Home Secretary Jacqui Smith today ditched plans for a giant Government database tracking all emails, phone calls and internet activity.

Home Secretary Jacqui Smith today ditched plans for a giant Government database tracking all emails, phone calls and internet activity.

Ms Smith said a central store of electronic data was an "extreme" solution and would have undermined privacy.

Records of every electronic communication made by Britons will instead be held by private companies at a cost of around £2 billion.

Internet firms will be asked to collect and store vast amounts of data, including from social networking sites such as Facebook.

Launching the proposals today, Ms Smith acknowledged concerns over privacy.

She said: "My key priority is to protect the citizens of the UK, and communications data is an essential tool for law enforcement agencies to track murderers and paedophiles, save lives and tackle crime.

"Advances in communications mean that there are ever more sophisticated ways to communicate and we need to ensure that we keep up with the technology being used by those who would seek to do us harm.

"It is essential that the police and other crime-fighting agencies have the tools they need to do their job. However, to be clear, there are absolutely no plans for a single central store.

"We recognise that there is a delicate balance between privacy and security, but to do nothing is not an option as we would be failing in our duty to protect the public."

She added: "There were two elements that I think people could be concerned about. One was the state holding the data. The other was the data all being concentrated in one place.

"It is to overcome those concerns about privacy that the proposal involves Communication Service Providers retaining the data that comes from them and passes across their networks."

Under the plans, every internet user will be given a unique ID code and all their data stored in one place.

Government agencies such as the police and security services will access the data to investigate suspected criminals and terrorists.

But it could also be accessed by local authorities and other Government agencies.

Ministers stress the content of messages and online profiles will not be stored.

Plans for a single database, reportedly costing £12 billion, have been circulating around Whitehall since last year.

Leaks of the plans prompted outrage from civil liberties campaigners concerned over the rise of the "Big Brother" state.

Ms Smith's announcement could be seen as marking a major shift in Government attitudes to large data stores.

It could also call into question the future of other major IT projects requiring the storage of huge quantities of personal information.

The consultation paper backs the idea of a single data store, describing it as the most effective way of keeping the data.

It would be the "most effective at delivering fast and efficient access in support of the law enforcement and intelligence agencies and emergency services, the least challenging technically to implement and the cheapest to build and run", the document states.

But such a move would be a "significant shift" from the current system, it says.

"The Government recognises the privacy implications of holding all communications data from the UK from a 12-month period in a single store.

"The Government therefore does not propose to pursue this approach."

The paper also rules out doing nothing, which it says would undermine the capacity of law enforcement agencies.

Internet service providers (ISPs) are currently required to hold communications data under an EU directive which came in to force earlier this month.

Today's plans would extend the amount of data held from UK firms' own service and tracking to internet data from "third parties" outside the UK.

Shadow home secretary Chris Grayling called on Ms Smith to drop other database proposals.

He said: "The big problem is that the Government has built a culture of surveillance which goes far beyond counter-terrorism and serious crime.

"Too many parts of Government have too many powers to snoop on innocent people and that's really got to change.

"It is good that the Home Secretary appears to have listened to Conservative warnings about 'Big Brother' databases.

"Now that she has finally admitted that the public don't want their details held by the State in one place, perhaps she will look at other areas in which the Government is trying to do precisely that."

Liberal Democrat home affairs spokesman Chris Huhne said: "I am pleased that the Government has climbed down from the 'Big Brother' plan for a centralised database of all our emails and phone calls.

"However, any legislation that requires individual communications providers to keep data on who called whom and when will need strong safeguards on access.

"It is simply not that easy to separate the bare details of a call from its content. What if a leading business person is ringing Alcoholics Anonymous, or a politician's partner is arranging to hire a porn video?

"There has to be a careful balance between investigative powers and the right to privacy."

Shami Chakrabarti, director of Liberty, said: "The Home Office has been sending out conflicting signals on the 'superdatabase' for some months, frantically briefing journalists in private but failing to publish any detailed proposals.

"If this statement from the Home Secretary marks a genuine change of direction on privacy policy, we will welcome it. However, it might be wise to read the small print first."

The Internet Service Providers Association said its members would want to recover from Government the cost of holding the data.

ISPA secretary general Nicholas Lansman said: "ISPA advocates a proportionate approach to data retention.

"To ensure that any updated law enforcement requirements do not place extra financial burdens on internet service providers, ISPA stresses the importance of cost recovery."

"We will continue discussions with the Home Office and other stakeholders on this matter and look forward to a constructive dialogue."