Beyond the Horizon

Most English Premier League football clubs have now introduced digital passes for ticket-holders. There have been teething problems, but the technology is clearly here to stay: a bit like VAR. There are a number of reasons for this, from clamping down on ticket-touting (though the touts are still to be seen - I have no idea how they do it now) to better crowd safety (the long legacy of Hillsborough and the Taylor Report), but another driver for clubs' investment in ticketing technology since the 1980s was fraud at the margin - i.e. gate operators letting people under or over the turnstile, so the counter ratchet didn't click, and pocketing the money. To an extent this had always been tolerated as the cost of prevention was high and the loss to the club marginal, but it became a much bigger issue as entrance prices went up and clubs became more dependent on their matchday income. While wealthy foreign owners have driven inflation in the game since the millennium, financial fair play rules have simply reinforced the need to squeeze every last penny from the gate.

The reason I raise this is that it provides a useful entry-point for discussing what has come to be known as the Post Office scandal. There are two parts to this: the bug-ridden Horizon IT system and the response of the Post Office management to the unfolding debacle. Both were informed by a suspicion that the organisation was being defrauded at the margin, though it's central to the sorry tale that this started out as a belief that benefit claimants were defrauding the state, not just sub-postmasters and sub-postmistresses defrauding Post Office Limited. It's also worth emphasising at this point that, with the exception of a handful of Crown Post Offices, those sub-postmasters are independent franchisees - i.e. small business people. This is important because it highlights a discrepancy between the positive rhetoric around self-employment and sub-contractors and the harsh reality of asymmetric commercial relations (it's also worth noting in passing that there are a lot of pseudo-SME arrangements in the public sector, e.g. doctors, as well as in the grey areas of public corporations, e.g. the BBC, and state owned commercial entities such as the Post Office).

While the now-famous (and likely to be awards-laden) ITV drama, Mr Bates vs The Post Office, focused on the human interest of the present, and while much of the subsequent outrage has focused on the perversity of the law and the recent underfunding of the courts, necessitating an act of Parliament to unpick the mess, to do the story justice (sic) you really need to look at the longer history. It might appear unnecessary to start with the origins of the General Post Office in 1635, but we should certainly go back as far as 1838 and the introduction of money orders, which is when the opportunities for fraud at the margin start to proliferate. The need for strict financial controls was reinforced by the creation of the Post Office Savings Bank in 1861 and the gradual expansion of state financial services culminating in the payment of old age pensions in 1909. The GPO has been investigating fraud at the margin for over 300 years, but this has been reported in the context of the scandal as evidence that it had become a law unto itself: that it shouldn't have been pursuing private prosecutions outside the purview of the Crown Prosecution Service. 

But this misses the crucial point that the Post Office has a long data series - a corporate memory, if you will - on fraud at the margin. Why did no one notice the statistical anomaly of a significant rise in fraud prosecutions, estimated to be from an average of 5 a year to 55, after the introduction of the Horizon system? The likely answer is that Post Office management suspected the higher level of fraud was always there but that only now, with the benefit of computer-based accounting, were they able to uncover it. It's also worth noting here the downward secular trend in Post Office revenues and the pressure this exerted on management to reduce losses and thus reliance on state subsidies. What's less understandable is why government ministers weren't (as far as I can tell) asking the obvious question, i.e. is this increase in cases statistically credible?, particularly when you consider how wedded both New Labour and the subsequent coalition were to targets and metrics as part of the culture of New Public Management (NPM). The suspicion must be that politicians who spout about "business rigour" and "evidence-based policy" are mostly clueless when it comes to basic data analysis.

The second historical strand worth looking at is the origin and development of ICL. The business was created under the second Wilson government in 1968 and overseen by Tony Benn, the then Minister for Technology. It was an example of an industry "champion" (what would later be derided as "picking winners") formed by the merger of three UK computer fims. The state would have a 10% stake and would provide funding for research and development. The aim was to build a domestic competitor to IBM that could service both the UK public and private sectors and also develop an export market. Unfortunately, it started out with a 6-bit architecture instead of the by then standard 8-bit byte, as used by IBM and others, making its products a technological dead-end. It ended up marketing Fujitsu mainframes and minis, which were IBM clones. That gave the Japanese a route into the UK public sector, which they consolidated by buying a majority stake in ICL in 1990. The point to note here is that unlike IBM, which reinvented itself around software and services, ICL and Fujitsu were always chiefly hardware businesses. 

