UK companies are concerned about higher internet access costs and the erosion of consumer privacy following new government proposals for data traffic laws, and warn that e-commerce could suffer.

The Anti-Terrorism, Crime and Security Bill, published last Wednesday, would allow law enforcement agencies to compel internet service providers (ISPs) to retain traffic data.

The legislation builds on the interception and disclosure aspects of the Regulation of Investigatory Powers Act, said Rupert Battcock, solicitor at IT law specialist Nabarro Nathanson. "[It would] introduce a requirement to retain data, at least for a certain period," he added.

The ISP Association said the proposals might be unworkable, considering the cost to ISPs of storing the information.

Under the proposals, ISPs would only be paid a fee for each access request by law enforcement agencies. This could lead to huge storage costs, which may be passed on to corporate customers.

Industry bodies and the government's Information Commission also warned that the proposals could contravene existing law, possibly making the new law unenforceable and leaving ISPs in a legal grey area.

ISPs said the proposals seem to contradict the 1998 Data Protection Act (DPA) which states that companies must not keep personal data for billing, such as email and traffic logs, beyond the time it is needed for that purpose.

"This bill allows us to keep data that we wouldn't otherwise be able to, so what are our liabilities? What parts of the DPA apply and what parts don't and under what circumstances? The words are very vague and woolly," said Tim Snape, managing director of West Dorset Internet.

Roland Perry, director of the London Internet Exchange, said the proposals could lead to ISPs being prosecuted for misusing customer data. "If someone takes civil action against you for keeping their data too long under the DPA or Human Rights Act, how watertight is this exemption in the [new proposals]?" he asked.

Jonathan Bamford, the government's assistant information commissioner, added: "The bill may not hold water in data protection terms and, if it contravenes the DPA, then we do have enforcement powers."

But Snape said the industry is generally supportive of the measures included in the bill and refusal to co-operate with the government "is not an issue".

Further meetings between the Home Office and industry bodies are planned this month and the government hopes to push the bill through by Christmas.