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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 558-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE
CLIMATE CHANGE, WATER SECURITY AND FLOODING
Wednesday 5 May 2004 MS JANE MILNE, MR PETER DOWER and MR SEBASTIAN CATOVSKY MR ANDREW ALSTON and MR JOHN PLACE Evidence heard in Public Questions 105 - 235
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environment, Food and Rural Affairs Committee on Wednesday 5 May 2004 Members present Mr Michael Jack, in the Chair Mr Colin Breed Mr Michael Drew Patrick Hall Mr Ian Liddell-Granger Mr Austin Mitchell David Taylor Paddy Tipping Mr Bill Wiggin ________________ Memorandum submitted by Association of British Insurers
Examination of Witnesses Witnesses: Ms Jane Milne, Head of Household and Property, ABI, Mr Peter Dower, Underwriting Manager, Zurich Insurance Group, and Chair of ABI Thames Gateway Working Group, and Mr Sebastian Catovsky, Policy Adviser for Natural Perils, ABI, examined. Q105 Chairman: Please accept our apologies for keeping you waiting for a few moments and thank you very much for coming to see us this afternoon to give evidence on our water security and flooding inquiry. We have got Jane Milne, who is the Head of Household and Property. That sounds very good, so if we have problems with our policy we come to you, do we? Ms Milne: Absolutely. Chairman: See you afterwards. Then we have Mr Peter Dower, the Underwriting Manager for Zurich Insurance Group and the Chair of the ABI Thames Gateway Working Group. You are a very busy man, Mr Dower. Lastly, we have Sebastian Catovsky, Policy Adviser for Natural Perils. We should have a very interesting time with our question. Q106 Mr Mitchell: You refer to the increase in economic losses in the memorandum which you gave us and I just wonder whether all of that is due to climate change. What has been the effect of climate change on your industry? Ms Milne: In looking at the rise that has happened over the last four decades it is fair to say that a good proportion of that has been about the way we use land and the sorts of assets that we have at risk rather than climate change per se, although there have been an increasing number of events as well so that has contributed to the overall effect, but unpicking how much is due to the fact that there are just more properties in at-risk areas is quite difficult. Q107 Mr Mitchell: Can you put a proportion on what is due to climate change? Ms Milne: I do not know what the answer to that is but there are also some figures over the increasing numbers. Mr Catovsky: The figures that the reinsurers have provided, looking at worldwide losses at least, not in the UK, they suggest that three-quarters of the economic losses are due to weather events. Of course, how much of that is directly related to a change in climate is quite difficult to measure. Q108 Mr Mitchell: Can you measure the incidence of weather events in, say, the last five years as opposed to the fifties or something? Mr Catovsky: Certainly in the UK we have found that over the last five years storm and flood losses have been five billion pounds, which is more than double what they were in the previous five years, but on those sorts of timescales it is very difficult to say that this is due to climate change. Certainly you can say that these are consistent with what we would expect climate change to be producing and they are consistent with what we might expect to see in the future as well. Q109 Mr Mitchell: So what kinds of estimates are you making about the future and what steps have you taken to provide for climate change in the future? Ms Milne: The Foresight Report, which came out last week, has put some pretty scary numbers around some of these things where current flood damage is estimated at around one billion pounds per annum and, depending on which scenario you follow, it could be anywhere between two billion pounds and £20 billion per annum by the end of the century, so it could be double what it is now or it could be a factor of 20 more than what it is now. Q110 Mr Mitchell: You do not see this as a way of hyping up fear and alarm and therefore concern to get something done about the issue because really there is no very accurate way of predicting, is there? Ms Milne: It is very true to say that there is a lot of uncertainty around climate change predictions, particularly when you go out the full length of the century. If you look over the next 30 to 40 years in fact we are already locked into most of the changes through the emissions that have already happened, so it does not matter whether you believe one scenario is more likely than another. Q111 Mr Mitchell: So that could only get worse, the changes that have happened? There is more change to come? Ms Milne: That is right, but it is one of those classic areas where there is now quite widespread acceptance that this is happening and that there will be certain types of change. Exactly by how much and when is the point that is under debate but that is a circumstance where the precautionary principle has to apply and one needs to start putting in place policies now that at least give you the flexibility to respond appropriately in the future. Mr Dower: Also, I would not want to say that we want to create fear and alarm; we want to create recognition. Once you have got recognition you can start doing something about managing the risk. As the industry we do believe the risk is manageable but it is no good leaving it till 20 years on. Q112 Mr Mitchell: Do preparations and prospects here differ from those of other countries? Ms Milne: There will certainly be impacts that are felt in other countries and in as far as insurance is a global industry we will be affected by those impacts elsewhere. Q113 Mr Mitchell: More or less than other countries? Ms Milne: It depends on lots of things like topography and all sorts of other issues. That is an issue that the reinsurance industry has taken a big interest in but as an association our focus necessarily has been on the UK. Q114 Mr Mitchell: Yes, but we do know whether we have got more houses exposed to flooding or industrial areas exposed to rising tide levels or whatever. We know those figures so what do they tell you? Mr Catovsky: Certainly compared to other parts of the world, particularly developing countries where their economic growth is smaller and they are less able to deal with the changes, and predictions do suggest that there will be some very significant impacts in other parts of the world as well, what we see in the UK is that we can perhaps better afford to deal with some of the impacts but we need to start putting things in place to make sure that we are prepared, and of course we necessarily have greater assets at risk because we have more assets available. Q115 Mr Mitchell: There is also a suspicion with an interest group that you are hyping up the fear in order to hype up the premiums. What estimates have you made about the increase in premiums? Let us take it by household and by industries. Ms Milne: What we are trying to do is to get the risk managed so that there is not an impact on insurance or we can minimise the risk on insurance. The UK is quite unique in having the level of cover, both flood and storm cover, available on a voluntary basis from the insurance industry. If you lived in France or Germany or wherever you would not have the same amount of insurance cover available. Q116 Mr Mitchell: Why is that? Ms Milne: Because in some markets insurers have decided that it is essentially uninsurable because of the nature of the weather events that they have. Q117 Mr Mitchell: I can see that in Bangladesh but not necessarily in France. Ms Milne: The French insurers would argue that quite strongly with you and they have gone into partnership with government where in effect government provides the reinsurance for natural catastrophe cover over there. We have taken a very different route in partnership with government over the last 40 or 50 years which said that government would do its bit in managing the physical risks and we would provide the financial protection. We would like to continue that because that is what we think our customers want from us and by taking the right steps now that means that we will stay as near as we possibly can to the current situation because if we move to the point where premiums become unaffordable that is going to have huge social and economic consequences as well as, frankly, losing us customers that we would like to retain. Q118 Mr Mitchell: So what estimates have you made about the increase? Ms Milne: Flood claims typically cost in the region of £15,000 to £30,000 per claim. A typical household premium, according to the ONS figures, is £295 per annum. You cannot fund many £30,000 claims out of that so you would need to see quite a rapid increase in those premiums if you got very frequent flooding. We have suggested that the once-in-75-years type of frequency is about the limit of what people would normally expect to pay on their insurance premiums. We can offer cover beyond that but that is when the premiums really start to get into the sort of territory that people are not expecting to pay on a household premium. Q119 Mr Mitchell: That is houses. What about industry? Ms Milne: It would work the same way although we take a different approach with a lot of commercial policies so that if it became a particular problem on a particular site we would work with the commercial customer either to put in place their own arrangements or we would move to exclude cover. Mr Dower: Generally speaking industrial premises tend to be more resilient to flood and you have more options to manage flood events than you would have for a private house. Typically with a factory you can make sure you do not store stock and have machinery on the first floor if there is a flood threat. There is rather more you can do because you can look upon each risk and there tends to be more money to do things as well. On your premium question, speaking just as an insurer, it is an impossible question to answer because you get to the ultimate and ridiculous scenario where, if a premise is going to be flooded every year, the premium in theory that you require is going to be the full cost of the reinstatement of that event plus your on-costs. You have a whole spectrum between what is paid now, what might be paid