1 Tuesday, 29 November 2022 2 (9.58 am) 3 MR BLAKE: Good morning, sir. 4 SIR WYN WILLIAMS: Good morning. 5 MR BLAKE: Our first witness today is Sir Stephen Robson. 6 SIR STEPHEN ROBSON (sworn) 7 Questioned by MR BLAKE 8 MR BLAKE: Thank you very much, can you give your full name, 9 please? 10 A. Stephen Arthur Robson. 11 Q. Sir Stephen, thank you very much for attending today. 12 You should have in front of you a witness statement 13 dated 13 September of this year? 14 A. That's right. 15 Q. Thank you. On the final page of that witness statement, 16 page 11, you see a signature there? 17 A. That's right. 18 Q. Is that your signature? 19 A. It is. 20 Q. Is that statement true to the best of your knowledge and 21 belief? 22 A. Yes, it is. 23 Q. Thank you very much? 24 A. Although I should probably bring to the Inquiry's 25 attention the very first paragraph of my witness 1 1 statement, because it is important. As we all know, 2 these are events of over 20 years ago and my involvement 3 lasted about six months. So very much what I say in the 4 witness statement and, indeed, what I say today, should 5 all be sort of -- have the implicit qualification that 6 it's as far as I recall. 7 Q. Absolutely. Thank you very much, your witness 8 statement, for the record, is WITN03360100, and that 9 statement will go into evidence, so the questions I'll 10 ask you today will be supplementary to that. Thank you 11 very much. 12 Starting with your background, you joined the Civil 13 Service in 1969? 14 A. That's correct. 15 Q. Apart from a secondment in the 1970s you held a series 16 of posts in the Treasury until 2001; is that right? 17 A. Correct. 18 Q. You became Second Permanent Secretary and was Second 19 Permanent Secretary at the relevant time? 20 A. Yes. 21 Q. Your involvement in Horizon, I believe, began in 22 January 1999 -- 23 A. Yes, that's right. 24 Q. -- and ended around May 1999? 25 A. That's right. 2 1 Q. You've described your role as looking at the Horizon 2 project with a fresh set of eyes. How is it you became 3 selected for that role? 4 A. Well, when the phrase "a fresh set of eyes" is actually 5 one I think was put to me by the ministers at the time 6 rather than one that I subsequently thought up. The 7 honest answer, I'm not quite sure how it came to be that 8 I was selected for the role. There had been two other 9 people who'd looked at -- reviewed the Horizon project 10 previously, Corbett and Montague, and I think, probably 11 as the eyes went round, it was very hard to find who the 12 third person was going to be, so I drew the short straw. 13 Q. Did you have technical expertise? 14 A. I had no technical expertise in IT or software at all. 15 Q. Did you see your role as requiring those kinds of 16 expertise? 17 A. No, there were plenty of people around the project who 18 had views on the software and on the IT equipment 19 themselves and indeed, there'd been a review chaired by 20 Montague in the middle of 1998 which had looked at the 21 software -- well, the Horizon System. So there were 22 plenty of other people around who had knowledge of these 23 matters. 24 Q. Your involvement included acting as a liaison with the 25 chief executive of the ICL, Keith Todd; is that right? 3 1 A. He was the person that I -- in discharging the remit 2 that ministers gave to me, he was the person that 3 I dealt with at ICL, along with Richard Christou who 4 I think was the finance director there at the time. 5 Q. Was Mr Christou the negotiator for ICL or was he seen as 6 the negotiator? 7 A. Probably slightly more -- I mean, they both negotiated 8 at different times. I think probably Mr Christou was 9 slightly more the negotiator. 10 Q. We'll get to it shortly but you also joined a meeting 11 with the Prime Minister and senior executives from 12 Fujitsu; is that right? 13 A. Oh, there was a meeting with the Prime Minister, with 14 Mr Naruto, who was the Vice-Chairman of Fujitsu at that 15 point, yes, and I joined that meeting. 16 Q. Who else were your main points of contact during this 17 period, whether it be the Post Office, the Federation, 18 the unions? 19 A. The main points of contact were Mrs Graham of the 20 Department of Social Security, Stuart Sweetman of the 21 Post Office, and David Sibbick of DTI. 22 Q. To what extent was it considered appropriate during your 23 involvement for the Government or civil servants to be 24 negotiating directly with ICL rather than the Post 25 Office? 4 1 A. Um ... it was the agreed position of the ministers of 2 the various departments that I should be the point of 3 contact for those discussions. 4 Q. How did the Post Office feel about that? 5 A. I never asked them how they felt about it but they went 6 along with it. 7 Q. I'm going to start today talking about your background 8 knowledge, the knowledge that you obtained when you 9 first started in your role. Were you aware of any of 10 the detail of the procurement process when you started? 11 A. I was aware of procurement policies generally in the 12 public sector. 13 Q. Were you aware that Pathway, which was ICL, was the 14 least preferred bidder, from a technical perspective, in 15 the original procurement exercise? 16 A. No, I wasn't aware of that. When you asked me the 17 question about procurement, I was responding in general 18 terms about procurement policy, not about the 19 procurement of this particular project. 20 Q. Were you aware of any concerns that were raised at the 21 procurement stage, such as that the system could prove 22 unreliable and had a fragile software system? 23 A. No, I wasn't aware of that. 24 Q. You were aware of the Montague report when you started? 25 A. Yes. 5 1 Q. I think you've said in your witness statement, at 2 paragraph 11, that his report had concluded that the 3 infrastructure was robust by industry standards and, in 4 your view, the issue of technical feasibility couldn't 5 be assessed as the three parties, that is ICL, DSS or BA 6 and the Post Office, took different views on a range of 7 technical issues. 8 You used the word "infrastructure" in relation to 9 the Montague report. Did you understand the Montague 10 report as somehow signing off the abilities and 11 reliability, for example, of the Horizon System, or did 12 you see it as focused simply on -- or particularly on 13 the overall feasibility of the system? 14 A. Yeah, I think I took it to be the latter. 15 Q. Did everybody you dealt with take it to be the latter or 16 were there differing opinions as to the importance of 17 the Montague report? 18 A. There was not a great deal of discussion of the Montague 19 report, to be honest. The discussion was focused much 20 more on the situation in the project at the time, which 21 was, as I say in my evidence, you know, one of 22 criticism, distrust and a lack of any real agreement on 23 a way forward. 24 Q. Why did you feel, at that stage, the technical 25 feasibility couldn't be assessed? 6 1 A. Because the views of the different parties were not 2 alive. 3 Q. Can you expand on that slightly? 4 A. Well, it was the case that, if you sat in a meeting with 5 the various parties and tried to have a discussion about 6 the state of the project, you got a lot of complaint, 7 criticism, and lack of trust between the different 8 parties as to what the state of the project was, to the 9 extent that the state of the project wasn't 10 satisfactory, why it wasn't satisfactory and whose fault 11 it was that it wasn't satisfactory. And that -- you 12 know, this was like a cloud over the whole project at 13 the time. 14 Q. So was it your view that, because you didn't know what 15 the end product would look like, because it may have 16 a benefits card, it may have a smartcard, it may have 17 something else, it wasn't appropriate at that time to 18 carry out technical feasibility tests? 19 A. I mean, my feeling at that time -- at that time, we were 20 focused very much -- or the work was focused very much 21 on the Benefits Payment Card. And my view at the time 22 was that, given the statement of the management of the 23 project, that it was very unlikely that it would ever 24 deliver a Benefit Payment Card. 25 Q. Were you aware, when you joined, or during your period 7 1 of involvement, of concerns at the ICL side regarding 2 what we know as the Electronic Point of Sale System, the 3 EPOS System? 4 A. No, I wasn't. 5 Q. Were you aware of a report from Project Mentors in 6 December 1998 which was critical of the Horizon System? 7 A. No, I wasn't. 8 Q. To what extent were you aware of any concerns about 9 technical issues with Horizon when you started? 10 A. Well, I was only aware to the extent that, when one sat 11 down with the various parties, they were very ready to 12 say, in their view, that the project was not working as 13 it should be working and that most of the fault lay with 14 one of the other parties. 15 Q. Did you form a view during your time as to the technical 16 aspects of Horizon? 17 A. No, I didn't. 18 Q. I'm going to ask you about the smartcard option, which 19 seems to be the principal issue that you were 20 addressing. Can we start by looking at CBO00100001_039, 21 please. Thank you very much. This is a letter from 22 10 Downing Street, from the private secretary, on 23 14 January 1999. You started in January 1999? 24 A. Yes. 25 Q. Do you remember when abouts it was? 8 1 A. Towards the end of the month. 2 Q. Would this have been a letter you saw at the time? 3 A. Well, it's interesting you should ask that question 4 because it was sent to me by the Inquiry yesterday or 5 the day before yesterday, and I -- it didn't ring a bell 6 with me at all. And which I find quite surprising 7 because when you come on -- you get involved in 8 something in the Civil Service, and Number 10 has 9 expressed, you know, a rather clear view about the whole 10 thing, one would expect to have seen it and to have 11 absorbed it. But I don't recall doing that. 12 Q. From your experience, is that kind of wording, in bold 13 there, is that common for issues of this nature or was 14 that something you hadn't seen before? 15 A. I'd seen it before. It isn't common. 16 Q. If we could scroll down, please, this sets out the Prime 17 Minister's position as at 14 January 1999, and it says: 18 "The Prime Minister believes that: 19 "our key objectives should be to develop the Horizon 20 Project, by negotiating with ICL the earliest possible 21 move to smart cards. It will be extremely important to 22 get the Post Office to take this negotiation seriously. 23 "but at the end of the day, if this negotiation does 24 not succeed in improving upon the existing Benefit 25 Payment Card project, it would be better to accept this 9 1 project than to pull out of the negotiation with ICL 2 completely, with all the damage it could do." 3 Were you aware, when you joined in January 1999, 4 that the Prime Minister had this opinion? 5 A. No, I wasn't. 6 Q. Were you aware that he supported the smartcard option? 7 A. No, I became aware at that the policies at Number 10 8 were well disposed towards a smartcard option. 9 Q. At paragraph 15 of your witness statement, you've said 10 that, as a result of your negotiations, the benefit card 11 would be abandoned and the smartcard would be 12 introduced. That's obviously very consistent with the 13 Prime Minister's position set out here. Where was your 14 negotiating position coming from? 15 A. Well, it was coming from the negotiating brief I was 16 given by ministers, which is set out in paragraph 9 of 17 my evidence. 18 Q. And which ministers was that? 19 A. Well, it would have been combined efforts of the 20 Secretary of State for Social Security, Secretary of 21 State for DTI, and the Chief Secretary of the Treasury. 22 Q. To what extent during your involvement, did you consider 23 you were taking forward the Prime Minister's decision, 24 as opposed to those ministers' decisions? 25 A. Well, at a later stage in the inquiry, in May time, the 10 1 Prime Minister came up with three very clear -- what 2 were described by Number 10 as political objectives for 3 the negotiation and, in the latter stage of the 4 negotiation, they were very important. 5 Q. But -- 6 A. I mean, as I've seen this thing -- as I say, I don't 7 recall having seen it before, but it is sort of 8 reflected in the negotiating brief I was given as set 9 out in paragraph 9. 10 Q. Thank you. Moving now to February 1999, can we look at 11 HMT00000020, please. Thank you very much. This is 12 a note from Peter Schofield to yourself. Who was Peter 13 Schofield? 14 A. Peter Schofield was one of the key people working with 15 me on this project. 16 Q. Which Department was -- 17 A. He was a Treasury person. 18 Q. Thank you. This note begins with: 19 "You met with Keith Todd and Richard Christou ... on 20 29 January." 21 So in your first month of involvement you had met 22 with Keith Todd and Richard Christou -- 23 A. Yeah. 24 Q. -- and Peter Schofield was also present. I'm going to 25 read to you the final few paragraphs. Can we look at 11 1 the page, the bottom of the second page, and it's 2 paragraph 5. I'm going to read it for the record. 3 Paragraph 5 says: 4 "You asked whether the payment of benefits into 5 these social bank accounts, accessed by a smartcard, 6 would be a way of moving to ACT without the transitional 7 phase of a benefit payment card. This would take the BA 8 out of the contract, leaving them to concentrate on 9 getting their own IT systems ready for ACT. For people 10 who wanted it, there could be some means of transferring 11 money from social bank accounts to conventional bank 12 accounts, but many people would still go to post offices 13 to obtain their benefits -- either because they do not 14 have another bank account or just because of inertia. 15 This would help maintain footfall, and give a customer 16 base from which to launch Citizen-centric Government and 17 other applications for the smartcard. 18 "Christou said they would look at this over the 19 weekend -- at the commercial and financing implications 20 and whether it was technically possible without making 21 significant changes to hardware. He hoped to have 22 complete a broadbrush 'stress test' of this option by 23 Monday (1 February). 24 "Todd emphasised the pressure he was under on 25 timing." 12 1 Now, the reference there, "Christou said he would 2 look at it over the weekend", do you think it was 3 appropriate at this stage -- so February 1999 -- for 4 there to be yet another option on the table with regards 5 to the Horizon project, in this case the smartcard 6 option? 7 A. Yes, I think there was because, as I say, it was -- it 8 seemed clear to me, and I think to others, that the 9 situation of the benefit card project was such that it 10 was never going to be successfully delivered, so it made 11 sense to start looking at alternatives. 12 Q. The mention there by Mr Christou, that they would look 13 at it over the weekend, it seems as though things are 14 moving quite rapidly and considerations such as this are 15 happening at quite some speed. Do you agree with that? 16 A. Yes. 17 Q. Again, do you think it was appropriate for quite 18 fundamental changes to be being discussed at this stage 19 in respect of the Horizon project at speed? 20 A. Well, yes, it was because, as far as I was concerned, 21 the project was going down a cul-de-sac and, therefore, 22 it made sense to start looking for some alternative, 23 because every day that passed was consuming more time 24 and more money. 25 Q. To what extent do you think that these kinds of further 13 1 options, that were being discussed at this stage, 2 impacted or detracted from looking at the technical 3 issues that were arising at that stage? 4 A. Well, I don't think they were because, in the pack of 5 paper you sent me, there's evidence that the people 6 working on the project were still exchanging letters 7 about it, as late as May. 8 Q. With regard to, for example, the Government's approach 9 to the project? 10 A. No, this was regards, you know, questions about whether 11 it should go in to live testing or not. So a lot of 12 work -- all I'm trying to respond to your point is that 13 work was continuing on the project, despite the fact 14 that these alternatives were being looked at. 15 Q. Absolutely, but in your statement you said that, for 16 example, because there were so many different opinions 17 at that stage, it wasn't really appropriate to be 18 looking into the technical side of things, because we 19 didn't know where it was going to end up? 20 A. No, I don't think that's quite what I was saying. What 21 I was saying was it wasn't very -- it wasn't possible 22 to -- for me to draw conclusions on the technical state 23 of the project because, whichever of the parties you 24 talked to, had different views about it and different 25 opinions on whose fault it was that it wasn't working as 14 1 it should have been. 2 So, as far as I was concerned, these differences of 3 view and of behaviour were such that the Benefit Payment 4 Card was most unlikely ever to be delivered 5 satisfactory -- or to be delivered at all, and it made 6 sense, therefore, to consider what the alternatives 7 were, which is kind of what bringing a fresh pair of 8 eyes is all about, I think. 9 SIR WYN WILLIAMS: Could I ask you, Sir Stephen, the 10 impression you're giving me is that you formed the view 11 that the Benefit Payment Card would not come to fruition 12 pretty early on in your involvement; is that correct? 13 A. That's right. 14 SIR WYN WILLIAMS: Thank you. Yes. 15 MR BLAKE: One thing that you have just mentioned is 16 discussions about testing, for example. I'd like to 17 take you to a couple of letters that you have seen from 18 David Miller at the Post Office. Can I just ask, it's 19 paragraph 31 of your witness statement. You say that, 20 in April 1999, POCL were concerned that more testing 21 would delay the project. Can you tell us a little more 22 about that, please. 23 A. Simply that this is what was -- is -- was said at the 24 time in these letters and, you know, I took to be their 25 view. And the Benefits Agency wanted to carry on doing 15 1 more testing before it went into a live trial, and POCL 2 took a different view. It was, you know, it was part of 3 the -- it was a small example of the problems of the 4 project. 5 Q. Were you aware of the Benefits Agency's concerns about 6 the need for more testing? 7 A. Yes, I was. 8 Q. What did you think about them at the time? 9 A. Well, as I say in the witness statement, my view was 10 that, in the context of moving to a new project of some 11 sort, it was important that the contracts were set up in 12 a way that allowed the proper exceptions test to be set 13 out. 14 Q. Let's look at those two documents. Can we start with 15 POL00028407, please. This is a letter of 1 April to 16 Vince Gaskell. Perhaps we can just look at the final 17 page. It says there, in the "Conclusion" in this letter 18 from David Miller, the Horizon project programme 19 director: 20 "One can always argue that more comfort could be 21 gained from a further Model Office test cycle. However, 22 the results from the Target Testing, together with other 23 points made above, lead us to the very clear conclusion 24 that: 25 "there are no outstanding faults that prevent entry 16 1 to Live Trial 2 "the stability of the solution in Target Testing 3 gives confidence that there is no major risk of new 4 faults arising ... 5 "the BA and POCL can obtain further assurance by the 6 planned additional testing activities ... 7 "required changes can be included in the Pathway 8 service in a controlled manner ... 9 "the current testing status cannot justify two more 10 months of additional Model ... testing. 11 "The Post Office and ICL and Fujitsu, strongly 12 endorse this conclusion, and this view will be 13 represented at the highest levels. We could not agree 14 to a continuation of testing that effectively would 15 result in a 6-month delay to rollout until after 16 Year 2000. I trust that the BA will also be able to 17 support this conclusion." 18 Is that an example of the kind of thing that you've 19 talked about in your witness statement, about the Post 20 Office being concerned that more testing -- in this 21 case, model office testing -- would delay the project? 22 A. Correct, yes. 23 Q. Can we look at one more example POL00028406, thank you 24 very much. I'd just like to look at the paragraph under 25 "General Points". Again, this a letter to Vince Gaskell 17 1 from David Miller in his position as Horizon programme 2 director, and it says there: 3 "I understand your concern about the impact of 4 errors on the DSS and our joint need for a high quality 5 system. But we are not asking the DSS to accept the 6 system or to proceed with rollout at this time. We are 7 moving to a live trial in 300 offices with 4 to 5 months 8 of further operational experience before a decision on 9 contractual acceptance. This gives the opportunity to 10 evaluate the fitness for purpose of the solution in the 11 field while in parallel carrying out continuing testing, 12 for example in the multi-benefit model office. What we 13 have to judge at this time is the manageability of the 14 risk of the entry to Live Trial and to balance this with 15 the cost and delay to all parties of a further 16 postponement of rollout." 17 Were these kinds of points quite typical during your 18 period of involvement? 19 A. Yes, they were. 20 Q. Thank you very much. To what extent do you consider 21 that all of the various options that were still in play 22 as at April 1999 influenced the decision of the Post 23 Office to just get on with Horizon, irrespective of 24 where they were at on a technical level? 25 A. Well, I think the Post Office still hoped that the 18 1 Benefit Payment Card could be delivered successfully. 2 I mean, in my mind, it was a vain hope but I think they 3 still did and they worked accordingly, and I think they 4 found it very hard to see how any alternative was going 5 to serve them well in the future. 6 Q. These kinds of discussions about not carrying out 7 further model office testing at that stage, for example, 8 were you or anyone around you concerned that the 9 impression given by the Post Office was that they wanted 10 to rush things out? 11 A. Well, they certainly wanted to press on. I mean, they 12 were certainly concerned about slippage of the timescale 13 of the whole project. So yes, in that sense, it was. 14 Q. Thank you very much. I'm going to move on to 15 a different topic now and that's matters relating to the 16 Prime Minister. You were present during a meeting 17 between the Prime Minister and Mr Naruto in April 1999; 18 is that right? 19 A. Yes. 20 Q. Was that the only such meeting that you were present at? 21 A. Yes. 22 Q. Would you, when you came to this project, have expected 23 such a level of Prime Ministerial involvement in the 24 matter? 25 A. Yes, I think I would. I mean this was a major project 19 1 that was going wrong and it had, potentially, widespread 2 repercussions, not just for the public sector but for 3 all the subpostmasters involved in running the Post 4 Office system. 5 Q. What do you recall of that particular meeting in April 6 1999? 7 A. Um ... it was fundamentally a courtesy meeting on the 8 Prime Minister's part. Mr Naruto came to press the case 9 for getting a legally binding agreement quite quickly, 10 he said, I think, at the time before the Fujitsu board 11 meeting in late April. The Prime Minister gave him no 12 such commitments but did it very pleasantly. 13 Q. To what extent did Fujitsu's financial position at that 14 stage affect the Prime Minister's position, as far as 15 you could tell? 16 A. Well, I think the Prime Minister was conscious of 17 Fujitsu being a major inward investor in the UK and he 18 also was aware that they -- the prospect of this project 19 not working would have adverse consequences for them. 20 I'm not sure whether, at that stage, he'd quite been 21 informed about the possible impact on their accounts of 22 having to make a provision for the Pathway Project but 23 he'd become conscious of it at a later stage. 24 Q. Thank you. Can we look at one document that you have 25 seen very recently, and that's CBO00000046. This is 20 1 a letter from the Prime Minister, and to Mr Sekizawa of 2 Fujitsu, and it says there: 3 "I was most grateful to receive your kind letter of 4 19 March. 5 "I have indeed maintained a close personal interest 6 in developments at Aycliffe and have been enormously 7 encouraged by your company's unreserved and wholehearted 8 commitment to the work of the Response Group." 9 Do you recall what happened at Aycliffe? 10 A. Not really. I seem to remember there was a closure of 11 a Fujitsu establishment there. 12 Q. Thank you. Perhaps we could go to the next paragraph. 13 Just to summarise this letter -- I think you've seen it 14 very recently, so I'll just read couple of lines. It 15 says there -- 16 "The fate of your former employees was of particular 17 concern to me." 18 Then the next paragraph says: 19 "Meanwhile, however, it was also important that 20 every possible opportunity should be explored in order 21 to find a buyer for the plant who could make use of the 22 existing skills base." 23 Perhaps we could go over the page, please -- thank 24 you -- and the final paragraph there says: 25 "The Aycliffe closure was a major set back for all 21 1 concerned, but I assure you that my colleagues and 2 I place great value on Fujitsu's deep and longstanding 3 commitment to the United Kingdom. Your contribution to 4 the competitiveness of our telecommunications and IT 5 industries has been outstanding, and I wish you every 6 success for the future." 7 Were there at the meeting that you were at, shortly 8 after this letter was sent, any discussions about 9 Fujitsu's plants closing in the Prime Minister's 10 constituency? 11 A. Not that I recall. 12 Q. What do you recall about the Prime Minister's 13 discussions at that meeting? 14 A. The one with Mr Naruto? 15 Q. Yes. 16 A. As I say, Mr Naruto came along and pressed for 17 a decision on the Horizon project and pressed for one to 18 be made in time for his board meeting in April. The 19 Prime Minister listened to him, politely, but gave no 20 such commitment. 21 Q. If the Prime Minister had mentioned matters relating to 22 his constituency, do you think you would have remembered 23 that? 24 A. Probably not, to be honest. 25 Q. Would it have surprised you? 22 1 A. No. I mean, when the Prime Minister, or indeed any 2 minister, meets someone who has had some involvement 3 with their constituency, albeit not the main meeting -- 4 point of the meeting, it often does get mentioned. 5 Q. Thank you. Can we look at CBO00000022_002, please. 6 This is a letter from 10 Downing Street to the Chief 7 Secretary's office. It's from Jeremy Heywood, the 8 Principal Private Secretary, and this is towards the end 9 of your period of involvement. I'm just going to read 10 to you three paragraphs from that letter. Perhaps we 11 could just scroll down slightly. 12 So the first substantive paragraph there says: 13 "The Prime Minister has now discussed this with the 14 Chancellor, who set out in more detail the Treasury's 15 concerns about signing up today to Option B1." 16 I think option B1 was the smartcard option; is that 17 right? 18 A. That's right. 19 Q. "The Chancellor said that this would be something of 20 a leap in the dark. For example, it was not clear what 21 discussions had taken place with the banks on the 22 viability of this option; what demand there would be for 23 the new smart card; or how willing benefit recipients 24 who already had bank accounts would be to use the 25 proposed POCL bank accounts. We needed more time to 23 1 bottom [out] these issues. It would be wrong to commit 2 the Government now to an option that would cost 3 £400 million more over the CSR2 period than the best 4 alternative. This would simply divert resources away 5 from the Government's key priorities [to] the next CSR. 6 "Against this background, the only sensible course 7 of action would be to buy more time to consider all the 8 options in much more depth. The most rational option 9 would probably be termination." 10 Can I just pause there. Were you aware, at that 11 stage, that the Prime Minister's view was that the most 12 rational option would probably be termination? 13 A. No, I wasn't. I actually think those words might be the 14 words of the Chancellor at the time. I mean, my reading 15 of this letter was that that was still the Chancellor's 16 opening kind of commentary. 17 Q. Was that a view that was shared by others, to the best 18 of your recollection? 19 A. I don't think ... I mean, there were certainly people 20 involved in it who thought that termination might have 21 been the best option, you know, if we were starting with 22 a kind of clean sheet, as it were, but I don't think 23 there were many people who thought that termination was 24 very attractive, because the -- quite apart from the 25 problems with the Post Office and what were you going to 24 1 do to make the counters more efficient and win more 2 business, there were real risks with a termination that 3 we could well -- we the Government, the public sector -- 4 could well have been seen as doing this termination for 5 convenience, in which case the cost, in terms of 6 settling with ICL, would have been high. 7 Q. Thank you. I'm going to continue. It says: 8 "But given where we are starting from with ICL, it 9 would probably be best to commit now to Option B3 and 10 agree to do further intensive work on Option B1 over the 11 next three months. He therefore proposed that Steve 12 Robson should write to ICL this evening along the lines 13 of the attached draft", and there's a draft attached to 14 this letter. 15 It continues: 16 "The Prime Minister said that he had not had time to 17 look into ... the options in detail. Starting with 18 a clean sheet, it was doubtful whether we would want to 19 devote substantial new resources to a project that 20 appeared to be designed largely to prop up the Post 21 Office network. However, we were not starting from 22 a clean sheet. He was content for the Chancellor to go 23 over his concerns in more detail with Lord Falconer and 24 other interested parties, to try to find an agreed way 25 forward. Any solution should meet three key political 25 1 requirements." 2 I think these were the ones you were referring to at 3 the beginning of your evidence -- 4 A. That's right. 5 Q. -- and those are: 6 "(i) we did not want a huge political row, with the 7 Post Office or the SubPostmasters' lobby claiming that 8 the entire rural network had been put in danger by the 9 Government; 10 "(ii) we should not put ICL's whole future at risk; 11 and 12 "(iii) it would be important to ensure that the 13 Government had a fully defensible position vis à vis the 14 PAC." 15 Were you aware of what the first of those political 16 requirements meant, in respect of not wanting a huge 17 political row with the Post Office or the 18 subpostmasters? 