1 Thursday, 7 November 2024 2 (10.00 am) 3 MS HODGE: Can you see and hear us? 4 SIR WYN WILLIAMS: Yes, but only faintly. 5 MS HODGE: Is that any better, sir? 6 SIR WYN WILLIAMS: It is to a degree. It is a bit faint 7 but, anyway, I can hear you. 8 MS HODGE: Would you like us to see if we can improve the 9 sound? 10 SIR WYN WILLIAMS: The trouble is it may interfere with your 11 questioning if you're worrying about whether I can hear 12 you or not, that's all. Let's start and see how we get 13 on and if I'm struggling I'll let you know. 14 MS HODGE: Thank you, sir. Our first witness today is Lorna 15 Gratton. 16 SIR WYN WILLIAMS: It's fine now, by the way. You suddenly 17 came through much more clearly. 18 LORNA RACHEL GRATTON (affirmed) 19 Questioned by MS HODGE 20 MS HODGE: Please give your full name. 21 A. Lorna Rachel Gratton. 22 Q. You should have in front of you a copy of a witness 23 statement dated 13 September this year. Do you have 24 that before you? 25 A. I do, yes. 1 1 Q. That statement runs to 113 pages. Could I ask you, 2 please, to turn to page 99. 3 A. Yes. 4 Q. Do you see your signature there at the end of your 5 statement? 6 A. I do, yes. 7 Q. Is the content of the statement true to the best of your 8 knowledge and belief? 9 A. Yes. 10 Q. Thank you, Ms Gratton. As you know, my name is Ms Hodge 11 and I ask questions on behalf of the Inquiry. I shall 12 begin by asking you some brief questions about your 13 career background, if I may. 14 Upon graduating from university in 2005 you began 15 a career in teaching; is that correct? 16 A. Yes, I did the Teach First programme, yes. 17 Q. You later joined the Civil Service in January 2010 and 18 were assigned to work in the Treasury; is that right? 19 A. Yes. 20 Q. In your statement you say you worked in the Enterprise 21 and Growth Unit and as Private Secretary to the 22 Chancellor; did you perform both of those roles 23 simultaneously? 24 A. No, I was in the Enterprise and Growth Unit first, then 25 I worked for the Chancellor and then I went back to the 2 1 Enterprise and Growth Unit. 2 Q. Thank you, you left the Civil Service in January 2013 to 3 join Boston Consulting Group, later returning in July 4 2016 to serve as Private Secretary to the Prime 5 Minister; is that correct? 6 A. Yes. 7 Q. You subsequently worked in the Department for Culture, 8 Media and Sport, where you were appointed the Director 9 for the Digital and Tech Policy Directorate in May 2020; 10 is that right? 11 A. Yes. 12 Q. In October 2021, you joined UKGI as a director -- 13 A. (The witness nodded) 14 Q. -- and were appointed as the Shareholder Representative 15 Non-Executive Director to the Board of Sheffield 16 Forgemasters; is that correct? 17 A. Yes. 18 Q. Since May 2023, you've served as the UKGI Director with 19 responsibility for the Post Office -- is that right -- 20 A. Yes, it is. 21 Q. -- and have sat on the Board of the Post Office as the 22 Shareholder Representative Non-Executive Director? 23 A. Yes. 24 Q. In your role as UKGI Director, you currently have 25 responsibility for leadership of the Shareholder Team; 3 1 is that right? 2 A. Yes. 3 Q. In your statement, you describe the responsibilities of 4 that team as being to oversee the Post Office's 5 corporate governance and strategy and to monitor its 6 stewardship of financial resources; is that correct? 7 A. Yes, this is. 8 Q. I'd like to begin, please, by asking you some questions 9 about the relationship between the Government and the 10 Post Office. In your statement, you describe the 11 Memorandum of Understanding that exists between UKGI and 12 what is now the Department for Business and Trade and 13 you explain that the MOU, which was signed in December 14 2019, draws a distinction between what we know as the 15 policy function and the shareholder function as it 16 applies to arm's-length bodies, such as the Post Office; 17 is that correct? 18 A. It is, yes. 19 Q. You point out that the MOU formally assigns the policy 20 function to the Department and not to UKGI; is that 21 right? 22 A. That is, yes. 23 Q. Although matters of policy are decided by the 24 Department, you acknowledge that they are communicated 25 to UKGI, which is obliged to take them into account when 4 1 performing its shareholder representative function; is 2 that correct? 3 A. Yes, absolutely. So the Department sets the objectives 4 for Post Office, and UKGI helps ensure that the Post 5 Office is delivering on those objectives. 6 Q. How would you characterise the Department's current 7 policy objectives for the Post Office? 8 A. So the policy framework for Post Office as it stands is 9 expressed in terms of the number of branches that the 10 Post Office has to have and the coverage of the UK 11 population that have to be within a certain distance of 12 a number of branches, and then the services that Post 13 Office is subsidised by the Government to provide, which 14 are currently mails, banking and payment services, and 15 then some other Government services as well. 16 Q. Does it remain the Government's ambition that the Post 17 Office should strive to achieve financial 18 self-sufficiency? 19 A. Yes, as set out in the Chair's letter. So the 20 Department writes an annual letter to the Board of the 21 Post Office and "financial sustainability" -- I think, 22 is the phrase used in the letter -- is set out in that. 23 Sustainability is slightly different from 24 self-sufficiency. 25 Q. What do you understand "financial sustainability" to 5 1 mean? 2 A. It's a really good question and a topic that is of live 3 discussion within Government. Post Office is currently 4 loss-making and has been since it was separated from 5 Royal Mail. The losses are at the moment worsening, so 6 I think, as a starting position, we would like to 7 stabilise the financial position of the company and then 8 take a view from there. But ministers have not yet 9 given a steer on that. 10 Q. So financial sustainability reflecting not 11 an expectation of self-sufficiency, at least in the 12 short-term? 13 A. Not necessarily, no. 14 Q. Do you consider that financial self-sufficiency, would 15 that be a realistic objective for the Post Office, given 16 the social function which it is required to perform by 17 the Department? 18 A. So I think you can separate out the two parts. You 19 could have a financially self-sufficient commercial 20 network, and then there are uneconomic branches which 21 the Government subsidises through the network subsidy. 22 You could take one view that that would be a sort of 23 mode of self-sufficiency where the Post Office is 24 funding the bits that are commercial and Government is 25 paying for the service that it delivered in the other 6 1 bits of the branches. A sort of slightly more rigorous 2 view of it would be that the Post Office would need to 3 be cash generative on an overall basis. 4 At the moment, that is not the case. It is, as 5 I say, a live discussion with Government at the 6 moment -- between Post Office and the Government -- as 7 to whether or not that is achievable through changes to 8 the Post Office. 9 Q. By changes to the Post Office, do you mean changes to 10 the size of the Post Office Network? 11 A. Not necessarily to the size of the network. Largely due 12 to -- largely changes to the Post Office's Head Office 13 cost base. 14 Q. You describe in your statement the various levers which 15 are available to the Government to influence the 16 governance and management of the Post Office. Some of 17 these are coercive powers, such as the power to dismiss 18 the Chair of the Post Office Board; is that correct? 19 A. Indeed. 20 Q. Others you characterise as soft powers or influence -- 21 A. (The witness nodded) 22 Q. -- over the direction of the company, such as maybe 23 exercised through meetings between ministers and the 24 senior leaders of the Post Office; is that correct? 25 A. Yes. 7 1 Q. In your statement, you suggest it's always been open to 2 ministers to exercise power and influence over the Post 3 Office, and you cite the example of Baroness 4 Neville-Rolfe writing to the incoming Chair in September 5 2015, requesting that he prioritise getting to the 6 bottom of concerns about Horizon; is that right? 7 A. Yes, that is, yeah. 8 Q. If all the necessary levers were available to ministers 9 to influence Post Office Management, what do you think 10 went wrong from a governance perspective in relation to 11 Horizon? 12 A. I wasn't involved at the time so my reflections are 13 based purely on sort of evidence that's been given to 14 this Inquiry. My understanding is that there was a lack 15 of transparency from the Post Office to the Government, 16 and within the Post Office to the Board, so that there 17 wasn't a widely shared understanding of what had gone 18 wrong and, where people did know that, that information 19 was not adequately shared with ministers or, indeed, in 20 some cases, my understanding is with the Board. 21 Q. You say in your statement that a certain amount of 22 caution needs to be shown regarding the exercise of 23 those powers, hard and soft, by ministers; is that 24 right? 25 A. Yes, it is. 8 1 Q. Why is that? 2 A. Post Office, as other arm's-length bodies, has a Board 3 that has fiduciary responsibilities to the company. We 4 try, as Government, to attract sort of qualified 5 individuals to be on that Board, and they are typically 6 people who have got a range of experiences and a range 7 of backgrounds. And the Board, I think, needs to feel 8 empowered to exercise oversight and exercise its 9 responsibilities in holding the company to account. 10 I think if there's too much interference from 11 Government, then the Board doesn't feel empowered to do 12 that and I think we would find it difficult to retain 13 people who have got the right skillset to join that 14 Board. You know, it's a significant time commitment to 15 people. 16 That said, I think there is a lot of space for 17 ministers, as the shareholder of Post Office, to provide 18 their views to the Board and I think, as with any 19 100 per cent single shareholder-owned company, the Board 20 should be willing to take a steer because the success of 21 the company should be closely aligned with what the 22 shareholder considers to be success. 23 Q. We'll return to that particular point shortly but, in 24 your statement you say, as a matter of principle, the 25 shareholder should not involve itself in the operational 9 1 running of the business. That's a matter which should 2 be left to the Post Office's Board, and you've explained 3 the concern about the Board not feeling empowered. 4 Do you consider that the distinction between the 5 Government's policy objectives for the Post Office and 6 operational matters is one which is capable of being 7 maintained in practice? 8 A. Yes, I think it is capable of being maintained in 9 practice, although I think circumstances sometimes 10 require more intervention from the shareholder's point 11 of view and sometimes less intervention. And I think 12 that it is appropriate for the shareholder to provide 13 views where they feel very strongly on a matter of great 14 significance. 15 So for example, on culture, I personally think that 16 is a topic that is rightly for the shareholder because 17 it is integral to the running of the company. The 18 operational matters, actually, I think are more for the 19 Executive than for the Board. You know, the CEO is 20 accountable for the operations of the company and the 21 CEO is accountable to the Board. 22 Q. In your role as Shareholder Non-Executive Director, how 23 do you determine whether and to what extent you should 24 involve yourself in operational matters concerning the 25 Post Office? 10 1 A. I like to have a high level -- like other Board members, 2 I like to have a high level understanding of what is 3 happening at an operational level because that is the 4 performance of the company. I don't involve myself in 5 operational matters, generally speaking, beyond those 6 that come to the whole Board. 7 Q. In her evidence to the Inquiry, Amanda Burton, one of 8 your colleagues in the Post Office Board, stated that 9 you personally requested to be involved in overseeing 10 an investigation into a whistleblowing complaint made 11 against the CEO; is that correct? 12 A. Yes, it is. 13 Q. Why was that? 14 A. Because I think that it's of interest to the 15 shareholder. The CEO is the most senior employee of the 16 company, he is a Board director. I think it is 17 appropriate that -- and an appointee appointed by the 18 shareholder. The behaviour and conduct of the CEO 19 I think is a pertinent issue to the shareholder because 20 it impacts the culture of the organisation. 21 Q. You say in your statement that a risk-averse culture has 22 developed in the Post Office, which you attribute, 23 I think at least in part, to the intense scrutiny of 24 this Inquiry and to the media; is that right? 25 A. Yes, it is. 11 1 Q. Has the intervention by the shareholder and by its 2 representative Non-Executive Director been 3 a contributing factor, do you think, in the development 4 of that particular culture? 5 A. I think it's a good question. The shareholder provides 6 a very significant degree of scrutiny to Post Office, 7 particularly relating to funding requests, which I think 8 are rightly a matter for the shareholder. If the 9 shareholder has been asked for funds, then I think it is 10 completely legitimate that the Post Office has to 11 provide a business case, and scrutiny to that. 12 I actually don't think the shareholder intervenes 13 significantly outside of the processes that are set out 14 in the governance documents. So I think, on the IT 15 programme, there's probably something in the idea that 16 there is a high level of scrutiny from the shareholder 17 and that has made people very conscious of the decisions 18 they're making -- I think rightly so, when they're 19 spending public money. But I don't think the 20 shareholder has contributed more widely than that. 21 Q. In terms of striking a balance between, on the one hand, 22 exercising effective oversight of the Post Office and, 23 on the other, affording its Board and management team 24 sufficient autonomy to make decisions, do you think that 25 you in your role as Shareholder Non-Executive Director 12 1 are currently striking the right balance? 2 A. So I think part of the context for this question and 3 discussion is the ongoing and very frequent requests for 4 funding that have come from Post Office over the course 5 of the last two to three years into Government. As 6 I just described, I think it is entirely right and 7 proper that Government provides scrutiny to the spending 8 of what is ultimately taxpayers' money. 9 I don't think -- I think the Post Office gets a lot 10 of scrutiny from the Government in terms of its funding 11 plans and spending of taxpayers money. I think that, 12 outside of that, the shareholder and my -- sorry, 13 they're slightly distinct. The shareholder's 14 interventions are set out in the governance documents 15 and they are in line with the Government's governance 16 documents. I am a Non-Executive Director of the 17 company: I provide scrutiny, as any other Non-Executive 18 Director does, and not beyond that. 19 Q. In your statement you acknowledge the frustration 20 expressed by some Board members about the level of 21 intervention by the Shareholder Non-Executive Director 22 in Board meetings. Have those sentiments prompted you 23 to reflect upon whether you are striking the right 24 balance currently in that role? 25 A. So my understanding is that those concerns were raised 13 1 prior to my time joining the Board and that there are 2 not concerns, or I have not had concerns reflected to me 3 or, as I understand it, to UKGI about my interventions 4 in meetings. That said, I can understand where the 5 question comes from, not least because the shareholder 6 representative is a proxy for the views of the 7 shareholder, and where the views of the shareholder are 8 pertinent to a decision that is being made, I think it 9 is helpful to have those reflected into the Board. 10 I think there's sometimes a little bit of confusion 11 between the extent to which the shareholder 12 representative is sort of making a decision themselves 13 or giving their own views, rather than being a conduit 14 for the -- or a sort of good proxy for the views of the 15 minister and I think that the views of the minister and 16 the shareholder are often a thing that is helpful for 17 the Board to hear, for them to understand how a proposal 18 they've got is likely to be received by the Department. 19 Q. Speaking more generally about this governance issue, you 20 say at paragraph 31 of your statement that it's your 21 view that the principles that apply to purely commercial 22 companies need to be tailored to take account of the 23 policy considerations that underline publicly owned 24 assets. Can you please explain, insofar as you haven't 25 done so already, in precisely what way you considered 14 1 those principles need to be tailored. I'm happy to take 2 you to it, if that helps give it context. 3 A. Yeah, I'll just find it, if that's all right. 4 Q. It's page 15 of your statement, WITN11310100. 5 A. Yes, so I am very happy to expand on that. So I think 6 there are considerations for companies that are owned by 7 government that are a bit different to companies that 8 are privately held or listed companies, for example the 9 approach to settlement agreements with staff. So in the 10 public sector, arm's-length bodies do not have the 11 ability to make settlement agreements with staff, so 12 that is essentially reaching an agreement where you are 13 paying a member of staff to leave, and that is 14 a principle set out by Treasury, to ensure that public 15 funds are well used and to incentivise good management, 16 rather than exiting people out of the business without 17 having followed a process. 18 That is not typically done. Sorry, in commercial 19 organisations they typically have a freedom to reach 20 an agreement and pay someone to go. That is not a thing 21 that can happen in the public sector. 22 Q. So that being one example of that tailoring? 23 A. Yeah. 24 Q. Can you provide any specific examples in relation to 25 your interactions with the Post Office, where you think 15 1 those principles need tailoring? 2 A. I also think the remuneration would be another example 3 of that, I think. So remuneration in the public sector 4 is a matter of public record and ministers feel strongly 5 that those who serve in public corporations and for the 6 Government should have a sense of social purpose around 7 what they do as well, and remuneration rates are not as 8 high in the public sector in many instances as they are 9 in commercial organisations. 10 Q. Do you consider that the issues relating to remuneration 11 have been a significant problem during your tenure as 12 Shareholder Non-Executive Director? 13 A. At Post Office, yes; when I was a NED at Sheffield 14 Forgemasters, no. 15 Q. Why is that? 16 A. I think the issues relating to the Post Office CEO's -- 17 the request for pay increases, are sort of well 18 documented and have attracted a lot of attention. 19 Q. Thank you. If I could move on, please, to ask some 20 brief questions about the mechanisms that exist in UKGI 21 for recording and reporting on risks relating to the 22 Post Office. 23 Could we please bring up the statement again at 24 page 15, paragraph 33, please. Thank you. This in 25 relation to UKGI's internal risk reporting. You say: 16 1 "[This] provides a mechanism to identify, escalate 2 and manage risks faced by UKGI in exercising its 3 mandate. These risks predominantly relate to UKGI's 4 ability to provide sound advice to client departments 5 and for UKGI's Shareholder [Non-Executive Directors] and 6 Shareholder Teams to perform their roles effectively. 7 These are not the same [you point out] as the risks 8 being faced by the Assets directly." 9 Do you know why it is that risks faced by the 10 Government's assets, such as the Post Office, are not 11 captured in UKGI's internal risk registers? 12 A. Because they're captured elsewhere through different 13 processes. So Post Office -- the CEO of Post Office is, 14 in Government speak, an accountable person and the 15 accountable person reports their risk into the Principal 16 Accounting Officer, which is to say the Post Office 17 reports its risk into the shareholder, as in the 18 Department, and the Department's Board and Principal 19 Accounting Officer is ultimately responsible there. 20 And in UKGI the UKGI Board is responsible for UKGI's 21 risks and our operational risks, which are primarily 22 around things like resourcing, are we getting traction 23 with the Department, that kind of thing. 24 Q. Given the supervisory nature of the role that UKGI 25 performs in relation to assets, such as the Post Office, 17 1 do you think that risks relating to those assets ought 2 to be captured within UKGI's internal risk registers? 3 A. No, because I think that they are adequately dealt with, 4 and managed elsewhere. Now, we provide a lens into the 5 Department on Post Office's risks, and, you know, the 6 risk reporting, there is a formal element to it, and 7 then I, as a Board member, will also have a view, 8 because I sit on the Post Office ARC Committee, and 9 I will provide a sort of additional layer into the 10 Department, if I think there is anything that's not been 11 captured or I think there's anything that needs to have 12 their particular attention drawn to it. 13 But that is the mechanism for doing it, rather than 14 through the UKGI Board because UKGI Board ultimately 15 don't have any levers over Post Office, right? The 16 levers sit with the shareholder, who is the Department. 17 Q. You've mentioned the CEO's role as an accountable 18 person. Does it follow that from UKGI's perspective, 19 primary responsible for risk reporting in relation to 20 the Post Office rests with the CEO? 21 A. Yes. 22 Q. But you've gone on to say, and you say in your 23 statement, that you and your team complement that risk 24 reporting -- 25 A. Yes. 18 1 Q. -- by reporting issues of concerns identified as 2 a result of your daily interactions with the Post 3 Office; is that correct? 4 A. Yes, it is. 5 Q. How do you judge whether an issue of operational 6 performance requires to be reported to the Department? 7 A. I think that's a really good question and ultimately 8 it's a matter of judgement and there are lots of things 9 that feed into one making a judgement call. There are 10 some things I -- you know, the Department has got risk 11 appetite statements, right? There are some things that 12 it is very clear to me -- the Department has told me 13 that they are very concerned about, in terms of sort of 14 financial performance, budgets, that sort of things. 15 And then there will be other things that are of 16 particular concern to the Department for historical 17 reasons, or for other operational reasons. 18 For example, and I'm sure we may come on to this, 19 the discrepancies -- the survey that was done by the 20 Inquiry, the YouGov survey, with the responses from 21 postmasters about how frequently they were experiencing 22 discrepancies. That is a great concern to the 23 Department. It's also of great concern to the Post 24 Office Board. You know, I raised it outside of the sort 25 of normal risk reporting process and talked to the 19 1 Department about what they wanted to do about it. 2 Q. Some of your risk reporting to the Department is 3 conducted formally in the presence of the Post Office 4 Executive, such as in the context of the quarterly 5 shareholder meetings; is that correct? 6 A. That's not our risk reporting: that is Post Office's 7 risk reporting to the Department. 8 Q. But which you would complement in the context of those 9 meetings? 10 A. Probably not. I would probably talk to them outside of 11 the meetings. 12 Q. I think, therefore, it follows that the bulk of your 13 risk reporting takes place in private meetings and 14 communications with the Department Director, Carl 15 Creswell -- 16 A. Yes. 17 Q. -- and the Director General, David Bickerton; is that 18 correct? 19 A. Indeed, yes. 20 Q. Is there sufficient transparency, do you think, in the 21 reporting of risk by UKGI to the Department, insofar as 22 it concerns the Post Office? 23 A. Yes. Absolutely. So we do a -- currently our process 24 is we do a monthly note in addition to the -- so Post 25 Office do the quarterly shareholder meetings with the 20 1 Department, my team do a monthly note, where we provide 2 any updates or any additional issues -- that goes to 3 David Bickerton and to the Permanent Secretary and to 4 ministers -- and then I have conversations on top of 5 that, with David and with Carl. 6 If there's something particularly pertinent outside 7 of those meetings, I will send them -- you know, send 8 them an email -- yeah. 9 Q. Forgive me, you've answered the question with reference 10 to how those interactions are recorded -- 11 A. Right. 12 Q. -- and that's fair, I didn't clarify. But do you think 13 those interactions are sufficiently transparent to the 14 Post Office, and should they be? 15 A. In the vast majority of cases, I am not saying anything 16 to the Department that I wouldn't say to the Post 17 Office. That is not true in every case and nor should 18 it be true in every case because I am there to represent 19 the shareholder with a particular, you know, view of 20 what the shareholder is going to be interested in. 21 Q. Do you think that those private channels of 22 communication with the Department risk undermining the 23 Post Office Board and the Senior Executive Team in their 24 governance and management of the Post Office? 25 A. No, I don't. Having said that I don't say anything, 21 1 though occasionally I do say things I wouldn't say to 2 Post Office, I almost always share my views very openly 3 with other Board colleagues. So perhaps not with the 4 management team but always with the other Board 5 colleagues. 6 Q. You refer in your statement to a recent review of the 7 Department's risk reporting analysis by the Government 8 Internal Audit Agency. You say that the review made 9 a recommendation concerning the alignment of risk 10 appetite as between the Post Office and the Department; 11 is that correct? 12 A. Yes. 13 Q. Can you please explain the basis on which that 14 recommendation was made? 15 A. The Government Internal Audit Agency are -- so the 16 findings of their report was that the relationship 17 works, effectively, and they did not have concerns at 18 a high level about the -- us performing shareholder role 19 on behalf of the Department. They made a number of 20 recommendations that are quite administrative in nature, 21 around taking more notes of meetings, you know, 22 producing a document that says who does what, rather 23 than everybody just knowing who does what, and it was 24 the same thing on the risk appetite. 25 So I have a good understanding because I talked to 22 1 Carl Creswell almost every day about the Department's 2 risk appetite. This was about sort of formalising that 3 through risk appetite statements. 4 Q. Is there or has there been a misalignment, in your view, 5 between the risk appetite of the company and the 6 Department? 7 A. No. 8 Q. According to your statement, the review also recommended 9 that sources of risk assurance available to the Post 10 Office should be shared with the Department; is that 11 correct? 12 A. I don't recall that but, if that is true, then that is 13 true. 14 Q. If we could just take a quick look, please, at page 19 15 of Ms Gratton's statement. It's at paragraph 42. 16 A. Right, yeah. 17 Q. So it's just that final sentence. Do you know what 18 reference is being made there, in terms of sources of 19 risk assurance within the Post Office? 20 A. I actually don't -- I can't recall what those sources 21 would be. My best guess would be that it would be 22 internal audit type reports but I'm afraid I can't 23 provide any more information. 24 Q. Do you know whether those are routinely shared with the 25 Department? 23 1 A. They are not routinely shared with the Department, no. 2 The Department could ask to see them if they wished to. 3 Q. Thank you. I'd like to move on then, please, to another 4 topic, this time concerning the composition of the Post 5 Office Board. 6 A. Yes. 7 Q. The statement can come down, thank you, although it will 8 come back up shortly. 9 You discuss in your statement the contribution which 10 Mr Elliot Jacobs and Mr Saf Ismail have made as 11 Postmaster Non-Executive Directors of the Post Office 12 Board. I wonder if we could please just take a look at 13 page 39, paragraph 84, where you describe that 14 contribution which they've made. You say this: 15 "In my opinion, Mr Jacobs and Mr Ismail have added 16 a huge amount of value to the Board. They have changed 17 the nature of discussions at Board level and ensure that 18 the actual experiences of postmasters are heard. In my 19 experience they have been listened to, particularly when 20 discussing issues relating to how policies and practice 21 contained in Board papers will affect postmasters on the 22 ground." 23 If we could go over the page, please, you have given 24 an example there to ways in which they've made a valid 25 contribution. You say, at the end of paragraph 84: 24 1 "Their perspective on this and other important 2 issues -- particularly those that affect [the Post 3 Office's] cost base, and therefore ultimately have 4 a significant affect on postmaster livelihoods -- has 5 been invaluable." 6 You go on in the following paragraph to discuss some 7 of the problems which have arisen from the appointment 8 of postmasters to the Post Office Board. You say there: 9 "There have plainly been some issues in the way in 10 which the Postmaster [Non-Executive Directors] have been 11 inducted and integrated onto the Board. There were also 12 occasions when [they] did not fully distinguish between 13 their role as Directors (with the fiduciary duties that 14 this entails) and their position as both active 15 postmasters and representatives of the wider postmaster 16 community." 17 Can you please explain a little more clearly what 18 you mean by their failure fully to distinguish fully 19 between their role as Directors and their position as 20 postmasters and representatives of that community? 21 A. So as I say at the beginning of that section, I think 22 Elliot and Saf have added huge amounts of value to the 23 Post Office Board and they have genuinely changed -- 24 I wasn't on Board before. My understanding is they 25 completely changed the dynamic in the Board room by 25 1 bringing their perspective and lived experience as 2 postmasters to the discussion. 3 I touched earlier on Post Office's financial 4 position, which is not a healthy one. And the budget 5 discussions annually are very tricky in Post Office, 6 because the company is not able to pay postmasters as 7 much remuneration as it would like to because there are 8 insufficient funds available. And there are many 9 reasons for that, and, you know, potentially, had things 10 been done differently in the past, in terms of cost 11 saving measures, there may be more funds available now 12 but the situation now is what it is. 13 And I think occasionally, well certainly this year 14 in the budget discussions, I think Mr Ismail and 15 Mr Jacobs found the position really difficult to accept, 16 and I understand why they found it difficult to accept. 17 It is, broadly speaking, not an acceptable position. 18 But as a director of the company, you need to ensure the 19 company continues to be a going concern and has 20 a balanced budget and I think they found that 21 interaction very difficult. 22 Q. I'd like to ask you some questions about a meeting which 23 you attended with Minister Hollinrake on the 29 February 24 2024. 