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CHAPTER 3

LET’S SPEND BIG

In late June 2011, consultants CEPA delivered their verdict on how Stormont should incentivise renewable heat. Except, bafflingly, they didn’t. The company, which would be paid about £100,000 to advise DETI on how to encourage green heating systems, delivered a report which did not fulfil their central contractual obligation.

Key sections of the lengthy technical document focussed on a comparison between setting up a Stormont-run RHI scheme, or a grant-based scheme, called a challenge fund. The challenge fund would competitively allocate the available funding from the Treasury each year, allowing the market to provide the most cost-effective means of using the money. Once the funding ran out each year, it would shut, making it impossible to overspend. The alternative, an RHI scheme, would by contrast provide ongoing payments over 20 years to each boiler owner, with the payments linked to how much heat they produced. Having examined the numbers, it was clear to CEPA that the challenge fund provided vastly superior value for money.

On three separate occasions throughout the 145-page report, CEPA said: ‘the challenge fund delivers the most renewable heat, at the lowest cost’. The report did say that an RHI scheme would have other benefits – such as providing a long-term signal to the renewables industry and encouraging people to use their boilers, rather than simply install them and revert to fossil fuels – but was clear that such a scheme would be ‘significantly more expensive over the long term’. CEPA calculated that an RHI scheme would cost about £200 million more than the challenge fund. It wasn’t even close.

But then, having said that, the report made no recommendation. To anyone who might have studied the report, it was a strange outcome – but all was not as it seemed. Behind the scenes, CEPA felt that the department had steered it away from saying what it really thought.

Private emails from six years later – by which point CEPA was preparing to face the public inquiry into a scandal in which it had played a crucial role – helped unravel the mystery of how the consultants delivered a report, which did not meet their contractual obligations. Yet, the civil servants seemed happy with it and agreed to pay them £100,000 without quibble.

In one email, Iain Morrow, a former CEPA employee who had been heavily involved in writing the report, told the consultancy’s director, Mark Cockburn, that in 2011 it had been ‘clear that DETI wanted an RHI’ – a 20-year expensive scheme – rather than any other proposal. In the email, which the inquiry compelled the company to release, he went on:

They would have liked us to recommend an RHI, but we felt, I think, that we couldn’t make the judgement for them about whether their internal issues made a challenge fund unworkable. So, we agreed with them that the report would not make a firm recommendation. I seem to remember that this wasn’t something they accepted easily. They wanted us to make a recommendation, but we said that it could only be to do a challenge fund, which they didn’t want.

Sitting before the public inquiry in 2017, Cockburn admitted that ‘there probably was some negotiation over what the final position would be’. He was pressed by inquiry chairman Sir Patrick Coghlin as to why CEPA had not directly recommended what it believed was the best option. The consultant replied that because of DETI’s views ‘we might have had to be a bit more nuanced about it.’ Coghlin asked: ‘Why would you have to be more nuanced if you have integrity about your reputation?’ The middle-aged Cambridge economics graduate implied that his view of the independence of CEPA was rather different to how the company had originally described it. Readers of CEPA’s 2011 report were informed that it had carried out an ‘independent economic appraisal’. Cockburn suggested that he did not think CEPA should overly rock the boat by recommending something which might be awkward for the client ‘if they didn’t feel comfortable with it’.

The image, which emerged from the inquiry, was of a ventriloquist consultant who – in exchange for a large sum of money – was essentially echoing back to DETI elements of what it wanted to hear. Although it was perhaps not prepared to do whatever the client wanted – and did not recommend an RHI scheme – CEPA was willing to substantially fudge its professional opinion purely because those paying it wanted that to happen.

Arlene Foster’s spad, Andrew Crawford, told the inquiry that when he looked back on the period he was baffled as to the apparent predisposition of officials towards an RHI. He insisted that both he and Foster were ‘agnostic’ as to what form the incentive should take.

