Cyber Security and Resilience (Network and Information Systems) Bill Debate
Full Debate: Read Full DebateDepartment: Department for Digital, Culture, Media & Sport
Baroness Lloyd of Effra
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Cyber Security and Resilience (Network and Information Systems) Bill
Baroness Lloyd of Effra ExcerptsTuesday 1st September 2026
(1 month, 3 weeks ago)
Grand CommitteeRead Full debate Cyber Security and Resilience (Network and Information Systems) Bill 2024-26 View all Cyber Security and Resilience (Network and Information Systems) Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 32–I(b) Amendments for Grand Committee (Supplementary to the Marshalled List) - (1 Sep 2026)
Member's explanatory statement
This amendment is consequential on my new Clause (Functions under this Part).
The Parliamentary Under-Secretary of State, Department for Business, Innovation, Science and Trade and Department for Digital, Culture, Media and Sport (Baroness Lloyd of Effra) (Lab)
My Lords, I will also speak to the other amendments in my name in this group. I thank noble Lords for their constructive engagement on this topic over the Summer Recess. I particularly thank the noble Viscount, Lord Camrose, and his colleagues for sending their questions in advance. I will seek to address those in my opening remarks.
This package of amendments introduces new powers that will enable the UK to address vendor-related cyber risks in our critical infrastructure. The principal new clause introduces a new direction power. It enables the Secretary of State to direct entities in scope of the power where they are using, or may potentially use, vendor-supplied goods, services or facilities in connection with their network and information systems that could create national security risks.
It is becoming increasingly clear that there are axes of cyber risks that the Government need to address. These risks arise from goods or services supplied by another company being harnessed as tools for sabotage, surveillance or espionage. But they also exist where goods or services constitute critical points of failure due to their defective design or vulnerabilities. Noble Lords would have had some sense of these risks from debates during this Bill—in particular, discussions about remote access in embedded products such as cellular modules and the scope for hostile interference and control.
GCHQ has also raised escalating concerns about supply-chain vulnerabilities in the wider geopolitical context. The director of GCHQ explicitly called out those risks in her annual lecture in May this year when discussing the challenges posed by a relationship with China and the threats posed by Russian cyber operations. That is why we have tabled Amendment 102 to tackle decisively these risks and protect our national security. Our intention is to limit the use of this power to operators of essential services in the first instance, although we will review the case for bringing other entities into scope in the future.
Supplementary amendments contain the mechanisms needed to operationalise the power. They enable the Secretary of State to set statutory timeframes for decision-making, to specify and update which entities are in scope of the vendor-related direction power and to introduce mandatory procurement screening should this ever be considered necessary to protect national security. They also introduce a power to bring more entities into scope of the existing direction power in Clause 43.
The powers to bring entities into scope of this framework are rightly restricted. To be brought into scope, the Secretary of State or Chancellor of the Duchy of Lancaster must be satisfied that the entity is essential to the economy or the day-to-day functioning of society in all or part of the UK. This is consistent with the Bill’s definition of essential activity in Clause 24. Either Minister can exercise the power. It has been drafted like this to accommodate machinery of government changes.
The decision to introduce the amendments has not been taken lightly. The Bill already includes important national security powers to direct regulated entities whose systems have been compromised, or which are at risk of being compromised, by hostile actors. This new power allows the Government to act before vendors become embedded in supply chains and before taking action becomes costly and disruptive. It will give operators greater confidence in their procurement planning and avoid the need for costly interventions down the line.
Crucially, we are not proposing to introduce these powers in isolation. They will be part of a broader framework which will also include procurement guidance for operators and a voluntary referral route into government where operators have identified potentially risky procurements. The voluntary self-referral route will enable the Government to assist operators with vendor-related concerns, provide them with guidance on how to proceed and, where necessary, inform decisions about the issuing of a direction.
We intend to consult on the implementation of the framework in due course. This will include the criteria for referral and how the mechanism will work in practice. In the event that this Government ever determined a mandatory referral scheme was necessary, we would intend to consult on the definition of a “qualifying transaction” before laying the necessary secondary legislation. However, I emphasise that it is not our current intention to set up a mandatory scheme.
Ultimately, we expect this wider framework will minimise the need for formal interventions using the new powers. However, it is crucial that the power is in place as a backstop to guarantee the Government’s ability to protect the UK’s national security. I beg to move.
Lord Clement-Jones (LD)
My Lords, I assume that there are no Back-Bench contributions at this point, so I will speak on behalf of the Liberal Democrats to this very significant group of amendments tabled by the Minister as recently as 24 August. I thank her for her introduction today and for her brief meeting shortly after their tabling.
At the outset, from these Benches we express our strong concern about the timing and the sheer scale of the Government’s package of new amendments. To drop 65 amendments of this nature on the eve of Committee, which will completely reshape the architecture of this Bill, after its passage through the Commons, is a major challenge to effective parliamentary scrutiny. The Minister’s letter, also dated 24 August, came alongside these 65 new amendments, so we have had very little time to consider them. As far as I can see, a full Ministerial Statement did not accompany them; we had to rely on the coverage of Computer Weekly to understand the Government’s motives.
The Government have quietly established a major parallel high-risk vendor regime. Under Amendments 102 and 103, the Secretary of State—and now, crucially, under Amendment 101, the Chancellor of the Duchy of Lancaster—are granted unilateral powers to issue vendor-related directions. They can legally order an organisation to prohibit, restrict, remove, disable or modify any software, hardware or digital facility supplied by a designated high-risk vendor. Furthermore, under Amendment 105 they are given the power to establish a mandatory referral scheme, legally forcing companies to submit technology procurement contracts to the Cabinet Office for security clearance before signing.
Let us look closely at the operational mechanism in Amendment 103, which ISC2 has rightly highlighted. The proposed new clause mandates that a company appoints a “skilled person” to oversee compliance and, under subsection (5) of the proposed new clause, permits the Secretary of State to rely on a list of persons published by GCHQ. I ask the Minister: what is this list? Is it public or classified? What objective criteria will govern inclusion? How will conflicts of interest be avoided, and how will independent professional competence be assured? To create statutory compliance roles backed by secret lists is entirely unacceptable.
Under Amendment 108, the Secretary of State can make regulations bringing any specific company into the scope of the Clause 43 directions without bringing them into the NIS regulations as a whole. Under Amendment 127, the Government will insert an emergency “made affirmative” procedure allowing regulations and vendor bans to take effect immediately without prior parliamentary debate. Furthermore, under Amendment 148 the Secretary of State can prohibit a company disclosing that they have received a direction or are in consultation, backed by civil penalties of up to £10 million or £50,000 per day.
