Burned
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Having been treated shabbily by government, the three businessmen found themselves financially punished – while those responsible for the error escaped any censure. The Department for the Economy (DfE) said that was because it could not conduct disciplinary investigations while the public inquiry was ongoing. The three men challenged DfE’s decision in court and at the time of writing are awaiting the outcome. But they were angry for a second reason. Even after discovering the huge error in 2016, civil servants could have belatedly applied for state aid approval. But – by now under huge pressure to cut the RHI bill to taxpayers – they chose not to do so. A Stormont memo showed that around this time Moy Park privately expressed concerns to civil servants about the McGuckian proposal.
Senior Moy Park officials met Stormont’s Department of Finance in January 2017. A senior finance official, Emer Morelli, took a note of the conversation. Setting out three ‘key issues’ raised by Moy Park, she said: ‘The Moy Park team expressed a concern that one of the large combined heat and power plants with preliminary accreditation may not met [sic] the eligibility criteria due [sic] planning permission being granted 25 days after the scheme closed.’ When asked about that, Moy Park – which by now knew that there was a limited RHI pot and if the McGuckians entered the scheme it would take tens of millions of pounds – insisted that it had not lobbied against the plant and said its meeting was to ‘offer insight and suggestions to secure the NI RHI scheme within budget’. The McGuckian plant – one of two CHP installations at an advanced stage of design – could have cost the department between £60 million and £75 million over 20 years. The McGuckians said that they were so dismayed at their experience of officialdom and politicians that they would never again get involved with any Stormont scheme. It would be a sentiment shared by many of those who had trusted Stormont’s assurances about RHI.
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The final substantive act of devolved government before it collapsed in January 2017 was to pass legislation which retrospectively moved every RHI claimant to the November 2015 tariffs. In effect, it extended tiering and a cap to everyone for a temporary period until a long-term solution could be found. Unsurprisingly, many claimants reacted with anger because they had been promised – in legislation, in the words of Arlene Foster in the Assembly, in Foster’s letter to the banks, in government literature and in innumerable other ways – that the tariffs were set in stone. That certainty was at the heart of the scheme – rates might fall for future entrants, but for those who got in on time, the payments were locked in. Some claimants had taken on enormous loans, sometimes at high interest with finance houses because they could not get bank loans and sometimes secured against the farm which had been in their family for generations. And some claimants had used the lucrative RHI income as leverage to borrow for wider expansion of their business.
A group of boiler owners – ultimately about half of those on the scheme – came together to form the Renewable Heat Association of Northern Ireland (RHANI) to lobby Stormont. They brought in Andrew Trimble, who in a previous career had worked in Whitehall and the British Embassy in Washington, as chief executive. With military-like discipline, Trimble set about fighting back against the public perception that every claimant was a crook.
Alongside that PR offensive, the group launched a judicial review of the changes. During that high court challenge in October 2017, Stormont’s lawyer made an argument that had far-reaching implications for anyone trusting a government promise. Tony McGleenan QC said that although government told RHI claimants that the subsidies were unchangeable for 20 years, boiler owners should have realised that might be wrong. He effectively said that despite the multiple assurances – including in statute – the users, many of whom were farmers, should have been more careful in accepting at face value what they were told. The lawyer argued that the fact the tariffs – which government described at the time as ‘certain’, ‘guaranteed’, ‘reliable’ and ‘long-term’ – were contained in secondary, rather than primary, legislation should have alerted claimants to the possibility of change. When asked by the judge, Mr McGleenan clarified that the possibility of such a change extended to any other piece of secondary legislation. Mr Justice Colton comprehensively rejected RHANI’s argument that they had a legitimate expectation of the payments continuing, that the legislation which retrospectively altered their payments was ultra vires and that there had been an interference with their human right to property. Stormont’s actions were proportionate and in the wider public interest, he ruled.
