1 Friday, 2 December 2022 2 (10.00 am) 3 MR BEER: Good morning, sir. If can I call Mr Alan Milburn, 4 please. 5 ALAN MILBURN (affirmed) 6 Questioned by MR BEER 7 MR BEER: Good morning, Mr Milburn. 8 A. Good morning. 9 Q. My name is Jason Beer, as you know, and I ask questions 10 on behalf of the Inquiry. Please can you give us your 11 full name? 12 A. Alan Milburn. 13 Q. Many thanks for coming to give evidence today and also 14 for the detailed witness statement that you have already 15 provided to the Inquiry. Can we look at that witness 16 statement, please. There should be a hard copy in front 17 of you. For the transcript, the reference is 18 WITN03500100 and on page 21 there should be a signature. 19 A. Yes. 20 Q. Is that your signature? 21 A. It is. 22 Q. Are the contents of the witness statement true to the 23 best of your knowledge and belief? 24 A. They are. 25 Q. Thank you. Can I start with some questions about your 1 1 background and experience. I think you were elected as 2 MP for Darlington in May 1992; is that right? 3 A. It is. 4 Q. You served as a backbench MP until May 1997 when, as 5 part of the New Labour Government, you were appointed 6 Minister of State at the Department of Health? 7 A. That is correct. 8 Q. You serve in that role for a year and eight months, by 9 my calculations, until on 23 December 1998 you were 10 appointed as Chief Secretary to the Treasury? 11 A. Yes. 12 Q. You served in that role for a little over nine months 13 until 11 October 1999, when you were appointed Secretary 14 of State for Health? 15 A. That is correct. 16 Q. It's that nine-month period that we are principally 17 interested in, when you were Chief Secretary to the 18 Treasury. What's the role, in general terms, of the 19 Chief Secretary to the Treasury? 20 A. It's a pretty impressing role in Government, because you 21 really have a finger in many pies, largely as 22 a consequence of effectively being responsible for all 23 aspects of public expenditure. So at any one time you 24 can be dealing with an issue like this, or I think, 25 during my time, the war in Kosovo, issues around Private 2 1 Finance Initiative, modernising Government, peacekeeping 2 in Sierra Leone, so there's a wide variety of issues 3 you're dealing with, Departments that you're liaising 4 with. And, very often, the more informal role, I guess, 5 is you're trying to solve or help solve what have become 6 knotty cross-governmental problems, of which Horizon 7 would be an example. The final role, I guess, is that, 8 at the time, I was responsible for PPPs, Public Private 9 Partnerships, and Private Finance Initiative, and also 10 for regulation in the City. 11 Q. So, as far as this Inquiry is concerned, in the Horizon 12 project there were two particular aspects of the role, 13 as well as obviously the financial element of your role, 14 where it intersects with your responsibilities. 15 Firstly, that this was, when you started office, still a 16 Private Finance Initiative contract, a PFI contract, and 17 secondly, would you agree that this was a knotty problem 18 involving cross-departmental disagreement? 19 A. I think that would be a polite underestimate -- 20 understatement. Yes, it was. 21 Q. Thank you. One of the first communications that you 22 received concerning Horizon was from the General 23 Secretary of the National Federation of SubPostmasters, 24 Colin Baker. Can we look at that, please. It'll come 25 up on the right-hand screen for you. It's NFSP00000372. 3 1 Thank you. 2 You'll see at the top of the page there that it's 3 a letter to you. It's from Colin Baker, the General 4 Secretary of the Federation. Although the date is 5 typewritten as 13 August 1998, somebody has handwritten 6 "8th January 1999". That date, the handwritten date, 7 would make sense, the typewritten date would not, given 8 that this is a letter congratulating you on becoming 9 Chief Secretary to the Treasury. 10 A. Yes. 11 Q. So would you agree that the second date appears more 12 likely to be the correct one? 13 A. I guess so, yes, that must be right. I guess it must 14 have been a standard letter, by the looks of things, 15 maybe sent to my predecessor as well. 16 Q. I was going to ask you about that. Is it normal to 17 receive these congratulatory letters from, in 18 particular, the unions? 19 A. It's normal at the beginning. You do tend to get 20 congratulatory letters at the beginning of your term, 21 less so at the end, in my experience. Yes, and, not 22 just from the unions. So whether or not I saw it, I've 23 got absolutely no recollection. It's possible I did but 24 I don't know. 25 Q. Just help us to understand, we've received some evidence 4 1 on this issue already, the general public might think 2 that if a letter is written to you with your name on it, 3 you will see it. 4 A. Yes. 5 Q. Can you explain whether that would be an accurate 6 assumption or not? 7 A. That is an inaccurate assumption. So there's a sausage 8 machine in government, and for understandable reasons, 9 really. As a minister you receive a huge amount of 10 correspondence so there's obviously internal 11 correspondence, no doubt we'll come to, between 12 ministers and then there's a lot of external 13 correspondence from either members of the public or 14 organisations like the Federation. And, in truth, what 15 happens two lot of them is that there's simply -- they 16 never come into a ministerial office or to a private 17 office they go into the machine of government and there 18 will be a correspondence unit, I guess, somewhere in the 19 Treasury, who would effectively either respond to it 20 directly or alternatively draft a response which would 21 come up to a ministerial office, and then you would sign 22 it off. 23 Q. So if there was a reply to this letter, which was just 24 an acknowledgement and a thank you, that wouldn't come 25 up to you to okay it? 5 1 A. No, it wouldn't. 2 Q. If there was a reply of more substance we would expect 3 to see a backing paper, a ministerial submission, 4 saying, "This is the issue, here's the letter, here's 5 a proposed reply in annex B"? 6 A. It could take one of two forms. Either there would be 7 a backing paper and a draft letter. Very often, there 8 would only be a draft letter and then it would be 9 a matter for the minister, in this case myself, to 10 determine whether or not the draft reply was a suitable 11 one. So I could either sign it off or I could alter it 12 and it would go back and be retyped or whatever, and 13 then come up for signature again. 14 But the fact there doesn't seem, certainly in my 15 bundle of papers, to be a reply to Mr Baker suggests 16 that that didn't happen in this case. 17 Q. To what extent was there a channel of communication 18 between you and the NFSP in the nine-month period? 19 A. From recollection, I don't know whether there was. 20 I think probably not. 21 Q. Does it follow that, to your recollection, the 22 Federation did the not raise with you issues about the 23 integrity or reliability of the Horizon System in that 24 nine-month period when you were Chief Secretary to the 25 Treasury? 6 1 A. I have no recollection of them doing so. 2 Q. Thank you. In your witness statement, maybe if we just 3 look at it please, at paragraph 22, it'll come up on the 4 screen, as well. It's page 8, thank you. Paragraph 22. 5 You say: 6 "My primary responsible as Chief Secretary was 7 overseeing public centre. While Horizon's technical 8 viability and robustness would have been an issue of 9 concern to [the Treasury], the operational 10 responsibility for ensuring that it worked in practice 11 would have rested Mr Directly with DTI and DSS." 12 The sentence that "operational responsibility for 13 ensuring it worked in practice would have rested more 14 directly with" -- and I'm interested in DTI here -- is 15 that right, that the Department for Trade and Industry 16 would have had operational responsibility for ensuring 17 that Horizon worked in practice, as opposed to the Post 18 Office? 19 A. I think what I mean there is that the DTI is the 20 sponsoring Department -- 21 Q. Sorry, can I stop you in mid-answer. The transcript has 22 apparently stopped. We've got a live time transcript 23 and it appears to have frozen. 24 I'm told it's of the variety of the ten-minute 25 issue. Therefore, I'd ask you to rise and we break 7 1 whilst the transcribers regain connectivity. 2 SIR WYN WILLIAMS: I should have kept a table of whether 3 this was more or less likely to happen when I'm present, 4 Mr Beer! All right. 5 MR BEER: Ten minutes. 6 SIR WYN WILLIAMS: Sorry about that. 7 THE WITNESS: No problem. 8 (10.14 am) 9 (A short break) 10 (10.23 am) 11 MR BEER: I'm sorry for that delay. 12 SIR WYN WILLIAMS: Can I ask you, as a matter of interest, 13 is the transcribing, or if that's the correct 14 description, actually stopped or is it just that the 15 display that has stopped. 16 MR BEER: The former. The transcriber who is remote, who is 17 not in this building, loses connection -- 18 SIR WYN WILLIAMS: Fine, I'm with you. 19 MR BEER: -- so an Internet connection and so, therefore, 20 the transcript has to stop. We see that because the 21 display ceases to work. 22 Mr Milburn, sorry for that interruption to your 23 evidence. At the time of receiving the letter that we 24 were looking at, so that was early January 1999, were 25 you aware of any concerns that were circulating within 8 1 Number 10 Downing Street that the Horizon System itself 2 was flawed and unreliable? 3 A. There were certainly concerns, I think, across 4 Government, in Number 10, Treasury, DTI and the then 5 DSS, about the operationalising of the Horizon contract 6 since it was so late. It was delayed and, obviously, 7 ICL were in breach of contract and had been for some 8 considerable time, and there were a number of other 9 structural problems as you're aware, in terms of the 10 relationships between the parties, and so on and so 11 forth. 12 If your question is a much narrower question about 13 the operational performance, so to speak, of the 14 rollout, I think that's a different matter. I don't 15 think, from recollection, operational performance 16 issues, even when there was live testing, which as is 17 clear from my evidence, and I think from other 18 ministers' evidence, is something the Government was 19 insisting on, for perfectly obvious reasons -- the 20 results of live testing, ie what was actually happening, 21 I don't think were visible. 22 Q. The Inquiry has seen correspondence circulating within 23 Number 10 at Christmastime, so Christmas 1998, over the 24 narrower issue -- so not the concept of involving the 25 Benefits Agency through the use of a Benefit Payment 9 1 Card, but the narrower issue of whether the system 2 itself was flawed, was unreliable. At that time, and 3 subsequently, those weren't concerns that were shared 4 with or raised with you. 5 A. Not to my recollection. 6 Q. You refer in your witness statement, on a number of 7 occasions, to a report that was co-authored by Adrian 8 Montague, back in July 1998, and the conclusion or one 9 of the conclusions of that report that the system was, 10 as it then stood, technically viable. I have in mind, 11 no need to turn them up, paragraphs 21, 55, and 57 of 12 your statement. 13 Were you given, to your recollection, a copy of the 14 Montague report, as I'm going to call it, when you took 15 up office? 16 A. Not to my recollection. 17 Q. So this is you in your statement reflecting back on what 18 you now see the Montague report to say? 19 A. Correct. 20 Q. Still, even though it is reflecting back, do you 21 understand the Montague report to refer to the 22 feasibility of a system that was yet to be trialled, as 23 opposed to an assessment and a conclusion that the 24 system in operation was robust and had integrity? 25 A. Yeah, I think there are two separate issues, aren't 10 1 there. There was the assessment of Adrian's report and, 2 indeed, as I've read in the documents that have been 3 presented to me, the Isabel Anderson note from 4 October '98, which talked about technical feasibility. 5 I think Adrian talked about technical viability, so 6 broadly the same concept. 7 So I guess that was a theoretical appraisal of 8 whether or not it was possible that the programme could 9 be implemented. That was on one side. And I think, as 10 the scepticism amongst Government and officials, I would 11 guess, but speaking for myself as a minister -- as the 12 scepticism about the rollout grew, then I think the 13 reliance on a presumption may well have diminished, and 14 that's why, as you'll see from the Select Committee 15 evidence that I cite in my statement, Alistair Darling, 16 my colleague, in particular, given the fact that the DSS 17 had been so scarred by previous IT programmes, was 18 heavily insistent upon live testing. So was the thing 19 actually working in practice, as distinct from 20 theoretically could it work? 21 Q. Before the decision was taken in May 1999 to go with 22 option B3, essentially, as it was styled, were you aware 23 of any independent assessment of the operation of the 24 system, as it had then been built? 25 A. No. 11 1 Q. Any external consultant involvement in an independent 2 assessment of the operation of the system, as it was 3 then operating, other than looking back to the slightly 4 different issue that you've mentioned: technical 5 feasibility or viability in July '98? 6 A. No. 7 Q. Do you know why that was, that that type of assessment 8 was not commissioned? 9 A. I don't know. 10 Q. Have you a view on whether it ought to have been? 11 A. Yes, though I think it is one of the -- look, my direct 12 recollections of all of this period are limited, as 13 I made clear in my statement, but from a careful reading 14 of the documents that the Inquiry has made available to 15 me, one of the clear fault lines, in my view, is that 16 there was no independent, ongoing technical expertise 17 that was able to take a view about whether the so-called 18 live testing was actually throwing up more problems than 19 it was creating solutions. 20 And I think it is one of the potentially important 21 lessons to be learned from this sort of implementation, 22 which is that that sort of ongoing technical independent 23 expertise is something that would be of relevance, going 24 forward. 25 Now, I'm speaking blind, so to speak, because it may 12 1 well be that, nowadays, that's exactly what happens, 2 I don't know. But I would have thought that that might 3 have been something that would have been helpful, in 4 particular for ministers, to have line of sight of. 5 Q. To what extent did it feel, at the time, that you were 6 taking this decision blind to an independent and 7 rigorous assessment of the technical merits or demerits 8 of the system? 9 A. I think we were reliant on two things: first of all, the 10 Montague assessment, that it was viable; and, secondly, 11 the assurance that the system -- which ICL, I think, 12 were uncomfortable with, because I think from what I've 13 read, that there were more wanting to see laboratory 14 testing than live testing -- that the live testing would 15 demonstrate the workability of the system. 16 Q. Can you remember whether anyone raised that issue, 17 "We're lacking here consultancy, input, or" -- and I'm 18 not thinking of kind of City consultancy, KPMG-type 19 input, but somebody outside of POCL and ICL giving us 20 a cold, hard assessment of the technology here? 21 A. Look, it's a quarter of a century ago, almost, and so -- 22 but I have no recollection of that, no. 23 Q. Can we look, please, at paragraph 11, still dealing with 24 January 1999. In paragraph 11, you exhibit a copy of 25 an undated draft letter from Stephen Byers to the Prime 13 1 Minister, and you say that: 2 "This document shows, despite the serious problems 3 with the contract, ICL were still expecting new money 4 from the Government and to make a financial return, in 5 order to make the deal agreed between ICL and POCL in 6 December 1998 work." 7 If we can just look at that letter, please. That's 8 BEIS0000167. This is the letter to which you refer, and 9 if you just scan, I'm not going to read them out in 10 full, but if you scan the first part of the letter on 11 page 1, and then go over to page 2, and the first couple 12 of paragraphs on page 2, before we get to the part where 13 ICL is looking for a revenue stream. It's clear there, 14 as well as the issue of ICL asking for new money from 15 Government to make a financial return, the balance of 16 the letter also refers to Fujitsu's sense of having been 17 badly treated by the Government, as well as the 18 commercial background of ICL having spent significant 19 sums of money in developing the project, in addition to 20 future investment proposals. Would that be fair? 21 A. Yes. Fair in terms of the content of the letter. 22 Whether it's fair is a different point. 23 Q. Yes, fair in terms of the content of the letter. I'm 24 just asked to ensure that, in the interests of balance, 25 other parts of the letter are drawn to your attention in 14 1 public. Did you form a view at the time as to whether 2 or not the substance of what was being said was fair? 3 A. I think there was -- there were clear structural 4 problems from the outset with this. The Government, of 5 which I was a member, inherited what was a failing 6 contract, and maybe the way it was set up from the 7 outset, it could be argued, it was designed almost to 8 fail. Given that there were different objectives on the 9 part of the principal sponsors, the Benefits Agency, DSS 10 on the one side, DTI and the Post Office on the other, 11 there was huge ambiguity there. 12 However -- and, of course, the Programme Delivery 13 Authority and all of the issues that ICL-Fujitsu raise 14 about continual chopping and changing, and so on and so 15 forth, it does take two to tango, however, and there was 16 also another pattern through all of this, I think, which 17 is that ICL had signed up to something that they were 18 unable to deliver. And I think, when I look at it 19 today, it's pretty clear that the complexity of the 20 contract was dramatically underestimated. The 21 timescales were heroic and, to put it politely, the 22 management and governance structures were deeply 23 ambiguous. 24 But the job of the contractor, particularly in a PFI 25 deal, is to take that responsibility and absolve those 15 1 risks. That's the point about PFI. It's about the 2 transferal of risk. 3 So all the parties bear some responsibility. 4 Q. You said, in the course of that answer, that the 5 governance and management structures were deeply 6 ambiguous. What were you referring to in particular 7 there? 8 A. Well, my view about these things is that clarity beats 9 ambiguity every single time, particularly when it comes 10 to something as complex as the delivery of this huge 11 programme, 19,000 post offices, 40,000 counters, and yet 12 it was pretty obvious, and all the papers bear this out, 13 really, that the DSS and the Benefits Agency have 14 a different objective from the DTI and the Post Office, 15 and those objectives were -- there was an attempt to 16 marry them thorough the mechanism of the Programme 17 Delivery Authority. But all that really did was bring 18 together different points of view and different 19 interests. 20 So, in the end, what I don't see from what I read 21 today, is that there was a single point of 22 accountability and responsibility for the delivery of 23 this thing and that, it seems to me, is one of the big 24 failures and maybe one of the lessons to be learnt. 25 Q. What ought to have occurred, then, what structure ought 16 1 to have been put in place? 2 A. Somebody, somewhere should have had sole responsibility; 3 it should have been their responsibility. 4 Q. Was that not obvious at the time and didn't need 5 reflection of 20 years in the past? 6 A. Well, as I say, the Government of which I was a member 7 inherited both a governance structure and a contract 8 and, obviously, I don't know, none of us know, how that 9 was set up, how the decisions were made, why the 10 structures were designed in the way that they were. 11 But, of course, at the time, it's perfectly obvious from 12 reading all of these papers that those concerns were 13 pretty deeply felt. It was one of the reasons, not the 14 sole reason, it was one of the reasons, which 15 contributed to the view that we had to leave no stone 16 unturned, in order to try to find a way of making this 17 thing either work, or not, in terms of either to make it 18 work or to terminate it. 19 And the truth is that, you know, as I look at it 20 today, there were no easy solutions or easy answers 21 here. There were pretty fine judgements, and you were 22 in a position where, you know, quite a lot of bad money 23 had been thrown at this, and the question is whether you 24 threw more good money at it because we were into it, or 25 whether you did something more dramatic and terminated 17 1 the thing, with pretty big consequences for the Post 2 Office and for subpostmasters in particular, or whether 3 you tried to find a way through it. 4 And I guess the effort over the course of January to 5 May period, when I was obviously involved with this 6 alongside Steve and Alistair, in particular, and Charlie 7 Falconer, was we were trying to find a way thorough 8 this. 9 Q. Just winding forwards to May, when the decision was made 10 to drop the Benefits Agency out of the Tripartite 11 Agreement, to stop the use of a PFI contract, to move to 12 a bilateral agreement between POCL and ICL, using a more 13 standard design and build contract for the provision and 14 supply of goods and services, was the opportunity taken 15 then to address the issue of governance, management and 16 oversight of the project at that stage? 17 A. Not to my recollection. 18 Q. Why was that? Did that not represent an opportunity 19 when very substantial elements of the programme were 20 being reset to address the issue that you have raised? 21 A. I don't know why that was. 22 Q. Can you recall, in the period between your appointment 23 and May 1999, whether concerns were raised with you, in 24 particular through the DTI, that the Post Office 25 considered that the PFI contract denied them visibility 18 1 or sight on the high and low level design of the system 2 that they were being asked to use, that they were being 3 presented with what was described as a black box that 4 just produced outputs that they needed to trust in. Was 5 that something that had filtered up to you? 6 A. Not that I can remember, no. 7 Q. Again, the same question: when it came to May '99 and 8 the resetting of the arrangements, can you recall 9 whether that was an issue of discussion? We can now use 10 this opportunity to address that problem? 11 A. I can't recollect that conversation taking place and 12 I suspect that, if it had taken place, it was taking 13 place at official level rather than ministerial level. 14 But that's my supposition. 15 Q. Can we look, please, just moving forward to 16 February '99, then, at POL00069088 and just highlight 17 the top of the page. This wouldn't have been an email 18 that you saw at the time, you're not on the copy list, 19 it's not something that would have come to your 20 attention. It's the content that I want to ask you 21 about, Mr Milburn, you understand. 22 So this from Jonathan Evans, and he states that 23 David Sibbick, a senior civil servant in the DTI: 24 "... rang late this afternoon to tell me that [you] 25 had earlier today passed to Stephen Byers a proposal for 19 1 a way forward on Horizon. Byers has until lunchtime 2 tomorrow ... to give comments back to [the Treasury]. 3 Darling at DSS is in a similar position. 