1 Thursday, 24 November 2022 2 (10.00 am) 3 MR BEER: Good morning, sir, can you see and hear me? 4 SIR WYN WILLIAMS: I can indeed, thank you. 5 MR BEER: Can I call Stephen Byers, please. 6 SIR WYN WILLIAMS: Yes. 7 STEPHEN BYERS (affirmed) 8 Questioned by MR BEER 9 MR BEER: Good morning, Mr Byers. 10 A. Good morning. 11 Q. I'm Jason Beer, I ask questions on behalf of the 12 Inquiry. Can we thank you for the statement that you 13 have provided us and for coming to the Inquiry today to 14 assist us with our investigation. Can you give us your 15 full name, please? 16 A. Stephen John Byers. 17 Q. In front of you there should be a witness statement of 18 35 pages. 19 A. Yes. 20 Q. On the 32nd page there should be a signature; is that 21 your signature? 22 A. It is. 23 Q. Are the contents of that witness statement true to the 24 best of your knowledge and belief? 25 A. They are. 1 1 Q. For the transcript, that's WITN03580100. 2 Can I start, please, with some questions about your 3 background and experience. 4 You were part, I think, of the Labour Government 5 that came into power following the general election on 6 1 May 1997? 7 A. That's correct. 8 Q. You were initially a minister at the Department for 9 Education and Employment? 10 A. Yes. 11 Q. You held that role for 15 months, I think, until on 12 27 July 1998 you became Chief Secretary to the Treasury? 13 A. That's right. 14 Q. You held that post for five months until, on 15 23 December 1998, when Peter Mandelson resigned, you 16 took up his job as Secretary of State for Trade and 17 Industry? 18 A. That's true. 19 Q. You held that post for two and a half years until, on 20 8 June 2001, you took up a post as Secretary of State 21 for Transport, Local Government and the Regions, which 22 you held for just under a year when you too resigned? 23 A. That's right. 24 Q. I think it follows that the two posts that you occupied, 25 which are of most interest to the Inquiry are, firstly, 2 1 Chief Secretary to the Treasury, July 1998 until 2 December 1998, and then, secondly, Secretary of State 3 for Trade and Industry, December 1998 until June 2001. 4 Dealing with the first of those posts first, can you 5 explain in very summary terms, please, which of your 6 responsibilities as Chief Secretary for the Treasury for 7 that five-month period were particularly relevant to the 8 issues which this Inquiry is examining? 9 A. Well, as Chief Secretary to the Treasury, the main 10 responsibility is public expenditure, that was the main 11 focus of my work as chief secretary. I also, as one of 12 the further responsibilities had a sort of overview of 13 the whole sort of PFI/PPP regime, Private Finance 14 Initiatives, Private Public Partnerships, and that 15 obviously had an implication because the Horizon project 16 was an example of a PFI project that we inherited from 17 the previous administration. 18 Q. You, therefore, I think, had oversight of what you 19 describe as the Treasury PFI taskforce led by Adrian 20 Montague? 21 A. That's correct. 22 Q. You say in paragraph 7 of your witness statement, if we 23 can just turn that up, WITN03580100, at page 3 -- 24 thank you: 25 "The Taskforce had been set up on the recommendation 3 1 of a review in 1997 by Sir Malcolm Bates and its role 2 was to support government departments with PFI ... 3 contracts ..." 4 Then moving on: 5 "Given the size and scale of the project, and the 6 obviously dysfunctional relationships between the 7 parties involved, Horizon was one of the contracts which 8 the Taskforce came to review." 9 Why were there dysfunctional relationships between 10 the parties involved? 11 A. I think the main difficulty was that the two clients, if 12 I can put it that way, of the contract, which would be 13 the Benefits Agency and Post Office Counters, to be 14 blunt, their interests were not aligned at all. They 15 had two quite different objectives, for the 16 Benefits Agency it was to see benefit claimants moving 17 onto ACT, whereas for Post Office Counters it was 18 a desire to ensure the future of the Post Office 19 network, and those two goals actually were not aligned 20 with each other. 21 I think the other problem was that both those 22 entities had quite different cultures, if I can put it 23 that way. The Post Office was trying to be more 24 business like, more entrepreneurial, more market driven, 25 and I think the Benefits Agency was very much a part of 4 1 the Department of Social Security, it was a government 2 agency and it had its own rules and procedures that it 3 had to follow. 4 So they were two quite different entities trying to 5 achieve two quite different objectives. 6 Q. That doesn't necessarily lead to a dysfunctional 7 relationship, having different objectives -- 8 A. Well, it did in this case, I'm afraid. 9 Q. Why did it lead to, in your view, an obviously 10 dysfunctional relationship, having different objectives? 11 A. I think there may be some -- the individuals concerned 12 may have found it difficult to work with each other -- 13 Q. Which individuals? 14 A. I can't remember any particular individuals, no. 15 Q. You were, I think, going on to say something else? 16 A. And also, I think, the relationship with ICL, as the 17 contractor, was not a good one either. Now, whether ICL 18 found it difficult because they were trying to service 19 the needs of two quite different clients, I don't know, 20 that could be an explanation. 21 Q. Was it obvious to you from the very start that these 22 differing objectives, as you put them, or describe them, 23 led to the dysfunctional relationship? 24 A. I think it made it very difficult and I think, looking 25 back, it was a sort of fundamental flaw in the contract 5 1 itself, I think. 2 Q. You were, secondly, Secretary of State for Trade and 3 Industry from December 1998 until June 2001. Again, in 4 very summary terms, can you please describe for the 5 Inquiry which of your responsibilities were particularly 6 relevant to the issues which we are examining? 7 A. Well, I think for the purpose of this Inquiry there are 8 probably two main elements of the responsibilities I had 9 at the time. First was -- 10 Q. Sorry, the witness statement can come down, thank you. 11 A. First was in relation to the Post Office, the Department 12 of Trade and Industry was the sort of sponsoring 13 department for the Post Office. 14 Q. You say in your witness statement, just pausing there, 15 Mr Byers, that you had overall ministerial 16 responsibility for the Post Office -- 17 A. Yes. 18 Q. -- is that right? 19 A. But working very much with a Minister of State who has 20 more sort of hands-on responsibility, if I can put it 21 that way. I mean, the relationship between the 22 Secretary of State as a cabinet minister is very often 23 as a sort of overview, whereas a Minister of State will 24 have almost more sort of almost day-to-day 25 responsibilities for a particular very discrete area of 6 1 policy, and that was the way -- 2 Q. I'll explore that in a moment, if we may. 3 A. Yeah. So the overview of the Post Office, and then also 4 a responsibility sort of for foreign direct investment, 5 inward investment from overseas into -- into the UK. 6 Q. Thank you. 7 In relation to the former of those roles, overall 8 responsibility for the Post Office, can you describe in 9 general terms how that responsibility was exercised at 10 this time with the Post Office being a statutory 11 corporation? 12 A. Particularly in relation to Horizon or more -- 13 Q. No, generally, please. 14 A. Generally speaking. 15 Well, the role was to -- the Secretary of State 16 nominated the Chair and the board members -- 17 Q. When you say "nominated", you mean appointed? 18 A. Appointed, yes, yes. We had responsibility for 19 commercialisation of the Post Office, so overall 20 direction of the Post Office. It was a monopoly and we 21 were looking at whether we should change that 22 relationship, whether we should bring in more private 23 sector involvement. So the whole sort of area of 24 sort of demand, meeting new needs was certainly a policy 25 area that I was responsible for as Secretary of State. 7 1 Then within that, there is then the more detailed 2 work to do, for example, with the Post Office network 3 and the political pressures that come from that. 4 I mean, I think at the time it was the sort of biggest 5 retail network in the whole of Europe, very important 6 for individual communities, but facing great challenges, 7 so it was how we could respond to that in a positive 8 way. 9 Q. Breaking that down a little bit, if we may. Did you 10 have a junior minister with specific responsibility for 11 the Post Office? 12 A. Yes, there was a Minister of State who had specific 13 responsibility for the Post Office, and it was 14 Ian McCartney, and then when Ian got moved it was 15 Alan Johnson. 16 Q. How were responsibilities divided between the Minister 17 of State with responsibility for the Post Office and the 18 Secretary of State, you, with overall responsibility for 19 the Post Office? 20 A. I probably think -- as I said a bit earlier, I think the 21 Minister of State had almost day-to-day responsibility, 22 so would be looking at things in much more detail -- 23 Q. Just pausing there, and apologies for interrupting you 24 as we go along, when you say day-to-day responsibility, 25 do you mean literally he or she may be -- in this case 8 1 a he -- dealing with Post Office issues on a daily 2 basis, or is that a phrase intended to describe more 3 involvement than you had? 4 A. Certainly more involvement than I had. I think it 5 probably depends on the individual. It wouldn't 6 surprise me, and I think I saw on the witness list 7 Ian McCartney is going to give his own evidence. 8 Q. Yes. 9 A. It wouldn't surprise me if Ian was involved almost on 10 a daily basis. What I think I do mean, to be more 11 precise, is that he would have been on top of the detail 12 to a far greater extent than I would have been. 13 Q. How do you exercise oversight over him? Do you wait for 14 him to come to you with issues? Do you wait for 15 a ministerial submission, Secretary of State submission, 16 to come up to you, or was there any other mechanism for 17 exercising any oversight? 18 A. (Pause) 19 I'm delaying, because I'm thinking back 22 years to 20 sort of identify how things worked in practice. What 21 would very often happen is, if there was an issue, 22 for example -- I'll do it in two bits, if I can. 23 If there was an element -- and this is particularly 24 relevant to the Horizon project. If there was 25 a particular issue that, for example, Alistair Darling, 9 1 as Secretary of State for Benefits and Social Security 2 was concerned about, I then, as another Secretary of 3 State would deal with Alistair, it was that sort of 4 relationship, and it wouldn't often be the case that the 5 Minister of State would have a dialogue with a Secretary 6 of State. So that would be my involvement. So it would 7 be something coming in from outside the Department, 8 another Secretary of State. 9 If there was then internally -- if there's 10 particularly a political issue that I would be concerned 11 about, to do with the Post Office, I would then raise it 12 directly with the Minister of State. If there are 13 issues that the Minister of State was dealing with in 14 a more detailed way, that he felt needed some sort of 15 political clearance or discussion, then that would come 16 up to me from Ian or Alan Johnson. 17 Q. You have explained that there was a Post Office board 18 and a chairman of the Post Office? 19 A. Yes. 20 Q. What means of communication was there between the 21 Chairman and you? 22 A. There was no formal process, so it wasn't that there was 23 a sort of three monthly meeting or anything of that 24 nature. So there would be communication by -- probably 25 in those days, by letter rather than email. I can't 10 1 remember any telephone calls with the Chairman, but it 2 would be done in that rather formal way and there would 3 be requests for sort of ad hoc meetings. 4 Q. And they could come in either direction, from you or 5 from him? 6 A. I can't recall myself requesting a meeting with the 7 Chairman. 8 Q. As for the board, you've said that, I think, as well as 9 appointing the Chairman you appointed members of the 10 board? 11 A. Yes, that's my recollection. 12 Q. Did Government have a seat on the board in any way, to 13 your recollection? 14 A. I don't think we did but I'm not altogether sure. 15 Q. If I was to ask the general question: who was your point 16 of contact on the Post Office board, who would you say? 17 A. It would be with the Chairman. 18 Q. We know that Post Office Counters Limited, POCL, was 19 created as a wholly-owned subsidiary of the Post Office 20 in 1987. What responsibilities or oversight or 21 governance arrangements did you have in relation to Post 22 Office Counters Limited, as Secretary of State? 23 A. I don't recall, I'm afraid. 24 Q. You don't recall or you don't recall any? 25 A. No, no. 11 1 Q. No. Can you recall what contact, if any, you had with 2 that separate legal entity, Post Office Counters 3 Limited, given, in this case, it was one of the 4 contracting parties to the contract with ICL Pathway? 5 A. I wouldn't have had, as Secretary of State, any direct 6 contact with POCL. 7 Q. You've explained, I think, that there were no scheduled 8 governance meetings between you as Secretary of State 9 and the board or the Chairman of the board; is that 10 right? 11 A. That's correct. 12 Q. Would you habitually see minutes of board meetings from 13 the Post Office? 14 A. No. 15 Q. Do you know whether anyone amongst the ministerial team, 16 in particular Mr McCartney, did or not? 17 A. I would have thought that it would be officials, so 18 civil servants would be receiving board minutes and they 19 would probably alert Ian to anything that they felt was 20 particularly relevant, but I wouldn't see them as 21 Secretary of State. 22 Q. Was there, to your knowledge, any government framework 23 document in place that explained the relationships that 24 we're now talking about? 25 A. Not to my recollection. 12 1 Q. Thank you. 2 You tell us in paragraph 42 of your witness 3 statement, if we can turn that up, please, it's on 4 page 16 -- it will come up on the screen for you, 5 Mr Byers -- at the top of the page: 6 "My overall attitude towards the project remained 7 the same [the 'project' being the Horizon project] but 8 clearly my responsibility within government had 9 changed ..." 10 You're talking about here the point at which you 11 moved from being Chief Secretary to Secretary of 12 State -- 13 A. Yes. 14 Q. -- for Trade and Industry: 15 "... I now had to have the interests of the Post 16 Office network, and inward investment into the UK, at 17 the centre of my concerns." 18 Did that remain the case throughout the duration of 19 your time as Secretary of State up until June 2001? 20 A. Yes. 21 Q. We know that at least one subpostmistress was 22 interviewed by Post Office investigators in March 2001 23 and went to a Magistrates Court in November 2001, and 24 that other investigations and prosecutions of 25 subpostmasters and mistresses started in 2000 and 2001. 13 1 You were Secretary of State until 8 June 2001. Were you 2 ever aware that prosecutions of subpostmasters and 3 mistresses were taking place on the basis of evidence 4 generated by the Horizon system? 5 A. No. 6 Q. But were you aware of whether there were any discussions 7 or approval of such decisions at Post Office board 8 level? 9 A. No, I was unaware of that. 10 Q. From your knowledge of the board, are you able to 11 comment as to whether these are matters that would have 12 been discussed at Post Office board level? 13 A. I wouldn't know, I'm afraid. 14 Q. You wouldn't know one way or the other? 15 A. No. 16 Q. If the matters had been discussed at board level, is 17 that something that the Department would have been aware 18 of through its sight of the minutes of the board 19 meetings? 20 A. I would have thought so, yes. 21 Q. Can you help us explain the relationship or the balance 22 of power or responsibility here? What would you expect 23 of your officials if, for example, a minute recorded, or 24 a board minute recorded, "We're now prosecuting people 25 on the basis of the Horizon system"? What would you 14 1 expect officials to do in relation to that? 2 A. If it was in the early stages of the Horizon project, 3 when we essentially were still learning how it was 4 operating in practice, then if there were a number of 5 prosecutions and there seemed to be a sort of systematic 6 failure in the programme, then I would have thought that 7 ministers would have been alerted to that. 8 Q. Is that the kind of relationship that departmental 9 officials had with the Post Office, ie exercising some 10 sort of watching or oversight function on it? 11 A. I think the officials will be better placed to answer 12 that than I am, I'm afraid. 13 Q. Is that because you would only know if something was 14 escalated up to you through a ministerial submission? 15 A. Yes. 16 Q. And we know that that didn't happen? 17 A. Yes. 18 Q. Thank you. 19 Can I turn, with that background, then, please, to 20 look at the Montague report. This is POL00028094. 21 Thank you. 22 We can see that, on its face, it's dated July 1998, 23 and we know from other evidence that it was produced or 24 available from 22 July 1998. I think that would be 25 five days before you took up office as the Chief 15 1 Secretary to the Treasury, on the 27th? 2 A. That's correct, yeah. 3 Q. So this report is quite fresh as you start your new job. 4 A. Yeah. 5 Q. But I take it it's the kind of report that, with 6 responsibility for the taskforce, as you've explained, 7 you would have read -- 8 A. Yes. 9 Q. -- in particular, because I think that this PFI project 10 was, I think, being badged up as the largest PFI project 11 of its age? 12 A. That's correct. 13 Q. Now, if we just take that down for a moment and go back 14 to your witness statement at paragraph 12, please, you 15 say the panel, that's the three co-authors of the 16 Montague report -- 17 Sorry, it's page 5, paragraph 12. 18 A. Yeah. 19 Q. You say: 20 "The panel [that's the three co-authors of the 21 Montague report] made two recommendations for a possible 22 way forward: [one] a full restructuring of the project; 23 or [two] a partial restructuring. Termination of the 24 project was ruled out, as was continuing the project as 25 planned or simply extending the contract." 16 1 Now, it's certainly right that the report made two 2 recommendations for a possible way forward, so a full or 3 a partial restructuring of the project, but you say that 4 termination of the project was ruled out. 5 Are you saying, by that sentence in the witness 6 statement, that the Montague report ruled out 7 termination of the project? 8 A. My recollection is that was the implication of the 9 Montague report. It may not have been expressly stated, 10 but I think that was the -- I think the conclusions that 11 one would draw from the recommendations, whether that 12 was something that he was -- a route he was not going 13 down. 14 Q. If we can just then look back at the report, please, to 15 see whether it's expressly stated, or whether it's by 16 implication, or came from another source, that 17 termination was being ruled out. Can we look at the 18 executive summary, please, on page 3. Just before we 19 get into this, can you help us, as a Secretary of State, 20 to what extent would you have just read executive 21 summaries, or would you have got into the weeds of the 22 detail? 23 A. I honestly cannot remember on this occasion. 24 Q. No, I wouldn't expect you to. 25 A. No. 17 1 Q. But as a matter of generality? 2 A. I would expect my officials to do me a summary of the 3 report. So I wouldn't have relied on the report itself. 4 My officials would have given me advice based on the 5 report. 6 Q. Looking -- 7 A. I'd have received this as Chief Secretary, not Secretary 8 of State. 9 Q. Yes, I'm so sorry. 10 A. Yeah. 11 Q. Looking at the executive summary, then, we can ignore 12 the first three bullet points, because they're 13 background. If we scroll down to "Findings", then, 14 please. 15 If you scan through those, I think you will have 16 read these more recently. 17 A. Yes, I have. 18 Q. The document's been provided. Then go over the page, 19 please to "Possible way forward", if you just scan 20 through those. 21 (Pause) 22 So the second bullet point is essentially the full 23 restructuring; the third bullet point is the partial 24 restructuring that you spoke about in paragraph 12. 25 (Pause) 18 1 You can see here, and I don't think there's anything 2 in the detail of the report that is different to this, 3 that the authors do not address the issue of terminating 4 the project, less still do they themselves rule out that 5 option. 6 Do you say, therefore, that because they were 7 talking about a full or partial restructuring of the 8 project, you took it that by implication they had ruled 9 out termination? Or do you think the full -- the option 10 of termination and ruling it out came from elsewhere, 11 thinking back? 12 A. I think ... I think any reasonable person would conclude 13 from the "Findings" and the "Possible way forward" that 14 cancellation or termination had effectively been ruled 15 out by the Montague report. 16 Q. Because they were only speaking about partial or full 17 restructuring? 18 A. And they don't even address the issue of termination or 19 cancellation. 20 Q. You take that to mean or took that to mean a ruling out 21 by them? 22 A. By the Montague report. I hadn't ruled it out in my own 23 mind, as Chief Secretary. 24 Q. Why hadn't you ruled it out in your own mind? 25 A. So I came in on 28 July -- 19 1 Q. Yes. 2 A. -- and there were certainly a couple of occasions, as 3 things developed, and I could see basically the mess 4 that the Horizon project was in, that we would have to 5 consider the possibility of cancellation, and that was 6 a live consideration during my time. 7 Q. Was it always a live consideration when you were both 8 Chief Secretary and Secretary of State? 9 A. I think -- I think when I became Secretary of State -- 10 well, two things. I think by the time I left the 11 Treasury in December, having reviewed the option of 12 cancellation, I'd come round to the view that actually 13 that was not going to be possible. 14 Q. Was there any direction from Number 10 that termination 15 as an option should be ruled out, that this project was 16 going to go ahead? 17 A. Not that I can recall. 18 Q. Can we look then at the report in some more detail, and 19 go to page 6, please, and look at the "Terms of 20 Reference". Again, there is some background in 21 paragraph 1. Paragraph 2 tells us that the panel was 22 set up and chaired by the head of the Treasury 23 taskforce, that's Adrian Montague. 24 To your knowledge, did Adrian Montague have any 25 technical expertise himself? 20 1 A. No, I don't think he did. 2 Q. Then the other two members, if we just go back to the 3 first page of the report, they're listed -- if we scroll 4 down, thank you. 5 Bill Robins, he was head of the Northern Ireland 6 Social Security Agency; do you remember that? 7 A. I honestly don't know. 8 Q. Okay. So you wouldn't be able to help us whether he had 9 any technical expertise or knowledge in IT himself? 10 A. The panel was appointed before I became Chief Secretary, 11 so ... 12 Q. Alec Wylie was Director General of Communications and 13 Information Services in the Ministry of Defence. Again, 14 you wouldn't be able to help us, I suspect, given your 15 previous answers, with whether he had any technical 16 expertise in IT projects? 17 A. I'm sorry, I just don't know. 18 Q. Okay. Can we go back to page 6, then, please, at 19 paragraph 3, essentially the "Terms of Reference": 20 "... we, the Panel, were asked to assess: 21 "whether the project can deliver a fully functioning 22 system which meets the project specification, and 23 integrates fully with BA and POCL computer systems; 24 "whether the timetable for completing the systems 25 development, and starting and completing rollout, is 21 1 deliverable and whether the necessary managerial and 2 organisational structures are in place; 3 "the likely costs of delivery, under current 4 contract dates and with extension; and 5 "in each of these areas, the risks associated with 6 these assessments, and whether robust monitoring 7 arrangements and disciplines are in place." 8 So that's the terms of reference, and it's the first 9 one that I'm particularly interested in, whether the 10 project can deliver a fully functioning system which 11 meets the project specification, and integrates with the 12 existing systems. 13 Can we go back, please, to page 3, the "Executive 14 Summary" and the "Findings". The second bullet point, 15 I think, addresses this: 16 "Our view is that the programme is technically 17 viable. There must be some risk around scalability and 18 robustness because the system has had to be tested at 19 the level of component parts, but we are satisfied these 20 risks are being well managed by Pathway." 21 Just looking at that at the moment, do you 22 understand that to be the answer to the question in the 23 terms of reference as to whether the project can deliver 24 a fully functioning system? 25 A. Yes, I think so. 22 1 Q. What did you understand that to mean, "Our view is that 2 the programme is technically viable"? 3 A. I think we knew it was a very challenging programme and, 4 in some respects, breaking new ground, and I think we 5 would need to be assured that, actually, it could be 6 delivered in practice. 