19 A. I know what it meant in terms of the words on the piece 20 of paper. What it meant in practice was less easy to 21 fathom. 22 Q. Can you expand upon that? 23 A. Well, simply, you know, who -- it was hard to know what 24 it -- what might trigger -- I mean, one can see that if 25 the Post Office and subpostmasters had felt they were 26 1 being totally abandoned, then it could indeed trigger 2 a huge row, but things that were less than total 3 abandonment, how big a row they would produce was 4 something of conjecture. 5 Q. Do you know where the message was coming from in respect 6 of the subpostmasters? So there's reference there to 7 the Post Office and subpostmasters, where was the 8 message coming from, in respect of the concern being 9 that the rural network might be put in danger? 10 A. Well, I mean, I don't think a message was, at that time, 11 being received but messages of that sort had been 12 received in the past, and they tended to come from the 13 Post Office itself, from DTI as a sponsor Department, 14 and also from the National Federation of SubPostmasters. 15 Q. Can we look at HMT00000028, please. This a note from 16 yourself on 20 May 1999, so quite close to the end of 17 your involvement, to the Chief Secretary. Perhaps we 18 could start at page 2, please. This sets out some of 19 the background. Paragraph 3 says: 20 "Against this background, we have been seeking 21 a deal with ICL based on option B3. This involves 22 abandoning the benefit ... card. POCL would buy the 23 basic ICL Horizon platform. BA would move to ACT over 24 the period 2003-05. This option could provide 25 a platform on which to build POCL's network banking 27 1 strategy and for Modern Government services." 2 So, toward the end of your involvement, was this the 3 position that was being reached, or discussed? 4 A. This was a position that had been reached, yes. 5 Q. Can we look over to page 4, please, at the bottom of 6 that page. I'm just, again, going to read, for the 7 record, a few paragraphs; it's going to be paragraphs 9 8 to 11. Paragraph 9 says: 9 "As regards the Post Office and subpostmasters, 10 I cannot claim the Post Office are happy with this deal. 11 Their chairman's views were set out in his letter of 12 18 May (attached) [and I'll take you to that letter in 13 a moment]. They really want the option A -- the Benefit 14 Payment Card. If the proposed deal goes ahead, the 15 chairman set out certain terms including a delay in the 16 start of ACT until 2005. This would have a seriously 17 adverse impact (some £200-250 million) on the NPV of the 18 deal. 19 "He also wants guarantees on income from, and 20 funding by, the Government and a firm commitment by the 21 Government to use the POCL system 'extensively for 22 existing and new services'. It is hard to see how these 23 can be given. The Government will presumably want to 24 use the best value suppliers for its services and not 25 tie itself to POCL regardless of cost. 28 1 "The subpostmasters will no doubt be unhappy with 2 the loss of the [Benefit Payment Card] and the timing of 3 the move to ACT. But we would be providing them with 4 an IT system which will automate their basic services, 5 and provide a platform for Modern government and Network 6 banking." 7 I'm going to take you to the letter from the 8 chairman. Just so that it's in your mind, one thing I'm 9 going to be asking you is where that information from 10 subpostmasters -- that's paragraph 11 -- was coming 11 from. 12 Perhaps we can look at the letter, that is 13 POL00028612. I'll take this letter relatively quickly, 14 because I think you have seen it, and the detail doesn't 15 really matter, save that it doesn't really go into any 16 detail about the views of the subpostmasters. Perhaps 17 if we scroll down and over to the next page and scroll 18 down to the bottom of the next page. 19 There is there concern in the penultimate paragraph. 20 It says: 21 "In such circumstances it would be impossible for us 22 to sustain the current nationwide network." 23 So there are concerns there being raised by the Post 24 Office about the network but I don't believe there is 25 anything in that letter that raises concerns in 29 1 particular from the subpostmasters. 2 I'll take you to another document, and that relates 3 to a meeting that you had with Stuart Sweetman on 4 18 May. Perhaps we can look at that, that's 5 NFSP00000157. So this is a fax to Colin Baker from 6 Stuart Sweetman, and it seems to the effect that he's 7 staying in a hotel in London. I will read that letter 8 out to assist. It says: 9 "Dear Colin 10 "It is now 4.15 am and I've just arrived home having 11 been at the Treasury with Steve Robson (2nd Permanent 12 Secretary) and then a meeting with Stephen Byers and 13 Alan Milburn at the House of Commons." 14 Just pausing there, do you remember that meeting at 15 all? 16 A. No, I don't. 17 Q. You don't remember the meeting? 18 A. I don't remember -- 19 Q. No? 20 A. Well, I had quite a lot of meetings with Milburn and 21 Byers. 22 Q. And with Sweetman? 23 A. I'm not quite sure what the date of this is. 24 Q. If we look at the top, it's 18 May 1999? 25 A. I certainly don't recall a meeting around that time but 30 1 it doesn't mean it didn't happen. 2 Q. It says: 3 "Things continue to move forward (but slowly). It 4 is clear there will be further meetings during the day 5 preparing for another meeting of Ministers tomorrow 6 afternoon." 7 So I suppose -- well, it's 4.46 on 18 May so perhaps 8 the first meeting happened on 17 May, further meetings 9 on 18 May. Was that a particularly busy period of 10 discussions with the -- 11 A. Yes, it was, actually. 12 Q. "I now need some sleep and to be in London tomorrow." 13 So it may be that the Royal Hotel isn't in London, 14 somebody might be able to tell me: 15 "I now need some sleep and to be in London tomorrow. 16 I feel really guilty not coming to your conference and 17 bringing your executive and delegates up to date with 18 progress -- but I need to be in London. Please pass on 19 my apologies to the Conference." 20 Over the page: 21 "My message is that there has not yet been 22 a decision by Ministers, matters remain finely balanced. 23 I can confirm that the Ministers involved with the 24 decision making are very aware of the concern that 25 exists in the minds of subpostmasters up and down the 31 1 country. The Post Office Board and my team in POCL 2 remain steadfast in our aims to secure a deal that is in 3 the interests of all those in the business. 4 "My commitment is that within 24 hours of a decision 5 on the way forward I will meet with the NFSP Executive 6 Committee to explain to you what has been decided and 7 the implications for all concerned." 8 Thank you very much, that can be taken down. 9 So we're turning back to that note that you produced 10 on 20 May to the Chief Secretary, which says that the 11 subpostmasters will no doubt be unhappy with the loss of 12 the Benefit Payment Card, et cetera. Where would the 13 information about the subpostmasters' views have come 14 from? Was Stuart Sweetman and the Post Office the 15 ordinary route to express subpostmasters' views, or were 16 you hearing directly from the National Federation, the 17 CWU or something else? 18 A. No, I wasn't hearing directly from the National 19 Federation. I had heard from Stuart Sweetman that, you 20 know, that the subpostmasters were going to be unhappy 21 about the BPC being lost. The fact it's said in this 22 submission of mine that -- I can't remember the precise 23 words -- that by giving them the Horizon infrastructure, 24 that may mean that they weren't quite so angry is purely 25 speculation on my part. 32 1 Q. We saw earlier those letters from David Miller and his 2 views on further testing. In this period, in what were 3 quite considerable crunch talks, what, if anything, was 4 being said to you about concerns of the operation of the 5 Horizon system? 6 A. Nothing was being said to me at this stage about that. 7 I mean, apart from this sort of flow of letters that one 8 saw now and again. 9 Q. Oh, do you mean the letters regarding not testing, 10 not -- 11 A. No -- yes, these letters that we've just been talking 12 about. 13 Q. At the time of your involvement, from what you saw, what 14 extent of consideration of the subpostmasters' position 15 focused on ensuring the network had Horizon, had 16 automation, rather than, for example the reliability or 17 effectiveness of such a system? 18 A. Well, I think they were both were considerations. 19 I mean, there was clearly no point in giving people IT 20 systems that don't work, or not extant, anyhow. But the 21 situation in these latter months was that the benefit -- 22 I don't think anybody was really arguing that the 23 benefit card payment project was going to succeed. I 24 mean, the Post Office were hoping that it was going to 25 succeed but I never had a robust case put to me by them 33 1 that it was going to succeed and when, you know, the 2 view was expressed that it was dysfunctional and not 3 going to succeed, nobody really pushed back hard on that 4 statement. 5 Q. To what extent were the discussions of the 6 subpostmasters' position really focused on the fact that 7 subpostmasters would want automation, rather than any 8 wider concerns about the actual technical abilities or 9 reliability of such a system? 10 A. Yes, the view was very much as you say: that the 11 subpostmasters would want automation of the counters. 12 I mean, nobody actually suggested that it was all 13 right if it was automation but it was flawed automation, 14 but yes, the view was very much that they wanted 15 automation and, by implication, automation that worked. 16 Q. It may be a given that they would want a system that 17 worked but, to what extent during your period of 18 involvement, was anybody raising with you concerns of 19 subpostmasters regarding the Horizon system at that 20 stage? 21 A. Nobody was raising any concerns of the subpostmasters at 22 that stage. 23 MR BLAKE: Thank you very much. I have no further 24 questions. I'm not sure that anybody else -- yes, 25 Mr Jacobs has some questions. 34 1 MR JACOBS: Yes, Chair, could I just ask if you can see and 2 hear me. 3 SIR WYN WILLIAMS: I can hear you and no doubt in a moment 4 I will see you. It normally takes a second or two. 5 Yes, I can see you clearly now, Mr Jacob. 6 Questioned by MR JACOBS 7 MR JACOBS: Good morning, I ask questions on behalf of 156 8 subpostmasters who were the victims of this scandal and 9 who, in the main part, gave evidence in February to May 10 of this year. 11 I want to ask you about the meeting that you 12 attended with Mr Naruto in April 1999. You've said that 13 Mr Naruto was pressing for a decision but do you recall 14 whether he said anything else at that meeting? 15 A. I don't -- I regret to say don't recall him saying -- he 16 may well have said other things but, I mean, the main 17 message he gave at that meeting was very much he and his 18 board needed a decision by, I think, 23 April. It was 19 a very precise date, anyhow. 20 Q. You said in answer to questions from Mr Blake that the 21 Prime Minister was aware of adverse consequences 22 surrounding Fujitsu and the project. 23 A. Well, he was aware, by the latter stages of this debate 24 in May, that Fujitsu were very concerned about the 25 prospect of having to make a large provision in their 35 1 accounts for the Pathway project and was aware that this 2 was a matter of considerable concern to Fujitsu. And he 3 was also aware that Fujitsu, if they weren't going to 4 make this provision, really needed a decision from the 5 Government in the latter part of May. 6 Q. Could I turn up a document, and this BEIS0000336. It's 7 a note from the British Embassy in relation to a meeting 8 held with Mr Naruto in December 1998. If we could go, 9 please, to paragraph 9. 10 I'm afraid that's scrolling further down. Yes, just 11 slightly further up. 12 So there were three concerns that the British 13 Embassy communicated as a result of their meeting with 14 Mr Naruto a few months before, and one can see at 15 paragraph 9, firstly, that Fujitsu would publicise their 16 criticisms of the project management; secondly, the 17 damage to the relationship between Her Majesty's 18 Government and Japanese companies invested in Britain; 19 and, thirdly, that: 20 "The waves created would be damaging politically at 21 home and to the UK's position of strength vis à vis our 22 European competitors". 23 The question I have for you is: did this reflect the 24 view of the Government at the time when you attended the 25 meeting in April 1999 with Mr Naruto? 36 1 A. No, I don't think it did. I mean, as I say, the meeting 2 was -- he was the one that made most of the running at 3 the meeting. As I recall it, the Prime Minister 4 listened to him, you know, politely, and conspicuously 5 avoided giving any commitments to him. I don't recall 6 the material in paragraph 9 here influencing the 7 meeting. 8 Q. You were taken by Mr Blake to a document that was 9 authored by you. If we could go back to that briefly, 10 it's HMT00000028, thank you. 11 If we go to page 2 of 5. So these are the Prime 12 Minister's three key political requirements that you set 13 out, and you can see "we did not want a huge political 14 row with the Post Office or subpostmasters lobby, 15 claiming the entire rural network had been put in danger 16 by the Government"; and (ii) we shouldn't put ICL's 17 whole future at risk; and (iii) it would be important to 18 ensure that the Government had a fully defensible 19 position vis à vis the POCL. 20 I want wanted to look at (ii). This political 21 objective not to put ICL's whole future at risk, was 22 that linked to the damage to international trade with 23 Japan that that could cause? 24 A. Yes, I think it was reflective of his concerns that 25 Britain should remain an attractive area for inward 37 1 investment. What I would say, now you've brought up 2 these three objectives, as it turned out, objectives 3 (ii) and (iii) did actually kind of end up with the same 4 outcome, namely buying the hardware of the system, which 5 also turned out to be the cheapest solution for the 6 Government. 7 Q. Thank you. Finally, the question that I am asked to put 8 on behalf of my clients is: looking back, do you accept 9 that the financial and political motivations that we see 10 here overrode the need to produce a system that was 11 suited to the need of the subpostmasters who were to 12 operate Horizon on the ground, so to speak? 13 A. No, I don't, actually. I mean, oddly enough, the 14 easiest thing would have been to let the Horizon project 15 continue and watch it slowly come to the end of the 16 cul-de-sac it was already in, leaving, you know, 17 subpostmasters and the Post Office with nothing at all. 18 That would have, you know, kind of accorded with 19 what the Post Office really wanted to do. It would have 20 meant a considerable time of wasted effort and money, 21 and one of the hardest things for a Government ever to 22 do is to accept that a path it has set upon has been the 23 wrong path; it has gone wrong. Whatever else one might 24 say about this episode was that, in the end, ministers 25 did accept that and faced up to it. 38 1 MR JACOBS: I'm just going to see if there are any more 2 questions I have to ask of you. Nothing else. Thank 3 you very much. 4 A. Thank you. 5 MR BLAKE: Ms Page has some questions as well, sir. 6 Questioned by MS PAGE 7 MS PAGE: Flora Page, appearing for a group of the 8 subpostmasters also. 9 A. Sorry, I didn't catch the last bit. 10 Q. I'm also appearing for a group of subpostmasters. Thank 11 you. 12 We've looked at one section of this document but I'd 13 like to look again please at HMT00000020. This is 14 a note from Mr Schofield about a meeting that you 15 attended with the representatives of ICL, Mr Christou 16 and Mr Todd. So it took place on 29 January and, if we 17 page go down to paragraph 4 on page 2, and we can just 18 look really pretty much at that first sentence: 19 "Todd made the following points: 20 "he felt that the move to compulsory ACT was not as 21 simple as the BA suggested." 22 He then goes on to set out number of the issues 23 which he felt at that time were problematic, about 24 moving to ACT, rather than having the benefit card 25 continue; is that right? 39 1 A. Yes, I guess so, yes. 2 Q. So, in other words, he, at that stage, was sort of more 3 or less aligned with the Post Office position and 4 wanting the Benefit Payment Card to continue; is that 5 a fair representation? 6 A. I'm not sure it was. I think the -- ICL, at that stage, 7 were already quite interested in the smartcard solution. 8 Q. Certainly, when we get to Mr Christou's interjection 9 a bit later down, that's the one you've already seen, 10 where he says, "We will look at it over the weekend", 11 but this section from Mr Todd appears to be expressing 12 reservations about it, does it not? 13 A. Well, it ... the third inset there, "likewise natural 14 points of access which could be supported by a smartcard 15 and Horizon infrastructure, but there probably would 16 need to be a period of exclusivity" suggests to me that 17 his mind wasn't closed -- 18 Q. Wasn't firmly set against, no? 19 A. Sorry? 20 Q. Not firmly set against, no. 21 A. No, not at all. 22 Q. But expressing number of reservations -- 23 A. Well, yes. I mean, all these things, you know, one has 24 to sort of look at the context as well as the words. 25 And, you know, Christou -- sorry, Todd, in this case, in 40 1 a sense -- not in a sense, in reality, he was 2 negotiating from the off and, therefore, one had to sort 3 factor this into anything that you were saying, you 4 know, quite how far was it the whole truth and nothing 5 but the truth, or how far was it coloured by 6 negotiations. 7 Q. Yes, I see, so to some extent, this will have been, 8 perhaps from your perspective as a negotiator, a window 9 of opportunity in the sense that he wasn't closed to 10 that idea -- 11 A. That's right. 12 Q. -- completely? 13 A. Yeah. 14 Q. Well, that may then account for the document that I was 15 going to take you to next, if I may, which is 16 DWP00000202, and you may or may not be able to assist 17 with this. It's the final page of this, which is 18 seemingly tacked on to a document which was sent to you, 19 but it also refers -- it's dated 2 February and a little 20 further down it refers to the same meeting that took 21 place, it says, last Friday, and I've sort of looked at 22 the dates and it's clearly the same meeting between you: 23 "Apparently Steve Robson had a meeting with Richard 24 Christou and Keith Todd last Friday." 25 The author of this document says: 41 1 "There was a firm proposal from ICL that the Benefit 2 Payment Card should be abandoned and that the DSS should 3 move to ACT." 4 Was this perhaps a slightly wishful gloss on -- 5 A. Well, as I said to you when you first raised the 6 previous document, that I thought that ICL were more 7 open minded than that -- than the paragraph that you 8 drew my attention to, immediately suggested. So, 9 I mean, this again may be slightly -- slightly 10 optimistic view of the meeting but it's not entirely 11 wrong. 12 Q. Yes, I see. Perhaps you can help me with this. I don't 13 know if you can. It's not clear who wrote this. At the 14 top it bears a reference "LCB", does that mean anything 15 to you? 16 A. Sorry, I can't see the top now. 17 Q. If we just scroll up, the reference seems to be somebody 18 called "LCB". 19 A. No, it kind of looks like -- I mean, I don't know who 20 "LCB" is. Just looking at who was at the meeting, it 21 suggests to me it was maybe a Benefits Agency document 22 but that's pure speculation. 23 Q. Yes, all right, thank you. There's only one other 24 document in question that I'd like to take you to, and 25 that's HMT00000013, and this goes forward to May, and 42 1 relates to a meeting again with ICL. At the second 2 paragraph, this is Peter Schofield, the author of this. 3 He says: 4 "By the second meeting, ICL (Todd in particular) 5 were clearly quite worked up. We therefore allowed them 6 to do most of the talking." 7 This is in the context of the reservation on 8 accounts. So, evidently, things were becoming difficult 9 for ICL at this stage. Were you under the impression 10 that Mr Todd, in particular, that his personal position 11 was on the line? 12 A. I had heard some suggestion of that. 13 MS PAGE: Thank you. Those are my questions. 14 MR BLAKE: Thank you very much. 15 Sir, do you have any questions at all? 16 SIR WYN WILLIAMS: No, I don't. Thank you very much. 17 At the commencement of your evidence, Sir Stephen, 18 Mr Blake expressed his gratitude for you attending. Can 19 I repeat my gratitude for you attending and also reading 20 a good many documents, no doubt, before making a witness 21 statement. Thank you. 22 A. Thank you, sir. 23 MR BLAKE: Thank you very much, sir. Can I ask that we take 24 a ten-minute break now and then we will have 25 Lord Darling on screen. 43 1 SIR WYN WILLIAMS: Certainly, yes. What time will that be, 2 just so I'm prompt? 3 MR BLAKE: 11.10. 4 SIR WYN WILLIAMS: Fine, all right. Thank you very much. 5 (11.02 am) 6 (A short break) 7 (11.11 am) 8 MR BEER: Good morning, sir. Can I call Lord Alistair 9 Darling, please. 10 SIR WYN WILLIAMS: Yes. Obviously there is a difference 11 between the clock in the hall and my computer clock, 12 which meant I joined a little early, so if anybody was 13 listening, Lord Darling and I were exchanging 14 pleasantries but nothing more, all right. 15 MR BEER: Thank you, sir. 16 LORD ALISTAIR DARLING (affirmed) 17 Questioned by MR BEER 18 MR BEER: Thank you very much, Lord Darling. My name is 19 Jason Beer and I ask questions on behalf of the Inquiry. 20 Can I ask your full name, please? 21 A. It's Alistair Maclean Darling. 22 Q. Can I start by expressing the Inquiry's thanks for you 23 providing a witness statement to us of 41 pages and for 24 giving evidence via video link today. Can we look at 25 your witness statement, please. It's WITN04200100, and 44 1 on page -- 2 A. Yes, I've got it. 3 Q. Thank you. On page 41 there should be a signature. Is 4 that your signature? 5 A. That's my signature, and that's the date on which 6 I signed it. 7 Q. Thank you. Can we just go back to page 33 of the 8 witness statement, please. 9 A. Sorry, one moment. Yes, I've got it. 10 Q. Yes, thank you. In paragraph 97 there is a date, it 11 says, "by April 1998." Should that read "April 1999"? 12 A. Yes, it should, yes. 13 Q. Thank you very much, with that correction, are the 14 contents of the witness statement true to the best of 15 your knowledge and belief? 16 A. Yes, they are true to the best of my knowledge and 17 belief. As I say in the opening paragraphs of my 18 statement, I have read all the papers the Inquiry has 19 sent to me and I'm satisfied, on the basis of my own 20 knowledge of what happened and what I've seen, that this 21 is a true account of what happened. But I do make the 22 point that I know that I've not seen all the papers 23 I saw at the time. 24 Q. Yes and, in particular, I think, you're concerned about 25 papers that would have been marked up or marginally 45 1 annotated by you; is that right? 2 A. Yes. What these papers don't record are meetings that 3 I might have had. What is very important too is, in 4 terms of my knowledge, you don't get letters just put in 5 front of you. You'll have a covering note from your 6 private office saying, "You should be aware of this, 7 this is what it's about, what do you want to do?" But 8 I cannot think of an instance where I saw papers during 9 the time that I was a minister that I didn't put some 10 remark on them, even a tick. I know that because I saw 11 papers from my time at the Treasury about 10 years ago 12 and absolutely everything was the original documents 13 that had seen. 14 No, I don't know if they still exist for the DSS or 15 the DWP but I just make that point. Having said that, 16 I think what I've got in my statement is an attempt to 17 answer all the questions the Inquiry put to me and it's 18 done on the best of my knowledge and belief. A lot of 19 it, though, comes from my own recollection but it is 20 fortified by some of the stuff that I've seen. But just 21 that caveat there may be stuff around that I haven't 22 seen, you know, in the last 25 years, but if that's the 23 case, no doubt you will draw that to my attention. 24 Q. Thank you. Can I start with your background and 25 experience. I think you were part of the Labour 46 1 Government that came to power after the general election 2 on 1 May 1997, having been an opposition MP for about 3 10 years before that? 4 A. Yes, I was elected in 1987, so 10 years in opposition. 5 I then was appointed as Chief Secretary and I remained 6 a member of the Cabinet for 13 years until May 2010. 7 Important to the Inquiry, I was Secretary of State, 8 first, for Social Security and then, as we re-engineered 9 it, the Department of Work and Pensions for four years 10 between 1998 and 2002. 11 Q. Thank you. So just after appointment or coming to 12 power, you were appointed Chief Secretary to the 13 Treasury, a period that you held for about a year and 14 three months, until 27 July 1998; is that right? 15 A. Yes, that's right. 16 Q. So you were Stephen Byers' predecessor? 17 A. Yes, he was the Chief Secretary for a fairly short 18 period after me, before he became Secretary of State for 19 Trade and Industry. 20 Q. On that day, ie 27 July 1998, you became Secretary of 21 State for Social Security, a position that are you held 22 for just under three years until 8 June 2001; is that 23 right? 24 A. That's right. 25 Q. They're the two posts with which the Inquiry is most 47 1 concerned but, after that, you held a series of posts 2 within Government until May 2010, when a new 3 administration came to power? 4 A. That's right. 5 Q. Amongst those positions, there is one that I'm going to 6 ask you about right at the end of our evidence session 7 today, Secretary of State for Trade and Industry between 8 5 May 2006 and 28 June 2007, so about 14 months? 9 A. Yes, that's correct. 10 Q. Can I start, please, with some questions concerning your 11 first awareness of Horizon, the Horizon project in 12 Government. The first communication that the Inquiry 13 has been able to track down is a letter written to you 14 by John Denham dated 12 August 1997. Can we look at 15 that, please. It should come up on your screen. 16 DWP00000095. 17 A. I'm not seeing anything yet. Should I be? 18 Q. No, we're not either. I'm getting a shake of the head 19 from the document displayer. DWP00000095. 20 Just bear with us, please. Thank you. 21 Is that displayed on your screen, Lord Darling? 22 A. Not yet -- oh, it is now, yes -- oh, it's back again. 23 Right. I can see it now, yes. 24 Q. Thank you very much. You'll see that it's a letter 25 dated 12 August 1997. You can see that amongst the 48 1 extended copy list on the right-hand side. 2 A. Yes. 3 Q. It's from John Denham, then a minister in the DSS, more 4 formally the Parliamentary under Secretary of State for 5 Social Security. Can you see that from the top? 6 A. I can, yes. 7 Q. If we just go to the third page, it's signed off, "PP'd" 8 for Mr Denham, and scroll down, please. 9 A. Yes, I can see that. 10 Q. Thanks. If we go back to the first page, please. It's 11 addressed to you in your position as Chief Secretary. 12 Paragraph 1, if we read together: 13 "... our predecessors announced in May last year 14 that the post office network and the payment of social 15 security benefits across Post office counters Should be 16 automated through a major PFI project. The contract, 17 rather unusually has three parties: my department and 18 [POCL] as purchasers and ICL Pathway, originally 19 a specially formed consortium but now a subsidiary 20 company of ICL, as supplier." 21 Did you know anything about this contract before you 22 took up your post as Secretary of State, as Chief 23 Secretary? 24 A. I can't be sure of that because I haven't seen any 25 papers from the Treasury. However, as I sort of alluded 49 1 to at the start of my evidence, I would not just have 2 had this letter put in front of me, there would have 3 been a covering note from my private secretary saying, 4 you know, "What's this about, you ought to be concerned 5 about it". That sort of thing. It could be that I had 6 been previously advised about it. I was advised about 7 an awful lot of things as Chief Secretary because of the 8 nature of the job but this is the first written evidence 9 I've seen. But I am relying, as I've said to you 10 before, on what the Inquiry has been able to retrieve 11 from the archives. 12 Q. Yes, and, in turn, what your former Department has 13 disclosed to the -- 14 A. Yes, yes. 15 Q. -- to the Inquiry. 16 A. Yes. 17 Q. The second paragraph provides that: 18 "The ambitions of the project are very large." 19 Then if we go to paragraph 3, please: 20 "A project to automate a wide range of functions in 21 19,000 post offices as well as social security payments 22 to over 20 million people is inevitably complex, and 23 that complexity brings with it serious risks. The 24 purpose of this letter is to alert you to the fact that 25 the project is already seriously behind its original 50 1 timetable, with equally serious consequences for the 2 business case between our predecessors." 3 Then if we can look at paragraph 5, at the foot of 4 the page, please, beginning "However", and then look at 5 the sentence three from the bottom: 6 "The National Federation of SubPostmasters mounted 7 vociferous campaigns against ACT [Automated Credit 8 Transfer] when the previous Government gave any ... 9 encouragement to ACT and has sought to maintain the role 10 of post offices in paying benefits. The decision by the 11 previous government to go ahead with the current 12 automation project appears to have been strongly 13 influenced by this context." 14 A. Yes -- 15 Q. Then: 16 "My view [Mr Denham's view] is that, if the 17 commitment to this project had not already been made, we 18 should at the very least question whether it is sensible 19 to sustain an expensive and outmoded pattern of payment 20 delivery as a means of delivering a hidden subsidy to 21 the post office. The question of whether we think it 22 right to subsidise post offices is quite distinct from 23 questions about the most efficient and secure way of 24 paying benefits. The problem with the previous 25 government's approach is they have become inextricably 51 1 confused." 