During the hearing, an argument was made by DfE which alarmed some of the claimants. Where normally government departments attempt to play down the scale of a crisis, DfE was now playing up the scale of RHI. It was only going to win in court if it could prove that it faced a financially devastating situation to which the retrospective cuts had been a proportionate response. Until then, the figure for what was known as the RHI ‘overspend’ was put by the department at £500 million, a fairly crude extrapolation from the Audit Office report’s expectations of what the scheme would cost for the next few years. The very fact that it was the ‘overspend’ which so concerned everyone was in itself an allusion to the fact that this was the part of the expenditure which really exercised Stormont. The total bill was estimated to be about £1.2 billion, but because most of it was coming from London it was the overspend which Stormont put its energy into tackling.
In court, Stormont’s QC introduced new information. He told the judge that the worst-case scenario was that the overspend – if the old scheme was reinstated – could be as much as £700 million. For their part, the boiler owners claimed – with an accountancy report to back them up – that the overspend could be as little as £60 million. Both figures seemed exaggerated, with a figure somewhere in the middle more likely.
Northern Ireland’s comptroller and auditor general, Kieran Donnelly, was surprised that when he sent a draft of his July 2016 report – on which the £500 million figure was based – the department was not defensive, and accepted it readily. But DfE’s figure was based on a series of improbable assumptions. It assumed that no boiler would drop out of the scheme, even though boilers being run heavily were unlikely to last 20 years and some firms would close or no longer require heat. It also assumed that the CHP plants would be built – a drain of up to £100 million – even though that was only possible if the department lost a separate court challenge. It made no allowance for even a single boiler being removed from the scheme due to fraud. And it assumed that the GB scheme – from whose budget Northern Ireland received just under 3% – would not continue to grow, even though it remained open and was scheduled to do so until at least 2021. As it expanded, Stormont would receive an increasing pot of RHI money, thus cutting the overspend.
As time went on, there was increasing evidence that DfE’s figures for the overspend – even if reasonable at the time – were incorrect. RHI boilers have dropped out of the scheme. Eight boilers were destroyed in a fire in Fermanagh and other companies have gone bankrupt.
The department did not publicise the fact that the overspend for 2016–17 was £26.7 million. That figure – for the final year of the ‘burn to earn’ scheme – was 17.5% lower than Stormont had expected. Yet despite the actual overspend falling from what had been anticipated when the department calculated a total £500 million overspend, rather than cutting the estimate for the total overspend, it hiked it to £700 million. There was little obvious logic for the increase, which was not explained in open court.
When asked to explain the apparent contradiction, the department said that a major reason for the larger figure was a change in how it calculated inflation over future years. Yet, because the Stormont scheme was based on a percentage of the GB scheme, even that explanation made little sense. An inflationary increase in the NI scheme would be offset by an inflationary increase in the total pot from which Stormont’s share was derived. For all those reasons, even if the tariffs had not been retrospectively cut,
the overspend would not have been £700 million.
Mr Justice Colton said that his court was not best placed to resolve the true cost of the overspend, but he lent towards DfE’s figure, saying that although it represented the worst-case scenario it was reasonable for the department to approach the issue in that way. At the time of writing, that verdict is before the Court of Appeal.
But while aggrieved claimants’ recourse to the courts was understandable and perhaps inevitable, their tactics were problematic for two reasons. Firstly, although many of them now accepted that the scheme which they had entered in good faith was fundamentally flawed, they sought the reinstatement of that scheme in its entirety. While in law that was the necessary step to take, they could have made clear that it would be the basis for a voluntary negotiation with the department. Even the introduction of a simple cap on usage would have prevented the most extreme payments. Far from weakening their case, that would surely have shown them to be reasonable people who were not blind to the scale of the problem.
Secondly, in taking the court challenge, RHANI painted a bleak picture about the impact of the 2017 regulations which had introduced tiering and a cap. The situation was not only unfair in principle, they argued, but disastrous in financial terms. That would become a problem in March 2019 when Westminster – acting on the advice of DfE because devolution had not returned – acted to implement a long-term solution which was far worse for claimants. The earning potential of a typical 99 kW boiler had been more than £55,000 a year under the original scheme. In 2017, that had been cut to just over £13,000. But in 2019 that was slashed to just over £2,000 a year – a 96% cut. On the day the legislation passed, Tom Forgrave, who had ten boilers and who was a director of RHANI, said that for himself and other claimants ‘it’s going to be hell’.
