Speaking at a Labour Party conference fringe event, Dr Foster's executive board chair Tim Kelsey said Whitehall had become "dangerously distracted" by the media storm over data security lapses.
Information that could be used to improve health and social care services was not being properly analysed or shared across government departments due to fears of a public backlash, he said.
"The civil service and political community in Whitehall are being dangerously distracted by the hyperbole about 'can the government be trusted to share your data?' If this doesn't change we will [have] public services that can never be effective or properly directed," he said.
There were no examples of anyone being harmed by the high profile incidents that hit the headlines, he said. Better data would help to improve services for people with complex needs, such as those with learning difficulties.
Labour MP Hilary Armstrong, a former chief whip and social exclusion minister, agreed. She criticised primary care trusts that refused to provide Sure Start centres with the names and addresses of children born in their area.
She said: "It's important to defend civil liberties but also to defend the liberties of those born into a society in which they have no opportunities. Unless the state can intervene at a very early age, we're condemning generations of children to grow up in poverty."
But she accepted the government had to improve its data handling and do more to reassure the public that it was safe for them to disclose information to be used by the state.
Lord Adebowale, chief executive of social care organisation Turning Point, said data was a crucial part of the personalisation agenda but commissioners were not always using information to drive service improvements.
Fears about data security in the public sector were misplaced because the situation was at least as bad among private companies, he said.