2 To your recollection what view did you form about 3 this at that time, with your Chief Secretary to the 4 Treasury hat on? 5 A. Well, there's two elements. I suppose the first one, 6 that what John Denham was saying is that the Treasury 7 ought to be aware of this, the project has slipped and 8 therefore there will be financial consequences and, you 9 know, that's a direct Treasury concern for obvious 10 reasons. But, looking at the bigger picture, if you 11 like, I had a great deal of sympathy with what John 12 Denham was saying. He was a minister that I valued his 13 judgement on things generally. 14 But, you know, I fully understand that, for the Post 15 Office point of view, having guaranteed footfall is 16 very, very important to them and, at that time, the 17 majority of people in receipt of benefits would have to 18 go to the Post Office to cash their giro to get their 19 money. 20 Now, I can see that the last government, that's the 21 government that was in power until 1997, was trying to 22 find what you might call an elegant solution, whereby 23 the Benefits Agency had a more secure way of making 24 payments through a card but it would also mean, because 25 the hard had to be used in a Post Office, it would 52 1 guarantee footfall. 2 Now my view of it, and when I looked at John's 3 letter in the subsequent correspondence, was that there 4 were a number of problems with this, but the 5 in-principle objection I had was, firstly, I did not 6 think it was right that we should require people to go 7 to a Post Office if they didn't want to. Most people in 8 their salaries got paid through ACT. ACT had been up 9 and running for years, the banks ran it and it worked. 10 And there was no reason why the then DSS should not also 11 use the ACT system. In fact, I think I'm right in 12 saying, even at that time, nearly a third of benefit 13 payments were being made through ACT, it would save the 14 Department about £400 million a year. 15 So I could not see the sense of using a card which, 16 in any event, you know, it was subsequently clear to me, 17 would have a limited life, because it would be 18 redundant. 19 I think the second point, you know, which -- 20 Q. Just before you go on, that document can come down from 21 the screen. 22 This is just so the Chair can see you when you're 23 giving your evidence, Lord Darling. 24 A. Sorry. 25 Q. No, of course. You were about to move to a second 53 1 point, I think. 2 A. Yes. My second point was this, that, you know, part of 3 the approach that we had towards welfare reform was we 4 wanted to make it easy for people who'd got out -- come 5 out of employment for whatever reason to get back in. 6 And, in particular, you know, the Inquiry may recall 7 that there was at that time there was a lot of stigma 8 attached to people who were on benefits, political 9 stigma, if you like, and I wanted to avoid a situation 10 where if people came out of work, they would have to get 11 their money paid through a card and had to go to the 12 Post Office to get it, if they didn't want to do so. 13 Using the Post Office is fine but they shouldn't be 14 forced to do it and I don't want to create a group of 15 people who were somehow different. So the more people 16 were included in the financial system, through ACT, as 17 far as I was concerned, the better, for a whole variety 18 of reasons. 19 Then, of course, the third problem was this: that, 20 you know, the more people you've got in a contract, the 21 more likely it is that it's going to start to go wrong. 22 And from what I saw, especially when I became Secretary 23 of State, when the Montague -- Adrian Montague's 24 Commission produced its report, it was evident that you 25 had a problem here, you had parties who did not have 54 1 a common interest. And it seemed to me the project was 2 doomed. So, on principle, I was against what was 3 proposed and, in practical terms, I was also concerned 4 that the thing was never going to work. 5 And, you know, that's really -- that was in the 6 front of my mind from the time that I arrived at the DSS 7 until the problem was resolved, as far as the Benefit 8 Payment Card was concerned, in the summer of 1999. 9 Q. Thank you very much for that, Lord Darling. We'll see 10 expression of those two or three points, I think, across 11 your evidence -- 12 A. They're in the statement, yes. 13 Q. -- this morning. 14 Can we turn to your reply, please, to Mr Denham's 15 letter, CBO00000018. If we just look at the second 16 page, please, we'll see that it's signed off -- if we go 17 down, please, thank you -- by you. 18 A. Yes. 19 Q. Then go back to the first page, it's dated 20 29 August 1997, and -- 21 A. Yes. 22 Q. -- thanks Mr Denham for his letter of 12 August. You 23 thank him for giving you early warning of the further 24 difficulties this major project is experiencing and say, 25 in your paragraph 2, that you need to establish urgently 55 1 whether the current project can be brought back on 2 track: 3 "I hope it can, both in your Department's and the 4 Post Office's interests." 5 Given what you've just said about the "in-principle" 6 objection to the inclusion of the Benefit Payment Card 7 in the programme and, therefore, the inclusion of the 8 Benefits Agency or the DSS within it, why were you 9 expressing a hope that the project can be brought back 10 on track in his Department and the Post Office's 11 interests? 12 A. Well, this is at the early stage. You know, as you say 13 it was -- I don't know if it was the first, but 14 certainly the first sight I'd had of it. And, 15 obviously, from the Treasury's point of view if you're 16 terminating a contract, it is possible that you're going 17 to incur costs, and if the thing was -- can be made to 18 work, then, you know, that's something the Treasury 19 would support. However, as I said to you, I think, if 20 you go further down the letter, I think, from 21 recollection, you know, I do say that there's -- whether 22 or not we're doing the right thing is questionable, and 23 I think -- 24 Q. We're about to turn to that and in particular, the 25 suggestion that there's some contingency planning that 56 1 should be undertaken? 2 A. (Unclear). 3 Q. If we go -- 4 A. Sorry, I don't want to jump ahead of myself -- of you, 5 rather, but I do recall that Margaret Beckett wrote in 6 similar terms and she got a more expansive reply from 7 me, you know, really questioning whether or not this was 8 the right thing to do. But, you know, this was -- you 9 know, we were, what, two months into Government at that 10 stage? We were committed to pretty tight spending 11 totals, and the Chief Secretary and me would naturally 12 say, "Well, you know, is it fixable?" But the more 13 I looked at this, the more, as I said to you, I came to 14 the conclusion it was wrong in principle as well as 15 wrong in practice. 16 Q. Just looking at the matter generally, was that your 17 position when you were Chief Secretary or did that only 18 become your position when you moved over to be Secretary 19 of State for the DSS? 20 A. I think, from recollection of the material that I've 21 seen, you will see in the correspondence, you know, I am 22 gradually coming to this view. Obviously, when I got to 23 the Department of Social Security, where I was wholly 24 responsible for the policy from then on, I came very 25 quickly to the view that, you know, it was on the wrong 57 1 tack. And, you know, it -- also, it was also clear by 2 that time that the technical problems with it were 3 becoming more and more apparent. 4 It was running, what, 18 months late, even at that 5 stage, and had been signed in 1996? You know, when 6 I saw John Denham's letter, we raised all these 7 difficulties, yes, in some ways, it was a holding reply. 8 But, you know, I think the more I looked at it, the more 9 I came to the view that we were actually -- it was the 10 wrong thing to do. 11 Q. Sticking with this early phase at the moment, is 12 paragraph 4 a reflection of that emerging view that you 13 held, reflected because you are suggesting some 14 contingency work, looking for the case for ACT in the 15 event that the contract is pulled? 16 A. Yes, and my guess also is that I would have had, if not 17 written, then certainly verbal advice from the Treasury 18 to say "Look" -- because it's understood, to both the 19 Department and the Treasury, that ACT is much, much 20 cheaper to run than what we were dealing with here. But 21 what I'm saying here is that, you know, clearly you -- 22 you, that is John Denham -- was flagging up 23 difficulties, we should be looking at an alternative way 24 of making payment, ACT in this case. 25 Q. Would you have understood that the withdrawal of the 58 1 Benefits Agency, on the grounds that the objective can 2 be achieved from its perspective through the use of ACT, 3 would have the effect of undermining a central tenant of 4 the project, namely to drive people into the Post 5 Office? 6 A. Yes, I mean, you know, and Margaret Beckett, if you 7 remember, wrote to me, making that point. But you still 8 have to stand back from these things and ask yourself: 9 is this the right thing to do? Of course, this wasn't 10 a static situation. John Denham was writing alerting me 11 to the problems and the slippage, which I comment on. 12 You know, he also mentioned, you know, we should be 13 looking at whether or not it was the right thing to do 14 in the first place. 15 And when you've got that, where clearly the contract 16 is running into difficulties, it would make sense to 17 look at the alternatives. And throughout the 18 correspondence, you know, at this time, you know, mostly 19 when I was Secretary of State for Social Security, you 20 know, I did make the point that we need to look at ways 21 in which you can subsidise, if you like, the Post Office 22 Network. As I said in my statement, right from the 23 start, as a Government, we had two policies: one is to 24 reform the welfare system and the second was to maintain 25 a network of post offices, which proved to be difficult 59 1 and I think is still difficult to this day. 2 Q. You copied the letter to, amongst others, Margaret 3 Beckett, who was then the Secretary of State for Trade 4 and Industry and, therefore, held overall responsibility 5 for the Post Office. So they and the DTI would have 6 been under no illusions that this was going on, ie the 7 suggestion from the Treasury to look at ACT as 8 a contingency plan? 9 A. Yes, and obviously we don't know what advice was given 10 to ministers in the previous government because we're 11 not told that. But I think my recollection is that the 12 DVLA had also raised with -- you know, in general the 13 position of using the Post Office as well. So it would 14 not be new. It was known within Government, and it 15 really -- what ministers had was clearly a -- you know, 16 a project that was stalling and, you know, certainly as 17 time went on, it was very clear that it had stalled and, 18 indeed, our view was that the suppliers were in breach 19 of contract. 20 So, you know, it was an evolving view but the more 21 I looked at it, and certainly by the time I got to the 22 DSS, I was very clear that this was just the wrong way 23 to proceed and that, you know, even if you'd been able 24 to salvage it, it would have been wrong in principle to 25 be doing this. 60 1 Q. Thank you. That letter can come down. Can we look at 2 Mr Denham's reply to complete this series of 3 correspondence, CBO00000013. Thank you. You'll see 4 this is a letter to you of 14 September 1997 -- 5 A. Yes. 6 Q. -- replying to the one that we've just seen. Can we 7 look at the first paragraph, first substantive 8 paragraph: 9 "PA Consulting, who were undertaking the review ... 10 were committed to delivering their review document on 11 19 September [so within the following week]. I am 12 content to make it available." 13 Then paragraph 3: 14 "However, I would not want you to harbour any hopes 15 that the project can be brought back on track fully. 16 I understand it emerging view of the consultants 17 undertaking the review is that the completion of rollout 18 is likely to be at least 18 months beyond the original 19 contractual date; this is at least an additional 20 six months slippage beyond that reflected in the figures 21 attached to my letter of 12 August; and this assumes the 22 achievability and success of substantial organisational 23 and contractual changes which the consultants are likely 24 to propose. Further, I understand the consultants' 25 initial view is that the original business cases of all 61 1 three parties are highly vulnerable to slippage." 2 That can be taken down. Thank you. 3 What effect did that new news have, to your 4 recollection? 5 A. Well, it fortified my belief that this was a project 6 that was running into considerable difficulties and, you 7 know, as I said to you, you know, the more I looked at 8 it, the more I thought this is just going in the wrong 9 direction. We had a contract, that is the Government 10 had a contract, which brings with it certain 11 obligations. Naturally, if it could have been sorted 12 out to everybody's satisfaction, that would have been 13 fine, except it didn't. It was getting worse 14 progressively. But, you know, as I make clear in my 15 statement, my overall view of this, in this entire 16 period until the Government decided, you know, as the 17 agreement with ICL came to an end, that, you know, that 18 having a Benefit Payment Card was just inappropriate, 19 and that, if the Post Office Network was going to 20 survive, then another way would have to be found to do 21 that. 22 Q. We'll come on to this in more detail a little later but, 23 just picking up what you've said there, that reason 24 you've just given is one of principle, that doesn't 25 depend on the quality of the system that ICL is 62 1 delivering; is that right? 2 A. Well, the quality is inextricably linked to this, and 3 when you see something going wrong, you do stand back 4 and say "Well, are we going in the right direction in 5 the first place?" You know, to have spent time trying 6 to fix something, you know, which was clearly going 7 wrong and which obviously there's no guarantee it 8 wouldn't go wrong again -- you know, regardless of 9 whether or not you're going in the right direction -- 10 would seem to me to be odd. 11 As it happened, these things were happening in 12 parallel, if you like, the technical problems, you know, 13 the difficulty in delivery, were becoming more and more 14 apparent and got more and more, you know, obvious. And 15 I don't know if, you know, I think I would have been -- 16 it would have been very odd if I hadn't asked myself 17 "Well, should we be doing this in the first place?" 18 I was pretty clear we shouldn't have been doing it. 19 Q. Can we push forward a little later in 1997 and look at 20 DWP00000072. I think this is maybe the letter you were 21 looking at earlier, when you said you were getting ahead 22 of yourself -- 23 A. Yes. 24 Q. -- from Margaret Beckett -- 25 A. Yes, it looks like it, yes. 63 1 Q. -- who was the Secretary of State for Trade and 2 Industry -- to you, dated 17 October 1997. 3 A. Yes, that's correct. 4 Q. If we can skip over the first part of the first 5 paragraph and pick up four lines in: 6 "... I have seen copies of the recent letters 7 between John Denham and you about slippage in the PFI 8 project for automating post offices and benefit 9 payments." 10 A. Yes. 11 Q. I think that's a reference to the correspondence we've 12 just looked at. 13 A. Yes. 14 Q. "I have been reflecting carefully on the issues raised 15 and the potential implications for POCL. 16 "For a variety of reasons, the future viability of 17 this most politically sensitive of the Post Office 18 businesses looks increasingly fragile." 19 A. Yes, I see that. 20 Q. So do you understand the part of the business that she's 21 referring to is -- 22 A. Is the Post Office, yes. 23 Q. -- is the POCL part, Post Office Counters Limited -- 24 A. Yes. 25 Q. -- part of the Post Office business? 64 1 A. Yes, yes. That's right. 2 Q. Is she referring there to the entirety of the business, 3 ie the Post Office Counters Limited business? 4 A. Yes, and, you know, as I said to you, I was fully aware 5 of the general problem that, you know, for a number of 6 years, the Post Office Network was, you know, in 7 an increasingly difficult position, in that people, for 8 a variety of reasons, were not going there because they 9 could do whatever they needed to do elsewhere. Sale of 10 stamps is a case in point where, you know, you could buy 11 them through shops, and so on. 12 But, I mean, it comes back to the wider point, which 13 I think John Denham raised, a fairly good point, is that 14 if the Government decides there should be a network of 15 post offices, it's a perfectly legitimate position to 16 take, then, you know -- and it needs to be subsidised 17 which, you know, certainly for most post offices, 18 certainly outside urban areas, that's certainly the 19 case, then there would have to be some sort of subsidy. 20 That's a decision the Government should have to take. 21 From, you know, my point of view, firstly, as Chief 22 Secretary, I was concerned about expenditure and certain 23 expenditure on the contract that was going wrong, but 24 then, subsequently, as Secretary of State for Social 25 Security and then Work and Pensions, it didn't seem to 65 1 me to be right that that Department was being asked to 2 take on something which it did not need and did not 3 want, when there was another means of paying people's 4 benefit direct into their bank account. 5 Q. Thank you. Can we look at your reply, please, which is 6 CBO00100005_087. Thank you. This is your reply. You 7 thank Mrs Beckett for her letter of 17 October and say 8 that you're aware that any fundamental changes to the 9 business relationships between POCL, BA and DVLA, which 10 resulted in business moving out of post offices, would 11 impact in a major way on POCL. 12 A. Yes, yes. 13 Q. You're aware of the widespread perceived importance of 14 the Post Office Network and the sensitivities attached 15 to it and then, over the page, please -- and scroll 16 down, thank you. You say: 17 "That is not to say however we should avoid asking 18 questions about the optimum size of the Post Office 19 network and the most sensible way of sustaining it. 20 I agree that the Post Office review offers us the 21 opportunity to look at these fundamental issues ..." 22 What were you referring to there as the "Post Office 23 review"? 24 A. Well, the Government had promised to publish a White 25 Paper on the Post Office which, because all this was 66 1 delayed, and was published subsequently. 2 Q. Thank you. 3 A. And, sorry, the other thing is that when we formed the 4 Government in 1997, we had very strict spending totals, 5 but we undertook to do a comprehensive spending review 6 in, I think, 1999. So anything we decided with the Post 7 Office, if we -- you know, whatever we decided, there 8 was almost certainly public expenditure support, so that 9 would have been in the spending review. So I think what 10 I'm referring to there is the White Paper, although 11 I think that proved to be -- you know, it didn't come 12 along for a while. 13 Q. You continue: 14 "[I] am clear that it should also include 15 an examination of the current relationships between POCL 16 and other parts of the public sector." 17 Then in 4 you make this point: 18 "We have to consider other aspects of the 19 Government's service to the public. For example, should 20 the DSS be bound to use the Post Office when, with new 21 technology, it could use more automatic management and 22 payment systems which are, arguably, to the benefit and 23 convenience to its customers? There could also be 24 substantial reductions in costs. At the moment, the DSS 25 has a huge IT project which is over budget and behind 67 1 schedule and which is designed to use POCL rather than 2 other means of payment. The BA contract is worth about 3 a third POCL income -- about £360 [million] per annum. 4 You are also aware that the DETR is concerned about the 5 level of payments made by the DVLA to POCL. 6 "The CSR process should allow us to discuss these 7 costs as well as implications for the Post Office. If 8 we are in fact subsidising POCL, should we not say so?" 9 A. Yes. 10 Q. Are you referring there to what was an indirect or 11 hidden subsidy of POCL being broken out into a more 12 transparent way for the public? 13 A. Yes, as I said to you earlier, if the Government wants 14 to maintain a Post Office Network -- and, you know, 15 there's nothing wrong in policy terms in saying, "And to 16 do that we will subsidise it", because I have said 17 a number of these branches were at that time, you know, 18 financially incapable of standing on -- alone. And it's 19 a perfectly legitimate position to take. What I'm 20 saying here is -- and I referred to this in my previous 21 answer, I think -- that the CSR, as the comprehensive 22 spending review process, would allow us to look at all 23 those costs. 24 But, you know, what I am driving at, is the theme 25 of, you know -- my statement is that if you're going 68 1 to -- if your starting point is we need to subsidise the 2 Post Office Network, that's fine. But what you 3 shouldn't be doing is spending a lot of money on 4 devising an elaborate way of doing it, which was 5 inappropriate for all the reasons that I've stated, and 6 as we -- this correspondence was proceeding all the 7 time, it was becoming increasingly obvious that it was 8 never going to be delivered on time, if ever. 9 Q. Thank you. That letter can come down. Thank you. 10 So far as we've been able to establish, nothing 11 further happened, so far as your role as Chief Secretary 12 to the Treasury occurred later in 1997 and early 1998, 13 in relation to the Horizon project. I don't suppose 14 you've got any independent recollection of whether 15 that's correct or not; you'd be reliant on the papers 16 too? 17 A. I would be reliant on the papers. During that time 18 I was involved in the preparation of the Government's 19 comprehensive spending review, which was a major 20 undertaking so, as part of that, the Post Office would 21 have figured, but I'm afraid without seeing 22 contemporaneous papers, it's very difficult for me to 23 say. You know, this is getting on for 25 years ago, and 24 my memory is okay but it's not that accurate. 25 Q. Can we move forwards, then, to the period March/July 69 1 1998, still in your role as Chief Secretary to the 2 Treasury, and a letter you wrote to Margaret Beckett who 3 was still, I think, Secretary of State for Trade and 4 Industry. CBO00000017. 5 If we go to the second page, please, and scroll 6 down, you will see that it was PP'd on your behalf, 7 approved by you in your absence. 8 A. Yes, that was my Principal Private Secretary at that 9 time. 10 Q. Mr Schofield, yes. 11 A. Yes. 12 Q. If we go back to the first page, we'll see it's a letter 13 dated -- if we scroll down a little bit, thank you -- 14 3 March 1998 to Margaret Beckett. You say "Dear 15 President", you have seen Harriet Harman's letter of 16 27 February, and you say: 17 "I am increasingly concerned about this project and 18 I agree we need an urgent review ..." 19 We don't have a copy, as I understand it, of Harriet 20 Harman's letter of 27 February 1998. Can you recall 21 what led to your increasing concern? 22 A. I haven't seen, you know, a copy of Harriet Harman's 23 letter. 24 Q. No, it's not been disclosed to us either. 25 A. Yes, I think it was just a gradual realisation from, you 70 1 know, everyone concerned, that this was a project 2 running into difficulty. One of the things that, you 3 know, you ought to be aware of is that ministers do 4 speak to each other. We don't just deal with each other 5 through correspondence and, you know, my recollection is 6 that, you know, throughout this period, I raised it from 7 time to time with colleagues and, certainly, as we get 8 later on to this process, you know, when there was quite 9 a division between what we should be doing about the 10 Benefit Payment Card, there was a lot of conversations. 11 But I think my evidence to you is this: that it was 12 becoming obvious, you know, right from the time that -- 13 you know, probably starting with John Denham's letter, 14 that this project was in trouble, and therefore we 15 needed to look and see what we could do about it. The 16 Treasury obviously wasn't taking a policy view of 17 whether we should be -- the Benefit Payment Card or 18 whatever. The Treasury rightly took the view that, if 19 something is in trouble, there's almost certainly going 20 to be a financial consequence. 21 Q. Can we scroll down the page, please. You say: 22 "A meeting will be useful ... But before we can 23 reach any conclusions I think we need to ask our 24 officials to prepare an agreed analysis of the options, 25 including an assessment of: 71 1 "whether the project is technically viable; and if 2 so, how it can be completed and at what cost to 3 government." 4 That phrase "technically viable" is one that you 5 obviously use in this letter here and is one that we 6 will see is picked up in the subsequent Montague report, 7 later in the year. 8 A. Yes. 9 Q. What did you mean by your use of the phrase "technically 10 viable"? 11 A. Well, in blunt terms, whether it would work or not. 12 Q. Is that right or do you mean that it's feasible in 13 principle? 14 A. Well, it's both, isn't it? If it's not feasible in 15 principle, it's difficult to see how it could ever work. 16 But, you know, my interpretation of the "technically 17 viable" used here, and in Adrian Montague's report -- 18 and you're right that he does use that term -- as to 19 whether or not it was going to, you know, be delivered 20 in a way that would be satisfactory to the end user, 21 which is -- it was the DSS and indeed, you know, other 22 parts of it, to Post Office Counters. 23 Q. Can we go over the page, please. You're asking there 24 for an assessment of -- and this is the second bullet 25 point: 72 1 "... the direct and indirect costs of cancellation 2 and of any alternative available to deliver the 3 project's objectives." 4 A. Yes. 5 Q. So, essentially, a financial assessment? 6 A. Yes, the Treasury, as you would expect, before any 7 decision was to be made, would have a rigorous 8 examination, which would start off "Is the status quo 9 going to work?" If it's not going to work then you look 10 at the alternatives. And, you know, not surprisingly, 11 the Treasury would be concerned about any aspects of 12 expenditure, no matter how they arose, whether it was 13 cancellation or anything else for that matter. 14 So that's why I raised that point. You know, 15 I think you see in paragraph 3 it says "The Treasury is 16 in ... a good position to see both sides of the case". 17 Yes, as you would expect, from, you know, one of the 18 most important Departments in the Government, that it 19 would take a rigorous view of everybody's point of view, 20 but obviously, the Treasury has a particular interest in 21 public expenditure. 22 Q. You say in that paragraph 3 that you suggest the setting 23 up of a small working group, and list the 24 representation, to report within two to three weeks, and 25 the sentence that you've just highlighted. Is that 73 1 a reflection of the fact that there were very divided 2 positions, in particular between the DSS and BA, on the 3 one hand, and the DTI and the Post Office on the other, 4 to an extent they were warring, with the Treasury sat in 5 the middle? 6 A. Well, I'm not sure I'd use that term but, you know, 7 you're right that the DSS, and the Benefits Agency by 8 extension, had a clear view, and it was becoming clearer 9 by the day, that this was the wrong solution and, you 10 know, to be blunt, they didn't want it. Obviously, if 11 you look at it from the DTI as the sponsor Department of 12 the Post Office, you know, it could see all too clearly 13 that, if you did not have a mechanism that built in 14 footfall, if you like, there would be a big problem with 15 the Post Office, and that you then had to look at direct 16 subsidy or other matters, which is to say that that's 17 a problem that's existed and -- you know, is still there 18 now. 19 But the Treasury here was not -- you know, I would 20 regard it as three groups of people and, certainly, 21 three ministers, all of whom were acting in good faith 22 and looking at it from an overall Government point of 23 view as to what's right. It was just an attempt to have 24 a look at this, see whether or not you could make it 25 work. If it couldn't, then we'd have to look at the 74 1 alternatives. 2 Q. You continue: 3 "The group would need to appoint consultants to 4 address the first question", that's technical viability. 5 A. Yes. 6 Q. So you were proposing here the setting up of a small 7 working group, reporting within two to three weeks, with 8 the assistance of consultants, yes? 9 A. Yes, that's right. 10 Q. That was on 3 March. Can you recall what came of that 11 suggestion? Was it the creation of the working party 12 led by Adrian Montague? 13 A. I think that's right but I've not seen any papers that 14 would guide me to that conclusion but, I think, if 15 I remember rightly, that the Adrian Montague thing 16 was -- probably the main driver of that would probably 17 be the Treasury because the Treasury used Adrian 18 Montague to do a number of reports, in my experience, 19 you know, he was quite good at it. 20 So I suspect -- I think that is right. But, you 21 know, PA, I recollect, did look at some aspect. Whether 22 they were doing it under the aegis of this short 23 examination or not, I can't be sure because I just had 24 not seen the papers which would allow me to reach a firm 25 conclusion on that. 75 1 Q. Thank you. That can come down. 2 You were appointed as Secretary of State for Social 3 Security on 27 July 1998. Did you require to be briefed 4 as to the Department's position in relation to the 5 Horizon project when you took over your new role or was 6 that unnecessary because you had picked it up as Chief 7 Secretary to the Treasury. 