4 "The proposal is strictly confidential to Ministers 5 and officials -- [the Treasury] have not given clearance 6 for us or [the Benefits Agency] to be brought into the 7 consultation net. 8 "[I went this evening] over to DTI with Mena to help 9 David analyse what the proposal contains. Contrary to 10 rumours, it does not contain any suggestion of involving 11 a new partner, but essentially is option X with 12 a twist ..." 13 Then that's set out: 14 "scrap the Benefit Payment Card 15 "POCL to introduce a smartcard 16 "benefit payments to be paid into a 'benefit 17 account' via ACT ... 18 "'initially' the benefit account would only be 19 accessible at post offices. 20 "ACT into normal bank accounts would remain 21 an option throughout." 22 Now, this tends to suggest that there were back 23 channels of communication going on. To what extent did 24 you know about that? 25 A. I didn't. In fact, I don't know who any of these 20 1 characters are. 2 Q. Right. Would you expect such back channels of 3 communication to go on at official level and including 4 back to ICL? 5 A. I don't know back to ICL but the realpolitik of being in 6 Government in being, indeed in any large organisation, 7 is that there are always back channels, are there not? 8 So it doesn't particularly surprise me that officials 9 were talking privately to one another. 10 Q. Now, you know that subsequently, data produced by -- 11 that can be taken down, thank you. 12 Data produced by the Horizon System was used as the 13 foundation for the prosecution of a number of 14 subpostmasters, subpostmistresses and Crown Office 15 staff. In the nine-month period of your office, as 16 Chief Secretary, was that something that you were aware 17 of: that the data produced by the system could be used 18 for that purpose? 19 A. No. 20 Q. Did you know that the Post Office was a prosecuting 21 authority, that it conducted its own investigations and 22 prosecutions, rather than that being done by the police 23 service and the Crown Prosecution Service? 24 A. At the time, no. 25 Q. Were you aware of any discussions at the time as to the 21 1 need to ensure the integrity and reliability of the data 2 processed by the Horizon System, because it might be put 3 to that use? 4 A. No. 5 Q. So were you viewing this through the lens, simply, of 6 an "ordinary", in inverted commas, computer system that 7 would be used for the processing of transactions and 8 accounting purposes? 9 A. Sure. 10 Q. Would it have made any difference if you had known the 11 things that I've just mentioned, ie a different use to 12 which the data might be put? 13 A. Um ... yes, I would have thought so. I mean, I'm 14 struggling to answer the question, because I'm trying to 15 think what I would have thought then, so to speak, you 16 know, 20-odd years ago. But when I -- I read the 17 transcript of the evidence that my colleague Stephen 18 Byers had given here and, when you raised exactly those 19 same questions about the Post Office as a prosecuting 20 authority and the use to which data had been put -- 21 I was going to say I was surprised: I was shocked. And 22 so, I may well have had the same reaction 20-odd years 23 ago. 24 Q. There were a number of discussions between the DTI and 25 the Benefits Agency about the needs and duties of the 22 1 different organisations and, therefore, what was 2 necessary in terms of the specification and outputs of 3 the Horizon System. This wasn't included as one of 4 them, so far as you're aware? 5 A. Not as far as I'm aware. 6 Q. So you didn't have any information drawn to your 7 attention that would satisfy you that the Horizon System 8 would be fit for the purpose of providing reliable 9 evidence for use in criminal and, indeed, in civil 10 cases? 11 A. No. 12 Q. This wasn't an issue that was on your radar in any sense 13 at all? 14 A. From recollection, absolutely not, and I'm pretty 15 certain that if it had been -- if I had been apprised of 16 that, I think I probably would have remembered it, in 17 the light of what has happened. 18 Q. I'm not going to take you through the various iterations 19 of the developments of proposals in the period between 20 January and May 1999, because we've got those on paper, 21 and you've said in your witness statement, you've 22 repeated today, that you have very little independent 23 recollection to add to those. But I do want to take you 24 to the end of the process if I may, in May 1999 -- 25 A. Sure. 23 1 Q. -- and look at HMT00000024. If we go to the last page 2 of that which is page 9, we can see it is signed off by 3 you; there would have been your signature underneath 4 where it says, General Restriction Order "GRO" -- 5 A. Mm. 6 Q. -- and it is dated 10 May 1999. 7 A. Yes. 8 Q. Would you have drafted this or would somebody have 9 drafted it for you? 10 A. Oh, it would have been drafted for me, and then I may 11 well have edited it and changed it, or whatever, but 12 there would have been an initial draft that would have 13 come up to my office. 14 Q. So, because you may have edited it, amended it, but then 15 signed it, you were content with the content going out 16 in your name? 17 A. Yes. 18 Q. If we go back to page 1, thank you. It says in the 19 introduction: 20 "This note sets out the current situation on the 21 Horizon ... Project. It summarises the extensive work 22 that has taken place over the last few weeks to reach 23 an agreement about how to best to proceed. In 24 summarising the position I have consulted extensively 25 with Stephen Byers, Alistair Darling, and Charlie 24 1 Falconer." 2 Now, at this stage, what was your role, so 3 10 May 1999? 4 A. That's a very good question. So I guess I was trying to 5 act as a broker and convener between the different 6 interests and points of view amongst my ministerial 7 colleagues. And, in that role, my co-pilot, I suppose, 8 was Charlie Falconer because he was a minister for the 9 Cabinet Office, so again sat at the centre of 10 government, rather than representing one of the 11 Departments. So we each had a finger in the pie. 12 I think this letter is interesting because it 13 represents my attempt, I suppose, to bring matters to 14 a conclusion by facing the Prime Minister with a choice 15 because, as is clear from the other content of this 16 particular letter, although we might have been aligned 17 on many things, we couldn't get to an alignment about 18 the best way forward, whether it was B1, B3 or 19 termination. And so, in the end, the ultimate arbiter 20 in Government has to be the Prime Minister, which is why 21 the letter was sent. 22 Q. Thank you. You continue: 23 "We have a commitment to give ICL a decision on the 24 way forward with this project on Monday (but ICL have 25 said they can now wait until Tuesday). They must file 25 1 end year accounts on Wednesday." 2 Just stopping there, what was the relevance of ICL 3 filing accounts? 4 A. Because from -- not from memory but from a reading of 5 the papers, depending on what was agreed, they would 6 have to make a provision in their accounts and, indeed, 7 I think Fujitsu would have had to make a provision in 8 its accounts. 9 Q. For losses? 10 A. For losses. 11 Q. And, depending on the choice that Government made, that 12 may determine the extent of the loss shown. 13 A. Correct. 14 Q. You continue: 15 "Our policy aim is to move to [ACT] as soon as 16 reasonably practical and to preserve a national Post 17 Office network." 18 In your witness statement, I think, you describe 19 certainly the latter of those as one of the top-level 20 policy objectives: the preservation of a national Post 21 Office Network. 22 The former of those, "Our policy aim is to move to 23 [ACT] as soon as practical", was that a reflection of 24 the DSS's position? 25 A. I think it was spearheaded by the DSS, but I think there 26 1 was a recognition that the current method of paying 2 benefits at the time, through the so-called ration book 3 method, was inefficient, was out of sync with where 4 Benefits Agency customers themselves were going and was 5 both expensive and vulnerable to fraud. So I think 6 there was a cross-government recognition where the 7 preferable route was to move to ACT, and not just the 8 DSS one. 9 Q. Then turning to the options -- sorry, before that it 10 says -- can that just be blown up again. Thank you: 11 "We should keep ICL/Fujitsu on boarding if 12 possible." 13 Then turning to the options, we'll come to these in 14 more detail when we get to the papers -- substance 15 itself: 16 "Stephen Byers and Charlie Falconer both prefer 17 Option B1." 18 We'll come to that, in a moment but that's a new 19 smartcard, essentially: 20 "Alistair Darling and Alan Milburn favour Option 21 B3 ..." 22 We'll come to that, that's POCL buying system from 23 ICL but without the Benefit Payment Card. 24 A. Which is sort of what eventually happened. 25 Q. Yes, that was the outcome. 27 1 A. Yes. 2 Q. "... if POCL and ICL can reach a sensible deal. If they 3 cannot they would favour Option C -- [termination] and 4 allowing POCL to procure a new system that met their 5 commercial requirements in the light of termination." 6 The sentence "Alistair Darling and Alan Milburn 7 favour Option 3", you presumably don't refer to yourself 8 much in the third person? 9 A. It's a slightly odd way of doing it, isn't it? Yes. 10 Q. Is that a reflection that this is authored by somebody 11 else, or would that be the normal way to write? 12 A. No, it isn't a reflection of the fact that it was 13 written by someone else. I think it's a reflection of 14 the fact that I wanted to make clear to the Prime 15 Minister where the principles stood. 16 MR BEER: I'm so sorry, sir. Once again the transcript 17 appears to have stopped. That's IT. 18 A. I'm glad you said that and not me. 19 MR BEER: Can you give me a moment to find out what's going 20 on? 21 I understand on this occasion the transcription link 22 is working and so the transcriber will carry on 23 transcribing, which is obviously the critical thing, 24 that there is a record made -- 25 SIR WYN WILLIAMS: That's why I ask the question earlier. 28 1 Because I think we can all survive not having 2 a simultaneous -- 3 MR BEER: The LiveNote. 4 SIR WYN WILLIAMS: Exactly. Cue(?), as they say. 5 MR BEER: Yes, picking up where we were, then. I think you 6 were mid-answer. 7 A. Yes, I was saying that I think the reason that -- it's 8 slightly odd, a letter coming from me, referring to me 9 in the third person. I think I was trying to make it 10 explicitly clear to the Prime Minister, who I'm sure was 11 receiving a lot of submissions at this time, where the 12 individual principles stood. 13 Q. I understand. So if they can't then reach a deal, then 14 termination, because it -- 15 A. So Alistair and I took the view, which wasn't the same 16 view as Steve or Charlie, we took the view that, if we 17 couldn't make what was eventually the option that was 18 implemented work, then we had to move to termination. 19 Q. "Background 20 "We gave an assurance to Fujitsu that the Government 21 will make a decision ..." 22 I'm dealing with this in some detail because we've 23 skipped over the various iterations that are the run up 24 to this moment. 25 A. Yes. 29 1 Q. Then over the page, please: 2 "... on the way forward for the project by Monday 3 [which, I think, is the day of the document itself], 4 although ICL have now said they can wait until Tuesday. 5 "Economic case 6 "The Horizon project was envisaged as a way of 7 reducing benefit fraud and modernising the benefit 8 system, while automating the Post Office network in 9 a way that would help preserve footfall and therefore 10 maintain a nationwide network of post offices. It is 11 now three years late. Our view is that continuation 12 with the project (Option A) is no longer viable, in view 13 of ICL's failure to deliver and the irretrievable 14 breakdown in relations between the parties. This view 15 was effectively confirmed earlier this week when ICL 16 withdrew their offer of 18 December. It is therefore 17 dead." 18 The sentence "continuation is no longer viable in 19 view of ... the irretrievable breakdown in relations 20 between the parties", did you consider, when making 21 recommendations, when writing this minute, whether the 22 irretrievable breakdown in relations between the parties 23 didn't just include an irretrievable breakdown involving 24 the Benefits Agency and DSS, that there was a -- there 25 had been a breakdown in relations between POCL and ICL. 30 1 A. I don't know. 2 Q. Can you recall what this breakdown is focused on? 3 A. I think it's principally focused on -- I would have 4 thought it's focused on the breakdown between the 5 Benefits Agency and ICL. 6 Q. Were you aware of any breakdown in relations between 7 POCL and ICL? 8 A. I honestly can't recollect. 9 Q. Moving on, paragraph 3: 10 "We are left with three options. First, [B1] -- 11 involving the creation of 15 million Post Office 12 benefits accounts (with limited facilities), accessible 13 via a Post Office smartcard. Benefits would be paid 14 into these accounts by ACT (from 2002). It's the best 15 option to preserve Post Office footfall in the short 16 term, and the policy value for this cannot be reflected 17 in the figures. It would place the [Post Office] in 18 a position to win electronic Government services by 19 having a base of 15 million smartcards. It provides 20 automation of counter services. In this respect it has 21 attractions, but it offers consider people worse value 22 for money in NPV [net present value] terms than the 23 alternative options. If Ministers were to decide to 24 pursue Option B1, ICL's current position is that the 25 public sector parties must sign an unconditional 31 1 agreement on Tuesday, and provide ICL with 2 £180 million." 3 You didn't favour this option? 4 A. No. 5 Q. And why? 6 A. Um, because I felt the conditions -- because I think the 7 reasons why they didn't favour this option, given it was 8 so long ago, were that the conditions were unattractive, 9 signing up unconditionally to something that was going 10 to be complex to deliver, didn't seem to me to be 11 a recipe for success, and the fact that ICL once again 12 were wanting more when they had a track recorded of 13 delivering less. 14 So that was one reason. I guess the second reason 15 was that, in cost terms, and not just in NPV terms but 16 public expenditure terms, as I've read from the papers, 17 this would be a considerably more expensive option than 18 either continuing with what was, which was clearly not 19 an option, because it had failed and for all the reasons 20 that we've been discussing, or the option that I did 21 favour, B3. 22 Q. Can we turn, then, to B3 over the page, please, 23 paragraph 4. 24 "The second option [B3] would involve POCL buying 25 the basic system from ICL but without the benefit 32 1 payment application and without the creation of special 2 POCL benefit accounts. It would provide automation of 3 post office [counters] (from bill payment to postage 4 rates). Benefits would be paid into conventional High 5 Street bank accounts by ACT. The Post Office would 6 offer simple cashback facilities (as a minimum) to 7 access these accounts across the council. It would also 8 provide a platform for network banking and Modern 9 Government with a smartcard capability, though it would 10 not provide the certainty of 15 [million] smartcards as 11 under B1. It would allow BA to roll out the Order Book 12 Control System (a way of reducing order book fraud). BA 13 and POCL would work together to market ACT into bank 14 accounts accessible at the post office from 2001, in 15 preparation for a move to ACT as the usual method of 16 payment in 2003. The NPV figures are sensitive to 17 changes in these dates." 18 Then 5: 19 "Unlike B1, [B3] would not tie the Post Office to 20 ICL as a long-term business partner. Such a tie may 21 well prove inflexible if, and when, we take forward 22 a Public Private Partnership and, therefore, force us to 23 bring a private sector second on less attractive terms." 24 Down the page, please, to 6: 25 "POCL reject Option B3 at the moment and ICL have 33 1 indicated that it is likely to be expensive. POCL would 2 prefer termination and to obtain a new system better 3 suited to their needs." 4 Can you recall why POCL rejected option B3? 5 A. I can't, I'm afraid. 6 Q. "In order to maintain progress on B3 we would have to 7 rule option B1 off the table and make plain that 8 termination was the only alternative. However, when 9 this was done over the weekend POCL still preferred 10 termination. It is unlikely we could force POCL to do 11 B3." 12 In fact, that's what happened, isn't it? 13 A. It is, yes. I think I was wrong in that regard. 14 Q. You were wrong in which regard? 15 A. In regard to the last sentence because, in the end, that 16 is what happened. 17 Q. Over the page, please, to 7. The: 18 "The third option [C] would be to terminate the 19 contracts with ICL. POCL would start afresh. A new 20 automation system would be brought forward from a new 21 supplier specifically designed to meet POCL's automation 22 and network banking aspirations, including the ability 23 to withdraw cash from bank accounts at post offices. BA 24 would be given a date to move to ACT (they would like to 25 start the transfer ... from 2001, although POCL say they 34 1 could not be ready by then and claim they would lose 2 substantial footfall) working with POCL to maximise 3 retention of footfall. 4 "As well as the above considerations there are 5 substantial economic and financial differences between 6 these options. The key figures are ..." 7 Over the page, please and if we scroll down to look 8 at the table. I'm not going to analyse the financial 9 figures or ask you to do so. 10 A. That's a relief. 11 Q. You enter a footnote saying: 12 "All these figures should be seen as indicative 13 rather than precise forecasts. They depend on 14 assumptions ..." 15 Then if we go over the page to the summary: 16 "B3 and C offer a better economic return than B1; 17 "the cash hit under B3 and C are significantly less 18 than under B1, both in the CSR2 period and over 19 a 10-year timescale." 20 So that's the headline points that you draw from the 21 table before -- 22 A. Yes. 23 Q. -- which is why I'm not going to try and deconstruct it. 24 A. Yes. 25 Q. You then come on to the Post Office's position. They 35 1 prefer B1: 2 "... but are not prepared to contribute more than 3 £37 million ... They have suggested that a further 4 £190 million be taken from their customers by delaying 5 the reduction in the postal monopoly from £1 to 50 pence 6 by three years." 7 Could you explain what that means, please? 8 A. I honestly can't recall. I don't know. 9 Q. Okay: 10 "The Post Office have said they would plough the net 11 contribution they expect to make from Government Direct 12 business under ... A back into B1 and estimate that 13 these will be about £660 million ... But this money is 14 already taken into account in calculating the additional 15 costs in the table above ... ICL are offering the 16 possibility of finance to 'smooth' the spending profile, 17 but this is simply borrowing from ICL and the interest 18 payments will add to the project costs." 19 Then you analyse, under a series of headings, the 20 "Political factors", "Positions", and then 21 "Conclusions". I just want to go back to "Political 22 factors", please, on page 10. That's paragraph 10 at 23 the foot of the page: 24 "All of the options ... need to be presented very 25 carefully, given the expectation amongst subpostmasters 36 1 that Horizon ... would secure their future. [B1] would 2 be the easiest of the other three options to handle. 3 [B3] would be the harder but would still have ICL on 4 board and the Post Office would still be getting 5 automation. In the case of [B3 and C] the Government 6 would need to argue that it would have been doing the 7 post office and its customers no good by pressing on 8 with a project that was already 3 years late and 9 couldn't deliver -- and that they were fully committed 10 to providing one that did. We would make plain that ICL 11 had withdrawn of the existing project ... We have looked 12 hard to salvage something but unfortunately there was 13 nothing worthwhile." 14 Then continuing on, "Positions", this simply 15 reflects what you'd said in the summary at the 16 beginning. 17 A. Mm. 18 Q. We can skip 11, which sets out Mr Byers and 19 Mr Falconer's position, and go to 12, which I think 20 explains the answer in more detail to the question that 21 I asked you earlier, why you favoured B1: 22 "[You] and Alistair Darling consider that the larger 23 funding gap with B1, and the fact that it ties the Post 24 Office into an expensive project over a period during 25 which we might consider a change in the ownership, 37 1 present too much of a downside. They consider that the 2 Post Office's lack of financial commitment raises doubts 3 about their commitment to B1. They are concerned that 4 ICL's failure to deliver the [BPC] on time does not bode 5 well for delivery of a new and complex system ..." 6 Then this: 7 " ... (in contrast B3 would be buying that part of 8 the system that is ready to roll out and is relatively 9 simple)." 10 That phrase there, "ready to roll out", can you 11 recall where that came from, bearing in mind this is 12 10 May 1999? 13 A. I can't recall where it came from. I think it's 14 a reference to the fact that B3 effectively involved the 15 separation of the BPC, which had been the subject of 16 many of the problems from, if you like, the underlying 17 automation of Post Office Counters. So I think it's 18 a relativity point, rather than an absolute one, 19 I think, reading it again. 20 Q. Can I just test that a little bit: is that your 21 recollection of what you had been told, whether orally 22 or through submissions, that the problems with Horizon 23 principally related to the BPC, rather than the Benefits 24 Agency having an in-principle objection to the use of 25 the BPC? 38 1 A. I don't, I'm afraid, have a direct recollection. 2 I mean, reading the documentation now, some 20-odd years 3 later, I think a recurring theme, from what I've read is 4 that the BPC was identified as the core problem, and it 5 is perfectly obvious that, from a Benefits Agency and 6 DSS point of view, the longer the delays were in the 7 BPC, which was always regarded as an interim solution, 8 pending ACT and/or a full smartcard, the less the value 9 was for the DSS and the Benefits Agency, in terms, for 10 example, of fraud -- savings from fraud. 11 So understandably perhaps the DSS and the Benefits 12 Agency were getting more and more frustrated as time 13 went on. 14 Q. Then the sentence, or the part of the sentence "and is 15 relatively simple", ie the Horizon System stripped of 16 the BPC element of it was relatively simple, on what 17 basis was that said? 18 A. I presume it was said on the basis that that is what 19 I was being told: that it was a more straightforward 20 part of Horizon than the BPC, but that's a presumption, 21 rather than a recollection. 22 Q. Presumably, you wouldn't have said this unless you had 23 been told it? 24 A. I wouldn't have made it up, no. 25 Q. You continue: 39 1 "B3 could also provide a platform for Modern 2 Government. The Option A savings, largely accruing to 3 [the Benefits Agency] are also available under B3 4 and C." 5 At 13: 6 "The Post Office favour B1. They have said that 7 they are not interested in B3 and would prefer 8 termination ... this may partly be a negotiating tactic 9 (they were reluctant to consider other options while 10 option A was on the table). If POCL and ICL cannot 11 agree on a worthwhile deal on B3, there would be 12 termination." 13 Did you consider that the Post Office were employing 14 negotiating tactics with Government? 