Page:ISC-China.pdf/151

The UK Government Response Director General MI5 told the Committee that he had seen an improvement in joined-up thinking on these issues:

"I think I would be more concerned if we remained in a position we probably arguably were in five or ten years ago, where the national security community within Government and the prosperity community weren't really talking to each other—because I think that to do this well we really do need to integrate our understanding across both these domains to make the best possible choices."

As noted in the main body of the Report, the Government has previously failed to take national security into account when considering foreign investment. Two developments in recent years have improved the situation: the introduction of new legislation to strengthen the Government's powers to intervene in potential investments on national security grounds; and the introduction of new processes for the Intelligence Community routinely to provide input to central Government on the security implications of potential investments.

Prior to 2022, the power for Government to intervene in mergers and acquisitions was drawn from the Enterprise Act 2002. It set a very high bar for government intervention: the Intelligence Community were clear that, under the Enterprise Act, "levers for HMG intervention in Foreign Direct Investment cases [were] limited". Ultimately, it proved to be an ineffective mechanism from a national security perspective: in October 2020 the DNSA told the Committee that the Act had "only been used six times between 2004 and 2009 and then six times since 2017, so it is not a thing we can very readily bring to bear in some of these cases [of national security concern]". Four further interventions were made in 2021. Of these 16 interventions, none had resulted in a deal being blocked.

The Government sought to remedy this situation through the National Security and Investment (NSI) Act 2021. The NSI Act, which entered into force in January 2022, designated the Secretary of State for Business, Energy and Industrial Strategy (BEIS) as the single decision-maker in cases of acquisitions (of companies, assets and IP) which may have an adverse impact upon UK national security. The Secretary of State was to be supported by a newly created Investment Security Unit (ISU) sitting in the (then) Department for Business, Energy and Industrial Strategy.

The ability of a Secretary of State now to intervene in mergers and acquisitions was described to the Committee as a "big upgrade" in the Government's "investment screening capabilities and powers". Interventions may be made in any acquisition that grants control of a company, regardless of company size or sector, as long as there is a sufficient connection. to the UK. The NSI regime also utilises a combination of comprehensive market monitoring