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Witness number: WITNO358R9_01
Witness name: STEPHEN BYERS
Statement No: 1
Exhibits: WITNO358R9_01/1-
WITNO358R9_ 01/23
Date signed: 26 September 2022
POST OFFICE HORIZON IT INQUIRY
FIRST WITNESS STATEMENT OF STEPHEN JOHN BYERS
I, Stephen John Byers, will say as follows:
1. I make this statement in response to the Rule 9 letter I received from the Post
Office Horizon IT Inquiry (“the Inquiry’) dated 1 June 2022. I welcome this
opportunity to contribute to the work of the Inquiry. The treatment of SPMs has
been shocking. Lives have been lost; reputations ruined; hopes and aspirations
dashed. I would like to offer my sincere regrets for what has occurred and to say
sorry for the hurt suffered by those involved. We must do all we can to ensure this
never happens again.
Introduction
2. The Inquiry has asked that I refer to a number of documents and that my witness
statement answers 12 questions concerning my involvement as a government
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minister with the Horizon project between 1998 and 2001. I will answer those
questions to the best of my recollection below.
(1) Please set out a brief professional background
3. I was elected as the Member of Parliament for Wallsend, North Tyneside at the
May 1992 General Election. The Wallsend constituency was abolished prior to the
1997 General Election. At that election, I was elected as the Member of Parliament
for North Tyneside.
4. I joined the government in May 1997, when I was appointed as a Minister of State
at the Department for Education and Employment. On 27 July 1998 I was
appointed as Chief Secretary to HM Treasury (“HMT”). On 23 December 1998,
following the resignation of Peter Mandelson, I was appointed as Secretary of State
for Trade and Industry. I served in that role until 8 June 2001, when I was
appointed as Secretary of State for Transport, Local Government and the Regions.
I resigned from government on 29 May 2002.
5. I did not stand for re-election in the 2010 General Election and ceased to be an MP
in April 2010.
(2) Please set out the background to your involvement in the Horizon project
6. As Chief Secretary to the Treasury (between July and December 1998), I had
ministerial responsibility for all aspects of public expenditure. In that role I also had
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oversight of an HMT PFI Taskforce which was led by Adrian Montague, an
investment banker.
. The Taskforce had been set up on the recommendation of a review in 1997 by Sir
Malcolm Bates and its role was to support government departments with PFI
(private finance initiative) contracts, which included scrutiny of ongoing projects,
particularly those in difficulty. Given the size and scale of the project, and the
obviously dysfunctional relationships between the parties involved, Horizon was
one of the contracts which the Taskforce came to review.
. The key responsibility of the Chief Secretary is to achieve value for money in all
aspects of public expenditure and facilitating the delivery of the Government's
priorities. I thought of my role as Chief Secretary as like being in the middle of a
spider’s web. With responsibility for public spending, I could bring people together
and try to resolve disagreements; sometimes arbitrating between the conflicting
objectives of government departments. That was very much my experience with
the Horizon project during my time at HMT.
. As Secretary of State for Trade and Industry (between December 1998 and June
2001), I had overall ministerial responsibility for the Post Office (which was, at the
time, a statutory corporation owned by government) and its network of sub-post
offices. In addition, I was also responsible for securing foreign direct investment
into the UK.
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Horizon: July — September 1998
Please consider BEIS0000141, POL00028094, BEIS0000127, BEIS0000284,
BEIS0000285, BEIS0000283, POL00028098.
(3)(a) Please describe the problems faced by the Horizon project between July-
September 1998
10.When I was appointed as Chief Secretary, the Horizon project was already two
years behind schedule. As I recall, there were three main problems: the project
was considerably delayed; there had been a major cost overrun (obviously a
primary concern for the Chief Secretary); and there were disagreements between
the various parties involved — the Department for Social Security (“DSS”) (which
was responsible for the Benefits Agency (“BA”)), the Department for Trade and
Industry (“DTI”), Post Office Counters Ltd (“POCL”) and ICL Pathway Ltd (“ICL”).
11.Only a few days before I took up the role, on 22 July 1998, Adrian Montague had
submitted a report on the state of the Horizon project. I exhibit as
WITNO358R9_01/1 a copy of his report, “BA/POCL Automation Programme
Review — HM Treasury Independent Panel Report” [POL00028094]. Mr Montague
had chaired an independent panel which had been tasked with reporting on
whether the project could deliver a fully functioning system, whether the project
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timetable was deliverable, the likely costs and arrangements for monitoring and
managing project risks.
12.The panel made two recommendations for a possible way forward: a full
restructuring of the project; or a partial restructuring. Termination of the project
was ruled out, as was continuing the project as planned or simply extending the
contract. The panel noted that either of their recommended options would require
negotiation between the parties to agree the detail — it also noted that the parties
disagreed as to their preferred options.
(3)(b) Was there agreement between government departments as to the future of the
Horizon project? If not, what were their respective positions as you recall them?
13.There were significant areas of disagreement between the main government
departments involved with Horizon as to its future — but there were some areas of
agreement as well.
