UK Government pilot uses blockchain tech for welfare distribution

The UK Government recently unveiled that it is undergoing a blockchain technology pilot to implement “social welfare payments distribution trial for UK’s Department for Work and Pensions.” If the trial is successful, the underlying technology could be useful for everything from tax collection to sharing health records, according to a government report released in January.

The project’s initial announcement came from Lord Freud, Minister of State for Welfare Reform at the Department for Work and Pensions, at the Payments Innovation Conference 2016 last week.

The Department of Works and Pensions (DWP) is the UK’s biggest public service department. It is responsible for welfare, pensions and child maintenance policy, administering the State Pension and a range of working age, disability and ill health benefits to over 22 million claimants and customers.

The announcement states that GovCoin Systems Limited has been named as the London-headquartered financial technology company trialling new technology to support government aims in the distribution of benefits.

“Claimants are using an app on their phones through which they are receiving and spending their benefit payments. With their consent, their transactions are being recorded on a distributed ledger to support their financial management.”
— – Lord Freud

Founded in 2015, GovCoin Systems Limited is a digital value transfer systems company. Its focus is on social welfare distribution for sovereign and federal governments to increase financial inclusion and reduce friction.

Leveraging blockchain technology, as well as machine learning and the ubiquity of mobile devices, the company is developing a platform to reduce the $1 trillion lost annually due to friction and fraud costs in the distribution of social welfare and aid.

DWP also works with GovCoin’s partners, namely RWE, Barclays, and University College London (UCL). RWE is one of Europe’s five leading electricity and gas companies, supplying over 16 million electricity customers and nearly eight million gas customers with energy. Barclays is a British multinational banking and financial services company operating in over 40 countries.

“This initiative focuses on adding an additional layer of richer data and identity onto payments, so that a deeper and more effective relationship can be established between the government and claimants. We are keen to see how the positive potential of this service develops and adds to our wider efforts to explore the uses of distributed ledger technology.”
— – Jeremy Wilson, Vice Chairman, Corporate Banking at Barclays

UCL is London’s leading multidisciplinary university with 11,000 staff, 35,000 students and an annual income of over £1 billion. It’s the UCL, according to GovCoin Systems, that will collate the final results of the DWP trial, which are not expected to be completed until October.

The small test run will use the app to pay for most anything they could already. A GovCoin spokesperson clarified to BraveNewCoin that “Claimants see their available account balances and money they can spend via the app on their phone. It therefore places no restrictions on what or where a claimant may spend their money.” However, “The app does not use a cryptocurrency,” the spokesperson told us. Therefore, “claimants are free to spend their benefits as normal.”

“The proof of concept uses a private permissioned distributed ledger to allow users to store their transactions. Users then view their transactions securely on a mobile application which allows them to monitor and allocate their spending into categories, see their available money, and budget their spending accordingly.”
— – GovCoin Spokesperson

The six month blockchain benefits program began quietly in May, with “up to 24” people in the test group. As a test of blockchain technology, it aims to discover how it could help benefit recipients use and manage their money.

The problem is that benefits disbursements are inherently private information. Recording them on an immutable, possibly public, blockchain could turn out to be a serious breach of privacy. The issues have been explored on both the BBC and Financial Times since the announcement.

While blockchain technology will be more secure and transparent than the legacy system, while reducing fraud and errors, welfare campaigners are concerned that the Department for Work and Pensions (DWP) would be able to check how payments are spent, and dispute any illegible payments it found.

The Open Data Institute (ODI), established to promote transparency in government by Prime Minister David Cameron in 2012, described the program as “very concerning.”

“Experimenting with putting highly personal data in immutable data stores is fraught with danger.”
— – Jeni Tennison, Open Data Institute Technical Director & Deputy CEO

“To avoid undermining trust in government’s use of data,” Tennison warned, “DWP should be much more open and transparent about the policy objective of these trials, the safeguards they are putting in place to limit the risks and the lessons being learnt through the trial.”

GovCoin said it was aware of the ODI’s privacy concerns and had taken the data protection and privacy issues seriously.

The DWP describes their position as just testing systems, with no desire to track purchases. "This trial is designed to explore how distributed ledger technology could help support financial inclusion and offer budgeting help,” a project spokesman told the BBC. “It does not place any restrictions or limits on what a claimant can spend their welfare payments on, nor tracks how they spend them."

However, if such a program were to take off, and such payments were recorded on an immutable ledger with purchase information attached, then the threat to privacy could outweigh any perceived value from the system.

When bringing that argument to the DWP, the BBC was told “that any data involved in the trial would be handled by the private company running it and personal information would be removed before it reached the department.”

"There are no plans to replace any DWP payment systems."
— – Department of Work and Pensions