25 We have a readout of that meeting, please, at 26 1 BEIS0000753. 2 Q. Thank you, the subject of the email is "Nick Read 3 Readout 29 February". Is this is an example of the 4 quarterly shareholder meetings which we discussed 5 earlier? 6 A. No, it's not. It's a monthly meeting that the Minister 7 had with Nick Read and some other Post Office Executives 8 that myself and Carl would regularly attend. 9 Q. Thank you. We see there list of attendees is: the Post 10 Office CEO; and you're there on behalf of UKGI; and as 11 you say, Mr Creswell is the Director of the Department. 12 This meeting comes shortly after the dismissal of the 13 Post Office Chair, Henry Staunton; is that correct? 14 A. It is, yes. 15 Q. We'll return to that topic a little later, but that 16 provides relevant background to the discussion in this 17 meeting; is that right? 18 A. Yes. 19 Q. Shortly after the meeting starts, we see you make the 20 following comment, so your first contribution is there 21 saying: 22 "Need as much support as you can get from Ben 23 Tidswell to try and get the Board functioning properly. 24 We need to try and find a way through the Project 25 Pineapple memo." 27 1 The Project Pineapple memo was a reference to 2 concerns raised by both Postmaster Non-Executive 3 Directors about the prevailing culture within the Post 4 Office, which they perceived to be hostile to 5 postmasters; is that correct? 6 A. I think that is part of it. That memo had been sent on, 7 I understand inadvertently, to the Group Executive 8 members by the CEO. So it had also had quotes of it 9 published in The Times. So the issue isn't just the 10 memo, they expressed legitimate concerns. I think the 11 issue is that memo had been sent on to the people who 12 they referred to in the note, they had received that 13 note, and the note in part had been made public. 14 It had a really damaging impact on the relationship 15 between the Postmaster Non-Execs and the Executives in 16 the company. So, aside from the sort of completely 17 valid concerns that they are raising, it had caused 18 a huge amount of friction in the relationship between of 19 the Postmaster Non-Execs and the Executive Team. 20 Q. What did you mean exactly when you said we need to try 21 to find a way through the memo? 22 A. There was, I think, a disagreement about who needed to 23 apologise to who between the Postmaster Non-Execs and 24 some of the Executive Team. It was a sort of very 25 unpleasant personal situation in which I think quite 28 1 a few people felt quite upset about what had happened 2 and not just Saf and Elliot. 3 Q. So are you saying there that your concerns as 4 articulated there related to the manner, rather than the 5 substance, of the complaints -- 6 A. Yes. 7 Q. -- that had been raised? 8 A. Yeah. 9 Q. We can see a little further down a further discussion 10 about the role of the Postmaster Non-Executive 11 Directors. Nick Read, the CEO, says: 12 "This goes back to whether the postmaster directors 13 are playing the role of a director, or of a trade union 14 rep. I don't know where that is going to go. They are 15 extremely exposed as a result of Project Pineapple. Not 16 sure how to patch this up. In a slight stand off." 17 You say: 18 "They are not in a good place and aren't operating 19 in a way appropriate for the business." 20 One of the specific issues raised in the Project 21 Pineapple memo concerned the retention of employees 22 whose actions in relation to Horizon had been the 23 subject of criticism; is that fair? 24 A. Yes, it is. 25 Q. Do you recall that being one of the issues raised? 29 1 A. Yes, I think so. Yeah. 2 Q. Did you share the postmasters' concerns about the extent 3 of cultural change which had been achieved within the 4 Post Office by January 2024? 5 A. Yes, absolutely. 6 Q. If you were sympathetic with the concerns raised by 7 Mr Jacobs and Mr Ismail, why did you not say so in this 8 meeting? 9 A. The discussion that is taking place in this meeting is 10 particularly around the relationship that they're having 11 with the Executive Team at the moment. So I mentioned 12 a couple of minutes ago about the budget discussions 13 that were really tense. There had been a meeting the 14 prior week, I think, where Saf and Elliot had met some 15 of the Finance Team and I understand the meeting had -- 16 the Executives in that meeting had found the meeting 17 slightly distressing because of the approach that they 18 took in the meeting, and I don't think it is the role of 19 Non-Executive Directors to be aggressive and upsetting 20 to staff members. 21 So that is what this is about, rather than the 22 concerns that they expressed in the memo. So it's about 23 behaviour rather than the memo itself. 24 Q. So when you say that they "aren't operating in a way 25 appropriate for the business", it's your evidence that 30 1 that relates to aggressive behaviour reported to you as 2 directed at Post Office staff? 3 A. Yes, and just to be really clear: this is a point in 4 time, right. This isn't my general view about Saf and 5 Elliot at all. They were under huge amounts of stress. 6 They'd had journalists outside their houses and were 7 getting an awful lot of criticism. And nobody is their 8 best when they are under stress and, at this particular 9 time, the relationship was quite tense and I think there 10 were a number of people who weren't behaving in a way 11 where, I think in hindsight, they wished they had. 12 But it is about this time. That is not my general 13 view, I have an awful lot of time for Elliot and Saf. 14 I think they've made a huge contribution. 15 Q. A little later in the meeting there's some discussion 16 about postmaster representation in the business. Please 17 can we turn to the second page of this readout, where we 18 can see that discussion, please, halfway down. So we 19 see a comment from the Minister which reads: 20 "In terms of other messaging, the mutualisation has 21 died down a bit." 22 The CEO then comments: 23 "met on Monday. VOTP etc." 24 Do you know what that's referring to? 25 A. Voice of the Postmaster. 31 1 Q. "Their main point was about future of Post Office and 2 representation of postmasters. We are going to see some 3 governance work done by Grant Thornton in a few weeks' 4 time." 5 You say, or you're recorded as saying: 6 "I don't think postmaster oversight of the Board is 7 worth it. I think there's good mileage for more 8 postmaster input in the retail part of the business." 9 Can you please explain your comments there? 10 A. So this looks like a verbatim note of the meeting. It 11 isn't: there is a lot of paraphrasing in this note and 12 I can't imagine I would have used the phrase "worth it" 13 because it's not the sort of thing I would have said. 14 However, I standing by the comments. So this is 15 referring to the NFSP's proposal to have a sort of 16 parallel board, basically an oversight board of 17 postmasters -- made up of postmasters and other 18 stakeholders. I don't think that is the right way to 19 get postmaster engagement in Post Office. 20 An oversight board, by definition, on decision 21 makers, and I think you need postmasters involved in the 22 decision making, not just at Board level, which they 23 currently are but actually all the way down the business 24 at an operational level too, because the Board, by 25 definition, isn't operational. 32 1 So I think there should be, you know, some sort of 2 franchise-type council looking at the business side of 3 it, with products and services and marketing material, 4 and then I think there should also be postmaster 5 engagement and interaction in other areas that are 6 rightly areas of concern for postmasters. So they'd be 7 that in kind of decisions around discrepancies and 8 investigations, or whether or not, you know, the back 9 office systems are working correctly. 10 So I think you need it at all levels, not sort of 11 parked over there as a separate oversight Board. 12 I think if you want -- if the idea of that is that the 13 Board is not working properly, you should get 14 a different Board, not create another one that's going 15 to have some more bureaucracy and process to it. 16 Q. You referred to a proposal to establish a council within 17 the Post Office to provide input on operational matters? 18 A. Yes. 19 Q. What practical steps have been taken to implement that 20 proposal, do you know? 21 A. So, the new management team are actually, like, taking 22 these ideas really seriously. So they've been holding 23 a series over the summer with Voice of the Postmaster, 24 NFSP and other representatives, and they've obviously 25 been attended, I've been to a couple of those sessions. 33 1 My understanding is that the proposals that are coming 2 out of that, whilst not finalised, are being taken 3 forward and will be implemented. 4 I'm sure we'll come on to the discrepancies and the 5 like light, but they are also working with 6 representatives from Voice of the Postmaster and NFSP to 7 look at the integrity of the current system, and to do 8 a review of the current system with a third party 9 provider, and those groups and other postmasters will be 10 involved, both in the terms of reference and sitting 11 alongside the people doing the work, to provide a view 12 and reassurance and input into that work. So it is 13 something that is very much live at the moment, and 14 change is being made. 15 Q. Do you think those steps will be sufficient to make the 16 company more postmaster centric? 17 A. I think it's a place to start, and I think you've got to 18 start, see where you get to, iterate, and make it 19 better. 20 Q. I'd like to move on to ask you some questions about your 21 role as the Non-Executive Director of the Post Office 22 Board. In your statement, you refer to UKGI's portfolio 23 operating at principles. Can you explain what these 24 are, please? 25 A. Yes, certainly. So it is a sort of, if you will, like 34 1 a kind of target operating model for UKGI of, like, 2 stuff we should be doing. So it's, broadly speaking, 3 making sure that the company has got good corporate 4 governance oversight. It sets out sort of activities, 5 basically, to be performed, that there are objectives 6 for the company, business plans in place, that the 7 corporate capability within the company is effective, 8 that the leadership within the company is effective, 9 that there's good relationships with the Department, and 10 then the sort of contribution of the Shareholder NED. 11 So it sort of sets out how we should be doing our 12 jobs. 13 Q. Is it right that these -- I think you say these 14 principles provide guidance about the performance of 15 your role -- 16 A. Yeah. 17 Q. -- as UKGI NED on the Post Office Board. On the one 18 hand, they acknowledge that your duties are the same as 19 those of all the other directors on the Post Office 20 Board, and include the duty to promote the success of 21 the company; is that correct? 22 A. Yes, it is, yes. 23 Q. On the other hand, they expect you, in your role as UKGI 24 NED, to act as an interlocutor between the shareholder 25 and the company, with a view to delivering the 35 1 Department's policy objectives; is that fair? 2 A. Yes. 3 Q. You say in your statement that this dual function does 4 not, in practice, present problems for you; is that 5 right? 6 A. That's my view, yes. 7 Q. You suggest it's because it's in the Post Office's best 8 interests to comply with the shareholder's policy 9 objectives; is that fair? 10 A. That is why the Post Office exists, yes. 11 Q. You say, in effect, if the Post Office fails to comply, 12 it will not receive the Government subsidy on which it 13 is currently reliant to remain as a going concern? 14 A. So there is a funding agreement that sets out that it 15 must meet the policy, which is not with UKGI, it's with 16 the Department -- that sets out they must meet the 17 policy objectives in order to receive the subsidy, yes. 18 Q. What if Post Office, as a commercial company, took the 19 view that its financial interests were best served by 20 foregoing the Government subsidy and relieving itself of 21 the social function, or the obligation it has to perform 22 a social function; would there not then be a direct 23 conflict between the dual role you're performing? 24 A. I can see that, in that situation, there would be. That 25 is not the situation in which we find ourselves. So I'm 36 1 not saying there could never be a conflict. I am saying 2 that I have not experienced a conflict and that, at 3 UKGI, we've got a lot of training and support of how to 4 approach those conflicts, should they arise. But I have 5 not personally -- you know, the situation you've 6 described is not one that is obtained. 7 Q. We did discuss earlier on a situation in which the Post 8 Office might focus upon its commercial function and 9 a network that's capable of being financially 10 sustainable, and that's one in which you then saw the 11 Government subsidy as being tied specifically to those 12 aspects of the network which are not financially 13 self-sufficient. So do you not anticipate in the Post 14 Office's future that there could well be a direct 15 conflict in the dual role that you're performing? 16 A. No, I don't because the policy framework is -- so 17 I think the Government announced on Monday, I think, 18 that they're doing a Green Paper, which will look at the 19 policy framework for Post Office and that the will be 20 the subject for a call for evidence, I would imagine, 21 and the Post Office will contribute to that. 22 And there will be a dialogue with Post Office -- 23 between the Post Office and the Government, about where 24 that will end up. It is not something that I anticipate 25 there being a conflict over, though, if there is, it 37 1 will be managed appropriately. 2 MS HODGE: Thank you. 3 Sir, that brings me to the end of that particular 4 topic, I wonder if now will be a convenient time to take 5 our first morning break? 6 SIR WYN WILLIAMS: By all means, yes. What time shall we 7 resume? 8 MS HODGE: Shall we resume at 11.05? 9 SIR WYN WILLIAMS: Yes, that's fine. 10 (10.53 am) 11 (A short break) 12 (11.05 am) 13 MS HODGE: Good morning, sir. 14 SIR WYN WILLIAMS: Good morning again. 15 MS HODGE: I'd like to move on to another topic, please, 16 concerning the Post Office's redress and compensation 17 schemes. Is it right that you and your team were not 18 directly involved in the administration of those schemes 19 but, in your capacity as Non-Executive Director, you sit 20 on the Post Office's Remediation Committee which 21 oversees the administration of Post Office's redress and 22 compensation schemes? 23 A. Yes, that's exactly right. 24 Q. One of the concerns which you raise in your statement 25 about the administration of the Horizon Shortfall Scheme 38 1 relates to the conduct of the Post Office's lawyers; is 2 that right? 3 A. Yes. 4 Q. You describe being concerned about what you say was 5 a conventional legalistic approach that was adopted by 6 the Post Office's lawyers to the negotiation of 7 settlements with claimants; is that right? 8 A. Yes, and to be clear, that is Post Office's external 9 lawyers, rather than the people in Post Office. 10 Q. What caused you to have those concerns? 11 A. So, at the Remediation Committee -- until quite 12 recently, Post Office's external lawyers attended the 13 Committee and they would give updates on various cases, 14 and some of those updates would involve -- they would 15 recount, to my mind -- sorry -- having -- disputing 16 relatively small amounts of money. 17 And I just don't think that's the right way that 18 they should be approaching it. Both from a sort of 19 administrative point of view, I don't think Herbert 20 Smith spending time disputing a small amount of money is 21 a good use of taxpayers' money but, much more 22 importantly, that is a bad experience for claimants and, 23 in the scheme of things, it's just not a big deal, and 24 I think they should have been taking a less kind of 25 commercial approach to it, and much more of a sort of 39 1 benefit of the doubt, yes, within the parameters set out 2 within the scheme, but I just didn't think arguing over 3 small amounts of money is the right approach to take to 4 people who have suffered terrible harms at the hands of 5 the Post Office. 6 SIR WYN WILLIAMS: Can I just ask you, before we go any 7 further, was this attitude an attitude which was 8 prevailing in the administration of HSS or of OC, or 9 both? 10 A. I recall it being related to HSS -- 11 SIR WYN WILLIAMS: Right. 12 A. -- rather than OC. 13 SIR WYN WILLIAMS: Yes. 14 MS HODGE: When did that issue of focusing on, as you say, 15 small matters of detail first become apparent to you? 16 A. It has been apparent to me since I have been on the 17 Committee, and other Committee members felt similarly to 18 me that, you know, we should just be getting on with it, 19 not having an argument over £1,500, or whatever the 20 amount is. 21 Q. So I think you said in your statement you shared your 22 concerns with the Remediation Committee, and what you 23 appear to say is they agreed with you in relation to 24 those concerns; is that correct? 25 A. Yes, and shared them directly with the lawyers, because 40 1 the lawyers are at the Committee. So this isn't a thing 2 that we were sort of talking about behind the lawyers' 3 backs, so to say: this is a thing I said directly to the 4 lawyers involved. 5 Q. Do you feel that that message was getting across? 6 A. I am not convinced that the message was getting across. 7 Q. I would like to -- well, why do you think that is, 8 firstly? 9 A. I think that some of the lawyers felt quite -- I think 10 they -- and this is speculation, right? I don't know 11 how they felt. My impression was they'd been very 12 involved in the development of the scheme and there was 13 a little bit of a "This I just how commercial 14 negotiation is done, you don't understand" sort of 15 approach to it, whereas my point of view was, "This is 16 the Post Office, it is different. Your commercial 17 approach is not an appropriate one". 18 Q. Ordinarily, lawyers act on their instructions and, if 19 their instructions are to achieve a settlement and not 20 necessarily at the lowest figure that that settlement 21 might be achieved, then one would expect them to give 22 effect to that. Was the issue in relation to the 23 instructions that were being given or in the willingness 24 of the lawyers to give effect to them? 25 A. I don't know, to be honest. It was an issue that came 41 1 up more than once at the Committee. I don't know 2 whether or not -- my sense is that the approach 3 gradually changed but it was not the experience I was 4 expecting to have, which is: the Committee tells you to 5 do something, you go and do the thing. 6 Q. Was the Committee supported by the Post Office Executive 7 Team in giving effect to that direction? 8 A. I think so. Certainly, Mr Recaldin at the Committee was 9 of a similar view. Actually, I don't know what happened 10 in terms of the sort of actual written instructions that 11 are then given to the lawyer. 12 Q. You have answered a question just now from the Chair 13 about the Overturned Convictions Scheme and you've 14 explained your concerns about the lawyers related 15 primarily to the Horizon Shortfall Scheme. 16 A. Yes. 17 Q. But I would like to discuss with you some of the changes 18 that were made, during your tenure, to the Overturned 19 Convictions Scheme. You explain in your statement that 20 concerns about the speed with which claims were being 21 resolved led the Post Office to adopt a different 22 approach based on agreed principles, rather than the 23 negotiated settlement approach that had been adopted 24 hereto; is that correct? 25 A. Are you referring to the 600,000 fixed payment? 42 1 Q. Well, that is a separate issue, in the sense that you 2 say in your statement that, in parallel with the 3 development of policy in relation to that, the Post 4 Office was separately developing a set of agreed 5 principles by which it planned to take forward 6 settlement of claims made under the Overturned 7 Convictions Scheme; do you recall that? 8 A. Yes, do you mean the Lord Dyson principles of -- Early 9 Neutral Evaluation principles? 10 Q. I think if I refer you to your statement, that may be 11 the easiest way? 12 A. Yeah, sorry, yeah. 13 Q. If we could turn up, please, page 90. 14 You say when you started in your role, the Post 15 Office was piloting its remediation principles in the 16 assessment of pecuniary claims -- this was under the 17 Overturned Convictions Scheme -- and had shared a first 18 tranche of draft principles with claimant 19 representatives, and that your team had supported the 20 Department in its review of the draft principles and the 21 Post Office's proposed future ways of working. 22 You explain that: 23 "Under this new approach [the Post Office's] case 24 assessors would review claims received from claimants 25 and prepare offers consistent with the case principles 43 1 agreed within the claimant representatives. The aim 2 [being] to reach settlement faster than had been 3 possible under the previous 'negotiated' approach, where 4 case principles had not been agreed [in advance] with 5 the claimant representatives." 6 So that was an initiative being taken, on the one 7 hand, by the Post Office; is that fair? 8 A. This started before my time on the Board. I joined the 9 Board in May and the adoption of the principles was 10 already kind of well in train by the time I started, 11 but -- so I don't know where it originated from, but, 12 yes, it was the process that was in train. 13 Q. In parallel with the development of that approach, a new 14 policy was developed by the Department for Business and 15 Trade to make a final settlement of £600,000 to 16 applicants under the scheme; is that correct? 17 A. Yes. 18 Q. What did you understand to be the reasons for the 19 adoption of that new policy? 20 A. So the work on this was largely done by the Department. 21 There was some input from my team, not really from me 22 personally, but from people working to me. So I wasn't 23 close to it. My understanding is that it was meant to 24 provide a route for people who didn't want to go through 25 a process with Post Office. You know, people have 44 1 suffered greatly at the hands of the Post Office, and 2 I have a lot of sympathy for claimants not wanting to 3 deal directly with the Post Office and go through a long 4 protracted process with them, because claims are taking 5 a very long time to process. 6 This was meant to be a much quicker way of resolving 7 those with less interaction, and enabled people to get 8 redress quicker, if that is what they felt was 9 appropriate for them. Now, if people still wanted to go 10 through the process, because they had a much higher 11 value claim, then that was still available but this was 12 meant to be a sort of alternative route to people to 13 give them access to quicker redress, if they thought 14 they had a lower claim or just wanted to get it done 15 quickly. 16 Q. Was the decision to introduce the new settlement offer 17 driven by a desire to reduce the amount of money being 18 spent on legal fees associated with the settlement of 19 these claims? 20 A. No, so it wasn't driven by the desire to reduce the 21 amount of legal fees: it was done as an intention to be 22 a genuinely good thing for claimants to give people 23 an alternative. I think there is an effect where there 24 is a lower administration cost of the claim but that was 25 not the principal motivation behind it. It was meant to 45 1 be a thing that would be good for claimants. 2 Q. But it was anticipated, I think you say, that early 3 acceptance of a fixed-sum offer would bring savings, in 4 terms of avoiding the expense of disclosure and legal 5 advice associated with a more protracted settlement 6 process? 7 A. Yes, absolutely. 8 Q. Did the anticipated reduction in legal spend, do you 9 know, affect the amount at which the offer was fixed? 10 A. I think that -- this Inquiry heard at length from Sarah 11 Munby earlier in the week about the value for money 12 assessment for offers, and the like. I think there was 13 an amount sort of assumed to be for legal fees that was 14 included in the amount, with a view to making the value 15 for money case. 16 Q. Were you aware of a sentiment within the Post Office 17 that it had, thus far, been working within a framework 18 which had been agreed with the Government, and which was 19 informed by a concern to ensure that public funds were 20 used responsibly? 21 A. Sorry, could you say that question again? 22 Q. Were you aware of a sentiment within the Post Office, 23 and particularly with those responsible for remediation, 24 that they'd hitherto been working within a framework 25 which had been agreed with Government and which had been 46 1 informed by the need to ensure that public funds were 2 used responsibly? 3 A. Yes, but I think that that is the case with all spending 4 by all government-owned bodies. There is an obligation 5 on the Accounting Officer to ensure that the funds are 6 used responsibly. 7 Q. Do you think it would be fair to say that the 8 introduction of this fixed-sum offer shifted the 9 goalposts for the Post Office, in terms of how it was 10 expected to approach the settlement of claims? 11 A. I mean, on one level, it's a very different approach, 12 yes, but I think that it is legitimate to have two 13 different routes to do this and to reiterate the 14 approach as you learn from what has happened in the 15 past. And my understanding is that the claims were 16 taking much, much longer to process than had initially 17 been anticipated and that the ratio of administrative 18 costs to amount of compensation paid out was not what 19 people had anticipated either, and that the experience 20 of postmasters was just not good enough. 21 And so this was meant to be a way to address some of 22 those concerns, primarily the experience of postmasters. 23 I think it's perfectly legitimate to have two different 24 ways of doing it. 25 Q. Is there any merit, do you think, in the suggestion that 47 1 the Post Office had, prior to the introduction of this 2 offer, been constrained in its ability to make generous 3 and decisive offers by the governance framework which it 4 agreed with the Government? 5 A. I think that there is almost always, with spending of 6 public funds, evidence required. I think that is 7 a legitimate thing when you're spending what is 8 ultimately taxpayers' money. I don't think -- the 9 anticipation wasn't that the process should stop Post 10 Office making generous and decisive offers to people. 11 Whether included in generous -- you know, was it quick 12 enough? No, absolutely not, and this was meant to be 13 a way to help make it quicker. 14 Q. Thank you. I'd like to address a new topic, please, 15 which concerns the governance of the programme to 16 replace Horizon, that's the programme we know is the New 17 Branch IT Programme. Now, you attended a meeting of the 18 Post Office Board in March 2023, shortly before you took 19 up your appointment as Non-Executive Director; is that 20 correct? 21 A. Yes. 22 Q. At that meeting, you were attending as an observer; is 23 that right? 24 A. Yes. 25 Q. One of the issues raised at the meeting related to cost 48 1 increases in the programme; is that correct? 2 A. I believe so, yes. 3 Q. Please could we look at the minutes of that meeting, 4 which bear the reference POL00448789. 5 Thank you. So minutes of the Board meeting of 6 9 March 2023. If we could scroll down, please, to 7 page 4, we can see there agenda item number 3, relating 8 to the "Revised NBIT Forecast". I'd like to look, 9 please, at the third paragraph, which reads as follows: 10 "ZM ..." 11 That would be Mr Mladenov; is that correct? 12 A. Yes, Zdravko, I don't know his surname. 13 Q. Zdravko Mladenov: 14 "[He] spoke to the Revised NBIT Forecast ... and 15 financials update, detailing the main drivers of the 16 costs increase." 17 Then it says "AC", that would be Alisdair Cameron; 18 is that right? 19 A. (No audible answer) 20 Q. "... noted that the level of assurance being requested 21 from end to end was such that, if agreed to, the project 22 team would not be able to build at the same pace as 23 currently, and a conversation on this needed to be had 24 with the shareholder." 25 It then said: 49 1 "ZP emphasised the need to have the right assurance 2 strategy which should focus on aspects of the project 3 that were particularly risky. ZM noted that a paper on 4 the NBIT assurance programme was due to come to the 5 28 March Board. ZP advised that it would be useful for 6 the Board to understand testing. ZM replied, detailing 7 the system testing and business acceptance testing." 8 Was this the first occasion on which concerns about 9 the future viability and funding of the NBIT programme 10 were raised with you, or in your presence? 11 A. In my presence, yes. I had -- this was, I think, the 12 first Board meeting I attended, so I don't know whether 13 it had been discussed previously. 14 Q. Had you received any prior briefing from your 15 predecessor, Tom Cooper, or from the Shareholder Team 16 about problems or concerns in relation to the NBIT 17 programme? 18 A. I cannot recall precisely. I very much imagine 19 Mr Cooper -- Mr Cooper held concerns. I imagine he 20 would have expressed those to me. 21 Q. What was your perception at this stage in March 2023 22 about the seriousness of the issues being faced by the 23 programme? 24 A. I didn't have a good understanding of the programme. As 25 I say, this is the first meeting I had attended and 50 1 I don't think I'd had briefings from the team in Post 2 Office yet, at this point. I didn't know much about it 3 at all, at this point. 4 Q. From the briefings that you received, do you know what, 5 if any, oversight the Post Office Board and Shareholder 6 Team had had in relation to the procurement, the early 7 procurement, of the new system? 8 A. I know that there had been a proposal that had gone 9 through the Investment Committee, as was BEIS. I don't 10 know beyond that, I'm afraid. 11 Q. You later attended a meeting with the Post Office 12 Minister in April, the following month, in which the 13 programme was discussed again. We have a readout of 14 that meeting at BEIS0000653, please. Thank you. This 15 the CEO's monthly meeting with the Minister on 18 April 16 2023. The principal issue raised by the CEO at this 17 meeting concerned the decision of the Permanent 18 Secretary to withhold funding; is that correct, do you 19 recall? 20 A. Yeah, did you say this is April? 21 Q. I think it's 18 April. 22 A. Yes, I do recall, yeah. 23 Q. Can you please explain the background to the decision to 24 withhold funding from the Post Office? 25 A. Yes, so Post Office is funded under -- well, it's now 51 1 funded for many things. At the time, it was funded 2 under the subsidy control regime for the uneconomic part 3 of the network -- so they call that the network 4 subsidy -- and also for investment funding. The 5 investment funding is dispersed from the Department 6 twice a year. I think it's 150 million quid each time, 7 I think, and the network funding is dispersed, I think, 8 quarterly. 9 The dispersal requires the approval of the Permanent 10 Secretary, and so, typically, my team writes the 11 submission that says, "Permanent Secretary, are you 12 happy to disperse the funds?", and gives them additional 13 context. 14 This was immediately after BEIS had been split up 15 into the Business Department and Energy Department and 16 Science Department, and so it was now a new Permanent 17 Secretary dealing with Post Office, so Post Office went 18 to the business department. It was now no longer Sarah 19 Munby who was Permanent Secretary and is now Gareth 20 Davies who is the Permanent Secretary. So this was the 21 first submission that had gone to Gareth Davies to say, 22 "Are you happy to release the network subsidy?" 