There is also a second critical implication—the backdoor regulation of advanced artificial intelligence systems. At Second Reading, the Minister assured the House that advanced AI systems and LLMs were out of scope. These amendments appear to reverse that position. Under Amendment 108, any entity providing essential goods or services can be specified. As our critical infrastructure increasingly integrates agentic AI models, such as GPT-5 or Anthropic’s Mythos, these developers become points of supply chain risk concentration. It seems that, under Amendment 102, the Government can designate AI developers as high-risk vendors and mandate pre-procurement vetting. Is that the case and, if so, why not say so?
The Government will no doubt resist the transparent, legally bounded emergency shutdown power proposed by Amendment 84, with its High Court backstops and seven-day parliamentary reporting, yet here the Government demand sweeping, secretive executive powers to ban software, veto procurement and gag businesses with zero judicial checks. These Benches cannot give these 65 government amendments a free pass. I remind the Minister that, in Grand Committee, unanimity is required for amendments to carry. We insist that the Government come back on Report with strict guardrails and clear limits on executive market intervention without parliamentary consent before these new powers can be exercised.
Quite apart from that, both the Constitution Committee and the Delegated Powers and Regulatory Reform Committee had something to say about the existing powers in the Bill, but neither committee has had a chance to look at these amendments. I am sure that they will have comments to make in due course.
Viscount Camrose (Con)
My Lords, I thank the noble Baroness the Minister for introducing this debate and for her helpful advance briefings on these amendments. I also welcome all noble Lords back for what, I am sure, will be a productive Committee stage. It is worth noting at the start of Committee that, sadly, our cyber adversaries did not take the summer off. In July, a small power generator was attacked and, in August, an attack on Manchester Airports Group compromised the data of 8.7 million of its customers.
That said, I begin by saying that we on these Benches support the intention behind the Government’s amendments. I absolutely recognise the concerns expressed by all the other speakers thus far; procedurally, this is a very unusual way to go about it, but we support the intention. We have been calling for an increase in the scope of the Bill and for cyber security measures to be undertaken by businesses and individuals, rather than the Government, where possible. We feel that these new amendments go some way to achieving that.
However, while we support the intentions, the context around them remains challenging. The difficulty that we face when trying to scrutinise and improve this Bill—and I am sure that we will return to this—is that it essentially exists, at least for now, in a vacuum. The Government’s goals are the right ones and their intentions seem to be clear, but we lack the overall holistic framework that is so important for systemic, strategic approaches to cyber security. Perhaps when the Minister stands up she can provide an update on the publication date of the national cyber action plan because, as I said at Second Reading, a cyber Bill can stand or fall only in the context of an overall cyber defence strategy, and we need to see it.
Most evident is that this currently seems to be a Bill without a department. The amendments delegating and separating powers between the Secretary of State and the Chancellor of the Duchy of Lancaster reflect this. I am really concerned—I would appreciate some reassurance from the Minister on this—that the decision to scrap DSIT, the Department for Science, Innovation and Technology, has left this Bill in limbo. A minimum of 30 teams are being split across at least three departments, and this seriously important Bill, which we are all counting on to protect us from enemies known and unknown, is adrift between departments. At the very least, the Government should set out as soon as possible who will have lead responsibility when this Bill is passed.
I thank the Minister for her clarifying remarks on the referral schemes that her amendments introduce. As I have noted, we support the attempt to expand the scope of this Bill and give businesses the ability to be self-sufficient. That support extends to the establishment of a voluntary referral scheme. However, this new voluntary scheme needs to have a clear and accessible framework and a timeline for implementation. If it is to act as an extra layer of security outside the Government’s immediate remit, vendors must know what they are expected to report and the mechanisms for doing so. There is little use setting it up if these are not made explicit at the earliest opportunity. The consultation is welcome, but some idea as to the form the Government intend this scheme to take would be helpful, alongside an indication on timing. I hope the Minister can give more clarity in her closing remarks. If not, I hope she will be able to write to me and all Members of this Committee.
I was originally going to make the point that the mandatory referral of a vendor outside current NIS regulations will necessarily be ad hoc and that, as such, defining “qualifying transactions” would not be proper. Instead, Amendment 153 was an attempt to provide clarity for decision-making without inhibiting the Government’s ability to act. However, given that the Minister said in opening that the Government have no intention of setting up a mandatory referral scheme, we must question why they feel the need to give themselves the powers to do so. Powers should not be granted and come into existence if they are never to be used. At the very least, given that the Minister has now said that the Government would consult on the definition of a qualifying transaction before any scheme is established, the amendment should ensure as much. The Government will now have the opportunity to bring these amendments back on Report. The mandatory referral scheme should be redrafted to reflect the Minister’s statement and be conditional on the defining of qualifying transactions. I hope the Minister will agree to this.
Finally, let me make a general point about the definitions used in these amendments and throughout the Bill. The proposed criterion of being “essential to the economy” is unworkably vague. It is not an adequate representation of the different types and scales of risks. I suggest, for example, the Cyber Monitoring Centre’s five-level severity scale as a model more reflective of the grades of threats facing the United Kingdom. I am not arguing that it is necessarily the right model, but it is at least tested and quantifiable. I look forward to the Minister’s response.
Baroness Lloyd of Effra (Lab)
I thank noble Lords for their comments, views and questions, and I will endeavour to respond to them.
In respect of why the power is being granted to the Secretary of State or the Chancellor of the Duchy of Lancaster, it is to anticipate any unforeseen machinery of government changes. It is nothing more than that—to avoid future changes that would be needed when government departments change. On the skilled persons list, I am advised that that is currently available on the NCSC website, so it is accessible to all.
I come back to the heart of the questions: why is this power needed? It is needed because, even though we are taking powers on critical suppliers, it can be the case that vendors have the capability and intent to cause harm, particularly where they have a link to a third country. That is the element I would highlight today. It is through such vendors that a third country can gain access to or control of critical systems, enabling disruption to UK national infrastructure, surveillance through access to data at scale or espionage through access to sensitive information. The risk landscape is evolving quickly, which is why we are taking action now. On the questions posed by the noble Viscount, Lord Camrose, this is very much in the context of all the other things we are doing—all the other powers in the Bill, the scope of the Bill and the Government’s cyber action plan. This is an additional power focused in particular on being able to act earlier in a preventive manner.
On the definition of “qualifying transactions”, the amendment contains a power to create a statutory referral system. This system would need to state which procurements or transactions were in its scope, but, as the noble Viscount mentioned, we do not anticipate needing to do that now. The process of the Bill is such that we will enact both the mechanisms in the Bill and the voluntary referral mechanism. We will then be able, in the period of assessing the effectiveness of the Bill, to look at the effectiveness of the voluntary referral route. Should we need to introduce a mandatory route—obviously, we have done this in different areas of national security—we will be able to do so.
