A leaked document seen by The Independent says it was agreed at a meeting with Peter Lilley, the Secretary of State for Social Security, that the Benefits Agency should "not be in the business of social banking/debt management and should seek to develop a disengagement strategy, leading ultimately to the withdrawal of the direct payments scheme".
The Benefits Agency, which handles the payments for thousands of the poorest claimants, said: "The whole thing is under review. It is making sure customers understand their responsibilities as well as their rights. Ministers are still thinking about it."
But the leaked document leaves little doubt the cuts in service will go ahead as part of Mr Lilley's drive to reduce costs by cutting civil service jobs in social security offices across the country.
The move was condemned as "heartless" by Alan Simpson, a leading member of the Campaign Group of Labour MPs, whose local Nottingham office is among those to be hit by the cuts. He said: "This is a slap in the face for some of the poorest in the land."
Direct payments are made by social security officers to the privatised utilities, local councils, and courts, in deductions from benefits for claimants who are in debt and unable to handle their own affairs.
The withdrawal of direct payments will leave the claimants with extra benefits, but civil servants who make the payments fear it will lead to more people falling into debt, and having their gas, water or electricity switched off, because they will spend the money on other items they need, such as the weekly food bill.
"The civil servants who work in the direct payments sections are outraged. A lot of them enjoy that aspect of their work helping people to get out of debt," said a civil service source.
"When that help is withdrawn, these people will be unable to handle their own affairs. That is why they got into debt."
The direct payments of mortgages to lenders will not be affected. The Benefits Agency said: "It has been worked out with the banks and the lenders and is more efficient for us, so that will go on."Reuse content