Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

Amendment 10, in Clause 10, page 9, line 29, at end insert—

“(2A) The measures taken by an RMSP under paragraph (1) must ensure that the number of customers to whom the RMSP provides services does not exceed the critical risk threshold.

(2B) In paragraph (2A), the ‘critical risk threshold’ is the number of customers within a sector or subsector where an incident affecting the provision of services to those customers by the RMSP would result in disruption that is likely to have a significant impact on the economy or the day-to-day functioning of society in the whole or any part of the United Kingdom.

(2C) Paragraph (2D) applies where the number of customers to whom an RMSP provides services exceeds the critical risk threshold by virtue of contracts entered into before the coming into force of section 10 of the Cyber Security and Resilience (Network and Information Systems) Act 2026.

(2D) The RMSP must take steps to reduce the number of customers to below the critical risk threshold, including exercising any right to terminate a contract or vary the terms of a contract.”

This amendment would place a duty on relevant managed service providers (“RMSPs”) to ensure that they do not provide services to manage the technology systems for a number of customers that exceeds a critical risk threshold, such that an incident affecting those services would be likely to result in significant disruption in the United Kingdom. This would prevent an RMSP managing the technology systems for a whole sector or subsector. Provision is also made for a situation where an RMSP is in breach of the critical risk threshold because of contracts entered into before the enactment of the Bill.

Clauses 10 and 11 stand part.

I welcome you, Ms McVey, to the most exciting event in Parliament this week.

I question that, but carry on.

What a pleasure it is to serve with you in the Chair. Clause 9 brings large and medium-sized managed service providers—MSPs—into the scope of the Network and Information Systems Regulations 2018. MSPs are organisations that provide an ongoing IT function, such as an IT help desk or cyber-security support, to an outside client. In doing so, MSPs often have widespread and trusted access to clients’ networks and systems. A single targeted attack can ripple outward, disrupting thousands of other systems. That makes MSPs attractive targets for cyber-attacks. Last year an attack on Collins Aerospace halted check-in and boarding systems at major European airports, causing international disruption. Such attacks highlight what can happen if a single point of failure is compromised, and the importance of managed service providers implementing robust cyber-protections. Despite that, MSPs are not currently regulated for their cyber-security in the UK. As organisations rely more and more on outsourced technology, we must close that gap. The clause provides essential definitions of a “managed service” and of a “relevant managed service provider” to clearly set out which organisations are in scope of the regulations.

Clause 10 imposes new duties on MSPs that have been brought into scope by clause 9. For the first time, such businesses must identify and manage risks posed to the network and information systems that they rely on to provide their managed services. As part of that duty, MSPs must have

“regard to the start of the art”,

meaning that they must consider new tools, technologies, techniques and methods that threat actors may employ. That includes artificial intelligence, and means that providers must deploy the right tools to mitigate the risks and take action to minimise the impact of incidents if they occur. By bringing MSPs into scope of the regulations and imposing such security duties on them, we will strengthen cyber-security and resilience across supply chains, reduce vulnerabilities in outsourced IT services and better protect businesses and services across the UK.

Bringing MSPs into scope is the right direction of travel, and MSPs sit at points of concentrated risk, but they are not all the same and the real risk is not size alone but the level of privileged access and cross-customer dependency. Proportionality will be critical under these provisions if we want better security, not just box-ticking.

I agree very much with the hon. Member’s point, and a similar sentiment is expressed elsewhere in the Bill, in that it ensures that the focus is primarily on large and medium-sized MSPs, and that small businesses and microbusinesses are dealt with in a deeply proportionate way. That is an important point to take into account.

Clause 11 defines what it means for a digital or managed service provider to be

“subject to public authority oversight” under the NIS regulations. Public authority oversight is defined as “management or control” by “UK public authorities” or by a board where the Majority of members are appointed by those authorities. Such MSPs are already subject to requirements in the Government cyber-security strategy, which is mandatory for Government organisations. That ensures that cyber-resilience standards remain strong for services linked to public functions, while preventing disproportionate burdens on providers already subject to public authority governance.

