Official hearing page

29 November 2022 – Stephen Robson, Alistair Darling and Anthony Kearns

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(9.58 am)

Mr Blake: Good morning, sir.

Sir Wyn Williams: Good morning.

Mr Blake: Our first witness today is Sir Stephen Robson.

Sir Stephen Robson


Questioned by Mr Blake

Mr Blake: Thank you very much, can you give your full name, please?

Sir Stephen Robson: Stephen Arthur Robson.

Mr Blake: Sir Stephen, thank you very much for attending today. You should have in front of you a witness statement dated 13 September of this year?

Sir Stephen Robson: That’s right.

Mr Blake: Thank you. On the final page of that witness statement, page 11, you see a signature there?

Sir Stephen Robson: That’s right.

Mr Blake: Is that your signature?

Sir Stephen Robson: It is.

Mr Blake: Is that statement true to the best of your knowledge and belief?

Sir Stephen Robson: Yes, it is.

Mr Blake: Thank you very much?

Sir Stephen Robson: Although I should probably bring to the Inquiry’s attention the very first paragraph of my witness statement, because it is important. As we all know, these are events of over 20 years ago and my involvement lasted about six months. So very much what I say in the witness statement and, indeed, what I say today, should all be sort of – have the implicit qualification that it’s as far as I recall.

Mr Blake: Absolutely. Thank you very much, your witness statement, for the record, is WITN03360100, and that statement will go into evidence, so the questions I’ll ask you today will be supplementary to that. Thank you very much.

Starting with your background, you joined the Civil Service in 1969?

Sir Stephen Robson: That’s correct.

Mr Blake: Apart from a secondment in the 1970s you held a series of posts in the Treasury until 2001; is that right?

Sir Stephen Robson: Correct.

Mr Blake: You became Second Permanent Secretary and was Second Permanent Secretary at the relevant time?

Sir Stephen Robson: Yes.

Mr Blake: Your involvement in Horizon, I believe, began in January 1999 –

Sir Stephen Robson: Yes, that’s right.

Mr Blake: – and ended around May 1999?

Sir Stephen Robson: That’s right.

Mr Blake: You’ve described your role as looking at the Horizon project with a fresh set of eyes. How is it you became selected for that role?

Sir Stephen Robson: Well, when the phrase “a fresh set of eyes” is actually one I think was put to me by the ministers at the time rather than one that I subsequently thought up. The honest answer, I’m not quite sure how it came to be that I was selected for the role. There had been two other people who’d looked at – reviewed the Horizon project previously, Corbett and Montague, and I think, probably as the eyes went round, it was very hard to find who the third person was going to be, so I drew the short straw.

Mr Blake: Did you have technical expertise?

Sir Stephen Robson: I had no technical expertise in IT or software at all.

Mr Blake: Did you see your role as requiring those kinds of expertise?

Sir Stephen Robson: No, there were plenty of people around the project who had views on the software and on the IT equipment themselves and indeed, there’d been a review chaired by Montague in the middle of 1998 which had looked at the software – well, the Horizon System. So there were plenty of other people around who had knowledge of these matters.

Mr Blake: Your involvement included acting as a liaison with the chief executive of the ICL, Keith Todd; is that right?

Sir Stephen Robson: He was the person that I – in discharging the remit that ministers gave to me, he was the person that I dealt with at ICL, along with Richard Christou who I think was the finance director there at the time.

Mr Blake: Was Mr Christou the negotiator for ICL or was he seen as the negotiator?

Sir Stephen Robson: Probably slightly more – I mean, they both negotiated at different times. I think probably Mr Christou was slightly more the negotiator.

Mr Blake: We’ll get to it shortly but you also joined a meeting with the Prime Minister and senior executives from Fujitsu; is that right?

Sir Stephen Robson: Oh, there was a meeting with the Prime Minister, with Mr Naruto, who was the Vice-Chairman of Fujitsu at that point, yes, and I joined that meeting.

Mr Blake: Who else were your main points of contact during this period, whether it be the Post Office, the Federation, the unions?

Sir Stephen Robson: The main points of contact were Mrs Graham of the Department of Social Security, Stuart Sweetman of the Post Office, and David Sibbick of DTI.

Mr Blake: To what extent was it considered appropriate during your involvement for the Government or civil servants to be negotiating directly with ICL rather than the Post Office?

Sir Stephen Robson: Um … it was the agreed position of the ministers of the various departments that I should be the point of contact for those discussions.

Mr Blake: How did the Post Office feel about that?

Sir Stephen Robson: I never asked them how they felt about it but they went along with it.

Mr Blake: I’m going to start today talking about your background knowledge, the knowledge that you obtained when you first started in your role. Were you aware of any of the detail of the procurement process when you started?

Sir Stephen Robson: I was aware of procurement policies generally in the public sector.

Mr Blake: Were you aware that Pathway, which was ICL, was the least preferred bidder, from a technical perspective, in the original procurement exercise?

Sir Stephen Robson: No, I wasn’t aware of that. When you asked me the question about procurement, I was responding in general terms about procurement policy, not about the procurement of this particular project.

Mr Blake: Were you aware of any concerns that were raised at the procurement stage, such as that the system could prove unreliable and had a fragile software system?

Sir Stephen Robson: No, I wasn’t aware of that.

Mr Blake: You were aware of the Montague report when you started?

Sir Stephen Robson: Yes.

Mr Blake: I think you’ve said in your witness statement, at paragraph 11, that his report had concluded that the infrastructure was robust by industry standards and, in your view, the issue of technical feasibility couldn’t be assessed as the three parties, that is ICL, DSS or BA and the Post Office, took different views on a range of technical issues.

You used the word “infrastructure” in relation to the Montague report. Did you understand the Montague report as somehow signing off the abilities and reliability, for example, of the Horizon System, or did you see it as focused simply on – or particularly on the overall feasibility of the system?

Sir Stephen Robson: Yeah, I think I took it to be the latter.

Mr Blake: Did everybody you dealt with take it to be the latter or were there differing opinions as to the importance of the Montague report?

Sir Stephen Robson: There was not a great deal of discussion of the Montague report, to be honest. The discussion was focused much more on the situation in the project at the time, which was, as I say in my evidence, you know, one of criticism, distrust and a lack of any real agreement on a way forward.

Mr Blake: Why did you feel, at that stage, the technical feasibility couldn’t be assessed?

Sir Stephen Robson: Because the views of the different parties were not alive.

Mr Blake: Can you expand on that slightly?

Sir Stephen Robson: Well, it was the case that, if you sat in a meeting with the various parties and tried to have a discussion about the state of the project, you got a lot of complaint, criticism, and lack of trust between the different parties as to what the state of the project was, to the extent that the state of the project wasn’t satisfactory, why it wasn’t satisfactory and whose fault it was that it wasn’t satisfactory. And that – you know, this was like a cloud over the whole project at the time.

Mr Blake: So was it your view that, because you didn’t know what the end product would look like, because it may have a benefits card, it may have a smartcard, it may have something else, it wasn’t appropriate at that time to carry out technical feasibility tests?

Sir Stephen Robson: I mean, my feeling at that time – at that time, we were focused very much – or the work was focused very much on the Benefits Payment Card. And my view at the time was that, given the statement of the management of the project, that it was very unlikely that it would ever deliver a Benefit Payment Card.

Mr Blake: Were you aware, when you joined, or during your period of involvement, of concerns at the ICL side regarding what we know as the Electronic Point of Sale System, the EPOS System?

Sir Stephen Robson: No, I wasn’t.

Mr Blake: Were you aware of a report from Project Mentors in December 1998 which was critical of the Horizon System?

Sir Stephen Robson: No, I wasn’t.

Mr Blake: To what extent were you aware of any concerns about technical issues with Horizon when you started?

Sir Stephen Robson: Well, I was only aware to the extent that, when one sat down with the various parties, they were very ready to say, in their view, that the project was not working as it should be working and that most of the fault lay with one of the other parties.

Mr Blake: Did you form a view during your time as to the technical aspects of Horizon?

Sir Stephen Robson: No, I didn’t.

Mr Blake: I’m going to ask you about the smartcard option, which seems to be the principal issue that you were addressing. Can we start by looking at CBO00100001_039, please. Thank you very much. This is a letter from 10 Downing Street, from the private secretary, on 14 January 1999. You started in January 1999?

Sir Stephen Robson: Yes.

Mr Blake: Do you remember when abouts it was?

Sir Stephen Robson: Towards the end of the month.

Mr Blake: Would this have been a letter you saw at the time?

Sir Stephen Robson: Well, it’s interesting you should ask that question because it was sent to me by the Inquiry yesterday or the day before yesterday, and I – it didn’t ring a bell with me at all. And which I find quite surprising because when you come on – you get involved in something in the Civil Service, and Number 10 has expressed, you know, a rather clear view about the whole thing, one would expect to have seen it and to have absorbed it. But I don’t recall doing that.

Mr Blake: From your experience, is that kind of wording, in bold there, is that common for issues of this nature or was that something you hadn’t seen before?

Sir Stephen Robson: I’d seen it before. It isn’t common.

Mr Blake: If we could scroll down, please, this sets out the Prime Minister’s position as at 14 January 1999, and it says:

“The Prime Minister believes that:

“our key objectives should be to develop the Horizon Project, by negotiating with ICL the earliest possible move to smart cards. It will be extremely important to get the Post Office to take this negotiation seriously.

“but at the end of the day, if this negotiation does not succeed in improving upon the existing Benefit Payment Card project, it would be better to accept this project than to pull out of the negotiation with ICL completely, with all the damage it could do.”

Were you aware, when you joined in January 1999, that the Prime Minister had this opinion?

Sir Stephen Robson: No, I wasn’t.

Mr Blake: Were you aware that he supported the smartcard option?

Sir Stephen Robson: No, I became aware at that the policies at Number 10 were well disposed towards a smartcard option.

Mr Blake: At paragraph 15 of your witness statement, you’ve said that, as a result of your negotiations, the benefit card would be abandoned and the smartcard would be introduced. That’s obviously very consistent with the Prime Minister’s position set out here. Where was your negotiating position coming from?

Sir Stephen Robson: Well, it was coming from the negotiating brief I was given by ministers, which is set out in paragraph 9 of my evidence.

Mr Blake: And which ministers was that?

Sir Stephen Robson: Well, it would have been combined efforts of the Secretary of State for Social Security, Secretary of State for DTI, and the Chief Secretary of the Treasury.

Mr Blake: To what extent during your involvement, did you consider you were taking forward the Prime Minister’s decision, as opposed to those ministers’ decisions?

Sir Stephen Robson: Well, at a later stage in the inquiry, in May time, the Prime Minister came up with three very clear – what were described by Number 10 as political objectives for the negotiation and, in the latter stage of the negotiation, they were very important.

Mr Blake: But –

Sir Stephen Robson: I mean, as I’ve seen this thing – as I say, I don’t recall having seen it before, but it is sort of reflected in the negotiating brief I was given as set out in paragraph 9.

Mr Blake: Thank you. Moving now to February 1999, can we look at HMT00000020, please. Thank you very much. This is a note from Peter Schofield to yourself. Who was Peter Schofield?

Sir Stephen Robson: Peter Schofield was one of the key people working with me on this project.

Mr Blake: Which Department was –

Sir Stephen Robson: He was a Treasury person.

Mr Blake: Thank you. This note begins with:

“You met with Keith Todd and Richard Christou … on 29 January.”

So in your first month of involvement you had met with Keith Todd and Richard Christou –

Sir Stephen Robson: Yeah.

Mr Blake: – and Peter Schofield was also present. I’m going to read to you the final few paragraphs. Can we look at the page, the bottom of the second page, and it’s paragraph 5. I’m going to read it for the record. Paragraph 5 says:

“You asked whether the payment of benefits into these social bank accounts, accessed by a smartcard, would be a way of moving to ACT without the transitional phase of a benefit payment card. This would take the BA out of the contract, leaving them to concentrate on getting their own IT systems ready for ACT. For people who wanted it, there could be some means of transferring money from social bank accounts to conventional bank accounts, but many people would still go to post offices to obtain their benefits – either because they do not have another bank account or just because of inertia. This would help maintain footfall, and give a customer base from which to launch Citizen-centric Government and other applications for the smartcard.

“Christou said they would look at this over the weekend – at the commercial and financing implications and whether it was technically possible without making significant changes to hardware. He hoped to have complete a broadbrush ‘stress test’ of this option by Monday (1 February).

“Todd emphasised the pressure he was under on timing.”

Now, the reference there, “Christou said he would look at it over the weekend”, do you think it was appropriate at this stage – so February 1999 – for there to be yet another option on the table with regards to the Horizon project, in this case the smartcard option?

Sir Stephen Robson: Yes, I think there was because, as I say, it was – it seemed clear to me, and I think to others, that the situation of the benefit card project was such that it was never going to be successfully delivered, so it made sense to start looking at alternatives.

Mr Blake: The mention there by Mr Christou, that they would look at it over the weekend, it seems as though things are moving quite rapidly and considerations such as this are happening at quite some speed. Do you agree with that?

Sir Stephen Robson: Yes.

Mr Blake: Again, do you think it was appropriate for quite fundamental changes to be being discussed at this stage in respect of the Horizon project at speed?

Sir Stephen Robson: Well, yes, it was because, as far as I was concerned, the project was going down a cul-de-sac and, therefore, it made sense to start looking for some alternative, because every day that passed was consuming more time and more money.

Mr Blake: To what extent do you think that these kinds of further options, that were being discussed at this stage, impacted or detracted from looking at the technical issues that were arising at that stage?

Sir Stephen Robson: Well, I don’t think they were because, in the pack of paper you sent me, there’s evidence that the people working on the project were still exchanging letters about it, as late as May.

Mr Blake: With regard to, for example, the Government’s approach to the project?

Sir Stephen Robson: No, this was regards, you know, questions about whether it should go in to live testing or not. So a lot of work – all I’m trying to respond to your point is that work was continuing on the project, despite the fact that these alternatives were being looked at.

Mr Blake: Absolutely, but in your statement you said that, for example, because there were so many different opinions at that stage, it wasn’t really appropriate to be looking into the technical side of things, because we didn’t know where it was going to end up?

Sir Stephen Robson: No, I don’t think that’s quite what I was saying. What I was saying was it wasn’t very – it wasn’t possible to – for me to draw conclusions on the technical state of the project because, whichever of the parties you talked to, had different views about it and different opinions on whose fault it was that it wasn’t working as it should have been.

So, as far as I was concerned, these differences of view and of behaviour were such that the Benefit Payment Card was most unlikely ever to be delivered satisfactory – or to be delivered at all, and it made sense, therefore, to consider what the alternatives were, which is kind of what bringing a fresh pair of eyes is all about, I think.

Sir Wyn Williams: Could I ask you, Sir Stephen, the impression you’re giving me is that you formed the view that the Benefit Payment Card would not come to fruition pretty early on in your involvement; is that correct?

Sir Stephen Robson: That’s right.

Sir Wyn Williams: Thank you. Yes.

Mr Blake: One thing that you have just mentioned is discussions about testing, for example. I’d like to take you to a couple of letters that you have seen from David Miller at the Post Office. Can I just ask, it’s paragraph 31 of your witness statement. You say that, in April 1999, POCL were concerned that more testing would delay the project. Can you tell us a little more about that, please.

Sir Stephen Robson: Simply that this is what was – is – was said at the time in these letters and, you know, I took to be their view. And the Benefits Agency wanted to carry on doing more testing before it went into a live trial, and POCL took a different view. It was, you know, it was part of the – it was a small example of the problems of the project.

Mr Blake: Were you aware of the Benefits Agency’s concerns about the need for more testing?

Sir Stephen Robson: Yes, I was.

Mr Blake: What did you think about them at the time?

Sir Stephen Robson: Well, as I say in the witness statement, my view was that, in the context of moving to a new project of some sort, it was important that the contracts were set up in a way that allowed the proper exceptions test to be set out.

Mr Blake: Let’s look at those two documents. Can we start with POL00028407, please. This is a letter of 1 April to Vince Gaskell. Perhaps we can just look at the final page. It says there, in the “Conclusion” in this letter from David Miller, the Horizon project programme director:

“One can always argue that more comfort could be gained from a further Model Office test cycle. However, the results from the Target Testing, together with other points made above, lead us to the very clear conclusion that:

“there are no outstanding faults that prevent entry to Live Trial

“the stability of the solution in Target Testing gives confidence that there is no major risk of new faults arising …

“the BA and POCL can obtain further assurance by the planned additional testing activities …

“required changes can be included in the Pathway service in a controlled manner …

“the current testing status cannot justify two more months of additional Model … testing.

“The Post Office and ICL and Fujitsu, strongly endorse this conclusion, and this view will be represented at the highest levels. We could not agree to a continuation of testing that effectively would result in a 6-month delay to rollout until after Year 2000. I trust that the BA will also be able to support this conclusion.”

Is that an example of the kind of thing that you’ve talked about in your witness statement, about the Post Office being concerned that more testing – in this case, model office testing – would delay the project?

Sir Stephen Robson: Correct, yes.

Mr Blake: Can we look at one more example POL00028406, thank you very much. I’d just like to look at the paragraph under “General Points”. Again, this a letter to Vince Gaskell from David Miller in his position as Horizon programme director, and it says there:

“I understand your concern about the impact of errors on the DSS and our joint need for a high quality system. But we are not asking the DSS to accept the system or to proceed with rollout at this time. We are moving to a live trial in 300 offices with 4 to 5 months of further operational experience before a decision on contractual acceptance. This gives the opportunity to evaluate the fitness for purpose of the solution in the field while in parallel carrying out continuing testing, for example in the multi-benefit model office. What we have to judge at this time is the manageability of the risk of the entry to Live Trial and to balance this with the cost and delay to all parties of a further postponement of rollout.”

Were these kinds of points quite typical during your period of involvement?

Sir Stephen Robson: Yes, they were.

Mr Blake: Thank you very much. To what extent do you consider that all of the various options that were still in play as at April 1999 influenced the decision of the Post Office to just get on with Horizon, irrespective of where they were at on a technical level?

Sir Stephen Robson: Well, I think the Post Office still hoped that the Benefit Payment Card could be delivered successfully. I mean, in my mind, it was a vain hope but I think they still did and they worked accordingly, and I think they found it very hard to see how any alternative was going to serve them well in the future.

Mr Blake: These kinds of discussions about not carrying out further model office testing at that stage, for example, were you or anyone around you concerned that the impression given by the Post Office was that they wanted to rush things out?

Sir Stephen Robson: Well, they certainly wanted to press on. I mean, they were certainly concerned about slippage of the timescale of the whole project. So yes, in that sense, it was.

Mr Blake: Thank you very much. I’m going to move on to a different topic now and that’s matters relating to the Prime Minister. You were present during a meeting between the Prime Minister and Mr Naruto in April 1999; is that right?

Sir Stephen Robson: Yes.

Mr Blake: Was that the only such meeting that you were present at?

Sir Stephen Robson: Yes.

Mr Blake: Would you, when you came to this project, have expected such a level of Prime Ministerial involvement in the matter?

Sir Stephen Robson: Yes, I think I would. I mean this was a major project that was going wrong and it had, potentially, widespread repercussions, not just for the public sector but for all the subpostmasters involved in running the Post Office system.

Mr Blake: What do you recall of that particular meeting in April 1999?

Sir Stephen Robson: Um … it was fundamentally a courtesy meeting on the Prime Minister’s part. Mr Naruto came to press the case for getting a legally binding agreement quite quickly, he said, I think, at the time before the Fujitsu board meeting in late April. The Prime Minister gave him no such commitments but did it very pleasantly.

Mr Blake: To what extent did Fujitsu’s financial position at that stage affect the Prime Minister’s position, as far as you could tell?

Sir Stephen Robson: Well, I think the Prime Minister was conscious of Fujitsu being a major inward investor in the UK and he also was aware that they – the prospect of this project not working would have adverse consequences for them. I’m not sure whether, at that stage, he’d quite been informed about the possible impact on their accounts of having to make a provision for the Pathway Project but he’d become conscious of it at a later stage.

Mr Blake: Thank you. Can we look at one document that you have seen very recently, and that’s CBO00000046. This is a letter from the Prime Minister, and to Mr Sekizawa of Fujitsu, and it says there:

“I was most grateful to receive your kind letter of 19 March.

“I have indeed maintained a close personal interest in developments at Aycliffe and have been enormously encouraged by your company’s unreserved and wholehearted commitment to the work of the Response Group.”

Do you recall what happened at Aycliffe?

Sir Stephen Robson: Not really. I seem to remember there was a closure of a Fujitsu establishment there.

Mr Blake: Thank you. Perhaps we could go to the next paragraph. Just to summarise this letter – I think you’ve seen it very recently, so I’ll just read couple of lines. It says there –

“The fate of your former employees was of particular concern to me.”

Then the next paragraph says:

“Meanwhile, however, it was also important that every possible opportunity should be explored in order to find a buyer for the plant who could make use of the existing skills base.”

Perhaps we could go over the page, please – thank you – and the final paragraph there says:

“The Aycliffe closure was a major set back for all concerned, but I assure you that my colleagues and I place great value on Fujitsu’s deep and longstanding commitment to the United Kingdom. Your contribution to the competitiveness of our telecommunications and IT industries has been outstanding, and I wish you every success for the future.”

Were there at the meeting that you were at, shortly after this letter was sent, any discussions about Fujitsu’s plants closing in the Prime Minister’s constituency?

Sir Stephen Robson: Not that I recall.

Mr Blake: What do you recall about the Prime Minister’s discussions at that meeting?

Sir Stephen Robson: The one with Mr Naruto?

Mr Blake: Yes.

Sir Stephen Robson: As I say, Mr Naruto came along and pressed for a decision on the Horizon project and pressed for one to be made in time for his board meeting in April. The Prime Minister listened to him, politely, but gave no such commitment.

Mr Blake: If the Prime Minister had mentioned matters relating to his constituency, do you think you would have remembered that?

Sir Stephen Robson: Probably not, to be honest.

Mr Blake: Would it have surprised you?

Sir Stephen Robson: No. I mean, when the Prime Minister, or indeed any minister, meets someone who has had some involvement with their constituency, albeit not the main meeting – point of the meeting, it often does get mentioned.

Mr Blake: Thank you. Can we look at CBO00000022_002, please. This is a letter from 10 Downing Street to the Chief Secretary’s office. It’s from Jeremy Heywood, the Principal Private Secretary, and this is towards the end of your period of involvement. I’m just going to read to you three paragraphs from that letter. Perhaps we could just scroll down slightly.

So the first substantive paragraph there says:

“The Prime Minister has now discussed this with the Chancellor, who set out in more detail the Treasury’s concerns about signing up today to Option B1.”

I think option B1 was the smartcard option; is that right?

Sir Stephen Robson: That’s right.

Mr Blake: “The Chancellor said that this would be something of a leap in the dark. For example, it was not clear what discussions had taken place with the banks on the viability of this option; what demand there would be for the new smart card; or how willing benefit recipients who already had bank accounts would be to use the proposed POCL bank accounts. We needed more time to bottom [out] these issues. It would be wrong to commit the Government now to an option that would cost £400 million more over the CSR2 period than the best alternative. This would simply divert resources away from the Government’s key priorities [to] the next CSR.

“Against this background, the only sensible course of action would be to buy more time to consider all the options in much more depth. The most rational option would probably be termination.”

Can I just pause there. Were you aware, at that stage, that the Prime Minister’s view was that the most rational option would probably be termination?

Sir Stephen Robson: No, I wasn’t. I actually think those words might be the words of the Chancellor at the time. I mean, my reading of this letter was that that was still the Chancellor’s opening kind of commentary.

Mr Blake: Was that a view that was shared by others, to the best of your recollection?

Sir Stephen Robson: I don’t think … I mean, there were certainly people involved in it who thought that termination might have been the best option, you know, if we were starting with a kind of clean sheet, as it were, but I don’t think there were many people who thought that termination was very attractive, because the – quite apart from the problems with the Post Office and what were you going to do to make the counters more efficient and win more business, there were real risks with a termination that we could well – we the Government, the public sector – could well have been seen as doing this termination for convenience, in which case the cost, in terms of settling with ICL, would have been high.

