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Ministers knew heating subsidy was paying billions to UK’s wealthiest

It’s costing taxpayers £23bn, disproportionately benefiting rich landowners, and may be little more than greenwash

caroline m.jpg
Caroline Molloy
10 June 2022, 12.15am

Landowners have claimed in excess of £1m each to heat their country houses in an echo of the Northern Irish 'cash for ash' scandal

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Thicha/fotofabrika/Marcin Jucha/Adobe Stock Images

“Large (the bigger the better) and with outbuildings. Own woodland even better.”

This is hardly the description of a home whose owners need help paying for the basics.

Yet it was one estate agent’s candid assessment in 2011 of the “ideal property” that would most benefit from the government’s new Renewable Heat Incentive – a subsidy that was notionally supposed to make green energy more accessible.

Far from lending a hand to those struggling with their monthly bills, the scheme was disproportionately geared towards paying wealthy landowners to install biomass boilers. It is expected to cost the taxpayer at least £23bn, with payments locked in until 2042.

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The green credentials of the biomass boilers themselves? Those are… questionable. Meanwhile, soaring energy costs could leave 12 million households at the other end of the economic spectrum in fuel poverty by the end of the year.

It reads like a textbook example of robbing the poor to give to the rich. And successive governments have been ignoring warnings about it since the beginning.

Cash for ash – British style

If this sounds familiar, it’s probably because an identical scandal brought down Northern Ireland’s devolved government in 2017 – for three years.

Northern Irish leaders, like those in Great Britain, had repeatedly ignored warnings that farmers were gaming a system that paid them more to burn wood than the wood itself had cost. Notorious examples of farmers heating poultry sheds round the clock, with doors left wide open, were highlighted in what became known as the ‘cash for ash’ scandal.

But on the other side of the Irish Sea, Great Britain’s RHI has had surprisingly little scrutiny – despite being set to cost UK taxpayers more than 60 times more than the disastrous NI scheme (or twice as much per person).

The British programme was supposed to have better safeguards than the Northern Irish one, with the most generous tier of payments capped so each boiler could only generate a certain level of return for its owner.

Yet our investigation reveals that the British government left loopholes wide open – even, in some cases, expanding them – despite being explicitly and strongly warned about them by the regulator from the very start.

It was these loopholes that were cashed in on, and even boasted about, by some of Britain’s richest and most privileged people, while parliamentarians – some of whom were benefiting themselves – turned a blind eye.

‘These are not people who need taxpayer support’

Amber Rudd, the first energy minister for the majority Conservative government in 2015, knew there was a big problem with the Renewable Heat Incentive scheme when she first heard about it.

Rudd later reflected that she had “sat there saying ‘who gets these things?’ I was shown all these amazing country houses. And I said: ‘These are not people who need taxpayer support.’”

Rudd blamed the Lib Dems for the scheme’s profligacy – but in fact it had been overseen throughout the coalition government not by the Lib Dem energy secretary Chris Huhne, but by the Conservative Greg Barker, who had specific delegated responsibility for it.

And while tariffs were reduced in 2014 and 2015, efforts to close some (but not all) of the scheme’s major loopholes were not really made until 2018, by which time the UK was locked into massive payments for another two decades.

That the scheme was set up so generously in the first place was something of a surprise to the landed classes. First mooted under the Labour government, many had expected it not to survive George Osborne’s otherwise ruthless axe in his first budget.

A column in Country Life from November 2010 set it out: “Eyebrows were raised when the chancellor revealed the details of the Spending Review last month, not least by those who were expecting the axe to fall on the £860m pledged to encourage us to switch to heating our homes using renewable energy through the Renewable Heat Incentive (RHI).” Larger boilers did not have to be fully accredited, and anyone who’d installed a boiler since July 2009 could apply retrospectively up to five years later.

A spokesperson from estate agent Knight Frank told the magazine: “It was quite a surprise that it survived – a bit of a coup, even.”

It didn't take long for the scheme – and its potential to benefit the very richest – to be vigorously promoted in those circles. Knight Frank’s “own woodland” recommendation was published in 2011; others promoted the RHI as “ideal for draughty houses” (there was no requirement for energy saving measures to be installed before becoming eligible).

Not only did Osborne spare the scheme; when, in 2015, its original funding ran out, he renewed it even as other green subsidies to help those in more modest homes (the ‘feed-in tariff’ for solar panels, the ECO scheme and the Green Deal) were ruthlessly slashed. The British RHI scheme was extended twice more, most recently during the pandemic for those who had begun work on installations but been delayed in completing it.

Damning evidence

One of the many head-scratching aspects of all this is the fact there actually was an inquiry into the British RHI – just about.

Unlike the Northern Irish scandal, which resulted in the scathing Coghlin report, the examination of the British scheme took place on a single day in 2018.

Tory MP Geoffrey Clifton-Brown, the inquiry’s chair and himself a beneficiary of the RHI, set the tone by telling the supposedly forensic Public Accounts Committee that the programme was “noble but expensive” and that its main problem was insufficient uptake. “The department’s ambition when it launched the scheme in 2011 was to have over half a million participants by 2020,” he said. “However, to date, the taxpayer-funded scheme has recruited less than 80,000 participants.”

It was all very congenial – indeed, then Treasury minister Robert Jenrick, who was officially there to introduce himself but might reasonably have expected some questioning about his department’s role in signing off such a generous scheme, told Clifton-Brown: “I suspect that this is one of the easiest appearances before a committee that a minister will ever get to do.”

