The Fraud Advisory Panel said in a report last week that uncertainty over existing data protection laws was making it difficult for businesses to fight ID fraud, which is costing the UK economy an estimated £1.3bn a year.
The panel suggested that the public might accept lower levels of privacy in return for greater protection against identity theft, which is widely regarded as one of the biggest deterrents to people buying online.
It called for companies and the public sector to be given a clearer mandate under data protection legislation to create a central register of stolen identities, forged documents and biographical details of identity criminals
"Greater data sharing and cross-referencing of information about known frauds and fraudsters between governmental agencies and the business sector will mean there is a better chance of detecting identity theft at an earlier stage," said lawyer Steven Philippsohn, head of the working group that produced the report.
The report urged the government to establish links with credit reference agencies to verify the identity of people applying for passports and driving licences and called on businesses to set up their own databases on suspected identity frauds and to share the information with competitors.
The report, which warned that many cases of identity fraud are perpetrated by insiders, called on employers to introduce greater internal controls, including staff vetting, keeping staff information in locked files, and rotating jobs to catch fraud at an early stage.
Biometric fingerprinting, regular password changing, tighter information security and encryption should also be used.