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To: ci: Mr Scholar
SECRETARY OF STATE _) separate Mr Macdonald
MR MCCARTNEY ) copies Mr Baker
Dr Hopkins CII
From: Mrs Britton PORT
DAVID SIBBICK Mr Whitehead CGBPS 1
DIRECTOR POSTS Ms Anderson CGBPS1
I GRO, Mr Corry SpAd
Mr Wegg-Prosser Sp Ad
21 December 1998
MINISTERIAL DECISION ON HORIZON PROJECT: RESPONSE TO A
NOTE FROM THE CHIEF SECRETARY
Issue
1. The Chief Secretary’s office has this evening circulated a note suggesting a
way forward for the Horizon project. The Chief Secretary will ring you tomorrow
morning to canvass your views before writing to the Prime Minister. How should
you respond?
Recommendation
2. The Chief Secretary’s proposal is for the Horizon project to continue,
together with the benefit payment card, on the basis of a package now agreed
between POCL and ICL on 1 all Key is issues. This is the outcome for which we
3. URGENT. The Chief Secretary will telephone you tomorrow morning
(Tuesday 22 December).
Background
4. The Chief Secretary’s note follows a further period of intensive negotiation
between POCL and ICL under the guidance of Adrian Montague. There is now
agreement between POCL and ICL on all key aspects - including price, acceptance
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testing and funding/performance guarantees from Fujitsu - of a renegotiated
contract for taking the project forward. Beyond this, ICL have agreed to absorb an
additional £8 million which would otherwise have fallen to BA, and have further
agreed to commit £78 million beyond what is required to complete the Horizon
project in order to exploit the potential of the system to deliver “Better
Government” within the framework of the public/private sector partnership (the
PPP) with POCL agreed at an earlier stage of the negotiations.
5. The Chief Secretary has proposed a two-stage way forward. Under Stage 1,
referred to as “stabilisation”, Ministers would agree by 24 December that Horizon
should continue, together with the benefit payment card, on the basis of the deal
reached between POCL and ICL. Some way would be found to adapt the
agreement on acceptance testing to protect BA’s interests.
6. Stage 2 is referred to as “broadening objectives”. It requires the Post Office
to work with BA and ICL by the end of March 1999 to see what more can be done
to further the Government’s wider policy objectives on a cheap, efficient, fraud-
resistant and convenient means of paying social security benefits that is also
consistent with welfare reform (ie ACT); but also to help maintain a nationwide
network of post offices. Further objectives are to support the development of
“Better Government”, and to improve access to basic financial (banking) services
for the © socially excluded. ¢ IChowever it proves impossible for the parties fo
ect w
7. Stage 2 has clearly been devised to try to make the package more palatable
to DSS. At any level much beyond that of a rather obvious face-saver it seems
unlikely to succeed. What may also help, however, is that the argument has moved
quite strongly against DSS and Option 3 (termination of Horizon, rapid move to
ACT) on two fronts in recent weeks.
there is little realistic prospect of terminating
without compensating ICL for a significant proportion of the £250 million already
sunk in the project - thus adding to the costs of Option 3 as compared to Option 1.
Second, the Association of Payment and Clearance Services (APACS), who had
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. This belatedly offers strong support for a second point long
argued by DTI, namely that the cost to the Benefits Agency of moving large
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numbers of benefit recipients onto ACT is likely in practice to be considerably
higher than the costings of Option 3 have allowed for.
DAVID SIBBICK.
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