Business and Trade sub-Committee
Oral evidence: NSI Act 2021: Annual Report 2022-2023, HC 365
Tuesday 12 December 2023
Ordered by the House of Commons to be published on 12 December 2023.
Members present: Liam Byrne (Chair); Antony Higginbotham; Ian Lavery; Anthony Mangnall; Andy McDonald; Charlotte Nichols; Mark Pawsey.
Questions 1-78
Witnesses
I: Ms Nusrat Ghani, Minister of State for the Investment Security Unit at Cabinet Office, and Jacqui Ward, Director, Investment Security Unit, Cabinet Office.
Witnesses: Ms Nusrat Ghani, Minister of State for the Investment Security Unit at Cabinet Office, and Jacqui Ward, Director, Investment Security Unit, Cabinet Office, gave evidence.
Chair: Welcome to this morning’s session of the Business and Trade Sub-Committee on National Security and Investment. Minister, I am delighted to welcome you to what I think is the first ministerial oversight and scrutiny session of these new arrangements. You have brought with you a civil servant who is not listed on the Order Paper. Could your civil servant introduce herself for the record?
Jacqui Ward: Certainly—my apologies. My name is Jacqui Ward. I am the director of the Investment Security Unit in the Cabinet Office.
Q1 Chair: Thank you. Minister, we will jump straight in. Over the last few years, we have had quite a lot of national security legislation. I am holding some of it, including the integrated review refresh. Could you give us your definition of national security?
Ms Ghani: Goodness, that's a nice one to start at the top. The Investment Security Unit is fundamentally focused on 17 areas that we consider to be incredibly important to our economy and to our security. Those 17 areas were agreed within the National Security and Investment Act 2021, and that is how we work in the Investment Security Unit. It is a very simple, rules-based system that functions within the National Security and Investment Act. But you are right: there are a number of pieces of legislation out there that deliver different types of scope for industry and deal with different issues of security. The beauty of the Investment Security Unit is that it is very clear what our powers are and when we are able to investigate what we believe to be threats to our national security.
Q2 Chair: There is no single definition of national security that runs through this. You said that there are 17 sectors where there are call-ins, but what is the definition of national security that you are judging those cases against?
Ms Ghani: Each case is judged on its own merits, to be honest.
Q3 Chair: Should they not be judged on national security grounds?
Ms Ghani: They are. We have the 17 sectors, as I said. It is quite a straightforward system. It is quite transparent on the sectors that we are judging cases by. But each acquisition, if I can put it that way, will be judged on its own merits because each case is incredibly individual. Many of us who were agitating for the National Security Investment Act had concerns about national security, national critical infrastructure, and being able to make decisions that prevented any of this national infrastructure from ever being acquired by entities or countries that we felt were not true to the values that we have. That was many years ago, and then two years ago the Investment Security Unit was set up. I believe I have been the Minister responsible for the ISU for the longest. I now sit within the Cabinet Office, where the Deputy Prime Minister is the final decision maker. For us in the ISU, I think it is pretty straightforward.
Q4 Chair: Since 2013, the amount of foreign direct investment into our country from offshore trusts, dictatorships or countries that are only partially free has grown fivefold. It has gone up by £209 billion. Has the risk to our national security gone up because of this new wave of foreign direct investment?
Ms Ghani: That is a curious way of looking at those two things.
Q5 Chair: Well, if you have investment in our media or technology base from, say, China, Bahrain or other countries that are not free, presumably the risk to national security does not go down. Do you think it goes up?
Ms Ghani: As I have said, the ISU has pretty strict guidelines and guidance on what we can and cannot investigate. If it touches the 17 areas and is within scope, we have the opportunity to investigate. But international investment into a country shows confidence in the economy of that country. I am not here as the Industry Minister—I am here as a Cabinet Office Minister—but one would argue that it shows confidence in industry and the skilled workforce. People obviously feel confident that the policies in place will enable those businesses to grow. A lot of businesses will want to attract international investment. Just two weeks ago, we had the global investment summit, where the Prime Minister secured around £28 billion, I believe, of investment into the country. That shows huge confidence in what we are trying to do to show that we are open and fit for business.
Q6 Chair: Since the Act has been in operation, 866 transactions have been notified to the Government across 34 different sectors. That is way higher than the 440 notices and declarations that went to CFIUS in the United States or the 306 cases that went to Germany in 2022. We notice that, of those transactions, only 7% have been called in for detailed inspection. Do we have a “wood for the trees” problem here? Are the definitions so loose that you are getting so many notifications that you are creating a burden on business, and also risking overwhelming those analysts who have to come to judgments about the safety of these investments?
Ms Ghani: You are right that we have had 866. We have called in 65 and have final orders on 17. I would also argue that the legislation was quite extraordinary—the first on the books, as it were. I am doing a lot of work at the moment with Canada, which has been trying to legislate for a similar sort of framework. We were first out of the blocks in trying to get this legislation tabled. One could argue that the 17 areas are broad, but they definitely exist. Also, the legislation was at a moment in time. That is another issue that we should be discussing, Chairman: how do threats evolve when technology evolves going forward?
If you compare us internationally, we actually have quite a robust system. The 866 may seem wide, but most of the decisions about whether to investigate further or close down are taken within 30 days. That is a remarkably short period of time if you contrast us internationally. We are a unit that works much faster than anyone close to us internationally, such as Europe and the USA. I know that civil servants hate me saying this, because they are always so obsessed with the figure, but I think we close down cases quite quickly: we say, “It’s fine; we are just going to focus on the cases that we need to investigate.”
We move faster than other regimes, and we are far more accessible. But we are trying to investigate how we can improve the system, which is why we have produced the annual report. We also have a call for evidence at the moment, which is about working with industry. We are constantly saying, without changing the rules of the game, which exist in the legislation, “How can we make the scope more efficient for all of us?” We are open to a conversation with industry to see how we can make it work better. I believe that that call for evidence closes around 17 January and that I am in front of you again in January for another meeting—more hindsight. We can see what the evidence should suggest to us.
Q7 Chair: You will be aware of the presidential order signed by President Biden on 15 September 2022, in which he lists a number of specific factors that will now be used to judge the safety of investments into America. Those factors include impacts on the US supply chain resilience and US technological leadership—including in “microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies”—as well as on the agricultural food base, investment trends and cyber-security, and the risks of multiple acquisitions and of access to American citizens’ private data. We do not have any of those tests in the ISU framework today. Are you minded to include them in the future, or do you feel that you are already using those tests?
Ms Ghani: Minded to include. We are working very closely to the legislation; I cannot just “mind to include”—it has to go through a process—but I am very close to the United States because there are a few of us Ministers doing this work in like-minded countries, and they have made clear how anxious they are about fuelling technological advances or enhancing military and intelligence capabilities in countries of concern. They have obviously put forward quite a robust regime—even bringing into scope issues such as quantum, for example. This is one of the challenges we have; we always legislate for a period of time, but try to forecast as well, going forward.
I think the regime we have at the moment is pretty robust, but it started off a couple of years ago, and we need to be aware of how new technologies could be an issue that we need to incorporate into the process. But that will require a huge amount of consultation.
Q8 Chair: Since then, the director general of MI6 has warned about access to data and the risk of countries such as China building big datasets on which they can train algorithms that may do us harm in the future. Do you think that we should be ensuring that one of the tests in a future investment screening regime is around access to UK citizens’ data?
Ms Ghani: Chairman, I was once on your side of the Committee, and I was sanctioned by China for raising that very issue, as well as over supply chain work. When I campaigned for the National Security and Investment Act, we did it in a moment of time, and perhaps we know more today than we did then. I have a personal view; I do think that we should be further investigating the issues around data capability, but that is a personal view that I have. I want to see what comes back from the call for evidence, what other countries are doing and what more we can do to protect what we consider to be our critical sectors and to ensure that we are incorporating sectors of the future, which will become just as impactful when dealing with issues around security.