23 The subsidy, as I mentioned previously, is the -- 24 the sort of conditions for it are set out in a funding 25 agreement with Post Office, and it says a bunch of 52 1 things that they have to do in order to release the 2 funding, the most sort of high profile of which are 3 maintain the Branch Network numbers, so the policy 4 obligations. There are also a number of other 5 conditions in the latter, such as have a three-year 6 business plan, have your budget approved, sort of thing. 7 Post Office didn't have a three-year business plan 8 in place. In part, because their settlement from the 9 2021 spending review, which I think Sarah Munby talked 10 about, was lower than they had hoped, and they had found 11 it very difficult to put together a three-year plan. 12 Because the conditions for funding were technically 13 not met, the Permanent Secretary decided to withhold 14 funding. 15 Q. You said that it was part of the role of your team to 16 put up the submission to the Permanent Secretary on the 17 funding issue; did that contain advice to the Permanent 18 Secretary to withhold funding? 19 A. No, it didn't. 20 Q. If we could look, please, at what the CEO had to say in 21 relation to the reasons why Post Office was experiencing 22 issues in relation to its funding. He said this, that 23 the main issues are, firstly, in relation to the Horizon 24 replacement, Post Office had underestimated the cost of 25 this; he referred also to Inquiry costs; and to 53 1 compensation. 2 In the paragraph that follows you're recording as 3 saying that: 4 "... UKGI and [Department] officials are working 5 together to provide the reassurance to the [Permanent 6 Secretary] about cost controls." 7 Is that a reference to cost controls specifically in 8 relation to the NBIT programme or more generally? 9 A. The permanent -- so just to provide a little bit of 10 context, the Permanent Secretary was completely new to 11 Post Office, and I think was surprised at the degree of, 12 we'll call it out of cycle funding, so funding that was 13 being asked for by Post Office, outside the usual 14 process. The usual process is spending reviews done 15 every one, two, three years, or whatever, by Treasury. 16 Post Office was making a significant number of 17 requests for funding out side of that process. That is 18 very unusual, in a Government context -- it is very 19 unusual, in a Government context. The Permanent 20 Secretary, I think, was very surprised by that and it 21 had led him to take the view that Post Office did not 22 have adequate control on its cost base. 23 Q. Thank you. If we could go over the page, please. So at 24 the top there, still on the issue of funding, you're 25 recorded as saying that UKGI needed cost and time 54 1 assurance for the funding request, in relation to the 2 Horizon replacement, and not just quality assurance 3 which is what you had seen thus far. 4 What quality assurance had been provided to UKGI at 5 this stage concerning the programme to replace Horizon? 6 A. I'm afraid I can't recall. 7 Q. Thank you. If that could come down, please. 8 You attend a further meeting of the Post Office 9 Board on 5 July 2023. This is the meeting at which 10 whistleblowing allegations concerning the management of 11 the NBIT programme are raised by the CEO and in which 12 it's acknowledged that there is a need for a better 13 governance of the programme; is that fair? 14 A. That is fair, yes. 15 Q. I wonder if we could look, please, at the minutes of 16 that meeting. They are POL00448509. Thank you. If we 17 could scroll down, please, and on to the second page. 18 So the agenda item is "Speak-Up", reference to the Post 19 Office's whistleblowing policy, and concerns which had 20 been raised under that policy relating to NBIT. You 21 received in that meeting a detailed update from the CEO 22 relating to the concerns and complaints raised by the 23 whistleblower. 24 By this stage in early July, what was your 25 perception as to the seriousness of the issues facing 55 1 the programme? 2 A. My recollection is that I, like many of the other Board 3 members, thought the programme had extremely serious 4 problems with it. I think the updated cost estimate was 5 sort of multiples of the previous cost estimate, and the 6 team were very, very clearly concerned about their 7 ability to deliver to the timeline that had been set 8 out. So, yes, I think it's fair to say I and others 9 were extremely concerned. 10 Q. Thank you. If we could just look, please, at the bottom 11 of page 2. So we see there, in the final paragraph, 12 a recognition that there was a need to establish better 13 governance across the programme, and a proposal by the 14 Chair which is said to have been discussed with another 15 member of the Board concerning the establishment of 16 a new committee, a Board committee, which would include 17 within its ambit responsibility for overseeing the NBIT 18 programme. 19 Is it right that you say that was your proposal or 20 a proposal that originated in UKGI? 21 A. So my predecessor on the Board had been -- my 22 understanding is, had advocated for that, the 23 introduction of that committee. He'd not got any 24 traction, my understanding is, with the company on 25 introducing that committee. At this point, the 56 1 committee was introduced, yes. 2 Q. Do you think there's merit in the suggestion that the 3 Board's approach to that issue was rather reactive, that 4 is to say no action was taken to address the governance 5 issues in relation to the programme until this 6 particular complaint was raised? 7 A. I do think that's fair, although, from the complaint and 8 the subsequent pieces of assurance that have been done 9 on the programme, the governance issues are -- you know, 10 the oversight of the Board is not the only governance 11 issue. In the programme, my understanding is there were 12 issues right the way down the programme, in terms of 13 governance, so setting up an Investment Committee, 14 whilst a helpful step, was definitely not going to be 15 a panacea. 16 Q. But it was something which you say that UKGI was 17 campaigning for -- 18 A. Yes. 19 Q. -- so far as you were aware, at least prior to -- 20 A. Yes. 21 Q. -- your appointment. 22 A. Yes. 23 Q. You're recorded in the minutes of the meeting as saying 24 that you considered it was sensible to pause on NBIT 25 with no regret activity continuing. Can you explain 57 1 what you mean by that, please? 2 A. When they were doing the programme, there was sort of 3 a view that there was some activity that would have to 4 carry on if the programme was to be able to deliver to 5 its timeline, but there was some other activity that 6 could be delayed/picked up at a later date. It was with 7 a view to giving the programme some space to reconsider 8 what it was it actually needed to do, whilst not 9 impacting significantly on the timeline for delivery. 10 Q. What did you understand to be the dividing line between 11 those activities which were necessary to continue and 12 those which could be parked? 13 A. That is a question for the Executive Team, rather than 14 for me. 15 Q. You wrote an email to the colleagues in the Department 16 the same day, informing them about this particular 17 complaint; is that correct? 18 A. I think it was after the complaint. I think the -- the 19 email is relating to the complaint, isn't it? 20 Q. Forgive me? 21 A. I think the email is relating to the complaint, isn't 22 it? 23 Q. Raising an email -- 24 A. Yeah, raising, yeah. 25 Q. -- off the back of what you had learned in the Board 58 1 meeting -- 2 A. Yes. 3 Q. -- about the complaint? 4 A. Yes. 5 Q. So that's, please, UKGI00049035. 6 Just before we come to that email, I asked you 7 earlier in your evidence whether you thought it was fair 8 to characterise the response to issues in the programme 9 as reactive, and you said you didn't think that was 10 an unfair characterisation in the circumstances. Were 11 you concerned that the very serious issues with the 12 programme that were identified in that complaint had not 13 reached the Board via normal reporting channels? 14 A. Yes. So, on one hand, it is a positive thing, I think, 15 that whoever the whistleblower was in this circumstance 16 came forward and felt able to use the Post Office's 17 processes to make a complaint, and that complaint was 18 taken seriously. On the other hand, the fact it has to 19 come through a whistleblowing complaint, rather than 20 being picked up through the normal course of business 21 with people being able to sort of speak to each other 22 and address concerns openly, does not reflect well. 23 Q. From what you understood about the complaint, why do you 24 think it was that it ended up reaching the Board in that 25 way? 59 1 A. I don't know, I'm afraid. 2 Q. If we could look, please, at your email, so this is to 3 Mr Bickerton and Mr Creswell in the Department. You say 4 you're writing to make them aware of a short notice 5 Board meeting that was held earlier that morning, 6 following an extensive complaint made under the 7 whistleblowing process. I think you said earlier in 8 your evidence this would be a good example of you 9 exercising your judgement to draw to the attention of 10 the Department what is, on the face of it, 11 an operational matter but one which you think is 12 sufficiently serious to draw to their attention -- 13 A. Yes. 14 Q. -- on this occasion because it related to a programme 15 which affected the future viability of the network? 16 A. A number of reasons. There's obviously a long and very 17 difficult history with Horizon, replacing it is 18 a priority for Post Office and for Government. This 19 called into question the programme to be able to do 20 that. There was also a very significant funding request 21 in from the Post Office to continue with the programme. 22 I think it's quite difficult to fund a programme fully, 23 that -- you know, to fully fund the request when you've 24 been told there's an awful lot of problems with the 25 programme. So I think it's pertinent on two levels. 60 1 Q. You recalled that the complaint is quite wide-ranging 2 but primarily related to the NBIT programme, alleging 3 incompetent management of the programme, poor governance 4 and misleading information being given to the Board. 5 You point out it also made a wide range of conduct and 6 behaviour allegations against senior members of staff. 7 You go on to say that the CEO of the Post Office has 8 outlined a number of changes that he's proposing to make 9 to the NBIT program, the first of which is the 10 commissioning of a review by KPMG and Accenture. 11 Just pausing there, were you aware of any concerns 12 about the role of Accenture? 13 A. It's a very good question, I was not as aware as I would 14 have liked to have been, in hindsight, about the role of 15 Accenture. So Accenture were involved in the programme; 16 they were providing contractors into the programme. My 17 understanding at the point at which this is commissioned 18 is that those contractors were quite junior people and, 19 you know, there are some people but it's not a big deal. 20 My subsequent understanding is that Accenture were 21 much more involved in the programme than I had 22 previously understood. So I think there's a good 23 question about whether or not a review done by Accenture 24 is appropriate, given that they are also contributing 25 staff to the programme, like how independent they could 61 1 really be. 2 Q. At this stage, I think it's fair to say you see the 3 appointment of Accenture as a positive thing in 4 providing assurance? 5 A. Yes. 6 Q. What you're saying now is perhaps that assurance wasn't 7 as concrete as you initially appreciated because of 8 their prior and ongoing involvement? 9 A. So Accenture, I am sure, would say, and say in their 10 report, that it's a different bit of the business but 11 I think that it is good practice to have a genuinely 12 independent third-party doing insurance. 13 Q. You've explained just now in your evidence that your 14 understanding of the scope of their role then was not as 15 detailed as it is now. How is it that you've come to 16 have a more fuller understanding of the extent of their 17 involvement? 18 A. I can't recall. It must have been through discussion 19 with somebody who was in the company who, you know, told 20 me. I can't remember. 21 Q. Do you consider there was a failure of reporting to you 22 in relation to Accenture and the role they were being 23 asked to perform? 24 A. I think the role of Accenture was probably underplayed 25 when it was described to the Board. 62 1 Q. So you say, in addition to that external review and 2 assessment of the programme, the CEO is proposing to 3 hire a new Transformation Director to oversee the 4 programme and, of course, you refer to the introduction 5 of the new Board committee, a request that you say, "We, 6 UKGI, made of the company". 7 Finally: 8 "A pause (reduction to minimal progress/no regrets 9 on the activity) on the programme whilst this is 10 underway." 11 You say this: 12 "To note there are a number of other similar 13 whistleblowing allegations relating to the programme. 14 I think the changes Nick is proposing to make are 15 sensible (and long overdue)." 16 Bearing in mind that you were obviously first aware 17 of issues in relation to the programme in early March, 18 albeit you said at that stage your understanding of 19 them, I think, was quite limited, you were not yet in 20 post as Non-Executive Director, why do you say there 21 that you considered those particular changes to be long 22 overdue? 23 A. So this is particularly on the hiring of a new 24 Transformation Director. So when I started on the Board 25 or when I was first being an observer on the Board, Post 63 1 Office was running the programme to replace Horizon and 2 introduce new branch technology as two separate parts. 3 So they were treating the build of the new operating 4 system for postmasters as distinct from the rollout of 5 that technology into branches. 6 And, to my mind, it was quite a strange thing to do 7 to treat them as different things, and the NBIT 8 programme, my understanding is, it was quite isolated 9 from the rest of the business, and it wasn't being kind 10 of well integrated and treating this as an opportunity 11 to sort of transform the business, make it easier to put 12 products on to the system, and, you know, set the Post 13 Office up for future success. It was being treated as 14 a sort of IT project. 15 My understanding is that the hiring of the 16 Transformation Director would sort of bring that 17 together. So, yes, I do think it was the thing that -- 18 I am surprised it was run like that in the first place. 19 Q. Now, in relation to that new Board committee, which 20 became the Investment Committee, it held its inaugural 21 meeting in or around late October of 2023; is that 22 correct? 23 A. I don't recall. If that is what you say. I'm slightly 24 surprised it's not until October but that may be the 25 case. 64 1 Q. Well, there's a reference in the Post Office Board 2 minutes to its inaugural meeting, which appears to date 3 it to October but we can look into that. You say, in 4 relation to the work of that committee, you're conscious 5 and acknowledge frustrations being expressed by members 6 of the committee about the level of assurance that the 7 shareholder or you, as shareholder representative, are 8 seeking on behalf of the shareholder in relation to that 9 particular programme; is that correct? 10 A. Sort of. It is not me seeking the assurance. It is the 11 shareholder seeking the assurance. I am relaying what 12 the shareholder is going to require, which is a bit 13 different, right? I'm not inventing the level of 14 assurance that they need themselves. This is what the 15 shareholder is going to require because of the level of 16 public funds that are being spent. 17 Q. Is it purely level of public funds or is there wider 18 concerns about the role of this new platform in 19 replacing Horizon? 20 A. So I don't think there is concerns about the role of the 21 new platform. You know, the idea was -- is that the new 22 branch technology, like, should equip postmasters with 23 the tools to offer customers and communities the best 24 service. I don't think anyone disputed that at all. 25 Government funded projects, when they reach a certain 65 1 level of funding required, or are particularly 2 contentious or novel, have to go through a thing called 3 the Government's Major Projects Process and that is true 4 across the whole public sector. And the scale of this 5 programme meant that it was going to have to go through 6 that process. 7 And so that it's not just a sort of "Are you 8 spending the money well"; it's "Is the programme going 9 to do what it says it's going to do? Is it going to 10 work as well?" 11 Q. Is it going to deliver -- 12 A. Yeah, on the objective, yeah. 13 Q. -- on the objective. 14 We saw in that Board meeting in March, where issues 15 were first raised in your presence about concerns in 16 relation to the programme, that the level of assurance 17 being sought was said to be something that was placing 18 a particularly onerous financial burden on the Post 19 Office. 20 A. Mm-hm. 21 Q. Do you have concerns about whether or not the mistakes 22 that were made in the past, in relation to Horizon have 23 been or are being repeated in relation to the Post 24 Office handling of this particular programme? 25 A. So I think there's sort of two answers to that. 66 1 Firstly, everybody in Post Office is acutely aware of 2 the history of Horizon and is determined to undertake 3 all the assurance necessary to -- in order to ensure 4 that the system is robust, right? The people developing 5 it are absolutely adamant that it needs to work, and not 6 suffer from the bugs and defects that have previously 7 been present in Horizon. So I think everybody is sort 8 of on board with that. 9 In terms of the sort of wider assurance -- sorry 10 I've forgotten the question that you asked me that led 11 me to think I had two things to say. 12 Q. Well, broadly speaking, the question was whether you had 13 concerns, bearing in mind what was said about the 14 onerousness of the assurance being sought as to the Post 15 Office's attitude to this particular programme and 16 whether it was repeating the mistakes of the past? 17 A. So I don't think that they were -- so I don't think they 18 were concerned or expressing concerns about assurance to 19 make sure the system worked. I think everybody wanted 20 assurance to make sure that the system worked. I think 21 they were expressing concerns about what they saw to be 22 additional Government processes, so for example, 23 enrolling on to the Government Major Projects Programme 24 thing, and the interventions of a thing called the 25 Infrastructure Products Authority, which is a bit of 67 1 Cabinet Office that kind of gets involved when there are 2 big projects. 3 I think they saw that aspect of it as intrusive into 4 Post Office's plans. My personal view is that that has 5 been shown to have added quite a lot of value, because 6 not only is it the right thing to do where taxpayers 7 money is being spent but it has been demonstrated to add 8 quite a lot of money as the new management team are 9 rethinking the approach to the NBIT replacement and are 10 not sure that the plan that is under discussion here is 11 going to be taken forward in its current form. 12 Q. Forgive me, can you repeat that? You're not sure that 13 the plan -- 14 A. So I think the current CEO -- Acting CEO of Post Office 15 has sent a message to all Post Office staff to say that 16 they are reviewing the current approach to NBIT, that 17 the objective of providing postmasters with tools to 18 offer customers and communities the best service remains 19 the same but they are reassessing the way in which they 20 are going to deliver that objective. 21 Q. In your statement, you make some concluding remarks 22 about the programme. I can bring those up for you if 23 that would assist, but you say this: that providing 24 a replacement for Horizon that is effective and 25 reliable, and which meets the Government's requirements 68 1 for the level of public funding that it requires, 2 I think you say, remains a highly challenging task. 3 A. Yes. 4 Q. Can you just explain what you mean by the Government's 5 requirements for the level of public funding that it 6 requires? 7 A. So Post Office, as I sort of mentioned earlier, is not 8 cash generative, right? It loses money every year and 9 is a going concern because the Government provides 10 annual support. Post Office does not have its own funds 11 available to pay for the replacement of the in-branch 12 technology. It is going to be wholly funded by the 13 taxpayer. That funding is at a level at which it is 14 well past the Department's delegated authority. It is 15 going to Treasury for approval. And Treasury take 16 a view on the amount of money that they spend on 17 programmes, and that is related to how much money the 18 programme requires to deliver, but there are, in all 19 cases, cheaper, more expensive ways of meeting 20 objectives. 21 Q. What do you consider the relationship to be between 22 ensuring that the replacement for Horizon is reliable, 23 and that the funding requirements of the Government are 24 met? 25 A. So absolutely nobody is making a trade-off about cost 69 1 and reliability on the system. To be completely clear, 2 there are lots of decisions about whether you employ 3 Post Office staff in-house to do it, whether you have 4 contractors who are on day rates to do it. Sort of 5 there is probably a bit of a trade-off between speed and 6 time as well: delivering something faster often costs 7 more money than delivering something at a slower pace. 8 So nobody is questioning the fact you need 9 a completely reliable system for the Post Office's IT. 10 That is not what the cost is about at all. 11 MS HODGE: Thank you. 12 Sir, that brings me to the end of that particular 13 topic. What I would propose is another short break of 14 ten minutes. I anticipate I will be finished with 15 Ms Gratton shortly after that, and then there will be 16 some questions from Core Participants to follow. 17 SIR WYN WILLIAMS: All right. So resuming at 12.10? 18 MS HODGE: I think that would be fine, sir. Thank you. 19 (11.56 am) 20 (A short break) 21 (12.10 pm) 22 MS HODGE: Good afternoon, sir. Can you see and hear us? 23 SIR WYN WILLIAMS: I can. Thank you. 24 MS HODGE: Thank you. 25 I have two further fairly brief topics to cover, 70 1 please. The first relating to the dismissal of 2 Mr Staunton, former Chair of Post Office. That's 3 a topic which has been covered at some length already in 4 this Inquiry but one in which you had some direct 5 personal involvement and, therefore, I'd like to briefly 6 touch upon it with you now. 7 I think it's fair to say that you had a number of 8 concerns about the conduct of the former Chair of the 9 Post Office, those related first to his attitude to 10 whistleblowing complaints that were made against other 11 staff at the Post Office, and you cite the example of 12 the whistleblowing complaint concerning NBIT, which we 13 discussed a short time ago, and whether that was taken 14 sufficiently seriously at the time by the Chair. 15 Secondly, you describe having concerns about 16 a whistleblowing complaint which included allegations of 17 the use of racist and misogynistic language by the chair 18 himself; is that correct? 19 A. Yes, that's correct. 20 Q. Sorry, I'm conscious you're nodding but it's purely for 21 the transcript. Thank you. 22 A. Yes. 23 Q. You say in your statement that you had personally 24 experienced dismissive conduct from the Chair; is that 25 correct? 71 1 A. Yes, that's correct. 2 Q. That complaint, of course, was subject of an independent 3 investigation, which concluded after the Chair's 4 dismissal. 5 I think the third area of concern related to the 6 procedure for the appointment of a new Senior 7 Independent Director -- is that right -- 8 A. Yes. 9 Q. -- particularly around irregularities in the procedure 10 that was undertaken in relation to that appointment? 11 A. Yes. 12 Q. What I want to ask you is whether your concerns about 13 that appointment process were ones of form or of 14 substance, or indeed of both? 15 A. My concerns were -- sorry, by "substance" do you mean by 16 the appointment of Andrew Darfoor as the Senior 17 Independent Director? 18 Q. Forgive me, I should have explained. Perhaps not in 19 relation to him personally, but is it right that you had 20 earlier expressed a preference for a female Board member 21 to be appointed and one, in particular, with Whitehall 22 experience; is that correct? 23 A. So there's two things there. My preference as 24 a Non-Exec Director was that the Board should be more 25 representative of the community that the Post Office 72 1 serves. So it currently has two female Board members, 2 of which I am one. So as a NED of the Post Office, yes, 3 I thought we should have a more diverse Board. But the 4 second part of that, of having a Non-Executive Director, 5 in this case, the SID, who had public sector experience, 6 was a view from the shareholder which I shared, rather 7 than just my personal view. 8 Q. And which you communicated to the Board? 9 A. Yes, and to Mr Staunton. 10 Q. Sorry. So my question was then: was your concern about 11 the approach that Mr Staunton had taken to the 12 appointment of Mr Darfoor one purely of form, that is to 13 say the procedure that was adopted, or one of substance? 14 A. It was about the procedure. I think there could have 15 been a sort of open discussion about the substance of 16 it. As it was, there wasn't. 17 Q. You say in your statement that you considered that the 18 Chair's behaviour had, by late December/early January, 19 become increasingly erratic and concerning to you? 20 A. I think what I say in my statement is that it was 21 described like that by members of the Executive Team, 22 I think. 23 Q. We can have a look but I think you say that was 24 a concern that was shared? 25 A. Yes, sorry, yes. It wasn't just my view, I think, is 73 1 the -- yeah. 2 Q. It was a concern that was shared by your colleagues on 3 the Board as well; is that correct? 4 A. Yes. 5 Q. The existing Senior Independent Director and Ms Burton? 6 A. Yes, it was, yes. 7 Q. Those concerns culminated in a meeting between 8 Mr Tidswell, the SID, and Mr Creswell; is that correct? 9 A. It was a phone call, but yes. 10 Q. Forgive me, a discussion -- 11 A. Yes, yeah. 12 Q. -- about his concerns, and in a submission jointly 13 authored by you and Mr Creswell to the Secretary of 14 State, in which you recommended that she exercise her 15 powers to dismiss the Chair; is that right? 16 A. Yes, that he was removed from the Board. Yes. 17 Q. Beyond that short summary, is there anything further you 18 wish to say on the topic of the Chair's dismissal? 19 A. No, I think that is an accurate reflection of what 20 happened. 21 Q. Thank you. The final topic then, please, concerns the 22 recent survey commissioned by the Inquiry and undertaken 23 by YouGov of current serving postmasters, and the high 24 levels of dissatisfaction expressed in that survey by 25 the postmasters on a variety of issues, including the 74 1 operation of Horizon and the recovery of shortfalls? 2 A. (The witness nodded) 3 Q. The Inquiry has heard evidence that this is a matter 4 that has been discussed at Board level -- 5 A. (The witness nodded) 6 Q. -- most recently on 24 September this year; is that 7 correct? 8 A. Actually, most recently, Tuesday of this week, where 9 there was an additional Board but, yes, it was also 10 discussed in September. 11 Q. Can you give us an indication, in relation to the most 12 recent discussion, what the Board's doing about this 13 issue: what action has been taken to address it, please? 14 A. Yes, absolutely. I think I've touched on some of it in 15 previous things I've said. So with relation 16 particularly to the discrepancies point, and postmasters 17 continuing to experience discrepancies, the Post Office 18 Exec are in the process of appointing an independent 19 review, a third-party review, of Horizon and its 20 robustness. And they're in discussions with Voice of 21 the Postmaster and NFSP about the terms of reference for 22 that and how those groups are going to be involved in 23 the process. 24 So it's not going to be sort of a sign off the terms 25 of reference, get the product at the end, it's going to 75 1 be involvement throughout, with a view to providing -- 2 they are then planning on publishing it, so making it 3 sort of fully available to whoever wants to see it. 4 They're also planning as part of that, inviting 5 postmasters -- and I think they might have already done 6 it -- into the Chesterfield operation centre, which is 7 run by Mel Park, who has also given evidence, so they 8 can be completely transparent on what the various stages 9 of, like, operational process management is for where 10 there are discrepancies, so that they are transparent on 11 that. 12 They also plan on publishing quite a lot more 13 evidence -- sorry, evidence is the wrong word -- 14 information about Horizon. They've got a lot of it in 15 terms of uptime and bugs, and whatever, they plan on 16 making more of that available as well. The Board is 17 very supportive of that. 18 I also mentioned earlier the plan to get postmasters 19 more involved in the various bits of the business. That 20 is still more of a work in progress as to where it's 21 actually going to sort of finally land, but it is 22 a piece of work that is getting taken forward with a lot 23 of vigour. 24 Q. Is this particular issue, namely ongoing concerns by 25 postmasters about the reliability of Horizon, one which 76 1 you've escalated to the Department as part of your risk 2 reporting in relation to Post Office? 3 A. Yes, absolutely. They are concerned -- I am concerned. 4 The Board generally and the Executive Team are 5 concerned. 6 MS HODGE: Thank you, I've no further questions. 7 THE WITNESS: Thank you. 8 Questioned by SIR WYN WILLIAMS 9 SIR WYN WILLIAMS: Before we ask Core Participants to ask 10 their questions, can I just take that latter point 11 a little further? What I mean by that is the query 12 about the reliability of Horizon. 13 You are probably aware, Ms Gratton, that I've heard 14 evidence in recent weeks about what might be thought to 15 be a degree of conflict between Fujitsu and the Post 16 Office in relation to the reliability of the current 17 version of Horizon and, allied to that, to what extent, 18 if at all, reliance should be placed upon it in 19 recovering what appear to be -- and I use the words 20 "appear to be" very advisedly, as you guessed -- 21 shortfalls and/or taking action against postmasters, 22 either to recover shortfalls or to report them to the 23 police. 24 Where has the Board got in relation to that, if 25 I can have an update from you, this time wearing your 77 1 Post Office Director hat, as opposed to what you might 2 be telling the Department. 3 A. So in terms of where the Post Office has got to with 4 Fujitsu on the system reliability issue? 5 SIR WYN WILLIAMS: Well, all of those issues, if you can 6 bring me up to date on them. 7 A. So -- 8 SIR WYN WILLIAMS: Let's start with what I understand to be 9 the position and then you tell me if there's any 10 alteration, that, as of today, so to speak, or the last 11 time I heard evidence, the Post Office was not seeking 12 to recover apparent shortfalls from postmasters; is that 13 still the position? 14 A. That there is no civil recovery and my understanding is 15 that there is no passing of information to the police on 16 the basis of shortfalls, so no. 17 SIR WYN WILLIAMS: Right. So that answers the second part 18 of the question relating to prosecutions. 