On CEPA’s evidence, the non-experts in DETI were successfully leaning on the expert consultants to alter their findings for the future of a scheme worth many hundreds of millions of pounds over two decades. And yet civil servant after civil servant – who, whether in DETI or the Department of Finance, were asked to sign off on the scheme – would go on to tell the inquiry that they had put faith in the recommendation for an RHI scheme because of the credibility of CEPA. Rachel McAfee, an economist in the Department of Finance, was one of many officials to scrutinise the RHI proposal, said that due to her lack of energy expertise ‘I would have relied so much on the consultants’.

The civil servants in DETI’s energy division, who worked with CEPA on the report, denied to the inquiry that there had been any attempt to substantially change it. Energy division boss Fiona Hepper said indignantly: ‘We were certainly not pushing them in one direction or another. That is not what we were paying for.’ Peter Hutchinson, the mid-ranking official beneath her who was the main point of contact with CEPA, was less emphatic, but said that he did not remember attempts to get CEPA to support an RHI scheme. ‘Not that I can recall,’ he told the inquiry. ‘We went back to them and said “those recommendations [in a draft report] don’t stack up” … I don’t recall having a, you know, that kind of negotiation or anything like that. I don’t think that’s right.’ But despite the civil servants’ denials, CEPA’s evidence was compelling because it reflected badly on the company. The idea that a major global economic consultancy was something of a gun for hire, willing to alter key recommendations of its reports to suit a paying client, was an argument that undermined the firm’s credibility – and that of both Morrow and Cockburn. It was difficult to see what motive they could have had for concocting it.

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CEPA’s draft report had arrived with DETI at the end of May 2011, prompting a series of DETI comments and questions to the consultants, one of which said that CEPA needed to ‘be very clear why RHI is [the] preferred option over [a] challenge fund.’ In a telling response, CEPA replied on 15 June to say: ‘Our recommendation is based on the assumption that DETI wants to do an RHI. The challenge fund option is for comparison purposes to show what could be achievable.’ That comment suggested that DETI’s mind was all but made up and the challenge fund was simply being put into the report so that – on paper at least – there could be some comparator.

There was further evidence that the department seemed to have made up its mind before the consultants had reported or the minister had formally taken a decision. In a document sent to Whitehall to justify what Stormont was doing, Peter Hutchinson in DETI’s energy division set out that a decision had been reached that ‘the most appropriate method … has been assessed with consideration given to several options … the Northern Ireland RHI option is consistent to the GB position and provides long-term, stable support for those wishing to invest.’ The document is dated 19 May 2010, but Hepper told the inquiry that she believed it was from 2011. Even if it was May 2011, it was still a month before Foster had as minister decided that there should be an RHI as opposed to some other solution.

But, as baffling as it might initially seem that the department appeared determined to go with the far more expensive option, there was method in the apparent madness. Firstly, the renewable heat money coming from the Treasury could only be spent on the subsidy itself – not on the administration necessary to get the money to claimants. The cost of running the scheme would come out of DETI’s own budget. CEPA believed that the challenge fund would be expensive to run – with administration costing perhaps 10% of the total funding. At that point, Stormont was facing belt-tightening and it would not have been easy to argue for the money to take on staff.

Some in DETI were still smarting from the unhappy experience of another green energy grant scheme just a few years earlier. The scheme, Reconnect, had seen 1,295 biomass boilers installed against an expectation of only 375 – with the costs of administering the scheme ending up being 14% of the total funds handed out. DETI thought that administering an RHI scheme would cost £1.5 million but the challenge fund would involve £5 million of administrative costs. That was partly because they could ‘piggyback’ on the existing GB RHI scheme by using its administrator, Ofgem, and the IT systems it had already designed for Whitehall.

