The UK's reputation for e-commerce is "severely damaged" as a result, the Commons Select Committee on Trade and Industry said, adding: "The rationale for an electronic commerce bill is open to question."
E-commerce - shopping and banking via the Internet - is one of the fastest-growing trading sectors, worth about $13bn (pounds 8.1bn) this year but forecast to triple over the next few years.
The committee's report particularly criticised the proposal from the Department of Trade and Industry known as "key escrow", which would oblige companies to provide a copy of the code used to scramble transactions to a third party, which the Government could then obtain with a legal order.
"We can see no benefits arising from Government promotion of key escrow or key recovery technology," the report said.
The row over key escrow, which has been strongly opposed by British businesses, has almost on its own halted the plans for an E-commerce Bill.
Ministers including Jack Straw, the Home Secretary, suggested it was necessary for law enforcement.Reuse content