7 Q. Would you agree that, in the way that the issue is 8 approached, it means "feasible", the project is 9 feasible, ie that the system proposed can, from 10 a technological point of view, be feasibly delivered and 11 built? 12 A. Yes, I think combined with the point made in bullet 3 13 about future proofing, yes, that would be my conclusion. 14 Q. I'm going to come to bullet 3 -- 15 A. Sorry, apologies. 16 Q. -- in a moment. That's all right. The reason for 17 exploring this, I should say in advance, is in a number 18 of places you rely on the phrase "We were told by 19 Montague that the project is technically viable" -- 20 A. Yes. 21 Q. -- and subsequently that phrase is used within 22 government a lot as meaning -- or it might be taken to 23 mean -- something rather different, ie the project, the 24 system is, in fact, robust and has integrity, which is 25 why I'm exploring -- 23 1 A. I'm with you. Yeah, I get it. 2 Q. Would you agree that that doesn't mean that the Montague 3 report -- that paragraph does not mean or you didn't 4 take it to mean that the system was, as it stood, 5 necessarily robust and had integrity? 6 A. It wasn't a sort of blank cheque going forward, I'd 7 accept that. 8 Q. Can we just look at the body of the report to see if 9 that helps us any further. Page 11, please. 10 At the foot of the page under "Solution Design and 11 Fitness for Purpose", paragraph 24: 12 "We believe the programme can deliver the contracted 13 functionality. The technical architecture is 14 necessarily highly complex: systems must be separated 15 for contractual reasons; they [over the page] have to 16 have high levels of resilience and security; and they 17 employ a number of different computing platforms. These 18 factors have been well considered in the design and 19 structuring of the project and technical architecture." 20 Then 25: 21 "The main architectural issues are scalability and 22 robustness. We are advised that a solution of this 23 scale and scope with so many different platforms and 24 [problems] has, as far as PA [that was a consulting 25 agency] is aware, no precedent. We are satisfied that 24 1 Pathway's approach to design, development and 2 performance testing is sufficiently rigorous for such 3 a major undertaking. At this stage of development, 4 testing has to be based on the component parts rather 5 than the entire system. We believe this has been 6 completed in an appropriately structured way; indeed it 7 is a strength of the modular nature of the architecture 8 that this approach [has been] taken. Significant 9 attention is being given to testing at the 10 correspondence server level where the highest risk of 11 congestion occurs." 12 Did you understand at this point that there had been 13 no end-to-end testing of the system, it was only of the 14 component parts? 15 A. I don't think that level of detail was drawn to my 16 attention. 17 Q. I understand. 18 Then if we look at 26: 19 "Given the size of the system, there is 20 an unavoidable risk that it cannot have all been tested 21 end to end in earnest. However we are satisfied that 22 Pathway has contingency plans to upgrade individual 23 components of the architecture, should that prove 24 necessary, we. Therefore assess the risk of the entire 25 solution failing to operate as expected to be as low as 25 1 could be achieved in the circumstances." 2 What did you understand that last point to mean in 3 the last sentence there? What guarantee or what 4 conclusion was being drawn? 5 A. I think the conclusion I would draw is that we would 6 have to -- we'd have to test it in real life practical 7 situations. 8 Q. The risk being addressed in that sentence, would you 9 agree, is the entire thing failing -- 10 A. Yes. 11 Q. -- rather than an assessment of whether the system is 12 robust and has integrity? 13 A. No, I'll accept that, but also it does refer to Pathway 14 having contingency plans to upgrade those individual 15 components. 16 Q. The reason for asking you this is: if we look, please, 17 at your witness statement, and if we look at page 12 of 18 your witness statement, then at the foot of the page 19 a question in italics that the Inquiry asked: 20 "To what extent were the interdepartmental 21 discussions about the future of the Horizon project 22 influenced, at this stage, by", a number of things. 23 Then the third point is: 24 "... issues concerning the technical integrity and 25 robustness of Horizon." 26 1 Then if we go over the page, please, in 33 you say: 2 "... the financial consequences of any decision ... 3 were a crucial consideration. Cancelling the project 4 would have meant writing off hundreds of millions of 5 pounds of public and private investment in a project 6 which [and then you say this] (as we had been advised by 7 the Montague report) was technically viable." 8 The question you were being asked was about issues 9 concerning the technical integrity and robustness of the 10 system and you answer the question about integrity and 11 robustness by reference to the Montague report's 12 conclusion on technical viability; do you see what 13 I mean? 14 A. Yes, yes. 15 Q. In your mind, were they the same things or different, or 16 didn't you address them? 17 A. I certainly didn't address them at the time I was Chief 18 Secretary. 19 Q. Thank you. Then a little further down at 35, when 20 you're addressing that third point, (iii) of the 21 Inquiry's question, you say: 22 "As for the technical integrity and robustness of 23 Horizon, the Montague report in July 1998 had assured us 24 that the project was technically viable and showed good 25 evidence of future-proofing." 27 1 That future-proofing is the third bullet point we're 2 going come back to in a moment. 3 A. Yes. 4 Q. Again, that tends to suggest, and you've written this in 5 a way that was referring to your state of knowledge back 6 in 1998, that you equated the technical integrity and 7 robustness of the system with what Montague had said 8 about its technical viability; do you see? 9 A. Yes, I understand that point. 10 Q. In your mind, were they one and the same thing? 11 A. Yes, I think I probably did take that view. 12 Q. Sir Adrian Montague, as he now is, has made a witness 13 statement to the Inquiry saying, about his review, that: 14 "It was not possible to test Horizon for real. The 15 review focused on whether, at a high level, the project 16 could be delivered successfully rather than whether it 17 was operating or indeed could operate in accordance with 18 its contractual specification. Of course, this meant 19 that none of the shortcomings in the Horizon system in 20 operation that came to dog the project in later years 21 was or could have been evident at this stage." 22 Thinking back, did you understand that, that what 23 the Montague report was about was not against 24 a background of having tested the Horizon system in 25 operation; it was all about whether the project could, 28 1 in theory, be technically deliverable successfully? 2 A. Yes, and I think that's why we insisted as ministers 3 that there had to be live trials of Horizon. It had to 4 be tested in a real working environment, and that's 5 not -- Adrian couldn't address that at the time of his 6 report. 7 Q. Can we go back to the Montague report, please -- thank 8 you -- and then if we can look at page 3, and go back to 9 the bullet point that we were about to turn to under 10 "Findings", third bullet point. So we're looking at the 11 paragraph underneath the one we were previously looking 12 at: 13 "There is good evidence of future proofing at all 14 levels. The basic infrastructure is very robust for the 15 future and, in the main, industry standard products have 16 been used. The system should allow POCL to compete for 17 new business in a variety of markets ... New 18 applications based on smartcard technology should be 19 relatively straightforward and economic. If online 20 applications are required, they may take longer and 21 require more investment." 22 Did you or do you take anything from that conclusion 23 as to the existing robustness of the system or whether 24 this is instead looking at the future? 25 A. I think -- I think here his finding is looking to the 29 1 future. 2 Q. To what extent can you now recall whether there was 3 reliance within government on what had been said by 4 Montague, generally, as to the technical viability of 5 the product or the system as meaning that it was 6 a robust system? 7 A. I think we did take that from the Montague report. It 8 would be helpful -- and I have to admit that I haven't 9 seen it -- to see the work that PA Consulting did 10 because they would have been the entity that would have 11 addressed the technical issues around how robust Horizon 12 actually was at this stage. 13 Q. Can you recall what had led to -- I'll put that in 14 another way. 15 Can you recall how Montague went about his work, 16 ie what level of deep dive into the operation of the 17 system he undertook? 18 A. I think Sir Adrian's going to be in a better position to 19 address that. 20 Q. Would you agree that it is logical that the report could 21 not offer a view on the existing integrity or robustness 22 of the system because it had not been built yet? 23 A. That would be a sensible conclusion. 24 Q. You tell us in your witness statement, if we can go back 25 to that, please, at paragraph 19, it's on page 7, that, 30 1 I think, despite their differences: 2 "All of the government departments were agreed that 3 it was essential that Horizon undergo a live testing 4 programme (rather than acceptance on the basis of 5 'laboratory testing', as ICL with were pushing for)." 6 That's something that you've mentioned this morning: 7 "The DSS in particular had had a bad experience with 8 an IT project which had been accepted in a test 9 environment which had failed when actually rolled out." 10 You say that was a priority concern for them. Can 11 you recall who the supplier was there, whether it was, 12 in fact, ICL? 13 A. I can't recall, I'm afraid. 14 Q. Can you recall, or do you remember, the DSS being in 15 litigation with ICL at this time? 16 A. I can't recall that. 17 Q. One thing we don't see in the Montague report is 18 a reference back to any of the issues that had been 19 raised or concerns raised about the Pathway proposals in 20 the course of the procurement exercise. To what extent, 21 as a member of the new Government, did you have sight of 22 issues and concerns raised about the technical viability 23 of the Pathway proposal? 24 A. I think it's one of the great frustrations we had as 25 ministers in the new administration. We were not -- we 31 1 were not provided with any detailed information about 2 the difficulties that may have been experienced with 3 Pathway during the tendering process. That was all 4 denied to us, and there is a well established protocol 5 that members of a new government administration cannot 6 see the documents or the policy papers that were 7 provided to the previous administration. 8 So we were -- we were blindsided, and I can 9 understand why, for political reasons, one is not 10 allowed to sort of delve into why particular political 11 decisions were taken, but I cannot see why, if technical 12 weaknesses and problems had been identified under 13 a previous administration, why we couldn't have been 14 alerted to those. And we were not. 15 Q. That's a convention of our administration of politics. 16 A. Yeah. Well, of government, not just of -- 17 Q. Of government. 18 A. Yes. 19 Q. What is your understanding of the limit of it, or the 20 limits of it? What are you denied access to? 21 A. Well, on this occasion, everything. You know, we had, 22 we had four key questions as ministers that we wanted 23 answered about this functional, fatally-flawed contract 24 that was Horizon. We wanted to know who decided it 25 should be a Benefit Payment Card, and not a smartcard; 32 1 why did they arrive at the decision it should be a PFI 2 contract, when, in fact, this was a fantastically 3 complicated contract; was PFI the right approach -- we 4 didn't have the details of the tendering process, but 5 I think the Inquiry may have sort of delved into that; 6 and, finally, why did they end up with, basically, two 7 clients in the Benefits Agency and POCL whose interests 8 were not aligned? 9 Now, we were denied any of that information, as the 10 new administration. As I said earlier, I can understand 11 why we can't delve into the political decisions, the 12 party political decisions, if you like. I can 13 understand why we were not shown the sort of details the 14 Inquiry's now had about our decision-making process 15 during this period. But I would have thought that if 16 flaws in the system had been identified at an early 17 stage, there's no reason why that couldn't be disclosed 18 to an incoming administration. It would have helped us 19 enormously if, as ministers, we'd been told that these 20 problems had been identified. 21 Q. So just testing that at a more general level, are you 22 denied all previous papers of the past administration? 23 A. Yes. 24 Q. What does "all previous papers" mean? 25 A. From my recollection, when we would enquire from our 33 1 civil servants, who would have been part of that 2 process, what happened, what was the reasoning behind 3 it, there was a -- there was a veil that we couldn't 4 lift. 5 Q. To use this as an case study, one could understand why 6 you wouldn't be able to see submissions to ministers, 7 agreed? 8 A. Yes. No, I understand -- yes, I understand that. 9 Q. One could understand why you couldn't see 10 inter-ministerial or inter-Secretary of State 11 correspondence? 12 A. Yes, I mean, to be honest, much of the information 13 that's before the Inquiry around our decision making 14 process as ministers -- 15 Q. Yes. 16 A. -- I wouldn't have expected to see that. 17 Q. No. If you were the next administration after yours, 18 no. 19 But if technical reports had been prepared, is there 20 anything, to your understanding, in the convention that 21 would have prevented them from being seen by Adrian 22 Montague? 23 A. It would be interesting to know if Adrian had that 24 information. I don't know the answer to that. 25 Q. The question was slightly different: is there anything 34 1 to your knowledge in the convention that would prevent 2 or would have prevented him from seeing that previous 3 technical assessment of the Horizon proposal by 4 ICL Pathway? 5 A. It's such a long time ago, I honestly can't recall the 6 detail of the convention now. 7 SIR WYN WILLIAMS: Mr Byers, who would be the arbiter of the 8 convention? Assuming -- forget Horizon. Assuming that 9 you as an incoming Chief Secretary were really anxious 10 to see a particular document, which you knew must have 11 existed, for example, who would actually say "You are 12 denied", so to speak? 13 A. Well, it would probably -- I'm trying to recall, Chair, 14 if it happened in my time. It would be, first of all, 15 a request to your own private office, so your principal 16 private secretary, and if he or she said "I'm really 17 sorry, we can't disclose that information" and if I felt 18 very strongly about it, I would then go to the 19 Permanent Secretary, the head of the Department, and 20 they would rule one way or the other. 21 SIR WYN WILLIAMS: Right, thank you very much. 22 MR BEER: Can you recall that issue arising in relation to 23 Horizon about technical issues, or was it limited for 24 more political issues that you had mentioned a moment 25 ago? 35 1 A. I can't remember any specific request around the 2 technical questions. 3 Q. Because the Inquiry, you may know, has received a vast 4 body of evidence concerning issues and concerns raised 5 over the ICL Pathway proposals in the course of the 6 tendering process, each stage of the procurement 7 exercise, and that knowledge gained doesn't appear to 8 have featured in any of your decision-making or indeed 9 in Adrian Montague's report? 10 A. Or was drawn to our attention. I mean, there's no 11 documents that refer to those discoveries. 12 Q. No. 13 Can we move on, then, please, and go back to the 14 Montague report and look at page 4, please. That's 15 POL00028094. We can see from the last bullet point one 16 of the recommendations was the appointment of a "neutral 17 troubleshooter": 18 "... directly responsible to Ministers and with 19 their full confidence ... to ensure all the parties give 20 their full commitment to implementation of the programme 21 and that rollout is completed at the earliest agreed 22 date." 23 Was that recommendation, the appointment of 24 a neutral troubleshooter, accepted by you? 25 A. Yes, it was. 36 1 Q. I just want to see what happened after the report was 2 delivered. Can we look at HMT00000055. If we just see, 3 this is a letter dated 10 September 1998. 4 If we go to the last page, please, page 3, and 5 scroll down, we can see that, from page 1, it was 6 addressed to Alistair Darling -- he was then the 7 Secretary of State for the DSS -- and copied to the 8 Prime Minister; Jack Cunningham, I think he was then the 9 Minister for the Cabinet Office and Chancellor of the 10 Duchy of Lancaster. 11 A. That's right, yeah. 12 Q. Peter Mandelson, who was then the Secretary of State for 13 Trade and Industry. That was the job that you were soon 14 to be taking up but didn't know it yet. 15 A. Yeah. 16 Q. Ian McCartney, I think his formal title was Minister of 17 State for Competitiveness, does that ring a bell? 18 A. It does, but within that overall brief he had specific 19 responsibility for the Post Office. 20 Q. And Sir Richard Wilson, who I think was the Cabinet 21 Secretary and the Head of the Civil Service? 22 A. He was at that time. 23 Q. Okay, if we go back to page 1, please. It's clear from 24 paragraph 1 that you've met with three others the 25 previous day, you say "three streams of work", and you 37 1 say, first, in paragraph 3, there must be a negotiation 2 between the parties to the contract. You would propose 3 to write to ICL in the terms at annex A to set the 4 framework. 5 Can we just look at that, please, and that's pages 4 6 and 5 of the document. So this is a draft letter from 7 you to ICL Pathway. We will see in due course that it 8 was sent in these terms: 9 "As you know, Ministers have been reviewing the 10 future of this project in view of the serious delays to 11 the implementation timetable, and ICL Pathway's failure 12 to deliver a key contractual milestone for which 13 ICL Pathway has been placed in breach of contract. 14 "We remain seriously concerned by the slow rate of 15 progress on this project which was originally scheduled 16 to be fully operational by October 1998." 17 Of course, that's the date at which you're writing 18 this or a month before. 19 A. Yes. 20 Q. "However, we have decided to allow a period of one month 21 for discussion between the parties to see whether 22 satisfactory commercial terms can be agreed for 23 continuing the project, outstanding differences on the 24 timetable can be resolved, and a credible programme for 25 full implementation can be agreed. 38 1 "To facilitate this process, I am proposing to 2 appoint an adviser to work with the parties towards 3 finding a solution. He will report [directly] to me, 4 and I expect him to be given full co-operation by all 5 the parties. His terms of reference are attached. 6 "To provide a satisfactory outcome, the conclusion 7 of the discussions must meet a number of basic criteria 8 which include: 9 "any adjustment to the contracts must of course be 10 compatible with procurement law; 11 "[two] the contract must provide a firm date after 12 which the Benefits Agency will have no further 13 commitment to using the Benefit Payment Card." 14 A general point is made to avoid misunderstanding: 15 "ICL Pathway entered into these contracts on PFI 16 terms which entail accepting significant risks. It 17 should be clear at the outset, therefore, that the 18 discussions are not posited on an outcome which would 19 ensure ICL Pathway a positive return on the project." 20 Can you just decode what you mean there? I think he 21 know what you mean, but ... 22 A. It was a general principle under PFI that risk 23 transferred to the private sector and, therefore, if 24 there was a loss to be made by ICL that was a risk that 25 they'd taken by agreeing to the PFI contract. 39 1 Q. So this was a condition to entering into the process 2 that you were proposing? 3 A. Yes, and I think there may have been an indication -- 4 this is a presumption, I'm sorry, but I think there may 5 have been an indication from ICL Pathway before, that if 6 they were not going to get a positive return, then they 7 would -- they would have difficulty proceeding. 8 Q. You outlined some other conditions, "agreement that": 9 "no party will issue legal proceedings against any 10 other while the discussions are being conducted; 11 "discussions will be conducted in strictest 12 confidence and without prejudice; and 13 "work on the project will continue in accordance 14 with the existing contracts while discussions are 15 continuing." 16 You ask them whether they're prepared to accept. 17 Can we go back to page 2 of the letter, please, and 18 paragraph 4. You say: 19 "... we will need [this is to your colleagues in 20 Government] to appoint a troubleshooter to facilitate 21 the process." 22 You annex at B proposed terms of reference, you're 23 considering who might be a suitable appointment for this 24 important position. 25 Was Graham Corbett, in due course, appointed as that 40 1 neutral troubleshooter to that important position? 2 A. Yes, he was. 3 Q. And was he chosen by you? 4 A. On the recommendation of, I think, Steve Robson, who was 5 second Permanent Secretary in the Treasury. 6 Q. In your statement you say -- the cross reference is 7 paragraph 22 to your statement -- that it was on the 8 recommendation of Adrian Montague? 9 A. Ah, you could be right. I -- that must be the case -- 10 Q. It's more important for you to be right. 11 A. Yes, of course, of course, I apologise. 12 Q. No, that's all right. Do you want to just look at what 13 you said in your statement? 14 A. Please do -- 15 Q. So it's paragraph 22 of your statement. 16 A. Because thinking about it now I'm sure that Steve Robson 17 had some role, but I could be wrong, and I'm sure that 18 in preparing my witness statement I'd have 19 double-checked on -- 20 Q. You're quite right, you do say "and another HMT 21 official, Steve Robson", so it's both? 22 A. That would be it. 23 Q. Why was he chosen? 24 A. He had -- his expertise was, he was very much a sort of 25 a finance man, and -- 41 1 Q. The statement can come down, thank you. 2 A. Yeah. And he also -- he was a pretty robust character, 3 and I think we'd got to the stage where we probably 4 needed heads knocked together, and I think the view was 5 that he would be -- he would be a good person to do 6 that. 7 Q. Yes, that can come down as well, thank you. There is 8 some reference to that in the papers, that heads needed 9 to be knocked together. Was it the robustness of his 10 personality that led you to believe -- 11 A. He had -- I think he had a reputation for, in a very 12 appropriate way, of being -- not in a bullying or 13 intimidating way -- but a way of being sort of assertive 14 and pointing out to people that they had 15 responsibilities and they should be doing, doing the 16 right thing. 17 And I think that applied -- and I think this is 18 covered in that note, because I'm saying to people like 19 Peter Mandelson and Alistair Darling that they had 20 responsibilities to make sure that their respective 21 teams were entering into this process in a positive way. 22 Q. So it wasn't just ICL Pathway that needed to have its 23 head knocked? 24 A. No, there were quite a few heads that needed to be 25 knocked. 42 1 Q. Can we go back to HMT00000055, please, and turn to 2 page 6, please, which are the terms of reference for the 3 troubleshooter. Skipping the first paragraph: 4 "The adviser will report to Ministers via the Chief 5 Secretary to the Treasury [you]." 6 Was that deliberate, that it was to your level 7 rather than to the ministers under you such as 8 Mr McCartney? 9 A. Well, at this stage I was chief secretary to the 10 Treasury, so -- 11 Q. I'm so sorry. 12 A. -- so I was under Gordon Brown, would be the way it 13 would work, but Gordon wasn't involved in this, he was 14 later. I was in the middle of, I think I describe in my 15 witness statement, a bit like a spider's web, so I was 16 trying to get government departments, Trade and 17 Industry, Social Security -- so Peter Mandelson and 18 Alistair Darling -- to work together and to agree to 19 this process. So I was the -- I was trying to be the 20 sort of matchmaker in this whole thing. And that's 21 a role actually the chief secretary often plays, because 22 having responsibility for public spending, you cabinet 23 colleagues are always very keen to be sort of quite 24 friendly with you, because you decide if they're going 25 to get money or not. 43 1 So you have a sort of role to play, and when there's 2 a particular problem, which we had here, involving 3 several government departments then, and I think this is 4 still the case today, the chief secretary is often the 5 person who actually brokers deals between departments. 6 Q. That's why you're the web and each of those men are 7 spiders? 8 A. Yes, I was reflecting yesterday evening on whether that 9 was quite a very -- not a very appropriate description, 10 but hopefully the Inquiry gets my meaning. 