UKGI00037433
UKGI00037433
Bog ae
UK Government OFFICIAL-SENSITIVE Department for
usiness, Energy
Investments & Industrial Strategy
Date: X March 2021
Director General: Charles Donald
Lead Official: Joshua Scot
Lead Official Telephone:!
Recipient [__To Note / Comment To Approve / Decide
Minister Scull x
Permanent Secretary x
Special Advisers x
Post Office Ltd. Historical Shortfall Scheme — Response to HMT Approval and
Payment of De Minimis Claims
Summary
4. HMT have approved the business case for the Post Office Ltd. (POL) Historical
Shortfall Scheme (the “Scheme”), subject to a number of manageable conditions,
and is content for BEIS to provide a guarantee to POL of funding up to £285m to
support the Scheme.
2. One of the conditions is for the BEIS Accounting Officer to provide certain~ (Formatted: List Paragraph )
assurances on the controls in place around value for money, fraudulent and invalid
claims.to-HMT. A draft of the letter in response to this can be seen at Annex A for east [CA-U1]}: Flexible over what is included here but I
}
your approval. should givea flavour of what HMT is asking for in the summary
~~ (Formatted: Font: (Default) Arial
3. POL are keen to make the first settlement offers under the Scheme now that HMT
have provided assurances about the funds. The first offers concern a category of = [CA-U2}: They haven't actually provided the funds,
claims termed ‘de minimis’, i.e. under £8,000. The despatch of offers in respect of pps ceSeees BEE Es Seto
the quantified claims within this category and the approach to the unquantified
claims have been approved by the BEIS Scheme Steering Committee ("SteerCo”).
Given that these are the first settlement offers to flow from the Scheme officials are
seeking your approval now that funding has been approved by HMT.
Timing
4. To clear by 5 March. POL are keen to issue settlement offers w/c 8 March (ahead
of a preliminary hearing for a Judicial Review application regarding the Scheme).
Recommendations
5. That you approve the draft AO assurance letter for HMT regarding the Scheme;
6. That you approve the issuance of the first batch of quantified de minimis
settlement offers (306 claims for £1.3m).
7. That you note the approach for the remaining unquantified de minimis claims and
delegate the approval of these to SteerCo (177 claims for c. £824«823k).
Advice
Background
8.-On 26 February the Chief Secretary to the Treasury (CST) provided his approval for- Formatted: Justied )
BEIS to provide a guarantee to POL of funding up to a total of £285m if needed,
1
UKGI00037433
UKG100037433
Bog ae
UK Government OFFICIAL-SENSITIVE Department for
usiness, Energy
Investments & Industrial Strategy
subject to a set of conditions (Annex B) which officials believe are manageable. on
the-condition that further funding te-will-be-subject-to-review-by-HMT-officiak
" ith, ber-of-ethi ditions
Suerionenea
geable- Most have-been addressed through bringing. HMT-formally onto the
‘SteerCo andthe workis p-that supports it.
8. _ Formatted: Justified, Numbered + Level: 1 + Numbering
= a Style: 1, 2, 3, . + Start at: 1 + Alignment: Left + Aligned at:
9. On 22 February HMT disclosed AIE cover via Supplementary Estimates should« > -2o™*Tebatet: 068 em *Inéentot 068 em
BEIS be required 's to make a £285m provision to cover this funding however it was [roman tor 6 on Ne Ries ore }
not specified that this was for POL or the Scheme. Conmeted [Ch US]: Bio aly mie eosin]
. ° (Formatted: Justified )
410. In November Post Office wrote to BEIS to request consent to start making a number _
(eam [CA-U4]; Feels like this and para 1 can be scaled ]
tack
of payments for shortfall claims only under a de minimis threshold of £8k (excluding
interest) ie. to pay out eligible claims under this threshold without further
investigation as it would be a disproportionate effort and cost to investigate. The
approach has the approval of the POL Board and the Scheme’s Independent
Advisory Panel. At the time, BEIS approval was withheld as there were a number of
outstanding issues, particularly regarding the setting of certain precedents, the
treatment of partially quantified claims and the lack of approved funding from HMG.
‘Commented [CA-US]: We say in para 11 that interest is included.
