The Commons Business Committee branded the levy "regressive", saying it meant poor people would end up paying for a service that only the wealthier used.

It also questioned why ministers wanted to spend so much on upgrading broadband at a time when the public purse was under pressure.

The criticisms came in a report into proposals for improving the UK's internet provision, which were unveiled by ministers last July as part of the Digital Britain White Paper. Under the plans, an extra 50p charge would be imposed on every fixed phone line, with the estimated revenue of £175 million going to ensure that every home can access a minimum speed of 2Mbps (megabits per second) by 2012.

However, the MPs warned that while the Government's long-term ambitions were "laudable", it was "unwise" to meddle directly in the market at this stage.

"Early government intervention runs a significant risk of distorting the market and will not allow time for technological solutions to extend the market's reach across the country," the committee insisted.

"Furthermore there is little evidence to suggest a pent up demand for this enhanced service, with customers currently unwilling to pay the premium for such services."

The report went on: "We disagree with the Government over its proposal to fund its intervention in the Next Generation Access Market with the proceeds of a 50p levy on fixed telecommunications lines. Such a levy would be both regressive and poorly targeted. It would have a much greater impact on the less well off who will pay for an enhanced service which only a minority will enjoy. If public funds are required for next generation access, they should be raised through general taxation, in the same way as for any other national infrastructure programme."

The MPs suggested that cutting tax on fibre optic cable and improving competition among suppliers would be a better immediate use of public money.

"In times of great stringency in public expenditure digital inclusion, not next generation access, should be the priority for expenditure. The market can be helped to deliver greater levels of high speed access without significant increases in public expenditure."