1 Thursday, 1 December 2022 2 (09.25 am) 3 SIR IAN MCCARTNEY (continued) 4 Questioned by MR BLAKE (continued) 5 MR BLAKE: Good morning, sir. 6 Good morning, Sir Ian. 7 A. Good morning. 8 Good morning, Sir Wyn. 9 SIR WYN WILLIAMS: Good morning to you too. 10 MR BLAKE: Thank you very much, we'll resume where we left 11 yesterday afternoon, if that's okay. 12 A. Yes. 13 Q. Thank you. So just a reminder in terms of where we are 14 on timings and dates, we spoke yesterday about the 15 Benefits Agency wanting more model office testing and 16 end-to-end testing. The benefits card system was 17 cancelled in May 1999. 18 In the same month, May 1999, operational live trials 19 began with regards to the Horizon System in a small 20 number of post offices. The Horizon System hadn't at 21 that stage yet been accepted. On 22 June 1999 your 22 Working Group met for the first time. There were some 23 minutes I took you to yesterday of the NFSP National 24 Executive Council, I'm going to start by returning to 25 that document. That's NFSP00000471, please. I don't 1 1 believe this is a document you will have seen at the 2 time. 3 A. No. 4 Q. It's the report of the National Executive Council, and 5 if we go to page 15, it sets out who was present at that 6 meeting. This was a meeting held on 21, 22 and 7 23 June 1999. So your first meeting of the Working 8 Group was on 22 June, this seems to be happening at the 9 same time as the Working Group, and those are the 10 attendees who are present at that meeting. 11 I'm going to read to you a section of the minutes 12 from the meeting. Those can be found on page 23, they 13 will be brought up on screen. I'll read slightly slower 14 and a longer passage than yesterday because I appreciate 15 I rushed it a little bit at the end of yesterday. 16 A. Is this your second bite at the cherry? 17 Q. No, I don't want to catch you out. We did rush things 18 a bit yesterday. So I'm going to take you back to the 19 same passage and we'll spend a little bit more time on 20 it. It's about halfway down and it says: 21 "Current counter automation and current rollout came 22 under discussion." 23 So, by this stage, there is some degree of rollout 24 to a certain number of post offices. Thank you very 25 much: 2 1 "The actual power and scope of the Select Committee 2 were queried by Mr Edmondson, who asked account how far 3 fees could go. 4 "There was general discussion of the severe 5 difficulties being experienced by subpostmasters who are 6 already running an automated system. Seven sheets of 7 comments from the North East [so that's the area where 8 it's being rolled out] had been passed to Mr Dave 9 Miller. The difficulties and trauma being experienced 10 by some subpostmasters were giving rise to concerns for 11 their health and emotional wellbeing. It was felt by 12 some that a tragedy was not far away, if something was 13 not altered soon. The software was considered to be 14 poor quality and not intend to run such a huge network. 15 The system was based on ECCO which was originally 16 written for a network of 700 -- not 15,500. 17 "Although there may be improvements to the general 18 system, most members present want to know if the 19 Committee had the power to say that the current system 20 is obviously not working and instruct ICL and the Post 21 Office to review or restart with more 'subpostmaster 22 friendly' software. 23 "The General Secretary and Mr Peberdy confirmed that 24 Mr Bruce McNiven is not accepting that it is 25 satisfactory and there are also reports of problems with 3 1 hardware." 2 I am going to read the final paragraph, it says: 3 "Mr Marshall reported that it took two hours for his 4 printer to come back up and since then, after printers 5 on different counters had gone down, it has taken at 6 least two hours for each to become operational again. 7 Rebooting the system takes at least 12 minutes and, 8 taking into account all the time spent on the telephone 9 with the helpline, it takes many hours to balance on 10 Wednesday afternoon. There have been reports of 11 subpostmasters working until 10.00/10.30 pm which is not 12 only stressful, but eroding their free time. 13 "Mr Jannetta said that he and others of his 14 colleagues would have to rely on those subpostmasters in 15 the North East and South West who currently have this 16 system in place, to make sure their voices are heard 17 with their problems and to ensure that all the 18 difficulties encountered are satisfactorily overcome. 19 The point must clearly be made to the business that this 20 automation is not going to do the job, that 21 subpostmasters have learned enough to know it will not 22 work satisfactorily and that it must not be rolled out 23 to an excess of fifteen thousand sub post offices until 24 all the problems had been overcome. 25 "The Richard Jackson automated system was considered 4 1 by both Mr Marshall and Mr Darvill to be an easier to 2 use, preferable, alternative to the present system." 3 A. (Unclear) -- sorry. 4 Q. "Mr Darvill wanted to know if the lawyers had some hold 5 on the Horizon System for some reason that it could not 6 be changed. 7 "The General Secretary assured the meeting that 8 Mr David Miller had been informed of the difficulties in 9 no uncertain terms." 10 A bit further down that paragraph: 11 "We cannot continue to have experienced 12 subpostmasters/mistresses in distress on the telephone, 13 struggling until all hours to balance. These situations 14 must not be permitted to arise. It was pointed out that 15 if the Lottery offices had to deal with this situation 16 it would not be tolerated." 17 Those kinds of concerns that are being expressed 18 there in June 1999, were they ever expressed to you in 19 similar terms or as serious terms in the Working Group 20 or outside of the Working Group? 21 A. Well, I can't remember such problems being put in 22 that -- in that way. But that's not any excuse for not 23 remembering. And, secondly, I have got no recollection 24 whatsoever of Mr Miller either meeting me personally or 25 submitting either himself or via David Sibbick a list of 5 1 what was happening on the ground, which I would have 2 thought was absolutely required, given the Terms of 3 Reference and my view about how our group would work. 4 And one of the main aspects of that was rigour, but 5 importantly, I wanted to know the voices from the 6 frontline. It was really, really important to me to 7 know what was being said on the frontline. And for that 8 then to be able to be utilised in taking forward my role 9 as a minister. 10 I think I said this yesterday, so if I'm repeating 11 myself, I apologise. But I think it's obvious from 12 what's been said that the alarm bells were being sounded 13 on the frontline. Those alarm bells had a knock-on 14 effect to the health -- the mental health of the staff 15 and the postmaster and the postmistress, and this is on 16 top of the stress that they did have, without a shadow 17 of a doubt from my own experience locally -- they've had 18 years of pressure and strain, not knowing what was 19 happening, or when the system was going to be operated, 20 if it was at all, and what their role would up and 21 whether it would be a system that they could 22 satisfactorily use for their business requirements. 23 So I'm not surprised at what had been said. I don't 24 think it's been exaggerated. I have never found 25 Mr Baker and his colleagues people who exaggerate, they 6 1 told you as it was, and you then had to respond. But 2 I honestly don't remember receiving reports from the 3 northeast to the southwest on these pilots, either from 4 inside the system, the Government, or through people on 5 the Working Group. 6 Q. Thank you very much. I'm going to take you to the 7 minutes of the Working Group of 7 July 1999, so not too 8 long after that meeting took place at the NFSP. Can we 9 look at NFSP00000200, please. It's your D114 but I'll 10 bring it on to screen. 11 If we turn over the page, please, we'll see this is 12 a note of the meeting the Horizon Working Group. 7 July, 13 perhaps we can highlight the top half of that page to 14 show who attended. So we have there Dave Miller of Post 15 Office Counters Limited, that's one of the first names. 16 You're there at the very top as Chairman, you have 17 Stuart Sweetman from Post Office Counters Limited, Dave 18 Miller from Post Office Counters Limited, you have Colin 19 Baker from the NFSP there and John Peberdy from the NFSP 20 there, as well, amongst other people from the CWU, 21 et cetera. 22 Now, these are the minutes of that second meeting. 23 There is, at the bottom of the first page, reference to 24 acceptance testing, and something from Mr Miller. It 25 says: 7 1 "On acceptance testing, Mr Miller said that the work 2 was going ahead with ICL to a pre-agreed programme. 3 Mr Peberdy asked what defined a 'high' category incident 4 [because there were high, medium and low categories of 5 Acceptance Incidents]. Mr Miller said this would be one 6 which threatened progress with the project within the 7 agreed timescale. He did not think there would be major 8 problems. Mr Hodgson emphasised the need for regular 9 progress [updates]." 10 If we scroll through those minutes, perhaps over to 11 the next page as well, what you don't see in those 12 minutes are complaints of the sort that we saw in those 13 NFSP Executive Council minutes. There's nothing there 14 from Mr Miller, so Post Office Counters Limited or 15 Mr Baker of the NFSP, Mr Peberdy of the NFSP, or any 16 others, raising those kinds of issues at this meeting. 17 A. Yeah. 18 Q. Do you recall, in any of those meetings, those kinds of 19 issues being raised? 20 A. I still don't remember who Mr Miller is. And I do note 21 from the record there's no indication from him of any 22 complaints received or what he did -- and I'm sure he 23 did receive them, were dealt with or were being dealt 24 with. And I would have thought, in these circumstances, 25 as part of the report, there would be information, clear 8 1 information, about what the frontline had told him and 2 were complaining about. 3 So that's a major omission, in my view. 4 Q. We have a document that was prepared by the Post Office 5 for that meeting, can we look at NFSP00000226, please. 6 If you'd like the hard copy it's your D116 but, again, 7 I'll bring it onto screen. So this is, I think, Geoff 8 Moore. Was he in your department? 9 A. Yes, he was assistant private secretary. 10 Q. Thank you. He's providing you with this document. If 11 we go over the page, this is a report for the Horizon 12 Working Group by the Post Office on Post Office/ICL 13 negotiations. 14 Can we go over the page, please, to halfway down the 15 page; it addresses training and support. So this is 16 that same meeting, shortly after that NFSP meeting, and 17 I'm going to read to you those two paragraphs under 18 "Training/Support" it says: 19 "The current Live Trial is revealing a number of 20 important lessons which are being addressed for NRO 21 [national rollout]. Improvements in training, 22 procedures and software which will give greater 23 confidence in the service provided and support the 24 achievement of the NRO plan are being introduced. These 25 are geared to reducing/curing the earlier problems of 9 1 Wednesday cash balances that have been highlighted in 2 the trial offices. 3 "There will be a process of continuous improvement 4 to processes and procedures as lessons are learned in 5 the wider rollout. For example the period up to 6 Christmas 1999 will be used to test the current 7 assumptions on the number of offices that will go live 8 each week and the impact on the support services, 9 notably the Pathway and POCL Help Desks. Appropriate 10 action can then be taken to maintain and where necessary 11 refine the rollout plan during 2000." 12 It seems to be that this document that was prepared 13 for the Horizon Working Group was certainly painting 14 quite a rosy picture, compared to those NFSP/Executive 15 Council complaints. Would you agree with that? 16 A. Most certainly, that's why I am concerned that the 17 frontline complaints and the evidence, et cetera, don't 18 seem to have been getting through to us. It's one of 19 the purposes -- obviously, the committee was about 20 giving the frontline staff access to ministers, and to 21 ensure that ministers knew of issues, good, bad or 22 indifferent, in their daily working arrangements and in 23 the trials, and what they had found in practical terms. 24 Q. We spoke yesterday about the Montague report and that 25 there hadn't been a Government technical analysis, 10 1 a significant one, since that date, and your evidence 2 was that the Government were reliant upon issues being 3 raised in particular at that working party group. We've 4 seen here serious issues being raised at the NFSP 5 Executive Council meeting but they don't seem to appear 6 to have been discussed in that kind of level of detail 7 or concern at the Group. 8 What do you think went wrong, as far as the Group is 9 concerned? 10 A. Can I say, I was totally reliant on the members of the 11 Group bringing forward the issues. That was the whole 12 purpose of the Group, trying to ensure that I wasn't 13 blindsided deliberately or just by the nature of the 14 machine in government and far how that machine, I mean, 15 on a daily basis was from the frontline. So from that 16 perspective, I can't comment on why, other than it 17 wasn't brought or put in the agenda. 18 And that's another issue because, although the first 19 meeting's agenda was set simply as a way of getting the 20 committee going in the reports, I think I put in writing 21 to say that I was expecting them to be able to put items 22 on the agenda for discussion decision making. 23 Q. Did either the unions or the Post Office raise those 24 kinds of issues with you separately outside of the 25 meeting? 11 1 A. I don't remember at all that happening. 2 Q. Thank you. I'm going to move on now to a different 3 subject and that's governance of the Post Office. 4 I believe you were involved in the appointment of 5 Neville Bain as chair in 1998; do you remember that at 6 all? 7 A. Yes, I think I and the then President of the Board of 8 Trade and the Secretary of State at the DTI, Margaret 9 Beckett, and I, interviewed a number of candidates, and 10 he was selected. 11 Q. Do you remember the process at all, are you able to 12 assist us with that? 13 A. It's not how you'd carry out interviews today, in the 14 sense that the application system would today be far 15 more cognisant of ensuring, as best as possible, broad 16 references to who could apply for it, the job. 17 Secondly, we're in a situation which I found really 18 surprising with such a big organisation, that there were 19 very few applications for this post, and I think at 20 least one of them was a former member of the board who'd 21 retired but wanted to come back as chair, and that's not 22 a criticism of him, it's a reality. 23 I would have expected now, it was even then, that 24 there'd would be some headhunting role taken forward by 25 the Department to see what level of expertise, knowledge 12 1 and understanding of -- and had run a big 2 organisation -- was around in the marketplace. And it 3 may well be that because of the nature of it being in 4 the public sector, perhaps it wasn't sold enough to 5 people who were in the private sector, Dr Bain -- 6 I think it was, I think he was a doctor -- did decide to 7 apply, although I think he'd spent the whole of his 8 lifetime in the private sector. 9 Q. Did you have any views as to the technical experience or 10 competence of the board during your period of 11 involvement? 12 A. No, the board was in place, full stop. We appointed 13 a new chair, the Chief Executive was in post and all the 14 people under him, the non-executive directors, I think, 15 were changed at a later date, and at the later date, 16 I can't remember if it was a request to the Secretary of 17 State or whatever, that -- it wasn't me -- that they 18 brought on to the board people who acknowledged talent 19 and had a record of working in their sectors of the 20 economy where either the Post Office was in and losing 21 business, or areas where, after the establishment of 22 an IT base in the system, they were required to compete 23 for business, financial business and you needed someone 24 who had the skills and knowledge to do that. 25 Q. Did you think at the time that they were up to that job? 13 1 A. What the new ones that were appointed? Or the -- 2 Q. In general, during your period of involvement with this 3 project, did you think that the board were sufficiently 4 involved and experienced and had the correct expertise? 5 A. I couldn't comment on that because I very rarely met 6 anybody on the board, but what I would say is that 7 anybody with those skills should have been brought to 8 the fore but there was a very strange relationship 9 between the board and Government and this is another 10 lesson. Having taken responsibility as the de facto 11 owner of the Post Office, the Government should have had 12 a far more structured relationship with the board and 13 the senior directors, like Chair and Chief Executive. 14 That should have happened in a constructive way rather 15 than them writing and seeing if they could get squeezed 16 into the diary of an appropriate minister. 17 So I do think that we inherited a bad system, 18 perhaps they have learnt their lesson. I don't know. 19 It's too far out of the job but that should be the case. 20 Q. I'm going to take you briefly to a few documents that 21 might illustrate the point. Let's look at BEIS0000383. 22 It's a letter from Dr Bain to Stephen Byers. Would I be 23 right in saying -- on the right-hand side there are 24 recipients -- are you IM? 25 A. I'm assuming so, although sometimes I put "IMC". I've 14 1 been called lots of things, actually, but for the 2 purpose of this interview, I'll accept that "IM" is me. 3 Q. Okay, let's look at the first substantive paragraph, 4 please, and I'm going to read to you some of that. 5 About halfway through this paragraph it says: 6 "This continuing delay in being able to arrive at 7 conclusion is a major source of concern to the Board, 8 especially as The Post Office is being excluded from 9 these latest discussions. This last point in particular 10 was raised by our Non-Executive Directors and is regard 11 as unacceptable in terms of corporate governance. 12 Directors simply are not fulfilling their duties in 13 allowing the ongoing investment we are making on this 14 project, yet having no apparent control over, or even 15 input to, the current commercial discussions that 16 vitally affect us." 17 Perhaps we can go to the final paragraph of this 18 letter. This letter is from 19 February 1999. So if we 19 go over the page, thank you. The final paragraph says: 20 "The Post Office Board strongly believes that 21 a clear-cut decision must be taken now to go ahead with 22 Horizon and the Benefit Payment Card to end this period 23 of uncertainty which has reached an indefensible level. 24 If further proposals must be considered, then we need to 25 be involved. Our criteria to support any alternative 15 1 which may be tabled will be focused on the commercial 2 impact on the Post Office. The Board is accountable for 3 the future commercial wellbeing of The Post Office, and 4 the Horizon programme is vital to us." 5 Were the concerns that were being expressed in that 6 letter concerns that you shared about the involvement or 7 lack of involvement of the board? 8 A. The involvement which is set out relate, in some ways, 9 relate to my earlier point about not having 10 an appropriate structure between the technical owners 11 and the board and the management of the Post Office and 12 its businesses. The second point he makes is a tactical 13 point, quite frankly. He was pushing for a particular 14 option, legitimately, from their point of view, and 15 there were still disagreements from the other partners 16 or parties to the agreement, who had different views, 17 and therefore it was a good attempt from him to perhaps 18 refocus, from their perspective, the case that they were 19 putting at the time. 20 Every letter you'd get from the Secretary of State 21 at DSS or through us from BA and POCL and, of course, 22 ICL, all would be strongly putting their case and why it 23 should be considered, why it should be considered more 24 than you think it is. 25 Q. Can we look at BEIS0000218, please. This is a little 16 1 bit further on, it is 3 March 1999. Your name is there 2 on the right-hand side but it is a letter to the 3 Secretary of State and can we look at paragraph 3, 4 please. About halfway through paragraph 3, it says: 5 "Ian McCartney also recently met the new 6 non-Executive Board members and Board of the Post Office 7 on 15 February." 8 I think this something you spoke about briefly 9 before. 10 A. Mm. 11 Q. 15 February, so do you remember new board members or new 12 non-executive board members joining relatively far into 13 the programme? 14 A. I don't remember the timescale but I do remember meeting 15 with him and, in particular -- I think his name was John 16 Lloyd, who was very impressed by his grasp of the issues 17 and the role that he was playing or wanted to play, and 18 also the way he articulated, from his and the board's 19 perspective, the expectations, as I was saying, towards 20 me and other ministers. So I do actually -- the note 21 brings back that memory of the situation. 22 Q. Thank you very much. 23 A. I can't truly recall the names of the others appointed 24 but I think was Kinski one of them? Who -- I knew him, 25 and Mr Lloyd for different reasons, nothing to do with 17 1 their appointments. I think Mr Kinski I knew during my 2 development of the minimum wage policy. 3 Q. That's Mike Kinski? 4 A. Yes, and he was one of the large number of businesses 5 and business leaders I spoke to in developing the 6 policy, and John Lloyd again, I knew through his policy 7 activities and advice he gave to trade unions on issues. 8 I knew of him and his reputation. 9 Q. Thank you. Can we look at BEIS0000440, please. Now, 10 this is a meeting with ICL and the Post Office, it's 11 a note to David Sibbick. It's not a meeting that you 12 attended but I'd just like to read to you a few passages 13 from this note. Can we look at page 3, please. So 14 we're now into May, 12 May 1999. 15 "Neville Bain and John Roberts called to see the 16 Secretary of State at 12.15. The Secretary of State 17 once again ran through the present position, the 18 government's aim, and at B1 [this is one of the various 19 options that was being floated] was not affordable. 20 Termination would be a bloody affair. He needed a view 21 from the Post Office. 22 "Bain said he had been unable to update the board on 23 what B1 really meant, let alone B3 or a variant of it." 24 Paragraph 13 says: 25 "Bain responded angrily and gave a frank view of 18 1 Treasury numbers. Throughout this exercise he had felt 2 the victim of a conspiracy between HMT and KPMG. Under 3 questioning from you, Roberts admitted that the numbers 4 for B1 had been 'harder'. The key issue of the Post 5 Office was the timing of the move to ACT. The Secretary 6 of State said if that was the case, PO should go on the 7 front foot and look at dates like 2003." 8 The discussion that is taking place here, there 9 seems to be a concern from the Post Office about all 10 these various options that are being floated and the 11 lack of information that is being passed back to the 12 Post Office. Is that correct and is that something you 13 recall at all? 14 A. I would be surprised about the lack of information, 15 given that they were at the centre of all the 16 discussions that were taking place. Ministers like me 17 were looking back in bewilderment on the number of 18 variants of the original proposals. It was just coming 19 thick and fast and, as a consequence, when you read the 20 documents, it's difficult to put them in an appropriate 21 timeline. 22 But I honestly can't think of a situation, given 23 where we were at that time, in trying to produce 24 an agreement between all the parties, that they weren't 25 aware of, or weren't engaged with, the Post Office. 19 1 That doesn't mean that non-executive directors 2 were -- they've got people who were negotiating for them 3 and had been for some considerable time. And I'm 4 assuming that they would be reporting back to the Post 5 Office, and whether that was adequate or inadequate 6 would be a matter for Neville Bain. 7 But, again, here I think you can see the pressure 8 that has been put on, and it's legitimate pressure. 9 I mean he's doing his job as chair, a chair who says 10 nothing or doesn't shake the basket up isn't worth being 11 in the chair. So it's not a criticism of him. And, 12 again, it's part of the tactic, as I said, about finding 13 a proposal, whatever B or A it is, that the Post Office 14 were going to have a system which meant they had 15 a forward-looking future, and that there were in place 16 arrangements which -- until they could get the system up 17 and running, that there was arrangement that the paper 18 system would continue, and they would be able to plan 19 their income and expenditure in POCL accordingly. 20 And that was always something that, as ministers, 21 and certainly from my perspective, was critically 22 important: that it wasn't a cure-all for everything that 23 was wrong in the Post Office or POCL, but one thing was 24 absolutely certain: that there would be a time required 25 to introduce the changeover in a way that wasn't 20 1 financially destabilising the Post Office. 2 Q. To assist further with the timeline, let's look at 3 BEIS0000439. This is shortly after, it's 23 May, and it 4 is a letter again from Dr Bain to Stephen Byers, and I'm 5 going to just read some of it just to see if you 6 remember this. It says: 7 "In light of your letter today expressing the 8 Government's wish for the Post Office to sign the Heads 9 of Agreement with ICL, the Post Office Board met 10 tonight. With the exception of one non-executive, all 11 members were involved. 12 "We considered your proposal and the unanimous view 13 of the Board was as follows: 14 "based on the information currently available to us, 15 and bearing in mind our fiduciary responsibilities, we 16 believe that option B3 is likely to lead to 17 a deterioration in the financial position of the Post 18 Office, and is not the best use of shareholder funds. 19 "however, you have made it clear that you and 20 colleagues believe it is the best way forward, and of 21 course we do have the opportunity of the next 22 three months to fully understand the proposal and see if 23 it can be made workable." 24 Can we go over the page, please. Over the page, it 25 refers to the basis on which they would sign heads of 21 1 agreement, and then looking at the final paragraph it 2 says: 3 "Finally, my Board are deeply concerned about the 4 whole way in which this issue has been handled and about 5 the relationship between yourself as our sponsoring 6 Minister and ourselves. I would like an urgent meeting 7 between myself, the non-executives and yourself as soon 8 as possible." 9 Do you remember those kinds of tensions about the 10 way that the affair has been handled and feelings from 11 the Post Office that the decisions had been taken out of 12 their hands in some way? 13 A. I -- yes, I do remember and understand. But let's be 14 clear about it, we inherited a situation where this 15 programme was literally non-existent and £500 billion 16 had been paid out and you wouldn't find a single 17 computer across the Post Office Network, and we as 18 a Government had to (1) understand what their problems 19 were and, secondly, deal with a range of participants 20 who mistrusted each other, that the relationship had 21 broken down, and they all had their own idea of what 22 they wanted, and it was always their idea, and many of 23 them didn't want to compromise. 24 As you know from the other correspondence, from time 25 to time, there was talk of legal action by ICL and then 22 1 Benefits Agency and, eventually, they were pulled up 2 about missing key deadlines with BA, and that forced 3 them to rethink the strategy. But again, here, this 4 another example of the pressure being put on, because 5 the Post Office allowed this to fester for more than 6 two years, when we took office, and it continued to 7 fester thereafter until -- I would say take the bull by 8 the horns and try and find the solution. 