How Do You Solve A Problem Like Fujitsu?

The Issue

If you spent Christmas on Mars then you might need an update. The United Kingdom has been convulsed by a scandal beyond compare – the imprisonment and ruination of the lives of hundreds of ordinary, decent and most importantly innocent people who were privately prosecuted by the Post Office over the period 2000-2015. 3,500 sub-postmasters were falsely accused of theft, fraud and false accounting. 700 were convicted. Of those, four committed suicide and 60 died awaiting jail. 4,000 people or more may be eligible for compensation arising from the worst miscarriage of justice in British history. That will cost £1 billion. Of that, as of 01 December last year, just £138 million had already been paid to claimants.

And all because the computer says NO. And the craven and incompetent managerial class believed the computer and threw the little people under the bus. Every time the unfortunate sub-postmasters rang the helpline to report that they could not get their accounts to tally, they were told: “It’s only you this is happening to”. This scandal has been suppurating for years, and yet it took an ITV drama over Christmas – Mr Bates vs. The Post Office – to mobilise public opinion on an unprecedented scale.

The computer system in question, deployed across the network of over 2,000 post offices in the UK, was the Horizon system, rolled out by the Japanese IT giant, Fujitsu. At last, on Tuesday (16 January), Fujitsu Europe boss Paul Patterson admitted that the company knew there were “bugs” in the system. Therefore, it bore a “moral responsibility” for the terrible injustices that have been wrought – and they are thus obliged to contribute to the compensation payouts. On Thursday, the company finally announced that it will not bid for any further contracts in the UK public sector until the ongoing inquiry has reported.

Fujitsu’s share price has suffered accordingly. It started the year at JPY21,500 but closed yesterday at around JPY20,00. In contrast, arch-rival systems designer Accenture has been faring well of late. Its shares are up more than 20-fold since it listed in New York in 2001. Perhaps there is, after all, some justice in this world.

The former CEO of the Post Office between 2012 and 2019, Paula Vennells, handed back her shiny gong (awarded by Theresa May) in shame last week. (Whether HM The King received it by Royal Mail is not recorded. Perhaps it is lost in the post). The reason why she is in the frame is that a 10-year old could have worked out that the sudden outbreak of mass fraud by sub-postmasters might not be the work of the Devil, but rather the product of a flawed IT system which obviously she did not understand. At least she might have supposed that some staff had had insufficient training to handle the system and may have pressed a few keys twice in haste. But no, this was a woman who swanned through the upper echelons of management making solemn PowerPoint presentations which parroted all the on-trend management lingo but left the underlings slightly baffled. (Does that sound familiar?). Besides, she had a parallel career – in the Church of England. God’s business must come first.

Right now, HM Government faces a compensation bill of around £1 billion paid for, until Fujitsu gets its wallet out, by you and me – the mugs who still pay taxes to the British state – to bring justice to the wronged postmasters. Thus far, Fujitsu has not paid a penny in fines, has escaped legal sanction and has continued to seek new IT contracts from Whitehall and its agencies.

The Culprit

A wag quipped this week that fujitsu is an esoteric Japanese martial art involving kicking in the face small and weak opponents who have fallen to the ground.

Let’s recap with a little corporate history (something I love but which some of my readers may find tortuous, so I’ll keep it brief). ICL was Britain’s answer to IBM, formed by a multiple merger of British computer companies – including Ferranti and Leo – orchestrated by the then Labour minister of technology, Tony Benn, in 1968. The great theme of prime minister Harold Wilson’s government of 1964-70 was “the white heat of technology”. Throughout the 1980s, ICL supplied software systems and hardware to government departments and agencies across the UK. But while IBM went on to become a colossus, ICL was allowed to flounder and then to fall into foreign hands.