14.The DSS had become very frustrated about the delays to the project, because
each year of delay was costing them around £200-300m of savings foregone in
terms of administration and fraud costs. They also considered that ICL was in
breach of contract as a result of its failure to meet contractual milestones. They
were pressing for the abandonment of the Benefit Payment Card (“BPC”) and a
move to Automated Credit Transfer (“ACT”) (i.e. payment of social security benefits
directly into claimants’ bank accounts) as soon as possible. The BPC used
magnetic stripe technology which, even by 1998, was beginning to seem outdated
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and the DSS were understandably concerned about being wedded to old
technology. They had also only ever seen the BPC as an interim solution until a
move to full ACT could be achieved.
15.The DTI were quite wedded to the BPC, largely, I believe, as a result of lobbying
by POCL. The DTI believed, with justification, that a move directly to ACT would
essentially destroy the Post Office network, because counters were so reliant on
income generated from handling benefit payments and the additional transactions
generated by that reliable footfall into branches. The DTI felt strongly that Horizon
was essential to the future of the Post Office, to modernise its existing processes
and to exploit new commercial opportunities in future and so make it less financially
dependent on government business.
16. On behalf of HMT, I was obviously concerned that, whatever the future of Horizon,
we should achieve value for money. We liked the idea of the BCP, because of the
substantial cost savings it offered over the paper-based payment system for
welfare benefits. However, I personally shared the DSS’ concerns about the
technology underpinning the BPC. I felt that a magnetic swipe card was not
ambitious enough given our push as a government to modernise the public sector
using digital technology and it seemed to me that a smartcard platform offered far
more potential.
17. There was a consensus within government that there were strong political reasons
for sustaining the extensive Post Office network by some form of subsidy. The
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question for me was whether that should be provided by payment of welfare
benefits through the Post Office or by a more transparent, direct subsidy.
(3)(c) What did you understand about the technical integrity and robustness of
Horizon at this time?
18. This was one of the key questions that Adrian Montague’s independent panel had
been asked to consider. Clearly, we all recognised that the system’s technical
reliability was the foundation on which everything else would be built. I recall that
the Montague report found that, as of the end of July 1998, Horizon was
“technically viable” and that the “risk[s] around scaleability and robustness ... [were]
being well managed by [ICL]”. The report also found “good evidence of future
proofing at all levels. The basic infrastructure is very robust for the future ...”
19.All of the government departments were agreed that it was essential that Horizon
undergo a live testing programme (rather than acceptance on the basis of
“laboratory testing”, as ICL were pushing for). The DSS in particular had had a
bad experience with an IT project which had been accepted in a test environment
which had failed when actually rolled-out. Given that the DSS were responsible
for the welfare benefits system, which had around 15 million claimants, this was a
priority concern for them.
20.Live operational trials of Horizon were originally scheduled for spring 1997, then
deferred to November 1997 and then delayed again for around a year (to autumn
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1998) due to slippages in the project timetable. As I recall, the BCP did not perform
well in those trials.
(3)(d) Please explain why Graham Corbett was instructed to oversee discussions
about the future of the Horizon project in September 1998. What was the
outcome of those discussions?
21.The appointment of an “independent troubleshooter” was a key recommendation
of the Montague report. Having only just been appointed to the role of Chief
Secretary, I found this a particularly helpful suggestion as it would give me time to
get on top of the project with a comprehensive report on the key players and their
respective positions. The contract was in trouble; there was a stalemate between
all parties. It needed someone with a fresh pair of eyes and the financial expertise
to identify a way forward.
22.Mr Corbett was recommended to me by Mr Montague and another HMT official,
Steve Robson. He had been the Chief Financial Officer at Eurotunnel and was, at
that time, deputy chairman of the Monopolies and Mergers Commission. He had
experience of big projects and the force of character to knock heads together.
23.1 appointed him on 17 September 1998 and asked him to report back to me by 16
October 1998. In the end, due to continuing disagreement between the parties, he
was unable to meet that deadline. He submitted his report to me on 18 October
1998. I exhibit as WITNO358R9_01/2, a copy of his report (“Benefits Agency/Post
Office Counters Automation Project”) [POL00028098].
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24.Shortly before the deadline, Mr Corbett had presented a possible compromise to
the BA, POCL and ICL. BA and PCOL were prepared to agree along the lines he
proposed but ICL were not. One of the major stumbling blocks was that ICL was,
at that time, insisting on a (modest) positive return on the contract. Another
stumbling block was that, again at that time, Fujitsu (ICL’s parent company) were
not prepared to provide further financial support for Horizon and were insisting that
the public sector bear the risk. Clearly that position was unacceptable from my
perspective: it ran totally contrary to PFI principles in which the private sector takes
the risk to obtain the benefit.
Negotiations with ICL: November — December 1998
Please consider BEIS0000336, POL00028634, POL00028692, BEIS0000418,
BEIS0000404, BEISO000417, BEISO000400, HMT00000001, BEISO000395.
(4)(a) Please describe the proposals put forward by ICL between November and
December 1998.
