Identity theft: They don't just want money. They want your whole life

What did you say your name was? Really? It's just that there is someone about to board a flight at Heathrow with exactly the same name on their passport. They also have a driving licence with your details on it. And a couple of credit cards, a phone contract, a sports car bought on the never-never, dozens of store accounts and a whopping great loan, all taken out in your name. Not just the same name (this is no coincidence) but your actual full name, with your date and place of birth.

You didn't know? Well, how could you? No money has gone missing from your accounts, but your personal details and reputation have been used to run up a series of debts totalling more than £100,000. Your credit rating is in tatters, so don't bother asking for a loan ever again. Meanwhile, the fake you is flying off to the sun, to vanish. Oh, was that a knock on the door? More like a hammering, actually. Must be the bailiffs.

If this scenario does not make you feel sick to the stomach then the chances are that you have already felt a lot worse, as one of the 120,000 people who had their identities stolen last year. Identity theft is a huge problem in this country and it is growing fast - the number of cases has risen sevenfold since 1999, it was revealed last week.

As MPs debated giving us identity cards, credit companies revealed that ID fraud costs the economy £1.3bn a year. The really frightening thing is that it is so easy. To demonstrate, Neil Monroe of the credit rating agency Equifax has asked me to spread the contents of my bin bag all over his nice clean desk in a tower near Edgware Road tube. Not the used curry trays or brown banana skins - those have been left at home. The first slip-up is a magazine still in its wrapper.

"This could be trouble," says Mr Monroe. "It gives your full name and address, and the details of a company with which you have a subscription. There is nothing to stop someone ringing up, posing as you, and asking to check what bank account details they have for you."

Surely they wouldn't give such information over the phone? "You'd be shocked. Some companies do. Once the fraudster has got the bank details he can hack into any online accounts."

But he hasn't got my password. "No, but here's a discarded finger painting signed by your daughter, and a circular letter addressed to your wife. You might be using those names as passwords. Lots of people do."

Blimey. It is no consolation that a survey in Wandsworth, south London, found that 77 per cent of householders had put out rubbish useful to ID thieves. These included cheque stubs, mortgage statements, even passports and a driving licence.

Gangs pay £5 a time for useful documents scavenged from rubbish and recycling bins. The scavengers target areas where the houses are big, bank accounts probably not under strain and credit ratings good. Ripped bin bags are often blamed on urban foxes.

Shredding documents does not always help - cheaper machines produce long, thin lines of paper that can be stuck back together again. Utility bills can be forged and used to open a new bank account.

"Some institutions ask for no more proof of identity than that," says Mr Monroe, "particularly if you are making a deposit. The cleverer fraudsters keep the account in the black for a while to establish trust."

They then tell the bank there has been a change of address, so mail is sent to a rented flat. The second "you" has been created. It is time to start applying for things: a mobile phone account, a store card or six, a small loan.

Some fraudsters are not in it for the money: they need a new identity to commit bigamy, drive without insurance, work with children or hide from the police, the immigration services or the taxman. They can find out about their target's habits, friends and enthusiasms by typing the name into Google. Soon the thief can create a highly convincing new identity, without even having to be a forger: one company called Confidential Access offers convincing replica bank, credit card and mortgage statements, pay slips and utility bills, insurance certificates, reference letters, even virtual addresses and fake employment records. These are for "novelty and theatrical purposes", says the company, which has data centres in Panama City and Hong Kong.

"It is not a criminal offence to create a sham so long as you do not intend to deceive or permanently deprive," the company advises on its website. "Please refrain from using our system to permanently deprive any organisation of their money."

Perish the thought. But other websites offer duplicate British passports for about £500. With the right paperwork a fraudster can sign up for a string of cards, take out huge personal loans, buy cars on hire purchase and go on a lavish spree. Finally, they hack into your own accounts and withdraw every last pound. Then they throw away the evidence, leave the rented flat and vanish. Using yet another passport.

"These people might have 50 scams on the go at once," says Mr Monroe. "Only two might work, but they can be worth tens of thousands of pounds each."

If it all sounds far fetched, consider the gang from Essex that forged documents to steal the identities of 60 people across the country. The ringleader was driving a £160,000 car and wearing a Rolex worth £32,000 when he was caught. Or the man from Staffordshire who received a letter from a firm of solicitors telling him he had come into some money. They just needed his date of birth and the maiden name of his mother as security before it could be released. He replied, but heard nothing. Then letters started coming from credit companies about loans taken out in his name. The solicitors were not real, they were fraudsters who stole £20,000 from his accounts and then disappeared without trace.

Then there is Christopher Edward Buckingham, who died in 1963 aged nine months. A 42-year-old man carrying a passport in that name was arrested on the Dover-Calais ferry earlier this year, having adopted the identity of the dead baby in 1983. Even when a court found him guilty of making an untrue statement to obtain a passport, he still refused to reveal his true self. "I'm longing to to know who he really is," said the man's ex-wife. Police are trying to find out.

Impersonating dead people is known as a Day of the Jackal crime because that is what the assassin in Frederick Forsyth's novel did. There are expected to be around 70,000 cases of it in 2005, made easier by the extraordinary fact that 22 million pieces of mail are delivered to the dead every year. The deceased do not notice that their letters have been redirected or bump into their doppelgängers on the street, so fraudsters scan death notices and apply for loans even before a funeral is held. Others view newly empty property and steal mail that has yet to be stopped.

"They are disgraceful," says Peter Hurst, chief executive of Cifas, the fraud prevention agency set up to protect financial institutions. Cifas helps to prevent about 60 per cent of identity theft before it costs money, partly through a register against which lenders can check applications. But less than 1 per cent of all such fraud in the UK is investigated by the police, and when it is they concentrate on gangs rather than individuals. Those who are found out seem to get off lightly, says Mr Hurst. "People who have been running 5,000 identities serve just two years in prison."

ID cards would help, he says. The database needed to support them would make it much harder to pose as someone else, not least because it is likely to record death. Mr Hurst is less worried about Big Brother watching us than all the little thieving toerags doing the same. "I do understand the civil liberties issues," he says, "but it is a sacrifice worth making."

But why should we make that sacrifice? It's not our money. If an imposter runs up debts in your name - and you can prove it - then the lender must pay.

"Yes," says Mr Hurst. "But ID theft is used to finance drug importation, sex trafficking, illegal immigration and possibly terrorism. Because the fraud is not being investigated properly the links never fully come out."

It cantake anything from 60 to 600 exhausting hours to untangle the mess made of your life. "I met someone who was recently bereaved and still grieving," says Mr Hurst. "She had just found out that someone had opened 10 accounts in the name of her husband. She faced hard questions from the investigators, which is very upsetting . A debt collector arrived the day after the funeral.

"This was the most disturbing time of that woman's life. You try telling her that identity theft is a victimless crime."