Shane Murphy, who was DETI’s senior principal economist, later told the public inquiry that he was clear that the officials designing RHI favoured it over the far cheaper alternative largely because it would save DETI a relatively small sum – even though they knew that overall the RHI would cost taxpayers far more. Murphy said that he had quizzed colleagues about the decision at the time. He said that it essentially did not matter that the challenge fund might be far better value in the long run because public sector budgets tend to be short term, and if the money was not available to DETI at that point there was nothing that it could do. He admitted that such reasoning would however look ‘pretty strange’ to the public. But there was no evidence that the civil servants had even tried to secure the money, nor that they had informed their minister of what was a fundamentally political decision.

Speaking frankly, Murphy said that civil servants ‘relatively regularly’ make decisions that would seem nonsensical to the person in the street. But Murphy – one of the few to internally challenge as the scheme was being designed – said that civil servants operated on the basis of a belief that there is a much bigger picture; even though the rules may seem absurd to them, they trust that there is a grand plan they cannot see, and that the rules by which they operate have been put in place for good reason. The manner in which he spoke about the civil service operation was akin to how a religious person may explain why God allows bad things to happen in the world – essentially faith fills the gap between what seems to be wrong and a wider belief that it must be right.

But there was arguably another reason to disregard the challenge fund: the very fact that it was cheaper. If Stormont set up a grant scheme, it could fund it using £25 million from the Treasury to cover the first four years. But there was no guarantee that Northern Ireland would get any money beyond that point. By contrast, an RHI scheme meant that Northern Ireland would receive £25 million and an ongoing high level of funding for the next 20 years – even if there wasn’t a single boiler installed beyond that point. By choosing an RHI, Stormont was committing the Treasury to keep pumping money into Northern Ireland for two decades after the last boiler went in. That was politically attractive to both the DUP and Sinn Féin. Although the parties were diametrically opposed on many issues, they wholeheartedly agreed on a form of economic nationalism. As Irish republicans, it was obvious that Sinn Féin – a party grown out of a terrorist organisation, which only a few years earlier had explicitly waged economic, as well as human, war on the UK – would seek to get every possible penny out of London.

But in that mission they found willing allies in the DUP. Under Ian Paisley, and then Peter Robinson and Arlene Foster, the DUP’s unionism was infused with Ulster nationalism. The party prided itself on extracting what it could from London – or anywhere else – for its constituents, and was not afraid to boast about it. At election time, the party would trumpet that Northern Ireland had the lowest household rates in the UK – and then would press for more Treasury money. Although popular with voters, who financially benefited from that hard bargaining, the DUP’s stance sometimes led to criticism from other unionists that its populist approach could be damaging to the Union in the long term, with resentment building up in other parts of the UK.

Cockburn told the inquiry that even at the very early stage at which his firm had been involved, on several occasions DETI was asking if it could increase subsidies, leading the consultants to think that the main concern was around the payments being too low – not too generous. He said that DETI ‘were asking are there grounds to increase the tariff … they were going in one way’.

CEPA consultant, Iain Morrow, the main author of the report, later told the inquiry that although it was clear that RHI was a more expensive option, the cost was not the only criteria, with ‘political acceptability’ being another issue.

When, under enormous pressure and after the collapse of Stormont, Foster was asked at the public inquiry whether she had wanted to deliberately maximise the amount of Treasury money coming to Northern Ireland by choosing the most expensive scheme, she strongly denied that had been the case. Foster, by then the DUP leader, said: ‘At the end of the day it’s still public money and it has to come from somewhere.’ However, evidence would emerge proving that her closest handpicked adviser in the department, DUP colleague Andrew Crawford, had just such a crude philosophy of shipping money from London to Belfast.

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By June 2011, the horse-trading between DETI officials and CEPA about what the report would recommend had delayed the delivery of the final document. But, with the Assembly about to rise for the summer, pressure was on to start the process of setting up RHI. The department wanted to launch a public consultation – a necessary first step before bringing legislation to the Assembly – before the summer holidays. That would see the consultation completed by the autumn and allow DETI to press ahead with launching the scheme quickly.

