Can it get worse?

Alistair Darling, the Chancellor, admitted yesterday that names, addresses, birth dates, national insurance numbers and bank account details of every child benefit claimant in the country had gone missing.

The confidential material sensitive ,which includes personal details of 25 million Britons, is on two CDs. These were placed in the post by a junior employee at the HM Revenue & Customs office in Tyne & Wear more than a month ago and have not been seen since.

The Chancellor and the Prime Minister have known about the loss since November 10 but there were concerns last night that the police were not told for a further five days and the banking industry was not alerted until last Friday.

The catastrophic breach of personal security led to the resignation of Paul Gray, the chairman of HMRC, and called into question the Government’s competence, especially its ability to manage an ID card system in the future.

No evidence of criminal activity has been detected but Scotland Yard has appointed an expert in organised crime to head the investigation. Acting Assistant Commissioner Janet Williams is heading a team of 12 officers who are combing Government offices for the lost data. The Serious Organised Crime Agency is also advising on the potential criminal abuses of information about the identities and finances of 7.25 million British households.

Equipped with such detail, identity thieves could plunder bank accounts, obtain credit cards and take out fraudulent loans. Households were advised last night to monitor their bank accounts carefully for signs of irregular activity and, if necessary, to obtain credit reports.

It is said that criminals would pay around £2.50 for the personal information of each person involved. So if everyone's information on the CDs were sold, they could fetch over £60m. Taking into consideration the fact that the average victim of fraud looses £15,000, the potential loss could amount to billions of pounds.

The banking industry has upgraded its fraud detection systems to keep a constant watch on all accounts into which child benefit is paid.

Mr Darling told the Commons that the information should never have left the HMRC offices and its transfer in unregistered mail was against all procedures.He said the missing data was not enough in itelf for someone to access an account for fraudulent purposes because passwords and pin numbers were required. But he apologised to the country for what he described as an “extremely serious failure on the part of HMRC to protect sensitive personal data entrusted to it.”

According to the Spanish newspaper El Pais, this is not the first time a problem like this has occurred. There have been four other occasions when data was sent by unsecured delivery, via the courier TNT, dating back to last March.