Official hearing page

1 December 2022 – Ian McCartney, Alan Johnson and Geoffrey Mulgan

Hide video Show video

(09.25 am)

Sir Ian McCartney

SIR IAN MCCARTNEY (continued).

Questioned by Mr Blake (continued)

Mr Blake: Good morning, sir.

Good morning, Sir Ian.

Sir Ian McCartney: Good morning.

Good morning, Sir Wyn.

Sir Wyn Williams: Good morning to you too.

Mr Blake: Thank you very much, we’ll resume where we left yesterday afternoon, if that’s okay.

Sir Ian McCartney: Yes.

Mr Blake: Thank you. So just a reminder in terms of where we are on timings and dates, we spoke yesterday about the Benefits Agency wanting more model office testing and end-to-end testing. The benefits card system was cancelled in May 1999.

In the same month, May 1999, operational live trials began with regards to the Horizon System in a small number of post offices. The Horizon System hadn’t at that stage yet been accepted. On 22 June 1999 your Working Group met for the first time. There were some minutes I took you to yesterday of the NFSP National Executive Council, I’m going to start by returning to that document. That’s NFSP00000471, please. I don’t believe this is a document you will have seen at the time.

Sir Ian McCartney: No.

Mr Blake: It’s the report of the National Executive Council, and if we go to page 15, it sets out who was present at that meeting. This was a meeting held on 21, 22 and 23 June 1999. So your first meeting of the Working Group was on 22 June, this seems to be happening at the same time as the Working Group, and those are the attendees who are present at that meeting.

I’m going to read to you a section of the minutes from the meeting. Those can be found on page 23, they will be brought up on screen. I’ll read slightly slower and a longer passage than yesterday because I appreciate I rushed it a little bit at the end of yesterday.

Sir Ian McCartney: Is this your second bite at the cherry?

Mr Blake: No, I don’t want to catch you out. We did rush things a bit yesterday. So I’m going to take you back to the same passage and we’ll spend a little bit more time on it. It’s about halfway down and it says:

“Current counter automation and current rollout came under discussion.”

So, by this stage, there is some degree of rollout to a certain number of post offices. Thank you very much:

“The actual power and scope of the Select Committee were queried by Mr Edmondson, who asked account how far fees could go.

“There was general discussion of the severe difficulties being experienced by subpostmasters who are already running an automated system. Seven sheets of comments from the North East [so that’s the area where it’s being rolled out] had been passed to Mr Dave Miller. The difficulties and trauma being experienced by some subpostmasters were giving rise to concerns for their health and emotional wellbeing. It was felt by some that a tragedy was not far away, if something was not altered soon. The software was considered to be poor quality and not intend to run such a huge network. The system was based on ECCO which was originally written for a network of 700 – not 15,500.

“Although there may be improvements to the general system, most members present want to know if the Committee had the power to say that the current system is obviously not working and instruct ICL and the Post Office to review or restart with more ‘subpostmaster friendly’ software.

“The General Secretary and Mr Peberdy confirmed that Mr Bruce McNiven is not accepting that it is satisfactory and there are also reports of problems with hardware.”

I am going to read the final paragraph, it says:

“Mr Marshall reported that it took two hours for his printer to come back up and since then, after printers on different counters had gone down, it has taken at least two hours for each to become operational again. Rebooting the system takes at least 12 minutes and, taking into account all the time spent on the telephone with the helpline, it takes many hours to balance on Wednesday afternoon. There have been reports of subpostmasters working until 10.00/10.30 pm which is not only stressful, but eroding their free time.

“Mr Jannetta said that he and others of his colleagues would have to rely on those subpostmasters in the North East and South West who currently have this system in place, to make sure their voices are heard with their problems and to ensure that all the difficulties encountered are satisfactorily overcome. The point must clearly be made to the business that this automation is not going to do the job, that subpostmasters have learned enough to know it will not work satisfactorily and that it must not be rolled out to an excess of fifteen thousand sub post offices until all the problems had been overcome.

“The Richard Jackson automated system was considered by both Mr Marshall and Mr Darvill to be an easier to use, preferable, alternative to the present system.”

Sir Ian McCartney: (Unclear) – sorry.

Mr Blake: “Mr Darvill wanted to know if the lawyers had some hold on the Horizon System for some reason that it could not be changed.

“The General Secretary assured the meeting that Mr David Miller had been informed of the difficulties in no uncertain terms.”

A bit further down that paragraph:

“We cannot continue to have experienced subpostmasters/mistresses in distress on the telephone, struggling until all hours to balance. These situations must not be permitted to arise. It was pointed out that if the Lottery offices had to deal with this situation it would not be tolerated.”

Those kinds of concerns that are being expressed there in June 1999, were they ever expressed to you in similar terms or as serious terms in the Working Group or outside of the Working Group?

Sir Ian McCartney: Well, I can’t remember such problems being put in that – in that way. But that’s not any excuse for not remembering. And, secondly, I have got no recollection whatsoever of Mr Miller either meeting me personally or submitting either himself or via David Sibbick a list of what was happening on the ground, which I would have thought was absolutely required, given the Terms of Reference and my view about how our group would work.

And one of the main aspects of that was rigour, but importantly, I wanted to know the voices from the frontline. It was really, really important to me to know what was being said on the frontline. And for that then to be able to be utilised in taking forward my role as a minister.

I think I said this yesterday, so if I’m repeating myself, I apologise. But I think it’s obvious from what’s been said that the alarm bells were being sounded on the frontline. Those alarm bells had a knock-on effect to the health – the mental health of the staff and the postmaster and the postmistress, and this is on top of the stress that they did have, without a shadow of a doubt from my own experience locally – they’ve had years of pressure and strain, not knowing what was happening, or when the system was going to be operated, if it was at all, and what their role would up and whether it would be a system that they could satisfactorily use for their business requirements.

So I’m not surprised at what had been said. I don’t think it’s been exaggerated. I have never found Mr Baker and his colleagues people who exaggerate, they told you as it was, and you then had to respond. But I honestly don’t remember receiving reports from the northeast to the southwest on these pilots, either from inside the system, the Government, or through people on the Working Group.

Mr Blake: Thank you very much. I’m going to take you to the minutes of the Working Group of 7 July 1999, so not too long after that meeting took place at the NFSP. Can we look at NFSP00000200, please. It’s your D114 but I’ll bring it on to screen.

If we turn over the page, please, we’ll see this is a note of the meeting the Horizon Working Group. 7 July, perhaps we can highlight the top half of that page to show who attended. So we have there Dave Miller of Post Office Counters Limited, that’s one of the first names.

You’re there at the very top as Chairman, you have Stuart Sweetman from Post Office Counters Limited, Dave Miller from Post Office Counters Limited, you have Colin Baker from the NFSP there and John Peberdy from the NFSP there, as well, amongst other people from the CWU, et cetera.

Now, these are the minutes of that second meeting. There is, at the bottom of the first page, reference to acceptance testing, and something from Mr Miller. It says:

“On acceptance testing, Mr Miller said that the work was going ahead with ICL to a pre-agreed programme. Mr Peberdy asked what defined a ‘high’ category incident [because there were high, medium and low categories of Acceptance Incidents]. Mr Miller said this would be one which threatened progress with the project within the agreed timescale. He did not think there would be major problems. Mr Hodgson emphasised the need for regular progress [updates].”

If we scroll through those minutes, perhaps over to the next page as well, what you don’t see in those minutes are complaints of the sort that we saw in those NFSP Executive Council minutes. There’s nothing there from Mr Miller, so Post Office Counters Limited or Mr Baker of the NFSP, Mr Peberdy of the NFSP, or any others, raising those kinds of issues at this meeting.

Sir Ian McCartney: Yeah.

Mr Blake: Do you recall, in any of those meetings, those kinds of issues being raised?

Sir Ian McCartney: I still don’t remember who Mr Miller is. And I do note from the record there’s no indication from him of any complaints received or what he did – and I’m sure he did receive them, were dealt with or were being dealt with. And I would have thought, in these circumstances, as part of the report, there would be information, clear information, about what the frontline had told him and were complaining about.

So that’s a major omission, in my view.

Mr Blake: We have a document that was prepared by the Post Office for that meeting, can we look at NFSP00000226, please. If you’d like the hard copy it’s your D116 but, again, I’ll bring it onto screen. So this is, I think, Geoff Moore. Was he in your department?

Sir Ian McCartney: Yes, he was assistant private secretary.

Mr Blake: Thank you. He’s providing you with this document. If we go over the page, this is a report for the Horizon Working Group by the Post Office on Post Office/ICL negotiations.

Can we go over the page, please, to halfway down the page; it addresses training and support. So this is that same meeting, shortly after that NFSP meeting, and I’m going to read to you those two paragraphs under “Training/Support” it says:

“The current Live Trial is revealing a number of important lessons which are being addressed for NRO [national rollout]. Improvements in training, procedures and software which will give greater confidence in the service provided and support the achievement of the NRO 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.

“There will be a process of continuous improvement to processes and procedures as lessons are learned in the wider rollout. For example the period up to Christmas 1999 will be used to test the current assumptions on the number of offices that will go live each week and the impact on the support services, notably the Pathway and POCL Help Desks. Appropriate action can then be taken to maintain and where necessary refine the rollout plan during 2000.”

It seems to be that this document that was prepared for the Horizon Working Group was certainly painting quite a rosy picture, compared to those NFSP/Executive Council complaints. Would you agree with that?

Sir Ian McCartney: Most certainly, that’s why I am concerned that the frontline complaints and the evidence, et cetera, don’t seem to have been getting through to us. It’s one of the purposes – obviously, the committee was about giving the frontline staff access to ministers, and to ensure that ministers knew of issues, good, bad or indifferent, in their daily working arrangements and in the trials, and what they had found in practical terms.

Mr Blake: We spoke yesterday about the Montague report and that there hadn’t been a Government technical analysis, a significant one, since that date, and your evidence was that the Government were reliant upon issues being raised in particular at that working party group. We’ve seen here serious issues being raised at the NFSP Executive Council meeting but they don’t seem to appear to have been discussed in that kind of level of detail or concern at the Group.

What do you think went wrong, as far as the Group is concerned?

Sir Ian McCartney: Can I say, I was totally reliant on the members of the Group bringing forward the issues. That was the whole purpose of the Group, trying to ensure that I wasn’t blindsided deliberately or just by the nature of the machine in government and far how that machine, I mean, on a daily basis was from the frontline. So from that perspective, I can’t comment on why, other than it wasn’t brought or put in the agenda.

And that’s another issue because, although the first meeting’s agenda was set simply as a way of getting the committee going in the reports, I think I put in writing to say that I was expecting them to be able to put items on the agenda for discussion decision making.

Mr Blake: Did either the unions or the Post Office raise those kinds of issues with you separately outside of the meeting?

Sir Ian McCartney: I don’t remember at all that happening.

Mr Blake: Thank you. I’m going to move on now to a different subject and that’s governance of the Post Office. I believe you were involved in the appointment of Neville Bain as chair in 1998; do you remember that at all?

Sir Ian McCartney: Yes, I think I and the then President of the Board of Trade and the Secretary of State at the DTI, Margaret Beckett, and I, interviewed a number of candidates, and he was selected.

Mr Blake: Do you remember the process at all, are you able to assist us with that?

Sir Ian McCartney: It’s not how you’d carry out interviews today, in the sense that the application system would today be far more cognisant of ensuring, as best as possible, broad references to who could apply for it, the job. Secondly, we’re in a situation which I found really surprising with such a big organisation, that there were very few applications for this post, and I think at least one of them was a former member of the board who’d retired but wanted to come back as chair, and that’s not a criticism of him, it’s a reality.

I would have expected now, it was even then, that there’d would be some headhunting role taken forward by the Department to see what level of expertise, knowledge and understanding of – and had run a big organisation – was around in the marketplace. And it may well be that because of the nature of it being in the public sector, perhaps it wasn’t sold enough to people who were in the private sector, Dr Bain – I think it was, I think he was a doctor – did decide to apply, although I think he’d spent the whole of his lifetime in the private sector.

Mr Blake: Did you have any views as to the technical experience or competence of the board during your period of involvement?

Sir Ian McCartney: No, the board was in place, full stop. We appointed a new chair, the Chief Executive was in post and all the people under him, the non-executive directors, I think, were changed at a later date, and at the later date, I can’t remember if it was a request to the Secretary of State or whatever, that – it wasn’t me – that they brought on to the board people who acknowledged talent and had a record of working in their sectors of the economy where either the Post Office was in and losing business, or areas where, after the establishment of an IT base in the system, they were required to compete for business, financial business and you needed someone who had the skills and knowledge to do that.

Mr Blake: Did you think at the time that they were up to that job?

Sir Ian McCartney: What the new ones that were appointed? Or the –

Mr Blake: In general, during your period of involvement with this project, did you think that the board were sufficiently involved and experienced and had the correct expertise?

Sir Ian McCartney: I couldn’t comment on that because I very rarely met anybody on the board, but what I would say is that anybody with those skills should have been brought to the fore but there was a very strange relationship between the board and Government and this is another lesson. Having taken responsibility as the de facto owner of the Post Office, the Government should have had a far more structured relationship with the board and the senior directors, like Chair and Chief Executive. That should have happened in a constructive way rather than them writing and seeing if they could get squeezed into the diary of an appropriate minister.

So I do think that we inherited a bad system, perhaps they have learnt their lesson. I don’t know. It’s too far out of the job but that should be the case.

Mr Blake: I’m going to take you briefly to a few documents that might illustrate the point. Let’s look at BEIS0000383. It’s a letter from Dr Bain to Stephen Byers. Would I be right in saying – on the right-hand side there are recipients – are you IM?

Sir Ian McCartney: I’m assuming so, although sometimes I put “IMC”. I’ve been called lots of things, actually, but for the purpose of this interview, I’ll accept that “IM” is me.

Mr Blake: Okay, let’s look at the first substantive paragraph, please, and I’m going to read to you some of that. About halfway through this paragraph it says:

“This continuing delay in being able to arrive at conclusion is a major source of concern to the Board, especially as The Post Office is being excluded from these latest discussions. This last point in particular was raised by our Non-Executive Directors and is regard as unacceptable in terms of corporate governance. Directors simply are not fulfilling their duties in allowing the ongoing investment we are making on this project, yet having no apparent control over, or even input to, the current commercial discussions that vitally affect us.”

Perhaps we can go to the final paragraph of this letter. This letter is from 19 February 1999. So if we go over the page, thank you. The final paragraph says:

“The Post Office Board strongly believes that a clear-cut decision must be taken now to go ahead with Horizon and the Benefit Payment Card to end this period of uncertainty which has reached an indefensible level. If further proposals must be considered, then we need to be involved. Our criteria to support any alternative which may be tabled will be focused on the commercial impact on the Post Office. The Board is accountable for the future commercial wellbeing of The Post Office, and the Horizon programme is vital to us.”

Were the concerns that were being expressed in that letter concerns that you shared about the involvement or lack of involvement of the board?

Sir Ian McCartney: The involvement which is set out relate, in some ways, relate to my earlier point about not having an appropriate structure between the technical owners and the board and the management of the Post Office and its businesses. The second point he makes is a tactical point, quite frankly. He was pushing for a particular option, legitimately, from their point of view, and there were still disagreements from the other partners or parties to the agreement, who had different views, and therefore it was a good attempt from him to perhaps refocus, from their perspective, the case that they were putting at the time.

Every letter you’d get from the Secretary of State at DSS or through us from BA and POCL and, of course, ICL, all would be strongly putting their case and why it should be considered, why it should be considered more than you think it is.

Mr Blake: Can we look at BEIS0000218, please. This is a little bit further on, it is 3 March 1999. Your name is there on the right-hand side but it is a letter to the Secretary of State and can we look at paragraph 3, please. About halfway through paragraph 3, it says:

“Ian McCartney also recently met the new non-Executive Board members and Board of the Post Office on 15 February.”

I think this something you spoke about briefly before.

Sir Ian McCartney: Mm.

Mr Blake: 15 February, so do you remember new board members or new non-executive board members joining relatively far into the programme?

Sir Ian McCartney: I don’t remember the timescale but I do remember meeting with him and, in particular – I think his name was John Lloyd, who was very impressed by his grasp of the issues and the role that he was playing or wanted to play, and also the way he articulated, from his and the board’s perspective, the expectations, as I was saying, towards me and other ministers. So I do actually – the note brings back that memory of the situation.

Mr Blake: Thank you very much.

Sir Ian McCartney: I can’t truly recall the names of the others appointed but I think was Kinski one of them? Who – I knew him, and Mr Lloyd for different reasons, nothing to do with their appointments. I think Mr Kinski I knew during my development of the minimum wage policy.

Mr Blake: That’s Mike Kinski?

Sir Ian McCartney: Yes, and he was one of the large number of businesses and business leaders I spoke to in developing the policy, and John Lloyd again, I knew through his policy activities and advice he gave to trade unions on issues. I knew of him and his reputation.

Mr Blake: Thank you. Can we look at BEIS0000440, please. Now, this is a meeting with ICL and the Post Office, it’s a note to David Sibbick. It’s not a meeting that you attended but I’d just like to read to you a few passages from this note. Can we look at page 3, please. So we’re now into May, 12 May 1999.

“Neville Bain and John Roberts called to see the Secretary of State at 12.15. The Secretary of State once again ran through the present position, the government’s aim, and at B1 [this is one of the various options that was being floated] was not affordable. Termination would be a bloody affair. He needed a view from the Post Office.

“Bain said he had been unable to update the board on what B1 really meant, let alone B3 or a variant of it.”

Paragraph 13 says:

“Bain responded angrily and gave a frank view of Treasury numbers. Throughout this exercise he had felt the victim of a conspiracy between HMT and KPMG. Under questioning from you, Roberts admitted that the numbers for B1 had been ‘harder’. The key issue of the Post Office was the timing of the move to ACT. The Secretary of State said if that was the case, PO should go on the front foot and look at dates like 2003.”

The discussion that is taking place here, there seems to be a concern from the Post Office about all these various options that are being floated and the lack of information that is being passed back to the Post Office. Is that correct and is that something you recall at all?

Sir Ian McCartney: I would be surprised about the lack of information, given that they were at the centre of all the discussions that were taking place. Ministers like me were looking back in bewilderment on the number of variants of the original proposals. It was just coming thick and fast and, as a consequence, when you read the documents, it’s difficult to put them in an appropriate timeline.

But I honestly can’t think of a situation, given where we were at that time, in trying to produce an agreement between all the parties, that they weren’t aware of, or weren’t engaged with, the Post Office.

That doesn’t mean that non-executive directors were – they’ve got people who were negotiating for them and had been for some considerable time. And I’m assuming that they would be reporting back to the Post Office, and whether that was adequate or inadequate would be a matter for Neville Bain.

But, again, here I think you can see the pressure that has been put on, and it’s legitimate pressure. I mean he’s doing his job as chair, a chair who says nothing or doesn’t shake the basket up isn’t worth being in the chair. So it’s not a criticism of him. And, again, it’s part of the tactic, as I said, about finding a proposal, whatever B or A it is, that the Post Office were going to have a system which meant they had a forward-looking future, and that there were in place arrangements which – until they could get the system up and running, that there was arrangement that the paper system would continue, and they would be able to plan their income and expenditure in POCL accordingly.

And that was always something that, as ministers, and certainly from my perspective, was critically important: that it wasn’t a cure-all for everything that was wrong in the Post Office or POCL, but one thing was absolutely certain: that there would be a time required to introduce the changeover in a way that wasn’t financially destabilising the Post Office.

Mr Blake: To assist further with the timeline, let’s look at BEIS0000439. This is shortly after, it’s 23 May, and it is a letter again from Dr Bain to Stephen Byers, and I’m going to just read some of it just to see if you remember this. It says:

“In light of your letter today expressing the Government’s wish for the Post Office to sign the Heads of Agreement with ICL, the Post Office Board met tonight. With the exception of one non-executive, all members were involved.

“We considered your proposal and the unanimous view of the Board was as follows:

“based on the information currently available to us, and bearing in mind our fiduciary responsibilities, we believe that option B3 is likely to lead to a deterioration in the financial position of the Post Office, and is not the best use of shareholder funds.

“however, you have made it clear that you and colleagues believe it is the best way forward, and of course we do have the opportunity of the next three months to fully understand the proposal and see if it can be made workable.”

Can we go over the page, please. Over the page, it refers to the basis on which they would sign heads of agreement, and then looking at the final paragraph it says:

“Finally, my Board are deeply concerned about the whole way in which this issue has been handled and about the relationship between yourself as our sponsoring Minister and ourselves. I would like an urgent meeting between myself, the non-executives and yourself as soon as possible.”

Do you remember those kinds of tensions about the way that the affair has been handled and feelings from the Post Office that the decisions had been taken out of their hands in some way?

Sir Ian McCartney: I – yes, I do remember and understand. But let’s be clear about it, we inherited a situation where this programme was literally non-existent and £500 billion had been paid out and you wouldn’t find a single computer across the Post Office Network, and we as a Government had to (1) understand what their problems were and, secondly, deal with a range of participants who mistrusted each other, that the relationship had broken down, and they all had their own idea of what they wanted, and it was always their idea, and many of them didn’t want to compromise.

As you know from the other correspondence, from time to time, there was talk of legal action by ICL and then Benefits Agency and, eventually, they were pulled up about missing key deadlines with BA, and that forced them to rethink the strategy. But again, here, this another example of the pressure being put on, because the Post Office allowed this to fester for more than two years, when we took office, and it continued to fester thereafter until – I would say take the bull by the horns and try and find the solution.

As I said yesterday, it was like getting three hands at poker and each hand was as bad as the other, and so we’d to find a way of negotiating and hopefully find a solution which would effect the promises in the manifesto about the Post Office Network and also about a E-government strategy. So we were under pressure from day one, but we, I think, in hindsight, were able to get through the minefield and, at the other end, get a proposal that people all signed up to.

Mr Blake: Thank you very much. There were couple of other similar submissions, and I’m not going to take you to them, I’m just going to give their reference numbers for the record so others can go to them at a later stage if they wish. It’s BEIS0000343 and BEIS0000190.

Sir Ian McCartney: Could I ask you what those letters are about?

