Witness Name: Sir lan McCartney
Statement No: 1
Exhibits: WITN0337_01/01 —
WITNO0337_01/02
Date: 27 September 2022
POST OFFICE HORIZON IT INQUIRY
FIRST WITNESS STATEMENT OF THE RIGHT HONOURABLE
SIR IAN MCCARTNEY
I, Sir lan McCartney, will say as follows:
1.
I make this statement in response to the Inquiry’s rule 9 request dated 1 June
2022.
At the time of making this statement, I am 71 years old and retired.
. At the outset, I would like to express my sympathy for the victims of the Horizon
scandal. Throughout the procurement and development of the Horizon platform,
we were genuinely trying to make things better for sub-postmasters (“SPMs”) who
were providing valuable public services to their communities, and it is so awful that
this debacle has instead led to many of their lives being almost destroyed. They
deserved better.
I would also like at the outset to declare an interest in respect of my relationship
with the Communication Workers Union (“CWU”). When I was developing policies
towards the national minimum wage, which involved carrying out a complete
review and visiting low-paid workers and companies nationwide, the CWU
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assisted with the secretarial support and administration to allow me to carry that
out. In that respect, I got to know the senior officials of the union quite closely,
some of whom I dealt with in relation to the Horizon project. This was an interest
that was declared at the time in question.
Finally, the events being discussed took place over 23 years ago. I have answered
the Inquiry’s questions to the best of my knowledge and ability, but would like to
note that (even after having reviewed the documents to which I was referred by
the Inquiry) there are some points where I have no memories at all, and some
points where I can recall the broad brush of what happened but not the specific
details or dates.
Question 1 — Please set out a brief professional background.
6.
I was elected as MP for Makerfield at the 1987 General Election. In 1992, the late
John Smith (at the time the leader of the Labour Party) appointed me to the
shadow front bench, dealing with healthcare issues. Following his death, and the
election of Tony Blair to the party leadership, I was appointed as the shadow chief
employment spokesperson, with the specific brief of reviewing Labour's then
policy on the national minimum wage. By the May 1997 General Election that
policy was written, consulted upon, and had a great deal of public support. On 5
May 1997, following that General Election, I was appointed as Minister of State in
the Department for Trade and Industry (“DTI”), with a similar portfolio as in
opposition.
. On 28 July 1999, I was appointed as Minister of State for the Cabinet Office. I was
given a strange portfolio — in effect, I was given anything that had gone wrong and
was asked to sort it out. This included issues such as the Manchester
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Commonwealth Games, drugs policy, proceeds of crime, and failures in
government IT systems (particularly the inability of government to have enough
skills at the procurement stage and then to manage the new systems into being).
In this role I was also appointed as a Privy Councillor.
8. On 8 June 2001, following the June 2001 General Election, I was appointed as
Pensions Minister at the Department for Work and Pensions (“DWP”), a successor
to the Department for Social Security (“DSS”). My responsibilities included
introducing the new pension credit (which I saw as similar to the national minimum
wage for pensioners) and reviewing the regulatory framework for pensions in the
UK. Then, on 4 April 2003, I joined the Cabinet as Minister without Portfolio. On
5" May 2006, I was appointed as Minister for Trade and Foreign Affairs. I left both
Cabinet and Government on 27" June 2007 when Gordon Brown became Prime
Minister, as this seemed to me a natural break. I retired from Parliament on ill-
health grounds when the 2010 General Election was called, and received a
knighthood in the dissolution honours list. Following my retirement, I have done
voluntary work for Healthwatch in Greater Manchester and most recently the local
integrated joint board for Perth & Kinross Council and NHS Scotland.
Question 2 — Please set out the background to your involvement in the Horizon
Project
9. Asa local MP, not as a Shadow Minister or Minister, for a number of years I and
other colleagues, particularly those of us in former mining communities, were
debating the closure of post offices in villages. This was coinciding with banks
beginning to withdraw from villages as well. Socially and economically, it was a
disaster for those communities. By the time we got into Government, I felt well
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aware of the underlying problems that were being faced by SPMs at this point in
time.
10.1 was appointed as Minister of State at DTI during the first weekend of Tony Blair's
1
premiership. On the following Monday, I came down to London and I was given a
briefing on my portfolio, which included the entities associated with the Post Office,
particularly Post Office Counters Limited (“POCL”)'. I have no recollection of my
initial briefing containing any information regarding the problems which this Inquiry
is considering, but I must have been made aware of the Horizon project not long
afterwards. I remember that shortly after taking office as a Minister I had a
telephone conversation with Frank Field, who was Minister of State at DSS, to
inform him that I had been made aware about a possible major problem with a
project between DTI and DSS. He had also just been made aware about Horizon
and the issues that it was facing at the time, and told me how appalled he was by
the fact that the project had been going on for some time but that there didn’t seem
to be any significant documentation at that stage to indicate what the solutions
were. After that short conversation, one of us suggested that we should meet to
discuss it, at least to be able to assure each other of what we understood.
. Following that conversation, I asked my private office to contact John Roberts, the
Chief Executive of POCL. John Roberts came to see me and informed me of the
situation which was that, in shorthand, over half a billion pounds had been spent
on the new Horizon system but there was not a single computer in a single post
office that was yet able to run the system. It also quickly became clear — and this
was something that I had to get to grips with as the Minister — that there were three
‘The other entities associated with the Post Office were Royal Mail and Parcelforce, though neither
are relevant to the issues being considered by the Inquiry.