In response to points raised by hon. Members in prior Committee sittings, I flag the engagement that we have conducted in coming to the definition of MSPs in question. In particular, beyond the provisions of the 2022 consultation, prior to the introduction of the Bill, we conducted a range of bilateral meetings. We have had multiple conversations with the industry body techUK, roundtables with digital firms, and we engaged through the National Cyber Security Centre-led MSP information exchange with 40 providers in this context, and undertook market research mapping the MSP market. As a consequence, adjustments to the definitions at the heart of this provision have been agreed with incredibly deep and broad engagement across the industry to arrive at a widely-welcomed definition.

It is a pleasure to serve with you in the Chair, Ms McVey. Small and medium-sized enterprises are defined by the headcount of full-time employees, yet in the world of IT, particularly for managed service providers, data centres and digital service providers, that is not a helpful metric to understand size and scale. Did the Department consider reevaluating the size of digital and managed service providers based on the through-flow of transactions or data rather than headcount? When I worked in the world of tech, there was a ratio for headcount that was totally different from other sorts of businesses.

The hon. Member raises an important point about the operating leverage of technology businesses. The Bill directly focuses on size as one proxy for risk, but it is not a complete or perfect proxy. That is why, through the critical supplier provisions, it ensures that any smaller providers can be caught in scope as essential services.

It is a pleasure to serve under your chairmanship, Ms McVey.

Clause 9 brings within scope of the NIS regulations a new category of technology service providers, known as relevant managed service providers. MSPs play a critical role in the UK economy. Research conducted by the Department for Science, Innovation and Technology under the last Government suggests that 11,000 MSPs were active in the UK in 2023, of which 1,500 to 1,700 were medium or large organisations that would be in scope of the Bill. Micro and small enterprises that offer managed services are excluded from the scope of regulation but have the potential to be designated as critical suppliers under other provisions, which we will come to shortly.

MSPs are critical to the functioning of the multiple businesses that they serve, offering contracted IT services such as helpdesk and technical support, server and network maintenance, and data back-up. In many cases, they also provide managed cyber-security solutions to their customer bases. Consequently, these businesses often have significant access to their clients’ IT networks, infrastructure and data, which makes them attractive and valuable targets.

I seek some clarification on the Shadow Minister’s statistics about the number of MSPs that are in scope, and what they are as a proportion of the MSPs in the country. Could he clarify that he is talking about individual organisations rather than what they do? For example, if there is one large organisation and nine small ones, but the large one takes up 80% of the market, the proportions are slightly different.

The scope and breadth of the organisations regulated by these provisions is one of the most important parts of the debate. If the hon. Member can wait a moment, that point will form the bulk of my speech. It was also mentioned by my Constituency neighbour, my hon. Friend the Member for Spelthorne.

The previous Government consulted on bringing MSPs within scope of regulation. Feedback on that consultation indicated strong support, with 86% of respondents in favour. As such, there is a sound policy rationale for imposing cyber-security and instant reporting regulations on MSPs over a certain threshold. Those MSPs will need to take appropriate and proportionate measures to manage risks to the security of the networks and information systems on which they rely to provide managed services in the UK.

However, as I said at the outset and as many people said during evidence, the devil really is in the detail as to whether the Bill is effective in protecting the sectors it seeks to regulate. Several industry stakeholders, including officers of MSPs and industry representation bodies, have raised concerns about the broad definition of MSPs in Clause 9. As drafted, that definition has the potential to cause confusion among businesses as to whether they are in scope or not. These relevant provisions will be brought into force with secondary legislation before Royal Assent, allowing time for consultation with industry and specific duties. Could the Minister clarify whether his Department will respond to concerns by consulting on a refined definition of what constitutes an MSP, to provide much-needed certainty to businesses operating in the sector?

