Cash for ash: Fallout will not end with politicians

RHI inquiry exposes DUP and NI’s civil service view of London money as fair game

 

When Seamus Hughes clicked “send” on an email to a manager in Northern Ireland’s biggest private business early on August 28th, 2015, he knew the renewable energy scheme he was helping to manage was perilously over budget.

By that time, Hughes, a mid-ranking civil servant, had been working for months with his boss, Stuart Wightman, on proposals to rein in runaway spending on the Renewable Heat Incentive subsidy as panic spread among officials.

Two months earlier, the two had asked their Democratic Unionist Party minister, Jonathan Bell, to curb the generous grants available. For some reason, however, there appeared to have been little urgency within the DUP to act.

That morning on August 28th, following weeks of talks, Wightman used a formal ministerial submission to ask Bell – who took over in the Department of Enterprise, Trade and Investment from Arlene Foster – to finally introduce cost controls.

However, the submission contained one key concession which officials believed was necessary to get Bell’s approval: cost controls would come into force, but a month later than had initially been planned.

At 10.08am, Wightman emailed the submission to the minister’s adviser, and waited for a decision. However, three minutes before that happened Hughes had – on Wightman’s instructions – sent another email.

That one went to Moy Park, alerting the £1 billion poultry processor – one of NI’s biggest firms – that, although they were still waiting the minister’s clearance, the cost controls were unlikely before late October or early November.

That was one of a number of “early warning” emails to others interested in the RHI scheme. Speaking to the “cash for ash” inquiry this week, Wightman was pressed on why he had done so.

Replying, the middle-aged civil servant said: “It’s difficult here sitting today, you know, when I see this, to be perfectly honest, the people that we went back to here, it was, firstly, at that stage, nearly a courtesy thing; we had told them something back in July based on the best of our knowledge and that was changing.” He added: “But, it looks naive now when I look back, and I have to accept that.”

Heating needs

Moy Park was one of the major drivers behind the huge surge in applications that ultimately overwhelmed the RHI scheme’s already-broken budget, tying taxpayers into 20-year contracts.

In 2011, the Northern Ireland Executive decided that it wanted 4 per cent of NI’s future heating needs to come from renewable sources by 2015, with that figure increasing to 10 per cent within five years.

In October 2012, the minister in charge, Arlene Foster, asked the Stormont Assembly to pass the Renewable Heat Incentive Scheme Regulations (Northern Ireland).

MLAs would have assumed that she was immersed in the legislation’s detail. She was not. Later, the DUP leader, who is a trained solicitor, was to admit that she had “absolutely not” even read it.

Applicants were offered grants and 20-year contracts for each energy kilowatt produced by pellets. Initially, interest was lacking, but Foster’s department encouraged it. By early 2015, applications were rapidly increasing.

Within months, however, officials knew that they did not have enough money to cover soaring applications so they began talks with treasury in London to get more funds, and, simultaneously, began attempts to make it less lucrative.

The flaw that existed was simple: the wood pellets cost less than the subsidy, so some boilers ran nearly full time. Some were used to dry wood that was then fed into others – so-called “parasitic wood-drying”.

In some places, multiple boilers heated empty sheds. To this day, most have never been inspected. In Britain, the grants were capped. Each boiler could collect £192,000 maximum over 20 years. In NI, each was worth £860,000.

Officials, said Wightman, “were getting a lot of phone calls”. Painting a picture of a small team under siege, he said: “Seamus [Hughes] was constantly on the phone, as were some of the more junior staff.

“So, it was as much to try to dampen that demand, as well; look, you know, rather than the same person phoning you back three or four times,” Wightman went on, saying they hoped the “early warning” emails would “stop the phone ringing for a while”.

However, while the release of confidential information might have slowed calls, it is clear that it directly drove demand for the subsidy itself from people trying to qualify before the shutters came down.

Fatal flaws

Emails obtained so far by the inquiry show that boiler installers who spoke to civil servants then told others that they would lose out if they did not apply immediately.

