Britain proposes tougher foreign investment rules to protect national security

LONDON (Reuters) - Britain is planning to create new powers to block or unwind foreign takeovers amid concerns that investment in certain sectors of the economy such as defense and technology could compromise national security.

Britain's Prime Minister Theresa May answers questions during a Q&A session with employees at the Armstrong Works engineering facility, which is part of the Recce Group, in Newcastle upon Tyne, Britain, July 23, 2018. REUTERS/Russell Cheyne

The decision to tighten the screening of foreign investment rules marks a further shift in policy for the world’s fifth-largest economy which has traditionally been one of the most open markets to global mergers and acquisitions.

Britain is pressing ahead with the changes in parallel with similar efforts in other western economies such as Germany and Australia amid growing levels of Chinese investment.

Under the new rules, the government will broaden its power to investigate deals regardless of the size of the companies’ revenue or market share and have the right to scrutinize any transaction in any sector of the economy.

The government will also have the power to intervene when a company wants to acquire an asset such as a particular piece of technology or intellectual property rather just when they are seeking to buy or take control of a firm.

At present the government can only intervene if a deal creates a group with 25 percent of the market or with turnover of over 70 million pounds ($91.72 million). That has already been reduced to 1 million pounds for companies that make technology with military or dual-use applications.

The Department for Business, Energy and Industrial Strategy expects the changes will mean the government will investigate around 50 deals on national security grounds each year, up from one this year so far and one last year.

Earlier this month, the government approved the planned sale of Northern Aerospace to Chinese-owned Gardner Aerospace Holdings Ltd. after investigating the impact on national security.

Last year, the government also approved the sale of Sepura, which makes walkie-talkies for London's police, to China's Hytera Communications 002583.SZ after a similar probe.

Prime Minister Theresa May has taken a more cautious approach towards deals in the UK since becoming prime minister in 2016, a shift that has coincided with a global boom in takeovers this year.

One of May's first actions as prime minister in July 2016 was to pause the multibillion-pound Hinkley Point nuclear power plant project, which is being built by French state-controlled utility EDF EDF.PA and which China is helping to finance.

She ultimately approved the deal but said her government would take a more cautious approach over similar foreign investments in the future.

The change in rules, which will be subject to consultation, comes at a time when the government is trying to demonstrate a more positive approach to foreign direct investment as it prepares to negotiate a new post-Brexit trade deals.

Editing by David Evans