Cabinet Office
We discuss economic security against the backdrop of Irans reckless and dangerous attack against Israel
and six months since the terrorist outrage of October 7th with Hamas still holding innocent people hostage.
It has been over two years since Russias illegal invasion of Ukraine
meanwhile, Chinas aggression in Xinjiang, the South China Sea, and Hong Kong demonstrates its disregard for the rules based order.
We have returned to substrata geopolitical competition - and tension - at levels not seen since the Cold War.
While we are not in open hostilities - we are in cyber and economic contestation with an increasing range of state and non-state actors.
At a time when the global economy is much more integrated
and our strategic competitors play a far more impactful role
our economic and security interests are intertwined as never before.
We have demonstrated our strength in the face of these challenges.
We have restored stability after the twin shocks of Covid, and Russias illegal invasion of Ukraine.
and continue to create the conditions for business to flourish.
As the Deputy Prime Minister of a G7 country with the highest inward investment in Europe
the continents biggest tech sector
the biggest exporter of services after the US
and the worlds most competitive financial centre
I know we must be doing something right.
Inflation has been halved
real household disposable income is on the rise
and the pace of growth is increasing.
That is all testament to the Great British economic model which is the key to our long-term prosperity
a model based on open markets free trade and academic liberty
all underpinned by the rule of law.
But we must also be clear-eyed that one of the great strengths of our system - its openness - also brings vulnerabilities.
Covid, and Russias war in Ukraine both laid bare the interconnectedness of global supply chains
and the extent to which they can be exploited:
Russia driving up the price of gas
Chinese acts of economic coercion.
Indeed, the CCP is seeking to make the world both increasingly dependent on China; whilst making itself less dependent on everyone else..
Meanwhile, our open economy is being targeted by state-based actors and their proxies.
Across our inbound and outbound investment flows, our imports and exports, and our academic collaborations
the whole spectrum of our economic security interests is under threat.
And the nature of these threats is evolving.
So as our protections increase in one area, new routes of attack emerge.
And so our response must evolve in kind.
Our toolkits may be actor agnostic. But, be in no doubt that, we, the leaders who wield these tools, are clear about where the threats are currently coming from.
In short, while the financial crash and pandemic exposed the economic risks of globalisation
todays rising geopolitical competition is demonstrating the security risks behind such integration.
That confronts us with an active choice.
A careful balancing act between our freedoms, our prosperity, and our security.
There are those that see this simplistically
who advocate a move to a polarised world
where we detach ourselves from those who do not share our values, or who dont play by our rules.
That is not the approach of the UK Government.
We will not decouple from the global economy. We will continue to default to openness. We must.
That is what generates growth, guarantees our prosperity, and enables us to invest in our security.
There is no greater source of resilience than a strong economy.
So while we wont decouple; we must de-risk;
Our rules must constantly adapt.
And politicians need to be honest about how we are responding:
We have a plan, and I want to be open about that plan.
Fundamentally, we need to tighten our controls over the routes by which the UK plugs into the global economy
but in a way that allows investment and trade to flow as freely as possible.
Those routes are diverse and complex. So our corresponding response needs to be subtle and agile.
It starts with inbound investment.
A great source of prosperity and pride for our country.
I want to be crystal clear with our investment partners - the UK welcomes inbound investment, we are open for business, and my presumption will always be in favour of investment.
But if we allow money to flow into our country unchecked, we leave ourselves open to abuse.
This is the area of economic security where we are most developed, thanks to the National Security and Investment Act.
Since coming into force, it has functioned well.
The government has reviewed over 1,700 notifications and issued 20 final orders.
Only 7% of notified transactions were called in for scrutiny, and only 1% were issued a final order.
So the vast majority of businesses have had zero interaction with the regime, nor do we want them to.
It typifies what is known as the small garden, high fence approach
safeguarding the UK against the small number of investments that could be harmful to our national security, while leaving the vast majority of deals unaffected.
That is not to say investment into sensitive areas is off limits
but it must be managed in a way that protects our national security at the same time as driving growth.
Indeed to extend the metaphor just a little further just as important as the garden is the ground that surrounds it.
Beyond the fence should lie a vast and fertile landscape where trade and investment thrive.
So to tend to this, we are constantly monitoring the Acts performance to ensure it stays ahead of threats, while remaining as pro-business as possible.
So today I have published the Governments response to my recent Call for Evidence
setting out the important next steps we will take to fine tune the NSI system:
I will shortly publish an updated statement setting out how I use the powers under the Act
including what we are seeking to protect and how we assess risk.
And we will publish updated marked guidance, including how the Act can apply to academia.
We will also update the mandatory area definitions
including new definitions for critical minerals and semiconductors
and we will consult in the coming weeks.
And finally, we will consider targeted legislative exemptions from the Acts mandatory notification requirements.
Likewise, when it comes to exports, we must ensure that the goods and technologies we sell overseas
are not being used to harm our own national interest, or in a way that runs counter to our values.
That is why we have an Export Controls regime, which we have significantly enhanced
responding specifically to risks around new technologies such as quantum.
Having reviewed the impact of these changes, we are confident we have a strong set of tools to prevent exports of concern.
But we do recognise that this stronger regime has posed challenges to a small number of UK exporters.
And really this is an indication of the trade-offs that the Government must navigate.
And so we will consult on improvements to our controls on emerging technologies.
We must ensure our system is flexible enough to deal with rapidly emerging threats
that cases are processed more quickly and efficiently
and that we maintain close collaboration with UK researchers and businesses.
We also connect to the global economy through the import of goods and services.
Again, we see deliberate attempts at weaponising import and export links through coercion
including trade restrictions by China against Lithuania and by Russia against Ecuador.
We have also seen examples where public sector procurement poses risks to national security
from surveillance systemsto telecoms infrastructureeach featuring increased capability and connectivity.
That is why I banned Huawei from our 5G networks, and Chinese surveillance equipment from key Government sites.
It is not the role of Government to mandate sources of supply across the whole economy.
We do, though, want business to be aware of the risks of excessive dependence
and where possible to work with us to reduce it.
And so we will continue to develop the UKs Anti-Coercion Toolkit
including investing in civil service capability
increasing stress testing and exercising
with more security-cleared officials
and working with the G7 and other partners to tackle future threats.
But there is one further, more challenging, area of economic security
one that has concerned both us and our allies.
And that is outward direct investment.
Now of course the UK is a major source of global investment.
one of the few global financial centres.
UK investors hold 14 trillion pounds of assets overseas
in turn generating hundreds of billions of pounds annually.
Yet a careful review of the evidence suggests it is possible that a very small proportion of outbound investments could present national security issues.
Indeed, they might be fuelling technological advances that enhance the military and intelligence capabilities of countries of concern.
The data is l