News

The Government’s Role

June 1 2024

Part Three

This scandal was not an unfortunate consequence of stodgy processes, ill-informed incompetent executives and a blind faith in a flawed IT system. Post Office staff did not behave the way they did just for the hell of it. They did so because they believed this was what was wanted by the government, its owner. It was the government which set its “strategic parameters” while remaining at arm’s length from its day-to-day operations.

I wrote here about one key question which remains to be answered in relation to the cover up and the Post Office’s conduct over the Bates litigation: What did the government know? When did it know it?

But there is another important question which needs asking first.

To what extent did the government’s strategic priorities for Royal Mail and the Post Office lead to the scandal? 

Last week’s evidence from Paula Vennells shed some light on one aspect of this: the 2013 IPO of Royal Mail and her curious intervention, the one which according to her self-appraisal “really earned her keep”.

Royal Mail had been loss-making for years: governments, whatever their political persuasion, were determined to make it more commercial, perhaps even profitable and, eventually, to privatise what could be privatised. The Post Office needed to widen the range of products it sold, with financial products its preferred option. It also needed to reduce costs. These were the priorities. Any sort of admission that IT systems were not fit for purpose, might need more (expensive) investment risked derailing this. It also partly explains why no-one inquired too closely into how Post Office investigators actually behaved. Rather than being a genuine investigations team, they were a debt collection team collecting monies which the Post Office wrongly thought it was owed. There was no incentive to look closely at whether they were complying with the law, actually investigating the reasons for the discrepancies, or abusing their powers. The incentives went the other way.

Once privatisation was on the agenda, this became even more important. Ensuring the Royal Mail was attractive enough to be sold – profitably – and splitting the Post Office into a separate stand-alone company were the focus. Achieving this while ensuring that its day-to-day business and backroom functions are being run as they should be is a challenging task, even in the best run company. Not even its best friends would describe the Post Office thus.

The Royal Mail IPO

The 2013 prospectus for Royal Mail’s IPO contains a section dealing with its relationship with Post Office Limited (“POL”) and the material risks this exposed Royal Mail Group to – para. 1.18. It mentions dependance on the “effective operation of POL’s IT systems and processes” and on the public perception of Royal Mail and POL as one entity. “Any business or commercial decisions taken by POL could therefore be perceived as decisions taken by…. the Group and adversely affect the reputation and brand of the Group……Any failure in POL’s IT … systems …. may lead to adverse publicity and adversely affect the reputation and brand of the Group.”

What this section or the prospectus as a whole nowhere mentions is POL’s prosecutorial role during the period when it and Royal Mail were one entity. Nothing was said about any ongoing responsibilities for (a) any failings in prosecutions carried out pre-IPO and/or (b) any obligations to pay compensation.

Ancient, irrelevant history? No. By mid-2013 there were credible concerns about POL’s IT systems, the safety of past prosecutions and possible liability for compensation. POL’s insurers had been notified. Any prospective investor in Royal Mail would surely have wanted to know about risks arising from past conduct by Royal Mail (unless these had clearly been carved out) as well as ongoing risks relating to a future long-term business partner. Those drafting the prospectus must have thought so because something was put in about the Horizon system.

On her last day giving evidence, Paula Vennells stated that she had managed to remove references to Horizon from the Royal Mail prospectus. According to her, it was irrelevant and damaging to POL. She repeated that she had played no role at all in the prospectus or the IPO so it is odd how she was able to assess the possible relevance of certain statements. Perhaps an understanding of regulatory obligations and listing rules was one of her hidden talents.

What was it she was so keen to remove because it was so damaging and irrelevant? It was the statement which POL had proudly trumpeted in its press releases following the interim Second Sight review to show that subpostmaster allegations and concerns were exaggerated and unjustified.

“In July 2013 an interim report was published into alleged problems with POL’s “Horizon” computer system which is used to record transactions in its branch network. The report confirmed that no system wide problems had been found in relation to the “Horizon” software, but suggests that POL should examine its support and training processes for sub-postmasters.”

How could POL’s own press release be damaging? Two reasons: the reality behind the review and the other advice which POL had received by now made this statement “economical with the truth“. If questions had been asked, who knows where these might have led? Had there been even the merest hint of possible miscarriages of justice arising from matters taking place during the period when Royal Mail was in charge, how would this have affected Royal Mail’s sale? The question answers itself.

