Business secretary Vince Cable says site blocking is too cumbersome and unworkable, and work is being done on other ways to tackle online copyright infringement

Vince Cable on Wednesday scrapped plans to introduce the blocking of illegal filesharing websites, arguing the scheme proposed by last year's Digital Economy Act is too cumbersome and unworkable, but said that some form of plan to bring down piracy sites is still being worked on.

A consultation document, launched by Cable, said that ministers intend to do more work on what other measures can be pursued to tackle online copyright infringement in an effort to stop widespread music piracy, which is increasingly spreading to television and film.

The business secretary said that people will also be able to make copies of music and other media for personal use, confirming well-leaked plans to relax the current law that makes it illegal to copy the contents of a CD they own onto an iPod or other digital device.

"This brings the law into line with, frankly, common sense," said Cable, responding to the Hargreaves report on the future of UK copyright law, which recommended the changes back in May 2011.

"A lot of this has to do with consumer freeedom. We need to have a legal framework that supports consumer use rather than treat it as regrettable. We can't say that businesses should embrace technology but say to consumers they can't use technology for products they have paid for."

However, Cable was not able to give details on whether the new rules would apply to consumers using cloud services to store digital content on their portable media players, such as those launched by Google and Amazon in the US, adding that it would only apply for devices on a limited basis without infringing European law.

Cable recognised that more needs to be done to crack down on illegal filesharing to protect the copyright holders, but nevertheless backed down on introducing site-blocking legislation to the DEA. "Music and film-makers have to be able to take effective and justified measures," he said. "The basic philosophy is we do recognise the need for protection, but it has to be protection that's proportionate to needs and based on evidence."

Ed Vaizey, the communications minister, said existing measures were too cumbersome and unworkable to have a real impact. He said that a specially commmissioned Ofcom report into the feasibility of site-blocking legislation proved that it was too elaborate and complicated to go through, adding: "We haven't said no to site blocking per se, forever."

Rights holders have heavily lobbied for the introduction of site-blocking legislation to curb digital piracy. However, Vaizey said that last week's landmark high court ruling, which forced BT to cut off access to mass-piracy site Newzbin2, showed that there is a route forward if rights holders want to take it.

But he acknowledged that the court process can take a long time, pointing out that the system can never cope with an illegal website launching on a Friday to cash in on a live sport event and then disappearing on Sunday. "One of the things that is frustrating for rights holders is the length of time it takes for a court process," he conceded.

Vaizey has been aiming to broker a fast-track legal process for site blocking by holding a series of meetings between rights holders. The talks aim to find common ground so both sides can agree in advance if a website is in fact infringing copyright – as well as protect ISPs from any repercussions if rights holders are wrong in their allegations – so that long-winded and costly court cases can be avoided.

"One of the things I've enabled is conversations between ISPs and rights holders," he said. "I want to see if ISPs and rights holders can come to agree a process to get facts together before going to court. The key point is up to court to make a [final] decision".

Ministers still have available the ultimate sanction of disconnecting serial pirates, although under the DEA, they have to examine a variety of lesser penalties before they can introduce disconnection.

Initially, alleged pirates will be sent warning letters that identify them as being serial illegal downloaders from the second half of 2012 – more than a year later than originally anticipated.

Fearful that there could be thousands of time-consuming appeals by recipients of the letters, ministers said that consumers who wish to appeal will have to pay £20, in an effort to deter frivolous claims. The amount will be refundable if somebody receiving a letter can prove their innocence.

The government has also asked Ofcom to begin establishing benchmarks and data on trends in online infringement as soon as possible.

Cable also said that plans for an Amazon-style digital copyright exchange, to create a kind of one-stop shop for easily buying and selling rights, have been accepted in principle. The government has launched a feasibility study to see how the exchange will work.

"[It will] serve as a genuine marketplace independent of sellers and purchasers, for example on the model of independent traders using Amazon.co.uk to sell goods, rather than simply being an aggregated rights database," the government said in its response to Hargreaves's recommendations.

The government allayed a number of the fears that rights holders have raised, such as that forcing them to join may break European regulations, saying it will be a compelling proposition to rights holders but not compulsory.

Intellectual property laws around parody, which are considerably more stringent than in countries such as the US, have also been relaxed to allow comedians, broadcasters and other content creators more scope – ensuring that spoofs such as the YouTube hit Newport State of Mind are no longer removed.