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Department for
Business & Trade
Post Office:
Introductory I a
panengeeee?
Briefing
July 2024
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Agenda
1) Governance of Post Office
2) Redress for Horizon scandal
3) Strategic challenges and future of the Post Office
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Post Office governance
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Governance overview
* Policy: DBT is the sole shareholder of the Post Office. UK Government
Investments (UKGI) provides our Shareholder Representative on the Post
Office Board and advises the Department on governance and corporate
finance.
¢ Redress for victims of Horizon scandal: programme-level governance is in
place within DBT to monitor delivery, fairness and consistency. DBT
deliver two redress schemes, with the support of external contractors. The
other two are delivered by Post Office (Horizon Shortfall Scheme &
Overturned Convictions). DBT is closely involved in oversight of significant
policy and precedent-setting decisions. UKGI sits on the Post Office’s
Remediation Committee.
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Redress / compensation
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Horizon Scandal Timeline
1999 Post Office introduces a computer accounting system called Horizon (supplied by Fujitsu).
1999- Post Office pursues repayment of shortfalls from postmasters and terminates contracts. Over 900 are prosecuted, mostly by Post Office
2013 itself. Post Office denies faults with Horizon system despite postmasters claiming there are bugs.
2013-15 Following pressure from MPs, Post Office asks forensic accountants to investigate and launches a mediation scheme, which it later closes
down.
2016 Minister asks incoming Post Office Chair to investigate continuing concerns of MPs. QC’s report does not fully expose scandal and is not
shared with Post Office Board or Department.
2017 A High Court case under a Group Litigation Order (GLO) is brought against the Post Office by a group of 555 postmasters who suffered
issues with Horizon. Post Office continues to deny any issues with Horizon throughout the trials.
2019 The High Court judgment found the Horizon system was not robust and suffered bugs and errors. A £42.75m settlement plus costs is
reached with the 555 group litigants. The group litigants had used litigation funders to fund their action and so £31m of the settlement went
to funders. As part of the settlement, Post Office agreed to set up the Historical Shortfall Scheme (now Horizon Shortfall Scheme, HSS) to
remediate postmasters who suffered losses which were caused by Horizon.
2020 The Prime Minister commits to holding an inquiry into the Horizon Scandal.
The Criminal Cases Review Commission (CCRC) refers 39 cases linked to Horizon to the Court of Appeal.
2020 Horizon Shortfall Scheme (HSS) is launched. Due to receiving more applicants than expected, Post Office later calls on Govt for funding,
which is agreed.
April The Court of Appeal quashes 39 Horizon-related convictions in a landmark judgment.
2021
May Horizon IT Inquiry placed on a statutory footing. The Inquiry publishes a list of 218 issues to look at including errors with Horizon,
2021 investigations & prosecutions by Post Office, governance and compensation.
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Horizon Timeline continued
Dec
2021
March
2022
Jan
2024
Jan
2024
Jan
2024
March
2024
May
2024
Govt announces funding for POL to reach settlements with those with overturned convictions.
Department announces further compensation to the GLO members given their settlement was absorbed by legal fees and this cohort is now
in a disadvantageous position compared to others in the HSS or OC. To be delivered by the Department.
ITV drama Mr Bates vs the Post Office raises the public profile of the scandal.
Prime Minister announces that the Government will legislate to overturn convictions.
Post Office (Horizon System) Compensation Act achieves Royal Assent, removing the 2024 deadline for GLO compensation payments.
The Post Office (Horizon System) Offences Bill was introduced in the House of Commons.
The Post Office (Horizon System) Offences Act received Royal Assent, overturning hundreds of criminal convictions.
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Horizon Redress schemes
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Horizon Shortfall Scheme
(HSS)
+ Launched following a
commitment in the Group
Litigation Order (GLO)
settlement, which was
reached with the 555
claimants who brought a
class action.
* Offers issued to all of the
2,417 original claimants.
