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Horizon is the outcome of the Pathway project which was first procured in 1994, and announced by social security minister Peter Lilley at the 1995 Conservative Party Conference. The goal was to computerise the payment of benefits at post offices, replacing Girocheques and paper benefit books with swipe cards. This would reduce benefit fraud by £150million per year, at the same time as improving efficiency at post office counters, increasing footfall at small branches and enabling them to offer new services. The £1.5billion project would be paid for through the private finance initiative, whereby the successful bidder would develop the system and train some 70,000 Post Office staff to use it, then recover their costs from transaction-based charges.

The contract to create the system for Post Office Counters Limited and the Benefits Agency was awarded in May 1996 to ICL Pathway Limited, a subsidiary created for the purpose in 1995 by British computer company ICL, which was itself majority-owned by Fujitsu of Japan.

By 1998, the Pathway project was two years behind schedule, costs had increased, and there were concerns that magnetic swipe cards were becoming obsolete. Labour had come into power in 1997 and Stephen Byers, one of the responsible government ministers at the time, later called the working relationships between the contracted parties "dysfunctional". The government considered cancellation, but after lengthy negotiation it was agreed in May 1999 that the Department of Social Security would withdraw and the benefit payment card would be abandoned. The project would continue with a reduced scope under the Horizon name at a cost of up to £900m, in order to replace the paper-based system used in post offices. Deployment to over 13,000 offices took place in 2000 and 2001.