Official hearing page

2 December 2022 – Alan Milburn and John Peberdy

Hide video Show video

(10.00 am)

Mr Beer: Good morning, sir. If can I call Mr Alan Milburn, please.

Alan Milburn

ALAN MILBURN (affirmed).

Questioned by Mr Beer

Mr Beer: Good morning, Mr Milburn.

Alan Milburn: Good morning.

Mr Beer: My name is Jason Beer, as you know, and I ask questions on behalf of the Inquiry. Please can you give us your full name?

Alan Milburn: Alan Milburn.

Mr Beer: Many thanks for coming to give evidence today and also for the detailed witness statement that you have already provided to the Inquiry. Can we look at that witness statement, please. There should be a hard copy in front of you. For the transcript, the reference is WITN03500100 and on page 21 there should be a signature.

Alan Milburn: Yes.

Mr Beer: Is that your signature?

Alan Milburn: It is.

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

Alan Milburn: They are.

Mr Beer: Thank you. Can I start with some questions about your background and experience. I think you were elected as MP for Darlington in May 1992; is that right?

Alan Milburn: It is.

Mr Beer: You served as a backbench MP until May 1997 when, as part of the New Labour Government, you were appointed Minister of State at the Department of Health?

Alan Milburn: That is correct.

Mr Beer: You serve in that role for a year and eight months, by my calculations, until on 23 December 1998 you were appointed as Chief Secretary to the Treasury?

Alan Milburn: Yes.

Mr Beer: You served in that role for a little over nine months until 11 October 1999, when you were appointed Secretary of State for Health?

Alan Milburn: That is correct.

Mr Beer: It’s that nine-month period that we are principally interested in, when you were Chief Secretary to the Treasury. What’s the role, in general terms, of the Chief Secretary to the Treasury?

Alan Milburn: It’s a pretty impressing role in Government, because you really have a finger in many pies, largely as a consequence of effectively being responsible for all aspects of public expenditure. So at any one time you can be dealing with an issue like this, or I think, during my time, the war in Kosovo, issues around Private Finance Initiative, modernising Government, peacekeeping in Sierra Leone, so there’s a wide variety of issues you’re dealing with, Departments that you’re liaising with. And, very often, the more informal role, I guess, is you’re trying to solve or help solve what have become knotty cross-governmental problems, of which Horizon would be an example. The final role, I guess, is that, at the time, I was responsible for PPPs, Public Private Partnerships, and Private Finance Initiative, and also for regulation in the City.

Mr Beer: So, as far as this Inquiry is concerned, in the Horizon project there were two particular aspects of the role, as well as obviously the financial element of your role, where it intersects with your responsibilities. Firstly, that this was, when you started office, still a Private Finance Initiative contract, a PFI contract, and secondly, would you agree that this was a knotty problem involving cross-departmental disagreement?

Alan Milburn: I think that would be a polite underestimate – understatement. Yes, it was.

Mr Beer: Thank you. One of the first communications that you received concerning Horizon was from the General Secretary of the National Federation of SubPostmasters, Colin Baker. Can we look at that, please. It’ll come up on the right-hand screen for you. It’s NFSP00000372. Thank you.

You’ll see at the top of the page there that it’s a letter to you. It’s from Colin Baker, the General Secretary of the Federation. Although the date is typewritten as 13 August 1998, somebody has handwritten “8th January 1999”. That date, the handwritten date, would make sense, the typewritten date would not, given that this is a letter congratulating you on becoming Chief Secretary to the Treasury.

Alan Milburn: Yes.

Mr Beer: So would you agree that the second date appears more likely to be the correct one?

Alan Milburn: I guess so, yes, that must be right. I guess it must have been a standard letter, by the looks of things, maybe sent to my predecessor as well.

Mr Beer: I was going to ask you about that. Is it normal to receive these congratulatory letters from, in particular, the unions?

Alan Milburn: It’s normal at the beginning. You do tend to get congratulatory letters at the beginning of your term, less so at the end, in my experience. Yes, and, not just from the unions. So whether or not I saw it, I’ve got absolutely no recollection. It’s possible I did but I don’t know.

Mr Beer: Just help us to understand, we’ve received some evidence on this issue already, the general public might think that if a letter is written to you with your name on it, you will see it.

Alan Milburn: Yes.

Mr Beer: Can you explain whether that would be an accurate assumption or not?

Alan Milburn: That is an inaccurate assumption. So there’s a sausage machine in government, and for understandable reasons, really. As a minister you receive a huge amount of correspondence so there’s obviously internal correspondence, no doubt we’ll come to, between ministers and then there’s a lot of external correspondence from either members of the public or organisations like the Federation. And, in truth, what happens two lot of them is that there’s simply – they never come into a ministerial office or to a private office they go into the machine of government and there will be a correspondence unit, I guess, somewhere in the Treasury, who would effectively either respond to it directly or alternatively draft a response which would come up to a ministerial office, and then you would sign it off.

Mr Beer: So if there was a reply to this letter, which was just an acknowledgement and a thank you, that wouldn’t come up to you to okay it?

Alan Milburn: No, it wouldn’t.

Mr Beer: If there was a reply of more substance we would expect to see a backing paper, a ministerial submission, saying, “This is the issue, here’s the letter, here’s a proposed reply in annex B”?

Alan Milburn: It could take one of two forms. Either there would be a backing paper and a draft letter. Very often, there would only be a draft letter and then it would be a matter for the minister, in this case myself, to determine whether or not the draft reply was a suitable one. So I could either sign it off or I could alter it and it would go back and be retyped or whatever, and then come up for signature again.

But the fact there doesn’t seem, certainly in my bundle of papers, to be a reply to Mr Baker suggests that that didn’t happen in this case.

Mr Beer: To what extent was there a channel of communication between you and the NFSP in the nine-month period?

Alan Milburn: From recollection, I don’t know whether there was. I think probably not.

Mr Beer: Does it follow that, to your recollection, the Federation did the not raise with you issues about the integrity or reliability of the Horizon System in that nine-month period when you were Chief Secretary to the Treasury?

Alan Milburn: I have no recollection of them doing so.

Mr Beer: Thank you. In your witness statement, maybe if we just look at it please, at paragraph 22, it’ll come up on the screen, as well. It’s page 8, thank you. Paragraph 22. You say:

“My primary responsible as Chief Secretary was overseeing public centre. While Horizon’s technical viability and robustness would have been an issue of concern to [the Treasury], the operational responsibility for ensuring that it worked in practice would have rested Mr Directly with DTI and DSS.”

The sentence that “operational responsibility for ensuring it worked in practice would have rested more directly with” – and I’m interested in DTI here – is that right, that the Department for Trade and Industry would have had operational responsibility for ensuring that Horizon worked in practice, as opposed to the Post Office?

Alan Milburn: I think what I mean there is that the DTI is the sponsoring Department –

Mr Beer: Sorry, can I stop you in mid-answer. The transcript has apparently stopped. We’ve got a live time transcript and it appears to have frozen.

I’m told it’s of the variety of the ten-minute issue. Therefore, I’d ask you to rise and we break whilst the transcribers regain connectivity.

Sir Wyn Williams: I should have kept a table of whether this was more or less likely to happen when I’m present, Mr Beer! All right.

Mr Beer: Ten minutes.

Sir Wyn Williams: Sorry about that.

The Witness: No problem.

(10.14 am)

(A short break)

(10.23 am)

Mr Beer: I’m sorry for that delay.

Sir Wyn Williams: Can I ask you, as a matter of interest, is the transcribing, or if that’s the correct description, actually stopped or is it just that the display that has stopped.

Mr Beer: The former. The transcriber who is remote, who is not in this building, loses connection –

Sir Wyn Williams: Fine, I’m with you.

Mr Beer: – so an Internet connection and so, therefore, the transcript has to stop. We see that because the display ceases to work.

Mr Milburn, sorry for that interruption to your evidence. At the time of receiving the letter that we were looking at, so that was early January 1999, were you aware of any concerns that were circulating within Number 10 Downing Street that the Horizon System itself was flawed and unreliable?

Alan Milburn: There were certainly concerns, I think, across Government, in Number 10, Treasury, DTI and the then DSS, about the operationalising of the Horizon contract since it was so late. It was delayed and, obviously, ICL were in breach of contract and had been for some considerable time, and there were a number of other structural problems as you’re aware, in terms of the relationships between the parties, and so on and so forth.

If your question is a much narrower question about the operational performance, so to speak, of the rollout, I think that’s a different matter. I don’t think, from recollection, operational performance issues, even when there was live testing, which as is clear from my evidence, and I think from other ministers’ evidence, is something the Government was insisting on, for perfectly obvious reasons – the results of live testing, ie what was actually happening, I don’t think were visible.

Mr Beer: The Inquiry has seen correspondence circulating within Number 10 at Christmastime, so Christmas 1998, over the narrower issue – so not the concept of involving the Benefits Agency through the use of a Benefit Payment Card, but the narrower issue of whether the system itself was flawed, was unreliable. At that time, and subsequently, those weren’t concerns that were shared with or raised with you.

Alan Milburn: Not to my recollection.

Mr Beer: You refer in your witness statement, on a number of occasions, to a report that was co-authored by Adrian Montague, back in July 1998, and the conclusion or one of the conclusions of that report that the system was, as it then stood, technically viable. I have in mind, no need to turn them up, paragraphs 21, 55, and 57 of your statement.

Were you given, to your recollection, a copy of the Montague report, as I’m going to call it, when you took up office?

Alan Milburn: Not to my recollection.

Mr Beer: So this is you in your statement reflecting back on what you now see the Montague report to say?

Alan Milburn: Correct.

Mr Beer: Still, even though it is reflecting back, do you understand the Montague report to refer to the feasibility of a system that was yet to be trialled, as opposed to an assessment and a conclusion that the system in operation was robust and had integrity?

Alan Milburn: Yeah, I think there are two separate issues, aren’t there. There was the assessment of Adrian’s report and, indeed, as I’ve read in the documents that have been presented to me, the Isabel Anderson note from October ‘98, which talked about technical feasibility. I think Adrian talked about technical viability, so broadly the same concept.

So I guess that was a theoretical appraisal of whether or not it was possible that the programme could be implemented. That was on one side. And I think, as the scepticism amongst Government and officials, I would guess, but speaking for myself as a minister – as the scepticism about the rollout grew, then I think the reliance on a presumption may well have diminished, and that’s why, as you’ll see from the Select Committee evidence that I cite in my statement, Alistair Darling, my colleague, in particular, given the fact that the DSS had been so scarred by previous IT programmes, was heavily insistent upon live testing. So was the thing actually working in practice, as distinct from theoretically could it work?

Mr Beer: Before the decision was taken in May 1999 to go with option B3, essentially, as it was styled, were you aware of any independent assessment of the operation of the system, as it had then been built?

Alan Milburn: No.

Mr Beer: Any external consultant involvement in an independent assessment of the operation of the system, as it was then operating, other than looking back to the slightly different issue that you’ve mentioned: technical feasibility or viability in July ‘98?

Alan Milburn: No.

Mr Beer: Do you know why that was, that that type of assessment was not commissioned?

Alan Milburn: I don’t know.

Mr Beer: Have you a view on whether it ought to have been?

Alan Milburn: Yes, though I think it is one of the – look, my direct recollections of all of this period are limited, as I made clear in my statement, but from a careful reading of the documents that the Inquiry has made available to me, one of the clear fault lines, in my view, is that there was no independent, ongoing technical expertise that was able to take a view about whether the so-called live testing was actually throwing up more problems than it was creating solutions.

And I think it is one of the potentially important lessons to be learned from this sort of implementation, which is that that sort of ongoing technical independent expertise is something that would be of relevance, going forward.

Now, I’m speaking blind, so to speak, because it may well be that, nowadays, that’s exactly what happens, I don’t know. But I would have thought that that might have been something that would have been helpful, in particular for ministers, to have line of sight of.

Mr Beer: To what extent did it feel, at the time, that you were taking this decision blind to an independent and rigorous assessment of the technical merits or demerits of the system?

Alan Milburn: I think we were reliant on two things: first of all, the Montague assessment, that it was viable; and, secondly, the assurance that the system – which ICL, I think, were uncomfortable with, because I think from what I’ve read, that there were more wanting to see laboratory testing than live testing – that the live testing would demonstrate the workability of the system.

Mr Beer: Can you remember whether anyone raised that issue, “We’re lacking here consultancy, input, or” – and I’m not thinking of kind of City consultancy, KPMG-type input, but somebody outside of POCL and ICL giving us a cold, hard assessment of the technology here?

Alan Milburn: Look, it’s a quarter of a century ago, almost, and so – but I have no recollection of that, no.

Mr Beer: Can we look, please, at paragraph 11, still dealing with January 1999. In paragraph 11, you exhibit a copy of an undated draft letter from Stephen Byers to the Prime Minister, and you say that:

“This document shows, despite the serious problems with the contract, ICL were still expecting new money from the Government and to make a financial return, in order to make the deal agreed between ICL and POCL in December 1998 work.”

If we can just look at that letter, please. That’s BEIS0000167. This is the letter to which you refer, and if you just scan, I’m not going to read them out in full, but if you scan the first part of the letter on page 1, and then go over to page 2, and the first couple of paragraphs on page 2, before we get to the part where ICL is looking for a revenue stream. It’s clear there, as well as the issue of ICL asking for new money from Government to make a financial return, the balance of the letter also refers to Fujitsu’s sense of having been badly treated by the Government, as well as the commercial background of ICL having spent significant sums of money in developing the project, in addition to future investment proposals. Would that be fair?

Alan Milburn: Yes. Fair in terms of the content of the letter. Whether it’s fair is a different point.

Mr Beer: Yes, fair in terms of the content of the letter. I’m just asked to ensure that, in the interests of balance, other parts of the letter are drawn to your attention in public. Did you form a view at the time as to whether or not the substance of what was being said was fair?

Alan Milburn: I think there was – there were clear structural problems from the outset with this. The Government, of which I was a member, inherited what was a failing contract, and maybe the way it was set up from the outset, it could be argued, it was designed almost to fail. Given that there were different objectives on the part of the principal sponsors, the Benefits Agency, DSS on the one side, DTI and the Post Office on the other, there was huge ambiguity there.

However – and, of course, the Programme Delivery Authority and all of the issues that ICL-Fujitsu raise about continual chopping and changing, and so on and so forth, it does take two to tango, however, and there was also another pattern through all of this, I think, which is that ICL had signed up to something that they were unable to deliver. And I think, when I look at it today, it’s pretty clear that the complexity of the contract was dramatically underestimated. The timescales were heroic and, to put it politely, the management and governance structures were deeply ambiguous.

But the job of the contractor, particularly in a PFI deal, is to take that responsibility and absolve those risks. That’s the point about PFI. It’s about the transferal of risk.

So all the parties bear some responsibility.

Mr Beer: You said, in the course of that answer, that the governance and management structures were deeply ambiguous. What were you referring to in particular there?

Alan Milburn: Well, my view about these things is that clarity beats ambiguity every single time, particularly when it comes to something as complex as the delivery of this huge programme, 19,000 post offices, 40,000 counters, and yet it was pretty obvious, and all the papers bear this out, really, that the DSS and the Benefits Agency have a different objective from the DTI and the Post Office, and those objectives were – there was an attempt to marry them thorough the mechanism of the Programme Delivery Authority. But all that really did was bring together different points of view and different interests.

So, in the end, what I don’t see from what I read today, is that there was a single point of accountability and responsibility for the delivery of this thing and that, it seems to me, is one of the big failures and maybe one of the lessons to be learnt.

Mr Beer: What ought to have occurred, then, what structure ought to have been put in place?

Alan Milburn: Somebody, somewhere should have had sole responsibility; it should have been their responsibility.

Mr Beer: Was that not obvious at the time and didn’t need reflection of 20 years in the past?

Alan Milburn: Well, as I say, the Government of which I was a member inherited both a governance structure and a contract and, obviously, I don’t know, none of us know, how that was set up, how the decisions were made, why the structures were designed in the way that they were. But, of course, at the time, it’s perfectly obvious from reading all of these papers that those concerns were pretty deeply felt. It was one of the reasons, not the sole reason, it was one of the reasons, which contributed to the view that we had to leave no stone unturned, in order to try to find a way of making this thing either work, or not, in terms of either to make it work or to terminate it.

And the truth is that, you know, as I look at it today, there were no easy solutions or easy answers here. There were pretty fine judgements, and you were in a position where, you know, quite a lot of bad money had been thrown at this, and the question is whether you threw more good money at it because we were into it, or whether you did something more dramatic and terminated the thing, with pretty big consequences for the Post Office and for subpostmasters in particular, or whether you tried to find a way through it.

And I guess the effort over the course of January to May period, when I was obviously involved with this alongside Steve and Alistair, in particular, and Charlie Falconer, was we were trying to find a way thorough this.

Mr Beer: Just winding forwards to May, when the decision was made to drop the Benefits Agency out of the Tripartite Agreement, to stop the use of a PFI contract, to move to a bilateral agreement between POCL and ICL, using a more standard design and build contract for the provision and supply of goods and services, was the opportunity taken then to address the issue of governance, management and oversight of the project at that stage?

Alan Milburn: Not to my recollection.

Mr Beer: Why was that? Did that not represent an opportunity when very substantial elements of the programme were being reset to address the issue that you have raised?

Alan Milburn: I don’t know why that was.

Mr Beer: Can you recall, in the period between your appointment and May 1999, whether concerns were raised with you, in particular through the DTI, that the Post Office considered that the PFI contract denied them visibility or sight on the high and low level design of the system that they were being asked to use, that they were being presented with what was described as a black box that just produced outputs that they needed to trust in. Was that something that had filtered up to you?

Alan Milburn: Not that I can remember, no.

Mr Beer: Again, the same question: when it came to May ‘99 and the resetting of the arrangements, can you recall whether that was an issue of discussion? We can now use this opportunity to address that problem?

Alan Milburn: I can’t recollect that conversation taking place and I suspect that, if it had taken place, it was taking place at official level rather than ministerial level. But that’s my supposition.

