Post Office Ltd

Lord Sikka Excerpts

Tuesday 30th January 2024 Lords Chamber

[Lord Offord of Garvel (Con)]

To clarify, the Post Office is constitutionally set up to be arm’s-length and will remain so. We are now talking to the Secretary of State about tightening the governance of that. The key position is the chair, who runs the board and is accountable to the shareholders. We will appoint an interim chair as soon as possible, with a view to getting a new person in post this year. That will coincide, I hope, with the inquiry coming through at the end of the year.

[Lord Sikka (Lab)]

On 22 January, I tabled a Written Question about possible conflicts of interest associated with the position of Henry Staunton, the former chairman of WH Smith, which operates Post Office franchises. I have yet to receive and Answer. Mr Staunton has now gone—nothing to do with me, I am sure. First, can the Minister publish the conflict-of-interest assessment made when Mr Staunton was first appointed as chair of the Post Office? Secondly, can the Minister explain how it is that Simon Jeffreys is a director of the Post Office and the Crown Prosecution Service? How did that happen?

[Lord Offord of Garvel (Con)]

I thank the noble Lord for those questions. The removal—the resignation by mutual consent—of the chairman, Mr Staunton, is clearly an ongoing HR issue and we have been clear that we are not going to comment on that in public. That will now take place and no compensation will be paid, but that is still in process in terms of taking action. As far as the rest of the board is concerned, we are happy with the three new non-executive directors who came in in 2023. We have two sub-postmaster representatives, and we are looking for a senior independent director, which will further strengthen the board.

Alan Bates and Others v Post Office Limited

Lord Sikka Excerpts

Wednesday 24th January 2024 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government, following the December 2019 High Court judgment in the case of Alan Bates and Others v Post Office Limited, how many Post Office directors have been charged for breach of statutory duties under the Companies Act 2006, or for conspiracy to pervert justice.

[The Parliamentary Under-Secretary of State, Department for Business and Trade and Scotland Office (Lord Offord of Garvel) (Con)]

I thank the noble Lord for his Question. I can confirm that no prosecutions have been brought against Post Office directors to date. The Horizon inquiry will establish the facts of what went wrong. It would be wrong to take action before we have all the evidence. Punishing people without looking at all the evidence first is how this scandal started. We should not repeat that error.

[Lord Sikka (Lab)]

My Lords, I remind the Minister that the Government have the sole responsibility for law enforcement. It is no good saying that they are relying on some committee to turn up evidence; they have had 49 months, and in that time little has happened. The Government need to take steps to charge people for violation of the Companies Act, false accounting, lying under oath and conspiracy. After six years, they have not even yet managed to deal with the directors of Carillion. That does not inspire much confidence that they will be able to deal with the Post Office directors. The whole thing is being kicked into the next decade. Rather than hiding behind this inquiry, will the Minister now publish a schedule showing a timetable for the Government’s actions?

[Lord Offord of Garvel (Con)]

I thank the noble Lord for that. I know that there is a lot of frustration in this House and the other place on the timelines. This has been going on for a very long time—almost one generation. However, we have been very clear that we have to separate the two elements of this sad story. The immediate action we are taking is to overturn convictions and give compensation. We then come to accountability. A statutory inquiry is in place, and it will look at all the facts of the matter. At that point, a cascade of actions will be taken by the various bodies concerned. We need to understand the role of directors, the ministerial oversight and the role of Fujitsu and the auditor, EY. All that will be done once the facts are established and the Williams commission has reported.

Regulatory Approval for New Products and Services

Lord Sikka Excerpts

Monday 22nd January 2024 Lords Chamber

[Lord Johnson of Lainston (Con)]

I am grateful for those important words and I absolutely agree. There are issues in ensuring that regulators’ mandates are properly focused. It is important to get a balance between, for example, investment, growth and the other regulator duties. I look forward very much to working with the regulators when we assess the responses from the consultation that is currently being undertaken—some were completed last week—to bring together a suite of solutions to ensure that we can continue to grow our economy and regulate it properly.

Let me just add that our regulators are some of the best in the world. From travelling around the world, I know that a number of jurisdictions literally cut and paste our regulatory texts so that they can copy what we do because they admire it so much. That does not mean we should be complacent, but it does ensure that we should focus very much on the opportunities that the growth agenda will give us.

[Lord Sikka (Lab)]

My Lords, perhaps I might urge the Minister to think about regulatory approval in a different way, by reminding him that Warren Buffett said:

“Derivatives are financial weapons of mass destruction”.


