National security powers to be updated to reduce burden on businesses

• Plans to reduce unnecessary red tape for businesses by ensuring mandatory notifications are no longer needed for certain internal reorganisations and the appointment of liquidators 

• New consultation will put businesses at the heart of potential changes to the sectors facing the greatest scrutiny by the government's investment security powers

• Semiconductors, Critical Minerals carved out into standalone sectors and Water to be considered for addition to list of sensitive sectors 

• NSIA Annual Report shows just 4.5% of notifications were called in for review, with the vast majority cleared to proceed in 30 days  

Investment security rules under the National Security and Investment (NSI) Act 2021 will be simplified to ease the burden on businesses as part of the Plan for Change. 

The changes, currently being developed, will when they come into force reduce unnecessary bureaucracy for businesses, no longer requiring them to notify the Cabinet Office's Investment Security Unit when undertaking certain types of internal reorganisations or appointing liquidators, special administrators and official receivers. 

Analysis has shown these types of transactions rarely warrant investigation. Simplifying the rules will ease the regulatory burden and help the government focus its attention on the deals presenting greater risk to national security.

Pat McFadden, Chancellor of the Duchy of Lancaster, said: 

“The government has been clear about our ambition to cut red tape for businesses, while taking firm action to protect national security as we deliver the Plan for Change. 

“Data shows our investment security powers are working well, but there's more we can do to ensure our tool kit keeps pace with the modern economy. We're taking action to hone the type of transactions facing the greatest scrutiny, as well as consulting on updates to the sectors of the economy specified in the legislation. Businesses are at the heart of these plans and I look forward to engaging widely in the weeks ahead.”

The announcement comes as the government also publishes a new consultation—due to launch on 22 July and conclude on 14 October—-on separate plans to update the sectors of the economy subject to greater scrutiny under the National Security and Investment Act 2021. 

Acquirers of businesses operating in seventeen sensitive sectors must currently notify the Investment Security Unit about relevant acquisitions before the deal can be completed. These sectors were first defined in 2021 and have not been updated since. 

Building on business feedback, and to improve clarity and bring the sectors up to date with the latest economic and technological developments, the government is proposing creating new standalone categories for Semiconductors and Critical Minerals, which currently fall under the Advanced Materials sector. Computing Hardware, which is currently a standalone sector, would move under the Semiconductors sector. 

Pat McFadden has also requested businesses' views on bringing certain deals in the water sector into scope of the NSI Act's mandatory notification requirements. This new requirement, while not expected to affect large numbers of deals, reflects increasing risks to the sector's resilience in a growing threat landscape.

Alongside the reforms and consultation, the Cabinet Office is also publishing the National Security and Investment Act Annual Report. This sets out the Investment Security Unit's activity between 2024-2025. 

It shows that the government saw an increase in the number of notifications received year on year, rising from 906 to 1,143.

Similar to last year, only 4.5% of notified acquisitions reviewed were called in for further assessment, with the vast majority of businesses notified within 30 working days that no further action would be taken.

The government issued 17 final orders: 16 allowing the acquisitions to proceed subject to conditions and one requiring divestment. 

Like last year, the largest proportion of notifications involved acquisitions in the Defence, Critical Suppliers to Government and Military & Dual Use areas of the economy, and acquirers associated with the UK, followed by the US.

Of the 17 final orders issued, the largest number involved acquirers associated with the UK, followed by acquirers associated with China and acquirers associated with the USA. Defence and Military & Dual Use acquisitions also accounted for the largest number of final orders.

Notes to editors:

Any changes to the scope of mandatory notification requirements, including changes to the sectors or exemptions to the requirements, would require secondary legislation. That legislation would need to be approved by Parliament.

Proposals to update the sectors of the economy subject to greater controls under the NSI Act would also see the government make adjustments to the scope of other sectors: Advanced Materials; Artificial Intelligence; Communications; Critical Suppliers to Government; Data Infrastructure; Energy; Suppliers to the Emergency Services; and Synthetic Biology. The changes will increase the scope of the rules for some sectors, narrow them for others, and clarify requirements where needed in other sectors.

Through a final order, the government can clear an acquisition to proceed, apply conditions to it, or block or unwind it.