Home Secretary David Blunkett has indicated he favours introducing such cards, called entitlement cards, and has launched a six-month consultation.
Civil liberties groups have vehemently opposed the idea, stating that it will turn citizens into suspects.
The government says that by bringing existing identification such as driving licences and passports together, the system could be made efficient.
Card integrity
Human rights group Privacy International has warned that any ID card will be exploited by criminal groups with an increasing degree of technical know-how.
"The technology gap between governments and organised crime has now narrowed to such an extent that even the most highly secure cards are available as blanks, weeks after their introduction," said Privacy International's Director Simon Davies.
"Whenever governments attempt to introduce an ID card, it is always based on the aim of eliminating false identity.
"The higher the stated integrity of a card, the greater is its value to criminals and illegal immigrants," he said.
Return to basics
It could be years before smart ID cards came to fruition said one expert, who advised the government on the ID scheme.
Tim Conway, Industry Affairs Director at trade body Intellect, told Computing magazine that even the most basic of cards would take three years to develop.
The government favours computerised cards that could store a photograph, fingerprints and personal information including name and address.
It is estimated that basic plastic cards would cost £1.3bn, with the bill for cards able to hold data like fingerprints and iris patterns put at £3.1bn.
Mr Conway believes resources would be better spent on developing a card which would benefit citizens by making it easier to access government services.
The first step should be to bring together all the different identifications used by citizens, such as National Insurance and NHS numbers he said.
"What is needed is a card which doesn't necessarily identify you but has sufficient authentication to make the process very efficient," he told Computing.