The Prime Minister said reducing the £5.2 bn annual cost of fraud and error would be the “first and deepest” cut in public spending.

Private credit rating agencies like Experian will be drafted in to weed out cheats as the government looks to try and protect as much capital spending as possible.

The move is another subtle shift in Cameron’s spending policy in a bid to cut back on waste before attacking investment plans.

The Prime Minister wants to protect as much cash as possible to invest in infrastructure for the economic recovery rather than just be seen as a spending slasher.

He wrote in an article for the Manchester Evening News: “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 £5.2 billion 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.”

One contractor told the Enquirer: “This is the sort of thing the government should be concentrating on.

“We all know capital spending will fall, but it shouldn’t be hit before all benefit cheats are weeded out of the system.

“The public sector also wastes a fortune at the moment and that must be stopped before we start cutting back on investment in our infrastructure.”