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Direct payments: A possible solution but not without controversy

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Direct payments: A possible solution but not without controversy

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Published by Jon Land for 24dash.com in Housing and also in Bill Payments, Central Government, Universal Credit

Direct payments: A possible solution but not without controversy Direct payments: A possible solution but not without controversy

A new report from the think-tank Demos explores the potential of prepaid cards as a possible method of delivering Universal Credit payments to the unbanked but, as author Claudia Wood explains, it isn't without controversy.

Housing benefit is a divisive issue at the moment. Alongside headline grabbing cuts, the Government is piloting the paying of housing benefit direct to claimants rather than landlords. This prepares the ground for Universal Credit, where housing benefit will be rolled into a large monthly payment and given to individuals directly to spend.

The pilots are investigating various issues. What happens when a tenant doesn’t pay up? How far in arrears does a tenant need to get, and how often, before payments are switched back to the landlord?

Unsurprisingly, the public aren’t convinced. Why let someone risk getting in arrears when rent could simply be directed to the landlord? It’s one less thing for a family to worry about, after all.

These were the views expressed in focus groups Demos recently held on this subject, cemented by a poll which found 75 percent of over 2,000 people thought direct payment of housing benefit was a bad idea.

But housing benefit must be part of the Universal Credit for the overall benefit cap to work, and UC’s primary feature is monthly direct payment to claimants.

There is one possible solution, however, to this impasse - an approach which allows payment to the individual claimant, but reduces the risk of arrears: prepaid cards.

Many already use simple prepaid cards to pay utility bills. The next generation function more like debit cards, whereby funds are loaded onto a card and spent in shops or online. If UC funds were put onto these, a portion could be ringfenced and allocated only for rent – removing the risk of arrears. Another use could be for those starting to live independently (e.g. those with learning disabilities), where cards could help teach budgeting skills, while being monitored as a safety net.

It sounds a perfect solution – but the idea isn’t without controversy. The ability to monitor or ringfence benefits could lead to controls on what people should spend them on – Alcohol? Gambling? Designer goods?

It’s a slippery slope, and one the Government could jump on as part of the “troubled families” initiative, but let’s not confuse a useful tool – prepaid cards – with the objectives of particular politicians.

The key is to balance the many practical benefits with the political risks.

Claudia Wood is Deputy Director of Demos.

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