Britain’s economic security

Sir Simon Fraser GCMG

Good. Well, welcome, everybody, to this event. My name’s Simon Fraser. I have the privilege of chairing this event today, where we’re going to be hearing from the Deputy Prime Minister, The Right Oliver – The Right Honourable Oliver Dowden, about Britain’s economic security.

Before we do that, I’m afraid I have to do a couple of housekeeping announcements, which I’ll do as quickly as I can. Just to let you know that this is on the record, this event, so it’s being recorded, and it’s being livestreamed, and you are invited to use social media, using the usual hashtags and handles, #CH_Events or @ChathamHouse, if you want to use those as well. If you want to ask a question after the Deputy Prime Minister has made his statement, we will have a Q&A session. If you’re in the room, if you want to ask a question please raise your hand, stay seated, a microphone will appear by magic, and please then say who you are, introduce yourself, and please do ask a question rather than making a lengthy statement. Similarly, for those people who are online, I have a laptop here and you can put questions through the Q&A box and I will then pick them up and feed them into the discussion.

I think that’s all the housekeeping, so I will move on to introduce formally the Deputy Prime Minister, Oliver Dowden. He was appointed as Chancellor of the Duchy of Lancaster in October 2022. He was then appointed Secretary of State at the Cabinet Office in February 23, and in April of that year, I think it was, was appointed Deputy Prime Minister. But he has a range of other ministerial roles behind him in the Cabinet Office: Minister without Portfolio, also Secretary of State for Digital, Culture, Media and Sport, which is very relevant to this agenda, as well, today, and he’s been the Conservative MP for Hertsmere since, I think, 2015.

So, he has occupied and occupies now roles at the heart of this agenda, and economic security is an increasingly significant and rapidly evolving issue. It reflects many things, including the advances in technology in an interdependent global system. It poses challenges to our traditional approach to the security agenda, and some of that has been reflected by the government, for example, in its Integrated Review of Security and Foreign Policy. And it brings a broader range of people in business, in research, in the academic world, into the heart of the security policy debate. And those are some of the issues which Oliver Dowden is going to address today. He has, as I say, central responsibilities in government in this area, and I welcome you to take the podium, and we look forward to your presentation. Thank you very much.

The Rt Hon Oliver Dowden CBE MP

Thank you. And so, we discuss economic security against the backdrop of Iran’s reckless and dangerous attack against Israel, and six months since the terrorist outrage of October the 7th, with Hamas still holding innocent people hostage. It’s been over two years since Russia’s illegal invasion of Ukraine and meanwhile, China’s aggression in Xinjiang, the South China Sea and Hong Kong demonstrates its disregard for the rules-based international 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. And 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 Russia’s illegal invasion of the Ukraine, and continue to create the conditions for businesses to flourish. And as Deputy Prime Minister of a G7 country with the highest inward investment in Europe, the continent’s biggest tech sector, the biggest exporter of services after the US and the world’s 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. All of this is 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 Russia’s 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, and while 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 the pandemic exposed the economic risks of globalisation, today’s rising geopolitical competition is demonstrating the security risks behind such integration.

So 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 more polarised world, where we detach ourselves from those who do not share our values or who don’t play by our rules. That is not the approach of the United Kingdom Government. We will not decouple from the global economy. We will continue to default to openness, indeed, 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 won’t decouple, we must derisk, and our rules must constantly adapt. And I believe that Politicians need to be honest about how we are responding. We have a plan and today, I want to be open about that plan. Fundamentally, we need to tighten our controls over the routes by which the United Kingdom 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 pride and prosperity for our country. And I want to begin by being crystal clear with our international investment partners. The United Kingdom welcomes inbound investment. We are open for business, and my priority and presumption will always be in favour of investment. But if we allow money to flow unchecked into our country, 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, I believe 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 with a final order. So, the vast majority of businesses have had zero interaction with that regime and 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, whilst leaving the vast majority of deals unaffected.

That’s not to say that 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 Act’s performance to ensure it stays ahead of threats, while remaining as pro-business as possible.

So today, I have published the government’s 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 market 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 following weeks.

And finally, we will consider a targeted legislative exemptions from the Act’s 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 national interest in a way that runs counter to our values. That’s why we have an export control regime, which we have significantly enhanced, responding specifically to risks around new technologies, such as quantum.

Now having reviewed the impact of these changes we are confident that 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 this really is an indication of trade-offs that the government has to 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 weaponizing 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 systems to telecoms infrastructure, each featuring increased capability and connectivity. So that’s why I banned Huawei from our 5G networks and Chinese surveillance equipment from key government sites. It’s not the role of government to mandate sources of supply, though, across the whole economy. We do, though, want to make businesses aware of the risks of excessive dependence, and where possible, to work with us to reduce it. And so, we will continue to use the UK’s anti-coercion toolkit, including investing in civil service capability, increasing stress testing and exercising, with more security cleared officials, and working with 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 United Kingdom is a major source of global investment, one of the few global financial centres, and UK investors hold £14 trillion of assets overseas, in turn, generating hundreds of billions of pounds annually. Yet a careful review of the evidence suggests that it’s possible that a very small proportion of outbound investments could present national security issues. Indeed, they might be fuelling technological advances that enhance military and intelligence capabilities of countries of concern.

