Funding
124. The draft Bill's summary 'Impact Assessment'
(IA) estimates an overall net present value (NPV) net benefit
of £5.12 billion.[190]
This figure should be treated with some caution because not all
of the potential monetary costs and benefits within the individual
Impact Assessments have been quantified. In addition, the IAs
provide little detail on the variations in the cost and benefit
ranges and rarely explain why a particular figure from within
the Evidence Base has been used as the 'best estimate'.[191]
125. Excluding the costs, the overall present value
benefit of the measures in the draft Bill comes to £8.55
billion. More than four-fifths of that benefit is derived from
the estimated savings from the reduced cost of potential future
flooding over the next 43 years. The measures associated with
Local Flood Risk Management account for £4.3 billion (84%)
of the total NPV net benefit figure. However, this figure is the
upper (most favourable) limit of the NPV 'best estimate' net benefit
range provided in the IA: the lower limit is £800 million.
If the lower figure were used, the overall NPV net benefit of
the draft Bill would be approximately £1.5 billion. The figures
are based on two distinct scenarios from the Government's 2004
Foresight study—a 'Local Stewardship' scenario and
a 'World Markets' scenario.[192]
The 2004 Foresight study was published in a time of relative
economic prosperity, prior to the publication of a large range
of work on climate change (for example the Stern Report and the
Climate Change Act 2008), and also prior to the widespread flooding
in England in 2007. Yet the IA appears to take little account
of the implications of these publications and events, nor the
current and future economic situation. Therefore, there is uncertainty
surrounding the likelihood, extent, and impact of future flooding,
and the benefits of reduced flooding are subject to unknown future
environmental and socio-economic conditions.
126. When we put this to Defra, they considered that
developments since 2004 "suggest that, if anything, benefits
of investment and risk management activity—in terms of avoiding
or reducing the costs of future flood events—could be even
higher than those set out in the IAs.[193]
The recently published, more pessimistic, UK Climate Projections
also bear that out.[194]
Mr Hewitt told us that the Foresight work is now looking
"somewhat conservative".[195]
127. The IAs identify a net benefit for local authorities
from the transfer of responsibility for maintenance of private
sewers to sewerage companies.[196]
The consultation document contends that funds released by that
transfer and the savings from reduced costs of future floods will
"more than cover" the additional costs to local authorities.[197]
The LGA took issue with this assertion, telling us that the position
would differ between individual authorities, and that they doubted
the calculations:
The draft Bill states (p 212) that "From April
2011, local authorities are expected to benefit substantially
from savings arising from the transfer of private sewers to the
sewerage companies". [Local] authorities advise that the
costs involved in managing private sewers are not always significant,
indeed some local authorities have very few if any private sewers.[198]
… we have serious concerns over the financing
of the [local authority] lead role. Insufficient work has been
undertaken by any of the organisations involved in flood risk
management to be certain of the costs involved.[199]
Generally, the draft Bill does not acknowledge either
the initial costs for local authorities of taking on additional
responsibilities or some of the long term costs. To suggest that
the leadership role will be cost neutral is extremely unrealistic,
when it is clear that local authorities will be taking on significant
new burdens, including the need to expand existing teams, set
up and administer strategic partnerships and undertake skills
and training to meet co-ordination roles.[200]
128. The LGA argued that reduced additional expenditure
was not the same as reduced expenditure. The benefits implied
by the impact assessments for local flood risk management are
based on extra expenditures after a flood but at a lower level
than would otherwise be the case. The LGA told us:
[Local] authorities see very few savings in the proposals.
Those that exist are saved in Districts and incurred in Counties.
What are mainly cited as savings are from a budget perspective,
namely cost avoidance rather than cost-savings. Councils do not
budget for the sort of clear-ups that have occurred after recent
floods. Other things do not get done—apart from some contingency
money. The reality is that individual householders—whether
consumers, council tax payers or tax payers—will incur more
expenditure.[201]
129. Overall, the LGA wanted to see a much clearer
evidence base for the presumed cost savings for local authorities
in managing local flood risk.[202]
We therefore sought assurances from Defra on the financial impact
for local authorities. The Department told us that Local flood
risk management costs for local authorities were £27m for
the three years to 2010-11, plus £42m in 2011-12 which was
assumed to be the first year that all 150 county and unitary authorities
will take on the local leadership role. The higher cost in 2011-12
would be met by a combination of: ongoing spend, benefits to local
authorities from better national and local flood risk management,
and the savings to authorities from the transfer of private sewers.[203]
130. The Department's "conservative estimate"
is that local authorities in England will between them save £50m
a year at today's prices as a result of the transfer of responsibility
for private sewers to the water and sewerage companies. Defra
told us that:
Savings to local authorities in the early years from
better flood risk management are assumed to be relatively modest.
