Slashing solar power subsidies for homeowners will kill the fledgling UK industry "stone dead" and cost tens of thousands of jobs, say major solar businesses in response to government proposals published on Monday.

The businesses accepted that the falling cost of solar photovoltaic panels should be reflected in falling subsidies, but the industry said cutting support by over 50% in the next six weeks would devastate the number of installations on homes, schools and small businesses.

Renewable industry experts and campaigners blamed the Treasury for failing to recognise the economic growth that green energy investments could deliver, and said the proposed solar cuts – the third such change in less than a year – undermined confidence across the green energy industry. There were also warnings that, at a time of soaring energy bills, the fuel poor would be hardest hit by the changes.

"Such deep cuts would kill the UK solar industry stone dead," said Howard Johns, of the solar industry's Cut Don't Kill campaign and also the managing director of Southern Solar. "Wiping out 4,000 companies and 25,000 jobs by cutting too deeply would be an appalling waste of economic potential. Our message to [the] government is cut us, but don't kill us. We want a sustainable cut that would allow us to survive and deliver the green growth that David Cameron said he was committed to."

Gaynor Hartnell, chief executive of the Renewable Energy Association, said: "The department of energy and climate change do not seem to be winning the arguments [with the Treasury] on the benefits to the economy.

"The renewables industry is really not confident at all. These changes undermine confidence across all energy-related investments, even CCS [carbon capture and storage] and nuclear, as we need to be confident that the government will honour their commitments and not chop and change."

Energy and climate change minister Greg Barker defended the cuts as unavoidable if the whole system of feed-in tariffs for low-carbon and sustainable energy was not to be undermined by ballooning budgets. "My priority is to put the solar industry on a firm footing so that it can remain a successful and prosperous part of the green economy, and so that it doesn't fall victim to boom and bust," he said.

The tariff paid to householders falls from 43.3p per kWh of solar electricity to just 21p under the proposals. Decc admitted that there had been three times more solar installations than it predicted since the scheme began on April 2010, during which time it said the cost of an average home installation had fallen by at least 30%. It said the proposed cuts would reduce the estimated cost of the solar Fit scheme in 2014-15 by three-quarters, to £250m a year, adding about £3 a year to electricity bills.

There was also controversy over when the proposed new Fits would come into force. That date is 12 December – 11 days before the consultation ends, with the date itself open to change as part of the consultation.

The row over solar subsidies is the latest manifestation of a long and fierce battle within the government between Chris Huhne's Decc and George Osborne's Treasury over the role of green growth in the UK's economic recovery, made especially pointed by soaring home energy bills. "We may be out of touch with the solar lobby, but we are not out of touch with energy bills," Barker told parliament on Monday.

The row spilled into the public domain when Osborne told the Conservative party conference earlier in October: "We're not going to save the planet by putting our country out of business." Huhne hit back in a speech deliberately echoing Osborne's own: "Yes, the UK is only 2% of global carbon emissions. But if we grasp the opportunity now our businesses and economy can be much more than 2% of the solution."

Reacting to the solar Fit proposal, Juliet Davenport, chief executive of Good Energy, said: "Due to pressure from George Osborne and the Treasury, Decc has had to cut the one scheme that gives households control over their rising energy bills ... showing the Treasury doesn't have a real grip on the economics of the energy market. Some of Britain's poorest households will miss out as a result of these changes."

Solar installers argue their panels have helped curb rising fuel poverty by providing free electricity to homes. But companies say the cuts will mean they can no longer offer to install panels for free for poorer households, in return for keeping the subsidies.

"The cuts the government have cited are socially regressive," said Daniel Green, CEO of HomeSun. "Only the super wealthy with an eco-conscience will be able to wait now for a breakeven of 14 years on a solar investment."

Some consumer groups supported the government's move. "It's right that the government properly controls spending on feed-in tariffs as everyone pays for this scheme through their energy bills," said Richard Lloyd, executive director at Which? But he criticised the speed of the move, which could leave those who had already signed contracts or paid deposits for solar panels being "disappointed".

Green campaigners contrasted the solar cuts with other government announcements made on Monday. Louise Hutchins from Greenpeace said: "There's a real inconsistency with the government's approach to job creation: on the day the Deputy PM Nick Clegg announced funding for 35,000 new jobs the Treasury pulls the rug out from under this vibrant industry. It doesn't make sense and sells Britain short."

Luciana Berger MP, the shadow climate change minister, said: "In just a few hours, we are already hearing from solar companies about cancelled orders and redundancies. This is yet another sign that this Tory-led government has turned its back on the green growth agenda. The real choice is not between being green or economic growth but between acting and not acting. If we act to tackle climate change we can create thousands of jobs and get our economy moving again."