Private bids sought for 'smart-card' benefits system: Government seeks tenders for computer takeover by 1996

THE Government is accelerating plans for an overhaul of the system for paying benefit by inviting formal tenders to build and run a new computerised method of payment.

Ministers hope to have the privately run system operating by early 1996. The contract, being offered under the private finance initiative, will involve equipping 22,000 Post Office and benefit office locations with computer terminals.

Benefit books would be replaced with 'smart cards' encoding a claimant's entitlement and allowing Post Office clerks to determine how much to pay by swiping the card through a machine.

The contract is expected to attract banks and communications companies that operate networked payment systems as well as more conventional computer software and hardware specialists. Tenders are being invited by mid- September.

Top-drawer consortia are believed to have been formed already to bid for the project, which ministers hope to put on trial next year. The smart cards would be phased in, with bar-coding of benefit books likely to be adopted as an interim measure. Full introduction of the system is likely to take three years.

Automation is expected to cost at least pounds 200m initially and up to pounds 100m a year subsequently. Ministers believe computerisation of benefits will be self-financing since it should largely eliminate instrument-of-payment fraud, estimated to be costing pounds 120m a year on benefit books and pounds 35m a year on giro cheques.

The Treasury regards the present system as archaic and anarchic and expects to make considerable savings. The new system should allow for more efficient management of government finances. The system will cover all forms of social services payments, including pensions, unemployment, housing and disability benefits.

The plan is likely to prove controversial because smart cards are seen by some as tantamount to a national identity card. Government plans to have the new system run by the private sector could also meet stiff opposition.

However, the Government has indicated that it broadly favours national identity cards. Some ministers regard benefit cards as a useful trial ground.

The Benefits Agency plans to stress that the new cards will not be used as identity cards. They would be used only by claimants who chose to collect their benefit from the Post Office. Payment by other means would not require a card.

Peter Lilley, Secretary of State for Social Security, announced his support for automation of benefit payments at a conference of sub- postmasters on 11 May.

Internal Benefit Agency documents list the key features of the recommended system as:

Positive authorisation of benefit at the point of payment;

Electronic transmission of instructions to pay from a central database through a network to terminals on all Post Office Counters;

The use of a token, likely to be a plastic payment card, held by the customer acting as a key to the data.