Britain's prime minister Gordon Brown and chancellor Alistair Darling were left reeling last night after the astonishing disclosure that the personal data of 25 million people and 7.25 million families across the UK has been lost.
In his second emergency statement to MPs in two days, Mr Darling blamed junior officials for a "huge, massive, unforgivable mistake" that leaves millions fearing possible identity theft, Britain's fastest-growing crime.
The Metropolitan Police are now leading the search for two disks containing details of the UK's entire child benefits database. The data was downloaded in breach of all standing procedures by junior officials at HM Revenue and Customs (HMRC) and then sent to the National Audit Office via an internal postal system that was not recorded or registered.
Upon discovering that the package had not arrived, the breach was repeated, with the package sent this time by registered post.
"HMRC should never have let this happen," Mr Darling told MPs, admitting "an extremely serious failure" while seeking to reassure the public there was no evidence the data had fallen into criminal hands. The data contains names and addresses of parents and children, national insurance and child benefit numbers and, in some cases, bank or building society details.
Mr Darling said the missing password-protected information would not be enough to access accounts. Banks and building societies were monitoring accounts for any evidence of irregular activity, and anyone who thought they had been the victim of fraud would be reimbursed under the banking code.
However, security experts expressed astonishment that the highly personal and sensitive data was not encrypted, warning that a password protection system could easily be broken by hackers.
And as the prime minister confirmed his "full confidence" in the chancellor, who did not offer to resign, Conservative shadow chancellor George Osborne said Mr Darling faced "a huge task" in restoring public confidence.
"He will have to demonstrate over the next few weeks that he is capable of doing that," warned Mr Osborne, as acting Liberal Democrat leader Vince Cable suggested the treasury had replaced the home office as the government department most "unfit for purpose".
The chairman of Revenue and Customs, Paul Gray, resigned, while former Conservative leader Iain Duncan Smith challenged Mr Darling to say if he or any of his ministers would quit if the missing data eventually found its way into "the wrong hands". At prime minister's questions in the Commons today Conservative leader David Cameron will widen his attack on the government's increasingly vulnerable reputation for "competence".