£136M government grant saves troubled Post Office from suboptimal IT

The UK's Post Office would have to cope with suboptimal IT, increased risks and costs, and reduced reporting accuracy if it didn't receive £136 million ($180 million) in government aid to keep its disastrous Horizon system running and replace it with a more modern platform.

A hit to day-to-day operations and a negative impact on back-office functionality would also await the beleaguered state-owned service if it were refused the taxpayers' money, a report from the Competition and Markets Authority (CMA) has found.

But the country's market regulator wants more evidence to understand why the vital spending cannot come from Post Office coffers, rather than from a one-off grant from the Department for Business and Trade. The figure is set to be rolled into a £277 million ($368 million) package intended to make sure the Post Office can pay those subpostmasters affected by the Horizon scandal as part of the redress settlement.

First introduced to the Post Office in 1999, the Horizon accounting system made mistakes in calculating the finances of retail branches run by subpostmasters, who were initially blamed for the errors, with hundreds facing prosecution. The consequences were devastating for many involved, leaving some bankrupt and others feeling suicidal, with several ending their own lives. Sixty people died before seeing any form of justice served. It is one of the greatest miscarriages of justice in recent British history.

The government commissioned the Subsidy Advice Unit, part of the CMA, to look into the compliance of the proposed £136 million ($180 million) grant to get its tech house in order.

"[The Post Office's] ability to replace the core IT system beyond a minimum level replacement/upgrade would be reduced. Even the minimum viable 'do nothing' option (maintaining the existing system) would require significant investment without meeting needs, and so would eventually require further subsidies," the report states.

However, the regulator said the Post Office could have provided better evidence of the need for public sector funds to subsisdize its technology transformation plan, Future Technology Portfolio (FTP).

"Further evidencing of the financial constraints detailed in the assessment would particularly help to explain why budgets cannot be reallocated to fund the FTP while cutting back on other areas. For example, this evidence could be provided through detailed financial statements (e.g. balance sheet, profit and loss accounts and cash flow statements), budgets, and/or profitability calculations with risk assessments, accompanied by a clear articulation of the types of business-as-usual costs ordinarily self-funded by POL and why the FTP falls outside these," the report said.

The Post Office plans to replace Horizon with New Branch IT, or NBIT, and kicked off the competition to find a supplier with a £75 million ($99 million) tender in April last year. In March 2025, it extended Fujitsu's contract to run Horizon until March next year, at a cost of £63 million ($84 million), bringing the total contract value to £2.44 billion ($3.2 billion). ®