Q9 Chair: That would obviously have big implications for whether, for example, we allow foreign telecoms companies to take bigger stakes in UK telecoms companies, which are running significant volumes of UK citizens’ data through their channels.
Ms Ghani: Well, you started off by referencing data collection and misuse by one particular country. That is different from talking about telecoms broadly, but this is why any decision taken within the ISU will require a huge amount of consultation and debate. It will not be done unilaterally or overnight.
Q10 Chair: But your personal instinct is that it is sensible to look at ensuring tougher controls over access to UK citizens’ data?
Ms Ghani: My personal view is that the accumulation of data against citizens of the UK is something that we need to explore if it can be exploited.
Q11 Anthony Mangnall: Just following on from that, specifically on data and companies that might end up operating in the United Kingdom, where does TikTok fall into this?
Ms Ghani: Well, TikTok gave evidence to the Committee, and TikTok is now banned from UK Government devices because there is a fear that that data could be exploited; after a security review, it was banned from Government devices. TikTok, I find curious, because it gave evidence to the Select Committee when I was a member of the Committee, and its evidence has now been described as being—I am trying to find the exact words, but as not being as honest as it could have been. The evidence that it gave to the Committee was “at best—misleading”, because TikTok came to the Committee and said that in no way was the data on UK citizens accessible by China, and since then it has been reported that it is.
If I may, Mr Chairman, I am a little bit disappointed that, since I left the Committee, it has not followed up with TikTok to get clarity on the misleading evidence that it presented to the Committee quite some time ago. However, since then, it has obviously been banned from Government devices, so I assume that that gives you a reflection on what we think about its level of security.
Q12 Anthony Mangnall: Thank you. There is a reason why I’m raising the issue. I’m sure colleagues will be able to discuss this later on, but it’s certainly something I’m interested in. Can I ask you about the 75 transactions that were called in? [Interruption.] Sorry, 65—I beg your pardon—were called in due to possible security risks. I understand that 26% of those came forward on a voluntary basis. Could you just explain a little bit to the Committee about the procedure, how companies will come to you, how they will make you aware of this, and whether you have learned from those 26% that did so on a voluntary basis, so that you wouldn’t see any potential slippage and you wouldn’t see any potential missed opportunities to protect our national security?
Ms Ghani: Can I ask Jacqui to talk about the process a little bit? She oversees it as the DG of the unit.
Jacqui Ward: The inclusion of the voluntary part of the legislation was a really important part of its design, for two reasons. One is that it gives any company undergoing an acquisition in the UK economy an opportunity to voluntarily notify and to have a clear response within 30 working days as to whether there is a potential security risk. Obviously, that could then lead to a call-in and further scrutiny, so it was really important from that perspective. Correlating to that and to the point about scope that was mentioned earlier is that we tried really hard, when defining the mandatory part of the regime, to keep it as narrow and focused as possible. It is clearly possible that we will not get that exactly right. Therefore, there might be transactions in the wider economy that we do want to scrutinise further, and we have a market monitoring function to look at that.
Those voluntary notifications could come for a range of reasons. It could be because transaction parties have had a conversation with Government and they believe as a result that there might be a risk and they want to notify. Or it could be simply that they want to have a clear screening process and a clear outcome at the end. Whenever transaction parties are considering whether to notify, they will likely have reference to what is called the section 3 statement, which is the statement that we published before commencement and sets out how the Secretary of State will use his call-in power. It has a range of information in there to help acquirers to decide whether to notify, particularly if they are outside the scope of the mandatory regime. It is absolutely one of the areas that we would be looking to potentially update as a result of the information we get back from the call for evidence.
Q13 Anthony Mangnall: My concern is how you are finding those businesses and making them aware that they might want to be able to contribute or to come forward and discuss this with you, beyond the 17 sectors that have been identified already. Let’s say you have an evolving industry—you have mentioned quantum already; photonics would be another example of this—and things are moving very rapidly in that sector. Are you on the front foot in approaching those sectors and making them aware? Do you think that the guidance that they have is clear thus far?
Ms Ghani: First, a huge amount of consultation takes place. Jacqui and her team spend a lot of time with organisations, institutions and investors that have come across this, may come across this or represent people who may come across this. There is a huge number of sessions where we try to make the process as simple as possible. I spend a lot of time meeting institutions and organisations that we work with, could work with and think may be interested, as does the Deputy Prime Minister. Because these meetings sometimes involve organisations that may not want to be public about the putting forward of any cases to the ISU, we don’t often tweet about it or put press statements out, but there is a huge amount of interaction between us and industry.
That was one of the lessons I learnt, Mr Mangnall, when I was on the Committee, trying to explore how we ensure that this becomes, continues to be, an industry-led initiative—within the old BEIS Department and now within DBT—because we want to make sure it works for industry. I think I’m having a roundtable this afternoon with a number of businesses. The Chairman was challenging what we are like compared with international comparators. I would say that, more often than not, people are much more comfortable working within our regime, because, with the 17 sectors, you could argue it’s quite narrow. They can get hold of us as well. They’re not allowed to get hold of me, but they can get hold of the team and they can get information from the team. When we put out the annual report, we made sure that it was accessible and easy to understand for a layperson. The call for evidence is the same. What can we do to make the process even simpler, from filling out forms to getting hold of the people they need to get hold of?
Q14 Anthony Mangnall: You would approach a trade body; you would approach the different representative organisations—
Ms Ghani: Correct.
Q15 Anthony Mangnall: You would do that, rather than just directing businesses, to make sure that you have as much coverage as possible?
Ms Ghani: Always.
Q16 Anthony Mangnall: With this in mind, what have you learned from the 26% of those 65 who came forward voluntarily, and how have you changed your system, if at all?
Ms Ghani: Because we are working to the legislation, we don’t change the system. What I constantly push back to officials is, “How can we make the language easier and how can we make the information more accessible?”
One of the concerns that I had was that if you have accessed the system, it is actually quite straightforward, but it does mean that you need a person within your organisation and most companies have individuals within the organisation dealing with issues around transparency anyhow. But if you are a much smaller organisation, you need to be able to access us easily and be able to understand what we’re trying to achieve. We also want people to get in touch with us on a voluntary basis, so we can deal with those cases quite quickly.
So, we make sure that the language we use is easy. I am always anxious that we don’t want to encourage the legal sector by creating a new spectrum of work that doesn’t need to exist because they can quite simply work with us.
We are always trying to make sure that we’re communicating with people who we should be communicating with. That’s a major challenge for me, for the Deputy Prime Minister and for Jacqui and the team as well. So, every time we do a roundtable, we ask, “Who else should we be speaking to? What more can we do to make this any easier?”
I must say that we are not doing this in a bubble. I speak to likeminded Ministers in the USA, in Canada and in other Five Eyes countries, and we are trying to do what we can to make sure that our regime is the one that they like working with the most.
Q17 Andy McDonald: I would like to look back to some of those transparency and communication issues. However, just on the specific point, when we see that one of the remedies has been to unwind an acquisition, to what extent is the damage already done by that stage in terms of intellectual property? Because that may have already gone and so it's a little bit like closing the stable gate when the horse is miles away, because that intellectual property has been transferred.
Ms Ghani: Is there a particular case—
Andy McDonald: Well, was that possibly the case with Newport Wafer Fab?
Ms Ghani: I am always stress-testing what we can and cannot do within the ISU when we can come into scope. I cannot act outside of the law that we have in place at the moment, but when cases do come forward we do everything that we can to collect as much evidence and intelligence as is needed to make sure that we can present the most honest case to the Deputy Prime Minister, who then makes the final decision.
