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

Examination of Witnesses (Questions 1080 - 1099)



  Q1080  Mr Drew: What I am interested in is how you will allocate these monies. Now, presumably this is at a fairly stage, but will it be the same sort of approach that the Environment Agency currently takes to main river structural programmes which works according to a cost-benefit analysis so that you can prioritise schemes according to risk? Let us just pontificate a little bit on this because this is actually quite important to an area like mine. Clearly you have to balance those areas that have flooded against those areas that could flood, and it would be interesting to know how you work to that sort of prioritisation arrangement, but you also have the situation, as happens with main rivers, that there will be some areas that will never be entitled to a structural solution, but which might need some help in other ways, so how do you sort of tease out some of these complications? It is much easier with a main river where you have at least got one common feature, whereas here you have got a whole series of different flooding scenarios that could occur and which, with the best will in the world, are going to mean that resources are heavily over-demanded.

  Mr Woolas: My experience has been that this is one of the most difficult policy areas, how one prioritises this allocation of resources, and what we have tried to do is to put together, obviously with significant consultation, a series of criteria that are providing the taxpayer with the best value for money and providing the best fairness that we can across the people who may be affected. Obviously there is the scientific advice on what the risk of flooding is, the definitions that we have talked about, and then we go straight to the difficulties that you have already asked about in regards to surface-water flooding, and then there are the criteria themselves, the outcome measures, as we call them. There are 15 altogether and there are nine which are directly relevant here, and there is coastal defence as well which we have a similar process for. They are the economic benefits of providing protection, the number of households protected, the number of deprived households protected in order to ensure fairness, the natural environment, the important wildlife sites that could be affected and the biodiversity action plan habitats, so there are those criteria. Now, of course the economic benefit is of course the most subjective judgment because one has to balance different commercial activities as well as the value. In general, flood defences give good return to the taxpayer, about five to one, and that is not a bad return.

  Q1081  Chairman: The National Audit Office were critical of the inability of the Environment Agency to spend about £120 million bringing various existing flood defences up to a proper standard and from the analysis of the third column of monies that you have put forward entitled "Environment Agency resource maintenance operational costs", it did not seem that there was any of this catch-up money included in it, hence the NAO's conclusion. What did you think of what the NAO had to say?

  Mr Woolas: Well, obviously this is something that we have talked at length about with the Environment Agency. I thought that the audit assessment was a bit tough.

  Q1082  Chairman: What, the NAO's?

  Mr Woolas: Yes. I think that the Environment Agency, which is of course independent, their judgment of themselves is pretty harsh and we have been in discussion about that and I do not think the picture is, and I have checked some examples randomly myself so that I could speak to you and to the House with confidence on this point. On the other hand, the difficulty, and this is a point that I have made very, very strongly to the Agency, is that of course you only need one bit of a flood defence to fail for it all to fail, water behaving as it does. The amount of money that we have allocated for capital programme—

  Q1083  Chairman: Well, let us stick to maintenance and operational costs. We will come on to capital in a minute.

  Mr Woolas: Well, the maintenance and operational is gradually increasing, it is the highest we have ever had and it represents a sustained programme to increase the maintenance levels, but—

  Q1084  Chairman: But, if I can ask you a question, what do you think the current level of construction industry inflation is?

  Mr Woolas: Well, the current level of construction industry inflation over my timescales is something that these policy decisions will affect and, therefore—

  Q1085  Chairman: But do you know what it is?

  Mr Woolas: No, not off-hand. The last time I talked to the Construction Products Association, it was—

  Q1086  Chairman: Well, the Environment Agency gave us figures of anything up to 8 per cent per annum,

  Mr Woolas: Well, I met with the CPA about this and other matters and I think their estimate then, and that was just before Christmas, was 8.2 per cent. That was construction products, not construction, so there is a slight difference.

  Q1087  Chairman: The reason I asked that, Minister, is that, if you look at your figures, you are giving to the Environment Agency in the financial year that begins on 1 April this year an extra £4 million more than last year and the next year they get £7 million more than the year 2008/09 and then in the third year it goes up by plus £21 million. Given the pressure on maintaining the resources against the background where this Committee has received a legion of submissions about poorly maintained watercourses, flood defences, et cetera, and with the construction industry inflation running possibly up as high as 8 per cent, £4 million, £7 million and £21 million over a three-year period does not strike me as an adequate way of increasing the maintenance budget to actually look after what you have got against the kind of real-world pressures that are there, so we are going to go backwards on this.

  Mr Woolas: Well, no sensible economic policy in the world would try to second-guess sectoral inflation figures because, if you did, it would become a self-fulfilling prophecy, I would imagine, so I accept the reality of the pressure that you point out to me, but one cannot, I think, responsibly plan on that basis. In any event, the allocation of resources by the Department, given the scale of the monies that we are talking about, bearing in mind that the water industry's investments have to be taken into account and that their effect on construction inflation is important and that the scheduling of capital and maintenance works, just to come back to your stricture that we are talking about maintenance, does have a direct impact and, therefore, part of our calculation in the allocation of monies has to be borne in mind and of course that runs across to other areas of government expenditure, and one could look, for example, at school building programmes, the figures represent a sustained increase in the amount of maintenance and of course capital. I believe that the criteria that have been used by the Agency, and reported upon by the National Audit Office, do not represent the true picture. I believe that the Agency could provide you with evidence of that, I am not complacent about that, but the evidence from real-world events in the past period rather indicates that the maintenance levels have been adequate to do the job, and I am not aware of any evidence from last summer that that is not the case.

