Paternalism 2.0 – Welfare and prepaid cards

Poverty programs have become cash cows for powerful corporate interests, says Peter Schweizer at the Daily Beast. In the US, state governments increasingly rely on electronic benefit transfer (EBT) cards to distribute social assistance. And around the world, financial services companies are marketing products like prepaid cards to government welfare agencies.

Prepaid cards enable government agencies to place restrictions on how recipients spend assistance as well as making it easier to gather data on spending patterns. Negative attitudes towards welfare recipients may encourage policy makers to take advantage of prepaid cards as a way of distributing assistance to groups such as the long term unemployed.

Prepaid cards in Britain

In Britain MasterCard has partnered with Demos on a project to explore the use of prepaid cards for direct payments and benefits. With the government set to replace a number of exiting benefits and tax credits with a Universal Credit, the research is well timed.

Prepaid cards are similar to bank issued debit cards. The main difference is that funds are not paid into the recipients bank account. Since government agencies issue the card and control the accounts, they can choose to stop recipients from using their cards to withdraw cash and can restrict the kinds of items the cards are used to purchase.

As part of their research project on prepaid cards, Demos released the results of a poll showing that "the majority of people believe the government should start controlling how welfare recipients spend their money." According to a Demos media release:

Whilst 6 in 10 people (59%) agreed the government should control what people spend universal credit on, the figure rises sharply for certain recipient groups and for the purchase of specific items.

  • An overwhelming 9 out of 10 people (87%) said at least one group of welfare recipients should have their benefits controlled. 77% said yes to monitoring people with a substance or gambling addiction and 69% for those with a criminal or anti-social history. These figures rose to 82% and 75% respectively among respondents aged over 65.
  • Over two-thirds of respondents (68%) agreed the government should stop all recipients from spending their benefits on gambling.
  • Over half (54%) agreed with the government stopping people spending their benefits on unhealthy items such as cigarettes or alcohol.
  • Just under half (46%) opposed benefits being spent on branded goods such as Nike trainers etc,
  • Approximately 4 in 10 people backed a ban on buying junk food (38%) and over a third (35%) on holidays.

According to Demos Deputy Director Claudia Wood, 33% of respondents singled out those claiming disability benefits and 27% the long term unemployed as groups who should have their spending restricted. Wood interprets this a sign that Britain is falling "into a damaging ‘them and us’ culture when it comes to the welfare state" (pdf tables of poll results).

The financial services industry is marketing prepaid card technology to local authorities in Britain. Among the selling points are the ability to prevent recipients from withdrawing cash from ATMs and the ability "to block certain Merchant Category Codes (MCC), or restrict card usage to desirable merchants only."

EBT in the US

The US provides a model of how EBT cards can be used to control and monitor spending. For decades the US Department of Agriculture supported low income households by distributing paper stamps that could be redeemed for food. But during the 1990s and 2000s state governments shifted the Food Stamp Program to EBT.

Now known as the Supplemental Nutrition Assistance Program (SNAP), the program’s EBT cards allow recipients to buy eligible food items but prevents them buying products such as alcohol, cigarettes, vitamins, hot foods or pet food. In many stores electronic cash registers and barcode scanners automatically distinguish between eligible and ineligible items.

Some commentators are calling for further restrictions on spending — particularly on snack foods and sugary drinks. For example, in the Los Angeles Times Paul Whitefield writes: "People on food stamps shouldn’t be allowed to buy junk to eat and drink." Organisations like Eat Drink Politics argue that corporations that manufacture and distribute unhealthy food benefit from the current arrangements and are lobbying against health-oriented changes to SNAP.

Gathering data

Using prepaid cards for benefits makes it easier for government agencies find out what products recipients are buying. Last year the US Department of Agriculture issued a Request for Information (RFI):

… to identify industry capabilities and compare the feasibility of obtaining and analyzing nationally representative food purchase data maintained by large store chains, loyalty card companies and/or other commercial sources to determine what types of foods are purchased by participants in the Supplemental Nutrition Assistant Program (SNAP, formerly known as the Food Stamp Program).

An earlier study used EBT food stamp data to examine the shopping behaviour of different categories of recipient including how quickly they spent their entitlements and where they shopped.

