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h McCartney MP
Minister of State ae 3
; ed Department of
The Prime Minister te ‘rade and Industry
10 Downing St 1 Victosis Steset
London SWIA 2AA London
SWIH DET
_Dirsst
23 December 1998
Dew Pane MW wishes ,
BA/POCL AUTOMATION PROJECT: HORIZON 4
Thave become seriously concemed at our handling of the decision on the future of the
BA/POCL counters automation project, Horizon. The Christmas break is upon us, yet despite a
series of meetings and several 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 we in DTI 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 (bpc) and introducing early compulsory ACT. His variation
on this already 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 frout-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.
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. [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
on further work, putting the cost at £239 million. , "sport, based
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We simply cannot allow oarselves the luxury of continuing to avoid a decision by tabli
time some new variation on which to commission further work. The continuing delay and
uncertainty is already causing serious damage and hardship. The ( $,000 subpostmasters, who
have collectively sank £1 billion of their own money in the business, 6 finding it increasingly
difficult to sell their businesses when they wish to retire or Move OD. ‘The number of such
offices remaining unsold on the market is unusually high. Reinforcing this, the number of net
closares within the network (offices whic the Post Office has been
‘a have closed and for which een
unable to find replacement subpostmasters) in the sev the beginning of April is
en months since
nunning 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 ©
the National Federation of
Subpostmasters is in no doubt that the largest single fuctor behind these depressing figures is
the continued uncertainty about the future of the Horizon
project and the associated
introduction of the bpe.
Our Ambassador in Tokyo, Sir David Wright, has reported that he is coming under increasing
pressure from Mr Naruto, Vice Chairman of Fajitsu, 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 exceeding £600 million. Fujitsu, despite its domestic difficulties,
responded promptly a nd why the British Government cannot
nd positively, and fails to vunderstai
now give its answer. Ifwe continue to gratuitously irritate a major inward investor in high-tech
industries in the UK in this way, we shall serve only to damage inreparably our own
international competitiveness.
‘The proposal in Stephen Byers' letter of 21 December js based on a tong 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 nation-wide 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, { would make it élear to POCL that I would expect them to
demonstrate maximum flexibility and a positive approach to that exercise,
Against this background I very mach 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.
hen Byers, Alistair Darling, Jack Cunningham, and
am sending a copy of this letter to Step!
Charles Falconer,
tf Tan McCartney
Approved by the Minister and signed in his absence
Depestmaet of Trade and Indovtry