Compensation clause in ID card contracts angers Tories

Taxpayers face paying tens of millions of pounds in compensation to private companies involved in the national identity card scheme if their contracts are torn up by an incoming Conservative government.

The disclosure of the repayment clause in the contracts, which the Government is negotiating, provoked fury among Tories, who are committed to scrapping the cards. The secrecy surrounding the agreements has raised the threat of an investigation by the information watchdog.

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The Home Office is offering contracts worth more than £1bn to run the world's largest identity scheme. Just one small deal has so far been signed, but most are expected to be awarded this year in preparation for a planned roll-out of the cards in 2011.

The Government has confirmed compensation for costs will be paid to companies whose contracts are scrapped and they will also be entitled to claim for lost profits if they receive less than a year's notice, but the Government will not reveal the exact amounts that would have to be paid.

Dominic Grieve, the shadow Home Secretary, said: "Especially at times of economic hardship, the public will be dismayed that the Government is prepared to waste so much money. We put the Government and industry on notice two years ago that we would abandon this project. The Government must disclose what steps it has taken to protect the taxpayer from liability."

The first contract, worth £18m, has been awarded to a French company, Thales SA, to help run an early pilot of the cards; they will be issued to some airport workers at the end of this year. The contract includes a compensation agreement but the details have not been published on the grounds they are commercially confidential. Such deals for other ID card contracts will be negotiated by the Home Office. The compensation arrangements look certain to run into tens of millions of pounds given the size of the contracts.

Thales and four other IT companies – Computer Sciences Corporation, EDS, Fujitsu and IBM – are negotiating with the Home Office.

Estimates of the cost of the card scheme over its first 10 years vary from £5bn, quoted by the Home Office, to £19bn, calculated by academics at the London School of Economics. The Home Office stresses that a large part of the bill would be recouped from the public as they renewed their passports and were automatically added to the register underpinning the scheme.

Last night, Mr Grieve wrote to the Information Commissioner, Richard Thomas, appealing for an urgent investigation into the contract with Thales and with any other companies.

Phil Booth, the national co-ordinator of the No2ID lobby group, called on ministers to "come clean" about the "sweeteners" being offered to bidders. "Leading a future administration into that sort of debt is not only irresponsible – it's almost criminal," he said.

Chris Huhne, the Liberal Democrat home affairs spokesman, said: "If these contracts are signed and then cancelled, it would represent a spectacular waste of taxpayers' money on literally nothing."

But a Home Office spokesman said: "It is normal and fully within government guidelines to include break clauses in contracts of this kind, but such contracts are always commercially confidential and it would be inappropriate to release details.

"Regardless of the government of the day, it would be inappropriate to operate based on opposition policy because it would unreasonably constrain our work."