A dilemma

For stigmatised groups such as the long-term unemployed it may be easier to gain public support for increased assistance if prepaid cards are used to restrict spending. But because the cards identify customers as welfare recipients the cards themselves are stigmatising.

Read more …

Welfare quarantining in America, Club Troppo

America’s food stamp program — It’s welfare, but not as we know it, Club Troppo

Food Stamps — Follow the Money: Are Corporations Profiting from Hungry Americans? Michele Simon, Eat Drink Politics

Should claimants be paid vouchers to stop spending on ‘vices’? Brian Wheeler, BBC

A controversial, but vital, debate, Claudia Wood Demos

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john r walker
john r walker(@annesanders)
9 years ago

Don
Do prepaid cards increase the payments to the management costs of running a welfare system ?

derrida derider
derrida derider
9 years ago

John – Yes. They also increase costs to the claimant (ie make them even poorer) by limiting where they can buy (eg no secondhand clothes from Vinnies, no buying food at a farmer’s market).

And all experience is that those sufficiently motivated to do so can quickly get around the limits (eg by setting up a secondary market in goods); for “those sufficently motivated” read drug addicts (mostly to nicotine or alcohol) and the like – precisely the people the policy is aimed at.

john r walker
john r walker(@annesanders)
9 years ago

Don’t doubt that the main benefit of this sort of regulation is increased payments to the management, however would vinnies be really off limits?

Don Arthur
Don Arthur
9 years ago

DD – In the US the USDA’s Food and Nutrition Service allows farmers’ markets to accept SNAP payments.

Don Arthur
Don Arthur
9 years ago

John – In a system like Australia’s where funds are currently transferred into clients’ bank accounts I’d expect it to cost more.

In a paper-based system like the old US food stamps program I’d expect the move to EBT would deliver savings.

So the answer depends on the program – how that program was administered in the past, how many clients it has etc. In the US it gets complicated because states can use one card for a number of programs (eg TANF & SNAP).

There’s also a cost to retailers. For food stamps the shift to EBT would have reduced costs.

john r walker
john r walker(@annesanders)
9 years ago
Reply to  Don Arthur

In the UK pensions/dole so on are not means tested …Am I correct?

Australia’s charities churches and the like are already very stretched providing essential supplementary cash income and food to the poor , if this sort of ration-thing was introduced here something would crack.

Don Arthur
Don Arthur
9 years ago

John – There are two forms of Jobseeker’s Allowance (JSA) in the UK — contribution-based and income-based. Income-based JSA is means tested.

In Australia the leader of the opposition, Tony Abbott, has outlined a plan that includes: “mandatory income management or income quarantine for people who have been on unemployment benefits for 12 months or longer”.

john r walker
john r walker(@annesanders)
9 years ago
Reply to  Don Arthur

“people who have been on unemployment benefits for 12 months or longer”, if paying rent, do not have enough income to eat properly. Many end up living at the ends of the interurban train system- Nowra, Lithgow and similar places where housing is cheap because there is little local employment. For people with little income (after paying rent) “Income management” is just blah. There might be a case for “income management” when the end recipient is a dependent child or when the recipient has public housing but it sounds inefficient and arbitrary(generic sand-shoes yes, Nike no) . A extra layer of management on top of all the current layers of local, state, federal and charitable management of poverty.

john r walker
john r walker(@annesanders)
9 years ago

Actually restricted spending cards could have a place.
The Navy over the years has blown billions on stupid purchases, 900 million on the Seasprite alone or the landing barges too big for the garage door. The carbon scheme that has made brown coal more profitable and god only knows how much is wasted by the three tiers of government on pointless and/or incomprehensible consultants reports on things that nobody.
I can see a real place for a restricted spending card.

Robert
Robert
9 years ago

Labour MP Debbie Abrahams, an aide to shadow health secretary Andy Burnham, said she backed the idea, in principle, of using pre-paid benefit cards to encourage people to make healthy eating choices by offering discounts on fruit and vegetables, for example.

Seems most parties like the idea, labour once thought hard about food vouchers not money to stop us buying ale and sweets and sex,. ok not sex, but drink