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Burned. Sam McBride
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The other key point it is necessary to let you know about is that the [Whitehall department] DECC RHI spending is not being treated as standard AME, where the Exchequer takes on all risks of overspend. Instead, there is a risk-sharing arrangement whereby should RHI spending in one year exceed the SR [spending review] profile, then DECC would need to repay this in future years.
Parker went on to say that not only would any overspend have to be recouped in future years – something which assumed the overspend was small enough to be recovered from the budget remaining for future years – but that on top of that there would be a penalty ‘likely to be of the order of 5%’ taken out of the department’s budget if it overspent. He said that ‘again, these rules would be applied in equivalent fashion to NI’.
The following month, Clydesdale received a second email warning in clear terms that the funding was not unlimited. Bernie Brankin, an experienced official in DETI’s finance division, told her that she had spoken to Stormont’s Department of Finance and ‘RHI spending is not being treated as standard AME’. Instead, she said, it was being treated as if it was allocated to the department out of the block grant, with a strict budget. She explained: ‘If you underspend in any year, that part of your budget is lost to the department and, if you overspend in any year, DETI’s budget will be reduced by the amount of overspend in future years.’ The email – which referred to a verbal discussion between the two officials – went on to say: ‘You will need to take this treatment of AME into consideration when drawing up your proposals on how you will spend this allocation …’ Crucially, the email was copied to Hepper.
Hepper was copied into another email later that day from Clydesdale in which she said to another DETI official that she had spoken ‘at length’ to Brankin about the situation and that it ‘presents a significant challenge’. Stormont’s finance department would require evidence of DETI’s ability to control the number of RHI applications. Perhaps influenced by the problems with the recent Reconnect grant scheme, she said that grants would be ‘the riskiest route financially as it is hard to control the number of applications especially at the end of the programme’. Clydesdale went on to say that CEPA would have to be asked ‘to factor this in as a risk factor’ because ‘I didn’t see any evidence of this in the draft that we have already received … it will need to be fully addressed’.
Almost seven years later, Clydesdale told the public inquiry that in May 2011 ‘I recognised the need for cost controls to control over/under spending and the associated risk’. That claim is supported by her emails from the time. Yet almost immediately after her engagement with Parker, Clydesdale was moved to another role as part of the constant churn of civil servants moving around the system.
The following month, just days before Hepper’s crucial June meeting with Foster, another Whitehall civil servant, Akhil Patel in DECC, the department running the GB scheme, gave DETI another warning about overspending. Patel emailed Peter Hutchinson – the main individual under Hepper who was working on designing RHI – and told him explicitly that if they overspent, the money had to come out of DETI’s budget. If that wasn’t sufficiently explicit, Patel added: ‘Clearly, this represents a large financial risk on the department so the policy team is currently looking to develop a system of tariff degressions [further cost controls] … to ensure (among other things) that we manage the risk of overspending against our budget.’ Essentially, Patel was telling DETI that although the GB scheme had been set up with a basic cost control of tiering, that was not enough, and so it was looking to add an additional cost control of degression.
Tiering was a simple mechanism whereby there were two tariffs which every boiler owner could claim. The first high tariff was only available for 1,314 hours each year – allowing high payments for 15% of the year. After that, the second-tier tariff was all that could be claimed and it was far less lucrative. The intention was to encourage energy efficiency, discourage fraud and shield taxpayers from having to pay huge sums to those who legitimately needed to run their boilers for most of the year.
Patel’s message did nothing to prompt a sudden change of course within DETI. Days later, Hepper, who was aware of the nature of the funding, gave Foster the first of many submissions which simply described the funding as being AME. Hepper later told the inquiry that she was ‘pretty sure’ she had verbally explained to Foster that the funding could threaten the department’s budget if it overspent. Whatever was said in conversation between Hepper and Foster, the civil servants would go on to continually misrepresent the funding as simply ‘AME’ for years, with one civil servant suggesting that the inaccurate information was simply copied and pasted from one ministerial submission to the next.
Foster herself would tell the inquiry that her belief that the bill was being paid by London influenced how she viewed the issue of cost controls. David Scoffield QC for the inquiry put it to her that in a later 2013 submission to her from Hepper there was ‘a pretty stark warning’, because it referred to a ‘finite budget’ which ‘can’t be breached’, and explained that therefore ‘we must have this facility [an emergency brake of cost controls] available to us.’ Tellingly, Foster replied: ‘Yes, but I was also aware that the AME budget [meaning the Treasury would pay the bill, rather than Stormont] was there [in the submission].’
At the inquiry, Hepper played down the significance of the point, arguing that the department never intended to overspend anyway and would ‘try our best to make sure that that did not happen’. Although she knew that limits on the scheme were necessary to prevent overspending, she thought that ‘we’d plenty of time to do [cost controls]’.
Sam Connolly, the DETI economist assigned to assist energy division, accepted at the inquiry that Foster had made her decision based on ‘untrue’ information in the submission from Hepper. Connolly would himself admit to the inquiry that he had failed to follow the rules for public sector economists and argued that RHI was a policy ‘involving concepts and sums of money that were beyond me’.
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Days before Foster had even formally decided that there should be an RHI scheme and before the final CEPA report had been received, Hepper took a decision of her own which indicated that she was confident the minister would back that option. Hepper authorised the spending of public money on an outside law firm, Arthur Cox, to write the legislation that would set up RHI. It was a remarkably bold act which further suggested Hepper was convinced that she knew the minister’s mind. But what was to follow was more baffling.
Alan Bissett, a partner at Arthur Cox, was a specialist energy lawyer whose services did not come cheaply. When DETI asked him to work on drafting the RHI legislation, he expected a substantive assignment. But it gradually became clear that something else was going on. Bissett was ultimately paid to largely copy and paste the Westminster legislation, and in doing so he replicated the GB scheme’s system of tiered tariffs. But that was stripped out by DETI officials – not once, but on multiple occasions. Having hired lawyers to draft the regulations, civil servants now disregarded Bissett’s work and produced their own draft of the regulations.
Speaking of the bulk of the work, which he was asked to undertake, Bissett told the inquiry: ‘It didn’t seem clear to me why it couldn’t have been done by the Departmental Solicitor’s Office. 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.’ One DETI official suggested Bisset capitalise some letters and queried his use of semicolons. Meanwhile, cost controls were being stripped out without alarm. Ultimately, it became clear to Bissett that his company was one of three sets of lawyers involved in drafting the legislation, with Stormont’s own lawyers and those from Ofgem also contributing. ‘Objectively it seems odd,’ he told the inquiry.
Bissett also told how DETI later commissioned his firm to advise it on what ought to have been a basic function of the civil service – asking their Whitehall counterparts what they were planning to do in future with their RHI scheme. Inquiry counsel David Scoffield QC asked him: