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Witness name: Gareth Davies
Statement No.: WITN11020200
Dated: 18 March 2024
POST OFFICE HORIZON IT INQUIRY
SECOND WITNESS STATEMENT OF GARETH DAVIES
INTRODUCTION
1. I Gareth Davies, Permanent Secretary of the Department for Business and
Trade, Old Admiralty Building, Admiralty Place, London SW1A 2DY, will state
as follows.
2. I make this statement in response to the Inquiry’s request for evidence dated 8
December 2023, in order to assist the Inquiry in relation to the role of the
Department for Business and Trade (“DBT” or “the department’) and its
predecessor departments in the Post Office’s corporate structure. It covers any
relevant changes since 1 June 2021. It is intended to complement, and should
be read alongside, my previous submission to the Inquiry dated 19 January
2024.
3. I make this statement on behalf of the department. I have been assisted in its
preparation by officials within my department, as well as the Government Legal
Department and counsel. The majority of the information set out in this
statement is not known to me personally, and I have therefore drawn and relied
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upon extensive input from colleagues. It is in that sense a ‘corporate statement’.
Its contents are true to the best of my knowledge and belief.
4. I am authorised by the Secretary of State for Business and Trade to make this
Statement.
CORPORATE STRUCTURE OF POL
5. As outlined previously, Post Office Limited (“POL”) separated from Royal Mail
Group plc on 1 April 2012 and since 12 June 2017 has not had a parent
company but has had the Secretary of State as its direct sole shareholder. The
Secretary of State for Business, Energy and Industrial Strategy (“BEIS”)
remained the sole shareholder of POL from 1 June 2021, as outlined at
paragraphs 9-12 and 18-20 of my previous statement, until 2 May 2023, when
the Department for Business and Trade was legally formed.
6. There was one change to the POL Articles of Association in this period. On 14
December 2022 Article 50 was amended [BEIS0000594] to read as follows:
“Subject to the Articles, including the requirement for Special
Shareholder consent as set out in clause 8.1(E), each of the non-
executive directors shall be paid a fee at such rate as may from time to
time be determined by the Board, provided that the aggregate of all fees
so paid to directors (excluding amounts payable under any other
provision of these Articles) shall not exceed £470,000 per annum.”
7. As can readily be seen, this related to a maximum cap on the remuneration of
non-executive directors on the POL Board and did not involve any changes to
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the Secretary of State’s rights or duties as Special Shareholder, nor any other
relevant governance changes for the purposes of the Inquiry.
8. On 3 May 2023, as part of wider changes in the Machinery of Government,
Government responsibility for the Post Office passed from BEIS to the
Department for Business and Trade (“DBT’).' The corporate and governance
structure of POL as outlined in my previous statement remained the same
throughout this change, save that the Secretary of State for Business and Trade
became the sole shareholder of POL. The Post Office Policy Team within BEIS
moved, unchanged, to DBT.
OVERSIGHT OF POL
9. As outlined previously at paragraph 27 of my first statement, the DBT Director
of Business Resilience oversees the Government's policy work related to POL
and is delegated Budget Holder for Post Office Investment, Funding and
Subsidy. The DBT Post Office Policy Team report to the Director. This remains
the structure to date and was not affected by the Machinery of Government
change.
10.DBT has continued to monitor POL’s performance through UK Government
Investments (“UKGI”), the Government's centre of excellence on corporate
governance and finance. A UKGI official is the Shareholder Representative on
2 article 12 the Secretaries of State for Energy Security and Net Zero, for Science, Innovation and Technology,
for Business and Trade, and for Culture, Media and Sport and the Transfer of Functions (National Security and
Investment Act 2021 etc) Order 2023.
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the POL Board. Appendix 4 of the Framework Document? sets out that the
Shareholder Representative provides advice to relevant ministers and the
Principal Accounting Officer, in consultation with DBT officials. Section 6.3-6.5
of the Framework Document further explains corporate governance roles,
including setting out that the relevant junior Minister provides ministerial
oversight for key priorities and will typically account for Post Office-related
business in Parliament.
11. The Department has a Memorandum of Understanding [BEIS0000578] in place
with UKGI, brought into effect in 2019, which outlines the way in which the two
bodies interact with each other. This has remained unchanged since its
introduction. There have been no notable changes to the formal structure of the
way in which DBT monitors POL through UKGI, outlined in my previous
statement, since June 2021.
12.The Framework Document, also outlined in my first statement, was published
in 2020. It has remained in place to date and is due to be reviewed and updated
in the 2024/25 Financial Year. In accordance with the governance and
oversight arrangements in place, this work will be led by UKGI.
13.POL is accountable to the shareholder for its performance and is required to
seek written consent for certain matters (for example for any undertaking to
incur any expenditure in excess of £50 million). These matters are set out in the
? Post Office Limited: Shareholder Relationship Framework Document
https://assets.publishing.service.gov.uk/media/5e74fe04e90e073e313755cc/post-office-limited-shareholder-
relationship-framework-part-1.pdf
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Articles of Association and the Shareholder Relationship Framework
Document.
