7 November 2024 – Lorna Gratton and Alexander KCb
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(10.00 am)
Ms Hodge: Can you see and hear us?
Sir Wyn Williams: Yes, but only faintly.
Ms Hodge: Is that any better, sir?
Sir Wyn Williams: It is to a degree. It is a bit faint but, anyway, I can hear you.
Ms Hodge: Would you like us to see if we can improve the sound?
Sir Wyn Williams: The trouble is it may interfere with your questioning if you’re worrying about whether I can hear you or not, that’s all. Let’s start and see how we get on and if I’m struggling I’ll let you know.
Ms Hodge: Thank you, sir. Our first witness today is Lorna Gratton.
Sir Wyn Williams: It’s fine now, by the way. You suddenly came through much more clearly.
Lorna Gratton
LORNA RACHEL GRATTON (affirmed).
Questioned by Ms Hodge
Ms Hodge: Please give your full name.
Lorna Gratton: Lorna Rachel Gratton.
Ms Hodge: You should have in front of you a copy of a witness statement dated 13 September this year. Do you have that before you?
Lorna Gratton: I do, yes.
Ms Hodge: That statement runs to 113 pages. Could I ask you, please, to turn to page 99.
Lorna Gratton: Yes.
Ms Hodge: Do you see your signature there at the end of your statement?
Lorna Gratton: I do, yes.
Ms Hodge: Is the content of the statement true to the best of your knowledge and belief?
Lorna Gratton: Yes.
Ms Hodge: Thank you, Ms Gratton. As you know, my name is Ms Hodge and I ask questions on behalf of the Inquiry. I shall begin by asking you some brief questions about your career background, if I may.
Upon graduating from university in 2005 you began a career in teaching; is that correct?
Lorna Gratton: Yes, I did the Teach First programme, yes.
Ms Hodge: You later joined the Civil Service in January 2010 and were assigned to work in the Treasury; is that right?
Lorna Gratton: Yes.
Ms Hodge: In your statement you say you worked in the Enterprise and Growth Unit and as Private Secretary to the Chancellor; did you perform both of those roles simultaneously?
Lorna Gratton: No, I was in the Enterprise and Growth Unit first, then I worked for the Chancellor and then I went back to the Enterprise and Growth Unit.
Ms Hodge: Thank you, you left the Civil Service in January 2013 to join Boston Consulting Group, later returning in July 2016 to serve as Private Secretary to the Prime Minister; is that correct?
Lorna Gratton: Yes.
Ms Hodge: You subsequently worked in the Department for Culture, Media and Sport, where you were appointed the Director for the Digital and Tech Policy Directorate in May 2020; is that right?
Lorna Gratton: Yes.
Ms Hodge: In October 2021, you joined UKGI as a director –
Lorna Gratton: (The witness nodded)
Ms Hodge: – and were appointed as the Shareholder Representative Non-Executive Director to the Board of Sheffield Forgemasters; is that correct?
Lorna Gratton: Yes.
Ms Hodge: Since May 2023, you’ve served as the UKGI Director with responsibility for the Post Office – is that right –
Lorna Gratton: Yes, it is.
Ms Hodge: – and have sat on the Board of the Post Office as the Shareholder Representative Non-Executive Director?
Lorna Gratton: Yes.
Ms Hodge: In your role as UKGI Director, you currently have responsibility for leadership of the Shareholder Team; is that right?
Lorna Gratton: Yes.
Ms Hodge: In your statement, you describe the responsibilities of that team as being to oversee the Post Office’s corporate governance and strategy and to monitor its stewardship of financial resources; is that correct?
Lorna Gratton: Yes, this is.
Ms Hodge: I’d like to begin, please, by asking you some questions about the relationship between the Government and the Post Office. In your statement, you describe the Memorandum of Understanding that exists between UKGI and what is now the Department for Business and Trade and you explain that the MOU, which was signed in December 2019, draws a distinction between what we know as the policy function and the shareholder function as it applies to arm’s-length bodies, such as the Post Office; is that correct?
Lorna Gratton: It is, yes.
Ms Hodge: You point out that the MOU formally assigns the policy function to the Department and not to UKGI; is that right?
Lorna Gratton: That is, yes.
Ms Hodge: Although matters of policy are decided by the Department, you acknowledge that they are communicated to UKGI, which is obliged to take them into account when performing its shareholder representative function; is that correct?
Lorna Gratton: Yes, absolutely. So the Department sets the objectives for Post Office, and UKGI helps ensure that the Post Office is delivering on those objectives.
Ms Hodge: How would you characterise the Department’s current policy objectives for the Post Office?
Lorna Gratton: So the policy framework for Post Office as it stands is expressed in terms of the number of branches that the Post Office has to have and the coverage of the UK population that have to be within a certain distance of a number of branches, and then the services that Post Office is subsidised by the Government to provide, which are currently mails, banking and payment services, and then some other Government services as well.
Ms Hodge: Does it remain the Government’s ambition that the Post Office should strive to achieve financial self-sufficiency?
Lorna Gratton: Yes, as set out in the Chair’s letter. So the Department writes an annual letter to the Board of the Post Office and “financial sustainability” – I think, is the phrase used in the letter – is set out in that. Sustainability is slightly different from self-sufficiency.
Ms Hodge: What do you understand “financial sustainability” to mean?
Lorna Gratton: It’s a really good question and a topic that is of live discussion within Government. Post Office is currently loss-making and has been since it was separated from Royal Mail. The losses are at the moment worsening, so I think, as a starting position, we would like to stabilise the financial position of the company and then take a view from there. But ministers have not yet given a steer on that.
Ms Hodge: So financial sustainability reflecting not an expectation of self-sufficiency, at least in the short-term?
Lorna Gratton: Not necessarily, no.
Ms Hodge: Do you consider that financial self-sufficiency, would that be a realistic objective for the Post Office, given the social function which it is required to perform by the Department?
Lorna Gratton: So I think you can separate out the two parts. You could have a financially self-sufficient commercial network, and then there are uneconomic branches which the Government subsidises through the network subsidy. You could take one view that that would be a sort of mode of self-sufficiency where the Post Office is funding the bits that are commercial and Government is paying for the service that it delivered in the other bits of the branches. A sort of slightly more rigorous view of it would be that the Post Office would need to be cash generative on an overall basis.
At the moment, that is not the case. It is, as I say, a live discussion with Government at the moment – between Post Office and the Government – as to whether or not that is achievable through changes to the Post Office.
Ms Hodge: By changes to the Post Office, do you mean changes to the size of the Post Office Network?
Lorna Gratton: Not necessarily to the size of the network. Largely due to – largely changes to the Post Office’s Head Office cost base.
Ms Hodge: You describe in your statement the various levers which are available to the Government to influence the governance and management of the Post Office. Some of these are coercive powers, such as the power to dismiss the Chair of the Post Office Board; is that correct?
Lorna Gratton: Indeed.
Ms Hodge: Others you characterise as soft powers or influence –
Lorna Gratton: (The witness nodded)
Ms Hodge: – over the direction of the company, such as maybe exercised through meetings between ministers and the senior leaders of the Post Office; is that correct?
Lorna Gratton: Yes.
Ms Hodge: In your statement, you suggest it’s always been open to ministers to exercise power and influence over the Post Office, and you cite the example of Baroness Neville-Rolfe writing to the incoming Chair in September 2015, requesting that he prioritise getting to the bottom of concerns about Horizon; is that right?
Lorna Gratton: Yes, that is, yeah.
Ms Hodge: If all the necessary levers were available to ministers to influence Post Office Management, what do you think went wrong from a governance perspective in relation to Horizon?
Lorna Gratton: I wasn’t involved at the time so my reflections are based purely on sort of evidence that’s been given to this Inquiry. My understanding is that there was a lack of transparency from the Post Office to the Government, and within the Post Office to the Board, so that there wasn’t a widely shared understanding of what had gone wrong and, where people did know that, that information was not adequately shared with ministers or, indeed, in some cases, my understanding is with the Board.
Ms Hodge: You say in your statement that a certain amount of caution needs to be shown regarding the exercise of those powers, hard and soft, by ministers; is that right?
Lorna Gratton: Yes, it is.
Ms Hodge: Why is that?
Lorna Gratton: Post Office, as other arm’s-length bodies, has a Board that has fiduciary responsibilities to the company. We try, as Government, to attract sort of qualified individuals to be on that Board, and they are typically people who have got a range of experiences and a range of backgrounds. And the Board, I think, needs to feel empowered to exercise oversight and exercise its responsibilities in holding the company to account.
I think if there’s too much interference from Government, then the Board doesn’t feel empowered to do that and I think we would find it difficult to retain people who have got the right skillset to join that Board. You know, it’s a significant time commitment to people.
That said, I think there is a lot of space for ministers, as the shareholder of Post Office, to provide their views to the Board and I think, as with any 100 per cent single shareholder-owned company, the Board should be willing to take a steer because the success of the company should be closely aligned with what the shareholder considers to be success.
Ms Hodge: We’ll return to that particular point shortly but, in your statement you say, as a matter of principle, the shareholder should not involve itself in the operational running of the business. That’s a matter which should be left to the Post Office’s Board, and you’ve explained the concern about the Board not feeling empowered.
Do you consider that the distinction between the Government’s policy objectives for the Post Office and operational matters is one which is capable of being maintained in practice?
Lorna Gratton: Yes, I think it is capable of being maintained in practice, although I think circumstances sometimes require more intervention from the shareholder’s point of view and sometimes less intervention. And I think that it is appropriate for the shareholder to provide views where they feel very strongly on a matter of great significance.
So for example, on culture, I personally think that is a topic that is rightly for the shareholder because it is integral to the running of the company. The operational matters, actually, I think are more for the Executive than for the Board. You know, the CEO is accountable for the operations of the company and the CEO is accountable to the Board.
Ms Hodge: In your role as Shareholder Non-Executive Director, how do you determine whether and to what extent you should involve yourself in operational matters concerning the Post Office?
Lorna Gratton: I like to have a high level – like other Board members, I like to have a high level understanding of what is happening at an operational level because that is the performance of the company. I don’t involve myself in operational matters, generally speaking, beyond those that come to the whole Board.
Ms Hodge: In her evidence to the Inquiry, Amanda Burton, one of your colleagues in the Post Office Board, stated that you personally requested to be involved in overseeing an investigation into a whistleblowing complaint made against the CEO; is that correct?
Lorna Gratton: Yes, it is.
Ms Hodge: Why was that?
Lorna Gratton: Because I think that it’s of interest to the shareholder. The CEO is the most senior employee of the company, he is a Board director. I think it is appropriate that – and an appointee appointed by the shareholder. The behaviour and conduct of the CEO I think is a pertinent issue to the shareholder because it impacts the culture of the organisation.
Ms Hodge: You say in your statement that a risk-averse culture has developed in the Post Office, which you attribute, I think at least in part, to the intense scrutiny of this Inquiry and to the media; is that right?
Lorna Gratton: Yes, it is.
Ms Hodge: Has the intervention by the shareholder and by its representative Non-Executive Director been a contributing factor, do you think, in the development of that particular culture?
Lorna Gratton: I think it’s a good question. The shareholder provides a very significant degree of scrutiny to Post Office, particularly relating to funding requests, which I think are rightly a matter for the shareholder. If the shareholder has been asked for funds, then I think it is completely legitimate that the Post Office has to provide a business case, and scrutiny to that.
I actually don’t think the shareholder intervenes significantly outside of the processes that are set out in the governance documents. So I think, on the IT programme, there’s probably something in the idea that there is a high level of scrutiny from the shareholder and that has made people very conscious of the decisions they’re making – I think rightly so, when they’re spending public money. But I don’t think the shareholder has contributed more widely than that.
Ms Hodge: In terms of striking a balance between, on the one hand, exercising effective oversight of the Post Office and, on the other, affording its Board and management team sufficient autonomy to make decisions, do you think that you in your role as Shareholder Non-Executive Director are currently striking the right balance?
Lorna Gratton: So I think part of the context for this question and discussion is the ongoing and very frequent requests for funding that have come from Post Office over the course of the last two to three years into Government. As I just described, I think it is entirely right and proper that Government provides scrutiny to the spending of what is ultimately taxpayers’ money.
I don’t think – I think the Post Office gets a lot of scrutiny from the Government in terms of its funding plans and spending of taxpayers money. I think that, outside of that, the shareholder and my – sorry, they’re slightly distinct. The shareholder’s interventions are set out in the governance documents and they are in line with the Government’s governance documents. I am a Non-Executive Director of the company: I provide scrutiny, as any other Non-Executive Director does, and not beyond that.
Ms Hodge: In your statement you acknowledge the frustration expressed by some Board members about the level of intervention by the Shareholder Non-Executive Director in Board meetings. Have those sentiments prompted you to reflect upon whether you are striking the right balance currently in that role?
Lorna Gratton: So my understanding is that those concerns were raised prior to my time joining the Board and that there are not concerns, or I have not had concerns reflected to me or, as I understand it, to UKGI about my interventions in meetings. That said, I can understand where the question comes from, not least because the shareholder representative is a proxy for the views of the shareholder, and where the views of the shareholder are pertinent to a decision that is being made, I think it is helpful to have those reflected into the Board.
I think there’s sometimes a little bit of confusion between the extent to which the shareholder representative is sort of making a decision themselves or giving their own views, rather than being a conduit for the – or a sort of good proxy for the views of the minister and I think that the views of the minister and the shareholder are often a thing that is helpful for the Board to hear, for them to understand how a proposal they’ve got is likely to be received by the Department.
Ms Hodge: Speaking more generally about this governance issue, you say at paragraph 31 of your statement that it’s your view that the principles that apply to purely commercial companies need to be tailored to take account of the policy considerations that underline publicly owned assets. Can you please explain, insofar as you haven’t done so already, in precisely what way you considered those principles need to be tailored. I’m happy to take you to it, if that helps give it context.
Lorna Gratton: Yeah, I’ll just find it, if that’s all right.
Ms Hodge: It’s page 15 of your statement, WITN11310100.
Lorna Gratton: Yes, so I am very happy to expand on that. So I think there are considerations for companies that are owned by government that are a bit different to companies that are privately held or listed companies, for example the approach to settlement agreements with staff. So in the public sector, arm’s-length bodies do not have the ability to make settlement agreements with staff, so that is essentially reaching an agreement where you are paying a member of staff to leave, and that is a principle set out by Treasury, to ensure that public funds are well used and to incentivise good management, rather than exiting people out of the business without having followed a process.
That is not typically done. Sorry, in commercial organisations they typically have a freedom to reach an agreement and pay someone to go. That is not a thing that can happen in the public sector.
Ms Hodge: So that being one example of that tailoring?
Lorna Gratton: Yeah.
Ms Hodge: Can you provide any specific examples in relation to your interactions with the Post Office, where you think those principles need tailoring?
Lorna Gratton: I also think the remuneration would be another example of that, I think. So remuneration in the public sector is a matter of public record and ministers feel strongly that those who serve in public corporations and for the Government should have a sense of social purpose around what they do as well, and remuneration rates are not as high in the public sector in many instances as they are in commercial organisations.
Ms Hodge: Do you consider that the issues relating to remuneration have been a significant problem during your tenure as Shareholder Non-Executive Director?
Lorna Gratton: At Post Office, yes; when I was a NED at Sheffield Forgemasters, no.
Ms Hodge: Why is that?
Lorna Gratton: I think the issues relating to the Post Office CEO’s – the request for pay increases, are sort of well documented and have attracted a lot of attention.
Ms Hodge: Thank you. If I could move on, please, to ask some brief questions about the mechanisms that exist in UKGI for recording and reporting on risks relating to the Post Office.
Could we please bring up the statement again at page 15, paragraph 33, please. Thank you. This in relation to UKGI’s internal risk reporting. You say:
“[This] provides a mechanism to identify, escalate and manage risks faced by UKGI in exercising its mandate. These risks predominantly relate to UKGI’s ability to provide sound advice to client departments and for UKGI’s Shareholder [Non-Executive Directors] and Shareholder Teams to perform their roles effectively. These are not the same [you point out] as the risks being faced by the Assets directly.”
Do you know why it is that risks faced by the Government’s assets, such as the Post Office, are not captured in UKGI’s internal risk registers?
Lorna Gratton: Because they’re captured elsewhere through different processes. So Post Office – the CEO of Post Office is, in Government speak, an accountable person and the accountable person reports their risk into the Principal Accounting Officer, which is to say the Post Office reports its risk into the shareholder, as in the Department, and the Department’s Board and Principal Accounting Officer is ultimately responsible there.
And in UKGI the UKGI Board is responsible for UKGI’s risks and our operational risks, which are primarily around things like resourcing, are we getting traction with the Department, that kind of thing.
Ms Hodge: Given the supervisory nature of the role that UKGI performs in relation to assets, such as the Post Office, do you think that risks relating to those assets ought to be captured within UKGI’s internal risk registers?
Lorna Gratton: No, because I think that they are adequately dealt with, and managed elsewhere. Now, we provide a lens into the Department on Post Office’s risks, and, you know, the risk reporting, there is a formal element to it, and then I, as a Board member, will also have a view, because I sit on the Post Office ARC Committee, and I will provide a sort of additional layer into the Department, if I think there is anything that’s not been captured or I think there’s anything that needs to have their particular attention drawn to it.
But that is the mechanism for doing it, rather than through the UKGI Board because UKGI Board ultimately don’t have any levers over Post Office, right? The levers sit with the shareholder, who is the Department.
Ms Hodge: You’ve mentioned the CEO’s role as an accountable person. Does it follow that from UKGI’s perspective, primary responsible for risk reporting in relation to the Post Office rests with the CEO?
Lorna Gratton: Yes.
Ms Hodge: But you’ve gone on to say, and you say in your statement, that you and your team complement that risk reporting –
Lorna Gratton: Yes.
Ms Hodge: – by reporting issues of concerns identified as a result of your daily interactions with the Post Office; is that correct?
Lorna Gratton: Yes, it is.
Ms Hodge: How do you judge whether an issue of operational performance requires to be reported to the Department?
Lorna Gratton: I think that’s a really good question and ultimately it’s a matter of judgement and there are lots of things that feed into one making a judgement call. There are some things I – you know, the Department has got risk appetite statements, right? There are some things that it is very clear to me – the Department has told me that they are very concerned about, in terms of sort of financial performance, budgets, that sort of things. And then there will be other things that are of particular concern to the Department for historical reasons, or for other operational reasons.
For example, and I’m sure we may come on to this, the discrepancies – the survey that was done by the Inquiry, the YouGov survey, with the responses from postmasters about how frequently they were experiencing discrepancies. That is a great concern to the Department. It’s also of great concern to the Post Office Board. You know, I raised it outside of the sort of normal risk reporting process and talked to the Department about what they wanted to do about it.
Ms Hodge: Some of your risk reporting to the Department is conducted formally in the presence of the Post Office Executive, such as in the context of the quarterly shareholder meetings; is that correct?
Lorna Gratton: That’s not our risk reporting: that is Post Office’s risk reporting to the Department.
Ms Hodge: But which you would complement in the context of those meetings?
Lorna Gratton: Probably not. I would probably talk to them outside of the meetings.
Ms Hodge: I think, therefore, it follows that the bulk of your risk reporting takes place in private meetings and communications with the Department Director, Carl Creswell –
Lorna Gratton: Yes.
Ms Hodge: – and the Director General, David Bickerton; is that correct?
Lorna Gratton: Indeed, yes.
Ms Hodge: Is there sufficient transparency, do you think, in the reporting of risk by UKGI to the Department, insofar as it concerns the Post Office?
Lorna Gratton: Yes. Absolutely. So we do a – currently our process is we do a monthly note in addition to the – so Post Office do the quarterly shareholder meetings with the Department, my team do a monthly note, where we provide any updates or any additional issues – that goes to David Bickerton and to the Permanent Secretary and to ministers – and then I have conversations on top of that, with David and with Carl.
If there’s something particularly pertinent outside of those meetings, I will send them – you know, send them an email – yeah.
Ms Hodge: Forgive me, you’ve answered the question with reference to how those interactions are recorded –
Lorna Gratton: Right.
Ms Hodge: – and that’s fair, I didn’t clarify. But do you think those interactions are sufficiently transparent to the Post Office, and should they be?
Lorna Gratton: In the vast majority of cases, I am not saying anything to the Department that I wouldn’t say to the Post Office. That is not true in every case and nor should it be true in every case because I am there to represent the shareholder with a particular, you know, view of what the shareholder is going to be interested in.
Ms Hodge: Do you think that those private channels of communication with the Department risk undermining the Post Office Board and the Senior Executive Team in their governance and management of the Post Office?
Lorna Gratton: No, I don’t. Having said that I don’t say anything, though occasionally I do say things I wouldn’t say to Post Office, I almost always share my views very openly with other Board colleagues. So perhaps not with the management team but always with the other Board colleagues.
Ms Hodge: You refer in your statement to a recent review of the Department’s risk reporting analysis by the Government Internal Audit Agency. You say that the review made a recommendation concerning the alignment of risk appetite as between the Post Office and the Department; is that correct?
Lorna Gratton: Yes.
Ms Hodge: Can you please explain the basis on which that recommendation was made?
Lorna Gratton: The Government Internal Audit Agency are – so the findings of their report was that the relationship works, effectively, and they did not have concerns at a high level about the – us performing shareholder role on behalf of the Department. They made a number of recommendations that are quite administrative in nature, around taking more notes of meetings, you know, producing a document that says who does what, rather than everybody just knowing who does what, and it was the same thing on the risk appetite.
So I have a good understanding because I talked to Carl Creswell almost every day about the Department’s risk appetite. This was about sort of formalising that through risk appetite statements.
Ms Hodge: Is there or has there been a misalignment, in your view, between the risk appetite of the company and the Department?
Lorna Gratton: No.
Ms Hodge: According to your statement, the review also recommended that sources of risk assurance available to the Post Office should be shared with the Department; is that correct?
Lorna Gratton: I don’t recall that but, if that is true, then that is true.
Ms Hodge: If we could just take a quick look, please, at page 19 of Ms Gratton’s statement. It’s at paragraph 42.
Lorna Gratton: Right, yeah.
Ms Hodge: So it’s just that final sentence. Do you know what reference is being made there, in terms of sources of risk assurance within the Post Office?
Lorna Gratton: I actually don’t – I can’t recall what those sources would be. My best guess would be that it would be internal audit type reports but I’m afraid I can’t provide any more information.
Ms Hodge: Do you know whether those are routinely shared with the Department?
Lorna Gratton: They are not routinely shared with the Department, no. The Department could ask to see them if they wished to.
Ms Hodge: Thank you. I’d like to move on then, please, to another topic, this time concerning the composition of the Post Office Board.
Lorna Gratton: Yes.
Ms Hodge: The statement can come down, thank you, although it will come back up shortly.
You discuss in your statement the contribution which Mr Elliot Jacobs and Mr Saf Ismail have made as Postmaster Non-Executive Directors of the Post Office Board. I wonder if we could please just take a look at page 39, paragraph 84, where you describe that contribution which they’ve made. You say this:
“In my opinion, Mr Jacobs and Mr Ismail have added a huge amount of value to the Board. They have changed the nature of discussions at Board level and ensure that the actual experiences of postmasters are heard. In my experience they have been listened to, particularly when discussing issues relating to how policies and practice contained in Board papers will affect postmasters on the ground.”
If we could go over the page, please, you have given an example there to ways in which they’ve made a valid contribution. You say, at the end of paragraph 84:
“Their perspective on this and other important issues – particularly those that affect [the Post Office’s] cost base, and therefore ultimately have a significant affect on postmaster livelihoods – has been invaluable.”
You go on in the following paragraph to discuss some of the problems which have arisen from the appointment of postmasters to the Post Office Board. You say there:
“There have plainly been some issues in the way in which the Postmaster [Non-Executive Directors] have been inducted and integrated onto the Board. There were also occasions when [they] did not fully distinguish between their role as Directors (with the fiduciary duties that this entails) and their position as both active postmasters and representatives of the wider postmaster community.”
Can you please explain a little more clearly what you mean by their failure fully to distinguish fully between their role as Directors and their position as postmasters and representatives of that community?
Lorna Gratton: So as I say at the beginning of that section, I think Elliot and Saf have added huge amounts of value to the Post Office Board and they have genuinely changed – I wasn’t on Board before. My understanding is they completely changed the dynamic in the Board room by bringing their perspective and lived experience as postmasters to the discussion.
I touched earlier on Post Office’s financial position, which is not a healthy one. And the budget discussions annually are very tricky in Post Office, because the company is not able to pay postmasters as much remuneration as it would like to because there are insufficient funds available. And there are many reasons for that, and, you know, potentially, had things been done differently in the past, in terms of cost saving measures, there may be more funds available now but the situation now is what it is.
