The trade body for ISPs has today cautiously welcomed news that the government does not plan to build a massive, centralised database of communications data, but voiced fears about the cost to its members.

ISPA was responding to the Home Office's consultation on the Interception Modernisation Programme (IMP), published this morning.

"In particular ISPA welcomes the decision by Government to explicitly exclude a central database as a means for storing communications data," it said in a statement.

The intelligence and security agencies had campaigned within government for a central store for communications data. Home Secretary Jacqui Smith ruled the idea out today, citing privacy concerns. Instead, the government plans to spend £2bn to have ISPs intercept and process the data, ready for investigators on demand.

Such a system will mean providers will need to hire new staff and buy new equipment. ISPA said the government had to ensure it covered the costs with public money.

"In updating the government's capabilities in the new communications environment, ISPA expects government to commit to reimbursing service providers for any extra costs of storing and retrieving data as is required under existing legislation," it said.

Arrangements already exist to reimburse ISPs for the costs of retaining communications data as ordered by the EU data retention directive, which came into force earlier this month. Under the government's IMP proposals, they would be ordered to collect, store and process much more data, including from third party services running over their networks, such as Skype and Facebook.

BT and Virgin Media, the two largest ISPs, both said they would be examining the consultation in detail before responding.

BT said: "This is a complex topic and we look forward to studying the detail of the Government's proposals and responding in due course. We will, of course, continue to adhere to whatever rules and regulations apply to us."

Virgin Media said: "As a responsible ISP, Virgin Media understands the needs of law enforcement groups, however any policy changes must not sacrifice customers' privacy."

A source said IMP has privately received a frosty reception from many in the industry, who would prefer less contact with government. In 2007 authorities made more than half a million requests for phone and internet records.

Dr Richard Clayton, a Cambridge University researcher who has followed the development of IMP closely, said despite the decision not to store communications data centrally the programme as envisaged will represent a major increase in surveillance. "The Government seems to have bottled out from proposing a central communications database, because it is easy for anyone to understand how disproportionate it would be."

"But they are still proposing to force the ISPs and phone companies to record all the details about every website visit, every instant message, every tweet and every glance at a Facebook page."

The Conservatives welcomed the decision not to build a central database. "The big problem is that the Government has built a culture of surveillance which goes far beyond counter terrorism and serious crime. Too many parts of Government have too many powers to snoop on innocent people and that's really got to change," shadow Home Secretary Chris Grayling said.

"It is good that the Home Secretary appears to have listened to Conservative warnings about big brother databases. Now that she has finally admitted that the public don't want their details held by the State in one place, perhaps she will look at other areas in which the government is trying to do precisely that."

The Liberal Democrats called for strong safeguards around access to the surveillance data ISPs will collect. ®