Scheme reopened for
applications: 1,887 more
received to date, with a
surge following ITV drama.
* Run by Post Office with
funding, oversight and
governance provided by
DBT.
Overturned Convictions
(OC) compensation
+ Launched following
overturning of
first convictions — total of
110 overturned by courts
before the new legislation
came into force.
* 48 out of these 110 claims
have now been fully-
settled.
* Scheme run by Post
Office but DBT funds
and closely involved in
governance.
GLO Compensation
Scheme
« Announced March 2022
for c. 500 postmasters in
recognition that it was
unfair that those who took
High Court action ended
up with less compensation
than those who did not.
* Launched in March 2023.
* Of the c.480 who are
eligible, 224 claims
received so far; 210 offers
made; 184 offers accepted
+ Run by DBT because
Post Office could not
afford to fund or deliver
it and because GLO
members do not trust
them.
Horizon Convictions
Redress Scheme (HCRS)
Announced alongside Bill
to overturn outstanding
convictions.
Ready for launch in July
2024.
[See next slide for more
detail.]
To be run by DBT.
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pa
Horizon Convictions Redress Scheme (HCRS)
Depart
Business & Trade
* We estimate c.900 people have had their convictions quashed by the 2024 Post Office
(Horizon System) Offences Act.
* The Ministry of Justice (and their Scottish and NI equivalents) are seeking to identify
everyone covered by the Acts and inform them that their conviction has been
quashed.
* These people will be eligible for financial redress — the Horizon Convictions Redress
Scheme. HM Treasury has set aside £1BN.
¢ Under the previous Government it was announced that the redress scheme would be
run by DBT. Work has been underway to enable the scheme to launch before end
July.
Decisions for you:
* Timing of launch.
* Overall scheme design and related policy principles.
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#8 . .
Department for Horizon Redress: Overview
Business & Trade
Progress
e Approximately £222 million paid out to over 2,800 claimants so far across 3 schemes:
Horizon Shortfall Scheme (HSS): £122 million
Group Litigation Order (GLO) Scheme: £54 million
Overturned Convictions (OC): 110 convictions have been overturned; £46 million total value of all payments including interim
payments
Opportunities and Challenges
* Launch of new (HCRS) redress scheme — high public and political expectations of very early delivery.
* Overseeing Post Office’s response to the surge of HSS claims triggered by the ITV drama.
* Consideration of the Advisory Board recommendation to establish an independent route of appeal for HSS claimants.
* Ensuring that redress is fair and timely, and that we convey that to the Williams Inquiry, which will look at redress issues in
September-October.
° Forthcoming investigation report may require compensation for postmasters affected by previous IT system ‘Capture.’
Handling public communications
« We recommend that you swiftly confirm reappointment of the Advisory Board.
e« We recommend publishing regular data on payments made to address public concerns about lack of progress. 10
« I We recommend publishing regular scheme reports on progress, as part of being proactive on comms.
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Strategic challenges and the future of
the Post Office
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Overview of Post Office
Post Office’s public ownership is founded on its social purpose,
including protecting interests of vulnerable customers, providing
services of social importance and safeguarding services in
deprived areas. Key services include mails (as a key partner of
Royal Mail) and banking and financial services.
Government requires Post Office, through its funding agreement
to:
¢ Maintain a national network of 11,500 branches.
* Meet the minimum network access criteria e.g. 99% of UK
population to be within three miles of their nearest Post
Office.
* Ensure the provision of core services over the network
(including postal services, cash/banking services, bill
payment services and Government services).
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fy
11,744
branches
open in May,
around half
in rural areas
£
£4.7bn
in economic
impact in
21/22
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99%
branches
operated
on franchise
basis
aot
anne
50,000
full time
jobs supported
I by the network
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Challenges facing the Post Office
1.
Post Office is heavily reliant on Government funding and the trend of Post
Office being loss-making on a cash basis is expected to continue.