And I think occasionally, well certainly this year in the budget discussions, I think Mr Ismail and Mr Jacobs found the position really difficult to accept, and I understand why they found it difficult to accept. It is, broadly speaking, not an acceptable position. But as a director of the company, you need to ensure the company continues to be a going concern and has a balanced budget and I think they found that interaction very difficult.
Ms Hodge: I’d like to ask you some questions about a meeting which you attended with Minister Hollinrake on the 29 February 2024.
We have a readout of that meeting, please, at BEIS0000753.
Ms Hodge: Thank you, the subject of the email is “Nick Read Readout 29 February”. Is this is an example of the quarterly shareholder meetings which we discussed earlier?
Lorna Gratton: No, it’s not. It’s a monthly meeting that the Minister had with Nick Read and some other Post Office Executives that myself and Carl would regularly attend.
Ms Hodge: Thank you. We see there list of attendees is: the Post Office CEO; and you’re there on behalf of UKGI; and as you say, Mr Creswell is the Director of the Department. This meeting comes shortly after the dismissal of the Post Office Chair, Henry Staunton; is that correct?
Lorna Gratton: It is, yes.
Ms Hodge: We’ll return to that topic a little later, but that provides relevant background to the discussion in this meeting; is that right?
Lorna Gratton: Yes.
Ms Hodge: Shortly after the meeting starts, we see you make the following comment, so your first contribution is there saying:
“Need as much support as you can get from Ben Tidswell to try and get the Board functioning properly. We need to try and find a way through the Project Pineapple memo.”
The Project Pineapple memo was a reference to concerns raised by both Postmaster Non-Executive Directors about the prevailing culture within the Post Office, which they perceived to be hostile to postmasters; is that correct?
Lorna Gratton: I think that is part of it. That memo had been sent on, I understand inadvertently, to the Group Executive members by the CEO. So it had also had quotes of it published in The Times. So the issue isn’t just the memo, they expressed legitimate concerns. I think the issue is that memo had been sent on to the people who they referred to in the note, they had received that note, and the note in part had been made public.
It had a really damaging impact on the relationship between the Postmaster Non-Execs and the Executives in the company. So, aside from the sort of completely valid concerns that they are raising, it had caused a huge amount of friction in the relationship between of the Postmaster Non-Execs and the Executive Team.
Ms Hodge: What did you mean exactly when you said we need to try to find a way through the memo?
Lorna Gratton: There was, I think, a disagreement about who needed to apologise to who between the Postmaster Non-Execs and some of the Executive Team. It was a sort of very unpleasant personal situation in which I think quite a few people felt quite upset about what had happened and not just Saf and Elliot.
Ms Hodge: So are you saying there that your concerns as articulated there related to the manner, rather than the substance, of the complaints –
Lorna Gratton: Yes.
Ms Hodge: – that had been raised?
Lorna Gratton: Yeah.
Ms Hodge: We can see a little further down a further discussion about the role of the Postmaster Non-Executive Directors. Nick Read, the CEO, says:
“This goes back to whether the postmaster directors are playing the role of a director, or of a trade union rep. I don’t know where that is going to go. They are extremely exposed as a result of Project Pineapple. Not sure how to patch this up. In a slight stand off.”
You say:
“They are not in a good place and aren’t operating in a way appropriate for the business.”
One of the specific issues raised in the Project Pineapple memo concerned the retention of employees whose actions in relation to Horizon had been the subject of criticism; is that fair?
Lorna Gratton: Yes, it is.
Ms Hodge: Do you recall that being one of the issues raised?
Lorna Gratton: Yes, I think so. Yeah.
Ms Hodge: Did you share the postmasters’ concerns about the extent of cultural change which had been achieved within the Post Office by January 2024?
Lorna Gratton: Yes, absolutely.
Ms Hodge: If you were sympathetic with the concerns raised by Mr Jacobs and Mr Ismail, why did you not say so in this meeting?
Lorna Gratton: The discussion that is taking place in this meeting is particularly around the relationship that they’re having with the Executive Team at the moment. So I mentioned a couple of minutes ago about the budget discussions that were really tense. There had been a meeting the prior week, I think, where Saf and Elliot had met some of the Finance Team and I understand the meeting had – the Executives in that meeting had found the meeting slightly distressing because of the approach that they took in the meeting, and I don’t think it is the role of Non-Executive Directors to be aggressive and upsetting to staff members.
So that is what this is about, rather than the concerns that they expressed in the memo. So it’s about behaviour rather than the memo itself.
Ms Hodge: So when you say that they “aren’t operating in a way appropriate for the business”, it’s your evidence that that relates to aggressive behaviour reported to you as directed at Post Office staff?
Lorna Gratton: Yes, and just to be really clear: this is a point in time, right. This isn’t my general view about Saf and Elliot at all. They were under huge amounts of stress. They’d had journalists outside their houses and were getting an awful lot of criticism. And nobody is their best when they are under stress and, at this particular time, the relationship was quite tense and I think there were a number of people who weren’t behaving in a way where, I think in hindsight, they wished they had.
But it is about this time. That is not my general view, I have an awful lot of time for Elliot and Saf. I think they’ve made a huge contribution.
Ms Hodge: A little later in the meeting there’s some discussion about postmaster representation in the business. Please can we turn to the second page of this readout, where we can see that discussion, please, halfway down. So we see a comment from the Minister which reads:
“In terms of other messaging, the mutualisation has died down a bit.”
The CEO then comments:
“met on Monday. VOTP etc.”
Do you know what that’s referring to?
Lorna Gratton: Voice of the Postmaster.
Ms Hodge: “Their main point was about future of Post Office and representation of postmasters. We are going to see some governance work done by Grant Thornton in a few weeks’ time.”
You say, or you’re recorded as saying:
“I don’t think postmaster oversight of the Board is worth it. I think there’s good mileage for more postmaster input in the retail part of the business.”
Can you please explain your comments there?
Lorna Gratton: So this looks like a verbatim note of the meeting. It isn’t: there is a lot of paraphrasing in this note and I can’t imagine I would have used the phrase “worth it” because it’s not the sort of thing I would have said. However, I standing by the comments. So this is referring to the NFSP’s proposal to have a sort of parallel board, basically an oversight board of postmasters – made up of postmasters and other stakeholders. I don’t think that is the right way to get postmaster engagement in Post Office.
An oversight board, by definition, on decision makers, and I think you need postmasters involved in the decision making, not just at Board level, which they currently are but actually all the way down the business at an operational level too, because the Board, by definition, isn’t operational.
So I think there should be, you know, some sort of franchise-type council looking at the business side of it, with products and services and marketing material, and then I think there should also be postmaster engagement and interaction in other areas that are rightly areas of concern for postmasters. So they’d be that in kind of decisions around discrepancies and investigations, or whether or not, you know, the back office systems are working correctly.
So I think you need it at all levels, not sort of parked over there as a separate oversight Board. I think if you want – if the idea of that is that the Board is not working properly, you should get a different Board, not create another one that’s going to have some more bureaucracy and process to it.
Ms Hodge: You referred to a proposal to establish a council within the Post Office to provide input on operational matters?
Lorna Gratton: Yes.
Ms Hodge: What practical steps have been taken to implement that proposal, do you know?
Lorna Gratton: So, the new management team are actually, like, taking these ideas really seriously. So they’ve been holding a series over the summer with Voice of the Postmaster, NFSP and other representatives, and they’ve obviously been attended, I’ve been to a couple of those sessions. My understanding is that the proposals that are coming out of that, whilst not finalised, are being taken forward and will be implemented.
I’m sure we’ll come on to the discrepancies and the like light, but they are also working with representatives from Voice of the Postmaster and NFSP to look at the integrity of the current system, and to do a review of the current system with a third party provider, and those groups and other postmasters will be involved, both in the terms of reference and sitting alongside the people doing the work, to provide a view and reassurance and input into that work. So it is something that is very much live at the moment, and change is being made.
Ms Hodge: Do you think those steps will be sufficient to make the company more postmaster centric?
Lorna Gratton: I think it’s a place to start, and I think you’ve got to start, see where you get to, iterate, and make it better.
Ms Hodge: I’d like to move on to ask you some questions about your role as the Non-Executive Director of the Post Office Board. In your statement, you refer to UKGI’s portfolio operating at principles. Can you explain what these are, please?
Lorna Gratton: Yes, certainly. So it is a sort of, if you will, like a kind of target operating model for UKGI of, like, stuff we should be doing. So it’s, broadly speaking, making sure that the company has got good corporate governance oversight. It sets out sort of activities, basically, to be performed, that there are objectives for the company, business plans in place, that the corporate capability within the company is effective, that the leadership within the company is effective, that there’s good relationships with the Department, and then the sort of contribution of the Shareholder NED.
So it sort of sets out how we should be doing our jobs.
Ms Hodge: Is it right that these – I think you say these principles provide guidance about the performance of your role –
Lorna Gratton: Yeah.
Ms Hodge: – as UKGI NED on the Post Office Board. On the one hand, they acknowledge that your duties are the same as those of all the other directors on the Post Office Board, and include the duty to promote the success of the company; is that correct?
Lorna Gratton: Yes, it is, yes.
Ms Hodge: On the other hand, they expect you, in your role as UKGI NED, to act as an interlocutor between the shareholder and the company, with a view to delivering the Department’s policy objectives; is that fair?
Lorna Gratton: Yes.
Ms Hodge: You say in your statement that this dual function does not, in practice, present problems for you; is that right?
Lorna Gratton: That’s my view, yes.
Ms Hodge: You suggest it’s because it’s in the Post Office’s best interests to comply with the shareholder’s policy objectives; is that fair?
Lorna Gratton: That is why the Post Office exists, yes.
Ms Hodge: You say, in effect, if the Post Office fails to comply, it will not receive the Government subsidy on which it is currently reliant to remain as a going concern?
Lorna Gratton: So there is a funding agreement that sets out that it must meet the policy, which is not with UKGI, it’s with the Department – that sets out they must meet the policy objectives in order to receive the subsidy, yes.
Ms Hodge: What if Post Office, as a commercial company, took the view that its financial interests were best served by foregoing the Government subsidy and relieving itself of the social function, or the obligation it has to perform a social function; would there not then be a direct conflict between the dual role you’re performing?
Lorna Gratton: I can see that, in that situation, there would be. That is not the situation in which we find ourselves. So I’m not saying there could never be a conflict. I am saying that I have not experienced a conflict and that, at UKGI, we’ve got a lot of training and support of how to approach those conflicts, should they arise. But I have not personally – you know, the situation you’ve described is not one that is obtained.
Ms Hodge: We did discuss earlier on a situation in which the Post Office might focus upon its commercial function and a network that’s capable of being financially sustainable, and that’s one in which you then saw the Government subsidy as being tied specifically to those aspects of the network which are not financially self-sufficient. So do you not anticipate in the Post Office’s future that there could well be a direct conflict in the dual role that you’re performing?
Lorna Gratton: No, I don’t because the policy framework is – so I think the Government announced on Monday, I think, that they’re doing a Green Paper, which will look at the policy framework for Post Office and that the will be the subject for a call for evidence, I would imagine, and the Post Office will contribute to that.
And there will be a dialogue with Post Office – between the Post Office and the Government, about where that will end up. It is not something that I anticipate there being a conflict over, though, if there is, it will be managed appropriately.
Ms Hodge: Thank you.
Sir, that brings me to the end of that particular topic, I wonder if now will be a convenient time to take our first morning break?
Sir Wyn Williams: By all means, yes. What time shall we resume?
Ms Hodge: Shall we resume at 11.05?
Sir Wyn Williams: Yes, that’s fine.
(10.53 am)
(A short break)
(11.05 am)
Ms Hodge: Good morning, sir.
Sir Wyn Williams: Good morning again.
Ms Hodge: I’d like to move on to another topic, please, concerning the Post Office’s redress and compensation schemes. Is it right that you and your team were not directly involved in the administration of those schemes but, in your capacity as Non-Executive Director, you sit on the Post Office’s Remediation Committee which oversees the administration of Post Office’s redress and compensation schemes?
Lorna Gratton: Yes, that’s exactly right.
Ms Hodge: One of the concerns which you raise in your statement about the administration of the Horizon Shortfall Scheme relates to the conduct of the Post Office’s lawyers; is that right?
Lorna Gratton: Yes.
Ms Hodge: You describe being concerned about what you say was a conventional legalistic approach that was adopted by the Post Office’s lawyers to the negotiation of settlements with claimants; is that right?
Lorna Gratton: Yes, and to be clear, that is Post Office’s external lawyers, rather than the people in Post Office.
Ms Hodge: What caused you to have those concerns?
Lorna Gratton: So, at the Remediation Committee – until quite recently, Post Office’s external lawyers attended the Committee and they would give updates on various cases, and some of those updates would involve – they would recount, to my mind – sorry – having – disputing relatively small amounts of money.
And I just don’t think that’s the right way that they should be approaching it. Both from a sort of administrative point of view, I don’t think Herbert Smith spending time disputing a small amount of money is a good use of taxpayers’ money but, much more importantly, that is a bad experience for claimants and, in the scheme of things, it’s just not a big deal, and I think they should have been taking a less kind of commercial approach to it, and much more of a sort of benefit of the doubt, yes, within the parameters set out within the scheme, but I just didn’t think arguing over small amounts of money is the right approach to take to people who have suffered terrible harms at the hands of the Post Office.
Sir Wyn Williams: Can I just ask you, before we go any further, was this attitude an attitude which was prevailing in the administration of HSS or of OC, or both?
Lorna Gratton: I recall it being related to HSS –
Sir Wyn Williams: Right.
Lorna Gratton: – rather than OC.
Sir Wyn Williams: Yes.
Ms Hodge: When did that issue of focusing on, as you say, small matters of detail first become apparent to you?
Lorna Gratton: It has been apparent to me since I have been on the Committee, and other Committee members felt similarly to me that, you know, we should just be getting on with it, not having an argument over £1,500, or whatever the amount is.
Ms Hodge: So I think you said in your statement you shared your concerns with the Remediation Committee, and what you appear to say is they agreed with you in relation to those concerns; is that correct?
Lorna Gratton: Yes, and shared them directly with the lawyers, because the lawyers are at the Committee. So this isn’t a thing that we were sort of talking about behind the lawyers’ backs, so to say: this is a thing I said directly to the lawyers involved.
Ms Hodge: Do you feel that that message was getting across?
Lorna Gratton: I am not convinced that the message was getting across.
Ms Hodge: I would like to – well, why do you think that is, firstly?
Lorna Gratton: I think that some of the lawyers felt quite – I think they – and this is speculation, right? I don’t know how they felt. My impression was they’d been very involved in the development of the scheme and there was a little bit of a “This I just how commercial negotiation is done, you don’t understand” sort of approach to it, whereas my point of view was, “This is the Post Office, it is different. Your commercial approach is not an appropriate one”.
Ms Hodge: Ordinarily, lawyers act on their instructions and, if their instructions are to achieve a settlement and not necessarily at the lowest figure that that settlement might be achieved, then one would expect them to give effect to that. Was the issue in relation to the instructions that were being given or in the willingness of the lawyers to give effect to them?
Lorna Gratton: I don’t know, to be honest. It was an issue that came up more than once at the Committee. I don’t know whether or not – my sense is that the approach gradually changed but it was not the experience I was expecting to have, which is: the Committee tells you to do something, you go and do the thing.
Ms Hodge: Was the Committee supported by the Post Office Executive Team in giving effect to that direction?
Lorna Gratton: I think so. Certainly, Mr Recaldin at the Committee was of a similar view. Actually, I don’t know what happened in terms of the sort of actual written instructions that are then given to the lawyer.
Ms Hodge: You have answered a question just now from the Chair about the Overturned Convictions Scheme and you’ve explained your concerns about the lawyers related primarily to the Horizon Shortfall Scheme.
Lorna Gratton: Yes.
Ms Hodge: But I would like to discuss with you some of the changes that were made, during your tenure, to the Overturned Convictions Scheme. You explain in your statement that concerns about the speed with which claims were being resolved led the Post Office to adopt a different approach based on agreed principles, rather than the negotiated settlement approach that had been adopted hereto; is that correct?
Lorna Gratton: Are you referring to the 600,000 fixed payment?
Ms Hodge: Well, that is a separate issue, in the sense that you say in your statement that, in parallel with the development of policy in relation to that, the Post Office was separately developing a set of agreed principles by which it planned to take forward settlement of claims made under the Overturned Convictions Scheme; do you recall that?
Lorna Gratton: Yes, do you mean the Lord Dyson principles of – Early Neutral Evaluation principles?
Ms Hodge: I think if I refer you to your statement, that may be the easiest way?
Lorna Gratton: Yeah, sorry, yeah.
Ms Hodge: If we could turn up, please, page 90.
You say when you started in your role, the Post Office was piloting its remediation principles in the assessment of pecuniary claims – this was under the Overturned Convictions Scheme – and had shared a first tranche of draft principles with claimant representatives, and that your team had supported the Department in its review of the draft principles and the Post Office’s proposed future ways of working.
You explain that:
“Under this new approach [the Post Office’s] case assessors would review claims received from claimants and prepare offers consistent with the case principles agreed within the claimant representatives. The aim [being] to reach settlement faster than had been possible under the previous ‘negotiated’ approach, where case principles had not been agreed [in advance] with the claimant representatives.”
So that was an initiative being taken, on the one hand, by the Post Office; is that fair?
Lorna Gratton: This started before my time on the Board. I joined the Board in May and the adoption of the principles was already kind of well in train by the time I started, but – so I don’t know where it originated from, but, yes, it was the process that was in train.
Ms Hodge: In parallel with the development of that approach, a new policy was developed by the Department for Business and Trade to make a final settlement of £600,000 to applicants under the scheme; is that correct?
Lorna Gratton: Yes.
Ms Hodge: What did you understand to be the reasons for the adoption of that new policy?
Lorna Gratton: So the work on this was largely done by the Department. There was some input from my team, not really from me personally, but from people working to me. So I wasn’t close to it. My understanding is that it was meant to provide a route for people who didn’t want to go through a process with Post Office. You know, people have suffered greatly at the hands of the Post Office, and I have a lot of sympathy for claimants not wanting to deal directly with the Post Office and go through a long protracted process with them, because claims are taking a very long time to process.
This was meant to be a much quicker way of resolving those with less interaction, and enabled people to get redress quicker, if that is what they felt was appropriate for them. Now, if people still wanted to go through the process, because they had a much higher value claim, then that was still available but this was meant to be a sort of alternative route to people to give them access to quicker redress, if they thought they had a lower claim or just wanted to get it done quickly.
Ms Hodge: Was the decision to introduce the new settlement offer driven by a desire to reduce the amount of money being spent on legal fees associated with the settlement of these claims?
Lorna Gratton: No, so it wasn’t driven by the desire to reduce the amount of legal fees: it was done as an intention to be a genuinely good thing for claimants to give people an alternative. I think there is an effect where there is a lower administration cost of the claim but that was not the principal motivation behind it. It was meant to be a thing that would be good for claimants.
Ms Hodge: But it was anticipated, I think you say, that early acceptance of a fixed-sum offer would bring savings, in terms of avoiding the expense of disclosure and legal advice associated with a more protracted settlement process?
Lorna Gratton: Yes, absolutely.
Ms Hodge: Did the anticipated reduction in legal spend, do you know, affect the amount at which the offer was fixed?
Lorna Gratton: I think that – this Inquiry heard at length from Sarah Munby earlier in the week about the value for money assessment for offers, and the like. I think there was an amount sort of assumed to be for legal fees that was included in the amount, with a view to making the value for money case.
Ms Hodge: Were you aware of a sentiment within the Post Office that it had, thus far, been working within a framework which had been agreed with the Government, and which was informed by a concern to ensure that public funds were used responsibly?
Lorna Gratton: Sorry, could you say that question again?
Ms Hodge: Were you aware of a sentiment within the Post Office, and particularly with those responsible for remediation, that they’d hitherto been working within a framework which had been agreed with Government and which had been informed by the need to ensure that public funds were used responsibly?
Lorna Gratton: Yes, but I think that that is the case with all spending by all government-owned bodies. There is an obligation on the Accounting Officer to ensure that the funds are used responsibly.
Ms Hodge: Do you think it would be fair to say that the introduction of this fixed-sum offer shifted the goalposts for the Post Office, in terms of how it was expected to approach the settlement of claims?
Lorna Gratton: I mean, on one level, it’s a very different approach, yes, but I think that it is legitimate to have two different routes to do this and to reiterate the approach as you learn from what has happened in the past. And my understanding is that the claims were taking much, much longer to process than had initially been anticipated and that the ratio of administrative costs to amount of compensation paid out was not what people had anticipated either, and that the experience of postmasters was just not good enough.
And so this was meant to be a way to address some of those concerns, primarily the experience of postmasters. I think it’s perfectly legitimate to have two different ways of doing it.
Ms Hodge: Is there any merit, do you think, in the suggestion that the Post Office had, prior to the introduction of this offer, been constrained in its ability to make generous and decisive offers by the governance framework which it agreed with the Government?
Lorna Gratton: I think that there is almost always, with spending of public funds, evidence required. I think that is a legitimate thing when you’re spending what is ultimately taxpayers’ money. I don’t think – the anticipation wasn’t that the process should stop Post Office making generous and decisive offers to people. Whether included in generous – you know, was it quick enough? No, absolutely not, and this was meant to be a way to help make it quicker.
Ms Hodge: Thank you. I’d like to address a new topic, please, which concerns the governance of the programme to replace Horizon, that’s the programme we know is the New Branch IT Programme. Now, you attended a meeting of the Post Office Board in March 2023, shortly before you took up your appointment as Non-Executive Director; is that correct?
Lorna Gratton: Yes.
Ms Hodge: At that meeting, you were attending as an observer; is that right?
Lorna Gratton: Yes.
Ms Hodge: One of the issues raised at the meeting related to cost increases in the programme; is that correct?
Lorna Gratton: I believe so, yes.
Ms Hodge: Please could we look at the minutes of that meeting, which bear the reference POL00448789.
Thank you. So minutes of the Board meeting of 9 March 2023. If we could scroll down, please, to page 4, we can see there agenda item number 3, relating to the “Revised NBIT Forecast”. I’d like to look, please, at the third paragraph, which reads as follows:
“ZM …”
That would be Mr Mladenov; is that correct?
Lorna Gratton: Yes, Zdravko, I don’t know his surname.
Ms Hodge: Zdravko Mladenov:
“[He] spoke to the Revised NBIT Forecast … and financials update, detailing the main drivers of the costs increase.”
Then it says “AC”, that would be Alisdair Cameron; is that right?
Lorna Gratton: (No audible answer)
Ms Hodge: “… noted that the level of assurance being requested from end to end was such that, if agreed to, the project team would not be able to build at the same pace as currently, and a conversation on this needed to be had with the shareholder.”
It then said:
“ZP emphasised the need to have the right assurance strategy which should focus on aspects of the project that were particularly risky. ZM noted that a paper on the NBIT assurance programme was due to come to the 28 March Board. ZP advised that it would be useful for the Board to understand testing. ZM replied, detailing the system testing and business acceptance testing.”
Was this the first occasion on which concerns about the future viability and funding of the NBIT programme were raised with you, or in your presence?
Lorna Gratton: In my presence, yes. I had – this was, I think, the first Board meeting I attended, so I don’t know whether it had been discussed previously.
Ms Hodge: Had you received any prior briefing from your predecessor, Tom Cooper, or from the Shareholder Team about problems or concerns in relation to the NBIT programme?
Lorna Gratton: I cannot recall precisely. I very much imagine Mr Cooper – Mr Cooper held concerns. I imagine he would have expressed those to me.
Ms Hodge: What was your perception at this stage in March 2023 about the seriousness of the issues being faced by the programme?
Lorna Gratton: I didn’t have a good understanding of the programme. As I say, this is the first meeting I had attended and I don’t think I’d had briefings from the team in Post Office yet, at this point. I didn’t know much about it at all, at this point.
Ms Hodge: From the briefings that you received, do you know what, if any, oversight the Post Office Board and Shareholder Team had had in relation to the procurement, the early procurement, of the new system?
Lorna Gratton: I know that there had been a proposal that had gone through the Investment Committee, as was BEIS. I don’t know beyond that, I’m afraid.
Ms Hodge: You later attended a meeting with the Post Office Minister in April, the following month, in which the programme was discussed again. We have a readout of that meeting at BEIS0000653, please. Thank you. This the CEO’s monthly meeting with the Minister on 18 April 2023. The principal issue raised by the CEO at this meeting concerned the decision of the Permanent Secretary to withhold funding; is that correct, do you recall?
