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


Examination of Witnesses (Questions 940 - 959)

MONDAY 4 FEBRUARY 2008

BARONESS YOUNG OF OLD SCONE, MR PHIL ROTHWELL AND MR DAVID ROOKE

  Q940  Mr Drew: You have correctly said we have identified the flood plain and actually got some sense into the way in which we treat the flood plain. The problem is, if you take the Severn Vale, which is earmarked for huge development, it is not as though we have a flood plain that we are either protecting or that the flood plain as such is so easy to define. The problem of the flood plain is not just the main river; it is all the tributaries and all the water flows that come into that flood plain and yet we are quite blasé. I was at a planning inquiry this morning and the idea that we have learned anything from the July floods—you would have to pinch me to understand what the people who were actually debating this had learned at all, because it was as though July had never occurred, that January, again, was something that was a minor problem, but whether that would affect anything in terms of the overall distribution of houses and jobs and so on is really something that I just think is left to the imagination.

  Baroness Young of Old Scone: Can I say that that, in my mind, reinforces the need for a very strong role for local authorities in holding the ring locally on this stuff because they hold the planning—

  Q941  Mr Drew: But they have not learned anything, Barbara.

  Baroness Young of Old Scone: I know but unless we get them responsible, David, if we are trying to do it from outside and we have none of the levers in our hands, it will not work. We have to get to the point where local authorities see what flood risk means and begin to operate PPS25. We are getting there in terms of gross development of flood plain and development of flood plain that will cause flood risk to other properties. One of the things we are going to do is start taking a much tougher line on the surface water provisions in PPS25 and simply objecting to development proposals that have not been able to demonstrate that the surface water issues have been properly thought through. So we can put a bit of pressure on local authorities but, at the end of the day, if we are really going to adapt to climate change, we have to get local authorities to the point where they understand, as much as they understand development and economic development and social issues, what climate change risks look like and they are building that into the things that they do.

  Q942  Mr Drew: Should you have a statutory responsibility to be able to object to a particular planning proposal that, if and when you go in there and say "This is a definite flood risk", the local authority only agrees to that at its own risk and is clearly liable for a decision that it took given that it ignored your pleadings? At the moment, as you know, too often the pleadings of the Environment Agency are ignored or are put in a box to say "hypothetical" and yet we saw in Gloucester brand new housing estates under water. Somebody should be held responsible for that.

  Baroness Young of Old Scone: The thing that I think we can go even further on is, as we have in the past objected to development proposals because there is not a proper flood risk assessment, we will increasingly object to development proposals if there is not a proper surface water risk assessment as well. Getting an understanding that developers and planners need to think about surface water is going to be part of what we will be doing. We now have tougher powers under PPS25 that if a local authority does decide to go against our advice, we can ask for the Secretary of State or ask the regional Government Office to ask the Secretary of State to call the proposition in. So we have more powers than we have ever had. Clearly, if there were wholesale planning applications going ahead against our advice, we would have to seriously ask the Government to review PPS25 but at the moment, on the issues of riverine flooding that is not the case. We are getting better understanding with local authorities, we are getting developers developing a better understanding of the need to have flood risk assessments and we have less major developments going ahead against our advice. We now need to replicate that on the surface water issues.

  Q943  Mr Drew: But you would accept that there is a degree of interconnectedness to this? You cannot just isolate river flooding to water run-off to all the other causes of flooding. The problem here is—and this is where people do get heartily sick of being told that their problems will be dealt with—it is because of the interconnectedness of these problems, and that is where, I have to say, all power to your elbow because you have to educate local authorities that this is a new world and they must not take the risk, even if it is a risk which looks to be relatively minor, because you have heard some of the previous interviewees when we were talking about critical infrastructure. It is all well and good to talk about a one in 100 year flood but a one in 100 year flood is becoming a twice a year flood now, and they have not really caught up with what that means in terms of the implications.

  Baroness Young of Old Scone: Certainly, as far as the infrastructure is concerned, I do not think we should just be looking at the inconvenience and disruption and economic impacts of things like roads and railways and power stations and water treatment works going offline. I think we have to start looking at the wider ramifications, particularly in the electricity distribution sector, where it is not necessarily the degree of risk or the frequency of an event occurring that is the issue. It is the fact that knocking out distribution to a very large number of people for a considerable period of time would have such huge ramifications right across everything that we do in life these days that it is really unthinkable to run that risk in any way.

