Under Burnham, Investment Screening Remains Hard to Predict

Starmer Years: Conflicting Impulses

Since Labour took office in July 2024, UK investment screening has sat between two conflicting impulses: stronger appetite to protect the UK’s strategic and national security interests, and greater pressure to attract inward investment.

Policy like the National Security Strategy (NSS) and Defence Industrial Strategy established the strongest links yet between economic security and national security. The NSS and Strategic Defence Review identified China as a persistent geostrategic challenge. And since President Trump’s re-election, political concern over dependence on US technology and infrastructure has grown.

The Government also agreed to update the sectors of focus under the National Security and Investment Act (NS&I Act), subject to secondary legislation. The changes will bring the water sector into the mandatory notification regime, establish standalone schedules for critical minerals and semiconductors, and clarify areas including, data infrastructure and sensitive government data.

The period also saw steps from the Treasury and other ‘prosperity’ departments to encourage inward investment, particularly from China. This included efforts to reduce the risk thresholds applied to some sectors to support investment decisions, albeit maintaining a cautious approach in the most sensitive. We also saw the Government direct the Competition and Markets Authority to prioritise investment and growth in related competition law, manifesting in June 2026 revised draft guidance noting the positive effect of mergers for innovation and R&D which the European Commission has recognised as important for strategic sectors like defence.

A Stable Regime

Small wonder, the conflict delivered continuity in the latest NS&I Act report (the Government’s 2025–26 annual tally of trends in investment screening), with outcomes over the last four years, and the overall intent of the Act.

It is clear the regime remains selective, rather than becoming more or less permissive. Numbers of deals notified under the Act fluctuate, but the proportion subjected to detailed scrutiny has barely moved. Of notified acquisitions reviewed – the so-called ‘marginal’ (difficult) cases ‘called in’ for further scrutiny – rates were 4.4% in 2025–26, 4.5% in 2024–25, and 4.4% during 2023–24. The latest year produced nine final orders, only one prohibiting a transaction (Chinese-backed Versarien/BIMT), compared to one, zero, and five in years back to 2022.

Defence, military and dual-use, advanced materials, semiconductors, critical suppliers to Government and data- and data-infrastructure related activities feature heavily amongst cases escalated in all years.

The same three acquirer countries of origin also dominate the marginal caseload. The percentages move a bit, but UK, Chinese and US-associated acquirers consistently dominate; they accounted for 52%, 30% and 23% of call-ins in 2025–26 respectively (acquirers can have more than one origin, and acquisitions more than one acquirer, so percentages can exceed 100%). China therefore continues to attract disproportionate scrutiny, consistent with China remaining a severe strategic challenge for the UK. But this has always been a ‘cases, not countries’ regime: UK and allied acquirers’ transactions are remedied where risks justify it.

The Government demonstrates repeatedly it is seeking to manage three broad security harms, which include disruption or dependency affecting critical infrastructure; risk of degradation of UK defence, intelligence or security capabilities and supply chains; and transfers of capabilities aiding a potential adversary.

Beneath those strategic harms, the same practical concerns recur, reflecting a broad range of equities going far beyond traditional ‘national security’.

• These can include loss of assured UK access to strategically important capabilities. QDI/Oxford Nanoscience was, in 2025, required to maintain manufacture and supply from the UK; similar concerns were evident in Epiris/Sepura in 2022 and materially in the David Brown/Stellex case in 2023.
• Transfer and loss of IP, know-how and R&D capability is another concern. UK Delin (buying Agile Analog) and Mubadala (investing in graphene experts Paragraf) have this year effectively been ordered to safeguard vital IP in the UK. The Pulsic/Super Orange HK semiconductor design automation deal saw this risk first managed in 2022.
• Access to sensitive data and systems is acted on consistently. In your author’s assessment this year’s (Irish-US) Taoglas/SFL Mobile Radio case appears to require that sensitive UK customer communications data is not harvested extra-territorially, but we first saw data protection in Electricity North West/Redrock in 2022.
• Lastly, harm to wider ecosystems is a consistent concern. IonQ was this year ordered to keep Oxford Ionics’ trapped-ion quantum hardware in the UK, because it is foundational to future UK quantum computing success. Looking back, Nexperia/Newport Wafer Fab (2022) saw the government identify future compound semiconductor capability across the UK as at risk through Newport’s place within the ecosystem.

Similar threat vectors, beyond majority acquisitions, are also consistently controlled.

• The regime has addressed joint ventures, for example by Vodafone/Hutchison 3G; in 2025 Versarien/BIMT applied the same logic to a risk that graphene know-how could leave for China.
• The Act has addressed ‘minority influence’ risks, or access and control disproportionate to ownership share, starting with (now defunct) Reaction Engines in 2022.
• ‘Cumulative risk’, in other words, whether an acquirer acquires increasingly significant positions in sectors in the UK and abroad, first surfaced most strikingly when HMG forced Nexperia to divest most of Newport Wafer Fab. Chinese-owned Nexperia was already operating silicon semi fabs in Manchester and across Europe.
• And lastly, what can be thought of as ‘sleeper risk’, or where an entity’s presence may cause a harm in future, has been a recurring theme, whether in the Newport Wafer Fab case, or the Liverpool–Pinggao energy research centre (2024). This proposed ringfencing to mitigate risk to the university’s wider research and IP.

These patterns are not simply retrospective readings of cleared cases and published orders. The Government has been clear about what it is seeking to protect from the start. Further clarity was added by the May 2024 statement on use of the call-in power and consultation on the Notifiable Acquisition Regulations (NARs) in 2025.

