The National Security and Investment Act has been in effect for one year from tomorrow, 4 January 2023.  The first year has very much been characterised by baby steps: a generally restrained approach from officials/government, and a similarly cautious approach from advisors eager not to fall foul of the Act’s grey areas.

Our analysis on the day of its commencement analysed and foreshadowed some of the uncertainty surrounding the regime’s sectoral definitions.  The cautious way that most law firms have approached the Act’s functioning when advising clients has borne that analysis out – it has very much been a ‘better safe than sorry’ approach.

The question now is whether a regime that screens foreign and domestic investment – just when we need it the most – is working as intended.  At the very least, policymakers operating in a high-inflationary and recessionary environment, not to mention with war on Europe’s border, should be assessing whether the Act strikes the right balance in protecting the UK’s national security interests while promoting the inward investment we so urgently need.

In our mid-term report, we noted practitioners’ practical concerns about the ‘black box’ into which notifications seemed to be falling.  The specialist Investment Security Unit (‘ISU’), situated within the Department for Business, Energy and Industrial Strategy (‘BEIS’), addressed some of these concerns when it held an open event on 7 December 2022.

In its webinar, the ISU proudly announced that it is still clearing the vast majority of cases in a speedy fashion.  At the point of our six-month report, the ISU reported that the Government had so far stayed within the statutory time limit of 30 working days for calling in a notification in every relevant case.  The shortest time it had taken was 11 working days; the longest was 30.  All the signs are that these sorts of timeframes are being maintained.

Acknowledging that the legislation is young and that everyone is still learning, the ISU stressed the team’s ‘duty to be as non-interventionist as possible while still achieving our aims of national security’.  There will always be a tension between officials seeking to discharge their duties and external advisors looking to do the same – but this is a welcome acknowledgement from the ISU that a sensible starting point is for the regime to be as low-impact as possible on parties’ deal intentions.

Unsurprisingly, the administration of the Act was not immune from the political turmoil of 2022.  Remarkably, BEIS has already had three Secretaries of State during the period, and current post holder, Grant Shapps MP, issued a final order prohibiting the acquisition of Newport Wafer Fab by Nexperia on 16 November, just a fortnight after taking office.  Further final orders followed relating to critical infrastructure, although one order was revoked because the parties abandoned the deal.  Political actors should be eager to assess the relevance of the Act on parties’ decisions to avoid or abandon plans.

The case of Newport Wafer Fab illustrates the reality of the inherent tension facing the ISU and Shapps.  The Act requires the Secretary of State to take account of all relevant considerations, but at the end of the day it can only intervene to protect national security.

How this is to be balanced is still playing out.  Answering questions in Parliament on Newport Wafer Fab in November, Shapps freely stated that he wanted “to make sure that jobs are protected”.  That may be an unremarkable comment to come from a politician, but it did help to reveal the juggling act he is required by the legislation to perform.  In the event, some might question why a final order against the backdrop of no alternative investor/buyer that may result in the loss of 500 jobs in Wales, and the loss of home-grown wafers to the chip industry, makes sense.  Some of these competing issues may emerge in an anticipated judicial review of the decision.

In a low-growth economic environment and noisy political arena, there is more work to be done to ensure that the Act appropriately reflects the policy needs of the UK.  Stifling investment and certainty is far from what is needed; likewise, the depletion of strategic industries will leave the UK worse off in the longer term.  2023 will be an important year in bedding in the Act and balancing these competing legislative – and policy – demands.