POL00028627
POL00028627
RESTRICTED: POLICY AND COMMERCIAL
THE POST OFFICE
DR NEVILLE BAIN"
Chairman
z 4% 148 Old Street
Loxpos
6 April 1999 ety ty
The Rt Hon Stephen Byers MP
Secretary of State for Trade & Industry
1 Victoria Street
LONDON
SW1H 0ET
Dear Stephen,
HORIZON
You will know the Post Office Board is keeping a very careful eye on how the
discussion on Horizon are progressing. There are, of course, serious
limitations in monitoring this progress as we do not have for the new options
the normal financial information-that affects our business. This information
either has not yet been identified or remains confidential to HM Treasury.
However, I thought I would let you know how we see things following last
week’s round of discussions.
Under the group led by Steve Robson of Treasury , I know that our people are
working very strenuously and at pace with public sector colleagues, their
advisors, and ICL to put together a solution that works, is simple and easy for
all customers, is adequately future-proofed, and that will be commercially:
acceptable. Ministers will soon want to compare this,-so called, “Option B” _
with either continuing with the benefit payment card, or terminating.
However, there is a. very real issue that could prevent a successful outcome.
We are taking forward the customer/technical specification and are in dialogue
with ICL to understand the new set of costs and risks towards a new set of
contracts. There is a very limited window in which to complete this, and time
is very short. However;-we-have:no-clear-view-at-all-of-who-will-pay-the:Post
‘Office:for-the:services-involved=tor-how-:much;-nor-for-how-long;-nor-how:this-
willzbe-resolved-by-Government No business could approve a business case,
or take such a fundamental strategic decision properly in these circumstances.
We simply do not have the information of expected cashflows to make any
commercial judgement on any alternative to Option A.
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POL00028627
POL00028627
RESTRICTED: POLICY AND COMMERCIAL
To be clear, under Option A (the benefit payment, card route), POCL would
have been assured for the duration of the extended contract period of a revenue
stream from BA of around £400m a year - from which, in part, to pay ICL’s
charges - scaling down in- the last years. Under Option B (the
smartcard/banking route): it already. looks clear that ICL’s charges will be
higher, to us, and a set of new risks could well fall to the Post Office too, yet
POCL’s income from “running” ‘these new basic accounts and providing cash
withdrawal services to beneficiaries (with or without-a banking partner) is
completely uncertain. From the Post Office viewpoint, this lack of clarity is
simply unsustainable. On the other hand, Government, through the DSS, will
be making substantial savings from moving to Automated Credit Transfer.
These issues have been raised with Treasury and, of course, we understand that
Government cannot make final settlements until all the sums involved have
emerged from the ongoing negotiations. But we need to-bring this issue to a
head rapidly so that POCL would, at least, not be worse off than would be the
case under Option A for the timetable agreed during the “Corbett” discussions. _
The Post Office Board ‘has at-its two past two meetings seriously questioned
with our executives the decision to continue incurring costs of Horizon with so
much uncertainty. From a corporate governance point of view, this could
become unacceptable and the non-executives may well press for termination
rather than accepting an option that cannot yet be evaluated financially, and
may even disadvantage us.
Given the, very pressing deadlines and the compressed timetable, ‘this matter
needs to be fixed urgently to enable us to take proper commercial decisions
which will stand up to any outside scrutiny. Could you please add your weight
to the pfessure we are putting on the Treasury to make this happen.
bete kere
Yours sincerely.
DR NEVILLE C BAIN
Chairman
9916S