Mr Blake: Thank you. I’m going to continue. It says:

“But given where we are starting from with ICL, it would probably be best to commit now to Option B3 and agree to do further intensive work on Option B1 over the next three months. He therefore proposed that Steve Robson should write to ICL this evening along the lines of the attached draft”, and there’s a draft attached to this letter.

It continues:

“The Prime Minister said that he had not had time to look into … the options in detail. Starting with a clean sheet, it was doubtful whether we would want to devote substantial new resources to a project that appeared to be designed largely to prop up the Post Office network. However, we were not starting from a clean sheet. He was content for the Chancellor to go over his concerns in more detail with Lord Falconer and other interested parties, to try to find an agreed way forward. Any solution should meet three key political requirements.”

I think these were the ones you were referring to at the beginning of your evidence –

Sir Stephen Robson: That’s right.

Mr Blake: – and those are:

“(i) we did not want a huge political row, with the Post Office or the SubPostmasters’ lobby claiming that the entire rural network had been put in danger by the Government;

“(ii) we should not put ICL’s whole future at risk; and

“(iii) it would be important to ensure that the Government had a fully defensible position vis à vis the PAC.”

Were you aware of what the first of those political requirements meant, in respect of not wanting a huge political row with the Post Office or the subpostmasters?

Sir Stephen Robson: I know what it meant in terms of the words on the piece of paper. What it meant in practice was less easy to fathom.

Mr Blake: Can you expand upon that?

Sir Stephen Robson: Well, simply, you know, who – it was hard to know what it – what might trigger – I mean, one can see that if the Post Office and subpostmasters had felt they were being totally abandoned, then it could indeed trigger a huge row, but things that were less than total abandonment, how big a row they would produce was something of conjecture.

Mr Blake: Do you know where the message was coming from in respect of the subpostmasters? So there’s reference there to the Post Office and subpostmasters, where was the message coming from, in respect of the concern being that the rural network might be put in danger?

Sir Stephen Robson: Well, I mean, I don’t think a message was, at that time, being received but messages of that sort had been received in the past, and they tended to come from the Post Office itself, from DTI as a sponsor Department, and also from the National Federation of SubPostmasters.

Mr Blake: Can we look at HMT00000028, please. This a note from yourself on 20 May 1999, so quite close to the end of your involvement, to the Chief Secretary. Perhaps we could start at page 2, please. This sets out some of the background. Paragraph 3 says:

“Against this background, we have been seeking a deal with ICL based on option B3. This involves abandoning the benefit … card. POCL would buy the basic ICL Horizon platform. BA would move to ACT over the period 2003-05. This option could provide a platform on which to build POCL’s network banking strategy and for Modern Government services.”

So, toward the end of your involvement, was this the position that was being reached, or discussed?

Sir Stephen Robson: This was a position that had been reached, yes.

Mr Blake: Can we look over to page 4, please, at the bottom of that page. I’m just, again, going to read, for the record, a few paragraphs; it’s going to be paragraphs 9 to 11. Paragraph 9 says:

“As regards the Post Office and subpostmasters, I cannot claim the Post Office are happy with this deal. Their chairman’s views were set out in his letter of 18 May (attached) [and I’ll take you to that letter in a moment]. They really want the option A – the Benefit Payment Card. If the proposed deal goes ahead, the chairman set out certain terms including a delay in the start of ACT until 2005. This would have a seriously adverse impact (some £200-250 million) on the NPV of the deal.

“He also wants guarantees on income from, and funding by, the Government and a firm commitment by the Government to use the POCL system ‘extensively for existing and new services’. It is hard to see how these can be given. The Government will presumably want to use the best value suppliers for its services and not tie itself to POCL regardless of cost.

“The subpostmasters will no doubt be unhappy with the loss of the [Benefit Payment Card] and the timing of the move to ACT. But we would be providing them with an IT system which will automate their basic services, and provide a platform for Modern government and Network banking.”

I’m going to take you to the letter from the chairman. Just so that it’s in your mind, one thing I’m going to be asking you is where that information from subpostmasters – that’s paragraph 11 – was coming from.

Perhaps we can look at the letter, that is POL00028612. I’ll take this letter relatively quickly, because I think you have seen it, and the detail doesn’t really matter, save that it doesn’t really go into any detail about the views of the subpostmasters. Perhaps if we scroll down and over to the next page and scroll down to the bottom of the next page.

There is there concern in the penultimate paragraph. It says:

“In such circumstances it would be impossible for us to sustain the current nationwide network.”

So there are concerns there being raised by the Post Office about the network but I don’t believe there is anything in that letter that raises concerns in particular from the subpostmasters.

I’ll take you to another document, and that relates to a meeting that you had with Stuart Sweetman on 18 May. Perhaps we can look at that, that’s NFSP00000157. So this is a fax to Colin Baker from Stuart Sweetman, and it seems to the effect that he’s staying in a hotel in London. I will read that letter out to assist. It says:

“Dear Colin

“It is now 4.15 am and I’ve just arrived home having been at the Treasury with Steve Robson (2nd Permanent Secretary) and then a meeting with Stephen Byers and Alan Milburn at the House of Commons.”

Just pausing there, do you remember that meeting at all?

Sir Stephen Robson: No, I don’t.

Mr Blake: You don’t remember the meeting?

Sir Stephen Robson: I don’t remember –

Mr Blake: No?

Sir Stephen Robson: Well, I had quite a lot of meetings with Milburn and Byers.

Mr Blake: And with Sweetman?

Sir Stephen Robson: I’m not quite sure what the date of this is.

Mr Blake: If we look at the top, it’s 18 May 1999?

Sir Stephen Robson: I certainly don’t recall a meeting around that time but it doesn’t mean it didn’t happen.

Mr Blake: It says:

“Things continue to move forward (but slowly). It is clear there will be further meetings during the day preparing for another meeting of Ministers tomorrow afternoon.”

So I suppose – well, it’s 4.46 on 18 May so perhaps the first meeting happened on 17 May, further meetings on 18 May. Was that a particularly busy period of discussions with the –

Sir Stephen Robson: Yes, it was, actually.

Mr Blake: “I now need some sleep and to be in London tomorrow.”

So it may be that the Royal Hotel isn’t in London, somebody might be able to tell me:

“I now need some sleep and to be in London tomorrow. I feel really guilty not coming to your conference and bringing your executive and delegates up to date with progress – but I need to be in London. Please pass on my apologies to the Conference.”

Over the page:

“My message is that there has not yet been a decision by Ministers, matters remain finely balanced. I can confirm that the Ministers involved with the decision making are very aware of the concern that exists in the minds of subpostmasters up and down the country. The Post Office Board and my team in POCL remain steadfast in our aims to secure a deal that is in the interests of all those in the business.

“My commitment is that within 24 hours of a decision on the way forward I will meet with the NFSP Executive Committee to explain to you what has been decided and the implications for all concerned.”

Thank you very much, that can be taken down.

So we’re turning back to that note that you produced on 20 May to the Chief Secretary, which says that the subpostmasters will no doubt be unhappy with the loss of the Benefit Payment Card, et cetera. Where would the information about the subpostmasters’ views have come from? Was Stuart Sweetman and the Post Office the ordinary route to express subpostmasters’ views, or were you hearing directly from the National Federation, the CWU or something else?

Sir Stephen Robson: No, I wasn’t hearing directly from the National Federation. I had heard from Stuart Sweetman that, you know, that the subpostmasters were going to be unhappy about the BPC being lost. The fact it’s said in this submission of mine that – I can’t remember the precise words – that by giving them the Horizon infrastructure, that may mean that they weren’t quite so angry is purely speculation on my part.

Mr Blake: We saw earlier those letters from David Miller and his views on further testing. In this period, in what were quite considerable crunch talks, what, if anything, was being said to you about concerns of the operation of the Horizon system?

Sir Stephen Robson: Nothing was being said to me at this stage about that. I mean, apart from this sort of flow of letters that one saw now and again.

Mr Blake: Oh, do you mean the letters regarding not testing, not –

Sir Stephen Robson: No – yes, these letters that we’ve just been talking about.

Mr Blake: At the time of your involvement, from what you saw, what extent of consideration of the subpostmasters’ position focused on ensuring the network had Horizon, had automation, rather than, for example the reliability or effectiveness of such a system?

Sir Stephen Robson: Well, I think they were both were considerations. I mean, there was clearly no point in giving people IT systems that don’t work, or not extant, anyhow. But the situation in these latter months was that the benefit – I don’t think anybody was really arguing that the benefit card payment project was going to succeed. I mean, the Post Office were hoping that it was going to succeed but I never had a robust case put to me by them that it was going to succeed and when, you know, the view was expressed that it was dysfunctional and not going to succeed, nobody really pushed back hard on that statement.

Mr Blake: To what extent were the discussions of the subpostmasters’ position really focused on the fact that subpostmasters would want automation, rather than any wider concerns about the actual technical abilities or reliability of such a system?

Sir Stephen Robson: Yes, the view was very much as you say: that the subpostmasters would want automation of the counters.

I mean, nobody actually suggested that it was all right if it was automation but it was flawed automation, but yes, the view was very much that they wanted automation and, by implication, automation that worked.

Mr Blake: It may be a given that they would want a system that worked but, to what extent during your period of involvement, was anybody raising with you concerns of subpostmasters regarding the Horizon system at that stage?

Sir Stephen Robson: Nobody was raising any concerns of the subpostmasters at that stage.

Mr Blake: Thank you very much. I have no further questions. I’m not sure that anybody else – yes, Mr Jacobs has some questions.

Mr Jacobs: Yes, Chair, could I just ask if you can see and hear me.

Sir Wyn Williams: I can hear you and no doubt in a moment I will see you. It normally takes a second or two.

Yes, I can see you clearly now, Mr Jacob.

Questioned by Mr Jacobs

Mr Jacobs: Good morning, I ask questions on behalf of 156 subpostmasters who were the victims of this scandal and who, in the main part, gave evidence in February to May of this year.

I want to ask you about the meeting that you attended with Mr Naruto in April 1999. You’ve said that Mr Naruto was pressing for a decision but do you recall whether he said anything else at that meeting?

Sir Stephen Robson: I don’t – I regret to say don’t recall him saying – he may well have said other things but, I mean, the main message he gave at that meeting was very much he and his board needed a decision by, I think, 23 April. It was a very precise date, anyhow.

Mr Jacobs: You said in answer to questions from Mr Blake that the Prime Minister was aware of adverse consequences surrounding Fujitsu and the project.

Sir Stephen Robson: Well, he was aware, by the latter stages of this debate in May, that Fujitsu were very concerned about the prospect of having to make a large provision in their accounts for the Pathway project and was aware that this was a matter of considerable concern to Fujitsu. And he was also aware that Fujitsu, if they weren’t going to make this provision, really needed a decision from the Government in the latter part of May.

Mr Jacobs: Could I turn up a document, and this BEIS0000336. It’s a note from the British Embassy in relation to a meeting held with Mr Naruto in December 1998. If we could go, please, to paragraph 9.

I’m afraid that’s scrolling further down. Yes, just slightly further up.

So there were three concerns that the British Embassy communicated as a result of their meeting with Mr Naruto a few months before, and one can see at paragraph 9, firstly, that Fujitsu would publicise their criticisms of the project management; secondly, the damage to the relationship between Her Majesty’s Government and Japanese companies invested in Britain; and, thirdly, that:

“The waves created would be damaging politically at home and to the UK’s position of strength vis à vis our European competitors”.

The question I have for you is: did this reflect the view of the Government at the time when you attended the meeting in April 1999 with Mr Naruto?

Sir Stephen Robson: No, I don’t think it did. I mean, as I say, the meeting was – he was the one that made most of the running at the meeting. As I recall it, the Prime Minister listened to him, you know, politely, and conspicuously avoided giving any commitments to him. I don’t recall the material in paragraph 9 here influencing the meeting.

Mr Jacobs: You were taken by Mr Blake to a document that was authored by you. If we could go back to that briefly, it’s HMT00000028, thank you.

If we go to page 2 of 5. So these are the Prime Minister’s three key political requirements that you set out, and you can see “we did not want a huge political row with the Post Office or subpostmasters lobby, claiming the entire rural network had been put in danger by the Government”; and (ii) we shouldn’t put ICL’s whole future at risk; and (iii) it would be important to ensure that the Government had a fully defensible position vis à vis the POCL.

I want wanted to look at (ii). This political objective not to put ICL’s whole future at risk, was that linked to the damage to international trade with Japan that that could cause?

Sir Stephen Robson: Yes, I think it was reflective of his concerns that Britain should remain an attractive area for inward investment. What I would say, now you’ve brought up these three objectives, as it turned out, objectives (ii) and (iii) did actually kind of end up with the same outcome, namely buying the hardware of the system, which also turned out to be the cheapest solution for the Government.

Mr Jacobs: Thank you. Finally, the question that I am asked to put on behalf of my clients is: looking back, do you accept that the financial and political motivations that we see here overrode the need to produce a system that was suited to the need of the subpostmasters who were to operate Horizon on the ground, so to speak?

Sir Stephen Robson: No, I don’t, actually. I mean, oddly enough, the easiest thing would have been to let the Horizon project continue and watch it slowly come to the end of the cul-de-sac it was already in, leaving, you know, subpostmasters and the Post Office with nothing at all.

That would have, you know, kind of accorded with what the Post Office really wanted to do. It would have meant a considerable time of wasted effort and money, and one of the hardest things for a Government ever to do is to accept that a path it has set upon has been the wrong path; it has gone wrong. Whatever else one might say about this episode was that, in the end, ministers did accept that and faced up to it.

Mr Jacobs: I’m just going to see if there are any more questions I have to ask of you. Nothing else. Thank you very much.

Sir Stephen Robson: Thank you.

Mr Blake: Ms Page has some questions as well, sir.

Questioned by Ms Page

Ms Page: Flora Page, appearing for a group of the subpostmasters also.

Sir Stephen Robson: Sorry, I didn’t catch the last bit.

Ms Page: I’m also appearing for a group of subpostmasters. Thank you.

We’ve looked at one section of this document but I’d like to look again please at HMT00000020. This is a note from Mr Schofield about a meeting that you attended with the representatives of ICL, Mr Christou and Mr Todd. So it took place on 29 January and, if we page go down to paragraph 4 on page 2, and we can just look really pretty much at that first sentence:

“Todd made the following points:

“he felt that the move to compulsory ACT was not as simple as the BA suggested.”

He then goes on to set out number of the issues which he felt at that time were problematic, about moving to ACT, rather than having the benefit card continue; is that right?

Sir Stephen Robson: Yes, I guess so, yes.

Ms Page: So, in other words, he, at that stage, was sort of more or less aligned with the Post Office position and wanting the Benefit Payment Card to continue; is that a fair representation?

Sir Stephen Robson: I’m not sure it was. I think the – ICL, at that stage, were already quite interested in the smartcard solution.

Ms Page: Certainly, when we get to Mr Christou’s interjection a bit later down, that’s the one you’ve already seen, where he says, “We will look at it over the weekend”, but this section from Mr Todd appears to be expressing reservations about it, does it not?

Sir Stephen Robson: Well, it … the third inset there, “likewise natural points of access which could be supported by a smartcard and Horizon infrastructure, but there probably would need to be a period of exclusivity” suggests to me that his mind wasn’t closed –

Ms Page: Wasn’t firmly set against, no?

Sir Stephen Robson: Sorry?

Ms Page: Not firmly set against, no.

Sir Stephen Robson: No, not at all.

Ms Page: But expressing number of reservations –

Sir Stephen Robson: Well, yes. I mean, all these things, you know, one has to sort of look at the context as well as the words. And, you know, Christou – sorry, Todd, in this case, in a sense – not in a sense, in reality, he was negotiating from the off and, therefore, one had to sort factor this into anything that you were saying, you know, quite how far was it the whole truth and nothing but the truth, or how far was it coloured by negotiations.

Ms Page: Yes, I see, so to some extent, this will have been, perhaps from your perspective as a negotiator, a window of opportunity in the sense that he wasn’t closed to that idea –

Sir Stephen Robson: That’s right.

Ms Page: – completely?

Sir Stephen Robson: Yeah.

Ms Page: Well, that may then account for the document that I was going to take you to next, if I may, which is DWP00000202, and you may or may not be able to assist with this. It’s the final page of this, which is seemingly tacked on to a document which was sent to you, but it also refers – it’s dated 2 February and a little further down it refers to the same meeting that took place, it says, last Friday, and I’ve sort of looked at the dates and it’s clearly the same meeting between you:

“Apparently Steve Robson had a meeting with Richard Christou and Keith Todd last Friday.”

The author of this document says:

“There was a firm proposal from ICL that the Benefit Payment Card should be abandoned and that the DSS should move to ACT.”

Was this perhaps a slightly wishful gloss on –

Sir Stephen Robson: Well, as I said to you when you first raised the previous document, that I thought that ICL were more open minded than that – than the paragraph that you drew my attention to, immediately suggested. So, I mean, this again may be slightly – slightly optimistic view of the meeting but it’s not entirely wrong.

Ms Page: Yes, I see. Perhaps you can help me with this. I don’t know if you can. It’s not clear who wrote this. At the top it bears a reference “LCB”, does that mean anything to you?

Sir Stephen Robson: Sorry, I can’t see the top now.

Ms Page: If we just scroll up, the reference seems to be somebody called “LCB”.

Sir Stephen Robson: No, it kind of looks like – I mean, I don’t know who “LCB” is. Just looking at who was at the meeting, it suggests to me it was maybe a Benefits Agency document but that’s pure speculation.

Ms Page: Yes, all right, thank you. There’s only one other document in question that I’d like to take you to, and that’s HMT00000013, and this goes forward to May, and relates to a meeting again with ICL. At the second paragraph, this is Peter Schofield, the author of this. He says:

“By the second meeting, ICL (Todd in particular) were clearly quite worked up. We therefore allowed them to do most of the talking.”

This is in the context of the reservation on accounts. So, evidently, things were becoming difficult for ICL at this stage. Were you under the impression that Mr Todd, in particular, that his personal position was on the line?

Sir Stephen Robson: I had heard some suggestion of that.

Ms Page: Thank you. Those are my questions.

Mr Blake: Thank you very much.

Sir, do you have any questions at all?

Sir Wyn Williams: No, I don’t. Thank you very much.

At the commencement of your evidence, Sir Stephen, Mr Blake expressed his gratitude for you attending. Can I repeat my gratitude for you attending and also reading a good many documents, no doubt, before making a witness statement. Thank you.

Sir Stephen Robson: Thank you, sir.

Mr Blake: Thank you very much, sir. Can I ask that we take a ten-minute break now and then we will have Lord Darling on screen.

Sir Wyn Williams: Certainly, yes. What time will that be, just so I’m prompt?

Mr Blake: 11.10.

Sir Wyn Williams: Fine, all right. Thank you very much.

(11.02 am)

(A short break)

(11.11 am)

Mr Beer: Good morning, sir. Can I call Lord Alistair Darling, please.

Sir Wyn Williams: Yes. Obviously there is a difference between the clock in the hall and my computer clock, which meant I joined a little early, so if anybody was listening, Lord Darling and I were exchanging pleasantries but nothing more, all right.

Mr Beer: Thank you, sir.

Lord Alistair Darling


Questioned by Mr Beer

Mr Beer: Thank you very much, Lord Darling. My name is Jason Beer and I ask questions on behalf of the Inquiry. Can I ask your full name, please?

Lord Alistair Darling: It’s Alistair Maclean Darling.

Mr Beer: Can I start by expressing the Inquiry’s thanks for you providing a witness statement to us of 41 pages and for giving evidence via video link today. Can we look at your witness statement, please. It’s WITN04200100, and on page –

Lord Alistair Darling: Yes, I’ve got it.

Mr Beer: Thank you. On page 41 there should be a signature. Is that your signature?

Lord Alistair Darling: That’s my signature, and that’s the date on which I signed it.

Mr Beer: Thank you. Can we just go back to page 33 of the witness statement, please.

Lord Alistair Darling: Sorry, one moment. Yes, I’ve got it.

Mr Beer: Yes, thank you. In paragraph 97 there is a date, it says, “by April 1998.” Should that read “April 1999”?

Lord Alistair Darling: Yes, it should, yes.

Mr Beer: Thank you very much, with that correction, are the contents of the witness statement true to the best of your knowledge and belief?

Lord Alistair Darling: Yes, they are true to the best of my knowledge and belief. As I say in the opening paragraphs of my statement, I have read all the papers the Inquiry has sent to me and I’m satisfied, on the basis of my own knowledge of what happened and what I’ve seen, that this is a true account of what happened. But I do make the point that I know that I’ve not seen all the papers I saw at the time.

Mr Beer: Yes and, in particular, I think, you’re concerned about papers that would have been marked up or marginally annotated by you; is that right?

Lord Alistair Darling: Yes. What these papers don’t record are meetings that I might have had. What is very important too is, in terms of my knowledge, you don’t get letters just put in front of you. You’ll have a covering note from your private office saying, “You should be aware of this, this is what it’s about, what do you want to do?” But I cannot think of an instance where I saw papers during the time that I was a minister that I didn’t put some remark on them, even a tick. I know that because I saw papers from my time at the Treasury about 10 years ago and absolutely everything was the original documents that had seen.

No, I don’t know if they still exist for the DSS or the DWP but I just make that point. Having said that, I think what I’ve got in my statement is an attempt to answer all the questions the Inquiry put to me and it’s done on the best of my knowledge and belief. A lot of it, though, comes from my own recollection but it is fortified by some of the stuff that I’ve seen. But just that caveat there may be stuff around that I haven’t seen, you know, in the last 25 years, but if that’s the case, no doubt you will draw that to my attention.

Mr Beer: Thank you. Can I start with your background and experience. I think you were part of the Labour Government that came to power after the general election on 1 May 1997, having been an opposition MP for about 10 years before that?

Lord Alistair Darling: Yes, I was elected in 1987, so 10 years in opposition. I then was appointed as Chief Secretary and I remained a member of the Cabinet for 13 years until May 2010. Important to the Inquiry, I was Secretary of State, first, for Social Security and then, as we re-engineered it, the Department of Work and Pensions for four years between 1998 and 2002.

Mr Beer: Thank you. So just after appointment or coming to power, you were appointed Chief Secretary to the Treasury, a period that you held for about a year and three months, until 27 July 1998; is that right?

Lord Alistair Darling: Yes, that’s right.

Mr Beer: So you were Stephen Byers’ predecessor?

Lord Alistair Darling: Yes, he was the Chief Secretary for a fairly short period after me, before he became Secretary of State for Trade and Industry.

Mr Beer: On that day, ie 27 July 1998, you became Secretary of State for Social Security, a position that are you held for just under three years until 8 June 2001; is that right?

Lord Alistair Darling: That’s right.

Mr Beer: They’re the two posts with which the Inquiry is most concerned but, after that, you held a series of posts within Government until May 2010, when a new administration came to power?

Lord Alistair Darling: That’s right.

Mr Beer: Amongst those positions, there is one that I’m going to ask you about right at the end of our evidence session today, Secretary of State for Trade and Industry between 5 May 2006 and 28 June 2007, so about 14 months?

Lord Alistair Darling: Yes, that’s correct.

Mr Beer: Can I start, please, with some questions concerning your first awareness of Horizon, the Horizon project in Government. The first communication that the Inquiry has been able to track down is a letter written to you by John Denham dated 12 August 1997. Can we look at that, please. It should come up on your screen. DWP00000095.

Lord Alistair Darling: I’m not seeing anything yet. Should I be?

Mr Beer: No, we’re not either. I’m getting a shake of the head from the document displayer. DWP00000095.

Just bear with us, please. Thank you.

Is that displayed on your screen, Lord Darling?

Lord Alistair Darling: Not yet – oh, it is now, yes – oh, it’s back again. Right. I can see it now, yes.

Mr Beer: Thank you very much. You’ll see that it’s a letter dated 12 August 1997. You can see that amongst the extended copy list on the right-hand side.

Lord Alistair Darling: Yes.

Mr Beer: It’s from John Denham, then a minister in the DSS, more formally the Parliamentary under Secretary of State for Social Security. Can you see that from the top?

Lord Alistair Darling: I can, yes.

