Controversial moves to give police, security services and tax officials access to phone calls, emails and internet usage will cost the taxpayer at least £1.8bn.
The price tag for what critics call the “Snooper’s Charter” was disclosed as Home Secretary Theresa May published draft legislation.
The 10-year bill includes the costs of equipping internet and telephone companies to retain and store data on behalf of the police, the security services, the Serious Organised and Crime Agency and HM Revenue and Customs.
However, it does not include VAT or allow for inflation, and the impact assessment for the proposals warns: “Technical complexity can increase projected costs.”
The Home Office said the benefits would be in the region of £5bn to £6.2bn, through reduced tax fraud and seizing criminal assets.
Mrs May said: “This communications data is vital for catching criminals. If we don’t do this, if that money isn’t spent, then we are going to catch fewer criminals.”
She said the law abiding had notrhing to fear. “The only people who have anything to fear from this are the criminals,” she said.
The Home Secretary said the draft Bill would not introduce real-time monitoring or allow the content of communications to be subject to surveillance.
Local authorities would not have access to the information, Mrs May said.
Despite disquiet among Liberal Democrats about the proposals, Mrs May said Deputy Prime Minister Nick Clegg was signed up to the Bill.
Conservative backbencher and former Shadow Home Secretary David Davis said Prime Minister David Cameron had attacked similar proposals when they were advanced by the former Labour government in 2009.
Nick Pickles, director of privacy campaign group Big Brother Watch, said the Bill was “an unprecedented and unwarranted attack on our privacy that will see the Government track where we make calls, who we email and what everyone does online”.