The government's £5.8bn ID card project will be more than £1.81bn in deficit by 2008 unless the Home Office finds additional funding, a report by the London School of Economics (LSE) has claimed.
The Home Office will come under pressure to increase fees for passports and cards, or charge other government departments and the private sector higher fees, if the project is to come in on budget, said the report.
The deficit is likely to hamper the development of other Home Office programmes, it warned.
The LSE based its conclusions on an analysis of figures published by the Home Office, including the expected costs, income and benefits of the scheme in each year of its operation, gathered from official documents and parliamentary answers.
"You would have thought if there was a hole in the figures, the government would have done a back-of-the-envelope calculation and made sure the figures added up," said Ian Angell, professor of the department of information systems at the LSE.
The LSE issued its report last week as peers voted by a majority of 61 to overturn government plans to make ID cards compulsory for all passport applicants.
The report criticised the government for releasing few details about the likely costs and benefits of the programme. There are still no reliable figures for enrolment rates, it said.
The report also accused the government of making the passport system unnecessarily complicated in an attempt to cross-subsidise the costs of the ID card programme.
"The UK's insistence on using the passport scheme to generate a National Register and to include additional fingerprints and iris scans increases the cost of the passport unnecessarily," it said.
As a result, UK passports will be among the most expensive in the world, and will hold a wider range of biometric data than any other passport.
Home secretary Charles Clarke has vigorously rejected the LSE's claims of mounting costs for the project. Last month he told MPs that £32.05m had been spent between April 2003 and December 2005 on the ID card project.