You are asking a question about the legacy not of this particular project but of any other case that comes in front of us. We can only deal with the case that is in front of us at any one time—
Q18 Andy McDonald: Indeed. I suppose the point is this: is it coming to you too late?
Ms Ghani: Oh, I see.
Andy McDonald: The acquisition is already on foot and intellectual property is in play, but it’s gone before you get anywhere near it.
Ms Ghani: This is something that I think about quite a bit when it comes to academic collaborations, more than I do with the sort of acquisitions you are talking about. For me, it is within the academic, private, international collaborations that I wonder how far we are down that process and programme of work. That is when I think about that question, more than I do with the sort of cases that you have referred to—unless, Jacqui, with IP prior to it coming to us.
Jacqui Ward: Sure. For reasons you will understand, I cannot comment on individual transactions, but perhaps I can talk in the abstract. As the Minister says, intellectual property is—
Andy McDonald: I was trying to do that, but the Minister tempted me.
Jacqui Ward: It is absolutely something that we think about, look at and would consider within the national security risk assessment. Now that we have the legislation in place, I would generally expect that transactions would be notified to us. Obviously, if they are in the mandatory sectors, then they have to be notified to us before they can complete. If they are in the voluntary scheme, including if they are asset transfers, we have powers to make an interim order to prevent that.
We have some reach-back powers from before the commencement of the legislation, which allow for that. But of course, to a point we can only remedy new things that come up. I am sure that we pushed the legislation through as quickly as was possible and it will serve us in good stead going forward.
Ms Ghani: We can obviously share more information in a private session, but issues around IP are something that I spend a lot of time poring over.
Q19 Andy McDonald: On business confidence—you have already alluded to this—there is a question mark around the extent to which businesses can have confidence in the regime if the public information on blocked transactions is limited. I noted that, following criticism of the black box nature of the ISU for its opaqueness, the Deputy Prime Minister publicly acknowledged that the regime needs to be more transparent. I heard what you said earlier, Minister, but the Financial Times reported corporate advisers expressing frustration that the ISU does not provide early or informal guidance to the parties to the transaction, as happens under the US regime. Moreover, advisers have criticised the “limited ability to track a deal's progress and bare bones disclosure about findings and remedies”. Clifford Chance—you talked about lawyers earlier—told us that the “level of communication from the ISU is insufficient” as the unit does not provide updates or feedback on the process of a case. And international law firm White and Case said that the NSI Act process is an “information vacuum”.
Ms Ghani: Oh my goodness!
Andy McDonald: Heavy criticisms.
Ms Ghani: They are; but I can read out a list of feedback that is positive. May I first respond on the comparison to the USA. The majority of the cases that come before us are cleared within 30 days. I have been very clear to industry and investors that we are not going to do a running commentary on cases, because if a case was to go further, language and interaction matters, especially if we end up in judicial review-type situations. The majority of cases are cleared within 30 days, and internationally, that is a really tight timetable for them to be cleared in. I cannot have officials—Jacqui and her team—available on the phone 24 hours around the clock. You have confidence that most of them are, as I mentioned, cleared within a few weeks, and that is what really matters.
There are issues around transparency. When I first joined the Department, it was about, “How can we make the information more accessible?” A lot of it is written in highly legalistic language—a lot of information out there, and we are doing everything we can to make sure that the information is far more accessible. The call for evidence is enabling us to try and make it even more fit for purpose.
As I said, I spend a lot of time with industry, and am more than happy to take on board their negative feedback. But we have had people saying, “We have had constructive meetings with the ISU about the cases we've been involved in.” Another person, another investment representative—"Decisions taken within two or three weeks.” So it is within the frame of international comparison. Another person wrote, “Experience of the regime's first year has been positive and we commend the ISU for putting in place a well-run system.”
There are things that we can do that will be even faster, and we are going to do our best, but the reality is this. It is a very simple system. No one is going to be fast-tracked. Every case is treated as a unique case, because it is always slightly different from any case that would have been put forward previously. No, there is not going to be ongoing running commentary. Officials are not going to be available to provide updates daily. The reality is that we will clear most cases within 30 days. If they take longer, that is because they have triggered something we have to investigate further, and that is our responsibility.
Q20 Andy McDonald: In terms of these criticisms, you need to have that robust conversation with people to see whether they are genuine criticisms that are valid within the structure as it is, or alternatively, they are asking for something else altogether, which is never going to happen.
Ms Ghani: It is a new unit, doing a new programme of work. Whenever something is new, people want to know, “What more can we see behind the curtain?”, as it were. It is pretty straightforward because any decision that we take can be judicially reviewed. We have to be quite careful on how we correspond with people. I would also mention that the opportunity exists sometimes for lawyers to create a whole new spectrum of work, which is why I am trying to make sure that we can be as transparent as possible. Unlike any other regime, we are the only country to publish notices of final orders. So we try and provide as much transparency as we can. I quite like talking to my counterparts around the world and saying, “This is what we’re doing within our system,” and them saying, “We want to be able to be as fast and as transparent as you are.” So I don’t feel in any way that I don't have a better or an equitable system compared with what other colleagues are doing around the world.
Q21 Mark Pawsey: I would follow Mr MacDonald's questions. Minister, you referred to your time sitting on this side of the Committee. You will know that business likes certainty.
Ms Ghani: Yes.
Mark Pawsey: And for business to operate in a certain environment, it needs to have confidence about what is likely to happen in any particular situation. We know that there were 866 notifications and, of those, 65 were called in. Of those 65 called in, five were blocked. So if someone is called in, there is about a one in 10 chance of it being blocked. How confident can businesses be when they know they are going to end up with this process? I am thinking of the confidence of, first of all, the business being acquired and for the management team who are subject to a potential acquisition because they want to be able to get on and grow and develop their business in the way they should. I am also thinking of the confidence of the acquirer, so that they know that there is some certainty. How has this intervention rate impacted business confidence?
Ms Ghani: Mr. Pawsey, we spent two years sitting together, so it is interesting to be on this side of the Committee. The certainty is that the regulation exists, and we are not trying to in any way circumvent the regulation, so it is pretty clear what we are trying to do. If you look at the publications of the final orders, it is also pretty clear the areas that we pick up. One could argue that it is then pretty clear the sort of individuals, entities and countries that get caught up within the regime. It provides a huge amount of certainty to people when they come forward. If we go beyond the 30 days, they get far more exposure to the ISU and to Jacqui and her team. They are then talked through the process. Beyond the 30 days, nothing is done as a surprise. It is an ongoing communication process. We can try to explain why we need further information and potentially whether remedies are needed; they are also not done out of the blue. These are discussed as well within the case. Before I end, I am just going to bring Jacqui in to add some more texture to that.
Jacqui Ward: I wondered if I might just make a small clarification, because some of this is quite difficult to measure in the reporting period for the annual report. We actually reviewed 766 in that period, so there is a difference between the number of those notified and those reviewed because of the lag times in notifying and so on. There was a final determination—if I can call it that—a final order or a final notice made in 72 cases. Those numbers are right, but just slightly different. As the Minister said, 93% of transactions will get, within 30 working days, a clean bill of health to proceed. Some 7% were called in—that is our sort of call-in rate, as it were. Lots of those still go on to receive a final notification once we have undertaken our thorough checks. We do take it very seriously, and the Secretary of State—the Deputy Prime Minister—can only make a final order if, in his judgment, it is necessary and proportionate to the national security risk to do so. I hope that businesses can take assurance from that.
Q22 Mark Pawsey: That is fine. The numbers are pretty similar. Minister, can I take it that you would be happiest if nothing was blocked or unwound because that would mean that every transaction that was proposed was in the national interest and there was nothing outside of the national interest?
