Government plans to slash the number of people illegally sharing copyrighted material online could cost consumers up to £500million.

As part of the Digital Economy Bill due to be passed through parliament in the coming months, Labour is intent on reducing the amount of people using peer-2-peer technology to illegally share films and music.

A new report released by the Department for Business, Innovation and Skills, has now revealed the bill could end up costing consumers between £290million and £500million if internet service providers (ISPs) pass on the new charges they face in full. ISPs estimate the cost of receiving broadband would increase by around £25 per household.

Under the Digital Economy Bill, ISPs would have to send out a warning letter to people caught infringing copyright. It’s estimated this would cost around £1.40 per offender.

 The Government has said the effect of the bill on low income consumers could be that they “stop consuming digital content altogether rather than purchase it”, while as many as 40,000 households may find the new prices too expensive and cancel their internet subscriptions.

The report says the plan could generate an extra £1.7billion in revenue for the entertainment industry over the next decade, leading to an extra £350million in VAT for the Government.

A report by The Times newspaper said ISPs are calling on the music and film industries to help to cover the cost.

Charles Dunstone, chief executive of Carphone Warehouse, whose subsidiary TalkTalk is the biggest consumer provider of broadband, said: “Broadband consumers shouldn’t have to bail out the music industry. If they really think it’s worth spending vast sums of money on these measures then they should be footing the bill, not the consumer.”

A spokesman for the Department for Business, Innovation and Skills said the overall benefits to the country far outweigh the costs.