Mr Beer: Can we look, please, just moving forward to February ‘99, then, at POL00069088 and just highlight the top of the page. This wouldn’t have been an email that you saw at the time, you’re not on the copy list, it’s not something that would have come to your attention. It’s the content that I want to ask you about, Mr Milburn, you understand.

So this from Jonathan Evans, and he states that David Sibbick, a senior civil servant in the DTI:

“… rang late this afternoon to tell me that [you] had earlier today passed to Stephen Byers a proposal for a way forward on Horizon. Byers has until lunchtime tomorrow … to give comments back to [the Treasury]. Darling at DSS is in a similar position.

“The proposal is strictly confidential to Ministers and officials – [the Treasury] have not given clearance for us or [the Benefits Agency] to be brought into the consultation net.

“[I went this evening] over to DTI with Mena to help David analyse what the proposal contains. Contrary to rumours, it does not contain any suggestion of involving a new partner, but essentially is option X with a twist …”

Then that’s set out:

“scrap the Benefit Payment Card

“POCL to introduce a smartcard

“benefit payments to be paid into a ‘benefit account’ via ACT …

“‘initially’ the benefit account would only be accessible at post offices.

“ACT into normal bank accounts would remain an option throughout.”

Now, this tends to suggest that there were back channels of communication going on. To what extent did you know about that?

Alan Milburn: I didn’t. In fact, I don’t know who any of these characters are.

Mr Beer: Right. Would you expect such back channels of communication to go on at official level and including back to ICL?

Alan Milburn: I don’t know back to ICL but the realpolitik of being in Government in being, indeed in any large organisation, is that there are always back channels, are there not? So it doesn’t particularly surprise me that officials were talking privately to one another.

Mr Beer: Now, you know that subsequently, data produced by – that can be taken down, thank you.

Data produced by the Horizon System was used as the foundation for the prosecution of a number of subpostmasters, subpostmistresses and Crown Office staff. In the nine-month period of your office, as Chief Secretary, was that something that you were aware of: that the data produced by the system could be used for that purpose?

Alan Milburn: No.

Mr Beer: Did you know that the Post Office was a prosecuting authority, that it conducted its own investigations and prosecutions, rather than that being done by the police service and the Crown Prosecution Service?

Alan Milburn: At the time, no.

Mr Beer: Were you aware of any discussions at the time as to the need to ensure the integrity and reliability of the data processed by the Horizon System, because it might be put to that use?

Alan Milburn: No.

Mr Beer: So were you viewing this through the lens, simply, of an “ordinary”, in inverted commas, computer system that would be used for the processing of transactions and accounting purposes?

Alan Milburn: Sure.

Mr Beer: Would it have made any difference if you had known the things that I’ve just mentioned, ie a different use to which the data might be put?

Alan Milburn: Um … yes, I would have thought so. I mean, I’m struggling to answer the question, because I’m trying to think what I would have thought then, so to speak, you know, 20-odd years ago. But when I – I read the transcript of the evidence that my colleague Stephen Byers had given here and, when you raised exactly those same questions about the Post Office as a prosecuting authority and the use to which data had been put – I was going to say I was surprised: I was shocked. And so, I may well have had the same reaction 20-odd years ago.

Mr Beer: There were a number of discussions between the DTI and the Benefits Agency about the needs and duties of the different organisations and, therefore, what was necessary in terms of the specification and outputs of the Horizon System. This wasn’t included as one of them, so far as you’re aware?

Alan Milburn: Not as far as I’m aware.

Mr Beer: So you didn’t have any information drawn to your attention that would satisfy you that the Horizon System would be fit for the purpose of providing reliable evidence for use in criminal and, indeed, in civil cases?

Alan Milburn: No.

Mr Beer: This wasn’t an issue that was on your radar in any sense at all?

Alan Milburn: From recollection, absolutely not, and I’m pretty certain that if it had been – if I had been apprised of that, I think I probably would have remembered it, in the light of what has happened.

Mr Beer: I’m not going to take you through the various iterations of the developments of proposals in the period between January and May 1999, because we’ve got those on paper, and you’ve said in your witness statement, you’ve repeated today, that you have very little independent recollection to add to those. But I do want to take you to the end of the process if I may, in May 1999 –

Alan Milburn: Sure.

Mr Beer: – and look at HMT00000024. If we go to the last page of that which is page 9, we can see it is signed off by you; there would have been your signature underneath where it says, General Restriction Order “GRO” –

Alan Milburn: Mm.

Mr Beer: – and it is dated 10 May 1999.

Alan Milburn: Yes.

Mr Beer: Would you have drafted this or would somebody have drafted it for you?

Alan Milburn: Oh, it would have been drafted for me, and then I may well have edited it and changed it, or whatever, but there would have been an initial draft that would have come up to my office.

Mr Beer: So, because you may have edited it, amended it, but then signed it, you were content with the content going out in your name?

Alan Milburn: Yes.

Mr Beer: If we go back to page 1, thank you. It says in the introduction:

“This note sets out the current situation on the Horizon … Project. It summarises the extensive work that has taken place over the last few weeks to reach an agreement about how to best to proceed. In summarising the position I have consulted extensively with Stephen Byers, Alistair Darling, and Charlie Falconer.”

Now, at this stage, what was your role, so 10 May 1999?

Alan Milburn: That’s a very good question. So I guess I was trying to act as a broker and convener between the different interests and points of view amongst my ministerial colleagues. And, in that role, my co-pilot, I suppose, was Charlie Falconer because he was a minister for the Cabinet Office, so again sat at the centre of government, rather than representing one of the Departments. So we each had a finger in the pie.

I think this letter is interesting because it represents my attempt, I suppose, to bring matters to a conclusion by facing the Prime Minister with a choice because, as is clear from the other content of this particular letter, although we might have been aligned on many things, we couldn’t get to an alignment about the best way forward, whether it was B1, B3 or termination. And so, in the end, the ultimate arbiter in Government has to be the Prime Minister, which is why the letter was sent.

Mr Beer: Thank you. You continue:

“We have a commitment to give ICL a decision on the way forward with this project on Monday (but ICL have said they can now wait until Tuesday). They must file end year accounts on Wednesday.”

Just stopping there, what was the relevance of ICL filing accounts?

Alan Milburn: Because from – not from memory but from a reading of the papers, depending on what was agreed, they would have to make a provision in their accounts and, indeed, I think Fujitsu would have had to make a provision in its accounts.

Mr Beer: For losses?

Alan Milburn: For losses.

Mr Beer: And, depending on the choice that Government made, that may determine the extent of the loss shown.

Alan Milburn: Correct.

Mr Beer: You continue:

“Our policy aim is to move to [ACT] as soon as reasonably practical and to preserve a national Post Office network.”

In your witness statement, I think, you describe certainly the latter of those as one of the top-level policy objectives: the preservation of a national Post Office Network.

The former of those, “Our policy aim is to move to [ACT] as soon as practical”, was that a reflection of the DSS’s position?

Alan Milburn: I think it was spearheaded by the DSS, but I think there was a recognition that the current method of paying benefits at the time, through the so-called ration book method, was inefficient, was out of sync with where Benefits Agency customers themselves were going and was both expensive and vulnerable to fraud. So I think there was a cross-government recognition where the preferable route was to move to ACT, and not just the DSS one.

Mr Beer: Then turning to the options – sorry, before that it says – can that just be blown up again. Thank you:

“We should keep ICL/Fujitsu on boarding if possible.”

Then turning to the options, we’ll come to these in more detail when we get to the papers – substance itself:

“Stephen Byers and Charlie Falconer both prefer Option B1.”

We’ll come to that, in a moment but that’s a new smartcard, essentially:

“Alistair Darling and Alan Milburn favour Option B3 …”

We’ll come to that, that’s POCL buying system from ICL but without the Benefit Payment Card.

Alan Milburn: Which is sort of what eventually happened.

Mr Beer: Yes, that was the outcome.

Alan Milburn: Yes.

Mr Beer: “… if POCL and ICL can reach a sensible deal. If they cannot they would favour Option C – [termination] and allowing POCL to procure a new system that met their commercial requirements in the light of termination.”

The sentence “Alistair Darling and Alan Milburn favour Option 3”, you presumably don’t refer to yourself much in the third person?

Alan Milburn: It’s a slightly odd way of doing it, isn’t it? Yes.

Mr Beer: Is that a reflection that this is authored by somebody else, or would that be the normal way to write?

Alan Milburn: No, it isn’t a reflection of the fact that it was written by someone else. I think it’s a reflection of the fact that I wanted to make clear to the Prime Minister where the principles stood.

Mr Beer: I’m so sorry, sir. Once again the transcript appears to have stopped. That’s IT.

Alan Milburn: I’m glad you said that and not me.

Mr Beer: Can you give me a moment to find out what’s going on?

I understand on this occasion the transcription link is working and so the transcriber will carry on transcribing, which is obviously the critical thing, that there is a record made –

Sir Wyn Williams: That’s why I ask the question earlier. Because I think we can all survive not having a simultaneous –

Mr Beer: The LiveNote.

Sir Wyn Williams: Exactly. Cue(?), as they say.

Mr Beer: Yes, picking up where we were, then. I think you were mid-answer.

Alan Milburn: Yes, I was saying that I think the reason that – it’s slightly odd, a letter coming from me, referring to me in the third person. I think I was trying to make it explicitly clear to the Prime Minister, who I’m sure was receiving a lot of submissions at this time, where the individual principles stood.

Mr Beer: I understand. So if they can’t then reach a deal, then termination, because it –

Alan Milburn: So Alistair and I took the view, which wasn’t the same view as Steve or Charlie, we took the view that, if we couldn’t make what was eventually the option that was implemented work, then we had to move to termination.

Mr Beer: “Background

“We gave an assurance to Fujitsu that the Government will make a decision …”

I’m dealing with this in some detail because we’ve skipped over the various iterations that are the run up to this moment.

Alan Milburn: Yes.

Mr Beer: Then over the page, please:

“… on the way forward for the project by Monday [which, I think, is the day of the document itself], although ICL have now said they can wait until Tuesday.

“Economic case

“The Horizon project was envisaged as a way of reducing benefit fraud and modernising the benefit system, while automating the Post Office network in a way that would help preserve footfall and therefore maintain a nationwide network of post offices. It is now three years late. Our view is that continuation with the project (Option A) is no longer viable, in view of ICL’s failure to deliver and the irretrievable breakdown in relations between the parties. This view was effectively confirmed earlier this week when ICL withdrew their offer of 18 December. It is therefore dead.”

The sentence “continuation is no longer viable in view of … the irretrievable breakdown in relations between the parties”, did you consider, when making recommendations, when writing this minute, whether the irretrievable breakdown in relations between the parties didn’t just include an irretrievable breakdown involving the Benefits Agency and DSS, that there was a – there had been a breakdown in relations between POCL and ICL.

Alan Milburn: I don’t know.

Mr Beer: Can you recall what this breakdown is focused on?

Alan Milburn: I think it’s principally focused on – I would have thought it’s focused on the breakdown between the Benefits Agency and ICL.

Mr Beer: Were you aware of any breakdown in relations between POCL and ICL?

Alan Milburn: I honestly can’t recollect.

Mr Beer: Moving on, paragraph 3:

“We are left with three options. First, [B1] – involving the creation of 15 million Post Office benefits accounts (with limited facilities), accessible via a Post Office smartcard. Benefits would be paid into these accounts by ACT (from 2002). It’s the best option to preserve Post Office footfall in the short term, and the policy value for this cannot be reflected in the figures. It would place the [Post Office] in a position to win electronic Government services by having a base of 15 million smartcards. It provides automation of counter services. In this respect it has attractions, but it offers consider people worse value for money in NPV [net present value] terms than the alternative options. If Ministers were to decide to pursue Option B1, ICL’s current position is that the public sector parties must sign an unconditional agreement on Tuesday, and provide ICL with £180 million.”

You didn’t favour this option?

Alan Milburn: No.

Mr Beer: And why?

Alan Milburn: Um, because I felt the conditions – because I think the reasons why they didn’t favour this option, given it was so long ago, were that the conditions were unattractive, signing up unconditionally to something that was going to be complex to deliver, didn’t seem to me to be a recipe for success, and the fact that ICL once again were wanting more when they had a track recorded of delivering less.

So that was one reason. I guess the second reason was that, in cost terms, and not just in NPV terms but public expenditure terms, as I’ve read from the papers, this would be a considerably more expensive option than either continuing with what was, which was clearly not an option, because it had failed and for all the reasons that we’ve been discussing, or the option that I did favour, B3.

Mr Beer: Can we turn, then, to B3 over the page, please, paragraph 4.

“The second option [B3] would involve POCL buying the basic system from ICL but without the benefit payment application and without the creation of special POCL benefit accounts. It would provide automation of post office [counters] (from bill payment to postage rates). Benefits would be paid into conventional High Street bank accounts by ACT. The Post Office would offer simple cashback facilities (as a minimum) to access these accounts across the council. It would also provide a platform for network banking and Modern Government with a smartcard capability, though it would not provide the certainty of 15 [million] smartcards as under B1. It would allow BA to roll out the Order Book Control System (a way of reducing order book fraud). BA and POCL would work together to market ACT into bank accounts accessible at the post office from 2001, in preparation for a move to ACT as the usual method of payment in 2003. The NPV figures are sensitive to changes in these dates.”

Then 5:

“Unlike B1, [B3] would not tie the Post Office to ICL as a long-term business partner. Such a tie may well prove inflexible if, and when, we take forward a Public Private Partnership and, therefore, force us to bring a private sector second on less attractive terms.”

Down the page, please, to 6:

“POCL reject Option B3 at the moment and ICL have indicated that it is likely to be expensive. POCL would prefer termination and to obtain a new system better suited to their needs.”

Can you recall why POCL rejected option B3?

Alan Milburn: I can’t, I’m afraid.

Mr Beer: “In order to maintain progress on B3 we would have to rule option B1 off the table and make plain that termination was the only alternative. However, when this was done over the weekend POCL still preferred termination. It is unlikely we could force POCL to do B3.”

In fact, that’s what happened, isn’t it?

Alan Milburn: It is, yes. I think I was wrong in that regard.

Mr Beer: You were wrong in which regard?

Alan Milburn: In regard to the last sentence because, in the end, that is what happened.

Mr Beer: Over the page, please, to 7. The:

“The third option [C] would be to terminate the contracts with ICL. POCL would start afresh. A new automation system would be brought forward from a new supplier specifically designed to meet POCL’s automation and network banking aspirations, including the ability to withdraw cash from bank accounts at post offices. BA would be given a date to move to ACT (they would like to start the transfer … from 2001, although POCL say they could not be ready by then and claim they would lose substantial footfall) working with POCL to maximise retention of footfall.

“As well as the above considerations there are substantial economic and financial differences between these options. The key figures are …”

Over the page, please and if we scroll down to look at the table. I’m not going to analyse the financial figures or ask you to do so.

Alan Milburn: That’s a relief.

Mr Beer: You enter a footnote saying:

“All these figures should be seen as indicative rather than precise forecasts. They depend on assumptions …”

Then if we go over the page to the summary:

“B3 and C offer a better economic return than B1;

“the cash hit under B3 and C are significantly less than under B1, both in the CSR2 period and over a 10-year timescale.”

So that’s the headline points that you draw from the table before –

Alan Milburn: Yes.

Mr Beer: – which is why I’m not going to try and deconstruct it.

Alan Milburn: Yes.

Mr Beer: You then come on to the Post Office’s position. They prefer B1:

“… but are not prepared to contribute more than £37 million … They have suggested that a further £190 million be taken from their customers by delaying the reduction in the postal monopoly from £1 to 50 pence by three years.”

Could you explain what that means, please?

Alan Milburn: I honestly can’t recall. I don’t know.

Mr Beer: Okay:

“The Post Office have said they would plough the net contribution they expect to make from Government Direct business under … A back into B1 and estimate that these will be about £660 million … But this money is already taken into account in calculating the additional costs in the table above … ICL are offering the possibility of finance to ‘smooth’ the spending profile, but this is simply borrowing from ICL and the interest payments will add to the project costs.”

Then you analyse, under a series of headings, the “Political factors”, “Positions”, and then “Conclusions”. I just want to go back to “Political factors”, please, on page 10. That’s paragraph 10 at the foot of the page:

“All of the options … need to be presented very carefully, given the expectation amongst subpostmasters that Horizon … would secure their future. [B1] would be the easiest of the other three options to handle. [B3] would be the harder but would still have ICL on board and the Post Office would still be getting automation. In the case of [B3 and C] the Government would need to argue that it would have been doing the post office and its customers no good by pressing on with a project that was already 3 years late and couldn’t deliver – and that they were fully committed to providing one that did. We would make plain that ICL had withdrawn of the existing project … We have looked hard to salvage something but unfortunately there was nothing worthwhile.”

Then continuing on, “Positions”, this simply reflects what you’d said in the summary at the beginning.

Alan Milburn: Mm.

Mr Beer: We can skip 11, which sets out Mr Byers and Mr Falconer’s position, and go to 12, which I think explains the answer in more detail to the question that I asked you earlier, why you favoured B1:

“[You] and Alistair Darling consider that the larger funding gap with B1, and the fact that it ties the Post Office into an expensive project over a period during which we might consider a change in the ownership, present too much of a downside. They consider that the Post Office’s lack of financial commitment raises doubts about their commitment to B1. They are concerned that ICL’s failure to deliver the [BPC] on time does not bode well for delivery of a new and complex system …”

Then this:

“ … (in contrast B3 would be buying that part of the system that is ready to roll out and is relatively simple).”

That phrase there, “ready to roll out”, can you recall where that came from, bearing in mind this is 10 May 1999?

Alan Milburn: I can’t recall where it came from. I think it’s a reference to the fact that B3 effectively involved the separation of the BPC, which had been the subject of many of the problems from, if you like, the underlying automation of Post Office Counters. So I think it’s a relativity point, rather than an absolute one, I think, reading it again.

Mr Beer: Can I just test that a little bit: is that your recollection of what you had been told, whether orally or through submissions, that the problems with Horizon principally related to the BPC, rather than the Benefits Agency having an in-principle objection to the use of the BPC?