Lorna Gratton: Yeah, did you say this is April?
Ms Hodge: I think it’s 18 April.
Lorna Gratton: Yes, I do recall, yeah.
Ms Hodge: Can you please explain the background to the decision to withhold funding from the Post Office?
Lorna Gratton: Yes, so Post Office is funded under – well, it’s now funded for many things. At the time, it was funded under the subsidy control regime for the uneconomic part of the network – so they call that the network subsidy – and also for investment funding. The investment funding is dispersed from the Department twice a year. I think it’s 150 million quid each time, I think, and the network funding is dispersed, I think, quarterly.
The dispersal requires the approval of the Permanent Secretary, and so, typically, my team writes the submission that says, “Permanent Secretary, are you happy to disperse the funds?”, and gives them additional context.
This was immediately after BEIS had been split up into the Business Department and Energy Department and Science Department, and so it was now a new Permanent Secretary dealing with Post Office, so Post Office went to the business department. It was now no longer Sarah Munby who was Permanent Secretary and is now Gareth Davies who is the Permanent Secretary. So this was the first submission that had gone to Gareth Davies to say, “Are you happy to release the network subsidy?”
The subsidy, as I mentioned previously, is the – the sort of conditions for it are set out in a funding agreement with Post Office, and it says a bunch of things that they have to do in order to release the funding, the most sort of high profile of which are maintain the Branch Network numbers, so the policy obligations. There are also a number of other conditions in the latter, such as have a three-year business plan, have your budget approved, sort of thing.
Post Office didn’t have a three-year business plan in place. In part, because their settlement from the 2021 spending review, which I think Sarah Munby talked about, was lower than they had hoped, and they had found it very difficult to put together a three-year plan.
Because the conditions for funding were technically not met, the Permanent Secretary decided to withhold funding.
Ms Hodge: You said that it was part of the role of your team to put up the submission to the Permanent Secretary on the funding issue; did that contain advice to the Permanent Secretary to withhold funding?
Lorna Gratton: No, it didn’t.
Ms Hodge: If we could look, please, at what the CEO had to say in relation to the reasons why Post Office was experiencing issues in relation to its funding. He said this, that the main issues are, firstly, in relation to the Horizon replacement, Post Office had underestimated the cost of this; he referred also to Inquiry costs; and to compensation.
In the paragraph that follows you’re recording as saying that:
“… UKGI and [Department] officials are working together to provide the reassurance to the [Permanent Secretary] about cost controls.”
Is that a reference to cost controls specifically in relation to the NBIT programme or more generally?
Lorna Gratton: The permanent – so just to provide a little bit of context, the Permanent Secretary was completely new to Post Office, and I think was surprised at the degree of, we’ll call it out of cycle funding, so funding that was being asked for by Post Office, outside the usual process. The usual process is spending reviews done every one, two, three years, or whatever, by Treasury.
Post Office was making a significant number of requests for funding out side of that process. That is very unusual, in a Government context – it is very unusual, in a Government context. The Permanent Secretary, I think, was very surprised by that and it had led him to take the view that Post Office did not have adequate control on its cost base.
Ms Hodge: Thank you. If we could go over the page, please. So at the top there, still on the issue of funding, you’re recorded as saying that UKGI needed cost and time assurance for the funding request, in relation to the Horizon replacement, and not just quality assurance which is what you had seen thus far.
What quality assurance had been provided to UKGI at this stage concerning the programme to replace Horizon?
Lorna Gratton: I’m afraid I can’t recall.
Ms Hodge: Thank you. If that could come down, please.
You attend a further meeting of the Post Office Board on 5 July 2023. This is the meeting at which whistleblowing allegations concerning the management of the NBIT programme are raised by the CEO and in which it’s acknowledged that there is a need for a better governance of the programme; is that fair?
Lorna Gratton: That is fair, yes.
Ms Hodge: I wonder if we could look, please, at the minutes of that meeting. They are POL00448509. Thank you. If we could scroll down, please, and on to the second page. So the agenda item is “Speak-Up”, reference to the Post Office’s whistleblowing policy, and concerns which had been raised under that policy relating to NBIT. You received in that meeting a detailed update from the CEO relating to the concerns and complaints raised by the whistleblower.
By this stage in early July, what was your perception as to the seriousness of the issues facing the programme?
Lorna Gratton: My recollection is that I, like many of the other Board members, thought the programme had extremely serious problems with it. I think the updated cost estimate was sort of multiples of the previous cost estimate, and the team were very, very clearly concerned about their ability to deliver to the timeline that had been set out. So, yes, I think it’s fair to say I and others were extremely concerned.
Ms Hodge: Thank you. If we could just look, please, at the bottom of page 2. So we see there, in the final paragraph, a recognition that there was a need to establish better governance across the programme, and a proposal by the Chair which is said to have been discussed with another member of the Board concerning the establishment of a new committee, a Board committee, which would include within its ambit responsibility for overseeing the NBIT programme.
Is it right that you say that was your proposal or a proposal that originated in UKGI?
Lorna Gratton: So my predecessor on the Board had been – my understanding is, had advocated for that, the introduction of that committee. He’d not got any traction, my understanding is, with the company on introducing that committee. At this point, the committee was introduced, yes.
Ms Hodge: Do you think there’s merit in the suggestion that the Board’s approach to that issue was rather reactive, that is to say no action was taken to address the governance issues in relation to the programme until this particular complaint was raised?
Lorna Gratton: I do think that’s fair, although, from the complaint and the subsequent pieces of assurance that have been done on the programme, the governance issues are – you know, the oversight of the Board is not the only governance issue. In the programme, my understanding is there were issues right the way down the programme, in terms of governance, so setting up an Investment Committee, whilst a helpful step, was definitely not going to be a panacea.
Ms Hodge: But it was something which you say that UKGI was campaigning for –
Lorna Gratton: Yes.
Ms Hodge: – so far as you were aware, at least prior to –
Lorna Gratton: Yes.
Ms Hodge: – your appointment.
Lorna Gratton: Yes.
Ms Hodge: You’re recorded in the minutes of the meeting as saying that you considered it was sensible to pause on NBIT with no regret activity continuing. Can you explain what you mean by that, please?
Lorna Gratton: When they were doing the programme, there was sort of a view that there was some activity that would have to carry on if the programme was to be able to deliver to its timeline, but there was some other activity that could be delayed/picked up at a later date. It was with a view to giving the programme some space to reconsider what it was it actually needed to do, whilst not impacting significantly on the timeline for delivery.
Ms Hodge: What did you understand to be the dividing line between those activities which were necessary to continue and those which could be parked?
Lorna Gratton: That is a question for the Executive Team, rather than for me.
Ms Hodge: You wrote an email to the colleagues in the Department the same day, informing them about this particular complaint; is that correct?
Lorna Gratton: I think it was after the complaint. I think the – the email is relating to the complaint, isn’t it?
Ms Hodge: Forgive me?
Lorna Gratton: I think the email is relating to the complaint, isn’t it?
Ms Hodge: Raising an email –
Lorna Gratton: Yeah, raising, yeah.
Ms Hodge: – off the back of what you had learned in the Board meeting –
Lorna Gratton: Yes.
Ms Hodge: – about the complaint?
Lorna Gratton: Yes.
Ms Hodge: So that’s, please, UKGI00049035.
Just before we come to that email, I asked you earlier in your evidence whether you thought it was fair to characterise the response to issues in the programme as reactive, and you said you didn’t think that was an unfair characterisation in the circumstances. Were you concerned that the very serious issues with the programme that were identified in that complaint had not reached the Board via normal reporting channels?
Lorna Gratton: Yes. So, on one hand, it is a positive thing, I think, that whoever the whistleblower was in this circumstance came forward and felt able to use the Post Office’s processes to make a complaint, and that complaint was taken seriously. On the other hand, the fact it has to come through a whistleblowing complaint, rather than being picked up through the normal course of business with people being able to sort of speak to each other and address concerns openly, does not reflect well.
Ms Hodge: From what you understood about the complaint, why do you think it was that it ended up reaching the Board in that way?
Lorna Gratton: I don’t know, I’m afraid.
Ms Hodge: If we could look, please, at your email, so this is to Mr Bickerton and Mr Creswell in the Department. You say you’re writing to make them aware of a short notice Board meeting that was held earlier that morning, following an extensive complaint made under the whistleblowing process. I think you said earlier in your evidence this would be a good example of you exercising your judgement to draw to the attention of the Department what is, on the face of it, an operational matter but one which you think is sufficiently serious to draw to their attention –
Lorna Gratton: Yes.
Ms Hodge: – on this occasion because it related to a programme which affected the future viability of the network?
Lorna Gratton: A number of reasons. There’s obviously a long and very difficult history with Horizon, replacing it is a priority for Post Office and for Government. This called into question the programme to be able to do that. There was also a very significant funding request in from the Post Office to continue with the programme. I think it’s quite difficult to fund a programme fully, that – you know, to fully fund the request when you’ve been told there’s an awful lot of problems with the programme. So I think it’s pertinent on two levels.
Ms Hodge: You recalled that the complaint is quite wide-ranging but primarily related to the NBIT programme, alleging incompetent management of the programme, poor governance and misleading information being given to the Board. You point out it also made a wide range of conduct and behaviour allegations against senior members of staff.
You go on to say that the CEO of the Post Office has outlined a number of changes that he’s proposing to make to the NBIT program, the first of which is the commissioning of a review by KPMG and Accenture.
Just pausing there, were you aware of any concerns about the role of Accenture?
Lorna Gratton: It’s a very good question, I was not as aware as I would have liked to have been, in hindsight, about the role of Accenture. So Accenture were involved in the programme; they were providing contractors into the programme. My understanding at the point at which this is commissioned is that those contractors were quite junior people and, you know, there are some people but it’s not a big deal.
My subsequent understanding is that Accenture were much more involved in the programme than I had previously understood. So I think there’s a good question about whether or not a review done by Accenture is appropriate, given that they are also contributing staff to the programme, like how independent they could really be.
Ms Hodge: At this stage, I think it’s fair to say you see the appointment of Accenture as a positive thing in providing assurance?
Lorna Gratton: Yes.
Ms Hodge: What you’re saying now is perhaps that assurance wasn’t as concrete as you initially appreciated because of their prior and ongoing involvement?
Lorna Gratton: So Accenture, I am sure, would say, and say in their report, that it’s a different bit of the business but I think that it is good practice to have a genuinely independent third-party doing insurance.
Ms Hodge: You’ve explained just now in your evidence that your understanding of the scope of their role then was not as detailed as it is now. How is it that you’ve come to have a more fuller understanding of the extent of their involvement?
Lorna Gratton: I can’t recall. It must have been through discussion with somebody who was in the company who, you know, told me. I can’t remember.
Ms Hodge: Do you consider there was a failure of reporting to you in relation to Accenture and the role they were being asked to perform?
Lorna Gratton: I think the role of Accenture was probably underplayed when it was described to the Board.
Ms Hodge: So you say, in addition to that external review and assessment of the programme, the CEO is proposing to hire a new Transformation Director to oversee the programme and, of course, you refer to the introduction of the new Board committee, a request that you say, “We, UKGI, made of the company”.
Finally:
“A pause (reduction to minimal progress/no regrets on the activity) on the programme whilst this is underway.”
You say this:
“To note there are a number of other similar whistleblowing allegations relating to the programme. I think the changes Nick is proposing to make are sensible (and long overdue).”
Bearing in mind that you were obviously first aware of issues in relation to the programme in early March, albeit you said at that stage your understanding of them, I think, was quite limited, you were not yet in post as Non-Executive Director, why do you say there that you considered those particular changes to be long overdue?
Lorna Gratton: So this is particularly on the hiring of a new Transformation Director. So when I started on the Board or when I was first being an observer on the Board, Post Office was running the programme to replace Horizon and introduce new branch technology as two separate parts. So they were treating the build of the new operating system for postmasters as distinct from the rollout of that technology into branches.
And, to my mind, it was quite a strange thing to do to treat them as different things, and the NBIT programme, my understanding is, it was quite isolated from the rest of the business, and it wasn’t being kind of well integrated and treating this as an opportunity to sort of transform the business, make it easier to put products on to the system, and, you know, set the Post Office up for future success. It was being treated as a sort of IT project.
My understanding is that the hiring of the Transformation Director would sort of bring that together. So, yes, I do think it was the thing that – I am surprised it was run like that in the first place.
Ms Hodge: Now, in relation to that new Board committee, which became the Investment Committee, it held its inaugural meeting in or around late October of 2023; is that correct?
Lorna Gratton: I don’t recall. If that is what you say. I’m slightly surprised it’s not until October but that may be the case.
Ms Hodge: Well, there’s a reference in the Post Office Board minutes to its inaugural meeting, which appears to date it to October but we can look into that. You say, in relation to the work of that committee, you’re conscious and acknowledge frustrations being expressed by members of the committee about the level of assurance that the shareholder or you, as shareholder representative, are seeking on behalf of the shareholder in relation to that particular programme; is that correct?
Lorna Gratton: Sort of. It is not me seeking the assurance. It is the shareholder seeking the assurance. I am relaying what the shareholder is going to require, which is a bit different, right? I’m not inventing the level of assurance that they need themselves. This is what the shareholder is going to require because of the level of public funds that are being spent.
Ms Hodge: Is it purely level of public funds or is there wider concerns about the role of this new platform in replacing Horizon?
Lorna Gratton: So I don’t think there is concerns about the role of the new platform. You know, the idea was – is that the new branch technology, like, should equip postmasters with the tools to offer customers and communities the best service. I don’t think anyone disputed that at all. Government funded projects, when they reach a certain level of funding required, or are particularly contentious or novel, have to go through a thing called the Government’s Major Projects Process and that is true across the whole public sector. And the scale of this programme meant that it was going to have to go through that process.
And so that it’s not just a sort of “Are you spending the money well”; it’s “Is the programme going to do what it says it’s going to do? Is it going to work as well?”
Ms Hodge: Is it going to deliver –
Lorna Gratton: Yeah, on the objective, yeah.
Ms Hodge: – on the objective.
We saw in that Board meeting in March, where issues were first raised in your presence about concerns in relation to the programme, that the level of assurance being sought was said to be something that was placing a particularly onerous financial burden on the Post Office.
Lorna Gratton: Mm-hm.
Ms Hodge: Do you have concerns about whether or not the mistakes that were made in the past, in relation to Horizon have been or are being repeated in relation to the Post Office handling of this particular programme?
Lorna Gratton: So I think there’s sort of two answers to that. Firstly, everybody in Post Office is acutely aware of the history of Horizon and is determined to undertake all the assurance necessary to – in order to ensure that the system is robust, right? The people developing it are absolutely adamant that it needs to work, and not suffer from the bugs and defects that have previously been present in Horizon. So I think everybody is sort of on board with that.
In terms of the sort of wider assurance – sorry I’ve forgotten the question that you asked me that led me to think I had two things to say.
Ms Hodge: Well, broadly speaking, the question was whether you had concerns, bearing in mind what was said about the onerousness of the assurance being sought as to the Post Office’s attitude to this particular programme and whether it was repeating the mistakes of the past?
Lorna Gratton: So I don’t think that they were – so I don’t think they were concerned or expressing concerns about assurance to make sure the system worked. I think everybody wanted assurance to make sure that the system worked. I think they were expressing concerns about what they saw to be additional Government processes, so for example, enrolling on to the Government Major Projects Programme thing, and the interventions of a thing called the Infrastructure Products Authority, which is a bit of Cabinet Office that kind of gets involved when there are big projects.
I think they saw that aspect of it as intrusive into Post Office’s plans. My personal view is that that has been shown to have added quite a lot of value, because not only is it the right thing to do where taxpayers money is being spent but it has been demonstrated to add quite a lot of money as the new management team are rethinking the approach to the NBIT replacement and are not sure that the plan that is under discussion here is going to be taken forward in its current form.
Ms Hodge: Forgive me, can you repeat that? You’re not sure that the plan –
Lorna Gratton: So I think the current CEO – Acting CEO of Post Office has sent a message to all Post Office staff to say that they are reviewing the current approach to NBIT, that the objective of providing postmasters with tools to offer customers and communities the best service remains the same but they are reassessing the way in which they are going to deliver that objective.
Ms Hodge: In your statement, you make some concluding remarks about the programme. I can bring those up for you if that would assist, but you say this: that providing a replacement for Horizon that is effective and reliable, and which meets the Government’s requirements for the level of public funding that it requires, I think you say, remains a highly challenging task.
Lorna Gratton: Yes.
Ms Hodge: Can you just explain what you mean by the Government’s requirements for the level of public funding that it requires?
Lorna Gratton: So Post Office, as I sort of mentioned earlier, is not cash generative, right? It loses money every year and is a going concern because the Government provides annual support. Post Office does not have its own funds available to pay for the replacement of the in-branch technology. It is going to be wholly funded by the taxpayer. That funding is at a level at which it is well past the Department’s delegated authority. It is going to Treasury for approval. And Treasury take a view on the amount of money that they spend on programmes, and that is related to how much money the programme requires to deliver, but there are, in all cases, cheaper, more expensive ways of meeting objectives.
Ms Hodge: What do you consider the relationship to be between ensuring that the replacement for Horizon is reliable, and that the funding requirements of the Government are met?
Lorna Gratton: So absolutely nobody is making a trade-off about cost and reliability on the system. To be completely clear, there are lots of decisions about whether you employ Post Office staff in-house to do it, whether you have contractors who are on day rates to do it. Sort of there is probably a bit of a trade-off between speed and time as well: delivering something faster often costs more money than delivering something at a slower pace.
So nobody is questioning the fact you need a completely reliable system for the Post Office’s IT. That is not what the cost is about at all.
Ms Hodge: Thank you.
Sir, that brings me to the end of that particular topic. What I would propose is another short break of ten minutes. I anticipate I will be finished with Ms Gratton shortly after that, and then there will be some questions from Core Participants to follow.
Sir Wyn Williams: All right. So resuming at 12.10?
Ms Hodge: I think that would be fine, sir. Thank you.
(11.56 am)
(A short break)
(12.10 pm)
Ms Hodge: Good afternoon, sir. Can you see and hear us?
Sir Wyn Williams: I can. Thank you.
Ms Hodge: Thank you.
I have two further fairly brief topics to cover, please. The first relating to the dismissal of Mr Staunton, former Chair of Post Office. That’s a topic which has been covered at some length already in this Inquiry but one in which you had some direct personal involvement and, therefore, I’d like to briefly touch upon it with you now.
I think it’s fair to say that you had a number of concerns about the conduct of the former Chair of the Post Office, those related first to his attitude to whistleblowing complaints that were made against other staff at the Post Office, and you cite the example of the whistleblowing complaint concerning NBIT, which we discussed a short time ago, and whether that was taken sufficiently seriously at the time by the Chair.
Secondly, you describe having concerns about a whistleblowing complaint which included allegations of the use of racist and misogynistic language by the chair himself; is that correct?
Lorna Gratton: Yes, that’s correct.
Ms Hodge: Sorry, I’m conscious you’re nodding but it’s purely for the transcript. Thank you.
Lorna Gratton: Yes.
Ms Hodge: You say in your statement that you had personally experienced dismissive conduct from the Chair; is that correct?
Lorna Gratton: Yes, that’s correct.
Ms Hodge: That complaint, of course, was subject of an independent investigation, which concluded after the Chair’s dismissal.
I think the third area of concern related to the procedure for the appointment of a new Senior Independent Director – is that right –
Lorna Gratton: Yes.
Ms Hodge: – particularly around irregularities in the procedure that was undertaken in relation to that appointment?
Lorna Gratton: Yes.
Ms Hodge: What I want to ask you is whether your concerns about that appointment process were ones of form or of substance, or indeed of both?
Lorna Gratton: My concerns were – sorry, by “substance” do you mean by the appointment of Andrew Darfoor as the Senior Independent Director?
Ms Hodge: Forgive me, I should have explained. Perhaps not in relation to him personally, but is it right that you had earlier expressed a preference for a female Board member to be appointed and one, in particular, with Whitehall experience; is that correct?
Lorna Gratton: So there’s two things there. My preference as a Non-Exec Director was that the Board should be more representative of the community that the Post Office serves. So it currently has two female Board members, of which I am one. So as a NED of the Post Office, yes, I thought we should have a more diverse Board. But the second part of that, of having a Non-Executive Director, in this case, the SID, who had public sector experience, was a view from the shareholder which I shared, rather than just my personal view.
Ms Hodge: And which you communicated to the Board?
Lorna Gratton: Yes, and to Mr Staunton.
Ms Hodge: Sorry. So my question was then: was your concern about the approach that Mr Staunton had taken to the appointment of Mr Darfoor one purely of form, that is to say the procedure that was adopted, or one of substance?
Lorna Gratton: It was about the procedure. I think there could have been a sort of open discussion about the substance of it. As it was, there wasn’t.
Ms Hodge: You say in your statement that you considered that the Chair’s behaviour had, by late December/early January, become increasingly erratic and concerning to you?
Lorna Gratton: I think what I say in my statement is that it was described like that by members of the Executive Team, I think.
Ms Hodge: We can have a look but I think you say that was a concern that was shared?
Lorna Gratton: Yes, sorry, yes. It wasn’t just my view, I think, is the – yeah.
Ms Hodge: It was a concern that was shared by your colleagues on the Board as well; is that correct?
Lorna Gratton: Yes.
Ms Hodge: The existing Senior Independent Director and Ms Burton?
Lorna Gratton: Yes, it was, yes.
Ms Hodge: Those concerns culminated in a meeting between Mr Tidswell, the SID, and Mr Creswell; is that correct?
Lorna Gratton: It was a phone call, but yes.
Ms Hodge: Forgive me, a discussion –
Lorna Gratton: Yes, yeah.
Ms Hodge: – about his concerns, and in a submission jointly authored by you and Mr Creswell to the Secretary of State, in which you recommended that she exercise her powers to dismiss the Chair; is that right?
Lorna Gratton: Yes, that he was removed from the Board. Yes.
Ms Hodge: Beyond that short summary, is there anything further you wish to say on the topic of the Chair’s dismissal?
Lorna Gratton: No, I think that is an accurate reflection of what happened.
Ms Hodge: Thank you. The final topic then, please, concerns the recent survey commissioned by the Inquiry and undertaken by YouGov of current serving postmasters, and the high levels of dissatisfaction expressed in that survey by the postmasters on a variety of issues, including the operation of Horizon and the recovery of shortfalls?
Lorna Gratton: (The witness nodded)
Ms Hodge: The Inquiry has heard evidence that this is a matter that has been discussed at Board level –
Lorna Gratton: (The witness nodded)
Ms Hodge: – most recently on 24 September this year; is that correct?
Lorna Gratton: Actually, most recently, Tuesday of this week, where there was an additional Board but, yes, it was also discussed in September.
Ms Hodge: Can you give us an indication, in relation to the most recent discussion, what the Board’s doing about this issue: what action has been taken to address it, please?
Lorna Gratton: Yes, absolutely. I think I’ve touched on some of it in previous things I’ve said. So with relation particularly to the discrepancies point, and postmasters continuing to experience discrepancies, the Post Office Exec are in the process of appointing an independent review, a third-party review, of Horizon and its robustness. And they’re in discussions with Voice of the Postmaster and NFSP about the terms of reference for that and how those groups are going to be involved in the process.
So it’s not going to be sort of a sign off the terms of reference, get the product at the end, it’s going to be involvement throughout, with a view to providing – they are then planning on publishing it, so making it sort of fully available to whoever wants to see it. They’re also planning as part of that, inviting postmasters – and I think they might have already done it – into the Chesterfield operation centre, which is run by Mel Park, who has also given evidence, so they can be completely transparent on what the various stages of, like, operational process management is for where there are discrepancies, so that they are transparent on that.
They also plan on publishing quite a lot more evidence – sorry, evidence is the wrong word – information about Horizon. They’ve got a lot of it in terms of uptime and bugs, and whatever, they plan on making more of that available as well. The Board is very supportive of that.
I also mentioned earlier the plan to get postmasters more involved in the various bits of the business. That is still more of a work in progress as to where it’s actually going to sort of finally land, but it is a piece of work that is getting taken forward with a lot of vigour.
Ms Hodge: Is this particular issue, namely ongoing concerns by postmasters about the reliability of Horizon, one which you’ve escalated to the Department as part of your risk reporting in relation to Post Office?
Lorna Gratton: Yes, absolutely. They are concerned – I am concerned. The Board generally and the Executive Team are concerned.
Ms Hodge: Thank you, I’ve no further questions.
The Witness: Thank you.
Questioned by Sir Wyn Williams
Sir Wyn Williams: Before we ask Core Participants to ask their questions, can I just take that latter point a little further? What I mean by that is the query about the reliability of Horizon.