25.1 do not recall the detail of the proposals put forward by ICL around this time. I
have seen a copy of a letter dated 18 December 1998 sent to me by Keith Todd,
ICL’s Chief Executive, but this contains only a very broad overview of those
proposals. I exhibit as WITNO358R9_01/3, a copy of that letter [HMT00000001].
I have also seen a copy of a letter sent by Neville Bain, Chairman of the Post Office
Board, to Mr Mandelson (Secretary of State for Trade and Industry) dated 11
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December 1998, which also contains a summary of some of those proposals. I
exhibit as WITNO358R9_01/4, a copy of that letter [BEISO000404]. That letter
states that Fujitsu had finally agreed to guarantee the Horizon project which, in the
Post Office’s view, “removes a critical risk to the public sector and transforms our
view of the project.”
26.1 do recall that, in light of the findings of the Montague report (back in July 1998),
the Horizon Working Group (at that time comprised of officials from HMT, DTI, DSS
and the Cabinet Office) had recommended to ministers that, if the project was to
proceed, there could be no increase in the level of payments to be made to ICL.
As I stated above, ICL were insisting on a positive return on the contract and I
recall that their final proposals, submitted in December 1998, would have meant a
large increase in charges payable by the BA and POCL.
(4)(b) Was there agreement between government departments as to how the public
sector ought to respond to ICL’s proposals? If not, what there their respective
positions as you recall them?
27.There were a number of areas of disagreement to ICL’s proposals between the
DSS and the DTI.
28.Mr Mandelson wrote to me on 10 December 1998. I exhibit as WITNO358R9_ 01/5,
a copy of his letter (“BA/POCL Automation Project”) [BEISO000418]. Mr
Mandelson stated his strong support for continuing with Horizon and expressing
his frustration at the failure to reach a political agreement on the project's future.
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29.The Secretary of State for Social Security, Alastair Darling, wrote to me on 11
December 1998. I exhibit a copy of his letter (“BA/POCL Automation Project”) as
WITNO358R9_ 01/06 [BEISO000417]. Mr Darling’s position was that:
(a) the government needed to ensure that Fujitsu’s offer of a £600m guarantee for
Horizon was legally-enforceable;
(b) the overall balance of expenditure between the public sector and ICL was
unacceptable;
(c) “acceptance testing” had to be done by a live trial rather than on the basis of a
laboratory test;
(d) ICL were not keeping to the project timetable;
(e) government was foregoing £800m worth of savings in the benefits
administration bill as a result of delays to the project.
30.lan McCartney (Minister of State at the DTI) wrote to me on 14 December 1998,
responding to Mr Darling’s letter. I exhibit a copy of his letter (‘BA/POCL
Automation Project: Horizon”) as WITN0358R9_01/7 [BEISO000400]. Mr
McCartney's position was that ICL’s proposals were commercially acceptable and
should be agreed:
(a) the DTI’s understanding was that Fujitsu's guarantee was legally-enforceable
which, if correct, transferred several hundred million pounds of risk from the
public sector and onto Fujitsu. This “represents a major concession ... and
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removes at a stroke probably the largest single element of unacceptability from
the earlier proposals”;
(b) as well as taking on significant additional risk, ICL had conceded around £80-
100m in terms of the NPV deficit;
ICL had agreed to carry out live trials based on the NR2 software at 300 post
io
office branches;
(d) while ICL had missed the most recent milestone in the project timetable, the
DTI had been assured by ICL of their commitment to the timetable;
(e) the costs of cancelling Horizon while trying to maintain the post office network
at its present size could equal or exceed the £800m in savings that had the
project had been intended to provide.
31.As these letters show, although there was disagreement on the detail of ICL’s
proposals, there was a clear consensus between all government departments that
live operational trials of Horizon was essential.
(4)(c) To what extent were the inter-departmental discussions about the future of the
Horizon project influenced, at this stage, by:
i. the financial consequences of terminating the project;
ii. wider concerns about foreign investment in the UK economy;
iii. issues concerning the technical integrity and robustness of Horizon.
32. All three of these issues influenced inter-departmental discussions about the future
of Horizon at this time.
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33. Clearly the financial consequences of any decision made as to the future of Horizon
were a crucial consideration. Cancelling the project would have meant writing off
hundreds of millions of pounds of public and private investment in a project which
(as we had been advised by the Montague report) was technically viable. There
was also the risk of protracted and costly litigation with ICL if the project was
cancelled.
34. Although wider concerns about foreign investment in the UK economy were not my
primary responsibility as Chief Secretary, the DTI had been very clear about their
concerns that cancelling Horizon would have major repercussions for the UK’s
relationship not only with Fujitsu (which was a major inward investor at the time)
but also with other Japanese multinational corporations (e.g. Nissan and Toyota,
which both operated big car plants in the UK) as well as for the reputation and
credibility of PFI contracts more generally.
35.As for the technical integrity and robustness of Horizon, the Montague report in
July 1998 had assured us that the project was technically viable and showed good
evidence of future-proofing. As I have explained above, proving that in practice
was a key concern for the government, hence our insistence on live operational
trials as a precondition for acceptance.
