UK investment policy Contents

5Regulation of UK inward investment

194.The UK’s inward investment market has long been highly open and liberalised. As Dr Loewendahl, of WAVTEQ, put it to us: “It is easier to buy UK companies than anywhere else” in the world.375 The possible placing of some restrictions on inward investment into the UK continues to be a controversial issue.

Blocking harmful investment

195.Dr Linsi, of Amsterdam University, reminded us of the “very heated” debate around the purchase of Cadbury by the US firm Kraft in 2010.376 Mergers and acquisitions involving well-established and well-known UK firms have long had the capacity to generate such political controversy; and, as Mr Adams, of Global Counsel, told us, “politicians have got a lot more active in their scrutiny of inward investment”.377

196.Honda Motor Europe told us that “investment policy should focus on attracting capital and expertise that can develop and strengthen businesses”, warning that a “policy that simply facilitates the sale of UK businesses to overseas buyers could lead to the hollowing out of the UK supply chain.”378 The TUC also argued that there should be conditions attached to inward investment, arguing that the Government should “ensure that investors in the UK follow responsible business conduct and promote respect for workers’ rights.”379

197.The Conservative Party Manifesto for the 2017 election stated that: “We welcome overseas investment and want investors to succeed here but not when success is driven by aggressive asset-stripping or tax avoidance.”380 However, it is hard to discern any sign of the Government taking action in this regard.

198.When the Investment Minister appeared before us, he stated:

One reason that we are economically strong is that we are so open to investment and we do not allow protectionist sentiment to make us go around blocking people because we are selling our crown jewels that could have been billion-dollar companies and have now been bought by someone else.

He did acknowledge that “some mergers and acquisitions do not bring a great deal of value to the UK” and that it is “certainly not my Department’s job to support those where that happens”.381 But he gave no indication that the Government was developing policies to block inward investments that could be regarded as economically detrimental to the UK in some way.

Proposed investment screening regime

199.A particularly concerning form of possible harm that could result from inward investment relates to the compromising of national security. This has received particular attention recently in connection with the proposed involvement of the Chinese company Huawei in the building a 5G wireless network for the UK telecoms sector. A decision was reportedly taken at the National Security Council in April 2019 to allow Huawei to help build the “non-core” parts of the UK’s 5G network, such as antennae. However, this information apparently stems from a leak and has not been confirmed by the Government.382 It has also been reported that a final decision on this issue has been delayed after the US placed Huawei on a blacklist.383

200.In July 2018, the Department for Business, Energy and Industrial Strategy (BEIS) published a White Paper on National Security and Investment which proposed a new investment-screening regime. This was the subject of a public consultation, which ended in October 2018; the Government’s response is still awaited. In the foreword to the White Paper, the Secretary of State for BEIS, Rt Hon Greg Clark,384 wrote that:

an open approach to international investment must include appropriate safeguards to protect our national security and the safety of our citizens. Technological, economic and geopolitical changes mean that reforms to the Government’s powers to scrutinise investments and other events on national security grounds are required.

He emphasised that many of the UK’s allies were “similarly looking to modernise their powers in this area”.385 The proposed new regime was “only related to national security”, which was “not the same as the public interest or the national interest.”386

201.The regime would involve a voluntary notification scheme, whereby parties to a “trigger event” (investment, merger, or other activity) would submit a notification to Government if they considered that the transaction raised possible national security concerns. The Government would then screen notifications and conduct full assessments of those it considered did raise such concerns. If this assessment demonstrated that national security was at risk, a Cabinet minister would decide to “impose such remedies as [are] necessary and proportionate”. The White Paper states that “As a last resort, this might mean blocking the trigger event or unwinding it if it had already taken place.” The Government also states that it reserves the right to carry out national security assessments of investments and other events of which it has not been notified.387 DIT’s role in this new regime is not specified.

202.In December 2018, the Chair of the Business, Energy and Industrial Strategy Committee issued a statement on the proposals, following correspondence with the Government. This warned of “potential for conflict to arise between defence and business interests in judging foreign takeovers” and expressed surprise that the proposals did not make clear whether it would be the Secretary of State for BEIS, or for Defence, who would be taking a final decision on whether to block an investment.388

203.Within the EU, a new investment screening framework came into force in April 2019. This allows the Commission to issue opinions where “an investment poses a threat to the security or public order of more than one Member State, or when an investment could undermine a project or programme of interest to the whole EU, such as Horizon 2020 or Galileo”. It is, therefore, broader in scope than the current UK proposals. The EU legislation also facilitates information sharing amongst Member States and the Commission, as well as establishing requirements for those states that wish to have a screening mechanism at the national level. Member States have the final say on whether or not to allow an investment in their territory.389 While the UK remains a member of the EU, it will continue to be covered by this framework.

204.Mr Geldart, of the IoD, told us that investment screening “is about risk management”; and judgements about national security were a matter for security bodies such as GCHQ.390 Mr Adams, from Global Counsel, told us:

as long as it is predictable and transparent and as depoliticised as possible, I don’t think investors are particularly worried about it. In fact, in some cases I think they actually recognise that it can perform a valuable kind of certification role […]391

205.When we asked the Investment Minister about the proposed new screening regime, he said:

The UK supports investment screening for national security purposes, although that should not be conflated with screening to control market access […] We unapologetically seek to protect the UK from a national security and critical national infrastructure point of view, but we absolutely want to ensure that the framework that we create is not, and ideally cannot, be used as a form of protectionism.

The powers being sought were in line with those held by the UK’s allies. The Government would report on the consultation “in due course”.392

Conclusions and recommendations

206.While the UK has one of the most liberalised investment regimes in the developed world, there is still a need for some degree of regulation in respect of inward investment.

207.We note that, while the 2017 Conservative Manifesto expressed opposition to inward investment “driven by aggressive asset-stripping or tax avoidance”, there has been no indication that the Government is taking any action to implement this. We recommend that the Government should set out clear policy on what it considers to constitute economically harmful investment—and state how it plans to act against it.

208.Regarding investment screening, we recommend that the Government provide more clarity on how the balance will be struck between promoting and facilitating inward investment, on the one hand; and safeguarding national security, on the other. In particular, the Government must set out in some detail what the role of the Department for International Trade will be in the envisaged new investment screening regime—as well as which Cabinet minister will take the ultimate decision on whether or not to block an investment. This information should be provided in the Government’s response to the White Paper on National Security and Investment.


378 Honda Motor Europe (UIP0021)

379 Trades Union Congress (UIP0009)

384 Shortly after this report was agreed by the Committee, on 24 July 2019, Mr Clark was succeeded by Rt Hon Andrea Leadsom as Secretary of State for BEIS.

385 Department for Business, Energy and Industrial Strategy, National Security and Investment: A consultation on proposed legislative reforms, July 2018, p 3

386 Department for Business, Energy and Industrial Strategy, National Security and Investment: A consultation on proposed legislative reforms, July 2018, p 9

387 Department for Business, Energy and Industrial Strategy, National Security and Investment: A consultation on proposed legislative reforms, July 2018, pp 10–13

388 “Ministerial correspondence on National Security and Investment proposals published, Business, Energy and Industrial Strategy Committee press release, 20 December 2018

392 Q268; see also Q276.




Published: 30 July 2019