After one such call, Connel McMullan of boiler installer Alternative Heat urged others to move quickly if they wanted to generous deals for “99kw boilers running for 6 & 7,000 hrs!!!”

However, RHI’s fatal flaws were there from the beginning. In 2011, Foster’s officials hired expert lawyers to draft the subsidy legislation – even though they had yet to receive an energy expert’s view on whether they should do it at all.

Lawyer Alan Bissett, then of Arthur Cox solicitors, was brought in. However, although they were buying in the services of a specialist energy lawyer, civil servants rejected one of his key pieces of work without telling him.

In evidence, Bissett said that he had been paid largely to copy and paste the Westminster legislation. In doing so he had replicated its tiered tariffs – which discouraged waste simply by cutting the subsidy after a set number of hours.

However, this clause was stripped out by Stormont officials – not once, but repeatedly. The department “produced its own draft of the regulations” and issued those in a public consultation without telling Arthur Cox, Bissett recalled.

Saying that it “didn’t seem clear” to him why his work could not have been done by Stormont’s own solicitors, Bissett said: “We weren’t advising anything to do with policy; we were just drafting and were changing references and correcting terminology from GB to NI terminology.”

None of the handful of civil servants in the department’s small energy division had energy expertise. The majority of work in the early years was done by a civil servant with an arts degree.

Officials have said they did not propose tiered payments because a £100,000 Cambridge Economic Policy Associates (CEPA) report had told them it was unnecessary because the subsidy was lower than the cost of pellets.

Except it was not. Having commissioned CEPA’s bulky technical report, the civil servants then struggled to understand it – failing to spot that it three times gave a cost for the pellets that was lower than the proposed subsidy.

Fiona Hepper, who headed up the energy division and has since been promoted, defended the department’s failure to spot the error, saying “we scrutinised [CEPA’s work] as best we could”.

Exasperated, the inquiry chairman, retired Court of Appeal judge Sir Patrick Coghlin told Hepper: “But you didn’t need to be an expert to see this differential.

‘Common sense’

“All you had to be able to do was to see that the tariff was a higher figure than the price of biomass fuel and that appears three times separately in the CEPA report . . . Any common sense person would have seen that difference and if they didn’t appreciate the significance of it they would have asked because it’s so clear in a number of documents.”

Hepper then clarified that she had known at the time that the subsidy was worth more than the pellets but “we had a logic as to how you got from the price of the fuel and the other elements that had to be worked through to cover the other elements of it”.

Hepper’s testimony suggests a fairly passive department, but other evidence points to the department being extremely hands-on. CEPA director Mark Cockburn has said the Department of Enterprise, Trade and Industry skewed the details later seen by other government departments, the Assembly and the public.

CEPA had argued that a grant scheme – rather than one based on the fuel burned – would be £200 million cheaper and produce more heat. The department was unhappy, so CEPA “negotiated” with the department, effectively fudging its conclusion.

So far, the RHI inquiry has sat 78 times. Often, the revelations are almost incomprehensible. Foster, then the minister for energy , declared RHI to be value for money, even though she did not know how much it would cost.

Foster accepted that when she signed that declaration – something her special adviser described as little more than “a box-ticking exercise” – she had not known the total bill. However, she rejected the observation by inquiry panel member Keith MacLean that she had signed a “a blank cheque”.

The inquiry has revealed a dysfunctional Stormont. One department was desperately trying to rein in the out-of-control scheme in mid-2015, while another was urging farmers to jump onboard.

Boiler installers were openly marketing the scheme as “cash for ash” at events where civil servants running the scheme were present, yet they remained apparently oblivious.

Nonsensical civil service

A senior Stormont economist has admitted to the inquiry that the civil service “relatively regularly” makes decisions which would seem nonsensical to the man in the street.

Civil servants have accepted that they chose RHI over a £300 million cheaper alternative – never mind, the near-£500 million overspend – because £3.5 million administration costs would not come from their department’s budget.