19 So far as the reliability of Horizon, as debated 20 between Post Office and Fujitsu, we'll hear from 21 Mr Patterson on Monday, but from your perspective, is 22 there simply an impasse in the sense that there was the 23 exchange of letters in the summer, and nothing further 24 has happened, or has something further happened? 25 A. I'm not sure if anything further has happened. I know 78 1 that the Chairman has met with Fujitsu with a view to 2 discussing the extension of the Horizon contract 3 post-March '25. My understanding is that there is some 4 nuance in Fujitsu's position, whereby they do not want 5 the data to be used for criminal convictions, but they 6 are not questioning the integrity of the data within the 7 system, is my understanding from Post Office's IT 8 people. 9 SIR WYN WILLIAMS: Right. So that we don't confuse what you 10 might have been told perfectly in good faith with the 11 formality, so to speak, has the Post Office Board 12 discussed this in the last few weeks? 13 A. Not in the last few weeks. It has been discussed at 14 Board meetings through oral updates from the as-was 15 Acting CEO over the summer, and that is the position 16 that he outlined to the Board. 17 SIR WYN WILLIAMS: Okay, right, fine. Thank you. 18 Right, over to the Core Participants. 19 MR JACOBS: Hello, I'm waiting for my microphone to come on. 20 SIR WYN WILLIAMS: You're still very indistinct Mr Jacobs. 21 MR JACOBS: Ah, that's better thank you very much. I should 22 have known that I have to press a button. Sorry about 23 that. 24 Questioned by MR JACOBS 25 MR JACOBS: Ms Gratton, I'll start again. I represent 79 1 a large number of subpostmasters and assistants, who 2 were affected by the Horizon scandal. 3 I want to ask you about the hard powers of 4 ministerial intervention that you detail in your 5 statement. So can we just turn to paragraph 27 of your 6 statement, and that's WITN11310100, and it's page 12 of 7 103. 8 Looking at that whole paragraph, you say: 9 "There are several ways in which the Secretary of 10 State and ministers at DBT can and do intervene in [Post 11 Office's] governance and management. Most directly, the 12 Secretary of State has the power under the Articles of 13 Association to dismiss the Chair of the [Post Office] 14 Board and [the Post Office] Directors (including the 15 Executive Directors) ..." 16 Then you cite the relevant part of the Articles of 17 Association. Now, that is what I think witnesses have 18 called the nuclear option, and that was in place during 19 the course of the events that the Inquiry is 20 considering; is that right? 21 A. I actually don't know the answer that, sorry. 22 Q. No, you weren't there at the time, of course. 23 A. No. 24 Q. Take it from me then, there's been evidence to say that 25 was right. 80 1 Moving on to what you also say, if we could look at 2 the seventh or the eighth line down, where it says, "The 3 revised Articles of Association also allow the Secretary 4 of State to give directions to POL"; can you see that 5 there? 6 A. Yeah. 7 Q. "... which require POL to 'take all steps within its 8 power to do what those directions require to be done'." 9 That is Article 7(F) of the revised Articles of 10 Association. 11 Now, I'm going to ask you a question that you may or 12 may not be able to answer because I know that you have 13 with UKGI since 2021. 14 A. (The witness nodded) 15 Q. But were involved with the Post Office since, I think, 16 May 2022? 17 A. So I've been involved with the Post Office probably 18 since February '23, when my predecessor was -- it was 19 announced my predecessor was stepping down. So I had 20 a handover period. 21 Q. Yes, and the revised Articles were amended on 22 14 December 2022? 23 A. (The witness nodded) 24 Q. So a few months before you came to Post Office? 25 A. Yes. 81 1 Q. But did you know when you joined, were you told what the 2 provenance of these Articles is: was this inserted as 3 a result of the scandal, as a result of the Fraser 4 judgments, or the decision of the Court of Appeal in 5 Hamilton & Others? 6 A. I'm afraid I don't know. 7 Q. You don't know. Okay. Well, I'll move on. You say in 8 your statement that, to your knowledge, this power, this 9 power to give directions, hasn't been exercised. 10 We can take that down now from the screen. Thank 11 you. 12 Do you know under what circumstances the power would 13 be exercised or could be exercised? 14 A. On one level, that is a decision for ministers and they 15 could choose to exercise it when they wish: they are the 16 shareholder. In practice, I think they probably take 17 the view that directing organisations and people to do 18 things isn't conducive to a productive working 19 relationship. So I would imagine, in practice, they 20 would, as you have sort of called it, see that as 21 a nuclear option and, if you are in a position as 22 a Secretary of State where you find yourself directing 23 a Board, you may want to consider whether or not you 24 have the right people on that Board. 25 Q. What I really wanted to ask you is: there's 82 1 a difference, it appears, between the nuclear option, 2 which is sacking and dismissing the Board, and 3 reappointing another Board and intervening directly and 4 taking control, and the power to issue a direction to 5 the Board or to an individual to say this is what Post 6 Office has to do because the Government is concerned 7 that mistakes of the past are about to be repeated. Do 8 you see that the second option is a more practical way 9 of getting a result quickly, rather than a nuclear way 10 of dismissing everybody? 11 A. Yes, I can see why you might think that. In practice, 12 my instinct would be that if you are on a Board where 13 you find yourself being directed, you may think that 14 you're not aligned with the shareholder. 15 Q. Do you think, in light of the issues that this Inquiry 16 is looking at, and the scandal and the terrible effect 17 that it has had on the lives of so many people, that 18 this direction is a useful way by which the shareholder 19 can short-circuit matters, if it thinks that history is 20 about to repeat itself? 21 A. It could be, yes. 22 Q. At about 10.25 this morning, you were asked about 23 reporting operational matters up to the DBT, and you 24 said there were some things that the Department is very 25 concerned about, and you spoke about financial 83 1 performance and budgets, and you gave an example of the 2 YouGov survey. 3 A. (The witness nodded) 4 Q. Is that the sort of thing that could be the subject of 5 a direction, if not properly resolved? 6 A. So in theory, yes. But I sort of come back to the idea 7 that the Board is appointed by the shareholder. As the 8 shareholder, you would aspire to appoint people who have 9 a shared understanding of the organisation's objectives 10 as the shareholder -- the shared understanding with the 11 shareholder of the organisation's objectives. So 12 I would hope that you would -- that we wouldn't find 13 ourselves there because there is a sufficient dialogue 14 and sort of common understanding between the shareholder 15 and the Board. 16 Q. So I think what you're saying is that the direction 17 would be given reluctantly and as a matter of last 18 resort? 19 A. Yes, that, I think -- I think that is how the power is 20 intended to be used. 21 Q. Is there any guidance around the use of this power to 22 give a direction or is it entirely a matter of 23 discretion? 24 A. I have not seen any guidance. It is the sort of thing 25 that, were a Secretary of State minded to do so, they 84 1 would expect to receive advice on prior to doing so from 2 their officials. 3 Q. Do you think there should be guidance, so that the 4 position can be clear as to the use of this power? 5 A. Potentially, although I would imagine that the specifics 6 of the situation would be quite relevant to whether or 7 not it was used. 8 Q. You've been referred today in your evidence to some 9 concerns that Mr Jacobs and Mr Ismail raised about 10 retention of employees, whose actions had been subject 11 to criticism. 12 A. (The witness nodded) 13 Q. That is a point for many of our clients, if not all of 14 them. Another point of concern, which you've also been 15 referred to, is the YouGov survey, where 92 per cent of 16 the 1,000 subpostmasters who responded said that they'd 17 experienced issues with Horizon in the last 12 months. 18 98 per cent of those who reported shortfalls said that 19 the most common resolution was to use branch money or 20 resolve it themselves. These are serious matters, 21 aren't they? 22 A. I absolutely agree, yes. 23 Q. Do you think that if they continued, escalated, weren't 24 resolved, that the direction could be used to prompt 25 Post Office in the right direction? 85 1 A. So I wouldn't want to speculate because I think that 2 they are both matters that the Board is taking very 3 seriously. 4 SIR WYN WILLIAMS: Does it come to this, Ms Gratton: that if 5 it ever got to the point where the Minister thought it 6 appropriate to tell the Board what to do, the reality is 7 that he would have lost faith in the Board and/or the 8 Board would have thought he was wrong so they'd resign 9 en masse? 10 A. Yes, I completely share your view. 11 MR JACOBS: Thank you that's helpful. 12 Finally from me, I want to refer you to what you say 13 at paragraph 23 of your statement. There is no need to 14 turn it up, I can read it out. 15 "The MOU contains provision for the Shareholder Team 16 to make submissions directly to the DBT Permanent 17 Secretary, Minister or Secretary of State." 18 You go on to say at paragraph 40: 19 "Ultimately, should my team or I become aware of 20 an issue that we do not consider the Department has been 21 fully sighted on or has not fully considered, it may be 22 appropriate to provide a submission directly to the 23 departmental Minister or Permanent Secretary." 24 Have you or anyone in your team made any such 25 submission? 86 1 A. So my team and I write a lot of advice that goes to 2 ministers. In practice, all of the instances of that 3 that I have experienced seen in this -- since being in 4 this role have been done effectively jointly with the 5 Department, so that advice has gone through Carl 6 Creswell and David Bickerton. Where there is 7 a difference of views between somebody in the Department 8 and someone in UKGI, that has been noted in the 9 submission but I have never found myself in a position 10 where I have had such a violent disagreement with the 11 Department that I have felt the need to put up advice 12 aside from their process. 13 Q. Do you consider that it is part of your function in 14 making such submissions to request for a direction if 15 you think that is necessary or appropriate? 16 A. I think, in theory, it could be, but, again, it's not 17 a situation in which I have found myself. Also, the 18 specific relation to my role, I am not there to direct 19 the Board, right? So when I am in a Board meeting, I am 20 a Non-Executive Director. I am not a decision maker on 21 behalf of the shareholder. So I am reflecting the 22 shareholder's view and then the Board is taking 23 a decision, and then, if the shareholder approval is 24 required the decision of the Board goes to the 25 shareholder for approval. 87 1 Q. But you do feed back concerns, don't you? 2 A. Yes. 3 MR JACOBS: Thank you. I don't have any further questions 4 for you. Thank you. 5 SIR WYN WILLIAMS: Thank you, Mr Jacobs. 6 Questioned by MS PATRICK 7 MS PATRICK: Good morning, Ms Gratton. 8 You'll be glad to hear we've only got two topics 9 we'd like to cover and both of them relate to your 10 witness statement. 11 The first relates to your general reflections at the 12 end of your statement on the efforts made to engage with 13 subpostmasters who might be eligible for compensation. 14 A. Mm-hm. 15 Q. I'm not going to ask for it to come on screen but if you 16 want to have it in front of you, it's page 93. You deal 17 in the statement with the approach being taken to new 18 putative applicants to the HSS, the letters being sent 19 and how they highlight the fixed offer available. I'm 20 not going to read directly but I just want to highlight 21 a paragraph couple of paragraphs. 22 If you look at 202 in front of you, you start by 23 looking at the Overturned Compensation Scheme (sic) and 24 you set out how initially there were three letters being 25 sent, highlighting the right to appeal, the right to 88 1 compensation, criminal cases review and so on. Then you 2 say: 3 "The work has largely been superseded by the 4 implementation of the exoneration policy." 5 You finalise it by saying: 6 "The Post Office has also been in contact with 7 Citizens Advice to provide support and information for 8 potential applicants and has encouraged the few 9 applicants who do not have legal representatives to seek 10 legal advice to expedite their claims." 11 Now, that's the Overturned Convictions Scheme. 12 A. Yes. 13 Q. You go on to the HSS, and say: 14 "On the HSS, much of the work to identify potential 15 claimants had been done before my appointment as NED, 16 including writing to former and current postmasters who 17 met the eligibility criteria and publishing information 18 on the website." 19 You refer to the huge increases we've heard about 20 following the drama. You say that: 21 "The Post Office is planning to write again to 22 potential applicants, setting out details of the £75,000 23 offer, the appeals process and the end date." 24 Then you go on to say that you've been asked about 25 how the communication with applicants is going. You say 89 1 you're aware that there have been concerns about the 2 offer letters and that previously a complaint had been 3 made to the SRA. 4 You say that the wording in the letter has changed, 5 and you're not aware of major issues arising around Post 6 Office's communications with claimants. I won't read 7 out all of that because you say you're not in the thick 8 of it, as it were -- 9 A. Yes. 10 Q. -- around how the timings, and so on, of compensation is 11 dealt with. But since you've raised the letters, can 12 you help the Inquiry with whether or not access to legal 13 advice is addressed expressly in the current letters 14 being sent to HSS applicants? 15 A. I am afraid I don't know. 16 Q. You don't know. 17 We've heard a lot today about differences in 18 approach to legal advice. Do you know, at high level, 19 whether would-be applicants to the HSS are encouraged to 20 seek legal advice, in the same way that individuals in 21 the Overturned Compensation Scheme would be? 22 A. So I actually don't know whether this came up with 23 Mr Creswell yesterday but legal fees -- legal advice is 24 reimbursed -- the cost of which is reimbursed in the HSS 25 only on receipt of the offer, not prior to the offer 90 1 being made -- sorry, not at the point of application. 2 That is a decision for the Department, that the 3 Department has taken. 4 Q. Indeed, we did cover that. The Inquiry has heard that 5 and that's why I've raised it. 6 What I wanted to ask you was, has that issue of 7 legal advice and funding for legal advice -- 8 I apologise, I'm being reminded that I may have said 9 "Overturned Compensation Scheme", of course we're 10 talking about the difference with the Overturned 11 Conviction Scheme. I misspoke. 12 But returning to that question, has that issue about 13 legal advice and encouraging legal advice or the 14 question of funding legal advice earlier in the process 15 for HSS applicants been discussed at the Remediation 16 Committee? 17 A. Yes, it has, extensively. 18 Q. Are you able to help the Inquiry on what has been said? 19 A. So the Remediation Committee, of which I am part, thinks 20 that claimants should be offered legal advice at the 21 point of application. I think it's quite hard to decide 22 whether or not you should take a fixed-sum offer without 23 having some support in that process. That view from the 24 committee has been made clear to the Department. The 25 Department has taken a different view. 91 1 Q. Thank you. Now, moving to the second topic. I want to 2 deal briefly with transparency, which is a topic that's 3 been addressed a lot this morning in the questions by 4 Ms Hodge. 5 Are you aware about the announcement in the King's 6 Speech this year that the Government intends to bring in 7 a law with a duty of candour for all public servants and 8 those acting with public functions, colloquially known 9 to most people as the Hillsborough Law, recognising the 10 campaign by those families involved in the Hillsborough 11 scandal and the recommendations of Bishop Jones; is that 12 something you're aware of? 13 A. Yes, it was disclosed to me as part of the bundle. 14 Q. We know in his speech to his party conference on 15 24 September, just about six weeks ago, the Prime 16 Minister said a bit more about that law, and I hope you 17 don't mind, I'm going to quote what was said because we 18 don't know very much about Government thinking. He 19 said: 20 "For many people in this city, the speech they may 21 remember was the one here two years ago because that's 22 when I promised, on this stage, that if I ever had the 23 privilege to serve our country as Prime Minister, one of 24 my first acts would be to bring in a Hillsborough Law, 25 a duty of candour, a law for Liverpool, a law for The 92 1 97, a law that people should never have needed to fight 2 so hard to get but that will be delivered by this 3 Government. It's also a law for the subpostmasters in 4 the Horizon scandal ..." 5 He goes on: 6 "... the victims of Infected Blood, Windrush, 7 Grenfell Tower, and the countless injustices over the 8 years suffered by working people at the hands of those 9 that were supposed to serve them. Truth and justice 10 concealed behind the closed ranks of the state." 11 He goes on to say a little bit more about what it 12 will do: 13 "This is the meaning of Clause 1, because today, 14 I can confirm that the duty of candour will apply to 15 public authorities and public servants. The Bill will 16 include criminal sanctions and that the Hillsborough Law 17 will be introduced to Parliament before the next 18 anniversary in April. It's work that shows how 19 a Government of service must act in everything it does." 20 He ends a couple of paragraphs later on: 21 "It doesn't mean that everyone will agree but it 22 does mean we understand that every decision we take, we 23 take together." 24 Now, I just want to ask you, because of your role 25 and your connection with the Post Office as a Director 93 1 on the Board, and your role with UKGI, have you been 2 involved so far in any conversation within Government as 3 to how this new duty of candour might apply to 4 arm's-length bodies or public corporations? 5 A. No, I haven't. 6 MS PATRICK: Thank you. 7 SIR WYN WILLIAMS: Is that it, Ms Hodge? 8 MS HODGE: There are, I think, a few questions from Ms Watt. 9 SIR WYN WILLIAMS: Right. 10 Questioned by MS WATT 11 MS WATT: Good afternoon, Ms Gratton. Yes, I'm over here. 12 I think I just have to get Mr Jacobs to move. Thank you 13 very much. 14 I ask questions on behalf of the NFSP. I have 15 couple of topics to follow up on from your evidence this 16 morning as given to Counsel to the Inquiry. 17 Earlier in answering questions from Counsel to the 18 Inquiry about the reference in your witness statement 19 regarding the Postmaster NEDs on occasions failing to 20 distinguish between their roles as Post Office Board 21 members and postmasters themselves -- you remember that 22 part -- you gave an example of how difficult the 23 Postmaster NEDs had found it when the Board was dealing 24 with its financial positions, such as the budget 25 discussions, and you said those discussions were tricky 94 1 because the company is not able to pay postmasters the 2 remuneration they would like to because, simply, there 3 aren't the funds for it and you said they found that 4 position difficult to accept. 5 So I wanted to put it to you, from your perspective, 6 it's great to hear from those Postmaster NEDs on the 7 Board but the truth is, actually, they of themselves as 8 Postmaster NEDs can't change the remuneration to 9 postmasters, they can't increase it simply by virtue of 10 being on the Post Office Board. That's the case, isn't 11 it? 12 A. Well, I don't think any Board Director is able to sort 13 of magically generate funds for the Post Office to have, 14 so to the extent that is true of all of us, it is also 15 true of the Postmaster Non-Executive Directors. 16 However, I don't think that is to say at all that they 17 are not a vital part of the company because I think they 18 are, and I think their contribution -- anyone who -- you 19 know, we all bring our own kind of lived experiences to 20 the Board: I been a perspective from the shareholder, 21 they bring a perspective from postmasters. It is very 22 difficult for the Board to adequately understand that 23 without their presence on the Board. So I think they 24 are integral to the Board. 25 Q. So good to hear from them, as I said? 95 1 A. I think they have as much say over the company as any 2 other Board Director does. 3 Q. If we think about the readout that you were taken to, 4 the BEIS document -- I'm not going to go back to it, you 5 were already taken to it -- and the comment of the Post 6 Office CEO, Mr Read, making the comment about the 7 Postmaster NED role as to whether they're directors or 8 trade union reps -- it kind of goes back to what I've 9 just asked you about -- and you said you didn't know 10 where that was going to go. 11 That's the nub of the issue really, isn't it? UKGI, 12 Government, Post Office, they have the Postmaster 13 NEDs -- that's an illustration of opening up and 14 apparently engaging with postmasters, but the fact is, 15 because of their two roles, the Postmaster NEDs and 16 inevitably constrained, at least some of the time? 17 A. The Postmaster NEDs are definitionally not independent 18 Non-Executive Directors; I am not an independent 19 Non-Executive Director. I -- that means that in some 20 situations they will find themselves conflicted in 21 decision making. The number of situations in which that 22 is true is very limited. I happen to think -- I think 23 we have a difference of opinion on this. 24 I happen to think that postmasters are a vital part 25 of the Post Office Board and it's not appropriate to put 96 1 them on a sort of separate Board over there where the 2 decision making isn't. I think they should be integral 3 to the decision making in the Post Office, which they 4 are, in virtue of being two of the ten people around the 5 Board table. 6 Q. It's really about if they're listened to, isn't it, 7 because the YouGov POL commissioned by the Inquiry, 8 EXPG0000007, page 39 -- I'm not going to it -- but it 9 says that 60 per cent of the postmaster respondents 10 think that the Post Office Board doesn't listen to the 11 Postmaster NEDs and, on the evidence of the Postmaster 12 NEDs themselves, they think they're not listened to. So 13 really, your view and the view of postmasters and those 14 NEDs are actually quite different, aren't they? 15 A. So I think there has been a particular issue around the 16 amount that the Postmaster Non-Executive Directors have 17 been able to discuss the work that they do on Post 18 Office's Board with their postmaster colleagues. 19 I understand that they had had some advice from -- 20 I think, actually from the Post Office Legal team, that 21 they weren't allowed to discuss what went on in Board 22 meetings. 23 That is going to change going forward. Post Office 24 Board meeting minutes are going to be published. 25 I think there will be more latitude going forward for 97 1 Postmaster Non-Exec Directors to discuss what happens in 2 Board meetings, and I think that that will show the 3 influence that they have on the organisation. But being 4 a Non-Executive Director is different to being 5 an Executive of the company. They do not run the Post 6 Office. They are there as a Board member to provide 7 accountability for the CEO. It is the Chief Executive's 8 job to run the Post Office. 9 Q. Whatever the rights and wrongs of all of that, there are 10 many tools of engagement with the postmasters, including 11 engagement with representative bodies such as the NFSP, 12 which has 6,500 postmaster members. I mean, it's not 13 the be-all and end-all, not one thing -- you mentioned 14 something over to the side. There's actually lots of 15 ways in which Post Office and the Board can engage with 16 postmasters, as well as having the two Postmaster NEDs? 17 A. I couldn't agree more with you and I think there should 18 be engagement with postmasters at all levels of the 19 business, at -- as I've mentioned earlier, at 20 a commercial level, treating people as, you know, 21 genuine franchise partners; at an oversight in terms of 22 how the postmasters are treated with relation to issues 23 that have been concerned in the past; and at 24 a decision-making level at the Board. I think it should 25 be throughout the organisation, yes. 98 1 Q. Just one more topic. I think it's fair to say, you can 2 correct me if I'm wrong, that you and UKGI -- so when 3 I say "you", not you personally, as you've often said, 4 in your role as the Shareholder NED representing UKGI -- 5 consider that the role of the Shareholder NED is the one 6 that, actually, helps to give the oversight of the Post 7 Office Board. Is that how you see that role: as well as 8 being on the Board, the role of the UKGI shareholder, 9 that the NED has some oversight of what is happening? 10 A. I don't think that's a term that I've used, no. I think 11 that I am there as one of ten-ish Board members. As 12 a non-executive I am there to help the company 13 understand the views of the shareholder and to provide 14 the shareholder with insight from the company. I don't 15 think I have a particular oversight role, as distinct 16 from any other Board member. 17 Q. Thank you. In your earlier answer to Counsel to the 18 Inquiry, you effectively dismissed the need for 19 an oversight committee of the type proposed by the NFSP. 20 I just want to ask you some things about that. 21 That proposal arises out of the failures in culture 22 that led to the Horizon scandal, also the culture and 23 governance not having changed sufficiently since Lord 24 Justice Fraser's judgment, and now we have the Grant 25 Thornton report which shows an almost total failure to 99 1 get to the grips with the issues he outlined? 2 So the oversight committee is not proposed by the 3 NFSP as the be-all and end-all, postmaster engagement 4 would continue with them, but as something there to help 5 the restoration of public trust, actual oversight of the 6 Board which has, in fact, failed to change itself and 7 the Post Office. That's what oversight is for, and with 8 a range of representative bodies, condition consumer 9 champions, specialist members as needed, and Post Office 10 and Government representation, that could never actually 11 be a bad thing, could it? 12 A. I think we just have a difference of opinion on this 13 matter. I think that, if the current structures aren't 14 working, you should fix the current structures. I don't 15 necessarily think more is better, in terms of Boards and 16 committees. 17 MS WATT: Thank you. 18 MS HODGE: Sir, I think that concludes the evidence of 19 Ms Gratton. 20 SIR WYN WILLIAMS: Well, I'm very grateful to you, 21 Ms Gratton, for making a long and detailed witness 22 statement, and for answering everyone's questions here 23 this morning and into this afternoon. Thank you very 24 much. 25 THE WITNESS: Thank you. 100 1 SIR WYN WILLIAMS: So we'll adjourn for lunch, I take it, 2 Ms Hodge? 3 MS HODGE: Sir, yes. Shall we resume at 2.00? 4 SIR WYN WILLIAMS: Yes, by all means. Fine. 5 (12.53 pm) 6 (The Short Adjournment) 7 (2.00 pm) 8 SIR WYN WILLIAMS: Are you ready, Ms Price? 9 MS PRICE: Yes, sir, forgive me. I don't think you heard or 10 the connection wasn't there. Good afternoon. 11 SIR WYN WILLIAMS: Good afternoon. I think before you call 12 the next witness, I wish to make a short statement and 13 issue an invitation. Is the witness in the room? 14 MS PRICE: No, sir. He's not. 15 SIR WYN WILLIAMS: So the statement I wish to make is as 16 follows. 17 Throughout Phases 2 to 7 of this Inquiry those 18 following it will know that most of the questioning of 19 the witnesses has been done by Mr Beer and his team of 20 counsel. However, you will also know that it's often 21 been the case that counsel for Core Participants ask 22 supplementary or additional questions of the witnesses 23 as we have been going along. 24 What might be less well known is the process by 25 which that came about and, without going into too much 101 1 detail, essentially what happens is that counsel for the 2 Core Participants submit lists of questions that they 3 wish witnesses to be asked about, and then Counsel to 4 the Inquiry decides whether they will ask the question 5 themselves or whether they will leave it to counsel for 6 the Core Participants to ask the particular question. 7 That system has worked extremely well, and I should 8 say here and now that I am very grateful to all counsel 9 involved in this process who have made it work so well. 10 Very occasionally, as I understand it, counsel for 11 a Core Participant may wish to ask a question which 12 Counsel to the Inquiry thinks ought not to be asked. In 13 those circumstances, Counsel to the Inquiry does not 14 have the last word. That would rest with me, if any 15 application is made to me to ask the particular question 16 or a line of questioning. 17 To date, I have never been asked to exercise my 18 power to determine whether or not a question should be 19 asked, and that's pretty remarkable, given that we're, 20 what is it, almost three years into this process. 21 Anyway, intelligence has reached me that there may 22 be a problem -- and I stress may be a problem -- to be 23 resolved in relation to questioning of Sir Alex and so 24 I wanted to raise that immediately before he begins his 25 evidence. 102 1 The invitation I make is simply this: if there is 2 any Core Participant who feels that they are being 3 deprived of the opportunity of putting a question to 4 Sir Alex because of some kind of suggestion by Counsel 5 to the Inquiry that the question should not be asked, 6 now is your opportunity to raise it with me so that 7 I can have the last word on the subject. 8 So if anybody does wish to make any application to 9 me, will they please do it now. 10 Any takers, Ms Price? 11 MS PRICE: It doesn't appear so, sir. 12 SIR WYN WILLIAMS: Fine. Then let's have Sir Alex into the 13 room, please. 14 MS PRICE: Thank you. 15 SIR ALEXANDER JAMES CHISHOLM KCB (sworn) 16 Questioned by MS PRICE 17 MS PRICE: Can you give us your full name, please, Sir Alex? 18 A. Alexander James Chisholm. 19 Q. As you know, my name is Emma Price and I'll be asking 20 you questions on behalf of the Inquiry. 21 Thank you for coming to the Inquiry today to assist 22 it in its work and for providing a detailed witness 23 statement in advance of today. You should have a hard 24 copy of that witness statement in front of you. Do you 25 have that? 103 1 A. Yes, I do. 2 Q. It is dated 14 October 2024. If you could turn to 3 page 68 of that, please. 4 A. Yeah. 5 Q. Do you have a copy of with a visible signature? 6 A. I do. 7 Q. Is that your signature? 8 A. It is. 9 Q. I understand there is one minor correction you'd like to 10 make to the statement? 11 A. Yes, thank you very much. 12 Q. Would you like to tell us what that is? 13 A. It is a point of detail. Paragraph 23, and I'm talking 14 there about the funding given to Post Office Limited by 15 the Department in my time and, in the fourth sentence 16 there, we talk about the subsidy over three years and 17 then the investment, and it says: 18 "... the investment was 168 million in 2018/2019 19 with the remainder of the £210m funding earmarked for 20 the next two years." 