Millions of British families have been warned to look out for identity theft and watch their bank accounts for suspicious transactions after the government admitted it had lost child benefit details of 25m people in Europe’s biggest ever loss of confidential personal information.

Details of the the breach led to the resignation of Paul Gray, chairman of the HM Revenue and Customs, and could also create fresh problems for the government’s plans for a national identity card, supported by a database. On Tuesday George Osborne, the shadow chancellor said, the incident would be the “final blow” in destroying the government’s plans to set up a national identity card scheme, since nobody would trust the government to store sensitive personal data any more.