Most footage from CCTV cameras is not of good enough quality to help police identify offenders and many cameras are focused on enforcing bus lanes as well as stopping crime, a Home Office report said.
Britain has the most surveillance in the world, according to civil liberty groups and security experts, with an estimated 4.2 million CCTV cameras in place on buildings, shops, roads and train stations.
CCTV footage has proved a highly useful tool for the police in a number of major investigations, particularly those carried out by anti-terrorism officers.
It played a vital role in helping detectives track down those responsible for the July 7, 2005 London bombings.
However the report said there were many problems with existing CCTV systems, most of which are privately owned and were often incompatible.
Currently there is no legal obstacle to anyone setting up CCTV cameras providing they meet the requirements of the Data Protection Act.
"Often there is a public expectation that these systems are being installed for their safety, but the CCTV may not be of sufficient quality for police to use in criminal investigations," the report said.
"Anecdotal evidence suggests that over 80 percent of the CCTV footage supplied to the police is far from ideal."
Town centre CCTV schemes were also being used to monitor car parking and bus lanes, as well as helping tackle crime and anti-social behaviour.
"Whilst the cameras are being used in this way, it seems unlikely that they will then be used proactively to patrol the area and detect crime. Current installed cameras cannot perform these two functions at the same time," the report said.
Conservative Home Affairs spokesman David Davis said people would be "stunned" that CCTV footage was often unsatisfactory.
"We see that this government has managed to give people all the disadvantages of CCTV in terms of undermining civil liberties but only provide minimal advantage in terms of public safety and crime detection," he said.
The Home Office report called for there to be agreed standards for CCTV, a review of the location and purpose of all cameras, and a tightening up of the licensing system.
"The need for standards, better training, improved partnership working and more coordinated use of new technology will ensure that we get the best out of new and existing CCTV systems," Home Office minister Tony McNulty said in a foreword to the report.