If November's request is relevant, can we clarify why we're now
paying interest, It confused me so may confuse others
1
. In the de minimis cohort there are 306 quantified claims totalling £1.3m (incl. £450k
compound interest) that are ‘Panel-ready’. There are a further 177 likely de minimis
claims where no total claim figure is given which POL estimate will total £824«-823_
(incl. interest). The funding for these claims would come from POL's budget. A full
breakdown can be seen at Annex C.
—{ Commented [WB(BSR&PD6]: Would recommend keeping
‘these paras inthe relevant section below. I became confused by Para,
10 sit suddenly changed subject from the ones above.
HMT Approval and AO Letter
12. HMT’s approval for the HSS comes with conditions (Annex B), including that further
funding requests will be subject to review by HMT officials and CST approval. The
approval stated that HMT expects POL and BEIS to fund Scheme claims from other
budgets and underspends before any reserve claim is considered, with the level of
any claim to be agreed at Supplementary Estimates. It also came with a number of
other conditions Most have been addressed through bringing HMT formally onto the
SteerCo and the working group that supports it. The financial implications of the
remaining conditions, particularly on budget implications for 2022/23, can be seen
in para oil
+ -{ Formatted: Indent: Left: 0.63 om, No bullets or numbering)
ith be
42-HMT
ento-the-Sk
wt ip that supp
13. One of the conditions of HMT's approval -is for you to provide certain assurances to
HMT on the controls in place around value for money, fraudulent and invalid claims ‘(Commented [CA-U7]: Comment a per summary )
te-HMT. A draft of the letter in response to this can be seen at Annex A. It is drafted
in the context of the activities officials have undertaken to date and controls we have
put in place to assist POL isn ensuring the Scheme delivers its objectives — to pay Commented [CA-U8]: Can we try not to say ensure? This will
postmasters with eligible claims fair compensation whilst not spending more "vs estwel wears more minimising rss Say ths word
2
UKGI00037433
UKGI00037433
Ed ced
UK Government OFFICIAL-SENSITIVE Department for
usiness, Energy
Investments & Industrial Strategy
taxpayer money than we need to. The letter recognises that a number of areas (e.g.
VIM) need to be monitored throughout. Perm Sec — are you content with the AO
letter at Annex A and for it to be issued to HMT?
44.The-fi _inaplicati of-th nditions,—_particular! budget
lications for 2022/23 be
pt pat
Payment of Quantified De Minimis Claims
45.14. Officials have undertaken a significant amount of work to address the concems
we raised in December. This has included responding to feedback from Nigel
Boardman and SteerCo.
46.15. Officials have sampled 65 of these claims (21%) and believe the approach being
taken by POL appears straightforward (e.g., in a claim expressed as “approximately
£x", £x is taken as the amount claimed, or a total is constructed from figures given)
and justifiable. In some instances where a range has been provided POL has treated
the claimed amount to be the top end of the range — officials have received written
confirmation that this approach will not set a precedent for claims outside the de (Gopnenedten vey Tr hs ouldanding? If so, flag Xl ® }
minimis cohort (which will be investigated by HSF in the normal way). ae
47.16. Officials are now comfortable that the offers to settle the fully quantified de
minimis shortfall claims on the basis of an application of 3.45% compound interest
will set a precedent for all shortfall claims, as will Post Office's offer to pay a fixed
contribution to a claimant's legal fees. SteerCo’s concem that the approach to
interest should be fair, considering the significant drop in rates following the 2008/9
Financial Crisis, prompted analysis which showed that the 3.45% flat rate was more
generous to both cohorts (pre and post 2009) than 1% above prevailing rates, given
the cumulative effect of the very low interest rates post 2009. Moreover, in our view,
as the application of a 3.45% rate has been published, a change now to a percentage
over prevailing rates could attract challenge and public criticism.
48.17. SteerCo has approved the issuance of offers in settlement of the fully quantified
claims and, given that these will be the first payments to be issued and the high-
profile nature of the scheme, we are now seeking your approval. Should BEIS
approval be given, these claims will be put to the Independent Panel. This would
enable Post Office to make offers to settle 306 claims (12% of the c. 2,450 total
claims received). Perm Sec — do you approve the issuance of the first batch of
quantified de minimis settlement offers?
Approach to Unquantified De Minimis Claims
49-18. There is a cohort of 177 likely de minimis claims where no total claim figure is
given which POL estimate will total approx. £8234k (incl. interest). POL will contact
these claimants to attempt to get to quantified numbers so the claim can be put to
the Panel as above. Officials will also sample these claims.