in the future and what becomes "uninsurable" because all things ultimately are insurable at a price. Q120 Chairman: You may not be able to answer this question straightaway but is there any evidence that the number of households that are insured comprehensively to cover the risks we are talking about is increasing, decreasing or remaining level because the most heart-rending stories are of the people who live in high flood risk areas who are not well off enough by their own judgement to afford insurance and end up being effectively bereft of anything if they are hit by a serious problem of which the frequency it is suggested might increase? How are you looking at that scenario? Ms Milne: Of course there always have been a small number of properties that have been considered uninsurable and very often people have bought those at a discounted price, taking account of that. We do not have any firm figures but we are undertaking quite a lot of work with members looking at renewals and whether there are circumstances in which they feel unable to renew. As you may be aware, the ABI put out a statement of principles about 18 months ago guiding the approach that our members would take in offering flood cover and since that has been in place we are not aware of any specific cases but there may be a handful of cases where there have been repeated events where they have not been able to renew but it is literally tiny numbers. Q121 Chairman: Let me just focus my question because I gather that from your other evidence. I am talking generally about people who do not insure their houses. There are some people who for economic reasons say, "I cannot afford to insure it", but obviously if they are hit by one of the problems that we are talking about it is very bad because they have no recourse to any way of recovering their position, and I just wondered whether, in terms of the number of UK households that have a policy, is that going up, down or is it level? Mr Dower: I do not know. Q122 Chairman: The reason I ask that question is that I would imagine that the more people there are who are insured the more it is spreading the burden of risk over a greater number of people. Could you have a look at that for us? Ms Milne: Yes. We do know that 93 per cent of home owners have house buildings insurance in place. We are aware that there could be some issues for those on limited incomes and after all mortgage companies require people to have insurance in place so most people with mortgages will have this in place. There may be some people who have paid off their insurance and perhaps if they are on a limited pension or something like that they then feel unable to continue it. One of the things that does concern us is that because flood plain sites are easy to develop there is a disproportionate amount of low cost housing on flood plains and therefore the very people who are on limited incomes and living in low cost houses may be disproportionately exposed to flood risk. Q123 Mr Drew: Can I be clear in terms of your own actuarial reports on the impact of climate change: are you at one with the report that was published last week, even though that was obviously at the more emotional end of what is possible? I really wonder what you are being told by your actuaries because, as much as this may be an opportunity, it is also a huge challenge to you because if you get this wrong the trust factor is obviously going to be coming into play. I wonder if you would say a few things about this. Presumably you are launching your own research. Ms Milne: Indeed. We have some research that we hope to publish in about a month's time on the whole range of risks that climate change presents to insurers. I guess the advantage that we have is that we are dealing with annual contracts here and therefore insurers can tweak those each year as they deal with things. Our interest in looking across the longer term is to say that what we decide to offer as cover in 2080 will largely be dictated by public policy decisions taken now because houses being built now will still be there and their owners will want to be insured in 80 years' time, and therefore our interest in becoming engaged in this debate is to make sure the right public policy decisions are made now for us to make the annual contract decisions later this century. Q124 Mr Drew: That was a general question. Obviously within this there will be the specifics and you already have the issue of land which is going to be reclaimed by the sea. There is such a thing as not being able to get insurance currently. To some extent you can influence public policy on a local basis by those sorts of decisions, that this is an uninsurable risk, or in fact that this is a piece of property which is going to be so safe because of where it is that you could possibly say, "We will offer you lower insurance because you are not an insurance risk in terms of any global warming constraint". Is that how you will see this series of arguments going? Ms Milne: As regards coastal erosion as opposed to coastal flooding, that is not insurable, or indeed those properties are not insurable. Q125 Mr Drew: That is period, now? Ms Milne: Yes. Q126 David Taylor: Are ABI members making any money on flood protection insurance at the moment generally? Ms Milne: We look across the household account as a whole rather than on specific perils. Q127 David Taylor: You must examine particular aspects of it to see whether your premiums reflect risk as presented to you. Ms Milne: Household cover is offered as an all-risks cover with a multiplicity of perils covered within there and from one year to the next you will get a different mixture of claims, so we tend to look in the aggregate and the position at the moment is that yes, household insurance as a product is profitable but it is an intensely competitive market and there are always new players waiting to come in. Q128 Mr Drew: Are you saying you do not examine the various components of risk and claim year by year? You just look in the aggregate of the claims experience as opposed to premiums collected? Mr Dower: Speaking now as an insurer, yes, we go through that process to look at the adequacy of rating, so any particular rate will be built up by different perils, by expenses, by a profit margin, and so on, and we will do that analysis, yes. In terms of flood, at the moment what we are doing in Zurich is that as our geographical information gets better with the details of flood risk right down to geographical co-ordinates, so we are getting more precise in how we do our pricing but we are in the middle of all that, as I think most companies are at the moment. Q129 Mr Drew: You refer in your submission, and I congratulate you on it; it is excellent, to the government's minimum indicative standard of 1.3 per cent, presumably one in 75 years. Is there ever much debate or controversy about flood risks in specific areas where some people are maybe talking it up, as the Chairman said right at the very start of the session, and some are talking it down? I found in my own area when we were trying to get the statutory agencies to tackle the impact of recent floods, and we are not in an area in the Midlands that is particularly prone to flooding, insurance companies and others were talking it up and the statutory bodies were looking back over a period of 200 years and somehow, inaccurately in my view, extrapolating from that. Surely there must be a clash there somewhere. How do you resolve those clashes? What is 1.3 per cent risk? Mr Dower: At the end of the day we use various data. I can only comment on the Zurich experience. There are different levels at which pricing will occur. Most of our business is intermediated and therefore most of our rates for household insurance will be electronically stored. What the broker will do is go through the list of premiums per company for a particular risk and if he comes across Zurich's premium and beside it it says "Refer" because it is in a postcode area which has got problems in places, the broker might decide not to refer and go on to one where it does not say "Refer". That is at postcode level and postcode level is over a wide area. When risks are then referred within the Zurich they are looked at far more closely and if possible, if the information is there, you get down to risk address and you look for a portfolio of risks in that particular area. Do different insurers take different views? Yes, they do, and very often it depends on what their experience is at the risk address level. Q130 Chairman: Are you as insurers making those judgments on your own information? You are not slavishly sticking, for example, to the Environment Agency's map of flood risk? Mr Dower: No. We use the EA data, we use other databases and we use our own claims database. Ms Milne: What we have done is secure this information from the Agency which insurers can use to decide the relationship they have in terms of offering cover, but in making their pricing decisions they use all sorts of different sources of information that they can get hold of, including their own claims experience. Q131 David Taylor: Under what conditions would flood cover become prohibitively expensive? Is this a commercial decision? Ms Milne: Yes. Q132 David Taylor: If you are not able to make sufficient cover to cover your fixed costs of offering these policies you will join France and Germany and the rest of the world in just abandoning the market, will you? Ms Milne: I think because it has become so embedded within the household product that is offered in the UK market it will continue to be offered wherever possible but it is possible that there will be certain areas in which flooding becomes so frequent that insurers decide that despite the best efforts that they might use to work with customers it is no longer tenable. We are looking at a number of ways of trying to tackle this, including if there is nothing we can do about the frequency of flooding is there something we can do about reducing the costs of flooding by, for example, the householder putting in place resilience measures such as getting rid of chipboard flooring and replacing it with solid concrete floors, moving the sockets higher up the walls so that the electricity does not go down every time they flood, this sort of thing. Q133 David Taylor: Is this what you had in mind in your phrase "provide an acceptable way of