36.The obvious factor that is missing from this question is the impact on the Post
Office network and the communities they served. The Post Office network was
one of the largest (if not the biggest) retail networks in Europe and many —
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especially those in rural areas — operated at a significant loss to POCL. Protecting
and maintaining that network was a key consideration for the government;
automation of the network was essential to safeguarding its long-term future. If
Horizon had been cancelled, it would have been necessary to develop a similar
programme — but that would have taken several more years and cost even more
money. Furthermore, without Horizon, the DSS would have been able to move
much sooner to full ACT payment of benefits, which would have been disastrous
for the Post Office network, risking the loss of a significant number of branches.
(4)(d) Please describe how you responded to ICL’s proposals.
37.1CL put forward their final proposals in a letter dated 9 December 1998. I have not
seen a copy of that letter and am unaware of whether a copy survives. Those
proposals were outlined in the letter sent to me by Keith Todd (ICL Chief Executive)
on 18 December 1998 which I referred to at para 25 above [HMT00000001].
38.1 believe that I may not have formally responded to the second letter because,
shortly after it was received, I left HMT following my appointment as Secretary of
State for Trade and Industry on 23 December 1998.
39.1 have seen reference (in BEISO000395 and POLO0028606 respectively) to letters
I sent while still in post as Chief Secretary on 21 and 23 December 1998. I have
no recollection of these letters (and am unsure whether copies survive) but assume
that I was trying to broker a final agreement between the government departments
in light of ICL’s final proposals. I exhibit as WITNO358R9_01/8, a copy of a draft
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letter to the Prime Minister and the Minister for the Cabinet Office (at that time,
Lord Falconer) (“Draft letter for the Signature of the Secretary of State to the Prime
Minister/Minister for the Cabinet Office) which I suppose would have been
prepared by DTI officials for Mr Mandelson shortly before he resigned as Secretary
of State [BEISO000395]. It does not appear to have been sent but it appears to
summarise (at least from a DTI perspective) my response to ICL’s proposals.
40.1 do recall that I was unable to broker a final agreement within government by the
time I was moved to DTI and, as this draft letter shows, we recognised that a
decision of the Prime Minister would be required to break the deadlock.
Late December 1998
Please consider BEIS0000280.
(5)(a) Please explain the change in your ministerial position which occurred in late
December 1998.
41.On 23 December 1998, Mr Mandelson resigned as Secretary of State for Trade
and Industry. The Prime Minister appointed me to replace Mr Mandelson as
Secretary of State and appointed Alan Milburn as Chief Secretary to HMT.
(5)(b) How (if at all) did this change affect your attitude towards the future of the
Horizon project?
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42.My overall attitude towards the project remained the same but clearly my
responsibility within government had changed: I now had to have the interests of
the Post Office network, and inward investment into the UK, at the centre of my
concerns.
43.As I mentioned in para 16 above, my personal view was that the BPC was not the
best solution. I could see its weaknesses in technological terms and it seemed to
me that its selection (over the smartcard option) was a missed opportunity to
preserve the long term future of the Post Office network, which needed an
automation programme that would continue to work well for decades. As I have
already mentioned, this was not the view of DTI when I joined and I recall having
to stand up to lobbying from POCL who wanted to preserve it in the revised
contract.
Horizon: January — May 1999
Please consider POL00028606, HMT00000015, HMT00000017, BEISO000383,
HMT00000014, BEIS0000375, BEISO000381, HMT00000011, BEISO000370,
POL00028627, BEISO000361, BEISO000362, BEIS0000363, BEIS0000204,
BEIS0000441, POL00028622, HMT00000022, HMT00000024, POL00028615,
POL00038847, POL00028612, POL00028609, POL00028611, HMT00000028,
HMT00000030.
(6)(a) Please describe the problems faced by the Horizon project between January
and May 1999.
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44.The problems faced by Horizon at this time were the same as those for the period
July-December 1998: delay, cost overruns and a dysfunctional working
relationship between the contracting parties. 1998 had ended without the
government making a final decision on the future of Horizon and that political
uncertainty was also becoming a problem for the project.
45.An alternative approach to Horizon emerged from HMT and the Cabinet Office in
early January 1999. I believe the Cabinet Office became involved in order to try
and secure agreement within government as to a way forward; I do not recall them
being particularly involved with Horizon while I was Chief Secretary.
46.1 exhibit as WITNO358R9_01/9, a submission to my successor as Chief Secretary,
Alan Milburn, dated 3 February 1999 (“BA/POCL: An alternative approach”)
[HMT00000015]. In summary, the alternative approach was to abandon the BPC,
remove the DSS/BA as a party to the contract and to develop new front-end
banking services for POCL. I believe I probably spoke with Mr Milburn around this
time to indicate to him my support in principle because, as I have already
mentioned, I had my doubts about the BPC.
47.On 24 February 1999, Mr Milburn and Lord Falconer made a joint submission to
the Prime Minister seeking his agreement to this alternative approach (which came
to be known as “Option 2a” and, later, “Option B1”). I exhibit as
WITNO358R9_01/10, a copy of that submission (“Horizon (BA/POCL Automation”)
[HMT00000014]._ The proposal involved abandoning the BPC and instead
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developing new, basic Post Office bank accounts for the payment of benefits to
those claimants who did not already receive their benefits by ACT. It would also
see the BA move more quickly to payment of benefits by ACT.