  Q944  Dr Strang: I think that is a good cue to put it to you that we agree that there is a need for a substantial and ongoing increased programme of investment in this area. That is presumably common ground. We recognise, obviously, that you have a confused role in this but in terms of investment that is only part of it. We have—and you have these as well—the Secretary of State's statement today on allocations and projected outcome targets for this area, for flooding and coastal erosion risk management. Looking at these figures, let me put two observations to you. First, they do not seem to take into account likely increases in construction costs. These are cash figures we are looking at so in real terms, the real term impact on this investment programme may fall short of what the response should be to the recent flooding. The second point I would like to put to you is that the increases are in the last year; the major increases come in the last year of the CSR period, that is, 2009-10, 2010-11. What is your comment on these two observations, recognising that, at the end of the day, you can only spend what the Government gives you?

  Baroness Young of Old Scone: To take the last point first, if they had given us £200 million straight off, I think we would have had quite a lot of difficulty getting enough schemes in place to spend it effectively. You have to have a period when you are planning. We try not to bring too many schemes to a point where we are able to press the button on them, as it were, if we do not have the money to do that, because it means they sit on a shelf, they get out of date and all those things and it also raises hopes locally. A trajectory upwards is the right way. A steady increase year on year on year is what is best and we have had that with the last two spending rounds. We have had increases and we have got this increase and we do not think it should end there. We think the next spending round needs to give us more after that. Whether we could have lifted off faster, perhaps, but a trajectory up the way is the answer. In terms of inflation, there is no doubt that construction inflation runs ahead of general inflation. We have put about 5% into our programmes as an assumption for inflation costs. There is a view that we are probably in some instances running at about 6½% inflation costs, so though we have allowed for some inflation, that will probably run ahead and we are not clear what the inflationary impact will be of a very large number of schemes, like schemes for the Olympics, like the Thames super-sewer, like some of the big construction projects coming forward from the water industry. We do, however, in counterbalancing that inflation, have a commitment with Defra to deliver an efficiency programme each year, and we have been successful in delivering substantial efficiency in the way that we both plan and deliver capital schemes and maintenance in the Environment Agency in our flood risk management programmes, and I believe there is more to come. I do not think we are at the end of the road yet on that efficiency programme, which delivers about £15 million a year in improved efficiency, which will help counteract some of the impacts of inflation on the capital programme. We are now looking at a long-term investment strategy which would look 20 years forward, and certainly the best advice we are getting from external bodies who should know about these things, like Partnerships UK, is that if we can give longer-term certainty to the market and if we can clump some of our projects into much bigger deals, we will be able to drive even greater efficiency out of procurement processes. So there are ways in which we can try to mitigate some of the impacts of inflation but there is no doubt about it: it does bite.

  Q945  Dr Strang: I am assuming the construction costs and inflation figures you have mentioned there are basically Treasury figures.

  Baroness Young of Old Scone: They are figures taken from some of the external market commentators and also from our own experience with our schemes.

  Q946  Dr Strang: Finally, accepting that if you are given a lot of money quickly there is a limit to the extent to which you can wrap up this programme and make the most efficient use of additional resources but, looking at these figures again, is it fair to say that there is huge emphasis on capital? In terms of the actual maintenance expenditure, it does not look all that impressive. Is that fair?

  Baroness Young of Old Scone: One of the difficulties of the government accounting system is what you call capital and what you call resources, and in fact, many of the schemes that we have in our capital budget will contribute a considerable amount to improving the standard of our assets because they will be rehabilitating, rejuvenating assets and raising the quality for the future. So the capital programme is not just about completing new flood defence schemes; it is also about re-energising, refurbishing existing schemes, and that will also contribute to the standards of our assets. David may want to comment on exact numbers. About £64 million worth of the capital programme also contributes towards asset maintenance, so the figure that is in our budgets under maintenance per se is not a true reflection of the total amount that goes towards maintenance.

  Q947  Dr Strang: Is it part of your role to encourage local authorities to make sure that they come up to scratch at least in terms of these figures?