11 Q. Yes, I think -- well, at least I do. 12 You will see the objectives set out: 13 "The immediate objective will be to report to 14 Ministers within one month on: 15 "whether there is a commercial basis for proceeding 16 with the project which is acceptable to the parties; 17 "whether there is in place a satisfactory 18 implementation plan with a detailed timetable for 19 completing the project; 20 "any further action which would need to be taken to 21 ensure successful delivery of the project." 22 Then scrolling down: 23 "The role of the adviser will be to: 24 "convene and chair discussions between the parties; 25 "commission papers and proposals from the 44 1 parties ..." 2 Then, over the page: 3 "independently appraise the parties' claims and 4 contributions; 5 "produce compromise proposals ... 6 "take such other action as he [sees] fit to 7 establish an acceptable basis for continuation; 8 "ensure the parties provide information necessary 9 for the analysis of alternative options. 10 "The adviser will have no power to bind the 11 parties ..." 12 Then lastly this: 13 "If the project continues there is likely to be 14 a continuing role for the adviser in facilitating 15 [process]." 16 So that last paragraph made it clear that there 17 ought to be a continuing role for the troubleshooter; is 18 that right? 19 A. Yes. 20 Q. Now, I think you secured some broad consensus for these 21 proposals? 22 A. Yes. 23 Q. If we look at what was said, HMT00000052. 24 (Pause) 25 I'm just counting my 0s. Yes, thank you. 45 1 This is a letter from Alistair Darling at the DSS to 2 you, 14 September, thanking you for your letter of the 3 10th. 4 Scroll down, please. He is grateful to you for the 5 more detailed account you've now provided of the 6 proposed way forwards: 7 "... it is important for there to be a rigorous 8 process, at the end of which it would be clear that the 9 route forward produced better value for money for 10 Government. And on this basis I agree with what is 11 proposed. I particularly support what you say about the 12 need to provide sufficient analysis of the three main 13 options to allow us to judge, at the conclusion of the 14 discussions with ... Pathway, whether the outcome of the 15 negotiations offers [us] best value for money for the 16 public sector as a whole. 17 "There is one specific point [that he would like to 18 see included in the letter to ICL] ... that this 19 Department's ability to migrate to an ACT-based system, 20 in preparation for the end of card usage by contract end 21 date, should be [apparent] to ICL. We are working on 22 a strategy ..." 23 Then continue, please: 24 "More generally, there are some important points we 25 need to establish before we take forward discussions 46 1 with ICL: 2 "the Government's view of the strength of its 3 negotiating position with ICL ..." 4 If you just read that to yourself, what he said. 5 (Pause) 6 A. Okay. 7 Q. Second bullet point: 8 "... discussion of any option to continue, is 9 clearly presented at all times against a backdrop of 10 Government's right to terminate ..." 11 That's self-explanatory: 12 "[and] agreement on the legal and financial 13 parameters of the negotiations; in particular that the 14 contract cannot safely be carried on beyond 2007 and 15 that prices cannot be significantly increased." 16 Then the last paragraph on that page: 17 "[He welcomes] your assurance at the meeting that 18 [Treasury] would be prepared to provide the additional 19 requirement if it fell to my budget." 20 I think that's an example of the kind of thing you 21 were just mentioning? 22 A. Mm. 23 Q. So decoding what Alistair Darling is saying there, would 24 you agree this is a cautious but conditional "yes"? 25 A. It's a very Alistair Darling letter, which is -- 47 1 Q. We don't know what that means. 2 A. Just as you've expressed it, it's cautious but 3 a lukewarm "yes". And he's laying -- he is doing what 4 a good Secretary of State does, he's laying down clear 5 sort of conditions and parameters for the discussion, 6 and some red lines as well, I think, as to -- and he's 7 looking after the interests of his Department. 8 Q. One of the things I'm going to come back to, when we 9 look at all this correspondence as a whole run, is 10 whether that's what people were doing, looking after the 11 interests of their department, and sight was lost of the 12 subpostmasters in the process. You understand? 13 A. I do. 14 Q. Can we look at the reply from Peter Mandelson, then 15 Secretary of State for Trade and Industry, at 16 HMT00000048. 17 I think we're going to find, but I'd like you to 18 confirm, that this reply is a more fulsome "yes": 19 "Thank you for your letter of 10 September ..." 20 Scrolling down: 21 "I confirm that I am content with what you have 22 proposed. In particular I accept the remit set out in 23 paragraph 5 of your letter. My objective within the 24 initial timescale of one month will be as a minimum to 25 agree with the Post Office Board the actions that need 48 1 to be taken on each of the items listed; to ensure that 2 practical measures are put in place as quickly as 3 possible to take these actions forward; to institute 4 arrangements to monitor progress on a regular basis; and 5 to be in a position to report back to colleagues such 6 substantive progress as may have been proved possible on 7 each by the end of the first month. 8 "[He is] pleased to see that you envisage a role for 9 the troubleshooter which extends beyond the initial 10 negotiation and that this is reflected in the draft 11 terms of reference ..." 12 That was that last paragraph of the annex that we 13 read? 14 A. Yeah. 15 Q. "This will be important in minimising the 16 misunderstandings and disagreements between the parties 17 which have undoubtedly contributed to delays in the 18 past." 19 Then over the page, finally he agrees with the 20 suggestion -- I didn't in fact read this in your 21 proposal -- of an interdepartmental working group 22 including the policy unit. 23 Again, could you decode or translate how you read 24 his letter as a whole -- 25 A. Yes. 49 1 Q. -- because I characterised it as a more fulsome "yes"? 2 A. I think it's a positive agreement to the work of 3 a troubleshooter, yeah. 4 Q. Then the third party in this, ICL Pathway, replying to 5 that letter that you saw in draft? 6 A. Yeah. 7 Q. I'm not going to go to the version in fact sent. That's 8 BEIS0000283. 9 (Pause) 10 Thank you. A letter to you from -- if you just 11 scroll down on the right-hand side, please, scroll 12 down -- from Keith Todd, can you see that, chief 13 executive? 14 A. Yes, yes. 15 Q. Just going back up, please, he thanks you for your 16 letter of 15 September: 17 "We reject the allegation that ICL Pathway is in 18 breach of contract ... you will be aware that we have 19 already taken serious exception to the attempts by the 20 DSS to establish this position in their correspondence 21 to us. 22 "... we continue to believe that this programme 23 offers major long-term benefits to both the Benefits 24 Agency and the Post Office as well as wider Government 25 aspects ... therefore, keen to see this project 50 1 continue, and are prepared, without prejudice to our 2 legal rights, to agree to the one month period of 3 discussion for the purpose and on the terms which you 4 suggest." 5 He is satisfied with the terms of reference for the 6 independent adviser and will give him "our full 7 co-operation": 8 "Regarding the conditions for opening discussion 9 mentioned in paragraph 6 ... we confirm that we will 10 accept them for the relevant period of one month." 11 Then scrolling down: 12 "We would make the point that paragraphs 4 and 5 of 13 your letter cause ... some concern ... any adjustments 14 to the contract must be compatible with procurement law, 15 we have already sent to the parties and the Treasury our 16 legal opinion that a commercial settlement of our 17 differences will cause no difficulty ... 18 "So far as the other matters ... are concerned, in 19 our view it is not helpful to the process of full and 20 frank discussion and negotiation to set any 21 preconditions as to the components of a commercial 22 settlement ... these are matters that have to be 23 discussed as part of the negotiations in order to reach 24 a settlement." 25 So those conditions, you remember there were four of 51 1 them that you were setting out, he's saying "No, they 2 need to be part of the discussion" rather than 3 preconditions for entering into a discussion? 4 A. Yeah. 5 Q. Then continuing, he asks for details of the independent 6 adviser. 7 So characterising that as a whole, would you say 8 relatively frosty but willing to engage in the process? 9 A. Yes, and I think trying to protect their position as 10 a company. 11 MR BEER: Sir, although we're part-way through this run of 12 correspondence, 11.15 now, that might be an appropriate 13 moment to take a break until 11.30. 14 SIR WYN WILLIAMS: Yes, Mr Beer. 15 But while it's fresh in my mind I would just like to 16 ask Mr Byers one or two other questions about this 17 convention, which is the first time that I've heard it 18 in this Inquiry, at least, Mr Byers. 19 Can I ask some basic questions: is this 20 a convention, ie that you don't get information about 21 what the previous Government has been up to, which 22 operates only if there's a change of government which 23 includes a change of government of political persuasion? 24 A. I'd always assumed so, and given what has happened over 25 recent months, it would be a bit chaotic if the fourth 52 1 Chancellor in nine months can't be told what -- 2 SIR WYN WILLIAMS: Right, fine. That's what I would have 3 expected, but I just wanted to be clear about that. 4 But there must be a number of instances, Horizon 5 being one of them, where a project begins under one 6 government but is obviously intended or at least might 7 continue under another? 8 A. Yes. 9 SIR WYN WILLIAMS: On the face of it, trying to be 10 objective, I would have thought that knowing what went 11 on about technical aspects relating to a project like 12 Horizon before you become the Government might assist in 13 helping you to make decisions after you've become the 14 Government? 15 A. The officials in the Department will have had that 16 information. 17 SIR WYN WILLIAMS: Sure. 18 A. So they will be aware of it. 19 SIR WYN WILLIAMS: Yes. 20 A. They clearly feel constrained to let the new 21 administration know. Now, I can understand -- as I was 22 saying to Mr Beer, I can understand if it's a sort of 23 party political issue why we wouldn't be told. I think 24 everybody would go along with that. I think if there 25 are technical problems which have been identified within 53 1 a project like Horizon, then I don't see why we couldn't 2 be told or alerted to the fact there may be weaknesses, 3 because then we would have constructed something in 4 a way which would have addressed them. 5 SIR WYN WILLIAMS: Right. But, as a matter of fact, in this 6 instance, you weren't told, I think is your evidence, 7 yes? 8 A. That's correct, yeah. 9 SIR WYN WILLIAMS: Yes. 10 Now, in this particular instance, there's 11 a variation that I wanted you to consider, and that is 12 that one of the parties to the contract which was 13 concluded in 1996 was the statutory corporation, namely 14 the Post Office. 15 A. Post Office. 16 SIR WYN WILLIAMS: So what would be preventing -- and I'm 17 not saying this in any critical sense, I'm just trying 18 to understand it -- what would prevent an incoming 19 relevant minister from simply asking the Post Office 20 what went on? 21 A. That's a very good question. I'm afraid I don't have 22 the answer, Chair. 23 SIR WYN WILLIAMS: All right. Because, as you'll 24 understand, I have to try and make sense of governance 25 issues. 54 1 A. Good luck with that one! Yes. 2 SIR WYN WILLIAMS: Because, on the face of it, the best 3 people to provide information about, say, the 4 procurement or evaluation process are the evaluers, and 5 they were the Post Office and other civil servants, yes? 6 A. Yes, and they would be the same people. I mean, they 7 didn't change, and I think you'll hear evidence from, 8 you know, the relevant civil servant who was in charge 9 of the Post Office for a number of years, under 10 successive administrations. 11 But, in this case, I can't see anywhere, and I can't 12 remember, and I haven't seen anything in the documents 13 that have been provided to the Inquiry, to show that, as 14 ministers or certainly myself as Secretary of State, was 15 alerted to the problems that were identified in the 16 tendering process which has been referred to by counsel 17 to the Tribunal. 18 SIR WYN WILLIAMS: All right, thank you. It becomes more 19 and more intriguing, this aspect. Thanks very much. 20 Let's have our break. Shall we now break until 21 11.35, or what? 22 MR BEER: Yes, thank you very much, sir. 23 SIR WYN WILLIAMS: Right, thanks. 24 (11.20 am) 25 (A short break) 55 1 (11.35 am) 2 MR BEER: Good morning, again, sir. Can you hear and see 3 us? 4 SIR WYN WILLIAMS: Yes, I can, thank you. 5 MR BEER: Sir, just to explain to you, we are in possession, 6 in the Inquiry of the Ministerial Code, the Cabinet 7 Manual from the time that we're talking about, and the 8 directory of Civil Service guidance, which sits 9 underneath the Cabinet Manual, each of which contain, to 10 a greater or lesser extent, guidance on the parameters 11 of the convention that we have been discussing. 12 But given Mr Byers' answers earlier about given the 13 length of time that has elapsed since he held relevant 14 office, I haven't thought it appropriate to use Mr Byers 15 as a witness to explore any further the convention and, 16 instead, we're going to leave his answers where they 17 stand. 18 SIR WYN WILLIAMS: Well, I'm perfectly happy with that, 19 Mr Beer, because, as usual, you appear to be ahead of 20 me. But I was just interested in what Mr Byers was 21 saying. 22 MR BEER: Thank you very much, sir. 23 Can we look, please, at POL00028098, and go to 24 page 3, please. We have been looking, before the break, 25 Mr Byers, at the outfall from the Montague report, one 56 1 of which recommendations was the appointment of the 2 neutral troubleshooter, the appointment of Graham 3 Corbett and his terms of reference, and this is the 4 product of the appointment of Graham Corbett in the role 5 that we have seen. 6 It's a letter to you dated 18 October 1998. In the 7 first paragraph he records that he was appointed by you 8 on 17 September and was required to report by 16 October 9 1998, so within a month. 10 Can we go to page 4, please, over the page. I think 11 you've seen this document as part of your 12 preparations -- 13 A. Yes. 14 Q. -- for giving evidence today. In the interests of time, 15 I'm not going to go through it paragraph by paragraph, 16 but if we just look at the heading there: 17 "The discussions which I held with the parties, and 18 the information developed for those discussions, were 19 all without prejudice and confidential ..." 20 That was one of the conditions, I think, that was 21 set. Then under the heading, "The Path of the 22 Discussions -- Commercial". He sets out, over the rest 23 of that page -- if we just scan through it and scroll 24 down, and then on to the next page -- essentially 25 a chronological account of the attempts that he had made 57 1 to negotiate between the three parties: BA on the one 2 hand, Post Office on the other and ICL on the third. 3 Then over the page again, please, and he concludes: 4 "There was no further change in the position between 5 the parties when the without prejudice discussion month 6 came to an end at midday on 16 October." 7 Then he turns to "The Path of Discussions -- 8 Programme and Project Management Issues", narrating that 9 a working group was established of the programme 10 directors from each of the parties under the 11 chairmanship of the director of the Horizon Programme 12 Office and with PA Consulting keeping close to and 13 guiding their discussions. He annexes PA Consulting's 14 report. 15 Then if we scroll on, please, there is a narration 16 of the parties' views in the first two main paragraphs 17 on that page. 18 So, so far, we've had discussion about seeking to 19 resolve at a commercial and essentially contractual 20 level the dispute between the parties. It's right, 21 I think, that there's nothing to do with issues of 22 technical reassurance or the integrity or reliability of 23 the system that might be produced as part of this 24 exercise; is that right? 25 A. That's correct, yes. 58 1 Q. Would that be consistent with Mr Corbett's appointment, 2 that he was brought to knock commercial heads together, 3 rather than knock technical heads together? 4 A. That's an accurate reflection of the role we expected 5 Corbett to take, yeah. 6 Q. Then scroll down, please, to "The Way Forward". If you 7 just read that first paragraph to yourself, please. 8 (Pause) 9 Then over the page, please. He's: 10 "... profoundly disappointed that we have been able 11 to reach our primary objective and will continue to hope 12 that some way of bringing this project to fruition may 13 yet be found ... In the meantime, progress made or 14 programme issues will be of real and enduring benefit if 15 the project continues ..." 16 Then he pays tribute to the hard work that others 17 involved in the project have given? 18 A. Mr Beer, could we possibly go back to the end of the 19 preceding page? 20 Q. Yes, of course. That's it. To the "running sores 21 list"? 22 A. No, it's the bottom bit: 23 "I would also urge that as soon as BA can be 24 satisfied that it has a ..." 25 Because I think that's quite -- that's referring to 59 1 the ability -- 2 Q. "I would urge that as soon as BA can be satisfied that 3 it has a ..." 4 Then over the page. 5 A. Yeah. 6 Q. "... system which works both on test and in practice, 7 consideration should be given to reshaping the contracts 8 so as to take BA out of the contractual loop and 9 position them as a POCL client." 10 A. Yeah. 11 Q. What was the significance of that that you wish to draw 12 to our attention? 13 A. I think I mentioned earlier that the -- one of the big 14 problems we had was effectively having two clients, BA 15 and POCL, and this is the first sort of indication that 16 we should be looking at a much more streamlined approach 17 where there is only really one client, which is POCL, 18 and that we take BA out of the equation. 19 This is saying that, provided BA have a system which 20 they're satisfied with, it works both in test and in 21 practice, then we could remove them from the sort of 22 contractual arrangement and just have one client which 23 would be POCL. 24 So we're trying to remedy some of the major 25 deficiencies in the contract that we inherited from the 60 1 previous administration. 2 Q. What was your view overall of the outcome of the Corbett 3 attempt? 4 A. To be honest, I didn't make as much progress as I -- as 5 we would have wanted, the parties were still not working 6 together, I think Graham himself -- I'm trying to 7 recall -- I think he said to me that he wasn't sure 8 there was a continuing role for him to play. 9 Q. That's what I was about to ask you about. 10 A. Sorry. 11 Q. That document can come down now. What continuing role 12 did Mr Corbett, in fact, play, as envisaged by the terms 13 of reference of his appointment? 14 A. To the best of my recollection, I think Graham told me 15 that he'd got as far as he could with the parties. 16 That's my recollection. 17 Q. Is it right that he didn't have any further role, 18 contrary to what had been envisaged by the terms of 19 reference? 20 A. Yeah. That's correct, that's correct. 21 Q. Why did he think he'd got no further role to play? 22 A. I think he'd got as far as he could with the parties and 23 he couldn't see that his continued involvement would add 24 value to what we were trying to achieve. 25 Q. The terms of reference thought that there should be 61 1 a continuing role for the independent -- 2 A. Yeah. 3 Q. -- troubleshooter, in the event that the project 4 proceeded. 5 A. Yeah. 6 Q. Was that role taken up by him or anyone else when -- 7 A. No. 8 Q. -- the project did proceed? 9 A. No. 10 Q. Do you remember why that was? 11 A. I -- 12 Q. Sort of an honest broker? 13 A. Yeah, I think the view was that sort of troubleshooter 14 role, we'd tried it and it hadn't really been that 15 effective. 16 Q. Thank you. 17 Can we turn to December 1998, please, and look at 18 CBO00100001. Thank you. If we can just enlarge that to 19 make it a bit clearer. Yes, sorry, I should have said 20 at 76. Thank you. That's better, thank you, and again 21 enlarge it, please. Thank you. 22 This is a letter from Keith Todd -- if we just 23 scroll down, on the right, again, we can see that, back 24 up, please -- to you of 9 December. 25 So a letter from the chief executive of ICL to you. 62 1 I'm not going to take you to your letter of the 20th. 2 You had written to the parties and set a deadline to 3 arrive at heads of agreement, and you were looking to 4 ICL to make what was described as a speedy and decisive 5 move. 6 Do you remember that? 7 A. Yes, I think the letter of the 20th followed on from the 8 Corbett proposals or recommendations. 9 Q. Was that a different way of attempting to break the 10 deadlock? 11 A. I think so. 12 Q. It's been suggested in some of the evidence that the 13 Inquiry's received that it was Government that was 14 responsible for the deadlock here and that 1998 was 15 essentially a lost year because of the internecine 16 squabbling between two departments of State, DSS and 17 DTI. Does that reflect your recollection? 18 A. I wouldn't -- there ... there were clearly disagreements 19 between those two entities, whether I would describe it 20 in quite the way that you have, I'm not sure I would, 21 but there were clearly disagreements, yes, and this goes 22 back to the point about having two clients to the 23 contract with quite different objectives and, you know, 24 different cultures. 25 Q. If you can just scan through the letter -- 63 1 A. I should also add, by the way, that it's not helped by 2 the fact that ICL were overbudget and way behind 3 schedule. 4 Q. They had suggested in turn that was because of the delay 5 and that delay itself in making a decision was causing 6 them to lose millions on a monthly basis. 7 A. I think ICL had a lot of responsibility. 8 Q. They say ICL in the end of the second paragraph: 9 "... in the interests of resolving the impasse I am 10 prepared to make a 'speedy and decisive move'. 11 "A major criticism of ICL's proposals ... appears to 12 have been that ICL sought ..." 13 I should just stop there. I haven't, in the 14 interests of time, taken you to the immediate November 15 exchanges -- 16 A. Sure. 17 Q. -- that immediately postdated the Corbett -- 18 A. Corbett, yeah, I get that. 19 Q. "... to transfer risk back to the public sector. The 20 impression was also created that Fujitsu was in the 21 process of withdrawing its support from the Pathway 22 project. There was also a view that the ICL proposals 23 in the Commercial and Contractual paper representing 24 unacceptable price increases." 25 Then they say they're going to address these points. 64 1 He says that he has discussed this with Fujitsu and 2 the chairman of the ICL Plc board, "both support my 3 proposal", it's our best offer: 4 "I have no hope of persuading my shareholder or my 5 Board to give me further room to move. 6 "First [Fujitsu] is prepared to fund the whole 7 project. This represents an investment of 8 £600 [million]." 9 Of what significance was that? 10 A. I can't recall. 11 Q. Scrolling down, please: 12 "... we have revised and restructured our commercial 13 proposals", with the last iteration of the Corbett 14 proposals in the second column and then ICL's proposal 15 in the third. 16 Then that's the amount that the public sector would 17 contribute, and you will see that there's 18 £90-odd million difference between them in the totals at 19 the foot of the page. 20 A. Yeah. 21 Q. Then over the page, please, "ICL" -- after the 22 footnotes -- sorry, after the bullet points: 23 "ICL is also prepared to accept an even higher 24 degree of risk. Under ... ICL's NPV loss has increased 25 to £118 [million]." 65 1 Then scroll down, please: 2 "The other main features of our offer are as 3 follows ..." 4 He then sets them out: 5 "This offer represents an enormous commitment for 6 ICL and one that can only be justified if we have 7 confidence in the contractual arrangements, and the 8 commitment of ministers, moving forward." 9 Just stopping there, the impression that's given by 10 this slew of correspondence is that this has been taken 11 out of the POCL board's hands; is that right? This is 12 direct communication between/negotiation between 13 a contractor and a Secretary of State? 14 A. Yes, I think the effect of appointing Corbett to conduct 15 his review meant that, ultimately, it would be -- the 16 chief secretary would be looking at the various funding 17 requirements, whether risk was being transferred from 18 ICL to the public sector or whether risk was going to 19 remain with the contractor. So I think that's true. We 20 would consult the POCL board, obviously, but the 21 ultimate decision would be taken by government. 22 Q. That's what I wanted to ask you about. How would the 23 POCL board be consulted? 24 A. I think our officials would be engaged in dialogue, 25 correspondence with them, talking to them. 66 1 Q. And consulted in the sense that their views might be 2 taken into account but, ultimately, the decision rested 3 with Government? 4 A. That would be the case, yeah. 5 Q. Why was that the case, given that POCL was 6 an independent company, limited by guarantee? 