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DRAFT LETTER FOR THE SIGNATURE OF THE SECRETARY OF
STATE TO THE PRIME MINISTER / MINISTER FOR THE CABINET
OFFICE
Ihave become seriously concerned at our handling of the decision on the future
of the BA/POCL counters automation project, Horizon. The Christmas break is
almost upon us, yet despite a series of meetings and increasingly frenzied rounds
of correspondence, a decision remains beyond our grasp.
On Monday, Stephen Byers put forward a suggested compromise that seemed to
command a broad measure of support. Certainly I would have been content to
sign up to it. Yesterday Alistair Darling submitted a counter-proposal which
essentially revisits an option we had already discarded - namely that of
continuing with the Horizon infrastructure whilst dropping the benefit payment
card and introducing early compulsory ACT. His variation on the discarded
theme appears to be that we should compensate ICL for the £200 million or so
that they have spent on developing the bpc by overpaying them by something
approaching that amount (for there would otherwise seem little attraction for ICL
in the proposal) for accelerating the adaptation of the Horizon infrastructure for
the delivery of electronic Government. We should be clear that the smartcard at
the heart of Alistair's proposal has absolutely no direct role in the delivery of
welfare benefits or in the early introduction of front-end banking at post office
counters. We should also be clear that ICL and POCL are already committed to
the adaptation of the Horizon infrastructure for electronic Government as a key
element in their newly agreed public/private partnership, and ICL have already
agreed to commit an additional £78 million to it.
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A third point on which we should be clear is that the savings from a move to
ACT will be significantly less than we have previously been led to believe. I am
told that the Association of Payment and Clearance Services (APACS), who
have previously scoped the costs to the commercial banks of social banking at
£18 million, have just produced a revised report, based on further work, putting
the cost at £239 million.
We simply cannot allow ourselves the luxury of continuing to avoid a decision
by tabling each time some new variation on which to commission further work.
The continuing delay and uncertainty is already causing serious damage and
hardship. The 18,000 subpostmasters, who have collectively sunk £1 billion of
their own money in the business, are finding it increasingly difficult to sell their
businesses when they wish to retire or move on. The number of such offices
remaining unsold on the market is unusually high. Reinforcing this, the number
of net closures within the network (offices which have closed and for which the
Post Office has been unable to find replacement subpostmasters) in the seven
months since the beginning of April is running at some 50% above the level of
previous years. Most of them are those which for social reasons we least want to
lose. The General Secretary of the National Federation of Subpostmasters is in
no doubt that the largest single factor behind these depressing figures is the
continued uncertainty about the future of the Horizon project and the associated
introduction of the bpc.
Our Ambassador in Tokyo, Sir David Wright, has reported that he is coming
under increasing pressure from Mr Naruto, Vice Chairman of Fujitsu, ICL's
parent company, for the Government to make its intentions clear. Mr Naruto
was asked by my Department to make a special effort to try to rescue the
Horizon project by offering legally binding funding and performance guarantees
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exceeding £600 million. Fujitsu, despite its domestic difficulties, responded
promptly and positively, and fails to understand why the British Government
cannot now give its answer. If we continue to gratuitously irritate a major
inward investor in high-tech industries in the UK in this way, we shall serve only
to damage irreparably our own international competitiveness.
The proposal in Stephen Byers' letter of 21 December is based on a long period
of intensive commercial negotiation as well as a thorough technical appraisal. It
offers both a way forward with the lowest technical and commercial risks, and
the best prospects of maintaining a financially viable nationwide network of post
offices into the future. The second phase of Stephen's proposal would offer
scope for influencing the future direction of the project in ways that would
optimise its ability to assist in the delivery of a range of policy objectives that are
important to all of us. For my part, I would make it clear to POCL that I would
expect them to demonstrate maximum flexibility and a positive approach to that
exercise.
Against this background I very much hope that my colleagues will now feel able
to endorse Stephen's proposal. The longer we delay the greater the very real
risks that decisions will increasingly be made for us by default - decisions by
individual subpostmasters and ultimately by ICL themselves.