US warns Britain not to block defence sale

Intelligence officials warn that delay to sale of Ultra Electronics is putting security relationship at risk

American officials have threatened to limit defence co-operation with Britain in a row about the takeover of a supplier of secret technology to Trident nuclear submarines. Intelligence sources said that Kwasi Kwarteng, the Business Secretary, will jeopardise future partnerships between the two countries if he blocks the £2.6billion sale of Ultra Electronics to Boston-based private equity business Advent International.

US OFFICIALS have threatened to limit defence cooperation with Britain in a row about the takeover of a supplier of secret tech to nuclear submarines.

Intelligence sources said that Kwasi Kwarteng, the Business Secretary, will jeopardise future partnerships between the two countries if he blocks the £2.6bn sale of Ultra Electronics to Boston-based private equity business Advent International. They accused Mr Kwarteng of unfairly discriminating against US companies after he ordered a national security investigation into the takeover of Ultra, which makes military communications equipment including highly classified kit for Trident nuclear submarines.

The Americans added that Congress has recently lifted restrictions on British companies such as BAE Systems and Rolls-royce, allowing them to operate more freely across the Atlantic.

A senior US Congressional intelligence source said: “At a time when allies like the US and the UK are looking to deepen defence cooperation, we need to remove obstacles, not create them.

“Congress has already taken action to ease some of the restrictions on British defence companies operating in the US. But instead of adopting a similar approach, it seems the British government is determined to impose unnecessary obstacles that make it harder for American defence firms to operate in the UK.”

Mr Kwarteng told the Competition and Markets Authority (CMA) to examine the takeover in August last year.

He has received an initial report on the deal and last month agreed to further talks with Advent to try and find a compromise so that it can go ahead.

If these discussions fail, the Business Secretary is likely to order the CMA to carry out an in-depth “Phase 2” review, which could ultimately lead to the takeover being blocked.

Britain and the US are committed to deepening defence cooperation ties to counter the threat posed by hostile powers such as Russia and China.

Last year the US signed a trilateral security pact with Britain and Australia, known as Aukus, to cooperate on building a new generation of nuclear submarines. Negotiations are now under way to expand the agreement to cover other military research projects, such as the development of hypersonic missiles.

US officials argue the British government is misusing powers introduced in January that are designed to limit the ability of hostile powers to acquire companies with links to Britain’s security establishment. They say these powers should not be applied to close allies like the US, as Britain and America already enjoy intelligence-sharing arrangements under the Five Eyes alliance. There is also cooperation on maintaining Britain’s nuclear deterrent.

A senior US official said: “We make no distinction between a British investor in an American company on national security grounds.

“It is not fair that the British government is treating US firms in this way.”

US officials fear any further delays could ultimately scupper the Ultra takeover. Officials at the Department of Business, Energy and Industrial Strategy have indicated the deal could still be approved so long as Advent is prepared to make commitments to allay national security concerns.

Last month, the business department said: “In the light of recent proposals by Cobham, the business secretary has asked officials to work with Cobham and Ultra to further explore the possibility of undertakings in lieu of a Phase 2 investigation. He will then consider any suitable undertakings and decide whether it would be appropriate to refer the transaction to the Competition and Markets Authority for a more detailed Phase 2 investigation.”

A spokesman for Ultra said it is working with the British authorities on the preparation of “suitable undertakings to protect UK national security interests”.

‘It is not fair that the British government is treating US firms in this way. We make no distinction’’