INQ00002027
INQ00002027
POST OFFICE HORIZON IT
INQUIRY
The Post Office Horizon IT
Inquiry
First Interim Report: Compensation
This Interim Report is laid before Parliament pursuant to section 26 of the Inquiries Act 2005
Ordered by the House of Commons to be printed on 17 July 2023
HC 1749
INQ00002027
INQ00002027
OGL
© Crown copyright 2023
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated.
To view this licence, visit nationalarchives.gov.uk/doc/open.government-licence/version/3 or write to the
Informatie i tional Archives, Kew, London TW9 4DU, or email:
psi@ ]
Where we have identified any third-party copyright information you will need to obtain permission from the
copyright holders concerned.
Any enquiries regarding this publication should be sent to us at:
POSecretariat@
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Contents
Foreword _4
Introduction 5
The Three Schemes 10
(i) The Group Litigation Order Scheme (“GLOS”) 10
(ii) The Historical Shortfall Scheme (“HSS”) 19
(iii) The Overturned Historic Conviction Scheme (“OHCS”) 27
Payments Under the Three Schemes 30
Conclusions and Recommendations 30
Appendices 35
Appendix 1: Letter from Victoria Atkins MP to the Inquiry Chair, dated 29 June 2023 36
Appendix 2: Terms of Reference for Horizon Compensation Advisory Board 38
Appendix 3: Horizon Compensation Advisory Board Report of fourth meeting: 29 March, 21 April 2023 _ 39
Appendix 4: Horizon Compensation Advisory Board Report of fifth meeting: 14 June 2023 41
Appendix 5: Letter from DBT legal representative to Inquiry Chair, dated 19 June 2023 44
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Foreword
i. During Phase 1 of this Inquiry, I heard and read evidence from a significant number
of sub-postmasters which demonstrated the scale of the suffering and financial
loss which so many have endured as a consequence of the misplaced reliance
upon data produced by the Horizon IT system. Such evidence left me in no doubt
that there was a compelling need to provide compensation to all those who had
suffered loss and damage which properly reflected their pecuniary and non-
pecuniary losses. A very important part of my role in this Inquiry is to ensure that
the various means which have been devised by HM Government and Post Office
Limited (“the Post Office”) for providing compensation to sub-postmasters are
capable of fulfilling that need.
ii. That is why I have decided to publish an Interim Report. I am satisfied that the
stage has now been reached in the process of making compensation payments to
sub-postmasters which demonstrates the need for a limited number of
recommendations which will, if accepted, significantly contribute to the fair and
efficient administration of the compensation schemes in existence and which are
intended to deliver proper compensation.
iii. I am very concerned to highlight two issues in particular. First, the timescale for
making payments to sub-postmasters under the scheme for providing additional
compensation to those Claimants who sued the Post Office in the Group Litigation
known as Bates and others v Post Office Limited is extremely limited. Under the
legislation now in force all payments of compensation to such persons must be
made by 7 August 2024. My current view is that this will not be achieved. Second,
the Minister and the Department for Business and Trade have recently announced
that a body known as the Horizon Compensation Advisory Board will have a
significant role in assisting HM Government and the Post Office in relation to the
administration of all schemes whereby compensation is payable to sub-
postmasters. The recommendations which I make in this report are designed (a)
to remove the possibility of injustice to sub-postmasters brought about by an
artificial time limit on making compensation payments to the Claimants in the
Group Litigation and (b) to maximise the use made of the Horizon Compensation
Advisory Board so as to ensure that the compensation schemes achieve their
intended purpose.
iv. This Interim Report will be laid before Parliament and published on 17 July 2023.
The conclusions and recommendations which it contains are based on information
available to me as of 10 July 2023.
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Introduction
1. Over a period of very nearly three years, representatives of Post Office Ltd (“the Post
Office”) and Ministers’ on behalf of the United Kingdom Government have asserted
on many occasions that sub-postmasters? who have wrongfully suffered pecuniary
and non-pecuniary losses as a consequence of the use made by the Post Office of
data produced by the Horizon IT System (“Horizon”) should receive compensation
which is “full and fair’, and that such compensation should be delivered promptly.
2. Since the settlement of the litigation between Bates and Others v Post Office Ltd. (“the
Group Litigation”), three different means have been devised with a view to achieving
those stated aims. Such means have all been called schemes of one type or another
and at the latest compensation hearing convened by me on 27 April 2023 the
suggestion was made that the names given to two of the schemes should by changed
so that the descriptions “Historical or Historic” should be removed from the scheme
names. So far as I am aware, that has not been done formally with the consequence
that in this Interim Report I shall refer to the three schemes by their current names or
acronyms as follows:
e The Historical Shortfall Scheme (“HSS”);
e the Overturned Historic Convictions Scheme (“OHCS”); and
e the Group Litigation Order Scheme (“GLOS”).
3. I HSS was launched on 1 May 2020. It is a voluntary remediation scheme, properly so
called, which came into existence following the settlement of the Group Litigation. The
Deed of Settlement which brought an end to the litigation laid the foundation for the
scheme.® At the date of its publication, HSS specified that applications for
compensation should be submitted to the Post Office by midnight on 14 August 2020.
Subsequently (in the summer of 2020), the Post Office determined that the period for
the submission of applications for compensation should be extended to midnight on
27 November 2020.
4. From its inception, the Post Office has been responsible for administering HSS. It
frankly acknowledges that at the time it launched the scheme it substantially
underestimated the number of likely applicants and the total amount of compensation
which would be payable to those applicants and, in consequence, the length of time
necessary to make payments of compensation to eligible applicants.
1 The word “Minister” in the context of ministerial announcements is used to mean (a) the Secretary of State for
Business, Enterprise and Industrial Strategy; (b) the Secretary of State for Business and Trade; and (c) other
ministers within those departments or Treasury Ministers.
2 Unless the context dictates otherwise, the term “sub-postmaster” is used to mean those persons who are
entitled to claim compensation under the provisions of the three schemes identified in paragraph 2 of this Interim
Report.
3 See Clauses 9.4, 9.5 and Schedule 6 of the Settlement Deed.
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
5. On 22 July 2021, the Minister announced that funds would be made available to the
Post Office so as to enable the Post Office to make interim payments of compensation
of up to £100,000 per person to those whose convictions for offences of dishonesty,
which were reliant upon evidence generated by Horizon, had been quashed. This
announcement was made following the quashing of a number of such convictions by
the Court of Appeal (Criminal Division) on appeal from the Crown Court and by the
Crown Court sitting at Southwark on appeals from convictions at Magistrates’ Courts
in England and Wales. On 14 December 2021, the Minister made a statement in
Parliament to the effect that the Post Office would also be responsible for making final
payments of compensation to those whose convictions had been quashed provided
those convictions were reliant upon evidence generated by Horizon. Payments of
compensation (whether interim or final) were to be made through OHCS. From the
outset such payments have been determined and administered by the Post Office. To
date, at least, OHCS has never been a scheme in any relevant sense of that word.
Rather, the Post Office and those whose convictions have been quashed (usually, if
not invariably, with the aid of lawyers) negotiate appropriate payments of interim
and/or final compensation.* Nonetheless, it is convenient to refer to OHCS as a
scheme throughout this Interim Report.
6. In February, March and May 2022, I heard oral evidence from sub-postmasters (and
to an extent, from family members of sub-postmasters) who had been affected,
adversely, by decisions taken by the Post Office in reliance upon data produced by
Horizon. During the hearings, I became concerned that some of the features of HSS
and OHCS might be at odds with the twin goals of delivering full and fair compensation
payments, promptly, to all those entitled to such payments. Additionally, on 22 March
2022, the Minister announced that:
“The Chancellor will make additional funding available to give those in the GLO
group compensation similar to that which is available to their non-GLO peers.”
7. This announcement came about, no doubt, because there had been a mounting storm
of protest from the Claimants in the Group Litigation to the effect that they had not
been compensated appropriately and fairly under the terms of the settlement which
brought an end to that litigation.
8. Given the concerns which I harboured about the operation of HSS and OHCS, and in
the light of the possibility of additional compensation being made available to the
Claimants in the Group Litigation, I decided that I should (a) provide some preliminary
thoughts in writing about certain issues relating to compensation; (b) invite written
submissions on behalf of Core Participants on those and other compensation issues;
and (c) thereafter, hold hearings at which oral submissions could be made to me about
such issues.® I published my preliminary thoughts on a number of compensation
4 Upon announcement of this Scheme the Minister specified that interim payments of up to £100,000 would be
payable to eligible applicants to the scheme. Subsequently, the Minister increased the maximum interim payment
available to applicants to £163,000.
5 The Announcement was published on the Inquiry website on 21 March 2022.
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
issues on 9 May 2022° and invited written submissions upon them. I received a
number of such submissions and many of those making written submissions indicated
a wish to supplement those submissions orally.
9. Consequently, I convened hearings at which oral submissions were made. They took
place on 6 July and 13 July 2022. On 15 August 2022, I published a document entitled
“Chair's Progress Update on Issues Relating to Compensation” (“the Progress
Update”) in which I set out a number of conclusions.
10. Prior to publication of that document, I gave consideration to whether or not I should
publish an interim report pursuant to Section 24(3) of the Inquiries A ct 2005. I decided
against that course, opting instead to publish the Progress Update and to give a
commitment to hold further hearings, if necessary, in relation to compensation issues.
11. On 22 September 2022, I gave notice to Core Participants of my intention to hold a
further hearing in relation to compensation issues, either in late 2022 or early 2023.
In advance of the hearing, I received written submissions from Core Participants. The
hearing took place on 8 December 2022 and I published a document entitled
“Statement on Issues Relating to Compensation” (“the January Statement”) on 9
January 2023.
12. Atthe hearing on 8 December 2022, I was invited by some Core Participants to submit
an interim report pursuant to the 2005 Act. I did not accede to that suggestion for
reasons which I explained in the January Statement; rather, I indicated that I intended
to obtain my own legal advice upon issues relating to the bankruptcies of some sub -
postmasters and that I would hold a further hearing to receive oral sub missions about
that issue (and others) in April 2023.
13. On or about 20 March 2023, I received legal advice from Ms Catherine Addy KC
relating to a number of bankruptcy issues. That advice has been made available to
all Core Participants and has been published on the Inquiry website.
14. On 27 April 2023, I held a further hearing. By notice dated 23 March 2023, I invited
written submissions on issues relating to bankruptcy and the exemption from taxation
of compensation payments. Additionally, I invited progress updates in respect of
payments of compensation under HSS, OHCS and GLOS.
15. In advance of the hearing on 27 April 2023, I received written submissions on behalf
of the Department for Business and Trade (“DBT”)’, the Post Office, the Core
Participants represented by Howe+Co, the Core Participants represented by Hodge
Jones & Allen, and the Core Participants represented by Hudgell Solicitors
6 The document was entitled “Provisional View of the Chair on Compensation Issues relating to Prosecuted Sub
postmasters’.
7 The Department for Business and Trade was created on 7 February 2023 to bring together aspects of the work of
BEIS with that of the Department for International Trade. Amongst other areas of Government work, DBT has taken
on those functions relating the Post Office which were previously carried out by BEIS.
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
INQ00002027
INQ00002027
16.
17.
18.
(“Hudgells”). Counsel instructed on behalf of all those Core Participants made oral
submissions.
I should also record that prior to the hearing I received and I have taken account of
written submissions made by Mr Paul Marshall, a Barrister who, at the time he made
the submissions, acted for 7 of the Core Participants represented by Hodge Jones &
Allen in their respective claims for compensation; a letter from Freeths LLP
(‘Freeths”), solicitors who act for a majority of those persons making claims for
compensation in the GLOS; and other correspondence and documentation which has
been generated since the January Statement — all of which has been provided to Core
Participants and published on the Inquiry website.
Following the hearing, I continued to receive written submissions and
correspondence. Further, relevant ministerial announcements have been made, no
doubt in response to submissions made at and before the hearing on 27 April 2023.
The extent, if at all, to which I have taken account of this additional material will
become clear from what appears below.
The Post Office Horizon Compensation and Infected Blood Interim Compensation
Payment Schemes (Tax Exemptions and Relief) Regulations 2023 (‘the 2023
Regulations” or the “Regulations”), came into force on 16 March 2023. Paragraph 3
of the Regulations reads as follows:-
“3. The following compensation payments are qualifying payments for the
purpose of paragraph 3 of Schedule 15 to the Finance Act 2020 —
(a) Overturned Historical Conviction compensation payments,
(b) Group Litigation Order compensation payments, and
(co) ..”
