Why the Post Office paid £600m to stay shackled to the faulty Horizon system

Nalini Sivathasan and Tom Beal

BBC News Investigations

The Post Office has paid more than £600m of public money to continue using the faulty Horizon IT system despite deciding to ditch it more than a decade ago, the BBC can reveal.

The terms of the original 1999 deal with computer giant Fujitsu mean the Post Office has been stuck with the system and unable to build a replacement so far, even after it contributed to one of the UK’s biggest miscarriages of justice.

Former Prime Minister Sir Tony Blair and other senior Labour government figures were warned about potential problems with the terms of the deal before it was signed, the BBC has learned.

The Post Office said it “apologises unreservedly to victims of the Horizon IT scandal” and said it was committed to moving away from Fujitsu and the Horizon software.

Under the terms of the original £548m deal, struck under pressure from the then-Labour government, the Post Office did not own the computer code for the core part of the Horizon system.

Although the Post Office has wanted to switch suppliers since 2012, buying the rights to the code from Fujitsu or building a completely new system from scratch was considered too expensive – even as the amounts paid to Fujitsu to retain the Horizon system grew and grew.

Because it did not own the code, the Post Office was also unable to inspect the part of the software that processed transactions, and had to rely on assurances from Fujitsu that it was functioning correctly.

The Post Office, which is owned by the government, prosecuted about 700 sub-postmasters between 1999 and 2015 for theft, fraud and false accounting over supposed cash shortfalls in branches reported by the Horizon system, based on these assurances. The convictions were overturned by Parliament last year.

Earlier this year, Business Minister Baroness Jones of Whitchurch told the House of Lords that the Post Office is “unfortunately, still dependent on the Horizon system”, and the only way Fujitsu could be “out of the picture” immediately would mean shutting down all local post offices.

An attempt to replace the system with one built by IBM failed in 2016, at a cost of £40m, and the Post Office extended its contract with Fujitsu for at least four more years at a cost of £107m.

The Post Office told the BBC that it finally obtained rights related to the Horizon software and code in 2023, although it is not known if this includes the core system that processes transactions.

The £10m price for the licence was “cheap – because who else would buy it?” according to IT expert Jason Coyne, one of the first people to identify flaws in the system.

The BBC understands that the Post Office may try to use this licence for Horizon’s replacement. But while this is being built, IT experts believe the Post Office’s contract with Fujitsu will need to be extended beyond March 2026 – when it is currently due to end.

Issues over who would own the Horizon software began when the contract to computerise the network of Post Office branches – then numbering 18,000 – was negotiated between the Post Office, Fujitsu and its subsidiary ICL Pathway, and the government.

In May 1999, Sir Tony Blair received an update from the Treasury, in a document warning that discussions with ICL over the terms of a deal “have foundered”.

One of the sticking points was around intellectual property rights (IPR) – which included ownership of the code within the Horizon software.

The document says that ICL was “not prepared to… give perpetual licences for all the IPR”.

It goes on to say that if the Post Office ever wanted to change suppliers, the owner of the IPR “would be in a strong position to drive a costly settlement with the Post Office”.

The BBC has also obtained a document from 20 May the same year, which was sent to then-Chancellor of the Exchequer Gordon Brown and other government officials, warning about the issue of who owned the code.

In it, a Treasury civil servant states that one of the “main problems” with the terms of a proposed deal with ICL for the Horizon software was the “issues surrounding ownership of assets and IPR of the kit acquired by” the Post Office.

Mr Coyne, the IT expert, said it was “utter madness” that the deal went ahead in July 1999 because it meant that the Post Office became “operationally reliant on Horizon”, even though it did not own the rights to use the system without Fujitsu.

A spokesperson for Sir Tony Blair did not address the BBC’s questions around his knowledge of the IPR issues but said he “took very seriously the issues raised about the Horizon contract” at the time.

“The final decision was taken after an investigation by an independent panel recommended it was viable.