In 1981, in an effort to go global, ICL entered into a strategic alliance with Fujitsu of Japan. Fujitsu had built Japan’s first mainframe computers in the 1950s. The alliance with Fujitsu enabled ICL to source components (especially transistors) more economically. In 1984, ICL was acquired by the UK’s Standard Telephones & Cables (STC), which was one of the Thatcher government’s early candidates for privatisation. STC, a FTSE-100 constituent, was sold in 1991 to Canada’s Nortel (itself now defunct).

In 1990, Fujitsu bought 80 percent of ICL for a bargain price of £740 million. It then acquired the remaining 20 percent of the stock in 1998. Fujitsu thus inherited the portfolio of software contracts that ICL had provided to the British public sector. One of those contracts was to provide the Horizon system to Britain’s Post Office. Others included systems roll-outs for the Inland Revenue (the precursor of HMRC), the Treasury, the Home Office, the Police National Computer, the Ministry of Defence, the Environment Agency’s flood warning system – and so on. Despite its high profile in the British public sector, in 2001, Fujitsu discarded the ICL brand altogether. Henceforth the UK operation would be known by the name of its Japanese owner.

Fujitsu remains one of the UK’s 39 designated “strategic suppliers” with about 6,000 employees in the UK. As such, it has its own Crown Representative in the Cabinet Office – currently a man by the name of Vincent Kelly. Fujitsu was paid £427 million in UK public sector revenues in 2022-23, according to Tussell – despite “very grave concerns” about the Horizon system expressed by Mr Justice Fraser in a 2019 High Court ruling.

In fact, there were doubts about the efficacy and accuracy of the Horizon system almost from the day it was launched in the late-90s. According to recent reports, Sir Tony Blair ordered officials to go ahead with the new Post Office IT system despite being told that it was “plagued with problems”. The prime minister was told that independent IT experts thought that Fujitsu was “failing to meet good industry practice”. But the then ambassador to Japan, Sir David Wright, told Blair in December 1998 that if the project were scrapped then the British arm of Fujitsu might collapse and that bilateral ties between London and Tokyo would be harmed. Sir Jeremy Heywood, then the prime minister’s principal private secretary, told ministers in May 1999 that the prime minister wanted to avoid putting “ICL’s whole future at risk”.

The Culture

In a recent article in Unherd, the Rev. Giles Fraser, Rector of St. Anne’s, Kew, broadcaster and polemicist, drew together the strands of managerial incompetence which are strangling those three beloved citadels of English life: the local Post Office, the parish church and the village pub. Most people in Britain will be aware that all of these social institutions are in retreat. Pubs are closing at a rate of about two a day right now. The number of people going to a Church of England service on a Sunday morning fell from over one million just before the pandemic to about 550,000 now.

Paula Vennells spans two of these essentially English institutions. She was ordained as a deacon in 2005 and became chief of the Post Office in 2012. She soon attracted the attention of the current Archbishop of Canterbury, Justin Welby. He even sponsored her unsuccessful bid to become Bishop of London in 2017 – the third most important position in the Church of England hierarchy – even though Vennells had never functioned as a parish priest. According to Rev. Fraser, Welby and Vennells share something fundamental in common: an attachment to centralising managerialism.

Vennells, following Welby, wanted to downsize Church of England parishes into all-singing, all-dancing “ministries” which would not rely on a local priest. Thus, expensive and loss-making churches could be closed. Vennells’ and Welby’s vision was to manage the Church of England like asset-strippers taking control of a loss-making conglomerate. They both believe in corporate management theory. Just as they both believe in infallibility – not of the Pope, of course, but of computer systems and management theory

Since I read Rev. Fraser’s article, a senior figure in the Church of England has called for Archbishop Welby’s resignation. The late Queen’s former chaplain, the Rev. Canon Jeremy Haselock, an associate priest at Great St Bartholomew’s in the City of London, criticised Archbishop Welby’s endorsement of Vennells to become Bishop of London. He wrote on social media: “Surely this is the point at which Welby must go. Another demonstration of his complete lack of sound judgment.”