Alan Milburn: I don’t, I’m afraid, have a direct recollection. I mean, reading the documentation now, some 20-odd years later, I think a recurring theme, from what I’ve read is that the BPC was identified as the core problem, and it is perfectly obvious that, from a Benefits Agency and DSS point of view, the longer the delays were in the BPC, which was always regarded as an interim solution, pending ACT and/or a full smartcard, the less the value was for the DSS and the Benefits Agency, in terms, for example, of fraud – savings from fraud.

So understandably perhaps the DSS and the Benefits Agency were getting more and more frustrated as time went on.

Mr Beer: Then the sentence, or the part of the sentence “and is relatively simple”, ie the Horizon System stripped of the BPC element of it was relatively simple, on what basis was that said?

Alan Milburn: I presume it was said on the basis that that is what I was being told: that it was a more straightforward part of Horizon than the BPC, but that’s a presumption, rather than a recollection.

Mr Beer: Presumably, you wouldn’t have said this unless you had been told it?

Alan Milburn: I wouldn’t have made it up, no.

Mr Beer: You continue:

“B3 could also provide a platform for Modern Government. The Option A savings, largely accruing to [the Benefits Agency] are also available under B3 and C.”

At 13:

“The Post Office favour B1. They have said that they are not interested in B3 and would prefer termination … this may partly be a negotiating tactic (they were reluctant to consider other options while option A was on the table). If POCL and ICL cannot agree on a worthwhile deal on B3, there would be termination.”

Did you consider that the Post Office were employing negotiating tactics with Government?

Alan Milburn: I guess that’s what that infers. But I don’t have a recollection of that.

Mr Beer: To what extent was it for government to make a decision here, given that the Post Office was a statutory corporation, and Post Office Counters Limited was a limited company with its own board? Why does the Government get to make the choice and foist upon an unwilling company, limited by guarantee?

Alan Milburn: Well, it’s clearly an uncomfortable position, not least because the then Government’s position was that, as I recall, we wanted to give greater freedom to the Post Office, in order to encourage it to be more entrepreneurial and more modern in order to sustain itself and be successful for the future.

But the real answer is that, in the end, the buck stops with the government and, indeed, the cheque book is owned by the government, so one was going to have to write the cheques on behalf of the taxpayer, and that is HMG.

Mr Beer: In a – sorry, we should finish with the conclusion.

“We have been unable to agree on an option … B1 is favoured by ICL and the Post Office … but has a substantial funding gap … It provides most immediate security of footfall but ties the Post Office into a long-term relationship … B3 provides an automated platform for POCL to develop its business in the future, is clearly more affordable than B1, but is currently opposed by Post Office and possibly by ICL. [C] would provide POCL with a made-to-measure automation system, is more affordable than B1, but would mean the end of ICL’s involvement in the contracts and could have more presentational difficulties.”

You continue in 15:

“We have set in train a handling strategy to ensure the best possible presentation from the Government’s point of view regardless of which option is eventually agreed.”

Then essentially: “Over to you”.

Alan Milburn: That is, essentially, what that last paragraph says.

Mr Beer: Now, attached on one version of this minute to the Prime Minister are some handling lines, some lines to take. Can we look, please, at CBO00000058, and go to page 7, please, “Q&A … If ICL/Fujitsu decide to withdraw”. If we go forwards within those Q&As, to page 11, please. If we can blow this up a bit.

I’m sorry that this is presented in this way. It’s a photograph of a file within the National Archive. This, I think, handling line says:

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

What did you know about that, that IT experts concluded, most recently that week, that ICL Pathway had failed to meet good industry practice?

Alan Milburn: I don’t think I did.

Mr Beer: Then there’s a list of eight or so bullet points.

“To date, in the development stages of the project:

“all plant release dates have been missed – including the key contractual milestone for completion of the operational trial for which ICL … were placed in breach in November 1997

“on current working plans, updated as recently as September [1999], the first milestone thereafter – Model Office Testing – was delayed by 2 months

“every release has been subject to reductions in the originally planned functionality

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

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

“nearly 16 million people should by now be paid by the Benefit Payment Card. In fact only 30,000+ people are currently being played by the Benefit Payment Card – for one benefit only

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

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

That list of ICL failures, as it was put, was it ever put to you in that way?

Alan Milburn: Not that I can recall.

Mr Beer: Do you know whether that kind of information, that list of ICL failures, was taken into account in the decision making by you and then the Prime Minister, as opposed to being listed as points to make in press handling lines, in the event that ICL pulled out?

Alan Milburn: I think – I think what we were made aware of was less the inputs, this list, and more the outcome, which was the substantial delays and, of course, the breach of contract.

Mr Beer: Yes, they’re the only questions that I ask you about the final stage of the process there.

Before I hand over to any other Core Participants that wish to ask you questions, have you any other reflections that you wish to pass on to the Inquiry about this episode, insofar as you were involved in it?

Alan Milburn: I think only that, from a Government point of view, Government tends to work – this is maybe a debatable point – Government tends to work reasonably well, when it’s departmentally focused. Where Government struggles is when there are cross-departmental issues and this was a cross-departmental issue, as is perfectly clear from this – even this last note that you referred to, Mr Beer.

I think my reflections, given the appalling injustices that have happened, are really threefold, on lessons. One is this clarity point. Secondly – in other words, that there should be clarity and accountability rather than a fudge. Fudges don’t work and they tend to come undone.

The second is about risk and risk appraisal, because this was always going to be a high-risk endeavour, just given the complexity of it and, again, I don’t know what was agreed or how it was agreed, because we don’t have access – we’ve never had access to any of those papers, because they were agreed by the previous administration. But risk appraisal, therefore, becomes absolutely a critical thing.

And indeed, it should be an ongoing thing, in my view. I think risk appraisal is often viewed as something that happens at the beginning of a programme or a project and then it’s done and dusted. But risk appraisal needs to take place throughout, and the consequences or the results of risk appraisal need to be openly and transparently shared.

And the third point is, which is the point you were exploring with me earlier, you know, was there sufficient independent technical expertise available to Government to allow ministers, in particular, to have an informed view about technically, technologically, was this thing actually working in practice or not? And that, it seems to me, was a missing piece of the architecture.

Now, as I say, I’ve no idea, frankly, whether any of those three points nowadays are reflected in how HMG goes about operationalising major procurements of this sort. Maybe it does, I just don’t know. But those seem to me to be the pertinent points that, at least, I would take away from a reading of all the documentation that’s been made available to me by the Inquiry.

Mr Beer: Mr Milburn, thank you very much. I think there may be some questions from one or maybe two of the other Core Participants. Thank you.

Mr Stein.

Questioned by Mr Stein

Mr Stein: Mr Milburn, I represent a large group of ex-subpostmasters, mistresses and managers. My name is Sam Stein. I just want to target one particular area.

You’ve been asked a few questions at the beginning of your evidence today regarding how documents are sorted out before, if they get to you at all, they get to you.

This is not a new matter for you, in terms of giving evidence. You gave evidence at the Infected Blood Inquiry –

Alan Milburn: I did.

Mr Stein: – on 14 July of this year, and this very topic was spoken about then.

Alan Milburn: It was.

Mr Stein: I’m sure that some things that you dealt with as a minister were not disasters, but in terms of –

Alan Milburn: That’s very generous!

Mr Stein: – the Infected Blood Inquiry and the Post Office Inquiry, I’ll just paraphrase, and I’ve got a note of the transcript of your evidence at the Infected Blood Inquiry, the way you put it there was that you would say, as a rule of thumb, the vast majority of papers that were copied to the Secretary of State’s private office were never seen by the Secretary of State.

You also then spoke about the civil servant side of it, and you gave an example of Charles Lister, in fact now Sir Charles, who would consider documents and take a strategic view as to whether it should go to you or not; is that correct?

Alan Milburn: Yes.

Mr Stein: The way you went on to describe it, rather usefully, is this: you put that – in relation to Sir Charles – as being that’s the first bucket of who saw what, and that would be primarily a decision that would be taken by an official. The second set of decision-makers would be junior ministers, and they would have to decide how comfortable they were about owning a set of issues.

So these different ways would be different filter systems, either filter so that you don’t see them or indeed filtering through so you do; is that correct?

Alan Milburn: Yes.

Mr Stein: Well, I think I can leave it there. In a way I’m using your evidence as a way of making a point that the Infected Blood Inquiry and, to a lesser extent, the Grenfell Inquiry, have all looked at these self-same issues of all what is given to ministers, how they receive it, how it is sorted out and who gets what.

Alan Milburn: Yes.

Mr Stein: And it may be an area that this Inquiry would like to look into in terms of the evidence before other inquiries.

Alan Milburn: Sure, I think the only – and, you know, it’s good of you to cite the evidence that I gave just a few months ago – I mean, all my time, by the way, isn’t spent at public inquiries, it feels like that on occasions. But somebody said to me that ministers have two careers: they have a career making decisions and then, 25 years later, they have a career defending them in front of public inquiries. But I think, you know, there’s method in the madness.

You know, it’s difficult, I think, for people to understand, who haven’t been in government, just how much stuff there is. You know, you’re getting a lot of stuff coming at you all the time and there’s a lot of correspondence, a lot of, nowadays, emails, and so on and so forth. So there does have to be some filtering mechanism, you know, because, otherwise, it just – you’re faced with an avalanche that it’s just impossible to deal with.

The problem is that that’s not always transparent and it must be very frustrating for individuals and organisations who write to ministers never to get a reply from them, for example, maybe never to get a reply from anyone. I don’t know. It isn’t transparent and, as you say, it isn’t always obvious what are the criteria by which decisions are eventually put to ministers, rather than being dealt with by officials. I think that’s an interesting area to explore.

Mr Stein: In fact, the way you put it in the Infected Blood Inquiry was you described it as being more an art than a science?

Alan Milburn: I think that is probably right and, in part, you know, in truth, I don’t want to, in any way, give the impression that ministers are victims in all of this because, in the end, you’re in government, you know, you’re responsible for what happens in your Department, that’s the rule of the game, so to speak, even though, very often, to be perfectly honest, there are things that are happening in your Department that you have absolutely zero line of sight of, because it’s almost impossible to have any line of sight of it.

So, yeah, it’s –

Mr Stein: Lawyers and judges often think that we’re quite busy people. Have you ever been busier than when you were as Secretary of State?

Alan Milburn: No, it was crazy. I mean it’s a crazy way of life. I mean, you know, there’s a reference to Alistair and Steve and I on Christmas Eve having a conflab about whatever it was in relation to Horizon, that wouldn’t be unusual. There’s another reference somewhere to meeting at 12.30 in the morning, trying to cobble together a decision. I mean, these are not unusual things.

So it’s a very intense thing to do, it’s the most purposeful thing I’ve ever done in my life and I don’t regret a moment of it. But it is – it’s pretty busy.

Mr Stein: Thank you.

Sir Wyn Williams: Anyone else?

Mr Beer: No thank you, sir.

Questioned by Sir Wyn Williams

Sir Wyn Williams: On that last point, Mr Milburn – and I haven’t yet got any idea to the extent I will investigate the sifting mechanism you’ve been describing – but my immediate impression of your evidence is or could be summarised in this way, and I just want to make sure I’ve got it right: there’s an absolute need for a sifting mechanism but the fact of it should be more transparent?

Alan Milburn: Yes, I think that would be fair. I mean –

Sir Wyn Williams: Quite how you make it transparent is quite another thing, I’d agree, but are those the two points you were seeking to make?

Alan Milburn: Yes, I think that’s a fair way of putting it. I think – look, I think there’s always a risk that, particularly in a situation like this, we have, all of us in this room, have the great blessing of hindsight. And, you know, even in my own answers, it’s sometimes difficult to disentangle what I’m thinking about it today from what I may well have been thinking about it then.

So I think there’s always a bit of a risk that we come up with answers that – and structures, that are two didactic, and that don’t provide, to the point that was just made, sufficient flexibility because the truth is it is art and not just science. So you’ve got to be careful, I think, about over prescribing as well.

Sir Wyn Williams: When I was a law student, I spent many hours grappling with the concept of foreseeability. I’m reminding myself of that virtually every hour of every day.

Alan Milburn: I’m sure.

Sir Wyn Williams: Thank you, Mr Beer.

Mr Beer: Thank you very much, sir. Can we take the morning break now until 11.45 –

Sir Wyn Williams: Certainly.

Mr Beer: – and the next witness is Mr Peberdy.

Sir Wyn Williams: Yes, fine.

(11.33 am)

(A short break)

(11.45 pm)

Sir Wyn Williams: Whenever you’re ready.

Ms Kennedy: Our next witness is Mr John Peberdy.

John Peberdy


Questioned by Ms Kennedy

Ms Kennedy: Mr Peberdy, you should have a copy of your witness statement in front of you. Do you?

John Peberdy: Yes, I do.

Ms Kennedy: If you turn to the last page, is that your signature there?

John Peberdy: It is.

Ms Kennedy: Have you read through this statement recently?

John Peberdy: I have.

Ms Kennedy: Is it true to the best of your knowledge and belief?

John Peberdy: It is.

Ms Kennedy: Can I start by thanking you for coming here to give evidence to the Inquiry and for preparing that statement. Everything I now ask you is supplementary to that.

You were a subpostmaster until 2008 when you retired; is that right?

John Peberdy: That is correct.

Ms Kennedy: When did you start as a subpostmaster?

John Peberdy: 1980.

Ms Kennedy: You say in your statement that you were, at one time, Chairman of the NFSP Negotiating Committee, do you remember when you held that position?

John Peberdy: To be truthful, as it was over 26 years ago, I believe it started in the late 19 – mid-1990s.

Ms Kennedy: You were also President of the NFSP in 1998?

John Peberdy: Correct.

Ms Kennedy: Was that just for the year of 1998?

John Peberdy: It was, I believe, longer than that.

Ms Kennedy: What did that role as President involve?

John Peberdy: Well, I suppose, actually, of the Federation, the President is actually sort of the figurehead, and in – obviously conducted all meetings of the Executive Council, chaired all meetings of the Executive Council, and, actually, probably visited lots of branches of the Federation throughout the country, sometimes as a guest, to either meetings to address them, social functions, dinner dances, et cetera.

Ms Kennedy: What about the role of the Chairman of the Negotiating Committee: what did that involve?

John Peberdy: Right. Quite a lot different situation, in that the Negotiating Committee was the – a small committee who, by the name – as the name implies, negotiated terms and conditions of subpostmasters with the Post Office, and of course, in the wider implications, as time moved on, meetings with various Government Departments, DTI, et cetera, and working fairly closely with the General Secretary at the time, who was Colin Baker.

Ms Kennedy: At the time that Horizon was being developed, were you aware that subpostmasters could be prosecuted by the Post Office?

John Peberdy: There was always a case, even in previous days, when manual cash accounts, as they were, were done, that subpostmasters, who were held responsible for the cash and stock under their control, if a shortage was discovered by auditors on a visit to the Post Office, there was a likelihood that, depending on the severity of that, and decisions that the Post Office took, yes, they could be prosecuted.

Ms Kennedy: They could also recover their losses as well, prior to Horizon?

John Peberdy: Yes.

Ms Kennedy: You say in your statement – if we could pull that up, it’s WITN03800100, and if we look at paragraph 19, which is on page 4, please. Thank you. At paragraph 19, you say:

“During early 1999 there were major cost implications facing the Horizon project. These were not helped by the fact that the BA/DSS and to some part the Treasury wanted to pull out of the Horizon scheme because they wanted to pursue the payment of benefits by Automated Credit Transfer … into bank accounts, which they saw as a much cheaper alternative.”

Did you understand that to be the sole reason for BA or the DSS pulling out of the project?

John Peberdy: From what I can remember, it was that the Benefits Agency always perceived the Post Office Network as expensive to them and, therefore, they were examining Automated Credit Transfer, and I should – I believe that one of the big drivers was that the Benefits Agency weren’t wanting to fund the project, and wanting to fund the Post Office network to the degree that it was at that time.

Ms Kennedy: Were you aware of issues with testing requirements that the BA had raised at the time?

John Peberdy: Whilst I wasn’t directly aware, because we weren’t being consulted on those issues, obviously we knew that the whole of the project had to have a test and was being tested, yes.

Ms Kennedy: At this time, did you think that the future of the Post Office was at risk by the withdrawal of the BA from this project?

John Peberdy: Very much so. Yes.

Ms Kennedy: What were the problems that you saw at that time with that withdrawal?

John Peberdy: Well, obviously subpostmasters, by their very nature, had bought their businesses, some with associated retail businesses attached, some to a bigger or lesser degree – I, of course, was a subpostmaster – and, therefore, was a considerable investment into the network, and the network was very much loved by the government. So the implications of losing a main income stream to subpostmasters was one that didn’t bear countenancing at the time.

Ms Kennedy: Did you feel it was important that the Horizon project went ahead and was brought into post offices?

John Peberdy: Yes, very much so. Obviously, the simple reason being that the Post Office needed bringing to the modern era, I will agree, and we, as the Federation of SubPostmasters, were extremely keen that the network was automated because, on the back of the payment of benefits to the public, was the wider implication of other automated transactions which could be undertaken, and therefore hopefully protecting that network.

Ms Kennedy: You were part of the Horizon Working Group with Colin Baker; is that right?

John Peberdy: That’s correct.

Ms Kennedy: If we could pull up NFSP00000064, please. This is a letter sent to Colin Baker, inviting him to join that group. Before we look at the text, what, in your mind, was the purpose of this Working Group and your role in it?

John Peberdy: From what I can remember at the time, it was obviously to try to make sure that the Horizon project went into the network in a smooth fashion and, also, because of the concerns that were being expressed at the time, that others became involved to try to dig deeper into the project.

Ms Kennedy: So did you see your role as assisting with it, getting it over the line, rather than with identifying problems that arose?

John Peberdy: I believe that it was getting – yes, I’ll take your expression – “getting it over the line”, far more than actually looking at any problems that were involved at that time.

Ms Kennedy: If we could look at the last two paragraphs of the letter, please, if we could blow that up. This states that there were three main areas:

“First, there are the negotiations between POCL and ICL, and between POCL and BA, that need to take place over the next few weeks to put in place the detailed contractual arrangements that will give effect to the outline agreement reached on 24 May. I see a role for the Working Group in carefully monitoring these negotiations and addressing and helping to resolve any sticking points that may be encountered.