managing the risk"? Ms Milne: You can come at this from several angles. Ultimately it may not prove possible despite all of those best efforts of the policy holder and in terms of what is done in flood defences. We would like to prevent us from getting to that stage. We have not put a firm figure on it. Swiss Re have published a report where they feel that a ten per cent annual probability is about the margin of what is insurable. Q134 David Taylor: So there is a possibility, to coin a phrase, that the insurance industry would wade away from those risks? Ms Milne: Yes. What we have said under our statement of principles at the moment is that for people beyond the one in 75 years level, where they are already customers insurers will try and work with them to find some of these other solutions before they get to the point where they say, "I am sorry but we really cannot continue". We are not saying it is never going to happen but we are saying we are not going to switch from, "You have got full cover today" to "Oops, sorry, we cannot do this any more". Q135 David Taylor: You used a phrase at paragraph 11 of your submission which makes me go quite dizzy and light-headed because I have seen this in a PFI context, that "there may be pressure on Government to provide an alternative risk-transfer mechanism". Where that is used in other parts of government policy what has been talked about there is that the group that are allegedly taking the risk then bang it back to the poor old taxpayer. Is that what you meant, that the poor old taxpayer has to pay? That presumably would be acceptable to you. Ms Milne: There are a number of different models one could use. We think that the best future is government doing what it does best, ie, managing the infrastructure, and insurance doing what they do best, ie, offering the risk transfer mechanisms. That is how we would like it to stay, a partnership between the two of us. As you mentioned, elsewhere other mechanisms have been tried or there may be specific groups like those on low incomes where it is whether there is effective demand for that insurance because of whether they can afford it or not, and those are circumstances where government may wish to take a view. Q136 David Taylor: So the government becomes compensator of last resort where the industry has walked away, does it? Ms Milne: Or an alternative would be to subsidise premiums in those areas. Mr Dower: There is an issue about a social agenda here. Often the insurance industry is somehow expected to set a social agenda and I am afraid that is not true. We are in the game to make money the same as any other industry. It is not for us to say what would the social agenda be, ie, should the person who lives on a hill pay a flood insurance contribution for the person who lives in the valley? We just do it on a risk assessed basis. It is a difficult question to say when a risk becomes uninsurable. Risks become uninsurable probably when the policy holder is no longer prepared to pay that level of premium, but then it is not really for us to say, "That is okay; we will charge everybody so much more in order to subsidise people who live in high risk areas". Q137 David Taylor: So have you put these alternative risk transfer mechanisms that have not yet emerged to government and, if so, what sort of response have you had so far? Ms Milne: What we have been working with government very closely on over the last three or four years is trying to get the risk management techniques right so that we do not have to invent new risk transfer techniques, so if government protects those properties then we can continue to offer the insurance. That is our preferred approach. Q138 Chairman: Given that one of the characteristics of global warming is the unpredictability of where weather events are going to occur and the ferocity with which they might occur and previous trends do not necessarily predict that, just to be absolutely clear, you would not, for example, envisage as an industry having some kind of collective pot to share the burden because of unpredictability where there might be a global warming levy put on top of all premiums, money goes into a central pot to be used because of the unpredictable nature of the events, or are you saying, "No, we have got enough actuarial experience. We are looking at all the factors. We would far rather continue to rate individual properties, individual insureds according to their risk at that location"? Ms Milne: One of the aspects that has driven the approach the UK insurance industry has taken on all of these perils is to avoid moral hazard and essentially if you price on the risk presented by an individual property then you build in all the incentives that that property owner may need in order to do the sensible things to protect themselves. Once you start looking at pooling arrangements then those incentives begin to disappear so as an industry in the UK we prefer to avoid pooling arrangements. We think that risk pricing is the best approach. Q139 Mr Wiggin: Is it possible to buy house insurance without flood cover? Ms Milne: No. The standard approach in the UK is to build flood cover in. Q140 Mr Wiggin: So what you said earlier, that existing clients will still be covered but others will not, means that you then put yourself into an exclusive monopoly position because only your company will be able to insure that house? No-one can compete with you because, of course, you cannot get house cover without flood risk. You said that about existing clients a few moments ago, did you not? Ms Milne: Across the market as a whole that is the product that is offered. Any customer can go to a variety of providers and get competitive quotes on that basis. Q141 Mr Wiggin: But not without flood cover, so if, for example, my house flooded I could not then insure my house with a different company but without flood cover, so there is no competition once you have had the crisis? Ms Milne: First of all, it is standard for that cover to be renewed. Q142 Mr Wiggin: But there is no competition at that point. Ms Milne: Why would you choose not to have the cover there if you have a flood risk? Q143 Mr Wiggin: Because you might put the premiums up. Ms Milne: Yes, but in certain circumstances what insurers are prepared to do in the very difficult to insure areas is to continue cover for the other perils but in that specific circumstance without the flood cover. That is an exception rather than the general approach. Q144 Mr Wiggin: Exactly. That is entirely understandable, that a floods policy may have other risks attached to it. It may or it may not, but it flies in the face of what Peter has just been saying about you being in the business to make money. Why is your industry not interested in offering cover without flood risk? Why will nobody do it? Ms Milne: Because the mortgage providers tell us that it is one of the standard perils that they would like contained within cover. Q145 Mr Wiggin: So it is all or nothing? That is the dilemma, is it not? Ms Milne: Most people would be in breach of their mortgage if they did not have that cover in place. Q146 Mr Wiggin: But some people cannot get it. Mr Dower: If you are in a high flood risk area but everything else is acceptable we would offer a product and then exclude the flood risk. Q147 Mr Wiggin: You would? Mr Dower: Yes, we would. Q148 Mr Wiggin: One of the things we had with care homes was that the premiums went up by about 700 per cent. At that point insurance companies ceased to offer the product at all instead of continuing to put a market price on the actual risk and so there is a real fault in the insurance market, that it will not price itself in when there is a real difficulty. For example, if I had a house that continually flooded and I did all the things that you said - I put a concrete floor in, I moved the plugs up - I could not necessarily get insurance even if I had done all those things because you look at my postcode and you say, "Ah! You flood. Forget it". He is nodding his head. Ms Milne: That would be true of the broad market but there are always specialist insurers who will be prepared to deal. Q149 Mr Wiggin: Not always. Ms Milne: Within the Lloyds market if there is a need that emerges then there will be insurers who will cater for that need. Q150 Mr Wiggin: At a price. Ms Milne: At a price. Mr Dower: As I said earlier, if you are relying on what the broker is doing with you with the software houses, and that sort of information will only be down to postcode level, then most companies - and ours I can only speak for directly - have a referral system where you try and get down to the address level and assess the flood risk. Yes, we could say, "The flood risk is not acceptable but we will offer you everything else and exclude that", or very often we will just offer a high deductible which will pay for the limited damage that might be done by a regular event. Q151 Mr Wiggin: So the excess would cover it? Mr Dower: Yes. Q152 Mr Drew: You have already had a discussion on public policy with David Taylor so I do not really want to go back over that ground, but I would be interested for you to lay out the guidelines on where you think the government needs to move fairly quickly in terms of public policy. You were saying in your introduction what sorts of things you anticipate. Can you give us some flavouring on where you think the government is deficient at the moment and needs to get its act together? Ms Milne: We are very pleased that we have mad a lot of progress in terms of the amount of investment going into flood defences and the uplift that we got within expenditure plans in the last spending round, and of course we are quite anxious to see that that is maintained in the current spending round that the government is considering at the moment because we think this is one of the things that we have to be in for the long haul on; we cannot just have short term spikes that will solve the problem. What we are anxious about is that when looking at flood defence projects we think about the climate change consequences , we do not just build them for today's climate. We are also pleased that there has been a certain amount of streamlining brought into the system that delivers that. We are quite concerned that with the drainage related flooding that we have seen just last week, in fact in the part of London that I live in, the decision