Mr Beer: If we just go to the third page, it’s signed off, “PP’d” for Mr Denham, and scroll down, please.

Lord Alistair Darling: Yes, I can see that.

Mr Beer: Thanks. If we go back to the first page, please. It’s addressed to you in your position as Chief Secretary. Paragraph 1, if we read together:

“… our predecessors announced in May last year that the post office network and the payment of social security benefits across Post office counters Should be automated through a major PFI project. The contract, rather unusually has three parties: my department and [POCL] as purchasers and ICL Pathway, originally a specially formed consortium but now a subsidiary company of ICL, as supplier.”

Did you know anything about this contract before you took up your post as Secretary of State, as Chief Secretary?

Lord Alistair Darling: I can’t be sure of that because I haven’t seen any papers from the Treasury. However, as I sort of alluded to at the start of my evidence, I would not just have had this letter put in front of me, there would have been a covering note from my private secretary saying, you know, “What’s this about, you ought to be concerned about it”. That sort of thing. It could be that I had been previously advised about it. I was advised about an awful lot of things as Chief Secretary because of the nature of the job but this is the first written evidence I’ve seen. But I am relying, as I’ve said to you before, on what the Inquiry has been able to retrieve from the archives.

Mr Beer: Yes, and, in turn, what your former Department has disclosed to the –

Lord Alistair Darling: Yes, yes.

Mr Beer: – to the Inquiry.

Lord Alistair Darling: Yes.

Mr Beer: The second paragraph provides that:

“The ambitions of the project are very large.”

Then if we go to paragraph 3, please:

“A project to automate a wide range of functions in 19,000 post offices as well as social security payments to over 20 million people is inevitably complex, and that complexity brings with it serious risks. The purpose of this letter is to alert you to the fact that the project is already seriously behind its original timetable, with equally serious consequences for the business case between our predecessors.”

Then if we can look at paragraph 5, at the foot of the page, please, beginning “However”, and then look at the sentence three from the bottom:

“The National Federation of SubPostmasters mounted vociferous campaigns against ACT [Automated Credit Transfer] when the previous Government gave any … encouragement to ACT and has sought to maintain the role of post offices in paying benefits. The decision by the previous government to go ahead with the current automation project appears to have been strongly influenced by this context.”

Lord Alistair Darling: Yes –

Mr Beer: Then:

“My view [Mr Denham’s view] is that, if the commitment to this project had not already been made, we should at the very least question whether it is sensible to sustain an expensive and outmoded pattern of payment delivery as a means of delivering a hidden subsidy to the post office. The question of whether we think it right to subsidise post offices is quite distinct from questions about the most efficient and secure way of paying benefits. The problem with the previous government’s approach is they have become inextricably confused.”

To your recollection what view did you form about this at that time, with your Chief Secretary to the Treasury hat on?

Lord Alistair Darling: Well, there’s two elements. I suppose the first one, that what John Denham was saying is that the Treasury ought to be aware of this, the project has slipped and therefore there will be financial consequences and, you know, that’s a direct Treasury concern for obvious reasons. But, looking at the bigger picture, if you like, I had a great deal of sympathy with what John Denham was saying. He was a minister that I valued his judgement on things generally.

But, you know, I fully understand that, for the Post Office point of view, having guaranteed footfall is very, very important to them and, at that time, the majority of people in receipt of benefits would have to go to the Post Office to cash their giro to get their money.

Now, I can see that the last government, that’s the government that was in power until 1997, was trying to find what you might call an elegant solution, whereby the Benefits Agency had a more secure way of making payments through a card but it would also mean, because the hard had to be used in a Post Office, it would guarantee footfall.

Now my view of it, and when I looked at John’s letter in the subsequent correspondence, was that there were a number of problems with this, but the in-principle objection I had was, firstly, I did not think it was right that we should require people to go to a Post Office if they didn’t want to. Most people in their salaries got paid through ACT. ACT had been up and running for years, the banks ran it and it worked. And there was no reason why the then DSS should not also use the ACT system. In fact, I think I’m right in saying, even at that time, nearly a third of benefit payments were being made through ACT, it would save the Department about £400 million a year.

So I could not see the sense of using a card which, in any event, you know, it was subsequently clear to me, would have a limited life, because it would be redundant.

I think the second point, you know, which –

Mr Beer: Just before you go on, that document can come down from the screen.

This is just so the Chair can see you when you’re giving your evidence, Lord Darling.

Lord Alistair Darling: Sorry.

Mr Beer: No, of course. You were about to move to a second point, I think.

Lord Alistair Darling: Yes. My second point was this, that, you know, part of the approach that we had towards welfare reform was we wanted to make it easy for people who’d got out – come out of employment for whatever reason to get back in. And, in particular, you know, the Inquiry may recall that there was at that time there was a lot of stigma attached to people who were on benefits, political stigma, if you like, and I wanted to avoid a situation where if people came out of work, they would have to get their money paid through a card and had to go to the Post Office to get it, if they didn’t want to do so.

Using the Post Office is fine but they shouldn’t be forced to do it and I don’t want to create a group of people who were somehow different. So the more people were included in the financial system, through ACT, as far as I was concerned, the better, for a whole variety of reasons.

Then, of course, the third problem was this: that, you know, the more people you’ve got in a contract, the more likely it is that it’s going to start to go wrong. And from what I saw, especially when I became Secretary of State, when the Montague – Adrian Montague’s Commission produced its report, it was evident that you had a problem here, you had parties who did not have a common interest. And it seemed to me the project was doomed. So, on principle, I was against what was proposed and, in practical terms, I was also concerned that the thing was never going to work.

And, you know, that’s really – that was in the front of my mind from the time that I arrived at the DSS until the problem was resolved, as far as the Benefit Payment Card was concerned, in the summer of 1999.

Mr Beer: Thank you very much for that, Lord Darling. We’ll see expression of those two or three points, I think, across your evidence –

Lord Alistair Darling: They’re in the statement, yes.

Mr Beer: – this morning.

Can we turn to your reply, please, to Mr Denham’s letter, CBO00000018. If we just look at the second page, please, we’ll see that it’s signed off – if we go down, please, thank you – by you.

Lord Alistair Darling: Yes.

Mr Beer: Then go back to the first page, it’s dated 29 August 1997, and –

Lord Alistair Darling: Yes.

Mr Beer: – thanks Mr Denham for his letter of 12 August. You thank him for giving you early warning of the further difficulties this major project is experiencing and say, in your paragraph 2, that you need to establish urgently whether the current project can be brought back on track:

“I hope it can, both in your Department’s and the Post Office’s interests.”

Given what you’ve just said about the “in-principle” objection to the inclusion of the Benefit Payment Card in the programme and, therefore, the inclusion of the Benefits Agency or the DSS within it, why were you expressing a hope that the project can be brought back on track in his Department and the Post Office’s interests?

Lord Alistair Darling: Well, this is at the early stage. You know, as you say it was – I don’t know if it was the first, but certainly the first sight I’d had of it. And, obviously, from the Treasury’s point of view if you’re terminating a contract, it is possible that you’re going to incur costs, and if the thing was – can be made to work, then, you know, that’s something the Treasury would support. However, as I said to you, I think, if you go further down the letter, I think, from recollection, you know, I do say that there’s – whether or not we’re doing the right thing is questionable, and I think –

Mr Beer: We’re about to turn to that and in particular, the suggestion that there’s some contingency planning that should be undertaken?

Lord Alistair Darling: (Unclear).

Mr Beer: If we go –

Lord Alistair Darling: Sorry, I don’t want to jump ahead of myself – of you, rather, but I do recall that Margaret Beckett wrote in similar terms and she got a more expansive reply from me, you know, really questioning whether or not this was the right thing to do. But, you know, this was – you know, we were, what, two months into Government at that stage? We were committed to pretty tight spending totals, and the Chief Secretary and me would naturally say, “Well, you know, is it fixable?” But the more I looked at this, the more, as I said to you, I came to the conclusion it was wrong in principle as well as wrong in practice.

Mr Beer: Just looking at the matter generally, was that your position when you were Chief Secretary or did that only become your position when you moved over to be Secretary of State for the DSS?

Lord Alistair Darling: I think, from recollection of the material that I’ve seen, you will see in the correspondence, you know, I am gradually coming to this view. Obviously, when I got to the Department of Social Security, where I was wholly responsible for the policy from then on, I came very quickly to the view that, you know, it was on the wrong tack. And, you know, it – also, it was also clear by that time that the technical problems with it were becoming more and more apparent.

It was running, what, 18 months late, even at that stage, and had been signed in 1996? You know, when I saw John Denham’s letter, we raised all these difficulties, yes, in some ways, it was a holding reply. But, you know, I think the more I looked at it, the more I came to the view that we were actually – it was the wrong thing to do.

Mr Beer: Sticking with this early phase at the moment, is paragraph 4 a reflection of that emerging view that you held, reflected because you are suggesting some contingency work, looking for the case for ACT in the event that the contract is pulled?

Lord Alistair Darling: Yes, and my guess also is that I would have had, if not written, then certainly verbal advice from the Treasury to say “Look” – because it’s understood, to both the Department and the Treasury, that ACT is much, much cheaper to run than what we were dealing with here. But what I’m saying here is that, you know, clearly you – you, that is John Denham – was flagging up difficulties, we should be looking at an alternative way of making payment, ACT in this case.

Mr Beer: Would you have understood that the withdrawal of the Benefits Agency, on the grounds that the objective can be achieved from its perspective through the use of ACT, would have the effect of undermining a central tenant of the project, namely to drive people into the Post Office?

Lord Alistair Darling: Yes, I mean, you know, and Margaret Beckett, if you remember, wrote to me, making that point. But you still have to stand back from these things and ask yourself: is this the right thing to do? Of course, this wasn’t a static situation. John Denham was writing alerting me to the problems and the slippage, which I comment on. You know, he also mentioned, you know, we should be looking at whether or not it was the right thing to do in the first place.

And when you’ve got that, where clearly the contract is running into difficulties, it would make sense to look at the alternatives. And throughout the correspondence, you know, at this time, you know, mostly when I was Secretary of State for Social Security, you know, I did make the point that we need to look at ways in which you can subsidise, if you like, the Post Office Network. As I said in my statement, right from the start, as a Government, we had two policies: one is to reform the welfare system and the second was to maintain a network of post offices, which proved to be difficult and I think is still difficult to this day.

Mr Beer: You copied the letter to, amongst others, Margaret Beckett, who was then the Secretary of State for Trade and Industry and, therefore, held overall responsibility for the Post Office. So they and the DTI would have been under no illusions that this was going on, ie the suggestion from the Treasury to look at ACT as a contingency plan?

Lord Alistair Darling: Yes, and obviously we don’t know what advice was given to ministers in the previous government because we’re not told that. But I think my recollection is that the DVLA had also raised with – you know, in general the position of using the Post Office as well. So it would not be new. It was known within Government, and it really – what ministers had was clearly a – you know, a project that was stalling and, you know, certainly as time went on, it was very clear that it had stalled and, indeed, our view was that the suppliers were in breach of contract.

So, you know, it was an evolving view but the more I looked at it, and certainly by the time I got to the DSS, I was very clear that this was just the wrong way to proceed and that, you know, even if you’d been able to salvage it, it would have been wrong in principle to be doing this.

Mr Beer: Thank you. That letter can come down. Can we look at Mr Denham’s reply to complete this series of correspondence, CBO00000013. Thank you. You’ll see this is a letter to you of 14 September 1997 –

Lord Alistair Darling: Yes.

Mr Beer: – replying to the one that we’ve just seen. Can we look at the first paragraph, first substantive paragraph:

“PA Consulting, who were undertaking the review … were committed to delivering their review document on 19 September [so within the following week]. I am content to make it available.”

Then paragraph 3:

“However, I would not want you to harbour any hopes that the project can be brought back on track fully. I understand it emerging view of the consultants undertaking the review is that the completion of rollout is likely to be at least 18 months beyond the original contractual date; this is at least an additional six months slippage beyond that reflected in the figures attached to my letter of 12 August; and this assumes the achievability and success of substantial organisational and contractual changes which the consultants are likely to propose. Further, I understand the consultants’ initial view is that the original business cases of all three parties are highly vulnerable to slippage.”

That can be taken down. Thank you.

What effect did that new news have, to your recollection?

Lord Alistair Darling: Well, it fortified my belief that this was a project that was running into considerable difficulties and, you know, as I said to you, you know, the more I looked at it, the more I thought this is just going in the wrong direction. We had a contract, that is the Government had a contract, which brings with it certain obligations. Naturally, if it could have been sorted out to everybody’s satisfaction, that would have been fine, except it didn’t. It was getting worse progressively. But, you know, as I make clear in my statement, my overall view of this, in this entire period until the Government decided, you know, as the agreement with ICL came to an end, that, you know, that having a Benefit Payment Card was just inappropriate, and that, if the Post Office Network was going to survive, then another way would have to be found to do that.

Mr Beer: We’ll come on to this in more detail a little later but, just picking up what you’ve said there, that reason you’ve just given is one of principle, that doesn’t depend on the quality of the system that ICL is delivering; is that right?

Lord Alistair Darling: Well, the quality is inextricably linked to this, and when you see something going wrong, you do stand back and say “Well, are we going in the right direction in the first place?” You know, to have spent time trying to fix something, you know, which was clearly going wrong and which obviously there’s no guarantee it wouldn’t go wrong again – you know, regardless of whether or not you’re going in the right direction – would seem to me to be odd.

As it happened, these things were happening in parallel, if you like, the technical problems, you know, the difficulty in delivery, were becoming more and more apparent and got more and more, you know, obvious. And I don’t know if, you know, I think I would have been – it would have been very odd if I hadn’t asked myself “Well, should we be doing this in the first place?” I was pretty clear we shouldn’t have been doing it.

Mr Beer: Can we push forward a little later in 1997 and look at DWP00000072. I think this is maybe the letter you were looking at earlier, when you said you were getting ahead of yourself –

Lord Alistair Darling: Yes.

Mr Beer: – from Margaret Beckett –

Lord Alistair Darling: Yes, it looks like it, yes.

Mr Beer: – who was the Secretary of State for Trade and Industry – to you, dated 17 October 1997.

Lord Alistair Darling: Yes, that’s correct.

Mr Beer: If we can skip over the first part of the first paragraph and pick up four lines in:

“… I have seen copies of the recent letters between John Denham and you about slippage in the PFI project for automating post offices and benefit payments.”

Lord Alistair Darling: Yes.

Mr Beer: I think that’s a reference to the correspondence we’ve just looked at.

Lord Alistair Darling: Yes.

Mr Beer: “I have been reflecting carefully on the issues raised and the potential implications for POCL.

“For a variety of reasons, the future viability of this most politically sensitive of the Post Office businesses looks increasingly fragile.”

Lord Alistair Darling: Yes, I see that.

Mr Beer: So do you understand the part of the business that she’s referring to is –

Lord Alistair Darling: Is the Post Office, yes.

Mr Beer: – is the POCL part, Post Office Counters Limited –

Lord Alistair Darling: Yes.

Mr Beer: – part of the Post Office business?

Lord Alistair Darling: Yes, yes. That’s right.

Mr Beer: Is she referring there to the entirety of the business, ie the Post Office Counters Limited business?

Lord Alistair Darling: Yes, and, you know, as I said to you, I was fully aware of the general problem that, you know, for a number of years, the Post Office Network was, you know, in an increasingly difficult position, in that people, for a variety of reasons, were not going there because they could do whatever they needed to do elsewhere. Sale of stamps is a case in point where, you know, you could buy them through shops, and so on.

But, I mean, it comes back to the wider point, which I think John Denham raised, a fairly good point, is that if the Government decides there should be a network of post offices, it’s a perfectly legitimate position to take, then, you know – and it needs to be subsidised which, you know, certainly for most post offices, certainly outside urban areas, that’s certainly the case, then there would have to be some sort of subsidy. That’s a decision the Government should have to take.

From, you know, my point of view, firstly, as Chief Secretary, I was concerned about expenditure and certain expenditure on the contract that was going wrong, but then, subsequently, as Secretary of State for Social Security and then Work and Pensions, it didn’t seem to me to be right that that Department was being asked to take on something which it did not need and did not want, when there was another means of paying people’s benefit direct into their bank account.

Mr Beer: Thank you. Can we look at your reply, please, which is CBO00100005_087. Thank you. This is your reply. You thank Mrs Beckett for her letter of 17 October and say that you’re aware that any fundamental changes to the business relationships between POCL, BA and DVLA, which resulted in business moving out of post offices, would impact in a major way on POCL.

Lord Alistair Darling: Yes, yes.

Mr Beer: You’re aware of the widespread perceived importance of the Post Office Network and the sensitivities attached to it and then, over the page, please – and scroll down, thank you. You say:

“That is not to say however we should avoid asking questions about the optimum size of the Post Office network and the most sensible way of sustaining it. I agree that the Post Office review offers us the opportunity to look at these fundamental issues …”

What were you referring to there as the “Post Office review”?

Lord Alistair Darling: Well, the Government had promised to publish a White Paper on the Post Office which, because all this was delayed, and was published subsequently.

Mr Beer: Thank you.

Lord Alistair Darling: And, sorry, the other thing is that when we formed the Government in 1997, we had very strict spending totals, but we undertook to do a comprehensive spending review in, I think, 1999. So anything we decided with the Post Office, if we – you know, whatever we decided, there was almost certainly public expenditure support, so that would have been in the spending review. So I think what I’m referring to there is the White Paper, although I think that proved to be – you know, it didn’t come along for a while.

Mr Beer: You continue:

“[I] am clear that it should also include an examination of the current relationships between POCL and other parts of the public sector.”

Then in 4 you make this point:

“We have to consider other aspects of the Government’s service to the public. For example, should the DSS be bound to use the Post Office when, with new technology, it could use more automatic management and payment systems which are, arguably, to the benefit and convenience to its customers? There could also be substantial reductions in costs. At the moment, the DSS has a huge IT project which is over budget and behind schedule and which is designed to use POCL rather than other means of payment. The BA contract is worth about a third POCL income – about £360 [million] per annum. You are also aware that the DETR is concerned about the level of payments made by the DVLA to POCL.

“The CSR process should allow us to discuss these costs as well as implications for the Post Office. If we are in fact subsidising POCL, should we not say so?”

Lord Alistair Darling: Yes.

Mr Beer: Are you referring there to what was an indirect or hidden subsidy of POCL being broken out into a more transparent way for the public?

Lord Alistair Darling: Yes, as I said to you earlier, if the Government wants to maintain a Post Office Network – and, you know, there’s nothing wrong in policy terms in saying, “And to do that we will subsidise it”, because I have said a number of these branches were at that time, you know, financially incapable of standing on – alone. And it’s a perfectly legitimate position to take. What I’m saying here is – and I referred to this in my previous answer, I think – that the CSR, as the comprehensive spending review process, would allow us to look at all those costs.

But, you know, what I am driving at, is the theme of, you know – my statement is that if you’re going to – if your starting point is we need to subsidise the Post Office Network, that’s fine. But what you shouldn’t be doing is spending a lot of money on devising an elaborate way of doing it, which was inappropriate for all the reasons that I’ve stated, and as we – this correspondence was proceeding all the time, it was becoming increasingly obvious that it was never going to be delivered on time, if ever.

Mr Beer: Thank you. That letter can come down. Thank you.

So far as we’ve been able to establish, nothing further happened, so far as your role as Chief Secretary to the Treasury occurred later in 1997 and early 1998, in relation to the Horizon project. I don’t suppose you’ve got any independent recollection of whether that’s correct or not; you’d be reliant on the papers too?

Lord Alistair Darling: I would be reliant on the papers. During that time I was involved in the preparation of the Government’s comprehensive spending review, which was a major undertaking so, as part of that, the Post Office would have figured, but I’m afraid without seeing contemporaneous papers, it’s very difficult for me to say. You know, this is getting on for 25 years ago, and my memory is okay but it’s not that accurate.

Mr Beer: Can we move forwards, then, to the period March/July 1998, still in your role as Chief Secretary to the Treasury, and a letter you wrote to Margaret Beckett who was still, I think, Secretary of State for Trade and Industry. CBO00000017.

If we go to the second page, please, and scroll down, you will see that it was PP’d on your behalf, approved by you in your absence.

Lord Alistair Darling: Yes, that was my Principal Private Secretary at that time.

Mr Beer: Mr Schofield, yes.

Lord Alistair Darling: Yes.

Mr Beer: If we go back to the first page, we’ll see it’s a letter dated – if we scroll down a little bit, thank you – 3 March 1998 to Margaret Beckett. You say “Dear President”, you have seen Harriet Harman’s letter of 27 February, and you say:

“I am increasingly concerned about this project and I agree we need an urgent review …”

We don’t have a copy, as I understand it, of Harriet Harman’s letter of 27 February 1998. Can you recall what led to your increasing concern?

Lord Alistair Darling: I haven’t seen, you know, a copy of Harriet Harman’s letter.

Mr Beer: No, it’s not been disclosed to us either.

Lord Alistair Darling: Yes, I think it was just a gradual realisation from, you know, everyone concerned, that this was a project running into difficulty. One of the things that, you know, you ought to be aware of is that ministers do speak to each other. We don’t just deal with each other through correspondence and, you know, my recollection is that, you know, throughout this period, I raised it from time to time with colleagues and, certainly, as we get later on to this process, you know, when there was quite a division between what we should be doing about the Benefit Payment Card, there was a lot of conversations.

But I think my evidence to you is this: that it was becoming obvious, you know, right from the time that – you know, probably starting with John Denham’s letter, that this project was in trouble, and therefore we needed to look and see what we could do about it. The Treasury obviously wasn’t taking a policy view of whether we should be – the Benefit Payment Card or whatever. The Treasury rightly took the view that, if something is in trouble, there’s almost certainly going to be a financial consequence.

Mr Beer: Can we scroll down the page, please. You say:

“A meeting will be useful … But before we can reach any conclusions I think we need to ask our officials to prepare an agreed analysis of the options, including an assessment of:

“whether the project is technically viable; and if so, how it can be completed and at what cost to government.”

That phrase “technically viable” is one that you obviously use in this letter here and is one that we will see is picked up in the subsequent Montague report, later in the year.

Lord Alistair Darling: Yes.

Mr Beer: What did you mean by your use of the phrase “technically viable”?

Lord Alistair Darling: Well, in blunt terms, whether it would work or not.

Mr Beer: Is that right or do you mean that it’s feasible in principle?

Lord Alistair Darling: Well, it’s both, isn’t it? If it’s not feasible in principle, it’s difficult to see how it could ever work. But, you know, my interpretation of the “technically viable” used here, and in Adrian Montague’s report – and you’re right that he does use that term – as to whether or not it was going to, you know, be delivered in a way that would be satisfactory to the end user, which is – it was the DSS and indeed, you know, other parts of it, to Post Office Counters.

Mr Beer: Can we go over the page, please. You’re asking there for an assessment of – and this is the second bullet point:

“… the direct and indirect costs of cancellation and of any alternative available to deliver the project’s objectives.”

Lord Alistair Darling: Yes.

Mr Beer: So, essentially, a financial assessment?

Lord Alistair Darling: Yes, the Treasury, as you would expect, before any decision was to be made, would have a rigorous examination, which would start off “Is the status quo going to work?” If it’s not going to work then you look at the alternatives. And, you know, not surprisingly, the Treasury would be concerned about any aspects of expenditure, no matter how they arose, whether it was cancellation or anything else for that matter.

So that’s why I raised that point. You know, I think you see in paragraph 3 it says “The Treasury is in … a good position to see both sides of the case”.

Yes, as you would expect, from, you know, one of the most important Departments in the Government, that it would take a rigorous view of everybody’s point of view, but obviously, the Treasury has a particular interest in public expenditure.

Mr Beer: You say in that paragraph 3 that you suggest the setting up of a small working group, and list the representation, to report within two to three weeks, and the sentence that you’ve just highlighted. Is that a reflection of the fact that there were very divided positions, in particular between the DSS and BA, on the one hand, and the DTI and the Post Office on the other, to an extent they were warring, with the Treasury sat in the middle?