You are probably aware, Ms Gratton, that I’ve heard evidence in recent weeks about what might be thought to be a degree of conflict between Fujitsu and the Post Office in relation to the reliability of the current version of Horizon and, allied to that, to what extent, if at all, reliance should be placed upon it in recovering what appear to be – and I use the words “appear to be” very advisedly, as you guessed – shortfalls and/or taking action against postmasters, either to recover shortfalls or to report them to the police.
Where has the Board got in relation to that, if I can have an update from you, this time wearing your Post Office Director hat, as opposed to what you might be telling the Department.
Lorna Gratton: So in terms of where the Post Office has got to with Fujitsu on the system reliability issue?
Sir Wyn Williams: Well, all of those issues, if you can bring me up to date on them.
Lorna Gratton: So –
Sir Wyn Williams: Let’s start with what I understand to be the position and then you tell me if there’s any alteration, that, as of today, so to speak, or the last time I heard evidence, the Post Office was not seeking to recover apparent shortfalls from postmasters; is that still the position?
Lorna Gratton: That there is no civil recovery and my understanding is that there is no passing of information to the police on the basis of shortfalls, so no.
Sir Wyn Williams: Right. So that answers the second part of the question relating to prosecutions.
So far as the reliability of Horizon, as debated between Post Office and Fujitsu, we’ll hear from Mr Patterson on Monday, but from your perspective, is there simply an impasse in the sense that there was the exchange of letters in the summer, and nothing further has happened, or has something further happened?
Lorna Gratton: I’m not sure if anything further has happened. I know that the Chairman has met with Fujitsu with a view to discussing the extension of the Horizon contract post-March ‘25. My understanding is that there is some nuance in Fujitsu’s position, whereby they do not want the data to be used for criminal convictions, but they are not questioning the integrity of the data within the system, is my understanding from Post Office’s IT people.
Sir Wyn Williams: Right. So that we don’t confuse what you might have been told perfectly in good faith with the formality, so to speak, has the Post Office Board discussed this in the last few weeks?
Lorna Gratton: Not in the last few weeks. It has been discussed at Board meetings through oral updates from the as-was Acting CEO over the summer, and that is the position that he outlined to the Board.
Sir Wyn Williams: Okay, right, fine. Thank you.
Right, over to the Core Participants.
Mr Jacobs: Hello, I’m waiting for my microphone to come on.
Sir Wyn Williams: You’re still very indistinct Mr Jacobs.
Mr Jacobs: Ah, that’s better thank you very much. I should have known that I have to press a button. Sorry about that.
Questioned by Mr Jacobs
Mr Jacobs: Ms Gratton, I’ll start again. I represent a large number of subpostmasters and assistants, who were affected by the Horizon scandal.
I want to ask you about the hard powers of ministerial intervention that you detail in your statement. So can we just turn to paragraph 27 of your statement, and that’s WITN11310100, and it’s page 12 of 103.
Looking at that whole paragraph, you say:
“There are several ways in which the Secretary of State and ministers at DBT can and do intervene in [Post Office’s] governance and management. Most directly, the Secretary of State has the power under the Articles of Association to dismiss the Chair of the [Post Office] Board and [the Post Office] Directors (including the Executive Directors) …”
Then you cite the relevant part of the Articles of Association. Now, that is what I think witnesses have called the nuclear option, and that was in place during the course of the events that the Inquiry is considering; is that right?
Lorna Gratton: I actually don’t know the answer that, sorry.
Mr Jacobs: No, you weren’t there at the time, of course.
Lorna Gratton: No.
Mr Jacobs: Take it from me then, there’s been evidence to say that was right.
Moving on to what you also say, if we could look at the seventh or the eighth line down, where it says, “The revised Articles of Association also allow the Secretary of State to give directions to POL”; can you see that there?
Lorna Gratton: Yeah.
Mr Jacobs: “… which require POL to ‘take all steps within its power to do what those directions require to be done’.”
That is Article 7(F) of the revised Articles of Association.
Now, I’m going to ask you a question that you may or may not be able to answer because I know that you have with UKGI since 2021.
Lorna Gratton: (The witness nodded)
Mr Jacobs: But were involved with the Post Office since, I think, May 2022?
Lorna Gratton: So I’ve been involved with the Post Office probably since February ‘23, when my predecessor was – it was announced my predecessor was stepping down. So I had a handover period.
Mr Jacobs: Yes, and the revised Articles were amended on 14 December 2022?
Lorna Gratton: (The witness nodded)
Mr Jacobs: So a few months before you came to Post Office?
Lorna Gratton: Yes.
Mr Jacobs: But did you know when you joined, were you told what the provenance of these Articles is: was this inserted as a result of the scandal, as a result of the Fraser judgments, or the decision of the Court of Appeal in Hamilton & Others?
Lorna Gratton: I’m afraid I don’t know.
Mr Jacobs: You don’t know. Okay. Well, I’ll move on. You say in your statement that, to your knowledge, this power, this power to give directions, hasn’t been exercised.
We can take that down now from the screen. Thank you.
Do you know under what circumstances the power would be exercised or could be exercised?
Lorna Gratton: On one level, that is a decision for ministers and they could choose to exercise it when they wish: they are the shareholder. In practice, I think they probably take the view that directing organisations and people to do things isn’t conducive to a productive working relationship. So I would imagine, in practice, they would, as you have sort of called it, see that as a nuclear option and, if you are in a position as a Secretary of State where you find yourself directing a Board, you may want to consider whether or not you have the right people on that Board.
Mr Jacobs: What I really wanted to ask you is: there’s a difference, it appears, between the nuclear option, which is sacking and dismissing the Board, and reappointing another Board and intervening directly and taking control, and the power to issue a direction to the Board or to an individual to say this is what Post Office has to do because the Government is concerned that mistakes of the past are about to be repeated. Do you see that the second option is a more practical way of getting a result quickly, rather than a nuclear way of dismissing everybody?
Lorna Gratton: Yes, I can see why you might think that. In practice, my instinct would be that if you are on a Board where you find yourself being directed, you may think that you’re not aligned with the shareholder.
Mr Jacobs: Do you think, in light of the issues that this Inquiry is looking at, and the scandal and the terrible effect that it has had on the lives of so many people, that this direction is a useful way by which the shareholder can short-circuit matters, if it thinks that history is about to repeat itself?
Lorna Gratton: It could be, yes.
Mr Jacobs: At about 10.25 this morning, you were asked about reporting operational matters up to the DBT, and you said there were some things that the Department is very concerned about, and you spoke about financial performance and budgets, and you gave an example of the YouGov survey.
Lorna Gratton: (The witness nodded)
Mr Jacobs: Is that the sort of thing that could be the subject of a direction, if not properly resolved?
Lorna Gratton: So in theory, yes. But I sort of come back to the idea that the Board is appointed by the shareholder. As the shareholder, you would aspire to appoint people who have a shared understanding of the organisation’s objectives as the shareholder – the shared understanding with the shareholder of the organisation’s objectives. So I would hope that you would – that we wouldn’t find ourselves there because there is a sufficient dialogue and sort of common understanding between the shareholder and the Board.
Mr Jacobs: So I think what you’re saying is that the direction would be given reluctantly and as a matter of last resort?
Lorna Gratton: Yes, that, I think – I think that is how the power is intended to be used.
Mr Jacobs: Is there any guidance around the use of this power to give a direction or is it entirely a matter of discretion?
Lorna Gratton: I have not seen any guidance. It is the sort of thing that, were a Secretary of State minded to do so, they would expect to receive advice on prior to doing so from their officials.
Mr Jacobs: Do you think there should be guidance, so that the position can be clear as to the use of this power?
Lorna Gratton: Potentially, although I would imagine that the specifics of the situation would be quite relevant to whether or not it was used.
Mr Jacobs: You’ve been referred today in your evidence to some concerns that Mr Jacobs and Mr Ismail raised about retention of employees, whose actions had been subject to criticism.
Lorna Gratton: (The witness nodded)
Mr Jacobs: That is a point for many of our clients, if not all of them. Another point of concern, which you’ve also been referred to, is the YouGov survey, where 92 per cent of the 1,000 subpostmasters who responded said that they’d experienced issues with Horizon in the last 12 months. 98 per cent of those who reported shortfalls said that the most common resolution was to use branch money or resolve it themselves. These are serious matters, aren’t they?
Lorna Gratton: I absolutely agree, yes.
Mr Jacobs: Do you think that if they continued, escalated, weren’t resolved, that the direction could be used to prompt Post Office in the right direction?
Lorna Gratton: So I wouldn’t want to speculate because I think that they are both matters that the Board is taking very seriously.
Sir Wyn Williams: Does it come to this, Ms Gratton: that if it ever got to the point where the Minister thought it appropriate to tell the Board what to do, the reality is that he would have lost faith in the Board and/or the Board would have thought he was wrong so they’d resign en masse?
Lorna Gratton: Yes, I completely share your view.
Mr Jacobs: Thank you that’s helpful.
Finally from me, I want to refer you to what you say at paragraph 23 of your statement. There is no need to turn it up, I can read it out.
“The MOU contains provision for the Shareholder Team to make submissions directly to the DBT Permanent Secretary, Minister or Secretary of State.”
You go on to say at paragraph 40:
“Ultimately, should my team or I become aware of an issue that we do not consider the Department has been fully sighted on or has not fully considered, it may be appropriate to provide a submission directly to the departmental Minister or Permanent Secretary.”
Have you or anyone in your team made any such submission?
Lorna Gratton: So my team and I write a lot of advice that goes to ministers. In practice, all of the instances of that that I have experienced seen in this – since being in this role have been done effectively jointly with the Department, so that advice has gone through Carl Creswell and David Bickerton. Where there is a difference of views between somebody in the Department and someone in UKGI, that has been noted in the submission but I have never found myself in a position where I have had such a violent disagreement with the Department that I have felt the need to put up advice aside from their process.
Mr Jacobs: Do you consider that it is part of your function in making such submissions to request for a direction if you think that is necessary or appropriate?
Lorna Gratton: I think, in theory, it could be, but, again, it’s not a situation in which I have found myself. Also, the specific relation to my role, I am not there to direct the Board, right? So when I am in a Board meeting, I am a Non-Executive Director. I am not a decision maker on behalf of the shareholder. So I am reflecting the shareholder’s view and then the Board is taking a decision, and then, if the shareholder approval is required the decision of the Board goes to the shareholder for approval.
Mr Jacobs: But you do feed back concerns, don’t you?
Lorna Gratton: Yes.
Mr Jacobs: Thank you. I don’t have any further questions for you. Thank you.
Sir Wyn Williams: Thank you, Mr Jacobs.
Questioned by Ms Patrick
Ms Patrick: Good morning, Ms Gratton.
You’ll be glad to hear we’ve only got two topics we’d like to cover and both of them relate to your witness statement.
The first relates to your general reflections at the end of your statement on the efforts made to engage with subpostmasters who might be eligible for compensation.
Lorna Gratton: Mm-hm.
Ms Patrick: I’m not going to ask for it to come on screen but if you want to have it in front of you, it’s page 93. You deal in the statement with the approach being taken to new putative applicants to the HSS, the letters being sent and how they highlight the fixed offer available. I’m not going to read directly but I just want to highlight a paragraph couple of paragraphs.
If you look at 202 in front of you, you start by looking at the Overturned Compensation Scheme (sic) and you set out how initially there were three letters being sent, highlighting the right to appeal, the right to compensation, criminal cases review and so on. Then you say:
“The work has largely been superseded by the implementation of the exoneration policy.”
You finalise it by saying:
“The Post Office has also been in contact with Citizens Advice to provide support and information for potential applicants and has encouraged the few applicants who do not have legal representatives to seek legal advice to expedite their claims.”
Now, that’s the Overturned Convictions Scheme.
Lorna Gratton: Yes.
Ms Patrick: You go on to the HSS, and say:
“On the HSS, much of the work to identify potential claimants had been done before my appointment as NED, including writing to former and current postmasters who met the eligibility criteria and publishing information on the website.”
You refer to the huge increases we’ve heard about following the drama. You say that:
“The Post Office is planning to write again to potential applicants, setting out details of the £75,000 offer, the appeals process and the end date.”
Then you go on to say that you’ve been asked about how the communication with applicants is going. You say you’re aware that there have been concerns about the offer letters and that previously a complaint had been made to the SRA.
You say that the wording in the letter has changed, and you’re not aware of major issues arising around Post Office’s communications with claimants. I won’t read out all of that because you say you’re not in the thick of it, as it were –
Lorna Gratton: Yes.
Ms Patrick: – around how the timings, and so on, of compensation is dealt with. But since you’ve raised the letters, can you help the Inquiry with whether or not access to legal advice is addressed expressly in the current letters being sent to HSS applicants?
Lorna Gratton: I am afraid I don’t know.
Ms Patrick: You don’t know.
We’ve heard a lot today about differences in approach to legal advice. Do you know, at high level, whether would-be applicants to the HSS are encouraged to seek legal advice, in the same way that individuals in the Overturned Compensation Scheme would be?
Lorna Gratton: So I actually don’t know whether this came up with Mr Creswell yesterday but legal fees – legal advice is reimbursed – the cost of which is reimbursed in the HSS only on receipt of the offer, not prior to the offer being made – sorry, not at the point of application. That is a decision for the Department, that the Department has taken.
Ms Patrick: Indeed, we did cover that. The Inquiry has heard that and that’s why I’ve raised it.
What I wanted to ask you was, has that issue of legal advice and funding for legal advice –
I apologise, I’m being reminded that I may have said “Overturned Compensation Scheme”, of course we’re talking about the difference with the Overturned Conviction Scheme. I misspoke.
But returning to that question, has that issue about legal advice and encouraging legal advice or the question of funding legal advice earlier in the process for HSS applicants been discussed at the Remediation Committee?
Lorna Gratton: Yes, it has, extensively.
Ms Patrick: Are you able to help the Inquiry on what has been said?
Lorna Gratton: So the Remediation Committee, of which I am part, thinks that claimants should be offered legal advice at the point of application. I think it’s quite hard to decide whether or not you should take a fixed-sum offer without having some support in that process. That view from the committee has been made clear to the Department. The Department has taken a different view.
Ms Patrick: Thank you. Now, moving to the second topic. I want to deal briefly with transparency, which is a topic that’s been addressed a lot this morning in the questions by Ms Hodge.
Are you aware about the announcement in the King’s Speech this year that the Government intends to bring in a law with a duty of candour for all public servants and those acting with public functions, colloquially known to most people as the Hillsborough Law, recognising the campaign by those families involved in the Hillsborough scandal and the recommendations of Bishop Jones; is that something you’re aware of?
Lorna Gratton: Yes, it was disclosed to me as part of the bundle.
Ms Patrick: We know in his speech to his party conference on 24 September, just about six weeks ago, the Prime Minister said a bit more about that law, and I hope you don’t mind, I’m going to quote what was said because we don’t know very much about Government thinking. He said:
“For many people in this city, the speech they may remember was the one here two years ago because that’s when I promised, on this stage, that if I ever had the privilege to serve our country as Prime Minister, one of my first acts would be to bring in a Hillsborough Law, a duty of candour, a law for Liverpool, a law for The 97, a law that people should never have needed to fight so hard to get but that will be delivered by this Government. It’s also a law for the subpostmasters in the Horizon scandal …”
He goes on:
“… the victims of Infected Blood, Windrush, Grenfell Tower, and the countless injustices over the years suffered by working people at the hands of those that were supposed to serve them. Truth and justice concealed behind the closed ranks of the state.”
He goes on to say a little bit more about what it will do:
“This is the meaning of Clause 1, because today, I can confirm that the duty of candour will apply to public authorities and public servants. The Bill will include criminal sanctions and that the Hillsborough Law will be introduced to Parliament before the next anniversary in April. It’s work that shows how a Government of service must act in everything it does.”
He ends a couple of paragraphs later on:
“It doesn’t mean that everyone will agree but it does mean we understand that every decision we take, we take together.”
Now, I just want to ask you, because of your role and your connection with the Post Office as a Director on the Board, and your role with UKGI, have you been involved so far in any conversation within Government as to how this new duty of candour might apply to arm’s-length bodies or public corporations?
Lorna Gratton: No, I haven’t.
Ms Patrick: Thank you.
Sir Wyn Williams: Is that it, Ms Hodge?
Ms Hodge: There are, I think, a few questions from Ms Watt.
Sir Wyn Williams: Right.
Questioned by Ms Watt
Ms Watt: Good afternoon, Ms Gratton. Yes, I’m over here. I think I just have to get Mr Jacobs to move. Thank you very much.
I ask questions on behalf of the NFSP. I have couple of topics to follow up on from your evidence this morning as given to Counsel to the Inquiry.
Earlier in answering questions from Counsel to the Inquiry about the reference in your witness statement regarding the Postmaster NEDs on occasions failing to distinguish between their roles as Post Office Board members and postmasters themselves – you remember that part – you gave an example of how difficult the Postmaster NEDs had found it when the Board was dealing with its financial positions, such as the budget discussions, and you said those discussions were tricky because the company is not able to pay postmasters the remuneration they would like to because, simply, there aren’t the funds for it and you said they found that position difficult to accept.
So I wanted to put it to you, from your perspective, it’s great to hear from those Postmaster NEDs on the Board but the truth is, actually, they of themselves as Postmaster NEDs can’t change the remuneration to postmasters, they can’t increase it simply by virtue of being on the Post Office Board. That’s the case, isn’t it?
Lorna Gratton: Well, I don’t think any Board Director is able to sort of magically generate funds for the Post Office to have, so to the extent that is true of all of us, it is also true of the Postmaster Non-Executive Directors. However, I don’t think that is to say at all that they are not a vital part of the company because I think they are, and I think their contribution – anyone who – you know, we all bring our own kind of lived experiences to the Board: I been a perspective from the shareholder, they bring a perspective from postmasters. It is very difficult for the Board to adequately understand that without their presence on the Board. So I think they are integral to the Board.
Ms Watt: So good to hear from them, as I said?
Lorna Gratton: I think they have as much say over the company as any other Board Director does.
Ms Watt: If we think about the readout that you were taken to, the BEIS document – I’m not going to go back to it, you were already taken to it – and the comment of the Post Office CEO, Mr Read, making the comment about the Postmaster NED role as to whether they’re directors or trade union reps – it kind of goes back to what I’ve just asked you about – and you said you didn’t know where that was going to go.
That’s the nub of the issue really, isn’t it? UKGI, Government, Post Office, they have the Postmaster NEDs – that’s an illustration of opening up and apparently engaging with postmasters, but the fact is, because of their two roles, the Postmaster NEDs and inevitably constrained, at least some of the time?
Lorna Gratton: The Postmaster NEDs are definitionally not independent Non-Executive Directors; I am not an independent Non-Executive Director. I – that means that in some situations they will find themselves conflicted in decision making. The number of situations in which that is true is very limited. I happen to think – I think we have a difference of opinion on this.
I happen to think that postmasters are a vital part of the Post Office Board and it’s not appropriate to put them on a sort of separate Board over there where the decision making isn’t. I think they should be integral to the decision making in the Post Office, which they are, in virtue of being two of the ten people around the Board table.
Ms Watt: It’s really about if they’re listened to, isn’t it, because the YouGov POL commissioned by the Inquiry, EXPG0000007, page 39 – I’m not going to it – but it says that 60 per cent of the postmaster respondents think that the Post Office Board doesn’t listen to the Postmaster NEDs and, on the evidence of the Postmaster NEDs themselves, they think they’re not listened to. So really, your view and the view of postmasters and those NEDs are actually quite different, aren’t they?
Lorna Gratton: So I think there has been a particular issue around the amount that the Postmaster Non-Executive Directors have been able to discuss the work that they do on Post Office’s Board with their postmaster colleagues. I understand that they had had some advice from – I think, actually from the Post Office Legal team, that they weren’t allowed to discuss what went on in Board meetings.
That is going to change going forward. Post Office Board meeting minutes are going to be published. I think there will be more latitude going forward for Postmaster Non-Exec Directors to discuss what happens in Board meetings, and I think that that will show the influence that they have on the organisation. But being a Non-Executive Director is different to being an Executive of the company. They do not run the Post Office. They are there as a Board member to provide accountability for the CEO. It is the Chief Executive’s job to run the Post Office.
Ms Watt: Whatever the rights and wrongs of all of that, there are many tools of engagement with the postmasters, including engagement with representative bodies such as the NFSP, which has 6,500 postmaster members. I mean, it’s not the be-all and end-all, not one thing – you mentioned something over to the side. There’s actually lots of ways in which Post Office and the Board can engage with postmasters, as well as having the two Postmaster NEDs?
Lorna Gratton: I couldn’t agree more with you and I think there should be engagement with postmasters at all levels of the business, at – as I’ve mentioned earlier, at a commercial level, treating people as, you know, genuine franchise partners; at an oversight in terms of how the postmasters are treated with relation to issues that have been concerned in the past; and at a decision-making level at the Board. I think it should be throughout the organisation, yes.
Ms Watt: Just one more topic. I think it’s fair to say, you can correct me if I’m wrong, that you and UKGI – so when I say “you”, not you personally, as you’ve often said, in your role as the Shareholder NED representing UKGI – consider that the role of the Shareholder NED is the one that, actually, helps to give the oversight of the Post Office Board. Is that how you see that role: as well as being on the Board, the role of the UKGI shareholder, that the NED has some oversight of what is happening?
Lorna Gratton: I don’t think that’s a term that I’ve used, no. I think that I am there as one of ten-ish Board members. As a non-executive I am there to help the company understand the views of the shareholder and to provide the shareholder with insight from the company. I don’t think I have a particular oversight role, as distinct from any other Board member.
Ms Watt: Thank you. In your earlier answer to Counsel to the Inquiry, you effectively dismissed the need for an oversight committee of the type proposed by the NFSP. I just want to ask you some things about that.
That proposal arises out of the failures in culture that led to the Horizon scandal, also the culture and governance not having changed sufficiently since Lord Justice Fraser’s judgment, and now we have the Grant Thornton report which shows an almost total failure to get to the grips with the issues he outlined?
So the oversight committee is not proposed by the NFSP as the be-all and end-all, postmaster engagement would continue with them, but as something there to help the restoration of public trust, actual oversight of the Board which has, in fact, failed to change itself and the Post Office. That’s what oversight is for, and with a range of representative bodies, condition consumer champions, specialist members as needed, and Post Office and Government representation, that could never actually be a bad thing, could it?
Lorna Gratton: I think we just have a difference of opinion on this matter. I think that, if the current structures aren’t working, you should fix the current structures. I don’t necessarily think more is better, in terms of Boards and committees.
Ms Watt: Thank you.
Ms Hodge: Sir, I think that concludes the evidence of Ms Gratton.
Sir Wyn Williams: Well, I’m very grateful to you, Ms Gratton, for making a long and detailed witness statement, and for answering everyone’s questions here this morning and into this afternoon. Thank you very much.
The Witness: Thank you.
Sir Wyn Williams: So we’ll adjourn for lunch, I take it, Ms Hodge?
Ms Hodge: Sir, yes. Shall we resume at 2.00?
Sir Wyn Williams: Yes, by all means. Fine.
(12.53 pm)
(The Short Adjournment)
(2.00 pm)
Sir Wyn Williams: Are you ready, Ms Price?
Ms Price: Yes, sir, forgive me. I don’t think you heard or the connection wasn’t there. Good afternoon.
Sir Wyn Williams: Good afternoon. I think before you call the next witness, I wish to make a short statement and issue an invitation. Is the witness in the room?
Ms Price: No, sir. He’s not.
Sir Wyn Williams: So the statement I wish to make is as follows.
Throughout Phases 2 to 7 of this Inquiry those following it will know that most of the questioning of the witnesses has been done by Mr Beer and his team of counsel. However, you will also know that it’s often been the case that counsel for Core Participants ask supplementary or additional questions of the witnesses as we have been going along.
What might be less well known is the process by which that came about and, without going into too much detail, essentially what happens is that counsel for the Core Participants submit lists of questions that they wish witnesses to be asked about, and then Counsel to the Inquiry decides whether they will ask the question themselves or whether they will leave it to counsel for the Core Participants to ask the particular question.
That system has worked extremely well, and I should say here and now that I am very grateful to all counsel involved in this process who have made it work so well.
Very occasionally, as I understand it, counsel for a Core Participant may wish to ask a question which Counsel to the Inquiry thinks ought not to be asked. In those circumstances, Counsel to the Inquiry does not have the last word. That would rest with me, if any application is made to me to ask the particular question or a line of questioning.
To date, I have never been asked to exercise my power to determine whether or not a question should be asked, and that’s pretty remarkable, given that we’re, what is it, almost three years into this process.