8 A. Well, look, I picked it up but, in my experience, 9 whenever you arrive in a new department, you know, 10 including the Treasury, for the first two or three days, 11 they will tell you about, you know, if you like, going 12 concerns. I mean by going concerns, things that they're 13 concerned about. But, you know, I -- there's certainly 14 no papers here, as, you know, I fear we've found out, 15 that would tell you what exactly I saw but I do remember 16 on the first evening I was there having a long 17 conversation with then the Permanent Secretary, who 18 frankly reeled off a tale of woe about just everything, 19 just about, but I can't remember whether or not this was 20 part of it. 21 But I would have seen papers and again this is what 22 I was talking about right at the start, the stuff that 23 I know I would have seen, you know, the briefings on 24 things and I'm pretty sure because this was such a big 25 concern to the Department that they would have told me, 76 1 quite rightly, these are the things they were concerned 2 about. But I wasn't coming fresh to it, for reasons we 3 discussed. I knew about it and, actually, as I said to 4 you, I could see the Department point of view long 5 before I got to the Department. 6 Q. Can we look at your witness statement, please, at 7 page 8. It'll come up on the screen for you. At 8 paragraph 21, at the top, you say: 9 "In my role as Secretary of State I was committed to 10 delivering the Government's policy on welfare reform 11 and, following my arrival in the Department, it became 12 clear to me that fundamental reform was required across 13 the board and in particular in relation to the way in 14 which benefits were being paid to approximately 15 15 million people every week. In particular, I came to 16 the view that the BPC [the Benefit Payment Card] was not 17 the right way to achieve the effective and long-term 18 reform of benefit payment systems, principally for three 19 reasons." 20 Then you set them out. 21 When you say, "I came to the view", was that then 22 upon arrival in the Department, or was it something that 23 developed iteratively over the following ten or so 24 months until May 1999? 25 A. No. As I said to you, the view was forming in my mind 77 1 all the time I was Chief Secretary and this matter came 2 before me. And, you know, at a very early stage -- you 3 know, I can't tell you whether it was days or weeks, but 4 I think, you know, it was very soon -- I came -- well, 5 sorry, there's two stages here. One is I was very 6 clear, before I got to the Department of Social 7 Security -- and I think it's in the public domain it was 8 well known I was going there because things had gone, 9 you know, rather wrong. So I was very clear that some 10 major changes were going to be needed, in particular in 11 the way in which we paid benefits and, you know, the way 12 that the Benefits Agency was there to pay money to 13 people who were out of work but it wasn't there to get 14 them back into work. 15 So, you know, there was big changes that were needed 16 there which ultimately led to the DWP being formed, you 17 know, 18 months or so later. But in relation to the 18 Benefit Payment Card, I came to the view very quickly 19 that frankly it was just wasn't the right way to achieve 20 the long-term reform of benefits systems, including -- 21 you know, I mentioned it in the following paragraphs -- 22 I thought it was just wrong in principle. You know, if 23 we wanted to get people included in the system then, you 24 know, one of the ways you did that was to make sure that 25 if they could, you'd pay their money into their bank 78 1 account, just in the way as if they were in work, they'd 2 get their wages and salaries paid into a bank account. 3 Q. You've set out the three reasons, and in the first of 4 them at paragraph 22, if you just read that to yourself. 5 A. Yes, I can see it. 6 Q. "... it stigmatised benefit recipients, created two 7 classes in society ... By contrast, ACT was a way to 8 tackle social exclusion ..." 9 A. Yes. 10 Q. "I also considered that it was wrong in principle to 11 require people to go to the Post Office to receive their 12 benefits when there was a more convenient method of 13 benefit payment available." 14 That overall, would you agree, is a reason of 15 principle not related to the planning, delivery, timing 16 or quality of the Horizon System? 17 A. Yeah, absolutely. But I thought, you know, you asked to 18 me through the questions I got initially, why did 19 I reach the decisions that I did? And I thought it was 20 right to tell you that one of them was in principle. It 21 was actually -- you know, it was before the Inquiry, but 22 in amongst the DSS papers I was sent, there's a very 23 good academic work by Professor Elaine Kempson who goes 24 into some detail about the stigmatised benefit 25 recipients, and mentioned that ACT is one of the ways 79 1 you can help, although it's not the only way, by any 2 means. But, you know, it's a theme of my statement. 3 I just thought it was wrong in principle, and because 4 the thing had run -- the contract had run into such 5 difficulties, it was right to start looking at this from 6 the start, if you like, and what would you do if you 7 were doing that? 8 Q. Can we scroll down to the second reason that you give in 9 paragraph 23, the card was not the most cost effective 10 or best solution, particularly as it was not intended 11 for long-term use. 12 A. Yes, as I say, the long-term use thing, I think it was 13 probably after got it to the DSS that I was told by 14 officials that, because it wasn't immediately obvious in 15 the Treasury that that was the case, but that was added 16 my doubts about this project. It was a temporary fix, 17 if you like. 18 Q. You say in the last two lines: 19 "... by moving straight to ACT, it was estimated 20 that the DSS would save £400 [million] per year and the 21 banks had been delivering ACT for years ..." 22 You've mentioned that already. 23 A. Yes. 24 Q. "... so it had a proven track record ... In those 25 circumstances I didn't consider the BPC to be a good 80 1 investment of public funds and I believed there were 2 better ways to manage loss of income to POCL that would 3 result from the adoption of ACT as a means of payment of 4 benefits." 5 So that second reason, that's essentially a reason 6 of principle run along with the financial case for ACT, 7 and against the Benefit Payment Card, not related to the 8 planning, delivery, quality or timing of the Horizon 9 System; would you agree? 10 A. Yes, that's a fair summary of my position. 11 Q. Then the third reason you give in paragraph 24: 12 "By July 1998, the project was thoroughly stalled. 13 In November 1997, ICL had been placed in breach of 14 contract by public sector parties for failure to meet 15 a key operational milestone and the DSS/BA had issued 16 a notice of 'cure' which was due to expire on 17 12 August 1998 and was unlikely to be met." 18 Is that reflective of the view that you expressed 19 earlier: that the project was doomed failure? 20 A. Yes. And indeed, I think at the end of last week you 21 sent -- the Inquiry sent me another document which it 22 had just uncovered, I assume, you know, which added to 23 that. You know, it was an assessment by outside 24 reviewers of the contract which is, you know -- and 25 obviously I had not seen that until the end of last 81 1 week, but there was a growing recognition, as I've said 2 before, that this was a project that had stalled and 3 that, you know, the timescale for it being fixed, if 4 ever that was going to be possible, was slipping off 5 into the distance. 6 Q. So that third reason is related to the performance of 7 the project, and accordingly the performance of 8 ICL Pathway within it? 9 A. Yes. 10 Q. Now one of the first things -- that can come down, thank 11 you. One of the first things to confront you on 12 entering your new position as Secretary of State would 13 have been the report of the independent panel of experts 14 led by Adrian Montague. The report, we know, was 15 delivered the week before your arrival in your new 16 position on 27 July 1998. 17 I wonder whether we could look at it, please. 18 POL00028094. 19 You can see, if we scroll down, it's dated 20 July 1998. 21 A. Yes, I see it. 22 Q. Thank you. Then if we go over the page, and the page 23 again, to page 3. 24 Now, you would have presumably received this with 25 a backing paper or a cover note, or a formal submission 82 1 to minister? 2 A. Yes, I do remember it. As I say, I knew Adrian Montague 3 so, you know, it was an added thing, if you like, that, 4 you know, I'd thought it was important. But, yeah, I'm 5 very certain there would have been a covering note or 6 a submission to go with it. 7 Q. What's your practice? What was your practice then? 8 Would you read the attachment, or would you read the 9 submission where officials told you what you should make 10 of the attachment? 11 A. No, I would read both. If somebody sent me a report -- 12 you know, I'm saying this after having been in 13 Government for 13 years -- if somebody gives you 14 a report, you should read the whole thing. I've seen 15 ministers in the past make the mistake of not doing so. 16 You need to look at the whole thing. I'm pretty sure 17 the whole of the Montague report would have been given 18 to me, and not just bits of it. Although, you know, if 19 you were going through it, there are bits of it that 20 jump out, and certainly jumped out to me. 21 Q. The Chair of the Inquiry is very familiar with the 22 report. A number of witnesses have been taken to it 23 previously, so I'm only going to take you to limited 24 parts, if I may. But if there are parts that you have 25 in mind that jumped out to you and I don't mention them, 83 1 then please do say so. 2 Can we look at the findings first, please. 3 A. Yes, do that. 4 Q. On that page, under the first bullet point of findings 5 on page 3, the authors say: 6 "The programme is complex, probably the biggest of 7 its kind. Its scale, particularly the development work 8 required, were underestimated initially. Parties have 9 since increased the resources devoted to the programme 10 but a range of issues remain to be resolved." 11 Secondly: 12 "Our view is the programme is technically viable. 13 There must be some risk around scalability and 14 robustness because the system has had to be tested at 15 the level of component parts, but we are satisfied these 16 risks are being well managed by Pathway." 17 Did you understand "technically viable" in the sense 18 that we discussed before, namely feasible, as opposed to 19 the existing elements of the system, whether alone or in 20 combination, are presently technically robust? 21 A. I regarded that as being feasible, but if you look at 22 all of the findings, they're heavily qualified. You 23 know, that -- and again, if you look at the POCL -- and 24 the way forward, you know, they looked at -- they 25 mentioned, I think it was the second option, it was 84 1 stopping the Benefit Payment Card altogether. And 2 again, if you look at the part 2 in, I think it is an 3 appendix, they outline a series of problems. So I think 4 what I took from this was it was technically possible to 5 produce a card, but there was an awful lot of 6 difficulties here. And one of them, you know, which 7 I think they highlight, is that, you know, this was a 8 massive project and it wasn't helped by the fact that 9 you had, if you like, on the Government's side, two 10 sponsored departments which had completely different 11 objectives. 12 Q. Can we go to page 22, please. Sorry, page 23. "The 13 panel's view of a possible way forwards". 14 A. Yeah. Sorry, I've got notes in front of me of the 15 original, but I'll look at it on the screen, that will 16 be better. Sorry, what do you want me to look at here? 17 Q. Page 22, annexe A. "The panel's view of a possible way 18 forwards." 19 A. Yes, I can see that here, yes. 20 Q. Thank you, Lord Darling. 21 "We sought to find a way forward on which all the 22 parties might agree in principle, subject to 23 negotiations about the detail. We considered all of the 24 options." 25 Then six of them are set out. 85 1 A. Yes. 2 Q. Just take a moment to read them. 3 A. Yes, I'm familiar with them. I've -- 4 Q. Thank you. 5 Then the authors say: 6 "Taking the options in reverse order, each of the 7 last four has fatal flaws. If an agreed way is sought, 8 one or more of the parties would be unable to accept 9 it." 10 If we just run through them, then. The first bullet 11 point, "Termination of the complete programme". So 12 that's option 6. 13 A. Yes. 14 Q. This was said to have -- it would leave POCL's 15 automation plans set back for at least two years with 16 potential for litigation, with the likely loss of 17 non-government business in the meantime, "Pathway would 18 face a significant loss of prospects, reputation and 19 revenue". 20 The second is option 5, "Partial termination -- no 21 Benefit Payment Card". So: 22 "Partial termination with no restructuring to scrap 23 the BPC, reduce the programme to POCL automation, plus 24 OBCS would unacceptably reduce Pathway's revenue stream 25 and leave POCL with an infrastructure too highly 86 1 specified for its short-term needs." 2 The third bullet point I think is option 4: 3 "Continuing the programme as currently planned would 4 leave Pathway below break even on its investment with 5 infrastructure ... incomplete for a move into banking 6 and Financial Services. The introduction of the card 7 for the short period remaining of the initial contract 8 term would expose customers to disruption if BA moved 9 full ACT immediately thereafter." 10 Then, lastly, at the last bullet point, which 11 I think is option 3: 12 "A simple extension would delay the Benefits 13 Agency's move to increase use of ACT, prolonging its 14 exposure to high unit cost of benefit payments. POCL 15 would have little incentive to modernise further." 16 Did you, on reading that, accept that those four 17 options were each fatally flawed and were therefore 18 ruled out? 19 A. Yeah, I mean, I could see the strength in the 20 conclusions they reached in paragraph 2. This also 21 raises a point which we haven't touched on so far, which 22 you will see generally the Government did consider and 23 that is it had a contract with Pathway, as it was then 24 called, and governments have to think long and hard, if 25 it's got a contract, if it's going to terminate, it has 87 1 to have a reason for doing so, and one that will stand 2 up in public as well as in any proceedings. So that was 3 in our minds. 4 But, you know, other points they make about partial 5 termination, continuing but extending it, and, you know, 6 the difficulties with, you know, an extension which 7 would just, if you like, postpone the inevitable in my 8 view. 9 So yeah, you know, I agreed with the conclusions 10 they reached. 11 Q. Then scrolling down very quickly to option -- to 12 paragraph 3: 13 "We took the opportunity to set out Options 1 and 2 14 as the most likely to provide an agreed way forward." 15 That's restructuring the full programme or 16 restructuring part of the programme with no Benefit 17 Payment Card, options 1 and 2 respectively. 18 "... Options 1 and 2 as the most likely to provide 19 an agreed way forward. We invited the parties to 20 respond, indicating whether either might be acceptable. 21 POCL and Pathway supported Option 1, restructured full 22 program. BA preferred Option 2, a restructured partial 23 programme without a Benefit Payment Card." 24 Then the authors proceed to address their view on 25 each of those two options. I'm not going to take you 88 1 through that, in the interests of time. 2 As we've seen already, the report discusses 3 technical viability. 4 That can come down from the screens, thank you. 5 Were you ever aware, Lord Darling, that the issue of 6 the technical viability of the project had been 7 addressed in a rather long and detailed procurement 8 process? 9 A. No, because that would have been done before our time in 10 the Government. So -- because this is a contract, if 11 I remember rightly, that was procured and signed in 12 1996. 13 Q. Correct. 14 A. I wouldn't have been aware of discussions that took 15 place with ministers of a different administration, you 16 can't see the papers of ministers of a previous one, 17 except in some exceptional circumstances. 18 Q. You weren't aware of the nature of the procurement 19 exercise -- 20 A. That was done by a previous government. And, you know, 21 it's my observation, from what you're now just telling 22 me, is that, even if something had been thought to be 23 technically viable, ie it worked or ever could work, in 24 1996, it doesn't therefore follow that 18 months/two 25 years later, that you would reach the same conclusion. 89 1 We were dealing with what we saw in this case, you know, 2 in 1997/98. 3 Q. But the obverse might be true: that if the procurement 4 exercise, would you agree, had thrown up substantial 5 issues of concern with the Pathway project, those are 6 matters that the current decision-makers may wish to 7 know about? 8 A. Well, if that had been the case, certainly, you know, 9 I wasn't aware of what happened in the procurement 10 process prior to us becoming the Government. But as 11 I say, what I and my colleagues had to deal with is the 12 emerging evidence that you can see from this and other 13 papers that this was a project that was stalled. You 14 know, the things that we thought were going to be 15 delivered weren't being delivered. It was clear that 16 several months, if not longer, were going to be needed 17 to put the thing back into a state where it works. 18 I know from my subsequent experience in the DSS with 19 another computer system, you know, when you start off, 20 it's all full of wonderful possibilities and how much 21 life is going to be easier and then, actually, when you 22 start going along the process you discover it's not 23 quite like that. 24 So I would even if I'd seen stuff from 1996, which 25 I haven't, it wouldn't then surprise me if two years 90 1 later everything hadn't turned out quite as anticipated. 2 As I say, I'd not seen those papers so I really, you 3 know, can't comment on them. 4 Q. So you wouldn't have been aware, thinking back to your 5 time in 1998, that the procurement process had involved, 6 at a number of stages, the seeking and the provision of 7 specialist advice from outside contractors? 8 A. I wouldn't have been surprised if that was done but, you 9 know, again, this comes back to an important point: 10 I had not seen papers or any advice about that. I'm not 11 saying it doesn't exist but I have not seen it and 12 I don't recollect it. My approach was driven by the 13 evidence that I saw with my own eyes, if you like, in my 14 own experience in Government, rather than by, you know, 15 material that may or may not have been available to 16 a previous administration. And, indeed, you know, if my 17 officials were now telling me it doesn't work, they 18 wouldn't necessarily have told me "Oh, but we thought it 19 was all right 2 years ago." 20 Q. What about the obverse? Say you'd been told that, in 21 the course of the procurement process, the ICL bid had 22 been asset as the weakest on technical grounds but it 23 came in lowest on cost? 24 A. I would certainly have been surprised about that and 25 extremely concerned if that was the case. But I am 91 1 afraid I'm not aware of that because I hadn't seen any 2 papers in relation to that. 3 Q. What, if any, prohibition was there on you or your 4 ministers seeing material of the kind that I've just 5 described, or a summary of it? 6 A. Well, there's a general rule that you can't see the 7 advice given by civil servants to ministers in 8 a previous government. In relation to technical 9 material, you know, I'm afraid I would need to take 10 advice on that as to what you can and can't see. All 11 I can tell you is that -- and actually my gut instinct, 12 if you like, is if there was some horror that you should 13 have been aware of, then someone should have told you 14 because that's not so much advice; that's a matter of 15 fact, I would have thought, about price and, you know, 16 the assessment. 17 But as I say, I had not seen that. But, in some 18 ways, you know, I've been saying throughout my evidence 19 so far, my view of this whole thing statement not so 20 much from what might have that in the past but what 21 I was looking at then, you know, at that present time, 22 which led me to the conclusion that this was going 23 wrong, and that, you know, the sooner it was -- the 24 contract was -- we were out of it, and they looked at 25 some other solution with the Post Office, the better. 92 1 Q. The convention that you've described about seeing the 2 papers of a previous administration, where do you obtain 3 your understanding of that convention from? 4 A. Numerous conversations with civil servants. You know, 5 over many years, you know, you'd say, "Well, how did 6 that happen?" They'd say, "Well, we can't tell you the 7 advice we gave to ministers". 8 And, yeah, I think if you look at the various 9 constitutional, you know, commentaries that you get, 10 it's a fairly, you know -- it's fairly well established. 11 You know, the point you're raising was a technical 12 thing: that, you know, I do not -- if someone had said 13 to me "You do know, don't you, that this was, you know, 14 ranked as low as -- you know, at the bottom rung when it 15 came to technical stuff", then I would have -- you know, 16 obviously I came into this, if you like, two years down 17 the road -- you know, it would have certainly fortified 18 me in my belief that this contract was going wrong. 19 But if you're asking me am I in a position to pass 20 comment on the efficacy and the quality of ICL, I can't 21 do that because I just have not seen the papers that 22 would entitle me to reach a conclusion, and, you know, 23 and I wouldn't want to reach a conclusion without having 24 seen some evidence of it, although what you're saying 25 does not surprise me, now that you tell me. 93 1 Q. I'm not asking you to do that; I'm just at the moment 2 exploring with you the limits of the convention as you 3 then understood it. 4 A. Well, I -- sorry, you know, had I known you were 5 interested in this then I suppose I could have made 6 further enquiries and done some further reading but that 7 is my understanding of the position: you cannot see 8 advice offered to previous ministers. I mean, certainly 9 when we came into office in 1997, I frequently used to 10 asked, as Chief Secretary, and say, "How the hell did we 11 get into this position?" and they would say, "We can't 12 tell you". 13 Q. Did you understand it, in the interests of continuity of 14 policy, to sometimes have a need to access minutes or 15 documents not written your predecessor politicians, or 16 containing a view expressed by such predecessor 17 politicians but to see, for example, technical reports 18 and the like? 19 A. Well, I don't know because, you know, that -- the 20 question was never -- you know, what ICL's -- the bid 21 that ICL put in was not raised with me. And I don't -- 22 you know, again, this is without knowing exactly what 23 I did see either as Chief Secretary or Secretary of 24 State for Social Security, you know, it would be 25 a form -- a firm conclusion on it. What I'm saying to 94 1 you, from the stuff I have seen that you provided me 2 with, the view I reached on the efficacy, if you like, 3 of this project, was reached on the evidence I saw, 4 rather than something that might have happened before 5 that. And, you know, to the best of my knowledge, until 6 you raised the matter five minutes ago, the ranking of 7 ICL's bid is not something I was aware of. 8 Q. Thank you. Can we turn to paragraph 27 of your witness 9 statement, which is on page 10. 10 A. You're going to put that on the screen, are you? 11 Q. Yes, it will come up, Lord Darling. Paragraph 27, 12 please. You say: 13 "My view on reading the report ..." 14 That's the Montague report. 15 A. Yes. 16 Q. "... was that a huge project where there was fundamental 17 disagreement between the two sponsor departments was 18 doomed. For the reasons stated, I concluded that DSS 19 should with draw from the project and proceed to ACT and 20 that Government should find a different way to make up 21 the loss in income to POCL." 22 To be clear, that was a view that you took in 23 July 1998, if not before then; is that right? 24 A. Well, this is the statement of a view I took having read 25 the Montague report but, as I said to you earlier, it's, 95 1 you know, it's -- it was a view that was formed -- 2 pretty much formed in my mind that this was probably -- 3 you know, having read all this, I set out here what the 4 conclusion that I came to: that this project was doomed, 5 as far as I can see. 6 Q. Did you communicate that view, that the project was 7 doomed, within Government there and then? Because as 8 we'll see, the Department, your Department, continued to 9 participate in tripartite negotiations for many months 10 to come, up until April/May of the following year? 11 A. That -- I'm expressing there my view and, you know, to 12 any of my colleagues I spoke to, I would have said the 13 same thing. You must understand, though, you know, this 14 was a situation -- the Government found itself in 15 a situation where it had a contract, a legally binding 16 contract although, you know, we thought ICL was in 17 breach, and we also, you know -- I was Secretary of 18 State for Social Security but I was also the, you know, 19 a member of the Government that had, as one of its 20 policy objectives, as I set out in my statement, was 21 maintaining a Post Office Network. 22 So I don't think there's anything inconsistent in 23 having that view, but saying "Look, we've got to work 24 something out". I also had to -- you know, from looking 25 at -- if I was, you know, looking at it from my 96 1 colleagues' perspectives, they would have had a slightly 2 different perspective, particularly from the DTI. We 3 had to go through a number of steps to get collective 4 agreement, which we eventually reached in I think it was 5 May 1999. So -- they're not -- you know, me standing up 6 and saying it was doomed would not have broken into the 7 thing. 8 There were a lot of parties involved, not least the 9 Prime Minister and the Chancellor -- the then Chancellor 10 had a view on it. 11 MR BEER: Thank you. Sir, we've been going about an hour 12 and 15 minutes now. Because of the slightly unusual 13 start time for the commencement of Lord Darling's 14 evidence, it means that it would fall to take a break 15 now, given the shorthand writers prefer, I think, to go 16 for an hour and 10, hour and 15, at most. 17 SIR WYN WILLIAMS: Yes, well, I certainly think we should 18 take a break. The only issue is whether we take a lunch 19 break or a short break. What do you suggest, Mr Beer? 20 MR BEER: I think probably a lunch break, sir. 21 SIR WYN WILLIAMS: Right. So we'll take -- 22 MR BEER: Maybe come back -- 23 SIR WYN WILLIAMS: So we'll take our hour's lunch break now 24 and start again at 1.30? 25 MR BEER: Yes, thank you very much, sir. 97 1 SIR WYN WILLIAMS: Fine. Thank you both. 2 (12.26 pm) 3 (The Short Adjournment) 4 (1.30 pm) 5 MR BEER: Sir, good afternoon. Can you see and hear me? 6 SIR WYN WILLIAMS: Yes, I can, thank you. 7 MR BEER: Lord Darling, can you see and hear me? 8 A. Yes, I can see both, yes, thank you. 9 Q. Thank you very much. We had looked at the period of 10 July 1998. Can we move on to August 1998, please, and 11 look at WITN04200101. 12 A. Just before you do that, it occurred to me over the 13 luncheon break, you referred to the ranking of ICL and 14 the tender process with, you know, the previous 15 government. It's just I would have added that, even had 16 I known that, if you have a legally binding contract, it 17 doesn't help you that it was perhaps ill advisedly 18 signed by a previous government. As you know, 19 governments -- the British governments have historically 20 taken the view that if one government enters into 21 a contract it will be honoured by the next government. 22 And I don't know of what consequence this is, but I'm 23 just making that observation. 24 You know, what you've told me, you know, I note, but 25 it doesn't alter at all my evidence that I gave to the 98 1 Inquiry in relation to why I reached the view that 2 I did. 3 Q. I understand that, Lord Darling. The purpose of asking 4 the question was whether the information would have been 5 helpful in ascertaining whether what you were being told 6 was -- as to the technical viability of the project, was 7 an isolated and recent problem or was something that had 8 been heralded for a number of years in the build-up to 9 the preparation of the Montague report? 10 A. I see that, although the fact is we had a contract. And 11 obviously what happened during our time was the 12 company -- it became clear that ICL wasn't in breach. 13 The fact that they had been ranked unfavourably, as you 14 said, wouldn't actually have helped us in that regard. 15 Q. Can we look at the minute of 17 August 1998, to you from 16 Sarah Graham. 17 A. I see it, yes. 18 Q. This is one of the minutes we have been provided with, 19 although I don't think it's one that's been marked up by 20 you. Can we look down, please, to the "Issues" and then 21 scroll down, please, to "Recommendations", discuss this 22 with Stephen Byers before the 19th -- this was the 17th 23 -- "he is on holiday after that, his office do not know 24 for how long". 25 Then summary, if we can read that, please: 99 1 "There have been a number of developments over the 2 past two weeks, including the emerging findings of the 3 Post Office Review, all of which appear to support your 4 preferred outcome to cancel the project, or at least the 5 [BPC] elements of it on grounds of ICL Pathway's failure 6 to deliver." 7 So was it your pre-existing preferential outcome to 8 cancel the project or at least the Benefit Payment Card 9 elements of it? 10 A. Well, as I've told you, it was a view that I formed, 11 pretty much formed in a permanent way when I -- both in 12 the lead-up to, but certainly on becoming Secretary of 13 State. This is dated August -- 14 Q. 17 August. 15 A. 17 August 1998. But I would have thought, you know, by 16 this time, I would have had meetings with, you know, the 17 team and Sarah, in particular, and they would be well 18 aware of my view, and I suspect that's what led to the 19 drafting of this note, as it was. 20 Q. You see that it mentions in the last part of that 21 sentence "on grounds of ICL Pathway's failure to 22 deliver". Is that a reflection that that was being used 23 as a vehicle or a fig leaf to cover the real reason for 24 getting out of the contract, namely an in-principle 25 objection to it? 100 1 A. No, I don't think it was at all. Look, had this whole 2 project been going well, and they were delivering, then 3 my views would have been, you know, interesting but they 4 wouldn't have been compelling in terms of us terminating 5 the contract. Like I say, all three -- the three points 6 that I made, both my in-principle and actually the 7 practical elements of it go together, and that, you 8 know, yes, I thought it was the wrong thing to do but, 9 at the same time, I was receiving advice which was that 10 the whole thing was going wrong and that it wasn't going 11 to deliver. So I put the two things together, you know, 12 they run together. 