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partners involved, all of whom had a different view of and objectives for the Horizon
project. Having such different views amongst key partners was a recipe for
disaster. The views of those three partners can be summarised as follows.
12.The Benefits Agency (“BA”), and DSS who supported them, saw the main
purpose of Horizon as being to dramatically reduce the huge administrative costs
involved in providing pensions and other benefits. At the time, BA operated a
totally paper-based system for paying all types of pensions and benefits.
Claimants were issued with benefit books or giro cheques, and could use these
to withdraw their pensions or benefits in cash at post offices. Under this system,
the BA were POCL’s customer, and had to pay them fees for delivering the
service of paying out benefits and pensions. The BA wanted to move to an
electronic system to significantly reduce these administrative costs, with the long-
term goal of transitioning to paying benefits directly into a benefit claimant's bank
account by Automated Credit Transfer (“ACT”).
13. The BA and DSS also saw this as a way of significantly reducing fraudulent efforts
to gain access to the benefits system. Under the paper-based system, such fraud
was widespread — for example, in my role as a constituency MP I was aware of a
case where a money-lender had been acquiring benefit books from a significant
number of poor pensioners, and was claiming the money from the benefit books
as repayment for the loans at exorbitant rates of interest which he was able to do
with unbelievable ease. Reducing this fraud would mean that money could be
diverted away from criminal elements towards legitimate benefit claimants.
14.DTI, where I was a Minister, was the sponsoring department for POCL. It saw the
main purpose of Horizon as being to safeguard the long-term future of the Post
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Office, which reflected a commitment in the 1997 Labour Manifesto that “public
services and transport services in rural areas must not be allowed to deteriorate.
[...] We [are] in favour of a public Post Office providing a comprehensive service’.
A failure to sustain the Post Office network would have caused issues both for
deprived working-class communities in towns and cities where people were
already struggling in their daily lives and for rural areas where there were already
issues with the Post Office network. DTI, working together with POCL, was
looking to avoid this by modernising the way in which the post offices operated.
15.Part of this involved automation and introducing new computer systems which
would be technically sound, last for a number of years, and allow SPMs to run
other services jointly with their postal services using the same system. This would
allow SPMs to supplement their income by offering additional services which were
similar to, but different from, their traditional postal and benefits services. An
example of this was banking services — there was an opportunity for post offices
to take on some of the work that had been carried out by closed bank branches,
and to provide a genuine professional alternative for customers whose bank had
pulled out of their village or township leaving them with no access to services
unless they travelled.
16. Giving post offices the ability to offer these additional services was important, as
in the long term they were facing a 30-40% loss of business from the BA as a
result of the proposed change to paying benefits by ACT. The loss of this income
stream would almost certainly have led to a complete sell-off of all remaining
Crown post offices (two thirds of which had already been sold by the previous
government) and a massive loss of sub-post-offices, unless something could be
found to replace it. In addition, many sub-post-offices were run jointly with other
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businesses (such as newsagents), and footfall was important to both these and
neighbouring businesses. Where benefits were paid in cash over the counter,
some of that cash would be used immediately in the post office or in shops
nearby. There were therefore more businesses financially vulnerable than just the
Post Office if the Horizon project failed to secure the Post Office’s long-term
future.
17.ICL were the company with the contract for Horizon, who were a subsidiary in
reality to Fujitsu. They had their own agenda, which was essentially to utilise the
financial resources of the UK Government to develop a world-leading product
which would become profitable (though as Horizon was at that point in its
development a PFI scheme they also shared the risks).
18.We were therefore in a situation where the two Government Departments
responsible for POCL and the introduction of Horizon didn’t have a fundamental
overall agreement as to what the main purpose of the project should be. Each
Department had legitimate claims for what the project had to do, but each saw
their interest as the number one priority and all the others as subsidiary. This
meant that there was a ‘tug-of war’ between them as they each sought to pull the
project more towards how they thought it should look - each one wanted changes,
and every time there was a change ICL were able to add to the costs. Before you
knew it, by the time we got into Government this had been going on for two years
under the previous Government, and allowed to get to the stage where no
progress was being made. (I say this purely for historical reasons and not to
apportion blame — inheriting issues from a previous government happens all the
time.)
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19.At some point after we took office, after having previously been on a watching
brief, the Treasury (“HMT”) became more actively involved in the project. To some
extent, what they saw as the main priority depended on who you spoke to. On the
one hand, they were in favour of the project continuing and succeeding as it was
a huge PFI project which showed that Britain was an advanced nation and could
deliver a new technology platform in a game-changing way. On the other hand,
they were also attracted to the arguments that the most important thing was to get
a handle on the rising administrative costs of the then-current system of benefits
and reduce the impact of fraud.
20.There were now three Departments at the centre of Government (and later four,
2
when the Cabinet Office / the Prime Minister's Office (“No. 10”) got involved) who
did not have a coherent approach to an inherited debacle — and it was a debacle.
This led to a series of meetings across Whitehall, but every time you would think
that you were getting out of the quagmire and seeing a way forward there would
be someone else coming into the action with a different point of view.
.From my perspective, as the Minister with responsibility for the Post Office, my
role was to represent the points of view of and problems faced by SPMs and
POCL. The latter was a public body that, in my view, could and should have been
doing better - a business of its size and complexity should have had a more
detailed forward plan about how to modernise and bring into the business
technology which was already in existence in one form or another in post offices
around the world. To be fair to them, the Horizon project was the vehicle that they
were hoping to use to achieve this, but the project had clearly been allowed to slip
and slip, and this was leading to a build-up in resentment and a lack of trust
between POCL and their main customer, the BA (and DSS). Still, it was critical
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that they got new technology that worked and that they were able to develop the
way in which public services were delivered. At the time, people no longer
expected Government to raise taxes and provide second-class services. We had
a serious challenge on our hands to come to a deal or arrangement that was
workable, to bring the project to an endgame, and to satisfy HMT and No. 10 that
Horizon had a long-term future.