  Baroness Young of Old Scone: Where we have a joint piece of work with local authorities that involves assets that they are responsible for as well as assets that we are responsible for, we will of course be looking at how best to get investment into both sides of the equation, and certainly, on the work that we do in allocating flood risk management money to local authorities, we will be primarily looking at capital schemes rather than maintenance, which is very much for the local authority to make decisions about on the flood risk management systems that they have a responsibility for.

  Q948  Chairman: It all sounds very nice, this money that is coming along but are you not being a bit kind on the Government? For example, the ABI have vacillated a bit but they offer around the Foresight number of needing to spend at least £1 billion a year to achieve the level of flood defence which they, as insurers of risk, feel comfortable with. The nearest we get to that by 2010-2011 is a grand national total of £804 million. What I have never seen and I just wondered if in your quiet moments you have actually sat down as an agency and said "Look, let's just forget money for a minute. If we had a free hand and a blank piece of paper and we could do all the things that we thought we ought to do—we cannot protect everything but let's just have a root and branch whiz through the whole of flood protection—this is what we think we would like to do over, say, the next five years and 10 years?" Because you are quite right; these are long-term schemes. First, have you done such an exercise? Secondly, what did it cost?

  Baroness Young of Old Scone: We are involved at the moment in working up our long-term investment strategy. You can have different views about what a long-term investment strategy is. One is you could say you wanted to start and do the kind of thinking that you describe, which is, knowing what we know about flood risk, knowing what we know about climate change, knowing what we know about future development and all that, what is it going to cost to get everybody who needs to be protected to a certain standard protected to that standard, and proper maintenance and proper warning and all that? That is part of what a long-term investment strategy approach could be but, on the other hand, one could take the view that we will never reach a point where all of that investment is able to be afforded by the country. I think there is a big issue for the country as a whole, and that is, knowing what we know about climate change and the need to adapt to it, what is the level that can be afforded by the public purse?

  Q949  Chairman: You have to do that exercise now, which is why you have your current prioritisation scheme, because not everybody can have a slice of the action. So you are doing that now.

  Baroness Young of Old Scone: We focus on the highest priorities. Under the long-term investment strategy I think what we will end up with is a realistic view about what the level of funding might be over the next 20 years and how we best could spend it, the priorities within that and how best we can deliver that but it will be informed along the way by work on looking at what the need is for funding for the future over a 20-year period.

  Q950  Chairman: I am still uncomfortable that there are a lot of members of the public who would like to know candidly what the difference is between what you are doing now and what you think might need to be done, because the job of Ministers is to answer why they cannot necessarily have the gap between the two.

  Baroness Young of Old Scone: I was interested to hear that you said I was being kind on the Government. I have been accused of many things in the past but being kind on the Government is not one of them. Yes, we have pressed hard, as you are aware, for at least approaching the £1 billion a year investment mark, and I believe that that needs to happen in the next spending round but, beyond that, we want to have a look at this 20-year process.

  Q951  Chairman: What we have today is an announcement by the Secretary of State that he is going to provide £34.5 million to implement Sir Michael Pitt. Is that new money or has it been sliced out of the existing budget? Are you aware of that?

  Baroness Young of Old Scone: That is money out of the £200 million additional funding that the Prime Minister announced in the middle of the summer.

  Q952  Chairman: So you could say it is additional but a lot of people perhaps thought that was money that was going to go to the programmes that you and others were responsible for notwithstanding the extra things which Pitt has come up with. Anyway, thank you for clarifying that. Let us just have a look because I was intrigued; for the first time we have had presented by the Secretary of State a detailed table showing how the various amounts of money annually are made up, and I was interested to see on local authorities—and we put a lot of weight on what they were saying—we have roughly a level spend over the next three years of £87 million. That effectively means in real terms the local authorities' spending on flood alleviation is going to drop. Is that right?

  Baroness Young of Old Scone: If one took account of inflation but I hope the local authorities are also going to be delivering with increasing efficiency so that will offset the—

  Q953  Chairman: But what it means is that they are not able to increase the amount. They can hold steady, if they are lucky, in real terms their expenditure.

  Baroness Young of Old Scone: If they choose to increase, they can, of course, because this is only an estimate of local authorities' own spending. Many of them would choose to put money, for example, into our levy.