We have seen so many financial products mis-sold in this country. Can I urge the Minister to ensure that regulators road-test all financial products before they are unleashed on the unsuspecting public?

[Lord Johnson of Lainston (Con)]

I am grateful for that comment; of course, I would contact the Treasury about it, since that is its specific focus. I totally agree that we need to have trust in financial markets for them to function properly. That also entails significant responsibilities towards the consumer.

Post Office (Horizon System) Compensation Bill

Lord Sikka Excerpts

2nd reading & Committee negatived & 3rd reading
Tuesday 16th January 2024 Lords Chamber

[Lord Sikka (Lab)]

My Lords, it is a rare occasion on which I agree with everything that has been said. No amount of compensation can compensate these people for the pain they have suffered—not only them but also their families and friends. I have a number of questions for the Minister, and I will take this opportunity to put on the record some other matters that will hopefully be helpful for later debates.

First, can the Minister confirm that there will be no upper limit on the amount of compensation?

Secondly, paragraph 14 in the Explanatory Notes states that the scheme will be

“administered by the Post Office”.

Why? Who on earth could have any confidence in it being fair? Surely the entire board needs to be sacked and a new board needs to handle this, or an independent body needs to be created. I do not think many people will have any confidence in the current board’s ability to handle this matter in a fair way.

Thirdly, there are press reports—the Minister may have seen them—that one postmaster got compensation of £15.75. Could he look into this please? I have looked at the 14-page form that this sub-postmaster filled in, and I would not like to complete it. It effectively asks them to give up their rights for any future claim. That is utterly inappropriate, and it is another reason why the Post Office is not a suitable body to handle the compensation claims. I hope the Minister will attend to that as a matter of urgency.

A number of comments have been made about accountability, and directors and auditors have been mentioned. I will put some matters on the record in relation to that. I checked the Companies House filings today and, between 2002 and 2023, there were 83 directors of the Post Office. Despite full inside knowledge, not one of them went on the public record to say that something was wrong. They were complicit, they lied and they committed fraud—83 of them.

The Post Office also had several non-executive directors, who are supposed to challenge what the executive board does. None ever spoke up, despite some also being heads of the audit committee and the risk management committee. There has been a conspiracy of silence, injustice and fraud, and they all need to be held to account.

Noble Lords asked what on earth happened to the money extracted from sub-postmasters under fraudulent pretences. It may interest them to note the Second Sight report from 2015, paragraphs 22.11 and 22.12 of which say that

“for most of the past five years, substantial credits have been made to Post Office’s Profit and Loss Account as a result of unreconciled balances held by Post Office in its Suspense Account … It is, in our view, probable that some of those entries should have been re-credited to branches to offset losses previously charged”.

That was in 2015. The Post Office did not do so. Directors on performance-related pay were very keen to boost the bottom line; they directly benefited from this fraud. They all knew for years that something was wrong but continued in exactly the same way.

There were also violations of the Companies Act 2006 requirements by directors of the Post Office. For example, Section 386 requires directors to keep “adequate accounting records”. In view of the flaws of the Horizon system, it must be doubted that the company did so. Failure to keep adequate accounting records is a criminal offence, so what exactly have the Government been waiting for? Why have they not charged anyone? Is it because we do not have a central enforcer of company law in this country? We are almost unique in the western world in that respect.

Section 172 requires directors to

“act … in good faith … promote the success of the company for the benefit of its members as a whole, and in doing so have regard … to … the interests of … employees … suppliers, customers … the community”

and have

“high standards of business conduct”.

Anyone looking at the 300 pages of the High Court judgment would conclude that the directors totally failed to do that. Unfortunately, we do not have an enforcer of company law, so the onus is on the Government to act. What action has been and will be taken? I have no confidence in the Insolvency Service being able to do anything—we would be waiting another 10 years.

I turn to auditors. Ernst & Young was the external auditor of the Post Office from 1986 to 2018—the entire period of the scandal. As part of their statutory duties, an auditor is required to state whether in their opinion

“adequate accounting records have not been kept, or … returns adequate for their audit have not been received from branches not visited”.

The company did not keep proper accounting records, as I said earlier. Despite the overwhelming evidence to the contrary, Ernst & Young said that it was satisfied—how could it not be, having picked up £1.8 million in fees in the previous two years? Was it all to do with money? This is not the first time we have talked about the role of auditors; there are numerous scandals, and I have published a lot of academic and other research on them.