Mr Blake: Oh, absolutely. In fact, I’m happy to take you to them briefly. I can read from them very shortly, it makes really the same points. Let’s go to BEIS0000343. This is again another submission, it’s June 1999 now, paragraph 3 says:

“During the last increasingly frantic month of negotiations on Horizon the Board felt they were being asked to sign up to decisions for which they could see no commercial basis, whilst Ministers declined to give them any comfortable about how the non-commercial aspects would be covered. This would have been an issue in any event, but because of the numbers on Horizon were so large – and the numbers on the loss of Benefits Agency work much larger still – in relation to POCL’s marginal profitability, the Board had the greatest difficulty in finding a sensible basis for decision taking.”

Over the page, it says at the top there:

“The Board are equally aware that Ministers for their part felt that the Post Office was being obdurate and unhelpful, and refusing to recognise Ministers’ responsibility the wider good. They are anxious to repair relations, and to find a basis for avoiding similar difficulties in future. They see their role as considering proposals from a commercial perspective, and making clear to Ministers where they see no commercial case. They wholly accept that Ministers then have the right to ask them nevertheless to go ahead for social, economic reasons, provided that Ministers at the same time make clear how the non-commercial elements are to be funded.”

The next document was BEIS0000190 and, again, it makes similar points. This is from 17 June 1999. It’s to a Mr Baker, but that’s not Mr Colin Baker that’s another Mr Baker, I believe, in Government, from Christopher Woolard, and it’s copied to yourself. It’s a –

Sir Ian McCartney: Christopher Woolard was the head of the Secretary of State’s office, I think.

Mr Blake: Thank you. It concerns a meeting with the Post Office on 10 June and I’ll just read to you a few passages. It says:

“Discussion with non-executives

“The first part of the meeting centred on a discussion of the Horizon between the Secretary of State and non-executive directors of the [Post Office], John Lloyd, Rosemary Thorne and Miles Templeman; Mike Kinski could not attend).

“Dr Bain told the Secretary of State that the board had a unanimous view. They wanted to go forward in a positive way and put the Horizon project on a firm and positive footing. However, they had concerns about the process and felt that they had been excluded at times and that the implications for the [Post Office] had not been taken on board.”

The next paragraph says:

“Dr Bain continued that he wanted to stress the fiduciary duties of the board. There was also an interplay with the critical points outstanding on the White Paper. He stressed that the Board were all pretty new. They were not being deliberately awkward but exercising commercial judgement.”

It goes on in similar terms. I think the point, really, that I was going to put to you, and I think you really addressed, is that concerns were being expressed by the board that they were excluded at times.

Sir Ian McCartney: Well, yes. First of all, I remember Miles Templeman as well. I met him, I think, during the issues on employment rights, and the minimum wage, if I remember rightly. I apologise, I can’t remember Rosemary Thorne.

It’s interesting these letters, you can see a quite a major shift, can I say, back to realising the importance of getting a deal, and to work with ministers to do that. I do smile a little when he continues to impress that ministers really aren’t quite on board with him. That was not the case. It was one of the most difficult periods of my ministerial career, both in timing and intellectually stretching myself, and using my skills as a negotiator to get where we were getting to, and that included within Government, because, don’t forget, in Government we’ve a huge number of different views being expressed, sometimes like scattergun across Whitehall.

And so and I just think the letters in the end, despite some of the stuff about not being engaged I don’t accept that, and that we were engaged. And the fact that they acknowledged the need to be engaged in this period, which I would say was like the start of the endgame, if there was to be a satisfactory endgame, they’d need to be on board, and I think you’ll see how different that letter is, in reality, to the previous letters that we discussed.

Mr Blake: Thank you very much. I only have a few more questions, and these are questions that have been submitted on behalf of some of the Core Participants, and they relate to entirely different topics.

The first is in relation to your statement at paragraph 17. You have said that that ICL were the company with the contract for Horizon, who were a subsidiary, in reality, to Fujitsu, and you say in your statement they had their own agenda. Are you able to expand on that and what you meant by them having their own agenda?

Sir Ian McCartney: Yes, again, from my perspective, it became clear that the contract was critically important to Fujitsu’s board, having purchased ICL, they saw ICL as a major component of reorganising their international business, where ICL would take on the role that traditionally Fujitsu dealt with in Japan. And the emerging markets in IT and the size of them, they wanted to be able to get ICL into a position of being recognised reasonably soon as a major international player, trusted by governments like the UK.

And they also had, alongside of that, a business – I believe a business plan, or should have had, to be able to not second-guess, but to see the developments that were taking place, both in the public and the private sector, in relation to the use of new technology to re-engineer their working arrangements and the services that they provide.

ICL was critical to that. And so the effort being put into Horizon was to allow them to (1) be able to have an agreement, whether under licence or whatever, market it for widely in the UK, for BEIS, in particular their ability to use it for a range of different services.

The second area, I think, was that they needed to be in a financial position where they could bring into the company considerable sums of capital to have a share release on the Stock Market for ICL. But they couldn’t do that, and understandably, unless the atmosphere around ICL and their ability of the potential investors to see that the company was viable going forward, it did have a good potential order book, and it has been involved and indeed carried out one of the largest IT projects in Government – in the public sector, certainly in Europe, but at one time probably the world.

It was in their absolute interests to try to ensure that this investment wasn’t just about doing the job in terms of what they were asked to do at Horizon, it was far wider than that, as was the Government’s in terms of it wasn’t just Horizon; it was across the whole of e-commerce and across the whole of Whitehall, those schemes.

And, as I said earlier, at the time, governments were getting taken to the cleaners – as were big, large, private sector companies. When it happened, though, in the private sector, everybody just kept quiet. Not quite the case in the public sector.

Mr Blake: Thank you very much.

Sir Ian McCartney: And just one point. When you’ve got people standing outside passport offices and – [audio disruption] – you’ve got a problem, and that’s another example of problems being allowed to fester and fester instead of resolving them, and so it was in the Government interest also.

Mr Blake: Thank you. You also say in the same paragraph that ICL shared the risks under the PFI scheme. Do you understand PFI to be a sharing of risk or a transfer of risk to ICL?

Sir Ian McCartney: Well, it’s how you want to interpret it. PFI has, over the years, particularly the last decade or so, been put under scrutiny, and the scrutiny was indicating, or is indicating some of the agreements signed up by the Government on – and local government, on infrastructure programmes, had become very, very expensive, and the public were paying through the nose for the services.

On the other side of the argument, the pragmatic argument would be, in terms of PFI, we could wait for years and years to raise money, say, for example, to ensure that 1 million private dwellings and public dwellings were fit for purpose, or if you’d got a PFI you could quickly refurbish many of these properties, and being pragmatic, and coming from an area where properties weren’t that salubrious, growing up, I take the view that, along with other ministers, like John Prescott and others, that perhaps the pragmatic thing to do was to do the houses, get them refurbished, and that’s what we did –

Mr Blake: Thank you. I’m going to move on to the subject of fraud.

Sir Ian McCartney: – if that answers –

Mr Blake: At paragraph 13 of your statement you’ve referred to the Benefits Agency and DSS wanting to significantly reduce benefits fraud. Were you aware of the Post Office’s own investigation and prosecution system?

Sir Ian McCartney: I had knowledge of it, both early on as a minister, and also as a backbench MP. One of my roles as a backbench MP, I seemed to get engaged and involved intending on the criminal gangs on this, and other issues. And –

Mr Blake: Do you recall any discussions about the use of Horizon data for Post Office prosecutions against, for example, subpostmasters?

Sir Ian McCartney: No. And I’m not sure – and I apologise – I hadn’t seen exactly when this – when these projects started, and I don’t know if I was in the Department or not, and – [audio disruption].

Mr Blake: Sorry, we’re losing connection with you slightly, could you just repeat –

Sir Ian McCartney: Can you hear me now?

Mr Blake: Yes.

Sir Ian McCartney: Okay, I’ll repeat it. I do apologise. I knew of the operation of the Royal Mail, from a constituency point of view, both in terms of the work I was doing against criminal gangs in my area, one of which was relating to benefit frauds with illegal money lending at the centre of it. And the second area was occasionally postmen got suspended for alleged fraud, for example, burning the Tory party manifesto in the fire instead of delivering it, or – that’s true! And the loss of mail or the stealing of mail. And so I knew about it from that perspective.

Mr Blake: Do you recall any discussions during your time in office about ensuring the reliability of Horizon data or the use of Horizon data in prosecutions?

Sir Ian McCartney: No, but shortly after receiving Sir Wyn’s invitation to participate on this, by pure chance, I was informed by a colleague or a former colleague of mine – not a minister, not a civil servant – someone who I knew by virtue of my public office and stuff, that there had been a case in Liverpool where prosecuting a postmaster postmistress – I haven’t got details of it – where the CPS withdrew the case understanding that the barrister was concerned that the evidence doesn’t stand up and wasn’t prepared to proceed with the case.

What – if that was absolutely accurate, whether it’s just a rumour that’s gathered, but it’s something that may be worth looking at from your perspective because, if this was near the beginning of all these, I would have thought that would be very much a red light in respect of this.

Mr Blake: So that wasn’t something that you were aware of during your time in office?

Sir Ian McCartney: No, no, no. I’ve got no recollection of ever being involved in issues around prosecution in respect of this issue.

Mr Blake: Thank you very much, Sir Ian.

There are likely to be a short number of questions from Core Participants.

Sir Wyn, do you have any questions?

Sir Wyn Williams: No, no thank you very much.

Mr Blake: Thank you. I’ll hand over to Mr Stein.

Questioned by Mr Stein

Mr Stein: Good morning, Sir Ian, can you see and hear me?

Sir Ian McCartney: Yes, thank you very much.

Mr Stein: My name is Samuel Stein, I represent a large number of subpostmasters, mistresses and managers. I’ll take you directly, please, to a document, which is POL00028530.

Sir Ian McCartney: Is that in the bundle of documents?

Mr Stein: The question of whether this is in the bundle – I’m not sure, I’ll have to check.

Mr Blake: It will be in your bundle. I can’t give you the reference right now.

Sir Ian McCartney: It’s up on the screen.

Mr Stein: I’m grateful.

Sir Ian, if we can just have a look at the document on the screen, we’ll see the date of it is 16/11/1998 and you can see that is confirmed at the top left corner. This is a document that has been faxed. It is to Jonathan Evans from Isabel Anderson, Postal Services Directorate. So that’s the copy that we have so far.

If we go to the next page, please, page 2 of 30. Sir, we learned a little more about this document, we will see again the date that’s being referred to, top left-hand corner, but that this is described as a draft as at 6.30 pm on 13 November 1998. It has reference to “BA/POCL Automation Project, Interdepartmental Working Group Report to Ministers”. Then, as you see, the date is again confirmed in November 1998.

Just pausing for a moment, this was within your time as a Minister of State, you were a Minister of State?

Sir Ian McCartney: That’s absolutely right.

Mr Stein: I’m very grateful. If we can go, please, to page 7 of 30. Can we concentrate, first of all, on the top left-hand corner, where we can see a little bit more helpful information about this particular document. So the date, as we’ve been referring to, top left-hand corner, is the one that we can see that relates to a fax date of 16 November 1998. Then lower down from that we’ve got a slightly obscured date, which I think, if I remember correctly, is 13 November 1998, 7.00, then from “PEP Team, HM Treasury”. Can you help with your recollection, what was the PEP, P-E-P team, at the Treasury?

Sir Ian McCartney: I’ll be honest with you, I don’t – I have a thing about all the documents. There are too many of them and it doesn’t tell you the name of the organisation. I don’t remember.

Mr Stein: All right, well, let’s go –

Sir Ian McCartney: If you want to tell me what it is –

Mr Stein: All right, let’s go to the guts of the document that I want to ask you about. The bottom of the page at page 7. We can see that the heading there says, “Managing the changes to the [Post Office] Network”.

So this is discussing the potential different options about trying to go ahead, if it can, with the Horizon System. So “The response of the Post Office under each option” – if you can just highlight the bottom part of that page, again, page 7. Thank you:

“The response of the Post Office under each option, and in particular how any changes of the network would be managed, will be an important factor in any decision on the way forward. There are differences of view between the parties on [and then over the page to page 8, and then highlight the top two lines and then the three bullet points] the ability of the Post Office to manage changes to the network under each scenario.”

Then it says this:

“Key issues will be …”

Now, the first two deal with maximising customer base in relation to a switch to ACT, how to maintain relations with existing clients. I want us, just for the moment, concentrate on the third bullet point. So key issue will be, and I’ll read this a bit more slowly:

“how to ensure that the subpostmasters (private agents who run the majority of the post office network) perceive” –

Sir Ian McCartney: (Unclear)

Mr Stein: – “perceive” –

Sir Ian McCartney: Yes, I can see, apologies.

Mr Stein: You can see this. This is the third bullet point. A key issue will be:

“how to ensure that subpostmasters (private agents who run the majority of the post office network) perceive that the post office business can provide a viable future and do not voluntarily exit the market (reducing the ability of the [Post Office] to manage network closures and migrate business to other offices).”

Just reading down to paragraph 21, just below there, please – paragraph 21. Thank you very much:

“Under all options the Post Office will be seeking to manage a reshaping of the network, against a background of commitment to nationwide network of post offices. Their objective is to retain the current levels of access, especially in rural areas, but to reduce over-provision in some urban and suburban areas, replacing some physical offices with electronic access points. Current trends would in any case see a reduction in the rural network by some 200 offices each year, and a gradual shift to ACT-based methods of payment over time. (by 2009/10 almost 50% of claimants are expected to have switched to ACT). Compared to the current network of 19,000 offices, POCL believe that their vision for the future could be served by a network consisting of around 11,000-13,000 full service offices supplemented by 5,000-10,000 electronic access points …”

Now, Sir Ian, in your evidence you have made it very clear that you had a ready and good understanding of the working life of those people that ran the post offices, that they were running a business at their own risk, they’d end up taking out loans and committing themselves and their family to work with the Post Office, providing a community service. That seems to be something that you have emphasised in you evidence a number of times.

Sir Ian McCartney: Yes.

Mr Stein: So the first part of this, which is the reference to how to ensure that SPMS, subpostmasters, perceive the Post Office business can provide a viable future, in other words seeming to say to the postmasters – well, seeming to avoid saying to the postmasters that the vision of the Post Office was including the closing down of well over a third Post Office branches, is that an acceptable message that was being discussed up to the ministerial level?

Sir Ian McCartney: First of all, can I just say that it wasn’t just a community service, there was a business service alongside the community activities of the Post Office.

Mr Stein: Yes, sir.

Sir Ian McCartney: Yes, okay. There was a number of issues, some of which are experiences from my own area, which was a former area of collective mining villages and, in more urban areas, mining communities and communities involved in the textile industry, which was also, at the same time as the mining industry, being closed down in large swathes.

So I can – the background to that was that, alongside of that, there was pressure – this was prior to me being in government – pressure to close some of the smaller post offices, sub post offices in my area and, secondly, quite a number of postmasters were taking the opportunity to take retirement, and had every right to do so. And the difficulty of finding them somebody, an alternative, to take on the office, even offices that the Post Office wanted to maintain, finding an alternative owner of it was beginning to bite quite significantly.

So going into Government, there’s that background – I think it’s the same background for many other MPs of whatever party, doesn’t matter – this was going on. There was already a move in terms of the network.

The second area, of course, for me was the selling off of the estate in terms of the Crown Post Offices, I always thought this was an early move by then Government to get ready for privatisation, and there had been little or no investment by the Post Office in suitable central locations to maintain and develop the businesses of Crown Post Offices. And when you saw what the businesses were doing, they weren’t meeting customer demand, unless you wanted to pay your DVL licence or stuff.

The area of consumerism was passing them by and, therefore, they just wanted to sell off – if they owned the buildings, sell off a capital asset or, if they were in long-term leases, find a way of getting out of those leases in a cost effective way.

So this is all background, and this is what, as well as when you come to where that was already ongoing and then, of course, we’ve got ICL, and ICL and the Horizon project and the delays. We’re talking about – this project was first conceived in 1993, I think, if I remember right. And, of course, like all things, despite people were asked to keep it low key, it was very quickly out into the community of the postmasters and postmistresses.

So, really, from 1993, they became the victims of the delays, and then the further delays and then the further delays plus the financial leakage of hundreds of millions of pounds, and still, for them, no sign of training, no sign of the finished product that they would be trained for or on, and that then impacted again on them, where people wanted to retire, either because they were not interested in new technology, and they were at the age where “I’ll retire”, couldn’t find anybody to buy the business. Why would you?

You’ve got – and so they were in the situation that some were lucky and were able to – they were based near a supermarket, so some of the supermarkets took a longer view and took on the Post Office facilities or, on occasions, would offer a postmaster/postmistress facilities at a low rental in their store for the footfall, and I had that in my constituency happen and –

Mr Stein: Sir Ian, I’m going to interrupt just for these purposes. I’ve taken you to a particular document that sets out what appears to be the vision of the Post Office, which is – I’ll paraphrase – which includes the idea that “We won’t frighten the pigeons” – the pigeons being the subpostmasters – “because if we do then they’ll close up their branches too quickly for us”.

Now, was that floated or explained to you as part of the Post Office and their potential use of the Horizon System, in other words go to automation, go to effectively ATM style branches, rather than physical human branches. Was that floated past you in any material that you were aware of?

Sir Ian McCartney: It wasn’t floated in the sense that you mean. I can’t remember any formal discussions but it’s certainly a live point around the structure of the Post Office and people you met. This was, indeed, from them a very serious issue, and I’m not sure if they were at that time able to have a solution for it, other than, of course, what they should have done was get the program up and running and training and all that goes with it, and bring some certainty into the introduction of the new technology and the potential for the new businesses of the platform.

Mr Stein: Now, you’ve mentioned transparency as being very important. You said that in your evidence yesterday.

Sir Ian McCartney: Mm.

Mr Stein: Does this document that I’ve referred you to say anything about the way that the Post Office was setting out its own stall, regarding the Horizon System and subpostmasters. Were they being transparent, open and honest?

Sir Ian McCartney: Honest to the postmasters and postmistresses?

Mr Stein: Yes.

Sir Ian McCartney: Well, I’ll be honest with you, I didn’t know – I don’t have any knowledge of what they were saying, but one thing is certain, that whatever they were saying, it was still a huge veil of secrecy, isn’t it – and I’m talking about what I think postmasters and postmistresses thought, what I heard being said on the ground, they never seemed to have any timetable, any sense of the direction and whether – and as time went on, whether or not it was going to happen. Whether or not they were going to be able to sell the business. Whether or not, if they were to keep their business, there would be system in place that allowed them to continue with the paper-based system until the new system came in.

I mean, these were all huge issues which were just hanging around postmasters and postmistresses.

Mr Stein: Thank you, Sir Ian. One final point. You have been asked by Mr Blake regarding the position or knowledge that you had of the use of the Horizon System to support the evidence being given in court. Okay, so this is to support investigations, civil actions in the civil courts, and criminal actions in the criminal courts. Okay?

Now, you’ve answered him by saying that that was not something that you were aware of in your time, in terms of any discussion about it.

Now, help us, please, because Sir Wyn’s work within this Inquiry will be to report and make recommendations as to change in the future.

Sir Ian McCartney: Yes, indeed.

Mr Stein: Right. So working on that particular question. Do you believe that that should have been part of briefings and discussions taken up to the ministerial level, that this system was going to underpin, be the core system, for the use of court proceedings in the future?

Sir Ian McCartney: Given the knowledge I had at the time, it was rare that you were ever told about ongoing investigations, some of them potentially serious. And it was seen as a no-go area, really. It was an organisation like a private police force, in reality, to deal with the alleged substantial crime within the organisation or in terms of their business model.

Mr Stein: Should you have been briefed regarding the potential to use the Horizon System for core purposes?

Sir Ian McCartney: You could say yes but, in truth, at the point I was in, I don’t think anybody thought about the issue which led to this appalling situation we’re now talking about.

Having said that, I think it would be taken for granted that all parts of the business would be subjected to internal activities where they were tracking alleged criminality or, from their point of view, I needed to dig deeper about how this was being caused. And so, from that respect, ministers wouldn’t be alert – I hadn’t been alerted to, in my view, but once you start the two issues then which you raised, one is this is a serious sign that there was major operational problems with the system itself. And, secondly, that this could lead on the initial information, to potential prosecutions.

At that level, because of the nature and the history of it, I would have thought that would be a matter to be brought to the Secretary of State by the Chief Executive and the Chairman, but at least the Chief Executive, and/or the then appropriate ministers, to be fully updated and indicating the nature of the evidence.

I gave the example of the Liverpool court. Another thing would say about this, and this isn’t evidence as such, but I would have thought, dealing with people who’d worked for the Post Office, the majority of them for decades had submitted and paid out their own money, developed the business, were committed to the Post Office, and were committed to their community, would suddenly across the country, all be knocking off the income that they were receiving?

I just thought “That is just ridiculous”. I’m not saying no fraud in any situation doesn’t happen, I’m not saying that at all. But what I’m saying is that it wouldn’t have been lawyers that I would be getting in here, I’d be getting my technical experts in here because it’s clearly, from my point of view, this was potentially a serious fault in the system and the system had to be corrected, and identified and corrected. And, if that was the case, then other arrangements should be put in place to ensure the accounts reflected the actual situation rather than the situation thrown up by this major error.

Mr Stein: Sir Ian, just one last matter, then. We know that the Home Office oversees the police force. Who oversaw the Post Office’s private police force, as you described it?

Sir Ian McCartney: That would be the – I’m assuming the Chief Executive. I can only assume that.

Mr Stein: What about at the ministerial level or Government level? Who oversaw –

Sir Ian McCartney: Well, at the ministerial level, I’m assuming that would go to the Secretary of State and, in my case, the Minister of State at the same time.

Mr Stein: Thank you, Sir Ian.

Questioned by Ms Page

Ms Page: Can you see and hear me?

Sir Ian McCartney: Yes, thank you.

Ms Page: It’s Flora Page and I also act for a group of subpostmasters and those employed by the Post Office, and I’d want to just mention two in particular: Ms Arch and Ms Felstead, both of whom were wrongly prosecuted in the period when Horizon was still being rolled out. The Horizon evidence they were prosecuted on was gathered during 2000/2001.

We’ll just, if we may, go to a different section of the document we have looked at, the minutes of the National Executive meeting held on the 21st and – sorry, a few dates in the middle of June 1999. It’s NFSP00000471. If we can go, please, to page 27.

If we zoom in on the section below the line, the lower part of the page. This is the report back to the NFSP meeting, following that first Working Party meeting of the Horizon Working Party. So this is the readout, if you like, going back to the NFSP from Mr Peberdy and Mr Baker having attended that first meeting with you.

Sir Ian McCartney: Yes.

