Concerns about prepaid benefit cards

The use of prepaid cash cards for benefit payments surfaced a few months ago. The Telegraph published a story that Iain Duncan Smith had asked his advisers to look at paying benefits to “problem families” on smart cards to limit their spending so that they could not buy alcohol or drugs. I wrote at that time about why the scheme is an awful idea including the imposition of the “nanny state” into people’s lives, inability to spend money locally where cards are not accepted and the impact of depriving people of entertainment and pleasure.

That was not an announcement of government policy, and indeed would go against Iain Duncan Smith’s stated aim that Universal Credit will teach financial responsibility and budgeting by unifying many benefits into one monthly payment. However in December Alec Shelbrooke MP introduced a ten minute rule bill to pay most benefits through such a scheme. Shelbrooke specifically intended the welfare cash card as a means to restrict spending by people who receive benefits, including housing benefit paid to people who work. The Telegraph wrote:

The Bill for Welfare Cash Card is designed to stop welfare claimants buying what Shelbrooke deems “NEDD” goods – Non-Essential, Desirable and often Damaging – which include cigarettes, alcohol and gambling. It would not affect those who cannot work and receive disability-related payments or those on the state pension, but it would apply to all other in-work or out-of-work benefits.

The Welfare Cash Card Bill 2012-13 is due for a second reading in March. A ten minute rule bill does not have the backing of government and is unlikely to become law but it may well influence debate and opinion in parliament and could pave the way for a government-backed bill.

I had hoped that this was the end of it, but today thinktank Demos has published a report advocating the use of prepaid debit cards for benefits. The report is backed by MasterCard, although Claudia Wood, the main author of the report has said that they had no input over the content.

https://twitter.com/WoodClaudia/status/296576264767160320

Prepayment cards for social care

Recommendation 1
In the face of unprecedented budget cuts, local authorities should explore the possibility of using prepaid cards for the distribution of personal budgets, as a tool to reduce administrative costs and reduce the budgetary cuts passed to front-line services. From Demos report The Power of Prepaid

Wood has written an article in The Guardian (With little to indicate that she is the author of the Demos report) explaining that Demos does not advocate using the cards to restrict spending, but as a tool for local authorities to allow better auditing and reduce paperwork. She writes:

“Brent council in north London estimates it was receiving 25,000 pieces of paper a year from care users. It expects a 10% reduction in its personal budget costs by using prepay cards.”

Ally Fogg has written a piece for Comment is Free about the potential savings for councils and the drawbacks – The dubious benefits of welfare payment cards. It seems that councils agree that there are savings to be made. According to Wood,

“About 25% of local authorities are using prepay cards and another 30% plan on doing so this year, mainly to distribute direct payments in social care.”

However while I can see a point here – that councils must audit spending of social care funding and direct payments, that doing so it expensive, that checking transactions from a prepaid card account is easier – I am not happy with the privacy implications. In order to audit the use of social care funding, councils will have to monitor the use of the card. At the moment recipients of Direct Payments have to send in paperwork every so often. One person told me theirs is checked annually. Monitoring of a payment card account, on the other hand, would be continuous or frequent. It may cause stress or fear of mistakes especially if a person chooses to juggle their finances and delay a payment.

Then there is the issue of how money is actually moved to pay for goods and services. Prepayment cards can usually pay through VISA or Mastercard services and so can be used in shops and online. The kind of payment card account that Demos advocate (and it is really a kind of bank account) could allow cash withdrawal, direct debits and bank transfers, which would allow payment to Personal Assistants and carers directly employed by a disabled person.

Prepayment card for Universal Credit

Recommendation 4
Prepaid cards should be used as a secure way to distribute Universal Credit for the unbanked.

From Demos report The Power of Prepaid

Prepaid cards might be a reasonable option for people who do not have bank accounts, but that should be entirely their choice. The Demos report mentions those who fear or do not want a bank account as potential candidates, but frankly if they don’t want a bank account then they won’t want a prepaid card which is basically a bank account with more limits. They especially will not want one which is selected and pushed on them by local or national government. If benefits must be paid into an electronic account then I think that the only acceptable solution here is to allow the recipient to select one. Basic bank accounts are available to most people barring some with particular criminal records and those without any form of ID, and I can’t see prepaid cards being available without ID. If someone who is actually unable to get a bank account wants a prepaid card instead then the choice of which one should be theirs alone.

