The proposals, from the Performance and Innovation Unit (PIU), would allow government agencies to overcome the restrictions of the Data Protection Act, which prevents data collected for one purpose being used for another.
The Government sees the proposals, which it says will be balanced against the need for privacy, as an essential step towards its target of having all government services online by 2005, with many proposed services relying on the integration of data between different agencies.
Backing the proposals, the prime minister Tony Blair said, "There is great potential to make better use of personal information to deliver benefits to individuals and society through increased data sharing. But these benefits will only be realised if people trust the way that public services handle their personal data."
The PIU report lists 19 government projects, including updating the addresses of millions of passport holders with data held by the Driving Vehicle Licence Agency and swapping data between insurers and the DVLA to catch car insurance dodgers.
Other plans include giving the Passport Service and the Criminal Records Bureau access to public and private databases to perform identity checks, and sharing information on ex-offenders between probation, welfare, education and housing services.
The projects will require a major investment in the infrastructure needed to manage complex outsourcing deals if the Government is to avoid the problems that have plagued projects such the National Insurance Recording System 2.
"The implications are that the Government will perfect its managerial model and the scale and complexity of projects that can be scoped. The risk sharing will be more equitable with outsourcers," said Robert Morgan, chief executive of consultancy Morgan Chambers.
However, local authorities have questioned whether the plans, which will be published as a draft bill next year, will materialise quickly enough to enable them to meet the 2005 deadlines for providing services online.
Socitm, the local authority IT managers group, said targets would be "tight" and could only be met if the Government prioritised data relaxations to match local authorities' needs.
The proposals, which will allow government departments to become data sharing gateways through statutory instrument, rather than by legislation debated in Parliament, have been criticised by civil liberties groups and opposition MPs.
Shadow home secretary Oliver Letwin said "We have very grave reservations about this move. We fought off attempts by the Government to do something very similar under the cover of the Terrorism Bill earlier in the year, and now we find this was part of a plan to enlarge the scope for Big Brother throughout Whitehall.''