On scrutiny by Parliament, I appreciate that the fact that we tabled these amendments over the summer has meant that not everybody has been able to familiarise themselves with them and we have not been able to have as many in-depth discussions as we would normally when Parliament is sitting. I would be extremely happy to meet noble Lords with officials so that, after Committee, we can go through all the questions and points of detail that have been raised in this session on how these powers will be enacted, parliamentary scrutiny, the consultation process and all the elements that we have set out in our amendments.
A few noble Lords focused on AI. The power could be extended to high-risk AI models that are procured by operators of essential services. The test for using the vendor power direction does not specify or distinguish particular types of goods or services, in keeping with the technology-agnostic approach of the Bill. If an operator of an essential service were using a vendor-supplied AI model in connection with its network and information services, and this would give rise to a national security risk, it could be in scope of the power. That is very much in keeping with what I believe I said at Second Reading about other areas of connection with network and information services in the rest of the Bill and where that may apply to AI.
With that, I beg leave to withdraw—
Viscount Camrose (Con)
Before the Minister sits down, I note that there are a lot of “just in case” elements of the Bill; to me, it feels that there are rather too many. For example, I refer the Minister back to the Chancellor of the Duchy of Lancaster v the Secretary of State. Any department is, at any time, subject to machinery of government changes, but never in any Bill that I have seen—admittedly, I have not seen that many—have both been specified, so why is it so in this Bill? Why do this now? Why not simply make a choice and amend later if necessary?
Baroness Lloyd of Effra (Lab)
I am very happy to look at the points that noble Lords have raised in the course of this discussion. I believe that elements such as the consultation and the process of scrutiny are well thought out. I believe that in terms of the elements of subsequent parliamentary scrutiny—the reports that will be made both on the application or when the direction is affected—this is very much in keeping with other national security legislation which has been agreed by this and previous Governments. Many of these elements are very akin to processes that are operational in other areas of government. However, I am very happy to look at, and indeed will look at, all the points that noble Lords have raised. We will discuss them in subsequent meetings, and we will revert to them on Report.
Lord Birt (CB)
Can the Minister explain why GCHQ is not the right home to exercise these powers? I am sure we will all agree that national security is a significant issue, but it is being lodged in departments that have no prior experience of it. What is wrong with existing GCHQ procedures, which are respected and trusted?
Baroness Lloyd of Effra (Lab)
I will need to write to the noble Lord on that specific question of how GCHQ’s powers are executed in respect of operational decisions such as this. I am aware that in other areas they are within Secretary of State responsibility, whether they are exercised by a Secretary of State, advised by GCHQ or whether, as the noble Lord suggests, they are actually undertaken by GCHQ.
Lord Clement-Jones (LD)
My Lords, I thank the Minister for her gracious, intended withdrawal of Amendment 1, and I am sure we will have a much better debate on Report as a result, particularly once we have had a chance to read her remarks on both interventions today. However, I hope she will agree with me, especially in terms of what she said about being technology agnostic through the Bill, that we will have a much better debate as we come to talk about specific AI issues as a result of not having already incorporated those in the Bill. So, all the way around we will have a much better debate about the proper shape of the Bill as a result of those amendments being withdrawn.
Baroness Lloyd of Effra (Lab)
With that, I believe now is the time where I beg to leave to withdraw Amendment 1.
Baroness Lloyd of Effra (Lab)
I thank the noble Baroness, Lady Kidron, for her introduction and my noble friend Lady Harding for setting out the motivation for ensuring that we have the right balance of risk and regulation here. The amendments from the noble Baroness, Lady Kidron, seek to allow for the designation of systemically important data centres, RDSPs and RMSPs which do not already meet the threshold. The Government have considered this issue in the development of the regime and have taken an approach which reflects the markets of the various digital services in scope of the regime.
In respect of data centres, the Government agree that a data centre’s significance is not determined solely by size and recognise that smaller facilities may play an important role in supporting the economy and wider society. For that reason, the Bill already provides a route for such operators to be brought into scope outside the standard threshold requirements. The competent authority, Ofcom, has powers to gather information from operators and assess whether designation is appropriate in individual cases.
However, with respect to the RDSP and RMSP measures, the existing small and micro-enterprise exclusions have been designed to be proportionate and avoid imposing undue burden on entities with limited resources and market coverage, while focusing on providers whose disruption would have significant societal impact or economic risk to the UK. Although many small and micro-enterprises operate in the digital and managed services market, large MSPs hold a disproportionate share of market value. The largest MSPs account for 86% of revenue in the UK, despite representing just 4% of all MSPs. It is the disruption of these services that is most likely to cause significant harm to the UK.
The Bill also has measures in place to bring small or micro digital or managed service providers into the scope of the Bill if they are considered to provide a critical service to a regulated entity. If these entities meet the designation criteria, they can be designated as a critical supplier and be subject to mandatory cyber security and resilience requirements. I assure the noble Baroness that I recognise the discrepancy between these two regimes and her concerns, and I am content to explore this, and the points made by the noble Lord, Lord Markham, further, and to provide a more detailed response on Report.
On the issue raised by the noble Lord, Lord Clement-Jones, for his amendment which would amend the relevant managed services definition by excluding specific services, I take seriously the importance of providing clear definitions in the Bill. That is why the definition in the Bill is designed to capture services posing a risk to the UK economy and society, both today and beyond. I reassure the noble Lord that the relevant managed services that would be excluded by this amendment are already likely to be excluded by virtue of them not meeting the definition in the Bill. However, we cannot and should not list every service not in scope or we risk providing a definition that quickly becomes outdated and fails to accommodate new trends in both technology and services—a point frequently made by noble Lords in respect of the development of technology and online services. The Bill requires a delicate balance to ensure that the definition includes the right level of detail. The regulator, the Information Commission, will provide guidance on the application of the regulations prior to commencement of the RMSP provisions, including elements of the RMSP definitions.
On the point raised by the noble Lord, Lord Clement-Jones, on privileged access, MSPs pose risks because they provide ongoing management of customers’ IT services and often have deep and broad access to the networks, infrastructure and data those customers rely on, so the Bill focuses on any connection or access to network and information systems relied on by the customer rather than only access whether privileged or administrative. That is because requiring privileged access would narrow the definition and include some firms we intend to regulate as providers composed of cyber risks through non-privileged access without holding elevated administrative rights. For that reason, I caution against adding these exclusions to the definition of a managed service.
Finally, Amendments 4 and 5 are tabled in my name. They are targeted and technical amendments that improve the clarity and consistency of the Bill by strengthening the definition of load control in Clause 6. They clarify that the relevant activity must be carried out for system balancing purposes. System balancing purposes are defined as purposes which contribute to the,
“balancing, flexibility, security or stability of the electricity system”.