Ms Ghani: Mr Pawsey, that is an unrealistic view of how the world functions.
Mark Pawsey: It would be desirable.
Ms Ghani: But that is not how the world functions. We are open for business. It is a sign of a healthy economy. It is a sign that our Government has in place policies that are attracting investment. Also, many firms want to grow and to attract investment from beyond the borders of the UK. A lot of businesses are international. They may have a major presence in the UK but be international as well. Business is complicated, but the reality is that we are continuing to attract investment into the UK. I mentioned the global investment summit being one and I know from my brief within Business and Trade of the level of investment that we have secured that could have gone elsewhere. I am thinking about gigafactories and advanced manufacturing. Those are all good investments. We are competing for investment all the time, but our job is, when it touches our critical areas, to go forward and investigate.
Q23 Mark Pawsey: If you do not want zero, how satisfied are you at the current proportion that are blocked or unwound? Is it about where you would expect it to be or should we be a little stricter in our application of the rules?
Ms Ghani: We are very strict with the application of the rules. Every decision is taken within the application of the rules. I did not know how many were going to be brought forward at the beginning because you just do not know what sort of cases are going to come forward. I could not predict the number of call-ins or the number of final orders. It changes all the time. The cases that are in front of us—there is no pattern to what is happening. As I mentioned, you are also dealing with the private sector and the academic sector; there are lots of things happening that make it very complicated.
On what is happening in the United States—we have the call for evidence out there, and there is a huge consultation—it will be interesting to see what we consider critical to our national security. By the end of next year, for example, we might have had a whole different discussion and worked out whether there are other things we need to bring into scope, but that will require a huge amount of consultation.
Q24 Mark Pawsey: Minister, you have referred to your call for evidence. What are the early indications? Are the indications that businesses are happy with the regime and that they know and understand it, or are there some areas where they would seek an improvement?
Ms Ghani: The regime has only been around for a year, so the data is quite fresh; I will be interested to see what it is like next year. I know that I always found, before I was the Minister, that possibly the regime could be more transparent. That is why we have done everything we can, now that we have enough cases under our belt and we have data for a year.
What more can we do to make the regime as open as possible? Sometimes I hear off-the-cuff remarks like “Is this preventing investment into the UK?”, but that does not ring true either. If that were the case, we would not have the record level of investments into the UK. Sometimes individuals, investors and companies may ask, “Can we be fast-tracked? We’ve been through the system once.” Well, no, you can’t: it’s a rules-based system and everyone has to go through it in every case.
Everybody wants to do things a little bit faster or to be prioritised differently, but that is not going to be the case. But I must say, having had a year of meetings with industry and investors, that they are getting more and more comfortable with the unit.
Q25 Mark Pawsey: Are cases treated at the time they come in, or is there a triage? Are some cases, which on the face of it are more likely to fall foul of the regime, treated faster? Or is it simply dealt with on an as-they-appear basis?
Ms Ghani: The process remains the same once you enter the system. I will get Jacqui to explain, because it involves not just DBT, but a number of intelligence agencies and Whitehall Departments.
Mark Pawsey: But some, on the face of it, may be more likely to fall foul of the investigations than others.
Ms Ghani: There are occasions when there are cases in front of me and I think, “This is nowhere near the scope,” which is why the call for evidence is important, and then there are cases in front of me where I think, “Well, this is most definitely in scope.” But that information that is put in front of me is gathered via a process of supply to every case that comes forward. Shall I get Jacqui to explain how it ends up in front of me?
Q26 Mark Pawsey: Sure. Are the cases that, on the face of it, are more likely to cause a problem dealt with more expeditiously than others?
Jacqui Ward: To a point, there are some cases that are more likely to raise national security concerns than others, because they fall into mandatory sectors. Having published the mandatory sectors—and they are specific activities within the mandatory sectors—we have sent, I hope, a fairly clear signal of what we think is potentially the most sensitive area of investment. To a point, that can send that signal.
In terms of how cases are handled: no, they are all thoroughly screened. As the Minister says, because we work incredibly closely with our partners across Government, we need to make sure that we are doing within the ISU all of the relevant text that we need to do; we need to make sure that we have consulted properly and thoroughly with all those partners; and then we need to gather that evidence to be able to put the recommendation first to the Minister and then to the decision maker. We do that for all transactions, to make sure that they are all thoroughly scrutinised. As we have said, 93% can then exit the system at the end of that 30-day process.
Ms Ghani: Just to confirm: before every case comes to me, it has the same level of resource and time spent on it to get the data put in front of me and then the Deputy Prime Minister.
Mark Pawsey: That is reassuring. Thank you.
Q27 Chair: You said, “There is no pattern to what is happening.” Are you inviting us to believe that there are not particular countries on hunting expeditions trying to acquire access to UK intellectual property or data?
Ms Ghani: Hunting expeditions?
Chair: Are there countries that are trying to buy up UK intellectual property or UK data, particularly in the fields of military and dual use, defence and advanced materials?
Ms Ghani: Well, we don’t have data to suggest that any country is on a hunting mission. What we do have is data, which you can see in the public domain, that some countries are showing up more than other countries. But there is not enough data or evidence to suggest that there is a hunting mission going on.
Ms Ghani: I am always asking for data on particular sectors, investors, entities or countries because I am always trying to seek out if there are patterns. Because we have been around for such a short period of time, although there is evidence out there on what kind of countries are caught out more often than not, at the moment there is not enough evidence for me to derive a pattern in relation to the question you have posed.
Q29 Chair: There is no particular country that you are worried about.
Ms Ghani: The ISU has been set up on the back of the NSI Act and, as you know, was set up to be actor-agnostic. The data will show you that certain countries are reflected more than others when it comes to final orders.
Q30 Chair: Which are?
Ms Ghani: I suspect that you are asking me to reflect on the fact that 40%, I believe—
Jacqui Ward: Eight acquisitions that have had final orders made are associated with China. I think it is four with the UK and three with the US. It is important to say about that phrase “country associated with” that there are a number of ways in which a country can be associated with an investment. Sometimes the total numbers do not add up because of how we cut that data to make sure that we are capturing all the different country interests.
Q31 Chair: I am just curious about the phrase, “there is no pattern to what is happening”. Presumably there are some countries that we are more worried about and there are definitely more sectors that we are worried about, because 90% of the call-ins are in military and dual-use defence and advanced materials.
Ms Ghani: Yes, because they fall very neatly into the work that the ISU is doing. I was trying to reflect on Mr Pawsey’s question and we need to spend some time to collect more data and to see whether there are patterns that provide the evidence that particular investors, institutions or countries are being deliberate. At the moment, I don’t think we have enough data to suggest that. It has been going round for only one year. You are right that China does come up quite a few times, but we cannot be surprised by that. The reference to China in the integrated review makes it very clear that we think that it is a challenge. We know that we have to deal with a country that is an economic challenge to us, but also a geopolitical challenge and a challenge on human rights issues. All of those come into play.
Q32 Chair: But at this stage you are not telling us that you are more worried about a rising threat from China when it comes to investments in UK companies?
Ms Ghani: We have always been clear that China remains one of the biggest state-based threats to the UK’s economic security, but I can only act within the rules of the ISU.
Q33 Chair: Are you worried about a rising threat?
Ms Ghani: Chair—if I was sanctioned by China, that would explain whether I was worried about China, and the work I have done as a Back Bencher—
Q34 Chair: That is not a straight answer.
Ms Ghani: Is it not? If the integrated review makes it very clear that China remains the biggest state-based threat to the UK’s economic security, we are accepting that it is a country we need to assess when it comes across to the ISU, knowing that it is a state-based threat to the UK’s economic security.
Q35 Chair: I don’t know why you don’t just tell the Committee yes.