I will also take this opportunity to speak to Amendment 10, which was tabled in the names of many Members, including Sir Gavin Williamson, who I know has a keen interest in this area. He represents an area in the west midlands, which, like many parts of the country, has suffered massively from the impact of the problems with Jaguar Land Rover. The amendment relates to legitimate concerns about the compound risk that could occur when MSP systems are accessed by malicious actors, and those MSPs are providing services to a large number of entities within a regulated sector. Clearly, there are many reservations about the desirability of this particular amendment, including its potential to interfere with customer choice and the inconsistency with the approach to freedom of enterprise in other regulated sectors in the Bill.

It is noteworthy that several witnesses who gave evidence to the Committee pointed out the lack of skilled cyber-security professionals available in the UK employment market to help regulated entities with the effective implementation of the Bill. It is conceivable that many regulated businesses, particularly smaller ones, will be forced to look for external expertise to comply with their obligations, and we would not want to artificially restrict access to expertise, even when done with the best of intentions. The point is rightly made that large MSPs and those providing services to the most critical sectors should observe the highest cyber-security standards. A relevant MSP must have regard to any relevant guidance issued by the Information Commissioner when carrying out the duties imposed on it, so will the Minister confirm whether and to what extent the important issues raised by the amendment will be covered in consultation and industry guidance?

The amendment, and some of the debate that we have had, goes to the heart of some of the thresholds and metrics that are being used as gatekeepers in the Bill when an entity is or is not being regulated. As I mentioned this morning, at least 70% of Government cloud procurement goes to the three big US tech actors. Those are clearly huge operators, but when it comes to the criticality of an MSP, as my hon. Friend the Member for Spelthorne mentioned, size does not in itself necessarily indicate its essentialness in the system.

One can imagine that if a particular unique type of service was being offered, such as a cyber-security service, by a big company—Cloudflare and Salesforce, for example, had a substantial impact on the sector—not merely the size of an organisation, but what they provide, could be relevant in terms of producing systemic risks to our economy as a whole.

Having read the Bill, does my hon. Friend understand that if a managed service provider provides services to, say, a hospital—so it would be covered by the regulations—and a reportable event happens to the managed service provider, there is any obligation for the hospital trust to report it as well, or is it just the managed service provider that has the responsibility? If he is not clear on that, would he ask the Minister?

I thank my hon. Friend for the “get out of jail free” card that he gave me at the end of his question; indeed, I pass that question on to the Minister. The point is well made in terms of trying to dissect the interacting and relevant duties in the Bill. The Bill tries to chop up different actors in the digital ecosystem, as well as public an non-public organisations, although a commercial threshold is being used. The Bill also introduces confusion: it rightly tries to make a carve-out for Crown data centres, but what exactly is a Crown data centre? One could argue that a Crown service is something provided by the state. Is a data centre serving a hospital therefore a Crown data centre?

There are so many different components within the Bill. Not only are there 14 regulators, or however many are operating—earlier this week, Amazon told us in evidence that it is regulated by four regulators—there is also confidential information going through, as my hon. Friend the Member for Spelthorne pointed out. It gets even worse in the Clause on critical supply networks. It is just incredibly confusing. The Committee—and, dare I say, the Government—should not ignore the evidence we have received from managed service providers time and again saying that although MSPs should be in scope and these regulations help, we need clarity on what exactly that means.

I think my hon. Friend is about to reference the commercial impacts on MSPs. We have already referenced the fact that they are of many different sizes. One of the concerns the Committee will need to consider is whether new contracts will need to be written. The level of uncertainty being created may render the existing frameworks within which they operate redundant.

I thank my hon. Friend for that pertinent Intervention. The burden she talks about is not just financial; companies could also find themselves in legal jeopardy should they become subject to overlapping and competing duties without realising when the Bill becomes an Act. More than anything else—perhaps even more than a low taxation regime—businesses want certainty about the regulatory environment they operate in. This is made even more complicated by the fact that many organisations operate in different jurisdictions and have to contend with different, competing regulatory frameworks. My understanding is that the Majority try to take an approach in one jurisdiction that will also cover them in the other so that they have an overlap, but those are the big companies. They have more capacity and resource to do that. The problem will be for the companies on the margins that are struggling.

