A former post affairs minister has said she believes a bonus culture at the Post Office “played a significant part in producing the abhorrent behaviour that prevailed” during the Horizon scandal.

Ex-Conservative MP Margot James, who was in post between July 2016 and January 2018, told the Horizon IT inquiry the “cultural crisis” at the company needed to be subject to “radical surgery”.

Ms James told the inquiry that a bonus culture which only had financial performance measures carried a “high risk of rewarding bad behaviours”.

Paula Vennells, who was Post Office chief executive for a number of years during the scandal, took home more than £2 million in bonuses over the course of her time as boss.

In her witness statement to the inquiry, Ms James said: “I understand the difficulty of recruitment into government-owned enterprises which operate in a commercial environment and the need for a system of incentives.

“But to allow a bonus culture to operate in which the only performance measures were financial carries a high risk of rewarding bad behaviours.

“I suspect that this type of bonus culture, which was set at board level, but also reached quite deeply down into the organisation played a significant part in producing the abhorrent behaviour that prevailed.”

Ms James also suggested in her witness statement that it was worth considering implementing an independent regulator of the Post Office, adding that Ofcom “could be tasked with a much broader regulatory oversight”.

During her evidence to the inquiry on Wednesday, Ms James said she did not believe the suggestion would “resolve the cultural crisis within the Post Office”.

She said: “In order to resolve that, I think the machinery of government is probably adequate without a change.

“If the Post Office can be brought into an acceptable state, which is a very big if, then I would favour the regulated route rather than the DBT-owned (Department for Business and Trade) route.”

Ms James added: “But none of this will solve the cultural crisis in the Post Office – I suspect that has to be subject to radical surgery, I would imagine.”

More than 700 subpostmasters were prosecuted by the Post Office and handed criminal convictions between 1999 and 2015 as Fujitsu’s faulty Horizon system made it appear as though money was missing at their branches.

Hundreds of victims are awaiting compensation despite the previous government announcing that those who had had convictions quashed were eligible for £600,000 payouts.