Ms Ghani: Because the ISU has to be actor-agnostic; that is the thing. We have to deal with each case on the evidence that is put in front of us.
Q36 Chair: But you are not seeing patterns that alarm you.
Ms Ghani: It is only because it has been going round for a year and we don’t have enough data beyond that year. Maybe if you ask me back and I am lucky enough to be in front of you again in 12 months’ time, we will have enough data to say.
Q37 Antony Higginbotham: Good morning, Minister. I want to talk about the transparency of the screening process. Earlier this year, the Deputy Prime Minister indicated that the system did not have enough transparency in the screening process, and that he was open to improving transparency. Do you share that assessment or, based on your answers today, are you saying that the screening process has moved on so dramatically that you do not think that there is a transparency problem?
Ms Ghani: We know that we need to do more, which is why we have the call for evidence out, to enable businesses to give us even more feedback on how they use the system. They obviously let us know how they would like to use the system, although that does not mean that we will amend it their way, but they also tell us how it compares to working with regimes overseas. If we thought it was perfect, we would not have a call for evidence out there. We do want to learn some more. That process ends in a few weeks’ time, so hopefully we can respond to that.
We want the regime to work well. We want people to notify us early. We need them to do that, if they are comfortable with working with the regime. That is why we have published the annual report, published final orders and now we have the call for evidence as well.
We have got some criticism for doing that, to be honest. There was a lot of media coverage saying we are only putting out a call for evidence because we are trying to change the regime. We are not; we just want the regime to work better. You can sometimes feel it works well, until you are on the other side and trying to access the system. It can be quite a bit more complicated than they hoped.
Q38 Antony Higginbotham: How much of a step up do you think it was when you published the market guidance in May? How much of a step up in transparency was that then? Where do you expect to be, once you have finished the consultation?
Ms Ghani: Market guidance, annual report—those were new things because the unit was so young. The more information you put out, the more information people want, the more feedback we get. The call for evidence feeds into our desire to be more open and transparent. We will be putting out even more materials next year. When is the next annual report due?
Jacqui Ward: The annual report cut-off date will be the end of the financial year, which will be the end of March. Then we will publish it later in the spring or summer.
Ms Ghani: So, there will be even more information coming out. The more information we put out there, we hope we get more queries coming back in. Compared with other regimes, this is far easier to access. In other regimes, a much greater cost is incurred in even applying. We are quite a small, tight unit within the Cabinet Office.
We have tried to put as much information out there as possible. I do not want any institution or organisation feeling they do not know how to work the system. I want them to be able to work the system as well as they can. Because it is new, there was a moment in time when information was not being put out there at all, for the first several months.
Jacqui Ward: We published guidance pre-commencement, of course. We published guidance on how we thought it would work. As we learned more about how it definitely did work, we were able to publish updated guidance, as you say. We are committed to continuing to do that. We have been really grateful for ongoing feedback from businesses. We have been able to make some operational improvements as we go, such as how we approach our information-gathering powers, through information notices and offering conversations post a call-in decision.
We are committed to continuing to make those updates, as well as potentially wider ones. That is what the call for evidence is about. It might be that we need to be able to put more information out there about where we see risk. We have already referred to the section 3 statement. It is a genuine opportunity for businesses to feed back where we could be more transparent.
To your question, I think there probably will always be some limits, because we will always be constrained by not being able to talk as openly as we would wish about where we see national security risk. Certainly, we often receive feedback asking whether we could publish more about individual transactions. Of course, we are seized of the need for commercial confidentiality. A lot of the information that we hold is provided to us in law, compelled by law, for that specific purpose. We are always cognisant of that balance, as well—both national security sensitivities and commercial sensitivities.
Q39 Antony Higginbotham: How transparent is it for the parties to the transaction? I understand what you said about not wanting to give a running commentary on every transaction because, for the ones you do then look into, you have got to be careful with your language. Would you consider, for example, an online tracker, not for the general public to see, but so that those parties to a transaction can go in and see what stage an application is at—see where the ISU process is at?
Ms Ghani: An online tracker for the first 30 days is not a long period of time.
Q40 Antony Higginbotham: It might be if you are a very small business.
Ms Ghani: For a very small business it is still a short period of time to be involved in a serious transaction that involves national security. I don’t think there are firms anxious about the 30 days; I think it is post. If you are post, and that means that you are triggering something that we are concerned about, that does take time. We move quite fast; we are unique compared with international comparators. The unit and myself, and the Deputy Prime Minister, can act on quite a lot of information from a lot of different agencies quite quickly. We are not waiting around that long, but these are complex decisions we may have to make, so we need to ensure we have all the evidence in front of us.
Q41 Antony Higginbotham: I guess that’s kind of my point, though. If you are an SME whose finances aren’t the same as a large corporate and you might be securing investment into your business that is helping you to sustain yourself or grow, whether that period is 30, 60 or 90 days, it can feel like a very long time.
Ms Ghani: Correct.
Antony Higginbotham: Particularly if the case goes to the ISU and you don’t feel like you are getting updates along the way. What I am trying to get at is that if you are at the SME end of the party rather than the larger business end, that is where you might have a problem with transparency and opaqueness.
Ms Ghani: I must say, an SME that comes in front of us will be a pretty large SME, because when you are touching what we consider to be critical, they are often quite valuable transactions—far more valuable than what you may perceive an SME to be involved in. In the rare case of our investigating further, I would hope that the SME would consider the fact that we are concerned about national security and would want to work with us to get it right.
That is why, if there were to be a final order, the issues around remedies come into play. Remedies aren’t done out of the blue. A conversation would take place within the case if that were to happen. I find it hard to believe that any SME that might touch a case that requires us to investigate further would not want us to spend the time to get all the data together, considering how important the decision would be. More often than not, they are aware of how important the decision would be, which is probably why they notified us in the first place.
Q42 Charlotte Nichols: I want to come back to the issue around transparency, both in terms of public reporting and communication with the acquisition parties. You have spoken about international comparators. The CFIUS unclassified reports include, for example, actions taken to mitigate threats and an indication of whether there is evidence of espionage or a co-ordinated strategy to acquire critical technology companies. I understand and appreciate the fact that things are out for consultation at the moment; would you consider matching the level of information included in the CFIUS unclassified reports in the ISU annual reports?
Ms Ghani: Can I let Jacqui start on that and then I will reflect?
Jacqui Ward: As the Minister mentioned, we publish notices of final order, and we are required to under the legislation. Obviously, the amount of information that those notices contain is always a deft balance, for exactly the reasons we were just speaking about. We need to make sure that we are not inadvertently, by putting information out, compromising national security, and we need to respect the commercial sensitivities of the transaction parties. Each one of those is a delicate balance. As we have discussed, we have made only 17 since the start of the legislation. It is an area that we can continue to look at. We are really open to feedback. We are always mindful of that balance, and we would like views that reflect both sides—the advantages of greater transparency versus the need to protect the commercial sensitivity of the individual transactions and national security.
Ms Ghani: I will explain some of the differences. The US publishes details of blocked transactions, but does not publish any information about the remedies it has agreed with the parties. Canada publishes some details of notifications received and limited details of final decisions. Australia, Germany and Japan do not ordinarily publish information on specific notifications received or the decisions made, so every regime is a little bit different. We generally share more information about decision making than other regimes, especially the notices of final order on gov.uk, as Jacqui mentioned. I am always assessing what other regimes are doing. I don’t think that we are deliberately withholding information; we are putting out as much as we can without something becoming commercially sensitive, or, if there are JR issues, becoming quite complicated further down the line.
Q43 Andy McDonald: Minister, looking at the decision-making processes themselves, the Government already outline the risk factors under the NSI Act. The three primary risk factors are target risk, acquirer risk and control risk, added to which is the risk to defence assets and risk to UK critical infrastructure. Could you say something about how all those factors are weighed by the ISU?
All of that is put into the mix. A huge amount of data is put in front of us. What we could possibly do, in a neutral way, is to show you, in the private session that we are having, how the information is presented so that you can see how the evidence is put forward in front of us. Obviously, we can only take decisions based on security. Even though, when we receive challenges thinking about broader aspects such as the economy, the region or employment, and those are obviously there, we only take decisions when we know that they have an impact on a security element within the ISU guidelines.
Q44 Andy McDonald: Perhaps we could take you up on that offer. How do the Government provide businesses with clear explanations of the risk assessment framework, including the rationale that sits behind it? How does that happen? Is it just a case of looking at the website and there it is?
Ms Ghani: A lot of it is out there. It is very clear what sectors we are looking at and it is also very clear what sort of acquisitions we are interested in. Obviously, the final orders provide more or less the data that they need to in order to see what will require further investigation.
I know that businesses can sometimes respond very differently when a Minister is in the room, but they can provide us with criticism, too. They are not really surprised at the sort of acquisitions that require more information. I don’t think that any of that comes out of the blue. The kind of scope that we are working in and all of the sectors that we are interested in are very clear. No one has ever been at all surprised by us asking for more information.
Q45 Andy McDonald: Looping back to the point that the Chair made earlier, we have mentioned China several times. It could be another country, but if any particular country was described as a threat, what meaningful difference would that classification make to the ISU’s assessment of acquirer risk in general terms?
Ms Ghani: We have to make sure that we are collecting the data and dealing with each case on its merits. It is actor-agnostic, but of course we have to reflect on the fact that there are particular countries that you see getting caught out more often than not, if they are getting close to investing in sectors that we think are critical to us. There are some cases that I spend more time reviewing the data for, but I cannot take a decision that is not within the scope of the legislation.
Q46 Andy McDonald: But, with China in particular, we have seen those reports about TikTok. It is one thing about access to data, but then it being revealed by others that, in fact, there is direct access to personal data of UK citizens. I think that that is something called the “God credential” of overreach, where Chinese officials can actually access that data—personal data—that we were given assurances was elsewhere. Doesn’t that highlight the concern?
Ms Ghani: All of these are things that one can be contemplating. The acquirer is something that we review, but the actual acquisition is what we focus on—what is being acquired and what risks that poses to our security, if it was acquired and is no longer in the hands that we would like it to be in. That is what we are investigating. It is not fundamentally focused just on the acquirer; the acquisition, product or whatever technology is being acquired is what we are focusing on—the level of security around that, where the IP may go, whether it is a technology that could be exploited beyond what we think it is for at the moment. We need more data for me to be able to reflect on whether the products that are acquired, if they are acquired in a cumulative fashion, will be something that we are concerned about, going forward.
Q47 Chair: The challenge we have is that, in the integrated review, China is defined not as a threat, but as an epoch-defining challenge.
Ms Ghani: Correct.
Q48 Chair: In the list of blocking criteria that Mr McDonald read out, access to UK data—access to UK citizens’ data—is not one of the blocking criteria that you can use, yet the head of MI6 is warning us that countries like China are trying to exfiltrate data from our country to build datasets and train algorithms that may be used against us. It feels to us like the investment screening regime is inadequate if we cannot block countries like China from buying companies that give them access to UK citizens’ datasets. Do you agree?
Ms Ghani: What I agree is that when the NSI Act came into being, we were focused on particular sectors we were aware of that we wanted to protect.
Q49 Chair: I know, but do we need to update that now?
Ms Ghani: That is why we have the call for evidence taking place. We are consulting with industry, and we will see what information comes back in. But you are right: this is going to be an evolving space.
Q50 Chair: But do you think it should be updated? You are the Minister—you are the decision taker here.
Ms Ghani: Well, the Deputy Prime Minister is the final decision taker in this space.
Q51 Chair: Is he in the wrong place on this?
Ms Ghani: No. I think he has been very clear in interviews that he has reflected on the significance of critical sectors and of emerging technology, and that we want to make sure that the ISU work continues to be best in class, which is why we need to make sure that we are constantly gathering all the intelligence we need to put forward a case to potentially increase our scope, and that we are able to do so. But we need to do it on an evidence-based system and that is what I am trying to do. I have been the Minister for only about a year. The unit has been around for 18 months. Every decision I take has to be based on evidence to make sure that it stands up.
Q52 Chair: I respect what you are trying to do, but the head of MI6 is warning about this, so the threat is not unknown to us. As the Minister responsible for investment security, do you think that stronger control regimes need to be in place to stop countries like China using Chinese companies to acquire access to UK citizens’ data—yes or no?
Ms Ghani: I believe that we should reflect on what we consider to be critical sectors—we have 17 to date—to reflect technological advances that have taken place over the last couple of years and will take place going forward.
Chair: That is not a straight answer.
Ms Ghani: It is.
Q53 Chair: Do you think that we should be stopping Chinese companies accessing or buying UK companies that control UK citizens’ data?
Ms Ghani: The ISU is not set up to target one particular country. If we want to make a change, and we are able to make a change, we can do that based on the evidence and the data. The unit has just not been around long enough to do so at the moment.
Q54 Chair: Is there a case for updating the law in the light of modern threats that we now understand?
Ms Ghani: Yes.
Chair: Thank you.
Q55 Anthony Mangnall: What is the purpose of the review of the NSI Act?
Ms Ghani: The purpose of the Act is to—
Anthony Mangnall: The purpose of the review, not of the Act.
Ms Ghani: The call for evidence?
Anthony Mangnall: Yes.
Ms Ghani: To get as much feedback as we can to ensure that it is easy to understand and easy to use, and that people are comfortable coming forward and can notify us as easily as possible. We also want to make sure that we are attracting investment and that we have a pretty competitive regime. I do not want people complaining about the regime. I do not want people to be thinking that there may be an easier regime to work with somewhere else around the world. I want them to come forward and work with us in the UK.
Q56 Anthony Mangnall: Is it also because the Government have seen some of the inadequacies of it, or where it has not necessarily matched up to the requirement that has come through in the call-ins?
Ms Ghani: I think it is a bit more straightforward. It just was not around long enough and it was set up to work with industry, but we need to get some feedback from industry to make sure that we are working as best we can. We also always agreed that we would constantly keep engagement with industry, and ensuring that the ISU is easy to work with, under review. We do not want to close the doors and say, “This is how the regime is going to be. There's no way you can interact with us. Just stick with it.” We want to make sure it is as nimble as it can be.
Q57 Anthony Mangnall: I will follow on from the Chair's line of questioning. I understand the tightrope that you are walking as a Government Minister, being as diplomatic as you possibly can be, but having rebelled with you many times, I feel I might be able to understand where you are coming from on certain points. You are saying that there are no patterns at the moment because there is not enough data for you to recognise what might be coming out, but there are early indications of where we have some serious challenges. At the moment, those early indications mainly reveal China to be a problem and a risk. I wonder whether you are using this review to try to tighten something up. In a year’s time—I look forward to you coming back to speak to us in 12 months’ time—will that have been enough time for you to say that those early indications have turned into a pattern and we therefore need to be much more robust in our response, using these mechanisms before us?
Ms Ghani: I am hoping that the review will, first, make sure that we are fit for purpose when working with industry. One of the conversations I have had, especially at the roundtables, is to ask industry what we might not have thought of that is coming down the line that could be a risk to our security. We might all think we know, but it is not until we sit with an IT or data firm that we can appreciate how some of this can be exploited later and become a risk to our national security.