The effect of that provision is said to be that payments made to applicants under OHCS
and GLOS are exempt from income tax.
19.
Paragraph 4 of the Regulations provides:-
“4. The following compensation payments are qualifying payments for the
purposes of paragraph 4 of Schedule 15 to the Finance Act 2020 —
(a) Overturned Historical Conviction compensation payments,
(b) Group Litigation Order compensation payments, and
(c)...”
The effect of that provision is said to be that compensation payments under those s chemes
are exempt from Capital Gains Tax.
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
20. Paragraph 5 of the Regulations provides:-
“5. The following compensation payments are qualifying payments for the
purposes of paragraph 5 of Schedule 15 to the Finance Act 2020 -
(a) Overturned Historical Conviction compensation payments, and
(b) ...”
21. The effect of paragraph 5 of the Regulations is said to be that compensation payments
made under OHCS are exempt from Inheritance Tax.
22. By letter dated 28 February 2023, I had made enquiries of BEIS as to why tax
exemptions for compensation payments paid to applicants under HSS and GLOS
were, apparently, different from tax exemptions available for payments made under
the OHCS. I received a response to my query by letter dated 10 March 2023 from the
recognised legal representative of DBT. It suffices that I say that I did not, and still do
not, consider that the letter of 10 March 2023 provided a satisfactory basis for
excluding payments made under HSS from the income tax, capital gains tax and
inheritance tax exemptions created by the 2023 Regulations for OHCS; nor do I
consider it a satisfactory basis for excluding payments from the GLOS from the
inheritance tax exemption.
23. Before leaving this introduction, it is as well to remind the reader of my powers in
relation to compensation issues. Section 2 of the Inquiries Act 2005 is in the following
terms:-
“(1) An inquiry panel is not to rule on, and has no power to determine, any
person’s civil or criminal liability.
(2) But an inquiry panel is not to be inhibited in the discharge of its functions by
any likelihood of liability being inferred from facts that it determines or
recommendations that it makes.”
24. I have interpreted those provisions as preventing me from determining the amount of
compensation payable in any individual case under any of the schemes identified at
paragraph 2 above. However, I am not inhibited by the statutory provisions from
investigating the operation, administration and overall fairness of those compensation
schemes. That view is reinforced by a specific provision within my Terms of Reference
which provides:
“D: Assess whether the commitments made by Post Office Ltd within the
mediation settlement — including the Historical Shortfall Scheme — have been
properly delivered.”
25. I appreciate that neither this quotation from my Terms of Reference nor any other part
of the Terms make any reference to OHCS or GLOS. That is not surprising, since
those schemes did not exist when the Terms of Reference for the Statutory Inquiry
were published. In the List of Issues which was published in November 2021 I made
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
it clear that I would be investigating OHCS (see issue 183). By then, relevant
Ministerial announcements had been made about it. In the hearings in July 2022, I
made it clear that I intended to investigate GLOS as well as HSS and OHCS and both
the Progress Update and the January Statement considered aspects of all three
schemes. Neither the Inquiry’s sponsoring Minister, nor any Core Participant has
sought to suggest that the Terms of Reference should confine me to investigations
relating to HSS and should preclude me from investigating OHCS and GLOS. There
appears to be unanimity of view amongst Core Participants that the Terms of
Reference should be interpreted as permitting me to investigate OHCS and GLOS as
well as HSS and, as is obvious from my conduct of the Inquiry, I am satisfied that view
is correct.
The Three Schemes
26. Ihave identified the chronological order in which the three schemes came into being above.
In the Progress Update and the January Statement, HSS and OHCS are considered in
some detail whereas at the time those documents were published the detail of GLOS was
still emerging. Accordingly, I consider it appropriate to begin this section by focussing upon
GLOS.
(i) The Group Litigation Order Scheme (“GLOS”)
27. As of at the date of the Progress Update (15 August 2022) this scheme was in its infancy.
In oral submissions on behalf of BEIS made on 8 December 2022, Mr Chapman provided
the bare bones of the scheme. It was intended that it would be overseen by a distinguished
advisory board. Applications for compensation made under the scheme would be
administered by BEIS but determined by an independent panel. Mr Chapman's oral
submissions were predicated upon a Ministerial Statement made in Parliament on 7
December 2022, and a document published the same day entitled “Additional
Compensation for GLO Members: Scheme Process” (which henceforth in this section I
refer to as the “the Scheme Process”). Not surprisingly, very little attention was paid to the
Scheme Process at the hearing on 8 December 2022 given that it had been published only
1 day before the hearing. The Scheme Process was subsequently replaced by the “GLO
Compensation Scheme Guidance and Principles” published 23 March 2023 (hereafter
referred to as “GLOS Guidance and Principles)”.
28. In the January Statement, I thought it appropriate to stress three points.
29. First, I stressed that the Minister and BEIS had made it crystal clear that all applications for
further compensation under GLOS had to be resolved by 7 August 2024. I wrote that the
funding for payments under the scheme had been obtained by the Government in reliance
upon statutory provisions which dictated that the funds must be used for their allocated
purpose by that date. That appeared to have the consequence that approximately 550
claims would have to be considered in the course of a period of 20 months or thereabouts
10
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
between January 2023 and August 2024.°® I expressed the view that the experiences gained
in administering HSS and OHCS would likely demonstrate how challenging this would be.
30. The next issue I highlighted related to the provision of the reasonable costs of legal
representation. I need not repeat what I wrote at paragraphs 40 to 42 of the January
Statement.
31. My third point, in reality, was an elaboration of my first point relating to the time available
for determining all the applications under the scheme. I wrote that there would be available
approximately 12 to 15 months to resolve many hundreds of claims submitted under the
scheme. I stressed that BEIS should administer the scheme in such a way that no applicant
felt pressurised into accepting an offer to avoid the possibility that the end da te for payment
would arrive yet no payment would have been received.
32. These three issues are, on any view, still live and acknowledged by everyone to be of
considerable importance.
33. Following reorganisation of departmental responsibilities , GLOS is now being administered
by DBT. As of 6 April 2023, the Department was aware of 377 applications to the scheme.?
In a letter dated 20 April 2023 from Freeths, I was informed that they acted for 388
individuals who were making claims in GLOS. On 27 April 2023 Mr Jacobs, instructed on
behalf of the Core Participants represented by Howe+Co, told me that his instructing
solicitors represented 60 applicants to the GLOS. I am also aware that Hudgells and Hodge
Jones & Allen act for a small number of individuals who are making claims under the
scheme so that my best estimate, at the moment, is that approximately 460 applications
will have to be processed and determined by 7 August 2024.'°
34. It is against this background that I turn to consider the aspects of GLOS which have been
the subject of most debate to date.
35. I deal first with the suggested impact of bankruptcy upon awards of compensation under
GLOS. I understand that all save one of the insolvency practitioners who have to grap ple
with this issue, including the Official Receiver, accept that no part of any compensation
awarded to an applicant under GLOS who has been made bankrupt would vest in his/her
estate for the benefit of creditors. That view is not necessarily shared by one Insolvency
Practitioner (Moore UK) who apparently considers that such payments made to applicants,
previously made bankrupt, might fall within such a bankrupt’s estate.
36. I asked Ms Addy KC to address this issue. Ms Addy’s view is encapsulated in paragraph
62 of her Opinion, in which she writes:
8 The figure of 550 applications was an assumption since there had been approximately 550Claimants in the Group
Litigation.
° See paragraph 43 of the written submissiors on behalf of DBT.
10 At this stage I assume that many, if not all, of those persons whose convictions have been quashed were
Claimants in the GLO and that they have not pursued applications for compensation in GLOS but rather seek to
obtain “full and fair compensation” in OHCS. If that assumption is correct, it means that all of the Claimants in the
GLO have or should have an appropriate vehicle to “full and fair’ compensation.
1
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
“Whilst I have not seen the asserted basis of the individual insolvency practitioner’s
stance, in my opinion, an ex gratia payment which may be made by the Department
under which the SPM had no legal right or entitlement pursuant to a scheme which
will have come into operation only after the bankruptcy order was made (that
necessarily being the case in the context of this question, as the scheme has not
yet been established), would not constitute property which would automatically
form part of the estate in bankruptcy.”
37. Ms Addy’s opinion is subject to what she describes as two caveats — also set out in
paragraph 62 of her Opinion. I need not repeat those caveats in this report. I say that since
the view expressed by Ms Addy KC is the prevailing view, save for that held by the one
Insolvency Practitioner to which I have referred above.
38. In any event, at paragraph 64 of her Opinion, Ms Addy provides a practical suggestion as
to how this issue may be resolved i.e. by DBT making an application for directions to the
appropriate court pursuant to section 303 of the Insolvency Act 1986. As of 27 April 2023
DBT, through Mr. Chapman, appeared willing to give serious consideration to implementing
Ms Addy’s practical suggestion in the event that Moore UK maintains its current stance.
However, to date, no unequivocal public announcement has been made by the Minister or
DBT upon this issue.
39. By virtue of the 2023 Regulations, payments of compensation under GLOS are said to be
exempt from income tax and capital gains tax. Such payments are not exempt from
inheritance tax.
40. Until 29 June 2023, I was very concerned that, by virtue of the Regulations, payments of
compensation under OHCS were said to be exempt from inheritance tax yet, to my mind,
no sustainable justification had been put forward by DBT or on behalf of the Minister for the
absence of such an exemption for payments of compensation made under GLOS or HSS.
41. However, I am pleased to report that on 29 June 2023 I received a letter from the Minister
informing me that the Government had that day published a Written Ministerial Statement
“outlining its intention to take action to exempt compensation for postmasters from
inheritance tax (IHT). The importance of this letter is obvious and I have reproduced it as
Appendix 1 to this Interim Report so that there can be no doubt about its terms.
42. Although the Regulations apparently exempt payments of compensation under GLOS from
income tax, the terms of paragraph 4.2. of the GLOS Guidance and Principles should be
noted. Paragraph 4.2.1 states baldly that payments “under this Scheme” are exempt from
Income Tax, Capital Gains Tax and National Insurance Contributions. However, this is
followed by paragraph 4.2.2 which commences by informing an applicant that his/her
“claimed losses should be quantified net, i.e. after deduction of the tax which would have
been due at the time...”. The two statements are not easily reconcilable.
43. At this point in time I am far from satisfied that those administering GLOS and/or making
assessments of compensation thereunder are fully aware of the difficulties that may still
exist in relation to the apparent exemption of compensation under GLOS from income tax,
12
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
in particular. In my view it will be necessary to scrutinise with care how this exemption has
been applied in practice during the course of Phase 5 hearings.
44. There can be little doubt that the GLOS Guidance and Principles draws significantly upon
the documentation which has been issued by the Post Office in respect of the guiding
principles to be applied in determining compensation under HSS. Para. 1.1.2 of the GLOS
Guidance and Principles reads:
“In awarding compensation to postmasters, the Scheme will be guided by
considerations of fairness, in addition to applying established legal principles and
the findings from the Common Issues Judgment and the Horizon Issues
Judgement. The Scheme aims to restore postmasters back into the position they
would have been in had it not been for the breach of Post Office’s contractual
obligations. The Scheme will take into account all relevant facts and matters
presented in the claim in order to produce a fair result for the postmaster. Claims
can be made for Horizon Shortfalls and for Consequential Losses resulting from
them (the definitions for which can be seen in 1.3).”
This general approach is very similar to that which is articulated in HSS.
45. The GLOS Guidance and Principles adopts a similar approach to that contained within HSS
to the evidence which an applicant is asked to provide in support of an application.
Paragraph 1.2. reads:
“1.2.1 Although it is in your interest that your claim is well evidenced and quantified
in respect of each head of loss, the Scheme recognises that this may not
always be possible given the circumstances and the length of time which
has passed, and that there will be an absence of evidence. As such, DBT
will take a proportionate and considerate approach to the availability of
evidence albeit there will be some claims in which expert evidence may be
required and we have made this clear in the guidance below.