13 Q. So although earlier today we looked at your three 14 reasons and the "problems with the project" reason was 15 the third of the three reasons, that was equally 16 substantial a reason as the other two; is that right? 17 A. The three points I made in my statement are that, you 18 know, that they rank together, if you like. Now 19 obviously, you know, if the whole thing had been 20 working, you know, and there was no technical problems 21 with it, then, you know, you have a contract, you're 22 stuck with that contract. As it happened, one of the 23 reasons that I came to form a view -- and you form 24 a view in the light of what's going on at the moment, 25 you know, all the facts in front of you -- my view was 101 1 that, firstly, it was the wrong thing to be doing 2 anyway, for the reasons I stated, but also they clearly 3 weren't delivering on it. And that's why I devoted, you 4 know, a considerable amount of time, insofar as this 5 matter is concerned, to doing my best to persuade 6 colleagues that the Benefit Payment Card ought not to be 7 part of it. 8 I think you have to look at these things together 9 because they go together. That's life, you know, that's 10 the way you look at things. 11 Q. Just to understand that finally, then, if the thing had 12 been going swimmingly, your first two reasons of 13 principle wouldn't have risen to the surface; is that 14 right? 15 A. Something might be going swimmingly in the sense that, 16 you know, it was being delivered, it still wouldn't stop 17 me thinking that we shouldn't ever have been doing this 18 in the first place because, you know, I wanted people to 19 move -- us to move to ACT. I wanted benefit recipients 20 to be treated the same way as everybody else and not to 21 compel them to do something they didn't want to do. 22 I could have held all those views, you know, in 23 perpetuity but, if there was a contract and we had no 24 reason to rescind that contract, I'd have been stuck 25 with it. As it happened, those were my views and, at 102 1 the same time, the thing was clearly grinding to a halt. 2 So when I was asked in the questions that were sent to 3 me when I drew up my statement, I said -- right at the 4 start, I said "Look, these are the three points that 5 drove me to the conclusion that I did". I thought it 6 was wrong in principle and actually, in practice, it 7 wasn't working. 8 I mean, I didn't -- you know, I think that's 9 a perfectly logical way of looking at things. 10 Q. Can we go over the page, please, to look at paragraph 4. 11 Thank you. Three options are set out and I'm just 12 looking at them at the moment, because we need to know 13 what they were to make sense of the next document we're 14 going to look at. 15 A. Okay. 16 Q. Ms Graham records that: 17 "The three options on the table from [the] working 18 group are ... as follows: 19 "Option 1: continuing with the project but extending 20 the overall period of the project from the original end 21 date of May 2005 to at least September 2007; thus 22 securing DSS indirect subsidy of the Post Office Network 23 for a longer period, and offering ICL a better prospect 24 of payback for its investment, despite its failure to 25 deliver. 103 1 "Option 2: proceeding with the project in name, but 2 withdrawing from the benefit payment card elements of 3 it; POCL to offer ICL the task of bolting on a banking 4 facility to the 'Horizon' automation platform. DSS to 5 plan its migration to ACT to take account of the Post 6 Offices developing capability ... 7 "Option 3: cancellation of the whole project on the 8 grounds of ICL's failure to deliver; otherwise 9 essentially as option 2 but leaving POCL free to run 10 a proper competition and to utilise other companies 11 rather than ICL; this would probably mean around 12 12-18 months to procure a new partner for POCL to 13 establish a banking facility in post offices ..." 14 Can we then go forward, please, and look at 15 WITN04200106. Thank you. Remembering that that note 16 from Ms Graham was the previous day, 17 August 1998. We 17 have a note of a meeting with you, rather unusually, 18 a note of who said what rather than a summary of events. 19 I don't think it purports to be verbatim. 20 A. No, it looks like a note that somebody took during the 21 course of the meeting. 22 Q. Yes. 23 A. It would ultimately end up as, you know, a summary. It 24 was very rare -- and that isn't verbatim anyway. It 25 looks like somebody's notes. 104 1 Q. "The [Secretary of State -- that's you] said that 2 neither the DSS nor the Treasury were particularly 3 enthusiastic for carrying on as under Option 1." 4 Then if we go over the page, please, and look at the 5 foot of the page, you're recorded as saying: 6 "We have grounds to terminate the contract and want 7 to terminate the contract. We do not want the card ... 8 anyway." 9 Then, at the top of the next page, please: 10 "SG [which I think is Graham]: But we need to avoid 11 an allegation of termination for convenience. There are 12 also opportunity costs now because of ICL's delay." 13 Then three answers or three sections on: 14 "[Secretary of State]: we would have to say that we 15 were terminating for ICL's failure. We need a strategy 16 worked out for ACT and the post office by the time of 17 the decision to terminate." 18 Those sentences together culminating in "We would 19 have to say that we were terminating for ICL's failure", 20 does that reflect the fact that you wouldn't be 21 terminating for ICL's failure but you would be saying 22 that you were terminating for ICL's failure? 23 A. No, remember that this is somebody's note of 24 a discussion. Look, let me just be clear about it. If 25 the contract was working, we could not terminate it. 105 1 You know, that's the end of it. But it was not working. 2 There were serious delays in it; there were problems 3 with the actual, you know, what it was going to be able 4 to do, and so on. 5 But I was very clear, for the reasons I have set out 6 both in my statement and during the course of my 7 evidence today, that I did not think that we ought to be 8 part of this because it was the wrong solution, but here 9 we were with the fact -- remember that ICL had already 10 been served with the necessary notice together that we 11 were, you know, suspending or going to terminate the 12 contract, and, you know, I therefore thought it was 13 prudent that we should look at what else we should be 14 doing, like ACT, for example. 15 Without wishing to labour the point, it was quite 16 clear to me that this contract was not working 17 perfectly. It was not delivering. It was being 18 delayed, and there was some doubt -- and you'll see that 19 from a lot of the material that you've managed to 20 recover -- there was a lot of doubt about whether it 21 would ever be recovered, and what I will also say is 22 that, as time went on, more and more of my colleagues 23 came to the same conclusion as I did. 24 Q. In the middle of the page, you record that -- if we just 25 scroll down slightly: 106 1 "The reality is we can't unilaterally. I am in no 2 doubt that I want to get out of this contract." 3 A. Yes. And I made that clear, that I did, because in the 4 light of the fact, you know -- in the light of the fact 5 that that is contract was in difficulties, I think it 6 was perfectly open to me to say what do we want to get 7 out of it? And, you know, I was pretty clear, as 8 increasingly others became clear that the Benefit 9 Payment Card was a mistake. It was getting complicated, 10 this contract. It was the wrong thing to do. 11 Would I say you can't act unilaterally? No, because 12 I was the Secretary of State in one Department, clearly, 13 my colleagues in the DTI and, indeed, elsewhere had 14 a different view, but what I'm, you know, what I'm 15 saying to you is I was faced with a situation where it 16 looked to me that the contract was in breach, therefore 17 we'd need -- we could perfectly legitimately reopen the 18 whole thing and, you know, come to a different 19 conclusion than the one reached by the previous 20 Government. 21 Q. Thank you. Can we move on. I think it's fair to say -- 22 that can come down, thank you. 23 I think it's fair to say that you were receiving 24 communications to precisely the opposite effect from the 25 National Federation of SubPostmasters; do you recall 107 1 that? 2 A. Yes, well, I can I perfectly well understand why the 3 Federation came to the view that it did: it saw the 4 whole project as a way of guaranteeing footfall into the 5 members' Post Offices. And that is a perfectly, you 6 know, understandable position for a federation trade 7 union to take. However, my job as Secretary of State 8 for Social Security, as it then was, and as a member of 9 the Government, would deciding what was best for the 10 Government, and that is, you know -- you know. You can 11 criticise my judgement, you know, if you will, but my 12 judgement is that we should not have been in it. And 13 I think, you know, looking back it was absolutely right. 14 Q. When you say your job was to decide what was best for 15 the Government, you mean what was best for the public as 16 a whole? 17 A. Well, yes, the Government acting on behalf of the public 18 as a whole, but, you know -- nor does that in any way 19 undermine the fact I also thought we needed to do 20 something to maintain the Post Office Network because of 21 the social use of that. Incidentally, the Benefit 22 Payment Card would not have done that because you 23 couldn't actually control where people -- which offices 24 they were going into, and the offices that were most 25 vulnerable tend to be the ones with, you know, a lower 108 1 population round it rather than the ones in the middle 2 of a city, for example. 3 Q. Can we just look quickly, then, at what the Federation 4 were saying to you at this time and look first, please, 5 at NFSP00000425. Thank you. 6 You'll see that this is a letter from the general 7 secretary of the NFSP, Colin Baker -- 8 A. Yes. 9 Q. -- to you directly, dated 4 August 1998. If we scroll 10 down, please, you'll see there are some pleasantries in 11 the first two paragraphs. In the third he says: 12 "Clearly Post Offices feature highly as being 13 central to the way people receive their pension or 14 allowance and we are looking forward to the day when the 15 delivery of this services is automated using the Horizon 16 platform. The platform will also be crucial in the 17 development of other products and services resulting 18 from Welfare Reform and Social Banking." 19 Then in the next paragraph: 20 "Because of recent press rumours that the Horizon 21 programme is about to be aborted we were extremely 22 pleased to have had the rousing endorsement of Frank 23 Field MP ..." 24 Stopping there, Can you recall at this stage, 25 4 August 1998, what role or position if any Frank 109 1 Field MP held? 2 A. I think he'd returned to the backbenches. 3 Q. I think that's right. I think he'd ceased to be the 4 minister for Welfare Reform with effect from 28 July, on 5 that reshuffle? 6 A. Yes, and that reshuffle, both Secretary of State and 7 Frank Field both left the Government. 8 Q. Yes. 9 A. So I'm not aware of anything else he might have been 10 doing but I think, in August, which is, you know, 11 a month later, he would have been on the backbenches. 12 Q. Anyway, continuing: 13 "... the rousing endorsement of Frank Field MP to 14 the automation platform and confirmation that the 15 payment card will only be usable at Post Offices. 16 I cannot stress how importance these reassurances are 17 and I have been coming under considerable pressure as 18 General Secretary to 'raise the profile' of what is at 19 risk for subpostmasters. As I am sure you are aware, if 20 the Horizon project or the payment card were to be 21 cancelled, the effect would be dire on subpostmasters 22 and their £1 billion investment in the network. They 23 would reasonably conclude that despite all promises of 24 the past, the Government had given up on them. They 25 would see their livelihoods as being on the line, and 110 1 could not be expected to take this lying down. So 2 reassuring statements such as those of Frank Field MP 3 are very helpful at the moment, although given 4 subpostmasters' current mood, and until they see Horizon 5 rolling out in their post offices, we to do not be 6 surprised at their occasional outpourings of concern." 7 That's the end of the letter, essentially. The NFSP 8 seem to be suggesting that they wanted the system rolled 9 out and rolled out sooner rather than later. 10 A. Yes, I think that was the position and, as I say, for 11 trade union people representing subpostmasters, I can 12 understand why they took that position. I'm not sure -- 13 and this is, you know, in the press reports that were 14 there -- I'm not sure they went up into that much detail 15 as to what exactly was going wrong. 16 But it's not uncommon for the government to receive 17 representations, you know, on things like this, but that 18 should not stand in the way of the government reaching 19 a decision as to what it thought was in the public 20 interest to do. And, you know, as I say, well, we've 21 explored in some detail what our position was on that, 22 but, you know, Colin Baker was always very reasonable 23 when he put his point of view and -- you know, on the 24 occasions that I met him, and his successors for that 25 matter -- but, you know, that was a view that the 111 1 Federation held and, you know, they're entitled to hold 2 it. I just -- you know, I didn't share that view from 3 inside Government. 4 Q. When you met Colin Baker, and in any other 5 correspondence that you had with him, were any concerns 6 expressed on behalf of his membership as to the 7 reliability, integrity or operability of the Horizon 8 System, to the best of your recollection? 9 A. Not to my recollection but then, you know, the 10 project -- at this stage, we're talking about 1998/99, 11 this, you know, this Horizon platform wasn't actually 12 installed; it was still being development. Remember it 13 hadn't been accepted by either us or the Post Office 14 Counters Limited, so it wouldn't have been in the post 15 offices. That came later, you know, after the Benefit 16 Payment Card had come out of it. So, you know, my 17 conversations with Colin Baker at this time were, you 18 know, really in connection with the proposed Horizon 19 programme rather than the actual. 20 Q. So if there were concerns being raised by subpostmasters 21 involved, in the testing process, in model office 22 testing at this time, they weren't reflected to you 23 through the Federation? 24 A. No, and I would have thought, given the letter you're 25 showing me just now, if there were concerns, you'd 112 1 expect there to be another paragraph saying, "Having 2 said that, you ought to be aware", and then put whatever 3 the concerns were. So I'm not aware of it and I've not 4 seen anything in the material that's been sent to me 5 that would suggest that that matter had been raised with 6 me. 7 Q. Can we go on to another letter from Mr Baker within this 8 period, please, NFSP00000250, and look at the second 9 page, please. Thank you. This is 5 November from 10 Mr Baker to you. 11 A. Yes. 12 Q. If we go to the next page, please, and scroll down. I'm 13 not going to look at this in detail. You'll see he 14 encloses an extract from Computer Weekly of 5 November 15 1998. 16 A. Yes. 17 Q. If we go back to the previous page, please. He says: 18 "I was shocked to read the report in Computer Weekly 19 this morning which purported to have senior Government 20 officials as its source. 21 "The suggestion that the [BPC] is to be dropped 22 would completely contradict assurances given by Kate 23 Hoey on behalf of your Department at the National 24 Federation of SubPostmasters' annual conference in May, 25 and by the [Right Honourable] Peter Mandelson yesterday 113 1 at the Trade and Industry Select Committee. 2 "It would also appear to undermine the proposals put 3 forward by the Prime Minister at the Labour Party 4 conference in September for a single account -- pilots 5 of which I understood were going to be developed jointly 6 between yourselves and The Post Office. 7 "I would like to make it quite clear that any 8 proposal to automate the post office network which does 9 not involve the continuation of the [BPC] would be 10 wholly unacceptable to subpostmasters, who have invested 11 their livelihoods on the basis of assurances given by 12 your Government. 13 "The continued payment of benefits via the post 14 office network is crucial to the survival of thousands 15 of sub post offices, removing this income would leave 16 the network unstable and unable to survive in the long 17 term. 18 "I look forward to a speedy response to clarify, you 19 will not let subpostmasters down by reneging on previous 20 promises. I also hope you will do everything possible 21 to prevent your officials from helping further 22 scurrilous articles appearing in the press, which can 23 only serve to undermine subpostmasters' confidence in 24 the integrity of this Government." 25 So to the similar effect to the communication that 114 1 we just looked at? 2 A. Yes, and well, as I said to you, he was putting forward 3 his view and his members' views that they'd held out 4 very high hopes for the Benefit Payment Card. I'll just 5 say this. Suppose the thing had gone ahead despite 6 everything that was becoming clear over this period, and 7 the Benefit Payment Card hadn't worked, you know, there 8 were two risks: one is to the subpostmasters themselves 9 but also, and again I mention this in the statement, for 10 people who are on benefit, if they don't get the payment 11 when it's due and the exact amount that they are 12 entitled to, this can have catastrophe effects on that 13 individual. 14 You know, the sums may seem small to somebody 15 outside but benefits by their very nature, you know, 16 a slight, you know, drop in such people are entitled to, 17 and not getting the full amount when it's due can have 18 really very adverse consequences on people who are in 19 receipt of benefits and their families. 20 So let's assume for this purpose, if the Benefit 21 Payment Card had been introduced, knowing what we knew 22 at the time all this was going on, it would be taking 23 a massive risk and, you know, the initial anticipation 24 was there would be about 15 million people who were 25 using the Benefit Payment Card, it can have huge, huge 115 1 consequences, adverse consequences. And, you know, 2 I had to have regard to that. You know, equally -- and 3 say to you earlier, that in relation to the Post Office 4 Network, the Government's policy was also to try to 5 maintain that, but that does not mean you, therefore, 6 continue with a project which you can see increasingly 7 is, you know -- in my view, was flawed and was never 8 going to deliver and is, therefore, highly risky. 9 You've got to remember, as a government yes, you 10 have to consider the wellbeing of postmasters and the 11 post office network, you've also got to consider a very 12 large number of people who depend on benefits to make 13 ends meet. It's more than one consideration you've got 14 in front of you. 15 Q. Just exploring that for a moment, what would you say to 16 the suggestion that that answer sounds as if you were 17 not prepared to tolerate risk to 15 million individuals 18 in receipt of benefits payments, but were prepared to 19 tolerate risk to subpostmasters who had to administer 20 the system? 21 A. What I'd say is there are two different risks here. 22 Let's say 15 million people relying on benefits every 23 week need to get the exact amount they're due and when 24 they're expecting to get it. And I would not take the 25 risk of putting in place a payment card, even if it 116 1 worked -- and, remember, it didn't look like it was ever 2 going to work -- knowing that there was a chance that 3 this would happen. What would you say to the 15 million 4 people who suddenly found they weren't getting the right 5 amount of money when they were expecting it? 6 Now, there is clearly a separate risk in relation to 7 a post office network, which is a slightly different 8 thing. You know, and I fully accept that somebody who 9 had bought a business, a Post Office business, you know, 10 needed to have some certainty. But there are other ways 11 the government could find to support that network and, 12 indeed, actually, you know, when we -- when the Benefit 13 Payment Card came out of it and the Government pursued 14 a different course of action, you know, that's what it 15 did. 16 But, you know, if you just look at this and -- you 17 know, I cannot pre-empt whatever the Inquiry comes up 18 with, of what I know is public knowledge, with the 19 problems with the Horizon programme, it rather suggests 20 to me that, you know, when we make decisions, we need to 21 be as sure as we possibly can be that if we're putting 22 computer systems in place, that they actually work. And 23 the way things were with the Benefit Payment Card at 24 this stage, I could not be certain of that. 25 Q. Thank you. Can we take that down from the screen, 117 1 please, and return to the narrative. 2 You'll remember we've been looking at your meeting 3 with Ms Graham and others on 18 August 1998, and the 4 discussion over giving as a reason or presenting as 5 a reason for backing out of the contract, ICL being in 6 breach of contract. Can we turn to paragraph 30 of your 7 witness statement, please, which is on page 11. Thank 8 you. 30 at the top. You say: 9 "By September 1998, ICL had missed the 12 August 10 contractual deadline and the view of ministers was that 11 ICL was in breach of contract; a claim that was disputed 12 by ICL." 13 You give references to each of those things. 14 "On 15 September ... the Chief Secretary to the 15 Treasury, Stephen Byers, wrote to ICL to inform them 16 that Ministers had decided to allows a period of one 17 month for discussion between the parties to see whether 18 satisfactory commercial terms could be agreed for 19 continuing the project and that a special advisor would 20 be appointed to work with the parties towards finding 21 a solution." 22 That can come down. Thank you. 23 Now, you know, I think, that Graham Corbett was 24 appointed as that special advisor or troubleshooter or 25 honest broker. 118 1 A. Yes, I know he was appointed, yes. 2 Q. Why was that period allowed and why was he appointed if, 3 in your view, and the view of the DSS, was crystal clear 4 as we've seen, that the Benefit Payment Card was not 5 going to be a part of this programme going forwards? 6 A. Because that was my view and, obviously, it follows it 7 was the Department's view. But, remember, on the other 8 side, if you like, the DTI Post Office Counters Limited 9 had a different view. They thought the thing was still 10 salvageable and, equally, as I said to you in my 11 evidence this morning, the Treasury would want to be 12 satisfied that whatever you did represented, you know, 13 good value for public money and spending, and also in 14 relation to the costs. 15 And, you know, when I looked at all this material 16 earlier in the summer, you know, I thought: well, you 17 know, one criticism might be why did you take so long 18 reach the decision? Because it was, you know, almost 19 a year before we finally reached the decision. Part of 20 it was that there were competing views within Government 21 and, therefore, due process, if you like, had to be 22 followed before we reached the decision. And, you know, 23 the Corbett appointment was clearly another attempt to 24 see what could be salvaged. 25 Q. Indeed, that has been a criticism that has been made by 119 1 the others, with the suggestion that 1998 was "a lost 2 year" in the programme, but your response to that is the 3 one you've just given: namely there were competing 4 principles and objectives at play, different interests 5 that required to be served, and it took time to work 6 through those? 7 A. There was also a lot of change of personnel during the 8 course of '98. 9 Q. The reasons for which I'm not going to explore with you. 10 A. You know, but there were, as a matter of fact. 11 Q. Yes. Can we look, please, at BEIS00000284. Thank you. 12 This is a letter from Mr Byers to Mr Todd, the CEO of 13 ICL, dated 15 September and, effectively, puts to him 14 the suggestion of the Corbett negotiation. Can we see 15 in the first paragraph he says: 16 "As you know, Ministers have been reviewing the 17 future of this project in view of the serious delays to 18 the implementation timetable, and [ICL's] failure to 19 deliver a key contractual milestone for which [ICL] has 20 been placed in breach of contract." 21 That's what you referred to earlier. 22 A. Yes. 23 Q. In paragraph 2, second line: 24 "However, we have decided without prejudice to our 25 legal rights ... to allow a period of one month for 120 1 discussion between the parties ..." 2 Over the page, please: 3 "To facilitate this process, I am proposing to 4 appoint an adviser to work with the parties towards 5 finding a solution ... His terms of reference are 6 attached." 7 Then this: 8 "To provide a satisfactory outcome, the conclusion 9 of the discussions must meet a number of basic 10 criteria ... 11 "any adjustment to the contracts must of course be 12 compatible with procurement law 13 "the contract must provide a firm date after which 14 the Benefits Agency will have no further commitment to 15 using the [BPC]. We anticipate that the Benefits Agency 16 will wish to complete a transition to ACT-based payment 17 methods by this date." 18 You see there that this seems as if the proposal was 19 being put to ICL Pathway on the basis that the Benefit 20 Payment Card would be a part of the project -- indeed, 21 it was one of the basic criteria, as the letter 22 describes it -- but that, in future, there would be 23 a date when you could transition out of its use and move 24 to ACT. 25 Isn't that a fundamentally different proposition to 121 1 what had been agreed in your Department? 2 A. Well, I'm reading it rather differently. You know, it 3 doesn't say it was going to -- remember the Benefit 4 Payment Card was a fundamental part of the contract that 5 we're talking about, you know, it was in there with the 6 bricks, if you like. What I am -- the way I read this 7 is that you can already see that government thinking is 8 shifting somewhat, in that you're talking about the 9 contract must provide an end date, if you like. 10 Now, you know, if you thought this was going to 11 pursue -- was going to run in perpetuity you wouldn't 12 put into something like that. What it's doing is 13 acknowledging the fact this has got a shorter shelf life 14 than might have been thought and then it says, "We 15 anticipate that the agency will wish to complete 16 a transition to ACT by this date." 17 In other words, it's signalling an end to it. And, 18 if you like, that really adds to my point: why on other 19 would you produce a new card when you knew that you 20 weren't going to be using it for very long? Indeed, 21 I think in the other correspondence that I've seen, and 22 on other papers I've seen, the point is made on a number 23 of occasions that, you know, in fact, John Denham raised 24 it in his first letter -- or second letter -- that this 25 was using technology which, you know, was looking 122 1 increasingly like it was going to be out of date at the 2 beginning of the following century. So I read it 3 differently to the way you're reading it. 4 Q. I understand. You read this as meaning that the BPC 5 will have no part of the system? 6 A. Well, what it -- what it's saying is, it's there but 7 it's coming to an end. Now, if I was ICL, that's the 8 way I would read it. And that's what I'm assuming that 9 Stephen Byers was hinting at here. But, you remember 10 I said there were divisions with the -- due to competing 11 views within Government. Remember we're also dealing 12 with a firm with its stated view was it was not in 13 breach of contract but, you know, that doesn't stop, you 14 know, those of us in Government from thinking "Well, you 15 know, what -- how could we do this better?" 16 So what I'm reading here, in the way I read it is, 17 this is -- you begin to see the Government's thinking is 18 starting to change. Of course, you see a lot more of 19 that by the time you go into 1999. 20 Q. Can we move forwards then. I'm not going to take you 21 through the protracted interdepartmental correspondence 22 of December 1998, largely because it was superseded by 23 events, but there are just two letters I want to draw to 24 your attention, if I may, and ask for your views on 25 them. 123 1 Firstly a letter you wrote to Stephen Byers on 2 11 December 1998, BEIS0000417. Just to put this in 3 context, because we have skipped forward a little bit, 4 the context was that Adrian Montague had reported the 5 Corbett negotiations had failed, the Government had 6 invited ICL to make new proposals. ICL had made new 7 proposals in a letter of 9 December 1998, which had been 8 sent to you by Keith Todd, the chief executive of ICL, 9 and you are offering your views on the Keith Todd 10 letter, not back to Mr Todd but to Mr Buyers in the 11 Treasury, yes? 12 A. Yes. 13 Q. If we could just read it: 14 "Keith Todd has written to me with a copy of the 15 letter he sent to you on Wednesday [that was the letter 16 of 9 December] setting out ICL's final offer in response 17 to your letter of 20 November. I understand that this 18 letter constitutes the essential components of the 19 proposed offer, on which ICL are not prepared to move 20 further; and that this letter is underpinned by 21 3 supporting papers on acceptance testing, funding and 22 commercial proposals (ie pricing etc) on which they say 23 they are willing to negotiate the detail." 24 Scroll down, please. 25 "In preparation for our meeting on Monday, you and 124 1 colleagues may find it helpful to have my initial 2 response to the proposals as I understand them." 3 I'm going to skip over the first one, which is the 4 Fujitsu support for £600 million, to fund the project. 5 A. Yes. 6 Q. Then if we can go to the second one over the page: 7 "[It] does not make any significant change to the 8 9 November proposals, which we rejected ..." 