The House of Lords yesterday rejected several provisions in the new Anti-terrorism Bill branding them intrusive, and accusing the Home Secretary of going "far beyond" the fight against terrorism.
Under the bill ISPs could be prosecuted if they refused to divulge information, and would be required to retain information for three years rather than current three months under the Data Protection Act.
Also, police could demand from ISPs information on any individual they believe to be involved in 'criminal activities'. The Lords said this should be restricted to terrorism, otherwise it would mean they could demand information on someone who had committed a minor offence.
In what amounts to a battle of wills between the government and the opposition parties, the Bill was defeated by 149 votes to 139, which could be blamed to the low representation of Labour in the Lords.
The House of Lords forced through several amendments that reduced the powers granted to the police to retrieve information from individuals which, they claimed, would give police the power to trawl through private details with little cause.
Ripa, the Regulation of Investigatory Powers Act, already gives the government the right to demand decryption keys for 'suspicious' emails. Many human rights groups have been campaigning against the extended powers proposed by the bill.
"The [11 September attacks] have been used as a backdoor route for the government to extend its snooping powers and limit people's rights to privacy," said a spokesperson at internet privacy watchdog Privacy International.
Home Secretary David Blunkett accused the Lords of "disembowelling" vital parts of the bill.
Tory and Liberal Peers said they were in favour of a terrorism bill but not on these terms.
The government is desperately trying to make the bill a Statute before Christmas, but the way things are going it looks unlikely they will meet their target. Amendments to the bill are due to be discussed in the House of Commons next week.