My Lords, I thank the Secondary Legislation Scrutiny Committee—particularly my noble friend Lord Lindsay—for reviewing this order and the Enterprise Act 2002 (Share of Supply) (Amendment) Order 2020. The committee reported on these orders, noting that it considers that policy changes made by them are potentially very significant. I look forward to debating the nature of them with colleagues here today. These orders are being debated together because their causes and their consequences overlap. Both amend the circumstances in which the Government can intervene in mergers and acquisitions. Both respond to a need exposed or magnified by the Covid-19 crisis, and both amend the Enterprise Act 2002, which set the legislative framework for the Government to intervene in qualifying mergers and acquisitions.
I will explain briefly what each order intends to achieve and the rationale for so doing, beginning with the specification of additional Section 58 consideration. Section 58 of the 2002 Act specifies the circumstances in which the Government can intervene in mergers on public interest grounds. There are currently three such grounds: national security, media plurality, and financial stability, the last being added in 2008 following the financial crisis. The order adds a fourth public interest consideration to that list, namely the need to maintain in the UK the capability to combat and mitigate the effects of public health emergencies. In short, it ensures that the Government have the power to preserve critical public health and crisis mitigation capabilities in the UK, and that they can therefore safeguard the welfare of the British people.
The need for such measures has been exposed by the Covid-19 pandemic. All Members will recognise the hard work, dedication and commitment of firms up and down the country in responding to the crisis. They have been critical in getting us through the pandemic and will be just as important in rebuilding the economy in its aftermath. However, the very qualities that made these firms so critical to our response put them at risk from opportunistic investors. The vast majority of investors are an immense boon to this country, but an unscrupulous minority use UK capability to advance their own agenda at the expense of the British people.
Recently, we have seen attempts across the world to buy priority access to vaccines, to control the flow of personal protective equipment and to limit the availability of certain drugs. The Government have been clear that we will not allow this to happen to UK firms as a result of qualifying takeovers. The order creates the legislative framework to prevent that from happening.
Companies directly involved in combating public health emergencies, such as drug companies, are those that are most at risk. However, this order also allows intervention to maintain UK capability in mitigating the effects of a public health emergency. That might be necessary if there were risks to firms in our food supply chain, for example, or to companies that allow us to work safely during a pandemic by helping to slow the spread of a virus while allowing us to mitigate the impact on our economy. Such companies may
include internet providers, for example, whose fibre broadband allows people across the country to work from home, order food and essentials from their living room and keep in touch with family members.
The second order that we are considering today—the Enterprise Act 2002 (Share of Supply) (Amendment) Order 2020—amends Section 23A of the Enterprise Act 2002. That section includes a list of “Relevant enterprises”, which are sectors where the threshold for government intervention in a merger is lower than that for other businesses. The relevant enterprises listed in the Act are all in particularly sensitive sectors where there is a public interest or a national security case for allowing the Government to intervene more readily. As it stands, Section 23A sets out three such sectors: military or dual-use technologies, quantum technology and computing hardware. The order adds a further three relevant enterprises to the list: “artificial intelligence”, “cryptographic authentication” technologies and “advanced materials”.
Businesses falling within those categories are often at the forefront of research and innovation. They are small businesses producing cutting-edge technology which may not yet be commercially viable, but which can have implications for our national security. Break- throughs in those fields underpin other areas of societal and economic development and are critical to areas such as defence and security. Ownership of businesses in those areas can therefore undermine our national security through espionage, sabotage or exerting inappropriate leverage, and puts us at risk of losing our advantages in security and defence.
I repeat that the vast majority of investors in this country have entirely noble intentions. The order seeks to deal with the tiny minority that invest maliciously with a view to exploit or do harm. The Covid crisis has brought this matter to the fore, magnifying the potential risk to national security. The depreciating effects on sterling and the financial pressures of a decrease in investor confidence all make us more exposed to opportunism. It goes without saying that the Government must be able to mitigate national security risks, and this requires our being able to intervene in mergers in the areas set out in this order, all of which are critical to our nation’s security.
In addition, we propose to make a second instrument before commencement of the share of supply order by the negative resolution procedure. That will allow the Government to intervene in mergers involving the new relevant enterprises where their UK turnover is more than £1 million. That is consistent with the other relevant enterprises listed in Section 23A. The order is a short-term measure that will apply until more fundamental reform can be taken forward in the national security and investment Bill. Such a measure is necessary given the immediate risk that we face as a result of the pandemic.
Having set out what these two orders will do, I will now say briefly what they will not do. They do not affect our commitment to an open economy. They do not alter our appetite or our enthusiasm for investment into the United Kingdom, and they do not change the fact that now, more than ever, foreign investment is the lifeblood of our economy. It created more than 57,000 jobs in 2018 alone. We have no wish to create
barriers to business—quite the reverse—and permitting intervention does not mean that the Government will interfere unduly. There have been only 20 interventions under the Enterprise Act and none has resulted in blocked mergers. Rather, these are proportionate, reasonable and necessary measures to maintain capability in public health emergencies and to protect our national security, ensuring that the UK is open for business, but not open for exploitation. I beg to move.
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