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.
CHAPTER 4
TWO FATAL ERRORS
When Fiona Hepper’s June 2011 submission went to Arlene Foster, it contained three letters which would have meant nothing to most people – but to some within Stormont it made their eyes light up. The letters were AME, and to some politicians and civil servants they signalled that the funding was effectively ‘free money’.
As with all ministerial submissions, the document followed an established format whereby Hepper and her team filled in answers to a series of questions, one of which was on the nature of the funding. In that section, Hepper simply said it was ‘AME’ – the acronym for Annually Managed Expenditure, which mandarins and politicians pronounced ‘Amy’.
What Hepper had sent to Foster was a significantly inaccurate simplification of the true nature of how the scheme was to be paid for and one which years into the future would haunt Foster and her spad, Andrew Crawford. Two months earlier one of Hepper’s subordinates, Alison Clydesdale, had established that this was far from the full story and there was a major risk to the department if it spent beyond what the Treasury had allocated. Clydesdale had sought to clarify how the funding arrangements would work and had been told that the money would be coming directly to Stormont under AME arrangements. That is the form of spending used for government schemes where a budget is difficult or impossible to predict, such as for welfare claims.
Most devolved government spending is very different and involves the block grant – the annual lump sum the Treasury sends to Stormont – being divided up into multiple finite budgets, department by department, project by project. Each department is headed by a permanent secretary whose formal title of ‘accounting officer’ alludes to the significance of accounting for the department’s spending. It is a major crisis if a department spends beyond the budget democratically authorised for it by Parliament or the Assembly. But the amount required for demand-led expenditure, such as pensions, student loans or unemployment benefits, is difficult to predict, and there is a principle that the money should be paid if the individual meets the criteria set by Parliament. Therefore the funding is ‘managed’ and predictions are made as to the likely demand, but no budget is set.
Where RHI would break with long-established public sector accounting principles was that it would be described as AME – that is, demand-led and without a budget – but it would also have a budget. It would be on that rock of confusion – allied with the cynicism of some senior figures who saw the chance to squeeze more money out of the Treasury – that Stormont would perish.
In April 2011, Clydesdale spoke by phone to Jon Parker, the joint head of the Treasury’s energy branch. She followed that up with an email in which she asked him to set out in writing how the department could commit to 20-year payments based on funding, which was only for four years, as well as a request to set out the practicalities around how the money would come to DETI. Parker made clear that any commitments entered into during the initial years of the scheme would be honoured over a 20-year period and that Stormont’s funding would be based on a share – roughly proportionate to Northern Ireland’s size – of the GB scheme, with 2.98% of the GB RHI budget being made available to Stormont. He then went on to set out a critical warning, which ought to have disabused anyone in Stormont who read it, of the notion that RHI was a bottomless cash pit. Parker said:
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