The data is limited, but over the next year, we will engage with G7 allies and businesses to better understand this risk and how our tools can mitigate it. In parallel, we will evaluate whether further action is warranted, we are launching a dedicated analytical team to assess the risk in sensitive sectors, and we will issue public guidance on how the existing NSI powers allow government to intervene in certain outbound investment transactions. And we are refreshing and enhancing that National Protective Security Authority’s Secure Business campaign, and this week we have also launched the National Protective Security Agency’s Secure Business campaign. So, this is designed to ensure businesses can better make informed investment decisions.

This plan of action is based on reassurance, protection and engagement, giving British businesses the clarity and coherence they need to plan and to thrive. We’ve not seeking to dampen animal spirits. Instead, we want to be precise, proportionate and co-ordinated. It’s why I launched the Public-Private Forum on Economic Security last year, and why we put businesses at the heart of devising the National Cyber Security Centre and the National Protective Security Authority and the Investment Security Unit. And we will continue to iterate that support, in particular, helping smaller businesses to engage with government. So, I can announce today that the NPSA and the NCSC are launching a new tool to help small tech businesses and university spinouts assess and improve their security.

Finally, we are co-ordinating closely with our universities. Our academic base is a jewel in our crown, with four of the world’s top ten institutions. Just as openness has been crucial to our economic success, internationalism has been vital to our academic prowess. The vast majority of that collaboration is to be welcomed and applauded. We should be proud that much of the cutting-edge development in sensitive technologies is happening at our universities, but this also has the potential to become a chink in our armour. This isn’t about erecting fences around entire areas of institutions or research. However, it’s right that we look at who has access to research frontiers in the most sensitive disciplines. Similarly, we must ensure that universities’ reliance on foreign funding does not become a dependency which they can be influenced, exploited or even coerced through, or indeed, find themselves vulnerable in the fallout from heightened geopolitical tensions. So that’s why the government has been conducting a review into academic security, and I will be convening a roundtable of university Vice Chancellors in the coming weeks to discuss our findings and our proposed response.

So, in all of this, we do not act alone. We are working with our allies around the world, evolving our trading relationships into economic security partnerships, such as the Atlantic Declaration with the United States and the G7 Coordination Platform on Economic Coercion. Together, we will succeed in protecting our national security by safeguarding our economic security, because what unites us, unlike our adversaries, is our values. Our societies prize innovation, ideas and the success of individuals. We celebrate what we make, not what we can take. We know that creative, open, outward-facing economies are strong economies, and that a strong economy makes us all more secure.

In these uncertain times, that economic model must adapt and respond to new threats, but it must also be true to the principles which have yielded prosperity, opportunity and security in the past. Our security and our prosperity are two sides of the same coin. We do not make ourselves more secure by being less open. Instead, we redouble our efforts to make open markets as secure as possible. In doing so, we safeguard the United Kingdom’s position as the best place in the world to invest, to study, to trade with, to live and to prosper, and long may that continue. Thank you [applause].

Sir Simon Fraser GCMG

Well, thank you very much for coming to Chatham House and presenting that important and comprehensive agenda to us, and I’m sure that there are many issues there that people will want to unpack in the Q&A. So, I do remind people, if you have a question, please raise your hand. You covered all sorts of things: imports, investment, exports I notice as well, very interesting, as well as academic freedoms and research. So much for us to cover, but I’m going to – I see some hands up, but I’m going to, if you don’t mind, ask the first question from the Chair, and then I’ll come to the floor in a minute. And that first question really is this. You mentioned a range of, sort of, sources of threat at the start of your speech, but can I just cut to the chase here. I mean, isn’t this all about China? Is that really not what we’re talking about?

The Rt Hon Oliver Dowden CBE MP

No, it’s not, is the short answer. So, all of this is deliberately designed to be country agnostic, and it’s right we should do this. We’re not designing this for the challenges of this year or next year. We’re trying to set up a coherent approach to economic security, and indeed, it’s an approach to economic security that many around the world are interested in and are copying. There’s only really, I think, two countries that are at this level of work on economic security, that’s the United Kingdom and the United States, and for example, when I go to Japan, Korea, elsewhere, they’re very interested in the work that we are doing.

