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Department for Business, Energy &
Industrial Strategy
1 Victoria Street,
To the Board of Directors London SW1H_OET.
Post Office Limited
20 Finsbury Street
LONDON
EC2Y 9AQ
11 March 2021
Dear Sirs,
FUNDING COMMITMENT LETTER- IN CONFIDENCE
This funding commitment letter confirms that the Department for Business, Energy and Industrial
Strategy (BEIS) will provide funding for settlement costs as per the Funding Structure set out below
only in relation to and in accordance with the Historical Shortfall Scheme (the “HSS”) that Post
Office Limited (the “Company”) is operating to address historical shortfalls and related losses
incurred by postmasters.
Background:
The Company has informed its auditors and BEIS that its best estimate of the likely total of
settlement claims under the HSS will result in it making a provision in its 2019/20 accounts of
£153m. In recognition of the uncertainty around this figure, the Company has informed its auditors
and BEIS that alongside this provision, a disclosure note will be included in its accounts stating
that the liability might be as high as £320m but that this is currently not deemed to be the likely
outcome. The Company has informed BEIS that while it can fund all its expected legal and
programme costs associated with the HSS, it cannot afford to fund the total amount of settlement
claims above its originally forecasted amount of £35m plus its Net Telecoms Proceeds.
The calculation formula for the Net Telecoms Proceeds will be agreed between BEIS and the
Company in a separate document to follow the issuance of this Funding Commitment Letter.
Funding Structure:
It is therefore agreed as follows:
BEIS must approve the commencement of payments to claimants under the HSS, including but not
limited to the “escalation” and “de minimis” payments which have previously been discussed and
agreed between the Company and UKGI.
The Company will allocate funds including the Net Telecoms Proceeds to the settlement costs of
the HSS as follows:
« The Company will pay the first £35m of HSS settlement costs from its own funds.
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e The Company will utilise the Net Telecoms Proceeds in full.
The Company will provide BEIS with evidence that it has funded both the first £35m of HSS
settlement costs and fully utilised the Net Telecoms Proceeds for HSS settlement costs before
calling on the BEIS funding commitment.
BEIS will fund 100% of the remaining HSS settlement costs, until 31 March 2023, subject to a
maximum aggregate of funding of £285m minus the Net Telecoms Proceeds. As stated above,
BEIS notes that the Company has made a provision of £153m for the HSS which represents the
Company's best estimate of the expected cost in the face of uncertainty. BEIS expects the
Company to put in place rigorous monitoring and forecasting so that any potential increase in the
expected cost of the HSS beyond the Company’s existing provision is identified early and is
explained and notified to BEIS in a timely manner.
BEIS has provided this funding to the Company so that the HSS is able to deliver on its objectives
to pay eligible postmasters fair compensation whilst protecting the interests of taxpayers.
On the earlier of: (i) the date on which all claims raised under the HSS have been settled (including
for the avoidance of doubt under any alternative or replacement scheme) and (ii) 31 March 2023,
the Company will provide BEIS with evidence of the amount of Net Telecoms Proceeds remaining.
If the Company retains any Net Telecoms Proceeds on the earlier of these dates and if there are
no remaining HSS settlement costs payable by the Company, it will promptly reimburse BEIS in
respect of any HSS settlement costs funded up to an amount equal to 75% of any remaining Net
Telecoms Proceeds (e.g. through the early repayment of any outstanding borrowings by the
Company from BEIS). In such an event the Company will retain the remaining 25% of Net Telecoms
Proceeds.
Governance and controls:
BEIS will not fund amounts:
¢ paid to a claimant in accordance with the HSS which exceed the aggregate of (i) the amount
determined by the HSS process set out in the HSS Operations Agreement made between
the Company and BEIS dated 25 February 2021 (as amended from time to time) and (ii)
any contribution for the claimant's legal costs due in accordance with the HSS Terms of
Reference dated 9 September 2020 (as amended from time to time); or
e where, in the sole opinion of BEIS (acting reasonably) the determination of the Independent
Panel (as defined in the HSS Operations Agreement) is so unreasonable or irrational that
no panel acting reasonably could have made it and BEIS instructs the Company to object
to the determination of the Independent Panel on that basis.
Payments from BEIS to the Company will be made monthly, based on forecasts of payments to be
made by the Company and provided to BEIS. This, along with other governance and controls
arrangements, is detailed in the HSS Operations Agreement.
Any funding provided by BEIS to the Company is subject to meeting the arrangements in the HSS
Operations Agreement and BEIS reserves the right to withdraw this funding commitment if the
Company fails to meet any of the conditions (as determined by BEIS acting reasonably) set out in
the HSS Operations Agreement.
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--Yours.sincerely,
Finance Director
Tom Taylor
We acknowledge and agree to this funding commitment letter
For and on behalf of Post Office Limited
Position: CFO
Name: Alisdair Cameron
Date: 18 March 2021
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DocuSign Envelope ID: 37C6AF13-9F 1D-44F2-A183-7F1A1D533534