Sovereign Defence Capability: Meggitt Takeover

Question

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To ask Her Majesty’s Government what assessment they have made of the impact of a takeover of Meggitt by Parker-Hannifin on the United Kingdom’s sovereign defence capability.

My Lords, we welcome trade and investment where it supports UK growth and jobs, and which meets our legal and regulatory requirements while not compromising national security. Where we believe there are concerns, we raise them, and where we need to intervene, we will. The Government continue to monitor the situation closely. However, commercial transactions are primarily a matter for the parties involved. It would therefore be inappropriate to comment on the potential consideration of this or any other case.

My Lords, I thank the Minister for his Answer. I thought that the Government had made very clear that they feel sovereign capability in these high-tech areas is hugely important for the nation, certainly in defence terms. We have now seen a succession of takeovers of highly capable British firms with a lot of high-tech workers and a huge amount of intellectual property by primarily American groups that are not primarily defence firms. Although promises have been made, I am afraid that, in terms of keeping the firms in being and running them as they were, those promises do not seem to have been kept. This is extremely worrying. Is there some way more than he has already described of ensuring that we do not lose high-tech jobs, that these firms are not broken up and that we keep a controlling interest? Is there, for example, any sense in having a golden share?

The noble Lord is tempting me down a path down which I cannot go. The United States is a valued trade partner and a large source of inward investment in the UK. UK and US officials work closely together to protect against any hostile foreign investment that threatens our shared security. We have a shared interest in keeping important defence suppliers in safe hands.

My Lords, can my noble friend confirm that the nuclear warheads fitted to our Trident missiles, which form such an essential part of our continuous at-sea deterrence posture, have been, and always will be, manufactured in the United Kingdom, and that if Scotland chooses to leave the United Kingdom, Faslane and Coulport will have to be shut?

I can indeed reassure my noble friend that the UK’s replacement warhead will be designed and manufactured in the United Kingdom. While work continues with US counterparts to ensure that the UK replacement warhead remains compatible with the Trident missile system, the requirements, design and manufacture of the warheads are sovereign to each nation.

My Lords, the undertakings given by Parker-Hannifin last for only one year. Does the Minister believe that they should be extended if jobs in this country, and other things, are to be safeguarded by those undertakings? Could he update the House on how the investigation into the Chinese takeover of Britain’s largest computer chip manufacturer is progressing?

Those are competition concerns. I am in a difficult position, as noble Lords will understand. It is a quasi-judicial process, and it would not be appropriate for me to comment on the details of the specific commercial transactions of any security or competition assessments that are currently taking place.

When manufacturing and defence of the realm are concerned, I want a hard-line, patriotic Minister, not a weak, sell-out capitalist. Which is the Secretary of State?

The noble Lord knows me well, and I would love to engage in debate with him on this issue—because of course he is wrong—but I cannot comment on the specifics of this case. Whether the Secretary of State takes the decision to intervene is a quasi-judicial matter.

My Lords, going somewhat wider, is not the failure by UK investors properly to value many quality companies in the defence sector, such as Meggitt, Ultra and possibly Cobham in the past, the real reason for the spate of takeovers? In this regard, does not the abject failure of television to cover stock market investment and our hugely important savings and investment industry bear some responsibility? With financial education so lamentable, does this not explain why thousands sadly leave money in the bank, earning zero interest, when they could put some into a company of the stature and strength of, say, Legal & General, which offers a dividend yield of 6.5%?

I know of the noble Lord’s campaign to raise awareness of the important work and value of private UK companies, but as I mentioned in my Answer to the noble Lord, Lord West, we value trade and investment into the United Kingdom. We believe in an open trading environment, and that is why the noble Lord, Lord Rooker, is wrong. We cannot just exist on an individual basis, not taking account of trade in the rest of world. We are proud to be one of the largest sources of inward investment in Europe, and long may that continue.

My Lords, as others have said, we need a defence industry that is secure for jobs and the economy but also whose technology is secure from hostile hands. Given that, as the noble Baroness, Lady Wheatcroft, said, the assurances of jobs from Parker are for only a year, can the Minister indicate whether he considers that a more thorough assessment is needed? Also, had the new national security and investment regime been in place now, would the Meggitt takeover have been caught by the definition for mandatory notification?

The answer to the second part of the noble Baroness’s question is yes. On the first part, it is a quasi-judicial process, and the Secretary of State has not taken a decision on it, so I cannot go any further than what I have said so far.

My Lords, what steps have the Government taken to strengthen their investment screening processes?

As I just indicated in my answer to the noble Baroness, Lady Hayter, this House debated at length and passed the National Security and Investment Act, which strengthens the Government’s powers. That Act is in the process of being implemented now. We have already passed a number of statutory instruments, and it will commence fully in early January.

My Lords, 85% of defence R&D is government funded. In the integrated review, the Government promised a defence and security industrial strategy that will “prioritise UK industrial capability”. Announcing it, Defence Minister Jeremy Quin said the DSIS

“will help retain onshore critical industries for our national security and our future.”—[Official Report, Commons, 23/3/21; col. 797.]

First Cobham, then Ultra Electronics and now Meggitt—these are all critical industries for our national security and our future. At what point will the Government follow their own strategy and try to slow the current US equity fund-led spree of buying these businesses?

The current takeover is not by an equity fund but a defence contractor. As I said, we welcome investment into the UK but will not hesitate to take action if it threatens or compromises our national security.

My Lords, Tom Williams of Parker told the Financial Times that he was open to talking to Ministers and, in particular, said:

“We recognise the importance that everybody has around national security and defence capabilities. We want to reassure people that we have no intention of impacting that.”

That is fine in this case, perhaps, but what assessment have the Government made of bids where those wishing to take over sovereign defence capabilities do not have such apparently benign aims?

As I said, we have not taken any decision on the current takeover yet, but the UK will always enthusiastically champion free trade, recognising that the vast majority of inward investment into this country is highly beneficial and creates jobs and prosperity for the country. An open approach to international investment, as many other countries have, has to include the appropriate safeguards. We have powers under the Enterprise Act 2002 to intervene in mergers or takeovers that raise particular public interest concerns. As I have intimated in other answers, we have recently strengthened our powers through the National Security and Investment Act, which will commence on 4 January.

My Lords, all supplementary questions have been asked and we now move to the next Question.