“The second area covers the remaining development phases of Horizon, including large scale live trials, system acceptance, and rollout of the system smoothly and in a timely fashion to all offices within the network followed by the migration from paper-based methods of benefit payment to ACT-based payments accessible at post offices. I believe that the Working Group could provide a valuable forum for bringing pressure to bear where needed and for seeking solutions to any problems that may arise.”

If we could turn on to the next page, please, and the first paragraph:

“The third area concerns the commercial exploitation of the very considerable potential which the Horizon platform will offer once in place. The combined experience of the Working Group should prove a valuable source of ideas and contacts for business opportunities and future revenue streams.”

Do those three objectives reflect what you understood at the time to be the purpose of this group?

John Peberdy: Yes, because they were what had been obviously communicated to us under the terms of reference, yes.

Ms Kennedy: How did you find working on the Working Group at the time? What was your experience?

John Peberdy: I do believe that we might have been described as an uncomfortable bed partner, in so much as it felt a bit like that the NFSP ought to be on board, because there were those there who thought that, in many instances, we could do more damage than good, and therefore, partially, I felt as a bit of a placater.

Ms Kennedy: If we could turn up the next document, which is NFSP00000479, please. This is a minute of the meeting of the Negotiating Committee on 10 June 1999. If we could turn to page 9, please. We can see that this where the discussion on counter automation begins. Was this something that was regularly discussed or a standing item at the negotiation committee at least at this time?

John Peberdy: Yes, it was a regular agenda item.

Ms Kennedy: What was the purpose of that, for you to provide an update?

John Peberdy: Yes, it was to provide an update to either the Negotiating Committee, as in this instance, and was also a regular item on the full Executive Council agenda, and therefore updating either the Executive – the Negotiating Committee on work which the General Secretary might have been involved directly, or that the General Secretary and I had been involved in, so that the full Negotiating Committee were appraised of where we were going at that time.

Ms Kennedy: If we could turn to page 12, please. At the bottom of that page it says:

“The General Secretary and John Peberdy advised the committee that they had gone to the meeting [that’s the Working Group meeting] with the preconceived ideas that attempts would be made to ‘buy them off’ and placate them with platitudes. However, it appears that government are worried about the extent of the Federation’s influence and its our intention to keep them worried. The Federation has a substantial role in the Working Group and will be in a prime position to have as much influence as possible. The Minister is under no illusion that the Federation intends to bide its time and see what is to be delivered before taking any further action.”

Is that what you felt at the time, that the Federation had a great deal of influence in the Working Group?

John Peberdy: I felt that, probably, generally, if I can sort of expand on it a little, as the role in the Federation, the Federation were, as I said earlier, the conduit for negotiating with Post Office Counters Limited. But we, fortunately, probably through partially the General Secretary and others, had a reasonable dialogue with Government Departments and Government ministers and even higher. And we had courted this, we had furthered it, because, at that time, the Post Office Network, in my opinion, was the Achilles heel of the Government.

Nobody wanted to shut a village post office. Nobody wanted to shut a post office. So any method to keep them open, and bearing in mind the Government had made a pledge to keep a nationwide network of post offices open was there.

So I felt that because we had that, if I may call it, an “in” to other avenues, other than the Post Office, we were very much involved in things like the Horizon Working Group, as I’ve actually said, and as I said earlier, to placate the Federation, as much as anything else.

Ms Kennedy: Thank you. Could we bring that page back up, please? So that’s NFSP00000479 and page 13, please. This is the same page that we were on. If we look further down the page, it says:

“Some subpostmasters have had enormous difficulties balancing up and finishing their cash accounts, even to the point of still struggling to finish on Friday nights.

“Tomorrow’s special Executive Council meeting, which is being attended for a short time by Stuart Sweetman and David Miller, is crucial to finding out what has gone wrong with the Horizon programme. ICL Pathway/POCL say it’s not the system.”

Do you remember what was happening at this time and the issues that were being flagged by subpostmasters?

John Peberdy: Yes, and probably, from my own experience as a subpostmaster, although I was not very often in my own office and it was run by a person that I employed, what had become a great problem was we always had to balance our post offices on a Friday evening, and the Horizon System had just lengthened that tremendously. And I had being reported to me by the subpostmasters, subpostmasters staying in their offices until late at night, even 10.30, because it churned and churned and churned before it produced anything that gave a clue as to whether your office was balancing that week or not.

Ms Kennedy: Was that something that concerned you?

John Peberdy: Very much so.

Ms Kennedy: Turning forward, then, to the meeting the next day. If we could pull up NFSP00000539. Thank you. This is a report of the Special Meeting of the National Executive Committee. If we turn forward to page 7, this is when David Miller and Stuart Sweetman joined the meeting. Do you remember this meeting?

John Peberdy: Being a long while ago, to say I remember it fully would be not the correct statement but I do remember them attending a meeting and – yes.

Ms Kennedy: We can see there was a list of questions that were put to Mr Sweetman man and Mr Miller. If we could turn over to page 10, please, we can see that:

“Mr Butlin referred to the serious problems that the South West was having with the software, especially with the balance, and asked Mr Miller whether any changes were to be made in that respect. An assurance was sought by the Committee that the balance would become more user-friendly, more logical and easier for subpostmasters to use. Would it be possible for subpostmasters to have more input into the way the balance was done. The North East was facing similar problems, subpostmasters were incurring additional staff costs, an example being around £350 in the four weeks that his office had been up and running.”

This specific problem of balancing on Horizon, at this stage, how high up your priority list was it?

John Peberdy: Um, I think if you took it onto a scale of 1 to 10, it probably sat at 8, because probably the highest priority was actually getting that Horizon System fully rolled out. But anything that was flagged up to us as a Federation, as a problem for subpostmasters, was obviously something we had to take on board. And those who were spending hours, paying extra staff costs, for example, because they were waiting for this Horizon System to churn out what was thought to be a balance, was not acceptable.

And, obviously, Mr Butlin was drawing Dave Miller’s attention to it in the hope that we could get some assurances. He did ask, as you’ve just read out, I notice, that “Could we be involved or could we have some further input”, and that of course was never really ever taken up directly as a direct input.

Ms Kennedy: When you say it wasn’t taken up directly, what do you mean by that?

John Peberdy: Well, we weren’t, as a Federation, in a position to be dealing directly with ICL Pathway or anybody on the project directly, to make input of that nature. All the Federation’s input, on behalf of subpostmasters, was obviously done through Post Office Counters Limited.

Ms Kennedy: If we could turn to page 14, please. We can see that at this meeting, three paragraphs down, there was a vote that was taken on whether the Federation should continue to work with the Post Office or against it. Do you remember that taking place?

John Peberdy: Directly, I cannot remember it specifically but the minute will record it faithfully, I’m sure.

Ms Kennedy: If we look at the bottom of the page, it says:

“Miss Lindon referred to the controversy concerning the plans for Horizon and questioned whether the Federation was getting the package they needed. She suggested that this, being negotiation time, was an opportunity for POCL to talk to ICL Pathway about modifying and simplifying the package before it was too late.

“The Chairman advised that Mr Miller had requested a list of all the problems with the software and that he would address them and talk to subpostmasters to see what they wanted on the programme. He was embarrassed that this had not happened already.

“It was important that members be advised immediately of the outcome of this meeting and this needed to be done in a way that would make them aware of the seriousness of the situation, without resorting to scaremongering.”

Was it ever seriously considered by the NFSP that you should really be asking for a new system rather than working with the Horizon System, given the feedback?

John Peberdy: Whilst there had been various private systems for balancing post offices out there, there was nothing on the scale of the Horizon and the ICL Pathway project, and I think the system was that we were so aware that the Benefits Agency were wanting to move away, if they could, from paying benefits over post office counters, that we felt we had got to work to make this work, and make it right, and I think that was our position at that time.

Ms Kennedy: So what you’re saying is there wasn’t really an option to say, “Let’s scrap this and start again”?

John Peberdy: I don’t think (a) we had the power to take that route. We could make Post Office Counters Limited aware of everything that was going on, and did so on numerous occasions. And I know that, for a fact, our General Secretary was probably regularly on the phone to various people within Post Office Counters Limited. And, as I’ve said, I think, in my witness statement, a lot of meetings that we had when we raised points with Post Office Counters Limited, they were unfortunately at unminuted meetings or meetings that we haven’t had, to my knowledge, minutes of.

Ms Kennedy: If we could move forward to the National Executive Council meeting on 21, 22 and 23 June. That’s NFSP00000471, and if we could move to page 22, please. You’ll see there, at the bottom, the topic of counter automation comes up.

Do you remember this meeting?

John Peberdy: Yeah, I remember it was a meeting that we were going to report further on and, that minute – when I read part of the bundle – refreshed my memory to some degree of some of those meetings.

Ms Kennedy: If we could look over page on page 23, halfway down the page, there:

“There was general discussion on the severe difficulties being experienced by subpostmasters who were already running an automated system. Seven sheets of comments from the North East have been passed to Dave Miller. The difficulties and trauma being experienced by some subpostmasters were giving rise to concerns over 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 intended to run such a huge network. The system is based on ECCO, which was originally written for a network of 700 – not 15,500.”

Given the mention of trauma and the concerns for subpostmasters’ health, did this move further up your priority list?

John Peberdy: Yes, I think what was actually happening now was that our Executive Council members in the northeast were flagging these issues up to Federation headquarters and, I must say, the General Secretary and I never missed an opportunity with representing these views to the Post Office. But I must say, I always, at those meetings, had a feeling that there was always cost in everything and obviously making the network viable and everything else, as far as Post Office Counters were concerned.

And I think they were in the same situation: that they needed to maintain the income stream from the Benefits Agency more than anything and, therefore, I think there was many hopes or assurances being given to them that ICL Pathway were putting these issues right.

Ms Kennedy: If we could turn to page 27 of that document, please. Sorry, if we could actually turn back to page 26, please. At the bottom of that page, it says:

“Discussion at length took place between members as to whether a public campaign should be started [about the project]. Many felt that action should begin at once, while others felt that we may lose the goodwill of Government and the Post Office if an offensive was launched immediately. A militant attitude may also jeopardise the Federation’s acceptance as an equal member of the Working Party. In general it was felt that no plans could be made until after the issue of the Government’s White Paper in early July and the contract was signed on 19th July. Government and POCL approaches for the future would be clearer, thus giving the Federation a better basis for protecting subpostmasters’ interests in every detail. It was generally agreed that POCL/ICL must be made aware of the full extent of subpostmasters’ complaints and problems with the system, and insistence pressed that the problems are all addressed and resolved, even if alterations to the system are required.

“The National President asked the meeting if everyone was happy that the agreed way forward would be decided on 11th July and that a public campaign would not, for the moment, be pursued.”

Do you remember this discussion taking place?

John Peberdy: Yes, I do.

Ms Kennedy: What was the strength of feeling that a public campaign should be started?

John Peberdy: I think, bearing in mind the Executive Council was considered of about 20 members, there were always those who had differing opinions, but we have or had successfully fought public campaigns in many instances, and I think that minute probably reflects the overall outcome of the discussion, in so much that, if we rocked the boat too far, it was very easy for both the Post Office Counters Limited and/or Government Departments, not to bring the Federation to the table and, therefore, our voice wouldn’t be heard.

And so I think it was decided, as the minute says, to see what came out of the White Paper, and keep our powder dry, knowing that we would have the ability, if we wished to, to start a public campaign at any time.

Ms Kennedy: At this stage, were you telling subpostmasters not to criticise the system publicly?

John Peberdy: No, not that I can recall. We would never have done that. It was up to subpostmasters individually to say what they felt and obviously we, in Federation headquarters, wanted as much feedback to take to the Post Office of anything that wasn’t seen to be right about the system.

Ms Kennedy: At the end of this page, the meeting pauses, and you go to a meeting of the working party. Did you feel when you went to that working party meeting that you had the words of the subpostmasters ringing in your ears about the difficulties they were having?

John Peberdy: Yes, and if I remember rightly, I think that at one of these, if it’s not the next working party meeting, the General Secretary, Colin Baker, raised some matters concerning all of this.

Ms Kennedy: If we turn over the page to page 28 and look at the paragraph in the middle that says:

“The subject of system faults was raised and the NFSP were given assurances that there would be software improvements to cure the present difficulties. The Federation were asked for more precise numbers of subpostmasters who were experiencing difficulties as this information would assist them to provide us with the help we require.”

This is your report when you come back to the Executive Council meeting.

John Peberdy: Yes.

Ms Kennedy: Is that what you’re referring to?

John Peberdy: Yes.

Ms Kennedy: If we can turn to the minutes of that meeting, which is at NFSP00000203. The then if we could turn to page 3. So this is – sorry, if we could turn back a page.

This is the note of the meeting of the working party that was officially circulated, and if we turn over to page 5 – sorry not page 5 – page 2, paragraph 5. My apologies. It says at paragraph 5:

“Mr Baker said that it was extremely important for the rollout to be absolutely right; with so many planned per week (300) there would be risk of collapse, otherwise.”

Is that reflecting the previous note that we looked at, which said that issues were raised about software?

John Peberdy: Yes, I think the – amongst the many discussions was things like the pace of rollout, the number that the system was capable of handling. Because, of course, with limited knowledge of a new IT system to subpostmasters, way back all that time ago, I think the – there was a general conception, or even probably misconception, whichever it may have been, that with such a vast network, was this system capable of handling the transactions in such large volumes and numbers that were going over Post Office Counters?

And I won’t go into it now, in case you were going to, but I refer in my statement to – my witness statement – to instances of the system being so slow and, therefore, this was all considered to be, in our limited knowledge, the system being incapable of dealing with all those transactions that were coming from all parts of the United Kingdom into some central IT system base.

Ms Kennedy: This minute doesn’t reflect the issues in the previous minute we looked at about software problems were raised in this working party. Do you recall them being raised?

John Peberdy: No, I don’t, all that while ago, have any recollection. I do recollect, as I’ve said earlier, that sometimes I felt we were there to make up a number or the fact that we had a presence and everybody could say we were there on the attendees, had more relevance than some of the other discussions that were wanted to be had in that Working Group.

Ms Kennedy: Mr Baker had said in his evidence on Wednesday that he didn’t feel that the Working Group was the appropriate place to be raising issues with what was happening on the ground with some subpostmasters. Do you agree with that?

John Peberdy: Yes, I think because our direct conduit, where we thought we’d got any action, was dealing with Post Office Counters, at whatever level we could. Whether that be at levels like, as has been mentioned, Dave Miller, Stuart Sweetman, or even higher, and if we needed to, and with the opportunities, when we met or could meet anybody in the DTI, for example. And we had so many meetings with so many managers of Post Office Counters Limited, when these issues were raised on numerous occasions and, of course, it was a reliance that those managers were taking that even further. As much as we pushed and pushed, we didn’t always get answers.

Ms Kennedy: If we could move forward slightly to 7 July 1999, and we can pull up NFSP00000200. Page 2, please. So this is a further meeting on 7 July of the Horizon Working Group. If we look at paragraph 4, please, 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. 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 reports.”

At this time, were you raising things like acceptance testing and did you feel like you were being listened to by the Working Group?

John Peberdy: I felt that the relevance of that question, to try and draw out of particularly Dave Miller and others, what they considered something really high, because the various things that have been reported into Post Office Counters Limited, I don’t know how high they considered them on their agenda, but, as far as we considered them, extremely high on our own agenda on behalf of subpostmasters.

Ms Kennedy: Did you feel that, as part of this, you should have been raising the issues that you knew subpostmasters were encountering and using the system?

John Peberdy: I’m not sure that, at that stage, and that relevant minute, was at the stage it was. Dave Miller was well aware, with meetings we’d had with him directly in Post Office Counters headquarters, of our concerns. I was trying to draw out of him what he considered to be a major high situation risk and whether it was just something that was jeopardising the whole programme.

Ms Kennedy: If we could look at paragraph 9 of that document, which is over the page. Mr Baker is recorded as having made a comment. It says, in the middle of that paragraph – well, I’ll read the whole paragraph:

“Moving on to a report on the Government’s intention to establish an interdepartmental Working Group on POCL funding issues, Mr McCartney said the current speculation in the press on the future of the network was not a helpful background. Mr Baker said he thought the group should have a role in disseminating good news stories to counter the scaremongering.”

Do you know what the scaremongering was at the time?

John Peberdy: Yes, my recollection was, of course, that the scaremongering was that the Benefits Agency were going to move away from post offices that, therefore, there would be a collapse of the Post Office Network, and subpostmasters would lose the value of their investments. And I presume what Mr Baker was also saying, that amongst all that, the fact that we were going to have an automated network, hopefully, was something that was going to give another revenue stream to subpostmasters by Post Office Counters Limited being able to attract more business.

We wanted, for example, banking over post office counters in those days, which didn’t exist, and needed to have it if the Benefits Agency were going to, in 2003, move towards Automated Credit Transfer. The Post Office network was such an vast network, it was there to do so much business and with so much business that could be captured, and especially in an automated system and that’s what Mr Baker was referring to about “Let’s get some of those good news stories out there, so we can attract that business as opposed to trying to frighten those other revenue streams and new business away from the Post Office”.

Ms Kennedy: So it wasn’t to do with the Horizon project itself?

John Peberdy: It was, to my knowledge, not at that stage what he was saying. The press were talking about what they had picked up that was seemingly going wrong and, obviously, individual subpostmasters in individual offices were probably being, or might have been giving stories to local newspapers, et cetera, and some of that, I believe, was being picked up and we, as I say, on numerous, numerous occasions, had banged that gong with the Post Office.

Ms Kennedy: Did you agree with Mr Baker that there should be encouraging news circulating in a group set up to counter that narrative?

John Peberdy: Yes, I perceive that the Federation’s role in this was one to make sure that all subpostmasters, as I said a moment ago, were able to attract new business, and the ability, once that network was automated – there were many, many forms of business, including Government business – over post office counters was something we didn’t want to give the impression that we were a dying breed and everybody else needn’t start to look to the Post Office to put their new business over all those post offices right throughout the country, no matter what the business was.

