Post Office wrongly used public funds to pay for legal battle

The Post Office wrongly spent millions of pounds of taxpayers’ money to fund its High Court legal battle with subpostmasters over the devastation caused by errors in its Horizon system.

It broke the rules when taxpayer money from the Department for Business, Energy and Industrial Strategy (BEIS), intended for branch network maintenance and organisational transformation, was diverted to fund its legal fight in a 2018/19 group litigation order (GLO).

During the latest phase of the public inquiry into the Post Office scandal, Alex Chisholm, former chief operating officer and permanent secretary for the Cabinet Office, said: “At one point, we found evidence that … funds we had given for the purpose of maintaining the network and investing in transformation appeared to have been used for a piece of litigation.”

Chisholm described this in his witness statement as a “categorical mistake”.

During the latest inquiry hearing, it was revealed that the Post Office had wrongly spent at least £2.3m of public money in this way, and also wrongly requested a further £2.4m, before civil servants spotted it and put a stop to it.

The GLO saw former subpostmasters, led by Sir Alan Bates, defeat the Post Office and its claim that the software used in branches could not have caused unexplained account shortfalls, for which the Post Office branch operators were blamed and punished. But this came after the Post Office had spent about £100m on legal support. In earlier public inquiry hearings, there has been evidence that the Post Office ran its High Court legal battle like a war of attrition, attempting to outspend claimants.

The GLO action by subpostmasters was first announced in 2015, at which point the Post Office began spending money on its defence.

As principal accounting officer, Chisholm was accountable to Parliament for departmental expenditure. This included money directly spent by the department, as well as funds spent by arm’s length bodies such as the Post Office.

In January 2018 – ahead of the first High Court trial – Chisholm wrote to Post Office CEO Paula Vennells following a funding request.

In his statement to the public inquiry, he said: “That request indicated that [the Post Office] intended to use BEIS funds for non-transformation programme purposes, and specifically to assist in funding the Horizon litigation.

“I had challenged this when it came to my attention as I was strongly of the view that public funds approved for specific purposes, namely network provision and organisational transformation, should not be diverted otherwise, and certainly not to fund the Post Office’s litigation,” wrote Chisholm. “To provide some additional assurance that BEIS funds entrusted to [the Post Office] were being used properly, I asked for that confirmation from Ms Vennells on a quarterly basis.”

Vennells replied that she would “ensure [the Post Office] make it clear that the source of funds for GLO work is Post Office, not government”. She said when the reporting on expenditure had been brought to her attention in December 2018, the Post Office removed £2.4m from a quarterly request. She added: “We will not include GLO spend in future funding requests and will confirm this quarterly.” Furthermore, Vennells said the Post Office would return £2.3m that had been requested to support its GLO work in an earlier quarter.

Chisholm said in his witness statement: “Whilst disappointed by such a categorical mistake in budgeting and reporting, I was reassured by Ms Vennells’ prompt and appropriate response.”

In contrast to the Post Office’s access to public money, the subpostmasters were forced to borrow from litigation funders, which meant any settlement money had to be paid back to funders, with interest.

The Post Office Horizon IT Inquiry is now in its seventh and final phase, which is focusing on the Post Office’s current practice and procedure, as well as recommendations for the future.

Computer Weekly first exposed the scandal in 2009, revealing the stories of seven subpostmasters and the problems they suffered due to Horizon accounting software, which led to the most widespread miscarriage of justice in British history (see below timeline of Computer Weekly articles about the scandal since 2009).