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UK government to dilute rules on overseas takeovers

Britain's Minister of State for Business, Energy and Industrial Strategy Department Kwasi Kwarteng is seen outside Downing Street in London, Britain, September 4, 2019. REUTERS/Hannah McKay
Business secretary Kwasi Kwarteng is behind the change, following pressure from business groups, according to reports. Photo: Reuters/Hannah McKay

The UK's business secretary has made moves to weaken Britain's hard-line on foreign takeovers as concern lingers that the rules could deter overseas investors.

The government has tabled an amendment to the National Security and Investment Bill, which would slash the number of overseas deals and scrutinise investment from China more closely.

Business secretary Kwasi Kwarteng is behind the change, following pressure from business groups, according to a report in The Sunday Times.

The bill is currently at report stage in the House of Lords, with a third reading, consideration of amendments and royal ascent still to come.

The amendment would see the stake threshold at which the business department must be notified about a deal increase from 15% to 25%. This would bring it in line with the Committee on Foreign Investment in the US.

That call-in power is available up to five years after an acquisition takes place.

A government spokesperson said: “The National Security and Investment 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 overwhelming majority of transactions will be unaffected by these new powers.

“This change will ensure the new regime is proportionate and as transparent as possible without reducing the Government’s intervention powers.”

The Bill also enables the Government to amend the scope of the mandatory regime through secondary legislation, which could include the re-introduction of a 15% threshold if deemed appropriate in future. The government has said it does not expect this to be necessary.

The bill was first introduced in December 2019 in the Queen’s Speech, which sets out the government's legislative agenda. Official papers said the aim of the bill is to “strengthen the government’s powers to scrutinise and intervene in business transactions to protect national security.”

The government confirmed plans in 2019 for a “notification system,” with firms flagging transactions with potential security concerns for “quick, efficient screening.” It has also said the bill would give the government greater powers to add conditions to or even block transactions, with “sanctions” for non-compliance as well as ways for firms to appeal.

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It came amid heightened concerns over foreign takeovers, which may be increasingly attractive to both parties as the coronavirus has hobbled UK firms and knocked share prices. Many backbench Conservative MPs are particularly concerned about Chinese takeovers, though there are also fears new legislation may inflame tensions with Beijing.

The Sunday Times reported this morning that Kwarteng's view was understood to have been swayed by business groups such as the Confederation for British Industry (CBI), whose officials said the bill would make investing in the UK less attractive in "critical areas such as tech, finance or research and development."

Chancellor Rishi Sunak has been at pains to make the UK a more attractive place to do business in recent months, having introduced new listing rules and SPACs.

Watch: What are SPACs?