Lord Alistair Darling: Well, I’m not sure I’d use that term but, you know, you’re right that the DSS, and the Benefits Agency by extension, had a clear view, and it was becoming clearer by the day, that this was the wrong solution and, you know, to be blunt, they didn’t want it. Obviously, if you look at it from the DTI as the sponsor Department of the Post Office, you know, it could see all too clearly that, if you did not have a mechanism that built in footfall, if you like, there would be a big problem with the Post Office, and that you then had to look at direct subsidy or other matters, which is to say that that’s a problem that’s existed and – you know, is still there now.

But the Treasury here was not – you know, I would regard it as three groups of people and, certainly, three ministers, all of whom were acting in good faith and looking at it from an overall Government point of view as to what’s right. It was just an attempt to have a look at this, see whether or not you could make it work. If it couldn’t, then we’d have to look at the alternatives.

Mr Beer: You continue:

“The group would need to appoint consultants to address the first question”, that’s technical viability.

Lord Alistair Darling: Yes.

Mr Beer: So you were proposing here the setting up of a small working group, reporting within two to three weeks, with the assistance of consultants, yes?

Lord Alistair Darling: Yes, that’s right.

Mr Beer: That was on 3 March. Can you recall what came of that suggestion? Was it the creation of the working party led by Adrian Montague?

Lord Alistair Darling: I think that’s right but I’ve not seen any papers that would guide me to that conclusion but, I think, if I remember rightly, that the Adrian Montague thing was – probably the main driver of that would probably be the Treasury because the Treasury used Adrian Montague to do a number of reports, in my experience, you know, he was quite good at it.

So I suspect – I think that is right. But, you know, PA, I recollect, did look at some aspect. Whether they were doing it under the aegis of this short examination or not, I can’t be sure because I just had not seen the papers which would allow me to reach a firm conclusion on that.

Mr Beer: Thank you. That can come down.

You were appointed as Secretary of State for Social Security on 27 July 1998. Did you require to be briefed as to the Department’s position in relation to the Horizon project when you took over your new role or was that unnecessary because you had picked it up as Chief Secretary to the Treasury.

Lord Alistair Darling: Well, look, I picked it up but, in my experience, whenever you arrive in a new department, you know, including the Treasury, for the first two or three days, they will tell you about, you know, if you like, going concerns. I mean by going concerns, things that they’re concerned about. But, you know, I – there’s certainly no papers here, as, you know, I fear we’ve found out, that would tell you what exactly I saw but I do remember on the first evening I was there having a long conversation with then the Permanent Secretary, who frankly reeled off a tale of woe about just everything, just about, but I can’t remember whether or not this was part of it.

But I would have seen papers and again this is what I was talking about right at the start, the stuff that I know I would have seen, you know, the briefings on things and I’m pretty sure because this was such a big concern to the Department that they would have told me, quite rightly, these are the things they were concerned about. But I wasn’t coming fresh to it, for reasons we discussed. I knew about it and, actually, as I said to you, I could see the Department point of view long before I got to the Department.

Mr Beer: Can we look at your witness statement, please, at page 8. It’ll come up on the screen for you. At paragraph 21, at the top, you say:

“In my role as Secretary of State I was committed to delivering the Government’s policy on welfare reform and, following my arrival in the Department, it became clear to me that fundamental reform was required across the board and in particular in relation to the way in which benefits were being paid to approximately 15 million people every week. In particular, I came to the view that the BPC [the Benefit Payment Card] was not the right way to achieve the effective and long-term reform of benefit payment systems, principally for three reasons.”

Then you set them out.

When you say, “I came to the view”, was that then upon arrival in the Department, or was it something that developed iteratively over the following ten or so months until May 1999?

Lord Alistair Darling: No. As I said to you, the view was forming in my mind all the time I was Chief Secretary and this matter came before me. And, you know, at a very early stage – you know, I can’t tell you whether it was days or weeks, but I think, you know, it was very soon – I came – well, sorry, there’s two stages here. One is I was very clear, before I got to the Department of Social Security – and I think it’s in the public domain it was well known I was going there because things had gone, you know, rather wrong. So I was very clear that some major changes were going to be needed, in particular in the way in which we paid benefits and, you know, the way that the Benefits Agency was there to pay money to people who were out of work but it wasn’t there to get them back into work.

So, you know, there was big changes that were needed there which ultimately led to the DWP being formed, you know, 18 months or so later. But in relation to the Benefit Payment Card, I came to the view very quickly that frankly it was just wasn’t the right way to achieve the long-term reform of benefits systems, including – you know, I mentioned it in the following paragraphs – I thought it was just wrong in principle. You know, if we wanted to get people included in the system then, you know, one of the ways you did that was to make sure that if they could, you’d pay their money into their bank account, just in the way as if they were in work, they’d get their wages and salaries paid into a bank account.

Mr Beer: You’ve set out the three reasons, and in the first of them at paragraph 22, if you just read that to yourself.

Lord Alistair Darling: Yes, I can see it.

Mr Beer: “… it stigmatised benefit recipients, created two classes in society … By contrast, ACT was a way to tackle social exclusion …”

Lord Alistair Darling: Yes.

Mr Beer: “I also considered that it was wrong in principle to require people to go to the Post Office to receive their benefits when there was a more convenient method of benefit payment available.”

That overall, would you agree, is a reason of principle not related to the planning, delivery, timing or quality of the Horizon System?

Lord Alistair Darling: Yeah, absolutely. But I thought, you know, you asked to me through the questions I got initially, why did I reach the decisions that I did? And I thought it was right to tell you that one of them was in principle. It was actually – you know, it was before the Inquiry, but in amongst the DSS papers I was sent, there’s a very good academic work by Professor Elaine Kempson who goes into some detail about the stigmatised benefit recipients, and mentioned that ACT is one of the ways you can help, although it’s not the only way, by any means. But, you know, it’s a theme of my statement. I just thought it was wrong in principle, and because the thing had run – the contract had run into such difficulties, it was right to start looking at this from the start, if you like, and what would you do if you were doing that?

Mr Beer: Can we scroll down to the second reason that you give in paragraph 23, the card was not the most cost effective or best solution, particularly as it was not intended for long-term use.

Lord Alistair Darling: Yes, as I say, the long-term use thing, I think it was probably after got it to the DSS that I was told by officials that, because it wasn’t immediately obvious in the Treasury that that was the case, but that was added my doubts about this project. It was a temporary fix, if you like.

Mr Beer: You say in the last two lines:

“… by moving straight to ACT, it was estimated that the DSS would save £400 [million] per year and the banks had been delivering ACT for years …”

You’ve mentioned that already.

Lord Alistair Darling: Yes.

Mr Beer: “… so it had a proven track record … In those circumstances I didn’t consider the BPC to be a good investment of public funds and I believed there were better ways to manage loss of income to POCL that would result from the adoption of ACT as a means of payment of benefits.”

So that second reason, that’s essentially a reason of principle run along with the financial case for ACT, and against the Benefit Payment Card, not related to the planning, delivery, quality or timing of the Horizon System; would you agree?

Lord Alistair Darling: Yes, that’s a fair summary of my position.

Mr Beer: Then the third reason you give in paragraph 24:

“By July 1998, the project was thoroughly stalled. In November 1997, ICL had been placed in breach of contract by public sector parties for failure to meet a key operational milestone and the DSS/BA had issued a notice of ‘cure’ which was due to expire on 12 August 1998 and was unlikely to be met.”

Is that reflective of the view that you expressed earlier: that the project was doomed failure?

Lord Alistair Darling: Yes. And indeed, I think at the end of last week you sent – the Inquiry sent me another document which it had just uncovered, I assume, you know, which added to that. You know, it was an assessment by outside reviewers of the contract which is, you know – and obviously I had not seen that until the end of last week, but there was a growing recognition, as I’ve said before, that this was a project that had stalled and that, you know, the timescale for it being fixed, if ever that was going to be possible, was slipping off into the distance.

Mr Beer: So that third reason is related to the performance of the project, and accordingly the performance of ICL Pathway within it?

Lord Alistair Darling: Yes.

Mr Beer: Now one of the first things – that can come down, thank you. One of the first things to confront you on entering your new position as Secretary of State would have been the report of the independent panel of experts led by Adrian Montague. The report, we know, was delivered the week before your arrival in your new position on 27 July 1998.

I wonder whether we could look at it, please. POL00028094.

You can see, if we scroll down, it’s dated July 1998.

Lord Alistair Darling: Yes, I see it.

Mr Beer: Thank you. Then if we go over the page, and the page again, to page 3.

Now, you would have presumably received this with a backing paper or a cover note, or a formal submission to minister?

Lord Alistair Darling: Yes, I do remember it. As I say, I knew Adrian Montague so, you know, it was an added thing, if you like, that, you know, I’d thought it was important. But, yeah, I’m very certain there would have been a covering note or a submission to go with it.

Mr Beer: What’s your practice? What was your practice then? Would you read the attachment, or would you read the submission where officials told you what you should make of the attachment?

Lord Alistair Darling: No, I would read both. If somebody sent me a report – you know, I’m saying this after having been in Government for 13 years – if somebody gives you a report, you should read the whole thing. I’ve seen ministers in the past make the mistake of not doing so. You need to look at the whole thing. I’m pretty sure the whole of the Montague report would have been given to me, and not just bits of it. Although, you know, if you were going through it, there are bits of it that jump out, and certainly jumped out to me.

Mr Beer: The Chair of the Inquiry is very familiar with the report. A number of witnesses have been taken to it previously, so I’m only going to take you to limited parts, if I may. But if there are parts that you have in mind that jumped out to you and I don’t mention them, then please do say so.

Can we look at the findings first, please.

Lord Alistair Darling: Yes, do that.

Mr Beer: On that page, under the first bullet point of findings on page 3, the authors say:

“The programme is complex, probably the biggest of its kind. Its scale, particularly the development work required, were underestimated initially. Parties have since increased the resources devoted to the programme but a range of issues remain to be resolved.”


“Our view is the programme is technically viable. There must be some risk around scalability and robustness because the system has had to be tested at the level of component parts, but we are satisfied these risks are being well managed by Pathway.”

Did you understand “technically viable” in the sense that we discussed before, namely feasible, as opposed to the existing elements of the system, whether alone or in combination, are presently technically robust?

Lord Alistair Darling: I regarded that as being feasible, but if you look at all of the findings, they’re heavily qualified. You know, that – and again, if you look at the POCL – and the way forward, you know, they looked at – they mentioned, I think it was the second option, it was stopping the Benefit Payment Card altogether. And again, if you look at the part 2 in, I think it is an appendix, they outline a series of problems. So I think what I took from this was it was technically possible to produce a card, but there was an awful lot of difficulties here. And one of them, you know, which I think they highlight, is that, you know, this was a massive project and it wasn’t helped by the fact that you had, if you like, on the Government’s side, two sponsored departments which had completely different objectives.

Mr Beer: Can we go to page 22, please. Sorry, page 23. “The panel’s view of a possible way forwards”.

Lord Alistair Darling: Yeah. Sorry, I’ve got notes in front of me of the original, but I’ll look at it on the screen, that will be better. Sorry, what do you want me to look at here?

Mr Beer: Page 22, annexe A. “The panel’s view of a possible way forwards.”

Lord Alistair Darling: Yes, I can see that here, yes.

Mr Beer: Thank you, Lord Darling.

“We sought to find a way forward on which all the parties might agree in principle, subject to negotiations about the detail. We considered all of the options.”

Then six of them are set out.

Lord Alistair Darling: Yes.

Mr Beer: Just take a moment to read them.

Lord Alistair Darling: Yes, I’m familiar with them. I’ve –

Mr Beer: Thank you.

Then the authors say:

“Taking the options in reverse order, each of the last four has fatal flaws. If an agreed way is sought, one or more of the parties would be unable to accept it.”

If we just run through them, then. The first bullet point, “Termination of the complete programme”. So that’s option 6.

Lord Alistair Darling: Yes.

Mr Beer: This was said to have – it would leave POCL’s automation plans set back for at least two years with potential for litigation, with the likely loss of non-government business in the meantime, “Pathway would face a significant loss of prospects, reputation and revenue”.

The second is option 5, “Partial termination – no Benefit Payment Card”. So:

“Partial termination with no restructuring to scrap the BPC, reduce the programme to POCL automation, plus OBCS would unacceptably reduce Pathway’s revenue stream and leave POCL with an infrastructure too highly specified for its short-term needs.”

The third bullet point I think is option 4:

“Continuing the programme as currently planned would leave Pathway below break even on its investment with infrastructure … incomplete for a move into banking and Financial Services. The introduction of the card for the short period remaining of the initial contract term would expose customers to disruption if BA moved full ACT immediately thereafter.”

Then, lastly, at the last bullet point, which I think is option 3:

“A simple extension would delay the Benefits Agency’s move to increase use of ACT, prolonging its exposure to high unit cost of benefit payments. POCL would have little incentive to modernise further.”

Did you, on reading that, accept that those four options were each fatally flawed and were therefore ruled out?

Lord Alistair Darling: Yeah, I mean, I could see the strength in the conclusions they reached in paragraph 2. This also raises a point which we haven’t touched on so far, which you will see generally the Government did consider and that is it had a contract with Pathway, as it was then called, and governments have to think long and hard, if it’s got a contract, if it’s going to terminate, it has to have a reason for doing so, and one that will stand up in public as well as in any proceedings. So that was in our minds.

But, you know, other points they make about partial termination, continuing but extending it, and, you know, the difficulties with, you know, an extension which would just, if you like, postpone the inevitable in my view.

So yeah, you know, I agreed with the conclusions they reached.

Mr Beer: Then scrolling down very quickly to option – to paragraph 3:

“We took the opportunity to set out Options 1 and 2 as the most likely to provide an agreed way forward.”

That’s restructuring the full programme or restructuring part of the programme with no Benefit Payment Card, options 1 and 2 respectively.

“… Options 1 and 2 as the most likely to provide an agreed way forward. We invited the parties to respond, indicating whether either might be acceptable. POCL and Pathway supported Option 1, restructured full program. BA preferred Option 2, a restructured partial programme without a Benefit Payment Card.”

Then the authors proceed to address their view on each of those two options. I’m not going to take you through that, in the interests of time.

As we’ve seen already, the report discusses technical viability.

That can come down from the screens, thank you.

Were you ever aware, Lord Darling, that the issue of the technical viability of the project had been addressed in a rather long and detailed procurement process?

Lord Alistair Darling: No, because that would have been done before our time in the Government. So – because this is a contract, if I remember rightly, that was procured and signed in 1996.

Mr Beer: Correct.

Lord Alistair Darling: I wouldn’t have been aware of discussions that took place with ministers of a different administration, you can’t see the papers of ministers of a previous one, except in some exceptional circumstances.

Mr Beer: You weren’t aware of the nature of the procurement exercise –

Lord Alistair Darling: That was done by a previous government. And, you know, it’s my observation, from what you’re now just telling me, is that, even if something had been thought to be technically viable, ie it worked or ever could work, in 1996, it doesn’t therefore follow that 18 months/two years later, that you would reach the same conclusion. We were dealing with what we saw in this case, you know, in 1997/98.

Mr Beer: But the obverse might be true: that if the procurement exercise, would you agree, had thrown up substantial issues of concern with the Pathway project, those are matters that the current decision-makers may wish to know about?

Lord Alistair Darling: Well, if that had been the case, certainly, you know, I wasn’t aware of what happened in the procurement process prior to us becoming the Government. But as I say, what I and my colleagues had to deal with is the emerging evidence that you can see from this and other papers that this was a project that was stalled. You know, the things that we thought were going to be delivered weren’t being delivered. It was clear that several months, if not longer, were going to be needed to put the thing back into a state where it works.

I know from my subsequent experience in the DSS with another computer system, you know, when you start off, it’s all full of wonderful possibilities and how much life is going to be easier and then, actually, when you start going along the process you discover it’s not quite like that.

So I would even if I’d seen stuff from 1996, which I haven’t, it wouldn’t then surprise me if two years later everything hadn’t turned out quite as anticipated. As I say, I’d not seen those papers so I really, you know, can’t comment on them.

Mr Beer: So you wouldn’t have been aware, thinking back to your time in 1998, that the procurement process had involved, at a number of stages, the seeking and the provision of specialist advice from outside contractors?

Lord Alistair Darling: I wouldn’t have been surprised if that was done but, you know, again, this comes back to an important point: I had not seen papers or any advice about that. I’m not saying it doesn’t exist but I have not seen it and I don’t recollect it. My approach was driven by the evidence that I saw with my own eyes, if you like, in my own experience in Government, rather than by, you know, material that may or may not have been available to a previous administration. And, indeed, you know, if my officials were now telling me it doesn’t work, they wouldn’t necessarily have told me “Oh, but we thought it was all right 2 years ago.”

Mr Beer: What about the obverse? Say you’d been told that, in the course of the procurement process, the ICL bid had been asset as the weakest on technical grounds but it came in lowest on cost?

Lord Alistair Darling: I would certainly have been surprised about that and extremely concerned if that was the case. But I am afraid I’m not aware of that because I hadn’t seen any papers in relation to that.

Mr Beer: What, if any, prohibition was there on you or your ministers seeing material of the kind that I’ve just described, or a summary of it?

Lord Alistair Darling: Well, there’s a general rule that you can’t see the advice given by civil servants to ministers in a previous government. In relation to technical material, you know, I’m afraid I would need to take advice on that as to what you can and can’t see. All I can tell you is that – and actually my gut instinct, if you like, is if there was some horror that you should have been aware of, then someone should have told you because that’s not so much advice; that’s a matter of fact, I would have thought, about price and, you know, the assessment.

But as I say, I had not seen that. But, in some ways, you know, I’ve been saying throughout my evidence so far, my view of this whole thing statement not so much from what might have that in the past but what I was looking at then, you know, at that present time, which led me to the conclusion that this was going wrong, and that, you know, the sooner it was – the contract was – we were out of it, and they looked at some other solution with the Post Office, the better.

Mr Beer: The convention that you’ve described about seeing the papers of a previous administration, where do you obtain your understanding of that convention from?

Lord Alistair Darling: Numerous conversations with civil servants. You know, over many years, you know, you’d say, “Well, how did that happen?” They’d say, “Well, we can’t tell you the advice we gave to ministers”.

And, yeah, I think if you look at the various constitutional, you know, commentaries that you get, it’s a fairly, you know – it’s fairly well established. You know, the point you’re raising was a technical thing: that, you know, I do not – if someone had said to me “You do know, don’t you, that this was, you know, ranked as low as – you know, at the bottom rung when it came to technical stuff”, then I would have – you know, obviously I came into this, if you like, two years down the road – you know, it would have certainly fortified me in my belief that this contract was going wrong.

But if you’re asking me am I in a position to pass comment on the efficacy and the quality of ICL, I can’t do that because I just have not seen the papers that would entitle me to reach a conclusion, and, you know, and I wouldn’t want to reach a conclusion without having seen some evidence of it, although what you’re saying does not surprise me, now that you tell me.

Mr Beer: I’m not asking you to do that; I’m just at the moment exploring with you the limits of the convention as you then understood it.

Lord Alistair Darling: Well, I – sorry, you know, had I known you were interested in this then I suppose I could have made further enquiries and done some further reading but that is my understanding of the position: you cannot see advice offered to previous ministers. I mean, certainly when we came into office in 1997, I frequently used to asked, as Chief Secretary, and say, “How the hell did we get into this position?” and they would say, “We can’t tell you”.

Mr Beer: Did you understand it, in the interests of continuity of policy, to sometimes have a need to access minutes or documents not written your predecessor politicians, or containing a view expressed by such predecessor politicians but to see, for example, technical reports and the like?

Lord Alistair Darling: Well, I don’t know because, you know, that – the question was never – you know, what ICL’s – the bid that ICL put in was not raised with me. And I don’t – you know, again, this is without knowing exactly what I did see either as Chief Secretary or Secretary of State for Social Security, you know, it would be a form – a firm conclusion on it. What I’m saying to you, from the stuff I have seen that you provided me with, the view I reached on the efficacy, if you like, of this project, was reached on the evidence I saw, rather than something that might have happened before that. And, you know, to the best of my knowledge, until you raised the matter five minutes ago, the ranking of ICL’s bid is not something I was aware of.

Mr Beer: Thank you. Can we turn to paragraph 27 of your witness statement, which is on page 10.

Lord Alistair Darling: You’re going to put that on the screen, are you?

Mr Beer: Yes, it will come up, Lord Darling. Paragraph 27, please. You say:

“My view on reading the report …”

That’s the Montague report.

Lord Alistair Darling: Yes.

Mr Beer: “… was that a huge project where there was fundamental disagreement between the two sponsor departments was doomed. For the reasons stated, I concluded that DSS should with draw from the project and proceed to ACT and that Government should find a different way to make up the loss in income to POCL.”

To be clear, that was a view that you took in July 1998, if not before then; is that right?

Lord Alistair Darling: Well, this is the statement of a view I took having read the Montague report but, as I said to you earlier, it’s, you know, it’s – it was a view that was formed – pretty much formed in my mind that this was probably – you know, having read all this, I set out here what the conclusion that I came to: that this project was doomed, as far as I can see.

Mr Beer: Did you communicate that view, that the project was doomed, within Government there and then? Because as we’ll see, the Department, your Department, continued to participate in tripartite negotiations for many months to come, up until April/May of the following year?

Lord Alistair Darling: That – I’m expressing there my view and, you know, to any of my colleagues I spoke to, I would have said the same thing. You must understand, though, you know, this was a situation – the Government found itself in a situation where it had a contract, a legally binding contract although, you know, we thought ICL was in breach, and we also, you know – I was Secretary of State for Social Security but I was also the, you know, a member of the Government that had, as one of its policy objectives, as I set out in my statement, was maintaining a Post Office Network.

So I don’t think there’s anything inconsistent in having that view, but saying “Look, we’ve got to work something out”. I also had to – you know, from looking at – if I was, you know, looking at it from my colleagues’ perspectives, they would have had a slightly different perspective, particularly from the DTI. We had to go through a number of steps to get collective agreement, which we eventually reached in I think it was May 1999. So – they’re not – you know, me standing up and saying it was doomed would not have broken into the thing.

There were a lot of parties involved, not least the Prime Minister and the Chancellor – the then Chancellor had a view on it.

Mr Beer: Thank you. Sir, we’ve been going about an hour and 15 minutes now. Because of the slightly unusual start time for the commencement of Lord Darling’s evidence, it means that it would fall to take a break now, given the shorthand writers prefer, I think, to go for an hour and 10, hour and 15, at most.

Sir Wyn Williams: Yes, well, I certainly think we should take a break. The only issue is whether we take a lunch break or a short break. What do you suggest, Mr Beer?

Mr Beer: I think probably a lunch break, sir.

Sir Wyn Williams: Right. So we’ll take –

Mr Beer: Maybe come back –

Sir Wyn Williams: So we’ll take our hour’s lunch break now and start again at 1.30?

Mr Beer: Yes, thank you very much, sir.

Sir Wyn Williams: Fine. Thank you both.

(12.26 pm)

(The Short Adjournment)

(1.30 pm)

Mr Beer: Sir, good afternoon. Can you see and hear me?

Sir Wyn Williams: Yes, I can, thank you.

Mr Beer: Lord Darling, can you see and hear me?

Lord Alistair Darling: Yes, I can see both, yes, thank you.

Mr Beer: Thank you very much. We had looked at the period of July 1998. Can we move on to August 1998, please, and look at WITN04200101.

Lord Alistair Darling: Just before you do that, it occurred to me over the luncheon break, you referred to the ranking of ICL and the tender process with, you know, the previous government. It’s just I would have added that, even had I known that, if you have a legally binding contract, it doesn’t help you that it was perhaps ill advisedly signed by a previous government. As you know, governments – the British governments have historically taken the view that if one government enters into a contract it will be honoured by the next government. And I don’t know of what consequence this is, but I’m just making that observation.

You know, what you’ve told me, you know, I note, but it doesn’t alter at all my evidence that I gave to the Inquiry in relation to why I reached the view that I did.

Mr Beer: I understand that, Lord Darling. The purpose of asking the question was whether the information would have been helpful in ascertaining whether what you were being told was – as to the technical viability of the project, was an isolated and recent problem or was something that had been heralded for a number of years in the build-up to the preparation of the Montague report?