20.19. Those that POL cannot quantify will be taken out of the de minimis cohort and, if
eligible, will be submitted to the Panel later. Again, we will review a sample of these
claims before they are put to the Panel. SteerCo has agreed this approach.
Ed ced
UK Government OFFICIAL-SENSITIVE Department for
usiness, Energy
Investments & Industrial Strategy
24.20. We do not envisage the need to come to you for every batch of claims. With that
in mind, officials ask that you note the approach for the unquai
minimis claims and, if content, delegate the approval of these to SteerCo.
Financial Implications
22:21
Communications
23.22. Officials have prepared an Oral Ministerial Statement which notes that POL will
make the first offers to applicants shortly. Officials have also prepared appropriate
lines to respond to any media enquiries or Parliamentary Questions.
Contributors
24.23. This advice does not contain Parliamentary Handling considerations.
25.24. This advice has Communications considerations, as advised b
26.25. This advice has Financial considerations, as advised by
UKGI00037433
UKGI00037433
Ed ced
UKGI00037433
UKGI00037433
UK Government OFFICIAL-SENSITIVE Department for
usiness, Energy
Investments & Industrial Strategy
Annex A — Draft AO Assurance Letter for HMT
Dear Steve,
I write to you as the Principle Accounting Officer (PAO) for Post Office Ltd. (POL) in
response to the approval you have provided for BEIS to provide a guarantee to POL of
funding for its Historical Shortfall Scheme (‘the Scheme”) up to a total of £285m if
needed, on the condition that further funding requests will be subject to review by HMT
officials and your approval.
Firstly, I would like to thank you and your officials for the approval of this funding. The
‘Scheme was a key commitment made by POL in the December 2019 Group Litigation
settlement for postmasters outside of that claimant group to have their shortfalls in
Horizon investigated and recompensed if appropriate. The Scheme received an
unexpectedly high number of applications and is unaffordable for POL. Government
providing this funding will not only ensure the successful delivery of the Scheme, but
also protect the post office network as we know it today. This is a critical intervention
that benefits current and former postmasters and the millions of customers that rely on
their local post office branch.
In giving your approval you have asked me to provide assurances to HMT that I am
comfortable that sufficient controls are in place to ensure value for money, including in
relation to fraudulent and invalid claims. You have also asked for further assurance at
key stages on key parameters of the scheme — for example in the treatment of
precedent-setting cases and ensuring that precedents and guidelines are being
complied with.
I am confident that BEIS and UKGI officials have put in place a sufficient monitoring and
controls regime to ensure that cost and claim progress are tracked appropriately.
Officials were not involved in the detailed design of the Scheme that launched in May
2020, however a significant amount of work has been undertaken and agreed with POL
to ensure that claims are assessed thoroughly and fairly, whilst protecting the
independence of the Scheme's Independent Advisory Panel (“the Panel”) — this is
fundamental to ensure the credibility of the Scheme.
However, it is worth putting the applicants to the Scheme and their claims into context.
The claims stretch back over 20 years, some to 1999 when Horizon was first introduced,
and the documented evidence that would typically be required to prove such claims in
a court will not be available in many cases. The hardship that postmasters have gone
through as a result of the recovery of these shortfalls, as you are aware from the Group
Litigation, is well documented. POL has no desire to see postmasters put through further
court proceedings and this was the premise for the creation of the Scheme. Claims will
be assessed for eligibility against set criteria’ and POL’s external advisors will assess
each claim against legal principles before they are put to the Panel who will consider
the claim against both that assessment and in terms of what it believes would be fair in
the circumstances.
’ https://www.onepostoffice.co.uk/media/47798/historicalshortfallscheme_eligibilitycriteria_october-
2020.pdf
{ Commented [CA-U10}: Increase the likelibood or something like }
that
(Commented [CA-U14]: Do a CiriF on ensure. )
(Formatted: Highlight }
Ed ced
UK Government OFFICIAL-SENSITIVE Department for
Business, Energy
& Industrial Strategy
Investments
What my officials have put in place aims not to disrupt the above process, but rather
ensure BEIS and UKGI are involved appropriately at each step. This includes having
review and approval rights over the guidance used by case assessors, reviewing
precedent setting test cases and working with POL in developing and approving the
guidelines used by the Panel. [My officials had a productive meeting with the Panel on
4 March and intend to have a further discussion once it has developed its thinking
regarding the guidelines and test cases].
