Officials are being allowed to trawl databases including the Royal Mail and the Student Loans Company to track down missing voters in a new trial.
Data matching could be used to fill in gaps in the electoral register ahead of the launch of individual voter registration in 2014.
Ministers say the technique is as accurate as ID cards – but it has raised privacy concerns.
Labour peers said it would have been easier if ID cards had been introduced.
The ID card scheme was scrapped by the coalition government on privacy, cost and civil liberties grounds – but electoral registration officers are now faced with the problem of verifying the identity of millions of voters without a central register.
‘Astonishingly cheaper’
Labour peer Baroness Hayter said the government “is no doubt ruing the day” it decided to scrap ID cards.
“All these hurdles they are now trying to go through to get a more accurate electoral register would not have been there if we had kept ID cards,” she told BBC News.
Labour peer Lord Maxton has called in the House of Lords for “smart card technology with a central database”.
But Lib Dem minister Lord Wallace of Saltaire said it was possible to verify people’s identities using information held on existing government databases.
He told peers “we do not rue the day when ID cards were dropped” because new techniques for comparing databases allowed “identity assurance and a simpler relationship between the citizen and the state, which would not only be more efficient but astonishingly cheaper than the original ID scheme”.
Under the government’s voter registration plan, each member of a household would have to register individually.
At the moment, one householder supplies details of other people living at the address.
The aim is to cut down on electoral fraud – but it depends on being able to track down individuals who have never been on the electoral register or who have moved house and dropped off the system.
An Electoral Commission investigation in Northern Ireland, where voter registration has been in use since 2004, found there had been a “serious decline” in the accuracy of the electoral register because officials have been unable to keep pace with people changing addresses.
Student accommodation
The watchdog says a canvas of households should be carried out urgently, rather than just relying on voters to amend their own details.
The Electoral Registration and Administration Bill, which is due to resume its passage into law shortly, includes an annual canvas for the UK when the scheme is first launched – but the Electoral Commission is urging the government to make it a permanent feature.
The hardest to reach group is young people who are coming up to 18 or who may be living in temporary student accommodation.
Once they have been identified and contacted, in some cases by a visit from an official, they will be invited to join the electoral register – they can refuse but face fines if they do not respond at all.
Under the data matching trial, 22 local authorities in England and Wales will be allowed to share data from the Higher Education Funding Council, the Royal Mail, the Student Loans Company, the Department for Work and Pensions, the Education Department and the Welsh government.
“Identity assurance is something you can now do by matching information in different databases without sharing the contents of that data,” Lord Wallace told BBC News.
‘Data overlap’
Checking names and addresses against the DWP’s National Insurance database and other databases held by government agencies could “knock fraudulent entries out of the system”.
For example, university halls of residence currently submit lists of residents to the electoral register, meaning many foreign students, who are not entitled to vote in the UK, are on it – something that would not be the case with individual registration, he said.
But he admitted there are concerns over privacy – particularly if the trial is extended to privately-owned databases such as those belonging to credit reference agencies like Experian or tenancy deposit schemes, as some people want.
“How you manage the overlap between public and private data” was a “delicate area,” he told BBC News.
“National sovereignty goes completely out of the window,” said the peer, because “it is quite possible your data is being kept in a server in Seattle”.
Nick Pickles, of Big Brother Watch, warned against sharing data held by government agencies with private companies, saying it could be used to target direct mail or for other commercial purposes without the individual’s consent.