Lord Alistair Darling: I see that, although the fact is we had a contract. And obviously what happened during our time was the company – it became clear that ICL wasn’t in breach. The fact that they had been ranked unfavourably, as you said, wouldn’t actually have helped us in that regard.

Mr Beer: Can we look at the minute of 17 August 1998, to you from Sarah Graham.

Lord Alistair Darling: I see it, yes.

Mr Beer: This is one of the minutes we have been provided with, although I don’t think it’s one that’s been marked up by you. Can we look down, please, to the “Issues” and then scroll down, please, to “Recommendations”, discuss this with Stephen Byers before the 19th – this was the 17th – “he is on holiday after that, his office do not know for how long”.

Then summary, if we can read that, please:

“There have been a number of developments over the past two weeks, including the emerging findings of the Post Office Review, all of which appear to support your preferred outcome to cancel the project, or at least the [BPC] elements of it on grounds of ICL Pathway’s failure to deliver.”

So was it your pre-existing preferential outcome to cancel the project or at least the Benefit Payment Card elements of it?

Lord Alistair Darling: Well, as I’ve told you, it was a view that I formed, pretty much formed in a permanent way when I – both in the lead-up to, but certainly on becoming Secretary of State. This is dated August –

Mr Beer: 17 August.

Lord Alistair Darling: 17 August 1998. But I would have thought, you know, by this time, I would have had meetings with, you know, the team and Sarah, in particular, and they would be well aware of my view, and I suspect that’s what led to the drafting of this note, as it was.

Mr Beer: You see that it mentions in the last part of that sentence “on grounds of ICL Pathway’s failure to deliver”. Is that a reflection that that was being used as a vehicle or a fig leaf to cover the real reason for getting out of the contract, namely an in-principle objection to it?

Lord Alistair Darling: No, I don’t think it was at all. Look, had this whole project been going well, and they were delivering, then my views would have been, you know, interesting but they wouldn’t have been compelling in terms of us terminating the contract. Like I say, all three – the three points that I made, both my in-principle and actually the practical elements of it go together, and that, you know, yes, I thought it was the wrong thing to do but, at the same time, I was receiving advice which was that the whole thing was going wrong and that it wasn’t going to deliver. So I put the two things together, you know, they run together.

Mr Beer: So although earlier today we looked at your three reasons and the “problems with the project” reason was the third of the three reasons, that was equally substantial a reason as the other two; is that right?

Lord Alistair Darling: The three points I made in my statement are that, you know, that they rank together, if you like. Now obviously, you know, if the whole thing had been working, you know, and there was no technical problems with it, then, you know, you have a contract, you’re stuck with that contract. As it happened, one of the reasons that I came to form a view – and you form a view in the light of what’s going on at the moment, you know, all the facts in front of you – my view was that, firstly, it was the wrong thing to be doing anyway, for the reasons I stated, but also they clearly weren’t delivering on it. And that’s why I devoted, you know, a considerable amount of time, insofar as this matter is concerned, to doing my best to persuade colleagues that the Benefit Payment Card ought not to be part of it.

I think you have to look at these things together because they go together. That’s life, you know, that’s the way you look at things.

Mr Beer: Just to understand that finally, then, if the thing had been going swimmingly, your first two reasons of principle wouldn’t have risen to the surface; is that right?

Lord Alistair Darling: Something might be going swimmingly in the sense that, you know, it was being delivered, it still wouldn’t stop me thinking that we shouldn’t ever have been doing this in the first place because, you know, I wanted people to move – us to move to ACT. I wanted benefit recipients to be treated the same way as everybody else and not to compel them to do something they didn’t want to do.

I could have held all those views, you know, in perpetuity but, if there was a contract and we had no reason to rescind that contract, I’d have been stuck with it. As it happened, those were my views and, at the same time, the thing was clearly grinding to a halt. So when I was asked in the questions that were sent to me when I drew up my statement, I said – right at the start, I said “Look, these are the three points that drove me to the conclusion that I did”. I thought it was wrong in principle and actually, in practice, it wasn’t working.

I mean, I didn’t – you know, I think that’s a perfectly logical way of looking at things.

Mr Beer: Can we go over the page, please, to look at paragraph 4. Thank you. Three options are set out and I’m just looking at them at the moment, because we need to know what they were to make sense of the next document we’re going to look at.

Lord Alistair Darling: Okay.

Mr Beer: Ms Graham records that:

“The three options on the table from [the] working group are … as follows:

“Option 1: continuing with the project but extending the overall period of the project from the original end date of May 2005 to at least September 2007; thus securing DSS indirect subsidy of the Post Office Network for a longer period, and offering ICL a better prospect of payback for its investment, despite its failure to deliver.

“Option 2: proceeding with the project in name, but withdrawing from the benefit payment card elements of it; POCL to offer ICL the task of bolting on a banking facility to the ‘Horizon’ automation platform. DSS to plan its migration to ACT to take account of the Post Offices developing capability …

“Option 3: cancellation of the whole project on the grounds of ICL’s failure to deliver; otherwise essentially as option 2 but leaving POCL free to run a proper competition and to utilise other companies rather than ICL; this would probably mean around 12-18 months to procure a new partner for POCL to establish a banking facility in post offices …”

Can we then go forward, please, and look at WITN04200106. Thank you. Remembering that that note from Ms Graham was the previous day, 17 August 1998. We have a note of a meeting with you, rather unusually, a note of who said what rather than a summary of events. I don’t think it purports to be verbatim.

Lord Alistair Darling: No, it looks like a note that somebody took during the course of the meeting.

Mr Beer: Yes.

Lord Alistair Darling: It would ultimately end up as, you know, a summary. It was very rare – and that isn’t verbatim anyway. It looks like somebody’s notes.

Mr Beer: “The [Secretary of State – that’s you] said that neither the DSS nor the Treasury were particularly enthusiastic for carrying on as under Option 1.”

Then if we go over the page, please, and look at the foot of the page, you’re recorded as saying:

“We have grounds to terminate the contract and want to terminate the contract. We do not want the card … anyway.”

Then, at the top of the next page, please:

“SG [which I think is Graham]: But we need to avoid an allegation of termination for convenience. There are also opportunity costs now because of ICL’s delay.”

Then three answers or three sections on:

“[Secretary of State]: we would have to say that we were terminating for ICL’s failure. We need a strategy worked out for ACT and the post office by the time of the decision to terminate.”

Those sentences together culminating in “We would have to say that we were terminating for ICL’s failure”, does that reflect the fact that you wouldn’t be terminating for ICL’s failure but you would be saying that you were terminating for ICL’s failure?

Lord Alistair Darling: No, remember that this is somebody’s note of a discussion. Look, let me just be clear about it. If the contract was working, we could not terminate it. You know, that’s the end of it. But it was not working. There were serious delays in it; there were problems with the actual, you know, what it was going to be able to do, and so on.

But I was very clear, for the reasons I have set out both in my statement and during the course of my evidence today, that I did not think that we ought to be part of this because it was the wrong solution, but here we were with the fact – remember that ICL had already been served with the necessary notice together that we were, you know, suspending or going to terminate the contract, and, you know, I therefore thought it was prudent that we should look at what else we should be doing, like ACT, for example.

Without wishing to labour the point, it was quite clear to me that this contract was not working perfectly. It was not delivering. It was being delayed, and there was some doubt – and you’ll see that from a lot of the material that you’ve managed to recover – there was a lot of doubt about whether it would ever be recovered, and what I will also say is that, as time went on, more and more of my colleagues came to the same conclusion as I did.

Mr Beer: In the middle of the page, you record that – if we just scroll down slightly:

“The reality is we can’t unilaterally. I am in no doubt that I want to get out of this contract.”

Lord Alistair Darling: Yes. And I made that clear, that I did, because in the light of the fact, you know – in the light of the fact that that is contract was in difficulties, I think it was perfectly open to me to say what do we want to get out of it? And, you know, I was pretty clear, as increasingly others became clear that the Benefit Payment Card was a mistake. It was getting complicated, this contract. It was the wrong thing to do.

Would I say you can’t act unilaterally? No, because I was the Secretary of State in one Department, clearly, my colleagues in the DTI and, indeed, elsewhere had a different view, but what I’m, you know, what I’m saying to you is I was faced with a situation where it looked to me that the contract was in breach, therefore we’d need – we could perfectly legitimately reopen the whole thing and, you know, come to a different conclusion than the one reached by the previous Government.

Mr Beer: Thank you. Can we move on. I think it’s fair to say – that can come down, thank you.

I think it’s fair to say that you were receiving communications to precisely the opposite effect from the National Federation of SubPostmasters; do you recall that?

Lord Alistair Darling: Yes, well, I can I perfectly well understand why the Federation came to the view that it did: it saw the whole project as a way of guaranteeing footfall into the members’ Post Offices. And that is a perfectly, you know, understandable position for a federation trade union to take. However, my job as Secretary of State for Social Security, as it then was, and as a member of the Government, would deciding what was best for the Government, and that is, you know – you know. You can criticise my judgement, you know, if you will, but my judgement is that we should not have been in it. And I think, you know, looking back it was absolutely right.

Mr Beer: When you say your job was to decide what was best for the Government, you mean what was best for the public as a whole?

Lord Alistair Darling: Well, yes, the Government acting on behalf of the public as a whole, but, you know – nor does that in any way undermine the fact I also thought we needed to do something to maintain the Post Office Network because of the social use of that. Incidentally, the Benefit Payment Card would not have done that because you couldn’t actually control where people – which offices they were going into, and the offices that were most vulnerable tend to be the ones with, you know, a lower population round it rather than the ones in the middle of a city, for example.

Mr Beer: Can we just look quickly, then, at what the Federation were saying to you at this time and look first, please, at NFSP00000425. Thank you.

You’ll see that this is a letter from the general secretary of the NFSP, Colin Baker –

Lord Alistair Darling: Yes.

Mr Beer: – to you directly, dated 4 August 1998. If we scroll down, please, you’ll see there are some pleasantries in the first two paragraphs. In the third he says:

“Clearly Post Offices feature highly as being central to the way people receive their pension or allowance and we are looking forward to the day when the delivery of this services is automated using the Horizon platform. The platform will also be crucial in the development of other products and services resulting from Welfare Reform and Social Banking.”

Then in the next paragraph:

“Because of recent press rumours that the Horizon programme is about to be aborted we were extremely pleased to have had the rousing endorsement of Frank Field MP …”

Stopping there, Can you recall at this stage, 4 August 1998, what role or position if any Frank Field MP held?

Lord Alistair Darling: I think he’d returned to the backbenches.

Mr Beer: I think that’s right. I think he’d ceased to be the minister for Welfare Reform with effect from 28 July, on that reshuffle?

Lord Alistair Darling: Yes, and that reshuffle, both Secretary of State and Frank Field both left the Government.

Mr Beer: Yes.

Lord Alistair Darling: So I’m not aware of anything else he might have been doing but I think, in August, which is, you know, a month later, he would have been on the backbenches.

Mr Beer: Anyway, continuing:

“… the rousing endorsement of Frank Field MP to the automation platform and confirmation that the payment card will only be usable at Post Offices. I cannot stress how importance these reassurances are and I have been coming under considerable pressure as General Secretary to ‘raise the profile’ of what is at risk for subpostmasters. As I am sure you are aware, if the Horizon project or the payment card were to be cancelled, the effect would be dire on subpostmasters and their £1 billion investment in the network. They would reasonably conclude that despite all promises of the past, the Government had given up on them. They would see their livelihoods as being on the line, and could not be expected to take this lying down. So reassuring statements such as those of Frank Field MP are very helpful at the moment, although given subpostmasters’ current mood, and until they see Horizon rolling out in their post offices, we to do not be surprised at their occasional outpourings of concern.”

That’s the end of the letter, essentially. The NFSP seem to be suggesting that they wanted the system rolled out and rolled out sooner rather than later.

Lord Alistair Darling: Yes, I think that was the position and, as I say, for trade union people representing subpostmasters, I can understand why they took that position. I’m not sure – and this is, you know, in the press reports that were there – I’m not sure they went up into that much detail as to what exactly was going wrong.

But it’s not uncommon for the government to receive representations, you know, on things like this, but that should not stand in the way of the government reaching a decision as to what it thought was in the public interest to do. And, you know, as I say, well, we’ve explored in some detail what our position was on that, but, you know, Colin Baker was always very reasonable when he put his point of view and – you know, on the occasions that I met him, and his successors for that matter – but, you know, that was a view that the Federation held and, you know, they’re entitled to hold it. I just – you know, I didn’t share that view from inside Government.

Mr Beer: When you met Colin Baker, and in any other correspondence that you had with him, were any concerns expressed on behalf of his membership as to the reliability, integrity or operability of the Horizon System, to the best of your recollection?

Lord Alistair Darling: Not to my recollection but then, you know, the project – at this stage, we’re talking about 1998/99, this, you know, this Horizon platform wasn’t actually installed; it was still being development. Remember it hadn’t been accepted by either us or the Post Office Counters Limited, so it wouldn’t have been in the post offices. That came later, you know, after the Benefit Payment Card had come out of it. So, you know, my conversations with Colin Baker at this time were, you know, really in connection with the proposed Horizon programme rather than the actual.

Mr Beer: So if there were concerns being raised by subpostmasters involved, in the testing process, in model office testing at this time, they weren’t reflected to you through the Federation?

Lord Alistair Darling: No, and I would have thought, given the letter you’re showing me just now, if there were concerns, you’d expect there to be another paragraph saying, “Having said that, you ought to be aware”, and then put whatever the concerns were. So I’m not aware of it and I’ve not seen anything in the material that’s been sent to me that would suggest that that matter had been raised with me.

Mr Beer: Can we go on to another letter from Mr Baker within this period, please, NFSP00000250, and look at the second page, please. Thank you. This is 5 November from Mr Baker to you.

Lord Alistair Darling: Yes.

Mr Beer: If we go to the next page, please, and scroll down. I’m not going to look at this in detail. You’ll see he encloses an extract from Computer Weekly of 5 November 1998.

Lord Alistair Darling: Yes.

Mr Beer: If we go back to the previous page, please. He says:

“I was shocked to read the report in Computer Weekly this morning which purported to have senior Government officials as its source.

“The suggestion that the [BPC] is to be dropped would completely contradict assurances given by Kate Hoey on behalf of your Department at the National Federation of SubPostmasters’ annual conference in May, and by the [Right Honourable] Peter Mandelson yesterday at the Trade and Industry Select Committee.

“It would also appear to undermine the proposals put forward by the Prime Minister at the Labour Party conference in September for a single account – pilots of which I understood were going to be developed jointly between yourselves and The Post Office.

“I would like to make it quite clear that any proposal to automate the post office network which does not involve the continuation of the [BPC] would be wholly unacceptable to subpostmasters, who have invested their livelihoods on the basis of assurances given by your Government.

“The continued payment of benefits via the post office network is crucial to the survival of thousands of sub post offices, removing this income would leave the network unstable and unable to survive in the long term.

“I look forward to a speedy response to clarify, you will not let subpostmasters down by reneging on previous promises. I also hope you will do everything possible to prevent your officials from helping further scurrilous articles appearing in the press, which can only serve to undermine subpostmasters’ confidence in the integrity of this Government.”

So to the similar effect to the communication that we just looked at?

Lord Alistair Darling: Yes, and well, as I said to you, he was putting forward his view and his members’ views that they’d held out very high hopes for the Benefit Payment Card. I’ll just say this. Suppose the thing had gone ahead despite everything that was becoming clear over this period, and the Benefit Payment Card hadn’t worked, you know, there were two risks: one is to the subpostmasters themselves but also, and again I mention this in the statement, for people who are on benefit, if they don’t get the payment when it’s due and the exact amount that they are entitled to, this can have catastrophe effects on that individual.

You know, the sums may seem small to somebody outside but benefits by their very nature, you know, a slight, you know, drop in such people are entitled to, and not getting the full amount when it’s due can have really very adverse consequences on people who are in receipt of benefits and their families.

So let’s assume for this purpose, if the Benefit Payment Card had been introduced, knowing what we knew at the time all this was going on, it would be taking a massive risk and, you know, the initial anticipation was there would be about 15 million people who were using the Benefit Payment Card, it can have huge, huge consequences, adverse consequences. And, you know, I had to have regard to that. You know, equally – and say to you earlier, that in relation to the Post Office Network, the Government’s policy was also to try to maintain that, but that does not mean you, therefore, continue with a project which you can see increasingly is, you know – in my view, was flawed and was never going to deliver and is, therefore, highly risky.

You’ve got to remember, as a government yes, you have to consider the wellbeing of postmasters and the post office network, you’ve also got to consider a very large number of people who depend on benefits to make ends meet. It’s more than one consideration you’ve got in front of you.

Mr Beer: Just exploring that for a moment, what would you say to the suggestion that that answer sounds as if you were not prepared to tolerate risk to 15 million individuals in receipt of benefits payments, but were prepared to tolerate risk to subpostmasters who had to administer the system?

Lord Alistair Darling: What I’d say is there are two different risks here. Let’s say 15 million people relying on benefits every week need to get the exact amount they’re due and when they’re expecting to get it. And I would not take the risk of putting in place a payment card, even if it worked – and, remember, it didn’t look like it was ever going to work – knowing that there was a chance that this would happen. What would you say to the 15 million people who suddenly found they weren’t getting the right amount of money when they were expecting it?

Now, there is clearly a separate risk in relation to a post office network, which is a slightly different thing. You know, and I fully accept that somebody who had bought a business, a Post Office business, you know, needed to have some certainty. But there are other ways the government could find to support that network and, indeed, actually, you know, when we – when the Benefit Payment Card came out of it and the Government pursued a different course of action, you know, that’s what it did.

But, you know, if you just look at this and – you know, I cannot pre-empt whatever the Inquiry comes up with, of what I know is public knowledge, with the problems with the Horizon programme, it rather suggests to me that, you know, when we make decisions, we need to be as sure as we possibly can be that if we’re putting computer systems in place, that they actually work. And the way things were with the Benefit Payment Card at this stage, I could not be certain of that.

Mr Beer: Thank you. Can we take that down from the screen, please, and return to the narrative.

You’ll remember we’ve been looking at your meeting with Ms Graham and others on 18 August 1998, and the discussion over giving as a reason or presenting as a reason for backing out of the contract, ICL being in breach of contract. Can we turn to paragraph 30 of your witness statement, please, which is on page 11. Thank you. 30 at the top. You say:

“By September 1998, ICL had missed the 12 August contractual deadline and the view of ministers was that ICL was in breach of contract; a claim that was disputed by ICL.”

You give references to each of those things.

“On 15 September … the Chief Secretary to the Treasury, Stephen Byers, wrote to ICL to inform them that Ministers had decided to allows a period of one month for discussion between the parties to see whether satisfactory commercial terms could be agreed for continuing the project and that a special advisor would be appointed to work with the parties towards finding a solution.”

That can come down. Thank you.

Now, you know, I think, that Graham Corbett was appointed as that special advisor or troubleshooter or honest broker.

Lord Alistair Darling: Yes, I know he was appointed, yes.

Mr Beer: Why was that period allowed and why was he appointed if, in your view, and the view of the DSS, was crystal clear as we’ve seen, that the Benefit Payment Card was not going to be a part of this programme going forwards?

Lord Alistair Darling: Because that was my view and, obviously, it follows it was the Department’s view. But, remember, on the other side, if you like, the DTI Post Office Counters Limited had a different view. They thought the thing was still salvageable and, equally, as I said to you in my evidence this morning, the Treasury would want to be satisfied that whatever you did represented, you know, good value for public money and spending, and also in relation to the costs.

And, you know, when I looked at all this material earlier in the summer, you know, I thought: well, you know, one criticism might be why did you take so long reach the decision? Because it was, you know, almost a year before we finally reached the decision. Part of it was that there were competing views within Government and, therefore, due process, if you like, had to be followed before we reached the decision. And, you know, the Corbett appointment was clearly another attempt to see what could be salvaged.

Mr Beer: Indeed, that has been a criticism that has been made by the others, with the suggestion that 1998 was “a lost year” in the programme, but your response to that is the one you’ve just given: namely there were competing principles and objectives at play, different interests that required to be served, and it took time to work through those?

Lord Alistair Darling: There was also a lot of change of personnel during the course of ‘98.

Mr Beer: The reasons for which I’m not going to explore with you.

Lord Alistair Darling: You know, but there were, as a matter of fact.

Mr Beer: Yes. Can we look, please, at BEIS00000284. Thank you. This is a letter from Mr Byers to Mr Todd, the CEO of ICL, dated 15 September and, effectively, puts to him the suggestion of the Corbett negotiation. Can we see in the first paragraph he says:

“As you know, Ministers have been reviewing the future of this project in view of the serious delays to the implementation timetable, and [ICL’s] failure to deliver a key contractual milestone for which [ICL] has been placed in breach of contract.”

That’s what you referred to earlier.

Lord Alistair Darling: Yes.

Mr Beer: In paragraph 2, second line:

“However, we have decided without prejudice to our legal rights … to allow a period of one month for discussion between the parties …”

Over the page, please:

“To facilitate this process, I am proposing to appoint an adviser to work with the parties towards finding a solution … His terms of reference are attached.”

Then this:

“To provide a satisfactory outcome, the conclusion of the discussions must meet a number of basic criteria …

“any adjustment to the contracts must of course be compatible with procurement law

“the contract must provide a firm date after which the Benefits Agency will have no further commitment to using the [BPC]. We anticipate that the Benefits Agency will wish to complete a transition to ACT-based payment methods by this date.”

You see there that this seems as if the proposal was being put to ICL Pathway on the basis that the Benefit Payment Card would be a part of the project – indeed, it was one of the basic criteria, as the letter describes it – but that, in future, there would be a date when you could transition out of its use and move to ACT.

Isn’t that a fundamentally different proposition to what had been agreed in your Department?

Lord Alistair Darling: Well, I’m reading it rather differently. You know, it doesn’t say it was going to – remember the Benefit Payment Card was a fundamental part of the contract that we’re talking about, you know, it was in there with the bricks, if you like. What I am – the way I read this is that you can already see that government thinking is shifting somewhat, in that you’re talking about the contract must provide an end date, if you like.

Now, you know, if you thought this was going to pursue – was going to run in perpetuity you wouldn’t put into something like that. What it’s doing is acknowledging the fact this has got a shorter shelf life than might have been thought and then it says, “We anticipate that the agency will wish to complete a transition to ACT by this date.”

In other words, it’s signalling an end to it. And, if you like, that really adds to my point: why on other would you produce a new card when you knew that you weren’t going to be using it for very long? Indeed, I think in the other correspondence that I’ve seen, and on other papers I’ve seen, the point is made on a number of occasions that, you know, in fact, John Denham raised it in his first letter – or second letter – that this was using technology which, you know, was looking increasingly like it was going to be out of date at the beginning of the following century. So I read it differently to the way you’re reading it.

Mr Beer: I understand. You read this as meaning that the BPC will have no part of the system?

Lord Alistair Darling: Well, what it – what it’s saying is, it’s there but it’s coming to an end. Now, if I was ICL, that’s the way I would read it. And that’s what I’m assuming that Stephen Byers was hinting at here. But, you remember I said there were divisions with the – due to competing views within Government. Remember we’re also dealing with a firm with its stated view was it was not in breach of contract but, you know, that doesn’t stop, you know, those of us in Government from thinking “Well, you know, what – how could we do this better?”

So what I’m reading here, in the way I read it is, this is – you begin to see the Government’s thinking is starting to change. Of course, you see a lot more of that by the time you go into 1999.

Mr Beer: Can we move forwards then. I’m not going to take you through the protracted interdepartmental correspondence of December 1998, largely because it was superseded by events, but there are just two letters I want to draw to your attention, if I may, and ask for your views on them.

Firstly a letter you wrote to Stephen Byers on 11 December 1998, BEIS0000417. Just to put this in context, because we have skipped forward a little bit, the context was that Adrian Montague had reported the Corbett negotiations had failed, the Government had invited ICL to make new proposals. ICL had made new proposals in a letter of 9 December 1998, which had been sent to you by Keith Todd, the chief executive of ICL, and you are offering your views on the Keith Todd letter, not back to Mr Todd but to Mr Buyers in the Treasury, yes?