7 A. Two principal reasons, I think. First, that we 8 wouldn't -- we wouldn't want, under a PFI contract, for 9 risk to be transferred back to the public sector. It 10 had to remain with the contractor. That's the whole 11 point of PFI contracts. And, secondly, in the end there 12 would be a call on the public purse and therefore it 13 would be right that the Government took responsibility 14 for that and we'd have to sign off on it. 15 Q. Over the page, please, at the foot of the page, under 16 "Acceptance": 17 "Following detailed discussions, progress has been 18 made on Acceptance. The parties have agreed that 19 Acceptance will be completed prior to the start of 20 National Rollout and is not linked to NR2+." 21 What did you understand acceptance to be or to mean? 22 A. I can't remember now. 23 Q. So would it follow that if I ask you what the 24 significance of an agreement that acceptance would be 25 completed before national rollout, you wouldn't be able 67 1 to assist? 2 A. What I can recall is that we would not have -- we wanted 3 to make sure, and this was through the live trials, that 4 the system worked in practice. Now, whether that's 5 relevant to this particular paragraph I'm not sure. 6 I can't recall. 7 Q. I understand. Can we move forwards, then, please, 8 because there's a follow-up letter nine days later, 9 HMT00000001, please. 10 (Pause) 11 I'm getting a shake of the head. I'll count my 0s 12 again. Yes, HMT00000001. Good. 13 Can we just read through this. So this is 14 a follow-up letter, this is 18 December now, nine days 15 later: 16 "Since my letter to you ..." 17 I should have said this is from Keith Todd again to 18 you: 19 "... there have been a number of meetings as 20 a result of which ICL has clarified and refined its 21 proposal as set out in that letter." 22 So it turned out that the statement that "this is 23 now our last and best offer" was superseded: 24 "Accordingly, since I believe a decision by 25 Ministers on that proposal is imminent, I felt it would 68 1 be useful to write to you today to summarise the current 2 status of our proposal. 3 "First, POCL requested clarification of the nature 4 and extent of Fujitsu's support for ICL. We have 5 confirmed that this will be delivered by way of 6 a legally enforceable performance guarantee from Fujitsu 7 (in favour of the Sponsors) covering all of ICL's 8 obligations in relation to the project, including the 9 provision of all necessary funding. 10 "Second, we have held further discussions to clarify 11 the issues surrounding our proposals on Acceptance. We 12 have reached complete agreement on all issues relating 13 to Acceptance with POCL. This agreement is embodied in 14 a detailed paper, a copy of which is with your 15 officials. This paper has been discussed with BA, but 16 has not been agreed with them." 17 To what extent, at this stage, did you understand 18 that ICL was negotiating with the two separate elements, 19 POCL and BA, separately from Government? 20 A. Yes, I mean, I think we were expecting that, because the 21 contract was between those three parties. 22 Q. Would you or your officials have a way of checking back 23 whether what is said in these letters to you was 24 accurate? 25 A. Yes, I would have thought so. 69 1 Q. That would have been done at official level, would it -- 2 A. Yes. 3 Q. -- by going back to POCL and BA? 4 A. Yes. 5 Q. "Third, we have held further discussions with POCL to 6 clarify issues relating to our commercial proposals. 7 Again, we have reached agreement with POCL, on the 8 fundamental principles which will allow us to develop 9 a definitive, detailed, legally binding agreement with 10 them in due course. The agreement has imposed increased 11 volume ... on ICL. 12 "Fourth, although we have not had any direct 13 discussions with BA, I think it is helpful to state 14 ICL's position ... The proposal of 9 December ... 15 included an increase of £8 [million] over the Corbett 16 proposal. In the interests of reaching a speedy 17 conclusion, I have reluctantly agreed to renounce that 18 increase." 19 So a giveaway, essentially, by ICL of £8 million. 20 Then over the page, please: 21 "Fifth, ICL has done some further work on the 22 proposals ... to use the Horizon infrastructure for the 23 delivery of 'Better Government' ... We have written 24 a further paper, copies of which are with your 25 officials. I attach a copy for your reference." 70 1 Can we go to that, please, it's on page 3 of this 2 document? 3 A. Mr Beer, before we move on from this letter, I think 4 there was an important element linked to the £8 million 5 concession. 6 Q. Yes. 7 A. And the condition was that the Secretary of State for 8 Social Security would then be prepared to sign off or be 9 positive about the whole Horizon thing. 10 Q. Yes, that's at the foot of page 1 -- 11 A. Yes. 12 Q. -- on to page 2? 13 A. I think that's important because Alistair Darling was 14 very strong, and this links back to the acceptance 15 point, I think, about the importance of live trials. If 16 I remember correctly, I think the Department of Social 17 Security had had a contract with another contractor 18 which had gone badly wrong and Alistair didn't want to 19 repeat those mistakes. So this was an attempt, I think, 20 to try and get Alistair to withdraw some of his 21 conditions, to give it approval. 22 And that context, I think, is important in terms of 23 how ICL were looking at this, because they were never 24 keen on live trials for Horizon. 25 Q. That context that you've just referred to, is that the 71 1 same issue that you mentioned right at the outset when 2 I asked you questions, of the DSS being in dispute with 3 a contractor over the provision of IT? 4 A. Whether that was the same contract, I'm not sure, but 5 there certainly was an issue, because I remember in some 6 correspondence Alistair refers specifically to a problem 7 they've had with a particular contract which he 8 identifies. I think it may be in the bundle of 9 documents somewhere. 10 Q. We'll chase that down. You can't remember whether that 11 was ICL or not? 12 A. No, I can't recall. 13 Q. Can we look at the attached paper. Thank you. This is 14 the paper that Mr Todd was providing you with. Can we 15 look at "The Pathway Infrastructure": 16 "Pathway technology [this is what ICL say] is based 17 on the latest specification PCs with Microsoft NT 18 operating system, running in a highly secure 19 high-capacity managed network reaching the 19,000 Post 20 Offices. The PCs are equipped with barcode, smartcard 21 and magstripe card readers and receipt printers from 22 first installation, and are driven by icon-based menu 23 systems accessed via touchscreens. All these 24 technologies have been in successful use in 200 pilot 25 Post Offices over the last year." 72 1 Just stopping there, "all of these technologies have 2 been in successful use in 200 pilot post offices over 3 the last year", did you know whether that was accurate 4 or not? 5 A. I was going to ask you the question: is that correct? 6 Q. What was your state of knowledge at that point, that 7 there had been -- 8 A. I don't think it's -- 9 Q. -- all of those technologies in successful use in 10 200 pilot post offices over the last year? 11 A. I'm not sure that's a fair reflection of the reality. 12 Q. To what extent would a statement like this from ICL to 13 you and to Government have influenced it? 14 A. Not very much. 15 Q. They continue: 16 "The applications software is the world leader for 17 new generation counter automation and is web enabled, 18 allowing straightforward addition of further 19 internet/intranet services. The central hub systems 20 provide data routing, information management, client 21 gateways and security management, including Card 22 Management Services ... Military levels of security 23 including Postmaster Smartcard log-on and data 24 encryption ... lead to high levels of confidentiality 25 and trust. Touchscreens, icons and user driven menus 73 1 generate ease of use and staff and customer confidence." 2 Now, to what extent would this kind of narrative 3 influence you or would you write it off as sort of 4 advertising puff? 5 A. That's exactly the words I was going to use, Mr Beer. 6 It's ... it's straight out of the PR department for the 7 company, I'd have thought. 8 Q. What, if you thought it was advertising puff, would you 9 take from it that it is being given to the chief 10 secretary to the Treasury in all seriousness by 11 a contractor? 12 A. I ... I would have -- I would have seen it as 13 overpromoting what they could deliver, but I think the 14 context was that ICL wanted to become the sort of IT 15 provider of choice for the Government in relation to -- 16 we had a sort of government modernisation programme, and 17 it was called "Modernising Government" actually, and 18 companies like ICL wanted to be part of that, and to 19 play a role because, obviously, commercially, it would 20 be very valuable for them, and this is a sort of -- it's 21 a promotional paper to show how they can assist in what 22 the Government is trying to achieve as part of that 23 wider agenda of modernising government. 24 Q. Can we look, please, at BEIS0000417. We can see that 25 this is a letter to you from Alistair Darling, he having 74 1 been provided with a copy of the first letter -- 2 A. Yes. 3 Q. -- from Mr Todd, the 9 December one. 4 If we just go to the second page, please, and the 5 second paragraph: 6 "On the specific conditions that the proposals seem 7 to involve, I could not agree to the proposed approach 8 to 'acceptance testing'. ICL persist in asking for 9 acceptance on the basis of a laboratory test of the 10 systems, as opposed to a live trial -- particularly 11 important when for our customers it is the service that 12 is the crucial end product. In fact, the approach being 13 suggested by ICL is almost exactly that followed under 14 the NIRS2 project, where the system was fully accepted 15 in a test environment but did not work in the field. 16 I am not prepared to sign up to another NIRS2 17 experience! In any event, when we are talking about 18 a system which is affecting around 15 million people, 19 many of whom are dependent on timely and accurate 20 payment of their benefits for their livelihoods, the 21 political risks are huge if the system is not tested 22 properly beforehand to make sure it works. This is 23 a risk I am not prepared to take." 24 Is that the reference to the past bad experience to 25 which you were referring? 75 1 A. Yes, that was the project I was trying to recall, yeah. 2 But I don't know whether that's an ICL project, though. 3 Q. No. 4 So what was your view, then, of the paper that had 5 been delivered to you by Mr Todd, the "Modern 6 Government" paper? I mean, I haven't read to you all 7 six pages. 8 A. I think I'm grateful. I mean, the important point here, 9 from -- and this is why Alistair was absolutely right, 10 is that we could not countenance proceeding without live 11 trials and the reality -- if you then read across to the 12 paragraph that you've drawn the Inquiry's attention to, 13 you know, we did not have the examples that they gave in 14 that paragraph at the time that that publication was 15 made. 16 Q. Thank you. Can we go to paragraph 33 of your witness 17 statement, please, which is, I should have said, on 18 page 13. You say: 19 "... the financial consequences of any decision made 20 as to the future of Horizon were a crucial 21 consideration. Cancelling the project would have meant 22 writing off hundreds of millions of pounds of public and 23 private investment in a project which ... was 24 technically viable. There was also the risk of 25 protracted and costly litigation with ICL if the project 76 1 was cancelled." 2 Now, we know now through, amongst other things, the 3 decision of the High Court and the Court of Appeal in 4 this case, that the system that was eventually rolled 5 out was not remotely robust and a number of 6 subpostmasters have given evidence to the Inquiry in 7 February to May of this year to the effect that the 8 Horizon system produced multiple unexplained shortfalls 9 which they were unable effectively to check or to 10 dispute. They've said that they received inadequate 11 training and assistance provided by the Horizon 12 helpline. 13 Looking at the matter now, with the benefit of 14 hindsight, do you think that the financial consequences 15 of terminating the project were prioritised over the 16 need to ensure that, if the project did survive, it 17 would be properly suited to the needs of the 18 subpostmasters who were required to operate it on the 19 ground? 20 A. I think there are two things I'd like to say to address 21 that. Firstly, that the possibility of cancelling the 22 project was certainly a live consideration that I had 23 when I was chief secretary, and that I looked at in some 24 detail, and concluded that, actually, cancellation would 25 not be the right way forward. 77 1 And I probably felt that even more strongly when 2 I became the Secretary of State for Trade and Industry, 3 given the responsibilities I had there. 4 In proceeding with ICL -- and we had no indication, 5 as ministers, of the sort of operational difficulties 6 that you've referred to, Mr Beer, they were never drawn 7 to our attention. What I think we did do, which was 8 right in the circumstances, bearing in mind that we were 9 breaking new ground and it was a very ambitious 10 project -- it was ambitious for the Post Office network 11 and I think that was right in the circumstances. 12 When we got the settlement, I think it was in 13 May 1999 in the end -- 14 Q. Yes, it is. 15 A. -- when we tried to sort of reconfigure the whole thing, 16 you know, we dropped the Benefit Payment Card; got one 17 client, as it were, which was POCL; we moved away from 18 a PFI to a more traditional standard design and build 19 project. So we're trying to remedy some of the faults 20 in the contract we inherited from the previous 21 administration. But, because we were breaking new 22 ground, we wanted to make sure that as the live trials 23 were continuing that we would be alerted to problems 24 that may occur, which is why we set up, under the 25 chairmanship of Ian McCartney, the Horizon Working 78 1 Group, consisting of all the relevant parties, including 2 the subpostmasters, so that we, as ministers, could be 3 alerted if there were problems with the rollout and then 4 we could act accordingly. 5 Q. The Inquiry's heard evidence that, because of the nature 6 of the PFI agreement, which was in operation and 7 effective up until May 1999, Post Office Counters 8 Limited had very limited visibility from Pathway on the 9 technical details of the high or low level design of the 10 Horizon system. It's been suggested that Pathway 11 insisted that, so long as they delivered the outcomes 12 that were required by the specification, it was not 13 a concern of the Post Office as to how those outcomes 14 were delivered. 15 When the contract was renegotiated in May 1999, do 16 you remember that issue being brought to the 17 Government's attention? 18 A. I don't think it was. 19 Q. It's been suggested that a trick was missed in that, in 20 the renegotiation, there was a failure to ensure that 21 the technical information that had been denied to them 22 was now provided to POCL. Was that an issue that you in 23 government were made aware of? 24 A. We were not made aware of that. 25 Q. Coming, then, to May 1999 -- and I realise I've moved 79 1 forward at some pace -- can we look, please, at 2 POL00028610. If we can just look at the next page, 3 please, at the foot of the page, you will see that it's 4 from you but has been approved in your -- or signed in 5 your absence but approved by you. 6 Back to the first page, please. There isn't a date 7 but, in the top right, if we just scroll up a little 8 bit, "Received: Sunday, 23 May", that's 1999. 9 It's to Dr Bain of the Post Office, can you just 10 read through it with me. You say: 11 "... there has been a long and detailed examination 12 of the project. My Ministerial colleagues and 13 I consider that the right way forward is to reconfigure 14 the project without the Benefit Payment Card rather than 15 to terminate it. The attached documents set out the 16 core elements of such a reconfigured project. 17 "You will ... be aware that Fujitsu have made clear 18 that they are only prepared to hold ... the offer in 19 these documents until midnight today ... 23 May [it 20 being a Sunday]. The offer would involve them taking 21 a significant provision in their Accounts which will be 22 published on 25 May. If the offer is not accepted 23 today, their provision will be larger and they have said 24 that, in these circumstances, they would only be 25 prepared to reconfigure the project in this way on the 80 1 basis of a considerably higher price than that currently 2 on offer. 3 "My colleagues and I believe it is desirable that 4 the Post Office signs the deal on offer today. It 5 offers early automation of post offices and a platform 6 from which to carry forward [POCL] strategy of network 7 banking and modern government services. 8 "In your letter of [the 18th] you raised certain 9 issues ... 10 "First, the timing of the move by the Benefits 11 Agency to compulsory ACT. [This] offers substantial 12 efficiency savings to the Benefits Agency and the impact 13 of delay is very costly. Despite this I have agreed 14 with my colleagues that, if the Post Office were to sign 15 the deal on offer today, the move would not start until 16 2003 and [it's difficult to read] there would be no 17 change in the present arrangements under which the 18 benefit recipients can freely choose the payments method 19 which best suits their needs unless a change has the 20 prior agreement of the Post Office. 21 "Second, funding and income. The cost of the 22 reconfigured project is expected to have a significant 23 impact on the finances of POCL in the next few years. 24 In recognition of this, the Government would be willing 25 to agree that £480 million of the cash investments, 81 1 including gilts, held by the Post Office should be 2 transferred to POCL on the signing of the Codified 3 Agreement in July. POCL could draw down the 4 £480 million at their discretion ... This money would 5 otherwise pass to the Government together with the rest 6 of the £2 billion plus of these investments in 7 2002-2003 ... 8 "No doubt POCL would seek to exploit automation to 9 attract new business and income. The more successful 10 they are in this regard, the longer the £480 million 11 would, of course, last. 12 "Third, the use of the infrastructure for Government 13 services. It is clearly the hope of Ministers that the 14 Post Office will be successful in retaining and winning 15 business on merit. We firmly believe that competition 16 for this business should be on the basis of a level 17 playing field ... We do not believe that it is in the 18 interests of delivering efficient and effective services 19 to customers that competition should be biased ... The 20 Post Office should do well in such environment in view 21 of its unrivalled national network and the public 22 trust ... it enjoys. 23 "Against this background I hope that your Board will 24 be willing to sign the enclosed letter and schedules 25 today." 82 1 This appears to have been received at 4.19 by fax 2 from the Treasury, "Re: signing", the next day -- 3 a Sunday, for signing on the Monday. 4 Was this you putting POL under a degree of pressure? 5 A. Under time pressure, yes. It's a generous offer. 6 Q. It's a general ...? 7 A. Generous offer to POCL. I remember some very detailed 8 conversations with the Treasury about being allowed to 9 provide this £480 million of cover. 10 Q. The £480 million in gilts? 11 A. Yeah. 12 Q. What's the significance of the gilts? 13 A. That's money they can -- that allows them to borrow on. 14 And the issue with the Treasury, if I remember 15 correctly, was that -- because I think this ran to 16 2003 -- 17 Q. Yes, that's right. 18 A. -- was that I think it was quite lumpy, in terms of 19 which years bits of money fell in and we're trying to 20 even it out over a period, make it easier financially. 21 Q. You refer in the letter to the prospect of increased 22 costs in the event of delay, you refer to the inducement 23 or what I'm describing as an inducement of other work 24 post automation, you refer to the £480 million in gilts. 25 As well as time pressure, was that pressure, or just 83 1 sort of advocacy? 2 A. I think it made -- should have made it an attractive 3 proposition for the POCL board, yeah -- 4 Q. I don't think you will have had the opportunity to study 5 Lord Darling's witness statement to the Inquiry. 6 A. No. 7 Q. In it -- we needn't look at it, the cross-reference is 8 WITN04200100 at paragraph 63, page 22; and paragraph 101 9 on page 34. 10 These suggest that the letter that you wrote to 11 Dr Bain wasn't fully reflective of your personal view, 12 because you believed initially that Horizon was the 13 wrong decision in the first place. 14 A. Yeah. 15 Q. Is that accurate? 16 A. I think, as I said earlier this morning, I couldn't -- 17 I had those four fundamental questions about how we'd 18 ended up with this nightmare of a contract, which 19 I didn't get answers to, and I've taken the Inquiry 20 through them. You know, why was it the Benefit Payment 21 Card? Why was it a PFI? We didn't have details of the 22 tendering process -- 23 Q. Sorry, by now those things had fallen away. 24 A. Well, they were still relevant, and that's why I think, 25 if Alistair Darling is saying -- commenting about my 84 1 view of Horizon, it may well be reflecting those 2 questions that I think all of us were raising, to be 3 honest, I think Alistair was raising them as well. 4 Q. Would it be fair, and no criticism is intended of you 5 here, because you were, of course, bound by the 6 principle of collective cabinet responsibility, but now 7 freed from that convention, would you agree that the 8 project proceeded because of the threat of reputational 9 harm to Government in losing this cherished contract? 10 A. It proceeded because -- look, there were no good options 11 available to us, so we had to make the best of a very 12 difficult situation, which I think is what we tried to 13 do. 14 Q. It proceeded, would you agree, because of the risk to 15 inward investment, in particular from Japan, and the 16 prospect of a diplomatic incident? 17 A. At the time that this was under consideration, the key 18 issue involving -- and I know this as Secretary of State 19 for Trade and Industry -- was linked primarily with 20 Nissan and Toyota, the big car manufacturers. Their 21 concern was the fact that we were not joining the single 22 European currency, that was their big issue, and this 23 would be a very minor factor in that -- for their 24 consideration. So I think too much could be made of 25 that, actually. 85 1 Q. It proceeded because of the level of sunk costs and the 2 harm that would be caused to Government and its 3 reputation by the loss of those sunk costs? 4 A. That was one of the reasons. The other reason, which 5 I think is important for the Inquiry to be aware of, was 6 it would have had a devastating impact on the Post 7 Office network. You know, we had postmasters and 8 mistresses who had invested, as we were told, about 9 £1 billion of their own money in getting the property 10 and goodwill of post offices. That would have been 11 devalued overnight had we cancelled the Horizon project. 12 So there are a number of factors about how -- why it 13 proceeded. 14 Q. Was one of the factors that it proceeded ever brought 15 into account that it was a good and reliable system? 16 A. We wanted to ensure it was a system that worked, which 17 is why we put in place, as ministers, mechanisms and 18 procedures to alert us to any problems if they arose 19 during that rollout period. 20 Q. By this time -- 21 A. And insisting on -- 22 Q. Sorry. 23 A. And insisting on live trials to make sure we could see 24 how it worked in practice. 25 SIR WYN WILLIAMS: Mr Beer, I'm very sorry to interrupt, but 86 1 I'm going to have to adjourn for two or three minutes. 2 I know that's very inconvenient at this moment but will 3 you bear with me, please? 4 MR BEER: Yes, of course, sir. We will just simply turn 5 your camera off at this end and we will remain in the 6 room. 7 (Pause) 8 SIR WYN WILLIAMS: By way of explanation, the weather is 9 extremely bad at the moment, which had set our alarm 10 off, and I wanted to ensure that you didn't get an alarm 11 going off in the middle of proceedings, Mr Beer. 12 MR BEER: Thank you very much, sir. Are you now ready to 13 proceed? 14 SIR WYN WILLIAMS: As ready as I'll ever be, yes. 15 MR BEER: Thank you very much. 16 Lastly, can I suggest that the project proceeded 17 because of the wish to avoid litigation? 18 A. That would be one of the factors as well, yes. 19 Q. I'll ask again: was the quality of the system to be 20 delivered, its reliability and integrity, ever 21 consciously taken into account in the decision-making, 22 as at May 1999? 23 A. I think we wouldn't have proceeded had we -- had it been 24 a system that wasn't going to function properly and 25 deliver what we wanted for the Post Office. Now, as 87 1 ministers, we wouldn't -- we wouldn't be involved in the 2 sort of operational detail of that. What we could do as 3 ministers was to set up structures to -- as I think 4 I may have said earlier, to alert us to any problems if 5 they arose. 