Ernst & Young knew that the accounting system was deficient. That much is clear from a publicly available, 36-page Post Office report titled Horizon—Response to Challenges Regarding Systems Integrity, dated 2 August 2010. It was written by a gentleman called Rod Ismay, the head of product and branch accounting at the Post Office. He joined the Post Office in 2006, after 11 years working for—guess who?—Ernst & Young, and was now liaising with the auditor. The report is very concerned about the court cases and adverse press reports. I first became aware of this scandal in 2009 from an item in an accountancy magazine, and I have followed it and noted with considerable dismay that nobody actually honed in on auditors or corporate governance. It was all about the systems and everything else.

On page 19 of the report, there is a paragraph that we need to take note of:

“Ernst & Young and Deloitte”


—it has been involved in some capacity—

“are both aware of the issue from the media and we have discussed the pros and cons of reports with them. Both would propose significant caveats and would have limits on their ability to stand in court, therefore we have not pursued this further. The external audit that E&Y perform does include tests of”

Post Office Limited’s

“IT and finance control environment but the audit scope and materiality mean that E&Y would not give a specific opinion on the systems from this”.

Another paragraph is most damning:

“It is also important to be crystal clear about any review if one were commissioned—any investigation would need to be disclosed in court. Although we would be doing the review to comfort others, any perception that POL doubts its own system would mean that all criminal prosecutions would have to be stayed. It would also beg a question for the Court of Appeal over past prosecutions and imprisonments”.


That is an internal document—a report of the Post Office—which is publicly available, and auditors have discussed all of this.

The point is that Ernst & Young had considerable awareness of the issues, systems and internal failures. On 27 March 2011, it wrote to the management of the Post Office. I will read two paragraphs from that letter:

“The outsourcing of Post Office Limited’s … IT function to a third party … provider (Fujitsu) creates a degree of complexity and difficulty for POL in gaining assurance that”


these

“are adequate … We noted that POL are not usually involved in testing fixes or maintenance changes to the in-scope applications; we were unable to identify an internal control with the third party service provider to authorise fixes and maintenance changes prior to development for the in-scope applications”.

It knows that Fujitsu is pulling the strings, having unauthorised access to anything and everything. None of this ever gets mentioned in the accounts and the audit report—none. That is the state of audit that we have in this country.

Ernst & Young knew the failures of the system and the cover-up. It knew that the company did not keep adequate accounting records, and adequate returns were not received from branches not visited by it. Post Office profits were inflated by the amounts fraudulently taken from postmasters.

I have questions. I taught auditing for many years as an accounting academic. The first thing you teach students is that if management asserts something, you try to independently corroborate it; the more that you are able to corroborate something, the more confidence you can have in it. How on earth did Ernst & Young corroborate what the management told it, or did they simply rely upon it? How did it verify income and profits, with millions, possibly—I do not know how much—in loss of money given by innocent sub-postmasters and simply taken by the Post Office?

E&Y knew the Post Office had suspense accounts. The existence of prolonged suspense accounts is an indication of accounting misstatements and possibly fraud—I am sure the noble Lord, Lord Palmer, would agree with that. It should have been put upon inquiry that something was wrong. That went on for years and years. How did Ernst & Young test any corporate reconciliation of those suspense accounts? How was it persuaded to believe that no provisions needed to be made for any contingent liabilities, given that it had access to all the press clippings and everything?

There is an issue. Every year, Ernst & Young gave the company its customary clean bill of health and, as I indicated, in the final two years it collected £1.8 million in fees. As a sole shareholder of the Post Office, the Government need to sue Ernst & Young, because it owed a duty of care to the company at the very least —if not to anybody else. It has been utterly negligent and a party to a cover-up. The Government need to have the Ernst & Young audit investigated from 1999 onwards—not just one year, the whole period. What exactly was it doing? I hope that the Minister will say, “Yes, that will begin tomorrow, next week or next month”, because we need to be very firm on this.

Finally, I fully support the Bill and I await further Bills to reform corporate governance and auditing.

--- Later in debate ---

[Lord Offord of Garvel (Con)]

Shorter arms, yes. There has been quite a big overhaul in terms of organisation, some of which is pretty obvious when you look at it. There is now a huge amount more central support and training given to postmasters. There are 100 new area managers, creating a buffer zone between the manager and the board. Two postmasters have now been appointed to the board as non-executive directors. There is an appointment of a current postmaster in a director role concerned with the day-to-day relationship with the postmasters. All of it should have been done a long time ago.

