This is part of the the so-called Interception Modernisation Programme (IMP) which aims to use the information to profile suspects and their personal networks.
A central database would allow intelligence agencies to interrogate it directly, said a source familiar with the proposals. "This would speed up answers to questions such as 'How many people have more than one mobile phone or internet account with different service providers?'" he said
Newspaper reports on Sunday said the proposed database could cost £12bn. It would involve intelligence agents installing "black boxes" to do "deep packet inspection" of ISP and telco traffic and copy information to their own database, they said.
A Home Office spokesman said no decision had been taken on IMP.
Assistant information commissioner Jonathan Bamford said earlier that a centralised database "might well be a step too far". He said, "We are not aware of any justification for the state to hold every UK citizen's phone and internet records. We have real doubts that such a measure can be justified, or is proportionate or desirable."
A source familiar with the IMP said the intelligence services saw themselves losing the ability to trace telephone calls made over the internet. "They are just looking for a return to the status quo of the 1980s, when they could tap phones and open mail and know with a high degree of certainty who sent it and who got it," the source said.
The Home Office is consulting on how to comply with the European data retention directive. This would make ISPs and other communications services providers collect and store details such as who called whom and when.
Many already collect and keep such data for billing purposes, but most do not keep it online for more than three months. The directive says local laws can vary the retention period from six to 24 months the UK has settled at 12.
A Home Office spokesman said the Home Office's preference was for "Option 4", a plan outlined in a discussion document now doing the rounds. This plan calls for a set of regulations that
• allows the government to reimburse public communications providers for additional costs
• makes provisions to avoid duplicated retention of communications data, and
• requires communications data to be retained for a year.
The Home Office estimated the plan will cost £30.35m in capital and £16.23m to run for eight years. The consultation closes on 31 October 2008.