The Shadow Minister is always very generous with his time. This is not meant to be a controversial Intervention, but does he recognise that micro and small enterprises have been omitted from this legislation because we recognise the challenges they have with the guidance? I appreciate that small can mean mighty when it comes to businesses. The hon. Member for Spelthorne made the point that businesses may have only a small headcount, but a very important role in the cyber-security make-up of this country.

Irrespective of their size, whatever definition or metric we use, businesses operate on fine margins for the Majority of the time. Regulatory burdens not only impact their ability to operate; they are yet another cost, which means that the cost of services increases. That has a deleterious effect on our economy more generally. Burdens on businesses are passed on to consumers. That makes it more expensive to do business unless there are customers to receive it.

Global business competitiveness, which we have not spoken about yet, is critical. I am very concerned about UK competitiveness in the digital and tech sector. It saddens me to say that we are dwarfed by US big tech in many areas. I want our digital and IT sector to be bigger and better than that of our competitors, but we need a framework to support it. Even for bigger businesses, the regulatory burden is critical, especially as they can choose, to a certain extent, where they incorporate and focus on doing business. We want to ensure that the UK has the best regulations, but the best regulations are often the ones that are least burdensome but that still provide certainty to allow businesses to operate. This is a highly competitive market.

I thank the Shadow Minister for his reply to my hon. Friend the Member for Bognor Regis and Littlehampton. Is he as surprised as I am to read in the impact assessment that the hourly rate for a contract lawyer is to be £34 an hour rather than £300 to £500 an hour, which in my experience is the market rate?

I thank my hon. Friend for pointing out that discrepancy in the costings. It goes back to the key principle that business and business modelling are best left to businesspeople, not to Government. The Government have a facilitatory role, but fundamentally their role is to get out of the way of business so that it can succeed and our economy can thrive. We need to ensure, for the good of our economy as a whole, that the critical elements of it are regulated in that way.

Given the interconnected operation of MSPs in our digital sector, any burden that we put on business will limit the growth that we all need and will limit competitiveness. In this footloose market especially, that could result in organisations and companies operating in other sectors, notwithstanding the fact that they will have to comply with UK jurisdictional rules. As a general point, regulations will cause footloose industries to move and operate in different sectors, which will mean less taxation revenue and more costs for clients, making it more difficult to do business.

We need to make sure that our economy is as nimble and free as possible, both for those trading as an MSP and more generally. I cannot labour the point enough: the costs that we impose on businesses under the Bill, in particular in the cyber-security and tech sector, will be felt by our economy as a whole. We will have to pay for that through increased inflation in food, energy or anything else that our critical suppliers provide. Even our NHS provision costs will increase as a consequence of the regulatory burden on businesses as disparate and distant from the NHS as those that we see in the Bill.

The hon. Member is quite right to say that American companies have captured most of the market that he is talking about, particularly the cloud providers. What does he think is stopping British cloud providers from getting a larger share of the market?

The cloud providers I have spoken to talk about several things. They talk about the crippling cost of energy in the UK, something that we need to drive down—

I am sorry, but this is not in scope.

Order. You are telling me that you do not think it is in scope, but we consider that it is.

The cloud providers tell me that the energy costs are crippling, which is highly problematic, and that is why we need to drive those costs down. They talk about the challenges of getting data centres built and about planning considerations, which are a concern across the country. They talk about the taxation environment and costs on businesses more generally, particularly when they are footloose, and they talk about the regulatory framework. Pretty much all of those things are not specifically in the Bill, with the exception of the regulatory framework, so there is a lot that is suppressing the opportunities for cloud providers and others in the sector and hindering them from doing business and succeeding.

There is a broader point to make about the Bill and the philosophy behind it, because there is something that we have to avoid. There is a sense in the UK that we are getting gummed up by regulation and obsessing more and more about limitations and restrictions to businesses. In that environment, people and organisations that do well financially, succeed and grow are seen as either targets or cheats—as something that we can go for, tax and punish. We have lost or diminished our can-do attitude when it comes to supporting the risk takers and the entrepreneurs, who are the people and organisations building the MSPs and data centres on which our economy relies.