15 A. I guess that's what that infers. But I don't have 16 a recollection of that. 17 Q. To what extent was it for government to make a decision 18 here, given that the Post Office was a statutory 19 corporation, and Post Office Counters Limited was 20 a limited company with its own board? Why does the 21 Government get to make the choice and foist upon 22 an unwilling company, limited by guarantee? 23 A. Well, it's clearly an uncomfortable position, not least 24 because the then Government's position was that, as 25 I recall, we wanted to give greater freedom to the Post 40 1 Office, in order to encourage it to be more 2 entrepreneurial and more modern in order to sustain 3 itself and be successful for the future. 4 But the real answer is that, in the end, the buck 5 stops with the government and, indeed, the cheque book 6 is owned by the government, so one was going to have to 7 write the cheques on behalf of the taxpayer, and that is 8 HMG. 9 Q. In a -- sorry, we should finish with the conclusion. 10 "We have been unable to agree on an option ... B1 is 11 favoured by ICL and the Post Office ... but has 12 a substantial funding gap ... It provides most immediate 13 security of footfall but ties the Post Office into 14 a long-term relationship ... B3 provides an automated 15 platform for POCL to develop its business in the future, 16 is clearly more affordable than B1, but is currently 17 opposed by Post Office and possibly by ICL. [C] would 18 provide POCL with a made-to-measure automation system, 19 is more affordable than B1, but would mean the end of 20 ICL's involvement in the contracts and could have more 21 presentational difficulties." 22 You continue in 15: 23 "We have set in train a handling strategy to ensure 24 the best possible presentation from the Government's 25 point of view regardless of which option is eventually 41 1 agreed." 2 Then essentially: "Over to you". 3 A. That is, essentially, what that last paragraph says. 4 Q. Now, attached on one version of this minute to the Prime 5 Minister are some handling lines, some lines to take. 6 Can we look, please, at CBO00000058, and go to page 7, 7 please, "Q&A ... If ICL/Fujitsu decide to withdraw". If 8 we go forwards within those Q&As, to page 11, please. 9 If we can blow this up a bit. 10 I'm sorry that this is presented in this way. It's 11 a photograph of a file within the National Archive. 12 This, I think, handling line says: 13 "Independent reviews of the Horizon project by 14 external IT experts have all concluded (most recently 15 this week) that ICL Pathway have failed and are failing 16 to meet good industry practice in taking this project 17 forward, both in their software development work and in 18 their management of the process." 19 What did you know about that, that IT experts 20 concluded, most recently that week, that ICL Pathway had 21 failed to meet good industry practice? 22 A. I don't think I did. 23 Q. Then there's a list of eight or so bullet points. 24 "To date, in the development stages of the project: 25 "all plant release dates have been missed -- 42 1 including the key contractual milestone for completion 2 of the operational trial for which ICL ... were placed 3 in breach in November 1997 4 "on current working plans, updated as recently as 5 September [1999], the first milestone thereafter -- 6 Model Office Testing -- was delayed by 2 months 7 "every release has been subject to reductions in the 8 originally planned functionality 9 "and even when each release has gone live, there 10 have been faults and problems which have resulted in the 11 need for Pathway to reimburse DSS 12 "in the current trials the known problems have risen 13 from 46 in November 1998 to 139 at the end of March ... 14 and currently 146 have not been resolved 15 "nearly 16 million people should by now be paid by 16 the Benefit Payment Card. In fact only 30,000+ people 17 are currently being played by the Benefit Payment 18 Card -- for one benefit only 19 "rollout of the system to 19,000 post offices should 20 have been completed at the end of 1998. But only 21 limited functionality is available currently in 204 post 22 offices. 23 "delays to the programme have already cost the 24 Government over £200 [million] in savings they would 25 otherwise have expected to make." 43 1 That list of ICL failures, as it was put, was it 2 ever put to you in that way? 3 A. Not that I can recall. 4 Q. Do you know whether that kind of information, that list 5 of ICL failures, was taken into account in the decision 6 making by you and then the Prime Minister, as opposed to 7 being listed as points to make in press handling lines, 8 in the event that ICL pulled out? 9 A. I think -- I think what we were made aware of was less 10 the inputs, this list, and more the outcome, which was 11 the substantial delays and, of course, the breach of 12 contract. 13 Q. Yes, they're the only questions that I ask you about the 14 final stage of the process there. 15 Before I hand over to any other Core Participants 16 that wish to ask you questions, have you any other 17 reflections that you wish to pass on to the Inquiry 18 about this episode, insofar as you were involved in it? 19 A. I think only that, from a Government point of view, 20 Government tends to work -- this is maybe a debatable 21 point -- Government tends to work reasonably well, when 22 it's departmentally focused. Where Government struggles 23 is when there are cross-departmental issues and this was 24 a cross-departmental issue, as is perfectly clear from 25 this -- even this last note that you referred to, 44 1 Mr Beer. 2 I think my reflections, given the appalling 3 injustices that have happened, are really threefold, on 4 lessons. One is this clarity point. Secondly -- in 5 other words, that there should be clarity and 6 accountability rather than a fudge. Fudges don't work 7 and they tend to come undone. 8 The second is about risk and risk appraisal, because 9 this was always going to be a high-risk endeavour, just 10 given the complexity of it and, again, I don't know what 11 was agreed or how it was agreed, because we don't have 12 access -- we've never had access to any of those papers, 13 because they were agreed by the previous administration. 14 But risk appraisal, therefore, becomes absolutely 15 a critical thing. 16 And indeed, it should be an ongoing thing, in my 17 view. I think risk appraisal is often viewed as 18 something that happens at the beginning of a programme 19 or a project and then it's done and dusted. But risk 20 appraisal needs to take place throughout, and the 21 consequences or the results of risk appraisal need to be 22 openly and transparently shared. 23 And the third point is, which is the point you were 24 exploring with me earlier, you know, was there 25 sufficient independent technical expertise available to 45 1 Government to allow ministers, in particular, to have 2 an informed view about technically, technologically, was 3 this thing actually working in practice or not? And 4 that, it seems to me, was a missing piece of the 5 architecture. 6 Now, as I say, I've no idea, frankly, whether any of 7 those three points nowadays are reflected in how HMG 8 goes about operationalising major procurements of this 9 sort. Maybe it does, I just don't know. But those seem 10 to me to be the pertinent points that, at least, I would 11 take away from a reading of all the documentation that's 12 been made available to me by the Inquiry. 13 MR BEER: Mr Milburn, thank you very much. I think there 14 may be some questions from one or maybe two of the other 15 Core Participants. Thank you. 16 Mr Stein. 17 Questioned by MR STEIN 18 MR STEIN: Mr Milburn, I represent a large group of 19 ex-subpostmasters, mistresses and managers. My name is 20 Sam Stein. I just want to target one particular area. 21 You've been asked a few questions at the beginning 22 of your evidence today regarding how documents are 23 sorted out before, if they get to you at all, they get 24 to you. 25 This is not a new matter for you, in terms of giving 46 1 evidence. You gave evidence at the Infected Blood 2 Inquiry -- 3 A. I did. 4 Q. -- on 14 July of this year, and this very topic was 5 spoken about then. 6 A. It was. 7 Q. I'm sure that some things that you dealt with as 8 a minister were not disasters, but in terms of -- 9 A. That's very generous! 10 Q. -- the Infected Blood Inquiry and the Post Office 11 Inquiry, I'll just paraphrase, and I've got a note of 12 the transcript of your evidence at the Infected Blood 13 Inquiry, the way you put it there was that you would 14 say, as a rule of thumb, the vast majority of papers 15 that were copied to the Secretary of State's private 16 office were never seen by the Secretary of State. 17 You also then spoke about the civil servant side of 18 it, and you gave an example of Charles Lister, in fact 19 now Sir Charles, who would consider documents and take 20 a strategic view as to whether it should go to you or 21 not; is that correct? 22 A. Yes. 23 Q. The way you went on to describe it, rather usefully, is 24 this: you put that -- in relation to Sir Charles -- as 25 being that's the first bucket of who saw what, and that 47 1 would be primarily a decision that would be taken by 2 an official. The second set of decision-makers would be 3 junior ministers, and they would have to decide how 4 comfortable they were about owning a set of issues. 5 So these different ways would be different filter 6 systems, either filter so that you don't see them or 7 indeed filtering through so you do; is that correct? 8 A. Yes. 9 Q. Well, I think I can leave it there. In a way I'm using 10 your evidence as a way of making a point that the 11 Infected Blood Inquiry and, to a lesser extent, the 12 Grenfell Inquiry, have all looked at these self-same 13 issues of all what is given to ministers, how they 14 receive it, how it is sorted out and who gets what. 15 A. Yes. 16 Q. And it may be an area that this Inquiry would like to 17 look into in terms of the evidence before other 18 inquiries. 19 A. Sure, I think the only -- and, you know, it's good of 20 you to cite the evidence that I gave just a few months 21 ago -- I mean, all my time, by the way, isn't spent at 22 public inquiries, it feels like that on occasions. But 23 somebody said to me that ministers have two careers: 24 they have a career making decisions and then, 25 years 25 later, they have a career defending them in front of 48 1 public inquiries. But I think, you know, there's method 2 in the madness. 3 You know, it's difficult, I think, for people to 4 understand, who haven't been in government, just how 5 much stuff there is. You know, you're getting a lot of 6 stuff coming at you all the time and there's a lot of 7 correspondence, a lot of, nowadays, emails, and so on 8 and so forth. So there does have to be some filtering 9 mechanism, you know, because, otherwise, it just -- 10 you're faced with an avalanche that it's just impossible 11 to deal with. 12 The problem is that that's not always transparent 13 and it must be very frustrating for individuals and 14 organisations who write to ministers never to get 15 a reply from them, for example, maybe never to get 16 a reply from anyone. I don't know. It isn't 17 transparent and, as you say, it isn't always obvious 18 what are the criteria by which decisions are eventually 19 put to ministers, rather than being dealt with by 20 officials. I think that's an interesting area to 21 explore. 22 Q. In fact, the way you put it in the Infected Blood 23 Inquiry was you described it as being more an art than 24 a science? 25 A. I think that is probably right and, in part, you know, 49 1 in truth, I don't want to, in any way, give the 2 impression that ministers are victims in all of this 3 because, in the end, you're in government, you know, 4 you're responsible for what happens in your Department, 5 that's the rule of the game, so to speak, even though, 6 very often, to be perfectly honest, there are things 7 that are happening in your Department that you have 8 absolutely zero line of sight of, because it's almost 9 impossible to have any line of sight of it. 10 So, yeah, it's -- 11 Q. Lawyers and judges often think that we're quite busy 12 people. Have you ever been busier than when you were as 13 Secretary of State? 14 A. No, it was crazy. I mean it's a crazy way of life. 15 I mean, you know, there's a reference to Alistair and 16 Steve and I on Christmas Eve having a conflab about 17 whatever it was in relation to Horizon, that wouldn't be 18 unusual. There's another reference somewhere to meeting 19 at 12.30 in the morning, trying to cobble together 20 a decision. I mean, these are not unusual things. 21 So it's a very intense thing to do, it's the most 22 purposeful thing I've ever done in my life and I don't 23 regret a moment of it. But it is -- it's pretty busy. 24 MR STEIN: Thank you. 25 SIR WYN WILLIAMS: Anyone else? 50 1 MR BEER: No thank you, sir. 2 Questioned by SIR WYN WILLIAMS 3 SIR WYN WILLIAMS: On that last point, Mr Milburn -- and 4 I haven't yet got any idea to the extent I will 5 investigate the sifting mechanism you've been 6 describing -- but my immediate impression of your 7 evidence is or could be summarised in this way, and 8 I just want to make sure I've got it right: there's 9 an absolute need for a sifting mechanism but the fact of 10 it should be more transparent? 11 A. Yes, I think that would be fair. I mean -- 12 SIR WYN WILLIAMS: Quite how you make it transparent is 13 quite another thing, I'd agree, but are those the two 14 points you were seeking to make? 15 A. Yes, I think that's a fair way of putting it. 16 I think -- look, I think there's always a risk that, 17 particularly in a situation like this, we have, all of 18 us in this room, have the great blessing of hindsight. 19 And, you know, even in my own answers, it's sometimes 20 difficult to disentangle what I'm thinking about it 21 today from what I may well have been thinking about it 22 then. 23 So I think there's always a bit of a risk that we 24 come up with answers that -- and structures, that are 25 two didactic, and that don't provide, to the point that 51 1 was just made, sufficient flexibility because the truth 2 is it is art and not just science. So you've got to be 3 careful, I think, about over prescribing as well. 4 SIR WYN WILLIAMS: When I was a law student, I spent many 5 hours grappling with the concept of foreseeability. I'm 6 reminding myself of that virtually every hour of every 7 day. 8 A. I'm sure. 9 SIR WYN WILLIAMS: Thank you, Mr Beer. 10 MR BEER: Thank you very much, sir. Can we take the morning 11 break now until 11.45 -- 12 SIR WYN WILLIAMS: Certainly. 13 MR BEER: -- and the next witness is Mr Peberdy. 14 SIR WYN WILLIAMS: Yes, fine. 15 (11.33 am) 16 (A short break) 17 18 19 (11.45 pm) 20 SIR WYN WILLIAMS: Whenever you're ready. 21 MS KENNEDY: Our next witness is Mr John Peberdy. 22 JOHN PEBERDY (sworn) 23 Questioned by MS KENNEDY 24 MS KENNEDY: Mr Peberdy, you should have a copy of your 25 witness statement in front of you. Do you? 52 1 A. Yes, I do. 2 Q. If you turn to the last page, is that your signature 3 there? 4 A. It is. 5 Q. Have you read through this statement recently? 6 A. I have. 7 Q. Is it true to the best of your knowledge and belief? 8 A. It is. 9 Q. Can I start by thanking you for coming here to give 10 evidence to the Inquiry and for preparing that 11 statement. Everything I now ask you is supplementary to 12 that. 13 You were a subpostmaster until 2008 when you 14 retired; is that right? 15 A. That is correct. 16 Q. When did you start as a subpostmaster? 17 A. 1980. 18 Q. You say in your statement that you were, at one time, 19 Chairman of the NFSP Negotiating Committee, do you 20 remember when you held that position? 21 A. To be truthful, as it was over 26 years ago, I believe 22 it started in the late 19 -- mid-1990s. 23 Q. You were also President of the NFSP in 1998? 24 A. Correct. 25 Q. Was that just for the year of 1998? 53 1 A. It was, I believe, longer than that. 2 Q. What did that role as President involve? 3 A. Well, I suppose, actually, of the Federation, the 4 President is actually sort of the figurehead, and in -- 5 obviously conducted all meetings of the Executive 6 Council, chaired all meetings of the Executive Council, 7 and, actually, probably visited lots of branches of the 8 Federation throughout the country, sometimes as a guest, 9 to either meetings to address them, social functions, 10 dinner dances, et cetera. 11 Q. What about the role of the Chairman of the Negotiating 12 Committee: what did that involve? 13 A. Right. Quite a lot different situation, in that the 14 Negotiating Committee was the -- a small committee who, 15 by the name -- as the name implies, negotiated terms and 16 conditions of subpostmasters with the Post Office, and 17 of course, in the wider implications, as time moved on, 18 meetings with various Government Departments, DTI, 19 et cetera, and working fairly closely with the General 20 Secretary at the time, who was Colin Baker. 21 Q. At the time that Horizon was being developed, were you 22 aware that subpostmasters could be prosecuted by the 23 Post Office? 24 A. There was always a case, even in previous days, when 25 manual cash accounts, as they were, were done, that 54 1 subpostmasters, who were held responsible for the cash 2 and stock under their control, if a shortage was 3 discovered by auditors on a visit to the Post Office, 4 there was a likelihood that, depending on the severity 5 of that, and decisions that the Post Office took, yes, 6 they could be prosecuted. 7 Q. They could also recover their losses as well, prior to 8 Horizon? 9 A. Yes. 10 Q. You say in your statement -- if we could pull that up, 11 it's WITN03800100, and if we look at paragraph 19, which 12 is on page 4, please. Thank you. At paragraph 19, you 13 say: 14 "During early 1999 there were major cost 15 implications facing the Horizon project. These were not 16 helped by the fact that the BA/DSS and to some part the 17 Treasury wanted to pull out of the Horizon scheme 18 because they wanted to pursue the payment of benefits by 19 Automated Credit Transfer ... into bank accounts, which 20 they saw as a much cheaper alternative." 21 Did you understand that to be the sole reason for BA 22 or the DSS pulling out of the project? 23 A. From what I can remember, it was that the Benefits 24 Agency always perceived the Post Office Network as 25 expensive to them and, therefore, they were examining 55 1 Automated Credit Transfer, and I should -- I believe 2 that one of the big drivers was that the Benefits Agency 3 weren't wanting to fund the project, and wanting to fund 4 the Post Office network to the degree that it was at 5 that time. 6 Q. Were you aware of issues with testing requirements that 7 the BA had raised at the time? 8 A. Whilst I wasn't directly aware, because we weren't being 9 consulted on those issues, obviously we knew that the 10 whole of the project had to have a test and was being 11 tested, yes. 12 Q. At this time, did you think that the future of the Post 13 Office was at risk by the withdrawal of the BA from this 14 project? 15 A. Very much so. Yes. 16 Q. What were the problems that you saw at that time with 17 that withdrawal? 18 A. Well, obviously subpostmasters, by their very nature, 19 had bought their businesses, some with associated retail 20 businesses attached, some to a bigger or lesser 21 degree -- I, of course, was a subpostmaster -- and, 22 therefore, was a considerable investment into the 23 network, and the network was very much loved by the 24 government. So the implications of losing a main income 25 stream to subpostmasters was one that didn't bear 56 1 countenancing at the time. 2 Q. Did you feel it was important that the Horizon project 3 went ahead and was brought into post offices? 4 A. Yes, very much so. Obviously, the simple reason being 5 that the Post Office needed bringing to the modern era, 6 I will agree, and we, as the Federation of 7 SubPostmasters, were extremely keen that the network was 8 automated because, on the back of the payment of 9 benefits to the public, was the wider implication of 10 other automated transactions which could be undertaken, 11 and therefore hopefully protecting that network. 12 Q. You were part of the Horizon Working Group with Colin 13 Baker; is that right? 14 A. That's correct. 15 Q. If we could pull up NFSP00000064, please. This is 16 a letter sent to Colin Baker, inviting him to join that 17 group. Before we look at the text, what, in your mind, 18 was the purpose of this Working Group and your role in 19 it? 20 A. From what I can remember at the time, it was obviously 21 to try to make sure that the Horizon project went into 22 the network in a smooth fashion and, also, because of 23 the concerns that were being expressed at the time, that 24 others became involved to try to dig deeper into the 25 project. 57 1 Q. So did you see your role as assisting with it, getting 2 it over the line, rather than with identifying problems 3 that arose? 4 A. I believe that it was getting -- yes, I'll take your 5 expression -- "getting it over the line", far more than 6 actually looking at any problems that were involved at 7 that time. 8 Q. If we could look at the last two paragraphs of the 9 letter, please, if we could blow that up. This states 10 that there were three main areas: 11 "First, there are the negotiations between POCL and 12 ICL, and between POCL and BA, that need to take place 13 over the next few weeks to put in place the detailed 14 contractual arrangements that will give effect to the 15 outline agreement reached on 24 May. I see a role for 16 the Working Group in carefully monitoring these 17 negotiations and addressing and helping to resolve any 18 sticking points that may be encountered. 19 "The second area covers the remaining development 20 phases of Horizon, including large scale live trials, 21 system acceptance, and rollout of the system smoothly 22 and in a timely fashion to all offices within the 23 network followed by the migration from paper-based 24 methods of benefit payment to ACT-based payments 25 accessible at post offices. I believe that the Working 58 1 Group could provide a valuable forum for bringing 2 pressure to bear where needed and for seeking solutions 3 to any problems that may arise." 4 If we could turn on to the next page, please, and 5 the first paragraph: 6 "The third area concerns the commercial exploitation 7 of the very considerable potential which the Horizon 8 platform will offer once in place. The combined 9 experience of the Working Group should prove a valuable 10 source of ideas and contacts for business opportunities 11 and future revenue streams." 12 Do those three objectives reflect what you 13 understood at the time to be the purpose of this group? 14 A. Yes, because they were what had been obviously 15 communicated to us under the terms of reference, yes. 16 Q. How did you find working on the Working Group at the 17 time? What was your experience? 18 A. I do believe that we might have been described as 19 an uncomfortable bed partner, in so much as it felt 20 a bit like that the NFSP ought to be on board, because 21 there were those there who thought that, in many 22 instances, we could do more damage than good, and 23 therefore, partially, I felt as a bit of a placater. 24 Q. If we could turn up the next document, which is 25 NFSP00000479, please. This is a minute of the meeting 59 1 of the Negotiating Committee on 10 June 1999. If we 2 could turn to page 9, please. We can see that this 3 where the discussion on counter automation begins. Was 4 this something that was regularly discussed or 5 a standing item at the negotiation committee at least at 6 this time? 7 A. Yes, it was a regular agenda item. 8 Q. What was the purpose of that, for you to provide 9 an update? 