The former chair of the Post Office has warned of another Horizon-style scandal if so-called “untouchable” investigators and executives involved in the prosecution of sub-postmasters are not fired before the organisation rolls out its new IT system.

Henry Staunton, who was sacked by the then business secretary, Kemi Badenoch, in January, said there there were still millions of pounds in dispute between what sub-postmasters and the Post Office have recorded.

Staunton said that before the replacement for Horizon is rolled out – a system that itself is full of bugs and whose projected costs have doubled to more than £800m – the Post Office must deal with staff involved in the wrongful prosecution of more than 700 sub-postmasters.

“This is not something that relates to the past – it is something that relates to the future,” he told the inquiry into the scandal on Tuesday.

“Before we implement [the new] Horizon we will be doing a path-clearing exercise. There are millions of pounds in dispute between postmasters and what is on their records and what is in the Post Office account.”

The inquiry has previously heard about “untouchables” within the organisation, a phrase attributed to outgoing chief executive, Nick Read, to refer to a group of Post Office investigators who would never face disciplinary action over the Horizon IT scandal.

Saf Ismail, one of two sub-postmasters who sit on the board of the Post Office, has also referred to a “red” list of 23 other employees deemed high-risk given their involvement in the scandal in one way or other, none of whom have even been suspended.

“There are these people called the ‘untouchables’ in the investigations team, or reds or whatever, involved with all the issues in the past of finding postmasters guilty,” Staunton said.

“I am very afraid if [sub-postmasters] are investigated [after the new IT system is implemented] by the so-called untouchables we could have another debacle – not to the same extent – but we could have hundreds of sub-postmasters having to pay out monies. This is a big issue going forward, the involvement of the untouchables. It is not some sort of academic exercise. It is really fundamental to what we do next time.”

Staunton said that Read, who is expected to appear before the inquiry for three days next week, had used the phrase “untouchables” with him in a private conversation and in a meeting with all of the Post Office’s non-executive directors.

Asked by counsel for the inquiry what exactly he understood an “untouchable” employee was, Staunton said: “They are people that were involved in prosecuting postmasters previously and are still in their roles and therefore would be involved in any future investigations … And that seems utterly wrong.”

There are 48 people employed in the investigations team, the inquiry heard, although how many of them are considered “untouchable” is unknown.

Staunton also said his first impression upon taking up the role in late 2022 was that there was not an acceptance among management that the Post Office had been wrong to pursue prosecutions, despite damning high court judgments.

“They didn’t fully accept it, that was my impression, that somehow the case hadn’t been put well or whatever,” he said. “There wasn’t a feeling that this was absolutely wrong, [what] had happened. It was a feeling across the piece with the team.”

It has emerged that Nick Read, the chief executive of the Post Office, wrote to ministers as recently as January to say it would stand by the prosecution of more than half of the post office operators targeted during the Horizon scandal.

The letter, to the then justice secretary, was sent less than a week after the ITV drama Mr Bates vs The Post Office finished airing and raised the profile of the scandal.

Staunton, who has accused the last government of wanting to delay payments to post office operators until after the general election, said his second takeaway when he started was that there was “no appetite at all for exoneration. Those were the two things that came through strongly to me.”

Staunton described the Post Office’s investigations department as “powerful” and “quite brutal” in the way they dealt with post office operators.

Staunton said that he was shocked at the attitude of the remediation process designed to evaluate and compensate those prosecuted.

He cited examples including a reluctance to “pause” branch owner-operators having to repay money while they were being evaluated in the scheme, as that might result in more coming forward to seek redress.

“What surprised me was, we shouldn’t not be doing something because it would generate claims,” he said. “That is not the basis the remediation committee should be working on. I formed a view over a period of months regarding bureaucracy and an unsympathetic and adversarial approach. With respect to remediation the government and Post Office were dragging their heels.”