In his novel Nineteen Eighty-Four, George Orwell imagined a future where our every move was watched by a mysterious character called Big Brother. If the author were alive today, he might well look at Radio Frequency Identification (RFID) tags and say: "I told you so."

Developed as a means of tracking the movement of products, and even people, the chips have been at the centre of some heated arguments. Privacy campaigners paint frightening pictures of people being tracked by a central computer.

The technology's supporters offer an idyllic image of a future where dangerous criminals can be 'tagged' and you could breeze through supermarkets and have the bill paid automatically by your debit card simply by walking past a scanner at the door without having to queue.

As the technology begins to emerge in the UK, we decided to discard the claims, counterclaims and hearsay and investigate RFID ourselves to discover whether it poses a genuine threat to our privacy.

Radio waves
RFID is a means of sharing information by radio waves and is often seen as the natural successor to the barcode. The main difference is that barcodes need to be in the line of sight of the devices that scan them, such as those used at most supermarket tills.

RFID tags include an antenna, which transmits and receives information instead. This is why privacy groups are concerned that information could be passed from a tag to a reader without your knowledge.

There are two types of tags: passive and active. Passive tags are small enough to be inserted under the skin and cannot transmit much data as they don't have their own power supply. They only spark into life within range of a reader, as it sends out electromagnetic waves which the tag's antenna is tuned to receive.

The distance tags must be from a reading device in order to work varies from centimetres to several metres. Active chips are far more versatile and larger. They have their own power supply (which can last for years), a range of tens of metres and can be used to store more information.

Retailers see RFID as an ideal successor to the barcode for a number of reasons. First, the identification code is in digital format, meaning that each tag can have its own unique code, identifying not only what it is attached to but where it came from, how much it weighs and its date of production.

Attack of the tags
RFID tags are already used for a variety of purposes, including the identification of pets for travel outside the UK. The Barbican library in London uses RFID to track the items it loans to the public, and other simple uses for RFID include inserting the chips in wheelchairs so that doors open automatically for people with disabilities.

So far, so reasonable, but some countries are already using RFID in a way that even some of its supporters are uncomfortable with. Some US jails have adopted RFID to tag inmates so the authorities can track their movements.

More controversial is the 'chipping' of normal members of the public using a tag called the VeriChip, a device no larger than a grain of rice. In Mexico, attorney general Rafael Macedo de la Concha and 170 of his police officers have had the chips implanted following a spate of kidnappings in the country.

The chips can be used as tracking devices. In Japan, the tags have even be used to tag schoolchildren. Thankfully, the authorities chose to tag their belongings rather than the pupils. Readers have been placed in school gates and other key locations to track their movements for safety reasons.

Chip off the old shelf
Controversy abounds with RFID. When Gillette conducted a 'smart shelf' test in conjunction with Tesco, protesters were up in arms. RFID chips were included on packets of replacement blades (the most popular product among shoplifters) and anyone taking a packet off the shelf would be automatically photographed in an attempt to clamp down on theft.

It led protest group Consumers Against Supermarket Privacy Invasion and Numbering (Caspian) to establish a Boycott Gillette campaign and website. The company later abandoned the scheme.

With product tags, there are three clear privacy questions. First, how will consumers know when a product they buy contains an RFID chip? Second, would it be possible to tie the consumer with a specific product if a credit card is used for payment? And, finally, could that device can be read at a distance without the consumer's knowledge?

The answers are less clear. Retailers are under no obligation to inform consumers about the use of tags, and supermarkets are unlikely to herald their arrival with trumpets because of the controversy they attract, regardless of the benefits (as Tesco discovered).

Loyalty schemes, such as reward cards, require the processing of personal information, as defined by the Data Protection Act. This says that before any data about us is collected for later use, such as in marketing, our permission must be gained.

To receive the benefits of loyalty schemes, users have to indicate their consent but this applies to the use of the data, not the manner in which it is collected. Retailers could, if they wanted to, build a profile of your shopping habits linked to your credit card, but again would have to gain your consent to do this.

The use of RFID as the means of tracking the products you buy, rather than a barcode, makes no difference here.

The distance from which chips can be detected is simpler, but only for now. Mr de la Concha may have an unpleasant surprise if he is kidnapped. An active chip would need a power source far larger than he could have implanted under his skin in order to transmit his whereabouts to the rest of Mexico.

If he has a passive chip, the authorities would have to transmit an electromagnetic wave of enormous power to activate it. But technology evolves at a frightening pace.

More sinister uses for RFID are also within the realms of possibility, but only from a science fiction writer's point of view. A high-tech mugger could, for example, scan a passing individual to see if the value of his or her possessions were a worthwhile target.

At present, this seems unlikely. Even if shops did introduce the chips, scanners can't just be picked up from the supermarket and, while the reader could detect a product's code, it would not necessarily know what that code represented. Our robber might be after your wallet but come away with a tin of dog food.

But there are grey clouds on the horizon. Earlier this year, reports abounded of the development of a tool called RFDump that allows someone with the right equipment to read and even change the underlying information on an RFID chip. Most chips are also thought to have a life span of about 20 years, adding to privacy fears.

A sensible debate
Despite concerns, the RFID tide seems unlikely to be stopped. There are clear potential benefits to consumers, such as lowering the level of shoplifting, the cost of which is inevitably paid by consumers in higher prices.

But the issue of privacy is one that neither industry nor government has addressed with sufficient rigour. Consumers should be given clear information about where the chips are used and whether the data they contain is protected, by scrambling it for example.

Some people believe that if they buy a tagged item, anyone with a scanner could track them beyond the boundaries of the place they bought it from. This is unlikely because of the limits of the technology.

In reality, nobody will be able to find out anything about you, least of all where you live, simply because of the tin of baked beans in your shopping bag.

But while these fears and myths exist, the government should address them before RFID becomes commonplace without our knowledge.