9 As I said yesterday, it was like getting three hands 10 at poker and each hand was as bad as the other, and so 11 we'd to find a way of negotiating and hopefully find 12 a solution which would effect the promises in the 13 manifesto about the Post Office Network and also about 14 a E-government strategy. So we were under pressure from 15 day one, but we, I think, in hindsight, were able to get 16 through the minefield and, at the other end, get 17 a proposal that people all signed up to. 18 Q. Thank you very much. There were couple of other similar 19 submissions, and I'm not going to take you to them, I'm 20 just going to give their reference numbers for the 21 record so others can go to them at a later stage if they 22 wish. It's BEIS0000343 and BEIS0000190. 23 A. Could I ask you what those letters are about? 24 Q. Oh, absolutely. In fact, I'm happy to take you to them 25 briefly. I can read from them very shortly, it makes 23 1 really the same points. Let's go to BEIS0000343. This 2 is again another submission, it's June 1999 now, 3 paragraph 3 says: 4 "During the last increasingly frantic month of 5 negotiations on Horizon the Board felt they were being 6 asked to sign up to decisions for which they could see 7 no commercial basis, whilst Ministers declined to give 8 them any comfortable about how the non-commercial 9 aspects would be covered. This would have been an issue 10 in any event, but because of the numbers on Horizon were 11 so large -- and the numbers on the loss of Benefits 12 Agency work much larger still -- in relation to POCL's 13 marginal profitability, the Board had the greatest 14 difficulty in finding a sensible basis for decision 15 taking." 16 Over the page, it says at the top there: 17 "The Board are equally aware that Ministers for 18 their part felt that the Post Office was being obdurate 19 and unhelpful, and refusing to recognise Ministers' 20 responsibility the wider good. They are anxious to 21 repair relations, and to find a basis for avoiding 22 similar difficulties in future. They see their role as 23 considering proposals from a commercial perspective, and 24 making clear to Ministers where they see no commercial 25 case. They wholly accept that Ministers then have the 24 1 right to ask them nevertheless to go ahead for social, 2 economic reasons, provided that Ministers at the same 3 time make clear how the non-commercial elements are to 4 be funded." 5 The next document was BEIS0000190 and, again, it 6 makes similar points. This is from 17 June 1999. It's 7 to a Mr Baker, but that's not Mr Colin Baker that's 8 another Mr Baker, I believe, in Government, from 9 Christopher Woolard, and it's copied to yourself. It's 10 a -- 11 A. Christopher Woolard was the head of the Secretary of 12 State's office, I think. 13 Q. Thank you. It concerns a meeting with the Post Office 14 on 10 June and I'll just read to you a few passages. It 15 says: 16 "Discussion with non-executives 17 "The first part of the meeting centred on 18 a discussion of the Horizon between the Secretary 19 of State and non-executive directors of the [Post 20 Office], John Lloyd, Rosemary Thorne and Miles 21 Templeman; Mike Kinski could not attend). 22 "Dr Bain told the Secretary of State that the board 23 had a unanimous view. They wanted to go forward in 24 a positive way and put the Horizon project on a firm and 25 positive footing. However, they had concerns about the 25 1 process and felt that they had been excluded at times 2 and that the implications for the [Post Office] had not 3 been taken on board." 4 The next paragraph says: 5 "Dr Bain continued that he wanted to stress the 6 fiduciary duties of the board. There was also an 7 interplay with the critical points outstanding on the 8 White Paper. He stressed that the Board were all pretty 9 new. They were not being deliberately awkward but 10 exercising commercial judgement." 11 It goes on in similar terms. I think the point, 12 really, that I was going to put to you, and I think you 13 really addressed, is that concerns were being expressed 14 by the board that they were excluded at times. 15 A. Well, yes. First of all, I remember Miles Templeman as 16 well. I met him, I think, during the issues on 17 employment rights, and the minimum wage, if I remember 18 rightly. I apologise, I can't remember Rosemary Thorne. 19 It's interesting these letters, you can see a quite 20 a major shift, can I say, back to realising the 21 importance of getting a deal, and to work with ministers 22 to do that. I do smile a little when he continues to 23 impress that ministers really aren't quite on board with 24 him. That was not the case. It was one of the most 25 difficult periods of my ministerial career, both in 26 1 timing and intellectually stretching myself, and using 2 my skills as a negotiator to get where we were getting 3 to, and that included within Government, because, don't 4 forget, in Government we've a huge number of different 5 views being expressed, sometimes like scattergun across 6 Whitehall. 7 And so and I just think the letters in the end, 8 despite some of the stuff about not being engaged 9 I don't accept that, and that we were engaged. And the 10 fact that they acknowledged the need to be engaged in 11 this period, which I would say was like the start of the 12 endgame, if there was to be a satisfactory endgame, 13 they'd need to be on board, and I think you'll see how 14 different that letter is, in reality, to the previous 15 letters that we discussed. 16 Q. Thank you very much. I only have a few more questions, 17 and these are questions that have been submitted on 18 behalf of some of the Core Participants, and they relate 19 to entirely different topics. 20 The first is in relation to your statement at 21 paragraph 17. You have said that that ICL were the 22 company with the contract for Horizon, who were 23 a subsidiary, in reality, to Fujitsu, and you say in 24 your statement they had their own agenda. Are you able 25 to expand on that and what you meant by them having 27 1 their own agenda? 2 A. Yes, again, from my perspective, it became clear that 3 the contract was critically important to Fujitsu's 4 board, having purchased ICL, they saw ICL as a major 5 component of reorganising their international business, 6 where ICL would take on the role that traditionally 7 Fujitsu dealt with in Japan. And the emerging markets 8 in IT and the size of them, they wanted to be able to 9 get ICL into a position of being recognised reasonably 10 soon as a major international player, trusted by 11 governments like the UK. 12 And they also had, alongside of that, a business -- 13 I believe a business plan, or should have had, to be 14 able to not second-guess, but to see the developments 15 that were taking place, both in the public and the 16 private sector, in relation to the use of new technology 17 to re-engineer their working arrangements and the 18 services that they provide. 19 ICL was critical to that. And so the effort being 20 put into Horizon was to allow them to (1) be able to 21 have an agreement, whether under licence or whatever, 22 market it for widely in the UK, for BEIS, in particular 23 their ability to use it for a range of different 24 services. 25 The second area, I think, was that they needed to be 28 1 in a financial position where they could bring into the 2 company considerable sums of capital to have a share 3 release on the Stock Market for ICL. But they couldn't 4 do that, and understandably, unless the atmosphere 5 around ICL and their ability of the potential investors 6 to see that the company was viable going forward, it did 7 have a good potential order book, and it has been 8 involved and indeed carried out one of the largest IT 9 projects in Government -- in the public sector, 10 certainly in Europe, but at one time probably the world. 11 It was in their absolute interests to try to ensure 12 that this investment wasn't just about doing the job in 13 terms of what they were asked to do at Horizon, it was 14 far wider than that, as was the Government's in terms of 15 it wasn't just Horizon; it was across the whole of 16 e-commerce and across the whole of Whitehall, those 17 schemes. 18 And, as I said earlier, at the time, governments 19 were getting taken to the cleaners -- as were big, 20 large, private sector companies. When it happened, 21 though, in the private sector, everybody just kept 22 quiet. Not quite the case in the public sector. 23 Q. Thank you very much. 24 A. And just one point. When you've got people standing 25 outside passport offices and -- [audio disruption] -- 29 1 you've got a problem, and that's another example of 2 problems being allowed to fester and fester instead of 3 resolving them, and so it was in the Government interest 4 also. 5 Q. Thank you. You also say in the same paragraph that ICL 6 shared the risks under the PFI scheme. Do you 7 understand PFI to be a sharing of risk or a transfer of 8 risk to ICL? 9 A. Well, it's how you want to interpret it. PFI has, over 10 the years, particularly the last decade or so, been put 11 under scrutiny, and the scrutiny was indicating, or is 12 indicating some of the agreements signed up by the 13 Government on -- and local government, on infrastructure 14 programmes, had become very, very expensive, and the 15 public were paying through the nose for the services. 16 On the other side of the argument, the pragmatic 17 argument would be, in terms of PFI, we could wait for 18 years and years to raise money, say, for example, to 19 ensure that 1 million private dwellings and public 20 dwellings were fit for purpose, or if you'd got a PFI 21 you could quickly refurbish many of these properties, 22 and being pragmatic, and coming from an area where 23 properties weren't that salubrious, growing up, I take 24 the view that, along with other ministers, like John 25 Prescott and others, that perhaps the pragmatic thing to 30 1 do was to do the houses, get them refurbished, and 2 that's what we did -- 3 Q. Thank you. I'm going to move on to the subject of 4 fraud. 5 A. -- if that answers -- 6 Q. At paragraph 13 of your statement you've referred to the 7 Benefits Agency and DSS wanting to significantly reduce 8 benefits fraud. Were you aware of the Post Office's own 9 investigation and prosecution system? 10 A. I had knowledge of it, both early on as a minister, and 11 also as a backbench MP. One of my roles as a backbench 12 MP, I seemed to get engaged and involved intending on 13 the criminal gangs on this, and other issues. And -- 14 Q. Do you recall any discussions about the use of Horizon 15 data for Post Office prosecutions against, for example, 16 subpostmasters? 17 A. No. And I'm not sure -- and I apologise -- I hadn't 18 seen exactly when this -- when these projects started, 19 and I don't know if I was in the Department or not, 20 and -- [audio disruption]. 21 Q. Sorry, we're losing connection with you slightly, could 22 you just repeat -- 23 A. Can you hear me now? 24 Q. Yes. 25 A. Okay, I'll repeat it. I do apologise. I knew of the 31 1 operation of the Royal Mail, from a constituency point 2 of view, both in terms of the work I was doing against 3 criminal gangs in my area, one of which was relating to 4 benefit frauds with illegal money lending at the centre 5 of it. And the second area was occasionally postmen got 6 suspended for alleged fraud, for example, burning the 7 Tory party manifesto in the fire instead of delivering 8 it, or -- that's true! And the loss of mail or the 9 stealing of mail. And so I knew about it from that 10 perspective. 11 Q. Do you recall any discussions during your time in office 12 about ensuring the reliability of Horizon data or the 13 use of Horizon data in prosecutions? 14 A. No, but shortly after receiving Sir Wyn's invitation to 15 participate on this, by pure chance, I was informed by 16 a colleague or a former colleague of mine -- not 17 a minister, not a civil servant -- someone who I knew by 18 virtue of my public office and stuff, that there had 19 been a case in Liverpool where prosecuting a postmaster 20 postmistress -- I haven't got details of it -- where the 21 CPS withdrew the case understanding that the barrister 22 was concerned that the evidence doesn't stand up and 23 wasn't prepared to proceed with the case. 24 What -- if that was absolutely accurate, whether 25 it's just a rumour that's gathered, but it's something 32 1 that may be worth looking at from your perspective 2 because, if this was near the beginning of all these, 3 I would have thought that would be very much a red light 4 in respect of this. 5 Q. So that wasn't something that you were aware of during 6 your time in office? 7 A. No, no, no. I've got no recollection of ever being 8 involved in issues around prosecution in respect of this 9 issue. 10 MR BLAKE: Thank you very much, Sir Ian. 11 There are likely to be a short number of questions 12 from Core Participants. 13 Sir Wyn, do you have any questions? 14 SIR WYN WILLIAMS: No, no thank you very much. 15 MR BLAKE: Thank you. I'll hand over to Mr Stein. 16 Questioned by MR STEIN 17 MR STEIN: Good morning, Sir Ian, can you see and hear me? 18 A. Yes, thank you very much. 19 Q. My name is Samuel Stein, I represent a large number of 20 subpostmasters, mistresses and managers. I'll take you 21 directly, please, to a document, which is POL00028530. 22 A. Is that in the bundle of documents? 23 Q. The question of whether this is in the bundle -- I'm not 24 sure, I'll have to check. 25 MR BLAKE: It will be in your bundle. I can't give you the 33 1 reference right now. 2 A. It's up on the screen. 3 MR STEIN: I'm grateful. 4 Sir Ian, if we can just have a look at the document 5 on the screen, we'll see the date of it is 16/11/1998 6 and you can see that is confirmed at the top left 7 corner. This is a document that has been faxed. It is 8 to Jonathan Evans from Isabel Anderson, Postal Services 9 Directorate. So that's the copy that we have so far. 10 If we go to the next page, please, page 2 of 30. 11 Sir, we learned a little more about this document, we 12 will see again the date that's being referred to, top 13 left-hand corner, but that this is described as a draft 14 as at 6.30 pm on 13 November 1998. It has reference to 15 "BA/POCL Automation Project, Interdepartmental Working 16 Group Report to Ministers". Then, as you see, the date 17 is again confirmed in November 1998. 18 Just pausing for a moment, this was within your time 19 as a Minister of State, you were a Minister of State? 20 A. That's absolutely right. 21 Q. I'm very grateful. If we can go, please, to page 7 of 22 30. Can we concentrate, first of all, on the top 23 left-hand corner, where we can see a little bit more 24 helpful information about this particular document. So 25 the date, as we've been referring to, top left-hand 34 1 corner, is the one that we can see that relates to a fax 2 date of 16 November 1998. Then lower down from that 3 we've got a slightly obscured date, which I think, if 4 I remember correctly, is 13 November 1998, 7.00, then 5 from "PEP Team, HM Treasury". Can you help with your 6 recollection, what was the PEP, P-E-P team, at the 7 Treasury? 8 A. I'll be honest with you, I don't -- I have a thing about 9 all the documents. There are too many of them and it 10 doesn't tell you the name of the organisation. I don't 11 remember. 12 Q. All right, well, let's go -- 13 A. If you want to tell me what it is -- 14 Q. All right, let's go to the guts of the document that 15 I want to ask you about. The bottom of the page at 16 page 7. We can see that the heading there says, 17 "Managing the changes to the [Post Office] Network". 18 So this is discussing the potential different 19 options about trying to go ahead, if it can, with the 20 Horizon System. So "The response of the Post Office 21 under each option" -- if you can just highlight the 22 bottom part of that page, again, page 7. Thank you: 23 "The response of the Post Office under each option, 24 and in particular how any changes of the network would 25 be managed, will be an important factor in any decision 35 1 on the way forward. There are differences of view 2 between the parties on [and then over the page to 3 page 8, and then highlight the top two lines and then 4 the three bullet points] the ability of the Post Office 5 to manage changes to the network under each scenario." 6 Then it says this: 7 "Key issues will be ..." 8 Now, the first two deal with maximising customer 9 base in relation to a switch to ACT, how to maintain 10 relations with existing clients. I want us, just for 11 the moment, concentrate on the third bullet point. So 12 key issue will be, and I'll read this a bit more slowly: 13 "how to ensure that the subpostmasters (private 14 agents who run the majority of the post office network) 15 perceive" -- 16 A. (Unclear) 17 Q. -- "perceive" -- 18 A. Yes, I can see, apologies. 19 Q. You can see this. This is the third bullet point. 20 A key issue will be: 21 "how to ensure that subpostmasters (private agents 22 who run the majority of the post office network) 23 perceive that the post office business can provide 24 a viable future and do not voluntarily exit the market 25 (reducing the ability of the [Post Office] to manage 36 1 network closures and migrate business to other 2 offices)." 3 Just reading down to paragraph 21, just below there, 4 please -- paragraph 21. Thank you very much: 5 "Under all options the Post Office will be seeking 6 to manage a reshaping of the network, against 7 a background of commitment to nationwide network of post 8 offices. Their objective is to retain the current 9 levels of access, especially in rural areas, but to 10 reduce over-provision in some urban and suburban areas, 11 replacing some physical offices with electronic access 12 points. Current trends would in any case see 13 a reduction in the rural network by some 200 offices 14 each year, and a gradual shift to ACT-based methods of 15 payment over time. (by 2009/10 almost 50% of claimants 16 are expected to have switched to ACT). Compared to the 17 current network of 19,000 offices, POCL believe that 18 their vision for the future could be served by a network 19 consisting of around 11,000-13,000 full service offices 20 supplemented by 5,000-10,000 electronic access 21 points ..." 22 Now, Sir Ian, in your evidence you have made it very 23 clear that you had a ready and good understanding of the 24 working life of those people that ran the post offices, 25 that they were running a business at their own risk, 37 1 they'd end up taking out loans and committing themselves 2 and their family to work with the Post Office, providing 3 a community service. That seems to be something that 4 you have emphasised in you evidence a number of times. 5 A. Yes. 6 Q. So the first part of this, which is the reference to how 7 to ensure that SPMS, subpostmasters, perceive the Post 8 Office business can provide a viable future, in other 9 words seeming to say to the postmasters -- well, seeming 10 to avoid saying to the postmasters that the vision of 11 the Post Office was including the closing down of well 12 over a third Post Office branches, is that an acceptable 13 message that was being discussed up to the ministerial 14 level? 15 A. First of all, can I just say that it wasn't just 16 a community service, there was a business service 17 alongside the community activities of the Post Office. 18 Q. Yes, sir. 19 A. Yes, okay. There was a number of issues, some of which 20 are experiences from my own area, which was a former 21 area of collective mining villages and, in more urban 22 areas, mining communities and communities involved in 23 the textile industry, which was also, at the same time 24 as the mining industry, being closed down in large 25 swathes. 38 1 So I can -- the background to that was that, 2 alongside of that, there was pressure -- this was prior 3 to me being in government -- pressure to close some of 4 the smaller post offices, sub post offices in my area 5 and, secondly, quite a number of postmasters were taking 6 the opportunity to take retirement, and had every right 7 to do so. And the difficulty of finding them somebody, 8 an alternative, to take on the office, even offices that 9 the Post Office wanted to maintain, finding 10 an alternative owner of it was beginning to bite quite 11 significantly. 12 So going into Government, there's that background -- 13 I think it's the same background for many other MPs of 14 whatever party, doesn't matter -- this was going on. 15 There was already a move in terms of the network. 16 The second area, of course, for me was the selling 17 off of the estate in terms of the Crown Post Offices, 18 I always thought this was an early move by then 19 Government to get ready for privatisation, and there had 20 been little or no investment by the Post Office in 21 suitable central locations to maintain and develop the 22 businesses of Crown Post Offices. And when you saw what 23 the businesses were doing, they weren't meeting customer 24 demand, unless you wanted to pay your DVL licence or 25 stuff. 39 1 The area of consumerism was passing them by and, 2 therefore, they just wanted to sell off -- if they owned 3 the buildings, sell off a capital asset or, if they were 4 in long-term leases, find a way of getting out of those 5 leases in a cost effective way. 6 So this is all background, and this is what, as well 7 as when you come to where that was already ongoing and 8 then, of course, we've got ICL, and ICL and the Horizon 9 project and the delays. We're talking about -- this 10 project was first conceived in 1993, I think, if 11 I remember right. And, of course, like all things, 12 despite people were asked to keep it low key, it was 13 very quickly out into the community of the postmasters 14 and postmistresses. 15 So, really, from 1993, they became the victims of 16 the delays, and then the further delays and then the 17 further delays plus the financial leakage of hundreds of 18 millions of pounds, and still, for them, no sign of 19 training, no sign of the finished product that they 20 would be trained for or on, and that then impacted again 21 on them, where people wanted to retire, either because 22 they were not interested in new technology, and they 23 were at the age where "I'll retire", couldn't find 24 anybody to buy the business. Why would you? 25 You've got -- and so they were in the situation that 40 1 some were lucky and were able to -- they were based near 2 a supermarket, so some of the supermarkets took a longer 3 view and took on the Post Office facilities or, on 4 occasions, would offer a postmaster/postmistress 5 facilities at a low rental in their store for the 6 footfall, and I had that in my constituency happen 7 and -- 8 Q. Sir Ian, I'm going to interrupt just for these purposes. 9 I've taken you to a particular document that sets out 10 what appears to be the vision of the Post Office, which 11 is -- I'll paraphrase -- which includes the idea that 12 "We won't frighten the pigeons" -- the pigeons being the 13 subpostmasters -- "because if we do then they'll close 14 up their branches too quickly for us". 15 Now, was that floated or explained to you as part of 16 the Post Office and their potential use of the Horizon 17 System, in other words go to automation, go to 18 effectively ATM style branches, rather than physical 19 human branches. Was that floated past you in any 20 material that you were aware of? 21 A. It wasn't floated in the sense that you mean. I can't 22 remember any formal discussions but it's certainly 23 a live point around the structure of the Post Office and 24 people you met. This was, indeed, from them a very 25 serious issue, and I'm not sure if they were at that 41 1 time able to have a solution for it, other than, of 2 course, what they should have done was get the program 3 up and running and training and all that goes with it, 4 and bring some certainty into the introduction of the 5 new technology and the potential for the new businesses 6 of the platform. 7 Q. Now, you've mentioned transparency as being very 8 important. You said that in your evidence yesterday. 9 A. Mm. 10 Q. Does this document that I've referred you to say 11 anything about the way that the Post Office was setting 12 out its own stall, regarding the Horizon System and 13 subpostmasters. Were they being transparent, open and 14 honest? 15 A. Honest to the postmasters and postmistresses? 16 Q. Yes. 17 A. Well, I'll be honest with you, I didn't know -- I don't 18 have any knowledge of what they were saying, but one 19 thing is certain, that whatever they were saying, it was 20 still a huge veil of secrecy, isn't it -- and I'm 21 talking about what I think postmasters and 22 postmistresses thought, what I heard being said on the 23 ground, they never seemed to have any timetable, any 24 sense of the direction and whether -- and as time went 25 on, whether or not it was going to happen. Whether or 42 1 not they were going to be able to sell the business. 2 Whether or not, if they were to keep their business, 3 there would be system in place that allowed them to 4 continue with the paper-based system until the new 5 system came in. 6 I mean, these were all huge issues which were just 7 hanging around postmasters and postmistresses. 8 Q. Thank you, Sir Ian. One final point. You have been 9 asked by Mr Blake regarding the position or knowledge 10 that you had of the use of the Horizon System to support 11 the evidence being given in court. Okay, so this is to 12 support investigations, civil actions in the civil 13 courts, and criminal actions in the criminal courts. 14 Okay? 15 Now, you've answered him by saying that that was not 16 something that you were aware of in your time, in terms 17 of any discussion about it. 18 Now, help us, please, because Sir Wyn's work within 19 this Inquiry will be to report and make recommendations 20 as to change in the future. 21 A. Yes, indeed. 22 Q. Right. So working on that particular question. Do you 23 believe that that should have been part of briefings and 24 discussions taken up to the ministerial level, that this 25 system was going to underpin, be the core system, for 43 1 the use of court proceedings in the future? 2 A. Given the knowledge I had at the time, it was rare that 3 you were ever told about ongoing investigations, some of 4 them potentially serious. And it was seen as a no-go 5 area, really. It was an organisation like a private 6 police force, in reality, to deal with the alleged 7 substantial crime within the organisation or in terms of 8 their business model. 9 Q. Should you have been briefed regarding the potential to 10 use the Horizon System for core purposes? 11 A. You could say yes but, in truth, at the point I was in, 12 I don't think anybody thought about the issue which led 13 to this appalling situation we're now talking about. 14 Having said that, I think it would be taken for 15 granted that all parts of the business would be 16 subjected to internal activities where they were 17 tracking alleged criminality or, from their point of 18 view, I needed to dig deeper about how this was being 19 caused. And so, from that respect, ministers wouldn't 20 be alert -- I hadn't been alerted to, in my view, but 21 once you start the two issues then which you raised, one 22 is this is a serious sign that there was major 23 operational problems with the system itself. And, 24 secondly, that this could lead on the initial 25 information, to potential prosecutions. 44 1 At that level, because of the nature and the history 2 of it, I would have thought that would be a matter to be 3 brought to the Secretary of State by the Chief Executive 4 and the Chairman, but at least the Chief Executive, 5 and/or the then appropriate ministers, to be fully 6 updated and indicating the nature of the evidence. 7 I gave the example of the Liverpool court. Another 8 thing would say about this, and this isn't evidence as 9 such, but I would have thought, dealing with people 10 who'd worked for the Post Office, the majority of them 11 for decades had submitted and paid out their own money, 12 developed the business, were committed to the Post 13 Office, and were committed to their community, would 14 suddenly across the country, all be knocking off the 15 income that they were receiving? 