Business groups have warned that introducing a law to prevent foreign takeovers that threaten national security could have a “chilling” effect on investment in the UK. The government is said to be considering new rules that would mean directors could be jailed or companies could be fined hundreds of thousands of pounds for failing to report attempted takeovers by foreign firms that could put national security at risk. The proposals come amid growing concerns over China’s influence, and fears that British businesses are becoming more vulnerable to buyouts because of the pandemic and economic downturn. However, business groups have warned against using the proposed investment rules as a political tool. Roger Barker, head of corporate governance at the Institute of Directors, said: “Safeguarding national security is the government’s prerogative. However, to avoid a chilling effect on foreign investment in such a challenging economic environment, it’s crucial that any interventions are based on legitimate principles that are implemented in an impartial and non-political manner – ideally in coordination with international partners.” The proposed move comes as the UK clashes with Beijing over China’s so-called security law that critics say tightens the country’s grip on Hong Kong. Boris Johnson said he would offer Hong Kong residents a path to citizenship if Beijing pushed ahead with the law, while China accused the UK of meddling in its affairs. Johnson now plans to force UK companies to formally declare when a foreign company tries to buy more than 25% of their shares, purchase assets or intellectual property or gain “significant influence”, according to the Times. The prime minister is also planning to include academic partnerships and research projects under the new rules, owing to worries about Chinese companies’ links to British universities, the paper said. The Confederation of British Industry warned that curbing foreign investment would hurt UK businesses when they needed it most. “Foreign investment will be critical to economic recovery efforts, so it’s important that the UK signals to the world that we are open for business,” the CBI said. “All investment comes with risk, and any safeguards should be evidence-based and applied equally to all countries.” On Monday, a City taskforce laid bare the financial burdens weighing on UK businesses because of the Covid-19 pandemic, saying that small and medium sized firms would be saddled with £97bn to £107bn of unsustainable debt by March. The taskforce, led by EY and lobby group TheCityUK, is exploring a range of solutions that could involve domestic and international investors to support UK firms.