Financing
arrangements
24. Nationally, financing for flood and coastal defence
policies comes from a diverse array of sources. The largest central
Government funding source for local authorities is via the Revenue
Support Grant (RSG), disbursed by the Department of Environment,
Transport and the Regions (DETR) for payment of levy to the Environment
Agency and to IDBs, and for authorities to instigate their own
local flood and/or coastal defence programmes (in the 1997/98
financial year, the flood and coastal defence element of the RSG
totalled £225.4 million). The total RSG made available to
the relevant local authority for these purposes is distributed
under two separate headings of the local authority's Standard
Spending Assessment, for flood defence and coast protection respectively.
Under each heading, there are two elements to the SSA: one to
reflect routine maintenance expenditure on defences, and the other
to cover servicing charges arising from any Supplementary Credit
Approvals (SCAs) the authority might have (MAFF dispenses SCAs
to local authorities to cover any remaining expenses incurred
by the authority in the construction of flood defences which cannot
be met from its own resources). In 1998/99, the total value of
MAFF-issued SCAs is estimated at £15 million.
25. In addition, MAFF provides flood defence grant
to the Environment Agency and to IDBs, and grant-in-aid to local
authorities for the construction of flood defence and coastal
protection works (total expenditure under these three headings
is expected to be £53.9 million in 1998/99; the majority
of grant-in-aid to local authorities is for coast protection works
(£20.1 million allocated in 1998/99). Grant-in-aid paid to
local authorities is made on the basis of project submissions
from these authorities to the Ministry which have successfully
met certain technical, economic and environmental criteria, under
the Project Appraisal Guidance Note (PAGN) procedure (see paragraphs
55 to 61). Levels of funding for approved projects range from
15 per cent to 85 per cent of the total project costs, depending
on the needs and financial resources of the specific local authority.
26. Global levels of grant-in-aid disbursed by the
Ministry have declined sharply in the last two financial years,
after steady year-on-year increases in the 1993/4-1996/97 period.
We were told, for example, of the "severe cuts"[22]
in the level of flood defence grant dispensed by the Ministry
to the Environment Agency, from £46.3 million (1996/97) to
a projected £31.2 million (1998/99), contributing to the
decline in overall expenditure from £102.6 million (1996/97)
to £75.1 million (1998/99). Similarly grant-in-aid to local
authorities for coast protection has fallen during this period,
although this budget heading is, to some extent, demand-driven.
High expenditure during the mid-1990s appears to have resulted
partly from a number of local authorities making large bids to
MAFF for the construction of new defensive works following the
severe storms of winter 1989/90, and for providing emergency stabilisation
of old coast and sea defences nearing the end of their operating
life.
27. Of some concern to us are the implications of
the recent increase in Supplementary Credit Approvals made by
the Ministry to local authorities, from an average of £10.9
million per year between 1990/91 and 1994/95, to £13.7 million
per year between 1995/96 to 1998/99, suggesting that authorities
are finding increasing difficulty in meeting essential costs from
within their SSAs. Commenting on the current financial situation
confronting local authorities, Mr Ian Sumnall of the Local Government
Association told us that it was "very difficult" to
secure funding from MAFF for capital projects, other than "where
there is failure or imminent failure of existing works...because
of the lack of resources[23]".
Mr Sumnall stated that current expenditure by the Ministry on
coast protection was approximately one-third "of what would
get us out of this firefighting situation and properly get an
implementation of the [national] strategy"[24]
proposed by the Government. Ominously, the Environment Agency
claimed in their written evidence to us that "the [present]
shortfall in funding will not enable the Agency to meet the future
challenge of deteriorating flood defence assets, climate change...and
potential consequences of new development"[25].
28. In response to what MAFF describes as "ever-increasing
demands"[26] from
local authorities for grant-in-aid, in April 1998 the Government
introduced a priority scoring system under which every project
proposal is screened against national criteria to determine the
order of priority in which eligible projects will be funded by
MAFF (the actual evaluation of projects to determine eligibility
for funding is through PAGN). The priority scoring system has
three stages. First, scheme proposals must comply with basic MAFF-specified
"threshold" requirements; secondly, proposals must score
above a certain number of points on the basis of specific characteristics;
and thirdly, they must be approved by a panel of MAFF's coastal
engineers.
29. The second of these requirements, the scoring
procedure, is made on the basis of the priority, urgency and economics
of the scheme proposed. In keeping with MAFF's national strategic
aim, projects based on flood warning, the provision of urban coastal
defences, and urban flood defences are given greatest priority.
Although it is far too early to judge the effectiveness of this
new system, it seems certain to us that it will not streamline
what is already regarded as a burdensome evaluative procedure[27],
particularly as the Environment Agency may be involved subsequently
in further, similar, appraisals of the same scheme[28].
Furthermore, some witnesses felt that sites of national and international
environmental significance were not given sufficient weight under
the priority scoring system[29],
whilst the National Farmers' Union claimed that under its provisions
it was "extremely difficult for any rural scheme to qualify
for grant funding"[30],
an observation corroborated by the Environment Agency and the
Local Government Association in evidence to us[31].
30. From our inquiry, it has been difficult to determine,
other than in the most general terms, what the probable future
UK expenditure requirements on flood and coastal defence policy
might be. Certainly at present there seems to be a shortage of
finance for all but the most urgent of works. We are, therefore,
encouraged that the Government has seen fit to plan to increase
spending under the Comprehensive Spending Review on flood defence[32],
and has no immediate plans to cut global levels of flood and coastal
defence expenditure. From the evidence we have received, it appears
operating authorities are hard enough pressed as it is to maintain
vital local flood and coastal defence programmes. We also commend
the Government on the introduction of three year budgets for flood
and coastal defence expenditure, which should assist strategic
planning in this area[33].
31. Against that, the implementation of a policy
which in future is likely to be more reliant on soft engineering
technologies should logically see the reduction in costly hard-
engineered defensive works, resulting in lessened national expenditure.
However, it may be that any such savings will be offset by the
substantial maintenance costs pending on ageing flood and coastal
defence infrastructure which, due to existing funding difficulties,
have been deferred. The Environment Agency has estimated that
£1.3 billion will need to be spent on renovating sea and
flood defence capital works over the next ten years[34],
and MAFF's last survey of coast protection works in England found
that 41 per cent were in need of moderate or significant restoration
work[35]. Reflecting
in their evidence to us on the need for maintenance and renovation
of exiting defence works, the Central Association for Agricultural
Valuers spoke of financial "chickens...[coming] home to roost
with the need for a considerable capital requirement" in
the near future[36].
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