has been made in the periodic review by Ofwat that pricing for the water companies should enable them to move from a Victorian system to one that is going to cope with the events of the late 21st century. We are concerned that our land use planning is done in a sensible way to make sure that we are not storing up problems for future generations by making decisions now that will be difficult to live with in 50 or 80 years' time, and we are particularly concerned about the way houses are built, whether they are standard construction or whether they use the novel methods of construction that are being increasingly adopted to make sure those properties are sufficiently resilient. Q153 David Taylor: What sorts of novel systems do you have in mind? Ms Milne: There are a number of system-built housing techniques now. Q154 David Taylor: Timber framed, are you talking about? Ms Milne: It could be timber framed or it could be steel framed with standard components or the pod type constructions that go on. There are about 800 different ways of doing this so it is quite difficult to generalise but some of those, as far as we can see, could be quite resilient and some of them could be quite vulnerable to future weather, whether the industry is flooding or indeed the sort of storm damage and water penetration that we might see in the future. Mr Dower: There is a real mixture of products out there. At the worst end you see panels which are made up of two pieces of chipboard with a bit of polystyrene in between, which is great because if it gets wet it falls apart, it burns readily and it gives off toxic fumes. You would not want that sort of stuff used in prefabricated buildings. At the other end of the spectrum there is some very good stuff around. It is just making sure that the right stuff is used in these areas, especially where you want flood resilience, because the combination of the two, a high propensity to flood and a building that is less resilient, is just the sort of thing that insurers do not want to see. Q155 David Taylor: In the first example you gave, are there houses that have been built or are being built with that sort of material? Mr Dower: I am not aware of any that have been built as yet and I sincerely hope there will not be in the future, but this is an overseas producer of these panels that we saw an example of. I think that is all I can say. Q156 Mr Drew: Can I be absolutely clear about this, because in the earlier exchange you were talking to Mr Taylor about who bears the cost? In terms of improved flood defences do you see there being any role for the individual other than in the normal insurance policies they will have to take out in preparing for the cost of those flood defences or is this a straight state responsibility? Ms Milne: No. I think we all have to accept some responsibility for dealing with the threats to our property, whether you are in a high crime area and taking measures to improve the security of your home or looking at flood resilience. Traditional flood defences of course are massive engineering products and only the state can undertake those kinds of projects, but there are a number of measures now coming out where either small communities banding together could take some measures with temporary defences, or indeed, for certain types of flooding like the sudden urban flash flood, some of the flood protection products, particularly the kite mark products, could be very useful in protecting yourself. Q157 Patrick Hall: I would like to turn to the section in your evidence regarding planning policy, which I found very interesting, and it is in paragraph 20. You refer there to guidance that you have produced. Can I ask who that guidance is intended for? Ms Milne: It is really intended for planning authorities and we have sent it to all planning authorities but anybody else with an interest is welcome to see it and it is on our website for anybody to peruse. Q158 Patrick Hall: So it is to reinforce, is it, and add to the guidance that the Environment Agency will pursue on their local plan or on any individual planning proposal on a flood plain? Ms Milne: Yes. It was written to read alongside PPG25, so it is structured the same way that the ODPM's guidance is. Mr Catovsky: There is a section in PPG25 where it specifically says, "You may wish to consult the insurance industry on the planning decision" and this was produced in response to that paragraph. Mr Dower: We also, wearing the Thames Gateway hat for a moment, want to produce something similar for people to go up in Thames Gateway just to give a little bit more guidance on the sorts of things that need to be considered and discussed. Q159 Patrick Hall: How much confidence do you and the industry have in the estimates of existing flood risk contained in particular in PPG25 which, as you say in your evidence, is based supposedly on present-day risk, but actually present-day risk is based only on past performance so present-day risk estimates may be wrong already? Do you want that changed to estimates of future risk? How can we get clarity on this, because the present day risk may be wrong because it is based on events as estimated or understood and recorded in the past? How can we get a more realistic assessment based on events that have not yet occurred? Ms Milne: Clearly your estimate is only as good as your model and your records, and whilst in some parts of the country there is a very long run of historical records of several hundred years, in other parts of the country it is only a few decades, therefore the model is likely to be much less reliable. The Environment Agency, in particular, is investing significantly in improving its modelling and getting better information; indeed it is working with one of our members, Norwich Union, who have done a lot of work on digital terrain mapping, to improve various aspects of the model. There are a number of other providers that insurers go to for information who, likewise, are improving their models all the time. It is one of these situations where, you are right, there is a degree of uncertainty over even today's estimates, let alone post‑climate change estimates, but that modelling is getting better all the time. Mr Catovsky: Certainly when it comes to looking at the flood risk without flood defences there, in terms of planning policy and PPG25 you can do a sensitivity analysis where you look at how close the banding is for, say, a one in 100‑year, a one in 200‑year and a one in a thousand. In some areas where the flood plain is very well defined, they almost sit on top of each other because you have got very steep banks, so those different floods are actually quite close together. I think you can have more confidence certainly in those areas in terms of the maps. I think in some more flat areas where the bands may be spread out, it may be worth looking a bit more carefully at the risks there, but I think you can do some kind of truthing there. Q160 Patrick Hall: With regard to planning authorities being guided or taking into account estimated present or future flood risk, do you think that the Environment Agency's advice should be strengthened to the power of veto over a planning authority? Ms Milne: No, we think that the democratic processes should work as intended. What we do think needs to happen, though, is that the Environment Agency should be a statutory consultee. At the moment planning authorities are not obliged to ask the Agency for advice. We think that that is wrong; they should at least hear the advice. We also want much greater transparency in the outcome of those decisions and deliberations so that everybody who is a potential purchaser of the property, mortgagor of the property, insurer of the property, can make their decisions in the light of full knowledge. Q161 Patrick Hall: Do you not think it is a strange situation we might be in then? If the Environment Agency, say, was a statutory consultee for structure plans and becomes so for local and individual decisions but still cannot direct refusal, you as an industry will effectively direct refusal, will you not? In terms of the democratic question, that is an interesting one because, according to your evidence, if the Environment Agency has objected strongly to a particular development, the industry will not insure. If the industry declares it is not going to insure, then surely no developer is going to build because people are not going to be able to get a mortgage. How is this to be reconciled? Ms Milne: It remains down to individuals how they want to deal with that risk. All we are saying is that we are not going to provide the risk transfer mechanism; they can retain the risk, if they wish. Mr Catovsky: But the industry as a whole will not... We cannot consolidate the decisions there, ultimately it is up to the companies, but the reason we say that is the guidance is to make it clear to people that it will be quite hard to get insurance, or you may be facing very high premiums. So at least the developers and planning authorities will recognise the consequence, but, of course, there may be some niche players who eventually decide to cover it. We obviously could not say that. Ms Milne: At the end of the day getting the structural plans right is the key to all this, because if the structural plans take this into account then developers are not going to be looking to the very high flood risk areas to put their individual applications in. In a way we are working through a problem at the moment where not all the structural plans have quite caught up with the better understanding of flood risk and the consequences of flood risk that we have now. Mr Catovsky: We were certainly very happy that the Environment Agency has now started to at least publish its objections on the internet so that anyone for a particular month can look at the development plans, at least where they have objected. You cannot see the decision that was finally taken, that is up to individual authority to hold that information, but at least that starts to make the process more transparent, and hopefully, if you could extend that transparency right the way through the process, that would certainly help things. Mr Dower: But to me, this is the key area. It is that stage at which you want developers to build flood risk management into the development plans, and that is the way you surely must take this forward if you are going