Prime Minister Gordon Brown apologised on Wednesday for the loss of millions of Britons' personal details and ordered a review into the huge security lapse.
Brown also said the Information Commissioner Richard Thomas would get new powers to carry out spot-checks on government departments' security.
He was addressing parliament after the government said the tax authority had lost data on 25 million people -- potentially the largest data security lapse in British history. It exposed them to the risk of identity theft and bank fraud.
"I profoundly regret and apologise for the inconvenience and worries that have been caused to millions of families who receive child benefit," Brown said. "When mistakes happen in imposing procedures we have a duty to do everything that we can to protect the public.
"I also set up a review ... to look at the security of personal data in both public and private sector."
The lapse dealt a heavy blow to Brown's government, which is already being batted by criticism of its handling of Northern Rock banking debacle -- the first run on a British bank in a century.
In a round of media interviews on Wednesday, Chancellor Alistair Darling sought to win back public trust by repeatedly apologising and insisting that such an enormous security lapse should never have happened and must never happen again.
Two computer discs containing information on 25 million Britons disappeared after being sent via courier from Britain's tax authority HM Revenue and Customs (HMRC).
"This is a very, very bad situation indeed," he told GMTV. "I can well understand people's anxiety and anger that this has happened. It should never have happened, and I apologise unreservedly for that."
Darling stressed that there was no evidence that the data had fallen into criminal hands, but urged Britons to keep a close eye on their bank accounts.
"The police tell me there is no evidence there has been any criminal or unusual activity," he said.
Opposition Conservatives said many people would be worried.
"Millions of people today will be worrying about the safety of their bank accounts and the security of their family details," Conservative leader David Cameron said. "But they will not just be worried, they will be angry that the government has failed in its first duty to protect the public."
Government Information Commissioner Richard Thomas said he was shocked at the scale of the security breach.
"It's almost certain that they have broken the data protection law. This is a shocking case. I'm at a loss to find out what happened in this situation," he told BBC radio.