16 I just thought "That is just ridiculous". I'm not 17 saying no fraud in any situation doesn't happen, I'm not 18 saying that at all. But what I'm saying is that it 19 wouldn't have been lawyers that I would be getting in 20 here, I'd be getting my technical experts in here 21 because it's clearly, from my point of view, this was 22 potentially a serious fault in the system and the system 23 had to be corrected, and identified and corrected. And, 24 if that was the case, then other arrangements should be 25 put in place to ensure the accounts reflected the actual 45 1 situation rather than the situation thrown up by this 2 major error. 3 Q. Sir Ian, just one last matter, then. We know that the 4 Home Office oversees the police force. Who oversaw the 5 Post Office's private police force, as you described it? 6 A. That would be the -- I'm assuming the Chief Executive. 7 I can only assume that. 8 Q. What about at the ministerial level or Government level? 9 Who oversaw -- 10 A. Well, at the ministerial level, I'm assuming that would 11 go to the Secretary of State and, in my case, the 12 Minister of State at the same time. 13 MR STEIN: Thank you, Sir Ian. 14 Questioned by MS PAGE 15 MS PAGE: Can you see and hear me? 16 A. Yes, thank you. 17 MS PAGE: It's Flora Page and I also act for a group of 18 subpostmasters and those employed by the Post Office, 19 and I'd want to just mention two in particular: Ms Arch 20 and Ms Felstead, both of whom were wrongly prosecuted in 21 the period when Horizon was still being rolled out. The 22 Horizon evidence they were prosecuted on was gathered 23 during 2000/2001. 24 We'll just, if we may, go to a different section of 25 the document we have looked at, the minutes of the 46 1 National Executive meeting held on the 21st and -- 2 sorry, a few dates in the middle of June 1999. It's 3 NFSP00000471. If we can go, please, to page 27. 4 If we zoom in on the section below the line, the 5 lower part of the page. This is the report back to the 6 NFSP meeting, following that first Working Party meeting 7 of the Horizon Working Party. So this is the readout, 8 if you like, going back to the NFSP from Mr Peberdy and 9 Mr Baker having attended that first meeting with you. 10 A. Yes. 11 Q. If we can just go over to the next page, and if we zoom 12 in on -- I'll see if I can find the paragraph number. 13 It's the second paragraph and it's the bottom bit of it. 14 A. Post Office, mm-hm, yes. 15 Q. About halfway down the section that's kind of zoomed in 16 on, there's a sentence that begins: 17 "The main change was withdrawal of the Benefits 18 Agency Card which had been scrapped." 19 So they're talking about, obviously, the withdrawal 20 of the Benefits Agency, and then it goes on to read out 21 what you said: 22 "Despite this, Ian McCartney, Minister for Trade & 23 Industry was emphatic that rewriting the rollout 24 programme would not be contemplated and Dave Miller 25 confirmed that the intention of POCL/ICL was to adhere 47 1 to the 2001 commitment. Automation is expected to take 2 place within the timescale agreed and Mr McCartney was 3 emphatic that he would not accept slippage. The Post 4 Office delegates were told 'you will make it work'." 5 Thank you, the document can be taken down. 6 Now, what I would like to just remind you of is that 7 obviously that was a referral or a reference to what you 8 said in the meeting notes that we looked at yesterday, 9 and you've already explained what you intended there, 10 but this is how they were interpreted. This is the 11 message that got back to the NFSP and also, to some 12 extent, we can see, to the Post Office. What we also 13 know is, from that point onwards, the Post Office really 14 told you what you wanted to hear, didn't they? They 15 sort of gave you that rosy picture and they said that 16 they were going to adhere to that timetable and, indeed, 17 they did. They adhered to the timetable. 18 So what happened as a result of that explicit 19 message was that a tragically inadequate system was 20 rolled out bang on time. So what I want to ask you is, 21 given the history of failure by ICL up until 1999, 22 should you have been more circumspect about the urgency 23 and given at least equal, if not more, weight to the 24 quality of the system? 25 A. Well, first of all, whether the Post Office thought 48 1 I was daft enough just to accept propaganda, that isn't 2 the case. Throughout this, whole issue until I left the 3 Department, I was deeply committed to ensuring that the 4 system that was brought forward provided for the Post 5 Office mistresses and masters a business future. 6 Q. Committed you may have been, but you didn't succeed in 7 that, did you, Sir Ian? 8 A. With all due respect, I wasn't there when it became to 9 be dealt with, in a way. I mean, I left this programme 10 in 1999, July 1999. I was reshuffled and that, from my 11 perspective -- not just my perspective, that was 12 reality. I went on to another Department and picked up 13 other briefs, but while I was there, I argued my corner. 14 We argued for the setting up of this group, and I argued 15 with it with other ministers who agreed, in the end, to 16 it, and the reason for that is that I wanted, not just 17 the voice of the Post Office or ICL, whatever, I wanted 18 the frontline's voice to be heard. 19 And I put that in writing. I said it verbally, 20 I put it in the letter of invitation to the first 21 meeting. And so I had no doubt in my mind that I was 22 setting this up so, if anybody did try to hoodwink me, 23 I would have a view from the frontline about what, in 24 reality, was happening. So that's what -- so let's be 25 clear about that. I'm no patsy nor would ever be 49 1 a patsy. 2 Now the second thing is -- I don't want to repeat it 3 all, because you said -- Julian Blake, I gave him 4 a reply to the politics -- I don't mean the partisan 5 politics, but the politics of discussions and 6 negotiations had already led to the point to that the 7 delay was going to cause another delay and that I was 8 emphasising the 2001 figure was set because we gave -- 9 the commitment was given by the parties concerned, ICL 10 and POCL, that this date would be doable and would be, 11 from our point of view, if it was robust, et cetera, 12 that would ensure at last the Post Office -- sub post 13 offices would at last have both a timescale, training, 14 ongoing training, and a technology base which would 15 allow them to continue effectively in business and 16 retain as much of the business they can, even when 17 people move to ACT. 18 So it was about -- I wanted to see it done and 19 dusted to ensure that the businesses could carry on and 20 that they were viable, and if a business was to be sold, 21 people would want to buy the business. So that's what 22 all that meant. It wasn't -- why would I be involved in 23 a situation where I wanted to see it by a certain date, 24 and as soon as you acknowledge it, it wasn't fit for 25 purpose? That's just not feasible. 50 1 MR BLAKE: Thank you very much. 2 Sir, we've reached the ending of questioning. We've 3 got two more witnesses today so perhaps this is the 4 moment to conclude this witness. 5 SIR WYN WILLIAMS: Certainly. 6 Sir Ian, you started reasonably promptly yesterday 7 afternoon and here we are on Thursday morning. I'm very 8 grateful that you were able to come back this morning to 9 complete your evidence and I am very grateful for all 10 the answers you have given to the very many questions 11 put to you. 12 So we will now have our morning break, and we will 13 resume in 15 minutes, Mr Blake. 14 MR BLAKE: Thank you very much, yes. 15 SIR WYN WILLIAMS: Thank you. 16 MR BLAKE: 11.10. 17 (10.53 am) 18 (A short break) 19 (11.10 am) 20 MR BEER: Good morning, sir, can you see and hear me? 21 SIR WYN WILLIAMS: Yes. I've just unmuted myself. 22 MR BEER: Thank you very much, sir, can I call Alan Johnson, 23 please. 24 ALAN ARTHUR JOHNSON (affirmed) 25 Questioned by MR BEER 51 1 MR BEER: Please do sit down. Mr Johnson, can you give us 2 your full name, please? 3 A. Alan Arthur Johnson. 4 Q. As you know, my name is Jason Beer and I ask questions 5 on behalf of the Inquiry. Can I thank you for coming to 6 give evidence today and also for the provision of your 7 witness statement which, without exhibits, is 17 pages 8 in length. It should be in front of you there. 9 Could you turn to the last page, please? On 10 page 17, do you see a signature? 11 A. Yes. 12 Q. Is that your signature? 13 A. Yes. 14 Q. Are the contents of that statement true to the best of 15 your knowledge and belief? 16 A. They are. 17 Q. Thank you very much. Can I start with some questions 18 about your background and experience, please. I think 19 you worked as a postman for 19 years, by my calculation, 20 between 1968 and 1987? 21 A. Yes. 22 Q. Then for five years, between 1987 and 1992, you were 23 an officer of the Communication Workers Union, the CWU? 24 A. Yes. 25 Q. Then for five years after that, '92 to '97, you were the 52 1 General Secretary of the CWU? 2 A. Yes. 3 Q. Now, the relevant members of your union, so far as the 4 Post Office is concerned, worked in Crown Offices; is 5 that right? 6 A. Yes. 7 Q. Crown Offices, is this right, were run directly by the 8 Post Office and represented about 10 per cent of the 9 post office network at that time? 10 A. Yeah, a declining amount. It's down to about 11 3 per cent, I think, by the time these -- by the time 12 this occurred. So it was 10 per cent when I joined 13 about 3 per cent at the turn of the century. 14 Q. You became an MP, the Member for Kingston upon Hull, in 15 1997; is that right? 16 A. Hull West and Hessle, yeah. 17 Q. Two years later a ministerial appointment was made, that 18 came in 1999; is that right? 19 A. Yes. 20 Q. Can we look at second page of your witness statement, 21 it'll come up on the screen for you, WITN03380100. You 22 there, helpfully for us, in paragraphs 5a to h, set out 23 a succession of ministerial appointments and 24 appointments as Secretary of State, culminating in the 25 last years of this administration, as Home Secretary. 53 1 I'm not going to read all of those out, the witness 2 statement becomes part of the record now you have 3 adopted it? 4 We're particularly interested, in this phase of the 5 Inquiry, in the role that you held for some two years 6 from 29 July 1999 until 7 June 2001. You were Minister 7 for Competitiveness; is that right? 8 A. Yes. 9 Q. That was your official title: Parliamentary 10 Under-Secretary of State? 11 A. Yes, they called it "Competitiveness" but I was in 12 charge of manufacturing industry, employment relations, 13 biotechnology, chemicals, the steel industry, the Post 14 Office, and a few others. But it all came under the 15 title of many of "Minister for Competitiveness". 16 Q. You've anticipated my next question. Your portfolio in 17 that two-year period included oversight and 18 responsibility for the Post Office? 19 A. Yes. 20 Q. What else was in your portfolio? 21 A. I've just had a run through there. So employment 22 relations, including ACAS, manufacturing industry in 23 general, but in particular biotechnology, the steel 24 industry, the chemicals industry and one or two other 25 bits of manufacturing, aerospace, for instance, which 54 1 was a big part of my job, Airbus, et cetera, on the 2 European front. So it's quite a fixed portfolio. 3 Q. What proportion of your time and work was taken up, can 4 you recall, with issues relating to the Post Office? 5 A. Quite a bit, because we were taking through the Postal 6 Services Bill, so when you have a Bill it's not 7 usually -- the Secretary of State does second reading 8 but it's the junior ministers that go through the 9 committee corridor and do the line-by-line stuff on 10 a Bill, which is quite concentrated, and a lot of work 11 involved in that. 12 So there was that, plus there was the fact, because 13 of my background, I was very interested in this part -- 14 you know, I'd never worked in the steel industry, I'd 15 never worked in biotechnology, but I'd worked in the 16 Post Office. 17 Q. If you were to put a fraction on it, as best as you can, 18 how much time was taken up with Post Office issues in 19 that two-year period? 20 A. I would say that -- when the Postal Services Bill was 21 going through, I would say about 40 per cent of my time 22 was taken up with that. 23 Q. And when the Bill had passed? 24 A. About 20 per cent. 25 Q. At this time, 1999 to 2001, the Post Office was 55 1 a statutory corporation. In general terms, how did the 2 Government and you, in particular, exercise oversight of 3 the Post Office? 4 A. Well, my understanding is that there were two 5 shareholders: one was the Chancellor of the Exchequer, 6 the other was the Secretary of State for Trade and 7 Industry. It was a much more arm's-length relationship 8 than it would have been when I'd joined in 1968, because 9 I'd joined as a civil servant, and then in 1969 it 10 became a public corporation. And we were in the 11 process, that Postal Services Bill, of making even more 12 arm's length our views that the Post Office shouldn't 13 have been broken up and privatised, which John Major and 14 Michael Heseltine had tried to do, it should have more 15 commercial freedom in the public sector, and so we were 16 putting through a Bill to give that greater commercial 17 freedom. 18 Q. So before the Bill was enacted, how did you, in the 19 interim, exercise oversight of the Post Office? 20 A. The Secretary of State would have had to have agreed 21 tariff increases for instance, the Chancellor would 22 have, as well as taking a large chunk of any Post Office 23 profits, would have been overseeing any big financial 24 commitments by the Post Office. And the Post Office was 25 inhibited by things -- we used to call it the public 56 1 sector borrowing requirement, they don't call it that 2 anymore, but that was holding the Post Office back in 3 relation to some of its competitors who didn't have the 4 same burdensome legislation in other European countries. 5 Q. Did, for example, in this two-year period, the Post 6 Office have a board? 7 A. Yes. 8 Q. Did government have a seat at that board? 9 A. No. 10 Q. Did the Post Office have a chairman? 11 A. Yes. 12 Q. Who was responsible for the appointment of the chairman? 13 A. The Secretary of State. 14 Q. Who was responsible for the termination of the 15 appointment of a chairman? 16 A. The Secretary of State. 17 Q. Who was responsible for other appointments to the board? 18 A. I'm not sure. I mean, I say Secretary of State at the 19 DTI, by the way. 20 Q. Yes. 21 A. Responsibility for -- I think the Chair and the Chief 22 Executive then had a measure of freedom about who they 23 appointed but I think it had to be approved by the 24 Secretary of State. 25 Q. Who was your main point of contact with the Post Office 57 1 in this two-year period? 2 A. My main point of contact would have been John Roberts. 3 He was the Chief Executive of the Post Office. 4 Q. Yes, and how frequently would you have met with 5 Mr Roberts? 6 A. Every couple of months. 7 Q. Was that on a standing basis or did it just happen to be 8 every couple of months because that's when issues arose? 9 A. It happened to be every couple of months. The Postal 10 Services Bill was going through, there were big European 11 issues, as well, that affected the Post Office and, of 12 course, for the Post Office -- I know you appreciate 13 this, Mr Beer, but there's some confusion because there 14 was a number of iterations. Then, it was the Post 15 Office, under which was Post Office Counters -- 16 Q. I'm going to come to Post Office Counters in a moment. 17 A. -- distribution and parcels, yeah. 18 Q. I am going to come to Post Office Counters in a moment. 19 Was there any other formal reporting mechanism from the 20 Chief Executive to you, either the production of 21 monthly, quarterly, or another period, reports? 22 A. I was kept advised through officials of developments but 23 there was no -- I can't remember a monthly report coming 24 to me. 25 Q. So it was on an issues basis -- 58 1 A. It was on an issues basis and if, for instance, they 2 wanted to increase tariffs or, indeed, change the name 3 of Royal Mail, which was one of their issues. 4 Q. How often would you meet with the Chairman of the Post 5 Office, if at all? 6 A. Very infrequently, if at all. I probably met him more 7 times as General Secretary of the union than I did as 8 a junior minister. 9 Q. Did you see it as your function, as the Minister for 10 Competitiveness, who had the Post Office within your 11 ministerial portfolio, to hold the Post Office to 12 account? 13 A. To hold them to account? No, not in the way that, for 14 instance, when I was health secretary you'd hold the NHS 15 to account. 16 Q. Why was that? 17 A. Because of the fact that the Post Office was living in 18 a competitive environment, there was now an erosion of 19 what was previously a very strong monopoly. There were 20 parcel couriers who could set up all the time. It was 21 seen as being very important that we didn't just talk 22 the language of commercial freedom for the Post Office 23 in the public sector; we allowed them to get on with it. 24 Q. Was that a commonly held view, that it wasn't the 25 function of government to hold the Post Office to 59 1 account? 2 A. Well, hold to account in the sense of -- we weren't 3 micromanaging them. They were there. They weren't part 4 of the Civil Service any more. It was down to them to 5 make commercial decisions about the future of the Post 6 Office. Our role was in those kind of quite narrowly 7 defined areas: tariff increases, et cetera. And 8 I think, you know, in terms of the Post Office's 9 understanding of that, they wanted greater commercial 10 freedom. Indeed, they wanted privatisation but they 11 didn't get that. What they got was perhaps a more 12 arm's-length approach. 13 Q. You were aware, I think, that there was a subsidiary 14 company called Post Office Counters Limited, POCL? 15 A. Yeah. 16 Q. Was any different approach to oversight taken by you as 17 minister in relation to POCL, because it was 18 a subsidiary company and a limited company? 19 A. Um, no, no different from Royal Mail or the distribution 20 arm, Parcelforce. 21 Q. To what extent did you have contact with the board of 22 Post Office Counters Limited? 23 A. Quite a bit, through Horizon. That was the big project. 24 Q. But was there any more formal review or reporting 25 mechanism from the board of Post Office Counters Limited 60 1 back to you as minister? 2 A. No, they sat on the Horizon Working Group. There was 3 a constant dialogue with officials. If the Minister 4 needed to have stuff referred to it, then officials 5 would do that. 6 Q. But not intrusive supervision on a regular reporting 7 basis or regular meeting basis? 8 A. No, and there was nobody you asked about the Post Office 9 Board. There was nobody sitting on POCL's board or 10 Royal Mail's board or Parcelforce from government. 11 Q. Can I turn then to the position in relation to Horizon, 12 by the time of your appointment. Just so that we can 13 all recap where we were, by the end of July '99, when 14 you took up your role, is this right: the decision had 15 already been made that the Benefit Payment Card element 16 of the Horizon platform wouldn't proceed? 17 A. Yes. 18 Q. The decision had been made that the contractual 19 arrangements between the remaining contractual parties, 20 ICL Pathway on the one hand, POCL on the other, would 21 not be through the vehicle of a PFI contract but instead 22 a more standard bilateral design and build contract; is 23 that right? 24 A. Yes. 25 Q. That contract had been signed and those two parties were 61 1 in the process of moving towards a live trial; is that 2 right? 3 A. Yes. 4 Q. To what extent did you know all of that through your 5 position that you had previously held, immediately 6 before being an MP, as General Secretary of the CWU? 7 What did you know about Horizon through your position as 8 General Secretary of the CWU? 9 A. That was back in '97 -- 10 Q. Finished in May 97. 11 A. Yeah, so there hadn't been any trial offices. By the 12 time '99 came along, it was a trial in Gloucestershire 13 of number of offices, and then it was spreading out, 14 supposed to be at a rate of about 200 to 300 offices 15 a week. What did I then know about Horizon? I thought 16 it was the salvation of the Counters network. We were 17 worried about Crown Office closures, which generally 18 didn't close the Post Office but reduced them to a sub 19 office, so it was always cheaper to have a sub office 20 than a Crown Office with better paid staff, our members, 21 and so we were campaigning about that. 22 There was an issue about the number of transactions, 23 so all the post offices, whether they were Crown or 24 whether they were sub offices, depended on people coming 25 thorough, footfall, and using those services, and that 62 1 was declining. I think, as I say in my witness 2 statement, the Post Office used to be the only place you 3 could a buy a stamp, post a parcel and collect your 4 pension or Child Benefit. That was all changing. 5 So computerisation of the network, automation of the 6 network, seemed not just logical but essential. 7 Q. What had been, therefore, the position of the CWU in 8 respect of the Horizon System up until you ceased to be 9 General Secretary in May 1997? 10 A. Supportive. 11 Q. And very supportive for the reasons that you have given? 12 A. Very supportive. 13 Q. To what extent had you kept abreast of the details of 14 the Horizon project when you were a backbencher for the 15 two years between -- about two years between May '97 and 16 July '99? 17 A. Took an interest and followed the news. 18 Q. So general media things -- 19 A. General media stuff. 20 Q. -- that might catch your eye? 21 A. I was on the Trade and Industry Select Committee for 22 a short time before I became a Parliamentary Private 23 Secretary, so for, what was that, six months? 24 I remember attending a hearing with the Post Office 25 about this. 63 1 Q. To what extent did you know of any complaints by 2 subpostmasters or those that worked in Crown Offices 3 about the operation and integrity of the Horizon System 4 in that two-year period? 5 A. None. 6 Q. When you became the Minister with responsibility for the 7 Post Office in July 1999, were you briefed about the 8 Department's position on Horizon, the DTI's position on 9 Horizon? 10 A. Yes. 11 Q. Can you remember what you were told about the 12 Departmental position on Horizon? 13 A. Ooh, can I remember? No, probably not. But reading 14 through the documents, it brings the memories flooding 15 back. So, generally, when you get a ministerial 16 appointment, just before the summer recess, you get 17 a whole tonne of stuff you have to read up on before 18 you're back in -- you know, in session, so to speak, and 19 so I was reading through lots of stuff. And that told 20 me about Ian McCartney's Horizon Working Group that he'd 21 set up, my predecessor, and it set out the framework for 22 the Postal Services Bill. 23 Q. When you took up that position, what were you told, if 24 anything, about the technical viability or technical 25 robustness and integrity of the Horizon System, as it 64 1 stood at that point? 2 A. I was told that they were introducing it very, very 3 carefully on a very -- quite a slow timescale, 4 originally, that the whole basis of the approach was to 5 make sure that subpostmasters in particular were 6 comfortable with it. But that it needed to be in place 7 by 2001, because of all of the issues that we'll 8 probably come on to with the Benefits Agency, the 9 cancellation of the Benefit Payment Card, the prospect 10 of people not being able to access their money in cash 11 across a post office counter, which was the lifeblood of 12 the network. 13 Q. When you say had to in place by 2001, I think that was 14 spring 2001, was the -- 15 A. Spring 2001 was the original timescale, yeah. 16 Q. Now, you've said, in answer to my question there, that 17 you were told about proceeding carefully. Were you 18 referring there to live trials and then rollout? 19 A. Yes. 20 Q. Were you told anything about any existing problems with 21 the technical viability or technical integrity and 22 robustness of the system? 23 A. I don't recall -- in the briefing before I took up the 24 position, I don't remember anything about that, no. 25 Q. Were you told about any concerns that had arisen in the 65 1 course of various stages of a very extensive procurement 2 exercise about concerns over the software that 3 ICL Pathway was designing and developing? 4 A. No. 5 Q. Were you told about any conclusions that a series of 6 third party consultants had reached about those issues 7 during the course of the procurement exercise? 8 A. No. 9 Q. We know that in July '98, so a year before your 10 appointment, a report co-authored by Adrian Montague, 11 had been written. Were you told about, as part of your 12 briefing, or given a copy of, the Montague report of 13 July 1998 that held expressions of concern about 14 technical aspects of the system? 15 A. No. I was told that the Benefit Payment Card that 16 we'd -- we being the incoming Government in '97 -- kind 17 of persevered with for a while, that the Trade and 18 Industry Select Committee, for instance, had said, you 19 know, we probably persevered with it for longer than we 20 needed to do. And I know that the decision was made not 21 to proceed with the Benefit Payment Card and that had 22 a kind of -- a whole series of ramifications, not just 23 in relation to the future of the Post Office Counters 24 Network but technically. 25 An o my impression was that they'd tried to make the 66 1 Benefit Payment Card work, one of the reasons why they'd 2 pulled that PFI was because it was two years behind and, 3 in that sense, probably that was some of the Montague 4 stuff as well, but I never saw the Montague report. 5 Q. Were you told that one of the three key reasons for the 6 DSS's withdrawal from the entire project was its concern 7 that the system was technically flawed and that ICL had 8 been in breach of contract? 9 A. No, I don't remember being told that, no. 10 Q. What were you told of the reasons for the DSS's 11 withdrawal from the scheme? 12 A. That it wasn't working. It was so far behind, had gone 13 over cost, that to persevere with it would just throw 14 good money after bad. It just wasn't going to work. 15 That decision had already been taken. That was kind of 16 in the past. But that's what I picked up from the 17 briefing. 18 Q. Were you told that the DSS's reasons for withdrawal 19 were -- included ones of principle and included 20 a preference for ACT over the Benefit Payment Card? 21 A. We kind of knew that anyway, you know, from my days in 22 the union. There was always this clash between 23 Government wanting to protect the Post Office Network -- 24 that was crucially important, particularly in rural 25 areas but not just in rural areas, in many urban 67 1 deprived areas -- and the DSS wanting the cheapest 2 possible system. And I remember that kind of how much 3 a Giro cheque cost against how much a ACT cost, you 4 know, there was a considerable difference. And there 5 were the issues around fraud as well, which the Benefit 6 Payment Card was meant to deal with too, because there 7 was an awful lot of fraud on counterfoils and Giro 8 cheques, et cetera. 9 Q. The difference of a small number of pence versus 10 sometimes 70p or 80p per transaction? 11 A. It was about 1p per transaction for ACT and about 53p 12 for the Benefit Payment Card and about 79p for a Giro 13 cheque. 14 Q. In any event, you weren't told that one of the three key 15 reasons for the Benefit Payment Card withdrawal from the 16 project was a concern that the system was technically 17 flawed. 18 A. I don't remember seeing that bald statement about it 19 being technically flawed. 20 Q. Were you aware of any technical study or assessment 21 being undertaken between the Montague report of July '98 22 and when you took up office in July '99? 23 A. No. 24 Q. After you took up office in July 1999, to what extent 25 did the unions -- and here I have in mind both the 68 1 Federation and the CWU -- continue to seek to revisit 2 the decision to drop the Benefit Payment Card from the 3 Horizon System and move to ACT? 4 A. They didn't. It never cropped up as an issue with the 5 unions. 6 Q. Can we just look at paragraph 12 of your witness 7 statement, please, which is on page 4. Just wait for it 8 to come up on the screen for those that are listening 9 and watching remotely. At the foot of the page, 10 paragraph 12. You say: 11 "When I was appointed as a DTI Minister, the 12 decision not to proceed with [BPC] and move instead to 13 ACT had already been taken. However, after I was 14 appointed, POCL, the unions and subpostmasters, 15 continued to express concerns that this decision could 16 potentially be disastrous for the counters network. 17 A. Yes. 18 Q. So they were still expressing concerns but they weren't 19 trying to -- 20 A. They weren't trying to reverse it, they weren't, you 21 know, launching a campaign to reduce the Benefit Payment 22 Card. I think they accepted that. What they were 23 pointing to was the concern that everybody had that 24 there was now -- that continuation with the old 25 paper-based system would not allow us to do the kind of 69 1 things we wanted to do, to get more work into the Post 2 Office. 3 Q. So what did the unions want you to do? They were 4 expressing concerns that the decision, the effect of the 5 decision, could be potentially disastrous for the 6 counters network. What was their desired outcome? 7 A. There was one big idea, which was the universal bank. 8 So the Post Office had already reached a deal with 9 Girobank, of course, which the whole point of Girobank 10 being set up was so that people could bank at the Post 11 Office, with Lloyds TSB, with the Co-operative -- with 12 the Co-op, and I think with Barclays, that people could 13 access pretty basic banking facilities at the Post 14 Office. So the idea -- and it was a very pertinent 15 idea, banks were closing, it was already the fact -- 16 I remember the statistic, although it reminded me in the 17 documentation -- 60 per cent of villages had a bank, 18 5 per cent had -- sorry, 60 per cent of villages had 19 a -- 20 Q. Other way round -- 21 A. Post Office, 5 per cent had a bank, and there was a real 22 feeling that now the banks were getting a lot of flak 23 for closing banks, and that they were suddenly more 24 interested in this idea of the universal bank, that 25 people could access any aspect of their own bank account 70 1 across a post office counter. And that, of course, 2 given that the Benefit Payment Card was only a temporary 3 solution because people were inevitably going to move to 4 ACT, a different generation were retiring who had got 5 used to cashless pay and no longer felt it was important 6 to get their money in cash. 7 That was going to happen anyway, even with the 8 Benefit Payment Card, so this idea of bringing new work 9 in was crucial, you know, universal bank was one idea, 10 and then later, more developed, was this Government 11 Gateway idea. 12 Q. If we go back to your witness statement at paragraph 13, 13 please, which is on page 5. At the top of the page, you 14 say: 15 "I understood from POCL modelling and estimates that 16 the revenue impact would be a loss of £400 million ... 17 and that half of the post office network would close", 18 and you give us the cross-references to those. 19 Other witnesses have described this situation as 20 an existential crisis for the Post Office. 21 A. Yes. 22 Q. Did you view it in that way? 23 A. Yes, I did. That's if nothing had happened. So if you 24 didn't replace that with anything, the whole lifeblood 25 was going to seep away. For subpostmasters, it was more 71 1 important, of course, because if people coming in 2 collecting their money would then spend it on other 3 aspects in their shop, there were normally other things 4 that they were selling, you know, in a Post Office, it 5 was an even greater loss. That was just the loss to -- 6 from the benefits work, and Child Benefit. 7 So if I remember rightly, there was something like 8 17 million pensioners every week going to the Post 9 Office for cash, there was something like 7 million 10 recipients of Child Benefit, they were rarely the same 11 people, the pensioners were rarely claiming the Child 12 Benefit so, add that together, that's part of the 13 27 million people that used the Post Office every week. 14 Q. Was the Horizon System seen by subpostmasters and the 15 unions representing them as one of the principal 16 vehicles that might enable these harms to be avoided or 17 at least minimised? 18 A. Yes, absolutely. 19 Q. That Horizon was a means, the means, to secure the 20 future life of post offices? 21 A. Yes. 22 Q. Did it follow that the way that subpostmasters, through 23 the unions representing them, put it to you was a desire 24 to have it rolled out sooner rather than later, to get 25 it working sooner rather than later? 72 1 A. Well, I can't remember what order it came in but, 2 eventually, it was agreed that the DSS would migrate 3 people onto ACT, their payments being made through bank 4 accounts, ie no other alternative. It came -- unless 5 they didn't have a bank, there'd have to be arrangements 6 there. They were going to do that between 2003 and 7 2005. 8 So the idea of getting Horizon up and running by 9 2001, getting new items of work coming through, getting 10 the universal bank up and running was very much seen in 11 that context, that from 2003 to 2005 there was going to 12 be an even greater fall in the number of people 13 physically coming to a Post Office to collect their 14 money in cash. 15 Q. Can we turn, you've mentioned it already, to the Horizon 16 Working Group. You were, I think, the chairman of the 17 Horizon Working Group? 18 A. Yeah, I'd forgotten what it was called, actually. I had 19 to be reminded that that's what it was called. But, 20 yes, I was the chair of the Horizon Working Group. 21 Q. Was it in existence when you became the minister in 22 July 1999? 23 A. It was, although I understand there were various 24 iterations before then doing different things but 25 Ian McCartney was chairing what we would have called, in 73 1 the parlance of the time, a piece of social partnership 2 between the unions and management in the Post Office on 3 this very important project. That was the Horizon 4 Working Group. 5 Q. We understand that the first meeting of the Horizon 6 Working Group was on 22 June 1999 and, therefore, that 7 was, I think, the one and only meeting before your 8 arrival. Can we look at your understanding of the 9 purpose of the Horizon Working Group. If we look at 10 paragraph 15 of your witness statement, it'll come up, 11 it's on page 5. At the foot of the page, you say: 12 "The Horizon Working Group's ... role was to (a) 13 involve staff thorough their elected representatives in 14 decisions on computerisation of the network and (b) to 15 feed back any problems experienced by staff at the trial 16 offices ..." 17 Then you give some references. 18 Then in paragraph 16, you say: 19 "The [Horizon Working Group] had no role in 20 overseeing or resolving any technical programming 21 problems that may have arisen with the Horizon software. 22 The extent of our role was to be a forum for these 23 problems to be raised and then referred on to POCL to 24 address with ICL." 25 So you say there that the group had no role in 74 1 overseeing the matters that you mention. Can we just 2 look, please, at one of the documents that you yourself 3 mentioned, NFSP00000063, and go to page 13, please. 4 Just to put this in context, this is an annex to 5 a Postal Services Directorate minute and it's part of 6 a joint submission in draft to the Number 10 Performance 7 and Innovation Unit. I am just using it because it 8 contains, in quotes, the Terms of Reference for the 9 Horizon Working Group. Can you see at the foot of the 10 page, in the indented section: 11 "In relation to carrying forward the work on the 12 POCL/ICL Horizon project [these are the terms of 13 reference]: 14 "[i] to oversee the negotiations between POCL and 15 ICL which will develop the letter of agreement signed 16 between the parties on 24 May into a Codified Agreement 17 ... and to facilitate any solutions to any problems 18 which may arise." 19 That first term of reference was, I think, largely 20 discharged by the time of your appointment because the 21 codified agreement had been signed by then. 22 A. Yes. 23 Q. Then if we go over the page, please, to the second term 24 of reference, and look at the two bullet points at the 25 top of the page: 75 1 "to oversee, to contribute actively to, and to 2 facilitate solutions where problems arise, the 3 completion of the development phases of the Horizon 4 project, and in particular the smooth and timely 5 roll-out of the system to all offices within the post 6 office network, and the subsequent satisfactory 7 migration of benefit payments from the present 8 paper-based methods to more modern, ACT-based, methods 9 of payment accessible through post offices ..." 10 A. Yes. 11 Q. That second term of reference includes to oversee, 12 amongst, other things, the development phases of the 13 Horizon project? 14 A. Yes. 15 Q. That may suggest something slightly different to what 16 you described in your witness statement which appeared 17 to be more of a forum where views can be exchanged and 18 expressed and then taken away from the meeting for other 19 people to deal with. 20 A. Yes. So ICL, for instance, weren't on the Working 21 Group. It was -- so, for instance, if a problem was 22 raised there, by subpostmasters or by the CWU or by the 23 CMA, about training, and these problems did come up, 24 frozen screens, et cetera, balancing, we wouldn't 25 then -- there was no one on the Working Group equipped 76 1 to go and solve those problems. Those problems had to 2 be solved between POCL, who were on the Working Group, 3 and ICL. So we oversaw them. 4 Q. Did -- 5 A. We had neither the technical knowledge or the ability to 6 actually resolve that. 7 There was another Horizon Group that did have 8 a technical say in this and I think officials were 9 included on that, but ours was very much a social 10 partnership forum for the unions to come to us with the 11 problems they were experiencing. 12 Q. Accepting, of course, that you didn't have the technical 13 expertise to yourselves either agree or disagree that 14 a problem had been satisfactorily solved, was it part of 15 the group's function to oversee, ie ensure, that POCL 16 were satisfied that any technical issues with the 17 development of Horizon had been satisfactorily resolved? 18 A. My major concern was that the National Federation of 19 SubPostmasters felt that they had been resolved. CWU 20 were less important in this respect, I say as 21 a long-time member of CWU, because it wasn't the same 22 for Crown Office staff as it was for the self-employed 23 people who'd put between them £1 billion into their 24 businesses and had a contractual obligation, their 25 relationship with the Post Office very much 77 1 a contractual obligation so. 2 For them it was crucial and they were much more in 3 the frontline of this. So, yes, to make sure they were 4 satisfied was very important. 5 Q. Just exploring that answer that you've just given, did 6 you think at the time that the impact of any technical 7 concerns or issues over the integrity of the system 8 would impact subpostmasters financially more directly 9 than they would those who worked in Crown Offices? 10 A. Yes, because it was their businesses. I didn't think of 11 it like that. My approach to it was that the people who 12 know what problems are being created here are the people 13 on the frontline. So, for instance, I'd been through 14 this in a very different way in Royal Mail. When 15 I joined, everyone sorted letters by hand, when it 16 became -- we called it mechanisation, sorting machines, 17 et cetera. I knew firsthand how important it was not to 18 listen to the regional directors or even the regional 19 union. It was the members on the floor that could see 20 the problems arising and that forum was very much to get 21 those views and to make sure then that both the Post 22 Office and the subpostmasters were happy that the 23 problem had been resolved. 24 Q. So this was most certainly a forum within which the 25 National Federation and the CWU had the ability to raise 78 1 issues directly with Government face-to-face, and also 2 directly with POCL face-to-face -- 3 A. Yes. 4 Q. -- including any persistent technical issues or 5 difficulties with the programme, which had, in turn, 6 been raised with them by their members? 7 A. Yes, absolutely. And that was very much -- I can't -- 8 there's a letter from Stephen Byers somewhere in here, 9 predated my appointment in, I think it was July or 10 August 1999, to the NFSP -- it's part of the witness 11 statement somewhere here -- saying why the Secretary of 12 State wanted the NFSP to participate in the Horizon 13 Working Group, and that was very much based -- a forum 14 for them to put their members' views forward, 15 essentially to Government as well as to POCL. 16 Q. Did that, in fact, happen? 17 A. Yes, there were -- 18 Q. Did -- 19 A. -- issues raised. I think from my -- from reading back 20 from these minutes, and indeed I have a memory of this, 21 the big concern was that the Benefits Agency were 22 pushing their people towards ACT, well before the -- 23 2003. That became something that dominated Horizon 24 Working Group meetings, but they did also report 25 thorough technical issues, as well. Whether they did 79 1 that as -- you know, as regularly and vociferously as 2 they were able to do, that was the forum for them to do 3 that. 4 Q. We'll come back to that in a moment, just picking up on 5 the reference to the letter you mentioned, just so we've 6 got that. I think that's BEIS0000325. I think the 7 paragraph you're referring to is at the foot of page 2, 8 beginning "I am grateful to you for your contribution": 9 "I am grateful to you for your contribution to the 10 Working Group established to oversee progress with 11 revised the Horizon contract and to explore further the 12 commercial potential of the automated network. Your 13 members as both business proprietors and providers of 14 post office services are ideally placed to contribute 15 ideas and suggestions on new products and ways of 16 working which are vital to the future success of the 17 network. It is vital that subpostmasters as key players 18 in the post office network have a direct channel of 19 communication with Government to help shape the future 20 of the post office network. A key role of the Working 21 Group is to provide this channel." 22 Is that's what's you were referring to? 23 A. That's actually what I was referring to, yes. 24 Q. Just going back then, did the NFSP and the CWU -- I'm 25 putting aside anything you may have learnt when 80 1 attending conferences or the NFSP Executive Council, or 2 anything else that you heard in the wind, as it were -- 3 in the course of these Horizon Working Group meetings, 4 as the forum for raising them, did the NFSP or CWU raise 5 with you any persistent technical issues or difficulties 6 with the Horizon system that had been raised in turn 7 with them by their members? 8 A. Well, that's a challenge, whether it was at a conference 9 that I attended that we'll obviously come on to, or 10 whether it was at Working Group meetings. But 11 I remember nothing from the CWU but what was reported 12 back was about frozen screens, was about lack of 13 training. I don't remember balancing coming up until 14 I went to the conference, when the -- the previous 15 evening before my speech, I heard people talking about 16 that as well. 17 So I'm pretty sure those issues were raised at 18 Working Group meetings. 19 Q. In paragraph 17 of your witness statement, if we can 20 turn it up, please. It's on page 6. In the middle of 21 the page, you say: 22 "... as I recall, there was not a delay in the 23 acceptance of Horizon but rather a pause in rolling out 24 Horizon further following concerns raised by 25 subpostmasters through their unions." 81 1 Can you remember what those concerns were that led 2 to the pause in further rolling out. 3 A. The helpdesk, screen freezing -- all of which was Greek 4 to me, by the way, but it wasn't just me who was 5 computer illiterate at the time, it was probably the 6 whole country were pretty computer illiterate -- and 7 training. So screen freeze, training and helpdesk, they 8 were the three issues I remember being raised. 9 Q. You describe it here as concerns being raised by 10 subpostmasters thorough their unions. Does that mean 11 literally subpostmasters, ie not -- 12 A. Yes. 13 Q. -- thorough Crown Office workers, through the CWU, it 14 literally means by subpostmasters through the NFSP? 15 A. You could take the S off "unions", yes, thorough the 16 Federation. 17 Q. So there weren't such similar concerns raised by those 18 that worked in Crown Offices to you, through the CWU? 19 A. No, I wasn't surprised by that. They were on 20 a different timescale, had a different working 21 environment but no. 22 Q. Why weren't you surprised by it? 23 A. Because I didn't think it was the same kind of pressure 24 as on, you know -- our people worked in offices where 25 there were usually 10, 15, 20. I'd been to sub post 82 1 offices where, you know, there's one person serving 2 a community, one or two, who were quite isolated, 3 sometimes quite elderly, as well. And so, you know, 4 these kind of difficulties and changes would have been 5 much more of a challenge, I would think, for them. So 6 I think it was more likely to come through the Fed than 7 the CWU. 8 Q. When we get to the balancing problems -- we're jumping 9 ahead a little bit now -- have you formed any 10 retrospective view as to why, if there were software 11 issues that led to balancing problems causing shortfalls 12 or gains in Crown Offices, why the CWU wasn't banging on 13 your door? 14 A. Um ... they didn't have a contractual obligation to put 15 any money in, if the balance didn't work out. As 16 I understand it, the subpostmasters had signed 17 a contract to say that, if it didn't balance, they had 18 to put some money in. Sometimes, it over-balanced and 19 they took some money, you know, some money out. Swings 20 and roundabouts, they would say. Our people didn't -- 21 they had to balance but it didn't have those same 22 contractual issues that meant it was their finances. 23 Very much their finances, because also, of course, the 24 subpostmasters had put their money into the premises. 25 Q. Going back to your witness statement, please, at page 6, 83 1 paragraph 18, the question at 4c was: 2 "What do you recall of any concerns raised by the 3 membership of the Horizon Working Group (or other key 4 stakeholders) in relation to the robustness of Horizon 5 and its technical integrity prior to rollout?" 6 You say: 7 "Rollout had already commenced when I took office. 8 As it progressed, I recall concerns about training and 9 quality of software being raised at a meeting of the 10 NFSP's National Executive Council." 11 They are recorded in a report of the Council meeting 12 held on 18 to 20 October 1999. 13 Can we go, please, to NFSP00000458. We can see that 14 at the front page of the report -- it's 89 pages in 15 length, and I'm not going to go through all of it. You 16 can see from the front page it's a report of the meeting 17 of the Federation's Executive Council held over 18 three days at a nice hotel in the Malverns. You weren't 19 present at this meeting. 20 A. I don't think so. I recall going to one NFSP meeting 21 for a kind of flying visit. 22 Q. If we look at page 15 of the document, please. We can 23 see a cast list and, so far as I can see from that and 24 from the body of the document itself, it doesn't appear 25 that you were an invitee. There are couple of parts of 84 1 the meeting record that I want to ask you about, please, 2 because they reference you and things that you are said 3 to have done. 4 A. Sure. 5 Q. Can we go to page 36, please, and then look at the 6 bottom half of the page starting with "Mr Edmondson": 7 "Mr Edmondson advised that the Minutes of the north 8 east meeting ... had been circulated. Some of the 9 offices had been included in the trial. A questionnaire 10 had been sent to all of these offices. At the end of 11 the meeting the attendees were asked if they would like 12 Horizon scrapped. Everyone agreed to stick with it but 13 [I think that's 'halt'] and reintroduce it right. 14 Complaints were received on balancing and training 15 though some trainers were excellent. After having 16 received training some subpostmasters did not feel 17 competent do a balance. He explained that one 18 subpostmaster ended up with a breakdown through the 19 stress and pressure and many were very distressed. 20 Mr Edmondson went on to say that we have got to back 21 Horizon because we want it to happen ..." 22 Was that, just pausing there at the moment, 23 a commonly expressed view to you, by either or both of 24 the unions, "We really need to back Horizon, in our 25 long-term future safety". 85 1 A. Yes, I can't emphasise enough as how everyone saw that 2 as the lifeboat in an industry where 200 post offices 3 were closing every year. That had accelerated, and it 4 looked like the only way to counter this was to allow 5 this universal bank; the only way you could get 6 a universal bank was if it was computerised. 7 Q. And the only way you could get computerisation was by 8 getting Horizon working? 9 A. Yes. But the important point was, of course, you wanted 10 to it to work properly and I don't know of 11 a computerisation project anywhere, let alone one on 12 this scale -- I doubt there's been one on this scale 13 with that, what, 4,000 counter positions in 19,000 post 14 offices, all having to be linked in, it was a huge 15 project. And so it wasn't unusual for problems to occur 16 but nobody wanted those problems to just be brushed to 17 one side. We wanted them resolved, so that it could 18 move ahead with the total support of the people who had 19 to operate the system. 20 Q. Mr Edmondson said: 21 "We have got to back Horizon because we want it to 22 happen ..." 23 Then he said, or is reported to have said: 24 "... but asked are we being fair to subpostmasters. 25 He felt that we have got to go back to the Post Office 86 1 and get them to get things right before national 2 rollout." 3 Then: 4 "The General Secretary responded saying that the 5 difficulties are known and there are number of issues. 6 The modifications required are costing an additional 7 £13 [million] and will be marketed as a success for the 8 Federation. He went on to say that, in spite of the 9 pressure Ian McCartney put on Dave Miller, Ian McCartney 10 was of the view that Horizon had to make the deadlines. 11 Alan Johnson has a different view. When Dave Miller 12 asked him if he wanted Horizon to roll out he said no, 13 not until it has been improved. Different training and 14 software was essential. We [that's the NFSP] can claim 15 credit that the programme was brought forward to stop at 16 7 November." 17 Then it continues. Do you recognise the exchange 18 that attributed to you there? 19 A. Does that mean do I remember it? I don't remember it, 20 but that sounds right. I don't think -- I didn't differ 21 from Ian McCartney in the importance of the timescales 22 and deadlines, but my view, and I think it would have 23 been Ian's view as well, was that we had to sort out the 24 problems. 25 We had this opportunity of a Christmas kind of wind 87 1 down. My understanding was that it was already going to 2 stop, this kind of 300 offices a week, whatever it was. 3 We were at very early stages here, this is October '99, 4 so there would have been about 1,000 post offices out of 5 19,000/20,000, that were actually part of the group -- 6 part of Horizon. 7 There was going to be a stoppage at Christmas 8 because of the pressure on post offices at Christmas. 9 Q. This document can come down now, so the Chairman can see 10 you. Thank you. 11 A. Yeah. 12 Q. When the document is up the Chairman can't see you. 13 A. Okay. So this was a perfect opportunity. I think the 14 reference there to it being 7 November is they were 15 going to stop at the end of November, but now, if they 16 stopped early in November, they would have a complete 17 two/three months before it got going again in January to 18 sort out these problems. There was a natural pause 19 there. And the natural pause was extended a bit, 20 I think, by my intervention with Dave Miller but not by 21 a tremendous amount. It gave enough time to resolve the 22 issues. 23 Q. It records, this document, that you said that Horizon 24 should not be rolled out until it had been improved, and 25 those observations were made in the context of 88 1 complaints having been made on balancing and training, 2 that there were reports that the system was not 3 user-friendly, and complicated to use, and that one 4 subpostmaster had suffered a breakdown? 5 Can we just go back to your statement, please, 6 paragraph 19, page 7. You were asked a question at 4d: 7 "Like all those who were concerned about the gradual 8 erosion of the post office network, [you] saw 9 computerisation as the only effective way to preserve 10 existing transactions ... Horizon was the vehicle for 11 that computerisation [you've told us that already]. 12 Nobody, so far as [you] knew, thought that maintaining 13 the paper-based system of the Victorian era was going to 14 serve the Post Office ... in terms of specific issues 15 once rollout had begun, I shared the concerns referred 16 to in paragraph 18 above, with POCL, which prompted 17 a pause to review the rollout in November 1999." 18 Just stopping there, going back a page to 19 paragraph 18, you've told us that you shared the 20 concerns relating -- mentioned in paragraph 18 with POCL 21 and, in 18, you say at the end of the first line: 22 "... I recall concerns about training and quality of 23 software ..." 24 Go back to 19, please. In the middle of the page, 25 about ten lines in: 89 1 "... I shared the concerns referred to in 2 paragraph 18 above with POCL which prompted a pause to 3 review the rollout in November 1999." 4 So are you, by the combination of those paragraphs, 5 saying that you shared concerns concerning training and 6 quality of software with POCL. 7 A. Yes. 8 Q. You continue: 9 "The rollout had been gradual, with only around 600 10 or the 19,000 post offices involved ... As it said in 11 the NFSP report, I did not want Horizon rolled out 12 further until it had been improved." 13 Then you give a reference, and that reference there 14 is back to the minutes of the 89-page report of the NFSP 15 meeting. 16 So just to understand what's going on here, you've 17 taken the reference to the pause in the rollout from the 18 minute of a meeting that you weren't at, which I don't 19 think you would have seen at the time, and used those as 20 the basis for saying that you had been told about 21 concerns over training and quality of software, you 22 shared them with POCL, and that that prompted a pause to 23 the rollout; is that right? 24 A. Yes. I can't remember doing it, so I am, as you rightly 25 say, relying on the minutes of a meeting that I wasn't 90 1 at. 2 Q. Yes. I want to work out whether there was anything more 3 formal that we ought to be seeing than that, like 4 something in writing, where the unions raise an issue 5 with you, ie reducing to writing what the problem is, 6 with some specificity. Did that ever occur? 7 A. No, not so far as I remember. But, you know, there was 8 the regular dialogue with -- POCL were at the joint 9 working party when these things were being raised as 10 complaints, and the expectation was that would -- that 11 being relayed to them verbally, they'd get on and 12 resolve it. There would perhaps have been a stage 13 further down the route, where it would have to be put 14 into writing and become more formal. But my 15 understanding was that those issues were resolved and 16 both sides, POCL and NFSP gave the thumbs up to rollout 17 continuing. 