in my view—did not feel it had the time to prepare a proper defence of itself, given the current takeover rules. Following conversations that we have had, the Takeover Panel is proposing a more substantial period in which, at the request of the target company, it will have longer to prepare that defence. That will be welcomed across the economy. This is a consultation by the Takeover Panel so we will wait for that to conclude, but I have welcomed it as a positive step forward.
Does my right hon. Friend agree that the record levels of inward investment demonstrate a strong vote of confidence in Britain, showing that we are open for business and an outward-looking and world-leading nation?
I agree: it is a proud boast that we are the No. 3 nation in the world. We are by no means the biggest nation in the world, but to be No. 3 behind the US and China in terms of foreign direct investment is a real vote of confidence in this economy, and that is something I and my team and my colleagues across Government will always work hard to extend.
I am grateful to the right hon. Gentleman for an advance copy of his statement.
The Scottish National party supports measures that best protect our citizens and measures that relate to national security. However, it is not clear why these proposals have been brought forward now, so can the right hon. Gentleman tell us why now, and what the UK Government’s long-term strategy is?
We also believe it is vital that Parliament is fully involved in this process. Will the right hon. Gentleman confirm that that is the case?
Finally, on military technology, the UK Government must look to their own track record. Will the right hon. Gentleman confirm that the same degree of stringent oversight and scrutiny is to be applied to arms sales abroad?
I am grateful to the hon. Gentleman for his questions, although I am surprised that he did not want to welcome the investment decision in Bombardier. In response to his—perfectly reasonable—question, “Why now?”, it is right to upgrade our systems for scrutiny periodically. A national security risk assessment was carried out recently, which correctly pointed out that smaller companies have the potential to pose a threat to national security, and these measures respond to that. We are publishing a Green Paper; Parliament is being invited to scrutinise it, as the essence of a Green Paper is that it is published for Parliament, as well as people in the outside world, to examine. On military technology and the scrutiny of arms sales, I think the hon. Gentleman should know that that is already subject to a licensing procedure.
Will my right hon. Friend confirm to the House that robust due diligence is always carried out on foreign investment when it might afford other Governments control of systems that are closely linked to national security, such as the grid?
That is the essence of the proposals, and it is necessary to update them from time to time in line with the recommendations that arose from the national security risk assessment. It is very important—it is the first duty of Government—to make sure that we are protected from hostile threats.
I welcome the Secretary of State’s recognition of the need to widen the public interest test, but express some disappointment that his definition of it does not appear to include cases where British companies that are fundamental to the science base would be at risk of acquisition, as in the abortive Pfizer AstraZeneca bid, and more recently in the successful bid for ARM, Aveco and the many smaller companies now being acquired on the back of a cheap pound.
I am grateful to the right hon. Gentleman for his comments. He will be aware that under European law we are limited in the public interest test to questions of national security, financial stability and media plurality. That is the situation that exists, hence the proposals that we have are around strengthening national security. I ask the right hon. Gentleman to study the Takeover Panel proposals to give a longer period for the scrutiny of any bids in the public domain, allowing the target company to respond, because from what I have seen so far, that has received a very positive response in corporate Britain, and when that consultation concludes I very much hope it will be enacted.
There are occupants of the Treasury Bench to whom I once taught economics, and I used to tell them that the United Kingdom owned more assets overseas per capita than any other nation on earth. Do we still believe in the free movement of capital?
We certainly do, and I am delighted that my right hon. Friend has been part of the process of educating generations of Conservative Front Benchers. In fact, the UK’s stock of overseas investment is second only to that of the United States of America. For this country to be second only to the United States in terms of the value of the assets that we own overseas is a remarkable achievement, and he is right to pay tribute to that.
I sincerely thank the Secretary of State and the Energy Minister, the hon. Member for Watford (Richard Harrington), for their steadfast support for Bombardier and Belfast. Does the Secretary of State acknowledge that, in encouraging a union between Bombardier and Airbus, Boeing has scored a spectacular own goal? Will he continue his commitment to supporting that partnership, both in terms of the tariff proposition from the US International Trade Commission and of the regulatory considerations to come?
I will indeed, and I want to pay tribute to my hon. Friend, who is the constituency Member for the Bombardier Shorts plant in Belfast. No part of the United Kingdom could have a more vigorous representative of the interests of its constituents than his constituency. He and his colleagues have played an important role in this process. The reaction of Boeing is clearly a matter for that company, but I have been clear that as long as that unjustified and unmerited complaint is being pursued, we will vigorously defend it. We think that the complaint is without merit. As I said when I last updated the House, it is in everyone’s interest that the complaint should be withdrawn so that the relationship that Boeing seeks to have with this country should not be marred by the unjustified action that it is taking. My hon. Friend has my commitment on this.
I welcome the Government’s attention to this area. I note that research and development in areas of critical national security often occur in the small and medium-sized enterprise sector. Has my right hon. Friend given any thought to how these proposals might impact on the propensity of people to invest in that sector?