Lord Alistair Darling: Yes.

Mr Beer: If we could just read it:

“Keith Todd has written to me with a copy of the letter he sent to you on Wednesday [that was the letter of 9 December] setting out ICL’s final offer in response to your letter of 20 November. I understand that this letter constitutes the essential components of the proposed offer, on which ICL are not prepared to move further; and that this letter is underpinned by 3 supporting papers on acceptance testing, funding and commercial proposals (ie pricing etc) on which they say they are willing to negotiate the detail.”

Scroll down, please.

“In preparation for our meeting on Monday, you and colleagues may find it helpful to have my initial response to the proposals as I understand them.”

I’m going to skip over the first one, which is the Fujitsu support for £600 million, to fund the project.

Lord Alistair Darling: Yes.

Mr Beer: Then if we can go to the second one over the page:

“[It] does not make any significant change to the 9 November proposals, which we rejected …”

Then the third one is the one I wanted to ask you about:

“On the specific conditions that the proposals seem to involve, I couldn’t agree to the proposed approach to ‘acceptance testing’. ICL persist in asking for acceptance on the basis of a laboratory test of the systems, as opposed to a live trial, particularly important when, for our customers it’s the service that is the crucial end product. In fact, the approach being suggested by ICL is almost exactly that followed under the NIRS2 two project, where the system was fully accepted in a test environment, but did not work in the field. I am not prepared to sign up to another NIRS2 experience. In any event, when we’re talking about a system which is affecting around 15 million people, many of whom are dependent on timely and accurate payment of their benefits for their livelihoods, the political risks are huge if the system is not tested properly beforehand to make sure it works. This is a risk I am not prepared to make.”

That’s essentially the point you were making about ten minutes ago.

Lord Alistair Darling: Yes.

Mr Beer: Your understanding was, therefore, that ICL were proposing to set out acceptance criteria that were related to a laboratory test of the system, as opposed to a live trial; is that right?

Lord Alistair Darling: Yes, I think my recollection is that they were proposing to test it in 300 post offices of a network, which I think then was 18 or 19,000. You know, I wasn’t prepared to accept that, on advice of my officials, I took that into consideration. Before you, you know, without labouring the point, you’re dealing with 15 million people here and you need to be pretty sure the system is going to work because, remember, if it doesn’t work, it’s no easy matter to suddenly start putting in place a manual payment system to help people who have basically run out of money.

So, no, I didn’t regard the acceptance testing programme they were suggesting because I thought it was far too risky and a risk I wasn’t prepared to take.

Mr Beer: Just on a point of detail here, you appear to be suggesting in this letter that it was a laboratory test of the system, not a live trial involving 300 or any number of hundred post offices on the ground. Was that your understanding at the time?

Lord Alistair Darling: It was a – well, it was a laboratory test, which, as we all know, is not the same thing as, you know, in the field.

Mr Beer: In any event, Ian McCartney MP, the Minister of State, effectively, for the Post Office, replied to what you said. Can we look at his reply, please. BEIS0000400. We see it’s a letter to you – sorry, a letter to Mr Byers.

Lord Alistair Darling: Yes.

Mr Beer: Commenting on your letter, essentially.

Lord Alistair Darling: Yes.

Mr Beer: We should just look at the top of the page to see it is from Mr McCartney.

Lord Alistair Darling: Yes, I see that.

Mr Beer: Then scroll down:

“I am grateful to Alistair Darling for copying to Peter Mandelson and myself his letter to you dated 11 December, in which he set out his initial reactions to ICL’s proposals. [He’s writing to you] in the following terms, as our own initial reactions differ substantially on a number of points.”

Essentially, this is letter and its three and a bit pages worth goes through, point by point, seeking to comment on or rebut some of the points that you make.

Lord Alistair Darling: Yes.

Mr Beer: If we look at the third paragraph, “Taking Alistair’s points in turn,” and then he commences.

Can we go over the page to the second page, and the middle paragraph, “Third, acceptance testing”, which is the point I’m asking you about.

Lord Alistair Darling: Yes.

Mr Beer: “Third, acceptance testing. Alistair states that ‘ICL persist in asking for acceptance on the basis of a laboratory test of the systems, as opposed to a live trial …’. We agree with him that this is a hugely important point. It would be unthinkable to sign off acceptance of the system until it has been on shown convincingly to work on a reasonable scale in a live environment. But Alistair is, we believe, mistaken – ICL are asking no such thing. The company have moved substantially from their 9 November position and have now conceded that acceptance will follow live trials based on the NR2 software release at 300 offices. More specifically, there are 24 separate components of the acceptance test procedure. Some do indeed involve elements of bench and/or model office testing but [underlined] all also include live trial in 300 offices. Beyond that, there is contractual provision for any significant fault not defined in the acceptance process, but which manifests itself during live trial, to be rectified before acceptance is signed off. Finally, the contracting parties can withhold the release authorisation for national rollout if they remain dissatisfied at the performance of the system during the live trial phase. Peter and I are not clear what further reassurance Alistair requires.”

So this letter is saying that you were wrong to be making the point about ICL being prepared to accept laboratory testing: there was going to be a live trial in 300 post offices. What was your reaction to the news or the suggestion that it was all okay, because there were going to be trials in 300 post offices?

Lord Alistair Darling: Much the same as my reaction I just discussed short while ago. 300 offices out of 19,000, it might expose difficulties but then it might not. Look I’m sorry I keep coming back to the point, you are dealing here – or would have been dealing here with a system that was paying out benefits to maybe 15 million people and, you know, the risks that it goes wrong – and remember, with everything we knew about the difficulties there’d been up until now, which are well documented and we’ve discussed extensively today, you are taking a huge risk. So no, it didn’t reassure me.

And, you know, I just thought, you know, let’s leave aside the principal points that I made earlier, that, in relation to the practicalities here, this didn’t look like it was going to work, or it was going to take a lot longer if it ever was going to work.

But I’ve made the point and I don’t want to repeat it again. You know, it might help you to know that, separately, sometime after that, you know, I remember one weekend the Child Benefit agency made a mistake – or its computer system made a mistake and, actually, it overpaid people quite a lot of money because, which we never got back because it’s very difficult to go back to people and say, “You were overpaid by, you know, £5, £6, £10 or something”, and ask for it back when people are on low incomes.

It’s – you know, the benefit system works, but if it goes wrong, it can go wrong – horribly wrong, and this was a brand new system, for all the reasons I’ve stated. It’s frankly what was being offered here did not satisfy me.

Mr Beer: Thank you. That can come down.

The second set of correspondence from the December ‘98 period, I would just like to look at, please, is BEIS0000418. A letter from Peter Mandelson, Secretary of State for Trade and Industry, to Stephen Byers, Chief Secretary to the Treasury. If we just go to the second page, foot of the page – just scroll down, please – we can see that you are one of the people copied.

Lord Alistair Darling: Yes.

Mr Beer: So back to the first page, please.

“I was disappointed that our meeting yesterday was again unable to reach a clear decision on the way forward … The continued uncertainty is becoming increasingly damaging for all parties concerned. As I see it, the choice is a straightforward one …”

I’m not going to look at the choices.

If we go to the second page, please. Mr Mandelson said:

“There is still some way to go to complete the Horizon project, but the basic development work has been thoroughly evaluated by independent experts who have pronounced it viable, robust and of a design which should accommodate future technological developments.”

To your knowledge, by December 1998, which independent experts had carried out an evaluation, a thorough evaluation, that came up with a pronouncement such as that?

Lord Alistair Darling: Well, looking at this again, I don’t know. Remember the Montague report had flagged up the difficulties inherent on a large complicated project like this, as well as mentioning some of the other difficulties, and also – I’m not sure if you’re coming to this, but on Friday night of this last week, the Inquiry sent me a paper which I’d not seen before, which listed endless problems with the thing. You know, really quite serious ones. So I don’t know, I’m not sure what Peter was referring to here, I really don’t.


Mr Beer: Did you agree at this stage with his apparent conviction that continuing with the Horizon solution for a payment card, plus front end banking, was the only sensible course?

Lord Alistair Darling: No, I didn’t agree with him, as is clear from all the correspondence that follows.

Mr Beer: Did you ever think that the DTI had got too close to ICL, even being captured by them to push their own agenda?

Lord Alistair Darling: No, I think the DTI, for reasons that I can understand, was concerned with the political problem it had in relation to trying to maintain a, you know, viable Post Office Network. The post office network was, and remains today, I think to a slightly lesser extent, a big political issue. You know, people like, you know – they like their post offices. And I think the problem was – and certainly if you look at the internal stuff which the Inquiry has sent me, which I’ve obviously not seen before, but, you know, in their dealings with ministers, it was clear that the DTI were very wedded to this.

So I can see why ministers, you know, wrote the letters that they did. I just took a different view from this and, you know, I’m sure we’ll get to that point but, at the end of the day, that – my argument won the day.

Mr Beer: Can we get to that point, then, and move to CBO00000058. We can see from the fax header, if we just go to the top, please, that this document appears to have been faxed on 23 April 1998.

Lord Alistair Darling: Yes.

Mr Beer: You will see that it’s a note to the Prime Minister. If we go to the third page, please, at the foot of the page, we can see that it’s from Alan Milburn and also dated 23 April 1998.

Lord Alistair Darling: ‘99.

Mr Beer: ‘99, sorry. We can see, if we just scroll up to 7, that the minute was copied to, amongst others, you.

Lord Alistair Darling: Yes.

Mr Beer: The minute has attached to it some lines to take if ICL withdrew from the project. Can we go to page 11 of the document, please, and if we scroll down, please. Is that readable to you? This is a photograph of a document from within the National Archive.

Lord Alistair Darling: Yes, I can read it. It’s a bit twisted at the top but I can read it.

Mr Beer: “Independent reviews of the Horizon project by external IT experts have all concluded (most recently this week) that [ICL] have failed and are failing to meet good industry practice in taking this project forward, both in their software development work and in their management of the process.”

Do you know what that’s a reference to? So the week of 23 April 1999, external IT experts concluding that ICL Pathway have failed and are failing to meet good industry practice?

Lord Alistair Darling: Well, look, I’m sorry, I don’t have all these papers immediately in front of me to be able to tell you what was concluded in the week before 23 April. But it fits with my recollection that we had a growing body of evidence that it wasn’t going to work and, you know, it comes back to what you asked me just a few moments ago, you know, whether I agreed or disagreed about another independent expert.

This recollection, or this statement in Alan Milburn’s memorandum accords with my recollection that, you know, the thing wasn’t working and, you know, we were rapidly reaching the end of the road.

Mr Beer: He lists over a series of eight or so bullet points –

Lord Alistair Darling: Yes, and I see the model office testing, for example, was delayed by two months.

Mr Beer: Yes, looking at them:

“all planned release dates have been missed …

“… Model Office Testing – was delayed by 2 months

“every release has been subject to reductions in … planned functionality

“… even when each release has gone live, there have been faults and problems which have resulted in the need for Pathway to reimburse DSS

“in the current trials, known problems have risen from 46 in November 1998 to 139 at the end of March 1999; and currently 146 have not been resolved

“… 16 million people should have by now been paid by the Benefit Payment Card. In fact only 30,000+ people are currently being paid [by that means]

“rollout of the system to 19,000 post offices should have been completed by the end of 1998. But only limited functionality is currently available in 204 post offices

“delays to the programme have already cost the Government’s over £200 [million] in savings they [or it] would have otherwise expected to make.”

These were the lines to take in the event that ICL backed out of the contract, terminated the contract. That’s a comprehensive list of failings there, isn’t it?

Lord Alistair Darling: It is and, you know, you were asking me earlier about, you know, about whether or not I was wise not to take the risk of rolling this out to 15 million people. It strikes me, looking at this, well, there you have it. There was an awful lot wrong with this. I could not, in all conscience, have agreed to the rollout of something like this. It would have been a disaster.

Mr Beer: Was there any discussion, given the Government was prepared to say this about ICL’s comprehensive failures, if ICL withdrew from the contract, that that ought to be taken into account in deciding whether to proceed with the contract at all?

Lord Alistair Darling: No, I don’t remember any discussion like this. Are you showing me – is this a line to take?

Mr Beer: Yes.

Lord Alistair Darling: Yes. It was very common in my experience, in all Government Departments I was in, for people to produce lines to take. I always treated them with, you know, a slightly degree of hesitation in what I would actually use but I don’t know where these lines to take came from. Certainly, if you were going to say this, I would want to be satisfied that, you know, that they’d been legalled, as they say. That’s not to say that what I’m seeing here is – you know, it accords with my recollection. Whether or not you’d want to say that in public, I don’t know.

But that’s – to the best of my recollection, this was not discussed and it wasn’t discussed with me as a line to take.

Mr Beer: Thank you. Can we go to paragraph 102 of your witness statement, please, which is on page 35. You say in 102, at the top of the page there:

“In a letter from the Prime Minister’s Principal Private Secretary dated 11 May 1999 the Prime Minister indicated that any solution should meet three key objectives: (a) conflict with the Post Office and the subpostmasters lobby should be avoided; (b) ICL’s whole future should not be put at risk; and (c) the Government should have a fully defensible position before the Public Accounts Committee.”

Can we just briefly look at that, please, CBO00000022_002 at 2, please. This is the document I think you’re referring to. If we go to the second page, please, and see that it’s signed off by the late Jeremy Heywood –

Lord Alistair Darling: It’s a readout from a meeting between the Prime Minister and the Chancellor.

Mr Beer: Yes.

Lord Alistair Darling: Yes.

Mr Beer: The Prime Minister said any solution should meet the three key political requirements, and they’re there set out:

“We did not want a huge political row, with the Post Office or the subpostmasters’ lobby claiming the entire rural network had been put in danger by the Government …”

The three requirements set out there, reflected in your witness statement, do not say anything as to the reliability or integrity of the system. Do you know why that wasn’t included as a requirement?

Lord Alistair Darling: No, I don’t. I mean, I wasn’t in this discussion, and I think the reference to these three points have been made earlier but, I mean, obviously, I don’t know who decided the terms of this readout or what was said. I just wasn’t there. It doesn’t alter anything I’ve said to you so far, though.

Mr Beer: Would you agree that the three key political requirements appear to be focused on how things might look from the outside?

Lord Alistair Darling: Yeah, well, that’s what Prime Ministers do, you know. They’ve got to look at what’s happening generally. You know, I’d regarded it just as a – it was a view in a meeting, but, you know, the end was different to that.

Mr Beer: Were you involved after it had been decided that the Benefits Agency’s BPC should be pulled from the project in any decision making as to the reconfiguration of the contract?

Lord Alistair Darling: No. That would have been done by, I assume, the DTI and, you know, the ICL. Certainly, you know, I say in my statement that, you know, there would have been tidy-up things, for example payments in respect of the Order Book Control System, which I think are referred into some of the papers that you’ve got, and also I would have seen stuff about how you do migrate to ACT. But, in terms of the renegotiation of the contract, remember this is a different contract. It was one between Post Office Counters Limited and ICL.

The DWP would not, I think, have been involved in it, and certainly I have asked, during the course of somehow getting these papers, “is there anything else?”

And I haven’t seen anything else, and it was certainly my recollection that we were not involved in that because, you know, we were out of it, you know, we’d reached the situation where the Benefit Payment Card was no longer part of this and, therefore, our locus had disappeared.

Mr Beer: Thank you. That document can come down.

Finally, Lord Darling, you were Secretary of State for Trade and Industry for 14 months between May 2006 and June 2007.

Lord Alistair Darling: Yes.

Mr Beer: As part of your role, I think you would have held overall responsibility for oversight of the Post Office?

Lord Alistair Darling: Yes, that’s right.

Mr Beer: Was there a Minister of State with specific responsibility for the Post Office in that time?

Lord Alistair Darling: There would probably have been but I’m afraid I have not seen any of the papers that I saw and I would not want to inadvertently name one of my former colleagues as being responsible if he or she wasn’t. But the way things work in all Government Departments is that the Secretary of State is in charge of everything but there are three or four junior ministers who take, you know, particular interest in – so there would have been. But I have not seen any papers at all in relation to my time. It is pure recollection that I have to go on when I’m talking to you today.

Mr Beer: Yes, I’m asking you these questions with that knowledge, and on a relatively light touch basis. Was there a Post Office Board, to your knowledge, at that time?

Lord Alistair Darling: Yes, there was because I used to have fairly regular meetings with the chairman of that board and, you know, from time to time, I think, the chief executive. And the main concern then was how did you maintain the Post Office Network? And that was becoming highly contentious at that time because, you know, I remember doing a lot of media about it. But – I’m sorry, I ought to say, for the sake of completeness, at that time they were also responsible for the Royal Mail, it was before it was privatised, and there were occasional discussions about that, usually Labour relations, rather than anything else.

Mr Beer: Did Government have a seat on the board at that time?

Lord Alistair Darling: I don’t think it did. That’s not to say it didn’t – wasn’t nominating people to the board but, again, I would need to see the papers that I saw and, better still, the actual papers I saw, before I can really answer your questions. I don’t want to mislead this Inquiry, but I do remember meeting the chair of the board on a regular basis.

Mr Beer: Can you remember who that was now?

Lord Alistair Darling: It was Allan Leighton, I think.

Mr Beer: Can you remember who the CEO was, the chief executive?

Lord Alistair Darling: I’m afraid I don’t.

Mr Beer: Does Alan Cook ring a bell?

Lord Alistair Darling: Yes, it does now you mentioned it.

Mr Beer: What’s your recollection of the extent of your contact with both men?

Lord Alistair Darling: Well, I used to meet them fairly regularly, that’s my recollection. And it was mainly to do, as I say, with the maintenance of the Post Office Network and one of these – it’s inevitable the way that – you know, that’s the way this agency works. Normally, with an agency like the Environment Agency, it has a budget, it has staff and it gets on with, you know, pursuing whatever the Government’s policy is. Or you get an agency that does things like the Benefits Agency did, or Jobcentre Plus, it’s got a particular task, it does it.

But this agency, the Post Office, is slightly different, in that a lot of its business depends on the government being willing to, for example, subsidise the Post Office Network. You know, it’s – what it does is heavily dependent on the decision, in other words, of third parties, not the actual board itself. Because the board is autonomous only to the extent that, for example, it maintained a Post Office Network. You know, a commercially-minded board might take a different view to that.

So it was really – and, you know, I think the board, to some extent, felt it was a victim, you know, that here they were, they were having to put up with the Government’s policy, and the Government’s policy was clear but it’s actually difficult to implement, which is why, at the time, we were looking at what can you do to put into post offices things other than postal services to make them attractive? You know, the ones that actually survive to this day are the ones who tend to have other businesses in there, which is getting them footfall, rather than the pure and simple Post Office function.

Mr Beer: Lord Darling, thank you very much –

Lord Alistair Darling: I just want to emphasise this point: if the Inquiry is interested in all this, I need to see these papers.

Mr Beer: Yes, we’re interested but not, in particular, in the period of – in which you held the office. It was more to take some general evidence from you –

Lord Alistair Darling: Sure.

Mr Beer: – as to the way in which oversight and supervision occurred at that time.

Lord Alistair Darling: Yes. Well, as I say to you, the Secretary of State for Trade and Industry clearly has oversight and, remember, as with a lot of things, the dispatch box risk, if you like, the political responsibility, would always be with the Secretary of State, no matter what the Post Office Board happened to be doing.

Mr Beer: Thank you. They are all of the questions I ask you at the moment. Other Core Participants have indicated an intention that they wish to ask some questions.

I don’t know whether that is going to be realised or not, but can I start with Mr Jacobs, whether he has any questions to ask.

Questioned by Mr Jacobs.

Mr Jacobs: There is one point that has just arisen.

Lord Darling, can you see and hear me?

Lord Alistair Darling: I can see you now.

Mr Jacobs: Thank you. You have said in your evidence that you had a growing body of evidence that shot that the system wasn’t going to work, and you’ve said there was an awful lot wrong with the system, and you couldn’t, in all conscience, have allowed it to roll out.

Then, when you were the Secretary of State for Trade and Industry from 2006 to 2007, you had overall responsibility for the Post Office. Were you aware, during any of this time, that 736 subpostmasters were being prosecuted as a result of the system from 2000 to 2015?

Lord Alistair Darling: No, I have no recollection of that but, as I said to Mr Beer earlier, if you want to pursue that, I need to see all the papers to be absolutely sure of it. But I think if – you mentioned 750 postmasters – I think I would have recalled that, had it been put in front of me.

Mr Jacobs: Do you remember Lord Arbuthnot – James Arbuthnot then, raising the matter in Parliament, which led to the appointment of Second Sight in 2012 to investigate on behalf of the MPs?

Lord Alistair Darling: No, I don’t.

Mr Jacobs: Okay, I just need to ask if I have any more questions to ask you. Thank you.

Lord Alistair Darling: Thank you very much. Thank you.

Mr Beer: In fact, I think that’s all of the questions that any Core Participant has indicated a wish to ask.

Thank you very much for coming to give evidence today, Lord Darling.

Lord Alistair Darling: Okay, thank you very much indeed.

Questioned by Sir Wyn Williams

Sir Wyn Williams: Lord Darling can I just follow up what Mr Beer was asking you about right at the end, and I’m conscious that you haven’t seen the papers, so I’m looking for general evidence, as opposed to specific evidence, if that’s a distinction proper to draw.

It’s the relationship between the minister and the board, and the impression you’ve just given me is that, ultimately, it was the minister who called the shots on what I might call any important issue relating to the direction that the Post Office should take; is that too general?

Lord Alistair Darling: It is a bit general. Ultimately, where, you know, the Secretary of State, therefore the Government, is ultimately responsible for whatever a board is doing but, in fact, you know, in a routine day-to-day basis the Post Office Board would take decisions as to how they thought – for example, in this case, how the business ought to develop, and so on. And, as for the day-to-day running, only the board could know about that.

There’s no way, unless someone brought a particular issue to a minister, would the government, as such, know that there was a particular issue that needed to be looked at. You know, in this case, the Post Office case, the government set up the board to run the Post Office. It clearly had an influence in what the network might look at – look like, because it could decide to intervene or not intervene to make the network larger, or smaller, and so on. But on day-to-day running, no, as you know the day-to-day running of the Jobcentre Plus, that does not come to ministers on a day-to-day basis –

Sir Wyn Williams: No, I think I followed that, really. I’m just trying to understand the difference between day-to-day operational running, which I fully accept would be a matter which the board would undertake normally, and where the Government would step in. Where’s the line, so to speak, if there is a line?

Lord Alistair Darling: I think the line is where, you know, if something was going wrong, or you are aware that there’s something that questions ought to be asked, then, you know, the Government would intervene then it’s difficult for me to lay down lines that would cover every eventuality of what might possibly happen, you know, because there are none. You know, it used to be said that the Government needs to know there’s not a whole lot contentious but, you know, that in itself is a bit general.

I’m sorry, I’m trying to be helpful here.

Sir Wyn Williams: No, no. I follow. It’s just that in –

Lord Alistair Darling: Let me put it this way, if I may: if something – if the board knew something was happening and that it thought that ministers ought to know about it, then that would be a good reason for the government to, you know, intervene or, at the very least, ask questions. But on a day-to-day basis, you know, the running of the network and how it operated, the Government would not – no one in the Government would necessarily be told about that. Because why else would you set up a board to run the Post Office network?

Sir Wyn Williams: So is this a fair summary: in terms of dictating policy issues as to how the Post Office should evolve, the government would take the lead. In terms of matters which might arise from day to day, then they would only reach the government if the board thought them appropriate for the government?

Lord Alistair Darling: Yes. I’m not aware of any mechanism where the government would routinely ask every month “Is there something that’s happened that we ought to know about?” The other way, of course, the government does become involved is if Members of Parliament raise issues in the House of Commons, in which case it’s entirely proper, you know, for the minister to ask the Department to find out what’s behind the question, if you like. But one of the things that – the day-to-day running of the post offices and how it was operating and, you know, decisions like, you know, this is a live issue for the Inquiry, prosecutions and stuff, would be taken by the board, I don’t think they would ever come to ministers.

