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Department for
Business & Trade
To: (1) Minister Thomas, (2) Secretary of State From: Harry Fallowfield
SCS: Carl Creswell — Director, Post Office and Date: 22/07/24
Business Engagement; David Bickerton - DG
FOR DECISION: HORIZON SHORTFALL SCHEME FIXED SUM AWARDS
Summary of the issue: This note seeks your agreement on delivering a fixed sum award to provide
redress to postmasters participating in the Horizon Shortfall Scheme.
Recommendation: That you agree to:
a) Implementing your predecessors’ announcement to introduce a Fixed Sum Award of £75k
to HSS claimants, to bring the scheme in line with the GLO scheme.
b) Capping awards at £50k where postmasters reject the Fixed Sum and are offered a lower
amount, with no option to return to the Fixed Sum.
c) Not providing legal advice to claimants to consider the offer of a fixed sum.
d) Consider whether to delay the introduction of the Fixed Sum Award until we have clarity
from HMT on funding for HSS Appeals, noting that this could take several weeks or months.
e) Note the revised application process set out in paragraph 17.
Timing: We would be grateful for a swift readout. Post Office has received regular
correspondence from postmasters awaiting payment of the £75k fixed sum following the March
announcement and we expect it to be raised during next week's redress announcement.
Context
1. The previous government announced on 13 March 2024 that postmasters in the Horizon
Shortfall Scheme (HSS) would have the option to receive a fixed sum payment of £75,000.
For those who had previously settled for less money, they would receive a top-up to bring
their total redress to £75,000. This policy had previously been implemented for postmasters
enrolled in the government run Group Litigation Order (GLO) scheme, who are subject to
similar redress principles, so this policy would ensure fairness across similar cohorts (i.e.
those postmasters who did not suffer convictions).
2. The policy has not yet been implemented in the HSS, due to delays in Post Office’s
operational preparations and agreement of funding conditions. Post Office have advised that
they can begin issuing offers at the end of July, subject to your approval.
Option 1 - Implement the HSS Fixed Sum (recommended)
3. There is an expectation from postmasters that this fixed sum will be introduced. The policy is
intended to deliver swift and fairer redress for postmasters who were not convicted but
suffered because of the scandal. It provides consistency between the GLO scheme run by
the Government and the HSS run by the Post Office. Although the HSS cohort is much
bigger, both schemes are for un-convicted postmasters and are broadly comparable in the
issues faced. The public inquiry, chaired by Sir Wyn Williams, has consistently called for
consistency in treatment between them. Questions were also raised about timing during the
Urgent Question in the Commons on 18 July.
4. Additionally, there has been criticism that postmasters have under-settled their claims under
the HSS due to lack of legal representation and issues with the consequential loss guidance.
This intervention helps to mitigate this. You will receive further advice on an additional
measure to address this criticism through the development of an independent appeals
process. The Government will be subject to significant reputational damage and criticism
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from postmasters and parliament if it does not proceed with the up-front £75k offer, given the
policy has been announced and communicated. Such a decision could also face legal
challenge by postmasters by way of judicial review on grounds of legitimate expectation.
5. During your introduction to compensation schemes on 16 July, you suggested that we
should consider delaying introduction of the £75k payments until we had clarity on a HSS
Appeals process, unless it was going to create significant delay. We have since discussed
with HMT officials, who have said that it may be possible to get agreement to announce our
intent to implement an appeal system, subject to a business case being approved at a later
date. Our assessment is that even this approach is likely to delay delivery (see paragraph 12
below) and that it would be better to press on with implementation of the £75k now. Do you
agree?
6. From a public money perspective, the £75k will be more efficient to administer than the full
claims process. If the £75k remains available to those who pursue the full claims process,
there is a high risk that many more will choose this option leading to greater costs and
delays. We therefore recommend that claimants who reject the £75k should not be able to
return to it if, upon full assessment of their claim, they are awarded a lower amount. Instead,
we recommend that the award is capped at £50k (or the value of the offer if it exceeds £50k),
to ensure fairness and help provide Value for Money (VfM) for taxpayers. This is consistent
with the approach on the GLO scheme, although there haven't been any instances of a
claimant receiving lower than £75k in practice.