Ms Kennedy: Moving forward to the 10 August 1999, if we could pull up NFSP00000237, please. These are minutes of a special Horizon meeting took place in Kingston Park Rugby Club in Newcastle. Mr Dave Miller is mentioned, the POCL Network Director, and Colin Baker, the General Secretary. Do you recall being at this meeting?

John Peberdy: Truthfully, I don’t. I do, having read some of this in the bundle – I mean, the title is slightly misleading. It was the National Federation of SubPostmasters meeting on the – on – a special meeting on the subject of Horizon that was called by the Executive Council members in Newcastle area, and hence, and they – Dave Miller was invited to that meeting.

Sir Wyn Williams: It says at the top that the meeting was chaired by the National President, Jean Kendall. So can I take it that, by then, you’d ceased to be President?

John Peberdy: Yes, I had, Mr Chairman. I had ceased, and Jean Kendall was a subpostmistress, actually in the northeast and she was an Executive Council member, as well as President in that area.

Sir Wyn Williams: So you began – Ms Kennedy asked you when you were President. Is this right, that it began in 1998 and ended some time before 10 August 1999?

John Peberdy: Yes, it would be an annual – sorry, you’re reminding me now, all that time ago, to the earlier question. It was an annual appointment and an annual election.

Sir Wyn Williams: Thank you.

Ms Kennedy: If we look further down that page, it says:

“The meeting was then opened for subpostmasters to comment on the Horizon programme and for questions to be asked of POCL and requests made for future actions”, and then they’re listed.

It lists the stress of the workforce, the strain on people’s lives and marriages, lost holidays and then, lastly, on the 44 Horizon officers present and a vote, 30 officers said they suffered stress and only four thought payment was sufficient.

Were you aware of this feedback at this time in August 1999?

John Peberdy: I was aware of it when I next spoke to Colin Baker and we obviously had a discussion of what we were going to try and do with it. But, as you probably gather from part of that minute, pay was always a large consideration of subpostmasters who always thought they didn’t have as much of the cake that Post Office Counters Limited got, as they did themselves. And obviously things that were starting – because we employed our own staff, things were starting to delay them as it was said in one of the earlier questions, extra payments to staff.

Staff were paid probably hourly rates, if they were going to stay later on Friday nights or other nights, that was going to give all those costs to Post Office Limited. Also obviously, quite a lot of subpostmasters ran their post offices with their wives or partners, and that’s where, obviously, waiting late, especially if they were having to stay in the Post Office and weren’t tending to their children, and all sorts of other various things were putting strain on family life – and I think it was even put in that minute, strain on their marriage.

So there was a lot of – it was a whole new learning curve for subpostmasters, which came in with quite a lot of stress.

Ms Kennedy: If we could turn to page 4, please. There were specific issues raised about balancing, and it says:

“Every office complained of system failure, every balance day need to reboot. POCL have a system to know how many reboot without offices informing POCL – but no action taken by POCL to improve situation. Waiting time at Helpline for rebooting instructions makes SPMs act on their own.”

I mean, this is a real problem, isn’t it, people struggling with balancing?

John Peberdy: Yes, it was. I would have said, at that stage, it was the major problem of the Horizon System.

Ms Kennedy: At that time, did you think that it was an issue with the system itself, or that subpostmasters needed to get with the system and adapt?

John Peberdy: It’s very difficult, actually, to be precise, because of the various transactions in various amounts of stock, for example, that a subpostmaster is responsible for, and the way that you handled transactions.

The system was such that you had to tell the system what you’d got left in, for example, First Class stamps, and if you had sold ten First Class stamps to somebody and forgotten to take the money as part of a transaction, you were going to get a misbalance.

So there were various factors that fed into it but the major concern, definitely, was that this was all system driven. Because the system went down and because of the length of time and having to reboot it, obviously we started to question things: were things missed, if the system rebooted? We didn’t know, nobody knew in those days, what was going on in the back end of this system, and, therefore, were misbalances occurring because of the system or because of subpostmaster fault?

Ms Kennedy: Did you feel like you could have done more to question what was going wrong with the system or whether there were issues with the system?

John Peberdy: No, I wouldn’t accept that. I think that we tried our hardest to query it. I think – I often wondered whether the Post Office went far enough in dealing with it, in so much as trying to find out what was wrong, more than try and make the pound, shillings and pence balance – if I can go back that far, before decimalisation – because, in truth, the Post Office had got nothing to lose. The subpostmaster paid, so if my Post Office was £500 short, I put the £500 in, out of my pocket. It didn’t cost Post Office Counters Limited a penny.

Ms Kennedy: Moving forward to the 11 October, a were the Working Group minute. If we could turn up NFSP00000066, and if we could turn page 4, please. This where the meeting minute begins. If we could do not page 5, sorry paragraph 5, which is – sorry, which is also on page 5. Thank you. In paragraph 5, it says:

“Mr Miller explained that formal acceptance of the reconfigured Horizon System planned for 18 August had been postponed because of POCL’s concern about training, system stability, data integrity (there had been an unacceptably high level of screen freezes) and the effective operation of the help desk. The Post Office had accepted the system on 24 September on the basis that effective remedial action had either been completed or was in hand.”

Did you understand what at the time what was meant by “data integrity”?

John Peberdy: Um, I’m not – as it was all knew, I’m not sure I fully understand what “data integrity” fully meant, but I was well aware of those issues and, therefore, that – one of the things that always worried me and other subpostmasters and things we represented to the Post Office, the system froze so often, and in a naive way, back in 1999, or whatever it was, one always wondered what happened when that system came back.

This was a great new project, so suddenly you’d put some transactions into the system, the system froze, and you had to wait for the system to reboot, were those transactions lost? And it was always a point that we represented to the Post Office but we never got the true answers because I’m never sure that the Post Office went to ICL Pathway and dug deep enough into it. And I’m not even sure that ICL Pathway wasn’t protecting itself in it as well.

Ms Kennedy: If we look further down that minute at paragraph 7, it says:

“Mr Deegan asked about the issues of spare capacity and triggers for payment. Mr Miller confirmed that the Post Office were clear that they would be able to use spare capacity on the system (this had previously been an issue of dispute with ICL). The Post Office will pay ICL £60 million on 24 October on initial acceptance of the system and will pay ICL a further £80 million when they receive rollout to 1,600 offices, which is planned for around Christmas time. ICL would not receive payment until the target had been reached, though the Post Office was not expecting significant slippage. Mr Baker expressed support for the Post Office’s position – whilst there was a need for ICL to hit deadlines it was also important for the system to be delivered in full working order. The feedback which Mr Baker had received from NFSP members was intermittent, and not all positive but problems now seemed to be being sorted out and training seemed to have improved.”

That statement by Mr Baker that “not all feedback was positive”, is that a fair reflection? From what I’ve taken you to, it seems like it was fairly negative.

John Peberdy: Yes.

Ms Kennedy: So would you say that it would have been a better to say the feedback has been negative?

John Peberdy: Um, well, I can’t quite speak for Mr Baker and his words, but I’m not sure that negative would be the correct word, but it was – we were receiving assurances in meetings with the Post Office that a lot had gone on behind the scenes to put it right, but I think that minute, and what Dave Miller said, reflected where they saw they were. And, obviously, the previous bit about capacity was of great importance to us, because that capacity to put other business onto the Horizon platform was extremely important to us.

Ms Kennedy: Moving forward to February 2000, and later issues. If we could pull up NFSP00000348. This is a letter from Don Grey to Mr Baker in February 2000. It’s not to you, but I believe you also worked with Mr Grey?

John Peberdy: Yes.

Ms Kennedy: What was your experience of working with him like?

John Peberdy: Um, I think it was always – Don Grey was always an amenable sort of person. He came from the northeast, I wouldn’t say he was particularly dynamic, but he seemed to take on board those issues that we represented to him.

Ms Kennedy: When you say he seemed to take on board, what do you mean by that?

John Peberdy: Well, it depends on which of the issues we were talking to him about. I found Don Grey, as you probably said, to be a person who was happy to say yes and hopefully get on with it, than get into any confrontational issues about things, and we were very reliant on him at those stages, taking back our views and dealing with them.

Ms Kennedy: If we could turn to page 2, please, and if we could look at B, it says:

“I will pursue the issues around John Peberdy’s training when you let me have details.”

Do you know what that relates to?

John Peberdy: Yes, obviously, a large part of the rollout of Horizon was the training, and the training was far from where it should have been for all subpostmasters at various levels of knowledge of anything to do with IT. And I had issues that had been represented to me on training being poor, not enough training officers, not taking over at the right times, being too brief and, therefore, those subpostmasters just feeling that the training had been insufficient for them to fully operate the system, and it was a very big concern.

Ms Kennedy: Moving forward again to the 10 February 2000, if we could turn up NFSP00000261. This is a circulation to the National Executive Council from Mr Baker which says:

“Having [I think ‘put’] pressure on the Automation Director for some information regarding the Horizon Rollout, I am sure you will be keen to see a letter which we have received which sets out the position following the review held by Post Office …

“Hopefully a regulator dialogue will soon established at territorial level in order to assist members to overcome the difficulties they may well experience as their offices are automated.

If we turn to page 2, we’ve got a letter to Mr Baker from David Smith. If we could pull out the last paragraph, which is to do with the feedback points. So this is following a review by the Post Office, and a study, and it says:

“The feedback points in the direction of training, balancing and helpdesks as the major improvement areas with balancing very much the common theme. However, in each of these areas outlets are more or less evenly split between those who think we’ve got it right as opposed to wrong. The trick to be pulled off is to improve matters for those who believe we need to improve without ‘turning off’ those who think we’ve got it right.”

At this stage, in your mind, was training the key issues of those things?

John Peberdy: Yes.

Ms Kennedy: Not balancing, or did you think the two were related?

John Peberdy: Well, yeah, the two were obviously hand in glove because the training, apart from relating to day-to-day transactions, the training obviously also covered the once-weekly balancing and, in fairness, without denigrating anybody, I suppose the varying degrees of intelligence or exceptions of IT by various subpostmasters – because we’d have some who were elderly, and others who were younger, and embracing it differently – led to that statement.

But there were very many training issues out there: insufficient trainers, trainers’ knowledge and, of course, at one time the rollout was going at such a tremendous rate that I left many subpostmasters needing further training, needing further help, help – very much insistence that they had a very good helpdesk. But then, when that came, there were queues to get to the helpdesk, but that’s probably something you want to cover later on.

Ms Kennedy: If we could move forward to 4 May 2000, a National Executive Council circular. It’s NFSP00000020. This circular to the Executive Officers deals with balancing problems to do with Horizon. The first paragraph says:

“You may no doubt be aware that there were significant difficulties with Horizon balancing at some post offices yesterday. We are waiting for a definitive answer from POCL on the problems encountered. However what we know so far is that a problem arose last Thursday morning in the uprating of stamps and, resulting from poor advice, some subpostmasters did not correctly complete the upgrading of stock reconciliation that day. That manifested when they tried to balance yesterday.”

If we could turn over the page, it says:

“The difficulties with Horizon yesterday, we were advised, was primarily not a systems fault. It was primarily difficulties encountered by subpostmasters last Thursday in understanding the instructions for uprating their postage stock which led to balancing difficulties yesterday 3rd May.

“They have accepted there is a clear learning point to make sure instructions are more understandable and they have also accepted a need to review and communicate the difficulties of what they’ve learned, both to those within the business and to subpostmasters. They are, however, trying to deal the problems today and clearly this is the most critical aim for them to focus on.”

Did the Post Office tend to chalk issues with balancing up to training, as opposed to a systems fault?

John Peberdy: Could you repeat that, sorry? Did the Post Office …?

Ms Kennedy: Did the Post Office tend to chalk issues with balancing up to training, as opposed to a systems fault?

John Peberdy: No. I think what was totally wrong reasoning here was – my recollection of this, this happened and it was horrendous across the network because the postage stamps had gone up, and therefore, if you had got, in your stock, to be very simplistic, a First Class postage stamp that was 20 pence and it had gone up, back in those days, to 22 pence, there was a system or an instruction that told us – all the subpostmasters, how to upgrade those stamps for that extra 2p because, of course, once you’ve – you’re otherwise – if you put them in at 22 pence, you were going to make a profit or you would have an overage, as opposed to anything else.

And so there was an unclear instruction, or it was – wasn’t clear enough for all subpostmasters to deal with, or some might not have dealt with it. Hence that problem that was a major, major problem on, I believe it was 3 May, as you’ve already said.

Ms Kennedy: Did you feel it was difficult to ascertain whether something was a systems problem or an instruction problem?

John Peberdy: Correct. I wouldn’t know.

Ms Kennedy: If we could turn to NFSP00000153. This is from November 2000 and it’s a circular from a Kevin Davis. This relates to “Giro Daily Reports”. It says:

“I’ve recently received a number of reports about ghost entries on Giro Daily Reports. I have been in continual discussion with PONU, firstly to identify the exact problem, which offices were affected and how it can be rectified.

“I am advised that it only affects CSR+ offices and only where a shared stock unit is used. The problem will be fixed by means of a software drop in December. In the meantime, a message broadcast should have been made to all CSR+ offices today. Attached is a copy of the draft message for your information. The text in italic at the beginning of the message will not be included in the broadcast.”

If we could turn over to the next page, and if we could look at the main paragraph, I think, four paragraphs down, which starts with:

“There have been occasions where Girobank transactions entered on to CSR+ Horizon terminals may not be visible on the office copy and the Horizon Daily Records. The transaction will however be included in the grand total value and the volume reported to the cash account. In addition, the individual totals on one or more Horizon Daily Records may be wrong. This fault is due to be fixed in December.”

Do you remember this particular issue?

John Peberdy: Not clearly but, by reading that earlier, it did refresh my mind of what was actually happening, yes.

Ms Kennedy: At this time, when this issue arose, did you think all these subpostmasters have been saying they’re having issues with the balancing, maybe there’s something wrong with the system, given the system isn’t infallible.

John Peberdy: If I can relate that back to my own office, what actually happen was in those transactions we’re going through, they’d – in a normal office you’d get a printout and you were going to send those documents off in the evening, and you would check that those documents were there against what had been printed out. Therefore, there were those missing, which was obviously going to lead to you either wondering if you’d put it through, and there would be instances where those transactions had therefore been put in again, and all sorts of things.

So it was, as we said, a concern which was rapidly flagged up but, again, nobody knew what was going on in the back office system. One had to go with the assurances that were being given to us on behalf of subpostmasters.

Ms Kennedy: Moving next to January 2001, a report of a meeting of the National Executive Council. If we could turn up NFSP00000557. If we could turn to page 9, please. We can see that you are again addressing the council on the issue of counter automation, and you say that you thought that Don Grey did his best to sort out the problems with Horizon. Do you see that there?

John Peberdy: Yes.

Ms Kennedy: Is that your view?

John Peberdy: Yes, it was, because Don Grey was the person we represented problems to, and it seemed that he, from what he fed back to us, was doing his best to make sure that what we had gone to him with, he was doing his best to resolve.

Ms Kennedy: If we could turn to page 10, please. In the bottom half of the page, it refers to Horizon polling problems. It says:

“Mr Peberdy reported that it was essential that subpostmasters knew of these types of problems. They needed to know a bit more. They were awaiting responses to what had gone wrong and why they had been kept in the dark.”

Do you remember this and what “Horizon polling problems” refers to?

John Peberdy: Truthfully, not fully, but it was – I perceived at the time it was a system glitch, and that we were, as it said when I was reporting it, that we weren’t fully appraised of what it was and we felt that we were, as that says, being kept in the dark.

Ms Kennedy: Do you feel like you took adequate steps to rectify this problem?

John Peberdy: Yeah, I think we always, as I keep saying, we always represented them to Post Office Limited. We had to take their answers that they were dealing with them, and you would be further pushing Post Office Limited to find out the individual answers, and they were obviously working with ICL Pathway, or whomever they were dealing with, to try to resolve each of these issues.

Ms Kennedy: Lastly, could we go to March 2001, the document is NFSP00000513. Thank you.

You can see there that it’s a report of the National Executive Council meeting, and if we could turn to page 15. Again, picking up the Horizon polling problems, which, I think you mentioned a moment ago, you thought were you systems glitch:

“Mr Peberdy reported that these problems are still being highlighted and just recently had been circulated and reported on the problems in organising meetings with the business but now monthly meetings had been scheduled and there was a meeting on 26th February 2001 which could be seen from the action points. There were 28 items that required action, some of them the business still had to come back to them on.”

Did you find it frustrating dealing with POCL with these kinds of issues?

John Peberdy: Very much so, it was such a major part of what Colin Baker had to spend his time on, and I did, and, as I said earlier, it’s always in the back of my mind worried me that, if it was something that was going wrong, the Post Office weren’t having to foot the bill because if this result in error, it was a subpostmaster who was left putting his hand in his pocket.

Ms Kennedy: Yes, and looking at the next paragraph it says:

“Amongst it one was to set up the two-day meeting, a separate meeting on Losses and Gains Policy, a separate group to bring in the Horizon problems. There had been stories about the problems that had been created by Horizon shortages, Horizon was not doing things, the problem with losses having to be made good immediately, and all the things about Suspense Accounts. He reported that he wanted the group to examine this. He had been led to understand there was £10 million in suspense accounts now, as opposed to £2 million 18 months ago. Another feature of the system was that it highlighted everything.”

Were you concerned about the amount in the suspense accounts?

John Peberdy: Yes.

Ms Kennedy: Why?

John Peberdy: Well, obviously, as that actually says, there was such a massive increase, at that time, if the subpostmaster had a shortage, or a gain, he could ask for it to be put into a suspense account. And the system had – the Horizon System had an ability to do that. Obviously, these amounts had therefore escalated to the level that we were talking about there.

Hence, we wanted the – that being the Federation – a meeting with the Post Office to establish a new losses and gains policy because, of course, they were now rapidly trying to get subpostmasters to make these good, stop them being in the suspense account for so long and, obviously, they wanted to reduce the amount of money that they saw as owed to them, and we were concerned that those subpostmasters didn’t sufficiently know enough about how those shortages came about to just ask them to immediately pay it.