10 A. Yes, it was to provide an update to either the 11 Negotiating Committee, as in this instance, and was also 12 a regular item on the full Executive Council agenda, and 13 therefore updating either the Executive -- the 14 Negotiating Committee on work which the General 15 Secretary might have been involved directly, or that the 16 General Secretary and I had been involved in, so that 17 the full Negotiating Committee were appraised of where 18 we were going at that time. 19 Q. If we could turn to page 12, please. At the bottom of 20 that page it says: 21 "The General Secretary and John Peberdy advised the 22 committee that they had gone to the meeting [that's the 23 Working Group meeting] with the preconceived ideas that 24 attempts would be made to 'buy them off' and placate 25 them with platitudes. However, it appears that 60 1 government are worried about the extent of the 2 Federation's influence and its our intention to keep 3 them worried. The Federation has a substantial role in 4 the Working Group and will be in a prime position to 5 have as much influence as possible. The Minister is 6 under no illusion that the Federation intends to bide 7 its time and see what is to be delivered before taking 8 any further action." 9 Is that what you felt at the time, that the 10 Federation had a great deal of influence in the Working 11 Group? 12 A. I felt that, probably, generally, if I can sort of 13 expand on it a little, as the role in the Federation, 14 the Federation were, as I said earlier, the conduit for 15 negotiating with Post Office Counters Limited. But we, 16 fortunately, probably through partially the General 17 Secretary and others, had a reasonable dialogue with 18 Government Departments and Government ministers and even 19 higher. And we had courted this, we had furthered it, 20 because, at that time, the Post Office Network, in my 21 opinion, was the Achilles heel of the Government. 22 Nobody wanted to shut a village post office. Nobody 23 wanted to shut a post office. So any method to keep 24 them open, and bearing in mind the Government had made 25 a pledge to keep a nationwide network of post offices 61 1 open was there. 2 So I felt that because we had that, if I may call 3 it, an "in" to other avenues, other than the Post 4 Office, we were very much involved in things like the 5 Horizon Working Group, as I've actually said, and as 6 I said earlier, to placate the Federation, as much as 7 anything else. 8 Q. Thank you. Could we bring that page back up, please? 9 So that's NFSP00000479 and page 13, please. This is the 10 same page that we were on. If we look further down the 11 page, it says: 12 "Some subpostmasters have had enormous difficulties 13 balancing up and finishing their cash accounts, even to 14 the point of still struggling to finish on Friday 15 nights. 16 "Tomorrow's special Executive Council meeting, which 17 is being attended for a short time by Stuart Sweetman 18 and David Miller, is crucial to finding out what has 19 gone wrong with the Horizon programme. ICL Pathway/POCL 20 say it's not the system." 21 Do you remember what was happening at this time and 22 the issues that were being flagged by subpostmasters? 23 A. Yes, and probably, from my own experience as 24 a subpostmaster, although I was not very often in my own 25 office and it was run by a person that I employed, what 62 1 had become a great problem was we always had to balance 2 our post offices on a Friday evening, and the Horizon 3 System had just lengthened that tremendously. And I had 4 being reported to me by the subpostmasters, 5 subpostmasters staying in their offices until late at 6 night, even 10.30, because it churned and churned and 7 churned before it produced anything that gave a clue as 8 to whether your office was balancing that week or not. 9 Q. Was that something that concerned you? 10 A. Very much so. 11 Q. Turning forward, then, to the meeting the next day. If 12 we could pull up NFSP00000539. Thank you. This is 13 a report of the Special Meeting of the National 14 Executive Committee. If we turn forward to page 7, this 15 is when David Miller and Stuart Sweetman joined the 16 meeting. Do you remember this meeting? 17 A. Being a long while ago, to say I remember it fully would 18 be not the correct statement but I do remember them 19 attending a meeting and -- yes. 20 Q. We can see there was a list of questions that were put 21 to Mr Sweetman man and Mr Miller. If we could turn over 22 to page 10, please, we can see that: 23 "Mr Butlin referred to the serious problems that the 24 South West was having with the software, especially with 25 the balance, and asked Mr Miller whether any changes 63 1 were to be made in that respect. An assurance was 2 sought by the Committee that the balance would become 3 more user-friendly, more logical and easier for 4 subpostmasters to use. Would it be possible for 5 subpostmasters to have more input into the way the 6 balance was done. The North East was facing similar 7 problems, subpostmasters were incurring additional staff 8 costs, an example being around £350 in the four weeks 9 that his office had been up and running." 10 This specific problem of balancing on Horizon, at 11 this stage, how high up your priority list was it? 12 A. Um, I think if you took it onto a scale of 1 to 10, it 13 probably sat at 8, because probably the highest priority 14 was actually getting that Horizon System fully rolled 15 out. But anything that was flagged up to us as 16 a Federation, as a problem for subpostmasters, was 17 obviously something we had to take on board. And those 18 who were spending hours, paying extra staff costs, for 19 example, because they were waiting for this Horizon 20 System to churn out what was thought to be a balance, 21 was not acceptable. 22 And, obviously, Mr Butlin was drawing Dave Miller's 23 attention to it in the hope that we could get some 24 assurances. He did ask, as you've just read out, 25 I notice, that "Could we be involved or could we have 64 1 some further input", and that of course was never really 2 ever taken up directly as a direct input. 3 Q. When you say it wasn't taken up directly, what do you 4 mean by that? 5 A. Well, we weren't, as a Federation, in a position to be 6 dealing directly with ICL Pathway or anybody on the 7 project directly, to make input of that nature. All the 8 Federation's input, on behalf of subpostmasters, was 9 obviously done through Post Office Counters Limited. 10 Q. If we could turn to page 14, please. We can see that at 11 this meeting, three paragraphs down, there was a vote 12 that was taken on whether the Federation should continue 13 to work with the Post Office or against it. Do you 14 remember that taking place? 15 A. Directly, I cannot remember it specifically but the 16 minute will record it faithfully, I'm sure. 17 Q. If we look at the bottom of the page, it says: 18 "Miss Lindon referred to the controversy concerning 19 the plans for Horizon and questioned whether the 20 Federation was getting the package they needed. She 21 suggested that this, being negotiation time, was 22 an opportunity for POCL to talk to ICL Pathway about 23 modifying and simplifying the package before it was too 24 late. 25 "The Chairman advised that Mr Miller had requested 65 1 a list of all the problems with the software and that he 2 would address them and talk to subpostmasters to see 3 what they wanted on the programme. He was embarrassed 4 that this had not happened already. 5 "It was important that members be advised 6 immediately of the outcome of this meeting and this 7 needed to be done in a way that would make them aware of 8 the seriousness of the situation, without resorting to 9 scaremongering." 10 Was it ever seriously considered by the NFSP that 11 you should really be asking for a new system rather than 12 working with the Horizon System, given the feedback? 13 A. Whilst there had been various private systems for 14 balancing post offices out there, there was nothing on 15 the scale of the Horizon and the ICL Pathway project, 16 and I think the system was that we were so aware that 17 the Benefits Agency were wanting to move away, if they 18 could, from paying benefits over post office counters, 19 that we felt we had got to work to make this work, and 20 make it right, and I think that was our position at that 21 time. 22 Q. So what you're saying is there wasn't really an option 23 to say, "Let's scrap this and start again"? 24 A. I don't think (a) we had the power to take that route. 25 We could make Post Office Counters Limited aware of 66 1 everything that was going on, and did so on numerous 2 occasions. And I know that, for a fact, our General 3 Secretary was probably regularly on the phone to various 4 people within Post Office Counters Limited. And, as 5 I've said, I think, in my witness statement, a lot of 6 meetings that we had when we raised points with Post 7 Office Counters Limited, they were unfortunately at 8 unminuted meetings or meetings that we haven't had, to 9 my knowledge, minutes of. 10 Q. If we could move forward to the National Executive 11 Council meeting on 21, 22 and 23 June. That's 12 NFSP00000471, and if we could move to page 22, please. 13 You'll see there, at the bottom, the topic of counter 14 automation comes up. 15 Do you remember this meeting? 16 A. Yeah, I remember it was a meeting that we were going to 17 report further on and, that minute -- when I read part 18 of the bundle -- refreshed my memory to some degree of 19 some of those meetings. 20 Q. If we could look over page on page 23, halfway down the 21 page, there: 22 "There was general discussion on the severe 23 difficulties being experienced by subpostmasters who 24 were already running an automated system. Seven sheets 25 of comments from the North East have been passed to Dave 67 1 Miller. The difficulties and trauma being experienced 2 by some subpostmasters were giving rise to concerns over 3 their health and emotional wellbeing. It was felt by 4 some that a tragedy was not far away, if something was 5 not altered soon. The software was considered to be 6 poor quality and not intended to run such a huge 7 network. The system is based on ECCO, which was 8 originally written for a network of 700 -- not 15,500." 9 Given the mention of trauma and the concerns for 10 subpostmasters' health, did this move further up your 11 priority list? 12 A. Yes, I think what was actually happening now was that 13 our Executive Council members in the northeast were 14 flagging these issues up to Federation headquarters and, 15 I must say, the General Secretary and I never missed 16 an opportunity with representing these views to the Post 17 Office. But I must say, I always, at those meetings, 18 had a feeling that there was always cost in everything 19 and obviously making the network viable and everything 20 else, as far as Post Office Counters were concerned. 21 And I think they were in the same situation: that 22 they needed to maintain the income stream from the 23 Benefits Agency more than anything and, therefore, 24 I think there was many hopes or assurances being given 25 to them that ICL Pathway were putting these issues 68 1 right. 2 Q. If we could turn to page 27 of that document, please. 3 Sorry, if we could actually turn back to page 26, 4 please. At the bottom of that page, it says: 5 "Discussion at length took place between members as 6 to whether a public campaign should be started [about 7 the project]. Many felt that action should begin at 8 once, while others felt that we may lose the goodwill of 9 Government and the Post Office if an offensive was 10 launched immediately. A militant attitude may also 11 jeopardise the Federation's acceptance as an equal 12 member of the Working Party. In general it was felt 13 that no plans could be made until after the issue of the 14 Government's White Paper in early July and the contract 15 was signed on 19th July. Government and POCL approaches 16 for the future would be clearer, thus giving the 17 Federation a better basis for protecting subpostmasters' 18 interests in every detail. It was generally agreed that 19 POCL/ICL must be made aware of the full extent of 20 subpostmasters' complaints and problems with the system, 21 and insistence pressed that the problems are all 22 addressed and resolved, even if alterations to the 23 system are required. 24 "The National President asked the meeting if 25 everyone was happy that the agreed way forward would be 69 1 decided on 11th July and that a public campaign would 2 not, for the moment, be pursued." 3 Do you remember this discussion taking place? 4 A. Yes, I do. 5 Q. What was the strength of feeling that a public campaign 6 should be started? 7 A. I think, bearing in mind the Executive Council was 8 considered of about 20 members, there were always those 9 who had differing opinions, but we have or had 10 successfully fought public campaigns in many instances, 11 and I think that minute probably reflects the overall 12 outcome of the discussion, in so much that, if we rocked 13 the boat too far, it was very easy for both the Post 14 Office Counters Limited and/or Government Departments, 15 not to bring the Federation to the table and, therefore, 16 our voice wouldn't be heard. 17 And so I think it was decided, as the minute says, 18 to see what came out of the White Paper, and keep our 19 powder dry, knowing that we would have the ability, if 20 we wished to, to start a public campaign at any time. 21 Q. At this stage, were you telling subpostmasters not to 22 criticise the system publicly? 23 A. No, not that I can recall. We would never have done 24 that. It was up to subpostmasters individually to say 25 what they felt and obviously we, in Federation 70 1 headquarters, wanted as much feedback to take to the 2 Post Office of anything that wasn't seen to be right 3 about the system. 4 Q. At the end of this page, the meeting pauses, and you go 5 to a meeting of the working party. Did you feel when 6 you went to that working party meeting that you had the 7 words of the subpostmasters ringing in your ears about 8 the difficulties they were having? 9 A. Yes, and if I remember rightly, I think that at one of 10 these, if it's not the next working party meeting, the 11 General Secretary, Colin Baker, raised some matters 12 concerning all of this. 13 Q. If we turn over the page to page 28 and look at the 14 paragraph in the middle that says: 15 "The subject of system faults was raised and the 16 NFSP were given assurances that there would be software 17 improvements to cure the present difficulties. The 18 Federation were asked for more precise numbers of 19 subpostmasters who were experiencing difficulties as 20 this information would assist them to provide us with 21 the help we require." 22 This is your report when you come back to the 23 Executive Council meeting. 24 A. Yes. 25 Q. Is that what you're referring to? 71 1 A. Yes. 2 Q. If we can turn to the minutes of that meeting, which is 3 at NFSP00000203. The then if we could turn to page 3. 4 So this is -- sorry, if we could turn back a page. 5 This is the note of the meeting of the working party 6 that was officially circulated, and if we turn over to 7 page 5 -- sorry not page 5 -- page 2, paragraph 5. My 8 apologies. It says at paragraph 5: 9 "Mr Baker said that it was extremely important for 10 the rollout to be absolutely right; with so many planned 11 per week (300) there would be risk of collapse, 12 otherwise." 13 Is that reflecting the previous note that we looked 14 at, which said that issues were raised about software? 15 A. Yes, I think the -- amongst the many discussions was 16 things like the pace of rollout, the number that the 17 system was capable of handling. Because, of course, 18 with limited knowledge of a new IT system to 19 subpostmasters, way back all that time ago, I think 20 the -- there was a general conception, or even probably 21 misconception, whichever it may have been, that with 22 such a vast network, was this system capable of handling 23 the transactions in such large volumes and numbers that 24 were going over Post Office Counters? 25 And I won't go into it now, in case you were going 72 1 to, but I refer in my statement to -- my witness 2 statement -- to instances of the system being so slow 3 and, therefore, this was all considered to be, in our 4 limited knowledge, the system being incapable of dealing 5 with all those transactions that were coming from all 6 parts of the United Kingdom into some central IT system 7 base. 8 Q. This minute doesn't reflect the issues in the previous 9 minute we looked at about software problems were raised 10 in this working party. Do you recall them being raised? 11 A. No, I don't, all that while ago, have any recollection. 12 I do recollect, as I've said earlier, that sometimes 13 I felt we were there to make up a number or the fact 14 that we had a presence and everybody could say we were 15 there on the attendees, had more relevance than some of 16 the other discussions that were wanted to be had in that 17 Working Group. 18 Q. Mr Baker had said in his evidence on Wednesday that he 19 didn't feel that the Working Group was the appropriate 20 place to be raising issues with what was happening on 21 the ground with some subpostmasters. Do you agree with 22 that? 23 A. Yes, I think because our direct conduit, where we 24 thought we'd got any action, was dealing with Post 25 Office Counters, at whatever level we could. Whether 73 1 that be at levels like, as has been mentioned, Dave 2 Miller, Stuart Sweetman, or even higher, and if we 3 needed to, and with the opportunities, when we met or 4 could meet anybody in the DTI, for example. And we had 5 so many meetings with so many managers of Post Office 6 Counters Limited, when these issues were raised on 7 numerous occasions and, of course, it was a reliance 8 that those managers were taking that even further. As 9 much as we pushed and pushed, we didn't always get 10 answers. 11 Q. If we could move forward slightly to 7 July 1999, and we 12 can pull up NFSP00000200. Page 2, please. So this is 13 a further meeting on 7 July of the Horizon Working 14 Group. If we look at paragraph 4, please, it says: 15 "On acceptance testing, Mr Miller said that the work 16 was going ahead with ICL to a pre-agreed programme. 17 Mr Peberdy asked what defined a 'high' category 18 incident. Mr Miller said this would be one which 19 threatened progress with the project within the agreed 20 timescale. He did not think there would be major 21 problems. Mr Hodgson emphasised the need for regular 22 progress reports." 23 At this time, were you raising things like 24 acceptance testing and did you feel like you were being 25 listened to by the Working Group? 74 1 A. I felt that the relevance of that question, to try and 2 draw out of particularly Dave Miller and others, what 3 they considered something really high, because the 4 various things that have been reported into Post Office 5 Counters Limited, I don't know how high they considered 6 them on their agenda, but, as far as we considered them, 7 extremely high on our own agenda on behalf of 8 subpostmasters. 9 Q. Did you feel that, as part of this, you should have been 10 raising the issues that you knew subpostmasters were 11 encountering and using the system? 12 A. I'm not sure that, at that stage, and that relevant 13 minute, was at the stage it was. Dave Miller was well 14 aware, with meetings we'd had with him directly in Post 15 Office Counters headquarters, of our concerns. I was 16 trying to draw out of him what he considered to be 17 a major high situation risk and whether it was just 18 something that was jeopardising the whole programme. 19 Q. If we could look at paragraph 9 of that document, which 20 is over the page. Mr Baker is recorded as having made 21 a comment. It says, in the middle of that paragraph -- 22 well, I'll read the whole paragraph: 23 "Moving on to a report on the Government's intention 24 to establish an interdepartmental Working Group on POCL 25 funding issues, Mr McCartney said the current 75 1 speculation in the press on the future of the network 2 was not a helpful background. Mr Baker said he thought 3 the group should have a role in disseminating good news 4 stories to counter the scaremongering." 5 Do you know what the scaremongering was at the time? 6 A. Yes, my recollection was, of course, that the 7 scaremongering was that the Benefits Agency were going 8 to move away from post offices that, therefore, there 9 would be a collapse of the Post Office Network, and 10 subpostmasters would lose the value of their 11 investments. And I presume what Mr Baker was also 12 saying, that amongst all that, the fact that we were 13 going to have an automated network, hopefully, was 14 something that was going to give another revenue stream 15 to subpostmasters by Post Office Counters Limited being 16 able to attract more business. 17 We wanted, for example, banking over post office 18 counters in those days, which didn't exist, and needed 19 to have it if the Benefits Agency were going to, in 20 2003, move towards Automated Credit Transfer. The Post 21 Office network was such an vast network, it was there to 22 do so much business and with so much business that could 23 be captured, and especially in an automated system and 24 that's what Mr Baker was referring to about "Let's get 25 some of those good news stories out there, so we can 76 1 attract that business as opposed to trying to frighten 2 those other revenue streams and new business away from 3 the Post Office". 4 Q. So it wasn't to do with the Horizon project itself? 5 A. It was, to my knowledge, not at that stage what he was 6 saying. The press were talking about what they had 7 picked up that was seemingly going wrong and, obviously, 8 individual subpostmasters in individual offices were 9 probably being, or might have been giving stories to 10 local newspapers, et cetera, and some of that, 11 I believe, was being picked up and we, as I say, on 12 numerous, numerous occasions, had banged that gong with 13 the Post Office. 14 Q. Did you agree with Mr Baker that there should be 15 encouraging news circulating in a group set up to 16 counter that narrative? 17 A. Yes, I perceive that the Federation's role in this was 18 one to make sure that all subpostmasters, as I said 19 a moment ago, were able to attract new business, and the 20 ability, once that network was automated -- there were 21 many, many forms of business, including Government 22 business -- over post office counters was something we 23 didn't want to give the impression that we were a dying 24 breed and everybody else needn't start to look to the 25 Post Office to put their new business over all those 77 1 post offices right throughout the country, no matter 2 what the business was. 3 Q. Moving forward to the 10 August 1999, if we could pull 4 up NFSP00000237, please. These are minutes of a special 5 Horizon meeting took place in Kingston Park Rugby Club 6 in Newcastle. Mr Dave Miller is mentioned, the POCL 7 Network Director, and Colin Baker, the General 8 Secretary. Do you recall being at this meeting? 9 A. Truthfully, I don't. I do, having read some of this in 10 the bundle -- I mean, the title is slightly misleading. 11 It was the National Federation of SubPostmasters meeting 12 on the -- on -- a special meeting on the subject of 13 Horizon that was called by the Executive Council members 14 in Newcastle area, and hence, and they -- Dave Miller 15 was invited to that meeting. 16 SIR WYN WILLIAMS: It says at the top that the meeting was 17 chaired by the National President, Jean Kendall. So can 18 I take it that, by then, you'd ceased to be President? 19 A. Yes, I had, Mr Chairman. I had ceased, and Jean Kendall 20 was a subpostmistress, actually in the northeast and she 21 was an Executive Council member, as well as President in 22 that area. 23 SIR WYN WILLIAMS: So you began -- Ms Kennedy asked you when 24 you were President. Is this right, that it began in 25 1998 and ended some time before 10 August 1999? 