Bill abolishing ID cards and national identity register will be first piece of legislation introduced to parliament by the new government, says Theresa May

The £4.5bn national identity card scheme is to be scrapped within 100 days, the home secretary, Theresa May, announced today.

The 15,000 identity cards already issued are to be cancelled without any refund of the £30 fee to holders within a month of the legislation reaching the statute book.

Abolishing the cards and associated register will be the first piece of legislation introduced to parliament by the new government. May said the identity documents bill will invalidate all existing cards.

The role of the identity commissioner, created in an effort to prevent data blunders and leaks, will be abolished.

The government said the move will save £86m over four years and avoid £800m in costs over the next 10 years that would have been raised by increased charges. An allied decision to cancel the next generation of biometric fingerprint passports will save a further £134m over four years. Savings to the public under the whole package will total £1bn.

The publication of the identity documents bill today marks the end of an eight-year Whitehall struggle over compulsory identity cards since they were first floated by the then-home secretary David Blunkett in the aftermath of 9/11.

More than 5.4m combined passport and identity cards were due to be issued when the scheme was started in earnest next year. This was projected to rise to 10m ID cards/passports being issued ever year from 2016 onwards.

A separate scheme under which identity cards are issued to all foreign nationals resident in Britain by 2015 run by the United Kingdom Border Agency is still to go ahead. Home Office ministers said yesterday this was a separate scheme for biometric residence permits for foreign nationals that was required by European Union legislation.

May said: "This bill is the first step of many that this government is taking to reduce the control of the state over decent, law-abiding people and hand power back to them.

"With swift parliamentary approval, we aim to consign identity cards and the intrusive ID card scheme to history within 100 days."

The deputy prime minister, Nick Clegg, said: "The wasteful, bureaucratic and intrusive ID card system represents everything that has been wrong with government in recent years."

The legislation published today will give the Home Office the power to scrap ID cards within a month of its reaching the statute book and to cancel its underlying database, the national identity register. All the data currently held on the national identity register will also be destroyed within a month of royal assent.

The next generation of "biometric" passports is also due to be cancelled. They were due to include electronic fingerprints alongside the existing digitised photograph already included in chips in the latest passports.

The standalone identity card had recently been marketed as valid for travel in Europe but a cheaper alternative to a full passport and as a handy way for young adults to prove their age in pubs and clubs.

Although the Labour government insisted it had become a "voluntary" identity card scheme, anybody who applied for an ID card or renewed their passport had their personal details automatically logged on the national identity register.

The Labour government spent £257m developing the scheme and signed four key contracts to produce the cards and introduce the next generation of biometric passports. The difficulty facing officials in the Identity and Passport Service – a specially set up Home Office agency – will be how to disentangle the ID card scheme from the system for issuing passports.

The compensation arrangements for cancelling the four contracts, worth more than £1bn, will be complex because they included the design and production of the combined ID/passports from this October. One of the four contracts, which was awarded to IBM, is for the establishment of a national biometric identity service to store and match biometric information (such as fingerprints) in passports and identity cards.

The decision was welcomed by privacy campaigners. Phil Booth, the national coordinator of the NO2ID group, said: "That the very first bill to be presented by the coalition government will repeal the Identity Cards Act 2006 is a sign that the tide has turned.

"NO2ID will not be going away just yet: there is work to be done against a deeply entrenched database state. But we hope that, as it has listened to our case against the national identity register, the new administration will also be persuaded in the name of privacy and liberty to tackle other mass-surveillance schemes."

Brendan Barber of the TUC also welcomed the decision: "Scrapping identity cards is an important sign that the new government is committed to safeguarding civil liberties.

"With public spending under close scrutiny, identity cards were a costly folly that would have done nothing in reality to assist the fight against terrorism and would have been an unwelcome intrusion into people's personal liberty, with a likely disproportionate impact on black and ethnic minority citizens," he said.