The primary political driver for the creation of the Horizon system was the plan, developed under the Major administration, to introduce magnetic swipe-cards for the payment of benefits, which it was thought would reduce fraud. The conversion of other Post Office counter business from a largely paper-based system to an electronic point of sale (EPOS) system was a secondary political consideration, though clearly from the perspective of the Post Office itself this was the commercial priority. The project was an early example of a private finance initiative (PFI), with the developer to recoup their costs and profit via transaction fees. ICL Pathway Limited was set up with the explicit purpose of winning the bid for Fujitsu, which it did in 1996. By 1999, with Labour now in government, the project was already a mess, not least because of doubts about the long-term viability of swipe-cards (chip-and-pin, common in Europe in the 1990s, arrived in the UK in 2003). As a result, the benefits element was ditched and the project scope reduced to the counter business.

Instead of going back to the drawing board, ICL Pathway decided to simply build on top of the already flaky prototype. It is clear from evidence already presented in public inquiries (here, here and here) that Horizon was a badly-run project, with a poor architectural design, that tried to integrate with new third-party technology as it went (e.g. Windows, Oracle, SAP and wide-area networking). There appears to have been no consistent development methodology, no automated test framework, and poor bug management and version control. The smell it gives off is of a second-rate mainframe-centric business circa the mid-80s, which isn't surprising. What this in turn highlights is that there was inadequate IT competence at a senior level within the Post Office, which could have independently assessed ICL Pathway, and equally little technical nous within govenment, despite the public technophilia of the likes of Tony Blair. What is also clear is that the then Trade and Industry Secretary, Peter Mandelson, was pushing ICL Pathway to meet deadlines when the correct course of action would have been to abort the project, re-specify the requirements, and start a fresh tender process on a fixed-cost plus margin basis.

There have been multiple TV dramas about Hillsborough and Grenfell, and yet justice has not been delivered in either case and the prospect of special acts of parliament to deliver it are negligible (though it should be said that the proposed Post Office act may never see light of day given the issues of principle it raises). The difference between those tragedies and the Post Office scandal is that they highlighted the negligence of the state towards ordinary people: the contempt of South Yorkshire police towards football fans in the one, and the disdain of a Conservative borough council towards poorer residents in the other. At Hillsborough, there was no appetite in government to criticise a force that had been central to the defeat of the miners five years earlier. As Thatcher herself said in response to the Taylor report, "The broad thrust is devastating criticism of the police. Is that for us to welcome?" Likewise, in the shadow of Grenfell Tower there was little desire to criticise a borough for cheeseparing when that had been the order of the day in local government for decades and when building safety had been presented as a contraint on enterprise ripe for deregulation. 

Ironically, had the Post Office remained fully in the public sector - i.e. as a public corporation rather than as a state-owned private company - the scandal could have dragged on even longer as there might have been greater political ramifications, but equally it might not have happened in the first place as the imperatives - that combination of a bad technology choice and government pressure to be a PFI success - could have been lacking. I don't imagine post offices would still be run on paper records, but a more thoughtful project might have decided to simply adopt a proven, off-the-shelf EPOS system with standard back-end ERP integration (post offices are just retail outlets, after all). The root problem was that initial demand to handle benefit payments, which in turn arose from the delusion that fraud at the margin could be reduced by a large enough figure to satisfy the critics of welfare. The compounding factor was the insistence of ministers that Post Office Limited should operate at arms-length from the state while being put under pressure by its owner (those same ministers) to be a commercial success.

The foot-dragging by the Post Office after the initial evidence that sub-postmasters were being wrongly convicted was not just the usual arse-covering or desire to minimise costs, it also reflected the history of petty fraud within the business and the fear that a general amnesty and blanket compensation might benefit the guilty as well as the innocent. Over-and-above bad management and poor IT practice, the scandal highlights the gulf that exists between the theory of the small business (incentivised, hard-working, responsible) and the reality (muddling through, sometimes incompetent, dodgy at the margins). What's depressing about the otherwise laudable TV drama and the public response to it is the idea that these people must have been innocent precisely because they were small business operators: that cuddly Toby Jones. In other words, they have been given the benefit of the doubt (albeit there are limits) in a way that the victims of Hillsborough and Grenfell never were.