Meanwhile, the head of Northern Ireland’s civil service, David Sterling, said officials often deliberately did not take minutes, believing that the DUP and Sinn Féin did not want records that could be later found under the Freedom of Information Act.

Officials, said Sterling, had broken their own rules to acquiesce to the DUP and Sinn Féin’s desire for secrecy because the two parties were “sensitive to criticism”.

Sterling, who was the most senior official in Foster’s department when RHI was set up in 2012, admitted that “there are things [about the scheme] that I cannot satisfactorily explain”.

Foster’s special adviser Andrew Crawford used Post-It notes on documents when he was advising her, he told the inquiry – the notes were immediately binned after they were read, meaning that they were not officially recorded.

Meanwhile, Crawford was regularly in contact with, and sometimes passing ultra-confidential government material to, Gareth Robinson, the lobbyist son of the then first minister Peter Robinson.

Without any apparent embarrassment, Crawford told the inquiry that he had given the then DUP leader’s son preferential treatment because of who his father was.

In Whitehall, 77 officials worked on the rules needed to run renewable incentives. Stormont had only two, Wightman and Hughes. One retired official, David Thomson, said candidly: “That’s part of the problem with devolution.”

Business found out within four weeks that super-profits were guaranteed because the uncapped subsidy was higher than the cost of fuel. Civil servants took 3½ years to learn the same lesson.

Coghlin has used sweeping 2005 powers to compel “any document” necessary, issuing 700 section 21 notices on everyone from Foster to people who had boilers in sheds. Up to now, he has gathered 1.3 million pages of evidence .

RHI riches

The discovery in December 2016 that RHI could cost £500 million more than expected helped to bring down Stormont – although there are reasons to now believe that the overspend might not, in the end, be quite that bad.

While Edmund Burke observed that “frugality is founded on the principle that all riches have limits”, some of the evidence to the inquiry points to a belief that the RHI riches had no limit, as long as Stormont did not have to foot the bill.

Spending should flow on foot of a budget created to fill a need. Stormont’s RHI scheme operated in reverse: Westminster offered £25 million for a four-year scheme in NI. Stormont set out working out how it could be spent.

In a revealing glimpse into culture, David Sterling spoke candidly about a clear belief among senior civil servants and politicians that NI should get as much of the treasury’s money as possible.

Inquiry counsel put it to Sterling that such a tactic conflicts with an official’s first duty to ensure that money is well and properly spent. Sterling insisted that was not so. But he did make a clear distinction between how the NI administration viewed money which was nominally from its own budget and money which comes directly from the treasury.

“If there’s an opportunity to draw down money which will give an economic benefit in NI, the realpolitik here is that we draw down the maximum amount that we can because we will get an economic impact from that.”

Senior counsel to the inquiry David Scoffield QC wondered if he was saying that “the more money we can get from England, the better . . . so let’s fill our boots”. Mr Sterling replied: “I wouldn’t be that cynical.”

However, Andrew Crawford, Foster’s ministerial adviser, did think that. In an email obtained by the inquiry, he bluntly made it clear that a London-funded scheme should be overspent.

Writing in July 2015, Crawford, by now advising Foster in the Department of Finance, cautioned against precipitous moves to rein in a scheme which civil servants had known since March of that year had burst its budget.

Apparently unable to comprehend others’ panic, he said coolly: “I am a little confused over what the problem is . . . the scheme is being funded from AME [demand-led spending coming directly from the treasury].

“Therefore if we go over our 4 per cent target all that will happen is that we will get more than our fair share of the UK pot . . . I would have thought that this is to Northern Ireland’s advantage.”

In time, the treasury made clear to Stormont that this was not so. Every penny would come from its own budget, putting pressure on health, education etc. It was that edict that led to panic.

Degree of ambiguity

From the outset, although there had been a degree of ambiguity about exactly what would happen if the scheme overspent, civil servants had been made aware that there would be some form of penalty.