18 Q. If the working group was maintaining oversight of that 19 kind of process, was there ever an occasion when the 20 issues raised were reduced to writing, were formally put 21 from one side to the other, there was a written 22 response, and then the working group judged the adequacy 23 of it? 24 A. No, I can't -- 25 Q. It didn't work like that? 91 1 A. I didn't work like that, I can't recall that. Basically 2 if, things were raised with a Government minister and 3 a Government minister said "This needs to be sorted 4 out", it was sorted out. 5 Q. You were satisfied, presumably, because at the next 6 meeting nobody said, "Hold on, this is still a problem"? 7 A. Yeah. 8 Q. Can we turn to your witness statement, please, at 9 paragraph 20 on page 7. You say: 10 "That said, I think everyone would have been amazed 11 if there were no problems at all given the size and 12 scale of if what was being implemented, especially in 13 a world where digitisation was so new. The problems we 14 were seeing reflected an expectation of what might 15 happen with such a programme." 16 You've given a piece of evidence this morning to 17 similar effect. 18 Should the Inquiry take that to mean that the 19 number, the nature, the level of issues being raised 20 with you in these meetings were no more than teething 21 issues or glitches that might be expected in the rollout 22 of any such large scale project and nothing more than 23 that. 24 A. Yes, I think so. I see here it was 600 offices out of, 25 what, 19,500. That was -- the whole point was to get 92 1 these issues out early. So there were no alarm bells 2 ringing that this might be a huge problem with this, 3 certainly not that it ought to be replaced or that we 4 were building up problems in the future, issues were 5 raised, they were raised with the Post Office, they 6 raised them with ICL, we got a thumbs-up that those were 7 resolved, and rollout carried on. 8 Q. You were getting, as your main source of information 9 here, your information from the unions; is that right? 10 A. The only way I could get it, I guess, unless, you know, 11 I went round to sub post offices and talked to the 12 subpostmasters themselves, yeah. It was -- that's why 13 the joint working party was for crucial for NFSP, for us 14 to listen to the NFSP than any other of the -- with all 15 due respect, the unions except -- there were other 16 forums for the other unions to make their views known. 17 Q. So if a red flag was to be raised or an alarm was to be 18 pressed, it was for the NFSP to do so at these meetings? 19 A. Yes. 20 Q. Was any consideration in the meetings given to what was 21 happening to the subpostmasters on the ground in terms 22 of balancing problems, given that they had a contractual 23 obligation to make good shortfalls, and whether they 24 should be given the benefit of the doubt when any 25 shortfalls arose? 93 1 A. The issue never arose. I don't remember that being 2 raised at any Working Group meeting that I chaired. 3 Q. Were you aware, or was there any discussion, in the 4 Working Groups that you chaired, about what should 5 happen to subpostmasters in terms of investigation, 6 suspension and prosecution of them, where Horizon showed 7 a shortfall? 8 A. No. 9 Q. The Inquiry has received evidence from one 10 subpostmistress, Pamela Lock, that she began to see 11 shortfalls on the Horizon System in January 2000. She 12 took some money from her own ISA to put money into the 13 system -- £5,000, I recollect -- in order to make it 14 balance, but the shortfalls continued. She has told the 15 Chairman that she was phoning the helpline two to three 16 times a week about the shortfalls. They provided no 17 help, that in July 2000, auditors came to her branch and 18 found a shortfall of £26,000. They asked her where the 19 money had gone, and she said that it must be in the 20 system, it must be the paperwork, because she didn't 21 have the £26,000. 22 But the auditors closed her branch, they took away 23 the keys. She'd been a subpostmistress for 25 years. 24 She was interviewed and then taken through the criminal 25 justice system by the Post Office. Did you know that 94 1 any of that was to going on -- 2 A. No. 3 Q. -- whilst the Horizon Working Group was meeting -- 4 A. No. 5 Q. -- and overseeing, and actively managing, the rollout of 6 the system? 7 A. No. 8 Q. If you had known about the conduct of Post Office 9 Counters Limited to Ms Lock or people like her, what 10 would your view have been? 11 A. One of disgust. 12 Q. Why? 13 A. That she should be treated in that way. This was a new 14 system so you're saying this happened in July 2000? 15 Q. The first shortfall she noticed was in January 2000 -- 16 A. January 2000, so -- 17 Q. -- and the auditors arrived in July 2000. 18 A. That's crazy. It's should have been something we knew 19 about, if it's connected, as it seems very much to be 20 connected, with the software. That's precisely what the 21 Horizon Working Group was there to hear, those kind of 22 issues. That, in particular, I mean, would have been -- 23 set alarm bells going with anyone remotely concerned 24 with the trade union world and employment relations, and 25 who, as I did, understood some of the kind of 95 1 overreactions you sometimes got from what we used to 2 call the Post Office Investigation Division. 3 Q. Why did you sometimes get overreactions from what was 4 then called the Post Office Investigation Division? 5 A. I won't bore you with the strikes I had to deal with. 6 So when we worked on the sorting office floor, we worked 7 under two-way mirrors, where we were watched all the 8 time by people from the Investigation Department, and 9 sometimes they would come and arrest people standing on 10 the sorting office floor for all kinds of things. 11 One guy looked at a travel brochure that was going 12 to a country that he was going on holiday to and, as he 13 was standing at -- what we used to call the packet 14 frame, manually sorting this, he just for a second, took 15 it out to looked at it, was arrested and taken to 16 prison. He was a war hero, by the way. It happened in 17 Preston: big national strike spread right across the 18 north west. 19 So I wasn't a stranger to the kind of strongarm 20 tactics that were sometimes used by POID. Now Counters 21 people were in a completely different situation, the 22 subpostmistress that you described, it's her livelihood, 23 her home, probably. And, as I say at the beginning of 24 my report, the reputation of the Post Office was largely 25 there because of subpostmasters and subpostmistresses 96 1 being valued in their community. So the effect this 2 would have had, this would have set all kinds of alarm 3 bells going. 4 Q. Against the background that you describe, was any 5 thought given by the Working Group to what shall we do 6 in the interim? We've got these problems being reported 7 to us with the system. There's not only an imperative 8 to solve them but we need to look after our people 9 whilst those problems are solved, and that they're not, 10 for example, hauled over the coals, not criminally 11 investigated when there might be a different explanation 12 for the shortfalls. 13 A. I would have thought that would have been specifically 14 outlawed during a period when people were getting used 15 to the new system. That wasn't -- right, so the point 16 that you raised, the issues you raised about that 17 subpostmistress, didn't come up at any meetings, didn't 18 come up at the NFSP conference, which was in May of that 19 year. Nobody came to me with that. Nobody put the kind 20 of red flag up that should have been put up about what 21 happened to that woman, because it was obviously 22 a precursor of what was to come. 23 Q. I should say that 20 years later, Ms Lock did have her 24 conviction overturned. 25 A. Well, that's good. 97 1 Q. Can we turn, please, to paragraph 30 of your witness 2 statement, which is on page 10. You say in paragraph 30 3 the reasons for the delay in the rollout of the system 4 were the technical issues with Horizon. You recall 5 attending the final 30 minutes of the POCL board meeting 6 on 11 January 2000. Had you formed a view whether there 7 was sufficient expertise in the ranks of civil servants 8 in the DTI to be able deal with any technical issues 9 raised with them about the operation of the Horizon 10 system or wasn't that their function? 11 A. I don't think it was their function. It wasn't the 12 expectation that DTI civil servants would resolve these 13 problems. There were problems between POCL and ICL, and 14 very few people had the kind of technical understanding 15 necessary to resolve them. 16 Q. You refer in that paragraph to the minutes of a Post 17 Office board meeting. Can we chase that down, please. 18 It's POL00000336. We can see this is the minutes of the 19 board meeting of main Post Office -- Post Office 20 Board -- on 11 January 2000. You can see the cast list 21 there. Then, if we go over the page, please, you're not 22 mentioned in that cast list -- over the page under 23 "Chairman's Business" it's recorded that you: 24 "... the Minister with responsibility for The Post 25 Office, was attending for the final thirty minutes of 98 1 the meeting. The Chairman intended to raise the 2 following issues with him ..." 3 We can ignore the first two, but Horizon and the 4 PIU -- can you recall what the PIU was? 5 A. Yes, absolutely. 6 Q. What was the PIU? 7 A. Performance and Innovation Unit of Number 10. 8 Q. Just describe to us -- we're going to hear more from 9 Sir Geoff Mulgan this afternoon about the PIU, but can 10 you introduce the PIU to us, please? 11 A. Yes, this was very much a whizzy kind of Government 12 initiative that where there were serious problems, there 13 ought to be group of very, very committed civil servants 14 from right across government. It shouldn't be 15 decompartmentalised, it shouldn't be siloed. Where 16 an issue crossed government borders, as this did, 17 because it involved DSS, as well as DTI and others, 18 a real attempt should be made to look to the future, 19 look at how these issues can be resolved, and produce 20 a report with the backing of Number 10. Very important 21 that the Prime Minister was involved. 22 A neutral minister was appointed to oversee it, 23 Charles Clarke in this case, and we were very pleased -- 24 "we" being the DTI, but also, I think, all the unions 25 and everyone involved in the Post Office -- that the 99 1 Post Office went right up the list to the top. Because 2 there were many other issues, obesity, for instance, was 3 one that they eventually got round to. 4 So of all of those problems, the Post Office was 5 seen as paramount and that pleased us very much because 6 it allowed us to develop these ideas about what the 7 computerised network could do and what more work we 8 could bring across Post Office Counters. 9 Q. So generally it was seen a good thing by the DTI -- 10 A. Oh -- 11 Q. One impression that one might have got from your witness 12 statement, where I think you mentioned there was a group 13 of "bright, young things" -- 14 A. I wasn't being detrimental there. That wasn't a -- 15 yeah. That wasn't a derogatory comment. 16 Q. Right. 17 A. They were genuinely bright, and very, very committed. 18 I met them a couple of times as they built up steam. 19 Q. In any event, can we go to the part of this meeting 20 where I think you were present. Can we go to page 10, 21 please. 22 A. Heavily redacted you'll see, with "Irrelevant" there. 23 Q. Yes, there's lots of things in this Post Office Board 24 that don't concern us. 25 A. No, fine. Oh, I see. So it's your redaction, not the 100 1 Post Office's? 2 Q. It is. Although you're right to be suspicious on this 3 occasion. The Inquiry has, I think vouched safe the 4 redaction. Can we look, please, at the foot of the 5 page, an update on the Horizon programme. The rollout 6 of Horizon was due to recommence on 24 January, a great 7 deal of work had been undertaken to rectify difficulties 8 identified in three areas: one, system stability; two, 9 accounting integrity; and three, the provision of 10 support to offices. 11 Although this minute of the board is not written in 12 a way that suggests who was speaking here, do you 13 recollect that would be you speaking about work having 14 been done in relation to, amongst other things, 15 accounting integrity? 16 A. No, I think that would be the Post Office. 17 Q. Can you recall attending a meeting where -- 18 A. I do, yeah, because it was the first time, having joined 19 the Post Office as an 18 year old, as a postman, first 20 time I'd ever been to the Post Office Board, so it was 21 a wonderful occasion for me. I remember it. 22 Q. Can you remember what was said about accounting 23 integrity -- 24 A. I can't. 25 Q. -- which is obviously of particular concern to this 101 1 Inquiry? 2 A. I can't. 3 Q. If we just look at the foot of page 10: 4 "Although as yet uncertain it was anticipated these 5 issues would not prevent rollout recommencing." 6 A. Yeah. 7 Q. Then over the page: 8 "Financial performance was being monitored against 9 a revised budget. Given the programme was expected to 10 recommence rollout it would be helpful for the Board to 11 understand what marketing opportunities were now being 12 considered." 13 Then some other information that is not relevant to 14 us. 15 The previous part tends to suggest some reassurance 16 being given to the board that action had been undertaken 17 successfully to rectify difficulties with accounting 18 integrity. Can you recall who was giving that, who was 19 speaking about that? 20 A. No, but that wouldn't be me. They wouldn't have my -- 21 that would have been Stuart Sweetman or someone like 22 that giving that reassurance to the board that the 23 issues had been addressed. 24 Q. Thank you. Can we move forwards, please, take the 25 position a little further forward now, to May 2000, 102 1 please, and look at NFSP00000436. Thank you. This is 2 a report of the annual conference and the part that 3 we've got of it is a record of a speech you made and 4 then a question-and-answer session, involving others at 5 the NFSP conference over three days in Eastbourne 15, 16 6 and 17 May 2000 and, therefore, the speech was made in 7 the course of national rollout; is that right? 8 A. Yes. 9 Q. Can we turn to various parts of it, please. Can we 10 look, please, at page 7. If we look at the second 11 paragraph down, this is part of what you were saying: 12 "In conclusion, Madam President, the next few years 13 are a crucial time for the network. We have a short 14 window of three years to implement a programme of 15 modernisation and diversification in order to build up 16 a strong future for the network and those who work and 17 have invested in it. I believe that by working 18 together, we'll be able to secure this future and, in 19 the light of the Post Office's developing business 20 environment over this period, we shall need to monitor 21 and review progress carefully to ensure that we remain 22 on course to achieve all of our objectives." 23 Then further down the sixth paragraph, the one which 24 begins with "Mr Alan Johnson MP: Now I've lost the 25 lectern". You say: 103 1 "... I've lost the lectern and the microphone is too 2 far off. Can I just say something about 2003?" 3 You say: 4 "I was a backbencher when the announcement was last 5 May and I had concerns about that timescale and you all 6 obviously still have concerns. As I said in the speech, 7 we will have to keep it looking at this situation and 8 revisiting it before 2003. I have to say one thing. 9 I have never seen the Business -- the Government -- 10 partly by the atmosphere that you've generated or the 11 work who work within the industry, concentrating so hard 12 on how to promote and develop this under-promoted, 13 under-developed network. You know, there's been faults 14 on all sides in the past. I've said this before. 15 I hope people don't take offence, but some Post Office 16 managers haven't been the sharpest knives in the drawer. 17 Some members of the Government have paid lip service to 18 the Post Office but allowed the thing to dwindle on and 19 allow gradual decline and I think, you know, you 20 recognise that your members, my members in the CWU, need 21 to recognise that we really do need to sort this thing 22 out." 23 The target of 2003, why was that important for the 24 continued viability of the Post Office? 25 A. This is in response to a question, of course, from the 104 1 National President -- 2 Q. Yes. 3 A. -- that's why I'm talking about 2003. 4 Q. Yes. 5 A. Because of the decision to migrate to ACT, the benefit 6 recipients to migrate to ACT. 7 Q. As you've explained earlier, is this is an expression of 8 you saying why the success of Horizon was fundamental to 9 that target? 10 A. Yes. 11 Q. Can we go on, please, to page 11, and look at one-third 12 of the way down, where I think a member for 13 Northumberland and Tyneside speaks, Mr Martin: 14 "My concerns are similar to the National president 15 President's, which I don't think her question was 16 answered particularly well. 2003 is only two-and-a-half 17 years away. It's taken a lot of years for us to get the 18 Horizon System into our offices. If the same applies to 19 this new banking system, 2003 is not realistic. These 20 are the concerns that we have -- what happens in 2003 if 21 this system is not set up?" 22 Then your answer, please, next paragraph down: 23 "Ray, I take your point but I can't really add 24 anything to the answer I gave before. 2003 is -- well, 25 I've heard all kinds of -- sort of three years away, 105 1 two-and-a-half away -- it does give time. If Horizon 2 goes properly, which will be completed in the spring of 3 next year ... let's move off of that issue very quickly. 4 (Laughter)" 5 Just that extract there, "If Horizon goes properly" 6 and then you say "let's move off that issue very 7 quickly", which prompted laughter. 8 A. My usual eloquence there. I don't know what I was 9 talking about. 10 Q. I realise none of us want what we've said to be played 11 back by way of transcript, but is what you said there 12 a reflection of the fact that everyone in the room, you 13 included, knew that Horizon would not "go properly"? 14 A. No, it's a reflection of this: the Benefit Payment Card 15 was going to be the solution; benefit Payment Card had 16 gone. Money was going to be paid into pensioners and 17 recipients of Child Benefit, remember Child Benefit, as 18 it was then, was going to be paid into people's bank 19 accounts. Could we allow them still to get their money 20 in cash across a Post Office Counters? Yes, we could, 21 if whatever they bank they banked with -- and there was 22 also talk at the same time, the Chancellor in his budget 23 speech had talked about basic banking offer, because we 24 were also worried about social exclusion, the number of 25 people who didn't have bank accounts, paid more money 106 1 because they weren't able to use Direct Debit, so it 2 cost them more. 3 All that was going to happen. If we weren't in 4 a position by then to allow people to access their money 5 in cash across a Post Office counter, then there was 6 going to be a very quick deterioration, and that 7 400 million reduction in money coming into Counters, 8 which is their transaction plan -- they get paid for 9 each transaction -- it was going to be a disaster: 10 a disaster for the Post Office, a disaster for the 11 subpostmasters. 12 So yes, we were very much focused on Horizon being 13 in place by 2001, then giving time for the new products 14 to come in, the PIU report, hopefully backing those, and 15 then 2003 to 2005 when the migration is happening, 16 people can still -- because it was very important to 17 some people to still get their money in cash across the 18 post office counter. They could do it because, no 19 matter what bank their money was in, they could come and 20 access it in cash. 21 Q. You continue: 22 "All the problems of balancing, I know, we are 23 converting in accordance with the timescales and it's 24 an enormous programme. God, you've been at the sharp 25 end of it, but it has to be completed by the spring of 107 1 2001." 2 You refer there to all of the problems of balancing, 3 and you know. Where had you heard about the problems of 4 balancing from, bearing in mind this is May 2000. 5 A. Not the example you gave earlier, that is on a different 6 scale. What I'd heard -- and, actually, I'd gone down 7 to Eastbourne the night before, so I'd been mingling 8 with various conference delegates, and that came up as 9 it was to come up in the session that had followed mine, 10 with the Post Office manager. I'd gone by then -- 11 Q. Mr Grey? 12 A. Don Grey. Although, you know, once again, that issue -- 13 I mean, that is horrific. So there's a big difference 14 between people dealing with a computerised system, they 15 were used with a paper-based system, the big moment in 16 every post office and Crown Office was balancing day, it 17 was usually on a Wednesday. You know, I knew this. And 18 so it was not surprising that people were having issues 19 here, suddenly being put onto a new system. 20 There was supposed to be help for them, there was 21 supposed to be a helpdesk they could ring. People were 22 complaining that no one was there when they rang, and it 23 was important in all the other transactions but it was 24 crucial on balancing because of the financial effects on 25 the subpostmasters so I heard gripes about that and -- 108 1 Q. What did you hear? 2 A. -- and complaints about that. Oh that, you know "Here's 3 the issues we're facing, Alan, the screen keeps 4 freezing, we can't get anyone on the helpline that we're 5 supposed to get, balancing is a particular problem for 6 us". 7 Q. What was the problem with balancing being a particular 8 problem, what were they saying? 9 A. I can't remember the exact -- this is the general kind 10 of view of delegates at that conference, of where they'd 11 been experiencing problems, those that were involved in 12 Horizon -- of course not all of them were -- that these 13 are the issues that needed to be sorted out. That 14 wasn't a surprise, because balancing was such a big 15 issue anyway. But nobody was. Flagging up that POID 16 were getting involved and people were being asked to pay 17 the money back. I would have thought -- and in my 18 naivety I did think, by the way, that there was some 19 kind of exemption during this rollout period for anyone 20 who wasn't balancing properly because it would have been 21 the software rather than the individual. 22 Q. What kind of exemption? 23 A. Well, I would have thought there would have been some 24 acceptance that, if you were part of the trial rolling 25 out, there's a period during which the balancing, if it 109 1 doesn't go right, it's attributed to the software, not 2 to the individual subpostmasters. 3 Q. So giving the subpostmaster the benefit of the doubt? 4 A. Yes, absolutely. 5 Q. Like an embargo on suspensions, terminations and 6 prosecutions? 7 A. The kind of thing you would do, yeah. The kind of thing 8 you would do in a situation when you're having such 9 a massive change from one system to another. 10 Q. You tell us that you left the conference before the 11 question and answer session and the presentation by 12 Mr Grey. 13 A. I'd taken my own questions and answers, of course. 14 Q. Yes. 15 A. Yes. 16 Q. But the presentation by Mr Grey and his 17 question-and-answer session? 18 A. Yes. 19 Q. But I think you obtained a transcript of it; is that 20 right? 21 A. Yes. You sent it to me. 22 Q. No, at the time? 23 A. Yeah, okay. I don't remember receiving -- 24 Q. If we can look, please, at NFSP00000332. This is 25 a largely, for present purposes, innocuous minute. 110 1 You'll see who it's to and who it's cc'd to. It's just 2 because of something that it says in it. This is 3 18 May. If we go over the page, please, and in the 4 second paragraph, Mr Gibbs, the network policy and 5 transformation manager says: 6 "After the meeting this afternoon I received a call 7 from Colin Baker and he tipped me off that the DTI 8 representative at the conference had reported back the 9 problems with polling, and that Alan Johnson, Minister 10 for Competitiveness at the DTI, and responsible for the 11 Post Office, had asked for a copy of the transcript of 12 this part of the conference." 13 That was the basis on which I was saying that, at 14 the time, rather than more recently, you had sought 15 a transcript. Can you help us with that? 16 A. Maybe I did, but I wouldn't be surprised if Colin Baker 17 hadn't said that as a way to move them along. 18 Q. What do you mean by that? 19 A. That sounds just the kind of thing I'd have used as 20 General Secretary of the union. If I was tying to get 21 someone to do something, I'd have said, "Oh, and the 22 Government Minister, by the way, is interested in this, 23 so you'd better get your finger out", that sort of 24 thing. 25 Q. Even if it might not be entirely accurate? 111 1 A. Entirely accurate in the sense that I hadn't asked for 2 the transcript, no, but -- 3 Q. Can you -- 4 A. -- but maybe I did. Maybe I did. Let's give Colin the 5 benefit of the doubt. But that's the day afterwards, 6 I think -- no, was it two days after I'd -- 7 Q. I think that's the first day, actually. 8 A. Was it the first day? 9 Q. Yeah, I think this was written on 18 May -- 10 A. Okay. 11 Q. -- and the first day of conference -- oh no, you're 12 quite right. It was 15th, 16th, 17th. This was the day 13 afterwards, quite right. 14 A. Yes. 15 Q. In the course of that -- I'm not going to go through the 16 question and answer of Mr Grey, a number of 17 subpostmasters and their representatives made 18 complaints. One said rollout fell short of an automated 19 system, nothing had changed since the live trial. He 20 had been instructed to go back to manual listing pension 21 and allowance dockets. Another said that, in his area, 22 17 out of 44 post offices received no support whatsoever 23 and they'd had to serve customers manually. 24 Another said it was impossible to get through to the 25 helpline, and trainers had no idea how to run a post 112 1 office. Another said elderly subpostmasters couldn't 2 make the system work and were retiring. Others 3 complained of balancing problems. Another said that 4 there were thousands of errors notices in his area. 5 Another said that a trainer had confessed to him that he 6 didn't know how to balance the system. 7 Can you remember at the time whether, as the 8 Minister, you became aware of those problems reported to 9 the national conference? 10 A. I expected, in a question-and-answer session when the 11 Government Minister is there, for representatives of the 12 National Federation to express their concerns. I didn't 13 expect anyone to come to the microphone saying, "You're 14 doing a great job", and all of that. Of course, it was 15 the forum for them to do that. Why would they not use 16 that opportunity? 17 But I tell you, if anyone had come and said -- 18 relayed the story that you relayed about what happened 19 to that poor woman, that would have been cause enough to 20 immediately go to the Post Office, immediately say, 21 "This system -- you cannot do this. This is not the way 22 to treat subpostmasters". I don't understand why that 23 was happening and no one was reporting it at the 24 conference and no one was reporting it to me. 25 Q. Moving the narrative on still further, please, can we go 113 1 back to paragraph 38 of your witness statement, which is 2 on page 13. The question in paragraph 38 that you've 3 been asked was: 4 "What, in particular, did you understand problems of 5 balancing to be?" 6 You answered: 7 "This came up as one of several issues raised by 8 subpostmasters that I heard as an observer at the NFSP 9 Executive Committee meeting I'd attended in 10 October 1999." 11 Then this: 12 "It was also the most consistently mentioned 13 technical issue by delegates to the NFSP conference 14 I attended in May 2000." 15 Are you referring there to the night before the 16 conference? 17 A. Yes. But it also came up in the questions as you've 18 just confirmed. 19 Q. Then in paragraph 39, please, over the page, you say: 20 "The NFSP represented the vast majority of 21 subpostmasters. Had they not been supportive of 22 Horizon, I don't believe it could have been introduced. 