Former Labour business secretary Lord Mandelson has described the government’s national security and investment bill as “a powerful deterrent to foreign direct investment” amid warnings that its introduction could be chaotic.
In a webinar discussing the impact of the new legislation, the peer argued that “in those halcyon New Labour days, such a system of state screening would have been unthinkable”.
Introduced by the Conservative government earlier this month, the bill introduces sweeping powers to block takeovers and other deals involving Chinese and other foreign firms and even UK businesses on national security grounds.
The existing regime was introduced by Labour in 2002 but the government now believes is too light touch. It is expected to dramatically increase the number of takeovers and other deals that are security screened from one a year to 1,000.
That prompted the Labour peer, who had two stints as business secretary, to query how the system will be handled. He said: “What will notifiers be doing. Simply forming an orderly queue lining up sort of Victoria Street crossing their fingers and hoping for the best?”
John Fingleton, a former chief executive with the Office of Fair Trading, a predecessor of the Competition and Markets Authority (CMA), estimated that the department for business could require “potentially 500 to 1,000 people” to handle the national security caseload.
The CMA, which examines whether mergers would pose a monopoly risk, had a staff of around 100, Fingleton added, and took on a similar number of cases every year.
“I think it’ll be quite chaotic in the beginning and it will take time to set up a new unit like this,” the former regulator said, adding that early cases referred could take longer to process as staff build up confidence and expertise.
The bill envisages that transactions in critical industrial sectors will have to be notified to the business, energy and industrial strategy department unit that will scrutinise deals, while others could potentially be called in and reviewed for up to five years after they were concluded. Ministers would have the power to void deals on security grounds.
Fingleton also warned that the bill could create too much pressure on the government, and argued “to protect ministers from themselves” any remedies proposed should be only be related to national security.
The former regulator, now a consultant, added: “What will happen is that any vested interest whether it is a competitor, or a group of workers or anybody that has been disaffected or a former owner … who doesn’t like a deal will launch a campaign to lobby a minister to call something in.”
The bill has been drafted at a time of growing concern on the Conservative benches about China, and how far Chinese companies should be allowed to invest in the UK’s critical infrastructure following Downing Street’s announcement that all Huawei 5G kit would be removed from phone networks by 2027.
However, it has been carefully written so that no one country is singled out. Alok Sharma, the business secretary, said at the time the bill was launched that while ministers were keen to ensure the UK remained attractive to inward investment “hostile actors should be in no doubt – there is no back door to the UK”.