The move will spark outrage from Britain’s civil liberties lobby, which has long campaigned against ID cards. It is also likely to provoke anger among voters, who will object to being forced to pay for a new arm of state control.

The home secretary has rejected voluntary “entitlement cards” and instead will require all citizens to have identity cards. Each card will contain biometric data, such as an image of a person’s iris or fingerprint, so police and other authorities can confirm the holder’s identity.

Although it will not be compulsory to carry the card at all times, as in some countries, anybody who is challenged may be required by police to produce it within a few days.

People will be able to upgrade their passports or driving licences to include the biometric data, but will have to pay an extra charge.

The card will be free for retired people over 75, for those on low incomes and for 16-year-olds. Anybody receiving benefits or who is retired but under 75 will pay £5. Everybody else will have to pay £39 to cover the cost of the scheme.

The government will hold information about the population on a central computer database — a move that will further alarm civil liberties groups.

Blunkett wants to make an announcement to parliament this month and intends to bring in legislation later this year. His decision follows a consultation exercise which found strong public support for ID cards in the wake of terrorist alerts after the September 11 terrorist attacks.

In a letter to fellow cabinet ministers dated June 25, Blunkett says: “I believe that the case for introducing a universal identity card in the UK is overwhelming. The consultation exercise showed strong public support for a card scheme and a preference for the term ‘identity card’ rather than ‘entitlement card’.”

He adds: “The argument that identity cards will inhibit our freedoms is wrong. We are strengthened in our liberty if our identity is protected from theft; if we are able to access the services we are entitled to; and if our community is better protected from terrorists and organised criminals.

“There is a highly organised minority who will campaign vocally against a scheme. However, the identity card I am proposing would not be used to store large amounts of personal data to which government departments or agencies would have unfettered access.

“There will be strict limits on what is held on the card, and what information different agencies can access via the card and the central database. Privacy will be protected, as it is in other advanced democracies that have identity cards.

“Nor will it be compulsory for people to carry a card, though as now with driving licences, the police or other agencies could require its production as a secure proof of identity in strictly defined circumstances. It will be important to reinforce these messages continually during the debate on legislation.”

Blunkett explains he has already discussed the cost of the scheme with the Treasury, saying that without the exemptions each person would pay £33. “This would bring the cost for the rest of the population to around £39 if the free and discounted cards were not funded out of general taxation.”

Blunkett’s letter is officially addressed to John Prescott, the deputy prime minister, as chairman of the domestic affairs cabinet committee.

Many other countries have some form of identity card and Blunkett says in his letter that Britain is “out of kilter with Europe”. Eleven European Union member states have cards and in Germany, Spain, Greece and Belgium they are compulsory.

From next year travellers to the United States will have to have biometric data on their passports if they are arriving on a long-stay non-tourist visa.

Blunkett met Tony Blair in Downing Street last week to discuss the scheme. The prime minister is understood to support it but wants more details. “David always gets his way with Tony,” said a Whitehall source.

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