Ministers will have the power to block foreign takeovers across all sectors of the British economy on national security grounds under new government proposals designed to protect some of the UK’s most important and technically advanced businesses.

The business secretary, Greg Clark, wants to widen the scope of the current system, which is limited to large transactions and certain industries such as defence, to cover all UK firms including small businesses as he seeks to keep vital firms and technologies out of foreign ownership.

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The proposals, which will be subject to a 12-week consultation, will allow ministers to halt or unwind takeovers and even the smallest asset sales that could be deemed to jeopardise Britain’s national security.

Potential targets under the new rules are likely to be Chinese and Russian takeovers of defence-related industries. Technology firms, including cybersecurity businesses that already have links with the Ministry of Defence, or are viewed as crucial to the development of the UK’s financial and commercial defence systems, are also expected to top the list of ministers’ national security concerns.

Clark allowed the £74m takeover of the handset maker Sepura by the Hytera Corporation of China last year, making it only the second review of a transaction on national security grounds in 18 months, after the MoD raised concerns this month over the sale of Northern Aerospace to a Chinese buyer. The Competition and Markets Authority later cleared the Northern Aerospace transaction, by which time it had lapsed.

Under the proposals, buyers and sellers will be under no obligation to notify civil servants of a purchase, but face five years in jail if they are found guilty of infringing the new regime.

The sale of 50% of an asset or 25% of shares in a business will be enough to trigger a review if it raises national security concerns. An asset could include software designs, manufacturing processes or intellectual property.

The Department for Business, Energy & Industrial Strategy (BEIS) expects civil servants to consider 200 cases a year under the new rules, leading to 100 formal reviews of which 50 will result in remedies, which could range from deals being blocked to ministers imposing conditions on a sale.

Some lawyers have argued that the proposals would result in a radical change in the UK investment landscape and could subject a broad range of transactions to potentially costly and lengthy reviews. The white paper, which follows similar moves by France, Germany, the US and Australia to give ministers greater powers, will require civil servants to review each case within 15 days of notification.

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Under the current rules stemming from the 2002 Enterprise Act, ministers can only intervene in mergers worth more than £70m and only on limited grounds. New rules will cut the minimum threshold to zero on all deals. Certain industries will be cited as the most likely to targeted, but all business transactions will potentially fall under the new system.

Ministers are understood to believe that the race to secure the latest defence-related technologies will lead to a spate of takeovers and asset sales by foreign firms.

The industry minister Richard Harrington said last month: “These new rules ensure mergers and takeovers in key areas of the economy cannot risk our national security, while maintaining the openness to trade and investment that is underpinned by our modern industrial strategy.”

•This article was amended on 24 July 2018 to correct the consultation period to 12 weeks in the fourth paragraph and clarify that the minimum threshold for intervening on mergers will fall to zero