1.2.2 The evidence base for your claim should include the Schedule of Claimant
Information (“SOCI”) submitted for the High Court case, although the
Scheme accepts that aspects of these statements will need to be updated
and expanded upon to reflect subsequent events or newly available
information. Other statements and supporting documentation from that case
can also form part of your evidence base.
1.2.3. The Post Office is undertaking a comprehensive programme of disclosure
on terms discussed with your legal advisors. Any evidence obtained by the
Scheme from The Post Office will be shared with you at the earliest
opportunity.
1.2.4 You should use any remuneration information provided by The Post Office
as evidence. If you need additional information relating to your tax records
to support your claim, you may also wish to seek evidence from HMRC. You
13
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
can ask your legal advisor to do this on your behalf with your signed consent
(a digital signature is acceptable).
1.2.5 If you feel that you are unable to engage with this process, you can simply
submit your documentation from the High Court, including your SOCI to the
Scheme. This may not produce the optimal outcome but will still allow your
claim to be considered.”
To repeat, these provisions are similar to principles which have been formulated and
applied in HSS.
46. Section 2 of the GLOS Guidance and Principles deals with eligibility for making claims. It
is sufficient to point out that eligibility depends upon an applicant being a Claimant in the
Group Litigation and also being a party to the Settlement Agreement which brought that
litigation to an end. It is clear from Section 2.1.3 that those whose convictions have been
quashed are expected to pursue applications for compensation through OHCS.
47. Section 3 of the GLOS Guidance and Principles provides that “an Independent Advisory
Board has been established to advise ministers on how best to manage delivery of the
Scheme” (“the Independent Advisory Board’). This feature was foreshadowed in the
Scheme Process and was, initially, intended to be unique to GLOS. No independent
advisory board with an identical or similar function existed in HSS and OHCS at the time
such a board was constituted in GLOS.
48. The GLOS Guidance and Principles contemplated that the Independent Advisory Board
would consist of four members — two academics and two parliamentarians. The academics
chosen were Professor Christopher Hodges and Professor Richard Moorehead; the
parliamentarians were the Right Honourable Lord Arbuthnot and the Right Honourable
Kevan Jones MP. There can be little doubt about the fact that each of those persons has
the requisite skill, knowledge and interest in the subject matter to perform their intended
function of advising Ministers on how best to manage delivery of the scheme.
49. It is clear from available documentation that the Independent Advisory Board met on a
number of occasions prior to 27 April 2023. By 29 March 2023 the Independent Advisory
Board had become the Horizon Compensation Advisory Board (where appropriate
hereafter referred to either with its full title or as “the Board”) and on that date and ona
further occasion on 21 April 2023 the thorny issue of “compensation bands” was the subject
of discussion and recommendation to the Minister — as to which see paragraph 59 below.
The members of the Board were supported at their meetings by senior officials in DBT.
50. In their written submissions of 6 April 2023 Messrs Chapman and Henderson informed the
Inquiry that “the remit of the GLO Compensation Advisory Board [had] been extended to
include the Department’s oversight of HSS and OHC” and justified the change. The
rationale for the change was said to be to “ensure a holistic view of all compensation
schemes and [to] aid in the consistent treatment of postmasters regardless of what scheme
or programme they [were] in.” In his oral submissions on 27 April 2023 Mr Chapman
developed this theme by submitting:-
14
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
“The Department already had extensive measures in place to ensure that
postmasters in similar situations were given similar treatment, regardless of the
particular scheme under which they fell. It has now created an internal programme
board to provide additional assurance and it has extended the remit of the GLO
advisory board to include the Department's supervision of the scheme delivered
by the Post Office.”
51. I now have access to an undated document entitled “Terms of Reference for Horizon
Compensation Advisory Board”. I have attached the same to this Interim Report as
Appendix 2. The document should be read as a whole in order to understand, fully, the
Terms of Reference of the Board.
52. It is worth stressing now that the Horizon Compensation Advisory Board’s aim “is to help
DBT to ensure fair and prompt compensation to postmasters affected by the Horizon
scandal and related issues.” However, the Terms of Reference make it clear that it is not
intended that the Board will consider individual cases for compensation.
53. Section 3 of the GLOS Guidance and Principles also identifies that DBT has appointed the
legal firm, Addleshaw Goddard “as external legal advisors” to advise DBT on individual
cases. It has also appointed Dentons “as Alternative Dispute Resolution experts who will
be independent claims facilitators supporting the progress of claims and will provide
arrangements for making relevant papers transparent to all parties”. Dentons are charged
with the task of procuring “an independent panel comprising legal, accounting, medical and
retail experts and a senior lawyer (probably a KC or retired High Court Judge) who will,
when required, undertake ‘exceptional review of cases’”. This person is given the title ‘The
Reviewer’ in Section 3.
54. Paragraph 3.3.3 provides that once an application or claim is submitted, it will enter “the
claims facilitation process conducted by Dentons and a named claims facilitator will be
appointed to the case”. Paragraph 3.4 is headed “Assessment of Claim’. Paragraph 3.4.1
makes clear that consequential loss claims will be assessed against established legal
principles (which are set out in paragraph 4.3 of the document) as well as being informed
by considerations of fairness in all the circumstances. It is to be noted, however, that the
assessment at this stage will be undertaken by DBT with advice from Addleshaw Goddard
— see paragraph 3.4.2. It is also clear from paragraph 3.4 as a whole that it is for DBT to
formulate an offer in settlement in respect of the claim and that the offer will be
communicated to an applicant on behalf of DBT by Addleshaw Goddard.
55. Paragraph 3.5 describes the process which will occur in the event that an offer made on
behalf of DBT is not an offer to pay the full claim made by an applicant. Essentially, the first
step in the process is for Dentons to seek to promote “common understanding and
agreement between the parties” — see paragraph 3.5.1. In the initial stages, they may do
that by:
i. requesting further information from an applicant's legal advisor;
ii. I recommending that expert evidence is sought;
iii. I encouraging the applicant or DBT to revise their positions; and / or
15
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
iv. referring a case to the independent panel for a first or final assessment.
56. Paragraph 3.5.5 provides that if the Claims Facilitator judges that it would assist the parties’
progress towards agreement, they can decide to put the case to the Independent Panel for
a first assessment; by paragraph 3.5.8, if the Claims Facilitator judges that agreement
between the parties is unlikely to emerge, despite the recommendations of a first Panel
assessment, they can decide to put a case to the Panel for a final assessment.
57. What happens if an applicant is unhappy with the final assessment of the Independent
Panel? That is governed by paragraph 3.6 and it is necessary to set out the provisions
within that paragraph in full:-
“3.6.1 If you believe that there has been a manifest error or irregularity in the
Panel's final assessment of the claim, you can refer it for exceptional revi ew.
DBT will have the same rights to seek exceptional review of the case on the
grounds of manifest error or irregularity. This power would allow DBT to
challenge if it believed that the Panel had departed from the established
framework for assessing claims which is intended to achieve consistency
and fairness when making offers to Sub-Postmasters.
3.6.2 Any such application must be made within 15 working days of the
communication of the Panel’s final assessment. Any case submitted for
review should:
(i) identify the alleged manifest error or irregularity,
(ii) set out what the final assessment should have concluded in the
absence of such an error or irregularity; and
(iii) provide reasons for this view.
3.6.3. The Reviewer will consider the case, alongside any comments on it which
s/he will invite from the Panel or the other party. S/he may uphold the
Panel's decision or in the event of finding that there has been a manifest
error or irregularity make a revised award of compensation. The Reviewer's
decision will be sent to you and your legal advisor and to DBT and
Addleshaw Goddard, together with a written explanation. The Reviewer's
finding will be the final stage to reach agreement between you and DBT on
your claim. DBT will not consider any further offers or changes to the offer
after this.”
58. Many parts of sections 4 and 5 of GLOS Guidance and Principles are very similar in concept
to provisions found within HSS. Section 4 consists of a number of what are described as
key principles, e.g. provisions relating to such matters as the burden of proof and Section
5 is a guide to the nature and type of claims which can be made within GLOS. Additionally,
however, it contains indications, in the form of bands, as to the likely awards of
compensation for non-pecuniary losses occasioned by an applicant being held liable
wrongly for Horizon shortfalls. In Section 5.9.5, bands are set out as to likely awards of
compensation for stigma/damage to reputation; at paragraph 5.10.6, there are bands
16
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
relating to personal injuries; at paragraph 5.11 there are bands relating to harassment and
at paragraph 6.12.2 there are bands for distress and inconvenience.
59. The bands described briefly above did not meet with approval from those representing sub-
postmasters. In summary, the recognised legal representatives of sub-postmasters
considered the bands to be unrealistically low. In consequence, the bands were the subject
of detailed discussion within the Horizon Compensation Advisory Board, as I indicated at
paragraph 49 above. Awritten report of that detailed discussion is attached'' as Appendix
3. Following its detailed discussion, the Board agreed to recommend to the Minister that
the GLOS Guidance and Principles should be revised as follows:
. “the bands were not limits but indicative guidance to claimants, their lawyers
and the Independent Panel.
. each case would be decided on its merits.
. the figures for each band were derived from decisions made by the HSS
Independent Panel on HSS cases where there was good reason to expect
cases were generally less serious. The more serious cases were likely to still
be going through dispute resolution. The GLO Compensation Scheme
expects to find some cases where the facts of the case would demand awards
Significantly higher than the upper figure for the top band.
. if a claimant's compensation cannot be agreed through the Alternative
Dispute Resolution process, they have the right to have it considered by the
Independent Panel including a KC and other experts.
. as for other aspects of compensation, where the Principles and Guidance set
out bands, decisions would be taken by the Independent Panel based on the
facts of each case looked at ‘in the round’ and guided by considerations of
fairness”.
60. !am pleased to report that on 26 April 2023, the Minister made a statement in Parliament
accepting the recommendations made by the Horizon Compensation Advisory Board as to
how the bands should be interpreted and indicated that DBT would publish a revised
version of the GLOS Guidance and Principles in due course.
61. lam also pleased to report that the fifth meeting of the Horizon Compensation Advisory
Board took place on 14 June 2023. Minutes of the meeting are attached at Appendix 4 to
this Report. Self-evidently, at its meeting, the Board grappled with a number of issues which
have exercised those representing sub-postmasters in the quest for compensation which
is full and fair.
™ Horizon Compensation Advisory Board Report of fourth meeting held on 29 March 2023 and 21 April 2023.
17
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
62. AsIhave said, the vast majority of applicants to GLOS are represented by Freeths. In their
letter of 20 April 2023, Freeths raise a number of issues relating to the operation scope and
administration of GLOS.
63. First, they assert:-
“The August 2024 deadline for the resolution of payment of all claims in the GLO
Scheme remains a serious project risk. We shall continue to progress matters as
rapidly as possible. However, we reiterate our view that there needs to be very
close monitoring of the need for Government to initiate whatever process is
necessary to extend the final deadline, should that become necessary.”
64. Second, they complain that the Post Office is failing to disclose documentation relevant to
the individual applications for further compensation in a timely fashion. They make the fair
point that the historical documents held by the Post Office are essential to reviewing and
evaluating cases. The Post Office has been working to a period of 32 weeks to produce
documents in any given individual case. Freeths argue, with considerable force, that such
a timescale would make it virtually impossible for all applications to the scheme to be fully
and properly assessed by 7 August 2024.
65. Third, Freeths suggest and assert that:
“The way in which claims will be assessed in the GLO Scheme when documents
are missing will be of fundamental importance to the fair operation of the Scheme.
In our view, the approach taken by DBT and its lawyers should be monitored very
closely to ensure that postmasters will not be prejudiced by the absence of
documents. In many cases, Post Office removed all documents/ records from Post
Office branches at the time that the postmaster was terminated/suspended. It
would be inherently unjust and abhorrent if post masters were now to be penalised
financially by reason of Post Office’s conduct either in removing documents
historically or failing to produce documents now for the purpose of the Scheme.
The evidential ‘benefit of the doubt’ should be with postmasters in the GLO Scheme
where there are documentary gaps by reason of Post Office not being able to
locate/ produce documents in time for DBT to fully and fairly assess claims.”
