Sunak considers watering down national security takeover rules

RISHI SUNAK, the Prime Minister, is considering relaxing strict national security takeover rules less than two years after they came into force after a slump in deal-making and complaints from China.

Oliver Dowden, the deputy prime minister, has launched a review of the National Security and Investment Act, which came into force in January 2022.

It brought in mandatory reporting for deals in areas such as defence, quantum computing and nuclear power, granting ministers greater powers to investigate and block investments on national security grounds.

It followed concerns that Britain’s approach to foreign takeovers was too lax, allowing Chinese investors to buy up high-tech UK companies with little scrutiny. A total of 17 deals have been blocked under the regime so far. The Government said in July that more than half of the deals blocked were related to Chinese investments.

However, the Government is concerned that the terms of the new regime are too broad. Mr Dowden has launched a consultation to reconsider the rules, saying they needed to be “flexible” and “as frictionless as possible”.

Potential changes include removing the requirement to notify officials of internal restructures when the ultimate owner of a company remains the same.

Officials will also consider slimming down the number of industries that need to report takeovers to the Government, while potentially adding clearer categories for semiconductors and critical minerals. One area that could be clarified is reporting for artificial intelligence (AI), with officials believing the current requirement is too broad.

The review comes after a slump in deal-making over the past 12 months. The number of mergers and acquisitions involving UK companies fell by 21pc in the first half of 2023, according to PWC, while the value of deals slumped by 55pc. Mr Dowden’s review also follows a rare public complaint from Beijing that the British takeover regime was unfairly targeting China.

China-linked deals made up 42pc of all in-depth reviews under the new Act, despite Chinese investments accounting for just 4pc of all notifications.

The tougher regime was welcomed by China-sceptic MPS and one activist warned yesterday any watering down could “open the floodgates for Beijing”.