22.To have abandoned the Horizon project would have been calamitous. There would
have been no contract, so we would have had to start from the beginning again.
In my view, we would have come across the same problems again, particularly the
difference of opinion in Whitehall about what we wanted to achieve. Industry itself
would also be fully aware of the difficulties and dangers in engaging in such a
project, and I expected that if we went that way the prices for any contract would
be even huger than originally expected. There may also have been significant
costs from legal actions arising out of the abandonment of Horizon, and in the
meantime the country would still be left without a new technology service to help
modernise public services and give an opportunity for post offices to deliver a
better offering to their customer base, meaning that their future was still at risk.
23. All of this is a long introduction to the background of the issues, but I have only put
it this way to highlight the complexities of dealing with an issue that became a
crisis not only of government procurement but the potential future of public and
private organisations; and it would have been an economic disaster for the Post
Office network and SPMs if the Horizon project had collapsed.
Question 3 — Please consider BEIS0000127, BEIS0000128, BEIS0000129,
BEIS00000130, BEIS00000131, BEIS00000135, BEIS00000136, BEIS00000137,
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BEIS00000138, BEIS00000139, BEIS00000140, BEIS00000141, BEIS00000157,
BEIS00000158, BEIS00000159, BEIS00000161, BEIS00000162, BEIS0000174,
BEIS0000187, BEIS0000188, BEIS0000189, BEIS0000283, BEIS0000284,
BEIS0000318, BEIS00000341, BEISO000422, BEIS0000431, BEIS0000432.
Question 3a — Please explain the problems faced by the Horizon project between
the Spring and Autumn of 1998
24.1 have touched on this in the background above, but at this point in time Horizon
was the largest PFI project in Europe. It was very complex, and the costs were
standing at over half a billion pounds. It had been behind schedule from
1994/1995, and even if it had been on schedule would not by this point have been
completed. The problem (and again I say this in a historical not a partisan political
way) is that the way that the project was established was bound to lead to serious
problems, both in terms of the structure and objectives of the project and how the
different parties tried to implement their perspectives.
25.As explained above, each of the Departments involved had a different take on
what the project should be, and what the priorities should be. In my view, this
highlighted one of the first mistakes with the project: DSS and the BA should have
been treated as a customer, to ensure what was produced by the Horizon system
was compatible with their priorities as a customer of the Post Office who was using
it to deliver benefits payments to claimants and not a partner in a detailed inter-
Departmental project which they didn’t ultimately control. As a partner, they were
inadvertently incentivised or empowered to pursue a strategy which would put their
interests ahead of the other interests by focussing on HMT (and the Government
as a whole)’s wish to reduce the costs of managing and developing the pensions
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and benefits systems, even to the point where this would lead to the collapse of
the project.
26.When we came in as new Ministers in 1997, we all obviously needed to be briefed
about the Horizon project, and this was explained to us by our respective
Departments. This took some time, as it was only part of our portfolio and needed
to be balanced alongside the other priorities in the Department that we had to
manage as well. For example, the relevant Minister at DSS was also responsible
for reform of the benefit system, and I myself had responsibility for the National
Minimum Wage, the Employment Rights Act, and dealing with various European
Directives on employment.
27.1n light of all this, and given the problems at the time, what was needed was to get
to a position where Ministers had a functioning grip of the issues and could work
together quickly to identify what the issues were, and whether there were any
issues (including any political issues) other than those we had been informed of.
We were getting to that stage by the middle of 1998.
28.1 believe it was around this time that a committee of senior officials in each of the
relevant Departments was formed to start the task of looking at the issues and
identifying what the potential options were. The first option was to attempt to hold
ICL in breach of the contract. The second option (which the BA and DSS wanted)
was to get rid of the card system which had been proposed as part of the new
technology system. The third option (which DTI and POCL wanted) was to explore
whether we could negotiate a compromise where we agreed between ourselves
and ICL exactly what we wanted them to produce, to what timescales, and to what
cost to each party (as this was a PFI contract so we wanted the risk to be shared,
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though ICL were at this stage very concerned about the risk of losing the contract).
This was a complex, difficult situation, and there was a lot of work over these
months to try and resolve these issues. I understand that this is where the
Montague Report came in. It came out against the BA/DSS proposals of getting
rid of the card system and in favour of proceeding with the project, but only if
satisfactory terms could be agreed with ICL.
Question 3b — what did you understand about the technical difficulties with
Horizon at this time?
29.1 wasn't aware of any specific technical issues (other than the broad points about
the development and priorities of the system which I will mention below). At the
time, technical knowledge and understanding of computer systems _ in
government? was extremely poor. Few people had the knowledge and
understanding of procuring and developing systems such as Horizon, and so the
civil servants managing the project did not always have the appropriate level of
understanding to identify or raise issues.
30.This should be put in the context of the time. The world of banking — and of
communications systems generally — was changing, but it was still completely
different from the way we do business now with IT and electronic media. In
addition, even within private enterprises there was a shortage of individuals with
training and experience in quality management of complex IT systems. That
doesn't excuse the lack of technical knowledge and experience in government at
the time, but does perhaps help to explain it. As set out in paragraphs [71] to [74]
2 By “government” in this context I mean both ministers and civil servants — though particularly the
latter, as the expectation could not have been that ministers were responsible for interrogating and re-
writing the technology, and for personally identifying what was wrong in technical terms with the
project.