Where the mix of marginal cases has changed, investor behaviour probably shifted more than any Government direction. Data over four years shows transactions abandoned after encountering complexity mid-process have fallen by more than half (11 in 2022–23, to four last year). Former colleagues describe how increasing work on research protection and greenfield investment may indicate threat actors moving ‘outside’ the Act. Ascribing deterrence to the Act may be a step too far but is consistent with investors adapting.

The Burnham Government – Continuity and Change?

Against this mature background, we can expect some change in outcomes under the Burnham Government – but perhaps not from the sources onlookers may expect.

The standout move so far has been administrative: the transfer of the Investment Security Unit (ISU) from the Cabinet Office to the new Department for Business, Innovation, Science and Trade (BIST), and the Business Secretary, Jonathan Reynolds.

This will not make investment screening more ‘pro-business’. The regime is already favourable to business: 99%+ of transactions are approved. And transaction volumes and risk patterns ultimately drive what balance can be struck.

Rather, this move reflects bureaucratic considerations, including a desire to rationalise the centre of government. Whether or not it will be successful, it certainly creates some administrative challenges. Ethical walls will need to separate the ISU’s statutory decision-making under the NS&I Act from other parts of BIST responsible for promoting investment and sector growth. There is also likely to be disruption as the ISU establishes its new reporting arrangements and appoints a new Director.

The Government is likely to respond to political pressure to demonstrate that investment screening supports business, rather than deters it. Reducing unnecessary delays for lower-risk transactions will be addressed by staffing and reforms to the NARs. Mechanisms to speed ‘crowding in’ of private investment are addressing opportunities of ‘Trusted Capital’; this could conceivably see whitelists, with investment and economic security teams collaborating in their development. But this would largely formalise existing practice rather than representing some fundamental departure.

Most important is that whilst the Government will not cast aside the protection of critical infrastructure, strategic capabilities and economic resilience, it is set to take place within a new, much stronger ‘regional revival’ and a national sovereignty evolution of Starmer’s industrial strategy foundations, with heightened emphasis on British procurement. This will involve reindustrialisation via strengthened critical sectors such as defence, AI and advanced technologies, steel, energy, food and farming – especially outside the Southeast. The Burnham government is also dialling up focus on British technological sovereignty, especially from the US.

Sovereignty Matters

Bigger changes will arise from how the shifting context affects pursuit and protection of these goals. Shifting geopolitical, technological, industrial and investment trends create, on the one hand, new opportunities for the UK to advance economic, industrial, technological and security strength. On the other hand, those opportunities, and the threats posed by shifting geopolitics, technology and industrial power of other countries, evolve the very definitions of the sectors and competences the Government perceives it needs ‘in house’, and where it can safely, and even desirably, internationalise.

Consider how the Government might deal with three looming issues:

‘Europeanisation’ of defence supply chains. Defence and dual-use sectors are ‘jewels in the crown’ for the UK. However, defence ecosystems in eastern and northern European nations are benefiting from particularly large increases in Government spending, boosting confidence for private capital and merger and acquisition activity. The EU and major EU economies are also using foreign direct investment (FDI) and policy to bolster (and defend) sovereign capabilities. UK acquirers may face a tilted playing field coming from the outside, a concern which the Prime Minister raised with French President Macron on 3 September. One consequence may be greater scrutiny of European acquisitions of strategic UK capabilities, to preserve reciprocal interdependence. UK decision makers have voiced this concern to us.

The US in the UK. The US remains the number one source of FDI in the UK economy. However, precedents unthinkable even two years ago are being established. Political and procurement scrutiny of reliance on US suppliers in sensitive public services has intensified, with Palantir the most visible example. The UK is pursuing a more sovereign AI tech stack with a £500 million fund. The Government and Bank of England are backing a new UK retail payments infrastructure that could reduce reliance on Visa and Mastercard. US investment in the UK energy and data infrastructure nexus is another area where questions are now being asked.

US concerns over allied technology dependencies. US pressure over 5G and Huawei through the late 2010s brought out into the open US ability to shape the decision environment for UK ministers. The launch of the 6G ‘call to action’, alongside tightening restrictions on foreign technologies such as Chinese humanoid robotics, are early warning signs of further pressure on allies to limit Chinese market access and technological dependencies.

It is too early to say what the outcome of these pressures will be. But it seems safe to say they, and many others, will evolve the desirable ‘balance of UK control’ across sectors. In your author’s experience in risk assessment, the hardest judgement was where to draw the line: when does foreign control become excessive, particularly when assessing industrial strategy and the future?

Looking Ahead

The NS&I Act regime is unlikely to become materially more or less permissive under Burnham. But broad continuity should not be mistaken for predictability in its outcomes in marginal cases. The ‘next frontier’ of uncertainty under the Act is likely the Government’s changing view of acceptable foreign control across strategically important ecosystems. As Britain’s geopolitics and conception of strategic sovereignty changes, so too will the companies, technologies and foreign dependencies that officials and ministers judge too important to leave uncontrolled.

Continuity lies in the fact that what this means for deal risk will vary sector-by-sector, case-by-case. Investors and businesses will need to be unusually attuned to policy, technology, industry and geopolitical shifts around their value propositions.

NS&I risk can no longer be treated as a clearance exercise at the end of a transaction: whether a deal reinforces or weakens capabilities the UK increasingly regards as sovereign will shape its prospects from the outset.

© Dan Spacie, 2026, published by RUSI with permission of the author.

The views expressed in this Commentary are the author's, and do not represent those of RUSI or any other institution.

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