An amendment to the so-called snooping bill requiring the Home Secretary to sign all warrants requesting decryption codes was defeated by just one vote in the House of Lords yesterday.

The amendment, defeated by 120 votes to 119, related to a critical point in the controversy surrounding the government's Regulation of Investigatory Powers (RIP) Bill, which would allow law enforcement agencies to monitor internet-based communication.

Business leaders have said that the government's requirement for them to hand over code keys used to encrypt sensitive business information, something no other western G8 government requires, would make the country an ecommerce pariah.

Lord Cope, who has been leading opposition to the Bill, said during the report stage debate in the House of Lords yesterday: "The government agencies access to keys for encrypted material is one of the most difficult aspects of this difficult Bill. It is a matter of the greatest controversy, not only in the e-community but also in the wider world of banking and commerce."

Speaking for the government, Lord Bassam said the proposed amendment went too far and could impede criminal investigations. He introduced an alternative amendment, which was adopted, that would require a chief constable, or equivalent rank in other government agencies, to authorise orders that code keys be handed over. Previously the level had been set at superintendent.

Lord Bassam also said that an amendment requiring an independent commissioner be informed of demands for copies of code keys would be added to the Bill when it receives its third and final reading in the House of Lords on Wednesday, 19 July.

Lord Cope said this did not go far enough. He compared demanding code keys with asking permission to tap phone calls, which can only be authorised by the Home Secretary.

"The Home Secretary is answerable to Parliament and to the nation in a way that no chief constable is answerable on operational matters," he said. "Like the tapping of telephones, it should be a ministerial responsibility." However, the argument convinced one peer too few and Lord Cope's amendment was defeated by 120 votes to 119.

Some commentators believe, however, that the whole issue of government access to keys must be looked at again if ecommerce is to thrive in the UK.

"There is still time to pause and reflect before enacting legislation that may have irreversible consequences," said Caspar Bowden, director of internet think-tank the Foundation for Information Policy Research.