48.1 also exhibit as WITNO358R9_01/11, a copy of a letter dated 1 March 1999
(“Horizon”) from Jeremy Heywood (the Prime Minister's Principal Private
Secretary) confirming the Prime Minister's agreement to the alternative approach
and asking me to lead on negotiations with POCL [BEIS0000375].
49.POCL were not an easy partner to deal with. In my view, they did not recognise
the commercial opportunities presented by Horizon and were more concerned with
the loss of income from the BA rather than focussing on what would guarantee the
future of the Post Office network. They also felt let down by ICL and that the private
sector partner identified for them by the government was not delivering.
50. By April 1999, it had become clear that “Option B1” would be substantially more
expensive than “Option A” (i.e. proceeding with existing project framework,
including the BPC). On 16 April 1999, David Sibbick (Director of Posts, DTI)
submitted a briefing to me on the state of play of the negotiations and warned that
HMT officials — alarmed about the cost of Option B1 and pessimistic about the
parties being able to work together and deliver Option A — were considering
recommending cancellation of the project. I exhibit as WITN0358R9_ 01/12, a copy
of that submission (“BA/POCL Automation Project: Horizon: Report to Ministers”)
(BEIS0000362) and its annex (“Horizon: Draft report to ministers”) [BEISO000363].
From my perspective, at this stage, cancellation was not a realistic option, less
than two months after the Prime Minister had given his agreement in principle to
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restructure rather than terminate the project — and when HMT had been one of the
departments who recommended that approach.
5
. Towards the end of April 1999, HMT officials proposed a third option, which came
to be known as “Option B3”, in which POCL would simply buy the automation
platform from ICL, meaning that both the BPC and the proposed Post Office bank
accounts would be dropped from the project. Eventually, after further negotiation,
Option B3 formed the basis for restructuring the Horizon contract, which was
agreed in May 1999.
(6)(b) Was there agreement between government departments as to the future of the
Horizon project? If not, what were their respective positions as you recall them?
52. As I recall, the Prime Minister's approval of the alternative approach largely
resolved the main areas of disagreement between the DSS and the DTI. In
addition, as I have already mentioned, my views on the merits of the BPC aligned
with those of the DSS.
53.1 have been provided with a copy of a submission to Mr Milburn (Chief Secretary
to HMT) dated 5 May 1999 (“BA/POCL”), which I exhibit as WITNO358R9_01/13
[HMT00000022]. This document shows that there remained disagreement
between government departments over the detail of how to restructure the project.
54.1 also exhibit as WITNO358R9_01/14 a submission to the Prime Minister dated 10
May 1999 (“Horizon (BA/POCL Project”) [HMT00000024]. This document appears
to represent an agreed summary of the different departments’ positions and
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records my (and Lord Falconer’s) preference for Option B1 and the preference of
Mr Darling (DSS) and Mr Milburn (HMT) for Option B3.
55.1 can see from this document that my preference for Option B1 was on the basis
that it was the best option for preserving footfall to Post Office branches, as well
as allowing the Post Office — with the benefit of 15 million account-holders — to win
new government business, reducing the risk of branch closures. I can also see
that Option B1 was opposed by HMT on the understandable grounds that it
represented worse value for money than the alternative options, as well as B3
being a much simpler system for ICL to deliver (bearing in mind the earlier delays
to the project).
56. The end of that submission recorded that departments had been unable to agree
on the final option and therefore the Prime Minister's views were sought to break
the deadlock. I exhibit as WITNO358R9_01/15 a copy of a submission from Steve
Robson to Mr Milburn dated 20 May 1999 (“POCL/BA”) which suggests that (on
11 May 1999) the Prime Minister had provided three “key political requirements”
for any final deal [HMT00000028]. This appears to have been taken as an
endorsement of Option B3 because I can see from this document that HMT officials
had been negotiating with ICL based on Option B3.
(6)(c) What did you understand about the technical integrity and robustness of
Horizon at this time?
57.We were aware that moving from the BPC to smartcard would involve different
technology to that initially envisaged when the contract was first agreed. I have
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already mentioned the importance that all government departments attached to
live operational testing and ensuring that the new product would work in real life.
However, we were also aware that the system developed by ICL was already
capable of using smartcards.*
(6)(d) To what extent were the inter-departmental discussions about the future of the
Horizon project influenced, at this stage, by:
i the financial consequences of terminating the project;
ii. wider concerns about foreign investment in the UK economy;
iti. issues concerning the technical integrity and robustness of Horizon.
58.In answer to this question, I can only repeat what I have already said above in
paras 32-36. All three of these issues — as well as the preservation of the Post
Office network — were key considerations in our discussions within government at
the time.
(6)(e) Please explain why continuation of the Horizon project was considered by the
government to be preferable to termination in May 1999.
59.As I have already mentioned, the Prime Minister had given his approval for
proceeding with a revised version of the Horizon project in March 1999. As the
submission to the Prime Minister had noted (HMT00000014), there were significant
risks involved in proceeding with either Option A or Option B1. He had endorsed
1 Montague report (POL00028094), paragraph 38
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a restructuring of the contract which gave continuation of Horizon a strong political
impetus.
