Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 28 NOVEMBER 2001
MR ELLIOT
MORLEY, MP AND
SIR JOHN
HARMAN
20. That is precisely the point I am going to
turn to, which is how has the money actually been spent as opposed
to the money allowed for. If we look at the figures between 1997-98
and 2000-01, what we actually see in spending terms, as opposed
to what the programme said would be spent, is a decline in capital
expenditure by the Environment Agency. Is that an accurate assessment
of what actually happened during those periods?
(Mr Morley) I must be very clear about what figures
you are talking about here. This is the capital programme you
are talking about, is it?
21. Yes, the capital programme.
(Mr Morley) It is the capital programme of 1997-98?
22. In 1997-98 we had £43 million, according
to the figures I have here.
(Mr Morley) Yes, that is correct.
23. That fell to a split figure of £26.4
million in 2000-01, is that right?
(Mr Morley) Yes.
24. With a "contributions on other initiatives"—which
is another thing I am going to ask you about as to what that means—of
£15.5 million. If you add those two together, they actually
add up to less than the figure allowed for in 1997-98, do they
not?
(Mr Morley) Yes, I can explain that for you. What
happened in 1997-98 is that, as you will appreciate, there was
a funding line which was agreed in relation to the spending programme.
This was the incoming Government, of course, in 1997-98. There
were extra resources found within the Department at that time,
within the then MAFF. Some of those resources came from capital
programmes that had slipped, and therefore the money had not been
committed. The money was reallocated in relation to the flood
defence programme. So there was a particular one-off reallocation
of extra capital in that year. That is the reason why it then
shows a decline in 1998-99 which is basically back on track, with
the set spending pattern that was already in place.
25. So there was a windfall for flood defence
in 1997-98?
(Mr Morley) Yes, you could put it that way.
26. Is that how the Environment Agency see it?
(Sir John Harman) Yes, that is an accurate description
of what happened to the government capital grant in that year.
My recollection—I do not have the figure in front of me—was
that the original planning figure was very similar to the figure
for 1998-99. I would say to Mr Todd that I think you are taking
the figures from Mrs Beckett's Parliamentary Response to a Question
by Peter Ainsworth. These are figures for government grant and
they do not represent anything like the total of capital expenditure
of the Agency.
27. Yes, I know, but my earlier question was
to try to see if we can sieve out these rather confusing figures.
(Sir John Harman) I agree with the Minister's response.
(Mr Morley) I am always keen to find a bit of extra
money.
28. What is the difference between the capital
works as defined in 1997-98 and the capital works as defined in
2000-01, bearing in mind that there is a different heading on
"other initiatives" which makes up that total in the
later year? Is there some distinction between those two activities?
(Mr Morley) It is a total sum, but the other initiatives,
if I remember, came following on from the floods of that year.
It was part of a contribution which was originally actually programmed
to be £15.5 million, but as a matter of fact the latest outturn
figure is that we have actually spent £17.5 million and there
is an extra £1 million for the national flood and coastal
campaign fund.
29. If this had not happened, if we had not
had the flooding, then the fall would have been what?
(Mr Morley) It partly came from the additional money
that was made available because of the floods of 2000. I can give
you a breakdown if you like, very briefly. It was £9 million
related to response and repair costs, £3 million special
funding for feasibility and design costs on accelerating river
defences, bringing forward some of the existing defences so they
could be done quicker, £1.7 million for catchment flood management
plans, £1 million for the flood warning/flood awareness campaign,
£0.8 for other flood warning initiatives and the national
flood and coastal campaign fund.
30. It would be useful if that could be tabled
for us.
(Mr Morley) Certainly.
31. Turning to Sir John, that would imply that
without the events of last winter, the funding of flood defences
would increase dramatically from 1997-98. The figures the Minister
has just set down are the ones that you instigated only after
that event, is that fair?
(Sir John Harman) I think not. Well, it is partly
fair. Let me explain this answer. The floods themselves called
forth a lot of emergency response and prevented a lot of ordinary
work, so we saw a shift from expenditure on programmed work to
expenditure on emergency response.
32. The net outcome was what?
(Sir John Harman) The way I think the figures were
classified in that previous analysis looked as if there had been
a big drop in actual expenditure on defences, but it had switched
from programmed to emergency. That I think is what you are seeing.
I think that will be the same in the current year because we were
still operating—
33. Catching up?
(Sir John Harman) Yes, we were still repairing defences
all this time.
34. My own constituency has had a lot of help
which we appreciate.
(Mr Morley) I should make it clear, because I think
it may be confusing these figures, that there was £51 million
additional on top of the programmed spend that was announced last
year as a response to the flooding. On top of that there was an
additional initial £16.5 million for the repairs to the damage
to defences, and the outturn for that was £17.5 million.
35. I think that this will all be a lot clearer
if we have that like-for-like table.
