Government plans to outsource official spying, forcing communication service providers like BT to retain personal communications data – records of all phonecalls, emails, texts and internet connections – have been severely criticised by the industry expected to do ministers dirty work for them.

In a submission to the Home Office as part of a public consultation, internet firms have candidly labelled the plans as "an unwarranted intrusion into people's privacy" and have suggested people were deceived about the extent of the government's ambitions to monitor the country's communications data. According to the Sunday Times, the London Internet Exchange which represents 330 firms including BT, Virgin, and Carphone Warehouse, says that the proposals are deceptive. "We view the description of the government's proposals as 'maintaining' the capability as disingenuous: the volume of data the government now proposes [we] should collect and retain will be unprecedented, as is the overall intrusion into then privacy of the citizenry."

This represents the unanimous view of the firms that are to replace the £12bn data silo planned before the crisis in public finances. The new policy announced in April by the unlamented former home secretary, Jacqui Smith, was presented as a concession to those concerned about intrusion, as well as a response to the new reality of the economic situation. The revised scheme, which has been urged by "Surveillance Central" – GCHQ in Cheltenham – will cost £2bn, still great chunk of taxpayers' money to be throwing around these days.

But the cost is not really the issue. The policy is one of the foundation stones of the surveillance state – a society in which data from people's movement, travel abroad, spending habits and communications are retained by government and its agencies – and is an indicator of the profound contempt and mistrust this government has for the public. It represents as great an intrusion as the national identity register, the central database planned with the ID card.

"These new proposals," says the industry submission, "suggest an intention to capture anything and everything, regardless of the communications [method] used. We have grave misgivings about the technical feasibility of such ambition."

"We are not aware of any existing equipment [an internet company] could purchase that would enable it to fulfil a legal obligation to acquire and retain such a wide range of data as it transits across their network … in some common cases it would be impossible in principle to obtain the information sought."

The internet providers make another crucial point. If this system goes ahead, it would represent a mass breach of the Human Rights Act which guarantees a right to privacy. Given the government's failure to respond to European judgments against the retention of innocent people's DNA we can hardy expect another huge breach of the public's rights to bother Home Office civil servants.

But we should be really worried. This scheme is among the greatest of the current threats to our free society and it is important that the Internet Exchange has raised concerns about privacy so clearly. As the ISPs point out, there is no guarantee that the methods proposed to store our communications data will be secure, for as soon as you start gathering information in large databases it becomes vulnerable to hackers, abuse by government agencies and of course incompetence.

We should remember that the essence of the government's proposal is this: ministers plan to seize our information using our money for their benefit. That's like paying someone, who has broken into your home, to read your private letters.