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below, this is something that I later came to address in “Successful IT: Modernising
Government in Action” (also known as “the McCartney Report”). I exhibit a copy
of that report as WITN0337_01/01 [WITN03370101].
3
. The only sense in which I remember technical issues (in a broad sense) arising
was that every time a proposal was put forward by a Department or ICL, the
Government's technical experts from DTI, DSS and HMT would meet in order to
try and identify the potential issues and problems. However, their remit was not
just to look at whether the project was technically feasible, but also whether there
were financial or other issues with the proposal (such as DSS and BA's desire to
reach a solution which did not involve them as a partner, or ICL’s willingness to
deliver the proposal). As alluded to in paragraphs [18] and [20] above, this was
frustrating as every time we thought we had reached agreement further issues
seemed to arise, and (right up to the very end) you never got any guarantee that
you were getting to the point where you could say with certainty that this would be
resolved. It was at these moments that you realised how much technical and
procurement expertise the government really needed and lacked — and not just for
this contract.
Question 3c — was there agreement between Government departments as to the
future of Horizon? If not, what were the respective positions as you recall them?
32.1 have addressed this in paragraphs [12] to [16] and [19] above.
Question 4 — consider BEIS0000283, BEIS0000284, BEIS0000318.
Question 4a — How would you describe the Government's relationship with ICL
between the Spring and Autumn of 1998?
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33.1 can’t remember the details of the actual meetings that took place at this time, but
the vast majority were between officials and technical specialists from ICL. There
was an understanding that if the project didn’t go ahead and couldn't work
properly, everyone would lose out — the taxpayer, SPMs, persons who used and
provided services through the Post Office, DSS and the BA (who would lose the
opportunity to introduce reforms) and ICL/Fujitsu.
34.In relation to the latter, Fujitsu (as parent company of ICL) wanted to develop a
company who, out of the work they did for the British Government, would have an
internationally acclaimed product which could in a very short time be seen as a
‘go-to system’ and reproduced across the globe. If they couldn't find a way of
making Horizon work then they would see it as having lost their investment, they
wouldn't be able to put ICL onto the marketplace for investment, and given the
wider problems with the Japanese and world economy at the time this had the
potential to be very damaging for them in terms of their ability to gain customers
and investors. This was important to DTI as it would potentially have had an impact
on Fujitsu's willingness to invest in the UK (as at the time they were the largest
inwards investor from Japan). From my perspective, it was important to try to get
a good relationship with ICL/Fujitsu, particularly with their board in Japan, as the
truth was that we wouldn't be able to reach a new agreement with ICL for taking
forward the project unless the Fujitsu board supported it. I believed that as a
Minister I needed to treat them with respect and to try to build a practical
relationship built on trust, so that at some point we could get a deal over the line.
In Autumn 1998, I went to Japan and had a confidential meeting with their board
and the British Ambassador at the time, which was important for helping to get
clarity about just how far we could push each other in trying to reach an agreement.
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At the same time, we were also talking with colleagues in Government to try to
secure agreement between Government as a whole, so that going forward we
could set out a single position which we could get ICL/Fujitsu to sign up to. The
tone of those meetings was professional, and there was the sense that everyone
still wanted a way forward and for there to be an open and effective relationship
between the parties.
Question 4b — what are your recollections of the meeting that you had with Keith
Todd in the Autumn of 1998?
35. Unfortunately, whilst I have seen a read-out of this meeting (WITNO337_01/02) I
do not remember it at all [BEISO000318].
Question 4c — did your discussions with ICL involve concerns with technical
difficulties?
36.We did not discuss technical difficulties with ICL. They set out the business
difficulties for them if the project couldn’t be made to work — both specifically in
relation to Horizon and in relation to their reputation in a very competitive
worldwide market. This was more than 20 years ago, when there was the potential
for a huge amount of business worldwide for a company that showed it could
deliver services (both on behalf of other governments and on its own behalf, selling
the Horizon system under licence).
37.As a general point, ICL and Fujitsu were a huge multinational company with
scientific and technological expertise. From the beginning of my involvement with
the Horizon project, I had the expectation that they had the technical and
organisational capacity to get this project right — and indeed I would have thought
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that when ICL were originally appointed this was on the basis that the persons
who appointed them also had the same expectation.
Question 5 - Please consider BEIS0000141,
BEIS0000103,BEIS0000177, IBEIS0000178, BEIS0000179,
BEIS0000181, BEIS0000393, BEIS0000394, BEIS0000395,
BEIS0000400, BEIS0000404, BEIS0000408, BEIS0000413,
BEIS0000418, BEIS0000419.
BEIS0000101,
BEIS0000180,
BEIS0000396,
BEIS0000417,
Question 5a — Please explain the position in respect of the adoption of Horizon
as at November and December 1998.
38.Between November and December 1998 it was quite frenetic. It was a period of
continuous meetings of officials, financial advisers and lawyers from all of the
different players. The field was crowded, all with legitimate players who had
legitimate arguments, but there were significant difficulties in agreeing what
exactly was going to be taken forwards.
