News analysis - PFI benefits card scrapped

27 May 99
The Post Office did not conceal its anger at the government's announcement this week that it is scrapping the £500m benefits card project as was widely suggested two weeks ago but denied by the Post Office itself.

28 May 1999

From next year, its staple business – the payment of benefits – will fade away as more people choose to have benefits paid direct to bank accounts. 'It's a threat to 19,000 post office branches,' says a spokesman.

ICL's Pathway project is an extraordinary saga, even in the murky and inefficient world of Whitehall IT procurement. The scheme was to automate benefit payments, with claimants using a magnetic strip swipe card. ICL would have received payments based on the number of transactions using the system. The Post Office, in addition to keeping the business, would have profited from the automation of its other services.

Under the revised deal signed by the government and ICL, only the second part – the automation of Post Office counter services – remains. It is no longer a PFI project but is a conventional public procurement scheme.

The government is now set on encouraging benefits claimants to open bank accounts to receive their payments – 'a more modern and efficient way of paying benefits, building on banking technology', as the DTI puts it – though they may be channelled through post offices.

John Bennett, managing director of ICL Pathway, said there wr be 'a major reduction in benefit payments through post offices' – losing the network a vital source of income.

The most bizarre element of all this is that three years ago, the then social services secretary, Peter Lilley, gave the go-ahead to a scheme whose technology was old even then and which now looks antiquated. While there was universal support for the goal of reducing benefits fraud through a more effective authentication system, it seemed strange that the technology chosen was based on magnetic benefit cards.

The significantly more sophisticated smart cards, which are effectively microcomputers on a piece of plastic like a credit card, were already operating in much of the world, and ICL was a leader in the technology.

When Trade and Industry Secretary Stephen Byers this week announced that the benefits card would be abandoned, he gave the outdated technology as one reason, while government sources blamed the three-year delay in implementation.

But the Post Office does not believe the revised scheme will do much to help its struggling network of sub-post offices. What will happen to the villages and suburbs, it asks, if more branches close after years in which banks and building societies have closed local offices, and shops and pubs have gone?

The government's definitive statement on the future of the Post Office will be contained in a white paper to be published in June. It is clear, though, that it wants post office branches to be used for branch banking on behalf of the major clearing banks.

Three banks – Lloyds-TSB, the Co-op and Alliance & Leicester – have contracts with the Post Office for customers to conduct transactions through its branches. There is likely, too, to be a big increase in the number of cash machines in post offices.

The Post Office is keen to get into partnerships with other major corporations. In one case, Sainsbury's is supplying branded goods to sub-post offices to sell. Increased and more profitable retailing is seen as the key to survival for rural branches. One idea is for multimedia kiosks in branches that will allow people to order shopping for home delivery, similar to Tesco's Internet ordering scheme.

Other services could be delivered through the kiosks. The government sees the Post Office as central to its electronic delivery of services – as does ICL, which wants to rescue something from the Pathway mess.

The announcement of the abandonment of the benefits card coincided with ICL's publication of its annual results. The provision of £180m for costs associated with the scheme was the major factor in converting profits of £82m into losses of £129m.

Anna Campopiano, ICL Pathway's spokeswoman, says: 'This is no longer a PFI project but a design, build and operate project, and we are signing a new partnership with the Post Office. We will roll out the automation of the Post Office as planned. But it is no longer pay per use.

'We can work with the Post Office to re-engineer its services. We will be automating all the 170 services offered by the Post Office.

'When the system is fully installed, the Post Office will have the largest smart card network in the UK.'

The National Lottery offers another opportunity when its contract renewal comes up in 2001. The Post Office is interested in bidding and is in discussion with potential partners, including ICL, a member of the Camelot consortium running the lottery.

Modern multimedia branches may provide new opportunities, but the Post Office is increasingly looking more like a risk-committed private enterprise than a risk-averse state corporation.


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