The National Audit Office report before the MPs had set out, damningly, how Ofgem had failed to produce any estimate of how much “gaming” the system had cost the British taxpayer, despite clear evidence that it was widespread.

But only one MP present briefly quizzed Ofgem on that failure. The rest focused heavily on the lack of take-up of the scheme, particularly in relation to heat-pumps, which had been all but left behind in the race to install lucrative biomass boilers.

Ofgem’s then chief executive, Dermot Nolan, tried to point MPs to where the problem really lay – that Ofgem had repeatedly tried to tell ministers that the scheme wasn’t properly designed and was ripe for gaming and exploitation.

“A lot of our recommendations have been in the area of what I would broadly define as gaming,” he said, “where we felt that perhaps the spirit of the scheme is not being best served by these regulations and talked to BEIS about potentially changing them.”

But the discussion was immediately steered back to “take-up issues” by Nolan’s Ofgem junior (and lead for the RHI scheme) Chris Poulton, with Clifton-Brown then asking about the effect of an impending consultation upon take-up and continuity. And that, broadly, was that.

Swimming pools, drying wood...

The RHI was supposed to drive large industrial heat decarbonisation, help meet the UK’s renewable energy targets, and promote promising technology like heat pumps.

In this regard, it failed spectacularly, massively overspending on biomass boilers while everything else lagged behind. By 2017, 15,800 biomass boilers had been installed under the ‘non-domestic’ arm of the scheme (used by businesses and sites that were open to the public), compared to just 1,200 heat pumps.

For those with country estates, though, the scheme was designed perfectly to make money. No energy efficiency measures were required. Instead, as Country Life put it, “a log supply from your own woodland allows you to be profligate” in burning wood to generate RHI payments.

openDemocracy has uncovered numerous case studies of these types of properties, boasting of payback times of as little as two or three years – with owners then getting tax-free, index-linked payments for another 17 years, just for burning wood.

As one heat pump supplier put it: “Once we’ve run out of Country Life boot rooms to heat, we’ve got nowhere to go. We’ve learnt nothing and developed nothing useful. The supply chain that is being developed is of no relevance to the millions of normal-sized homes we must deal with.”

Country house occupants were able to designate their homes as businesses on the basis they were also heating outbuildings, such as cottages or annexes for relatives, servants, tenants, holiday makers or agricultural or shooting pursuits. For the first seven years of the scheme, they were allowed to heat their swimming pools to earn RHI payments – and even burn wood to dry more wood to feed back into the boiler.

The subsidies for the first five years of the British scheme were far higher than those in Northern Ireland, and more than twice as much as the cost of the fuel – if you had to pay for it at all (four in ten used wood from their own estates). They were supposed to drop if a boiler ran for more than 15% of the year, or if its overall power rating exceeded certain thresholds.

The obvious way around that was to install multiple boilers, and run each of them at the level that generated the most profits – whether the heat was actually needed or not. (Another strategy was to install boilers whose maximum capacities were just below a particular power rating threshold, again maximising the amount that could be claimed at a favourable rate.)

The government’s figures showed early on that all of these strategies were commonplace – for example, boilers sized at 198kW or 199kW, just shy of the 200kW cutoff for the most generous tariff, were by far the most popular choice.

Loopholes

Papers that came to light in Sir Patrick Coghlin’s inquiry into the Northern Irish ‘cash for ash’ scandal revealed how the regulator, Ofgem, was among those to have repeatedly warned the British government about its loopholes.

As soon as the RHI became law in 2011, Ofgem told ministers it carried a “significant fraud risk” because of the “few obligations” it placed on the owners of supposedly commercial boilers. Under the heading “potential perverse outcomes”, its lawyers further warned that the scheme would allow participants to install “multiple smaller” boilers “in order to meet eligibility or higher-tariff thresholds” (in other words, to maximise payments). The following spring, Ofgem’s lawyer recommended that the government “review the provision at the earliest opportunity with a view to amending it in a suitable fashion”.

Despite frequent reports raising the same issue, including one from the consultancy firm Ricardo in November 2013, it wasn’t even properly investigated until July 2017 – and to date has never been resolved. Successive Conservative ministers tweaked the British RHI legislation on average twice a year for seven years after its introduction, yet managed to leave this key loophole wide open for the entire life of the scheme.

Meanwhile, Ofgem’s own complaints continued, with staff expressing frustration that they couldn’t clamp down on gaming of the system without a change in the law.

That this attracted so little attention may be down to the publication date of the NI inquiry report – Friday 13 March 2020, just as the number of UK deaths from COVID ticked into double figures.

Could payments be cut?

Journalist Sam McBride, whose book Burned examined the NI scandal in detail, told openDemocracy it was “curious” that “no one in government has attempted to retrospectively cut payments to these people in the way that the government has done in Northern Ireland”.

The Northern Irish scheme wasn’t just stopped early once the controversy came to light – ministers also ripped up the contracts that farmers thought promised them guaranteed income for 20 years.

Asked by openDemocracy whether it would consider reducing payments to participants in the scheme, the Department for Business, Energy and Industrial Strategy did not respond – but a spokesperson insisted: “Ofgem, the scheme administrators, oversee a robust counter-fraud programme on both domestic and non-domestic schemes, including desk and site audits, and we are confident that levels of fraud and gaming in the scheme were low.”

They added that the RHI had benefited 111,000 homes and 22,000 businesses.

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