66. Freeths also “record their concern over the GLOS Scheme document”.’? First, they
complain of a lack of consultation as to the bands of likely awards of compensation for non -
pecuniary loss. Second, they complain that, in some instances, unduly narrow definitions
have been adopted: in particular, attention is drawn to the fact that all consequential losses
must flow from a “Horizon shortfall’, whereas Freeths had suggested the broader
proposition that such loss should flow from a “Horizon issue”. Freeths suggest that
monitoring occurs to ensure that definitional issues do not impede the aim of providing full
and fair compensation to the applicants. Third, Freeths highlight the fact that many cases
which they are handling will require expert evidence and they are at pains to point out that
there is scope for considerable disagreement between DBT and themselves as to the need
for such evidence and to the cost thereof.
‘2 I understand that to be a reference toGLOS Guidance and Principles.
18
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
67. In his oral submissions on 27 April 2023 on behalf of the clients of Howe+Co, Mr Jacobs
associated himself with those who envisaged difficulty in making all payments under the
Scheme by 7 August 2024. Additionally, he advanced detailed arguments demonstrating
that disclosure of documents by the Post Office at the rate proposed by the Post Office
would make completion of the scheme by the proposed date extremely problematical. In
these circumstances, Mr Jacobs submitted that there should be a second tranche of interim
payments made to all applicants under the scheme as a means of alleviating the hardship
and/or distress caused by continuing delays in providing final compensation.
68. Mr Henry KC aligned himself with Mr Jacobs’ suggestion that there should be a second
tranche of interim payments to all those entitled to a further payment under GLOS.
(ii) The Historical Shortfall Scheme (“HSS”)
69. HSS is a voluntary remediation scheme which came into existence following the conclusion
(and in consequence of) the Group Litigation. I described its main features in detail in the
Progress Update — see paragraphs 13 to 63. For the sake of convenience, I repeat a
number of its features in the following three paragraphs.
70. From its inception, HSS had specific eligibility criteria. lt was open only to applicants who
were or had been in direct contractual relations with the Post Office. The application s made
by such persons had to relate to shortfalls which had arisen in respect of “Previous versions
of Horizon (sometimes referred to as Legacy Horizon, Horizon Online or HNG -X)”. Only
certain categories of persons were entitled to bring a claim on behalf of others, e.g. it was
necessary for a personal representative to make an application on behalf of a deceased
person. The applicant had to agree to be bound by the Terms of Reference of the scheme.
71. The eligibility criteria also contained specific exclusions. Claimants in the Group Litigation
were excluded from being eligible to seek compensation under HSS, as were all persons
(whether or not they had been Claimants in the Group Litigation) who had been convicted
of criminal offences relating to their time at the Post Office. As at the opening date of the
scheme, persons were not eligible for compensation if they had entered into any settlement
agreement with the Post Office other than as part of the “Initial Complaint Review and
Mediation Scheme” which had commenced in 2013, or as a result of “Network
Transformation or other Scheme”. However, after the scheme had been open for some
time, the provision which excluded persons who had entered settlement agreements with
the Post Office was changed so that the only operative exclusion related to persons who
had entered into settlement agreements after 16 December 2019 (the date of the Horizon
Issues Judgement handed down by Fraser J).
72. In its original form the scheme was open only to those who made an application for
compensation by Friday 14 August 2020. However, that was not a cut-off date set in stone.
Applicants who did not submit an application by 14 August 2020 would not be eligible to
join the Scheme “unless Post Office agree[d] otherwise”. As I have said the Post Office
amended the scheme in the summer of 2020 so as to provide a closing date of midnight
on 27 November 2020 and the provision which apparently conferred upon the Post Office
a discretion to accept an application after the closing date remained in place.
19
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
73. Under HSS the Post Office makes offers in settlement to applicants. However, in all
substantial cases, at the very least, such offers are put forward following an independent
appraisal of the value of each individual claim by an Independent Advisory Panel. The Post
Office is not bound to accept that valuation; however, there has, as yet, been no suggestion
that offers have been made to applicants which are lower than the valuation placed upon
any individual claim by the Panel.
74. Iaminformed by the Post Office that as of midnight on 27 November 2020, the Post Office
had received 2,417 eligible applications for compensation. As of 27 April 2023, offers in
settlement had been made to all but 21 of those applicants i.e. offers had been made to
2,396 applicants. As at the same date, offers had been accepted by 1,979 applicants and
compensation actually paid in 1,940 cases.
75. If my arithmetic is correct there were 438 applications for compensation still to be resolved
as of 27 April 2023. The Post Office accept that these 438 cases are difficult to resolve and
that many of them have now entered the dispute resolution processes contained within
HSS. The resolution process will, no doubt, be assisted by the fact that many of the
applicants whose cases remain to be resolved are now legally represented and that there
is said to be a more streamlined process for determining appropriate legal fees thereby
facilitating the obtaining of advice and assistance. That said, it is of concern to me that,
apparently, a significant number of complex cases remain to be resolved between 30
months and three years after they were first submitted to the Post Office. I do not resile
from the view I expressed in the Progress Update that there is a balance to be struck
between speed of decision-making and ensuring that offers made are full and fair.
Nonetheless, I am left with the distinct impression that the most complex cases have not
been addressed as speedily as might have been the case. No doubt, a definitive view will
emerge when I receive written and oral evidence during Phase 5 of the Inquiry.
76. Notwithstanding the closure of HSS at midnight on 27 November 2020, the Post Office
continued to receive applications for compensation — referred to in the written and oral
submissions as “late applications”. As at the hearing which took place on 13 July 2022, the
Post Office had received 186 such applications. Yet, notwithstanding the passage of
approximately 20 months, the Post Office had not determined, definitively, whether to
accept into HSS some or all of those /ate applications. I have never been satisfied with this
state of affairs. At paragraph 7.3 of the Executive Summary of the Progress Update I wrote:
“I know of no proper explanation for the delays in determining whether those
applications which were made after 27 November 2020 should be rejected or
accepted in the Scheme. The delay in determining many if not all of these
applications is wholly unacceptable, and, in my view, it remains largely
unexplained.”
77. In October 2022, both the Post Office and BEIS made public statements which suggested
that late applications would be accepted into the scheme. However, in my view, there was
insufficient clarity as to whether it was necessary for “/ate” applicants to explain the reasons
for their delay in making an application for compensation. That lack of clarity subsisted as
of 8 December 2022 when a further hearing relating to compensation issues took place
and, as of that date, the number of late applications had grown to more than 200.
20
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
78. Inthe January Statement, I dealt with the issue of late applications at paragraphs 13 to 17.
In paragraph 17, I expressed the view that:-
“\.. fairness now demands that an unequivocal statement to the effect that all
applications received by POL but made after 27 November 2020 will be accepted
into the HSS provided all the eligibility criteria set out in the HSS are met: i.e. no
application already received by POL will be refused on the basis that it was made
after 27 November 2020.”
79. On 2 March 2023, the Post Office and DBT agreed that late applicants would not be
required to provide a reason for their late submission. That decision was put into effect
immediately in that the HSS website was updated on 2 March 2023 to remove the
requirement to provide a reason for a late application, as was the Q&A document for new
applicants. At paragraph 51 of its written submissions dated 6 April 2023, the Post Office
wrote:-
“Accordingly, Post Office wishes to make clear that no application to the HSS
received after 27 November 2020 has been or will be determined to be ineligible
only on the basis that the applicant did not provide an adequate reason for the
lateness of the application.”
80. As of 6 April 2023, the Post Office had received a total of 245 /ate applications. Of those,
213 had been assessed for eligibility and 189 applications had been determined as eligible
within the Scheme. 32 applications had not been assessed by 6 April. Each of the 24
applications which had been assessed as ineligible had failed to satisfy all the necessary
eligibility criteria; no application had been rejected because it had been made after midnight
on 27 November 2020.
81. By 27 April 2023, the number of late applications had risen to 263. 242 of those applications
had been assessed for eligibility; 214 had been found to satisfy the eligibility criteria of the
Scheme and 28 had been determined as ineligible. 21 applications remained to be
assessed.
82. Offers of compensation had been made to 27 “/ate” applicants as of 27 April 2023. At least
13 such offers had been accepted since Leading Counsel informed me that payments of
compensation had been made to 13 “/ate” applicants.
83. It follows from the above that as of 27 April 2023 there were something like 230-250 /ate
applications to be determined and that there may yet be significantly more. I say that
because Leading Counsel for the Post Office also informed me that discussions were taking
place between DBT and the Post Office about a closing date for HSS. She confirmed to me
that the scheme would not close prior to 31 March 2024. During the course of exchanges
with Leading Counsel, I indicated my approval to her of that course of action.
84. Following the hearing on 8 December 2022 and when I published the January Statement I
was concerned about how (a) compensation was being assessed within HSS in respect of
those applicants to the scheme who had been made bankrupt or were subject to the terms
of an Individual Voluntary Arrangement (IVA) and (b) how that compensation was being
21
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
apportioned between applicants to the scheme and their trustees in bankruptcy. '° For that
reason and encouraged to do so by many of the Core Participants (including the Post Office
and BEIS) I obtained my own legal advice from Ms Addy KC.
85. In her Opinion, Ms Addy KC addresses in detail a number of questions which were posed
to her in her instructions. I do not propose to reproduce or summarise those questions and
Ms Addy’s views upon them. The questions which she was asked to consider were
formulated after taking into account written submissions from Core Participants. Ms Addy’s
instructions, those written submissions and her Opinion have been published on the
Inquiry’s website.
86. Between paragraphs 31 and 50 of her Opinion, Ms Addy KC provides an analysis of a
number of issues which may arise in respect of applicants to HSS who were made
bankrupt. As it happens, save in one respect which I will identify below, the views which
she expresses in relation to those issues are similar to those set out in the written
submissions of the Post Office dated 6 April 2023 — see paragraphs 9 to 16 thereof. Further,
her views are in accord with the information provided to me in a letter dated 21 April 2023
on behalf of the Insolvency Service. I proceed on the basis that save in respect of the
discrete issue identified below at paragraph 89 the main principles relating to the
assessment of compensation under HSS in respect of those who are and/or have been
made bankrupt and/or are subject to an IVA are not in dispute.
87. That view is reinforced by the fact that the written submissions filed on behalf of Core
Participants, who are also applicants to HSS, did not contain any substantial differences of
view to those expressed by Ms Addy KC in paragraphs 31 to 50 of her Opinion. Not
surprisingly, in those circumstances, none of the oral submissions made on behalf of the
Core Participants who are or were sub-postmasters took issue with Ms Addy’s views.
88. While, therefore, the assessment of compensation in individual cases, in respect of
applicants to HSS who have been and/or are still bankrupt, may require recourse to the
dispute resolution procedures within HSS, the legal principles upon which the assessment
of compensation should be made are essentially agreed save for the discrete issue to which
I now turn.
89. This discrete issue relates to the assessment of awards of general damages for the injury
to credit and to the reputation of applicants who demonstrate that there is a causal link
between the conduct of the Post Office and their bankruptcy. Ms Addy’s views as to an
appropriate award in those circumstances are developed, in particular, in paragraphs 48
and 49 of her Opinion, and on one view of her analysis she contemplates that awards might
reach figures of the order of £300,000.
90. In the written submissions on behalf of the Post Office, itis asserted that such a sum would
be too high. In her oral submissions, Ms Gallafent KC expressed the same view.
13 I was equally concerned about those issues in respect of CHCS and GLOS.
22
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
91. As I have been at pains to point out in the Progress Update and the Introduction to this
Interim Report, it is not for me to determine individual heads of claim in respect of
applications to HSS (or, for that matter, either of the other two schemes). In HSS, there are
clearly defined dispute resolution procedures which will enable the issue of an appropriate
award for loss of credit and reputation to be determined in accordance with the commitment
by the Post Office and BEIS / DBT to provide compensation which is “full and fair’.
92. In summary, I am satisfied, on the basis of the written material provided to me and the oral
submissions made on 27 April 2023 that the principles upon which compensation should
be assessed in respect of applicants who have been and/or are still bankrupt are now (or
at least should be) well understood. Of course, there may yet be differences of view as to
an appropriate assessment of compensation in individual cases which may require resort
to the dispute resolution processes within HSS.
93. lam also satisfied that there is now a clear understanding as to the circumstances in which
some part of the assessed compensation under HSS (or interim payment, as the case may
be) should be payable to a Trustee in Bankruptcy as opposed to an applicant.
