IBM is working with the world's leading universities and major industries to try to bridge the gap between online trading and demands for privacy.

The company has launched the IBM Privacy Institute and Privacy Management Council to consider the development of software able to tag individual pieces of data while meeting confidentiality requirements. The body will seek to address a growing rift between governments and industry.

The European Parliament announced plans last week to restrict the use of cookies to track people's movements on the internet without their consent, despite protests that such a move would hamper freedom of trade.

The debate goes beyond questions of credit card security. Personal life preferences, job descriptions and surfing preferences are wanted by traders, but governments would prefer to prevent such information being used for unsolicited marketing or profiling purposes.

Richard Hollis, managing director of independent security consultancy Orthus, explained that web users are starting to realise how much of their personal lives they are revealing.

"More press has been given to consumer confidence in ecommerce but, in reality, people are more concerned about where their data goes and who ends up with their mother's maiden name," he said.

And it's not just the internet. "The interconnectivity of businesses today is making people more sensitive to privacy," said Hollis. "Employees are getting sensitive about who has access to their personal information, especially as corporate systems are exposed to the internet and third parties."

Businesses should consider privacy at a policy level, dealing with questions such as what information is being collected and how it is being dealt with, according to Gartner research director Conal Manion.

But perhaps more important will be the privacy issues surrounding e-government. "Individual commercial privacy failures are likely to be balanced out by the advantages of lower cost and increased efficiency. But for e-government the data involved is more sensitive and the consequences of failure more serious," he warned.