It used to be stealing someone's car or television - now your identity is the top target for criminals

Imagine what you would do if you started getting threatening letters from companies demanding that you pay thousands of pounds for goods you had never ordered. Or found that money had disappeared from your bank account without your say-so – but that your bank was insisting you had approved the transfer.

Imagine, if you can, how you would try to unravel what had happened, while fielding phone calls from bailiffs and receiving threatening letters from companies claiming money. For a growing number of Britons that scenario is not far fetched but is an uncomfortable reality. They are finding out how it feels to be a victim of "identity theft" – and thousands more will find out what it is like.

Identity theft is the fastest-growing form of fraud in the UK. In the first three months of this year it rose by 55 per cent compared with the same period in 2001; more than 10,000 cases were recorded. Up to 40,000 people could be victims this year if the trend continues.

Sometimes identity theft follows a mugging or burglary, when thieves steal personal information to impersonate an individual, but sometimes, as happened to John Salter, a used-car dealer based near Truro, Cornwall, a conman can get details by reading a bank statement while the account holder is out of the room. (Mr Salter was making a cup of tea for his visitor, who copied the relevant details and then used them to get credit).

"Identity theft is on the rise principally because other types of fraud, such as creating non-existent people, are becoming harder," said Peter Hurst, the chief executive of the Credit Industry Fraud Avoidance Service (CIFAS), which has about 240 members from the credit and banking industry. The service runs a database on which information is shared about frauds that have already been identified, involving individuals or techniques.

But while this new form of fraud may be on the rise in Britain, nobody seems to agree on why fraudsters are finding it easier to exploit people.

The credit agencies and CIFAS principally blame the law for their inability to block more identity thefts – especially the Data Protection Act, which prevents them from collecting any but the most directly relevant information, and also stops them sharing it freely. They also blame the fact that it is not a crime to steal someone's identity, only to try to gain financially by doing so.

"The Data Protection Act actually makes it easier for the criminal, because financial organisations are constrained about what information they can store and use to check your identity," Mr Hurst explained. "For example, you can't ask someone who's applying for credit how many children they have, because that's not relevant to their application. But it would be useful if someone in future applied again for credit. You could ask them how many children they had in such-and-such a year. The real person would know that. The fake would not."

The Home Office said last month that it was considering making identity theft a crime, but it has not set a date to introduce the legislation. Instead, it will publish a White Paper this summer. The National Criminal Intelligence Service (NCIS) is concerned that identity theft is rising and says the problem is far greater than individuals see. An NCIS spokesman said: "It mostly affects businesses and government departments such as the Benefits Agency."

Richard Kitchen, the chief investigation officer for the Department for Work and Pensions, which administers unemployment benefits, said: "We are aware that there is increasing multiple identity fraud. Some people set up a dozen or two dozen identities and claim money on them all. And it tends to be organised crime. If they can fake one aspect of a person's identity, they'll do it for lots of things."

At NCIS, the spokesman noted that ID theft in itself was not a crime, unlike in America. "In the US, it's relatively straightforward to steal somebody's identity by getting hold of their social security number, which is their de facto ID. Here, organisations don't just rely on the equivalent, which is the National Insurance number. They require different pieces of information." That, NCIS argues, makes identity theft more difficult in the UK.

At CIFAS, Mr Hurst agrees that criminal gangs are behind much of the rise. "There's more risk to them in other fraud, such as cheque or card fraud," he said. "We actually catch very, very few of the people who carry this out", though once it has been spotted the victim can be helped. "I do think that organised crime is heavily involved, and there's more of it in the UK than in the rest of Europe," he said. "Part of the problem is that we don't have a national fraud squad, and trying to get 40 local constabularies to deal with gangs who are working nationally, well..."

The biggest worry is that Britain will follow the trend in the US, where identity theft now affects 750,000 people annually, and it is still rising. "We figure we're about 18 months behind them," Mr Hurst said. "So there's still some way to go."

Henri Cash, a company director who was a victim of ID theft two years ago, still has to deal with some lingering effects of the fraud. He believes the big credit referencing agencies fail to make proper checks. "Companies like Experian and Equifax get a huge amount of data all the time, which they never validate, about people moving house and so on. They don't check it, because they don't lose money if it's wrong – the banks who are their customers do. But I think they have a duty of care to make sure that the data they store has some degree of accuracy."

At Experian, Jill Roberts, the director of consumer relations, disagrees, both in general and in particular, with Mr Cash's argument. "We do all we can to make sure our data is accurate, but it's millions of pieces of information that we don't gather ourselves. The electoral roll is provided to us by local councils, and if somebody has managed to fake their way on to that, then they've committed a crime."

She insists that in Mr Cash's case Experian took an active role in tracking down all the fraudulent transactions involved. "We notified him of some of them which he wasn't aware of," she said. The fact that Mr Cash is still aggrieved, more than a year after the fraud was spotted, and some months after his demon was jailed, illustrates Ms Roberts' other point. "Identity theft happens to only a tiny percentage of people, but that's not the point. It's a horrid crime, because it makes people feel vulnerable, and it's frightening."

ID Security: How to keep your credit details away from the conmen

¿ Don't simply throw away items such as credit-card slips in shops or petrol stations. Tear them up thoroughly.

¿ Buy a shredder for home use and destroy any documents or bills that you throw away. Criminals have been known to scour dumpster for bills, credit-card statements and bank statements.

¿ If you are mugged or burgled, alert your credit-card providers, and also alert CIFAS, by writing to CIFAS, PO Box 3058, Clydebank, G81 2WN. For £11.75, you can apply a password to your credit, so that any new credit cards, store cards you receive must be approved with that password before use.

¿ Get a copy of your credit reference files from Experian and Equifax. It only costs £2. Both have websites (experian.co.uk and equifax.co.uk). Equifax lets you apply for your file online. Check them for incorrect information, and tell the agencies about wrong or suspicious data.