Plans to develop a Post Office-based Universal Bank will add £20m to the cost of the Horizon counter automation project, which is currently getting 300 Post Offices wired up a week.
The extra cost was revealed in a report into the future of the Post Office by the House of Commons Trade & Industry Committee, published last week.
The report expressed serious reservations about plans to provide every Post Office and sub-Post Office with a computerised platform for benefit payments, banking and e-commerce.
In a reply to the committee, the Post Office said, "We see this as a useful analysis of the major issues facing the Post Office and its network of retail outlets, and we will be studying the recommendations closely."
Horizon is a revamped version of the disastrous Pathway project implemented by the Department of Social Security, Post Office and ICL to provide for the automatic payment of social security benefits through Post Offices.
Pathway collapsed when the DSS pulled out, leaving the Post Office with a £571m write-off. ICL took a £180m hit on its balance sheet.
The project was revamped under the Horizon label. Ministers now claim that its successful roll-out is key to the Post Office's future and efforts to prevent the closure of large parts of the branch network.
The Post Office and contractor ICL have been busily wiring up the nation's Post Offices. However, the Trade & Industry Committee was told the software installed in the first 13,000 sites was built for the Pathway project and is based on an obsolete magnetic strip card design that does not allow full Internet access.
Complete functionality will depend on a series of software upgrades, the first of which was introduced at the end of October. It allows the use of smartcards, two-way messaging between Post Office branches and headquarters buildings, and stock replenishment messaging.
Giving evidence to the committee, Stuart Sweetman, the Post Office's group managing director, customer and bank services, said, "Our judgement was that if we launched everything all at once that would be a task too far."
In addition to raising doubts about software, the all-party committee questioned plans to use the Post Office network to provide a Universal Bank for those excluded from the current financial services organisation.
"We are relieved that the failure a year ago to meet the first Horizon milestone, about which we expressed concern in our 1999 report, has not proved to be significant," said the committee. "It is obviously essential that the ambitious plans being developed by the Post Office to enable it to become a major financial services outlet do not stumble as a result of any technical deficiencies in the Horizon programme.
"If banks are in effect to be obliged to make their basic accounts accessible through Post Offices, and to pay for the privilege, they are entitled to know that the system will be resilient and cost effective.''
The Post Office is now tendering for the banking software it will introduce next year, but the biggest problem it faces, according to Sweetman, is bandwidth.
The Post Office's current business processes rely on batch processing of information. "At the moment none of the applications we have on the Horizon platform require 100% online validation. We will have to upgrade the telecommunications behind Horizon and I think that is probably the biggest issue," he told the DTI committee.
Sweetman estimated that by 2001 it will have cost an additional £20m to upgrade the Post Office network to accommodate the combination of dial-up and broadband links, depending on the size of the Post Office.
The Post Office's plans to turn its branches into centres for e-commerce also caused concern among committee members.
On e-commerce, the report said, "While we share the vision of Post Offices benefiting from the fulfilment of electronic ordering, the details of the commercial arrangements now being made between Post Office Counters, Parcelforce and electronic retailers, and their effect on other private sector fulfilment companies, deserves careful scrutiny by the regulator.''
In the face of all these potential problems the committee called on ministers to ensure that the Post Office was properly funded and supported by other government departments.
Post Office IT