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The Post Office is struggling to secure a multiyear funding agreement from the UK government to overhaul its business following the Horizon IT scandal that has wrecked the state-owned group’s finances and reputation.
Post Office management and the Department for Business and Trade are in funding negotiations over a five-year “transformation plan”, for which the company wants an early guarantee of long-term financing totalling about £1bn, according to two people familiar with the discussions.
But the government, which is under pressure to rein in spending, would prefer to “drip-feed” funding in stages and is reluctant to offer a long-term deal while the country’s finances and the future of the Post Office are still under review, the people said.
“What the [Post Office] is hoping for is the government to commit to the long-term [transformation plan] in total,” said one of the people familiar with the negotiations.
But the government is “trying to save” and wants to “drip feed rather than [immediately offer a] lump sum”, the person added.
Another person familiar with the talks said the Post Office “would prefer a multiyear” deal. The group has argued that “to transform the Post Office, you need funding that is going to go beyond one year”, the person added.
The business department said “we do not recognise” claims about the negotiations but added that “no decisions on long-term funding for the Post Office’s transformation plan have been made”.
The government is awaiting the findings from a “green paper” seeking the public’s views on Post Office reform, as well as a report from a public inquiry into the scandal, which is not expected for many months.
The conflict also highlights the contrasting pressures on the state budget following what has been described as the biggest miscarriage of justice in UK history. More than 900 Post Office branch managers were wrongly convicted between 1999 and 2015 in cases involving faulty data from its Horizon accounting software.
Last year, hundreds of innocent sub-postmasters had their convictions quashed. The long-running scandal has already pushed the government to offer £1.8bn in compensation to victims between 2024 and 2028.
At the same time, ministers are under pressure to tighten spending amid stagnant growth and increases in borrowing costs, with a government-wide spending review under way and not due to be completed until late spring.
The lossmaking Post Office, which has also had to pay tens of millions of pounds of its own money in compensation to the Horizon scandal victims, in November set out a sweeping strategy to overhaul its damaged relations with the postmasters who run its franchised branches, as well as invest in modernisation and banking services.
This includes adding £250mn annually to postmasters’ total remuneration by 2030. Management also wants to offload 115 wholly owned branches to franchisees or retail partners and cut hundreds of jobs at its head office, moves that could lead to substantial redundancy costs.
The group wants to roll out an alternative to the scandal-hit Horizon system that it is still struggling to replace, as well as make “a major investment in the automation of cash and mail services”.
The business department said: “Post Offices play an integral role in the communities they serve, providing essential services for local people. We are working with Post Office to put postmasters at the centre of the organisation and strengthen the Post Office network for its long-term future.”
The Post Office declined to comment.