60. By proceeding with Horizon, we were securing the desperately-needed automation
of the Post Office network and therefore its financial viability in the long term. From
my perspective, the case for abandoning the BPC had become overwhelming: not
only was it at risk of obsolescence, the delays to the project meant that in any event
it would have a shorter and shorter shelf-life as an interim measure before the DSS
could move to full ACT. Overall, and taking a long term view, we considered that
proceeding with Horizon represented best value for money.
61.Cancelling the project at this stage would have resulted in huge losses, not only to
ICL and the public sector parties, but also to SPMs who would have lost a
significant chunk of the goodwill value in their businesses. I was regularly advised
throughout this time that the collective value of the SPMs’ investment in the Post
Office network was in the region of £1bn. Additionally, as I have already set out
above, we were also concerned about the foreign investment repercussions and
damage to the credibility of PFI. It was also highly likely that cancellation would
have resulted in complex litigation.
(6)(f) Please explain how the inter-departmental negotiations over the future of the
Horizon project concluded.
62. Following negotiations throughout April and May 1999, heads of agreement were
signed by the DSS, the Post Office Board and ICL on 24 May 1999. As I have
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referred to above, by this time, the revised approach agreed in March (Option B1)
had been superseded by Option B3.
63.1 have not been provided with a copy of the heads of agreement but, as an
indication of what was agreed, I exhibit:
(a) as WITNO358R9_01/16, a press release (“Government confirms future of
Horizon project”) issued by the DTI on 24 May 1999 [WITN03530101];
(b) as WITNO358R9_01/17, a DTI press office briefing on the announcement
(‘Q&A Brief BA/POCL”) [BEIS0000438]; and
(c) as WITNO358R9_01/18, a letter I sent to all Members of Parliament informing
them of the agreement on 27 May 1999 (“Post Office Automation”)
[NFSP00000012].
64. Ultimately, the Post Office had to accept that our position as a government — and
the DTI’s position as its sponsoring department — was that the project should
proceed on these terms, and they did. The final detailed agreement was signed at
the end of July 1999. I have not seen a copy of that agreement.
The position of the National Federation of Subpostmasters
Please consider NFSP00000315, NFSP00000012 and NFSP00000104.
(7)(a) What did you understand the position of the National Federation of
Subpostmasters (“NFSP’) to be in relation to the adoption of Horizon?
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65.My recollection is that the NFSP were broadly supportive of the adoption of
Horizon. I recall giving evidence to the Trade and Industry Select Committee in
July 1999 about the agreement that was reached in May 1999. I note that in the
Select Committee’s Eleventh Report, issued on 14 September 1999, the
Committee stated:
“Delays apart, it is generally agreed that the system as installed works
well and is popular with claimants and operators alike. The General
Secretary of the NFSP told us ‘There was absolutely no resistance from
sub-postmasters and very little from customers. It was warmly received
by the customers .....’, an impression confirmed by the NFSP's National
President, a sub-postmistress in one of the trial areas in the North-East.”
66.1 exhibit as WITNO358R9_01/19 a copy of the Select Committee’s Eleventh Report
[WITNO3580102].
67.1 also note that ina memorandum submitted by the NFSP to the Select Committee,
they emphasised the “importance of automation to the future of the network” and
that they recognised the “need to provide a modern, secure payment system which
is cost effective, robust and fully accounted.” They stated their opposition to the
abandoning of the BPC and therefore to the revised version of the contract agreed
in May 1999, arguing that the loss of the exclusive arrangement with the BA would
be “disastrous” for the network. However, the memorandum also noted that
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“The system has already been installed in over 250 post offices ... with
all services fully automated. ... On the systems side, our understanding
is that the system has been moved successfully through the final stages
of testing prior to addition of the remaining offices to make up the
balance of 300 taking part in the formal live trial. The training courses,
go-live arrangements and support arrangements both at offices and via
the helplines were ready to ensure a successful trial prior to national roll
out.
68.1 exhibit as WITN0358R9_01/20 a copy of the NFSP’s memorandum
(‘Memorandum submitted by the National Federation of Sub-Postmasters”)
[WITN03580103]
69.1 do remember giving a speech to the NFSP’s 2001 annual conference in North
Wales and taking part in a Q&A session. I do not remember the precise content of
the speech or the Q&A session but I do recall my impression that the session was
positive about Horizon and I do not recall any problems or concerns being raised
about the system's reliability or integrity.
(7)(b) To what extent, if at all, did representations from the NFSP_ influence
government policy on the future of Horizon?
70. The NFSP were a key stakeholder. I recall that the DT! established a new Horizon
Working Group, which met for the first time on 8 June 1999. The group was chaired
by lan McCartney (Minister of State) and included senior leadership from POCL,
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the NFSP and the CWU. I exhibit as WITN0358R9_01/21 a copy of the group’s
terms of reference (“Horizon Working Group: Proposed Terms of Reference”)
[BEIS0000351]. I also exhibit as WITNO358R9_01/22 a copy of a briefing to Mr
McCartney ahead of the group’s first meeting (“Horizon Working Group: First
meeting Tuesday 8 June 1999 — Steering Brief’) [BEISO000345].