  Q1088  Chairman: Minister, let us be generous to your line of argument and let us say that we cut in half the backlog number which the NAO identified. The actual cash extra comes to £32 million across the CSR period, so you are not even doing half of half in terms of extra money to enable the EA to catch up with what the NAO says it is not doing because they obviously have got an awful lot of work to do, but they cannot do that which they should have done.

  Mr Woolas: I think the best is the enemy of the good and, if we were to take the criteria which have been put forward and say that we had to allocate resources to ensure that all of the flood defences in the country were up to the top level, as defined by the Agency criteria, I do not think that would be a responsible use of public money.

  Q1089  Chairman: Let us just lastly, while we are talking money, talk about the capital programme because, I have to say, Minister, in the way the Government has portrayed extra spending on flooding, you have capped very nicely on the 2010 figure of £800 million in total spending. We have analysed everything up to the capital spending and we see that the figures there go from £308 million at the beginning of the CSR to £400 million, so that is £92 million extra in annual expenditure over that period. How did you decide that these numbers were the right numbers? What was the process involved in determining what the capital programme should be?

  Mr Woolas: I could ask Martin to back me up, but just to set out the general picture that my predecessors and I and the secretaries of state followed on this, clearly this is a major area of climate change adaptation and the pressure upon us, and the submission to the Treasury reflected this, was not just to ensure that there are adequate defences for rainfall patterns that we have had up to date—

  Q1090  Chairman: But none of this capital includes any surface water additional expenditure, does it?

  Mr Woolas: Well, just to go further, we are trying to set ourselves up on a framework of 25 years to bring us up to speed, so the main policy lever or advice was the Foresight Report from the Chief Scientist.

  Q1091  Chairman: He said that you needed to spend £1 billion in total and you have only got to £800 million.

  Mr Woolas: He is a fine man.

  Q1092  Chairman: He is a fine man and he had fine conclusions. You would agree with that, would you not?

  Mr Woolas: I think it was a very, very influential report—

  Q1093  Chairman: So you are a couple of hundred million short already.

  Mr Woolas: I do not think that is fair.

  Q1094  Chairman: I know, but never mind! I have just got to make the point.

  Mr Woolas: I think we are moving towards Sir David's view, but the serious point is that, in allocating public resources, we are trying to take into account the feared future patterns as well. Again, I hope this is not point-scoring, but way back last June I was faced with a demand from the Association of British Insurers of £750 million and we got more than that, and I think that shows that our ambition was right.

  Q1095  Chairman: The ABI have vacillated. When Foresight came out, they endorsed the £1 billion and then, when £800 million came out, they said that was very good and then they issued a press release saying it was not enough, so they cannot quite make their minds up how much money ought to be spent. What I wanted to know was whether somebody sat down with a clean piece of paper and said, "If we have a look over a period, these are all the capital works that we might like to do, but we recognise we can't do them all, so this is where the cut-off comes". I am still not clear how you decide that, for example, £308 million is the right number for the capital programme for this coming year.

  Mr Woolas: Well, we did a zero-base review for the Comprehensive Spending Review in all matters and Martin was heavily involved.

  Q1096  Chairman: Well, come on, Mr Hurst, tell me why £308 million is the right number. It is a very precise figure, 308, not 309, not 307, but 308.

  Mr Woolas: It had to be a figure!

  Mr Hurst: There is of course no universally correct figure. What we did was we looked at a number of factors. One of the things we looked at was, as you said, the Foresight Report and the Foresight Report said that over 20 years we ought to achieve about £1 billion of spend in real terms, so actually that would require, by the end of 20 years, more than £1 billion in cash terms, so you cannot quite compare the two. The profile that we have here, particularly the third-year number, is being judged broadly in keeping with the Foresight recommendations in that it is on the trajectory to the £1 billion over 20 years in real terms, so that is the first thing we looked at, and that was very heavily influential in the zero-baseline review because, if you are starting from asking the question of what in the perfect world do you spend, you start from the best evidence you have got. In terms of the profile between years, there are two judgments. One is what the total settlement is obviously and what we should allocate to different parts of Defra, but the other thing is that we went through with the Agency a number of scenarios for the projects that they might or might not bring in over time. We are acutely aware that, if you bring projects in too early, you can generate the construction price inflation that you are trying to avoid. The other thing we are aware of is that many of these projects require detailed planning, contracting with procurers and, in some cases, planning permission, so it makes sense to have a profile that is rising over time. As I said, within that there is no unique answer, but the general profile is the one that best fits both the Foresight Report and the kind of profiling of projects that we and the Environment Agency thought was the most sensible.

  Q1097  Chairman: Minister, finally on the question of resources, your Department continues to be under a great deal of financial pressure, so are the figures which have now been quoted, if I can use the term, set in concrete? Are they ring-fenced from any further pressures on your Department's budget? In other words, is this area immune from further cuts?

  Mr Woolas: Yes, it is.

  Q1098  Mr Drew: A very simple question: when are we going to abolish riparian ownership? Are they fit for purpose?

  Mr Woolas: When are we going to abolish riparian ownership? That is a matter under consideration.

  Q1099  Mr Drew: That is a good answer! It is better than saying, "We're not going to abolish it"!

  Mr Woolas: It is true as well.

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