Post Office Network Subsidy Scheme (Amendment) Order 2024

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Post Office Network Subsidy Scheme (Amendment) Order 2024.

My Lords, under Section 103 of the Postal Services Act 2000, the Secretary of State for Business and Trade has the power to make payments to support the provision of the Post Office network. This power is subject to conditions, one of which includes a cap on the total amount of funding that can be given to the Post Office in any given financial year. The current cap, set in 2011, is £500 million, and we are proposing to increase this to £750 million per annum.

Raising the legislative cap on funding that can be provided to the Post Office does not reflect a funding commitment but is simply an enabling power to allow the Government to provide appropriate funding to the Post Office when needed. The rationale for the increased cap is simple: we must avoid a situation where the Government cannot legally provide the funding that the Post Office needs for its essential activities.

As all noble Lords will be aware, the Government currently provide funding support to the Post Office in a number of important areas, enabling it to maintain its delivery of key services across the UK.

First, funding is provided for compensating victims of the Horizon scandal. The scandal was one of the biggest miscarriages of justice in living history, and the victims must get the justice that they deserve. As part of this, it is essential that impacted postmasters are compensated fairly and as quickly as possible. The Government are contributing funding for a number of compensation schemes, as well as funding associated with delivering the compensation schemes. It is essential that this process is not held up at any stage of the process.

Secondly, the Government provide significant and vital funding to support the Post Office network. Post offices are the beating heart of communities. Through its network of over 11,500 branches, the Post Office delivers essential services across the United Kingdom. There are currently over 6,000 rural branches, representing 54% of the total network. Over 3,000 of these are described as being the last shop in the village, providing vital retail, mail and banking services together in one space and helping to sustain thousands of rural economies. These services are highly valuable to both individuals and SMEs in urban and rural areas across the UK. It will come as no surprise that, in the Association of Convenience Stores’ recently published annual local shop report, Post Offices were identified as the type of service considered by the public to have the most positive impact on a local area.

The Government have provided significant financial support to sustain the nationwide network: over £2.5 billion in funding in the past decade alone. The Government remain steadfast in their support for the network and have committed to maintaining the annual £50 million subsidy to safeguard services in the uncommercial parts of the network until 2025. Without that funding, most of these Post Office branches would be unsustainable.

My Lords, I thank the Minister for outlining this SI. It is one of the shortest statutory instruments that I have had to deal with. I aim to give it a bit of colour. We on these Benches will not oppose it, but it raises a number of questions, which I will run through, giving the civil servants in the Box a bit of time to answer them and to help the Minister if needed.

A cap has been set at £500 million since 2011—so for quite some time now—and has not risen with inflation over the years. Pre the scandal and having to pay and settle some of the problems—let us deal with the scandal completely separately—has the money from the Government to the Post Office come close to that cap over the last four or five years?

The only question to the DBT from the Secondary Legislation Scrutiny Committee, in paragraph 54 of its eighth report, was not really answered. If this £750 million is not enough, will the DBT come back to Parliament with another SI to uplift it? That is purely in the context of the scandal, because in normal times £750 million should be adequate. It is an uplift of 50% from the previous cap limit, so my expectation is that the cap was never hit. However, the department did not answer the SLSC’s question about whether the Government would return to it. I think the department’s answer was that it was confident that £750 million would be enough. It is worth asking whether, if there is a need to come back for more, the Government would seek to do so.

In dealing with the scandal and the payments from it, is there a gross figure that the Government are expecting or looking to pay across all the compensation schemes? We have individual sums—there is the £600,000, and bits and pieces across different schemes—but is there an expected overall compensation figure on the back of the Horizon scandal?

Also, if I remember correctly, one of the senior executives at Fujitsu commented at Davos that, as a business, Fujitsu would be looking to make some recompense. Do we know what level of financial recompense it is looking to make towards the scandal? Would that money be paid to Post Office Ltd or to the Government, since they are basically underwriting any and all of the compensation payments?

I thank the noble Lord for those questions, all of which are perfectly reasonable.

The first question was about the £500 million limit from 2011. Of course, up until 2022 we did not have inflation, so it has not been an inflationary environment. Part of the increase is recognising the inflationary hike that we have had and part of it is recognising that significant compensation has to be paid out. I do not know the precise amount of spend against that £500 million; it has not been above it.

To give some idea of this number, we know that, for example, in the last 10 years we have spent £2.5 billion just supporting the network. If you divide that by 10—although it has not been £250 million a year—you get the idea that that is over or under as a scale. Some £50 million has also been given to support the loss-making branches that we want to keep open, of which there are 3,000 in rural areas. There have also been the IT costs: another £100 million to build the new IT system to replace Horizon.

All of that has been within and is manageable within the £500 million, but now we move to the new world of compensation. So far, £153 million has been paid out. That has, therefore, been within the £500 million cap. On the question of how much will ultimately be paid out, guidance has been given that this could, shockingly, end up being £1 billion, but that would be over a number of years. We expect that to be accommodated within the increase to £750 million. That is how it has been budgeted.

Fujitsu has expressed that it has a “moral obligation”. That has not yet been tested as to amount and recipient. That will now be negotiated. I can see a situation where the Williams inquiry establishes the facts and a lot of repercussions come out of that, as we have said in the Chamber. One of those will be a discussion with Fujitsu about the right amount that it needs to contribute. My ministerial colleague in the other place has been very clear that it should not just be the taxpayer who has to foot this bill. Therefore, Fujitsu will need to off-set that. Quite how that will happen and where it will go is not yet decided, but that will be a significant part of that off-set.

Motion agreed.