23 All these SPMS were self-employed. Every sub post 24 office was a small business and postmasters and 25 mistresses more than anyone were keen to ensure the 114 1 network was prepared for the new millennium. Horizon 2 was seen as essential to this aim." 3 Looking back now, do you consider that the NFSP 4 properly represented the interests of subpostmasters in 5 supporting Horizon? 6 A. Yes. 7 Q. Did it raise with you any of the types of case that 8 I mentioned a moment ago? I gave but one example. 9 A. No. Not that type of case, no. 10 Q. So was it your view that the things you were being told, 11 were the normal gripes and glitches that were at a level 12 of any rollout of a large IT system? 13 A. Yes. 14 Q. Finally, can we look, please, at your position of 15 Secretary of State for Trade and Industry in May 2005, 16 so we're going forwards five years. You held that 17 position, I think, for a year; is that right? 18 A. Yes. 19 Q. You tell us that you don't recall any issues concerning 20 Horizon being raised with you at that time? 21 A. No. 22 Q. Did your department, the DTI, have a presence on the 23 Post Office Board at that time? 24 A. Oh, I can't recall. I know I was one of the 25 shareholders still. Me and the Chancellor. 115 1 Q. Again, at this time, 2005, speaking in general terms, 2 what was the Government the level of Government 3 involvement in the running, management, administration, 4 or oversight of Post Office Limited? 5 A. Well, I know the Postal Services Bill was now an Act. 6 I'm not sure it ever received royal assent. I think it 7 was around then that Royal Mail, using their commercial 8 freedom, decided to rename themselves Consignia, which 9 didn't go down too well, and they changed it back. 10 So -- and by now there was a regulator, that was part of 11 the Act. So the vision of giving the Post Office 12 greater commercial freedom whilst retaining it in the 13 public sector was now a fact, rather than a Government 14 Bill. 15 Q. Can we turn to paragraph 43 of your witness statement, 16 please. 17 It'll come up on the screen. You were asked: 18 "Did you have any concerns about the Horizon System 19 after this period in office?" 20 That's after May 2005 when you came back as DTI 21 Secretary of State: 22 "A group of subpostmasters came to my constituency 23 surgery in Hull to raise concerns about money going 24 missing and subpostmasters being blamed when the problem 25 actually lay with the software. I can't remember 116 1 exactly when it was but it was [a long time] after my 2 involvement and, I presume, after Horizon had been 3 rolled out to every office. The lead spokesman was from 4 Doncaster and none of those attending were my 5 constituents. I think they came to me because of my 6 long association with the Post Office, being a former 7 postman and CWU General Secretary. 8 "There is a strict parliamentary rule against making 9 representations on behalf of people to whom the MP is 10 accountable (ie non-constituents). I explained this to 11 them and suggested they contacted their own MPs. I did 12 pass their concerns onto Colin Baker, the General 13 Secretary of the NFSP, who I'd worked with as a union 14 leader and as a government minister. I do not have any 15 records of the visit nor my communications with 16 Mr Baker." 17 We understand that about 85/86 per cent of 18 subpostmasters were charged and prosecuted by the Post 19 Office between '99 and 2010, so of those prosecuted 20 about 85/86 per cent of them were prosecuted in that 21 period. Are you aware of any similar concerns to the 22 ones you mention here in paragraph 43 being reported to 23 other MPs by postmasters, managers, assistants or 24 employees of the Post Office? 25 A. Yeah, I'm not sure when it was. The problem with my 117 1 constituency surgeries, people just turned up, they 2 didn't have to book a slot. It was very much done, you 3 know, paper based, if you like, and all the records went 4 when I left Parliament. So I can't pinpoint the date of 5 when these -- this group of people, this delegation, 6 came to visit you see me, but this was a guy from -- 7 I remember he was from Doncaster. 8 I remember he was really, really concerned about 9 this issue of money going missing, that it was the 10 software and not him. So had I heard other issues at 11 that time? I'm not sure because I can't pinpoint this, 12 but certainly more and more issues became public 13 knowledge, and I heard about them as an MP, not least of 14 all in Hull, not my constituents, but in other -- Hull 15 has three constituencies. But in other parts of Hull 16 these issues became more and more apparent. 17 Q. Did you hear about other subpostmasters and similar 18 raising of issues, such as the ones you've mentioned in 19 paragraph 43 with other MPs? 20 A. Yes. 21 Q. Can you remember when that was and with which MPs? 22 A. No, hopefully it was Doncaster. 23 Q. They did what you suggested? 24 A. Yes, I remember very clearly that he was from Doncaster, 25 which isn't that far from Hull. 118 1 Q. Finally, please, then can we look at page 3 of your 2 witness statement, at paragraph 7. In the second half 3 of paragraph 7, about seven or eight lines in, you say: 4 "I know how highly regarded and trusted these people 5 are in their communities. The way many of them have 6 been treated appals me. It's not just the anguish of 7 the legal process they've been subjected to, it's the 8 diminished status they would have had to endure in the 9 small communities that they work in. The post office 10 network is a crucial detail in the social fabric of this 11 country. For the Post Office to condemn those 12 responsible for its high reputation to such terrible 13 ignominy is unforgivable." 14 Is there anything else by way of concluding remarks 15 that you wish to say? 16 A. No, I just wish I'd known about the case that you 17 recited at the time it happen. And I think, as far as 18 the Secretary of State is concerned, I was a junior 19 minister then, we would have all wanted to know, as 20 early as possible as these things were emerging and 21 maybe, you know, it could have been a different outcome. 22 MR BEER: Yes, thank you. They're the only questions I ask. 23 I think there may be questions starting with 24 Mr Stein. 25 Questioned by MR STEIN 119 1 MR STEIN: Good afternoon, Mr Johnson, my name is Sam Stein, 2 I represent a large number of subpostmasters, mistresses 3 and managers. I've only got two areas of questioning to 4 put to you and it won't take long. In reference to your 5 statement, I'll just read out one part, at paragraph 19, 6 page 7 of your statement. You're referring there to the 7 question of rollout in November 1999, rollout being 8 gradual, only about 600 of the 19,000 post offices 9 involved when you took office. You go on to say: 10 "As it says in the NFSP Report, I did not want 11 Horizon rolled out further 'until it had been improved. 12 Different training and software was essential'." 13 Now, you've explained in your evidence earlier today 14 that your own knowledge and understanding of computer 15 systems was shall I call it limited; is that fair? 16 A. Fair. Probably putting it too strongly, but yes. Very 17 limited. 18 Q. All right. Now, given that, what advice, technical, 19 expert advice, had you had at that time to consider what 20 amendment of software was needed and how it could take 21 place? 22 A. I wasn't equipped to deal with that. 23 Q. Did you ask the question of Fujitsu: to amend this 24 software, to get it right, to make sure it works 25 properly, how are you going to do it? How long is it 120 1 going to take? What do you need? 2 A. I raised it with Dave Miller who was the Post Office 3 manager responsible. My assumption was he was raising 4 it with ICL. They certainly stopped the rollout from 5 7 November and didn't commence it again until January. 6 Q. Did you get a report back from Fujitsu, via Mr Miller or 7 any other system, as to "Yes, would have looked at that, 8 Minister, thanks very much. It's all now fixed and 9 works terribly well"? 10 A. No, POCL and NFSP both said -- gave the thumbs-up. 11 Q. Right. So did you, at that stage, enquire any further 12 into what was the reason for the thumbs-up, in other 13 words, technically what had been done and whether that 14 was, in fact, right to get the system working? 15 A. No. 16 Q. One other matter, the second area I want to ask you 17 questions about, Mr Beer has taken you to your 18 statement, to page 3 of 19, paragraph 7. Now the 19 earlier part of that paragraph, paragraph 7, refers to 20 your 19 years as delivery postman, serving in London. 21 Then it goes on to say you worked closely with 22 subpostmasters, subpostmistresses, going behind the 23 counter to collect parcels, registered letters and other 24 items. In other words, you were familiar with the 25 working of post office branches; yes? 121 1 A. Yes. 2 Q. You also know, and again, if you wish, I can take you to 3 the part of your statement, whereby you refer to the 4 importance of balancing within a Post Office? 5 A. Mm-hm. 6 Q. Yes? Okay. Part of your evidence today has been your 7 own recollection from your own working life within the 8 Post Office of the Post Office Investigation Department, 9 you described an incident with a war veteran who had 10 been unfairly prosecuted by -- my word not yours -- what 11 appears to be your description of the zealots in the 12 Post Office Investigation Department. Is that a fair 13 way to describe them? 14 A. He wasn't prosecuted in the end because there was 15 industrial action and he was released from custody, that 16 he shouldn't have been in, in the first place. But, 17 yes, that's my understanding. Sometimes the POID, as we 18 called them, acted in a very overzealous fashion. 19 Q. Right. So, with that knowledge, that the Post Office 20 embodied an Investigation Department that was overly 21 zealous, did you use that knowledge in your discussions 22 with the Post Office, that included its operation and 23 rollout of the system, did you say, "What is going to 24 happen with the use of this system, in terms of the 25 prosecution of people?" 122 1 A. No, I wasn't the union representative. The union 2 representatives were sitting on the working party and it 3 was very much assumed that they would be dealing with 4 those issues. 5 Q. Mr Johnson, I don't want to misunderstand your evidence 6 and certainly this Inquiry doesn't. Do you mean to say 7 that, essentially, you knew about the potential for this 8 problem, you knew about the zealots in the Investigation 9 Department -- 10 A. No, no. 11 Q. -- and you thought "Well, I wouldn't mention it, I'll 12 just leave that to the NFSP representative"? 13 A. No, that's not what I said. 14 Q. Well, I assume you're not saying that. What did you 15 too, what did you do to take responsibility for 16 considering the question of prosecutions and how that 17 would work using this new system? 18 A. The question of prosecution was never raised. I never 19 heard of any subpostmaster being prosecuted as a result 20 of the implementation of Horizon. 21 Q. What did you do, Mr Johnson, to consider how this system 22 was going to operate in terms of the Post Office 23 Investigation Department, the one you described as being 24 overly zealous? What did -- 25 A. I didn't know of any involvement of the Post Office 123 1 Investigation Department. 2 Q. What did you do, Mr Johnson, to make sure that people 3 were safe in the hands of this system in terms of the 4 investigation -- 5 A. I made sure that we had a body set up where the 6 representatives of the unions could come to us with any 7 issues of concern to their members. 8 Q. Does it cause you disquiet that, as far as we can tell, 9 that no papers, no briefings, were provided either to 10 you as a minister or discussions within any bodies about 11 the question of prosecutions and investigations? 12 A. Does it concern me that nobody referred that to me? 13 Yeah. Yes, it does. 14 Q. Help us, please, Mr Johnson. How do you think that that 15 should be addressed in future? The fact that a big 16 issue for what has happened here, was that people were 17 prosecuted, with a system that was untried, untested, 18 rolled out too quickly. How do you think that happened, 19 that you weren't given a briefing about well, these -- 20 A. That's your assessment. I didn't know about this case 21 that was just reported to me by Jason Beer. I didn't 22 know about that. I know about it now. My point is, if 23 I'd known about that at the time, I'd have taken a very 24 different view and perhaps found out, you know, what on 25 earth the POID were doing being involved in this. 124 1 My job as the Minister for Competitiveness, amongst 2 my many other roles, was to ensure good employment 3 relations and to ensure that the workforce, the people 4 at the sharp end of this, were having their voice heard 5 in government. 6 Q. Where did the error lie, Mr Johnson? Was it in the 7 failure of the Post Office to report back that, 8 "Actually, we're going to go ahead and use this untried 9 system to prosecute people"? Was it their fault? Was 10 it your fault? Was it the special advisers to the 11 ministers' fault? Was it civil servants' fault in 12 setting out that this is going to be used to prosecute 13 people? 14 A. I wasn't aware that this thing was going to be used to 15 prosecute people. 16 Q. You knew that prosecutions were taken on by the Post 17 Office, rather uniquely for a body that was hands-off 18 and distanced from government. You knew that that 19 happened. You knew that the Post Office prosecuted 20 people itself. 21 A. Yes. 22 Q. So where was the report to you about how -- 23 A. That's a completely hypothetical situation. Nothing had 24 happened in the rollout of Horizon, either in the 600 25 offices when I was appointed, or in the 1,200 by the 125 1 time this period ended. Nothing was reported to me. 2 Q. And you didn't ask the question? 3 A. What do you mean I didn't ask? What question? What 4 question was I supposed to ask? 5 Q. How is the system going to cope with the prosecution of 6 people on the investigation of the people -- 7 A. "Mr Johnson, there are no prosecutions of people", 8 I would be told, I presume. 9 Q. Sorry. Repeat that, please? 10 A. I presume that the union officials who were reporting to 11 me would not have -- because they didn't report any 12 prosecutions -- 13 Q. You assumed that there were none? 14 A. Absolutely. Of course. 15 MR STEIN: Thank you, Mr Johnson. 16 MR BEER: Sir, I think that's all of the questions -- or 17 NFSP? 18 Yes, thank you very much, my mistake. That's 19 Ms Watt. 20 SIR WYN WILLIAMS: Well, the transcriber has been going for 21 the better part of two hours, now. I know we are 22 anxious to conclude Mr Johnson, so unless it's literally 23 going to be a few minutes, I think we at least ought to 24 take a short break. 25 MS WATT: Thank you Chair. There are a few questions, it's 126 1 not two or three minutes. It's not a lengthy period of 2 time but I couldn't say it was two or three minutes. 3 SIR WYN WILLIAMS: Did I hear -- that was a bit faint. Are 4 we talking about literally a few minutes, Mr Beer? 5 MR BEER: I think it's better coming from Ms Watt because 6 only she knows. 7 MS WATT: Thank you Chair. I wouldn't say it was a few 8 minutes. It's not lengthy but I wouldn't say two or 9 three minutes. 10 SIR WYN WILLIAMS: Then we should take a short -- how would 11 people prefer to proceed? 12 I take it, Mr Johnson, you would prefer to go sooner 13 rather than later, so that militates in favour of having 14 a short break for the transcriber, the alternative is to 15 take lunch and come to back after lunch. Which would 16 you prefer, Mr Johnson? 17 A. I'll go with you, Chair, but I think a short break, and 18 then finish off. 19 SIR WYN WILLIAMS: That's fine by me. We'll take 20 ten minutes, finish off Mr Johnson and then we'll take 21 lunch late. 22 MR BEER: Thank you, sir. 23 A. Thank you. 24 (1.03 pm) 25 (A short break) 127 1 (1.13 pm) 2 MR BEER: Sir, thank you for coming back. I think it's 3 Ms Watt now, on behalf of the NFSP. 4 Questioned by MS WATT 5 MS WATT: Thank you, Chair. I'm Catrina Watt. I represent 6 the National Federation of SubPostmasters at this 7 Inquiry. I think for the purposes of some of my 8 questions, you will need to have your witness statement 9 up, but I'll come back to it. If you think you would 10 like to see it while I'm asking the questions, then I'll 11 come back to it. 12 But I did want to ask a question about paragraph 7 13 of your witness statement. Immediately prior to that, 14 you set out the details of all of your ministerial 15 appointments and your prior working history. The first 16 line of paragraph 7 says: 17 "As set out above, quite apart from my professional 18 association with the National Federation of 19 SubPostmasters ... as a Union representative ..." 20 I wondered if, actually, that meant CWU. 21 A. No, no. We had a thing called COPU, Council of Post 22 Office Unions, where all the unions used to meet, the 23 staff side, as we were called, with the Post Office, 24 very Civil Service. 25 Q. I see so it wasn't that you were a union representative 128 1 for the NFSP, it was part of your overall -- 2 A. No, sadly I never was, no. 3 Q. Thanks, very much. Mr Beer brought to your attention 4 the distressing case of Pamela Lock, which you've then 5 gone on to discuss in your evidence, and Mr Stein was 6 asking you about your background knowledge as to the 7 perhaps overzealous actions of the Post Office 8 Investigation Department at times. If someone such as 9 Ms Lock in that distressing situation, if they were not 10 a member of the NFSP or the CWU or another body, and 11 therefore those unions couldn't bring up her situation, 12 didn't know of it, what would you have expected the Post 13 Office, or anybody else, to be telling you about such 14 prosecutions, given your background knowledge of how the 15 Post Office went about that? 16 A. Well, whether Pamela Lock was a member or not, I would 17 expect the unions to be concerned about how 18 subpostmasters were being treated if there was 19 a balancing difference. So they would report it, 20 perhaps not on behalf of Pamela Lock, but on behalf of 21 their members. 22 I would expect the Post Office to be concerned 23 enough to mention a case like that, given it happened in 24 a period of time when we were still rolling out the 25 programme in the very early stages. You know, I don't 129 1 know of any trial situation where you wouldn't, to 2 a certain extent, put aside the normal procedures in 3 recognition of the fact that these were people grappling 4 with a huge change to a system that they were already 5 very used to. 6 Q. If I understand your evidence more generally, the Post 7 Office didn't bring this or similar to your attention -- 8 A. Nobody did. 9 Q. -- during the rollout? 10 A. Nobody did. 11 Q. Thank you. You'd also said in your evidence about the 12 contractual arrangements that subpostmasters had in 13 relation to balancing and whether there were any 14 shortfalls, and how that might come -- well, perhaps 15 affect them more personally than those in their Crown 16 Offices. I just wondered if you knew, from your own 17 knowledge or experience at that time, when Crown Offices 18 had such shortfalls, what were the implications for 19 those Post Office employees? 20 A. I don't know. I only know that they wouldn't have 21 breached any contractual issue. It would have been 22 a matter, probably, for the discipline procedure, if it 23 got to that. It would go through the normal -- the same 24 as, I suppose, a postman or postwoman being accused of 25 a package going missing and an assumption made that they 130 1 must have stolen it. It would have go through the 2 process -- 3 Q. The investigation process -- 4 A. -- and evidence would have to be provided, the union 5 would be there to accompany their members, if it wasn't 6 one of their members, then they'd be entitled to take 7 someone with them. That's a change to the law we'd 8 already introduced. Whether you were a union member or 9 not, you could take someone with you to a grievance or 10 discipline hearing, so it would go through that kind of 11 process. 12 Q. I think you've been asked about -- in paragraph 33 of 13 your statement, you say you were not qualified to be in 14 a position to countermand conclusions that, for 15 instance, the Post Office were reaching on Horizon. 16 Would you agree that while, for instance, the NFSP and 17 perhaps the CWU were bringing information about glitches 18 or errors, problems, that they, as it turns out, could 19 not have known about the kind of information that the 20 Post Office and ICL knew about that ultimately leads to 21 where we are today? 22 A. Yes, that could happen. You gave one example, Pamela 23 Lock wasn't a union member. If this was happening on 24 the scale it was happening, in the end, I'd be amazed if 25 it wasn't raised through the union, but certainly the 131 1 Post Office would have an obligation to deal with it. 2 Q. I think we heard evidence yesterday that, with 3 hindsight, it's possible to see what happened and why it 4 happened but, at the time, you and others, is it the 5 case that you, with the knowledge you had at the time, 6 you couldn't have foreseen what was going to happen? 7 A. Not at all, no. What we were doing was ensuring that 8 the Post Office was equipped for the 21st century, and 9 to take on all this new work, and to save the network 10 and to stop this -- you know, the Post Office had gone 11 from 28,000 post offices to 16,000, just in my time. 12 And we introduced, you might recall, a force majeure 13 rule where, if it's force majeure, that's the only 14 reason a rural Post Office could close. That came 15 slightly later than these events. 16 We were trying to save the Post Office network on 17 behalf of everyone, and nothing I've seen in anything 18 now suggests that Horizon was viewed as being a threat 19 rather than a solution. Everyone saw it as the 20 solution. Computerisation, if you want to put it like 21 that. 22 Q. So when you say, at paragraph 45 of your witness 23 statement, that no one was flagging up major concerns, 24 that's everyone who was part of the Horizon Working 25 Group, whatever union or whatever body they were; is 132 1 that correct? 2 A. Yes, but particularly on the Working Group. 3 Q. Just a final question. At paragraph 33, you're talking 4 about the decision making on the rollout. Would you 5 accept that it was really for the Government, the Post 6 Office and ICL, to make decisions about rollout? It 7 wasn't for the unions to be making those decisions? 8 A. Well, as always, the unions are there to make 9 representation. The unions don't run the Post Office, 10 and they don't run ICL, but I would think, if the NFSP 11 said "This is causing serious concerns" -- the NFSP were 12 a strong, as you well know, a strong organisation, and 13 it was crucial to have them on board to make this work. 14 So yes, they could be ignored by ICL and the Post 15 Office. That would be a very, very foolish decision. 16 Q. But they weren't the ultimate decision-makers, I think? 17 A. No, they weren't. 18 MS WATT: Thank you. Those are my questions. Thank you 19 very much. 20 A. Thanks. 21 SIR WYN WILLIAMS: Is that it, Mr Beer? 22 MR BEER: Yes, it is, sir. Thank you. 23 SIR WYN WILLIAMS: Right. Well, first my thanks to you, 24 Mr Johnson, for your witness statement and for coming to 25 give evidence to the Inquiry. I am very grateful to 133 1 you. 2 Then secondly, Mr Beer, the need for one hour or 3 less of a lunch break depends upon the probable length 4 of the next witness, does it not? So how are we fixed 5 with that? 6 MR BEER: Sir, if we took an hour, we would certainly fit in 7 Sir Geoffrey Mulgan before 4.00. 8 SIR WYN WILLIAMS: Fine, then that's what we'll do. See you 9 all in an hour. 10 MR BEER: Thank you very much, sir. 11 SIR WYN WILLIAMS: Thank you. 12 (1.22 pm) 13 (The Short Adjournment) 14 (2.20 pm) 15 MR BEER: Sir, good afternoon, can you see and hear me? 16 SIR WYN WILLIAMS: Yes, I can thank you. 17 MR BEER: May I call Sir Geoff Mulgan, please. 18 SIR WYN WILLIAMS: Yes. 19 SIR GEOFFREY MULGAN (affirmed) 20 Questioned by MR BEER 21 MR BEER: Thank you very much. As you know, my name is 22 Jason Beer and I ask questions on behalf of the Inquiry. 23 Can you give is your full name please? 24 A. Sir Geoffrey John Mulgan. 25 Q. Thank you very much for coming today. You've also given 134 1 us a short witness statement which is at WITN03510100. 2 Could you please look at the hard copy that's in front 3 of you and turn to the last page, which is the fourth 4 page. Is that your signature? 5 A. It is, yes. 6 Q. Are the contents of that statement true to the best of 7 your knowledge and belief? 8 A. Yes. 9 Q. Thank you. I think you're currently Professor of 10 Collective Intelligence, Social Innovation and Public 11 Policy at UCL in London; is that right? 12 A. That's right. 13 Q. Your first degree was in which subject? 14 A. Politics, philosophy and economics. 15 Q. I think, subsequently, you went on to secure a PhD; is 16 that right? 17 A. In telecommunications. 18 Q. Was that before the events that we're looking at in '98, 19 '99 and 2000? 20 A. Yes. 21 Q. Was there a specialism within that discipline of 22 telecommunications? 23 A. Um, I'd mainly covered the, you know, the technology and 24 economics of networks of all kinds. In particular, new 25 Internet-based networks. 135 1 Q. So the computer side of telecommunications -- 2 A. Yeah. 3 Q. -- rather than telephony? 4 A. Yes. 5 Q. Thank you. What was your background before you became 6 a special adviser in Number 10? 7 A. I had worked in local government and I then went to MIT 8 in America to study technology. I then was an academic 9 back in London in telecommunications, and then set up 10 a think tank in London called Demos. 11 Q. When did you become a special adviser in Number 10? 12 A. Straight after the election of May '97. 13 Q. What was your title when you were appointed special 14 adviser? Who were you a special adviser to? 15 A. Well, I was special adviser to the Prime Minister. My 16 field was social policy, social exclusion, urban 17 regeneration, the welfare to work programme, things like 18 that. 19 Q. What was your role as a special adviser? 20 A. It's a slightly unclear role. It was to help ensure the 21 Government was doing the right thing, the policies were 22 implemented and, in my case, I was also involved in 23 setting up various units, like the Social Exclusion 24 Unit, to create new capacities to do different kinds of 25 tasks like that tackling homelessness or neighbourhood 136 1 regeneration. 2 Q. You later took up a position as head of the Performance 3 and Innovation Unit. Can you recall when that was? 4 A. So in 2000, after the various papers you've got here, 5 I became a civil servant, running the Performance and 6 Innovation Unit form the summer of 2000, which later 7 became the Government Strategy Unit, and then 8 subsequently I also came back for a period running the 9 Number 10 Policy Unit in parallel. 10 Q. What did the Performance and Innovation Unit do? 11 A. It was meant to be a cross cutting capacity to solve 12 problems, work out strategies for the government, on 13 topics like energy or climate change. Indeed, we did 14 the UK's first climate change strategy, policing 15 education, any topic where there was a cross-cutting 16 task. 17 Q. How large was the PIU? 18 A. The PIU was quite small, but the Strategy Unit became 19 bigger, at its peak, about 150 people, half civil 20 servants seconded in from departments, and half brought 21 in from business or academia, charities and elsewhere. 22 Q. You say in paragraph 3 of your witness statement that, 23 in late 1998, you were asked to sit on the Horizon 24 Working Group as a representative of Number 10. The 25 Inquiry has heard about different groups of people 137 1 gathering together, and such people styling themselves 2 the Horizon Working Group. Just before I take you to 3 some documents, can you tell us your recollection of 4 what this particular Horizon Working Group's purpose and 5 function was? 6 A. I can't quite remember why I was asked to sit on it, 7 given I had colleagues covering DTI issues at Number 10, 8 and another -- which was Geoffrey Norris, and another 9 Sharon White, covering DSS. I think, in retrospect, 10 I was probably asked to come in because I was more 11 neutral and because I had a bit of a technology 12 background and this was group set up by the Treasury to 13 try to find a resolution to the situation and the 14 conflicts between the Departments, ICL and Post Office. 