The policy intention has not changed. This amendment simply provides greater clarity about the activities the regime is intended to capture. It will reduce the risk of misinterpretation, provide greater certainty for industry and regulators and support effective regulatory oversight. This will ensure that the regime captures the activities intended to fall within scope and reduces the risk of inadvertently capturing activities that are not relevant to the operation and resilience of the electricity system.
Regarding the questions about the further scope of the Bill in respect of local government and the Government’s cyber action plan, I believe we will return to that in later groups.
Baroness Kidron (CB)
I am very grateful to the Minister for suggesting that there will be some consideration of the gap, as she put it, and I look forward to that. I want to raise one thing, which is that I was very struck by her reference to a small number of companies having 86% of the market. In a sector that is dominated by the concentration of power in very small numbers of companies owning many pieces of the stack, is she not worried that making those companies protected and safe and the smaller ones not may further serve to increase the concentration of power and market concentration? Is that not a problem for the future?
Baroness Lloyd of Effra (Lab)
The purpose of the Cyber Security and Resilience (Network and information Systems) Bill is to further enhance the scope and powers we have to protect essential services connected through network and information services. The market as it exists today is as I described. What is within the scope is not the totality of our approach to supporting the further cyber resilience of the UK economy. That is why, for example, we have CRCs locally to support SMEs so that whatever size they are, they can get assistance on the best cyber protection they can take. It is why we have Cyber Essentials and why the NCSC provides advice—all that the economy needs to take appropriate action to be secure. That is one aspect. The second aspect is that small and micro digital managed service providers are in scope of the Bill if they are considered to provide a critical service to a regulated entity, so even very small entities could possibly be in scope if they are so designated.
The last point I shall make—and I am sure we will come on to this further when we come to talk about AI—is that the Government are doing a huge amount in regulation and funding through public finance institutions to support the development of UK technology companies and UK innovators and to ensure that they have the right procurement contracts with the public sector so that they can grow and so that the entirety of our companies can benefit from the best global managed service providers and the best UK managed service providers.
(a) which carries on activities for system-balancing purposes (whether or not it also carries on other activities), and”Member’s explanatory statement
This amendment would ensure that the threshold requirement relating to the essential service of load control, inserted by Clause 6 of the Bill, applies only to organisations which carry out activities for system-balancing purposes.
Baroness Lloyd of Effra (Lab)
I thank noble Lords for their amendments, and I recognise the concerns that have been expressed. Technology is evolving at a rapid pace, and it is important that we harness the benefits and, equally, protect against the risks it may pose.
The noble Lord, Lord Holmes of Richmond, asked about the approach that we take. We understand how quickly technology is evolving, and it is important that we have a flexible and future-proof approach. If we limit ourselves to specific technologies, we will not capture new developments. For instance, when the NIS regulations were introduced in 2018, we could not have predicted the role that AI and quantum would play in cyber. That is why the Bill takes an “all hazards, all threats, all technologies” approach. This requires regulated entities to manage all the risks relevant to their network and information systems. For example, if AI forms a part of the system that the essential service relies on—for example, in the provision of drinking water—that entity must assess and mitigate the risks it poses.
More generally, the Government take the concerns very seriously. The UK is taking a leading role with our approach to AI security. I will set out my response to each amendment in turn, but while we do not consider the amendments proposed to be the right approach, I reassure noble Lords that the Government are exploring whether additional targeted interventions may be needed in future to address the most significant AI-related national security risks. As the Government’s thinking is at an early stage, I would be open to future engagement with noble Lords on potential options. Any future approach would need to have carefully designed measures, with the evidence base proportionate to and targeted at the risks in question, while minimising unintended impacts on growth, innovation and the operation of critical services.
I turn to the amendments. The intention of the NIS regime is to require organisations to protect themselves from risks that could compromise their network and information systems, which could include a cyber attack, a natural disaster or even human error. That protection would be appropriate and proportionate to the risks faced by those organisations, including state-of-the-art technology such as AI. I reassure noble Lords that this would include relevant risks from AI embedded within the systems of regulated organisations. To take one example, healthcare providers in scope of the regime would be required to manage risks associated with the AI products they use to provide their services. This is because essential services in scope must look at, and work to mitigate, risks posed to their network and information systems.
As AI is increasingly becoming embedded across the economy, we will keep its impact on the regulatory landscape under review. The Bill is focused on the cyber security and resilience of network and information systems; broader questions about the regulation of AI systems are more appropriately addressed through separate discussions, for example on online safety.
Bringing providers of AI services—those companies at the cutting edge of frontier AI development—and their products into the scope of the NIS regime, which Amendment 6 seeks to do, would not address the harms that can be posed by some AI products and services. Specifically, it would not prevent their misuse by hostile actors. Instead, the Government are already taking firm action in more appropriate ways, which also speaks to the concerns that Amendment 75 would aim to address and which the noble Baroness, Lady Foster, asked about.
First, the UK AI Security Institute, as noble Lords are well aware, is world leading in its research on advanced AI capabilities. AISI was set up to build a rigorous scientific understanding of the capabilities of the most advanced AI systems and the risks they pose. It works with developers to strengthen security before models are released and ground policy decisions in evidence rather than speculation, especially as they relate to national security matters.
Secondly, the UK Government are taking a leading role in addressing these risks in both the domestic and international setting. As the noble Lord, Lord Tarassenko, and others have set out, including the noble Viscount, Lord Camrose, it is critical that this approach has global impact. Our AI cyber security code of practice has formed the basis of the world’s first global standard, EN 304 223, which sets baseline security requirements for developers and deployers across the AI life cycle. This demonstrates our global leadership and commitment to shaping international technical standards, which go wider than some of the issues raised in this Bill.
Underpinning all this is a simple but powerful message, which was set out in a joint Five Eyes statement in June. It recommended that as AI capabilities evolve all industry, including vendors, should seek to step up their cyber defences. This is a clear call to action for all organisations, including the Government, and a reminder that the key tenets of cyber hygiene still stand strong. That is also why we are committed to building a national-scale AI-enabled cyber defence for the UK, Cyber Shield. It will scan UK systems continuously to discover vulnerabilities and apply national-level mitigations.
The noble Baroness, Lady Kidron, tabled Amendment 75, which sets out several red lines on AI capabilities that would enable an AI system to facilitate significant risks to the UK. The noble Baroness will recognise that AI is one of many technologies that can be used for beneficial and harmful purposes, as she has mentioned on previous occasions. In addition to the example of chemistry questions, banking services can be used to connect families but might also be used to finance illegal terrorist activities. Equally, while powerful AI capabilities can be used by malicious actors to cause harm to the UK, they might also be used by the national security community to defend the UK and by UK organisations and companies to protect themselves from harm. It is therefore not in the UK’s national interest to restrict UK organisations and the public sector accessing powerful AI capabilities, especially given the global nature of AI risks. It is also unlikely that AISI would be able to give conclusive assurances regarding AI models in the way envisaged in this amendment. Testing shows what a model can do, but not conclusively what it cannot, as the noble Viscount, Lord Camrose, pointed out.
