Issue of the week: Fortress Britain
Growing external threats have spurred a tougher regime on foreign takeovers. But at what cost?
Theresa May has long signalled her desire for deeper scrutiny of foreign takeovers that could adversely affect national security. Now a new White Paper proposes to significantly shore up the defences, said Philip Inman in The Guardian. Although the new rules are doubtless aimed primarily at “Chinese and Russian takeovers” of defence industries and “vital firms and technologies”, the plans outlined by the business secretary, Greg Clark, would give the Government much greater powers to intervene in deals of all sizes, across all sectors of the British economy. The new rules also put the onus on companies to notify ministers voluntarily of planned deals that may spark security concerns, with executives facing a possible “five years in jail if they are found guilty of infringing the new regime”.
The plans received a mixed reaction. The Institute of Directors noted that “intervening on grounds of national security is the prerogative of government”, but it added that the move “could have a chilling effect on foreign investment in growing sectors of the economy”. Indeed, said the FT, by his own estimates, “Clark’s guidelines could result in a 50-fold increase in the number of ‘interventions’ made by the Government. Last year, there was just one.” The new rules will apply not only to company acquisitions, but to assets and intellectual property too – “the economic battleground of the 21st century”. Bring it on, said Alex Brummer in the Daily Mail. This is a case of “better late than never”: it’s regrettable that so much technology has already “been gratuitously sold by compliant, short-term investors” – a case in point being the £24bn sale of chipmaker Arm to Japan’s Softbank in 2016. The Government was “enthusiastic” about that deal because it wanted to show that Britain would be an “open economy” after Brexit, keen to “hug all comers”. In fact, losing our technology overseas is “the biggest threat” to post-brexit Britain. The proposed new rules hardly position Britain as “an outlier”, said George Hay and Neil Unmack on Reuters Breakingviews. The UK’S proposals are less stringent than many: the Canadian government, for instance, insists that any foreign deal must be of “net benefit” to Canada. The risk, however, is of “mission creep” and “government meddling”. Ministers could in practice look into any takeover “without offering detailed explanations”. So “the lack of an independent review body” is worrying. Security is indeed a growing concern. But “it’s hard to see how one of Britain’s key selling points after it leaves the EU – its status as a reliable home for foreign capital – will emerge unscathed”.