Anyway, intelligence has reached me that there may be a problem – and I stress may be a problem – to be resolved in relation to questioning of Sir Alex and so I wanted to raise that immediately before he begins his evidence.
The invitation I make is simply this: if there is any Core Participant who feels that they are being deprived of the opportunity of putting a question to Sir Alex because of some kind of suggestion by Counsel to the Inquiry that the question should not be asked, now is your opportunity to raise it with me so that I can have the last word on the subject.
So if anybody does wish to make any application to me, will they please do it now.
Any takers, Ms Price?
Ms Price: It doesn’t appear so, sir.
Sir Wyn Williams: Fine. Then let’s have Sir Alex into the room, please.
Ms Price: Thank you.
Sir Alexander KCb
SIR ALEXANDER JAMES CHISHOLM KCB (sworn).
Questioned by Ms Price
Ms Price: Can you give us your full name, please, Sir Alex?
Sir Alexander KCb: Alexander James Chisholm.
Ms Price: As you know, my name is Emma Price and I’ll be asking you questions on behalf of the Inquiry.
Thank you for coming to the Inquiry today to assist it in its work and for providing a detailed witness statement in advance of today. You should have a hard copy of that witness statement in front of you. Do you have that?
Sir Alexander KCb: Yes, I do.
Ms Price: It is dated 14 October 2024. If you could turn to page 68 of that, please.
Sir Alexander KCb: Yeah.
Ms Price: Do you have a copy of with a visible signature?
Sir Alexander KCb: I do.
Ms Price: Is that your signature?
Sir Alexander KCb: It is.
Ms Price: I understand there is one minor correction you’d like to make to the statement?
Sir Alexander KCb: Yes, thank you very much.
Ms Price: Would you like to tell us what that is?
Sir Alexander KCb: It is a point of detail. Paragraph 23, and I’m talking there about the funding given to Post Office Limited by the Department in my time and, in the fourth sentence there, we talk about the subsidy over three years and then the investment, and it says:
“… the investment was 168 million in 2018/2019 with the remainder of the £210m funding earmarked for the next two years.”
And it should be “the next year”, just one year, not two.
Ms Price: Are there any further corrections to be made?
Sir Alexander KCb: No.
Ms Price: With that correction made, are the contents of the statement true to the best of your knowledge and belief?
Sir Alexander KCb: Yes.
Ms Price: For the purposes of the transcript the reference for Sir Alex’s statement is WITN00180100.
Sir Alex, your witness statement is now in evidence and it will be published on the Inquiry’s website in due course. I will not therefore be asking you about every aspect of your statement; just certain matters within it.
I’d like to start, please, with your background and the roles that you have held which are of relevance to matters being looked at by the Inquiry.
After you graduated from Oxford with a degree in history and completed a master’s in business administration, you began your career as a civil servant in 1990; is that right?
Sir Alexander KCb: Yes.
Ms Price: You worked in various roles at the Department of Trade and Industry and the Office of Fair Trading until 1996?
Sir Alexander KCb: Mm-hm.
Ms Price: You then worked in the private sector for around a decade before returning to public service in 2006, when you were appointed as Commissioner at the Commission for Communications Regulation in Ireland.
Sir Alexander KCb: Yes.
Ms Price: In 2013, you were appointed as Chief Executive of the newly-formed Competition and Markets Authority and held that position until 2016?
Sir Alexander KCb: Yes.
Ms Price: You then served for a short period in the Department of Energy and Climate Change as Permanent Secretary?
Sir Alexander KCb: Yes.
Ms Price: Then, following the merger of the DECC with the Department for Business, Innovation and Science (sic), to create the Department for Business, Energy and Industrial Strategy, you became Permanent Secretary of BEIS on the 5 September 2016?
Sir Alexander KCb: Yes.
Ms Price: You remained in that role at BEIS until 13 April 2020?
Sir Alexander KCb: Yes.
Ms Price: You were then appointed as Chief Operating Officer for the Civil Service –
Sir Alexander KCb: Yes.
Ms Price: – and, in parallel, Permanent Secretary for the Cabinet Office, roles you held until April this year; is that right?
Sir Alexander KCb: Correct.
Ms Price: You are now Chairman of EDF Energy?
Sir Alexander KCb: Yes.
Ms Price: Coming to your responsibilities as Permanent Secretary of BEIS, please. As Permanent Secretary, you were the senior civil servant with lead responsibility for the management and oversight of the Department and its resources?
Sir Alexander KCb: Correct.
Ms Price: You were the Principal Accounting Officer, the Senior Advisor to Ministers and a Public Representative of the Department; is that right?
Sir Alexander KCb: Yes.
Ms Price: You also chaired the Department’s Executive Committee and the represented the Department before the Public Accounts Committee?
Sir Alexander KCb: Yes.
Ms Price: You set out the many and varied matters which were occupying the Department in 2016, and the years which followed, at paragraphs 11 and 12 of your statement?
Sir Alexander KCb: Yes.
Ms Price: You also explain in your statement that the Department at that time sponsored over 40 arm’s-length bodies or partner organisations, as they were known, within BEIS; is that right?
Sir Alexander KCb: Yeah.
Ms Price: You deal at paragraph 15 of your statement with your particular responsibilities as the Department’s Principal Accounting Officer. Could we have that on screen, please. It’s page 4 of WITN00180100. Here you explain that, as Principal Accounting Officer, you were:
“… accountable to Parliament for Departmental expenditure. This covered funds directly spent by the Department, for example the funds required to employ the approximately 4,000 staff who worked at BEIS. It also covered the funds spent by over 40 arm’s-length bodies … and capital programmes.”
Then you give an example for 2018 to 2019 of the expenditure of the core department and agencies being £13.6 billion.
You describe Post Office as one of those arm’s-length bodies or partner organisations in the paragraph below. Was that how the Post Office was categorised, notwithstanding its status as a public corporation?
Sir Alexander KCb: Yes, I think technically, under the scheme of accounts, the Office for National Statistics would classify it as a public non-financial corporation, or often referred to as a public corporation, and that put it at even further arm’s length than the arm’s-length bodies. For practical purposes, we treated them as one of our partner organisations. It is the case, though, that when I talk about 40,000 people working within the Department and its agencies, that doesn’t include all the people who worked in the Post Office, which was a separate business and, of course, tens of thousands of further people were working there.
Ms Price: Okay. Just on that figure, I think it was 4,000 in paragraph 15 that you gave. Is that supposed to be 40,000?
Sir Alexander KCb: No, 4,000 in the core department, and a further 40,000 working for us in the arm’s-length bodies, but that didn’t include several tens of thousands more who would have worked in sub post offices.
Ms Price: I see. To deal with your accountability for Post Office’s funded expenditure, you deal with this at paragraph 45, which is page 12, please. You say:
“Whilst I was not involved in the detail of UKGI’s oversight of [Post Office Limited], as Principal Accounting Officer I was accountable to Parliament in respect of [Post Office Limited’s] funded expenditure, as defined above, and for ensuring that arrangements were in place for effective shareholder oversight.”
So to be clear, first of all, about the parameters of this, you say at paragraph 23 of your statement that, at the time you were Permanent Secretary, Post Office Limited was mainly self-funded through paid-for services but, in addition, it benefited from top-up funding from His Majesty’s Treasury. Your accountability as Principal Accounting Officer for the Department to Parliament for Post Office Limited’s expenditure, was that limited to expenditure funded by the Department?
Sir Alexander KCb: I think the scheme – the way it works is that, as Principal Accounting Officer, you then give delegated accounting responsibility to either people working in your own department or usually the heads of the arm’s-length bodies. And in this case the Accountable Officer – it’s not called Accounting Officer for, again, a very technical reason, apologies for that – the Accountable Officer was the Chief Executive of the Post Office, and you could see in – when I made, for example, the appointment of the new Accountable Officer, first Al Cameron and then Nick Read, they get a formal letter for me, a formal delegation. That would have been done for Paula Vennells who was appointed before my time as Accountable Officer.
And says basically, “I’m the Principal Accounting Officer, I’m now holding you responsible for running this organisation, the public money within it, upholding the standards of Managing Public Money and all the other things”. It’s all set out in a formal letter of delegation. So that’s the first part of it.
I think, in addition, as part of that you don’t say, “Right, well, that’s it”. You remain concerned that oversight is working effectively. You’re there to provide advice and support to the Accounting Officers. You can see, you know, many times in those meetings, one-to-one meetings, and so on, you’re saying, you know, what are the issues and how can we help you with those?
Also there is, I have to say, a supervisory aspect to it, so you are also making sure they are doing things correctly and, in my time – I don’t know if you’re going to come to this – but at one point we found evidence that they were using funds that we had given the Post Office for the purpose of maintaining the network and investing in transformation, they appeared to have been used for a piece of litigation and we said that that was incorrect.
Ms Price: Yes, we will come on to that.
Sir Alexander KCb: Yes, but it’s an example of the exercise of the Principal Accounting Officer function.
Ms Price: The Inquiry has heard evidence from Sir Martin Donnelly that, at least in some stage of his tenure from 2010 to July 2016, as Permanent Secretary of the Department for Business, Innovation and Science, for most of the partner organisations over which BIS had oversight, their accounts were consolidated into the main BIS accounts. This did not apply, he said, to Royal Mail and to the Post Office, given their status as a public corporation.
Can you help, please, with whether the accounts for any partner organisations were being consolidated into the main BEIS accounts when you were Permanent Secretary?
Sir Alexander KCb: Mm, I’ll have to think about that. I think it’s very likely they would have been, for some of the executive agencies, but I’m not absolutely sure of that. And they might have been for – yes, so for example the Nuclear Decommissioning Authority, I think accounts must have been consolidated because I remember we had to make provision for change in the interest rate, yes.
So probably quite number of them would have been consolidated, I think that is right, yes. If it is important to the Inquiry I could check the detail of that but it’s all there in the public accounts.
Ms Price: In relation to the Post Office, its accounts weren’t consolidated –
Sir Alexander KCb: No.
Ms Price: – into the main accounts. What was the reason for that?
Sir Alexander KCb: It was treated as a company, run as a business, very much at arm’s length. It had its own statute, it had its own Board – fully fiduciary Board. Its accounts were published/produced to the requirements of – you know, like any other company. They were externally audited, not done by the Government’s auditors. All of that was done on a completely separate basis, and I think it’s also the case that the – unlike other parts of the Department where we would be employing civil servants, here obviously it’s much like a business, like a franchising business with lots and lots of employees, quite a big business, I think about £1 billion in turnover at that time and, you know, it’s accounts would have been more comparable to those of another retailer than to something of a Government department.
Ms Price: Was there any difference in your Principal Accounting Officer responsibilities as they related to the Post Office, when compared to other partner organisations, in particular partner organisations which were not classified as a public non-financial corporation?
Sir Alexander KCb: Yes, I think that those which were closer and more alike to us, we would probably – if we were consolidating the accounts, we would have had more control and involvement, and also more day-to-day responsibility. So, again, as a public corporation, run like a business, it was very much at the outer edge of that arm’s-length responsibility and, in the delegated authority that we gave them, it was clear that they needed to exercise their own control, internal financial controls, proper audit, proper processes, proper supervision, as you’d expect in any other company or business.
Ms Price: To what extent did you get involve in overseeing Post Office’s accounting practices?
Sir Alexander KCb: Accounting practices, I would say not at all. I think the only exception I can think to that was we had a funding agreement, it was called, and actually, I just drew attention to you the funding we gave both the network, a subsidy to make sure that there were approximately 11,500 Post Office outlets, and also we funded some investment they were making to improve their efficiencies and transformation. So those are the two pieces of direct BEIS funding that came from the Treasury through us to the Post Office. And we were very meticulous in making sure they were spending those in the right way.
They had to account for how they were doing it, and that’s how we detected that they had used a small part of it incorrectly for litigation, which they then had to repay to us, and were then put on a kind of extra attention of monitoring and reporting every quarter thereafter that they had not repeated that error.
Ms Price: We will come to the correspondence on that very shortly.
Broadly speaking, it is the case instead that you had oversight responsibility for ensuring the proper use by the Post Office of public funds for their designated purposes, as opposed to being more intricately involved in their accounting practices?
Sir Alexander KCb: Yes. I mean, in effect, the responsibility I had as Principal Accounting Officer was then passed on to the Chief Executive of the Post Office, who was the Accountable Officer.
Ms Price: The example that you’ve referred to, of your correspondence with Paula Vennells, in respect of use of public funds for the litigation, could you have on screen, please, POL00024073. This is a letter you wrote to Paula Vennells on 3 January 2018, which raises your concern about a recent funding request which had been made of the Department. Starting at the second paragraph down, you say:
“As you will be aware, the Minister wrote to Tim Parker on 20 December 2017 to set out the basis for providing transformation funding to the Post Office and her expectations on how this was to be used. The Minister emphasised the need for funding to be used prudently and efficiently in accordance with the objectives of the three-year strategic plan whilst recognising the need for some flexibility for a commercial business engaged in investment projects.
“In your recent funding request, you indicated that you intended to use BEIS funds for non-transformation related spend specifically in relation to the ongoing Horizon litigation. I understand that this is now no longer the case and UKGI have communicated to your team the requirement for BEIS funding only to be used against those projects which are related to transformation and approved investment activities.”
You go on to explain that:
“As Principal Accounting Officer, [you were] personally responsible for ensuring the Department has a high standard of governance and exercises effective controls over the management of resources, including those through its partner organisations. So that I may have ongoing assurance that BEIS funds entrusted to Post Office are being used as the Minister intended, please can you confirm this on a quarterly basis in arrears. UKGI will provide you with further details on the exact wording and format …”
So it was your view that the use of departmental funds for the Horizon litigation was not a proper use for designated purposes; is that right?
Sir Alexander KCb: Yes.
Ms Price: You go so far as to describe it in your statement as a “categorical mistake in budgeting and reporting”. Paula Vennells responded to you by way of a letter dated 8 January 2019. Could you have that on screen, please. It’s POL00024074. She addresses the litigation funding issue, starting the fourth paragraph down, and says:
“We operate a single portfolio of large change projects, which form the basis of our reporting to the Board. As you know, our change funding comes from a combination of Post Office trading profit and Government transformation funds. The GLO work draws on shared (scarce) resources from the change budget; we have been transparent about these costs. I will ensure we make it clear that the source of funds for GLO work is Post Office, not Government. When this was brought to our attention in December we removed the £2.4m from this quarterly request. We will not include GLO spend in future funding requests and will confirm this quarterly, agreeing the wording with UKGI as requested.”
She goes on:
“Furthermore, to ensure that the distinction is absolute and consistent, I have asked Al Cameron, CFOO, to arrange for £2.3m to be returned to BEIS: the GLO was listed in our earlier reporting and we received funding from you of £2.3m for [Quarter 2].”
Did you personally review the quarterly funding requests from the Post Office?
Sir Alexander KCb: No.
Ms Price: Was that something you delegated to those who worked to you?
Sir Alexander KCb: Yes, the oversight of that was done by UKGI and I think it’s extremely likely that they drew my attention to it. It’s possible I spotted it myself but more likely they said, “We’ve been going through the returns from the Post Office, and they appear to have been using some of our money [inverted commas, BEIS money], not for the reasons given, which was specifically for network maintenance and transformation, but for litigation. We think that’s wrong, do you agree?” And I saw it and I said, “Yes, I absolutely agree and we should change that and we should require them not only to give us the money back but also to make sure it never happens again”, which I think is the effect of the commitment that’s entered into by the Chief Executive in that letter.
Ms Price: So you were told, were you, by UKGI, about the previous earlier reporting and the payment out that had been made, in addition to the recent report? Because there are two things referred to here: was it that you were hearing about the previous reporting for the first time in this letter from Paula Vennells, or had that already been reported to you?
Sir Alexander KCb: I hadn’t noticed at the time that there was a difference between that. Now, you’ve mentioned it, I see 2.4 million is different from 2.3 million so it may be that they did it for two quarters but, anyway, you know, when I saw that, I thought, “Good, they’ve paid the money back and they’ve accepted they made a mistake and they won’t do it again”.
Ms Price: Was the 2.3 million returned by the Post Office to the Department as promised?
Sir Alexander KCb: I’m sure it was, yes.
Ms Price: Were you reassured by Ms Vennells’s response to your challenge?
Sir Alexander KCb: Yes, in the sense that they didn’t argue that they’d made a mistake. They said, “We’ve made a mistake, we made it good. We’ve paid the money back and we will, you know, continue to account to you in a special way to make sure it doesn’t happen again” so I thought that that was satisfactory. It wasn’t good that it happened in the first place but at least they had accepted their error and made amends.
Ms Price: That document can come down now. Thank you.
In terms of your wider responsibility beyond being accountable for Post Office’s expenditure of public funds, you were responsible for ensuring that arrangements were in place for effective shareholder oversight of Post Office; is that right?
Sir Alexander KCb: Yes.
Ms Price: Was it in the context of that responsibility that you began work in 2018 on a new Shareholder Relationship Framework Document to clarify the respective roles and responsibilities of BEIS and UKGI as they pertained to Post Office?
Sir Alexander KCb: Yes.
Ms Price: We’ll come back in due course to the reasons why you considered that necessary but, just in terms of involvement on shareholder issues, you say you were actively involved on core shareholder issues throughout your tenure; is that right?
Sir Alexander KCb: Yes.
Ms Price: You give examples in your statement of issuing guidance letters to the Chair of the Post Office, appointing the new CEO, following Paula Vennells’ departure, and involvement in Post Office strategy, setting and discussions?
Sir Alexander KCb: Yes.
Ms Price: In terms of the Government’s interest in, and relationship with, Post Office, you say at paragraph 18 of your statement that, whilst BEIS had no legal responsibility for the Post Office, under its Articles of Association, it had political responsibility for the company which you say it took seriously; is that right?
Sir Alexander KCb: Yes.
Ms Price: Ministers took a broad view of its responsibilities for the Post Office, given its social function?
Sir Alexander KCb: Yes.
Ms Price: You describe the Department’s oversight of the Post Office as supervisory and advisory, with the Department being heavily reliant on the reporting which came to it from the Post Office?
Sir Alexander KCb: Yes.
Ms Price: On the question of the extent to which the Department was able to intervene in Post Office matters, could we have on screen, please, paragraph 36 of Sir Alex’s statement it’s page 10. Having set out the role of ministers in broad terms in the paragraphs above this, you say:
“It was … never my understanding that BEIS was under a legal requirement which prevented ministers from becoming involved in [Post Office Limited’s] operations. [Post Office Limited’s] operational independence was a practice and not an immutable right. My own view is that [Post Office Limited] came to use its operational independence in a self-protective way. Ministers and BEIS officials were provided with carefully worded summaries without the benefit of sight of many of the key documents. The result was that, over time, the reality of the situation as it concerned the Horizon IT system and [subpostmasters] was obscured by [Post Office Limited]. [Post Office Limited] came to use its operational independence, and legal arguments about privilege and confidentiality, as a defence to certain decisions and to restrict the flow of information to ministers.”
You go on to explain that:
“POL’s right to continue functioning at this level of operational independence was always contingent upon it fulfilling its responsibilities; both financial and social. POL forfeited its claim to operational independence when it failed in its public duties, and ministers were entitled to intervene accordingly.”
Then at paragraph 38 you refer to the difficulty that:
“… by obscuring the reality of the situation … ministers and officials had a very limited picture of what had been happening within [the Post Office], at least until the judgment of Mr Justice Fraser was handed down in the Common Issues trial in March 2019. Had more fulsome and honest information been provided to the Department by [Post Office Limited] over the course of these events, I believe ministers would have intervened sooner and more decisively in [Post Office Limited]’s operations.”
So from your – forgive me –
Sir Alexander KCb: Could we just show paragraph 31 as well?
Ms Price: Of course. If we can go back to that, please. That’s page 9.
Sir Alexander KCb: I just wanted to show how the concept of operational independence was not only a kind of a convention or a practice, as I said there in the middle of that paragraph, but actually was the way in which a public corporation was meant to be treated, and that was defined in the Public Bodies Handbook, and I quote there the 2016 edition. So it says that is what a public corporation is. It’s:
“… controlled by Central Government … and it has substantial day-to-day operating independence so that it should be seen as institutional units separate from its parent Department.”
So that’s exactly how, you know, it’s often been mentioned about this concept of operating independence, but that’s, you know, the bedrock and you’ll see in other documents, such as the framework document, that’s fully recognised. The paragraph that you’ve just drawn my attention on, which follow on from that, were saying that that was fine, if you like, when things were going well, but that neither ministers nor myself, or the Department as a whole felt that that meant that we should be insulated from what was happening within the organisation, or that it meant it could do what it liked, so to speak.
In some of its operations, clearly it significantly failed and that meant that ministers and myself became increasingly involved and I think we had every right to do and is there was no legal bar to do so.
Ms Price: Is it right that the reason for that greater involvement at the stage that it happened was because the picture the litigation revealed about the Post Office gave you increasing concern?
Sir Alexander KCb: Yes.
Ms Price: What was that concern?
Sir Alexander KCb: I think even before we saw the judgment, the Common Issues Judgment, in March 2019 from Justice Fraser, which I think in the phrase used by the then Secretary of State Greg Clark was a “seminal moment”, that revealed a great deal about the way in which the Post Office operated, its dealings with subpostmasters, and showed them to be, in effect, oppressive in many ways. So that was an incredible eye-opener for us. It was also very clear that the judge was very dissatisfied by the conduct of the litigation by the Post Office, by the way in which the Post Office personnel had appeared as witnesses before the High Court and, you know, all of that was kind of very considerable and new information.
I think, even before that time, in the months of preparing for it, we had been trying to get more information about what they saw to be the legal risks, and their contingency plans, and the potential implications of this, and we found that was very difficult to do so, and we had a lot of hard-fought negotiations over an information sharing protocol, and so on, to try to be able to find out what was happening. And then there was, I think, a kind of carefully controlled flow of information to the Department, which I think, if we’d seen more, we would have seen – as I’d said later on in the statement, we would have seen they actually had no chance at all of success in the litigation, and they should have exited from it even earlier than they did.
Ms Price: The other reason you gave in your statement for greater involvement was that the Department would need to be directly involved in bringing settlement. Can you just explain, please, why it was that the Department needed to be directly involved in bringing settlement?
Sir Alexander KCb: Yes, so I think that – I mean, first of all, the magnitude of the amount of sums, but also the implications of that, accepting wrongful practice, effectively, and trying to make good, would absolutely be a shareholder matter?
I think, technically, the approval level which the Post Office, under their delegated authority, was £50 million, and we anticipate it going beyond that, and indeed it was more than that. There’s was also a concept under Managing Public Money, which was the main reference point for good accounting practice in Government, that anything which is not all contentious or repercussive requires Treasury consent expressively, which we had to obtain for that.
So for all of those reasons it was rightly, both by Post Office Limited and ourselves, seen as being a matter which the Department would need to be involved in the decision making. But there was also – and again, this comes up in later correspondence – I was very clear in my advice to the Secretary of State but also that the Department need to be able to be a neutral party in relation to the litigation so we could respond and deal with the fallout and consequences of remediation.
We shouldn’t be a party to the litigation, we needed to be above that in order to respond as necessary according to the outcome of the litigation.
Ms Price: In terms of your expectations of those working in a public corporation, is it right that you would expect them to act in a manner consistent with the Nolan Principles?
Sir Alexander KCb: Yes, indeed. And indeed, in the letter of delegation, which again I’ve referred to – to the Accountable Person, it’s very clear and it lists all the things that they are required to do by reference to Managing Public Money and includes, for example, treating your business partners with respect, and things like that, acting always with integrity, you know, such matters. So I think there should be no doubt about Post Office Limited as part of the public realm and its public responsibilities.
Ms Price: You made your expectation of this clear, it seems, in a meeting you had with Nick Read on 30 September 2019.
Sir Alexander KCb: Mm-hm.
Ms Price: Could we have on screen, please, UKGI00018641. We can see from the middle of page 1 that this is an email readout of your meeting, sent on 2 October. Going to page 3, please, under “BEIS expectations and immediate priorities”:
“Alex set out his expectations of Nick as CEO of POL, [including] the Nolan Principles and guidance on Managing Public Money. Recognising Nick’s lack of experience in this area, Alex stressed that he should lean on BEIS for this if ever unsure, especially for anything that is ‘novel, contentious or repercussive’.”
You were here setting this out in terms for Nick Read but, more widely during your tenure as Permanent Secretary, was it made clear to the Post Office senior executive and the Board, by the Department, that the organisation was expected to operate in accordance with the Nolan principles for standards in public life?