Over and above that, there is a cultural issue that is impacting our IT and tech sector. As legislators we should ensure that the thing we have direct control over, which is the legislation in front of us, imposes as small a regulatory burden as possible while still ensuring that it is sufficient to meet our aims. We must listen to businesses and hear their concerns. We hear time and again that the lack of clarity, particularly in this part of the Bill, is putting them at financial and legal risk. That is a very substantial concern.

On my hon. Friend’s point about the lack of clarity in the Bill, there is a real possibility that firms will find that an MSP has one view of an issue while their client has another. Unless there is sufficient clarity in the wording of the Bill, we will have issues.

I thank my hon. Friend for her Intervention. Legal clarity is important. I have absolutely no issue with lawyers, but we do not want to make a load of money for lawyers as a consequence of the definitional challenges around the Bill’s implementation. That is not good for businesses, which need certainty as to how to apply the regulatory framework under which they operate. Regulatory uncertainty will not help a business to make decisions. My assumption is that the default position will be for businesses to assume that they are not regulated entities, which means that they will not take actions that we would like them to take as a result of the Bill. Again, we will be making Laws under which everybody loses out.

My final point is about the carve-out in respect of public authority oversight. It is all well and good for the Government to say, “We have an action plan and we’re going to sort out Government IT and the cyber-security risk for Government services,” but it is not playing out that way. Our biggest risks, and the most vulnerable components of our digital IT infrastructure, are those that are linked to Government services. Change is needed. My sense is that when a company interacts and shares data with Government and public sector services, the biggest-cyber security risk is likely to be in the aspects that are provided by Government services. We are making legislation that puts a host of burdens on the private sector, yet we are largely silent about what is happening in the public sector. Putting people at risk in that way is really not good enough. We need to support our overall cyber-security.

Once again, the Shadow Minister is auditioning for roles in the Treasury, by talking about general taxation, and in the Department for Business and Trade, by talking about general philosophies of regulatory reform. I will focus on matters within the scope of our debate, and on four aspects in particular.

First, Opposition Members have raised questions about definition. They have been answered frequently, but I am happy to repeat the answer. The scope of MSP coverage, which focuses on large and medium-sized MSPs, means that something in the order of 11% of MSPs are covered, by number, but 97.6% of the UK’s MSP revenue is covered. I hope that that gives sufficient assurance as to the coverage of the Bill. Of course, the critical supplier provisions cover any others.

Secondly, on the matter of concentration risk raised in Amendment 10, which stands in the name of my hon. Friend Matt Western, it is indeed covered. I hope that that point is sufficiently answered by the market share provision that I have just highlighted.

Thirdly, the hon. Member for Spelthorne asked about notification and overlap of responsibilities. In the example that he highlighted, unless the hospital had a reason to think that an incident posed a risk to it, or had the capability to have a significant impact on it, the notification would primarily sit with the MSP in question. Of course, that would be for the relevant regulators to set out in clear guidance.

Finally, on the question of Crown data centres, that is a specific observation around the Crown data centre organisation.

Will the Minister give way?

I am happy to proceed and to focus on Crown ownership of data centre provision to others. For those reasons, I continue to commend clauses 9 to 11 to the Committee.

Will the Minister please clarify whether he thinks that, as page 102 of the impact assessment states, the hourly rate for a lawyer changing a contract is £34?

I simply point out to the hon. Member that the pricing for law varies materially. I hope that, with the benefit of technology, it continues to be very accessible to all relevant providers.

I am sorry, but that is nonsense. The footnote on the page that cites £34 an hour for a contract lawyer directs us back to the Office for National Statistics. I hope that the Minister lives in the real world—he has clearly worked in the business world—so he knows that that is nonsense. Does he agree that that pretty well undermines that section of the impact assessment?

Having closed the debate, I am happy to conclude.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

On a point of order, Ms McVey. What mechanism is available to Members who are concerned that there is a factual error in the impact assessment? How can that be corrected?

The point has been made clearly on the record. We can take it beyond this room, and perhaps you can write to the Minister afterwards for clarification.

Clauses 10 and 11 ordered to stand part of the Bill.