The project would have been the biggest security printing job in history if rolled out as an obligatory scheme but it came under fire prior to and following its voluntary launch in Greater Manchester last year.

The Home Office will now publish the Identity Documents Bill, which will see the card scheme scrapped and the personal information that was gathered for the government's National Identity Register destroyed.

Scrapping the scheme is expected to save around £86m over a four-year period after cancellation charges are considered. In addition, it is anticipated that around £800m will be saved over the next decade.

Martin Ruda, managing director of Tall Group, which last year acquired Card Data Management (CDML) – the loyalty card printer that trades as ID Data – said the company had looked at the scheme at a tender stage but did not pursue it.

He explained: "The scheme was always going to be subject to political influence and for those involved, it will no doubt be disappointing.

"However, I think the technology developed around the scheme will stand the industry in good stead for the future."

The ID cards initiative was originally announced by Labour's former home secretary David Blunkett in 2002. It was claimed it would tackle both fraud and illegal immigration but came under fierce criticism as an attack on civil liberties.

The scrapping of the scheme follows a similar announcement by the coalition government, which saw Housing Information Packs abolished last week.