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Rules intended to restrict foreign takeovers of security-sensitive British companies are to be rewritten as part of a wider attempt to boost conditions for businesses.
Under the industrial strategy announced on Monday, ministers announced a review to make the UK’s investment scrutiny rules more “predictable and proportionate” for companies.
The National Security and Investment Act, or NSIA, was drawn up to provide a mechanism for officials to scrutinise — and ultimately block — takeovers of British companies and assets from foreign states such as China.
The government on Monday promised a “predictable, proportionate, and transparent investment screening framework”.
It said that there would be a 12-week review of the Act to ensure that regulatory requirements remained “targeted and proportionate, protecting national security and giving certainty to investors.”
The review could lead to a change in the list of 17 sensitive areas covered by the current system, while ministers would also soon announce some “specific new exemptions” to the mandatory regime.
The UK brought in the new screening powers in January 2022 to address security concerns that overseas powers were too easily able to buy UK companies with national significance in technology and other industries.
Deals in 17 sensitive industrial areas — such as advanced materials, artificial intelligence, defence, and energy — automatically have to be alerted to the authorities.
Since then ministers have used the Act to block the sale of Newport Wafer Fab — one of Britain’s few semiconductor companies — to Chinese-owned Nexperia, despite questions over how significant the Welsh business was to the wider industry.
The proposed merger of the UK businesses of Vodafone and Three, owned by Hong Kong based CK Hutchison Holdings, also attracted scrutiny, before eventually being cleared.
Czech billionaire Daniel Křetínský also required approval initially to take a 25 per cent stake in Royal Mail, and a second national security review for his £3.6 billion takeover.
“We will continue to update guidance to ensure there is clarity for investors on how the Act works, including decision-making processes,” the government said in its industrial strategy.
“And we will explore opportunities to bring greater transparency to the NSIA process and ensure that it protects national security while minimising burdens and supporting growth.”
Companies considering British deals, and their advisers, have criticised the current legislation as opaque and excessively broad, and complained that it has contributed to the slowdown in UK M&A.
In the year to March 2024 the government received 847 notifications under the NSIA, and called in 37 of these. That led to 10 deals being voluntarily withdrawn, while five were issued with “final orders” from ministers imposing conditions on an acquisition to mitigate national security risks.
One government official said that the purpose of the Act to protect UK intellectual property would not be diluted, given that the world had become more dangerous in recent years. He added: “But there could be more openness and clarity over how the Act is used to allow businesses to operate with more confidence.”
