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= sm ene eS > NO 10 DUTY CLERK No.026 P2aS ‘
17/12/98 12:49 a Peo,
SOS DSS + NO 18 DUTY cer —. \
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DEPARTMENT OF SOCIAL SECURITY Ble
Richmond House. 79 WI
Telephone
wll, London SW1A 2NS
GRO
From the Secretary of State fur Social Security
RESTRICTED COMMERCIAL
The Rt Hon Stephen Byers MP
Chief Secretary to the Treasury
Parliament Street
Li
ondon SW1P 3AG 16 December 1998
I BA/POCL AUTOMATION PROJECT
I I have seen the letter that Peter has sent to you today about the seeming impasse
that we reached in our discussions on Monday evening. I believe there is,
however, a way forward which can meet all our objectives.
I believe we are all agreed that what we are trying to achieve is a solution
which:
° protects a National Post Office network, preferably in a way that
encourages the Post Offices of particular value to local communities
and Government to stay open; and maximises the potential
commercial viability of Post Office Counters Ltd;
° allows us to move as swiftly as possible to a simple, secure and
cheap way of paying benefits in a way which will suit people over
the next decade; and achieve for Government the potential £400
million a year administration savings in the Welfare Bill for re-
direction elsewhere;
CELEBRATING THE PAST
LOOKING TO THE FUTURE Ba
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as
= helps: sustaim ICE as @ mayen player in the UK TT secten, and
ensure: that: our good: relauians with, Fujitsu - and the Japanese
investment: marker generaily ~ are mainiained.
Bar tite: past: years, we have: beam Sereving: for a solution. which ensures that 20
ane: interest: iS sacr#ffeadt in ordar to achieve the adjectives. of another. By
definition, this will! require some compromise on everyone’ Ss part. Equally, our
be totally subordinated
Shai! solutiom sheulti! not require: ane: party's interest to
top anotiter ~ a sure-fire: reeipe for disaster
If Dhave: read Peter's lester correctly: there is much commen ground between
us omttie fundamentals. I share his concem te protect a Pest Office network,
respansive: top tite: needs off the: communities they serve. as well as for wider
Gavernment reasons; must also supper his view of the best interests of British
fusiness,. im seeking to support ICL as athriving and effective player in the UK
[rtusiness: sector: [cannet accept, however, that the price for supporting those
abjectives: must be that we spend £4 billion: pounds over the next decade on a
project ati the: heart aff whticin is @ preduct ~ the Benefit Payment Card ~ we do
nor new want (givem the delays resulting from ICL’s failure to deliver) and has
no vale: to ICL. at its conciusiom.
The curcome I believe we should be driving to achieve is therefore one which
sustains the: project.. re-affirming our commitment to ICL; but re-shapes it
(Qwitttimexisting contracts) (2 provide am qutomation solution which best supports
our several! interests. As Peter says, 4 solution which retains the Horizon
project and the progress it has already made to automate the Post Office. and
builds om its capability to provide banking facilities in Post Offices and other
services of potential interest to Government, looks like a solution to which we
could ail give our clear commitment.
From the ICL perspective, I persist in believing that there are strong advantages
for them im engaging with us to re-shape the project with a banking facility,
rather tham doggedly pursuing the Benefit Payment Card (BPC) element. The
Card as a product has no life or market value after our contract with ICL ends.
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Mitccrinsa pal io and complex system, an element which
mae een: with the project. A banking facility
a ’ ; 4 aie have already delivered successfully,
: mple recently for First Direct Bank. It is also relatively cheap and
simple to develop; and carries a potential wider market value than the bespoke
BPC application. This in turn could well change the balance of risk around the
project for ICL; could mean less risk being placed on Fujitsu; and, in turn
would reduce the anxiety on ICL's part to tie in Government to very tight terms
over the next 10 years - a characteristic of the current proposals for continuation
on the table.
These are the positive reasons for the solution that I offer. There are, however,
a number of well-rehearsed reasons why I would find it difficult to justify
continuing with BPC element of the project, against the background of ICL's
failure to deliver. To agree to continuation with the project in full, is in effect
using taxpayers' money, voted to the DSS/Benefits Agency, in order to fund a
Post Office network. Moreover, this money is used to fund it with "spray-gun"
effect, with no ability for Government and taxpayers to influence which offices
stay open and which may close - and in practice, those that are closing are often
the very ones, in rural or deprived urban areas, which we would like to see
supported. This cannot be right or sensible.
DSS Accounting Officers tell me they will need a formal Direction in order to
continue with the Benefit Payment Card element of the project: we understand
from NAO that to plead wider Government policy interests is unlikely to
provide adequate cover for the Accounting Offficers, under Parliamentary
scrutiny. The Public Accounts Committee in any event has commissioned an
NAO VFM enquiry, due to start as soon as we reach a decision about the way
forward, and resulting in a formal hearing next Autumn or Spring 2000 at the
nevitable questioning of the reasons for supporting ICL in the
and in all probability against the background of yet further
And word has just reached me that the Social Security
latest - with the i
face of its failure,
delays to the project.
Select Committee now also wants to look into the project.
7xx%
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17/12/98 12:40 SOS DSS > No 1@ DUTY CLERK
Finally, turning to the specific proposals for
that
us by ICL on 9 December, ! confirm sibiae 7
rt
agreed on Monday, we must for a start ensure that the stated Fujitsu "Suppo
i to cover
for the project will be translated into legally enforceable guarantees, 7
d for ICL to meet its commitments oveT the life
re than the £600 million so far identified.
have not moved
continuing with the project put to
they are unacceptable to me. As
whatever funding may be require
of the project - which may be mo!
Beyond their promise of “support” from Fujitsu, ICL
significantly since their 9 November proposals, which we firmly rejected. They
ound £100 million NPV loss, and are expecting,
are still only prepared to carry ar pecs
ation - contributing
the public sector to find more than half the costs of continu :
payments worth a further £230 million NPV over the life of the project. Ido
not believe this can be justified, against @ background of ICL's failure to
deliver.
We all agree, I believe, that ICL's proposals to dilute the “acceptance” criteria
for the project must be rejected. Nor can they easily be understood, if Fujitsu
"guarantees" will indeed underwrite any application to Banks for non-recourse
funding - the initial reason given for seeking earlier “acceptance” and
concomitant surrender of our termination rights. Certainly, I cannot responsibly
accept any dilution in the “acceptance” criteria for the BPC, which would put
at risk ensuring that the service provided by the system will work. If the system
fails, it will be I and my Department who will be held accountable by the 15
million people who will receive Card payments - many of whom are vulnerable
and dependent on benefits for their livelihoods. I am particularly conscious of
the risks around "acceptance" criteria from our recent experience with Andersen
Consulting on the system for National Insurance contributions (NIRS 2), where
an almost identical approach was adopted to that now proposed by ICL. It is
a risk I am not prepared to take on the Benefit Payment Card.
I am copying this to the Prime Ministey, Peter Mandelson, Jack Cunningham
Ian McCartney and Charlie Falconer. ~~ ,
ALISTAIR DARLING _
PA