15 Q. Can we look, please, at POL00028090. This will come up 16 on the right-hand screen for you. Can we look, please, 17 at page 4. Thank you. You'll see the heading of the 18 document is "Horizon Working Group Meeting: 17 September 19 1998", and we believe this is the first meeting of this 20 iteration of the Horizon Working Group. You can see the 21 membership of those intended to be present, or who were 22 present. I think this is a combined record of what was 23 to happen and what did happen at the meeting. 24 If we just highlight at the top of the page there 25 that group of people that are mentioned, to make it 138 1 clearer. Thank you. 2 We can see you're described under the heading "No 10 3 Policy Unit". Had in fact, in September 1998, the 4 Policy Unit been set up? 5 A. Yeah, the Policy Unit was set up -- it's always existed, 6 or at least for 60 years, I think, and the then Prime 7 Minister's Policy Unit started the day he moved into 8 Number 10. 9 Q. So that's different from the PIU, which we discussed 10 earlier? 11 A. Yeah, that I took over later, nearly two years after 12 this meeting. 13 Q. If we look at the next page, please, under "Discussion", 14 about a third of the way down the page: 15 "The purpose of the Working Group and membership 16 "It was agreed that the role of the group was 17 two-fold: 18 "to pull together various strands of work 19 commissioned in the CST's [Chief Secretary to the 20 Treasury] letter to Alistair Darling in the short 21 timescale available; 22 "to lead the work on the fallback options, with the 23 help of consultants." 24 Did that accurately describe the purpose or the role 25 of the Horizon Working Group, as far as you can recall? 139 1 A. There are two differences I recall from this minute. 2 So, on the one hand, it said that BA and POCL were going 3 to take part in it, and I don't actually remember them 4 being at the meetings I was out of this group, but that 5 may be my error. And it definitely did try to pull 6 together a coherent position, a route through, and some 7 fallback options. But I think, as we'll get into later 8 papers, I wasn't of the view that there was actually 9 a full exploration of fallback options. Other than 10 that, it's accurate, as far as I can remember. 11 Q. We can see from these minutes -- they go on for pages, 12 I'm not going to go through them -- that you appeared to 13 be there mainly in a listening capacity. I say that 14 because there are very few examples of you being 15 recorded as having made a contribution. Does that 16 reflect the reality? 17 A. Very much so. This would have been one meeting of, 18 I don't know, 15 that day, others in which I was much 19 more in the lead on, setting things up, initiating 20 policies and programmes. In this case, I was very much 21 an observer and, as I'm sure you will all be aware, the 22 complexity of the positions and the situation was pretty 23 high. And it was pretty difficult to really difficult 24 to get a handle on what was going on behind all the 25 various papers and positions. So, definitely, I was 140 1 more an observer at this point than anything else. 2 Q. What was Number 10's role in the exercise or the project 3 at this time? 4 A. It didn't really have a role at this time. This had 5 been, you know, initially left to the Departments, and 6 the agencies. Then the Treasury had come in because 7 there was a major financial problem brewing, and 8 Number 10, I suspect, had had almost no involvement 9 prior. I mean, presumably it had done before 1997 when 10 the previous Government when the PFI was agreed, but 11 I've never seen those papers. And I think we only first 12 became involved -- this would be whatever, you know, 13 14 to 18 months into the life of this Government. 14 Q. Can we turn, please, to POL00028091, and turn to the 15 third page, please. This is a minute or minutes of the 16 second meeting of the Horizon Working Group, dated 17 25 September '98. So seven days/a week later. Again, 18 we can see scroll through them, I'm not going to do the 19 exercise, everyone has got the minutes available to 20 them, little contribution by you personally in terms of 21 speaking. 22 At this stage, was the work of the Working Group 23 principally about seeking to bring to an end the dispute 24 between two departments of state and a dispute between 25 each of them, and POCL and ICL? 141 1 A. Yes, I think so, yeah. 2 Q. So it was essentially about a negotiation but also the 3 preparation of contingencies? 4 A. Yes. 5 Q. Did this group, to the best of your recollection, ever 6 consider issues relating to the technical integrity or 7 robustness of the Horizon System as it was being 8 developed? 9 A. So, as I mentioned in my witness statements, one of my 10 surprises in this whole process was how little 11 discussion there was about whether the technology was on 12 track, was fit for purpose, what the different options 13 were. And in these meetings, there was at most ever one 14 person with a tech background from CITU as it then was. 15 It was far more dominated by financial analysis or 16 financial considerations, and the various advisers 17 brought in from outside were mainly on the financial 18 side. 19 So, in a sense, the tech issues were not on the 20 agenda and were not considered, and there wasn't the 21 expertise in the room to have a proper assessment of 22 them. 23 Q. You say that it surprised you. The surprise was that 24 there wasn't somebody or more people with technical 25 expertise around this particular table? 142 1 A. Yeah. I mean, when a technology project is clearly 2 running into problems, is several years overdue, and so 3 on, in a way, the first thing you would want to know is, 4 is it working, is it on track as a technology? And that 5 is almost a prior question to the different NPVs and 6 financial options. This was actually a much broader 7 pattern within Government at the time, and we may come 8 on to this, it's in one of the minutes you've got from 9 me later on. 10 I was repeatedly struck how often decisions were 11 being made in Whitehall without anyone in the room with 12 really the detailed practical understanding of the 13 topics being discussed, and this was particularly 14 evident in relation to digital projects of which there 15 were many, and many very expensive ones, most of which 16 were not really working very well. 17 So simply to see this as a financial negotiation 18 seemed to me wrong. But my brief had not been to go 19 back to first principles and examine the technology. It 20 was essentially, at this point, just to see if a deal 21 could be done to keep the show on the road. 22 Q. Is that why you didn't raise the composition membership 23 and terms of reference of this Horizon Working Group to 24 expand both to consider technical issues? 25 A. I didn't really have the authority to do that. It had 143 1 been set up with the backing of various ministers and, 2 as you identified, I was mainly there as an observer. 3 Q. Even as the Prime Minister's special adviser, could you 4 not go back to him and say, "There's a problem with this 5 Working Group"? 6 A. You may notice later on I did say to him I thought there 7 was probably a problem with the technology which needed 8 to be addressed. But I probably discussed, at several 9 points, what was happening with Jeremy Heywood, who was 10 running his office, and there was a fairly message that 11 the option of cancellation was not really on the table 12 politically. 13 Q. Who was that message coming from? 14 A. Well, this was, I think, Jeremy Heywood trying to 15 reflect his understanding of the positions of different 16 ministers and Departments and the instincts of the Prime 17 Minister and, therefore, the risk of actually going back 18 to first principles and analysing the technology was you 19 might get another six months or a year's delay and 20 a further complication of an already complex situation. 21 Q. Through this work on the Horizon Working Group, did you 22 gain an understanding of some of the issues involved in 23 the Horizon project? Was that the main vehicle of your 24 understanding, the only vehicle for your understanding 25 of the issues involved in the Horizon project? 144 1 A. Well, we had no shortage of papers, and we had no 2 shortage of marketing materials, and then there was 3 a lot of gossip in the background, particularly of 4 people in the IT industry, which didn't really fit what 5 was in the marketing documents and these papers, and was 6 much more critical and troubled. But nearly all of that 7 was, as it were, off the record. 8 Q. Who was the marketing material, as you've described it, 9 from? 10 A. This was from -- I guess from ICL, showing, as many 11 companies did at the time, a sort of gleaming future of 12 high tech government, which ministers found very 13 attractive. 14 Q. And the gossip, as you've described it, from IT 15 professionals in the background, who were they speaking 16 to: to you directly? 17 A. Some spoke to me directly but a lot of this was through 18 informal channels and the trade press and elsewhere. 19 I did not have the time -- I say this was a fairly 20 marginal part of my work, so I didn't have the time to 21 really get on top of any of that. 22 Q. What was that other channel of communication telling 23 you? 24 A. It was saying this was not only that the project and the 25 programme was running into difficulties, which was 145 1 obvious, but also probably the technology was flawed in 2 a more fundamental way, and not just specifics like the 3 Benefit Payment Card, but in other ways as well. But, 4 as I say, didn't have the time, probably not the 5 capability either, to really get into the detail of what 6 was happening. 7 Q. Could we move forwards, please, to December 1998. On 8 9 December 1998 you made a submission to the 9 Prime Minister about the Horizon System, as I think it 10 seemed that matters needed to be brought to a head. 11 Can we look at that, please. It's CBO0010001_072. 12 That will come up on the screen for you. Thank you very 13 much. 14 You can see who it's from: you. And you can see who 15 it's to: the Prime Minister. And you can see the copy 16 list and the date, 9 December 1998. You say in 17 paragraph 1: 18 "A decision now needs to be taken on whether to 19 proceed with the Horizon project. You'll recall that 20 this is the initiative to automate the Post Office 21 Network involving ICL. The project is nearly 3 years 22 behind schedule, having been plagued with problems. 23 Negotiations have been under way since the summer to 24 find a way to continue the project." 25 What did you understand, by then, to have been the 146 1 "plague of problems"? 2 A. Well, I think any project which is nearly three years 3 behind schedule is clearly problematic. And as much as 4 any issue I'd dealt with in Whitehall, this was one 5 where there were different parts of Government were 6 really at loggerheads, had diametrically opposed 7 positions which at this point were becoming more, not 8 less, entrenched. 9 Q. Did you understand the plague of problems to have 10 included the integrity and robustness of the Horizon 11 System as it then stood? 12 A. Yes. 13 Q. Can we read, please, paragraph 2: 14 "The sums involved are big. Total spending through 15 DSS contracts will be around £5 billion between now and 16 2008." 17 3: 18 "After a tough period of negotiation, ICL has made 19 an offer which represents a significant move. 20 Acceptance would still cost the Government around 21 £200 million more than previously envisaged. Equally, 22 ICL would set to lose £270 million in total on the 23 project. Their offer still leaves a significant gap 24 with the Government, £110 million on funding, as well as 25 differences over the practicalities of implementation. 147 1 But the Post Office will be prepared to meet the funding 2 gap out of existing resources, and despite the continued 3 opposition of the Benefits Agency it will now almost 4 certainly be possible to reach a settlement." 5 Why was it your view, at that point, that it would 6 be possible to reach a settlement, almost certainly? 7 A. When I re-read that, the fact I put the words "almost 8 certainly" very much surprised me, and that was probably 9 a triumph of hope over experience. 10 Q. Can you recall why you did put it in there? 11 A. I think we must have just had a meeting in the day or 12 two before that where it looked like there was a deal to 13 be done. 14 Q. Can we go over the page, please. Paragraph 4: 15 "However, the decision is not clear-cut. The 16 problems that have beset this project may well continue. 17 Continuation would lock the Government in for 10 to 18 12 years to what many see as a flawed system ..." 19 Just stopping there, what are you referring to when 20 you're referring to a "flawed system"? 21 A. Well, what we talked about a bit earlier: the clearly 22 fairly widespread view that there were more fundamental 23 problems with the technology, as well as the specifics 24 on the BPC and smartcard, and so on. 25 Q. One way of reading "a flawed system" would mean that it 148 1 was a flawed concept. Another might mean that it's 2 a flawed execution of a concept which is good, ie the 3 system itself is flawed as it is being developed and 4 executed. You're saying this was meant as the latter? 5 A. Well, I had a view that some of the conceptual framing 6 was flawed, and I think elsewhere wrote that likelihood 7 of any system of this kind quickly being superseded by 8 change, becoming out of date was high. And I'd probably 9 spent maybe too much time in a kind of -- in a more 10 Internet era, Silicon Valley-approach to technology, 11 which favoured much more iterative -- we now call agile 12 ways of working, where you try things out with users, 13 rather than having very large-scale, hierarchical, 14 long-term projects all designed without much involvement 15 of the likely users. 16 So that was in some ways the ethos which I feared 17 was a bit flawed, not only in this, but in a number of 18 Government digital projects at the time. 19 Q. And just help us, what had your experience in Silicon 20 Valley concerning the delivery of IT projects, involving 21 the Internet, told you about the involvement of users in 22 the design and development of a project? 23 A. I think the main philosophy of software in that time, 24 that era, was moving away from having very large and 25 secretive teams trying to come up with the perfect model 149 1 which was then imposed on the world, towards learning 2 things by doing. Doing things in often complete less 3 perfect minimum viable products, and trying them out 4 with the likely users to get feedback, and then 5 spreading them out in an iterative, evolutionary way, 6 rather than a sort of 'big bang' large project. 7 And that was an almost philosophical shift which was 8 happening at exactly this time, but took quite a while 9 to really become normal in British procurement, which 10 was still, in that previous era, very large, and in 11 a way much more of a big-company approach to things 12 rather than the perhaps more nimble, sometimes a bit 13 messy approach of the Californian digital companies. 14 Q. So in this context it would have involved involving the 15 subpostmasters as end-users at an early stage of the 16 project, and designing a system that included features 17 and facilities specifically around their needs? 18 A. Yes, designing with them. Co-creation is the kind of -- 19 the spirit, which I think is obvious in many fields, and 20 lots of -- you know, digital innovation does that as 21 a matter of course now. In some ways, it's strange that 22 it wasn't obvious then that that's how you should do 23 a big project like this, to de-risk and make it useful. 24 If the users aren't involved until late on, it's likely 25 there will be problems with the users. I mean, that's 150 1 a fairly iron law of these kind of things. 2 Q. Reading on, please, in paragraph 6, if we can highlight 3 that, you say: 4 "In making a judgment, the following issues are 5 paramount. 6 "1. The virtues of the project itself: overall, 7 Horizon now looks increasingly flawed. It's centred 8 around a technology, the BPC, that's overengineered and 9 very expensive and likely soon to be obsolete. Indeed, 10 ICL acknowledge that the BPC will have no commercial 11 value to them at the end of the project. Although they 12 remain underdevelops, the alternatives, which involve 13 simpler, off-the-shelf banking technology, look 14 increasingly attractive offering a route to universal 15 banking automated post offices and the better provision 16 of government information." 17 So again, there, Horizon looks increasingly flawed. 18 Is what follows a description of the ways in which it is 19 flawed? 20 A. Some of them, yeah. So I probably didn't try to get 21 into this almost more philosophical issue of how you do 22 software, because that was not something my audience 23 would have understood without a much longer discussion, 24 probably. 25 Q. You carry on, in the minute, highlighting issues. At 151 1 the foot of the page: 2 "The effects of the Post Office Network." 3 Then over the page, please: 4 "Effects on ICL. Effects on Fujitsu. Effects on 5 PFI." 6 Then over the page, please, at paragraph 7. You 7 told the Prime Minister that the departments remain 8 divided: 9 "[Mr] Darling remains strongly opposed to 10 continuing. [Mr] McCartney for DTI will argue strongly 11 for accepting a deal (Mr Mandelson has largely kept out 12 of the discussion.) the Treasury is divided at official 13 level, but Stephen Byers will probably, on balance, want 14 to accept the deal for pragmatic reasons, even though he 15 would prefer to cancel." 16 Then you come to the analysis. At paragraph 8, 17 please. 18 "At first glance, most of the factors point towards 19 continuation. However my view, which Lord Falconer 20 broadly shares, is that although short-term 21 considerations and expenditure point strongly towards 22 making a deal, this will in the long run prove 23 unsatisfactory, leaving the Post Office and government 24 dependent on a hugely expensive, inflexible, 25 inappropriate and possibly unreliable system." 152 1 Those words at the end there, "possibly unreliable", 2 on what evidence or information had you reached the view 3 that Horizon was possibly unreliable? 4 A. I can't fully remember, is the honest answer. But 5 enough people had indicated to me that -- people with 6 technological knowledge -- that at the very least the 7 opposite had not been proven. It hadn't been shown that 8 we should -- had good reason to believe that it would be 9 a reliable. 10 Q. We don't see a suggestion of that type: that the 11 technology, the system, was possibly unreliable in any 12 of the submissions coming up from the DTI, either to the 13 Treasury or to the Prime Minister. 14 A. Very little of the Whitehall documentation covered any 15 of this. But -- 16 Q. Do you know why that was, that it didn't cover the 17 technical issue that you were raising here? 18 A. A year or two after this, I was responsible for doing 19 a big review of how Government handled risk of all 20 kinds, and a very common pattern in risk is that people 21 low down the hierarchy spot problems and risks, but then 22 it's filtered out as communication goes up to the top of 23 the hierarchy. And I expect, in retrospect, this was 24 exactly a case like that, where many of the people on 25 the ground involved knew some of the problems and the 153 1 flaws, but for different reasons, as communication went 2 up through the many, many levels of very hierarchical 3 organisations, the DTI, Post Office, DSS and so on, that 4 got filtered out. 5 Q. If we read on to the remaining paragraphs: 6 "In our view" -- I think that's yours and 7 Lord Falconer's view; is that right? 8 A. At that point it was. I mean, in a way -- I think you 9 can read between the lines of this note -- my instincts 10 were to recommend cancellation but I'd been advised that 11 was not a runner. So we had to offer -- recommend the 12 best plausible option. 13 Q. "The best outcome will be a deal with ICL to continue 14 with an automation strategy which drops the Benefit 15 Payment Card, but focuses instead on helping the Post 16 Office to provide banking services. This would enable 17 a rapid move towards ACT and Post Office automation, but 18 without the many problems associated with the BPC. It 19 would also enable good relations to be maintained with 20 ICL and Fujitsu. The costs to government and ICL 21 resulting from the BPC could legitimately be blamed on 22 the previous Government." 23 So that was essentially your recommendation, would 24 that be right? 25 A. Yes. 154 1 Q. If we just look at the end of the minute over the page, 2 please, to paragraph 12, just to get the options. You 3 set out the options: 4 "1: Attempt to conclude a deal broadly along the 5 lines offered by ICL". 6 "2: Seek a deal with ICL but including the BPC, 7 recognising that in practice, this may quickly lead to 8 3." 9 "3: Reject ICL's offer, move to terminate the 10 project, and press forward with an alternative. Do you 11 wish to give a steer?" 12 We can see the handwritten note at the end of it. 13 I wonder whether we could display that alongside 14 WITN06080100, page 3. WITN06080100, page 3. 15 A. Sorry, do you want me to read that? 16 Q. No, it'll come up on the screen for us. WITN06080100, 17 Sir Tony Blair's witness statement. 18 Well, there appears to be a problem with that. Can 19 we have the document that we were displaying, in which 20 case I will, with your assistance, try to decipher 21 Sir Tony's handwriting. He wrote: 22 "Would favour option 1, but for Geoff's statement 23 that the system itself is flawed." 24 So he is picking up there, it seems, the point that 25 you have raised in two passages in your note about the 155 1 flaw to the system itself. Agreed? 2 A. Yes, and he says there: "Surely there must be a clear 3 view on this." But there wasn't really a clear view on 4 this. 5 Q. "Surely there must be a clear view on this" meaning on 6 whether the system itself is flawed? 7 A. Yes, yes. 8 Q. But there wasn't? 9 A. He wasn't really given one, no. 10 Q. No. 11 A. And I think this is -- I don't know, this is a topic for 12 an Inquiry, but I repeatedly felt that he and other 13 ministers were being put in impossible positions, making 14 judgements on very complex, commercial and technical 15 issues on which they had no real -- no background. It 16 would be very unlikely they could, you know -- I mean, 17 they had plenty of common sense, but it's not a good way 18 to make decisions. 19 Q. How would they make decisions, then? 20 Impressionistically, relying on their common sense? 21 A. No, well, I came to this in the minute I wrote about six 22 to nine months later. Major projects need much clearer 23 ownership, and the people in charge of them need to have 24 technical, professional expertise. 25 Q. But in the absence of that, how were they making 156 1 decisions such as this one we are talking about? 2 A. They were making decisions based on papers from civil 3 servants who were perfectly, you know, intelligent, 4 well-educated civil servants. But again, very few of 5 the ones making the recommendations had any background 6 in this kind of project. And those were then being fed 7 into a political decision-making process by 8 a significant number of different ministers who, again, 9 had no background in very large, complex, technical 10 projects. 11 And as I wrote in that minute later, and as I think 12 many concluded more generally in British Government, 13 major projects have to be run in a quite different way, 14 because if they come down to repeated, essentially, 15 decisions by politicians and haggling by politicians, 16 you really do risk ending up with worst-case options. 17 Q. He continues: 18 "Surely there must be a view on this, ie reading the 19 enclosed paper, it all focuses on the financial deal." 20 A. But there the risks are pretty even, probably coming 21 down on the side of continuing. The real heart of it is 22 the system itself, which I think he was correct on. 23 Q. And if you go back to the previous page, just above the 24 "ie," at the foot of the page, he says, "Speak to me" -- 25 because that's on Monday, "On Mon"? 157 1 A. Mm. 2 Q. Was that a request for you to speak to him? 3 A. I can't remember who the "me" was in this case. 4 Q. You had written the paper to him, but it was copied to 5 a number of people in the top of the office? 6 A. Yeah, it could have been me or it could have been 7 Jonathan Powell, who was his chief of staff at the time. 8 Q. Anyway, you would agree that this was a plea or 9 a request from the Prime Minister to be better informed 10 about the technical aspects of the system? 11 A. Yes. 12 Q. And whether it is indeed flawed? 13 A. Yes. 14 Q. Can we look at the formal reply that was received to 15 this minute, CBO00000009. You'll see that it's from 16 Jeremy Heywood to you, dated 14 December '98. 17 "Prime Minister was grateful for your minute of 18 9 December." 19 Would this be the normal way of communication back: 20 that this was the official reply, if you like, from the 21 Prime Minister through his principal private secretary? 22 A. It could be more often I'd just be shown the handwritten 23 commentary, actually. 24 Q. And in circumstances where you did get an official 25 minute back, would this be the operative minute? 158 1 A. Yes, but -- 2 Q. We're going to see that what he wrote is not what is in 3 this minute. 4 A. That's true, yes. 5 Q. So I'm wondering which carries the day. 6 A. Well in a way, this one does. This is the official one, 7 and in a sense this is Jeremy Heywood, in his 8 correctly -- interpreting his role as trying to navigate 9 and balance different Whitehall departmental interests. 10 Q. Is that really the case, though? The Prime Minister 11 says, "I want to know more about the flaws in the system 12 in order to make a good decision", and the late Jeremy 13 Heywood writes a minute that doesn't mention it? 14 A. My guess would be he might have talked to Treasury about 15 this, and they might have said: "If you open the up the 16 technology you will create more uncertainty and more 17 delays. We're close to doing a deal, so whatever you 18 do, don't do that." 19 That's purely a guess. 20 Q. In any event, he says: 21 "The Prime Minister was concerned about your view 22 the Benefit Payment Card is overengineered and is likely 23 soon to be obsolete." 24 That was, of course, only part of your concern, 25 wasn't it? 159 1 A. Yes. 2 Q. "His clear preference would be to avoid cancelling the 3 project but to go for a variant of your option 1 and 2." 4 Again, that's not entirely what he said, is it? 5 A. No, not exactly. 6 Q. No. 7 "We should retain the Benefit Payment Card to seek 8 to ensure that over time it delivers real benefits and 9 provides an effective transition path to a satisfactory 10 long-term position. If necessary, the Prime Minister 11 thinks it may be sensible to give ICL a financial 12 incentive to improve the BPC project in this way." 13 This still, despite the differences, essentially has 14 the BPC as an element of the system; is that right? 15 A. That looks like it, certainly. 16 Q. Thank you. Can we turn to, a little later in the year, 17 please, CBO00000011. This is your minute of two and 18 a bit weeks later, Christmas Eve, of 1998. You will see 19 that you say in paragraph 1: 20 "We've come very close to reaching an agreement on 21 the way forwards, but ministerial changes yesterday made 22 it impossible to reach final agreement." 23 I think that's a reflection, from memory, is that 24 right, losing Peter Mandelson from Government, and 25 a reshuffle accordingly? 160 1 A. Yes, I think he resigned about then, yes. 2 Q. Yes. 3 "The attached note from Stephen Byers sets out how 4 we propose to proceed. In line with your instructions, 5 our aim over the last two weeks has been to ensure that 6 the Government continues with ICL-Fujitsu whilst also 7 avoiding the danger of being locked into an obsolete 8 technology in the form of the Benefit Payment Card. 9 This has been broadly achieved. It's required 10 considerable compromise on the part of DSS, some 11 movement from DTI. The aim is to pursue a two-stage 12 approach." 