Last week the government announced the long-awaited National Security and Investment Bill, which outlined broad reforms to the government’s existing powers to scrutinise foreign investment. For the first time, we will see a standalone foreign investment regime in the UK comparable to that which countries such as the United States have long regarded as vital to protecting their strategic assets.

This shakeup of the UK’s industrial intervention policy is vital, and long overdue. It is imperative that we protect our key strategic assets with the same rigour as we do our critical national security and intelligence infrastructure and take a lesson from our transatlantic and European partners.

That said, we are in a time of great economic uncertainty and it is imperative that the UK remain open for business, continue to be a global defender of free trade and offer confidence to foreign investors. With the Brexit deadline in sight and negotiations with the EU intensifying, it has never been more important that Britain strengthen its position on the world stage. To do this we need to recognise that power will be with nations and companies pioneering fundamental future technologies like Artificial Intelligence, 5G, genetics and quantum.

As both President Putin and President Xi have proclaimed, the leader in AI will be the de facto leader of the world. China is challenging the West in its race to acquire advanced technology and has marked its intention to be the global leader in artificial intelligence by 2030. That countries like China use these capabilities to move unfettered through the global commercial, economic and security hemispheres, demonstrates why we must strengthen our technological sovereignty.

Some of the UK’s most successful companies have been bought by deep-pocketed foreign acquirers

The technological, economic and geopolitical landscape has changed significantly in the eighteen years since the Enterprise Act 2002 was passed into law as the forerunner to last week’s Bill. We are at the dawn of the fourth industrial revolution, grappling with emerging technologies, the shifting balances of power and competition, and a global pandemic to boot. Covid-19 has revealed our dependence on non-market economies for critical goods like PPE, and the need to preserve key parts of our economy has intensified. In this increasingly fractious world, it resonates when the government says that the existing powers conferred bythe 2002 legislation “are no longer sufficient to address the challenging and changing national security threats the UK faces.”

The 2002 Enterprise Act empowered the secretary of state to scrutinise and intervene in mergers and acquisitions on the grounds of national security. Amendments made in 2018 and 2020 allowed for a greater degree of intervention on the grounds of public interest in relation to six specific sectors of the economy. Despite these amendments, until now we have lacked a mechanism with sufficient scope to protect our key strategic assets with the necessary vigour.

Some of the UK’s most successful companies have been bought by deep-pocketed foreign acquirers never to grace our shores – or our exchequer – again. Sometimes our brightest and best companies are snapped up in their infancy when they are on the brink of delivering world-changing impact. Such was the case with DeepMind, for example, which was bought by Google in 2014 for £400m. Others, like ARM, whose designs are used in billions of chips in nearly every smartphone around the world, are well-established strategic entities that have nonetheless slipped into foreign hands. ARM was sold to Softbank in 2016 for £23.4bn, in the intervening four years its valuation has increased by £7.6bn. Earlier this year, it was purchased by Nvidia, a California based company, for £31bn.

In Britain, thanks to many years of investment, we have some of the finest science-academic institutions in the world, an outstanding tech base and we are world renowned for our R&D. As someone who has built a billion-dollar tech company, I can tell you that you don’t go searching for your fundamental tech innovators in Silicon Valley or Shenzhen. You come to the UK.

And yet, when we lose companies like those I have mentioned, the cost is not limited to our strategic positioning. It is also a blow to the UK exchequer. Most of these companies will have drawn heavily on the technology, talent and innovation – nurtured in the hubs of London and Cambridge – to get where they are today. Few reach maturity here in Britain and the taxpayer rarely sees a proper return on that investment.

We’re by no means the first country to take steps to protect our strategic assets in such a fashion

But it’s not just an issue of tax receipts but of our allowing the UK’s strategic technological know-how to be dissipated. Had those businesses remained in the UK, they would have grown, spun off new businesses, and built local supply chains, thereby creating a virtuous circle that drives the economy forward. When a company of national strategic importance is sold to a third party without any assurances, and their R&D lab moves to another part of the world, all those feedback benefits are lost. Imagine, for example, what a tie-up between ARM and Graphcore, a Bristol-based innovative materials company, could have achieved. Instead, we have lost the know-how that would have ensued from ARM remaining a British asset. That learning will now benefit another country.

We’re by no means the first country to take steps to protect our strategic assets in such a fashion. Our transatlantic allies, and many of our European partners, are already doing so. The Canadians have the Investment Canada Act, which includes the National Security Review of Investments Regulations. In 2018, the Australian parliament passed the Security of Critical Infrastructure Act, which aims to “manage the complex and evolving national security risks of sabotage, espionage and coercion posed by foreign involvement in Australia’s critical infrastructure.”

Perhaps the best-known model internationally is that of the US federal interagency group, the Committee on Foreign Investment in the United States (CFIUS). Since its creation in 1975, CFIUS has intervened in numerous high-profile sales on the grounds of transactions threatening to impair US national security.

In 2018 it blocked what would have been the largest ever takeover deal in tech history ($117m) by barring Singapore-based chipmaker Broadcom from acquiring Qualcomm. Most recently CFIUS required that TikTok, owned since 2017 by Beijing-based ByteDance, be spun off back to a US owner or face a ban. Walmart and Oracle stepped in to acquire 20 per cent of TikTok in a deal they claim will contribute more than $5bn in taxes to the US Treasury and create an additional 25,000 jobs.

By contrast, in 2017, CFIUS blocked the takeover of Lattice Semiconductor Corporation, an American company, by the same Chinese-backed investment company, Canyon Bridge, that months later acquired the UK’s Imagination Technologies for £550m without any impediment.

A model that recognises and takes into account the need to protect our nationally important strategic assets, whilst not undermining the concept of a free market for corporate transactions, is a welcome step in the right direction. I say this as a significant investor in Darktrace – one of the world’s leading AI companies in cyber defence – which would, if approached by an overseas investor or buyer, be subjected to enhanced scrutiny under this Bill. In the UK it has been able to flourish, and is targeting a £4bn valuation ahead of its plans to launch an initial public offering in 2021.

Those in the business and finance communities, who are concerned that the Bill will make the UK unfriendlier to foreign investment, should be reassured by the reduction in process achieved through this separation from competition regulation, and the greater levels of certainty and transparency provided to investors. If implemented efficiently and effectively, the separate national security investment screening regime will, with a less cumbersome process, allow for the necessary scrutiny to be conducted in a timely manner.

Britain’s tech base affords an advantage few other nations have

With the second reading of the Bill due to take place this Tuesday, it is important to recognise the Bill for what it is, a great first step towards ensuring our long-term economic prosperity, security and sovereignty. If we are going to submit transactions of national strategic importance to the degree of scrutiny detailed in the Bill, as indeed we must, we should not overlook wider reforms that are just as critical. Our regulatory market needs to be updated to foster investment opportunity, with regulation becoming forward-looking and optimised for new technologies. We must safeguard the UK’s marketplace, ensuring it remains open for business. Finally, our path to prosperity and security requires a broad cross-section of society having an understanding of these emerging technologies.

Britain’s tech base affords an advantage few other nations have. But it has taken huge investment by successive governments to achieve it. It will take greater investment to maintain it.