Nonetheless, it is the case that we set out in the Integrated Review Refresh that China was the number one state-based threat to our economic security, so I’m not blind to the fact that a lot of this will relate to China, but equally, it will relate to hostile states, such as Iran, Russia, and North Korea. But indeed, in a lot of these cases, you take for example, the National Security and Investment Act, where I literally make dozens of decisions every day about whether to call in transactions, I will from time to time call in transactions that even relate to our own closest allies, because there are some areas of our economic security that are so important that we need to take action to retain them within the United Kingdom alone. But I think in all of this, that the objective is to make sure this is set for the long-term, which is why I’ve been very clear about this being country agnostic.

Sir Simon Fraser GCMG

Okay, but I suppose the flipside of my question, then, would be, you mentioned that we are working closely with the United States, and particularly, for example, in relation to outbound investment, some people might say, “Yes, you’re being pushed by the Americans.” To what extent are we responding to pressures from across the Atlantic in this agenda?

The Rt Hon Oliver Dowden CBE MP

Well, all our decisions are based on the national security interests of the United Kingdom. What I would say, though, is that both with the United States and indeed, with our G7 partners, we face common challenges and we share analysis and understanding. I also want to be clear in relation to what I said about the – our approach to outbound investment. We have a controlled regime for inbound investment, the National Security and Investment Act, which I believe is working very well and it’s similar to regimes such as CFIUS in the US. There’s a challenge in relation to inbound investment that we need to make sure that that inbound investment isn’t being used as a way of gaining economic control or coercion in a way that could be used in the future against our interests.

I think the bar for intervening with outbound investment is much, much higher, and first of all, I’m not even today announcing specific measures we’re saying. What I’m doing is highlighting that we have a problem here that we should look at and that there may be the case in a very small number of very critical areas where we actually believe that that outbound investment from the United Kingdom could facilitate significant enhancements in adversarial, cutting-edge capability in a way that would be detrimental to the United Kingdom. It’s that sort of very precise area of intervention that we’re looking at.

Sir Simon Fraser GCMG

Quite difficult to define, but I see the point. I mean, one final point from me, if I may, linking that point to the NSIA, the – you know, dealing with inbound investment, which has had quite a lot of profile and attention, and you’re publishing today your response to the consultation. But I note in your statement, you actually, in a way, play down the number of times in which this legislation has actually been applied in a very serious way leading to final orders. So, my question would be, I mean, is this in proportion? Is this a sledgehammer to crack a nut and – or do you feel it’s about the right measure? And is it potentially impacting the competitiveness of the UK, and how does it compare with other international regimes, I guess, in the same area?

The Rt Hon Oliver Dowden CBE MP

And so first of all, my whole disposition in applying this Act is that I don’t want to apply it, and that I only want – I want to protect free and open markets. So, there’s a high bar for me interfering in the normal operation of free and open markets. But it has been the case that since this Act has come into force, there have been a number of transactions, some of which are on the high classification side, whereby the United Kingdom has acted to protect its national interest in a way that it wouldn’t have been able to do before. So, I don’t want to use the Act very often, but when we use it, I want businesses to be assured we’re only using it because we have to and that we are acting to protect core national security interests.

Sir Simon Fraser GCMG

Okay, thank you very much. Look, I’m going to open it up to the floor now. As I say, please raise your hand if you want to ask a question, stay seated and a mic will come to you. There’s a lady in the third row here, we’ll start there.

Lucy Fisher

Thank you, Lucy Fisher from the Financial Times. Deputy Prime Minister, you mentioned in your speech your review into the security of UK universities, both the need to protect the most sensitive areas of research and ensure that universities aren’t becoming overly dependent on foreign investment. Could you just tell us a bit more about the government’s response in that areas to protect universities from hostile states? Thank you.

The Rt Hon Oliver Dowden CBE MP

Yes, well, Lucy, as you say, we announced the review in the Integrated Review Refresh. In essence, we have concluded that universities are both vulnerable and that they are being targeted. So, as a first step, I’ll be calling in Vice Chancellors to receive a COBR briefing with our security services to understand the extent of the problems. I think it’s likely that we’re going to need to consult on proposals to address, first of all, the security of Researchers given access to frontier research in sensitive sectors. Again, that’s, kind of, parallel to what I was setting out in my speech. And secondly, this issue of universities being dependent on foreign funding, which could lead to the transfer of IP or exploitation or coercion. That in turn, sits alongside work we’ll do to look at our existing controls, particularly the National Security and Investment Act and the export controls, to see their applicability to our university sectors.

And I think we also need to look at the security and vetting in sensitive sectors, the resource that we give to RCAT, and greater transparency about university sources of funding. But again, in all of this, my starting position is that universities in this country have thrived literally for a millennium by being open, open to ideas, being independent of government. So, we need to make sure that there is a high bar for when we actually use any of those tools in intervening in academic freedoms and the freedom of the universities. But just as we are willing to intervene in the freedom of businesses, we also need to be willing to intervene if there is a clear national security risk that we need to address.