Sir Alexander KCb: I can’t remember any specific reference to it in documents. So – and I haven’t seen any in the ones that the Inquiry have shared to me. I think that when Paula Vennells would have been appointed Accountable Officer by my predecessor, the letter appointment which I’m sure is pretty standardised when you become an Accounting Officer, would have said the same things that my letters when I appointed Nick Read and indeed Alisdair Cameron when he was Interim Chief Executive before, so it would have been set out their public responsibilities there.
I think I was making a particular point of it here with Nick Read because, unlike both his predecessors, who had been a number of years in the organisation – which was a public corporation – Nick had been working in the private sector beforehand, and I was sort of, I suppose, trying to lead him through it and say, “It’s a bit different now, you’re now in the public, you know, these are the things that you need to pay particular attention to.”
Ms Price: Do you think there is a case for there being more extensive and wider guidance to the Post Office on the nature of those responsibilities?
Sir Alexander KCb: It’s possibly the case. I mean, I think that, given all the things we know now about the shameful, disgraceful actions that the Post Office were engaged in, anything that the Inquiry can recommend which would reinforce upon them the high standards required of them and their public duty, I’m sure it would be welcome.
Ms Price: Did Nick Read line on the Department, as you had invited him to do, if he was ever unsure.
Sir Alexander KCb: Yes. In my time – and he was appointed in September 2019, and I finished, as we heard in April ‘20, so in that six and a half months, I had a number of interactions with Nick Read. I found him to be – to bring a fresh perspective. I found him to be very welcoming of advice and input. He seemed not to be over identified with the Post Office’s past, which was very necessary. After they had been resisting the need for settlement for a long period of time and bringing number of ill-judged recusal and appeal attempts, he immediately saw, as, indeed, did their new General Counsel, that that had been a mistaken path and they should not only try and bring about a financial settlement but also so set the Post Office itself on a path of cultural renewal, which we thought was very necessary.
He introduced, with my encouragement, but I think of his own initiative as well, a rapid review of their culture. They brought in some external people to try to advise on that, to try to – and also to get advice on how they could repair the relations with the subpostmasters. So in all of that, in my experience, Nick Read behaved like a responsible Chief Executive, quickly trying to understand the expectations of the so-called parent department but also the needs of stakeholders in trying to run the organisation and put it on to a better footing.
Ms Price: That document can come down now. Thank you.
I’d like to ask you, please, about some specific examples of matters which you consider the Department should have been made aware of, but was not. You were briefed on the Horizon litigation in May 2018; is that right?
Sir Alexander KCb: Yes.
Ms Price: Can we have that May 2018 briefing on screen, please. It’s UKGI00008026.
Sir Wyn Williams: While that’s being done, can I just ask, Sir Alex, was that the first time you were given a formal briefing on Horizon, or is this just an example that we’re going to look at?
Sir Alexander KCb: Thank you, Sir Wyn. I think May was the first time I was given a briefing, and the timing of that was probably because that was after a case management meeting had taken place in relation to the conduct of the so-called Common Issues litigation. So before that time, it wasn’t known what, you know, how the whole case would be managed. At that point, I think they had a concept of how it would be managed, the timing and the processes, the issues, I think the – and I said, “That’s interesting. This is going to be a big deal. I need to know lots about it. I want a full briefing”. This was the initial briefing. I said, “That’s good but I need more”.
And then there was that process of slight negotiation between UKGI’s lawyers and Post Office Limited’s lawyers about how much information we could be given and under what terms, the so-called information sharing protocol but, ultimately, that led up to a very detailed briefing which we ended up getting in October, “we” being the Minister responsibility, Kelly Tolhurst and myself, from the Post Office Legal team.
Sir Wyn Williams: Thanks. Sorry, Ms Price.
Ms Price: Not at all, sir.
It’s right to note that this is a draft of the briefing, so we have the date at the top “XX May 2018”, and although we do not appear to have the final draft, you say that the content in the most recent May drafts are familiar to you; is that right?
Sir Alexander KCb: Yes.
Ms Price: You think that you were, in fact, given this briefing in May?
Sir Alexander KCb: I expect so, yeah.
Ms Price: Looking, please, to paragraph 27. Here we have this:
“In terms of mitigating against legal and operational risks, [Post Office Limited] has summarised its past and ongoing measures in paragraphs 21 and 22 above. In addition to these, UKGI is aware from past discussions with [Post Office Limited] that [Post Office Limited] did the following:
“[First] appointed Deloitte in 2013 to look at the Horizon system to establish its veracity. Whilst this was a limited study due to the passage of time, at that time [Post Office Limited] informed us that no issues were found.
“[secondly] at Baroness Neville-Rolfe’s request, when she was the responsible BIS Minister, the then incoming [Post Office Limited] Chair Tim Parker commissioned a new QC to investigate the matter when he joined [Post Office Limited] in October 2015. The initial findings satisfied the Chair that [Post Office Limited] had taken the appropriate action at each stage. With the announcement of the Group Litigation in November 2015, the Chair decided, following legal advice, not to conclude the investigation on the grounds that it could have impacted the Court’s consideration of the claims.
“[Finally] POL has also investigated individual cases and at the time informed us that no systemic issues were found.”
Is it right that you did not receive a copy of the 2013 Deloitte report or the report of Jonathan Swift KC?
Sir Alexander KCb: Yes, it is. And indeed, it’s interesting looking at that paragraph, it doesn’t refer to any reports. And indeed, it’s almost been written – I’m sure it was written by Post Office Limited’s lawyers at the time – sort of so as not to attract interest, “Nothing to see here”. It doesn’t refer to who – the name of the QC we now know to be Swift, Jonathan Swift, and it refers to initial findings and appropriate action being taken. It doesn’t say, “There’s a report”.
It’s actually a 66-page report with about eight recommendations in, but you wouldn’t know it from that summary, and I didn’t know it. I never saw that report until the Inquiry showed it to me.
Ms Price: Before the Inquiry showed you those documents, was your knowledge of them limited to what you were told in this briefing?
Sir Alexander KCb: Yes. We got similar phrases in the October briefing.
Ms Price: In particular, looking at the statement in relation to the Swift investigation, the initial findings satisfied the Chair that Post Office Limited had taken the appropriate action at each stage. What is your assessment of this statement, having now read the Swift Report?
Sir Alexander KCb: I think that’s a very poor and inaccurate summary because the full report, which is before the Inquiry, shows a lot of loose ends, a lot of limitations, but also has eight recommendations for further work. Further work not only on legal issues but also technical issues with the operation of the Horizon system and accounting issues for the reconciliation of funds.
So in no sense is that saying everything fine here, which is the impression given they’re. It is actually – there are a lot of issues here which require ongoing attention and do point to some undoubted considerable weaknesses and failings on the Post Office’s part. I get no sense of that from that description.
Ms Price: Is it right that you also had no knowledge of the existence of either of the Clarke Advices?
Sir Alexander KCb: Absolutely not. So you’re referring there to advice which, again, the Inquiry has shown to me from before the time that I joined the Department, as indeed both these documents I’ve joined in 2016. So these earlier points, which point to – and I was, you know, absolutely amazed and shocked to read those, written by a criminal barrister, or solicitor, I think, saying that the Post Office had knowingly continued to provide and employ an expert witness, even though the expert witness had chosen not to reveal evidence, to share with the court evidence which undermined their own evidence, so effectively tainted evidence, which I think is a major failing under the criminal law. And, furthermore, that the Department – that Post Office had not fulfilled its obligations to keep a proper record of information relevant to those criminal investigations, and indeed had been involved, in some cases, in destroying that information.
So I can hardly think of more serious information to, you know, to have been – to come to anyone’s attention. But that was absolutely hidden from the Department. We had no idea. If we had, we would have been absolutely shocked because it would have shown that obviously none of the criminal investigations were safe.
Ms Price: Going back, please, in this document to page 2, paragraph 7. You were given some information about Second Sight’s investigation here:
“An independent firm of forensic accountants, Second Sight, were commissioned to examine the system for evidence of flaws which coup cause accounting discrepancies. Second Sight’s initial report in June 2013 found no evidence of systemic flaws in Horizon. A final report in 2015 did find that, in some cases [Post Office Limited] could have provided more training and support to some subpostmasters, though Post Office disputes many of Second Sight’s findings.”
Sir Alexander KCb: Again, I put that in the character of “Nothing to see here”, and actually, I have now read those reports, and they – again, that summary doesn’t perhaps do full justice to them. I’m sure it was well intended but it says, you know, this phrase was used “found no evidence of systemic flaws in Horizon”. Actually Second Sight did have certain limitations to their own access and they said there that and they said were some discrepancies and they’d like to do further work and that work was curtailed. So I don’t think it provides a very reassuring report, at least not as reassuring as that summary would apply.
Ms Price: You were, though, told of the existence of two Second Sight Reports here.
Sir Alexander KCb: Correct, yes.
Ms Price: Did you ask to see either of them at that point?
Sir Alexander KCb: I didn’t at that time and that’s for a very simple reason that the operation of the Horizon system was the second issue before the High Court, the overall case, civil litigation, was split into four pieces. We only got to two in the end but the second one was looking at Horizon, and I knew that that was going to be a matter that was going to be subject to very, very close attention in the High Court, with expert witnesses on both sides.
So that was going to be a much fuller answer to the question that – than Second Sight’s work had provided and, also, if the Post Office were in dispute with the findings of it, that didn’t seem to have been like the final matter on it, whereas I was confident the High Court would get to the bottom of it.
Ms Price: That document can come down now. Thank you.
Is it right that, following this briefing, later in May 2018, you asked to be briefed on the litigation by Post Office’s General Counsel?
Sir Alexander KCb: Yes.
Ms Price: Why did you make that request?
Sir Alexander KCb: I have been getting indirect summaries of this kind, and I wanted to have the chance, both for myself and for the Minister, to ask some questions directly and also to have a fuller account. The Post Office was very quick always to claim kind of questions about legal privilege, and so on, so, you know, you’d get these very heavily edited pieces of information and, indeed, elsewhere in the file of papers you’ve given to me, there’s an example of UKGI lawyers again arguing with Post Office Limited lawyers, where they were trying to draft a first section of advice, and great chunks of it had been taken out by Post Office lawyers, including things like the impact on Post Office Limited had been taken out of the brief.
So there’s a lot of rationing of information and I was becoming – I was already impatient with that and became more so, of course, in the months that followed and I wanted to have the chance to get as full a briefing as we possibly could and to have a meeting on it with the elusive Post Office Legal team.
Ms Price: So were you, by this point in May 2018, already concerned about information flow to the Department in relation to the litigation?
Sir Alexander KCb: That was the beginning of concern.
Ms Price: That briefing came in October 2018; is that right?
Sir Alexander KCb: Yes. Originally in September but then it got rescheduled to October.
Ms Price: Although you describe the briefing as extensive, you say you considered the section setting out the background to the litigation to be relatively short; is that your view?
Sir Alexander KCb: Yes.
Ms Price: Could we have the briefing on screen, please. It’s POL00111214. Actually, if we stay on the first page, we can see this is the briefing paper for the meeting on 17 October 2018, with Kelly Tolhurst and you. So this briefing came to both of you; is that right?
Sir Alexander KCb: Yes. Also “Strictly Confidential and Subject to Legal Privilege”, as it says.
Ms Price: Going to page 3, please. At paragraph 1.2 under the “Executive Summary”:
“What is the case about?
“The case represents the culmination of a series of campaigns by disaffected postmasters and others (including a number of MPs on both sides) who believe that Post Office wrongly attributed branch losses to those postmasters and that as a result, they suffered financial and reputational harm. A theme of these campaigns is that flaws in Horizon (the in-branch point of sale system) were the cause of these losses.”
Going over the page again please, 1.8, the number of claimants is identified here as 561. Then going to page 6, please, the section on “Background to the Litigation”. This is the section that you describe in your statement as being relatively short. At 2.2, there’s this:
“In 2012 a small group of (mostly former) postmasters, under the banner of the ‘Justice for Subpostmasters Alliance’ and with the support from some MPs led by the then MP (now Lord) James Arbuthnot, claimed Post Office’s Horizon IT system had caused losses (shortfalls in physical cash against cash holdings recorded on Horizon) which they had had to make good. In some cases they had been prosecuted for these losses (usually for false accounting, theft or both) while, in other cases, they claim that it led to their contracts with Post Office being terminated, causing them financial loss and other personal harm, including bankruptcy, divorce and emotional distress, including suicide.”
So you were told here that subpostmasters had alleged that the IT system had caused losses which they had to make good –
Sir Alexander KCb: Mm-hm.
Ms Price: – and this had led to some people being prosecuted for the offences listed there –
Sir Alexander KCb: Mm-hm.
Ms Price: – and the other consequences that are set out.
Sir Alexander KCb: Yes, and, in fact, that’s, I think from memory, the only half sentence in the whole briefing, which goes on for dozens if not hundreds of pages, which actually, in some way, pays attention to the human impact of what had happened. It does say even there, wrapped in a claim, rather than the reality, but everything else in the litigation, when you – in the briefing, when you look at the contingency plans it talks, for example, of installing CCTV in postmaster offices; it doesn’t really think about the impact on the people involved.
Ms Price: Did the nature of the allegations being described here not cause you some alarm by their very nature?
Sir Alexander KCb: Yes, but that wasn’t new that these were the allegations, as I said, they’d been around – well, I was briefed as soon as I joined the Department on the fact that there was this litigation, that litigation had been joined in March 2016, six months before I joined the Department. So the litigation was underway. We understood that the heart of the litigation was people saying that Horizon gave false results and, therefore, they’d been falsely prosecuted.
Ms Price: Did you understand, when you read this briefing, that it was the Post Office which had been doing the prosecuting?
Sir Alexander KCb: Yes.
Ms Price: Had you been aware of that from the time you took up your post as Permanent Secretary?
Sir Alexander KCb: Yes, and I said, “What’s happened now? Have the prosecutions stopped?” And the answer was yes, the prosecutions stopped in 2015, over a year before I started, so that wasn’t a live issue. The question was how had they been done in the past and had they been done justly or not? And that was the issue that would be looked at by the High Court.
I was also briefed, again it’s included in other documents, that the Criminal Cases Review Body were examining whether or not – I think around 30 or so cases had been referred to it at that time. So I was welfare of that. So both the Criminal Cases Review Body and the High Court were the main areas where these actions were being looked at, at that time.
Ms Price: Did you consider, when you read the briefing, advising the responsible minister, Kelly Tolhurst, to consider meeting any of the MPs who were supporting the subpostmasters or the subpostmasters themselves to understand their position?
Sir Alexander KCb: I don’t remember giving that advice. I think that all the postal ministers at various times did meet with representatives of the subpostmasters, and so that was, you know, absolutely a part of their job. They also would have met with – there were a number of Westminster Hall debates and other things. Whenever they appeared in the Commons or, indeed, in the Lords, there were also debates about it.
So quite a lot of interaction on this issue and, if I may say also, that in my experience of elected ministers, that they always understand the role that post offices play. It’s the nature of their, you know, constituencies that they understand the local role of the post office is to support. They were involved and they would hear these stories and so both Greg Clark and Kelly Tolhurst, who I worked with for three years were very understanding and sympathetic of these issues and keen to make sure that they would be resolved satisfactorily.
Ms Price: But that isn’t something you recall discussing with Kelly Tolhurst after this briefing or in relation to the issues raised by the litigation?
Sir Alexander KCb: She would already have had contact with the subpostmasters and with the various MPs who had, you know, who took up their cause. So it wasn’t a consequence of this. I think what we did discuss was what were the chances of success were. And, in the same briefing, you can see there’s a lot of statements there that – from the legal advisers, saying that they had, you know, they had the stronger part of the case and that, on the issues which were the most significant they were particularly confident that they would do well.
They also, I think, described the issues very much in terms of very precise kind of, you know, legalistic issues about the interpretation of the contractual obligations and about the burden of proof and prosecutions, and things. So they were called Common Issues because they were seen as kind of, you know, legal issues which needed to be resolved in the court.
Both Kelly Tolhurst and myself, our instincts were that this was not going to go as well as the Post Office expected and that’s why, and it’s recorded in another document, I’m asking even at that time “Shouldn’t you be settling?” And we’d had experience in other pieces of litigation elsewhere in the Department where a settlement had been necessary and had brought it to an end. And we were concerned that this had been going on for a long time, and that the Post Office was digging themselves in more and more and should be open to trying to, you know, to mediate a solution.
Ms Price: At paragraph 2.3, below, there is reference again to Second Sight?
Sir Alexander KCb: Mm-hm.
Ms Price: Second Sight issued a report in July 2013, which concluded there was no evidence of system-wide systemic problems with the Horizon system software but identified some areas where Post Office could have done more to support individual postmasters.
It was Kelly Tolhurst’s evidence to the Inquiry that she understood from this briefing that there may have been occasional bugs or errors in the system affecting individual subpostmasters, but there was no serious problem with the Horizon system. Was that also your understanding?
Sir Alexander KCb: The Post Office had maintained for years that there were no problems with Horizon, and they used these stock phrases, as very similar to the phrase given in the briefing you put up earlier about May, referring to Second Sight and sort of praying their report in aid to say there was no evidence ever of system-wide problems with Horizon software and it says there, you know, “Done more to support individual postmasters”. I think in the previous one it was “more support and training”, so there was a sense in which it was a training issue, rather than a fault in the system, and that’s what the Post Office maintained throughout, until it was shown not to be the case.
Ms Price: But specifically on Kelly Tolhurst’s understanding, which she had after reading this briefing that there may have been occasional bugs or errors in the system affecting individual subpostmasters. Did you also understand that?
Sir Alexander KCb: I don’t remember that point arising, but might have.
Ms Price: At paragraph 2.11 of the briefing, please, there is this:
“In recent years, the focus of the complaints by postmasters had expanded from issues with the Horizon IT system, to the alleged ‘unfairness’ of the contract between Post Office and postmasters. Despite significant lobbying by the JFSA of Parliament and through the media, Post Office’s position has not altered, and considers that these disputes are now best resolved through the courts.”
Did you understand at the time that the complaint from subpostmasters about the fairness of the contract was that they were being asked to make good apparent shortfalls, even where the Post Office could not prove the loss was due to the subpostmaster’s own negligence, carelessness, or error?
Sir Alexander KCb: Yes, I think that the, you know, intricacies of this about the nature of contract law and where the duty lies, and that was something that was brought out in that briefing. I think again, the tone of that paragraph is, you know, is lacking, I think, the, you know, alleged “unfairness”, in inverted commas, and the sense in which the postmasters’ case is kind of, you know, drifting along, whereas the Post Office is kind of resolute and unaltered.
And I think there is – probably speaks to the whole frame of mind the Post Office had about their position that they were right and everybody else was wrong, whereas, you know, it turned out it was – the opposite was the case.
Ms Price: The arguments in the litigation about this were in fact addressed in this briefing document later on.
Sir Alexander KCb: Right.
Ms Price: If we can go to page 37, please. This the contingency planning for high impact areas in the scope of Common Issues, so that its areas which were defined as having a significant adverse impact on the business, if the implied terms of the contract were to go against the Post Office. Did you read the contingency planning section of the briefing?
Sir Alexander KCb: Possibly. There’s obviously a lot of detail here and it was a one-hour meeting. But …
Ms Price: The issue is set out in the left column.
Sir Alexander KCb: Yes.
Ms Price: In relation to shortfalls, the implied term which the claimant subpostmasters were arguing for was set out:
“Post Office would cooperate in trying to:
“Identify the possible or likely causes of any shortfalls without any input from the subpostmasters, and/or
“Work out whether or not there was any shortfall by carrying out a formal investigation
“Prove as a result of the investigation that the shortfall was properly attributed to the subpostmaster under the contract.”
Going over the page, we see the effect of what was being sought by the subpostmasters, by that implied term. Post Office would not – the “Impact” there:
“Losing this point would make it very difficult for Post Office to recover losses without significant effort and detailed investigation into every loss in every branch.
“It also has the effect of shifting the burden of proof on to Post Office to show the root cause of the loss. In many case this will be impossible to discharge.”
Does that cause you any concern at all, looking at that?
Sir Alexander KCb: I think – I mean, that seems to be an accurate description of the issues that were before the court. I think the hearings began the month after that, and obviously they looked at that very closely.
It’s interesting that the impact on the Post Office that section had previously been removed from the briefing by the Post Office lawyers and given to me, so they obviously saw it as a sensitive issue that they were a bit slow in wanting to share but at this point they did so. I think that I understood the legal point there about the burden of proof. I didn’t know what the actuality of it was, but not being a expert on contract law, and indeed experts on contract law were subsequently consulted and themselves found themselves to have got it wrong in the view of the High Court, and the appeal court.
So obviously some real deep legal issues there.
I think the – I did understand that it made a huge difference to the sense of who had the responsibility for it, and, you know, therefore, why the subpostmasters felt so strongly about it, and indeed, I recall that the settlement, which came over a year later – December 2019 – as well as often talked about as a financial settlement, has actually got some very important terms to address this very issue, and has got a whole, you know, schedule devoted to changing the way the Post Office actually sets about establishing loss and those commitments were entered into formally through that settlement process.
So that was obviously a key issue for the subpostmasters, which indeed they got resolution on.
Ms Price: The default position here was that it was for the postmasters to prove that an apparent also was not caused by their own negligence, carelessness or error.
Sir Alexander KCb: Yes.
Ms Price: Did that feel wrong to you at all, at the time?
Sir Alexander KCb: It did seem surprising but, again, this wasn’t happening in my time. The postmaster prosecutions had ended a year before I started. So this was a historic issue that was going to be looked at by the High Court who would rule on it definitively.
Ms Price: That document can come down now. Thank you.
Could we have on screen, please, paragraph 129 of Sir Alex’s statement, that’s page 34. Here you give your reflections on this briefing, and you say that:
“The document was not sufficient for me to understand the issues properly. I now know that a number of external reports together with legal advice on those reports were vital to the history of these issues. In my view, ministers and I should have been briefed on the contents of the Deloitte reports and the Second Sight reports. We should. Have been provided with copies of the Clarke Advices, Linklaters advice, and the Swift Review. We should have been provided with the history on the existence of bugs, errors or defects with Horizon and the steps taken to investigate them – which were extensive – and their conclusions. Those matters were highly material to achieving justice for the [subpostmasters] and in properly understanding that [the Post Office’s] prospects of success in this litigation were in fact always poor.
“Furthermore, we should have made aware that there were important remedial steps recommended by Jonathan Swift QC that had not been actioned, indeed had not even been shared with the Board.”
In terms of reflections on your own actions, at this stage, do you think you could have been more probing about the litigation, given what we have just looked at in the briefing on what you were told?
Sir Alexander KCb: I don’t think we could have asked for documents, the existence of which we didn’t know.
Ms Price: What about the Second Sight Reports?
Sir Alexander KCb: The Second Sight Reports, they were mentioned and we could have looked at those. I’ve explained already that they were – the way they were described were things which had provided a degree of reassurance, but also that the Post Office wasn’t, you know, fully in agreement with them, and they were describing the operation of the Horizon system, which was basing looked at by the High Court. So I didn’t think that was particularly important. I was more concerned here with the Deloitte report, because that does talk about bugs and remote access, and all of that. So that obviously seems to be speaking to a difference between what the Post Office had been saying in a number of public statements and the actuality.
That also was looked at particularly in the Swift Review. Again, lots of information there about bugs and errors and defects, and weak points in the Post Office proceedings and a whole load of recommendations for further action, and I have said already most shockingly the Clarke Advices, which I only saw when the Inquiry, you know, showed them to me in the summer – this summer, ‘24 – which show that, you know, those criminal prosecutions were basically unsound.
And I think that is really a shocking thing, absolutely shocking. And there’s no hint of those, you know, the first I saw was in 2024.
So people in the Post Office must have known that, that advice was given to the Post Office. People in the Post Office must have been aware about destruction of documents and tainted evidence, but no hint of that was given to the Department. If we had seen that, I think we would have taken, you know, a much more significant actions, and indeed, as I point out there, you know, we’d have seen that they were going to lose for sure in the civil litigation which they ended up losing but we wasted another year and a lot of money and lot of distress in the meantime and, even more importantly, all those criminal investigations were left to stand for a long, you know, considerable further period. I think it didn’t – the criminal cases review Board didn’t complete its work until, I think, 2020, and I think the overturning of those by the appeal court was two more years and finally legislation was passed, in 23.
So it’s a very long passage of time but, you know, we could have cut short all of that, if there’d been a fuller furnishing of the reality of the information, rather than this careful kind of economising of the actuality.
Ms Price: Sir, I wonder if that might be a convenient moment for the afternoon break?
Sir Wyn Williams: I think it would, Ms Price, yes. So what shall we resume?
Ms Price: If we could come back at 3.30, that would help us this afternoon.