(Mr Morley) No problem.
36. The other element is about the methodology
for deciding on flood defence work, which we have discussed privately
actually, but I think already is criticised for only taking account
of some parts of the financial loss that may be involved from
flooding and that some other elements are not taken account of.
I think that when I have talked to people who have been affected,
the amount involved that has been taken account of has been much
less than the amount committed to repair of damage to their homes
from flood damage, but also certainly does not take any account
of any human distress that happens. In my area where people were
out of their homes for eight or nine months in some cases, that
distress is very considerable.
(Mr Morley) It is an issue of methodology. In fact
Sir John and I have been discussing how you can try to quantify
these kinds of issues. What we want to have is a priority system.
You can have as much money in the world as you like, but you are
still going to have to identify priorities. Therefore, if you
are going to have a priority system, it should be transparent,
it should be easy to understand. People have a right to know exactly
how the calculations are being done, that one area gets a defence
and another area has to wait. It is true, a lot of the current
methodology is based on cost benefit. That is true. You cannot
get away from that totally, because there has always got to be
a cost benefit in that element.
37. But it is actually quite a selective cost
benefit, is it not? There are only certain costs which are taken
into account in doing that cost benefit. When you gave the preconditions
for a successful system, it is certainly not transparent.
(Mr Morley) I think cost benefit is a way of quantifying,
because of course you can do a cost benefit in relation to—Put
very crudely, you can put a value on what is being protected,
and then you can put the cost on what it is going to cost in relation
to the assets. In fact we have also commissioned independent research
on this. We would like to make it a bit more sophisticated in
relation to such things as the effect on people's health and the
point you were saying about the socioeconomic impact of flooding.
We are discussing that. We are reviewing our points-awarding system
and the way the assessments are done. I am not unsympathetic at
all to the points you are making.
Chairman: Mr Tipping, I think we can move on
to insurance now.
Paddy Tipping
38. Tell us about costs in a different way and
the costs of insurance. I know that you have been having meetings
with the Association of British Insurers. Could I ask you two
things to begin with? First of all, people in the Trent Valley,
for example, who have been flooded at Gunthorpe, have said to
me that they cannot get insurance. Secondly—and this is
the most persistent complaint—they have said, "Yes,
we can get insurance, but premiums have gone up very rapidly."
What is your experience of this and what are the ABI saying to
you about it?
(Mr Morley) The ABI have reached an agreement with
the Government that insurance cover will be maintained in flood-hit
areas for at least the next two years. Of course, the ABI, understandably,
want to see the kind of investment programmes and they want to
be reassured that the Government and the operating authorities
have a long-term plan in relation to reducing risk of flooding.
That is not an unreasonable position to take, and we, I think,
can provide that kind of reassurance. On the other hand, we do
expect the insurance companies to maintain that level of cover
in all but the most exceptional circumstances. There is always
going to be the odd exceptional circumstance where it is going
to be very difficult to get insurance cover. By and large, that
agreement has been maintained. There have been one or two anomalies
in it which we have raised with the ABI in our meetings with them.
It is an issue of risk sharing and risk assessment. Of course
in that respect we both have an interest in this: for the Government
in reducing risk and of course ABI in reducing risk in relation
to their premiums. It is in the end a competitive market, though,
and people can shop around and do shop around. Generally speaking,
that market does deliver, but I do recognise that there are some
anomalies in it.
39. You have not said anything about premiums.
Premiums are clearly going up and in some cases excesses are being
demanded by insurance companies now. Taken together with the comments
that you made earlier on to Mr Todd about the social costs of
flooding and that no allowance is made at the moment for the social
costs, this is a real issue that needs to be addressed. What are
the ABI saying to you when you are pushing them about increased
premiums?
(Mr Morley) The last time we met with the ABI I made
it very clear that refusing insurance or indeed having excessive
premiums or excesses (which, in effect, is the same thing), has
a huge socioeconomic cost not only in terms of individual homes,
which can also affect such things as mortgages and whether people
will grant mortgages sometimes, if the insurance is difficult
to get, but also on people's businesses too, so there is a business
cost here, and that can force businesses out of certain areas.
I believe ABI recognise that. There is a bit of market economics
in this, which is inevitable, and of course you cannot control
totally the level of premiums which are placed on the level of
risk as perceived by insurance companies. There is that market
element and that competitive element within insurance companies
that does tend to keep insurance cover down. It is just like anything
else. When companies reassess risk, then that will be reflected
in premiums, in the same way, Chairman, that car insurance has
increased dramatically in the last two years because of reassessment
of risk there. That is a function of the market, and you cannot
control that to a certain extent. What we are quite anxious to
see is that there is not the kind of policy decision taken by
insurance companies that very large sections of communities will
be denied insurance. We do not want to see that. That is why we
have these close connections with the ABI which I think have been
helpful, and I think we do understand each other's position.
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