As we look at public bodies, those of us who have been in the private sector understand how boards work. We understand the role of non-executive directors, which is to challenge management. It is not to nod and pass, or to wave through. It is to be intellectually curious and, if you find something that does not stack up, to probe it and question it. That has not happened here. We have had an organisation that looks and feels like a plc. It has renumeration committees, audit committees, auditors, a board of directors, non-executive directors and a non-exec chair. All of these, when they are put into businesses, are put in for checks and balances, as the noble Lord, Lord Sikka, said. What we have had here is a mirror image of this architecture without any checks and balances. I think this requires us to look quite hard across quite a wide range of arm’s-length bodies.

[Lord Sikka (Lab)]

I am glad that the Minister has clarified that relationship, but my concern is that, for as long as I can remember, the Government have been preaching shareholder activism. What happened to that when it came to the shareholder—the Government —in the Post Office being active? Did nobody notice the pile of newspaper clippings about the cases? I do not remember any Minister standing up and saying “Right, we’re going to look at this” until after the High Court judgment. Why did the Government fail on their own so-called shareholder activism?

[Lord Offord of Garvel (Con)]

I thank the noble Lord for that searching question. Of course, this covers about three or four different Governments and more than half a dozen Ministers; that is just a fact. The reality is that the shareholder of the Post Office is the taxpayer. The share is owned by the Secretary of State for the Department for Business and Trade. Under the current structure, that is effectively subcontracted to an independent board. If that independent board had acted on an independent basis, this would not have happened. In fact, if Ministers had slightly more inquiring minds, this would not have happened.

I look at myself in my role as a Minister. I look at the advice that I am given and at the decisions I have to make. There is a lot coming through on a daily basis. I ask myself this question: if I had been in this role and prior to Horizon there had been an average of, say, 10 convictions per year in a bad year—maybe five on average—and that went up to 80, even though I was very busy, doing a lot of things, and even though I said I had an independent board looking at this for me, would not that raise some inquiry? This fundamentally is the shocking scale—we are all embarrassed about this—of the abuse here. The accountability piece of this will absolutely come through the Wyn Williams inquiry. That will then move us to the next stage of the lessons that we learn from it.

Next is the theme of legal process, brought up by the noble Lord, Lord Cormack, as well as the noble Lords, Lord Forsyth and Lord Weir, and also in relation to the Scottish angle. The noble Lord, Lord Cormack, says that the lawyers have some disquiet about the idea of Parliament overruling courts, but we have had the counterbalancing argument from William Blackstone. I think the House agrees that that overrides that particular issue.

In Scotland and Northern Ireland we have different jurisdictions. There were 77 prosecutions in Scotland and 24 in Northern Ireland. To speak from a Scottish point of view, those prosecutions were brought not by the Post Office but by the Crown Office. That is a separate legal jurisdiction in Scotland. Yes, we are one United Kingdom, but in the UK we respect the legal jurisdictions of the devolved nations. The Lord Advocate has reported today to Holyrood, the devolved Parliament in Edinburgh, saying that she is not currently in favour of a blanket rescinding of convictions because, she says, not every case involving Horizon will be a miscarriage of justice. She wishes to go through the appeal court—the Scottish Criminal Cases Review Commission. From a legal point of view, she is saying that these convictions were made by a court and therefore should be undone by a court.

We are at an early stage of that dialogue. There are letters and communication going between the MoJ in London and the Lord Advocate and the Crown Office in Scotland, and there is communication between the First Minister and the Prime Minister on this. That just highlights that there are some legal complexities here. The reserved matter remains reserved. Compensation will be the same for all jurisdictions, but there are some issues to be resolved regarding the actual legal process—certainly north of the border.

Horizon: Compensation and Convictions

Lord Sikka Excerpts

Wednesday 10th January 2024 Lords Chamber

[Baroness Fox of Buckley (Non-Afl)]

My Lords—

[Lord Sikka (Lab)]

My Lords—

[Baroness Williams of Trafford (Con)]

Can we let in the noble Baroness, Lady Fox, from the non-affiliated Benches, please?

Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022

Lord Sikka Excerpts

Tuesday 19th December 2023 Lords Chamber

[Lord Offord of Garvel (Con)]

As I said before, a decision has not been made on this—a consultation is going on. Regulation 7 is in some ways interference with the operation of private companies and other employers, and sometimes prevents work-seekers being offered employment in legitimate circumstances. We are trying to get the balance right here between maintaining the right to strike and providing companies with the ability to service their clients and fulfil their revenue.

[Lord Sikka (Lab)]

My Lords, could the Minister inform the House, either now or in a Written Statement, of the cost of developing, processing, enacting and defending this unlawful legislation? Can he also promise to refer this legislation and the court case to the newly appointed Minister of State without portfolio as an example of how the Government waste public money?

