Scrapped benefit plan has cost taxpayer pounds 1bn

THE COLLAPSE of the project to computerise benefit payments through the Post Office has cost the taxpayer almost pounds 1bn and put thousands of rural post offices at risk of closure, it was disclosed yesterday.

The scale of the debacle surrounding the ICL Pathway project to pay benefits using plastic swipe cards emerged in evidence given by Cabinet ministers to a select committee.

Alan Milburn, the Chief Secretary to the Treasury, told the Commons Trade and Industry Select Committee that the failure of the project had forced the Department of Social Security and the Post Office to write off pounds 140m. In addition, the Treasury is now giving the Post Office pounds 480m towards the cost of installing its own computerised system. The programme, known as Project Horizon, will cost pounds 800m in total.

The taxpayer has also lost out on an estimated pounds 320m of savings from a reduction in benefit fraud because the project was running three years late by the time it was abandoned. Mr Milburn insisted, however, that the Government had acted in the interests of both taxpayers and benefit claimants by scrapping the project when it did.

He said the Government would not now have to pay ICL the estimated pounds 1.6bn in toll payments that introduction of the swipe card would have involved. He also said the installation of the new automated system into Post Office Counters' 19,000 branches would yield net savings in the social security bill of pounds 550m,

Mr Milburn said the ICL project, launched in 1994 by the then social security secretary, Peter Lilley, was abandoned because it was running into "computer fiasco territory".

Stephen Byers, the Secretary of State for Trade and Industry, also attacked this "Lilley legacy" adding that there had been a substantial risk that the swipe card system could have failed some of society's most vulnerable claimants. Mr Byers sought to calm fears that the Government's decision to move instead to a system of paying benefits direct into bank accounts from 2003 would jeopardise the rural post office network.

However, John Roberts, chief executive of the Post Office, warned earlier that it could "inevitably put at risk a pretty substantial chunk of the network. There are 10,000 rural post offices and benefit payments generate pounds 350m of business - nearly 40 per cent of Counters' total turnover.

Mr Roberts also warned the Government against further reducing the Royal Mail's letter monopoly from the 50p it will fall to next April, saying it would undermine the Post Office's obligation to deliver to every address in the country at a standard price. He was speaking as the Post Office announced an 8 per cent drop in profits last year to pounds 608m, because of increased competition. But it pledged to use its new commercial freedom to expand aggressively overseas.