Jail for journalists and investigators who illegally buy and sell personal information is back in the spotlight after the Information Commissioner called for tougher data protection penalties.

Christopher Graham backed sentences of up to two years in prison for those caught illegally trading in personal data, when he appeared before the Commons’ Culture Media and Sport Select Committee last week.

It follows his predecessor’s Operation Motorman report, published in 2006, which revealed hundreds of UK journalists had purchased personal data from private investigator Steve Whittamore, some of which had been illegally obtained.

More than 17,000 invoices for data requested from Whittamore were identified.

Prison sentences of up to two years are already envisaged in reforms contained in the Criminal Justice and Immigration Act, but so far the government has declined to bring the tougher penalties into force.

Mr Graham has said journalists involved with Whittamore may have had the benefit of a ‘public interest’ defence under the Data Protection Act, depending on the story and the circumstances.

However, he has said “pathetic fines” imposed on offenders by magistrates have been insufficient to deter the illegal trade because they are accepted as a business expense whereas prison sentences could end such practices “at a stroke”.

He told the select committee: “This trade is still going on. The issue is whether Parliament will activate the custodial sentences in the Criminal Justice and Immigation Act.”

Mr Graham’s remarks came the same day as Philip Williams, Detective Chief Superintendent in the Metropolitan Police, told the same Select Committee he believed journalists had hacked into phone messages intended for Princes William and Harry.

Mr Williams said reporters had hacked into the princes’ private secretaries’ voicemail to listen to messages from the princes and others, and he suspected they had also listened in to the princes’ personal phones.

BBC journalist Arifa Farooq has escaped prosecution after obtaining a job under a false name for an exposé of a Scottish firm that provides care services for the elderly.

Her undercover work featured in a Panorama programme and sparked a Scottish Parliament investigation into issues she highlighted, but for a time it was feared she may be charged with a criminal offence for giving false information in getting the inside job.

Ms Farooq was arrested for an alleged offence under the Police Act, which contains rules to ensure that a correct criminal record check can be certified against the right person. However, the Procurator Fiscal later confirmed no criminal proceedings would be brought against her.

It is a reminder of the risks journalists take in using a false identity to obtain inside information in the public interest. In England and Wales, a number of journalists have been arrested after going undercover to investigate issues such as police misconduct and airport security.

An allegation is often made that they have obtained a pecuniary advantage by deception, but before a prosecution is mounted the CPS must be satisfied there is both sufficient evidence and public interest in prosecuting.

Generally, it is the lack of any public interest in prosecuting that saves journalists’ bacon.

Amid recent debate about the expense of libel litigation, a pilot scheme is being launched to keep tabs on legal costs.

The scheme, which comes into effect on 1 October 2009, will operate at the Royal Courts of Justice in London, and at Manchester High Court District Registry.

Parties will have to exchange information on costs and submit detailed estimates of future costs as cases progress through court. The court will actively control the costs to ensure they are proportionate to the reputation and free speech issues at stake.

The pilot scheme applies to libel, slander and malicious falsehood claims started on or after 1 October.