Post Office: Horizon Accounting System

Lord Callanan Excerpts

Tuesday 25th February 2020 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank the noble Lord, Lord McNicol, for his welcome. Dealing with some domestic issues makes a great change from talking endlessly about EU renegotiation and the various withdrawal Bills. I am delighted to be doing this job, tricky though many of the issues are.

I thank the noble Lord, Lord Berkeley. We are reunited in policy content after our time together dealing with transport issues. He has raised an important debate. I have been in post for only 10 days. I was not aware of this issue in detail, but I have of course seen the various press comments and summaries about it. The debate has given me an excellent opportunity to familiarise myself with the issue. I say at the outset that I share much of the horror and concern raised by many noble Lords.

I assure the Committee that the Government fully recognise the vital role postmasters and their post offices play at the very heart of our communities. It is therefore only right that their treatment is of the utmost importance to us so that they can continue to deliver a service so highly valued by many up and down the country. The Government also value the economic and social importance of post offices to people, communities and businesses across the UK. That is why, since 2010, successive Governments have made a commitment to safeguard the Post Office network and ensure its sustainability.

Let us consider the current facts regarding the Post Office. Between 2010 and 2018 the Government provided nearly £2 billion to maintain and invest in a national network of at least 11,500 post offices. We set requirements so that 90% of the UK population are within one mile and 99% are within three miles of their nearest branch. Government investment has enabled the modernisation of more than 7,000 branches, added more than 200,000 opening hours per week and established the Post Office as the largest network trading on Sundays.

Post Office banking services enable 99% of personal and 95% of business banking to be done in any of the 11,500 branches, supporting consumers, businesses and local economies in the face of accelerated bank closures. The financial performance of Post Office Ltd has also improved, with the Post Office making a profit for the third year in a row, thereby reducing government funding from £415 million in 2013-14 to £50 million in 2020-21. All this has been achieved because of the able and hard-working women and men who are proud diligently to serve their respective communities each working day. I say that as background to the appalling circumstances that we address today.

On the Horizon accounting system litigation, postmasters are a significant part of the sustainability and future of the Post Office. In relation to the Horizon accounting system case, Post Office Ltd has accepted that, in the past, it got things badly wrong in its dealings with a number of postmasters, and it is right that it has apologised. As noble Lords are aware, on 11 December, the Post Office and claimants reached a comprehensive resolution to the litigation following several days of respectful, challenging and ultimately successful mediation. The Post Office chair, Tim Parker, said:

“We are grateful to the claimants for taking part in this mediation and agreeing a settlement, bringing the Group Litigation to a close. I am grateful to Nick Read for his important engagement in the mediation process. We accept that, in the past, we got things wrong in our dealings with a number of postmasters and we look forward to moving ahead now, with our new CEO currently leading a major overhaul of our engagement and relationship with postmasters.”


I reassure the noble Lord, Lord Berkeley, that this Government do not take for granted the financial and emotional suffering that the impacted postmasters endured in relation to issues with the Horizon system, which is why this Government are pleased that a resolution has been arrived at to settle this long-running litigation.

A number of noble Lords, particularly the noble Lord, Lord McNicol, talked about the Horizon system. That question was central to the subject of the litigation and the second Horizon issues trial when judgment was handed down on 16 December. The judgment made clear that it is a historical analysis of the Horizon system at a specific point in time in the group litigation and not a judgment on the system today. When handing down that judgment, the judge found that the Horizon system as it is today is “relatively robust”.

We are committed to working alongside the new CEO of Post Office Ltd, Nick Read, to implement the necessary cultural and organisational changes highlighted by the litigation. Nick has shown that he is personally committed to learning the lessons and is currently leading a major overhaul of the Post Office’s engagement and relationship with its postmasters. The Government have proactively challenged the Post Office CEO and chairman personally to strengthen its relationship with postmasters and take on board the lessons learned through the litigation. Preparation for this debate offered me the opportunity to speak to Nick Read this morning and we had a productive conversation about all the issues, where he reassured me of the steps that the Post Office is taking on this.

The noble Lords, Lord Bichard and Lord Berkeley, made a number of points about the responsibility of BEIS and the Government for many of these issues. Let me explain that BEIS relied on the Post Office management to investigate the issues with the Horizon system and the Government were assured that the system was robust and the issues raised by the postmasters were being handled appropriately. BEIS pressed management on these issues and was given consistent advice from the company’s experts that appeared to verify those claims at that time. There have been numerous attempts over the years to try to resolve these issues, including an independent investigation in 2013 and a mediation scheme in 2015. Those failed to resolve the issues, leaving the court as the only means of providing the independent review that all sides needed. In hindsight, of course, facts came to light through the litigation that revealed that the advice received over that period was flawed. As such, the Government will monitor closely the progress that the Post Office is delivering on its programme of commitments following the settlement. That relationship will be constantly reviewed.

As I said, I spoke to the CEO, Nick Read, this morning and I was glad to hear that improvements at all levels of the Post Office are well under way, reflecting many of the lessons learned from this difficult experience, which will enable him to take forward a modern Post Office. That means a company fostering a genuine commercial partnership with postmasters, where the necessary support for them to operate branches successfully is available.

Following the agreed settlement, the Post Office is also continuing to directly address past events for affected postmasters. A scheme will be announced in the near future with the aim of addressing historical shortfalls for postmasters who were not part of the group litigation settlement.

