Tory backlash over watered down curbs on takeovers

Backtracking is risk to security, warn MPs

BUSINESS Secretary Kwasi Kwarteng faces a furious backlash from his own party after he moved to water down rules designed to prevent hostile foreign takeovers of British firms.

Kwarteng has caused tensions with fellow Conservative MPs after he quietly tabled an amendment to the National Security and Investment Bill – which aims to impose stringent safeguards on foreign ownership of UK companies – to cut the number of deals that are monitored.

The bill comes amid growing concern that Chinese companies, with close ties to the Communist regime in Beijing, have been able to buy up strategic assets in defence, energy, communications and technology to gain a ‘back door’ into the UK.

Kwarteng’s change will see the threshold at which investors are required to notify the Government rise from 15pc to 25pc – bringing the UK into line with rules in the United States. The minister (above left) hopes the change will make the system more ‘proportionate’ and avoid deterring foreign investors, but the decision produced an immediate backlash from MPs.

Former Tory leader Sir Iain Duncan Smith (above right) said: ‘I think the Government must take care not to dilute the effect of this bill. It was agreed in its present form to counter the threat from those who would seek to subvert our security as a country.’

South Thanet MP Craig MacKinlay, a Conservative member of the Commons public accounts committee, which oversees government expenditure, added: ‘It does seem a bizarre and daft move. It doesn’t make any great sense when there’s no cost to the Government.’

The Henry Jackson Society, an international relations thinktank, said the change ‘risks very real security risks being allowed to sail by without scrutiny’.

Last year Boris Johnson was forced to intervene to bar Chinese telecommunications giant Huawei from running Britain’s 5G network.

There were concerns about whether using its equipment would leave Britain vulnerable after the US alleged it could be used for spying, a claim the firm denied.

And last April the Government stepped in to stop an investor linked to the Chinese state from appointing more of its own directors to the board of British semiconductor and software design company, Imagination Technologies, based in Cambridge. There were fears that China Reform Holdings, a £30bn Chinese government-controlled venture fund, could have moved Imagination Technologies and its cutting-edge intellectual property to the Far East.

The Government is undertaking a delicate balancing act post-Brexit, wanting to attract foreign investment but at the same time making sure security remains a number one priority.

Russ Mould, director at investment platform AJ Bell, said: ‘The Government has a tricky balancing act here.

‘The Prime Minister and his party have natural free-market, even libertarian instincts, so they will in many ways be reluctant to intervene.

‘It comes at a time when the UK is looking to forge a fresh path in the wake of Brexit and the Government will be keen to encourage rather than discourage investment in the UK.’

The lower stake level would have led to around 1,800 notifications every year, or 35 per week. The proposed changes mean fewer deals will be notifiable, though the Department for Business did not publish new estimates.

The Secretary of State will still be able to ask for information about acquisitions below 25pc.

A Government spokesman said the bill ‘will strengthen the UK’s ability to investigate and intervene in mergers, acquisitions and other types of deals that could threaten our national security’.

The spokesman added: ‘This change will ensure the new regime is proportionate and as transparent as possible without reducing the Government’s intervention powers.’

The National Security and Investment Bill has already passed through the House of Commons and is in the later stages of its passage through the House of Lords. The latest amendments will be debated in the Lords this month.