78 1 A. Yes, it would be an annual -- sorry, you're reminding me 2 now, all that time ago, to the earlier question. It was 3 an annual appointment and an annual election. 4 SIR WYN WILLIAMS: Thank you. 5 MS KENNEDY: If we look further down that page, it says: 6 "The meeting was then opened for subpostmasters to 7 comment on the Horizon programme and for questions to be 8 asked of POCL and requests made for future actions", and 9 then they're listed. 10 It lists the stress of the workforce, the strain on 11 people's lives and marriages, lost holidays and then, 12 lastly, on the 44 Horizon officers present and a vote, 13 30 officers said they suffered stress and only four 14 thought payment was sufficient. 15 Were you aware of this feedback at this time in 16 August 1999? 17 A. I was aware of it when I next spoke to Colin Baker and 18 we obviously had a discussion of what we were going to 19 try and do with it. But, as you probably gather from 20 part of that minute, pay was always a large 21 consideration of subpostmasters who always thought they 22 didn't have as much of the cake that Post Office 23 Counters Limited got, as they did themselves. And 24 obviously things that were starting -- because we 25 employed our own staff, things were starting to delay 79 1 them as it was said in one of the earlier questions, 2 extra payments to staff. 3 Staff were paid probably hourly rates, if they were 4 going to stay later on Friday nights or other nights, 5 that was going to give all those costs to Post Office 6 Limited. Also obviously, quite a lot of subpostmasters 7 ran their post offices with their wives or partners, and 8 that's where, obviously, waiting late, especially if 9 they were having to stay in the Post Office and weren't 10 tending to their children, and all sorts of other 11 various things were putting strain on family life -- and 12 I think it was even put in that minute, strain on their 13 marriage. 14 So there was a lot of -- it was a whole new learning 15 curve for subpostmasters, which came in with quite a lot 16 of stress. 17 Q. If we could turn to page 4, please. There were specific 18 issues raised about balancing, and it says: 19 "Every office complained of system failure, every 20 balance day need to reboot. POCL have a system to know 21 how many reboot without offices informing POCL -- but no 22 action taken by POCL to improve situation. Waiting time 23 at Helpline for rebooting instructions makes SPMs act on 24 their own." 25 I mean, this is a real problem, isn't it, people 80 1 struggling with balancing? 2 A. Yes, it was. I would have said, at that stage, it was 3 the major problem of the Horizon System. 4 Q. At that time, did you think that it was an issue with 5 the system itself, or that subpostmasters needed to get 6 with the system and adapt? 7 A. It's very difficult, actually, to be precise, because of 8 the various transactions in various amounts of stock, 9 for example, that a subpostmaster is responsible for, 10 and the way that you handled transactions. 11 The system was such that you had to tell the system 12 what you'd got left in, for example, First Class stamps, 13 and if you had sold ten First Class stamps to somebody 14 and forgotten to take the money as part of 15 a transaction, you were going to get a misbalance. 16 So there were various factors that fed into it but 17 the major concern, definitely, was that this was all 18 system driven. Because the system went down and because 19 of the length of time and having to reboot it, obviously 20 we started to question things: were things missed, if 21 the system rebooted? We didn't know, nobody knew in 22 those days, what was going on in the back end of this 23 system, and, therefore, were misbalances occurring 24 because of the system or because of subpostmaster fault? 25 Q. Did you feel like you could have done more to question 81 1 what was going wrong with the system or whether there 2 were issues with the system? 3 A. No, I wouldn't accept that. I think that we tried our 4 hardest to query it. I think -- I often wondered 5 whether the Post Office went far enough in dealing with 6 it, in so much as trying to find out what was wrong, 7 more than try and make the pound, shillings and pence 8 balance -- if I can go back that far, before 9 decimalisation -- because, in truth, the Post Office had 10 got nothing to lose. The subpostmaster paid, so if my 11 Post Office was £500 short, I put the £500 in, out of my 12 pocket. It didn't cost Post Office Counters Limited 13 a penny. 14 Q. Moving forward to the 11 October, a were the Working 15 Group minute. If we could turn up NFSP00000066, and if 16 we could turn page 4, please. This where the meeting 17 minute begins. If we could do not page 5, sorry 18 paragraph 5, which is -- sorry, which is also on page 5. 19 Thank you. In paragraph 5, it says: 20 "Mr Miller explained that formal acceptance of the 21 reconfigured Horizon System planned for 18 August had 22 been postponed because of POCL's concern about training, 23 system stability, data integrity (there had been 24 an unacceptably high level of screen freezes) and the 25 effective operation of the help desk. The Post Office 82 1 had accepted the system on 24 September on the basis 2 that effective remedial action had either been completed 3 or was in hand." 4 Did you understand what at the time what was meant 5 by "data integrity"? 6 A. Um, I'm not -- as it was all knew, I'm not sure I fully 7 understand what "data integrity" fully meant, but I was 8 well aware of those issues and, therefore, that -- one 9 of the things that always worried me and other 10 subpostmasters and things we represented to the Post 11 Office, the system froze so often, and in a naive way, 12 back in 1999, or whatever it was, one always wondered 13 what happened when that system came back. 14 This was a great new project, so suddenly you'd put 15 some transactions into the system, the system froze, and 16 you had to wait for the system to reboot, were those 17 transactions lost? And it was always a point that we 18 represented to the Post Office but we never got the true 19 answers because I'm never sure that the Post Office went 20 to ICL Pathway and dug deep enough into it. And I'm not 21 even sure that ICL Pathway wasn't protecting itself in 22 it as well. 23 Q. If we look further down that minute at paragraph 7, it 24 says: 25 "Mr Deegan asked about the issues of spare capacity 83 1 and triggers for payment. Mr Miller confirmed that the 2 Post Office were clear that they would be able to use 3 spare capacity on the system (this had previously been 4 an issue of dispute with ICL). The Post Office will pay 5 ICL £60 million on 24 October on initial acceptance of 6 the system and will pay ICL a further £80 million when 7 they receive rollout to 1,600 offices, which is planned 8 for around Christmas time. ICL would not receive 9 payment until the target had been reached, though the 10 Post Office was not expecting significant slippage. 11 Mr Baker expressed support for the Post Office's 12 position -- whilst there was a need for ICL to hit 13 deadlines it was also important for the system to be 14 delivered in full working order. The feedback which 15 Mr Baker had received from NFSP members was 16 intermittent, and not all positive but problems now 17 seemed to be being sorted out and training seemed to 18 have improved." 19 That statement by Mr Baker that "not all feedback 20 was positive", is that a fair reflection? From what 21 I've taken you to, it seems like it was fairly negative. 22 A. Yes. 23 Q. So would you say that it would have been a better to say 24 the feedback has been negative? 25 A. Um, well, I can't quite speak for Mr Baker and his 84 1 words, but I'm not sure that negative would be the 2 correct word, but it was -- we were receiving assurances 3 in meetings with the Post Office that a lot had gone on 4 behind the scenes to put it right, but I think that 5 minute, and what Dave Miller said, reflected where they 6 saw they were. And, obviously, the previous bit about 7 capacity was of great importance to us, because that 8 capacity to put other business onto the Horizon platform 9 was extremely important to us. 10 Q. Moving forward to February 2000, and later issues. If 11 we could pull up NFSP00000348. This is a letter from 12 Don Grey to Mr Baker in February 2000. It's not to you, 13 but I believe you also worked with Mr Grey? 14 A. Yes. 15 Q. What was your experience of working with him like? 16 A. Um, I think it was always -- Don Grey was always 17 an amenable sort of person. He came from the northeast, 18 I wouldn't say he was particularly dynamic, but he 19 seemed to take on board those issues that we represented 20 to him. 21 Q. When you say he seemed to take on board, what do you 22 mean by that? 23 A. Well, it depends on which of the issues we were talking 24 to him about. I found Don Grey, as you probably said, 25 to be a person who was happy to say yes and hopefully 85 1 get on with it, than get into any confrontational issues 2 about things, and we were very reliant on him at those 3 stages, taking back our views and dealing with them. 4 Q. If we could turn to page 2, please, and if we could look 5 at B, it says: 6 "I will pursue the issues around John Peberdy's 7 training when you let me have details." 8 Do you know what that relates to? 9 A. Yes, obviously, a large part of the rollout of Horizon 10 was the training, and the training was far from where it 11 should have been for all subpostmasters at various 12 levels of knowledge of anything to do with IT. And 13 I had issues that had been represented to me on training 14 being poor, not enough training officers, not taking 15 over at the right times, being too brief and, therefore, 16 those subpostmasters just feeling that the training had 17 been insufficient for them to fully operate the system, 18 and it was a very big concern. 19 Q. Moving forward again to the 10 February 2000, if we 20 could turn up NFSP00000261. This is a circulation to 21 the National Executive Council from Mr Baker which says: 22 "Having [I think 'put'] pressure on the Automation 23 Director for some information regarding the Horizon 24 Rollout, I am sure you will be keen to see a letter 25 which we have received which sets out the position 86 1 following the review held by Post Office ... 2 "Hopefully a regulator dialogue will soon 3 established at territorial level in order to assist 4 members to overcome the difficulties they may well 5 experience as their offices are automated. 6 If we turn to page 2, we've got a letter to Mr Baker 7 from David Smith. If we could pull out the last 8 paragraph, which is to do with the feedback points. So 9 this is following a review by the Post Office, and 10 a study, and it says: 11 "The feedback points in the direction of training, 12 balancing and helpdesks as the major improvement areas 13 with balancing very much the common theme. However, in 14 each of these areas outlets are more or less evenly 15 split between those who think we've got it right as 16 opposed to wrong. The trick to be pulled off is to 17 improve matters for those who believe we need to improve 18 without 'turning off' those who think we've got it 19 right." 20 At this stage, in your mind, was training the key 21 issues of those things? 22 A. Yes. 23 Q. Not balancing, or did you think the two were related? 24 A. Well, yeah, the two were obviously hand in glove because 25 the training, apart from relating to day-to-day 87 1 transactions, the training obviously also covered the 2 once-weekly balancing and, in fairness, without 3 denigrating anybody, I suppose the varying degrees of 4 intelligence or exceptions of IT by various 5 subpostmasters -- because we'd have some who were 6 elderly, and others who were younger, and embracing it 7 differently -- led to that statement. 8 But there were very many training issues out there: 9 insufficient trainers, trainers' knowledge and, of 10 course, at one time the rollout was going at such 11 a tremendous rate that I left many subpostmasters 12 needing further training, needing further help, help -- 13 very much insistence that they had a very good helpdesk. 14 But then, when that came, there were queues to get to 15 the helpdesk, but that's probably something you want to 16 cover later on. 17 Q. If we could move forward to 4 May 2000, a National 18 Executive Council circular. It's NFSP00000020. This 19 circular to the Executive Officers deals with balancing 20 problems to do with Horizon. The first paragraph says: 21 "You may no doubt be aware that there were 22 significant difficulties with Horizon balancing at some 23 post offices yesterday. We are waiting for a definitive 24 answer from POCL on the problems encountered. However 25 what we know so far is that a problem arose last 88 1 Thursday morning in the uprating of stamps and, 2 resulting from poor advice, some subpostmasters did not 3 correctly complete the upgrading of stock reconciliation 4 that day. That manifested when they tried to balance 5 yesterday." 6 If we could turn over the page, it says: 7 "The difficulties with Horizon yesterday, we were 8 advised, was primarily not a systems fault. It was 9 primarily difficulties encountered by subpostmasters 10 last Thursday in understanding the instructions for 11 uprating their postage stock which led to balancing 12 difficulties yesterday 3rd May. 13 "They have accepted there is a clear learning point 14 to make sure instructions are more understandable and 15 they have also accepted a need to review and communicate 16 the difficulties of what they've learned, both to those 17 within the business and to subpostmasters. They are, 18 however, trying to deal the problems today and clearly 19 this is the most critical aim for them to focus on." 20 Did the Post Office tend to chalk issues with 21 balancing up to training, as opposed to a systems fault? 22 A. Could you repeat that, sorry? Did the Post Office ...? 23 Q. Did the Post Office tend to chalk issues with balancing 24 up to training, as opposed to a systems fault? 25 A. No. I think what was totally wrong reasoning here 89 1 was -- my recollection of this, this happened and it was 2 horrendous across the network because the postage stamps 3 had gone up, and therefore, if you had got, in your 4 stock, to be very simplistic, a First Class postage 5 stamp that was 20 pence and it had gone up, back in 6 those days, to 22 pence, there was a system or 7 an instruction that told us -- all the subpostmasters, 8 how to upgrade those stamps for that extra 2p because, 9 of course, once you've -- you're otherwise -- if you put 10 them in at 22 pence, you were going to make a profit or 11 you would have an overage, as opposed to anything else. 12 And so there was an unclear instruction, or it 13 was -- wasn't clear enough for all subpostmasters to 14 deal with, or some might not have dealt with it. Hence 15 that problem that was a major, major problem on, 16 I believe it was 3 May, as you've already said. 17 Q. Did you feel it was difficult to ascertain whether 18 something was a systems problem or an instruction 19 problem? 20 A. Correct. I wouldn't know. 21 Q. If we could turn to NFSP00000153. This is from 22 November 2000 and it's a circular from a Kevin Davis. 23 This relates to "Giro Daily Reports". It says: 24 "I've recently received a number of reports about 25 ghost entries on Giro Daily Reports. I have been in 90 1 continual discussion with PONU, firstly to identify the 2 exact problem, which offices were affected and how it 3 can be rectified. 4 "I am advised that it only affects CSR+ offices and 5 only where a shared stock unit is used. The problem 6 will be fixed by means of a software drop in December. 7 In the meantime, a message broadcast should have been 8 made to all CSR+ offices today. Attached is a copy of 9 the draft message for your information. The text in 10 italic at the beginning of the message will not be 11 included in the broadcast." 12 If we could turn over to the next page, and if we 13 could look at the main paragraph, I think, four 14 paragraphs down, which starts with: 15 "There have been occasions where Girobank 16 transactions entered on to CSR+ Horizon terminals may 17 not be visible on the office copy and the Horizon Daily 18 Records. The transaction will however be included in 19 the grand total value and the volume reported to the 20 cash account. In addition, the individual totals on one 21 or more Horizon Daily Records may be wrong. This fault 22 is due to be fixed in December." 23 Do you remember this particular issue? 24 A. Not clearly but, by reading that earlier, it did refresh 25 my mind of what was actually happening, yes. 91 1 Q. At this time, when this issue arose, did you think all 2 these subpostmasters have been saying they're having 3 issues with the balancing, maybe there's something wrong 4 with the system, given the system isn't infallible. 5 A. If I can relate that back to my own office, what 6 actually happen was in those transactions we're going 7 through, they'd -- in a normal office you'd get 8 a printout and you were going to send those documents 9 off in the evening, and you would check that those 10 documents were there against what had been printed out. 11 Therefore, there were those missing, which was obviously 12 going to lead to you either wondering if you'd put it 13 through, and there would be instances where those 14 transactions had therefore been put in again, and all 15 sorts of things. 16 So it was, as we said, a concern which was rapidly 17 flagged up but, again, nobody knew what was going on in 18 the back office system. One had to go with the 19 assurances that were being given to us on behalf of 20 subpostmasters. 21 Q. Moving next to January 2001, a report of a meeting of 22 the National Executive Council. If we could turn up 23 NFSP00000557. If we could turn to page 9, please. We 24 can see that you are again addressing the council on the 25 issue of counter automation, and you say that you 92 1 thought that Don Grey did his best to sort out the 2 problems with Horizon. Do you see that there? 3 A. Yes. 4 Q. Is that your view? 5 A. Yes, it was, because Don Grey was the person we 6 represented problems to, and it seemed that he, from 7 what he fed back to us, was doing his best to make sure 8 that what we had gone to him with, he was doing his best 9 to resolve. 10 Q. If we could turn to page 10, please. In the bottom half 11 of the page, it refers to Horizon polling problems. It 12 says: 13 "Mr Peberdy reported that it was essential that 14 subpostmasters knew of these types of problems. They 15 needed to know a bit more. They were awaiting responses 16 to what had gone wrong and why they had been kept in the 17 dark." 18 Do you remember this and what "Horizon polling 19 problems" refers to? 20 A. Truthfully, not fully, but it was -- I perceived at the 21 time it was a system glitch, and that we were, as it 22 said when I was reporting it, that we weren't fully 23 appraised of what it was and we felt that we were, as 24 that says, being kept in the dark. 25 Q. Do you feel like you took adequate steps to rectify this 93 1 problem? 2 A. Yeah, I think we always, as I keep saying, we always 3 represented them to Post Office Limited. We had to take 4 their answers that they were dealing with them, and you 5 would be further pushing Post Office Limited to find out 6 the individual answers, and they were obviously working 7 with ICL Pathway, or whomever they were dealing with, to 8 try to resolve each of these issues. 9 Q. Lastly, could we go to March 2001, the document is 10 NFSP00000513. Thank you. 11 You can see there that it's a report of the National 12 Executive Council meeting, and if we could turn to 13 page 15. Again, picking up the Horizon polling 14 problems, which, I think you mentioned a moment ago, you 15 thought were you systems glitch: 16 "Mr Peberdy reported that these problems are still 17 being highlighted and just recently had been circulated 18 and reported on the problems in organising meetings with 19 the business but now monthly meetings had been scheduled 20 and there was a meeting on 26th February 2001 which 21 could be seen from the action points. There were 28 22 items that required action, some of them the business 23 still had to come back to them on." 24 Did you find it frustrating dealing with POCL with 25 these kinds of issues? 94 1 A. Very much so, it was such a major part of what Colin 2 Baker had to spend his time on, and I did, and, as 3 I said earlier, it's always in the back of my mind 4 worried me that, if it was something that was going 5 wrong, the Post Office weren't having to foot the bill 6 because if this result in error, it was a subpostmaster 7 who was left putting his hand in his pocket. 8 Q. Yes, and looking at the next paragraph it says: 9 "Amongst it one was to set up the two-day meeting, 10 a separate meeting on Losses and Gains Policy, 11 a separate group to bring in the Horizon problems. 12 There had been stories about the problems that had been 13 created by Horizon shortages, Horizon was not doing 14 things, the problem with losses having to be made good 15 immediately, and all the things about Suspense Accounts. 16 He reported that he wanted the group to examine this. 17 He had been led to understand there was £10 million in 18 suspense accounts now, as opposed to £2 million 19 18 months ago. Another feature of the system was that 20 it highlighted everything." 21 Were you concerned about the amount in the suspense 22 accounts? 23 A. Yes. 24 Q. Why? 25 A. Well, obviously, as that actually says, there was such 95 1 a massive increase, at that time, if the subpostmaster 2 had a shortage, or a gain, he could ask for it to be put 3 into a suspense account. And the system had -- the 4 Horizon System had an ability to do that. Obviously, 5 these amounts had therefore escalated to the level that 6 we were talking about there. 7 Hence, we wanted the -- that being the Federation -- 8 a meeting with the Post Office to establish a new losses 9 and gains policy because, of course, they were now 10 rapidly trying to get subpostmasters to make these good, 11 stop them being in the suspense account for so long and, 12 obviously, they wanted to reduce the amount of money 13 that they saw as owed to them, and we were concerned 14 that those subpostmasters didn't sufficiently know 15 enough about how those shortages came about to just ask 16 them to immediately pay it. 17 And, as I've said more than once, you know, this was 18 Post Office Counters having their money back and 19 subpostmasters having to pay. I had many reports from 20 subpostmasters to me that (a) they either couldn't 21 afford to repay these amounts, didn't know how they 22 become short, and were obviously very worried about it. 23 There were offices that had a very good balancing 24 recorded while they were doing manual transactions, and 25 now were having losses, which they had not previously 96 1 experienced until they had an automated system. So it 2 couldn't all have been down to somebody failing to put 3 a transaction through, somebody failing to keep 4 a document that they needed for their balancing. So 5 there must have been more behind it. 6 MS KENNEDY: Chair, I don't have any further questions. 7 SIR WYN WILLIAMS: Just so that I'm not getting things 8 wrong, that -- if that document could be put up again, 9 please, on the page you were last at. You see the 10 reference, Mr Peberdy, to £10 million at that point, 11 March 2001 and £2 million 18 months previously, yeah? 12 Well, we will see it when it comes back. 13 Anyway, I think this is right, but please correct me 14 if I'm wrong. Effectively, over the period of the 15 rollout -- because it started late '99, yes -- 16 A. Yes. 17 Q. -- this figure had jumped from 2 million to 10 million; 18 is that it? 19 A. Correct. 