And, as I’ve said more than once, you know, this was Post Office Counters having their money back and subpostmasters having to pay. I had many reports from subpostmasters to me that (a) they either couldn’t afford to repay these amounts, didn’t know how they become short, and were obviously very worried about it. There were offices that had a very good balancing recorded while they were doing manual transactions, and now were having losses, which they had not previously experienced until they had an automated system. So it couldn’t all have been down to somebody failing to put a transaction through, somebody failing to keep a document that they needed for their balancing. So there must have been more behind it.

Ms Kennedy: Chair, I don’t have any further questions.

Sir Wyn Williams: Just so that I’m not getting things wrong, that – if that document could be put up again, please, on the page you were last at. You see the reference, Mr Peberdy, to £10 million at that point, March 2001 and £2 million 18 months previously, yeah?

Well, we will see it when it comes back.

Anyway, I think this is right, but please correct me if I’m wrong. Effectively, over the period of the rollout – because it started late ‘99, yes –

John Peberdy: Yes.

Sir Wyn Williams: – this figure had jumped from 2 million to 10 million; is that it?

John Peberdy: Correct.

Sir Wyn Williams: Yes. Do I take it that, even in the paper days, there was some money in the suspense accounts?

John Peberdy: Yes.

Sir Wyn Williams: From your just general recollection, in the paper days, had it ever reached anything like £10 million?

John Peberdy: From what I can remember, no, and until – they were smaller amounts and this was a massive escalation, hence I felt it necessary to report it at that stage to the Executive Council.

Sir Wyn Williams: Sure. Thank you. I just wanted to be sure I’d got it correct.

Anybody else any questions?

Mr Stein: Sir, yes, briefly.

Questioned by Mr Stein

Mr Stein: Mr Peberdy, can we stay with the document you’ve just been asked questions about, which is NFSP00000513. Can we have that on screen and, this time, please, go to page 16 – that’s Relatively number 16, internal pagination of the document pages 14 and 15.

I am going to take you to a particular part which is reference to Mr Cyril Jones, which is the third paragraph on that page. Thank you very much.

Now, I’ll ask you about the terms used in a minute, but this sets out:

“Mr Cyril Jones said that there had been a meeting with a HORN and this problem had been brought up. He had been very concerned about this problem causing problems in the appeals area and forcing unnecessary appeals. Security went in at some point and made a recommendation that the subpostmaster was responsible for the entire loss. That was then sent off to the RNM, because the final decision as to whether to ask for that entire amount. In most cases the RNM took the report as verbatim which was causing a lot of problems.”

So let’s just explain couple of those terms. First of all, HORN, H-O-R-N?

John Peberdy: Head of Retail Network, from my recollection.

Mr Stein: Thank you. Now “security went in at some point”. Who are you referring to there – sorry, who is Mr Jones referring to there?

John Peberdy: I presume, in that, that he is probably talking about the audit team.

Mr Stein: Thank you, and then lastly “RNM”?

John Peberdy: Retail Network Manager.

Mr Stein: Okay. Thank you for the assistance in explaining the terms. Does this particular paragraph and the point being raised by Mr Jones tell us that what was going on was that, all too often, the assumption was made that the subpostmaster was responsible for the entire loss?

John Peberdy: Correct.

Mr Stein: And that the RNM, with your explanation, took the report – the report, presumably, report of losses – as verbatim, which was causing a lot of problems?

John Peberdy: Yes. I think if you wanted a little more explanation, these were the cases that – I mean, I presume you know how these things come about when an audit team turns up in an office and the office becomes short. A lot of subpostmasters were very fearful of this and fearful that if the office were short, they might lose their office or, as subsequently happened, and we all know now with hindsight, many were prosecuted.

Mr Stein: Yes, and I think then, if we can go to a part of this that has your reference, I believe it’s over the next page. Yes, the fourth paragraph down, starting with Mr Peberdy, if we can highlight that, please, and put it – enlarge it on the screen then highlight, please. Yes.

“Mr Peberdy said that they had just sent a very strong signal to Mike Granville that because of the financial plight of the business they were playing a lot harder ball over losses and sticking everything they could onto the subpostmaster. There was pressure on the business, end of the financial year.”

Now again, let’s unwrap that. Mike Granville?

John Peberdy: One of the senior Post Office managers at the time.

Mr Stein: Thank you. The reference here to the “financial plight of the business”, which business are you referring to?

John Peberdy: Post Office Counters Limited.

Mr Stein: Okay. So:

“Mr Peberdy said that sent a very strong signal to Mike Granville because of the financial plight of the business [which is the Post Office] that they were playing a lot harder ball over losses …”

What did you mean by therefore, “sticking everything they could on to the subpostmaster”?

John Peberdy: Right, in that particular reference, we’re still probably rounding up talking about losses, and this amount that was sitting in the suspense accounts, that Post Office Counters Limited obviously perceived was due to them from the subpostmaster, and their financial year end and the state of Post Office accounts, with a large amount sticking in suspense accounts, wasn’t, in my view, looking good for them and, therefore, they wanted to get this money in, and were taking a lot harder line.

We did have situations where the Post Office, on representations probably from Federation representatives, would agree to some of these losses, which subpostmasters in many cases just had to accept, and they didn’t know whether they were right or wrong, could be spread over a period of time, and we did have an agreement of them that – I can’t remember the length of period – that the losses could be kept in the suspense account for a period of time.

The reason behind that was for them – the business hopefully to examine and see if documentation came forward or anything else came forward that proved that loss. I’ll give you a very simplistic example that might have been the subpostmaster’s fault, that a subpostmaster, amongst a multiple transaction, hadn’t charged a customer for something like, I don’t know, a book of stamps. That customer might have come back the next week and said, “By the way you didn’t charge me for these last week”. Simplistically, it was a small amount, but hence the suspense account was there for those reasons.

But at that time and at this stage that this minute is recording, is that Post Office were definitely taking a stronger view as to getting that money back into their coffers and the subpostmasters having to pay.

Mr Stein: You allied that to the fact that the business, which is the Post Office, was having financial difficulties?

John Peberdy: Well, I’m not quite sure I was quite saying – I was saying there was pressure on their business. Nobody likes a business that is losing masses of money, especially as it’s partially owned by the Government, and so, therefore, they would be keen, as a lot of businesses probably would, not to have a big suspense accountant sitting in their balance sheet.

Mr Stein: Such was your view, that you put it this way, “sticking everything they could onto the subpostmaster”.

Mr Peberdy, we do have some further questions, but they are for a later stage in the Inquiry. We have been assured that you and, indeed, Mr Baker will be returning to the witness stand or table at a later point in the Inquiry.

John Peberdy: I’m very happy to do so.

Sir Wyn Williams: Yes, please.

Questioned by Mr Moloney

Mr Moloney: Mr Peberdy, I’d just like to ask you about two more documents, if I may, please.

John Peberdy: Certainly.

Mr Moloney: The first is reference NFSP00000540. We can see on the page here that this is the minutes of the National Executive Council meeting held on 4 and 5 June 2001, and if we went to the next page, we’d be able to see that you were present at this meeting. Thank you. Could we please go to page 14 of this document, because as you said, as it’s coming up, the continuing question of the reliability – so it’s 14 of the document – that’s my fault.

The continuing question of the reliability of Horizon and counter automation was effectively a standing item, so far as Executive Council meetings were concerned around this time.

Could I ask that paragraph 6 there is – thank you.

“Mrs Reeves reported that at the beginning of the automation of Horizon, an office was allowed to work manually and input later …”

That talks about the system going down, and the chairman saying that he didn’t know the answer:

“Mrs Jenkins stated that the problems experienced with Horizon were raised at Conference”, and it may be that we’ve seen the minutes of that conference already:

“It was promised on the platform that there would be a national forum to look at the problem. Were we anyway nearer to getting this set up and how was it going to work?”

Then, if we could go over the page, please.

“The Chairman said that they should have a user group, a national forum, to deal with Horizon errors and problems with the system. It was an action point from 26 February.”

May I ask you, Mr Peberdy, was there ever a meeting – or, firstly, was there ever a meeting of a national forum in that way?

John Peberdy: Not that I can recall, unless we were actually – I’m not sure whether this was prior to the Horizon Working Group or after the Horizon Working Group.

Mr Moloney: This is June 2001.

John Peberdy: And the Horizon Working Group would have been in place by then.

Mr Moloney: Yes.

John Peberdy: Yes.

Mr Moloney: So, just in terms of what that national forum might have looked like, would it have been an invitation to all subpostmasters to come along and express their experiences, relate their experiences to the problems that they might be experiencing with Horizon?

John Peberdy: I’m not quite sure what the chairman directly was meaning about it, by a user group. The sort of thing that we would have, as a Federation, tried to do in those sort of instances was either have had a special conference, when we would have called delegates, because we couldn’t invite everybody there – if I can just sort take you back, we were – the Federation was structured in such a way that we that Executive Officers in the regions of the country, branch secretaries beneath those Executive Officers in the individual branches and, obviously, subpostmasters went to meetings.

I do have to also flag up, of course, unfortunately not all subpostmasters were members of the Federation, and there were some who didn’t want to upset the Post Office, so we didn’t always get the full feedback from them. But that would have alluded to we wanted to find some means, and I’ve got a feeling that subsequently to that, at the next Executive Council meeting, part of it we asked these Executive Officers to bring any instances that they’d got or to sent them into Shoreham so that we could represent them directly to the Post Office.

Mr Moloney: Right.

John Peberdy: Sorry I can’t be more explicit than that.

Mr Moloney: No, but it may assist your memory to, as you suggest, move to the minutes of the next meeting, which are at NFSP00000501, and this is the minutes of the National Executive for July 2001.

John Peberdy: Yes.

Mr Moloney: If we could please go to, it’s internal page 18 of this document. Thank you. If we could highlight the section at the bottom under “Horizon”. We see that the Chairman reported that the Negotiating Committee had visited Dearne Valley:

“It had been agreed that a subcommittee will be formed to solve some of the major Horizon issues. Don Grey had suggested meeting once every four months in either Dearne Valley or London. Attendees from Post Office Network were to be Don Grey, Mark Haynes, Julian White and Liz Tuddenham and from the NFSP Colin Baker, John Peberdy and Jean Kendall. The initial meeting is scheduled for October. They were continuing to progress the eye test issue, which was in the action points under the overview of meetings.”

Do you remember whether or not there were meetings of that Horizon subcommittee?

John Peberdy: Yeah, I think that, drawing my attention back to it, I believe that Dearne Valley was the Horizon Helpdesk, and yes, we did have meetings there because we were anxious to see what was coming into the Helpdesk what sort of questions were coming in, and how they were dealing with them and how they were helping subpostmasters to resolve those issues.

Mr Moloney: If we could go on to the next paragraph please to this document, to see what Mrs Bethell says:

“Mrs Bethell said that she had three items to raise under this section. The first was a request for a progress report on barcoded hand pouches as a number of pouches were still going missing. Mr Davis replied that he had not been advised when barcoding of pouches was to start but he would endeavour to find out.

“The second was about the Benefits Agency linked to Horizon. Mrs Bethell was receiving a number of complaints from subpostmasters who were having letters from the Benefits Agency accusing them of paying out on books which had been impounded.

“Subpostmasters had acted on the instructions on the system and the Benefits Agency did not believe them. It was going on subpostmasters files that they were paying on impounded books, although it had been agreed back in the week 5 of 2000 that there was a problem with the system. This information would remain on subpostmasters’ files despite requests that it be removed. It had been suggested that there should be a printout when a book was impounded. It could then be proved that the subpostmaster had done as the system instructed.”

Did you ever become aware of subpostmasters being prosecuted for what might be described as are you introduction fraud of introducing giros, benefit slips, into the system when a book had been impounded?

John Peberdy: I wasn’t aware of them being prosecuted for it. The system did ask subpostmasters to impound the book when the barcode was read. If that book had been withdrawn for some reasons.

I was not aware – I can see what Mrs Bethell said, who was in Liverpool and a representative of the northwest, and that she represented an area of very – as she told us at the Executive Council meetings, very high numbers of giros being encashed at pub post offices, hence her desire for the barcoded pouches, by the way, and that there obviously were instances in the northwest where the books had been stopped by the Benefits Agency and probably a giro paid because if people couldn’t manage or all sorts of various reasons. But I wasn’t aware that then subpostmasters were fraudulently paying those benefits.

Mr Moloney: Thank you very much, Mr Peberdy. That’s all I ask.

Sir Wyn Williams: Thank you. Is that it?

Ms Kennedy: Chair, I think that’s it.

Sir Wyn Williams: Thank you very much for your witness statement and for coming to give oral evidence.

John Peberdy: Thank you, Mr Chairman. It’s been my pleasure. I hope I can help the Inquiry in the future.

Sir Wyn Williams: Thank you.

So I think that completes what I will call the scheduled witnesses to date on Phase 2.

I say to date, because you never know, do you? So that leaves two oral submissions this afternoon; is that correct?

Mr Stein: Sir, yes.

Sir Wyn Williams: I laid down the guidelines, and I take it you’re both happy to be within those guidelines?

Mr Stein: Yes.

Sir Wyn Williams: Thank you. See you at 2.15, it’s now nearly quarter past.

Mr Stein: Sir, yes. From my part, and I’ve spoken to my learned friend about this, I think I’ll be about half an hour, so well within the guidelines. Is there a stopping time today, though? We were told you may wish to stop at 3.00.

Sir Wyn Williams: Well, there’s no official stopping time, in the sense we that have to finish at 3.00. The difficulty is that I want to have a meeting with my team, who are considering how to handle next Thursday, in the lunch break, rather than after we finish this afternoon. But I’m quite happy to try to do that by 2.00, and then if you are half an hour and if Mr Moloney is much the same, we won’t be far off 3.00.

Mr Moloney: Sir, if you find that it’s too much of a rush to finish by 2.00 then I think I can abridge my submissions without doing any injustice to you.

Sir Wyn Williams: No, don’t worry. Let’s say 2.00 and I will, I’m sure, be briefed sufficiently about Thursday by then, and we will hear you between 2.00 and 3.00, he says, optimistically.

Mr Stein: Thank you.

(1.13 pm)

(The Short Adjournment)

(2.05 pm)

Sir Wyn Williams: Apologies for the slight delay. Who is going first?

Mr Stein: Sir, I think it is me.

Sir Wyn Williams: Right.

Submissions by Mr Stein

Mr Stein: Sir, first of all, we are, of course, grateful for this opportunity to make oral submissions at the close of Phase 2 of this Inquiry. To frame these submissions, these are not our final position on the evidence, but it’s our attempt to assist the Inquiry with its examination of evidence within the future phases as we go forward.

The Inquiry will have to decide whether what we’ve heard in Phase 2 is as a result of cock-up or cook-up. If cock-up, an archery term, sir, then it is the result of a serious failure to care about the fitness for purpose of the Horizon System and speaks of contempt for our subpostmasters.

Worse than that, if that could be possible, is cook-up, meaning that once the imperfections of the Horizon System were known within the Post Office and Fujitsu, both contracting parties were left with a less than satisfactory Horizon system but, nevertheless, decided to carry on in the pretence that the system was adequate for branch use and also capable of providing evidence, reliable evidence, sufficient to blame subpostmasters for shortfalls, to support investigations, to deal with civil actions and prosecutions.

The problems within the Horizon system are not limited to the bugs within the software examined by Mr Justice Fraser, but also hardware installation, environmental interference in Horizon internal communication, disconnection and reconnection, bad training, bad scripts and bad advice from the unhelpful desk.

The evidence within Phase 2 has highlighted particular themes, and we say these are significant. First of all, the inappropriateness of the Private Finance Initiative in the procurement of Horizon.

What guidance, protocols and systems were in place to support the use of the Horizon System for making claims against subpostmasters with shortfalls or taking action against them in the civil courts, or for investigations and prosecutions.

What was the extent of knowledge within Pathway of the inadequacies in the Horizon System? Who knew what and when? And so far, sir, fairly obviously, we’ve heard evidence from managers and more senior individuals and we anticipate later on that we’ll be hearing evidence from people working within the organisation. How far did that filter through?

The same question: the extent of knowledge within POCL, of the inadequacies in the Horizon System. How far was that knowledge of the difficulties with the system, it’s problems, fed through to those people working day-to-day within POCL?

Finally, we asked the Inquiry to consider and consider what the effect of this is, the decision taken by POCL to design out the ability of subpostmasters to interrogate the system.

The reason why we asked the Inquiry to keep these themes in mind as we go forward within this Inquiry is because we suggest that we are going to need to consider what evidence there is, which may demonstrate that a cover-up did not start after Simon Clarke blew the gaff on Mr Jenkins within the Post Office, but much earlier.

The evidence in Phase 2 confirms that Horizon was never capable of supporting criminal or civil actions against subpostmasters and, sir, as you’re aware, we’ve been pursuing this particular track in the questions that we’ve been putting to witnesses. There’s been considerable mention of section 69 of the Police and Criminal Evidence Act, which dealt with the admissibility of computer-based evidence, which, for the time when it was in force, meant that such evidence was subject to requirement for a party wishing to rely on such evidence to demonstrate that the computer had been operated properly and that it worked properly, and that this has been referred to as a certificate.

Going back a little bit further in time, in 1995 the Law Commission held a consultation on proposals to get rid of the section 69 safeguard and introduce a presumption that a computer system has operated correctly unless there is explicit evidence to the contrary.

POCL actively supported the proposal to get rid of that particular safeguard and argued in written representations, dated 31 July 1995, that the safeguard in section 69 was too strict and had the effect often hampering prosecutions.

These submissions were made by the head of Post Office Limited Criminal Law Division, Ms Churchard, and they were made to the Law Commission on 31 July 1995. Sir, this is material that we provided to the Inquiry. As yet, as far as I know, we don’t yet have a Relativity reference for it.

The submissions, though, made by Ms Churchard were briefly as follows:

“In practice the operation of section 69 of the 1984 Act is somewhat onerous from a prosecution viewpoint. I consider that computer evidence is, in principle, no different from any other sort of evidence and it should, in general terms, be admissible so that any argument in court would relate to its weight rather than its admissibility. I therefore consider that there should be a presumption that the machine is in working order, etc, and if the defence wish to argue otherwise then clearly they should be able to do so.”

She finished:

“At present, I therefore consider the evidential requirements to be far too strict and can hamper prosecutions.”