13 You set that out. 14 Then if we can go over the page, please, you 15 describe what's going to happen in the second stage in 16 paragraph 3. You narrate your communication with 17 Treasury in paragraph 4, and highlights the importance 18 of bringing in somebody who is on top of the issue to 19 play a coordinating role, probably Lord Falconer. 20 Again, in that minute, there is now no mention of 21 any of the technical issues being brought into account 22 in making a decision on which option to pursue. 23 A. That's correct. I mean, I'm following instructions, in 24 a way, at this point. 25 Q. So the flawed nature of the Horizon System that you had 161 1 raised in your previous minute, essentially now the 2 caravan had moved on. 3 A. Yes. 4 Q. Is that right? 5 A. Yeah. 6 Q. Were you aware of any reports, audits, or assessments by 7 independent experts who had by this stage pronounced the 8 system, at that stage of its development, to be viable, 9 robust, or a design which would accommodate future 10 technological developments? 11 A. I wasn't aware of such analysis, and I'm not sure 12 I necessarily would have been aware. And my 13 understanding was much of the technology was, you know, 14 highly proprietary and not open to anyone to audit or 15 assess in that way. 16 Q. And by "highly proprietary", do you mean not available 17 for inspection and kept secret? 18 A. I think so, but I couldn't speak definitively on that. 19 That was my understanding of the terms of the PFI. 20 Q. Can we look, please, at CBO00000008. If we just look, 21 this is a letter dated 10 December, just going back 22 slightly, to Stephen Byers from Peter Mandelson. So 23 Peter Mandelson was then Secretary of State for the 24 Department for Trade and Industry, and Stephen Byers, 25 who was still the Chief Secretary for the Treasury -- 162 1 neither of them in those roles for that long, at this 2 stage. 3 Now this wasn't copied to you, so far as we're 4 aware, or we can see, but if we look at the second page, 5 last paragraph, Mr Mandelson says that he is copying 6 this letter to the Prime Minister. Can you see that? 7 A. Yes. 8 Q. And then if we look at the top of that at page, page 2, 9 Mr Mandelson says: 10 "There is still some way to go to complete the 11 Horizon project, but the basic development work has been 12 thoroughly evaluated by independent experts who have 13 pronounced it viable, robust, and of a design which 14 should accommodate future technological developments." 15 Were you aware of anything like that, a 16 pronouncement by independent experts? 17 A. No. 18 Q. Can you assist, how would this kind of correspondence be 19 viewed within Number 10? On the one hand, what 20 Mr Mandelson said taken at face value, ie there are such 21 expert reports who are independent who have thoroughly 22 evaluated the system? 23 "He [Mr Mandelson] knows something that we don't 24 know, but we accept what he says. There must be 25 something in the background. There are experts [he uses 163 1 it in the plural] all viewed as a piece of advocacy?" 2 A. This letter reads to me much more like a standard 3 departmental advocacy letter which he will have signed, 4 but I'd be surprised if he had much involvement in it, 5 or interrogated its contents very much. It looks like 6 a position paper in a period of Whitehall internecine 7 conflict. And he's not someone, definitely, with 8 a background in technology, and suspect his senior 9 officials weren't at the time either. So it's primarily 10 more about positioning it and getting a deal which works 11 strategically for the department. 12 But there must have been some experts. I'm sure 13 that sentence wouldn't have been put in if there had 14 been literally nothing, but whether they were 15 independent or not, and where the it was published, I 16 don't know. 17 Q. Can we turn back, then, to the formal response to your 18 Christmas Eve minute, CBO00000019. Thank you. You'll 19 see this as a minute addressed to you, again from Jeremy 20 Heywood, dated 6 January 1999. 21 "The Prime Minister was grateful to you for your 22 minute of 24 December [that's the one we've looked at]. 23 The Prime Minister thinks we should proceed as follows: 24 "(i) we should indicate to ICL as soon as possible 25 we want to have further discussions with them on how the 164 1 BPC project can be developed to facilitate the earliest 2 possible move to smartcards. 3 "(ii) but we should also make clear to them that if 4 agreement cannot be reached within a specified time 5 period on a development with the project along these 6 lines, the Government will stick with the current 7 project." 8 Then: 9 "Notwithstanding (ii), the Prime Minister is clear 10 that we should seek to move as quickly as possible to 11 paying benefits directly into bank accounts via 12 a smartcard facility that can be used in post offices." 13 So it's option 1 again, essentially, but a move away 14 from the Benefit Payment Card aspect of it? 15 A. Possibly, or possibly not. It's a rather contradictory 16 message, this one. 17 Q. Well, (ii), would you agree, looks as if it is focused 18 on what should be made clear to ICL-Fujitsu, but then, 19 notwithstanding (ii), there looks like a private plan as 20 well? 21 A. Yeah. 22 Q. In any event, the technology issue, the integrity of the 23 system issue, isn't mentioned in this decision making. 24 A. No. 25 Q. Moving on later into 1999, in paragraph 5 of your 165 1 witness statement -- no need to bring it up -- you say 2 that your recommendations by them were summed up in 3 a note to the Prime Minister in February 1999. For the 4 record, the February 1999 note is HMT00000029. No need 5 to bring that up, because it's essentially a staging 6 post, and things moved on afterwards. 7 You also say, in paragraph 5, that your 8 recommendations were summed up in a further note in 9 April '99 to Lord Falconer. I am going to ask in 10 a moment to look at that April '99 minute. 11 But before we get there, can we look at 12 CBO00100001_002. Thank you. 13 It's a note from you to the Prime Minister of 14 9 April '99, and you attached a note: 15 "For handling your meeting on Monday with Mr Naruto, 16 the VC and chairman of Fujitsu and ICL, who will be 17 coming with Mr Todd, Chief Executive of ICL, and 18 Mr Hall, their Head of Corporate Affairs. Mr Robson 19 from the Treasury will also be there. The note has been 20 prepared with the agreement with Mr Milburn and 21 Lord Falconer. The meeting was originally requested by 22 ICL as a courtesy call to talk about Durham and 23 ICL-Fujitsu's plans for continued expansion in the UK. 24 The main topical will be Horizon. A good deal of 25 progress has been made. A potentially viable deal is 166 1 now in sight. 2 "Naruto will be seeking your agreement to reach 3 a legally binding agreement by 23 April. He will 4 threaten that Fujitsu will upon a the plug if this 5 doesn't happen, and that given the huge commitment that 6 Fujitsu have made to the UK, they deserve better 7 treatment. Without an agreement, Fujitsu will have to 8 make provision for a £300 million loss in their annual 9 accounts. This would wreck their plans to float ICL." 10 Over the page. 11 "Your main aim should be to give a strong 12 reassurance the Government is keen to reach an agreement 13 on Horizon." 14 And you acknowledge the efforts that Fujitsu and ICL 15 are making. 16 "However, it is vital that you do not commit to 17 reaching a legally binding agreement by April 23." 18 Then 6: 19 "To set the right tone for your meeting, you might 20 wish to make the following points at the very 21 beginning." 22 I won't read all those out. 23 Then 8 at the bottom: 24 "You should be aware that Mr Naruto was at your 25 speech in Tokyo. After you had finished, he said to 167 1 colleagues that Britain was very lucky to have had both 2 the Thatcher revolution and now a Blair revolution. 3 Japan were still waiting for its Thatcher revolution." 4 Now, in that minute you referred to the 5 Prime Minister expressing his appreciation for the 6 efforts to help the workforce in Durham against the 7 backdrop of very tough global pressures. What did that 8 relate to? 9 A. I can't remember the details of that, I'm afraid. 10 Q. Were you subsequently present at the meeting? 11 A. I don't think, no. 12 Q. In your witness statement you said that the 13 Prime Minister had a number of one-to-one meetings with 14 Fujitsu and ICL. When you call them "one-to-one 15 meetings", you literally mean that? 16 A. No, no. I mean direct meetings like this one. 17 Q. I see. I understand. So not that there were no other 18 people in the room? 19 A. I would be surprised if there were any one-to-one 20 meetings. 21 Q. Can you recall whether you attended any of those 22 meetings? 23 A. I can't remember. 24 Q. And can you help the Inquiry with anything that was 25 discussed or decided at those meetings? 168 1 A. Not really. My guess is the meeting probably transpired 2 rather as I hoped it might in that note: which is, you 3 know, the warm words, politeness, appreciation, but not 4 giving ground unnecessarily at a moment of pretty 5 intense negotiation. 6 Q. Thank you. Can we move, then, to your April '99 note to 7 Lord Falconer, CBO00000059. You'll see it's from you to 8 Lord Falconer dated 20 April '99. 9 "1. You and others ministers are meeting tomorrow 10 to agree a final decision on Horizon. Since I'll be 11 abroad on Wednesday and Thursday, I set out some 12 considerations in this note. 13 "2. Desired outcome is that the meeting on 14 Wednesday will confirm the route agreed at the meeting 15 on Monday, namely send ICL a letter on Thursday with 16 sufficient legal force in committing the Government in 17 pursuing the revised smartcard-based Horizon to avoid 18 them having to make provision for losses in their 19 consolidated accounts." 20 Can you remember that particular issue being raised, 21 namely in the absence of such a letter of comfort, there 22 was the prospect of provision needing to be made in 23 Fujitsu's accounts? 24 A. Yes, and I think this was also raised in the letter 25 you've got from the ambassador, that the scale of 169 1 resources committed was very large, and the revenues and 2 prospective revenues were fairly modest, at this point. 3 That was problematic not just for ICL's commercial 4 future, but also for Fujitsu attempting to promote 5 similar PFIs in Japan at the time. And without some 6 plausible alternative routes, some route to 7 implementation of the project and future revenues, then 8 there would be a large hole in their accounts, which 9 would be deeply embarrassing for the leadership of the 10 company. 11 Q. In the second bullet point you speak of the need to: 12 "... set in train a radical overhaul of POCL to 13 introduce new management and to incentivise them to 14 maximise the returns from Horizon." 15 Why was a radical overhaul of POCL, through the 16 introduction of new management, needed? 17 A. Well, at the time it didn't appear that POCL really had 18 a very clear business strategy. I mean, they obviously 19 can blame aspects of that with the nature of the PFI 20 deal, or the behaviour of ICL-Fujitsu, but they were 21 surprisingly unable to articulate to others, including 22 myself, and in Treasury and elsewhere, a sense they 23 really knew they had a clear 10, 20-year strategy of how 24 to transform, make sustainable, POCL as a whole, and 25 make use of all these new technologies. 170 1 And that was one of the -- I think the concerns all 2 the way along was whether they actually had the correct 3 leadership. 4 Q. You say in your witness statement that: 5 "A key part of the problem was a leadership within 6 the Post Office who were not quite equipped to lead on 7 this major transformation of their work." 8 A. Yes. 9 Q. Does that sum it up? 10 A. Yes. 11 Q. Can we move forward, please. You tell us in your 12 statement that in May '99 you wrote an internal note on 13 some of the longer-term lessons to be learned out of the 14 Horizon project. Can we look at that, please. It's 15 CBO00000060. Now apologies that this is a photograph of 16 an email that is itself taken from a file within The 17 National Archives. It seems, from other evidence that 18 the Inquiry has got, that you prepared something more 19 formal, and that that something more formal was dated 20 20 May 1999, but we do not have that document. There's 21 a reference to your document of 20 May 1999 in 22 CBO00000057. No need to turn that up. But what we do 23 have is it looks like thoughts before that formal draft, 24 eight days before namely 12 May '99. 25 Can we look at the first paragraph together, please. 171 1 "With the possibility of a deal on Horizon it is 2 important that the government learns lessons to avoid 3 anything like this happening again. Horizon has been 4 a disastrous project from beginning to end. It was 5 misconceived." 6 It may sound an obvious question, but does that 7 represent your global view of the Horizon project 8 contemporaneously expressed in May 1999? 9 A. It's a personal view, really, at this point, and 10 slightly intemperate in its language, but probably not 11 a million miles from the truth, if I'm being accurate. 12 Q. "It's faced continual delays and problems. Over the 13 last year it's taken up huge amounts of ministerial and 14 official time, and delivered in the end a far from 15 optimal solution that may be as expensive as the 16 alternatives and will almost certainly offer less. This 17 note sets out 8 basic lessons." 18 When you referred in there to "a far from optimal 19 solution", did that include your knowledge that the 20 technical reliability and integrity of the system was 21 questionable? 22 A. Yes. 23 Q. Or as you described it in the earlier memo I took you 24 to, it was a possibly unreliable system? 25 A. Yes, yes. 172 1 Q. Paragraph 1, I think, speaks for itself. Paragraph 2 2 I look at in slightly more detail. 3 "Fallbacks: In the case of any large project of 4 this kind it's essential to prepare serious fallback 5 options. Although Number 10 demanded fallback options 6 last autumn, no further fallbacks were subsequently 7 developed. Having rejected the main option, the 8 government has therefore effectively had to sign up to 9 an alternative option on which very little work or 10 serious costing has been done." 11 Was it your view that the Government effectively had 12 to sign up to this alternative option? 13 A. Well, this was the option B1. A fair amount of work was 14 done on it, but it was more done on the financial 15 modelling rather than really developing a serious 16 alternative option. So obviously a huge amount had gone 17 into option A, if you like, and then dramatically less 18 work was done on what became an alternative option, B1. 19 As a result of which, all the numbers in it kept 20 changing because they were flimsy. That's what -- 21 I think that's what I was trying to say there. 22 Q. In terms of having to accept this alternative, had you 23 been informed about concerns within the Post Office that 24 under the PFI contract, the Post Office had been denied, 25 by ICL, access to information, documents and data about 173 1 the high and low-level design of the system, which meant 2 that they were being what was described as a black box, 3 effectively being instructed to trust the supplier to 4 deliver the outputs according to their specification? 5 Had you been told about that? 6 A. I was aware of that, and in fact I commissioned, about 7 a year or two later, a review of PFI, and I think this 8 was in fact one of many, many flaws in the design of 9 PFIs in the nineties, which was perhaps reasonable for 10 things like building projects, but definitely didn't 11 work for complex IT projects where you needed, in my 12 view, much more direct engagement, a collaboration of 13 the company, the user and the provider. And this 14 definitely was a problem. The recommendations on PFI 15 reform -- which was, I think, was probably a year or two 16 after this -- were at first greeted with great 17 hostility, but I think nearly all of the later 18 recommendations later implemented to change it. 19 Q. When considering the options, was it ever raised with 20 you that the new bilateral contract between ICL and POCL 21 presented an opportunity fundamentally to change that 22 point, to reset POCL's entitlements to see such 23 information, such documents, and such data? 24 A. There should have been that discussion, and I think we 25 should also have commissioned a proper technology 174 1 review, which we didn't do. So both of those, in 2 retrospect, are discussions which should have happened 3 that spring. But I don't recall either happening. 4 Q. And why didn't they happen? 5 A. Because I think most involved want to go for the line of 6 least resistance and get a deal done. I think it is 7 often the case, when there's pressure to do a deal, 8 things are being delayed. It's a sort of natural human 9 psychology to want to avoid making things complicated 10 and renegotiating fundamental principles which would 11 then make it harder to get a deal. And in a sense, 12 that's just a symptom of the larger feature of this kind 13 of situation, sort of sunk-cost fallacy, as economists 14 call it: when you put a lot of time into something, you 15 try very hard to keep it alive, even if the rational 16 decision is to cut your losses. 17 Q. Thank you. If we can just go back to the document, 18 please, at paragraph 3, and expand paragraph 3. 19 "It will always be hard to give public enterprises 20 true commercial freedom, but it can't be right for 21 Ministers and generalist officials to have to make 22 decisions about extremely complex commercial and 23 technological strategies. At the very least, more 24 transparent methods are needed for offering independent 25 advice to Ministers on the quality of business plans 175 1 they are asked to support. In the case of Horizon, 2 although consultants had been used at various times, at 3 the key moment of decision proper advice was missing." 4 What was the key moment of decision? 5 A. Well, I guess there was more than one, but in all the 6 various documents you've been looking at, there were 7 moments of decision -- either to go ahead, or change, or 8 cancel. And at those moments, in my view, the key 9 decision makers, not least the Prime Minister, weren't 10 getting good, independent advice. I couldn't provide 11 it. This was, you know, a tiny part of my time, and I'm 12 not a -- I don't have deep expertise on complex tech 13 projects. 14 Q. What are you referring to there that the advice was 15 missing at the key moment? 16 A. I think it must have been the various discussions in 17 April, some of which you've mentioned, including the one 18 where the meeting with Mr Naruto was alongside. 19 Q. Then on to paragraph 5, please. You say: 20 "If Ministers cannot reach agreement on a project 21 with public spending implications, it's vital that at an 22 early stage the Prime Minister and Chancellor set the 23 parameters for reaching a decision. The worst possible 24 outcome is for the PM and Chancellor to become involved 25 at the very last moment without having had time to 176 1 master the issues." 2 Are you describing what in fact happened in this 3 case there? 4 A. Yes. So what happened was in, I guess, February, March 5 April, the Working Group, and with the involvement of 6 Lord Falconer and others, were trying to find a way to 7 make things work, what became called option B1, which 8 would have involved additional public spending, but 9 on -- but with the hope or the analysis that new 10 revenues would come through the Post Office, from other 11 services and so on. So in the long run Government 12 would, as it were, break even. The Prime Minister was 13 willing to support that, but then, at the last moment, 14 the Chancellor basically intervened and was not willing 15 to support the additional short-term public spending 16 that would have required. 17 Q. Hence the last-minute involvement that you mention here? 18 A. Yes. And as I say, it's not either their faults. 19 I mean he was, again, doing his job in the way he didn't 20 have much choice at the time -- trying to protect, you 21 know, the public purse. But it's not a good way to make 22 decisions. But this minute, I think, was intended to be 23 a note to Sir Richard Wilson, who was then Cabinet 24 Secretary, to try and prompt a more formal Civil Service 25 analysis of what had gone wrong, what could be done 177 1 differently in the future, in relation to big projects 2 of all kinds: commercial freedoms, and IT in particular. 3 Q. And then lastly on this minute over the page, please, 4 "Information", point 6: 5 "Far better procedures are needed to tie down basic 6 facts. Almost every supposed fact in this project has 7 turned out to be unreliable." 8 What were you referring to there? 9 A. These were mainly the financial facts where we were 10 given -- and if you read in detail the minutes of the 11 Horizon Working Group, most of the key numbers changed 12 almost -- well, month to month. 13 Q. Thank you. And then lastly in terms of the decision, 14 can we look at CBO00000053. A letter from Jeremy 15 Heywood to the Chief Secretary's Office. So I think 16 that's the Chief Secretary to the Treasury's Office, is 17 that Mr Monnery the "Dan" referred to there? 18 A. I guess so, yeah. 19 Q. "The Prime Minister was grateful for the Chief 20 Secretary's minute of 10 May. He has discussed this 21 with the Chancellor, who set out in more detail the 22 Treasury's concerns about signing up to B1. It will be 23 a leap in the dark, said the Chancellor. It was not 24 clear, for example, what discussions had taken place 25 with the banks on the viability of this option." 178 1 Moving on: 2 "We needed more time to bottom these issues out. 3 "Against this background, the only sensible course 4 of action [paragraph 2] will be to buy more time to 5 consider all the options. The most rational option 6 would probably be termination." 7 How widely was that view held within the top of 8 Government, that the most rational option would be 9 termination? 10 A. Not very. I think it probably was the view of the 11 majority in DSS. And within Treasury there were, as 12 I think I wrote earlier, a range of different opinions. 13 Q. The next paragraph: 14 "The Prime Minister said he had not had time to look 15 into all the options in detail. Starting with a clean 16 sheet, it's doubtful whether we would want to devote 17 substantial new resources to a project that appeared to 18 be designed largely to prop up the Post Office Network. 19 However, we were not starting from a clean sheet. He 20 was content for the Chancellor to go over his concerns 21 in more detail. Any solution should meet three key 22 political requirements: 23 "(i) he did not want a huge political row with the 24 Post Office or the Subpostmasters Lobby claiming the 25 entire rural network had been put in danger by the 179 1 Government; 2 "(ii) we should not put ICL's whole future at risk, 3 and; 4 "(iii) it would be important to ensure the 5 Government had a fully defensible position, vis-a-vis 6 the Public Accounts Committee." 7 So is this essentially handing the issue to the 8 Chancellor to resolve? 9 A. Yes. 10 Q. But putting some political parameters around the 11 decision making? 12 A. Yes. 13 Q. Those factors there, would you agree, all appear to 14 relate to how the deal might look to the outside world? 15 A. Well, I think how -- what the deal would be, what its 16 material effects would be, as well as how it would be 17 perceived. 18 Q. At this time, to your knowledge, was the technical 19 robustness or reliability or integrity of the system 20 brought into account in decision making? 21 A. No. 22 MR BEER: Thank you very much. Those are the only questions 23 that I ask you. 24 I think there will be some more, starting with 25 I think Ms Patrick or Mr Moloney, on behalf of the group 180 1 of subpostmasters. So I think there's a reasonable 2 prospect we can finish Sir Geoff's evidence shortly, 3 which is why I have carried on. 4 SIR WYN WILLIAMS: That's fine. 5 MR BEER: Thank you. 6 MR MOLONEY: Sir, the usual question: can you see and hear 7 me? 8 SIR WYN WILLIAMS: I can. 9 MR MOLONEY: Thank you, sir. 10 Questioned by MR MOLONEY 11 MR MOLONEY: Sir Geoff, I've only a few questions to ask 12 you, and the first is really to try to jog your memory 13 in respect of the briefing that you wrote for the 14 Prime Minister on 9 April of 1999. You were taken to 15 that document by Mr Beer, when he asked you questions. 16 Could we possibly go to that document, which is 17 CBO00100001_002. If we could please go to paragraph 6., 18 and if we could highlight paragraph 6. 19 You may remember, Sir Geoff, that Mr Beer asked you 20 about the points that might be mentioned at the outset 21 of the meeting in order to set the right tone. And four 22 points are there. 23 Firstly, the deep appreciation of Fujitsu's 24 continuing commitment to the UK. 25 Then the next one that Mr Beer asked you about was 181 1 how much you appreciated the efforts to help the 2 workforce in Durham against the background of very tough 3 global pressures. And you couldn't remember what that 4 was, and I don't criticise you for that -- obviously 5 it's 24 years ago now. But just to try to assist with 6 your memory, if I may, and see if I do assist, could it 7 be a reference to the closure of the Newton Aycliffe 8 plants by Fujitsu in the Prime Minister's constituency 9 in late 1998? 10 A. But that's all I can remember, and I think I mention it 11 in one of the earlier minutes as a consideration. But 12 beyond that, I was not party to the to-and-fro on it. 13 Q. Yes, but that is what's -- 14 A. Yeah, yeah. 15 Q. That's what it refers to. 16 A. So it's County Durham, yeah. 17 Q. Yes, absolutely. And I make no criticism of that lack 18 of geographical specificity, either. Of course it's 19 County Durham. 20 And just if you are able to help, Fujitsu was 21 a major employer in this sector in the UK at the time, 22 wasn't it? And indeed, that's there in your third 23 point, that you recognise that the UK is virtually all 24 the Fujitsu's European investments, and even more 25 investment than the US? 182 1 A. Yes, and I think it's easy to forget, 25, 30 years on, 2 just how important all of the Japanese inward investment 3 was to the UK, and especially the northeast. 4 Q. If I was to suggest -- and I could take you to 5 a document if necessary, but just to save time -- that 6 Fujitsu had over 14,000 employees in the UK at this 7 time, that's about right, in your recollection? 8 A. If you say so. I can't remember the number. 9 MR MOLONEY: Thank you. That's all I ask. Thank you very 10 much. 11 A. Thank you. 12 MR BEER: Sir, I think that's all of the questions for 13 Sir Geoff, unless you had any. 14 SIR WYN WILLIAMS: No, I have no questions, and I am very 15 grateful to you for coming to give evidence this 16 afternoon, Sir Geoffrey. Thank you. 17 A. Thank you very much. And I apologise, my recollections 18 are limited in small part on a truly appalling story. 19 And if there were things we could and should have done 20 differently in '98, '99, 2000, then it's really 21 important the right lessons are learned. So I wish you 22 well. 23 SIR WYN WILLIAMS: Thank you. 24 MR BEER: We're just going to bring the Inquiry to a close 25 now, Sir Geoffrey. 183 1 I think we're back tomorrow morning at 10.00 am, 2 sir. 3 SIR WYN WILLIAMS: Yes. And have I got it right, Mr Beer: 4 we have two witnesses and two oral submissions? 5 MR BEER: Yes, that's correct, sir. 6 SIR WYN WILLIAMS: Fine. See you all at 10.00. 7 MR BEER: Thank you very much, sir. 8 (3.34 pm) 9 (The hearing adjourned until 10.00 am the following day) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 184 I N D E X SIR IAN MCCARTNEY (continued) ........................1 Questioned by MR BLAKE (continued) ............1 Questioned by MR STEIN .......................33 Questioned by MS PAGE ........................46 ALAN ARTHUR JOHNSON (affirmed) ......................51 Questioned by MR BEER ........................51 Questioned by MR STEIN ......................120 Questioned by MS WATT .......................128 SIR GEOFFREY MULGAN (affirmed) .....................134 Questioned by MR BEER .......................134 Questioned by MR MOLONEY ....................181 185