Gordon Brown, the Chancellor, pulled the plug on the scheme after losing patience with ICL, the computer giant, because its public-private project with the Government was three years behind schedule.
In the short-term, social security benefits will continue to be paid through benefit books, which will now be bar-coded to combat fraud. By 2003, ministers hope claimants will be paid via automatic credit transfers through banks and post offices.
ICL is the big loser from last night's announcement. It met the start- up costs and carried out pilot schemes on child benefit payments in return for an expected payback of 10p for every benefit transaction once a nationwide scheme based on post offices was set up.
Although ICL will continue to work with the Post Office on a plan to computerise its network of offices, it will now miss out on the lucrative "magnetic strip benefit payment card", a flagship policy of Peter Lilley, the former Tory social security secretary. Labour ministers turned their fire on Mr Lilley for a scheme that "was never going to work". But privately, government sources admitted there was dismay that ICL had failed to come up with a workable scheme because of technical problems. "The whole project has been a fiasco," said a Treasury source.
Stephen Byers, the Secretary of State for Trade and Industry, said that the swipe card was now "an outdated concept" and the banks were moving away from the magnetic strip to the smart card.
Ministers insisted that scrapping the original project would safeguard, rather than pose a threat to, the 18,000 post offices, which include 17,000 run by sub-post masters. They hope that offices in rural areas and inner cities where there are no banks will act as agents which offer services for the High Street banks, allowing the Post Office to maintain its central role in paying benefits.
"The Government has put this project back on track," Mr Byers said. "It will deliver the long overdue computerisation of the Post Office network in partnership with ICL and major reductions in benefit fraud."
Iain Duncan Smith, the Tories' shadow social security secretary, accused the Government of having gone "soft on fraud". "They will now miss their targets to combat fraud. The swipe cards would have helped in the fight against fraud," he said. He said disabled people and pensioners would have preferred to use benefit cards in sub-post offices.
The Tories attacked Labour for announcing the change in a written Commons reply and, in one of her strongest rebukes to the Government, the Speaker, Betty Boothroyd, said that she was "dismayed to hear" that an important statement on the Horizon project was being made outside the Commons chamber. "This House deserves greater respect in those matters," she said.
John Redwood, the shadow Secretary of State for Trade and Industry, accused the Government of a "snub to democracy". "It refuses to tell Parliament because they have made complete mess of smart cards," he said.Reuse content