By Ollie Campbell, PPE Student at Warwick University
As we have all realised over the last two and a half years, the Government likes to make continuously spurious claims. However, its announcement that the new National Security and Investment (NSI) Act is ‘the biggest shake-up of the UK’s national security in the last 20 years,’ may not just be another common government exaggeration. The so-called ‘Conservative’ government has begun the shift away from economic open markets towards a line of growing suspicion and “mediatorship”. This comes as a result of business secretary Kwasi Kwarteng claiming that the British public’s ‘security remains our number one priority.’
The new act is not inputted with malicious intent, it is purely to stop assets that are important to national security from being acquired by belligerent investors. This is no new tactic; many other developed countries have already tightened laws. The main concern is Chinese and Russian investment, a 2017 report encapsulates it well: “ownership or control of critical businesses or infrastructure could provide opportunities to undertake espionage, sabotage or exert inappropriate leverage.”
Since the law came into effect, the Government is able to have much more of a say in investment transactions. Should someone want to acquire more than 25% of a particular company, this must be reviewed by Government officials who have the power to block the transaction. This goes for all companies irrespective of size, location or the investor’s nationality. Obviously, This will lead to an increase in potential under-the-table transactions where the Government is not alerted to the investment. In these cases, the Government is now legally permitted to void any deal not brought to their attention. This even goes for any overseas assets being sold that are used “in connection with activities” in Britain.
Although the Bill only came into action at the beginning of January 2022, the Government can investigate deals from as far back as November 2020. The bill remains broad, it is stated that only in 17 particular sectors, including artificial intelligence and communications, do the government have the power to investigate, the Government can intervene in other investments should they have reason to believe they are a threat to national security. Despite its developed counterparts of the US, Australia and Germany all inputting legislation first, the UK has covered the most sectors to date. This could be seen as necessary because the threats are constantly evolving and ill-defined, however, this may convolute implementation, especially when the threats are fast-moving.
One thing that the Government has to steer clear of, is investment deterrence. Even though it is only small fees and minor paperwork for any legal investment, for smaller businesses this could be detrimental. A couple of thousand pounds of extra unnecessary cost may prove too much for some firms to handle. In the larger cases, the Government have announced that a full investigation could cost upwards of £120,000. This may be okay for some large-scale business deals but venture capital start-ups and even everyday investors who are hoping to focus more on smaller firms will most likely be put off.
Should the investment level continue at a steady rate, there is another issue of backlog in investigations. Irrespective of how clear the Government tries to be when defining appropriate cases, there will always be borderline cases that may require the legal system in order to settle them. At this current time when the court system has a backlog that could take years to clear, additional cases are going to help no one. This is especially harmful as investments work on such a tight time-scale, any added wait-time before an investment is finalised could mean large shifts in the markets have occurred. Not only the court system will feel the burden but also prisons/ probation schemes because failed notifications of investments will lead to large fines or even incarceration.
The Government have to be cautious here. Post-Brexit UK opens up multiple opportunities for investments as Britain can remain much more open to less regulation than its EU counterparts. National security is of utmost importance for not only Britain, but most developed countries as Eastern superpowers grow in economic, military and political power. But this reduction of potential future investment could prove fatal to economic growth. It is still down to Government discretion as foreign investment may remain irresistible and too important to reject.
It has been exactly 20 years since the last national security regime came into effect, with only 12 intervention categories. An update has been long overdue as some countries potential threat to the UK has grown almost exponentially over the last lustrum. When the bill was announced in November 2020, an assessment of potential impacts predicted that there will be around 1000-1800 notifications of investments that the Government officials have to deal with but approximately 10 will require formal remedies. This is undertaking a huge workload, but one that is definitely required. The Government have suggested that Britain will become a hub for investment as capitalists realise that the UK is a stable business environment. It will take time, but this reputation could have huge benefits for future development.
Ollie Campbell
I’m Ollie Campbell, a current undergraduate PPE student at the University of Warwick. I am interested in political journalism and analysis especially on the economic side. As an aspiring politician I spend a large amount of free-time studying the workings of politics and am a member of the Conservative groups both at Uni and at home.