6 So we had the Horizon Working Group, which had 7 representatives of the subpostmasters, the CWU union, 8 and that was meeting and one of its terms of reference 9 was to report on these matters and how it was being 10 delivered in practice. And we also had an ongoing 11 dialogue with the Federation of SubPostmasters, I would 12 meet their national council, I spoke at their annual 13 conference in 2001, so there were those sort of 14 opportunities for ministers to be alerted to problems if 15 they arose. 16 Q. Did the Federation ever raise problems on behalf of its 17 members in the operation or integrity of the Horizon 18 system or did they generally paint a rosy picture to 19 you? 20 A. They painted a rosy picture and I think, you know, their 21 evidence to the Select Committee for Trade and Industry, 22 which was looking at this issue, seemed to say that -- 23 Q. Particularly rosy? 24 A. Very positive, and when I'd met their council in, 25 I think it was March 2000 -- I think the Inquiry's got 88 1 a note of that meeting -- 2 Q. Yes. 3 A. -- there were -- no problems were raised with me. 4 Q. No. Was that your route back into the subpostmaster 5 community, through the Federation? 6 A. It would be, and I think and all through my constituency 7 work. You know, in North Tyneside, Wallsend, we had 8 postmasters, we had post offices and, occasionally, they 9 would raise issues with me, but this was never raised. 10 Q. Can we turn forwards, please -- I am coming towards the 11 end of my questions now -- to February 2001, and look, 12 please, at CBO00000002. 13 This is a letter from you of 9 February to the Prime 14 Minister's private secretary. 15 A. It would be from -- it wouldn't be from me, it would be 16 from the head of my private office, I think. 17 Q. Yes, your private secretary, I think. 18 A. Yeah, yeah. 19 Q. What's the distinction to be drawn there? 20 A. I would write to the Prime Minister, my private 21 secretary would write to the private secretary of the 22 Prime Minister. 23 Q. But this expresses your views? 24 A. It would do, yeah. 25 Q. Thank you. The emboldened part tells us what the letter 89 1 is about: 2 "It is probably now inevitable that the number of 3 post office closures in this financial year will reach 4 a record high. This note sets out the causes and what 5 action we are taking to address the problem." 6 I'm going to deal with it briefly. In the first 7 paragraph it says the main reason for the recent 8 increase is the move to payment of benefits by ACT from 9 April 2003 "before we had in place a clear strategy to 10 deal with the impact on the ... network". 11 Then if we go over the page, please, and look at the 12 foot of the page: 13 "From recent research conducted by the Post Office 14 into the reasons for ... resignations it is clear that 15 most close their offices because of personal 16 circumstances and less than 10% cite financial viability 17 as the reason. Analysis of the reasons given for 18 resignation over the last 6 months have been ..." 19 You will see them set out there, and one of them is 20 the Horizon computerisation, 6 per cent of resignations. 21 Was that significant in any way? 22 A. Well, it's significant -- 23 Q. People are resigning because of the computer system that 24 we have introduced? 25 A. Yes, I think if I recall correctly the -- it was people 90 1 who probably were -- probably the age I am now, who 2 didn't want to face the prospects of technology that 3 they were unsure of. We had introduced, you know, 4 training sessions and helplines, but I think the whole 5 sort of computerisation was something that perhaps they 6 didn't want to go through. 7 Q. So you put it on a -- or you thought about it through 8 a sort of age -- 9 A. And people not wanting to embrace change, I guess, which 10 can be sort of a bit -- can be challenging and 11 uncomfortable for people. 12 Q. Rather than any issues with the system? 13 A. That's certainly how I read it at the time, yeah. 14 Q. Was it drawn to your attention at this time that 15 a significant number of subpostmasters were having 16 a recurrent serious issue with balancing on a weekly 17 basis? 18 A. No, that was never drawn to our attention. 19 Q. Can we go forwards, please, to CBO00000001. Again, 20 I think this is from your PPS, Bernadette Kelly, to the 21 private secretary to the Prime Minister, but again your 22 views, essentially. 23 Scroll down, please, so this is six days later: 24 "Your letter ... recorded the Prime Minister's 25 concern at the continuing high rate of Post Office 91 1 closures. This letter responds to your requests", 2 et cetera. 3 Then in the third paragraph: 4 "As my letter of 9 February said, net closures for 5 the nine months April to December 2000 were 434. We now 6 have the January figure which is 47 ... If February and 7 March were at the monthly average for the year ... the 8 total net closures for the full year would be 577. The 9 final figure could exceed this, particularly if the 10 completion of the introduction of Horizon (the new IT 11 platform) continues to 'bunch up' retirements and 12 resignations which might have otherwise taken place over 13 a longer period ..." 14 Why would the introduction of the Horizon platform 15 'bunch up' retirements and resignations that would have 16 taken place over a longer period? 17 A. I think the final part of that sentence explains that, 18 it says "those who don't want to train to use computers 19 decide to call it a day", and that was information 20 I recall I was being given, that it wasn't because of 21 accounting problems, it was actually that people were 22 not wanting to train up to use computers. 23 Q. So does it come to this: that you in Government were 24 never told -- even at this stage, February 2001 -- of 25 continuing problems with the operation on a weekly basis 92 1 of the Horizon system by a significant number of 2 subpostmasters? 3 A. We weren't, and we'd actually -- the thing that sort of 4 frustrates me here is that we had deliberately, after 5 the May 1999 new deal, the settlement that we achieved, 6 we set up the Horizon Working Group with the Minister of 7 State responsible for the Post Office chairing it, with 8 representatives of -- well, of POCL, of the Benefits 9 Agency, but also the Federation of SubPostmasters, the 10 CWU, and that was the vehicle that we deliberately -- 11 and this is an unusual body to set up in government, to 12 have all of those parties together, and we'd done it 13 deliberately so that if there were problems, as we moved 14 forward, then ministers could be alerted to those 15 problems. And I think, as the minutes and records of 16 the working group show, to my recollection, at no stage 17 were ministers alerted to the problems that you're 18 mentioning. 19 Q. That's all the questions I have for you, Mr Byers, save 20 for one: in your statement, at the beginning and at the 21 end, you make statements of a general nature about 22 having reflected on what has occurred and the losses and 23 harms that have been caused. I ought to give you the 24 opportunity to say anything that you wish to say in that 25 regard. 93 1 A. Well -- and I don't want to take up the time of the 2 Inquiry, but my comments right at the very end are 3 broader, I think, about -- and they're comments made in 4 the light of what I've seen reported in the press. And 5 what I don't understand in this whole scandal is how 6 government ministers, given they were being alerted to 7 the problems through adjournment debates, through 8 constituency correspondence, parliamentary questions, 9 how they managed to ignore all of that, and it could 10 well be because they'd almost become captured by their 11 department. 12 There is a funny relationship, quite often 13 a difficult relationship, between government ministers 14 and their civil servants, and sometimes government 15 ministers, because they're working with those civil 16 servants day in, day out, may reflect the views of the 17 civil servants. What government ministers have got to 18 do is always to challenge and question and disagree 19 where necessary. 20 And so the points I make at the end is whether -- 21 and this just -- this may seem inadequate in the 22 circumstances of this, the awful things that have 23 happened to so many people. Ministers need to be 24 trained to be government ministers. We're Members of 25 Parliament but then you move on to a totally different 94 1 role when you're in government. And part of that -- and 2 we're fortunate because, although we did it in private, 3 there was a good chance in 1996 that we would form the 4 next government, so we had training to what we should be 5 doing as government ministers and, part of that, was to 6 listen to advice, yes, of course, but to be ready to 7 challenge and disagree where that was necessary. 8 And it may well be that a more structured approach 9 may be of benefit. So that's why I made those sort of 10 final comments at the end. 11 MR BEER: Thank you very much, Mr Byers. There will be some 12 more questions for you. 13 MR STEIN: Sir, good morning, if it pleases you, I'll 14 proceed with questions on behalf of the group 15 I represent. 16 SIR WYN WILLIAMS: Yes. 17 Questioned by MR STEIN 18 MR STEIN: Mr Byers, I represent a large number of 19 ex-subpostmasters, mistresses and managers, all of whom 20 experienced the problems thrown at them by the Horizon 21 system. 22 Can I just pick up on a point that was raised 23 earlier by Mr Beer this morning, and, sir, for your 24 records it's at point 14.1 in the time recording on our 25 system. 95 1 You were asked about the question of whether you 2 were aware that the Horizon system was generating 3 evidence that was being used for the purposes of 4 investigations and prosecutions. I think Mr Beer put it 5 as being prosecutions, but it was being used for 6 investigations and prosecutions. 7 Your answer to that was no. Okay? 8 So, as a starting point, can we just analyse the 9 position that, in a way, you've just discussed with 10 Mr Beer, which is about the operation of the Civil 11 Service and briefings that you were given about this. 12 So can you help from your recollection whether you 13 were given any briefings by the Civil Service as to the 14 operation of the Horizon system and its connection with 15 investigations and prosecutions? 16 A. My recollection is that we were provided with no advice 17 or guidance or information relating to those matters. 18 Q. Now, the system of being briefed by the Civil Service is 19 often perhaps misunderstood. You, as a minister, are in 20 fact very busy, your diary is controlled entirely; do 21 you agree? 22 A. Not controlled. I mean, I think one of the -- one of 23 the lessons that we learnt in our seminars ahead of 24 coming into government, was not to allow your diary to 25 be controlled by your private office, that you take 96 1 control of your diary and you attach your own priorities 2 to it. 3 Q. Right. The busy part, though, of my question, you'll 4 agree with: your diary was busy? 5 A. It was -- it's the busiest I have ever been in my life, 6 being a government minister, yes. 7 Q. That means, in terms of information getting to you, you 8 are very reliant or entirely reliant upon the briefings 9 being given to you by the Civil Service? 10 A. That's correct. 11 Q. So this question of not being told that the Horizon 12 system was going to be used as the basis for 13 investigations and prosecutions, do you believe now, 14 looking back, that the Civil Service should have 15 provided you with information linking the Horizon system 16 to investigations and prosecutions? 17 A. If they had that information available at the time, I'd 18 have thought it's something that they would have been 19 sharing with the relevant minister. 20 Q. Right, so this may, in fact, go back a step to what did 21 the Civil Service learn, what were they told? 22 A. Yes. 23 Q. Okay. 24 Now, then let's look at your own set of knowledge. 25 The Post Office, originally as the Royal Mail, is in 97 1 fact, we believe, the oldest prosecution and 2 investigation body in the world. Did you know that? 3 A. No. 4 Q. When I ask whether you knew that, I ask at the time of 5 you taking responsibility for these matters. 6 A. I wouldn't have known at the time that it was 7 a prosecuting authority, no. 8 Q. Because of that, are you saying that you therefore 9 weren't on notice that you should be asking questions 10 about it? 11 A. (Pause) 12 I'm trying to recall what I was told at the time, 13 which is difficult, you know, we're looking at 22 years 14 ago. I would have expected -- and this is 15 an expectation, that we would have -- that there would 16 have been -- there would have been political oversight 17 of the approach to prosecutions. 18 Q. By? 19 A. That we would have laid down guidance and some rules. 20 Q. The guidance and some rules, who would they have come 21 from, who would have issued these guidance and rules. 22 Would that have been a more junior minister? 23 A. It would have been -- it would -- the detailed work 24 would have been done by a Minister of State, whether it 25 would come up to a Secretary of State, I'm not 98 1 altogether sure, to be honest. I think it would have 2 been dealt with at probably a lower level. 3 Q. Right, and this expectation that this would have been 4 looked at and dealt with by perhaps a more junior 5 minister, why do you come to that view, sitting there 6 now, so many years later? What's compelling you to 7 think about that as being something that should have 8 been done? 9 A. It's the -- it's the sort of issue that would have -- 10 that would have come across -- that would have been 11 dealt with at a political level, I think. 12 Q. Yes, forgive me one moment. 13 A. What I'm not sure, I mean, what would be interesting for 14 the Inquiry, I think, is to find out whether there were 15 any guidance -- and you may already be aware of this -- 16 whether there was any guidance that had been provided as 17 to the background for prosecutions. 18 Q. Again, reflecting now on what you mean, do you mean 19 guidance provided by -- let's go through the parties -- 20 by the Post Office? 21 A. I mean, prosecutions were taking place before Horizon, 22 for a number of reasons. I'd always believed that the 23 relationship with the Post Office and the network was 24 such that there would be -- there would be a -- there'd 25 almost be a dialogue about how, if there was 99 1 a deficiency in the accounts, how that would arise. 2 You wouldn't immediately move to a prosecution, 3 you'd try to find out what's gone wrong, what's 4 happened. And I think it seems to me -- and this may be 5 sort of going into areas the Inquiry will get onto 6 later -- that there was almost a change of approach by 7 the Post Office in terms of how they dealt with 8 prosecutions. It seemed to be a first port of call 9 rather than something that would need to be properly 10 looked into first. I could be wrong, but that's -- and 11 this is just based on press reports. 12 Q. Right, this is basically what I was going to ask, 13 whether this was information you'd been provided with or 14 not? 15 A. No, it's since I left Parliament, since the matters that 16 are being, you know, that you're -- the people you're 17 representing, since they have been so badly affected by 18 what happened, I think there's been a different approach 19 adopted in terms of prosecutions. 20 Q. One last matter, you have been asked a number of 21 questions about the Ministerial Code and we know this is 22 going to be dealt with in greater detail later on. Just 23 in your experience as a minister, I think that you've 24 taken over from Mr Mandelson, and I think Mr Darling, 25 Alistair Darling. 100 1 Did you find that there was a consistency in 2 approach to handover notes, so one minister leaving, you 3 taking over, a handover note setting out that these are 4 the points that we have been dealing with, you may find 5 them useful, and so on. Was there any consistency or, 6 I suppose, a rule in relation to handover notes? 7 A. No. No, it was all done differently. 8 MR STEIN: Thank you. 9 Questioned by MS PAGE 10 MS PAGE: Mr Byers, my name is Flora Page, I also represent 11 a number of the former subpostmasters and people who 12 worked for the Post Office. 13 My questions are about the Post Office board, the 14 Post Office management, there's not very many of them. 15 If I may start, please, with correspondence that we've 16 looked at already but which this section of we haven't 17 looked at. First of all, HMT00000055. This is, when it 18 comes up, the letter from you to Mr Mandelson when he 19 was in the post that you subsequently took from him. 20 If we go down, please, to page 2, paragraph 5, this 21 paragraph reads as you, in your HMT role -- "directing" 22 may be too strong a word, but certainly giving a pretty 23 clear indication of what you expect from Mr Mandelson in 24 his role at the DTI, and you say that you look forward 25 to him taking forward with the Post Office: 101 1 "plans to strengthen POCL's management of the 2 project; 3 "plans to give the management of POCL a much 4 stronger commercial focus; 5 "exploration of possible partnerships between POCL 6 and the private sector; 7 "a strategy for more transparent funding for POCL so 8 we can be much more rigorous in defining what social 9 value added is being bought; 10 "consider possibilities for further development of 11 the system to support social banking and broader 12 account-like services. (The Post Office would need to 13 involve CITU and consult BA on this last point.)" 14 So there's a few different points there, some of 15 which I'll just ask you to explain a little more about. 16 Plans to strengthen POCL as management of the 17 project, did that arise because there were concerns that 18 POCL had not been managing the project? 19 A. We had concerns because we were aware of the difficult 20 relationships between POCL and the Benefits Agency and 21 ICL, it's one of the reasons why, you know, the Corbett 22 troubleshooter role was created. 23 Q. Then a strategy -- I hope that the second and third 24 points speak for themselves: 25 "a strategy for more transparent funding for POCL so 102 1 we can be much more rigorous in defining what social 2 value added is being bought ..." 3 Does this refer to -- we've seen in some of the 4 correspondence from Mr Darling and, indeed, from 5 yourself in your role at the Treasury, this issue around 6 a sort of a hidden subsidy through the Benefits Agency, 7 and so what you're really referring to there is, if the 8 Post Office needs subsidy to continue to have its social 9 network and give the value that we all expect, then that 10 needs to be transparent rather than hidden through 11 a Benefits Agency cost which is unnecessary from 12 a Benefits Agency point of view; is that what you're 13 getting at? 14 A. Yes, one of the -- and there's no documentation to show 15 this, but I was sort of considering a fallback 16 situation. If we had to cancel the project, then we may 17 need to move to a direct subsidy of the Post Office 18 network, and if we were to do that, then I'd need to be 19 able to convince my political colleagues that there was 20 social value in so doing. So I think that's what I'm 21 referring to there. 22 Q. Yes. If we could then just look at the response from 23 Mr Mandelson again, which is HMT00000048, and if we can 24 go down to the second paragraph, I think, it says in 25 terms: 103 1 "In particular I accept the remit set out in 2 paragraph 5 of your letter. My objective within the 3 initial timescale of one month will be as a minimum to 4 agree with the Post Office Board the actions that need 5 to be taken on each of the items listed; to ensure that 6 practical measures are put in place as quickly as 7 possible to take these actions forwards; to institute 8 arrangements to monitor progress on a regular basis; and 9 to be in a position to report back to colleagues such 10 substantive progress as may have proved possible on each 11 by the end of the first month." 12 Do you have any recollection of that being put into 13 effect, either by Mr Mandelson or indeed by you when you 14 then took over his role? 15 A. I have no recollection of any action being taken on 16 these issues ahead of my taking over at the end of 17 December. Some of it would be subsumed in the work, 18 because these letters, I think, are to do with setting 19 up the Corbett troubleshooting role, so I think some of 20 it almost got subsumed into that work. But I don't 21 recall anything further coming from Peter on that. 22 Q. And, indeed, then something which you took up, any of 23 these points around stronger management of the project? 24 A. I certainly think through our Civil Service we had -- we 25 had POCL on notice that they had to up their game. 104 1 Q. Thank you. That document can be taken down. 2 What I'd like to do, just as a last issue to deal 3 with, then, is wind that whole thing much further 4 forward. 5 Are we able to take from that that you took the 6 view, and perhaps others in Government did as well, that 7 Post Office management was in need of some refreshment, 8 shall we say? 9 A. You're being very diplomatic. The Post Office at the 10 time, and it may still be the case, faced huge 11 challenges. I mean, it was a world that was moving and 12 developing dramatically with new technology, and I think 13 we had reservations about the ability of the board to 14 deliver. 15 Q. Yes. Well, then, as I say, going further forward, if 16 I could ask for NFSP00000058 to be put up, this is 17 a document from 19 March 2001 and I suspect that this is 18 what you've alluded to already when you say that you 19 spoke at NFSP meetings. 20 A. Mm. 21 Q. Of course, at this point, you're at the DTI. We can see 22 from the heading there that this is a report of 23 a meeting between you and the national executive 24 council, that's the national executive council of the 25 NFSP. 105 1 A. This is 2000, yeah. 2 Q. Oh, I'm so sorry, yes, 2000. What we see, if we go 3 down, please, to page 3, towards the end of that page, 4 so we see the paragraph that begins: 5 "The other thing that he intended [and I think I'm 6 right in saying the 'he' here is you] to do shortly was 7 that within the Post Office Board there was not really 8 a strong non-executive director on the board with retail 9 experience with responsibility for the Post Office 10 Network. What he had always thought was that the needs 11 of the Post Office Network had not always been taken 12 into account at board level. He did not think that the 13 Federation and the Network had received the degree of 14 support, or been treated as a priority, that the 15 Government felt that they should be as far as the Post 16 Office board was concerned." 17 Then: 18 "Certain requirements had been laid down to the 19 board in relation to the Network but he thought that 20 what was needed was to have a Post Office board director 21 member who had specific responsibility for the Network 22 and then it would be known that the person on the board 23 was your advocate. They were looking to recruit a new 24 person to the board with retail experience as they could 25 help to understand what the Network could offer and 106 1 hopefully some progress would be made on that in the 2 next week or so." 3 So that's you telling the NFSP that, as far as 4 you're concerned, the Post Office board doesn't really 5 have a voice on there, that's putting their concerns at 6 the heart of the business; is that fair? 7 A. Yes, if I remember correctly, I think we did -- we did 8 insist that they made an appointment of a non-executive 9 board member who had retail experience. 10 Q. Your hope from that, from what we get here, is that that 11 person would be an advocate on the board for the network 12 and for subpostmasters? 13 A. Because of the retail element, that they'd have retail 14 experience, yeah. 15 Q. Did that reflect, at that stage, a concern that the 16 board was not really listening to the network, was not 17 really listening to subpostmasters, as they should have 18 been? 19 A. I think that's the clear implication of what I'm saying. 20 MS PAGE: Thank you, those are my questions. 21 MR BEER: Sir, I believe that's all the questions that any 22 of the Core Participants wish to ask. 23 Sir, you're on mute still. 24 SIR WYN WILLIAMS: Thank you, Mr Beer. 25 All that remains, Mr Byers, is for me to thank you 107 1 for coming to give evidence and answering many questions 2 about many different and varied aspects of this case. 3 I'm very grateful to you. 4 A. Thank you. 5 MR BEER: Sir. 6 SIR WYN WILLIAMS: Mr Beer, before we actually adjourn, so 7 that we can have a reasonable lunchtime, what's the 8 prediction for the witness this afternoon? 9 MR BEER: Only Ms Hodge knows, because she's taking 10 Sarah Graham, not me, and I don't know that information. 11 SIR WYN WILLIAMS: All right. We will assume that taking 12 an hour is all right; shall we do that? 13 MR BEER: Yes, if we apply the presumption of rectitude that 14 we need to finish at 4.15, let's say 2.00, thank you. 15 SIR WYN WILLIAMS: Okay, 2.00 it is, thanks very much. 16 (1.00 pm) 17 (The short adjournment) 18 (2.00 pm) 19 MS HODGE: Good afternoon, sir, can you see and hear me? 20 SIR WYN WILLIAMS: Yes, I can, thank you. 21 MS HODGE: Thank you, our next witness is Dr Graham. 22 DR SARAH GRAHAM (sworn) 23 Questioned by MS HODGE 24 MS HODGE: Good afternoon, Dr Graham. Please give your full 25 name. 108 1 A. Sarah Vivien Graham. 2 Q. Thank you. You should have in front of you a witness 3 statement dated 11 October of this year; is that 4 correct? 5 A. Yes. 6 Q. I believe that statement runs to 19 pages in total. 