Ms Page: If we can just go over to the next page, and if we zoom in on – I’ll see if I can find the paragraph number. It’s the second paragraph and it’s the bottom bit of it.

Sir Ian McCartney: Post Office, mm-hm, yes.

Ms Page: About halfway down the section that’s kind of zoomed in on, there’s a sentence that begins:

“The main change was withdrawal of the Benefits Agency Card which had been scrapped.”

So they’re talking about, obviously, the withdrawal of the Benefits Agency, and then it goes on to read out what you said:

“Despite this, Ian McCartney, Minister for Trade & Industry was emphatic that rewriting the rollout programme would not be contemplated and Dave Miller confirmed that the intention of POCL/ICL was to adhere to the 2001 commitment. Automation is expected to take place within the timescale agreed and Mr McCartney was emphatic that he would not accept slippage. The Post Office delegates were told ‘you will make it work’.”

Thank you, the document can be taken down.

Now, what I would like to just remind you of is that obviously that was a referral or a reference to what you said in the meeting notes that we looked at yesterday, and you’ve already explained what you intended there, but this is how they were interpreted. This is the message that got back to the NFSP and also, to some extent, we can see, to the Post Office. What we also know is, from that point onwards, the Post Office really told you what you wanted to hear, didn’t they? They sort of gave you that rosy picture and they said that they were going to adhere to that timetable and, indeed, they did. They adhered to the timetable.

So what happened as a result of that explicit message was that a tragically inadequate system was rolled out bang on time. So what I want to ask you is, given the history of failure by ICL up until 1999, should you have been more circumspect about the urgency and given at least equal, if not more, weight to the quality of the system?

Sir Ian McCartney: Well, first of all, whether the Post Office thought I was daft enough just to accept propaganda, that isn’t the case. Throughout this, whole issue until I left the Department, I was deeply committed to ensuring that the system that was brought forward provided for the Post Office mistresses and masters a business future.

Ms Page: Committed you may have been, but you didn’t succeed in that, did you, Sir Ian?

Sir Ian McCartney: With all due respect, I wasn’t there when it became to be dealt with, in a way. I mean, I left this programme in 1999, July 1999. I was reshuffled and that, from my perspective – not just my perspective, that was reality. I went on to another Department and picked up other briefs, but while I was there, I argued my corner. We argued for the setting up of this group, and I argued with it with other ministers who agreed, in the end, to it, and the reason for that is that I wanted, not just the voice of the Post Office or ICL, whatever, I wanted the frontline’s voice to be heard.

And I put that in writing. I said it verbally, I put it in the letter of invitation to the first meeting. And so I had no doubt in my mind that I was setting this up so, if anybody did try to hoodwink me, I would have a view from the frontline about what, in reality, was happening. So that’s what – so let’s be clear about that. I’m no patsy nor would ever be a patsy.

Now the second thing is – I don’t want to repeat it all, because you said – Julian Blake, I gave him a reply to the politics – I don’t mean the partisan politics, but the politics of discussions and negotiations had already led to the point to that the delay was going to cause another delay and that I was emphasising the 2001 figure was set because we gave – the commitment was given by the parties concerned, ICL and POCL, that this date would be doable and would be, from our point of view, if it was robust, et cetera, that would ensure at last the Post Office – sub post offices would at last have both a timescale, training, ongoing training, and a technology base which would allow them to continue effectively in business and retain as much of the business they can, even when people move to ACT.

So it was about – I wanted to see it done and dusted to ensure that the businesses could carry on and that they were viable, and if a business was to be sold, people would want to buy the business. So that’s what all that meant. It wasn’t – why would I be involved in a situation where I wanted to see it by a certain date, and as soon as you acknowledge it, it wasn’t fit for purpose? That’s just not feasible.

Mr Blake: Thank you very much.

Sir, we’ve reached the ending of questioning. We’ve got two more witnesses today so perhaps this is the moment to conclude this witness.

Sir Wyn Williams: Certainly.

Sir Ian, you started reasonably promptly yesterday afternoon and here we are on Thursday morning. I’m very grateful that you were able to come back this morning to complete your evidence and I am very grateful for all the answers you have given to the very many questions put to you.

So we will now have our morning break, and we will resume in 15 minutes, Mr Blake.

Mr Blake: Thank you very much, yes.

Sir Wyn Williams: Thank you.

Mr Blake: 11.10.

(10.53 am)

(A short break)

(11.10 am)

Mr Beer: Good morning, sir, can you see and hear me?

Sir Wyn Williams: Yes. I’ve just unmuted myself.

Mr Beer: Thank you very much, sir, can I call Alan Johnson, please.

Alan Johnson


Questioned by Mr Beer

Mr Beer: Please do sit down. Mr Johnson, can you give us your full name, please?

Alan Johnson: Alan Arthur Johnson.

Mr Beer: As you know, my name is Jason Beer and I ask questions on behalf of the Inquiry. Can I thank you for coming to give evidence today and also for the provision of your witness statement which, without exhibits, is 17 pages in length. It should be in front of you there.

Could you turn to the last page, please? On page 17, do you see a signature?

Alan Johnson: Yes.

Mr Beer: Is that your signature?

Alan Johnson: Yes.

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

Alan Johnson: They are.

Mr Beer: Thank you very much. Can I start with some questions about your background and experience, please. I think you worked as a postman for 19 years, by my calculation, between 1968 and 1987?

Alan Johnson: Yes.

Mr Beer: Then for five years, between 1987 and 1992, you were an officer of the Communication Workers Union, the CWU?

Alan Johnson: Yes.

Mr Beer: Then for five years after that, ‘92 to ‘97, you were the General Secretary of the CWU?

Alan Johnson: Yes.

Mr Beer: Now, the relevant members of your union, so far as the Post Office is concerned, worked in Crown Offices; is that right?

Alan Johnson: Yes.

Mr Beer: Crown Offices, is this right, were run directly by the Post Office and represented about 10 per cent of the post office network at that time?

Alan Johnson: Yeah, a declining amount. It’s down to about 3 per cent, I think, by the time these – by the time this occurred. So it was 10 per cent when I joined about 3 per cent at the turn of the century.

Mr Beer: You became an MP, the Member for Kingston upon Hull, in 1997; is that right?

Alan Johnson: Hull West and Hessle, yeah.

Mr Beer: Two years later a ministerial appointment was made, that came in 1999; is that right?

Alan Johnson: Yes.

Mr Beer: Can we look at second page of your witness statement, it’ll come up on the screen for you, WITN03380100. You there, helpfully for us, in paragraphs 5a to h, set out a succession of ministerial appointments and appointments as Secretary of State, culminating in the last years of this administration, as Home Secretary. I’m not going to read all of those out, the witness statement becomes part of the record now you have adopted it?

We’re particularly interested, in this phase of the Inquiry, in the role that you held for some two years from 29 July 1999 until 7 June 2001. You were Minister for Competitiveness; is that right?

Alan Johnson: Yes.

Mr Beer: That was your official title: Parliamentary Under-Secretary of State?

Alan Johnson: Yes, they called it “Competitiveness” but I was in charge of manufacturing industry, employment relations, biotechnology, chemicals, the steel industry, the Post Office, and a few others. But it all came under the title of many of “Minister for Competitiveness”.

Mr Beer: You’ve anticipated my next question. Your portfolio in that two-year period included oversight and responsibility for the Post Office?

Alan Johnson: Yes.

Mr Beer: What else was in your portfolio?

Alan Johnson: I’ve just had a run through there. So employment relations, including ACAS, manufacturing industry in general, but in particular biotechnology, the steel industry, the chemicals industry and one or two other bits of manufacturing, aerospace, for instance, which was a big part of my job, Airbus, et cetera, on the European front. So it’s quite a fixed portfolio.

Mr Beer: What proportion of your time and work was taken up, can you recall, with issues relating to the Post Office?

Alan Johnson: Quite a bit, because we were taking through the Postal Services Bill, so when you have a Bill it’s not usually – the Secretary of State does second reading but it’s the junior ministers that go through the committee corridor and do the line-by-line stuff on a Bill, which is quite concentrated, and a lot of work involved in that.

So there was that, plus there was the fact, because of my background, I was very interested in this part – you know, I’d never worked in the steel industry, I’d never worked in biotechnology, but I’d worked in the Post Office.

Mr Beer: If you were to put a fraction on it, as best as you can, how much time was taken up with Post Office issues in that two-year period?

Alan Johnson: I would say that – when the Postal Services Bill was going through, I would say about 40 per cent of my time was taken up with that.

Mr Beer: And when the Bill had passed?

Alan Johnson: About 20 per cent.

Mr Beer: At this time, 1999 to 2001, the Post Office was a statutory corporation. In general terms, how did the Government and you, in particular, exercise oversight of the Post Office?

Alan Johnson: Well, my understanding is that there were two shareholders: one was the Chancellor of the Exchequer, the other was the Secretary of State for Trade and Industry. It was a much more arm’s-length relationship than it would have been when I’d joined in 1968, because I’d joined as a civil servant, and then in 1969 it became a public corporation. And we were in the process, that Postal Services Bill, of making even more arm’s length our views that the Post Office shouldn’t have been broken up and privatised, which John Major and Michael Heseltine had tried to do, it should have more commercial freedom in the public sector, and so we were putting through a Bill to give that greater commercial freedom.

Mr Beer: So before the Bill was enacted, how did you, in the interim, exercise oversight of the Post Office?

Alan Johnson: The Secretary of State would have had to have agreed tariff increases for instance, the Chancellor would have, as well as taking a large chunk of any Post Office profits, would have been overseeing any big financial commitments by the Post Office. And the Post Office was inhibited by things – we used to call it the public sector borrowing requirement, they don’t call it that anymore, but that was holding the Post Office back in relation to some of its competitors who didn’t have the same burdensome legislation in other European countries.

Mr Beer: Did, for example, in this two-year period, the Post Office have a board?

Alan Johnson: Yes.

Mr Beer: Did government have a seat at that board?

Alan Johnson: No.

Mr Beer: Did the Post Office have a chairman?

Alan Johnson: Yes.

Mr Beer: Who was responsible for the appointment of the chairman?

Alan Johnson: The Secretary of State.

Mr Beer: Who was responsible for the termination of the appointment of a chairman?

Alan Johnson: The Secretary of State.

Mr Beer: Who was responsible for other appointments to the board?

Alan Johnson: I’m not sure. I mean, I say Secretary of State at the DTI, by the way.

Mr Beer: Yes.

Alan Johnson: Responsibility for – I think the Chair and the Chief Executive then had a measure of freedom about who they appointed but I think it had to be approved by the Secretary of State.

Mr Beer: Who was your main point of contact with the Post Office in this two-year period?

Alan Johnson: My main point of contact would have been John Roberts. He was the Chief Executive of the Post Office.

Mr Beer: Yes, and how frequently would you have met with Mr Roberts?

Alan Johnson: Every couple of months.

Mr Beer: Was that on a standing basis or did it just happen to be every couple of months because that’s when issues arose?

Alan Johnson: It happened to be every couple of months. The Postal Services Bill was going through, there were big European issues, as well, that affected the Post Office and, of course, for the Post Office – I know you appreciate this, Mr Beer, but there’s some confusion because there was a number of iterations. Then, it was the Post Office, under which was Post Office Counters –

Mr Beer: I’m going to come to Post Office Counters in a moment.

Alan Johnson: – distribution and parcels, yeah.

Mr Beer: I am going to come to Post Office Counters in a moment. Was there any other formal reporting mechanism from the Chief Executive to you, either the production of monthly, quarterly, or another period, reports?

Alan Johnson: I was kept advised through officials of developments but there was no – I can’t remember a monthly report coming to me.

Mr Beer: So it was on an issues basis –

Alan Johnson: It was on an issues basis and if, for instance, they wanted to increase tariffs or, indeed, change the name of Royal Mail, which was one of their issues.

Mr Beer: How often would you meet with the Chairman of the Post Office, if at all?

Alan Johnson: Very infrequently, if at all. I probably met him more times as General Secretary of the union than I did as a junior minister.

Mr Beer: Did you see it as your function, as the Minister for Competitiveness, who had the Post Office within your ministerial portfolio, to hold the Post Office to account?

Alan Johnson: To hold them to account? No, not in the way that, for instance, when I was health secretary you’d hold the NHS to account.

Mr Beer: Why was that?

Alan Johnson: Because of the fact that the Post Office was living in a competitive environment, there was now an erosion of what was previously a very strong monopoly. There were parcel couriers who could set up all the time. It was seen as being very important that we didn’t just talk the language of commercial freedom for the Post Office in the public sector; we allowed them to get on with it.

Mr Beer: Was that a commonly held view, that it wasn’t the function of government to hold the Post Office to account?

Alan Johnson: Well, hold to account in the sense of – we weren’t micromanaging them. They were there. They weren’t part of the Civil Service any more. It was down to them to make commercial decisions about the future of the Post Office. Our role was in those kind of quite narrowly defined areas: tariff increases, et cetera. And I think, you know, in terms of the Post Office’s understanding of that, they wanted greater commercial freedom. Indeed, they wanted privatisation but they didn’t get that. What they got was perhaps a more arm’s-length approach.

Mr Beer: You were aware, I think, that there was a subsidiary company called Post Office Counters Limited, POCL?

Alan Johnson: Yeah.

Mr Beer: Was any different approach to oversight taken by you as minister in relation to POCL, because it was a subsidiary company and a limited company?

Alan Johnson: Um, no, no different from Royal Mail or the distribution arm, Parcelforce.

Mr Beer: To what extent did you have contact with the board of Post Office Counters Limited?

Alan Johnson: Quite a bit, through Horizon. That was the big project.

Mr Beer: But was there any more formal review or reporting mechanism from the board of Post Office Counters Limited back to you as minister?

Alan Johnson: No, they sat on the Horizon Working Group. There was a constant dialogue with officials. If the Minister needed to have stuff referred to it, then officials would do that.

Mr Beer: But not intrusive supervision on a regular reporting basis or regular meeting basis?

Alan Johnson: No, and there was nobody you asked about the Post Office Board. There was nobody sitting on POCL’s board or Royal Mail’s board or Parcelforce from government.

Mr Beer: Can I turn then to the position in relation to Horizon, by the time of your appointment. Just so that we can all recap where we were, by the end of July ‘99, when you took up your role, is this right: the decision had already been made that the Benefit Payment Card element of the Horizon platform wouldn’t proceed?

Alan Johnson: Yes.

Mr Beer: The decision had been made that the contractual arrangements between the remaining contractual parties, ICL Pathway on the one hand, POCL on the other, would not be through the vehicle of a PFI contract but instead a more standard bilateral design and build contract; is that right?

Alan Johnson: Yes.

Mr Beer: That contract had been signed and those two parties were in the process of moving towards a live trial; is that right?

Alan Johnson: Yes.

Mr Beer: To what extent did you know all of that through your position that you had previously held, immediately before being an MP, as General Secretary of the CWU? What did you know about Horizon through your position as General Secretary of the CWU?

Alan Johnson: That was back in ‘97 –

Mr Beer: Finished in May 97.

Alan Johnson: Yeah, so there hadn’t been any trial offices. By the time ‘99 came along, it was a trial in Gloucestershire of number of offices, and then it was spreading out, supposed to be at a rate of about 200 to 300 offices a week. What did I then know about Horizon? I thought it was the salvation of the Counters network. We were worried about Crown Office closures, which generally didn’t close the Post Office but reduced them to a sub office, so it was always cheaper to have a sub office than a Crown Office with better paid staff, our members, and so we were campaigning about that.

There was an issue about the number of transactions, so all the post offices, whether they were Crown or whether they were sub offices, depended on people coming thorough, footfall, and using those services, and that was declining. I think, as I say in my witness statement, the Post Office used to be the only place you could a buy a stamp, post a parcel and collect your pension or Child Benefit. That was all changing.

So computerisation of the network, automation of the network, seemed not just logical but essential.

Mr Beer: What had been, therefore, the position of the CWU in respect of the Horizon System up until you ceased to be General Secretary in May 1997?

Alan Johnson: Supportive.

Mr Beer: And very supportive for the reasons that you have given?

Alan Johnson: Very supportive.

Mr Beer: To what extent had you kept abreast of the details of the Horizon project when you were a backbencher for the two years between – about two years between May ‘97 and July ‘99?

Alan Johnson: Took an interest and followed the news.

Mr Beer: So general media things –

Alan Johnson: General media stuff.

Mr Beer: – that might catch your eye?

Alan Johnson: I was on the Trade and Industry Select Committee for a short time before I became a Parliamentary Private Secretary, so for, what was that, six months? I remember attending a hearing with the Post Office about this.

Mr Beer: To what extent did you know of any complaints by subpostmasters or those that worked in Crown Offices about the operation and integrity of the Horizon System in that two-year period?

Alan Johnson: None.

Mr Beer: When you became the Minister with responsibility for the Post Office in July 1999, were you briefed about the Department’s position on Horizon, the DTI’s position on Horizon?

Alan Johnson: Yes.

Mr Beer: Can you remember what you were told about the Departmental position on Horizon?

Alan Johnson: Ooh, can I remember? No, probably not. But reading through the documents, it brings the memories flooding back. So, generally, when you get a ministerial appointment, just before the summer recess, you get a whole tonne of stuff you have to read up on before you’re back in – you know, in session, so to speak, and so I was reading through lots of stuff. And that told me about Ian McCartney’s Horizon Working Group that he’d set up, my predecessor, and it set out the framework for the Postal Services Bill.

Mr Beer: When you took up that position, what were you told, if anything, about the technical viability or technical robustness and integrity of the Horizon System, as it stood at that point?

Alan Johnson: I was told that they were introducing it very, very carefully on a very – quite a slow timescale, originally, that the whole basis of the approach was to make sure that subpostmasters in particular were comfortable with it. But that it needed to be in place by 2001, because of all of the issues that we’ll probably come on to with the Benefits Agency, the cancellation of the Benefit Payment Card, the prospect of people not being able to access their money in cash across a post office counter, which was the lifeblood of the network.

Mr Beer: When you say had to in place by 2001, I think that was spring 2001, was the –

Alan Johnson: Spring 2001 was the original timescale, yeah.

Mr Beer: Now, you’ve said, in answer to my question there, that you were told about proceeding carefully. Were you referring there to live trials and then rollout?

Alan Johnson: Yes.

Mr Beer: Were you told anything about any existing problems with the technical viability or technical integrity and robustness of the system?

Alan Johnson: I don’t recall – in the briefing before I took up the position, I don’t remember anything about that, no.

Mr Beer: Were you told about any concerns that had arisen in the course of various stages of a very extensive procurement exercise about concerns over the software that ICL Pathway was designing and developing?

Alan Johnson: No.

Mr Beer: Were you told about any conclusions that a series of third party consultants had reached about those issues during the course of the procurement exercise?

Alan Johnson: No.

Mr Beer: We know that in July ‘98, so a year before your appointment, a report co-authored by Adrian Montague, had been written. Were you told about, as part of your briefing, or given a copy of, the Montague report of July 1998 that held expressions of concern about technical aspects of the system?

Alan Johnson: No. I was told that the Benefit Payment Card that we’d – we being the incoming Government in ‘97 – kind of persevered with for a while, that the Trade and Industry Select Committee, for instance, had said, you know, we probably persevered with it for longer than we needed to do. And I know that the decision was made not to proceed with the Benefit Payment Card and that had a kind of – a whole series of ramifications, not just in relation to the future of the Post Office Counters Network but technically.

An o my impression was that they’d tried to make the Benefit Payment Card work, one of the reasons why they’d pulled that PFI was because it was two years behind and, in that sense, probably that was some of the Montague stuff as well, but I never saw the Montague report.

Mr Beer: Were you told that one of the three key reasons for the DSS’s withdrawal from the entire project was its concern that the system was technically flawed and that ICL had been in breach of contract?

Alan Johnson: No, I don’t remember being told that, no.

Mr Beer: What were you told of the reasons for the DSS’s withdrawal from the scheme?

Alan Johnson: That it wasn’t working. It was so far behind, had gone over cost, that to persevere with it would just throw good money after bad. It just wasn’t going to work. That decision had already been taken. That was kind of in the past. But that’s what I picked up from the briefing.

Mr Beer: Were you told that the DSS’s reasons for withdrawal were – included ones of principle and included a preference for ACT over the Benefit Payment Card?

Alan Johnson: We kind of knew that anyway, you know, from my days in the union. There was always this clash between Government wanting to protect the Post Office Network – that was crucially important, particularly in rural areas but not just in rural areas, in many urban deprived areas – and the DSS wanting the cheapest possible system. And I remember that kind of how much a Giro cheque cost against how much a ACT cost, you know, there was a considerable difference. And there were the issues around fraud as well, which the Benefit Payment Card was meant to deal with too, because there was an awful lot of fraud on counterfoils and Giro cheques, et cetera.

Mr Beer: The difference of a small number of pence versus sometimes 70p or 80p per transaction?

Alan Johnson: It was about 1p per transaction for ACT and about 53p for the Benefit Payment Card and about 79p for a Giro cheque.

Mr Beer: In any event, you weren’t told that one of the three key reasons for the Benefit Payment Card withdrawal from the project was a concern that the system was technically flawed.

Alan Johnson: I don’t remember seeing that bald statement about it being technically flawed.

Mr Beer: Were you aware of any technical study or assessment being undertaken between the Montague report of July ‘98 and when you took up office in July ‘99?

Alan Johnson: No.

Mr Beer: After you took up office in July 1999, to what extent did the unions – and here I have in mind both the Federation and the CWU – continue to seek to revisit the decision to drop the Benefit Payment Card from the Horizon System and move to ACT?

Alan Johnson: They didn’t. It never cropped up as an issue with the unions.

Mr Beer: Can we just look at paragraph 12 of your witness statement, please, which is on page 4. Just wait for it to come up on the screen for those that are listening and watching remotely. At the foot of the page, paragraph 12. You say:

“When I was appointed as a DTI Minister, the decision not to proceed with [BPC] and move instead to ACT had already been taken. However, after I was appointed, POCL, the unions and subpostmasters, continued to express concerns that this decision could potentially be disastrous for the counters network.

Alan Johnson: Yes.

Mr Beer: So they were still expressing concerns but they weren’t trying to –

Alan Johnson: They weren’t trying to reverse it, they weren’t, you know, launching a campaign to reduce the Benefit Payment Card. I think they accepted that. What they were pointing to was the concern that everybody had that there was now – that continuation with the old paper-based system would not allow us to do the kind of things we wanted to do, to get more work into the Post Office.

