Examination of Witnesses (Questions 1080
- 1099)
WEDNESDAY 6 FEBRUARY 2008
MR PHIL
WOOLAS MP, MR
MARTIN HURST
AND MR
DAVID WRIGHT
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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