Sir Wyn Williams: All right, fine.
Ms Price: Thank you, sir.
(3.18 pm)
(A short break)
(3.30 pm)
Ms Price: Good afternoon, sir.
Sir Wyn Williams: Good afternoon.
Ms Price: Sir Alex, if we could go, please, to page 31 of the statement. That’s paragraph 115. If we could have that on screen, please, you say here:
“My impression all through 2018 was that [Post Office Limited’s] position in respect of providing BEIS officials and ministers with information regarding the litigation was on a ‘need to know basis’ and indeed that there was an institutionalised wariness about what the deposit should be told.”
Is this is an impression you formed at the time or is this something you developed later with the benefit of later knowledge?
Sir Alexander KCb: I would say both. I think at the time I was already conscious about the rationing of information, because when I asked to see the documents, there was a delay, there was this negotiation over the information sharing protocol, when it finally agreed after a lot of negotiation, I then said it wasn’t acceptable because I said with this information I couldn’t talk to anybody else about it, you know. And I said I might need to, you know, I obviously had responsibilities to Parliament and across Government and I talked to the Treasury, to Cabinet Office, et cetera. So that had to be changed as well.
So there was just a kind of wariness. I also began to see these stock phrases kept appearing in the briefing and I began to think they were, you know, designed not to kind of really invite one in and to show the full reality. So that was an impression that I already began to feel in 2018, and you can see that in other correspondence over getting access to the full briefing. I think it’s definitely been reinforced now by the experience of the Inquiry showing me documents which the Post Office had, which they had chosen not to reveal to the Department, such as the Swift Report, the Clarke Advice, and other things which we were looking at a moment ago.
Ms Price: Looking back, do you think there is anything more you could have done to investigate the true position in terms of what the Post Office knew?
Sir Alexander KCb: I think that we became increasingly assertive as we became more concerned. I think that, you know, there’s certainly a debate to be – was had in the late spring of 2019 as to whether we should make wholesale changes in the Post Office Board, because that was after the Common Issues Judgment and after they’d made their misguided recusal attempt. So not in 2018, but in 2019, we did look at even more interventions. We did make quite a few interventions at that time. We obviously did change the Chief Executive; the General Counsel was also changed; their legal advisers were changed. There was quite a lot of change happened there.
Could we have brought along – bought about change more quickly? I felt there was an opportunity to settle early, and there’s a lot of my evidence of my pressing for that. The Post Office themselves were sure that they were right and they needed, as it happened, to lose; as it turned out, to lose three times and change their leadership before they came to see that they were wrong.
Ms Price: You describe in your statement Post Office not coming across as wanting Government involvement. What do you think lay behind this?
Sir Alexander KCb: I think, you know, every – we are described as a parent Department. Every child probably wants some greater degree of independence and, you know, I can see from documents – again, you’ve shown to me meetings with the Chair, the Chair is often saying, you know, “Could you lower the level of oversight? Could you have less intrusive inquiries? Why do we have to provide this information?”
So they were trying to kind of – were treating that as a burden, rather than as both a necessary form of accountability and as a source of guidance and advice. So I think that probably did rather speak to the Post Office culture at the time – I don’t know how it is today – but that they did tend to be kind of a little bit self-absorbed and defensive, and seeing the outside world as a bit threatening and, unfortunately, we were part of the outside world from their perspective and I think that was why they tended to ration the supply of information to us, and to be a little bit resentful, rather than welcoming about our oversight.
Ms Price: Was this not a red flag to you, indicating a need to look more closely at the functioning of the relationship between the business and the shareholder?
Sir Alexander KCb: Yes, and that’s why in 2018 – it started in January 2018, we had a first draft of the new Framework Agreement, and one of the changes in that was to try to institutionalise the expected roles and the flow of information that’s part of that. It took a long time to actually get that agreed with the Post Office, but that was with exactly that purpose in mind.
Ms Price: Do you think this was an indicator that the Post Office did not appreciate the significance of the public aspect to Post Office?
Sir Alexander KCb: Yes, I think that’s true. I think it’s, you know, correct to say that they weren’t a typical public body because they were a retail business and a lot of their thoughts and minds necessarily were on what it takes to run a business, you know, logistically and in terms of staff and product offers and customers and all of that, and it’s a complex enough business to run. So I think it’s right that they were thinking about those things. I think sometimes that they underthought or didn’t fully understand that all this was still being done within the public realm, that they had a public duty and that, fundamentally, the reason there was a Post Office is because post offices provide a vital social, as well as economic purpose and, you know, oftentimes, as you can see in my letters and meetings with them, I’m saying, “Don’t forget about the social purpose, that what it’s there for, these are people who depend on the Post Office for access to benefits and passports and, you know, identity information and pensions and tax credits and what have you”, and that’s really why those so-called services of general and economic interest – it’s a bit of jargon, but that’s what they’re called – that’s what the Postal Services were providing and that’s why we had them.
And so I think the kind of interest in business and making a profit and all of that was okay, but wasn’t sufficient, and they needed – and – you know, the – the public responsibility was there.
Ms Price: Moving, please, to the role played by UKGI, you describe UKGI as being responsible for oversight of Post Office Limited, in respect of both governance and policy when you were appointed Permanent Secretary?
Sir Alexander KCb: Correct.
Ms Price: By early 2018, you say you were considering the new Shareholder Relationship Framework Document, which we’ve touched on already. What made you think this was necessary, over and above the concerns about information sharing; was there anything structural that made you think it was necessary?
Sir Alexander KCb: Yes, there was. And I think – and let me try and set that up, as help for the Inquiry. So UKGI, its predecessor body Shareholder Executive, had a high level of professional expertise, a lot of people with background in managing corporate transactions, they had people who were kind of experts, if you like, in governance, people who compared doing these different roles across different parts of the public realm.
So that is a positive and useful part of it. However, they actually didn’t have as much experience of working with ministers and some of the finer judgements about, you know, political preference and requirements, I think, was a bit harder for UKGI staff to pick up on.
When, in the – the regime I inherited, everything was done through UKGI. I think I found increasingly that, given our concerns about the Department, given the high level and justifiably high level of ministerial interest, given this was becoming more and more a political issue that we needed to have some direct departmental input to that, so we established in 2018 a Post Office Policy Unit within the Department, which worked in parallel with UKGI.
I should say UKGI in no way resisted this. They themselves felt it was good to have a strong policy partner and that UKGI would provide the kind of shareholder expertise. So we moved from, if you like, a one-engine to a two-engine operation from that point onwards. That’s what we have today as well; it’s persisted.
Ms Price: The final version was agreed in mid-December 2019, you say in your statement; is that right?
Sir Alexander KCb: Yes.
Ms Price: Can you help with why it took so long to reach agreement on it?
Sir Alexander KCb: I guess it probably wasn’t seen as the absolute top priority, because people were acting on – you know, on the basis that we had a kind of these different responsibilities, and the way the final signed agreement was, if you like, the codification of that.
Also the drafts were in circulation, so everyone knew the roles that people were expecting to be played within it. I don’t know whether there was also kind of low level negotiations or friction between the teams. I don’t know, I wasn’t part of that. Every so often I would say, “Where are we with the framework agreement?” And they’d say “Oh, it’s coming along, we are almost there”. And, in the end, you know, we were there and we hadn’t had one before. So that was a necessary and important improvement in governing relations between – it’s really a try Apartheid arrangement between UKGI, BEIS, and Post Office Limited.
Ms Price: When you took up your post as Permanent Secretary did you consider the avenues for reporting to ministers on Post Office issues to have been effective?
Sir Alexander KCb: I think when I first started, I could see that I think there were six different parts of our 40-odd public arm’s-length bodies, partner organisations – I think six of those were managed on the Department’s behalf by UKGI, and they had a lot of expertise, they did a very good job across that overall.
I think the Post Office, if you like, moved from being seen as something where the business skills available to UKGI and their experience and kind of corporate finance matters and, you know, investment returns, and all of that, that became, relatively speaking, less important than these much wider ramifications about was the Post Office actually fulfilling its fundamental purpose; was the Post Office actually run by competent and honest people? And they were much more fundamental type questions, which necessarily ministers will want to be advised upon directly.
Ms Price: Could we have on screen please paragraph 248 of Sir Alex’s statement, that’s page 65. You say:
“UKGI plays an important and valuable role across Government. UKGI officials dealing with [Post Office Limited] were under considerable pressure throughout my tenure. I never had reason to doubt their integrity, work rate or professional skill. At times we reached different judgements on certain matters, notably the bonuses issue [and we’ll come on to that]. I think they also struggled at times to reconcile the tension between identifying with [Post Office Limited] and standing at one remove to challenge [Post Office Limited].”
Pausing there, is this is an impression you formed at the time you were Permanent Secretary and, if so, at what point into your tenure?
Sir Alexander KCb: Yes, I mean, I think, on the whole, we received very good advice and service from UKGI. And, you know, I stand by what I say there about their integrity and professionalism. I think that because they were on the Board of Post Office Limited, and as a member of the Board I think they identified with the Board, I think they felt they were directors and had responsibilities there. That probably sometimes gave them almost too much information and awareness of the interests of Post Office Limited, and they were required by their role to also sometimes stand back from that and say, “Okay, well, that’s all very well, but, you know, are you stuck in a kind of a particular mindset or groupthink here about particular pieces of litigation? Have you really looked at it from the other perspective? You know, is there a possibility, for example, that, contrary to the Post Office’s long maintained position that they were actually wrong about Horizon, and that the – and if that was the case, that there had been miscarriages of justice there?”
So there was a kind of myopia which I think was there within Post Office Limited at that time and I think it would have been very difficult for UKGI in their succession of shareholder representatives on the Board to challenge that. But I think that was part of what they needed to try and do, difficult as it is, and also, as I go on to say there, you know, as the kind of supervising body, they needed also to be able to sometimes test the version of things they were given. And there’s an awful lot of stock phrases and you can see where whole chunks of text are lifted from one document to another, supplied by Post Office Limited to UKGI and then given to the Department on that basis.
And very understandable they should do that, and also to try to, if you like, smooth things along and suggest things are going quite well. But I think the unintentional effect of that, as I go on to say there, is it probably preserved the status quo for a bit longer than would have been the case otherwise. And postponed the crisis. And a crisis was necessary and happened in 2019 and, actually, that brought, you know, complete change to the leadership of the Post Office, the beginning of compensation, recovery and cultural renewal.
Ms Price: Was this something which those at UKGI struggled with across the board or were there particular individuals who struggled with it more?
Sir Alexander KCb: UKGI is an organisation of about 100 people and they work closely –
Ms Price: I mean, forgive me, those working on Post Office?
Sir Alexander KCb: Post Office, yes, I think there’s about four work in Post Office. But if you look at other papers given to the Inquiry you can see that there’s a lot of discussion within UKGI, support from the Chief Executive, deputy Chief Executive. You can see board meetings, Post Office is constantly being looked at as an item. So it’s not only the individuals working there, it’s also the wider organisation trying to give support as part of that.
I thought that they were extremely competent, the people who worked on the Post Office account, so to speak. I think at times, at the margins, they found it quite difficult to judge the political issues, and you said you want to come on to the bonuses one, that’s an example of it.
And I think, at times, that ability to try and be a member of the Board, but also to be sort of a little other compared to the other members of the Board and bring a genuine challenge, I think again, that could have been even stronger at some points. But, undoubtedly, a difficult role to perform and I don’t envy them all.
Ms Price: But you identify this as potentially a contributory factor to there being a delay?
Sir Alexander KCb: Yes, particularly in the way that the briefings – those phrases, and you’ve shown them up beforehand again, stock phrases, you know, kind of the way in which the Post Office Legal team gave material to UKGI, which they didn’t themselves challenge. They relied on this is representations but they could have said, “Hang on, so is there a report? You know, can we see a report here?” They didn’t do that, so they might have perhaps been more pressing on our behalf but that is with the benefit of hindsight and knowing what I know now, which I didn’t know at the time.
Ms Price: You make some proposals for accountability mechanisms in your statement –
Sir Alexander KCb: Mm-hm.
Ms Price: – at paragraph 255.
Sir Alexander KCb: Mm-hm.
Ms Price: Can we go to that, please. It’s page 66. You say:
“To my mind there are other ways by which accountability of ALBs could be approved across the spectrum. It starts with openness and pattern recognition. If concerns are raised there should be formal and publicly accessible means of reporting and tracking those concerns. That mechanism could be overseen by an independent committee that has mandatory reporting responsibilities to the Board, as well as the authority to write to the Secretary of State annually with any concerns. There could also be obligations to report periodically to Parliament. As a basic principle, where an ALB has failed in the trust that the public places in it, this calls for more frequent and more intrusive government scrutiny.”
In your view, should those accountability mechanisms enhance existing structures, or should this be in addition to them, or replace them?
Sir Alexander KCb: I think in a perfect world you wouldn’t need to have this because it obviously adds an extra layer, and every additional layer creates scope for friction, cost and, you know, risk with that.
However, in the particular circumstances here, where the Post Office Board has failed in its oversight responsibilities, which clearly lie with the Post Office Board, and the management executive being part of that, their internal legal teams, over many years, you know, have failed provide, you know, effective service, then that has caused obviously a terrific breakdown of trust, not only with the subpostmasters but the wider public.
So, in effect, I’m saying here that special measures are required, because of the failings the organisation has gone through.
Now, that was my judgment based on my knowledge of working with the organisation which I left my role in relation to it in 2020. So I don’t know what’s happened since, and it may be now that the Board works much better and the Executive has rebuilt the trust with the subpostmasters, and other people can speak to that; you’ve got other evidence, I’m sure, on it. But that was why I was thinking about some kind of external oversight committee as a potential tool for doing that, but I – it’s not a straightforward matter because then you have run the risk of undermining the Board and its own responsibilities and you’ve got sort of guards, for guards, for guards, and that itself, you know, can create, can obscure the underlying reality.
Ms Price: Turning, please, to consideration given to settlement of the litigation, you’ve touched on this already. Can we have on screen please paragraph 131 of the statement. You refer here to the Articles of Association requiring approval for any spend over 50 million – we have already referred to that – the requirements of Managing Public Money. You say:
“It seemed possible that ongoing investment would be needed if there was to be wholesale change required to the subpostmaster contractual relationship with Post Office and/or the Horizon system.”
That lay behind your invitation for a representative of HMT to attend the 17 October meeting because you saw it as:
“The main opportunity before the trial starts to get all of the key stakeholders together to agree a common approach, including discussing the impact on [Post Office Limited’s] financial position, the issue of settlement, and Post Office’s approach more generally to mitigate against the risks posed.”
Sir Alexander KCb: Mm-hm.
Ms Price: What was your view after that meeting of 17th October – was it 18 October – that October meeting, on the adequacy of the consideration which had been given by the Post Office to settlement?
Sir Alexander KCb: I think their view – and it’s actually set out in the papers both in the briefing and in the write-up from it, was that settlement couldn’t be achieved because they were complex sort of legal contractual issues which didn’t lend themselves to a kind of a settlement type of solution. They also, you know, were quick to point out that, you know, by no means all subpostmasters were party to the litigation. So there would be – you know, it wouldn’t bring finality or a complete resolution.
On the whole, I think they were mainly saying it’s too difficult, we can’t do it now”. I was saying, “You’re in a hole, you’re still digging”, you know. So that was the area of debate.
Ms Price: You say in your statement that you also raised concerns about settlement in early 2019.
Sir Alexander KCb: Mm-hm.
Ms Price: What were your concerns and how did you seek to address them at that stage?
Sir Alexander KCb: I sort of kept on at the Post Office about settlement and you could see lots of other internal documents they have is, “There he goes, again”, kind of, “Alex Chisholm is trying to get us to settle”. At the end of it, when they brought in new management, they said – I can see a note from Ben Foat to Nick Read saying, you know, “Actually, we should have settled this a long time ago, that was a big mistake and then, you know, we’d all have been a much better”. So that clearly was right but it did take them two years to recognise it.
Ms Price: You describe your disappointment at paragraph 199 of your statement, that it took that length of time for the leadership to recognise the importance of settlement, and you also referred to disappointment that it required change of almost the entire Legal Team to get away from the groupthink. Why do you think there was such resistance to proper consideration of settlement to that point?
Sir Alexander KCb: I think it was the continuation – it’s an interpretation, so I can’t say for sure but, in my mind, it’s a continuation of this quite embedded view that the Post Office is right that the Horizon system is correct in all possible respects, and the kind of – the errors are – user errors within the – you know, the postmaster community. And you see that from all of that documents, the kind of sense of “We’re right and other people are wrong”.
And I think it was a kind of, you know, the Common Issues Judgment in March 2019 was a sort of substantial blow to that point of view but, actually, required fault unfortunately, you know, both blows, both in the judgment from the appeal court on recusal and in the appeal itself, substantive appeal. And, furthermore, in the second issues, which was the Horizon Issues. So those four. They lost four times in a row and, at that point, finally they were prepared to accept that they were wrong.
And even that, as I’ve said, was partly because they had a new Chief Executive, new legal advisers, not just new General Counsel, new solicitors, new external counsels. They had to change the whole lot of them. And I suspect, I don’t know, again, that a lot of the internal advice was very much left to the Legal Team, and the Legal team had been providing that advice for a long period of time, and were unable to allow for the possibility that they had been misguided in that advice for a long period of time.
Ms Price: Coming please to the recusal application, could we have on screen, please, paragraph 152 of Sir Alex’s statement, that’s page 40. Here you say this:
“BEIS was unsupportive of the recusal attempt, deeming it unlikely to succeed, and too likely to aggravate the situation and prolong the litigation process, which we saw as the only means by then available of resolving the dispute definitively and to achieving a just [solution]. Greg Clark, Kelly Tolhurst and I all expressed ourselves in our own way but clearly all had real reservations about the recusal.”
At 153, you add that you thought it was the right move strategically and presentationally, as well as on the substance.
At paragraph 156, over the page, you say:
“It was also clear that the Department (and UKGI) took the view that the decision was for [Post Office Limited] as the defendant in the litigation and accepted that it should not do a volte face on its longstanding and well-based position that BEIS was not a party to, nor controlling the litigation.”
You go on to deal with the discussions with Mr Cooper. Towards the bottom of that paragraph, you say:
“I therefore said to Mr Cooper that the Department should maintain its clearly distinct and detached position so that it is free and credible for dealing with the consequences as they unfold. Ministers may want to show appropriate concern about the criticism and may express a desire for [Post Office Limited] to act appropriately but should not comment substantively in ongoing litigation in which the department has a clear interest but no direct involvement.”
Sir Alexander KCb: Mm-hm.
Ms Price: You go on to deal with Mr Watson’s reply, asking whether you were:
“… agreed that we should not try to engineer a position whereby if the Board decided to proceed with recusal the Minister is given a chance to object.”
You agreed that:
“… we should not so engineer a position – that would make the Department into a directing force in the litigation, which is neither correct nor prudent.”
Sir Alexander KCb: Mm-hm.
Ms Price: Do I understand your written evidence correctly in being that, although the Department did not want to direct the Post Office’s decision on the recusal application, you understood that the Department’s view on the application would be communicated to the Post Office Board?
Sir Alexander KCb: Yes. And indeed, I, you know, wrote a – I think the news came through of that recusal about 7.00 on a Monday evening and by 11.00 that evening I’d written a memo to Tom Cooper setting out my views in some depth and also given a version of that to the Secretary of State and Kelly Tolhurst. And the decision was the next morning, that’s why I was still working late into the evening. It was all written up at the time you can see from these documents.
Ms Price: Going to paragraph 163, please. You say:
“I am aware now that Tom Cooper was advised to recuse himself from the meeting. I do not recall being aware of this discussion at the time and I was not asked then for my view as to whether Mr Cooper should absent himself from the decision.”
You say:
“The decision did not however inhibit Mr Cooper from conveying the Department’s views and BEIS expected him to do so. I expected that Mr Cooper would participate in the discussion and, in doing so, relay the Department’s objections as indicate in Stephen Clarke’s (UKGI) email … dated 19 March.
“[Your] understanding by listening to the evidence given by Tom Cooper to the Inquiry was that he did not participate in any discussion with the Board regarding the recusal application as he had interpreted our correspondence as a clear instruction to ‘stay out of this thing’.”
What do you say to that, to Mr Cooper’s interpretation of your correspondence?
Sir Alexander KCb: Yes, so I think it’s absolutely the case, first of all, that we didn’t think that ministers should take a decision which should probably be taken by the Post Office Limited Board. We were the, you know, the Department responsible for correct corporate governance, and everything else the responsibility clearly was with the Post Office Board, so we shouldn’t sort of secretly take their decision for them or take it on and there were all kinds of negative consequences from that. So that’s the first part.
Secondly, I’m pretty sure I didn’t know – and as I said there I’m not aware that I knew that he was advised to recuse himself from the meeting. I have seen some of the legal chain thereafter, you know, on that now, which I didn’t see at the time, wasn’t copied to me. It seems to have been based partly in a sense, you know, that if a Government official was part of a recusal, it might show lack of deference to the judiciary, which I think is an argument, you know, it’s probably a bit of a stretch, maybe, a super cautious interpretation.
I think maybe, you know, notwithstanding that, people said, okay, well, don’t be a part of the decision but you should certainly be part of the discussion. And I have seen, again, that email chain from UKGI lawyers and BEIS lawyers saying, “Yeah, you can make representations, you can make people aware of the Department’s views, but, you know, don’t take the decision itself”.
I’m a bit unclear, even now from the evidence, what part he did play in the discussion. I have seen the email from Tom back to the Department reporting on the discussion. So he was clearly in it, but it’s not a verbatim he said, we said type thing. It’s just “This is the decision we had”. It did say that in the discussion they had gone through very carefully the kind of legal advice, the downsides, the issues, et cetera. So there clearly was a full discussion on it. But I don’t know what Tom himself said as part of that discussion.
Ms Price: You attribute the fact that the Department’s view was not at least expressly communicated to the Board to a failure of communication or interpretation between BEIS and UKGI, at that next paragraph.
Given the apparent strength of the Department’s view that the application was unwise, why did you not yourself approach the Board to provide the Department’s views?
Sir Alexander KCb: Well, I never attended the Post Office Board, I wasn’t a member of it. We had a shareholder representative, that was our means for conveying the views of the Department, so I’d no reason not to have confidence in that representative, very professional capable person to be able to do that so – and I didn’t think there was any real doubt about our view because I’d written a two-page memo and given it to him the evening before.
Ms Price: It was Kelly Tolhurst’s evidence to the Inquiry that she had understood that you were going to speak to the Board or, if not that, it was left with you. Are you aware of that evidence?
Sir Alexander KCb: Yes, she’s probably referring to the fact that I was looking at the issue and wrote that memo to her, and to Greg Clark, with my views. But those same views were communicated in writing to Tom Cooper as our representative.
Ms Price: Kelly Tolhurst had serious concerns about the recusal application; would you agree? Do you recall that from the time?
Sir Alexander KCb: Yes, she was concerned about it. We all were concerned about it. We all thought it was going to make a bad thing worse and it was going to, you know, as I’ve said in the advice, that it was going to confirm in the mind not just of the judge but the wider public that the Post Office was in denial here and that everybody else was wrong, rather than itself failing.
So we were very concerned about that and, also, that the same judge would then be sitting for three more hearings in this kind of further enraged state. So, you know, it wasn’t going to be tactically good but also reputationally poor. She was definitely part of that. Equally, both Kelly Tolhurst and Greg Clark accepted the view, both from myself but also departmental lawyers, that you could disapprove of something and convey your concerns and say, you know, “Have you thought through all the downsides? Have you thought through this, have you thought through that?” But that we should not ourselves take the Post Office’s decision for them.
Ms Price: Did she speak to you about the Department taking a harder line, that is shutting down the recusal application altogether?
Sir Alexander KCb: She accepted the advice, and there’s a readout from her office confirming this in the documents you have, that we shouldn’t take the decision for them, and we shouldn’t put in place a second stage, whereby they decide something and then we decide it for them, or undecide it. We thought that was both legally incorrect but also unwise because it would mean that, thereafter, it would effectively become our litigation, which we didn’t wish it to be. It was the Post Office that was defending their own track record and we wanted Post Office to take responsibility for that and deal with the consequences, both financial and organisational, that would come from the outcome of that judgment.
We wanted, as you’ve read before, to be, you know, outside of the fray, to be standing above it, to be able to respond as necessary, and not to become a part of the litigation ourselves.
Ms Price: Did Ms Tolhurst express any view on the need for the Post Office Limited Board to be spoken to before the application proceeded; did she give an instruction to anyone to that effect?