Mr Beer: So what did the unions want you to do? They were expressing concerns that the decision, the effect of the decision, could be potentially disastrous for the counters network. What was their desired outcome?

Alan Johnson: There was one big idea, which was the universal bank. So the Post Office had already reached a deal with Girobank, of course, which the whole point of Girobank being set up was so that people could bank at the Post Office, with Lloyds TSB, with the Co-operative – with the Co-op, and I think with Barclays, that people could access pretty basic banking facilities at the Post Office. So the idea – and it was a very pertinent idea, banks were closing, it was already the fact – I remember the statistic, although it reminded me in the documentation – 60 per cent of villages had a bank, 5 per cent had – sorry, 60 per cent of villages had a –

Mr Beer: Other way round –

Alan Johnson: Post Office, 5 per cent had a bank, and there was a real feeling that now the banks were getting a lot of flak for closing banks, and that they were suddenly more interested in this idea of the universal bank, that people could access any aspect of their own bank account across a post office counter. And that, of course, given that the Benefit Payment Card was only a temporary solution because people were inevitably going to move to ACT, a different generation were retiring who had got used to cashless pay and no longer felt it was important to get their money in cash.

That was going to happen anyway, even with the Benefit Payment Card, so this idea of bringing new work in was crucial, you know, universal bank was one idea, and then later, more developed, was this Government Gateway idea.

Mr Beer: If we go back to your witness statement at paragraph 13, please, which is on page 5. At the top of the page, you say:

“I understood from POCL modelling and estimates that the revenue impact would be a loss of £400 million … and that half of the post office network would close”, and you give us the cross-references to those.

Other witnesses have described this situation as an existential crisis for the Post Office.

Alan Johnson: Yes.

Mr Beer: Did you view it in that way?

Alan Johnson: Yes, I did. That’s if nothing had happened. So if you didn’t replace that with anything, the whole lifeblood was going to seep away. For subpostmasters, it was more important, of course, because if people coming in collecting their money would then spend it on other aspects in their shop, there were normally other things that they were selling, you know, in a Post Office, it was an even greater loss. That was just the loss to – from the benefits work, and Child Benefit.

So if I remember rightly, there was something like 17 million pensioners every week going to the Post Office for cash, there was something like 7 million recipients of Child Benefit, they were rarely the same people, the pensioners were rarely claiming the Child Benefit so, add that together, that’s part of the 27 million people that used the Post Office every week.

Mr Beer: Was the Horizon System seen by subpostmasters and the unions representing them as one of the principal vehicles that might enable these harms to be avoided or at least minimised?

Alan Johnson: Yes, absolutely.

Mr Beer: That Horizon was a means, the means, to secure the future life of post offices?

Alan Johnson: Yes.

Mr Beer: Did it follow that the way that subpostmasters, through the unions representing them, put it to you was a desire to have it rolled out sooner rather than later, to get it working sooner rather than later?

Alan Johnson: Well, I can’t remember what order it came in but, eventually, it was agreed that the DSS would migrate people onto ACT, their payments being made through bank accounts, ie no other alternative. It came – unless they didn’t have a bank, there’d have to be arrangements there. They were going to do that between 2003 and 2005.

So the idea of getting Horizon up and running by 2001, getting new items of work coming through, getting the universal bank up and running was very much seen in that context, that from 2003 to 2005 there was going to be an even greater fall in the number of people physically coming to a Post Office to collect their money in cash.

Mr Beer: Can we turn, you’ve mentioned it already, to the Horizon Working Group. You were, I think, the chairman of the Horizon Working Group?

Alan Johnson: Yeah, I’d forgotten what it was called, actually. I had to be reminded that that’s what it was called. But, yes, I was the chair of the Horizon Working Group.

Mr Beer: Was it in existence when you became the minister in July 1999?

Alan Johnson: It was, although I understand there were various iterations before then doing different things but Ian McCartney was chairing what we would have called, in the parlance of the time, a piece of social partnership between the unions and management in the Post Office on this very important project. That was the Horizon Working Group.

Mr Beer: We understand that the first meeting of the Horizon Working Group was on 22 June 1999 and, therefore, that was, I think, the one and only meeting before your arrival. Can we look at your understanding of the purpose of the Horizon Working Group. If we look at paragraph 15 of your witness statement, it’ll come up, it’s on page 5. At the foot of the page, you say:

“The Horizon Working Group’s … role was to (a) involve staff thorough their elected representatives in decisions on computerisation of the network and (b) to feed back any problems experienced by staff at the trial offices …”

Then you give some references.

Then in paragraph 16, you say:

“The [Horizon Working Group] had no role in overseeing or resolving any technical programming problems that may have arisen with the Horizon software. The extent of our role was to be a forum for these problems to be raised and then referred on to POCL to address with ICL.”

So you say there that the group had no role in overseeing the matters that you mention. Can we just look, please, at one of the documents that you yourself mentioned, NFSP00000063, and go to page 13, please. Just to put this in context, this is an annex to a Postal Services Directorate minute and it’s part of a joint submission in draft to the Number 10 Performance and Innovation Unit. I am just using it because it contains, in quotes, the Terms of Reference for the Horizon Working Group. Can you see at the foot of the page, in the indented section:

“In relation to carrying forward the work on the POCL/ICL Horizon project [these are the terms of reference]:

“[i] to oversee the negotiations between POCL and ICL which will develop the letter of agreement signed between the parties on 24 May into a Codified Agreement … and to facilitate any solutions to any problems which may arise.”

That first term of reference was, I think, largely discharged by the time of your appointment because the codified agreement had been signed by then.

Alan Johnson: Yes.

Mr Beer: Then if we go over the page, please, to the second term of reference, and look at the two bullet points at the top of the page:

“to oversee, to contribute actively to, and to facilitate solutions where problems arise, the completion of the development phases of the Horizon project, and in particular the smooth and timely roll-out of the system to all offices within the post office network, and the subsequent satisfactory migration of benefit payments from the present paper-based methods to more modern, ACT-based, methods of payment accessible through post offices …”

Alan Johnson: Yes.

Mr Beer: That second term of reference includes to oversee, amongst, other things, the development phases of the Horizon project?

Alan Johnson: Yes.

Mr Beer: That may suggest something slightly different to what you described in your witness statement which appeared to be more of a forum where views can be exchanged and expressed and then taken away from the meeting for other people to deal with.

Alan Johnson: Yes. So ICL, for instance, weren’t on the Working Group. It was – so, for instance, if a problem was raised there, by subpostmasters or by the CWU or by the CMA, about training, and these problems did come up, frozen screens, et cetera, balancing, we wouldn’t then – there was no one on the Working Group equipped to go and solve those problems. Those problems had to be solved between POCL, who were on the Working Group, and ICL. So we oversaw them.

Mr Beer: Did –

Alan Johnson: We had neither the technical knowledge or the ability to actually resolve that.

There was another Horizon Group that did have a technical say in this and I think officials were included on that, but ours was very much a social partnership forum for the unions to come to us with the problems they were experiencing.

Mr Beer: Accepting, of course, that you didn’t have the technical expertise to yourselves either agree or disagree that a problem had been satisfactorily solved, was it part of the group’s function to oversee, ie ensure, that POCL were satisfied that any technical issues with the development of Horizon had been satisfactorily resolved?

Alan Johnson: My major concern was that the National Federation of SubPostmasters felt that they had been resolved. CWU were less important in this respect, I say as a long-time member of CWU, because it wasn’t the same for Crown Office staff as it was for the self-employed people who’d put between them £1 billion into their businesses and had a contractual obligation, their relationship with the Post Office very much a contractual obligation so.

For them it was crucial and they were much more in the frontline of this. So, yes, to make sure they were satisfied was very important.

Mr Beer: Just exploring that answer that you’ve just given, did you think at the time that the impact of any technical concerns or issues over the integrity of the system would impact subpostmasters financially more directly than they would those who worked in Crown Offices?

Alan Johnson: Yes, because it was their businesses. I didn’t think of it like that. My approach to it was that the people who know what problems are being created here are the people on the frontline. So, for instance, I’d been through this in a very different way in Royal Mail. When I joined, everyone sorted letters by hand, when it became – we called it mechanisation, sorting machines, et cetera. I knew firsthand how important it was not to listen to the regional directors or even the regional union. It was the members on the floor that could see the problems arising and that forum was very much to get those views and to make sure then that both the Post Office and the subpostmasters were happy that the problem had been resolved.

Mr Beer: So this was most certainly a forum within which the National Federation and the CWU had the ability to raise issues directly with Government face-to-face, and also directly with POCL face-to-face –

Alan Johnson: Yes.

Mr Beer: – including any persistent technical issues or difficulties with the programme, which had, in turn, been raised with them by their members?

Alan Johnson: Yes, absolutely. And that was very much – I can’t – there’s a letter from Stephen Byers somewhere in here, predated my appointment in, I think it was July or August 1999, to the NFSP – it’s part of the witness statement somewhere here – saying why the Secretary of State wanted the NFSP to participate in the Horizon Working Group, and that was very much based – a forum for them to put their members’ views forward, essentially to Government as well as to POCL.

Mr Beer: Did that, in fact, happen?

Alan Johnson: Yes, there were –

Mr Beer: Did –

Alan Johnson: – issues raised. I think from my – from reading back from these minutes, and indeed I have a memory of this, the big concern was that the Benefits Agency were pushing their people towards ACT, well before the – 2003. That became something that dominated Horizon Working Group meetings, but they did also report thorough technical issues, as well. Whether they did that as – you know, as regularly and vociferously as they were able to do, that was the forum for them to do that.

Mr Beer: We’ll come back to that in a moment, just picking up on the reference to the letter you mentioned, just so we’ve got that. I think that’s BEIS0000325. I think the paragraph you’re referring to is at the foot of page 2, beginning “I am grateful to you for your contribution”:

“I am grateful to you for your contribution to the Working Group established to oversee progress with revised the Horizon contract and to explore further the commercial potential of the automated network. Your members as both business proprietors and providers of post office services are ideally placed to contribute ideas and suggestions on new products and ways of working which are vital to the future success of the network. It is vital that subpostmasters as key players in the post office network have a direct channel of communication with Government to help shape the future of the post office network. A key role of the Working Group is to provide this channel.”

Is that’s what’s you were referring to?

Alan Johnson: That’s actually what I was referring to, yes.

Mr Beer: Just going back then, did the NFSP and the CWU – I’m putting aside anything you may have learnt when attending conferences or the NFSP Executive Council, or anything else that you heard in the wind, as it were – in the course of these Horizon Working Group meetings, as the forum for raising them, did the NFSP or CWU raise with you any persistent technical issues or difficulties with the Horizon system that had been raised in turn with them by their members?

Alan Johnson: Well, that’s a challenge, whether it was at a conference that I attended that we’ll obviously come on to, or whether it was at Working Group meetings. But I remember nothing from the CWU but what was reported back was about frozen screens, was about lack of training. I don’t remember balancing coming up until I went to the conference, when the – the previous evening before my speech, I heard people talking about that as well.

So I’m pretty sure those issues were raised at Working Group meetings.

Mr Beer: In paragraph 17 of your witness statement, if we can turn it up, please. It’s on page 6. In the middle of the page, you say:

“… as I recall, there was not a delay in the acceptance of Horizon but rather a pause in rolling out Horizon further following concerns raised by subpostmasters through their unions.”

Can you remember what those concerns were that led to the pause in further rolling out.

Alan Johnson: The helpdesk, screen freezing – all of which was Greek to me, by the way, but it wasn’t just me who was computer illiterate at the time, it was probably the whole country were pretty computer illiterate – and training. So screen freeze, training and helpdesk, they were the three issues I remember being raised.

Mr Beer: You describe it here as concerns being raised by subpostmasters thorough their unions. Does that mean literally subpostmasters, ie not –

Alan Johnson: Yes.

Mr Beer: – thorough Crown Office workers, through the CWU, it literally means by subpostmasters through the NFSP?

Alan Johnson: You could take the S off “unions”, yes, thorough the Federation.

Mr Beer: So there weren’t such similar concerns raised by those that worked in Crown Offices to you, through the CWU?

Alan Johnson: No, I wasn’t surprised by that. They were on a different timescale, had a different working environment but no.

Mr Beer: Why weren’t you surprised by it?

Alan Johnson: Because I didn’t think it was the same kind of pressure as on, you know – our people worked in offices where there were usually 10, 15, 20. I’d been to sub post offices where, you know, there’s one person serving a community, one or two, who were quite isolated, sometimes quite elderly, as well. And so, you know, these kind of difficulties and changes would have been much more of a challenge, I would think, for them. So I think it was more likely to come through the Fed than the CWU.

Mr Beer: When we get to the balancing problems – we’re jumping ahead a little bit now – have you formed any retrospective view as to why, if there were software issues that led to balancing problems causing shortfalls or gains in Crown Offices, why the CWU wasn’t banging on your door?

Alan Johnson: Um … they didn’t have a contractual obligation to put any money in, if the balance didn’t work out. As I understand it, the subpostmasters had signed a contract to say that, if it didn’t balance, they had to put some money in. Sometimes, it over-balanced and they took some money, you know, some money out. Swings and roundabouts, they would say. Our people didn’t – they had to balance but it didn’t have those same contractual issues that meant it was their finances. Very much their finances, because also, of course, the subpostmasters had put their money into the premises.

Mr Beer: Going back to your witness statement, please, at page 6, paragraph 18, the question at 4c was:

“What do you recall of any concerns raised by the membership of the Horizon Working Group (or other key stakeholders) in relation to the robustness of Horizon and its technical integrity prior to rollout?”

You say:

“Rollout had already commenced when I took office. As it progressed, I recall concerns about training and quality of software being raised at a meeting of the NFSP’s National Executive Council.”

They are recorded in a report of the Council meeting held on 18 to 20 October 1999.

Can we go, please, to NFSP00000458. We can see that at the front page of the report – it’s 89 pages in length, and I’m not going to go through all of it. You can see from the front page it’s a report of the meeting of the Federation’s Executive Council held over three days at a nice hotel in the Malverns. You weren’t present at this meeting.

Alan Johnson: I don’t think so. I recall going to one NFSP meeting for a kind of flying visit.

Mr Beer: If we look at page 15 of the document, please. We can see a cast list and, so far as I can see from that and from the body of the document itself, it doesn’t appear that you were an invitee. There are couple of parts of the meeting record that I want to ask you about, please, because they reference you and things that you are said to have done.

Alan Johnson: Sure.

Mr Beer: Can we go to page 36, please, and then look at the bottom half of the page starting with “Mr Edmondson”:

“Mr Edmondson advised that the Minutes of the north east meeting … had been circulated. Some of the offices had been included in the trial. A questionnaire had been sent to all of these offices. At the end of the meeting the attendees were asked if they would like Horizon scrapped. Everyone agreed to stick with it but [I think that’s ‘halt’] and reintroduce it right. Complaints were received on balancing and training though some trainers were excellent. After having received training some subpostmasters did not feel competent do a balance. He explained that one subpostmaster ended up with a breakdown through the stress and pressure and many were very distressed. Mr Edmondson went on to say that we have got to back Horizon because we want it to happen …”

Was that, just pausing there at the moment, a commonly expressed view to you, by either or both of the unions, “We really need to back Horizon, in our long-term future safety”.

Alan Johnson: Yes, I can’t emphasise enough as how everyone saw that as the lifeboat in an industry where 200 post offices were closing every year. That had accelerated, and it looked like the only way to counter this was to allow this universal bank; the only way you could get a universal bank was if it was computerised.

Mr Beer: And the only way you could get computerisation was by getting Horizon working?

Alan Johnson: Yes. But the important point was, of course, you wanted to it to work properly and I don’t know of a computerisation project anywhere, let alone one on this scale – I doubt there’s been one on this scale with that, what, 4,000 counter positions in 19,000 post offices, all having to be linked in, it was a huge project. And so it wasn’t unusual for problems to occur but nobody wanted those problems to just be brushed to one side. We wanted them resolved, so that it could move ahead with the total support of the people who had to operate the system.

Mr Beer: Mr Edmondson said:

“We have got to back Horizon because we want it to happen …”

Then he said, or is reported to have said:

“… but asked are we being fair to subpostmasters. He felt that we have got to go back to the Post Office and get them to get things right before national rollout.”


“The General Secretary responded saying that the difficulties are known and there are number of issues. The modifications required are costing an additional £13 [million] and will be marketed as a success for the Federation. He went on to say that, in spite of the pressure Ian McCartney put on Dave Miller, Ian McCartney was of the view that Horizon had to make the deadlines. Alan Johnson has a different view. When Dave Miller asked him if he wanted Horizon to roll out he said no, not until it has been improved. Different training and software was essential. We [that’s the NFSP] can claim credit that the programme was brought forward to stop at 7 November.”

Then it continues. Do you recognise the exchange that attributed to you there?

Alan Johnson: Does that mean do I remember it? I don’t remember it, but that sounds right. I don’t think – I didn’t differ from Ian McCartney in the importance of the timescales and deadlines, but my view, and I think it would have been Ian’s view as well, was that we had to sort out the problems.

We had this opportunity of a Christmas kind of wind down. My understanding was that it was already going to stop, this kind of 300 offices a week, whatever it was. We were at very early stages here, this is October ‘99, so there would have been about 1,000 post offices out of 19,000/20,000, that were actually part of the group – part of Horizon.

There was going to be a stoppage at Christmas because of the pressure on post offices at Christmas.

Mr Beer: This document can come down now, so the Chairman can see you. Thank you.

Alan Johnson: Yeah.

Mr Beer: When the document is up the Chairman can’t see you.

Alan Johnson: Okay. So this was a perfect opportunity. I think the reference there to it being 7 November is they were going to stop at the end of November, but now, if they stopped early in November, they would have a complete two/three months before it got going again in January to sort out these problems. There was a natural pause there. And the natural pause was extended a bit, I think, by my intervention with Dave Miller but not by a tremendous amount. It gave enough time to resolve the issues.

Mr Beer: It records, this document, that you said that Horizon should not be rolled out until it had been improved, and those observations were made in the context of complaints having been made on balancing and training, that there were reports that the system was not user-friendly, and complicated to use, and that one subpostmaster had suffered a breakdown?

Can we just go back to your statement, please, paragraph 19, page 7. You were asked a question at 4d:

“Like all those who were concerned about the gradual erosion of the post office network, [you] saw computerisation as the only effective way to preserve existing transactions … Horizon was the vehicle for that computerisation [you’ve told us that already]. Nobody, so far as [you] knew, thought that maintaining the paper-based system of the Victorian era was going to serve the Post Office … in terms of specific issues once rollout had begun, I shared the concerns referred to in paragraph 18 above, with POCL, which prompted a pause to review the rollout in November 1999.”

Just stopping there, going back a page to paragraph 18, you’ve told us that you shared the concerns relating – mentioned in paragraph 18 with POCL and, in 18, you say at the end of the first line:

“… I recall concerns about training and quality of software …”

Go back to 19, please. In the middle of the page, about ten lines in:

“… I shared the concerns referred to in paragraph 18 above with POCL which prompted a pause to review the rollout in November 1999.”

So are you, by the combination of those paragraphs, saying that you shared concerns concerning training and quality of software with POCL.

Alan Johnson: Yes.

Mr Beer: You continue:

“The rollout had been gradual, with only around 600 or the 19,000 post offices involved … As it said in the NFSP report, I did not want Horizon rolled out further until it had been improved.”

Then you give a reference, and that reference there is back to the minutes of the 89-page report of the NFSP meeting.

So just to understand what’s going on here, you’ve taken the reference to the pause in the rollout from the minute of a meeting that you weren’t at, which I don’t think you would have seen at the time, and used those as the basis for saying that you had been told about concerns over training and quality of software, you shared them with POCL, and that that prompted a pause to the rollout; is that right?

Alan Johnson: Yes. I can’t remember doing it, so I am, as you rightly say, relying on the minutes of a meeting that I wasn’t at.

Mr Beer: Yes. I want to work out whether there was anything more formal that we ought to be seeing than that, like something in writing, where the unions raise an issue with you, ie reducing to writing what the problem is, with some specificity. Did that ever occur?

Alan Johnson: No, not so far as I remember. But, you know, there was the regular dialogue with – POCL were at the joint working party when these things were being raised as complaints, and the expectation was that would – that being relayed to them verbally, they’d get on and resolve it. There would perhaps have been a stage further down the route, where it would have to be put into writing and become more formal. But my understanding was that those issues were resolved and both sides, POCL and NFSP gave the thumbs up to rollout continuing.

Mr Beer: If the working group was maintaining oversight of that kind of process, was there ever an occasion when the issues raised were reduced to writing, were formally put from one side to the other, there was a written response, and then the working group judged the adequacy of it?

Alan Johnson: No, I can’t –

Mr Beer: It didn’t work like that?

Alan Johnson: I didn’t work like that, I can’t recall that. Basically if, things were raised with a Government minister and a Government minister said “This needs to be sorted out”, it was sorted out.

Mr Beer: You were satisfied, presumably, because at the next meeting nobody said, “Hold on, this is still a problem”?

Alan Johnson: Yeah.

Mr Beer: Can we turn to your witness statement, please, at paragraph 20 on page 7. You say:

“That said, I think everyone would have been amazed if there were no problems at all given the size and scale of if what was being implemented, especially in a world where digitisation was so new. The problems we were seeing reflected an expectation of what might happen with such a programme.”

You’ve given a piece of evidence this morning to similar effect.

Should the Inquiry take that to mean that the number, the nature, the level of issues being raised with you in these meetings were no more than teething issues or glitches that might be expected in the rollout of any such large scale project and nothing more than that.

Alan Johnson: Yes, I think so. I see here it was 600 offices out of, what, 19,500. That was – the whole point was to get these issues out early. So there were no alarm bells ringing that this might be a huge problem with this, certainly not that it ought to be replaced or that we were building up problems in the future, issues were raised, they were raised with the Post Office, they raised them with ICL, we got a thumbs-up that those were resolved, and rollout carried on.

Mr Beer: You were getting, as your main source of information here, your information from the unions; is that right?

Alan Johnson: The only way I could get it, I guess, unless, you know, I went round to sub post offices and talked to the subpostmasters themselves, yeah. It was – that’s why the joint working party was for crucial for NFSP, for us to listen to the NFSP than any other of the – with all due respect, the unions except – there were other forums for the other unions to make their views known.

Mr Beer: So if a red flag was to be raised or an alarm was to be pressed, it was for the NFSP to do so at these meetings?

Alan Johnson: Yes.

