David Cameron was accused of eroding people's financial privacy as he unveiled plans to expand the use of credit reference agencies to track down welfare cheats.
The companies will check details of benefits payments against records of household spending to identify people suspected of fiddling the system. Investigators could receive a "bounty" for everyone they catch as the Government attempts to claw back the £1.5bn lost each year to benefit fraudsters.
In the face of protests, Mr Cameron insisted honest people had nothing to fear from the proposed tactics.
"If you are entitled to welfare and can claim it then you should claim it. But if you are not entitled to it you should not get and should not claim it," he told an audience in Manchester. "Private companies use all sorts of different means to make sure they are not defrauded, why should the state be any different? In the end it is taxpayers' money. People going out to work hard every day do not pay their taxes so that someone can basically claim it fraudulently."
The Government already uses agencies such as Experian and Equifax to identify dishonest claimants of some benefits and tax credits. But the Prime Minister said he was determined to use them throughout the welfare system to slash public spending.
Fraud and administrative error accounts for an estimated £5.2bn of the £148bn benefits bill. Mr Cameron said the £1.5bn a year lost to fraud could pay for 40,000 NHS nurses.
However, civil liberties groups voiced alarm that agencies could go on "fishing expeditions" to catch fraud suspects. They also raised concerns about "false matches" leading to legitimate claimants being denied benefits.
Shami Chakrabarti, the director of Liberty, said it was "common sense" to check on the eligibility of long-standing claimants. But she warned: "What we must not do is create a benefit equivalent of parking attendants who are wanting to find people guilty [and] wanting to find people suspicious because that is the way they get paid."
Alex Deane, the director of Big Brother Watch, said: "Nobody approves of benefit cheats but mining private data on a routine basis on the off-chance of catching people out is a disproportionate invasion of privacy. Worse still, if profit-making companies are rewarded by the number of people they catch, they will have a perverse incentive to sling accusations in any marginally plausible case."
Guy Herbert, of the NOID group which campaigns against what it calls Britain's "database state", added: "There is nothing wrong with specific investigations for specific cases but this opens the door to speculative fishing expeditions whereby Experian and others and the Department for Work and Pensions are incentivised to match people with incomplete evidence. They are treated as guilty until proved innocent."
The Independent disclosed in June that a nationwide drive against housing benefit cheats would be launched after Experian was told to study records such as utility bills, phone contracts and television subscriptions to search for "unusual spending" by families on benefits. By examining electoral rolls and shared bank accounts, Experian's agents can spot claimants who fail to declare that a partner is working.
Mr Cameron also pledged to reduce the bureaucratic mistakes that lead to £3.7bn being handed out in error every year. Mistakes wouid be reduced by the simplified benefits system being developed by Iain Duncan Smith, he said, adding that reducing the cost of fraud and error would be the "first and deepest" cut in public spending.
He also plans tougher penalties, more prosecutions, incentives to "shop cheats" and greater efforts to recover cash that is claimed illegally.
Mr Cameron said ministers did not want the proposed public spending cuts to "fall on the most vulnerable". Asked about Sure Start centres set up under Labour to assist young families, the Prime Minister said budgets had to stretch as far as was possible and help those who needed it most.
He said there was sometimes criticism of the Sure Start scheme, adding: "The sharp-elbowed middle class, like my wife and me, get in there and get all the services."
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