Select Committee on Public Accounts Minutes of Evidence

Memorandum submitted by the DSS (PAC 00-01/70)



  1.  The decision and reasons for not proceeding with the Benefits Payment Card are examined in the Comptroller and Auditor General's report of 18 August 2000. "The Cancellation of the Benefits Payment Card project". The purpose of this note is to provide an update on the Department's work to establish payment by Automated Credit Transfer (ACT) as the "norm" and the measures taken to combat the existing Instrument of Payment (IOP) fraud ie, girocheques and orderbooks.


  2.  Following the cancellation of the Benefit Payment Card the Government announced that ACT would become the normal method of benefit payment from 2003. ACT provides a more modern, efficient and secure method of paying benefits. It will deliver administrative savings of some £500 million per year and fraud savings of over £100 million per year.

  3.  The Department's plans to introduce payment by ACT directly into bank accounts between 2003 and 2005 are on schedule. At present, we make payment to claimants from 26.8 million DSS benefit accounts in Great Britain (this represents approximately 22 million benefit recipients, some of whom receive more than one benefit), 10 million of these benefit accounts are currently paid by ACT. It has been estimated that between 80-90 per cent of all benefit recipients have a bank account suitable for payment of benefits by ACT.

  4.  Since the decision to move to ACT in May 1999 there have been a number of developments in the banking world. All high street banks have agreed to introduce basic no fee accounts in line with the recommendations from Social Exclusion Unit's Policy Action Team on Financial Exclusion (PAT14). In addition, the banks have now agreed to allow free cash withdrawals at post offices.

  5.  The Post Office, in response to the Performance and Innovation Unit's report, Modernising the Post Office Network, has announced its intention to offer Universal Banking Services. We understand that this has two main strands. First, making arrangements with the main high street banks to allow holders of basic bank accounts access to services at the Post Office. And secondly, the provision of a simple Post Office account. Six of the main high street banks (Barclays, Lloyds TSB, RBS/NatWest, HSBC, Abbey National and the Halifax) have agreed in priciple to provide a financial contribution towards the cost of Universal Banking Services. Discussions are continuing with the other banks and building societies regarding the contribution they can make.

  6.  We are working closely with the Post Office and others in developing our detailed plans for implementing the move to ACT from 2003. The Department now has a Public Service Agreement target that by 2005 85 per cent of our customers will have their benefits paid into their bank accounts.

  7.  We have not identified any group of people who would have fundamental religious or other objections to receiving their benefit by ACT. However, our plans do take into account the need to put in place suitable arrangements for certain limited exceptions for example, urgent payments that cannot be made into bank accounts. The move to ACT is being developed in cooperation with the Post Office, in particular its proposals for an enhanced range of banking services. This should ensure that people who wish to access their cash at post offices can continue to do so eg, pensioners can continue to be paid weekly at their local post office. This will be via high street bank accounts accessible at the post office or through the new Universal Banking Service.

  8.  Research has been conmmissioned to establish people's attitudes to the methods of paying benefits, to help us design the new service in a way that willl take account of different people's needs and preferences. Amongst other things this will inform an educational programme we are developing to support the move to ACT from 2003 to ensure that customers have all the information and advice they need.


  9.  The Benefit Payment Card (BPC) and ACT would both virtually eliminate fraud associated with current paper based methods of paying benefit. Following the cancellation of the BPC we needed to take steps to make payments more secure pending the move to ACT in 2003. The Department in collaboration with the Post Office has put in place a range of measures around the control and treatment of order books and girocheques, that have given rise to about £68 million savings in 1999-2000. These include:

    —  Electronic Stop Notice System (ESNS)—this is a bar coding system for order books. It has been installed in 1,462 Post Offices within the M25 area. (Saved about £51 million in 1999-2000.)

    —  Order Book Control Service (OBCS) is a national version of ESNS. It is being rolled-out to all post offices by July 2001. It will reduce order book fraud in the period before the move to ACT in 2003. (Saved about £4 million in 1999-2000.) OBCS utilises the equipment being installed in post offices as part of the Horizon project. The Horizon project is on target to be fully rolled out by June this year.

    —  Reward scheme for Post Office staff and sub-postmasters—Introduced in October 1995. Post Office staff can be paid a reward of £10 (£25 in exceptional cases) for impounding order books and girocheques under circumstances not covered by their normal contractual responsibilities with BA. (Saved about £12.5 million in 1999-2000.)

    —  The recently introduced Social Security Fraud Bill seeks key powers for our fight against fraud. It includes new powers to require information from private and public sector organisations about suspected benefit cheats; allows DSS to exchange information with social security administrations in other countries in order to combat transnational benefit fraud; and improves the speed and efficiency of the flow of information between DSS and local authorities.


10 January 2001

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