The context

On Monday, Gareth Davies who is the head of the National Audit Office, told the Financial Times that the UK government could save £20 billion a year by modernising IT systems, combatting benefits fraud and by exerting a tighter budgetary grip on failing mega-projects such as HS2. He said that the British state was plagued by “out-of-date IT systems” as well as “crumbling infrastructure”. He suggested that Whitehall had a “governance problem”. He thinks that the UK government could save billions through better management of state assets, digital procurement and effective state-citizen digital portals.

He did point out one recent success: HM Passport Office. Thanks to better procurement and a new IT system, this is now one part of the UK governmental machine which works well. The BBC’s Evan Davies (no relation to Gareth – as far as I know) told listeners this week that he received his replacement passport within days.

Reportedly, the Department of Work and Pensions is still using computer systems that are nearly 40 years old. Furthermore, gigantic all-encompassing IT projects have a high failure rate. IT gurus now talk about “dolphins, not whales” – meaning that a multiplicity of nimble bolt-on IT systems operate more efficiently than national mega-systems. Gareth Davies thinks there are more IT catastrophes as yet uncovered.

There was an estimated £8.6 billion in benefits fraud in 2021-22. It costs £8 million a day to pay asylum seekers’ hotel costs. Taxpayers subsidised Britain’s railway operators to the tune of £11.9 billion last year – and yet we have the most expensive rail network in Europe. Thankfully, the move to eliminate railway ticket offices has been defeated – ticket machines are often out of order and yet travellers without tickets are subject to a mandatory £100 fine.

Our roads are peppered with potholes. British police seem to be obsessed with “hate crime” supposedly perpetrated on social media – yet they hardly ever arrest a burglar. 7.7 million people are waiting for NHS operations. At a time of grave geopolitical danger our two “world class” aircraft carriers are back in dock in Portsmouth because there are not enough sailors to crew them. They don’t have enough aircraft, anyway. HMRC’s culture of working from home (WFH) makes dealing with the taxman a nightmare for millions. Apparently, when HM Customs & Excise and HM Inland Revenue were merged by Gordon Brown in 2005 to form HM Revenue & Customs (HMRC) their two computer systems were never integrated. Say no more.

The Question

Robert Colvile, the director of the right-of-centre think tank the Centre for Policy Studies recently posted on X that there is a “staggering” difference in the growth of productivity as between the UK private and public sectors. According to the ONS, since 1997, private sector productivity is up by 68 percent, but public sector productivity has flatlined. One reason for this, Mr Colvile thinks, is that capital spending on the public sector – and particularly in terms of IT infrastructure – has been misallocated.

Labour will always claim that the problem with the NHS is the lack of “resources”. And yet, since the pandemic erupted in the first quarter of 2020, hospital staffing levels have gone up by 20 percent while the number of medical procedures performed is about the same. The cost of the NHS has risen from £136 billion to £181 billion over the last decade (in constant prices) and yet it is producing perceptibly worse outcomes.

It doesn’t really matter who you vote for in October or November or whenever the general election takes place. It doesn’t really matter which party comes to power. It doesn’t really matter what I think about anything – until such time as any politician can give us a persuasive and comprehensive answer to the overwhelming question:

Why is the management of the British public sector so totally crap?

Afterword

It might have been cold across the UK this last week, but this is nothing. In the winter of 1962-63 (which I can just about remember) the snow stayed on the ground for 60 consecutive days. My father’s precious Humber Super Snipe had to be dug out of the snow. The sea froze at Deal.

A friend of mine who farms in Alberta messaged this week to say that the mercury had hit 48 Celsius below zero there. Now, even with thermal underwear, that would be a challenge for me. But it’s good to hear that climate scientists think that, despite the long-term trend of global warming, we shall still experience snaps of freezing winter weather for the foreseeable future. I love it – I’ve been clocking up the steps early morning on frozen Norfolk drove roads which only a week or so ago were impassable due to fiendish mud.

Spring will come in its own good time.

Listed companies cited in this article which merit analysis:

• Fujitsu (TYO:6702)
• IBM (LON:IBM)
• Accenture (NYSE:ACN)