39. However, by the end of the year, there was a far greater understanding across
Whitehall of what each of the parties wanted as a priority and why. It was also
becoming clear that, whilst some people wanted to close the project down and
walk away, this wouldn't be a consequence-free option. As well as the political
consequences (from breaching the manifesto commitment to safeguard the future
of the Post Office and maintain the Post Office network), it was likely that there
would be an impact on inward investment into the UK, and there were concerns
that ICL would be able to successfully bring a court case to recover the costs they
had incurred so far. It would also mean that, against the context of campaigns for
the Government to save the Post Office, we wouldn’t be able to help SPMs with
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the difficulties described at paragraph [16] above. There would therefore be huge
losses, and other really serious consequences, if the project was allowed to
collapse. It took a while to persuade the other parties of this, but we in DTI were
convinced that the project had to remain viable, and not to be implemented in a
way that would lead to the Post Office collapsing or to SPMs being unable to carry
on with their businesses.
Question 5b — what did you understand of technical difficulties at this time?
40.As set out at paragraphs [29] to [31] above I wasn’t aware of any specific technical
issues or difficulties with Horizon at this time, and have no recollection of technical
issues arising more generally outside the context set out in paragraph [31].
Question 5c — was there agreement between Government departments as to the
future of Horizon? If not, what were the respective positions as you recall them?
41.The Departments’ positions at this point were the same as those described in
paragraphs [12] to [16] and [19] above.
Question 5d — Please set out elsewhere in your statement any further meetings
with ICL that you recall and the extent of discussion regarding technical
difficulties.
42.1 do not recall any other meetings with ICL during this time — though as explained
at paragraph [36] above, if there were any such meetings we would not have
discussed technical issues.
Question 6 — Please consider BEIS0000166, BEIS0000167, BEIS0000204,
BEIS0000218, BEIS0000358, BEIS0000359, BEISO000360, BEIS0000361,
BEIS0000362, BEIS0000363, BEISO000364, BEIS0000365, BEIS0000366,
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BEIS0000367, BEIS0000368, BEISO000369, BEIS0000371, BEIS0000373,
BEIS0000375, BEIS0000376, BEIS0000377, BEIS0000378, BEIS0000379,
BEIS0000380, BEIS0000381, BEIS0000382, BEIS0000388, BEIS0000389,
BEIS0000390, BEIS0000391, BEISO000392, BEIS0000393, BEIS0000386,
BEIS0000384, BEIS0000385, BEIS0000383, BEISO000441, POL00028606.
Question 6a — Please explain the position in respect of the adoption of Horizon
between January and April 1999.
43.The period between January and April 1999 continued to be frantic, though over
time we slowly moved out of the period where there was no Ministerial consensus.
Around this time, HMT (taking from their point of view a logical position that they
needed to get a grip on the finances) started holding meetings directly with ICL.
Neither I nor DTI officials were invited to these meetings, but I understood them to
be scoping meetings to establish — from ICL’s perspective — how far we could go
without collapsing the programme, and what the consequences would be (both for
ICL and for Post Office businesses) if we agreed a package that didn’t deliver
everything that was originally proposed but nevertheless delivered enough in the
long term that, combined with Government support in the short-term, post offices
could maintain a sufficient level of footfall and encourage banks and other services
to work with them.
44. It was during this period that we got an intervention from No. 10. For context, the
Prime Minister at the time (Tony Blair) had a strong interest in modernising the
delivery of public services across government — not just the Post Office, but all
Departments and Bodies that dealt with the public on a daily basis. He was also
very much committed to promoting inwards investment, and the role it could play
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in changing and improving the national infrastructure. Finally, he clearly
understood the issues relating to the importance of having a viable Post Office
network from his role as a constituency MP representing a former mining
constituency made up of large and small townships. In this particular case, he
wanted to concentrate everyone’s minds on coming up with a solution that
everyone could buy into and take the project forward. This included a steer that
we shouldn't be looking to cancel the project — this decision to take cancellation
off the table was an important moment.
45. However, even following this intervention we still didn’t have a consensus. Various
ideas and options were floating around, with options worked up over a number of
weeks (or in some cases over the weekend) which then caused the parties to split
into different camps. From this point, the BA and DSS invariably supported HMT,
particularly if the endgame was to close down the project, as they wanted to be on
good terms with HMT for the project that they needed to move to paying benefits
by ACT. In DTI we weren't moving from our position, which was that we required
a project that would bring about automation in the Post Office, and that would
make a major investment in the business to ensure that there was a greater
prospect that the public could use post office counters to do a lot more of their
business with Government.
46.1 cannot recall the detail of the various options that were proposed at this stage,
but a lot of work was done by all of the parties in looking at all aspects of them.
Towards the end of the period, we got to the point where there were a few
proposals, which had bits of good in them but also significant problems. HMT,
POCL and ICL all brought in City firms to help them analyse the costs of each
proposal, and to report on what could be done to alleviate these. The problem with
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this was that the analysis couldn't be accurate as it was all based on assumptions,
and there was no way to test it as there wasn’t yet a fully-functioning market of
services delivered through post offices. We were therefore very much in a position
of trying to get an agreement on the basis of these calculations, and hoping that
they weren't too far out, but also trying to recognise that as the system developed
and improved, this could lead to a greater income for the Post Office than had
been accounted for in the calculations. These arguments continued through to the
end of this period.
Question 6b — what did you understand of technical difficulties at this time?
47. As set out at paragraphs [29] to [31] above I wasn’t aware of any specific technical
issues or difficulties with Horizon at this time, and have no recollection of technical
issues arising more generally outside the context set out in paragraph [31].
Question 6c — was there agreement between Government departments as to the
future of Horizon? If not, what were the respective positions as you recall them?
48.The Departments’ motivations remained those as described in paragraphs [12] to
[16] and [19] above. However, there was a better realisation at some point that we
were moving closer towards common agreement and a position which would be
sustainable in the longer term.