The noble Lord, Lord Tarassenko, tabled Amendment 12, which would require RDSPs to follow guidance issued by the AI Security Institute. For the reasons I set out on Amendment 6 and because it is not AISI’s role to provide guidance of this nature, I do not think it would be appropriate. I will set out more detail on AISI’s role later in my response.
On Amendment 84, tabled by the noble Lord, Lord Clement-Jones, we have chosen to go further than our EU counterparts and the NIS2 regime to respond to these risks by bringing forward powers in the Bill to direct regulated entities if there is a national security risk in relation to their network and information system. This may be used, for instance, to require a regulated entity to cease using and isolate an AI model.
We believe this is a more proportionate and effective response, as data centres operate in highly complex ecosystems and AI systems are often distributed across different data centres and jurisdictions. It is much less desirable to direct multiple data centres to shut down, with the impact this could have on services that rely on them, than to direct them to cease using an AI model. This is important, as our economic security will grow as UK companies grow as they increase AI adoption as we develop our domestic capabilities and attract global talent, underpinned by our data centre and digital infrastructure.
I refer to my introductory remarks on exploring further targeted interventions. This includes examining whether proportionate containment powers could provide a more effective and targeted response, including powers to restrict access to specific AI systems where necessary to prevent or mitigate serious harm. The amendment tabled by the noble Lord, Lord Clement-Jones, also seeks a regular report on AI security. In December 2025, the AI Security Institute published Frontier Al Trends Report, which sets out high-level trends on AI progress based on two years of government-led testing of leading models.
Amendments 85, 86, 92 and 98, tabled by the noble Lords, Lord Tarassenko and Lord Clement-Jones, are a testament to AISI’s leading role and expertise. They seek to provide AISI with powers to address potential risks arising from frontier AI models. I have already set out the important role that AISI plays building a rigorous scientific understanding of the capabilities of the most advanced AI systems and the risks they pose, working with developers to strengthen security before models are released and grounding policy decisions in evidence rather than speculation. These amendments would give AISI a role that it was not designed to fulfil. AISI’s focus on frontier technology and trusted relationships with the world’s leading AI labs allow it to keep pace with the fast-moving technology, thereby providing critical awareness of the most novel and serious AI risks. This amendment would undermine the voluntary collaboration on which AISI operates. A regulatory role for AISI is therefore the wrong answer, but the Government remain committed to ensuring that AISI is equipped to fulfil its vital role and will continue to keep the House updated on its work as appropriate.
As I have just set out, such amendments raise a real risk of placing barriers on AI adoption and deployment in the UK. Due to the scope of the Bill, the amendments cannot address wider AI harms or cyber security in the wider economy. I share concerns about the potential of hostile actors using frontier AI models against our essential services. Placing these restrictions on their deployment in the UK, as amended, would not be effective.
I shall respond to the direct question asked by the noble Baroness, Lady Kidron, on large language models. Large language models are not typically considered online search engines in respect of the CSRB. While some LLMs can be seen to share similar characteristics and may utilise online search engines, their functions tend to be much broader.
I hope that I have addressed the points raised—well, I hope that I have at least touched on all the points raised today. On the points made on changes to the Government, I very well recall the numerous discussions that we have had on AI over the past few months and continue to be the point of continuity on them. As I have said, the Government will be happy to engage with noble Lords as options are being considered. We always stand ready to protect our national and economic security.
Baroness Kidron (CB)
If I have understood what the Minister said, the NHS must protect itself, but the AI that is attacking it has no duties or obligations under the Bill to check itself before it is used in those ways. That is what I think is the Government’s position, and I would be grateful, when she responds, if she could answer that.
I also want to say two other things. One is that I think these issues will come back on Report, so I would be grateful for some proper discussion before then, so that we can see whether we come to a certain place. I do not have it at my fingertips—I may be helped by one of my colleagues—the amount of search that now happens through AI, but it is almost ludicrous to suggest that LLMs are not search. It is deliberate that I got that answer.
Baroness Lloyd of Effra (Lab)
To respond to the question about how the Bill approaches certain AI products and services, as I mentioned in respect of Amendment 6, were AI services to be brought into the ambit of the Bill as proposed in Amendment 6, that would not address some of the harms that the noble Baroness, Lady Kidron, and other noble Lords, have set out. The way the Bill works is that it is about risks that are relevant to the systems of the affected organisations. As in the healthcare example I gave, it is about risks associated with products that might be used to provide those services. That is the way the Bill is set up. Obviously, as I also said, we are very well aware about the increasingly embedded nature of AI in the economy, and we will keep its impact on the regulatory landscape under review.
Viscount Camrose (Con)
My Lords, I thank the noble Lord, Lord Birt, for introducing this debate and all noble Lords who have spoken. I appreciate the rigorous strategic thinking that the noble Lords, Lord Birt and Lord Londesborough, have put into the proposal for an office for cyber resilience, but I will try to keep my remarks to the principle of a single regulator.
As others have set out very powerfully, I see the appeal of having a single regulator: it is easy to issue directives, to store data and information centrally, to take a systemic approach overall and to better manage the hiring of scarce, skilled resources. That said, as my noble friend Lady Neville-Jones pointed out, it is important to see the value of sectoral regulators supported by a centre-of-excellence model. More sector-specific expertise, more direct communication with the industry and more flexible approaches are all easier to achieve with smaller, more specific regulators. At a sufficient level of abstraction, it almost does not matter which of those models you go for; it is about having resourced, skilled and empowered people performing monitoring and enforcement activities, regardless of the body under which they sit.
More broadly, the point is that, while differences between a more centralised or more sectoral approach are worthy of debate—I do not think we would ever hit the extremes of either of those—what actually matters is ensuring that, whichever route the Government choose to take us, they make certain that the regulators are adequately resourced and that they exist within a wider strategy.
I am not sure, and look forward to finding out, whether the first of those is the case. The Government have chosen the more sectoral approach, but we do not yet know how the regulators are going to be resourced and what additional resourcing needs will be needed to cope with the increased responsibilities that will be laid at their door. I look forward to hearing from the Minister on how the regulators are going to be funded, how the funding needs will be calculated and how they are going to be supported in this significant expansion of their role.
The second point is that the regulators should exist as a part of a wider strategy, which is not currently the case. I apologise to noble Lords for banging on about this, but it is very difficult to get the past the hole in the Bill in the shape of a wider national cyber strategy. Whether the regulators are many or one matters little without the bigger picture into which they fit. In an ideal world, we would review the overall cyber strategy and then debate what regulatory structures might be appropriate to deliver it but, for now, sadly, that is not the world that we are in.