20 SIR WYN WILLIAMS: Yes. Do I take it that, even in the 21 paper days, there was some money in the suspense 22 accounts? 23 A. Yes. 24 SIR WYN WILLIAMS: From your just general recollection, in 25 the paper days, had it ever reached anything like 97 1 £10 million? 2 A. From what I can remember, no, and until -- they were 3 smaller amounts and this was a massive escalation, hence 4 I felt it necessary to report it at that stage to the 5 Executive Council. 6 SIR WYN WILLIAMS: Sure. Thank you. I just wanted to be 7 sure I'd got it correct. 8 Anybody else any questions? 9 MR STEIN: Sir, yes, briefly. 10 Questioned by MR STEIN 11 MR STEIN: Mr Peberdy, can we stay with the document you've 12 just been asked questions about, which is NFSP00000513. 13 Can we have that on screen and, this time, please, go to 14 page 16 -- that's Relatively number 16, internal 15 pagination of the document pages 14 and 15. 16 I am going to take you to a particular part which is 17 reference to Mr Cyril Jones, which is the third 18 paragraph on that page. Thank you very much. 19 Now, I'll ask you about the terms used in a minute, 20 but this sets out: 21 "Mr Cyril Jones said that there had been a meeting 22 with a HORN and this problem had been brought up. He 23 had been very concerned about this problem causing 24 problems in the appeals area and forcing unnecessary 25 appeals. Security went in at some point and made 98 1 a recommendation that the subpostmaster was responsible 2 for the entire loss. That was then sent off to the RNM, 3 because the final decision as to whether to ask for that 4 entire amount. In most cases the RNM took the report as 5 verbatim which was causing a lot of problems." 6 So let's just explain couple of those terms. First 7 of all, HORN, H-O-R-N? 8 A. Head of Retail Network, from my recollection. 9 Q. Thank you. Now "security went in at some point". Who 10 are you referring to there -- sorry, who is Mr Jones 11 referring to there? 12 A. I presume, in that, that he is probably talking about 13 the audit team. 14 Q. Thank you, and then lastly "RNM"? 15 A. Retail Network Manager. 16 Q. Okay. Thank you for the assistance in explaining the 17 terms. Does this particular paragraph and the point 18 being raised by Mr Jones tell us that what was going on 19 was that, all too often, the assumption was made that 20 the subpostmaster was responsible for the entire loss? 21 A. Correct. 22 Q. And that the RNM, with your explanation, took the 23 report -- the report, presumably, report of losses -- as 24 verbatim, which was causing a lot of problems? 25 A. Yes. I think if you wanted a little more explanation, 99 1 these were the cases that -- I mean, I presume you know 2 how these things come about when an audit team turns up 3 in an office and the office becomes short. A lot of 4 subpostmasters were very fearful of this and fearful 5 that if the office were short, they might lose their 6 office or, as subsequently happened, and we all know now 7 with hindsight, many were prosecuted. 8 Q. Yes, and I think then, if we can go to a part of this 9 that has your reference, I believe it's over the next 10 page. Yes, the fourth paragraph down, starting with 11 Mr Peberdy, if we can highlight that, please, and put 12 it -- enlarge it on the screen then highlight, please. 13 Yes. 14 "Mr Peberdy said that they had just sent a very 15 strong signal to Mike Granville that because of the 16 financial plight of the business they were playing a lot 17 harder ball over losses and sticking everything they 18 could onto the subpostmaster. There was pressure on the 19 business, end of the financial year." 20 Now again, let's unwrap that. Mike Granville? 21 A. One of the senior Post Office managers at the time. 22 Q. Thank you. The reference here to the "financial plight 23 of the business", which business are you referring to? 24 A. Post Office Counters Limited. 25 Q. Okay. So: 100 1 "Mr Peberdy said that sent a very strong signal to 2 Mike Granville because of the financial plight of the 3 business [which is the Post Office] that they were 4 playing a lot harder ball over losses ..." 5 What did you mean by therefore, "sticking everything 6 they could on to the subpostmaster"? 7 A. Right, in that particular reference, we're still 8 probably rounding up talking about losses, and this 9 amount that was sitting in the suspense accounts, that 10 Post Office Counters Limited obviously perceived was due 11 to them from the subpostmaster, and their financial year 12 end and the state of Post Office accounts, with a large 13 amount sticking in suspense accounts, wasn't, in my 14 view, looking good for them and, therefore, they wanted 15 to get this money in, and were taking a lot harder line. 16 We did have situations where the Post Office, on 17 representations probably from Federation 18 representatives, would agree to some of these losses, 19 which subpostmasters in many cases just had to accept, 20 and they didn't know whether they were right or wrong, 21 could be spread over a period of time, and we did have 22 an agreement of them that -- I can't remember the length 23 of period -- that the losses could be kept in the 24 suspense account for a period of time. 25 The reason behind that was for them -- the business 101 1 hopefully to examine and see if documentation came 2 forward or anything else came forward that proved that 3 loss. I'll give you a very simplistic example that 4 might have been the subpostmaster's fault, that 5 a subpostmaster, amongst a multiple transaction, hadn't 6 charged a customer for something like, I don't know, 7 a book of stamps. That customer might have come back 8 the next week and said, "By the way you didn't charge me 9 for these last week". Simplistically, it was a small 10 amount, but hence the suspense account was there for 11 those reasons. 12 But at that time and at this stage that this minute 13 is recording, is that Post Office were definitely taking 14 a stronger view as to getting that money back into their 15 coffers and the subpostmasters having to pay. 16 Q. You allied that to the fact that the business, which is 17 the Post Office, was having financial difficulties? 18 A. Well, I'm not quite sure I was quite saying -- I was 19 saying there was pressure on their business. Nobody 20 likes a business that is losing masses of money, 21 especially as it's partially owned by the Government, 22 and so, therefore, they would be keen, as a lot of 23 businesses probably would, not to have a big suspense 24 accountant sitting in their balance sheet. 25 MR STEIN: Such was your view, that you put it this way, 102 1 "sticking everything they could onto the subpostmaster". 2 Mr Peberdy, we do have some further questions, but 3 they are for a later stage in the Inquiry. We have been 4 assured that you and, indeed, Mr Baker will be returning 5 to the witness stand or table at a later point in the 6 Inquiry. 7 A. I'm very happy to do so. 8 SIR WYN WILLIAMS: Yes, please. 9 Questioned by MR MOLONEY 10 MR MOLONEY: Mr Peberdy, I'd just like to ask you about two 11 more documents, if I may, please. 12 A. Certainly. 13 Q. The first is reference NFSP00000540. We can see on the 14 page here that this is the minutes of the National 15 Executive Council meeting held on 4 and 5 June 2001, and 16 if we went to the next page, we'd be able to see that 17 you were present at this meeting. Thank you. Could we 18 please go to page 14 of this document, because as you 19 said, as it's coming up, the continuing question of the 20 reliability -- so it's 14 of the document -- that's my 21 fault. 22 The continuing question of the reliability of 23 Horizon and counter automation was effectively 24 a standing item, so far as Executive Council meetings 25 were concerned around this time. 103 1 Could I ask that paragraph 6 there is -- thank you. 2 "Mrs Reeves reported that at the beginning of the 3 automation of Horizon, an office was allowed to work 4 manually and input later ..." 5 That talks about the system going down, and the 6 chairman saying that he didn't know the answer: 7 "Mrs Jenkins stated that the problems experienced 8 with Horizon were raised at Conference", and it may be 9 that we've seen the minutes of that conference already: 10 "It was promised on the platform that there would be 11 a national forum to look at the problem. Were we anyway 12 nearer to getting this set up and how was it going to 13 work?" 14 Then, if we could go over the page, please. 15 "The Chairman said that they should have a user 16 group, a national forum, to deal with Horizon errors and 17 problems with the system. It was an action point from 18 26 February." 19 May I ask you, Mr Peberdy, was there ever 20 a meeting -- or, firstly, was there ever a meeting of 21 a national forum in that way? 22 A. Not that I can recall, unless we were actually -- I'm 23 not sure whether this was prior to the Horizon Working 24 Group or after the Horizon Working Group. 25 Q. This is June 2001. 104 1 A. And the Horizon Working Group would have been in place 2 by then. 3 Q. Yes. 4 A. Yes. 5 Q. So, just in terms of what that national forum might have 6 looked like, would it have been an invitation to all 7 subpostmasters to come along and express their 8 experiences, relate their experiences to the problems 9 that they might be experiencing with Horizon? 10 A. I'm not quite sure what the chairman directly was 11 meaning about it, by a user group. The sort of thing 12 that we would have, as a Federation, tried to do in 13 those sort of instances was either have had a special 14 conference, when we would have called delegates, because 15 we couldn't invite everybody there -- if I can just sort 16 take you back, we were -- the Federation was structured 17 in such a way that we that Executive Officers in the 18 regions of the country, branch secretaries beneath those 19 Executive Officers in the individual branches and, 20 obviously, subpostmasters went to meetings. 21 I do have to also flag up, of course, unfortunately 22 not all subpostmasters were members of the Federation, 23 and there were some who didn't want to upset the Post 24 Office, so we didn't always get the full feedback from 25 them. But that would have alluded to we wanted to find 105 1 some means, and I've got a feeling that subsequently to 2 that, at the next Executive Council meeting, part of it 3 we asked these Executive Officers to bring any instances 4 that they'd got or to sent them into Shoreham so that we 5 could represent them directly to the Post Office. 6 Q. Right. 7 A. Sorry I can't be more explicit than that. 8 Q. No, but it may assist your memory to, as you suggest, 9 move to the minutes of the next meeting, which are at 10 NFSP00000501, and this is the minutes of the National 11 Executive for July 2001. 12 A. Yes. 13 Q. If we could please go to, it's internal page 18 of this 14 document. Thank you. If we could highlight the section 15 at the bottom under "Horizon". We see that the Chairman 16 reported that the Negotiating Committee had visited 17 Dearne Valley: 18 "It had been agreed that a subcommittee will be 19 formed to solve some of the major Horizon issues. Don 20 Grey had suggested meeting once every four months in 21 either Dearne Valley or London. Attendees from Post 22 Office Network were to be Don Grey, Mark Haynes, Julian 23 White and Liz Tuddenham and from the NFSP Colin Baker, 24 John Peberdy and Jean Kendall. The initial meeting is 25 scheduled for October. They were continuing to progress 106 1 the eye test issue, which was in the action points under 2 the overview of meetings." 3 Do you remember whether or not there were meetings 4 of that Horizon subcommittee? 5 A. Yeah, I think that, drawing my attention back to it, 6 I believe that Dearne Valley was the Horizon Helpdesk, 7 and yes, we did have meetings there because we were 8 anxious to see what was coming into the Helpdesk what 9 sort of questions were coming in, and how they were 10 dealing with them and how they were helping 11 subpostmasters to resolve those issues. 12 Q. If we could go on to the next paragraph please to this 13 document, to see what Mrs Bethell says: 14 "Mrs Bethell said that she had three items to raise 15 under this section. The first was a request for 16 a progress report on barcoded hand pouches as a number 17 of pouches were still going missing. Mr Davis replied 18 that he had not been advised when barcoding of pouches 19 was to start but he would endeavour to find out. 20 "The second was about the Benefits Agency linked to 21 Horizon. Mrs Bethell was receiving a number of 22 complaints from subpostmasters who were having letters 23 from the Benefits Agency accusing them of paying out on 24 books which had been impounded. 25 "Subpostmasters had acted on the instructions on the 107 1 system and the Benefits Agency did not believe them. It 2 was going on subpostmasters files that they were paying 3 on impounded books, although it had been agreed back in 4 the week 5 of 2000 that there was a problem with the 5 system. This information would remain on 6 subpostmasters' files despite requests that it be 7 removed. It had been suggested that there should be 8 a printout when a book was impounded. It could then be 9 proved that the subpostmaster had done as the system 10 instructed." 11 Did you ever become aware of subpostmasters being 12 prosecuted for what might be described as are you 13 introduction fraud of introducing giros, benefit slips, 14 into the system when a book had been impounded? 15 A. I wasn't aware of them being prosecuted for it. The 16 system did ask subpostmasters to impound the book when 17 the barcode was read. If that book had been withdrawn 18 for some reasons. 19 I was not aware -- I can see what Mrs Bethell said, 20 who was in Liverpool and a representative of the 21 northwest, and that she represented an area of very -- 22 as she told us at the Executive Council meetings, very 23 high numbers of giros being encashed at pub post 24 offices, hence her desire for the barcoded pouches, by 25 the way, and that there obviously were instances in the 108 1 northwest where the books had been stopped by the 2 Benefits Agency and probably a giro paid because if 3 people couldn't manage or all sorts of various reasons. 4 But I wasn't aware that then subpostmasters were 5 fraudulently paying those benefits. 6 MR MOLONEY: Thank you very much, Mr Peberdy. That's all 7 I ask. 8 SIR WYN WILLIAMS: Thank you. Is that it? 9 MS KENNEDY: Chair, I think that's it. 10 SIR WYN WILLIAMS: Thank you very much for your witness 11 statement and for coming to give oral evidence. 12 A. Thank you, Mr Chairman. It's been my pleasure. I hope 13 I can help the Inquiry in the future. 14 SIR WYN WILLIAMS: Thank you. 15 So I think that completes what I will call the 16 scheduled witnesses to date on Phase 2. 17 I say to date, because you never know, do you? So 18 that leaves two oral submissions this afternoon; is that 19 correct? 20 MR STEIN: Sir, yes. 21 SIR WYN WILLIAMS: I laid down the guidelines, and I take it 22 you're both happy to be within those guidelines? 23 MR STEIN: Yes. 24 SIR WYN WILLIAMS: Thank you. See you at 2.15, it's now 25 nearly quarter past. 109 1 MR STEIN: Sir, yes. From my part, and I've spoken to my 2 learned friend about this, I think I'll be about half 3 an hour, so well within the guidelines. Is there 4 a stopping time today, though? We were told you may 5 wish to stop at 3.00. 6 SIR WYN WILLIAMS: Well, there's no official stopping time, 7 in the sense we that have to finish at 3.00. The 8 difficulty is that I want to have a meeting with my 9 team, who are considering how to handle next Thursday, 10 in the lunch break, rather than after we finish this 11 afternoon. But I'm quite happy to try to do that by 12 2.00, and then if you are half an hour and if Mr Moloney 13 is much the same, we won't be far off 3.00. 14 MR MOLONEY: Sir, if you find that it's too much of a rush 15 to finish by 2.00 then I think I can abridge my 16 submissions without doing any injustice to you. 17 SIR WYN WILLIAMS: No, don't worry. Let's say 2.00 and 18 I will, I'm sure, be briefed sufficiently about Thursday 19 by then, and we will hear you between 2.00 and 3.00, he 20 says, optimistically. 21 MR STEIN: Thank you. 22 (1.13 pm) 23 (The Short Adjournment) 24 (2.05 pm) 25 SIR WYN WILLIAMS: Apologies for the slight delay. Who is 110 1 going first? 2 MR STEIN: Sir, I think it is me. 3 SIR WYN WILLIAMS: Right. 4 Submissions by MR STEIN 5 MR STEIN: Sir, first of all, we are, of course, grateful 6 for this opportunity to make oral submissions at the 7 close of Phase 2 of this Inquiry. To frame these 8 submissions, these are not our final position on the 9 evidence, but it's our attempt to assist the Inquiry 10 with its examination of evidence within the future 11 phases as we go forward. 12 The Inquiry will have to decide whether what we've 13 heard in Phase 2 is as a result of cock-up or cook-up. 14 If cock-up, an archery term, sir, then it is the result 15 of a serious failure to care about the fitness for 16 purpose of the Horizon System and speaks of contempt for 17 our subpostmasters. 18 Worse than that, if that could be possible, is 19 cook-up, meaning that once the imperfections of the 20 Horizon System were known within the Post Office and 21 Fujitsu, both contracting parties were left with a less 22 than satisfactory Horizon system but, nevertheless, 23 decided to carry on in the pretence that the system was 24 adequate for branch use and also capable of providing 25 evidence, reliable evidence, sufficient to blame 111 1 subpostmasters for shortfalls, to support 2 investigations, to deal with civil actions and 3 prosecutions. 4 The problems within the Horizon system are not 5 limited to the bugs within the software examined by 6 Mr Justice Fraser, but also hardware installation, 7 environmental interference in Horizon internal 8 communication, disconnection and reconnection, bad 9 training, bad scripts and bad advice from the unhelpful 10 desk. 11 The evidence within Phase 2 has highlighted 12 particular themes, and we say these are significant. 13 First of all, the inappropriateness of the Private 14 Finance Initiative in the procurement of Horizon. 15 What guidance, protocols and systems were in place 16 to support the use of the Horizon System for making 17 claims against subpostmasters with shortfalls or taking 18 action against them in the civil courts, or for 19 investigations and prosecutions. 20 What was the extent of knowledge within Pathway of 21 the inadequacies in the Horizon System? Who knew what 22 and when? And so far, sir, fairly obviously, we've 23 heard evidence from managers and more senior individuals 24 and we anticipate later on that we'll be hearing 25 evidence from people working within the organisation. 112 1 How far did that filter through? 2 The same question: the extent of knowledge within 3 POCL, of the inadequacies in the Horizon System. How 4 far was that knowledge of the difficulties with the 5 system, it's problems, fed through to those people 6 working day-to-day within POCL? 7 Finally, we asked the Inquiry to consider and 8 consider what the effect of this is, the decision taken 9 by POCL to design out the ability of subpostmasters to 10 interrogate the system. 11 The reason why we asked the Inquiry to keep these 12 themes in mind as we go forward within this Inquiry is 13 because we suggest that we are going to need to consider 14 what evidence there is, which may demonstrate that 15 a cover-up did not start after Simon Clarke blew the 16 gaff on Mr Jenkins within the Post Office, but much 17 earlier. 18 The evidence in Phase 2 confirms that Horizon was 19 never capable of supporting criminal or civil actions 20 against subpostmasters and, sir, as you're aware, we've 21 been pursuing this particular track in the questions 22 that we've been putting to witnesses. There's been 23 considerable mention of section 69 of the Police and 24 Criminal Evidence Act, which dealt with the 25 admissibility of computer-based evidence, which, for the 113 1 time when it was in force, meant that such evidence was 2 subject to requirement for a party wishing to rely on 3 such evidence to demonstrate that the computer had been 4 operated properly and that it worked properly, and that 5 this has been referred to as a certificate. 6 Going back a little bit further in time, in 1995 the 7 Law Commission held a consultation on proposals to get 8 rid of the section 69 safeguard and introduce 9 a presumption that a computer system has operated 10 correctly unless there is explicit evidence to the 11 contrary. 12 POCL actively supported the proposal to get rid of 13 that particular safeguard and argued in written 14 representations, dated 31 July 1995, that the safeguard 15 in section 69 was too strict and had the effect often 16 hampering prosecutions. 17 These submissions were made by the head of Post 18 Office Limited Criminal Law Division, Ms Churchard, and 19 they were made to the Law Commission on 31 July 1995. 20 Sir, this is material that we provided to the Inquiry. 21 As yet, as far as I know, we don't yet have a Relativity 22 reference for it. 23 The submissions, though, made by Ms Churchard were 24 briefly as follows: 25 "In practice the operation of section 69 of the 1984 114 1 Act is somewhat onerous from a prosecution viewpoint. 2 I consider that computer evidence is, in principle, no 3 different from any other sort of evidence and it should, 4 in general terms, be admissible so that any argument in 5 court would relate to its weight rather than its 6 admissibility. I therefore consider that there should 7 be a presumption that the machine is in working order, 8 etc, and if the defence wish to argue otherwise then 9 clearly they should be able to do so." 10 She finished: 11 "At present, I therefore consider the evidential 12 requirements to be far too strict and can hamper 13 prosecutions." 14 Now, that was a written submission in made in 15 July 1995. We need to therefore bring things a little 16 bit further up to date within the time period of matters 17 that we've been dealing with. 18 I'm going to take you to a document that should be 19 able to go on the screen, which is FUJ00058182. Now, 20 this is the monthly progress report, and I'm going to 21 take you to the part that deals with -- under security 22 system, and it is the sixth bullet point. If that, 23 Paul, can be put on the screen, and if you could bring 24 out the "Discussions took place", the sixth bullet 25 point, starting with "Discussions took place", and 115 1 highlight that. Thank you. 2 So this is dated, on the face of the first page of 3 the document, it's May 1999, the internal pagination is 4 also headed 14 June 1999. So it's issued roughly in the 5 middle of 1999: 6 "Discussions took place with POCL investigations and 7 legal staff to progress the provision of section 69 PACE 8 certificates. POCL are clearly anticipating 9 a comprehensive fraud and prosecution support service 10 from ICL Pathway. We have made it clear that this is 11 not in the core contract. It represents an opportunity 12 for a non-core service." 13 Now, quite putting aside for a moment that ICL, 14 operating as a private company, is wishing to make more 15 money out of providing an extra service, the point that 16 we are referring to here is that, at this stage, in the 17 middle of 1999, it is clear that there were discussions 18 between POCL and ICL in order to provide a system that 19 would support. 20 We know that by July 1999, the document that we've 21 seen now a number of times, which is the codified 22 contractual agreement reached between POCL and 23 ICL Pathway, the clause that -- we don't need to put it 24 on screen, sir, you're very familiar with it, 25 clause 4.1.8, which is the clause within the codified 116 1 contract that sets out that: 2 "The contractor shall ensure that all relevant 3 information produced by the POCL service infrastructure 4 at the request of POCL shall be evidentially permissible 5 and capable of certification." 