Business secretary Greg Clark wants to close loopholes in the merger regime in the area of national security © EPA

The government is to tighten its rules on inward investment into the UK making it harder for foreign buyers of companies that design and manufacture military products and other key technologies.

Greg Clark, the business and energy secretary, said while the UK remained a “vociferous advocate” of free trade “it is right that every so often the government reviews its mergers regime to close loopholes where they arise and this is what these proposals do in the area of national security”.

Under the proposals, to be put out for consultation later today, the government will be able to intervene in mergers that “raise national security concerns even when they involve smaller businesses”.

At present, the government can take action only in mergers involving companies with a turnover of more than £70m or where the merger would result in the new company having a share of 25 per cent or more of the supply in a particular market.

Under the proposed changes, the threshold is lowered so that ministers will be able to scrutinise investment in businesses with a turnover of just £1m. The requirement that the merger would have to increase a business’s share in the UK market to 25 per cent or more would be dropped.

The changes will apply to dual use and military sectors that design and manufacture items that are subject to export controls. It will cover companies that are involved in the design of computer chips and quantum technology.

The government said it was also consulting on longer-term proposals to allow for better scrutiny of transactions that may raise national security concerns. It said this could include increasing risks of espionage, sabotage, or the ability to exert inappropriate leverage.

The government said the new regime could operate under a system of voluntary notification for most sectors. But notification could be mandatory for certain parts of the economy that are critical for national security, such as civil nuclear or defence sectors.

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