9 Then the third one is the one I wanted to ask you 10 about: 11 "On the specific conditions that the proposals seem 12 to involve, I couldn't agree to the proposed approach to 13 'acceptance testing'. ICL persist in asking for 14 acceptance on the basis of a laboratory test of the 15 systems, as opposed to a live trial, particularly 16 important when, for our customers it's the service that 17 is the crucial end product. In fact, the approach being 18 suggested by ICL is almost exactly that followed under 19 the NIRS2 two project, where the system was fully 20 accepted in a test environment, but did not work in the 21 field. I am not prepared to sign up to another NIRS2 22 experience. In any event, when we're talking about 23 a system which is affecting around 15 million people, 24 many of whom are dependent on timely and accurate 25 payment of their benefits for their livelihoods, the 125 1 political risks are huge if the system is not tested 2 properly beforehand to make sure it works. This is 3 a risk I am not prepared to make." 4 That's essentially the point you were making about 5 ten minutes ago. 6 A. Yes. 7 Q. Your understanding was, therefore, that ICL were 8 proposing to set out acceptance criteria that were 9 related to a laboratory test of the system, as opposed 10 to a live trial; is that right? 11 A. Yes, I think my recollection is that they were proposing 12 to test it in 300 post offices of a network, which 13 I think then was 18 or 19,000. You know, I wasn't 14 prepared to accept that, on advice of my officials, 15 I took that into consideration. Before you, you know, 16 without labouring the point, you're dealing with 17 15 million people here and you need to be pretty sure 18 the system is going to work because, remember, if it 19 doesn't work, it's no easy matter to suddenly start 20 putting in place a manual payment system to help people 21 who have basically run out of money. 22 So, no, I didn't regard the acceptance testing 23 programme they were suggesting because I thought it was 24 far too risky and a risk I wasn't prepared to take. 25 Q. Just on a point of detail here, you appear to be 126 1 suggesting in this letter that it was a laboratory test 2 of the system, not a live trial involving 300 or any 3 number of hundred post offices on the ground. Was that 4 your understanding at the time? 5 A. It was a -- well, it was a laboratory test, which, as we 6 all know, is not the same thing as, you know, in the 7 field. 8 Q. In any event, Ian McCartney MP, the Minister of State, 9 effectively, for the Post Office, replied to what you 10 said. Can we look at his reply, please. BEIS0000400. 11 We see it's a letter to you -- sorry, a letter to 12 Mr Byers. 13 A. Yes. 14 Q. Commenting on your letter, essentially. 15 A. Yes. 16 Q. We should just look at the top of the page to see it is 17 from Mr McCartney. 18 A. Yes, I see that. 19 Q. Then scroll down: 20 "I am grateful to Alistair Darling for copying to 21 Peter Mandelson and myself his letter to you dated 22 11 December, in which he set out his initial reactions 23 to ICL's proposals. [He's writing to you] in the 24 following terms, as our own initial reactions differ 25 substantially on a number of points." 127 1 Essentially, this is letter and its three and a bit 2 pages worth goes through, point by point, seeking to 3 comment on or rebut some of the points that you make. 4 A. Yes. 5 Q. If we look at the third paragraph, "Taking Alistair's 6 points in turn," and then he commences. 7 Can we go over the page to the second page, and the 8 middle paragraph, "Third, acceptance testing", which is 9 the point I'm asking you about. 10 A. Yes. 11 Q. "Third, acceptance testing. Alistair states that 'ICL 12 persist in asking for acceptance on the basis of 13 a laboratory test of the systems, as opposed to a live 14 trial ...'. We agree with him that this is a hugely 15 important point. It would be unthinkable to sign off 16 acceptance of the system until it has been on shown 17 convincingly to work on a reasonable scale in a live 18 environment. But Alistair is, we believe, mistaken -- 19 ICL are asking no such thing. The company have moved 20 substantially from their 9 November position and have 21 now conceded that acceptance will follow live trials 22 based on the NR2 software release at 300 offices. More 23 specifically, there are 24 separate components of the 24 acceptance test procedure. Some do indeed involve 25 elements of bench and/or model office testing but 128 1 [underlined] all also include live trial in 300 offices. 2 Beyond that, there is contractual provision for any 3 significant fault not defined in the acceptance process, 4 but which manifests itself during live trial, to be 5 rectified before acceptance is signed off. Finally, the 6 contracting parties can withhold the release 7 authorisation for national rollout if they remain 8 dissatisfied at the performance of the system during the 9 live trial phase. Peter and I are not clear what 10 further reassurance Alistair requires." 11 So this letter is saying that you were wrong to be 12 making the point about ICL being prepared to accept 13 laboratory testing: there was going to be a live trial 14 in 300 post offices. What was your reaction to the news 15 or the suggestion that it was all okay, because there 16 were going to be trials in 300 post offices? 17 A. Much the same as my reaction I just discussed short 18 while ago. 300 offices out of 19,000, it might expose 19 difficulties but then it might not. Look I'm sorry 20 I keep coming back to the point, you are dealing here -- 21 or would have been dealing here with a system that was 22 paying out benefits to maybe 15 million people and, you 23 know, the risks that it goes wrong -- and remember, with 24 everything we knew about the difficulties there'd been 25 up until now, which are well documented and we've 129 1 discussed extensively today, you are taking a huge risk. 2 So no, it didn't reassure me. 3 And, you know, I just thought, you know, let's leave 4 aside the principal points that I made earlier, that, in 5 relation to the practicalities here, this didn't look 6 like it was going to work, or it was going to take a lot 7 longer if it ever was going to work. 8 But I've made the point and I don't want to repeat 9 it again. You know, it might help you to know that, 10 separately, sometime after that, you know, I remember 11 one weekend the Child Benefit agency made a mistake -- 12 or its computer system made a mistake and, actually, it 13 overpaid people quite a lot of money because, which we 14 never got back because it's very difficult to go back to 15 people and say, "You were overpaid by, you know, £5, £6, 16 £10 or something", and ask for it back when people are 17 on low incomes. 18 It's -- you know, the benefit system works, but if 19 it goes wrong, it can go wrong -- horribly wrong, and 20 this was a brand new system, for all the reasons I've 21 stated. It's frankly what was being offered here did 22 not satisfy me. 23 Q. Thank you. That can come down. 24 The second set of correspondence from the 25 December '98 period, I would just like to look at, 130 1 please, is BEIS0000418. A letter from Peter Mandelson, 2 Secretary of State for Trade and Industry, to Stephen 3 Byers, Chief Secretary to the Treasury. If we just go 4 to the second page, foot of the page -- just scroll 5 down, please -- we can see that you are one of the 6 people copied. 7 A. Yes. 8 Q. So back to the first page, please. 9 "I was disappointed that our meeting yesterday was 10 again unable to reach a clear decision on the way 11 forward ... The continued uncertainty is becoming 12 increasingly damaging for all parties concerned. As 13 I see it, the choice is a straightforward one ..." 14 I'm not going to look at the choices. 15 If we go to the second page, please. Mr Mandelson 16 said: 17 "There is still some way to go to complete the 18 Horizon project, but the basic development work has been 19 thoroughly evaluated by independent experts who have 20 pronounced it viable, robust and of a design which 21 should accommodate future technological developments." 22 To your knowledge, by December 1998, which 23 independent experts had carried out an evaluation, 24 a thorough evaluation, that came up with a pronouncement 25 such as that? 131 1 A. Well, looking at this again, I don't know. Remember the 2 Montague report had flagged up the difficulties inherent 3 on a large complicated project like this, as well as 4 mentioning some of the other difficulties, and also -- 5 I'm not sure if you're coming to this, but on Friday 6 night of this last week, the Inquiry sent me a paper 7 which I'd not seen before, which listed endless problems 8 with the thing. You know, really quite serious ones. 9 So I don't know, I'm not sure what Peter was referring 10 to here, I really don't. 11 Hello? 12 Q. Did you agree at this stage with his apparent conviction 13 that continuing with the Horizon solution for a payment 14 card, plus front end banking, was the only sensible 15 course? 16 A. No, I didn't agree with him, as is clear from all the 17 correspondence that follows. 18 Q. Did you ever think that the DTI had got too close to 19 ICL, even being captured by them to push their own 20 agenda? 21 A. No, I think the DTI, for reasons that I can understand, 22 was concerned with the political problem it had in 23 relation to trying to maintain a, you know, viable Post 24 Office Network. The post office network was, and 25 remains today, I think to a slightly lesser extent, 132 1 a big political issue. You know, people like, you 2 know -- they like their post offices. And I think the 3 problem was -- and certainly if you look at the internal 4 stuff which the Inquiry has sent me, which I've 5 obviously not seen before, but, you know, in their 6 dealings with ministers, it was clear that the DTI were 7 very wedded to this. 8 So I can see why ministers, you know, wrote the 9 letters that they did. I just took a different view 10 from this and, you know, I'm sure we'll get to that 11 point but, at the end of the day, that -- my argument 12 won the day. 13 Q. Can we get to that point, then, and move to CBO00000058. 14 We can see from the fax header, if we just go to the 15 top, please, that this document appears to have been 16 faxed on 23 April 1998. 17 A. Yes. 18 Q. You will see that it's a note to the Prime Minister. If 19 we go to the third page, please, at the foot of the 20 page, we can see that it's from Alan Milburn and also 21 dated 23 April 1998. 22 A. '99. 23 Q. '99, sorry. We can see, if we just scroll up to 7, that 24 the minute was copied to, amongst others, you. 25 A. Yes. 133 1 Q. The minute has attached to it some lines to take if ICL 2 withdrew from the project. Can we go to page 11 of the 3 document, please, and if we scroll down, please. Is 4 that readable to you? This is a photograph of 5 a document from within the National Archive. 6 A. Yes, I can read it. It's a bit twisted at the top but 7 I can read it. 8 Q. "Independent reviews of the Horizon project by external 9 IT experts have all concluded (most recently this week) 10 that [ICL] have failed and are failing to meet good 11 industry practice in taking this project forward, both 12 in their software development work and in their 13 management of the process." 14 Do you know what that's a reference to? So the week 15 of 23 April 1999, external IT experts concluding that 16 ICL Pathway have failed and are failing to meet good 17 industry practice? 18 A. Well, look, I'm sorry, I don't have all these papers 19 immediately in front of me to be able to tell you what 20 was concluded in the week before 23 April. But it fits 21 with my recollection that we had a growing body of 22 evidence that it wasn't going to work and, you know, it 23 comes back to what you asked me just a few moments ago, 24 you know, whether I agreed or disagreed about another 25 independent expert. 134 1 This recollection, or this statement in Alan 2 Milburn's memorandum accords with my recollection that, 3 you know, the thing wasn't working and, you know, we 4 were rapidly reaching the end of the road. 5 Q. He lists over a series of eight or so bullet points -- 6 A. Yes, and I see the model office testing, for example, 7 was delayed by two months. 8 Q. Yes, looking at them: 9 "all planned release dates have been missed ... 10 "... Model Office Testing -- was delayed by 2 months 11 "every release has been subject to reductions in ... 12 planned functionality 13 "... even when each release has gone live, there 14 have been faults and problems which have resulted in the 15 need for Pathway to reimburse DSS 16 "in the current trials, known problems have risen 17 from 46 in November 1998 to 139 at the end of 18 March 1999; and currently 146 have not been resolved 19 "... 16 million people should have by now been paid 20 by the Benefit Payment Card. In fact only 30,000+ 21 people are currently being paid [by that means] 22 "rollout of the system to 19,000 post offices should 23 have been completed by the end of 1998. But only 24 limited functionality is currently available in 204 post 25 offices 135 1 "delays to the programme have already cost the 2 Government's over £200 [million] in savings they [or it] 3 would have otherwise expected to make." 4 These were the lines to take in the event that ICL 5 backed out of the contract, terminated the contract. 6 That's a comprehensive list of failings there, isn't it? 7 A. It is and, you know, you were asking me earlier about, 8 you know, about whether or not I was wise not to take 9 the risk of rolling this out to 15 million people. It 10 strikes me, looking at this, well, there you have it. 11 There was an awful lot wrong with this. I could not, in 12 all conscience, have agreed to the rollout of something 13 like this. It would have been a disaster. 14 Q. Was there any discussion, given the Government was 15 prepared to say this about ICL's comprehensive failures, 16 if ICL withdrew from the contract, that that ought to be 17 taken into account in deciding whether to proceed with 18 the contract at all? 19 A. No, I don't remember any discussion like this. Are you 20 showing me -- is this a line to take? 21 Q. Yes. 22 A. Yes. It was very common in my experience, in all 23 Government Departments I was in, for people to produce 24 lines to take. I always treated them with, you know, 25 a slightly degree of hesitation in what I would actually 136 1 use but I don't know where these lines to take came 2 from. Certainly, if you were going to say this, I would 3 want to be satisfied that, you know, that they'd been 4 legalled, as they say. That's not to say that what I'm 5 seeing here is -- you know, it accords with my 6 recollection. Whether or not you'd want to say that in 7 public, I don't know. 8 But that's -- to the best of my recollection, this 9 was not discussed and it wasn't discussed with me as 10 a line to take. 11 Q. Thank you. Can we go to paragraph 102 of your witness 12 statement, please, which is on page 35. You say in 102, 13 at the top of the page there: 14 "In a letter from the Prime Minister's Principal 15 Private Secretary dated 11 May 1999 the Prime Minister 16 indicated that any solution should meet three key 17 objectives: (a) conflict with the Post Office and the 18 subpostmasters lobby should be avoided; (b) ICL's whole 19 future should not be put at risk; and (c) the Government 20 should have a fully defensible position before the 21 Public Accounts Committee." 22 Can we just briefly look at that, please, 23 CBO00000022_002 at 2, please. This is the document 24 I think you're referring to. If we go to the second 25 page, please, and see that it's signed off by the late 137 1 Jeremy Heywood -- 2 A. It's a readout from a meeting between the Prime Minister 3 and the Chancellor. 4 Q. Yes. 5 A. Yes. 6 Q. The Prime Minister said any solution should meet the 7 three key political requirements, and they're there set 8 out: 9 "We did not want a huge political row, with the Post 10 Office or the subpostmasters' lobby claiming the entire 11 rural network had been put in danger by the 12 Government ..." 13 The three requirements set out there, reflected in 14 your witness statement, do not say anything as to the 15 reliability or integrity of the system. Do you know why 16 that wasn't included as a requirement? 17 A. No, I don't. I mean, I wasn't in this discussion, and 18 I think the reference to these three points have been 19 made earlier but, I mean, obviously, I don't know who 20 decided the terms of this readout or what was said. 21 I just wasn't there. It doesn't alter anything I've 22 said to you so far, though. 23 Q. Would you agree that the three key political 24 requirements appear to be focused on how things might 25 look from the outside? 138 1 A. Yeah, well, that's what Prime Ministers do, you know. 2 They've got to look at what's happening generally. You 3 know, I'd regarded it just as a -- it was a view in 4 a meeting, but, you know, the end was different to that. 5 Q. Were you involved after it had been decided that the 6 Benefits Agency's BPC should be pulled from the project 7 in any decision making as to the reconfiguration of the 8 contract? 9 A. No. That would have been done by, I assume, the DTI 10 and, you know, the ICL. Certainly, you know, I say in 11 my statement that, you know, there would have been 12 tidy-up things, for example payments in respect of the 13 Order Book Control System, which I think are referred 14 into some of the papers that you've got, and also 15 I would have seen stuff about how you do migrate to ACT. 16 But, in terms of the renegotiation of the contract, 17 remember this is a different contract. It was one 18 between Post Office Counters Limited and ICL. 19 The DWP would not, I think, have been involved in 20 it, and certainly I have asked, during the course of 21 somehow getting these papers, "is there anything else?" 22 And I haven't seen anything else, and it was 23 certainly my recollection that we were not involved in 24 that because, you know, we were out of it, you know, 25 we'd reached the situation where the Benefit Payment 139 1 Card was no longer part of this and, therefore, our 2 locus had disappeared. 3 Q. Thank you. That document can come down. 4 Finally, Lord Darling, you were Secretary of State 5 for Trade and Industry for 14 months between May 2006 6 and June 2007. 7 A. Yes. 8 Q. As part of your role, I think you would have held 9 overall responsibility for oversight of the Post Office? 10 A. Yes, that's right. 11 Q. Was there a Minister of State with specific 12 responsibility for the Post Office in that time? 13 A. There would probably have been but I'm afraid I have not 14 seen any of the papers that I saw and I would not want 15 to inadvertently name one of my former colleagues as 16 being responsible if he or she wasn't. But the way 17 things work in all Government Departments is that the 18 Secretary of State is in charge of everything but there 19 are three or four junior ministers who take, you know, 20 particular interest in -- so there would have been. But 21 I have not seen any papers at all in relation to my 22 time. It is pure recollection that I have to go on when 23 I'm talking to you today. 24 Q. Yes, I'm asking you these questions with that knowledge, 25 and on a relatively light touch basis. Was there a Post 140 1 Office Board, to your knowledge, at that time? 2 A. Yes, there was because I used to have fairly regular 3 meetings with the chairman of that board and, you know, 4 from time to time, I think, the chief executive. And 5 the main concern then was how did you maintain the Post 6 Office Network? And that was becoming highly 7 contentious at that time because, you know, I remember 8 doing a lot of media about it. But -- I'm sorry, 9 I ought to say, for the sake of completeness, at that 10 time they were also responsible for the Royal Mail, it 11 was before it was privatised, and there were occasional 12 discussions about that, usually Labour relations, rather 13 than anything else. 14 Q. Did Government have a seat on the board at that time? 15 A. I don't think it did. That's not to say it didn't -- 16 wasn't nominating people to the board but, again, 17 I would need to see the papers that I saw and, better 18 still, the actual papers I saw, before I can really 19 answer your questions. I don't want to mislead this 20 Inquiry, but I do remember meeting the chair of the 21 board on a regular basis. 22 Q. Can you remember who that was now? 23 A. It was Allan Leighton, I think. 24 Q. Can you remember who the CEO was, the chief executive? 25 A. I'm afraid I don't. 141 1 Q. Does Alan Cook ring a bell? 2 A. Yes, it does now you mentioned it. 3 Q. What's your recollection of the extent of your contact 4 with both men? 5 A. Well, I used to meet them fairly regularly, that's my 6 recollection. And it was mainly to do, as I say, with 7 the maintenance of the Post Office Network and one of 8 these -- it's inevitable the way that -- you know, 9 that's the way this agency works. Normally, with 10 an agency like the Environment Agency, it has a budget, 11 it has staff and it gets on with, you know, pursuing 12 whatever the Government's policy is. Or you get 13 an agency that does things like the Benefits Agency did, 14 or Jobcentre Plus, it's got a particular task, it does 15 it. 16 But this agency, the Post Office, is slightly 17 different, in that a lot of its business depends on the 18 government being willing to, for example, subsidise the 19 Post Office Network. You know, it's -- what it does is 20 heavily dependent on the decision, in other words, of 21 third parties, not the actual board itself. Because the 22 board is autonomous only to the extent that, for 23 example, it maintained a Post Office Network. You know, 24 a commercially-minded board might take a different view 25 to that. 142 1 So it was really -- and, you know, I think the 2 board, to some extent, felt it was a victim, you know, 3 that here they were, they were having to put up with the 4 Government's policy, and the Government's policy was 5 clear but it's actually difficult to implement, which is 6 why, at the time, we were looking at what can you do to 7 put into post offices things other than postal services 8 to make them attractive? You know, the ones that 9 actually survive to this day are the ones who tend to 10 have other businesses in there, which is getting them 11 footfall, rather than the pure and simple Post Office 12 function. 13 Q. Lord Darling, thank you very much -- 14 A. I just want to emphasise this point: if the Inquiry is 15 interested in all this, I need to see these papers. 16 Q. Yes, we're interested but not, in particular, in the 17 period of -- in which you held the office. It was more 18 to take some general evidence from you -- 19 A. Sure. 20 Q. -- as to the way in which oversight and supervision 21 occurred at that time. 22 A. Yes. Well, as I say to you, the Secretary of State for 23 Trade and Industry clearly has oversight and, remember, 24 as with a lot of things, the dispatch box risk, if you 25 like, the political responsibility, would always be with 143 1 the Secretary of State, no matter what the Post Office 2 Board happened to be doing. 3 MR BEER: Thank you. They are all of the questions I ask 4 you at the moment. Other Core Participants have 5 indicated an intention that they wish to ask some 6 questions. 7 I don't know whether that is going to be realised or 8 not, but can I start with Mr Jacobs, whether he has any 9 questions to ask. 10 Questioned by MR JACOBS. 11 MR JACOBS: There is one point that has just arisen. 12 Lord Darling, can you see and hear me? 13 A. I can see you now. 14 Q. Thank you. You have said in your evidence that you had 15 a growing body of evidence that shot that the system 16 wasn't going to work, and you've said there was an awful 17 lot wrong with the system, and you couldn't, in all 18 conscience, have allowed it to roll out. 19 Then, when you were the Secretary of State for Trade 20 and Industry from 2006 to 2007, you had overall 21 responsibility for the Post Office. Were you aware, 22 during any of this time, that 736 subpostmasters were 23 being prosecuted as a result of the system from 2000 to 24 2015? 25 A. No, I have no recollection of that but, as I said to 144 1 Mr Beer earlier, if you want to pursue that, I need to 2 see all the papers to be absolutely sure of it. But 3 I think if -- you mentioned 750 postmasters -- I think 4 I would have recalled that, had it been put in front of 5 me. 6 Q. Do you remember Lord Arbuthnot -- James Arbuthnot then, 7 raising the matter in Parliament, which led to the 8 appointment of Second Sight in 2012 to investigate on 9 behalf of the MPs? 10 A. No, I don't. 11 MR JACOBS: Okay, I just need to ask if I have any more 12 questions to ask you. Thank you. 13 A. Thank you very much. Thank you. 14 MR BEER: In fact, I think that's all of the questions that 15 any Core Participant has indicated a wish to ask. 16 Thank you very much for coming to give evidence 17 today, Lord Darling. 18 A. Okay, thank you very much indeed. 19 Questioned by SIR WYN WILLIAMS 20 SIR WYN WILLIAMS: Lord Darling can I just follow up what 21 Mr Beer was asking you about right at the end, and I'm 22 conscious that you haven't seen the papers, so I'm 23 looking for general evidence, as opposed to specific 24 evidence, if that's a distinction proper to draw. 25 It's the relationship between the minister and the 145 1 board, and the impression you've just given me is that, 2 ultimately, it was the minister who called the shots on 3 what I might call any important issue relating to the 4 direction that the Post Office should take; is that too 5 general? 6 A. It is a bit general. Ultimately, where, you know, the 7 Secretary of State, therefore the Government, is 8 ultimately responsible for whatever a board is doing 9 but, in fact, you know, in a routine day-to-day basis 10 the Post Office Board would take decisions as to how 11 they thought -- for example, in this case, how the 12 business ought to develop, and so on. And, as for the 13 day-to-day running, only the board could know about 14 that. 15 There's no way, unless someone brought a particular 16 issue to a minister, would the government, as such, know 17 that there was a particular issue that needed to be 18 looked at. You know, in this case, the Post Office 19 case, the government set up the board to run the Post 20 Office. It clearly had an influence in what the network 21 might look at -- look like, because it could decide to 22 intervene or not intervene to make the network larger, 23 or smaller, and so on. But on day-to-day running, no, 24 as you know the day-to-day running of the Jobcentre 25 Plus, that does not come to ministers on a day-to-day 146 1 basis -- 2 SIR WYN WILLIAMS: No, I think I followed that, really. I'm 3 just trying to understand the difference between 4 day-to-day operational running, which I fully accept 5 would be a matter which the board would undertake 6 normally, and where the Government would step in. 7 Where's the line, so to speak, if there is a line? 8 A. I think the line is where, you know, if something was 9 going wrong, or you are aware that there's something 10 that questions ought to be asked, then, you know, the 11 Government would intervene then it's difficult for me to 12 lay down lines that would cover every eventuality of 13 what might possibly happen, you know, because there are 14 none. You know, it used to be said that the Government 15 needs to know there's not a whole lot contentious but, 16 you know, that in itself is a bit general. 17 I'm sorry, I'm trying to be helpful here. 18 SIR WYN WILLIAMS: No, no. I follow. It's just that in -- 19 A. Let me put it this way, if I may: if something -- if the 20 board knew something was happening and that it thought 21 that ministers ought to know about it, then that would 22 be a good reason for the government to, you know, 23 intervene or, at the very least, ask questions. But on 24 a day-to-day basis, you know, the running of the network 25 and how it operated, the Government would not -- no one 147 1 in the Government would necessarily be told about that. 2 Because why else would you set up a board to run the 3 Post Office network? 4 SIR WYN WILLIAMS: So is this a fair summary: in terms of 5 dictating policy issues as to how the Post Office should 6 evolve, the government would take the lead. In terms of 7 matters which might arise from day to day, then they 8 would only reach the government if the board thought 9 them appropriate for the government? 10 A. Yes. I'm not aware of any mechanism where the 11 government would routinely ask every month "Is there 12 something that's happened that we ought to know about?" 13 The other way, of course, the government does become 14 involved is if Members of Parliament raise issues in the 15 House of Commons, in which case it's entirely proper, 16 you know, for the minister to ask the Department to find 17 out what's behind the question, if you like. But one of 18 the things that -- the day-to-day running of the post 19 offices and how it was operating and, you know, 20 decisions like, you know, this is a live issue for the 21 Inquiry, prosecutions and stuff, would be taken by the 22 board, I don't think they would ever come to ministers. 23 SIR WYN WILLIAMS: Okay. Just so that I can complete my 24 picture, there's the Post Office Board and there's 25 ministers, but there are civil servants with particular 148 1 knowledge and/or expertise, shall we say -- 2 A. Yes. 3 SIR WYN WILLIAMS: -- in how the Post Office operates. What 4 would their role be in this rather -- well, what would 5 their role be? 6 A. Well, it's largely undefined. Certainly, as a minister, 7 you would expect your civil servants to be, you know, 8 keeping in touch with me, not on the detail but what the 9 issues are. But suspect the issues they would be 10 keeping in touch with -- I mentioned, you know, the Post 11 Office, for example -- if is if it's obvious the network 12 is starting to shrink in an uncontrolled sort of way, 13 you'd expect your civil servants to be familiar with 14 what's being thought, and so on. But, you know, there 15 isn't, as far as I'm aware, or hasn't been, a mechanism 16 whereby a civil servant would be having, if you like, 17 a supervisory board function and they would be every 18 day, actually proactively going round saying, "What's 19 happening here? What's happening here? Is there 20 something we need to know about?" It's not laid down 21 anywhere, it really depends on the individuals, I think. 22 The decision as to whether or not to elevate 23 something, if something has gone wrong, I would think 24 you'd expect the board and/or its chair or its chief 25 executive to say to ministers "You'd better have a look 149 1 at this". But there is no automatic mechanism that I'm 2 aware of that would guarantee that something was 3 happening, it would go straight to ministers. That's as 4 helpful as I can be, I think. 