21 And it should be "the next year", just one year, not 22 two. 23 Q. Are there any further corrections to be made? 24 A. No. 25 Q. With that correction made, are the contents of the 104 1 statement true to the best of your knowledge and belief? 2 A. Yes. 3 Q. For the purposes of the transcript the reference for Sir 4 Alex's statement is WITN00180100. 5 Sir Alex, your witness statement is now in evidence 6 and it will be published on the Inquiry's website in due 7 course. I will not therefore be asking you about every 8 aspect of your statement; just certain matters within 9 it. 10 I'd like to start, please, with your background and 11 the roles that you have held which are of relevance to 12 matters being looked at by the Inquiry. 13 After you graduated from Oxford with a degree in 14 history and completed a master's in business 15 administration, you began your career as a civil servant 16 in 1990; is that right? 17 A. Yes. 18 Q. You worked in various roles at the Department of Trade 19 and Industry and the Office of Fair Trading until 1996? 20 A. Mm-hm. 21 Q. You then worked in the private sector for around 22 a decade before returning to public service in 2006, 23 when you were appointed as Commissioner at the 24 Commission for Communications Regulation in Ireland. 25 A. Yes. 105 1 Q. In 2013, you were appointed as Chief Executive of the 2 newly-formed Competition and Markets Authority and held 3 that position until 2016? 4 A. Yes. 5 Q. You then served for a short period in the Department of 6 Energy and Climate Change as Permanent Secretary? 7 A. Yes. 8 Q. Then, following the merger of the DECC with the 9 Department for Business, Innovation and Science (sic), 10 to create the Department for Business, Energy and 11 Industrial Strategy, you became Permanent Secretary of 12 BEIS on the 5 September 2016? 13 A. Yes. 14 Q. You remained in that role at BEIS until 13 April 2020? 15 A. Yes. 16 Q. You were then appointed as Chief Operating Officer for 17 the Civil Service -- 18 A. Yes. 19 Q. -- and, in parallel, Permanent Secretary for the Cabinet 20 Office, roles you held until April this year; is that 21 right? 22 A. Correct. 23 Q. You are now Chairman of EDF Energy? 24 A. Yes. 25 Q. Coming to your responsibilities as Permanent Secretary 106 1 of BEIS, please. As Permanent Secretary, you were the 2 senior civil servant with lead responsibility for the 3 management and oversight of the Department and its 4 resources? 5 A. Correct. 6 Q. You were the Principal Accounting Officer, the Senior 7 Advisor to Ministers and a Public Representative of the 8 Department; is that right? 9 A. Yes. 10 Q. You also chaired the Department's Executive Committee 11 and the represented the Department before the Public 12 Accounts Committee? 13 A. Yes. 14 Q. You set out the many and varied matters which were 15 occupying the Department in 2016, and the years which 16 followed, at paragraphs 11 and 12 of your statement? 17 A. Yes. 18 Q. You also explain in your statement that the Department 19 at that time sponsored over 40 arm's-length bodies or 20 partner organisations, as they were known, within BEIS; 21 is that right? 22 A. Yeah. 23 Q. You deal at paragraph 15 of your statement with your 24 particular responsibilities as the Department's 25 Principal Accounting Officer. Could we have that on 107 1 screen, please. It's page 4 of WITN00180100. Here you 2 explain that, as Principal Accounting Officer, you were: 3 "... accountable to Parliament for Departmental 4 expenditure. This covered funds directly spent by the 5 Department, for example the funds required to employ the 6 approximately 4,000 staff who worked at BEIS. It also 7 covered the funds spent by over 40 arm's-length bodies 8 ... and capital programmes." 9 Then you give an example for 2018 to 2019 of the 10 expenditure of the core department and agencies being 11 £13.6 billion. 12 You describe Post Office as one of those 13 arm's-length bodies or partner organisations in the 14 paragraph below. Was that how the Post Office was 15 categorised, notwithstanding its status as a public 16 corporation? 17 A. Yes, I think technically, under the scheme of accounts, 18 the Office for National Statistics would classify it as 19 a public non-financial corporation, or often referred to 20 as a public corporation, and that put it at even further 21 arm's length than the arm's-length bodies. For 22 practical purposes, we treated them as one of our 23 partner organisations. It is the case, though, that 24 when I talk about 40,000 people working within the 25 Department and its agencies, that doesn't include all 108 1 the people who worked in the Post Office, which was 2 a separate business and, of course, tens of thousands of 3 further people were working there. 4 Q. Okay. Just on that figure, I think it was 4,000 in 5 paragraph 15 that you gave. Is that supposed to be 6 40,000? 7 A. No, 4,000 in the core department, and a further 40,000 8 working for us in the arm's-length bodies, but that 9 didn't include several tens of thousands more who would 10 have worked in sub post offices. 11 Q. I see. To deal with your accountability for Post 12 Office's funded expenditure, you deal with this at 13 paragraph 45, which is page 12, please. You say: 14 "Whilst I was not involved in the detail of UKGI's 15 oversight of [Post Office Limited], as Principal 16 Accounting Officer I was accountable to Parliament in 17 respect of [Post Office Limited's] funded expenditure, 18 as defined above, and for ensuring that arrangements 19 were in place for effective shareholder oversight." 20 So to be clear, first of all, about the parameters 21 of this, you say at paragraph 23 of your statement that, 22 at the time you were Permanent Secretary, Post Office 23 Limited was mainly self-funded through paid-for services 24 but, in addition, it benefited from top-up funding from 25 His Majesty's Treasury. Your accountability as 109 1 Principal Accounting Officer for the Department to 2 Parliament for Post Office Limited's expenditure, was 3 that limited to expenditure funded by the Department? 4 A. I think the scheme -- the way it works is that, as 5 Principal Accounting Officer, you then give delegated 6 accounting responsibility to either people working in 7 your own department or usually the heads of the 8 arm's-length bodies. And in this case the Accountable 9 Officer -- it's not called Accounting Officer for, 10 again, a very technical reason, apologies for that -- 11 the Accountable Officer was the Chief Executive of the 12 Post Office, and you could see in -- when I made, for 13 example, the appointment of the new Accountable Officer, 14 first Al Cameron and then Nick Read, they get a formal 15 letter for me, a formal delegation. That would have 16 been done for Paula Vennells who was appointed before my 17 time as Accountable Officer. 18 And says basically, "I'm the Principal Accounting 19 Officer, I'm now holding you responsible for running 20 this organisation, the public money within it, upholding 21 the standards of Managing Public Money and all the other 22 things". It's all set out in a formal letter of 23 delegation. So that's the first part of it. 24 I think, in addition, as part of that you don't say, 25 "Right, well, that's it". You remain concerned that 110 1 oversight is working effectively. You're there to 2 provide advice and support to the Accounting Officers. 3 You can see, you know, many times in those meetings, 4 one-to-one meetings, and so on, you're saying, you know, 5 what are the issues and how can we help you with those? 6 Also there is, I have to say, a supervisory aspect 7 to it, so you are also making sure they are doing things 8 correctly and, in my time -- I don't know if you're 9 going to come to this -- but at one point we found 10 evidence that they were using funds that we had given 11 the Post Office for the purpose of maintaining the 12 network and investing in transformation, they appeared 13 to have been used for a piece of litigation and we said 14 that that was incorrect. 15 MS PRICE: Yes, we will come on to that. 16 A. Yes, but it's an example of the exercise of the 17 Principal Accounting Officer function. 18 Q. The Inquiry has heard evidence from Sir Martin Donnelly 19 that, at least in some stage of his tenure from 2010 to 20 July 2016, as Permanent Secretary of the Department for 21 Business, Innovation and Science, for most of the 22 partner organisations over which BIS had oversight, 23 their accounts were consolidated into the main BIS 24 accounts. This did not apply, he said, to Royal Mail 25 and to the Post Office, given their status as a public 111 1 corporation. 2 Can you help, please, with whether the accounts for 3 any partner organisations were being consolidated into 4 the main BEIS accounts when you were Permanent 5 Secretary? 6 A. Mm, I'll have to think about that. I think it's very 7 likely they would have been, for some of the executive 8 agencies, but I'm not absolutely sure of that. And they 9 might have been for -- yes, so for example the Nuclear 10 Decommissioning Authority, I think accounts must have 11 been consolidated because I remember we had to make 12 provision for change in the interest rate, yes. 13 So probably quite number of them would have been 14 consolidated, I think that is right, yes. If it is 15 important to the Inquiry I could check the detail of 16 that but it's all there in the public accounts. 17 Q. In relation to the Post Office, its accounts weren't 18 consolidated -- 19 A. No. 20 Q. -- into the main accounts. What was the reason for 21 that? 22 A. It was treated as a company, run as a business, very 23 much at arm's length. It had its own statute, it had 24 its own Board -- fully fiduciary Board. Its accounts 25 were published/produced to the requirements of -- you 112 1 know, like any other company. They were externally 2 audited, not done by the Government's auditors. All of 3 that was done on a completely separate basis, and 4 I think it's also the case that the -- unlike other 5 parts of the Department where we would be employing 6 civil servants, here obviously it's much like 7 a business, like a franchising business with lots and 8 lots of employees, quite a big business, I think about 9 £1 billion in turnover at that time and, you know, it's 10 accounts would have been more comparable to those of 11 another retailer than to something of a Government 12 department. 13 Q. Was there any difference in your Principal Accounting 14 Officer responsibilities as they related to the Post 15 Office, when compared to other partner organisations, in 16 particular partner organisations which were not 17 classified as a public non-financial corporation? 18 A. Yes, I think that those which were closer and more alike 19 to us, we would probably -- if we were consolidating the 20 accounts, we would have had more control and 21 involvement, and also more day-to-day responsibility. 22 So, again, as a public corporation, run like a business, 23 it was very much at the outer edge of that arm's-length 24 responsibility and, in the delegated authority that we 25 gave them, it was clear that they needed to exercise 113 1 their own control, internal financial controls, proper 2 audit, proper processes, proper supervision, as you'd 3 expect in any other company or business. 4 Q. To what extent did you get involve in overseeing Post 5 Office's accounting practices? 6 A. Accounting practices, I would say not at all. I think 7 the only exception I can think to that was we had 8 a funding agreement, it was called, and actually, I just 9 drew attention to you the funding we gave both the 10 network, a subsidy to make sure that there were 11 approximately 11,500 Post Office outlets, and also we 12 funded some investment they were making to improve their 13 efficiencies and transformation. So those are the two 14 pieces of direct BEIS funding that came from the 15 Treasury through us to the Post Office. And we were 16 very meticulous in making sure they were spending those 17 in the right way. 18 They had to account for how they were doing it, and 19 that's how we detected that they had used a small part 20 of it incorrectly for litigation, which they then had to 21 repay to us, and were then put on a kind of extra 22 attention of monitoring and reporting every quarter 23 thereafter that they had not repeated that error. 24 Q. We will come to the correspondence on that very shortly. 25 Broadly speaking, it is the case instead that you 114 1 had oversight responsibility for ensuring the proper use 2 by the Post Office of public funds for their designated 3 purposes, as opposed to being more intricately involved 4 in their accounting practices? 5 A. Yes. I mean, in effect, the responsibility I had as 6 Principal Accounting Officer was then passed on to the 7 Chief Executive of the Post Office, who was the 8 Accountable Officer. 9 Q. The example that you've referred to, of your 10 correspondence with Paula Vennells, in respect of use of 11 public funds for the litigation, could you have on 12 screen, please, POL00024073. This is a letter you wrote 13 to Paula Vennells on 3 January 2018, which raises your 14 concern about a recent funding request which had been 15 made of the Department. Starting at the second 16 paragraph down, you say: 17 "As you will be aware, the Minister wrote to Tim 18 Parker on 20 December 2017 to set out the basis for 19 providing transformation funding to the Post Office and 20 her expectations on how this was to be used. The 21 Minister emphasised the need for funding to be used 22 prudently and efficiently in accordance with the 23 objectives of the three-year strategic plan whilst 24 recognising the need for some flexibility for 25 a commercial business engaged in investment projects. 115 1 "In your recent funding request, you indicated that 2 you intended to use BEIS funds for non-transformation 3 related spend specifically in relation to the ongoing 4 Horizon litigation. I understand that this is now no 5 longer the case and UKGI have communicated to your team 6 the requirement for BEIS funding only to be used against 7 those projects which are related to transformation and 8 approved investment activities." 9 You go on to explain that: 10 "As Principal Accounting Officer, [you were] 11 personally responsible for ensuring the Department has 12 a high standard of governance and exercises effective 13 controls over the management of resources, including 14 those through its partner organisations. So that I may 15 have ongoing assurance that BEIS funds entrusted to Post 16 Office are being used as the Minister intended, please 17 can you confirm this on a quarterly basis in arrears. 18 UKGI will provide you with further details on the exact 19 wording and format ..." 20 So it was your view that the use of departmental 21 funds for the Horizon litigation was not a proper use 22 for designated purposes; is that right? 23 A. Yes. 24 Q. You go so far as to describe it in your statement as 25 a "categorical mistake in budgeting and reporting". 116 1 Paula Vennells responded to you by way of a letter dated 2 8 January 2019. Could you have that on screen, please. 3 It's POL00024074. She addresses the litigation funding 4 issue, starting the fourth paragraph down, and says: 5 "We operate a single portfolio of large change 6 projects, which form the basis of our reporting to the 7 Board. As you know, our change funding comes from 8 a combination of Post Office trading profit and 9 Government transformation funds. The GLO work draws on 10 shared (scarce) resources from the change budget; we 11 have been transparent about these costs. I will ensure 12 we make it clear that the source of funds for GLO work 13 is Post Office, not Government. When this was brought 14 to our attention in December we removed the £2.4m from 15 this quarterly request. We will not include GLO spend 16 in future funding requests and will confirm this 17 quarterly, agreeing the wording with UKGI as requested." 18 She goes on: 19 "Furthermore, to ensure that the distinction is 20 absolute and consistent, I have asked Al Cameron, CFOO, 21 to arrange for £2.3m to be returned to BEIS: the GLO was 22 listed in our earlier reporting and we received funding 23 from you of £2.3m for [Quarter 2]." 24 Did you personally review the quarterly funding 25 requests from the Post Office? 117 1 A. No. 2 Q. Was that something you delegated to those who worked to 3 you? 4 A. Yes, the oversight of that was done by UKGI and I think 5 it's extremely likely that they drew my attention to it. 6 It's possible I spotted it myself but more likely they 7 said, "We've been going through the returns from the 8 Post Office, and they appear to have been using some of 9 our money [inverted commas, BEIS money], not for the 10 reasons given, which was specifically for network 11 maintenance and transformation, but for litigation. We 12 think that's wrong, do you agree?" And I saw it and 13 I said, "Yes, I absolutely agree and we should change 14 that and we should require them not only to give us the 15 money back but also to make sure it never happens 16 again", which I think is the effect of the commitment 17 that's entered into by the Chief Executive in that 18 letter. 19 Q. So you were told, were you, by UKGI, about the previous 20 earlier reporting and the payment out that had been 21 made, in addition to the recent report? Because there 22 are two things referred to here: was it that you were 23 hearing about the previous reporting for the first time 24 in this letter from Paula Vennells, or had that already 25 been reported to you? 118 1 A. I hadn't noticed at the time that there was a difference 2 between that. Now, you've mentioned it, I see 3 2.4 million is different from 2.3 million so it may be 4 that they did it for two quarters but, anyway, you know, 5 when I saw that, I thought, "Good, they've paid the 6 money back and they've accepted they made a mistake and 7 they won't do it again". 8 Q. Was the 2.3 million returned by the Post Office to the 9 Department as promised? 10 A. I'm sure it was, yes. 11 Q. Were you reassured by Ms Vennells's response to your 12 challenge? 13 A. Yes, in the sense that they didn't argue that they'd 14 made a mistake. They said, "We've made a mistake, we 15 made it good. We've paid the money back and we will, 16 you know, continue to account to you in a special way to 17 make sure it doesn't happen again" so I thought that 18 that was satisfactory. It wasn't good that it happened 19 in the first place but at least they had accepted their 20 error and made amends. 21 Q. That document can come down now. Thank you. 22 In terms of your wider responsibility beyond being 23 accountable for Post Office's expenditure of public 24 funds, you were responsible for ensuring that 25 arrangements were in place for effective shareholder 119 1 oversight of Post Office; is that right? 2 A. Yes. 3 Q. Was it in the context of that responsibility that you 4 began work in 2018 on a new Shareholder Relationship 5 Framework Document to clarify the respective roles and 6 responsibilities of BEIS and UKGI as they pertained to 7 Post Office? 8 A. Yes. 9 Q. We'll come back in due course to the reasons why you 10 considered that necessary but, just in terms of 11 involvement on shareholder issues, you say you were 12 actively involved on core shareholder issues throughout 13 your tenure; is that right? 14 A. Yes. 15 Q. You give examples in your statement of issuing guidance 16 letters to the Chair of the Post Office, appointing the 17 new CEO, following Paula Vennells' departure, and 18 involvement in Post Office strategy, setting and 19 discussions? 20 A. Yes. 21 Q. In terms of the Government's interest in, and 22 relationship with, Post Office, you say at paragraph 18 23 of your statement that, whilst BEIS had no legal 24 responsibility for the Post Office, under its Articles 25 of Association, it had political responsibility for the 120 1 company which you say it took seriously; is that right? 2 A. Yes. 3 Q. Ministers took a broad view of its responsibilities for 4 the Post Office, given its social function? 5 A. Yes. 6 Q. You describe the Department's oversight of the Post 7 Office as supervisory and advisory, with the Department 8 being heavily reliant on the reporting which came to it 9 from the Post Office? 10 A. Yes. 11 Q. On the question of the extent to which the Department 12 was able to intervene in Post Office matters, could we 13 have on screen, please, paragraph 36 of Sir Alex's 14 statement it's page 10. Having set out the role of 15 ministers in broad terms in the paragraphs above this, 16 you say: 17 "It was ... never my understanding that BEIS was 18 under a legal requirement which prevented ministers from 19 becoming involved in [Post Office Limited's] operations. 20 [Post Office Limited's] operational independence was 21 a practice and not an immutable right. My own view is 22 that [Post Office Limited] came to use its operational 23 independence in a self-protective way. Ministers and 24 BEIS officials were provided with carefully worded 25 summaries without the benefit of sight of many of the 121 1 key documents. The result was that, over time, the 2 reality of the situation as it concerned the Horizon IT 3 system and [subpostmasters] was obscured by [Post Office 4 Limited]. [Post Office Limited] came to use its 5 operational independence, and legal arguments about 6 privilege and confidentiality, as a defence to certain 7 decisions and to restrict the flow of information to 8 ministers." 9 You go on to explain that: 10 "POL's right to continue functioning at this level 11 of operational independence was always contingent upon 12 it fulfilling its responsibilities; both financial and 13 social. POL forfeited its claim to operational 14 independence when it failed in its public duties, and 15 ministers were entitled to intervene accordingly." 16 Then at paragraph 38 you refer to the difficulty 17 that: 18 "... by obscuring the reality of the situation ... 19 ministers and officials had a very limited picture of 20 what had been happening within [the Post Office], at 21 least until the judgment of Mr Justice Fraser was handed 22 down in the Common Issues trial in March 2019. Had more 23 fulsome and honest information been provided to the 24 Department by [Post Office Limited] over the course of 25 these events, I believe ministers would have intervened 122 1 sooner and more decisively in [Post Office Limited]'s 2 operations." 3 So from your -- forgive me -- 4 A. Could we just show paragraph 31 as well? 5 Q. Of course. If we can go back to that, please. That's 6 page 9. 7 A. I just wanted to show how the concept of operational 8 independence was not only a kind of a convention or 9 a practice, as I said there in the middle of that 10 paragraph, but actually was the way in which a public 11 corporation was meant to be treated, and that was 12 defined in the Public Bodies Handbook, and I quote there 13 the 2016 edition. So it says that is what a public 14 corporation is. It's: 15 "... controlled by Central Government ... and it has 16 substantial day-to-day operating independence so that it 17 should be seen as institutional units separate from its 18 parent Department." 19 So that's exactly how, you know, it's often been 20 mentioned about this concept of operating independence, 21 but that's, you know, the bedrock and you'll see in 22 other documents, such as the framework document, that's 23 fully recognised. The paragraph that you've just drawn 24 my attention on, which follow on from that, were saying 25 that that was fine, if you like, when things were going 123 1 well, but that neither ministers nor myself, or the 2 Department as a whole felt that that meant that we 3 should be insulated from what was happening within the 4 organisation, or that it meant it could do what it 5 liked, so to speak. 6 In some of its operations, clearly it significantly 7 failed and that meant that ministers and myself became 8 increasingly involved and I think we had every right to 9 do and is there was no legal bar to do so. 10 Q. Is it right that the reason for that greater involvement 11 at the stage that it happened was because the picture 12 the litigation revealed about the Post Office gave you 13 increasing concern? 14 A. Yes. 15 Q. What was that concern? 16 A. I think even before we saw the judgment, the Common 17 Issues Judgment, in March 2019 from Justice Fraser, 18 which I think in the phrase used by the then Secretary 19 of State Greg Clark was a "seminal moment", that 20 revealed a great deal about the way in which the Post 21 Office operated, its dealings with subpostmasters, and 22 showed them to be, in effect, oppressive in many ways. 23 So that was an incredible eye-opener for us. It was 24 also very clear that the judge was very dissatisfied by 25 the conduct of the litigation by the Post Office, by the 124 1 way in which the Post Office personnel had appeared as 2 witnesses before the High Court and, you know, all of 3 that was kind of very considerable and new information. 4 I think, even before that time, in the months of 5 preparing for it, we had been trying to get more 6 information about what they saw to be the legal risks, 7 and their contingency plans, and the potential 8 implications of this, and we found that was very 9 difficult to do so, and we had a lot of hard-fought 10 negotiations over an information sharing protocol, and 11 so on, to try to be able to find out what was happening. 12 And then there was, I think, a kind of carefully 13 controlled flow of information to the Department, which 14 I think, if we'd seen more, we would have seen -- as I'd 15 said later on in the statement, we would have seen they 16 actually had no chance at all of success in the 17 litigation, and they should have exited from it even 18 earlier than they did. 19 Q. The other reason you gave in your statement for greater 20 involvement was that the Department would need to be 21 directly involved in bringing settlement. Can you just 22 explain, please, why it was that the Department needed 23 to be directly involved in bringing settlement? 24 A. Yes, so I think that -- I mean, first of all, the 25 magnitude of the amount of sums, but also the 125 1 implications of that, accepting wrongful practice, 2 effectively, and trying to make good, would absolutely 3 be a shareholder matter? 4 I think, technically, the approval level which the 5 Post Office, under their delegated authority, was 6 £50 million, and we anticipate it going beyond that, and 7 indeed it was more than that. There's was also 8 a concept under Managing Public Money, which was the 9 main reference point for good accounting practice in 10 Government, that anything which is not all contentious 11 or repercussive requires Treasury consent expressively, 12 which we had to obtain for that. 13 So for all of those reasons it was rightly, both by 14 Post Office Limited and ourselves, seen as being 15 a matter which the Department would need to be involved 16 in the decision making. But there was also -- and 17 again, this comes up in later correspondence -- I was 18 very clear in my advice to the Secretary of State but 19 also that the Department need to be able to be a neutral 20 party in relation to the litigation so we could respond 21 and deal with the fallout and consequences of 22 remediation. 23 We shouldn't be a party to the litigation, we needed 24 to be above that in order to respond as necessary 25 according to the outcome of the litigation. 126 1 Q. In terms of your expectations of those working in 2 a public corporation, is it right that you would expect 3 them to act in a manner consistent with the Nolan 4 Principles? 5 A. Yes, indeed. And indeed, in the letter of delegation, 6 which again I've referred to -- to the Accountable 7 Person, it's very clear and it lists all the things that 8 they are required to do by reference to Managing Public 9 Money and includes, for example, treating your business 10 partners with respect, and things like that, acting 11 always with integrity, you know, such matters. So 12 I think there should be no doubt about Post Office 13 Limited as part of the public realm and its public 14 responsibilities. 15 Q. You made your expectation of this clear, it seems, in 16 a meeting you had with Nick Read on 30 September 2019. 17 A. Mm-hm. 18 Q. Could we have on screen, please, UKGI00018641. We can 19 see from the middle of page 1 that this is an email 20 readout of your meeting, sent on 2 October. Going to 21 page 3, please, under "BEIS expectations and immediate 22 priorities": 23 "Alex set out his expectations of Nick as CEO of 24 POL, [including] the Nolan Principles and guidance on 25 Managing Public Money. Recognising Nick's lack of 127 1 experience in this area, Alex stressed that he should 2 lean on BEIS for this if ever unsure, especially for 3 anything that is 'novel, contentious or repercussive'." 4 You were here setting this out in terms for Nick 5 Read but, more widely during your tenure as Permanent 6 Secretary, was it made clear to the Post Office senior 7 executive and the Board, by the Department, that the 8 organisation was expected to operate in accordance with 9 the Nolan principles for standards in public life? 10 A. I can't remember any specific reference to it in 11 documents. So -- and I haven't seen any in the ones 12 that the Inquiry have shared to me. I think that when 13 Paula Vennells would have been appointed Accountable 14 Officer by my predecessor, the letter appointment which 15 I'm sure is pretty standardised when you become 16 an Accounting Officer, would have said the same things 17 that my letters when I appointed Nick Read and indeed 18 Alisdair Cameron when he was Interim Chief Executive 19 before, so it would have been set out their public 20 responsibilities there. 21 I think I was making a particular point of it here 22 with Nick Read because, unlike both his predecessors, 23 who had been a number of years in the organisation -- 24 which was a public corporation -- Nick had been working 25 in the private sector beforehand, and I was sort of, 128 1 I suppose, trying to lead him through it and say, "It's 2 a bit different now, you're now in the public, you know, 3 these are the things that you need to pay particular 4 attention to." 5 Q. Do you think there is a case for there being more 6 extensive and wider guidance to the Post Office on the 7 nature of those responsibilities? 8 A. It's possibly the case. I mean, I think that, given all 9 the things we know now about the shameful, disgraceful 10 actions that the Post Office were engaged in, anything 11 that the Inquiry can recommend which would reinforce 12 upon them the high standards required of them and their 13 public duty, I'm sure it would be welcome. 14 Q. Did Nick Read line on the Department, as you had invited 15 him to do, if he was ever unsure. 16 A. Yes. In my time -- and he was appointed in September 17 2019, and I finished, as we heard in April '20, so in 18 that six and a half months, I had a number of 19 interactions with Nick Read. I found him to be -- to 20 bring a fresh perspective. I found him to be very 21 welcoming of advice and input. He seemed not to be over 22 identified with the Post Office's past, which was very 23 necessary. After they had been resisting the need for 24 settlement for a long period of time and bringing number 25 of ill-judged recusal and appeal attempts, he 129 1 immediately saw, as, indeed, did their new General 2 Counsel, that that had been a mistaken path and they 3 should not only try and bring about a financial 4 settlement but also so set the Post Office itself on 5 a path of cultural renewal, which we thought was very 6 necessary. 