Recommendation 5
In the longer term, the Government should explore the possibility of using prepaid cards to distribute Universal Credit or other benefits to financially vulnerable groups, possibly integrated with direct payments in health or care.

Some care users (such as those with learning disabilities, mental health needs or older people vulnerable to financial abuse) might find prepaid cards a beneficial way to spend both their health or care personal budgets and their disability related benefits. Those seeking to live with greater independence and develop life and budgeting skills, but who may need the safety net of oversight a prepaid card can offer, would find this particularly beneficial – the alternative at the moment is usually apointeeships and managed budgets, where people have little or no financial responsibility and cannot try to take on more.

From Demos report The Power of Prepaid

Demos also recommend that prepayment cards be considered for the payment of Universal Credit for those considered financially vulnerable. The main reason for this is to monitor their spending and prevent financial abuse through carers and relatives stealing money. Again there are privacy implications depending on who carries out the monitoring, violating a person’s right to a private life. I worry that the range of people considered to be vulnerable will be far too wide, such that people who are old or have mental health problems might be forced to have a prepaid card whether it would help prevent financial abuse or not.

Should the group receiving Universal Credit overlap with the group receiving social care funding then there are serious privacy implications regarding the release of their other spending data to the people monitoring the social care spending.

Concerns

I can see that there are benefits to using prepaid cards where local government has a duty to audit spending. I can see that there would be a saving. I am concerned, all the same, that such monitoring goes beyond what they are required to do and turns something that might be fairly unintrusive and infrequent into a continuous process that will infringe on a person’s right to a private life and will cause stress.

I am concerned that splitting income into separate financial systems – bank account and prepaid card – will allow less flexibility to juggle expenses in the face of the poverty which many disabled people face. It will also cause an increase in administration. [Claudia Wood has pointed out to me that a separate bank account is already legally required for a personal budget. I do think that requiring it to be with a separate financial provider instead of the same bank is a drawback though.]

I am concerned that the prepaid card provider is chosen by government and not the individual. I do not believe that a particular bank or financial service should be forced on someone. If payments must be made electronically then the choice of bank or prepaid card provider must be up to the individual.

I am concerned that these cards will be pushed out of profit motive. Prepaid card provider allpay has already jumped to capitalise on the report from Demos to sell their prepaid cards to councils for the payment of social care funding. An article which is more or less an advertisement for allpay appeared yesterday. (Call for ‘revolutionary’ welfare payments move) The allpay website dedicates a section of its front page to talking about “Welfare reform: how we’re supporting housing associations and councils”. Payment card providers such as allpay will receive a fee every time their card is used, just as with a debit card or credit card so of course it is in their interest to see that benefits are paid through their service.

I am concerned that the use of prepaid cards will be normalised through the requirement for monitoring some payments and will then spread further to all people in receipt of benefits before being used to restrict spending. This report is a subtle shift in argument away from preventing “waste” of benefits on alcohol and cigarettes and Sky TV, and onto responsibility and independence but other politicians and groups still want the ability to dictate what benefits can be spend on. In fact Radio 4 spoke to Alec Shelbrook MP at length this morning and Shelbrook heavily pushed the idea, with Claudia Wood arguing against him. While The Guardian recognised the point that Demos were making in their coverage, The Telegraph has also covered it from the point of view of restricting spending, claiming the card would “help them stop spending taxpayer cash on gambling, cigarettes and alcohol”.

I think when considering the points raised by Demos we should keep individual freedom and privacy foremost in mind and we should realise that there are a lot of things that could be done to save money that we don’t consider acceptable compromises.

Further Reading

Thinktank recommends issuing benefit cash on ‘prepay’ cards – The Guardian

‘Welfare cash cards’ are much more than a tool of state control – article in The Guardian by the author of the Demos report

Benefits on pre-paid cards? – This Morning, Radio 4

Ministers should consider paying benefits via ‘Oyster-style’ cards – The Telegraph

Call for ‘revolutionary’ welfare payments move – an article promoting prepaid cards to councils

The Power of Prepaid – The report from Demos

‘Welfare cash cards’ can help reduce the benefits bill and stop people buying booze and fags with taxpayer’s money – Telegraph

Welfare Cash Card Bill 2012-13 – parliament.uk

The dubious benefits of welfare payment cards – Comment is free

Welfare cash cards and spying: the Tory approach to unemployment – Comment is free