Government proposals to force cigarettes under the counter will have little effect on underage smoking and force retailers out of business.

That was the message emerging from manufacturers, retailers and wholesalers. Legal team and lobbyists furiously prepared their battle strategies to stop health minister Dawn Primarolo's plans to keep tobacco "out of sight, out of mind" as the government's proposals, announced over Easter, appeared to catch the industry on the hop.

A consultation will begin in May and legislation forcing retailers to remove point-of-sale display gantries could be introduced as early as the autumn.

But experts were optimistic that this was not a fait accompli. "I think the government will listen to us," said Imperial Tobacco trade communications manager Iain Watkins. "Especially when we highlight the impact on retailers."

The impact of similar legislation in Iceland was devastating to retailers, with 30% of convenience retailers forced out of business within 12 months of the law being introduced, while the reduction in numbers of people smoking was minimal.

The Association of Convenience Stores said it would challenge the government to prove that the benefits in terms of preventing underage smoking would outweigh the financial impact on store owners . "We will put together a response about the financial and operational costs of a display ban. We are already consulting members and developing evidence," said ACS public affairs manager Shane Brennan. "We want to ensure the government weighs up the costs to retailers against the benefits - if any exist."

Tobacco manufacturers poured scorn on the proposals.

"We are against regulation that prohibits retailers from displaying tobacco products at point of sale because this is essential to enable adult consumers to make an informed choice based on availability, price and brand," said Jeremy Blackburn, communications director at Gallaher.

British American Tobacco also pledged to take action. "We want to engage with government and be part of the consultation.

"If the government's intention is to prevent underage smoking, then moving tobacco under the counter won't work. It would be better to think of ways to tighten the over-18 rule," said BAT head of press David Betteridge.

And the proposals have also been met with anger by wholesalers who have already been feeling the pinch brought about by the ban on smoking in public places. This week Booker reported tobacco sales down 5.4% in the past 12 months. The Federation of Wholesale Distributors will begin drawing up its battle plan at a council meeting next week ahead of its annual conference.

"We will fight this to get government to understand the crucial nature of tobacco sales to small shops, and the huge costs and disruption of these plans to so many small businesses on narrow margins," said director general John Murphy.

The Federation of Small Businesses estimated the total cost to the UK's 50,000 small shops would be at least £50m due to the expense of removing display gantries and devising new security systems.