The noble Lord, Lord Berkeley, asked about compensation for those affected. The settlement agreed with the Post Office included all legal and other costs. In those circumstances, the Government cannot accept any further request for payment. While the process was undoubtedly challenging, the Government thank all the claimants for participating in order to finally resolve this matter and enable both parties to move forward.

My noble friend Lord Arbuthnot raised the issue of the remuneration of postmasters for their losses. As I said, following that agreed settlement, the Post Office is continuing to directly address past events for affected postmasters. A scheme will be announced in the near future with the aim of addressing those historical shortfalls for postmasters who were not part of that group litigation.

I was pleased to hear from the CEO of the new personalised support that postmasters are now receiving. This includes newly established area managers able to deliver support on the ground, an improved branch support centre to support teams throughout the UK, an overhaul of postmaster training and, above all, a further increase to postmaster remuneration.

My noble friend Lord Arbuthnot asked about the National Federation of SubPostmasters and its independence from the Post Office. It is fair to say that the Post Office has acknowledged criticisms from the litigation about its dealings with postmasters, and is accelerating its programme of improving how it works with both postmasters and the NFSP. We in government are also engaging with other stakeholders in the postmaster community, including the Communication Workers Union, to understand properly the views of postmasters.

Going forward, government Ministers and officials in both UKGI and BEIS will hold the Post Office to account for these reforms, along with wider cultural and organisational changes, and will seek clear evidence that real positive change is taking place.

The noble Lord, Lord Berkeley, asked about the actions of Fujitsu and the cases arising from the litigation.

[Baroness Burt of Solihull]

Before the Minister leaves the subject of the accounts that are outstanding, can he confirm—yes or no—whether any director of the Post Office will be held to account for their actions?

[Lord Callanan]

I will come on to that shortly.

I was answering the noble Lord, Lord Berkeley, about Fujitsu. When handing down the Horizon judgment, the judge raised concerns in relation to the evidence provided by Fujitsu employees. Those cases have been referred to the Director of Public Prosecutions. It is, of course, a matter for the DPP to consider what action, if any, he would like to take following that referral.

My noble friend Lady Redfern asked about the kind of settlement and referred to it being inadequate, following the comments by my noble friend Lord Duncan. We recognise that it has been, to put it mildly, a difficult period for postmasters who have experienced the issues covered by this litigation. Mediation took place between the parties in confidence and, while I can confirm that the total amount of the settlement was £57.75 million, I am sure the Committee can appreciate the legal sensitivities of the matter. While the financial settlement is a major step towards resolving some of these grievances, there is more for the Post Office to do. It has committed to a major programme of work to overhaul its relationship with postmasters, which we in government are determined to see delivered.

My department has taken steps to strengthen the mechanisms for doing so. This has included expanding the BEIS Post Office policy team that works closely with UKGI in holding the Post Office to account at an official level. It also means strengthening the relationships and responsibilities of the Post Office, BEIS and UKGI through a new framework document that formalises that relationship and the responsibilities of those parties involved. I can announce that this will be published shortly. In addition, BEIS has established, and chairs, a quarterly working group involving the NFSP and the Post Office. The working group is a forum for discussing Post Office and postmaster relations and provides the opportunity for highlighting concerns the postmasters may have. As I said earlier, the Government are also engaging with other stakeholders in the postmaster community, including the Communication Workers Union, to understand the views of postmasters. Progress will also be monitored at the highest levels of the Post Office in quarterly ministerial meetings with its CEO, Nick Read.

I can confirm, too, to the noble Baroness, Lady Burt, that we are in the process of establishing the framework document to govern that relationship, and that will be published soon. I will now address her point about holding directors to—

[Lord Bichard]

Before the Minister sits down, will he agree, since he is clearly not inclined to accept the need for an independent inquiry, that the independent non-executive director, who I think sits on the BEIS board, might have a role in ensuring that these promises are kept?

[Lord Callanan]

Indeed, I would of course be happy to accept that. We believe, however, that additional accountability should be in place, which is why I outlined the further accountability mechanisms that we are putting in place: it will not be just the director on the board—there will also be a series of quarterly meetings between the CEO and Ministers, to make sure that we put in place all the appropriate accountability that is required.

On the issue of the directors responsible, we are pleased that the Post Office’s chairman and its new CEO, as well as the previous CEO, have fully apologised for getting things wrong in the past. The appointment of the new CEO in September last year is an important step for the Post Office in improving how the organisation is run, along with its relationship with its postmasters. However, the Government do not propose to take any further action against current or former directors.

Following the conclusion of the mediation, the Government’s focus is now on ensuring that the Post Office lives up to its commitment and moves forward under the leadership of its new CEO. The judgments in this litigation have provided the independent view of the facts that both parties sought for many years, resulting in firm pledges from the Post Office to reform postmaster relations and ensure the stability and sustainability of the network.

Your Lordships can be sure that the Government will hold the Post Office to account in delivering reform and ensuring that these crucial changes have a tangible and positive impact on postmasters. We will make sure that those hard-working individuals are respected and valued for the fundamental role they play in upholding the post office network and with it, delivering essential services to communities up and down the country.

Finally, I apologise for not having time to respond in detail to a number of points that were raised. I will do so in writing.