Sir Simon Fraser GCMG

Okay, thank you. The gentleman here in the second row.

Carrison

Hello Mr Dowden. My name’s Carrison, and I’m a student. So, I wish to ask you a question about small businesses and a specific case in that. In 2004, a small business was destroyed and Mr Kandasamy, the owner of that business, 20 years later he’s still waiting for his compensation. How can we state earnestly that we – that people – small businesses should be invested in – or people should invest in small businesses, when there are people like Mr Kandasamy who are waiting for 20 years to finally receive the compensation for a business that was destroyed in this country?

Sir Simon Fraser GCMG

Is this actually related to the economic security agenda?

Carrison

Well, how can we say that we want to invest in small businesses, for example, when there are people, when the businesses are destroyed illegally, or falsely, that they’re still waiting for compensation from this government?

Sir Simon Fraser GCMG

Okay, we – look, we’ll raise the question and…

The Rt Hon Oliver Dowden CBE MP

Well, thank you for raising the question. I’m afraid I don’t know the details of this case, but my team are here, and they’ll get in touch with you and I’m happy to write back to you on the details of the specific case you raise. I think there’s an important underlying question here, which is that whenever government intervenes in relation to free and open markets, I’m aware, and I know that that imposes a cost. It imposes a cost for business in complying with the regulatory regime, and if we choose, in those very small number of circumstances, to impose a remedy of some sort, and the most extreme form of that is blocking the transaction altogether, that, of course, imposes a further cost.

Which is why I’ve been keen to ensure – and indeed, what the NSAI consultation has been about, is both reducing burdens on businesses to make it as streamlined as possible. So, for example, that’s why we’ve looked at internal restructuring, where the beneficial owner remains the same, do we really need to have those subject to the Act? But – and equally, to make sure that we proceed at pace. That’s why once a transaction’s been notified to me and to my department, we have to respond within 30 days. All of that is about finding that speed and making sure we just intervene where we need to, but to do so proportionately and precisely.

Sir Simon Fraser GCMG

I think there are – in relation to small and medium sized businesses, there is – I mean, in my other activities I hear quite a lot of concerns about the transparency and clarity of process in government. For example, on export controls, which you also touch on, and I mean, perhaps you could say a bit about that, because sometimes people feel their question goes into a, sort of, black box in government, they don’t quite know when it’s going to come out and where.

The Rt Hon Oliver Dowden CBE MP

Yeah, no, I think export controls are quite a good example in that I think – we’ve reformed export controls. I think the effect of that is that we have confidence about its ability to address national security concerns. As I said, we’re going to consult and we have to constantly keep ahead of the game in terms of emergent technology, but the other side of the – what we’ve announced today is actually looking at the impact on business and working with business, with academic institutions, as well, to see how we can just make this more streamlined and speed up, ‘cause we don’t want to impose unnecessary burdens on business.

Sir Simon Fraser GCMG

That’s very good, yeah. Okay, I’ll take another one, then I’m going to go online. The gentleman here.

Graham Lanktree

Hi, Graham Lanktree from Politico. You mentioned hostile states like Russia and Iran in your speech. Do you see the government using economic security tools to respond to threats in the Middle East? And do you share fellow Minister Tom Tugendhat’s concerns about EVs bound from hostile states that could “easily be turned into mobile intelligence gathering platforms,” as he says?

The Rt Hon Oliver Dowden CBE MP

Thank you. Well, first of all, in relation to Iran, I think we have proved the power of working together to provide deterrent, and we saw that at the weekend. I think it’s also important, though, that Russia – sorry, that Iran suffers the consequence of its actions, and as the Prime Minister set out in his statement to Parliament on Monday, we are working with our allies, and particularly the G7, but also others, to address that. I know that this is a major priority for the Foreign Secretary right now at the G7 Summit. I believe it’s in Capri, which sounds a very enjoyable venue, but there’s very, very serious work being done there. I…

Sir Simon Fraser GCMG

We believe you.

The Rt Hon Oliver Dowden CBE MP

Well, I am confident, actually. I’m confident that we will – we should make, imminently, progress on this issue. So, I’m hopeful that we will see something coming out imminently from that G7 Summit addressing exactly what the Prime Minister discussed on Monday.

And then in relation to electric vehicles, I think the Security Minister raises a very important point and that is something that we are actively looking at, both through the Department for Transport, but also the National Cyber Security Centre, which as you know, works with GCHQ and others. The other thing that I would say is that, if you remember, we introduced Secure by Design. It’s important that as we’re looking at the legislation and what governs electric vehicles, we put security in at the beginning in the design. We don’t tack it on at the end.