Post Office and HMG are in a difficult position with respect to the complex and
expensive IT programme to replace the Horizon system.
Over half the network is loss-making and the costs of the uncommercial
network are increasing as reductions to revenues materialise in core services.
Both the mails and cash business elements are likely to face challenges
in the medium term.
Postmasters are struggling in some parts of the network, partly as a result
of inflationary pressures.
Delivering change is difficult considering strong views from stakeholders,
potential impact on communities and cost to implement changes.
The company continues to experience significant issues in recruiting
and retaining suitable talent.
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Around £3 billion has been provided to support the Post
Office since 2012, but the company is still heavily reliant on
Government funding
Funding (£ million)
400
@
3
8
i}
FY1112
200
170
150
ee 168
210 70
180 160 75
130
FY12/13
FY13/14 FY14/15 FY15/16 FY16/17 FY17/18 FY18/19 FY19/20 FY20/21 FY21/22 FY22/23 FY23/24 FY24/25
@ Network Subsidy Minvestment funding
Commercial loan from Government Bi Inquiry/remediation unit funding
Horizon replacement funding
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Post Office relies heavily on Mails and Banking for revenue
which are both likely to face significant challenges
FY23 revenue by income stream
Percentage of revenue
5 10 15 20 25 30 35 40
°
Mails
Banking
Transactional Financial Services
Mortgages, Savings & Loans
Post Office Insurance
Payment Services & Payzone
i
N
Be)
Retail/Lottery & Gift Cards Bt
ats [J
Government Services BB
Other
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Questions
1.
Your manifesto commits to strengthening the Post Office network. Do you have
any initial steers for how this should be achieved?
All options for the future of the Post Office (including maintaining the status quo)
have trade offs around impact on customers/communities, impact on postmasters,
implementation costs, ongoing funding required and speed of implementation. Do
you have any early views on what you consider most important in terms of trade-
offs?
Nigel Railton (appointed Chair on 1 May) is undertaking work to look at Post
Office’s operations and strategy including a radical reduction in its cost-base and
its product and service portfolio. Cost reduction proposals are likely to require up-
front investment funding. How challenging will it be to make a case for this
investment?
Government’s network requirements have been in place since 2010 during which
time there have been significant changes in consumer behaviour with many
services moving increasingly online. VWould you be happy to review these
requirements to deliver services in a different or targeted way?
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ANNEX: Further details on Post Office’s financial
position
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Post Office spends substantially more to cover costs
than total revenue it brings in
121%
Post Office Total Costs 125% 143% 145% 142% 134% 123% 107% 115% 111% 114%
as % of Revenue
1,500
1,250
1,000
IRRELEVANT!
750 Hi
£ million
500
250
FY12/13 -FY13/14.FY14/15FY15/16 = FY16/17—FY17/18 = FY18/19— FY19/20.—- FY20/21. «= FY21/22.— FY22/23,
Ma PM Rem 8H Other Costs ME Investment spend -@- Revenue
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While Post Office has delivered a small ‘trading profit’ in
recent years, it has never been cash generative after
accounting for essential investment spend
100
i} I
E
-100
-400
HIRRELEVANT!
£ million
i
8
3
ee
3
3
Fy2122 FY22/23 © FY23104 I
FY18/19 FY19/20 FY20/21
~@-Net Cash Generated
-500
FY1213 -FY13/14 0 FY1415—FY15/16«FY46/17_—FY17/18.
mag EBITDAS WB Investment
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Post Office’s total cost base is largely split between
postmaster pay and central costs to run the company.
There are limited options within postmaster pay and non-
staff costs to reduce the cost base.
FY23 trading costs by type (%)
\e @ Postmaster
Remuneration
Variable
Non-Staff Costs
Staff Costs
@ Postmaster
Remuneration Fixed
Cost of Sales
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There are several different branch formats across the
network. Over half the network is loss-making, which is
expected to increase as reductions to revenues materialise