The Pathway consortium, which has won the new contract, already has proven experience in running similar, if smaller, systems. One of the partners is An Post, the Irish post office, which has installed an automated benefits- payment system in more than 600 post offices, achieving big savings by reducing fraud, while improving service standards by cutting the time taken to serve customers.
The lead partner, ICL, has established automated anti-fraud systems in 1,500 London post offices, making savings of pounds 60m last year.
Under the terms of the Private Finance Initiative contract, the pounds 1bn cost of the project will be met by the private-sector partners, but will be recovered by a contribution from the expected pounds 150m annual savings from fraud reduction. If, in the event, criminals are able to defraud the system, the Pathway members will bear the cost.
It will take two years before all of the UK's 20,000 post offices and 20 million benefit recipients will be linked into the system. The cards will first be issued to people entitled to child benefit, in the expectation that they will be the most familiar and comfortable with plastic cards. Subsequently, the cards will be issued to all those entitled to state benefits, including war pensioners.
Initially, they will be swipe cards, producing a read-out on a computer screen of how much benefit is payable. As an additional safeguard against fraud, card holders will be required to sign their names, for signature comparison, and, on an occasional basis, will be asked for personal information, which only they are likely to know.
Eventually, if the Government so chooses, the swipe card could be replaced by a smart card, with a small computer chip on the reverse. A single card could then be multi-purpose, for various public bodies, if the political will is there.
Clare Birks, government consulting principal at IBM, says the applications of smart cards elsewhere indicate the way ahead. In Portugal - and Spain is soon to follow suit - cards are issued so that electronic kiosks can be used to apply for unemployment benefit and for job searches. "They are already used in France for health records. A rapid take-up is more likely as identification cards in the Far East, where there are not the same political difficulties, and in South Africa."
The use of smart cards to improve access to health records excites David Cooper, account director of Hoskyns, a leading information technology outsource operator and consultant.
"But they would not be comprehensive health records - the memory on the cards is not big enough for that," Mr Cooper says. "You could put on the identification of an individual any emergency information, and the information to allow the person reading it to get into where the health records are kept. The big opportunity is for private healthcare, particularly when going abroad."
The Ministry of Defence is examining the potential for smart cards for service personnel based overseas, to store health and other personal details. Smart cards could also be used for selling government information, something Canada is investigating. Details of land and property could be released by government departments to legal firms, if their smart card accounts were in credit.
Museums might hand out the smart card's relative, the "active badge", being developed by Olivetti, as a means of recording which activities and displays visitors spent most time on, so resources could be allocated accordingly. Active badges are also likely to have a market for improving security in public buildings and for ensuring supervision of residents in sheltered housing while giving them more freedom to roam.
But it is a matter of political sensitivity rather than practicality that will determine progress. Is the public willing to see smart cards used by the police, to check a person's identification, criminal record and right to be in the country?
John Adamson, a public sector partner at Coopers & Lybrand, says: "The main problem in the UK is data protection and civil liberties. They are being used in Spain with bio-metric details, such as finger prints and physical appearance, for verification."
The British, though, are thought to be sensitive about such matters. Politicians will be watching the public reaction to the Pathway programme very closely.