Forgrave was one of the most articulate and knowledgeable voices for claimants. As a poultry farmer, he was also among those with the highest legitimate heat usage. But, when confronted with the scale of the 2019 cuts, not everyone with a biomass boiler agreed with the wisdom of their approach to the initial reductions. An individual in the biomass industry said that many claimants – especially those with more modest heat needs – had been content with the 2017 regulations. He said it had been a mistake for RHANI to attempt to reinstate what had been a flawed scheme which even many claimants did not want to see restored. If it did succeed in restarting ‘cash for ash’, the level of public scrutiny and anger at claimants – perhaps even boycotts of companies not voluntarily accepting lower payments – would potentially undo any financial benefit.
The 2019 RHI cuts also exposed the department further because it was saying that not only was the original scheme flawed, but even after introducing what it billed at the time as cost controls in November 2015, the scheme had been wildly overgenerous. That meant that those who had entered RHI in the belief that it had been fixed – and accepting the department’s guarantee that they could invest with confidence – now found themselves in difficulty. Most of those individuals had only been in the scheme for three years and still had major loan repayments to make. Thomas Douglas was one such individual. The 56-year-old poultry farmer from Dungannon had been told about RHI by Moy Park and gone to a Stormont event where it was promoted. He eventually installed a single 199 kW boiler in February 2016, just five days before the scheme was shut, and received £16,200 in the first year. He said that the hot water heating system, which the biomass boiler powered not only improved the birds’ welfare but also reduced both the volume of litter and its ammonia level – a key benefit. Even when those on the ‘cash for ash’ tariff had their payments cut, he had no fear about that happening to him because he had entered the scheme after cost controls and was devastated by the 2019 changes.
In implementing the 2019 cuts, the department said that it would not make sense for anyone with an RHI boiler to revert to fossil fuels because wood pellets were the cheapest form of fuel. However, Douglas disputed that, saying that in the near future he believed it may be ‘not feasible to run’ and he would revert to gas. ‘Their figures are all wrong,’ he said, pointing to payments of up to £3,120 a year from RHI while his bank loans – which in May 2019 stretched for another six and a half years – stood at £11,000 a year. And he was one of the cautious claimants, taking his bank loan over ten years. Believing Stormont’s pledge that the subsidy was immutable, others spread their loan over five years, with mammoth annual repayments. He said: ‘It’s put serious stress on people. They’re wondering where they’re going to find the money to meet their bank commitments. And it’s brought in a great mistrust of any government scheme – how can we trust them?’
DfE argued – and its argument was echoed by Northern Ireland Secretary of State Karen Bradley when she brought the change to the Commons – that its hands were tied by the EU and under state aid law it could only allow an average rate of return of 12% or would face EU fines.
Figures set out up by RHANI – and not disputed by the department – showed comparative payments of £19,000 a year for GB claimants with a 99 kW boiler installed before July 2014, £12,000 for someone entering the GB scheme in 2019 and £20,000 for someone entering the Republic of Ireland’s scheme which was launched in spring 2019.
If, as Stormont claimed, anything beyond £2,100 a year in Northern Ireland represented illegal state aid, then what about those other schemes? In fact, while the burn to earn tariffs had clearly been a breach of state aid law – especially because they were effectively subsidising one company in particular, Moy Park – the 2019 cuts meant that Northern Ireland was at a state aid disadvantage. Moy Park now faced a state aid incentive to expand in GB or the Irish Republic where its heating bills would be subsidised heavily while in Northern Ireland they would not.
