An inquiry was under way today after a memory stick with user names and passwords for a key government computer system was discovered in a pub car park.
The Mail on Sunday said ministers had ordered the emergency shutdown of the Gateway website - which covers anything from tax returns to parking tickets - while experts checked to ensure people's private details were not compromised.
The loss of the memory stick is another embarrassment for the Government in a long series of data mishandling incidents which began with the loss of the entire child benefit database.
Members of the public can register on Gateway to access hundreds of government services including self-assessment tax returns, pension entitlements and child benefits.
A spokeswoman for the Department for Work and Pensions said the memory stick contained data for "only a handful" of people, and all their passwords were encrypted.
"We are taking this issue extremely seriously and a full and urgent investigation is under way," she said.
The spokeswoman added: "Our absolute priority is the security of data. While there was a question mark over the data on the memory stick it was absolutely right to temporarily suspend the Government Gateway.
"Having looked in detail at the stick we are satisfied neither the Gateway nor members of the public have seen their security compromised and the Gateway is online again."
The memory stick was lost by employee of Atos Origin which manages the Gateway system for the Government. It was found in the car park of the Orbital Pub in Cannock, Staffordshire, where the firm is based.
Atos said in a statement that it was clear that the employee had removed the memory stick from the company's premises in "direct breach" of its operating procedures.
"The company takes the loss of this device very seriously and we are currently carrying out a full investigation of both the circumstances surrounding its loss and the data content of the stick," the statement said.
"Atos Origin is working very closely with the Government and the police. The company takes full responsibility for this loss and will discipline the individual involved."
Prime Minister Gordon Brown insisted the DWP would take action and said there could be "changes" to companies' contracts.
"I think the company responsible have accepted responsibility," he said.
"It was unacceptable behaviour. I think the important thing is to prevent these kind of things happening in future."
Referring to companies that lose government data, Mr Brown added: "They will have to take responsibility, and there will have to be changes in the way these contracts are issued to companies that make mistakes like this."
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