Sir Simon Fraser GCMG

Okay, thank you. I’m just going to stay in the Middle East if I can, but online, ‘cause there are two questions relating to the region, which I’ll pick up. The first is from Rea – Rudolph, and he says – he’s referring to the attacks on shipping there, and says, “How do you intend to secure supply chains vital to Britain’s national interests, which are geographically so far away?” And the other question on the region, which I’ll just add in if I may, is from Dina Mufti, who says, I mean, you may not agree with this, but she says, “Israel is carrying out a genocide against Palestinians. When will the UK stop exporting arms to Israel?” It’s a topical question, so if you don’t mind answering that one, as well.

The Rt Hon Oliver Dowden CBE MP

Yeah, so first of all, on disruption to supply chains, particularly as a result of the ongoing conflict in the Middle East, that’s precisely why the United Kingdom chose to intervene in operations in the Red Sea, alongside our allies. To be clear, the basis we were doing that was ensuring freedom of navigation, and actually, if you look at Britain’s role in the world going back over centuries, through the Royal Navy, we have always acted to preserve freedom of movement through international waters, and I think that’s an important role that the United Kingdom has played and continues to play. So, the first thing is making sure we have that freedom of movement.

And then the second thing is looking at our supply chains to see our vulnerabilities and to make sure that we are addressing those vulnerabilities and looking at particularly how we work with our partners, and not just in the G7, but also with countries like Japan, Korea and others, to be confident that in relation to critical areas of our supply chain, we can – we have confidence that in the event of economic – of global geopolitical shocks, we don’t see those supply chains disrupted. Now, that is a very big and ongoing challenge, and one that most countries weren’t as alert to 20 years ago, but one that we’re very much invested in, and others are.

In relation to the con – the Israel-Gaza conflict, I totally disagree with the characterisation of this as being genocide, and I think we just need to be very careful about our language when we talk about the specific definition of genocide. That is not to say that there are not issues here. I believe that Israel is acting in legitimate self-defence against an enemy, a terrorist organisation, Hamas, that is hiding itself amongst the civilian population. But we continue to urge Israel in the conduct of what I believe is to be a legitimate campaign to make sure that they address, in particular, two areas where we do have significant concerns.

One is about the supply of aid into Gaza. The people of Gaza are suffering enormously now, and they suffered enormously under Hamas, so we need to make sure that we get more aid in. And I’m very proud of what the United Kingdom has done, for example, in relation to working on this bridge between Cyprus and Gaza, but also, we pushed to open crossings. It’s welcome crossings are being opened, but the key thing now, and this is something that the Prime Minister’s raised with Netanyahu, indeed, the Foreign Secretary has raised with Prime Minister Netanyahu, is making sure that that aid actually starts to flow in significant volumes through it. And also the conduct of the offensive. We were shocked and angered by the death of those aid workers. More work needs to be done to ensure deconfliction.

And on the international humanitarian law point, the Prime Minister, Foreign Secretary and others, indeed, I, have set out the position. It’s set out under statute, the requirements to assess export controls. Their arms export controls, they’re some of the toughest in the world. The Foreign Secretary’s assessment is that our position on that has not changed, as he set out, I believe, earlier this week, or last week, with Secretary of State Blinken.

Sir Simon Fraser GCMG

Thanks for that clarification. I mean, in a way, that just demonstrates that actually economic security and protecting our economic security involves traditional areas of security and defence policy and the way that you approach policy in that area, as well as the newer areas that you have been highlighting in the speech today. And it’s that – it’s the combination of those things which is, sort of, the evolving policy agenda…

The Rt Hon Oliver Dowden CBE MP

Hmmm hmm.

Sir Simon Fraser GCMG

…that we’re facing. Who else would like to ask a question? I need to go to the back of the room, I think, because I’ve asked for a few at the front. So, on the very back row I see there’s a hand raised.

Alan Houmann

Thank you. Alan Houmann, now Chatham House Council. On the competitiveness question, I think Simon raised it, in Brussels there’s a very similar derisking debate, but the von der Leyen Commission is now talking about rebalancing towards China. Do you think if the EU leans into China more, the UK would be disadvantaged?

The Rt Hon Oliver Dowden CBE MP

No, no, I don’t, and I think it’s interesting that that contrasts with the approach being taken by the US, which is raising all the time, further security concerns in relation to China. Look, this isn’t an easy thing to get right, and we are walking down a fine line, which is that China is not the Soviet Union, in that – both in the nature of the state, but also in its interconnectedness to the global economy. It’s an enormous economic power and it’s one that we are dependent on in many, many ways. You just need to look at your Amazon order or whatever else, we are highly interconnected.

What I think is incumbent on the UK Government is to be as clear-eyed in its approach to protecting its national security and its – as part of that, its economic security in its engagement with China, in a way that China equally is clear-eyed about protecting its interests. It wouldn’t be the case that the Chinese Government would be content for sensitive areas of technology which were being developed in China to be available to other states. Equally, the United Kingdom should not allow sensitive areas of technology or key supply chains to be vulnerable to the actions of other states, and that, essentially, is what we’re seeking to do across a range of tools in the economic security suite that I set out.