Question 7 — Please consider BEIS0000190, BEIS0000231, BEIS0000239,
BEIS0000241, BEIS0000250, BEIS0000275, BEIS0000342, BEIS0000343,
BEIS0000345, BEIS0000346, BEIS0000347, BEIS0000348, BEIS0000352,
BEIS0000353, BEIS0000354, BEIS0000355, BEIS0000357, BEIS0000439,
BEIS0000440.
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Question 7a — Please explain the position in respect of the adoption of Horizon
between May to July 1999.
49.Shortly before the major Government reshuffle in late July 1999 (when I moved
from DTI to join the Cabinet Office), we got to a position where we were able to
reach agreement — compromises had been made, but they did not damage the
Post Office’s long-term ability to provide the services that it wanted to, did not
damage the BA’s ability to carry out their activities, and still showed through ICL
that the UK was in a position to successfully complete big IT infrastructure
projects. I cannot remember the exact details of the final agreement that was
reached, and have not seen details of this in any of the documents I was referred
to by the Inquiry, but I think that the key features included a reconfigured
programme to ensure that Horizon could be rolled out by 2001, dropping the
benefit payment card, and establishing front-end banking facilities in post offices
by 2003.
50.Around this time, I also set up a working group to provide an opportunity for key
players to work directly with Ministers, in order to help co-ordinate finalising and
implementing the agreement. In particular, I thought it was important that SPMs
(via the NFSP) and trade unions (via the CWU and the Communication Managers
Association (now Unite)) were engaged and involved in the working group, so that
they could explain what was actually happening on the ground, and help us to
ensure that what had been agreed was being implemented. The working group
also had a role in carrying out a ‘future work’ programme, looking at the ways in
which the Horizon project could be maximised, both in terms of delivery and
securing other business partners for post offices to work with (such as banks). I
chaired four meetings of the working group before I was moved from DTI to the
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Cabinet Office, and I understand that they were welcomed by the parties involved
who played their full part in the meetings.
Question 7b — what did you understand of technical difficulties at this time?
51.As set out at paragraphs [29] to [31] above I wasn’t aware of any specific technical
issues or difficulties with Horizon at this time, and have no recollection of technical
issues arising more generally outside the context set out in paragraph [31].
Question 7c — was there agreement between Government departments as to the
future of Horizon? If not, what were the respective positions as you recall them?
52.As explained at paragraph [49] above, by the end of July 1999 broad agreement
had been reached about the future of the Horizon project. There were I think still
some points on which the agreement had to be finalised — in particular about the
financial framework for the transition to paying benefits by ACT, where there was
still disagreement behind the scenes between the BA (who were desperate to cut
costs as soon as possible) and POCL/DTI (who wanted to ensure that the
changeover happened in a smooth way that didn’t lead to a breakdown of the
national Post Office network). However we were in a much better place than we
had been at the start of the year.
Question 8 — Please consider BEIS0000278, BEIS0000313, BEIS0000314,
BEIS0000315, BEIS0000331, BEIS0000334, BEIS0000336, BEIS0000337 in
addition to those already identified.
Question 8a — to what extent did the financial impact of not proceeding with
Horizon play a role in its adoption?
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53.As I have explained at paragraph [39] above, the financial impact of not
proceeding with the Horizon project would have been huge, and we in DTI (later
supported by No. 10) felt that this meant it was not a viable option.
Question 8b — to what extent did wider concerns of international affairs and the
economy play a part in the adoption of Horizon?
54.As I have explained at paragraphs [39] and [44] above, the implications for inwards
investment and the knock-on impact from the financial impacts (and damage to
the Post Office network) on the economy were factors taken into account by DTI
and No. 10, and supported our conclusion that cancellation of the project was not
a viable option.
Question 8c — what were your views on the adoption of Horizon and the
proposed timeframes?
55.Once everybody was signed up to the compromise proposals, it was critical that
ICL and POCL came up with a timetable to ensure that through the course of 2001,
2002 and 2003 the system was introduced and services went onto it in an effective
way. The agreements between the BA and POCL about funding for the paper-
based system of delivering benefits payments only went up to 2003 — there would
be a negotiation for what would happen from 2004 onwards, and there was an
expectation that the Horizon system would be fully operational before then so that
there could be an effective negotiation about how the BA could use it as a
customer. Given all the angst that everyone had gone through to get the project
from the point of collapse to the stage where we could honestly say that it would
be completed, and the genuine support for the final deal from the centre of
government, it was important to ensure that ICL and POCL now applied some
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discipline to the project and didn’t miss this window — especially when they still
had a lot of work to do to build and test the system and install it and train staff to
operate it in over 19,000 post offices across the UK.
56. Alongside that, there were political imperatives for agreeing such a timescale and
there was pressure on the time available for doing so. There was an existing
political commitment to publish a White Paper on the future of the Post Office by
the end of Summer/Autumn 1999. However, we clearly couldn’t publish such a
White Paper until we had clarity about the future of the Horizon project (including
the timetable for its adoption). As explained in paragraph [49] above, we got to this
stage, and were subsequently able to launch the White Paper, before I left DTI for
the Cabinet Office.
57.Whilst I can’t remember the details of the timescales that were ultimately agreed,
I think that they were pretty pressurised given the huge amount of work needed to
get the system up and running. Whilst I imagine that some of them may have been
‘moveable’ in the sense that if things got a few weeks behind on an issue it could
have been possible to make that time up, they wouldn't be able to catch up on
months and months of delay. We had been faced with such a build-up of delays
when we first came into the project in 1997, which at the time had caused a
genuine lack of trust between the parties. However, when you spoke to each of
the parties individually they were wanting to work with each other, and at the time
I left DTI I didn’t have any concerns about the timetable (though I think that the
final timetable might not have been agreed until after this point).
