The answer to a sensitive issue?

The Education Maintenance Allowance has been in the news recently, following demonstrations across England on the 19 January to coincide with the Parliamentary debate on its abolition. The allowance, which is claimed by some nearly 50 per cent of teenagers, is an incentive to continue in education for students of low earning families. The money was supposed to be for transport, books and other essentials associated with education and funds were to be disbursed only to those attending classes.

Money well spent?
It appears that the money given to students was frequently not used for its intended purpose; furthermore, there was no assessment of whether students were in part-time employment and nor was the allowance withheld from some students with poor attendance records. Michael Gove, Minister for Education, has promised to abolish the allowance and provide the limited funds to help those with greatest need, but a study published before the election last year suggested that 12 per cent of teenagers receiving the allowance would not be able to attend college without it. This has been seized on as further evidence of the ineffectiveness of the scheme, but the Institute for Fiscal Studies has suggested that for those 12 per cent of students who might otherwise be unemployed, the money is a worthwhile investment and a sound use of government funds.

Barriers to overcome
Replacing the Education Maintenance Allowance creates a challenge for the government, they would rather not dispense funds at all, but they also know that for some students the price of a bus journey is all that stands between them joining the dole queue.     

The problem is that getting the money to these students and then restricting how that money is spent is both expensive and difficult, so better to abolish the whole scheme. They have a point, disbursements are notoriously unwieldy, the first challenge is getting funds to individuals, which can be difficult if they don’t have a bank account. Even if the funds arrive at the appropriate destination, there is no way to control the funds once they are in a bank account.    

Governments facing this sort of challenge typically resort to voucher schemes, but vouchers are expensive to maintain and often ineffectual. Vouchers are also burdensome for suppliers and the vouchers are easily sold for cash.

What’s the alternative?
Prepaid cards offer a compelling alternative; they are an efficient disbursement mechanism that can be issued to minors and anyone with a bad credit rating, they provide more data than voucher schemes and can also be limited for use in only certain types of store, for example bookshops, libraries and bus stations. This sort of sophisticated blocking mechanism has already been used in prepaid schemes in Cambridgeshire and other County Councils to encourage young people to engage in positive activities.    

Prepaid can also be used to determine whether students are attending school: a transaction can be sent across the Visa network from a terminal in the school to show that the cardholder has attended the school, which can then trigger a deposit of funds to the card.        

Taking this approach allows students to be rewarded for their actions, thereby nudging them towards full attendance, rather than trying to penalise them for poor attendance. This may feel like a subtle difference, but according to the behavioural economists Richard Thaler and Cass Sustein, a ‘nudging’ approach is a political tool that is more successful than authoritarian command control: “The goal of Nudge is to show how choice architecture can be used to help nudge people to make better choices (as judged by themselves) without forcing certain outcomes upon anyone.”    

Downing Street apparently boasts a Behavioural Insight Team, to identify and implement incentive opportunities and to structure policies so that positive choices are easier to make.

Difficult choices
It is not just students who may face difficult choices; the Department of Education’s choices appear tough too. They think they must choose between scaling down an inefficient and unaffordable system or scrapping the policy and hoping that the consequences aren’t too dramatic. They are taking the later option, probably with heavy hearts, but also knowing that any consequences will fall on the other side of Victoria Street, at the door of the Department of Work and Pensions. However, what if we introduce prepaid as an option for them? Well, for the price of the postage on a voucher scheme they can provide the poorest students with funds via an efficient payment mechanism that can be restricted to payments for buses, trains and books.     

With Councils from Middlesbrough to Merton  implementing prepaid, there is more than enough evidence to show that it works, cutting costs and providing better services to clients.  If the government does decide to give funds to the poorest students, prepaid looks like the best way to deliver both efficiency and control.

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