Sir Wyn Williams: Okay. Just so that I can complete my picture, there’s the Post Office Board and there’s ministers, but there are civil servants with particular knowledge and/or expertise, shall we say –

Lord Alistair Darling: Yes.

Sir Wyn Williams: – in how the Post Office operates. What would their role be in this rather – well, what would their role be?

Lord Alistair Darling: Well, it’s largely undefined. Certainly, as a minister, you would expect your civil servants to be, you know, keeping in touch with me, not on the detail but what the issues are. But suspect the issues they would be keeping in touch with – I mentioned, you know, the Post Office, for example – if is if it’s obvious the network is starting to shrink in an uncontrolled sort of way, you’d expect your civil servants to be familiar with what’s being thought, and so on. But, you know, there isn’t, as far as I’m aware, or hasn’t been, a mechanism whereby a civil servant would be having, if you like, a supervisory board function and they would be every day, actually proactively going round saying, “What’s happening here? What’s happening here? Is there something we need to know about?” It’s not laid down anywhere, it really depends on the individuals, I think.

The decision as to whether or not to elevate something, if something has gone wrong, I would think you’d expect the board and/or its chair or its chief executive to say to ministers “You’d better have a look at this”. But there is no automatic mechanism that I’m aware of that would guarantee that something was happening, it would go straight to ministers. That’s as helpful as I can be, I think.

Sir Wyn Williams: All right. So that we’re both clear, you were speaking of your experience in 2006/2007, and that’s the extent of your knowledge as it relates to the Post Office?

Lord Alistair Darling: Based on my recollection –

Sir Wyn Williams: Yes, yes, sure –

Lord Alistair Darling: – without seeing the papers but my dealings with the Post Office, you know, at that time were really all about how big should the network be, because, you know, we were looking at ways to try to, you know, frankly make it a little bit more sustainable. But that’s an argument that’s still going on today.

Sir Wyn Williams: All right. Well, thank you very much, Lord Darling, for taking the time and trouble to make a very detailed witness statement and also to sit here for some hours answering very many questions. I’m obliged to you.

Lord Alistair Darling: Okay, thank you very much indeed. I appreciate it.

Mr Beer: Sir, can we break now for ten minutes for our next witness, Mr Kearns, that would make it 2.55.

Sir Wyn Williams: Fine, thanks.

Mr Beer: Thank you.

(2.45 pm)

(A short break)

(3.55 pm)

Mr Stevens: Sir, can you see and hear me?

Sir Wyn Williams: Yes, I can, thank you.

Mr Beer: The next witness is Mr Kearns.

Anthony Kearns

ANTHONY KEARNS (affirmed).

Sir Wyn Williams: Mr Kearns, can I thank you for agreeing to change the day on which you are giving evidence. That’s very helpful to the Inquiry.

Mr Stevens: Please can you stay your full name?

Anthony Kearns: Anthony Paul Kearns.

Mr Stevens: Mr Kearns, as you know, my name is Sam Stevens and I ask questions on behalf of the Inquiry and, again, thank you very much for giving your evidence both in writing and orally today. In front of you, you should have a witness statement, dated 12 October of this year, running to 8 pages. Could I ask you please to turn to page 7 of that statement. Is that your signature?

Anthony Kearns: It is.

Mr Stevens: Are the contents of your statement true to the best of your knowledge and belief?

Anthony Kearns: They are.

Mr Stevens: That statement now stands as evidence in the Inquiry. I’ll be asking you some questions today about both your and the CWU’s involvement in the issues that this Inquiry is looking at in Phase 2. I won’t be covering issues that it will look at later on in phases 4 and 5. I want to start with some background and, in your statement, you say you were employed as an assistant secretary of the CWU between late 1997 and early 2002; is that right?

Anthony Kearns: That’s correct.

Mr Stevens: Before you worked for the CWU, had you worked for the Post Office?

Anthony Kearns: I had.

Mr Stevens: What roles had you had?

Anthony Kearns: I was Post Office counter clerk.

Mr Stevens: What roles did you work in for the CWU itself, prior to becoming an assistant secretary?

Anthony Kearns: I was an elected member of the national executive council, still employed by the Post Office and but released from the duty to undertake union activity.

Mr Stevens: Immediately before becoming assistant secretary what was your role?

Anthony Kearns: I was a member of the national executive council, I was substituting for the then assistant secretary, who was substituting up, because the then general secretary, Alan Johnson, in May of that year, left the union as a general secretary to become MP.

Mr Stevens: You say you stopped being an assistant secretary in early 2002. Since then, what role have you had with the CWU?

Anthony Kearns: Since then, I’ve been the senior deputy general secretary.

Mr Stevens: Thank you. I want to ask you some questions about the CWU itself. Between 1995 and 2002, who within the Post Office did the CWU represent?

Anthony Kearns: Post Office Counters clerks at Crown Offices, people who worked in cash centres, who handled the cash that was then consequently distributed to Crown Offices and sub offices and administration staff who worked back office admin work.

Mr Stevens: When you say Crown Offices, do you mean branches of the Post Office run centrally by the Post Office itself?

Anthony Kearns: Crown Post Offices, yes.

Mr Stevens: Did the CWU represent any subpostmasters during this period?

Anthony Kearns: No.

Mr Stevens: Did the CWU represent any Post Office employees who were involved in carrying out audits of subpostmasters?

Anthony Kearns: From memory, I want to say yes, because part of the Post Office staffing complement were people whose duty it was to audit sub offices. From memory, I think a number of people on there might have been in those grades that we represented.

Mr Stevens: Did the CWU represent any Post Office employees that were involved in the prosecutorial function of the Post Office?

Anthony Kearns: Not as I recall, no.

Mr Stevens: Not as you recall, was that?

Please could we bring up a document, CWU00000089 and if we could turn to the second page. This is a letter from March 1997, it’s from Mena Rego at Post Office.

Anthony Kearns: Do we know where this is, in the bundle?

Mr Stevens: Sorry, you should be able to see it on the screen next to you.

Anthony Kearns: Sorry.

Mr Stevens: No problem at all. Just confirm, can you see that?

Anthony Kearns: I can.

Mr Stevens: Very good. It’s letter from Mena Rego to Ernie Dudley, who was the assistant secretary of the CWU at the time. Now, would you have seen this letter at the time?

Anthony Kearns: More than likely, yes.

Mr Stevens: In your witness statement, you say that, prior to May 1999, when a Horizon working group was started, the CWU didn’t have any direct involvement the Horizon project itself; is that correct?

Anthony Kearns: Yeah, that’s as I remember, yeah.

Mr Stevens: But what you did receive would have been letters such as this, updating the CWU on the progress of the project to date; is that right?

Anthony Kearns: Yes.

Mr Stevens: Did the CWU take any steps around this time to try to involve itself in the Horizon project, other than simply by receiving updates from the Post Office?

Anthony Kearns: What we would have done, because it was our normal way of working would be to ask the Post Office how that project and other projects would impact upon our members. So we would ask “Is it going to change the nature of work?” With regards to the Horizon project, given that we were moving from manual – what we’d call using the date stamp – to electronic processing, “Where were the terminals going to fit? What training would be given?” And we would take the opportunity to ask whether that was a reskilling opportunity to argue or ask for increased terms – better terms and conditions.

So we would respond by asking how it would affect – impact upon our members and then work out a strategy around that, how we would approach the Post Office.

Mr Stevens: Do you recall yourself being involved in any of those discussions?

Anthony Kearns: At the time when Ernie Dudley was the assistant secretary, if he felt the need, he would take either myself or other executive members along to meet, if he thought we would add value. I don’t recall being involved in meetings around ‘95/’96. I was his substitute, insofar as, if he was on leave or off sick, I would take over his role. So I would have been shared – I’d have seen copies of those letters at the time.

Mr Stevens: Can we please bring that letter back up and go to the third page?

Thank you, I’m just going to read for the recorded the first paragraph. It says:

“A trial of [the Order Book Control System] will begin from the end of April 1997 in 200 post offices in the North East and South wales and South West Regions. This will be followed by introduction of BPS to these offices in June and then in September AP and EPOS will be added. At this stage a further 100 outlets will be added to the trial. It is any at then that Branch Offices will be added as clearly it is only at this point that ECCO can be replaced by Horizon. A decision to roll out will be made in November following the full and detailed evaluation.”

So this is referring to a slow rollout of a few branches to trial the system. Do you agree that a live trial was important to test how Horizon would affect the working lives of those working in the post offices themselves?

Anthony Kearns: Yeah, I would agree that would be important.

Mr Stevens: When it refers to branch offices, is that referring to the Crown Office branches?

Anthony Kearns: Yes.

Mr Stevens: As for you, the Crown Office branches, that’s where the majority of your counter staff – members who were counter staff, would be working?

Anthony Kearns: Yes.

Mr Stevens: The reference to ECCO, could you just expand on what that is?

Anthony Kearns: That’s the name that was given to the system, the accounting system that was in before Horizon.

Mr Stevens: That was in Crown Office branches, was it?

Anthony Kearns: Yes.

Mr Stevens: The letter goes on to state, on the third paragraph:

“Again due to the fact that evaluation will not have been completed and a final decision on national rollout not made until November, only a limited number of Branch Offices will be included in this stream, principally to ensure completion of installation in discrete geographical areas. This is because – in the event of any teething problems with Horizon – we do not want to create disruption in our larger outlets which already use an automated system (ECCO) that has to be removed at the time of installing the Horizon system.”

That document can be taken down now, thank you.

Do you recall when Horizon was actually rolled out, which was later, when the first Crown Office branch was migrated?

Anthony Kearns: I’m afraid I don’t.

Mr Stevens: Did you have any concerns about this plan, that there would not be a significant number of Crown Office branches within a live trial and it would be mainly subpostmasters?

Anthony Kearns: No, I mean, from memory that wouldn’t have been our concern. Our concern would have been that it had been trialled and it worked and that the rollout was manageable in terms of the staff who would be, if you like, impacted by the rollout. So it wouldn’t have been whether we wanted it to be slower or quicker; it would have been that it could be managed properly and, you know, any changes within the offices were flagged up, because moving from one system to another, I mean health and safety issues, we’d want to make sure before they moved on to a further rollout that any teething problems, if you like, that our members had experienced that were relayed to us, we would have had time to, you know, pick them up represent them to the employer and get satisfactory answers.

Mr Stevens: If in this live trial, the vast majority were going to be subpostmasters, how would you have found out about those – or how did, I should say – how did the CWU go about finding out what the experience of those subpostmasters were?

Anthony Kearns: I think they were represented at the Horizon Working Group that the then newly-elected Labour Government had set up. Those issues were being represented, and we would have – how would you describe this? Not sort of formal communication with – so there was another trade union involved, the CMA, which is the Communication Managers Association, and when we were going to formal meetings, you know, you would have side conversations, you know, “What have you picked up?”

There were also – like, we were in I want to call continuing negotiation with the Post Office, as just part of our day job, terms and conditions, health and safety requirements, you know, normal day-to-day operations and, in those conversations, you would just generally ask “What’s happening with Horizon?” Outside of the formal set piece DTI negotiations or DTI set-up of the Horizon project group, we were almost in daily contact, on industrial relations level, with the Post Office and, depending which manager you were talking to, and whether you understood them to have any knowledge or involvement with the system, you would ask “How’s it going?” type of thing. So you would have picked that up.

In a formal sense, the issues we picked up – and I think I mentioned this in the statement – from some of the queries at the Horizon project group, particularly by the National Federation of SubPostmasters, about some of the issues that they’d identified, and I think, again, as I say in my statement, our questions would be “Are they being resolved before you roll this out, are they getting resolved?”

Mr Stevens: We’ll come to the Horizon Working Group in a moment. What I want to ask is, before you attended the working group formally, can you recall what level of knowledge you or the CWU had about any problems or issues in the Horizon software itself?

Anthony Kearns: Going back 20-odd years, I don’t, if I’m being honest.

Mr Stevens: Before we get to the working group, I want to just ask a couple of points, again, about the CWU’s interests. Before automation itself, if there were errors or discrepancies in accounts prepared by staff, presumably those discrepancies would be put down either to human error or possibly theft?

Anthony Kearns: Well, what would happen is you would have a very large double-sided sheet of paper, manual process, when you paid out to – benefits, pensions, green giros, you’d pay that out and make a note of those. You’d add all those up and, in one column, you would have how much cash you’d paid out and another column you’d have cash you’d received from people buying stamps, postal orders, as well in the day, cars – the vehicle licence stuff, and you’d balance those two things.

And I can’t remember at that particular point in time but it was a degree of tolerance that losses under a certain amount would be, for want of the a better phrase, they’d be recorded but wouldn’t be used against the individual for disciplinary purposes. But if those losses mounted up over a period of time or those losses were huge, so if you had big losses – if you lost a couple of hundred, £500, then there would be an investigation into where that money had gone.

If your losses were regularly £3/£4, they would, for want of a better phrase, be put aside, they’d be ignored. If you regularly posted losses or even gains of £10, £15, £20, they would be investigated because, in effect, it was evidence that, somewhere along the line, a job wasn’t being done properly.

Mr Stevens: That’s it. It’s either someone is not doing the job properly –

Anthony Kearns: Yes.

Mr Stevens: – or, more sinisterly, possibly theft?

Anthony Kearns: Yeah, and in round – my experience was, if losses were in round figures, £100, £500, £1,000 then, given that cash bundles were given to counter clerks to use as part of their day job in, you know, £100 and £500, the loss of a round large amount, in the Post Office’s eyes, and their own investigation division, my take was that they’d view that more likely to be theft than someone just not doing the job properly.

Mr Stevens: The CWU, presumably before automation, would represent its members if they were accused of substandard performance or misconduct?

Anthony Kearns: Yes.

Mr Stevens: I think, as you just evidenced, in order to do that, the CWU would need to have a good understanding of the working practices of counter staff?

Anthony Kearns: Yes.

Mr Stevens: At that stage, were the CWU aware of the Post Office prosecuting members of staff for suspected theft before automation?

Anthony Kearns: I was aware of that, I’ve dealt with – I’ve represented individuals who subsequently got prosecuted, yes. So yes.

Mr Stevens: The introduction of Horizon, it’s fair to say, would significantly change the way the counter staffs’ working lives would operate?

Anthony Kearns: Yes.

Mr Stevens: If the Horizon System could not reliably produce accounting data, and produced accounts that didn’t reflect the actual stock and cash in the branch itself, that would give rise or could create a suspicion of theft or incompetence on the part of post office counter staff; is that fair?

Anthony Kearns: That’s fair, yeah.

Mr Stevens: So, for that reason, was it important to the CWU to understand and be satisfied that the Horizon IT System would operate reliably and satisfactorily?

Anthony Kearns: To the extent that we would make representations to, you know, to seek assurances that the system they were introducing was capable of doing what they’d said it was going to do, yes.

Mr Stevens: I’d like now, then, to turn to the working group and this point on satisfactory working of the system. Could we, please, on the screen bring up your witness statement. It’s WITN06370100. If we could turn to page 3, please. Thank you.

You say in paragraph 9 that you attended the Horizon project working group alongside the general secretary Derek Hodgson. You were attending this together as a sort of joint project; is that right?

Anthony Kearns: Yeah, the general secretary would determine, as the lead of the Union, the general secretary, particularly when dealing with matters of government or matters of state, would determine himself who he would take along to assist him. I went to some of these meetings with him.

Mr Stevens: You say that the role was:

“… a) listen to and understand what the intentions of [Government] and POCL were with regard to the future of the Post Office Network and the Horizon project …”

Anthony Kearns: Mm-hm.

Mr Stevens: “… b) to determine what (if any) implications this would have on CWU members c) raise any points relevant to the same.”

Could we turn the page, please, and look at paragraph 11. There you say:

“From memory I do not recall that Horizon Working Group was tasked with examining nor reporting on the technical issues (faults) with the development of the system and as such I cannot recall if any specific questions on this issue were raised.”

Thank you.

I think that you do say in your statement you can recall the NFSP raising some concerns at some point?

Anthony Kearns: Yeah.

Mr Stevens: With that in mind, I want to look at some of those working group meetings now, and if we could start with the one on 8 June 1999. It’s NFSP00000026, and if we could start at page 2, please.

Thank you. As you see, it’s a note of a meeting from the Horizon working group on the 8 June. Derek Hodgson is in attendance but you are not.

Can I ask to turn to page 6 of this now, please. These are the terms of reference of the Horizon Working Group said to be agreed on 8 June 1999. Would you have seen these at the time?

Anthony Kearns: Probably.

Mr Stevens: The second bullet point states one of the roles is:

“to oversee, to contribute actively to, and to facilitate solutions where problems arise, the completion of the development phases of the Horizon project …”

It then goes on to refer to rollout and migration to ACT. So is it fair to say these terms of reference actually envisage that members of the working group would take an active role in relation to the development of Horizon itself?

Anthony Kearns: Um … I wouldn’t say so, no. I would say that they were there to understand what was happening with the development stage and have that fed back to Government, so as the Government, if need be – because there was friction, as I recall, between the Benefits Agency who wanted the introduction of a new automation, so they could, for want of a better phrase, reduce benefit fraud, and the Post Office, who wanted to introduce the automation because it thought it would give them a gateway to more government services and, therefore, grow the Post Office, or at least sustain the Post Office to where it was.

My understanding of that was that the discussions would go on between the parties, being the Post Office and the designers of the system, and any delays and the reasons for that would be reported back to that and, if you like, a plan would be drawn up about what progress could be made, what delays and how those issues were being resolved. From memory – I wasn’t at that meeting, but from memory, the sort of technical issues, like on what was going on with the system itself – and I don’t know if I remember being presented with, if you like, technical detail about how the system worked or didn’t work.

Mr Stevens: That can be taken down now, thank you, that document.

Senior members of the Post Office attended this working group along with members of the NFSP and the DTI. Was it not a good opportunity to raise and investigate problems so that they could be reported back to your members, problems with the Horizon IT System itself?

Anthony Kearns: Um… I think as I said earlier, what we would have done would have been to have listened to any delays and any issues that were being raised by the parties and seek assurances that they were going to be resolved. The reason I say that is because there’s actually nothing we could do as the CWU to, if you like, to fix those problems. That was – it was, from our position, it was almost – the Post Office had come to us and said, “We’re using this new automated system” and we were like “Are you sure it works?” I’m oversimplifying the conversation but we would be like “Are you sure it works?”


“Okay, well, the NFSP and we’ve heard that there are some problems.”

“We’re working the partners to make sure that those problems are resolved”, is my sort of general feeling for what was going on at the time.

Mr Stevens: Let’s move forward in the chronology to 22 June 1999 and the second Horizon working group meeting. Please can we bring up NFSP00000203. Turn to page 2, please?

This is a note of the meeting made by the DTI for the working group on 22 June, as I say, 1999, and which you were in attendance. Paragraph 2 states that:

“Ms Rego then presented an update for the Group on POCL’s negotiations with ICL. The terms of the letter of agreement on 24 May meant that the contract was now largely a ‘given’, and there was now a process of codification rather than negotiation.

“Mr Hodgson argued that in fact there had been a fundamental change to the situation – not least because this was now not a PFI project – so this should not be seen as just a matter of codification.”

Just stopping there, can you recall what point Mr Hodgson was trying to make on behalf of the CWU at that stage?

Anthony Kearns: Yeah, from memory, so when it was a PFI project, my understanding was the onus was on the developer. I might have got this wrong in the PFI, but the onus was on the developer, almost like to fund this, and then would, if you like, get the money back in future years. Because the project or the agreement between the Post Office, and I think it’s ICL Pathway we’re talking about now, but I’ll stand corrected if it wasn’t them, but the original agreement that changed to a new agreement, they renegotiated the terms of the agreement and, because it was no longer PFI, then the funding arrangement for the new system fundamentally altered.

And I think our concern was, from memory, that there was a lot more onus on the Post Office to push funds into the project, which, for our concern, would affect profitability and profitability would affect our ability to negotiate for better terms and conditions and higher wages. So there was a real concern about the financial viability of the Post Office around that for us and I think, from memory, that’s what Derek Hodgson was referring to.

Mr Stevens: So financial viability rather than the technical details of the project itself?

Anthony Kearns: That’s right my understanding.

Mr Stevens: Paragraph 4, I can summarise this but, essentially, Ms Rego discusses three emerging issues, firstly concerning technical acceptance, contractual acceptance, second regarding the spare technical capacity that may have been available now that the Benefits Agency had pulled out and, third, over the page, concerned the pace of rollout.

If you could turn the page, please, to look at paragraph 6, seemingly in response to that, Mr McCartney, the Minister of State, is noted to have said that:

“… the rollout issue was crucial; he was emphatically not prepared to accept getting away from the commitment to 2001. Slippage would make the wider discussions on government usage of the network impossible. If there were problems with software, training etc, then these should have been flagged up earlier and must now be resolved in a way that enabled the 2001 timetable to be recovered.”

I just want to pause there to now bring up another note of the same meeting and it’s NFSP00000471, please, and if we could turn to page 27. Thank you.

This is taken from the NFSP’s national executive council report, which was between 21 and 23 June 1999. At the bottom, you’ll see under the line, that a brief report filed by Mr Peberdy, on the Horizon Working Group meeting we’ve just been looking at. If we could ask to turn the page, please. The third paragraph down, he says:

“The subject of system faults was raised and the NFSP were given assurances that there would be software improvements to cure the present difficulties. The Federation were asked for more precise numbers of Subpostmasters who were experiencing difficulties as this information would assist them to provide us with the help we require.”

Then skipping the paragraph, it said:

“Roll would proceed as planned starting 23/25th August, reaching 300 per week by January 2000. There were some very serious issues still to confront, including training and systems difficulties, which must be ironed out, but there is no question of postponement or delay which would cost approximately £8 million per week.”

Thank you.

Now the DTI minute we looked at before this document didn’t have specific reference to the NFSP raising concerns. Can you recall, at this meeting, whether the NFSP raised concerns about the experience of their subpostmasters in the live trial that had been carried out to date?

Anthony Kearns: I’d be wrong to say I specifically remember that meeting 23 years ago. I’m not going to say I can remember that. Generally aware, at the time of issues being raised, about some, you know, technical issues in the trial period.

Mr Stevens: Could you expand on what you mean by “technical issues”? What was your understanding of the technical issues that were being reported by the NFSP?

Anthony Kearns: The system was difficult to understand and learn, and it didn’t, for want of a better phrase, from our language, balance – which is what myself as a counter clerk, when I worked on the Post Office, you’d have to balance your till once a week on a Wednesday night. And it was that – almost that was the measure of you, as an employee, about whether you were capable of doing the job.

So my understanding of “serious concerns” at the time would be around like whether it actually worked. So for want of a better phrase, when you pressed the button, whether it did what it was supposed to do. And when you balance at the end of the week, you know, it did the job properly.

Mr Stevens: And for the CWU’s point, how significant were those concerns, or how seriously did the CWU treat the concerns raised by the NFSP?

Anthony Kearns: To the extent that we would understand them at the time, we would look to the Post Office to seek assurances that these issues were being resolved.

Mr Stevens: Thank you. That document can be taken down.

Let’s move to 7 July 1999. It was another Horizon working group meeting. You weren’t in attendance at this one, but I want to start first with a report that the Post Office filed in anticipation of it. It’s NFSP00000226. If we could turn to page 2 of that report, please.

Do you recall seeing this report?

Anthony Kearns: I don’t recall, no.

Mr Stevens: Would it have been something you would have seen, do you think?

Anthony Kearns: Probably.

Mr Stevens: If we can turn over the page to page 3, and for the record, under “Training and Support”, the paragraph there states that:

“The current Live Trial is revealing a number of important lessons which are being addressed for [National Rollout Plan]. Improvements in training, procedures and software which will give greater confidence in the service provided and support the achievement of the [National Rollout Plan] are being introduced. These are geared to reducing/curing the earlier problems of Wednesday cash balances that have been highlighted in the trial offices.”

And then if we could turn the page, please, to page 4. Under “Acceptance Tests” it says:

“Contractually, ICL need to have fewer than 20 medium incidents and no high incidents in order for the system to pass Acceptance and claim £68 million. At the moment there are 15 medium category incidents and 2 highs. We anticipate 6 more mediums merging but work is also going on to clear or reduce all incidents.”