7 A. Yes. 8 Q. Could I ask you please to turn to page 17 of your 9 statement. Do you see your signature there at the end? 10 A. Yes. 11 Q. Is the content of that statement true to the best of 12 your knowledge and belief? 13 A. Since I wrote the statement, there is a small factual 14 error on page 2, paragraph 5, at the bottom of that 15 page. I said that the 1 billion Horizon Benefit Payment 16 Card project was also the first PFI for an IT project to 17 be attempted. What I should have said, that it was also 18 one of the earliest and the largest PFI for an IT 19 project to be attempted. 20 Q. Thank you. Subject to that correction, is the content 21 of the statement otherwise true to the best of your 22 knowledge and belief? 23 A. Yes. 24 Q. Thank you very much. 25 As you know, I ask questions on behalf of the 109 1 Inquiry. Your statement now stands in evidence, and I'd 2 like to begin, if I may, just by asking you a few brief 3 questions about your professional background. 4 A. Yes. 5 Q. Upon graduating from university you joined the Civil 6 Service fast stream in 1976; is that right? 7 A. Yes. 8 Q. During your time employed in the Civil Service, you 9 worked mostly in the area of social welfare; is that 10 correct? 11 A. Yes. 12 Q. Your roles included policy development, business change, 13 planning and implementation? 14 A. Yes. 15 Q. You've explained that your last role in government, 16 prior to your retirement from the Civil Service, was as 17 a director in the Prime Minister's strategy unit; is 18 that right? 19 A. My last substantive role. I did, in fact, then take on 20 some internal consultancy work within government. 21 Q. Thank you. You have explained that upon leaving the 22 Civil Service you undertook some consultancy work, that 23 was external to government -- 24 A. Yes. 25 Q. -- and I think later returned to academia; is that 110 1 right? 2 A. Yes. 3 Q. Your first involvement in the Horizon project came in 4 November 1997; is that correct? 5 A. Yes. 6 Q. That was when you were appointed as the project head of 7 a special review of benefit payment policy within the 8 Department of Social Security? 9 A. Yes. 10 Q. Can you please describe the circumstances in which that 11 review had been commissioned? 12 A. It was, as I think I said in my statement, against 13 growing concerns within the Benefits Agency and 14 therefore the Department of Social Security about the 15 delays and the deliverability of the project, the 16 overrun in time and also the overrun in budget, and the 17 need, therefore, to review where we were with the 18 project. 19 Q. For the benefit of those following your evidence, can 20 you please explain the relationship between the 21 Department of Social Security and the Benefits Agency, 22 as it then was at the time? 23 A. Very similar perhaps to what we have nowadays, which 24 people will know about between the Department of Health 25 and the NHS, that the Benefits Agency was, as it were, 111 1 slightly at arm's length, a freestanding agency set up 2 actually as what we then called a Next Steps agency, so 3 they were operationally responsible for running the 4 operation of the payment of benefits and everything to 5 do with that, but the Department of Social Security held 6 the overall policy responsibility, ministers in charge 7 of the Department had the overall responsibility, 8 particularly, of course, on matters such as overall 9 budgets and expenditure. So I hope that makes that 10 clear in as simple a way as possible. 11 Q. Thank you, it does. 12 Before being appointed to lead the review you've 13 described, had you had any prior experience of working 14 on large IT projects on behalf of the -- 15 A. In the mid-1980s, I had been appointed as the head of 16 corporate affairs, so to speak, for the operational 17 strategy, which was a large programme within the then 18 Department and the Benefits Agency, basically for 19 computerising the payment of benefits and all the 20 systems that underlay it. 21 So I did, in fact, have some experience of working 22 with procurement, which had been one of my 23 responsibilities. And I don't know whether it would be 24 interesting to the Inquiry, but I had spent some time in 25 the United States as part of that programme and visiting 112 1 many of the contractors or potential contractors that we 2 might work with. 3 But also visiting something called the United States 4 Defence Staff System, based in San Diego, which was not 5 unpleasant, but that was the only system in the world 6 that was as large as our Benefit Payment System, which 7 I think indicates one of the interesting facts here that 8 I think the Department and the Benefits Agency had 9 a long experience of working with contractors, and also 10 had a long experience, for good or ill, with actually 11 computerising benefits. And, in fact, as some people 12 may know, you know, we had some of the oldest computer 13 systems going back to, sort of, huge processing machines 14 based in Newcastle. 15 So I say that just as giving a bit of the flavour of 16 the long experience, I think, possibly the deepest 17 within government itself, over the long -- such a long 18 period, of working with computer systems and also with 19 working with other contractors and consultants to 20 deliver our services. 21 And in that context, it might be worth saying that 22 one of the things that we learnt early on, that these 23 large global companies, they were never in the room 24 without a lawyer and, you know, this was something that 25 was actually quite new to us in the 1980s, and I'd like 113 1 to think we learnt a lot from that experience. 2 But I hope we had a lot also to bring to the table 3 when it came to our discussions with our Post Office 4 colleagues and with government more generally on this 5 kind of issue. 6 Q. Thank you. You mentioned procurement. I don't believe 7 you had any direct involvement in the procurement of 8 this system; is that correct? 9 A. No, I didn't. 10 Q. It's been suggested by some witnesses to the Inquiry 11 that the Department and the Agency were hostile to the 12 Horizon project from the very outset. Do you consider 13 that to be a fair characterisation of the attitude of 14 the Department and the Agency, at the point at which you 15 became involved in November 1997? 16 A. I would say concern rather than hostile. 17 Q. In your statement, you explain that the Department and 18 the Agency had concerns in 1997 about the viability of 19 the project. You say those concerns were both technical 20 and practical; is that correct? 21 A. I think the two are inseparably interlinked because, as 22 it appeared to unfold that some of the problems with the 23 technical side of things were clearly impacting on how 24 it was getting delivered -- and I'm sure we'll come on 25 later -- that the premise that I think it's worth 114 1 re-stating, that the Benefits Agency and the Department, 2 the premise with which they'd actually embarked on this 3 was that we were going to be moving in the long term to 4 an ACT-based system of payment. 5 So there was a time factor that was implicit in the 6 whole project about a Benefit Payment Card. In other 7 words, if we didn't actually get the payment benefit 8 card delivered until, you know, we could have, as it 9 were, already moved to an automatic payment system with 10 the banks, it ceased to be of value to us. 11 Q. Thank you. Can you please explain why, in your view, 12 the Department had reason to doubt the technical 13 viability of the project at the point at which you 14 joined in November 1997? 15 A. I think that at the point that I started looking at the 16 issue, I'm not sure that the Department or the Benefits 17 Agency were in a position of saying it was not viable. 18 I mean, this would've perhaps emerged the longer the 19 discussions went on. I think it was more we had reached 20 a point where it was clearly not -- it was very late, it 21 was also over budget, increasingly, and, as you may have 22 seen, I think that, because of the government accounting 23 rules, the chief executive of the Benefits Agency needed 24 a direction in order to continue with the project. 25 So, in that sense, it was -- that was one of the 115 1 reasons why we actually needed to reach a view with our 2 partners and across Government about the best way 3 forward. 4 Q. You've mentioned the ministerial direction in your 5 statement. 6 A. Yeah. 7 Q. Can you please explain what the purpose of that was and 8 why one had been sought in this particular case? 9 A. I think I would have to defer to others with more 10 experience to explain the detail of what a ministerial 11 direction under the accounting rules -- you know, all 12 the specifics of when it becomes necessary. But in very 13 broad terms, it becomes necessary if it looks as if 14 there are accounting issues that would present -- I'm 15 trying to search for the right word -- that would 16 present difficulties in a responsible use of taxpayers' 17 money, and there are clear accounting rules around this 18 and, as I say, I think I would have to defer to others 19 to say exactly what those were and are. 20 Q. Thank you. A little later in your statement you 21 describe ICL Pathway underperforming on the original 22 specification. Can you please explain what you mean by 23 that? 24 A. I think I might have to look at some -- can you cite to 25 me any of the documents that I've referred to? 116 1 Q. Your statement, if we could bring it up, bears the 2 reference WITN03790100, please. It's at paragraph 7, 3 please. 4 A. Can you repeat the question? 5 Q. Yes, of course. So we see here you explain: 6 "I have been asked to explain the problems faced by 7 the cross-departmental Horizon Project Review Group 8 between Spring and Summer 1998. I cannot recall the 9 specifics of the problems during this period but in 10 broad terms, as explained in the referenced papers, 11 there were serious and increasing concerns in DSS and 12 the Benefits Agency that it was running increasingly 13 late, underperforming on the original specification and 14 potentially heading for significant budget overruns." 15 My question was what you meant when you said that 16 the project was underperforming on the original 17 specification? 18 A. I think what I meant there was that they were not, as 19 I recall from the papers -- and perhaps I should say 20 here I have been very dependent on the papers that have 21 been delivered as part of this Inquiry on stimulating my 22 memory. But underperforming in the sense that major 23 milestones had been missed, a particular one, as 24 I remember from the papers, and perhaps what had 25 stimulated my appointment, was in November 1997. 117 1 I believe there had been problems with -- and we may 2 come onto that later -- problems around the way this 3 whole project had got off to a start, which the Project 4 Mentors report around the reasons for the delays 5 explains a little bit more. But it was because of these 6 significant delays, and there had been a restructuring 7 of the whole project, I understand, before I got 8 involved, in February 1997, allowing, in a sense, for 9 all parties to regroup and reset exactly the way they 10 were going to move forward. And it was against that 11 backdrop that, even though the requirements had been, as 12 it were, reset, there was still a significant milestone 13 missed in November. That was, I think, what I meant in 14 very simple terms by saying "underperforming". 15 Q. Thank you. 16 In terms of the action which was taken to address 17 the concerns you've described, you state it was the 18 Department and the Agency who took the lead in raising 19 concerns about the project's future deliverability; is 20 that correct? 21 A. My understanding is that both the Post Office, or Post 22 Office Counters Limited, and the Benefits Agency both 23 agreed that ICL Pathway was in breach for missing their 24 November 1997 deadline. However, I think that our 25 interests were not -- were different, and perhaps our 118 1 concerns, as a result of that, were not as great as 2 those of Post Office Counters, because, as I've 3 explained earlier, we had a real interest in timing. 4 I think that Post Office Counters had different 5 priorities and concerns and, in simple terms, while we 6 were still paying benefits through them with our order 7 book system, they were still retaining the same level of 8 income. 9 So to that extent, there perhaps wasn't quite the 10 same driver, if you like, or sense of urgency about 11 trying to resolve the problems with the Benefit Payment 12 Card. 13 Q. We can see the concerns of the department articulated in 14 a letter to the Prime Minister, dated 6 February 1998. 15 That bears the reference CBO00100005_033. I wonder if 16 that could please be shown. Thank you. 17 On the second page of that letter, we see the 18 initials "HH", which we assume denote the then Secretary 19 of State for the Department, Harriet Harman; is that 20 correct? 21 A. Yes. 22 Q. Do you recall whether this letter was drafted by you in 23 your role as project lead on the review? 24 A. I'm afraid I do not recall but I would think it highly 25 likely. 119 1 Q. Thank you. If we could please turn back to the first 2 page, we see the Department's concerns summarised in the 3 first paragraph there. This is a letter, of course, 4 addressed to the Prime Minister, in which the Secretary 5 of State records: 6 "I am writing to alert you to problems with 7 a private/public sector project designed to improve the 8 Benefit Payment System and automate the Post Office 9 network. In a nutshell, there is a serious risk that 10 this project will fail to deliver its objectives -- or 11 will not do so within a timescale that will make it 12 worthwhile." 13 The letter goes on to set out what the original 14 objectives of the project were and to spell out some of 15 the funding consequences and some of the wider policy 16 considerations that were raised by the project. 17 I wonder if we could please scroll down to the 18 second page. Thank you. We see there at the third 19 paragraph, the letter essentially concludes that: 20 "Although we [by which I understand the author to 21 mean the Department of Social Security] have a clear 22 view about the best route forward, I am clear that we 23 should at all costs seek to avoid getting focused too 24 closely on individual Departmental interests, and that 25 we should aim to establish an agreed view from the 120 1 start, avoiding the potentially damaging effects that 2 our quite legitimately differing Departmental views 3 have, when exposed to the public eye." 4 Do you consider that that statement of the 5 Department's position accurately encapsulates your views 6 or the views of the Department at this stage in 7 February 1998? 8 A. As you know, I've only just seen this letter. 9 I wouldn't be in a position to say one way or another in 10 terms of what the Department was saying about its view 11 on a way forward but the sentiment that we should have 12 an agreed view from the start and that we should work 13 together with all the interests is one I very clearly 14 endorse as being at the heart of our Department's 15 thinking throughout and, indeed, I think that there are 16 some other exhibits that have actually brought this out. 17 I think that there was a consistent recognition by 18 us of the need to reach a solution that certainly was 19 agreeable to all the public sector parties and, indeed, 20 also to ICL. 21 I cannot recall the document now, but I do remember 22 reading one that I wrote which said "What we want to 23 avoid is a Treaty of Versailles situation", which 24 I think, in our Department, we were trying all the time 25 to find a solution that would work for everybody. And 121 1 I think I've just noted, because I happened to see it, 2 exhibit E6, there was an internal document that 3 I authored as briefing for our Secretary of State, so it 4 was an internal document, not for the public eye, in 5 which, again, I put this point very firmly, 6 paragraph 13. 7 And I think again in exhibit E14, I haven't made 8 a note of what that was, but I think I'd say it was 9 a consistent part of our approach. 10 Q. That is to say to achieve a consensus between interested 11 parties on the best way forward? 12 A. Yes, and I think -- again I cannot recall, I'm sorry, 13 which document -- but I have read one where I wrote 14 explicitly "We cannot -- in order to reach an agreed way 15 forward, each party has to accept it won't get 16 everything it wants". I mean, that's in the nature of 17 finding an agreement. But, on the other hand, each 18 party does need to get something it wants and, as 19 I recall it, there was one particular way forward that 20 was being suggested where the Benefits Agency and DSS 21 would get nothing. So, you know, that was clearly not 22 going to be one where we would be able to accommodate 23 others. 24 Q. My first question to you should have been what the clear 25 view about the best route forward was, but I think 122 1 you've answered that by saying you don't feel able to 2 articulate -- 3 A. No. 4 Q. -- what that view was at that stage in the process. 5 Thank you. 6 In terms of the wider policy considerations which 7 underpinned the concerns of the DSS, your statement 8 suggests that one of the primary objectives of the 9 Department was to secure the timely and accurate payment 10 of benefits; is that correct? 11 A. Yes. 12 Q. I think we can see that reflected in your statement, 13 please, at page 4, paragraph 8. Thank you. We see 14 there at the bottom of the first paragraph it reads: 15 "Paramount, however, in the transition to any new 16 system, was the ability to sustain the reliability of 17 the Benefit Payment Service for recipients, many of whom 18 were among the most vulnerable in our population. 19 Problems with the Benefit Payment Card put these 20 responsibilities at risk." 21 You've described that as paramount; did you consider 22 it to be the most important of the considerations at 23 play for the Department at this stage? 24 A. I think it probably is still, in my view, the primary 25 concern that the payment of due benefits to recipients 123 1 is achieved safely and efficiently, effectively. 2 Q. You've referred there to problems with the Benefit 3 Payment Card. What did you understand those problems to 4 be in the spring and the summer of 1998? 5 A. My memory cannot recall that in detail. 6 Q. You've explained in your statement you did not have 7 technical expertise and that you relied upon those 8 within the Agency who did; is that right? We know from 9 documents obtained by the Inquiry that senior figures in 10 the Agency received reports of what were described as 11 lost or incomplete transactions of duplicate payments 12 and cash account errors. Do you recall whether those 13 types of issues or problems were brought to your 14 attention? 15 A. I do not recall. I have seen the paper or a paper in 16 the documents that were just sent to me, I think, very 17 recently. And I have to say it didn't, it didn't ring 18 any bells with me. So I'm not -- that isn't to say that 19 I did not know about them at the time, but certainly 20 I cannot recall. 21 Q. Thank you. 22 You say at paragraph 11 of your statement that you 23 were well aware from Agency colleagues that there were 24 serious concerns about the ability to develop the 25 Benefit Payment Card as originally designed and 124 1 specified. 2 Do you recall who at the Agency articulated those 3 concerns to you? 4 A. My main contact in the Benefits Agency was George 5 McCorkell, whose name I'm sure you will have seen on 6 some of the documents, who was the lead official. 7 Q. Thank you. It appears that Harriet Harman's letter to 8 the Prime Minister in early February 1998 prompted the 9 intervention of the then chief secretary to the 10 Treasury, Alistair Darling, who commissioned 11 an interdepartmental working group, known as the Horizon 12 Project Review Group, to address the problems which had 13 beset the programme. Is that consistent with your 14 recollection of events in the early part of 1998? 15 A. Yes. 16 Q. The group was comprised of senior officials rather than 17 government ministers; is that correct? 18 A. Yes. 19 Q. You were invited to act as a standing member of the 20 group, in order to represent the interests of the 21 Department of Social Security; is that right? 22 A. Yes. 23 Q. You've explained in your statement that one of the tasks 24 assigned to the group was to carry out a review of the 25 project's technical viability. What did you understand 125 1 the term "technical viability" to mean in this context? 2 A. Ah ... I think that what I understood it to mean was 3 a clear investigation of what was involved technically 4 in the Horizon project, including the Benefit Payment 5 Card, and the viability of what was proposed. 6 Q. By "viability", can you confirm what you mean in the 7 sense -- are we talking about something that's 8 theoretically possible or something that, in actual 9 fact, can and will be delivered? 10 A. I think you've put your finger on one of the 11 difficulties with the project, in that there were 12 aspects that were to do with its technical complexity, 13 and clearly it was a very complex proposal, but its 14 viability would link also with human factors, 15 operational factors. You know, there was more to it 16 than just simply, as you say, a kind of theoretical 17 possibility. 18 And I don't know whether we're going to come on to 19 this, but the actual panel that was asked to look at the 20 technical side of the project certainly made clear that 21 while, in theory, it thought that the Horizon platform, 22 as distinct from anything you might add onto it like the 23 Benefit Payment Card, was technically -- I can't 24 remember the exact word they used, but I think they 25 certainly meant that it was possible, and that -- 126 1 viable, technically viable, they recognised that there 2 were, nonetheless, huge risks around it in terms of its 3 deliverability, which was, you know, a different issue. 4 Q. Thank you. You've mentioned the expert panel, you were 5 assigned responsibility for investigating the project 6 technical viability. That was chaired by Adrian 7 Montague; is that correct? 8 And we know that they ultimately concluded that the 9 project was technically viable; is that consistent with 10 your recollection? 11 A. My understanding is that the Horizon platform they 12 considered as technically viable, but that, as I say, 13 my -- I think if we looked at the report, we'd see that 14 they hedged it around with saying there were, you know, 15 many, many risks in actually delivering it. 16 Q. Yes. We can bring up the report, please, it's at 17 POL00028094. Thank you. There's an "Executive Summary" 18 of the panel's findings at page 3, please. It's under 19 the heading "Findings" we see recorded: 20 "The programme is complex, probably the biggest of 21 its kind. Its scale, and particularly the development 22 work required, were underestimated initially. The 23 parties have since increased the resources devoted to 24 the programme, but a range of issues remain to be 25 resolved. 127 1 "Our view is that the programme is technically 2 viable. There must be some risk around scalability and 3 robustness because the system has had to be tested at 4 the level of component parts, but we are satisfied these 5 risks are being well managed by Pathway." 6 It goes on to state: 7 "There is good evidence of future proofing at all 8 levels. The basic infrastructure is very robust for the 9 future and, in the main, industry standard products have 10 been used. The system should allow [Post Office 11 Counters Limited] to compete for new business in 12 a variety of markets, including banking and financial 13 services. New applications based on smartcard 14 technology should be relatively straightforward and 15 economic. If online applications are required, they may 16 take longer and require more investment." 17 Were the panel's findings, as summarised there, 18 consistent with the expert advice which you were 19 receiving from colleagues within the Benefits Agency 20 about the reliability of the system that was admittedly 21 still under development at this stage? 22 A. First, to say I think the Department and the Benefits 23 Agency's interest was primarily in how the Benefit 24 Payment Card and payment of benefits was affected. So, 25 to that extent, this more general idea about the 128 1 robustness of Horizon was not within our province, 2 except, as I say, insofar as what would happen for the 3 Benefit Payment Card and the payment of benefits and our 4 policies on moving to ACT. 5 From what I can see here, I have no reason to 6 disagree with it. My memory is that, in the back part 7 of the report, there is perhaps more explanation of what 8 the risks were around the programme. 9 Q. Yes, indeed, would you like us to refer to that? 10 A. I'm not sure that I can actually pinpoint exactly -- 11 Q. No, I'm sorry, would you like me to take you to those 12 sections now of the report? 13 A. Well, we could just have a look, yeah. 14 Q. By all means, yes. 15 (Pause) 16 A. I think we're just ... think about scalability -- 17 Q. So we see at paragraph 25 -- 18 A. Yeah. 19 Q. -- the main architectural -- 20 A. And this is -- I think one of the key issues for -- from 21 the Benefit Payment Card perspective, as we may come on 22 to, was the whole approach to acceptance testing, and 23 I think that you may have seen in subsequent papers that 24 there is -- and we knew from bitter experience with 25 a project called NIRS2, that there is a great difference 129 1 between what they called model office testing and live 2 trialling. And, as you say, scalability, all these 3 things would have caused, I suspect, you know, some 4 level of doubt and it's a risk that is quite difficult 5 to assess in this sort of rather theoretical 6 environment. 