Mr Beer: Was any consideration in the meetings given to what was happening to the subpostmasters on the ground in terms of balancing problems, given that they had a contractual obligation to make good shortfalls, and whether they should be given the benefit of the doubt when any shortfalls arose?

Alan Johnson: The issue never arose. I don’t remember that being raised at any Working Group meeting that I chaired.

Mr Beer: Were you aware, or was there any discussion, in the Working Groups that you chaired, about what should happen to subpostmasters in terms of investigation, suspension and prosecution of them, where Horizon showed a shortfall?

Alan Johnson: No.

Mr Beer: The Inquiry has received evidence from one subpostmistress, Pamela Lock, that she began to see shortfalls on the Horizon System in January 2000. She took some money from her own ISA to put money into the system – £5,000, I recollect – in order to make it balance, but the shortfalls continued. She has told the Chairman that she was phoning the helpline two to three times a week about the shortfalls. They provided no help, that in July 2000, auditors came to her branch and found a shortfall of £26,000. They asked her where the money had gone, and she said that it must be in the system, it must be the paperwork, because she didn’t have the £26,000.

But the auditors closed her branch, they took away the keys. She’d been a subpostmistress for 25 years. She was interviewed and then taken through the criminal justice system by the Post Office. Did you know that any of that was to going on –

Alan Johnson: No.

Mr Beer: – whilst the Horizon Working Group was meeting –

Alan Johnson: No.

Mr Beer: – and overseeing, and actively managing, the rollout of the system?

Alan Johnson: No.

Mr Beer: If you had known about the conduct of Post Office Counters Limited to Ms Lock or people like her, what would your view have been?

Alan Johnson: One of disgust.

Mr Beer: Why?

Alan Johnson: That she should be treated in that way. This was a new system so you’re saying this happened in July 2000?

Mr Beer: The first shortfall she noticed was in January 2000 –

Alan Johnson: January 2000, so –

Mr Beer: – and the auditors arrived in July 2000.

Alan Johnson: That’s crazy. It’s should have been something we knew about, if it’s connected, as it seems very much to be connected, with the software. That’s precisely what the Horizon Working Group was there to hear, those kind of issues. That, in particular, I mean, would have been – set alarm bells going with anyone remotely concerned with the trade union world and employment relations, and who, as I did, understood some of the kind of overreactions you sometimes got from what we used to call the Post Office Investigation Division.

Mr Beer: Why did you sometimes get overreactions from what was then called the Post Office Investigation Division?

Alan Johnson: I won’t bore you with the strikes I had to deal with. So when we worked on the sorting office floor, we worked under two-way mirrors, where we were watched all the time by people from the Investigation Department, and sometimes they would come and arrest people standing on the sorting office floor for all kinds of things.

One guy looked at a travel brochure that was going to a country that he was going on holiday to and, as he was standing at – what we used to call the packet frame, manually sorting this, he just for a second, took it out to looked at it, was arrested and taken to prison. He was a war hero, by the way. It happened in Preston: big national strike spread right across the north west.

So I wasn’t a stranger to the kind of strongarm tactics that were sometimes used by POID. Now Counters people were in a completely different situation, the subpostmistress that you described, it’s her livelihood, her home, probably. And, as I say at the beginning of my report, the reputation of the Post Office was largely there because of subpostmasters and subpostmistresses being valued in their community. So the effect this would have had, this would have set all kinds of alarm bells going.

Mr Beer: Against the background that you describe, was any thought given by the Working Group to what shall we do in the interim? We’ve got these problems being reported to us with the system. There’s not only an imperative to solve them but we need to look after our people whilst those problems are solved, and that they’re not, for example, hauled over the coals, not criminally investigated when there might be a different explanation for the shortfalls.

Alan Johnson: I would have thought that would have been specifically outlawed during a period when people were getting used to the new system. That wasn’t – right, so the point that you raised, the issues you raised about that subpostmistress, didn’t come up at any meetings, didn’t come up at the NFSP conference, which was in May of that year. Nobody came to me with that. Nobody put the kind of red flag up that should have been put up about what happened to that woman, because it was obviously a precursor of what was to come.

Mr Beer: I should say that 20 years later, Ms Lock did have her conviction overturned.

Alan Johnson: Well, that’s good.

Mr Beer: Can we turn, please, to paragraph 30 of your witness statement, which is on page 10. You say in paragraph 30 the reasons for the delay in the rollout of the system were the technical issues with Horizon. You recall attending the final 30 minutes of the POCL board meeting on 11 January 2000. Had you formed a view whether there was sufficient expertise in the ranks of civil servants in the DTI to be able deal with any technical issues raised with them about the operation of the Horizon system or wasn’t that their function?

Alan Johnson: I don’t think it was their function. It wasn’t the expectation that DTI civil servants would resolve these problems. There were problems between POCL and ICL, and very few people had the kind of technical understanding necessary to resolve them.

Mr Beer: You refer in that paragraph to the minutes of a Post Office board meeting. Can we chase that down, please. It’s POL00000336. We can see this is the minutes of the board meeting of main Post Office – Post Office Board – on 11 January 2000. You can see the cast list there. Then, if we go over the page, please, you’re not mentioned in that cast list – over the page under “Chairman’s Business” it’s recorded that you:

“… the Minister with responsibility for The Post Office, was attending for the final thirty minutes of the meeting. The Chairman intended to raise the following issues with him …”

We can ignore the first two, but Horizon and the PIU – can you recall what the PIU was?

Alan Johnson: Yes, absolutely.

Mr Beer: What was the PIU?

Alan Johnson: Performance and Innovation Unit of Number 10.

Mr Beer: Just describe to us – we’re going to hear more from Sir Geoff Mulgan this afternoon about the PIU, but can you introduce the PIU to us, please?

Alan Johnson: Yes, this was very much a whizzy kind of Government initiative that where there were serious problems, there ought to be group of very, very committed civil servants from right across government. It shouldn’t be decompartmentalised, it shouldn’t be siloed. Where an issue crossed government borders, as this did, because it involved DSS, as well as DTI and others, a real attempt should be made to look to the future, look at how these issues can be resolved, and produce a report with the backing of Number 10. Very important that the Prime Minister was involved.

A neutral minister was appointed to oversee it, Charles Clarke in this case, and we were very pleased – “we” being the DTI, but also, I think, all the unions and everyone involved in the Post Office – that the Post Office went right up the list to the top. Because there were many other issues, obesity, for instance, was one that they eventually got round to.

So of all of those problems, the Post Office was seen as paramount and that pleased us very much because it allowed us to develop these ideas about what the computerised network could do and what more work we could bring across Post Office Counters.

Mr Beer: So generally it was seen a good thing by the DTI –

Alan Johnson: Oh –

Mr Beer: One impression that one might have got from your witness statement, where I think you mentioned there was a group of “bright, young things” –

Alan Johnson: I wasn’t being detrimental there. That wasn’t a – yeah. That wasn’t a derogatory comment.

Mr Beer: Right.

Alan Johnson: They were genuinely bright, and very, very committed. I met them a couple of times as they built up steam.

Mr Beer: In any event, can we go to the part of this meeting where I think you were present. Can we go to page 10, please.

Alan Johnson: Heavily redacted you’ll see, with “Irrelevant” there.

Mr Beer: Yes, there’s lots of things in this Post Office Board that don’t concern us.

Alan Johnson: No, fine. Oh, I see. So it’s your redaction, not the Post Office’s?

Mr Beer: It is. Although you’re right to be suspicious on this occasion. The Inquiry has, I think vouched safe the redaction. Can we look, please, at the foot of the page, an update on the Horizon programme. The rollout of Horizon was due to recommence on 24 January, a great deal of work had been undertaken to rectify difficulties identified in three areas: one, system stability; two, accounting integrity; and three, the provision of support to offices.

Although this minute of the board is not written in a way that suggests who was speaking here, do you recollect that would be you speaking about work having been done in relation to, amongst other things, accounting integrity?

Alan Johnson: No, I think that would be the Post Office.

Mr Beer: Can you recall attending a meeting where –

Alan Johnson: I do, yeah, because it was the first time, having joined the Post Office as an 18 year old, as a postman, first time I’d ever been to the Post Office Board, so it was a wonderful occasion for me. I remember it.

Mr Beer: Can you remember what was said about accounting integrity –

Alan Johnson: I can’t.

Mr Beer: – which is obviously of particular concern to this Inquiry?

Alan Johnson: I can’t.

Mr Beer: If we just look at the foot of page 10:

“Although as yet uncertain it was anticipated these issues would not prevent rollout recommencing.”

Alan Johnson: Yeah.

Mr Beer: Then over the page:

“Financial performance was being monitored against a revised budget. Given the programme was expected to recommence rollout it would be helpful for the Board to understand what marketing opportunities were now being considered.”

Then some other information that is not relevant to us.

The previous part tends to suggest some reassurance being given to the board that action had been undertaken successfully to rectify difficulties with accounting integrity. Can you recall who was giving that, who was speaking about that?

Alan Johnson: No, but that wouldn’t be me. They wouldn’t have my – that would have been Stuart Sweetman or someone like that giving that reassurance to the board that the issues had been addressed.

Mr Beer: Thank you. Can we move forwards, please, take the position a little further forward now, to May 2000, please, and look at NFSP00000436. Thank you. This is a report of the annual conference and the part that we’ve got of it is a record of a speech you made and then a question-and-answer session, involving others at the NFSP conference over three days in Eastbourne 15, 16 and 17 May 2000 and, therefore, the speech was made in the course of national rollout; is that right?

Alan Johnson: Yes.

Mr Beer: Can we turn to various parts of it, please. Can we look, please, at page 7. If we look at the second paragraph down, this is part of what you were saying:

“In conclusion, Madam President, the next few years are a crucial time for the network. We have a short window of three years to implement a programme of modernisation and diversification in order to build up a strong future for the network and those who work and have invested in it. I believe that by working together, we’ll be able to secure this future and, in the light of the Post Office’s developing business environment over this period, we shall need to monitor and review progress carefully to ensure that we remain on course to achieve all of our objectives.”

Then further down the sixth paragraph, the one which begins with “Mr Alan Johnson MP: Now I’ve lost the lectern”. You say:

“… I’ve lost the lectern and the microphone is too far off. Can I just say something about 2003?”

You say:

“I was a backbencher when the announcement was last May and I had concerns about that timescale and you all obviously still have concerns. As I said in the speech, we will have to keep it looking at this situation and revisiting it before 2003. I have to say one thing. I have never seen the Business – the Government – partly by the atmosphere that you’ve generated or the work who work within the industry, concentrating so hard on how to promote and develop this under-promoted, under-developed network. You know, there’s been faults on all sides in the past. I’ve said this before. I hope people don’t take offence, but some Post Office managers haven’t been the sharpest knives in the drawer. Some members of the Government have paid lip service to the Post Office but allowed the thing to dwindle on and allow gradual decline and I think, you know, you recognise that your members, my members in the CWU, need to recognise that we really do need to sort this thing out.”

The target of 2003, why was that important for the continued viability of the Post Office?

Alan Johnson: This is in response to a question, of course, from the National President –

Mr Beer: Yes.

Alan Johnson: – that’s why I’m talking about 2003.

Mr Beer: Yes.

Alan Johnson: Because of the decision to migrate to ACT, the benefit recipients to migrate to ACT.

Mr Beer: As you’ve explained earlier, is this is an expression of you saying why the success of Horizon was fundamental to that target?

Alan Johnson: Yes.

Mr Beer: Can we go on, please, to page 11, and look at one-third of the way down, where I think a member for Northumberland and Tyneside speaks, Mr Martin:

“My concerns are similar to the National president President’s, which I don’t think her question was answered particularly well. 2003 is only two-and-a-half years away. It’s taken a lot of years for us to get the Horizon System into our offices. If the same applies to this new banking system, 2003 is not realistic. These are the concerns that we have – what happens in 2003 if this system is not set up?”

Then your answer, please, next paragraph down:

“Ray, I take your point but I can’t really add anything to the answer I gave before. 2003 is – well, I’ve heard all kinds of – sort of three years away, two-and-a-half away – it does give time. If Horizon goes properly, which will be completed in the spring of next year … let’s move off of that issue very quickly. (Laughter)”

Just that extract there, “If Horizon goes properly” and then you say “let’s move off that issue very quickly”, which prompted laughter.

Alan Johnson: My usual eloquence there. I don’t know what I was talking about.

Mr Beer: I realise none of us want what we’ve said to be played back by way of transcript, but is what you said there a reflection of the fact that everyone in the room, you included, knew that Horizon would not “go properly”?

Alan Johnson: No, it’s a reflection of this: the Benefit Payment Card was going to be the solution; benefit Payment Card had gone. Money was going to be paid into pensioners and recipients of Child Benefit, remember Child Benefit, as it was then, was going to be paid into people’s bank accounts. Could we allow them still to get their money in cash across a Post Office Counters? Yes, we could, if whatever they bank they banked with – and there was also talk at the same time, the Chancellor in his budget speech had talked about basic banking offer, because we were also worried about social exclusion, the number of people who didn’t have bank accounts, paid more money because they weren’t able to use Direct Debit, so it cost them more.

All that was going to happen. If we weren’t in a position by then to allow people to access their money in cash across a Post Office counter, then there was going to be a very quick deterioration, and that 400 million reduction in money coming into Counters, which is their transaction plan – they get paid for each transaction – it was going to be a disaster: a disaster for the Post Office, a disaster for the subpostmasters.

So yes, we were very much focused on Horizon being in place by 2001, then giving time for the new products to come in, the PIU report, hopefully backing those, and then 2003 to 2005 when the migration is happening, people can still – because it was very important to some people to still get their money in cash across the post office counter. They could do it because, no matter what bank their money was in, they could come and access it in cash.

Mr Beer: You continue:

“All the problems of balancing, I know, we are converting in accordance with the timescales and it’s an enormous programme. God, you’ve been at the sharp end of it, but it has to be completed by the spring of 2001.”

You refer there to all of the problems of balancing, and you know. Where had you heard about the problems of balancing from, bearing in mind this is May 2000.

Alan Johnson: Not the example you gave earlier, that is on a different scale. What I’d heard – and, actually, I’d gone down to Eastbourne the night before, so I’d been mingling with various conference delegates, and that came up as it was to come up in the session that had followed mine, with the Post Office manager. I’d gone by then –

Mr Beer: Mr Grey?

Alan Johnson: Don Grey. Although, you know, once again, that issue – I mean, that is horrific. So there’s a big difference between people dealing with a computerised system, they were used with a paper-based system, the big moment in every post office and Crown Office was balancing day, it was usually on a Wednesday. You know, I knew this. And so it was not surprising that people were having issues here, suddenly being put onto a new system.

There was supposed to be help for them, there was supposed to be a helpdesk they could ring. People were complaining that no one was there when they rang, and it was important in all the other transactions but it was crucial on balancing because of the financial effects on the subpostmasters so I heard gripes about that and –

Mr Beer: What did you hear?

Alan Johnson: – and complaints about that. Oh that, you know “Here’s the issues we’re facing, Alan, the screen keeps freezing, we can’t get anyone on the helpline that we’re supposed to get, balancing is a particular problem for us”.

Mr Beer: What was the problem with balancing being a particular problem, what were they saying?

Alan Johnson: I can’t remember the exact – this is the general kind of view of delegates at that conference, of where they’d been experiencing problems, those that were involved in Horizon – of course not all of them were – that these are the issues that needed to be sorted out. That wasn’t a surprise, because balancing was such a big issue anyway. But nobody was. Flagging up that POID were getting involved and people were being asked to pay the money back. I would have thought – and in my naivety I did think, by the way, that there was some kind of exemption during this rollout period for anyone who wasn’t balancing properly because it would have been the software rather than the individual.

Mr Beer: What kind of exemption?

Alan Johnson: Well, I would have thought there would have been some acceptance that, if you were part of the trial rolling out, there’s a period during which the balancing, if it doesn’t go right, it’s attributed to the software, not to the individual subpostmasters.

Mr Beer: So giving the subpostmaster the benefit of the doubt?

Alan Johnson: Yes, absolutely.

Mr Beer: Like an embargo on suspensions, terminations and prosecutions?

Alan Johnson: The kind of thing you would do, yeah. The kind of thing you would do in a situation when you’re having such a massive change from one system to another.

Mr Beer: You tell us that you left the conference before the question and answer session and the presentation by Mr Grey.

Alan Johnson: I’d taken my own questions and answers, of course.

Mr Beer: Yes.

Alan Johnson: Yes.

Mr Beer: But the presentation by Mr Grey and his question-and-answer session?

Alan Johnson: Yes.

Mr Beer: But I think you obtained a transcript of it; is that right?

Alan Johnson: Yes. You sent it to me.

Mr Beer: No, at the time?

Alan Johnson: Yeah, okay. I don’t remember receiving –

Mr Beer: If we can look, please, at NFSP00000332. This is a largely, for present purposes, innocuous minute. You’ll see who it’s to and who it’s cc’d to. It’s just because of something that it says in it. This is 18 May. If we go over the page, please, and in the second paragraph, Mr Gibbs, the network policy and transformation manager says:

“After the meeting this afternoon I received a call from Colin Baker and he tipped me off that the DTI representative at the conference had reported back the problems with polling, and that Alan Johnson, Minister for Competitiveness at the DTI, and responsible for the Post Office, had asked for a copy of the transcript of this part of the conference.”

That was the basis on which I was saying that, at the time, rather than more recently, you had sought a transcript. Can you help us with that?

Alan Johnson: Maybe I did, but I wouldn’t be surprised if Colin Baker hadn’t said that as a way to move them along.

Mr Beer: What do you mean by that?

Alan Johnson: That sounds just the kind of thing I’d have used as General Secretary of the union. If I was tying to get someone to do something, I’d have said, “Oh, and the Government Minister, by the way, is interested in this, so you’d better get your finger out”, that sort of thing.

Mr Beer: Even if it might not be entirely accurate?

Alan Johnson: Entirely accurate in the sense that I hadn’t asked for the transcript, no, but –

Mr Beer: Can you –

Alan Johnson: – but maybe I did. Maybe I did. Let’s give Colin the benefit of the doubt. But that’s the day afterwards, I think – no, was it two days after I’d –

Mr Beer: I think that’s the first day, actually.

Alan Johnson: Was it the first day?

Mr Beer: Yeah, I think this was written on 18 May –

Alan Johnson: Okay.

Mr Beer: – and the first day of conference – oh no, you’re quite right. It was 15th, 16th, 17th. This was the day afterwards, quite right.

Alan Johnson: Yes.

Mr Beer: In the course of that – I’m not going to go through the question and answer of Mr Grey, a number of subpostmasters and their representatives made complaints. One said rollout fell short of an automated system, nothing had changed since the live trial. He had been instructed to go back to manual listing pension and allowance dockets. Another said that, in his area, 17 out of 44 post offices received no support whatsoever and they’d had to serve customers manually.

Another said it was impossible to get through to the helpline, and trainers had no idea how to run a post office. Another said elderly subpostmasters couldn’t make the system work and were retiring. Others complained of balancing problems. Another said that there were thousands of errors notices in his area. Another said that a trainer had confessed to him that he didn’t know how to balance the system.

Can you remember at the time whether, as the Minister, you became aware of those problems reported to the national conference?

Alan Johnson: I expected, in a question-and-answer session when the Government Minister is there, for representatives of the National Federation to express their concerns. I didn’t expect anyone to come to the microphone saying, “You’re doing a great job”, and all of that. Of course, it was the forum for them to do that. Why would they not use that opportunity?

But I tell you, if anyone had come and said – relayed the story that you relayed about what happened to that poor woman, that would have been cause enough to immediately go to the Post Office, immediately say, “This system – you cannot do this. This is not the way to treat subpostmasters”. I don’t understand why that was happening and no one was reporting it at the conference and no one was reporting it to me.

Mr Beer: Moving the narrative on still further, please, can we go back to paragraph 38 of your witness statement, which is on page 13. The question in paragraph 38 that you’ve been asked was:

“What, in particular, did you understand problems of balancing to be?”

You answered:

“This came up as one of several issues raised by subpostmasters that I heard as an observer at the NFSP Executive Committee meeting I’d attended in October 1999.”

Then this:

“It was also the most consistently mentioned technical issue by delegates to the NFSP conference I attended in May 2000.”

Are you referring there to the night before the conference?

Alan Johnson: Yes. But it also came up in the questions as you’ve just confirmed.

Mr Beer: Then in paragraph 39, please, over the page, you say:

“The NFSP represented the vast majority of subpostmasters. Had they not been supportive of Horizon, I don’t believe it could have been introduced. All these SPMS were self-employed. Every sub post office was a small business and postmasters and mistresses more than anyone were keen to ensure the network was prepared for the new millennium. Horizon was seen as essential to this aim.”

Looking back now, do you consider that the NFSP properly represented the interests of subpostmasters in supporting Horizon?

Alan Johnson: Yes.

Mr Beer: Did it raise with you any of the types of case that I mentioned a moment ago? I gave but one example.

Alan Johnson: No. Not that type of case, no.

Mr Beer: So was it your view that the things you were being told, were the normal gripes and glitches that were at a level of any rollout of a large IT system?

Alan Johnson: Yes.

Mr Beer: Finally, can we look, please, at your position of Secretary of State for Trade and Industry in May 2005, so we’re going forwards five years. You held that position, I think, for a year; is that right?

Alan Johnson: Yes.

Mr Beer: You tell us that you don’t recall any issues concerning Horizon being raised with you at that time?

Alan Johnson: No.

Mr Beer: Did your department, the DTI, have a presence on the Post Office Board at that time?

Alan Johnson: Oh, I can’t recall. I know I was one of the shareholders still. Me and the Chancellor.

Mr Beer: Again, at this time, 2005, speaking in general terms, what was the Government the level of Government involvement in the running, management, administration, or oversight of Post Office Limited?

Alan Johnson: Well, I know the Postal Services Bill was now an Act. I’m not sure it ever received royal assent. I think it was around then that Royal Mail, using their commercial freedom, decided to rename themselves Consignia, which didn’t go down too well, and they changed it back. So – and by now there was a regulator, that was part of the Act. So the vision of giving the Post Office greater commercial freedom whilst retaining it in the public sector was now a fact, rather than a Government Bill.

Mr Beer: Can we turn to paragraph 43 of your witness statement, please.

It’ll come up on the screen. You were asked:

“Did you have any concerns about the Horizon System after this period in office?”

