The power of prepaid
by Claudia Wood
Today we have launched the Power of Prepaid – looking at the phenomenon of prepaid cards, which are rapidly spreading across local authorities to facilitate the payment of personal budgets. As my comment in the Guardian explains, these cards can work well in distributing direct payments in social care, due to the fact they can be monitored online, removing the huge amount of paperwork required to audit care users’ spending – a statutory duty which has hitherto involved the checking thousands of piece of paper each month.
The first generation of social care orientated cards have had their hiccups. Sorting out telephone support for care users, making sure bank charges aren’t unaffordable, and so on, are issues local authorities have had to tackle to ensure the admin savings associated with these cards is matched by high user satisfaction. But the broadly positive experience – not to mention the substantial cost savings and eliminating backlogs of paperwork – has prompted more local authorities to try this system out as one way of reducing their unprecedented budgetary reduction targets.
An FOI request we issued for this project found that the second generation of cards are likely to be used for a wider range of purposes – including emergency grants and the newly devolved social fund, grants for care leavers and asylum seekers and even local benefits. But could we be more ambitious than this? Our research points to four potential further uses of prepaid technology.
First, they could be used to distribute other personal budgets as they are rolled out (in health, children’s services and so on) and indeed integrate health and social care budgets. Moreover, they could be used by those with learning disabilities or mental health needs – who currently are unable to spend their own personal budgets and benefits, requiring an appointed person to do this on their behalf. Prepaid cards, which can be monitored in real time, enable vulnerable groups to learn budgeting skills and prepare for independent living with a safety net and protection from financial abuse.
Second, more radically, they could be used to distribute Universal Credit for the unbanked. At the moment, those without bank accounts receive benefits on a less functional card which they swap for cash at PayPoints. Fully functional cards would enable them to shop online and set up direct debits – lifting them out of the cash economy and all of the drawbacks associated with this.
This could then lead to a range of voluntary uses – which those with or without a bank account could opt into. For example, some families may be unused to monthly budgeting – a problem identified by the Social Market Foundation as regards the monthly payment system adopted by Universal Credit. Families could opt in to having a prepaid card for their benefits, and asking for a weekly cap to be placed on it to ensure their money lasts to the end of the month.
Our research with low income families found this sort of budget control was already taking place, with people leaving credit cards at home or only taking the exact amount of money to the supermarket to remove the temptation of over-spending. People with a gambling addiction might want to remove temptation for opting into having their cards blocked from online gambling sites, for example.
A fourth, and final potential use, is using these cards as a mandatory measure, to prevent people from spending their benefits on 'non-essential' items, as per Alec Shelbrooke’s Private Member’s Bill. This would require everyone to have their benefits paid in this way, and the card being blocked from being spent in certain shops (such as off-licences).
While the first three uses are constructive, empowering, and relatively non-controversial, this last use is potentially problematic. It requires nothing short of a national conversation to ensure the public, practitioners and policy makers are comfortable with such a policy, who it might apply to and in what circumstances. It is possible that the mandatory use of the cards for those with alcohol addiction – to control their spending on alcohol – could find support across the spectrum, but for other groups (‘troubled families’ spring to mind) this would provoke a more divisive debate.
But while the debate rages over the more controversial and mandatory application of prepaid, the important thing is not to lose sight of the potential to empower those who are currently financially excluded, or otherwise unable to spend their own money.