6 Sir, we know as we go through these dates in 1999, 7 by May 1999 the monthly progress report is stressing 8 that there needs to be a system, there's discussion 9 about that and how that system will operate. By 10 July 1999, the section 69 contractual requirement was 11 embedded within the codified agreement. So we know that 12 POCL and Pathway were tracking the investigation and 13 prosecution issue. 14 Now, as a matter of fact, section 69 was repealed on 15 14 April 2000. A subsequent version of the contract 16 dated 2002, whose reference is FUJ00000074, was amended 17 to remove the section 69 references and so, at 18 an earlier stage in questions that we asked, we showed 19 that particular document. 20 Sir, at the moment, as far as we're aware, we have 21 the codified agreement and then the contract dated 2002. 22 Now that's subject to later disclosure. 23 We can see, therefore, that this question of 24 evidential admissibility in relation to prosecutions was 25 a matter that was under discussion between the parties 117 1 over a considerable period of time. 2 Now, it was the view of Pathway that POCL ought 3 reasonably to have known about the problems in the 4 system. Mr Oppenheim told the Inquiry in his evidence 5 that he had always assumed that any request made by Post 6 Office for data to support a prosecution would be a rare 7 thing. He said that there was a general understanding 8 between all the technical and commercial people that 9 there would be occasional errors. 10 He said that everyone knew that there would be 11 mismatches and that he presumption was that the Post 12 Office would, certainly at the outset, give 13 subpostmasters the benefit of the doubt. You'll recall 14 his evidence, which was given on 26 October, page 48 of 15 the transcript. 16 Sir, we have heard also from Mr Johnson, who said in 17 his evidence very recently that he expected or made 18 an assumption, as he put it -- he made an assumption -- 19 that there would be a break, a period of time whereby 20 the system wouldn't be used to support prosecutions. 21 Perhaps a shakedown period or something similar to that. 22 Yet there is, in fact, no evidence of subpostmasters 23 being given the benefit of the doubt. We know that 24 because of Ms Lock, a 25-year subpostmaster veteran, by 25 the time of the installation of the Horizon System, who 118 1 began to see inexplicable shortfalls in January 2000, 2 investigated in mid-20000 and prosecuted in 2001. There 3 was no pause, there was no break, there was no "Let's 4 see how this shakes down". 5 The reality was that POCL were in a Catch-22 6 position of their own making. Having automated the 7 accounting system in branches, they could no longer 8 bring a prosecution or civil action or, indeed, question 9 a shortfall without relying on Horizon the whole source 10 of evidence. But equally, there is evidence that they 11 knew that Horizon was not up to the task and could never 12 attain what Andrew Simpkins told the Inquiry on 13 3 November amounted to the very high bar if it was to 14 perform that function. 15 Sir, you'll recall Mr Simpkins in the witness box, 16 when he was asked that question -- I think it was by 17 myself -- that he described that physically as well and 18 he put his hand up in the air to say that the bar was up 19 here. If you wanted the system to work to that level of 20 functionality, then it would be a very different thing 21 indeed. That's transcript 3 November, page 116. 22 There is evidence, we suggest, which at the very 23 least is suggestive of suppression of these issues 24 within POCL. John Roberts, a former managing director 25 of POL, when giving evidence on 20 October, told the 119 1 Inquiry that the issue of prosecutions was never raised 2 in discussion at senior management or at board level. 3 We also heard that the matter of prosecutions were 4 dealt with by the internal solicitors department at the 5 Post Office, who reported, I think it was, to Mr Roberts 6 himself. 7 We urge the Inquiry to ensure that members of the 8 legal team within the Post Office are called to give 9 evidence in the appropriate phases in this Inquiry in 10 the future, and that will include references that we 11 have had to Mr Christou and Ms Churchard. 12 Now the extent of knowledge within Pathway of the 13 inadequacies in the Horizon System needs some short 14 examination. Pathway certainly knew that the Horizon 15 System was not capable, we suggest, of supporting 16 a civil or criminal claim against subpostmasters, let 17 alone justifying countless suspensions, dismissals, 18 menacing demands for repayments in respect of so-called 19 monies that the Post Office said was missing. 20 Jeremy Folkes, a former infrastructure assurance 21 team leader at POCL, gave evidence on 2 November and 22 confirmed Pathway's attitude. He said, as regard 23 acceptance issues, that Pathway were more interested in 24 talking down severity of acceptance issues rather than 25 actually trying to engage to resolve issues. He 120 1 referred to a war of attrition and stated that Pathway 2 had a massive incentive to avoid any acceptance issue 3 being classified as a category 1 issue, which he 4 described as a "showstopper". 5 The scale of the problem and Pathway's knowledge of 6 it was explained in the evidence of Mr David McDonnell, 7 a former development manager at ICL, who gave evidence 8 on 16 November. His evidence is important, not the 9 least because his evidence was untroubled and 10 uncontested by any oral questions from Fujitsu or the 11 Post Office. 12 We imagine that Mr Justice Fraser in the civil 13 claims and the hearings that he dealt with, and the 14 Court of Appeal in the criminal appeals, will have been 15 very interested in what he had to say. Is the reason 16 that Mr McDonnell's report and his evidence was not 17 disclosed within the High Court litigation, that Fujitsu 18 was not a party to the proceedings, and is this 19 a consequence of the PFI nature of the contract and its 20 consequential "black box"? 21 Mr McDonnell confirmed, joining ICL just after, 22 I think, I recall, Easter 1998, that it became obvious 23 to him that, of the team of eight developers at Pathway, 24 four were not capable of producing professional code, 25 that there were no development standards or methodology, 121 1 some of the design specification documents were reverse 2 engineered, written to reflect code -- pre-existing 3 code. Incredibly there was no overall design 4 specification, and many documents served no function 5 other than to satisfy an audit for the purpose of 6 meeting acceptance criteria. 7 Furthermore, he said that basic steps such as coding 8 standards document and peer reviews were absent, neither 9 were there any unit testing standards, so it was not 10 possible to test the code. Mr McDonnell said that the 11 constant high level of PinICLs being raised daily and 12 the fact that a number of these were not diminishing and 13 were becoming more complex led him to conclude that the 14 quality of the code was not right. Transcript, 15 16 November, page 19. 16 Now, these concerns led to the taskforce initiative 17 between August and September 1998 and the joint report 18 produced by Mr McDonnell and Mr Holmes. 19 Significantly, Mr McDonald said that the code was so 20 bad that he'd never seen anything like it in the 25 to 21 30 years since his involvement in the Horizon project. 22 The effect of this was that the need for constant 23 rewriting of bad or unreachable code would cause code 24 decay, leading to the whole product becoming unstable. 25 Furthermore, Mr McDonnell confirmed that the EPOSS 122 1 product was developed using Rapid Application 2 Development, RAD, directly from the prototype, a process 3 which was fatal in a large project with several 4 integrations. Mr Beer, King's Counsel, described this 5 as building on balsa wood. Transcript, 16 November, 6 page 59. 7 Despite Mr McDonnell and Mr Holmes' conclusions, 8 their report was not accepted by Mr Austin, the 9 programme director, and was disregarded by Mr Jenkins, 10 the senior Fujitsu architect, who was much later the 11 subject of the Simon Clarke Advices, criticism by 12 Mr Justice Fraser and, we understand, an ongoing 13 Metropolitan Police Service investigation. 14 Shortly after the publication and distribution of 15 the taskforce report, Mr McDonnell was offered 16 a promotion. He said he would only accept that 17 promotion if the Horizon cash account code was 18 rewritten. ICL would not do that and Mr McDonnell was 19 moved sideways, perhaps conveniently. 20 Mr Cipione commented on the taskforce report in his 21 second appearance before you on 17 November. Mr Cipione 22 described how disturbing it was to read that there was 23 no design for the EPOS system, or the Horizon System, 24 and considering where a lot of PinICLs and PEAK errors 25 were, the lack of design specifically led to the 123 1 in-balance issues. Put simply, he said, "If you're not 2 going to design something properly, it's not going to. 3 If you don't have a good design it's not going to work 4 properly". 5 In his report, Mr Cipione had not been aware that 6 the EPOS system had been developed using rapid 7 application development, as that had come out during the 8 evidence of Mr McDonnell. When this matter was put to 9 him on 17 November, Mr Cipione articulated further 10 concerns as to the integrity of the Horizon product. He 11 said: 12 "RAD almost means no plan, other than 'I think 13 I know what the goal is, and I'm going to get to that 14 goal as fast as I possibly can'. And there's good 15 situations where that's needed but this is not the right 16 situation for that. You need to do everything in a very 17 methodical almost militaristic way, to make sure 18 everything works properly together. Because I think 19 I mentioned before, there are so many moving pieces, 20 this has to be highly coordinated. RAD is the other end 21 of the spectrum. It is not highly coordinated or it 22 doesn't support co-ordination amongst big teams because 23 that's not the purpose of RAD. RAD is get it done 24 quick. Get it done, get a little bit done quick." 25 17 November, page 153. 124 1 Mr Cipione commented on some of the examples that 2 had been given by Mr McDonnell, stating this is 3 "Terrible code, this has to be a joke". In relation to 4 another, he said, "It's just not the right structure. 5 It indicates to me that they don't understand what those 6 particular structures are and, just take my word for it, 7 they don't understand what the structures are". 8 Pathway had been alerted to the growing shortcomings 9 but we suggest suppressed this information and pushed 10 for acceptance. Through the evidence in the forthcoming 11 phases, we need to understand who knew within POCL of 12 the Horizon System's shortcomings and how that knowledge 13 was employed when hounding subpostmasters for 14 shortfalls, investigating them, or prosecuting them. 15 Our clients have urged me to submit that any 16 protestations by the Post Office to the effect that they 17 were misled by Pathway should be rejected. The Post 18 Office are just as culpable as ICL Pathway and Fujitsu, 19 if not more, because they have a direct duty of care 20 and, morally, the hundreds of years of service provided 21 by subpostmasters, since the foundation of the Royal 22 Mail should have underlined the need for them to make 23 sure that the system worked and was functional. 24 So far, what we have seen is a lack of governance, 25 lack of oversight and lack of regulation by the post 125 1 office and we suggest that is indefensible. 2 So the question that my clients would particularly 3 like me to pursue is in one, in fact, you raised on 4 3 November when referring to Mr Folkes's evidence, and 5 it relates to paragraph 207 of Mr Folkes's witness 6 statement. He said there -- and I think it's actually 7 between paragraphs 206 and 207. Mr Folkes said: 8 "Given the problems in 1999 from acceptance and 9 throughout the project, I believe clearly that the 10 system and Pathway had some significant way to go to 11 gain confidence. To a degree in 1999 this was a classic 12 'Don't start from here' situation. It is very difficult 13 to retrofit quality to an IT system, and it would appear 14 from our experience that Pathway had applied a fix on 15 fail approach to some areas, eg EPOSS, with many fixes 16 being applied in 1999 to get it through acceptance. 17 "This was not an ideal basis from which to move 18 forward [he went on to say at paragraph 207] and it 19 would have been appropriate to apply some healthy 20 scepticism to the operation of the system over the first 21 few years." 22 He said this: 23 "I think a key question for the Inquiry to ask is 24 what gave POCL such confidence in Horizon to start using 25 it for prosecutions of subpostmasters, especially after 126 1 the rather checkered history of the system from 1996 to 2 2000 and, in particular, the experiences of 1999." 3 It can't have escaped the Inquiry's notice that, 4 even a short mental chronology of the history of this 5 man's that there was a hurtling towards "Get this thing 6 going, get it going, get it out there". 7 For these reasons, sir, we say the Inquiry must dig 8 deep into the investigation and prosecution processes. 9 The evidence in Phase 2 of the Inquiry has laid a very 10 solid foundation for this exercise to be undertaken. 11 Mr Jeram, the head of digital systems platform unit 12 at Fujitsu gave evidence on 10 November and confirmed 13 that Post Office took a decision which he says was not 14 taken quickly, that there was to be no paper cash 15 account. Mr Jeram agreed that the effect of this 16 decision was that subpostmasters were prevented from 17 interrogating the system and checking their records 18 against allegations of shortfalls. 19 He also agreed that the ability of subpostmasters to 20 check their records was deliberately designed out of the 21 Horizon System. Transcript, 10 November, pages 141-142. 22 On behalf of our clients, we suggest that this shows 23 a degree of premeditation by POCL as POCL wanted to 24 ensure, through the design of the system, that 25 subpostmasters would be less able to examine the system, 127 1 it would undermine their ability to defend themselves 2 against demands for money when the system, as it did, 3 inevitably failed. 4 Mr Jeram says at paragraph 16 of his statement that 5 Post Office took the decision to dispense with the 6 paper-based system, and you know, sir, that this was 7 a very big issue for the subpostmasters, because 8 previously to the introduction of Horizon, they could go 9 back through their own records. After the introduction 10 of Horizon, they were not able to go through the same 11 exercise. 12 The inability of subpostmasters to interrogate the 13 Horizon system when faced with demands for sometimes 14 large amounts of money based on shortfalls caused our 15 clients to suffer from sustained high level anxiety and 16 a sense of utter and complete powerlessness. We ask how 17 that happened, how those decisions were made is fully 18 explored in the future phases of this Inquiry. 19 The PFI initiative. The evidence in Phase 2 has 20 largely -- well, not largely concerned, but has 21 concerned the procurement that went horribly wrong. 22 Mr Milburn in his evidence today, I think, at 23 something -- I chalked it up at 10.35, described PFI as 24 being a transfer of risk, and we need to understand how 25 this particular Private Finance Initiative worked in 128 1 this particular procurement process close what was 2 happening here was that a PFI agreement was setting up 3 by the system to be used by other businesses outside of 4 those contracting parties, and those were the small 5 businesses, the Post Office branches and they were the 6 people who, in fact, were subject to, as Mr Milburn put 7 it, the transfer of risk. 8 And they had no voice. They had no control and no 9 ability to object. 10 It was a consequence of this being initially 11 a Private Finance Initiative run and finance programme 12 and then it being a legacy of a Private Finance 13 Initiative was that the Post Office was not allowed to 14 see the high or low-level design of the Horizon system 15 and was required, instead, to trust Pathway to produce 16 acceptable outcomes. 17 We ask why no decision was made to reconsider, with 18 Fujitsu, the nature of the contract and the requirements 19 in relation to access. We agree with the position taken 20 by Mr Folkes in his evidence that PFI was not 21 a particularly appropriate way of getting a highly 22 complex, bespoke service. 23 The Horizon project demonstrates a failing of the 24 Horizon System generally. ICL were commercially 25 motivated and that then led them to put a positive spin 129 1 on the appalling failings of the system that they were 2 tasked with providing. They did not act -- and we 3 suggest it is possible to look at this -- that they did 4 not have to act in accordance win the any duty of 5 candour that one would expect of a public body or 6 a party to civil or criminal litigation. 7 They did not have a duty of care to the end users: 8 the separate businesses of the subpostmasters all around 9 the UK. 10 The Benefits Agency was a reluctant party from the 11 outset and we suggest that they could have acted better. 12 The Benefits Agency was opposed to the BPC system around 13 which Horizon was designed yet committed to a contract 14 nevertheless and engaged in a three-way antagonistic 15 relationship with the other parties. 16 You will recall that in his witness statement, 17 Mr Sibbick spoke in terms of a long-running sore between 18 BA and POCL. 19 The Horizon scheme was, in effect, a one-off, never 20 before tried, multimillion pound project of substantial 21 scale and complexity. It should never have been born as 22 a product of a marriage between three parties whose 23 objectives did not align, and in circumstances where one 24 party was contractually entitled to withhold information 25 from the others. And it should never have been born in 130 1 the circumstances whereby the party that was going to be 2 dealing with the matter and actually handling the system 3 was not, indeed, part of that three-way contractual 4 relationship. 5 After the Benefits Agency withdrew, the objective of 6 the Government, we suggest, was to avoid public scrutiny 7 and damage to international trade. We've no doubt, as 8 we've been through documents, that there was also the 9 drive to make sure the Post Office continued and that 10 there would be changes. 11 We suggest that there is little understanding about 12 the impact in those documents and the briefing documents 13 to the ministers of actually what this system would mean 14 to subpostmasters. The objective of POCL was to manage 15 its way out of the existential crisis caused by the loss 16 of Benefits Agency revenue and footfall, and the 17 objective of Pathway was to survive the huge financial 18 losses which it had suffered as a consequence of the 19 delays. 20 It was seemingly no one's objective to ensure that 21 the interests of subpostmasters, who were required to 22 operate the system on the ground, would be presented 23 with a product that was fit for purpose and with 24 adequate training and assistance. Instead, as described 25 by a witness to come in Phase 3, that's Bruce Mcniven, 131 1 who puts it this way: 2 "It was a leviathan, additionally encumbered by 3 contractual conditions and Government scrutiny." 4 Sir, I return very briefly to the five themes that 5 we've set out. The inappropriateness of the PFI 6 agreement for the procurement of Horizon. We must 7 pursue with vigour the question of what guidance, 8 protocols and systems were in place to support the use 9 of the Horizon system for civil claims, investigations 10 and prosecutions, as we've heard nothing from the senior 11 management as to any assistance being discussed with 12 them or set out for the use of the Horizon product 13 within such claims. 14 What was the depth of knowledge? How far did it go? 15 Were there problems within the system, within Pathway, 16 and then within POCL? 17 And how far there is an impact on those issues, with 18 the knowledge of system faults, was decision making 19 about such issues as the decision taken by POCL to 20 design out the ability of subpostmasters to interrogate 21 the system. 22 Collectively, the Phase 2 evidence may suggest that 23 Post Office was acting dishonestly to cover up the 24 issues and problems within the Horizon System, and that 25 may have occurred from a very early stage. 132 1 So for this reason and not the least so that we get 2 to the bottom of this particular matter, we ask that the 3 Inquiry continues to seek disclosure, scrutinise the 4 documents with us and understand whether what happened 5 to our clients was the result of a dreadful but 6 avoidable cock-up, or was this a more sinister cook-up, 7 to cover up the fact that the performance had bought 8 a system which was not fit for purpose and certainly not 9 fit to support the subpostmasters who were then being 10 asked to pay for Horizon system faults in terms of 11 alleged shortfalls and then take the consequences of 12 Horizon System faults in civil actions, or being taken 13 before the criminal courts, and some imprisoned. 14 Sir, we hope that by making focused closing 15 submissions, if allowed, at the end of phases, we will 16 enable the Inquiry to move forward with at least the 17 victim's viewpoints at the forefront of its future 18 examination of witnesses. 19 Sir I'm very grateful for having this time to 20 address you. 21 SIR WYN WILLIAMS: Thank you, Mr Stein. 22 MS PAGE: Sir, I wonder if we could very briefly put it on 23 record that we will be doing written submissions in 24 response to your permission? 25 SIR WYN WILLIAMS: Thank you. 133 1 MR MOLONEY: Thank you, sir. 2 Submissions by MR MOLONEY 3 MR MOLONEY: We too are very grateful for the opportunity to 4 make brief submissions at the close of Phase 2 hearings. 5 After so many hours of invaluable evidence, this 6 submissions will necessarily only lightly touch on 7 a very few areas of significance. 8 Full submissions on the evidence will only be 9 possible when all of the evidence has been heard, but so 10 far as these submissions are concerned, we divide them 11 into two sections. Firstly, section 1. We briefly 12 address the themes identified in our openings as 13 priorities for Phase 2, and to what extent we've heard 14 the evidence has reflected those priorities. And 15 secondly, we consider the questions we pose for Phase 3 16 in opening, and perhaps new questions for Phase 3 17 arising in light of the evidence heard from witnesses in 18 Phase 2. 19 We repeat if we may, sir, how significant this 20 Inquiry is for both those we represent, and for the 21 public interest. Many of our clients are following the 22 evidence closely as it's given, and others are catching 23 up with the daily recordings and transcripts. And 24 whilst they've often found what they've heard difficult 25 to bear, they also express how vital it is for them to 134 1 hear it. The trauma of their experiences means that 2 learning how and why the Horizon scandal happened, and 3 how it might have been prevented, and why it was not 4 prevented, has become deeply significant to them, and 5 they are genuinely grateful to the Chair and his Inquiry 6 Team for the care and sensitivity with which the issues 7 in Phase 2 have been pursued with witnesses. 8 Moving to our submissions, sir -- and I will make 9 them headline submissions, and quite brief. Firstly, 10 section 1: themes identified in our opening as 11 priorities, and the extent to which the evidence we've 12 heard has reflected this is priorities. Firstly, so far 13 as IT is concerned, we won't address the evidence in any 14 detail. 