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Memorandum submitted by the Association Of British Insurers (ABI) (PBR08 002)

 

 

The Association of British Insurers (ABI) is the voice of the insurance and investment industry. Its members constitute over 90 per cent of the insurance market in the UK and 20 per cent across the EU. They control assets equivalent to a quarter of the UK's capital. They are the risk managers of the UK's economy and society. Through the ABI their voice is heard in government and in public debate on insurance, savings, and investment matters.

 
Summary

 

· The Pre-Budget Report (PBR) is a badly missed opportunity for the UK Government to stimulate the economy and protect more homes, businesses and infrastructure from climate risk.

 

· Spending plans on flood defences should be brought forward.

 

· Government failed to use the fiscal stimulus program to encourage the uptake of environmental friendly and climate resilient products.

 

· Government should introduce VAT exemptions for products that help to prevent or prepare for climate change.

 

Introduction

 

It is essential that through these tough economic times climate change remains at the top of the Government's agenda. We do not believe this was sufficiently reflected in the 2008 Pre-Budget Report.

 

The most immediate impact of climate change is the action of weather on our built environment, communities and infrastructure. The 2007 floods demonstrated the crippling impact extreme weather events can have on the economy. They are costly not only to insurers - the total bill to insurers for the 2007 floods amounted to approximately £3bn - but also to public services and small businesses.

 

The ABI is working closely with the Government to develop a long-term flood management strategy, which looks at funding needs 25-30 years ahead, and regional planning taking into account the likely impact of climate change in 50 and 100 years time.

 

 

 

 

Stimulating the economy by investing in climate resilience

 

1. The ABI calls on the Chancellor to use the PBR to bring forward spending plans on vital flood defences. Speeding up this spending would stimulate the economy and protect more homes from increasing flood risks.

2. The Chancellor's decision to bring forward just £20 million of expenditure, from the £850 million allocated, is a token gesture and a missed opportunity.

3. Following the devastating floods of 2007, the Government agreed to spend £1.5bn on flood defences between 2009 and 2011. By bringing that spending forward to 2009, the Government could help boost expenditure projects to the benefit of the wider economy.

4. Investing in flood risk management is much less complicated and cumbersome than other capital expenditure projects and it would allow the Government to quickly and efficiently inject a fiscal stimulus to the economy.

5. Our own research shows that investment in climate resilience is very cost effective. For example, flood defence expenditure in the UK has a cost-benefit ratio of 7:1. This is much higher than for other public sector capital investments.

6. Turning promises for tomorrow into action today on flood defences will enhance protection for households and businesses from the threat of flooding; is much less complex and contentious than other possible capital projects; and can be rolled out faster.

 

 

Stimulating the economy by increasing the uptake of climate resilient and environmental friendly products

 

7. Infrastructure, including housing, has a long legacy (around 1% of the housing stock turns over each year) so we need to build houses that are sufficiently energy efficient and climate resilient. We also need to retrofit the existing building stock and infrastructure to withstand more extreme weather events.

 

8. To incentivise the use of resilient and energy efficient materials there should be a VAT exemption on these products.

 

9. Carefully targeted fiscal incentives could boost the uptake of these products and measures. The increased domestic demand for climate friendly and resilient products would enable UK business to become world leaders in adaptation and mitigation technologies.

 

10. Insurers are also playing their part and some companies are encouraging the purchase of environmentally friendly cars through lower premiums or repairing homes in a flood resilient way.

 

January 2008