7 He introduced, with my encouragement, but I think of 8 his own initiative as well, a rapid review of their 9 culture. They brought in some external people to try to 10 advise on that, to try to -- and also to get advice on 11 how they could repair the relations with the 12 subpostmasters. So in all of that, in my experience, 13 Nick Read behaved like a responsible Chief Executive, 14 quickly trying to understand the expectations of the 15 so-called parent department but also the needs of 16 stakeholders in trying to run the organisation and put 17 it on to a better footing. 18 Q. That document can come down now. Thank you. 19 I'd like to ask you, please, about some specific 20 examples of matters which you consider the Department 21 should have been made aware of, but was not. You were 22 briefed on the Horizon litigation in May 2018; is that 23 right? 24 A. Yes. 25 Q. Can we have that May 2018 briefing on screen, please. 130 1 It's UKGI00008026. 2 SIR WYN WILLIAMS: While that's being done, can I just ask, 3 Sir Alex, was that the first time you were given 4 a formal briefing on Horizon, or is this just an example 5 that we're going to look at? 6 A. Thank you, Sir Wyn. I think May was the first time 7 I was given a briefing, and the timing of that was 8 probably because that was after a case management 9 meeting had taken place in relation to the conduct of 10 the so-called Common Issues litigation. So before that 11 time, it wasn't known what, you know, how the whole case 12 would be managed. At that point, I think they had 13 a concept of how it would be managed, the timing and the 14 processes, the issues, I think the -- and I said, 15 "That's interesting. This is going to be a big deal. 16 I need to know lots about it. I want a full briefing". 17 This was the initial briefing. I said, "That's good but 18 I need more". 19 And then there was that process of slight 20 negotiation between UKGI's lawyers and Post Office 21 Limited's lawyers about how much information we could be 22 given and under what terms, the so-called information 23 sharing protocol but, ultimately, that led up to a very 24 detailed briefing which we ended up getting in October, 25 "we" being the Minister responsibility, Kelly Tolhurst 131 1 and myself, from the Post Office Legal team. 2 SIR WYN WILLIAMS: Thanks. Sorry, Ms Price. 3 MS PRICE: Not at all, sir. 4 It's right to note that this is a draft of the 5 briefing, so we have the date at the top "XX May 2018", 6 and although we do not appear to have the final draft, 7 you say that the content in the most recent May drafts 8 are familiar to you; is that right? 9 A. Yes. 10 Q. You think that you were, in fact, given this briefing in 11 May? 12 A. I expect so, yeah. 13 Q. Looking, please, to paragraph 27. Here we have this: 14 "In terms of mitigating against legal and 15 operational risks, [Post Office Limited] has summarised 16 its past and ongoing measures in paragraphs 21 and 22 17 above. In addition to these, UKGI is aware from past 18 discussions with [Post Office Limited] that [Post Office 19 Limited] did the following: 20 "[First] appointed Deloitte in 2013 to look at the 21 Horizon system to establish its veracity. Whilst this 22 was a limited study due to the passage of time, at that 23 time [Post Office Limited] informed us that no issues 24 were found. 25 "[secondly] at Baroness Neville-Rolfe's request, 132 1 when she was the responsible BIS Minister, the then 2 incoming [Post Office Limited] Chair Tim Parker 3 commissioned a new QC to investigate the matter when he 4 joined [Post Office Limited] in October 2015. The 5 initial findings satisfied the Chair that [Post Office 6 Limited] had taken the appropriate action at each stage. 7 With the announcement of the Group Litigation in 8 November 2015, the Chair decided, following legal 9 advice, not to conclude the investigation on the grounds 10 that it could have impacted the Court's consideration of 11 the claims. 12 "[Finally] POL has also investigated individual 13 cases and at the time informed us that no systemic 14 issues were found." 15 Is it right that you did not receive a copy of the 16 2013 Deloitte report or the report of Jonathan Swift KC? 17 A. Yes, it is. And indeed, it's interesting looking at 18 that paragraph, it doesn't refer to any reports. And 19 indeed, it's almost been written -- I'm sure it was 20 written by Post Office Limited's lawyers at the time -- 21 sort of so as not to attract interest, "Nothing to see 22 here". It doesn't refer to who -- the name of the QC we 23 now know to be Swift, Jonathan Swift, and it refers to 24 initial findings and appropriate action being taken. It 25 doesn't say, "There's a report". 133 1 It's actually a 66-page report with about eight 2 recommendations in, but you wouldn't know it from that 3 summary, and I didn't know it. I never saw that report 4 until the Inquiry showed it to me. 5 Q. Before the Inquiry showed you those documents, was your 6 knowledge of them limited to what you were told in this 7 briefing? 8 A. Yes. We got similar phrases in the October briefing. 9 Q. In particular, looking at the statement in relation to 10 the Swift investigation, the initial findings satisfied 11 the Chair that Post Office Limited had taken the 12 appropriate action at each stage. What is your 13 assessment of this statement, having now read the Swift 14 Report? 15 A. I think that's a very poor and inaccurate summary 16 because the full report, which is before the Inquiry, 17 shows a lot of loose ends, a lot of limitations, but 18 also has eight recommendations for further work. 19 Further work not only on legal issues but also technical 20 issues with the operation of the Horizon system and 21 accounting issues for the reconciliation of funds. 22 So in no sense is that saying everything fine here, 23 which is the impression given they're. It is 24 actually -- there are a lot of issues here which require 25 ongoing attention and do point to some undoubted 134 1 considerable weaknesses and failings on the Post 2 Office's part. I get no sense of that from that 3 description. 4 Q. Is it right that you also had no knowledge of the 5 existence of either of the Clarke Advices? 6 A. Absolutely not. So you're referring there to advice 7 which, again, the Inquiry has shown to me from before 8 the time that I joined the Department, as indeed both 9 these documents I've joined in 2016. So these earlier 10 points, which point to -- and I was, you know, 11 absolutely amazed and shocked to read those, written by 12 a criminal barrister, or solicitor, I think, saying that 13 the Post Office had knowingly continued to provide and 14 employ an expert witness, even though the expert witness 15 had chosen not to reveal evidence, to share with the 16 court evidence which undermined their own evidence, so 17 effectively tainted evidence, which I think is a major 18 failing under the criminal law. And, furthermore, that 19 the Department -- that Post Office had not fulfilled its 20 obligations to keep a proper record of information 21 relevant to those criminal investigations, and indeed 22 had been involved, in some cases, in destroying that 23 information. 24 So I can hardly think of more serious information 25 to, you know, to have been -- to come to anyone's 135 1 attention. But that was absolutely hidden from the 2 Department. We had no idea. If we had, we would have 3 been absolutely shocked because it would have shown that 4 obviously none of the criminal investigations were safe. 5 Q. Going back, please, in this document to page 2, 6 paragraph 7. You were given some information about 7 Second Sight's investigation here: 8 "An independent firm of forensic accountants, Second 9 Sight, were commissioned to examine the system for 10 evidence of flaws which coup cause accounting 11 discrepancies. Second Sight's initial report in June 12 2013 found no evidence of systemic flaws in Horizon. 13 A final report in 2015 did find that, in some cases 14 [Post Office Limited] could have provided more training 15 and support to some subpostmasters, though Post Office 16 disputes many of Second Sight's findings." 17 A. Again, I put that in the character of "Nothing to see 18 here", and actually, I have now read those reports, and 19 they -- again, that summary doesn't perhaps do full 20 justice to them. I'm sure it was well intended but it 21 says, you know, this phrase was used "found no evidence 22 of systemic flaws in Horizon". Actually Second Sight 23 did have certain limitations to their own access and 24 they said there that and they said were some 25 discrepancies and they'd like to do further work and 136 1 that work was curtailed. So I don't think it provides 2 a very reassuring report, at least not as reassuring as 3 that summary would apply. 4 Q. You were, though, told of the existence of two Second 5 Sight Reports here. 6 A. Correct, yes. 7 Q. Did you ask to see either of them at that point? 8 A. I didn't at that time and that's for a very simple 9 reason that the operation of the Horizon system was the 10 second issue before the High Court, the overall case, 11 civil litigation, was split into four pieces. We only 12 got to two in the end but the second one was looking at 13 Horizon, and I knew that that was going to be a matter 14 that was going to be subject to very, very close 15 attention in the High Court, with expert witnesses on 16 both sides. 17 So that was going to be a much fuller answer to the 18 question that -- than Second Sight's work had provided 19 and, also, if the Post Office were in dispute with the 20 findings of it, that didn't seem to have been like the 21 final matter on it, whereas I was confident the High 22 Court would get to the bottom of it. 23 Q. That document can come down now. Thank you. 24 Is it right that, following this briefing, later in 25 May 2018, you asked to be briefed on the litigation by 137 1 Post Office's General Counsel? 2 A. Yes. 3 Q. Why did you make that request? 4 A. I have been getting indirect summaries of this kind, and 5 I wanted to have the chance, both for myself and for the 6 Minister, to ask some questions directly and also to 7 have a fuller account. The Post Office was very quick 8 always to claim kind of questions about legal privilege, 9 and so on, so, you know, you'd get these very heavily 10 edited pieces of information and, indeed, elsewhere in 11 the file of papers you've given to me, there's 12 an example of UKGI lawyers again arguing with Post 13 Office Limited lawyers, where they were trying to draft 14 a first section of advice, and great chunks of it had 15 been taken out by Post Office lawyers, including things 16 like the impact on Post Office Limited had been taken 17 out of the brief. 18 So there's a lot of rationing of information and 19 I was becoming -- I was already impatient with that and 20 became more so, of course, in the months that followed 21 and I wanted to have the chance to get as full 22 a briefing as we possibly could and to have a meeting on 23 it with the elusive Post Office Legal team. 24 Q. So were you, by this point in May 2018, already 25 concerned about information flow to the Department in 138 1 relation to the litigation? 2 A. That was the beginning of concern. 3 Q. That briefing came in October 2018; is that right? 4 A. Yes. Originally in September but then it got 5 rescheduled to October. 6 Q. Although you describe the briefing as extensive, you say 7 you considered the section setting out the background to 8 the litigation to be relatively short; is that your 9 view? 10 A. Yes. 11 Q. Could we have the briefing on screen, please. It's 12 POL00111214. Actually, if we stay on the first page, we 13 can see this is the briefing paper for the meeting on 14 17 October 2018, with Kelly Tolhurst and you. So this 15 briefing came to both of you; is that right? 16 A. Yes. Also "Strictly Confidential and Subject to Legal 17 Privilege", as it says. 18 Q. Going to page 3, please. At paragraph 1.2 under the 19 "Executive Summary": 20 "What is the case about? 21 "The case represents the culmination of a series of 22 campaigns by disaffected postmasters and others 23 (including a number of MPs on both sides) who believe 24 that Post Office wrongly attributed branch losses to 25 those postmasters and that as a result, they suffered 139 1 financial and reputational harm. A theme of these 2 campaigns is that flaws in Horizon (the in-branch point 3 of sale system) were the cause of these losses." 4 Going over the page again please, 1.8, the number of 5 claimants is identified here as 561. Then going to 6 page 6, please, the section on "Background to the 7 Litigation". This is the section that you describe in 8 your statement as being relatively short. At 2.2, 9 there's this: 10 "In 2012 a small group of (mostly former) 11 postmasters, under the banner of the 'Justice for 12 Subpostmasters Alliance' and with the support from some 13 MPs led by the then MP (now Lord) James Arbuthnot, 14 claimed Post Office's Horizon IT system had caused 15 losses (shortfalls in physical cash against cash 16 holdings recorded on Horizon) which they had had to make 17 good. In some cases they had been prosecuted for these 18 losses (usually for false accounting, theft or both) 19 while, in other cases, they claim that it led to their 20 contracts with Post Office being terminated, causing 21 them financial loss and other personal harm, including 22 bankruptcy, divorce and emotional distress, including 23 suicide." 24 So you were told here that subpostmasters had 25 alleged that the IT system had caused losses which they 140 1 had to make good -- 2 A. Mm-hm. 3 Q. -- and this had led to some people being prosecuted for 4 the offences listed there -- 5 A. Mm-hm. 6 Q. -- and the other consequences that are set out. 7 A. Yes, and, in fact, that's, I think from memory, the only 8 half sentence in the whole briefing, which goes on for 9 dozens if not hundreds of pages, which actually, in some 10 way, pays attention to the human impact of what had 11 happened. It does say even there, wrapped in a claim, 12 rather than the reality, but everything else in the 13 litigation, when you -- in the briefing, when you look 14 at the contingency plans it talks, for example, of 15 installing CCTV in postmaster offices; it doesn't really 16 think about the impact on the people involved. 17 Q. Did the nature of the allegations being described here 18 not cause you some alarm by their very nature? 19 A. Yes, but that wasn't new that these were the 20 allegations, as I said, they'd been around -- well, 21 I was briefed as soon as I joined the Department on the 22 fact that there was this litigation, that litigation had 23 been joined in March 2016, six months before I joined 24 the Department. So the litigation was underway. We 25 understood that the heart of the litigation was people 141 1 saying that Horizon gave false results and, therefore, 2 they'd been falsely prosecuted. 3 Q. Did you understand, when you read this briefing, that it 4 was the Post Office which had been doing the 5 prosecuting? 6 A. Yes. 7 Q. Had you been aware of that from the time you took up 8 your post as Permanent Secretary? 9 A. Yes, and I said, "What's happened now? Have the 10 prosecutions stopped?" And the answer was yes, the 11 prosecutions stopped in 2015, over a year before 12 I started, so that wasn't a live issue. The question 13 was how had they been done in the past and had they been 14 done justly or not? And that was the issue that would 15 be looked at by the High Court. 16 I was also briefed, again it's included in other 17 documents, that the Criminal Cases Review Body were 18 examining whether or not -- I think around 30 or so 19 cases had been referred to it at that time. So I was 20 welfare of that. So both the Criminal Cases Review Body 21 and the High Court were the main areas where these 22 actions were being looked at, at that time. 23 Q. Did you consider, when you read the briefing, advising 24 the responsible minister, Kelly Tolhurst, to consider 25 meeting any of the MPs who were supporting the 142 1 subpostmasters or the subpostmasters themselves to 2 understand their position? 3 A. I don't remember giving that advice. I think that all 4 the postal ministers at various times did meet with 5 representatives of the subpostmasters, and so that was, 6 you know, absolutely a part of their job. They also 7 would have met with -- there were a number of 8 Westminster Hall debates and other things. Whenever 9 they appeared in the Commons or, indeed, in the Lords, 10 there were also debates about it. 11 So quite a lot of interaction on this issue and, if 12 I may say also, that in my experience of elected 13 ministers, that they always understand the role that 14 post offices play. It's the nature of their, you know, 15 constituencies that they understand the local role of 16 the post office is to support. They were involved and 17 they would hear these stories and so both Greg Clark and 18 Kelly Tolhurst, who I worked with for three years were 19 very understanding and sympathetic of these issues and 20 keen to make sure that they would be resolved 21 satisfactorily. 22 Q. But that isn't something you recall discussing with 23 Kelly Tolhurst after this briefing or in relation to the 24 issues raised by the litigation? 25 A. She would already have had contact with the 143 1 subpostmasters and with the various MPs who had, you 2 know, who took up their cause. So it wasn't 3 a consequence of this. I think what we did discuss was 4 what were the chances of success were. And, in the same 5 briefing, you can see there's a lot of statements there 6 that -- from the legal advisers, saying that they had, 7 you know, they had the stronger part of the case and 8 that, on the issues which were the most significant they 9 were particularly confident that they would do well. 10 They also, I think, described the issues very much 11 in terms of very precise kind of, you know, legalistic 12 issues about the interpretation of the contractual 13 obligations and about the burden of proof and 14 prosecutions, and things. So they were called Common 15 Issues because they were seen as kind of, you know, 16 legal issues which needed to be resolved in the court. 17 Both Kelly Tolhurst and myself, our instincts were 18 that this was not going to go as well as the Post Office 19 expected and that's why, and it's recorded in another 20 document, I'm asking even at that time "Shouldn't you be 21 settling?" And we'd had experience in other pieces of 22 litigation elsewhere in the Department where 23 a settlement had been necessary and had brought it to 24 an end. And we were concerned that this had been going 25 on for a long time, and that the Post Office was digging 144 1 themselves in more and more and should be open to trying 2 to, you know, to mediate a solution. 3 Q. At paragraph 2.3, below, there is reference again to 4 Second Sight? 5 A. Mm-hm. 6 Q. Second Sight issued a report in July 2013, which 7 concluded there was no evidence of system-wide systemic 8 problems with the Horizon system software but identified 9 some areas where Post Office could have done more to 10 support individual postmasters. 11 It was Kelly Tolhurst's evidence to the Inquiry that 12 she understood from this briefing that there may have 13 been occasional bugs or errors in the system affecting 14 individual subpostmasters, but there was no serious 15 problem with the Horizon system. Was that also your 16 understanding? 17 A. The Post Office had maintained for years that there were 18 no problems with Horizon, and they used these stock 19 phrases, as very similar to the phrase given in the 20 briefing you put up earlier about May, referring to 21 Second Sight and sort of praying their report in aid to 22 say there was no evidence ever of system-wide problems 23 with Horizon software and it says there, you know, "Done 24 more to support individual postmasters". I think in the 25 previous one it was "more support and training", so 145 1 there was a sense in which it was a training issue, 2 rather than a fault in the system, and that's what the 3 Post Office maintained throughout, until it was shown 4 not to be the case. 5 Q. But specifically on Kelly Tolhurst's understanding, 6 which she had after reading this briefing that there may 7 have been occasional bugs or errors in the system 8 affecting individual subpostmasters. Did you also 9 understand that? 10 A. I don't remember that point arising, but might have. 11 Q. At paragraph 2.11 of the briefing, please, there is 12 this: 13 "In recent years, the focus of the complaints by 14 postmasters had expanded from issues with the Horizon IT 15 system, to the alleged 'unfairness' of the contract 16 between Post Office and postmasters. Despite 17 significant lobbying by the JFSA of Parliament and 18 through the media, Post Office's position has not 19 altered, and considers that these disputes are now best 20 resolved through the courts." 21 Did you understand at the time that the complaint 22 from subpostmasters about the fairness of the contract 23 was that they were being asked to make good apparent 24 shortfalls, even where the Post Office could not prove 25 the loss was due to the subpostmaster's own negligence, 146 1 carelessness, or error? 2 A. Yes, I think that the, you know, intricacies of this 3 about the nature of contract law and where the duty 4 lies, and that was something that was brought out in 5 that briefing. I think again, the tone of that 6 paragraph is, you know, is lacking, I think, the, you 7 know, alleged "unfairness", in inverted commas, and the 8 sense in which the postmasters' case is kind of, you 9 know, drifting along, whereas the Post Office is kind of 10 resolute and unaltered. 11 And I think there is -- probably speaks to the whole 12 frame of mind the Post Office had about their position 13 that they were right and everybody else was wrong, 14 whereas, you know, it turned out it was -- the opposite 15 was the case. 16 Q. The arguments in the litigation about this were in fact 17 addressed in this briefing document later on. 18 A. Right. 19 Q. If we can go to page 37, please. This the contingency 20 planning for high impact areas in the scope of Common 21 Issues, so that its areas which were defined as having 22 a significant adverse impact on the business, if the 23 implied terms of the contract were to go against the 24 Post Office. Did you read the contingency planning 25 section of the briefing? 147 1 A. Possibly. There's obviously a lot of detail here and it 2 was a one-hour meeting. But ... 3 Q. The issue is set out in the left column. 4 A. Yes. 5 Q. In relation to shortfalls, the implied term which the 6 claimant subpostmasters were arguing for was set out: 7 "Post Office would cooperate in trying to: 8 "Identify the possible or likely causes of any 9 shortfalls without any input from the subpostmasters, 10 and/or 11 "Work out whether or not there was any shortfall by 12 carrying out a formal investigation 13 "Prove as a result of the investigation that the 14 shortfall was properly attributed to the subpostmaster 15 under the contract." 16 Going over the page, we see the effect of what was 17 being sought by the subpostmasters, by that implied 18 term. Post Office would not -- the "Impact" there: 19 "Losing this point would make it very difficult for 20 Post Office to recover losses without significant effort 21 and detailed investigation into every loss in every 22 branch. 23 "It also has the effect of shifting the burden of 24 proof on to Post Office to show the root cause of the 25 loss. In many case this will be impossible to 148 1 discharge." 2 Does that cause you any concern at all, looking at 3 that? 4 A. I think -- I mean, that seems to be an accurate 5 description of the issues that were before the court. 6 I think the hearings began the month after that, and 7 obviously they looked at that very closely. 8 It's interesting that the impact on the Post Office 9 that section had previously been removed from the 10 briefing by the Post Office lawyers and given to me, so 11 they obviously saw it as a sensitive issue that they 12 were a bit slow in wanting to share but at this point 13 they did so. I think that I understood the legal point 14 there about the burden of proof. I didn't know what the 15 actuality of it was, but not being a expert on contract 16 law, and indeed experts on contract law were 17 subsequently consulted and themselves found themselves 18 to have got it wrong in the view of the High Court, and 19 the appeal court. 20 So obviously some real deep legal issues there. 21 I think the -- I did understand that it made a huge 22 difference to the sense of who had the responsibility 23 for it, and, you know, therefore, why the subpostmasters 24 felt so strongly about it, and indeed, I recall that the 25 settlement, which came over a year later -- December 149 1 2019 -- as well as often talked about as a financial 2 settlement, has actually got some very important terms 3 to address this very issue, and has got a whole, you 4 know, schedule devoted to changing the way the Post 5 Office actually sets about establishing loss and those 6 commitments were entered into formally through that 7 settlement process. 8 So that was obviously a key issue for the 9 subpostmasters, which indeed they got resolution on. 10 Q. The default position here was that it was for the 11 postmasters to prove that an apparent also was not 12 caused by their own negligence, carelessness or error. 13 A. Yes. 14 Q. Did that feel wrong to you at all, at the time? 15 A. It did seem surprising but, again, this wasn't happening 16 in my time. The postmaster prosecutions had ended 17 a year before I started. So this was a historic issue 18 that was going to be looked at by the High Court who 19 would rule on it definitively. 20 Q. That document can come down now. Thank you. 21 Could we have on screen, please, paragraph 129 of 22 Sir Alex's statement, that's page 34. Here you give 23 your reflections on this briefing, and you say that: 24 "The document was not sufficient for me to 25 understand the issues properly. I now know that 150 1 a number of external reports together with legal advice 2 on those reports were vital to the history of these 3 issues. In my view, ministers and I should have been 4 briefed on the contents of the Deloitte reports and the 5 Second Sight reports. We should. Have been provided 6 with copies of the Clarke Advices, Linklaters advice, 7 and the Swift Review. We should have been provided with 8 the history on the existence of bugs, errors or defects 9 with Horizon and the steps taken to investigate them -- 10 which were extensive -- and their conclusions. Those 11 matters were highly material to achieving justice for 12 the [subpostmasters] and in properly understanding that 13 [the Post Office's] prospects of success in this 14 litigation were in fact always poor. 15 "Furthermore, we should have made aware that there 16 were important remedial steps recommended by Jonathan 17 Swift QC that had not been actioned, indeed had not even 18 been shared with the Board." 19 In terms of reflections on your own actions, at this 20 stage, do you think you could have been more probing 21 about the litigation, given what we have just looked at 22 in the briefing on what you were told? 23 A. I don't think we could have asked for documents, the 24 existence of which we didn't know. 25 Q. What about the Second Sight Reports? 151 1 A. The Second Sight Reports, they were mentioned and we 2 could have looked at those. I've explained already that 3 they were -- the way they were described were things 4 which had provided a degree of reassurance, but also 5 that the Post Office wasn't, you know, fully in 6 agreement with them, and they were describing the 7 operation of the Horizon system, which was basing looked 8 at by the High Court. So I didn't think that was 9 particularly important. I was more concerned here with 10 the Deloitte report, because that does talk about bugs 11 and remote access, and all of that. So that obviously 12 seems to be speaking to a difference between what the 13 Post Office had been saying in a number of public 14 statements and the actuality. 15 That also was looked at particularly in the Swift 16 Review. Again, lots of information there about bugs and 17 errors and defects, and weak points in the Post Office 18 proceedings and a whole load of recommendations for 19 further action, and I have said already most shockingly 20 the Clarke Advices, which I only saw when the Inquiry, 21 you know, showed them to me in the summer -- this 22 summer, '24 -- which show that, you know, those criminal 23 prosecutions were basically unsound. 24 And I think that is really a shocking thing, 25 absolutely shocking. And there's no hint of those, you 152 1 know, the first I saw was in 2024. 2 So people in the Post Office must have known that, 3 that advice was given to the Post Office. People in the 4 Post Office must have been aware about destruction of 5 documents and tainted evidence, but no hint of that was 6 given to the Department. If we had seen that, I think 7 we would have taken, you know, a much more significant 8 actions, and indeed, as I point out there, you know, 9 we'd have seen that they were going to lose for sure in 10 the civil litigation which they ended up losing but we 11 wasted another year and a lot of money and lot of 12 distress in the meantime and, even more importantly, all 13 those criminal investigations were left to stand for a 14 long, you know, considerable further period. I think it 15 didn't -- the criminal cases review Board didn't 16 complete its work until, I think, 2020, and I think the 17 overturning of those by the appeal court was two more 18 years and finally legislation was passed, in 23. 19 So it's a very long passage of time but, you know, 20 we could have cut short all of that, if there'd been 21 a fuller furnishing of the reality of the information, 22 rather than this careful kind of economising of the 23 actuality. 24 MS PRICE: Sir, I wonder if that might be a convenient 25 moment for the afternoon break? 153 1 SIR WYN WILLIAMS: I think it would, Ms Price, yes. So what 2 shall we resume? 3 MS PRICE: If we could come back at 3.30, that would help us 4 this afternoon. 5 SIR WYN WILLIAMS: All right, fine. 6 MS PRICE: Thank you, sir. 7 (3.18 pm) 8 (A short break) 9 (3.30 pm) 10 MS PRICE: Good afternoon, sir. 11 SIR WYN WILLIAMS: Good afternoon. 12 MS PRICE: Sir Alex, if we could go, please, to page 31 of 13 the statement. That's paragraph 115. If we could have 14 that on screen, please, you say here: 15 "My impression all through 2018 was that [Post 16 Office Limited's] position in respect of providing BEIS 17 officials and ministers with information regarding the 18 litigation was on a 'need to know basis' and indeed that 19 there was an institutionalised wariness about what the 20 deposit should be told." 21 Is this is an impression you formed at the time or 22 is this something you developed later with the benefit 23 of later knowledge? 24 A. I would say both. I think at the time I was already 25 conscious about the rationing of information, because 154 1 when I asked to see the documents, there was a delay, 2 there was this negotiation over the information sharing 3 protocol, when it finally agreed after a lot of 4 negotiation, I then said it wasn't acceptable because 5 I said with this information I couldn't talk to anybody 6 else about it, you know. And I said I might need to, 7 you know, I obviously had responsibilities to Parliament 8 and across Government and I talked to the Treasury, to 9 Cabinet Office, et cetera. So that had to be changed as 10 well. 11 So there was just a kind of wariness. I also began 12 to see these stock phrases kept appearing in the 13 briefing and I began to think they were, you know, 14 designed not to kind of really invite one in and to show 15 the full reality. So that was an impression that 16 I already began to feel in 2018, and you can see that in 17 other correspondence over getting access to the full 18 briefing. I think it's definitely been reinforced now 19 by the experience of the Inquiry showing me documents 20 which the Post Office had, which they had chosen not to 21 reveal to the Department, such as the Swift Report, the 22 Clarke Advice, and other things which we were looking at 23 a moment ago. 24 Q. Looking back, do you think there is anything more you 25 could have done to investigate the true position in 155 1 terms of what the Post Office knew? 2 A. I think that we became increasingly assertive as we 3 became more concerned. I think that, you know, there's 4 certainly a debate to be -- was had in the late spring 5 of 2019 as to whether we should make wholesale changes 6 in the Post Office Board, because that was after the 7 Common Issues Judgment and after they'd made their 8 misguided recusal attempt. So not in 2018, but in 2019, 9 we did look at even more interventions. We did make 10 quite a few interventions at that time. We obviously 11 did change the Chief Executive; the General Counsel was 12 also changed; their legal advisers were changed. There 13 was quite a lot of change happened there. 