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Private firms are to be paid bonuses to track down benefits cheats by trawling through credit card applications as well as household bills.

Prime Minister David Cameron has initiated the new tough stance to crackdown on the £5.2bn lost each year to fraud and error in the welfare system. Cameron is set to vow to take more cheats to court while Ministers will also give credit ratings agencies a payment for each fraudulent applicant they unearth.

The switch will see firms have access enabled to Government’s records on housing benefit, incapacity and unemployment benefit claimants. Additional bounty payment of anything up to 5% of the money they recover from fraudulent claimants.

The Government is hoping the scheme will save the state £1bn, which could subsequently earn private firms up to £50m. It is believed firms will try to pinpoint claimants who exude lavish lifestyles.

The move is considered controversial in some quarters, as David Cameron declares war on the cheats. Ian Duncan Smith, the Work and Pensions Secretary, has been ordered to draw up an uncompromising strategy for cutting the vast sums paid out incorrectly or stolen by benefit fraudsters.

The crackdown will also feature a fresh drive to bring more benefit cheats to court and take back cash from them.

Cameron is set to warn today that the £5.2bn lost each year is equivalent to the cost of building 200 secondary schools or employing 150,000 nurses. The Prime Minister insists the Government will not break up the welfare system, but warns he will no longer tolerate abuse, saying; We’re determined to get the welfare system right. It will always be there for those who need it. But it won’t be a soft option.

Credit ratings agency, Experian, is expected to start working with the Department for Work and Pensions within weeks.