  Q954  Chairman: These are your words again. "This is only an estimate." So when we are looking at the global sums which the Government advertise, we have to put a health warning on that, for example, in the forthcoming financial year the £87 million that is down for local authorities is only an estimate.

  Baroness Young of Old Scone: It is for local authorities to decide what they are going to spend.

  Q955  Chairman: Let us move on to the next bit because the National Audit Office identified that you are short of about £150 million to bring all our flood defences up to target maintenance standard. So that is £150 million over this three-year period. Looking at the numbers that are identified, I am not seeing an increase over the CSR period of £150 million in the column headed "Environment Agency resource, maintenance and operational costs."

  Baroness Young of Old Scone: David Rooke will no doubt want to tell you what is in that £150 million. We are, as I said, doing some work at the moment to look at how best we can raise the quality of our assets over a period of years, which is in fact already proving successful in that more of our assets are in serviceable quality, and we have targets for the next three years to improve the serviceability of our assets, so the £150 million was an estimate some time ago.

  Mr Rooke: The £150 million was our estimate in discussions we had with the National Audit Office in terms of how much money would be needed to spend per year for a 10-year period, so it came to £1.5 billion altogether to get our asset systems up to their target condition. That does include some capital money within that £150 million. It is not just all resource money.

  Q956  Chairman: I understand that. It is not all resource money. If I look at the numbers that are down here, compared with the baseline figure for your resource, maintenance and operational costs, you get £4 million extra in the forthcoming financial year, you get another £7 million the next year and then you get another £21 million in the year after. Even if you carry on for 10 years, you are still not going to get your assets up to the right level. Something does not add up in the numbers here.

  Baroness Young of Old Scone: I think you have to take account of the fact that in the capital programme the improvement of defences, which is listed there because it is for new and improved defences; in many cases that improvement of defences will in fact be changing the quality of that asset markedly, taking it from being in poor or moderate condition up to being in good condition because we have refurbished it. So in fact the maintenance targets are hit not just from the maintenance funding but from the capital funding as well. You do have to bear in mind that we are talking about looking at a ten-year programme, which is one of the things that we want to look at in the long-term investment strategy.

  Q957  Chairman: It is all right talking about we are looking at a 10-year programme. That is the classic excuse: "I will not be here in 10 years' time so I will duck and weave." What we are looking at is, the Government have talked about a Comprehensive Spending Review and they have talked about spending money. Every time Ministers are asked, "We are spending more money," they say and the difference between where we are now and where they are going to be is roughly £200 million. I want to know really what that represents as real extra expenditure against a background that you lot are behind with the maintenance of your assets; the public expectation for action, as we have teased out during our discussions, rises with every passing period of heavy rain that they want to see some action; with Sir Michael Pitt having got at the moment an un-costed shopping list ,which looks huge in terms of what needs to be done, and so far he has had £34.5 million top-sliced off this budget against a background of level local authority expenditure where they may or may not spend that. In other words, this number, this big number that is being quoted in 2010-11, looks increasingly illusory in terms of actually providing real net extra expenditure on flood alleviation prospects.

  Baroness Young of Old Scone: I think we have to correct that one because it is real money and it will deliver real things. We will have protected 145,000 minimum more properties. We will have taken 45,000 properties that are vulnerable and at highest risk out of that category.

  Q958  Chairman: By the end of the CSR period?

  Baroness Young of Old Scone: By the end of the CSR period. We will have delivered a series of other targets that we are required to deliver through our flood risk management programme, including improving the standard of our assets. So there will be some very clear deliverables that you can say at the end of this three-year period that is what this money bought and it will be more than was bought in the previous three years.

  Q959  Chairman: I would hope it would do, because these are not inconsiderable sums of money in total, but in terms of meeting the anticipated "Now we need extra money," because everybody said, "We need extra money spending." What you have described are the projects that are in the pipeline. What I would like to see is a refinement of these numbers so that we can really have an understanding of just exactly what it is we are going to be able to buy, because I am not clear.

  Baroness Young of Old Scone: We can certainly give you the details of the outcome measures that we will be delivering from this money, i.e. the targets for number of houses protected and all that. What we will not be able to give you at this moment is absolutely every scheme that is going to be done over the next three years because the nature of the programme is not sufficiently flexible.


 
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