7 Q. Thank you. 8 You've explained in your statement that, in terms of 9 the significance of the panel's findings on this 10 important issue, their conclusions essentially 11 underpinned the advice which was subsequently 12 communicated to ministers by the review group about the 13 future options for the project; is that correct? 14 A. I'm sorry, could you repeat that? 15 Q. Sorry, the formulation was perhaps unfortunate. In your 16 statement, you suggest that the conclusions of the panel 17 as to the technical viability of the project very much 18 underpinned the advice that was subsequently given to 19 ministers by the review group, concerning the future 20 options for the project; is that fair? 21 A. Yes. 22 Q. We can see evidence of that particular point set out at 23 paragraph 17 of your statement, please, on page 7. 24 Thank you. I think it's on the following page, please. 25 Thank you. Thank you. 130 1 So we see there the first of these, which was the 2 question as to the technical viability of the project: 3 "... was dealt with, and taken fully into account, 4 by the report it had commissioned from the specially 5 constituted Independent Panel. This report formed the 6 basis on which consideration of the possible options, 7 including cancellation, could stand. Thus, Option 1 8 assumes the Panel's view that, although there were risks 9 endemic in such a large and complex programme, the basic 10 platform was potentially robust albeit only achievable 11 on a much longer timescale (some 3 years later than 12 originally planned) and subject to significant 13 ratcheting up in many areas, primarily in the quality of 14 management and control within ICL Pathway ..." 15 It goes on to say: 16 "Having accepted that position, other issues came 17 into play, specifically the costs of cancellation and 18 alternative options, as per the Group's remit." 19 Did you consider at the time that the review group 20 was right to proceed on the assumption that the project 21 could be delivered successfully by ICL Pathway? 22 A. As I recall it, yes, in the sense that, as stated here, 23 that, in theory, it was potentially robust but there 24 were a number of issues around it that also needed to be 25 resolved, both in terms of the implications of timing 131 1 and quality of management and control within Pathway, to 2 mention just a couple. So I think that would be a fair 3 assessment of what I -- or what the Department felt at 4 the time. 5 Q. You have explained in your statement that the review 6 group explored three possible options for the future of 7 the project. Put very simply, these were, firstly, 8 continuing with the project in its then guise, to a very 9 great extent; the second being restructuring of the 10 project to remove the Benefit Payment Card; and, 11 finally, cancellation of the project. 12 You've described cancellation in your statement as 13 the logical course. Can you please explain why you 14 regarded it at the time as the logical course? 15 A. Well, from memory, the cancellation -- from our 16 perspective, the cancellation of the project -- it 17 wasn't working, it hadn't -- it wasn't being delivered 18 to time. ICL Pathway were in breach and I believe it 19 was not impossible to conceive of other ways in which 20 the Post Office, ourselves, government, could achieve 21 our objectives. I think, you know, we shouldn't 22 altogether forget that there were some other objectives 23 apart from strictly the benefit -- payment of benefits. 24 There was also the Post Office's concern to grow its 25 business, which was a longer term objective, and to 132 1 become more commercial. And also there were Government 2 objectives about modernising government, making it more 3 efficient, also about social exclusion. 4 There were, you know, a number of these sort of 5 issues that were all sitting there and waiting, in 6 a way, to be taken forward. And it is possible that, 7 you know, if cancellation had been considered a viable 8 option, we could all have regrouped, as it were, and 9 started again. 10 Q. We know that the majority of the group recommended 11 continuing with the project, so the first of those three 12 options that we've mentioned. But that was not 13 a decision which you felt able to endorse; is that 14 right? 15 A. Yes. 16 Q. If we could please scroll down to page 8 of the 17 witness's statement, please, we can see that you 18 addressed this point at paragraph 18. You say: 19 "Looking again at the Group recommendation to pursue 20 Option 1, the decision seems clearly weighted to the 21 interests of the Post Office and ICL in a way that still 22 seems difficult to understand and could not be readily 23 accepted by the [Department and the Benefits Agency]." 24 You go on to say that: 25 "It appears that the majority of Group members 133 1 deemed the risks to the Post Office and its future, the 2 possible risk of litigation, the potential impact on 3 inward investment and reputational risk to Government 4 and its PFI policy if the project failed, outweighed the 5 risks of forging forward with the project, despite the 6 evidence of performance to date, and even with so many 7 uncertainties as acknowledged by the Panel and the even 8 greater impact if it failed anyway." 9 Were you concerned at the time that, when assessing 10 the ability of Pathway successfully to deliver the 11 system in future, insufficient weight was being placed 12 upon its actual performance up until that point? 13 A. Can you repeat the question? 14 Q. Were you concerned at the time that when the group was 15 assessing the ability of Pathway successfully to deliver 16 the system in the future, it was placing insufficient 17 weight upon its actual performance to date? 18 A. Yes. 19 Q. If you were concerned that the system could not be 20 delivered successfully, as it was originally conceived, 21 why did you, on behalf of the Department, endorse the 22 second of the two options? 23 A. Well, I think that, as -- as we were discussing earlier, 24 it was important to find a way forward for all to agree, 25 and it certainly seemed that there was scope -- 134 1 I haven't got option 2 in front of me now, so I'm sort 2 of speaking a little bit -- 3 Q. That's the restructuring of the project to remove the 4 Benefit Payment Card. 5 A. Exactly. Well, in a very simple way, removing the 6 Benefit Payment Card very much simplified the project, 7 so it certainly increased its ability to -- would 8 significantly increase ICL Pathway's ability to be able 9 to deliver on the project. So I think that's the first 10 point. 11 And I think the other point, which I cannot now 12 recall whether it was at that stage part of option 2, 13 but to remove the Benefits Agency out of the contract 14 would actually have made things very much simpler in 15 terms of the relationship of managing the project if it 16 was between two parties, in perhaps a more conventional 17 manner. 18 Q. In view of the concerns that your colleagues in the 19 agency had expressed about the reliability of the 20 system, was there not a risk that in endorsing option 2, 21 the Department would be lumbering Post Office Counters 22 with a flawed system? 23 A. We were still going to be a customer of the Post Office, 24 so I don't think that we were viewing it as a negative 25 option, in the sense, as I said, that there was 135 1 a genuine belief that by desimplify -- decomplicating 2 the project and by taking the Benefit Payment Card away, 3 it should have become a much simpler and more 4 straightforward project to deliver. Even taking account 5 of issues like past performance, there was actually 6 a better opportunity for a positive way forward. 7 Q. From the perspective of your Department, did endorsement 8 of option 2 offer the path of least resistance in terms 9 of it offering an option which was at least acceptable 10 to some of the contracting parties? 11 A. It seemed, I think I said at the outset, that when 12 parties disagree it's often difficult to find a solution 13 that is perfect for everyone, but this certainly looked, 14 at the time, as the best way forward, taking all the 15 complex considerations into account. 16 Q. We know that efforts continued to be made in the autumn 17 of 1998 to find a workable solution to the problems 18 which had beset the project. Negotiations with 19 ICL Pathway as to the contractual basis on which the 20 project might proceed were initially conducted under the 21 auspices of Graham Corbett; is that correct? 22 A. Yes. 23 Q. When those negotiations failed to come to fruition, the 24 issue was remitted to another working group; is that 25 right? 136 1 A. I cannot recall. 2 Q. It appears from the papers we have that a further 3 working group was brought together, whose composition 4 largely mirrored that of the original review group, but 5 also compromised representatives of the Benefits Agency 6 and Post Office Counters Limited; do you recall that? 7 A. Yes, I have to say that I had largely viewed it in the 8 way you've just described, that it was, in fact, the 9 earlier group with the helpful addition of people from 10 the Benefits Agency and Post Office. 11 Q. It appears from the documents we have that you, in fact, 12 suggested that it would be sensible to include 13 Post Office Counters Limited within the group; do you 14 recall making that suggestion? 15 A. No, but it sounds like a good one. 16 Q. You were sufficiently concerned about the direction of 17 interdepartmental discussions in mid-November 1998 that 18 you sent a paper to your colleagues in the Treasury 19 setting out the nature and cause of your concerns; is 20 that right? 21 A. Can you refer me to the paper? 22 Q. Of course. It bears the reference POL00028635. This 23 first page is a fax cover sheet. 24 A. Yeah. 25 Q. We can see it's addressed to the Horizon Working Group 137 1 members, who are listed on the left-hand side. They 2 include various officials in Her Majesty's Treasury, 3 David Sibbick in the Department of Trade and Industry, 4 Jeremy Crump in the Cabinet Office central IT unit, 5 Geoff Mulgan at Number 10, Jonathan Evans and Paul Rich 6 of the Post Office and George McCorkell of the 7 Benefits Agency. It also includes Hamish Sandison of 8 Bird & Bird, can you confirm what role he played at this 9 stage, please? 10 A. Hamish Sandison was the joint programme lawyer for the 11 Benefits Agency and Post Office Counters advising on 12 contractual arrangements. 13 Q. Thank you. We can see the fax is dated 13 November, and 14 in the lower section it's from you, Sarah Graham, at the 15 DSS. 16 If we scroll down to the second page, please, we can 17 see a covering letter addressed to Sarah Mullen and 18 addressed to various members of the Horizon Working 19 Group. In terms of the context of this paper, that's 20 set out at paragraph 1, in that it provides: 21 "In preparation for the Inter-Ministerial meeting on 22 Tuesday, and as agreed at the last Working Group 23 meeting, it is important that we do not concentrate on 24 an analysis of the ICL proposals at the expense of 25 giving ministers the opportunity to consider whether 138 1 they still wish to continue with an option around the 2 project 'as is', or whether now is the time to pull the 3 plug and open discussions with I'm ICL either around 4 an alternative option or a negotiated termination." 5 You explain that you've attached: 6 "... a note of some of the main issues that [you] 7 believe the Working Group should put to Ministers, which 8 [you say] do not naturally fall out of the evaluation 9 process we have been following." 10 Then at paragraph 3, please: 11 "Turning to the ICL proposals themselves, having had 12 the benefit of attending the presentation they gave 13 yesterday, I am quite clear that the proposals taken 14 together do not present a sufficiently significant move 15 on ICL's point to meet Ministers' original criterion for 16 the discussions -- to find a commercial 'deal' 17 acceptable to Government. The analysis that DTI/POCL 18 has put to you completely ignores the transfer of risk 19 that underlies the ICL proposals -- Government/public 20 sector parties being asked to underwrite not only the 21 new loans but the ones that already exist; guaranteed 22 payment to ICL, with scant regard to the level of 23 performance; significant price increases; payment in 24 advance; acceptance of the project before it is fully 25 trialled in any systematic form; by any token this is 139 1 a complete re-write of the contract which was originally 2 let; certainly changes the original PFI concept of 3 transferring some risk to the private sector; re-draws 4 the project in terms of the contractual basis, the 5 specification, the funding -- now put at £600 million 6 over the life of the project for ICL of which 7 £480 million is to be underwritten by the public sector 8 sponsors. In practical terms, to close the deal as 9 David Sibbick says, Government needs to commit a further 10 £120 million and more -- for the privilege of allowing 11 ICL to continue with the project, and possibly glean 12 some future benefit from 'the golden cloud' which hovers 13 over the partnership agreements with POCL." 14 If we scroll down, please, to page 4, we can see 15 a copy of the paper which you enclosed with this letter. 16 Thank you. It's described as an "aide memoire" of 17 issues that may have escaped the formal evaluation 18 process. Do you recall producing this document at the 19 time? 20 A. It's nearly 25 years ago, so I don't think I would be 21 honest if I said that I could recall it in detail. 22 Certainly re-reading it, I remember broadly the 23 situation. 24 Q. Thank you. 25 The first of the six headings in this paper is 140 1 entitled "The risks of continuing with the project". 2 This is the area on which I would like to focus our 3 attention, please. 4 The first bullet point bears the heading: 5 "Why should ICL performance improve dramatically in 6 the future over the past?" 7 You state there: 8 "Apart from the well documented and continuing 9 delays, ICL have dragged their feet every step of the 10 way, always looking to do less rather than more, 11 [for example] constant arguments about the security 12 requirements for the [Benefit Payment Card] have only 13 recently been resolved, although these were central to 14 the [Department's] business and policy objectives for 15 undertaking the project at all. There is no evidence 16 that ICL is making extra efforts to keep to committed 17 milestones since they were placed in breach of contract 18 by both parties last November, [for example] the October 19 1998 milestone for the software required for delayed 20 operational trial (11 months late) was not met. The 21 whole tenor of the discussions around the negotiations 22 with Graham Corbett was to make life much easier for ICL 23 than ... the current contract: easing requirements, 24 cutting corners, etc; and this is further reflected in 25 spades in the latest (9 November) proposals from ICL. 141 1 This cannot bode well for the future. Either the 2 project is in the end going to cost much more than is 3 envisaged, to get the quality and timely product we 4 need; or, just as likely, it will not be delivered on 5 time or in totality; or most likely of all, a mixture of 6 both." 7 We can see you here expressing yourself in what 8 you've described as forthright terms. Why did you 9 consider it necessary to do so at this stage in 10 November 1998? 11 A. As I've just said, I think it's quite difficult to 12 recall in a way that would be helpful to this Inquiry, 13 you know, the exact sequence of events. But reading 14 that, I would judge that I clearly felt that the way the 15 discussions were going was or were disregarding the key 16 factors that I had put here in this document. 17 Q. Thank you. 18 Your aides memoire contained reference to 19 ICL Pathway's proposals to ease the requirements imposed 20 upon it by the terms of the original contract. We know 21 that one aspect of their proposals related to the 22 criteria on which the system would be deemed to be 23 contractually acceptable; do you recall that? 24 A. I recall it in part through reading some of these 25 documents, but it would only be through that means. But 142 1 what does come up again and again in looking through 2 these documents is ICL Pathway's repeated attempts to 3 soften the acceptance criteria and, as I think I said 4 earlier, to base acceptance on what was achieved in what 5 was called the model office or partial trials, and not 6 on the acceptance criteria that, if I recall rightly, in 7 the Project Mentors report -- which we may allude to 8 later -- that was commissioned at an earlier stage by 9 the Benefits Agency and the Post Office, about the 10 reasons for the delays, they had made quite clear that 11 ICL were not actually following the normal kind of 12 process that would be expected in a project of this 13 type. 14 Q. You've referred just now to two aspects of the 15 proposals, one being a relaxation of the acceptance 16 criteria, and the second being the acceptance of the 17 system at the end of model office testing rather than 18 a live operational trial. Those are the two that stand 19 out in your memory; is that correct? 20 A. From memory, but I think there were, you know, various 21 gradations in between. I would -- you know, I would 22 defer to those who actually were involved in this 23 process to be able to describe more reliably what was 24 involved. 25 Q. What, if anything, did you deduce at the time from these 143 1 proposals about ICL Pathway's confidence in the 2 robustness of its own technical solution? 3 A. Well, I said at the beginning I am not an expert in this 4 field at all, but I think, just in a common sense way, 5 something didn't seem right in this constant, as I was 6 understanding it, sort of eating away, trying to make 7 things easier. And also I think remembering that these 8 criteria related to the way that payments would then be 9 made to ICL. So there is obviously that other aspect 10 that, you know, it's not just making sure that the 11 system works, which was obviously our primary interest, 12 but, from an ICL Pathway point of view, there was a real 13 concern that they needed to tie in or would like to tie 14 in whatever the acceptance criteria were to, if you 15 like, ease the criteria for payment to them. 16 Q. From what you said, you therefore think that there was 17 a strong financial aspect to the proposals; is that 18 a fair inference -- 19 A. Yes. 20 Q. -- from your evidence? 21 A. Yes. But that's understandable, they're a business, so 22 that's fair. 23 Q. You refer in your statement to an independent review of 24 Horizon which was jointly commissioned by the sponsors 25 from Project Mentors Limited, and you've mentioned that 144 1 in your evidence this afternoon. Can you please explain 2 the reasons for Project Mentors' original appointment by 3 Post Office Counters and the Benefits Agency? 4 A. They were -- my understanding is that they were 5 appointed in order to establish, from our point of view, 6 where the blame lay for the severe delays in delivering 7 and meeting the deadlines and milestones. I mean, this 8 against a backdrop of the contract that we had jointly 9 with ICL and, as you might expect, ICL were basically 10 saying it was our fault that they hadn't been able to 11 deliver what they were supposed to be delivering. 12 So it was in, you know, our strong interest to make 13 sure that we had some independent view of what had 14 actually been going on, and the report stated very 15 clearly that the assertions by ICL -- that it was 16 basically our fault for not doing or not giving them the 17 data they needed and related issues -- that that was not 18 the case and that the delays should be laid 19 unequivocally at ICL Pathway's door. 20 Q. We know that Project Mentors produced three separate 21 reports, the first two of which were concerned with the 22 reasons underpinning the delays to the programme, as you 23 have outlined. 24 I would like to ask you about the third report which 25 was produced in December 1998. This bears the reference 145 1 POL00031114, please. Thank you. 2 We can see this is simply the fax cover sheet 3 confirming that the report has been sent by 4 Hamish Sandison of Bird & Bird to BA/POCL, it's for the 5 attention of George McCorkell, to whom you've referred 6 earlier in your evidence, and also Paul Rich, Pat Kelsey 7 and Andrew Davies, who was also the director of Project 8 Mentors. Do you recall whether or not you were shown 9 a copy of this report at the time it was produced in 10 December 1998? 11 A. No, I don't. I mean, I don't recall. 12 Q. At page 2 of this document, thank you, we can see 13 a memorandum from Hamish Sandison, the joint programme 14 lawyer, as you've explained, introducing the report. It 15 reads at paragraph 1: 16 "Further to my Memorandum dated December 8th, 17 I attach the full report of the work by Andrew Davies 18 and his team on requirements analysis. This fleshes out 19 the brief update from Andrew which I sent you with my 20 December 8th Memorandum. As you will see, all three of 21 Andrew's team are (I quote from Andrew's letter to me) 22 'deeply concerned that their findings show a serious 23 problem with the way in which ICL Pathway have developed 24 the system. The impact of this is likely to be that 25 there will be failures to meet essential user 146 1 requirements, causing the need for extensive re-work 2 before the system can be accepted and, potentially, 3 operational problems if the system is rolled out." 4 The memorandum is followed by a covering letter from 5 Professor Andrew Davies, the director of Project 6 Mentors, in which he summarises at the key conclusions 7 of the report -- I wonder if we could turn to page 3, 8 please. This letter addressed to Hamish Sandison reads: 9 "We have now completed a provisional version of our 10 position paper on requirements analysis, a copy of which 11 I attach. We are of the opinion that the findings of 12 this paper give serious concern that the Payment Card 13 System has been developed in a manner that creates 14 a breach of the contract relating to the requirement in 15 clause 702 of the Authorities Agreement to work to 'good 16 industry practice' and that the impact of the breach is 17 likely to be that the system will not be fit for purpose 18 unless extensive re-work is carried out before 19 implementation, causing further delay and additional 20 investment by Pathway and the Authorities." 21 The letter goes on to explain why Project Mentors 22 considered ICL Pathway to be in breach of contracts for 23 failing to follow good industry practice. 24 In the following paragraph we see Andrew Davies set 25 out a summary of the conclusions from chapter 2 of the 147 1 paper, in which it says: 2 "We have performed a requirements analysis for BPS 3 [the Benefit Payment Service], which is predominantly 4 a BA system element. From our analysis we conclude that 5 Pathway have made no attempt to undertake requirements 6 analysis in accordance with normal industry practice. 7 This is despite their having access to the SSR [which we 8 understand is the statement of service requirements] and 9 subsequent requirements since April 1996. Much of this 10 work could, and should, have been done during the 11 demonstrator [phase]." 12 On the following page, please, Professor Davies sets 13 out what he considered to be the consequences of 14 ICL Pathway's apparent failure to perform that detailed 15 requirements analysis. We can see that at the top of 16 page 4, where it reads: 17 "Our experience of systems where requirements have 18 not been analysed satisfactorily is that the system 19 fails to meet the users' needs. An effective acceptance 20 test will identify many such failings, necessitating 21 considerable rework. The result is a significant 22 extension of the time and cost required to complete the 23 system and roll it out. The alternative is to allow 24 unacceptable processing in the operational environment, 25 with unpredictable and potentially damaging results. 148 1 "In our opinion, the failure to satisfactorily 2 analyse the requirements for the Benefit Payments System 3 make it unlikely that the users' needs will be met by 4 the current Pathway system." 5 It goes on to say: 6 "We do not believe, from our understanding of other 7 elements of the complete Payment Card System, that these 8 other elements have been analysed using better 9 techniques than for the Benefits Payment System, so 10 there is a concern that user needs for these elements 11 will also not be met by the current Pathway system." 12 You have explained you don't recall reading a copy 13 of this report at the time. Do you recall whether its 14 findings were brought to your attention by George 15 McCorkell or others at the Benefits Agency? 16 A. No, I don't recall these particular findings. The 17 general finding does not surprise me, but I also am 18 not -- I don't know whether I alluded to any of this in 19 any of the submissions that I wrote. I feel that if 20 I had known about it, I feel I would have included it. 21 Q. It has been suggested by at least one witness to the 22 Inquiry that the production of this report reflected 23 a concerted strategy by the department and the 24 Benefits Agency to justify its withdrawal from the 25 programme. Do you consider there to be any substance to 149 1 that allegation? 