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From: Geoff Mulgan
Date: 24 February 1999
PRIME MINISTER ce: Jeremy Heywood
David Miliband
Jonathan Powell
Geoffrey Norris
Sharon White
Lord Falconer
BA/POCL
1. The attached note from Alan Milburn and Charles Falconer sets out the
current position on BA/POCL. You will recall that it was decided to discuss
with ICL the viability of proceeding with Horizon and automating the Post
Office, but with the Benefit Payment Card replaced by a more flexible smart
card, and DSS permitted to move more quickly to ACT. The aim was to
create a third option, alongside continuation with the BPC and outright
cancellation.
2. The main reason for wanting a third option was that:
¢ continuing with the BPC would lock government into an obsolete technology,
and an excessively costly way of delivering benefits. Worse, even if the BPC
looked viable on paper the chances of such a complex IT project being
implemented successfully would be slim if BA remained hostile.
¢ pulling the plug altogether would have a damaging impact on ICL and Fujitsu,
destabilise the Post Office, and lead to litigation.
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3. These considerations remain valid. However, the third option described in the
Milburn/Falconer note remains promising rather than proven. It may offer a
quicker move to ACT, with associated savings for government; a platform for
government direct; and better opportunities for the Post Office to develop
banking services. The smart card may be useable for many other things, from
financial services to ILAs (and at this stage the best that can be said is that
both ICL and POCL will have very strong incentives to develop new
customers and applications for it). The third option may be as cost effective
as the alternatives (KPMG’s very rough estimate is that it will cost more - but
the margin of error is much wider than the note admits). And if the
negotiations are successful the resulting project should be a system that is up
to date and less vulnerable to obsolescence than the BPC.
4. In short the route mapped out is uncertain, and only a further period of
detailed negotiation with all the players will clarify how practical it is.
5. Steve Robson, who is leading the negotiations, sees three factors as critical to
making the negotiations succeed:
e First, a very clear message to the Post Office that the government wants this
alternative option to succeed. This could take the form of a phone call from
you to Neville Bain, but equally this could be seen as a job for Stephen Byers.
e Second, keeping the BPC in play as a fallback in case the negotiations fail,
and as a pressure on DSS. In practice this will mean ICL doing enough, and
spending enough, so that it can be reactivated if necessary.
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e Three, maintaining strong pressure on ICL and sticking to the line that there
will not be any new money
6. If you agree to proceed with the negotiations, these should proceed more
smoothly and positively than in the past since the main source of contention —
the BPC - has been removed. However, heads of agreement are unlikely
before June or July.
7. One implication of this is that it may be necessary to postpone the Post Office
White Paper. Stephen Byers wants to publish in March. But given the
importance of Horizon to the Post Office there are strong grounds for
delaying publication at least until heads of agreement have been reached. The
one benefit of a delay is that it would increase the pressure on the Post Office
to contribute positively to the negotiations.
8. To reassure DTI you should propose a stocktake in two months. This should
be long enough to answer at least some of the outstanding questions.
9. You may wish to discuss the next steps with Alan Milburn and Lord Falconer,
although a meeting is not essential. I would on balance urge against a bigger
meeting with Alastair Darling and Stephen Byers at this stage, although it may
be necessary for you to talk to Stephen Byers.
10.The key point in all of this is that after a long period when this project has
been plagued by division, delays and drift, a clear policy direction was set by
you in January. Despite continuing uncertainties it remains more promising
than the alternatives and now needs to be pursued vigorously to the next stage.
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