Sir Simon Fraser GCMG

Thank you very much. I do think this point about international competitiveness and the – how the different regimes relate to each other is an important one for us to keep in balance to the best we can.

The Rt Hon Oliver Dowden CBE MP

Yes, but what I would actually say is that I genuinely believe that economic security and economic prosperity are totally interlinked. What I don’t want is a situation whereby we don’t do anything about this, and then we find ourselves in a situation of heightened geopolitical conflict, and then we have a, sort of, a screeching turn, and we find out our supply chains are vulnerable, so we’re not able to access things we want to, technology that we thought we could depend upon is actually no longer available to us. I think what I’ve sought to do in this speech is building on the IRR, Integrated Review Refresh, and other initiatives, is try and give businesses a sense of where we’re going, and also, to give a reassurance that my whole dispensation is not to intervene in open markets. There has to be a very high bar for doing it.

Sir Simon Fraser GCMG

And indeed, there is a comment online from a Mr Suzuki, who is saying – who is suggesting that actually, “The UK is emphasizing economic relations with countries like China above economic security measures,” so there are two sides to that argument. We’ve got just over 15 minutes left, so I’m going to move to our – if you don’t mind, I’m taking two questions at a time, if we can manage with that, so we can get as many in. So, there’s a gentleman here, and on the front row. S – sorry, this one, no, on the second row, and then Robin, I’ll come back to you.

Domenic Carratu

Yeah, second row, Domenic Carratu. Thank you very much for your whole talk, I mean, it was fascinating. It’s great to hear that this is a major topic in government. However, a couple of questions. So, we’re in an election year, I gather, potentially. Is defence security going to be an issue at the election, particularly when you’ve got constrained economics? So, it’s all talking about freedom of navigation and we send out two planes to Cyprus and one ship to, you know, operation whatever in NATO. We don’t – I mean, in the budget last month, there was zero increase in the defence budget. So, if it is such a priority, how come Rishi Sunak isn’t talking about it, and how come we’re not seeing a rebalancing of where we allocate central government resources?

Sir Simon Fraser GCMG

Thank you, and then could you pass the mic forward? Thanks.

Sir Robin Niblett DPhil

Robin Niblett, former Director of the Institute. I want to ask a question about inward investment and the, kind of, boundaries of economic security. Could you say something about investment by Chinese companies, for example, in nuclear power, in infrastructure? If it’s a non-controlling investment, is that still a source of concern if it depends on which country it comes from? And similarly, overdependence on foreign investment in critical areas, for example, batteries, does that – is dependence on foreign investment an area of economic security, especially if it comes from a country like China, or not?

The Rt Hon Oliver Dowden CBE MP

Thank you. So, first of all, on defence spending, it has been a priority and it is a priority. Actually, if you go back to when Rishi Sunak was Chancellor and he set out the spending review that we’re currently in, and he announced a £24 billion uplift to defence spending, which is the biggest uplift to defence spending since the Cold War. I believe another £11 billion more has been allocated when – since then. But the only way, actually, we’re going to be able to afford more defence spending is to have economic security and prosperity, and there’s clearly a direct correlation between the size and strength of the economies of nations around the world and the amount of resource that they’re able to allocate to defence. So, I’d say the two go hand-in-hand.

In relation to Chinese companies’ and indeed, other companies’ investments, what – if you look at what we set out in the National Security Investment Act, we’ve tried not to be dogmatic about this. We’ve tried to, sort of, have an open approach. So clearly, the greater the investment and the greater the control, the more concerns we will have. So, if there’s a full 100% acquisition, that’s going to create, potentially, greater risks than enough of an investment to secure a seat on the board, versus enough of an investment just to be a purely passive investor. So, the analysis is country agnostic. It is looking at the degree of control and then, the nature of what that company is doing, and all the time we’re seeking to have that proportionate and precise response. My default would be let’s not intervene unless there are very strong grounds to do so.

Sir Simon Fraser GCMG

Thank you. I’m going to take two more online, and then I’ll come back to the room. I do encourage female members of our audience to raise their hands, because I see many men are doing so, so please feel free. Online, two questions, and these questions are linked, so they are really looking at a bit the other side of the coin, which is the opportunity and how not to kill the opportunities. So, Courtney Rice says, “What can be done to encourage businesses to stay in the UK? Many British startups, particularly in the tech sector,” which of course, is part of this agenda, “are successfully gobbled up by overseas investors.” We know that’s a question.

And the second one, from Trisha de Borchgrave is, “Are you confident that our Diplomats and Civil Servants are equipped to deal with the complex and fast-changing issues,” – I think this is an important question – “that arise from this agenda, for example, managing the transition to Net Zero and factoring these things in, but particularly also, the AI agenda, where we have opportunities to take a lead in some sectors?” So, I guess it’s, are we killing the goose that’s laying the golden egg?

