Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



  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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