HM Revenue & Customs (HMRC) will sell taxpayers' private data to private companies if a new law is to come into affect.
The primary concerns are of confidentiality, although the government insists the data will be sufficiently safeguarded against revealing any taxpayers' identities.
The Treasury said:"The government has decided to proceed with the proposal to remove the legal restrictions that currently limit HMRC's ability to share anonymised individual level data for the purpose of research and analysis and deliver public benefits wider than HMRC's own functions, but they accept that this must be done only where there are sufficient safeguards in place to protect taxpayer confidentiality.
"HMRC is committed to protecting its customers' information. We shall be consulting further on implementing the proposals for sharing anonymised data, and would only take forward specific measures where there was a clear public benefit and subject to suitable safeguards."
However, former Conservative minister David Davis told the Guardian the plans were "borderline insane".
"The officials who drew this up clearly have no idea of the risks to data in an electronic age. Our forefathers put these checks and balances in place when the information was kept in cardboard files, and data was therefore difficult to appropriate and misuse," Davis said.
"It defies logic that we would remove those restraints at a time when data can be collected by the gigabyte, processed in milliseconds and transported around the world almost instantaneously."
HMRC has already embarked on a pilot scheme that reveals VAT registration data to three credit referencing agencies. This used a loophole that said because the agencies were contracted to work on behalf of HMRC, they were treated as part of the department and could have access to the confidential information.
HMRC's plans are similar to the Care.data initiative that will allow anonymous data including postcodes, dates of birth, NHS numbers, ethnicity and gender to be sold to various companies including private companies, researchers, and public bodies where there is a benefit to the public.
The government has now agreed to suspend the Care.data initiative for six months while it investigates concerns from data privacy groups who believe centralising the inofrmation will make it a prime target for hackers.