The Rt Hon Oliver Dowden CBE MP

Well, firstly, I’m confident that we’re not. In terms of the issue about staying in the UK. Look, I think the – let’s deal with the good news about the tech sector, which is, by pretty much any measure, we have the strongest tech sector in Europe and probably the third strongest tech sector in the world, after the US and China, who are clearly in a, sort of, different league in terms of the scale of their economies. If you look particularly at artificial intelligence, we’re the only place outside the US that has all of the frontier AI labs. We’ve got three or four of the best universities in the world, which in turn, are providing the kind of research and innovation that underpins all of this work. I think we have got quite a good venture capital market in the UK now in terms of startups.

I think the two big challenges we have, one is scaleup. We’ve seen examples, whether there is in relation to DeepMind, which was purchased by Google, or Arm, whereby when companies reach that, sort of – when they need injections of cash of the scale of several hundred million pounds, that’s the gap where we need to do work on it. Hence things like the Mansion House Reforms that the Chancellor’s announced about getting pension funds to be able to invest. That’s an area of focus. The other area is skills. We still need to invest more in our skills. It’s not a problem unique to the UK. Pretty much everyone I speak to globally says the same thing.

On the – on then – which kind of segues into diplomatic and civil service capabilities. We have huge strength in our civil service and diplomatic network, as you know better than anyone else. Actually, it’s interesting, though, we announced this – one of the training courses we announced recently was on AI. Actually, the take up of that has been absolutely enormous across the civil service, and it’s not just people that are working in those specialisms. There’s huge interest in applying it across government.

The – I think what we’re seeing with this economic security agenda, and this is one of the things that I was referring to in the speech, is that the people that need to be able to undertake, kind of, national security considerations, and need to be cleared to a high level to do that, and it’s moving from being massively clustered with the intelligence agencies and the defence sector, a bit of the Ministry of Defence and a bit of the Foreign Office, to a much wider range of departments. A Department for Science, Innovation and Technology, the newly created DSIT, DBT, so we’re actually, we’re investigating more people who are cleared to a sufficient level to be able to engage with that. And often these issues that previ – one of my roles as Deputy Prime Minister and Secretary of State in the Cabinet Office, is that I have the National Security Secretariat in my department. We co-ordinate across government, so I chair, for example, the National Security Council on Economic Security and Resilience. Whereas previously you would have, on a lot of these national security co-ordination issues, you’d just really have had the Foreign Office, the Ministry of Defence and the agencies. Now you’re getting a wider range of departments engaged with this.

Sir Simon Fraser GCMG

And I think that’s really important. If I may say, from my experience in government, getting the integration of security and economic thinking in these decisions is really tricky but really, really important. Now, I’m being urged to take questions in threes now, if you don’t mind.

The Rt Hon Oliver Dowden CBE MP

No, no, that’s fine.

Sir Simon Fraser GCMG

Because we’ve got ten minutes to go, and I want to give people an opportunity. So, I’m going to take one here, one here. I’m still waiting for ladies to raise their hands, but – oh, I have one there, good. Start here.

Alistair Smout

Hi, I’m Alistair Smout from Reuters News Agency. Just on the issue of country agnosticism, as you mentioned, kind of, a specific example. My colleagues wrote last week about the UAE state oil company was considering buying all of or a stake in BP, but they decided against it, partly because of political considerations. Have they got the right message that a company like BP is too important for any foreign country to take over? And just quickly, is genomics going to be listed as critical national infrastructure? I think you told lawmakers you were looking at that last year. Thank you.

Sir Simon Fraser GCMG

Can you hold that? Do…?

The Rt Hon Oliver Dowden CBE MP

Yes, alright.

Sir Simon Fraser GCMG

Is that alright, or is that too detailed, all that?

The Rt Hon Oliver Dowden CBE MP

No, no, that’s fine, no, that’s fine.

Sir Simon Fraser GCMG

The gentleman here, a quick one here.

Samir

Samir [inaudible – 55:50], Chatham House member. The question is in relation to United Nations Charter Article 51. As long as we know, Article 51 gives the right to any country attack, to self-defence itself. In this relation, Iran acted within Article 51 when it attacked Israel. What do you say about that?

Sir Simon Fraser GCMG

Thank you, and the lady behind, if you could pass it back.

Samir

I’m mainly just responding to you wanting a question from a woman.

Sir Simon Fraser GCMG

No, no, come on.

Samir

But – so apologies is this is too basic, but you talk about cyber contestation. What would you say are the biggest cyber threats and is election interference this year one of them?

Sir Simon Fraser GCMG

I’m really glad you raised that, ‘cause I was conscious that we hadn’t really talked a lot about cyber, so there we are. Okay, three questions.

