Select Committee on Public Accounts Appendices to the Minutes of Evidence



Supplementary memorandum by the Deputy of Social Security


  Legislative constraints, customer service requirements and the need to minimise the risk of fraud meant that it was not possible to introduce the amount of simplification that ICL Pathway would have wished in certain areas. The Department did, however, where they could, try to find ways in which existing payment processes could be simplified. As a result, some significant changes were made (or planned) including:

    —  A single nominated Post Office for each customer: the Benefit Payment Card arrangements required customers to have a single nominated Post Office at which to collect all the benefits to which they were entitled. Previously, customers could nominate different Post Offices for each benefit to which they were entitled. Since the ICL Pathway solution relied heavily on being able to predict accurately where the vast majority of encashments were to take place, this was a significant simplification.

    —  Agency arrangements: Regulations introduced in April 1996 simplified the Agent arrangements for the Benefit Payment Card. Where a customer appointed an Agent to collect a benefit, that person became the Agent for all other benefits received by that customer. Previously, it had been possible to appoint a different Agent to collect each of the benefits to which the customer was entitled.

    —  Plans to change the arrangements for Signing Agents: the Signing Agent facility is employed when the person appointed to collect benefit for a customer is effectively a "post" or "body" rather than an individual, eg Local Authority Finance Director. ICL Pathway security procedures relied heavily on knowledge of personal details of the person making the encashment. It was recognised that the Signing Agent facility would make it very difficult for ICL to develop a solution. To simplify matters, the Department agreed to develop a simpler arrangement that could be readily incorporated within the Pathway solution.


  Over 80 per cent of benefit recipients already have a bank or building society account, which is suitable to receive benefit payment by Automated Credit Transfer (ACT).

  One of the key objectives for the Government's plans to make all benefit payments via ACT into bank accounts, starting in 2003, is to encourage more of the 3.5 million people who currently do not have bank accounts—and the linked access to mainstream financial services—to open an account.

  Over the past 18 months, the Post Office have been working with the banks to secure arrangements which mean that everyone could have access to a bank account. The new universal banking services package which the Post Office are developing will provide access to newly designed basic bank accounts (sometimes referred to as PAT 14 accounts) and simple post office based accounts. Universal banking services are being designed to cater for the overwhelming majority of those benefit recipients who do not currently have access to an account suitable for payment by ACT.

  At the same time, this Department has commissioned research and undertaken a programme of discussions with informed groups to establish what barriers there might be universal access to accounts. This programme of work has included:

    —  discussions with experts in the financial services industry (eg the Financial Services Authority and Building Societies Association), those with an interest in financial exclusion (eg the social exclusion group at the British Bankers Association);

    —  detailed research by Elaine Kempson at the University of Bristol[1], building on research she has already undertaken for the BBA and which was made available to the Social Exclusions Unit's PAT 14 group, which reported on financial exclusion[2]; this research shows clearly that while there are certain vulnerable people who may need particular help in using a new account-based payment system, there are no clearly identifiable groups of people in the UK who could not be paid by ACT eg because of disability, religious or other conscientious objections.

  Under current plans for access to bank accounts, it would be possible in theory for everyone to be paid via ACT into a personal account. This is the situation already in countries such as Australia and Holland.

  We have thought it prudent, however, to plan on the assumption that there will be some exceptions to payment by ACT. In particular, there will be a small number of individuals who are simply unable to operate a bank account, or who for other reasons making payments via ACT may not be suitable, eg some drug addicts, people with learning difficulties, people with mental illness who have just come out of hospital. First, to ensure a suitable payment mechanism is in place, DSS intends to tender for a service provider to make payment to these individuals. Second, to develop with other service providers an effective way of delivering such payments, which might involve Post Office, Social Services Departments and other Agencies.

  Although it is difficult to predict exact numbers at this stage, against the background of our policy objectives and current plans for Universal Banking Services, we are assuming thousands rather than millions for planning purposes.

  There is a separate issue about the provision of urgent, payments, such as payment of Social Fund crisis loans. Together these amount to around one million payments per year. We are in discussion with the banking industry about possible arrangements they may be able to provide.

1   Director of the Personal Finance Research Centre at the University of Bristol. Back

2   "Access to Financial Services" report of Policy Action Team 14 November 1999. Back

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