Counterfeiters can expect harsher penalties but the public who copy content they buy for personal use should be able to so without fear of prosecution, according to a government report.

These are two of the recommendations in the 146-page Gowers report commissioned by the Treasury to review current intellectual property rights (IPR).

The aim of the review was to look at IPR in the digital age so the relevant laws give protection to copyright holders in the arts and industry but not at the expense of the consumer.

Former Financial Times editor Andrew Gowers, who headed the review, said: " The ideal IP system creates incentives for innovation, without unduly limiting access for consumers and follow-on innovators. It must strike the right balance in a rapidly changing world so that innovators can see further by standing on the shoulders of giants."

Gordon Brown has already backed part of proposals to deal with piracy. He announced in his pre-budget report today that the government will impose far stricter penalties for copying and piracy.

This means counterfeiters could face up to 10 years in jail and this could include people who upload music or movies to file sharing sites. Trading Standards will be given an extra £5m so they can take action against people who sell pirated goods, often at car boot sales.

This may in some way mollify the entertainment industry which has been fighting piracy issues and file sharing sites. According to the report, the music industry is losing as much as 20 per cent of annual turnover to piracy and counterfeiting.

However, the Open Rights Group which has generally welcomed many of the recommendations has called for caution with the more draconian penalties for counterfeiting.

Suw Charman, who is chairman of the ORG, said: "While huge counterfeiting operations are obviously a problem, care needs to be taken not to demonise the petty offenders such as people uploading content on the internet.

"Jail is a place for people who are a danger to the public. IP infringements should not be equated with violent crime."

However, a recommendation on the side of the consumer is they should be allowed legally to transfer music they purchase in CD format to other devices such as an mp3 player as long as it is for personal use or as backup. Under current copyright laws this is an offence.

The review has also dismissed the music industry's call to extend copyright on sound recordings from the current 50 years to 95 years and said that "the European Commission does not change the status quo and retains the 50 year term of copyright protection for sound recordings and related performers' rights".

The British Phonographic Industry said it would continue to lobby against this recommendation.

The report will now go before ministers for discussion.