And while the department centred all of its arguments around the rate of return, that was a figure which could be altered up or down by the department. In effect, the 12% figure was almost meaningless – virtually any figure could be claimed to be 12%, depending on which costs were allowed to form part of the equation. Stormont had, for instance, claimed that its initial scheme – offering payments of up to £56,000 – represented a 12% return. It then argued that the 2017 cuts – offering payments of up to £13,000 – represented 12%. So there was scepticism about the claim that the 2019 rates – offering payments of little over £2,000 a year – somehow were the only way to offer a 12% return. In getting to its 2019 figure, the department stripped out multiple expenses involved in installing an RHI boiler. Yet the Republic of Ireland scheme, which also got state aid approval, allowed for all sorts of other costs, recognising that a boiler sitting on its own was not much use without the concrete on which it sat, the building in which it was housed, a pellet bin to store fuel and the pipework to deliver the heat and so on.
DfE admitted that its cuts were so deep that it would now be massively underspending on its allocation from the Treasury – allowing it to re-open a new form of RHI at some future point. The re-opening of RHI was an outcome for which Moy Park had lobbied. Both Jonathan Bell and Simon Hamilton had tentatively raised the possibility with Whitehall in 2016, only to be firmly told that it would be unthinkable with the scale of the existing overspend.
Although DfE overstated the scale of the overspend, whatever its precise sum, it was a huge figure. And with time the evidence of RHI’s flaws mounted. In June 2017, auditors found that ten RHI boilers were running for almost all of the year except for the time required to service them. The boilers were being used for 90% or more of the 8,760 hours in a year and in each case getting at least £50,000 per boiler. For comparison, if a boiler ran for every minute of the year – with no maintenance or cleaning – it would have made a notional £56,371 in subsidy. Ten percent of claimants accounted for more than 40% of the scheme expenditure. Yet by that stage just two claimants had been put out of the scheme, with DfE attempting to recover what they had been paid. And the inspection of boilers was so shockingly slow that the chance o
f catching a fraudster red-handed quickly receded to the point where only the most obtuse crooks would ever be caught in the act of heating empty sheds.
Extraordinarily, the department could not be sure that all the boilers for which it was paying even existed. No one from DETI or Ofgem had ever visited more than a tiny handful of sites. A claimant simply logged on to Ofgem’s website, uploaded their details and submitted a photo of the boiler. Even if Ofgem had queries, they were overwhelmingly dealt with by email. Once approved, the claimant just submitted meter readings and the cash flowed. The department only tendered for a full audit in early 2017, at the height of the public outcry. But it was immediately clear to Andrew Crawford’s biomass expert friend Mark Anderson that no company would be able to meet the terms of the contract. He was right, and further months were lost.
By October 2018 – more than a year and a half after Foster passed to officials allegations of widespread abuse – the department said that just 190 of the 2,128 installations had been inspected and inspections were by that stage being undertaken at a rate of 10–15 boilers per week. There were complexities in ensuring that audits were robust and legally sound. Nevertheless, it is difficult to avoid the conclusion that if huge sums were coming out of civil servants’ personal bank accounts there would have been greater alacrity.
One of the consequences of the delay in auditing boilers was that the most lurid allegations could neither be proven nor disproven. Was a farmer heating an empty shed around the clock? Clearly it was possible – the tariff made it lucrative to do so and the lack of inspections meant that if it was happening it was unlikely to be discovered. There was another possible explanation. Poultry sheds have to be heated when empty – for one or two days – in order to bring them up to the temperature necessary to receive day-old chicks. Doing so was not fraudulent, but if observed by someone unaware of the poultry cycle and combined with knowledge of RHI’s flaws could have seemed so. However, there is evidence that at least some poultry farmers became greedy. In June 2015, Moy Park’s despatch manager, Gareth Patton, asked senior colleagues for guidance due to changes he was noticing after many farmers switched to biomass. He was concerned because catchers, the workers who enter poultry houses to grab chickens and load them into crates for slaughter, were struggling to work in the heat they now found in poultry houses. The catchers had been asking him what temperature they were expected to work under ‘because it seems to be the norm that when they arrive the heating system is still fully on. They are currently going through approximately four changes of tops a night’. He told senior Moy Park staff: ‘My teams are telling me that they are going into houses where the temperature is as high as 28/29 degrees and the biomass is still on and the fans are not!’