It is not for us to define national security, but you are right; we have a call for evidence out there, so let us see what comes back in. Over a period of time, more and more cases and more and more decisions will be in the public domain. That will enable us to perhaps reflect on how in future we make the ISU reflect some of the acquisitions that we need to spend more time working on, to be honest. At the moment, it is too early for me to say.
Q58 Anthony Mangnall: If those early indications turn into a pattern, does doing business with China and entities that are linked to China need to come with a health risk ?
Ms Ghani: No, because every case is dealt with on a case-by-case basis. We already have Chinese investment into the UK and, as you said, only 7% of cases are called in. Investment takes place all the time, and investment and trade are pretty fluid. We are focused only on particular cases, and those are the ones that are in the data at the moment.
Q59 Anthony Mangnall: I do not want to step on Mr Pawsey’s line of questioning, but beyond the 17 sectors, where do you think that we will be evolving to? From 17 to 20 to 30, what will be the next sectors—
Ms Ghani: I do not know what the numbers will be, but what happens in the US is interesting. I am looking, for example, at quantum, AI and all sorts of new technologies—the Chair talked about data. We thought when we put the Act through—I say this from the perspective of having been a Back Bencher—that we had everything we needed in scope, but it changes. Time changes, sectors change, security changes and there are what we consider to be critical changes. I do not believe that the ISU or the NSI Act will remain indefinitely around the same 17 sectors forever.
Q60 Mark Pawsey: I will stick with the review, if I may, Minister. You have taken advice from businesses and industry, but businesses and industry have already done a deal. They have come to an arrangement that they think is in their best interests, so they will say, “Let us go ahead with the decisions that we have made.” So rather than tightening up the procedure, as Mr Mangnall suggests, if we listen too much to industry, we will end up weakening it, won't we?
Ms Ghani: I hope not—
Q61 Mark Pawsey: But is that not what they are likely to say, because they have already established that these deals are in their interest? They want them to happen; they would not have come to those deals if they did not want them to happen.
Ms Ghani: Lots of deals can evolve, change and collapse for lots of different reasons—nothing to do with the ISU. So on occasion we get cases put forward that might not even be that way—it might just be someone dipping their toe in and nothing concrete is about to be done. I do not buy that we are in any way involved in deals not going forward—lots of things can happen to them over a period of time. Actually, when industry comes forward, what they would like is for decisions to be made even faster and for someone to give them a running commentary day in, day out.
Q62 Mark Pawsey: But if a business thought that its deal was not going to pass the requirements of the ISU, it would not have done the deal in the first place, would it?
Ms Ghani: That is an interesting question.
Chair: What’s the answer?
Ms Ghani: I am trying to reflect on all the cases that come in front of me. I am reflecting on all the conversations that we have had.
Q63 Mark Pawsey: If you thought something was going to get tripped out, you wouldn't do it. They are going to ask for a more relaxed regime. My point is: is there a danger that if the Government listen too much to industry, we will end up relaxing our system at a time when others—we have heard about international comparisons—are tightening theirs up?
Ms Ghani: I am just trying to reflect on the expert committee as well. The curious thing is that because the committee is made up of people from quite a broad range—the last session that we had was only a few weeks ago—some of them were arguing for an even tighter regime. Some of them would want particular entities, individuals, investors and countries excluded, so there is not a one-size view across the investor industry. They are not all coming forward and saying, “We want it more relaxed.” Some would argue that they want it tighter. Some would argue that they need to think about this area being critical, and some would argue that they want this area not to be on the critical list.
Q64 Mark Pawsey: But do you accept that in other parts of the world, they are really going for a tighter regime than the one that we have right now?
Ms Ghani: What I always try to explore with my like-minded Ministers overseas is that sometimes it feels as though it is tighter in the noise, but then I review the legislation and I would argue that it is not as tight as ours. Obviously, we want to make sure that we attract investment into the country. They are doing the same in their own countries. So be careful—just try and look behind the curtain. They might say that they are having quite a relaxed regime, or they are not having a relaxed regime, and the opposite might be happening.
Q65 Mark Pawsey: Okay. And the timetable for the review?
Ms Ghani: It is 17 January—
Q66 Mark Pawsey: If there are changes, when might they come?
Jacqui Ward: It depends on what comes through and what changes are therefore required. We can obviously make operational change and guidance change quite quickly relative to legislative change. But one important reason for opening the call for evidence is that we committed during the passage of the legislation to review the notifiable acquisition regulations. We would expect to need to do some further refining and updates and potentially consult again, because what was so valuable in developing those regulations to get them as precise as we possibly could was the input of industry into those definitions. There will be, I imagine, different timetables, depending on what is needed to be updated.
Q67 Chair: Will you brief us on the conclusions from the call for evidence?
Ms Ghani: I don’t see why not. I am in front of you in January, which might be too early. Maybe I can reflect on some early indications of what we have had and the sort of information that we have had in. I will do my best to be as transparent as I can.
Chair: I appreciate that. I just wanted to get that on the record.
Q68 Charlotte Nichols: In the past five years, the Government have introduced several pieces of national security legislation—our Chair had a fun visual prompt for this when opening his questions. How does the Government ensure that the strategies dovetail and complement each other while identifying gaps within those relevant strategies?
Ms Ghani: You are right; I have a few pages in front of me that reflect on all the laws that are in place. We have the Procurement Act, the Economic Crime and Corporate Transparency Act, the semiconductor strategy and my critical minerals strategy, and all the legislation in between. The beauty of the ISU is that, first, it is quite a neat unit in what our parameters are. The second is the authority that it has to work with other agencies and other Whitehall Departments. The third is that we have embedded ourselves quite well in letting everyone else know what we are doing. So getting information from other Departments who are responsible for other bits of legislation has never been a challenge. They know that we are keen to keep our reputation. As the unit delivers advice quite quickly, within 30 days, they get in touch with us quite swiftly.
On occasion, because I am a curious person, if a case is put in front of me and it does not neatly fit within the parameters of what I am doing, I always reflect that perhaps somebody somewhere else will be picking it up and investigating it. I am sure that the cases that we can deal with, we deal with. The cases that we cannot deal with are probably picked up elsewhere.
Q69 Charlotte Nichols: Within those gaps, the EU FDI screening regime has the freedom and pluralism of the media as something that is considered when reviewing investment, but that is not considered within the framework of your Department or some of these other pieces of legislation. That is causing considerable concern at the moment. The former head of MI6 has labelled the planned Abu Dhabi-backed takeover of The Telegraph newspaper, for example, as “completely unacceptable” and a “profound security concern”. I am not expecting you to comment on that individual case, but that is an example of one of the areas where a gap has been clearly identified. In a world where sanctions evasion is widespread and where new proxy firms are multiplying, how can we ensure that those gaps are being filled effectively and that the scrutiny is in the right place?
Ms Ghani: That is being taken forward by the Secretary of State for Culture, Media and Sport, so it does not fit very neatly within the ISU, but, obviously, I cannot comment further. She issued a public interest intervention notice. As a unit, we are doing market monitoring at all times to identify acquisitions that are a potential national security interest. The Government will deal with any case of acquisition that requires consideration with multiple bodies. They will have to make sure that they are interacting with all the appropriate regulators as well. I do not believe that there is a gap, but I cannot talk much further about the case you are reflecting on, in case it is something that we have to get involved in at some point.
Q70 Charlotte Nichols: So you don’t believe that there are gaps within all these different interacting pieces of legislation?
Ms Ghani: If it falls within my scope of work, I am pretty confident that we are picking up everything we need to pick up and that when we need to work with other regulators or other Government Departments, we are working pretty efficiently.