2 A. No. I think our concern was to establish, as 3 I explained earlier, what our position was in the face 4 of ICL claims, I think again in the pack there are 5 letters from the vice chairman, I believe, and chairman 6 of Fujitsu, and others involved at a very senior level 7 in ICL, that make it clear that they were trying to 8 place the blame of their delays on the Benefits Agency. 9 So I think our concern, and I would think the 10 Post Office's concern too, is to actually identify where 11 the problems with the development of the project 12 actually lay. 13 MS HODGE: Thank you. 14 Sir, this may be a convenient time to stop. I have 15 a limited number of additional questions for this 16 witness, and so if we could break for 10 to 15 minutes 17 now, and I still think we'd be on course to conclude 18 this afternoon. 19 SIR WYN WILLIAMS: That's fine. Are there questions from 20 legal representatives or is it just you, Ms Hodge? 21 MS HODGE: There are a small number of questions, I believe, 22 from recognised legal representatives. 23 SIR WYN WILLIAMS: All right. Let's take 15 minutes, that's 24 fine. 25 MS HODGE: Thank you, sir. 150 1 (3.18 pm) 2 (A short break) 3 (3.35 pm) 4 MS HODGE: Hello, sir, can you hear and see me? 5 SIR WYN WILLIAMS: Yes, I can, and I was having trouble 6 unmuting myself, hence the delay. 7 MS HODGE: Thank you. We can see you and hear you. 8 Thank you, Dr Graham. In early December 1998 there 9 came an intervention from Fujitsu Japan in the ongoing 10 negotiations over the future of the Horizon project. Do 11 you recall that? 12 A. Yes. 13 Q. I believe you have been shown a copy of a report 14 produced by the then British Ambassador to Japan, 15 Sir David Wright, in which he records a meeting he held 16 with Mr Naruto, the vice chairman of Fujitsu and 17 chairman of ICL, on 4 December 1998; is that correct? 18 A. Yes. 19 Q. We have a copy of that report, please, at BEIS0000336 -- 20 thank you, Frankie. 21 We can see at the top of the page to whom the report 22 was intended to be transmitted. It records "FCO to pass 23 to DSS for PS/Secretary of State". Do you recall 24 reading this report at the time it was produced? 25 A. No, but I don't recall seeing it at the time. But I do 151 1 recall and see from the papers that I was aware of the 2 approach. 3 Q. Thank you. We find a detailed summary of the meeting 4 a little further down the page, starting at paragraph 2, 5 please. It reads: 6 "Naruto, Vice Chairman of Fujitsu and Chairman of 7 ICL, called on me today to present me with a letter 8 outlining the serious financial difficulties surrounding 9 Project Horizon and the problems for ICL/Fujitsu. Copy 10 of letter by fax." 11 I believe you have been shown a copy of that letter, 12 and indeed you were shown a copy of that letter at the 13 time; is that consistent with your recollection? 14 A. My recollection. 15 Q. That letter bears the reference BEIS0000337, but it need 16 not be shown at this stage, thank you. 17 In terms of what was discussed at that meeting, we 18 see at paragraph 3, and I refer you to this because it's 19 quite a helpful summary of Fujitsu's position I think 20 a little more succinctly than in the letter: 21 "Mr Naruto stressed the difficult and serious crisis 22 Project Horizon faced ..." 23 The first point being that the: 24 "Cost of Project had increased from [£185 million] 25 to [£600 million]. To date [ICL Pathway], supported by 152 1 Fujitsu, had spent over [£200 million] on the project. 2 ICL and Fujitsu would have to raise the remaining funds 3 through bank loans. Due to delays in setting up the 4 project, ICL risked losing [£500 million] by the year 5 2000. Loss of this scale against an outlay of 6 [£600 million] was unsustainable. 7 "[Mr] Naruto and Fujitsu were worried that 8 [Her Majesty's Government] did not understanding fully 9 understand the seriousness of the situation. From the 10 very outset, the Project had not been given the 11 attention it deserved. Fujitsu were particularly 12 frustrated that the Benefits Agency ... had failed to 13 provide ICL with the necessary data to implement Project 14 Horizon. They believed [the Agency] were now dragging 15 their feet over this and appeared to want to stop the 16 project altogether since they wish to switch the 17 delivery system from the Post Office ... to the banking 18 system." 19 Pausing there, do you consider that was a fair 20 characterisation of the Agency's position at this stage 21 in early December 1998? 22 A. No, and as we've just seen from, I think, the documents 23 we were discussing before, the Project Mentors report, 24 that was exactly our understanding of where Fujitsu and 25 ICL were coming from, to throw, as it were, the blame on 153 1 the Benefits Agency. 2 Q. Sir David's report goes to read: 3 "Fujitsu and ICL believed that the project was 4 crucial to the modernisation and future health of 5 [Post Office Counters Limited], they could not 6 understand why the [Benefits Agency] were not making 7 more effort to resolve current problems. 8 "Attention in Japan to PFI had led to 2 seminars 9 organised by the LDP, portraying Project Horizon in the 10 UK as a model for Japan. Naruto feared for Fujitsu's 11 domestic reputation if the Project failed. 12 "[Mr] Naruto repeatedly stressed that failure of the 13 Project will have serious repercussions for Fujitsu's 14 international standing, lead to major internal 15 difficulties within Fujitsu and the collapse of ICL." 16 We can see a little further down in the report the 17 Ambassador records his conclusions -- thank you -- in 18 relation both to the meeting he'd had with Mr Naruto and 19 the letter, a copy of which was shown to you. 20 He recorded: 21 "The contents of the letter and the tone of 22 Mr Naruto's approach make it quite clear that we have 23 a major and potentially damaging problem on our hands. 24 I do not (not) think he was simply trying to make our 25 flesh creep, by warning of the threat to ICL's future 154 1 viability. Fujitsu and Naruto in particular, have 2 worked for 18 years first to prop up and then to put ICL 3 on a healthy footing. Naruto certainly meant what he 4 said when he warned of this now being under threat." 5 The final paragraph reads: 6 "finally, whatever the implications for plans for 7 social security benefit delivery (on which it is not for 8 me to comment), any threat to ICL's continued viability 9 would have profound implications for jobs in the UK and 10 for bilateral ties. Given Naruto's points at para 5 11 above, we have to expect that Fujitsu and ICL would 12 publicise their criticisms of the Project's management. 13 That would be damaging to the hitherto benign and 14 mutually supportive style of the relationship between 15 [Her Majesty's Government] and Japanese companies 16 invested in Britain. The waves created would be 17 damaging politically at home and to the UK's position of 18 strength here vis-à-vis our European competitors. 19 ['This' probably] is already being weakened by 20 perceptions of distancing from the centre of Europe over 21 the single currency. We can do without more trouble." 22 These conclusions, I think, largely speak for 23 themselves. What I would like to ask you is what 24 effect, if any, you consider this intervention by 25 Fujitsu Japan had upon the future course of the public 155 1 sector negotiations over the future of the Horizon 2 project? 3 A. As we know, I'm very reliant on the papers that we have 4 seen to recall the detail but, in general terms, I don't 5 think the letter told us anything that we weren't 6 expecting to hear anyway from Fujitsu and ICL, and 7 elsewhere in the papers it is apparent that there was 8 also some briefing of the specialist press, so I think 9 we were already geared up, and I think the earlier 10 papers show we were aware of the inward investment 11 aspect of whatever decisions were taken. 12 Q. Do you consider that concerns about Japanese inward 13 investment and job losses in the UK caused ministers to 14 lose sight of the technical risks inherent in pursuing 15 with the Horizon project? 16 A. I think it's in the nature of a decision of this sort 17 that there are a number -- I mean, that's the essence in 18 a way of what government does, is actually trying to 19 make difficult decisions where there are many aspects to 20 that decision. It is right that ministers should 21 certainly be aware of these possible effects. 22 I think that Naruto's letter probably, as you would 23 expect, makes the point extremely strongly as it is in 24 their interests to do. But, as I have said in other 25 ways, I think it's right that ministers think about this 156 1 alongside all the other aspects that they have to take 2 into account. But, coming back to the technical aspects 3 of, you know, whether this project was going to work or 4 not, the whole reason the issue was on the table was 5 because it wasn't actually working way back in 1997, and 6 the Department and the Benefits Agency were concerned 7 about it, which is, you know, where Harriet Harman's 8 letter started and everything flowed from that. 9 Q. Would it be fair to say that, between December 1998 and 10 early March 1999, the initiative for moving forward with 11 the public sector negotiations rested largely with 12 Her Majesty's Treasury and the Cabinet Office, as 13 opposed to the Department for Social Security and Post 14 Office Counters on the other hand? 15 A. I think they were certainly in the driving seat and were 16 seen as being able to play the role of honest broker. 17 It is manifest that the Department of Social Security, 18 DTI, Benefits Agency, POCL, you know, we all had skin in 19 the game, and the Treasury and the Cabinet Office were 20 well placed to represent the interests of government 21 overall in taking forward those discussions. But, as 22 I think we've seen from the papers, I don't think that 23 that meant that either the Department -- the departments 24 concerned or the agencies concerned and the Post Office 25 were actually left out of, if you like, informing what 157 1 formed the basis of those -- the basis for the 2 discussions, if not actually being party to the 3 negotiations themselves. 4 Q. You also remained involved in overseeing the programme 5 from the perspective of the Department; is that correct, 6 in that you were kept informed of developments which 7 were relevant to -- 8 A. Yes. 9 Q. -- the negotiations? 10 At paragraph 22 of your statement, you say that 11 ministers were being kept closely in touch with all the 12 issues, including those aspects of the technical 13 development that were affecting the project delays, and 14 the various options and proposals being put forward by 15 the different parties. 16 We can see an illustration of that in April 1999 in 17 a document which bears the reference DWP00000019. 18 Thank you, Frankie. 19 This is a copy of a submission which you sent to the 20 then Secretary of State for the Department of Social 21 Security, Alistair Darling. This cover sheet is dated 22 19 April but if we turn to the following page, please, 23 we can see it's dated 15 April 1999 from you to the 24 Secretary of State. Do you have any recollection of the 25 detail of this document? 158 1 A. I can recollect the very broad thrust of it, but in 2 terms of the detail, only what I've managed to read very 3 recently. 4 Q. Thank you. 5 I think it's fair to say the submission was 6 primarily concerned with the merits of the options that 7 were under consideration by ministers in the spring of 8 1999. It did, however, contain a brief update on the 9 progress of the programme which addressed the recent 10 results of testing and the agency's view of the 11 readiness of the system to enter live trial; is that 12 correct, do you recall? 13 A. I don't recall, no. 14 Q. We can see that update, please, if we turn to page 12. 15 This is both referenced in your submission and appended 16 to it and, therefore, presumably was written by you at 17 the time. Do you think that's a fair conclusion to 18 draw? 19 A. I'm sure that whatever is set down there is what 20 I believed to be accurate at the time. 21 Q. Thank you. Under the heading "Testing", it reads at 22 paragraph 3: 23 "Following technical testing of the latest ICL 24 Software New Release 2 (or NR2) four separate Model 25 Office and end-to-end tests have been undertaken. Each 159 1 of these tests have taken approximately one month to 2 complete. At the end of each run all significant 3 incidents were corrected and proved through 'target' 4 testing. In theory the next model office test should 5 have produced a relatively clean run. However, in 6 practice, each of the subsequent Model Office tests has 7 raised as many new incidents as generated through the 8 previous runs." 9 It goes on to say: 10 "Initial test runs of the software should have been 11 completed by mid-December 1998, but because of the above 12 problems testing was halted for two months whilst ICL 13 took steps to put right large numbers of major faults. 14 This was overseen by POCL. 15 "As we entered the formal and what should have been 16 the final Modern Office run in Feb/March we made it 17 known to the Horizon team our considerable concerns 18 about the creation of new incidents and gave a view that 19 it might be necessary to have an additional run of Model 20 Office. In the event a further 200+ new faults were 21 identified. Some of these were critical and would 22 directly affect the correct or timeous payment of 1% of 23 benefit payments in a Live Environment. 24 "Further targeting testing has taken place to fix 25 all major faults identified but to date we have not seen 160 1 a clean run of Model Office. Our definition of a clean 2 run has been set at no incidents which would provide 3 incorrect or delayed payments and only a modest number 4 of background system problems. 5 "[Post Office Counters] have rejected that view 6 arguing that the targeted tests have dealt with all 7 known faults, further tests will be costly and will 8 delay the start of the live trial and National Rollout. 9 "The [Benefits Agency] view is that only with 10 a further run of testing of the end-to-end system will 11 give the level of assuring needed that no major new 12 faults will be uncovered because this could: 13 "put benefit payments to 60,000 Child Benefit 14 customers at risk during the Live Trial; 15 "put at risk the accurate payment of over 16 £1 [million] per week to those customers during the 17 Trial Period; 18 "puts at risk the successful completion of the Live 19 Trial; or 20 "create a situation in which we had to terminate the 21 Project because of failures of the software during the 22 Live Trial that could have been identified earlier in 23 testing." 24 This section concludes: 25 "The differences of view between POCL and BA remain 161 1 with further discussions taking place to try to 2 reconcile the two views. In the meantime, rather than 3 hold up the Programme, the [Benefits Agency] have agreed 4 not to stand in the way of preparations for the Live 5 Trial." 6 You go on then to explain the status of the live 7 trial, confirming that the BA had been unable to approve 8 proceeding to live trial as a result of the current 9 status of testing. 10 It's been suggested that the Agency's refusal to 11 enter live trial simply reflected a reluctance to commit 12 to further financial investment in the programme at 13 a time when the cancellation of the Benefit Payment Card 14 was in contemplation. Do you think that's a fair 15 characterisation of the position that was adopted by the 16 Agency at this stage in April 1999? 17 A. No. I think it would be fair to say we were very aware, 18 as we had been all along, about the fact that the longer 19 we didn't go on making a decision one way or another, or 20 choose between any of the options, the more money was 21 being spent, for example, not on things like developing 22 training and, you know, issues that were related to the 23 wider implementation of the project. So we were well 24 aware of that. 25 But I think coming back, just looking at all this 162 1 stuff about the model office trials and the problems 2 that were emerging, I just come back to the earlier 3 point I made at the beginning that I think it would be 4 fair to give the Benefits Agency the credit that they 5 were very experienced, for good reasons and bad, in what 6 could go wrong in the way a project was developed and 7 that it was really important to get the testing right. 8 And I think that is the concern that shines through for 9 me in what we see set down here. 10 Q. So far as you were aware then, were the concerns of the 11 Agency about the system's fitness to enter live trial 12 genuine concerns? 13 A. Yes. 14 Q. Do you know to what extent -- whilst we see that you are 15 raising these concerns with the Secretary of State for 16 your Department, do you know to what extent these 17 concerns were shared with other ministers in the 18 Department of Trade and Industry, for example, or 19 Her Majesty's Treasury? 20 A. No. On the whole, I was not party to -- as you would 21 expect, to internal briefings for ministers of other 22 departments. So, although we, at official level, might 23 speak to each other about these issues, we wouldn't 24 necessarily see what had been sent to each others' 25 ministers. 163 1 Q. Thank you. The Inquiry has obtained from the National 2 Archives a copy of a briefing which appears to have been 3 sent by Her Majesty's Treasury to the Cabinet Office on 4 22 April 1999. I believe you have been shown a copy of 5 that document, it bears the reference CBO00100002_025. 6 Thank you, Frankie. 7 The broader context of this briefing, it appears 8 from the documents we have, was a meeting of the board 9 of Fujitsu in which a decision was to be taken about the 10 future funding of ICL Pathway and the project. 11 We can see there at the top the briefing contains 12 proposed lines to take in the event that Fujitsu or 13 ICL Pathway decide unilaterally to withdraw. 14 In close, at the end of this briefing is a document 15 entitled "ICL Pathway: list of failures". Sorry, there 16 is a document entitled "ICL Pathway: list of failures" 17 at the end of this briefing. I wonder if we could 18 please turn to page 8. 19 This reads: 20 "Independent reviews of the Horizon project by 21 external IT experts have all concluded (most recently 22 this week) that ICL Pathway have failed and are failing 23 to meet good industry practice in taking this project 24 forward, both in their software development work and in 25 their management of the process." 164 1 Now stepping back, that seems to reflect some of the 2 substance of what we saw in the Project Mentors report; 3 would you agree with that? 4 A. Yes. 5 Q. And would tend to suggest that the findings of that 6 report, perhaps at a high level, had been brought to the 7 attention of officials within Her Majesty's Treasury? 8 A. I can't answer that. 9 Q. It goes on to state: 10 "To date, in the development stages of the project: 11 "all planned release dates have been missed -- 12 including the key contractual milestone for completion 13 of the operational trial for which ICL Pathway were 14 placed in breach in November 1997 15 "on current working plans, updated as recently as 16 September 1998, the first milestone thereafter -- Model 17 Office Testing -- was delayed by 2 months 18 "every release has been subject to reductions in the 19 originally planned functionality. 20 "and even when each release has gone live, there 21 have been faults and problems which have resulted in the 22 need for Pathway to reimburse DSS. 23 "in the current trials the known problems have risen 24 from 46 in November 1998 to 139 at the end of 25 March 1999; and currently 146 have not been resolved 165 1 "nearly 16 million people should by now be paid by 2 the Benefit Payment Card. In fact only 30,000+ people 3 are currently being paid by the Benefit Payment Card -- 4 for one benefit only 5 "rollout of the system to 19,000 post offices should 6 have been completed at the end of 1998. But only 7 limited functionality is available currently in 204 post 8 offices 9 "delays to the programme have already cost the 10 Government over £200 million in savings they would 11 otherwise have expected to make." 12 It's been suggested by one witness that this 13 document was authored by the Department of Social 14 Security. Are you able to shed any light on that 15 suggestion? 16 A. Not directly, but certainly the information that is in 17 this document seems to contain information that we have 18 discussed and presumably was made available to the 19 Treasury if they hadn't seen it already in the course of 20 all the discussions. 21 Q. Thank you. 22 Finally, Dr Graham, whilst you were, of course, not 23 responsible for the decision to withdraw the Department 24 from the project, ultimately leading to the cancellation 25 of the Benefit Payment Card, you were the leading 166 1 official involved in the public sector negotiations on 2 behalf of the DSS. I would like you please to confirm 3 what do you consider to be the principal reasons why the 4 Department decided to withdraw from the project in 5 May 1999? 6 A. As I think we've been discussing in the course of this 7 questioning, the main reason was that the Benefit 8 Payment Card had always been conceived as a stepping 9 stone to achieving the automated payment of benefits 10 through bank accounts which we wanted to introduce, 11 partly in order to make it safer. 12 Fraud with the existing, then, payment method 13 through order books was an easy win, if you like, and 14 the Benefit Payment Card, the longer it was getting 15 delayed, the longer in a way we were not being able to 16 realise those savings to the taxpayer, dare I say, and 17 nor were we able to progress to a better way of paying 18 benefits which had wider benefits for people through 19 trying to encourage people who didn't have bank accounts 20 to have them. 21 And it's worth bearing in mind that, actually, in 22 fact 80 per cent, I believe from memory, of our benefit 23 recipients already had bank accounts, they simply 24 weren't using them, and the comparative costs which are 25 laid out, I think, in one of the papers here, of payment 167 1 by a bank -- through a bank or payment through the 2 Post Office was actually very high for the taxpayer, the 3 difference. 4 So that was our long term and agreed government 5 policy, so the reason for cancelling the Benefit Payment 6 Card was because it basically was not delivering what it 7 had set out or had been designed to do and nor was it 8 doing it on time and, as we've discussed today, it 9 seemed in doubt whether it would deliver at all. 10 So I hope that sums up why we withdrew. 11 MS HODGE: Thank you very much, Dr Graham, for answering my 12 questions. I think there are a small number of 13 questions from representatives of the core participants. 14 Questioned by MR STEIN 15 MR STEIN: Good afternoon, Dr Graham. I represent a large 16 number of subpostmasters, mistresses and managers. 17 Can I just direct the questions that I've got, very 18 few, to a particular topic. 19 First of all, what did you know during the course of 20 your work in preparing documents for ministers about the 21 prosecution of postmasters and mistresses that had been 22 carried out prior to the introduction of the Horizon 23 system? Did you know the Post Office prosecuted? 24 A. If I did, I can't recollect anything now. But it's 25 quite possible I was not aware. 168 1 Q. Were you given any information that you can see in any 2 of the documents that you have been provided with that 3 set out the fact that the Post Office was going to use 4 the Horizon system as the basis for investigations and 5 prosecutions? 6 A. No, I was not aware of that. 7 Q. To your knowledge and recollection, you've mentioned the 8 discussed live trials, was there any consideration of 9 live trials in relation to the investigation and 10 prosecution system? 11 A. Not to my knowledge. 12 MR STEIN: Thank you, Dr Graham. 13 A. Thank you. 14 MS HODGE: Sir, I think that concludes the questions that 15 both the Inquiry and legal representatives would like to 16 put to Dr Graham. Unless you have any further 17 questions, she may be released. 18 SIR WYN WILLIAMS: No, thank you very much, I have no 19 questions. 20 I would just like to convey my thanks to you, 21 Dr Graham, for submitting your witness statement, taking 22 the time and trouble to review all the documents which 23 were sent to you, and coming to give evidence this 24 afternoon. 25 So thank you very much. 169 1 A. Well, thank you very much and, if I might say, I would 2 like to be as helpful as I could be to such an important 3 Inquiry. 4 MS HODGE: Thank you. 5 SIR WYN WILLIAMS: Well, I think you and I can safely 6 conclude that the importance of the Inquiry has been 7 impressed upon me on many occasions, Dr Graham. Thank 8 you very much. 9 A. Thank you. 10 SIR WYN WILLIAMS: So, 10.00 tomorrow morning, Ms Hodge, 11 yes? 12 MS HODGE: Yes, sir, thank you. 13 SIR WYN WILLIAMS: Thank you very much. Bye bye, everyone. 14 (4.05 pm) 15 (The hearing adjourned until 10.00 am 16 on Friday, 25 November 2022) 17 18 19 20 21 22 23 24 25 170 1 INDEX 2 PAGE 3 STEPHEN BYERS (affirmed) .............................1 4 5 Questioned by MR BEER .........................1 6 7 Questioned by MR STEIN .......................95 8 9 Questioned by MS PAGE .......................101 10 11 DR SARAH GRAHAM (sworn) ............................108 12 13 Questioned by MS HODGE ......................108 14 15 Questioned by MR STEIN ......................168 16 17 18 19 20 21 22 23 24 25 171