94. I should not leave the issues of bankruptcy/IVA as they arise in the HSS without providing
some statistical information. In the written submissions provided by the Post Office, I was
told that there were 63 applications submitted prior to midnight on 27 November 2020 in
which a Trustee in Bankruptcy had an interest in the compensation payable to an applicant.
There were three cases in which there had been no determination as to whether the Trustee
had such an interest. Additionally, there were two cases in which it had been determined
that an IVA Supervisor had an interest in the compensation payable. When Ms Gallafent
KC addressed me orally on 27 April 2023, one of the three unresolved cases had been
determined.
95. In 59 of the 63 cases in which bankruptcy is a factor, the Trustee in Bankruptcy is, in fact,
the Official Receiver. In the letter of 21 April 2023, on behalf of the Insolvency Service
(mentioned at paragraph 86 above), there is no suggestion that the information provided
by the Post Office and summarised by me in the preceding paragraphs is in any way
inaccurate.
96. Bankruptcy arises as a potential issue in some of the “/ate applications” received after
midnight on 27 November 2020. In its written submissions, the Post Office informed me
that amongst the late applications there were 22 in which a potential issue arose relating
either to bankruptcy or IVA. As of 6 April 2023, it had been determined that in some of those
cases the Trustee in Bankruptcy had an interest in either part or the whole of the
compensation payable. As of 27 April 2023, no significant progress had been made in
resolving the undetermined cases. There was no suggestion by Ms Gallafent KC, however,
that there was a significant prospect of a dispute arising in relation to these unresolved
cases.
97. Finally, in respect of insolvency issues, I should add for completeness that Ms Addy’s
opinion and the submissions made by Core Participants also raised such issues as
annulment of bankruptcy and rescission of bankruptcy in individual cases. I understand that
if any applicant for compensation under HSS wishes to pursue an application to the Court
for annulment or rescission of bankruptcy, appropriate funds will be made available by the
23
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Post Office to pursue such an application, provided only, of course, that the sums paid for
legal expenses are reasonable.
98. I turn next to the issue of taxation of compensation payments made (or to be made) under
HSS. As I have said the 2023 Regulations came into force on 16 March 2023 and the
relevant parts are reproduced at paragraphs 18 to 20 above.
99. In written submissions on behalf of DBT dated 6 April 2023, Counsel for the Department
(Messrs Chapman and Henderson) sought to justify the exclusion of payments made under
HSS from the Regulations exempting such payments from Income Tax, Capital Gains Tax
and Inheritance Tax. As with the letter of 10 March 2023 (see paragraph 22 above) I am
unpersuaded by arguments deployed on behalf of DBT.
100. However, no useful purpose would be served by an analysis of the written submissions
presented on behalf of DBT since, in his oral submissions, Mr Chapman no longer sought
to justify a difference of approach in relation to taxation as between applicants to HSS, on
the one hand, and applicants to OHCS and GLOS on the other. For the avoidance of any
doubt as to what was said, I quote verbatim from the relevant part of the transcript (pages
10 — 14) of the hearing on 27 April 2023 as to the exchanges between Mr Chapman and
myself:-
“MR CHAPMAN: I want to ensure that the Inquiry fully understands the position.
Now at the time the HSS was set up and, as you know, and as
we discussed at previous compensation hearings, it was set up
on the assumption — an assumption which turned out to be
incorrect — that a relatively small number of applications would
be made and that that relatively small number of applications
would be to a relatively small value.
SIR WYN WILLIAMS: Yes.
MR CHAPMAN: That has proved not to be the case but that assumption has
affected the way in which the taxation consequences were
understood. Now the Department recognises that because of
that there is potential unfairness to those within the HSS of a
non-exemption for tax and it has looked, together with HMRC
and The Treasury, at the possibility of exempting payments
within the HSS from tax, in the same way as the other
scheme[s]. The problem — and that is a suggestion that you
yourself made, sir, in a previous hearing. The essential problem
with that is that a number, a large number of payments have
already been made and in order to — if those payments were
retrospectively to be exempted from tax — it would make the —
or place the recipients of those payments in a substantially
advantageous position, as compared to recipients of payments
under the other schemes. As is clear, as I have made clear
previously, and as I'll go on to make clear, one of the
Department's objectives is to ensure reasonable parity as
between the different schemes.
24
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
SIR WYN WILLIAMS: Yes.
MR CHAPMAN: What the Department is obviously keen to avoid is a situation
where an exemption for the HSS payments is put into effect
because that would, in order to achieve parity, involve
retrospectively recalculating the payments and, in some cases,
in order to ensure parity, seeking to or potentially seeking to
recoup some of the payments and that is something that, for
obvious reasons, it wishes to avoid. But it does have — HMG,
the Government, does have a solution to this. The Government
will support the Post Office with funding to make additional
payments to Post Masters in the Historical Shortfall Scheme to
ensure that compensation is not unduly lost to tax. So there are
various ways of skinning the cat, but the Government, the
Department, concluded that that is the best — in practice — the
best way of doing it. The implementation of these payments is
complex, and the Department will announce further details as
soon as possible. But the outcome of that would be that
recipients of compensation under the Historical Shortfall
Scheme are in exactly the same position in relation to tax as
recipients of payment under the other schemes were tax is
exempted.
SIR WYN WILLIAMS: Well, speaking — obviously having heard what you've said
for the first time, speaking therefore to an extent without having
thought it through, it’s obviously highly desirable that parity is
achieved in this way, and I don’t suppose that will be
controversial by any right thinking person. My concern is simply
to ensure that the Department actually tells us what it’s going to
do- and! am not trying to be unduly difficult — but sooner rather
than later, because these things are taking time, Mr Chapman.
MR CHAPMAN: The Department gets that; it understands that loud and clear.
SIR WYN WILLIAMS: Alright, so I was going to ask you and Ms Gallafent to give
me a tutorial in the assessment of damages and the impact of
tax upon it, but am I now to understand that that is unnecessary
because, one way or another, every applicant to whichever
scheme will in the end be treated in the same way, in practice?
MR CHAPMAN: In practice, in outcome, yes.
SIR WYN WILLIAMS: In outcome, which is what presumably they are concerned
about?
MR CHAPMAN: That's what matters, as far as the Department is concerned
yes.
25
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
101. On 19 June 2023 the Minister made an announcement in Parliament seeking to give effect
to Mr Chapman’s submissions at the hearing on 27 April 2023. The announcement
contained the following summary:
« Postmasters in the Historic Shortfall Scheme (HSS) will receive top-ups to their
compensation, to ensure that the amount they receive is not unduly reduced by
tax.
e HSS claimants will also be able to claim up to £300 for independent advice on
filing their tax returns.
e Government has introduced the top-ups to ensure that postmasters receive full
and fair compensation.
102. On the same date the recognised legal representative of DBT wrote to me as I had
suggested would be appropriate at the hearing on 27 April 2023. I attach the letter as
Appendix 5 to this Interim Report.
103. I understand why, in this letter, what might be described as a pragmatic approach to dealing
with exemptions from income tax for those who have been, and will be, compensated under
HSS is advanced. Clearly the vast majority of applicants to HSS have been paid
compensation under the scheme and precise calculations of additional sums to ensure
precise exemption from tax liability may be very difficult to achieve in individual cases. I say
now, however, that my primary concern is that all recipients of compensation from each
scheme are treated equally in terms of their exemption from tax and until I receive evidence
as to how this has been managed in practice (as I will in Phase 5 of the Inquiry) it is difficult
to draw any definitive conclusions from the written material so far provided by DBT and its
lawyers.
104. I turn, finally, in this section to note some of the additional points which were made in written
and oral submissions on behalf of some former and current sub-postmasters who are also
Core Participants.
105. Howe+Co act for 157 former and/or current sub-postmasters who are Core Participants of
the Inquiry (although, as I understand it, they are currently acting for only 10 of those in
pursuing claims for compensation within HSS). In written and oral submissions made since
compensation issues have been under the spotlight, they have repeatedly asserted that
HSS has been operated so as to cause undue delay with consequent significant and
unwarranted anxiety to their clients. In the written submissions sent to me in advance of
the hearing on 27 April 2023 (paragraphs 98 to 100 thereof) Howe+Co suggest that
unwarranted obstacles are placed in the way of obtaining expert evidence ; that there is
ongoing disquiet about the level of fees payable in respect of obtaining expert evidence
and the process for determining such fees is slow and cumbersome. A specific complaint
is raised about the computation of loss of earnings claims. By reference to a particular
individual case (Ms Fiona Elliott), Howe+Co question the efficiency of those involved in
constituting the panels who recommend offers in settlement.
26
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
106. I am invited to investigate the process by which panels are constituted, why delays in
assessments by panels have occurred and why applicants to HSS are expected to apply
for prior authorisation of expert witnesses. I assume that the invitation to investigate is an
invitation to obtain evidence in relation to these issues in Phase 5.
107. Hudgells represent 125 applicants within the HSS. Many, if not all, of those persons are not
Core Participants of the Inquiry. Most of the Core Participants represented by Hudgells are
persons who were wrongly convicted of criminal offences and/or were Claimants in the
GLO and, in consequence, they are not eligible for compensation under HSS.
108. In their written submissions of 6 April 2023 Hudgells acknowledge that “there are some
encouraging matters to report’ relating to HSS — see paragraph 22 thereof. Interim
payments were being made on a regular basis (at a level of up to 80% of any offer made
by the Post Office under the Scheme). All the applicants for whom Hudgells were acting
who had sought expert evidence were afforded the opportunity to obtain such evidence .
Although there had been a delay in agreeing a costs matrix which included provision for
expert fees, such a matrix was close to being adopted formally. In written submissions,
Hudgells’ primary concern was that a number of applications had been determined at a
level which was not “full and fair” - a concern previously expressed both in writing and
orally at hearings with a good deal of vigour.
109. Hodge Jones & Allen act for 10 persons who have been designated Core Participants.
110. I received written submissions from Mr Henry KC and Ms Page, dated 6 April 2023, which
relate to compensation issues. However, these submissions did not touch upon individual
applications to HSS. When I was addressed, orally, by Mr Henry KC on 27 April 2023, he
did not make any observations about individual applications to HSS. I received written
submissions from Mr Marshall on 24 April 2023, but they were not specific to any individual
within HSS."4
111. Insofar as Mr. Henry KC, Ms Page and Mr Marshall criticise the operation of HSS in their
submissions, they do so on grounds which are very familiar and about which they harbour
considerable concern — namely that HSS lacks true independence and transparency.
(iii) The Overturned Historic Conviction Scheme (“OHCS”)
112. As I have said, OHCS is not a voluntary remediation scheme. When the Deed of Settlement
was concluded which brought an end to the Group Litigation, it was recognised that there
would be Claimants within that litigation whose convictions for criminal offences might be
quashed. The Deed of Settlement preserved the rights of that category of Claimant to bring
proceedings against the Post Office for malicious prosecution. Primarily, at least, OHCS is
a vehicle for providing “full and fair compensation” for those whose convictions have been
14 This is not a complaint by me. I have made it clear that it is not for me to determine individual applications for
compensation and so I would not necessarily expect specific submissions aboutindividual applicants from Mr. Henry
KC or Mr. Marshall.
27
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
quashed and who have claims for malicious prosecution (whether preserved by the
Settlement Deed or on account of a cause of action for that tort which can be pursued).
113. As of 27 April 2023, the convictions of 86 persons have been quashed.
114. The Progress Update describes the process by which interim payments are considered
and paid following the quashing of convictions. As of 27 April 2023, interim payments had
been made to 80 applicants: one applicant did not wish to receive an interim payment and
three applications for interim payments had been refused (but see paragraph 117 below).
115. In the Progress Update, I described how Lord Dyson had been engaged by Hudgells and
the Post Office to carry out what was described as an early neutral evaluation of the likely
award of damages for non-pecuniary losses should the persons whose convictions had
been quashed bring civil proceedings for malicious prosecution before the courts. Anumber
of applications for non-pecuniary loss (ten in number I believe) were considered in detail
by Lord Dyson who provided an opinion as to the likely individual evaluations of those cases
should they be heard in court by a High Court Judge. The evaluations of such claims were
not binding upon the Post Office and Hudgells’ clients but it was always anticipated that
they would be highly influential both as stand-alone assessments and as important guides
to awards in other similar cases. In the main, that anticipation has turned out to be well
founded.