14 Could we have brought along -- bought about change 15 more quickly? I felt there was an opportunity to settle 16 early, and there's a lot of my evidence of my pressing 17 for that. The Post Office themselves were sure that 18 they were right and they needed, as it happened, to 19 lose; as it turned out, to lose three times and change 20 their leadership before they came to see that they were 21 wrong. 22 Q. You describe in your statement Post Office not coming 23 across as wanting Government involvement. What do you 24 think lay behind this? 25 A. I think, you know, every -- we are described as a parent 156 1 Department. Every child probably wants some greater 2 degree of independence and, you know, I can see from 3 documents -- again, you've shown to me meetings with the 4 Chair, the Chair is often saying, you know, "Could you 5 lower the level of oversight? Could you have less 6 intrusive inquiries? Why do we have to provide this 7 information?" 8 So they were trying to kind of -- were treating that 9 as a burden, rather than as both a necessary form of 10 accountability and as a source of guidance and advice. 11 So I think that probably did rather speak to the Post 12 Office culture at the time -- I don't know how it is 13 today -- but that they did tend to be kind of a little 14 bit self-absorbed and defensive, and seeing the outside 15 world as a bit threatening and, unfortunately, we were 16 part of the outside world from their perspective and 17 I think that was why they tended to ration the supply of 18 information to us, and to be a little bit resentful, 19 rather than welcoming about our oversight. 20 Q. Was this not a red flag to you, indicating a need to 21 look more closely at the functioning of the relationship 22 between the business and the shareholder? 23 A. Yes, and that's why in 2018 -- it started in January 24 2018, we had a first draft of the new Framework 25 Agreement, and one of the changes in that was to try to 157 1 institutionalise the expected roles and the flow of 2 information that's part of that. It took a long time to 3 actually get that agreed with the Post Office, but that 4 was with exactly that purpose in mind. 5 Q. Do you think this was an indicator that the Post Office 6 did not appreciate the significance of the public aspect 7 to Post Office? 8 A. Yes, I think that's true. I think it's, you know, 9 correct to say that they weren't a typical public body 10 because they were a retail business and a lot of their 11 thoughts and minds necessarily were on what it takes to 12 run a business, you know, logistically and in terms of 13 staff and product offers and customers and all of that, 14 and it's a complex enough business to run. So I think 15 it's right that they were thinking about those things. 16 I think sometimes that they underthought or didn't fully 17 understand that all this was still being done within the 18 public realm, that they had a public duty and that, 19 fundamentally, the reason there was a Post Office is 20 because post offices provide a vital social, as well as 21 economic purpose and, you know, oftentimes, as you can 22 see in my letters and meetings with them, I'm saying, 23 "Don't forget about the social purpose, that what it's 24 there for, these are people who depend on the Post 25 Office for access to benefits and passports and, you 158 1 know, identity information and pensions and tax credits 2 and what have you", and that's really why those 3 so-called services of general and economic interest -- 4 it's a bit of jargon, but that's what they're called -- 5 that's what the Postal Services were providing and 6 that's why we had them. 7 And so I think the kind of interest in business and 8 making a profit and all of that was okay, but wasn't 9 sufficient, and they needed -- and -- you know, the -- 10 the public responsibility was there. 11 Q. Moving, please, to the role played by UKGI, you describe 12 UKGI as being responsible for oversight of Post Office 13 Limited, in respect of both governance and policy when 14 you were appointed Permanent Secretary? 15 A. Correct. 16 Q. By early 2018, you say you were considering the new 17 Shareholder Relationship Framework Document, which we've 18 touched on already. What made you think this was 19 necessary, over and above the concerns about information 20 sharing; was there anything structural that made you 21 think it was necessary? 22 A. Yes, there was. And I think -- and let me try and set 23 that up, as help for the Inquiry. So UKGI, its 24 predecessor body Shareholder Executive, had a high level 25 of professional expertise, a lot of people with 159 1 background in managing corporate transactions, they had 2 people who were kind of experts, if you like, in 3 governance, people who compared doing these different 4 roles across different parts of the public realm. 5 So that is a positive and useful part of it. 6 However, they actually didn't have as much experience of 7 working with ministers and some of the finer judgements 8 about, you know, political preference and requirements, 9 I think, was a bit harder for UKGI staff to pick up on. 10 When, in the -- the regime I inherited, everything 11 was done through UKGI. I think I found increasingly 12 that, given our concerns about the Department, given the 13 high level and justifiably high level of ministerial 14 interest, given this was becoming more and more 15 a political issue that we needed to have some direct 16 departmental input to that, so we established in 2018 17 a Post Office Policy Unit within the Department, which 18 worked in parallel with UKGI. 19 I should say UKGI in no way resisted this. They 20 themselves felt it was good to have a strong policy 21 partner and that UKGI would provide the kind of 22 shareholder expertise. So we moved from, if you like, 23 a one-engine to a two-engine operation from that point 24 onwards. That's what we have today as well; it's 25 persisted. 160 1 Q. The final version was agreed in mid-December 2019, you 2 say in your statement; is that right? 3 A. Yes. 4 Q. Can you help with why it took so long to reach agreement 5 on it? 6 A. I guess it probably wasn't seen as the absolute top 7 priority, because people were acting on -- you know, on 8 the basis that we had a kind of these different 9 responsibilities, and the way the final signed agreement 10 was, if you like, the codification of that. 11 Also the drafts were in circulation, so everyone 12 knew the roles that people were expecting to be played 13 within it. I don't know whether there was also kind of 14 low level negotiations or friction between the teams. 15 I don't know, I wasn't part of that. Every so often 16 I would say, "Where are we with the framework 17 agreement?" And they'd say "Oh, it's coming along, we 18 are almost there". And, in the end, you know, we were 19 there and we hadn't had one before. So that was 20 a necessary and important improvement in governing 21 relations between -- it's really a try Apartheid 22 arrangement between UKGI, BEIS, and Post Office Limited. 23 Q. When you took up your post as Permanent Secretary did 24 you consider the avenues for reporting to ministers on 25 Post Office issues to have been effective? 161 1 A. I think when I first started, I could see that I think 2 there were six different parts of our 40-odd public 3 arm's-length bodies, partner organisations -- I think 4 six of those were managed on the Department's behalf by 5 UKGI, and they had a lot of expertise, they did a very 6 good job across that overall. 7 I think the Post Office, if you like, moved from 8 being seen as something where the business skills 9 available to UKGI and their experience and kind of 10 corporate finance matters and, you know, investment 11 returns, and all of that, that became, relatively 12 speaking, less important than these much wider 13 ramifications about was the Post Office actually 14 fulfilling its fundamental purpose; was the Post Office 15 actually run by competent and honest people? And they 16 were much more fundamental type questions, which 17 necessarily ministers will want to be advised upon 18 directly. 19 Q. Could we have on screen please paragraph 248 of Sir 20 Alex's statement, that's page 65. You say: 21 "UKGI plays an important and valuable role across 22 Government. UKGI officials dealing with [Post Office 23 Limited] were under considerable pressure throughout my 24 tenure. I never had reason to doubt their integrity, 25 work rate or professional skill. At times we reached 162 1 different judgements on certain matters, notably the 2 bonuses issue [and we'll come on to that]. I think they 3 also struggled at times to reconcile the tension between 4 identifying with [Post Office Limited] and standing at 5 one remove to challenge [Post Office Limited]." 6 Pausing there, is this is an impression you formed 7 at the time you were Permanent Secretary and, if so, at 8 what point into your tenure? 9 A. Yes, I mean, I think, on the whole, we received very 10 good advice and service from UKGI. And, you know, 11 I stand by what I say there about their integrity and 12 professionalism. I think that because they were on the 13 Board of Post Office Limited, and as a member of the 14 Board I think they identified with the Board, I think 15 they felt they were directors and had responsibilities 16 there. That probably sometimes gave them almost too 17 much information and awareness of the interests of Post 18 Office Limited, and they were required by their role to 19 also sometimes stand back from that and say, "Okay, 20 well, that's all very well, but, you know, are you stuck 21 in a kind of a particular mindset or groupthink here 22 about particular pieces of litigation? Have you really 23 looked at it from the other perspective? You know, is 24 there a possibility, for example, that, contrary to the 25 Post Office's long maintained position that they were 163 1 actually wrong about Horizon, and that the -- and if 2 that was the case, that there had been miscarriages of 3 justice there?" 4 So there was a kind of myopia which I think was 5 there within Post Office Limited at that time and 6 I think it would have been very difficult for UKGI in 7 their succession of shareholder representatives on the 8 Board to challenge that. But I think that was part of 9 what they needed to try and do, difficult as it is, and 10 also, as I go on to say there, you know, as the kind of 11 supervising body, they needed also to be able to 12 sometimes test the version of things they were given. 13 And there's an awful lot of stock phrases and you can 14 see where whole chunks of text are lifted from one 15 document to another, supplied by Post Office Limited to 16 UKGI and then given to the Department on that basis. 17 And very understandable they should do that, and 18 also to try to, if you like, smooth things along and 19 suggest things are going quite well. But I think the 20 unintentional effect of that, as I go on to say there, 21 is it probably preserved the status quo for a bit longer 22 than would have been the case otherwise. And postponed 23 the crisis. And a crisis was necessary and happened in 24 2019 and, actually, that brought, you know, complete 25 change to the leadership of the Post Office, the 164 1 beginning of compensation, recovery and cultural 2 renewal. 3 Q. Was this something which those at UKGI struggled with 4 across the board or were there particular individuals 5 who struggled with it more? 6 A. UKGI is an organisation of about 100 people and they 7 work closely -- 8 Q. I mean, forgive me, those working on Post Office? 9 A. Post Office, yes, I think there's about four work in 10 Post Office. But if you look at other papers given to 11 the Inquiry you can see that there's a lot of discussion 12 within UKGI, support from the Chief Executive, deputy 13 Chief Executive. You can see board meetings, Post 14 Office is constantly being looked at as an item. So 15 it's not only the individuals working there, it's also 16 the wider organisation trying to give support as part of 17 that. 18 I thought that they were extremely competent, the 19 people who worked on the Post Office account, so to 20 speak. I think at times, at the margins, they found it 21 quite difficult to judge the political issues, and you 22 said you want to come on to the bonuses one, that's 23 an example of it. 24 And I think, at times, that ability to try and be 25 a member of the Board, but also to be sort of a little 165 1 other compared to the other members of the Board and 2 bring a genuine challenge, I think again, that could 3 have been even stronger at some points. But, 4 undoubtedly, a difficult role to perform and I don't 5 envy them all. 6 Q. But you identify this as potentially a contributory 7 factor to there being a delay? 8 A. Yes, particularly in the way that the briefings -- those 9 phrases, and you've shown them up beforehand again, 10 stock phrases, you know, kind of the way in which the 11 Post Office Legal team gave material to UKGI, which they 12 didn't themselves challenge. They relied on this is 13 representations but they could have said, "Hang on, so 14 is there a report? You know, can we see a report here?" 15 They didn't do that, so they might have perhaps been 16 more pressing on our behalf but that is with the benefit 17 of hindsight and knowing what I know now, which I didn't 18 know at the time. 19 Q. You make some proposals for accountability mechanisms in 20 your statement -- 21 A. Mm-hm. 22 Q. -- at paragraph 255. 23 A. Mm-hm. 24 Q. Can we go to that, please. It's page 66. You say: 25 "To my mind there are other ways by which 166 1 accountability of ALBs could be approved across the 2 spectrum. It starts with openness and pattern 3 recognition. If concerns are raised there should be 4 formal and publicly accessible means of reporting and 5 tracking those concerns. That mechanism could be 6 overseen by an independent committee that has mandatory 7 reporting responsibilities to the Board, as well as the 8 authority to write to the Secretary of State annually 9 with any concerns. There could also be obligations to 10 report periodically to Parliament. As a basic 11 principle, where an ALB has failed in the trust that the 12 public places in it, this calls for more frequent and 13 more intrusive government scrutiny." 14 In your view, should those accountability mechanisms 15 enhance existing structures, or should this be in 16 addition to them, or replace them? 17 A. I think in a perfect world you wouldn't need to have 18 this because it obviously adds an extra layer, and every 19 additional layer creates scope for friction, cost and, 20 you know, risk with that. 21 However, in the particular circumstances here, where 22 the Post Office Board has failed in its oversight 23 responsibilities, which clearly lie with the Post Office 24 Board, and the management executive being part of that, 25 their internal legal teams, over many years, you know, 167 1 have failed provide, you know, effective service, then 2 that has caused obviously a terrific breakdown of trust, 3 not only with the subpostmasters but the wider public. 4 So, in effect, I'm saying here that special measures 5 are required, because of the failings the organisation 6 has gone through. 7 Now, that was my judgment based on my knowledge of 8 working with the organisation which I left my role in 9 relation to it in 2020. So I don't know what's happened 10 since, and it may be now that the Board works much 11 better and the Executive has rebuilt the trust with the 12 subpostmasters, and other people can speak to that; 13 you've got other evidence, I'm sure, on it. But that 14 was why I was thinking about some kind of external 15 oversight committee as a potential tool for doing that, 16 but I -- it's not a straightforward matter because then 17 you have run the risk of undermining the Board and its 18 own responsibilities and you've got sort of guards, for 19 guards, for guards, and that itself, you know, can 20 create, can obscure the underlying reality. 21 Q. Turning, please, to consideration given to settlement of 22 the litigation, you've touched on this already. Can we 23 have on screen please paragraph 131 of the statement. 24 You refer here to the Articles of Association requiring 25 approval for any spend over 50 million -- we have 168 1 already referred to that -- the requirements of Managing 2 Public Money. You say: 3 "It seemed possible that ongoing investment would be 4 needed if there was to be wholesale change required to 5 the subpostmaster contractual relationship with Post 6 Office and/or the Horizon system." 7 That lay behind your invitation for a representative 8 of HMT to attend the 17 October meeting because you saw 9 it as: 10 "The main opportunity before the trial starts to get 11 all of the key stakeholders together to agree a common 12 approach, including discussing the impact on [Post 13 Office Limited's] financial position, the issue of 14 settlement, and Post Office's approach more generally to 15 mitigate against the risks posed." 16 A. Mm-hm. 17 Q. What was your view after that meeting of 17th October -- 18 was it 18 October -- that October meeting, on the 19 adequacy of the consideration which had been given by 20 the Post Office to settlement? 21 A. I think their view -- and it's actually set out in the 22 papers both in the briefing and in the write-up from it, 23 was that settlement couldn't be achieved because they 24 were complex sort of legal contractual issues which 25 didn't lend themselves to a kind of a settlement type of 169 1 solution. They also, you know, were quick to point out 2 that, you know, by no means all subpostmasters were 3 party to the litigation. So there would be -- you know, 4 it wouldn't bring finality or a complete resolution. 5 On the whole, I think they were mainly saying it's 6 too difficult, we can't do it now". I was saying, 7 "You're in a hole, you're still digging", you know. So 8 that was the area of debate. 9 Q. You say in your statement that you also raised concerns 10 about settlement in early 2019. 11 A. Mm-hm. 12 Q. What were your concerns and how did you seek to address 13 them at that stage? 14 A. I sort of kept on at the Post Office about settlement 15 and you could see lots of other internal documents they 16 have is, "There he goes, again", kind of, "Alex Chisholm 17 is trying to get us to settle". At the end of it, when 18 they brought in new management, they said -- I can see 19 a note from Ben Foat to Nick Read saying, you know, 20 "Actually, we should have settled this a long time ago, 21 that was a big mistake and then, you know, we'd all have 22 been a much better". So that clearly was right but it 23 did take them two years to recognise it. 24 Q. You describe your disappointment at paragraph 199 of 25 your statement, that it took that length of time for the 170 1 leadership to recognise the importance of settlement, 2 and you also referred to disappointment that it required 3 change of almost the entire Legal Team to get away from 4 the groupthink. Why do you think there was such 5 resistance to proper consideration of settlement to that 6 point? 7 A. I think it was the continuation -- it's 8 an interpretation, so I can't say for sure but, in my 9 mind, it's a continuation of this quite embedded view 10 that the Post Office is right that the Horizon system is 11 correct in all possible respects, and the kind of -- the 12 errors are -- user errors within the -- you know, the 13 postmaster community. And you see that from all of that 14 documents, the kind of sense of "We're right and other 15 people are wrong". 16 And I think it was a kind of, you know, the Common 17 Issues Judgment in March 2019 was a sort of substantial 18 blow to that point of view but, actually, required fault 19 unfortunately, you know, both blows, both in the 20 judgment from the appeal court on recusal and in the 21 appeal itself, substantive appeal. And, furthermore, in 22 the second issues, which was the Horizon Issues. So 23 those four. They lost four times in a row and, at that 24 point, finally they were prepared to accept that they 25 were wrong. 171 1 And even that, as I've said, was partly because they 2 had a new Chief Executive, new legal advisers, not just 3 new General Counsel, new solicitors, new external 4 counsels. They had to change the whole lot of them. 5 And I suspect, I don't know, again, that a lot of the 6 internal advice was very much left to the Legal Team, 7 and the Legal team had been providing that advice for 8 a long period of time, and were unable to allow for the 9 possibility that they had been misguided in that advice 10 for a long period of time. 11 Q. Coming please to the recusal application, could we have 12 on screen, please, paragraph 152 of Sir Alex's 13 statement, that's page 40. Here you say this: 14 "BEIS was unsupportive of the recusal attempt, 15 deeming it unlikely to succeed, and too likely to 16 aggravate the situation and prolong the litigation 17 process, which we saw as the only means by then 18 available of resolving the dispute definitively and to 19 achieving a just [solution]. Greg Clark, Kelly Tolhurst 20 and I all expressed ourselves in our own way but clearly 21 all had real reservations about the recusal." 22 At 153, you add that you thought it was the right 23 move strategically and presentationally, as well as on 24 the substance. 25 At paragraph 156, over the page, you say: 172 1 "It was also clear that the Department (and UKGI) 2 took the view that the decision was for [Post Office 3 Limited] as the defendant in the litigation and accepted 4 that it should not do a volte face on its longstanding 5 and well-based position that BEIS was not a party to, 6 nor controlling the litigation." 7 You go on to deal with the discussions with 8 Mr Cooper. Towards the bottom of that paragraph, you 9 say: 10 "I therefore said to Mr Cooper that the Department 11 should maintain its clearly distinct and detached 12 position so that it is free and credible for dealing 13 with the consequences as they unfold. Ministers may 14 want to show appropriate concern about the criticism and 15 may express a desire for [Post Office Limited] to act 16 appropriately but should not comment substantively in 17 ongoing litigation in which the department has a clear 18 interest but no direct involvement." 19 A. Mm-hm. 20 Q. You go on to deal with Mr Watson's reply, asking whether 21 you were: 22 "... agreed that we should not try to engineer 23 a position whereby if the Board decided to proceed with 24 recusal the Minister is given a chance to object." 25 You agreed that: 173 1 "... we should not so engineer a position -- that 2 would make the Department into a directing force in the 3 litigation, which is neither correct nor prudent." 4 A. Mm-hm. 5 Q. Do I understand your written evidence correctly in being 6 that, although the Department did not want to direct the 7 Post Office's decision on the recusal application, you 8 understood that the Department's view on the application 9 would be communicated to the Post Office Board? 10 A. Yes. And indeed, I, you know, wrote a -- I think the 11 news came through of that recusal about 7.00 on a Monday 12 evening and by 11.00 that evening I'd written a memo to 13 Tom Cooper setting out my views in some depth and also 14 given a version of that to the Secretary of State and 15 Kelly Tolhurst. And the decision was the next morning, 16 that's why I was still working late into the evening. 17 It was all written up at the time you can see from these 18 documents. 19 Q. Going to paragraph 163, please. You say: 20 "I am aware now that Tom Cooper was advised to 21 recuse himself from the meeting. I do not recall being 22 aware of this discussion at the time and I was not asked 23 then for my view as to whether Mr Cooper should absent 24 himself from the decision." 25 You say: 174 1 "The decision did not however inhibit Mr Cooper from 2 conveying the Department's views and BEIS expected him 3 to do so. I expected that Mr Cooper would participate 4 in the discussion and, in doing so, relay the 5 Department's objections as indicate in Stephen Clarke's 6 (UKGI) email ... dated 19 March. 7 "[Your] understanding by listening to the evidence 8 given by Tom Cooper to the Inquiry was that he did not 9 participate in any discussion with the Board regarding 10 the recusal application as he had interpreted our 11 correspondence as a clear instruction to 'stay out of 12 this thing'." 13 What do you say to that, to Mr Cooper's 14 interpretation of your correspondence? 15 A. Yes, so I think it's absolutely the case, first of all, 16 that we didn't think that ministers should take 17 a decision which should probably be taken by the Post 18 Office Limited Board. We were the, you know, the 19 Department responsible for correct corporate governance, 20 and everything else the responsibility clearly was with 21 the Post Office Board, so we shouldn't sort of secretly 22 take their decision for them or take it on and there 23 were all kinds of negative consequences from that. So 24 that's the first part. 25 Secondly, I'm pretty sure I didn't know -- and as 175 1 I said there I'm not aware that I knew that he was 2 advised to recuse himself from the meeting. I have seen 3 some of the legal chain thereafter, you know, on that 4 now, which I didn't see at the time, wasn't copied to 5 me. It seems to have been based partly in a sense, you 6 know, that if a Government official was part of 7 a recusal, it might show lack of deference to the 8 judiciary, which I think is an argument, you know, it's 9 probably a bit of a stretch, maybe, a super cautious 10 interpretation. 11 I think maybe, you know, notwithstanding that, 12 people said, okay, well, don't be a part of the decision 13 but you should certainly be part of the discussion. And 14 I have seen, again, that email chain from UKGI lawyers 15 and BEIS lawyers saying, "Yeah, you can make 16 representations, you can make people aware of the 17 Department's views, but, you know, don't take the 18 decision itself". 19 I'm a bit unclear, even now from the evidence, what 20 part he did play in the discussion. I have seen the 21 email from Tom back to the Department reporting on the 22 discussion. So he was clearly in it, but it's not 23 a verbatim he said, we said type thing. It's just "This 24 is the decision we had". It did say that in the 25 discussion they had gone through very carefully the kind 176 1 of legal advice, the downsides, the issues, et cetera. 2 So there clearly was a full discussion on it. But 3 I don't know what Tom himself said as part of that 4 discussion. 5 Q. You attribute the fact that the Department's view was 6 not at least expressly communicated to the Board to 7 a failure of communication or interpretation between 8 BEIS and UKGI, at that next paragraph. 9 Given the apparent strength of the Department's view 10 that the application was unwise, why did you not 11 yourself approach the Board to provide the Department's 12 views? 13 A. Well, I never attended the Post Office Board, I wasn't 14 a member of it. We had a shareholder representative, 15 that was our means for conveying the views of the 16 Department, so I'd no reason not to have confidence in 17 that representative, very professional capable person to 18 be able to do that so -- and I didn't think there was 19 any real doubt about our view because I'd written 20 a two-page memo and given it to him the evening before. 21 Q. It was Kelly Tolhurst's evidence to the Inquiry that she 22 had understood that you were going to speak to the Board 23 or, if not that, it was left with you. Are you aware of 24 that evidence? 25 A. Yes, she's probably referring to the fact that I was 177 1 looking at the issue and wrote that memo to her, and to 2 Greg Clark, with my views. But those same views were 3 communicated in writing to Tom Cooper as our 4 representative. 5 Q. Kelly Tolhurst had serious concerns about the recusal 6 application; would you agree? Do you recall that from 7 the time? 8 A. Yes, she was concerned about it. We all were concerned 9 about it. We all thought it was going to make a bad 10 thing worse and it was going to, you know, as I've said 11 in the advice, that it was going to confirm in the mind 12 not just of the judge but the wider public that the Post 13 Office was in denial here and that everybody else was 14 wrong, rather than itself failing. 15 So we were very concerned about that and, also, that 16 the same judge would then be sitting for three more 17 hearings in this kind of further enraged state. So, you 18 know, it wasn't going to be tactically good but also 19 reputationally poor. She was definitely part of that. 20 Equally, both Kelly Tolhurst and Greg Clark accepted the 21 view, both from myself but also departmental lawyers, 22 that you could disapprove of something and convey your 23 concerns and say, you know, "Have you thought through 24 all the downsides? Have you thought through this, have 25 you thought through that?" But that we should not 178 1 ourselves take the Post Office's decision for them. 2 Q. Did she speak to you about the Department taking 3 a harder line, that is shutting down the recusal 4 application altogether? 5 A. She accepted the advice, and there's a readout from her 6 office confirming this in the documents you have, that 7 we shouldn't take the decision for them, and we 8 shouldn't put in place a second stage, whereby they 9 decide something and then we decide it for them, or 10 undecide it. We thought that was both legally incorrect 11 but also unwise because it would mean that, thereafter, 12 it would effectively become our litigation, which we 13 didn't wish it to be. It was the Post Office that was 14 defending their own track record and we wanted Post 15 Office to take responsibility for that and deal with the 16 consequences, both financial and organisational, that 17 would come from the outcome of that judgment. 18 We wanted, as you've read before, to be, you know, 19 outside of the fray, to be standing above it, to be able 20 to respond as necessary, and not to become a part of the 21 litigation ourselves. 22 Q. Did Ms Tolhurst express any view on the need for the 23 Post Office Limited Board to be spoken to before the 24 application proceeded; did she give an instruction to 25 anyone to that effect? 179 1 A. No, I think she had a conversation herself with the 2 Chair on Sunday, I think. At that stage, the Chair was 3 expecting there not to be a recusal attempt. I think 4 the legal advice from two different QCs at that time and 5 from a former President of the Supreme Court arrived on 6 the Monday, or at least was shared and distribute on the 7 Monday. Everyone rushes around reading this advice and 8 updating their thinking. That's when I wrote my memo 9 saying it's going to have all these disadvantageous 10 effects but it's not wrong in itself, and we shouldn't 11 make the decision for them. And they took the decision 12 on the Tuesday morning. 