Private firms are to be paid by the Government to hunt down benefit cheats in an “uncompromising” crackdown on abuse, announced by David Cameron today.

Finance experts will be hired to investigate suspicious claims and identify welfare cheats by trawling through their records, household bills and credit card applications. Cameron also promised to increase penalties.

The Prime Minister pledged to claw back some of the £5.2 billion lost in fraud and error each year.

He said reducing the “absolutely outrageous” losses would be the “first and deepest” cut in public spending.

The move means the firms will be given access to the Government’s records on new and existing housing benefit, incapacity and unemployment benefit claimants – and get a “bounty” payment for each fraudster they collar.

Unveiling details of the clampdown ahead of his latest PM Direct public question and answer session in Manchester, Mr Cameron said credit card rating agencies could be recruited to work out which people’s financial circumstances and spending habits were out of kilter with claiming benefits.

He also announced tougher penalties, more prosecutions, measures to encourage others to shop cheats and greater efforts to recover “stolen” payments.

He said: “At a time when we’re having to take such difficult decisions about how to cut back without damaging the things that matter the most, we should strain every sinew to cut error, waste and fraud in our welfare system.

“Welfare and tax credit fraud and error costs the taxpayer £5.2bn a year. That’s the cost of more than 200 secondary schools or over 150,000 nurses. It’s absolutely outrageous and we cannot stand for it.”

He added: “We will not shrug our shoulders and let them get away with it any longer. We will take the necessary measures to stop fraud happening in the first place; root out and take tough action against those found committing fraud and make sure the stolen money is paid back.”

Credit company Experian has said it is in talks over a deal – and already has an existing contract agreed by the previous government which has saved £17m.

Last month, Work and Pensions Secretary Iain Duncan Smith launched proposals to overhaul the government’s £87bn welfare system, aimed at reducing inefficiencies.