Now, that was a written submission in made in July 1995. We need to therefore bring things a little bit further up to date within the time period of matters that we’ve been dealing with.

I’m going to take you to a document that should be able to go on the screen, which is FUJ00058182. Now, this is the monthly progress report, and I’m going to take you to the part that deals with – under security system, and it is the sixth bullet point. If that, Paul, can be put on the screen, and if you could bring out the “Discussions took place”, the sixth bullet point, starting with “Discussions took place”, and highlight that. Thank you.

So this is dated, on the face of the first page of the document, it’s May 1999, the internal pagination is also headed 14 June 1999. So it’s issued roughly in the middle of 1999:

“Discussions took place with POCL investigations and legal staff to progress the provision of section 69 PACE certificates. POCL are clearly anticipating a comprehensive fraud and prosecution support service from ICL Pathway. We have made it clear that this is not in the core contract. It represents an opportunity for a non-core service.”

Now, quite putting aside for a moment that ICL, operating as a private company, is wishing to make more money out of providing an extra service, the point that we are referring to here is that, at this stage, in the middle of 1999, it is clear that there were discussions between POCL and ICL in order to provide a system that would support.

We know that by July 1999, the document that we’ve seen now a number of times, which is the codified contractual agreement reached between POCL and ICL Pathway, the clause that – we don’t need to put it on screen, sir, you’re very familiar with it, clause 4.1.8, which is the clause within the codified contract that sets out that:

“The contractor shall ensure that all relevant information produced by the POCL service infrastructure at the request of POCL shall be evidentially permissible and capable of certification.”

Sir, we know as we go through these dates in 1999, by May 1999 the monthly progress report is stressing that there needs to be a system, there’s discussion about that and how that system will operate. By July 1999, the section 69 contractual requirement was embedded within the codified agreement. So we know that POCL and Pathway were tracking the investigation and prosecution issue.

Now, as a matter of fact, section 69 was repealed on 14 April 2000. A subsequent version of the contract dated 2002, whose reference is FUJ00000074, was amended to remove the section 69 references and so, at an earlier stage in questions that we asked, we showed that particular document.

Sir, at the moment, as far as we’re aware, we have the codified agreement and then the contract dated 2002. Now that’s subject to later disclosure.

We can see, therefore, that this question of evidential admissibility in relation to prosecutions was a matter that was under discussion between the parties over a considerable period of time.

Now, it was the view of Pathway that POCL ought reasonably to have known about the problems in the system. Mr Oppenheim told the Inquiry in his evidence that he had always assumed that any request made by Post Office for data to support a prosecution would be a rare thing. He said that there was a general understanding between all the technical and commercial people that there would be occasional errors.

He said that everyone knew that there would be mismatches and that he presumption was that the Post Office would, certainly at the outset, give subpostmasters the benefit of the doubt. You’ll recall his evidence, which was given on 26 October, page 48 of the transcript.

Sir, we have heard also from Mr Johnson, who said in his evidence very recently that he expected or made an assumption, as he put it – he made an assumption – that there would be a break, a period of time whereby the system wouldn’t be used to support prosecutions. Perhaps a shakedown period or something similar to that.

Yet there is, in fact, no evidence of subpostmasters being given the benefit of the doubt. We know that because of Ms Lock, a 25-year subpostmaster veteran, by the time of the installation of the Horizon System, who began to see inexplicable shortfalls in January 2000, investigated in mid-20000 and prosecuted in 2001. There was no pause, there was no break, there was no “Let’s see how this shakes down”.

The reality was that POCL were in a Catch-22 position of their own making. Having automated the accounting system in branches, they could no longer bring a prosecution or civil action or, indeed, question a shortfall without relying on Horizon the whole source of evidence. But equally, there is evidence that they knew that Horizon was not up to the task and could never attain what Andrew Simpkins told the Inquiry on 3 November amounted to the very high bar if it was to perform that function.

Sir, you’ll recall Mr Simpkins in the witness box, when he was asked that question – I think it was by myself – that he described that physically as well and he put his hand up in the air to say that the bar was up here. If you wanted the system to work to that level of functionality, then it would be a very different thing indeed. That’s transcript 3 November, page 116.

There is evidence, we suggest, which at the very least is suggestive of suppression of these issues within POCL. John Roberts, a former managing director of POL, when giving evidence on 20 October, told the Inquiry that the issue of prosecutions was never raised in discussion at senior management or at board level.

We also heard that the matter of prosecutions were dealt with by the internal solicitors department at the Post Office, who reported, I think it was, to Mr Roberts himself.

We urge the Inquiry to ensure that members of the legal team within the Post Office are called to give evidence in the appropriate phases in this Inquiry in the future, and that will include references that we have had to Mr Christou and Ms Churchard.

Now the extent of knowledge within Pathway of the inadequacies in the Horizon System needs some short examination. Pathway certainly knew that the Horizon System was not capable, we suggest, of supporting a civil or criminal claim against subpostmasters, let alone justifying countless suspensions, dismissals, menacing demands for repayments in respect of so-called monies that the Post Office said was missing.

Jeremy Folkes, a former infrastructure assurance team leader at POCL, gave evidence on 2 November and confirmed Pathway’s attitude. He said, as regard acceptance issues, that Pathway were more interested in talking down severity of acceptance issues rather than actually trying to engage to resolve issues. He referred to a war of attrition and stated that Pathway had a massive incentive to avoid any acceptance issue being classified as a category 1 issue, which he described as a “showstopper”.

The scale of the problem and Pathway’s knowledge of it was explained in the evidence of Mr David McDonnell, a former development manager at ICL, who gave evidence on 16 November. His evidence is important, not the least because his evidence was untroubled and uncontested by any oral questions from Fujitsu or the Post Office.

We imagine that Mr Justice Fraser in the civil claims and the hearings that he dealt with, and the Court of Appeal in the criminal appeals, will have been very interested in what he had to say. Is the reason that Mr McDonnell’s report and his evidence was not disclosed within the High Court litigation, that Fujitsu was not a party to the proceedings, and is this a consequence of the PFI nature of the contract and its consequential “black box”?

Mr McDonnell confirmed, joining ICL just after, I think, I recall, Easter 1998, that it became obvious to him that, of the team of eight developers at Pathway, four were not capable of producing professional code, that there were no development standards or methodology, some of the design specification documents were reverse engineered, written to reflect code – pre-existing code. Incredibly there was no overall design specification, and many documents served no function other than to satisfy an audit for the purpose of meeting acceptance criteria.

Furthermore, he said that basic steps such as coding standards document and peer reviews were absent, neither were there any unit testing standards, so it was not possible to test the code. Mr McDonnell said that the constant high level of PinICLs being raised daily and the fact that a number of these were not diminishing and were becoming more complex led him to conclude that the quality of the code was not right. Transcript, 16 November, page 19.

Now, these concerns led to the taskforce initiative between August and September 1998 and the joint report produced by Mr McDonnell and Mr Holmes.

Significantly, Mr McDonald said that the code was so bad that he’d never seen anything like it in the 25 to 30 years since his involvement in the Horizon project. The effect of this was that the need for constant rewriting of bad or unreachable code would cause code decay, leading to the whole product becoming unstable.

Furthermore, Mr McDonnell confirmed that the EPOSS product was developed using Rapid Application Development, RAD, directly from the prototype, a process which was fatal in a large project with several integrations. Mr Beer, King’s Counsel, described this as building on balsa wood. Transcript, 16 November, page 59.

Despite Mr McDonnell and Mr Holmes’ conclusions, their report was not accepted by Mr Austin, the programme director, and was disregarded by Mr Jenkins, the senior Fujitsu architect, who was much later the subject of the Simon Clarke Advices, criticism by Mr Justice Fraser and, we understand, an ongoing Metropolitan Police Service investigation.

Shortly after the publication and distribution of the taskforce report, Mr McDonnell was offered a promotion. He said he would only accept that promotion if the Horizon cash account code was rewritten. ICL would not do that and Mr McDonnell was moved sideways, perhaps conveniently.

Mr Cipione commented on the taskforce report in his second appearance before you on 17 November. Mr Cipione described how disturbing it was to read that there was no design for the EPOS system, or the Horizon System, and considering where a lot of PinICLs and PEAK errors were, the lack of design specifically led to the in-balance issues. Put simply, he said, “If you’re not going to design something properly, it’s not going to. If you don’t have a good design it’s not going to work properly”.

In his report, Mr Cipione had not been aware that the EPOS system had been developed using rapid application development, as that had come out during the evidence of Mr McDonnell. When this matter was put to him on 17 November, Mr Cipione articulated further concerns as to the integrity of the Horizon product. He said:

“RAD almost means no plan, other than ‘I think I know what the goal is, and I’m going to get to that goal as fast as I possibly can’. And there’s good situations where that’s needed but this is not the right situation for that. You need to do everything in a very methodical almost militaristic way, to make sure everything works properly together. Because I think I mentioned before, there are so many moving pieces, this has to be highly coordinated. RAD is the other end of the spectrum. It is not highly coordinated or it doesn’t support co-ordination amongst big teams because that’s not the purpose of RAD. RAD is get it done quick. Get it done, get a little bit done quick.”

17 November, page 153.

Mr Cipione commented on some of the examples that had been given by Mr McDonnell, stating this is “Terrible code, this has to be a joke”. In relation to another, he said, “It’s just not the right structure. It indicates to me that they don’t understand what those particular structures are and, just take my word for it, they don’t understand what the structures are”.

Pathway had been alerted to the growing shortcomings but we suggest suppressed this information and pushed for acceptance. Through the evidence in the forthcoming phases, we need to understand who knew within POCL of the Horizon System’s shortcomings and how that knowledge was employed when hounding subpostmasters for shortfalls, investigating them, or prosecuting them.

Our clients have urged me to submit that any protestations by the Post Office to the effect that they were misled by Pathway should be rejected. The Post Office are just as culpable as ICL Pathway and Fujitsu, if not more, because they have a direct duty of care and, morally, the hundreds of years of service provided by subpostmasters, since the foundation of the Royal Mail should have underlined the need for them to make sure that the system worked and was functional.

So far, what we have seen is a lack of governance, lack of oversight and lack of regulation by the post office and we suggest that is indefensible.

So the question that my clients would particularly like me to pursue is in one, in fact, you raised on 3 November when referring to Mr Folkes’s evidence, and it relates to paragraph 207 of Mr Folkes’s witness statement. He said there – and I think it’s actually between paragraphs 206 and 207. Mr Folkes said:

“Given the problems in 1999 from acceptance and throughout the project, I believe clearly that the system and Pathway had some significant way to go to gain confidence. To a degree in 1999 this was a classic ‘Don’t start from here’ situation. It is very difficult to retrofit quality to an IT system, and it would appear from our experience that Pathway had applied a fix on fail approach to some areas, eg EPOSS, with many fixes being applied in 1999 to get it through acceptance.

“This was not an ideal basis from which to move forward [he went on to say at paragraph 207] and it would have been appropriate to apply some healthy scepticism to the operation of the system over the first few years.”

He said this:

“I think a key question for the Inquiry to ask is what gave POCL such confidence in Horizon to start using it for prosecutions of subpostmasters, especially after the rather checkered history of the system from 1996 to 2000 and, in particular, the experiences of 1999.”

It can’t have escaped the Inquiry’s notice that, even a short mental chronology of the history of this man’s that there was a hurtling towards “Get this thing going, get it going, get it out there”.

For these reasons, sir, we say the Inquiry must dig deep into the investigation and prosecution processes. The evidence in Phase 2 of the Inquiry has laid a very solid foundation for this exercise to be undertaken.

Mr Jeram, the head of digital systems platform unit at Fujitsu gave evidence on 10 November and confirmed that Post Office took a decision which he says was not taken quickly, that there was to be no paper cash account. Mr Jeram agreed that the effect of this decision was that subpostmasters were prevented from interrogating the system and checking their records against allegations of shortfalls.

He also agreed that the ability of subpostmasters to check their records was deliberately designed out of the Horizon System. Transcript, 10 November, pages 141-142.

On behalf of our clients, we suggest that this shows a degree of premeditation by POCL as POCL wanted to ensure, through the design of the system, that subpostmasters would be less able to examine the system, it would undermine their ability to defend themselves against demands for money when the system, as it did, inevitably failed.

Mr Jeram says at paragraph 16 of his statement that Post Office took the decision to dispense with the paper-based system, and you know, sir, that this was a very big issue for the subpostmasters, because previously to the introduction of Horizon, they could go back through their own records. After the introduction of Horizon, they were not able to go through the same exercise.

The inability of subpostmasters to interrogate the Horizon system when faced with demands for sometimes large amounts of money based on shortfalls caused our clients to suffer from sustained high level anxiety and a sense of utter and complete powerlessness. We ask how that happened, how those decisions were made is fully explored in the future phases of this Inquiry.

The PFI initiative. The evidence in Phase 2 has largely – well, not largely concerned, but has concerned the procurement that went horribly wrong. Mr Milburn in his evidence today, I think, at something – I chalked it up at 10.35, described PFI as being a transfer of risk, and we need to understand how this particular Private Finance Initiative worked in this particular procurement process close what was happening here was that a PFI agreement was setting up by the system to be used by other businesses outside of those contracting parties, and those were the small businesses, the Post Office branches and they were the people who, in fact, were subject to, as Mr Milburn put it, the transfer of risk.

And they had no voice. They had no control and no ability to object.

It was a consequence of this being initially a Private Finance Initiative run and finance programme and then it being a legacy of a Private Finance Initiative was that the Post Office was not allowed to see the high or low-level design of the Horizon system and was required, instead, to trust Pathway to produce acceptable outcomes.

We ask why no decision was made to reconsider, with Fujitsu, the nature of the contract and the requirements in relation to access. We agree with the position taken by Mr Folkes in his evidence that PFI was not a particularly appropriate way of getting a highly complex, bespoke service.

The Horizon project demonstrates a failing of the Horizon System generally. ICL were commercially motivated and that then led them to put a positive spin on the appalling failings of the system that they were tasked with providing. They did not act – and we suggest it is possible to look at this – that they did not have to act in accordance win the any duty of candour that one would expect of a public body or a party to civil or criminal litigation.

They did not have a duty of care to the end users: the separate businesses of the subpostmasters all around the UK.

The Benefits Agency was a reluctant party from the outset and we suggest that they could have acted better. The Benefits Agency was opposed to the BPC system around which Horizon was designed yet committed to a contract nevertheless and engaged in a three-way antagonistic relationship with the other parties.

You will recall that in his witness statement, Mr Sibbick spoke in terms of a long-running sore between BA and POCL.

The Horizon scheme was, in effect, a one-off, never before tried, multimillion pound project of substantial scale and complexity. It should never have been born as a product of a marriage between three parties whose objectives did not align, and in circumstances where one party was contractually entitled to withhold information from the others. And it should never have been born in the circumstances whereby the party that was going to be dealing with the matter and actually handling the system was not, indeed, part of that three-way contractual relationship.

After the Benefits Agency withdrew, the objective of the Government, we suggest, was to avoid public scrutiny and damage to international trade. We’ve no doubt, as we’ve been through documents, that there was also the drive to make sure the Post Office continued and that there would be changes.

We suggest that there is little understanding about the impact in those documents and the briefing documents to the ministers of actually what this system would mean to subpostmasters. The objective of POCL was to manage its way out of the existential crisis caused by the loss of Benefits Agency revenue and footfall, and the objective of Pathway was to survive the huge financial losses which it had suffered as a consequence of the delays.

It was seemingly no one’s objective to ensure that the interests of subpostmasters, who were required to operate the system on the ground, would be presented with a product that was fit for purpose and with adequate training and assistance. Instead, as described by a witness to come in Phase 3, that’s Bruce Mcniven, who puts it this way:

“It was a leviathan, additionally encumbered by contractual conditions and Government scrutiny.”

Sir, I return very briefly to the five themes that we’ve set out. The inappropriateness of the PFI agreement for the procurement of Horizon. We must pursue with vigour the question of what guidance, protocols and systems were in place to support the use of the Horizon system for civil claims, investigations and prosecutions, as we’ve heard nothing from the senior management as to any assistance being discussed with them or set out for the use of the Horizon product within such claims.

What was the depth of knowledge? How far did it go? Were there problems within the system, within Pathway, and then within POCL?

And how far there is an impact on those issues, with the knowledge of system faults, was decision making about such issues as the decision taken by POCL to design out the ability of subpostmasters to interrogate the system.

Collectively, the Phase 2 evidence may suggest that Post Office was acting dishonestly to cover up the issues and problems within the Horizon System, and that may have occurred from a very early stage.

So for this reason and not the least so that we get to the bottom of this particular matter, we ask that the Inquiry continues to seek disclosure, scrutinise the documents with us and understand whether what happened to our clients was the result of a dreadful but avoidable cock-up, or was this a more sinister cook-up, to cover up the fact that the performance had bought a system which was not fit for purpose and certainly not fit to support the subpostmasters who were then being asked to pay for Horizon system faults in terms of alleged shortfalls and then take the consequences of Horizon System faults in civil actions, or being taken before the criminal courts, and some imprisoned.

Sir, we hope that by making focused closing submissions, if allowed, at the end of phases, we will enable the Inquiry to move forward with at least the victim’s viewpoints at the forefront of its future examination of witnesses.

Sir I’m very grateful for having this time to address you.

Sir Wyn Williams: Thank you, Mr Stein.

Ms Page: Sir, I wonder if we could very briefly put it on record that we will be doing written submissions in response to your permission?

Sir Wyn Williams: Thank you.

Mr Moloney: Thank you, sir.

Submissions by Mr Moloney

Mr Moloney: We too are very grateful for the opportunity to make brief submissions at the close of Phase 2 hearings. After so many hours of invaluable evidence, this submissions will necessarily only lightly touch on a very few areas of significance.

Full submissions on the evidence will only be possible when all of the evidence has been heard, but so far as these submissions are concerned, we divide them into two sections. Firstly, section 1. We briefly address the themes identified in our openings as priorities for Phase 2, and to what extent we’ve heard the evidence has reflected those priorities. And secondly, we consider the questions we pose for Phase 3 in opening, and perhaps new questions for Phase 3 arising in light of the evidence heard from witnesses in Phase 2.