5 SIR WYN WILLIAMS: All right. So that we're both clear, you 6 were speaking of your experience in 2006/2007, and 7 that's the extent of your knowledge as it relates to the 8 Post Office? 9 A. Based on my recollection -- 10 SIR WYN WILLIAMS: Yes, yes, sure -- 11 A. -- without seeing the papers but my dealings with the 12 Post Office, you know, at that time were really all 13 about how big should the network be, because, you know, 14 we were looking at ways to try to, you know, frankly 15 make it a little bit more sustainable. But that's 16 an argument that's still going on today. 17 SIR WYN WILLIAMS: All right. Well, thank you very much, 18 Lord Darling, for taking the time and trouble to make 19 a very detailed witness statement and also to sit here 20 for some hours answering very many questions. I'm 21 obliged to you. 22 A. Okay, thank you very much indeed. I appreciate it. 23 MR BEER: Sir, can we break now for ten minutes for our next 24 witness, Mr Kearns, that would make it 2.55. 25 SIR WYN WILLIAMS: Fine, thanks. 150 1 MR BEER: Thank you. 2 (2.45 pm) 3 (A short break) 4 (3.55 pm) 5 MR STEVENS: Sir, can you see and hear me? 6 SIR WYN WILLIAMS: Yes, I can, thank you. 7 MR BEER: The next witness is Mr Kearns. 8 ANTHONY KEARNS (affirmed) 9 SIR WYN WILLIAMS: Mr Kearns, can I thank you for agreeing 10 to change the day on which you are giving evidence. 11 That's very helpful to the Inquiry. 12 MR STEVENS: Please can you stay your full name? 13 A. Anthony Paul Kearns. 14 Q. Mr Kearns, as you know, my name is Sam Stevens and I ask 15 questions on behalf of the Inquiry and, again, thank you 16 very much for giving your evidence both in writing and 17 orally today. In front of you, you should have 18 a witness statement, dated 12 October of this year, 19 running to 8 pages. Could I ask you please to turn to 20 page 7 of that statement. Is that your signature? 21 A. It is. 22 Q. Are the contents of your statement true to the best of 23 your knowledge and belief? 24 A. They are. 25 Q. That statement now stands as evidence in the Inquiry. 151 1 I'll be asking you some questions today about both your 2 and the CWU's involvement in the issues that this 3 Inquiry is looking at in Phase 2. I won't be covering 4 issues that it will look at later on in phases 4 and 5. 5 I want to start with some background and, in your 6 statement, you say you were employed as an assistant 7 secretary of the CWU between late 1997 and early 2002; 8 is that right? 9 A. That's correct. 10 Q. Before you worked for the CWU, had you worked for the 11 Post Office? 12 A. I had. 13 Q. What roles had you had? 14 A. I was Post Office counter clerk. 15 Q. What roles did you work in for the CWU itself, prior to 16 becoming an assistant secretary? 17 A. I was an elected member of the national executive 18 council, still employed by the Post Office and but 19 released from the duty to undertake union activity. 20 Q. Immediately before becoming assistant secretary what was 21 your role? 22 A. I was a member of the national executive council, I was 23 substituting for the then assistant secretary, who was 24 substituting up, because the then general secretary, 25 Alan Johnson, in May of that year, left the union as 152 1 a general secretary to become MP. 2 Q. You say you stopped being an assistant secretary in 3 early 2002. Since then, what role have you had with the 4 CWU? 5 A. Since then, I've been the senior deputy general 6 secretary. 7 Q. Thank you. I want to ask you some questions about the 8 CWU itself. Between 1995 and 2002, who within the Post 9 Office did the CWU represent? 10 A. Post Office Counters clerks at Crown Offices, people who 11 worked in cash centres, who handled the cash that was 12 then consequently distributed to Crown Offices and sub 13 offices and administration staff who worked back office 14 admin work. 15 Q. When you say Crown Offices, do you mean branches of the 16 Post Office run centrally by the Post Office itself? 17 A. Crown Post Offices, yes. 18 Q. Did the CWU represent any subpostmasters during this 19 period? 20 A. No. 21 Q. Did the CWU represent any Post Office employees who were 22 involved in carrying out audits of subpostmasters? 23 A. From memory, I want to say yes, because part of the Post 24 Office staffing complement were people whose duty it was 25 to audit sub offices. From memory, I think a number of 153 1 people on there might have been in those grades that we 2 represented. 3 Q. Did the CWU represent any Post Office employees that 4 were involved in the prosecutorial function of the Post 5 Office? 6 A. Not as I recall, no. 7 Q. Not as you recall, was that? 8 Please could we bring up a document, CWU00000089 and 9 if we could turn to the second page. This is a letter 10 from March 1997, it's from Mena Rego at Post Office. 11 A. Do we know where this is, in the bundle? 12 Q. Sorry, you should be able to see it on the screen next 13 to you. 14 A. Sorry. 15 Q. No problem at all. Just confirm, can you see that? 16 A. I can. 17 Q. Very good. It's letter from Mena Rego to Ernie Dudley, 18 who was the assistant secretary of the CWU at the time. 19 Now, would you have seen this letter at the time? 20 A. More than likely, yes. 21 Q. In your witness statement, you say that, prior to 22 May 1999, when a Horizon working group was started, the 23 CWU didn't have any direct involvement the Horizon 24 project itself; is that correct? 25 A. Yeah, that's as I remember, yeah. 154 1 Q. But what you did receive would have been letters such as 2 this, updating the CWU on the progress of the project to 3 date; is that right? 4 A. Yes. 5 Q. Did the CWU take any steps around this time to try to 6 involve itself in the Horizon project, other than simply 7 by receiving updates from the Post Office? 8 A. What we would have done, because it was our normal way 9 of working would be to ask the Post Office how that 10 project and other projects would impact upon our 11 members. So we would ask "Is it going to change the 12 nature of work?" With regards to the Horizon project, 13 given that we were moving from manual -- what we'd call 14 using the date stamp -- to electronic processing, "Where 15 were the terminals going to fit? What training would be 16 given?" And we would take the opportunity to ask 17 whether that was a reskilling opportunity to argue or 18 ask for increased terms -- better terms and conditions. 19 So we would respond by asking how it would affect -- 20 impact upon our members and then work out a strategy 21 around that, how we would approach the Post Office. 22 Q. Do you recall yourself being involved in any of those 23 discussions? 24 A. At the time when Ernie Dudley was the assistant 25 secretary, if he felt the need, he would take either 155 1 myself or other executive members along to meet, if he 2 thought we would add value. I don't recall being 3 involved in meetings around '95/'96. I was his 4 substitute, insofar as, if he was on leave or off sick, 5 I would take over his role. So I would have been 6 shared -- I'd have seen copies of those letters at the 7 time. 8 Q. Can we please bring that letter back up and go to the 9 third page? 10 Thank you, I'm just going to read for the recorded 11 the first paragraph. It says: 12 "A trial of [the Order Book Control System] will 13 begin from the end of April 1997 in 200 post offices in 14 the North East and South wales and South West Regions. 15 This will be followed by introduction of BPS to these 16 offices in June and then in September AP and EPOS will 17 be added. At this stage a further 100 outlets will be 18 added to the trial. It is any at then that Branch 19 Offices will be added as clearly it is only at this 20 point that ECCO can be replaced by Horizon. A decision 21 to roll out will be made in November following the full 22 and detailed evaluation." 23 So this is referring to a slow rollout of a few 24 branches to trial the system. Do you agree that a live 25 trial was important to test how Horizon would affect the 156 1 working lives of those working in the post offices 2 themselves? 3 A. Yeah, I would agree that would be important. 4 Q. When it refers to branch offices, is that referring to 5 the Crown Office branches? 6 A. Yes. 7 Q. As for you, the Crown Office branches, that's where the 8 majority of your counter staff -- members who were 9 counter staff, would be working? 10 A. Yes. 11 Q. The reference to ECCO, could you just expand on what 12 that is? 13 A. That's the name that was given to the system, the 14 accounting system that was in before Horizon. 15 Q. That was in Crown Office branches, was it? 16 A. Yes. 17 Q. The letter goes on to state, on the third paragraph: 18 "Again due to the fact that evaluation will not have 19 been completed and a final decision on national rollout 20 not made until November, only a limited number of Branch 21 Offices will be included in this stream, principally to 22 ensure completion of installation in discrete 23 geographical areas. This is because -- in the event of 24 any teething problems with Horizon -- we do not want to 25 create disruption in our larger outlets which already 157 1 use an automated system (ECCO) that has to be removed at 2 the time of installing the Horizon system." 3 That document can be taken down now, thank you. 4 Do you recall when Horizon was actually rolled out, 5 which was later, when the first Crown Office branch was 6 migrated? 7 A. I'm afraid I don't. 8 Q. Did you have any concerns about this plan, that there 9 would not be a significant number of Crown Office 10 branches within a live trial and it would be mainly 11 subpostmasters? 12 A. No, I mean, from memory that wouldn't have been our 13 concern. Our concern would have been that it had been 14 trialled and it worked and that the rollout was 15 manageable in terms of the staff who would be, if you 16 like, impacted by the rollout. So it wouldn't have been 17 whether we wanted it to be slower or quicker; it would 18 have been that it could be managed properly and, you 19 know, any changes within the offices were flagged up, 20 because moving from one system to another, I mean health 21 and safety issues, we'd want to make sure before they 22 moved on to a further rollout that any teething 23 problems, if you like, that our members had experienced 24 that were relayed to us, we would have had time to, you 25 know, pick them up represent them to the employer and 158 1 get satisfactory answers. 2 Q. If in this live trial, the vast majority were going to 3 be subpostmasters, how would you have found out about 4 those -- or how did, I should say -- how did the CWU go 5 about finding out what the experience of those 6 subpostmasters were? 7 A. I think they were represented at the Horizon Working 8 Group that the then newly-elected Labour Government had 9 set up. Those issues were being represented, and we 10 would have -- how would you describe this? Not sort of 11 formal communication with -- so there was another trade 12 union involved, the CMA, which is the Communication 13 Managers Association, and when we were going to formal 14 meetings, you know, you would have side conversations, 15 you know, "What have you picked up?" 16 There were also -- like, we were in I want to call 17 continuing negotiation with the Post Office, as just 18 part of our day job, terms and conditions, health and 19 safety requirements, you know, normal day-to-day 20 operations and, in those conversations, you would just 21 generally ask "What's happening with Horizon?" Outside 22 of the formal set piece DTI negotiations or DTI set-up 23 of the Horizon project group, we were almost in daily 24 contact, on industrial relations level, with the Post 25 Office and, depending which manager you were talking to, 159 1 and whether you understood them to have any knowledge or 2 involvement with the system, you would ask "How's it 3 going?" type of thing. So you would have picked that 4 up. 5 In a formal sense, the issues we picked up -- and 6 I think I mentioned this in the statement -- from some 7 of the queries at the Horizon project group, 8 particularly by the National Federation of 9 SubPostmasters, about some of the issues that they'd 10 identified, and I think, again, as I say in my 11 statement, our questions would be "Are they being 12 resolved before you roll this out, are they getting 13 resolved?" 14 Q. We'll come to the Horizon Working Group in a moment. 15 What I want to ask is, before you attended the working 16 group formally, can you recall what level of knowledge 17 you or the CWU had about any problems or issues in the 18 Horizon software itself? 19 A. Going back 20-odd years, I don't, if I'm being honest. 20 Q. Before we get to the working group, I want to just ask 21 a couple of points, again, about the CWU's interests. 22 Before automation itself, if there were errors or 23 discrepancies in accounts prepared by staff, presumably 24 those discrepancies would be put down either to human 25 error or possibly theft? 160 1 A. Well, what would happen is you would have a very large 2 double-sided sheet of paper, manual process, when you 3 paid out to -- benefits, pensions, green giros, you'd 4 pay that out and make a note of those. You'd add all 5 those up and, in one column, you would have how much 6 cash you'd paid out and another column you'd have cash 7 you'd received from people buying stamps, postal orders, 8 as well in the day, cars -- the vehicle licence stuff, 9 and you'd balance those two things. 10 And I can't remember at that particular point in 11 time but it was a degree of tolerance that losses under 12 a certain amount would be, for want of the a better 13 phrase, they'd be recorded but wouldn't be used against 14 the individual for disciplinary purposes. But if those 15 losses mounted up over a period of time or those losses 16 were huge, so if you had big losses -- if you lost 17 a couple of hundred, £500, then there would be 18 an investigation into where that money had gone. 19 If your losses were regularly £3/£4, they would, for 20 want of a better phrase, be put aside, they'd be 21 ignored. If you regularly posted losses or even gains 22 of £10, £15, £20, they would be investigated because, in 23 effect, it was evidence that, somewhere along the line, 24 a job wasn't being done properly. 25 Q. That's it. It's either someone is not doing the job 161 1 properly -- 2 A. Yes. 3 Q. -- or, more sinisterly, possibly theft? 4 A. Yeah, and in round -- my experience was, if losses were 5 in round figures, £100, £500, £1,000 then, given that 6 cash bundles were given to counter clerks to use as part 7 of their day job in, you know, £100 and £500, the loss 8 of a round large amount, in the Post Office's eyes, and 9 their own investigation division, my take was that 10 they'd view that more likely to be theft than someone 11 just not doing the job properly. 12 Q. The CWU, presumably before automation, would represent 13 its members if they were accused of substandard 14 performance or misconduct? 15 A. Yes. 16 Q. I think, as you just evidenced, in order to do that, the 17 CWU would need to have a good understanding of the 18 working practices of counter staff? 19 A. Yes. 20 Q. At that stage, were the CWU aware of the Post Office 21 prosecuting members of staff for suspected theft before 22 automation? 23 A. I was aware of that, I've dealt with -- I've represented 24 individuals who subsequently got prosecuted, yes. So 25 yes. 162 1 Q. The introduction of Horizon, it's fair to say, would 2 significantly change the way the counter staffs' working 3 lives would operate? 4 A. Yes. 5 Q. If the Horizon System could not reliably produce 6 accounting data, and produced accounts that didn't 7 reflect the actual stock and cash in the branch itself, 8 that would give rise or could create a suspicion of 9 theft or incompetence on the part of post office counter 10 staff; is that fair? 11 A. That's fair, yeah. 12 Q. So, for that reason, was it important to the CWU to 13 understand and be satisfied that the Horizon IT System 14 would operate reliably and satisfactorily? 15 A. To the extent that we would make representations to, you 16 know, to seek assurances that the system they were 17 introducing was capable of doing what they'd said it was 18 going to do, yes. 19 Q. I'd like now, then, to turn to the working group and 20 this point on satisfactory working of the system. Could 21 we, please, on the screen bring up your witness 22 statement. It's WITN06370100. If we could turn to 23 page 3, please. Thank you. 24 You say in paragraph 9 that you attended the Horizon 25 project working group alongside the general secretary 163 1 Derek Hodgson. You were attending this together as 2 a sort of joint project; is that right? 3 A. Yeah, the general secretary would determine, as the lead 4 of the Union, the general secretary, particularly when 5 dealing with matters of government or matters of state, 6 would determine himself who he would take along to 7 assist him. I went to some of these meetings with him. 8 Q. You say that the role was: 9 "... a) listen to and understand what the intentions 10 of [Government] and POCL were with regard to the future 11 of the Post Office Network and the Horizon project ..." 12 A. Mm-hm. 13 Q. "... b) to determine what (if any) implications this 14 would have on CWU members c) raise any points relevant 15 to the same." 16 Could we turn the page, please, and look at 17 paragraph 11. There you say: 18 "From memory I do not recall that Horizon Working 19 Group was tasked with examining nor reporting on the 20 technical issues (faults) with the development of the 21 system and as such I cannot recall if any specific 22 questions on this issue were raised." 23 Thank you. 24 I think that you do say in your statement you can 25 recall the NFSP raising some concerns at some point? 164 1 A. Yeah. 2 Q. With that in mind, I want to look at some of those 3 working group meetings now, and if we could start with 4 the one on 8 June 1999. It's NFSP00000026, and if we 5 could start at page 2, please. 6 Thank you. As you see, it's a note of a meeting 7 from the Horizon working group on the 8 June. Derek 8 Hodgson is in attendance but you are not. 9 Can I ask to turn to page 6 of this now, please. 10 These are the terms of reference of the Horizon Working 11 Group said to be agreed on 8 June 1999. Would you have 12 seen these at the time? 13 A. Probably. 14 Q. The second bullet point states one of the roles is: 15 "to oversee, to contribute actively to, and to 16 facilitate solutions where problems arise, the 17 completion of the development phases of the Horizon 18 project ..." 19 It then goes on to refer to rollout and migration to 20 ACT. So is it fair to say these terms of reference 21 actually envisage that members of the working group 22 would take an active role in relation to the development 23 of Horizon itself? 24 A. Um ... I wouldn't say so, no. I would say that they 25 were there to understand what was happening with the 165 1 development stage and have that fed back to Government, 2 so as the Government, if need be -- because there was 3 friction, as I recall, between the Benefits Agency who 4 wanted the introduction of a new automation, so they 5 could, for want of a better phrase, reduce benefit 6 fraud, and the Post Office, who wanted to introduce the 7 automation because it thought it would give them 8 a gateway to more government services and, therefore, 9 grow the Post Office, or at least sustain the Post 10 Office to where it was. 11 My understanding of that was that the discussions 12 would go on between the parties, being the Post Office 13 and the designers of the system, and any delays and the 14 reasons for that would be reported back to that and, if 15 you like, a plan would be drawn up about what progress 16 could be made, what delays and how those issues were 17 being resolved. From memory -- I wasn't at that 18 meeting, but from memory, the sort of technical issues, 19 like on what was going on with the system itself -- and 20 I don't know if I remember being presented with, if you 21 like, technical detail about how the system worked or 22 didn't work. 23 Q. That can be taken down now, thank you, that document. 24 Senior members of the Post Office attended this 25 working group along with members of the NFSP and the 166 1 DTI. Was it not a good opportunity to raise and 2 investigate problems so that they could be reported back 3 to your members, problems with the Horizon IT System 4 itself? 5 A. Um... I think as I said earlier, what we would have done 6 would have been to have listened to any delays and any 7 issues that were being raised by the parties and seek 8 assurances that they were going to be resolved. The 9 reason I say that is because there's actually nothing we 10 could do as the CWU to, if you like, to fix those 11 problems. That was -- it was, from our position, it was 12 almost -- the Post Office had come to us and said, 13 "We're using this new automated system" and we were like 14 "Are you sure it works?" I'm oversimplifying the 15 conversation but we would be like "Are you sure it 16 works?" 17 "Yes." 18 "Okay, well, the NFSP and we've heard that there are 19 some problems." 20 "We're working the partners to make sure that those 21 problems are resolved", is my sort of general feeling 22 for what was going on at the time. 23 Q. Let's move forward in the chronology to 22 June 1999 and 24 the second Horizon working group meeting. Please can we 25 bring up NFSP00000203. Turn to page 2, please? 167 1 This is a note of the meeting made by the DTI for 2 the working group on 22 June, as I say, 1999, and which 3 you were in attendance. Paragraph 2 states that: 4 "Ms Rego then presented an update for the Group on 5 POCL's negotiations with ICL. The terms of the letter 6 of agreement on 24 May meant that the contract was now 7 largely a 'given', and there was now a process of 8 codification rather than negotiation. 9 "Mr Hodgson argued that in fact there had been 10 a fundamental change to the situation -- not least 11 because this was now not a PFI project -- so this should 12 not be seen as just a matter of codification." 13 Just stopping there, can you recall what point 14 Mr Hodgson was trying to make on behalf of the CWU at 15 that stage? 16 A. Yeah, from memory, so when it was a PFI project, my 17 understanding was the onus was on the developer. 18 I might have got this wrong in the PFI, but the onus was 19 on the developer, almost like to fund this, and then 20 would, if you like, get the money back in future years. 21 Because the project or the agreement between the Post 22 Office, and I think it's ICL Pathway we're talking about 23 now, but I'll stand corrected if it wasn't them, but the 24 original agreement that changed to a new agreement, they 25 renegotiated the terms of the agreement and, because it 168 1 was no longer PFI, then the funding arrangement for the 2 new system fundamentally altered. 3 And I think our concern was, from memory, that there 4 was a lot more onus on the Post Office to push funds 5 into the project, which, for our concern, would affect 6 profitability and profitability would affect our ability 7 to negotiate for better terms and conditions and higher 8 wages. So there was a real concern about the financial 9 viability of the Post Office around that for us and 10 I think, from memory, that's what Derek Hodgson was 11 referring to. 12 Q. So financial viability rather than the technical details 13 of the project itself? 14 A. That's right my understanding. 15 Q. Paragraph 4, I can summarise this but, essentially, 16 Ms Rego discusses three emerging issues, firstly 17 concerning technical acceptance, contractual acceptance, 18 second regarding the spare technical capacity that may 19 have been available now that the Benefits Agency had 20 pulled out and, third, over the page, concerned the pace 21 of rollout. 22 If you could turn the page, please, to look at 23 paragraph 6, seemingly in response to that, 24 Mr McCartney, the Minister of State, is noted to have 25 said that: 169 1 "... the rollout issue was crucial; he was 2 emphatically not prepared to accept getting away from 3 the commitment to 2001. Slippage would make the wider 4 discussions on government usage of the network 5 impossible. If there were problems with software, 6 training etc, then these should have been flagged up 7 earlier and must now be resolved in a way that enabled 8 the 2001 timetable to be recovered." 9 I just want to pause there to now bring up another 10 note of the same meeting and it's NFSP00000471, please, 11 and if we could turn to page 27. Thank you. 12 This is taken from the NFSP's national executive 13 council report, which was between 21 and 23 June 1999. 14 At the bottom, you'll see under the line, that a brief 15 report filed by Mr Peberdy, on the Horizon Working Group 16 meeting we've just been looking at. If we could ask to 17 turn the page, please. The third paragraph down, he 18 says: 19 "The subject of system faults was raised and the 20 NFSP were given assurances that there would be software 21 improvements to cure the present difficulties. The 22 Federation were asked for more precise numbers of 23 Subpostmasters who were experiencing difficulties as 24 this information would assist them to provide us with 25 the help we require." 170 1 Then skipping the paragraph, it said: 2 "Roll would proceed as planned starting 3 23/25th August, reaching 300 per week by January 2000. 4 There were some very serious issues still to confront, 5 including training and systems difficulties, which must 6 be ironed out, but there is no question of postponement 7 or delay which would cost approximately £8 million per 8 week." 9 Thank you. 10 Now the DTI minute we looked at before this document 11 didn't have specific reference to the NFSP raising 12 concerns. Can you recall, at this meeting, whether the 13 NFSP raised concerns about the experience of their 14 subpostmasters in the live trial that had been carried 15 out to date? 16 A. I'd be wrong to say I specifically remember that meeting 17 23 years ago. I'm not going to say I can remember that. 18 Generally aware, at the time of issues being raised, 19 about some, you know, technical issues in the trial 20 period. 21 Q. Could you expand on what you mean by "technical issues"? 22 What was your understanding of the technical issues that 23 were being reported by the NFSP? 24 A. The system was difficult to understand and learn, and it 25 didn't, for want of a better phrase, from our language, 171 1 balance -- which is what myself as a counter clerk, when 2 I worked on the Post Office, you'd have to balance your 3 till once a week on a Wednesday night. And it was 4 that -- almost that was the measure of you, as 5 an employee, about whether you were capable of doing the 6 job. 7 So my understanding of "serious concerns" at the 8 time would be around like whether it actually worked. 9 So for want of a better phrase, when you pressed the 10 button, whether it did what it was supposed to do. And 11 when you balance at the end of the week, you know, it 12 did the job properly. 13 Q. And for the CWU's point, how significant were those 14 concerns, or how seriously did the CWU treat the 15 concerns raised by the NFSP? 16 A. To the extent that we would understand them at the time, 17 we would look to the Post Office to seek assurances that 18 these issues were being resolved. 19 Q. Thank you. That document can be taken down. 20 Let's move to 7 July 1999. It was another Horizon 21 working group meeting. You weren't in attendance at 22 this one, but I want to start first with a report that 23 the Post Office filed in anticipation of it. It's 24 NFSP00000226. If we could turn to page 2 of that 25 report, please. 172 1 Do you recall seeing this report? 2 A. I don't recall, no. 3 Q. Would it have been something you would have seen, do you 4 think? 5 A. Probably. 6 Q. If we can turn over the page to page 3, and for the 7 record, under "Training and Support", the paragraph 8 there states that: 9 "The current Live Trial is revealing a number of 10 important lessons which are being addressed for 11 [National Rollout Plan]. Improvements in training, 12 procedures and software which will give greater 13 confidence in the service provided and support the 14 achievement of the [National Rollout Plan] are being 15 introduced. These are geared to reducing/curing the 16 earlier problems of Wednesday cash balances that have 17 been highlighted in the trial offices." 18 And then if we could turn the page, please, to 19 page 4. Under "Acceptance Tests" it says: 20 "Contractually, ICL need to have fewer than 20 21 medium incidents and no high incidents in order for the 22 system to pass Acceptance and claim £68 million. At the 23 moment there are 15 medium category incidents and 24 2 highs. We anticipate 6 more mediums merging but work 25 is also going on to clear or reduce all incidents." 173 1 Now, do you recall at the time when -- so this is 2 early June -- sorry, early July 1999, did you, at the 3 CWU, have an understanding of what the Acceptance 4 Incidents were? 5 A. No. My understanding at the time was that it was 6 a contractual arrangement between POCL and ICL Pathway, 7 because when I referred to earlier about the change in 8 the nature of the contract between the parties, and 9 I said it would be in PFI, it was then -- money would be 10 paid over a period of time for usage of the system. But 11 my understanding of that was that the POCL was sort of 12 introducing -- I want to say something like penalty 13 clauses, but they say well if it fails, like incidences, 14 they wouldn't. That's why they talk about claiming the 15 68 million. That was my recollection of it. 16 Q. Is it fair to say this: that in early July 1999 the CWU 17 were aware that there was significant problems with the 18 Horizon IT System and the software that it was based on? 19 A. We were aware there were problems because we weren't 20 involved the trial. To what we would class them as 21 significant at the time, I wouldn't be prepared to, from 22 memory, to state that specifically, if I'm being honest. 23 Q. If this report was raising problems, what questions were 24 the CWU asking the Post Office to satisfy itself, or to 25 understand how significant those problems actually were? 174 1 A. I mean that is, if you like, it would have been our day 2 job, would be to ask: "What are we talking about here? 3 How big are these problems? What are these problems? 4 How are they being resolved? Who's resolving them?" 5 And what reassurance are we getting that by the time we 6 get to rollout for our members, these problems will have 7 been dealt with?" 8 Q. Let's look at the meeting that report was made for. 9 It's NFSP00000200. If we could look to page 2, please. 