Cabinet Office minister Pat McFadden has told the Post Office Horizon IT Inquiry that a new inspectorate should be created to investigate significant complaints about arm's-length bodies.
His comments came in evidence to the inquiry probing the Post Office scandal, which saw hundreds of subpostmasters wrongly convicted of theft, false accounting and fraud in the 15 years following the introduction of the Horizon IT system.
McFadden was a junior minister with responsibility for the Post Office in the 2007-2010 government of Gordon Brown. Prime minister Keir Starmer appointed him as chancellor of the Duchy of Lancaster – the highest ministerial post in the Cabinet Office – on 5 July, after Labour's landslide victory in this month's general election.
McFadden yesterday spent two-and-a-half hours being quizzed about his experience of concerns related to the Horizon scandal that were raised in the late 2000s. One letter provided as evidence was sent by then-home secretary Jacqui Smith in 2009. She expressed fears "there could be a system problem" at the Post Office, based on the experiences of a handful of constituents in Worcestershire.
McFadden said that despite the fact that the Post Office was a company wholly owned by the business department, he had been forced to rely on its assertions that there were no problems with the Horizon IT system.
He said the Department for Business, Enterprise and Regulatory Reform and its successor the Department for Business, Innovation and Skills had "no independent information" on operational matters within the Post Office, other than what the company told it.
"They've got the information and they run the business. And that's set down in legislation, that separation," he said.
McFadden added: "The Post Office kept insisting that the system was robust and fit for purpose. They kept expressing their faith in it, and they're using court judgments as a proof point.
"The terrible thing here is that these court judgments were later found to be unsafe and unsound. But I didn't know that at the time and it took a long time for those court judgments to be overturned. Many years after they took place in some cases."
McFadden said challenging decisions made by the Post Office – such as individual branch closures or the outcomes of prosecutions it brought against subpostmasters – would have been off limits for ministers.
"I would have considered it improper to become involved in an operational decision to that degree about, say, an individual contract or Post Office branch," he said. "It was quite well-established, this division between operational and strategic policy delivery."
The Cabinet Office minister said he believed the inquiry, which is being led by retired High Court judge Sir Wyn Williams, should consider the creation of a new inspectorate that could intervene at an ALB when the level of allegations against it reaches a critical mass.
"This is a live and real policy question which has been exposed by this scandal," he said. "I think we're going to have to have something that can be called upon to do this kind of thing in the future."
McFadden said he doubted that giving ministers the express power to involve themselves in the decision-making of arm's-length bodies was a credible solution.
"I'm not sure, given the number of arm's length bodies there are, that ministers really can act as shadow chief executives of them," he said. "It begs the question: What do you do when one goes rogue? If it's not ministers sitting on the chief exec's shoulders, what is it?"
He added that one aspect of the Post Office's conduct in the scandal that required clarification was the point at which "blind faith from the Post Office in their IT system turn[ed] into something more sinister where people simply were just not telling the truth".
Counsel to the inquiry Sam Stevens asked McFadden whether there was anything more he felt he could have done to challenge what the Post Office was saying.
"Of course I wish I had done more to question these responses," he said. "But I believe if I had, I'd have got the same response from the Post Office in terms of these two points about their faith in the system: It's robust, there's no evidence it's wrong and so on."
McFadden added that the Post Office had continued pointing to successful court convictions as proof of its case for "quite a long time" after he left office.
The inquiry continues.