[Lord Offord of Garvel (Con)]

I think the decision was made on the basis that the court decided that full consultation had not taken place on what we would all agree is an important matter in employment law. It was quite legitimate to say that the consultation should be rerun. It was decided not to appeal the decision—so public money was saved in that regard—but that the consultation should be now run in the ordinary course.

Code of Practice on Reasonable Steps to be taken by a Trade Union (Minimum Service Levels)

Lord Sikka Excerpts

Wednesday 6th December 2023 Lords Chamber

For those reasons, among many others that my noble friends have and will articulate, I shall vote for the fatal amendment and, in case that fails, the regret amendment.

[Lord Sikka (Lab)]

My Lords, it is a pleasure to follow my noble friend Lord Hendy. I will ask the Minister to clarify a few things.

My noble friend already quoted some of paragraph 33 of the Code of Practice, which requires the picket supervisors or other trade union officials

“to use reasonable endeavours to ensure that picketers avoid … trying to persuade members who are identified on the work notice not to cross the picket line”.

However, the next paragraph states:

“Unions are not required to notify the picket supervisor of the names of union members identified in the work notice”.


So how exactly would they know who to stop? Will they have to wear strange hats, ties or jackets or some other way of identifying themselves? Those two paragraphs contradict each other.

That is not the only contradiction in the statutory instruments. Workers are being subjected to laws that do not apply to the withdrawal of capital, so the Government are not being even-handed at all. Companies can close facilities and sack workers without notice and without any vote by any stakeholder. Last year, P&O Ferries unlawfully sacked 800 people. The then Prime Minister openly said that that was unlawful. The chief executive of P&O Ferries came to a parliamentary committee and said that they knowingly broke the law, but no action whatever was taken. The Government are not even specifying the minimum levels of service for any government departments, monopoly service providers or companies. There are no minimum levels of service even for Ministers to answer Questions.

Why are the Government so anti-worker and one-sided? I am reminded of a great quote: “When tyranny becomes law, resistance becomes a duty”. I too shall vote for the fatal amendment and, if that fails, the regret amendment.

[Lord Thomas of Cwmgiedd (CB)]

Notices are often fraught with peril, so I want to know from the Minister what the employer is required to do when giving a notice. What is specified as to his means of communication? Is the means of communication employed by the employer to be communicated to the trade union, so that the trade union has some idea of what the employer thought was a means of bringing it to the attention of the employee? If this is to work, there must be a reasonable degree of co-operation.

British Steel

Lord Sikka Excerpts

Wednesday 8th November 2023 Lords Chamber

[The Earl of Minto (Con)]

I thank my noble friend for that question. We generate just over £11 million-worth of ferrous scrap each year, of which about £8 million-worth is exported.

[Lord Sikka (Lab)]

My Lords, I hope that the Minister can clarify a policy issue here. The Government are handing billions of pounds to steel, railway, broadband, car makers and others. Why do they not take an equity stake in those businesses? That way, the businesses still get the money and the public has some kind of asset. Should the business then make a recovery, there would be a return.

[The Earl of Minto (Con)]

My Lords, that sounds to me rather like the thin end of the wedge. Any return to some form of nationalisation is not appropriate. We operate in a global market now, in all sorts of categories. We must allow the commercial viability of each individual market.

Small and Medium-sized Enterprises: Interest Rates

Lord Sikka Excerpts

Wednesday 13th September 2023 Lords Chamber

[The Earl of Minto (Con)]

The noble Lord makes a very good point. Those are some of the largest international companies in the world, and I am sure that they will provide the Prime Minister with some extremely helpful advice. Having said that, as we all know, in this country the vast majority of businesses are small and medium-sized enterprises. In my role, I communicate with them almost constantly, both individuals and representative bodies. The value they have to add to these sorts of fora should not be underestimated. They are an extremely valuable and successful part of our economy.

[Lord Sikka (Lab)]

My Lords, there is evidence to show that the closure of bank branches leads to lower financial support for local businesses, especially as it also leads to the loss of local economic intelligence networks. What have the Government done to estimate the negative effects of bank branch closures on financial support available for SMEs?

[The Earl of Minto (Con)]

My Lords, it is an extremely good point. If one goes back to before the financial crisis in 2008, when the big five really dominated, there has been nothing short of a revolution in business lending since then. In fact, last year some 55% of all SME borrowing came from challenger banks—at-base banks and specialist SME banks such as OakNorth and Hampshire Trust Bank. The whole structure has changed in the last few years, and my guess is that some of the more traditional banks are feeling the pain in this area.