The Intelligence and Security Committee, a group of MPs that monitors the work of British intelligence, said it was concerned that a cut in real terms of 11 percent in funding over the next four years for its three main agencies could harm their work.
In an annual report, the committee quoted the head of the signals intercept agency, the Government Communications Headquarters (GCHQ), as saying his organization was losing "whizzes," or very able performers, to better-paying employers.
"I need some real internet whizzes in order to do cyber and I am not even sure they are even on the contractor market, so I need to work on that. They will be working for Microsoft or Google or Amazon or whoever," the director, Iain Lobban, was quoted as saying in evidence to the committee.
"And I can't compete with their salaries; I can offer them a fantastic mission, but I can't compete with their salaries. But I probably have to do better than I am doing at the moment, or else my internet whizzes are not going to stay ... and we do have a steady drip, I am afraid."
"THREE TIMES THE SALARY"
"Month-on-month, we are losing whizzes who'll basically say: 'I'm sorry, I am going to take three times the salary and the car and whatever else'."
The Committee, which reports not to parliament but to Prime Minister David Cameron, said the Single Intelligence Account that funds the three agencies had risen from about 800 million pounds ($1.28 billion) to 2 billion in cash terms in the past decade.
But for the four-year period from April 2011 spending was going to be kept level, implying an 11.3 percent reduction in budgets in real terms over that period because of inflation.
This "will inevitably have an impact on the ability of all three Agencies to maintain current levels of coverage of all aspects of the threat, and that this may worsen if inflation remains at its current levels. This will require tough decisions in the coming years."
As well as GCHQ, the committee reviews the Secret Intelligence Service, the SIS or MI6, which spies overseas, and the Security Service, known as MI5, which is responsible for domestic intelligence and security.
GCHQ, which snoops on electronic communications, helps defend Britain's cyber security and develops an offensive cyber ability, had 5,675 employees, the report said.
Lobban said in Oct 2010 in a rare speech that countries were already using cyber warfare techniques against each other and needed constant vigilance to protect computer systems. British government systems were targeted 1,000 times each month.
The report said GCHQ's work on cyber security included the protecting Britain's cyber infrastructure, detecting and analyzing electronic attacks on British interests, intelligence gathering and developing a military cyber capability for the UK. ($1 = 0.624 British Pounds)
(Editing by Jon Hemming)