That’s after May 2005 when you came back as DTI Secretary of State:

“A group of subpostmasters came to my constituency surgery in Hull to raise concerns about money going missing and subpostmasters being blamed when the problem actually lay with the software. I can’t remember exactly when it was but it was [a long time] after my involvement and, I presume, after Horizon had been rolled out to every office. The lead spokesman was from Doncaster and none of those attending were my constituents. I think they came to me because of my long association with the Post Office, being a former postman and CWU General Secretary.

“There is a strict parliamentary rule against making representations on behalf of people to whom the MP is accountable (ie non-constituents). I explained this to them and suggested they contacted their own MPs. I did pass their concerns onto Colin Baker, the General Secretary of the NFSP, who I’d worked with as a union leader and as a government minister. I do not have any records of the visit nor my communications with Mr Baker.”

We understand that about 85/86 per cent of subpostmasters were charged and prosecuted by the Post Office between ‘99 and 2010, so of those prosecuted about 85/86 per cent of them were prosecuted in that period. Are you aware of any similar concerns to the ones you mention here in paragraph 43 being reported to other MPs by postmasters, managers, assistants or employees of the Post Office?

Alan Johnson: Yeah, I’m not sure when it was. The problem with my constituency surgeries, people just turned up, they didn’t have to book a slot. It was very much done, you know, paper based, if you like, and all the records went when I left Parliament. So I can’t pinpoint the date of when these – this group of people, this delegation, came to visit you see me, but this was a guy from – I remember he was from Doncaster.

I remember he was really, really concerned about this issue of money going missing, that it was the software and not him. So had I heard other issues at that time? I’m not sure because I can’t pinpoint this, but certainly more and more issues became public knowledge, and I heard about them as an MP, not least of all in Hull, not my constituents, but in other – Hull has three constituencies. But in other parts of Hull these issues became more and more apparent.

Mr Beer: Did you hear about other subpostmasters and similar raising of issues, such as the ones you’ve mentioned in paragraph 43 with other MPs?

Alan Johnson: Yes.

Mr Beer: Can you remember when that was and with which MPs?

Alan Johnson: No, hopefully it was Doncaster.

Mr Beer: They did what you suggested?

Alan Johnson: Yes, I remember very clearly that he was from Doncaster, which isn’t that far from Hull.

Mr Beer: Finally, please, then can we look at page 3 of your witness statement, at paragraph 7. In the second half of paragraph 7, about seven or eight lines in, you say:

“I know how highly regarded and trusted these people are in their communities. The way many of them have been treated appals me. It’s not just the anguish of the legal process they’ve been subjected to, it’s the diminished status they would have had to endure in the small communities that they work in. The post office network is a crucial detail in the social fabric of this country. For the Post Office to condemn those responsible for its high reputation to such terrible ignominy is unforgivable.”

Is there anything else by way of concluding remarks that you wish to say?

Alan Johnson: No, I just wish I’d known about the case that you recited at the time it happen. And I think, as far as the Secretary of State is concerned, I was a junior minister then, we would have all wanted to know, as early as possible as these things were emerging and maybe, you know, it could have been a different outcome.

Mr Beer: Yes, thank you. They’re the only questions I ask.

I think there may be questions starting with Mr Stein.

Questioned by Mr Stein

Mr Stein: Good afternoon, Mr Johnson, my name is Sam Stein, I represent a large number of subpostmasters, mistresses and managers. I’ve only got two areas of questioning to put to you and it won’t take long. In reference to your statement, I’ll just read out one part, at paragraph 19, page 7 of your statement. You’re referring there to the question of rollout in November 1999, rollout being gradual, only about 600 of the 19,000 post offices involved when you took office. You go on to say:

“As it says in the NFSP Report, I did not want Horizon rolled out further ‘until it had been improved. Different training and software was essential’.”

Now, you’ve explained in your evidence earlier today that your own knowledge and understanding of computer systems was shall I call it limited; is that fair?

Alan Johnson: Fair. Probably putting it too strongly, but yes. Very limited.

Mr Stein: All right. Now, given that, what advice, technical, expert advice, had you had at that time to consider what amendment of software was needed and how it could take place?

Alan Johnson: I wasn’t equipped to deal with that.

Mr Stein: Did you ask the question of Fujitsu: to amend this software, to get it right, to make sure it works properly, how are you going to do it? How long is it going to take? What do you need?

Alan Johnson: I raised it with Dave Miller who was the Post Office manager responsible. My assumption was he was raising it with ICL. They certainly stopped the rollout from 7 November and didn’t commence it again until January.

Mr Stein: Did you get a report back from Fujitsu, via Mr Miller or any other system, as to “Yes, would have looked at that, Minister, thanks very much. It’s all now fixed and works terribly well”?

Alan Johnson: No, POCL and NFSP both said – gave the thumbs-up.

Mr Stein: Right. So did you, at that stage, enquire any further into what was the reason for the thumbs-up, in other words, technically what had been done and whether that was, in fact, right to get the system working?

Alan Johnson: No.

Mr Stein: One other matter, the second area I want to ask you questions about, Mr Beer has taken you to your statement, to page 3 of 19, paragraph 7. Now the earlier part of that paragraph, paragraph 7, refers to your 19 years as delivery postman, serving in London. Then it goes on to say you worked closely with subpostmasters, subpostmistresses, going behind the counter to collect parcels, registered letters and other items. In other words, you were familiar with the working of post office branches; yes?

Alan Johnson: Yes.

Mr Stein: You also know, and again, if you wish, I can take you to the part of your statement, whereby you refer to the importance of balancing within a Post Office?

Alan Johnson: Mm-hm.

Mr Stein: Yes? Okay. Part of your evidence today has been your own recollection from your own working life within the Post Office of the Post Office Investigation Department, you described an incident with a war veteran who had been unfairly prosecuted by – my word not yours – what appears to be your description of the zealots in the Post Office Investigation Department. Is that a fair way to describe them?

Alan Johnson: He wasn’t prosecuted in the end because there was industrial action and he was released from custody, that he shouldn’t have been in, in the first place. But, yes, that’s my understanding. Sometimes the POID, as we called them, acted in a very overzealous fashion.

Mr Stein: Right. So, with that knowledge, that the Post Office embodied an Investigation Department that was overly zealous, did you use that knowledge in your discussions with the Post Office, that included its operation and rollout of the system, did you say, “What is going to happen with the use of this system, in terms of the prosecution of people?”

Alan Johnson: No, I wasn’t the union representative. The union representatives were sitting on the working party and it was very much assumed that they would be dealing with those issues.

Mr Stein: Mr Johnson, I don’t want to misunderstand your evidence and certainly this Inquiry doesn’t. Do you mean to say that, essentially, you knew about the potential for this problem, you knew about the zealots in the Investigation Department –

Alan Johnson: No, no.

Mr Stein: – and you thought “Well, I wouldn’t mention it, I’ll just leave that to the NFSP representative”?

Alan Johnson: No, that’s not what I said.

Mr Stein: Well, I assume you’re not saying that. What did you too, what did you do to take responsibility for considering the question of prosecutions and how that would work using this new system?

Alan Johnson: The question of prosecution was never raised. I never heard of any subpostmaster being prosecuted as a result of the implementation of Horizon.

Mr Stein: What did you do, Mr Johnson, to consider how this system was going to operate in terms of the Post Office Investigation Department, the one you described as being overly zealous? What did –

Alan Johnson: I didn’t know of any involvement of the Post Office Investigation Department.

Mr Stein: What did you do, Mr Johnson, to make sure that people were safe in the hands of this system in terms of the investigation –

Alan Johnson: I made sure that we had a body set up where the representatives of the unions could come to us with any issues of concern to their members.

Mr Stein: Does it cause you disquiet that, as far as we can tell, that no papers, no briefings, were provided either to you as a minister or discussions within any bodies about the question of prosecutions and investigations?

Alan Johnson: Does it concern me that nobody referred that to me? Yeah. Yes, it does.

Mr Stein: Help us, please, Mr Johnson. How do you think that that should be addressed in future? The fact that a big issue for what has happened here, was that people were prosecuted, with a system that was untried, untested, rolled out too quickly. How do you think that happened, that you weren’t given a briefing about well, these –

Alan Johnson: That’s your assessment. I didn’t know about this case that was just reported to me by Jason Beer. I didn’t know about that. I know about it now. My point is, if I’d known about that at the time, I’d have taken a very different view and perhaps found out, you know, what on earth the POID were doing being involved in this.

My job as the Minister for Competitiveness, amongst my many other roles, was to ensure good employment relations and to ensure that the workforce, the people at the sharp end of this, were having their voice heard in government.

Mr Stein: Where did the error lie, Mr Johnson? Was it in the failure of the Post Office to report back that, “Actually, we’re going to go ahead and use this untried system to prosecute people”? Was it their fault? Was it your fault? Was it the special advisers to the ministers’ fault? Was it civil servants’ fault in setting out that this is going to be used to prosecute people?

Alan Johnson: I wasn’t aware that this thing was going to be used to prosecute people.

Mr Stein: You knew that prosecutions were taken on by the Post Office, rather uniquely for a body that was hands-off and distanced from government. You knew that that happened. You knew that the Post Office prosecuted people itself.

Alan Johnson: Yes.

Mr Stein: So where was the report to you about how –

Alan Johnson: That’s a completely hypothetical situation. Nothing had happened in the rollout of Horizon, either in the 600 offices when I was appointed, or in the 1,200 by the time this period ended. Nothing was reported to me.

Mr Stein: And you didn’t ask the question?

Alan Johnson: What do you mean I didn’t ask? What question? What question was I supposed to ask?

Mr Stein: How is the system going to cope with the prosecution of people on the investigation of the people –

Alan Johnson: “Mr Johnson, there are no prosecutions of people”, I would be told, I presume.

Mr Stein: Sorry. Repeat that, please?

Alan Johnson: I presume that the union officials who were reporting to me would not have – because they didn’t report any prosecutions –

Mr Stein: You assumed that there were none?

Alan Johnson: Absolutely. Of course.

Mr Stein: Thank you, Mr Johnson.

Mr Beer: Sir, I think that’s all of the questions – or NFSP?

Yes, thank you very much, my mistake. That’s Ms Watt.

Sir Wyn Williams: Well, the transcriber has been going for the better part of two hours, now. I know we are anxious to conclude Mr Johnson, so unless it’s literally going to be a few minutes, I think we at least ought to take a short break.

Ms Watt: Thank you Chair. There are a few questions, it’s not two or three minutes. It’s not a lengthy period of time but I couldn’t say it was two or three minutes.

Sir Wyn Williams: Did I hear – that was a bit faint. Are we talking about literally a few minutes, Mr Beer?

Mr Beer: I think it’s better coming from Ms Watt because only she knows.

Ms Watt: Thank you Chair. I wouldn’t say it was a few minutes. It’s not lengthy but I wouldn’t say two or three minutes.

Sir Wyn Williams: Then we should take a short – how would people prefer to proceed?

I take it, Mr Johnson, you would prefer to go sooner rather than later, so that militates in favour of having a short break for the transcriber, the alternative is to take lunch and come to back after lunch. Which would you prefer, Mr Johnson?

Alan Johnson: I’ll go with you, Chair, but I think a short break, and then finish off.

Sir Wyn Williams: That’s fine by me. We’ll take ten minutes, finish off Mr Johnson and then we’ll take lunch late.

Mr Beer: Thank you, sir.

Alan Johnson: Thank you.

(1.03 pm)

(A short break)

(1.13 pm)

Mr Beer: Sir, thank you for coming back. I think it’s Ms Watt now, on behalf of the NFSP.

Questioned by Ms Watt

Ms Watt: Thank you, Chair. I’m Catrina Watt. I represent the National Federation of SubPostmasters at this Inquiry. I think for the purposes of some of my questions, you will need to have your witness statement up, but I’ll come back to it. If you think you would like to see it while I’m asking the questions, then I’ll come back to it.

But I did want to ask a question about paragraph 7 of your witness statement. Immediately prior to that, you set out the details of all of your ministerial appointments and your prior working history. The first line of paragraph 7 says:

“As set out above, quite apart from my professional association with the National Federation of SubPostmasters … as a Union representative …”

I wondered if, actually, that meant CWU.

Alan Johnson: No, no. We had a thing called COPU, Council of Post Office Unions, where all the unions used to meet, the staff side, as we were called, with the Post Office, very Civil Service.

Ms Watt: I see so it wasn’t that you were a union representative for the NFSP, it was part of your overall –

Alan Johnson: No, sadly I never was, no.

Ms Watt: Thanks, very much. Mr Beer brought to your attention the distressing case of Pamela Lock, which you’ve then gone on to discuss in your evidence, and Mr Stein was asking you about your background knowledge as to the perhaps overzealous actions of the Post Office Investigation Department at times. If someone such as Ms Lock in that distressing situation, if they were not a member of the NFSP or the CWU or another body, and therefore those unions couldn’t bring up her situation, didn’t know of it, what would you have expected the Post Office, or anybody else, to be telling you about such prosecutions, given your background knowledge of how the Post Office went about that?

Alan Johnson: Well, whether Pamela Lock was a member or not, I would expect the unions to be concerned about how subpostmasters were being treated if there was a balancing difference. So they would report it, perhaps not on behalf of Pamela Lock, but on behalf of their members.

I would expect the Post Office to be concerned enough to mention a case like that, given it happened in a period of time when we were still rolling out the programme in the very early stages. You know, I don’t know of any trial situation where you wouldn’t, to a certain extent, put aside the normal procedures in recognition of the fact that these were people grappling with a huge change to a system that they were already very used to.

Ms Watt: If I understand your evidence more generally, the Post Office didn’t bring this or similar to your attention –

Alan Johnson: Nobody did.

Ms Watt: – during the rollout?

Alan Johnson: Nobody did.

Ms Watt: Thank you. You’d also said in your evidence about the contractual arrangements that subpostmasters had in relation to balancing and whether there were any shortfalls, and how that might come – well, perhaps affect them more personally than those in their Crown Offices. I just wondered if you knew, from your own knowledge or experience at that time, when Crown Offices had such shortfalls, what were the implications for those Post Office employees?

Alan Johnson: I don’t know. I only know that they wouldn’t have breached any contractual issue. It would have been a matter, probably, for the discipline procedure, if it got to that. It would go through the normal – the same as, I suppose, a postman or postwoman being accused of a package going missing and an assumption made that they must have stolen it. It would have go through the process –

Ms Watt: The investigation process –

Alan Johnson: – and evidence would have to be provided, the union would be there to accompany their members, if it wasn’t one of their members, then they’d be entitled to take someone with them. That’s a change to the law we’d already introduced. Whether you were a union member or not, you could take someone with you to a grievance or discipline hearing, so it would go through that kind of process.

Ms Watt: I think you’ve been asked about – in paragraph 33 of your statement, you say you were not qualified to be in a position to countermand conclusions that, for instance, the Post Office were reaching on Horizon. Would you agree that while, for instance, the NFSP and perhaps the CWU were bringing information about glitches or errors, problems, that they, as it turns out, could not have known about the kind of information that the Post Office and ICL knew about that ultimately leads to where we are today?

Alan Johnson: Yes, that could happen. You gave one example, Pamela Lock wasn’t a union member. If this was happening on the scale it was happening, in the end, I’d be amazed if it wasn’t raised through the union, but certainly the Post Office would have an obligation to deal with it.

Ms Watt: I think we heard evidence yesterday that, with hindsight, it’s possible to see what happened and why it happened but, at the time, you and others, is it the case that you, with the knowledge you had at the time, you couldn’t have foreseen what was going to happen?

Alan Johnson: Not at all, no. What we were doing was ensuring that the Post Office was equipped for the 21st century, and to take on all this new work, and to save the network and to stop this – you know, the Post Office had gone from 28,000 post offices to 16,000, just in my time. And we introduced, you might recall, a force majeure rule where, if it’s force majeure, that’s the only reason a rural Post Office could close. That came slightly later than these events.

We were trying to save the Post Office network on behalf of everyone, and nothing I’ve seen in anything now suggests that Horizon was viewed as being a threat rather than a solution. Everyone saw it as the solution. Computerisation, if you want to put it like that.

Ms Watt: So when you say, at paragraph 45 of your witness statement, that no one was flagging up major concerns, that’s everyone who was part of the Horizon Working Group, whatever union or whatever body they were; is that correct?

Alan Johnson: Yes, but particularly on the Working Group.

Ms Watt: Just a final question. At paragraph 33, you’re talking about the decision making on the rollout. Would you accept that it was really for the Government, the Post Office and ICL, to make decisions about rollout? It wasn’t for the unions to be making those decisions?

Alan Johnson: Well, as always, the unions are there to make representation. The unions don’t run the Post Office, and they don’t run ICL, but I would think, if the NFSP said “This is causing serious concerns” – the NFSP were a strong, as you well know, a strong organisation, and it was crucial to have them on board to make this work. So yes, they could be ignored by ICL and the Post Office. That would be a very, very foolish decision.

Ms Watt: But they weren’t the ultimate decision-makers, I think?

Alan Johnson: No, they weren’t.

Ms Watt: Thank you. Those are my questions. Thank you very much.

Alan Johnson: Thanks.

Sir Wyn Williams: Is that it, Mr Beer?

Mr Beer: Yes, it is, sir. Thank you.

Sir Wyn Williams: Right. Well, first my thanks to you, Mr Johnson, for your witness statement and for coming to give evidence to the Inquiry. I am very grateful to you.

Then secondly, Mr Beer, the need for one hour or less of a lunch break depends upon the probable length of the next witness, does it not? So how are we fixed with that?

Mr Beer: Sir, if we took an hour, we would certainly fit in Sir Geoffrey Mulgan before 4.00.

Sir Wyn Williams: Fine, then that’s what we’ll do. See you all in an hour.

Mr Beer: Thank you very much, sir.

Sir Wyn Williams: Thank you.

(1.22 pm)

(The Short Adjournment)

(2.20 pm)

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

Sir Wyn Williams: Yes, I can thank you.

Mr Beer: May I call Sir Geoff Mulgan, please.

Sir Wyn Williams: Yes.

Sir Geoffrey Mulgan


Questioned by Mr Beer

Mr Beer: Thank you very much. As you know, my name is Jason Beer and I ask questions on behalf of the Inquiry. Can you give is your full name please?

Sir Geoffrey Mulgan: Sir Geoffrey John Mulgan.

Mr Beer: Thank you very much for coming today. You’ve also given us a short witness statement which is at WITN03510100. Could you please look at the hard copy that’s in front of you and turn to the last page, which is the fourth page. Is that your signature?

Sir Geoffrey Mulgan: It is, yes.

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

Sir Geoffrey Mulgan: Yes.

Mr Beer: Thank you. I think you’re currently Professor of Collective Intelligence, Social Innovation and Public Policy at UCL in London; is that right?

Sir Geoffrey Mulgan: That’s right.

Mr Beer: Your first degree was in which subject?

Sir Geoffrey Mulgan: Politics, philosophy and economics.

Mr Beer: I think, subsequently, you went on to secure a PhD; is that right?

Sir Geoffrey Mulgan: In telecommunications.

Mr Beer: Was that before the events that we’re looking at in ‘98, ‘99 and 2000?

Sir Geoffrey Mulgan: Yes.

Mr Beer: Was there a specialism within that discipline of telecommunications?

Sir Geoffrey Mulgan: Um, I’d mainly covered the, you know, the technology and economics of networks of all kinds. In particular, new Internet-based networks.

Mr Beer: So the computer side of telecommunications –

Sir Geoffrey Mulgan: Yeah.

Mr Beer: – rather than telephony?

Sir Geoffrey Mulgan: Yes.

Mr Beer: Thank you. What was your background before you became a special adviser in Number 10?

Sir Geoffrey Mulgan: I had worked in local government and I then went to MIT in America to study technology. I then was an academic back in London in telecommunications, and then set up a think tank in London called Demos.

Mr Beer: When did you become a special adviser in Number 10?

Sir Geoffrey Mulgan: Straight after the election of May ‘97.

Mr Beer: What was your title when you were appointed special adviser? Who were you a special adviser to?

Sir Geoffrey Mulgan: Well, I was special adviser to the Prime Minister. My field was social policy, social exclusion, urban regeneration, the welfare to work programme, things like that.

Mr Beer: What was your role as a special adviser?

Sir Geoffrey Mulgan: It’s a slightly unclear role. It was to help ensure the Government was doing the right thing, the policies were implemented and, in my case, I was also involved in setting up various units, like the Social Exclusion Unit, to create new capacities to do different kinds of tasks like that tackling homelessness or neighbourhood regeneration.

Mr Beer: You later took up a position as head of the Performance and Innovation Unit. Can you recall when that was?

Sir Geoffrey Mulgan: So in 2000, after the various papers you’ve got here, I became a civil servant, running the Performance and Innovation Unit form the summer of 2000, which later became the Government Strategy Unit, and then subsequently I also came back for a period running the Number 10 Policy Unit in parallel.

Mr Beer: What did the Performance and Innovation Unit do?

Sir Geoffrey Mulgan: It was meant to be a cross cutting capacity to solve problems, work out strategies for the government, on topics like energy or climate change. Indeed, we did the UK’s first climate change strategy, policing education, any topic where there was a cross-cutting task.

Mr Beer: How large was the PIU?

Sir Geoffrey Mulgan: The PIU was quite small, but the Strategy Unit became bigger, at its peak, about 150 people, half civil servants seconded in from departments, and half brought in from business or academia, charities and elsewhere.

Mr Beer: You say in paragraph 3 of your witness statement that, in late 1998, you were asked to sit on the Horizon Working Group as a representative of Number 10. The Inquiry has heard about different groups of people gathering together, and such people styling themselves the Horizon Working Group. Just before I take you to some documents, can you tell us your recollection of what this particular Horizon Working Group’s purpose and function was?

Sir Geoffrey Mulgan: I can’t quite remember why I was asked to sit on it, given I had colleagues covering DTI issues at Number 10, and another – which was Geoffrey Norris, and another Sharon White, covering DSS. I think, in retrospect, I was probably asked to come in because I was more neutral and because I had a bit of a technology background and this was group set up by the Treasury to try to find a resolution to the situation and the conflicts between the Departments, ICL and Post Office.

Mr Beer: Can we look, please, at POL00028090. This will come up on the right-hand screen for you. Can we look, please, at page 4. Thank you. You’ll see the heading of the document is “Horizon Working Group Meeting: 17 September 1998”, and we believe this is the first meeting of this iteration of the Horizon Working Group. You can see the membership of those intended to be present, or who were present. I think this is a combined record of what was to happen and what did happen at the meeting.

If we just highlight at the top of the page there that group of people that are mentioned, to make it clearer. Thank you.