10 So 7 July 1999 Derek Hodgson is in attendance but 11 you are not. Paragraph 2 of the minutes refers to 12 Mr Sweetman's report on the negotiations with ICL: 13 "... further to POCL's paper, which had been 14 previously circulated to group members." 15 At paragraph 4 it says: 16 "On acceptance testing, Mr Miller said that work was 17 going ahead with ICL to a pre-agreed programme. 18 Mr Peberdy asked what defined a 'high' category 19 incident. Mr Miller said this would be one which 20 threatened progress within the project within the agreed 21 timescale. He did not think there would be major 22 problems. Mr Hodgson emphasised the need for regular 23 progress reports." 24 Now, do you at all recall whether Mr Hodgson 25 reported back to you on the outcome of this meeting? 175 1 A. My feel for this is that when these minutes and these 2 notes were produced, they would have been given to me. 3 I don't specifically remember him coming back from 4 a meeting and asking to speak to me and talk me through 5 all them. I don't recall that specifically. And the 6 reason I say that is because the other name down against 7 the CWU, Matthew Paynton, was a member of our research 8 department. And I think in the bundle he has produced 9 other -- he has produced reports that are contained in 10 the bundle. 11 So what the way we operated was, the senior 12 negotiator -- in this case the general secretary -- 13 would go to the meeting with someone from the research 14 department who would take notes, who would come back, 15 and we would write up our own note and then wait for 16 those notes, and then they would be given to me. 17 Q. So at this point, the CWU are aware of problems. 18 Mr Hodgson is saying there's a need for regular progress 19 reports, and I think your evidence earlier was that it 20 would be your job to keep asking questions of the Post 21 Office and essentially keep track of these problems? 22 A. Yes. 23 Q. Is that fair? 24 A. That would be our role, yeah. 25 Q. Can we then look at 27 July 1999. It's NFSP00000006. 176 1 So we can see on the attendance list that both Derek 2 Hodgson and yourself attended this meeting on 3 27 July 1999. At paragraph 2, it says that: 4 "Mr Sweetman reported that discussions with ICL had 5 gone well since the last meeting", and went on to 6 discuss about signing the contract. 7 Paragraph 4 refers to Mr Hodgson noting that there 8 had been a number of major events since the last working 9 group meeting, refers to a Select Committee hearing, 10 House of Commons debates, and on the Post Office White 11 Paper, "and suggested that the transcripts and Hansard 12 extracts he examined for points that would be of 13 interest to the group." 14 The minutes don't appear to reflect any discussion 15 on system faults or problems with training. Is that 16 accurate? Was there no discussion on those points at 17 this meeting? 18 A. I don't recall, if I'm being -- I don't recall. 19 Q. Do you think there should have been a discussion on 20 this, on system faults and training issues? 21 A. I mean, I'm trying to guess back 23 years here. The 22 agenda would have been -- my understanding is that these 23 agendas were agreed in advance. 24 Q. Can you help: what were the CWU doing at this point to 25 keep track of those -- so from in July specifically, 177 1 1999 -- to keep track of the problems that had been 2 raised by Post Office and whether they were being 3 satisfactorily resolved? 4 A. I mean, as I said earlier, it's difficult, from memory, 5 to say exactly what was going on 23 years ago, but we 6 would have -- outside of those big meetings with the 7 DTI, we'd have regular meetings. And when I say 8 regular, every day or every other day, with various Post 9 Office departments around issues that were affecting our 10 members. Sometimes Derek Hodgson would attend, 11 sometimes I would attend. Sometimes we'd devolve those 12 to NEC members, and we would constantly be raising 13 issues that we thought were going to affect our members. 14 In terms of specifics, did we ask at a particular 15 meeting a particular question, I genuinely don't recall 16 when that would have been raised. 17 Q. I'd like to go to the next meeting in the chronology for 18 the working group. It's quite a jump. It's to 19 11 October 1999 and the reference is NFSP00000066, and 20 if we could turn to page 4, please. 21 The attendance list has both you and Derek Hodgson 22 in attendance for this 11 October meeting. Paragraph 3 23 of the minutes, Mr Hodgson complained essentially how 24 delayed this meeting had been since the last one. Other 25 than the evidence you've already given about general 178 1 conversations, do you have any specific recollection, 2 between July and October 1999, of meetings you attended 3 where issues relating to the Horizon software system 4 were discussed with Post Office or anyone else? 5 A. I don't recall. 6 Q. Can we turn to page 5, paragraph 5, please. Thank you. 7 This says: 8 "Mr Miller [from the Post Office] explained that 9 formal acceptance of the reconfigured Horizon System 10 planned for 18 August had been postponed because of 11 POCL's concern about training, system stability, data 12 integrity (there had been an unacceptably high level of 13 screen freezes) and the effective operation of the help 14 desk. The Post Office had accepted the system on 15 24 September on the basis that effective remedial action 16 had either been completed or was in hand." 17 Now, at this stage, do you have any recollection of 18 what problems were facing the Horizon IT System? Does 19 this note assist you at all? 20 A. The issue around the helpdesk stands out because part of 21 the discussion we had was well, if the system doesn't 22 work, who do you go to? And they were setting up 23 a helpdesk and our understanding was that access to that 24 helpdesk wasn't as good as it was intended. And I think 25 what springs to mind to me, from this, from David 179 1 Miller's comments, is the fact that -- which I've said 2 in my statement a number of times -- we were never being 3 asked to sign this off. We were never being asked do 4 agree that this system was fit for purpose? We were 5 being told that various -- through various methods that 6 there had been, if you like, issues flagged up of the 7 type mentioned in this paragraph, but they were being 8 resolved between the interested parties who were 9 developing the system. And the assurance given to us is 10 that by the time we got around rollout, this would work. 11 Q. You said that a few times. You said "the assurance". 12 How did the Post Office assure you that these matters 13 were in hand? 14 A. Through statements like this: that they'd sat down with 15 the parties concerned who were developing the IT, and 16 that they'd resolved these issues. Or they would be, 17 I think as David Miller says here, they would be 18 resolved. 19 Q. Was this a case of Mr Miller would sit down and say, 20 "These issues will be resolved"? Do you recall whether 21 either yourself or Mr Hodgson tested those statements by 22 questioning them or otherwise? 23 A. I mean not specifically, no. I don't remember ever 24 asking that specific question. 25 Q. I want to look at two specific things that Mr Miller 180 1 says here. Can we just bring that document back up, 2 please. Just over the page, I think. Thank you very 3 much. Paragraph 5 again. 4 It says: 5 "System stability"-- so two of the problems: 6 "System stability, data integrity (there had been an 7 unacceptably high level of screen freeze) ..." 8 And at this point, did you have any knowledge that 9 the Post Office were not satisfied that Horizon could 10 reliably generate or reliably balance the cash account? 11 A. I'd have to say specifically, no, I don't -- I didn't 12 know that that was their specific concern. 13 Q. When you see the words "data integrity" raised as one of 14 the problems, what does that mean to you? Or what would 15 it have meant to you? 16 A. I mean, part of my role as Head of Finance of the CWU 17 and Head of Membership Records is that the data on the 18 system can be relied upon. Ie that it is accurate, 19 that it can produce for you what you want it to produce. 20 And if there's no integrity around the data, then the 21 end product is not likely to be what you want it to be. 22 So to me, that would be a failing of the system. 23 Q. Now the Horizon working group continues, but I think 24 a lot of the minutes go to issues such as the Government 25 Gateway and how Horizon could be used. One of the 181 1 things here you said is you sought assurances from the 2 Post Office that these matters would be fixed. 3 Following the 11 October meeting, what did the CWU do to 4 see that these issues were actually resolved, starting 5 with the helpdesk? 6 A. I think I come back to that point, if I can explain it 7 this way -- and again, I keep apologising for this, but 8 I'm going back 23 years. If I go back to the 9 substantive point I make is we were never asked to 10 approve the system, yeah? So for want of a better 11 phrase we were told "This system's coming in", yeah? We 12 want to make sure our members are trained properly, we 13 want to ensure that it can be fitted under the counters 14 because it was new machinery. We wanted to understand 15 how it's going to affect the day-to-day operation for 16 our members on the counter. And then we would pick up, 17 through this, through some of the questions raised 18 particularly by the NFSP, that there were problems at 19 the development and trial stage. And again, I can only 20 answer this the way I'd answered previously: you would 21 see from Derek Hodgson, you know, expressing concerns, 22 would be: are these issues going to be resolved before 23 you roll this out to our members? 24 And, you know, we were given the assurances that you 25 sort of see in these minutes that they would be. But 182 1 for want of a better phrase, we were never asked to get 2 under the bonnet and have a look at the mechanics to 3 satisfy ourselves that it would work. This was -- I'm 4 going back to the previous Government -- this was 5 a decision made that this was going to happen, and the 6 contractual arrangements between the parties were we 7 were being told, as a working tool, and as a kit, that 8 our members would work. By the time it arrived, it 9 would be fit for purpose. 10 Q. I suppose that's my question. Once it did arrive, what 11 did the CWU do to -- for example, did you take feedback 12 from your members as to how the Horizon System was 13 working? 14 A. So if the Horizon System wasn't working, that would 15 be -- I mean, this talks about the helpdesk -- my 16 understanding at the time. And this was a sort of 17 transition period now, because the rollout sort of took 18 place when I was leaving that role and somebody else was 19 coming in, who I think is going to be a witness further 20 down the line. 21 So the way of dealing with those issues would be 22 a number -- I mean, if there was a widespread system 23 failure, we would get to, you know, we would get to know 24 about it. And if -- and I specifically remember stuff 25 about the helpdesk; people saying they couldn't access 183 1 the helpdesk, and that was no use to them. 2 And then what it would show up, going back to the 3 previous comments I made about balancing on 4 a Wednesday -- it talks about balancing on 5 a Wednesday -- would be people saying, you know, "I've 6 been able to balance for years, now my till doesn't 7 balance", and we would represent those as an individual. 8 So we had a structure of -- I want to call them 9 field reps. So some offices had their own office rep 10 who would deal with some of the stuff, and then there 11 would be what most people call a regional rep. We call 12 it the system district organiser. 13 Q. Sorry, could you repeat that? 14 A. So the complaints, for want of a better phrase, would 15 feed up through that system. So in the first instance, 16 if there was an office rep, the office rep would try and 17 deal with any problems that an individual member would 18 come to them with. If they couldn't, or if there was 19 a few offices who had those problems, they would go to 20 the regional rep. 21 Q. If you could slow down slightly. Sorry. 22 A. Sorry. 23 Q. Don't worry. 24 A. So if there were problems, they wouldn't automatically 25 go back straight to the headquarters. There's, if you 184 1 like, a system of -- a structure of reps, representative 2 structures. Local rep, union rep, sort of area rep, 3 citywide rep, and then a north -- so, you know, I was 4 an office rep, then I became the Liverpool rep, then 5 I became the northwest rep, then I got made the national 6 executive rep for the council. And any problems that 7 were, if you like, at the coalface, for want of a better 8 phrase, there would be a recognised system of how they 9 would be dealt with, by formal agreement with the Post 10 Office. 11 So, you know, if somebody was what we called 12 suffering losses and gains -- ie a poor balancing 13 record -- then there was a system for that to be dealt 14 with, which would start at the local level. So the 15 point I'm making is not if there were problems, they 16 wouldn't automatically just come to us at headquarters. 17 If there were widespread problems across the whole 18 country and they were continued and, you know, not 19 necessarily being resolved to the satisfaction of the 20 local reps, then they would represent those problems to 21 us. 22 Q. In the rollout period, so 2000/2001, do you recall 23 having feedback given to you about your members not 24 being able to balance, and then taking that up with the 25 Post Office as a system problem? 185 1 A. I don't recall me specifically raising a national 2 problem with them that there was a widespread system 3 problem. I do recall, because part of my role was to 4 travel around the country and speak to local branches 5 for me to say -- apart from, you know, "What do you want 6 on wages, you know, reduced hours, how's the job going?" 7 type of stuff -- when I'd meet local reps, is people 8 saying, "We're getting more complaints about people not 9 balancing." 10 But more often than not, they'd try to deal with 11 those at a local level. Because we had in place 12 a system whereby -- I can't -- I'm trying to remember 13 specifically at the time, if you had so many -- I think 14 I tried to explain this earlier -- if you had so many 15 losses in a period of months, that could then lead to 16 the -- so you'd get a warning, yeah? So the boss 17 would -- the manager in the office would say, you know, 18 "You're not balancing. What's going on? Any problems?" 19 So on and so forth. Try and resolve it on a first-base 20 level. 21 But there was written down procedures that would say 22 if you've suffered so many losses over a certain amount 23 in a certain period, then that could potentially lead 24 to -- so you'd be called to explain why you think that's 25 happening. That could lead to disciplinary action. 186 1 Because of that sort of structure of dealing with 2 that on a local level, it's quite possible that those 3 problems could be perceived to be resolved at a local 4 level through negotiations or representing people in, if 5 you like, fact-finding interviews or disciplinary 6 hearings. So not all of those issues would, if you 7 like, for want of a better phase, be dumped on to the 8 CWU headquarters. 9 Q. The things you learnt during attending the working 10 group, including, for example, the October meeting when 11 there was an issue raised with data integrity, you were 12 at that meeting and Derek Hodgson was at the meeting 13 from the CWU -- did you pass that information on to 14 others within the union? 15 A. So what we used to do at the time, we would hold regular 16 meetings at the executive -- I think there's some 17 examples of letters we received in the bundle where we'd 18 put a document to our executive to explain updates, if 19 you like. What we used to do, as a union at the time, 20 was each department -- and I was the head of that 21 department that dealt with those issues -- we'd produce 22 an annual report which would explain to our branches and 23 our members that this is the work we've carried out in 24 the last year. We'd reproduce letters we'd see from 25 employers. We'd reproduce, if you like, significant 187 1 issues that had arisen during the year that we'd dealt 2 with. So that would be -- 3 We also had another system which is called Letter to 4 Branches which is we'd regularly, if we'd got 5 significant updates from the employer on major issues, 6 would issue letters to branches to explain to them what 7 we'd been doing. And so if there were any significant 8 issues, that was the vehicle for sending them out to our 9 local reps, for want of a better phrase. 10 Q. So when the Inquiry is then looking at how information 11 was passed down through the CWU, we should look at the 12 annual reports, I think it was the first one, and the 13 second one was the letter to branches? 14 A. Yeah, we'd have to go to our archive and -- 15 Q. I think you said in your evidence earlier that when you 16 attended local offices, there were people reporting 17 problems with balancing. In your mind, because you 18 knew, in October and before 1999, about problems with 19 the system, and you'd sought assurances that they would 20 be resolved, and you moved to when it's being rolled 21 out, you have numerous reports of people struggling to 22 balance, did you not think at that stage that the system 23 problems may not have been resolved? 24 A. The problem with me saying yes to that is my experience 25 of going round to local branches, and what I'm getting 188 1 told is anecdotal, this is not -- you know, you would go 2 to a branch meeting, talk to the staff, talk to the 3 staff reps. You know, I'd give a report on pay 4 negotiations or terms and conditions negotiations or -- 5 you know, the big issue that was going on at the time 6 with the Post Office, which this was designed to 7 resolve, was, from our point of view, the number of 8 Crown Offices where -- that the Post Office embarked 9 upon a programme of franchising Crown Offices out. So 10 selling them off, from our perspective, because the Post 11 Office believed that was a cheaper and more efficient 12 way of doing it -- to which we objected. 13 And they were the big issues of closing offices 14 down, a programme of wanting to close offices down. The 15 idea of the Horizon Project was new technology would 16 give the Post Office access to more government services 17 and, therefore, prolong the life of the Post Office 18 itself. 19 So I would go to local meetings and, if you like, 20 give that information to people, and then go "Right, 21 well, what are your problems?" 22 The problem with people saying to me, "You know, I'm 23 having problems with Horizon, the system doesn't 24 balance" -- the problem with that is people not 25 balancing, like, didn't just begin on the day Horizon 189 1 came in. There's always been occasions when people 2 didn't balance. So it wouldn't necessarily be 3 identifiable to us, or to me as an individual, that the 4 problems we were experiencing were directly because of 5 the Horizon System, other than people saying to me, 6 "I've always balanced and now I'm not. There's 7 something wrong with this system", which, when we would 8 have meetings with the Post Office, we would talk to 9 them about what had they done, the assurance we'd sought 10 when we were at the DTI, asking them, you know, "Are 11 these problems being resolved?" That would be our 12 approach. 13 Q. So in 2000/2001, what was your view of the Horizon IT 14 System? Did you think it was fit for purpose? 15 A. I mean, looking back on it, um, there were definitely 16 more reports to me of people not balancing. There were 17 definitely reports of the Horizon helpline not working 18 properly and people being able to, you know, access that 19 for assistance. So you could call it teething problems 20 or you could call it the system failing, but we would 21 represent that to the Post Office and say, you know, 22 we've got more people who appear to be having problems 23 operating the system. 24 Q. The Inquiry has heard evidence that the Post Office 25 investigated employees for theft, based on Horizon, in 190 1 2000, which subsequently led to successful prosecutions. 2 Was the CWU aware of those prosecutions in 2000? 3 A. I don't recall, as the lead CWU rep on this, I don't 4 recall any of our members being subject to that process. 5 I don't recall. 6 Q. And sorry, just going back in the timeline a little bit, 7 one further point on the Horizon working group. It's 8 been suggested to other witnesses that at the time the 9 Horizon working group was in play, so the summer of 1999 10 onwards, that the Post Office was simply committed to 11 automation and Horizon at any cost, really, and not 12 considering whether it was fit for purpose. What would 13 you say to that? 14 A. Generally that -- yeah, I'd probably agree with that. 15 So it was sold on the basis of the Benefits Agency 16 wanted -- so the previous Government -- I don't want to 17 get political here, but the previous Government set its 18 stall out on reducing benefit fraud, yeah? And the 19 Benefits Agency wanted to work with the Post Office to 20 eliminate benefit fraud, on the one hand. On the other 21 hand, there was a real concern about the future of the 22 Post Office Network, because what the Benefits Agency 23 was doing was new benefit claimants -- pensioners, Child 24 Benefit anybody -- were going to use ACT, Automatic 25 Credit Transfer. So instead of having the option to, in 191 1 those days, have a book -- there was a book with leaves 2 you ripped out, and handed those over and got cash 3 for -- inefficient, Benefits Agency claimed costly, open 4 to fraud. So they said, "We need a new automated 5 system. So what we're going to do is we're going to pay 6 everyone benefits, wherever they were, straight into 7 a bank account. Automatic Credit Transfer." 8 And then, of course, for us and the Post Office, 9 that was like business not going into the post offices 10 but going to banks. So what the Post Office wanted to 11 do was to try and work with the Benefits Agency to find 12 a system where people could still use the Post Office, 13 but that risk of benefit fraud would be reduced, and 14 then to try to work with the other Government 15 departments for any Government work. And if you had 16 a proper integrated IT or automated system, the Post 17 Office would be the go-to for any Government services 18 that the public could access. And that was the whole 19 idea of the concept of it, under the previous 20 administration. 21 When the new administration came in -- and I think 22 we've seen that in the minutes -- my recollection was 23 there was certainly a tolerance of delays to introducing 24 the system. But then there became a point where this 25 has to happen, we need to get on with it. And partly 192 1 because the Benefits Agency, from my recollection, 2 was -- I'll use my language -- getting fed up with the 3 delays because they were sort of like, "We need this 4 because we need to cut down on benefit fraud and there's 5 been delays to the contract, there's been delays to it 6 being implemented, and therefore there's delays to us 7 cutting down on benefit fraud." 8 We wanted it. I'm not saying we didn't want it, but 9 we wanted it because there was a real, for want of 10 a better phrase, a real fight for the future of the Post 11 Office. Because if -- I mean, the Government work and 12 Benefit Agency work -- from memory I'm talking about 13 maybe 50 per cent of the work that was undertaken -- if 14 you take out 50 per cent of the work, from the trade 15 union's point of view, it's 50 per cent of the jobs 16 going, which is not something we wanted. 17 So to me, there was a rush to get it done, and once 18 we'd identified this -- my take on it, looking back, was 19 there a rush to get it in. I'm not saying people didn't 20 try and resolve problems. There was a rush to get it 21 in, and they'd decided that this was the system, from 22 whatever beauty parade they'd undertook to identify the 23 provider, and once they'd decided on the system, that 24 was it. All roads led to Rome, and that was the road 25 they were going down. 193 1 MR STEVENS: Thank you. 2 Sir, I have no further questions. I see we've been 3 an hour. I think we only have one further set of 4 questions from Howe+Co. Would you be content to take 5 those now, and then have a short break, and then come 6 back for this is questions? 7 MR JACOBS: Sir, perhaps if it assists, I don't have any 8 questions to ask of this witness. 9 MS PAGE: On the other hand, something has come up during 10 Mr Kearns' evidence which I would like to ask about, if 11 I may. 12 MR STEVENS: Sir, if we can take a break for ten minutes I'd 13 be grateful. We can discuss the question which may be 14 put. 15 SIR WYN WILLIAMS: Well, let's have Mr Kearns. 16 Mr Kearns, would you prefer just to go through and 17 finish, or would you want a break? 18 A. I'll just go through and finish. I'll be fine. 19 SIR WYN WILLIAMS: And if Ms Page asks you a question that 20 Mr Stevens or I think shouldn't be asked, we will 21 intervene, but otherwise we'll carry on, all right? 22 Questioned by MS PAGE 23 MS PAGE: Thank you very much, sir. 24 Mr Kearns, one of those that I represent was a Crown 25 Office employee, and she was prosecuted -- her 194 1 prosecution began in 2001. I was interested to hear 2 that you talked about a loss and gains policy, 3 presumably should have been in place at that time. And 4 that should have been for all Crown Office employees, 5 should it? Not just those who were members of your 6 union? 7 A. That should have been for all, yeah. I would describe 8 that as part of my contract of employment. So you sign 9 your contract of employment, saying "These are your 10 terms and conditions, hours per week, money getting 11 paid." 12 And so there used to be a bundle of documents, Post 13 Office Rules and, from memory, your contract of 14 employment said "These are your terms", ie where you're 15 working and how long for and what you're getting, in 16 terms of remuneration "but you are subject to Post 17 Office rules, which are conduct, sick absence, if you 18 worked on a counter, losses and gains". They wouldn't 19 just be specific to CWU members, they would be for all 20 staff working on the front -- 21 Q. Part of the terms, yes. 22 A. My recollection, yes. 23 Q. So anyone who experienced losses or gains should have 24 really had their process -- and Ms Felstead should have 25 had her process dealt with through that policy? 195 1 A. Yeah, that's my recollection, yes. 2 Q. What would that have entailed? Would that have entailed 3 informal interview before anything formal and 4 prosecutorial? 5 A. My recollection is that would depend on how you'd 6 arrived at that point. So this is the point I made 7 earlier: if you'd had a series of, you know -- if every 8 week you were mis-balancing by £5, £6, £7, one way or 9 the other, losses or gains, then to the employer that 10 signifies -- "Oh, that's only £5 or £6, £7, what does it 11 matter?" But to the employer what that signifies is 12 errors, ie you're making errors, somewhere, you're 13 continually making errors along the line, if you're 14 continually making errors in your job, you're not fit to 15 do your job, so they would start a process. 16 If there were large losses -- and I don't know the 17 case, don't need to the case -- if there were large 18 losses -- so I dealt with one where the guy. I was the 19 rep but he was working on a counter -- who lost £500, 20 yeah? Straight £500. The Post Office investigation 21 division came straight in because they would be, in 22 their minds -- and I'm not saying we agreed or disagreed 23 with them -- but in their minds, they would go "Oh, £500 24 sounds a bit more than someone just making an error, 25 sounds a bit like theft". 196 1 So they would come in and their first stage of 2 interview there would probably be with the Post Office 3 Investigation Branch, POIB, as it was then -- 4 Investigation Branch, it's changed its name to something 5 else now. So they would come in first off, and go "We 6 want to have an interview with you because we think you 7 might have stolen 500 quid", that would be the first 8 place. 9 If it was a series of small losses there would be, 10 from my recollection, fact-finding interviews, you would 11 usually get a notice then to say, if you have -- and 12 I'm, again from recollection -- you would then be told 13 "If you have so many losses amounting to the value of X 14 or other, in a three or six-month period, then we're 15 going to take disciplinary action against you". 16 So it would depend on the loss and over what period 17 that the Post Office would call in the -- their ID. 18 MS PAGE: I see. Thank you. 19 Questioned by SIR WYN WILLIAMS 20 SIR WYN WILLIAMS: Just so I've got this straight, 21 Mr Kearns, was this policy back in, shall we say, 22 1996/97, before the rollout of Horizon, was that written 23 down anywhere or was it just understood, shall we say? 24 A. No, it would have been written down because I can 25 remember -- 197 1 SIR WYN WILLIAMS: Right -- 2 A. I can remember representing individuals with that policy 3 in my hand and -- 4 SIR WYN WILLIAMS: There's no possibility the CWU still has 5 it somebody where in its archives, is there? 6 A. Possibly. 7 SIR WYN WILLIAMS: Well, if you'd be good enough to have 8 a look, I'd be very grateful. 9 A. I will do, sir. 10 SIR WYN WILLIAMS: Thank you. Anything else, anyone? 11 MR STEVENS: No, sir that's everything for today. 12 SIR WYN WILLIAMS: Fine. 13 Thank you very much, Mr Kearns, for coming to give 14 a witness statement and coming to give evidence. I'm 15 grateful to you. 16 A. Thank you, sir. 17 MR STEVENS: Thank you, sir. 18 We return tomorrow with Colin Baker and Sir Ian 19 McCartney. 20 SIR WYN WILLIAMS: Fine, all right. Thank you very much. 21 MR STEVENS: Thank you. 22 (4.04 pm) 23 (The hearing adjourned until 10.00 am the following day) 24 25 198 1 I N D E X 2 SIR STEPHEN ROBSON (sworn) ...........................1 3 4 Questioned by MR BLAKE ........................1 5 6 Questioned by MR JACOBS ......................35 7 8 Questioned by MS PAGE ........................39 9 10 LORD ALISTAIR DARLING (affirmed) ....................44 11 12 Questioned by MR BEER ........................44 13 14 Questioned by MR JACOBS. ....................144 15 16 Questioned by SIR WYN WILLIAMS ..............145 17 18 ANTHONY KEARNS (affirmed) ..........................151 19 20 Questioned by MS PAGE .......................194 21 22 Questioned by SIR WYN WILLIAMS ..............197 23 24 25 199