116. As of 6 April 2023, 53 persons represented by Hudgells had settled their claim for non-
pecuniary losses. When Ms Gallafent KC addressed me on 27 April 2023, she told me that
the Post Office had received 69 claims for non-pecuniary losses and had made offers in
respect of 67 of those claims. 55 applicants had accepted the offers made with the
consequence, presumably, that negotiations were ensuing in 12 more. The impression I
gained was that all offers had been made to applicants represented by Hudgells, but that
may not be strictly accurate.
117. The progress towards reaching agreement in respect of the pecuniary claims of those
whose convictions have been quashed is in stark contrast. As of 6 April 2023, a total of 11
applications had been presented by Hudgells to the Post Office. Of those 11 applications,
four have been settled; two of the four were cases in which interim payments had been
refused; four applications were in negotiation following offers in settlement; and Hudgells
were expecting offers in settlement in the three other cases.
118. By 27 April 2023, applications had been made to the Post Office by 14 applicants; 11 of the
applications were fully particularised but, according to Ms Gallafent KC, three were not. My
understanding is that no settlements of pecuniary losses had taken place between 6 April
and 27 April 2023.
119. In the Progress Update, I expressed the non-controversial view that the process of making
final payments of compensation to persons whose convictions had been quashed was in
its early stages. Ten months has now elapsed and, although many payments have been
made to applicants in respect of non-pecuniary losses, the number of payments made in
respect of pecuniary losses is small.
28
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
120. The Progress Update encouraged the parties to engage in contingency planning with a
view to avoiding a state of affairs arising whereby negotiations betwee n the parties became
bogged down with the consequence that the only alternative routes for resolving disputes
were either mediation, binding arbitration or litigation. I encouraged the parties to consider
a formal remediation scheme in respect of applicants to OHCS.
121. It is clear from the oral submissions made to me by Mr Moloney KC and Ms Gallafent KC
on 27 April that, albeit belatedly in my view, Hudgells and the Post Office had begun the
process of formulating written principles by which pecuniary losses are to be assessed
under OHCS. Mr Moloney KC suggests that there has been undue delay on the part of the
Post Office in reaching this point, but he expresses optimism that principles will be agreed
which can then be used as the building blocks for determining final payments of many of
the applications for compensation for pecuniary losses. In his oral submissions, he went so
far as to say that he was optimistic that many, if not all, of the applications made to the Post
Office will be determined by the end of this year.
122. It is also right to observe, however, that Mr Moloney KC frankly indicated that there are
applicants to OHCS who would wish to defer the assessment of a final award of
compensation until all the evidence gathering in the Inquiry has been undertaken and
perhaps even until after I have published my final report. It is also worth observing that
although Hudgells currently represent the vast majority of applicants to OHCS who have
presented claims, there remains the possibility of many more claims in the future and the
possibility that future applicants will be represented by lawyers other than Hudgells and
Leading and junior Counsel instructed by Hudgells. Self-evidently, in these circumstances,
all lawyers who represent applicants to OHCS should be fully consulted about the principles
by which pecuniary losses are to be assessed.
123. Applicants to OHCS have always enjoyed the most significant of the tax exemptions which
have been conferred upon recipients of compensation under the three schemes identified
in paragraph 2 above. Compensation payments under OHCS are exempt from income tax,
capital gains tax and inheritance tax. As I have already noted it remains to be seen how
DBT/the Minister/the Post Office proposes to achieve at least reasonable parity so far as
tax liability and/or tax exemption is concerned as between the recipients of compensation
from the 3 schemes - see, in particular, paragraphs 39 to 43 and 98 to 103 above.
124. I turn, finally, to the impact of bankruptcy upon compensation payments under OHCS.
When he addressed me on 27 April 2023, Mr Moloney KC informed me that bankruptcy
issues relating to his clients who are applicants in OHCS had been resolved. He was not
contradicted either by Ms Gallafent KC or by Mr. Chapman. Obviously, that is very welcome
so far as it goes.
125. Iam aware, however, that there are applicants to OHCS who were made bankrupt and who
are not represented by Hudgells. Further, applicants may come forward in the future who
are represented by lawyers other than Hudgells. Obviously, fairness demands that the
impact of bankruptcy upon compensation payable to such persons should be the same as
the impact upon the clients of Hudgells.
126. It was, I believe, in this context that during the course of his oral submissions Mr Moloney
KC suggested that what he described, compendiously, as “stigma damages’ for bankruptcy
29
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
should be the subject of neutral evaluation by a suitably qualified independent lawyer of
stature along the lines of the early neutral evaluation which was conducted by Lord Dyson
in relation to non-pecuniary losses for malicious prosecution.
127. Mr. Moloney KC was the last of the advocates for the Core Participants to make oral
submissions at the hearing on 27 April 2023. In consequence his suggestion that there
should be a further neutral evaluation was not debated by the advocates for other Core
Participants. That said, I can readily foresee that the issue of compensation for the stigma
of being made bankrupt over a range of cases is likely to be difficult to resolve especially
when such compensation is inextricably linked with related heads of non-pecuniary loss.
Further, the appropriate level of compensation will have to be considered under all 3
schemes and, in consequence, consistency of approach and fairness as between the
applicants to the three schemes are crucially important. In consequence I have reached
the clear conclusion that this suggestion is at least worthy of detailed exploration — as to
which see paragraph 146 below.
Payments Under the Three Schemes
128. As of 6 April 2023, the Post Office had paid out to applicants to HSS approximately £62m,
including interest and the deduction of withheld tax. It had paid out £18.04m in
compensation to applicants to OHCS by the same date.
129. As of 6 April 2023, DBT had paid interim compensation under GLOS in the approximate
sum of £19m.
130. Additionally, the Post Office and DBT will have incurred, and will continue to incur, very
substantial sums in relation to the administration of the three schemes (primarily fees to
their own advisors) and sums payable to the lawyers who represent the applicants to the
schemes. I have not sought up-to-date information about this expenditure for inclusion in
this Interim Report. On any view, however, the expenditure incurred will be of the order of
many tens of millions of pounds.
Conclusions and Recommendations
131. At the commencement of this Interim Report, I thought it appropriate to stress that Ministers
and representatives of the Post Office have asserted, unequivocally, that “those wronged
as a consequence of decisions taken on the basis of data produced by Horizon should
receive compensation which is full and fair”. In my view, that has been a constant which
should have permeated and still should permeate all decision making relating to the
assessment of compensation for each applicant in the three schemes.
30
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
132. It would be tempting for some to be sceptical about whether this can be achieved. As I
wrote in the Progress Update, a commitment to provide compensation which is full and fair
is not the traditional stance taken by a defendant in our adversarial system of civil litigation.
133. In some of his legal analysis, Mr Marshall has gone so far as to suggest that there are and
always have been legal impediments to DBT and the Post Office providing “full and fair
compensation”. I do not agree. The Post Office has but one shareholder; that shareholder
is ultimately controlled by HM Government, many different Ministers of which have provided
unequivocal commitments to the effect that applicants for compensation will receive
compensation which is full and fair. Duly authorised members of the Board of the Post
Office have repeatedly committed to providing compensation to all applicants which is full
and fair. I do not consider that there is any valid legal reason why DBT and the Post Office
cannot give effect to the commitments which they have made. Certainly, if they seek to
resile from such commitments they should provide a full a detailed justification for such a
change of heart and, no doubt, any such purported justification would be subject to the
most anxious scrutiny and, in all probability, withering criticism.
134. The commitment to provide compensation which is full and fair must apply with equal force
to the compensation payable under all three schemes. The object of each scheme is to put
the sub-postmaster into the position in which he/she would have been had he/she not been
the victim of unlawful tortious behaviour and/or the position in which they would have been
had the various breaches of contract which they may prove had not occurred. It is
incumbent upon all those involved in administering the three schemes and, in particular, in
formulating offers in settlement under each scheme, to give full weight to those basic
principles.
135. DBT has thought it appropriate to create the Horizon Compensation Advisory Board to
advise Ministers on how best to manage delivery of compensation under all 3 schemes.
While it might be thought that I have been hesitant about supporting the creation of such a
board lest it leads to undue delay — see paragraph 52 of the January Statement — I have
no doubt that its composition is such that the risk of delay associated with its work will be
minimised.
136. In any event, given that the Horizon Compensation Advisory Board now exists the
opportunities arising by virtue of this development must be maximised. The Board as
constituted will, no doubt, be capable of assisting DBT to ensure that full and fair
compensation is delivered under all schemes as envisaged. Where the payment of
compensation promptly is an imperative (i.e. under GLOS) the Board can provide additional
assistance in driving forward the making of payments. Further, the existence of the Board
should go a significant way, in my opinion, to allay the fears of those who are dubious about
the sufficiency of independence safeguards within each scheme. That is of particular
importance in relation to independence safeguards within GLOS for two reasons. First, the
dispute resolution procedures are much less robust within GLOS than the fall-back dispute
resolution procedures in HSS (compare sections 3.5 and 3.6 of the GLOS Guidance and
Principles with the dispute resolution procedures in HSS described in the Progress Update
at paragraphs 29 and 30). Second, GLOS provides no route to a resolution of disputes in
a court of law whereas, of course, both HSS and OHCS permit applicants for compensation
to resolve their disputes in the courts. The Horizon Compensation Advisory Board can have
an extremely important safeguarding role.
31
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
137. I wish to stress, too, that, in my view, it is implicit in the concept of helping DBT to ensure
the payment of full and fair compensation that the Horizon Compensation Board will take
active steps to monitor whether compensation is being paid which is full and fair. I do not
regard that as being inconsistent with the Board “not considerfing] individual cases” for
compensation. Quite the contrary; without such a monitoring role the Board's ability to
assist would be curtailed severely. However, if Iam wrong about that, the words "The Board
will not consider individual cases for compensation” (paragraph 4 of the Terms of
Reference for Horizon Compensation Advisory Board) should be removed from the Terms
of Reference or paragraph 4 should read:-
“4 The Board will not determine individual cases for compensation but it may monitor and
examine the detail of individual cases so as to ensure that full and fair compensation is
being paid to all applicants in all schemes.”
138. On the basis of the limited information currently available to me, I see no reason why the
personnel chosen to constitute the Board should not have sufficient capacity to discharge
their Terms of Reference. Subject only to the practicalities involved, it would appear good
practice for the same advisory personnel to be involved in each scheme. Additionally, the
Board should, in the interests of openness and transparency produce written reports of its
meetings and, in those reports set out its view upon whether compensation payments to
applicants to each scheme are full and fair. In the event that the members of the Board
consider that its personnel should be increased in size, further suitable individuals should
be appointed.
139. Accordingly, I recommend:
. Recommendation 1: The Horizon Compensation Advisory Board should not be
prevented from monitoring individual cases in which compensation has been or is to
be determined by paragraph 4 of its Terms of Reference. It must be one of the core
duties of the Board that it monitors whether compensation payments are full and fair.
. Recommendation 2: The Horizon Compensation Advisory Board shall produce
written reports in respect of each of their meetings in relation to each of the three
schemes and publish the same within 21 days of the date of each meeting.
. Recommendation 3: The Horizon Compensation Advisory Board shall, as part of its
advisory role, consider whether, in its view, full and fair compensation is being paid
out to applicants under the three schemes and shall advise the Minister and the Post
Office accordingly at three monthly intervals.
. Recommendation 4: If the Horizon Compensation Advisory Board as constituted
consider it necessary, the number of persons appointed to the Board should be
increased so as to ensure that the Board has sufficient capacity to perform the
functions set out above.
140. Given the lapse of time between the hearing on 27 April 2023 and the date hereof, it is at
least possible that steps will have been taken to resolve the difference of view as between
Moore UK and applicants to GLOS as to whether any part of the compensation payable to
32
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
applicants who have been made bankrupt vests in the estate of a bankrupt sub -postmaster.
If, however, that issue has not been resolved, I recommend:
. Recommendation 5: DBT shall take such steps as are necessary within 28 days of
the date hereof, to seek appropriate directions under section 306 Insolvency Act 1986
so as to enable a court to resolve the difference of view between DBT and Moore UK
and/or it shall take all appropriate steps (including providing appropriate le gal funding)
so as to enable a sub-postmaster to seek appropriate directions under that section.