to produce an insurable property at the end of the day which then fulfils the social requirement. Q162 Patrick Hall: Do developers talk to the industry while they have still got an idea maybe not even on the drawing board? Apart from the looking at the planning policies for a particular area, does the developer speak to the insurance industry? Mr Dower: My company has not been approached by developers as far as I am aware. Q163 Chairman: What is the situation, Mr Dower? I see, as I said at beginning, that you are the Chair of the Thames Gateway Working Group, and paragraph 24 of your own evidence tells us that 13 out of 14 zones have changed, as they are described in the Thames Gateway, and lie within the Thames tidal flood plain. So how are you happy sitting on this group when the wash of tide is heading towards this great piece of development and you are going to have to decide whether you are going to insure it or not? Mr Dower: What we are trying to do... As an industry, I think we have not been proactive in the past and I think we are now being proactive in order to produce managed risk in the future. The Thames Gateway is tremendously important to solve housing for key workers for London and all of these good things. You are not going to solve anything if the houses are uninsurable. So far from wanting to say, "Isn't this terrible. Everybody is building on a flood plain", we truly believe that you can manage the flood risk and you can design it into your future development. Really that is why we are consulting with people to try and make that happen. Ms Milne: Part of that is how things are defended, because we are sitting in the flood plain now. Q164 Patrick Hall: To sum up that bit, although none of us can get everything right in the future by whichever means we approach it, are you saying that, broadly speaking, if this is approached in the best way we can, the most coherent way we can, marrying up the Environment Agency's work, the planning policies, reflecting them and the industry's guidance, that the industry would honour decisions taken on the basis of the best system we can devise which we, by implication, have not yet got? Ms Milne: We have‑‑ Q165 Patrick Hall: At the moment, if things are left as they are and there is no change, I think your paper is saying that there is an increasing risk in certain places of properties not being insured. If we try to devise a better system, the industry will honour the outcome of that, even if, of course, we get some of those things wrong? Ms Milne: We have all got to make decisions in the light of the best information that is available to us at the moment, and we are very keen to work with government and with local authorities to arrive at truly sustainable solutions, which is a very over‑used word at the moment, but ones that are as future-proofed as we can make them, and, of course, yes, we are all going to get some of those wrong but we will endeavour to live with that. Q166 Mr Drew: I was going to ask you about sewer flooding and so on, but I accept that most of those are things we have looked at in other ways, and we have had a Bill, which has now become an Act which has changed that. If global warning is the threat that it is, to what degree would you be prepared to look at alternative situations where there has not been a tradition of sewerage provided? I am a great reed bed fanatic. If we look at some of the issues to do with sustainable drainage, with the best will in the world, you are not going to look at hard technology solutions. I wonder, are you willing, as the industry, to look at soft technology solutions given that they may be the only way that you can bring some properties into - what Mr Wiggin was talking about - insurability? Is that what is on the agenda? Mr Catovsky: I think we are certainly not of the view that it is all about concrete and bricks, and, I think, if these newer technologies and newer ways of looking at drainage will look at reducing the risk and be resilient to the impacts of climate change in the future, then they may be the most sustainable solution, for sure. Q167 Mr Drew: Are you having those discussions with the industry at the moment, not just in terms of new‑build but also conversion? Mr Catovsky: I do not know if we have had any specific discussions, but we are certainly involved with some of.... There are some research projects and we have certainly been involved in some of those through the Syria cereal organisation? Ms Milne: We have talked to government quite at lot on this. What we have found it quite difficult to do is to engage with the construction industry and with developers on a lot of these things. Chairman: Thank you very much indeed. You have given us an awful lot of food for thought. If, as a result of our exchanges, there is anything else you want to submit by way of additional written evidence, please feel free so to do. Thank you very much indeed for your very comprehensive submission which helps underpin our questions. Thank you for coming. Witnesses: Mr Andrew Alston, Chief Executive, Broadland Agricultural Water Abstractors Group (BAWAG), and Mr John Place, Norfolk fruit farmer and Member of BAWAG, examined. Q168 Chairman: We move on to BAWAG. I think it is Broadland Agricultural Water Abstractors Group, which sounds rather better than the shorthand form. Judging from the delightful part of the country you come from, I think we should have decamped and come and taken your evidence on your doorstep rather than inviting you here! We have got Mr Andrew Alston, the Chief Executive, and I see you are accompanied by Mr Place. Mr Place, what do you do? Mr Place: I am a fruit grower and I represent a fruit‑growing company in East Anglia. We grow strawberries and raspberries, and we sell them to companies like Sainsbury, who demand that we supply an order to them every year. Q169 Chairman: Good. You are both very welcome indeed. In terms of the group of 150 that you have got together under your umbrella title, how much work have you done with the group or within the group and with others to predict the effects of climate change on your business, and what steps have you taken to adapt to it as growers and agriculturalists? Mr Alston: To date we have been more concerned about the Habitat Directive and the Water Framework Directive. Climate change to us is something quite new and we really are struggling to come to terms with it, but we do realise that we are going to enter periods when it is going to be dryer than it is going to be wetter. Q170 Chairman: But given the pressure on water resources in your part of the world, which from what the Committee has heard so far in evidence has been affected by the change in the climate that is already coming through, is this not a matter where you have said, "How is it going to affect us"? Mr Place: I think things can only really get worse, because we have already got the habitat regulations and the review of consents, we have already got the CAMS coming forward and there is a possibility with the climate change of lower levels in the rivers in summers and possible cut‑offs of irrigation water, which, as far as our company is concerned, would be an absolute disaster. Q171 Chairman: But in the sense that you have just enunciated, Mr Place - a good agenda to start - have you done any work with water companies, the Environment Agency, other bodies, to say: "What, do we think, does this mean?", because I presume, as a grower, and I notice in your evidence, there is an obligation, for example, by some supermarkets for you to follow particular irrigation regimes on certain crops. If you are not able to do that because the projections are that the water is going to be under such pressure that it will be interrupted in supply and you cannot do what you have signed up to do, then you have got to work out some alternative strategies. Has that work begun with your members? Mr Alston: Yes, we have certainly started looking at what John suggested, which is how are we going to come to terms with CAMS? In Broadland we are at the bottom of the ladder in terms of the amount of water that is available to us. The environment is protected through the Habitat Directive and the Water Framework Directive, and the water companies are slightly above us, we are right at the bottom. So any impact of any legislation or change of habitat will impact more on us than the water companies or the environment. So we have started to look at where our problems will come from. If our licenses are coming under threat in the hottest, driest time in the summer, we need to take account of that in our preparation and planning for water resources and we have come to the conclusion that we need more winter storage reservoirs. We are not asking for any more water, but we are asking to convert a proportion of our summer abstraction licence from ground water or surface water into a winter storage reservoir so that it can then be used when we hit these two, three, four‑week long periods in July, August and early September when the resource is under pressure. Q172 Chairman: Mr Mitchell is going to ask you some questions about that in a moment, but I want to know, for example, in Israel they are probably the world leaders in making the best use of water, particularly in the context of irrigating horticultural crops. Have you, for example, studied that kind of technique and said, "Does it have application within East Anglia in order, in the first instance, to make best use of the water resource that is currently available"? Mr Place: No, we have not been able to do as Israel, let's be honest about that one, but we have been very concerned and, of course, we have the University of East Anglia on our door‑step. Q173 Chairman: Are they helping you with this work? Mr Place: We are a party to points which are made. We know that we are likely to get less water in the summer perhaps and perhaps more water in the winter, and that is where we feel that we have got the possibilities of converting that extra water into reservoirs to use in the winter for our crops which would give us certainty with our business and enable us to continue employing the 1,800 or so people that we directly employ in BAWAG amongst our members and possibly up to 5,000 people in the area depend upon us. Q174 Chairman: But what are you doing as a group to encourage best practice in reducing water usage or maximising the