15 Mr Cipione confirmed that the detailed evidence from 16 witnesses and in contemporary records as to known 17 concerns about the stability of the system and the 18 operation of core applications solidified the 19 conclusions he reached in his report. And we consider, 20 sir, that there can be no question that there were known 21 weaknesses, bugs, errors and defects in Horizon System 22 from the outset, of which both POL and Fujitsu ought to 23 have been aware when later decisions were being taken by 24 prosecutions. 25 In opening, we also invited the Inquiry to consider 135 1 additional themes in Phase 2 beyond IT, and they 2 included the adequacy of human systems dealing with the 3 available IT, whether Horizon ought to have continued at 4 all after the Benefit Payment Card was abandoned, and 5 what was known when, and by whom. 6 And just briefly taking each in turn, firstly the 7 adequacy of human systems beyond the available IT. We 8 asked the Inquiry to look beyond IT to those human 9 systems, and we say there's been important evidence 10 about that. For example, whether the process of relying 11 on Escher in the investigation of Legacy Horizon issues 12 led to difficulties in the exploration of the root 13 causes of bugs, errors and defects, and we refer the 14 Inquiry to the evidence of Mr Simpkins and Mr D'Alvarez. 15 The Inquiry has also heard problems in the 16 development of Horizon IT could be laid at the door of 17 people, and not software. So for example, in relation 18 to performance and skills deficits, the EPOSS Taskforce 19 report. Its subsequent consideration by ICL Pathway 20 provides, we say, devastating evidence of the 21 understanding of the flaws in Horizon held in Fujitsu 22 and seemingly not shared by anybody at the Post Office 23 or in Government. 24 The Inquiry may conclude that the human and 25 commercial response to this information and the lack of 136 1 transparency around it in 1998, 1999 and 2000, generates 2 concern. 3 Also, failures in communication and information 4 sharing, both between POL and Fujitsu, but also beyond 5 the failure of sharing between POL and Fujitsu. For 6 example, the Inquiry has heard from former ministers, 7 including Lord Darling, Sir Ian McCartney, and indeed 8 Mr Milburn today, that they were prevented from 9 considering earlier evaluations of the ICL Pathway bid 10 by the convention that we've heard about, sir. 11 If ministers were prevented from considering earlier 12 concerns on this basis, it would appear to reflect an 13 expansive and perhaps unhelpful view of the bar on 14 sharing new information with new ministers. 15 The Inquiry also heard evidence on the limited 16 technical experience held by those making management 17 decisions about Horizon in POCL and ICL. 18 The Inquiry may wish to consider whether adequate 19 attention was paid by those in management to people with 20 technical expertise, and we ask you to consider the 21 evidence of Terry Austin and Mike Coombs and David 22 McDonnell and Jan Holmes in that regard, sir. 23 The Inquiry may also wish to consider whether 24 decisions in Government were adequately informed by 25 technical expertise, and we refer you to the evidence of 137 1 Sir Ian McCartney, and indeed Mr Milburn today, on that 2 point. 3 Overlapping to the lack of sharing of information, 4 but separately, there were failures to act. The Inquiry 5 may crucially wish to ask whether accumulated evidence 6 about weaknesses in Horizon were addressed internally, 7 either by POCL or Fujitsu. When confronted with the 8 evidence of the problems, were the steps taken by POCL 9 and Fujitsu adequate in addressing those concerns? 10 For example, it would appear that ICL Pathway took 11 a decision that the cost of maintenance of the system 12 would be more proportionate than rewriting or 13 redesigning the EPOSS application. And it's far from 14 clear what this meant in practice, or the active 15 management of the system, or for the work to be done in 16 due course. And that bug-fixing culture remained in 17 place, it seems, and seemingly with same risk of code 18 regression identified by the EPOSS Taskforce report. 19 Secondly, in terms of our themes, whether Horizon 20 ought to have continued at all after the Benefits 21 Payment Card was abandoned. 22 The evidence of Lord Alistair Darling on the 23 motivation of the Department of Social Security in 24 walking away, we say, was clear and compelling. 25 By 1998 it appears clear that ICL Pathway was 138 1 failing to deliver. There were continued problems in 2 testing, and the technology simply wasn't working. The 3 evidence suggests, we say, sir, that the same conclusion 4 could and/or should have been reached in respect of Post 5 Office automation. 6 The management of Horizon at this stage raises 7 number of questions for the Inquiry to consider, we 8 suggest. Already touched upon by Mr Stein were the 9 contractual arrangements, the original contractual 10 arrangements, inadequate to allow the Post Office 11 effective oversight of the development of Horizon. Were 12 those arrangements misrepresented or misunderstood in 13 a way which undermined any effective oversight? 14 A number of witnesses gave evidence as to the lack 15 of transparency as to the Horizon solution, and blamed 16 the nature of the PFI contract. Mr Miller, Mr Meagher, 17 Mr Austin, Mr Folkes -- who described it as a "black 18 box" -- and Sir Adrian Montague suggested that the PFI 19 sponsor ought to have sufficient information to enable 20 them to have oversight of the project. 21 The Inquiry may wish to consider why the parties 22 took the approach they did to the project, and whether 23 POCL were unable to adequately scrutinise or to 24 understand the operation, what impact this had, both in 25 its development and the decisions which were later 139 1 taken, as to the robustness of the system and the 2 reliability of the data it produced. 3 It might be also be asked whether an opportunity was 4 missed, in May 1999, for the Government and POCL to 5 revisit those contractual arrangements to require 6 greater transparency on the part of ICL Pathway. And it 7 may be asked whether the political decision reached in 8 May 1999, and the contractual arrangements confirmed in 9 July 1999, locked POCL into making Horizon work, despite 10 acknowledgement of its weaknesses, bugs, errors and 11 defects. 12 Sir Ian McCartney was clear that he only wanted 13 a properly functioning Horizon, not just any Horizon. 14 But others at POCL and elsewhere may have perceived 15 pressure that Sir Ian did not intend them to feel. 16 We refer you to the evidence of Stuart Sweetman as 17 to the messaging being sent by Sir Ian, and the evidence 18 yesterday of Mr Colin Baker to the effect that, "having 19 got it, it's the best we've got, so we needed to make it 20 a success." 21 We saw yesterday that whilst some, such as Mr Baker, 22 felt they had nothing else, there were strong views 23 being expressed as to the problems with Horizon by those 24 at the sharp end of it at the NFSP conference in 25 May 2000 after rollout had been resumed. And we hope, 140 1 sir, that we'll see how those concerns were dealt with 2 in Phase 3, because they were important concerns from 3 people at the sharp end of it. 4 The question that must be asked is whether the 5 political and commercial prospects of failure were 6 simply too great for the weaknesses, bugs, errors and 7 defects in Horizon to become (unclear) by POCL, by 8 Fujitsu, and by Government. 9 Then finally in this section, sir, what was known, 10 when, and by whom. Plainly, given how this scandal 11 appears to have originated and played out, the answer to 12 this question will likely inform more phases of the 13 Inquiry's work. The Inquiry has heard evidence on the 14 significance of the then Prime Minister's involvement in 15 decision making on whether or not to proceed, and as we 16 saw this morning, the Prime Minister was told on 17 10 May 1999 by ministers that the Post Office automation 18 parts of Horizon were "ready to roll out and relatively 19 simple". 20 But that message was far from the reality that 21 there'd been limited live testing, and that testing had 22 already thrown up problems, including in respect of 23 balancing and data integrity. It plainly didn't take 24 account of the significant number of Acceptance 25 Incidents, including those which directly affected data 141 1 integrity, and were identified in the summer and autumn 2 of 1999. And it's far from clear that this messaging 3 was ever revisited with the Government by either POL or 4 Fujitsu. 5 The Inquiry has heard that the Post Office Board was 6 told that there were technical issues with Horizon. 7 Mr Miller, however, is recorded as having said that the 8 system was "robust" in July 1999, and issues were later 9 raised with the Board in September 1999, and again in 10 January 2000. The Inquiry may wish to consider the 11 significance of the information provided to the Board or 12 not provided, and whether the actions taken by the Board 13 were, at this stage, appropriate. 14 The terms of the Third Supplemental Agreement make 15 clear that it's accepted that the Horizon System would 16 never be perfect. 17 The Inquiry has heard evidence that there were 18 accepted tolerances for failure which the Inquiry may 19 wish to consider, given the use to which the data 20 generated by Horizon was subsequently put. 21 There's consistent evidence that little or no 22 consideration was given to the role which Horizon would 23 ultimately play in prosecution during that system's 24 development, nor indeed civil actions. Where there was 25 consideration of the contractual provisions in relation 142 1 to PACE-compliant evidence, there appears to have been 2 very little activity or understanding of the 3 significance of those provisions. And the Inquiry is 4 invited to consider whether this was a critical 5 oversight in the decision making during the course of 6 moving forward with Horizon. 7 By contrast, there was evidence that senior 8 management at the Post Office were aware of the 9 prosecutorial functions of the organisation, for example 10 Mr Evans, company secretary. And Mr Johnson was well 11 aware of the prosecutorial function of the Post Office 12 but did not think that the operation of Horizon would be 13 relevant in that context. 14 Moreover, a lot was at stake in May 1999 for all of 15 the parties involved. Witnesses from ICL and from POCL 16 accepted that that was the case, and indeed from 17 Government, accepted that was the case. They confirmed 18 that the loss of revenue from the Benefits Agency would 19 create an existential crisis for POCL. A lot remained 20 at stake in early 2000 when the decision was taken to 21 roll out Horizon on a national scale. 22 The Inquiry may ask whether, by the end of 1999 and 23 into 2000, when crucial decisions were being taken, the 24 focus adopted was too inflexibly Horizon-centric, and 25 that others approaches were being ignored, and that 143 1 critical analysis of Horizon produced for ICL and POCL 2 and the Benefits Agency was ignored or explained away, 3 despite significant concerns being raised. 4 There was evidence from a number of witnesses that 5 by early 2000 the commercial opportunities for the 6 development of Horizon were paramount, and there 7 appeared to be a combination of imperatives acting to 8 ensure that Horizon rolled out, including the need for 9 inward investment to continue and grow, the need for ICL 10 to survive, and the need for POCL to become automated, 11 both for POCL and the SPMs who had £1 billion of their 12 own money invested in it. 13 In those circumstances it may be that Horizon could 14 not fail; that it must be made to work. 15 Secondly, sir, just for a few minutes, Phase 3 and 16 beyond. Our second section where we identify some of 17 the more central questions we pose for Phase 3 in 18 opening, and new questions arising in the light of the 19 evidence heard from witnesses in Phase 2. Just a couple 20 of the matters we raised in opening for Phase 3, which 21 the Inquiry may wish to consider in the evidence to 22 come. 23 We identified, as a key aspect of the evidence 24 potentially, is the reliance on professional reports, 25 advice and reviews. And we identified in opening two 144 1 examples for consideration, which resulted in troubling 2 evidence emerging. 3 Firstly, the Montague Review. We simply say about 4 that, sir, at this stage, that the Montague Report was 5 not adequate basis for any conclusion that Horizon was 6 robust. 7 And secondly, the Project Mentor's report, sir. The 8 Inquiry has heard evidence on the limited dissemination 9 of the work of Project Mentors and the action taken on 10 it. The Inquiry may yet consider that the Project 11 Mentor's conclusions were highly relevant in the context 12 both of the work done by the Montague Panel, the 13 information available and problems emerging in testing, 14 and the early evaluation of the ICL Pathway bid. 15 It might be asked whether the approach to this 16 reporting was illustrative of the treatment given to any 17 substantive criticism of the reliability of Horizon 18 during its development and beyond. 19 Secondly, in opening, we asked whether the Inquiry 20 might consider whether opportunities for justice at an 21 earlier stage were missed, whether just this was 22 delayed. 23 Regrettably, the evidence of Phase 2 already 24 suggests that there were many opportunities to walk away 25 from Horizon -- or rather, perhaps, to identify that its 145 1 data never could and never should have been relied upon 2 for the purposes of prosecution nor civil actions. That 3 would include in 1997, when Pathway were in breach of 4 contract; in May 1999, when the Benefits Agency withdrew 5 from the contract; and September 1999, when POCL chose 6 to accept Horizon despite a failure to meet the criteria 7 for acceptance; or in January 2000, when the decision 8 was taken to roll out Horizon on a national basis on the 9 basis of the Third Supplementary Agreement. 10 The evidence in Phase 2 begs the question as to what 11 information was provided to others who had previously 12 been asked to consider Horizon. For example, were 13 Second Sight or any other reviewers ever permitted to 14 see the original evaluation of the ICL Pathway bid? 15 Were Second Sight ever provided with copies of the 16 Project Mentors reporting? Ever told about the EPOSS 17 Taskforce report? And what access to Fujitsu were other 18 reviewers allowed? 19 As we identified in opening, sir, plainly an 20 important question which arises on the evidence we have 21 heard in Phase 2 is what measures were in place within 22 POCL and, of course, as we come into Phase 3, 23 Post Office Limited, and within Fujitsu, to ensure that 24 the knowledge gained during the development of Horizon 25 about its potential weaknesses, bugs, errors and 146 1 defects, informed individual and collective decision 2 making about Horizon and its operation, and in 3 particular, about the Post Office's approach to 4 prosecution policy and its approach to individual 5 audits, investigations and prosecutions. 6 That, we say, it's likely to be a very important 7 question for Phase 3, sir. At least some of those 8 providing evidence in Phase 3 are persons who appear to 9 have been involved in the development phase of Horizon, 10 and who may not be able to explain what was done with 11 the knowledge of Horizon's witnesses as matters move 12 forward. And the Inquiry, in Phase 3, may wish to 13 explore in particular what impact this learning had both 14 in the customer learning support provided by Fujitsu, 15 and we anticipate Mr Muchow, who was named by a number 16 of Fujitsu witnesses in Phase 2, including Terry Austin 17 and Alan D'Alvarez, will be able to address that, and in 18 the involvement of POL in the operation and modification 19 of Horizon, which we anticipate may be addressed by 20 Mr David Smith, amongst others. 21 It may be that some witnesses from Phase 2 have to 22 be re-called, but those we represent have a particular 23 interest in understanding what knowledge about the 24 development of Horizon was available to those within 25 Fujitsu, taking decisions on provision of evidence for 147 1 the purposes of prosecution. 2 For the avoidance of doubt, this issue isn't limited 3 to individuals in their role in preparing audit data and 4 giving evidence in court. The Inquiry has been invited 5 to consider, in Phases 3 to 5, what systems were in 6 place which could or ought to have provided real 7 information, reliable information, for taking decisions 8 as to prosecution and civil actions. As part of that, 9 institutional memory, we say, will be an issue which our 10 clients will find important. 11 We note, for example, an important part of the 12 evidence was that, at the end of the development of 13 Horizon, a number of key personnel were moved, both 14 within ICL Pathway and at POCL. David Miller changed 15 jobs mid-rollout. Of course, that may have affected the 16 way in which the faults relating to Horizon remained 17 known to those making crucial decisions. 18 The Inquiry may not wish to limit its consideration 19 of institutional memory to POCL and ICL, but may also 20 wish to consider whether the National Federation of 21 SubPostmasters should have had a better recollection of 22 what was happening during the development phase of 23 Horizon when subpostmasters began to be prosecuted. And 24 to that end, the Inquiry may wish to hear further from 25 the NFSP in Phase 3. 148 1 Beyond this issue, there have been many matters 2 arising from the evidence in Phase 2 which may encourage 3 further questions for exploration by the Inquiry, and we 4 briefly highlight only four issues. Firstly, training 5 and the helpdesk. The Inquiry has heard repeated 6 evidence that subpostmasters were told that they were 7 the only person to have experienced what they were going 8 through. The Inquiry may consider that this simply 9 could not stand up, even on the evidence heard about 10 PinICLs and PEAKs generated during the developments of 11 Horizon and beyond. And the Inquiry may wish to 12 consider the training for people on helpdesks, as well 13 as the training of subpostmasters. 14 Secondly, contracting evidence and the Police and 15 Criminal Evidence Act. Repeated evidence to suggest 16 little or no attention was paid to this aspect of the 17 operation. 18 Thirdly, the management of audit data in evidence. 19 The Inquiry has heard a little so far about the 20 availability and accessibility of audit data from the 21 Horizon System, but it may be that this becomes 22 important within Phase 3 as things move on. 23 And finally, PinICLs and PEAKs beyond December 2000. 24 The report of Mr Cipione was limited to the end of 2000. 25 The question of what was known about the bugs and 149 1 when, as things went forward, is something that the 2 Inquiry may wish to consider. 3 So, sir, our clients are grateful to the Chair and 4 the Inquiry Team for their considered work on Phase 2. 5 The evidence gathered in Phase 2 forms a crucial 6 backdrop to the decisions taken within POL which 7 impacted upon each of our client's lives with 8 devastating effect. 9 The detailed consideration of disclosure by the 10 Inquiry Team and by other Core Participants has been 11 crucial to the effectiveness of this phase, and this is 12 work each of the subpostmasters we represent anticipates 13 that the Inquiry will continue with the same commitment, 14 rigour and care that has been evidenced in Phase 2. And 15 as with Phase 2, we'll seek to assist in any and every 16 way we can. 17 SIR WYN WILLIAMS: Thank you. 18 Are there any sweeping up points, so to speak? 19 Submissions by MR BEER 20 MR BEER: Yes, just one from me. There are a number of 21 witnesses, sir, whose evidence is relevant to Phase 2 of 22 the Inquiry and who may be taken into account by you in 23 due course, even though they've not given evidence in 24 this room orally in Phase 2. 25 These statements have all been disclosed to the Core 150 1 Participants. I'm going to list them in a moment, but 2 by this announcement, I should indicate that they are to 3 be taken as read, as read into the Inquiry's record, 4 even though I'm not going to read the contents of them 5 out now. They will be uploaded to the Inquiry's website 6 if that is not already happened, because the witness 7 statement has been referred to in the course of the 8 evidence of a live witness. 9 Sir, there are nine of them. They are the 10 statements of George McCorkell, the URN of which is 11 WITN04170100; the witness statement of Mena Rego, 12 WITN04130100; the witness statement of Robert Peaple, 13 WITN04020100; the witness statement of Ruth Reed, 14 WITN05210100; the witness statement of Simon Fawkes, 15 F-A-W-K-E-S, WITN04830100; the witness statement of 16 Peter Jobson, WITN0482; the witness statement of 17 Sir Anthony Blair, WITN06080100; the witness statement 18 of Peter Crahan, C-R-A-H-A-N, WITN04160100, and the 19 witness statement of William Patterson, WITN06650100. 20 Sir, thank you very much. 21 Housekeeping by SIR WYN WILLIAMS 22 SIR WYN WILLIAMS: And the only thing that I'd like to say, 23 before formally closing this session, is that those who 24 have been following closely will have heard me say on 25 a number of occasions that I am paying close attention 151 1 to disclosure issues. Currently, there has been 2 disclosed to Core Participants two disclosure statements 3 from Post Office. They have provided a third disclosure 4 statement to the Inquiry, and that will be published 5 early next week. 6 I have also received a disclosure statement on 7 behalf of Fujitsu Services, which I believe has been 8 disclosed to Core Participants. All those statements 9 are now under review, and if I feel the need to take any 10 further action in respect of them, I will do so, and let 11 everybody know as quickly as I reasonably can. 12 It therefore remains for me to say provisionally 13 that Phase 2 is now at an end, and I look forward to 14 meeting you all on Thursday for a slightly different 15 topic, and I look forward to seeing you all in the 16 New Year. 17 Can I just clarify, before finally closing, that 18 Ms Page has said that on behalf of her clients there is 19 to be a written submission about Phase 2, and I am aware 20 that BEIS are doing the same; is that correct? 21 MR BEER: Yes, indeed. 22 SIR WYN WILLIAMS: But I take it that that is the extent of 23 written submissions? 24 MS GALLAFENT: No, sir. We are also doing some written 25 submissions. We did inform the Inquiry Secretariat 152 1 in -- 2 SIR WYN WILLIAMS: Well then, it's my mistake, not yours. 3 MS GALLAFENT: I'm afraid you're not spared from ours. 4 MR WHITTAM: And the same for Fujitsu, sir. In the same way 5 we have informed the secretariat. 6 SIR WYN WILLIAMS: So I was looking forward to some time off 7 before Christmas, but that seems a forlorn hope. 8 So on that happy note, we will now close for the 9 afternoon. Thank you. 10 (3.07 pm) 11 (The hearing adjourned until Thursday, 8 December 2022) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 153 I N D E X ALAN MILBURN (affirmed) ..............................1 Questioned by MR BEER .........................1 Questioned by MR STEIN .......................46 Questioned by SIR WYN WILLIAMS ...............51 JOHN PEBERDY (sworn) ................................52 Questioned by MS KENNEDY .....................52 Questioned by MR MOLONEY ....................103 Submissions by MR STEIN ............................111 Submissions by MR MOLONEY ..........................134 Submissions by MR BEER .............................150 Housekeeping by SIR WYN WILLIAMS ...................151 154