141. I am not currently persuaded that I should recommend that those administering the GLOS
should make further interim payments to applicants to the GLOS regardless of whether an
applicant can demonstrate there is a need for such payments. As I recommend below there
is a clear imperative to ensure that all payments of compensation under GLOS are made
either by 7 August 2024 or by such further date as is provided for by legislation. I can
envisage scenarios in which the making of further interim payments without investigating
the circumstances of individual cases has the effect of reducing the possibility of final
payments of compensation being made as soon as is reasonably possible.
142. There is still a lack of clarity as to the basis upon which tax is payable (or not payable as
the case may be) under the various schemes. It is not possible to reach conclusions about
equality of treatment as between applicants to the 3 schemes (especially in relation to
liability for or exemption from income tax on compensation payments) without receiving
evidence as to how, in practice, this issue is determined under the schemes. While the
letter of 19 June 2023 from the recognised legal representative of DBT to me goes some
way to re-assuring me that the applicants to the various schemes will be treated equally
and fairly I am not yet convinced that is so.
143. Accordingly, I recommend:
« Recommendation 6: DBT shall publish in as much detail as it reasonably can and
as soon as it reasonably can, its proposals for ensuring that applicants to all
schemes are treated equally and fairly so far as their liability to or exemption from
income tax, capital gains tax and inheritance tax is concerned as the same relates
to compensation payments under each scheme.
144. On any reasonable view, there is a clear and real risk that final compensation payments
under GLOS will not be delivered to each applicant by 7 August 2024. Despite the well-
expressed intentions of DBT to make all payments of compensation by that date, that must
be so. Indeed my current, strongly held view, is that the scheme administrators will be
unable to deliver compensation payments to all applicants to GLOS by 7 August 2024. I do
not consider that recommending the publication of a timetable for completing the making
of payments under the scheme will achieve its intended purpose of ensuring that all
payments are made and that they are all full and fair. Further, there is no reasoned
justification for limiting the time available for making compensation payments under to
GLOS to 7 August 2024. That date represents an entirely artificial cut-off point. Accordingly,
I recommend:
33
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
e Recommendation 7: HM Government shall bring forward and use its best
endeavours to ensure that legislation is enacted so as to allow payments of
compensation under GLOS to be made to applicants after 12 midnight on 7 August
2024 if that proves to be necessary.
145. I accept the view of the Post office and DBT that there must be an endpoint after which no
further applications for compensation to HSS should be entertained. Accordingly, I
recommend:
e Recommendation 8: No applications for compensation to HSS shall be entertained
after such date as shall be agreed by the Minister/ DBT, the Post Office and the
Horizon Compensation Advisory Board.
146. In my view, the applicants to the 3 schemes who are pursing compensation for being made
bankrupt are very likely to benefit from an early neutral evaluation of the likely awards of
compensation for non-pecuniary loss. I base that view primarily on the largely successful
outcome of the early neutral evaluation undertaken by Lord Dyson in relation to non-
pecuniary compensation for malicious prosecution. It also seems inherently probable that
an early neutral evaluation would prove to be successful if undertaken by a distinguished
lawyer who would inspire confidence on the part of both the Post Office and DBT on the
one hand and those seeking compensation on the other. I appreciate, however, that this
issue was not addressed by anyone at the hearing on 27 April 2023 apart from Mr Moloney
KC and that, in those circumstances it may be thought precipitous to make a specific
recommendation in relation to his suggestion. That said the suggestion clearly requires
proper consideration in early course by all concerned including the Horizon Compensation
Advisory Board.
147. The criticisms which I make in the Progress Update and the January Statement of the
delays which have occurred in the administration of the schemes for delivering
compensation remain justified. My definitive view upon whether the schemes have
delivered compensation which is full and fair must await my investigation under Phase 5 of
the Inquiry.
Sir Wyn Williams
17 July 2023
34
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Appendices
35
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Appendix 1: Letter from Victoria Atkins MP to the Inquiry Chair, dated 29 June 2023
HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ
Sir Wyn Williams 29 June 2023
Dear Sir Wyn,
I am writing to notify you that the Government has today published a Written
Ministerial Statement outlining its intention to take action to exempt compensation for
postmasters from inheritance tax (IHT).
{am aware that the Post Office Horizon scandal has had a devastating impact on the
lives of many postmasters since it began over 20 years ago. The Government is deeply
concerned about ensuring the fair treatment of this group. The tax treatment of
payments made under the Horizon Shortfall Scheme (HSS) and the Group Litigation
Order (GLO) scheme is of vital importance to ensure fair compensation, and a key part
of this is the consistency of such treatment with other historic compensation schemes,
and the principles behind such decisions.
The Government has already announced its decision that payments made under the
GLO scheme and payments to postmasters with overturned convictions will not be
liable for Income Tax and that top-up payments will be made to ensure that the
compensation of those on the HSS is not unduly reduced by tax.
‘As the Government has stated previously in correspondence to your inquiry, payments
made to victims under the HSS and the GLO scheme are designed to compensate
primarily for financial losses rather than non-pecuniary damages, unlike those made to
postmasters with overturned convictions. Historically, IHT exemptions have not been
provided for schemes of this nature where they are designed to put individuals back
into the financial position they would have been otherwise.
However, the Government recognises the egregious nature of the Post Office Horizon
scandal and the impact on those affected by it. We have also taken note of the
discussion at the Horizon Inquiry’s recent hearing on compensation. The Government is
therefore announcing today that it will not collect any IHT that may arise in relation to
payments made to victims under the HSS and the GLO scheme. This exemption
recognises the unusual nature of the HSS and GLO scheme.
The Government will legislate to exempt these payments from IHT in due course, but to
ensure that recipients have certainty over their tax position prior to legislation being
introduced, from today HM Revenue and Customs (HMRC) will not collect any IHT in
relation to payments made up to the date the legislation comes into force. Any IHT paid
by the personal representatives of estates who did not previously qualify for relief from
IHT on HSS and GLO scheme payments will now be entitled to a refund from HMRC.
36
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
We are grateful for your continued engagement in these issues and for your leadership
of the crucial work being undertaken by the Horizon IT Inquiry.
Yours sincerely,
[GRO]
VICTORIA ATKINS MP
37
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Appendix 2: Terms of Reference for Horizon Compensation Advisory Board
8
Department for
Business & Trade
Terms of reference for Horizon Compensation Advisory
Board
1. The Board's aim is to help DBT to ensure fair and prompt compensation to postmasters
affected by the Horizon scandal and related issues.
2. Itwill advise DBT ministers on how best to manage the delivery of the GLO Compensation
Scheme announced in December 2022, with the aim of ensuring that it:
provides fair compensation to GLO postmasters;
does so promptly — and certainly before the deadline of August 2024; and
does so consistently with the expectations of Parliament that public money is.
spent in line with the Accounting Officer’s duties
3. It will advise DBT ministers in respect of DBT’s oversight of other strands of Horizon-
related compensation by the Post Office, including the Historical Shortfall Scheme,
arrangements for compensation in respect of overtumed historic convictions and
compensation for postmaster detriment.
4. The Board will not consider individual cases for compensation.
5. The Board should:
be provided by DBT with information it requests as necessary to discharge
its functions;
review regular reports from DBT on the overall progress of cases within the
various strands of compensation;
regularly review an issues list setting out unresolved policy or process
questions (notably those relating to the maintenance of faimess between
postmasters in different compensation strands) and a timeline for their
resolution;
consider such issues in accordance with that timeline;
be consulted on guidance or equivalent documents relating to the various
strands of compensation, and any subsequent changes to them;
monitor the overall progress of all compensation strands, ensuring that
processes are working well and identifying any blockages; and
provide updates to the Accounting Officer and/or Minister if it believes that
to be necessary.
6. Its membership will comprise:
Professor Christopher Hodges (Chair), Emeritus Professor of Justice
Systems at the University of Oxford and an expert in Alternative Dispute
Resolution;
Lord Arbuthnot and Rt Hon Kevan Jones MP, Parliamentary campaigners in
support of postmasters; and
Professor Richard Moorhead, Professor of Law and Professional Ethics
leading the University of Exeter's Post Office Project
7. DBT officials will attend as observers.
8. DBT Ministers will revise these terms of reference as they see necessary.
38
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Appendix 3: Horizon Compensation Advisory Board Report of fourth meeting: 29 March, 21 April 2023
#8
Department for
Business & Trade
Horizon Compensation Advisory Board
Report of fourth meeting: part I, held on 29 March 2023
Members present: Lord Arbuthnot; Kevan Jones MP; Prof. Richard Moorhead.
Apologies: Prof. Christopher Hodges (Chair)
Also present: Rob Brightwell; Eleanor Brooks; Eleri Wones; Elena Michael (all DBT).
Development of bandings for GLO scheme
1. The minister had asked the Board to consider recent public comments about the bandings for
awards set out in the scheme’s Principles and Guidance in respect of issues such as reputational
damage.
2. DBT described the way in which bandings for selected heads of loss in the Principles and
Guidance had been prepared. Freeths, as part of their contract with the Department, had been
asked to identify and give anonymised details of ‘moderate’, “serious” and “severe” cases which
could serve as benchmarks for the GLO scheme. The Department's lawyers had developed an
upper and lower figure for the cases described for each band based on awards made to claimants
by the Independent Panel for the HSS: those awards had in turn been based on legal principles
and the Independent Panel's obligation to secure fair settlements. Given the pace at which the
scheme had been developed, there had not been time to consult claimants’ lawyers on the figures
attached to each band.
3. DBT noted that those figures were advisory and did not impose limits on compensation. The
guidance required that each case should be considered on the basis of its individual facts. The
independent Panel would be under an obligation to secure fair settlements. Board members
pointed out that the guidance did not make these points sufficiently clear. They were concerned
that claimants and their lawyers might be inhibited from making full claims, and that the Panel
might not be clear about the flexibility available to it. They were also concerned about the way in
which the figures had been derived, and wanted more information.
4. In the light of the Board's discussion it was agreed that DBT would provide further information
about the way in which the figures had been set. Board members would speak to lawyers
representing claimants in the GLO and HSS schemes. The meeting would reconvene when this
additional information was available.
Report of fourth meeting: part Il, held on 21 April 2023
Members present: Prof. Christopher Hodges (Chair); Lord Arbuthnot; Kevan Jones MP; Prof.
Richard Moorhead.
Also present: Carl Creswell; Rob Brightwell; Beth White; Eleri Wones; Joshua Scott (all DBT).
5. The Board reconvened to discuss additional information provided by DBT and the results of
Board members’ discussions with claimants’ lawyers.
6. The Board agreed to recommend to Minister Hollinrake that the scheme's Guidance and
Principles should be revised to make clear that:
. the bands were not limits but indicative guidance to claimants, their lawyers and the
Independent Panel
. each case would be decided on its merits
39
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
. the figures for each band were derived from decisions made by the HSS
Independent Panel on HSS cases where there was good reason to expect cases were
generally less serious. The more serious cases were likely to still be going through dispute
resolution. The GLO Compensation Scheme expects to find some cases where the facts of
the case would demand awards significantly higher than the upper figure for the top band.
: if a claimant's compensation cannot be agreed through the Alternative Dispute
Resolution process, they have the right to have it considered by the Independent Panel
including a KC and other experts
. as for other aspects of compensation, where the Principles and Guidance set out
bands, decisions would be taken by the Independent Panel based on the facts of each case
looked at “in the round” and guided by considerations of fairness
7. Board members wanted to understand the legal rationale and case law on which they had been
based as they were aware of case law which might suggest significantly higher indicators, such as
serious defamation cases. The Board therefore agreed to hold discussions with members of the
HSS Independent Panel with a view to confirming the way in which the figures had been devised
and used; and securing greater transparency about those issues.
GLO project review
8. DBT presented progress on the GLO scheme.
9. They reported that the Post Office was recruiting additional staff to ensure that information
relevant to GLO claimants was disclosed as quickly as possible. There was no issue about
meeting the costs of this work but the pool of people with the necessary skills was limited. The
Post Office would deal with cases in the order requested by the scheme — and, in practice,
determined by claimants’ lawyers — so that complex claims could be submitted without delay. DBT
had commissioned the development of a timeline for the whole scheme. This would be discussed
with claimants’ lawyers and reported to the next meeting.
10. Dentons and Addieshaw Goddard were both now firmly in place as claims facilitators and legal
advisors to DBT respectively. DBT was working with them to develop processes and governance
so that claims could be dealt with fairly and quickly.
