UK directors voice fears over government meddling

The UK government's National Security and Investment Bill, which had its second reading in the House of Commons this week, poses risks to inward investment into Britain, according to the Institute of Directors (IoD).

David Sapsted

18 November 2020

The bill "vastly increases the government’s ability to scrutinise and intervene in business transactions" according to a statement from the IoD.Although the proposed legislation is intended to provide more transparency around business transactions and takeovers, the bill could open the door to the politicisation of international business deals, the IoD said."The new bill would see a sharp rise in the number of transactions that the government scrutinises, and the IoD urged government to ensure sufficient resources were put in place to meet the new workload, to prevent a backlog from slowing down benign business deals," said the IoD."While the government has committed to short processing times in most cases, there is no firm limit to the number of voluntary notifications that may be made by companies under the new system."The bill vastly increases the UK government’s ability to intervene in business transactions on the grounds of potential threats to national security. Although ministers have said the "powers will be exclusively for use on national security grounds", they have yet to explain how 'national security' will be defined under the new legislation."As a result, the powers could conceivably be used to target transactions on the basis of a broad definition of national security, encompassing issues relating to industrial strategy," said the IoD.The organisation pointed out that under the terms of the legislation, businesses in a range of sectors would have to make mandatory notifications ahead of ‘trigger events’ that would see the change in levels of control of an entity or asset.Roger Barker, director of policy at the IoD, said:“Intervening in the economy on the grounds of national security is an increasingly important challenge for the UK government. It’s crucial that the government’s powers are as robust as in other leading economies, and reflect the rise in dual-use technologies and the shifting geopolitical environment.“However, there needs to be more clarity around when the new powers might be used. National security should not be used as a political tool to pursue economic nationalism or an industrial strategy by stealth."We welcome the government’s assurances that the powers will not be used for broader economic reasons, but the door is open for unintended consequences. Certainty around how national security is defined is crucial, anything that isn't clearly set out will harm perceptions of the UK's competitiveness.“The UK has benefited immensely from its global reputation as a good place to do business. As the transition period draws to a close, it’s more important than ever that we keep that reputation intact. Greater protections on national security should complement that, not conflict with it. If we don’t get this right, there will be a chilling effect on investment.”The OECD estimates that $750 billion has flowed into the UK as a result of FDI over the past ten years. "In addition, the UK’s reputation as a global centre for business investment contributes to its attraction as a destination for the world’s most entrepreneurial companies and directors," said the IoD.