advantage of what you have got? I think I remember seeing in your evidence, you indicated that you were using some of the best irrigation techniques available, for example? Mr Alston: In our licences now from the agency we have a paragraph about efficiency. It is knowing when to start irrigating and knowing when to stop. We have different types of irrigation. We have trickle for permanent crops, which occasionally can be used for outdoor crops such as potatoes, we have what are called low‑profile rain guns now, which do not squirt the water up in the air, they give it a better flow rate, and we have boom irrigators which can get down as low as 2‑3 mls at a time. All this is working towards a more efficient way of applying the water and stopping and starting, therefore we make better use of what we have got, but we are not asking for any more water in any of this. Q175 Chairman: Given that you have got 150 members, there must be some who are better at making good use of the water than others. Is there enough information around to ensure uniform best practice? Mr Alston: If you take the strawberry growers, of which John is one, trickle irrigation is used extensively on that. The salad growers, we have a major company (JB Shropshire) in the area making extensive use of booms for precise irrigation of baby-leaf and iceberg lettuce. Potatoes are still more done with rain guns and very much once a week irrigating, as opposed to every other day with strawberries or iceberg lettuce. Q176 Chairman: I can understand from the horticultural standpoint the necessity for the precision of irrigation, but in terms of other crops is it really necessary to do as much irrigation as one sees even with grain crops? Mr Alston: We do not irrigate grain crops. Q177 Chairman: Maybe I have been looking in the wrong field then? Mr Place: It is really potatoes, vegetables and soft‑fruit and intensive fruit which comes to quite a bit of money. Q178 Chairman: Okay. Mr Alston: Irrigation costs are probably £30‑40 an acre each to apply. A ton of cereal is about £80 a ton at the moment. You are not going to get a response from irrigating cereal, so nobody does it. Q179 Mr Drew: In a sense you suffer from the problem.... Now that the word "abstraction" has become one of those words that immediately puts people on their guard, next to "pollution" I suppose in this area, you have immediately got a problem. How are you handling that in terms of what is going to be an increasingly sceptical audience, if you like, in terms of public perception? "Abstraction" means, "You are taking our water to take it to somewhere else", and that is quite a difficult issue as we get to global warming. Mr Place: We are hoping that we will be able to use the surplus water which will be available in the winter. It is now available in East Norfolk in the winter and it can be abstracted without any cost to society and without any problems. All we are really asking is please could we have some help on reservoirs which are necessary to put that water into in the winter? If I can talk about economy of water, our company has had an independent water audit. We scored 15.7 out of a total of 20 points, which I thought was quite good considering it was out of the blue, and we also won two prizes, one from the Environment Agency and one from the business community for actual economy water. Mr Alston: Can I add to that? When a farmer applies for an irrigation licence he has to prove he is having no effect on his immediate environment, especially if he is next to an SSI or an RES sign, and that is quite a long process. I feel that although you think we have got bad publicity on this issue, I think we are actually quite good. Q180 Mr Drew: All I am saying is that I think you have got a perception problem? Mr Alston: Exactly. A lot of our members are also under stewardship schemes in Broadland. Being on the edge of the Broads, there is a lot of environmental work going on to make sure that English Nature and the RSPB are getting what they require from the land and we are getting what we require. Q181 Chairman: One factual question. When one talks about an abstraction licence, how does the pricing mechanism for that work? Is it a fixed sum for a licence for a quantity of water, or is it related to the quantity you abstract? Mr Alston: It is a very complicated equation, but basically summer abstraction is ten times more expensive than winter abstraction. On my own farm I pay £2,700 for a summer abstraction licence. If I moved that to a winter licence, it would cost me one tenth of that. I can get a 40% grant from RES, (Rural Enterprise Scheme) to build that reservoir. There is an incentive through the pricing mechanism, but it is not enough to make me move. Q182 Chairman: In the summer is there a quantity restriction? Mr Alston: Yes, there is a licenced quantity you are allowed. Q183 Chairman: I presume, Mr Place, you face the same problem in terms of your strawberry crop in having a licence which is a fixed sum for a certain amount of water, do you? Mr Place: Certainly we do, and we also have some technical problems ‑ some of your members are probably aware of that ‑ with trickle irrigation and its uncertainty at the moment. Q184 Chairman: Right. Mr Alston: The whole business is planned round the amount of water you are allowed to pump per day, per year. Q185 Patrick Hall: When were you as an organisation set up? Mr Alston: We set ourselves up in 1997 based around North Walsham, very much in the Broads area. Q186 Patrick Hall: 1997? Mr Alston: 1997. Q187 Patrick Hall: But irrigation has been a taking place, modern style irrigation has been taking place for how long? Mr Alston: Forty, fifty years. I have just renewed a bore‑hole that is 60 years old. Q188 Patrick Hall: Do you have any information, although you have only recently been set up, about the quantity of water used by your members, and obviously going back before you existed as well, both in total and per hectare? Mr Alston: This is licenced or actually used? Q189 Patrick Hall: Used? Mr Alston: The licence quantity has not changed in Norfolk because we are described as being over‑abstracted at the moment, although under‑used. Q190 Patrick Hall: Do you know how much water is used? Mr Alston: I know how much water. Our members pump about 15 million cubic metres a year. Q191 Patrick Hall: Could you describe that in terms that I can relate to? Mr Alston: 15 million tons. Q192 Patrick Hall: So that I might understand the per hectare usage. You could do that, could you? Mr Alston: I could find out. Q193 Patrick Hall: What I am trying to get at is, if it has existed for a lot long longer, the practice has taken place for several decades, I want to see whether the application of best practice and the sophisticated techniques you have referred to in your evidence have led to a per hectare diminution in the use of water which could help when we are talking about climate change? Mr Alston: An example on potatoes, which is a big user of water, is we used to get advice, "Put an inch on a week." Now it is, "Look at your soil, the depth of discharge. Put perhaps 15 ml on at a time. Do not go for the full inch." Far more precise irrigation is going on now than it was 10 years ago. Q194 Patrick Hall: Are you able to bring evidence into the public domain that demonstrates that there is a more efficient use of water, possibly a reduced use of water per area of land? Mr Place: I think we started in 1979, when we brought over from America the idea of trickle irrigation on raspberries, and I think that with that type of effort you possibly save 40% of the water, and we have done some figures to prove that. On the other hand, there are some very efficient spray irrigators on potatoes, although improvements have been made with finer sprays and slightly less pressure recently. Mr Alston: Are you trying to get to are we using less water per ton of potatoes used, because every year the weather is different? Q195 Patrick Hall: Of course, but there are going to be trends and climate change implies trends, a different differential on rainfall between summer and winter more than now. If we are going to address this growing problem, I think somebody used the word "disastrous" ‑ the prospects of change are disastrous - then, if you want society and government as whole to assist, it would be useful for the industry to demonstrate that the things that it is doing already and has done have, to the best that it can, reduced the use of water? Mr Place: Can I say on soft fruit, we have just developed a system which again has come from Australia. Whereas we used to use a neutron probe to actually determine the amount of water needed from the soil profile, we are now moving on to a much more, I hope, sophisticated system which will actually save water. Q196 Patrick Hall: But a lot of it is hope. I am suggesting.... You may be doing this already, and, if you are, it is good news and you ought to be saying so. That is the point I will just leave it at. Mr Place: I think we moved into that in 1979 and ever since, because I think we are very mindful we are the custodians of water as well as of the land, and it is our obligation to honour that. Q197 Chairman: Are we getting a bit too precious with supermarket specifications? I have an allotment and I am afraid I am down to Mother Nature. Last year when we had a dry summer I got small potatoes, the year before I got whoppers. Why? Because there was more water available. Is it because people are now so tight on specification that to hit that you have got to have the irrigation to give the continuity of unchecked growth of the plant, and that is why it is driving the demand for water as opposed to necessarily making up for what mother nature does not deliver from on high? Mr Alston: In extremely hot weather it is very difficult to keep up with the demand of the crops on potatoes. You would plan to put three‑quarters of an inch on a week. The demand of the crop might be 45 ml. Q198 Mr Mitchell: Is the water necessary to reach the specifications? Mr Alston: Yes. Our contract says that water must be available. Chairman: I am afraid we are going to have to leave you for about ten minutes. We have to go and vote. I am adjourning the sitting for ten minutes. I hope that my colleagues will be able to return so that we can continue our discussions. Thank you very much. (The Committee suspended from 4.00 p.m. until 4.29 p.m. for a division in the House)