The Secretary of State—or, indeed, the Chancellor of the Duchy of Lancaster; it is not reassuring that we still do not know which one—must commit to publishing the national plan, after which we can assess the efficacy of its many parts.
Baroness Lloyd of Effra (Lab)
I thank the noble Lords, Lord Birt and Lord Clement-Jones, for their introduction to this section and for setting out the motivation behind a single cyber regulator.
As others have pointed out, this is a question of sectoral expertise and cyber expertise. It is my view that, given the complex cyber landscape, establishing a single regulator would not be as effective as the approach that we are pursuing. Different sectors have different risks, technologies, operational environments, market structures and resilience challenges within their industries. To take an example, the energy sector has a greater reliance on operational technology—such as turbines, substations and gas pipes—as compared to the digital services sector, which is predominantly information technology-based. Noble Lords will see that the guidance on quantum, for example, differs in that respect. This is why expert regulators are needed to ensure compliance in a manner that reflects the realities of their sectors.
I do not recognise the assertion that there is a single internationally recognised model of best practice. There are very near neighbours who have the model that we are pursuing, which keeps the sectoral expertise. Additionally, I do not believe that it would be an effective use of resources to establish a new regulator, and the proposed 12-month establishment period would delay the implementation of this regime.
Finally, cyber would continue to exist within a multi-regulator landscape as there are separate regulatory approaches for telecommunications and financial services. I agree with the point made by many noble Lords—highlighted in particular by the noble Lord, Lord Holmes, both at Second Reading and now—that a consistent approach to implementing and enforcing the regime is crucial. The Bill will drive this through by establishing common security and resilience requirements and secondary legislation for all regulated entities, clear guidance for regulators, and a statement of strategic priorities setting common objectives that regulators must seek to achieve. These will cover issues such as governance, skills, risk management, business continuity, supply chains, incident response, and appropriate testing and exercising. They will be consulted on, and any relevant secondary legislation will be subject to the affirmative procedure.
Regulators will supervise and enforce the common requirements while providing guidance that is tailored to the risks and operational realities of their sectors. Crucially, information-sharing gateways and cost-recovery mechanisms will bolster the well-resourced, experienced regulators who stand ready to collaborate while best supporting their respective sectors. I believe that the Bill’s approach gets the right balance between sectoral expertise and a common approach.
On Amendment 91, which would require specific organisations to conduct an annual independent audit, I agree that independent assessments play an important role in providing assurance and leveraging external expertise; that is why the current framework already enables regulators to require independent audits or inspections. However, it is for the sectoral regulators to set the frequency and nature of audits, bearing in mind proportionality and their expertise in the risks and operational realities of their sectors. We will continue to drive uptake of assured independent audits across sectors, using the range of levers that the Bill provides. That is what the current framework provides for and what the implementation of the Bill will ensure.
I turn to Amendment 90, which would require the proposed OCR to work with the UK Cyber Security Council in order to ensure sufficiently qualified cyber security professionals among regulated entities; I note that the amendment laid by the noble Baroness, Lady Northover, on this topic will be debated later. The Government strongly support the need for the professionalisation of the cyber sector. We already work with the UK Cyber Security Council and regulators to encourage cyber professionalisation across NIS sectors. We also intend to set further expectations for regulators to encourage cyber professionalism through the Bill’s security and resilience requirements, which, as I just mentioned, will be set out in secondary legislation. They will address relevant training, skills and professional standards, and the Bill’s regulators must publish guidance on these requirements.
Baroness Neville-Jones (Con)
In this recovery regime, will whatever organisations that are to be regulated be levied for the service of regulation that will be provided, or will the revenue come as a result of fines? If that is the case, I hope they will not raise the revenue by finding fault. What is the basis of the cost recovery? It needs to be perceived to be fair, not onerous and not directed at encouraging regulators to regulate for the sake of increasing their income.
Baroness Lloyd of Effra (Lab)
The intent behind the cost recovery model is to provide a fair approach so that regulators, when regulating on cyber, can recover the costs associated with that. Further guidance will be put out on this. I cannot recall the Bill’s exact provisions on fines. I will come back to the noble Baroness on that.
Lord Birt (CB)
My Lords, I confess to a real disappointment listening to the Minister’s response. We have sat here all afternoon and heard many strong contributions on many matters, but so far, the Government do not appear to have moved an inch on any of them.
I have a few quick points. The Minister just referred to the regulators. There are 12 regulators of 12 sectors, which is a tiny fraction of the economy. We have had this very profound discussion about AI today. Is she really asking us to believe that Ofwat is capable of mastering the complexity and continuing challenge that AI poses? To me, the answer is all too obvious.
Secondly, I say to the noble Baroness, Lady Neville-Jones, in particular, that I have sat on many boards over recent decades at different levels in the UK, in Europe and globally. An awful lot of expertise comes to the table, but it is absolutely out of the question that every board in the land will have a real cyber expert on it—hence the notion. A financial audit is a really powerful thing these days. It gets into the bowels of a company, and if anything is going wrong anywhere then it will find out about it. That is why I propose that we have a cyber resilience audit—not for every company in the land but for those that fall under the heading of essential services.
Finally, we are at war, and I completely agree with the noble Lord, Lord Londesborough, that the scale of the damage to our economy is almost certainly vastly underestimated. The framework imposed in this Bill is for fighting a war, but we see around the world at the moment that—guess what—wars change. Different weapons are used and different tactics come up. It is as if we have split the MoD and said that the Army will be with DCMS, the Navy will be with another department and the Air Force with another. The idea that you cannot have effective co-ordination within government and outside government honestly does not carry any weight. I beg leave to withdraw my amendment.
Baroness Lloyd of Effra (Lab)
I thank noble Lords for their amendments in this group, which I will endeavour to cover in my response, starting with the lead amendment from the noble Baroness, Lady Ludford. Fraud risks and fraud are indeed important to address. The Bill requires relevant digital service providers to prevent or mitigate risks through an all-hazards approach. We already expect RDSPs to address risks posed by fraud as part of their security duties. The reason why we do not single out risk posed by fraud is that this may not reflect the full range of risks faced. It is important that regulators in their guidance, for example, in respect of the ICO, respond to the risks that their sectors are experiencing, which could include fraud. I heard clearly the facts that the noble Baroness set out, but that will be something that will come in due course.
On the important points made by the noble Lord, Lord Ravensdale, on the risks posed by quantum computing, the “all hazards, all threats, all technologies” approach enables a flexible and future-proof regime. It is important that each version of the statement of strategic priorities is not bound by the risks posed by specific technologies because they could become outdated; it cannot necessarily prefigure what will be a particular risk in 10 years’ time. Post-quantum cryptography is incredibly important. The department is working on guidance documents that will support organisations to manage their transition, in line with the NCSC guidance and deadlines. On the question specifically about the next statement of strategic priorities, we will encourage regulators through the statement to understand the evolving threat landscape and adapt their regulatory response accordingly, which could include risks from quantum or fraud, if those are the most pressing ones at that time.
