Prime Minister Gordon Brown apologised "profoundly" for the loss of sensitive data relating to 25 million individuals, as thousands of people rang hotlines with worries about the security of their details.
Facing the House of Commons for the first time since the massive security breach at HM Revenue and Customs was revealed on Tuesday, Mr Brown announced checks on the handling of data by every Government department and agency, as well as new powers for the Information Commissioner to carry out spot-checks on public bodies.
The Prime Minister told MPs that there was no sign of any fraudulent activity resulting from the loss of the information - including bank and building society details - and said that anyone who lost out would be compensated under the Banking Code.
But Conservative leader David Cameron said that the Government had "failed in its first duty to protect the public".
The loss in the post of two computer discs containing the details of every Child Benefit claimant in the UK indicated a "systemic failure" at the HMRC, and cast doubt on the Government's plans for a National Identity Register and ID cards, said Mr Cameron.
In a stormy session of Prime Minister's Questions in the Commons, Mr Brown told MPs: "I profoundly regret and apologise for the inconvenience and worries that have been caused to millions of families who receive child benefits."
The Government would do "everything in our power to make sure data is safe", pledged the PM, who said there was "no excuse" for the breach of security procedures which caused the current crisis.
He gave his personal endorsement to Alistair Darling as "an excellent Chancellor" and insisted there was no reason for him to resign.
The Chancellor admitted his confidence had been shaken by the debacle at HMRC, but insisted he was determined to stay in his position to guide the department through its current difficulties. In a round of media appearances, Mr Darling apologised "unreservedly", but added: "I am not going to start running away from things when things get difficult."
Meanwhile, the Public and Commercial Services Union called on the Government to halt its programme of job cuts in HMRC, with general secretary Mark Serwotka describing the measures as "an accident waiting to happen".