Financial impact
7. The costs of this policy are significant due to the number of postmasters in the HSS and the
fact that it is still open to applications. Currently, Post Office are forecasting a total of 7400
eligible late claims in addition to the 2417 received on the original scheme'.There have been
1413 eligible late claims to date. The total estimated cost of the £75k policy is estimated to
be c.£530m to £800m. This is mainly attributable to the forecasted late claims, although
there is significant uncertainty around these estimates. Further detail on the financial impact
is included in Annex A.
8. HMT have agreed to fund the £75k intervention, although any changes to delivery would
need to be re-tested with HMT Ministers. DBT will need to engage HMT through the
Spending Review to agree precise funding. HMT previously agreed to funding based on a
forecast of £130m to £156m. We are also seeking approval from the Accounting Officer in
parallel. Further detail on the financial impact is included in Annex A.
Risks/Issues
9. Value for Money: There will be overpayment due to this intervention. There is a risk that
very small claims could make up a significant proportion of expected late applications and all
would be entitled to £75k. As of June 2024, PO have paid c.600 claimants £5k or less (and
have paid over 100 of these claimants less than £1k). However, officials believe the measure
provides VfM overall as there are no lower cost alternatives that ensure equal treatment of
HSS and GLO claimants. Offering a lower or no fixed pa ti likely _t thi
ach
£75k fixed payment also reduces the admin costs of resolving potential appeals due to under-
settlements. As set out above it also mitigates some of the criticisms that HSS applicants
have under-claimed due to the lack of upfront legal advice and problems with the
consequential loss guidance.
' This assumes a scheme closure date of 31 March 2025.
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10. Fraud: The offer of a £75k fixed sum is an attractive proposition and may increase instances
of potentially fraudulent, erroneous or ineligible claims. We are working with Post Office and
the DBT fraud risk team to ensure that robust anti-fraud measures are in place.
11. Cost escalation: The number of late applications could exceed forecasts leading to higher
costs. We will introduce and announce a closure date to the scheme to help provider greater
certainty on costs, but a degree of uncertainty is inescapable at this stage. We will also
report regularly to the AO and HMT on scheme costings.
12. Delays to delivery: Holding back introduction of fixed sum payments for a decision on HSS
Appeals may significantly delay this work. We will need approval from the Chief Secretary to
the Treasury for HSS Appeals, even to announce the intent to introduce appeals subject to a
business case being approved at a later date. HMT officials have indicated that this could
take anywhere between a few weeks to a few months given the number of significant
decisions that the CST has to make in the coming weeks. Some of the benefits of the
measure will be undermined if payments are not made swiftly by the Post Office. We are
working with the company to put delivery targets in place to ensure that the fixed sum
payments are rolled out as quickly as possible. This is also likely to be an area of interest at
the September Inquiry hearings. You should also be aware that Kevin Hollinrake raised this
in the margins of last week's Urgent Question and is likely to ask about delivery of both the
£75k and HSS appeals during Parliamentary discussions about the Horizon Convictions
Redress Scheme.
13. Legal: The announcement made of the £75k fixed su
to an expectation that the policy will be implemented.
Option 2- Cancel the HSS Fixed Sum
14. You could choose to reverse the Fixed Sum policy. This is not expected to reduce the risk of
overpayment due to the high risk of successful legal challenge. If you choose this option, a
separate intervention would be necessary. However, we strongly recommend continuing with
the fixed sum at this stage.
Implementation
Closure date and communication
15. Implementing the fixed sum would involve writing to three separate postmaster cohorts:
i. postmasters who agreed a full and final settlement for less than £75k,
ji. postmasters who have been offered less than £75k but have not yet accepted,
iii. new claimants who will be offered a choice between the £75k or the full claim
assessment.
16. Post Office plans to write out to the entire population of c. 24,000 postmasters who used
Horizon software to advertise the closure date of the scheme and they wish to include
reference to the Fixed Sum in this communication. Officials have discussed a potential
closure date of 31 March 2025 with Post Office, but this timing may need to be reviewed.