On the approach suggested in Amendment 94 by the noble Lord, Lord Clement-Jones, we appreciate good practice standards, and we continue to promote their adoption across the wider economy. However, a more advanced cyber security framework is required to ensure adequate protection and assurance for the services in scope of the Bill. I am confident that the Bill’s outcomes-based approach is the right one. It allows existing good practice to contribute to demonstrations of compliance with existing and future requirements. We will introduce security and resilience requirements in secondary legislation. These requirements will be linked to the security duties and will provide clearer outcomes that organisations in scope must meet. We are engaging with regulators and industry throughout this development, and we intend to consult on these proposals later this year.
I turn to the question of how regulated entities demonstrate their compliance with their duties. Amendment 92B seeks to require large businesses in scope to report on their cyber security and resilience plans. Our proposed security and resilience requirements under the Bill will require regulated entities to maintain overarching security policies, implement a continuous risk management framework, maintain incident response and recovery plans, and ensure appropriate board-level oversight of these. This will be supported by guidance from regulators which must be regarded. Entities would be expected to maintain evidence demonstrating compliance with these requirements. The information provided to regulators and the NCSC will enable effective regulatory supervision, which holds organisations to account, and will enhance wider threat and resilience analysis and support. This will feed into government monitoring and evaluation, where public post-implementation reports will provide insights and assess the effectiveness of the regime. I will come on to the timing of those later.
The UK’s corporate reporting framework is currently undergoing wider modernisation efforts. Future consultation will seek views on whether the existing risk reporting framework produces sufficient reporting on cyber risk management, so it is best dealt with as part of that work.
On funding and information sharing in Amendment 169, ISACs can play an important role; there are many initiatives under way, many of which are supported by the NCSC. They have a voluntary approach which builds trust and brings about positive cultural changes. We believe that there is a real risk that the Government could undermine these benefits and complicate the regulatory landscape by intervening and recasting these initiatives as mechanisms of regulatory oversight and enforcement. However, I agree that more can be done to understand their impact, and how the Government can support them. That is why the Bill’s formal review mechanism was included, which will consider the entirety of the regime’s impact, including for information sharing.
Coming back to the question of regulator funding, and to expand a little on the new cost recovery powers to ensure that regulators are able to recover the full costs relating to their NIS duties, this will enable regulators to be autonomously funded and sufficiently resourced to carry out their responsibilities. We will also enable regulators to better focus their resources through establishing a unified set of objectives through the statement of strategic priorities. The current framework therefore already ensures sufficiently and independently funded regulators, without a delayed commencement of the regime. To respond to the question posed earlier by the noble Baroness, Lady Neville-Jones, it is anticipated that fines levied under the regime would go to the Treasury.
On the absolute criticality of skills in the sector and Amendments 15, 174C and 174D from the noble Lord, Lord Arbuthnot, and to all those who spoke on skills and cyber capability, the Government absolutely agree that workforce is crucial for effective implementation of the regime. I have previously set out how we intend to introduce security and resilience requirements, which will be consistent with the CAF. We propose that the SRRs will address organisational capability and personnel skills and training, driven from board level. These requirements will be developed in collaboration with industry, experts and regulators and formally consulted on before they are mandated. The SRRs will be supported by regulator guidance, tailored by sector, as well as government implementation guidance for regulators. We do not believe that additional guidance and a separate strategy would be proportionate, and it could be duplicative given the existing guidance published under the Bill.
Cyber skills obviously go much broader than the Bill. That is why we are working closely with the UK Cyber Security Council and regulators to encourage cyber training and professional standards. Additionally, we have TechFirst, the Government’s flagship tech skills programme, which goes to the point made by the noble Baroness, Lady Ludford, everywhere from school children through to professionals and the university sector.
Briefly, we talked earlier about skilled persons and Amendment 114. I mentioned earlier that a skilled person is a person with expertise. However, we do not think that we should tie the Government’s hands to specific skills requirements, which would reduce the Secretary of State’s flexibility in this space and could impede the regulated entity’s ability to take the necessary action required by the direction.
On the question of reporting, we recognise the pace of cyber developments alongside the importance of regular assessments of the regime. We must be as effective as possible and agile in the face of new developments. Amendments 95 and 95A, tabled by the noble Lords, Lord Arbuthnot and Lord Clement-Jones, would reduce the period that the report on the operation of the legislation should be published to every three or even two years. As raised in the other place, the five-year period set out in the Bill is a minimum baseline and the Government will consider more frequent reports if deemed necessary. This framing follows the precedent set by the Telecommunications (Security) Act and the existing NIS regulations. This will provide the Government with the time they need to meaningfully review the cross-sectoral regime, analyse the information received from regulators and understand how it has evolved, and identify what improvements can be made.
However, I stress that the Bill will also require the Secretary of State to provide Parliament with an annual report setting out how regulators have sought to achieve their objectives set out in the statement of strategic priorities. This annual report will enable more frequent monitoring of the regime and how it is working in practice by reporting on the regulators who implement it. The first report will be published one year after the publication of the SSP, which is targeting 2027. As a result, we anticipate that the first report would be published under two years after Royal Assent.
Baroness Lloyd of Effra (Lab)
The content of the statement of strategic priorities will be subject to consultation and we will be working with regulators on that. It could include specific risks, whether from quantum or from fraud. What I do not want to do right now is to commit that it will include that, because we are going through a process.
Baroness Ludford (LD)
My Lords, I thank the Minister for her reply. Her last words gave me a little bit more hope than the rest of her response, to be honest, when she said that the statement of strategic priorities could include specific risks, because it seemed to me that she was otherwise being a bit generic and unspecific—almost above the fray. When I came in on a previous group—and other noble Lords are much more knowledgeable and expert in this field than I am—I picked up some frustration that the feedback from the Government and from the Minister today was a bit vague and not very responsive. All this is happening out there; there are huge cyber threats and there is a feeling that the Government are not really getting to grips with the actualité quite as much as they might.
I understand that the Minister might not be able to say now what will be in the statement of strategic priorities, but what we are searching for is that it will grapple with real problems out there in the economy, in society. I must admit that Amendment 82 from the noble Lord, Lord Ravensdale, on post-quantum cryptography, is somewhat above my pay grade. I wish I was more knowledgeable, but I ain’t. But I understand what he is saying, how real this is: the threat is out there. You just have to read newspapers to get the drift of what is happening. I mentioned that fraud is nearly half of all crime, so these are big issues. I think that what we want from the Government is a feeling that they get it, that there is going to be specificity in the way that they are going to implement this Bill and that they are really going to be on the case of these big threats. The Minister’s last words were a bit more encouraging than some of the rest of what she has been saying. That said, I am sure we will come back to some of these issues on Report, but I beg leave to withdraw my amendment.