…In the longer-term it is assumed that overall benefits equivalent
to around two-thirds of local authorities' own investment will
be recouped within three years through fewer and less severe flooding
incidents occurring than otherwise would be the case. …Proposals
are being taken forward through the Settlement Working Group to
correctly account for these savings within the local government
finance system and make sure, as far as possible, that funds are
provided to local authorities in accordance with their relative
need, to fulfil the new roles proposed.[204]
131. The Department expects the savings from private
sewers adoption and better local flood risk management to fully
offset the costs of new local authority activity through to around
2020. At which time, the Department told us, the increasing costs
of maintaining SUDS might exceed the savings and existing expenditure
because of the number of new properties being constructed with
SUDS. However, because homes _benefiting from SUDS will be able
to opt out of water company surface water charges, Defra told
us it was considering options to fund the maintenance of SUDS
by raising an equivalent charge on those householders_benefiting.[205]
Defra told us that overall:
The Government is committed to ensuring that all
new burdens falling on local authorities are fully and properly
funded. Any policy which increases the cost of providing local
authority services is subject to the new burdens doctrine and,
where appropriate, funding is provided through the formula grant
system or through specific grants. The costs and benefits of the
Bill will be kept under review as policy and implementation develops.[206]
132. It is questionable whether local authorities
will need, or be able to spend, the sums allocated for flood risk
management. Defra explained that ultimately expenditure on flood
risk management is discretionary and a matter for local authority
prioritisation. Defra's role was to ensure that unfunded new burdens
and expectations are not placed on local authorities, as set out
in the Government's new burdens doctrine that seeks to avoid pressure
being put on council tax bills. Defra told us that in the early
years of the next Spending Review period (2011-14), the current
new burdens assessment shows an initial £20m annual saving
to local authorities overall, and annual costs would have to rise
by £20m or annual benefits fall by £20m before burdens
become unfunded.[207]
Mr Hurst noted that local authorities had spent more than the
sums allocated from central government for flood risk management
work, by "putting their own money forward".[208]
However, local authorities recognise that, with public expenditure
being under pressure over the next few years as a result of the
current financial crisis, their flood risk management budgets
will be under pressure from competing priorities.[209]
133. Defra acknowledged the variability of the estimates
in the IAs.[210] The
department argued that the estimate attached to the most likely
outcome had been used.[211]
Before legislation is introduced into Parliament, Defra's Chief
Economist will conduct a further internal peer review of the Impact
Assessments, which will also be scrutinised by the Treasury and
the Better Regulation Executive.[212]
The Minister told us that he recognised that the evidence base
needed further development and that the final Bill and its Impact
Assessment would benefit from further information gained from
the responses to the consultation.[213]
134. The provisions
in this legislation can only be justified if the calculations
in the impact assessments produce an overall net financial benefit.
Despite Defra's assurances, we remain concerned that the impact
assessments are insufficiently precise and provide meagre evidence
to support their cost and benefit calculations. We note that Defra
intends to do further work on the impact assessments—that
is essential. Parliament will expect that, when the Bill is introduced,
its accompanying impact assessments provide a clear, accurate
exposition of the costs and benefits and how the funding will
work, particularly in relation to the new roles and responsibilities
for local authorities.
135. We are
not convinced that local authorities will benefit from the transfer
of sewers to the degree anticipated in the impact assessments.
There remains some uncertainty about the costs of adopting and
maintaining SUDS—until these questions are answered doubts
remain about the impact assessments' robustness.
Skills
136. The Environmental Industries Commission and
the Association of Drainage Authorities expressed concern that
local authorities lacked the necessary expert staff to fulfil
their local leadership role.[214]
The Local Government Association (LGA) also had "serious
concerns" about current and future skills gaps, even with
more collaborative working between local authorities and public
and private sector partners.[215]
A joint LGA and Defra survey of all local authorities in England
found serious gaps in planning and engineering capacity, with
more than a quarter of authorities finding it difficult to attract
suitably qualified or experienced staff.[216]
The Institution of Civil Engineers reported in 2008 that local
authorities and the Environment Agency may not be able to offer
the remuneration to recruit and retain the numbers of staff required.[217]
Similarly, Severn Trent Water doubted local authorities have the
"required resources, skills and experience to operate effectively
from the outset".[218]
137. Sir Michael Pitt, when giving evidence on the
implementation of his review's recommendations, noted the potential
skills gap and envisaged local authorities commissioning work
externally.[219]
138. Defra have been working with the Local Government
Association to assess the capacity and expertise of local authorities
to undertake their flood risk management role.[220]
On 8 June, the Department announced that, from autumn 2009,
it would be funding local authority staff participating in the
Environment Agency's foundation degree programme; and that, together
with other stakeholders, the department was developing apprenticeships
to start in autumn 2010.[221]
139. We welcome
the Government's announcement of funding to improve local authorities'
skills. In its response to this report, Defra should provide an
estimate of how many local authority staff will benefit from the
additional funding; and how long it will take before local authorities
have sufficient numbers of appropriately trained and qualified
staff.
190 Draft Flood and Water Management Bill, Cm
7582, April 2009,cConsultation document p 8. Back
191
Ev 107 Back
192
These are the two scenarios from the study with the lowest and
highest future flood damages. The Local Stewardship scenario is
characterised by lower growth, moderate to low emissions and high
intervention and lower flood risk. World Markets reflects high
growth and housing development which more recently is looking
less likely at least in the short term with a downturn in the
economy. Back
193
Ev 108 Back
194
Defra, Adapting to Climate Change: UK Climate Projections,
June 2009. Back
195
Q 296 Back
196
The Impact Assessment on the transfer of private sewers and lateral
drains to statutory water and sewerage companies. http://www.defra.gov.uk/environment/water/industry/sewers/pdf/impact-assessment-private-sewers.pdf Back
197
Defra, Draft Flood and Water Management Bill, Cm 7582,
April 2009, consultation document, p 48, para 213. Back
198
Ev 167 Back
199
Ev 163 Back
200
Ev 166 Back
201
Ev 166 Back
202
Ev 166 Back
203
Ev 111 Back
204
Ev 112 Back
205
Ev 113 Back
206
Ev 108 Back
207
Ev 113 Back
208
Q317 Back
209
Qq 253-255 Back
210
For example, in the summary Impact Assessment phrases such as
"cost estimates could be made more robust" and "no
quantification has been attempted of the consequences or implications
of some change" are commonly used. Back
211
Ev 107 Back
212
Ev 107 Back
213
Q 292 Back
214
Evs 137, 173 Back
215
Ev 163 Back
216
Ev 166 Back
217
Ev 144 Back
218
Ev 43 Back
219
Q 34, HC 245-i Back
220
Ev 119 Back
221
Ev 119 Back