Chairman: Mr Mitchell would like to ask you some more specific questions about reservoirs which you touched on earlier. Q199 Mr Mitchell: Can I clear up this point that we were raising earlier, that a certain degree of watering is necessary to reach the specifications set down by the supermarkets. Is that correct? Mr Alston: That is right. Q200 Mr Mitchell: The reservoirs for the crops that you do irrigate in the way that you have told the Chair, as you say in your evidence, these are expensive; they are a quarter of a million quid each. How can you guarantee that there will be over their life a supply of water to them? Mr Alston: That is what we would like as well, a lifetime licence to go with the reservoir; otherwise there is not a whole lot of point digging a hole in the ground. Q201 Mr Mitchell: So you need the two? Mr Alston: We need the two to go hand in hand. If you think about it, what we are lobbying for is licences, say, bore‑hole or some abstraction licences, transferred into winter storage licences. Those licences, if they have been time‑limited licences and have been through one or two licence renewals that prove they are having no effect on the environment, because if they were they would have been stepped by now, I think it is fairly safe to assume that once we get through what is called the review of consents in 2006 for the high priority sites, we are only then arguing about the amount of water that is available for agriculture through the CAMS process. I think once we get through 2006 it is pretty safe to assume that the Agency, the Environment Agency, will give us licences to coincide with the life of the reservoir. Q202 Mr Mitchell: That clears that up. You also say that you will need Government grants, some financial support, and that what is presently available as reservoir grants is neither adequate nor predictable? Mr Alston: Again, we are talking of people who have invested money in their farms for summer abstraction. In some cases they are still paying this off through loans through the bank. They are not in a position to suddenly transfer into a winter storage reservoir for all or even part of their license quantity. Q203 Mr Mitchell: What level of grant will be necessary? Mr Alston: At the moment we can get 40% through RES, and there is a small incentive through the annual charge. If the environment is the winner in all this, surely the money ought to be available through the higher level stewardship scheme, but that may mean that the particular farm has got to have the rest of its farm in stewardship as well, which probably goes along with conforming with the Water Framework Directive anyway. If there could be another 40% available in that, bringing the grant funding up to 80%, 20% could almost be funded through the lower annual charge. Q204 Mr Mitchell: To round off the calculations, do we know how many reservoirs are going to be necessary? Mr Alston: At the moment there is only enough money in the Rural Enterprise Scheme for about six reservoirs of about £200‑250,000 each a year. We are lobbying for smaller reservoirs on the farms that have got summer abstraction to supplement their summer abstraction in the hottest of hot times so we conform to the Habitat Directive. Q205 Chairman: On a point of clarification, Mr Mitchell asked you in response to your point about being given lifetime licences for the life of the reservoir. Given that we are told - first of all, you are in one of the drier parts of the United Kingdom, secondly, one of the areas that is under pressure from water, you have got rising populations and ground water reservoir, or ground water stocks are depleted, for example, at the present time, is it realistic to ask for that length of guarantee against a potentially worsening scenario for rainfall where the kind of ground water, or the ground area from which you are going to abstract, is already depleted and it is an unknown quantity as to whether it will recharge or not? Mr Alston: Can I pick up your point about the ground water being depleted? In Broadland at the moment the ground water is actually rising. Q206 Chairman: Is it? Mr Alston: Yes. We do not know why, but it would appear to be rising. Q207 Chairman: Is this not all a bit off then? If you have rising ground water and yet we are told that you are one of the areas under the greatest pressure for water supply, something does not add up? Mr Alston: I agree. It is a situation the Agency does not fully understand, I believe. We can have some areas where the ground water is quite high and a mile away it can be quite low. This obviously gives the Agency difficulty in managing resources, but we are lobbying for farmers who can prove that their abstraction licence is not having an effect on the SSI. Q208 Chairman: My point is that the life of the reservoir is relatively long and when we started our inquiry the projections, as much as anybody is prepared to project with accuracy, is of rising temperatures, of diminishing rainfall, of pressure on water supply? Mr Alston: And also more flash‑flooding. Q209 Chairman: There are some issues of collection and retention, and I think I felt just a little nervous in the light of the question that you pose - "Could we have these licences for a longer period?" - as to whether it would be reasonable to expect the Environment Agency, in this case, to say, "Yes, we will give you 20 years worth", because it is seemingly quite difficult to predict, that far ahead, what is going to happen? Mr Alston: We have got to give our members confidence that if they are going to dig a reservoir there is going to be water to fill that reservoir. It might be that if you have a wettish summer you do not use that supply you have got for that driest time because that driest time has not actually happened. It is a difficult one to answer. Q210 Chairman: It is. Mr Place: I do not think, sir, that we can demand an ever and ever increasing or even the same amount of water every year if something dreadful happens, but under normal circumstances, since we can predict, I think we ought to think that we are entitled to our share of the water, without being greedy. Q211 Chairman: The interesting question is what are we going to define in the future as normal? Mr Alston: We had a CAMS process that has just started in Broadland which is reviewed every six years, so it may be in that CAMS process that agriculture, the whole of agriculture, gets a small cut. I do not know what the outcome of that is going to be, but there is a review process and that review process will look at all licences, and if there is one for 25 years and one for three years, as I understand it, they will all have an equal cut across them. So there is a mechanism in there to safeguard what your concerns are. Q212 Mr Breed: In your evidence you say that the Government needs to develop specific policies to protect East Anglian farming. Could you say why and do you think that that is likely? Mr Place: I think it is really, sir, because of the employment which is provided and the asset to the rural economy in Norfolk that at the moment there are 150 members employing 1800 people and there are another 2000 people employed in the allied industries. That is quite a lot of people to lose. For instance, if it went to cereals that would mean we would only want 150 people. Q213 Mr Breed: How many people do you think have been lost in the dairy industry in the last two or three years? Mr Place: Yes. We are mainly arable crops, and in Norfolk the things which have kept employment up have been potatoes, vegetables and fruit. Those are the ones which require water, for which our members' licences are vital. Q214 Mr Breed: What I am saying is why should the Government develop specific policies for East Anglia? Do you think we ought to have specific policies for Somerset, specific policies for Lancashire? Mr Place: No, we would like to think that farming, instead of being at the bottom of the pile, the environment coming first, mains water coming next and farmers and other use at the bottom, we would like to think that there was a correct hierarchy in which farming was included and entitled to its share and not just the last on the list. Q215 Mr Breed: You say it ought to be given priority; do you think that priority ought to extend to drinking water for the rising population that is now living East Anglia? Mr Alston: They have a statutory right to have their water before farming. Q216 Mr Breed: If we are going to get into a situation where there is going to be pressure all the way round, you are suggesting that if they maintain their statutory position then, of course, you will get less? Mr Alston: You have to remember that East Anglia has reasonably flat fields, it has got nice sandy loamy soils, it is ideal for lifting root crops getting on reasonably late in the winter. There are not many places in the country where you can grow winter carrots. Norfolk is ideal for that. This is an easy decision. You stop irrigation in this country and move it somewhere else where it is less regulated. I think the difficult decision is to keep it here and come up with a sustainable future for both the habitats and the farmers. Q217 Mr Breed: We have as a Select Committee visited your area not so very long ago and we learned from one of the large salad crop growers that he was investing his money in south‑west Spain? Mr Alston: They have to. Q218 Mr Breed: Because the irrigation there was much better, the weather was better, and if only they could sort out the train transport, it would be far, far cheaper to grow there? Mr Alston: If that is who I think it is, they have a contract with Tesco to supply 365 days a year, and they have to supply. Our production in East Norfolk fits in with this area in southern Spain that supplies the whole of Northern Europe during the winter. Our crops finish harvesting towards the end of October/beginning of November when that Spanish crop starts, and then we start again. We started last week on baby-leaf lettuces in this country, and iceberg will come on in about ten days time. So you can see how the two production areas in the two parts of Europe fit together to produce a production conveyor belt of lettuces coming from the various farms. Q219 Mr Breed: Do you believe that the environmental and climatic conditions should drive the production of fresh fruit and