Revised terms of reference
11. The Board welcomed the expansion of its Terms of Reference to cover DBT’s oversight of the
compensation schemes being delivered by the Post Office. [Note: these are being published in
parallel with this report].
Controls to assure fairness between schemes
The Board noted the arrangements which DBT had in place to ensure that claimants were treated
in a similar way no matter which scheme applied to them. These included a new Programme Board
of officials focussed on ensuring fairness across schemes.
40
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Appendix 4: Horizon Compensation Advisory Board Report of fifth meeting: 14 June 2023
Ls
Department for
Business & Trade
Horizon Compensation Advisory Board
Report of fifth meeting held on 14 June 2023
Members present: Prof. Christopher Hodges (Chair); Lord Arbuthnot; Kevan Jones MP;
Prof. Richard Moorhead.
Also present: Carl Creswell; Rob Brightwell; Eleanor Brooks; Beth White; Eleri Wones (first
part of meeting) (all DBT).
Fairness of the HSS
1. The Advisory Board agreed that
* Fair compensation should be delivered that puts victims in the position that they would have
been in if the scandal had not occurred and properly reflects the significant harms that had
been visited on their lives and reputations.
* Legal or other related costs should be reimbursed in full, so that compensation payments
were fully compensatory.
2. It recognised that Government already subscribed to those principles. Its concern was that they
should be effectively implemented, and that postmasters and others should have confidence
that they were being applied fairly. Officials informed the Board that Ministers would shortly be
announcing their intention to fund top-ups to HSS payments to address the issue relating to
tax. [Post-meeting note: announcement to Parliament is here}.
3. The Board noted that offers had been made to 99.3% of post masters who had originally
claimed under the HSS, and that 82% of these offers had been accepted. However there had
been public comment about the outcomes and handling of a number of cases perceived to
have been unfair. Some of these had not yet completed the dispute resolution process within
the HSS.
4. The Board have had a discussion with KCs from the HSS Independent Panel. The KCs had
explained that the Panel had adopted a practice of ‘acting as advocates for claimants’ where it
could see matters within a claim that were not addressed in the options presented by HSF,
rather than as wholly disinterested arbiters, and had adopted a presumption in favour of
applicants if there was a shortfall and no other explanation.
5. The Advisory Board believed that the Panel had been guided by principles of independence
and professionalism, and by legal precedent so as to seek consistency between awards, in
reaching decisions in individual cases.
6. The Board noted the difference in process between the HSS and GLO schemes. Under the
HSS, the independent Panel recommended an offer. If the offer was not accepted there was a
dispute resolution process managed by the Post Office, including referral back to the
Independent Panel and then with independent mediation as a final stage. By contrast in the
GLO scheme an initial offer was made by DBT followed, if necessary, by independently
facilitated discussions. Only if these did not produce agreement was a case referred to an
independent Panel. There was provision for review by a senior legal figure in the event of
manifest error or irregularity. A broadly similar sequence was being envisaged for the new
arrangements for compensation for overturned convictions.
7. The Board also noted the different remuneration arrangements for representation and the very
high levels of cases without representation in the HSS scheme.
41
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
8. In the Board's view, having an independent Panel (and, if necessary, the Reviewer) in place at
the end of the process to make final decisions on individual claims increased the trust which
could be placed in the final settlement.
9. The Board noted that given the history of mistrust in the Horizon scandal born of adversarial
litigation, many postmasters would lack confidence in the fairness of any compensation
delivered under the auspices of the Post Office or its legal advisors. They also noted concems
about the administration of HSS, including issues in respect of the application form.
10. They concluded that if the Scheme was to be seen to be fair, individuals who were unhappy
about the settlements which they had received needed to have recourse to an assessment
which was wholly independent of the Post Office. This should come at the end of the process,
‘on similar lines to the role of the GLO Independent Panel. They recommended that the
Minister should consider how such an appeal process could be introduced. It should
focus on assessing whether settlements were fair based on the evidence provided,
whilst allowing consideration of elements of a claim which had been missed or not
included on the original form.
11. The Panel discussed the differences in the extent and timing of legal advice in the schemes,
which tended to suggest there may be merit in the concerns that unrepresented claimants have
been disadvantaged under the HSS scheme. The Board noted that the HSS had been
established under schedule 6 of the agreement between the Post Office and JFSA which had
settled the GLO case. DBT's understanding was that, in the light of their members’ difficult
experiences in the High Court and elsewhere, the JFSA had argued for a process which did not
expect postmasters to take legal advice in making applications. The Post Office had, however,
provided support with the costs of legal advice to help claimants consider compensation offers.
The HSS Panellists had also explained that they took the approach of scrutinising HSS.
applications with a view to identifying any heads of loss that had not been explicitly included.
Nonetheless, claimants’ lawyers had suggested that claimants who were unrepresented may
have received smaller awards than those who had engaged legal advice.
12. The Board noted that many of the concerns about the fairness of settlements related to the
overall treatment of individual postmasters by the Post Office over many years. They noted that
the HSS had paid careful attention to legal principles and precedents in respect of loss of
reputation, stigma, distress and inconvenience and related heads of loss, but that this had led
to potential differences between different claimant groups. However they believed that the facts
of some Horizon cases went beyond those of precedents, for instance in respect of damage to
reputation irrespective of prosecution given the impact of any branch intervention or civil action,
the prominence within the community of many postmasters, the length of time during which the
individual suffered damage, and the consequences for family members and family unity. If such
cases were decided by the Courts, there were good reasons for thinking that judges may well
create new, more generous precedents, especially given the egregious and bullying behaviour
of the Post Office during the course of the scandal — behaviour whose impact was increased by
virtue of the Post Office's credibility as a Government-owned organisation. They were also
concerned that the operation of some rules of thumb in the scheme (such as the 26 month
guideline on termination and the starting points for assessing reputational harm) risked
unfairness to some claimants.
13. The Board was therefore not convinced that the application of existing principles and
precedents would lead to consistently fair results. They noted that postmasters who had been
prosecuted by the Post Office would receive exemplary damages. Whilst such damages were
intended to punish the Post Office, they also had the effect of acknowledging the sustained
personal impact which its actions had had on individuals. They recommended that the
appeal process recommended above should put particular weight on securing a fair
outcome in respect of the issues described in the preceding paragraphs.
42
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Overturned convictions
14. The Board noted that of about 900 people prosecuted by the Post Office in 2000-2015, to date
only 86 convictions had been overturned. More were in the process of appealing and the Post
Office had recently written to a further group to indicate that it would not oppose their appeals.
15. In the Board's view, postmasters would inevitably distrust any action of the Post Office or its
advisors in reviewing cases, even if this were done with the utmost professionalism.
16. The Board believed that the criteria set by the Court of Appeal for Horizon cases were too tight,
and that a significant number of miscarriages of justice could be outstanding. They also
believed that the Court of Appeal’s judgment was based on a limited understanding of the
extent of problems with financial systems in the Post Office and with the extent of wrongdoing
lying behind the “affront to public justice” finding. This led to a much wider and higher level of
concern about Post Office prosecutions (and their review) with a number of critical documents
not apparently disclosed and available to the Court.
17. The Board recognised that Government cannot challenge the decisions of the Courts. They
agreed that their Chair should write to the CCRC and its equivalents in other nations to
strongly encourage it to propose a wider set of criteria in the light of the full range of
cases prosecuted by or on behalf of the Post Office.
18. They also agreed to recommend that the Minister should
a. consider whether the Government or Post Office could do more to encourage
postmasters to appeal their convictions;
b. arrange that a review of all Horizon prosecutions be undertaken, by a team
independent of the Post Office and without any prior involvement, to identify
appeals that should be reviewed as unsafe, based on a presumption of
innocence; and
¢. encourage the Post Office, when considering which potential appeals meet the
Court of Appeal’s criteria, to only resist appeals in which there remained
substantial evidence wholly free of taint.
19. They agreed to look further at the issue of cases not yet appealed.
43
INQ00002027
INQ00002027
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
Appendix 5: Letter from DBT legal representative to Inquiry Chair, dated 19 June 2023
a
Government
Legal Department
Litigation Group
‘Sir Wyn Williams 102 Petty France
Post Office Horizon IT inquiry Westminster
PO Box: Post Office Horizon inquiry London
Sth Floor ‘SW1H 9GL
Aldwych House, 71-91 Aldwych
London DX 123243, Westminster 12. www.gov.ukigid
WC2B 4HN
By email only to:
SolicitorfGRO}
[GRO]
Our ref: —22013328/PBJ/JD3
19 June 2023
Dear Sir Wyn
Horizon IT inquiry - tax treatment of Historical Shortfall and Group Litigation Schemes
‘At the compensation hearing on 27 April, DBT's Counsel provided an update to the Inquiry on the tax issue that
has arisen on the Historical Shortfall Scheme, noting that the Department would shortly bring forward details on
its plans to provide Post Office with funding to make additional payments to ensure that compensation is not
unduly lost to tax.
‘The Department has today published a Written Ministerial Statement outl
statements.parliament.uk/written-statements/detail/2023-06-19/hows860.
ig these plans ~ https://questions-
Further to your request in the hearing that it would be helpful to receive a written summary of what the
Department is seeking to achieve in relation to these steps on compensation taxation, the Department has
provided the following details:
The Department is announcing on 19 June 2023 that it will provide an estimated £26m of funding to
make additional payments to post masters in the Historical Shortfall Scheme to ensure that
compensation is not unduly lost to tax.
To calculate top-up payments for tax precisely would require specific information from postmasters on
both their current and previous eamings. The Department's view is that this would be an arduous and
lengthy process to administer and more importantly, arduous for postmasters to engage with.
Top-up payments will therefore be calculated so that no postmaster pays more than the basic rate of
tax on their compensation. This is in line with the intention to restore the postmaster to the position they
‘would have been in if they had kept their jobs and received remuneration and paid tax in the normal
way. It will be assumed that the taxable elements of the compensation will be subject to the additional
rate of tax (45% in England, Wales and Northern Ireland, 47% in Scotland). The top up payment will
Gary Howard - Head of Division
Fiona Montgomerie - Deputy Director, Team Leader Planning, Infrastructure & Environment
44
The Post Office Horizon IT Inquiry: First Interim Report: Compensation — 17 July 2023
INQ00002027
INQ00002027
then be for the difference between the compensation taxed at the additional rate and the compensation
taxed at the basic rate. These additional payments will be exempt from Income Tax, Capital Gains Tax
and National Insurance contributions.
For example, if the taxable amount of compensation was £100,000, Post Office will assume that, due to
the postmaster’s other earings, this will be taxed at 45%. Our intention is for the recipient to be treated
as if they were taxed at the basic rate (20%). The top up would therefore be for £25,000 - the difference
between £45,000 of assumed income tax and £20,000 of income tax. This example is for illustrative
purposes and does not account for any allowances that the postmaster may have, including the
termination allowance.
Further to this, for taxable interest applied to non-taxable heads of loss (e.g. Horizon shortfalls), a
different approach will be taken. We don't think itis right that this element of compensation should be
taxed and therefore we will issue a top up payment which will cover any subsequent tax bill to the
postmaster. Top ups will be calculated to account for the difference between the additional rate of tax
and 0% to mitigate the impact of tax entirely. In the above example, this would mean a £45,000 top-up
(assuming all the £100,000 is interest on non-taxable heads of loss). This is consistent with the OHC
and GLO, where the tax exemption means that interest applied to non-taxable heads of loss is also
exempt from Income Tax, Capital Gains Tax and National Insurance contributions.
In practice, postmasters are unlikely to be paying tax on all compensation received at the additional
rate, so the top-ups will more than cover the impact of any losses to tax. However, this approach is the
most proportionate in the context, where postmasters have already faced long delays in receiving the
compensation due and where imposing an additional burden to the postmasters to provide further tax
information is undesirable.
Every postmaster enrolled in the scheme will benefit from the additional payments. The Department
continues to seek fair treatment for those affected across the various post office schemes, including
corporate entities.
Additionally, all claimants involved in the scheme will be able to access funding for independent tax
advice of up to £300 to support them in filing their tax returns.
‘Should further detail of the relationship between taxation and compensation be helpful, the Department would
be happy to provide this.
Yours sincerely
[GRO]
Peter Johnson
For the Treasury Solicitor
D [GRO]
E [GRO]
45