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People will be barred from blowing benefits cash on booze and gambling under a controversial scheme to hand out welfare money on “smart cards” announced today.

Instead of handing claimants cash, they would have credits put on a card that could only be used to buy food and other essentials.

Iain Duncan Smith is certain the scheme, to be fully piloted if the Tories win the election, will help alcohol and gambling addicts stay on the wagon.

Tory sources claim the Work and Pensions Secretary had wanted to introduce the cards sooner but has been blocked by Liberal Democrats.

A source from Nick Clegg’s party condemned the policy, claiming it would end up “stigmatising” benefit claimants.

Speaking to Tory conference today, Mr Duncan Smith was to say: “Where parents have fallen into a damaging spiral, drug or alcohol addiction, even problem debt or more, we need to find ways to safeguard them and more importantly, their families [and] children, ensuring their basic needs are met.

“That means benefits paid should go to support the wellbeing of their families, not to feed their destructive habits.

“To that end, today I can announce I am testing prepaid cards … so that the money [received] is spent on the needs of the family.”

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The small scale voluntary trial will look at how an existing prepaid card system used by Labour-controlled North Tyneside council can be used as a budgeting tool for claimants.

A future Conservative Government would then draw on the findings from the trial to inform a full-scale pilot if it wins power.

Mr Duncan Smith is known to have been exploring the idea for months having seen similar schemes implemented in other countries.

In Australia the government puts money electronically on so-called “Basics cards” which can only be used to purchase items such as food, housing, clothing, education and healthcare.

In England alone an estimated one in 15 working-age benefit claimants suffers from addiction to opiates, such as crack cocaine and heroin. An estimated one in 25 working-age benefit claimants suffers alcohol dependency.

Officials have also pinpointed debt as a result of poor budgeting as a key barrier to claimants taking up employment or being in a position where they can look for work. A Tory source said: “This is a tragic waste of human potential and lost opportunity. Ministers believe a prepaid card could help vulnerable claimants to prioritise their spending, manage their finances better and ultimately help to turn their lives around.”

Mr Duncan Smith has previously accepted the move may need legislative changes, but Tories say their coalition partners stymied its progress.

A Lib-Dem source said: “We blocked this proposal on at least two occasions.

“We are not persuaded of its merits, alongside the principled objection that you should not be stigmatising people and reducing their freedom to spend money as they wish just because they spend some time out of work.

“There are also serious practical issues that don’t stand up.”