Now, do you recall at the time when – so this is early June – sorry, early July 1999, did you, at the CWU, have an understanding of what the Acceptance Incidents were?

Anthony Kearns: No. My understanding at the time was that it was a contractual arrangement between POCL and ICL Pathway, because when I referred to earlier about the change in the nature of the contract between the parties, and I said it would be in PFI, it was then – money would be paid over a period of time for usage of the system. But my understanding of that was that the POCL was sort of introducing – I want to say something like penalty clauses, but they say well if it fails, like incidences, they wouldn’t. That’s why they talk about claiming the 68 million. That was my recollection of it.

Mr Stevens: Is it fair to say this: that in early July 1999 the CWU were aware that there was significant problems with the Horizon IT System and the software that it was based on?

Anthony Kearns: We were aware there were problems because we weren’t involved the trial. To what we would class them as significant at the time, I wouldn’t be prepared to, from memory, to state that specifically, if I’m being honest.

Mr Stevens: If this report was raising problems, what questions were the CWU asking the Post Office to satisfy itself, or to understand how significant those problems actually were?

Anthony Kearns: I mean that is, if you like, it would have been our day job, would be to ask: “What are we talking about here? How big are these problems? What are these problems? How are they being resolved? Who’s resolving them?” And what reassurance are we getting that by the time we get to rollout for our members, these problems will have been dealt with?”

Mr Stevens: Let’s look at the meeting that report was made for. It’s NFSP00000200. If we could look to page 2, please.

So 7 July 1999 Derek Hodgson is in attendance but you are not. Paragraph 2 of the minutes refers to Mr Sweetman’s report on the negotiations with ICL:

“… further to POCL’s paper, which had been previously circulated to group members.”

At paragraph 4 it says:

“On acceptance testing, Mr Miller said that work was going ahead with ICL to a pre-agreed programme. Mr Peberdy asked what defined a ‘high’ category incident. Mr Miller said this would be one which threatened progress within the project within the agreed timescale. He did not think there would be major problems. Mr Hodgson emphasised the need for regular progress reports.”

Now, do you at all recall whether Mr Hodgson reported back to you on the outcome of this meeting?

Anthony Kearns: My feel for this is that when these minutes and these notes were produced, they would have been given to me. I don’t specifically remember him coming back from a meeting and asking to speak to me and talk me through all them. I don’t recall that specifically. And the reason I say that is because the other name down against the CWU, Matthew Paynton, was a member of our research department. And I think in the bundle he has produced other – he has produced reports that are contained in the bundle.

So what the way we operated was, the senior negotiator – in this case the general secretary – would go to the meeting with someone from the research department who would take notes, who would come back, and we would write up our own note and then wait for those notes, and then they would be given to me.

Mr Stevens: So at this point, the CWU are aware of problems. Mr Hodgson is saying there’s a need for regular progress reports, and I think your evidence earlier was that it would be your job to keep asking questions of the Post Office and essentially keep track of these problems?

Anthony Kearns: Yes.

Mr Stevens: Is that fair?

Anthony Kearns: That would be our role, yeah.

Mr Stevens: Can we then look at 27 July 1999. It’s NFSP00000006. So we can see on the attendance list that both Derek Hodgson and yourself attended this meeting on 27 July 1999. At paragraph 2, it says that:

“Mr Sweetman reported that discussions with ICL had gone well since the last meeting”, and went on to discuss about signing the contract.

Paragraph 4 refers to Mr Hodgson noting that there had been a number of major events since the last working group meeting, refers to a Select Committee hearing, House of Commons debates, and on the Post Office White Paper, “and suggested that the transcripts and Hansard extracts he examined for points that would be of interest to the group.”

The minutes don’t appear to reflect any discussion on system faults or problems with training. Is that accurate? Was there no discussion on those points at this meeting?

Anthony Kearns: I don’t recall, if I’m being – I don’t recall.

Mr Stevens: Do you think there should have been a discussion on this, on system faults and training issues?

Anthony Kearns: I mean, I’m trying to guess back 23 years here. The agenda would have been – my understanding is that these agendas were agreed in advance.

Mr Stevens: Can you help: what were the CWU doing at this point to keep track of those – so from in July specifically, 1999 – to keep track of the problems that had been raised by Post Office and whether they were being satisfactorily resolved?

Anthony Kearns: I mean, as I said earlier, it’s difficult, from memory, to say exactly what was going on 23 years ago, but we would have – outside of those big meetings with the DTI, we’d have regular meetings. And when I say regular, every day or every other day, with various Post Office departments around issues that were affecting our members. Sometimes Derek Hodgson would attend, sometimes I would attend. Sometimes we’d devolve those to NEC members, and we would constantly be raising issues that we thought were going to affect our members.

In terms of specifics, did we ask at a particular meeting a particular question, I genuinely don’t recall when that would have been raised.

Mr Stevens: I’d like to go to the next meeting in the chronology for the working group. It’s quite a jump. It’s to 11 October 1999 and the reference is NFSP00000066, and if we could turn to page 4, please.

The attendance list has both you and Derek Hodgson in attendance for this 11 October meeting. Paragraph 3 of the minutes, Mr Hodgson complained essentially how delayed this meeting had been since the last one. Other than the evidence you’ve already given about general conversations, do you have any specific recollection, between July and October 1999, of meetings you attended where issues relating to the Horizon software system were discussed with Post Office or anyone else?

Anthony Kearns: I don’t recall.

Mr Stevens: Can we turn to page 5, paragraph 5, please. Thank you.

This says:

“Mr Miller [from the Post Office] explained that formal acceptance of the reconfigured Horizon System planned for 18 August had been postponed because of POCL’s concern about training, system stability, data integrity (there had been an unacceptably high level of screen freezes) and the effective operation of the help desk. The Post Office had accepted the system on 24 September on the basis that effective remedial action had either been completed or was in hand.”

Now, at this stage, do you have any recollection of what problems were facing the Horizon IT System? Does this note assist you at all?

Anthony Kearns: The issue around the helpdesk stands out because part of the discussion we had was well, if the system doesn’t work, who do you go to? And they were setting up a helpdesk and our understanding was that access to that helpdesk wasn’t as good as it was intended. And I think what springs to mind to me, from this, from David Miller’s comments, is the fact that – which I’ve said in my statement a number of times – we were never being asked to sign this off. We were never being asked do agree that this system was fit for purpose? We were being told that various – through various methods that there had been, if you like, issues flagged up of the type mentioned in this paragraph, but they were being resolved between the interested parties who were developing the system. And the assurance given to us is that by the time we got around rollout, this would work.

Mr Stevens: You said that a few times. You said “the assurance”. How did the Post Office assure you that these matters were in hand?

Anthony Kearns: Through statements like this: that they’d sat down with the parties concerned who were developing the IT, and that they’d resolved these issues. Or they would be, I think as David Miller says here, they would be resolved.

Mr Stevens: Was this a case of Mr Miller would sit down and say, “These issues will be resolved”? Do you recall whether either yourself or Mr Hodgson tested those statements by questioning them or otherwise?

Anthony Kearns: I mean not specifically, no. I don’t remember ever asking that specific question.

Mr Stevens: I want to look at two specific things that Mr Miller says here. Can we just bring that document back up, please. Just over the page, I think. Thank you very much. Paragraph 5 again.

It says:

“System stability”– so two of the problems:

“System stability, data integrity (there had been an unacceptably high level of screen freeze) …”

And at this point, did you have any knowledge that the Post Office were not satisfied that Horizon could reliably generate or reliably balance the cash account?

Anthony Kearns: I’d have to say specifically, no, I don’t – I didn’t know that that was their specific concern.

Mr Stevens: When you see the words “data integrity” raised as one of the problems, what does that mean to you? Or what would it have meant to you?

Anthony Kearns: I mean, part of my role as Head of Finance of the CWU and Head of Membership Records is that the data on the system can be relied upon. Ie that it is accurate, that it can produce for you what you want it to produce. And if there’s no integrity around the data, then the end product is not likely to be what you want it to be. So to me, that would be a failing of the system.

Mr Stevens: Now the Horizon working group continues, but I think a lot of the minutes go to issues such as the Government Gateway and how Horizon could be used. One of the things here you said is you sought assurances from the Post Office that these matters would be fixed. Following the 11 October meeting, what did the CWU do to see that these issues were actually resolved, starting with the helpdesk?

Anthony Kearns: I think I come back to that point, if I can explain it this way – and again, I keep apologising for this, but I’m going back 23 years. If I go back to the substantive point I make is we were never asked to approve the system, yeah? So for want of a better phrase we were told “This system’s coming in”, yeah? We want to make sure our members are trained properly, we want to ensure that it can be fitted under the counters because it was new machinery. We wanted to understand how it’s going to affect the day-to-day operation for our members on the counter. And then we would pick up, through this, through some of the questions raised particularly by the NFSP, that there were problems at the development and trial stage. And again, I can only answer this the way I’d answered previously: you would see from Derek Hodgson, you know, expressing concerns, would be: are these issues going to be resolved before you roll this out to our members?

And, you know, we were given the assurances that you sort of see in these minutes that they would be. But for want of a better phrase, we were never asked to get under the bonnet and have a look at the mechanics to satisfy ourselves that it would work. This was – I’m going back to the previous Government – this was a decision made that this was going to happen, and the contractual arrangements between the parties were we were being told, as a working tool, and as a kit, that our members would work. By the time it arrived, it would be fit for purpose.

Mr Stevens: I suppose that’s my question. Once it did arrive, what did the CWU do to – for example, did you take feedback from your members as to how the Horizon System was working?

Anthony Kearns: So if the Horizon System wasn’t working, that would be – I mean, this talks about the helpdesk – my understanding at the time. And this was a sort of transition period now, because the rollout sort of took place when I was leaving that role and somebody else was coming in, who I think is going to be a witness further down the line.

So the way of dealing with those issues would be a number – I mean, if there was a widespread system failure, we would get to, you know, we would get to know about it. And if – and I specifically remember stuff about the helpdesk; people saying they couldn’t access the helpdesk, and that was no use to them.

And then what it would show up, going back to the previous comments I made about balancing on a Wednesday – it talks about balancing on a Wednesday – would be people saying, you know, “I’ve been able to balance for years, now my till doesn’t balance”, and we would represent those as an individual.

So we had a structure of – I want to call them field reps. So some offices had their own office rep who would deal with some of the stuff, and then there would be what most people call a regional rep. We call it the system district organiser.

Mr Stevens: Sorry, could you repeat that?

Anthony Kearns: So the complaints, for want of a better phrase, would feed up through that system. So in the first instance, if there was an office rep, the office rep would try and deal with any problems that an individual member would come to them with. If they couldn’t, or if there was a few offices who had those problems, they would go to the regional rep.

Mr Stevens: If you could slow down slightly. Sorry.

Anthony Kearns: Sorry.

Mr Stevens: Don’t worry.

Anthony Kearns: So if there were problems, they wouldn’t automatically go back straight to the headquarters. There’s, if you like, a system of – a structure of reps, representative structures. Local rep, union rep, sort of area rep, citywide rep, and then a north – so, you know, I was an office rep, then I became the Liverpool rep, then I became the northwest rep, then I got made the national executive rep for the council. And any problems that were, if you like, at the coalface, for want of a better phrase, there would be a recognised system of how they would be dealt with, by formal agreement with the Post Office.

So, you know, if somebody was what we called suffering losses and gains – ie a poor balancing record – then there was a system for that to be dealt with, which would start at the local level. So the point I’m making is not if there were problems, they wouldn’t automatically just come to us at headquarters. If there were widespread problems across the whole country and they were continued and, you know, not necessarily being resolved to the satisfaction of the local reps, then they would represent those problems to us.

Mr Stevens: In the rollout period, so 2000/2001, do you recall having feedback given to you about your members not being able to balance, and then taking that up with the Post Office as a system problem?

Anthony Kearns: I don’t recall me specifically raising a national problem with them that there was a widespread system problem. I do recall, because part of my role was to travel around the country and speak to local branches for me to say – apart from, you know, “What do you want on wages, you know, reduced hours, how’s the job going?” type of stuff – when I’d meet local reps, is people saying, “We’re getting more complaints about people not balancing.”

But more often than not, they’d try to deal with those at a local level. Because we had in place a system whereby – I can’t – I’m trying to remember specifically at the time, if you had so many – I think I tried to explain this earlier – if you had so many losses in a period of months, that could then lead to the – so you’d get a warning, yeah? So the boss would – the manager in the office would say, you know, “You’re not balancing. What’s going on? Any problems?” So on and so forth. Try and resolve it on a first-base level.

But there was written down procedures that would say if you’ve suffered so many losses over a certain amount in a certain period, then that could potentially lead to – so you’d be called to explain why you think that’s happening. That could lead to disciplinary action.

Because of that sort of structure of dealing with that on a local level, it’s quite possible that those problems could be perceived to be resolved at a local level through negotiations or representing people in, if you like, fact-finding interviews or disciplinary hearings. So not all of those issues would, if you like, for want of a better phase, be dumped on to the CWU headquarters.

Mr Stevens: The things you learnt during attending the working group, including, for example, the October meeting when there was an issue raised with data integrity, you were at that meeting and Derek Hodgson was at the meeting from the CWU – did you pass that information on to others within the union?

Anthony Kearns: So what we used to do at the time, we would hold regular meetings at the executive – I think there’s some examples of letters we received in the bundle where we’d put a document to our executive to explain updates, if you like. What we used to do, as a union at the time, was each department – and I was the head of that department that dealt with those issues – we’d produce an annual report which would explain to our branches and our members that this is the work we’ve carried out in the last year. We’d reproduce letters we’d see from employers. We’d reproduce, if you like, significant issues that had arisen during the year that we’d dealt with. So that would be –

We also had another system which is called Letter to Branches which is we’d regularly, if we’d got significant updates from the employer on major issues, would issue letters to branches to explain to them what we’d been doing. And so if there were any significant issues, that was the vehicle for sending them out to our local reps, for want of a better phrase.

Mr Stevens: So when the Inquiry is then looking at how information was passed down through the CWU, we should look at the annual reports, I think it was the first one, and the second one was the letter to branches?

Anthony Kearns: Yeah, we’d have to go to our archive and –

Mr Stevens: I think you said in your evidence earlier that when you attended local offices, there were people reporting problems with balancing. In your mind, because you knew, in October and before 1999, about problems with the system, and you’d sought assurances that they would be resolved, and you moved to when it’s being rolled out, you have numerous reports of people struggling to balance, did you not think at that stage that the system problems may not have been resolved?

Anthony Kearns: The problem with me saying yes to that is my experience of going round to local branches, and what I’m getting told is anecdotal, this is not – you know, you would go to a branch meeting, talk to the staff, talk to the staff reps. You know, I’d give a report on pay negotiations or terms and conditions negotiations or – you know, the big issue that was going on at the time with the Post Office, which this was designed to resolve, was, from our point of view, the number of Crown Offices where – that the Post Office embarked upon a programme of franchising Crown Offices out. So selling them off, from our perspective, because the Post Office believed that was a cheaper and more efficient way of doing it – to which we objected.

And they were the big issues of closing offices down, a programme of wanting to close offices down. The idea of the Horizon Project was new technology would give the Post Office access to more government services and, therefore, prolong the life of the Post Office itself.

So I would go to local meetings and, if you like, give that information to people, and then go “Right, well, what are your problems?”

The problem with people saying to me, “You know, I’m having problems with Horizon, the system doesn’t balance” – the problem with that is people not balancing, like, didn’t just begin on the day Horizon came in. There’s always been occasions when people didn’t balance. So it wouldn’t necessarily be identifiable to us, or to me as an individual, that the problems we were experiencing were directly because of the Horizon System, other than people saying to me, “I’ve always balanced and now I’m not. There’s something wrong with this system”, which, when we would have meetings with the Post Office, we would talk to them about what had they done, the assurance we’d sought when we were at the DTI, asking them, you know, “Are these problems being resolved?” That would be our approach.

Mr Stevens: So in 2000/2001, what was your view of the Horizon IT System? Did you think it was fit for purpose?

Anthony Kearns: I mean, looking back on it, um, there were definitely more reports to me of people not balancing. There were definitely reports of the Horizon helpline not working properly and people being able to, you know, access that for assistance. So you could call it teething problems or you could call it the system failing, but we would represent that to the Post Office and say, you know, we’ve got more people who appear to be having problems operating the system.

Mr Stevens: The Inquiry has heard evidence that the Post Office investigated employees for theft, based on Horizon, in 2000, which subsequently led to successful prosecutions. Was the CWU aware of those prosecutions in 2000?

Anthony Kearns: I don’t recall, as the lead CWU rep on this, I don’t recall any of our members being subject to that process. I don’t recall.

Mr Stevens: And sorry, just going back in the timeline a little bit, one further point on the Horizon working group. It’s been suggested to other witnesses that at the time the Horizon working group was in play, so the summer of 1999 onwards, that the Post Office was simply committed to automation and Horizon at any cost, really, and not considering whether it was fit for purpose. What would you say to that?

Anthony Kearns: Generally that – yeah, I’d probably agree with that. So it was sold on the basis of the Benefits Agency wanted – so the previous Government – I don’t want to get political here, but the previous Government set its stall out on reducing benefit fraud, yeah? And the Benefits Agency wanted to work with the Post Office to eliminate benefit fraud, on the one hand. On the other hand, there was a real concern about the future of the Post Office Network, because what the Benefits Agency was doing was new benefit claimants – pensioners, Child Benefit anybody – were going to use ACT, Automatic Credit Transfer. So instead of having the option to, in those days, have a book – there was a book with leaves you ripped out, and handed those over and got cash for – inefficient, Benefits Agency claimed costly, open to fraud. So they said, “We need a new automated system. So what we’re going to do is we’re going to pay everyone benefits, wherever they were, straight into a bank account. Automatic Credit Transfer.”

And then, of course, for us and the Post Office, that was like business not going into the post offices but going to banks. So what the Post Office wanted to do was to try and work with the Benefits Agency to find a system where people could still use the Post Office, but that risk of benefit fraud would be reduced, and then to try to work with the other Government departments for any Government work. And if you had a proper integrated IT or automated system, the Post Office would be the go-to for any Government services that the public could access. And that was the whole idea of the concept of it, under the previous administration.

When the new administration came in – and I think we’ve seen that in the minutes – my recollection was there was certainly a tolerance of delays to introducing the system. But then there became a point where this has to happen, we need to get on with it. And partly because the Benefits Agency, from my recollection, was – I’ll use my language – getting fed up with the delays because they were sort of like, “We need this because we need to cut down on benefit fraud and there’s been delays to the contract, there’s been delays to it being implemented, and therefore there’s delays to us cutting down on benefit fraud.”

We wanted it. I’m not saying we didn’t want it, but we wanted it because there was a real, for want of a better phrase, a real fight for the future of the Post Office. Because if – I mean, the Government work and Benefit Agency work – from memory I’m talking about maybe 50 per cent of the work that was undertaken – if you take out 50 per cent of the work, from the trade union’s point of view, it’s 50 per cent of the jobs going, which is not something we wanted.

So to me, there was a rush to get it done, and once we’d identified this – my take on it, looking back, was there a rush to get it in. I’m not saying people didn’t try and resolve problems. There was a rush to get it in, and they’d decided that this was the system, from whatever beauty parade they’d undertook to identify the provider, and once they’d decided on the system, that was it. All roads led to Rome, and that was the road they were going down.

Mr Stevens: Thank you.

Sir, I have no further questions. I see we’ve been an hour. I think we only have one further set of questions from Howe+Co. Would you be content to take those now, and then have a short break, and then come back for this is questions?

Mr Jacobs: Sir, perhaps if it assists, I don’t have any questions to ask of this witness.

Ms Page: On the other hand, something has come up during Mr Kearns’ evidence which I would like to ask about, if I may.

Mr Stevens: Sir, if we can take a break for ten minutes I’d be grateful. We can discuss the question which may be put.

Sir Wyn Williams: Well, let’s have Mr Kearns.

Mr Kearns, would you prefer just to go through and finish, or would you want a break?

Anthony Kearns: I’ll just go through and finish. I’ll be fine.

Sir Wyn Williams: And if Ms Page asks you a question that Mr Stevens or I think shouldn’t be asked, we will intervene, but otherwise we’ll carry on, all right?

Questioned by Ms Page

Ms Page: Thank you very much, sir.

Mr Kearns, one of those that I represent was a Crown Office employee, and she was prosecuted – her prosecution began in 2001. I was interested to hear that you talked about a loss and gains policy, presumably should have been in place at that time. And that should have been for all Crown Office employees, should it? Not just those who were members of your union?

Anthony Kearns: That should have been for all, yeah. I would describe that as part of my contract of employment. So you sign your contract of employment, saying “These are your terms and conditions, hours per week, money getting paid.”

And so there used to be a bundle of documents, Post Office Rules and, from memory, your contract of employment said “These are your terms”, ie where you’re working and how long for and what you’re getting, in terms of remuneration “but you are subject to Post Office rules, which are conduct, sick absence, if you worked on a counter, losses and gains”. They wouldn’t just be specific to CWU members, they would be for all staff working on the front –

Ms Page: Part of the terms, yes.

Anthony Kearns: My recollection, yes.

Ms Page: So anyone who experienced losses or gains should have really had their process – and Ms Felstead should have had her process dealt with through that policy?

Anthony Kearns: Yeah, that’s my recollection, yes.

Ms Page: What would that have entailed? Would that have entailed informal interview before anything formal and prosecutorial?

Anthony Kearns: My recollection is that would depend on how you’d arrived at that point. So this is the point I made earlier: if you’d had a series of, you know – if every week you were mis-balancing by £5, £6, £7, one way or the other, losses or gains, then to the employer that signifies – “Oh, that’s only £5 or £6, £7, what does it matter?” But to the employer what that signifies is errors, ie you’re making errors, somewhere, you’re continually making errors along the line, if you’re continually making errors in your job, you’re not fit to do your job, so they would start a process.

If there were large losses – and I don’t know the case, don’t need to the case – if there were large losses – so I dealt with one where the guy. I was the rep but he was working on a counter – who lost £500, yeah? Straight £500. The Post Office investigation division came straight in because they would be, in their minds – and I’m not saying we agreed or disagreed with them – but in their minds, they would go “Oh, £500 sounds a bit more than someone just making an error, sounds a bit like theft”.

So they would come in and their first stage of interview there would probably be with the Post Office Investigation Branch, POIB, as it was then – Investigation Branch, it’s changed its name to something else now. So they would come in first off, and go “We want to have an interview with you because we think you might have stolen 500 quid”, that would be the first place.

If it was a series of small losses there would be, from my recollection, fact-finding interviews, you would usually get a notice then to say, if you have – and I’m, again from recollection – you would then be told “If you have so many losses amounting to the value of X or other, in a three or six-month period, then we’re going to take disciplinary action against you”.

So it would depend on the loss and over what period that the Post Office would call in the – their ID.

Ms Page: I see. Thank you.

Questioned by Sir Wyn Williams

Sir Wyn Williams: Just so I’ve got this straight, Mr Kearns, was this policy back in, shall we say, 1996/97, before the rollout of Horizon, was that written down anywhere or was it just understood, shall we say?

Anthony Kearns: No, it would have been written down because I can remember –

Sir Wyn Williams: Right –

Anthony Kearns: I can remember representing individuals with that policy in my hand and –

Sir Wyn Williams: There’s no possibility the CWU still has it somebody where in its archives, is there?

Anthony Kearns: Possibly.

Sir Wyn Williams: Well, if you’d be good enough to have a look, I’d be very grateful.

Anthony Kearns: I will do, sir.

Sir Wyn Williams: Thank you. Anything else, anyone?

Mr Stevens: No, sir that’s everything for today.

Sir Wyn Williams: Fine.

Thank you very much, Mr Kearns, for coming to give a witness statement and coming to give evidence. I’m grateful to you.

Anthony Kearns: Thank you, sir.

Mr Stevens: Thank you, sir.

We return tomorrow with Colin Baker and Sir Ian McCartney.

Sir Wyn Williams: Fine, all right. Thank you very much.

Mr Stevens: Thank you.

(4.04 pm)

(The hearing adjourned until 10.00 am the following day)