Sir Alexander KCb: No, I think she had a conversation herself with the Chair on Sunday, I think. At that stage, the Chair was expecting there not to be a recusal attempt. I think the legal advice from two different QCs at that time and from a former President of the Supreme Court arrived on the Monday, or at least was shared and distribute on the Monday. Everyone rushes around reading this advice and updating their thinking. That’s when I wrote my memo saying it’s going to have all these disadvantageous effects but it’s not wrong in itself, and we shouldn’t make the decision for them. And they took the decision on the Tuesday morning.
Ministers were advised on Monday and accepted that they shouldn’t undo the decision or try and take it themselves. So that’s the sequence that we had, and it’s clear that ministers accepted that advice, which is why they acted as they did.
Ms Price: Would you accept that, whatever the reason for Mr Cooper interpreting an instruction to recuse himself, that seems to have led to a failure to make the views of the shareholder or the Minister known, clearly, to the Post Office?
Sir Alexander KCb: It seems to be the case. Again, the record is not very complete about the fullness of that discussion. I wasn’t a party to it myself and I know the Inquiry has already heard from the people who were part of that discussion so they could speak to it better than I could myself. I have seen – received the email from Tom Cooper after the discussion, which does, you know, point to some of the downsides being fully discussed and the independent advice they were given, et cetera.
So there obviously was proper discussion about it and properly advised. They obviously reached the – you know, a different conclusion to the one that we had reached, but that was their error.
Ms Price: Was there any sense in which a political interest was in operation here, in reserving responsibility for conduct of this litigation squarely with the Post Office?
Sir Alexander KCb: A political interest in the sense that, you know, Greg Clark, as Secretary of State, you know, rightly saw himself as kind of like representing the public interest. He didn’t side particularly with the Post Office. Indeed, probably his sympathies were more naturally with the subpostmasters. So we way waited to see what the outcome would be from the High Court and wanted to be there ready to respond as fully and effectively as possible. So I would say, you know, kind of “interested but neutral” is the stance of we took.
Ms Price: After the recusal application had been unsuccessful, was the Department more willing to be interventionist in their approach?
Sir Alexander KCb: Yes, and indeed, you know, at that time, Kelly Tolhurst, for one, was very, you know, concerned. She’d begun to lose confidence and I’m afraid she’d begun to lose confidence in UKGI’s representative at that time. I think she used the language around “going native” or something like that. You know, identifying too close to the Post Office. She felt the Post Office themselves had become, you know, economical with the sharing of information and, you know, she said that – you know, she said that she thought that the Chair should consider his own position. At the time the Chief Executive had just stepped down, if you remember, and they were just in the process of trying to appoint an Interim Chief Executive, Al Cameron.
We then had a meeting, not only with her but with the Secretary of State and other officials in the Department at which we considered a range of potential interventions, I think up to 11 and, effectively, we took the first eight of those. We didn’t at that time choose to change the Chair. We did – it probably reinforced in her mind and mine that, rather than cementing the Interim Chief Executive, who had been the CFOO since January 2015, it would be better to look outside the organisation to find somebody who would bring a fresh perspective and, so to speak, a clean pair of hands.
So that, I think, was, you know, one of the takings that we had or takeaways that we had from the whole experience. We became more suspicious and less trusting of the Post Office, sadly, and more intent on bringing about change there, firstly with the Chief Executive and then with the General Counsel and then with all their external advisers, and more insistent that they should bring about a settlement, which indeed they did, and that that settlement should be as definitive and comprehensive as possible and should address cultural change within the Post Office and a renewal of their relations with subpostmasters, which had obviously, you know, grown into a considerable deficit.
Ms Price: If you had known the full picture from the Post Office, that is you’d been sighted on all the information you say now you should have been, would you have advised the Minister to sack the entire Board, to adopt the expression from your statement, the option being considered in June 2019?
Sir Alexander KCb: We looked at that. I think it’s possible. I know that ministers, particularly Kelly Tolhurst, sort of felt so frustrated and disappointed with the outcome that, you know, a sense of kind of like could we hold these people, you know, accountable was, you know, absolutely one of the things that she was – questions that she was asking. I think when we looked at it a bit more and thought about it some more, we thought, well, hang on, who are these people, in the sense that you had an Interim Chief Executive, and then later a new one had come from outside. Most of the Board members had been appointed in the last two years, and indeed, I think, that Board renewal process continued over the next year.
So if we had chosen to change the whole Board, we’d have got rid of, so to speak, some of the people we just hired to bring in to bring about change, and also we wouldn’t really have had a body to then oversee that change, which is what you – would obviously have been necessary.
So I think the kind of – we changed quite a lot in the Chief Executive and the General Counsel, and we tightened up the oversight that was applied to them and put in place a new framework agreement, and strongly encouraged them to settle in the way that they did. So I think all of those actions came from it. It’s possible that, if they had known then, ministers, that there was a very big report, the Swift Report, which had been withheld from the scrutiny of the Board, I think they would have turn a very dim view of that, as would I. That might have tipped in favour of changing the Chair at that time.
It’s hard to say, because we didn’t know, and I know that subsequently, when that became known, the later Secretary of State and later Permanent Secretary decided to write kind of a letter of sanction, or censure. But if it had happened at that time when, you know, people were feeling so disappointed by the recusal attempt and by the Common Issues Judgment and felt that the Post Office was still in a kind of denialism, that might have caused them take that change at that time.
I also think that, if the Clarke Advices that I referred to before had become known to the Department, that would have pointed to just egregious failings within the Post Office because this is people being unfairly prosecuted. I can’t think of a worse thing to do.
So, again, I think that would have absolutely made us bring more extreme changes than occurred.
Ms Price: Just two short points, finally, one on the issue of bonuses. You gave a fairly strong steer to Tom Cooper in a letter dated 29 July 2019 –
Sir Alexander KCb: Mm-hm.
Ms Price: – in respect of bonuses. I can put the document up on screen if it would help you.
Sir Alexander KCb: Thank you.
Ms Price: It’s BEIS0000085. The first paragraph goes straight in to commenting on an email informing you of Post Office’s intention to extend performance bonuses to the Executive and wider leadership group.
You go on to set out your reasoning for opposing that with express reference to the Common Issues Judgment, if we can just scroll down, please. Over the page, please. Reference to the Common Issues Judgment, at the top there. Then the third paragraph down, you say:
“Taking the picture as a whole, the Department’s view is that Executive bonuses should only be paid at a much reduced amount compared to the proposed maximum until tangible improvements have been made.”
Was your instruction or steer – the word “instruction” is used as the title to your letter, but it appears it may have been a steer – was it followed?
Sir Alexander KCb: Yes, it was, but it was resisted initially. First of all, they came seeking support for the 100 per cent level, and I was disappointed in that from UKGI because I thought it showed a want of understanding about what had actually occurred, and that doing so would kind of not involve any recognition on Post Office Limited’s part that even their conduct of the litigation was criticised by the judge, and that was a contemporary matter, even if the matters being looked at by the judge in terms of the historic treatments were from a previous era.
So I thought that was poor judgement from Post Office Limited, from its RemCo – from its Remuneration Committee, which had independent NEDs on – and actually on this occasion by UKGI itself.
So I spoke to Tom about it, and he only somewhat agreed with me. I then had a call from the Chair saying, “Oh, you know, everyone should be paid their bonuses in full and, if not, they’re all going to resign and, you know, and it’s a sort of semi-contractual matter and there’s reasonable expectations”, and all this type of stuff which I just didn’t accept was appropriate. And that’s why I insisted that they make these reductions, why formally they get this letter.
As a matter of fact, under the then Framework Agreement, we didn’t have control over remuneration. That was a Post Office; devolved matter. If you look at the changes to the Articles of Association made in early 2020, that’s one of the things that was added to it, to say that they would have to get our consent to compensation, including bonuses.
So that was, if you like, a kind of a new thing that was added because we felt that’s not satisfactory that they should be able to do it. Anyway, nevertheless, it does show that they were very, very clear about our views, and about the reasoning and that’s why it set it all through and I said “It’s not just me, it’s the Minister as well”, and they did reduce their bonuses for that reason, very reluctantly and, incidentally, people didn’t resign.
Ms Price: That document can come down now.
Just, finally, I won’t put it on the screen unless you need to see it but you will have seen in the documents sent to you more recently a reference to a meeting at which there was a discussion about the merits of a more limited review into what had happened at the Post Office versus an Inquiry.
Sir Alexander KCb: Mm-hm.
Ms Price: It seems to suggest that your view and your advice was a more limited view was appropriate.
Sir Alexander KCb: Mm-hm.
Ms Price: Is that right and, if so, why?
Sir Alexander KCb: Yes, so my view at that time, which is also the view of ministers, was that we’d had at that stage a lot of findings from the High Court, because we had not just the Common Issues Judgment but the Horizon trial judgment as well, so between them hundreds of pages of findings. We actually felt at that time – not correctly, as it turns out, but at that time we felt we had a good picture of what had been going on and the focus needed to be on the Post Office to make recompense and not just financial recompense, because that is not adequate itself, but to reform itself, see through the organisational renewal programme, which was initiated in August, and deliver on the three-year plan, deliver on all the promises made to the subpostmasters as part of the settlement, in terms of the changes to the treatment of them.
The whole process of reform, and our concern was that, obviously, we needed to have an independent review right from the beginning. That was clear that would be necessary for public confidence and necessary for lessons to be learned. But we were concerned that a full legal Inquiry would take some time, and this was a concern that we had in January 2020, and it would cost a great deal of money, and that it would pre-occupy the Post Office, and take most of their time in thinking about what had happened in the past, which was necessary, but at the expense of what they were doing now, and the actions taken in the future.
So those were the considerations, and what I’ve said to you now is exactly what I would have said in those meetings to ministers, who, at the time were of the same view. In fact, I can see a decision from the then Secretary of State had changed and it Alok Sharma by then and he said he thought it should be done in four months and for a budget of £1 million.
Ms Price: Sir, those are all the questions that I have. There are, I think, a handful of questions from several CPs.
Ms Watt – no? I think it may just be Mr Henry, unless there are any other questions which I’m missing. Just Mr Henry, sir.
Questioned by Mr Henry
Mr Henry: Thank you very much.
Sir Alex, the question of what you would have done differently sometimes invites a self-serving justification caveated with the benefit of hindsight and you’ve just been asked about why you thought a limited review was appropriate and asked to reflect on why you came to that conclusion.
As part of your explanation, you said that, by that time, you felt you had a good picture of what had been going on inside the Post Office. When did you acquire that good picture?
Sir Alexander KCb: I just mentioned that we had the two judgments from the High Court because I thought they had been very revealing, and had, if you like, opened what had been, to some extent, a black box about the way in which the Post Office had been proceeding. I think subsequently, thanks to this Inquiry, which obviously became ultimately a Statutory Inquiry, there’s been much fuller disclosure in some of the documents that we’ve seen now – not just the Swift Report, but I mentioned already those Clarke Advices internally – we wouldn’t have otherwise seen.
So I’m grateful we got this full disclosure because it’s brought us to a much fuller picture. At that time we didn’t know that such bad things had been happening within the Post Office.
Mr Henry: I see. You say – and I don’t need, I think, to take you to it unless you would like to see it, but it’s at paragraph 241, at page 63 of your witness statement. You say, among other words but this is a direct quotation, and it’s after Mr Parker complaining that he felt that the Government was too interventionist. But then you say this:
“My reflection is that if we had known what was happening within the Post Office, we would have been much more interventionist.”
Now, I would like to concentrate on what you actually knew at the time, not with the benefit of hindsight but what your Department then appreciated, or ought to have known. What was, as it were, obvious at the time and so, therefore, what you ought to have done not based on hindsight, but based on what your Department then knew. If I refer to shorthand “you”, Sir Alex, I’m looking at the totality of the framework.
Sir Alexander KCb: Yes.
Mr Henry: First of all, can you help us: you stated that there was an element of denialism that the Post Office was demonstrating. That denialism was surely clear at the very latest by the time of the Common Issues Judgment, was it not?
Sir Alexander KCb: They had expected to do much better in that litigation than turned out to be the case, and the judge was very critical, as you know, and I’ve already spoken about. I think their instinct was that that was a mistake with the judge, rather than a mistake with them, and that’s why they brought the recusal attempt and, as we’ve discussed already, we thought that was misguided and it turned out to be. They also appealed it. The appeal was on slightly more legal grounds, more technical grounds but, nevertheless, that too failed.
So I think, by this time, which is October 2019, you had good evidence that the old Post Office was mistaken. At this time, we had a new Chief Executive who was appointed the month before that, and he was putting in place considerable reforms and, with encouragement from us, was on the point of tying to settle the ongoing litigation to the satisfaction of the subpostmasters.
Mr Henry: Well, let’s try and detach it from the merits, as it were. So you’re saying that it was perhaps clearer by October, not by, let’s say, 15 March 2019, but let’s just concentrate for a moment on the costs, and I’m not going to ask you to be precise to every pound, shilling or to every penny. But your Department was facilitating this defence, wasn’t it, financially?
Sir Alexander KCb: No, it wasn’t.
Mr Henry: It wasn’t at all?
Sir Alexander KCb: No. We already heard some evidence that mistakenly, they’d used 2.4 million of departmental money on litigation and that had to be repaid.
Mr Henry: I know that got repaid but, overall, when one looks at the way the Post Office was expending money, did it not concern you about the legal expenses that it was expending on this, particularly given the remarks made by Mr Justice Fraser, as was, about the cost of the litigation and the manner in which the trial was being litigated?
Sir Alexander KCb: It was with their own resources but I was concerned, which is why I had been pressing for settlement for a year at that time.
Mr Henry: Right. Now, on that subject about pressing for settlement, do you, on reflection, feel that you ought to have been more prescriptive and directive about that, based upon a number of factors? I want to come to them: first of all, POL’s longstanding refusal to share information. It did not welcome scrutiny or accountability, did it?
Sir Alexander KCb: I didn’t get that impression, no.
Mr Henry: You didn’t get that impression, but you have spoken about it being resentful about sharing information, and also the information protocols we have seen –
Sir Alexander KCb: Apologies, we’re confusing – I’m confusing myself or you with my double negatives. Yes, my impression at the time was that they did not welcome scrutiny.
Mr Henry: I do apologise. Thank you.
So that must have been a red flag of which you were aware at the time.
Sir Alexander KCb: Yeah, they didn’t refuse to give us information but I became aware over time of this pattern of, as I tried to describe, stock phrases and rationing of information, a wariness – an “institutional wariness” is the expression I used there – and that was indeed a concern. That’s why we became more and more involved, and that’s why we tightened up and required them to give us more information and put in place the framework of oversight that applied to them.
And to the question should we have ordered them or directed them to make a settlement? I think at that time it’s not clear we had the legal authority to do so. You’re probably aware of the Articles of Association of 2002 included a power of direction that had been removed in 2013, was reinstated in 2020 during my time.
But that wasn’t in place at that time, so we wouldn’t actually have been able to do that. We could have tried in some other means to try and get them to see that they needed to settle. We tried pretty hard on that, at every meeting I had with them, pretty well.
They had, you know, respectable legal reasons for saying that they needed to pursue the litigation. They were convinced that they were right but also that questions of precise the definitions about the duties responsible under contract law were things which perhaps did need to be adjudicated in a High Court, rather than by means of a settlement.
As soon as they had had the Common Issues Judgment, I felt that’s when they should have been moving into settlement. That’s when they were in a period of denialism, as I’ve called it, with the recusal and appeal attempt, and that used up, you know, more time, more money, unnecessarily, and delayed justice by a further five or six months.
Sir Wyn Williams: Can I just test that with you, Sir Alex.
Sir Alexander KCb: Yes.
Sir Wyn Williams: Just in as neutral a way as possible. By reference to the timetable in 2019, so at the Common Issues Judgment, March, I believe –
Sir Alexander KCb: Yes.
Sir Wyn Williams: – am I not right in thinking that the Horizon Issues trial was due to begin within weeks of that?
Sir Alexander KCb: Yes.
Sir Wyn Williams: And in fact did take place within a few months of the Common Issues Judgment?
Sir Alexander KCb: Yes.
Sir Wyn Williams: So it’s not impossible I know but, in litigation of this kind, where everybody has, I think, acknowledged that there was more to any settlement than simply a financial amount –
Sir Alexander KCb: Yes, and that was the point that –
Sir Wyn Williams: – where was the actual window of opportunity for a settlement prior to Horizon Issues trial beginning?
Sir Alexander KCb: Yeah, it’s a very good question, Sir Wyn, and I don’t think there is a precise answer where there was a perfect moment. And, indeed, I think, you know, it’s more a waxing and waning. There are various points where there were – so-called windows of opportunity for settlement opened up. I felt there could have been one potentially immediately after the Common Issues Judgment.
The Post Office for themselves decided that they wanted to bring a recusal attempt and an appeal, which I think was launched in May. So then we got the judgment from the appeal – they got the judgment for the appeal in November, I think. So the whole of Issue 1, the Common Issues Judgment, was before the appeal court until that time. As you rightly say –
Sir Wyn Williams: That –
Sir Alexander KCb: As you rightly say, meanwhile the Horizon Issues hearings were under way. The questions which everybody wanted to get to the bottom of was, you know, was this system as good as they said it was; were there problems, were there errors? There was a lot of technical evidence there, a lot of asking – Fujitsu, were obviously on the stand, who largely built the system in the first place and maintained it.
So there was, I think, you know – you are right to say, to point out very gently there possibly a public interest in allowing those proceedings to bring their natural course. I remained the whole way through of the view that the Post Office was losing, and the longer that they persisted, the worse it was going to be for them, for the postmasters, for their – you know, their customers, their future reputation, and I think that was borne out by the turn of events.
So, ultimately, they did actually settle. I think after they’d had the embargoed judgment on Horizon Issues, the settlement came in December, and they’d had – the embargoed judgment had been given to their counsel and also to the subpostmasters bringing the claim. So both parties, when they settled, new by that stage that the JFSA, the claimants, had won not once but four times: both the first two hearings and in the recusal and in the Appeal Court, and it was settled in most terms.
Sir Wyn Williams: I’m sure you’ve got that right but, even on that, if I may say so, the mediation process which led to the settlement, had been started in the sense of being discussed between the lawyers and the setup before you had the embargoed judgment. I just want to make sure I have –
Sir Alexander KCb: Yes, and that’s right, and perhaps I could just draw your attention to the fact that it was actually a recommended mediation from Justice Fraser, as part of his judgment in the Common Issues Judgment in March.
Sir Wyn Williams: So I just wanted to kind of test – and thank you for your assistance – what actually happened in 2019, in terms of how likely it was that a settlement could have been achieved much more quickly, let’s put it in that way, than it actually was. So thank you for that.
I’m sorry to take over, Mr Henry.
Mr Henry: No, thank you very much, sir. I’m very grateful.
So –
Sir Wyn Williams: Finally, from me, this question of direction, which Ms Gratton and I had a discussion about this morning. The trouble is that it takes two people to settle, doesn’t it?
Sir Alexander KCb: Yes.
Sir Wyn Williams: So even if you’d said to the Post Office, “We direct you to enter into settlement negotiations”, it may or may not have happened, is the reality?
Sir Alexander KCb: I think, again, that’s a very fair comment, Sir Wyn. And, you know, again, when we look at the terms of the settlement it’s not just – it’s by no means, you know, only financial. Indeed, it’s very interesting. And indeed in the – you know, I was looking at the press release issued afterwards as well, when I think Alan Bates, you know, includes a quote saying that he’d – you know, the thing that he talks about is actually not the financial settlement. He says, “Look, you know, at last the Post Office have recognised that they need to kind of overhaul themselves and treat subpostmasters in a different way”.
And there’s a whole schedule to finding all the different things the Post Office needs to do to implement that plan, as well, of course, as the financial value of the settlement itself and the promise of the Horizon Shortfall Scheme, all of which is set out as part of the settlement. So it was quite comprehensive, but I think what you’re hinting at is that it might not have been possible to actually achieve that much before the time of settlement was actually achieved.
Sir Wyn Williams: That’s all I’m saying because I’m conscious – and this is quite deliberate on my part, so let nobody be under any misapprehension about this – we are only hearing the Post Office side of the litigation.
Sir Alexander KCb: Yes.
Sir Wyn Williams: We haven’t heard evidence, you know, from Freeths or any of the claimants or anything like that, about how they were viewing all of this. So I’ve just got to be a bit careful, if I can put it in that way.
Sir Alexander KCb: Okay.
Mr Henry: Sir, very quickly –
Sir Wyn Williams: Have you got anything else?
Mr Henry: Yes, thank you very much.
So you accept that there was a window of opportunity before Horizon issues, but you were observing the trial.
Sir Alexander KCb: We just heard from Sir Wyn there may not have been, but we were certainly saying the whole away along, “Take every opportunity you can to try to settle”.
Mr Henry: Exactly. You were obviously observing the trial, you had a ringside seat, and it was your impression that it was not going well –
Sir Alexander KCb: So the –
Mr Henry: – is that right?
Sir Alexander KCb: Somewhat, yes. So – I mean the hearings were going on I think from November 2018, and certainly I would get reports from them saying Justice Fraser seems very unimpressed by the Post Office witnesses. So things like that. I wasn’t, you know, obviously attending the trial or reading all the transcripts at the time, but when the – and he was very certainly critical, I think, in the nature of his questions. You could see that he was unsatisfied.
I think, nevertheless, when the actual judgment came on 15 March, it was, I think, quite a shock for a lot of people because it was so critical in so many different ways of the Post Office. It hadn’t simply tried to answer the questions about where the responsibility lay from a contractual interpretation point of view, the sort of technical issues before the Common Issues part of the litigation, but had actually made a lot of really critical remarks about the Post Office and their witnesses themselves, and that went a lot further. And also, the Post Office lost on practically every count, which, again, is comparatively unusual.
Mr Henry: So, last question. Your page 65 of your statement, Sir Alex, paragraph 249. You said this:
“I do not consider that there is something inherently defective in the governance structure of the Post Office.”
Doesn’t that sit ill with what you have said earlier about not knowing what was going on inside the Post Office?
Sir Alexander KCb: Well, yes and no. So I think it’s an interesting question. I think at the – what I would say is that the set-up of having a public corporation with Articles of Association, with a Memorandum of Understanding, with a specialist body providing oversight – at that time UKGI – with additional reinforcement from the Post Office Policy Team and the Department, with defined residual powers given to the Secretary of State, with a Framework Agreement all in place, that looks like quite a solid piece of governance, and we obviously improved that in my time in the Department.
However, no structural solution can fully deal with the realties of the situation which depend on the quality of the people you have in there, and their dealings with each other. So I think –
Mr Henry: So, in other words, the last sentence of that paragraph:
“The Board had the prime responsibility for the sum conduct of the Post Office and manifestly failed to discharge this.”
So that’s bad actors, as it were, concealing information from you?
Sir Alexander KCb: The Board themselves do not appear to have had all the information they should have had. I mean, we’ve heard already about the Swift Report not being given to them.
Mr Henry: Absolutely. But can I just – and this was coming to the very last thing from me – Swift was originally Baroness Neville-Rolfe’s idea. Do you not think that your Department ought not to have lost track of that because this was originally an idea coming from the Minister that there should be a QC-led review to assist Mr Parker on his succession as Chairman?
Sir Wyn Williams: Sorry, Mr Henry, is that quite right? It was Baroness Neville-Rolfe’s idea to have a review. It was – I think I’m right in saying – Mr Parker’s idea to instruct a silk to assist him.
Mr Henry: I’m so sorry, sir. It arises – I will provide Counsel to the Inquiry with the –
Sir Wyn Williams: Yes, if I’m wrong about that, you can put me right with –
Mr Henry: Yes, definitely. That was my understanding of her intention at the time, and we will find the document and supply it.
What I’m trying to suggest is that there are a series of oversight failures by the Department, and that you had found yourself, as it were, in a classic ‘frog boiling’ analogy and that, over a period of time, you gave too much latitude. You were thereby compromised and then, ultimately, this resulted in a disaster; what do you say to that?
Sir Alexander KCb: I don’t recognise those phrases or that description, no.
Sir Wyn Williams: Thank you, Mr Henry.
I think you’ve had two last questions now, so that’s quite enough.
Mr Henry: Thank you, sir.
Sir Wyn Williams: Is that it, Ms Price?
Ms Price: It is, sir.
Sir Wyn Williams: Well, thank you very much, Sir Alex, for making a detailed witness statement and for giving evidence during the course of this afternoon. I’m very grateful to you.
The Witness: Thank you.
Sir Wyn Williams: So, tomorrow morning at 10.00?
Ms Price: Yes, sir.
Sir Wyn Williams: Fine, thank you very much.
Ms Price: Thank you.
(4.42 pm)
(The hearing adjourned until 10.00 am the following day)