RHI economist missed huge false economy

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A civil service economist who signed off on the RHI scheme as value for money has said that it never crossed his mind that the department was engaging in a vast false economy, based on the figures presented to him.

The public inquiry into the ‘cash for ash’ scandal has uncovered an extraordinary facet of the saga – that the Department of Enterprise, Trade and Investment (DETI) chose an RHI scheme over a £200-£300m cheaper alternative known as a challenge fund because it could save a far smaller sum of about £7m in administration costs over a 20-year period.

The figures do not take into account the ultimate – and huge – overspend on the RHI scheme which made it even more expensive than envisaged.

The decision appears to have been taken because DETI would have to pay for the administration costs from its own budget whereas the far larger sum was coming from the Treasury.

When asked if the problem – which DETI’s own consultants had warned could arise – had occurred to him, economist Sam Connolly said: “I have to say that it didn’t.

“I kind of took the view that the reasons being put forward were reasonable; resources [in DETI] were scarce at that time...it seemed a reasonable position to adopt; it’s ultimately up to...the senior officials to make the decision.”

At the point when Mr Connolly, who was a relatively junior figure in the department, was assessing the figures, the gulf between the two options was £218 million.

Questioned about his role in signing off on the scheme from an economic perspective some eight months before it opened in November 2012, he said that he could not recall who told him that the cheaper option was off the table but that he believed it may have been Fiona Hepper, who was the most senior official at the relevant meetings.

He said that he was never given precise details about why the decision was being taken, but there was a view that getting Ofgem to administer the scheme would be cheaper. Mr Connolly was asked if he had raised the issue of “a potentially enormous false economy”.

He replied: “No, I didn’t raise that issue. As an economist undertaking that role, my main concern in relation to admin costs is reflected in the appraisal as much as possible. If I’m told that there are affordability constraints, I have to largely accept that – there’s no real route for me to challenge that if someone says that.” However, he went on to accept that he could have drawn attention to the issue, even if it was ignored.

Inquiry chairman Sir Patrick Coghlin said that it was “understandable, perhaps”, that Mr Connolly had not picked up on the issue as a fairly inexperienced economist but said that a more senior official would have been better placed to spot it.

When asked why he had not said explicitly that the challenge fund appeared to be much better value for money but that he understood it had been judged unfeasible by others due to its administration costs, he said: “I would accept that could have been, perhaps should have been, done.”