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Question 9 — To what extent do you consider that your responses to the above
impacted on focus on the technical abilities/robustness of Horizon prior to
agreement with ICL?
58.For the avoidance of doubt, I do not think that it would be right to suggest that the
parties were focussing more on getting Horizon up and running as soon as
possible than ensuring that it was technically robust and fit for purpose — and if
there had been anybody of that state of mind it would have been an extremely bad
call. Whilst I have explained that the Horizon project was critically important for the
UK in financial, economic and investment terms, and that there had been a
genuine effort to rescue the project because of the potential benefits to
Government, POCL, SPMs and the millions of people who used the Post Office,
those benefits could only be realised if the system was fit for purpose and worked
successfully.
59.1 was not personally a technical expert and did not try to pass myself off as one.
However, as a Minister, although I was not directly involved in identifying technical
issues myself I did rely on the advice of the technical experts and advisers
employed by and within Government. I had an expectation that the piloting and
testing of the system would have been done in a way that identified the issues,
whether small or significantly large, and that these would be reported and then
engineered out of the system so that when it went live it worked properly. I also
had an expectation that, if there were technical issues which weren't being
resolved, I would have been informed so that I could have a telephone
conversation or meeting with the relevant parties to press for these to be resolved.
This was one of the reasons why I felt that setting up the working group was
important — having representatives from POCL, trade unions and SPMs gave us
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an opportunity to get genuine real-time input about how the project was
progressing and to address any issues that arose.
60. However, as set out at paragraphs [29] to [31] at the time the level of technical
skills and understanding about procuring and developing IT systems in
government was poor, and in hindsight I would have liked us to get to the position
where officials had greater experience to be able to anticipate and help identify or
resolve these sorts of issues. As set out in paragraphs [71] to [74] below, this is
something that I later came to address in the McCartney Report. At the same time,
as noted at paragraph [37] above, there was also the reasonable expectation that
ICL/Fujitsu, as the multinational company with the expertise in this area, were up
to the job and could get the technical side of things right.
Question 10 — Please consider BEIS0000349, BEIS0000350, BEIS0000347,
NFSP00000064, NFSP000000172, NFSP00000200, NFSP00000203,
NFSP000000226.
What do you recall of the NFSP’s position (and that of any other relevant
stakeholders) insofar as any concerns about the technical abilities/robustness
of Horizon to have been prior to its roll out?
61. I recall that the NFSP and (in particular) the BA wanted to make sure that there
was a robust programme for testing the new system, and that the results of this
would be open to the other parties. Eventually this was resolved with POCL and
ICL agreeing to provide them with the test results (which I think may have
happened just before or just after I left DTI for the Cabinet Office).
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62. It is worth noting as context for this that a previous system which had been
introduced and was being operated in the London area had had quite significant
failings, and there had been a behind-the-scenes argument between the BA and
POCL about that system, with each blaming the other for its failure. That probably
coloured people’s views, and they wanted clarity to ensure that the system would
work, and that where problems arose the technical backup facilities were all fit for
purpose. From that perspective, quite rightly the NFSP and BA thought that POCL
should have certainty that the testing that took place was successful. I recall that
in the end a few hundred tests were carried out across the network in particular
geographic areas before the system was rolled out. However, I do not know what
the outcome of those tests was and have not seen anything in the documents to
which I have been referred which sets this out.
Question 11 - Please consider BEIS0000236.
Question 11a — what understanding did you have of the technical issues referred
to at paragraph 5 of this submission?
63. Unfortunately, whilst I have no doubt that I received this submission at the time, I
have no memories of it and cannot recall what specific technical issues are being
referred to here.
64.As I have explained above, I had an expectation that, if there were technical issues
which weren't being resolved, I would have been informed, as trying to resolve
them would have been imperative. I cannot recall any specific occasions on which
this was done, but I have confidence that the officials advising me would have
done so, and that if I had received such a submission I would have taken steps to
try and support reaching a resolution.
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Question 11b — what understanding did you have of any continued technical
issues at that stage?
65.As set out at paragraphs [29] to [31] above I wasn’t aware of any specific technical
issues or difficulties with Horizon at this time, and have no recollection of technical
issues arising more generally outside the context set out in paragraph [31].
Question 12 — At what point did you cease to be involved in matters relating to
the Horizon system? What was your understanding of the technical issues at
that stage?
66.To the best of my knowledge I had no more dealings with Horizon after leaving
DTI and becoming Minister for Cabinet Office on 28 July 1999. I have already
explained that my role in Cabinet Office was essentially to sort out anything that
had gone wrong, but I cannot recall the issues relating to Horizon coming up in
that context. I also had no involvement in Horizon when I was Pensions Minister
at DWP. Finally, whilst I did deal with issues relating to post office closures and
the like in my capacity as a constituency MP, I cannot recall any issues relating to
Horizon coming up in that context.
Question 13 — What, if any, impact do you consider the appointment of Alan
Johnson MP had on any issues you have identified?
67.1 do not know what impact the appointment of Alan Johnson had on the project.
Question 14 - Did you have any concerns about the Horizon system after this
period in office? If so, please set these out and how they were addressed?
