The government has scrapped plans to use passport and driving licence databases as the foundation for a proposed national identity card, pushing up the costs of introducing the scheme.

Data watchdog the Information Commission had warned the government that databases run by the Passport Agency and the Driver and Vehicle Licensing Agency were not sufficiently accurate to meet data protection requirements.

Speaking to the Home Affairs Committee last week, Information Commissioner Richard Thomas indicated that using those databases would result in a "nightmare".

A Home Office spokesman confirmed that it had now "ruled out using the Passport Agency and driving licence databases". Instead it will look to build a database specifically for ID cards.

The Home Office has yet to reveal exactly what information will be held either on the ID card or back-end database. But industry watchers are worried.

"We are seriously concerned that, given the likely cost and the record of large government IT projects, this could be a waste of taxpayers' money," said Martyn Thomas, IT spokesman for the Institute of Electrical Engineers.

Initial costs of the scheme were between £1.3bn and £3.2bn, but these estimates were based on using existing systems to hold the data.

The government is now faced with the task of collecting accurate data on all those it intends to issue with cards, and ensuring that the data is held securely. The inclusion of biometric information would push up costs significantly.

"To say this is a challenge is an understatement," said Nick Kalisperas, head of the public sector group at industry body Intellect.

Given the complexities of the project, the government would be well advised to make the initial scheme as simple as possible, according to Kalisperas, perhaps by reducing the number of biometric security measures it used.

The Passport Agency has recently entered into discussions with credit agencies to look at ways of improving the accuracy of its data.

But the Information Commissioner is adamant that this will not be sufficient to meet data protection requirements.

"A national identity card has to be based on the highest quality data," he told the Home Affairs Committee.