Q71 Chair: The challenge is that we have no clear definition of national security that, for example, includes a threat to the integrity of our democracy, so we have no specific risk factor that would allow you to block a transaction that, for example, allowed a foreign dictator to buy the free press here and then close it down. You have said also that you have not got grounds for blocking access to companies that control personal data. We have a list of risk factors that are clear threats, around which you do not appear to have grounds to take action. That is what we are taking away from this.
Ms Ghani: You are right that the 17 sectors are the ones that we focus on, and we are always interested in what is being acquired than those that are acquiring. You are right also to say that threats will always evolve. I will do my best to make sure that the ISU will do what it can to address threats as they evolve. Having said that, we are new; we are having to work within a legislative framework. It is not something we can just change on the hoof. We need to collect the data, make the case and be as consultative as we possibly can.
Q72 Chair: But I think we are agreeing that the legislation may be just a bit out of step with the current threat assessment to the UK.
Ms Ghani: The integrated review was pretty clear on what it considered the threat assessment to the UK to be.
Q73 Chair: Well, it didn’t label China a threat.
Ms Ghani: As a “challenge”—this is why we are being as open as we can, as consultative as we can. I hope that as threats evolve and are identified as evolving, we can do what we can within the ISU to work within scope as well.
Chair: There is a risk that we are closing the door after the horse has bolted.
Q74 Antony Higginbotham: Just to reflect on some of our conversation, do you think that under the Act we are too focused on sectors and not focused enough on the purpose of an acquisition? There was the point about UK data—so we are not concerned with TikTok because it is a technology company; the concern with TikTok is because of the UK data it gives access to and the ability to influence the UK population. Are we missing something?
Ms Ghani: Because we’ve gone back to the data point, that is the issue—
Q75 Antony Higginbotham: It is not just data; you could take the other point about UK democracy. We do not seem to be applying the test, “What is the purpose of the acquisition?”
Ms Ghani: Jacqui, do you want to respond to that?
Jacqui Ward: We absolutely are doing that. The discussion around defining national security should not be taken as indicating that we necessarily exclude or include things. When the legislation was passing in the House, there was a great deal of debate about the merits of creating a definition or not. A lot of concern was expressed that creating a definition would be static, so we put out as much information as we can on the potential risk factors. Those might be the risk factors that we look at for call-in or that we look at through our assessment. So we can take account of these areas.
The important thing is that when we are building the evidence base for the decision maker to take his decision, it is always focused on national security and not something different. So we are building an understanding, as we have discussed, of acquirer, target and control, but then we are also definitely looking at—individually, case by case—what is going on within the transaction and articulating, for his decision, what is the risk to national security or otherwise that arises from the transaction.
It is that assessment—especially once this gets to the very end of the process, when he is considering whether to make a final order—that is absolutely critical, because he can only put in place measures that are necessary and proportionate to protect national security. That is where it does become deeply embedded and deeply ingrained in individual cases and transactions.
So we would be looking at those factors, but how that plays out for a technology company is one thing; it may be different for a piece of critical national infrastructure and it may be different for something in the defence supply chain. One of the things we are trying to do through the call for evidence is to gather more information on this: do people understand how we make our assessments, and therefore, could we publish more information? What information could it be that gives greater clarity about where risk might arise or not arise, but also doesn’t further harm national security in doing so?
Q76 Antony Higginbotham: But is the problem not that because, as we established at the start, we don’t have a definition of national security, the assessment of the purpose—is the purpose to acquire a UK asset to access data? That involves a national security concern, you would think, but there is no definition to say it does. So it is totally subjective: it is based on the decision maker and their decision about UK national security, not an objective, written-down definition of national security.
Ms Ghani: No, I wouldn’t say that that is correct. The data point is something we just need to park for a moment. I and the Deputy Prime Minister have to take a decision. It is not a subjective decision; it is based on the data and the facts in front of us. One of the challenges that you have put forward is that we have 17 areas—is that too much or too little? But if it touches those 17 areas and if the risk factors are triggered, that is when a decision is taken. So it is quite straightforward when we have to take a decision to issue a final order or put remedies in place.
But you are right: when it comes to new forms of security issues that we haven’t debated or discussed in the past or where we haven’t thought about how things can be used in a cumulative fashion—such as data—that is something that we need to explore and assess.
Q77 Chair: That is useful—great. I have a final question. You are poacher turned gamekeeper today: you were involved in helping to design the oversight and scrutiny arrangements. The feeling on this Committee is that it’s difficult, without access to the specific case assessments, to really accurately and effectively scrutinise the decisions that you are taking. That includes cases that you have decided not to call in. We are obviously interested in whether you have let the wrong cases go, but also we are obviously interested in the cases that you have called in. Section 54 of the National Security and Investment Act does limit to a range of particular purposes the disclosure of information by the Secretary of State to a public authority. I understand that the Cabinet Office believes that it is not possible for this Committee to go through actual cases. That is a real limitation on our ability to scrutinise your decisions.
You will also be aware of the Intelligence and Security Committee report, which was published last week, that highlighted its ongoing concerns that members of this Committee may not necessarily have the requisite security clearance to effectively understand case assessments. I think the question for the purposes of this session is: what is your interpretation of section 54 of the National Security and Investment Act, and do you believe that the law allows for our scrutiny? Does it allow members of this Committee to actually look at case assessments and case decisions?
Ms Ghani: You are right: it is poacher turned gamekeeper. But when I was on the Select Committee, I fundamentally believed that this Committee should have the MOU with the ISU, because it is important that we are coming at it from a business perspective and that we make it just another process that we have to deal with, without it disappearing somewhere else. I fought quite hard to ensure that the MOU remained here. When I became a Minister, I was still convinced that the MOU best sits with you on this Committee. That is still my view going forward. I do not want the work that we do to become something that is just done by intelligence agencies. We are here to work with industry and business, so I think it best sits here.
There will always be an ongoing argument about how much more information we can put in front of you, but I hope that the MOU that was agreed most recently provides you with enough confidence that we will try to provide as much information as we can. I know that you had a session in the Department about having access to information that we cannot put in the public domain. We are more than comfortable with providing that information. We cannot provide an ongoing commentary on individual cases as they are going through a process, but I am more than happy to be as nimble as I can in providing the information that you need. I want to get this right for all of us, because I know what it is like on your side of the House when you are trying to get hold of information.
If there is more work for us to do, we will definitely do it. I suppose that, as the new Chairman, you will ask for greater oversight and greater privileges, and we will have to constantly review that. I do not doubt that Dr Julian will want this Committee under his belt, because he firmly believes that all the Committees that are involved in intelligence agency decisions should sit within his Committee as well. I suppose that you will have an ongoing conversation with him—non-stop, as I and the previous Chairman did for the last two years.
Q78 Chair: The memorandum is very clear about this Committee’s obligations to scrutinise decisions. Based on the information that we have been able to see so far, I cannot give the House an assurance that the scrutiny process is robust enough to check whether the assessments that you are making are good or bad. We have not exhausted this process yet, because you have agreed to meet us in confidence later in January, for which I am very grateful, but I hope that we can continue to work through this issue. Unless we can see individual case assessments for cases that have already been decided, it is very difficult for us to give the House an assurance that the scrutiny process is working.
Ms Ghani: I accept that, and I will come back in January and provide as much information as I can. If you still believe that the MOU is not honoured, I am more than happy to have a conversation.
Chair: Perfect; I am very grateful for that. That draws us to the end of this session. Minister, I thank you very much and the officials that you are working with. Part of the challenge that we draw from today is that there is not an overriding definition of national security within which the investment scrutiny process is working. You have been reasonably clear that you think there are new emerging threats, and although you are not sure that there are clear patterns, you have told us that you think the legislation is out of step with the new threats that have emerged. That therefore needs to be updated to ensure that foreign countries that wish us no good cannot go on hunting expeditions to acquire things that they should not acquire. This has been a very useful session. Thank you very much.