We repeat if we may, sir, how significant this Inquiry is for both those we represent, and for the public interest. Many of our clients are following the evidence closely as it’s given, and others are catching up with the daily recordings and transcripts. And whilst they’ve often found what they’ve heard difficult to bear, they also express how vital it is for them to hear it. The trauma of their experiences means that learning how and why the Horizon scandal happened, and how it might have been prevented, and why it was not prevented, has become deeply significant to them, and they are genuinely grateful to the Chair and his Inquiry Team for the care and sensitivity with which the issues in Phase 2 have been pursued with witnesses.

Moving to our submissions, sir – and I will make them headline submissions, and quite brief. Firstly, section 1: themes identified in our opening as priorities, and the extent to which the evidence we’ve heard has reflected this is priorities. Firstly, so far as IT is concerned, we won’t address the evidence in any detail.

Mr Cipione confirmed that the detailed evidence from witnesses and in contemporary records as to known concerns about the stability of the system and the operation of core applications solidified the conclusions he reached in his report. And we consider, sir, that there can be no question that there were known weaknesses, bugs, errors and defects in Horizon System from the outset, of which both POL and Fujitsu ought to have been aware when later decisions were being taken by prosecutions.

In opening, we also invited the Inquiry to consider additional themes in Phase 2 beyond IT, and they included the adequacy of human systems dealing with the available IT, whether Horizon ought to have continued at all after the Benefit Payment Card was abandoned, and what was known when, and by whom.

And just briefly taking each in turn, firstly the adequacy of human systems beyond the available IT. We asked the Inquiry to look beyond IT to those human systems, and we say there’s been important evidence about that. For example, whether the process of relying on Escher in the investigation of Legacy Horizon issues led to difficulties in the exploration of the root causes of bugs, errors and defects, and we refer the Inquiry to the evidence of Mr Simpkins and Mr D’Alvarez.

The Inquiry has also heard problems in the development of Horizon IT could be laid at the door of people, and not software. So for example, in relation to performance and skills deficits, the EPOSS Taskforce report. Its subsequent consideration by ICL Pathway provides, we say, devastating evidence of the understanding of the flaws in Horizon held in Fujitsu and seemingly not shared by anybody at the Post Office or in Government.

The Inquiry may conclude that the human and commercial response to this information and the lack of transparency around it in 1998, 1999 and 2000, generates concern.

Also, failures in communication and information sharing, both between POL and Fujitsu, but also beyond the failure of sharing between POL and Fujitsu. For example, the Inquiry has heard from former ministers, including Lord Darling, Sir Ian McCartney, and indeed Mr Milburn today, that they were prevented from considering earlier evaluations of the ICL Pathway bid by the convention that we’ve heard about, sir.

If ministers were prevented from considering earlier concerns on this basis, it would appear to reflect an expansive and perhaps unhelpful view of the bar on sharing new information with new ministers.

The Inquiry also heard evidence on the limited technical experience held by those making management decisions about Horizon in POCL and ICL.

The Inquiry may wish to consider whether adequate attention was paid by those in management to people with technical expertise, and we ask you to consider the evidence of Terry Austin and Mike Coombs and David McDonnell and Jan Holmes in that regard, sir.

The Inquiry may also wish to consider whether decisions in Government were adequately informed by technical expertise, and we refer you to the evidence of Sir Ian McCartney, and indeed Mr Milburn today, on that point.

Overlapping to the lack of sharing of information, but separately, there were failures to act. The Inquiry may crucially wish to ask whether accumulated evidence about weaknesses in Horizon were addressed internally, either by POCL or Fujitsu. When confronted with the evidence of the problems, were the steps taken by POCL and Fujitsu adequate in addressing those concerns?

For example, it would appear that ICL Pathway took a decision that the cost of maintenance of the system would be more proportionate than rewriting or redesigning the EPOSS application. And it’s far from clear what this meant in practice, or the active management of the system, or for the work to be done in due course. And that bug-fixing culture remained in place, it seems, and seemingly with same risk of code regression identified by the EPOSS Taskforce report.

Secondly, in terms of our themes, whether Horizon ought to have continued at all after the Benefits Payment Card was abandoned.

The evidence of Lord Alistair Darling on the motivation of the Department of Social Security in walking away, we say, was clear and compelling.

By 1998 it appears clear that ICL Pathway was failing to deliver. There were continued problems in testing, and the technology simply wasn’t working. The evidence suggests, we say, sir, that the same conclusion could and/or should have been reached in respect of Post Office automation.

The management of Horizon at this stage raises number of questions for the Inquiry to consider, we suggest. Already touched upon by Mr Stein were the contractual arrangements, the original contractual arrangements, inadequate to allow the Post Office effective oversight of the development of Horizon. Were those arrangements misrepresented or misunderstood in a way which undermined any effective oversight?

A number of witnesses gave evidence as to the lack of transparency as to the Horizon solution, and blamed the nature of the PFI contract. Mr Miller, Mr Meagher, Mr Austin, Mr Folkes – who described it as a “black box” – and Sir Adrian Montague suggested that the PFI sponsor ought to have sufficient information to enable them to have oversight of the project.

The Inquiry may wish to consider why the parties took the approach they did to the project, and whether POCL were unable to adequately scrutinise or to understand the operation, what impact this had, both in its development and the decisions which were later taken, as to the robustness of the system and the reliability of the data it produced.

It might be also be asked whether an opportunity was missed, in May 1999, for the Government and POCL to revisit those contractual arrangements to require greater transparency on the part of ICL Pathway. And it may be asked whether the political decision reached in May 1999, and the contractual arrangements confirmed in July 1999, locked POCL into making Horizon work, despite acknowledgement of its weaknesses, bugs, errors and defects.

Sir Ian McCartney was clear that he only wanted a properly functioning Horizon, not just any Horizon. But others at POCL and elsewhere may have perceived pressure that Sir Ian did not intend them to feel.

We refer you to the evidence of Stuart Sweetman as to the messaging being sent by Sir Ian, and the evidence yesterday of Mr Colin Baker to the effect that, “having got it, it’s the best we’ve got, so we needed to make it a success.”

We saw yesterday that whilst some, such as Mr Baker, felt they had nothing else, there were strong views being expressed as to the problems with Horizon by those at the sharp end of it at the NFSP conference in May 2000 after rollout had been resumed. And we hope, sir, that we’ll see how those concerns were dealt with in Phase 3, because they were important concerns from people at the sharp end of it.

The question that must be asked is whether the political and commercial prospects of failure were simply too great for the weaknesses, bugs, errors and defects in Horizon to become (unclear) by POCL, by Fujitsu, and by Government.

Then finally in this section, sir, what was known, when, and by whom. Plainly, given how this scandal appears to have originated and played out, the answer to this question will likely inform more phases of the Inquiry’s work. The Inquiry has heard evidence on the significance of the then Prime Minister’s involvement in decision making on whether or not to proceed, and as we saw this morning, the Prime Minister was told on 10 May 1999 by ministers that the Post Office automation parts of Horizon were “ready to roll out and relatively simple”.

But that message was far from the reality that there’d been limited live testing, and that testing had already thrown up problems, including in respect of balancing and data integrity. It plainly didn’t take account of the significant number of Acceptance Incidents, including those which directly affected data integrity, and were identified in the summer and autumn of 1999. And it’s far from clear that this messaging was ever revisited with the Government by either POL or Fujitsu.

The Inquiry has heard that the Post Office Board was told that there were technical issues with Horizon. Mr Miller, however, is recorded as having said that the system was “robust” in July 1999, and issues were later raised with the Board in September 1999, and again in January 2000. The Inquiry may wish to consider the significance of the information provided to the Board or not provided, and whether the actions taken by the Board were, at this stage, appropriate.

The terms of the Third Supplemental Agreement make clear that it’s accepted that the Horizon System would never be perfect.

The Inquiry has heard evidence that there were accepted tolerances for failure which the Inquiry may wish to consider, given the use to which the data generated by Horizon was subsequently put.

There’s consistent evidence that little or no consideration was given to the role which Horizon would ultimately play in prosecution during that system’s development, nor indeed civil actions. Where there was consideration of the contractual provisions in relation to PACE-compliant evidence, there appears to have been very little activity or understanding of the significance of those provisions. And the Inquiry is invited to consider whether this was a critical oversight in the decision making during the course of moving forward with Horizon.

By contrast, there was evidence that senior management at the Post Office were aware of the prosecutorial functions of the organisation, for example Mr Evans, company secretary. And Mr Johnson was well aware of the prosecutorial function of the Post Office but did not think that the operation of Horizon would be relevant in that context.

Moreover, a lot was at stake in May 1999 for all of the parties involved. Witnesses from ICL and from POCL accepted that that was the case, and indeed from Government, accepted that was the case. They confirmed that the loss of revenue from the Benefits Agency would create an existential crisis for POCL. A lot remained at stake in early 2000 when the decision was taken to roll out Horizon on a national scale.

The Inquiry may ask whether, by the end of 1999 and into 2000, when crucial decisions were being taken, the focus adopted was too inflexibly Horizon-centric, and that others approaches were being ignored, and that critical analysis of Horizon produced for ICL and POCL and the Benefits Agency was ignored or explained away, despite significant concerns being raised.

There was evidence from a number of witnesses that by early 2000 the commercial opportunities for the development of Horizon were paramount, and there appeared to be a combination of imperatives acting to ensure that Horizon rolled out, including the need for inward investment to continue and grow, the need for ICL to survive, and the need for POCL to become automated, both for POCL and the SPMs who had £1 billion of their own money invested in it.

In those circumstances it may be that Horizon could not fail; that it must be made to work.

Secondly, sir, just for a few minutes, Phase 3 and beyond. Our second section where we identify some of the more central questions we pose for Phase 3 in opening, and new questions arising in the light of the evidence heard from witnesses in Phase 2. Just a couple of the matters we raised in opening for Phase 3, which the Inquiry may wish to consider in the evidence to come.

We identified, as a key aspect of the evidence potentially, is the reliance on professional reports, advice and reviews. And we identified in opening two examples for consideration, which resulted in troubling evidence emerging.

Firstly, the Montague Review. We simply say about that, sir, at this stage, that the Montague Report was not adequate basis for any conclusion that Horizon was robust.

And secondly, the Project Mentor’s report, sir. The Inquiry has heard evidence on the limited dissemination of the work of Project Mentors and the action taken on it. The Inquiry may yet consider that the Project Mentor’s conclusions were highly relevant in the context both of the work done by the Montague Panel, the information available and problems emerging in testing, and the early evaluation of the ICL Pathway bid.

It might be asked whether the approach to this reporting was illustrative of the treatment given to any substantive criticism of the reliability of Horizon during its development and beyond.

Secondly, in opening, we asked whether the Inquiry might consider whether opportunities for justice at an earlier stage were missed, whether just this was delayed.

Regrettably, the evidence of Phase 2 already suggests that there were many opportunities to walk away from Horizon – or rather, perhaps, to identify that its data never could and never should have been relied upon for the purposes of prosecution nor civil actions. That would include in 1997, when Pathway were in breach of contract; in May 1999, when the Benefits Agency withdrew from the contract; and September 1999, when POCL chose to accept Horizon despite a failure to meet the criteria for acceptance; or in January 2000, when the decision was taken to roll out Horizon on a national basis on the basis of the Third Supplementary Agreement.

The evidence in Phase 2 begs the question as to what information was provided to others who had previously been asked to consider Horizon. For example, were Second Sight or any other reviewers ever permitted to see the original evaluation of the ICL Pathway bid? Were Second Sight ever provided with copies of the Project Mentors reporting? Ever told about the EPOSS Taskforce report? And what access to Fujitsu were other reviewers allowed?

As we identified in opening, sir, plainly an important question which arises on the evidence we have heard in Phase 2 is what measures were in place within POCL and, of course, as we come into Phase 3, Post Office Limited, and within Fujitsu, to ensure that the knowledge gained during the development of Horizon about its potential weaknesses, bugs, errors and defects, informed individual and collective decision making about Horizon and its operation, and in particular, about the Post Office’s approach to prosecution policy and its approach to individual audits, investigations and prosecutions.

That, we say, it’s likely to be a very important question for Phase 3, sir. At least some of those providing evidence in Phase 3 are persons who appear to have been involved in the development phase of Horizon, and who may not be able to explain what was done with the knowledge of Horizon’s witnesses as matters move forward. And the Inquiry, in Phase 3, may wish to explore in particular what impact this learning had both in the customer learning support provided by Fujitsu, and we anticipate Mr Muchow, who was named by a number of Fujitsu witnesses in Phase 2, including Terry Austin and Alan D’Alvarez, will be able to address that, and in the involvement of POL in the operation and modification of Horizon, which we anticipate may be addressed by Mr David Smith, amongst others.

It may be that some witnesses from Phase 2 have to be re-called, but those we represent have a particular interest in understanding what knowledge about the development of Horizon was available to those within Fujitsu, taking decisions on provision of evidence for the purposes of prosecution.

For the avoidance of doubt, this issue isn’t limited to individuals in their role in preparing audit data and giving evidence in court. The Inquiry has been invited to consider, in Phases 3 to 5, what systems were in place which could or ought to have provided real information, reliable information, for taking decisions as to prosecution and civil actions. As part of that, institutional memory, we say, will be an issue which our clients will find important.

We note, for example, an important part of the evidence was that, at the end of the development of Horizon, a number of key personnel were moved, both within ICL Pathway and at POCL. David Miller changed jobs mid-rollout. Of course, that may have affected the way in which the faults relating to Horizon remained known to those making crucial decisions.

The Inquiry may not wish to limit its consideration of institutional memory to POCL and ICL, but may also wish to consider whether the National Federation of SubPostmasters should have had a better recollection of what was happening during the development phase of Horizon when subpostmasters began to be prosecuted. And to that end, the Inquiry may wish to hear further from the NFSP in Phase 3.

Beyond this issue, there have been many matters arising from the evidence in Phase 2 which may encourage further questions for exploration by the Inquiry, and we briefly highlight only four issues. Firstly, training and the helpdesk. The Inquiry has heard repeated evidence that subpostmasters were told that they were the only person to have experienced what they were going through. The Inquiry may consider that this simply could not stand up, even on the evidence heard about PinICLs and PEAKs generated during the developments of Horizon and beyond. And the Inquiry may wish to consider the training for people on helpdesks, as well as the training of subpostmasters.

Secondly, contracting evidence and the Police and Criminal Evidence Act. Repeated evidence to suggest little or no attention was paid to this aspect of the operation.

Thirdly, the management of audit data in evidence. The Inquiry has heard a little so far about the availability and accessibility of audit data from the Horizon System, but it may be that this becomes important within Phase 3 as things move on.

And finally, PinICLs and PEAKs beyond December 2000. The report of Mr Cipione was limited to the end of 2000.

The question of what was known about the bugs and when, as things went forward, is something that the Inquiry may wish to consider.

So, sir, our clients are grateful to the Chair and the Inquiry Team for their considered work on Phase 2. The evidence gathered in Phase 2 forms a crucial backdrop to the decisions taken within POL which impacted upon each of our client’s lives with devastating effect.

The detailed consideration of disclosure by the Inquiry Team and by other Core Participants has been crucial to the effectiveness of this phase, and this is work each of the subpostmasters we represent anticipates that the Inquiry will continue with the same commitment, rigour and care that has been evidenced in Phase 2. And as with Phase 2, we’ll seek to assist in any and every way we can.

Sir Wyn Williams: Thank you.

Are there any sweeping up points, so to speak?

Submissions by Mr Beer

Mr Beer: Yes, just one from me. There are a number of witnesses, sir, whose evidence is relevant to Phase 2 of the Inquiry and who may be taken into account by you in due course, even though they’ve not given evidence in this room orally in Phase 2.

These statements have all been disclosed to the Core Participants. I’m going to list them in a moment, but by this announcement, I should indicate that they are to be taken as read, as read into the Inquiry’s record, even though I’m not going to read the contents of them out now. They will be uploaded to the Inquiry’s website if that is not already happened, because the witness statement has been referred to in the course of the evidence of a live witness.

Sir, there are nine of them. They are the statements of George McCorkell, the URN of which is WITN04170100; the witness statement of Mena Rego, WITN04130100; the witness statement of Robert Peaple, WITN04020100; the witness statement of Ruth Reed, WITN05210100; the witness statement of Simon Fawkes, F-A-W-K-E-S, WITN04830100; the witness statement of Peter Jobson, WITN0482; the witness statement of Sir Anthony Blair, WITN06080100; the witness statement of Peter Crahan, C-R-A-H-A-N, WITN04160100, and the witness statement of William Patterson, WITN06650100.

Sir, thank you very much.

Housekeeping by SIR WYN WILLIAMS

Sir Wyn Williams: And the only thing that I’d like to say, before formally closing this session, is that those who have been following closely will have heard me say on a number of occasions that I am paying close attention to disclosure issues. Currently, there has been disclosed to Core Participants two disclosure statements from Post Office. They have provided a third disclosure statement to the Inquiry, and that will be published early next week.

I have also received a disclosure statement on behalf of Fujitsu Services, which I believe has been disclosed to Core Participants. All those statements are now under review, and if I feel the need to take any further action in respect of them, I will do so, and let everybody know as quickly as I reasonably can.

It therefore remains for me to say provisionally that Phase 2 is now at an end, and I look forward to meeting you all on Thursday for a slightly different topic, and I look forward to seeing you all in the New Year.

Can I just clarify, before finally closing, that Ms Page has said that on behalf of her clients there is to be a written submission about Phase 2, and I am aware that BEIS are doing the same; is that correct?

Mr Beer: Yes, indeed.

Sir Wyn Williams: But I take it that that is the extent of written submissions?

Ms Gallafent: No, sir. We are also doing some written submissions. We did inform the Inquiry Secretariat in –

Sir Wyn Williams: Well then, it’s my mistake, not yours.

Ms Gallafent: I’m afraid you’re not spared from ours.

Mr Whittam: And the same for Fujitsu, sir. In the same way we have informed the secretariat.

Sir Wyn Williams: So I was looking forward to some time off before Christmas, but that seems a forlorn hope.

So on that happy note, we will now close for the afternoon. Thank you.

(3.07 pm)

(The hearing adjourned until Thursday, 8 December 2022)