Clearly they're trying to cut costs to bring it closer to the new M3 Base MBP (also happens to be closer in performance too). They're trying to upsell people to the Pro (it's a little cheaper than the M2 Pro was).
As a sidenote this is also why the pricing for the M3 Base makes exactly 0 sense (adding the 16GB RAM and 512GB SSD that should have been standard for £1700 makes it the same price as the Pro where I live).
I mean it's also cheaper than the M2 Pro spec for spec where I live (to the tune of £100 or £200 based on MSRP, though the M2 series models are now cheaper due to sales) so I think it's probably an attempt to upsell M-series Base users to the M-series Pro.
This is probably also why the M3 Base made it to the 14 inch, minus the black colour and a criminal 8GB of base RAM and 256GB SSD (even if realistically it's probably fine for a fair few people, I'd expect Apple to eat the minimal actual cost on a machine that's £1700) to make comparisons favouring spending the extra for the M3 Pro easier.
Nothing's FAQ said it was encrypted. So did Sunbird just lie about it and Nothing believed them without actually checking or were they in on it? Either way that's a bad sign, and while it's good that they pulled it this shouldn't have happened to begin with (also if people can just lie about encryption that says a lot doesn't it).
I guess it did what it was intended to do: create a media cycle towards them.