Partners at top UK law firms have raised concerns over new proposals that could hand the government increased powers to block transactions on national security grounds.

The proposals will allow the government to 'call in' a broad range of deals – including M&A, loans, and land and intellectual property acquisitions – if it believes there is a risk of "hostile actors using ownership of, or influence over, businesses and assets to harm the country".

During a 12-week consultation that ran until October, the government pitched the proposals to a range of stakeholders, including the magic circle law firms.

Freshfields Bruckhaus Deringer M&A partner Bruce Embley sees the new proposals as reflective of a wider global trend. He told Legal Week: "This is the way the world is going – in the last three years, every G7 country has amended or introduced new laws relating to foreign investment."

In recent months, US President Donald Trump has brought in new scope to scrutinise foreign investment in the US, which Embley says has had "a huge impact on global M&A", while the EU has also reached an agreement on a framework for screening foreign direct investment.

Embley thinks a key concern for UK financial groups is that the new powers are too broad, and could delay or introduce uncertainty to deals that "pose no real national interest concern".

This concern is echoed by Slaughter and May competition head Philippe Chappatte, who says: "It seems to be a very large sledgehammer to crack a very small nut."

"The key issue is that the new regime will impose an additional burden for business wanting to invest in the UK," adds Chapatte. "It will also create uncertainty and impact on project timetables – all this could act as a disincentive to inward investment."

The big issue is: when does national interest spill into protectionism?

Paul Hastings corporate M&A partner Roger Barron suggests the powers are deliberately broad.

He says: "It's hard to define exactly where the mischief can come from, so you want to give yourself the broadest opportunity possible to intervene – even if you're not going to. Of course it also leaves them open to criticism because they will now have that power, and a decision not to use it can be just as damaging."

The government's national security and investment whitepaper, published this summer, says it expects 200 transactions a year to be flagged for further investigation, 100 of which will receive a "full assessment".

However, according to research by Slaughters, during 2017 and 2018 there were just five public interest reviews under existing powers – only two of which were on national security grounds.

Under the proposals, the government also has the power to call in transactions up to six months after they have been completed.

Allen & Overy antitrust partner Dominic Long, who was involved in the consultation, thinks this could push the number of notifications above 200.

He says: "There's a chance the deal will be called in post-completion. If that happens, you have a worst-case scenario where an acquirer might have to sell off an acquired business or asset, or potentially even reverse a transaction. I think the government's estimate of around 200 transactions being voluntarily notified every year is likely to be an underestimate."

Another broader concern is that the proposals will make the UK a less attractive place to invest. One group that the proposals could deter, according to Chappatte, is sovereign wealth funds, which he said will be will be "an important source of inward investment into the UK in future years".

Chappatte adds: "They are likely to have to go through a new and untested authorisation process run by a department of state. If they get refused, there is a very unwelcome risk of public embarrassment."

On top of this, it is also possible the new powers could be abused for political purposes, and Chappatte thinks these could have been largely avoided by setting up "an independent agency with some track record, like the Competition and Markets Authority".

According to Embley: "The big issue is: when does national interest spill into protectionism? We're already seeing it creep in. Most M&A practitioners would be upset if the UK moved that way.

"A big concern is whether we have the infrastructure and budget to carry out these reviews in a timely and efficient manner and on a consistent basis. Without the necessary infrastructure it feels a bit like creating a new immigration lane at Heathrow with one passport controller, which could ultimately be a hindrance to foreign investment."