14.Government oversees POL’s corporate governance, strategy and performance
through the Shareholder’s Representative on the Board and the formal
Quarterly Shareholder Meetings. The detail on attendance at the Shareholder
Meetings is set out in section 6.6 of the Framework Document. In addition, POL
executives and Government meet regularly at ministerial and official level. Key
arrangements include a monthly ministerial meeting with POL’s CEO and
various POL executives as needed depending on the agenda for each meeting.
Monthly network monitoring meetings also take place with DBT and UKGI
officials to monitor POL’s performance against Government's network
requirements and official level dialogue and meetings take place as and when
is necessary to monitor Post Office’s performance and finances. Government
requires there to be over 11,500 Post Office branches across the UK to make
up the Post Office network.
15.Since the need for compensation for postmasters arising out of the problems
with Horizon was first established following the December 2019 ‘Horizon
Issues’ judgment of Mr Justice Fraser in Bates and others v. Post Office Limited
[2019] EWHC 3408, UKGI has taken an important role in overseeing POL’s
delivery of compensation. In September 2023, UKGI’s CEO wrote to DBT,
setting out his intention that UKGI transitions away from being closely involved
in the compensation schemes and moving into a more strategic role
[BEIS0000595]. This was in recognition of the fact that DBT’s Post Office Policy
Team involved in the compensation schemes had expanded significantly over
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time and there was overlap between the work being done by UKGI and DBT.
The expansion of the DBT policy team is outlined further below in paragraph
18. David Bickerton, the Director General of the Business Group at DBT, replied
to UKGI in October 2023 to agree to the change [BEISO000596].
16.Since June 2021, there has been one Government Internal Audit Agency
(“GIAA’) review of DBT’s sponsorship of the Post Office. GIAA reviews are
designed to help Government departments improve their governance, risk
management and internal control processes. Building upon a review on the
same topic in 2019, a 2022 GIAA review considered “Post Office Limited:
Sponsorship and Ownership by BEIS” and produced a ‘moderate’ opinion,
finding that some improvements were required to enhance the adequacy and
effectiveness of the framework of governance, risk management and control.
Working with UKGI, the department has since made a number of changes to
its ways of working, including implementing a Terms of Reference for Quarterly
Shareholder Meetings with the company and improving minuting of these
meetings. A copy of the 2022 GIAA report, and the BEIS/UKGI response is
attached to this submission [BEISO0000597].
17.Action has also been taken to ensure that there is no repetition of the issue
surrounding senior executive bonuses being linked to POL’s collaboration with
the Inquiry, as came to light in mid-2023.3 DBT commissioned a review to be
undertaken by Simmons and Simmons, the results of which were published in
3 https://www.postofficehorizoninquiry.org.uk/news/chairs-statement-regarding-post-office-limited-
20212022-annual-report
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August 2023.4 POL are now in the process of implementing the
recommendations, which includes a review of its governance structures,
processes and systems in relation to remuneration to ensure good corporate
governance practice is followed consistently and is in alignment with the role of
the Shareholder. Progress on this is being monitored by UKGI on behalf of DBT.
Any improvements to DBT’s role recommended by this further review will be
considered carefully.
BEIS/DBT TEAM STRUCTURE
18.As outlined previously, the DBT Post Office Policy Team was set up in the
summer of 2018. This marked a change in the division of roles and
responsibilities between POL, UKGI and the department, as the department
took responsibility for overall high-level policy direction and accordingly became
more actively involved in POL. This team was then expanded in April 2019, with
the appointment of a new Director and supporting team.
19.The Post Office Policy Team is currently overseen by two Deputy Director
posts, reporting to the Director of Business Resilience who reports to the
Director General of the Business Group. The Director General reports to the
department's Permanent Secretary.
20.Whilst the team originally evolved gradually based on resourcing requirements,
since June 2021 there has been an increased rate of growth. This is due to
various factors, including the need for team oversight of POL’s postmaster
* https://assets.publishing.service.gov.uk/media/64db6d493fde6100134a5273/reviewof-the-governance-
relevant-to-post-office-limiteds-senior-executive-remuneration.pdf
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compensation schemes, delivery of the GLO scheme (which is undertaken
directly by DBT) and the need for a team dedicated to responding the Inquiry.
21.Minister Hollinrake announced on 10 January 2024 the Government's intention
to legislate to overturn postmasters’ convictions arising from the scandal. The
Post Office Policy Team is expected to scale up further to deliver this.
Statement of Truth
I believe the content of this statement to be true.
Dated: 18/03/2024
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Index to Second Witness Statement of Gareth Davies
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No.
Document Description
URN
Control Number
01
Post Office Limited's Articles of
Association Amendment, 14
December 2022
BEIS0000594
BEIS0000594
02
Memorandum of Understanding
between the Department for
Business, Energy and Industrial
Strategy and UK Government
Investments Limited, 12
December 2019
BEIS0000578
BEIS0000578
03
Letter from Charles Donald to
David Bickerton, 19 September
2023
BEIS0000595
BEISO000595
04
Email from David Bickerton to
Charles Donald, 4 October 2023
BEIS0000596
BEIS0000596
05
Government Internal Audit
Agency - Final Internal Audit
Report: Post Office Limited:
Sponsorship and Ownership by
BEIS, June 2022
BEIS0000597
BEIS0000597
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