This process is managed by a working group within BEIS that supports a Steering
Committee (‘the SteerCo"). The SteerCo has been making steady progress and I am
pleased to welcome HMT as a formal member of both the SteerCo and working group.
Through the SteerCo, BEIS and HMT will have sufficient oversight of cost and Scheme
progress. [Attached for your information is the SteerCo Terms of Reference].
Whilst POL has provided BEIS with an initial estimate of £160m - £320m for settlement
costs pursuant to the Scheme, there are inherently a number of uncertainties that will
only be worked through once cases progress through the Scheme e.g. how the Panel
treats certain heads of loss. These decisions will impact on the final cost of delivering
the Scheme, which is not known today, but more accurate estimates will be determined
‘over the coming months as the Panel undertakes its work.
The funding BEIS has sought will cover the upper estimate of the possible cost, but we
will not spend more of taxpayer's money than is necessary to ensure the Scheme meets
its objectives. It is my expectation that the total spend on the Scheme will be lower than
this. POL has provided as accurate a cost estimate as possible based on the information
it currently has available and the SteerCo will use this, with updated information as the
‘Scheme progresses, to monitor, among other things, value for money for the taxpayer.
BEIS reserves the right to withdraw its support for the Scheme at any point. This
includes, but is not limited to, if BEIS considers the overall Scheme cost has or could
unreasonably increase above the estimated ranges (as updated from time to time), if
VfM can no longer be established or if there are serious operational issues with the
Scheme.
These governance arrangements have been assessed both within my department
through the BEIS Projects & Investment Committee and in HMT through a Treasury
Approval Point, both of which support the arrangements in place.
I hope you find this letter useful.
Yours sincerely,
UKGI00037433
UKGI00037433
(
Commented [53-U42}: To wise wih HMTateniance +)
f
Commented [CA-U13]: Add in the point about the quarterly
formal reviews to look at big picture points like this?
UKGI00037433
UKGI00037433
Ed ced
UK Government OFFICIAL-SENSITIVE Department for
usiness, Energy
Investments & Industrial Strategy
Annex B - HMT Conditions for Scheme Approval ee [CA-U14]; Rest to include the earlier lines in Eds ]
exmiltoo
1. POL will use any proceeds from the sale of its Telecoms business to fund HSS
claims, before HMT funding is used. POL and BEIS must also consider and
indicate whether there are any additional asset sales that could reasonably
contribute to HSS funding.
2. The BEIS AO must provide assurance to HMT that they are comfortable that
sufficient controls are in place to ensure value for money, including in relation to
fraudulent and invalid claims. They must provide further assurance at key stages
on key parameters of the scheme — for example in the treatment of precedent-
setting cases, and ensuring that precedents and guidelines are being complied
with.
3. The source of any funding in 2022/23 will be determined at the next Spending
Review.
4, HMT must approve the case assessor guidance, the Independent Panel ‘guiding
principles’, and the precedent-setting cases.
5. HMT representation on the Senior HMG Steering Committee and the HSS Working
Group.
6. BEIS will report monthly to HMT on the progress of the scheme.
7. BEIS must inform HMT as and when funding for HSS claims is transferred to POL.
8. All press and announcement materials related to the HSS must be cleared with
HMT.
ae
UK Government
Investments
OFFICIAL-SENSITIVE
Annex C — Breakdown of De Minimis Claims
Historical Matters Unit
bd
Department for
Business, Energy
& Industrial Strategy
Fully Quantified -Panel Ready
No. _IClaim Total I Interest Legal Total
<=8000 306 737,547 448,267 122,400 1,308,214
306 737,547 I 448,267 122,400 I _ 1,308,214
Other - Not Panel Ready
De Minimls No. Claim Total I Interest Legal Total
<=8000 177 468,036 284,463 70,800 823,299
177 468,036 284,463 70,800 823,299
Total
De Minimis No. Claim Total I Interest Legal Total
<=8000 483 I 1,205,583 732,730 193,200 2,131,513
483 I 1,205,583 I 732,730 193,200 I 2,131,513
UKGI00037433
UKG100037433