68.1 did not have any further concerns about Horizon after leaving my role as Minister
of State at DTI to become Minister of State at the Cabinet Office. At that stage, my
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focus shifted to my new Ministerial responsibilities. Whilst I did take with me an
understanding of how bad the issues were with government procurement, which I
looked at in the McCartney Review, I didn’t have any further dealing with issues
relating to Horizon — and, if anything, I was relieved that we had at last reached
an agreement, and that SPMs would at last (at least in theory) have the technology
to help their businesses survive.
Question 15 — Do you feel that you were properly informed of technical issues
relating to Horizon during your period of involvement? If not, why not?
69.As set out at paragraphs [29] to [31] above, during my period of involvement with
the Horizon project the level of technical skills and understanding about procuring
and developing IT systems in government was poor. I never felt that the people in
DTI who I was working with and who were briefing me were anything other than
industrious, open and transparent, and they were keeping me as aware of the
issues as they could. However, it would have helped them if they had had access
to IT specialists and procurement experts to help them manage the process and
identify and resolve any such issues.
Question 16 — Looking back, do you feel that the Government effectively
scrutinised the procurement, pilot, and roll-out of Horizon?
70. The problem that we faced when we took office in 1997 was that we had inherited
a legally-binding PFI project introduced by the previous government where
progress had been stalled for two years (which again I say purely for historical
reasons and not to apportion blame). We faced a difficult task to try to change that
project in such a way that would ensure the successful development and
implementation of the system. Given that starting point, I think that the final
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agreement for the Horizon arrangements was the best that we could have reached
at the time. I have no doubt that there are some issues where, with the benefit of
hindsight, we might have wanted to deal with them differently when trying to reach
a common agreement with the other parties about the best way forward, and or
where we might have reached a better outcome if there had been more technical
expertise in government. However, from my perspective, myself and my
colleagues were committed to doing the right thing by people, particularly POCL
staff and SPMs by trying to give them every chance to modernise their systems
and ensure that they had a future.
Question 17 — Please explain the purpose of the Review of Major Government IT
Projects and the background to your report Successful IT: Modernising
Government in Action. What relevance to you feel that this report has to the
issues which are being investigated by the Post Office Horizon IT Inquiry?
71.Shortly after I became Minister of State at the Cabinet Office, when I was learning
what the Department did and how it operated, I learned that someone was
preparing a paper on this topic. This was around the time that we were appointing
a ‘czar’ to completely reinvigorate the Government's attempt to provide services
in a modern way, and around the time that it was suggested some services should
be provided online — which would benefit taxpayers by allowing services to be
provided more cheaply and easily. However, we had to find a way of properly
managing the capital to do that.
72. This led to a discussion I had with the then Cabinet Secretary about the need to
establish a properly functioning labour market within the civil service for people
with IT skills. At the time, promotions within the civil service were based on years
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of service, so you had people who didn’t know how to turn a computer on leading
on IT issues — and we were getting taken to the cleaners in negotiations with
software companies. My view was that we as Government should be providing
advice and setting out a regulatory framework to ensure that the companies we
did business with were honest, transparent, and worked to an approved plan. I
was also concerned with sub-contracting — particularly where we asked
companies to bid for the work, drew up a shortlist of four to five companies, and
then saw the work sub-contracted to companies that you had excluded from the
shortlist and the people that you didn’t want involved were now part of the group
that you had to deal with. In light of this, I started looking in more detail at
procurement work, and taking part in early negotiations to make it clear we weren't
going to be exploited.
73. This led to me getting involved in what became known as the McCartney Report
— though it was by no means all my work, and I was very lucky in the people who
were advising me (including in particular an excellent official seconded from the
South Australian Government who was an expert in the provision, development
and rollout of electronic services in Government). The report wasn’t produced with
any particular agenda — there was a recognition that there was a genuine issue
here, and the hope that if we talked it through and got some expertise round the
table we could produce recommendations that would help improve things.
74.1 think that the report is directly relevant to the issues being considered by the
Inquiry at this phase. Horizon was not the only government IT project that had
encountered issues at the time (though it was the largest), and as I explained in
the foreword we wanted to learn from these issues as we went on to deliver IT
improvements across the board of public services. I endorse the contents and
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recommendations of that report, and respectfully encourage the Inquiry to read it
in full (particularly those parts of the report which directly draw on learning from
the Horizon project).
Question 18 — Are there any other matters that you consider will assist the
Chair?
75.1 can't think of anything else that will assist the Chair.
3 As can be seen at Annex H (pp 106-107), there are three occasions on which the McCartney Report
directly refers to the Horizon project as evidence. These are
e¢ Endnote 8 on p12 (which relates to the recommendation that each change programme be
accompanied by a business case reflecting all of the business change to be delivered);
e Endnote 11 on p15 (which relates to the recommendation that each change programme
should have a single, named Senior Responsible Officer who is responsible for ensuring that
the programme meets its overall objectives and delivers its projected benefits); and
« Endnote 41 on p44 (which relates to the recommendation that before contracts are signed
suppliers must have produced a realistic plan for how they will deliver the outcomes sought
(including timescales, resources and technology), and that these plans are kept under review
throughout the development stages of the project).
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I believe the.cantent of this statement to be true.
_. GRO
Date 27 7 O41
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Index to First Witness Statement of Sir lan McCartney
No. I Exhibit Number I Document Control URN
Description Number
1I WITNO337_01/1 I Successful IT: I WITNO3370101 I WITNO3370101
Modernising
Government in
Action
2I WITNO337_01/2 I Letter from I BEISO000298 =I BEISO000318
Christopher
Woolard to Mr
Macintyre re:
meeting with Mr
Todd (ICL)
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