We can see you’re described under the heading “No 10 Policy Unit”. Had in fact, in September 1998, the Policy Unit been set up?

Sir Geoffrey Mulgan: Yeah, the Policy Unit was set up – it’s always existed, or at least for 60 years, I think, and the then Prime Minister’s Policy Unit started the day he moved into Number 10.

Mr Beer: So that’s different from the PIU, which we discussed earlier?

Sir Geoffrey Mulgan: Yeah, that I took over later, nearly two years after this meeting.

Mr Beer: If we look at the next page, please, under “Discussion”, about a third of the way down the page:

“The purpose of the Working Group and membership

“It was agreed that the role of the group was two-fold:

“to pull together various strands of work commissioned in the CST’s [Chief Secretary to the Treasury] letter to Alistair Darling in the short timescale available;

“to lead the work on the fallback options, with the help of consultants.”

Did that accurately describe the purpose or the role of the Horizon Working Group, as far as you can recall?

Sir Geoffrey Mulgan: There are two differences I recall from this minute. So, on the one hand, it said that BA and POCL were going to take part in it, and I don’t actually remember them being at the meetings I was out of this group, but that may be my error. And it definitely did try to pull together a coherent position, a route through, and some fallback options. But I think, as we’ll get into later papers, I wasn’t of the view that there was actually a full exploration of fallback options. Other than that, it’s accurate, as far as I can remember.

Mr Beer: We can see from these minutes – they go on for pages, I’m not going to go through them – that you appeared to be there mainly in a listening capacity. I say that because there are very few examples of you being recorded as having made a contribution. Does that reflect the reality?

Sir Geoffrey Mulgan: Very much so. This would have been one meeting of, I don’t know, 15 that day, others in which I was much more in the lead on, setting things up, initiating policies and programmes. In this case, I was very much an observer and, as I’m sure you will all be aware, the complexity of the positions and the situation was pretty high. And it was pretty difficult to really difficult to get a handle on what was going on behind all the various papers and positions. So, definitely, I was more an observer at this point than anything else.

Mr Beer: What was Number 10’s role in the exercise or the project at this time?

Sir Geoffrey Mulgan: It didn’t really have a role at this time. This had been, you know, initially left to the Departments, and the agencies. Then the Treasury had come in because there was a major financial problem brewing, and Number 10, I suspect, had had almost no involvement prior. I mean, presumably it had done before 1997 when the previous Government when the PFI was agreed, but I’ve never seen those papers. And I think we only first became involved – this would be whatever, you know, 14 to 18 months into the life of this Government.

Mr Beer: Can we turn, please, to POL00028091, and turn to the third page, please. This is a minute or minutes of the second meeting of the Horizon Working Group, dated 25 September ‘98. So seven days/a week later. Again, we can see scroll through them, I’m not going to do the exercise, everyone has got the minutes available to them, little contribution by you personally in terms of speaking.

At this stage, was the work of the Working Group principally about seeking to bring to an end the dispute between two departments of state and a dispute between each of them, and POCL and ICL?

Sir Geoffrey Mulgan: Yes, I think so, yeah.

Mr Beer: So it was essentially about a negotiation but also the preparation of contingencies?

Sir Geoffrey Mulgan: Yes.

Mr Beer: Did this group, to the best of your recollection, ever consider issues relating to the technical integrity or robustness of the Horizon System as it was being developed?

Sir Geoffrey Mulgan: So, as I mentioned in my witness statements, one of my surprises in this whole process was how little discussion there was about whether the technology was on track, was fit for purpose, what the different options were. And in these meetings, there was at most ever one person with a tech background from CITU as it then was. It was far more dominated by financial analysis or financial considerations, and the various advisers brought in from outside were mainly on the financial side.

So, in a sense, the tech issues were not on the agenda and were not considered, and there wasn’t the expertise in the room to have a proper assessment of them.

Mr Beer: You say that it surprised you. The surprise was that there wasn’t somebody or more people with technical expertise around this particular table?

Sir Geoffrey Mulgan: Yeah. I mean, when a technology project is clearly running into problems, is several years overdue, and so on, in a way, the first thing you would want to know is, is it working, is it on track as a technology? And that is almost a prior question to the different NPVs and financial options. This was actually a much broader pattern within Government at the time, and we may come on to this, it’s in one of the minutes you’ve got from me later on.

I was repeatedly struck how often decisions were being made in Whitehall without anyone in the room with really the detailed practical understanding of the topics being discussed, and this was particularly evident in relation to digital projects of which there were many, and many very expensive ones, most of which were not really working very well.

So simply to see this as a financial negotiation seemed to me wrong. But my brief had not been to go back to first principles and examine the technology. It was essentially, at this point, just to see if a deal could be done to keep the show on the road.

Mr Beer: Is that why you didn’t raise the composition membership and terms of reference of this Horizon Working Group to expand both to consider technical issues?

Sir Geoffrey Mulgan: I didn’t really have the authority to do that. It had been set up with the backing of various ministers and, as you identified, I was mainly there as an observer.

Mr Beer: Even as the Prime Minister’s special adviser, could you not go back to him and say, “There’s a problem with this Working Group”?

Sir Geoffrey Mulgan: You may notice later on I did say to him I thought there was probably a problem with the technology which needed to be addressed. But I probably discussed, at several points, what was happening with Jeremy Heywood, who was running his office, and there was a fairly message that the option of cancellation was not really on the table politically.

Mr Beer: Who was that message coming from?

Sir Geoffrey Mulgan: Well, this was, I think, Jeremy Heywood trying to reflect his understanding of the positions of different ministers and Departments and the instincts of the Prime Minister and, therefore, the risk of actually going back to first principles and analysing the technology was you might get another six months or a year’s delay and a further complication of an already complex situation.

Mr Beer: Through this work on the Horizon Working Group, did you gain an understanding of some of the issues involved in the Horizon project? Was that the main vehicle of your understanding, the only vehicle for your understanding of the issues involved in the Horizon project?

Sir Geoffrey Mulgan: Well, we had no shortage of papers, and we had no shortage of marketing materials, and then there was a lot of gossip in the background, particularly of people in the IT industry, which didn’t really fit what was in the marketing documents and these papers, and was much more critical and troubled. But nearly all of that was, as it were, off the record.

Mr Beer: Who was the marketing material, as you’ve described it, from?

Sir Geoffrey Mulgan: This was from – I guess from ICL, showing, as many companies did at the time, a sort of gleaming future of high tech government, which ministers found very attractive.

Mr Beer: And the gossip, as you’ve described it, from IT professionals in the background, who were they speaking to: to you directly?

Sir Geoffrey Mulgan: Some spoke to me directly but a lot of this was through informal channels and the trade press and elsewhere. I did not have the time – I say this was a fairly marginal part of my work, so I didn’t have the time to really get on top of any of that.

Mr Beer: What was that other channel of communication telling you?

Sir Geoffrey Mulgan: It was saying this was not only that the project and the programme was running into difficulties, which was obvious, but also probably the technology was flawed in a more fundamental way, and not just specifics like the Benefit Payment Card, but in other ways as well. But, as I say, didn’t have the time, probably not the capability either, to really get into the detail of what was happening.

Mr Beer: Could we move forwards, please, to December 1998. On 9 December 1998 you made a submission to the Prime Minister about the Horizon System, as I think it seemed that matters needed to be brought to a head.

Can we look at that, please. It’s CBO0010001_072. That will come up on the screen for you. Thank you very much.

You can see who it’s from: you. And you can see who it’s to: the Prime Minister. And you can see the copy list and the date, 9 December 1998. You say in paragraph 1:

“A decision now needs to be taken on whether to proceed with the Horizon project. You’ll recall that this is the initiative to automate the Post Office Network involving ICL. The project is nearly 3 years behind schedule, having been plagued with problems. Negotiations have been under way since the summer to find a way to continue the project.”

What did you understand, by then, to have been the “plague of problems”?

Sir Geoffrey Mulgan: Well, I think any project which is nearly three years behind schedule is clearly problematic. And as much as any issue I’d dealt with in Whitehall, this was one where there were different parts of Government were really at loggerheads, had diametrically opposed positions which at this point were becoming more, not less, entrenched.

Mr Beer: Did you understand the plague of problems to have included the integrity and robustness of the Horizon System as it then stood?

Sir Geoffrey Mulgan: Yes.

Mr Beer: Can we read, please, paragraph 2:

“The sums involved are big. Total spending through DSS contracts will be around £5 billion between now and 2008.”


“After a tough period of negotiation, ICL has made an offer which represents a significant move. Acceptance would still cost the Government around £200 million more than previously envisaged. Equally, ICL would set to lose £270 million in total on the project. Their offer still leaves a significant gap with the Government, £110 million on funding, as well as differences over the practicalities of implementation. But the Post Office will be prepared to meet the funding gap out of existing resources, and despite the continued opposition of the Benefits Agency it will now almost certainly be possible to reach a settlement.”

Why was it your view, at that point, that it would be possible to reach a settlement, almost certainly?

Sir Geoffrey Mulgan: When I re-read that, the fact I put the words “almost certainly” very much surprised me, and that was probably a triumph of hope over experience.

Mr Beer: Can you recall why you did put it in there?

Sir Geoffrey Mulgan: I think we must have just had a meeting in the day or two before that where it looked like there was a deal to be done.

Mr Beer: Can we go over the page, please. Paragraph 4:

“However, the decision is not clear-cut. The problems that have beset this project may well continue. Continuation would lock the Government in for 10 to 12 years to what many see as a flawed system …”

Just stopping there, what are you referring to when you’re referring to a “flawed system”?

Sir Geoffrey Mulgan: Well, what we talked about a bit earlier: the clearly fairly widespread view that there were more fundamental problems with the technology, as well as the specifics on the BPC and smartcard, and so on.

Mr Beer: One way of reading “a flawed system” would mean that it was a flawed concept. Another might mean that it’s a flawed execution of a concept which is good, ie the system itself is flawed as it is being developed and executed. You’re saying this was meant as the latter?

Sir Geoffrey Mulgan: Well, I had a view that some of the conceptual framing was flawed, and I think elsewhere wrote that likelihood of any system of this kind quickly being superseded by change, becoming out of date was high. And I’d probably spent maybe too much time in a kind of – in a more Internet era, Silicon Valley-approach to technology, which favoured much more iterative – we now call agile ways of working, where you try things out with users, rather than having very large-scale, hierarchical, long-term projects all designed without much involvement of the likely users.

So that was in some ways the ethos which I feared was a bit flawed, not only in this, but in a number of Government digital projects at the time.

Mr Beer: And just help us, what had your experience in Silicon Valley concerning the delivery of IT projects, involving the Internet, told you about the involvement of users in the design and development of a project?

Sir Geoffrey Mulgan: I think the main philosophy of software in that time, that era, was moving away from having very large and secretive teams trying to come up with the perfect model which was then imposed on the world, towards learning things by doing. Doing things in often complete less perfect minimum viable products, and trying them out with the likely users to get feedback, and then spreading them out in an iterative, evolutionary way, rather than a sort of ‘big bang’ large project.

And that was an almost philosophical shift which was happening at exactly this time, but took quite a while to really become normal in British procurement, which was still, in that previous era, very large, and in a way much more of a big-company approach to things rather than the perhaps more nimble, sometimes a bit messy approach of the Californian digital companies.

Mr Beer: So in this context it would have involved involving the subpostmasters as end-users at an early stage of the project, and designing a system that included features and facilities specifically around their needs?

Sir Geoffrey Mulgan: Yes, designing with them. Co-creation is the kind of – the spirit, which I think is obvious in many fields, and lots of – you know, digital innovation does that as a matter of course now. In some ways, it’s strange that it wasn’t obvious then that that’s how you should do a big project like this, to de-risk and make it useful. If the users aren’t involved until late on, it’s likely there will be problems with the users. I mean, that’s a fairly iron law of these kind of things.

Mr Beer: Reading on, please, in paragraph 6, if we can highlight that, you say:

“In making a judgment, the following issues are paramount.

“1. The virtues of the project itself: overall, Horizon now looks increasingly flawed. It’s centred around a technology, the BPC, that’s overengineered and very expensive and likely soon to be obsolete. Indeed, ICL acknowledge that the BPC will have no commercial value to them at the end of the project. Although they remain underdevelops, the alternatives, which involve simpler, off-the-shelf banking technology, look increasingly attractive offering a route to universal banking automated post offices and the better provision of government information.”

So again, there, Horizon looks increasingly flawed. Is what follows a description of the ways in which it is flawed?

Sir Geoffrey Mulgan: Some of them, yeah. So I probably didn’t try to get into this almost more philosophical issue of how you do software, because that was not something my audience would have understood without a much longer discussion, probably.

Mr Beer: You carry on, in the minute, highlighting issues. At the foot of the page:

“The effects of the Post Office Network.”

Then over the page, please:

“Effects on ICL. Effects on Fujitsu. Effects on PFI.”

Then over the page, please, at paragraph 7. You told the Prime Minister that the departments remain divided:

“[Mr] Darling remains strongly opposed to continuing. [Mr] McCartney for DTI will argue strongly for accepting a deal (Mr Mandelson has largely kept out of the discussion.) the Treasury is divided at official level, but Stephen Byers will probably, on balance, want to accept the deal for pragmatic reasons, even though he would prefer to cancel.”

Then you come to the analysis. At paragraph 8, please.

“At first glance, most of the factors point towards continuation. However my view, which Lord Falconer broadly shares, is that although short-term considerations and expenditure point strongly towards making a deal, this will in the long run prove unsatisfactory, leaving the Post Office and government dependent on a hugely expensive, inflexible, inappropriate and possibly unreliable system.”

Those words at the end there, “possibly unreliable”, on what evidence or information had you reached the view that Horizon was possibly unreliable?

Sir Geoffrey Mulgan: I can’t fully remember, is the honest answer. But enough people had indicated to me that – people with technological knowledge – that at the very least the opposite had not been proven. It hadn’t been shown that we should – had good reason to believe that it would be a reliable.

Mr Beer: We don’t see a suggestion of that type: that the technology, the system, was possibly unreliable in any of the submissions coming up from the DTI, either to the Treasury or to the Prime Minister.

Sir Geoffrey Mulgan: Very little of the Whitehall documentation covered any of this. But –

Mr Beer: Do you know why that was, that it didn’t cover the technical issue that you were raising here?

Sir Geoffrey Mulgan: A year or two after this, I was responsible for doing a big review of how Government handled risk of all kinds, and a very common pattern in risk is that people low down the hierarchy spot problems and risks, but then it’s filtered out as communication goes up to the top of the hierarchy. And I expect, in retrospect, this was exactly a case like that, where many of the people on the ground involved knew some of the problems and the flaws, but for different reasons, as communication went up through the many, many levels of very hierarchical organisations, the DTI, Post Office, DSS and so on, that got filtered out.

Mr Beer: If we read on to the remaining paragraphs:

“In our view” – I think that’s yours and Lord Falconer’s view; is that right?

Sir Geoffrey Mulgan: At that point it was. I mean, in a way – I think you can read between the lines of this note – my instincts were to recommend cancellation but I’d been advised that was not a runner. So we had to offer – recommend the best plausible option.

Mr Beer: “The best outcome will be a deal with ICL to continue with an automation strategy which drops the Benefit Payment Card, but focuses instead on helping the Post Office to provide banking services. This would enable a rapid move towards ACT and Post Office automation, but without the many problems associated with the BPC. It would also enable good relations to be maintained with ICL and Fujitsu. The costs to government and ICL resulting from the BPC could legitimately be blamed on the previous Government.”

So that was essentially your recommendation, would that be right?

Sir Geoffrey Mulgan: Yes.

Mr Beer: If we just look at the end of the minute over the page, please, to paragraph 12, just to get the options. You set out the options:

“1: Attempt to conclude a deal broadly along the lines offered by ICL”.

“2: Seek a deal with ICL but including the BPC, recognising that in practice, this may quickly lead to 3.”

“3: Reject ICL’s offer, move to terminate the project, and press forward with an alternative. Do you wish to give a steer?”

We can see the handwritten note at the end of it. I wonder whether we could display that alongside WITN06080100, page 3. WITN06080100, page 3.

Sir Geoffrey Mulgan: Sorry, do you want me to read that?

Mr Beer: No, it’ll come up on the screen for us. WITN06080100, Sir Tony Blair’s witness statement.

Well, there appears to be a problem with that. Can we have the document that we were displaying, in which case I will, with your assistance, try to decipher Sir Tony’s handwriting. He wrote:

“Would favour option 1, but for Geoff’s statement that the system itself is flawed.”

So he is picking up there, it seems, the point that you have raised in two passages in your note about the flaw to the system itself. Agreed?

Sir Geoffrey Mulgan: Yes, and he says there: “Surely there must be a clear view on this.” But there wasn’t really a clear view on this.

Mr Beer: “Surely there must be a clear view on this” meaning on whether the system itself is flawed?

Sir Geoffrey Mulgan: Yes, yes.

Mr Beer: But there wasn’t?

Sir Geoffrey Mulgan: He wasn’t really given one, no.

Mr Beer: No.

Sir Geoffrey Mulgan: And I think this is – I don’t know, this is a topic for an Inquiry, but I repeatedly felt that he and other ministers were being put in impossible positions, making judgements on very complex, commercial and technical issues on which they had no real – no background. It would be very unlikely they could, you know – I mean, they had plenty of common sense, but it’s not a good way to make decisions.

Mr Beer: How would they make decisions, then? Impressionistically, relying on their common sense?

Sir Geoffrey Mulgan: No, well, I came to this in the minute I wrote about six to nine months later. Major projects need much clearer ownership, and the people in charge of them need to have technical, professional expertise.

Mr Beer: But in the absence of that, how were they making decisions such as this one we are talking about?

Sir Geoffrey Mulgan: They were making decisions based on papers from civil servants who were perfectly, you know, intelligent, well-educated civil servants. But again, very few of the ones making the recommendations had any background in this kind of project. And those were then being fed into a political decision-making process by a significant number of different ministers who, again, had no background in very large, complex, technical projects.

And as I wrote in that minute later, and as I think many concluded more generally in British Government, major projects have to be run in a quite different way, because if they come down to repeated, essentially, decisions by politicians and haggling by politicians, you really do risk ending up with worst-case options.

Mr Beer: He continues:

“Surely there must be a view on this, ie reading the enclosed paper, it all focuses on the financial deal.”

Sir Geoffrey Mulgan: But there the risks are pretty even, probably coming down on the side of continuing. The real heart of it is the system itself, which I think he was correct on.

Mr Beer: And if you go back to the previous page, just above the “ie,” at the foot of the page, he says, “Speak to me” – because that’s on Monday, “On Mon”?

Sir Geoffrey Mulgan: Mm.

Mr Beer: Was that a request for you to speak to him?

Sir Geoffrey Mulgan: I can’t remember who the “me” was in this case.

Mr Beer: You had written the paper to him, but it was copied to a number of people in the top of the office?

Sir Geoffrey Mulgan: Yeah, it could have been me or it could have been Jonathan Powell, who was his chief of staff at the time.

Mr Beer: Anyway, you would agree that this was a plea or a request from the Prime Minister to be better informed about the technical aspects of the system?

Sir Geoffrey Mulgan: Yes.

Mr Beer: And whether it is indeed flawed?

Sir Geoffrey Mulgan: Yes.

Mr Beer: Can we look at the formal reply that was received to this minute, CBO00000009. You’ll see that it’s from Jeremy Heywood to you, dated 14 December ‘98.

“Prime Minister was grateful for your minute of 9 December.”

Would this be the normal way of communication back: that this was the official reply, if you like, from the Prime Minister through his principal private secretary?

Sir Geoffrey Mulgan: It could be more often I’d just be shown the handwritten commentary, actually.

Mr Beer: And in circumstances where you did get an official minute back, would this be the operative minute?

Sir Geoffrey Mulgan: Yes, but –

Mr Beer: We’re going to see that what he wrote is not what is in this minute.

Sir Geoffrey Mulgan: That’s true, yes.

Mr Beer: So I’m wondering which carries the day.

Sir Geoffrey Mulgan: Well in a way, this one does. This is the official one, and in a sense this is Jeremy Heywood, in his correctly – interpreting his role as trying to navigate and balance different Whitehall departmental interests.

Mr Beer: Is that really the case, though? The Prime Minister says, “I want to know more about the flaws in the system in order to make a good decision”, and the late Jeremy Heywood writes a minute that doesn’t mention it?

Sir Geoffrey Mulgan: My guess would be he might have talked to Treasury about this, and they might have said: “If you open the up the technology you will create more uncertainty and more delays. We’re close to doing a deal, so whatever you do, don’t do that.”

That’s purely a guess.

Mr Beer: In any event, he says:

“The Prime Minister was concerned about your view the Benefit Payment Card is overengineered and is likely soon to be obsolete.”

That was, of course, only part of your concern, wasn’t it?

Sir Geoffrey Mulgan: Yes.

Mr Beer: “His clear preference would be to avoid cancelling the project but to go for a variant of your option 1 and 2.”

Again, that’s not entirely what he said, is it?

Sir Geoffrey Mulgan: No, not exactly.

Mr Beer: No.

“We should retain the Benefit Payment Card to seek to ensure that over time it delivers real benefits and provides an effective transition path to a satisfactory long-term position. If necessary, the Prime Minister thinks it may be sensible to give ICL a financial incentive to improve the BPC project in this way.”

This still, despite the differences, essentially has the BPC as an element of the system; is that right?

Sir Geoffrey Mulgan: That looks like it, certainly.

Mr Beer: Thank you. Can we turn to, a little later in the year, please, CBO00000011. This is your minute of two and a bit weeks later, Christmas Eve, of 1998. You will see that you say in paragraph 1:

“We’ve come very close to reaching an agreement on the way forwards, but ministerial changes yesterday made it impossible to reach final agreement.”

I think that’s a reflection, from memory, is that right, losing Peter Mandelson from Government, and a reshuffle accordingly?

Sir Geoffrey Mulgan: Yes, I think he resigned about then, yes.

Mr Beer: Yes.

“The attached note from Stephen Byers sets out how we propose to proceed. In line with your instructions, our aim over the last two weeks has been to ensure that the Government continues with ICL-Fujitsu whilst also avoiding the danger of being locked into an obsolete technology in the form of the Benefit Payment Card. This has been broadly achieved. It’s required considerable compromise on the part of DSS, some movement from DTI. The aim is to pursue a two-stage approach.”

You set that out.