salad crops or the supermarkets? Mr Alston: Market forces will drive the production of it. Q220 Mr Breed: Market forces will overcome the climatic problem? Mr Alston: They are the big driver in the market place. Q221 Mr Breed: They overcome the climatic problems? Mr Place: Yes, because if you take strawberries, for instance, the Spanish produce strawberries at Easter time until about May, when it gets really hot and strawberries are poor quality and they are over. This is where the English come in. So the Spanish strawberries provide the basis for the English crop, which incidentally is much more tasty, to come into England. So we have got the balance of the two. Q222 Mr Breed: I would dispute the fact that the supermarkets (a) should be the driver of this and (b) at the end of the day can be the driver of this, because the corollary of what you are saying is that the statutory people have their drinking water over there and you now need to ensure a secure supply and, indeed, maybe increase it, somebody else has to have less, and they get to a situation where out of those priorities, whatever those areas are, a decision will have to be made. Quite frankly, if people can be assured of their crops which will come from somewhere else that got a lot more water, sun and everything else, might that be the decision they ultimately decide? Mr Place: I think it is very important, sir, that we offer to the consumer in the UK food which is traceable to England, and if, as we say, the crops are better produced in East Anglia, certain crops, because of the soil's condition, then should we not say to the consumer, "Look, we can supply those crops." Why should we force them to go to Africa or Poland or wherever? Q223 Mr Breed: Maybe they would have to supply a smaller amount of that crop which may then secure a premium price because it has a better taste and probably a better colour, even if it is not particularly uniform, and the consumer ultimately begins to understand that there is a significant difference in the cost of the quality of the product rather than merely looking for the cheapest thing on the shelves which might come from all sorts of places. You are then adjusting your production to the natural elements of producing that in this country, as opposed to some people producing it elsewhere, rather than trying to ensure that you maintain, I think, totally unrealistic contractual arrangements with supermarkets? Mr Alston: So where would the supermarkets get their food from? Q224 Mr Breed: I said to Austin before we went out, and I am pursuing the matter at the moment, the fact that green beans are being grown in East Africa which is depriving villages of their drinking water so they can irrigate, so that we can have our nice small green beans grown out there, frankly, is a total nonsense, because we are now putting loads of money into development aid to try and give them the water which is being taken by the supermarkets to provide the beans that we are eating! Mr Alston: So because we are a wealthy country we can export our problem somewhere else? Q225 Mr Breed: No, because we have to recognise that, in fact, the one thing you cannot buck, it is not the market, but you are not going to buck nature in that sense, at least not for ever and a day, and what you are asking us to do is to say, "Of course, we cannot do that. We have got to maintain supermarkets which provides a bit of employment and everything else. At the end of the day we need the water better than somebody else"‑‑ Mr Place: I think we are saying, sir, that there is an opportunity here for you to react. We feel that because of climate change there will be more water in the winter. We know in East Anglia that we can draw surplus water off the rivers and the fens in the winter. We want to put it into reservoirs. By putting that water into the reservoirs we can relieve the pressure in the summer for the environment and the river flows can increase and be very helpful there on the fens. So here is an opportunity for you to help us to divert European funding, hopefully, rather than UK taxpayers' money, into providing reservoirs which will basically help the environment but also help us out of a squeeze of losing our water in the summer which is abstracted, as the gentleman said over here, Mr Drew, who has gone, he said it was a dirty word. Chairman: There is one thing we can do to address Mr Breed's understandable concerns, and that is to resurrect a proper regard for seasons: instead of having 52 weeks of the year, to recognise that there are things called seasons, and you can stretch them a bit at either end, as you have done with the strawberry season, and find some way of growing some of those beans under protection in East Anglia so that Mr Breed's people can have their water and there is not a problem. So there we are. Patrick, do you have a supplementary on this? Q226 Patrick Hall: Yes. Could I just see where you are coming from exactly? From the evidence there is a theme of drawing attention to the fact that, yes, there is climate change, which particularly includes reduced summer rainfall and where there is rainfall it is more intense and runs off quicker, combined with the regulatory and licensing regime. You the quote two things as possibly together leading to very serious problems. Be absolutely straight as you can: are you saying that the water quality, diversity issues, in the Water Framework Directive should be set aside, should not be followed by the parts of the country where there is particular pressure, particularly in East Anglia. Mr Alston: In East Anglia we have not really got a big issue on quality of the water coming down to the rivers. What we have got is the water is flowing through SSIs which have particular demands. We have 28 water‑related SSIs, so they have to have a certain flow of water through them to keep the habitats right. We are not allowed to impinge on that. If there is climate change and the water in the rivers drops, all of a sudden what is called Q95 of that river drops, there is no Q95 and we have not got any licenses. So we need some mechanism whereby we can guarantee to the supermarkets we can supply what they want, but at the same time not being shoved off part way through a season. Q227 Patrick Hall: Are you saying that if a push comes to a shove that the regulations should be ignored or in some way should not apply‑‑ Mr Alston: No. Q228 Patrick Hall: ‑‑to the East? Mr Alston: We would like some help - and I think the Environment Agency would like help - about how we move this whole subject of water resources forward in Broadland ‑ it is being driven by these 28 water‑related SSIs ‑ and how we protect them. Q229 Patrick Hall: Given what we said earlier about market being the driver, do you seek to influence the market and in particular the supermarkets, who are the biggest customers, in changing the way that the supermarkets tell us that the public want to shop? Mr Place: I fear not, sir. Q230 Patrick Hall: Have you sought to do that? Mr Place: I fear not. Our experience is that there is tremendous competition between each of the supermarkets for a share of their customer's business, and they will go to get what they can best supply. Q231 Patrick Hall: But if we are facing serious problems then everyone involved in it has to address various options? Mr Alston: We have tried talking to the processors about perhaps drought‑resistant potatoes, and they say, "They do not fry properly. They don't do this, they don't do that. We want that product", and you suddenly find you are growing a product that requires quite careful management in terms of water resources. Chairman: If you get stuck, I might inform the old allotment. Give us a call! Q232 Mr Liddell-Grainger: Abstraction licenses. You have partly answered this, but what proportion of permanent abstraction licences do you expect to be revoked? Mr Alston: Through review of‑‑ Q233 Mr Liddell-Grainger: Through review, yes. Mr Alston: This is the question we cannot get the answer out of the Agency. We have asked the question and we do not know. Through the charging consultation which finished a month ago there is obviously a big number of licenses that are under threat through that. If some of that compensation that could be payable to those people who lose licences could be paid in the form of 40% of the water storage reservoir, that answers another question, but at the moment I do not believe the consultation has in place that answer. Q234 Mr Liddell-Grainger: You have touched on the other point, which, of course, is the compensation. One of the questions, I suppose, is, first of all, should it be out of general taxation, or should it be out of a levy, or what should it be out of, because if compensation is going to be paid someone has to pay for it. If you are revoking licences who is going to pay for it? Mr Alston: We would like to see it coming out of general taxation. We do not see why the abstractors that are left abstracting should have to pay for the ones that are giving up. Mr Liddell-Grainger: Do you feel that because you have been taking water out ‑ to an extent what Colin was saying, except I do not include Africa in it ‑ you cannot be blamed for that. Is what you are saying, that they are taking water from Africa? Taking water generally. That is on the record. Chairman: I think these gentlemen are responding to a demand from their customers. You carry on. Q235 Mr Liddell-Grainger: Therefore, is it fair that it should be from general taxation? Should it not be from a levy raised against‑‑ Mr Alston: I think if you look at the problem from a different direction and use the compensation from winter storage reservoirs and solve the problem of the impingement on the SSI, or the perceived impingement, you then have not got a problem because that farmer is showing he is not having an effect on the SSI and has moved a proportion of all of his water to a winter storage reservoir. Mr Liddell-Grainger: I take the point on board? Chairman: Gentlemen, you have stimulated our thinking. Thank you very much for sharing your thoughts with us. As I say to all of our witnesses, if after you have reflected upon this there is anything else you want to put into writing, we are always very happy to have that. Can I thank you for the written material which you have put in and for fully answering our questions. Thank you very much for your contribution. |