13 Ministers were advised on Monday and accepted that 14 they shouldn't undo the decision or try and take it 15 themselves. So that's the sequence that we had, and 16 it's clear that ministers accepted that advice, which is 17 why they acted as they did. 18 Q. Would you accept that, whatever the reason for Mr Cooper 19 interpreting an instruction to recuse himself, that 20 seems to have led to a failure to make the views of the 21 shareholder or the Minister known, clearly, to the Post 22 Office? 23 A. It seems to be the case. Again, the record is not very 24 complete about the fullness of that discussion. 25 I wasn't a party to it myself and I know the Inquiry has 180 1 already heard from the people who were part of that 2 discussion so they could speak to it better than I could 3 myself. I have seen -- received the email from Tom 4 Cooper after the discussion, which does, you know, point 5 to some of the downsides being fully discussed and the 6 independent advice they were given, et cetera. 7 So there obviously was proper discussion about it 8 and properly advised. They obviously reached the -- you 9 know, a different conclusion to the one that we had 10 reached, but that was their error. 11 Q. Was there any sense in which a political interest was in 12 operation here, in reserving responsibility for conduct 13 of this litigation squarely with the Post Office? 14 A. A political interest in the sense that, you know, Greg 15 Clark, as Secretary of State, you know, rightly saw 16 himself as kind of like representing the public 17 interest. He didn't side particularly with the Post 18 Office. Indeed, probably his sympathies were more 19 naturally with the subpostmasters. So we way waited to 20 see what the outcome would be from the High Court and 21 wanted to be there ready to respond as fully and 22 effectively as possible. So I would say, you know, kind 23 of "interested but neutral" is the stance of we took. 24 Q. After the recusal application had been unsuccessful, was 25 the Department more willing to be interventionist in 181 1 their approach? 2 A. Yes, and indeed, you know, at that time, Kelly Tolhurst, 3 for one, was very, you know, concerned. She'd begun to 4 lose confidence and I'm afraid she'd begun to lose 5 confidence in UKGI's representative at that time. 6 I think she used the language around "going native" or 7 something like that. You know, identifying too close to 8 the Post Office. She felt the Post Office themselves 9 had become, you know, economical with the sharing of 10 information and, you know, she said that -- you know, 11 she said that she thought that the Chair should consider 12 his own position. At the time the Chief Executive had 13 just stepped down, if you remember, and they were just 14 in the process of trying to appoint an Interim Chief 15 Executive, Al Cameron. 16 We then had a meeting, not only with her but with 17 the Secretary of State and other officials in the 18 Department at which we considered a range of potential 19 interventions, I think up to 11 and, effectively, we 20 took the first eight of those. We didn't at that time 21 choose to change the Chair. We did -- it probably 22 reinforced in her mind and mine that, rather than 23 cementing the Interim Chief Executive, who had been the 24 CFOO since January 2015, it would be better to look 25 outside the organisation to find somebody who would 182 1 bring a fresh perspective and, so to speak, a clean pair 2 of hands. 3 So that, I think, was, you know, one of the takings 4 that we had or takeaways that we had from the whole 5 experience. We became more suspicious and less trusting 6 of the Post Office, sadly, and more intent on bringing 7 about change there, firstly with the Chief Executive and 8 then with the General Counsel and then with all their 9 external advisers, and more insistent that they should 10 bring about a settlement, which indeed they did, and 11 that that settlement should be as definitive and 12 comprehensive as possible and should address cultural 13 change within the Post Office and a renewal of their 14 relations with subpostmasters, which had obviously, you 15 know, grown into a considerable deficit. 16 Q. If you had known the full picture from the Post Office, 17 that is you'd been sighted on all the information you 18 say now you should have been, would you have advised the 19 Minister to sack the entire Board, to adopt the 20 expression from your statement, the option being 21 considered in June 2019? 22 A. We looked at that. I think it's possible. I know that 23 ministers, particularly Kelly Tolhurst, sort of felt so 24 frustrated and disappointed with the outcome that, you 25 know, a sense of kind of like could we hold these 183 1 people, you know, accountable was, you know, absolutely 2 one of the things that she was -- questions that she was 3 asking. I think when we looked at it a bit more and 4 thought about it some more, we thought, well, hang on, 5 who are these people, in the sense that you had 6 an Interim Chief Executive, and then later a new one had 7 come from outside. Most of the Board members had been 8 appointed in the last two years, and indeed, I think, 9 that Board renewal process continued over the next year. 10 So if we had chosen to change the whole Board, we'd 11 have got rid of, so to speak, some of the people we just 12 hired to bring in to bring about change, and also we 13 wouldn't really have had a body to then oversee that 14 change, which is what you -- would obviously have been 15 necessary. 16 So I think the kind of -- we changed quite a lot in 17 the Chief Executive and the General Counsel, and we 18 tightened up the oversight that was applied to them and 19 put in place a new framework agreement, and strongly 20 encouraged them to settle in the way that they did. So 21 I think all of those actions came from it. It's 22 possible that, if they had known then, ministers, that 23 there was a very big report, the Swift Report, which had 24 been withheld from the scrutiny of the Board, I think 25 they would have turn a very dim view of that, as would 184 1 I. That might have tipped in favour of changing the 2 Chair at that time. 3 It's hard to say, because we didn't know, and I know 4 that subsequently, when that became known, the later 5 Secretary of State and later Permanent Secretary decided 6 to write kind of a letter of sanction, or censure. But 7 if it had happened at that time when, you know, people 8 were feeling so disappointed by the recusal attempt and 9 by the Common Issues Judgment and felt that the Post 10 Office was still in a kind of denialism, that might have 11 caused them take that change at that time. 12 I also think that, if the Clarke Advices that 13 I referred to before had become known to the Department, 14 that would have pointed to just egregious failings 15 within the Post Office because this is people being 16 unfairly prosecuted. I can't think of a worse thing to 17 do. 18 So, again, I think that would have absolutely made 19 us bring more extreme changes than occurred. 20 Q. Just two short points, finally, one on the issue of 21 bonuses. You gave a fairly strong steer to Tom Cooper 22 in a letter dated 29 July 2019 -- 23 A. Mm-hm. 24 Q. -- in respect of bonuses. I can put the document up on 25 screen if it would help you. 185 1 A. Thank you. 2 Q. It's BEIS0000085. The first paragraph goes straight in 3 to commenting on an email informing you of Post Office's 4 intention to extend performance bonuses to the Executive 5 and wider leadership group. 6 You go on to set out your reasoning for opposing 7 that with express reference to the Common Issues 8 Judgment, if we can just scroll down, please. Over the 9 page, please. Reference to the Common Issues Judgment, 10 at the top there. Then the third paragraph down, you 11 say: 12 "Taking the picture as a whole, the Department's 13 view is that Executive bonuses should only be paid at 14 a much reduced amount compared to the proposed maximum 15 until tangible improvements have been made." 16 Was your instruction or steer -- the word 17 "instruction" is used as the title to your letter, but 18 it appears it may have been a steer -- was it followed? 19 A. Yes, it was, but it was resisted initially. First of 20 all, they came seeking support for the 100 per cent 21 level, and I was disappointed in that from UKGI because 22 I thought it showed a want of understanding about what 23 had actually occurred, and that doing so would kind of 24 not involve any recognition on Post Office Limited's 25 part that even their conduct of the litigation was 186 1 criticised by the judge, and that was a contemporary 2 matter, even if the matters being looked at by the judge 3 in terms of the historic treatments were from a previous 4 era. 5 So I thought that was poor judgement from Post 6 Office Limited, from its RemCo -- from its Remuneration 7 Committee, which had independent NEDs on -- and actually 8 on this occasion by UKGI itself. 9 So I spoke to Tom about it, and he only somewhat 10 agreed with me. I then had a call from the Chair 11 saying, "Oh, you know, everyone should be paid their 12 bonuses in full and, if not, they're all going to resign 13 and, you know, and it's a sort of semi-contractual 14 matter and there's reasonable expectations", and all 15 this type of stuff which I just didn't accept was 16 appropriate. And that's why I insisted that they make 17 these reductions, why formally they get this letter. 18 As a matter of fact, under the then Framework 19 Agreement, we didn't have control over remuneration. 20 That was a Post Office; devolved matter. If you look at 21 the changes to the Articles of Association made in early 22 2020, that's one of the things that was added to it, to 23 say that they would have to get our consent to 24 compensation, including bonuses. 25 So that was, if you like, a kind of a new thing that 187 1 was added because we felt that's not satisfactory that 2 they should be able to do it. Anyway, nevertheless, it 3 does show that they were very, very clear about our 4 views, and about the reasoning and that's why it set it 5 all through and I said "It's not just me, it's the 6 Minister as well", and they did reduce their bonuses for 7 that reason, very reluctantly and, incidentally, people 8 didn't resign. 9 Q. That document can come down now. 10 Just, finally, I won't put it on the screen unless 11 you need to see it but you will have seen in the 12 documents sent to you more recently a reference to 13 a meeting at which there was a discussion about the 14 merits of a more limited review into what had happened 15 at the Post Office versus an Inquiry. 16 A. Mm-hm. 17 Q. It seems to suggest that your view and your advice was 18 a more limited view was appropriate. 19 A. Mm-hm. 20 Q. Is that right and, if so, why? 21 A. Yes, so my view at that time, which is also the view of 22 ministers, was that we'd had at that stage a lot of 23 findings from the High Court, because we had not just 24 the Common Issues Judgment but the Horizon trial 25 judgment as well, so between them hundreds of pages of 188 1 findings. We actually felt at that time -- not 2 correctly, as it turns out, but at that time we felt we 3 had a good picture of what had been going on and the 4 focus needed to be on the Post Office to make recompense 5 and not just financial recompense, because that is not 6 adequate itself, but to reform itself, see through the 7 organisational renewal programme, which was initiated in 8 August, and deliver on the three-year plan, deliver on 9 all the promises made to the subpostmasters as part of 10 the settlement, in terms of the changes to the treatment 11 of them. 12 The whole process of reform, and our concern was 13 that, obviously, we needed to have an independent review 14 right from the beginning. That was clear that would be 15 necessary for public confidence and necessary for 16 lessons to be learned. But we were concerned that 17 a full legal Inquiry would take some time, and this was 18 a concern that we had in January 2020, and it would cost 19 a great deal of money, and that it would pre-occupy the 20 Post Office, and take most of their time in thinking 21 about what had happened in the past, which was 22 necessary, but at the expense of what they were doing 23 now, and the actions taken in the future. 24 So those were the considerations, and what I've said 25 to you now is exactly what I would have said in those 189 1 meetings to ministers, who, at the time were of the same 2 view. In fact, I can see a decision from the then 3 Secretary of State had changed and it Alok Sharma by 4 then and he said he thought it should be done in four 5 months and for a budget of £1 million. 6 MS PRICE: Sir, those are all the questions that I have. 7 There are, I think, a handful of questions from several 8 CPs. 9 Ms Watt -- no? I think it may just be Mr Henry, 10 unless there are any other questions which I'm missing. 11 Just Mr Henry, sir. 12 Questioned by MR HENRY 13 MR HENRY: Thank you very much. 14 Sir Alex, the question of what you would have done 15 differently sometimes invites a self-serving 16 justification caveated with the benefit of hindsight and 17 you've just been asked about why you thought a limited 18 review was appropriate and asked to reflect on why you 19 came to that conclusion. 20 As part of your explanation, you said that, by that 21 time, you felt you had a good picture of what had been 22 going on inside the Post Office. When did you acquire 23 that good picture? 24 A. I just mentioned that we had the two judgments from the 25 High Court because I thought they had been very 190 1 revealing, and had, if you like, opened what had been, 2 to some extent, a black box about the way in which the 3 Post Office had been proceeding. I think subsequently, 4 thanks to this Inquiry, which obviously became 5 ultimately a Statutory Inquiry, there's been much fuller 6 disclosure in some of the documents that we've seen 7 now -- not just the Swift Report, but I mentioned 8 already those Clarke Advices internally -- we wouldn't 9 have otherwise seen. 10 So I'm grateful we got this full disclosure because 11 it's brought us to a much fuller picture. At that time 12 we didn't know that such bad things had been happening 13 within the Post Office. 14 Q. I see. You say -- and I don't need, I think, to take 15 you to it unless you would like to see it, but it's at 16 paragraph 241, at page 63 of your witness statement. 17 You say, among other words but this is a direct 18 quotation, and it's after Mr Parker complaining that he 19 felt that the Government was too interventionist. But 20 then you say this: 21 "My reflection is that if we had known what was 22 happening within the Post Office, we would have been 23 much more interventionist." 24 Now, I would like to concentrate on what you 25 actually knew at the time, not with the benefit of 191 1 hindsight but what your Department then appreciated, or 2 ought to have known. What was, as it were, obvious at 3 the time and so, therefore, what you ought to have done 4 not based on hindsight, but based on what your 5 Department then knew. If I refer to shorthand "you", 6 Sir Alex, I'm looking at the totality of the framework. 7 A. Yes. 8 Q. First of all, can you help us: you stated that there was 9 an element of denialism that the Post Office was 10 demonstrating. That denialism was surely clear at the 11 very latest by the time of the Common Issues Judgment, 12 was it not? 13 A. They had expected to do much better in that litigation 14 than turned out to be the case, and the judge was very 15 critical, as you know, and I've already spoken about. 16 I think their instinct was that that was a mistake with 17 the judge, rather than a mistake with them, and that's 18 why they brought the recusal attempt and, as we've 19 discussed already, we thought that was misguided and it 20 turned out to be. They also appealed it. The appeal 21 was on slightly more legal grounds, more technical 22 grounds but, nevertheless, that too failed. 23 So I think, by this time, which is October 2019, you 24 had good evidence that the old Post Office was mistaken. 25 At this time, we had a new Chief Executive who was 192 1 appointed the month before that, and he was putting in 2 place considerable reforms and, with encouragement from 3 us, was on the point of tying to settle the ongoing 4 litigation to the satisfaction of the subpostmasters. 5 Q. Well, let's try and detach it from the merits, as it 6 were. So you're saying that it was perhaps clearer by 7 October, not by, let's say, 15 March 2019, but let's 8 just concentrate for a moment on the costs, and I'm not 9 going to ask you to be precise to every pound, shilling 10 or to every penny. But your Department was facilitating 11 this defence, wasn't it, financially? 12 A. No, it wasn't. 13 Q. It wasn't at all? 14 A. No. We already heard some evidence that mistakenly, 15 they'd used 2.4 million of departmental money on 16 litigation and that had to be repaid. 17 Q. I know that got repaid but, overall, when one looks at 18 the way the Post Office was expending money, did it not 19 concern you about the legal expenses that it was 20 expending on this, particularly given the remarks made 21 by Mr Justice Fraser, as was, about the cost of the 22 litigation and the manner in which the trial was being 23 litigated? 24 A. It was with their own resources but I was concerned, 25 which is why I had been pressing for settlement for 193 1 a year at that time. 2 Q. Right. Now, on that subject about pressing for 3 settlement, do you, on reflection, feel that you ought 4 to have been more prescriptive and directive about that, 5 based upon a number of factors? I want to come to them: 6 first of all, POL's longstanding refusal to share 7 information. It did not welcome scrutiny or 8 accountability, did it? 9 A. I didn't get that impression, no. 10 Q. You didn't get that impression, but you have spoken 11 about it being resentful about sharing information, and 12 also the information protocols we have seen -- 13 A. Apologies, we're confusing -- I'm confusing myself or 14 you with my double negatives. Yes, my impression at the 15 time was that they did not welcome scrutiny. 16 Q. I do apologise. Thank you. 17 So that must have been a red flag of which you were 18 aware at the time. 19 A. Yeah, they didn't refuse to give us information but 20 I became aware over time of this pattern of, as I tried 21 to describe, stock phrases and rationing of information, 22 a wariness -- an "institutional wariness" is the 23 expression I used there -- and that was indeed 24 a concern. That's why we became more and more involved, 25 and that's why we tightened up and required them to give 194 1 us more information and put in place the framework of 2 oversight that applied to them. 3 And to the question should we have ordered them or 4 directed them to make a settlement? I think at that 5 time it's not clear we had the legal authority to do so. 6 You're probably aware of the Articles of Association of 7 2002 included a power of direction that had been removed 8 in 2013, was reinstated in 2020 during my time. 9 But that wasn't in place at that time, so we 10 wouldn't actually have been able to do that. We could 11 have tried in some other means to try and get them to 12 see that they needed to settle. We tried pretty hard on 13 that, at every meeting I had with them, pretty well. 14 They had, you know, respectable legal reasons for 15 saying that they needed to pursue the litigation. They 16 were convinced that they were right but also that 17 questions of precise the definitions about the duties 18 responsible under contract law were things which perhaps 19 did need to be adjudicated in a High Court, rather than 20 by means of a settlement. 21 As soon as they had had the Common Issues Judgment, 22 I felt that's when they should have been moving into 23 settlement. That's when they were in a period of 24 denialism, as I've called it, with the recusal and 25 appeal attempt, and that used up, you know, more time, 195 1 more money, unnecessarily, and delayed justice by 2 a further five or six months. 3 SIR WYN WILLIAMS: Can I just test that with you, Sir Alex. 4 A. Yes. 5 SIR WYN WILLIAMS: Just in as neutral a way as possible. By 6 reference to the timetable in 2019, so at the Common 7 Issues Judgment, March, I believe -- 8 A. Yes. 9 SIR WYN WILLIAMS: -- am I not right in thinking that the 10 Horizon Issues trial was due to begin within weeks of 11 that? 12 A. Yes. 13 SIR WYN WILLIAMS: And in fact did take place within a few 14 months of the Common Issues Judgment? 15 A. Yes. 16 SIR WYN WILLIAMS: So it's not impossible I know but, in 17 litigation of this kind, where everybody has, I think, 18 acknowledged that there was more to any settlement than 19 simply a financial amount -- 20 A. Yes, and that was the point that -- 21 SIR WYN WILLIAMS: -- where was the actual window of 22 opportunity for a settlement prior to Horizon Issues 23 trial beginning? 24 A. Yeah, it's a very good question, Sir Wyn, and I don't 25 think there is a precise answer where there was 196 1 a perfect moment. And, indeed, I think, you know, it's 2 more a waxing and waning. There are various points 3 where there were -- so-called windows of opportunity for 4 settlement opened up. I felt there could have been one 5 potentially immediately after the Common Issues 6 Judgment. 7 The Post Office for themselves decided that they 8 wanted to bring a recusal attempt and an appeal, which 9 I think was launched in May. So then we got the 10 judgment from the appeal -- they got the judgment for 11 the appeal in November, I think. So the whole of 12 Issue 1, the Common Issues Judgment, was before the 13 appeal court until that time. As you rightly say -- 14 SIR WYN WILLIAMS: That -- 15 A. As you rightly say, meanwhile the Horizon Issues 16 hearings were under way. The questions which everybody 17 wanted to get to the bottom of was, you know, was this 18 system as good as they said it was; were there problems, 19 were there errors? There was a lot of technical 20 evidence there, a lot of asking -- Fujitsu, were 21 obviously on the stand, who largely built the system in 22 the first place and maintained it. 23 So there was, I think, you know -- you are right to 24 say, to point out very gently there possibly a public 25 interest in allowing those proceedings to bring their 197 1 natural course. I remained the whole way through of the 2 view that the Post Office was losing, and the longer 3 that they persisted, the worse it was going to be for 4 them, for the postmasters, for their -- you know, their 5 customers, their future reputation, and I think that was 6 borne out by the turn of events. 7 So, ultimately, they did actually settle. I think 8 after they'd had the embargoed judgment on Horizon 9 Issues, the settlement came in December, and they'd 10 had -- the embargoed judgment had been given to their 11 counsel and also to the subpostmasters bringing the 12 claim. So both parties, when they settled, new by that 13 stage that the JFSA, the claimants, had won not once but 14 four times: both the first two hearings and in the 15 recusal and in the Appeal Court, and it was settled in 16 most terms. 17 SIR WYN WILLIAMS: I'm sure you've got that right but, even 18 on that, if I may say so, the mediation process which 19 led to the settlement, had been started in the sense of 20 being discussed between the lawyers and the setup before 21 you had the embargoed judgment. I just want to make 22 sure I have -- 23 A. Yes, and that's right, and perhaps I could just draw 24 your attention to the fact that it was actually 25 a recommended mediation from Justice Fraser, as part of 198 1 his judgment in the Common Issues Judgment in March. 2 SIR WYN WILLIAMS: So I just wanted to kind of test -- and 3 thank you for your assistance -- what actually happened 4 in 2019, in terms of how likely it was that a settlement 5 could have been achieved much more quickly, let's put it 6 in that way, than it actually was. So thank you for 7 that. 8 I'm sorry to take over, Mr Henry. 9 MR HENRY: No, thank you very much, sir. I'm very grateful. 10 So -- 11 SIR WYN WILLIAMS: Finally, from me, this question of 12 direction, which Ms Gratton and I had a discussion about 13 this morning. The trouble is that it takes two people 14 to settle, doesn't it? 15 A. Yes. 16 SIR WYN WILLIAMS: So even if you'd said to the Post Office, 17 "We direct you to enter into settlement negotiations", 18 it may or may not have happened, is the reality? 19 A. I think, again, that's a very fair comment, Sir Wyn. 20 And, you know, again, when we look at the terms of the 21 settlement it's not just -- it's by no means, you know, 22 only financial. Indeed, it's very interesting. And 23 indeed in the -- you know, I was looking at the press 24 release issued afterwards as well, when I think Alan 25 Bates, you know, includes a quote saying that he'd -- 199 1 you know, the thing that he talks about is actually not 2 the financial settlement. He says, "Look, you know, at 3 last the Post Office have recognised that they need to 4 kind of overhaul themselves and treat subpostmasters in 5 a different way". 6 And there's a whole schedule to finding all the 7 different things the Post Office needs to do to 8 implement that plan, as well, of course, as the 9 financial value of the settlement itself and the promise 10 of the Horizon Shortfall Scheme, all of which is set out 11 as part of the settlement. So it was quite 12 comprehensive, but I think what you're hinting at is 13 that it might not have been possible to actually achieve 14 that much before the time of settlement was actually 15 achieved. 16 SIR WYN WILLIAMS: That's all I'm saying because I'm 17 conscious -- and this is quite deliberate on my part, so 18 let nobody be under any misapprehension about this -- we 19 are only hearing the Post Office side of the litigation. 20 A. Yes. 21 SIR WYN WILLIAMS: We haven't heard evidence, you know, from 22 Freeths or any of the claimants or anything like that, 23 about how they were viewing all of this. So I've just 24 got to be a bit careful, if I can put it in that way. 25 A. Okay. 200 1 MR HENRY: Sir, very quickly -- 2 SIR WYN WILLIAMS: Have you got anything else? 3 MR HENRY: Yes, thank you very much. 4 So you accept that there was a window of opportunity 5 before Horizon issues, but you were observing the trial. 6 A. We just heard from Sir Wyn there may not have been, but 7 we were certainly saying the whole away along, "Take 8 every opportunity you can to try to settle". 9 Q. Exactly. You were obviously observing the trial, you 10 had a ringside seat, and it was your impression that it 11 was not going well -- 12 A. So the -- 13 Q. -- is that right? 14 A. Somewhat, yes. So -- I mean the hearings were going on 15 I think from November 2018, and certainly I would get 16 reports from them saying Justice Fraser seems very 17 unimpressed by the Post Office witnesses. So things 18 like that. I wasn't, you know, obviously attending the 19 trial or reading all the transcripts at the time, but 20 when the -- and he was very certainly critical, I think, 21 in the nature of his questions. You could see that he 22 was unsatisfied. 23 I think, nevertheless, when the actual judgment came 24 on 15 March, it was, I think, quite a shock for a lot of 25 people because it was so critical in so many different 201 1 ways of the Post Office. It hadn't simply tried to 2 answer the questions about where the responsibility lay 3 from a contractual interpretation point of view, the 4 sort of technical issues before the Common Issues part 5 of the litigation, but had actually made a lot of really 6 critical remarks about the Post Office and their 7 witnesses themselves, and that went a lot further. And 8 also, the Post Office lost on practically every count, 9 which, again, is comparatively unusual. 10 Q. So, last question. Your page 65 of your statement, Sir 11 Alex, paragraph 249. You said this: 12 "I do not consider that there is something 13 inherently defective in the governance structure of the 14 Post Office." 15 Doesn't that sit ill with what you have said earlier 16 about not knowing what was going on inside the Post 17 Office? 18 A. Well, yes and no. So I think it's an interesting 19 question. I think at the -- what I would say is that 20 the set-up of having a public corporation with Articles 21 of Association, with a Memorandum of Understanding, with 22 a specialist body providing oversight -- at that time 23 UKGI -- with additional reinforcement from the Post 24 Office Policy Team and the Department, with defined 25 residual powers given to the Secretary of State, with 202 1 a Framework Agreement all in place, that looks like 2 quite a solid piece of governance, and we obviously 3 improved that in my time in the Department. 4 However, no structural solution can fully deal with 5 the realties of the situation which depend on the 6 quality of the people you have in there, and their 7 dealings with each other. So I think -- 8 Q. So, in other words, the last sentence of that paragraph: 9 "The Board had the prime responsibility for the sum 10 conduct of the Post Office and manifestly failed to 11 discharge this." 12 So that's bad actors, as it were, concealing 13 information from you? 14 A. The Board themselves do not appear to have had all the 15 information they should have had. I mean, we've heard 16 already about the Swift Report not being given to them. 17 Q. Absolutely. But can I just -- and this was coming to 18 the very last thing from me -- Swift was originally 19 Baroness Neville-Rolfe's idea. Do you not think that 20 your Department ought not to have lost track of that 21 because this was originally an idea coming from the 22 Minister that there should be a QC-led review to assist 23 Mr Parker on his succession as Chairman? 24 SIR WYN WILLIAMS: Sorry, Mr Henry, is that quite right? It 25 was Baroness Neville-Rolfe's idea to have a review. It 203 1 was -- I think I'm right in saying -- Mr Parker's idea 2 to instruct a silk to assist him. 3 MR HENRY: I'm so sorry, sir. It arises -- I will provide 4 Counsel to the Inquiry with the -- 5 SIR WYN WILLIAMS: Yes, if I'm wrong about that, you can put 6 me right with -- 7 MR HENRY: Yes, definitely. That was my understanding of 8 her intention at the time, and we will find the document 9 and supply it. 10 What I'm trying to suggest is that there are 11 a series of oversight failures by the Department, and 12 that you had found yourself, as it were, in a classic 13 'frog boiling' analogy and that, over a period of time, 14 you gave too much latitude. You were thereby 15 compromised and then, ultimately, this resulted in 16 a disaster; what do you say to that? 17 A. I don't recognise those phrases or that description, no. 18 SIR WYN WILLIAMS: Thank you, Mr Henry. 19 I think you've had two last questions now, so that's 20 quite enough. 21 MR HENRY: Thank you, sir. 22 SIR WYN WILLIAMS: Is that it, Ms Price? 23 MS PRICE: It is, sir. 24 SIR WYN WILLIAMS: Well, thank you very much, Sir Alex, for 25 making a detailed witness statement and for giving 204 1 evidence during the course of this afternoon. I'm very 2 grateful to you. 3 THE WITNESS: Thank you. 4 SIR WYN WILLIAMS: So, tomorrow morning at 10.00? 5 MS PRICE: Yes, sir. 6 SIR WYN WILLIAMS: Fine, thank you very much. 7 MS PRICE: Thank you. 8 (4.42 pm) 9 (The hearing adjourned until 10.00 am the following day) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 205 I N D E X LORNA RACHEL GRATTON (affirmed) ...............1 Questioned by MS HODGE ........................1 Questioned by SIR WYN WILLIAMS ...............77 Questioned by MR JACOBS ......................79 Questioned by MS PATRICK .....................88 Questioned by MS WATT ........................94 SIR ALEXANDER JAMES CHISHOLM KCB (sworn) ....103 Questioned by MS PRICE ......................103 Questioned by MR HENRY ......................190 206