The Rt Hon Oliver Dowden CBE MP

Three very meaty questions that I could devote a lot of time to, but – so, first of all, no, when I say we’re country agnostic, I mean that we’re country agnostic. Clearly, some countries present greater risks that others, and in particular, we’ve been fairly routine in highlighting issues with Russia, Iran, North Korea, and China, but that’s, as I said, really our closest allies we can intervene on in certain circumstances.

In relation to the UAE, I very much welcome investment from the UAE. I’ve visited the UAE myself, I’ve met with their sovereign wealth funds, I’m sending a very clear signal to them, I’ll say it again today that we welcome investment from the UAE, from Saudi, and from other Gulf states, Qatar and so on. Of course, any investment from any state needs to be subject to our national security and investment regime, but I don’t want there to be any sense that we don’t welcome that. We very much strongly do welcome investment. As I’ve said, we’ve got 13 trillion – oh, sorry, we have huge stocks, not quite 13 trillion, of inward investment into the UK, as well.

On genomics, ultimately, we took the decision not to designate it as CNI because we’re confident that actually, there’s already a very strong existing legislation and regulation around that within the healthcare sector. So, on balance, I was reassured that we are – we have all the controls that we would by designating it a CNI through existing legislation.

It’s not the position of the UK government that we believe that Iran was justified in the – its attack, by the way. So, that we don’t believe that Iran was acting in self-defence on the attack that, by the way, didn’t take place in Iran, as Iran knows.

In relation to cyber and this contestation, so I’d say there’s both contestation directly from hostile states, and in particular, we’ve highlighted Russia and North Korea, but also, what you see is that those states create an environment whereby they allow criminal activity to flourish. So particularly North Korea, you see a lot of the – and indeed, Russia – you see a lot of the ransomware attacks coming from criminals who are in those countries. And that is an – has been an active policy choice from those countries to allow an environment to flourish there where that can happen, because it both undermines nations like the UK and the US, and also, indirectly helps them to gain a greater understanding of vulnerabilities.

I’m sorry, you mentioned elections. Just, I’m very – I’m – this is the year of elections, famously the year of elections. I think just as we saw hack and leak being a theme in previous election years, in this coming year I’m particularly concerned about deepfakes. I think deepfakes are something that have a high degree of potential to be deployed. That’s why when I was in Seoul for the Defending Democracy Summit, I launched this compact and this work in relation to hostile states’ use of AI and deepfake as part of that. We’ve made good progress with that, lots of states have signed up, and I’ll be making a further announcement on progress on that shortly.

Sir Simon Fraser GCMG

Okay, now we’ve got about three minutes. I’ve think you’ve got a hard stop at…

The Rt Hon Oliver Dowden CBE MP

I believe I have, yes.

Sir Simon Fraser GCMG

Maybe – Ministers always know that somebody will tell us. But I’m going to – if someone’s got one last burning question, I will take it. This gentleman at the front. Oh well, there’s two here. Let’s take these two at the front, but make them really quick and we’ll – they may be very cursory answers, if that’s okay.

The Rt Hon Oliver Dowden CBE MP

Yeah.

James Cemmel

Right, thank you very much. James Cemmel from Viasat. You started to talk a little bit about your work with the National Security Apparatus and the various different government departments. What are you doing to make sure that the economic security agenda is very well understood in the furthest reaches of government? The major vulnerability in space is access to spectrum, for example.

Sir Simon Fraser GCMG

Okay, thank you, and the lady at the end. I’m afraid I have to call it a day there.

Rajak

I’m Rajak from Kuwait Embassy. Regarding economic growth, I would like to know the potential impact of the FTA on economic growth, job creation and bilateral relations between the UK and the GCC nations.

Sir Simon Fraser GCMG

GCC.

The Rt Hon Oliver Dowden CBE MP

Well, I’ll take the last first. I’m very hopeful that we are going to get that GCC FTA done. I was in Kuwait a couple of months ago. We’re all very keen to do that, and indeed, we welcome a lot of investment from Kuwait, particularly through the Kuwait Sovereign Wealth Fund.

In relation to space, you’re absolutely right, we need to make sure that this is applied across government. Actually, this is one of the things that I do through the – through chairing the National Security Council on Economic Security. We make sure all relevant departments are there and we go through exactly these kind of issues to make sure that we’re identifying vulnerable sectors and making sure that we have sufficient protections in place.

Sir Simon Fraser GCMG

So that there is capacity in government to make the right choices is the…

Member

Yes.

Sir Simon Fraser GCMG

Well, listen, thank you very much everybody for coming. It’s been a really interesting discussion of a really important and complex set of issues. Above all, thank you, Deputy Prime Minister, for choosing to come to Chatham House to give this speech and for giving us your time and for answering the questions so thoroughly and attentively. We are grateful for that. Thank you very much. A round of applause [applause].