Then if we can go over the page, please, you describe what’s going to happen in the second stage in paragraph 3. You narrate your communication with Treasury in paragraph 4, and highlights the importance of bringing in somebody who is on top of the issue to play a coordinating role, probably Lord Falconer.

Again, in that minute, there is now no mention of any of the technical issues being brought into account in making a decision on which option to pursue.

Sir Geoffrey Mulgan: That’s correct. I mean, I’m following instructions, in a way, at this point.

Mr Beer: So the flawed nature of the Horizon System that you had raised in your previous minute, essentially now the caravan had moved on.

Sir Geoffrey Mulgan: Yes.

Mr Beer: Is that right?

Sir Geoffrey Mulgan: Yeah.

Mr Beer: Were you aware of any reports, audits, or assessments by independent experts who had by this stage pronounced the system, at that stage of its development, to be viable, robust, or a design which would accommodate future technological developments?

Sir Geoffrey Mulgan: I wasn’t aware of such analysis, and I’m not sure I necessarily would have been aware. And my understanding was much of the technology was, you know, highly proprietary and not open to anyone to audit or assess in that way.

Mr Beer: And by “highly proprietary”, do you mean not available for inspection and kept secret?

Sir Geoffrey Mulgan: I think so, but I couldn’t speak definitively on that. That was my understanding of the terms of the PFI.

Mr Beer: Can we look, please, at CBO00000008. If we just look, this is a letter dated 10 December, just going back slightly, to Stephen Byers from Peter Mandelson. So Peter Mandelson was then Secretary of State for the Department for Trade and Industry, and Stephen Byers, who was still the Chief Secretary for the Treasury – neither of them in those roles for that long, at this stage.

Now this wasn’t copied to you, so far as we’re aware, or we can see, but if we look at the second page, last paragraph, Mr Mandelson says that he is copying this letter to the Prime Minister. Can you see that?

Sir Geoffrey Mulgan: Yes.

Mr Beer: And then if we look at the top of that at page, page 2, Mr Mandelson says:

“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.”

Were you aware of anything like that, a pronouncement by independent experts?

Sir Geoffrey Mulgan: No.

Mr Beer: Can you assist, how would this kind of correspondence be viewed within Number 10? On the one hand, what Mr Mandelson said taken at face value, ie there are such expert reports who are independent who have thoroughly evaluated the system?

“He [Mr Mandelson] knows something that we don’t know, but we accept what he says. There must be something in the background. There are experts [he uses it in the plural] all viewed as a piece of advocacy?”

Sir Geoffrey Mulgan: This letter reads to me much more like a standard departmental advocacy letter which he will have signed, but I’d be surprised if he had much involvement in it, or interrogated its contents very much. It looks like a position paper in a period of Whitehall internecine conflict. And he’s not someone, definitely, with a background in technology, and suspect his senior officials weren’t at the time either. So it’s primarily more about positioning it and getting a deal which works strategically for the department.

But there must have been some experts. I’m sure that sentence wouldn’t have been put in if there had been literally nothing, but whether they were independent or not, and where the it was published, I don’t know.

Mr Beer: Can we turn back, then, to the formal response to your Christmas Eve minute, CBO00000019. Thank you. You’ll see this as a minute addressed to you, again from Jeremy Heywood, dated 6 January 1999.

“The Prime Minister was grateful to you for your minute of 24 December [that’s the one we’ve looked at]. The Prime Minister thinks we should proceed as follows:

“(i) we should indicate to ICL as soon as possible we want to have further discussions with them on how the BPC project can be developed to facilitate the earliest possible move to smartcards.

“(ii) but we should also make clear to them that if agreement cannot be reached within a specified time period on a development with the project along these lines, the Government will stick with the current project.”


“Notwithstanding (ii), the Prime Minister is clear that we should seek to move as quickly as possible to paying benefits directly into bank accounts via a smartcard facility that can be used in post offices.”

So it’s option 1 again, essentially, but a move away from the Benefit Payment Card aspect of it?

Sir Geoffrey Mulgan: Possibly, or possibly not. It’s a rather contradictory message, this one.

Mr Beer: Well, (ii), would you agree, looks as if it is focused on what should be made clear to ICL-Fujitsu, but then, notwithstanding (ii), there looks like a private plan as well?

Sir Geoffrey Mulgan: Yeah.

Mr Beer: In any event, the technology issue, the integrity of the system issue, isn’t mentioned in this decision making.

Sir Geoffrey Mulgan: No.

Mr Beer: Moving on later into 1999, in paragraph 5 of your witness statement – no need to bring it up – you say that your recommendations by them were summed up in a note to the Prime Minister in February 1999. For the record, the February 1999 note is HMT00000029. No need to bring that up, because it’s essentially a staging post, and things moved on afterwards.

You also say, in paragraph 5, that your recommendations were summed up in a further note in April ‘99 to Lord Falconer. I am going to ask in a moment to look at that April ‘99 minute.

But before we get there, can we look at CBO00100001_002. Thank you.

It’s a note from you to the Prime Minister of 9 April ‘99, and you attached a note:

“For handling your meeting on Monday with Mr Naruto, the VC and chairman of Fujitsu and ICL, who will be coming with Mr Todd, Chief Executive of ICL, and Mr Hall, their Head of Corporate Affairs. Mr Robson from the Treasury will also be there. The note has been prepared with the agreement with Mr Milburn and Lord Falconer. The meeting was originally requested by ICL as a courtesy call to talk about Durham and ICL-Fujitsu’s plans for continued expansion in the UK. The main topical will be Horizon. A good deal of progress has been made. A potentially viable deal is now in sight.

“Naruto will be seeking your agreement to reach a legally binding agreement by 23 April. He will threaten that Fujitsu will upon a the plug if this doesn’t happen, and that given the huge commitment that Fujitsu have made to the UK, they deserve better treatment. Without an agreement, Fujitsu will have to make provision for a £300 million loss in their annual accounts. This would wreck their plans to float ICL.”

Over the page.

“Your main aim should be to give a strong reassurance the Government is keen to reach an agreement on Horizon.”

And you acknowledge the efforts that Fujitsu and ICL are making.

“However, it is vital that you do not commit to reaching a legally binding agreement by April 23.”

Then 6:

“To set the right tone for your meeting, you might wish to make the following points at the very beginning.”

I won’t read all those out.

Then 8 at the bottom:

“You should be aware that Mr Naruto was at your speech in Tokyo. After you had finished, he said to colleagues that Britain was very lucky to have had both the Thatcher revolution and now a Blair revolution. Japan were still waiting for its Thatcher revolution.”

Now, in that minute you referred to the Prime Minister expressing his appreciation for the efforts to help the workforce in Durham against the backdrop of very tough global pressures. What did that relate to?

Sir Geoffrey Mulgan: I can’t remember the details of that, I’m afraid.

Mr Beer: Were you subsequently present at the meeting?

Sir Geoffrey Mulgan: I don’t think, no.

Mr Beer: In your witness statement you said that the Prime Minister had a number of one-to-one meetings with Fujitsu and ICL. When you call them “one-to-one meetings”, you literally mean that?

Sir Geoffrey Mulgan: No, no. I mean direct meetings like this one.

Mr Beer: I see. I understand. So not that there were no other people in the room?

Sir Geoffrey Mulgan: I would be surprised if there were any one-to-one meetings.

Mr Beer: Can you recall whether you attended any of those meetings?

Sir Geoffrey Mulgan: I can’t remember.

Mr Beer: And can you help the Inquiry with anything that was discussed or decided at those meetings?

Sir Geoffrey Mulgan: Not really. My guess is the meeting probably transpired rather as I hoped it might in that note: which is, you know, the warm words, politeness, appreciation, but not giving ground unnecessarily at a moment of pretty intense negotiation.

Mr Beer: Thank you. Can we move, then, to your April ‘99 note to Lord Falconer, CBO00000059. You’ll see it’s from you to Lord Falconer dated 20 April ‘99.

“1. You and others ministers are meeting tomorrow to agree a final decision on Horizon. Since I’ll be abroad on Wednesday and Thursday, I set out some considerations in this note.

“2. Desired outcome is that the meeting on Wednesday will confirm the route agreed at the meeting on Monday, namely send ICL a letter on Thursday with sufficient legal force in committing the Government in pursuing the revised smartcard-based Horizon to avoid them having to make provision for losses in their consolidated accounts.”

Can you remember that particular issue being raised, namely in the absence of such a letter of comfort, there was the prospect of provision needing to be made in Fujitsu’s accounts?

Sir Geoffrey Mulgan: Yes, and I think this was also raised in the letter you’ve got from the ambassador, that the scale of resources committed was very large, and the revenues and prospective revenues were fairly modest, at this point. That was problematic not just for ICL’s commercial future, but also for Fujitsu attempting to promote similar PFIs in Japan at the time. And without some plausible alternative routes, some route to implementation of the project and future revenues, then there would be a large hole in their accounts, which would be deeply embarrassing for the leadership of the company.

Mr Beer: In the second bullet point you speak of the need to:

“… set in train a radical overhaul of POCL to introduce new management and to incentivise them to maximise the returns from Horizon.”

Why was a radical overhaul of POCL, through the introduction of new management, needed?

Sir Geoffrey Mulgan: Well, at the time it didn’t appear that POCL really had a very clear business strategy. I mean, they obviously can blame aspects of that with the nature of the PFI deal, or the behaviour of ICL-Fujitsu, but they were surprisingly unable to articulate to others, including myself, and in Treasury and elsewhere, a sense they really knew they had a clear 10, 20-year strategy of how to transform, make sustainable, POCL as a whole, and make use of all these new technologies.

And that was one of the – I think the concerns all the way along was whether they actually had the correct leadership.

Mr Beer: You say in your witness statement that:

“A key part of the problem was a leadership within the Post Office who were not quite equipped to lead on this major transformation of their work.”

Sir Geoffrey Mulgan: Yes.

Mr Beer: Does that sum it up?

Sir Geoffrey Mulgan: Yes.

Mr Beer: Can we move forward, please. You tell us in your statement that in May ‘99 you wrote an internal note on some of the longer-term lessons to be learned out of the Horizon project. Can we look at that, please. It’s CBO00000060. Now apologies that this is a photograph of an email that is itself taken from a file within The National Archives. It seems, from other evidence that the Inquiry has got, that you prepared something more formal, and that that something more formal was dated 20 May 1999, but we do not have that document. There’s a reference to your document of 20 May 1999 in CBO00000057. No need to turn that up. But what we do have is it looks like thoughts before that formal draft, eight days before namely 12 May ‘99.

Can we look at the first paragraph together, please.

“With the possibility of a deal on Horizon it is important that the government learns lessons to avoid anything like this happening again. Horizon has been a disastrous project from beginning to end. It was misconceived.”

It may sound an obvious question, but does that represent your global view of the Horizon project contemporaneously expressed in May 1999?

Sir Geoffrey Mulgan: It’s a personal view, really, at this point, and slightly intemperate in its language, but probably not a million miles from the truth, if I’m being accurate.

Mr Beer: “It’s faced continual delays and problems. Over the last year it’s taken up huge amounts of ministerial and official time, and delivered in the end a far from optimal solution that may be as expensive as the alternatives and will almost certainly offer less. This note sets out 8 basic lessons.”

When you referred in there to “a far from optimal solution”, did that include your knowledge that the technical reliability and integrity of the system was questionable?

Sir Geoffrey Mulgan: Yes.

Mr Beer: Or as you described it in the earlier memo I took you to, it was a possibly unreliable system?

Sir Geoffrey Mulgan: Yes, yes.

Mr Beer: Paragraph 1, I think, speaks for itself. Paragraph 2 I look at in slightly more detail.

“Fallbacks: In the case of any large project of this kind it’s essential to prepare serious fallback options. Although Number 10 demanded fallback options last autumn, no further fallbacks were subsequently developed. Having rejected the main option, the government has therefore effectively had to sign up to an alternative option on which very little work or serious costing has been done.”

Was it your view that the Government effectively had to sign up to this alternative option?

Sir Geoffrey Mulgan: Well, this was the option B1. A fair amount of work was done on it, but it was more done on the financial modelling rather than really developing a serious alternative option. So obviously a huge amount had gone into option A, if you like, and then dramatically less work was done on what became an alternative option, B1. As a result of which, all the numbers in it kept changing because they were flimsy. That’s what – I think that’s what I was trying to say there.

Mr Beer: In terms of having to accept this alternative, had you been informed about concerns within the Post Office that under the PFI contract, the Post Office had been denied, by ICL, access to information, documents and data about the high and low-level design of the system, which meant that they were being what was described as a black box, effectively being instructed to trust the supplier to deliver the outputs according to their specification? Had you been told about that?

Sir Geoffrey Mulgan: I was aware of that, and in fact I commissioned, about a year or two later, a review of PFI, and I think this was in fact one of many, many flaws in the design of PFIs in the nineties, which was perhaps reasonable for things like building projects, but definitely didn’t work for complex IT projects where you needed, in my view, much more direct engagement, a collaboration of the company, the user and the provider. And this definitely was a problem. The recommendations on PFI reform – which was, I think, was probably a year or two after this – were at first greeted with great hostility, but I think nearly all of the later recommendations later implemented to change it.

Mr Beer: When considering the options, was it ever raised with you that the new bilateral contract between ICL and POCL presented an opportunity fundamentally to change that point, to reset POCL’s entitlements to see such information, such documents, and such data?

Sir Geoffrey Mulgan: There should have been that discussion, and I think we should also have commissioned a proper technology review, which we didn’t do. So both of those, in retrospect, are discussions which should have happened that spring. But I don’t recall either happening.

Mr Beer: And why didn’t they happen?

Sir Geoffrey Mulgan: Because I think most involved want to go for the line of least resistance and get a deal done. I think it is often the case, when there’s pressure to do a deal, things are being delayed. It’s a sort of natural human psychology to want to avoid making things complicated and renegotiating fundamental principles which would then make it harder to get a deal. And in a sense, that’s just a symptom of the larger feature of this kind of situation, sort of sunk-cost fallacy, as economists call it: when you put a lot of time into something, you try very hard to keep it alive, even if the rational decision is to cut your losses.

Mr Beer: Thank you. If we can just go back to the document, please, at paragraph 3, and expand paragraph 3.

“It will always be hard to give public enterprises true commercial freedom, but it can’t be right for Ministers and generalist officials to have to make decisions about extremely complex commercial and technological strategies. At the very least, more transparent methods are needed for offering independent advice to Ministers on the quality of business plans they are asked to support. In the case of Horizon, although consultants had been used at various times, at the key moment of decision proper advice was missing.”

What was the key moment of decision?

Sir Geoffrey Mulgan: Well, I guess there was more than one, but in all the various documents you’ve been looking at, there were moments of decision – either to go ahead, or change, or cancel. And at those moments, in my view, the key decision makers, not least the Prime Minister, weren’t getting good, independent advice. I couldn’t provide it. This was, you know, a tiny part of my time, and I’m not a – I don’t have deep expertise on complex tech projects.

Mr Beer: What are you referring to there that the advice was missing at the key moment?

Sir Geoffrey Mulgan: I think it must have been the various discussions in April, some of which you’ve mentioned, including the one where the meeting with Mr Naruto was alongside.

Mr Beer: Then on to paragraph 5, please. You say:

“If Ministers cannot reach agreement on a project with public spending implications, it’s vital that at an early stage the Prime Minister and Chancellor set the parameters for reaching a decision. The worst possible outcome is for the PM and Chancellor to become involved at the very last moment without having had time to master the issues.”

Are you describing what in fact happened in this case there?

Sir Geoffrey Mulgan: Yes. So what happened was in, I guess, February, March April, the Working Group, and with the involvement of Lord Falconer and others, were trying to find a way to make things work, what became called option B1, which would have involved additional public spending, but on – but with the hope or the analysis that new revenues would come through the Post Office, from other services and so on. So in the long run Government would, as it were, break even. The Prime Minister was willing to support that, but then, at the last moment, the Chancellor basically intervened and was not willing to support the additional short-term public spending that would have required.

Mr Beer: Hence the last-minute involvement that you mention here?

Sir Geoffrey Mulgan: Yes. And as I say, it’s not either their faults. I mean he was, again, doing his job in the way he didn’t have much choice at the time – trying to protect, you know, the public purse. But it’s not a good way to make decisions. But this minute, I think, was intended to be a note to Sir Richard Wilson, who was then Cabinet Secretary, to try and prompt a more formal Civil Service analysis of what had gone wrong, what could be done differently in the future, in relation to big projects of all kinds: commercial freedoms, and IT in particular.

Mr Beer: And then lastly on this minute over the page, please, “Information”, point 6:

“Far better procedures are needed to tie down basic facts. Almost every supposed fact in this project has turned out to be unreliable.”

What were you referring to there?

Sir Geoffrey Mulgan: These were mainly the financial facts where we were given – and if you read in detail the minutes of the Horizon Working Group, most of the key numbers changed almost – well, month to month.

Mr Beer: Thank you. And then lastly in terms of the decision, can we look at CBO00000053. A letter from Jeremy Heywood to the Chief Secretary’s Office. So I think that’s the Chief Secretary to the Treasury’s Office, is that Mr Monnery the “Dan” referred to there?

Sir Geoffrey Mulgan: I guess so, yeah.

Mr Beer: “The Prime Minister was grateful for the Chief Secretary’s minute of 10 May. He has discussed this with the Chancellor, who set out in more detail the Treasury’s concerns about signing up to B1. It will be a leap in the dark, said the Chancellor. It was not clear, for example, what discussions had taken place with the banks on the viability of this option.”

Moving on:

“We needed more time to bottom these issues out.

“Against this background, the only sensible course of action [paragraph 2] will be to buy more time to consider all the options. The most rational option would probably be termination.”

How widely was that view held within the top of Government, that the most rational option would be termination?

Sir Geoffrey Mulgan: Not very. I think it probably was the view of the majority in DSS. And within Treasury there were, as I think I wrote earlier, a range of different opinions.

Mr Beer: The next paragraph:

“The Prime Minister said he had not had time to look into all the options in detail. Starting with a clean sheet, it’s 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. Any solution should meet three key political requirements:

“(i) he 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;

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

“(iii) it would be important to ensure the Government had a fully defensible position, vis-a-vis the Public Accounts Committee.”

So is this essentially handing the issue to the Chancellor to resolve?

Sir Geoffrey Mulgan: Yes.

Mr Beer: But putting some political parameters around the decision making?

Sir Geoffrey Mulgan: Yes.

Mr Beer: Those factors there, would you agree, all appear to relate to how the deal might look to the outside world?

Sir Geoffrey Mulgan: Well, I think how – what the deal would be, what its material effects would be, as well as how it would be perceived.

Mr Beer: At this time, to your knowledge, was the technical robustness or reliability or integrity of the system brought into account in decision making?

Sir Geoffrey Mulgan: No.

Mr Beer: Thank you very much. Those are the only questions that I ask you.

I think there will be some more, starting with I think Ms Patrick or Mr Moloney, on behalf of the group of subpostmasters. So I think there’s a reasonable prospect we can finish Sir Geoff’s evidence shortly, which is why I have carried on.

Sir Wyn Williams: That’s fine.

Mr Beer: Thank you.

Mr Moloney: Sir, the usual question: can you see and hear me?

Sir Wyn Williams: I can.

Mr Moloney: Thank you, sir.

Questioned by Mr Moloney

Mr Moloney: Sir Geoff, I’ve only a few questions to ask you, and the first is really to try to jog your memory in respect of the briefing that you wrote for the Prime Minister on 9 April of 1999. You were taken to that document by Mr Beer, when he asked you questions.

Could we possibly go to that document, which is CBO00100001_002. If we could please go to paragraph 6., and if we could highlight paragraph 6.

You may remember, Sir Geoff, that Mr Beer asked you about the points that might be mentioned at the outset of the meeting in order to set the right tone. And four points are there.

Firstly, the deep appreciation of Fujitsu’s continuing commitment to the UK.

Then the next one that Mr Beer asked you about was how much you appreciated the efforts to help the workforce in Durham against the background of very tough global pressures. And you couldn’t remember what that was, and I don’t criticise you for that – obviously it’s 24 years ago now. But just to try to assist with your memory, if I may, and see if I do assist, could it be a reference to the closure of the Newton Aycliffe plants by Fujitsu in the Prime Minister’s constituency in late 1998?

Sir Geoffrey Mulgan: But that’s all I can remember, and I think I mention it in one of the earlier minutes as a consideration. But beyond that, I was not party to the to-and-fro on it.

Mr Moloney: Yes, but that is what’s –

Sir Geoffrey Mulgan: Yeah, yeah.

Mr Moloney: That’s what it refers to.

Sir Geoffrey Mulgan: So it’s County Durham, yeah.

Mr Moloney: Yes, absolutely. And I make no criticism of that lack of geographical specificity, either. Of course it’s County Durham.

And just if you are able to help, Fujitsu was a major employer in this sector in the UK at the time, wasn’t it? And indeed, that’s there in your third point, that you recognise that the UK is virtually all the Fujitsu’s European investments, and even more investment than the US?

Sir Geoffrey Mulgan: Yes, and I think it’s easy to forget, 25, 30 years on, just how important all of the Japanese inward investment was to the UK, and especially the northeast.

Mr Moloney: If I was to suggest – and I could take you to a document if necessary, but just to save time – that Fujitsu had over 14,000 employees in the UK at this time, that’s about right, in your recollection?

Sir Geoffrey Mulgan: If you say so. I can’t remember the number.

Mr Moloney: Thank you. That’s all I ask. Thank you very much.

Sir Geoffrey Mulgan: Thank you.

Mr Beer: Sir, I think that’s all of the questions for Sir Geoff, unless you had any.

Sir Wyn Williams: No, I have no questions, and I am very grateful to you for coming to give evidence this afternoon, Sir Geoffrey. Thank you.

Sir Geoffrey Mulgan: Thank you very much. And I apologise, my recollections are limited in small part on a truly appalling story. And if there were things we could and should have done differently in ‘98, ‘99, 2000, then it’s really important the right lessons are learned. So I wish you well.

Sir Wyn Williams: Thank you.

Mr Beer: We’re just going to bring the Inquiry to a close now, Sir Geoffrey.

I think we’re back tomorrow morning at 10.00 am, sir.

Sir Wyn Williams: Yes. And have I got it right, Mr Beer: we have two witnesses and two oral submissions?

Mr Beer: Yes, that’s correct, sir.

Sir Wyn Williams: Fine. See you all at 10.00.

Mr Beer: Thank you very much, sir.

(3.34 pm)

(The hearing adjourned until 10.00 am the following day)