You will receive separate advice on scheme closure date in the next few weeks.
Revised application process
17. Post Office plan to streamline the application process for future applicants who wish to
accept the £75k fixed sum. This includes a more limited assessment of Horizon shortfalls,
which will maintain the check on whether the applicant experienced a shortfall during the
Horizon period but will not seek to quantify the shortfall, which is a more time-consuming
process. Additionally, Post Office are looking to simplify the application form. Officials think it
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is important that claimants are still required to provide detail of the shortfalls they
experienced and the resulting impact to provide a deterrent against spurious claims.
Legal costs
18.
19.
The current policy on HSS legal costs is that Post Office will reimburse reasonable fees for
postmasters to seek advice on their offer of compensation. For those who wish to accept the
£75k Fixed Sum, either as a top-up where they have already settled their claim below this
amount or those who have not yet settled, we do not think that the costs of legal advice
should be reimbursed. This is because: the VfM is diminished by incurring significant
expenditure on claimant's legal fees; legal involvement will slow delivery down; and
postmasters who settled below £75k have already had the opportunity to seek legal advice
and are now being offered a higher amount.
There is a risk that not offering legal advice will be criticised as unfair on postmasters given
previous commentary about low levels of legal representation for claimants in the HSS.
However, as this intervention will benefit postmasters and is intended to be delivered swiftly,
it is a defensible approach that ensures the benefits of the policy are fully realised and we
recommend that approach. A separate decision to introduce an appeals mechanism would
also help here.
Next steps
20.
Subject to your steers, we will work with the Post Office to introduce the Fixed Sum award as
quickly as possible. You may wish to do some proactive comms to mark the start of the
Fixed Sum payments. We can provide you with some comms advice separately.
Annexes
Annex A — Financial Impact
Clearance list
SENSITIVE
Clearance Named lead who has
tear necessary? cleared
scs Mandatory Carl Creswell
Perm Sec < Yes / No > < Name >
Second Perm Sec < Yes / No > < Name >
offen) tons (inc named Press < Yes / No > < Name >
Finance / Fiscal Events Yes Richard Howard
HR < Yes / No > < Name >
Legal Yes Eleri Wones
Parliamentary Unit < Yes /No> < Name >
Devolution < Yes / No > < Name >
Analysis Yes Monique Ebell
HMTC < Yes / No > < Name >
Other < Yes / No > < Name >
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Annex A - Financial Impact
Post Office are forecasting a total of 7,400 eligible late claims in addition to the 2,417 received on
the original scheme. The total estimated cost of the £75k policy is estimated to be in a range of
c.£530m to c.£800m.
Cost of top-ups
e For the c.2,000 postmasters who have already settled for less than £75k, the cost to top
them up to this amount is circa £107m in additional compensation.
e Additionally, there are c.320 claimants currently in receipt of offers below £75k, who will
require topping up. This will cost £13m.
e There are c.800 eligible claims awaiting assessment, with an estimated top up value of
£36m.
e In total, £156m is required to top up all existing claims.
Cost for those yet to apply (late applications)
¢ Costs are highly uncertain for those who have not yet settled or applied to the scheme. Post
Office have estimated an additional £639m based on a 30% response rate to sending a letter
out to c.24,000 postmasters.
e This is made up of c.4,900 new claims receiving £75k (with a total estimated cost of
c.£380m) and c.900 with claims estimated to be >£75k (total estimated cost c£260m).
e Assuming a 20% response rate and 90% of claims >£75k, we estimate a much lower
additional cost of £371m.
Admin costs
e Due to the relative ease to administer the Fixed Sum awards, the operational costs are
estimated to be relatively low at £500k
e Post Office have quoted significant costs (c.£31m) for the c.900 claims forecast to be above
£75k. DBT officials do not think these cost forecasts are reliable and have commissioned
Post Office to review these forecasts and set out options to deliver more cost-effectively.
These figures are highly uncertain as the size of this potential cohort of postmasters is not fixed and
eligibility rates for the HSS scheme are high.
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