But in its haste to do so, some officials began to cut corners. Although the final report had not been received, Hepper was sufficiently confident about what it would say that she sent a submission to Foster. In the submission, which purported to summarise the key CEPA findings, Hepper told Foster that ‘the NI RHI option is the preferred approach and offers the highest potential renewable heat output at the best value.’ For a single 20-word sentence, that was astonishingly inaccurate and misleading.

Firstly, CEPA had not said that a Northern Ireland RHI was the preferred approach – on the contrary, the consultants preferred a challenge fund. Secondly, the RHI did not provide the highest potential renewable heat output. Stormont had set a target that 10% of all heat should come from renewable sources by 2020. CEPA’s initial calculation was that if the government did nothing, almost 5% of heat would come from renewables by that date anyway. It believed that that an RHI scheme would deliver 7.5% but the challenge fund would secure 8.75%. Thirdly, the RHI was far from the best value – in fact, it was the costliest option. With the consultants believing that they had been steered in a certain direction by Hepper and her team, were the civil servants now attempting to do the same to their minister?

Hepper later attempted to explain the sentence as meaning that a Northern Ireland RHI was the best option when compared to the alternative of simply replicating the GB RHI. But if that was her intent, her choice of language was grossly inadequate and misleading. The natural meaning of the words represented a far more sweeping statement – and that is how Foster said she read them. But Hepper’s submission to Foster was not just inaccurate – it was unusual in that it did not give the minister a recommendation. The various options were set out without a clear preference from the team of civil servants, who had been working on the policy for more than a year. A few days later, Hepper met Foster and Crawford in person to discuss the submission. It was at or immediately after this meeting, on 14 June, that the minister would decide to press ahead with the more expensive RHI scheme.

Hepper later told the inquiry that there had been ‘a fulsome discussion around the detail of the figure-work and the two different options’. Foster disputed that that was likely to have been the case – but said that she had no clear recollection of the discussion. Foster’s limited recall of events would prove to be a recurrent feature of her evidence to the inquiry. Foster said that going against her officials’ advice ‘would not have been my natural course’, and so she is likely to have gone along with at least a verbal steer from Hepper, even though the official’s submission had not made a recommendation. However, what transpired in that meeting will forever remain elusive because no records were kept of what was said. That would be particularly suspicious were it not for the fact that under the DUP and Sinn Féin Stormont had developed a widespread practice of deliberately not recording many meetings – and sometimes even important multi-million-pound decisions.

The man who was then the most senior civil servant in Foster’s department, David Sterling, told the inquiry that officials had consciously not recorded many internal discussions which ought to have been minuted because the DUP and Sinn Féin were ‘sensitive to criticism’. Sterling said that as a result of the desire for the public not to hear about what was going on it had become ‘common’ not to keep records because ‘it is safer sometimes not to have a record that might, for example, be released under Freedom of Information, which shows that things that might have been considered unpopular were being considered’.

In acquiescing in politicians’ desire for secrecy, civil servants broke their own rules which were clear that significant internal or external meetings must be minuted. In response to Sterling’s comments, both the DUP and Sinn Féin insisted that they had never asked for records not to be kept, something Sterling accepted. That suggested that canny officials did not need to be ordered to break their own rules but instead willingly did so after picking up on the desires of ministers and their advisers.

By the time the final CEPA report arrived on 28 June, the costs of RHI had risen further. Hepper admitted that the minister had not been told that the costs had changed after she made her decision, either evidence of sloppiness or an implied understanding from the officials that a leap in costs was not the sort of issue which would cause themselves or the minister to re-think – perhaps because of the belief, spoken or unspoken, that as much Treasury money should be secured for Northern Ireland. But two other critical errors had been made, one of which would wrongly lead at least one senior DUP figure to later work to keep RHI open when it was out of control, based on an erroneous belief that London was paying the full bill.