At the end of the Old Bailey's longest terrorist trial, I watched Michael Mansfield QC address the jury on behalf of his client, Nabeel Hussain. The speech was entitled "The Elephant in the Room" and it focused on the recording of a conversation between Nabeel and his cousin. The two men had been talking at college and they were recorded by a bugging device placed in their room.

Mr Mansfield claimed that the recording provided such powerful evidence of his client's innocence that it sat there like an oversized pachyderm. The Crown could barely confront it, let alone answer it. The jury listened to the recording carefully and Nabeel was – quite rightly – acquitted. After a trial that had lasted well over a year, he returned to his life as a student.

Last week, the government confirmed it would maintain the rule prohibiting the use of telephone intercepts in court. It made me think of that case. If Nabeel's fateful conversation had been caught by a telephone intercept and not a bugging device placed in the college room, the course of justice may have been very different. The rule means that defence lawyers and their clients can never be informed about any telephone intercept. Neither Mansfield, nor Nabeel, could have listened to the intercept or even been told of its existence. The jury would never have considered it. What would have happened to Nabeel Hussain?

More than 1,700 phone intercept warrants were issued in the UK last year. Intercept evidence is itself the "elephant in the room" in many cases. It sits before prosecutors, almost impossible to ignore, sometimes providing the most compelling evidence of guilt. But the Crown must present its case as though that material does not exist. The UK, alone in the world, denies its prosecutors the use of evidence which could support convictions for murder, drug dealing or sex offences merely because it is obtained through a phone intercept.

Alternatively, the intercept material may reveal some potentially supportive evidence for the defendant, but it cannot be disclosed to him. So even if the prosecutors feel that they could answer that point, in order to ensure a fair trial the case may have to be discontinued. Criminals who might be otherwise have been convicted walk free.

Other aspects of our legal system are also distorted. In 2005, Azelle Rodney was shot dead by police officers. His inquest cannot be completed. The rule against disclosure of telephone intercepts also applies in the coroner's court. If information from an intercepted call was the reason for officers' actions, the full circumstances of the death can never be made public. No one benefits from this: Azelle Rodney's family still do not know why the police felt it necessary to use deadly force and the officers are prevented from explaining themselves fully in an open hearing. Everyone remains in the dark.

Against that background, prosecutors, civil liberties groups and even defence lawyers have consistently called for the rule to be changed. But it is those who actually carry out telephone interceptions, such as GCHQ, who take a different view. For them, the real value of intercepting calls is for intelligence- gathering, not collecting evidence. They want to protect their work from the public scrutiny of court proceedings. Once again, their view has prevailed. However, the reasoning in last week's report – "Intercept as Evidence" – raises serious concerns.

Surprisingly, the security services' traditional fears were not the highest concern. For example, the report concluded that intercepts could be used in court without intelligence techniques being exposed. Instead, the primary reason was that the retention and examination of intercept material would be too difficult. For any experienced criminal lawyer, this conclusion is not easy to understand. Many complex cases already involve the assessment and storage of hundreds of hours of recorded conversations, similar amounts of video surveillance and tens of thousands of texts and emails. The system copes. Some reports suggested last week that it would be too arduous to prepare such material for service on the defence. But the CPS already tackles other types of material effectively. It is difficult to see why telephone recordings would create a unique problem.

The key to understanding the main concern requires slightly closer reading. In a critical passage, the report accepts that "the interception agencies should have continued discretion over retention, examination and transcription of intercept material". What does this mean? In simple terms, it seems that the security services wish to be able to choose how they handle intercept material as part of their operational discretion. Other considerations come second. GCHQ spies do not want to be bound by a prosecuting lawyer's judgment as to what is necessary for the purposes of a fair trial of a suspect. This is a troubling reason for keeping such a flawed rule, and it is also a recipe for potential miscarriages of justice.

Which brings us back to an earlier question: what would have happened to Nabeel Hussain if that crucial conversation had been recorded by a telephone intercept? If the prosecutors had spotted it, knowing that they could not disclose it, they may have been forced to drop the case against him and others.

But something else may have happened. If, for "operational reasons", the intercept recording had inadvertently not been properly transcribed and logged, that lifesaving evidence may have been destroyed or never properly assessed. If so, it would have remained unknown even to the prosecutors themselves. And an entirely innocent young man would now be serving a life sentence for a crime he did not commit. It is a chilling thought.

Despite its conclusion, the report seems to be a genuine attempt to examine the problem. It acknowledges that efforts to find a solution should continue. I hope there will not be a long wait. The sooner we recognise just how dangerous this elephant in the room is the better.

Matthew Ryder is a barrister at Matrix Chambers