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At the back of my mind I seem to remember a case some time ago where pics of naked children (in the garden in their playpool) caused a processing firm (I think it was SupaSnaps from memory) to call in the police, resulting in raids / computer removal etc before the matter was resolved.
The lack of clear guidelines as to what constitutes such material is proof this law (and probably the proliferation of smartphones etc) is there solely to criminalise people.
As far as I know they can, if they wish, label ANY pictures of children illegal. Clothed or unclothed it doesn't matter - and yet as far as I am aware there has been no debate on this, public or otherwise. If someone wants to label pictures dodgy, it seems they will do - the end.