Lord Markham (Con)
My Lords, I thank my noble friend for introducing this group; as it is the final group of the day, I will keep my remarks brief.
Amendments 15A and 15B in the names of my noble friend Lord Arbuthnot and the noble Lord, Lord Clement-Jones, seek to allow regulatory oversight of critical suppliers on whom operators of essential services and relevant service providers depend, be it directly or indirectly. We believe that this must be a reasonable approach. The aim of Clause 12 is to ensure the continued functioning of the central suppliers and providers by providing support for their critical suppliers. Surely whether they are supplied directly or indirectly is of little importance.
Amendment 16 from the noble Lord, Lord Ravensdale, would restrict the designation of critical suppliers to those who present systemic risk rather than a simple single-entity risk. We should seek to minimise government oversight wherever possible, and suppliers should not be designated unless they pose a genuine risk. I am also supportive of the noble Lord’s focus on cross-sectoral consistency and general macroeconomic risks, which is too often something that the Government neglect.
However, I am hesitant to endorse the amendment in its entirety. Having to assess every supplier of every OES, RDSP or RMSP and having to decide whether it meets the systemic threshold have the potential to place an unrealistic administrative burden on designated competent authorities. We are already concerned about the resources that they will need to undertake the changes that the Bill introduces; I am unsure whether we need to ask more of them.
To wrap up, I return to a more general point: the risk to the economy or to national security is a scale, and the legislation that we pass should reflect this. Perhaps the noble Lord, Lord Ravensdale, is correct that the designation of critical suppliers based solely on whom they serve is too permissive, but it is equally as likely that restricting designation to systemic risks would be too restrictive. This highlights—it goes back to earlier groups—that the binary distinction about which we are talking now does not cover the gradation of different types of risk. That is why I come back to the original point that my noble friend Lord Camrose made on adopting, perhaps, the Cyber Monitoring Centre’s severity scale, which offers a template for a more nuanced approach to definitions. I hope that the Minister can commit to reviewing the Bill’s definitions ahead of Report.
Baroness Lloyd of Effra (Lab)
I thank noble Lords, in particular the noble Lords, Lord Arbuthnot and Lord Ravensdale, for engaging with the incredibly important question of drawing the right scope in the Bill for the designation of those in the supply chain. It is incredibly important that we get this right and take into account the economic and security impact. To begin, let me explain our reading of the amendments and the practical impact they would have.
Amendments 15A and 15B would enable regulators to designate suppliers as critical beyond those which directly supply to regulated entities, if they are materially dependent on that supplier to provide the regulated service. This would extend the scope of the measure to include suppliers further down the chain, even where they have no direct relationship with the regulated entity. In addition, the amendments would introduce an additional assessment of whether a regulated entity is materially dependent on a supplier, which would form part of the designation process. This could create a higher bar for designation of a direct supplier than currently exists in the Bill and could limit designation by excluding suppliers whom it would be reasonable and prudent to include.
The Bill recognises the importance of supply chain security, has considered the risks that supply chains pose and has developed targeted and proportionate measures to address those risks. First, regulated entities are subject to an overarching duty to identify and manage the risks posed to the systems they rely on to provide their services. A core part of this is to consider the risks arising from their supply chains. Secondly, as will be set out in the forthcoming security and resilience requirements, we will require regulated entities to take specific steps to manage their supply chains through an analysis of the risks they could pose, and to include a requirement to put in place contractual obligations on those suppliers to manage the immediate risks and the risks posed further down the supply chain, which may not be in the immediate view of the primary regulated entity. Thirdly, it is recognised that some suppliers in the market are critical to certain sectors and therefore the most proportionate step is to regulate them in their own right and to subject their security posture to the scrutiny of regulators.
This clause is already designed to be a proportionate and targeted measure and is aimed at bringing into scope only those suppliers who are genuinely critical to the regulated entities they supply directly. Finally, as we discussed at the beginning of this Committee, some suppliers may present additional risk and are potentially the vector of attack from hostile actors. That is why we believe that we need to take measured but decisive steps to manage that risk before it crystallises and before those vendors are embedded in critical systems. The amendments would significantly increase the number of potential suppliers that regulators may need to consider for designation and could risk imposing additional burdens on smaller suppliers that may be several layers removed from the regulated service.
On Amendment 16 in the name of the noble Lord, Lord Ravensdale, I agree that a supplier should be designated only where they are genuinely critical to the provision of a regulated service. That is why the Bill includes strict designation criteria that must be met before a supplier can be designated. Importantly, an incident affecting the systems relied on by the supplier could disrupt regulated services in a way that significantly impacts the economy or the functioning of society. The Bill maximises the proportionality of the measure so that only the most critical suppliers to regulated entities are designated. It will also limit the number of small and micro enterprises that are likely to be designated.
The noble Lord’s amendment intends to limit that further. Its intention is to focus on suppliers whose activities being disrupted would cause systemic risk to the UK’s digital ecosystem, economy or essential services, and to prohibit designation if a supplier provides goods or services only to a single operator of essential services, a critical national infrastructure entity or a public authority.
We discussed a little earlier in Committee the risk of small but risky suppliers. Amending the designation criteria to focus on systemic risk to a wider number of entities could potentially leave many of the UK’s most essential services vulnerable to disruption. In fact, the compromise of just one of these providers could still have a significant impact on the economy or functioning of society in the UK or any part of it. Under the noble Lord’s amendments, a supplier that is essential to a single energy provider responsible for a county’s power, an NHS hospital looking after a whole city or a single cloud service provider used nationwide may not be judged as posing a systemic risk if it were disrupted. This would leave these essential end services vulnerable to severe disruption if that supply were compromised, with significant impacts for the huge number of citizens relying on them.
The amendment would also require the Government to issue statutory guidance for regulators on designating critical suppliers. I agree that consistency in the decisions taken by regulators will be crucial to the success of this regime. That is why my department will work with regulators to develop guidance to drive this consistency, and regulators will be required to consult with other regulators before designating suppliers where there is a relevant connection to multiple sectors. As we have discussed before, the statement of strategic priorities will also provide common objectives for regulators, which will further increase alignment between their approaches.
I heard very clearly what noble Lords said in introducing their amendments and the important other contributions during this discussion, which highlight how important it is to strike the right balance for this measure. I believe that the Bill establishes a proportionate and targeted framework that captures genuinely critical suppliers without extending regulation or excluding risks within the supply chain.
Lord Arbuthnot of Edrom (Con)
My Lords, I listened carefully to what the Minister said. She made some very reasonable points and she may even be right, but I will need to take it away and think about it. In the meantime, I beg leave to withdraw my amendment.