Water takeovers to be referred to UK government for national security screening
Commercially available AI systems will be taken off the mandatory investment screening list in drive to cut red tape
Takeovers of major water utilities will have to be referred to the UK government for screening under changes to national security rules relating to investment in companies.
However, commercially available AI systems will be taken off its mandatory investment screening list in a drive to remove red tape from the sector, according to officials, in a shake-up of the regime expected to be announced as soon as Thursday.
Ministers can scrutinise, impose conditions on and ultimately block acquisitions under the National Security Investment Act 2021 that was introduced under the last Conservative government.
The powers were brought in to address security concerns that it was too easy for overseas powers such as China to buy British companies with national significance in technology and other industries.
They oblige investors gaining control of companies in 17 sensitive sectors, including defence and energy, to notify the Cabinet Office for screening before any transaction proceeds. The changes will be implemented via secondary legislation in parliament later this year, according to officials.
Darren Jones, chief secretary to the prime minister, told the FT: “We are making the right choices for businesses to invest in the UK.
“We have listened to their concerns and are refining these rules to give businesses the clarity they need — cutting red tape where we can — while strengthening our controls on critical sectors like water and advanced semiconductors, where our national security interests demand it.”
Officials hope that removing so-called “off-the-shelf AI” — which includes widely available systems used for standard business tasks — from the list will benefit tech firms at a time when the UK is seeking to supercharge the sector. Chancellor Rachel Reeves is set to focus on AI as one of three pillars of her new growth strategy that she will unveil in her Mais lecture next week.
Advanced AI — which includes entities that create or modify the AI themselves — will remain among the sectors in which proposed takeovers must be submitted to the government.
The pledge to focus on the water sector could affect Hong Kong investor CK Infrastructure, which owns Northumbrian Water, and has been keen to bid for Thames Water, the UK’s largest water utility. It remains interested in bidding for the company if it is temporarily renationalised under the government’s special administration regime.
Officials insist that the legislation is not aimed at investors from any specific countries and that the government already has the power to call in any transaction for scrutiny under the terms of the act.
The latest move comes after a 12-week consultation with lawyers, trade bodies and industry representatives that examined how the current regime was working. It has been tweaked before in response to business complaints that the rules were too opaque and broad and were therefore harming UK M&A.
The new rules will focus on the major privatised water utilities.
Semiconductors and critical minerals were already included on the mandatory screening under the label of advanced materials but will move into their own individual category to bolster clarity for companies.
In 2022 ministers used the legislation to block the sale of Newport Wafer Fab — one of Britain’s few semiconductor companies — to Chinese-owned Nexperia despite questions over how significant the Welsh business was to the industry.