The long and short of this little debacle is that the UK is trying to offer more comprehensive internet filtering for children, but they're trying to call it Default-On instead of Active Choice. ISPs are fighting this because, for both liability reasons and straight practicality, no filtering system is perfect and they don't want parents to complacently believe that their children will be able to browse without their supervision and involvement. And this:
"It sounds like a good idea until you think it through," said one industry source. "There are three reasons why it doesn't work. First it may be illegal under the Regulation of Investigatory Powers. Then there's the fact that no filter is perfect, and finally kids are smart enough to find their way around them."