“It is now clear that the Horizon product was seriously flawed, leading to tragic and completely unacceptable consequences, and Mr Blair has deep sympathy with all those affected.”

A spokesperson for Gordon Brown said he “would not have been shown the memo” from 20 May 1999 and he would have been copied in as a “formality”.

“He was not involved in any work related to the purchasing, award or management of the Horizon contract.”

The warnings about ownership of the IPR came true more than a decade later when Post Office decided to invite other companies to take over the Horizon contract.

Former executives told the Post Office Inquiry, which is examining decisions leading up to the wrongful convictions of hundreds of sub-postmasters, how the company had found it difficult to replace Fujitsu.

Alisdair Cameron, former chief financial officer at the Post Office, said that Fujitsu had been “difficult colleagues” and “it was accepted that Horizon, and the infrastructure on which it was built, was vulnerable”.

But Mike Young, chief operations officer at the Post Office between October 2010 and April 2012, told the inquiry that Fujitsu management said to him “the code is ours. You own the service because you pay for that but you don’t pay [for] the code”.

Documents released by the Post Office Inquiry show the “IPR issue” was often discussed by top-level Post Office executives.

“There is a risk that we may be unable to agree an IP license with Fujitsu on reasonable terms”, said an agenda for a Post Office board meeting in July 2013 – while other documents describe concerns over costs.

Procurement specialist Ian Makgill told us he believes not owning the IPR to the Horizon software would have been a factor in the collapse of the 2016 IBM deal to replace the system.

He said that if IBM had tried to build new software without any of the IPR from Horizon, it would have needed to “start from scratch, which would have cost the Post Office hundreds of millions of pounds”.

“IPR is the reason why the Post Office hasn’t been able to move away from Fujitsu and the Horizon software,” he said.

Since 1999, the Post Office has spent £2.5bn on contracts with Fujitsu. This figure includes more than £600m spent on bridging or extension contracts to continue the Horizon contract since the Post Office started looking for new suppliers in 2012, according to analysis from data firm Tussell and the BBC.

Many of the sub-postmasters wrongly accused by the Post Office maintained that there was no missing money and the shortfalls were down to errors in the Horizon system.

But with the Post Office unable to directly inspect the system which processed transactions, it accepted assurances from Fujitsu that the system was working correctly.

“Fujitsu were fighting the whole time to protect their investment and their intellectual property, rather than looking after the interests of the sub-postmasters,” said Mr Makgill.

Fujitsu did not respond to the BBC’s specific questions but stated that it was “focused on supporting the Post Office in their plans for a new service delivery model” so branches can continue to operate.

Mr Makgill said that the Post Office bears the “ultimate responsibility” over the fate of wrongly accused sub-postmasters.

“They didn’t have to take those prosecutions, they didn’t have to take people to court.”

Sub-postmasters currently using the Horizon IT software continue to report issues with it. Seven in 10 said they had experienced an “unexplained discrepancy” on the system since January 2020, according to a YouGov survey with 1,015 respondents commissioned by the Post Office Inquiry in 2024.

The Post Office has said that it has not undertaken any prosecutions related to Horizon since 2015 and “has no intention of doing so”.

It told the BBC that it is “implementing changes across the entire organisation” so that it is “fit for the future, fundamentally changed and with postmasters at its heart”.

It said this includes working with Fujitsu to correct discrepancies and reviewing the current version of Horizon – replacing it in stages, under a five-year plan named the “Future Technology Portfolio”.

Post Office chairman Nigel Railton has said a new IT system would not be introduced in one “big bang” but there would be gradual changes.

The Post Office did not respond to the BBC’s specific questions about IPR being the reason why the company was unable to ditch Fujitsu, and said it would not be appropriate to comment ahead of the Post Office Inquiry’s final report.

The Department of Business and Trade told the BBC that it was providing £136m of funding over the next five years to the Future Technology Portfolio, and was “working at pace” to ensure the Post Office had the technology it needed, including replacing the Horizon system.