71. There was a recognition that with Horizon we were breaking new ground and that,
during the roll-out phase of the programme, it was essential to have direct feedback
from those on the frontline about how it was working. For that reason, NFSP
membership of the Horizon Working Group was vital.
72.As the terms of reference make clear, one of the tasks of the Horizon Working
Group was to “oversee, to contribute actively to, and to facilitate solutions where
problems arise, the completion of the development phases of the Horizon project,
and in particular the smooth and timely roll-out of the system to all offices within
the post office network ...”. The fact that the group was chaired by the Minister of
State is, in my opinion, a good sign that we were concerned about the integrity and
robustness of Horizon.
The position of the Communication Workers Union
Please consider BEIS0000200, BEISO000201.
(8)(a) What did you understand the position of the Communication Workers Union
(“CWU’) to be in relation to the adoption of Horizon?
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73.My recollection is that the CWU were broadly supportive of Horizon. I refer to the
memorandum submitted by the CWU to the Trade and Industry Select Committee
which described the agreement reached in May 1999 as
“a welcome move [which is] significant in that it provides a vehicle for the
continuation of the Horizon project. It appears that the project had
reached the stage where the [only] alternative was termination, which
would be the worst scenario for our members and our members’ jobs,
as well as the public who would be faced with a large-scale reduction in
the Post Office network in general.”
74.1 exhibit as WITNO358R9_01/23 a copy of the memorandum (“Memorandum
submitted by CMA and CWU") [WITN03580104].
(8)(b) To what extent, if at all, did representations from the CWU influence
government policy on the future of Horizon?
75. The CWU were also a key stakeholder and were a member of the Horizon Working
Group which I referred to in para 70 above.
(9) 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?
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76.My responsibility for the Post Office and Horizon came to an end when I was
appointed as Secretary of State for Transport, Local Government and the Regions
in June 2001.
77.\1n September 1999, the Trade and Industry Select Committee had observed that
the roll-out was going well. I have not been provided with any documents post-
dating October 1999 and, to the best of my recollection, I do not recall any
significant concerns about technical issues with Horizon being raised through the
Horizon Working Group or otherwise (including by POCL, ICL or colleagues in
Parliament) during the remainder of my time as Secretary of State.
(10) Do you feel that you were properly informed of issues concerning the technical
integrity and robustness of Horizon during the period of your involvement? If
not, why not?
78.1 do think that I was properly informed about the issues concerning the technical
integrity and robustness of Horizon at the time. The government was aware of its
fundamental importance to the project, which was why Adrian Montague had been
asked to report on its technical viability in July 1998, and why we pushed hard for
live operational trials as a precondition for acceptance. The evidence provided to
the Trade and Industry Select Committee was that that process was going well. I
have already mentioned that I do not recall significant problems about Horizon
being raised through the Horizon Working Group.
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79. In addition, there were a number of mechanisms for raising concerns in Parliament,
through questions, adjournment debates or select committees as well as face-to-
face encounters with my parliamentary colleagues. During my time in Parliament,
I always found these to be a good early warning system but, as I have already said,
I do not recall any concerns about the technical integrity or robustness of Horizon
being raised through those channels during my time as Secretary of State.
80.In the absence of any concerns being raised with me through these channels, I
would have expected day-to-day problems with the system to have been resolved
by ICL and POCL, as the two remaining parties to the contract.
(11) Looking back, do you feel that the Government effectively scrutinised the
technical integrity and robustness of Horizon during its negotiations with ICL
about the future of the project?
81.It was clear that Horizon was a complex project. Its technical integrity and
robustness were key factors that underpinned the whole project. To ensure
effective scrutiny of these issues we insisted on live operational trials and had in
place through the Horizon Working Group a mechanism to monitor the roll out and
flag up to Ministers any problems that might emerge.
(12) Are there any other matters that you consider will assist the Chair?
82.Looking at the sequence of events that have led to the setting up of the Inquiry, I
would like to make some observations about the relationship between government
ministers and their civil servants.
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83.Ministers are “here today gone tomorrow’ politicians. It is unusual for a Minister to
stay in the same position for any length of time. In my own case, I held three
different Cabinet posts in the space of a little less than four years. On the other
hand, some civil servants can remain responsible for the same area of policy for a
significant length of time. As a result they can feel personal ownership of a
particular policy. There is also the danger that over time they can develop an overly
close relationship with external bodies or agencies that they are required to work
with.
84. In this context it is vital that the respective responsibilities of government ministers
and their civil service officials is made clear and understood by all. To put it bluntly:
it should always be the case that officials advise and ministers decide. It is the job
of ministers to question, challenge and when necessary disagree with the advice
being offered by their officials. This can be difficult. A strong working relationship
often develops between a minister and officials. There can be a sense of loyalty
to each other, especially when under attack from outside the department.
However, it is essential that ministers put their duty to Parliament and the public
ahead of the views held within their department.