More questions, then –

• What exactly did she say to persuade those who drafted the prospectus to remove statements they clearly thought necessary? How accurate and evidence-based was it?
• Was this discussed by the Royal Mail Board? By the POL Board? With the Business Department? With the Treasury? With Ministers? With the underwriters and advisors?
• Were there discussions, arrangements, legal agreements regarding any ongoing responsibility for such matters?
• Who – and at what level – signed off?

And so on.

The Arbuthnot Test

It was Lord Arbuthnot who in his evidence pointed out the problem with the government’s arm’s length approach to POL. Where there was only one shareholder – the state – refusing to get involved in operational matters, even when such matters had gone badly wrong, there was a lack of democratic accountability. What sort of effective governance can you have of a state owned body which faces neither the discipline or scrutiny of the market nor effective democratic accountability through Ministers?

It is a good question. We have yet to receive a good answer.

Arm’s length?

But was the government that arm’s length in reality? There was some evidence that one of the non-executive directors, Richard Callard, representing the government, was closely interested in how POL responded to adverse press coverage, which doesn’t sound particularly hands off. The two other shareholder representatives, Susannah Storey and Tom Cooper, have yet to give evidence. What they say will merit close attention.

The government’s reaction to this scandal has been curious and surprisingly similar to Ms Vennells’ unconvincing response to a key question put by Jason Beer KC. He pointed out that if, for years, she had been told by staff that all was well with Horizon, it seemed odd that she was so insouciant when finally told that there were some serious problems with it and that these affected past and existing prosecutions. Why wasn’t she more shocked? Why didn’t she demand answers about how this could possibly have happened? Why didn’t she ask why she had not been properly briefed? Ms Vennells hand waved it all away by saying it was all historic and had now been fixed. But her reaction at the time was more instructive: it was consistent with someone who had known all along but was reliant on the measures taken to keep this knowledge to as few people as possible.

When Sir Wyn asked her why the briefing for her appearance before the Business Select Committee in 2015 was “very precise, very circumspect, very guarded” she had no answer (see here). In agreeing so easily that this was the intended effect of the briefing prepared for her, she had not thought through the implications of why her staff believed she ought to be briefed in such a way.

It was a telling moment.

The government’s reaction

Much the same could be said about the government’s response. If POL was a rogue organisation which for the best part of two decades had misbehaved, misled the government and the courts and wasted money on pointless litigation, you’d expect the government to be furious when it finally discovered this in 2019. After all, the Common Issues judgment severely criticised the Post Office’s behaviour in the litigation, its witnesses’ credibility and honesty (with one witness referred to the DPP for possible perjury) and its mistaken belief in Horizon’s integrity. It was not so much a mistaken belief as “the 21^st century equivalent of maintaining that the earth is flat” in the teeth of considerable factual evidence to the contrary.

But no – Ms Vennells was sent off with a large six-figure bonus, a CBE, a role in the Cabinet Office and well-placed to fast track into other plum public sector jobs. There is no evidence that anyone else suffered even the mildest rebuke. The Chair, Tim Parker, who presided over this, the disastrous attempt to recuse the trial judge, witheringly dismissed by the Court of Appeal as “without substance”, “misconceived”, “fatally flawed”, “untenable”and “absurd” and the substantive judgment in favour of the subpostmasters, remained in post until 2022.

This reaction does not suggest a government surprised by what it had learnt. Let alone one cross at what had happened and the money wasted. But if it was such a rogue organisation which could not be trusted, why is it – even now – being tasked to deal with the compensation schemes for subpostmasters?

Given the carefully drafted Terms of Reference, the Williams Inquiry may not be able to get to the bottom of what the government really knew and when. It may not be able to determine whether the government incentivised bad behaviour and the turning of blind eyes because it was more concerned to save money and sell Royal Mail. It may not be able to determine whether or not it was actively involved in or approved of the cover up of the miscarriages of justice. It may not be able to assess how far the government approved or encouraged POL’s aggressive and expensive litigation tactics to wear down the subpostmasters.

But if it can’t, this task should certainly be followed up by the Business Select Committee.

This scandal started out as an IT scandal. It has certainly turned out to be that. But it is also a legal scandal, a corporate governance scandal, and possibly also a financial scandal if investors in the IPO were indeed misled.

Above all, it is a governmental scandal – one encompassing the priorities the government set, the incentives it created, the supervision it exercised, whether it was complicit in one of the worst miscarriages of justice, whether it was complicit in or turned a blind eye to attempts cover up those miscarriages of justice and/or to pervert the course of justice and how it has sought to put these matters right. It too now needs to answer some serious questions about its own behaviour.

Photo by Jamie Street on Unsplash