Taxpayers are facing a £1bn bill for the Post Office to replace its controversial Horizon IT system, Computer Weekly has learned – but government experts sent in to assess the funding request have reported that the critical project is currently unachievable.
The plan to develop a replacement for Horizon and remove its supplier, Fujitsu, is running late, is lacking quality, and is over budget, according to auditors sent in on behalf of the Department for Business and Trade (DBT).
And yet, despite all the problems in the project, Post Office management last year cut its budget and reduced the number of people working on it by 70% – and it now needs to recruit hundreds of IT professionals to support the in-house development, an objective which experts say is unrealistic in the timescale they are required.
The Post Office has asked HM Treasury for nearly £1bn in extra cash to complete the project. Its current funding runs out next month, but Computer Weekly understands that approvals are in place to see the project through the period leading up to the general election on 4 July.
The Treasury normally does not approve additional spending for projects that, like the Horizon replacement, have been given a “red” rating by government auditors – which means the Post Office will have to convince the next government it can get the new system back on track if it is to receive the funding it requires.
A Post Office spokesperson said: “We are currently working closely with postmasters to inform the design, build, training, testing, and piloting of a new IT system to replace Horizon and are showcasing the system directly to postmasters in their local region in a series of pilots.
“Post Office received a £103m funding commitment from the Department for Business and Trade for its Horizon replacement programme in late 2023. In line with plans agreed at that time it has also now submitted a new long-term request to ensure funding is available for it to continue this investment. Post Office and the Department for Business and Trade are working on this recent request, and we can confirm that no additional funding is required in the pre-election period.”
Business case
Horizon was responsible for phantom accounting losses that led to hundreds of innocent subpostmasters being wrongly blamed and prosecuted in what became known as the Post Office scandal.
Work to replace the 25-year-old Horizon system began in 2021. The new platform being developed in-house by the Post Office is known as New Business IT (NBIT), and the wider project is called the Strategic Platform Modernisation Programme (SPMP).
In 2023, 10% of the bonuses payable to Post Office executive directors under their short-term incentive plan were based on achieving a target of SPMP being 80% delivered – a reflection of the importance of the success of the programme.
While the board was assessing its options last year on how best to move forward once the problems in the project became clear, they chose to cut spending to control short-term costs, and as a result 70% of the people working on the project were let go – mostly contractors, rather than employees. This also led to a reduction in experience and knowledge among the project team, and hit morale among those who remained. A recruitment process for new IT staff is already underway.
Sources say there has also been a collapse in trust between the Post Office business teams and the modernisation programme, which has been operating largely in a silo. Key roles in the programme are now being filled by existing employees from across the business.
As a result, the Post Office approached DBT – which owns the government relationship with the publicly owned organisation – requesting nearly £1bn in extra funding, having spent £187m on the programme already.
DBT told the Post Office that level of investment would require a full business case and Treasury approval. An initial tranche of £184m was urgently requested to see the project through from July 2024 to March 2026, which the Treasury has been asked to approve in June.
The total bill for replacing Horizon will be £1.1bn – a huge increase on the £180m that had originally been forecast when the project kicked off in 2021.
The government has previously committed £1bn to pay for compensation for victims of the Post Office Horizon scandal. Fujitsu is believed to have made £2.5bn from running Horizon for the past 25 years.
Critical projects
Following the funding request, DBT and the Treasury contacted the Infrastructure and Projects Authority (IPA) – a specialist team in the Cabinet Office that audits and monitors major Whitehall projects considered critical to the functioning of public services.
The Post Office was told that an IPA review would be required before any business case would be approved. The review was completed in April and gave SPMP its highest “red” warning rating – which means “successful delivery of the programmes to deliver the Horizon replacement to time, cost and quality appears to be unachievable”.
The review concluded that, “There are major issues which, at this stage, do not appear to be manageable or resolvable entirely within POL [Post Office Limited]. The programme/project may need re-baselining and/or its overall viability reassessed.”
The Treasury does not normally approve additional funding for a business case given a red rating by the IPA unless it is confident the project will improve.
The IPA reviewers said they were “supportive of the initiatives that programme leadership has prioritised,” but added it is too early to “see the evidence that SPMP has been turned around”.
As a result, SPMP is being brought into the Government Major Projects Portfolio – the set of high-profile projects subject to ongoing monitoring by the IPA. It is the first time in the 25-year history of Horizon that the Post Office has been forced to have its IT development overseen by Whitehall.
Governance and levels of expertise involved in the project were identified as a key area for improvement, and Computer Weekly understands that DBT intends to commission external experts to conduct further reviews of the Horizon replacement programme and what is needed to bring it back on track.
The IPA reviewers reported “widespread concern that the growing numbers of people involved in governing these programmes were not sufficiently experienced in technical matters to take decisions and make judgements on risk.”
Board-level issues
The IPA also identified wider board-level issues that, while outside of the scope of its monitoring, will need to be addressed if the project is to be successful.
“Programme leadership is taking brave decisions and spearheading POL into very new areas of digital business which it is not clear has been fully understood or supported by the POL board, and at a time the board will have been preoccupied on other matters,” said the IPA review team.
“To decide to become a digital-first retail organisation is a major undertaking and requires a transformation of the organisation and the way it operates. This is not in scope for any of the Horizon replacement programmes but will need to be addressed by the POL board.”
The Post Office is understood to have fully accepted the findings of the IPA review, and told the IPA that “the issues raised will be addressed fully”.
Computer Weekly reported in December last year that increasing costs and a lengthening timeline had forced the government to hand the Post Office an extra £103m towards its project to replace Horizon, which was due to be completed in 2025.
The NBIT system is being developed to run in the Amazon Web Services cloud environment. It has been trialled at two Post Office branches, one in Leeds and one in Aldwych, London – a branch that is next door to the building that hosts the public inquiry into the Post Office scandal. Further pilot branches are due to be rolled out starting in late 2024.
Hardware for the roll-out has already been purchased and is sitting in a warehouse.
Fujitsu is currently contracted until March 2025 to support the Horizon system that it developed. Computer Weekly reported last month that a further extension to that contract with Fujitsu is “inevitable”.
Not the first time
This is not the first time the Post Office has tried to move away from Horizon. IBM started work on a £100m project for a replacement system in 2015, but the complexity involved forced the Post Office back to Fujitsu.
Horizon is a retail and accounting system used in Post Office branches, which was introduced in 1999 to replace mainly manual accounting practices. Originally from ICL, which was acquired by Fujitsu in 2002, it was rolled out across the Post Office branch network from 1999.
Horizon’s introduction led to a sudden increase in subpostmasters reporting unexplained shortfalls in their accounts, for which they were blamed. The Post Office told each of them that nobody else was experiencing problems and covered up the computer errors. A High Court case in 2019 proved that bugs in Horizon caused the phantom accounting losses for which hundreds of subpostmasters were wrongfully prosecuted.
The Post Office scandal was first exposed by Computer Weekly in 2009, revealing the stories of seven subpostmasters and the problems they suffered due to the accounting software (see timeline of Computer Weekly articles about the scandal below).
• Also read: What you need to know about the Horizon scandal •
• Also watch: ITV’s documentary – Mr Bates vs The Post Office: The real story •