85.This begs the question of how, in practice, can this important principle be
embedded in the thinking of ministers? In the period leading up to the 1997
General Election those of us who held shadow ministerial positions attended a
number of residential seminars to prepare us for government and taking on
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ministerial roles. This training was kept confidential as its existence would be
interpreted as taking the outcome of the election for granted.
86.Personally I found these seminars of great value. In particular, a point that was
made forcibly on many occasions was about ministerial accountability to
Parliament and the necessity of not just accepting the advice given by civil servants
but always to be challenging, questioning and prepared to disagree and overrule
civil servants when necessary.
87.If such training is seen as being of merit, then it could easily be incorporated into
existing arrangements. There is a convention that as we get towards the end of a
Parliament, and the General Election approaches, the Prime Minister authorises
pre-election contact between the main Opposition parties and the civil service. I
believe this normally happens around six months before the election is held. I
know from personal experience that, before the General Election in June 2001, the
Prime Minister gave the go ahead on 1 January 2001 for discussions to start.
Perhaps this period could also be used to provide potential Ministers with training
about their role and in particular their respective responsibilities and relationship
with their Departmental civil servants.
88.In conclusion I would like to re-iterate that I am deeply sorry for the wrong that
SPMs and their loved ones have suffered. I hope that this Inquiry will enable
lessons to be learned, people to be held to account, recommendations made and
action taken to ensure that something like this can never happen again. I hope
this statement helps the Inquiry in its work and stand ready to give any further
assistance that the Inquiry requires.
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1: 26 September 2022
racseons nar een na rasa race
INDEX OF EXHIBITS
WITNO3580100
WITNO3580100
No.
Exhibit
Description
Provider’s
control
number
URN
WITNO358R9_01/1
BA/POCL
Automation
Programme
Review - HM
Treasury
Independent Panel
Report (Montague
report)
POL-0024576
POL00028094
WITNO358R9_01/2
Benefits
Agency/Post Office
Counters
Automation Project
(Corbett report)
POL-0024580
POL00028098
WITNO358R9_01/3
Letter dated 18
December 1998
from Keith Todd to
Stephen Byers
VIS00007766
HMT00000001
WITNO358R9_01/4
Letter dated 11
December 1998
from Neville Bain to
Peter Mandelson
BEIS0000384
BEIS0000404
WITNO358R9_01/5
Letter dated 10
December 1998
from Peter
Mandelson to
Stephen Byers
BEIS0000398
BEIS0000418
WITNO358R9_01/6
Letter dated 11
December 1998
from Alistair Darling
to Stephen Byers
BEIS0000397
BE!IS0000417
WITNO358R9_01/7
Letter dated 14
December 1998
from lan
McCartney to
Stephen Byers
BEIS0000380
BEIS0000400
WITNO358R9_01/8
Undated draft letter
from the Secretary
of State for Trade
and Industry to the
Prime Minister
BEIS0000375
BEIS0000395
WITNO358R9_01/9
Submission dated
3 February 1999 to
Alan Milburn
VIS00007780
HMT00000015
10
WITNO358R9_01/10
Submission dated
24 February 1999
VIS00007779
HMT00000014
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from Alan Milburn
and Lord Falconer
to the Prime
Minister
11
WITNO358R9_01/11
Letter dated 1
March 1999 from
the Prime
Minister's Principal
Private Secretary
BEIS0000355
BEIS0000375
12
WITNO358R9_01/12
Submission
(including annex)
dated 16 April 1999
to Stephen Byers
BEIS0000342
BEIS0000343
BEIS0000362
BEIS0000363
13
WITNO358R9_01/13
Submission dated
5 May 1999 to Alan
Milburn
VIS00007787
HMT00000022
14
WITNO358R9_01/14
Submission dated
10 May 1999 to the
Prime Minister
VIS00007789
HMT00000024
15
WITNO358R9_01/15
Submission dated
20 May 1999 to
Alan Milburn
VIS00007793
HMT00000028
16
WITNO358R9_01/16
DTI press release I
dated 24 May 1999
I WITNO3580101 I
WITNO3580101
17
WITNO358R9_01/17
Undated DTI press
briefing
BEIS0000418
BEIS0000438
18
WITNO358R9_01/18
Letter dated 27
May 1999 from
Stephen Byers to
all MPs
VIS00007460
NFSP00000012
19
WITNO358R9_01/19
Trade and Industry I
Select Committee
Eleventh Report
dated 14
September 1999
WITNO03580102
20
WITNO358R9_01/20
Memorandum
submitted to the
Trade and Industry
Select Committee
by the NFSP-
I wiTN03580103 I
1] WITNO3580103
21
WITNO358R9_01/21
Proposed terms of
reference of the
Horizon Working
Group
BEIS0000331
BEIS0000351
22
WITNO358R9_01/22
Briefing for lan
McCartney for
Horizon Working
Group meeting 8
June 1999
BEIS0000325
BEIS0000345
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23
WITNO358R9_01/23
Memorandum A
submitted to the I} WITN03580104 I
Trade and Industry I'----------rrr
Select Committee
by the CWU
WITNO03580104
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