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The government and industry's "laissez faire" attitude to online security is undermining confidence in the internet, the committee claims.

"We are firm believers in the internet," says chairman of the committee, Lord Broers. "It is a huge force for good. But it relies on the confidence of millions of users.

"At the moment it seems that the internet is increasingly perceived as a sort of 'wild west', outside the law. People are said to fear e-crime more than mugging. That needs to change, or else confidence in the Internet could be destroyed.

"You can't just rely on individuals to take responsibility for their own security," he adds. "They will always be out-foxed by the bad guys. We feel many of the organisations profiting from internet services now need to take their share of the responsibility. That includes the IT industry and the software vendors, the banks and internet traders, and the internet service providers.

"You can't legislate for better internet security.

The committee proposes that government should plough more resources into fighting e-crime, and establish a centralised system for reporting online offences. This comes just months after new legislation forced people to report financial internet crime to their bank, rather than the police.

The committee is also proposing a "a data security breach notification law" that would require banks to notify their customers of flaws in their system, providing an incentive to tighten security.

Controversially, the committee is also suggesting hardware and software makers should have legal liability for damaging security flaws, and that a security "kite mark" should be established for ISPs.

The CBI is wary of the new proposals. "Whilst appealing on the surface, new rules such as a data security breach notification law, or increased liabilities on ISPs and software providers, need to be treated with caution," says Jeremy Beale, CBI Head of e-Business.

"Such catch-all legislation to address personal security is not guaranteed to work in the fast-evolving landscape of the Internet. It could also impose a disproportionate burden on businesses already struggling to develop effective security practices in the complex world of internet commerce."

PC Pro will be at Westminster today for the launch of the Lords' report. Check back later for updates on this story.