The inquiry has obtained emails showing that Crawford forwarded confidential information to relatives who had applied for the scheme, or were thinking of doing so, that the days of uncapped tariffs were coming to an end.

Crawford – who continues to be employed by the DUP and is now working on the party’s Brexit policy – apologised to the inquiry for that “inappropriate” disclosure.

When asked why he had acted as he did, Crawford said: “I can’t answer that here today in terms of why I didn’t – you know, my conscience didn’t stop me from doing it. I just can’t answer that here today.”

But he was not the only person doing so, as seen earlier. Wightman and Hughes had been doing so long before the Hughes email to Moy Park at the end of August 2015.

The officials say that they acted out of commercial naivety and a desire to head off potential legal challenges to the cut in tariffs. Regardless of the reason, the messages cost taxpayers.

In one instance, one message to a boiler company led it to warn a Co Antrim lorry firm. In 19 days, that firm had installed 11 boilers, claiming more than £340,000 worth of subsidies in the first 16 months.

Bruised DUP

Both the DUP minister Jonathan Bell – who in December 2016 turned on the party with an explosive TV interview – and his special adviser, Timothy Cairns, who remains a DUP member, agree that curbs were deliberately delayed.

Cairns says that he asked for delays because he was instructed to do so by more senior DUP figures, who deny that was the case. The inquiry is just now starting to study that period and it is likely to be bruising for the DUP.

Already a slew of private text messages, emails and WhatsApp conversations between some of the DUP’s senior elected figures and backroom operatives have given unprecedented insight into how it handles a crisis.

Some in the DUP have taken heart from early evidence that many of the submissions given to Foster by civil servants were either misleading or inaccurate. But much of what has emerged since then has been damaging.

So far, Foster has spent four days giving evidence and will return in the autumn. Her position has already been weakened, and she would struggle to survive a finding that laid significant blame at her door.

But the fallout will not end with politicians.

Already, senior civil servants privately accept that the inquiry has exposed major shortcomings in how Stormont civil servants operate and how officialdom there will have to be reformed.

The implications for the civil service are particularly acute because the revelations come at a time when – because the Assembly and Executive are absent – officials exercise more power than has been the case for a century.

PANEL

Renewable Heat Incentive: the subsidy scheme that seemed to keep on giving

In 2011, Great Britain launched a Renewable Heat Incentive (RHI) which offered 20-year subsidies to move from fossil fuel heating systems to low-carbon alternatives such as solar panels and biomass (often wood pellet) boilers.

However, the Stormont Executive opted out of that scheme and instead chose to set up one of its own with the £25 million which Westminster offered it for the first four years of the RHI incentive.

From the beginning, the scheme in Britain put in place tiered tariffs which disincentivised exploitation of the rules, forcing boilers to be cut off if they were operating too much – and it incorporated curbs to protect the budget if there was a rush of applicants.

Stormont’s scheme, however, contained none of those safeguards – despite a whistleblower approaching both civil servants and DUP minister Arlene Foster to warn the scheme was being abused.

After a slow start, word spread and there was a steep increase in applications. By March 2015, officials knew that the allocated budget had been breached. Yet cost controls did not come in for another eight months.

By then, there had been such a rush that the scheme was unsustainable and it was shut in February 2016. By the end of 2015, the treasury in London had warned Stormont that local overspending would come out of its own budget.

After further whisteblower allegations of empty sheds being heated to milk the subsidy, the scheme was investigated by the NI Audit Office and the NI Assembly’s Public Accounts Committee.

But it was BBC NI’s Spotlight team’s expose, which exploded the scandal into the public consciousness in December 2016. Former DUP minister Jonathan Bell alleged that senior DUP figures stopped him when he tried to shut it down.

The DUP denied the allegations. Sinn Féin – which initially resisted a public inquiry – ultimately agreed to one, and collapsed Stormont after Foster refused to step aside as first minister for its duration. It began work in November 2017.

  • Sam McBride is political editor of the News Letter in Belfast