It is important that investors, especially those starting up a firm for the first time, should reflect on the fact that the UK is the best place in the world to establish new scientific and technological companies. They can invest with confidence. The ability to scrutinise investments should not put anyone off establishing a firm in this country. It is often possible to deal with security concerns through conditions and undertakings, and getting that framework clear and in place will give confidence to investors in the future.
I welcome the Bombardier announcement—it is very good news. However, future Airbus investment in the UK will depend on a Brexit deal that allows the company to operate as it does now. The company has been very clear about that, and it will mean having a deal rather than no deal. For example, if a wing leaves Broughton but then needs further work, British Airbus employees can leap on to a plane and follow it. They might be away for days or even weeks. Will that be able to continue post Brexit?
My colleagues and I meet regularly not only with Airbus but with the whole of the aerospace industry, which is one of our most successful industries, and we are well aware of how the sector and the companies within it work. This informs our negotiations to allow us to ensure that that way of working can continue.
I welcome the Secretary of State’s statement and the investment in Bombardier. As the fourth industrial revolution accelerates and new technologies emerge, will he consider introducing a call-in mechanism to allow flexibility when the Government scrutinise transactions for national security concerns?
My hon. Friend is a great champion of the need to prepare for the fourth industrial revolution, if we are to benefit from it. Part of the reason for this Green Paper is consistent with the high standards that we have always had in this country for ensuring that our systems are up to date. We are suggesting that, in certain sectors that are relevant to national security, it would be possible, subject to the results of the consultation, to scrutinise transactions to assess whether they posed a problem.
It is surely right to add smaller companies to the national security process, but this is only a Green Paper and secondary legislation takes time. Given how fast these fields of technology are moving, what are the Government doing right now to mitigate the risk of what we want to legislate to deal with in the future?
The proposals can be introduced through secondary legislation, and I hope that they will find favour with the House so that we can proceed with that. There is an ability to act through other measures if there is a threat to national security, but the essence of these proposals is that this can be done in anticipation, rather than when a threat has crystallised. This is the right way to proceed, rather than waiting for a threat to be identified as imminent. This is about being prepared.
I welcome the Secretary of State’s statement and particularly the news about Bombardier. Does he agree that the Brexit vote was about us going out into the world and being part of the international trading community, not about withdrawing behind a wall? Will he therefore reassure me that, despite what we are saying about considerations of national security, we will remain an open advocate of free trade in the world?
It is precisely because we are a leading advocate of free trade and open investment that it is necessary to have the right framework in place so that people can invest with confidence. In fact, in many cases, the steps that we are taking bring us into line with our competitor nations when it comes to trade, and I am absolutely confident that this regime will be respected and applied.
On the subject of companies developing dual-use technology, can the Secretary of State confirm that as well as introducing powers to stop those companies falling into foreign hands, he will ensure that they will still be able to recruit workers from the EU? Those workers will often not be particularly well paid, as they might be graduates working in start-up companies. Also, will he clamp down on companies here that use subsidiaries in other countries to avoid UK export controls and sell dual-use technology that can be used to clamp down on dissent in middle east countries?
On the right hon. Gentleman’s second point, an export control regime deals with these matters. On his first point, while the scope of the Green Paper is extensive, it is not a consultation on immigration policy. There will be other opportunities to pursue that.
I broadly welcome the proposals to change the takeover code and protect national security assets, especially smaller companies, but will the Secretary of State consider adopting a new principle that for every new policy that could be construed—however unfairly—as being protectionist or anti-business, at least two new policies should be brought forward that state as loudly as possible that Britain is open for business and a free trading country committed to free enterprise?
We are saying loudly and clearly that we depend on free trade, and that free trade depends on our having clarity in the rules so that investors in our companies know what scrutiny they will be subject to. That is something that business has wanted, so it is good that we are going to be clear about that.
These proposals are welcome as far as they go, but if, thinking about the bigger picture, we are looking at transparency in safeguards relating to foreign investment, we will need to stamp out the laundromat money-laundering schemes that channel billions of pounds through the UK. What steps are the Government taking to eliminate the vehicles for that practice, including the Scottish limited partnerships?
My hon. Friends in the Treasury are, as the House knows, active and vigorous in pursuing measures against money laundering, and that approach is an important part of this regime’s reputation for applying high standards.
I welcome the Secretary of State’s statement and his recognition of the importance of not only large strategic businesses, but the supply chain. Does he agree that it is vital that the rules for the scrutiny of foreign investment are clear, certain and proportionate?
That is exactly what is proposed in the Green Paper. The focus is on national security, which is an important responsibility for the Government. It is important that investors and businesses know the procedures so that they can have the greatest certainty when conducting business, including when contemplating takeovers.
Will my right hon. Friend say a little more about the role of industrial strategy in helping to harness international investment?
One of the strengths of the UK’s economy is our reputation for innovation and discovery through the application of science. Our industrial strategy deepens our commitment to that. We have seen the biggest increase in public investment in research and development for more than 40 years. Part of our strategic approach means establishing companies that make use of that technology, and having a regime under which companies that do use that technology can be confident about taking in foreign investment is part and parcel of the positive, mature regime that we want to establish.