Home Secretary Jacqui Smith is considering letting an external company handle the 'super database' of information including all telephone calls, emails and website visits made by UK citizens currently held by the UK government.
The Home Secretary outlined a proposal that would see a private company collect the data in a bid to reduce costs, which were initially estimated at £12bn.
The proposal also called for tough legal penalties to be put in place should the data be misused.
Currently, individual firms store their own data, which they must hand over to law-enforcement agencies if required for a criminal investigation.
However, the government wants to create a 'super database' that holds information about every phone call, text, email and website visited, in one place.
The government had initially planned to amend The Communications Data Bill to allow creation of the database.
However, in October, it was revealed that a consultation would be conducted this year before implementing the database, due to a number of privacy concerns.
Among those raising objections was former director of public prosecutions Sir Ken Macdonald, who told The Guardian: "This database would be an unimaginable hell-house of personal private information. All history tells us that reassurances are worthless in the long run. In the first security crisis the locks would loosen".Related articles: