Boris Johnson is preparing to announce tough laws to prevent foreign takeovers that pose a risk to national security as concern grows about the influence of China.
Downing Street is pressing for legislation to make it mandatory for British companies to report attempted takeovers that could give rise to security risks, backed by the threat of criminal sanctions.
Those that fail to do so or ignore the stringent conditions imposed by the government after takeovers could have their directors jailed, disqualified or be fined hundreds of thousands of pounds.
The prime minister also wants “academic partnerships” and research projects to be included under the rules amid concern about links between British universities and Chinese companies.
Rishi Sunak, the chancellor, is said to support the approach, which is being pushed through by Dominic Cummings, Mr Johnson’s chief adviser. Drafts of the legislation are being strengthened after No 10's intervention.
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The regime would go significantly further than plans drawn up by Theresa May when she was prime minister, under which companies would have been expected to notify the government of takeovers voluntarily.
There are concerns that the unprecedented recession caused by the coronavirus could make British companies more vulnerable to state-backed foreign takeovers than ever before.
Businesses will be required to declare when a foreign company tries to buy more than 25 per cent of their shares, acquire “significant influence” or purchase assets or intellectual property.
They will have to report the takeover if there is a risk that it could give a foreign company or hostile state the power to undermine Britain’s national security through disruption, espionage or by using “inappropriate leverage”. The legislation, which is to be tabled within weeks, risks increasing tensions with China after the National Security Council approved plans to build up alternatives to Huawei, the Chinese telecoms giant, in Britain’s 5G network.
Mr Johnson wants to significantly reduce or block the role of Huawei in Britain’s 5G network in the face of a backlash by the US and Tory MPs. Liu Xiaoming, China’s ambassador to the UK, is said to have privately warned that barring Huawei could harm plans for Chinese companies to build nuclear power plants and the HS2 rail network.
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The prime minister further angered China last week when he said in an article in The Times that Britain would not walk away from the people of Hong Kong and would have “no choice” but to offer them a route to citizenship if China stripped them of their freedom.
Tom Tugendhat, a Tory MP and chairman of the foreign affairs select committee, said that the coming recession triggered by the coronavirus would make British companies more vulnerable to foreign takeovers. “Clearly a recession is going to have a disproportionate effect and leave companies like ours under a greater threat of takeover from state-backed entities than at any time before,” he said. “The UK has some of the weakest protections against foreign takeovers of any nation. There is a danger that if we do not keep pace then our companies will be naked when everyone else is wearing armour.
“There is a security risk in two senses: some companies subject to takeovers are directly connected to security, while having large chunks of your economy taken over by foreign state-owned enterprises risks putting your economy in the hands of foreign politicians.”
There have been calls for ministers to strengthen protections for businesses after a Chinese company tried to take control of the board of Imagination Technologies, a semiconductor and software design business in Hertfordshire. It is one of Britain’s biggest chip companies and is owned by a private equity group backed by the Chinese state. The attempt to take control was withdrawn and the foreign affairs select committee opened an inquiry.
Huawei has bought a stake in a company linked to Oxford University. Oxford Innovation Sciences has said Huawei does not have “any preferred or special access”. Tory MPs have strongly criticised the relationship.
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Imperial College London has agreed a £5 million deal with Huawei, including a new “tech hub” on its west London campus. The company will provide 5G and pay for research and facilities over five years. Tory MPs have called the relationship “deeply worrying”, but Imperial College says the support allows “high-quality and open research”.
Mr Johnson confirmed the legislative plan in the Commons, telling a Tory MP that he was “absolutely right” to be concerned about British technology being bought by countries with “ulterior motives”. A spokesman said later: “The National Security and Investment Bill will strengthen the government’s powers to scrutinise and intervene in takeovers and mergers to protect national security. Further details will be announced.”
