Sale of high-tech companies risks 'catastrophic effect' on UK security

The sale of advanced technology companies to foreign buyers could have a “catastrophic effect” on Britain’s security, a parliamentary report has warned.

MPs are concerned that the UK’s leading firms manufacturing highly sensitive equipment such as microchips could be sold off to foreign buyers taking both the technology and jobs out of the country.

The Foreign Affairs Committee is demanding that the government take a more robust approach in allowing foreign sales, particularly following Brexit and the vulnerabilities exposed by the coronavirus pandemic.

While its report welcomed the new National Security and Investment Act 2021, designed to protect businesses and critical security interests, a failure to implement it effectively “would have catastrophic effects for our global influence and security”.

Britain is seen as one of the most open countries for foreign direct investment, which helps to fuel the economy, but the report warned that acquisitions by overseas entities could move “strategically vital companies, assets and intellectual property abroad”.

This would make the country more reliant on others for critical services and undermine national security.

“Our sovereignty should not be for sale,” the report said.

It warned that foreign direct investment was increasingly being used by hostile countries to “pursue geopolitical objectives and gain strategic advantage over the UK and our allies”.

Britain had already lost some of its “most prized companies” with their sensitive intellectual property to foreign acquisition with little government intervention," it said.

“There are actors who may seek to exploit our openness, using predatory economic practices to gain leverage in critical sectors, potentially at great cost to our national security and resilience, economy and ability to innovate,” said the report titled Sovereignty for sale: the FCDO’s role in protecting strategic British assets.

With skills also moved abroad, this would cause long-term damage to the UK economy.

The report highlighted the potential takeover of Newport Wafer Fab, a company in Wales that makes key computer components, by a Chinese firm called Nexperia.

NWF is among Britain’s largest microchip manufacturing companies. It specialises in high-end silicon semiconductor chips.

“The takeover of Newport Wafer Fab by Nexperia represents the sale of one of the UK’s prized assets to a strategic competitor, at a time when global chip shortages means that the products manufactured by NWF are of vital national importance”, the report said.

If the government failed to conduct a detailed assessment of the transaction under the new NSI Act this would demonstrate “an unrealistically optimistic understanding of the Chinese government’s intentions”.

The committee also warned against prioritising short-term commercial interests “over the long-term security of our country”.

It recommend that the government call in the acquisition for review and impose mitigating measures “as a matter of urgency”.

The report also highlighted the 2016 sale of the Cambridge-based ARM technologies, a world leader in making semiconductor chips for companies such as Apple and Huawei, to a Japanese company that last year sold it on to Nvidia, a US company, for $40 billion.

ARM employs 6,000 people in Britain and is a powerhouse for technology yet the sale was condemned by its co-founder, Hermann Hauser. “It is very much in Nvidia’s interest to kill ARM,” he said, calling the sale an “absolute disaster” which would lead to UK job losses.

“It is crucial that the government gets the new investment screening regime right from the beginning - both to ensure that UK national security is protected and that we remain firmly open to valuable foreign investment,” the MPs’ report concluded.